Q1 2022 SEI Investments Co Earnings Call
Yeah.
Ladies and gentlemen, thank you for standing by and welcome to the S. T. I first quarter 2022 earnings call.
At this time all lines are in a listen only mode. Later, we will have a question and answer session. If you'd like to queue up for a question you can do it and do so at any time by pressing one then zero.
On <unk> pad.
As a reminder, today's conference is being recorded.
I'd now like to turn the conference over to Chairman and CEO Al West. Please go ahead.
Welcome everyone.
On our call today, we have Dr. Donna Phil Mccabe, claiming withdrawal.
Got it.
Yes, hi.
And Dennis Mcgonigle, our CFO .
Also joining us is Ryan.
I will be transitioning to the role of CEO on.
Two first.
Now today I'll start by recapping, the first quarter 2022.
I'll, then turn it over to Dennis.
LSC.
And the investment in new business segment and after that.
Business segment later will comment.
Hi, Matt.
<unk>.
Of their segments.
As usual, we will field questions at the end of each report.
So, let's turn our attention to the financials.
So the first quarter.
20022.
First quarter revenue grew 28% from a year ago.
First quarter earnings grew by 47% from a year ago.
Yeah.
First quarter EPS.
$1 36 grew 53% from the 89 cents.
Reported in the first quarter of 2021.
And during the quarter asset manager asset balances decreased by $9 4 billion.
These balances increased decreased by 3.0 balances.
In the quarter, we repurchased one 7 million shares of Sdi's stock at a price of $58 42 per share.
That translates into a $101 $1 million of stock.
Stock repurchases.
We had a successful sales quarter with net events totaling $28 7 million.
$27 million.
I'm, sorry, $28 7 million.
$27 million of which is net regarding <unk>.
Each of our segments will cover the details.
The Big news this quarter is what we have select that we have selected a new CEO is Ryan Hickey.
Ryan is no stranger to STI and hard to you. He has worked at SDI for 24 years.
A variety of leading positions in asset management processing and technology.
In addition, Ryan brings a global perspective.
Sure.
Having worked half of his years at Sci outside of the United States.
And recently provided leadership to a SaaS growing.
Startup.
And finally, what's really important is the live and breathe our culture, providing a role model for all.
And now I'd like to turn it over to al to say Hello.
<unk>.
Seattle.
What kind of flipped us.
Okay.
Thanks Al Good afternoon, everyone I appreciate the opportunity to speak to so many of you over the last couple of weeks I thought I would take a brief minute to share some of the things I am focused on presently.
While we are in a very strong position strategically and financially we need to continue to make changes to truly capitalize on our opportunities in the future.
As the year evolves, you will see a continued focus on maintaining and accelerating growth in existing businesses, including margin expansion in private banking and segment expansion in other units.
Rapidly expanding our focus on new growth engines, including Sci sphere, and other relevant M&A activity and reinvigorating, our culture and talent strategy with an emphasis on infusing new skills perspective, thinking including diversity all across the company.
I truly look forward to spending more time with all of you and I am excited to continue to work closely alongside of al and the team to hit the ground running in June .
I will now turn it over to Dennis but I look forward to any questions today or in the coming weeks. Thank you.
Thanks, Ryan and good afternoon, everyone I'll cover the first quarter results for the investments in new business segment and discuss the results of <unk> asset management.
I will also go over a couple of corporate items.
During the first quarter of 2022, the investments in new business segment activities consisted of the operation of our private wealth management group.
Fear the module organization of assets in data integration of different platforms to deliver on our one Sci strategy and other investments.
During the quarter the investments in new business segment incurred a loss of $7 million.
This compared to a loss of $9 5 million.
During the first quarter of 2021.
Approximately $4 1 million of expense during the first quarter 2022 was tied to our one sci effort.
Regarding LSD or approximate 38, 6% ownership contributed $32 5 million and income to Sci for the first quarter of 2022.
This compares to a contribution of $33 4 million in income for the first quarter of 2021.
Assets during the quarter decreased approximately $3 billion.
<unk> experienced net negative cash flow during the quarter of approximately $1 7 billion with market depreciation of approximately $1 3 billion.
Revenue for <unk> was approximately $108.
$5 million for the quarter with $1 3 million of performance fees.
As al mentioned.
And prior and as we've mentioned in prior disclosure, we received an $88 million contract termination fee during the quarter.
This fee was recorded as revenue in our private banking segment.
And had the net impact of increasing our EPS by approximately <unk> 47 per.
Per share.
As we have previously discussed and consistent with others in the industry.
We continue to experience inflationary pressures on personnel costs.
In addition, we continue to add talent to support our growth.
This has had an impact on expenses across the company, particularly in our operational groups.
We expect this pressure to be with us for the foreseeable future.
Also our expenses reflect a full quarter of costs associated with our recent acquisitions, including Novus.
Our effective tax rate for the quarter was 23, 1%. We are also included in our earnings release additional information that you should take a look at.
Please refer to our soon to be filed 10-Q for more information.
I'll now be happy to take any questions.
Okay, ladies and gentlemen, if you would like to ask a question. Please press one then zero at this time.
