Q3 2024 SEI Investments Co Earnings Call
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Speaker Change: Hello, and welcome to <unk> Q3, 'twenty 'twenty four earnings conference call.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session.
Speaker Change: Ask the question during the session you will need to press star one on your telephone.
Speaker Change: You will then hear automated message advising your hand is raised.
Speaker Change: Withdraw your question. Please press star one again.
Speaker Change: I would now like to hand, the conference over to Brad Burke head of Investor Relations you may begin.
Thank you and welcome everyone. We appreciate you joining us today for our third quarter 2024 earnings call on the call.
Speaker Change: We have Brian <unk>, Chief Executive Officer, Sean.
Chief Financial Officer, Michael Landy, who leads our investment management unit advisor and institutional businesses.
Speaker Change: First of all our Executive Committee, Jason forgot.
Speaker Change: Phil Mccabe, Mike Peterson.
Speaker Change: And Bob Sharp.
Speaker Change: Before we begin I would 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.
Speaker Change: Replay will be available on the events and webcast page of our website we.
Speaker Change: We would 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 the actual results to differ materially.
Speaker Change: Please refer to our notices regarding forward looking statements that appear on today's earnings press release.
Speaker Change: Our filings with the Securities and Exchange Commission.
Speaker Change: We do not undertake to update any of our forward looking statements with that I will now turn it over to our CEO Ryan.
Ryan: Thank you Brad and good afternoon, everyone.
Ryan: I had in many aspects in regards our record quarter, our EPS of $1 19 is the second highest quarter in our company's history and excluding one time items that represents our highest ever EPS achieved a product of top line growth and prudent expense management.
Ryan: Combined assets under management administration, and advisement grew nearly three 5% from the prior quarter, reaching new highs.
Ryan: We also had net sales events totaling $46 million.
Ryan: Which is also a record quarter for STI and at the end of the quarter, we implemented modifications to our integrated cash program, which more than doubled the balances in the program.
Speaker Change: Sean will unpack, our financial results and changes to our integrated cash program in more detail shortly.
Speaker Change: The increased attention and energy, we have put into sales client engagement marketing and availing more sci capabilities to the market is showing meaningful results.
Speaker Change: These results are an early manifestation of strategic changes over the last few quarters. It should be noted that we did benefit in the third quarter with sales events that were delayed in the first half of the year accelerating the closure in Q3.
Over the last few years, we have been laser focused on significantly increasing market activity client engagement and enterprise positioning.
Speaker Change: We intend to win continuously in our core markets as well as expand our share of total addressable markets.
Speaker Change: As we invest in our platforms and talent and increased market awareness of Sci and the value. We can bring to clients, we will not relent on maximizing new client growth and client expansion in the segments and markets, where we want to win for.
Speaker Change: For example, we continue to execute the blueprint for our private banking business by right sizing expenses relative to the market opportunity, having a surgical focus on large segments like regional and community banks and UK private client investment managers, where we believe Sci can take market share and power growth oriented.
Speaker Change: <unk> is looking to increase their wealth footprint.
Speaker Change: We are also seeing real demand in this market for our data cloud and integration transformation services.
Speaker Change: I believe this value proposition will resonate across other sci segments as well our sales are actually in the investment managers business, which was a record quarter. Also reflects the response were seeing in our enterprise sales efforts. The momentum is truly broad based we're having success with both traditional and alternative managers.
Speaker Change: U S clients global clients existing clients and larger in house providers looking to outsource.
Speaker Change: We expect the demand for these services will remain robust and we will continue to invest in all parts of this business, including operational automation and AI to lead the market.
Speaker Change: <unk> third quarter earnings growth reflects both topline and margin growth across all of our business segments. In addition to the benefit from one time items that Shawn will discuss shortly.
Speaker Change: Some additional strategic highlights.
Speaker Change: Net cash flow in the advisor business grew by $1 1 billion predominantly led by platform adoption in the <unk> space <unk>.
Speaker Change: Consolidation across custody in investment processing platform providers in the market has created an opportunity to win more clients, who view <unk> as a key partner. This is a market segment, where we believe Sci has significant opportunity for growth expanding our technology and operational suite solutions as well as asset.
Speaker Change: Yes.
Speaker Change: Beyond the third quarter, the trend of companies looking to scale and streamline their businesses with fewer strategic partners continues to grow.
Speaker Change: Repositioning Sci as an enterprise partner and not just a single platform provider within a vertical market is gaining true traction, it's evidenced by existing clients turning to us to leverage the breadth of our capabilities by.
Speaker Change: By going to market with an enterprise approach. We believe we have an incredible growth opportunity to gain share against firms that only have a singular focus.
Speaker Change: We are also focused on re imagining and repositioning our asset management platforms for growth as.
Speaker Change: As the market continues to embrace new product types of asset classes, whether that be passive investments the growth of alternatives their place in more retail portfolios. We are increasing our choice of offering for our intermediary Endo CIO clients.
Speaker Change: The continued consolidation and influx of private equity capital into the intermediary space creates disruption, but it can also create opportunity for Sci for us to position the breadth of our solution offering to a broader range of segments and allow us to strategically invest in the future of advice.
Speaker Change: Michael Lanes addition to the Sci team is a tremendous win for us in this space and beyond.
With our eyes on industry trends, we are confident that sei's combination of stability culture balance sheet strength client focus and willingness to invest in innovation and scalable solutions will drive competitive differentiation and accelerated growth.
Speaker Change: We are focused on maximizing the enterprise value for our shareholders and we are proud of the momentum we are seeing in the market and the enthusiasm we have across the workforce to rethink opportunities for STI.
Speaker Change: Before concluding I want to thank our employees for outstanding performance. This quarter, you should take a moment to celebrate and reflect on what is possible I congratulate everyone on their persistence resilience and willingness to embrace change we still have a lot of work to do to realize our full potential and we will not be satisfied and.
So we are hitting on all cylinders across this company at.
Speaker Change: And speaking of change.
Speaker Change: To welcome Michael <unk> to our earnings call to make some brief remarks.
Speaker Change: Michael joined US last month from Blackrock Fleet, our investment management unit advisor and institutional businesses as mentioned I'm confident his experience expertise and leadership will help us re imagine re imagine asset management at Sci capitalize on market opportunities and accelerate our growth Michael has already made in <unk>.
Michael Lanes: Extremely positive contribution to the leadership team and its early days, Michael Thank you Ryan and good afternoon, everyone I spent.
Michael Lanes: My first few weeks at MTI getting up to speed in three areas first understanding the client segments that we do and do not serve.
Michael Lanes: Looking across SDI products and services to begin aligning what solutions exist that meet the needs of our existing client base and learning, where we can leverage these products either individual investment products custody services outsourcing investment capability or technology to serve new clients.
Michael Lanes: Third getting to know our people and learning our history structure strategy and what is foundational and cannot be adjusted while challenging each person to think bigger about areas, where there is opportunity for both improvement and expansion.
