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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 2020 Earnings Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions given at that time. [Operator Instruction] As a reminder, this conference is being recorded.
Now, I would now like to turn the conference over to 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 our situation in the first quarter 2020. I'll then turn it over to Dennis to cover LSV and the investment in new business segment. After that, each of the business segment leaders will comment on the results of their segments. And finally, Kathy Heilig will provide you with some important companywide statistics. As usual, we'll feel questions at the end of each report, and before we cover the results of the first quarter, I will speak to the set of circumstances we've faced though.
Around the globe, we are dealing with an unprecedented health event, namely COVID-19 together to the feet dispo we are all involved. From the beginning of this health crisis, our priority has been on the safety and health of our employees and their families along with the seamless delivery of service to our clients.
Over a 48-hour period, we transitioned 99% of our workforce into their homes working remotely without compromising the robustness through our operation or the integrity of our services. We will continue to operate in this environment until we deem it safe and prudent for our employees to return to the workplace. I cannot say strongly enough, how incredibly grateful, I am to our workforce for, not only making the transition to work from home, but in the way they have supported our clients, each other in their communities.
The strengths of SEI shine best it seems when the challenges are extreme and at SEI we take immense pride in managing our business core and investing in long-term growth. We have a proven business models that have been shaped over the past 50 years of experience. This is the bedrock of our ability to weather the uncertainties of the day and emerged from the current crisis stronger and better position to take advantage of tomorrow's opportunities.
Our secret to success is straightforward. We remain focused on keeping our workforce healthy and productive. Invest in our best-in-class technology, innovate continuously, and deliver world-class service and solutions to our clients. We will also be relentless in executing on our strategic vision and go on seeing the growth, generating the niches we believe will be at the heart of our future successes.
We look forward to sharing our progress with you. Now, while our accomplishments during the war with COVID-19 are impressive and we proud of them, but the real heroes are those folks on the frontlines caring for others and saving lives. We honor and thank those who are making the true sacrifices.
So now let's turn our attention to the financial results of the first quarter of 2020. First quarter earnings decreased by 4% from a year ago. Diluted earnings per share for the first quarter of $0.72 are roughly, is flat with the $0.73 reported for the first quarter of 2019. We also reported a 3% increase in revenue from first quarter 2019 in the first quarter 2020. The first quarterly earnings results were adversely affected by the late order market turned down, and that was triggered by the late the quarter arrival of the COVID-19.
The turndown in the capital markets was a major one. This caused our non-cash asset balance under management to decrease $27.8 billion and LSV assets under management to decrease by $36.6 billion. The full effect of the downturn will be filled in the second quarter of 2020. Also during the first quarter, we repurchased approximately 2.7 million shares of SEI stock at an average price of $52.37 per share. That translates $127 million of stock repurchases during the quarter.
Also in the first quarter, we continued our investment in growth generating platforms. The newest effort is Coronavirus, which is a large part of our growth strategy. As you will recall, Coronavirus leverages existing and new SEI platforms by making them accessible to all types of clients, all adjacent markets and all other markets. No, I'm sorry platforms. As a byproduct of the investments we made in the first quarter, we capitalized approximately $6.5 million through development and amortized approximately $12.1 million of previously capitalized development.
Turning to revenue production, first quarter sales events, net of client losses totaled approximately $35.1 million and are expected to generate net annualized recurring revenues of approximately $32.5 million. Clearly, we are encouraged with this quarter's sales results. They reflect the fact that throughout the Company, we are successful in our entrepreneurial sales teams, driving revenue. Our unit heads will speak to the specific sales results.
In addition, a key objective of our business, particularly in these times of uncertainty and volatility, is to deliver smooth operations. The transition of our workforce from centralized operations to remote interconnected nodes went seamlessly, which again, is a credit to the work ethic and customer commitment of our personnel. What we have learned about ourselves, undoubtedly pay many dividends after the crisis subsides. We know that things will never be the same and we will need to adapt to new middle models and realities.
Now, this concludes my formal remarks so I'll turn it over to Dennis to give you an update on LSV and the investment in new business segment, after that all segment heads will update the result in their segments. Dennis?
Thanks Al. Good afternoon everyone. I will cover the first quarter results for the investments in new business segment and discuss the results of LSV asset management. As Al mentioned, our primary concern working through this period of enormous disruption has been for our employees, their families, and our client's health and safety. The resiliency of our employee base, their preparation for an execution of business continuity event of this scale and their ongoing commitment to our clients has been nothing short of spectacular.
In addition to the shift in our operating environment, as you know, we experienced a significant downdraft in global markets. The size of the movement historic in addition the speed of the move was something we had not experienced before. This had a direct impact on our business, particularly LSV.
