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SEI Investments Co
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Ladies and gentlemen thank you for standing by. Welcome to the SEI First Quarter 2018 Earnings Call. At this time all participant lines are in a listen-only mode. Later, there will be an opportunity for your questions; instructions will be given at that time. As a reminder, today's conference call is being recorded.
I would now like to turn the conference over to the Chairman and CEO, Al West. Please go ahead.
Thank you and welcome everyone. All of our segment leaders are on the call as well as Dennis McGonigle, SEI's CFO; and Kathy Heilig, SEI's Controller. I’ll start by recapping the first quarter 2018. I’ll then turn it over to Dennis to cover LSV and investment in new business segment. After that each of the business segment leaders will comment on the results of their segments. And then finally Kathy will tell you or provide you with some important company-wide statistics. And as usual, we will field questions at the end of each report.
So let me start with the first quarter 2018. First quarter earnings increased by 58% from a year ago. Diluted earnings per share for the first quarter of $0.86, represents a 56% increase from the $0.55 reported for the first quarter of 2017. We also reported a 13% increase in revenue from first quarter of 2017 to first quarter of 2018. Also during the first quarter of 2018, our non-cash asset balances under management were essentially flat. The positive flows we had were offset by drops in the market.
In addition during the first quarter of 2018, we have repurchased approximately 1.1 million shares of SEI’s stock at an average price of $73 per share. That translates to over $82 million of stock repurchases during the quarter. Finally, in the first quarter as part of the investments we made to create growth, we capitalized approximately $12 million of the SWP development and amortized approximately 9.7 million of previously capitalized development. Also in the fourth quarter, we capitalized $900,000 of IMS development and amortized $1.3 million of previously capitalized IMS development.
First quarter of 2018’s sales events net of client losses totaled approximately $18.8 million and are expected to generate net annualized recurring revenues of approximately $11.6 million. Now we remain disappointed with our sales results. Our activity is very high and our pipelines are significant. Larger deals are more complex today and take longer to close. Each of our units will speak to their specific sales results.
Now, this concludes my formal remarks. So I will turn it over to Dennis to give you an update on LSV and the investment in our new business segment. I will then turn it over to other business segment heads. Dennis?
Thanks, Al. Good afternoon everyone. I'll cover the first quarter results for the investments in new business segment and discuss the results of LSV asset management. During the first quarter 2018, the investments in new business segment continued its focus on the operational development and testing of a web-based digital device offering and on the ultra-high-net worth investor segment through our private wealth management group.
During the quarter, this segment incurred a loss of $3.2 million, which compared to a loss of $3.8 million during the fourth quarter of 2017. Regarding LSV, our earnings from LSV represent our approximate 39% ownership interest during the first quarter. LSV contributed $40.6 million in income to SEI during the quarter. This compares to a $43.3 million contribution for the fourth quarter of 2017. Assets grew approximately $500 million for the quarter. LSV experienced positive cash flow during the quarter, which was offset by market appreciation. Revenue was approximately $131.7 million of which approximately 1% was performance fee related.
Our effective tax rate for the quarter was 11.9%. On December 22, the President signed into law the Tax Cuts and Jobs Act. This had the effect of lowering our overall tax rate. In addition, our tax rate benefited from the accounting rule change related to stock option expense, which we discussed last year. Finally, during the quarter, we adopted ASU 2014-09. This new accounting rule relates to revenue recognition.
The adoption of this new rule did not change the accounting treatment for the majority of SEI's revenue arrangements and did not have a material impact to our financial statements. One area of note however was on how we record the brokerage fees received and expenses incurred for research services provided in our private banking segment.
Both revenue and expense were previously recorded on a gross basis, but now are netted in revenue. This resulted in a reduction of $3.7 million of both revenue and expense in the banking segment in the first quarter. We did not adjust in prior periods. There was no impact to net income in this segment or company. I direct you to our recently filed 10-K and soon to be filed 10-Q for more information on this accounting change.
I will now take any questions.
[Operator Instructions] First question is from line of Chris Shutler from William Blair. Please go ahead.
Hey, Dennis, good afternoon.
Hi, Chris.
So the $3.7 million item in private banks, I know that there's offsetting revenue and expenses, but just as we model going forward should we think about that same kind of magnitude hitting the remaining course of the year?
