Q2 2020 State Street Corp Earnings Call
[music].
Earnings Conference call in West.
Today's discussion will be broadcast live on state Street's website.
Investors Dot State Street Dot com.
Conference call is also being recorded for replay state Street's conference call is copyrighted and all rights are reserved.
This call may not be recorded for rebroadcast or distribution in whole or in any part without the expressed written authorization from State Street Corporation.
Only authorized broadcast of this call will be house I'm, a state Street website.
Now I would like to introduce Eileen for South dealer Global head of Investor Relations at State Street.
Good morning, and thank you all for joining us on our call today, our CEO Bronto Henley will speak first then aercap, while our CFO will take you through our second quarter 2020 earnings slide presentation, which is available for download in the Investor Relations section of our website investors they green Dot com.
Afterwards, well be happy to take question drinking acuity. Please limit yourself to two question and then requeue.
Before we get started I would like to remind you that today's presentation will include results presented on a basis that excludes weren't job one or more items from gap.
Reconciliations of these non-GAAP measures to the most directly comparable GAAP or regulatory measure are available in the appendix worthwhile.
Immigration today's presentation will contain forward looking statements.
Actual results may differ materially from those statements due to a variety of important factors such as those doctors referenced in our discussion today and in our FTC filings, including the risk factors in our form 10-K.
Our forward looking statements speak only as of today and we disclaim any obligation to update them, even if our views change now let me turn it over to Ron.
Thank you Arlington and good morning, everyone.
We release second quarter results. This morning, let me begin by saying that I'm very pleased with our continued strong financial performance I'm proud of our team members worldwide, who continue to put our clients first and deliver these results for our shareholders.
Turning to slide three Oh provide a brief update on how we are successfully navigating the cobot 19 operating environment.
Also delivering earnings growth for our shareholders.
Providing exceptional service quality through improved client engagement driving product performance supporting the overall financial system and safeguarding our workforce are all key priorities for us.
Demonstrated success in each of these areas this quarter and delivered strong results for our shareholders as a result.
Our clients are at the center of everything we do you recall that in 2019, we took a number of actions to improve client service quality engagement and decision making.
These measures have led to improved client engagement, which is critically important in the current environment and its impact is evident in our results and business performance.
Our clients are continuing to turn to state street for operational capabilities and solutions.
During the second quarter, we effectively managed to onboard a number of nuclear projects across various client segments, including a large asset manager a significant asset owner at a national wealth manager NCR D.
Indeed, we see truth sustainable momentum developing in our Alpha CRD platform.
All this occurred for processing, 13% in 35% increases in Bakken Middle office transactions, respectively.
We were the first service provider to support the launch of the semi transparent air product and we see strong demand in the market for this innovative solution.
Our service quality is being recognized across the industry.
For example, we're particularly proud of our ranking in the 2020 Euro money FX Survey, where state Street was named the number one FX provider to asset managers for the third consecutive year with a number one ranking in overall customer satisfaction globally.
The strong client engagement is reflected in our product performance.
Our investment servicing assets under custody and administration, which increased 5% quarter over quarter to 33.5 trillion had another healthy level of new wins amounting to 162 billion in the second quarter.
Yes, it's yet to be installed put it has grown one trillion quarter end.
A global advisors assets under management totaled 3.1 trillion and we recorded 23 billion <unk> total net inflows during the second quarter.
Our spite arranged for B T offs recorded its best quarter of inflows since the fourth quarter of 2017.
Well Spider GL D. The goal DTF had its strongest ever level of inflows at 12 billion.
Further we are competing and winning in key strategic areas of focus for us.
Our recently expanded and re benchmark range of low cost etiology also recorded its highest quarterly level of net flows at 11 billion.
Our sector spiders made strong market share gains with almost half of sector industry flows going into the product during the second quarter.
And we remain a flight to quality for cash management and liquidity solutions across a suite of product options.
We continue to play a critical role in supporting the financial system. The operating environment remains uncertain as to pandemic continues to impact many parts of the world.
Well, we have seen a partial recovery in some areas. Many economic indicators continue to point negatively and unemployment remains high reflecting the real human costs of this health crisis.
State Street continues to support the broader economy in markets and is actively assisting client access to various federal reserve programs that support the flow of liquidity in credit.
Currently State Street is involved and five federal reserve programs either directly such as what the money market mutual fund liquidity facility or as the programs custodian and administrator such as the main street lending facility.
Lastly, developing high performing organization and planning ahead for our global workforce also continues to be a priority.
We continue to have about 90% of our employees working from home.
As we optimize work from home model, while leveraging technology to enable better collaboration there more effective ways to serve our clients.
Last quarter, we took 'em, we took measures to protect our employees and announced the through the ended the year, we suspended any workforce reductions other than for performance or conduct reasons in light of the koeppen 19 crisis.
Now, we're going further for employees by increasing their opportunities for mobility by launching an internal Cohen marketplace.
By supporting our employees as they take on new roles and learn new skills, the marketplace better develop and redeploy our internal talent to meet our evolving business needs and the growing demands of clients and stakeholders.
Turning to slide four and our second quarter in first half performance highlights I am I am pleased by our continued strong performance.
And the progress, we're making toward achieving our medium term financial goals.
Relative to the prior year period.
Total revenue increased 2% and fee revenue increased 5%.
Second quarter EPS was $1.86.
31% year over year Anoro, we was 12.1%.
I'm pleased to report that our second quarter pre tax margin improved by over two percentage points year over year to 27%.
Our first half pretax margin increased by three percentage points.
The front to back Alpha platform strategy provides an attractive value proposition for our clients. Our second quarter performance was helped by the strong revenue performance of Charles River development, where we get key business wins in renewals.
The Alpha CR deep pipeline continues to develop well with a good mix of deal sizes functionalities and scope.
We expect to be announcing new major wins between now and year end.
Turning to expenses the pandemic created an immediate challenge to our expense reduction planning relative to our original expectations at the started the year.
To help offset this impact we took immediate action by implementing a hiring freeze watching the talent marketplace I, just referenced and reassessing all discretionary expenses.
I'm pleased to report the through our continued expense management efforts further I T optimization and operational productivity measures, we reduced total expenses by three person in the second quarter relative to the year ago period.
Well, we continue to invest in our business first top 2020 expenses are now down 2% none of those investments relative to the year ago period.
For us productivity management as a way of life as we continue to build on the strong culture of expense management. We successfully established during 2019, when we undertook significant actions to improve our operational efficiency and reduce expenses through a comprehensive firm wide expense savings program.
We cannot control the economic environment, but we can't control our expenses.
Despite the challenges the cobot 19 pandemic has created we remain highly focused on driving productivity improvements in automation benefits as we strengthen our operating model enhanced service quality, even during this challenging period.
