Ladies and gentlemen, thank you for standing by. Welcome to the SEI's Second Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Head of Investor Relations, Lindsey Opsahl. Please go ahead.

Welcome everyone. Thank you for joining us on today's second quarter 2022 earnings call. Joining me on today's call are Ryan Hicke, SEI's Chief Executive Officer; Dennis McGonigle, Chief Financial Officer; and the leaders of each of our business segments Phil McCabe, Sanjay Sharma, Paul Klauder and Wayne Withrow. Kathy Heilig, SEI's Controller is also with us. I've had the opportunity to connect with many of you regarding the format of this call and appreciate your input, so we're switching things up. Moving forward you'll hear opening remarks from me, Ryan will provide a business and strategy update, and Dennis will provide an overview of the company's quarterly result, including those for each of our business segments. After our prepared remarks, we'll open up the call to questions for Ryan, Dennis and the leaders of each business segment. 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 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 now turn the call over to CEO, Ryan Hicke. Ryan?

Thank you, Lindsey. Hello everyone and thank you for joining us today. I hope everybody is staying healthy and enjoying the summer. Since stepping into the role of CEO on June 1st, I've had the opportunity to spend time with our employees, clients, and many of you on the call. I've appreciated the engagement and insight from our investor and analyst community and I look forward to future meetings to discuss the strategic approach we are taking, the opportunities it represents and the progress we are making. One thing is clear. We are focused on making the necessary changes in investments to grow our great company. We are clearly focused on three key strategic areas: growth, talent and culture. Our objectives are clear. We are going to be an innovative entrepreneurial market leader in the delivery of solutions that drive change, growth and add significant value to our clients. We will be focused on strong profitable recurring revenues diversified across segments and markets. We will be willing to take risks to exponentially grow existing and new revenue engines. We will remain client centric and market aware, taking the best of SEI outside of our walls and bringing fresh perspective inside our walls. We will have a lean, nimble, diverse, and flexible workforce with an unrivaled employee base of talent. And we will be engaged positive and aware of nurturing and refreshing our culture constantly, always curious and passionate about the future. We announced many important actions over the quarter, including welcome and bringing Jonathan Brassington into our board of directors. We brought on Denis Okema as a Director of Diversity and Inclusion at SEI to enhance our commitment to having the best workforce in the industry. We continue to execute daily successfully in key markets and installed new clients and…

Thanks, Ryan. With our new format, I plan to cover financial information related to the quarter for the company and our business units. As Ryan mentioned, EPS for the quarter was $0.81 per share. This compares to $0.93 during second quarter 2021 and $1.36 for the first quarter of 2022. A reminder that the first quarter reflected a one-time event that equated to approximately $0.47 per share in earnings. Revenue for the quarter was $482 million, compared to $476 million in 2021 and $581 million in first quarter of 2022. First quarter reflected an $88 million one-time event. Total expenses for the quarter were $366 million, which compares to $340 million last year and $367 million in the first quarter. Revenues from Asset Management and Administration were impacted by lower capital markets during the quarter. Processing revenues remained relatively flat from first quarter. There were no unusual revenue items during the quarter. Expenses increased year-over-year and we’re essentially flat from first quarter. The main drivers of expense growth continues to be compensation inflation and talent growth to support our growing business lines. We have also seen inflationary pressures impacting some of our third party service costs and in professional fees related to the growing regulatory environment we operate in. We do not see these inflationary pressures abating. As Ryan mentioned, rightsizing our expenses to business growth and allocating spending to areas of accelerated growth are priority. On the sales front, in our processing businesses of private banking and IMS, net sales events totaled $7.9 million and are expected to generate $5.6 million in recurring revenue. In our asset management related businesses, net sales were just under $1 million. Private banking net processing sales were negative $3.7 million. This reflects one new SWP sale to a current TRUST 3000 client. Sales…

[Operator Instructions] And the first question from Ryan Kenny with Morgan Stanley. Please go ahead.

Hey, good afternoon.

Good afternoon, Ryan.

So question for Ryan. You mentioned that one of your key priorities is delivering growth while keeping an eye on margins. Could you just give a bit more color on how you’re thinking about delivering growth versus delivering margin and are you willing to let the pretax margin run a little bit lower now to get growth later?

Yes, Ryan, I think, one of that Ryan, the thing that we’ve been really focused on right out of the gates is looking at our investment spend aligned with our short and medium term revenue opportunities. So, we’re definitely going to keep a close eye on margin, but I think as we’ve said in kind of previous conversation, one of the first things you’re going to see us do is really look to right size expenses or realign expenses relative to the opportunity. So, you might see a shift in some of our investments spend from current allocations to one unit to another where we believe the market opportunity and revenue opportunity is greater. So, I think corporately we’ll have the same focus on margins, you just may see some differences within the segments.

