Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Sci first quarter 2020, <unk> earnings call. At this time, all participants Barna listen only mode. Later, we'll conduct a question answer session and instructions given at that time should you require assistance.
During the call. Please press Star then zero as reminder, this conference is being recorded.
I'd like to turn the conference over to Chairman and CEO Al West. Please go ahead.
Thank you and now welcome everyone.
All right segment leaders calls as well as Dennis Mcgonigle, [laughter] step that perhaps CFO.
Yeah, I like to see ice control.
I'll start by recapping, our situation and first quarter 2000.
Well.
I'll, then turn it over to Dennis to cover Oh lets me on the investment in new business second.
After that each business segment leader will comment on the resorts where their segments.
And finally.
Yeah, Yeah, I would like.
Hi, Joe with some important companywide statistics.
As usual, we will feel questions at the end of each report.
And before we cover.
Talks to the first quarter.
Speak to the set of circumstances, we face.
Well around the globe, we are dealing with an unprecedented.
Okay.
Namely <unk> Tobin lighting.
Together to defeat this flow we are all in ball.
From beginning of this helps crisis, our priority has been on the safety and health through our employees and their families along with the seamless delivery.
Service to our clients.
Over at 48 hour period, we transition 99% of our workforce.
Into their homes working remotely without compromising the robustness, so our operation or the integrity of our search.
We will continue to operate in this environment until were.
Deem it safe and prudent for employees through current should the workplace.
I cannot say.
Strong enough, how incredibly great cool I am sure our workforce for not only making the transition to work from home what on the way they have supported.
Our clients each other in their communities.
The strength of Sci Shine best It seems when the challenge is Rick screen.
Let's see I, we had we take an immense pride in managing our business score and investing in long term growth.
We have proven business models.
They've been shaped over the past 50 years of experience.
This is the bedrock of our ability to weather the uncertainties of today and emerge from the current crisis stronger and better position to take advantage of tomorrow's opportunities.
Our secret to success is straightforward.
We remain focused on keeping our workforce healthy and productive.
Invest in our best in class and technology.
Innovate continuously.
And deliver world class service and solutions to our clients.
We will also be relentless and executing on our strategic vision and launching the growth generated in the next is we believe we'll be at the heart of our future successes.
We look forward to share in our progress with you.
While our and columns Miss our accomplishments during the war with Covance, Nike or impressive and we're proud of them, but the real heroes are those folks on the front lines.
Sure Inc. for others and saving lives.
We honor and thank those who are.
Making the true sacrifices.
So now, let's turn our attention to the financial results through the first quarter 20 Twond.
First quarter earnings.
Greece by 4% from a year ago <unk>.
Diluted earnings per share for the first quarter or 72 cents is roughly flat with the 73 cents reported for the first quarter of 2019.
We also reported a 3% increase in revenue.
First quarter 2019, the first quarter when they 20.
The first quarterly.
Earning results were.
Bursley affected by the late quarter market.
Turned down.
And that was triggered by the late [laughter] excuse me.
By the late in there right.
Order a rival the Cogan 19.
The turned down on the capital markets was a major one that's caused our non cash asset balance under management to decrease $27.8 billion.
Hello.
Assets under management to decrease by $36.6 billion.
The full effect of the downturn will be silk them second quarter of 2.8 Tony.
Also during the first quarter, we repurchased approximately 2.7 million shares of the CIA stock at an average price.
52, dogs and 37 cents per share.
Translates in.
Okay and $27 million.
Stock repurchases during the quarter.
Also in the first quarter we.
Renewed our investment into both generating platforms. The newest whatever it is one sci which is a large part of our growth strategy.
As you recall, one Sci leverages existing.
And new Sci platforms by making them and accessible to all types of clients all adjacent markets and all other markets no I'm sorry.
Platforms.
As a byproduct of the investments we made in the first quarter, we capitalize approximately $6.5 million.
The development and amortized approximately $12.1 million previously capitalized development.
Turning to revenue production.
First quarter sales events now to client losses totaled approximately 35.1.
Million dollars and are expected to generate net annualized recurring revenues of approximately $32.5 million.
Clearly we are encouraged with this quarter's sales results. They reflect the fact that all throughout the company, we have successful and entrepreneurial sales teams.
Driving revenue.
Our unit has will speak to the two specific sales books.
In addition.
A key objective our business, particularly in these types of uncertainty and volatility is of the liver smooth operations.
Transition of our workforce from centralized operations, who remote interconnected nodes went seamlessly, which again is or credit so the work ethic.
Customer commitment of our personnel.
What we have learned about ourselves.
What I've learned about ourselves undoubtedly they.
Many dividends after the.
Crisis subside subsides, we know that things will never be the same we will need to adapt to new middle models and realities.
Now this concludes my formal remarks, so I'll turn it over to Dennis you an update on LSV.
The investment in new business segment. After that all segment is we'll update the result in their segments.
Then.
Thanks Al Good afternoon, everyone I.
I will cover the first quarter results for the investments in new business segment.
Discuss the results of LSB asset management.
As Al mentioned, our primary concern working through this period of enormous disruption has been for our employees their families in our clients health and safety.
