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SEI Investments Co
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Ladies and gentlemen, thank you for standing by and welcome to SEI Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode and later we will conduct a question-and-answer session with instructions will be given at that time and as a reminder, this conference is being recorded.
I’d now like to turn the call over to our host, Al West, Chairman and CEO. Please go ahead sir.
Thank you. Welcome everyone. All of our segment leaders are on the call as well as Dennis McGonigle, SEI’s CFO; and Kathy Heilig, SEI’s Controller. I’ll start by recapping the fourth quarter and full year 2019. 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 leader’s will comment on the results of their segments, then finally Kathy Heilig will provide you with some quarterly company-wide digits [ph]. As usual a few questions at the end of each report.
So let me start with the fourth quarter and full year 2019. Fourth quarter earnings increased by 11% from a year ago. Diluted earnings per share for the fourth quarter of $0.84 represents a 15% increase from the $0.73 recorded for the fourth quarter of 2018. For the year 2019, our earnings decreased by 1% over 2018 earnings. Diluted earnings per share for the full year - $3.24 is a 3% increase over the $3.14 reported in 2018. We also reported a 4% increase in revenue in fourth quarter 2018 to fourth quarter 2019 and a 2% increase for the full year. Also during the fourth quarter 2019 our non-cash asset balances under management increased by $13.2 billion. SEIC’s assets increased by $5.8 billion and LSV assets increased by $7.4 billion.
For the year, assets under management increased by $33.2 billion. In addition, during the fourth quarter 2019, we repurchased approximately 1.3 million shares of SEI stock in the average price of $63.66 per share that translates to over $81.2 million of stock repurchases during the quarter. For the entire year, we repurchased approximately 6.2 million shares in an average price of $55.96 representing just over $348.3 million of repurchases. Between our stock buybacks and cash dividends during 2019, we returned approximately $450 million in capital to shareholders.
During the fourth quarter we capitalized approximately $7.3 million of development and amortized approximately $12 million that previously capitalized [indiscernible]. During the year we capitalized $34.1 million an amortized $47.5 million. Fourth quarter 2019 sales events, net of client losses totaled approximately $26.1 million and are expected to generate net annualized recurring revenues of approximately $17.5 million.
For the full year 2019 sales events net of client losses totaled approximately $87.5 million and are expected to generate net annualized recurring revenues of approximately $62.5 million. We’re pleased with our fourth quarter and annual sales results in our technology and operational businesses. And that combined with our active pipelines in these businesses. [Indiscernible] to be bullish about future growth, still we faced headwinds.
First the full effect, to some of the clients we loss over the past two years is hitting our books in 2020. Second, we just like all members of our industry are subjected to asset management decompression and third, our net flows are impaired by the slow decline of the US corporate DB plans market. Finally as an answer to our headwinds during the fourth quarter we introduced the One SEI theme at our recent investor call. One SEI drives our business strategy and defines our approach to our markets and how we will meet the rapidly changing increased mainly complex and steadily converging needs of clients and markets.
The goal of One SEI is to leverage existing and new SEI platforms making them accessible to all types of clients, all adjacent markets and all other platforms. While the road ahead in 2020 and beyond is challenging, it’s also full of new opportunities. We believe that we will be better suited to capture the new opportunities with our One SEI strategy.
Now this concludes my remarks so I’ll now ask Dennis to give you an update on LSV and investment in new business segment. I’ll then turn it over to the other business segments. Dennis?
Thanks Al, good afternoon everyone. I’ll cover the fourth quarter and full year results for the investments in new business segment and discuss the results of LSV asset management. During the fourth quarter 2019, the investments in new business segment continued its focus on the ultra-high net worth investor segment to our private wealth management group and additional business and research initiatives including those related to our IT services and hosting opportunity and the modularization of larger technology platforms into standalone components for the wealth management and investment processing space.
During the quarter, the investments in new business segments occurred a loss of $5.6 million which compared to a loss of $3.2 million during the fourth quarter of 2018. For the full year the investments in new business segment incurred a loss of $16.7 million compared to a loss of 2018 of $12.4 million. This loss reflects the increase in investments mentioned earlier offset by growth in our private wealth management business.