Turning to our balance sheet in capital, we're pleased with our 2020 see CCAR results and the inaugural determination of our preliminary stress capital buffer at the minimum 2.5% level.
The Koeppen 19 pandemic has provided an unprecedented real time stress test and our strong capital position has enabled us to operate effectively help stabilize the financial markets and support our clients employees and communities.
Well the environment remains uncertain state Street's performance under the Federal reserve severely adverse scenario as another reminder of our business models resiliency and our capital stability.
We recently announced their intention to continue our quarterly common stock dividend of 52 cents per share in the third quarter.
Consistent with the federal reserve's instructions to all large banks, we will be suspending share repurchases for the third quarter.
As we look ahead, given our strong capital position, we will consider a full range of capital actions, including the resumption of share repurchases in upcoming quarters.
We will of course take into account economic conditions safety and soundness, the federal reserve supplemental see Carson errors and review process, our capital levels and any interim regulatory limitations.
To conclude I'm very pleased with this quarter's results, which demonstrates continuing revenue improvement even during difficult times as well as further evidence of our ongoing ability to tightly controlled expenses, while continuing to save current employees and serve our clients and with that let me turn it over to Eric to take you through the.
Quarter in more detail.
Thank you Ron and good morning, everyone.
Let me begin my review second quarter by summarizing our year over year result on OLED panels on fine.
EPS is up 31% revenue is up 2% expenses down, 3% with expanding margins and healthy our lease.
I think it's useful to point out than what we continue to operate in an extraordinary environment for the Covance pandemic.
Our results this quarter showed strong underlying momentum and durability in our state Street operating model.
Our bellwether servicing fees are up year on year, our prior investments in our global FX and CRD franchises have yielded strong results.
We've been able to carry a reserve build and throughout all of this we've continued to travel expenses lower and lower and so our pre tax margin, it's up 2.3 points year on year and our OE is up coupon.
Turning to slide six period and that you see a levels increased 2% year on year and 5% quarter on quarter. The year on year and was driven by higher at period end market levels and client flows partially offset by previously announced client transition that had a de minimis effect on red.
During the quarter.
Quarter on quarter. The are you see a increase which is partially reported on a like lets mainly due to higher period end equity market level.
Hey, land levels increased 5% year on year end, 14% quarter on quarter to 3.1 trillion driven largely by higher period end market levels on net inflows.
Amid continued an uncertain economic condition global advisors saw net inflows of 23 billion driven by cash ETF flows partially offset by institutional outflows.
I'd highlight that are you at spidery Ts saw another strong quarter 24 billion of inflows, which was well diversified once again.
As Ron mentioned, our low cost spider portfolio F. for their largest quarterly inflow, yet and continuing to gain share our commodity tea essence sector ATM saw strong close to.
Moving to slide seven servicing fees were up 2% year on year, reflecting higher client activity and net new business, only partially offset by some pricing headwind, which continue to moderate.
Servicing fees were down 1% quarter on quarter, driven by lower average market levels, partially offset by higher client activity.
Despite the recovery and equity market since the first quarter average domestic and international equity markets were still down sequentially impacting servicing fees.
However, client activity remained elevated down from March level, thats market volatility persisted throughout the quarter.
I missed the ongoing pandemic, we have maintained business continuity and continue to provide clients for the benefits of our scale in different capabilities.
On the bottom right of the panel. This page. We've included again, some sales performance indicators that underline that dynamic.
As you can see how you see a wins totaled 162 billion into Q, the federal deals coming through.
Assets to be installed as a period end QQ, our strong at one trillion.
We continue to have a strong pipeline of for front to back out the deal and expect multiple outside announcements in the second half of the year.
Turning to slide eight let me discuss the other important revenue line.
Beginning with management fees to Q revenues decreased 4% year over year, driven by institutional product outflows in mix, partially offset by strong net inflows from both MTF and cash products.
With the second quarter now complete have better sense. The forward rates picture, we now anticipate that the likely impact of money market fee waiver net of distribution expense will be at the low end of our previously announced range or just 10 to 15 million for the full here.
As I mentioned earlier in my remarks, FX trading services for another strong quarter with revenues up 26% year on year, but down 25% quarter on quarter at the business again elevated volumes and increased client demand, but down from the record levels seen in one Q.
The FX trading franchise is continuing to see market share gains and increased client engagement as Ron mentioned, we saw strong results across the recently released 2020.
He survey securing the number one spot in global customer satisfaction service as well as the number one spot for all products and for electronic trading for our asset manager clients.
Security Finance revenue decreased 27% year on year as agency lending demand for asset light and then shift towards lower spread fixed income assets and as ongoing hedge fund de leveraging in falling market stroke down enhanced custody demand.
Securities Finance revenue was flat quarter on quarter.
Finally, softened processing fees increased 46% year on year and more than doubled quarter on quarter, driven by significant revenue at that CRD, which I'll talk more about shortly and past positive outcomes in our market sensitive activity, which includes certain currency translation impacts and Mark Nonemployee long term and.
Plan.
These other items were positive this quarter in contrast to first quarter when they were notably negative.
Moving to slide nine C or D generated standalone revenue of 145 million, which was up 59% year on year, and 45% quarter on quarter, driven by a large wealth implementation and several large asset manager renewal.
We've always talked about the lumpiness inherent in a FC six as fixed revenue recognition standard. So while we're extremely pleased with these results remind you not to read across any one quarter.
Moving to the right hand side of the page we were quite pleased to see the momentum in CRD. This quarter overall and the progress we have made to expand the CRD presence in the wealth segment in particular, which you may recall it was one of our key synergy commitments at the time of acquisition.
Well now represents approximately 20% of CRT revenue and represents another area of growth for us.
Turning to slide 10, Eni decreased 9% year on year end, 16% quarter on quarter.
Excluding the impact that that's public market benefits of 20 million in the first quarter and I was down 13% quarter on quarter.
Sequential decline and I was primarily driven by the full quarter impact of lower market rate, including the impact the central bank intervention that more you ft liquidity driving lower than expected sponsor repo volume.
We continue to support clients use at the Federal reserve money market Mutual fund liquidity facility.
As a result, this quarter MMS LS balances averaged 19 billion and finished the quarter at 11 billion.
You will see on the left hand side. This quarter. We all are also showing our NIM, excluding the impact of the MLS.
Well and then I'll have had a positive impact on NII this quarter its impact on our NIM was a negative five basis points.
Average assets increased 13% quarter on quarter, an average deposits increased 9% quarter on quarter.
However period end deposits decreased 22% or $57 billion quarter on quarter as a portion of the uptake in the deposits. We thought the height of the pandemic receded in the last few months.
Given the fed expansion of the money supply. However, we do expect a good portion of the current deposit sustained with us, which we will reinvest in a mix of both loans and securities.
