SEI Investments Company

Hello, and thank you for standing by. Welcome to SEI First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I would now like to hand the conference over to Brad Burke. You may begin.

Thank you and welcome everyone to SEI's first quarter 2026 earnings call. We appreciate you joining us today. On the call, we have Ryan Hickey, SEI's chief executive officer, Sean Denham, our chief financial and chief operating officer, and members of our executive management team, including Michael Lane, Bill McCabe, Mike Peterson, Sneha Shah, Sanjay Sharma, and Amy Slowinski. Before we begin, I'd like to point out that our earnings press release and the presentation accompanying 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. With that, I'll now turn the call over to Ryan. Ryan?

Thank you, Brad, and good afternoon, everyone. This was a defining quarter for SEI. Q1 was not simply a strong start to the year. We believe it is emphatic evidence that the strategic and operating changes we have made set a new standard for what SEI is capable of delivering on a sustained basis. Q1 adjusted EPS totaled $1.44. That's more than a 20% increase from last year, driven by both top-line growth and margin expansion. We also delivered $67 million of net sales events each year, including $57 million of recurring revenue and $10 million of professional services. This is an outstanding outcome. It exceeds our prior quarterly record by more than 40%. The scale and quality of these sales events reflect demonstrable progress in our core growth engines, rather than a single market tailwind or discrete event. This distinction matters. It gives us confidence that what we delivered in Q1 is not an anomaly. During our investor day last fall, we outlined five strategic pillars that guide how we run the company, how we allocate capital, and how we show up for clients. Q1 was decisive validation of that strategy and our ability to consistently execute against it. Let me walk through those pillars, how they showed up in Q1, and why we feel good about the trajectory ahead. First, we invest in proven growth engines, most notably alternative investment managers and professional services. In IMS, demand for outsourcing remains strong, particularly among larger and more complex alternative managers. First quarter sales events reflect the initial phase of multiple enterprise-level mandates with first-time outsourcers, the quote-unquote big deals we've been talking about. These relationships are designed to expand over time as the clients deepen their partnership with SEI and as their fundraising and new product launches progress. These relationships also have the potential to grow into some of SEI's largest overall clients. The momentum in this business is incredible, giving us confidence in what we saw in Q1 as a starting point, not an end point. Professional services also continues to support growth. Clients are engaging SEI earlier and more strategically across a broader set of needs, which is improving win rates and increasing durability of relationships, as evidenced by the previously announced Huntington Bank win. Second, reimagining asset management. I think we're actually now past the reimagining stage, and we are executing against our evolved strategy at pace. The strategy is showing meaningful results. Q1 represented our best quarter in several years, with the improvement in flows that built through 2025 continuing into 2026. We saw progress across both the RIA and IBB channels, where our strategy of delivering a broader SEI ecosystem to more scaled advisors is showing results. Engagement is improving every day, particularly with larger firms that value integrated solutions. Stratos integration is also well underway, with multiple work streams focused on scalable infrastructure and building a centralized investment hub. We are encouraged by strong inbound interest from advisors seeking a long-term capital partner like Stratos. And in our institutional business, we remain on track towards net positive flows later this year, while maintaining discipline around client fit and flow quality. Third is enterprise excellence. The partnership we recently announced with IBM reinforces and accelerates the direction we are taking around infrastructure modernization, automation, and responsible AI deployment. As I have said in the past several earnings calls, we are applying AI and automation where it creates real impact, reduces friction, lowering unit costs, and expanding capabilities and services for clients and employees. These initiatives are translating into margin expansion with Q1 delivering higher margins at the consolidated level. Enterprise excellence is about running the company smarter, not just tighter, and with increased accountability. Our margin expansion reflects real progress against that priority. We view AI as a force multiplier of time, and our execution of these programs will create additional capacity and opportunity for our employee base. Fourth, we continue to focus on boosting international returns. We are taking a more disciplined approach to how we operate outside the U.S., with clear accountability for growth, margins, and capital deployment. In Q1, we began to see traction across both professional services and asset management, with more than one-third of professional services sales events generated internationally this quarter. We also continue to build out our Singapore presence as part of our global expansion priorities. This remains an important opportunity as we apply a more integrated, enterprise-wide operating