Once again, it's one zero.
Our first question will come from the line of Ryan Bailey with Goldman Sachs. Please go ahead. Your line is open.
Good afternoon, everyone I had a question for Orion.
And I was wondering what are the key strategic priorities that youre out going forward and maybe what are the areas of the business that you've spent the most time evaluating and thinking about.
Hey, Ryan how are you.
I think it's pretty much exactly what I reiterated when we talked last week, but also on the call a few minutes ago now when we look at the strategic priorities are really to continue to have a clear focus on accelerating growth in our organic businesses and looking at ways that we can kind of reposition and maybe redeploy some opportunities or capital there.
But also what we do that I think everybody in the room shares the view that we have a great opportunity to really start to focus on new business opportunities and new initiatives.
And I think equally important as I mentioned, a couple of minutes ago with workforce coming back all the changes we have a really really great opportunity to kind of refresh and reinvigorate. What we believe is an advantage we have with such a talented workforce. So they are kind of the real the key three areas that we're going to continue to drive down and as time evolves Alan I will.
Provide much more transparency around what we're going to do but we'll continue working with the team to formalize those plan.
Got it.
Oh boy I'm, not trying to preview too much around this but you had mentioned in your prepared remarks looking to expand the margin in the private banking segment. I was just wondering is that a change in view around how that business is operated or is that sort of the same view as previously that you get the get the backlog implemented and that will come with.
Healthy incremental.
Incremental margins yeah. The house he's going to go through that in his remarks, Brian , but I mean, I think youre right were going to continue to focus on what we've spoken about in the past.
Certain cases, we'll look to accelerate opportunities we have to expand margin.
Got it thank you.
Youre welcome.
Our next question will come from the line of Owen Lau with Oppenheimer. Please go ahead.
Good afternoon, and thank you for taking my questions are also Ryan could you. Please talk.
Talk about how you want to maybe position NTIC to navigate through the current geopolitical tensions and rising rate environment and maybe anything you would do differently based on what you've said in the prepared remarks. Thank you.
I'm sorry, Alan good to speak to you at the middle of that navigate the geopolitical tension yeah navigates through the current geopolitical tensions and also rising rate.
Vollmann anything you would do differently just like what you mentioned in the prepared remark.
We're not really that impacted right specifically in our day to day business by speaking kind of specifically about kind of Russia Ukraine.
So for US right now, it's kind of business as usual, we'll obviously stay acutely aware any influence there is impact anything that happened would have on our employees are our business.
On that front.
Got it and then maybe one for Dennis.
On the.
<unk> I think on the price would be it's you also mentioned the earnings were down year over year due to negative cash flows from existing clients and also client losses, maybe could you. Please provide a little bit more color and update on OSB. Thank you.
Sure So it's a.
Kind of to.
To me a tale of coming out of the.
Tougher markets for them as a value oriented firm.
Moving forward.
Being able to take advantage of the fact that they've kind of stuck to their knitting.
The performance on a relative basis.
Has been very good and strong and somewhat reflected by the $1 $3 million performance fee in the first quarter.
Last year.
That number was about <unk> three.
So in first quarter is usually not a quarter outperformance fees for LSP generally as a firm.
So their performance has gotten better.
While their cash flows are negative.
It's hard to hear.
Here it is in a way where they've actually got they've improved as value has gotten the attention of investors.
And one thing Im talking two LSD theres a lot more search activity in the value space that they are optimistic about relative to.
Prospects for the year to.
To capture new asset flows.
Got it thank you very much youre welcome.
Sure.
Our next question will come from the line of Ryan Kenny with Morgan Stanley . Please go ahead.
Hey, good afternoon.
Hey, Brian with Orion.
First a question for Orion.
I understand the announcement is fairly recent so I don't think anyone is expecting a detailed comprehensive outline of the strategy yet, but just as a follow up to the first question just wanted to dig in a little bit about it.
Picture on your approach to operating leverage how do you think about balancing the need to invest to grow versus them being more focused on an.
On expense management.
Sure.
It's kind of a couple part Brian I mean as.
As we said in the beginning I mean, Sci is going to really fortunate and privileged position to be as financially strong as we are and I think we're going to continue to look at how do we allocate that capital and that will include investments that we're making today to look at ways. Maybe in the short term that we may redirect to redeploy some discretionary investment that we think best aligned with revenue opportunity.
But also to continue to invest in new opportunities that we have either started in the last couple of years, where things that we see on the horizon to position ourselves for future growth.
Thanks.
And then just a follow up question for Dennis.
So actually I had the $88 million termination fee as a revenue tailwind. This quarter is that something that you want to reinvest into the business or is this something that you think would be distributed to shareholders through accelerated buybacks.
Yeah.
Ultimately that's a decision for our board to make relative to capital allocation from a dividend.
<unk>.
But clearly just.
It's a good problem to have to have a very strong balance sheet to have.
Highly liquid balance sheet and one that gives our board as well as Ryan.
And al Optionality relative to.
Investment opportunities or capital return so.
But that's something our board will talk about.
The logistics of it.
Actual capital is.
Yes.