Michael Lanes: Would it become clear in a short period of time is that we have deep relationships with our wealth clients and serve them well, but these clients represent a very small percentage of the largest and fastest growing financial advisors.
Michael Lanes: We have highly skilled people across both our institutional and advisor businesses that can be leveraged to help us move into new markets without increasing our cost of distribution.
Michael Lanes: Our institutional business has room for growth beyond outsourced CIO.
Michael Lanes: Both our advisor and our institutional businesses have focused on delivering the whole engine of Sci, including asset management custody and technology delivered as a single product.
Michael Lanes: It will also must be willing to deliver the individual parts of that engine.
Michael Lanes: Parts delivery be it investment products from our highly skilled in house investment team OSV technologies or operational administrative services will help us serve the largest and fastest growing client segments.
Michael Lanes: Our country realize that SDI has more opportunities for growth than we can reasonably pursue our collective challenge across the leadership team will be where we prioritize reallocate and invest to both secure and grow our position as a market leader.
Speaker Change: Now as I turn it to Shawn to share more detail about the quarter's financial results I can honestly say that are five weeks I am more excited about our growth prospects than when I accepted the opportunity to join this leadership team.
Speaker Change: And with that I'll turn it over to Sean.
Shawn: Thanks, Michael as Ryan mentioned in the third quarter was one of the strongest and Sci as nearly 56 year history.
Sean: Before I get into our financial performance I want to call out a few items that impact comparability.
Sean: The current quarter benefited from an $8 million gain on the sale of real estate, which was recognized below the line.
Sean: A $2 million benefit from some onetime items and our private banking business and a large one time performance fee from LSP of which our portion was approximately $5 5 million.
Sean: Our revenue increased by 13% operating income increased by 33% and EPS increased by 37% versus the prior year, including a nine EPS benefit from the three items I noted above.
Sean: Financial results were also broadly favorable compared to the second quarter of this year.
Sean: Each of our business segments realized revenue growth and margin expansion compared to both the prior year and second quarter.
Turning to our business unit performance revenue and profit growth in our private banking business with notably strong revenue growth was supported by healthy backlog implementations converting new clients onto at WP as well as growth through existing clients.
Sean: The 17% operating margin realized in the third quarter or 15, 5%. Excluding the items I noted earlier continues the momentum realized in the first half of the year.
Sean: Our investment our investment managers business continues to post strong performance with operating profit increasing by 19% driven by significant sales and cross selling to our existing clients in the alternative space as well as strength in CIP.
Sean: Our institutional business realized modest revenue growth versus.
Sean: Versus last year, an improvement from the first half of the year when revenue declined by low single digits.
Sean: Operating profit grew at a stronger pace up 11% from last year, driven by among other things our disciplined cost management efforts.
The advisor business realized double digit revenue and operating profit growth versus last year.
Sean: With a positive contribution from the integrated cash program and strong performance from separately managed accounts and Etfs offsetting outflows in traditional mutual fund products.
Sean: We have and will continue to actively expand strategies to increase inflows into new programs to offset the revenue impact of outflows and our traditional mutual fund products.
Sean: On September 30th we modified our integrated cash program, resulting in the total balance reaching $2 $4 billion on the last day of the quarter.
Sean: We have seen balances fluctuate significantly since quarter end and we anticipate they will continue to fluctuate.
Sean: Given the fluctuations it is difficult to give a precise outlook on how the increased balance will affect operating income that said based on current balances any base case outlook for rate cuts, we could see a contribution from this program in the fourth quarter that would nearly double the $11 million realized in Q3.
Sean: We will be able to better estimate the normalized run rate from this program in a few months when we report fourth quarter results.
Sean: And now let's be contributed $37 million to equity income up over 20% from last year driven by the large onetime performance fee I noted earlier, which contributed $5 5 million or <unk> <unk> of EPS after taxes in the quarter.
Sean: Note that we do not expect a similar performance fee in the fourth quarter is there as these are naturally episodic.
Sean: Sci has also had a outstanding quarter for net sales events totaling $46 million.
Sean: Most of which is recurring.
Sean: Notice that we have increased the disclosure around sales event.
Sean: By segment in our press release, which should help put these trends into context.
Sean: Q3 events were primarily driven by both our private business private banking business, which has a mix of both recurring and nonrecurring events and an excellent quarter for recurring events in our investment managers business.
Sean: Events in the private banking business were almost entirely attributable to new business. In addition to the continued growth of our professional services and data cloud offerings in.
Sean: And our investment managers business.
Sean: Events were supported by significant new client closing in addition to multiple cross sell to existing clients in the traditional and alternative markets.
Sean: Our institutional business events were essentially flat in the quarter with a couple of notable wins in the endowment and defined benefit space offsetting defined benefit terminations.
Turning to our asset balances.
Sean: AUM increased by 5% and our <unk> increased nearly two 5% from the prior quarter, bringing total combined AUM and <unk> to a new record of nearly one six trillion.
Sean: Growth in the quarter reflects both market appreciation and positive net inflows.
Sean: Growth in our private banking institutional businesses was largely attributable to market appreciation.
Sean: Our advisor business benefited benefited from healthy net inflows, notably in our strategists and platform only spaces offsetting net outflows in our mutual fund products.
Sean: A revised estimate pricing structure introduced on April one was a catalyst for strong growth in the third quarter.
Sean: Our investment managers business, which is less sensitive to market changes saw assets increased by 3% and LLC benefited from strong equity market performance during the quarter offsetting net outflows into passive products.
Sean: Touching on capital allocation, we repurchased approximately one 3 million shares for $86 million in the quarter.
Over the last four quarters, we've returned $442 million of capital to shareholders through either repurchases or dividend nearly 5% of our market capitalization.
Sean: Sci continues to maintain a fortress balance sheet with no debt and a cash balance of $900 million as of quarter end.
Sean: Before concluding I would like to reiterate Ryan's message to our employees, we should all be very proud of the strong results this quarter and while we are proud of our record setting quarter I would also remind our investor community that the third quarter is just that a single quarter. We remained focused on driving sustained growth for our business over the <unk>.
Sean: Long term and we continue to have a lot of work in front of us.
Sean: Before concluding I would like to welcome our new head of Investor Relations Brad Burke.
Sean: Brad has deep experience, leading investor relations and corporate finance function. In addition to being a former sell side analysts.
Sean: There are that many of you have worked with Brad in the past and we're all excited to have him join our team.
Sean: With that operator, please open the line for questions.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen to ask a question. Please press star one on your telephone and wait to hear your name to be announced.
Withdraw your question. Please press star one again please.
Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line upon law with Oppenheimer. Your line is open.
Speaker Change: Good afternoon, and thank you for taking my question. So I wanted to start with a high level question.
Speaker Change: Because when I saw the press release I start with the energy level in this quarter.
Speaker Change: Very different many segments up double digit revenue growth in all segments printer margin expansion and you also have I think record levels net sales we plan, but my question is.
Speaker Change: And one off quarter or things happen in this quarter or this is an accumulation of what you have done over the past two years and it comes into fruition and it will be sustainable.
