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SEI Investments Co
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Ladies and gentlemen, thank you for standing by. Welcome to the SEI Third Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to our host, 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 and third quarter 2020. I'll then turn it over to Dennis to cover LSV and the investment in new business segment. And after that each business segment leader will comment on the results of their segments. Then finally, Kathy Heilig will provide you with some important company-wide statistics. As usual, we will field questions at the end of this report.
Now before we cover the results of the third quarter, I will speak to the set of circumstances we face today. Around the globe, we are still dealing with the COVID pandemic. 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. I am incredibly grateful to our workforce for transitioning both workplace to home and home to workplace and all the while supporting our clients each other and our communities.
The strength of SEI shines best when the challenges are extreme. At SEI, we take immense pride in investing for the long-term. We have proven business models that have been shaped over the past 50 years of experience. They are the bedrock of our ability to weather the uncertainties of today and emerge from the current crisis stronger and better positioned to take advantage of tomorrow's opportunities.
Our secret to success is straightforward: remain focused on keeping our workforce healthy and productive, invest in our best-in-class technology, innovate continuously and deliver world-class service to our clients. We'll also be relentless in executing on our strategic vision and launching the growth-generating initiatives we believe will be at the heart of our future successes. We look forward to sharing our progress with you.
So let's turn our attention to the fi£nancial results of the third quarter 2020. Third quarter earnings decreased by 16% from a year ago. Diluted earnings per share for the third quarter of $0.75 is a decrease of 13% from the $0.86 reported for the second quarter of 2019 -- 2019, sorry. We also reported a 2% increase in revenue from third quarter 2019 to third quarter 2020.
This year's third quarter results benefited from a rebound in our capital markets. Our non-cash asset balances grew by just under $10 billion from both cash flows and market appreciation. LSV's balances during the third quarter gained just under $1 billion.
Also during the third quarter, we repurchased approximately 2.1 million shares of SEI stock at an average price of $51.54 per share. That translates to approximately $109 million of stock repurchased during the quarter. Now, this quarter we also contained our investment -- continued our investment in the growth-generating initiatives.
The newest effort is One SEI which is a large part of our growth strategy. As you will recall, One SEI leverages existing and new SEI platforms by making them accessible to all types of clients, all adjacent markets and all other platforms. As a by-product of the investment suite made in the third quarter, we capitalized approximately $6.1 million of development and amortized approximately $12.2 million of previously capitalized development. To date, we have not capitalized any of the One SEI work.
Now turning to revenue production. The third quarter sales events, net of client losses totaled approximately $28 million and are expected to generate net annualized recurring revenues of approximately $15 million. Clearly, we are encouraged with this year's sales results. They reflect the fact that although throughout the company, we have successful and entrepreneurial sales teams driving revenue. Our unit heads will speak to their specific sales results.
We have three business objectives. The first is to deliver soft, smooth, safe operations. The second quarter -- excuse me, the second objective is to grow our business by helping our clients grow. And our third objective is to continuously innovate, so we can keep growing in the future.
To reach these objectives, we know that things will never be the same, so we have been busy adapting to new mental models and realities. We feel ready to capture the opportunities inherent in significant change.
Now this concludes my formal remarks. And I'll turn it over to Dennis to give you an update on LSV and the investment in our new business segment. And after that, all the segment heads will update results in their segments. Dennis?
Thanks, Al. Good afternoon, everyone. I will cover the third quarter results for the investments in new business segment and discuss the results of LSV Asset Management.
During the third quarter 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 One SEI strategy.
During the quarter, the investments in new business segment incurred a loss of $9.8 million, which compared to a loss of $4.5 million during the third quarter of 2019. This increased loss reflects an increase in investments, specifically related to our One SEI strategy, which we have discussed in the prior couple of quarters.
Of our expenses in this segment, approximately $8 million is tied to that effort. The One SEI strategy is a company-wide initiative to open business opportunities across our entire company, as well as creating new business lines.
Regarding LSV, our earnings from LSV represent our approximate 39% ownership interest during the third quarter. LSV contributed $28.3 million in income to SEI during the third quarter of 2020. This compares to a contribution of $37.6 million in income during the third quarter of 2019. Assets during the second – during the third quarter grew approximately $1 billion.
LSV experienced net negative cash flow during the quarter of approximately $2.2 billion, offsetting market appreciation of approximately $3.2 billion. Revenue was approximately $94.9 million for the quarter with no performance fees.
Since I know the question is coming on expenses, I thought I would address that. Expenses grew approximately $13 million, or 4% from second quarter 2020 to third quarter 2020. Just under one-half of this expense growth, approximately $6 million relates to salary and other compensation adjustments we made at the beginning of the quarter consistent with our annual compensation process for most of our workforce as well as continued hiring in areas of growth. In addition, approximately 20% or $3 million was due to a spike in health insurance costs during the quarter, which are not predictable and driven by actual experience since we are generally self-insured.
The final 30%, or approximately $4.5 million is essentially one-time in nature related to some severance expense and professional services fees and costs associated with trade corrections as a result of a couple of incidents disclosed in our second quarter 10-Q. These costs are spread across our segments as well as G&A. I hope that breakdown helps. Finally, our effective tax rate for the quarter was 21.4%.
I will now take any questions you have.
Thank you. [Operator Instructions] And we'll go to the first line of Ryan Kenny with Morgan Stanley. Please go ahead.
Hey, Dennis, how are you?
Hey, Ryan. Good. Welcome onboard.
Thank you. Just want to get a sense of how you're thinking about the trajectory of One SEI spend. Do you still think that it's something that peaks this year and in 2021, should more or less resemble 4Q 2019 or is there more to do that next year?
Yeah. There's – as I think, we said on the last call, there's still more to do in the early part of the year, but it'll start to come down over the course of the first half of the year and then certainly into the second half of the year. So we're – as we said in the past, we're – it's a project, and it'll take the trajectory more of a project than a sustainable platform build.
Thanks.
You’re welcome.
Thank you. Next we’ll go to the line of Robert Lee with KBW. Please go ahead.
Great. Hi. Thanks, Dennis. So far all is well with you.
Yeah. Thanks, Rob. You too.
Thank you, on the hear. Two quick questions. I guess, just with LSV, I mean, obviously they've been struggling with flows and I mean assets down a bunch year-to-date like 24%. I mean, I don't know, if there's any color insight you may have into kind of it’s known – if they have anything in terms of known redemptions that we should be thinking about as we look ahead? Or any reason to think that this – there could be some change in the near-term trends over the coming quarters?