Yes, I would say so.
Okay, okay.
Really, we just say first quarter forward.
Yes, yes, exactly. And then the flows for LSV, Dennis, you said that they were positive. Can you quantify it?
They’re positive about just under $1.9 billion.
Okay, so really good quarter then.
Yeah, it’s a good quarter.
And then was mostly on new clients, okay…
Yeah…
And then lastly, the tax rate, just how should we think about tax rate from here for the remaining quarters.
You know Kathy covered that in her comments, but in the way we’re looking at it, really the plan for it is you have a statutory rate is set. We can't really predict option exercising activity, which has this accounting impact. Also we know if we don't have – if we don't have there, there's going to be some – the rates want to go up a little bit as you kind of level set up for the year. So I would use – I'm still using that 21% ranges are kind of normalized rate the way we’ve modeled.
Yeah, our expectation would be that the first quarter was extremely well for a couple of reasons. One of course it was a – that was in the statutory rate. We had a lot of stock options left and we had a lot of exercises. And we would not expect that level to repeat going forward. You know I’m just saying it’s through the impact of it on the first quarter is significant in terms of percentage because pretax income is only one quarter's worth.
So as you work through the year, it’s gets adjusted. So I would certainly be modeling a higher rate than what we experienced in the first quarter.
Okay, thank you.
We’re operating at the statutory rate in our model.
Thanks, Dennis.
Yep.
And there are no other questions. You may continue.
And now I'm going to – thank you, Dennis. I'm now going to turn it over to Joe Ujobai to discuss our private banking segment. Joe?
Thanks, Al. I'll start with a financial update on the first quarter, followed by an update on new business activity. First quarter revenue of $122 million was down 4%, manly due to recent accounting changes mentioned by Dennis. For the quarter, operating profit of $10 million was up $1.12 from the fourth quarter. Sales activity for SWP and asset management distribution is robust both for current clients and new name prospects. The decision in contracting process remains challenging and elongated. We’re making progress and the solution is gaining market acceptance.
During the quarter, we signed and announced an important long-term SWP agreement with BMO Wealth Management. An SEI client since 2005, BMO will migrate their existing book of business currently on TRUST 3000, the SEI Wealth Platform in 2019. We also signed another TRUST 3000 client, Private Trust to a long-term SWP agreement, expected to convert by the end of this year. In the UK we continue to cross-sell and gather solid net cash flow from current SWP clients. Net cash flow for the first quarter was $1.5 billion.
During the quarter, we’ve received notification from two potential that they will not renew their SWP contract when it expires at the end of the first quarter of 2019. CPS decided to run their business on an in-house homegrown system. During the quarter, we had strong professional services or one-time revenue related to SWP sales agendas, conversions and other client activity.
Regarding TRUST 3000 during the quarter, we recontracted three clients for a total of $4.5 million. However, some recontract net downs mostly due to changes in client business models. There were no competitive losses during the quarter, but we did lose two smaller clients through the merger and acquisition activity. Our asset management distribution business ended the first quarter with positive cash flows of $333 million of net new assets.
The new flows are representative of key distributors in Asia and in Europe. During our investor conference last year, we discussed the launch of a new asset management platform delivering manager research. In February, we announced our first client for this platform, Janney Montgomery Scott. As an overall tally for SWP, TRUST 3000 and AMD sales event, net of client losses totaled approximately $3.6 million of which negative $2.3 million is recurring revenue and $5.9 is non-recurring or professional services revenue.
Our total signed but not installed backlog for SWP is approximately $30 million in net new recurring revenue encompassing eight uninstalled clients. As a new metric to illustrate our continued momentum with SWP, the total recurring revenue value of our SWP backlog including the recontacted value of the TRUST 3000 relationships plus the net new recurring revenue is greater than $70 million. As a reminder, the average SWP contract is greater than six years, so these relationships represents substantial revenue commitments to SEI.
Regarding the backlog, I'd like to give you an update on Wells Fargo. We continue to make great progress working in collaboration with Wells Fargo. Today, we have both met all our key milestones including SWP development, but at this point I expect the Wells Fargo conversion will push and we are working closely with them to assess and reset the dates for conversion. In conclusion, we remain focused on the following. Capitalizing on our momentum to grow the backlog by contracting events and progressing the rest of the prospects through the sales process, installing the backlog and improving profitability of the Banking segment to return the unit to historical profit margins. Any questions?
