SEI Investments Company (SEIC) Q2 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the SEI Second Quarter 2019 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 Chairman and CEO, Al West. Please go ahead.

Thank you and welcome, everyone. All of our segment leaders are here on the call, as well as Dennis McGonigle, SEI's CFO; and Kathy Heilig, SEI's Controller. I'll start by recapping the second quarter 2019, and then I'll 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. Then finally, Kathy Heilig will provide you with some important companywide statistics. As usual, we'll feel questions at the end of each report. So let me start with the second quarter 2019. Second quarter earnings increased by 4% over a year ago. Diluted earnings per share for the second quarter $0.82 represents a 9% increase from the $0.75 reported for the second quarter of 2018. We also reported a 1% increase in revenue from second quarter of 2018 to second quarter of 2019. Also during the second quarter of 2019 our noncash asset balances under management increased by $3.4 billion. At the same time, LSV assets under management increased by $400 million. These increases in assets under management were primarily due to market appreciation. And in addition during the second quarter of 2019, we repurchased approximately 1.8 million shares of SEI stock at an average price of $53.17 per share, that translates to $97 million of stock repurchases during the quarter. Finally, in the second quarter, as part of the investments we make to create growth, we capitalized approximately $9.3 million of the SWP development and amortized approximately $11.8 million of previously capitalized SWP and IMS development. Second quarter 2019 sales events, net of client losses totaled approximately $12.7 million and are expected to generate net annualized recurring revenues of approximately $10.8 million. Even though this quarterly – even though this quarter’s sales results are an improvement over last quarters, we are still not satisfied with our second quarter sales results. We continue to experience slow contract negotiations in this tightly regulated environment. Plus, we faced continued rollover of the institutional business away from U.S. corporate DB plans and finally all our asset management businesses faced fee compression due to the popularity of passive investing. But there are bright spots, one is the foster company. We have fully engaged sales teams and a lot of activity. Two, IMS sales continued to be strong. Three, the migration of advisors to SWP is now behind us. And finally after the close of the quarter, we signed significant new SWP business. Our market unit heads will speak to the bright spots and their specific sales strategies. Now, this concludes my formal remarks, so I'll turn it over to Dennis to give you an update on LSV and the investment in our new business segment. I'll then turn it over to the other business segments. Dennis?

Thanks, Al. Good afternoon everyone. I will cover the second quarter results for the investments in new segment and discuss the results of LSV asset management. During the second quarter of 2019 the investments in new business segment continued its focus on the ultrahigh net worth investor segment through our private wealth management group and additional research initiatives including the digital services and hosting opportunity we spoke about in the past and the modularization of larger technology platforms in the standalone components for the wealth management and invest in processing space. During the quarter, the investments in new business segment recorded a loss of $3.7 million that’s compared to a loss of $3.1 million during the second quarter of 2018. This increase in loss reflects the growth of our private wealth management business more than offset by other areas of investment. Regarding LSV, our earnings from LSV represent approximately 39% ownership ventures during the second quarter. LSV contributed $37.8 million in income to SEI during the second quarter of 2019. This compares to a contribution of $41.1 million in income during the second quarter of 2018. Assets during the quarter were up approximately $400 million. LSV experienced net negative cash flow during the quarter of approximately $2.1 billion, which was offset by market appreciation. The revenue for LSV was approximately $123 million and performance fees were minimal. Our effective tax rate for the quarter was 22%. I am happy to take any questions.

[Operator Instructions] We do have a question from the line of Robert Lee with KBW. Please go ahead.

Hi, good afternoon. Hi Dennis.

Hey Rob.

Hey, Rob. Just a quick question on LSV, The – you mean the apples – is there any way of kind of characterizing it was kind of maybe a one large account or was it kind of a sensitive with this lot of rebalancing, just trying to see if there's any kind of underlying color, if it was a little bit more of one-off or something else on the underneath?

Yes, both. The negative flows are really attributed to existing clients. They are moving some assets out, not really loss clients. They did have about $800 million of new sales in the quarter. So, while they're net negative, they're still able to produce more established new client relationships. Now the value is in a tough spot right now.

Okay, great. Thank you.

You're welcome.

We also have some question for the line of Chris Shutler with William Blair. Please go ahead.

Hey, Dennis. Quick question on currency actually, so the dollar, I think strengthened a bit versus a pound recently. Just – could you just remind us the sensitivity to revenue and expenses in segments?