Yeah. I mean, it's obvious the trends aren't good and they're not good for value investing generally. And since LSV is very specific to that segment of the market, they're clearly caught up in that. I can't say there's real predictability kind of quarter-to-quarter. As – the flows this past quarter, about half of the negative flows were from lost clients and about half of the negative flows were from existing clients.
So they were really more just rebalance away with some existing clients. Arguably, if the outlook for value improves and that potentially would reverse itself as capital gets committed to this segment of the equity markets. And I would say it's really not as -- not predictable. If you remember back a couple of quarters, they'd actually had positive moves. So it's even less predictable. So we're just…
Sure.
….convicted -- we talked about this on the last call with a high conviction about what they're doing, high conviction about value. They know what they're really good at. Those are the kind of shocker the department has been through. This type of thing before even though this one is more prolonged than other periods. And the historical perspective for what it's worth would suggests that when it turns, it will turn very much as a favor.
Great and I appreciate it. And maybe as a follow-up and I'm just curious if -- I don't know if this is embedded in some of the expense numbers you mentioned it’s $4.5 million. But I know over the -- I think it was back at the end of July or so there was one of your vendors had their ransomware pack that I guess exposed some of your client data. So I was kind of curious if you've seen any expense or fall out related to that? Or maybe -- and maybe this is a question for Steve or one of the other segments kind of how it maybe impacted or changed in any way your approach to working with some of your outside vendors?
No. On the expense front, there is a portion of expense associated with that event in that $4.5 million number, that we certainly don't expect that to repeat itself and some of that's just what we did to make sure we were on top of this particular vendor. I would say, we're a firm that's always in constant improvement. So when it comes to vendor management, it's an area that whether we had this event or not we would have been consistent with our approach to risk management and vendor management.
Now this points to us at something that in terms of the issues associated with this particular event that our vendor program would have caught this even if it had elements in it. So we're looking at all of that. I'll leave it maybe any follow-up questions to Steve since it's more kind of end-market elements to it as well. But we feel like we're -- from a market perspective, this is kind of behind us. It's more just evaluating our condition and improving from here.
I mean, should we expect that there may be at least for a couple of quarters a little bit more kind of trailing expenses related to this or that it's pretty much behind you and your...
Yes. I would say they're incrementally – look, given what we expensed in the third quarter I don't see anything on top of that, probably be down a little bit. And the only area we would have some expenditures out of pocket will be professional services related consultants and others. But it's not -- I wouldn't say it's any greater than what we've incurred in the third quarter.
Okay. Great. Thank you for taking my questions, Dennis.
No problem. Thank you.
Thank you. Next we'll go to the line of Chris Shutler with William Blair. Please go ahead.
Hi, Dennis, good afternoon.
Hi, Chris.
So let's see. I guess, first, I want to ask about the One SEI just to reiterate. So you said about $8 million of expense in the new business segment was One SEI?
Yes. That's consistent with second quarter as well.
Yes. And in terms of how we should think about that going forward, so basically maintain that $8 million or so level into -- per quarter into early next year and then it'll start to come down. And I guess, how much do you expect it to come down as you progress through 2021?
Yes. I think it's – my expectation is it would be gradual in the first quarter, a little bit more in the second quarter and then more significantly in the third through where hopefully is pretty much off the books in -- by the end of the year.
Okay. Great. And then the healthcare cost item that you mentioned, would you just explain that quickly? And is that -- just to confirm that $3 million is an ongoing expense?
No, there's a couple of elements in there. One, first of all, you may not -- whether you're aware or not, we're self-insured on health care. We have catastrophic coverage and obviously, it's over the top. But for the first part, we'll pay as we go for health care. And what we saw in the third quarter which I think other companies are probably going to have similar experience there was a lot of catch-up in the third quarter in the healthcare arena as people stayed away from their medical appointments and medical treatments in the second quarter because of COVID and it popped back up in the third quarter.
So there was some catch-up in terms of healthcare usage if you will. And then we -- unfortunately we had one fairly significant individual health situation that also added to the expense. So that will -- I don't expect that to repeat itself in the fourth quarter. There may still be some level of catch-up for people but it should normalize.
Okay. Got it. Thanks for the detail. And then let's see maybe one more. Oh just the onetime expenses that you mentioned the $4.5 million -- I think it was $4.5 million.
And you said it was across segments. Were there any segments where it was more pronounced than others?
Probably a combination of G&A. Some in -- probably more investment managers and then the severance was in institution. Maybe a little bit in banking. But -- so it's pretty it was spread around.
Okay, all right. Thanks a lot guys.
So its pretty good by the way.
Okay. Make sense. Thank you.
And I do have a question from Owen Lau with Oppenheimer. Please go ahead.
Thank you for taking my question, Dennis. So some companies started to talk about upside and downside of working from home. Could you please give us an updated view of SEI's operating model going into 2021? And how should we think of maybe the T&E save any potential, would that say save or any other additional G&A spend going into 2021? Thank you.
Sure. I mean the way we're thinking about the return-to-office work is right now we have about 250 or so employees in our offices mostly here in Pennsylvania. We've recently announced our workforce that we wouldn't be bringing back any significant numbers again until the earliest March 1. So we were -- a few months ago we were more hopeful that the pandemic would have progressed further than it has we would have been able to bring more people back by now. But -- so we made that announcement.
At the same time we also reminded our workforce that there may be instances where we might need to pull some people into the office or offices for specific periods of time for their job functions particularly when we get closer to year-end, so year-end processing.
In terms of additional cost, we would incur or adjustments I don't really see much change on that front over the next quarter. We're very cognizant of making sure that our employees have a -- as comfortable work-from-home experience they can have. So we've done a lot on that front already. We're also cognizant of -- in really all of our locations the challenges that working parents are having, the school-aged children or younger than school-aged children. So we've made some adjustments there. We think we can help at least a little bit with that issue.
And when it comes to T&E, I don't expect what's changed there over the next quarter. We're certainly not planning any big client events or celebrations. And I'd say -- and when it comes to travel and the movement of our workforce out into the field and conversely the movement of clients visiting campus that will occur and it is occurring on a very limited basis.
