Ladies and gentlemen, thank you for standing by. And welcome to the SEI Third Quarter 2022 Earnings Call. [Operator Instructions] As a reminder, today's conference is being recorded. I'd now like to turn the conference over to the Head of Investor Relations, Lindsey Opsahl. Please go ahead.

Welcome, everyone. Thank you for joining us on today's third 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, Paul Klauder, Phil McCabe, Sanjay Sharma, and Wayne Withrow. Kathy Heilig, SEI's Controller is also with us. As a reminder, we switched up the format of our call. Ryan will first provide a business and strategy update, then Dennis will provide an overview of the Company's quarterly results, including those for each of our business segments. After our prepared remarks, we'll open up the call to questions. 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?

Thanks, Lindsey. Hello, everyone and thank you for joining us today. Over the quarter, I've continued to spend time with our employees, clients, and many of you on the call. The engagement and insight has been invaluable. Clients and prospects clearly enjoy working with SEI and the interaction has helped me focus our energy on delivering more of what the market values to accelerate growth. After the quarter close, but before the call, we announced the strategic alignment of our asset management businesses and related units under the leadership of Wayne Withrow. Later in my remarks, I will dive deeper into how the evolution in this organizational structure is a critical step to driving SEI's next chapter of growth. Third quarter revenues declined 3% from a year ago. Our third quarter earnings were down 55% from a year ago. Third quarter EPS of $0.45 decreased 54% from the $0.97 recorded in the third quarter of 2021. As noted in our second quarter call, we executed on a voluntary separation program from which the majority of the financial impact would be recorded in the third quarter of 2022. The final impact was approximately $57 million or $0.32 per share for the quarter. As I stated before, this program was designed to create an opportunity for tenured SEI employees to have an option to explore their life ambition and concurrently create space for internal mobility, fresh perspectives, diversity, and external experience. We are committed to an environment where our employees bring their best selves to SEI every day. In the quarter, we repurchased 890,000 shares of SEI stock at a price of $55.55 per share. This translates into $49.4 million of stock repurchases. Stock repurchases were down mainly because we were not in the market while we work through the recent changes…

Thanks, Ryan. I will cover information related to the quarter for the company and our units. As Ryan mentioned, EPS for the quarter was $0.45. This compares to $0.97 during third quarter 2021 and $0.81 for the second quarter of 2022. Third quarter results reflect a one-time charge related to our voluntary separation program or VSP of approximately $57 million, which equates to approximately $0.32 per share. In addition, we incurred $5.2 million in severance costs during the quarter or $0.3 per share unrelated to the VSP. Excluding these one-time expense items, EPS for the quarter will be $0.80. Revenue for the quarter was $471 million compared to $485 million in 2021 and $482 million in the second quarter. Total expenses for the quarter were $420 million which compares to $344 million last year and $366 million in second quarter. Excluding the expenses related to the VSP and severance, expenses for the quarter are approximately $358 million, a decrease from the second quarter of 2022 of approximately $8 million. Revenues from asset management and administration were impacted by lower capital markets during the quarter. Processing revenues remained relatively flat from second quarter. There were no unusual revenue items during the quarter. The main drivers of expense growth year-over-year continue to be inflation and the talent to support our growing business lines. Also, costs related to the infrastructure necessary to meet increasing regulatory requirements across the jurisdictions in which we operate. We do not see the inflationary and compliance pressures abating. As Ryan mentioned, rightsizing our expenses to business growth opportunities and allocating spending to areas of accelerated growth are a priority. While we have stated that the VSP is not centered on reducing our run-rate expenses going forward, we believe it will have a positive impact in doing so. On…

[Operator Instructions] Our first question will come from the line of Owen Lau with Oppenheimer. Please go ahead.

Thank you for taking my question. Let's start off with the new asset management structure. How should investors think about the incremental revenue and expense opportunity here? And also, do you have any expectation about the timing of kind of implementing this new structure and ideas? Thank you.

