Ladies and gentlemen, thank you for standing by, and welcome to the SEI Fourth Quarter 2023 Earnings Call. At this time, all participants are on a listen-only line. Later, there will be Q&A. Instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Alex Whitelam. Please go ahead..

Thank you, and welcome, everyone. We appreciate you joining us today for our fourth 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, Sanjay Sharma and Sneha Shah.

Before we begin, 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 response 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?.

Thanks, Alex, and good afternoon, everyone. While market conditions vary throughout the year, our team did an excellent job navigating uncertainty, engaging our clients, driving growth and setting SEI up well for the future.

In 2023, we had key strategic objectives that included margin expansion and sales in targeted private bank segments, continued momentum in global expansion and investment managers, further penetration into the RIA space, investments in alternatives for future growth and driving continued operating leverage, profit growth, infusing new talent across the company.

We are pleased with the performance, momentum and trajectory of both the private banking and IMS businesses. Both of these businesses are well positioned to continue to expand and contribute to SEI's top and bottom line. We know we need to increase our attention in asset management.

With the Advisor business, we have an opportunity to broaden our message around our value proposition as a more tech-centered offering with investment choice and curated solutions at the forefront of what we provide. I expect this will help us maximize new client adoption and exploit the huge opportunity we see in the intermediary market.

2024 is going to be some of the same but with a surgical focus on continuing sales and revenue growth, accelerating the transformation of our asset management businesses, targeting new segments for sales, and driving margin expansion and profit growth through increased operational leverage and discipline. Let me dive into the financial results.

Revenues in the fourth quarter were $485 million, up 6% from the fourth quarter of 2022. Net sales events in the quarter totaled $13.7 million, of which $8.5 million were net recurring. This was a combination of technology and operational outsourcing sales of $24.2 million, offset by negative activity in our asset management businesses.

Additionally, we had a separate successful new product launch in late Q4 that will add additional revenue to the Advisor business. Net income for the quarter increased 8% over the same period to $121 million. In the quarter, we repurchased approximately 1.2 million shares of SEI stock at an average price of $58.08 per share.

That translates into $69 million of stock purchases. EPS was $0.91 for the fourth quarter, up 10% over the $0.83 reported in the prior year period. The fourth quarter also included a number of one-time events that Dennis will expand on and are outlined in the release. We remain well positioned for 2024 and beyond.

Our unmatched breadth of capabilities enable our clients to connect to what matters most, adapt to constant change and to scale for the future. We're focused on seizing opportunities where we can repeatedly win and drive growth. I firmly believe we can accelerate growth and market share. With that, let me turn to our business lines.

Our Investment Managers business continues to thrive, delivering strong revenue and earnings growth. The team successfully implemented clients onto our platform and won new business. During the quarter, we had dozens of cross-sale events and re-contracts.

We also won new business within each of the alternative, traditional and global segments while continuing to grow profit for the unit. In alternatives, our focus on key clients continues to pay dividends, resulting in significant cross-sell opportunities.

During the quarter, we signed a top 25 traditional asset manager, expanding into alternative asset classes and another private asset manager through a competitive takeaway. Globally, we signed three new clients and continue to see strong flows in the private asset and private credit spaces.

As we've expanded our sales leadership in this segment, we're excited to see increased pipeline development. In the traditional segment, we added new business in all product lines. In particular, the expansion we've seen in our turnkey collective investment trust solution continues to be strong.

And as we've discussed, our larger traditional clients are beginning to launch alternative funds. Private Banking had another strong quarter with revenue growth and continued expanded margins compared to a year ago. The team has done an outstanding job reorienting the business for growth while managing expenses appropriately.

During the quarter, we signed two new deals and re-contracted three existing clients. We also exited the year with successful implementations during Q4. While we still have some previously announced events to absorb in coming quarters, we are confident in our PB growth strategy. Moving to our Global Asset Management businesses.

Investment Advisors net cash flows were essentially flat in the fourth quarter with positive flows in our separately managed accounts and Strategist partner solutions, offset by outflows in our active mutual fund products. During the quarter, we brought on 52 new advisors, including five in the RIA channel.

We also onboarded three advisors for our new service of custody of outside alternative investments and are working towards a larger rollout of that offering. Additionally, we pushed out our investor mobile app, which is receiving great feedback as is SEI Connect and the investor portal.

Finally, as mentioned earlier, we launched the insured component of the SEI Integrated Cash Program in late December. This program provides bank insured protection to end investors utilizing our standard and custom models. We believe the program could generate significant earnings for 2024.

