Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Sci third quarter 2019 earnings call. At this time all participants are in listen only mode. Later, there will be an opportunity for questions and instructions will be given at that time, if we should require assistance during the call. Please press Star then zero and an operator, we'll sister offline 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.
Well welcome everyone.
All right.
Segment leaders are on the call as well as Dennis Mcgonigle Sci.
Yeah. So.
Kathy Heilig.
Hi, guys control.
I'll start by recapping, the third quarter 2019.
I'll, then turn it over to attend this to cover LSC and the investment and new business segment. After that each of the best business segment leaders, who will comment on the results are their segments with one exception.
Yeah, Wayne Withrow is on vacation, Steve Rio head of sales and service for the investment advisor segment, where we report on that business. Then finally, Kathy Heilig will provide us an important companywide statistics.
As usual, we will feel questions at the end to meet your poor. So let me start with the third quarter 2019.
Third quarter earnings increased by 3% from a year ago.
Diluted earnings per share for the third quarter of 86 cents represents a 10, I'm, sorry, and 8% increase from the 80 cents per share reported for the third quarter 2018.
We also reported a 2% increasing revenue from third quarter 2018 third quarter 2000, Mike.
Also during the third quarter 2019, our non cash asset balance under management increased by $1 billion.
At the same time.
How about the assets under management decreased by $3.3 billion.
These increases and hey, when were.
Primarily due to market appreciation, while the decreases.
By negative cash flow.
A milestone was reached the ended the quarter, let's see I read the.
One trillion dollar Mark in total assets under management assets under administration and advised assets.
In addition, during the third quarter 2019, we repurchased approximately 1.4 million shares of Sci stock at an average price of $58 from 12 cents per share that translates to $881.4 million of stock repurchases during the quarter.
Finally in the third quarter as part of the investments we make sure create growth.
We capitalize approximately $7.3 million I guess, WP development and amortized approximately $12 million.
Basically capitalize.
Yes, WPP and I am Escobal.
Third quarter 2019 sales events net of client losses totaled approximately 42 million and 700000 and are expected to generate net annualized recurring revenues were approximately $33.2 million.
We are satisfied with their third quarter sales results.
In our technology and operational businesses, and we are becoming bullish about our future.
Well I'll slow contract negotiations and this tightly regulated environment is still considered a headwind, we're becoming less trouble as our active right pipelines to grow.
Our asset management businesses continue to face headwinds our advisor business began to see positive flows during the quarter, the institutional investor business with you at corporate.
DB plan.
Continues to be a challenge.
Now all that being said there are bright spot one is that across the company. We have fully engage sales teams and a lot of activity too.
I am not sales continue to be strong three the advisor I'm sorry, the migration to advisors to SVP is now behind us.
This allows our full attention to be on growth.
Now for we signed significant new XWB business FIS and last we are moving.
Forward with some of the.
Promising new initiatives.
Our market has will speak to the.
Right, but in there.
Specific sales activities.
This concludes my formal remarks, so I'll now turn it over to Dennis to give you an update on LC and the investment and new business segment.
I'll, then turn it over the other business segment.
And then.
Thanks, Good afternoon, everyone I will cover the third quarter results for the investments in new business segment and discuss the results of LSB asset management.
During the third quarter 2019, the investments in new business segment continued its focus on the ultra high net worth investor segments through our private wealth management group and additional research initiatives, including the digital services and hosting opportunity the modularization of larger technology platforms in the Standalone components for the wealth management and investment price.
I think space.
During the quarter the investments in new business segment occurred a loss of $4.5 billion, which compare 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 LSB represent our approximate 39% ownership interest during the third quarter LSV contributed $37.6 million an income to Sci during the quarter. This compares to a contribution of 41.7 million an income during the third quarter of 2000.
80.
Assets during the third quarter or down approximately $3.3 billion.
Now, let's be experienced net negative cash flow during the quarter of approximately 3.5 billion, which was offset by market appreciation.
Revenue for LSB 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.
Okay.
And ladies and gentlemen, if you wish to ask your question. Please press. One then zero on your Touchtone phone you will hear an acknowledgment zone, if you're using a speakerphone. Please pick up the handset before pressing the numbers thats going if you have a question. Please press one and then zero one moment for the first question.
And we actually have no lines queuing up at this time.
Thank you Dennis.
Im now going to turn it over to Steve Maher to discuss our private banking segment safe.