The piece of business was signed through one of our foreign subsidiaries, so theres a little bit of a process to get that capital moves.
Which will.
So we worked on before ultimately our board here would address that issue.
Thanks.
Our next question comes from the line of Robert Lee with <unk>. Please go ahead.
Great. Good afternoon, everyone and thanks for taking my question.
Question I guess my main question most of those were asked already but just.
Curious in the.
Investments in new business, you called out that I think.
The ongoing costs from the.
When I see I mean, she did was 4 million can you do.
Mind us or update us on kind of how we should think of that kind of.
At a level, where it's more of a permanent fixture around that $4 million or should we think of that can kind of maybe trail off as we work our way through the year into next year.
Yes, I would suspect.
That cost specific to that project will.
Trail down as we move forward, but.
Just a reminder, the investments into the business segment is an investment segment.
So while it may trail down relative to one Sci tech technological.
Investments, we're making.
Associated with one Sci.
Yes.
Based on particularly with Ryan.
Building on Brian's comments, there are other things other ideas, we have that we would probably reallocate some of that spending too.
So I wouldn't look at it as a.
Big opportunity for pickup on expense as much as <unk>.
Continuing our ability to add to our asset base.
So there are things in that in that segment. For example, we are investing in cloud.
And Thats part of that segment, we are investing in the data space working.
With snowflake, so the costs associated with that work is in that segment. So these are additional R&D projects at the company level.
<unk> are learning.
Answering our abilities that we think will benefit.
Most of our businesses, if not all of our businesses over time.
Okay, Great. That's all I had thank you.
Youre welcome.
And the final question that we have in queue. At this time comes from the line of Michael Young with <unk> Securities. Please go ahead.
Hey, Thank you for taking the questions.
Alan Ryan I understand you're not rolling out sort of any new new thoughts or goals, yet or anything like that but just given kind of the the long term legacy of Sci I'm curious.
How much of sort of the legacy way of doing business is sort of on the table and what sort of magnitude potentially a change should we expect going forward or is this more of a wholesale review of the way things are done can we expect you know balance sheet leverage to be an option M&A to become more aggressive.
Any any larger shifts in kind of strategic thinking or is this more of a marginal change. It's just a question I'm getting from a lot of investors.
Which al.
Thank you you are Orion okay.
I'll say I feel that there should be a lot of change.
Hey.
Right.
Okay.
I agree with al it's Michael.
I don't think it's a wholesale review of what we're doing we have a lot of really really strong assets and things that we do really well.
But it's not going to be marginal change and we're going to continue to work through that we have a tremendous opportunity ahead of us and we expect to take advantage of that opportunity.
So that's going to require change.
Okay and as a follow up just you know it's been mentioned a lot that you had international experience and that was kind of a reason why.
You were selected for the role could you just talk about you know kind of the conversation with the board there and what the opportunity set is ahead that you feel like you know make you uniquely qualified.
On to take his position and kind of where where that international piece is going to plan.
Yes, I mean al mentioned that earlier, so I think part of it is.
It's when you look at our international footprint and my time over there a lot of it was really around starting new businesses.
So really trying to kind of put an imprint together with the other sci folks on creating that culture and the environment that we're also proud of here, but really looking at ways that we could expand our growth opportunities in many cases, leveraging things that we had in the U S. We're actually some of the businesses that we started they're bringing some of those capabilities back here. So.
I think it was a combination Michael just the.
Hosier to the global market being so different than the domestic market, but a lot of that experienced between 1% and 2012 was really around starting and growing new businesses and thats something we highly value here, especially when you can do that alongside the right culture.
Okay. Thanks, very much thank you.
Yeah.
And we have no further questions in queue at this time.
We would like to remind you that during today's presentation and in our responses to your questions. We have and we will make certain.
Forward looking statements that are subject to risks.
Uncertainties that may cause actual results to differ materially. Please refer to our notices regarding forward looking statements that appear in today's earnings release and in our filings with the SEC, we do not undertake to update any of our forward looking statements now.
Now I would like to turn it over to the other end.
Alright, Thanks, Dan.
Good afternoon, everyone first quarter 2022 revenues totaled $213 5 million, which was up $95 9 million as compared to revenues from the first quarter of 2021.
First quarter 2022 quarterly profit of $91 6 million was up $84 $7 million from the first quarter of 2021, as Dennis mentioned revenues and profits benefited from the onetime cancellation fee of $88 million, which netted $86 million in profit.
And turning to sales activity during the quarter, we closed an approximately $8 4 million of net investment processing event, excluding the termination of HSBC.
$7 1 million related to recurring revenues and $1 3 million related to onetime revenues.
During the quarter, we signed two clients of note.
We signed an S. WP agreement with <unk> Bank and trust headquartered in Miami, Florida currently running on a competitor solution grow bank selection of that WP represents the platform's continued success in the community Bank space.
As I mentioned during the last quarter call, we've been working with HSBC to address their changing needs with respect to the business that was contracted in 2020.
Last month, we filed an 8-K disclosing that HSBC private bank terminated one of its agreements with our UK subsidiary for convenience.