In the Institutional Investors segment, our fourth quarter results reflected the challenges experienced industry-wide throughout the year. That said, we are seeing positive sales momentum as a result of the structural changes we made in 2023.

In the quarter, we signed two new OCIO clients and six unbundled OCIO clients utilizing our technology and data services. We also completed our acquisition of National Pensions Trust in the UK.

We believe the addition of NPT to the SEI Master Trust strengthens SEI's continued delivery of best-in-breed services at scale across our global institutional business.

Within our investments in new business segment, we completed the acquisition of Altigo, a cloud-based technology platform that provides inventory, e-subscription and reporting capabilities for alternative investments. As I have discussed many times, we are driving forward into providing more services and capabilities with alternatives.

With Altigo, we expect to help simplify and transform private fund investing, and widen access to alternative investment products for intermediaries while also helping our investment management clients more easily create and facilitate distribution of their products.

Our partnership with LSV remains strong, and they had a very good performance quarter which Dennis will discuss. Finally, we've taken continued steps to nurture our culture and ensure that our workforce is best prepared for the future of the industry. I'd like to thank all my colleagues across SEI for their commitment to our vision.

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 $0.91. This compares to $0.83 during fourth quarter of 2022 and $0.87 for third quarter of 2023. Revenue for the quarter was $485 million compared to $456 million in 2022 and $477 million in the third quarter.

Total expenses for the quarter were $383 million, which compares to $362.5 million last year and $368 million in the third quarter.

Included in the fourth quarter expenses were approximately $11 million of one-time items, $5.3 million related to a technology asset write-down in our IMS segment, $4.6 million of severance expense and $1 million of professional fees associated with our acquisition activity.

Without these items, expenses for the quarter would have been approximately $372 million. The EPS impact is approximately $0.06 to $0.07.

On the sales front, in our technology and investment processing businesses of private banking and investment managers, net sales events totaled $22.9 million and are expected to generate $17.6 million in recurring revenue.

In our asset management-related businesses, net sales were approximately negative $10.5 million, primarily due to asset movement from our mutual fund products into our other investment programs, some client acquisitions as well as net losses in our institutional business.

We also sold $1.3 million of recurring revenue in our new business segment, mainly SEI Sphere. The Sphere sale was to a non-financial company. This supports our hypothesis that Sphere has resonance beyond our traditional market segments. Total net sales for the company were $13.7 million, of which $8.5 million is recurring.

One key highlight for our Advisor business is the launch of an FDIC insured deposit program. This takes the cash allocation in our model portfolios, generally used for operational purposes like paying fees and sweep those balances into an FDIC-insured deposit account.

While not technically a sales event, the level of effort to launch, educate and enroll our clients was significant. This new element of our overall offering had approximately $840 million in assets at December 31. And under current estimates, will generate approximately $25 million in additional revenue in 2024.

The assets are reflected in our earnings release on the assets schedules under the caption platform-only assets deposit program. There was minimal financial benefit from the program in the fourth quarter due to the timing of the launch. Private banking sales were $5.7 million, of which $2.2 million is recurring.

The two new SWP sales, one of which was to a non-banking financial institution were partially offset by two client losses, one due to acquisition and the other to a change in their operating model. The three clients re-contracted during the quarter represent $5.2 million in annual recurring revenue.

The Private Banking segment's focus is paying off in both new business generation and building a quality and growing pipeline. During the quarter, we were active with client implementations and conversions.

We installed $5.7 million of recurring revenue from our third quarter backlog and added to the backlog through sales, increasing it to $22.7 million of expected to be installed revenue in the next 18 months. Asset management revenues in Private Banking were down slightly from third quarter.

This was mainly due to asset levels entering the quarter, resulting in lower average assets during the quarter. As a side note, this is also true for all of our asset management businesses. We earn revenues based on average assets.

The fact that we entered the quarter at lower levels, coupled with the markets not making their positive run until later in the quarter, resulted in lower average asset levels. Entering first quarter of 2024, we are at a higher beginning asset base.

Expenses in Private Banking were down from the third quarter of 2023, reflecting efforts to bring private banking back to higher levels of profitability. On the Investment Managers front, net sales for the quarter were $17.2 million, $15.4 million of which is recurring.

During the quarter, we re-contracted 18 clients totaling $30.6 million in annual recurring revenue. Revenue for the quarter was up compared to third quarter, reflecting the impact of client installs. Expenses were also up. However, they included a $5.3 million item mentioned earlier for an asset write-down.