During the first quarter of 2020, the investments in new business segment continued its focus on the ultra-high net worth investor segment through our private wealth management group and additional business and research initiatives including those related to our IT services business opportunity and the modularization of larger technology platforms into standalone components for the wealth management and investment processing space to deliver on our Coronavirus strategy.
During the quarter, the investments in new business segment incurred a loss of $$7.5 million, which compared to a loss of $5.6 million during the fourth quarter of 2019. This increase loss reflects an increase in investments, particularly related to our Coronavirus strategy. Of our expenses in this segment, approximately $5.7 million is tied to that effort. This compares to approximately $3.4 billion in the fourth quarter of 2019 and about $200,000 in the first quarter of 2019.
The Coronavirus strategy is a company-wide initiative to open business opportunity across our entire company as well as creating new business lines. We will continue to see investment in this area through the year. Regarding LSV, our earnings from LSV represent our approximate 39% ownership interest during the first quarter.
LSV contributed $29.9 million in income to SEI during the first quarter of 2020. This compares to a contribution of $37.3 million in income during the first quarter of 2019. Assets during the first quarter shrank approximately $36.6 billion. LSV experienced net negative cash flow during the quarter of approximately $3.9 billion, remainder the contraction was market related.
Revenue at LSV was approximately $100 million for the quarter with no performance fees. It is important to note that revenues at LSV are predominantly driven by end of period asset levels. The late in the quarter market moves had a significant impact on revenues. Our effective tax rate for the quarter was 21.5%.
During the quarter, we incurred an unrealized loss on investments of approximately $4 million related to investment fee capital and specific investment products. This compares to an unrealized gain of $1.3 million when the first quarter of 2019. As a company, we were able to keep overall expenses flat to down relative to fourth quarter 2019. We were operating normally until the coronavirus began to hit.
We made an immediate shift to a work from home model with as Al mentioned, 99% of our global workforce operating remotely. This effort was guided by two things, the health and safety of our employees and our seamless delivery of service to our clients. Well, operating expenses are always a focus of ours. It is safe to say we were in a mode of whatever it takes to meet the objective stated earlier.
SEI is proud of our long-term strategic orientation, our recurring revenue business model, the strategic client relationships we have, our solid balance sheet and our talented and experienced workforce. We lean on this and as the world makes its way through this crisis, we believe we will be stronger as a company for it and have more market opportunity as a result.
Naturally, we will look at our spending as our revenues have been impacted, some of which will contract naturally with revenue. However, similar to crisis events in the past, we will lead into our clients, continue to invest in the future and look to identify and capitalize on existing and new opportunities.
With that, I'll take any questions.
[Operator Instructions] And we do have a question from the line of Chris Shutler with William Blair. Please go ahead.
First I just wanted to clarify your comment on LSE and the way that the revenue comes in there. Can you give us some sense of kind of what percentage of their revenue is based on prior quarter and percentage based on any other like daily or monthly metrics?
So, roughly 60% to 70% is based on end of quarter assets and the rest is based on average assets.
Okay. Got it and then the only other one is just at a high level, I know you talk about expenses. Is there anything like quantitatively that you can say about expenses over the remainder of the year at a high level?
No, I mean, I think there are certain expense categories that had contracted that are on our income statements. So things like sub-advisor expenses will contract with revenue and other expenses are contracting just because of the situation we're in. So, our travel budgets look really good right now. For example, our client event costs are down because we didn't have our client meetings now that we normally have in the first quarter or in second quarter. So, there's certain expense categories will get the benefit of the situation we're in.
But at the same time, we are looking at areas that make sense to invest into enhance the technology that we have to communicate and deliver to clients and internally. And also, we're paying attention to new approaches to prospecting and marketing. That might take some investment. So we're not really looking at this from a standpoint of, let’s take advantage of the situation trying to drive cost down rather, let's just be smart about how we operate the business and keep our eyes on growth because that's what this is all about. And although all the unit leaders, we'll get into kind of how that's taken shape within their businesses.
We have a question from the line of Robert Lee with KBW. Please go ahead.
Great, thank you. Thanks Dennis. I hope you and your family are doing okay in this mess. Just quick question on the new business expensive, understanding investing in One SEI, should we that to think that this is a reasonable run rate for the balance of the year as you go to some discrete spending. And then, maybe this is too far in advance, the world's changing so fast that, but eventually you had the vision that kind of moderate it’d to get through some spend on the initiative?
Yes, I think probably bounce around lease for this year, and but the way I look at it, it’s really a project type related cost versus a run rate related cost. And we feel pretty comfortable that by the time we get through this year, we'll probably have a little bleed over into next year, but the project will be pretty well big, although again, I never underestimate the innovation and genius of our solutions teams and our IT teams to come up with new ways to do new things. So, I'll caveat it with that.