We also discussed on that fourth quarter call the sale of new business and alternative processing space with HSBC. This quarter. We will also signed an agreement with HSBC to move into U S investment processing book of business to the Sci wealth platform.
Our evolving relationship with HSBC demonstrates our ability to help our most complex and large clients respond to ever changing market environments that impact our strategic goals.
The changing environment for our most complex client creates opportunity and adjustment in our relationships.
And turning to implementation activity in the first quarter, we successfully installed two new clients from competitor platforms to S. WP and installed one additional new client to our trust 3000 platform.
Tompkins financial advisors, the wealth management firm of Tompkins Financial Corporation has successfully converted its wealth management business to ask WP from a competitor platform.
Central Pacific Bank headquartered in Hawaii, and our primary subsidiary of Central Pacific Financial Corp. Also migrated their wealth management business desk WP from a competitor platform.
We're also pleased to announce that central Pacific is further expanding their relationship with STI by adopting <unk> asset management distribution product to help grow their business and serve their clients.
Also during the quarter, we successfully migrated principal financial groups institutional retirement and trust business to our trust 3000 platform. We look forward to continuing to work with principal and grow our relationships as partners in the industry.
As an update on our backlog, our total signed but not installed global backlog is approximately $54 4 million in net new recurring investment processing revenue.
Including the signings and implementations I, just mentioned and the netting of the canceled agreement.
We continue to work with our clients with longer tail type timeline as their business needs change and opportunities present themselves from.
From an asset management standpoint, total assets under management ended the period at $25 $3 billion, which was flat to the first quarter of 2021, our cash flow for the first quarter of 2022 was approximately a positive $362 million.
As we grow as we go through 2022, we remain committed to our strategy of building a global pipeline and associated backlog matriculating that backlog gradually improving our operating profit and prudently investing in the businesses to create sustainable growth.
We have a talented team across SDI at that is focused on these goals, we remain excited and optimistic.
That concludes my prepared remarks, and I will now turn it over to any questions you may have.
And once again, if you do have a question. Please press one then zero.
One zero.
Our first will come from the line of Brian Kenney with Morgan Stanley . Please go ahead.
Hi, good afternoon.
Good afternoon.
So I know a few years ago STI was talking a lot about investing to bring on more global wealth players.
And I understand Youre still working with HSBC on several services, but it does seem like a lot of the new ones that are announced are more on the domestic mid sized superregional camp.
Yes. My question is do you need to invest more to attract more global players or do you think that there is any strategic shift to focus more on the mid size or super regional institutions that at least from the outside view seems to be more of your sweet spot.
Ryan Great question I'll take it in two parts. So I think we continue to have some success on the global side. So in the fourth quarter of 2021, we talked about wafer 10, and a piece of that alternative platform for HSBC. So we saw some wins there, but I also discussed and a comment on that call.
<unk>, how we were reinvesting in some sales talent reestablishing a sales culture, there and I think that's going to be a big ingredient to our success globally and then I think when you think about our global expansion its really been limited on the investment processing side too.
The U S anyway to being in the U K and that's really related to the complexities of managing tax regulatory and different strategies. So we're kind of deliberate I don't think we will be dialing that back the investment in personnel right now is to try to see as Brian mentioned can we continue to expand our organic growth in this IP.
By looking at that global environment.
And then the other part Ryan the other part of your question I'm So sorry.
You are correct, we are having some good success in the regional and community bank space over the last two quarters and that probably represents the most mature solution than the one we can sell the quickest and install the fastest so I think that's a fair observation.
Thanks, Yes of course.
And then just one follow up on the last HSBC contract are there any expense offsets.
Revenue loss there.
So the.
As Dennis mentioned.
The 88 the impact of the 88 was 86. So there was about $2 million of that beyond that the other stuff that we're that we invest in we would be leveraging so there is really no other expense lift out of that.
Okay got it thank you sure my pleasure.
Next question will come from the line of with Oppenheimer. Please go ahead.
Thank you so it looks like the margin has come down a little bit if you exclude the termination fee.
Any kind of like a one time expense I think you just mentioned $2 million, but what drove that margin decline and if you can also we might be sorry, I may have missed that.
The new and cost impact from HSBC private banking going forward, how should we think about that thanks.
Yes.
And thanks for the question I think your first question was related to the slate Meagher.
Margin deterioration in the quarter, if you net out the cancellation fee from HSBC and the two things that really drove that quite candidly one was capital markets. So we saw capital market pressure on the asset side of our business and then secondly, as we discussed in the press release and I think Dennis.
Just mentioned the competitive labor market and the pressures are that have caused us to make some investments in our talent to retain that talent and youre seeing that impact our margins.
And then your second question I think was related to the $88 million.
The net impact of that $88 million is the $86 million and Theres really nothing else inside that related to that cancellation of course as we install the other HSBC business will begin to.
Invest in implementing that which we already have which is in those numbers in the first quarter and then as they implement will begin to recognize that revenue over.
12 months to 18 months, so theres really nothing else related to what has been cancelled.
Sure.
Got it and then.
And then to follow up it's more related to the previous question. How do you think about large scale M&A outside of U S and U K in order to expand globally are you like is this option off the table or you would still consider that.