I expect that will expand a little bit over time, but I don't expect that really to get anywhere close to I'll call it normal for a while. And it's really twofold. One we're very protective of our workforce and our willingness to let them travel and conversely prospects and clients really don't want a lot of visitors.
So we can accommodate visitors here to campus safely. We prepared the campus for that. We have protocols for our employees who do travel or were required to travel by client demand and voluntarily travel. They might -- but I don't see travel and entertainment change it much.
Thanks very helpful. Thank you.
Welcome. Thank you.
Thank you. Next we go to the line of Robert Lee with KBW. Please go ahead.
Great. Thanks. Just a tax follow-up maybe 2. I know it's always hard to predict just given moves around with option exercises and what not. But any venture where you sit now, what you're kind of thinking of that as a kind of tax rate going forward?
Yes. I think it will be in this range -- third quarter we get a little bit of tax benefit from some expiring elements for the most part. It should be on a similar range to third quarter in the fourth quarter.
Great. And then maybe one last thing on a few straight patients and I know the last thing you ever want to be talking about is hypotheticals. But hypothetically, if down the road we have -- are facing higher corporate tax rates maybe who knows, but is there any reason where you sit today, would you expect kind of let's say what 700 basis point increase that would be kind of the full effect on you guys? Or is there any way where you're saying that you think it maybe puts a foreign-sourced income or something it would be less? Trying to get your own kind of sense on that?
Hypothetically, I think we would have to prepare for any I would say flat direct increase in the statutory rate without any other elements of adjustment. It will probably hit us pretty directly.
Okay. Thank you for taking my hypothetically.
Yes, and I don't know if you recall when the tax cut occurred, we got pretty much full benefit from that as well.
Right.
And there's also this little thing on most companies' balance sheet called deferred tax assets or liabilities. Those have to adjust as well. So you get these one-quarter anomalies on that and we all have that. We don't have it probably as much as most companies something to watch out for hypothetically, hypothetically.
Hypothetically. Thank you. Appreciate it.
Thank you. And I have no further questions in queue at this time.
All right. With that, I'll now pass it on to Steve to talk about the Private Banking segment. Steve?
Thanks, Dennis. Good afternoon everyone. For the third quarter of 2020, revenues for the segment totaled $114.8 million, which was down 2.1% from the third quarter 2019, which was due primarily to previously announced client losses and a decrease in our asset management revenues. In comparison to the second quarter of 2020, revenues for the segment were up 6.6% for the third quarter, which was due primarily to onetime revenues tied to implementation activities.
For the third quarter of 2020, quarterly profit for the segment was down $4.7 million from the third quarter of 2019. This year-over-year decrease was primarily driven by previously announced client losses and a decline in our asset management business. Quarterly profit was up about $1.7 million from the second quarter of 2020, mainly driven by our increase in onetime revenues.
Turning to sales activity. For the quarter, we closed $29.8 million of gross recurring sales events and recontracted 8 clients for another $22.6 million in revenue, which in total solidified $52.4 million of recurring revenue and resulted in approximately $600,000 of net recurring events for the investment processing business, offset by a negative $1.3 million in asset management events. This offset brought our total net recurring events for the quarter to a negative $700,000 for the segment. The difference between our gross events and the net events was primarily due to a small net down in one of our deals signed for the quarter. The average term for our recontracts this quarter was 3.9 years. And also in the quarter we closed $11 million on onetime sales.
I'm pleased to announce that during the quarter, we signed an agreement with one of our largest and longest-running client partners U.S. Bank to adopt the SEI Wealth Platform. U.S. Bank the fifth largest bank in the nation has been a client of SEI since 1977 and will join over 50 other signed clients committed to utilizing SWP as the core technology and infrastructure to grow and modernize their wealth management business.
In July, U.S. Bank signed this long-term SWP contract and implementation agreement. U.S. Bank selected the SEI Wealth Platform to fuel their global growth strategic initiatives and to take advantage of an upgraded technology and infrastructure solution set that will power the future of their wealth management and investment services business. U.S. Bank will consume SWP in a Software as a Service model. As this is a large-scale implementation, we expect a multiphase multiyear conversion.
In the interim, U.S. Bank will remain on our TRUST 3000 platform. We have started implementation activities with U.S. Bank. This event is significant for us for several reasons. First, it validates our One SEI strategy, as we are able to modularize our platform and approach to offer only core-to-core back-office for SWP and move this agenda faster finalizing it during the pandemic.
Second, it allows us to land SWP with U.S. Bank and then provides us the opportunity to expand our additional SWP front-office capabilities to U.S. Bank. Third, this is a large-scale SaaS adoption of SWP, further validating the broad capabilities of SEI's Wealth Platform. And finally, this will allow us to support U.S. Bank's continued global growth in a more meaningful way.
We have enjoyed many milestones as long-time partners with U.S. Bank in this industry and we are thrilled to be able to continue our long-term partnership as well as to expand our relationship.
Also during the quarter, we signed an agreement with a new client to SEI, Pacific Premier Trust, a division of Pacific Premier Bank. We won this business in a competitive process and we expect Pacific Premier Trust to migrate to SWP from a competitor platform in the first half of 2021 and we look forward to welcoming them to the SEI family and supporting their future growth initiatives.
From a U.K. perspective, we continue to see – continue expansion and growth from the Fusion/Schroders migration and continue progression with the HSBC implementation. As an update on our backlog, our total signed but not installed backlog is approximately 73 point million dollars – $73.1 million in net new recurring revenue.
Turning to implementation activity. In the third quarter we successfully converted two clients to the SEI Wealth platform: Choate, Hall & Stewart LLP in Boston Massachusetts; and Legacy Trust Company in Houston Texas, both existing TRUST 3000 clients. Both clients were successfully brought live on SWP in a 100% remote environment.
While others in the industry are experiencing implementation delays, we continue to install clients on time and on budget. Throughout the quarter, SEI and our client partner teams continue to successfully operate in a virtual environment and met all milestones and live dates to avoid any disruption to our clients' business. The teams have enhanced our remote training and implementation capabilities and the continued success of these conversions will ensure our ongoing ability to bring clients live under unforeseen circumstances. This capability to finalize these implementations during these disruptive times is a testament to our clients, our workforce and bodes well for the future.
From an asset management standpoint, total assets under management ended the period at $23.5 billion, representing a 2% increase from the second quarter of 2020. Our AUM increase was due to market appreciation. Our cash flow for the third quarter 2020 was a negative $314 million.
