Thank you everyone for standing by and welcome to the SEI Second Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, today's call is being recorded. I will now turn the call over to your host, Leslie Wojcik. Please go ahead.

Thank you and welcome, everyone. We appreciate you joining us today for our second quarter 2024 earnings call. On the call, we have Ryan Hicke, SEI's Chief Executive Officer; Sean Denham, Chief Financial Officer; and members of our Executive Committee, Jay Cipriano, Sandy Ewing, Paul Klauder, Phil McCabe, Mike Peterson, 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 Webcasts 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. I'll now turn it over to CEO, Ryan Hicke. Ryan?

Thanks, Leslie and good afternoon, everyone. Our positive momentum carried through the second quarter as we once again delivered strong profit growth quarter-over-quarter and continued solid execution of sales in our technology and operational platforms. We posted $1.05 EPS for the quarter, $22 million in sales, of which $15.9 million is recurring and $519 million in revenue. Sean will provide a detailed breakdown of all corporate and business segment financials shortly. I'm a little over 2 years into the role and at a high level, I'm really pleased with these 5 key areas. First, our sales pipeline of market activity. Client engagement is high. The reception to an enterprise positioning is resonating and our total addressable markets are expanding. Second, EPS growth. As a result of increased market activity, expense management and execution on our continued optimization programs, we continue to drive earnings growth. Third, unit results. IMS revenue and profit growth, really strong. Private Banking margin expansion and revenue growth potential and the increased focus on reimagining and growing adviser and institutional businesses remain a priority. Fourth, culture and talent. Infusion of new talent and leadership as well as engagement and employee mobility across SEI is becoming part of our DNA again. The executive team has gelled really well and we are unified in our vision on organic and inorganic growth priorities. And lastly, RIA expansion. Platform adoption in the RIA space is growing and our ability to operate in that market creates strategic opportunity. From a more strategic perspective, we are proactively addressing industry headwinds and capitalizing on tailwinds to position ourselves for long-term success. For example, there is an increasing trend of consolidation in the intermediary space, especially with RIAs and broker-dealers. As adviser firms navigate transitions, including expanding their capabilities, monetizing their businesses or planning for…

Thanks, Ryan. As Ryan mentioned, EPS for the quarter was $1.05, up 18% over the $0.89 in the prior year period and 6% over the $0.99 reported in the first quarter. Revenue for the quarter was $519 million, up slightly from Q1 and up 6% from the second quarter of 2023. Total expenses for the quarter were $382 million which compares to $376 million last year and $386 million in the first quarter of 2024. Net income for the quarter increased 17% over the second quarter 2023 to $139 million and was up 5.9% compared to the first quarter of 2024. In the quarter, we repurchased approximately 1.6 million shares of SEI stock at an average price of $67.44 per share for a total of $111 million of stock purchases. On the sales front, net sales for the quarter totaled $22 million, of which $15.9 million is recurring. And our technology and investment processing businesses of Private Banking and Investment Managers net sales events totaled $26.9 million and are expected to generate $21.5 million in recurring revenue. In our asset management-related businesses, net sales were approximately negative $5.6 million, primarily due to asset movement from our mutual fund products into other investment programs as well as net losses in our institutional business. We also sold $700,000 of recurring revenue in our investments in new business segment. Now I will cover financial highlights for each business segment. In our Private Banking business, net sales were $8.8 million, half of which were onetime associated with increased adoption of our professional services offering. During the quarter, the team recontracted with 3 clients, won new business with an existing client acquisition and signed 3 new clients, 2 in the U.S. and 1 in the U.K. We're excited about second half sales events in Private…

[Operator Instructions] We go to the line of Crispin Love, Piper Sandler.

Just first on Private Banking margins here. You've had some really good momentum. But can you just share some leading indicators and progress recently in private banks' activity pipelines and then how you would expect that to drive PV margins over the near to intermediate term? And then can you also just detail what the onetime impact in the quarter was related to Private Banking?