Yeah.
Dennis I think large scale M&A or just M&A in general is.
Kind of driven Corporately.
Wow.
One of the lens, we look through is how M&A can help enhance our growth opportunities.
Our strategic positioning in our existing businesses.
And certainly geographic expansion or acceleration of geographic expansion through M&A, which would benefit any of our businesses.
Not just private banking.
Yes, we would take a hard look at and be.
Be interested in considering so it's really not a specific question for private banking as much it is.
Strategic initiative of Sci the company around one of our rationales for M&A.
Got it thank you very much.
Sure.
Our next question will come from the line of Robert Lee with <unk>. Please go ahead.
Thank you.
I appreciate taking my questions.
A question on the backlog so I think it was looking for.
$4 5 million backlog of recurring can you maybe parse that down for us.
Particularly since I'm assuming.
Fairly significant chunk of that is for Wells Fargo was the kind of open ended in terms of when that may or may now.
Begin converting so what should we reasonably expect over the next two years of that backlog, where you sit today.
He.
The convert or begin converting.
Robert Thanks for the question.
The 54 and change in backlog if you if we think about where that stands today over the next 12 months about 25%, 25% of that would be converting and then over the 13 to 24 month period, we should feel the remainder of that.
Converting your comment on Wells Fargo, Yes Wells Fargo is still in that backlog and the biggest challenge with the backlog overall is.
Large jumbo clients.
Just take time, they have M&A. They restructure they have leadership changes and we continue to work with them in that as we implement those clients.
And maybe the along those lines as a follow up.
It looks like kind of misunderstood I think a couple of years ago.
The idea was well.
<unk> the community banks is great.
Smaller regions those grades really kind of scale of the platform you kind of needed to get more.
The true Suntrust.
More and more bigger and bigger banks, which to your point.
A long time so.
I don't know as we sit here today and you look at your pipeline.
<unk> is a reasonable expectation that you could see those.
The acceleration of those kind of big chunky wins that.
It will drive the scale on the platform or.
Do you feel like the pattern room, with a kind of a community and some of them.
Mid size or smaller regional bank.
That's quantity that's kind of what we're going to reasonably expect for the next.
18 months or two years.
Robert Thats a good question when I think about the pipeline. The pipeline is healthy we have good activity in the market I think outsourcing trends in the market are leaning our way which are helpful to us.
I do think Youre right.
A lot of our pipeline activity has been.
In terms of wins and installations is been regional and community. We will continue that because those are things that we know we're going to get up and get done.
The jumbos, we are focused on those we are talking to them every day. They are active in the market. What I can do for you Robert is predict when they'll actually close unfortunately in the sales cycles, it's not really driven by <unk> ability to close it it's driven by the time it takes to negotiated and then the time it takes to implement it and those are just a little less.
Predictable then your regional and community, but in no way are we shaping our pipeline strictly around regional and community. We are going to continue to push forward on those jumbos and then as those jumbos land will discuss them and it will come with the same caveat I mentioned on our last two calls which is it's just hard to predict how a multiyear.
Limitation will land not just because of what we're doing but because the banks themselves have development and integration theyre doing on their site.
I appreciate that and can I ask maybe just.
<unk> given us the funding of the backlog at 25% over the next 12 months, but I apologize I missed the second part of your comment.
Subsequent to that.
The next 12 months.
Yes, Robert I think you had said in your question can you give me an idea of what it looks like over the next three years and what I did was I said on the 54, you could expect 25% of that to matriculate in 2022, and then you could expect the remainder of that to matriculate across 23 and 24.
Were those implementations call today.
Okay, great. Thank you for clarifying that yes of course my pleasure.
And our next question comes from the line.
With Piper Sandler. Please go ahead.
Hey, good afternoon. Thanks for taking my question I just had one.
One more about the backlog.
Last quarter you.
Wanted by the $81 7 million and so this quarter I think $54 4 million.
Can we think of the difference.
Solely HSBC or do some of the other activities.
Affected the backlog or I say solely but mostly HSBC is that the right way to think about the change quarter on quarter on the backlog.
Chris.
Great question. Thanks, I think I can help you and I can provide some clarity. So yes of course HSBC is in it but the truth of it is it is also.
<unk>.
And by the three installations I talked about that happened in the first quarter, so that would negatively affect the backlog it would drop down because we are matriculating that but then it would be we would be really refilling that with the sales I just talked about in the first quarter. So while HSBC was a large number there was still a significant amount of revenue.
Matriculation and new revenue added back and it's the combination of those events that give you that delta.
Okay.
Helpful. Thanks Al of course, my pleasure Chris.
Yeah.
Yes.
And our next question will come from the line of Michael Young with <unk> Securities. Please go ahead.
Hey, Thanks for taking the question just wanted to touch on kind of where the pandemic subsiding you know it sounds like people are coming back to work more and more is that.
Tailwind to sales activity should we expect sort of an uptick in the pipeline building for new implementations all else equal or any other color there would be helpful.
Yes, Michael.
Good question I think.
We've been kind of <unk>.
Fortunate.