Thank you out for the third quarter 2019 revenues for the segment totaled $117.3 million, which is down 1% as compared to our revenue in the third quarter of 2018. This year over year revenue decrease was due primarily to some of the client loss as previously announced along with these crease revenue in our asset management business.
Our quarterly profit for the segment of $6.5 million increased $4.5 million as compared to the third quarter 2018, our third quarter profit is down $1.8 billion as compared to our profit in the second quarter 2019, due mainly to two items as a sign of maturity. Our development work has moved from larger items to maintenance and.
Product enhancements, we expense this type of work as it occurs and do not capitalize it second in Q3, we had the effect of midyear compensation adjustments, which contributed to our expense increase in Q3 compared to Q2.
We continue to manage expenses tightly, but with an eye in supporting the growth momentum we are building in new events.
Turning to sales activity for the quarter, we signed approximately $18.8 million net sales of that Additionally, we had $7.3 million and onetime events. These events included the following the two deals previously discussed on our second quarter call. As a reminder, they are CBC U.S. private wealth management, who was a leading north American fine.
To answer institution, it's us private wealth management business offers investment management wealth strategies and legacy planning solution.
The second was a long time clients law firm stores going with.
During the quarter. We also signed two additional clients to ask WP, both our existing trust 3000 clients, which are scheduled to migrate their existing books of business to the Sci wealth platform and the second half of 2020.
Additionally, as you might have seen in the press, we're pleased to announce that after the quarter end up a for today's call. We entered into an agreement with the principal financial group to provide our trust platform to service or 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 con.
Track. This fuel is significant for us not only from a financial standpoint, but also principles 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 Sci while platform. They were BMO wealth management, Rockland Trust company and security and Trust company.
All three conversions went very well and demonstrate our ability to increasingly scale, our implementation strategy as well as prove our value proposition against increasingly aggressive competition.
We also re contracted one trust clients with the contract term of five years.
As an update on our backlog, our total signed but not in scope backlog is approximately $48.6 million a 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 RMD business.
Turning to a couple Klein updates first an update on the department of interior business that we previously discussed to disclose will be leaving us. After several rescheduled conversion date. This business did the convert all fortress platform at the end of the third quarter full effect of that loss will be in our fourth quarter numbers and as mentioned several times before we.
We'll need to navigate this headwind as we continue to gain momentum and grow our business.
Also during the quarter, we work with Wells Fargo and a number of initiatives as mentioned previously wells has recently sold or institutional retirement and trust business also disclosed in the past wells continues to have other important impressing technology projects and have recently had the appointment of a new CEO .
In light of the need to change birdies at Wells Fargo has informed us that it must pause the scheduled SWT implementation in order to redirect resources to other more immediate technology leads including the Iraqi conversion.
Sci 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 SWT implementation will restart and we will work with wells on their current priorities in the interim these recent developments have demonstrated.
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 date until wells finalizes them.
More importantly, we will focus on the momentum the business is generating both us and UK and focus on implementing our current and growing backlog, including the conversion of the ire to higher tea business, which will result in new client to Sci principal financial group.
In closing I would like to highlight or 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 us in UK 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 powering capabilities of all of that you guys 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.
Ladies and gentlemen, once again, if you have a question. Please press one and then zero at this time. Please first one and then zero with any questions.
We do have a question from Robert Lee with KBW. Please go ahead.
Great. Thanks.
And Steve Good afternoon, Rob.
Quick question, So just to make sure I understand kind of the moving pieces the.
The 18.8 million of net sales I mean, if I remember correctly when you had talked about CBC in the other transaction and last earnings call.
As a bad 16 odd million a recurring sales is that eighteeneight kind of include that 16, the new and then your balsom backing out wells from that.
No. So you are right up until the wellpoint. So if you remember we announced.
We see mentioned see obviously at the end of the second quarter call. We did not include that in those events. They are included in Q3 events. The 18 eight.
Wells has no impact on that net sales number they are still apply and we still have that in the backlog.
What is that as a net number though that eighteeneight. So it takes in the sales to grow sales, we had minus any net downs or losses in clients for the quarter as normally we announce.
I have a correct that the wells and the other one were 16 million recurring when you had announced from last quarter.
Do you keep mentioning wells I think Ralph I am not what I'm hearing apologize CBC sorry, she IVC, yes, the IVC and the other one we announced last quarter at 16 too and then we had other events this quarter those other events plus the IVC.
And I believe is 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 next question will go to Chris Donat at Sandler O'neil. Please go ahead.
Hey, good afternoon, Steve.
