Q2 2023 SEI Investments Co Earnings Call
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Right.
Ladies and gentlemen, thank you for standing by welcome to the <unk> second quarter 'twenty twenty-three earnings call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session instructions will be given at that time.
If you should require assistance during the call. Please press Star then zero as a reminder, this conference is being recorded I would like now to turn the conference over to your host Mr. Alex Wait wait Lim director of Investor Relations. Please go ahead.
Thank you and welcome everyone I'm excited to join the team here at Etsy I look forward to working with you all.
We appreciate you joining us today for our second quarter 2023 earnings call on the call we have Ryan Hickey.
If an executive officer, Dennis Mcgonigle, Chief Financial Officer, and leaders of our business segments Wayne Retro, Paul Clowder, Jason Briana, Phil Mccabe and Sanjay Sharma.
Let me again I'd like to point out that our earnings press release can be found under the Investor Relations section of our website at <unk> Dot com.
This call is being webcast live and a replay will be available on the events and webcast page of our website.
We'd like to remind you that during today's presentation and in our responses to your questions. We have and will make certain forward looking statements that are subject to risks and uncertainties that may cause actual results to differ materially.
Please refer to our notices regarding forward looking statements that appear in today's earnings press release and in our filings with Securities and Exchange Commission, we do not undertake to update any of our forward looking statements with that I'll turn the call over to our CEO Ryan Hickey Ryan.
Thanks, Alex Hello, everyone, I hope, you're all having a great summer.
Over the past year, we've been laying the foundation for strategic growth, we've evolved leadership investing in our talent increased our market presence and aligned our resources to drive an enterprise wide approach to our markets.
The headlines for the quarter's financial results our revenues in the second quarter were $489 million up.
Up 2% from a year ago net.
Net income for the quarter was $119 million, a 7% increase compared to last year's second quarter.
EPS was <unk> 89.
Up 10% from the 81 reported in the same period last year, Dennis will provide more details on our results shortly.
In the quarter, we repurchased one 3 million shares of MSCI stock at an average price of $58 56 per share that translates into $75 $5 million of stock purchases.
We also declared and paid a semiannual dividend of <unk> 43 per share.
The sales momentum we saw earlier in the year continued through the second quarter, our focus on proactively engaging with current clients expanding our pipeline and connecting resources across the enterprise to identify and execute against cross selling opportunities are translating into more wins for our sales team.
Net sales events totaled $29 3 million $23 6 million of which were net recurring.
This represents a 24% increase over the net recurring number we reported in the first quarter of this year.
While markets have improved recently, we remain vigilant on growing our profit.
Prudently deploying capital and delivering at a high level for our clients.
With that let me turn to our business line the.
The investment managers segment had another solid quarter, we successfully converted several new clients and funds while growing profits. We also re contracted multiple clients and converting our backlog implementing a number of large accounts during the quarter.
Dennis will provide further detail on this in just a moment.
Our teams are cultivating strategic relationships and driving growth for our clients.
During the quarter, we won new accounts in the global traditional and alternative segments at.
In alternatives, our largest clients continue to expand in the private credit private equity real estate and infrastructure markets in.
In the quarter, we on boarded a private equity firm previously using in house administration and to private credit firms one of the competitive takeaway and another through a competitive bid process. We also signed a large cross sell p/e access platform client, which was also a competitive takeaway.
Traditional business in IMS had a very strong quarter, we added new business in all product lines across more than 40 investment managers in particular, our business expansion in both our turnkey collective investment trust and ETF solution continue to be strong.
We're also pleased to announce that we recorded our first Sci wealth platform sale to an existing client in this unit.
Finally, we completed a large transfer agency conversion, adding more than 1700 institutional accounts and successfully partnered with a renowned global asset manager to utilize our CIC platform. This highlights the breadth of our capabilities in the expanding reach on a global scale.
Next private banking had another active quarter signing three new deals in re contracting for clients. We also successfully implemented three clients on the <unk> platform during the quarter were making significant strides on the technology front, including the Sci data cloud our cloud solutions are generating growing interest with both.
Existing clients and new prospects. We also continue to make headway in converting clients from trust 3000 WP.