Our backlog of sold but expected to install the next 18 months recurring revenue is $28 million. In the Advisor segment, revenues for the quarter were down slightly from the third for reasons previously mentioned. Expenses were up due to increases in distribution and marketing-related costs along with sales compensation true-ups.

In the Institutional Investors segment, net sales for the quarter were negative $4.2 million, reflecting positive client signings offset by losses and repricing and client retention activities. Revenues for the quarter were down slightly due to lower average assets. Expenses were also down slightly reflecting general expense management.

In the investments in new business segment, revenues were flat to third quarter and expenses were down slightly. LSV produced $35.4 million of profit during the quarter. This compares to $29.9 million during the third quarter. Revenues for LSV were $117.1 million compared to $102.2 million in the third quarter.

Fourth quarter revenues included $19.8 million of performance fees, LSV recorded performance fees of $9 million during the third quarter. Performance fees are a reflection of continued positive relative performance. At the end of the quarter, we acquired Altigo.

While not a material capital transaction, we expect the acquired capabilities and talent when coupled with SEI's existing assets will add to our strategic opportunity in the alternative space. This business line will be included in the investments in new business segment going forward.

I point you to our soon-to-be filed 10-K and press release for more information. Our tax rate for the quarter was 19.6%. We expect the tax rate for the first quarter to be approximately 23%. For the full year, our tax rate was 22.26%. That concludes my remarks. All of our unit heads are on the call, and we will now take questions. Thank you..

[Operator Instructions] And first, we'll go to the line for Crispin Love, Piper Sandler. Please go ahead..

Thanks. Good afternoon everyone. Appreciate taking my questions. First on private bank margins, they accelerated 10% in the quarter.

I just want to ask, is there anything one-time in there? Or is that kind of a good level to expect going forward? Do you think that could be sustainable as you move through 2024? And then just while we're on the topic, if you could speak to kind of longer-term margin outlook for private banks as well..

Sure. So I'll -- Chris, this is Dennis. Thanks for the question. I'll answer the first part. Really wasn't anything unusual in fourth quarter and banking was a pretty clean financial quarter, and I'll let Sanjay kind of address the '24 outlook for margins and kind of beyond that..

Thank you, Dennis. So our margin expense in Q4, that's a reflection of our efforts towards not only managing our expenses, but our top line growth as well. And we have been very consistent with our strategy going forward as well. While expense management will continue to be our focus, our focus is shifting on how we can grow our top line.

And that's what you would see in coming quarters as well..

All right. Thank, Dennis. Thanks, Sanjay. That's all helpful.

And then, Dennis, just on the $11 million of one-time expenses in the quarter, is $10 million of that in facilities and then $1 million in professional fees? Am I missing anything there?.

I'm sorry, Crispin, there was three elements to that $11 million. One was -- we wrote down a technology asset. So we had a piece of software that was in development and we found an alternative in the market that we think will serve us better going forward.

So we wrote off the capitalized element of that asset in the fourth quarter because we're not going to bring that to market. We had $4.6 million of severance expense, most of which was covered in a recent 8-K filing that we made.

And then we had about $1 million of professional fees associated with -- which I'd like to call it out is kind of a little more unique, the acquisition -- two acquisitions we did..

Okay. And then I guess, I'm just looking at the facilities, supplies and other costs line item at $27 million in the quarter. Is there anything based in there? Or is that a good run rate going forward? I'm just curious why that line item was so elevated in the quarter..

Yeah, that would come down because that's where that write-off would be sitting..

Right. Okay..

So that number will come back, I'd say, more kind of the average of last year quarter-to-quarter..

Perfect. Okay. Thanks. That’s it for me. Appreciate taking my questions..

Yeah..

Thank you. And next, we're going to the line for Ryan Kenny, Morgan Stanley. Please go ahead..

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

Hey, Ryan..

Just wanted to dig into the net sales events in the asset management-related businesses of the Investment Advisors and Institutional Investor segments in the AMD business. So it's been negative for a few quarters in a row.

So I just wanted to understand like how much more of that we should expect going forward of the negative net new sales? Is this a good run rate? I know there's some more client transitions left? Or should that come down over time? Thanks..

Yeah. I guess we'll turn it over to Paul to kind of address the -- really what happened over the past couple of quarters because we've had this kind of phenomenon of shift from mutual fund products as a product wrapper type program into more ETF separate advance accounts, some of the curated third-party programs we have.

And then as you -- we're all aware, there is a lot of consolidation or a decent amount of advisory consolidation going on in the market, and we've had some advisors kind of get picked off in that process. So our -- when we talk about -- we quantify things in the context of revenue, and that really reflects the pricing shift in the products we offer.