Regarding LSV, our earnings from LSV represent are approximate 39% ownership ventures during the fourth quarter. LSV contributed $39.1 million in income to SEI during the quarter. This compares to a contribution of $36.4 million in come during the fourth quarter of 2018. For the full year of 2019, LSV contributed $151.9 million in income compared to $159.8 million in 2018. Assets during the fourth quarter grew approximately $7.2 billion LSV experienced net negative cash flow during the quarter of approximately $2 billion which was offset by market growth.
Revenue was approximately $126.5 million for the quarter and performance fees were minimal. For the company, our effective tax rate for the quarter was 19.5%, one item of note for the company during the quarter we recorded incremental stock option expense of $3.6 million compared to third quarter of 2019 due to a change in the estimate of timing of we’re investing will occur on a specific tranche of options. This expense is spread across all of our segments as well as in corporate overhead. This expense approximates $0.02 per share in earnings impact.
I’ll turn it over to Steve Meyer to discuss both Private Banking and IMS segments. Steve?
Thank you, Al. For the fourth quarter 2019 revenue of $118.7 million was up slightly from the third quarter of 2019 primarily due to an increase in asset management revenues. Fourth quarter revenue as compared to a year ago is down $2.7 million mainly driven by previous announced client’s losses. For the fourth quarter 2019 operating profit of $5.1 million decreased from the third quarter due to increased expenses related to compensation and stock option expense.
For the year our profit grew by $1.9 million mainly driven by expense management. And turning to sales activity for the quarter, we closed $8.1 million in net processing recurring sales events bringing our total 2019 net recurring events to $24.5 million. Also during the quarter, we closed $7.2 million in one-time events bringing the total to $18.3 million in one-time events for 2019. During the fourth quarter, we signed two new SWP agreements. First, a long time TRUST 3000 client Edward Jones Trust Company signed on to adopt SWP. Edward Jones Trust Company has been a client since 2002 and convert their existing book of business to SWP.
Our second signing was Connor Broadley, a UK wealth manager who has chosen to take advantage of all the components of SEI’s full end-to-end wealth management platform incorporating technology, core processing and operational outsourcing for the front, middle and back office. Also during the quarter, we finalized our contract the principal financer group to provide our trust platform to service our acquired [indiscernible] for institutional retirement and trust business. This deal is significant for us not only from a financial standpoint but also principal as a market leader and we’re encouraged about the opportunity to expand our relationship from here.
In the fourth quarter, we successfully converted a new client to SEI. Bankers Trust in Des Moines, Iowa. Bankers Trust is Iowa’s largest privately owned bank and had previously been running on a competitive platform. The conversion went very well and we’re excited to welcome Bankers Trust including BTC Capital Management, a registered investment advisor an affiliate of the bank to the SEI family. In addition to BT [ph] implementation, we re-contracted three TRUST 3000 clients during the quarter.
I’m also pleased to announce that after the quarter end, but before today’s call we signed a long-term agreement out of our UK office with a large global bank to provide our SWP platform to support their private banks globally discretionary and alternatives books of business across their various global locations. We’re not naming the bank currently as we’re working on a joint communication that will be announced later in the quarter. This deal is not included in our event number announced for the fourth quarter and we’ll include it in our Q1 events. In addition to the size of the deal and financial impact, this is significant for us for several reasons.
First, this business requires a true global solution that will cover multi-jurisdictions for a large global bank, a true global order mark for our SWP platform. Second, this deal incorporates our One SEI strategy specifically leveraging the IMS platform along with SWP to offer services across the entirety of this business and asset types. Third, this firm is a large global organization that offers many opportunities for us to expand our relationship with.
We’re excited about this opportunity. I look forward to sharing more details in the future. As an update on our backlog, our total signed but not until backlog is $53.6 million in net new recurring revenue. This number does include principal but does not include global bank discussed previously. From an asset management standpoint, total assets under management ended the period of $23.9 billion representing $1.3 billion increase quarter-over-quarter and $3.4 billion increase in year-over-year assets.