model across our international platform. Fifth is strategic capital allocation. In Q1, we repurchased over $200 million of SCI stock. Given the strength of our operating performance and long-term growth outlook, we believe our shares represent an attractive use of capital at current levels. Share repurchases will remain a meaningful lever within our capital allocation strategy, especially when market pricing does not, in our view, reflect the trajectory of our business. Beyond share repurchases, we also activated several investments targeted for later in the year, which are reflected in Q1 results. This was also our first full quarter with Stratos, which is deepening SEI's participation in the advice value chain and strengthening the overall reach and relevance of our platforms. We remain committed to disciplined capital deployment that balances reinvestment, M&A, and consistent returns of capital to shareholders. Before turning the call over to Sean, a brief word on AI. We believe AI strengthens our value proposition and supports continued margin expansion and growth. It is a clear positive and accelerant for SEI. Our combination of regulated infrastructure, proprietary data, mission-critical processes, and talent positions us well to apply AI in ways that can improve client outcomes and productivity. We have been proactive, investing over the past two years in AI-native capabilities, automation, and AI-enabled expansions and extensions across our platforms. In parallel, we are selectively experimenting with more disruptive ideas that have the potential to substantially expand our addressable markets that we can serve. Importantly, clients are increasingly turning to SEI as a partner to help them think through responsible, scalable AI adoption in complex regulated environments. Stepping back, we believe Q1 represents a statement quarter for SEI. The quarter reinforces our confidence in the scalability of our business and the demand for our capabilities. But finally, I want to thank SEI employees for an outstanding quarter. The results reflect their focus, execution, and daily and unwavering commitment to our clients. With that, I'll turn the call over to Sean. Thank you, Ryan. I'll begin on slide four and to reiterate Ryan's comments. SCI delivered an outstanding first quarter. On a GAAP basis, EPS increased by 20% and operating profit increased 21% versus Q1 of last year. On an adjusted basis, EPS increased 21% year over year. The sequential decline in adjusted EPS from Q4 was expected and reflects items we discussed last quarter. Most notably, a higher effective tax rate and lower investment income and performance fees from LSV, which tend to be seasonal in nature. In total, our tax rate, LSV, and other below-the-line items drove a combined 15-cent headwind to EPS relative to Q4 last year. Adjusted operating income, which excludes these items, increased by 6% from the fourth quarter. This quarter also marks our first period reporting adjusted financial metrics. We believe this enhanced disclosure aligns our reporting more closely with market practice and provides investors with a more effective basis for comparison. For additional context, we have also included historical quarterly disclosures on an adjusted basis at the end of our press release. Turning to slide five. SEI's adjusted operating profit increased 6% sequentially and by 24% year-over-year. Performance was strong across the enterprise. Private banking delivered a notable increase in revenue and more impactfully operating margins. This reflects continued execution and deeper client engagement as banks increasingly partnered with SEI earlier and across a broader set of strategic and operational needs. not just investment processing. For example, we are now playing a more active role in client implementations, resulting in less lag time between contract wins and revenue recognition. In addition, we were pleased to announce the Huntington win during the quarter, which underscores our relevance and credibility in the regional community bank market, especially at the higher end of that segment. Our advisor segment had a healthy start to the year, But the first full quarter of our Stratos partnership, reflected in the advisor segment, makes comparison with prior periods challenging. Given our 57.5% ownership, Stratos is fully consolidated in our results. Stratos contributed nearly $20 million of revenue and $3 million of operating profit to advisors in Q1 before considering non-controlling interest. Excluding depreciation and amortization, primarily acquired intangible amortization, Stratos generated $8 million of EBITDA at the consolidated level. Several planned transactions also closed during the quarter, so the underlying run rate contribution is modestly higher than reflected in Q1 results. Excluding the impact of Stratos, all of SEI's businesses delivered year-over-year revenue growth, operating profit growth, and margin expansion. This performance reflects execution against the strategic priorities Ryan outlined earlier, so I will not reiterate those themes here. Turning to slide six, consolidated operating margins were very strong, continuing the improvement trend we've seen over the past several years. At a segment level, the improvement in private banking margins, both year-over-year and sequentially, reflects continued execution against the five-point plan Sanjay discussed during our investor day. Key contributors include professional services growth, increased adoption of our asset management offerings internationally, and operating leverage against