SEI Investments Company (SEIC) Q4 2014 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the SEI Fourth Quarter 2014 Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a series of question-and-answer session and instructions will be given each time we go in the questions. [Operator Instructions]. And as a reminder this conference call is being recorded. I would now like to turn the conference over to our host Mr. Al West, Chairman and CEO. Sir, please go ahead.

Thank you and welcome, everybody. All of our segment leaders are on the call, as well as Dennis McGonigle, SEI's CFO; and Kathy Heilig, SEI's Controller. Now I’ll start by recapping the fourth quarter and full year 2014. I'll then turn it over to Dennis to cover LSV and the investment in new business segment. After that, each of the business segment leaders will comment on the results of their segments. And then finally, Kathy will provide you with some important company-wide statistics. As usual, we'll field questions at the end of each report. So let me start with the fourth quarter and full year 2014. Fourth quarter earnings increased by 18% from a year ago. Diluted earnings per share for the fourth quarter of $0.45 represents a 22% increase from the $0.37 reported for the fourth quarter of 2013. Now for the year 2014, our earnings increased by 10% over 2013 earnings, and diluted earnings per share for the full year of $1.85 is a 13% increase over the $1.64 reported in 2013. We also reported an 8% increase in revenue from fourth quarter 2013 to 2014 and 12% increase for the full year from 2013 to 2014. Also, during the fourth-quarter 2014, our non-cash asset balances under management increased by $2.4 billion. For the year, assets under management grew by $21.3 billion, $14.8 billion by SEI and $6.5 billion by LSV. Finally, during the fourth-quarter 2014, we repurchased 1.6 million shares of SEI stock at an average price of just over $39.50 per share. That translates to over $62.6 million of stock repurchases during the quarter. For the entire year, the numbers are 7.9 million shares purchased at an average price of just over $35.25 a share representing just over $278 million of repurchases. Now between our stock buybacks and cash dividends during 2014, we returned approximately $350 million in capital to shareholders. Now turning to sales. Our net new recurring revenue sales during the quarter were solid. Of the $23.1 million of net new sales events we generated, $20 million are recurring revenue. And each of the segment heads will address their fourth quarter sales activities. For the year we sold $98 million in net new revenue events of which $85 million were recurring. As you know, we are continuing our investment in SWP and its operational infrastructure. During the fourth quarter we capitalized approximately $8.7 million of the SEI Wealth Platform development and amortized approximately $10 million of some previously capitalized development. Our development agenda for SWP remains to deliver functionality important to the large and medium sized advisors and banks in the U.S. and UK markets as well as to further automate our operations. While, as we have previously discussed we are facing long sales cycles among jumbo banks, we have made significant progress with a few jumbo prospects, and overall market activity has expanded. Plus, we are making progress in developing the necessary functionality for jumbos. Now while we are diligently working through the sales process with large potential clients, we have increased our attention on asset management distribution opportunities and improving profitability in the private banking segment in 2014 and 2015. Now signs of our focus are evident in third and fourth-quarter results for banking. In the Advisor segment, we have made solid progress in improving our asset gathering as well as in preparing for the rollout of SWP to the U.S. market. In the institutional segment, our sales and profits throughout the world are living proof of the strong market adoption of our differentiated fiduciary management solutions. And finally, our investment management services segment continues its success in both selling and implementing new business while differentiating our solutions. They are making progress selling to larger prospects and increasing the business we do with existing. clients. Behind all of our business units, I am encouraged by the feedback I receive from clients and prospects across our companies' target markets. Our reputation for delivery remains intact, and the sales activities and events in all units confirm the positive feeling in our client bases. And this concludes my remarks, so I will now ask Dennis to give you an update on LSV and the investment in new business segment. I'll then turn it over to the other business segments. Dennis?