Our AUM increase is mainly due to market appreciation. We continue to build a strong global pipeline in our AMD business and looking back to 2019, we’re pleased with our efforts and our progress and most importantly our regained momentum as evidenced by our sales events for the year. As I mentioned to you in the beginning of 2019, our focus for the year was steadfastly on growing our business, monetizing our investment in SWP restoring [ph] our backlog and expanding our opportunities through the leveraging of other SEI platforms and solutions. While we’re pleased with our progress we are still not satisfied with our results. We still have much work to do and continue to grow our business observing previously loss business and providing sustainable and accelerating growth to our margins. Simply said, we want to keep the accelerator down on moving the business forward. This serves as good segue to the year ahead.
And turning to 2020, our focus is on the following; first maintaining our momentum and continue to execute on our growth agenda with new sales. Second, expanding our markets and solutions to expand our growth opportunity. Third, continuing our strategy One SEI which enables us to offer the full power of all of SEI’s platforms and assets and enables us to address our clients emerging these in problems in ways no one else can. Fourth, managing through the financial headwinds of the lost business we had previously announced which will be in full effect for 2020. This will be a challenge to manage as the loss revenue typically outpaces the rate of bringing new revenue on as we implement our backlog of business. Our focus is on managing through this financial challenge with an eye on establishing a sustainable and accelerating more [indiscernible] as we exit out of the year and manage through the downward pressure of this aforementioned lost business.
In summary, we have an active pipeline across the US and UK. We feel well positioned to grow our private banking business globally and feel we have a great opportunity offering the power and capability of all SEI’s technology and processing platforms across the wealth management market. We’re excited for the future.
Okay. Our next segment is Investment Advisors. Wayne Withrow will cover this segment.
No, I’m going to back from the Investment Managers.
I’m sorry.
That’s all right. So turning to the Investment Manager segment for the fourth quarter 2019, revenues for this segment totaled $114.8 million which was $12.4 million or 12.1% higher as compared to our revenue in the fourth quarter of 2018. This year-over-year revenue increase was due to primarily to net new client funding and exit client expansion. For the full year 2019, our revenue was $440.8 million which was $42.7 million or 10.7% higher than the full year of 2018.
Our quarterly profit for the segment $42.1 million, was $7.4 million or 21.4% higher as compared to the fourth quarter of 2018. Our full year profit for this segment of $158.8 million was approximately $20.4 million or 14.7% higher than the annual profit at 2018. Higher profits were primarily driven by an increase in revenue offset by a smaller increase in personal expense and investments. Third party asset balances at the end of the fourth quarter of 2019 was $657.5 million approximately $19.6 billion higher than the assets balances at the end of third quarter of 2019. This increase was due to net new client fundings of $9.1 billion as well as market appreciation of $10.4 billion.
Turning to market activity during the fourth quarter 2019, we had a strong sales quarter with net new business events totaling $11.9 million in recurring revenues as well as recontracts of $7.5 million in recurring revenues. Most importantly these sales were diverse and expand our entire business and include both new named business and expansion of existing wallet share with current clients.
These events include the following highlights; in our alternative market unit we added $20 billion private equity end sourcing shop who selected SEI as their first third-party administrator as well as two existing private equity managers that left their current administrators to become an SEI clients. Additionally, we added another client to our growing private equity real estate [indiscernible].
In our traditional market unit, in addition to continue our momentum with collective investment trust from new and existing clients. We also had success expanding middle [indiscernible] servicing relationships with four existing clients. In Europe we continue to win new private equity and private credit mandates from existing and new clients particularly related to funds domiciled in Ireland and Luxemburg and in the family office services business. We had continued success within the single-family office and multi-family office market.
Our total net business sales events for 2019 were just over $49 million which was comparable through our 2018 net sales events of $50 million. 2019 marks the second highest annual total for net sales in the investment manager segment. Our backlog of signed but not yet implemented sales stand at $42.1 million at the end of the fourth quarter 2019.
