Ladies and gentlemen, thank you for standing by. Welcome to the SEI Second Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I'd like now to turn the conference over to our host, Mr. Alex Whitelam, Director of Investor Relations. Please go ahead..

Thank you, and welcome, everyone. I'm excited to join the team here at SEI and look forward to working with you all. We appreciate you joining us today for our second quarter 2023 earnings call.

On the call, we have Ryan Hicke, SEI's Chief Executive Officer; Dennis McGonigle, Chief Financial Officer; and leaders of our business segments, Wayne Withrow, Paul Klauder, Jay Cipriano, Phil McCabe and Sanjay Sharma.

Before we again, I'd like to point out that our earnings press release can be found under the Investor Relations section of our website at seic.com. This call is being webcast live, and a replay will be available on the Events and Webcast page of our website.

We would like to remind you that during today's presentation and in our responses to your questions, we have and will make certain forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially.

Please refer to our notices regarding forward-looking statements that appear in today's earnings press release and in our filings with the Securities and Exchange Commission. We do not undertake to update any of our forward-looking statements. With that, I'll turn the call over to our CEO, Ryan Hicke.

Ryan?.

revenues in the second quarter were $489 million, up 2% from a year ago. Net income for the quarter was $119 million, a 7% increase compared to last year's second quarter. EPS was $0.89, up 10% from the $0.81 reported in the same period last year. Dennis will provide more details on our results shortly.

In the quarter, we repurchased 1.3 million shares of SEI stock at an average price of $58.56 per share. That translates into $75.5 million of stock purchases. We also declared and paid a semiannual dividend of $0.43 per share. The sales momentum we saw earlier in the year continued through the second quarter.

Our focus on proactively engaging with current clients, expanding our pipeline and connecting resources across the enterprise to identify and execute against cross-selling opportunities are translating into more wins for our sales teams. Net sales events totaled $29.3 million, $23.6 million of which were net recurring.

This represents a 24% increase over the net recurring number we reported in the first quarter this year. While markets have improved recently, we remain vigilant on growing our profits, prudently deploying capital and delivering at a high level for our clients. With that, let me turn to our business lines.

The Investment Managers segment had another solid quarter. We successfully converted several new clients and funds while growing profits. We also recontracted multiple clients and converted our backlog, implementing a number of large accounts during the quarter. Dennis will provide further detail on this in just a moment.

Our teams are cultivating strategic relationships and driving growth for our clients. During the quarter, we won new accounts in the global, traditional and alternative segments. In alternatives, our largest clients continue to expand in the private credit, private equity, real estate and infrastructure markets.

In the quarter, we onboarded a private equity firm previously using in-house administration and two private credit firms. One is a competitive takeaway and another through a competitive bid process. We also signed a large cross-sell PE Access platform client, which was also a competitive takeaway.

The traditional business in IMS had a very strong quarter. We added new business in all product lines across more than 40 investment managers. In particular, our business expansion in both our turnkey collective investment trust and ETF solutions continue to be strong.

We're also pleased to announce that we recorded our first SEI Wealth Platform sale to an existing client in this unit. Finally, we completed a large transfer agency conversion, adding more than 1,700 institutional accounts and successfully partnered with a renowned global asset manager to utilize our CIT platform.

This highlights the breadth of our capabilities and the expanding reach on our global scale. Next, private banking had another active quarter signing three new deals and recontracting four clients. We also successfully implemented three clients on the SEI Wealth Platform during the quarter.

We’re making significant strides on the technology front including the SEI data cloud. Our cloud solutions are generating growing interest with both existing clients and new prospects. We also continue to make headway in converting clients from TRUST 3000 to SWP.

During the quarter, we successfully migrated more than 35,000 accounts and approximately $120 billion in assets for one of our larger banking clients. Sanjay and the team continue to capitalize on our pipeline, prudently manage expenses, and drive that growth to the bottom line.