[Operator Instructions] We go to the line of Chris Donat with Sandler O'Neill. Please go ahead.
Hi, thanks…
Hi, Chris.
Thanks for taking my call, Joe. Just on Wells Fargo getting can push back, does that have any – should we expect some revenue impact in 2019 from that? Or because they are already in existing account, nothing material or can you just help to us…
Really, nothing material and we – still we have a reasonable amount of one-time revenue, so we continue to work very actively on the conversion and the build out of custom. There really isn't much impact to the revenue although in 2018 or 2019...
Okay. And I'll try asking it and see how you answer it. Is that getting pushed back you or them or can you say?
So, we’re working really closely together and these are very complex conversion. As I said earlier, we both sides met all of our key deliverables and I think as we get to a firmer day, we can explain more about the delays.
Okay, thanks, Joe.
Next we go to the line of Glenn Greene with Oppenheimer. Please go ahead.
Hey, good afternoon, Joe. Just following up on the last question, do you have a reasonable sense of the timing when Wells is likely to convert at this point or just too much up in the air?
Look I think we both sides want to get this thing converted as soon as possible. They bought the PayRoll platform because they believe it adds a lot of value to their business. So we're working really closely to figure out the best timing. And again as soon as we get from date, I think, you'll probably know those before anybody. It seems you guys know everything before things go official. So will tell you as soon as possible. But we're working really closely with them to figure out the best dates.
And the two SWP clients that are not going to renew, just to be clear for those UK clients just a little bit more color why they're not renewing in the order of magnitude the dollar impact?
I mentioned there were two TRUST 3000 clients that we did not re-contract because of competitive – sorry not competitive M&A situations. And I also mentioned there was a quiet in the UK called True Potential that has decided to – they weren't really client of ours and they decided to take the platform in house. They have a little bit technology bend they built some front end software and their businesses are fairly simple mutual fund managed account business. And they have decided to try to build that on their own.
Thank you for that. What’s the assets for true potential, which is one SWP client that’s not renewing, I misread that.
Well that what we've talked about. That's what I announced today. We don't announce individual assets for the clients.
Okay. And then a little bit more color, it sound like you are enthused by the pipeline, but still frustrated with getting bills over the goal line. But just may be a little bit more color in terms of activity you're seeing.
So we think VMO has, VMO of wealth management and has called now a terrific win for us. There are very substantial VSP clients of ours. And they are a terrific book of business for us, there’s a lots more opportunity as a global organization. But that’s a big, big win for us. And again these larger wins are very complex sales situations. So that's another great the one for us to get. That helps a lot as firms like that decide to move just to VP, that's helpful. But as I’ve said and as Al mentioned, these are complex contracting processes and so we have a lot of activity but it’s getting the contracts into is the hard part. The sales activity is very, very strong and we are at it every day.
Okay. Thanks, good luck.
Thanks.
Next we go the line of Robert Lee with KBW. Please go ahead.
Yes, hi good afternoon Joe.
Hi, Rob.
Hi. I'm just curious can you may be update us I mean in the UK you obviously talked about strong net cash flows and unfortunately had the one client who's leaving the SWP. But I'm just kind of curious about kind of sales and pipeline activity SWP with new UK clients.
Yes we've been disappointed that we haven't closed that many deals in the UK in the last couple of years. But we are actively engaged in some very robust sales agendas on the larger side of the market, we've got to move those agendas through the sales process. I think a lot of the market was really bogged down with some of the regulatory change with MiFID II and some of the other changes that were going on in the industry. Some vendors delivered MiFID II we did a good job of that. Others didn't deliver so well. That’s opened up some opportunities for us. And I expect we'll continue to progress some agendas there this year. But we're actively engaged we have some of the [indiscernible] and spend time in the pipeline. I'm there next week and there's some interesting agendas there. But we're working hard to get some of their businesses, because we’re happy with the organic growth of the clients that we have on the platform there today.
So if we could get some new names to add to that organic growth, we think that continues to be an interesting opportunity for us.
Okay. And maybe just a follow-up on the, I mean the one I guess was about $5 million of course $6 million of onetime revenues. I’m just kind of curious as are those – are most of those one time revenues related to of kind the client has already kind of signed on like Wells or others and you're just going through the process? Or are you still seeing a reasonable amount of one time fees from people who haven't signed yet kind of in the pipeline, but you're kind of going through the exploratory process?