In the beginning of 2019, I covered where our focus areas for the year would be; these included expansion of our sales and growth opportunity. Expansion of our platform into the front office, continued expansion of emerging solutions such as global regulatory and compliance and leveraging our platforms and solutions to support growth opportunities in other market segment thus our One SEI initiative.
I’m pleased to say that we made substantial progress on all these focus areas and we believe our strong sales year serves as a validation of our progress and market acceptance. As we enter 2020, our focus and investment will be set on the following areas: first, continued execution of our strong pipeline and growth opportunities. Second, sustained push of our platform into the front office supporting our client and investors. Third, continued expansion to our market adjacencies and growth in key market such as private equity and private equity real estate as well as expansion of our solutions in these areas and finally execution of our One SEI strategy leveraging our platforms and solutions to support growth opportunities and other market segment and providing the power of all SEI to our clients.
We are encouraged with the progress we have made and with the continual evolution of our solutions and platforms that we’re investing in and we believe that this investment will drive sustainable growth. Our pipeline remains strong and we’re encouraged about our future.
The next segment is Investment Advisors. Wayne Withrow will cover this segment.
Finally, Al. In 2019, at the five years at the [indiscernible] effort we celebrated the completion of our migration onto the SEI wealth platform. It is now time to monetize the value of this platform and growth our business. Fourth quarter revenues totaled $106 million up from $97 million in the fourth quarter of last year. The impact of positive markets partially offset by negative in cash flow in our asset under management. We managed to hold our revenue recognition rate relatively steady.
Expenses were relatively flat compared to last year’s fourth quarter. As compared to the third quarter, expenses were up due primarily the increased stock option expense and non-recurring expense in our operations. From a big picture perspective, expense increases from this non-recurring items and direct cost tied to our AUM growth managed the savings recognized in both development and operations due to completion of the migration.
Our profits were up significantly compared to last year’s fourth quarter. Completion of the migration and the expense is associated with it allowed us to drop much of our revenue growth to the bottom line. During the quarter, we attracted $125 million in new assets onto our platform putting our total assets under administration over $80 billion. Off this total, almost $71 million were assets under management and increase of over $9 billion on December 31, 2018.
During the quarter, our net cash flow in managed assets including fees was a negative $193 million. While recent cash flows and assets under management was negative and flows are trending in the right direction and newer products are being well received. I would expect these directional trends to continue.
During the quarter, we recruited 76 new advisors bringing our total for the year to 327. Our pipeline of new advisors remains active. In 2020, we will concentrate on two main areas. First, we’re focusing on monetizing the value of the SEI wealth platform now that the migration is complete. The challenges presented by the migration from both our existing clients and our internal operations are now essentially behind us and we’re focused on growth unencumbered by these challenges. As part of this process, our technology development leverages the One SEI strategy and targets functions that help strengthen the overall advisor experience.
The first example is that digital account open process which will be using technology originally built for IMS unit. We expect to introduce this new capability in the first half of this year. Second, with the migration no longer our primary focus we turn to the investment product area where opportunities exist to help today’s advisors. As an example, our third-party BPS [ph] strategies incorporating tax less harvesting and equity management were our top selling investment strategy in 2019.
In summary, we spent 2019 getting over the hangover from our multi-year migration onto the SEI wealth platform. We’re now beginning to see the positive of having that behind us and are excited about future prospects.
Our next segment is the Institutional Investors segment. Paul Klauder will report on this segment. Paul?
Thanks, Al. Good afternoon, everyone. I’m going to discuss the financial results for the fourth quarter of 2019 as well as the entire year. Fourth quarter 2019 revenues of $80.5 million were similar to the fourth quarter 2018 revenues. Full year revenues of $322 million decreased 3% compared to 2018. Market appreciation possibly impacted revenue for the quarter and the year while net client losses was the primary attractor.