Speaker Change: Hey, Alan how are you hope you're doing well this is Brian.
Speaker Change: Great question. So I think the answer is a little bit of all of the above so when you think about all of the strategic changes we have made and the things that we continue to prioritize across the organization I would say we are satisfied with what we see in terms of short term production and delivery, but we stay very focused.
Speaker Change: As you know in the medium to long term and ensuring that we don't get too far over our skis.
Speaker Change: Because some of these things are cyclical when you look at the last quarter as Sean talked about our record it we're talking about right now.
Speaker Change: It's a more combined and focused execution across all business units, we've definitely benefited a little bit in timing, especially in science as group around banking in terms of sales, but we talked about in Q1 and Q2 that some of that was a little lower than normal when we think about the run rate for <unk> moving forward we are.
Speaker Change: Really focused on leading indicators so what our pipelines look like what does the activity look like how are we expanding our total addressable market how repositioning the enterprise for a broader breadth of capabilities.
Speaker Change: And then when we think about the earnings side of that we're always focused as you know.
Speaker Change: On expanding margins focused on growing EPS, but at the same time, we run this company with the medium to long term land. So we're constantly thinking about investments that we can make to accelerate or expand our position for growth in the market.
Speaker Change: Great quarter, as Sean said, though it is one quarter, while we like the underlying structural things that are happening around Sci.
Speaker Change: Got it.
Speaker Change: <unk> helpful.
Speaker Change: And then going back to your FDIC cash program when I look at the patterns I think it increased to $2 $4 billion at the end of the third quarter the average.
Speaker Change: The average balance was only $1 $2 billion I think Shaun touch on do you expect <unk> fees will like will be double to like $20 million or so but my question needs.
Speaker Change: Could you please talk about the driver of growth.
Speaker Change: So two quarter Ann.
Speaker Change: And what is the average spread you are capturing in this program right now.
Sure.
Speaker Change: And as Paul let me give a little bit of commentary there.
Speaker Change: Indicated.
Speaker Change: The modifications we made in the program effectuate. It on September 30 at that actual days. So thats why the average is subsequently different than the ending balance.
Speaker Change: We modified the program on September 30, as such that cash and non positional non positional cash is entirely allocated to the integrated cash program.
Speaker Change: Our model portfolios prior had 1%.
Speaker Change: Our operational cash.
Speaker Change: The modifications, we made sweep all cash that may be invested on a discretionary basis above the 1% unless the advisor trades away from the automatic sweep into the money market fund and none of this is positional cash held by investors outside of our model.
Speaker Change: So those are the modifications we made.
Speaker Change: Again, we're going to see we have seen fluctuations, but we think directionally, we should be nearly double where the contribution was in the third quarter in the fourth quarter and the average rate or the yield.
Speaker Change: It's probably close to about 4% after the interest rate cuts that we made a slight adjustment to the credit rate that we give investors. So even though the interest rates went down we took the position of modifying the investor rate from 90 basis points to 100 basis points. So hopefully that gives you some more color.
Speaker Change: Got it thanks Paul.
Speaker Change: Thank you.
Please standby for our next question.
Speaker Change: Our next question comes from the line of Crispin Love with Piper Sandler Your line is open.
Good afternoon, everyone. The.
Crispin Love: First on those sales events strength in the quarter excuse the tables at the end of the press release, which are very helpful. But can you just give a little bit of additional color there private banks and investment managers saw a nice pickup as well as investment in buyers advisors, but how concentrated were the new wins were there any of that work really feasible with a more spread out and.
Crispin Love: And then were there any individual wins spanned across segments, which we might expect to see a little bit more just given that enterprise sales approach you've discussed.
Crispin Love: Yes, kristian covered it well this is Ryan I'm going to go first with the quick answer to your question and then we'll let some of the unit leads get some more color I think the thing that we are proud of sub this quarter with the sales event is when you unpack those sales event. There is not one name or one deal that drove that.
Crispin Love: As a breadth of deals it was deals that were priced where we want them price where our value proposition is really resonating in segments, where we want to win so as a leadership team I think we are really convicted that the sales events, especially when you look at our ability to translate into revenue when installed and profitable revenue we feel.
Crispin Love: Strong about that so we did not do anything with lowering pricing chasing deals that we wouldnt lie nor did we do anything on the expense side that would really deteriorate a client experience. So I think when we look at the sales event, we're going to continue to be really really focused on segments, where.
Crispin Love: We can win replenish install refresh, but I'll, let Sanjay Phil Michael Hall give some color on what they're seeing in the market right now, but I think it's a great question, Chris but not only were we happy with the top line number.
We are happier when you unpack it its in areas we want to win.
Sanjay Phil: This is sanjay.
Sanjay Phil: Our actual what you call earlier.
Sanjay Phil: Go to market suddenly industrial different segments regional community bank in the U S market.
Sanjay Phil: Banking risk manage this in the UK.
Sanjay Phil: <unk> is an integrated well with our clients.
Vince we have.
Sanjay Phil: Physical as well as our pipeline you'll see that.
Speaker Change: Does anything dealing well with respect to our solvency.
Speaker Change: And we are probably pretty solid guide us are solid in terms of the quality of pipeline and.
Our ability to deliver that backlog and realized revenue.
Speaker Change: And Kristen this is Phil Mccabe I'll jump in real quick.
Speaker Change: As far as overall sales are concerned and IMS we.
Speaker Change: We had record sales for the quarter, we had record number of new names, we had sales across all products in jurisdictions.
Speaker Change: We are particularly strong in private asset semi liquid product and <unk> they were the bright spot.
Speaker Change: We're gaining significant traction in EMEA and other than that the pipeline is very very strong and I think the team's doing really well as far as concentration is concerned it was 40% new business and 60% Cross sales and we cross sold to over 90 different clients throughout the quarter. So there was no major.
Speaker Change: Our concentration so we're just it's a very very healthy business and our pipeline is very strong.
Speaker Change: And Christine This is Paul just real quick $1 1 billion and net positive cash flow for the advisor market nice adoption across all of our product mix 114, new qualified advisers, that's a record for us over the last three years in one quarter. So that's great pipeline is strong and we're really super optimistic.
Speaker Change: About some of the things that Michael is going to do in helping us re managing going upmarket to larger investors.
Larger.
Speaker Change: Is that he kind of talked about so we.
Speaker Change: We think our Tam is going to increase by some of the <unk>.
Speaker Change: Some of the views he has in the marketplace.
Speaker Change: Thanks, Paul.
Jay: Jay Good evening everyone.
Jay: Yes, I had mentioned in prior calls that we're excited about the opportunities we saw in the institutional market and the CIO market beyond defined benefit that manifest itself this quarter.
Jay: <unk> and the endowments and municipality space and when we look at the pipeline across those health care foundations unions not for profits.
Jay: It's a very robust pipeline and we continue to be optimistic about further growth opportunities. There and then Christian I'll answer I'll, just close with the second part of your question.