Turning to the business environment. Despite the ongoing pandemic and the challenges that has brought, we continue to operate as business as usual and our workforce continues to rise to the occasion. And across our company we have executed extremely well finding new ways to engage clients and prospects. I'm encouraged by the continued strong market activity we are seeing and the growth opportunities in front of us.
I am further encouraged by the execution of our One SEI strategy and the investments we are making in our platforms and business to drive sustainable growth. Our people, our culture and our technology are differentiators, and I feel well positioned due to them.
That concludes my prepared remarks and I'll now turn it over for any questions you may have.
[Operator Instructions] And we'll go to the line of Owen Lau with Oppenheimer. Please go ahead.
Yes, thank you for taking my questions, again. Sorry Steve for the one-time revenue, I didn't get the amount. How much was the one-time revenue? And what was that? And overall, we see margin started to expand from here. Should we take it as a sign that it's the beginning of a more sustainable margin expansion from here? Or is it too early to say it will balance the line over the next couple of quarters? Thank you.
So the one-time, Owen that we closed in the quarter was $11 million in one-time sale. As far as the margin I would say, we're still dealing with the client losses that we've announced ad nauseam before and we're still going to kind of digest them through this quarter and the rest of this year.
I think I've mentioned this before on a number of calls. My hope is that sometime in 2021, as we get through this and start to implement in a more meaningful way our backlog, I'm hoping to get to a point where we can have a more sustainable and accelerating margin path.
Got it. Thanks, Steve.
Sure.
Thank you. And next we go to the line of Robert Lee with KBW. Please go ahead.
Great. Thanks, Steve. I hope you’re well?
Sure, I’m. I hope you are too?
All good, thanks. A lot of the numbers you went through I think pretty quickly so maybe if we could go back. Well, I guess my first question is really the private bank SWP win. Is that – I'm assuming that's incorporated into your kind of net numbers for the quarter. And how should we think about – is that kind of sort of a neutral revenue impact for a while? I'm just trying to get a sense of how that impacts just your revenue.
Sure. Sure Rob. It's a great question and I understand there's a lot of moving parts here. So what I'll say is this. So remember, obviously, U.S. Bank is a great move to SWP for us. And like in the past any time an existing client moves to SWP even when it's in a competitive process, while I'd love to announce the entire event as new revenue we can't. We obviously have revenue on the book. So, we only announce adding that up.
In this case again because the One SEI strategy, we afforded the ability to just sell the core back-office processing core-to-core SWP to TRUST to U.S. Bank. And obviously we did that because it wasn't the full stack at a reduced rate. So, actually it was a little net down from TRUST -- from the TRUST number. But we have the ability now as I said to kind of land and expand and upsell U.S. Bank and potentially negate or improve that net down. So the gross it reflects obviously that and the net reflects the net down from that as well as the new sale and any net ups we had from that.
The importance I think that you should take from this and I know, we talked about this a little last quarter, between last quarter and this quarter, we have solidified through new business and recontracts close to $100 million of revenue in the segment for the next three to seven years. Quite frankly, I think that is the significant point that you should take and I think it's the important point we should take going forward. When we look at growing the business, there's really four legs to growing this. One, retaining our existing clients; two, growing our existing clients; three bringing new clients on; and four, expanding our opportunities, our solutions and our markets and our at best if you will. We're doing all four.
Great. And then maybe just a quick follow-up, with the backlog of $71 billion -- $71 million excuse me of backlog, can you just remind us how you're thinking about that in terms of turning on? I mean I guess if I remember correctly maybe the first half of like kind of an 18-month period maybe starting next year? Then the other half kind of over the next several years post that? That's the right way to think of it?
Yes I think so. I think last time it was -- I think the rough numbers I think was about 50% in the next 18 months, we expect to come on and then the next 50 after that going up to almost 28, 30 months. If I look at it now we've obviously added to that backlog now. But I'd say that's still directionally correct how I would look at it. Obviously some of the deals that are in conversion that would be down to about 15 months, but some of the new we added will add to that. So if I had to look at roughly I'd say around 52%, 53% in the next 18 months. And the rest after that spread out.
Okay. Great. Thank you, Steve. Appreciate it.
Next, we'll go to the line of Chris Shutler with William Blair. Please go ahead.
Hi Steve, good afternoon.
Good afternoon, Chris. How you are doing?
Good. How are you?
Good.
So first on U.S. Bank. So if that's a -- sounds like a modest net down recognizing its like-for-like. Just I'm trying to reconcile how that makes sense. If SWP is massively better technology than what U.S. Bank has had in the past and it's -- that certainly isn't kind of the same as your experience in Wells Fargo five years ago when you announced that that it was like-for-like also, but was still a pretty nice step-up in recurring revenue.
Well Chris, they did not buy the full stack of SWP. So, while what they're getting certainly is a step-up to what they have, they have not bought the full stack. So again, going back to our One SEI strategy and some of the talks we've had the full stack while extremely powerful and extremely valuable is sometimes hard because it's such a big transformational change. So in this case they literally bought the core-to-core back office kind of SWP to TRUST 3,000 and that's what they're installing. So, all the value-add front office applications unlike Wells are not included in this.
Okay. Got it.
Obviously U.S. Banks are quite a large and long standing partner. And obviously getting this done in this time frame in the pandemic and securing this revenue and the move to SWP and giving us the opportunity to grow I think is a significant step.
Yes. Okay. Makes sense. And then, secondly on maybe expenses, just help us think through the trajectory of expenses in your business not only Q2 to Q3, but just how we should think about going forward? So, is Q3 a good jumping-off point I guess?
Yes. So certainly, expenses were up. Dennis went over them a little bit. If you look at our net up, I think our expenses were now up quarter-over-quarter a little over $5 million. Some of that I'd say $1 million of it was directly tied to our asset management revenue increase. If you think about it as the revenue increases there, our underlying sub-adviser manager fees go up. Half of it was tied to some of the processing and trade corrections that Dennis had mentioned. And the remainder was personnel expenses kind of partly due to our normal midyear raise cycle. And some of it very positively tied to some new -- headcount tied to new revenue coming in. So, I think going forward obviously, as I've said before, my job is to grow the top line and bottom-line. We've got a great group of people that are focused on this.