The resiliency of our employee base their preparation for and execution of business continuity events. This scale their ongoing commitment to our clients has been nothing short of spectacular.
In addition to the shifted our operating environment as you know we experienced a significant downdraft in global markets.
The size of the move with historic in addition, the speed of the move for something we had not experienced before.
I had a direct impact on our business, particularly LSV.
During the first quarter 2020, the investments in new business segment continued its focus on the ultra high net worth Investor segment through our private wealth management group and additional business research initiatives, including those related to our IP services business opportunity and the modularization of larger technology platforms.
The standalone components for the wealth management.
And investment processing space.
To deliver on our one Sci strategy.
During the quarter the vessel to new business segment incurred a loss of $7.5 million, which compared to a loss of 5.6 million during the fourth quarter of 2019.
This increase loss reflects an increase in investments, particularly related to our one Sci strategy.
Of our expenses in this segment approximately 5.7 million.
Tied to that effort.
This compares to approximately 3.4 billion in the fourth quarter of 29 tea.
And about $200000 or the first quarter of 2019.
The one Sci strategy as a company wide initiatives to open business opportunity across our entire company.
That's what was creating new business lines.
We will continue to see investment in this area through the year.
Regarding LSV our earnings from LSB represent our approximate 39% ownership interest during the first quarter.
LSV contributed $29.9 million, an income to Sci during the first quarter of 2020.
This compares to a contribution of 37.3 million an income during the first quarter of 29 team.
Assets during the first quarter shrank approximately 36.6 billion.
Now, let's be experienced negative cash flow during the quarter of approximately 3.9 billion.
The remainder of the contraction was market related.
Revenue, what LSV was approximately $100 million for the quarter no performance fees.
It is important to note that revenues at LSV are predominately driven by end of period asset levels.
The late in the quarter market, we had a significant impact on revenues.
Our effective tax rate for the quarter was 21.5%.
During the quarter, we incurred an unrealized loss on investments of approximately $4 million.
Related to investments seed capital one specific investment products.
This compares to an unrealized gain of 1.3 billion when the first quarter of 29 team.
As a company we were able to keep overall expenses flat to down relative to fourth quarter 2019.
Our operating normally until the Corona virus began to hit.
We made an immediate shifts to it worked well model with as Al mentioned, 99% of our global workforce operating remotely.
This effort was guided by two things the health and safety of our employees and our seamless delivery of service to our clients.
Well operating expenses are always a focus of ours. It is safe to say, we were it up mode or whatever it takes to meet the objective stated earlier.
Actually I was proud of our long term strategic orientation, our recurring revenue business model the strategic client relationships, we have our solid balance sheet and our talented and experienced workforce. We lean on this and that the world makes its way through this crisis, we believe we will be strong.
During the company for it and have more market opportunity as a result.
Naturally we will look at our spending as our revenues have been impacted some of which will contract actually with revenue.
However, similar to crisis events in the past, we will lead into our clients continue to invest in the future and look to identify and capitalize on existing new opportunities.
With that I will take any questions.
Ladies and gentlemen people like to ask your question. Please press one zero at this time, you'll hear a town in Q3 in Q2 major move yourself from the issue by once again pressing one than zero.
Hughesnet speakerphone, please pick up the handset before press in the numbers.
Again, if you'd like to ask your question. Please press one zero at this time.
And we do have a question from the line of Chris Shutler with William Blair. Please go ahead.
[laughter] say that's good afternoon.
My question [laughter].
But first I just wanted to clarify your comment on LSC and the the way that the revenue comes in there you could you give us some some sense of kind of what percentage of there.
Their revenue.
Is based on prior quarter and add percentage based on any other like daily or monthly.
That's right so so roughly.
60% to 70% is based on end of quarter assets and the rest is based on average assets.
Okay got it.
And then the only other ones just at a high level I know you talked about expenses is there anything like quantitatively that you can say about.
Expenses over the remainder of the year.
Hi level.
No I mean, I think yeah were.
Yes, there are certain expense categories that.
How can track to.
That are on our income statement, so things like sub advisory expenses, well could track with revenue.
And other expenses are contracting just because of the situation. We're in so our travel budgets look really good right now [laughter] for example, our client event.
Quite a bit costs are down because we're not.
We did have our client meetings that we normally have in the first quarter second quarter.
So there are certain expense categories will get the benefit of the situation. We're in it but at the same time, we are looking at area that makes sense to invest in to enhance the technology.
We have to communicate with and deliver to clients and and internally.
We also are paying attention to.
New approaches to prospecting in marketing.
My take some investment.
So we're not.
Really looking at this from a standpoint of Hey, let's take advantage of the situation to try to drive cost down rather, let's just be smart about how we operate the business and keep our eyes on growth because that's what.
Now this is all bell and all the all the unit leaders will get into.
How that's taken shape within their their businesses.
Okay. That's helpful. Thanks, a lot.
Oh, Thanks Coker say.
You too.
Thanks.
We have a question for line of Robert Lee with KBW. Please go ahead.