Operating profits for the fourth quarter 2019 were $42 million, 5% higher than fourth quarter 2018 due to previously mentioned items in low operating expenses. 2019 full year profits were $168.1 million and decreased 1% compared to 2018. Higher capital markets and lower operating expenses were positive offset by net client fundings. Operating margins for full year 2019 were 52%, quarter end asset balances of $90.1 billion reflect a $6.7 billion increases versus the fourth quarter of 2018. This was due to much higher capital markets at 12.31, 2019 versus 12.31, 2018.
Net asset events for the fourth quarter were negative $615 million. Gross sales were $260 million [ph] and client losses totaled $885 million. Total new client signings for 2019 was $3.5 billion that represents $10.9 million in revenue. The client loss numbers for the quarter and the year were primarily driven by acquisitions DV terminations or curtailments and unsuccessful rebids of competitive spenders.
The unfunded client backlog at year end was $560 million. While I’m disappointed with the new business sale for Q4, 2019 I’ve confidence in the pipeline and our sales force is very active. Our focus in 2020 will be to continue to diversify new business growth under the US defined benefit market. Bring new strategic initiatives to the market including our One SEI strategy of integrating multiple SEI platforms and we’ll continue to differentiate our OCIO [ph] offering around the globe.
Thank you, Paul. I would now like Kathy Heilig to give you a few company-wide statistics. Kathy?
Thanks, Al. good afternoon, everyone. I have some additional corporate information about this quarter. Fourth quarter 2019 cash flow from operations was $163.6 million or $1.06 per share. Year-to-date cash flow from operations $545.1 million or $3.52 per share. The fourth quarter free cash flow was $143.8 million and year-to-date free cash flow $468 million. In the fourth quarter our capital expenditures waiting our stock [indiscernible] was $12.6 million that does include $6 million our new facility and year-to-date capital expenditures excluding capitalized software was $43.1 million which includes around $25.5 million for the facility expansion. We project our capital expenditures for 2020 within capitalized software to be $45 million and this also includes about $25 million related to the facility.
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 unaudited. In some cases, you can identify forward-looking statements by terminologies such as may, will, expect, believe, continue or appear. Our forward-looking statements include our expectations as to revenue that we believe will be generated by sales events that occurred during the quarter, or when our unfunded backlog may fund, the benefits we will derive from our investments, our ability to monetize these investments. Our ability to manage our expenses, scale our offerings and establish sustainable and accelerating margin. 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 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 Form 10-K for the year ended December 31, 2018.
And now, please feel free to ask any questions that you may have.
[Operator Instructions] And our first question comes from Robert Lee from KBW. Please go ahead.
Quick question on the investments in new business. I mean I know you went through some of the expense initiatives flowing through there, should we be thinking because it’s obviously stepped up last quarter and then versus where it’s been running, so we be thinking this is kind of reasonable area you expect it to be in a for a while or you kind of?
Yes, I will say this is - because we really started to put more into the IT services space and then in this modularization space which we have been talking about for the past couple quarters, so yes.
Okay, great.
We have to get more growth out of private wealth management, so that should help a little bit.
Okay and then maybe just a quick follow-up to maybe kind of modeling but on the tax rate. I know it gets affected by options exercise and variety of other things, but how should we be thinking of kind of let’s call it a normal tax rate as we look forward and I don’t know if the change in some of the stock based comp expensing, has any kind of impact on that?
I mean the stock based comp expense didn’t have any impact on that. It’s more the exercise of options has an impact. On the fourth quarter that probably helped up around two percentage points on the tax rate. As we look forward, we still use around 21% as our kind of normalized rate because we really can’t predict some of these other things.
Right. Great. Thanks for taking my questions.
Well this quarter’s tax rate is pretty comparable than last year’s fourth quarter tax rate was around 19.3%, I think.
18.9%.
18.9%. So it’s not that far off.
Yes, great. Thank you.
Thank you and now to line of Chris Shutler from William Blair. Please go ahead.
For the options that were granted in the fourth quarter, is there any EPS target that you have to hit for those to invest?
We’ll publish that in our Proxy when we file that in April.