During the quarter, we successfully migrated more than 35000 accounts and approximately $120 billion in assets for one of our larger banking clients.
Sanjay and the team continue to capitalize on our pipeline prudently manage expenses and drive that growth to the bottom line. We still have some previously announced events to absorb in coming quarters, but we are confident in our current strategy to grow both revenues and profits.
Turning to our investment advisory business, we completed the integration of our North American based intermediary businesses during the quarter. We believe our intermediary business is better positioned to accelerate growth across each of its channels with this realignment.
We're seeing early signs of that growth already especially in the RIAA channel in which we experienced accelerated positive net cash flow during the quarter.
Our technology investment processing and asset management capabilities allow us to meet our clients, where they want to be met and provide a holistic solution that is unmatched in the market.
And the institutional Investor segment, we secured wins with our outsourcing capabilities across the full spectrum of our offerings. Additionally, existing clients continue to consume our expanded suite of products.
Corporate defined benefit curtailments, and a new innovations continue to be headwinds in the UK and U S and were the driving factors for the quarter's financial results. We continue to mitigate the DB headwinds, though through improved cross sales and lead generation for other Sci services, and our private wealth management business as well as expansion in other instances.
<unk> market is.
Additionally, we recently announced our agreement to acquire National pension Trust pending regulatory approval MTT is a leading master trust in the UK serving more than 60000 members NPT is our second Master Trust acquisition following the purchase of Atlas in 2021.
As we've mentioned, we built a corporate development team last year with a focus on developing executing and integrating our strategic transactions to accelerate growth. The MPT acquisition demonstrates our commitment to this strategic priority as well as our commitment to the UK market.
Turning to our investments in new business segment, Sci sphere had a positive quarter, adding a new credit union clients and successfully migrating its first clients to the cloud.
And our partnership with <unk> remains very strong.
On the talent and culture front, we expanded our executive leadership team with the addition of <unk>, who will lead new business ventures. It will be a future participant on our earnings call. We are excited to have <unk> has joined the team as she brings a wealth of knowledge and experience throughout her career. She has led growth initiatives and leading international firm.
Where she created and scale new businesses at the intersection of data artificial intelligence and technology.
Stay is higher also highlights the fact that with our existing growth engines position for success. It is now time for us to increase our attention and devote additional resources to new businesses and platforms.
<unk> will be focused on identifying and incubating those businesses, including SDI sphere that we believe will build upon Sci's foundation for future growth and contribute to our corporate revenue goals. It also.
Evidences our commitment to infusing in external talent into the company and our ability to attract that talent.
On the cultural front, we also made strategic investments in building <unk> brand awareness and our community engagement initiatives. These investments will help amplify sci's message drive employee engagement and elevate our core values.
This concludes my prepared remarks, I will now turn it over to Dennis to discuss our financial results for the quarter Dennis.
Thanks, Ryan as Ryan mentioned EPS for the quarter was 89 per share. This compares to 81 during the second quarter of 2022, and <unk> 79 for the first quarter of 2023.
Revenue for the quarter was $489 million.
Compared to $482 million in 2022 and $469 million in the first quarter.
Compared to $482 million in 2022 and $469 million in the first quarter.
Total expenses for the quarter were $376 million, which compares to $366 million last year and $367 million in the first quarter.
On the sales front, and our technology and investment processing businesses.
Banking and IMS net sales events totaled $31 $1 million and are expected to generate $25 4 million and recurring revenue.
In our asset management related businesses.
Net sales were approximately one negative $1 9 million.
Sales from our newer initiatives were slightly positive.
Total net sales were $29 3 million of which $23 6 million as return.
Private banking sales were $7 4 million in net recurring.
Our of which $4 million as net recurrent.
This reflects three new estimate peak sales.
We re contracted for clients during the quarter, representing $15 $2 million in annual recurring revenue.
The private banking segment's focus on the regional community Bank segment, along with the <unk> segment in the U K, it's paying off.
During the quarter, we were active with backlog delivery and conversion activities, including implementing wavelets in investment management, which helps to further strengthen our pcie solution for the UK market.