There's a little bit that. So there are some prospects again are paying us what are process that haven’t yet signed contracts, but the bulk of that revenue is related to conversion to clients that have already signed.
Okay. Great, thanks for taking my questions.
Thanks.
Next we go to the line of Chris Shutler with William Blair. Please go ahead.
Hi Joe.
Hi Chris.
Regarding the true potential in the UK, I just want to confirm that is in the net sales events for Q1 correct?
Absolutely, otherwise we would not have had negative events…
Yes, correct. Okay. Is it the all revenue from true potential that that you will lose including the asset management component?
Yes it’s just the investing – it’s sort of an average of what we had from average investment processing revenue last year, but it is not the asset management revenue. We expect the asset management revenue to continue there. But as I said they, asset management sells as a technology firm in addition to financial services firm and they’ve decided to try to build something and take it in house.
Okay and is the asset management revenue or kind the platform revenue a bigger component?
It’s about fifty-fifty in the past. It was about fifty-fifty in the past. So…
Okay. That helps. And on Wells I just want to make absolutely sure I'm clear on this. So you're basically saying no change to the revenue outlook around Wells just kind of a push out on the go-live date, right.
Yes, certainly in 2018 and 2019 there’s no change. And I’ll push out the go-live date, yes absolutely that’s correct.
Okay. And do you think that you need Wells to go live to be able to sign other large ESP clients?
No I think we're talking very actively with some of our other large clients as well as some other large global banks that would prefer an ASP over our software-to-service model. And so our expectation has been for that Wells would be the first, but I’m assuming there are other opportunities for us.
Okay, thanks a lot.
Next is the line of Tom McCrohan with Mizuho. Please go ahead.
Hey Joe just to follow-up on Wells, has the Wells conversion come to a halt or until a new date is formed up or what’s being done?
Not at all. We have the same team we are very actively involved in the conversion. We have continued to develop the technology that again is specific to ASP or software-as-a-service. They continue to have a substantial number of people in the project and the conversion continues.
Great and just in terms of magnitude of the delay are we talking about quarters, years and if there's any way…
It’s really hard to tell that. It will be delayed otherwise we probably wouldn't be talking about it. But it's really hard for me to predict that at this point and frankly as soon as we have a better sense of it, I'm sure that as I said earlier you will find out about it in the market and I think Wells is committed with us to talk openly about it. But I don't want to give you information that isn’t correct until we feel that we have a good scanning of it.
Okay, thanks Joe.
But we have a good relationship with Wells. Wells is very excited about us to be in platform. We are very excited about Wells being a client of ours. And we're working very closely with them to make this a reality.
There are no further questions you may continue.
Thank you Joe. Our next segment is Advisor and Wayne Withrow will cover this segment. Wayne?
Thank Al. In the first quarter of 2018 we continue to grow our revenues and profits while simultaneously making big strides in the migration of our business to the SEI Wealth Platform. First quarter revenues totaled over $99 million. These revenues were $11 million better than the first quarter of last year. This increase was driven by positive net cash flow and market appreciation offset in part by PV documented in some our investment products.
Expenses were up in the first quarter versus last year’s first quarter do you increased direct cost and personality expense tied to our growth. SEI Wealth Platform migration expenses together with increased development expense net of capitalization also contributed to the increase.
Our profits grew 14.8% from last year’s first quarter and our margins grew slightly as many expense categories increased roughly in line with our revenue growth. Assets under management was $64.6 billion at March 31 an increase of $6.6 billion for March 31, 2017. The increase was driven by positive net cash flow and market appreciation. During the first quarter our no cash flow was $935 million. This positive cash flow partially offset by declining markets was the cause of our AUM increase from the end of last year.
During the quarter we recruited 130 advisors. Our pipeline of new advisors remains strong. On March 31 we completed another migration of advisors on to the SEI Wealth Platform. This migration included roughly 86,000 accounts and over $11 billion in assets. We now have posted 80% of our assets migrated onto the SEI Wealth Platfrom. Another large migration is planned for the end of September and a final smaller migration is planned for March 31, 2019. So in roughly 11 months all advisor accounts will be on the SEI Wealth Platform. As we complete these conversions we will be simultaneously helping all of advisors about the new features of the platform, especially straight through processing capabilities.