Great. Thank you a nice Dennis you in your family are doing okay, and that's a mess.
Thanks Ravi too.
Thank you just quick question on the new business the expenses not understanding.
Investing in one we'll see I should we should we take that thing to think that comes as a reasonable run rate for.
For the balance of the year.
But for some discrete spending and then maybe it's too far in advance worlds changing so fast that.
No eventually you envision that kind of moderate if you get some spend on the on the initiative.
Yeah, I think it five dance around these for this year and.
But the way I look at its really a project type related cost versus a run rate related costs.
And we feel pretty comfortable that by the time to get through this year.
We'll probably a little bleed over the next year, but the project will be.
Pretty well be although.
You know again I never underestimate the innovation.
And genius of our solutions teams that are it seems that come up with new ways to do things. So.
Ill caveat with that.
Okay I appreciate it and I apologize for the dog, marking the background. Thank you know music to our ears [laughter].
Once again, if your question please press one zero.
Well.
At this time, a we do have one more question would be from the line of Crispin Love with Piper Sandler. Please go ahead.
Hey, it's actually Crestone, Adam hijacking Christians line, Thanks, [laughter] size little user error on the dial in there I guess on my part.
Two questions for Dennis first on on LSB.
Are you aware of any outflows or redemption notices after the quarter closed for LLC.
No I might actually generally operate that way.
So they're all open.
Relationships okay.
Got it and then.
On the.
Sorry.
[music].
Yes.
Just want to make sure well sorry on the information processing line and maybe we'll get into later, but that's a lower number of your two revenue lines lower than it's been a lot.
Several quarters.
Anything to call out there.
Well I think it's reflective as Steve if I thought I know, we'll talk about kind of were which we've been talking about for the past few quarters as we have to overcome some of these client losses that are matriculated all took a big one average Richard late in the year.
Last year. So this is probably more reflection of that.
Thing else.
Okay.
Got it thanks.
You're welcome thank you.
And at this time there no further questions in the Q.
Great. Thank you I'll now turn it over to Steve will cover private banking and the investments It restaurant manager said services segment.
Thank you Dennis good afternoon, everyone.
The first quarter 2020 revenues for the segment totaled $113.2 million, which was $5 million less or 4.2% down from the first quarter of 2019, primarily due to previously announced client losses.
And our investment processing and technology business, we did see a decline in our asset base revenues during the quarter as result of the market depreciation caused by the pandemic, though they were offset somewhat by an increase in some of our transaction based revenues.
Our quarterly profit for the segment of $2.6 million was $4.7 million were 65% lower from the first quarter 2019, which was primarily driven by previously announced client loss as compared to the fourth quarter of 2019. The problem for the segment was $2.5 million over 49.
5% lower due to market appreciation in our asset management business.
From an asset management standpoint, total assets under management ended the period at $21.2 billion, representing an 11% decrease from the fourth quarter are you on decrease was due to market depreciation.
Despite the decrease in assets, we continue to build a strong global pipeline in our SMB business.
And turning to sales activity for the quarter, we closed $19.5 million net new recurring sales reps.
As mentioned on last quarter's call, we signed a large global private bank SWT, while we had intended to issue a press release during the quarter. We felt it was not appropriate to do so in celebrate this partnership due to the global covert 19 pandemic. However, I am pleased to tell you that this new deal is with HSBC private bank and it will.
Support their global business, we're excited about this opportunity and it is another affirmation of the global reach of our capabilities. Additionally, there is another example of the application of our one SCR strategy. In this case also utilizing our IMF platform to support the alternative asset classes of this client.
We're currently working through the implementation planning of this project and it is important to note it will be a multi year implementation.
Additionally, we're pleased to announce that we recently have expanded and extended our relationship with our long time client Suntrust Bank, which last year merge with BNP to create truest the sixth largest bank in the U.S. This deal allows us to continue providing our current scope of technology and services, the new larger or.
Organization.
As I've mentioned before our one Sci strategy allows us to bring all the assets and platforms across Sci globally to each of our financial intermediaries in a flexible and customizable way. This is another great example of this strategy in action.
In the first quarter, we successfully converted bar Harbor Bank and trust to the Eci well platform or harbor acquiring existing Trust 3005 Charter Trust company. The conversion included the existing trust 3000 accounts and another book of business. The Bar Harbor had previously been running on a competitor's platform.
We're excited about the market acceptance, we are seeing and the momentum these deals representing our sales activity.
In addition to this SVP implementation, we re contracted to trust 3000 clients during the quarter.
As an update our backlog our total signed but not installed backlog is approximately $73.3 million in net new recurring revenue.
Touching upon the market environment and the current endemic and the impact on our business as Al mentioned, we have performed well continue all our critical business functions are crop for our clients and ourselves. This goes across all of our processing and technology businesses include global including global banking ins and family Office services.
Our employees have risen to the challenging performed at an impressive way.
But nothing less than remarkable and continuing to deliver a world class experience to our clients in these unprecedented times, where we have seen transaction volumes increased by 300, 400% some areas.
We have received very favorable feedback from our client based on how we have proactively planned and executed in this new normal. Additionally, we see ways to improve how we do business serve our clients and grow going forward.
