Ladies and gentlemen, thank you for standing by. Welcome to the SEI First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would like to turn the conference over to our host, Ms. Lindsey Opsahl. Please go ahead.

Welcome, everyone. Thank you for joining us on today's First Quarter 2023 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 our business segments, Paul Klauder, Phil McCabe, Sanjay Sharma and Wayne Withrow. Mark Warner, SEI's Controller is also with us. 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 CEO, Ryan Hicke. Ryan?

Thanks, Lindsey. Hello, everyone. I hope you're all doing well and enjoying the beginning of the spring season. We are nearly a year into the leadership changes at SEI and I am optimistic about our future and our ability to manage through times of market uncertainty. Turning to this quarter's financial results. First quarter revenues declined 19% from a year ago, first quarter earnings were down 53% from a year ago. First quarter EPS of $0.79 decreased 42% from the $1.36 reported in the first quarter of 2022. Adjusting this for the $88 million one-time revenue event in Q1 2022 which we discussed at the time, revenue declined 5% and earnings per share decreased 11%. In the quarter, we repurchased 1.4 million shares of SEI stock at an average price of $59.03 per share. This translates into $80.3 million of stock purchases. We had a solid sales quarter. Net sales events totaled approximately $23.4 million, $19 million of which were net recurring. This was an increase over the $11 million net recurring number we've reported in the previous quarter. First quarter sales reflect two important indications. First, the positive direction in which we are moving and the increase in overall sales momentum across SEI. Second, when you get underneath the numbers, sales results and pipelines are showing traction in the areas where we have increased our market focus and attention. I am encouraged by the sales results relative to last quarter, particularly the types of clients we are winning and the ability to install them quickly without significant investment to realize the revenue. I'm also happy to see positive sales contributions from multiple business lines across SEI. We remain immersed in closing sales and building our sales pipelines. Additionally, we have increased our focus on expense management. We will constantly…

Thanks, Ryan. I will cover information related to the quarter for the company and units. As Ryan mentioned, EPS for the quarter was $0.79 a share, which compares to $1.36 during the first quarter of 2022 and $0.83 for the fourth quarter of 2022. Revenue for the quarter was $469 million compared to $581 million in 2022 and $457 million in the fourth quarter. A reminder that the first quarter of last year included a one-time $88 million revenue event that equated to approximately $0.47 in the earnings per share. Adjusted for that, revenue would have been $493 million and EPS would have been $0.89. Total expenses for the quarter were $367 million, which compares to $367 million last year and $363 million in the fourth quarter. Expense management as a corporate level has been and will continue to be a focus as we grow revenue. On the sales front, in our technology and investment processing businesses of private banking and IMS, net sales events totaled $21.2 million and are expected to generate $17 million in recurring revenue. In our asset management related businesses, net sales were approximately $1.1 million. In addition, we added an additional $1 million in sales from our newer initiatives. Total sales were $23.4 million, of which $19 million is recurring. Private banking sales were $2.5 million, of which $700,000 is recurring. This reflects two new SWP sales in the US. We also recontracted three clients during the quarter, representing $3.4 million in annual recurring revenue. During the quarter, we successfully installed two clients on SWP. The current backlog of sold, but expected to be installed revenue in the next 18 months is $40.9 million. We are scheduled to install approximately 50% of this by the end of the second quarter. We have a clear focus…

[Operator Instructions] And first we'll go to the line of Ryan Kenny with Morgan Stanley. Please go ahead.

Hey, good afternoon.

Hey, Ryan.

Hi, Ryan.

Couple of question. So first wondering if you could touch on some of the recent events in the banking sector. One, do you have any direct exposure to any of the banks that have had issues? And then number two, how should we think about the impact, if any, on your pipeline and appetite from banks right now for new sales? It looks like sales held up, but would be helpful to get some color? Thanks.

That's great, Ryan. Sanjay is in the room. So I'll let Sanjay comment. So you could break to get those questions, Sanjay.

Yeah, so first one is about the Silicon Valley Bank Republic. So brief background before I could answer the questions. So Silicon Valley Bank acquired one of our TRUST 3000 client. And during the period of uncertainty, we acted as an excellent partner and performed our fiduciary responsibilities diligently. Essentially we and they were, are -- they were and they are BAU. The client is smaller relative to our average client size. The acquired business is still with us and it's supported by our TRUST 3000 platform at all basis. And we have not seen any significant change to their business. During that uncertain period, we acted as a good partner. We have received excellent feedback from our clients about how we supported them during this period of uncertainty. Now going on to the second question that how it has impacted our pipeline or Regional Community Bank segment. Our belief is that such instability cycles generally result in increased M&A or consolidation activity. As consolidation occurs, the need to scale, integrate and create efficiencies increases at the consolidative side. These needs do present opportunities to further grow our business footprint as outsourcing function in which SEI excels and partner with our clients is a great period of growth for clients as well. So M&As are always very challenging, as you have to deal with the business, operations and technology rationalization, consolidation, while ensuring you don't lose the acquired business. So SEI has significant experience in this space and we are very well-prepared to help our clients to acquire and grow their business. That's the kind of traction we are seeing in our pipeline as well.