And we're going to manage expenses. But as we bring new business on you will see an uptick in some of our personnel and some of our technology but that's in the vein of bringing new revenue in. But we're very focused on managing this and hopefully, keeping it flat or bringing it down and hopefully, getting into next year where I can provide a more sustainable and accelerating profit trajectory.
Okay, got it. And lastly Steve on the asset management distribution business, did you say that the flows were negative $314 million?
Yes. Cash flow is a negative $314 million for the year -- for the quarter.
For the quarter -- excuse me. Is there any sign of that business turning a quarter? It feels like you're sort of in this flattish to slightly negative in most quarters these days?
Yes, I think what's going to happen and I think where we're in you can imagine the environment. And I think private banks are taking a pretty conservative view on their asset management side.
We see -- and that negative for our side was really made up of two clients who really were deciding to put a cash position a more defensive cash position together and we see a lot of unrest with the election coming the pandemic going on.
So, I think to turn the corner fully we're going to see a little bit more -- you'd see a little more stabilization after the election and some of the other things for the banks to feel a little bit more comfortable to lean in.
Okay. Thanks a lot.
Sure.
Thank you. And next over to the line of Ryan Kenny with Morgan Stanley. Please go ahead.
Hey Steve, good afternoon.
Good afternoon Ryan. Welcome.
Thanks. Just on the TRUST 3000 platform, I know you still have some clients on that platform and it's profitable and you've talked about wanting to keep that platform running for a while. Just want to get a sense of where we're at in the transition. And has the pandemic in the current economic environment impacted the appetite from migrating to TRUST 3000 to SWP at all?
No, I think certainly some people -- some of our clients aren't entertaining any moves right now because of the pandemic. I'd put them on the lower side. I think we're still engaged with many of them on the increasing capabilities they can get with SWP and I think that will happen in a normal course. And I think as I've said before TRUST 3000 is still a very powerful platform that competes well in the market. And I view it and the one word I always use it's an asset and it's a growing asset.
So, my view of it right now is we're going to continue with that and it's a growing asset. We're going to continue to support it. And as we continue to move clients to SWP, we'll continue to look at it. But I think with the One SEI mindset, there's opportunities for us to take components of our other platforms, combined with TRUST 3000, and provide an even powerful tool.
Because I do think when we look at the grand scheme of the clients left on TRUST 3000 there's some that SWP might not be a fit for, for a number of reasons including maybe the limited size of their wealth management business. Maybe they're more on the trust side and maybe the capabilities it provides them are ones that they just don't want to invest in right now. But I think there's opportunities for us to continue to grow the trust relationship and expand our services through some of the other assets via the One SEI mindset.
Thank you.
Thank you. And next over to the line of Chris Donat with Piper Sandler. Please go ahead.
Hey Steve, how are you doing?
Hey, how are you Chris?
Doing fine. Wanted to ask questions on the land and expand strategy. My question is directly about U.S. Bank, but I wouldn't expect you to answer directly. So, just thinking in general about landing and expanding with the One SEI strategy what are you competing against as you think not so much on the core-to-core transaction that you're doing now with U.S. Bank, but as you were -- if you were to sell more of the SEI Wealth Platform what's your competition that's in-house in banks like U.S. Bank?
Well, thank you. That's the way I was going to answer it I don't want to speak specifically about any one client. But what I would say the norm across all banks we're seeing anywhere from homegrown legacy technology to plug-and-play, front office, anywhere from CRM to portfolio management to modeling software so it kind of runs the gamut. But the key is it's in many cases very disparate technologies cobbled together to solve the situation. But in the long-term, it's made the situation worse.
So, they're really looking for a straight-through powerful platform and technology stack and I think part of the benefit of doing it this way is it gives them the ability to digest a major part of the improved platform and then start to transition other pieces in a more kind of expanded cadence which I think is very appetizing, especially when you look at many of these firms have a number of systems, anywhere from five to 10. So, I think it provides definitely a better trajectory and a more acceptable less risky way of transforming their internal operations and replacing internal systems.
Okay, got it. Thanks very much.
Sure.
Thank you. And I have no further questions in queue at this time.
Great. With no other questions, I'll turn to the investment manager segment. So for the third quarter of 2020 revenues for the segment totaled $123.8 million, which was $11.6 million, or 10.4% higher as compared to our revenue in the third quarter of 2019. This year-over-year revenue increase was due primarily to net new client fundings and existing client expansion.
Our quarterly profit for the segment of $44 million was $3.7 million or 9.2% higher as compared to the third quarter of 2019. Higher profits year-over-year were primarily driven by an increase in revenue, offset by a smaller increase in personnel expense and investments.
Third-party asset balances at the end of the third quarter of 2020 were $730.4 billion approximately $61.8 billion higher than the asset balances at the end of the second quarter of 2020. This increase was due to net new client fundings of $29.3 billion and market appreciation of $32.5 billion.
And turning to market activity, during the third quarter of 2020, we had a strong sales quarter with net new business events totaling $12.2 million in recurring revenue as well as re-contracts of $9.5 million in recurring revenues. These events include the following highlights.
In our alternative market unit, we closed a number of strategic new names, while sales to existing clients continue to be robust as these clients continue to launch new products. SEI was selected to provide our front-office platform providing investor onboarding, data management, and reporting to support a $135 billion alternative manager in a highly competitive transaction. This significant deal demonstrates our capability to deliver stand-alone comprehensive platform solutions in addition to our standard role as fund administrator.
In addition, we were selected by a start-up credit shop with a significant track record capitalizing on the – on our market leadership in the private credit space. And we were also selected by a growing private equity real estate manager to convert from a competitor, due to our operational expertise and technology platform.
In our traditional market unit in addition to continuing our momentum with collective investment trust and expanding our relationships with our clients, we also are pleased to announce the addition of our first turnkey ETF clients to our advisers in our Circle Trust platform.
In Europe, private credit, private equity and real assets continue to be the main drivers of new fund launches with strong cross-sales with existing clients. In our family office services unit, we continue to see steady demand in the single-family office segment with new name sales events for the Archway Platform.
In summary, we continue to see strong momentum in the business and across our client base. As we all know, this year has had its fair share of challenges, and I am immensely proud of our workforce who are the real key to our continued success. Their persistence and resilience in the face of these challenges have been nothing less than remarkable and it is being noticed and appreciated by our clients.