From our clients. We expect is there in this with US they are dealing with the same circumstances and work from home environment is giving us opportunities to deepen our relationships and support our clients like never before across the board.
In a word our clients as a whole are engaged with us is giving us opportunities to connect to more deeper a meaningful ways. All current implementations continue all button different Nate mean and sales agendas continue virtually as well, although I would expect some delaying decisions and some delays in implementation date as the pandemic.
Continues however, we believe these did you see just delays not stoppages.
Chronically we believe the disruption caused by this pandemic will provide greater long term opportunity for us as outsourcing will become even more imperative for our markets as a whole.
Typically on this quarter's call I give an update on our strategic focus for the year, even though we were operating in this new normal I believe it is still important to outline these strategic initiatives and focus, especially in light of occurring over 19 reality.
As we continue through 2020 are focused on growth and expansion still rings true, but adjusted to encompass the following priorities first our focus is to continue to sports support and care for our key stakeholders, our workforce or families our clients our clients and clients our shareholders are.
Partners and our community times like these let US show our true character as an organization to care and well being of our stakeholders remains paramount to us.
Second we will continue to focus and maintain our momentum and executing on our key growth agendas.
We're focused on expanding our markets and solutions, allowing us to extend our growth opportunity.
Fourth continuing our strategy of one Sci, which enables us to offer the full power up all of that you guys platforms and assets and enables us to address our clients emerging needs some problems in ways no one else cat.
And finally, managing through the financial headwinds of the lost business, we have previously announced which will be in full effect for 2020.
While the current pandemic add to this challenge we will continue to manage our expenses judiciously as we continue our growth momentum.
Our focus remains on managing through this financial challenges with an eye on establishing a sustainable and accelerating margin rate as we come out of the downward pressure of this lost business.
While I am confident we will manage through this for the long term I do expect a significant challenge in the second quarter as our revenue will have a full quarter of the pandemic impact that combined with the aforementioned losses.
In summary, while we entered this year with challenges such as lost business to absorb and we now have the added challenges Kobin 19 pandemic to manage through we also entered the year with momentum and great opportunities challenges give us the opportunity to think differently and expand our growth opportunities I am excited of the results we are seeing today and.
Optimistic of the growth path going forward.
That concludes my prepared remarks, and I'll now turn it over for any questions Matt.
Once again, if you'd like to ask the question. Please press one zero.
Our first question will be fun and Glenn Greene with Oppenheimer. Please go ahead.
Hi, Good afternoon, Steve how you don't.
Good afternoon, Glenn how are you done.
Okay.
So maybe just a little bit more first walk congratulations, but a little bit more color on them the Suntrust expansion.
Is it sort of a baby pbmcs side of the house or different asset classes, what from Suntrust, just a little bit more on the.
So Glenn its space as you know the two banks have merged and it's basically the combined book of business that will initially be moving on to trust 3000 with Suntrust has been a long time user up.
And then hopefully down though down the road after their merger done hopefully down the road.
We'll look at SVP, but for right now its trust 3000.
Okay, and maybe just a little bit more about their market environment, you talked about sort of delays in decision, making and whatnot.
How are you going out sort of prospect prospecting and or two in sort of like a lot of virtual conversations just a little bit more on what you might expect for the impact and.
How long this may last for what's your kind of thinking for the balance for the year in terms of sales activity.
What I'd say, Glenn is and then I'll add to it out that we've got across the company. We have very good sales teams and very entrepreneurial focus sales folks and they have done a very great job similar to the great job. We've seen on the front line with the operations in production support we've seen a great job.
Sales and service professionals and adapting this new reality and this new normal and certainly our clients are adapting to it and we're seeing sales agendas continue existing sales agenus continue although virtually.
We're coming up with new ways to to kind of test the market go out and prospects and thats being met with great.
Receptance and or acceptance and while I see definitely.
A push and a.
A significant push on the sale side I, just think that as time goes yes people are going to wait to make new decisions on sales. So they kind of get a better folder Bakken offices with that said we were in flight with certain sales prospects and those decisions continue those input.
[music].
Demonstrations demos conversations going through kind of our deck of technology continues and people are pushing for decisions. So I think things keep moving I, just think because of the environment. When we'll see a little delay and just because of the slowdown of being work from home from some of our clients.
Just think we'll see a delay I can't really quantify the impact just expect that to happen as we go through this.
Okay makes sense for one more quick on me.
How much you're sort of outsized benefit could you get from the incremental trading activity in the quarter for your topline.
Well I won't quantify or for that will safety is.
The trading and brokerage uptick help them you kind of the asset market down freeze on the assets or in the yes on the asset based fees.
So it certainly help mitigate some of that downward pressure.
But it is a lower margin business keep in mind.
Got it okay. Thanks, a lot sure.
Next we'll get a line of Chris Shutler with William Blair. Please go ahead.
Hey, Steve Good afternoon, if you're doing well.
Hey, Chris Overdoing Walter.
Let's see so just a couple of questions the.
The 19.5 of net new recurring sales.
It is that.