Thanks. And shifting gears to expenses, the pre-tax margins have been in the low 20s for a few quarters now, but below your usual levels in the high 20s. Should we think about that as a run rate going forward? And if not, how should we think about the timelines to get overall margins up? Is there a mix shift between the businesses in that? And if you could layer in the outlook for margins across the various business lines that would help.

Sure. So I think from our -- from my perspective the margin improvement will come from revenue matriculation and growth and the ability to drive, get that to the bottom line. We've seen more evidence of that in the first quarter as we do get revenue improvement across our different business lines. But also, as you know, in the asset management related businesses, when you have market contraction, which we had last year and you have revenue contraction as a result and has a pretty direct impact on our margins. I think as some sense if markets continue to improve and we capture revenue just from that element of our business model that tends to get to the bottom line. So that will help margins kind of get back to closer to more historical levels. So our business models haven't changed, our approach hasn't changed, our scale and efficiency capabilities haven't changed, although we did one business line, particularly Institutional, we do have some pricing pressure. It's still a highly scalable business with revenue growth. So I will be optimistic that margins will continue to improve as topline improves.

Thank you.

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

Yeah, thank you for taking my question. Could you please talk about how the activity in the PE space has any impact on IMS? I mean it looks like some of this activity has slowed down a little bit, but some of these larger firms can still waste money and waste external fund. How do you think about the potential impact here? Thank you.

Hey, Owen. It's Ryan. I hope you're doing well. Thanks for the question. Phil is in the room. I think it's a great question and I'll turn to him. He can give you an overview kind of not just maybe in the PE space for what we're seeing across the board because this, yeah, as I mentioned in my opening remarks, not only does the sales results remain pretty strong across the board with IMS, we're really encouraged about the pipeline that especially offset from existing clients. But Phil, I don't know if you want to dive in little deeper.

Sure. Thanks, Ryan. Hi, Owen. Just real quick, as you can tell by our sales in the first quarter, they were pretty solid, especially Q1 is normally a little bit of a slower quarter for us. We have a very, very, very active pipeline. The market, there is a ton of activity going on. A lot of our clients are larger private equity and alternative managers. They have a lot of dry powder. They've been investing in taking these opportunities when the market is a little bit dislocated just to buy more and more companies and things along those lines. So our private credit book is strong, real estate is strong, infrastructure is strong. I mean, in general, we're in a really good spot. So the team is large and the bench is deep and we're doing really well.

Got it. That's very helpful. And then I want to go back to a private banking side. The margin was up in the first quarter and revenue was better than our expectation. Just maybe can you please just add more color on the potential revenue trend and also margin from here? And I think a couple of quarters ago, you highlighted State Street and Union Bank of California will be converted in the first half of 2023. Could you please give us an update on that? Thank you.

Yes, that's great, Owen. Sanjay and I will maybe tag team this one. So your opening point, I mean, I think we've been very clear hopefully, very consistent over the last few quarters that we were really focused on getting those margins from banking back on a growth trajectory on a path back to historical levels and really doing that through a combination of not just managing expenses, but really getting that pipeline build up to a way that the revenue that's coming in is dropping through to the bottom line. I think Dennis touched on that in his remarks. So we are really encouraged by that progress. We know we had a couple of headwinds that you just highlighted. I'll turn to Sanjay on that front. But we have had an extremely aggressive effort over the last few quarters engaging our existing clients and really solidifying that foundation for growth and building those pipelines. So we feel good about where we are right now. We know what the expectation is to continue to grow those margins. But, Sanjay, do you want to talk about a couple of the specific examples Owen had maybe your overall view of where we are.

Yeah. Thank you, Ryan. Hey, Owen. How are you?

Good.

So, Owen, you are right that we're recovering from the previously-announced client de-conversions. And the full impact of those de-conversions is visible this year. But at the same time, those de-conversions are not easy. I mean think about State Street you to call out that de-conversions got delayed many times and last month itself State Street talked to us asking for further delay. So but we know that there is a small de-conversion. We had to deal with that. But at the same time, as Ryan mentioned, we have been very disciplined about our margin and expense management and employing our client engagement to solidify the banking foundation. As you could see the number of the re-contracts in the last nine months and securing long-term revenue, that's a good example of our efforts. At the same time, if you look, as Dennis called it out, the backlog deliveries are another major focus area with a view to improve our bottom line growth. You would see the results of our improved backlog delivery capabilities and discipline in coming quarters. Dennis mentioned $40 million plus worth of backlog, almost 50% of that getting delivered in the coming quarter. Also the ongoing conversion of US Bank as our first software-as-a-service client is opening up new opportunities in the market. Good part is the Union is getting acquired by US Bank. So those clients we are directly migrating on SWP and that is presenting more opportunities for us to support such agendas.