Thanks for the call or thanks for the question. I'll give a quick overview answer of that and, then I'll turn to Wayne to provide some commentary as well. So you should really be thinking about that as a strategy around alignment. When you look at the way that the market is evolving, we really believe that putting these units together under one leader and not necessarily changing the structure of each of the units, really puts us in a position to more effectively allocate our capital for growth across these segments. We see a real big opportunity in some of the intermediary space and kind of getting away from traditional segmentation and definition as to whether that's a broker-dealer affiliated advisor, we have a lot of enthusiasm and optimism about the RIA space, the advisors and intermediaries that we support in the asset management distribution business. And then most importantly, I think really aligning our investment management unit expertise really with the market units. So we have a more cohesive go-to-market strategy that's really aligned with our engineering talent. But really, Owen for us it's about positioning ourselves in the best way possible to really accelerate growth and we thought that this alignment really will accelerate that. Wayne, I don't know, if you have any comments or thoughts in the room as well.

Yes. Thanks, Ryan. I guess what I would say is, this is all about growth. I think SEI has - we've always done a great job in leveraging all of our operations, our Company is built upon the concept of leverage. By combining these units, we think this gives us a better opportunity to leverage our investment solutions across institutional, and intermediary, U.S., non-U.S. to really create some level of innovation and maybe we haven't even fully appreciated before. So that in addition to how can we further leverage basically our client-facing technology in those markets. So we see this as untapped opportunity for us on the client growth side.

Yes. I would just add. This is Paul. The integration of Private Wealth Management and Institutional is a wonderful integration in the sense of leveraging two direct channels. One to wealthy individuals in single-family offices and one to institutions is without doubt, that the institutional investor committee members are up well many times and being able to mind those opportunities as natural lead flows will really be accretive. While on the converts side, many of those as well for also sitting on those committee members, so being able to get that cross leverage. We've already in place doing that, we've had a number of meetings over the last two weeks. So, I'm very excited about that integration on where it stands, and what the opportunity holds.

Got it. That is super helpful. And then Dennis, you talked about the Wells Fargo relationship. If I way it down correctly, it may have a $1.3 million to $1.7 million revenue impact per quarter. And then is there any one-time reduction in the fourth quarter about $5 million to $7 million? So from a modeling perspective, should we include that like $5 million to $7 million in the fourth quarter and then $1.3 million to $1.7 million from the first quarter of 2023 going forward? I think you mentioned that the negotiation of discussion, it's ongoing. But I just want to see how we should model that out? And also is there any offset from the expense side? Thank you.

Yes. So the reason I mentioned it is because it really suggests, they do include in your thinking about SEI going forward. And the reason why we thought it was important to get on the table now is because if we do get an agreement signed and it's in this kind of range of a financial impact, we wouldn't have to follow up with any Independent disclosures. So and I would - it's in our models, let's put it that way. Even though we're not really done the conversations with Wells.

Got it. That's very helpful.

And your question about cost takeout, I'd say that's more to the extent we've got cost-benefit from processing less business on the part of Wells, we're already capturing that through - by the fact that Principal Group went live already with us on Trust 3000 and now we're actively working on the Computershare implementation. So we might get some benefit when they go live as well. I don't know, Sanjay anything to add?

No. I agree Dennis. So Principal Financial Group, they're already live as part of the quarter-one implementation early this year. And Computershare, we are actively working with them.

Okay. That's fantastic. Just one final question on expense. I think many companies are talking about very tight expense control. I know the asset management restructuring, you may have some ideas in that. But other than that given the market condition, is there any other potential areas that you can manage the expense base further? We never know but if the market conditions further deteriorate. Thank you.

So I think I'll simply put, we're always going to be judicious about managing the expenses of the company and will have discipline around that. I think we've got a pretty long-term track record of that. That being said, I think the message that we sent in July and hopefully reiterate today is we're also going to be aggressive around allocating capital and investments in areas where we believe that we can accelerate our position. We want to try to take advantage of some of these difficult times as well to maybe extend, we're really trying to accelerate areas where we believe that we have a market advantage. But I think overall, nothing will change in terms of our discipline in terms of how SEI manages expenses corporately.

Got it. Thank you very much.