Thanks, Al. Good afternoon, everyone. I will cover the fourth quarter results for the investments in new business segment, discuss the results of LSV asset management and discuss a few items of note for the Company during the quarter. During the fourth quarter of 2014, the investments in new business segment both continued its focus principally on two areas, the ultra-high-net worth investor and the development of a web-based investment services advice offering, coupled with the use of mobile technologies. During the quarter, the investments in new business segment incurred a loss of $3.8 million, which compares to be $3 million loss during the fourth quarter 2013. There has been no material change in this segment. Regarding LSV, our earnings from LSV represent our 39.3% ownership interest during the fourth quarter. LSV contributed approximately $35 million in income to SEI during the quarter. This compares to a $31.8 million contribution for the fourth quarter of 2013. During the quarter, asset balances grew by approximately $1.4 billion due to increased market valuation, as well as net positive cash flow. Cash flows were approximately 50% of the asset growth. Revenue at LSV was approximately $106 million for the quarter, of which approximately 7% was performance fee related. As many of you know, SEI has an investment in a China-based wealth services firm called Gao Fu. We initiated our investment in this company a couple of years ago and continue to hold an ownership stake. As I mentioned on the third quarter call, we are planning on evaluating our involvement in Gao Fu, the recoverability of the investment in Gao Fu and any future commitments. During the fourth quarter, upon the initiation of a convertible loan to Gao Fu, we made the determination to write down the value of this asset on SEI's balance sheet and as a result took a non-cash after-tax loss of approximately $11 million or approximately $0.06 per share. The remaining carrying value of our investment in Gao Fu is just over $1 million. We continue to believe the high net worth market in China for professional investment services will grow and may present a positive business opportunity. SEI will stay close to the activities at Gao Fu to determine if they can have long-term success in developing this business. During the quarter, our overall tax rate benefited from the reinstatement by Congress of the Research and Development Tax Credit. With its reinstatement during the fourth quarter, we were able to capture the full-year 2014 benefit in one quarter. This benefit, coupled with additional tax planning, equated to equated to approximately a $0.02 to $0.03 per share benefit during the quarter. This R&D tax credit has not been renewed for 2014. We expect our tax rate will be in the more normal range of 36% during 2015. Finally, some may wonder with the growing global nature of our business what impact if any that the volatile currency markets have on our financial performance during the quarter. We estimate primarily due to the euros performance that revenue for the Company was impacted negatively by approximately $2.5 million during the quarter while expenses were positively impacted by approximately $2 million, leading to an estimated impact to profits of a negative $500,000. With that update, I’ll now take any questions you have.

[Operator Instructions] So our first question comes from the line of Glenn Greene. Glenn, please go ahead.

Good afternoon, hey Dennis.

Hey Glenn.

Quick question just on the LSV revenue. It looked like the yield, even despite the performance fee, sort of fell pretty materially Q-to-Q?

Well if you remember in third quarter, they had even higher levels of performance fees. Its probably closer 11%, 12% total revenues which is above their kind of normal range that my guess would explain it.

Okay. That helps. That's all I had. Thanks.

You are welcome.

Okay thank you and we will take our next question coming from Chris Donat. Chris please go ahead.

Hey Dennis. Well first, thank you for quantifying your FX exposure there. Just curious if you can comment what the impact was on asset levels, or is it possible to even do that? I just wondered if that showed up as a headwind to AUM or AUA growth.

It probably had a slight - I'm sure it had a slight impact to assets, although its certainly less than 2% or 1% so its not significant, but it really equate really close through to the revenue side. And the businesses you would see that most impacted it would be the institutional business, and I really don't have a comment on that and then the banking business.

Okay. Great. Thank you.

[Operator Instructions] So I am showing one more question from Chris Shutler. Please go ahead Chris.

Hey, Dennis just one more quick one and that is on LSV. Just wondering as you look out to Q1 at what the kind of the normal seasonal pattern is Q4 into Q1 for performance fees for LSV? Thanks.

Yes, generally their performance fees in their higher quarters are third quarter, as I mentioned on the last call, because of – and they just have more clients calendaring…

Right.

…in that period. And I would say as the look at the rest of the year. Historically the first quarter has probably been on the lower end of the four quarters.

Okay.

And then it kind of progresses from there.

All right, that’s helpful. Thank you.

Okay. And at the moment, I am showing no further questions.

Thank you Dennis. I'm now going to turn it over to Joe Ujobai to discuss our private banking segment. Joe.