We still have some previously announced events to absorb in coming quarters, but we are confident in our current strategy to grow both revenues and profits. Turning to our Investment Advisors business. We completed the integration of our North American based intermediary businesses during the quarter.

We believe our intermediary business is better positioned to accelerate growth across each of its channels with this realignment. We’re seeing early signs of that growth already especially in the RIA channel in which we experience accelerated positive net cash flow during the quarter.

Our technology, investment processing, and asset management capabilities allow us to meet our clients where they want to be met and provide a holistic solution that is unmatched in the market. In the Institutional Investors segment, we secured wins with our outsourcing capabilities across the full spectrum of our offerings.

Additionally, existing clients continue to consume our expanded suite of products. Corporate defined benefit curtailments and annuitization continue to be headwinds in the UK and U.S. and were the driving factors for the quarter’s financial results.

We continue to mitigate the DB headwinds though through improved cross-sales and lead generation for other SEI services in our private wealth management business as well as expansion in other institutional markets. Additionally, we recently announced our agreement to acquire National Pension Trust pending regulatory approval.

NPT is a leading master trust in the UK serving more than 60,000 members. NPT is our second master trust acquisition following the purchase of Atlas in 2021. As we’ve mentioned, we built a corporate development team last year with a focus on developing, executing, and integrating our strategic transactions to accelerate growth.

The NPT acquisition demonstrates our commitment to this strategic priority as well as our commitment to the UK market. Turning to our Investments in New Business segment. SEI Sphere had a positive quarter adding a new credit union client and successfully migrating its first client to the cloud. And our partnership with LSV remains very strong.

On the talent and culture front, We expanded our executive leadership team with the addition of Sneha Shah who will lead new business ventures and will be a future participant on our earnings calls. We are excited to have Sneha join the team as she brings a wealth of knowledge and experience.

Throughout her career, Sneha has led growth initiatives at leading international firms where she created and scaled new businesses at the intersection of data, artificial intelligence, and technology.

Sneha’s hire also highlights the fact that with our existing growth engines positioned for success, it is now time for us to increase our attention and devote additional resources to new businesses and platforms.

Sneha will be focused on identifying and incubating those businesses, including SEI Sphere that we believe will build upon SEI’s foundation for future growth and contribute to our corporate revenue goals. It also evidences our commitment to infusing in external talent into the company and our ability to attract that talent.

On the cultural front, we also made strategic investments in building SEI’s brand awareness and our community engagement initiatives. These investments will help amplify SEI’s message, drive employee engagement, and elevate our core values. This concludes my prepared remarks.

I will now turn it over to Dennis to discuss our financial results for the quarter.

Dennis?.

Thanks, Ryan. As Ryan mentioned, EPS for the quarter was $0.89 per share. This compares to $0.81 during the second quarter of 2022 and $0.79 for the first quarter of 2023. Revenue for the quarter was $489 million compared to $482 million in 2022 and $469 million in the first quarter.

Total expenses for the quarter were $376 million, which compares to $366 million last year and $367 million in the first quarter. On the sales front, in our technology and investment processing businesses of private banking and IMS, net sales events totaled $31.1 million and are expected to generate $25.4 million in recurring revenue.

In our asset management related businesses, net sales were approximately negative $1.9 million. Sales from our newer initiatives were slightly positive. Total net sales were $29.3 million, of which $23.6 million is recurring. Private banking sales were $7.4 million in net recurring or of which $4 million is net recurring.

This reflects three new [indiscernible] sales. We re-contracted four clients during the quarter representing $15.2 million in annual recurring revenue. The private banking segment’s focus on the regional and community bank segment, along with the PCIM segment in the UK is paying off.

During the quarter, we were active with backlog delivery and conversion activities, including implementing Waverton Investment Management, which helps to further strengthen our PCIM solution for the UK market. We also completed additional business migrations for U.S.

Bank, which helps to solidify our SWP SaaS solution, including the conversion of their acquired Union Bank business onto SEI platforms. The current backlog of sold, but expected to be installed revenue in the next 18 months is $36.6 million.