[Operator Instructions] And at this time, we do have one more question maybe from the line of Crispin Love with Piper Sandler. Please go ahead.
Hey, it's actually Chris Donat. I am high jacking Christine's line, beside little user error on the dial in there, I guess on my part. I have got two questions for you, Dennis. First on LSV, are you aware of any outflows or redemption notices after the quarter closed for LSV?
No, I understand. I don't really operate that way. So they're all open relationships.
Okay, got it. And then on the -- sorry, just want to make sure, well, sorry -- on the information processing line and maybe we'll get into this later, but that's a lower number of your two revenue lines lower than it's been in the last several quarters, anything to call out there?
Well, I think it’s reflective of Steve will probably -- I know we'll talk about kind of -- which we have been talking about kind of the past few quarters is, we have to overcome some of these client losses that are matriculated off particularly the big one matriculated late in the year last year. So that is probably more a reflection of that than anything else.
And at this time, there are no further questions in the queue.
Thank you. Now, I’ll turn it over to Steve, who will cover private banking and investment manager services segment.
Thank you, Dennis. Good afternoon everyone. For the first quarter of 2020 revenues for the segment totaled the $113.2 million, which was $5 million less, or 4.2% down from the first quarter of 2019 primarily due to previously announced client losses. In our investment processing and technology business, we did see a decline in our asset base revenues during the quarter as a result of the market's depreciation caused by the pandemic, though they were offset somewhat by an increase in some of our transaction based revenue.
Our quarterly profit for the segment of $2.6 million was $4.7 million or 65%, lower from the first quarter of 2019, which was primarily driven by previously announced client losses. As compared to the fourth quarter of 2019, the profit for the segment was $2.5 million or 49% lower due to market deprecation in our asset management business. From an asset management standpoint, total assets under management ended the period at $21.2 billion, representing an 11% decrease from the fourth quarter. Our AUM decrease with due market depreciation. Despite the decrease in assets, we continue to build a strong global pipeline in our AMB business.
And turning the sales activity for the quarter, we closed $19.5 million in net new recurring sales events. As mentioned on last quarter's call, we signed a large global private bank to SWP, and while we had intended to issue a press release during the quarter, we felt it was not appropriate to do so and celebrate this partnership due to the global COVID-19 pandemic. However, I am pleased to tell you that this new deal is with HSBC private bank and it will support their global business. We are excited about this opportunity and it is another affirmation of the global reach of our capabilities.
Additionally, there's another example of the application of our One SEI strategy, in this case also utilizing our IMS platform to support the alternative asset classes of this client. We are currently working through the implementation planning of this project and it is important it will be a multiyear implementation. Additionally, we are pleased to announce that we recently have expanded and extended our relationship with our longtime client SunTrust Bank, which last year merged with BB&T to create Truist, the sixth largest bank in the U.S. This deal allows us to continue providing our current scope of technology and services to the new larger organization.
As I've mentioned before, our One SEI strategy allows us to bring all the assets and platforms across globally to each of our financial intermediaries in a flexible and customizable way. This is another great example of this strategy in action. In the first quarter, we successfully converted Bar Harbor Bank & Trust to the SEI Wealth platform. Bar Harbor acquiring an existing TRUST 3000 clients Charter Trust Company. The conversion included the existing TRUST 3000 accounts and another book of business that Bar Harbor had previously been running on a competitors' platform.
We are excited about the market acceptance we are seeing and the momentum these fields represent in our sales activities. In addition to this SWP implementation, we re-contracted two TRUST 3000 clients during the quarter. As an update on our backlog, our total signed but not installed backlog is approximately $73.3 million in net new recurring revenue. Touching upon the market environment and the current pandemic and the impact on our business, as Alan mentioned, we have performed well and continued all our critical business functions across for our clients and ourselves. This goes across all of our processing and technology businesses, including global banking, IMS, and family office services.
Our employees have risen to the challenge and performed in an impressive way. They have been nothing less than remarkable and continue to deliver a world-class experience to our clients in these unprecedented times where we have seen transaction volumes increased by 300% to 400% in some areas. We have received very favorable feedback from our client base on how we have proactively planned and executed in this new normal. Additionally, we see ways to improve how we do business, serve our clients and grow going forward.
From our client's perspective, they're in this with us. They are dealing with the same circumstances and work from home environment. It is giving us opportunities to deepen our relationships and support our clients like never before across the board. In a word, our clients as a whole are engaged with us. It is getting us opportunities to connect them more, deeper and meaningful ways. All current implementations continue all but in different names and sales agendas continue virtually as well. Although, I would expect some delay in decisions and some delays in implementation dates as the pandemic continues.