Yes. Sure, Crispin. I'll go first. Hope you're doing well. I'll turn it over to Sanjay. I mean for the sake of consistency, I think we've said in the last 5, 6 calls that there were really 4 stages that we were executing for the Private Banking strategy. And the first was a refocus and a re-energization of the leadership. The second was rightsizing the expenses to the opportunity. The third was a real different clarity and energy and focus on pipelines and segments where we thought we could repeatedly win and then to drive revenue growth that we believe would fall to the bottom line in a way that we drive margin expansion beyond just expense control. And I think it's really clear that Sanjay and the team are in Phase 4 and have been in Phase 4. I'll let him provide some color on the pipeline. But when you look at the pipeline and when we go through it as a leadership team, we're really encouraged by the quality and we're encouraged by the breadth and the depth. We really changed our targeted focus around community and regional banks, U.K. private client investment managers and making sure we had a different approach with larger organizations, positioning professional services as well as our technology and operational platforms. And I think that's really bearing fruit. As we mentioned in the last quarter, some of it's just a product of timing. But when we look at the late-stage pipeline and the activity in banking, we're very positive. Sanjay, you want to provide some color on where you think the business is and what you're doing execution-wise going forward?

Yes. Sure. Thank you, Ryan. I would add a couple of additional points. If you look at previously, we talked about the backlog delivery. We have been very disciplined and you have seen that quarter-by-quarter, how we -- efficiently, we have delivered a pipeline of signed clients. That has resulted in revenue growth for us as well as it helped us with the margin expansion. As far as the expense management is concerned, there, again, we were laser focused in terms of rightsizing the business and aligning our required people for the revenue growth initiatives. That said, as far as the growth is concerned, our pipeline is solid. I'm very excited about the depth and the quality of our pipeline. When I say quality of pipeline, it is that we can deliver that business with little or no incremental expense on our side. And that is resulting in the margin expansion and that's also helping us in improving our client engagement.

That's great. And Sanjay, I think Crispin had a question around kind of some color on the onetime sales in the quarter in professional services.

Yes. So on professional services, what we've done is that that's -- it's a new service we started providing. If you look at the professional services, there are 2 buckets. One, we are providing it to our existing client base. That is resulting in onetime revenue. Then we are providing professional services to our newly signed clients, helping them to onboard, helping them to go through price change [ph] and helping them with systems integration. So you would see that along with -- as we are signing new clients in Private Banking space, the revenue growth is not just with the core offerings but on the professional services side. I would ask Sean to provide color on the margin onetime impact. Sean?

Yes. And so we had -- in the quarter, we received a onetime benefit which was primarily related to a credit we received from one of our health care providers. That benefit was allocated to each of the business units. So you'll see across the business units a little bit of an impact and uptick in the margins and that's what I called out in my remarks.

Okay. And then do you have a dollar amount of that benefit, whether it's on kind of the revenue or expense line?

Yes. I think it was a little under $3 million in totality.

All right. And then just on OpEx, it's pretty well contained in the second quarter here. But as we look to the back half of the year, anything specific to call out on the expense side? I know you typically make salary adjustments that show up in the third quarter. So would you expect comp increases still look pretty similar to past years' 2Q to 3Q? And just if there's anything else to call out.

Yes. So we did have some -- we did have some raises which will be seen in Q3. We have shifted -- so about 70% of the company historically, somewhere around there, received midyear raises. We are actually shifting our raise -- the timing of our raises and compensation increases more to year-end and that will happen going forward. But we did have, for a portion of our workforce, some compensation increases that will -- which you'll see in Q3. I will say we have -- are really proud of the expense management and optimization that we've been -- embarked on over the last couple of quarters and we're steadfast to continue that in Q3 and Q4.

And our next question will come from the line of Ryan Kenny, Morgan Stanley.

I wanted to dig into the SEI Integrated Cash Program. There are a few large banks and brokers that recently repriced sweep deposits. Is there any competitive impact of those actions on your business?

Ryan, hope you're doing well. I mean I guess first and foremost, I think we try to make sure we reiterate that our program is complementary to our business model. We're not relying on that to run the business. It's a great solution that we can offer out in the market. As far as the competitive landscape and some of the things that have happened in the market a couple of weeks ago, that's for our competitors in the market to wade their way through. We have, I think, a little bit of a different business model. Paul is in the room and can comment. But we're always looking at what can we do from a client-centric perspective to enhance the value proposition and services we give our advisers. But I think our important point that we try to reiterate here with this program is it's complementary. It's not core to how we run the business. We're not relying on it.