Jay: So we've got a three client conferences in October we had a large advisor event out of Arizona J had an institutional client event with Michael laying down in Austin, and then Sanjay had about 100 clients in Nevada on your question on the enterprise positioning I still think we're still in the early innings, what is really refreshing to see though is the content for.
Jay: These client conferences are now a much broader exposure to sci capabilities instead of just unit capabilities.
Jay: So again caveat this with we have to execute but I don't even think we've gotten started on the full enterprise positioning of Sci in the market.
Speaker Change: Great. Thank you, Brian and everyone. That's all very helpful. And then just one last question from me just in the release you mentioned positive net flows in the quarter I'm, calling out investment advisers and investment managers can you just give a little bit more detail there as it relates to the products or specific types of clients that drove that.
Jay: Okay.
Jay: Yes.
Speaker Change: Paul you want to sure.
Paul: So once again, we talked about about $1 1 billion, we saw adoption in our strategies and our SMA.
Paul: Some of the repricing, we don't we had done on April one certainly helped contribute to that.
We see a headwind in the marketplace around the Sci mutual funds frankly, we see a headwind in the industry around active mutual funds. So that's not uncommon, but that denominator is getting lower those assets are staying on platform and redistributing amongst all of our other product mix Etfs are strong direct indexing is strong.
Paul: Launched in opportunity in direct indexing around fixed income, which is a major differentiation in the marketplace.
Paul: Then finally, we had strong cash flow on our <unk> side, which is predominantly on our side. When we talk about those are larger relationships.
That we sign we had a large one in the third quarter some of that assets does get redistributed and assets under management as they see the breadth of the capabilities. So hopefully that gives you some more detail.
Speaker Change: The only thing I would add on the IMS side that we didn't cover we're benefiting from three or four major <unk>. One is the globalization of the business. Another one is the convergence of public and private markets. A third is the <unk> of all in the fourth at this private assets in private credit in general So all of those in.
Speaker Change: History themes are sort of tailwind for us and they are causing us to have a significant cross sales and those cross sells are matriculating and falling to the bottom line very very quickly.
Speaker Change: Great. Thank you I appreciate you taking my questions.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Jeff Schmitt with William Blair. Your line is open.
Jeff Schmitt: I may have missed it but could you discuss the revenue growth drivers.
Jeff Schmitt: In private bank like how much was from new clients versus existing clients versus.
Speaker Change: The professional services piece, which I know is ramping now.
And then how much is just kind of speeding up the backlog, maybe driving some of that too.
Speaker Change: So.
Speaker Change: Hey, Jeff.
Speaker Change: As the company sort of all three things to call out.
Jeff Schmitt: Our backlog delivery is solid you have seen.
Jeff Schmitt: If you look at our plant in line or last eight quarters.
Jeff Schmitt: Industrial backlog delivery industrial operating expense management in terms of signing new clients Youll see could see consistently.
Jeff Schmitt: That's improving.
Jeff Schmitt: And the <unk>.
Jeff Schmitt: New sales of the new revenue growth the political services as well as the FCA data cloud offering.
Jeff Schmitt: Those two all things start helping local needs.
Jeff Schmitt: The change management on the client side, which is helping us with the backlog delivery, but it is also helping with the sales cycle I would think about the.
Any changes on the client side, when they're moving from a platform. The platform is the <unk>.
Jeff Schmitt: Significant undertaking for their clients.
Jeff Schmitt: Our clients generally these kind of data these kind of projects 110, 15 20 years.
Jeff Schmitt: We are running 20 vessel subsequently every year.
Jeff Schmitt: That said, we are bringing our best expertise in terms of professional services enterprise capabilities and data cloud and that is what is really helping us not only with.
Jeff Schmitt: So the annuity license at a faster pace, but also winning new business.
Speaker Change: Brian you want to add anything no.
Jeff Schmitt: Sean let us know.
Great.
Speaker Change: Okay and then.
Speaker Change: <unk> been managing expenses in that segment really well obviously.
Speaker Change: Were down last year, I think year to date, there they are up less than 1%.
Speaker Change: Would you talk and I know you've touched on this before but like how much of that.
Speaker Change: It's kind of coming from R&D cut versus maybe more efficiency.
Speaker Change: Initiative.
And then how should we think about that growth for 25.
Speaker Change: So that's a good question if you look at our focus on backlog delivery our focus.
Speaker Change: So the data cloud as I talk about that is helping us with the older vessels since implement I would think about kind of debate when our clients are consuming our platform, they're relying on us from the op business outsourcing perspective, theyre relying on us from the backlog and backlog perspective.
Speaker Change: And Thats fair.
Speaker Change: <unk> also with respect to commodities.
Speaker Change: Regarding the module level.
Speaker Change: <unk> balanced then R&D expenses, we have been very judicious because thats something very very critical for us to keep pace with the change in the industry.
Speaker Change: The new products and solutions, we need to invest in industrial solution expense in that segment expense and continue to provide superior services to our clients.
Speaker Change: Absolute priority for us.
Speaker Change: Our model is that we are able to help our clients to grow their business and we are not compromising on the R&D expenses as part of our expense levels.
Speaker Change: What we have been you realized op margin expansion is through efficiency improvements yet investing in AI, we are investing in automation that existing and how we can better balance our backlog delivery. So those are the differentiating factor, which are helping to the experts one of them.
Speaker Change: Yes, Jeff I would actually add when we talked about this a little bit in New York, when Shawn and I were with you.
Speaker Change: Also continue to think about the company, though not just with the vertical lens with a horizontal lens as we drive more leverage and efficiency across our technology footprint as we think about our operational footprint. All the unit. These benefit from that focus and energy that we're putting in optimizing there and they are actually starting to collaborate more we're able to accelerate.
Speaker Change: Our delivery of things, where we're able to prioritize differently. So sanjay and the team has done an amazing job of managing their expenses and the vertical but as a leadership team. We continue to think about horizontally. What can we be doing foundational Lee that really drive through scale and infrastructure because one of the other thing we talked about we are certainly happy with the sales of <unk> in this quarter.
Speaker Change: But we expect greater things in the future and we're not going to stop investing in the infrastructure and all the things required to absorb that and deliver a great client experience, but those are things are dot horizontally across the company.
Speaker Change: Okay, Yes that makes sense very helpful. Thank you.
Speaker Change: Thank you.
Ladies and gentlemen, I'm showing no further questions in the queue I would now like to turn the call back to Ron <unk> for closing remarks.
Thank you. Thank you for everybody for attending the call today.
Speaker Change: I would just leave you with Sean's remarks from earlier it was a really great quarter, but it was one quarter. We're focused on the long term, we're focused on what we need to do to maximize sci's capability and potential we like where we see ourselves right now we'll continue to lean into more secular trends, where we can win but we're really focused on how do we create the same momentum in <unk>.
Speaker Change: Energy and success across all of our units and capabilities that we're starting to see emerge in a few of them, but I. Appreciate everybody's time look forward to seeing everybody hopefully in person in Q4.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for participating.
Speaker Change: You may now disconnect.
Speaker Change: [music].
[music].