In summary, the first quarter reflected a continued financial growth and solid progress towards completion of our migration to the SEI Wealth Platform. These items give us confidence in the long-term opportunity in front of us.
I welcome any questions you have.
[Operator Instructions] We go to the line of Robert Lee with KBW. Please go ahead. Mr. Lee do you have your phone muted sir?
Sorry about that. Thanks. Hi Wayne how are you?
Great.
Just on a few reductions were those – because I know you've talked about this several times over the past year or so. Where these were just kind of the flow through impact of prior reductions or were there some new reductions implemented say at the start of the year that saw the impacts? And maybe if you could kind of give us a sense of kind of where that's happening is it more of a mixed thing with the products or just seeing that you have to lower management fees on some products.
Well early last year we reduced expense ratio at some of our mutual funds. That was early last year. And then in the middle of last year we reduced the expenses of our ETF portfolio strategies and our SMA strategies for our larger clients. And then at the very beginning of this year we reduced the expense ratio one of our larger mutual funds, U.S. based mutual funds. So basically all those numbers are reflected in the first quarter results.
Okay, great. And I'm just curious you mean your new advisor headcount has been pretty good quarter-over-quarter. And can maybe update us on little bit on the competitive environment you see out there. I mean we do see and hear about different competitors coming up of different types of technology platforms. And I think there's firms like advisor engines and others who seem like they're trying to target the same kind of the same advisor segments. Can you maybe talk a little bit about what you're seeing in the competitive environment any new entrance or anything?
Yes I would – at the highest level I would take some of the technology platforms like advisor engines. And I would look at them as the same way I would look at asset management firms. And what I mean by that is they're appealing to the Do It Yourself advisor who wants to assemble a platform for their business that they can run themselves. So they can construct portfolios, pick the components of the portfolios, they could pick the cusp of these platform, they could pick this around technology whether it be feet collection platform, aggregation platform, performance management.
We’re complete fund of solutions. So we appeal to the advisor that once we outsource the complete platform, be it investment, or technology, or operations, and wants to concentrate primarily on servicing their existing clients and selling new clients. So that the value propositions are very different and I think we’ve go after – advisors with different mindsets.
Okay, great. That’s helpful. That’s all I had, thank you.
And there are no further questions you may continue.
Thank you, Wayne. Our next segment is institutional investors segment. And Paul Klauder will report on this segment. Paul?
Thanks, Al. Good afternoon, everyone. I'm going to discuss the financial results for the first quarter of 2018. First quarter revenues of $85.5 million increased 11% compared to the first quarter of 2017. First quarter operating profits of $44.4 million increased 16% compared to the first quarter of 2017, both revenues and operating profits were positively impacted by market appreciation, client fundings, positive currency translation and changes in asset class diversification by our client base.
Approximately $2 million of revenue in operating profit in the first quarter was one-time in nature, due to retro private equity firms and specific client performance base fees. Quarter-end asset balances of $92.6 billion reflect a $7.6 billion increase compared to the first quarter of 2017. This increase is driven by higher capital market and positive client fundings. Net fundings were flat for the quarter. This includes approximately $850 million in losses which was as previously discussed the continuation of partial curtailments of DB client and a client merger. The unfunded new client backlog at quarter-end was $700 million but will be impacted by second quarter client losses.
New client signings for the quarter were $1.1 billion. This is primarily diversified across new clients in endowments and foundations, U.S. healthcare and UK Fiduciary Management. Continued sales penetration in the not-for-profit segments will continue to yield a higher consumption rate of higher fee alternatively investment asset bases. Our sales pipeline is strong and we will continue to focus on key growth markets in 2018. And I welcome any questions that you might have.
[Operator Instructions] We go to the line of Robert Lee with KBW. Please go ahead.
Hi, good afternoon.
Hi, Robert.
Hey, how are you? Just I guess a quick follow-up. You mentioned that I guess pipeline be impacted by client losses and subsequent quarters, are there some sizable client redemptions you're anticipating as we look ahead to keep the current quarter?
There is a similar curtailment that we now know of in the second quarter that’s probably somewhere in the magnitude of the gross backlog.