You're welcome. Thank you.

[Operator Instructions] Our next question comes from the line of Ryan Kenny with Morgan Stanley. Please go ahead.

Hi, good afternoon. And thanks for taking my question.

Hey, Ryan.

Just a follow-up from the last question. Can you give us some more color on how much of the expense base is fixed versus variable? And if you are reallocating across the segments, what's the takeaway for the overall company margin?

Ryan is looking at me to answer this one, Ryan. So, it's funny how that works. When we look at our expense makeup, we do have some variable costs tied to assets, so on the sub-advisor fees. So that adjusts pretty quickly. We have some variable costs tied to trading activity. So that would adjust the trading activities as down-trading volumes are down. We're predominantly - I would say predominantly, but higher majority of fixed-cost because of our employee base. And one of the things that allows us to drive the margins that we drive as a company is because of that fixed-cost base, how we manage that fixed-cost base, and the scalability of that fixed-cost base sort of leverage to get off of it as we grow. That being said, we do have variable costs tied to predominantly the technology space where we do work with outside firms and help - supplementing and complementing our own technology staff and resources that for sure is variable. But I would also say that there is probably different categories of variability there. Some of that cost is tied to commitments we've made on behalf of clients. So unless something changes on the client side that variability is not necessarily going to be available to us to adjust, although we certainly would work with our third-party partners to adjust where we can. Then there are things that are committed projects of ours that we think are critical to our future, and there is variable spend tied to those, I would suggest that - if you go back to the last tough period we had '08, '09, we actually increased the spending in those areas to put us in a position to take advantage of market opportunity coming out of those tough times. And…

And before you do that, so I think the other thing Ryan to your question around how we're kind of looking at investments. We don't look at it as we said before it's a fixed pool of money. But we're going to be acting I think a little bit more decisively where we see good momentum and we see opportunity, we're going to be reallocating. And I think that is a good segue to fill because we've had two great quarters, but we also see a lot of opportunity to accelerate some investments and maybe deliver better services for our existing and future clients.

Sure. Thanks, Ryan. Anytime that our clients are having challenges whether it's with turnover or expense challenges, it's actually an opportunity for IMS on the outsourcing side. We can come in there and help them do things better, faster, and cheaper. So I think it's actually our ability to help our clients scale as they're launching new products. But at the same time as their management fees are getting squeezed more and more over time has really been a big driver of our success over the last few quarters or so. So I think, IMS is in a great spot, and any of these challenges that we're seeing across any company or actually opportunities for us in the future.

Then to wrap up Ryan, we do have variable comp. So I should have mentioned that. So a chunk of our compensation costs are variable in nature. So certainly that's a lever that we have. So work-to-work in our Board certainly would pay attention to that as would we. But even in the toughest markets, we're very attentive to our workforce even on that element of their compensation package, because we felt talent just like today, talents at a premium, we will want to take care of our talent because they're the ones, that's what's going to help us take advantage of the opportunities coming out of it. But one thing about this cycle that I think is different than the last cycle though is that there is more visibility. Research seems in the market to tough times coming, whereas the last cycle was pretty abrupt. We've got - if everybody overnight and not that some people didn't see it coming, most people didn't. This one - most people see it coming, I think it's an opportunity for us now to be talking to clients and prospects about how we can help them be in a better position when the tough times do come. And then moving to us now is a better answer.

Thank you.

And our final question in queue comes from the line of Ryan Bailey with Goldman Sachs. Please go ahead.

Hi, everyone. Thank you for taking the question. So I just wanted to walk through some of the stuff within private banks. I think some of the commentary was that M&A dynamics would lead to a $12.4 million annual reduction in revenues. Wells at the midpoint, I think would be a $6 million reduction in revenue. That's $18.4 million in total for a headwind to revenues for the segment. It's about $4.5 million per quarter in terms of revenue headwinds relative to the $6 million that - of operating profit at the segment put up this quarter. Long-winded way of sort of waiting into, can you help us think through what are the changes you're making to the private bank segment to support both better sales and faster implementation of the $44.9 million backlog?