We also completed additional business migrations for U S Bank, which helps to solidify our SVP SaaS solution, including the conversion of their acquired Union bank business onto Sci platforms.
The current backlog of sold are expected to be installed revenue in the next 18 months is $36 6 million.
During the second quarter, two client installations that were scheduled to occur were delayed.
Later in the year by the clients.
We are ready technologically and operationally when the clients say go.
Based on current schedules we.
We expect approximately 60% of the current backlog to convert by the end of the year.
The banking segment revenues benefited from a $10 $5 million, one time fee related to the USA Union Bank consolidation.
Asset management revenues in private banking were up slightly during the quarter benefiting from market appreciation.
Expenses in the quarter were up slightly from the first quarter of 2023, primarily from onetime items.
On the IMS front net sales for the quarter were $23 7 million $21 4 million is recurring.
During the quarter, we re contracted for clients totaling $37 million in annual recurring revenue.
Revenue for the quarter was up compared to first quarter, reflecting the impact of client installations and capital markets.
Expenses were up slightly for the first quarter as we continue to invest in talent and capabilities to support our growth.
Backlog of sold but expected to install in the next 18 months recurring revenue was $32 1 million.
For investment advisers net cash flow onto our platforms was essentially flat.
We experienced increased flows into our newer strategic asset management and platform only programs and negative flows from our more mature mutual fund products.
The adoption of our platform only program, which Leverages, our technology administration and custody capabilities continues to show increased momentum.
Our newer offerings are helping us move the business or providing more choice to our clients and helping us offset the movement of assets out of mutual funds and the associated revenue impact.
Revenues for the quarter were up from first quarter as a result of improved capital markets.
Expenses were up slightly due to asset appreciation.
We recruited 68, new advisors during the quarter incentive which are the newer RIAA channel.
And the institutional investors segment net sales events for the quarter were slightly positive.
The unfunded client backlog of gross sales at quarter end was $2 2 billion.
Revenues for the quarter were up slightly from first quarter due to capital market activity and net client fundings.
Expenses were up $4 6 million $4 5 billion of which represents a one time charge related to a client reimbursement.
This expense item is recorded in facility supplies and other costs on our income statement.
Without this expense.
Expenses were roughly flat for the quarter.
And the investments in new business segment revenues were flat and expenses down slightly compared to first quarter.
We expect expenses in this segment, while shifting to and supporting new initiatives to remain in this range.
In addition to the segments. The company also incurred a $2 $5 million expense reflected in the consulting outsourcing of professional fees line item on our income statement.
<unk> growth project that was completed in the quarter this will not repeat.
<unk> produced $32 7 million in profit during the quarter.
This compares to $28 9 million during the first quarter.
Revenues for <unk> were $108 8 million compared.
Compared to $98 2 million in the first quarter.
Second quarter revenues included $12 $7 million of performance fees.
As a reminder, OSB recorded performance fees of $2 5 million during the first quarter.
Performance fees are a reflection of continued positive relative performance and OSB.
Core revenue growth as a result of investment performance and capital growth in assets.
Offset by negative client flows.
One final item.
As Ryan mentioned on July 13, 2023, we entered into an agreement to acquire the National pension Trust.
Transaction is expected to close before year end subject to applicable regulatory approval.
I point, you to our recent press release for more information.
Our tax rate for the quarter was 23, 4%. This higher rate is due to a reduced level of option exercises and the related tax timing difference benefit.
You can expect our tax rate to be in this range. During 2023 was with a slight step down in the fourth quarter.
That concludes my remarks.
As a reminder, all of our unit heads are on the call and we will now take any questions.
Yes.
Ladies and gentlemen, if you wish to ask a question. Please press one and then zero on your telephone keypad you may withdraw your question at any time by repeating the ones you would come in if youre using a speakerphone. Please pick up the handset before pressing the numbers. Once again, if you have a question you May press, one and then zero at this time.
And one moment for our first question.
Yeah.
And our first question is from Ryan <unk> of Morgan Stanley . Your line is now open.
Hi, good afternoon, Thanks for taking my question.