As we enter the final stretch of 2020, we will continue on executing on our growth opportunities as well as investing in our overall platform, including the front-end platform, which we feel has significant growth opportunity for us.
That concludes my prepared remarks, and I'll now turn it over for any questions you may have.
Thank you. [Operator Instructions] And we'll first go the line of Ryan Kenny with Morgan Stanley. Please go ahead.
Just a question on the fee rate. So, if I look at investment managers' revenues over your average assets under administration and management it looks like the fee rate came down a bit this quarter. I just want to check is that because of pricing pressure? Or is it asset appreciation and onboarding coming in at the end so the fee rate should then roll forward? Thanks.
Yeah. I think it's more of the latter. And if you think of this quarter our new events and even looking at the new events that funded a lot of it is with existing clients. Many of those clients might be reaching higher tiers or lower tiers of their breakpoints et cetera. So I would say, it's more a function of that as well as, as we look for some of our products and solutions they're less tied to assets and more tied to a platform fee and some other volume increases. But I'd say, the primary for the quarter is more of the type of business that came in from clients.
Thanks. That's helpful.
Sure.
Thank you. And next over to the line of Robert Lee with KBW. Please go ahead.
Hi, again, Steve. You can probably predict my first question.
Backlog.
Yeah.
I leave it out, so you can ask me for it. It's $36.9 million at the end of the quarter.
Great. Thanks. And on the recontracting, I guess, it's $9 million. Can you maybe give us some color around that what you saw this quarter or maybe last or are expecting in terms of kind of – are you kind of recontracting at kind of similar revenue level, but adding some additional services? I'm just trying to get some color around kind of the –
Yeah. So, every – Rob, every client is a little different. Some clients have – depending on the segment, some clients have had a rough year and maybe their assets have dropped. And certainly, we're a good partner, and we'll lean in to help them as we recontract and look for the future and potentially to sell them other business. But I think, mostly for this quarter, we saw recontracting at the same fee level and just a continuation and expansion of years and in some case an expansion of services and uptick, because of the expansion of those services.
Next we go to the line of Owen Lau with Oppenheimer.
Great. That was it. Thank you.
Sure.
Thank you. Next we go to the line of Owen Lau with Oppenheimer. Please go ahead.
Steve just a quick modeling question. For the $5 million uptick in expense line item, was there any onetime consulting expenses related to investigation of compliance? Or this incremental expense would stay there because of the personnel expense you mentioned? Thank you.
Yeah. And in this corner -- in this segment, I'd say half the uptick was really tied to personnel. And I would say that was a combination of the again our midyear salary and promotion routine we go through, as well as new people -- hiring new people for new business, which I think is a great sign.
Our investments were up and that was probably closer to about 20%. And there was some others around consulting and professional services and as Dennis mentioned a little bit due to professional fees and costs due to some of the other situations we had at the -- earlier this year.
I think for the most part, we're looking to manage the expenses. We could see some uptick due to personnel and continue to bring new revenue and new business in but we're hoping to keep that at a modest pace.
Got it. Thank you, Steve.
Sure.
Thank you. I have no further questions in queue at this time.
Okay. Thank you. If there's no other questions I will turn it over to Wayne Withrow to go over the adviser segment. Wayne?
Thanks Steve. During the third quarter of 2020, we continued execution of our business strategy in a virtual environment. While making progress, we continue to evolve our virtual model and feel we are uniquely positioned to take advantage of this new reality.
Third quarter revenues totaled $103 million. These revenues were flat compared to the third quarter of last year. Now while revenues were flat our asset balances increased year-over-year but our asset mix resulted in this growth not being reflected in revenue growth. The good news is these assets are on our platform and we hope to receive increased fees as they move into equity and fixed income products.
Like revenues, expenses were flat compared to the third quarter of last year. The corporate wide increases Dennis discussed and increases in sub-advisory expenses driven by our SMA program and mostly -- were mostly offset by savings in an assortment of other areas including travel and sales compensation.
Our profits remained flat from last year's third quarter. Assets under management at the end of the third quarter was $69.4 billion. This is up roughly 2.5% from September 30, 2019. Our average assets under management during the quarter were up a similar percentage from last year's quarter.
Positive markets and positive cash flow from sales activity contributed to overall asset growth, but portfolio repositioning into money market products prevented this growth from yielding revenue growth. Net cash flow for the quarter was $140 million. This total is net of $158 million in advisory fees taken by our advisers.
Going forward, I intend to report cash flow gross of these advisory fees since they are not the result of sales activity. Exclusive of these fees, cash flow for the quarter was $272 million. In addition to this cash flow into our assets under management, we had $250 million in cash flow into non-managed assets on our platform. We recruited 56 new advisers during the quarter.
As I discussed during SEI's second quarter call, our investment management unit is now curating some products managed by third-party asset managers. We are seeing growth of these curated products.
In summary, we are settling into the new normal driven by COVID-19 and are focused on driving growth operating in this new environment. Our scale, strong financial position and technology driven culture will allow us to capitalize on this new business environment.
I now welcome any questions you may have.
[Operator Instructions] And we'll first go to the line of Ryan Kenny with Morgan Stanley. Please go ahead.
Can you hear me?
I can Ryan. Hi.
Hi. Just want to see if you could give us an update on the competitive environment, specifically in the turnkey asset management program what you're seeing there and how we should think about any pricing pressure going forward? Thanks.
Yes. I mean, I think the competition in the turnkey space is fierce and it's other turnkey providers and it's also competition from the internally-managed broker-dealer platforms. And I think you will continue to see pricing pressure in those markets. However, I mean, I would say that if you look at the leverage inherent in our business model, I think we are really well positioned in a fee compression world right now.
Thanks. And has the remote working environment impacted demand for your platforms at all?
I don't know if it's increased the demand for our platform. I think the -- in a remote environment, the functionality in the platform and just the ease of remote processing has allowed us to thrive in the remote environment and I think people are more inclined to outsource perhaps than they were in the past. But it's real -- the platform is really an enabler. And I think it -- quite frankly it operates as well in a virtual world as it does in a live world.
Thanks.
Thank you. Next we go to the line of Robert Lee with KBW. Please go ahead.
Thank you. Hi, Wayne. How are you?
I'm great, Rob and I don't have a backlog to talk to you about.
Okay. I just want to make sure I understand your comments around kind of the net cash flows and the change starting this quarter. Can you -- and I apologize, if it's late in the day. So can you maybe just walk through that again and why it's changing?