Good afternoon, Chris.
Just on the department of interior contract can you remind us.
What though revenue expected revenue head should be in the fourth quarter and is there any expense offset you expect fourth quarter or overtime with that.
Chris not to be smart, but.
We never really told you the amount we don't really talk to specific amounts I think there were speculation on the amount but is it is a larger of now it was a very profitable account.
And again that will all come out in Q4, but we don't specifically revenue to individual fire.
Okay. Okay.
And then just on the expense side, there's should I assume that theres will there be any expense change related to this or.
Not right I think very little expense change.
Okay, all right any of those expense savings we've been working on all along the way so very level.
Thank you will move now to Chris Shutler at William Blair. Please go ahead.
Hey, Steve are you good how are you Chris.
Good.
So let's see so the I wanted to talk about the new the conversions that happened in the quarter. So.
And the other two how should we think about the incremental revenue.
We will see in Q4 from the combination of those clients relative to so the current quarter Q3.
Well I'd say two things one keep in mind on trust flips typically there, we only announce and the events when we announce them we will announce the net.
From the SVP pricing Thats from Trust 3002, 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 business shuffle of the revenue decreases versus revenue increases.
Okay.
Okay and then the.
The.
I know, it's tough to isolate clients Blake on oil wells is the fact that they're kind of putting.
Pause on things, how does that impact the DNL.
Well wells are still active client and a large client for trust 3000, then we'll 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 working on with them, but also some new initiatives on some of the new projects. They have so what I would expect some of our one times and flights to continue.
Okay, and then lastly.
Trust 3000 attrition and net Downs you mentioned a couple of times can you maybe give any more specifics on what happened in the quarter. There. If anything we did have one loss of a trust 3000 client that was netted out of our events.
And we also had one rig contract for five years that I mentioned.
And now into the dip down.
Well there there were the net down of revenue from the last slide that we netted against our gross events.
But that isn't that net 18.8.
Okay. Thank you.
Sure.
And if there are further questions. Please press one and then zero at this time, we do have a follow up from Robert Lee KBW.
Please excuse me no we have no one in queue at this time now.
Thank you state.
Our next segment today is investment managers as Steve Meyer, we'll also discuss this.
Okay, great. Thanks, again out in turning to investment managers for the third quarter of 2019 revenues for the segment totaled $112.2 million, which was $10.9 million were 10.8% higher as compared to our revenue in the third quarter 2018. This year over year revenue increase was due primarily to net new client funding and again.
Listing 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 were 5.1% higher as compared to the asset balances at the end of the second quarter 2019. This was due to an increase in assets to the net new client fundings of $21.1 billion as well as market appreciation of nine.
Point $8 billion.
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 and recurring revenues.
Encouragingly. These sales were diverse expand our entire business and included both new name business and expansion of wallet share with current clients. These events include the following highlights.
In our alternative market unit in the third quarter, we converted a $16 billion debt diverse Shaw from a competitor and launched several new multibillion dollar funds to our growing private equity business and our traditional market unit. We continue to have success across all product lines and particularly in collective investment Trust. We're also pleased to announce a mandate one or 40 Act.
Turnkey series Trust from a trillion dollar global manager, who is establishing a family of mutual funds.
See I Arts way 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 2019.
From a market standpoint remain 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've made in our technology and platforms have not only differentiated us, but they are resonating extremely well in the market.
This concludes my prepared remarks ill now turn it over for any questions you may have.
And at this time question and answer is open. Please press one and then zero.
We go to Chris Shutler at William Blair. Please go ahead.
Alright.
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 amortized so it's less of the sales compensation. If that was your question. The 3 million was primarily a little bit like the private back market, we had the impact of mid year market.
Compensation adjustments, we also had an increase investment 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 is 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 quarter over quarter low from especially from an expense standpoint.
As you can see worse in a pretty good sales mode, and I want to keep that sales mood.
Certainly, adding the expense we have to add to support that revenue so depending on quarter over quarter.
Yes that will impact.
Okay, and then just I wanted to ask about the trillion dollar manager could just.
Hi explained that a little bit more what exactly you you want to do this Andrew this client is.
Well certainly we can't mentioned the name, but it's a very large diameter.
And similar to what we've looked at whatever 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 an they're asking us to provide the full service full front middle back office and we're looking at this is an opportunity to starting new relationship.
And expand from there.
Alright, thank you.
And at this time there are no more questions in queue. Please continue.
Thank you Steve.