But I'll let Paul kind of take it from there in terms of cash flow expectations and what we're seeing from that perspective..

So if you look at cash flow, we did have a positive third quarter, but we had basically a flat to a little bit negative in the fourth quarter. A phenomenon that we've seen in the marketplace are advisors who are getting purchased by consolidators and roll-up firms, and we were not immune to that.

In 2023, specifically in the last couple of quarters, we were hit with nine firms that represent $2 billion of assets that were extensively assets under management that moved off the platform.

Now we have a lot of energy on strategic answers that we're looking at to deal with this trend in the industry, including working with the aggregators, especially the friendly aggregators and selling them on our overall capabilities of technology, operations and investments. So that certainly was a headwind that we saw in 2023.

That said, our efforts in the RIA market are continuing to be bolstered. We're very positive on that, and part of our momentum in 2024 is the goal of larger to larger RIAs because we think we have all the capabilities.

We've historically had most RIAs between $50 million and $500 million, but we think we have all the capabilities to sell to the greater than $500 million market segment. And Eric Collin and Gabe Garcia, who is leading that effort have doubled down on resources and capabilities, and we're optimistic there.

So I don't want to give any predictions as to what 2024 is going to look like. But we think with our strategic goals, we’re stemming the ties with advisors that are de-converting through acquisitions and then our focus on the RIA channel were positive as we move into 2024..

Great. Thank you..

Thank you..

And next, we'll go on to the line for Owen Lau, Oppenheimer. Please go ahead..

Good afternoon and thank you for taking my questions. Ryan, I think you talked a little bit about the priorities in your prepared remarks, but could you please add a little bit more color on your strategic priorities in 2024 in a little bit more detail? And how does it help drive revenue growth this year? Thanks..

Yeah. I hope you're doing well. So I think when you think about 2024, as I mentioned, part of it is, as I said, is some of the same, but if you jump off of Ryan's question that he just had, we've really kind of turned our attention really in the middle of last year around our asset management businesses.

If you kind of go through the last couple of years and you think about the businesses individually, what filled us on with IMS to continue to drive growth with existing and new clients, but also start to lay some groundwork for a larger business globally.

Sanjay, I think has done a terrific job, as we've talked about, really executing a great play, both around solidifying that client base, rightsizing the expenses and now he is in growth mode, and that team is in growth mode.

And when you look at the asset management businesses, we made a couple of tough decisions around kind of the structure around rightsizing some of those businesses. But 2024 is really all about getting those businesses back to growth.

We feel pretty strongly and we're enthusiastic about the suite of capabilities that we have to go compete across a broader set of intermediaries than maybe we have in the past and across a broader set of institutional segments. And then another area you're going to see us lean into is around new business.

Around getting new organic businesses launched, doing some different things to incubate some ideas because we feel really positive about where we stand right now to kind of lean into some of those other areas and getting asset management back on track to really provide a tremendous amount of momentum..

Got it. And then in terms of the margin direction comment and also investment for this year, you talked about margin expansion.

Just -- is this something that we should expect in 2024? Is there any -- maybe the potential investment like AI that you could potentially reinvest if you kind of capture some of the upside in the business? Would you invest that upside? Or we should expect if AUM stay flat or go up a little bit, then we should expect margin expansion this year? Thanks..

So I think we think about that in three different ways, if you take kind of your question, Owen, we have things going on with automation and AI in our technology stack, and our operational stack and in our asset management stack. So we are definitely doing things there. I don't know if I would predict the outcomes of all of them.

But to your point around expectations around margin expansion, we believe we can drive more operational leverage across this company through a couple of areas.

One is about looking at our workforce and thinking about ways that we can actually leverage that talent across different areas I think as we've spoken about before, if you look at enterprise sales as a microcosm of things that we believe we can do across the company and position the company more horizontally, that manifests itself in other functions across SEI.

And I'll be honest, there's going to be a continued level of discipline around how we spend money, where we spend money, and we're going to make sure that we continue to invest in our future, but run the business in a way where we believe that we can expand those margins on an ongoing basis.

And I think the reason that the executive team and myself are excited about that is we like what we see with the sales activity. We like what we see with our ability to continue to install clients.

So we feel like if we continue to drive the right sales momentum, and we have the courage and discipline to maximize the operating model as those sales come on to SEI for actual revenue, we think that will fall further to the bottom line..

Sounds great. Thanks a lot..

You’re welcome..