Okay. That's helpful. And then can you maybe again also talk a little bit about the competitive environment, I know it's – talked in the past about new entrants in the OCIO marketplace, consultants and others, has also put some pricing pressure I guess on the industry and can you maybe just update us and if you're – are you fixed on your – you see value that you're losing some business here or there as mainly to lower priced competitors or how do you - are you seeing them kind of impact your pipeline, just kind of get a feel for that.
Yes. I think the beauty of our – segue into endowments and foundations, if they are not low priced buyers, they are high quality buyers and they want to find organization that have scale scope resources that can manage their endowment and foundation for the next 30 odd years. So unlike someone say DB client was in the market right now, that was only going to be around for four or five years, they might be a low cost buyer because they are not really going to be a growing concern so to speak.
But the endowments and foundations, they're going to do a competitive process, they are going to make sure that your rates are competitive vis-à-vis others but they're not going to just buy the cheapest provider. The other benefit that I mentioned in my remarks is that these types of investors consume alternative investment but a much higher cliff. And our revenue model for alternatives is higher just like it is with other competitors and that will certainly be a direct benefit and we saw some of that benefit in the first quarter.
Great, that was it. Thank you for taking my question.
No problem, Robert.
And next we go to the line of Chris Shutler with William Blair. Please go ahead.
Hey, Paul.
Hey, Chris.
I just wanted a follow-up on the last comment around alternatives. So just putting it all together with increasing mix of alternatives kind of see pressure elsewhere, how should we think about kind of the blended revenue yield in your part of the business?
I mean, it’s really steep, fairly flat, maybe going down a little bit, Chris. We do have – so we had two dimensions. We had the historical DB account that we won 10 years ago that are curtailing and we're losing. Where when we won them 10 years ago we had a much higher OCIO fee or fiduciary management fee. We’re now replacing that with endowments and foundations, where the OCIO might be lower but the net up we get from alternative investment is much higher because the DB plans did not have this much alternative investments, consequently kind of leveled it out.
As the DB runs off and we replace it with more of these endowments and foundations, we feel confident that the yield rate will actually increase over time, but I don't see that in the foreseeable future. My goal in the foreseeable future is we keep it levelized. One of the real benefit that we did over the last six months is we had largest rate in private equity with our clients we ever had. And that’s a tremendous asset class to the investors. It's very helpful for us and investors that would put assets in private equity they're making a commitment for 8 years to 10 years as you know. So that's a real good benefit we've brought to them and also a commitment they have for us as OCIO offer.
All right, that helps. Thank you.
Thank you.
There are no other questions, you may continue.
Thanks, Paul. Our final segment today is Investment Managers. So I'm going to turn it over to Steve Meyer to discuss this segment. Steve?
Thanks, Al. Good afternoon, everyone.
For the first quarter of 2018, revenues for the segment totaled $96.9 million, which was $16.4 million or 20.3% higher as compared to our revenue in the first quarter of 2017. This year-over-year revenue increase was due to net new client fundings, market appreciation and acquisition of Archway.
Our quarterly profit for this segment of $33.5 million was $5.1 million or 17.9% higher as compared to the first quarter of 2017. Higher profits are primarily driven by an increase in revenue, offset by an increase in personnel and investment expenses. Our increase in investment expense included amortization of our investment in the front office portion of our platform and the amortization of Archway acquisition. We expect our increase in investment expense and related amortization continue for the next several quarters.
Third-party asset balances at the end of the first quarter of 2018 were $507.7 billion, approximately $50.3 billion or 11% higher as compared to the asset balances at the end of the first quarter of 2017. This increase in assets is primarily due to net new client fundings of $42.8 billion and market appreciation of $7.5 billion.
In turning to market activity, during the first quarter of 2018 we have a strong sales quarter with net new business event totaling $8.1 million. These sales were comprised of new name business as well as an expansion of existing business with current clients across all of our segments. These wins included a new metal office outsourcing mandates and a collective fund mandate with two prominent traditional managers. And EPS servicing mandate and several private equity outsourcing deals one in a competitive process. Additionally, we signed several new family office clients.
The market continues to stay active and we continue to see strong demand for our platforms as well as market lead for our new solutions, including our front office platform, global regulatory compliance and our hosting platform. We feel well positioned with the investments we've made and feel optimistic regarding our future growth opportunity.