Ryan private banks pre tax margin came in at 13%, but if we strip out.
One time fee of $10 5 million you get around 6%.
So just want to understand were there any expenses associated with that one time transition and can you update us just in general on the timing of pretax margin expansion expectations going forward for the private banking segment.
Sure I'll answer the first part and turn it over to Sanjay just kind of speak to the progression of the business.
On the first part $2 million to $5 million consulting fee was in that segment that I mentioned.
And also there were some costs.
Because there is work involved in converting that client.
So that conversion is behind us and that certainly would help but will the costs won't go away because we'll redeploy those resources against all.
While the other future implementations and conversion activity we have.
Besides that you want to address kind of how the how you see margins of the business.
<unk> Premier.
However.
So in terms of the margin improvement.
<unk> has called out.
You'll not see those Florida so soon.
<unk> has been very consistent we came up with okay.
Four focus areas, we are going to focus on client engagement re contracting work without existing clients. So that we can solidify our base.
Backlog delivery and then of course, the focus a very focused approach in terms of how we go to market in a targeted segments and then of course the margin management. So you will see that this is javier.
Staying focused and.
And expense management has been <unk>.
So thats, how we are targeting and so I would say that we will stay focused and the multi <unk>.
Thanks, and then.
At the company level is one Sci.
It's still impacting results at all.
Or is that out of the run rate.
I would say that we've kind of moved off that terminology.
Theres really not cost in the P&L and a longer associated directly with one Sci there is some technology work that probably would've been under that umbrella.
Particularly as we work through a couple of clients.
Convergence and client Onboarding activities.
But there's nothing distinct no distinct expense in our P&L any longer related to one Sci Ryan.
Thank you.
Yes.
The next question is from Jeff Schmitt of William Blair. Your line is now open.
Hi, Thank you.
You continue to make good inroads with ex WP.
What is the mix of <unk> Trust 3000 business in that in the private bank segment today, and what type of revenue bump do you.
Bump do you typically get them and one of those conversions.
So I'll go to market strategy has been that we.
We are leading with WP.
Subsidy policy and new sales, it's multiple existing clients to support that initiative.
Not going to market with the new sales.
With the trust 3000, and Thats all as WPS concern, we have been very focused in terms of like for example in the UK market I'll focus and <unk> segments.
In U S market, we are focusing on regional and community segment with a very specific go to market strategy. There. So our technology operations and asset management and a similar kind of strategy for all jumbos and giant segment.
And Jeff This is Ryan I think the other kind of extension to your question is.
While we are going to that market, especially in that regional community Bank space.
Sanjay entertain we'd certainly expect and we are positioning certainly a premium.
Cost perspective, and a revenue perspective, but one thing that has certainly changed over the last 12 to 15 months is we're also thinking outside of those lanes in terms of other enterprise capabilities that we can bring to bear across those segments. So whether that be sci sphere, whether that be more asset management capabilities more focus on the alternative space.
So on a like for like basis. If somebody is just moving investment processing. We certainly would expect the premium what is more interesting to us is the firms have seen that really be gravitating towards <unk> and the team in that segment have really clear growth agenda across their entire wealth management landscape and more of our capabilities are definitely resonating there.
And if I could add further.
We are also looking at multiple operating models.
Traditionally we will focus our products' WP flow business, most of our sourcing to SDI, but with U S banking from a decent we haven't matured significantly in software as a service tomorrow as well.
<unk> go to market, starting with nominal another opening model.
Okay.
Okay. That's helpful and then.
Looking at the overall operating margin I think it was 23% versus sort of mid to high one is.
Historically.
And it appears just wage and service inflation continued to drive some of that weakness.
Come down in the economy, but I was just curious what those are running at both of those items for you internally.
Yeah, there were not.
<unk>.
We're not seeing the same level of wage inflation that we saw in.
2021 2022.
This year.
And as part of our.
Focus on expenses, we're also.
Been very.
I'd say diligent in our hiring practices and our onboarding of.
Of talent.
That being said, we want to make sure that we're competitive in our markets where talent.
So compensation is a key element of maintaining our competitiveness.
The attractiveness of working for Sci.