Right. So I'm glad you - pass on to Sanjay quickly here. But, I'm glad you brought that out. One big answer is that $44 million backlog, that's the replacement if you will, plus of the revenue that for the most part it's out of our control. So that's the good news. I'll let Sanjay, maybe talk about the implementation cycles and how things are going on that front.

Sure. Thank you, Dennis. So, if you look at the signed backlog, Dennis talked about $44 million-plus of signed backlog. Those are the implementation is in flight and we are actively working with those clients. And we're tracking those milestones very closely. We have four partly streaming committee meetings with their senior executives and it's mutually beneficial for both the organizations, so that we can stay on track with respect to those implementations. With 60 plus implementations, so far on SWP itself, I think we have significant experience how to manage and monitor those changes on a weekly basis. So we feel fairly confident that we will be able to deliver this backlog. At the same time, our clients, they are super engaged with us. Dennis and I, we're actively engaging with all of our clients to stay on track. At the same time, the one-off that, I would call out where we are making significant change in terms of how we are improving ongoing basis for implementations. If you look at any implementation change management, organized and change management is a key function. And that's why we are actively working with our clients ensuring that we're hand holding them to this change, providing the necessary training, so that they can adopt the new platform.

And I would say we talked about this in the previous quarter with Sanjay and his team and a lot of other SEI people have been out really effectively engaging the executives of our clients and prospects. And I think that activity in the market gives us a lot of confidence about the receptivity of our value proposition. To Dennis's point, I think we're seeing an increasing demand for firms that are looking at their operating model and where outsourcing could play a role. But I think the just increased level of urgency and activity engaging with our clients is important and that's something we're very focused on while we manage the expenses in the unit.

Okay. That color is really helpful.

Sanjay, we want to talk about sales too, because Ryan - I think your other question was about sales organizations. How we do on the sales front?

Yes. On the sales front as well, one we - in the U.K. market we're actively reestablishing ourselves. We've created the sales team there on the ground. We have established the sales support function there as well. So the team on the ground is in the process of forming the overall sales pipeline there. Similarly, here in the U.S. market, we are consolidating the overall sales structure and providing and creating a more of a uniform process there as well. We are focusing on two things. One is around the cross sell with our existing client base. We have pretty solid client base, so we are spending time of our debt. Again I'm repeating what Ryan said, engaging with our existing clients is extremely important for us so that we can avoid any leakage in our revenue stream. And the second part in terms of how we improve on our sales cycle, creating a uniform process that's extremely important for us. So those are some of the key focus areas through which we are going to expedite our sales cycle both for U.S. and U.K. market.

Understood. Okay, thank you. And then maybe shifting gears a little bit, and I was wondering if you could expand on the deconversion within investment managers. It looked like there was a big decrease in assets there on the AUA side. So if you could help us think through what type of assets, whether that was more traditional or alternatives and the reason behind the deconversion as well, please?

Yes. Sure, Ryan. This is Phil McCabe. Yes, the asset alternative balances were down quarter-over-quarter that was due a little bit to market impact, but also to us parting ways with a very low fee-off strategy client that we - just didn't really fit into our wheelhouse. So that was also offset by millions of dollars in new client fundings. So that's how it happen, but you can rest assured that it was a one-time event.

Got it. All right. Thank you very much.

And speakers we have no further questions in queue. So I'll turn it over to CEO, Ryan Hicke for any final comments.

Thank you. This is a pivotal period for SEI. We benefit from our unmatched position at the intersection of asset management and technology. We are increasing our investments and focus on sales and marketing. We're setting the direction of pace in growth and I remain extremely enthusiastic about SEI's future. I look forward to future meetings and calls with this community and discuss our strategic approach, the opportunity it represents and the progress we're making. As a reminder, we will be hosting an Investor Day on November 14 and 15. We look forward to welcoming you all back on campus in Oaks. For those who cannot attend in person, additional details will be provided closer to the conference about how you can listen in virtually. Thank you for attending our call.

Ladies and gentlemen, that does conclude today's conference. I'd like to thank you for your participation. You may now disconnect.