That concludes my prepared remarks, and I'll now turn it over for any questions you may have.
Thank you. [Operator Instructions] We go to the line of Chris Donat with Sandler O'Neill. Please go ahead.
Hey, Steve.
Hi, Chris. How are you?
Doing fine. How about you?
Good.
Just wanted to ask on the competitive environment when you guys did an acquisition last year for your business, but we've seen a lot of activity away from you, in particularly, the SS and CNDSP merger and then some noise this past quarter around Fidessa which I realized kind of away from you. But I'm just wondering when you have this sort of consolidation in the industry does that create more competition for you? Does it create opportunities to call in new clients? Just wondering how it affects here your sales process or business or if it doesn't really?
Well, I think anytime you have a transaction like this, anytime there's what I would call noise like that industry. There are always opportunities. I think that something we've seen, we’ll continue to see. We don't see huge inflexion points from it, especially if these deals get larger as people as consolidation happens. It was tough for people. It's a big event for someone to move their business especially the larger they become. However, what we do see is clients are still pushing as managers love to change their business model as they’re under increased complexity from regulation from them looking at how to scale their business, expand their business. They are looking for capability. And whether you know acquisitions and consolidations provide that among certain providers or not, I think that’s the driving course we see and we see the most opportunity with.
Got it. Okay, thank you.
Sure.
And there are no other questions. You may continue.
To Steve. I would now like Kathy Heilig to give you a few company-wide statistics. Kathy?
Thanks, Al, and good afternoon everyone. I have some additional corporate information about this quarter. Our first quarter cash flow from operations was $104.2 million, or $0.64 per share. First quarter free cash flow was $85.7 million. And first quarter capital expenditures excluding the capitalized software were $5.6 million. We’re projecting capital expenditures excluding capitalized software to be about $37 million for the year because that does include money set aside for expansion of our facility.
As we talked about earlier the tax rate was 11.9% and it is due to the combination of the net Tax Act and the tax benefit of the first quarter stock option exercises. And as you're aware, our rate will fluctuate as a result of the timing of stock option exercises. We also would like to remind you that many of our comments are forward-looking statements and are based upon assumptions that involve risks and that the financial information presented in our release and on this call is unaudited.
Future revenues and income could differ from expected results. We have no obligation to publicly update or correct any statements herein as a result of future developments. We shall refer to our periodic SEC filings for a description of various risks and uncertainties that could affect our future financial results. Now, please feel free to ask any other questions that you may have.
[Operator Instructions] We go to line of Chris Shutler from William Blair. Please go ahead.
Thank you. Steve, I had a couple of follow-ups. I didn’t get in a few quick enough.
No problem, Chris. No problem.
So one was just the fundings in the quarter, I knew you gave a number. Can you just give us the number for the quarter?
Fundings for the quarter; well, this is again – that is the assets. It’s year-over-year quarters, Chris. So it was $50.3 billion of assets going up. And out of that net new client fundings were $42.8 billion, again Q1 2018 versus Q1 2017. If you're trying to look at where we are sequentially, which I think is where you typically go quarter-over-quarter Q4, we were about 2.5% up asset wise quarter-over-quarter Q4 to Q1.
And that was all from client funding or how much of that was markets versus fundings?
Actually it was about – net new client fundings were about $27.3 billion offsets by depreciation of 15.1.
Okay…
So that’s Q4 to Q1.
Got it, okay. And then the backlog and retention, did you give those numbers or the backlog number at least?
Backlog is at the end of quarter of about 38.6.
38.6, okay. And then lastly just general question, the amortization on the P&L, the 11.8 in Q1, is that a good run rate to use going forward?
I think for the next several quarters that’s probably in line, directionally correct. Man, there’s two points to remember. There’s the amortization of Archway, the acquisition, and amortization of our capitalized investment expenses that we mentioned. And as I mentioned already I think that’s going to be pretty consistent over the next several quarters.
Okay, thank you.
Sure.
And there are no other questions. You may continue.
Thank you, guests. So ladies and gentlemen, I am encouraged by the direction our businesses are taking and the progress they’re making. While we face short-term headwinds, we believe that the investments we're making will help us to benefit from all the changes taking place in our industry. And this concludes our call and have a great day and thank you for attending our call. I appreciate it.
Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.