And then just a follow-up on the backlog, heard the comment that Wells Fargo goes no longer in there. I’m just wondering if you could give us any color on what’s currently in the backlog and the timing that we should expect it to start to come through? Thanks.

Sure. So, I try to be clear that the backlog, that number we put out there is that that is revenue that’s going to matriculate in the next 18 months. So while Wells Fargo is still under contract and we’re still working closely with Wells Fargo, there’s still a big client. And we’re very engaged with them. It’s not, we’re not – there’s no plan right now for them to move anytime in the next 18 months. So that’s why they’re not in that backlog number. So the banking backlog number if you needed again, was $38.9 million and the backlog number under that same time period, 18 months for the IMS segment was $29 million. So, we’re really trying to get the back as we go forward, the backlog numbers we’re going to provide are those within that 18 months window, because they’re much more predictable. We know we’re highly confident they’re going to occur on time. And I think that helps everybody better kind of predict the future, if you will.

Thank you.

You are welcome.

And next we'll go line of Robert Lee with KBW. Please go ahead.

Great, thanks. Good afternoon, everyone. Maybe Dennis, first question is just on the voluntary separation. I mean, I know it's about being done to drive cost savings per se, but you did mention there could be some recurring expense reductions. I mean, is there any way of kind of helping us think about how that would flow through? Is it – should we be thinking that maybe that just kind of mid with the inflation pressures that kind of helps mitigate it to some degree, or is it really just, you kind of expect whatever savings you have, that's going be reinvesting the business kind of over the next year or so. Just trying to get a sense of how to think about that?

Yeah. I mean, it's hard to – a year from now, it'll be hard to me separate spending in July of 2023 relative to that particular program. So I think that's a little bit further out. I think the – our expectations are that there's a program we're trying to be not only smart with and about because some of our longstanding really valued employees are involved. But also as Ryan discussed, we wanted to reset a little bit the workforce, open up opportunity, create more mobility, bring in some external talent uses an opportunity where we have gaps to get some talent outside the company that enhances our current talent. Along the way particularly with timing of things, there's a good chance that some of the roles we won't specifically backfill and we'll get some benefit there, but I also have mentioned that most of those involved in the program will, we would expect would be moving on from SEI before the end of the year. So the timing has also kind of laddered out over the next, I'd say four months or so, five months or so, then some folks will extend into next year. So while we do, and I do expect that we'll get some recurring savings specific to this event. It's not the driver, but it would certainly help us if we did get that. The other thing that we have talked about is now the markets are tough right now. So we will be discerning and as Ryan kind of sorts through in team and all the sort through strategy and how we're going to continue to go forward and changes, Ryan he can speak to this, but might would consider – continue to consider, we'll take that into account as well. But we still are going through the details of the individuals involved the roles, how we would – or whether we would backfill those roles, who we would backfill them with to the extent we did, and then what things will change and then we'll have a better feel for kind of the economics over time.

Okay. Fair enough. And maybe in the Investment Advisors segment, I think Dennis, you mentioned relatively flat flows overall, but could you maybe give us some color because, it's kind of the mix between advisory – AUA assets flows into kind of administrative assets versus flows into asset managing programs, trying maybe the progress in each?

Hey, Rob. Well, Wayne's in the room. Turn out one to Wayne.

Yes.

Hey, Wayne.

Hi. Hey Rob. Yes, really that comment was basically a comment on what would traditionally we call AUM for the assets we manage. If you wanted to look at platform-only assets or assets that we just administered, actually the quarter was pretty good. I mean, I think when you looked at, it was down from first quarter flows while we were getting more and more momentum on sort of our platform strategy, but actually the second quarter flows were strong compared to what we had last year, but that's not. So the comments on essentially flat were really around assets under management.

Okay, great. That's helpful. Then one last one, maybe back to Dennis, I apologize for going back and forth with the new format. But in the private bank segment, I think you talked about two banks that the pluses [ph] of being acquired. I guess the 15 million you pointed out that they generate in revenue between the two, I guess the right way to think about just to make sure I'm on the right page is that you would consider that to be kind of at risk, depending on how those mergers shake out and whether you retain the business or not I just want to make sure that's how you're thinking of it?

Yes. That was really the purpose of putting that number out there Rob, was that just to lay out that those, that's what's at risk. And like I said, and Sanjay is here, he can comment is that we are working with the – both those clients as well as at least in one case the buyer to see how things go forward from there, but that is what's at risk. Sanjay, if you may.