During the second quarter, two client installations that were scheduled to occur were delayed to later in the year by the clients. We are ready technologically and operationally when the clients say go. Based on current schedules, we expect approximately 60% of the current backlog to convert by the end of the year.

The banking segment revenues benefited from a $10.5 million one-time fee related to the U.S. Bank Union Bank consolidation. Asset management revenues in private banking were up slightly during the quarter benefiting from market appreciation. Expenses in the quarter were up slightly from the first quarter of 2023, primarily from one-time items.

On the IMS front, net sales for the quarter were $23.7 million, $21.4 million is recurring. During the quarter, we re-contracted four clients totaling $30.7 million in annual recurring revenue. Revenue for the quarter was up compared to first quarter reflecting the impact of client installations and capital markets.

Expenses were up slightly from the first quarter as we continue to invest in talent and capabilities to support our growth, our backlog of sold but expected to install in the next 18 months, recurring revenue is $32.1 million. For investment advisors, net cash flow onto our platforms was essentially flat.

We experienced increased flows into our newer strategic asset management and platform only programs and negative flows from our more mature mutual fund products. The adoption of our AUA platform only program, which leverages our technology, administration and custody capabilities continues to show increased momentum.

Our newer offerings are helping us move the business forward, providing more choice to our clients and helping us offset the movement of assets out of mutual funds and the associated revenue impact. Revenues for the quarter were up from first quarter as a result of improved capital markets. Expenses were up slightly due to asset appreciation.

We recruited 68 new advisors during the quarter, 10 of which are in the newer RIA channel. In the Institutional Investors segment net sales events for the quarter were slightly positive. The unfunded client backlog of gross sales at quarter end was $2.2 billion.

Revenues for the quarter were up slightly from first quarter due to capital market activity and net client fundings. Expenses were up $4.6 million, $4.5 million of which represents a one-time charge related to a client reimbursement. This expense item is recorded in facilities, supplies and other costs on our income statement.

Without this expense, expenses were roughly flat for the quarter. In the Investments in New Business segment revenues were flat and expenses down slightly compared to first quarter. We expect expenses in this segment while shifting to and supporting new initiatives to remain in this range.

In addition to the segments, the company also incurred a $2.5 million expense reflected in the consulting outsourcing a professional fees line item on our income statement for a strategic growth project that was completed in the quarter. This will not repeat.

LSV produced $32.7 million in profit during the quarter this compares to $28.9 million during the first quarter. Revenues for LSV were $108.8 million compared to $98.2 million in the first quarter. Second quarter revenues included $12.7 million of performance fees. As a reminder, LSV recorded performance fees of $2.5 million during the first quarter.

Performance fees are a reflection of continued positive relative performance at LSV. Core revenue growth is a result of investment performance and capital growth in assets offset by net negative client flows. One final item. As Ryan mentioned on July 13, 2023, we entered into an agreement to acquire the National Pensions Trust.

The transaction is expected to close before year end subject to applicable regulatory approval. I point you to a recent press release for more information. Our tax rate for the quarter was 23.4%. This higher rate is due to a reduced level of option exercises and the related tax timing difference benefit.

You can expect our tax rate to be in this range during 2023 was a slight step down in the fourth quarter. That concludes my remarks. As a reminder, all of our unit heads are on the call and we will now take any questions..

[Operator Instructions] And our first question is from Ryan Kenny of Morgan Stanley. Your line is now open..

Hi, good afternoon. Thanks for taking my question..

Hey, Ryan..

Private banks pretext margin came in at 13%, but if we strip out the one-time fee of $10.5 million, you get to around 6%.

So I just want to understand were there any expenses associated with that one-time transition? And can you update us just in general on the timing of pre-tax margin expansion expectations going forward for the Private Bank segment? Thanks..

Sure. I’ll answer the first part and then turnover to Sanjay to kind of speak to the progression of the business. On the first part, that $2.5 million consulting fee was in that segment that I mentioned. And also there were some costs working because there’s work involved in converting that client.