One of the things we were able to do during the pandemic as think about how the digital digitize our sales channel and we had some deals that I know my predecessor talked about that we closed almost completely remotely. So I don't think it slowed down.
Our ability to reach clients, but it did slowdown I think decision, making in some level because people were wondering where they stood and what they could do with the pandemic. So I think to bring back of people is not going to be an accelerant of pipeline. These people have been working on that pipeline throughout the pandemic, we might begin to see people willing to make at the <unk>.
Wyant level decisions, a little bit quicker, but I can't tell you that I'm certain of that.
As I think about implementations I would give you the same answer our implementations as of March the year of the pandemic. We went did digital immediately so we have done almost all of our implementations in a fully remote environment now what has benefited us is as the pandemic has waned and people have gotten back into.
The office, we are making more and more client visits and I just think as you make client visits the level of your intimacy improves and as the level of your intimacy improves opportunity should manifest itself, but I don't think I don't think its going to change dramatically just because of people getting back to work.
Okay, Great and then the last one just maybe on pricing power. We're seeing obviously a lot of inflation I think that was mentioned in terms of.
Upward pressure on personnel costs or are you all able to get sort of pricing power within the contracts to kind of offset that impact or should we expect a little bit of margin compression as a result of conscious just core inflation pressure.
I mean, I think as Dennis talked about in his I think.
The labor markets are tight so I think we will have some.
Compression inside those numbers today I don't think it will be dramatic I do think we're able to.
I don't know that I would call it.
In reaction to inflation I think as we continue to advance our solution, we can sustain and improve our price points.
Profit I think it's a little hard to say it in a general term across all deals Michael just because each deal has a negotiation attached to it because it is a multiyear contract, but I think we'll be able to preserve and probably modifier price point positively I don't think we will have this would come to any significant pressures there.
Okay, great. Thanks, that's all for me.
Okay.
Sure.
And we have no further questions in queue.
Okay. Thanks, I'll pass it off to my friend Bill Bill, It's all yours alright. Thanks Al Good afternoon, everyone for the first quarter of 2022 revenues totaled $156 $9 million, which was 15% higher as compared to our revenue in the first quarter of 2021.
Profit for the first quarter of $58 $1 million was eight 7% higher as compared to the first quarter of 2021, while profits were strong they were impacted by increased hiring and labor expenses and operations offset by increased revenue or margin of 37% for the segment is closer to our previously.
Discuss margin expectations.
Third party asset balances at the end of the first quarter of 2022 were $895 2 billion.
Approximately $12 1 billion lower than the asset balances at the end of the fourth quarter of 2021. This increase was primarily due to market depreciation of $8 7 billion and.
And net client fundings of negative $3 4 billion.
And turning to market activity during the first quarter of 2022, we had our highest sales quarter ever with net new business events totaling $17 $8 million, which are expected to generate net annualized recurring revenues of $17 1 million and.
In addition, we re contracted $7 $5 million in recurring revenue.
Highlights of these events. These events include in our alternative market unit, we signed a number of new names ranging from startups to large global managers and our cross sell strategy continues to resonate and robust sales to existing clients.
<unk> was also selected to provide fund administration for two multibillion dollar private equity firms.
One was the self administered firm and the other a takeaway from a competitor.
Our traditional market unit propelled our record sales quarter highlighted by one of the largest collective trust conversions in the industry. This win will make Sci the leading provider of third party outsourcing services and the CIT industry based on collective Trust assets. We also added business across all other product lines with new clients.
<unk> and expanded wallet share with many existing clients.
In Europe , we continue to expand our ETF private equity and private debt businesses, primarily through cross sales with existing client.
At the end of the first quarter, our backlog of sold but unfunded new business stands at $37 $7 million.
So in summary, the business had another solid quarter with record sales and implementation of our backlog and continued client delivery, we remain optimistic and excited about our strong growth prospects and our path forward.
That concludes my prepared remarks, and I now will turn it over for any questions you may have.
And once again, if you do have a question. Please press one zero at this time.
Okay.
Although in a few moments we have no one in queue at this time.
Alright, Thank you very much.
I guess, you talked about yourself out with that al and Brian . Thank you.
Yes.
Okay next up we have Wayne withrow with the update on the advisors segment.
Thanks Bill.
In the first quarter of 2022, we continued execution of our roadmap targeted at building brief futures for our clients.
Some of the pillars of our strategy were on display in the first quarter highlighted by the following.
Continued sales growth of curated.
External fee strategies offerings at the demand for investment personalization continues to grow.
The rollout of our new collaboration platform powered by the Orange technology.
<unk> on schedule.
And that sales process continue to evolve and we also named a new executive to take over the reins from a 34 year veteran.
Numerical comparisons of our financial results for Q1 of 2021 are included in the press release.
Color explaining some of those comparisons include.
First quarter revenues increased from Q1 2021, due to positive capital markets and positive net cash flow.
These increases were partially offset by some shift into lower fee liquidity products and a small reduction in our basis point yield rate.
Expenses were up contributing contributing to a decline in margins.
Direct costs, including sub adviser fees are reflected in this increase.
Investments in our internal digital sales technology.