Okay and then, I guess the other one is just on the buyback, the 1.3 in the quarter obviously markets were strong. Just given your noting improved momentum in the business and given all the cash on the balance sheet. I guess the question just why not be more aggressive with the stock buyback. I now you’ve gotten that before, but would love to get a refresher.
I wouldn’t say, we have any necessarily change in mindset around buyback just our periods where it’s a little bit easier to get to stock in the market just because how trading patterns, there are some fourth quarter is no different than there were some days where it just wasn’t enough volume to accommodate us, being engaged. Even though we still did acquire decent amount of stock. So I wouldn’t say we’re anymore aggressive we’ll be any more aggressive or less aggressive it’s just really, we’ll just be pretty steady with it. If the opportunity presents itself, we’ll get more aggressive.
Okay, fair enough. Thank you.
[Operator Instructions]
And we have a question from Robert Lee of KBW. Please go ahead.
Great, good afternoon, Steve.
Good afternoon, Rob.
Just so couple questions, but real quickly with the principal business. I mean just trying to get a sense of puts and takes of the net recurring so you had principal come in, not the global bank. I guess how does the Wells Fargo kind of fit into that given some of the commentary I guess it’s come out of there and well - if you can maybe go to the puts and takes of net recurring, that maybe helpful because there is so many moving pieces of square?
So a couple of things for you I guess, Rob. The net recurring that we closed during the quarter and again it’s net, so there’s a gross number and any losses or go back to clients would come off at with $8.1 million, principal is included in that number. The global bank I just mentioned is not net number, we look at that as a Q1 event. Wells Fargo has no impact on that number as Wells Fargo continues to be as it has for the past 40 plus years a current client and will continue to be a client as mentioned on previously call, they’ve just laid the SWP implementation and there’s no new news on that.
So from a high level that’s kind of - is there anything specific other than that, Rob?
Well I guess, Wells [ph] as still in that backlog and then maybe if you talk a little bit about principal and kind of how you think about that kind of coming on, is that going to be kind of roll in over curse of 2021, I mean how should we think about that coming on board.
So the uptick of Wells going to SWP that uptick is in that backlog, but what I will tell you is not the majority of that backlog. There’s majority of other new business in that backlog and then principal will come on to our platform. We’re already underway with implementation but that will come over on majority [ph] in 2021 - end of 2021 in there.
Great. I’ll get back in the queue. Other questions come, thanks.
Thank you and now to the line of Chris Dinad [ph] from Piper Sandler. Please go ahead.
Just one clarification on the loss business with Department of Interior, was that in or no longer in the fourth quarter and can you remind us the dates of when that revenue would have ceased?
Yes, that came out. It actually left us toward the beginning of the fourth quarter so the majority of it in the quarter was out, but keeping in mind now we’ll have the full year impact of that.
Okay, whatever it’s pointless to ask you a question on the global bank that’s out of the K [ph]. But you did say we can expect I didn’t catch everything; we can expect an announcement during the quarter.
Yes. And I appreciate Chris, as you can imagine, we’re telling you what we can. We want to be a good partner and we want to have a joint communication. So when that is done, hopefully in the quarter we’ll certainly put that out and we’re excited to talk more about it when we can.
Okay and the adjective you used with it was significant, but that’s about it, right?
Yes, but my tongue was neutral.
Understood.
All right. And now to line of Chris Shutler from William Blair. Please go ahead.
I just wanted a couple of quick clarifications you already covered these, but principal you said that’s going to come on, when?
Primarily, we’re already in the implementation moving over, but I would look toward 2021.
Okay and the flows from the AMD business in the quarter?
Flows from AMD were about $63 million and year-to-date net cash flows were $296 million.
Okay and then I guess lastly you noted the sales on 8.1 is net so is there anything to call out that was lost in the quarter?
No I mean typical business; loss is unfortunately as much as I hate losing any business sometimes are part of the business. But we had I would say no significant but normal course of business nothing new to follow up.