It goes beyond that element of competitiveness to our growth orientation of the type of company we are in our culture.
Although we are still.
<unk>.
Wage market competitiveness is still there but it's.
This has definitely cooled off from the past couple of years.
So as we get we get topline growth, particularly as.
Our asset management businesses.
Continue to show topline growth with with markets.
And are better positioned today than they were coming into the year.
A lot of our margin deterioration was really asset management revenues flowing out which is higher margin revenue and the ability.
As that starts to come back in.
But we expect to see higher.
Net cash flow activity.
That will go a long way to move in the margins margins back up.
Okay that makes sense. Thank you for the answers.
Sure sure.
The next question is from Owen Lau of Oppenheimer. Your line is now open.
Good afternoon, and thank you for taking my questions. So Brian you just mentioned.
You mentioned you just.
<unk> health New business ventures could you. Please add more color about your vision and dispatchers and how you expect these venture can help Sci along that Tom Thanks.
Yes, and great to hear from you hope you're doing well so the higher <unk> was something that we had laid out as a part of our growth strategy about 12 months ago in terms of focusing more on I would say kind of three things. If you think about how <unk> structured today today, we have a couple of new businesses and STI sphere Sci Adventures.
And we wanted to put more structure in place more leadership in place in terms of really thinking about how do we incubate and scale those businesses to drive business growth, but I think the second and third is really creating a system inside of Sci, we really want to promote a culture, where we think of the workforce is 4900 entrepreneurs and.
How are we facilitating and fostering that culture. So we're generating ideas from grassroots level and putting a system in place to identify those ideas cultivate them see if we can get more things out into market kill those ideas. If they don't have legs, but then be able to scale things that looked like they have momentum, but also expand that thought process outside of <unk>.
Because one of the things, we're really starting to see with such a significant increase in client engagement and market engagement. The last 18 months, we're starting to see some interesting partnership opportunities with our clients with our partners. So it's ne had really has a terrific track record in doing these sorts of things will be a wonderful cultural addition.
To the Executive Committee.
And we will really put a system in place for us to say when we think about the future of SDI. How are we going to identify that fifth engine thats expansion from an organic perspective, alongside what we're doing on the corporate development side with M&A.
Just think we're in a position right now where we really can start pivoting and getting focused on new business additions engine.
We feel confident that we've got some really great momentum in our current core businesses.
Got it that's helpful. And then you had a consulting engagement I think it was related to outsourcing.
And then in the second quarter could you. Please talk about what you've learned from that engagement and then it's $30 billion a good run way going forward for the overhead expense. Thank you.
Yes.
The second question is yes, that's a good.
Great.
Okay.
The work that we did with the outside consulting firm.
Kind of had two elements to it.
I think it's probably best to have Sanjay answer since it.
The key focus was on our banking business.
And then <unk>.
Brian maybe you want to comment on kind of the broader aspects of the yes I can start first and then turn to <unk>. So I think we may have mentioned this in the call last summer, but one of the very first things we did across leadership at SDI last summer, which was sale solutions product operational technology leaders as we step back and we looked at our total addressable market.
And not just the size of each universe. So we werent, saying, how many <unk> are out there how many regional from any bank, but we really try to distill that down to another level of granularity and look for criteria, which firms were really growing what was their appetite to outsourcing how repeatable what our success be in those pools and in those channel.
<unk>.
And then while we.
<unk> finished that process. We also thought it was an opportunity to think differently and bring in an external firm to help challenger validate some of those thoughts and ideas and outcomes that we had since Sunday, we did that and specifically in banking in the U S and U K. So I just want to talk high level about that absolutely.
Hi.
So last time, we talked about it.
We added a chief strategy officer.
Banking, both milestone business segment.
And as part of them by each of <unk> 800, <unk>, we cannot with all our best thinking our best starting to see that how we should go to market and Thats why we came up with the full build out strategy.
And then being used some external consulting company to renovate our local market strategy and haven't really.
Understanding the total addressable market both here in U S as other than the UK.
And then it goes to reevaluate.
We evaluate our strategy at the same time.