Inclusive I'm just thinking about HSBC is is is that inclusive of the.
HSBC component that's in mass.
Or is that two separate things.
As two separate thing.
Okay got it.
And then.
I see the info processing line can you give us a sense how much of that line is kind of asset based pricing today as opposed to more.
Have a counter subscription based.
Yeah. So I'd say, if you look at our revenues.
In this segment for the quarter were about 60%.
Asset base.
60% of the total segments revenue.
Yes.
Okay.
Okay, and then lastly on expenses.
Just relative to where you set in the first quarter is there anything you can say about Q2 or beyond.
No outside the fact that you know obviously with the pressure on revenue and the downward.
Pushed from some of the losses, we've mentioned.
Im sure you guys would say AD nauseum at this point.
I'm going to manage expenses, but with that said I'm not going to be afraid to invest S. One Sci is a big push for us and I see tremendous opportunity. So we will continue to invest where it makes sense. Obviously, we'll have some natural.
Howard slope of expenses, such as travel and entertainment, but I do expect some other expense this uptick, but we'll try to manage through it through Q2 and the rest of the year as best we can.
Was there much incentive comp in Q1 related to like Truest store HSBC.
Well keep in mind that you pretty much southern sales comp there and divide sales top now spread it's kind of amortized so it's really not.
Got you expect from before.
Got it okay. Thank you Steve sure.
Once again to give a question. This is Chris one zero Nexeo line of Robert Lee with KBW. Please go ahead.
Thanks, Steven also hope you in your family doing okay. Thanks, Sam we're doing great.
Great. Thanks, I'm, just kind of curious you mean HSBC been a longtime client obviously an item.
I guess the UK so.
Is this kind of taking what you've been doing for them in the UK.
Globally that really the way to kind of thinking that expansion of the overall HST relationship as they've been on.
The platform I guess well since the beginning.
It's really kind of.
The global expansion, you've been hoping for for a long time.
Yes, so I'd say no HSBC has been decline primarily out of UK.
From our SMB standpoint.
And.
Yeah, we did have a piece of processing business with them. If you remember years ago that Didnt go away to a another corporate.
A competitor.
And this business is one that we've been looking out in the processing side.
For a number of years. So I would say this is just to me a very good expansion with a great partner and an expansion that certainly highlights our global capabilities, our processing and technology side.
Okay, Great that was my question. Thank you sure.
At this time there are no further questions in the Q.
Great. Thank you I'll now turn it over to the or turn to investment managers segment.
For the first quarter 2020 revenues for the segment totaled $116.6 million, which was $12 million were 11.4% higher as compared to our revenue in the first quarter of 2019, and $1.9 million or 1.6% higher as compared to our revenue in the fourth quarter of 2019.
This year over year revenue increase was due primarily to net new client fundings and existing client expansion, while the quarter over quarter increase was due to find fundings offset by a market decrease.
Our quarterly profit for the segment of $42.3 million was $6.8 million were 19% higher as compared to the first quarter of 2019.
Higher profits year over year were primarily driven by an increase in revenue offset by a small increase in personnel expenses and investments.
Third party asset balances at the end of the first quarter of 2020 were $610.8 billion approximately $46.7 billion lower than the asset balances at the end of the fourth quarter 2019. This decrease was due to net new client fundings of $16.1 billion offset by market depreciation of 62.
Point $8 billion, the majority of which was driven by October 19 and them.
And turning to market activity during the first quarter 2020, we had a solid sales quarter with net new business wins totaling $9.5 million recurring revenues. Most importantly, these sales were diverse included an equal split the new name business and expansion of existing wallet share with current clients. These events include the following highlights in our.
Alternative market unit, we were selected by a $4 billion private equity shop, who had to date in source their operations. Their selection of Sci was there first move towards outsourcing, we see continued growth across the private equity business and our traditional market unit. In addition is to having success in all product lines, we continue to see strong momentum with collect.
Investment trust for new and existing clients in Europe private private credit from private equity continue to be main drivers of new names as well as cross sells with existing clients.
And then the family Office services unit, we want to multifamily office services client as well as a couple of single family offices. Additionally, we have seen a significant pickup in activity and strong market demand amid the coven 19 endemic.
And turning to marketing to the market environment consistent with the private banking segment, we have performed well and continue all our critical business functions for our clients and ourselves.
Our teams have performed exceptionally we've received very favorable feedback from our client based on how we have proactively plan to executed in this new normal.
While this has negatively affected the existing assets under management of many of our clients. We also see our clients being off the optimistic about growth opportunities and new fund launches geared at new investment opportunities that have arisen from the market turmoil.
We also see great opportunity as we manage through the crisis as we think outsourcing and managers screening themselves of infrastructure investments like technology operations and compliance to name a few will be even more necessary considerations as part of the new normal.
As we continue through 2020, although the second quarter will be a challenge our focus on growth and expansion still rings true and our main priorities will be as follows first our focus is continue to support and care for our key stakeholders, our workforce or families our clients clients and clients our shareholders our partners and.
Our community.
Second maintain our current market and client momentum.