Okay, that's perfect. And then if I may just can I add one more housekeeping question on buyback. So we purchased $80 million of shares in the first quarter and then you just announced an additional $250 million. So should we think about you have $183 million remaining for your share buyback, Dennis? Thanks.

Not to fit. The remaining -- what we had remaining before the additional authorization was about $12 million. So we have about $262 million of authorization now.

And then you purchased $80 million in the first quarter, should we subtract $80 million from $263 million and get to $183 million?

Basically, what we did, we came into the quarter with $92 million of authorization.

Got it. Okay.

Used up $80 million of it and just increase it by $250 million.

Got it. Okay. Thank you very much.

[Operator Instructions] And next we'll go to line of Jeff Schmitt with William Blair. Please go ahead.

Hi. Good afternoon. Looking at revenues in the Institutional Investor business, they were down 14% in the quarter. I think you referenced some client losses around defined benefit plan clients. Is that correct? And how should we think about growth for the year there?

Yes, I mean, Paul is on the call as well. So, I'll let Paul comment. But we did have some net kind of wins and losses during the quarter. And I think this business line, the pressure point on it has been on the corporate defined benefit segment of the market. And so Paul and his team's credit over past five, six years, they've worked really hard to diversify this business to make that part of the business a smaller and smaller percentage of overall assets and revenue. But we do see those pressures on -- in that segment of the market will continue. Even though there is opportunity to win business there, it will continue. And now, all the pressure is actually on Jay Cipriano, so it's kind of shifted or will shift in about as soon as we hang up this call. But Paul, do you want to add anything or --

Yeah, I can give my parting comments. Yeah, a couple of things in the dynamics of the Institutional business. First and foremost, even though we saw a marked recovery in the first quarter, the comparative you are using is comparing against perhaps a time when interest rates were lower. And that -- the reason that's relevant is we have a lot of long duration fixed income assets that are there commensurate to the liabilities. As interest rates go up, those assets go down, equities went down and alternatives went down. So, we really had three levers, even though corrected in the first quarter that impacted the asset values and obviously our revenues are derived on the asset value. So hopefully with some of the correction we've seen in the first quarter, that is definitely lifting the baseline. We do see some activity around DB plans, around curtailments and annuitization which we've noted for quite some time. But part of the positive side is, we talked about in the comment that Ryan had, this combination of ECIO and OCIO is really taking some positive feedback from large institutional investors that want to delegate, but still want some sophisticated analytics and portfolio looked through. So we have four active deals that we're currently working on that are all sizable that are still in-process, but we're quite optimistic about those after coming off one that we won last year that's still funding in the backlog. So hopefully that helps some additional commentary.

Yes, it does. Thank you. And then going back to the margins in the private banks business. They jumped to close to 7% I guess despite kind of weaker topline growth. Was that mainly driven by amortization expense rolling off and so should we sort of think about 7% is kind of run-rate going forward? And what would it take to get above 10%.

So, I think we've been really consistent. I think we've been very consistent on this. It's a great question. So that was not amortization rolling off that drove that, that was real expense management around getting very focused on our R&D dollars and deployment aligned with where we believe we have opportunity. Sanjay and his team continued, Jeff, to be very focused on saying, where are we building new capabilities and investing in enhancements for markets that we believe we can repeatedly sell and generate a return. So I would say the margin improvement was a combination of three things, installing the backlog that we had available over the quarter, a couple of new name sales and some one-time revenues that Sanjay and his team generated and really, really thoughtful and deliberate expense management and you can expect all three of those things to persist.

Okay, great, thank you.

Sanjay go ahead.

Yeah. I think, Jeff, I mean our margin improvement that we're really pay attention to is fourth quarter to first quarter. And that there the amortization expense in fourth quarter was comparable to the first quarter. So it would not have been amortization expense.

Okay. And what would it take to get above 10%. I mean, what is your path to that?

So our path to that, as Sanjay touched on earlier, is installing that $40 million backlog. And that backlog is in a really good spot in terms of timing and delivery and being kind of screen status as we think about it, Jeff, in terms of the implementation. So install that $40 million, managed through the headwinds of a couple of the losses that we've talked about and Owen touched on in his question, but I think Dennis touched on this instead of Sanjay. One of the reasons we're really encouraged about the sales pipeline is when we look at that sales pipeline, these are deals that we believe we can win and install that revenue will flow through to the bottom line and we can refresh and refill those pipelines pretty quickly. And we need to evidence that. I understand that. But the first two things are right in our control in terms of installing the backlog of signed clients yet to be implemented and continue to be really diligent about expense management. Sanjay, do you want to touch on anything else there?