Okay and lastly on the UK bank presumably that they, whoever that is, they are on a system from one of your chief competitors, is that accurate?
For part of the business, yes.
Okay, thanks a lot.
Sure.
Thank you. And now to the line of Robert Lee from KBW. Please go ahead.
Great, thanks again. Just maybe Steve, two quick clarifications so the $7 million of one-time events $7.2 million that pretty much all flowed through in the quarter or?
No, about 10% of that was through - but 7.2 now about 700 flow through, but however we remember we had other one time revenue that we announced and about 6.6 off that flowed through the quarter.
Okay, great. And then, you kind of gave some commentary around kind of margin kind of progressing. Can you just maybe just repeat that or maybe clarify? I just want to make sure I understand how we should be thinking in this segment kind of?
Sure. So we’re very happy with the momentum, but we’re not satisfied with where we’re results as I said. What I’m saying is, this year is going to be a tough year as we manage that lost business that we’ve talked about. I know that you guys [indiscernible] and that’s going to put some downward pressure on our margin. But our goal is to move the margins to get through that challenge and come out of the year hopefully into 2021 where I can start to establish the sustainable a level of margin whatever that is and an accelerating path from there. So we’re hoping that these downward pressure from these losses will get through this year and then be able to start to manage through a more sustainable and accelerating path back to our normal margins in this business.
Great. Thank you.
Thank you. And now to line of Glenn Greene from Oppenheimer. Please go ahead.
Congrats on the large bank win, anxious to hear it. So I just want to go back to Wells Fargo and the reason I ask, there’s been a lot of chatter concern out in the market, Wells was in the K [ph] and they’re taking some significant write downs in their wealth management business from your technology investments whatnot. Can we just sort of definitely say there’s been no change in the status of our relationship with Wells Fargo at this point?
No change in the status of our relationship with Wells Fargo and if you’d ask for my comment on it. I think our relationship has strengthened because we treated them like a true partner as we had for over the past 40 years and we’ll continue to do so. I understand the chatter going on in the industry but we’re - as you can imagine we’re not the only technology or system provider they use and quite frankly, we’re not the largest - we use. They have their other challenges to go through and we’re focused on supporting them as a strong partner as we always have.
All right, great. That’s all I needed. Thank you.
Thank you. And now to line of Chris Shutler from William Blair. Please go ahead.
Steve, thanks for taking the follow-up. Just to put a finer point on that, have you confirmed with Wells the impairments do not relate to SEI?
We’ve not talked to Wells about that. That’s their disclosure and I’d have no reason to talk to them about that to be honest with you Chris.
Okay, thank you.
[Operator Instructions]
And we have a question from Chris Shutler. Please go ahead.
Wayne, could you give us the cash flows again, you ran through those numbers pretty quickly? I think I missed some of them.
Right, so this is sort of new statistic. We have $125 million in new assets onto our platform and that’s an AUA number. The assets under management were negative 193 for the quarter bringing the total to $71 billion assets under management.
Okay and just to be clear the negative 193 that’s what you have - that’s the number you’ve already reported as net new assets.
That’s always the number we’ve always reported net of these.
Yes, exactly.
Includes these in it.
Yes, right. So I guess I’m just trying to figure out you’re talking about improvement momentum yet that number is slightly negative in the quarter. it’s actually worse than it was in the third quarter, so what are you seeing kind of behind the scenes that gives you more comfort is there anything you can say beyond like anecdotally, is there any numbers you can give us, to give us some comfort about the trajectory?
Yes, I think if you look at the past six months what I would say I think in allotted [ph] numbers influenced by a bad December. I guess this is the way, I’d answer that question.
I guess I would have thought that fourth quarter being super strong would have been kind of counter that to that point, that advisor to be very engaged, but it’s not the case.
Was in process.
Okay. That’s all I had. Thank you.
Thank you. And now to Chris Dinad [ph]. Please go ahead.
Wayne, just wanted to fence over the same topic of the flows, with it improving year-to-date, can you compare it to what flows you typically have seen and other January’s because I’m looking at other data maybe I’m comparing apples and oranges here. But it seems like January is typically a pretty strong month for fund flows for asset managers.