Thank you, Al. In 2014, we make good progress towards our three key goals. Number one, the continued growth of our SEI Wealth Platform business by growing current volumes in the UK and executing against our step in strategy in the U.S. while we focus our sales efforts on securing a large early adopter client. Second, gaining momentum in our global asset management distribution business, and finally, increment revenue and profitability growth. As a financial update on revenue and profit growth, quarterly revenue of $112 million was up 6% from Q4 2013, and annual revenue of $441 million was up 11% from full year 2013. Quarterly profit was $12 million compared to $3.1 million in Q4, 2013. We also continue to show modest sequential quarter profit improvement. For the year, profit was $42 million compared to $4.7 million for full year 2013. Financial improvement over the course of the year was largely driven by four factors. Number one, growth in our TRUST 3000 business. We continue to grow BSP and mutual fund trading revenue with our current clients. Number two, growing, recurring and one time in one-time investment processing revenue in our SWP business. Key areas of SWP revenue growth include the following: in the UK, current SWP clients continue to drive new assets to the platform. Net cash flow for the quarter was $1.3 billion. For the year, UK SWP assets under administration grew 18% to $33.7 billion. In the US we now have five installed clients that have started to provide modest revenue contribution. Number three, higher asset management revenue based on increased assets under management in our global distribution business. For the quarter net cash flow was generally flat to the market volatility and some investor profit-taking. As a reminder, most of private banking's global distribution clients tend to be non-U.S. based high net worth individuals. International investors are seeing a reversing trend in Q4, especially in non-US investment markets, took the opportunity to take profits and wait for the markets to settle. That said, for the year, private banking's global distribution business gained strong momentum with net cash flow of $2.1 billion and year-end assets growing by 20% to $18.7 billion. And finally, number four, we continue our focus on expense management as we scale the SEI Wealth Platform and roll it out in the US. Turning to new business. Net sales events for the quarter were $2.1 million, which were largely non-recurring professional services related to SWP large bank sale efforts. For the year, net sales events were $23 million of which 60% was recurring and 40% nonrecurring. During the quarter, we also extended our HSBC SWP 2017. Worldwide we have 30 SWP clients with a backlog of five firms that should install within the next 18 months. Looking to 2015, our strategy remains the same. We will continue our focus on capturing a large US-bank early adopter. As our solution continues to mature, our prospects build their business cases for transformational change, and we work through complex buying conditions in large, highly regulated organizations. We are making tangible progress against this goal. Number two, growing current SWP clients and installing the backlog. As we have discussed in the past, the SWP business model is aligned to our client success. As they grow, so will we. Number three, continuing to manage our TRUST relationships towards eventual conversion to the SEI Wealth Platform. This business is stable, and our clients are some of our greatest assets. Number four, driving continued momentum in the global asset management distribution business by growing current clients and signing distributors. And, of course, number five, managing expense as we drive long-term revenue and profit growth. Fourth quarter and 2014 results reflect our focus, and we will continue to execute our strategy in 2015. Are there any questions?

[Operator Instructions] And I am showing one question from Robert Lee. Robert, please go ahead.

Great. Thanks and good afternoon, Joe.

Hi, Rob.

Hi, just a couple of questions. First on signing up HSBC again on SWP, can you comment at all on how maybe pricing or the relationship changed as it was renewed? Did it stay pretty much the same as they have grown or as you have grown the business? Just kind of curious about the dynamics around the…

So last year we actually re-contracted four clients, and pricing has remained pretty solid. To a certain extent, we do add some new services, but I would say pricing has remained pretty solid. And, as you know, the business model allows us to grow, though, our revenue and our relationship with these clients as they add additional assets. So in most cases, many of our clients are driving more revenue to us as they are growing their business.

Just as a general rule, to the extent you have asset-based pricing and they grow and you grow, and I may be wrong, but should I assume that you do, though, have to build in some type of breakpoint along the way?

Yes, absolutely. I mean we anticipated breakpoints in the original contracts. Some of those have been renegotiated as we have re-contracted, but certainly there are breakpoints.

Okay. And just two other questions. And I apologize, I know you mentioned the backlog to install, but I think I just dismissed that. I was writing too fast. Can you just repeat that?

There's about five banks and about $4.5 million of recurring revenue.

All right. Great. And then lastly and then I will get back into queue, maybe, when I look at expenses in the segment, they have been pretty flat all year. So you've really kind of held the line there. Is there anything that we should be thinking about looking ahead to 2015 that in an absolute dollar sense that you can kind of sustain current level of spend, or should we assume that there will be some pressure on the upside just as you kind of continue to add capabilities and grow the underlying business?