Sure. So I mean some of each of those segments leads who have that impact in their business could incorporate that in their comments. Kind of across the company, I'll just make that comment first. Now, the net impact of Q1 to Q2 is pretty neutral. We have a slightly negative impact on revenue and a slightly positive impact on expense. When you compare it to Q2 of last year, there’s a little bit more significant impact on revenue but also similarly a little more significant impact on expense. So again, the net to the company is pretty modest, slightly negative, less than $0.5 million. So, the cost of the total company is fairly mute, the business lines that it affects a little bit more would be like a pause business, Q2 to Q2 comparatives, revenue numbers probably a little bit under $1 million impacted as expense numbers were positively impacted by about $400,000. So I'd say that has a little more of the larger impacts on a net basis. Steve’s business in Banking, similarly has revenue impacted by a negative kind of year-over-year about $1.5 million and expenses positive by a little over $1 million. So it does have a negative P&L impact to his business year-over-year. But across the company, it's almost like we have this natural hedge against given the different currencies we operate.

Alright, thank you.

You're welcome.

[Operator Instructions]. At this time, there's no further question in the queue.

Thank you. I'm now going to turn it over to Steve Meyer to discuss our private banking segment. Steve?

Thank you, Al. Good afternoon everyone. For the second quarter of 2019, revenues for the segment totaled $116.1 million which is down 4.2% as compared to our revenue in the second quarter of 2018. This year-over-year revenue decrease was due primarily to some of the client losses previously announced along with decreased revenue in our asset management business. Our quarterly profit for the segment of $8.3 million increased $2 million as compared to the second quarter of 2018. This increase was mainly driven by our continued expense management. Our second quarter profit is up $1 million as compared to our profit in first quarter. And turning to the sales activities, during the second quarter, we signed $5.4 million in gross processing recurring sales events and approximately a negative $2.7 million in net sales events. Additionally, we had $0.5 million in one-time events. These events included the following, SWP conversion of an existing Trust 3000 clients. The existing Trust 3000 had signed to move to SWP and are scheduled to migrate their existing book of business plus new book of business currently on competitors platform to the SEI Wealth Platform in the first half of 2020. Schroders Personal Wealth, as reported in the UK press in November of 2018 SEI will power the new joint ventures for Personal Wealth forged between the Lloyd's Banking Group and Schroders through our existing relationship with Fusion Wealth, which was recently extended until 2025 and we reported in our Q4 earnings call. This event highlights a portion of the new ventures assets scheduled to start to migrate to our platform over the next 12 months. We expect to be – we expect there to be additional growth events here. We've mentioned to you before the delays we encountered due to the long and complicated contract processes we have to go through in this market. This quarter was no different. I'm happy to report that after the second quarter was over, but prior to our call today, we signed two new deals which representing a total of $16.5 million in net annualized revenue. The first deal was with a longtime client law firm, Dorsey & Whitney, who is scheduled to migrate their existing book of business to the platform in the middle of 2020. The second deal, we were pleased to announce, CIBC U.S. Private Wealth Management, CIBC or Canadian Imperial Bank of Commerce is a leading North American financial institution. It's U.S. private wealth management business offers investment management, wealth strategies and legacy planning solutions. This agreement is significant to SEI for a couple of reasons. Under the new relationship with SEI, CIBC can leverage the SEI Wealth Platform and benefit from the integration of SEI’s unique array of comprehensive operating platform that will address its complex business needs and support its hybrid custody model as it grows in the U.S. SEI solution can support CIBC with a comprehensive set of front office wealth management capabilities and end-client experiences coupled with core process and support for both internal and external customer relationships. These events are not included in our sales events reported for this quarter, but will be included with our Q3 sales events. We are pleased with the addition of these new clients and the momentum we're gaining in new business activity within the segment. And turning to an update on our Trust 3000 business, in the second quarter we successfully converted two Trust 3000 clients to the SEI Wealth Platform. Legacy Trust, a client since 2004, and BBVA Compass a client since 1996. BBVA had previously provided notice to SEI that they were going to go with a competitor, but changed their mind and they were re-converted. They decided to stay and ultimately migrated to SWP during the quarter. Both conversions went very well and demonstrated our ability to increasingly scale our implementation strategy as well as prove our value proposition against increasingly aggressive competition. We also re-contracted three Trust clients with contract terms of three years or greater. During the quarter, we did receive notice from a Trust client, who we planned to move to SWP, will be leaving our Trust platform in 2020. Also we received notice from two clients, one in the U.S. on Trust 3000 and one in the UK on SWP who have been acquired and their businesses will be moving to the respective acquirer’s current platform by early 2020. The impact of these client losses are in the net sales events reported for this quarter. As an update on the wealth platform backlog, our total signed but not installed backlog for SWP is approximately $35 million in net new recurring revenue or $51.5 million, if you include the two most recent signings after the quarter. Our asset management distribution business mere the global marketplace in which investors remain cautious, while total assets under management ended the period at $22.6 billion representing increases quarter-to-quarter and year-over-year, we did see negative cash flows of $147 million. We continue to build a strong global pipeline in our AMD business. As we look to the rest of the year, there are couple of important focus areas for us to note. First momentum, we are very encouraged on our sales this quarter and the momentum we are seeing in the market and our pipeline. As well as the success we are having with implementation of clients onto SWP. Sustainable growth is our focus and I believe we have the foundation for this, while the sales processes are still taking longer than we would like in our market. We are seeing strong and maintained activity. Second managing headwinds, as the risk are sounding like a broken record, we still had several headwinds facing us, primarily the impact of lost business that we have previously discussed that will be coming off our platforms in the remainder of the year, but we will continue to manage our expenses judiciously as we continue to forge through our growth initiatives. These headwinds will have an impact to both our top and bottom line growth in the near term. We continue to push forward to building a foundation for sustainable and accelerating growth. And lastly, our continuation of our 2019 strategic themes, as I mentioned to you before, these strategic themes are one, growing our business globally. Two, monetizing our investments in SWP. Three, implementing our backlog of sold yet to be installed clients, and four expanding our markets and solutions to provide further growth. We believe that the results of this quarter reflect all of these themes and we look to continue this progress. That concludes my prepared remarks and I'll now turn it over for any questions you may have.