I was talking about December, not January.
But I thought you said the - you’d seen an improvement in momentum since the fourth quarter did - in your prepared remarks or did I mishear that?
I think throughout last year to-date like as of right now we’re seeing improved momentum. But we haven’t talked about January yet.
Wait sorry, when you say year-to-date improvement, you’re talking 2020 or?
January 1, 2019 until now momentum is improving. So that’s 13 months.
Okay. And that improvement is more of a secular trend it’s not a typical seasonal pattern.
It’s neither one, it’s the trend with [indiscernible]. I don’t think it’s seasonal I think it’s kind of hard to look at this business as seasonal. I mean if you look at December, December is going to be influenced by which way the market is going, people put the money in or tax law harvesting out or what people are doing?
Okay, I think I’m chasing the wrong thing here. Move on.
[Operator Instructions] And now to line of Chris Dinad from Piper Sandler. Please go ahead sir.
Dennis, I just wanted to ask a couple on expenses. Looking at the sub advisory fees, just saw a tick up there if you look at it relative to certain assets. I’m just wondering if there’s anything there and then secondly in the little bit bigger number. The facility supplies and other cost picked up like $3 million quarter on quarter, any calls out there?
Sure, on the sub-advisor fee, that’s really just a direct expense associated with revenue growth. So whenever we have assets management growth regardless of the source it’s - you’re generally going to tick up in the sub-advisory fees as well. On the facilities, supplies and other costs line items it’s really around I would say the supplies and other cost areas. So there’s a couple things going on there that I would consider kind of one-time in nature for fourth quarter. One; in terms of the delta we had a sales tax benefit in the third quarter of about $1 million that did not repeat in the fourth quarter, so third quarter was under by about $1 million so that didn’t repeat. We had fourth quarter and this happens generally every year we call statement production cost, so the cost that produce statements we generally have a one fourth quarter hit and that’s about little over $1 million as well so that won’t repeat in first quarter now that’s really a fourth quarter phenomenon.
We had a it’s kind of good news, bad news. The bad news is we have about $600,000 expense related to our Huntington Steele acquisition while ago, but the good news is the reason for that is because the business has performed better than we had expected when we made that acquisition. And that’s it, that’s generally it.
Okay, the [indiscernible] feels those out, was that in compensation or was that in some other expense line item.
It would be more related to acquisition cost and goodwill.
Okay.
So that’s just part of the earn out.
Yes, understood. Okay, thank you.
You’re welcome.
Thank you and now to Chris Shutler. Please go ahead.
One more for Steve as if I didn’t ask enough questions already, I know. One the UK bank win, anything you can say about kind of your early thoughts one of the timings of when that could go live, is it likely to be phased or kind of call that once for the initial books of business that you’ve won.
There’s not much I can say, I’m pretty sure it’ll be phased. That’s about all I can say at this point Chris.
Okay, thank you.
Thank you. And now to line of Patrick O’Shaughnessy from Raymond James
Non-recurring sales have been elevated in the last couple of quarters and I think particularly in private bans, is there anything specific you would be pointing to that’s driving those types of sales?
So I think it’s in - we certainly have some momentum. I think our strategy that we announced about making it easier to do business with SEI, modularizing the platform and I also think it’s kind of set cycle in the market, where a lot of these larger firms including banks are looking to make decision. So I think all those have come together. Our pipeline is strong and we’re seeing the deals move through in the proper cycle and a little bit faster than we saw before, so we’re hoping to continue that momentum into 2020.
Great, thank you.
Thank you. We have no one else in queue. Please continue.
Thank you, Kathy. So ladies and gentlemen I’m encouraged by the direction each of our businesses are taking and the progress they’re making. I believe these investments we’re making combined with One SEI will help us benefit from all the changes taking place in our industry. Have a good day and thank you for attending our call.
Thank you. And ladies and gentlemen that does conclude our conference today. Thank you for participating.