Third continuing our investment platform push into the front office supporting our clients and clients as a strategic differentiator for us.
Fourth continued expansion into market Adjacencies, and new markets to drive long term sustainable growth.
Finally continued execution of our one Sci strategy, leveraging our platforms and solutions to support growth opportunities in other market segments and providing the power of all of Sci to our clients.
Despite the difficulties of what we're all going through over 19 are focused on our clients and growth of our business remains the same we remain optimistic on the long term growth opportunities, we haven't front of us.
That concludes my prepared remarks ill now turn it over for any questions you Matt.
And once you answer your question Please press zero.
First of a line of Kristine Love with Piper Sandler. Please go ahead.
Hey, Chris down and again.
Using crescent line.
Chris Steve Hey, I know you just said dead.
Okay.
Hi, you're getting them.
Mix of.
The revenue growth from from existing and new customers and just wonder if you can.
Is it kind of 50 50, when we look at your 11% revenue growth year on year or is it which waited until more too.
So what I'd say for the quarter was actually 50 50, 50% existing clients represent new business my expectation going forward for the year, it'll 10, it'll trend higher for existing client and I think thats due to a couple of things one.
Large alternative.
Hi base, we have especially in private equity we fully expect those clients are seen as clients you're up to call capital for new investment opportunities and I think having those clients and the large diverse base appliance, we have will allow us to grow and as you know a cross sell and growing from existing find typically takes less time and happens.
A little faster I think we'll still see our share of new business from new clients, but again because of the pandemic and I think just delaying in decisions that will be pushed a little bit and a little bit slower this year.
Okay and sort of related to this.
Are you getting any.
Notable traffic in inbound phone calls from.
Anyone interested in outsourcing you mentioned technology operations and some clients.
Is that.
Way to tell yeah, I think we're seeing what I'd say is across the board I'd say, we're seeing good steady activity still we are seeing some highlights.
One with existing clients to where we're still seeing sales activity within the alternative markets continue.
Even though it's virtually and one kind of.
Spot. This popping up is on the family office area and the folks remarks, we solve this during the 2008 2009 crisis, we're seeing a notable increase in inbound traffic there and I think it's.
During these times.
Folks have slowed down a little bit and are taking the opportunity to reassess their infrastructure and technology needs.
Okay.
Thank you Steve sure.
Next we get a line of Robert Lee with KBW.
Go ahead.
Actually that was my question too so thank you.
Sure Rob So you're going to ask me about backlog I purposely left that outside could add.
I figure you just offered up so.
It's $38.9 million, but the ended the quarter.
Thank you sure.
Yes.
Once again have you have a question. Please first one zero next your line of Sam Hoffman with Lincoln Square. Please go ahead.
Steve Thanks for taking my question can you.
Waned a bit more the $20 million of additional expense.
On one Sci.
What is going to be gone.
What will be the payback.
Well the payback look like.
No I guess regionally.
At Investor Day, when that was announced I thought one that I was viewed more the philosophy.
And then the expense and revenue item and so how is that stands.
Since and have if it were coming forward.
Thanks, Dan first I hope, you're doing well second I'm not sure.
Thats up on the map on the 20 million, but I'll I'll looked after this but what I'd say on one Sci.
It has not changed at all while FCC, one Sci has been a mindset and a strategy change. It's also part of it is.
Very clear about the finding it is opening up our platforms to all other platforms to all the markets and in doing that when you think about the platforms. We have across the company. We do have to spend money to modular alive platforms that have been integrated.
Open them up with new technology, such as HP eyes, and there is obviously an expense behind that so that is one that we see as or strategic imperative for us.
Two we see a huge market opportunity across not just the investment in processing businesses, but across all of Sci and the payback that will get from this is increased sales opportunity and we think increase growth opportunities with new markets and new solutions and opportunities with current clients and we.
If you look at the sales result, both in private banks and Imus. This quarter, we're seeing that this year, we saw that this quarter, we solve the quarter before and we will continue to see going for.
Terrific. So just to clarify the way I got the 20 million with kind of in his opening remarks that in the first quarter of nine in the expense was zero point, you know him and that rose graduate to 5.7 million right in the first quarter, there and that would be roughly.
With some bouncing around the fewer so I took roughly 5 million higher.
And then than it was.
This is that not correct.
Correct, but we really got started on this initiative by midyear last year and so the run rate increase over fourth quarters, a couple of million dollars.
I would throw us about the 20, okay, Yeah, I mentioned code, but okay. Yeah, hi, guys, sorry, yes, sorry, thats helpful to lay that out okay, well. Thanks for taking my question sure. Thank you.
At this time there no further questions.
Great. Thank you everyone. So I'll now turn it over to Wayne Withrow, who will cover the advisor segment Wayne.
Thanks, Steve.
The first quarter of 2020 started with continuing to build the momentum we lost during our migration onto the platform.
Mother nature gave us different priorities and we adjusted accordingly.
First quarter revenues totaled $102 million.
These revenues were up over 8% from the first quarter of last year.
Positive capital markets, where significant influence on these revenues.
Another big factor.
Our Q1, 2020 average asset balance had a larger percentage of higher fee products, then did the comparable period of 2019.