Yes. I'll just add just, from a competitive perspective, we think we have a very competitive rate that we offer investors. Our total balances are about 1% of our total AUM and -- AUA and AUM added together. That's very different than others. And we provide our advisers optionality and they have choice and there's full disclosure and transparency of the entire program. So we think we've entered this different than many others when they kind of launched these programs 5 or 6 years ago.

And when you think about the $10 million of fees from that program in the quarter, if we were to get rate cuts later this year, how should we think about the trajectory of that and how that might impact the level of deposit sweep and revenues that you guys got?

Yes. I mean you can do the math on rate cuts on 25 basis points. Like everyone else, as we get rate cuts, we'll look at what comes from SEI which a portion will and what comes from the investors themselves. So there'll be some kind of allocation to both. So we won't take the full 25 basis points but there'll be some kind of sharing. And we have a rate committee group that will decide that in the competitive environment that we know to be out there.

All right. Great. Then just one more question. On the fee rate reduction in advisers, was that full impact in the second quarter? Or was that implemented mid-quarter with another step-down maybe showing up in 3Q results?

Yes, that was implemented April 1. So we had the full impact in the quarter and we're getting really good remarks there. We gave some and then we got some fee reductions from our sub-adviser. So our advisers are really pleased with what we've been able to do and it's really helping them from a competitive standpoint.

Our next question is from the line of Owen Lau, Oppenheimer.

So on Investment Managers, I have 2 questions here. The margin went up to 38% but I think that includes some onetime benefit. I remember there was a target of 36% a while back. Is this still the target you have on the margin? How do you think about the normalized margin for investment managers? And then on the comment Ryan make about you are helping public markets seeking access to private markets and also helping private markets seeking access to public markets. I'm just wondering. Could you please elaborate a little bit more on what kind of services and technology SEI can help your clients to expand the access?

Owen, I hope you're having a good summer. Maybe we'll take those in a couple of chunks and Phil and I will tag team this. So when you think about IMS margins -- and Phil can provide more color. I think the important thing to keep in mind for the community is we're not targeting specific margin targets at the unit levels. So we're not trying to run the business that way because if we see additional opportunity to accelerate growth, we're going to invest and that's how we're going to continue to run the company. Now as Sean answered the earlier question about OpEx, there is an increased focus across SEI about kind of maximizing our capital allocation, managing expenses and driving continued growth to earnings per share. And that's not going to change and we're going to be focused on that but not at the expense of medium to long-term growth. So I'll make a comment on the public and private and Phil, maybe you can kind of comment on both. We're seeing a tremendous amount of demand from both sides. So intermediary clients are looking to figure out how to access and incorporate alternative investments in portfolios for their clients. We're seeing increased demand for alternative products in the institutional market as well as some of the larger RIA space. And then the flip side of that is a lot of our investment manager clients are looking at ways of how they create products and potentially leverage distribution to access a broader set of client base in the intermediary space. And we think we are really well positioned for both the technology, operational and asset management perspective to create services and platforms that could help facilitate and accelerate that. The SEI Access Platform [ph] is one of those. But I think a more specific example, too, that Phil can give is a lot of our traditional asset managers are working with SEI to try to figure out how they could launch alternative asset products and leverage our technology and operations to get those up quicker, out the door quicker and into the market. Phil, you're living this every day.

Sure. Thanks, Ryan. And thanks, Owen, for the question. We used to say that margins were going to be 34% to 36%. But with all the focus, the laser focus on optimization and on scaling operations, the numbers are closer to 35.5% to 37% or so. So we're starting to see a little bit of scale in that business. And from a public and private market convergence perspective, the clients are coming together massively. We used to think traditional managers were very different from alternative managers. The traditional managers, 20% of them now offer alternative asset classes. We see that number growing more and more and more with every single day. On the alternative side, the alternative managers are looking for distribution. They're launching collective investment trusts that have target date funds that include alternative funds. And they're also sort of growing their book within that world. So we're seeing a ton of activity. For us, we look downstream. It has impacts on our systems. We're very well prepared for that. We literally are right in the middle of the traditional alternative manager convergence and we'll be capitalizing on that for years to come.