And in the integration of our client facing Orange platform will also factors.
Like others that Sci.
Investments in our personnel due both to grow in the tight labor market, we are a factor.
During the quarter, we had $1 3 billion in positive net cash flow.
Of this total nearly $1 billion.
Was into our managed asset programs.
In Q1, we recruited 81, new advisors and Reengage 30, 30 existing advisory firms.
We have seen many of the re engaged advisers from last year continuous advisors producing cash flow this year valve.
Validating our decision to direct some of our sales focus to this activity.
Our pipeline of new and re engaged advisers remain active.
As we continue into 2022, we will focus on our goal of building great futures for all our clients.
To this end focus areas will be.
First to continue to enhance the client facing components of our platform.
Second the creation of an industry, leading multi channel sales process, incorporating both digital and in person components.
Third continued evolution of our investment offerings to enable mass personalization.
And fourth and.
An enhanced focus on the pure RIAA channel.
We continued to make good progress and I believe we are well positioned even with uncertain markets and global dynamics.
I now welcome any questions you may have.
And once again, if you do have a question. Please press one then zero at this time.
Our first question will come from the line of Robert Lee with can VW. Please go ahead.
Thanks, Good afternoon, Wayne how are you doing.
Rob.
Good.
Question on.
Yes expenses so I.
We can.
Principles in place similar to the fourth quarter.
But honestly.
Dramatically from where it had been part of a year ago and of course as inflation and wage pressure.
Presumably some increased travel and whatnot around.
We move past that.
Covid, but.
Is there anything what else should we think is in that and should we think.
Really kind of a new base level.
Mid 64 range to work from just wanted to.
Make sure on that.
But we'll check that maybe there's not some other things that could be more transitory running through the expense.
Can I ask you to read I'm, having trouble.
Hearing you.
Okay I'll try this on the expense levels I'm, just trying to get a better read is there anything we should think of as being somewhat transitory, maybe new spending initiatives in the expense base was 64 million. It's been the last couple of quarters really kind of all in.
Ongoing.
Just trying to see if there's any reason to think it would please could.
Could moderate somewhat as we go forward.
I think.
The comments about expenses I think the one item.
You need to keep in mind as we talk about a shift in some of our investment offerings.
A major element here is when we sell internally managed mutual funds a lot of the advisory fees are embedded in our revenue numbers. So that the revenue number is net of the sub advisor expenses. We go the more sub advised accounts, whether it be by us or someone else.
The P&L of the accounting is such that this sub advisory expenses appear as a separate line item.
Revenue growth will be reflect will also contain expense growth because it's not the revenue number is not net of those expenses.
That's.
The biggest item I think we need to be aware of.
Okay.
I wanted to also just curious.
So I also just curious.
As the quarter progressed.
Obviously got more volatile.
More mega went away.
Any color you have and if we think about new business trends.
Pattern as we've got through the quarter that you started maybe besides some movement cash bonds.
It impacts.
New business activity as people kind of pulled back are you seeing anything like that.
Sales.
Yes.
I'll catch it somewhere I think if the question is.
I mean, I think our sales activity is strong I mean, we had a very strong new advisor quarter. I also think we have.
When I look at the quarter, we had a very good quarter with sales to our existing advisors too.
And advisors Kenny casual.
And in cash flow I mean I think.
Is that what your question I mean, I think we.
We are.
<unk>.
I think.
We're experiencing a lot of positive growth and I think that trend is going to continue if that's your question.
Yes, I mean, I apologize that it's not coming through clearly.
The cell phone, so my apologies, but if.
I guess I was thinking really the pattern through the quarter.
The environment may be.
More towers in the more volatile.
We got through March into April you're kind of seeing the pace of activity moderate or change at all.
Yes.
I think that the.
I think a lot of them.
When you look at sort of the interest rate inflation and the cranium War shop, I mean, I think we saw that go through the markets and that kind of impact of flow I think thats going to stabilize some but it's hard for me to kind of predict what's going to happen.
Okay fair enough. Thanks, so much apologize for the garbled question, but thank you.
The word.
And we have no. We just had <unk>. It comes from the line of Michael Young with <unk> Securities. Please go ahead.
Hey, Thanks for taking the question just just wanted to ask there's been a lot of news lately about essentially a competitor.
And the Tam space.
Potentially changing hands just curious maybe historically.
When you've seen that take place kind of in the industry is that is that a benefit to you guys in any way to kind of think through how that could impact your business segment specifically.
Well.
Rather than.
Talk about it as a benefit or a detriment.
Anytime there is disruption, we like to call that money in motion.
And it is.
Kind of our job to look at any disruption in money in motion as kind of an opportunity. So what will happen I don't know but.
Our job to kind of figure that out.
Okay do you guys, usually put together I mean do you do.
<unk> special marketing or should we expect any kind of ramp and any efforts if something like that were to happen where there is money in motion so to speak.
To be honest I'm not.
Really comfortable talking about sales tactics before I do.
Okay, Alright, fair enough, but as Bobby for RV for obvious reasons.
Understood.
All of the above.
Sure.
Youll find out when everybody else does.