So as you know, managing expenses is a key goal for us. I think the one thing we have to be mindful of is, as we close a contract with some of these larger banks and convert them, expense may not align exactly to revenue recognition. So we could see quarter-by-quarter as that starts to occur some changes in the expense line.

Okay. Great. Thanks for taking my questions.

Thank you and I do show one more question from Chris Shutler. Chris please go ahead.

Hey Joe. I mean you sound a little bit more encouraged about the progress in SWP versus maybe the last several quarters. So, first, is that a fair read, and then secondly, any more color on what stage some of this implementation work is in?

I’m always encouraged. You know I have been working on this for a long time, but yes, as both Al and I said, we continue to make progress in these large complex sales situations, and so I will obviously be the happiest person when we finally make one of those announcements. But we continue to make progress.

Okay. Great. And then the margin in the quarter, you talked about kind of for the year what the big margin drivers were, but in the quarter was there anything particular to call out that the number came in better than we had expected?

We are making progress across the board with all of our businesses. So we had good progress with some of our TRUST 3000 clients as we cross sell there. We, again, see growth inside; we had a good asset flow onto the new platform. And so those things were really the big contributors to the margin in the fourth quarter. Some one-time but nothing really out of the ordinary, and just really trying to keep expenses under control.

Yes. Okay. Thank you.

Thank you [Operator Instructions] and our next question is from Glenn Green. Glenn please go ahead.

Hey Joe. So Al alluded to making progress with jumbos. Maybe you could give us a little bit of color on sort of like anything new in terms of what's the barrier to getting it over the goal line and what is the major impediment and maybe some just a sense of color for jumbo prospects in the UK?

So the barriers are the same. These are complex sales situations that involve a lot of decision-makers inside of the firms. These firms are highly regulated, so they are certainly going through a formal buying processes. So, again, we continue to make -- and then a lot of change, a lot of transformational change, to move to the SEI Wealth Platform. We continue to make good progress in the jumbo space, and not only are we focused in the U.S. but certainly in the UK there are opportunities in the pipeline.

Okay. Thank you.

Thanks.

Okay and I show no further questions at the moment.

Thank you, Joe.

Thank you.

Our next segment is Investment Advisors and Wayne Withrow will cover this segment. Wayne.

Okay, thanks Al. In 2014 our momentum accelerated as we received $3.8 billion in net positive cash flow for the year, including $950 million in the fourth quarter. Our net cash flow in 2014 represented the best we have had since the year 2000. Revenues were $284 million for the year and 18% increase from 2013. Net new cash flow was the largest driver of growth aided by market appreciation. Our fourth quarter revenues totaled $73 million and improved almost $7.5 million from the fourth quarter of last year, but declined $1.6 million sequentially from the third quarter. The decline for the third quarter was different by three factors. First, one-time brokerage revenues were $500,000 higher in the third quarter than our typical run rate. In addition, a very large client repositioned their accounts into a mostly passive implementation, which will still profitable for us does reduce our revenues. And finally, we decided to reduce the expense ratios for a few of our funds to better position them going forward. These last two events were both implemented in the beginning of the quarter, so we had a full impact in this year's fourth quarter but they should have no impact on sequential comparisons going forward. I view these items as simply resetting the baseline from which we must grow. The fundamentals of the business had not changed. With respect to expenses, increased costs associated with our asset growth, as well as the SEI Wealth Platform investments, were the primary drivers behind our year-over-year expense increase. Profit for the year increased almost 28% from last year, but declined in the fourth quarter as compared to the third quarter. The sequential decline for the third quarter was due to the revenue items I previously mentioned, as well as increased investment in the SEI Wealth Platform. Assets under management were $47 billion at December 31st and increase $1.7 billion from September 30th. This increase was due primarily to net positive cash flow and was also aided by market appreciation. Year over year our assets grew $5.6 billion, again driven primarily by net positive cash flow. During the quarter, we recruited 138 new advisors, bringing our total for the year to 603. Our pipeline of new advisors remains strong. For 2015, we will concentrate on three main areas. First, we are focused on the role of the SEI Wealth Platform. In 2014, we converted two additional tranches of clients. In 2015, we expect to convert one larger tranche of clients in the second half of the year. We hope to see the start of the revenue from the platform before the end of the year. Second, we will continue to focus on new advisor recruiting. And third, we will work to continue to improve upon the segment's rate of net cash flow growth. To this end, we added a few additional sales resources in 2014, and we are starting to see some positive results. In summary, 2014 reflected the momentum we have been building. Our goal in 2015, is to improve upon this momentum in our core business, while at the same time continuing the rollout of SWP. I now welcome any questions you may have.

