SEI Investments Company (NASDAQ:SEIC) Q4 2023 Earnings Call Transcript

SEI Investments Company (NASDAQ:SEIC) Q4 2023 Earnings Call Transcript January 31, 2024

SEI Investments Company isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the SEI Fourth Quarter 2023 Earnings Call. At this time, all participants are on a listen-only line. Later, there will be Q&A. 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 your host, Alex Whitelam. Please go ahead.

Alex Whitelam: Thank you, and welcome, everyone. We appreciate you joining us today for our fourth quarter 2023 earnings call. On the call, we have Ryan Hicke, SEI’s Chief Executive Officer; Dennis McGonigle, Chief Financial Officer; and leaders of our business segments; Wayne Withrow, Paul Klauder, Jay Cipriano, Phil McCabe, Sanjay Sharma and Sneha Shah. 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 response to your questions, we have and will make certain forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially.

Please refer to our notices regarding forward-looking statements that appear in today’s earnings press release and in our filings with the Securities and Exchange Commission. We do not undertake to update any of our forward-looking statements. With that, I’ll turn the call over to our CEO, Ryan Hicke. Ryan?

Ryan Hicke: Thanks, Alex, and good afternoon, everyone. While market conditions vary throughout the year, our team did an excellent job navigating uncertainty, engaging our clients, driving growth and setting SEI up well for the future. In 2023, we had key strategic objectives that included margin expansion and sales in targeted private bank segments, continued momentum in global expansion and investment managers, further penetration into the RIA space, investments in alternatives for future growth and driving continued operating leverage, profit growth, infusing new talent across the company. We are pleased with the performance, momentum and trajectory of both the private banking and IMS businesses. Both of these businesses are well positioned to continue to expand and contribute to SEI’s top and bottom line.

We know we need to increase our attention in asset management. With the Advisor business, we have an opportunity to broaden our message around our value proposition as a more tech-centered offering with investment choice and curated solutions at the forefront of what we provide. I expect this will help us maximize new client adoption and exploit the huge opportunity we see in the intermediary market. 2024 is going to be some of the same but with a surgical focus on continuing sales and revenue growth, accelerating the transformation of our asset management businesses, targeting new segments for sales, and driving margin expansion and profit growth through increased operational leverage and discipline. Let me dive into the financial results.

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Q&A Session

Revenues in the fourth quarter were $485 million, up 6% from the fourth quarter of 2022. Net sales events in the quarter totaled $13.7 million, of which $8.5 million were net recurring. This was a combination of technology and operational outsourcing sales of $24.2 million, offset by negative activity in our asset management businesses. Additionally, we had a separate successful new product launch in late Q4 that will add additional revenue to the Advisor business. Net income for the quarter increased 8% over the same period to $121 million. In the quarter, we repurchased approximately 1.2 million shares of SEI stock at an average price of $58.08 per share. That translates into $69 million of stock purchases. EPS was $0.91 for the fourth quarter, up 10% over the $0.83 reported in the prior year period.

The fourth quarter also included a number of one-time events that Dennis will expand on and are outlined in the release. We remain well positioned for 2024 and beyond. Our unmatched breadth of capabilities enable our clients to connect to what matters most, adapt to constant change and to scale for the future. We’re focused on seizing opportunities where we can repeatedly win and drive growth. I firmly believe we can accelerate growth and market share. With that, let me turn to our business lines. Our Investment Managers business continues to thrive, delivering strong revenue and earnings growth. The team successfully implemented clients onto our platform and won new business. During the quarter, we had dozens of cross-sale events and re-contracts.

We also won new business within each of the alternative, traditional and global segments while continuing to grow profit for the unit. In alternatives, our focus on key clients continues to pay dividends, resulting in significant cross-sell opportunities. During the quarter, we signed a top 25 traditional asset manager, expanding into alternative asset classes and another private asset manager through a competitive takeaway. Globally, we signed three new clients and continue to see strong flows in the private asset and private credit spaces. As we’ve expanded our sales leadership in this segment, we’re excited to see increased pipeline development. In the traditional segment, we added new business in all product lines. In particular, the expansion we’ve seen in our turnkey collective investment trust solution continues to be strong.

And as we’ve discussed, our larger traditional clients are beginning to launch alternative funds. Private Banking had another strong quarter with revenue growth and continued expanded margins compared to a year ago. The team has done an outstanding job reorienting the business for growth while managing expenses appropriately. During the quarter, we signed two new deals and re-contracted three existing clients. We also exited the year with successful implementations during Q4. While we still have some previously announced events to absorb in coming quarters, we are confident in our PB growth strategy. Moving to our Global Asset Management businesses. Investment Advisors net cash flows were essentially flat in the fourth quarter with positive flows in our separately managed accounts and Strategist partner solutions, offset by outflows in our active mutual fund products.

During the quarter, we brought on 52 new advisors, including five in the RIA channel. We also onboarded three advisors for our new service of custody of outside alternative investments and are working towards a larger rollout of that offering. Additionally, we pushed out our investor mobile app, which is receiving great feedback as is SEI Connect and the investor portal. Finally, as mentioned earlier, we launched the insured component of the SEI Integrated Cash Program in late December. This program provides bank insured protection to end investors utilizing our standard and custom models. We believe the program could generate significant earnings for 2024. In the Institutional Investors segment, our fourth quarter results reflected the challenges experienced industry-wide throughout the year.

That said, we are seeing positive sales momentum as a result of the structural changes we made in 2023. In the quarter, we signed two new OCIO clients and six unbundled OCIO clients utilizing our technology and data services. We also completed our acquisition of National Pensions Trust in the UK. We believe the addition of NPT to the SEI Master Trust strengthens SEI’s continued delivery of best-in-breed services at scale across our global institutional business. Within our investments in new business segment, we completed the acquisition of Altigo, a cloud-based technology platform that provides inventory, e-subscription and reporting capabilities for alternative investments. As I have discussed many times, we are driving forward into providing more services and capabilities with alternatives.

With Altigo, we expect to help simplify and transform private fund investing, and widen access to alternative investment products for intermediaries while also helping our investment management clients more easily create and facilitate distribution of their products. Our partnership with LSV remains strong, and they had a very good performance quarter which Dennis will discuss. Finally, we’ve taken continued steps to nurture our culture and ensure that our workforce is best prepared for the future of the industry. I’d like to thank all my colleagues across SEI for their commitment to our vision. This concludes my prepared remarks. I will now turn it over to Dennis to discuss our financial results for the quarter. Dennis?

Dennis McGonigle: Thanks, Ryan. As Ryan mentioned, EPS for the quarter was $0.91. This compares to $0.83 during fourth quarter of 2022 and $0.87 for third quarter of 2023. Revenue for the quarter was $485 million compared to $456 million in 2022 and $477 million in the third quarter. Total expenses for the quarter were $383 million, which compares to $362.5 million last year and $368 million in the third quarter. Included in the fourth quarter expenses were approximately $11 million of one-time items, $5.3 million related to a technology asset write-down in our IMS segment, $4.6 million of severance expense and $1 million of professional fees associated with our acquisition activity. Without these items, expenses for the quarter would have been approximately $372 million.