However, we believe these to be just delayed not stoppages. Ironically, we believe that disruption caused by this pandemic will provide greater long-term opportunity for us, as the outsourcing will become even more imperative for our markets as a whole. Typically, on this quarter's call, I give an update on our strategic focus for the year. Even though we were operating in this new normal, I believe that it's still important to outline these strategic initiatives and focus, especially in light of the current COVID-19 reality. As we continue through 2020, our focused on growth and expansion still rings true, but adjusted to encompass the following priorities.
First, our focus is to continue to support and care for our key stakeholders, our workforce, our families, our clients, our clients and clients, our shareholders, our partners, and our community. Times like these let us show our true characters in organization. The care and wellbeing of our stakeholders remains paramount to us.
Second, we will continue to focus and maintain our momentum and executing on our key growth agendas. Third, focus on expanding our markets and solutions allowing us to extend our growth opportunities. Fourth, continue our strategy of One SEI which enables us to offer the full power of all SEI platforms and assets and enables us to address our client's emerging needs and problems in ways no one else had.
And finally, managing through the financial headwinds of the loss business we have previously announced, which will be in full effect for 2020. While the current pandemic adds this challenge, we will continue to manage our expenses judiciously as we continue our growth momentum.
Our focus remains on managing through this financial challenge with an eye on establishing a sustainable and accelerating margin rate as we come out of the downward pressure of this business. While I am confident we will manage through this for long term, I do expect a significant challenge in the second quarter as our revenue will have a fourth quarter of the pandemic impact combined with the affirmation losses.
In summary, while we entered this year with challenges such as lost business to absorb and we now have the added challenge of the COVID-19 pandemic demands grew. We also entered the year with momentum and great opportunities. Challenges give us the opportunity to think differently and expand our growth opportunities. I'm excited of the results we are seeing today, an optimistic of the growth path going forward. That concludes my prepared remarks and I'll now turn it over for any questions you may have.
[Operator Instructions] Our first question comes from the line of Glenn Greene with Oppenheimer. Please go ahead.
Okay, so maybe I'll just a little bit more. First of all, congratulations, but a little bit more color on the SunTrust expansion. Is it sort of BB&T side of the house or different asset classes within SunTrust just a little bit more on that?
So, Glenn, basically as you know, the two banks have merged and it's basically the combined book of business that will initially be moving on to TRUST 3000 with SunTrust in a long time user of. And then hopefully down the road after their merger is on hopefully down the road, we'll look at SWP, but for right now its TRUST 3000.
Okay. And maybe just a little bit more about the market environment. You talked about sort of delays in decision making, whatnot. I mean how are you going out sort of prospect to prospect heading and your to move sort of like a lot of virtual conversations, just a little bit more on what you might expect for the impact? And how long this may last for what’s you’re kind of thinking for the balance of the year in terms of sales activity?
Yes, what I'd say Glen is in it without that. We've got across the Company, we have very good sales teams and very entrepreneurial focus sales folks, and they have done a very great job similar to the great job we've seen on the front line with the operations and production support. We've seen a great job by our sales and service professionals and adapting this new reality and this new normal. And certainly, our clients are adapting to it and we're seeing sales agendas continue, existing sales agendas continued, although virtually, we're coming up with new ways to kind of test the market and go out and prospect and that's being met with great receptance and acceptance.
And while I see definitely a push and a significant push on the sales side, I just think that as time goes people are going to wait to make new decisions on sales they kind of get a better hold or backing offices. With that said, we were in flight with certain sales prospects and those decisions continue, those demonstrations, demos, conversations going through kind of our deck of technology continues and people are pushing for decisions. So, I think things keep moving. I just think because of the environment when we'll see a little delay and just because of the slowdown of being worked from home for some of our clients, I just think we'll see a delay. I can't really quantify the impact. I just expect that to happen as we go through this.
Okay. Make sense. One more quick point on the, how much you sort of outsized benefits did you get from the incremental trading activity in the quarter to your top line?
I won't quantify, what I'll say to you is that the trading and brokerage uptick helping you kind of the asset market down crease on the assets on the asset base. So, it certainly helped negate some of that downward pressure, but it is a lower margin business keep in mind.
Next, we go to the line of Chris Shutler with William Blair. Please go ahead.
So just a couple of questions. The 19.5 of net new recurring sales is that inclusive, I'm just thinking about HSBC. Is that inclusive of the HSBC component that's in IMS or is that two separate things?
Two separate things.
Okay got it. And then let's see, the info processing line. Can you give us a sense how much of that line is kind of asset based pricing today as opposed to more kind of account or subscription based?