deeper engagement with our clients. For our IMS business, the modest sequential decline in margins versus Q4 was expected and primarily driven by the absence of the revenue accrual true-up we referenced last quarter, which accounted for approximately 150 basis points of the decline. The balance reflects onboarding costs associated with the substantial sales events delivered in the quarter. Advisors margins declined due to the inclusion of Stratos, which was weighed down by intangible amortization, as I just discussed. Absent the impact of Stratos, advisors margins increased approximately 50 basis points relative to Q1 last year. At the consolidated level, adjusted operating profit margins improved versus both the prior quarter and the prior year on both a GAAP and adjusted basis. Slide 7 summarizes our sales events for the quarter. We debated opening the presentation with this slide, but decided it was best to remain consistent. Sales activity in the quarter was exceptional. Investment manager services led the business with more than $50 million of net sales events, driven by the large enterprise mandates Ryan discussed earlier. Together, portions of these wins accounted for just over half of total IMS sales events. As Ryan noted, we expect these relationships to continue contributing to sales activity in IMS over the coming quarters and years. Before moving on from IMS, a brief comment on private credit and a broader market commentary. We are not seeing any slowdown in IMS demand. Our exposure to retail private credit, including public BDCs, currently remains limited, and the vast majority of our private credit exposure is institutional. We continue to see strong pipeline activity across existing and prospective clients, and with the launch of our registered transfer agency in Q3, we would expect our retail exposure to increase with evergreen fund launches. IMF led the quarter, but the strength of those results should not diminish the continued progress we have seen in both private banking and asset management. While the magnitudes differ, all three businesses are contributing positively to growth. Asset management delivered its strongest sales events quarter in several years, driven by growing demand for ETFs, SMAs, and our custody-only platform offerings. We are encouraged by the momentum in this business and expect continued progress as we expand our product lineup and distribution capabilities. Investments in new businesses generated approximately $4 million of net sales events, including engagements won in conjunction with private banking. This is another example of how our investment in professional services is supporting growth across the enterprise. Additionally, while not reflected in sales events, we successfully recontracted eight private banking clients, renewing an average contract term of approximately four years and retaining $34 million of recurring revenue with no material impact to run rate profitability. Turning to slide eight, we saw continued asset momentum during the quarter. In asset management, growth was led by the advisor's business. Last quarter, Ryan mentioned that we're accelerating investment management product launches in ETFs, SMAs, models, and alts. This quarter, we are seeing progress against those initiatives, driving approximately $1.5 billion of net inflows. Institutional investors experience less than $1 billion of net outflows, almost entirely attributable to a large defined benefit client annuitization following the achievement of funding objectives. This outflow is a result of SEI advising a client to successfully meet their long-term investment objectives. Based on current pipeline visibility, we expect improved flow performance in this business over the balance of the year. Regarding market impact, SEI's portfolios remain highly diversified across equities, fixed income, alternatives, cash, and geographies, with a relatively higher weighting towards value. which mitigated market headwinds during March. And as you may have noticed, market performance in April has been pretty encouraging, to put it lightly. LSV had a strong start to the year, with key products in global and U.S. large-cap outperforming benchmarks by single-digit percentages in Q1, more than offsetting market weakness in March and approximately $2 billion of net outflows in the quarter. Assets under administration and on-platform increased 4%, driven by strong new business winds and lower mark-to-market sensitivity. Turning to slide nine and building on Ryan's comments on capital allocation, in Q1, we repurchased $208 million of SEI shares. While repurchase activity was elevated during the quarter, we continue to maintain significant capacity and tend to remain active buyers. We ended the quarter with $363 million of cash on the balance sheet and substantial financial flexibility. This balance sheet strength provides ample capacity to continue investing in the business while maintaining a disciplined and opportunistic approach to capital returns. Stepping back, the first quarter represents an amazing start to the year for SEI. We delivered meaningful earnings growth, improved margins, and exceptional sales activity. while continuing to invest to support the opportunities we are seeing across the business. The quality of our results reflect disciplined execution against the strategic priorities we outlined at Investor Day, and it reinforces our confidence on the path ahead. There are a lot of exciting things happening right now at SEI, and there's more to come. With that, operator, please open the line for questions.