SEI Investments Company

Hello, and welcome to SCI First Quarter 2025 Conference Call. At this time, all participants are in a listen-only mode. After the speech presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 1-1 on your cell phone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. I will now like to turn the conference over to Brad Burke. You may begin.

Thank you and welcome, everyone. We appreciate you joining us today for our First Quarter 2025 Earnings Call. On the call, we have Ryan Hickey, SCI's Chief Executive Officer, Sean Denham, Chief Financial Officer, and Chief Operating Officer, and members of our executive management team, Jay Cipriano, Sandy Ewing, Paul Clauter, Michael Lane, Phil McCabe, Mike Peterson, Sneha Shah, and Sanjay Sharma. Before we begin, I would like to point out that our earnings press release and the presentation that will accompany today's call 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 presentation slides and in our filings with the Securities and Exchange Commission. We do not undertake to update any of our forward-looking statements. With that, please turn to slide three as I turn the call to our CEO, Ryan Hickey. Ryan?

Thank you, Brad, and good afternoon, everyone. Last quarter, I shared our expectation that SCI would build upon the strong momentum we achieved in the second half of 2024. Not only did that momentum continue, but it accelerated. As I've said before, we are running SCI differently. We are showing up in the market differently. We are fundamentally reshaping our operating model, deepening client engagement and relationships, strengthening our talent, and sharpening our strategic vision. The results of these efforts are evident in our performance over the last several quarters. As part of our enterprise mindset, we held our first ever global client symposium in March, where we brought together clients from across all of our business lines. It was unbelievable, energizing, and humbling. It gave us a forum and a platform to not only connect industry leaders, but also help our clients learn about the breadth of SCI's capabilities through each other. We could see people's perceptions of SCI change in real time, as they became increasingly aware of the size of our client network and the intersection of solutions and industries. In the first quarter of 2025, SCI delivered earnings per share of $1.17, an 18% increase year over year. All business segments contributed to this growth, each posting higher operating profits and expanded margins. Despite tumultuous capital markets, we saw modest growth in client assets under management and administration, demonstrating the breadth of SCI's diversification across product types and geography. Most notably, SCI achieved a record-breaking $47 million in net sales events in Q1. $37 million of those are recurring, a new high, surpassing our previous record from Q3 2024. This success spanned multiple clients and business lines, both domestically and internationally, and reflects the strength of our enterprise mindset and evolving -to-market strategy. By offering a comprehensive suite of solutions, SCI is uniquely positioned to serve the world's most sophisticated institutional, wealth, and asset management organizations. During the quarter, we also announced the sale of our family office services business. While a strong business, relative to other strategic choices we have, we felt this asset had a greater growth opportunity outside of SCI. We believe the acquirer, Aquiline, is positioned to accelerate the growth and adoption of this platform. And we're pleased that the sale will deliver a strong return for shareholders, exceeding our initial investment in 2017. In summary, Q1 was a standout quarter for SCI. We are immensely proud of these results, but our focus, as always, remains on the road ahead, a path that currently presents an unusually high degree of market uncertainty, but equally presents opportunity as organizations rethink their operating model and capital deployment strategies. SCI has historically been successful in how we have navigated challenging environments. Our diversified business model, coupled with a fortress balance sheet and an amazing workforce, has been at the core of this success and something that we believe positions us exceptionally well to address the current conditions. Growth-focused firms are actively advancing their shift to outsourcing, particularly for technology and operational platforms. Our sales pipelines are strong, with discussions remaining proactive and optimistic. Our investment manager clients report stable redemption activity and capital deployment trends that align with expectations. That said, the recent wave of market uncertainty and the evolving macroeconomic dynamics introduce variables that could influence the broader economy and potentially our pipeline activity. As Yogi Berra famously said, it's tough to make predictions, especially about the future. While the full impact of these developments is yet to unfold, we are closely monitoring the situation, but we remain focused on controlling what can be controlled, notably our talent, our client focus, and our strategic investments. Looking forward, I am confident in SEI's strong foundation and our ability to deliver sustained long-term growth. We are actively pursuing both organic and inorganic opportunities to accelerate our strategic progress, ensuring we continue to create value for our clients and shareholders. Before I hand the call over to Sean, I wanna highlight his expanded role as SEI's Chief Financial Officer and Chief Operating Officer. In a short time, Sean has driven significant value, relentlessly pursuing higher returns on invested capital and unlocking SEI's growth potential. He has also been a terrific cultural addition to the team. With