Yes, so I'd say if they look at our revenues were about 60%.
60% of the total segments revenue.
Yes.
Okay. And then lastly on expenses, just relative to where you sat in the first quarter, is there anything you can say about Q2 or beyond?
No. Outside the fact that, you know, obviously with the pressure on revenue and the downward push from some of the losses we've mentioned, I'm sure you guys would say acknowledge at this point. We are going to manage expenses, but with that said, I'm not going to be afraid to invest. That One SEI is a big push for us and I see tremendous opportunities. So, we will continue to invest where it makes sense. Obviously, we'll have some natural downward slope of expenses, but just travel and entertainment. But I do expect some other expenses, but we'll try to manage through Q2 and the rest of the year as best we can.
Was there much incentive comp in Q1 related to like Truist or HSBC?
Well keep in mind that you're pretty much up sales comp there and see my sales top now is spread. It's kind of advertised. So was really not the big bang got to expect from before.
[Operator Instructions] Next, we go to line of Robert Lee with KBW. Please go ahead.
I'm just kind of curious, I mean HSBC, you've been a long-time client obviously in IMS and I guess in the UK. So is this kind of taking where you've been doing for them in the UK globally? Is that really the way to kind of think about the expansion of the overall HSBC relationship cause they'd been on the platform, I guess as well since the beginning. So, that's really kind of the global expansion you've been hoping for a long time in that.
Yes, so I'd say, HSBC has been a client primarily out of the UK from our AMV standpoint, and we did have a piece of processing business with them. If you remember years ago that did go away to another corporate tech, a competitor and this business is one that we've been looking at on the processing side for a number of years. So I would say this is just to me a very good expansion with a great partner and an expansion that certainly highlights our global capabilities, our processing and technology side.
At this time, there are no further questions in the queue.
Thank you. I'll now turn to the investment manager segment. For the first quarter of 2020, revenues for the segment totaled a $116.6 million, which was $12 million or 11.4% higher as compared to our revenue in the first quarter of 2019, and $1.9 million or 1.6% higher as compared to our revenue in the fourth quarter of 2019. This year-over-year revenue increase was due primarily to net new client funding and existing client expansion, while the quarter-over-quarter increase was due to client fundings offset by a market decrease.
Our quarterly profit for the segment of $42.3 million was $6.8 million or 90% higher as compared to the first quarter of 2019. Higher profits year over year were primarily driven by an increase in revenue offset by a smaller increase in personnel expenses and investments. Third party asset balances at the end of the first quarter of 2020 was $610.8 billion approximately $46.77 billion lower than the asset balances at the end of the fourth quarter of 2019. This decrease was due to net new clients lending of $16.1 billion offset by market appreciation of $62.8 billion, the majority of which was driven by the COVID-19 pandemic.
In turning the market activity, during the first quarter of 2020, we had a solid sales quarter with net new business rents totally $9.5 million recurring revenues. Most importantly, these sales were diverse and included an equal split of both new name business and expansion of existing wallet share with current clients. These events include the following highlights. In our alternative market unit, we were selected by a $4 billion private equity shop who had to date in-source their operations. Their selection of SEI was their first move towards outsourcing. We see continued growth across the private equity business.
In our traditional market unit, in addition to having success in all product lines, we continue to see strong momentum with collective investment trusts for new and existing clients. In Europe, private credit and private equity continued to be main drivers of new names as well as cross sales with existing clients. And then in the family office services unit, we want a multifamily office services client as well as a couple of single family offices. Additionally, we have seen a significant pickup in activity and strong market demand amid the COVID-19 pandemic.
And turning to the market environment, consistent with the private banking segment, we’ve performed well and continued all our critical business functions for our clients and ourselves. Our teams have performed exceptionally. We have received very favorable feedback from our client base on how we have practically planned and executed in this new normal. While this has negatively affected the existing assets under management of many of our clients, we also see our clients being optimistic about growth opportunities and new fund launches geared us new investment opportunities that have arisen from the market turmoil.
We also see great opportunity as we managed through the crisis as we think outsourcing and managers freeing themselves of infrastructure, investments, light technology, operations and compliance to name a few will be even more necessary considerations as part of the new normal. As we continue through 2020 although the second quarter will be a challenge, our focus on growth and expansion still rings true and our main priorities will be as follows.
First, our focus is to continue to support and care for our key stakeholders or workforce or families, our clients or clients and clients or shareholders or partners and our community. Second, maintain our current market and client momentum. Third, continue our investment in platform, push into the front office, supporting our clients and clients as a strategic differentiator for us. Fourth, continued expansion into market adjacencies and new markets to drive long-term sustainable growth. Finally, continued execution of our One SEI strategy, leveraging our platforms and solutions to support growth opportunities in other market segments, and providing the power of all of SEI for our clients.