Speaker Change: Hello, and welcome to <unk> Q3, 'twenty 'twenty four earnings conference call.
At this time all participants are in a listen only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session.
Speaker Change: To ask a question during the session you will need to press star one on your telephone.
You will then hear automated message advising your hand is raised.
Speaker Change: To withdraw your question. Please press star one again.
Speaker Change: I would now like to hand, the conference over to Brad Burke head of Investor Relations you may begin.
Brad Burke: Thank you and welcome everyone. We appreciate you joining us today for our third quarter 2024 earnings call.
Speaker Change: Paul we have Brian Haney Chief.
Speaker Change: Keith Executive Officer, Sean Chief.
Speaker Change: Chief Financial Officer, Michael Landy, who leads our investment management unit adviser institutional businesses and members of our Executive Committee, Jason forgot Paul.
Phil Mccabe, Mike Peterson.
Speaker Change: And someday Karma.
Speaker Change: Before we begin I would like to point out that our earnings press release can be found under the Investor Relations section of our website.
Speaker Change: <unk> Dot com.
Speaker Change: Paul is being webcast live.
Speaker Change: Replay will be available on the events and webcast page of our website, we would 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 the actual results to differ materially.
Speaker Change: Please refer to our notices regarding forward looking statements that appear on today's earnings press release, and our filings with the Securities and Exchange Commission, we do not undertake to update any of our forward looking statements.
Speaker Change: I will now turn it over to our CEO Ryan.
Ryan: Thank you Brad and good afternoon, everyone.
Ryan: I had in many aspects in regards our record quarter, our EPS of $1 19 is the second highest quarter in our company's history and excluding one time items and represents our highest ever EPS achieved a product of topline growth and prudent expense management.
Ryan: Combined assets under management administration, and advisement grew nearly three 5% from the prior quarter, reaching new highs.
Ryan: We also had net sales events totaling $46 million.
Ryan: Which is also a record quarter for STI and at the end of the quarter, we implemented modifications to our integrated cash program, which more than doubled the balances in the program, Sean will unpack, our financial results and changes to our integrated cash program in more detail shortly.
Ryan: The increased attention and energy, we have put into sale client engagement marketing and availing more sci capabilities to the market is showing meaningful results.
Ryan: These results are an early manifestation of strategic changes over the last few quarters. It should be noted that we did benefit in the third quarter with sales events that were delayed in the first half of the year accelerating the closure in Q3.
Ryan: Over the last few years, we have been laser focused on significantly increasing market activity client engagement and enterprise positioning.
Ryan: We intend to win continuously in our core markets as well as expand our share of total addressable markets.
Ryan: As we invest in our platforms and talent and increased market awareness of Sci and the value. We can bring to clients, we will not relent on maximizing new client growth and client expansion in the segments and markets, where we want to win.
For example, we continue to execute the blueprint for our private banking business by right sizing expenses relative to the market opportunity, having a surgical focus on large segments like regional and community banks and UK private client investment managers, where we believe Sci can take market share and power growth oriented.
Ryan: <unk> looking to increase their wealth footprint.
Ryan: We're also seeing real demand in this market for our data cloud and integration transformation services.
Ryan: I believe this value proposition will resonate across other sci segments as well our sales are actually in the investment managers business, which was a record quarter also reflect the response were seeing in our enterprise sales efforts. The momentum is truly broad based we're having success with both traditional and alternative managers.
Ryan: U S clients global clients existing clients and larger in the house providers looking to outsource we expect the demand for these services will remain robust and we will continue to invest in all parts of this business, including operational automation and AI to lead the market.
<unk> third quarter earnings growth reflects both topline and margin growth across all of our business segments. In addition to the benefit from one time items that Shawn will discuss shortly.
Ryan: Some additional strategic highlights.
Ryan: Net cash flow in the advisor business grew by $1 1 billion predominantly led by platform adoption in the <unk> space.
Ryan: Foundation across custody in investment processing platform providers in the market has created an opportunity to win more clients, who view <unk> as a key partner. This is a market segment, where we believe Sci has significant opportunity for growth expanding our technology and operational suite solutions as well as asset management.
Ryan: Beyond the third quarter, the trend of companies looking to scale and streamline their businesses with fewer strategic partners continues to grow.
Ryan: Positioning Sci as an enterprise partner and not just the single platform provider within a vertical market is gaining true traction as evidenced by existing clients turning to us to leverage the breadth of our capabilities.
Ryan: By going to market with an enterprise approach. We believe we have an incredible growth opportunity to gain share against firms that only have a singular focus.
Ryan: We are also focused on re imagining and repositioning our asset management platforms for growth as.
Ryan: As the market continues to embrace new product types and asset classes, whether that be passive investment in the growth of alternatives their place in more retail portfolios. We are increasing our choice of offering for our intermediary Endo CIO clients.
Ryan: The continued consolidation and influx of private equity capital into the intermediary space creates disruption, but it can also create opportunity for Sci for us to position the breadth of our solution offerings to a broader range of segments and allow us to strategically invest in the future of advice.
Ryan: Michael Lanes addition to the Sci team is a tremendous win for us in this space and beyond.
Ryan: With our eyes on industry trends, we are confident that SDI is combination of stability culture balance sheet strength client focus and willingness to invest in innovation and scalable solutions will drive competitive differentiation and accelerated growth.
Ryan: We are focused on maximizing the enterprise value for our shareholders and we are proud of the momentum we're seeing in the market and the enthusiasm we have across the workforce to rethink opportunities for STI.
Ryan: Before concluding I want to thank our employees for outstanding performance. This quarter, you should take a moment to celebrate and reflect on what is possible I congratulate everyone on their persistence resilience and willingness to embrace change we still have a lot of work to do to realize our full potential and we will not be satisfied and.
Ryan: So we are hitting on all cylinders across this company and.
Ryan: And speaking of change I'd like to welcome Michael Lane to our earnings call to make some brief remarks.
Ryan: Michael joined US last month for Blackrock fleet, our investment management unit advisor and institutional businesses as I mentioned I'm confident in his experience expertise and leadership will help us re imagine re imagine asset management at Sci capitalize on market opportunities and accelerate our growth Michael has already made in <unk>.
Ryan: Extremely positive contribution to the leadership team and its early days Michael. Thank you Ryan and good afternoon, everyone. I spent my first few weeks at MTI getting up to speed in three areas first understanding the client segments that we do and do not serve.
Michael: Second looking across SDI products and services to begin aligning what solutions exist that meet the needs of our existing client base and learning, where we can leverage these product either individual investment products custody services outsourcing investment capability or technology to serve new clients.
Michael: Third getting to know our people and learning our history structure strategy and what is foundational and cannot be adjusted while challenging each person to think bigger about areas, where there is opportunity for both improvement and expansion.
Michael: Now would it become clear in a short period of time is that we have deep relationships with our wealth clients and serve them well, but these clients represent a very small percentage of the largest and fastest growing financial advisors.
Michael: We have highly skilled people across both our institutional and advisor businesses that can be leveraged to help us move into new markets without increasing our cost of distribution.