Great.

No. I agree with that Dennis.

Great. I'll get back in the queue. Thanks for taking my questions.

Thanks, Rob.

And next we'll go to the line of Owen Lau with Oppenheimer. Please go ahead.

Good afternoon and thank you for taking my questions. So even though the market was quite challenging in the second quarter, and I think your average asset under management excluding LSV was down about low teens quarter-over-quarter. But your revenue was only down by about low single digit or so based on my math. I'm just wondering how you can manage to do that? Your revenue seems to outperform your AUM decline. So it'll be great if you can unpack a little bit more on that. Thanks.

Sure. I mean, there's a couple reasons for cash flow timing is everything too in the business. So that has an impact. The institutional business is not a business where we book revenues based on average assets during the period that revenue is booked based on ending assets over the prior four-month periods. So second quarter would be March, April, May and June ending assets, and while June things kind of fell off a cliff a little bit, we did have the benefit of March in the revenue calculations. So there's – some of it's also just the timing and then the – if you're including in your revenue calculation Owen, the IMS assets under administration side of things. They're the book of businesses so diversified that market – there's really not a correlation – direct correlation between market performance and ultimately asset performance. And they're also cash flows, meaning client implementations and no clients maybe that are shutting down a fund or leaving – it's a little more choppy. But there the diversification of business really helps us in down markets because it doesn't correlate to the equity and fixed income markets.

Got it. That's very helpful. And then a question about the strategy, Ryan, we appreciate your comment about your overall strategy. In terms of your – the growth one – the growth strategy, could you please talk about whether you have any aspirational medium to longer term target of the top line growth and margin expansion and things like that, and how should investors think about your growth strategy quantitatively? Thank you.

Hey Owen thanks for the question. As far as the growth strategy is concerned we're absolutely working on some more tangible kind of quantitative targets. We're not kind of the point where we'll be sharing that yet, but we're really looking at it through a few different lenses. Once as we talked about last time looking at the organic growth potential of our existing businesses and our existing engines, looking at some of the new ideas and incubation ideas that we have underway and what their potential is. And then as we saw last year with SEI with the acquisitions we've made, where does M&A play a role in that? I do think that over time we're going to be a little bit clearer around what our aspirations are. But I think you can progress assured our plan is to exponentially grow the top line revenue and maintain margins.

Got it. Thank you very much.

Thank you.

And the next questioner is Robert Lee with KBW. Please go ahead.

Great. Thanks for taking my follow up. This is probably a little bit of semantics or geography on the asset balances, but just kind of curious and investment managers. I mean, I know you called out winning a couple of big real estate mandates from some real estate managers in the quarter, but just kind of curious why that would all, mean the collective investment trust fund programs jumped, what like $60 billion and just kind of tiers, why that would fall under AUM and not AUA, and maybe it's causes in collective trust. You're technically the manager, but just kind of curious, why it falls there and as opposed to AUA.

Yes, sure. Hey Rob, this is Phil McCabe. How are you?

Good, Phil. How are you?

Great, thank you. Yes, as then it said before the balances sort of ebb and flow a little bit. If you look on the traditional side, some of the long only managers struggled a little bit in June on the alternative side. Some of them did much better, if you point to your question on CITs in particular, the client that we referenced in the last quarter. It's all spring capital. I'm not sure if we mentioned that name before with that being said, they did fund at the very end of this quarter and those balances are reflected in the particular number that you're looking at.

Okay, great. Okay. That was it. Simple enough. Thank you.

Thanks Rob.

And at this time, that's all the questions. We'll turn it back over to CEO, Ryan Hicke. Please go ahead.

Thanks everyone. In closing SEI's future is bright. We will remain vigilant about how we deploy capital and we will make the changes. We believe are necessary to improve our results. Keeping that in mind, we will look for ways we can redirect some discretionary investments that best align with revenue opportunities. We have the people, the platforms and the assets to exploit the growing demand in wealth management for organizations to partner with credible and strategic leaders like SEI. As Philadelphia native Noam Chomsky once said, “Optimism is a strategy for making a better future. Because unless you believe that the future can be better, you are unlikely to step up and take responsibility for making it so.” make no mistake, we are optimistic. In the fourth quarter, we'll be hosting an Investor Day. It's been a number of years since we hosted this community on our Oaks campus. And we look forward to welcoming you all back. Additional details we provided in the coming months. Thank you for attending our call today.

That does conclude our conference for today. Thank you for your participation and for using AT&T Conferencing Services. You may now disconnect.