Yes. I mean, every quarter, our advisers collect their advisory fees out of the investment accounts. And traditionally, we have always included that if you will negative cash flow as redemptions which go to pay the advisory fees in our cash flow numbers. But really, if you look at cash flow as a measure of sales activity that really has nothing to do with sales activity. And it's -- as we've gotten bigger and bigger it's become a more significant number.
As I said during the last quarter, it was $160 million that went out just to pay for the advisory fees for advisers. So we're no longer going to -- we'll include that if you will in market appreciation and depreciation, which is really -- it's much more akin to that. It's not something that's a direct result or even an indirect result of sales activity.
Okay. I see. So it's kind of like you'll report AUM net as opposed to gross, but gross to be kind of grossed up so same dollars...
We report AUM and AUA net. I'm just saying that in the net calculation, we're not going to include the fees paid to advisers.
Okay. Great. I think I get it. And then also I think you -- and you touched on the $250 million of cash flows to non-managed assets. So can you -- and I think last quarter you're going to start and maybe talking more about kind of those total was not those AUA if you will. So can you maybe just update us on kind of where that is today?
I'm sorry. Could you repeat the last part of that question again, Rob? I didn't get it.
The assets under administration, I mean, I think you had $250 million of cash flows to non-managed assets right? So I mean that's becoming increasingly important. So I mean, I was just trying to get a handle on what is your AUA or kind of your non-managed assets on the platform today?
Yes. I would say it's north of $10 billion. But it's -- the AUA -- when you look at AUA which is primarily a pure custody, it's not so much a revenue driver as it enables us to gather the assets under the platform. And it's a variation of the land and expand strategy as Steve discussed. This gives us existing clients which we're better able to address going forward as they have increasing needs or differing needs that we can meet with other products.
Thanks, Wayne.
Thank you. And I have no further questions in queue at this time.
Okay. With that I will turn it over to Paul, who will discuss our Institutional segment.
Thanks Wayne. Good afternoon everyone. I'm going to discuss the financial results for the third quarter of 2020. Third quarter revenues of $79.6 million decreased 1% compared to the third quarter of 2019. Third quarter operating profits of $41.8 million decreased 3% compared to the third quarter of 2019.
Operating margin for the quarter was 52.5%. Revenue decreases were impacted by negative client fundings and were offset by higher capital markets. Operating profits were negatively impacted by onetime severance expenses and a onetime trading error, but positively impacted by lower travel costs.
Quarter end asset balances of $89.7 billion reflect a $200 million increase compared to the third quarter of 2019. This slight increase is driven by positive capital markets offset by negative client fundings.
Net sales were a positive $1.65 billion for the quarter, which was comprised of gross sales of $2.35 billion and client losses of $700 million. New OCIO signings were strong and included U.S. healthcare, U.S. not-for-profit, governmental and fiduciary management defined benefit. The unfunded new client backlog at quarter end was $925 million.
Sales momentum saw a positive turn with increased activity and a return to in-person execution in select accounts, while also enhancing our virtual interactions with prospects. OCIO RFPs and inbound inquiries continue to be strong in the quarter and in the early stage of the fourth quarter. We are very focused on existing clients as our current clients are apt to also go through a formal rebid process due to a time anniversary with SEI.
On the new strategic initiative side, we formally launched our enhanced CIO/ECIO solution to the large end of the institutional marketplace in the third quarter. We are actively marketing this solution and building a pipeline and looking to add more sales resources. This solution is consistent with the One SEI mindset. We continue to research other strategic initiatives and evaluate new markets globally.
Thank you very much and I'm happy to answer any questions that you may have.
Thank you. [Operator Instructions] And we'll go to the line of Ryan Kenny with Morgan Stanley. Please go ahead.
Hi, Paul. How are you?
Good, Ryan. Yourself?
Good. On the ECIO, just want to understand how material of a driver that is for revenues at this point?
Well, it's not a driver at all. There's no revenue in our group for ECIO. So we're just launching this into the large institutional marketplace. We think globally there's about 1,800 suspects that fit the qualitative and quantitative definition of those that want to in-source and have a team and the solution is to make the team more efficient and more effective. So anything that we do with respect to ECIO, we have not had a transaction yet, would be incremental to the revenue and incremental to the profits of the unit.
Got it. Thanks. And then one more question. I understand that there's some benefit from lower rates on the DB businesses from delays in the funding status. How should we think about quantifying the revenue impact, if long-end rates were to rise from here?
If long-end rates were to rise, it'd be hard for me to just give you a quick quantification on from a revenue perspective. But our book is about $32 billion or $33 billion of corporate-defined benefit assets. The average funded status of those defined benefit plans presently is about 84% on a PBO basis.
100 basis points would certainly give them a better inflection point and would probably move the funded status 3% or 4%, all things being equal with the assets. Certainly, not in a position to annuitize or immunize the portfolio, but it may be for certain clients that are more funded or certain clients that have more cash that type of move might give them an opportunity to do a curtailment. So, certainly, it's a tailwind for our business when long rates are low and it would be a headwind as long rates raise over time, because legacy-defined benefit plans may decide to take action.
Got it. Thanks.
Thank you.
Thank you. Next we’ll go to the line of Robert Lee with KBW. Please go ahead.
Hi, Paul. How are you?
Good, Robert. Good to talk to you.
Me too. I guess, I really just wanted to clarify your comments about net flows and funding. I guess, I was a bit confused, which is not unusual. But, I guess, I was just trying to reconcile if I heard you correctly, the quarter, you maybe -- the increase in AUM was driven by markets, offset by some, I guess, outflows or defunding. You had like right about $1.6 billion of net inflows. I just want -- I must have heard something wrong or maybe I'm just misunderstanding it. Want to make sure I have it correct.
I'm comparing -- just so the quarter end asset balance, Robert, I'm comparing it against the previous year. So collectively for the four quarters, we've had more outflows than we've had inflows with respect to the third quarter in and of itself. We sold $2.35 billion. We lost $700 million and we have a backlog of $925 million.
So not everything that we sold in the third quarter funded in the third quarter. So some of that -- so we usually -- when we have a sales event, we usually have a 30 or 45-day lag before it actually comes in to the portfolio. And therefore, we start accruing revenue. But my comments about the negative client fundings are more year-over-year, not quarter versus quarter.
