SEI Investments Company (NASDAQ:SEIC) Q1 2024 Earnings Call Transcript April 24, 2024
SEI Investments Company beats earnings expectations. Reported EPS is $0.99, expectations were $0.97. SEIC isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the SEI’s First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. And later, we will conduct a question-and-answer session. Instructions will be given at that time. [Operator Instructions] And as a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Alex Whitelam. Please go ahead.
Alex Whitelam: Thank you, Eric. Thank you, everyone; welcome. We appreciate you joining us today for our first quarter 2024 earnings call. On the call, we have Ryan Hicke, SEI’s Chief Executive Officer; Dennis McGonigle Chief Financial Officer; and Sean Denham, incoming Chief Financial Officer with leaders of our business segments, James Cipriano, Sandy Ewing, Paul Klauder, Phil McCabe, Sneha Shah and Sanjay Sharma. Before we begin, I’d like to point out that our earnings press release can be found under the Investor Relations section of our website at seic.com. This call is being webcast live and a 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 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 the 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 Hicke. Ryan?
Ryan Hicke: Thanks, Alex and good afternoon, everyone. We are out of the gates this year with high-quality results, top line growth and margin expansion in the first quarter. This deepens our conviction to maintain our focus on excellent execution against our strategic priorities. We are seeing significant traction in our technology and operational businesses as we manage expenses diligently, especially manifesting in profit growth in private banking. Our attention remains on increasing sales and pipeline activity and allocating capital and talent to new growth initiatives and emerging technologies. Accelerating activity and innovation is also a strategic priority in our asset management businesses as market trends and product types, asset allocation and investment choices continue to be headwinds.
Our broader value proposition and solution set is resonating and gaining momentum. We need to translate this momentum into increasing new client acquisition and adoption. We will continue to lean into growing segments in the intermediary and institutional markets. Let me dive into our results for the quarter. Revenues in the first quarter were $511.6 million, up 9% from the first quarter of 2023. Net sales events in the quarter totaled $21.3 million, of which $16.6 million were net recurring. This was driven largely by a combination of technology and operational outsourcing sales of $24.5 million, offset by net negative activity in our AUM-oriented businesses. In our advisor business, we generated over $9 million of revenue with the FDIC-insured component of the SEI Integrated Cash program which we launched in December 2023.
Net income for the quarter increased 23% over the same period to $131.4 million. This is an important indication that our focus on sales implementing the backlog and driving more operational leverage across SEI trying to show results. We have more to do on all fronts. In the quarter, we repurchased approximately 808,000 shares of SEI stock at an average price of $69.32 per share for a total of $56 million of stock purchases. EPS was $0.99 for the first quarter, up 25% over the $0.79 reported in the prior year period. We believe we are well positioned for the remainder of 2024 and into the future, combining a strong financial position and unmatched set of capabilities and an engaged client and employee base. We’re focused on delivering comprehensive solutions for the markets we serve and enhancing shareholder value.
With that, let me turn to our business lines. Our Investment Managers business had another exceptional quarter. On the growth front, we have new business and cross-sales in the alternative and traditional markets, notably with the expansion of their product line, including CITs and the conversion of mutual funds to ETFs. This is a trend we are seeing increase in the traditional asset management segment. We also implemented more than 60 new funds from a competitor onto our private equity platform for one of our larger clients. We continue to expand our reach in global markets. In particular, we are actively engaging with European-based private asset managers and we’ve made investments to further strengthen our global operations in Dublin, London and Luxembourg.
The expansion of our IMS services in the non-U.S. markets is an important component to our future growth strategy. Most importantly, we hosted 80 of our clients for an annual event earlier this month and it makes me extremely proud to be part of SEI. When I get the privilege to your first-hand, the experience our clients are having and the excitement they have to continue to grow with us. It shows how powerful our people, our culture and our capabilities are in the market. Private banking continues to execute effectively. The team carried last year’s momentum through the first quarter with solid revenue growth and margin expansion compared to a year ago. While new contract signings were light in the quarter, this is simply a function of contract timing versus activity.
The team already has a good start to Q2. We are seeing increased activity and success in the regional community bank segments. U.K. private client investment managers and our professional services offering across all segments. This go-to-market strategy was a key part of Sanjay’s reorientation of the client-facing teams and it is being received positively in the market. The focus and deployment of additional investments in marketing, R&D and talent over the past 18 months is paying off. Moving to our Global Asset Management businesses. Investment Advisors saw positive net cash flows of approximately $915 million. This was largely driven by our Strategist Partner Solutions and separately managed accounts, along with AUA growth from advisors leveraging our technology and operational solutions.
Offsetting these inflows were outflows in our active mutual fund products as a result of markets shifting to lower-cost products and package solutions. During the quarter, we brought on 61 new advisors. And we also saw 3 of our existing RIAs crossed the $1 billion threshold on our platform, demonstrating our value and helping our advisors scale and grow their businesses. In the Institutional Investors segment, we remain focused on growing this business by aligning our cost structure and our talent to drive sales and margin expansion. While our results continue to reflect industry challenges, our teams did a really nice job managing expenses and securing a number of new wins with new and existing clients. Of note, we completed the transition of our first SWP client with a sizable private foundation into our OCIO program.