that,

I'll turn it over to

Sean. Thank you, Ryan. Please turn to slide four. Our EPS of $1.17 represents an 18% increase from Q1 2024. Additionally, share repurchases over the last 12 months were a notable contributor to earnings growth, driving three cents of EPS improvement against Q1 2024. Last quarter, we had a handful of items call out that affected the comparability of our EPS. This quarter, the impact of those types of items was negligible. Earnings per share declined modestly on a sequential basis, which was our expectation. The primary factor driving the one percentage point decline is the seasonality of our tax rate, which increased to .8% from .5% and is typical due to the timing of releasing tax contingencies. Turning to business unit financial performance on slide five. Each of our business units realize operating profit growth against Q1 of 2024. Growth in our investment managers business reflects strong sales momentum, particularly among alternative and global managers. Private banking's growth reflects the continued momentum from 2024 in addition to recent professional services wins, which convert into revenue more quickly than longer term contracts. Investment advisors revenue growth of 11% was largely attributed to the year over year contribution from the integrated cash program, which generated $21 million of revenue versus $10 million in the prior year. Sequentially, investment advisors and institutional investors saw modest declines, mostly attributable to the full quarter impact of lower asset balances, which occurred towards the end of the fourth quarter. Turning to slide six. We achieved healthy improvement in the operating profit margins in all business units on both a sequential and year over year basis. As a result, SEI's consolidated operating profit margin increased to .5% for Q1, marking the highest level achieved in the last three years. Margin improvement stem from positive operating leverage, the lack of unusual or one-time items, the contribution from our integrated cash program and our continued focus on cost control. Last quarter, I indicated that the timing of certain investments to support business growth may pressure margins. Due to the time needed for hiring and initiating new technology investments, these expenses in the first quarter were modest. We expect these costs to gradually increase throughout the year, but their overall impact on margins should remain relatively limited. Turning to slide seven. SEI achieved a record level of sales events in the quarter, surpassing Q3 of 2024. Sales events were led by our investment managers and private banking businesses, with more modest contributions from investment advisors and institutional investors. Investment managers' wins were driven by existing and new clients, both in the US and globally. We also realized a positive contribution from the new product offerings, notably our Luxembourg Depository Services, reflecting the continued investments we're making to enhance our global service offering and operational footprint. The strength of our investment managers' business is underpinned by our leading market position with alternative managers, which accounted for nearly 70% of segment revenue in 2024. In the current market environment, alternative managers are particularly well positioned to excel, and we are committed to fueling their growth as they pursue proactive, offensive strategies. Private banking wins were broad-based in the quarter, coming from new and existing clients. M&A activity contributed to sales events, with clients completing a handful of acquisitions and transitioning those books of businesses to SWP. Q1 saw strong client renewals, with six contracts extended, totaling run rate revenue of nearly $20 million with an average extension period of three years. Our SEI Sphere offering, part of the investments in new business segment, security significant win this quarter by expanding our partnership with an existing private banking client. This client will utilize all of SEI Sphere's offerings, including cybersecurity, network architecture, and cloud migration. Turning to slide eight, both AUM and AUA increased on a sequential and -over-year basis in the first quarter. Despite the S&P 500 declining by .6% in Q1, our AUM experienced a negligible market impact due to our broad diversification across geographies and asset classes. We also benefited from modestly positive net inflows in institutional and advisors, driven by inflows into our strategists and traditional SMA programs, and all set by outflows and mutual funds. Our institutional business posted a handful of client wins in the quarter. In the advisor business, our efforts to enhance the SEI ecosystem for the entire advisor community, especially in RIAs, is yielding results more quickly than we had anticipated. Our recent acquisition of SEI Lightfield and the launch of our ALTS platform, SEI Access, are examples of building an ecosystem that can meet the needs of a larger and more sophisticated advisors, further enhancing our capability to move up market. During the quarter, we also launched a handful of initiatives to drive increased client interests in SEI products through the lens of tax and income optimization, notably our direct indexing SMA program. Our LSV investment, which experienced significant outflows in the fourth quarter, saw an improvement in Q1 as market performance shifted in favor of both global and value mandates, driving a modest increase in LSV's assets. In the context of ongoing market volatility, we recognize that investors are keenly focused on the implications for assets under management across our advisors, institutional and private banking businesses. Our portfolios in those businesses are on balance, slightly less market sensitive than a typical 60-40 portfolio, due to our allocations for fixed income, alternatives and liquidity mandates. In summary, SEI's resiliency is enhanced by our substantial diversification, which benefited us in the first quarter, and we anticipate will continue to dampen the impact of market uncertainty going forward. Slide nine summarizes our capital allocation and balance sheet. We continue to invest aggressively in our own shares in the first quarter, buying back $193 million of stock at an average price of $77, bringing total share repurchases over the last two quarters to more than $450 million. Additionally, we announced a $500 million increase in our share repurchase authorization. Turning to our balance sheet, we ended the first quarter with more than $700 million of cash and no long-term debt. We view SEI's incredibly low leverage and ample capacity for investment as strategic advantages, especially in the current uncertain market environment. Clients value our stability, knowing our fortress balance sheet and commitment to constantly investing in our business ensures we'll thrive for years to come. Before opening for questions, I'd like to invite all of you to attend our investor day on September 18th in New York. We have a lot of initiatives in process and look forward to sharing our plans to accelerate growth. It's more information than we can cover in an earnings call, so we hope you'll all be able to join us in New York this September. With that, operator, please open the lines of questions.

Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star one one on your telephone, then wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Oun Laow with Oppenheimer, your line is open.

Hello, good afternoon, and thank you for taking my question. So could you please talk about the sales environment over the last few weeks? I saw that your first quarter net sales were pretty strong, but I'm wondering how does the recent macro uncertainty and tariff situation impact your conversation with clients and the sales cycle? Thanks.

Hey, Oun, how are you? Hope you're doing well, thank you for the question. Yeah, very, very strong Q1 in sales. As I mentioned in the script, we are not seeing a slowdown in activity, but I thought it might be more helpful. Michael's in the room, Phil's in the room, Sanjay's in the room, all the unit leads in the room. Maybe if they provide a little bit of color commentary in terms of what they're seeing, especially around both late stage pipeline and early stage pipeline. Sanjay, you wanna kick off first? Sure, hi Oun.

For private banking, I can look at this as an opportunity in two segments. One opportunity, it is presenting for our existing clients. As existing clients are going through this kind of uncertain environment, we can see more traction in terms of outsourcing and they are engaging with us. So I see that as an opportunity for SEI. In terms of the late stage pipeline, which we are expecting to close this year, we are very confident about that, and we are seeing good traction. So I don't see any slowdown in our near stage pipeline activities. In terms of long term, that's something we have to watch. I think we have to wait for a couple of quarters before we can make any comment about that.

Phil? Sure. Hi Oun, Phil McCabe. Couple things real quick. We don't see any slowdown at all in activity, especially on the alternative side of the business. If there was a little bit of slowdown on the institutional side, it's more than being made up for on the retail side of the business. We're seeing a lot of demand for semi-liquid products out there on the retail side, and this is a really great environment for alternative managers to deploy capital, and they're very opportunistic right now. So we're seeing a lot of great activity out there. It hasn't slowed at

all. And Oun, this is Michael Lane. Interestingly, you heard from Sean that we are seeing results improving in the REA side of our business quicker than we expected. That's not only a result of our outbound activity continuing to improve and increase in that space, but our inbound activity, as advisors are spreading word of mouth of what we do and as they're learning more about the capabilities of the entire ecosystem of SEI. So the last few weeks of volatility have not impacted in any way the amount of activities that we're participating in with prospective clients.

So yeah, Oun, I'll just summarize. I think that it's good to get their color. So we're confident about what we see. If there's anything we're watching more closely, it's just the timing of when we would expect things to sign. We saw some of that last year, but we aren't seeing anything coming out of the pipeline. We aren't seeing a slowdown of activity, but some of the market impact could maybe have some effect on the timing, but that would just be a quarter here or a quarter there.

Got it, that's super helpful. And then going back to slide eight, I think you make the comment that ending AUM and AOA were up sequentially, but the broader US market was down. The growth was broad-based and it did not just come from one pocket. So could you please unpack the driver of that inflows? And then how much of your AUM is actually tied to US versus non-US? Thanks.

So on the US versus non-US, when you think about the asset management allocation, the equity allocation is somewhere in the ballpark of about 48%, of which 80% of that is US versus 20% is non-US. On

the IMS side, we're seeing fewer losses these days and we're seeing a lot less of a slowdown. We're seeing a lot of funding from new launches and new clients converting. And most of the, about 85% of that revenue over those asset growth is coming from North America.

And then can you please add some more color about the drive of that inflows? Because it kind of overcome the market decline in the first quarter.