Great. Got it. That's helpful. And then, I guess, I'm just kind of curious. I mean, your margin is pretty healthy in this business. It's been running at a pretty high rate. So, I mean, as you look ahead typically as you kind of launched the ECIO initiative and understanding some of the One SEI costs are in a different segment, but is there any reason -- how should we be thinking about margin development going forward and maybe peak margin or that settling back down towards 50 makes more sense? I'm just trying to get a handle on that.
Yes. I would say clearly the biggest impact with respect to -- Robert is if we lose a client and they move out of our OCIO platform versus a similar dollar that comes in we're probably going to lose profitability. We probably are making more on what we're losing than what we're bringing in. So we have that reality. We have the rebid reality when we go out and retain a client. We probably are not going to be gaining them at the same rate that we just had.
Now that said, offset by clients that are more diversified that might consume more alternative investments. ECIO the great thing about ECIO, is much of the technology is not all the technology is built. It's very similar to the technology infrastructure and stack that Steve and Phil McCabe sell to the investment management services unit. So there's not a lot of build out there. There's a service model. There's some salespeople. There's some reporting and things like that. But it's not -- we don't think that's a huge investment in capital. And again it's a real great leverage point of SEI of unleashing those capabilities to an adjacent market.
Great. Thank you. Appreciate the color.
Thank you.
Next we'll go to the line of Chris Shutler with William Blair.
Hey Paul, good afternoon. So first could you break out the net new assets in the quarter versus the market appreciation?
So again the net new assets meaning that the sales are just sales. There's no market appreciation in the sales. Are you saying the second quarter versus the third quarter?
Correct. To get from the second quarter ending assets to the third quarter ending assets how much of it was markets versus how much of it was net new or new business won?
Yes. It looks like it's about roughly $2.5 billion would be market about $1.5 billion roughly is probably based on new events.
Okay. And then I think going back a year or two ago, you were talking about at least thinking about doing tuck-in acquisitions in your space or maybe making select higher or 2 mainly to address the endowment foundation area. Is that still something that's a strategic priority? Or maybe just an update on that would be great.
Sure, sure. It is something formally we looked at last year or fourth quarter. We did have an outside firm present us some opportunities. So we have decided to pause on the properties that we saw. We did not think they would bring anything incremental to us or differential to us. So we have set our sights more on a personnel strategy of select individuals that enhance the capabilities for an E&F solution which we've already delivered on two fronts and there's another one that we're looking at.
But also part of that process when we were looking at properties and specifically the larger end of the market confirmed our belief that many of the larger end of the markets actually don't want to outsource. They want to in-source and that really kind of unleashed with the capability of One SEI to really go to market with this enhanced CIO solution.
Rather than fight the flight of trying to sell a $2 billion endowment that you should outsource we are going to deploy our capabilities and saying we can make you more efficient from a technological standpoint. So I think that was a breakthrough series of work that we were able to do both internally and externally.
Got it. Okay. Thanks for the update.
Thanks.
I have no further questions in queue at this time.
Great. I will now turn the call over to Kathy Heilig, SEI's Controller.
Thanks Paul and good afternoon everyone. I have some additional corporate information about this quarter. The third quarter cash flow from operations was $131.1 million or $0.89 per share bringing year-to-date cash flow from operations to $395.2 million or $2.64 per share. Third quarter free cash flow was $116.3 million bringing year-to-date free cash flow to $333.5 million.
In the third quarter our capital expenditures excluding capitalized software were $8.7 million. This number includes the expansion of our facility. Our year-to-date capital expenditures excluding capitalized software are $43.1 million. We project for the fourth quarter the capital expenditures will be approximately $15 million.
We also would 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 un-audited. In some cases you can identify forward-looking statements by terminology such as should, may, will, expect, believe, continue or appear.
Our forward-looking statements include our expectations as to the time horizons of our investments and the ability to take advantage of opportunities; our ability to expand our relationships and revenue opportunities with existing clients; the degree to which we benefit from our scale, resources, technology and infrastructure; our ability to bring clients live in unforeseen circumstances; the demand for our products and services and the components of our business that will drive growth; 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 and technology and platforms in which we choose to invest including our One SEI initiative; the strategic initiatives and business segments that we will pursue, 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 the current beliefs and expectations of management and 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 described in our forward-looking statements can be found in the Risk Factors section of our annual report Form 10-K for December 31 2019. That report is available on our website.
There may be additional risks that we do not presently know or that we currently believe are immaterial, which could also cause actual results to differ from those contained in our forward-looking statements. We do not 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] And we'll go to the line of Chris Shutler with William Blair. Please go ahead.
Thanks. Just one last one for Steve. Steve, I want to come back to the U.S. Bank discussion and just the -- trying to figure out like, is there a compelling reason for a bank to only buy the kind of the back end the custody platform and not use SEI for the front office tools? I would think that using SEI for everything would be a lot more integrated better experience et cetera. But just help us think through kind of the thought process of a bank as they go through that back-end implementation and what the risk is that they wouldn't use SEI for other solutions?
Yes, Chris, I understand, but I think you're overthinking it a little. So look at it this way. I think it's very compelling to use the whole platform. However, as we discussed numerous times a lot of times when adopting the whole platform would be like open heart surgery. It's quite a large transformation. And part of our plan to increase growth was to adopt the One SEI mindset to modularize our platforms and give the ability to adopt pieces of the platform. Now obviously in this case, they're adopting the core-to-core back office, which is a large part of it.
However, there's a lot of great front-end technology and other services that are packaged with the platform. And I think the real key here is it gives the ability for any institution to lean in and adopt SEI and move in a less impactful way and not as many hurdles and then certainly add more components as they go. So I think quite frankly, it gives optionality, which in this day and age and especially dealing with large financial institutions I think is much needed and more positive. So I quite frankly look at this as a huge positive move and positive outcome with a great opportunity for the future.
Okay. Thanks for that. Appreciate the clarification.
Sure.
Thank you. And I have no further questions in queue at this time.
So ladies and gentlemen, we are fighting on two fronts: first, the COVID-19 disruption; and second, growing revenues and profits during this difficult times. On the first front, we were very fortunate to have planned well and 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 to our motivated and innovative workforce and the strategic investments we are making in our future. Please be safe and remain healthy. Have a great day. Thank you for attending.
Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference service. You may now disconnect.