Our next segment is investment advisors see Warner free standing in for Wayne Withrow will cover this segment.
Thanks, Bill in the third quarter 2019, we continued to build sales momentum after the completion of the migration on to be Sci wealth platform. We also continue to our focus on value added technology development in 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 impart by negative cash flow in the first six months of this year.
<unk> 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 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 regained sales traction.
We recruited 75, new advisors during the quarter and our pipeline of new advisors remains active.
In summary, during the third quarter, we posted 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 Sci wealth platform now that we are fully migrated.
I welcome any questions you may have.
Once again, we invite you to press one and then zero with any questions. We first go to Glenn Greene at Oppenheimer. Please go ahead.
Hey, good afternoon kits could you just give us any color on that what you're getting any traction given that you've now converted test of the PD in terms of new pools of assets or higher.
Sure.
Reserves or just sort of a different pull of advisors on maybe being attracted to Tom really showing up yet in the flows but give us a sounds for what you're saying in terms of business activity.
Well, whether they would be a larger advisors or a larger share of and advisors book.
The expanded services or the wealth platform include the ability to consolidate advisers on one platform I think we would be good option to a broader segment of advisors as we move forward.
Okay. Thanks, Patrick.
Next we'll go to Robert Lee KBW. Please go ahead.
Great. Thanks for taking my question.
Also I mean, a little bit of color on the on the.
On the flows you mean, you mentioned kind of feel like you're seeing some benefit from reengagement of.
Sales, but are you seeing is our advisors you know.
Kind of starting to Reengage more of their clients mean kind of black or better way of putting any signs kind of re risking or whatnot or.
Or is this really just a function of more salesmen out there are more focused on generating.
And gentlemen, just trying to get a sense of kind of the underlying momentum.
I don't think it's necessary related to the advisors clients Rerisking 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 advisors, helping them do adopted technology.
New wealth platform technology after the migration and the ease in doing business with Sci. So we're seeing a correlation.
Asset growth based on that work that we've been doing.
And maybe just one follow up I think Wayne is in a way in its definitely talked in the past about.
You've been seeing good demand for your I guess, your ETF allocation products, which I assume as someone lower full structure compared to more traditional products.
Does that still the case and I guess to some degree maybe been a little bit.
No.
Surprise that 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 theres.
We making too much of this kind of movement to the f. kind of allocation products or.
Kind of whats, helping support kind of fee rate where it is.
No I think you're right I mean pre fee pressure is real in the industry.
And we've only had a slight impact on two hours than I do believe it's the result of the continued growth of our AEP program. It's also the growth in our mutual fund models that also the option of our large cap passive funds.
But I think the real strength of Sci is the fact that we have a fully comprehensive Esa nave program a comprehensive mutual fund program, we offered in taxable and tax managed and when you look at into advisors business. They have a diverse set of clients that use all of those products. So the blended fee that we run.
Steve is across the entire product line.
Which we think is more resilient to market pressure.
Great. Thanks for taking my question.
And at this time, we have no further questions in queue.
Thank you thanks, Dave.
Final settlement today is the institutional investors segment, all Claro report on this segment Paul Thanks Al Good afternoon, everyone Im going to discuss the financial results for the third quarter 2019 third quarter revenues of 80 point.
80.3 million decreased 4% compared to third quarter 2018 third quarter operating profits of 43.1 million was flat as compared to the third quarter of 2018.
Operating margin for the quarter was 53.6%.
Revenues were impacted by negative point fundings client the reductions associated with successful rebid and currency impact versus the third quarter of 2018.
Operating profits were positively impacted by two onetime expense items, one lower than anticipated sub advisor expenses and certain products in the third quarter of 2019, and too and operations era that resulted in a higher than normal expenses in the third quarter of 2018.
Quarter and asset balances of 89.5 billion reflect a $2.5 billion decrease compared to the third quarter 2018.
This decrease is driven primarily by negative playing fundings.
Net sales were a 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 to losses were acquisition related and one loss was an unsuccessful rebid of a long term client.
The unfunded new client backlog at quarter end was 650 million and we would expect the majority of this the fund in the fourth quarter.
The new client signings were diversity diversified across new clients and endowments and foundations UK fiduciary management us defined benefit any UK defined contribution when.
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 on all client situations, especially those that are in rebid process or in M&A activity.
Okay, very much and I'm happy to entertain any questions that you may have.
Once again, ladies and gentlemen, please press one and then zero at this time for any questions.