The upsell of the consulting company to engage with our existing clients. The clients, we lost as well as the new prospects, including volume and as part of the database.
It's a green by the recent amount of certainty as soon as we have not.
Several new insights.
The formula we evaluated alternatives, because we define and thats, what we are executing now.
Got it thanks a lot.
Thank you.
As a reminder, if you would like to ask a question. Please press one and then zero. The next question is from Mike Brown of K VW. Your line is now open.
Great Good evening everyone.
Maybe just kind of a follow up on one of the prior questions. It sounds like there is certainly a concerted focus on your new initiatives you guys have been talking about them for a while here, but I guess the revenue in that in that line has been relatively unchanged for a while here.
If you if you could give us some some thoughts here on to when that could start to inflect higher as you look forward for for those initiatives.
Hey, Mike It's Ryan.
I don't think we have any specific thoughts in terms of exact timelines. All I can tell you is that we know that with our corporate goal of doubling the revenue of the company over the next five to seven years, we need new engines to be a part of that and Thats why we made the hire thats why were going to invest in these areas. So I think part of what <unk> is going to be doing moving forward.
It's really helping us from an executive committee really think through what our expectations should be how do we invest what are what are return on that investment should be but I think you will start to see a greater focus in those areas around new engines, new businesses, new ideas that could generate revenue for SDI.
The more important point that we're trying to kind of get across today is because of how well some of the existing units are moving right now because of the client engagement client penetration, we feel like we have some capacity both from an intellectual perspective, a talent perspective and financially to go focus on some of these new things. So when you look at IMS this quarter.
Sales in the room, we're really excited about the level of engagement and results with some really terrific sales quarter across all of Sci, but we're also very excited that those sales are manifesting themselves in segments, where we said we wanted to focus and our ability to not just sell but to install those sales more quickly. So that revenue is hitting in that.
It has fallen to the bottom line.
Okay great.
Just wanted to touch base on capital allocation and maybe the balance sheet here.
Any change in your views on.
Sure.
Kind of cash level that you want to to run with with going forward and then maybe that can dovetail into how youre thinking about capital allocation here obviously.
Teaching some inorganic growth here recently.
How are you thinking about.
Their transformational M&A down the road and maybe balancing that with capital return.
Sure So I'll start.
Along with our.
Capital allocation hasn't.
Today is consistent with where it's been for.
Quite a while now which is.
Reinvest in the business first.
First and foremost.
That includes.
M&A to the extent there is an <unk>.
Or.
Our business out there that made makes a lot of sense for Sci and for us.
To own that business and make it part of part of STI.
And then second is to.
Continue to return capital to shareholders and you saw that.
<unk> seen that kind of continue.
Consistently.
The word transformational gets thrown around a lot.
To the extent, we had a bigger transaction that our current balance sheet makeup.
Wasn't sufficient enough to fund.
We're not hesitant to go to market.
And raised capital.
Sometimes we get.
Perception that were.
These are my words allergic to that and that's not the case at all.
We will be prudent and certainly in our.
Capital approach.
Yes.
But we're not.
Freight over a large with a changing the nature of our balance sheet.
Putting us in a better position for growth.
Success in the markets we're in.
Okay, great. Thank you alright.
Alright.
And there are no further questions at this time Mr. Hickey.
Thanks.
So in closing we have an outstanding foundation and momentum to drive continued growth for our stakeholders.
Looking at the future and as we.
With mixed emotions that after 38 years, numerous leadership and executive positions and countless enormous and lasting contributions to <unk> success and culture.
Dennis Mcgonigle has decided to step away at the end of 2023 to reallocate his time to other parts of his life.
Dennis has been an invaluable partner friend adviser and colleague to me over my entire career and I personally I will have an enduring debt of gratitude.
And I will work with the executive team on a smooth transition of duties over the coming months and we will explore ongoing opportunities for dentists to remain involved with Sci.
As we focus on the opportunities ahead, I'm confident in our strategy and I'm confident in our ability to deliver just as we've done for 55 years.
Thank you for joining today's call.
That does conclude our conference for today. Thank you for your participation and for using AT&T Teleconferencing services you may now disconnect.
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