So that conversion is behind us and that certainly would help. But we’ll – the cost won’t go away because we’ll redeploy those resources against all the other future implementations and conversion activity we have.

But Sanjay do you want to address kind of how the – how you see margins or the business progressing from here?.

Sure. Hey Ryan, how are you? So in terms of the margin improvement as Ryan has called out the last three plus quarters or so, our strategy has been very consistent.

We came up with, okay, these are the three, four focus areas where we are going to focus on client engagement, recontracting work with our existing clients, so that we can solidify our base, backlog delivery and then of course the focus – a very focused approach in terms of how we go-to-market in a targeted segment and then of course the margin management.

So you would see that this is how we are staying focused and expense management has been a key delivery item here as well. So this is how we are targeting. And so I would say that we will stay focused and the margin management will be a key priority..

Thanks.

And then at the company level is the One SEI initiative still impacting results at all or is that out of the run rate?.

I would say that we’ve kind of – well, we’ve moved off that terminology and there’s really not cost in the P&Ls any longer associated directly with One SEI. There is some technology work that probably would’ve been under that umbrella particularly as we worked through a couple client convergence and client onboarding activities.

But there’s nothing distinct – no distinct expense in our P&L any longer related to One SEI, Ryan..

Thank you..

You’re welcome..

The next question is from Jeff Schmitt of William Blair. Your line is now open..

Hi. Thank you. You continue to make good inroads with SWP.

What is the mix of SWP versus TRUST 3000 business in that, in the Private Bank segment today? And what type of revenue bump do you typically get in, in one of those conversions?.

So our go-to-market strategy has been that we are leading with SWP. TRUST 3000 and new sales is more for existing clients to support their initiatives. We are not going to market with the new sales as such with the TRUST 3000.

And as far as SWP is concerned, we have been very focused in terms of like for example, in UK market, our focus is PCIMs and IFC segments. In U.S.

market, we are focusing on Regional Community segment with a very specific go-to-market strategy there through our technology, operations and asset management and a similar kind of strategy for our Jumbos and Giant segment..

And Jeff, this is Ryan. I think the other kind of extension to your question is when we’re going to that market, especially in that regional community bank space Sanjay and the team, we certainly expect and we are positioning certainly a premium from a cost perspective and a revenue perspective.

But one thing that has certainly changed over the last 12 to 15 months is we’re also thinking outside of those lanes in terms of other enterprise capabilities that we can bring to bear across those segments. So whether that be SEI Sphere, whether that be more asset management capabilities more focused on the alternative space.

So on a like for like basis, if somebody is just moving investment processing, we certainly would expect a premium.

What is more interesting to us is the firms that seem to really be gravitating towards Sanjay and the team in that segment have really clear growth agendas across their entire wealth management landscape and more of our capabilities are definitely resonating there..

And Ryan, if I could add further to this. We are also looking at multiple operating models, and traditionally we were focused for SWP for business models outsourcing to SEI. But with the U.S. bank implementation, we have matured significantly in software, the service model as well. So SWP go-to-market strategy is now another operating model..

Okay. Okay, that’s helpful. And then looking at the overall operating margin I think it was 23% versus sort of mid to high-20s historically. It appears just wage and service inflation continued to drive some of that weakness.

Those have come down in the economy, but I was just curious what those are running at both of those items for you internally?.

We're not seeing the same level of wage inflation that we saw in 2021, 2022 this year. And as part of our kind of focus on expenses, we're also been very, I'd say, diligent in our hiring practices and our onboarding of talent. That being said, we want to make sure that we are competitive in our markets for talent.

So compensation is a key element of maintaining that competitiveness. I think the attractiveness of working for SEI goes beyond that element of competitiveness to our growth orientation and the type of company we are and our culture.

But we are still – yes, so wage market competitiveness is still there, but it's definitely cooled off from the past couple of years.