And our first question will come from Patrick O'shaughnessy with Raymond James. Please go ahead.
Hey, good afternoon, let's just hoping to dig into your commentary about lower than anticipated sub advisor expenses is that.
One time issue some sort of catch up in the quarter, because I think your commentary suggested as onetime.
Or is that something that we could think about.
To be sustained going forward.
Yes, I was just Patrick it was just one time for the quarter. So some of our alternative investment sub advisor expenses, we make an estimate based on the contract to where the run rate is and then this particular quarter two of the alternatives we were over accrued.
For the first said 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 thats 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 is 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 nonrecurring in nature, but how do you think about the sustainability margins kind of in this general range.
Dennis has looked at and just say that's darn good management, but I guess, that's not a good answer.
[laughter].
I think we've been very smart 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 were not in now so there may be some investment from that standpoint.
We've got a benefit up getting more diversification and alternative investments. The reality is that were more efficient on how we service our clients technology as part of that process now that wasn't part of the process, maybe 345 years ago.
But as we move for the sustainability of 53% profit margins are now out there for the business given some of the headwinds than 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 be able to get us back to a growth engine for Sci.
Great. Thank you.
Next we'll go to Chris Donat at Sandler O'neil. Please go ahead.
Hey, Paul actually.
The Patrick's question, the way Covenant that satisfies me and I don't want to make any more trouble finding with Dennis.
Thanks, Chris I appreciate it.
Thank you will move into Robert Lee KBW. Please go ahead.
Great. Thanks, Good afternoon, Paul Hi, Robert Hi.
Hi, I'm curious you gave some color about.
No the backlog and the sources of it and.
Maybe if you could update us on some of your USBC initiative and there was something you guys talked about is.
Yes.
Channel you have some priority on although it feels like it and maybe a little tough sledding.
Getting too much there can maybe just give us a quick update on sure you see there.
Well just as it relates to the UK. So our Master Trust me UK, which is our largest way that people consume our defined contribution services was approved by the FDA.
So we had a nice incremental when in the third quarter of a new client coming into that so were quite positive about that as we move for because we're one of the early ones. They got the approval pivoting to your question with respect to the you asked.
It has been slower on DC, one of the realities with regard to defined contribution plans as we still are in a market that extensively is going up so theres not as much pain on the line up for planned sponsors. Consequently, they are 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 the sponsor level. We think we would be in a better position for getting the multi manager kind of wait level approach into DC plans, we're still actively talking to a lot of our defined.
Benefit customers, but again, it's a little bit have been inertia just because the line ups are doing pretty well, we do think long term and again, we'll talk about the investor day about some other things that could happen in the Form 10-K defined contribution world that we think could be beneficial, but we don't see them on the short term horizon, they would be more long term initiatives.
Great and maybe just a quick follow up and going back in them.
To the sub advisor expense question could you size that for what that impact was in the quarter.
That was about $800000.
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.
Chris.
So I wanted to follow up on that and just so you just gave the the onetime benefit from sub advisor.
The second piece the operations error I guess can you size that and can you just reiterate exactly what that item was.
Yeah that was from the third quarter 2018.
That was a little bit not yet.
So it's not in 2019.
So it's a little bit less than a million dollars that was in 2018, so from a comparative perspective, thats why I called that out.
Okay got it makes sense.
Thank you.
In Q.
There are now no more questions in queue.
Thank you Paul.
Before I turn it over Kathy Heilig I'm going to.
Mike too.
Steve Martin to cover.
So it's come up yes. This is yes response, Chris just to follow up one you'd ask about department here I get to plead ignorance because it was priests fee, but apparently we did in the Q4 2017.
Conversation during the call about being amount of that client was $17.8 million. So 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 Imus, we did do a catch up for IC, because where we are tracking its goals in the quarter. So that one time.
Uptick was about $2.4 million for the year.
Just wanted to follow up to clarify this thanks.
Thank you.
Now I cafe I'd like to give few companywide. This thanks and good afternoon, everyone I do have some additional corporate information about this quarter.
Third quarter 2019 cash flow from operations, like 163.9 million or $1.60 per share.
During the September cash flow from operations to 381.5 million or 2.5 per share.
Third quarter free cash flow is 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.
Significant part of that was related to our facility expansion.
In the fourth quarter, we would expect you had capital expenditures, excluding capitalized software as a $15 million and about half of that would be related to the facility.
Our projected capital expenditures for next year, I about 40 million and again about half of that is related to the facility.