We also recontracted 3 clients in the quarter and finally, we have made adjustments to the cost structure and focus of SEI Novus to improve overall business results. Within our investments in new business segment, we announced our strategic investment in TIFIN, a leading platform, accelerating the adoption of artificial intelligence and wealth management. With this partnership, we expect to more rapidly explore, develop and deliver new offerings that drive growth for our clients and the broader industry. We also had new wins in the family office services and private wealth businesses. Our partnership with LSV remains strong and they had another quarter with positive relative performance which Dennis will discuss. Finally, we’ve launched new initiatives focused on developing talent for the future and elevating our culture across the organization.
One focus area is on professional sales development, offering programs that are designed to expand and increase our bench of sales talent and support our client center culture. Another initiative is the launch of an employee-led group SEIsmic. SEIsmic’s goal is to unite our innovation centers across the company, create opportunities for every employee to contribute to our growth and to actualize new business ideas aligned with our organizational objectives. With that, I’d like to thank all my colleagues across SEI for their commitment to our vision. This concludes my prepared remarks. I will now turn it over to Dennis to discuss our financial results for the quarter. Dennis?
Dennis McGonigle: Thanks, Ryan. As Ryan mentioned, EPS for the quarter was $0.99 per share. This compares to $0.79 during the first quarter of 2023 and $0.91 for the fourth quarter of 2023. The revenue for the quarter was $512 million compared to $469 million in the first quarter of ’23 million and $485 million in the fourth quarter. Total expenses for the quarter were $386 million which compares to $367 million last year and $383 million in the fourth quarter. Included in the first quarter, expenses were approximately $6.2 million of severance expense as a result of workforce changes principally in our SEI Novus and Finomial units. The EPS impact is approximately $0.03 to $0.04. On the sales front in our technology and investment processing businesses of private banking and investment managers, net sales events totaled $24.5 million and are expected to generate $20.7 million in recurring revenue.
In our asset management-related businesses, net sales were approximately negative $5.7 million, primarily due to asset movement from our mutual fund products into other investment programs as well as net losses in our institutional business. As Ryan mentioned, cash flows in our advisor business were a positive $900-plus million. We also sold $2.5 million of revenue in our new business segment. Total net sales were $21.3 million, of which $16.6 million is recurring. Private banking sales were $2.9 million, most of which is onetime. During the quarter, we had one client win and one loss, both smaller in size that essentially offset each other. The 3 clients recontracted during the quarter represent $4.8 million in annual recurring revenue. Despite first quarter closes, sales activity is strong.
The limited client signings, as Ryan referenced, are more an issue of timing versus activity. During the quarter, we stayed on schedule with client implementations and conversions. We installed $1.4 million of revenue from our fourth quarter backlog. Our current backlog of expected to be installed revenue in the next 18 months is $18.5 million. Also note that as part of the segment change we announced yesterday, we moved $2.8 million from the banking backlog to the IMS backlog. This was a piece of business related to alternative asset processing that while the client is a bank is more aligned with IMS services and delivery. Asset Management revenues in private banking were up from fourth quarter, flows were essentially flat. However, higher asset levels entering the quarter led to higher average AUM which helped the revenue growth.
Expenses in private banking were up slightly from the fourth quarter of 2023 reflecting overall business growth. Note that expenses year-over-year were flat. On the investment managers front, net sales for the quarter were $21.6 million, $20.4 million of which is recurring. During the quarter, we recontracted 4 clients totaling $5.7 million in annual recurring revenue. Revenue for the quarter was up compared to fourth quarter, reflecting the impact of client installations. Expenses were down slightly. However, fourth quarter included a $5.3 million item for an asset write-down. Our backlog of sold but expected to install in the next 18 months recurring revenue is $28.9 million which includes the $2.8 million move from private banking. As Ryan mentioned, for investment advisors, net cash flow onto our platform were up including increased flows into our newer strategist partner and platform-only programs.
This was offset by negative flows from our mutual fund products. One key item of note is the $9.6 million of revenue generated in the quarter from the FDIC insured deposit program launched in December. As a reminder, this takes the cash allocation in our model portfolios generally used for operational purposes like paying fees and suits those balances into an FDIC insured deposit account. At quarter end, there were approximately $897 million in assets in this program. Also note that we recognized approximately $1.5 million in revenue in the fourth quarter. Revenues for the quarter were up for reasons mentioned. Expenses were flat from fourth quarter, reflecting overall good expense management. In the Institutional Investors segment, net sales events for the quarter were negative $4.6 million reflecting positive client signings offset by losses and repricing and client retention activities.
Revenues for the quarter were up due to positive markets. Expenses were also up slightly reflecting personnel-related costs. In the investments in New Business segment, revenues and expenses were also up compared to fourth quarter with modest profit improvement. LSV produced $31.6 million of profit during the quarter, this compares to $35.4 million during the fourth quarter. Revenues for LSV were $107.3 million compared to $117.1 million in the fourth quarter. First quarter revenues included $6 million of performance fees. As a reminder, LSV recorded performance fees of $19.8 million during the fourth quarter. Performance fees are a reflection of continued positive relative performance. Our tax rate for the quarter was 22.9%. As I’m sure you all noted with our 8-K filing yesterday, we have made a few modest adjustments to our segment reporting.
All numbers presented today reflect those changes. As you also know, this is the last of my roughly 90-plus earnings calls. I would like to thank all the investment and financial professionals present in the past. This role has given me the opportunity to meet and engage with. I thank you all for the professional manner in which we engage and the insights and questions that you brought to me that broaden my and our thinking. SEI is in great hands and I’m sure your interactions and working relationship with Sean will serve him and the company well. That concludes my remarks. All of our unit heads are on the call and we will now take questions. It’s your last chance to stump me.
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