Despite the difficulties of what we were all going through COVID-19, our focused on our clients and growth of our business remains the same. We remain optimistic on the long-term growth opportunities we have in front of us. That concludes my prepared remarks and I'm not turning it over for any questions you may have.
[Operator Instructions] First, we'll go the line of Crispin Love with Piper Sandler. Please go ahead.
Hey, it's Chris Donat again, using Crispin’s line. Steve, maybe I know, you just said that, you're getting them a mix of the revenue growth from existing and new customers. I just wonder if you can, is it kind of 50-50 when we look at your 11% revenue growth year on year? Or is it -- which way does it tilt more to?
So what I'd say is for the quarter was actually 50-50, 50% existing clients, 50% new business. My expectation going forward for the year, it'll extend to trend higher for existing clients. And I think that due to a couple of things, one, it was a large client base we have, especially in private equity, we fully expect the clients are seeing those clients you're up to call capital for new investment opportunities. And I think having those clients and the large diverse base of clients we have will allow us to grow.
And as you know, a cross-sell and growing from existing clients typically takes less time and happens a little faster. I think, we will still see our share of new business from new clients, but again, because of the pandemic and I think just delaying in the decision that'll be pushed a little bit and a little bit slower this year.
Okay. And sort of related to this, are you getting any notable traffic and inbound phone calls from, anyone interested in outsourcing? You mentioned technology operations and some clients. Is that no way to tell?
Yes, I think we're seeing that, what I'd say is across the board. I'd say we're seeing good steady activity still. We are seeing some highlights. One with existing clients; two, we're still seeing sales activity within the alternative market continue even though it's virtually, and a one kind of a spot that's popping up is on the family office area. And the folks from March, we saw this during the 2008, 2009 crisis. We're seeing the notable increase in inbound traffic there. And I think during these times, folks have slowed down a little bit and are taking the opportunity to reassess their infrastructure and technology needs.
Next, we’ll go to the line of Robert Lee with KBW. Please go ahead.
Actually that was my question, so thank you.
Rob, I thought you are going to me about backlog. I purposely left it out for you. You could ask.
I figured you would just offer it up, so…
It’s $38.9 million at the end of the quarter.
[Operator Instructions] Next, we’ll to a line of Sam Hoffman with Lincoln Square. Please go ahead.
Steve. Thanks for taking my question. Can you explain the bit more of the $20 million of additional expense on One SEI? What is it going to be spent on? What will be the payback? What will the payback look like? And I guess originally at Investor Day when it was announced, I felt One SEI was viewed more as a philosophy than an expense and revenue item. And so how has that changed since and how does it look going forward?
Thanks, Sam. First, I hope you're doing well. Second, I'm not sure I'm catching up on the math on the $20 million, but I'll look to that after this. But what I've found One SEI. it has not changed at all while One SEI has been a mindset and a strategy change. It's also part of it is and we've been very clear about the finding it is opening up our platforms to all of the platforms to all our markets. And in doing that, when you think about the platforms we have across the Company, we do have to spend money to modularize platforms that have been integrated to open them up with new technologies such as an API. And there is obviously an expense behind that.
So that is one that we see as a strategic imperative for us. Two, we see a huge market opportunity across not just the investment processing business, but across all the SEI. And the payback that we'll get from this is increased sales opportunity and we think increased growth opportunities with new markets and new solutions and opportunities with current clients. And if you look at the sales results, both in private banks and IMS this quarter, we're seeing that this year, we saw that this quarter, we saw the quarter before and we will continue to see it going forward.
Terrific, so just to clarify, the way I got the 20 million was Dennis said in his opening remarks that. In the first quarter of 19, the expense was 0.2 million and that rose gradually to 5.7 million in the first quarter. And that would be roughly level with some bouncing around this year. So I thought roughly 5 million higher than it was up this. Is that not correct?
No, that's correct. When we really got started on this initiative, probably midyear last year and so the run rate increases over a couple of million dollars. That’s what grew us about the 20.
I meant in total but okay.
Yes, I got what you’re saying.
At this time, there are no further questions.
Great. Okay, thank you everyone. So I'll now turn it over to Wayne Withrow who will cover the advisor segment. Wayne?
The first quarter of 2020 starting with continuing to build a momentum we lost during our migration onto the SEI wealth platform. Mother Nature gave us different priorities and we adjusted accordingly. First quarter revenues totaled $102 million. These revenues were up over 8% from the first quarter of last year. Positive capital markets were a significant influence on these revenues.