And we have no further questions in queue at this time.
Alright. Thank you very much I will now turn it over to Paul.
Thanks, Lynn good afternoon, everyone.
I'm going to discuss the financial results for the first quarter of 2022.
First quarter 2022 revenue of $86 $8 million increased 3% compared to the first quarter of 2021.
Operating profits for the first quarter 2022 were $41 5 million and decreased 9% compared to the first quarter of 2021.
Revenue increase was driven by full quarter of revenue contribution from Novus and Atlas offset by net client losses.
Operating profit was negatively impacted by operating and amortization expenses from Novus and Atlas and higher compensation expenses.
Operating margin for the quarter was 48%.
Quarter end asset balances of $94 2 billion reflect a $5 $1 billion decrease versus the first quarter of 2021.
This was due to net client losses.
<unk> net sales events for the first quarter were a negative 4 billion.
Gross sales were $800 million in client losses totaled $4 8 billion.
First quarter, new sales, we're diversified diversified across U S and dominant foundations, UK fiduciary management and health care.
I know this had three new sales in the quarter.
The client losses for the quarter were predominantly due to unsuccessful client rebids.
DB termination and a merger of a longstanding healthcare client into a very large health systems.
We can continue to see client rebids as the <unk> marketplace is very competitive.
These rebates provide near term headwinds.
The unfunded client backlog of gross sales at quarter end was $695 million.
For the year, we are focused on stabilizing our client base.
Distinguishing our <unk> solution.
Selling new OCI, and UK Master trust relationships and selling our enhanced <unk> proposition powered by Sci Novus.
Thank you very much and I'm happy to entertain any questions that you have.
And if you do have a question. Please press one then zero.
Our first will come from Brian Kenney Morgan Stanley . Please go ahead.
Hi, Good afternoon, Hi, Brian .
I'm wondering if you could update us on how material. The current interest rate outlook is for your business at the end of last year. The 10 year yield was up one 5% and now it's quickly approaching three so just wondering how does that impact the funding status of your DB plans and how big of an impact.
That translates to revenues.
Yeah as it relates to revenues it doesn't really impact the revenues that much because we have a segregated fee for our own CIO relationships now with respect to funded status.
We have seen a little bit of a tick up with regard to funded status.
That said Ryan most of the clients that are on a termination path or have made a decision to close their defined benefit plan.
Are most of the portfolio is the fees with long duration fixed income so as the interest rates go up the liabilities come down as we know but also.
Assets come down because the assets are there to announce since immunized part of the portfolio. So it hasn't really materially changed the funded status, which is why you have <unk> portfolio, which is why when rates go down. It was a protection strategy. So really what comes into play is whether a company has the cash.
And the wherewithal to want to kind of close out that deficit between where the assets are and where the liabilities are and we still see most do not want to do that they.
They might curtail part of it so I don't think it's really changed the position that dramatically.
Even though with interest rates rising.
Thanks, that's helpful.
Thank you. Thank you.
Next we'll go to Robert Lee with <unk>. Please go ahead.
Great. Thanks, So just a real quick question, Paul I think I just missed that.
Net new client fundings were in the quarter.
Let me repeat it.
Yes, you are really making me look bad here Robert but.
Sorry, the gross sales were $800 million losses were $4 8 billion. So the net was a negative 4 billion.
Okay. Thanks.
Maybe it's real quickly maybe you touched on the competitive environment.
We've talked about kind of the increased competition in the OCI or marketing, you're obviously trying to diversify away from that.
I don't know if you look at it today.
Any signs of just given the market weakness volatility in any way changing the.
Maybe it's too early to changing the competitive dynamic.
The smallest.
Fewer resources to compete just trying to get the updated sense award competitive environment.
Sure I mean, it's still a large number of competitors.
Some are very large we're safely in the top 10 as far as <unk> assets under management.
We would think theres going to be strain on the lower size ones. The ones that are less than 25 billion, who may not have scale and leverage, especially as clients diversify and get more into alternative investments.
One of the beauties of the Novus transaction. In addition to its unbelievable capability of powering our <unk> solution is we're using that technology.
US as the Oce oce, IL firm and showcasing some of their advanced analytics to more sophisticated <unk> clients that in its early days has already been appointed differentiation of showing a very advanced capability look through transparency.
Tailed reporting that we think is differentiated versus what other otas firms. So the novus transaction really we think will benefit us two ways not only on the ACO front, which ive messaged before but also on these larger more competitive CIO deals, which are very important to us.
Great. Thanks for taking my question no problem Robert.
And we have no further questions in queue.
Great I'd like to turn the call back over to Al West.
So ladies and gentlemen, we're excited about.
He is going to do a great job.
And believe me it's bittersweet.
Since going public in 1981.
41 years ago I have been involved in the quarterly analyst call.
A total of 154 times.
Enough.
In my New role for me Executive Chairman I'll see you at strategy day and all your visits.
I look forward to.
And I want to thank you Kent.
In our other.
164, while our core.
Okay Paul.
And have a good day. Thank you.
Ladies and gentlemen that does conclude today's conference I'd like to thank you for your participation you may now disconnect.