Moving to slide 11 will begin included some color on the loan portfolio as well as the company's allowance for credit losses.
On the top panels at this page you can see updated detail around our high quality loan book and its characteristics.
Compared to first quarter average loans decreased 4% while period end loans decreased 17%, primarily driven by reduction Klein overdraft levels. We saw during March.
Overall, the loan book remains healthy with our largest funding category capital call financing to private equity fund seeing no change in borrowing pattern, but with continued strong demand for new facilities.
Moving to the bottom panel.
Allowance for credit losses increased to 163 million, primarily due to a 52 million in provisions for credit losses, driven by changing economic conditions and ratings migration offset by 14 million in net charge off.
You will note we took advantage of the rally in the leverage loan markets, the selectively de risk our leverage loan portfolio and exited certain positions, which effectively costs of 6 million given the necessary reserve bill So a good trade.
On slide 12, we've again provided a view of expenses this quarter X. Notable so that the underlying trends are readily visible.
Our QQ 20 expenses were down 3% year on year and down 1% quarter on quarter, excluding both notable items and seasonal expenses.
With favorable trends across most expense category.
As we said last quarter and that's the ongoing pandemic, we continue to execute on many of the investments and optimization savings initiatives detailed earlier in the year.
And while we suspended workforce reduction through year end, how does then for performance or conduct reasons in light of the co. The crisis. We have found additional expense opportunities to act upon.
We continue to make progress on lowering compensation benefits cost occupancy costs and other costs, while I see cost trend lumpy, but on track.
We're particularly pleased that our results reflected continued and sustainable expense reduction notwithstanding the extraordinary market condition, while also delivering topline revenue growth.
Moving to slide 13 on the right you can see the evolution of set one and tier one leverage ratio.
We are thus navigating this challenging environment with strong capital levels.
Into Q, our standardize CET, one ratio increased 1.6 percentage points quarter on quarter to 12.3% driven by solid retained earnings and a reduction in our WH as market volatility receded.
The tier one leverage ratio was essentially flat at 6.1% due to higher capital levels offset by higher deposit.
We were also pleased with our 2020 C Corps result, our capital resilience under the fed stress scenarios continues to demonstrate our low risk profile.
And this year, we received preliminary stress capital buffer requirement of 2.5%, which would have been much lower if it were not Florida at 2.5%.
As you know the fed has asked a large banks to suspend share buybacks and third quarter. However, we expect to continue to pay a quarterly dividend of 52 cents per share.
And finally as Brian noted the firm's capital position remains strong amid evident the uncertainty created in the Covance 19 pandemic. Accordingly, we will consider a full range of capital actions, including the resumption of share repurchases in upcoming quarters, but we'll do you still considering economic conditions safety and soundness, the fed supplemental see Carson.
Growth and review process, our capital level, and then in turn regulatory limitations.
Turning to slide 14, we've again provided some summary of our Q2 results.
As we mentioned earlier, we're pleased with the results and believe they are a reflection of the durability and resiliency of state Street's business model as well as our focus on delivering on our strategy of both growth and productivity.
Throughout this crisis, we have differentiate ourselves by proactively reaching out and assisting clients through these difficult time.
We believe that our resiliency during this extraordinary period and our constant attention to service quality has created goodwill with our clients and positioned us for share gains over the medium to long term.
Last quarter I outlined our full year financial outlook under a certain set of assumptions, noting that there was a range of possibilities as a result of the potential length of the covance endemic and the associated economic impacts.
I would like to update those expectations for their current thinking again, noting that remain a broad range of possible outcome.
We now expect global Central banks will keep short rates at current levels for the remainder of the year and long end rates will say ended June thirtyth spot rate through year end.
We also announced in the average global equity markets levels for the remainder of 2020 will be flat at current levels.
As a result of our clients.
Engagement moderating pricing pressure and CRD and Alpha front to back when we now expect that full year fee revenue will no longer be down 1% to 2% year on year for the full year 2020, but instead will be approximately 1.5% to 2% with servicing fees expect to show.
Year over year improvement relative to 2019.
Regarding eni given the impact of continue lower long end rates on the investment portfolio and Central Bank intervention with more you at the liquidity driving down the expected repo volume, we now expect and I'd be down approximately 9% to 11% on a sequential quarter basis and expect the fourth quarter to be relatively in line with.
Coming third quarter.
Turning to expenses, we remain laser focused on driving sustainable productivity improvements and achieving automation benefit.
We expect that full year expenses will now be down at the better end of our previous guidance down 1% to 2% year on year. Excluding notable items as we continue to find ways to control and drive down expenses.
In regards to our provision for credit losses, we continue to see a range of outcomes based on evolving economic condition and any rating migration.
On taxes, we expect our tax rate for the full year to be closer to the lower end of our 17% to 19% range.
And with that let me hand, the call back to Ron.
Thank you Eric.
Operator can you open the call to questions.
Thank you ask a question you will need to press Star then one on your telephone to withdraw your question. Please press the pound or how sticky. Please standby, we compiled the Q and a roster.
Your first question comes from the line of Brian Bodell from Deutsche Bank. Your line is helping.
Great. Thanks, good morning folks.
Thanks for taking my questions.
Eric If you could just some talk a little bit the and I guide just in terms of what you're seeing for client deposit levels moving into three Q and to what extent.
Your your guidance for through Q4 Q includes.
More reinvestment or more shift of deposits into.
Longer celebratory longer term securities.
I'm, sorry, I know I also want want one more on that is the.
The repo financing business in terms of.
In terms as the impact it looks like that was much lighter in the second quarter through just your thoughts on that but second half as well.
Eric your muted.
Wow.
Brian It's Eric Thanks to the question.
Well clearly navigating through some challenging.
Time today with the interest rate environment, and obviously trying to do at that too.
To to navigate through.
When you think about the Eni guide.
There is clearly the continued down tick in long term rates, which which is affecting.
The investment portfolio and we'll continue to some extent in the coming quarters. After that and then there is some lower volumes sequentially and overdrafts and then the mmm left balances that are also contributing to that.
The second quarter to third quarter decline I think once we get to that level.
Part of what.
Happens is that you've got offsetting factor if you've got on one hand, a lower long end rates, which put us.
Which which tend to tractor through the investment portfolio.
For another couple of quarters, which creates a downdraft and those I think can be offset.
By the growth in the investment portfolio in lending base, which is really supported by the higher levels of deposits that we're operating at now it's hard to tell exactly what the what the deposit levels are going to be but I think if you. If you if you stare at the data that we show.
I don't hear you know we used to run at a 150 560 billion of deposit.
First quarter average was solidly at 182nd quarter average at solidly at 197, we think we're going to land somewhere between those two points, which means that off of the original base of the call. It 160 billion of deposit Theres, an ability to expand the investment portfolio put on to raise.
Sure and carefully.