I think, Owen, that's just kind of a matriculation of the backlog of some previous signings. I think that's a manifestation as well of what Michael was talking about with kind of ongoing activity from last year with advisors. So there was no one thing. I'd say it was a variety of strategies that we have had in place for acquiring new advisors, engaging onboarding advisors, intermediaries. We also saw some flows outside the US from some new distribution partners. So it was definitely not materially driven by one firm,

one event, one client. No, and in fact, we had positive net flow both on the advisor side and the institutional side. So that would offset some of the market losses as well.

Got it, thanks a lot.

Thank you. Please stand by for our next question. Our next question comes from the line of Ron Kenny with Morgan Stanley. Your line is open.

Hey, good afternoon. This is Connell Schmitz on behalf of Ron Kenny. Can you guys speak to your ability to maintain the 28% margin? There was a record this quarter in the uncertain backdrop from here given the volatility in the market and how you see sales coming in.

Sure, this

is

Sean. I mean, I think now for a few quarters in a row, we've been seeing modest, but increasing margin and operating profit increase. I think a lot of that contribution just is coming from net sales. I think the onboarding as those net sales are coming online and translating its revenue. So we're seeing some improvement in margins there. In saying that, I think we've done a really nice job of cost control. And so I don't wanna say doing more with less, but thinking about where our return on invested capital specifically around investments, how those investments are coming on board. I think we just been a lot more thoughtful about managing those investments. So I think the contribution, combining the revenue growth along with the cost control has really been the main drivers.

Got it, that's very clear. We got a follow up on expenses, but that took care of it. So just one more on the repurchase authorization. Is there any sort of cadence that you expect to deploy or use that authorization from here?

Well, we were coming up against it. So we had done an authorization in Q2 or Q3 of 24. We used that up pretty quickly. We saw an opportunity in the market, as well as our large cash position. We also believe that the stock is at a really good price. And as a result of that, we wanted to buy back an accelerated portion of stock than we historically have. On a go forward basis, not sure if that question was in there, but I'm sure that question will come. We're looking at forward cash buybacks or stock buybacks, really at a quarter at a time. We do a really nice job, I think, of forecasting what the capital needs of the organization will be over the next quarter to a year. And based off of that, we really make a determination in any one given quarter on what we think the buyback should be. So it's gonna be a combination of where we think the stock price is. We think the stock is low, as I'm sure a lot of companies think their stock is low with market pullback over the last couple of months here. And so that's really, there's really not much more to it than just understanding what our cash needs will be on a go forward basis over the next quarter or two, and how we're thinking about the stock price. Got it, thank

you.

Thank you. Please stand by for our next question. Our next question comes from the line of Crispin Love with Piper Standler. Your line is open.

Thank you, good afternoon. Appreciate taking my question. Just when I look back over the last three quarters, there's definitely been a noticeable shift in sales events levels compared to prior years. And slide seven shows that well. But what do you think the secret sauce is that has driven the significant uptick and what's resonating most with these new clients?

Hey Crispin, I think there's a few answers to that and others are welcome to chime in. Right, so this is three years into the role for me. And change takes time and some of these things don't happen overnight. But if you look at the sales results, as you said over the last few quarters, I think there's probably been three primary drivers in terms of why we believe they have continued and why we continue to be, I think, positive moving forward. I think first and foremost is we have an extremely solid foundation. And what I mean by that is I look at our client base and you look at the engagement we have with our client base, the growth we're getting from existing clients, from new launches or cross-sells or organic growth is extremely strong and that's a testament to the FDI teams that are out on the street every day in front of clients engaging with clients. And I don't think you can underscore that. And I'll own the fact, Crispin, that maybe we weren't doing that at the level we should have been doing that a few years ago, but that is definitely not the case. I think the second thing is a different positioning of the company less as a vertical and more as a horizontal. The market is starting to truly appreciate the breadth of what we can offer. Firms want to do more with fewer partners, not add to their stable as strategic vendors. And they see FDI as a really, really strong choice in many situations, not just to continue to drive existing capabilities, but to look for us to innovate and partner with them for new opportunities. And that positioning is really, really resonating. And I think third, and this may sound tactical, our activity levels are just higher. They just are. We are out there, we are engaged. And I think when you look at the collaboration from the leadership team all the way down, everybody is invested in making sure that we all win as a collective and we're less concerned on who's winning in each unit. It doesn't really matter to us. We care about the sum of the parts. And we are really just getting started when you think about what Michael Lane and the team are gonna be able to do with asset management if we continue that mindset and that approach. I think I said this on the last couple of calls, Crispin, and I do think it bears repeating. We are immensely proud of the sales results, but we are more proud of when you unpack those sales results. Those are firms and segments and clients that we want. We are not playing a revenue at any cost game. We are maintaining a premium price point. We are maintaining a premium service level. But we are winning in the segments where we transitioned the company a few years ago to target our R&D dollars, target our capital, target our talent

when

it's truly paying off.