I think, Ryan, you are right. It's a combination of disciplined expense management, stable client base. You saw that the re-contract -- the focus re-contract effort on our part and then targeting sales pipeline efforts, which is -- and the other thing which I would again call out is our improved capabilities and the efficiencies instilled in backlog delivery. And that's something we will prove in the coming quarters.

And I think Sanjay and the team will get upgraded to concierge key soon for as much as they have been on the road in front of clients and that's been really paying off.

All right. Great. Thank you. Thanks for the answers.

You're welcome.

Next, we'll go to the line of Mike Brown with KBW. Please go ahead.

Okay, great. Hey, Ryan, you highlighted some of the cross-selling success that you guys have been seeing recently, which is certainly encouraging to hear. Can you just explain where you think the -- maybe the biggest opportunities are there as you've been certainly seemingly much more focused on that opportunity set? And then if you could also just touch on the SEI Sphere win that you mentioned in your prepared remarks. Can you just expand on how that opportunity came up and if you see future opportunities for that to play out with your existing client base, particularly for SEI Sphere?

Yeah. So, Mike, thanks for the question. I might answer those in reverse. And Phil, if you have any comments here. The SEI Sphere deal we talked about was an IMS prospect that we were engaged with in 2022 on an IMS platform sale for front-end technology and administration. But through the sales process, the IMS sales team introduced SEI Sphere, which was really attractive to that client. Due to some of the things that they were doing strategically with their fundraising, they wanted to put off the move to the IMS platform, but progress the agenda with Sphere. So not only did we pick-up a Sphere win in the first quarter, we remain actively engaged in the sales process on the IMS side. And Phil, if you want to comment. I think that we're seeing an uptick in that activity, but gross traditional and alternative asset managers.

So that particular client has multiple entities. So I think that Sphere win was just the first of a couple of different wins that could come in there. But to talk to your point on cross-selling, we've been teaching and educating the whole entire sales team on how to sell some of these other products that we have a lot of or getting better traction across -- throughout -- across not only IMS market, but across all of the market.

That's a great point, Phil. Mike, back to your earlier question, I think there's kind of where do we see the opportunity and what are we doing about it? As Phil just touched on, there's a lot more, what I would call kind of horizontal sales training and engagement across the company to make sure all of our client-facing representatives are aware of our capabilities can talk about our capabilities, but know who the subject matter experts are inside SEI and introduced inside of sales agenda. And I think when we look across the continuum, if you think again about SEI having three core pillars around technology, investment processing and asset management, as we extend into other large segments as Wayne and the team go into larger RIAs and we look at asset management distribution and the things that Sanjay is doing with the banking clients, especially our large enterprise clients. Honestly, Mike, I think we just see opportunity as firms look to consolidate vendors, to try to leverage our capabilities out of their strategic partners, we feel optimistic that our suite of capabilities really does resonate in many of those spaces. So I think excitedly, we don't think there's just one capability that we have that we think we can cross sell a lot across the continuum. We think that products have increased client engagement and a better understanding of where those firms are trying to deploy capital is going to open up more opportunities. But I think Phil really hit it more around the investment we're making in education, engagement and training across SEI to make sure our folks are aware and attentive to what we have at hand.

Okay. That was great. Thanks for all the thoughts there. Maybe just one last one for me. How are you guys seeing the prospects on the M&A front here? You kind of touched on the firstly on the buyback side of the equation. But just curious how you're thinking about that lever when it comes to capital allocation?

Yeah, so we have ramped-up our activity on the M&A front. We've put an SEI individual last year in charge of corporate development. We had actually added resources to that team. We have expanded our kind of pipeline of opportunities there. I would say we've been more proactive now as opposed to reactive and we've got a kind of a clear path in terms of capabilities and segments where we are interested and potentially acquiring assets to accelerate growth. We gave an update to our Board this week on an M&A pipeline. So it is much more active in 2023 and we have a kind of more tangible pipeline of opportunities.

Okay. Good to hear. Thanks, Ryan.

At this time, there's no one else in queue. I'll turn it back over to CEO, Ryan Hicke.

Thank you. Appreciate all the questions and engagement today. In closing, we are going to continue to be really bold. We believe in our plan and we're positive about employee, client and market engagement. We're going to be deliberate and decisive to deliver solutions that the market values, continue to help our clients succeed and position SEI for continued top-line and bottom-line growth. I'm confident in our strategy and our willingness to challenge ourselves. I'm also excited for our results to continue to validate our direction. Thank you all for joining today's call.

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