[Operator Instructions]. And we have another question from Robert Lee. Robert, please go ahead.

Thanks and hi Wayne.

Hi, Rob.

Question and I guess maybe they are linked, maybe not, but I am just curious when you have a passive, what is the differential between when you have a passive assignment versus a more traditional assignment? And then should we be thinking that the need to reduce some expense ratios was due to increased advisor interest in passive products and you need to kind of just some of the expenses downward to be more competitive?

Okay, Rob. Couple of questions, I think when you look at active versus passive, it depends upon the strategy you are moving from and to. So it is hard for me to generalize about that in terms of some type of fixed income strategy, fixed income paths to differentials not as great. It's much greater when you go into active equity products. In terms of the second part of your question, the reduction was really not in response to passive. It was sort of just the review of our expense ratios, and as we looked - we try to be sort of in the middle. And as we looked at the expense ratio of our active products compared to some other active products, we just want to get them more in line with competing active products.

Okay. And maybe going back to the - just in general, obviously we all know about for many years now the whole passive active debate and trend that has been taking place. But any signs that you are starting to see more advisors that you target and try to recruit or good relationships that there is a growing interest on their part from using more passive allocation strategies?

Yes, I think you are exactly right. We have been fighting or should I say defending the value of active management for the past couple of years, and I expect that we are going to have to continue to defend it going forward because that debate rages on. I don't think it changed significantly, but that debate is a headwind out there. But we have been fighting it. I mean we’ve been winning, but it is out there.

Great. Thanks for taking my question.

Thank you. So our next question comes from Tom McCrohan.

Hi, Wayne. Just had a question about the pilot group, the first tranche of customers that converted onto SWP. Can you just give us a sense of what the margin profile is for that pilot group? Is it accretive to the current margins in the segment, or how should we be thinking about that as you convert more onto the new platform?

Well, I wouldn't compare the margins of the pilot group to the margins of the client base as a whole. Our goal going forward, when we get the whole book converted, is to try to preserve our margins or get as close to them as we can. I think for the pilot group we do not yet have the scale that we have in our core business. So they are certainly not at the margin the core business is at. I mean the conversion of those clients I view as investment.

That's fair. And then how do you go about selecting the second tranche? Is there a certain profile of a customer that you are converting over in the second tranche?

Yes, I mean to use the old analogy, I mean which we are changing the tires as we are driving the car. So, as we are building out the functionality of the Wealth Platform, we look at the stage of the functionality we have developed, and we see what clients best fit the stage of our development cycles.

Got it. All right. Thanks, Wayne.

Thank you. So our next question is from Glenn Greene. Glenn, please go ahead.

Thanks. Wayne, just a couple of clarifications. So you said the asset increase in the quarter sequentially, the $1.7 billion, could you just clarify how much of that was from positive flows? You sounded like almost all of it.

Positive flows were 950.

Okay. So basically your flows were pretty consistent with the most recent quarters, no real change there?

Yes, we’ve been, yes, we were at $1.1 billion, last quarter we were right around $900 million a few quarters before that.

Okay. And the yield that we kind of exited the quarter with given some of the repricing, and it sounds like that's a good proxy to use going forward? Is that what you are trying to message?

Yes. I mean that’s - I think I have reset the baseline, and I've got to grow from there like I have in the past.

Okay. And then just wanted to make sure I understood this, heard this right, did you allude to having some SWP revenue by the end of fiscal 2015?

I think we will begin to have it. It will not be material.

Okay. That's all I had. Thanks.

Okay. So our next question is from Chris Donat. Chris please go ahead.

Hey Wayne, I'm not sure I caught it completely, your comment about the prime brokerage being higher. Is that something that was call it one-time related around the volatility and trading volumes we saw that were unusually high in the fourth quarter, or is it something else?