And selectively invest in some some high quality position to maintain our R&D to allay and we think that together should create some stability.
On on NII.
In the in the coming quarters.
The sponsored repo program as you mentioned did create a downdraft from one to Q.
And what we're seeing there that the overnight repo rates are less attractive than they've been relative to one month treasury rate and so that creates reduction in volumes.
If that were to persists, then we're not going to get to a lift there and we're not going to get the volumes, we'd like to say on the other hand, if that normalizes back yes, there could be some upside in the coming quarters, but but more more time will tell before we can incorporate that into our forecast great thats.
Very helpful. And then maybe on C or D. The is very strong quarter I'm very encouraging on the wealth.
That's great wins, maybe just a two part question Eric on the revenue trajectory obviously.
It's lumpy like you said, maybe if you can just try to characterize what you thought was was onetime licensing fee revenue within the second quarter and then maybe Ron if you want to talk a little bit about about that wealth strategy sounds very encouraging in terms of.
Of of the when that you've announced and potential new winds down the road and maybe just in terms of sizing that space for you what you're doing there on the wealth side, that's different than the institutional.
Set manager side at CRT.
Yes, Brian when I start and then turn it over to Eric So sort of the latter part of your over your question there Rob.
As we've mentioned when we acquired or Charles River.
In addition to its core institutional clients segment develop a fair amount of technology applicable to the.
To the wealth segment, particularly the larger wealth managers segment.
Large private wealth managers warehouses et cetera, and that is.
Weve.
We continue that R&D.
And also leveraged our own client relationships to be able to help propel that growth growth and that's what you're seeing playing through.
We see it as a as a solid and additional form of growth on top of the core institutional business.
Right now I think it's about 20% of the business up significantly from when we acquired it and we would expect it to be growing probably a little bit more than the.
At a slightly higher level than the institutional business mix. The good news focus is that its shares.
The same technology and operating platform I mean, there's certain sub applications that are different but the oh, we can do this at scale easily.
The way I would say you should think about.
The Lumpiness I mean, Eric will take you through the.
How the accounting actually works, but.
When you start to see kind of positive lumpiness like this I mean, it's essentially a client being installed and it's at the point them, but we can start to.
Recognize revenue and following that will be ongoing recurring fee. So that's how you should interpret the lumpiness.
It is onetime as it relates to pack client, but it's certainly not onetime as we continue to grow you'll see that same kind of.
Lumpiness.
Brian Let me, let me add some texture and even some numbers to that so that you can get a better sense as the underlying revenues here can we are quite quite pleased with the growth trajectory, we're quite pleased with the pipeline with the.
Contracted but not yet installed level.
We track a number of different metrics here.
To give us confidence in the developing.
Growth.
The revenues really come I'll call it broadly into two buckets.
There is fast revenues and professional services and fast revenues are pretty straightforward when a client it's a five year contract and the revenue recognition is that the revenue is it ratably applied over those five years.
Very very straightforward and in fact, we want to be in the business of growing SaaS revenues over time and professional services because those create a very regular in recurring set of revenue.
The second part of the revenues come from.
On premise installations, and we have a number of clients who had on premise inflation than even some who continue to prefer them.
And in those cases the revenue recognition is comes in two parts you have an upfront piece, which could be in the range of around 60% of the contract.
And then.
You have the balance the call it 40% in the example, I've given you which could be ratably over the contract length. If that were say at a four or five year contract and so you get a piece and then you get.
You get a trail behind that so those are the two big pieces.
When when we look at the revenue numbers that we showed you on page nine you go back what we want to be doing they want to be growing both pieces to be honest and in particular the regular.
The first one the very recurring revenue base.
If you go back on page nine and you look at the data we showed around revenue back in the second quarter of 2019, we had 91 million of revenues about 65% of that was in fast and professional fees and so it gives you a sense for the kind of the relative amount if you.
Go.
In quarter of this year the those recurring fasten professional fee revenues were just over 80 million. So we see both we see nice growth year on year and in fact, it's happened consistently over the five quarters and then the balance of the 145, it's been more in the.
On premise kind of.
Revenue installations, where you get.
Good sized piece upfront, but then the recurring piece in the.
Future.
And I think if you step back was that kind of revenue recognition, where we're focused on growing client and client engagements in some clients are delighted to be on the SaaS platform and we've seen consistent growth. There. So that gives us some confidence in the kind of the the the completely recurring base.
And then you have.
The the more on Prem kind of revenues, which start off with a piece. They then have a trail.
All right and then when the contract then you get another piece in the Thats lumpy and then in a trail after that and that's just the nature of the Beast of how.
How's the revenue recognition works all and we're quite pleased with this revenue trajectory.
The backlog the a contracted but not yet install and the sales performance and so while you see some lumpiness.
It's we're seeing good good underlying metrics as well thats great color level detail. Thank you very much.
Your next question comes from line of Betsy Graseck.
Bargain Stanley Your line is open.
Hi, good morning.
Good morning Betsy.
I wanted to understand a little bit on the expense side I know you called out you know improvement there in part from things like market data, which is a really impressive given that market data cost for most.
Participants is moving higher and higher every quarter.
So just want to get a little bit of color on <unk> and on the subcommittee savings and to what degree is there more legs, there and that a in a specific line item and your expenses.
Betsy it's it's Eric both of those are our sizable expense.
Category. They both are part of the transaction processing line item that we report.
And what we found is that.
We need to just actively manage those.
Sub capacity is something that that we need provided to us and so yes, we work that some of the largest banks as well as some of the country banks to fund the best mix of.
Service at a.
Had a declining cost level in our view is that something we need to keep doing a year after year and weve.
We've been able to deliver I think some good savings this year and our expectation is to continue that trajectory market data is a little more complicated to your point is that there is a plethora of market data.
Ingestion, that's possible and what we found is that we need to both manage the ingestion.
Hi, because if we.
Secure market data into many different types than we end up.
By more than we need we also need to find a vendors and over the last couple of quarters. We've started to really work more closely with several of our vendors around who gives us the best cost and pricing kind of quality levels and that's also been factored in and then there's a third piece to be honest on market data.
Which I find.
Helpful from a client standpoint to be honest, which is somewhere market data costs are borne by us, which we want to drive down, but with the right quality and others market data costs are sometimes one with our buyer clients and were in many cases working with our vendors against both pools of market data to try to secure the best result for.
Our for them as well so lots of activity there what I would tell you is that some of what you see on that transaction processing line is the result of some.
Intense focus on those areas and it's actually a bit.
As an example of what we're doing in other areas, we talked about starting to drive our technology costs down and so we're doing similar work on hardware coffin hardware vendors working with them in a more active way, we're doing that in software and maintenance contract from the technology side.
And so it's really become an expanding.