Michael: Our institutional business has room for growth beyond outsource CIO.
Michael: Both our advisor and our institutional businesses have focused on delivering the whole engine of SDI, including asset management custody and technology delivered as a single product.
Michael: But we'll also must be willing to deliver the individual parts of that engine.
Michael: Parts delivery be it investment products from our highly skilled in house investment team OSB technologies or operational administrative services will help us serve the largest and fastest growing clients segments.
Michael: <unk> realized that SDI has more opportunities for growth than we can reasonably pursue our collective challenge across the leadership team, we will be where we prioritize reallocate and invest to both secure and grow our position as a market leader now.
Speaker Change: Now as I turn it to Shawn to share more detail about the quarters financial results.
Speaker Change: Can honestly say that are five weeks I am more excited about our growth prospects than when I accepted the opportunity to join this leadership team.
Speaker Change: And with that I'll turn it over to Sean.
Sean Chief: Thanks, Michael as Ryan mentioned in the third quarter was one of the strongest in Sci's nearly 56 year history.
Sean Chief: Before I get into our financial performance I want to call out a few items that impact comparability.
Sean Chief: The current quarter benefited from an $8 million gain on the sale of real estate, which was recognized below the line a $2 million benefit from some onetime items and our private banking business and a large one time performance fee from LLC of which our portion was approximately $5 5 million.
Sean Chief: Our revenue increased by 13% operating income increased by 33% and EPS increased by 37% versus the prior year, including a nine EPS benefit from the three items I noted above.
Sean Chief: Financial results were also broadly favorable compared to the second quarter of this year.
Each of our business segments realized revenue growth and margin expansion compared to both the prior year and second quarter.
Sean Chief: Turning to our business unit performance revenue and profit growth in our private banking business with notably strong revenue growth was supported by healthy backlog implementations converting new clients onto at WP as well as growth through existing clients.
Sean Chief: The 17% operating margin realized in the third quarter or 15, 5%. Excluding the items I noted earlier continues the momentum realized in the first half of the year.
Sean Chief: Our investment our investment managers business continues to post strong performance with operating profit increasing by 19% driven by significant sales and cross selling to our existing clients in the alternative space as well as strength in CIP.
Our institutional business realized modest revenue growth versus last year, an improvement from the first half of the year when revenue declined by low single digits.
Sean Chief: Operating profit grew at a stronger pace up 11% from last year, driven by among other things our disciplined cost management efforts.
Sean Chief: The advisor business realized double digit revenue and operating profit growth versus last year.
Sean Chief: With a positive contribution from the integrated cash program and strong performance from separately managed accounts and Etfs offsetting outflows in traditional mutual fund products.
Sean Chief: We have and will continue to actively expand strategy to increase inflows into new programs to offset the revenue impact of outflows and our traditional mutual fund products.
Sean Chief: On September 30th we modified our integrated cash program, resulting in the total balance reaching $2 $4 billion on the last day of the quarter.
Sean Chief: We have seen balances fluctuate significantly since quarter end and we anticipate they will continue to fluctuate.
Sean Chief: Given the fluctuations it is difficult to give a precise outlook on how the increased balance will affect operating income that said based on current balances in a base case outlook for rate cuts, we could see a contribution from this program in the fourth quarter that would nearly double the $11 million realized in Q3.
Sean Chief: We will be able to better estimate the normalized run rate from this program in a few months when we report fourth quarter results.
<unk> contributed $37 million to equity income up over 20% from last year, driven by the large onetime performance fee I noted earlier, which contributed $5 5 million or <unk> <unk> of EPS after taxes in the quarter.
Note that we do not expect a similar performance fee in the fourth quarter is there as these are naturally episodic.
Sean Chief: Sci has also had a outstanding quarter for net sales events totaling $46 million.
Sean Chief: Most of which is recurring.
Sean Chief: Notice that we have increased the disclosure around sales events by segment in our press release, which should help put these trends into context.
Q3 events were primarily driven by both our private business private banking business, which has a mix of both recurring and nonrecurring events and an excellent quarter for recurring events in our investment managers business.
Sean Chief: The events in the private banking business were almost entirely attributable to new business. In addition to the continued growth of our professional services and data cloud offerings.
Sean Chief: And our investment managers business.
Sean Chief: <unk> supported by significant new client closing in addition to multiple cross sell to existing clients in the traditional and alternative markets.
Sean Chief: Our institutional business events were essentially flat in the quarter with a couple of notable wins in the endowment and defined benefit space offsetting defined benefit terminations.
Sean Chief: Turning to our asset balances.
AUM increased by 5% and our <unk> increased nearly two 5% from the prior quarter, bringing total combined AUM and <unk>.
To a new record of nearly $1 six trillion.
Sean Chief: Growth in the quarter reflects both market appreciation and positive net inflows.
Sean Chief: Growth in our private banking institutional businesses was largely attributable to market appreciation.
Sean Chief: Our advisor business benefited benefited from healthy net inflows, notably in our strategists and platform only spaces offsetting net outflows in our mutual fund products.
Sean Chief: A revised estimate pricing structure introduced on April one was a catalyst for strong growth in the third quarter.
Sean Chief: Our investment managers business, which is less sensitive to market changes saw assets increased by 3% and LLC benefited from strong equity market performance during the quarter offsetting net outflows into passive products.
Sean Chief: Touching on capital allocation, we repurchased approximately one 3 million shares for $86 million in the quarter.
Sean Chief: Over the last four quarters, we have returned $442 million of capital to shareholders through either repurchases or dividend nearly 5% of our market capitalization.
Sean Chief: Sci continues to maintain a fortress balance sheet with no debt and a cash balance of $900 million as of quarter end.
Sean Chief: Before concluding I would like to reiterate Brian's message to our employees, we should all be very proud of the strong results this quarter and while we are proud of our record setting quarter I would also remind our investor community that the third quarter. It was just that a single quarter. We remained focused on driving sustained growth for our business over the <unk>.
Sean Chief: Long term and we continue to have a lot of work in front of us.
Sean Chief: Before concluding I would like to welcome our new head of Investor Relations, Brad Burke, Brad has deep experience, leading investor relations and corporate finance functions. In addition to being a former sell side analysts.
Sean Chief: Many of you have worked with Brad in the past and we're all excited to have him join our team.
Sean Chief: With that operator, please open the line for questions.
Sean Chief: Thank you.
Speaker Change: Ladies and gentlemen to ask a question. Please press star one on your telephone and wait to hear your name to be announced.
Speaker Change: Withdraw your question. Please press star one again please.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line upon law with Oppenheimer. Your line is open.
Speaker Change: Good afternoon, and thank you for taking my question. So I wanted to start with a high level question.
<unk>.
Speaker Change: Because when I saw the press release I felt the energy level in this quarter.
Speaker Change: Very different.
Speaker Change: Any segments had double digit revenue growth in all segments printer margin expansion and you also have I think record levels that sells and fan but my question is.