No I mean we get kind of steady rate of brokerage revenues that are not really what I would call material, but we them every quarter as we have turnover in the funds. In the third quarter, we had some unusually high amount of brokerage far in excess of our run rate. In the fourth quarter, we return to our run rate. So it was about $0.5 million out of the ordinary in the third quarter.

Okay. Thanks. Just wanted to make sure I wasn't missing something. Got you.

Its brokerage incurred in our operations, it’s not something we're selling.

Okay.

Okay [Operator Instructions] And right now I’m showing no further questions.

Thank you, Wayne. And our next segment is institutional investor segment. I'm going to turn it over to Ed Loughlin to discuss this segment. Ed.

Thanks Always. Good afternoon everyone. I’m going to focus my remarks on the financial results for the fourth quarter, as well as the entire year. Fourth-quarter revenues of $21 million increased 8% compared to the fourth quarter of 2013. Full-year revenues approaching $285 million increased 10% compared to the year ago period. New client fundings and market appreciation drove revenue growth during both periods. As you know, the institutional business generates revenues in a variety of currencies. The weakening of foreign currencies against the U.S. dollar caused fourth-quarter revenues to decline by $750,000 and profits by approximately $500,000 versus the third quarter of 2014. Fourth-quarter operating profits of $36 million increased 15% compared to the fourth quarter of 2013 and increase 16% for the year totaling $144 million. Fourth quarter margins were 50% and margins for the year increased 3% to 51%. Quarter-end asset balances of $76 billion reflect an $850 million increase compared to the previous quarter and $6.5 billion increase for the calendar year. Net new client funding for the quarter totaled $556 million, and the unfunded client backlog was $1.4 billion at year end. Client signings for the fourth quarter were $2 billion and totaled %7.9 billion for the year. As we have discussed previously, new competitors have entered the outsourcing space, making each deal more competitive but overall generating more sales opportunities. SEI has a proven track record of adding value for clients and competes favorably in the outsourcing space. Our focus for 2015 is in three areas. Number one, continue to build a globally diversified institutional client base. Number two, continue to provide clients with value-added advice and discretionary services. And Number three, place increased emphasis on defined contribution investment only sales opportunities. Emerging favorable trends towards engaging a fiduciary partner to manage the defined contribution plan, like a defined benefit plan, represents a real opportunity for SEI. Our pipeline remains strong, and we are optimistic about the growth opportunities in the institutional space. I'm happy to entertain any questions you may have.

[Operator Instructions] Right so I am showing from Chris Shutler.

Hi, Ed, how are you?

[Indiscernible]

Good. So a couple of questions. First one, just if markets were flat going forward, I mean what do you view as an appropriate medium-term growth rate for this business? And then, secondly, if you sign more large deals going forward – which I know you're going after more large deals, see more in the marketplace. How do you see that impacting the segment's margin? Thanks.

Okay. So your first question was, what do I see as the growth rate?

Correct.

I would say probably the sales that we have been recording have been probably $1.7 billion to $2 billion a quarter. I mean that's kind of the asset growth rate that we have seen. So I think that - again, we continue to be optimistic. And so I think that that's kind of where – how I would answer that.

Okay.

And the second part of it would be in so far as the – we are going after large clients. We have always gone after large clients. I think just as there is more competition, there might be more opportunities for larger clients. The larger clients because of the scale that we have can really drop a significant amount of profitability to the bottom line, and it certainly adds significant revenue to the top line. So it is positive. It's a great opportunity for us.

Okay. Thanks a lot.

Thank you. And our next question comes from Eric Connerly.

Hi, Ed.

Hi, Eric.

With the assets and DC plans plateauing either this year or next and then starting to decline, why focus on that client base now rather than business that is not takeaways?

I'm sorry, what was the first part? Did you say the DB plans, DC plans.

Yes, DC plans, assets are likely to plateau this year or next and thereafter start to decline as baby boomers retire.

Sure.

Why choose now to go after what is going to be a shrinking market?

Well, I guess the biggest thing that we see are the trends towards managing DC plans is very much oriented around DB plans. So this whole idea of simplifying the menu, hiring a fiduciary that is really going to take that simplified menu and make it easier for participants. The whole opportunity that the larger clients who are already in target date funds but want to move to custom target date funds, give us a real opportunity. I would also draw the parallel that you could have said the same thing 20 years ago about the fine benefit plans. The large degree, those plans were not - the number of plans were not growing. But the opportunity for SEI in a space where outsourcing – our concept that was just getting started and that is growing. So I think that that is what we see in the defined contribution space as well. So we are pretty optimistic about the opportunity.