I'll call it expertise, but set of partnerships and approaches that we've taken I think to good effect, but to be honest, one that we need to repeat year after year to get the benefits that we'd like to help drive our expanding margins.
Okay, and so you've got some more legs. There is the notified answer and I. Appreciate all the color, it's interesting, especially with the client side of it. The did follow up I have for you. Eric is regarding the net interest income nurse margin outlook and he had a 19% down Q2, and three Q1 and stabilization into four maybe you could give us some color on the us.
Options around the four keys stabilization what has to happen.
For that to come through.
Yeah, the 42 stabilization.
It's really driven by I think the economic.
Kind of the interest rate environment first and foremost so we're assuming short end rates stay more or less for they are and we are assuming long and rates stay more or less where they are.
Forward, though we've had some some expansion and an increase in I think.
We've kind of little gun shy about always planning for those and so we feel like we should plan at the at the current levels. So thats. The first part of the assumption based I think the second part of the assumption based is that.
There is some normalization deposits, but as I've said I think we've got a.
Nice chunk.
There that we can begin to think of as well that we are confident are stickier and it depends on the speed of our reinvestment in the investment portfolio into some asset classes that we're comfortable with and I think that will factor factor in as well.
Okay alright. Thanks.
Your next question comes from the line of what Glenn Schorr from Evercore ISI. Your line is open.
Yes.
Hi, Thanks quick follow up question on the expense side I heard your overall comments, so that's what matters most but.
Within this quarters.
300% dropdown.
40% of the reduction expenses was lower marketing and travel I'm, assuming that's the product would be environment.
So so how much of that.
It's sustainable or works its way back and again I appreciate thats, probably part of your overall expense.
Yeah, Glenn that Thats fair because as you just as you.
As you know we're trying to find sustainable expense reduction this year and then into next year and if we just from down and they pop back up that doesn't that doesn't count neither for our shareholders nor for us.
There are some tailwinds of travel expenses and even some medical benefit claims are lighter.
[music].
In the in the expense.
Trend, but remember Theres also some headwinds that we would have or actions in areas, where we would have driven expenses down that we weren't able to and so.
As as a as the biggest simple example is the.
Is the pause on on lay off because of the pandemic now that would have been worth at least half a point of expense reduction if not a little more.
For every quarter this year on on a full year basis.
And.
I think what what we're gonna have to do next year is go back to what we've been doing driving down all of our costs, our compensation benefit costs, where we'll be able to now action that.
And continue to drive down third party spend cost as well and so I think where I think I think the trends will line up they're just going to be some.
Some ins announced or headwinds and tailwinds at any point.
But we see a path to continue doing what we're doing which is to drive expenses lower.
And lower year after year.
Okay I appreciate that and then.
During the quarter, you announced the venture with S and the.
Servicing the wealth management space I'm curious if you could talk a little bit about what the target of that venture is they seem to have a really strong operations in Europe, what you bring to table, what they bring to the table.
That'd be great. Thanks.
Glenn It's Ron.
So FNC.
Has a very strong operating platform its target market as they are or certainly in the in the us would be a.
The smaller and or lower.
And in terms of size of market segment than we do in Charles River and CRD.
So it's quite complementary to what we do.
We would also.
We would hope we would be there custodian administrator.
As they move into that space. So we view it as a.
As a way too.
Expand into way.
To even further into wealth segment that we wouldnt naturally have leading capabilities and number one number.
Number two they've got some really interesting technology that we want to continue to figure out how we can use elsewhere. So it's a way of.
Getting some technology leadership.
As well as revenue stream at a relatively low cost for us.
Okay. Thanks very much.
Your next question comes from line ups Brennan Hawkins from you Yes. Your line is open.
Good morning, Thanks for taking my questions asked first I'd like to follow up on the Charles River commentary and the front end fees versus that trail and the trail dynamic it sounds like that's a little less than half of this quarter's revenue.
So wanted to confirm that's the case and then.
Is the Onboarding.
The installed at the front right front end is that a multiple quarter dynamic or is that a single dynamic how does the trailer in those arrangements compare to the upfront. So how should we think about the continuing revenue dynamic and then how long are those contracts and what's the typical retention rate.
I, just would love to get a better dimension for the cadence of those revenues. If you can provide some of that thanks.
Brendan it's a it's Eric the it's fair to say to get into the details because the detailed thing matter.
But as we do that let me let me remind me there's a range of details and so let me let me try to answer the question that we can certainly follow up with you and other investors that are curious, but this is.
A bit of the bankers.
Working in a software space, which we just operates in a different cadence with the assay six of fixed.
First the recurring revenues. The fact kind of implementations are pretty straightforward and I think I gave the numbers. There I think you've got the right mix that the mix in each of these quarterly though it's been a much more.
Kind of fast professional services.
Completely I'll call it completely.
Stable revenues and those have been building.
Nicely and I think we're quite pleased with that trajectory.
On the Lumpier part of the revenue, which was the on Prem on premise installations.
The answer is theres, a range of different situations, which have to do with different contract lengths and so let me just give you send contract lengths can can range.
From call it three years to.
Eight years right and for for those kinds of range is then you tend to get.
On three year contracts you might get.
70% upfront and then the other 30% over the the Rick the rest of the three year thing comes in kind of year by year by year.
Fourth quarter by quarter by quarter, the effect or for something like a seven or eight their contract.
You'll tend to get about 50% in the first tier and then the other 50% in those seven or eight years ratably.
And so there's a range, but I think it's it's it's I don't know, it's the town slated to measure that revenues in a reasonable way in you'll you'll have to.
Talk with them, if you like it or not I can't really alpine there.
But that's the range.
From a piece comes in a particular quarter and why is that because that's when the system literally goes live and is beginning to serve clients. So it becomes in service and it's the quarters after that through the length of the contract that you ratably.
See the rest of the revenues.
What I do want to remind folks though is that once we have a client declined retentions in our business are very very high.
We we.
We retain most of our clients and so on a three year contract deal. The description that I just gave of 70% plus a 30% over the trail three years later again.
Repeat it right.
Same for a five year contract five years out and so I went away.
We're a little hesitant when people can easily say well that's one time, it's not really one time right. It if there is a good piece upfront there's a good thiess ratably.
Brought the that we've secured and then there is almost always the.
The extension, which brings the same thing again, it's just that it's a little lumpier than than we'd all like so maybe maybe I'll pause there, but happy to talk more throwing time.
One more piece of my question I think that you might have forgotten Eric is the retention rate with the historical retention rate on.
Those three year ribs.
And we can I think it's very high.
Why don't we wanted we do a little follow up and get that out here in a Reg FD, okay, but it's a weve they was part of our diligence retention rate.
Why quota precise number let me let me come back to you, but it's very very high yes, it's something that gives us a lot of confidence because remember once you have an on premise installation.
Like you've invested a lot internally at the come the client five six integrate it with your.