If you recall there was a market declined during the fourth quarter of 28 key and the Q1 2019 bounces reflected a shift to money market funds due to this market shock.
We will be playing the saying too when we compare Q2 versus Q1 later this year.
Expenses were flat in Q1 of 2020 as compared to the first quarter of last year.
But most nerve noteworthy swings within this net neutral result.
Increases in expenses tied to you when growth.
And decreases in expenses related to the wealth platform migration, we completed last year.
Sequentially expenses were down $1.5 million compared to the fourth quarter.
One word of caution however.
Is that this is not a 2008 and we do.
And while I will look at expenses in the context of the market.
Well not hesitate to invest with the new normal creates opportunity.
Our profits increased 18% from last year's first quarter as our revenue increased dropped to the bottom line.
Due to expense line I previously discussed.
Assets under management at the end of the first quarter was $60.8 billion.
Following steep market decline at the end of March at quarter end balances.
Give me below the average asset balance reflected in our Q1 revenue.
Q1, ending balances will be the starting point for our average daily bounce in the second quarter.
During the first quarter, our net cash flow onto the platform with a positive $400 million.
With $300 million of that being an assets under management.
And 100 million being in assets under administration.
Overall quarterly cash flow was negatively impacted by the current environment.
We recruited 65, new advisors during the quarter, a slight decrease from the fourth quarter.
Our pipeline of new advisors remains active.
We continue to invite new and existing advisors the benefit from using the Sci wealth platform.
And have focused the salesforce on bringing both sci manage and non mining assets onto it.
Our first quarter financial results are important what our war mokoena virus and our response.
As al mentioned from an operational perspective, we have always had a strong business continuity program and that is serving us well during this crisis.
From day, one of our decision to close out or folks headquarters, we had 99% of our employees working effectively from home.
While not without challenges, we have handled astronomical processing volumes and our proven our ability to work effectively from home.
Volumes have retreated somewhat at this point.
Aside from processing, we need we needed to change I relationship management model for my face to face model to want digitally focused.
Our advisor clients have the same exact challenge with their clients.
Like most we have transitioned to a digital model and continually improving its effective.
Our advisors are doing the same with their clients.
Obviously impacted by everyone's day to day focus on facing the challenges brought on by the pandemic.
Going forward.
Advisor unit like all of Sci will respond to challenges brought on by the health crisis spacing.
In summary, the first quarter reflected somewhat decent financial results and the building momentum we lost during the migration.
The real challenge. However is ahead of us.
Our scale and resilient infrastructure should allow us to make the best of this challenge.
I'd now welcome any questions you may have.
One Finley John Please first one zero if you have a question.
First question would be from the line of Robert Lee with KBW go ahead.
Great Hi, Wayne I hope you're doing well.
Thanks, Rob.
Is it possible to get a sense of the.
Question over the course of the quarter I mean.
300 to 400.
Cash inflows in the quarter, all things considered is pretty pretty good but can you.
Scott maybe give us some color.
All right out kind of really strong in the March guidance as most of you assume wants it mostly to waive any kind of color around kind of pattern and then maybe.
Even though it's only three weeks that may be as mark come back and bidders.
At least market stabilize kind of if you're seeing any.
Indications of change behavior.
Yeah, well I think I think you sort of summarize the pattern right, we still hit off really strong.
And I think you know come middle of March.
Things slow down significantly.
Think agenda that well underway continued its a little bit harder to get new agenda is going.
So I think activity slowed you into March and I think activity slower in the beginning of April.
What I would say I still think.
You know post migration, we're still seeing some positive momentum, but this is going to be challenged I think a lot of it is.
Unlike a lot of our other businesses.
The impact at the end consumer really impacts our advisors.
We need to get some more stability in the population as a whole.
Right. Thank you and then maybe one quick follow up and I apologize.
Maybe I missed that did you.
Mentioned the number of new.
Advisors in the in the quarter.
I did 65.
Great. Thank you so much.
Next question will be for line of Chris Shutler with William Blair.
Please go ahead.
Hey, Wayne good afternoon.
That's great.
Good how are you.
Hanging in there I guess.
Like all of us.
Yes, one just real quick one the that the three or $400 million of.
Of inflows, however, you want to talk about it.
I just wanted to make sure could you.
Give us the Q4 numbers and the comparable Q1 numbers I just want to make sure I have those apples to apples.
Q4, if you looked at.
See I assets.
Well you feel the total act is about.
300 million.
But given the Sci managed product we were about negative 200.
Okay. So the negative 200, if I if I were I don't have on all the numbers might forgot to remember we were negative.
Sci managed assets about 200 in the fourth quarter.
And that negative 200 is comparable to the positive 300, Okay got it.
Okay. Thanks, a lot.
Once again, if you have a question please press one zero.
At this time, we have no further questions in the Q.
That's great.
Okay, I like to talk I turn it over to Paul Slaughter, who will talk about our institutional segment.
Thanks, Wayne good afternoon, everyone.
Discussed the financial results for the first quarter 2021st quarter revenues.