Another big factor was that Q1 2020 average asset balance had a larger percentage of higher fee products then did the comparable period of 2019. If you recall, there was a market decline during the fourth quarter of 2018 and the Q1 2019 bounces reflected a shift to money market funds due to this market shock. We will be playing the same tune when we compare Q2 versus Q1 later this year.
Expenses were flat in Q1 of 2020 as compared to the first quarter of last year. The most noteworthy swings within this net neutral result were increases in expenses tied to AUM growth and decreases in expenses related to the wealth platform migration we completed last year. Sequentially, expenses were down $1.5 million compared to the fourth quarter. One word of caution however is that this is not a 2008 redo, and while I will look at expenses in the context of the market, I will not hesitate to invest with a new normal creates opportunity.
Our profits increased 18% from last year's first quarter as our revenue increase dropped to the bottom line due to an expense line I previously discussed. I asked this on under management at the end of the first quarter was $60.8 billion. Following steep market declines at the end of March, our quarter end balances are significantly below the average asset balance reflected in our Q1 revenue. Q1 pending balances will be the starting point for our average daily balance in the second quarter.
During the first quarter, our net cash flow onto the platform with a positive $400 million with $300 million of that’s being an assets of the management and $100 million being an asset administration. Overall quarterly cash flow was negatively impacted by the current environment. We recruited 65 new advisors during the quarter, a slight decrease in the fourth quarter. Our pipeline of new advisors remains active. We continue to invite new and existing advisors the benefits from using the SEI wealth platform and have focused the sales force on bringing both SEI managed and non-managed assets onto it.
Our first quarter financial results are important, but are dwarfed by the coronavirus and our response. As Al mentioned, from an operational perspective, we have always had a strong business continuity program and that is serving us well during this crisis. From day one of our decision to close out folks headquarters, we had 99% of our employees working effectively from home. While not without challenges, we have handled astronomical processing volumes and have proven our ability to work effectively from home. Volumes have retreated somewhat at this point.
Aside from processing, we needed to change our relationship management model from the face to face model to one digitally focused. Our advisor clients have this same exact challenge with their clients. Like most, we have transitioned to a digital model and a continually improving its effectiveness. Our advisors are doing this thing with their clients that are obviously impacted by everyone's day to day focus on facing the challenges brought on by the pandemic.
Going forward, the advisor unit like all of SEI will respond to challenges going on by the health crisis facing us. In summary, the first quarter reflected somewhat decent financial results and the building of momentum we lost during the migration. The real challenge, however, is ahead of us. Our scale and resilient infrastructure should allow us to make the best of this challenge. I now welcome any questions you may have.
[Operator Instruction] First question would be from the line of Robert Lee with KBW. Please go ahead.
Hi, Wayne, I hope you're doing well. Is it possible to get a sense of kind of the progression over the course of the quarter? I mean 300 or 400 of cash inflows in the quarter, all things considered is pretty good. But can you just kind of maybe give it some color, you start out kind of really strong and the March kinds of most -- you would assume March and most of the way to any kind of color around the pattern. And then maybe even though it's only three weeks to maybe as markets come back and date or at least market stabilized, kind of have you seen any indication to change that?
Yes, well, I think you sort of summarize the pattern, right? We started off really strong and I think come middle of March, things slowed down significantly. I think agendas that were underway continued. It's a little bit harder to get a new agendas going, but I think activity slowed into March and I think activity is slower in the beginning of April. But I would say, I still think post-migration, we're still seeing some positive momentum, but this is going to be challenged. And I think a lot of it is unlike a lot of our other businesses, the impact of the end consumer really impacts our advisors and we need to get some more stability in the population as a whole.
And then one quick follow-up and I apologize, I may have missed it. Did you mention the number of new advisors in the quarter?
I did 65.
Next question would be for the line of Chris Shutler with William Blair. Please go ahead.
One just real quick one, the $300 million or $400 million of inflows, however you want to talk about it. I just want to make sure. Could you give us the Q4 numbers and the comparable Q1 numbers? I just want to make sure I have those apples to apples.
Q4, if you look at SEI assets, total assets that are 300 million, but then the SEI Mandy's product, we were about negative 200. I don't have the numbers right for him. We were negative SEI its about 200 in the fourth quarter.
And that negative 200 is comparable to the positive 300.
Correct.
At this time, we have no further questions in the queue.
That's great. Okay. I like to turn it over to Paul Klauder who will talk about institutional segment.
Thanks Wayne. Good afternoon everyone. I'm going to discuss the financial results for the first quarter of 2020. First quarter revenue was 79.1 million, decrease 1% compared to the first quarter of 2019. First quarter operating profits of 40.9 million, decrease 1% compared to the first quarter of 2019. Operating margin for the quarter was 51.7% both revenues and operating profits were impacted by negative clients’ fundings in currency translation.