Got it. That's helpful. And then on institutional investors, you highlighted client losses on your press release. But your margin was still strong, I think, 44%, even taking a onetime benefit. Could you please talk about the effort to kind of turn around this segment and the timing of it?

Sure. Jay Cipriano is in the room. He leads that unit. I'll let him kind of provide some color on that, Owen.

Sure. Thank you, Ryan. Thanks for the question, Owen. I think Ryan and Sanjay mentioned when Sanjay came into the Private Banking group that they were in the fourth quarter now turning around that execution strategy which started with really a refocus on the leadership, rightsizing the business, identifying the proper segments to sell into and then execute. I'd say the institutional group is about in the second quarter right now of that. We continue to face headwinds in the defined benefit space. Certainly, the acceleration with folks annuitizing their plans accelerated with the uptick of rates. We expect to continue to see that in 2025. But we're very optimistic about the markets that we serve outside of DB: health care, higher education, secondary education, not-for-profit, unions and governments where our OCI solutions are really resonating there. So as I said, headwinds continue into 2025 but our pipeline continues to build and we're very optimistic about what lies ahead in 2025 beyond those headwinds.

And the only other color I would add is maybe an addendum to the previous question about leading indicators. Owen, as you know, you know us really well, we're really careful to never get too far over our skis. We don't spend too much time patting ourselves on the back because we get really focused on medium to long term. But when we look at new adviser acquisition last quarter, when we look at the new signings in institutional, when we look at the banking pipeline, IMS' record quarter, increased demand in Europe, things and family office services, we feel that we're in a really strong spot with client activity, prospect activity momentum. Now it's up to us to deliver that. The other thing I want to make sure is clear, optimization is never going to be at the expense of client experience. So the things we're doing to drive margin expansion in IMS, we're investing heavily in IMS. We're just being more thoughtful across the company around where we're deploying our capital, including talent, to make sure that our existing clients have the best experience possible. And when we close this pipeline, we are onboarding those clients with the experience that we would want them to have day 1 at SEI.

Got it. That's helpful. And if I may, I want to squeeze one more, maybe this one for Paul. You talk about the Integrated Cash Program. The cash balance is just about 1% of total AUM. Do you have any aspirational goal that how high it can go and also the traction of it?

Yes. Right now, we're just holding the line with 1%. We'll continue to evaluate the program based on the rates we provide investors and what other optionality is out there in the marketplace. But I think for your forecast, you should assume that kind of 1% operational cash on a go-forward basis.

And our next question will be from the line of Jeff Schmitt, William Blair.

You talked about growing in the RIA market and Investment Advisors. How much of the asset mix is that in the segment currently? And what are you doing to sort of grow your share there?

Paul, do you want to take that one?

Yes, I can take that. So the $101 billion that's on the platform, the RIA marketplace represents about $23 billion of the $101 billion, the rest being advisers through independent broker-dealers. That is obviously our fastest-growing segment and where we're getting bigger chunk plays and larger advisers. We had a large one in the second quarter that partially funded that will finish the funding in the third quarter. And there's a lot of growth with those opportunities as well. So we're really bullish on that marketplace through the leadership of Erich Holland and Gabe Garcia. And we're redeploying more sales folks and more technical resources to support that marketplace. The good news with that is often they come over as AUA. But as they see our investment platform, they may consume some of that AUM. So there's some upsell revenue activity that we get once they get to understand SEI and the full capabilities. So we would be -- continue to be positive on that as we move forward.

Okay. And then one more on the cash program. I'm just curious how much of that cash is held in advisory accounts. Or is that mainly in brokerage accounts?

It's all in advisory accounts.

All right. And our next question will go to the line of Patrick O'Shaughnessy, Raymond James.

Okay. Maybe to beat the horse a little bit dead here on the insured deposit program, is there any level of concern that the program might not be consistent with advisers' fiduciary obligations to their clients in the eyes of the SEC?

I mean we've looked at all the disclosures. We've looked at all the documents that we provide advisers and investors. Operational cash is something that we need to have in order to operate the overall portfolio. That's been consistent with our investment thesis. So we think we're on sound ground. Obviously, it's a fluid nature in the industry of what's happening. And we will adjust based on whatever regulatory guidance is provided. But we think based on the combination of the investor rate that we give investors, the optionality we give advisers, the 1%, the need for operational cash in the models, all those are consistent with an adviser meeting their fiduciary obligation. But it will be fluid as things change in the marketplace.