We also we'd 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 R&D synonymous car that audited.
Cases, you can identify forward looking statements I terminology, such as May well expect believe continue or here are 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 growth.
Hi.
The benefits, we will derive from our investment.
Our ability to manage our expenses and scale our offering.
The timing of our implementations in conversions.
Services, we may provide to clients the momentum of our businesses the strength of our pipelining grace opportunities and our ability to execute on and the success of our strategic objective.
You should not place undue reliance on forward looking statements is there based on current beliefs and expectations over management subject to significant risks and uncertainties many of which are beyond our control are subject to change.
We believe the assumption upon which we based our forward looking statements are reasonable they can be an actor some under its an important factors that could cause actual results to differ from they are described in our forward looking statements can be found in risk factors section of our annual report Form 10-K for the year 2000 to me.
And now please feel free to ask any other questions that you may have.
And for any questions. Please press, one and then zero at this time.
Thanks.
We do have a question from Chris Shutler at William Blair. Please go ahead.
Hey, guys just a couple more.
First four for Dennis the on the investments in new business at the.
Expenses grew about $1 million sequentially in Q2, and then another million dollars sequentially in Q3.
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 I said it was.
The growth in Ics in expenses is really result of.
Spending on some of our newer initiatives.
Our capture and those costs any investments in new business segment.
And the to that.
I mentioned on the call earlier were.
The digital services offering called Sci T. services, so that will be used to call hosting services.
So the development of build out of that those capabilities.
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 newer mark new markets.
That does cost were offset by growth in the private wealth manager business.
Okay got it.
Yes, so it sounds like those those expenses that current run rate that the run rate in Q3 is the three I would go better going forward, Yes, I would go forward with that.
Okay.
I will spend more time with that on the of at the Investor Bester Conference as well okay great.
And then one last one for Steve on on Wells.
So just curious when were you made aware of wells being on Holden.
It was it was it post the new CEO coming onboard and any idea. Yes. This pause my wells was specific to Sci or have they paused a bunch of their IP projects for anymore color there 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.
Actually to the new CEO I think theres a number of.
Things on.
Wells is played that caused the as far as speculate into other providers I do not believe this is just focused on Sci.
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 the sole once we get is that we're putting our clients' needs bazaars, we're a little.
Disappointed obviously and pushing this but we're going to continue to work on their current priorities wells is continue.
To be a large client of Sci and.
I think the bigger story for us in private banking is the large backlog we have that is growing and the momentum that is putting off and thats, what I want to focus on.
Dan.
I guess confidence that this there's no change in the long term relationship with wells as a result of this.
Extremely high or how.
I would you describe it well again my view is wells that we've had a long history of four years with wells and I expect that to continue for very long time. There are currently a large client and we 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 SWS.
Dave and when they are ready to reconsider SVP date, we're ready willing and able.
Okay. Thank you Steve sure.
Your next question is from Robert Lee KBW. Please go ahead.
Thanks for taking my follow ups.
Hey, Steve maybe just one or two quick questions for you it's still.
The onetime revenues of 7 million that that I assume that will flow through in the quarter immuno every quarter, you've got some but to them.
No and said the seven three announced was obviously is tied to new business implementations 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 had on thank you.
Mentioned this call it and I apologize if you didn't I missed it but see I'd be see fairly large new client any sense of when you think that begin.
Coming onboard.
Well, we're in active implementation with them, obviously, there's a large project on Merseyside and our side, we will look to work through the next 12 to 14 months, but I think we'll be phases that we start to brand towards the end of.
2020, but obviously there was an implementation fee that we will start to recognize as we go through the implementation as well.
Great and then maybe.
And as I just had a quick question for you.
I mean, obviously I know the tax rate moves around with particularly around options and.
Equity based comp and things but.
You know how should we be thinking of kind of thing any change in kind of your expectations for a quote normal tax rate or kind of you know.
Core tax rate.
And the 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 to benefit us.
So third quarters, our third quarter is usually a quarter, where the tax rates a little bit lower.
Historically.
Fourth quarter will be similar to first and second warrant a 21% range.
Yes.
Okay.
Thanks for taking my question.
And now there are no further questions in queue.
Thank you.
Ladies and gentleman 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're making in our platform as an 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 12, and 13 at Sci So headquarters and dinner will be served on a two hour followed by the conference in 13.
To make it. Thank you very much for attending this afternoon and have great day.
That does conclude our conference for today. Thank you for your participation you may now disconnect.