You know with your with your stake.
With your other systems and the subsystem and so there's a there's a willingness on there's an ability which together.
Felt in very.
Very strong very high renewal rates.
Yes, right, it's roughly maybe maybe just to reinforce why that is.
Typically what goes on and these conversions is.
Theres, a pretty big and significant operating model change that goes on it.
Asset manager of the wealth manager so typically a new client is not that we're displacing somebody like Latin typically it's a client that's got a bunch of the spoke and scattered.
Technology and they are moving to a comprehensive kind of Oh of system like that so that's why you get very very high retention rates, because frankly, the switching costs.
Clients side are pretty high.
Yes. Thank you for that appreciate all that color on there and then following up on you gave some great color on expenses and I understand it's really hard to be too granular Eric to your point in the unusual operating environment that we're in but I give something in a shot anyway.
Have you reviewed your real estate footprint.
Boston is.
Fairly expensive city and when you look at your website. It seems like you have three different offices in the city.
Really the optimal footprint based upon the experience that we'd been seeing here early read on the.
Pandemic in the shutdown have you restart the potential for remote or distributed.
Workplace arrangements, how much do you think you can compress your occupancy expense.
Over the next few years on the back to some of that.
And then it's Eric let me start on that to give you a little bit of kind of near end views and Ron Ron many playing as well and in fact I might I might ask your CFO. The same question when I when I when I see of next because I think every CFO out there not just bank CFO with his wrestling with this specific question.
Sure at State Street, we have occupancy expense of about.
435 million box and we had already plans to drive it down this year by about 5% so.
Taking a chunk out of that and part of that as continued rationalization of our high cost location footprint and.
You know.
Taking advantage at the same time of some of the productivity right takes us from the head count management that we've done around the world as well.
I think I think and then very near term a couple things happening real estate. One is we just don't add any real estate and Ron and I put an immediate halt as soon as this pandemic happened. Let me tell you Theres no. There's no that halt is perpetual practically.
It then it does have a little bit of an effect, where we can easily sublet. So now what we're doing its going back to every lease.
That we have and literally going through and asking the question.
When does it to rollover.
A question that it really wrestle through is what kind of.
Occupancy rate can you operate at and if you now most of US if operated at the.
Ill call it 85% to 95% occupancy rate and I think what this pandemic has demonstrated that the tools in the capabilities through technology and.
The.
The methods that we have in a company it.
We can we can drive occupancy rates up to we originally planning to 130, 140%.
Just by thinking about People's.
Historic approaches to being in the office or not.
And I think that that is kind of what gives us a view that if we originally thought we could get to 120% occupancy rates and the now with a pandemic. We're confident we could get to 150%. That's how you start to get some real leverage on the occupancy costs.
I think the one thing that gets in the way of that and I'm I'm, taking very kind of financial and we have to think about our har Har Har our people our teams are clients and all the interactions and all that they do if we also.
Need to be respectful of some of the social distancing requirements in the immediate term and so I think what we have as we have a period right now where work from home in.
Is 90%, let's say.
With Poeschel distance thing, we can bring a certain number in.
At some point there is a vaccine so the social distancing may not be.
At the same level as it is now.
And we have a whole group of in place we've learned to operate incredibly effectively work from home some home prefer to be home and and so.
So I think I think there's a lot to do here is I guess the summary, I tell you we're already driving down occupancy costs I think the question that will come back to in the coming quarters and in the coming year is.
How much more it's not that they can't that they won't come down they'll come down I think it's a question of scale off of that base of expense that.
On that I circled upfront.
Yes.
Im sorry.
Brent It's Robin I would add to that is in a fairly short period of time, we've gone through.
Three kind of phases work.
Work from home.
It was about one week event for us.
And we got 90% of the people out of the buildings into home environment. We started about three weeks after about planning the return to office.
Which was in Asia Pacific as you can imagine we've started back.
Also parts of Europe slower in you roll the reasons that we know.
We've also launched the third phase with US, which is what we're calling the workplace for the future.
Which is encompasses a lot of the thing that things that Eric is talking about to your point on Boston as we had announced earlier we are we announced late last year that we're vacating.
Headquarters tower at the end of 20 to 22.
Going to offer moved to a newbuilding in Boston, but there's much more flexible better terms lower amount of space and it's early enough now that we hope ability to.
You know to customize that even further given what we know about cope with 19 so.
Again, I don't believe that we could operate or should operate anything near 90% work from home, but we can operate in a much more flexible basis would work from home being an integral part of what we do.
It's certainly part of our disaster recovery now so you should start.
Our shutting disaster recovery spaces to and you should expect and holders to.
A much lower footprint are really starting quite soon.
That's great Eric Eric and Ron Thanks for all the color and of course, Eric Happy to line up a discussion with my CFO. He can give you tips on how to deal with my modeling questions [laughter]. Thank you Fred.
Your next question comes from line of Ken I stem from Jefferies. Your line is open.
Thanks, Good morning, guys.
Eric I was wondering if you give us a little bit more color underneath your your full year fee outlook I know given that you've got the C or D comments, you talked about and then ask that transaction activity, but can you kind of walk us through how you're now seeing the bigger buckets move both sequentially and year over year, given the at least the average asset pricing we have in Europe.
Your comments about fee income pressure moderating thanks.
Sure Ken.
Yes part of the reason we gave an overall fee guide is that there theres always going there always are and they're always going to be some.
Some ins and outs in that.
In the various fees.
I think if you if you think about the different buckets the texture that I'd give.
Against the full year guidance, one and a half that 2%.
First on servicing fees I think we feel positive we've delivered year on year growth in servicing fees now.
For the first quarter year on year, and then the second quarter year on year, and we think that will be.
Positive for the year and that's different I I.
Contrast that to previous years.
Where we had more fee headwind.
Or aware.
We didn't feel like we have the performance would have liked but we think servicing fees will be positive and that's without an average equity market uptick really because globally.
Equity markets are kind of in the more more more flattish range.
Management fees I think are doing well.
In a little more negative there, we'd like to do a little bit better than than than than what we've done.
FX trading and then all day and electronic services around that'll be a clear positive.
Second lending a little lighter as we've described some of the shift there also.
Area that were for working on and then you know in the southern processing fees I think we're quite confident on.
The Charles River momentum.
Especially with some of the recent win and then there is the kind of the.
There's some other in that line, there's some other business activity or loan fees or other.
Software fees et cetera, then there is some of the lumpy stuff that we have to just taken marks so all in all though full year, one and a half to two percentage will we see today.
Which.
As I think gives us the.
The the positive momentum that we'd like and then something to build on for next year in our view is.
We can if we can drive even.
Low single digit fees.
Upward and continue to drive expenses down we're we're getting the right right.
Results.
Yep.
One big picture, one for Ron Ron last quarter, you talked about a.