Okay, are we ready for our next question. I’ll assume so. So we will go with our next question from Robert Lee.

Yes, hi. Maybe sticking with the DC plans, what do you specifically view as really kind of the key opportunity there? Is it building and creating and managing custom target date products or as a glide path manager? I'm just trying to get a sense just given that competitive universe. So much of that incremental dollars falling into target date, kind of where you see your opportunity kind of getting to that market?

There is probably a coupe of that we see that we are positioned to capitalize on. One would be custom target date. So there is larger plans that already have target date funds that want to move into more of the custom type of a realm. We have a couple of clients we have done that work for now, and there really is a movement in that particular direction. As part of that, we would develop and manage a glide path for a particular client. Second in that some kind of space would be the ability for us to help the plan sponsor simplify the menu by packaging together, if you will, an example would be all of their equity products into a global equity fund. So you put a label around that, either the client's custom label or a white label, and you have one option for the participant so that there is less choices, and they are probably going to make a better decision. The third piece would be just generally this whole idea of a fiduciary manager helping a plan sponsor now manage these defined contribution plans where the average plan has 17 to 20 different investment options. And so the whole committee structure and the ability to make changes and to manage those on a fiduciary basis is really getting to be something where our plan sponsors want to have more protection, more sophistication. And that's, quite honestly, right in our wheelhouse because that's what I've been doing with defined-benefit plans for many years.

Great. Thanks for taking my question.

Sure.

[Operator Instructions] And I am showing no questions at the moment.

Thank you, Ed. And our final segment today is investment managers, and I am going to turn it over to Steve Meyer to discuss this segment. Steve?

Thanks, Al. Good afternoon, everyone. For the fourth quarter of 2014, revenues for the segment totaled $64.2 million, which was $4.7 million or 7.9% higher and our revenue is compared to the fourth quarter of last year. For the 2014 year, our revenue totaled $251.3 million which was an increase of a 11.2% over 2013. This year-over-year increase in revenue was primarily due to an increase in our asset balances, driven by new client fundings across all products. Our quarterly profit for the segment of $23.8 million was approximately $3.8 million or 19.2% higher in the fourth quarter of 2013. For the year, our profit totaled $92.1 million which was a 19.5% increase over the previous year. Our profit increase was a direct result of our new revenue growth and increase in leverage in our operations, partially offset by focused investment in our solutions. Third-party asset balances at the end of the fourth quarter of 2014 were $355.9 billion, approximately $9 billion or 2.6% higher as compared to our asset balances at the end of the third quarter of 2014. The increase in assets was primarily due to net positive cash flows of $10.5 billion, offset by market depreciation of $1.5 billion. Turning to market activity, during the fourth quarter of 2014, we had a very strong sales quarter Net new business sales events totaled $11.7 million in annualized revenue, this brought our 2014 total net new sales to $36.4 million in annualized revenue. This represents an increase of 6.1% over the prior year sales events. Of additional importance, we continue to add new business across all our market segments and solutions. In summary, 2014 was a solid year for our business. In addition to the new sales we recorded, we also were able to continue to invest and build out our solutions to maintain our market differentiation. We also have continued to execute on expanding our current wallet share with existing clients. Additionally, we have expanded our solutions to produce additional revenue streams. Our focus for 2015 remains on sustainable growth. To that goal, our 2015 priorities are centered on the following broad areas. First, global growth of new name sales in all our current market segments. Second, growth of wallet share of existing clients. Third, new market expansion. And fourth, development and investment in our solutions and platforms. While competition in the market remains strong, we feel well-positioned for continued market expansion and overall growth. We have strong solutions with breadth of coverage and depth of capability, as well as a diversified portfolio of clients. This bodes well for us. That concludes my prepared remarks, and I will now turn it over for any questions you may have.

Okay [Operator Instructions] And our first question comes from Chris Donat.

HI good afternoon [Technical Difficulty].

Chris I’m having trouble hearing you, could you speak up?

It seems we have lost Christ. He disconnected.