Speaker Change: It's a one off quarter or things happen in this quarter or this is an accumulation of what you have done over the past two years and it comes into fruition and it will be sustainable.
Hey, Alan how are you hope you're doing well this is Brian.
Speaker Change: It's a great question. So I think the answer is a little bit of all of the above so when you think about all of the strategic changes we have made and the things that we continue to prioritize across the organization I would say we are satisfied with what we see in terms of short term production and delivery, but we stay very focused.
Speaker Change: As you know in the medium to long term and ensuring that we don't get too far over our skis.
Speaker Change: Because some of these things are cyclical when you look at the last quarter as Sean talked about our reporter if we're talking about right now.
It's a more combined and focused execution across all business units, we've definitely benefited a little bit in timing, especially in science as group around banking in terms of sale, but we talked about that in Q1 and Q2 that some of that was a little bit lower than normal when we think about the run rate for <unk> moving forward we are.
Speaker Change: We focused on leading indicators so what our pipelines look like what does the activity look like how are we expanding our total addressable market how repositioning the enterprise for a broader breadth of capabilities.
Speaker Change: And then when we think about the earnings side of that we're always focused as you know.
Speaker Change: On expanding margins focused on growing EPS, but at the same time, we run this company with a medium to long term land. So we're constantly thinking about investments that we can make to accelerate or expand our position for growth in the market.
Speaker Change: Great quarter, as Sean said, though it is one quarter, while we like the underlying structural things that are happening around Sci.
Speaker Change: Got it that's super helpful.
Speaker Change: And then going back to the FDIC cash program when I look at the patterns I think it increased to $2 $4 billion at the end of the third quarter. The average balance was only $1 $2 billion I think Shaun touch on do you expect for Q fees will like will be double to like 12.
Speaker Change: <unk> million dollars or so but my question is.
Speaker Change: Could you please talk about the driver of that growth.
Speaker Change: So two quarter and and what is the average spread you are capturing in this program right now.
Speaker Change: Sure.
Speaker Change: And as Paul let me give a little bit of commentary there as indicated.
Speaker Change: The modifications we made in the program effectuate. It on September 30 that actual days. So thats why the average is subsequently different than the ending balance.
Speaker Change: We modified the program on September 30, as such that cash and non positional non positional cash is entirely allocated to the integrated cash program.
Speaker Change: Our model portfolios prior had 1%.
Speaker Change: For operational cash.
Speaker Change: The modifications, we made sweep all cash may be invested on a discretionary basis above the 1% unless the advisor trades away from the automatic sweep into the money market fund and none of this is positional cash held by investors outside of our model. So those are the modifications we made.
Speaker Change: Again, we're going to see we have seen fluctuations, but we think directionally, we should be nearly double where the contribution was in the third quarter in the fourth quarter and the average rate or the yield.
It's probably close to about 4% after the interest rate cuts that we made a slight adjustment to the credit rate that we gave investors. So even though the interest rates went down we took the position of modifying the investor rate from 90 basis points to 100 basis points. So hopefully that gives you some more color.
Speaker Change: Thanks, Paul.
Paul: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Crispin Love with Piper Sandler Your line is open.
Crispin Love: Good afternoon, everyone.
Crispin Love: First on those sales events strength in the quarter excuse the tables at the end of the press release, which are very helpful. But can you just give a little bit of additional color there private banks and investment managers saw a nice pickup as well as investment in buyers advisors, but how concentrated were the new wins were there any of that work really sizable with little more spread out.
Crispin Love: And then were there any individual wins spanned across segments, which we might expect to see a little bit more just given that enterprise sales approach you've discussed.
Speaker Change: Yes, Chris covered it well this is Brian I'm going to go first with the quick answer to your question and then will that some of the unit leads give some more color I think the thing that we are proud of stuff. This quarter with the sales event is when you unpack those sales event. There is not one name or one deal that drove that it was.
Speaker Change: As a breadth of deals it was deals that were priced where we want them price where our value proposition is really resonating in segments, where we want to win so as a leadership team I think we are really convicted that the sales event.
Speaker Change: Especially when you look at our ability to translate into revenue when installed and profitable revenue. We feel strong about that so we did not do anything with lowering pricing chasing deals that we wouldnt lie nor did we do anything on the expense side that would really deteriorate a client experience. So.
Speaker Change: I think when we look at the sales event, we're going to continue to be really really focused on segments, where we can win replenish install refresh, but I'll, let Sanjay Phil Michael Hall give some color on what they're seeing in the market right now, but I think it's a great question, Chris but not only were we happy with the top line number we're at.
Speaker Change: We are happier when you unpack it its in areas we want to win.
Sanjay Phil: This is sanjay.
Sanjay Phil: Our actual what you call earlier.
Sanjay Phil: Go to market suddenly industrial different segments regional community Bank had a U S market the pipe investment managers in the UK.
Sanjay Phil: <unk> is an integrated well with our clients.
Sanjay Phil: Vince we have.
Sanjay Phil: We had this quarter as well as our pipeline, you'll see that there's anything dealing well with respect to our solvency.
Sanjay Phil: We are probably pretty solid guide us a solid it is in terms of the quality of pipeline and our ability to deliver that backlog and realized revenue.
Sanjay Phil: And Chris This is Phil Mccabe I'll jump in real quick.
Sanjay Phil: As far as overall sales are concerned and IMS.
We had record sales for the quarter, we had record number of new names, we had sales across all products in jurisdictions.
Sanjay Phil: We are particularly strong in private asset semi liquid product and cities they were the bright spot.
Sanjay Phil: We're gaining significant traction in EMEA and other than that the pipeline is very very strong and I think the team is doing really well as far as concentration is concerned it was 40% new business and 60% Cross sales and we cross sold to over 90 different clients throughout the quarter. So there was no major.
Sanjay Phil: Our concentration so we're just it's a very very healthy business and our pipeline is very strong.
Speaker Change: And Chris This is Paul just real quick $1 1 billion and net positive cash flow for the advisor market nice adoption across all of our product mix 114, new qualified advisers thats a record for us over the last three years in one quarter. So that's great pipeline is strong and we're really super optimistic.
Speaker Change: About some of the things that Michael is going to do in helping us re managing going upmarket to larger investors.
Speaker Change: Larger iras that he kind of talked about so.
Speaker Change: We think our Tam is going to increase by some of the some of the views he has in the marketplace.
Speaker Change: Thanks, Paul.
Speaker Change: Jay Good evening everyone.
Jay: Yes, I had mentioned in prior calls that we're excited about the opportunities we saw in the institutional market and the CIO market beyond defined benefit that manifest itself this quarter deals and the endowments and municipality space and when we look at the pipeline across those health care Foundation.
Jay: Unions not for profits.
Jay: It's a very robust pipeline and we continue to be optimistic about further growth opportunities. There and then Christian I'll answer I'll, just close with the second part of your question.
Jay: So we've got three client conferences in October we had a large advisor event out of Arizona J had an institutional client event with Michael laying down in Austin, and then Sanjay had about 100 clients in Nevada on your question on the enterprise efficiently I. Just don't think we're still in the early innings, what is really refreshing to see though is the content.