Thank you. [Operator Instructions] Next we're going to the line for Mike Brown, KBW. Please go ahead..

Hi, good evening. Thanks for taking my question. I guess I wanted to just touch on the investment managers business. This quarter, a good result there. It looks like there were some good client installs that helped quarter-over-quarter growth. Net sales activity is looking healthy as well.

Can you just maybe touch on some of the growth potential for that business as we think about 2024 here, it seems like it's got some great tailwinds, but just love to hear a little bit more about how to think about that business in 2024..

Yeah, Mike, that's a great question. Phil is in the room, so I'll just let Phil answer that directly..

That sounds great. Hi, Mike. So quickly, as you said, sales were great this quarter, $17.2 million net. More importantly, year-over-year, they were up about 16%. So we're seeing good traction there. Margins were 34.1%, but I think if you look at -- without the write-down, they are closer to 37%. We're investing heavily in the business and our technology.

But as Ryan said, we're also looking at automation and operational scale. So we're trying to balance what we're spending, and we're trying to just build the platform out for our clients. As far as the overall pipeline, I don't think cross-sales have ever been stronger. I mean, I think we're in a great place with our clients.

We're in a great place with our solutions. I think everything is resonating in the market. I would say from a new business perspective, the pipeline is strong. The pipeline in -- globally in the UK and EMEA is getting stronger as we speak. So every single day, we have more activity in the market.

We're building our brand and we're really making a good push, a big, huge push towards that. So I mean, I think we're in a good place going into 2024, and we look forward to more good things to come.

Ryan, anything to add there?.

No, I think the only thing I would add, Phil, is I think when you look at the client engagement in IMS, it is exceptional, and it pays dividends based on our service model and our understanding and positioning with the clients.

And I think the other units have actually tried to drive the same kind of level of engagement and Sanjay certainly has across banking, Paul has 110 advisors here next week. I know Jay, you’ve been out seeing all the clients.

So I think we feel really optimistic that the significant increase that we have put forward in the last couple of years around market activity and client engagement continues and will continue to pay dividends, and it's something we're not going to let our foot off the gas..

Okay. Great. Yeah. Thank you for all the color there. I guess just a quick clarification there.

What is the right growth rate for that business, I guess, focusing on the operating income side? Certainly, it sounds like if the margins are kind of close to that 37% level, is that kind of the natural maybe ceiling for the business? And so would the longer-term growth just generally be driven by ongoing growth of the business and therefore, revenue growth?.

Yeah. Actually, Mike, this is Phil. Dennis wants to answer that, and he's pointing with his thumb higher up in the air. I'm not sure exactly what that means. But what I would say is -- as he said in the past, we've been in the 34% to 36% range. We'll bump around a point or two. I think we also have to continue to invest in that business.

So 37% might be a little bit high. I think it's important for us to kind of capture the market opportunity that's out there in front of us. So we definitely want to continue to invest in the platform and invest in our people and sort of just drive sales growth throughout 2024..

I agree. Mike, we're going to continue to invest for growth and invest for scale in that business, but there's significant opportunities in that business..

Okay. Great. And then maybe just to change gears to kind of the capital allocation side of the business. You guys closed on two M&A transactions in the quarter. Can you just maybe touch on when you might be back into the market and looking at some other inorganic growth opportunities. Those were I guess a little bit kind of bolt-on size transactions.

Would you maybe consider something more transformational? And if that's the case, any view into strategically what that could look like? Thanks..

So I mean we're back in the market right now. So we didn't stop our M&A activity. We didn't stop our corporate development team that we put together 18 months ago. I never really know how to find transformational.

But what I could tell you is when you look at the teams and the areas where we're going to continue to invest both organically and inorganically, Paul talked about the RIA segment. That's an area we will continue to look for opportunities.

The alternative space, so Altigo is one example, but we would continue to invest or acquire capabilities or assets that we think would accelerate our growth there and some of the things that Sneha is doing in the new business area, whether that's around automation, AI or data.

So we're pretty focused, Michael, on specific themes or areas that are hopefully really consistent with things we have talked about in the past in the investor presentation, but we didn't close the door after the two acquisitions..

Okay. Great. Thank you, Ryan. Thank you for taking my questions..

Any time. Thank you..

Thank you. And there are no more questions in queue. You may continue..

Thank you. Well, as we've mentioned, I'm proud of our achievements in 2023, but we have much more to accomplish ahead. We've got to stay laser-focused on innovating our business for the future, delivering for our clients, growing new markets and investing in our talent and capabilities. Thank you for joining today's call..

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