Little bit of a push off in either install patients and client discussions because of just everything that we're dealing with.
Your win rate in servicing was about flat can you talk and you've talked about the potential wins in the C or decide to wealth management platform. Just talk about just the conversations that are happening now and how that's evolving just in terms of the core business and any sense, that's starting to open up at all.
Yes, Ken as we talked about last quarter.
We said that it was our sense that just given the additional challenges posed to asset managers and asset owners operating models of covert 19.
That we thought that we'd see even at some point an increase in conversations and interest in outsourcing and operating model changes in general and that's actually started to happen.
And was starting to happen in a big wins second quarter. So we see continued interest in.
Not just.
Movement of back office to the lowest price, but much more about how do we comprehensive we improve or do we the our asset owner or asset manager comprehensive we improved our operating model through changes to their back office and even to their front office.
So thats continuing.
And it's we've.
As I noted in my opening remarks.
The.
As a result of that we would expect to see Oh and be in a position to announce some significant new wins between now and we ended the year.
That or some combination of front middle and back office of.
Okay.
Notable names.
Got it thank you Ron.
Your next question comes from line of Alex Blostein from Goldman Sachs. Your line is open.
Hi.
Good morning around one Eric So maybe just building on the last comment wanted to dig into started you a little bit more as you think about the pipeline and C or D and sort of this sizable implementation opportunity I see.
What percentage of that is the on premise versus kind of the SaaS type of contract.
And then secondly, I was hoping you guys could dig into the shared you wealth strategy a little bit Raleigh. Thanks for some of the added disclosure there, but what kind of the what are the typical sort of client in the wealth management space that are white houses at a independent broker dealers in our age so just a little bit more flavor, there and we want to these channels incremental growth has been coming from thanks.
Well.
Why don't I start there or can talk about the the mix, Alex but the Uh huh.
On the.
On the wealth channel it tends to be the higher larger wealth managers and it.
Combination if I think about both what installed.
This quarter, but also what's Oh, where we have conversations and we'll be installing in future quarters. It's a combination of the of the wire houses.
So it comes with lots of seats as you would imagine but also.
The larger private wealth managers, I mean that could be alright, guys, but again it tends to be the larger ones in the larger names.
And.
If you think why that is.
Oftentimes they are bringing these institutions are bringing some fairly significant asset allocation capability.
To bear and while they want to give their advisors. Some freedom to customize there was one of a lot of control over the and the C or D platform works really well.
Regard.
And as I mentioned in response earlier question the great thing for US is that this its it certainly is a spoke application for the wealth segment, but it's it's leveraging.
Much of the same underlying technology, so there's a lot of scale and all those.
Okay in terms of the initial development we've done but also as we are as we rollout call.
Software improvements.
And Alex just to round out on the on the financial if we had a range of implementation of this quarter.
On the on premise five and ones that are lumpy or the range was three years to eight years.
And they actually runs the gamut.
50% to 70%.
In the.
The first year in and the balance Ratably.
I think the largest implementations with actually on the.
At the close to eight earmarked which would be.
50% in the first year on the other 50% in the coming here in the coming years.
Gotcha, Thanks, and then just need to round up discussion around.
Our.
Sorry, if your comment around kind of stabilizing and I are towards the end of year does that already contemplate significant reinvestment of liquidity that you guys have build up on the balance sheet into securities and loans or with a little more reinvest into 21 could we maybe even see a little bit of growth from that sort of truck level of noninterest revenues. Thanks.
Yes, Alex its oh early to get into 2021 to be honest, but.
What weve.
The.
The Guy that I gave for Fourq does that contemplate some reinvestment in the investment portfolio and we're just.
End of.
Driving the balance both along and rates do have a kind of a tail effect for us and going away. This is the time for us.
Add to the investment portfolio.
And.
Our work to offset what would naturally be a downward headwind but.
I think I think I think were where we've got a path. It's just it's hard to it's hard to see growth and Eni at this point.
We're.
Both what we see a path to relative stability within a range, but it's going to take some work and.
We don't really know what happens with rates and how they evolve.
But.
We can we can see a path there.
Yes that makes us thanks very much.
Your next question comes on line of Jarrod Castle from RBC. Your line is open.
Good morning ruling good morning, Eric.
Good morning morning.
Ron can you follow up on the new wins that you guys gave us holder and you mentioned in your comments about the stickiness of not losing.
Customers wins, primarily coming from existing customers, where you're adding more products and services and then the cases, where you when a new customer I think you alluded to lower prices, but can you share with us is price driven that the new customers are coming over to the combination of price and better products that you're offering them.
That's right I don't remember.
Referring to lower pricing in the context of though wins, but to answer your questions.
The it's a mix that we're seeing in Britain I'm, referring to the.
What we call or Alpha front to back platform and Charles River, It's a mix of.
Of existing clients or new clients that were seeing.
Thats, particularly true as I looked at the.
At the near term pipeline, so and for those existing clients in effect we're.
We're expanding our share of activity with them to use as an actor or expanding the wall.
Where we might historically have had a back office cook the relationship.
And we're moving to the middle the front office.
But beyond that in the and the.
More traditional core business.
We continued to see.
Fair amount of outsourcing there too.
Firms that historically done.
Everything but putting inside.
Where we might have been one or.
We're the only custodian.
No reconsidering that and moving things like fund accounting.
Middle office would be another big part of that because in fact, our middle office business is the outsourcing their back office and that so lots of.
Challenges for them and we've learned how to scale the business.
So.
That would give you.
Sensible that.
I mean, what has been pleasing about the pipeline as it's developed and again given the comprehensive nature of what we do these pipelines to take a while to move from.
When there is the first contact to the actual signing of the business.
But what is pleasing about that as we're seeing a fair number of new clients there to us and those the attractive thing about that is to really get the full advantage of the front to back platform.
We're able to show that we can do the Charles River Middle Office for you, but we're going to get real data advantages is having the full front to back sort fuels growth in our traditional back office business.
Very good and then correct I know, it's not as material to your business as a traditional bank.
Your loan portfolio, you mentioned you exited some of the leverage loans.
Two questions. One can you give us any color on the industries in which you see news to balance sheet for him.
Second whatever pricing did you see when you so.
Thank you.
Sure.
[noise] shortly we're trying to be.
Proactive here right the leverage below market has really moved up and down to a good bit.
And just funding some points, where it might make sense, we de risked roughly about $160 million the balances.
Of leverage loans I remember a one of the sentiment change was within that and we got out at a.
Good price I think the average pricing on the exit was around.
I think around 92 cents I want to say on the dollar so somewhere in that range. So we feel like we've made some good tactical decision. It didn't cost us that much we wouldn't have to build a reserve anyway for those and that's why I set on that 160 million in cost effectively in that six.