So as we get top line growth, particularly as our asset management businesses continue to show top line growth with markets in a better position today than they were coming into the year, a lot of our margin deterioration was really asset management revenues flowing out, which is high-margin revenue and the ability for – and as that starts to come back in with what we expect to see higher net cash flow activity, that will go a long way to move in the margins back up..

Okay. That makes sense. Thank you for the answers..

The next question is from Owen Lau of Oppenheimer. Your line is now open..

Good afternoon and thank you for taking my questions. So Ryan, you just mentioned – you mentioned you just hiring new business ventures. Could you please add more color about your vision in these ventures and how you expect this venture can help SEI longer term? Thanks..

Yes, Owen, great to hear from you. I hope you're doing well. So the hire of Sneha was something that we had laid out as a part of the growth strategy about 12 months ago in terms of focusing more on, I'd say kind of three things if you think about how SEI is structured today.

Today, we have a couple of new businesses in SEI Sphere, SEI Ventures, SEI Atlas. And we wanted to put more structure in place, more leadership in place in terms of really thinking about how do we incubate and scale those businesses to drive business growth. But I think the second and third is really creating a system inside of SEI.

We really want to promote a culture where we think of the workforce is 4,900 entrepreneurs. And how are we facilitating and fostering that culture. So we're generating ideas from grassroots level and putting a system in place to identify those ideas, cultivate them, see if we can get more things out into market.

Kill those ideas, if they don't have legs, but then be able to scale things, it looks like they have momentum.

But also expand that thought process outside our role because one of the things we're really starting to see with such a significant increase in client engagement and market engagement in the last 18 months, we're starting to see some interesting partnership opportunities with our clients, with our partners.

So Sneha really had a terrific track record and doing these sorts of things will be a wonderful cultural addition to the executive committee, and we'll really put a system in place, Owen, for us to say when we think about the future of SEI, how are we going to identify that fifth engine, that sixth engine from an organic perspective alongside what we're doing on the corporate development side with M&A.

I just think we're in a position right now where we really can start pivoting and getting focused on new business additions and engines because we feel confident that we've got some really great momentum in our current core businesses..

Got it. That’s helpful. And then you had an – a consulting engagement, I think it was related to outsourcing that end – the second quarter. Could you please talk about what you have learned from that engagement and then its $30 million a good runway going forward for the overhead expense? Thank you..

Answer the second question is, yes. That’s a good target and I’ll – the work that we did with the outside consulting firm kind of had two elements to it and I think it’s probably best to have Sanjay answer since it – the key focus was on our banking business. And then Ryan, maybe you want to comment on kind of the broader aspects of the….

Yes. I can start first and then turn to Sanjay.

So Owen, I think we may have mentioned this in the call last summer, but one of the very first things we did across leadership at SEI last summer, which was sales solutions product operational technology leaders is we stepped back and we looked at our total addressable market and not just the size of each universe.

So we weren’t saying how many RIAs are out there or how many regional community banks, but we really tried to distill that down to another level of granularity and look for criteria of which firms were really growing, what was their appetite to outsourcing, how repeatable would our success be in those pools and in those channels.

And then when we finished that process, we also thought it was an opportunity to think differently and bring in an external firm to help challenge or validate some of those thoughts and ideas and outcomes that we had. So Sanjay, we did that, Owen, specifically in banking in the U.S. and UK, so if you just want to talk high level about that..

Absolutely. [Indiscernible] So last time, we talked about it that we added a Chief Strategy Officer in private banking, wealth management, business segment. And as part of my initial 900, 800-day [ph], we came with our own best thinking, our best strategy that how we should go-to-market. And that’s where we came up with this four-pillar strategy.

And then we engaged an external consulting company to validate our go-to-market strategy and help us understand the total addressable market both here in U.S. as well as in the UK.

Ideally was to one, reevaluate our strategy at the same time, we asked the consulting company to engage with our existing clients, the clients we lost, as well as the new prospects, which are in line and then provide us their best thinking. So it’s a great validation of our strategy as well as we not several new insights.