Got it. Appreciate that. And then sticking with the IA segment here, a couple of competitors to that business recently were acquired or had acquisitions announced getting taken on private equity. Have you seen any change to the competitive landscape in that business as a result?

Yes. The firms that just got acquired are still competitors and they're worthy competition, specifically asset market investment. We know that. They're going through some changes in integration and things like that into the new organizations. We think our programs stack up very competitively versus those 2 firms, especially as we go into the higher end of the RIA marketplace with the robustness of our technology, our operations and our investment management. There's a lot happening in the marketplace. There's a lot of firms that are getting aggregated and being acquired. We're very active in consulting with our advisers, providing a path finder program for our advisers and ultimately contemplating whether or not we need to be a destination firm. But that's something for the future. So we think about this every day. We know what's happening in the marketplace. And those competitors, as I said, are formidable but we think we stack up very well from a capability standpoint.

Okay. Our next question will be from the line of Aidan Hall, KBW.

Maybe just a follow-up on IMS. My question is kind of around SEI's offering as it relates to the semiliquid retail products that have become very popular within the alternative asset management space. So how are conversations going within the channel? How do you think SEI's offering is differentiated versus peers? Then similarly, what areas are you most focused on here to continue gaining market share over the next couple of years?

Okay. Over to you, Phil.

All right. Thank you. Thanks for the question. We are right again in the middle of all of the semiliquid funds that clients are offering. All of our top, largest clients are either launching BDCs or semiliquid funds. We have a matrix that we update daily that basically tells us all the different components and capabilities that they have or that they require. For us, we have all the technology in place. We're used to servicing very, very high volumes of investors. We're very, very good at it. We are tweaking our offering where need be but we're really in a great spot with all of the retailization of alts to the democratization of alts.

And then, Ryan, yes, maybe just one on kind of inorganic growth opportunities. Can you just remind us how you would kind of stack rank the priorities there, whether by segment, region or capability?

Yes, absolutely. So I think consistent with the Investor Day 2 years ago, we've continued to kind of hone our focus. I think there's kind of 3 areas where we stay really active right now. Thematically anything in that RIA space that would increase our ability to drive client growth, client adoption but as also Paul mentioned, to broaden out our capability to offer succession opportunities, a different outcome for our advisers, we'll be more active there. When you talk about Phil's business, the IMS business, the areas that could expand our operational or technological delivery, especially in the areas of alts and especially outside the U.S. and expand that global footprint. And then when you just think about value-added technology or services either to our intermediary base across banks, advisers, wealth managers, I would say, focused there. So the good news for us, Aidan, is we definitely progressed that. Sean, Mike and I were with our Board the last 2 days. So I think there's a lot of clarity and I think unification around what we're going to do moving forward. But also, I think we're really disciplined around the segments and areas that we're targeting for inorganic. And it's exciting because we think they can be really accelerated now that we have the foundation across the board solidified for organic growth.

Okay. And we do have a follow-up from the line of Ryan Kenny, Morgan Stanley.

Just a technical question on the health care credits. If we add them up by segment, 70 basis points in IMS, 160 in banking, 230 in institutional, it gets to around $5 million. So that's a little higher than the $3 million that was referenced earlier. So I just wanted to check if that math was right, if you could help reconcile.

Yes. So there's -- so I said primarily. So primarily, the health care benefit was shy of $3 million. There's always onetime here and there. But -- so the number I gave of shy of $3 million was the majority of that difference or that onetime benefit.

Okay. We have no further questions in queue. I'm going to go back over to CEO, Ryan Hicke, for closing remarks.

Well, thank you for all the questions. It's great to see the engagement. Our results through the first half of the year reinforce our commitment and execution against our strategy to drive growth in the short and long term and we're going to continue to build upon our success. As I mentioned earlier, we're going to be hosting an Investor Day on November 7. Additional details will be shared in the coming months. I look forward to welcoming you all back to our Oaks campus and thank you for joining today's call.

Yes. And once again, ladies and gentlemen, thank you for joining today's conference. You may now disconnect. Have a good day.