Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SEI Investments Co (SEIC, Financial) reported an EPS of $1.05 for the quarter, an 18% increase over the prior-year period.
- Revenue for the quarter was $519 million, up 6% from the second quarter of 2023.
- Net income for the quarter increased 17% over the second quarter of 2023 to $139 million.
- The company repurchased approximately 1.6 million shares of SEI stock, totaling $111 million.
- SEI Investments Co (SEIC) is experiencing increased demand across European private asset managers, which is expected to drive future growth.
Negative Points
- Net sales in the asset-management-related businesses were approximately negative $5.6 million, primarily due to asset movement from mutual fund products.
- Revenue in the advisor business decreased from $122.7 million in Q1 to $120.6 million in Q2, driven by fee reductions in the separately managed account program.
- The institutional business reported net sales events of negative $1.8 million, reflecting client losses and repricing in client retention activities.
- Total expenses for the quarter were $382 million, up from $376 million last year.
- The backlog of sold but expected to install in the next 18 months recurring revenue in the private banking business decreased from $18.5 million in Q1 to $14.9 million in Q2.
Q & A Highlights
Q: Can you share some leading indicators and progress recently in private banks like activity, pipelines, and how you would expect that to drive PV margins over the near to intermediate term? Also, detail the one-time impact in the quarter related to private banks?
A: Ryan Hicke (CEO) explained that the private banking strategy is in its fourth phase, focusing on revenue growth and margin expansion. Sanjay Sharma (EVP & Global Head of Private Banking and Wealth Management) added that the pipeline is solid, with quality business that can be delivered with minimal incremental expense. Sean Denham (CFO) noted a one-time benefit of under $3 million from a healthcare provider credit.
Q: On OpEx, what should we expect for the back half of the year, especially regarding salary adjustments?
A: Sean Denham (CFO) mentioned that there will be some compensation increases visible in Q3. The company is shifting the timing of raises more towards year-end. Expense management and optimization efforts will continue in Q3 and Q4.
Q: Regarding the SEI integrated cash program, is there any competitive impact from recent repricing of sweep deposits by large banks and brokers?
A: Ryan Hicke (CEO) emphasized that the program is complementary to SEI's business model and not a primary revenue driver. Sean Denham (CFO) added that SEI offers competitive rates and provides advisors with optionality and transparency.
Q: On the fee rate reduction in advisors, was the full impact seen in the second quarter, or will there be another step-down in Q3?
A: Sean Denham (CFO) confirmed that the fee rate reduction was implemented on April 1, so the full impact was seen in Q2. The reduction has been well-received by advisors.
Q: Can you elaborate on SEI's efforts to help public markets access private markets and vice versa?
A: Ryan Hicke (CEO) and Phil McCabe (EVP, Head of SEI's Investment Manager Services) explained that SEI is well-positioned to facilitate this convergence through technology, operational platforms, and asset management services. The SEI Access platform is a key component in this strategy.
Q: On institutional investors, despite client losses, margins were strong. Can you discuss efforts to turn around this segment and the timing?
A: Jay Cipriano (EVP & Head of SEI's Institutional Business) noted that the institutional group is in the second phase of its turnaround strategy, focusing on leadership, rightsizing, and targeting specific market segments. Headwinds in the defined benefit space are expected to continue into 2025, but the pipeline is building in other segments.
Q: Regarding the RIA market, how much of the asset mix is in this segment, and what are you doing to grow your share?
A: Paul Klauder (EVP & Head of SEI's Advisor Business) stated that the RIA segment represents about $23 billion of the $101 billion on the platform. SEI is focusing on redeploying sales and technical resources to support this fast-growing segment.
Q: Is there any concern that the insured deposit program might not be consistent with advisors' fiduciary obligations to their clients in the eyes of the SEC?
A: Sean Denham (CFO) assured that SEI has reviewed all disclosures and documents, and believes the program is consistent with fiduciary obligations. However, SEI will adjust based on any new regulatory guidance.
Q: On inorganic growth opportunities, how would you prioritize them by segment, region, or capability?
A: Ryan Hicke (CEO) highlighted three focus areas: the RIA space for client growth and capability expansion, IMS for operational and technological delivery, especially outside the US, and value-added technology or services for intermediary clients.
Q: On the healthcare credits, if we add them up by segment, the total seems higher than the $3 million referenced earlier. Can you reconcile this?
A: Sean Denham (CFO) clarified that the majority of the one-time benefit was shy of $3 million, with some additional one-time benefits contributing to the total.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