Quarter end asset balances of $79.6 billion reflect a $9.2 billion decrease compared to the first quarter of 2019. This decrease is driven by significant markets appreciation March coupled with negative client findings. This dramatic reduction in assets will have a negative financial impact on future quarters. Net fundings were a positive $150 million for the quarter, which was comprised of gross sales of $700 million and client losses of $550 million. New signings included a U.S., municipality, UK DB fiduciary management, and a new U.S. nonprofit relationship.
The unfunded new client backlog at quarter end was $430 million. New sales momentum and activity has been impacted by this crisis, as prospects have extended their timeframes and delayed formal decision making processes. With that said, our sales teams are working extensively on virtual interactions. Also in our long history of OCIO, our best sales years have been filing crisis periods.
On the client side, we have received very positive feedback when our proactive communications materials, webinars, and our employees attentiveness. We believe scale, resources, technology and experience will be important criteria in selecting and retaining OCIOs going forward. Thank you very much and I'm happy to entertain any questions that you may have.
[Operator Instructions] At this time, there are no questions in the queue.
Okay, thank you. I will now turn the call over to Kathy Heilig at SEI’s controller.
Thanks, Paul, and good afternoon, everyone. I have some additional corporate information about this quarter. First quarter 2020 cash flow from operations was $99 million or $0.65 per share. First quarter 2020 free cash flow was $71.8 million. First quarter 2020 capital expenditures excluding capitalized software were $20.7 million, which included $10.2 million for a facility expansion.
Projected remaining capital expenditure for the year excluding capitalized software is $30 million and that includes an estimate of $15 million related to the facility. As noted in our earnings release, our tax rate for the first quarter was 21.5%, the annual tax rate for 2019 was 20.6% and fourth quarter tax rate was 19.5%. Just want to remind you that the major reason that we have changes in our tax rate is due to the tax benefit of stock options when they are exercised.
We would also like to remind you that many of our comments are forward-looking statements that are based upon assumptions that involve risks and that the financial information presented in our release and on this call is not audited. In some cases, you can identify forward-looking statements by terminology such as should, may, will, expect, beliefs, continue or appear.
Our forward-looking statements include our expectations as to, the long-term consequences of potential opportunities resulting from the disruption is precipitated by the COVID-19 pandemic, the degree to which we will benefit from our scale, resources, technology and infrastructure. Revenue that we believe will be generated by sales events that occurred during the quarter or when our unfunded backlog may fund.
Our resource allocations in technologies and platforms in which we will choose to invest. The strategic initiatives that we pursue, the benefits we will derive from our investments and our ability to monetize these investments. Our ability to manage our expenses, scale our offerings and established, sustainable and accelerating margins, our ability to take advantage of opportunities to expand client relationships, the strength of our pipeline and growth opportunities and our ability to execute on and the success of our strategic objectives.
You should not place undue reliance on forward-looking statements as they are based on current beliefs and expectations of our management and are subject to significant risks and uncertainties, many of which are beyond our control or subject to change. Although, we believe the assumptions upon which we base our forward-looking statements are reasonable, they could be inaccurate.
Some of the risks and important factors that could cause actual results to differ from those are described in our forward-looking statements can be found in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2019. This is available on the Securities and Exchange Commission website and also on our website.
There may be additional risk that we do not presently know or that we currently believe are immaterial, which could also cause actual results to differ from these contained in our forward looking statements. We do not undertake to update the forward looking statements to reflect the impact of circumstances or events that may arise after the date of the forward looking statement.
And now please feel free to ask any other questions that you may have.
[Operator Instructions] We do have a question for line of Glen Greene with Oppenheimer. Please go ahead.
Could you just go through the 4 million of investment losses in the quarter? And was that sort of a one-off thing that won’t repeat going forward?
They were unrealized losses. We have some products that we invest in really as seed money for the most part, and we have to mark them to market every quarter. And as the market went down at the end of the quarter, we had to mark those down. The market goes back up we would mark them back up.
[Operator Instructions] At this time, there are no further questions in the queue.
Okay. Then I'd like to turn it back over to Al.
Thank you, Kathy. So ladies and gentlemen, we are fighting on two fronts. First, the COVID-19 disruption and second growing revenues and profits during disruptive times. On the first front, we were very fortunate to plan well and it’s been able to keep our workforce healthy and productive. On the second front, we face short-term headwinds, but we believe that we will prevail. Thanks in large part to our motivated and innovative workforce one hand, in the strategic investments we are making in our future on the other.
Please be safe and remain healthy. Have a great evening, and thank you for attending our call.
Ladies and gentlemen, that does conclude our conference for today. Thanks for your participation and for using AT&T teleconference. You may now disconnect.