So – and that’s the further revalidate our strategy and redefined, and that’s what we are executing now..

Got it. Thanks a lot..

Thank you, Owen..

You’re welcome..

[Operator Instructions] The next question is from Mike Brown of KBW. Your line is now open..

Great. Good evening, everyone. Maybe just kind of a follow-up on one of the prior questions. It sounds like there’s certainly concerted focus on your new initiatives and you guys have been talking about them for a while here, but I guess the revenue in that line has been relatively unchanged for a while here.

If you could give us some thoughts here onto when that could start to inflect hire as you look forward for those initiatives..

Hey Mike, it’s Ryan. I mean, I don’t think we have any specific thoughts in terms of exact timelines. All I can tell you is that we know that with our corporate goal of doubling the revenue of the company over the next five years to seven years. We need new engines to be a part of that.

And that’s why we made the hire, that’s why we’re going to invest in these areas. So I think part of what Sneha is going to doing moving forward is really helping us as a – from the executive committee really think through what our expectations should be.

How do we invest? What our return on that investment should be? What I think you will start to see a greater focus in those areas around new engines, new businesses, new ideas that could generate revenue for SEI.

I think the more important point that we’re trying kind of get across today is, because of how well some of the existing units are moving right now, because of the client engagement, client penetration, we feel like we have some capacity both from an intellectual perspective, a talent perspective, and financially to go focus on some of these new things.

So when you look at IMS this quarter fills in the room, we’re really excited about the level of engagement and results with a really terrific sales quarter across all of SEI, but we’re also very excited that those sales are manifesting themselves in segments where we said we want it to focus and our ability to not just sell, but to install those sales more quickly so that revenue is hitting and that revenue’s falling to the bottom line..

Okay, great. I just wanted to touch based on capital allocation and maybe the balance sheet here. Any change in your views on – your – kind of cash levels that you want to run with going forward? And then – and maybe I can dovetail into how you’re thinking about capital allocation here, obviously seeing some inorganic growth here recently.

But how are you thinking about other transformational M&A down the road and maybe balancing that with capital return?.

Sure. So I mean, I’ll start with our capital allocation hasn’t – today it’s consistent with where it’s been for quite a while now, which is reinvesting the business, first and foremost.

And that includes M&A to the extent there’s an asset or a business out there that may makes a lot of sense for SEI and for us to own that business and make it part of SEI. And then second is to continue to return capital to shareholders. And you saw that – you’ve seen that kind of continue consistently.

The word transformational gets thrown around a lot and to the extent we had a bigger transaction that our current balance sheet makeup wasn’t sufficient enough to fund, we’re not hesitant to go to market and raise capital.

And I think sometimes we get this – there’s this perception that we’re – these are my words, allergic to debt, and that’s not the case at all.

We’ll be proven certainly in our capital approach, but we’re not afraid of or large with the changing the nature of our balance sheet if it meant, putting us in a better position for growth and success in the markets we’re in..

Okay, great. Thank you..

And there are no further questions at this time, Mr. Hicke..

Thanks. So in closing, we have an outstanding foundation and momentum to drive continued growth for our stakeholders. Looking at the future, it is with mixed emotions that after 38 years, numerous leadership and executive positions and countless, enormous and lasting contributions to SEI’s success and culture.

Dennis McGonigle has decided to step away at the end of 2023 to reallocate his time to other parts of his life. Dennis has been an invaluable partner, friend, advisor, and colleague to me over my entire career, and I personally owe him an enduring debt of gratitude.

He and I will work with the executive team on a smooth transition of duties over the coming months and we will explore ongoing opportunities for Dennis to remain involved with SEI. As we focus on the opportunities ahead, I’m confident in our strategy and I’m confident in our ability to deliver just as we’ve done for 55 years.

Thank you for joining today’s call..

That does conclude our conference for today. Thank you for your participation and for using AT&T Teleconferencing Services. You may now disconnect..