Jay: For these client conferences are now a much broader exposure to sci capabilities instead of just unit capabilities.
So again caveat this what we have to execute but I don't even think we've gotten started on the full enterprise positioning of Sci in the market.
Speaker Change: Great. Thank you, Brian and everyone that.
Speaker Change: Very helpful. And then just one last question from me just in the release you mentioned positive net flows in the quarter I'm, calling out investment advisers and investment managers can you just give a little bit more detail there as it relates to products or specific types of clients that drove that the flows there.
Speaker Change: Paul you Im sure.
Speaker Change: So once again, we talked about about $1 1 billion, we saw adoption in our strategies and our SMA.
Speaker Change: The repricing, we don't we had done on April one certainly helped contribute to that.
We see a headwind in the marketplace around the Sci mutual funds frankly, we see a headwind in the industry around active mutual funds. So that's not uncommon, but that denominator is getting lower those assets are staying on platform and redistributing amongst all of our other product mix.
Speaker Change: <unk> strong direct indexing is strong.
Speaker Change: <unk> launched an opportunity in direct indexing around fixed income, which is a major differentiation in the marketplace and then finally, we had strong cash flow on our side.
Speaker Change: Which is predominantly on our side when we talk about those are larger relationships.
Speaker Change: We signed we had a large one in the third quarter some of that asset does get redistributed and assets under management as they see the breadth of the capabilities. So hopefully that gives you some more detail.
Speaker Change: The only thing I would add on the IMS side that we didn't cover we're benefiting from three or four major <unk>. One is the globalization of the business. Another one is the convergence of public and private markets. A third is the retail <unk> of all in the fourth at this private assets in private credit in general So all of those.
Speaker Change: Three themes are sort of tailwind for us and they are causing us to have a significant cross sales and those cross sales are matriculating and falling to the bottom line very very quickly.
Great. Thank you I appreciate taking my questions.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Jeff Schmitt with William Blair. Your line is open.
Jeff Schmitt: I may have missed it but could you discuss the revenue growth drivers.
Jeff Schmitt: Private banks like how much was from new clients versus existing clients versus.
Speaker Change: The professional services piece, which I know is ramping now.
Speaker Change: And then how much is just kind of speeding up the backlog, maybe driving some of that too.
Speaker Change: So.
Speaker Change: Hey, Jeff do something this year.
Speaker Change: The company sort of all three things to call out.
Jeff Schmitt: Our backlog delivery is solid you have seen that.
Jeff Schmitt: If you look at our plant in line or last eight quarters.
Jeff Schmitt: Backlog delivery industrial operating expense management in terms of signing new clients Youll see could see consistently.
Jeff Schmitt: It's improving.
Jeff Schmitt: And that's what it's all about.
Jeff Schmitt: The new sales of the new revenue growth the professional services as well as the FCA data cloud offering.
Jeff Schmitt: These two offerings are helping local needs.
Jeff Schmitt: The change management on the client side, which is helping us with our backlog delivery, but it is also helping with the sales cycle I would think about it.
Jeff Schmitt: Any changes on the client side when they are moving from a platform. The platform is a significant undertaking for their clients.
Jeff Schmitt: Generally these kind of data these kind of projects 110, 15 20 years in Spi, we are running towards these local subs every.
Jeff Schmitt: Every year.
Jeff Schmitt: That said, we are bringing our best expertise in terms of professional services enterprise capabilities and data cloud and that is what is really helping us not only with.
Jeff Schmitt: So the annuity license at a faster pace, but also winning new business.
Speaker Change: Brian you want to add anything no.
Speaker Change: No Sean let us know.
Jeff Schmitt: Great.
Speaker Change: Okay and then.
Speaker Change: <unk> been managing expenses in that segment really well obviously.
Speaker Change: Were down last year, I think year to date there.
Speaker Change: Up less than 1%, but it could.
Speaker Change: Would you talk and I know you've touched on this before but like how much of that.
Speaker Change: Is kind of coming from R&D cut.
Speaker Change: Versus maybe more.
Speaker Change: <unk> see.
Speaker Change: Initiative.
Speaker Change: And then how should we think about that growth for 25%.
Speaker Change: So that's a good question.
Our focus on backlog delivery.
Focus.
Speaker Change: So the data cloud as I talk about that is helping us with the older vessels since implement.
Speaker Change: I would think about and a debate when our clients are consuming our platform, they're relying on us from the whole business outsourcing perspective, theyre relying on us from the backlog these backlog perspective.
Speaker Change: And Thats fair SBS differentiating ourselves with respect to commodities.
Speaker Change: Regarding the module level.
Speaker Change: Of excellence Mandelson R&D.
Speaker Change: Expenses, we have been very judicious, because thats, something really really critical for us to keep pace with the changing in the industry.
Speaker Change: New products and solutions, we need to invest in industrial solution expense in that segment expense and continue to provide superior services to our clients.
Speaker Change: Absolute priority for us.
Speaker Change: Our model is that we are able to help our clients to grow their business and we are not compromising on the R&D expenses as part of our expense management.
Speaker Change: What we have value realized op margin expansion is through efficiency improvements we are investing in AI, we are investing in automation.
Speaker Change: And again, how we can better balance our backlog delivery. So those are the differentiating factor, which are helping to the biotic stress.
Speaker Change: Yes, Jeff I would actually add when we talked about this a little bit in New York, when Shawn and I were with you.
Speaker Change: Also continue to think about the company, though not just with a vertical lens with a horizontal length as we drive more leverage and efficiency across our technology footprint as we think about our operational footprint. All the unit. These benefit from that focus and energy that we're putting in optimizing their and theyre actually starting to collaborate more we're able to accelerate.
Speaker Change: More delivery of things, we were able to prioritize differently. So sanjay and the team has done an amazing job of managing their expenses and the vertical but as a leadership team. We continue to think about horizontally what can we be doing foundational Lee that really drives true scaled infrastructure because while the other thing we talked about we are certainly happy with the sales of <unk> in this quarter.
Speaker Change: But we expect greater things in the future and we're not going to stop investing in the infrastructure and all the things required to absorb that and deliver a great client experience, but those are things are don horizontally across the company.
Speaker Change: Okay, Yes that makes sense very helpful. So thank you.
Thank you.
Speaker Change: Ladies and gentlemen, I'm showing no further questions in the queue I would now like to turn the call back to Ron <unk> for closing remarks.
Ron: Thank you. Thank you for everybody for attending the call today I will just leave you with Sean's remarks from earlier it was a really great quarter, but it was one quarter. We're focused on the long term, we're focused on what we need to do to maximize sci's capability and potential we like where we see ourselves right now we'll continue to lean into more secular trends, where we can win but we are real.
Ron: Really focused on how do we create the same momentum in energy and success across all of our units and capabilities that we're starting to see emerge in a few of them, but I. Appreciate everybody's time look forward to seeing everybody hopefully in person in Q4.
Speaker Change #101: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.