79.1 million decreased 1% compare to the first quarter of 2019.
First quarter operating profits at 40.9 million decreased 1% compared to the first quarter 2019.
Operating margin for the quarter was 51.7%.
Both revenues and operating profits were impacted by negative client fundings in currency translation.
Quarter, an asset balances of 79.6 billion, reflecting $9.2 billion decrease compared to the first quarter of 2019.
This decrease is driven by significant market depreciation March coupled with negative client findings.
This dramatic reduction in assets will have a negative financial impact on future quarters.
Net funding for a positive 150 million for the quarter, which was comprised of gross sales of 700 million and client losses of 550 million.
New signings included a U.S. thing its capacity you KDB fiduciary management and a new you asked non for profit relationship.
The unfunded new client backlog at quarter end was 430 million.
New sales momentum in activity has been impacted by this crisis as prospects have extended their time frames and delayed formal decision making processes.
With that said our sales teams are working extensively on virtual interactions.
Also in our long history of all the CIO, our best sales years had been filing crisis periods.
On the client side, we have received very positive feedback on our proactive communication materials, Webinars and I'm pleased attentiveness.
We believe scale resources technology, and experience will be important criteria and selecting and retaining OCI always going forward.
Thank you very much and I'm happy to entertain any questions that you may have.
Again, please press one zero if you have a question.
At this time there are no questions in the Q.
Okay. Thank you I'll now turn the call over to Kathy Heilig Etsy eyes controller.
Hi, Thanks, Paul and good afternoon, everyone I have some additional corporate information about this quarter.
First quarter 2020 cash flow from operations with $99 million were 65 cents per share.
First quarter 2020 free cash flow was $71.8 million.
First quarter 2020 capital expenditures, excluding capitalized software was 20.7 million, which included 10.2 million for.
So the expansion.
Jack and remaining capital expenditures for the year, excluding capitalized software is 30 million and that includes an estimate of 15 million related to the facility.
As noted in our earnings release, our tax rate to the first quarter was 21.5% the annual tax rate for 29 team was 20.6%.
And that fourth quarter tax rate was 19.5.
Just want to remind you that the major reason that we have changes in our tax rate.
Due to the tax benefit of stock options when they are exercised.
We would also like to remind you that many of our comments are forward looking statements that are based upon assumptions that involve risks and that the financial information presented in our release this call is not audited.
Some cases, you can identify forward looking statements by terminology such as should May well expect believe continue or Pierre.
Forward looking statements include our expectations as to.
The long term consequences of potential opportunities, resulting from the disruptions precipitated by the Cobi 19 pandemic.
The degree to which we will benefit from our scale resources technology and infrastructure.
Revenue that we believe will be generated by sales events that occurred during the quarter or when our unfunded backlog baseline.
Our resource allocations in technologies and platforms, and which we will choose to invest.
The strategic initiatives that we pursue.
The benefits, we will derive from our investments and our ability to monetize.
Our ability to manage our expenses scale, our offerings and establish sustainable and accelerating biogens.
Our ability take advantage of opportunities to expand client relationships.
The strength of our pipelines in various opportunities and our ability to execute on and the success of our strategic objectives.
You should not place undue reliance on forward looking statements is they are based on the current beliefs and expectations every management and are subject to significant risks and uncertainties many of which are beyond our control or subject to change.
Although we believe the assumptions upon which we base our forward looking statements are reasonable date to the inaccurate.
Some of the risk and important factors that could cause actual results may differ from those described in our forward looking statements can be found in our risk factor section of our annual report on form 10-K year ended December 31st 2019.
This is on available on the Securities and Exchange Commission website and also on our website.
There may be additional risks that we do not presently no or that we currently believe are immaterial, which could also cause actual results to differ from the is contained in our forward looking statement.
We do not undertake to update the forward looking statements to reflect the impact to circumstances or events that may arise.
After the date of the forward looking statement.
And now please feel free to ask any other questions that you may have.
And again, if you have a question please press one than zero.
We do have a question for line of Glenn Greene with Oppenheimer. Please go ahead, Hey, Hey, that's could you just go through the a 4 million of investment losses on the quarter and was that sort of a one off thanks.
Don't repeat going forward.
They they were realized losses, we have we have some products that we invest in really seed money for the most part.
We have to mark them to market every quarter and as the market went down at the ended the quarter, we had a mark days down the market goes back up we would like them back up.
Okay. Thanks.
Again, if you have a question please press one zero.
At this time there no further questions in the Q.
Okay, then I'd like to turn it back over to al.
Thank you.
So ladies and gentlemen, we are fighting on two fronts.
First of the co was 19 disruption.
Second growing revenues and profits going disruptive times.
On the first front.
We were very fortunate to have planned well and been able to keep our.
Workforce healthy and productive.
On the second front, we face short term headwinds, but what we believe that will prevail. Thanks in large part two are motivated and innovative workforce on one hand, and the strategic investments, we're making in our future on the other.
Please be safe and remain healthy have a great evening and thanks for attending our call.
Ladies and gentlemen, does conclude or conference for today. Thanks for your participation infusion agency teleconference. You may now disconnect.
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