[Operator Instructions] And right now I’m showing no questions.

Thank you Steve. I would know like Kathy Heilig to give you a few companywide statistics. Kathy?

Thanks, Al. Good afternoon, everyone. I have some additional corporate information about this quarter. The fourth-quarter cash flow from operations was a $126.4 million or $0.74 per share. Bringing year-to-date cash flow from operations to $367.7 million or $2.13 per share, the quarter’s free cash flow was a $115.6 million or $0.67 per share. And the year-to-date free cash flow 2014 $303.7 million or a $1.76 per share. Fourth quarter capital expenditures excluding capitalized software $2 million, year-to-date capital expenditures again excluding capitalized software was $28.5 million and we would expect 2015 capital expenditures to be around that same number. As mentioned in the release the tax rate for the fourth quarter was 33.3% primarily due to the annual impact or the R&D tax credit reinstatement in the quarter. And the annual tax rate for 2014 was around 35%. We would like to remind you that many of our comments are forward-looking statements and are based upon assumptions that involve risks and that the future financial information presented in our release and on this call is unaudited. Future revenues and income could differ from expected results. We have no obligation to publicly update or correct any statements herein as a result of future development. You should refer to our periodic SEC filings for a description of various risks and uncertainties that could affect our future financial results. And now feel free to ask any other questions that you may have.

[Operator Instructions] And we do have Chris back online. So, Chris your line is open.

Thank you. Steve, two questions. One, what can you do on the technology side to prevent unforeseen user errors because that just happened to me? And then secondly, and more topical, the news today that Bloomberg is reporting that SS&C has put in a bid for Advent Software. I doubt you would care to comment on that, but I would love to hear your comments if you want to make them. But I guess the question you might be more able to answer is, what has happened in the past as you've seen consolidation in your space? And one example is SS&C acquiring GlobeOp. As you see some bigger competitors, does that change anything, or has business sort of maintained steady state for the last five plus years? Obviously with a lot of other changes going on? But just trying to get a sense of any potential changes to competitive landscape here.

Well, I would say as far as the announcement, anything I would say would be speculative in nature. So I would rather not comment on that. But on consolidation in general, we have seen firms be purchased and mergers over the past years, and I think typically what happens with that is there was always somewhat of an initial pause in the market to see what is that, what will the fallout be. But what I would say is the players like us that have been committed to kind of focus on the emerging needs of clients that are focused on enabling technology have been the ones that have come out the winners, I think, in any of these. The market has evolved a lot, and this is much - it is very focused right now on capabilities and enabling capabilities for the investment managers. So for our standpoint, we think our strategy has been spot on, and we continue to look to grow within that strategy and enhance that strategy, and we feel that the future bodes well for firms like us that are not just focused on the commodity side of the business and producing just pure accounting or back-office, but really are focused more on more enabling technologies and where the managers are growing.

Great. Thanks very much, Steve.

Sure.

Thank you. So I have another question from Robert Lee. Please go ahead sir.

Yes, hi thanks. So just a - I think I missed it way back in the beginning of the call, but I guess maybe for Dennis, the overall FX impact? I know Ed called it out in his segment comments, but and what was kind of - how should we view the overall FX impact again for the whole firm?

Sure, if you look at third and fourth quarter, in the fourth quarter we had about $2.5 million negative impact in revenue, but about a $2 million positive impact on expense, about a $0.5 million net profit. And, again, the segments that would particularly hit would be institutional as Ed talked about, and then in banking, private banking. And there it was pretty neutral to their results. And then a little bit in G&A, but not much. We did not pick up much benefit there.

Great, thank you.

You are welcome.

We are still trying to figure out how to help Chris.

[Operator Instructions] Right now I am showing no questions in the queue. End of Q&A

Okay, thank you very much. So ladies and gentlemen, we feel that 2014 was a solid year, created by our forms of concentrating our efforts on maintaining highly satisfied clients, growing new business events, controlling costs and investing in projects critical to our future. And looking ahead, we intend to keep our focus on long-term growth in revenues and profits. And as our momentum grows, I am bullish about the intermediate longer term business opportunities and feel really good about what we are doing in the short run. We will give you one more chance to ask a question of anybody.

[Operator Instructions] and right now I’m…

Thank you all very much and good afternoon. We appreciate your attention.