For the peace of mind that just trying to be careful because we are a trust in custody bank and that's our brand we felt like it was a good trade and well continue to selectively do that but in truth, we feel quite good about this this loan book I mean, it's a.
Most leverage loans are.
In the indices are single B and below ours are double D and sometimes even better.
And so I think we're pretty confident here, but there's always something and we just.
Well, we're happy to be proactive.
And.
Make some tactical decisions.
Thats, what we did.
Thank you.
Your next question comes from line, if Mike Males from Wells Fargo Securities. Your line is open.
Hi.
So you're guiding for better be gross for this year what are the half to 2% universe is down before how much of that is already reflected in the first half results and how much should be coming in second half you mentioned servicing fee management fees FX processing, but is this mostly reflecting what you've done.
On already or is it mostly to calm and adds a sub component of that when it comes to see our D. I guess linked quarter revenues were up 45 million in pre tax is up 42 million. So I guess, that's what a 93% incremental profit margins. So that leads me to ask.
Are there some upfront revenues with the new business wins and the yeah in terms the timing between revenues and expenses how does that work out and then lastly, if I can throw it in there you were going to be a client at CRD an hour how's that would take a while back.
Sure Mike It's Eric Let me take the first couple and then I think Ron I'll, probably want to take the.
The third in terms of the full year guide you're right. There's a number different pieces to it there are some pieces of the full year.
One and half to 2% fee revenue guide that are driven by the first half the year and there are some that will be driven by I think continued progress in the second half.
I think if you just go to the line item.
Servicing fees within good for the first half and we expect them to continue to be good. So I think that will be a continued to a story management fees largely because of market I think a little lighter in the first half are hoping that they come in a little stronger on a year on year basis in the second half.
FX, obviously, a first half story, where the second half will not be there.
SEC finance has been like for us in the first half.
We're hoping for some and looking for some stability there.
And some sequential.
Some some sequential stability if not some.
A bit of uptick.
And then you have Charles River, where we obviously got a big part in the in the second quarter.
But the and that maybe end up being a little more first half weighted but I think you're you typically get to get performance.
In the fourth quarter of the software businesses. So we'll see.
I think some.
Some activity there so a little bit of a mix to be honest.
Im Charles River the.
The.
Good question on the on premise installation.
In particular or the renewal, but I think it's really on a kind of combination the new implementation you do get some professional servicing fees, where we bill revenues and we incur expenses and buy.
Recollection is those are fairly aligned the accounting centers encourage us to do that.
But there I think the professional services tend to be filled as incurred and then and part of the what I described as the more stable part of the revenues and what we're finding interest.
There's there's there's special services.
And installation work that we do for kind of.
Coming client clients that are not yet implemented but on their way to implementation. There are some during the implementation that last spring and then there's clients behind that so it's a bit of mix to be honest, but something we can try to.
Parse out a little more detail in future.
The.
Conferences or or calls.
Yes, Mike and regarding our.
Oh, yes, the last part of your question, which is Oh State Street Global advisors, becoming a client of Charles River, they're actually becoming a client of full.
Front to back platform, including.
Charles River, so it's it's a fairly.
Comprehensive installments, it's underway right so the inflation to happening.
But yeah, because youre going to be like a that'd be nice showcase once you get that done as you say we use the ourselves you should use it to what inning are you in as far as implementing it internally.
I mean.
Somewhat speculating here no, but we're well over half installed is the way I would describe it.
And again it.
Just installing Charles River, but it's moving the state Street Global Advisors back office to or Middle office platform.
It's accommodating some existing technology that they haven't place too so.
As you'd imagine it's a 3.1 trillion dollar asset manager, it's pretty complicated.
So.
It's well over half way along.
And just one last clarification, Eric so that CRD revenues should we.
Hundred 45 million.
In the second quarter should I know this is getting pretty granular, but is that something it's kind of lumpy or we are now that we should extrapolate that al or.
How should we think about that no. It's it's lumpy and Mike Thats why.
I was trying to give a little bit of color, but just to.
To to to.
Reaffirm in that 145, we said there there is kind of dairy recurring literally kind of.
Recurring revenue.
Of just over 80, and then the balances in the kind of lumpy category, where you get these on premise installation.
Also so you kind of have to take a piece of the lumpy and say you know there's always going to be lumpy could we have three year contract five year contract. He your contract and every quarter every year. There is some of those contract rollover and so you're going to get a new lumpiness or you get new business that you added the lumpy category I also.
Okay.
If you want another quarter as a has a contrast back a year ago second quarter of 19, we have $90 million of total revenue and I said, we had about 65 million at the very.
Kind of recurring fasten professional services revenue and just the smaller piece of that was lumpy. So you can kind of it I think draw some lines in say the lumpiness.
This is big lumpy, that's for sure, but theres always going to be some.
But I think I think hope that given you enough on the the kind of fast and professional services to like you extrapolate from there and then put in something in the models on the on the lump in part.
Great. Thanks, a lot yeah.
Your next question comes from line as Jim Mitchell from Seaport Global Securities. Your line is helping.
Hey, good morning.
Maybe just we could talk little bit of a question on the new business wins, you've had and the cadence and impact if I look at new business to be installed you have got a trillion to go that's been pretty stable since the big wins in Threeq you all nine I mean 19 so.
For us.
And custody conversion, we can do very quickly right. We've we.
Literally did some.
We were notified by client that they want it to move in the midst of the crisis and we got it done intra quarter those move quickly and so oftentimes don't even show up in this backlog here I mean, they would if it was carrying over to quarter.
What you're seeing here is.
Clients, including some very large clients that have multiple tranches of business that there.
Either moving over from an existing provider.
Or in some cases moving from it in source to an outsourced model and again that reflects the nature of our business.
We are using our ability to do these kinds of of outsourcing to actually drive not just the outsource business, but not to drive traditional core custody, which scales easily.
Is quite profitable to us, but thats, how you should think about that.
Is that.
In any given quarter, our new business wins will be some very traditional capacity to custody kinds of things are fund accounting to fund accounting.
But oftentimes of backlog reflects just much more comprehensive kinds of moves.
Right and should should we assume that those those more complex deals have a higher fee rate should we see a little bit more of a material impact on servicing fees when they when they close.
Well, what you should expect to see is that.
There's fees coming from more than one source right.
Custody Fay fund accounting fair Middle office, the it's all right. That's what that's I should think about it.
Okay. Thanks.
Your next question comes from the line up.
Jonathan.
Hey, P. Morgan your line is open.
The fact, we can't hear yet.
Yes.
If you're on me please anyway.
Hey, there Vic.
And there are no further questions at this time I'll turn the call back over to Ron Hanley for closing remarks.
Okay.
Well, thank you operator, and thanks to all of you on the call who joined US. Thanks for the questions and we look forward to the follow up.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Oh.
[music].