Great, thank you, Ron. All very helpful there. And then in the prepared remarks, you also called out growth in the investment manager segment among ALTS and global managers. Can you share and just give a little bit more detail on parts of the alternative space where you have been having the most success recently?

Yeah, I'll kick the bill on this, Crispin. I think it really is a dovetail off your first question. One of the decisions we made as the leadership team a couple years ago was to put some more on the ground talent outside of the US beyond bolstering our operational footprint in Dublin and Luxembourg, but adding more -to-market talent. But Phil, you wanna talk a little bit, if you and I were just over there around what we're seeing outside the US or what's winning in

the US? Sure, thanks, Ryan. The only thing I would add, we are the leader in private credit around the world, so globally. So we're seeing good traction in private credit, private equity, real estate, infrastructure, pretty much any asset class out there. We're seeing a lot of activity. And as Ryan said, we sent a couple people over there to live in the UK a couple few years ago, and it's really starting to pay dividends. So we are attracting some very, very large private credit managers and multi-strat managers over in that part of the world. So it's just great activity is driving results.

Great, appreciate the caller, and congrats on a great quarter. Thank

you, Chris. Thank you. As a reminder, ladies and gentlemen, that's star 11 to ask the question. Please stand by for our next question. Our next question comes from the line of Jeff Smith with Will Blair. Your line is open.

Hi, everyone. In private banks, how much of the revenue growth is coming from your shift into regional and community banks and is the competitive landscape much different there or is it kind of the same players you typically compete against?

Hey, Jeff, I'll let Sanjay take that one. Okay, hey, Jeff, this is Sanjay here. So Jeff, remember we talked about a few quarters ago that the way we segmented our -to-market strategy, very heavily focused on regional community bank segment, that is paying these dividends. If I look at the last four quarters or so, almost 60, 70% of that growth is coming through that segment. And that segment is also presenting two additional opportunities for us. One we are very actively working on and another one Michael Lane is going to talk about in maybe future quarters. But the professional services opportunity we launched in the regional community segment and I see Data Cloud, those services are resonating really well. And we can see our past forward that this segment we have, we are very strong with respect to our combination and our solution, our services, our existing client-based relationships, they're pretty strong. So existing clients, they are working as our reference points and with that, that is also helping us to win new business.

And I think Jeff, if you think about the competitive landscape, it is pretty consistent and similar. So I don't think we see any massive kind of new entrants, definitely formidable competitors. We have a tremendous amount of respect for in that space. One area where I think we continue to potentially separate ourselves is a little bit of what Sean mentioned earlier about our ability to continue to invest capital and continue to innovate. When you look at the FCI wealth platform, if you think about how we built that really from the back to the front, the majority of the investment now is going into front office, differential capabilities, client experience, advisor experience, portfolio management tools. So I would say, Sanjay, you and the team, it feels like you just have a bigger arsenal of capabilities to talk about and we're getting more credit, I think, for the value of the platform.

And the regional community segment, they are also engaging us with implementation services, which they were not earlier. So now we are the ones providing those services. And I talked about professional services, data cloud, and the other part of that regional community segment, they would result really well, is asset management services. So that's something we, they will be able to utilize the enterprise capabilities of FCI, not just the technology platform, also services, but professional services, data cloud, asset management, that will play a much bigger role.

Okay, thank you. And then if this administration were to pivot and loosen up banking regulations, would you expect that to have much of an impact on the private bank segment, I guess if banks change capital deployment strategies?

I think the only thing that really gets moved one way or the other is the speed at which some of these firms want to get to their future operating model. Jeff, I think what's really resonated across all segments of banks, and Sanjay's living this every day, we just had two different firms in this week, it's really a shift to wealth. So I think depending on what happens with the administration environment, and I'm not sure that has a massive impact, but these organizations have really realized that they need to have a much more robust and scalable competitive offering in the wealth space, and we are primed to really accelerate the delivery of that through our capability set, and that resonates.

Great, thank you.

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Ryan Hickey for closing remarks.

Thank you. As we, I think, echo the last couple quarters, this was a terrific quarter, but it was one quarter. It doesn't change how we run the company. It doesn't change how we think about what we need to do moving forward. We remain very diligent, very focused, and very thoughtful about how we can continue to deliver these types of results for our shareholders and stakeholders globally, and I always like to close the call by thanking the clients, and especially the FDI workforce for all they do every day.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.