Yes. [Operator Instructions] First on the line is Robert Lee with KBW. Please go ahead.

Hey Steve, how are you? Good morning. Good afternoon.

Good morning. Good afternoon. How are you doing Rob?

Good thanks. There's a lot of stuff's kind of went through quickly. So first one is kind of really a numbers thing, was 5.4 million of gross sales, but 7.2 million of kind of losses, kind of the gross losses, I just want to crack those numbers.

Yes. That’s right. I think it's actually, if you look at it that would be 8.2 million isn’t it?

Yes. I'll take it over.

8.1 milllion.

Yes. I'm sorry, 8.1 million total loss?

Yes.

Okay. Alright, great. And then just kind of curious, as we know the expense control is in place, but should we expect that the pickup in – post quarter pickup in sales activity, I mean, if you could refresh my memory, when did you pay, sales commissions? Is it on installation or kind of the signing of the contract, just trying to ...

Well, it's broken up, and there's a portion of that paid upon signing a contract and then some are held. But I think generally what you're looking for is kind of an outlook on expense. And what I'd say is that we're going to continue to manage expenses. I feel that, we're doing a very good job, maybe reallocating the expense we have right now to the priorities, but as we start to grow this and as I start to push on that sustainable and accelerating growth, we're not afraid to invest our expenses in light of driving that growth.

Okay. And maybe one last question. Thanks for...

Rob. Just one thing on the sales to remind you, with the new rules, sales comp, remember from an accounting standpoint is differed. So remember that with the new rules it’s deferred now, I think to license of the client.

Okay, great. Thanks for that reminder. I'm just kind of curious, so I mean I'm sure with the CIBC and the other transaction with the law firm, I'm guessing those five been works for awhile, but is it possible anyway the kind of look at that and say, gee, we were able to kind of maybe – would you attribute the signing of those or the timing of it to anything, anything maybe the changes you feel like you implemented kind of early on and kind of helped push them through the pipeline faster than maybe they had been moving, like kind of accelerated things.

No. Rob, I think we have a very dedicated and strong group of individuals, but I'm working for a very long time and the way I would classify this is, well certainly we've changed some things. I think that helped overall business, I think this is finally them getting a really the credit they're due on the hard work they put in over the past couple of years. So this CIBC was a long process, all these tend to be longer process, but I think we're finding ways to look at things a little differently and change and make some slight changes. But I think the momentum, biggest momentum and I think the one thing we're looking is, we see strong momentum in our pipeline. We're working very aggressively on those deals that we see that can move quickly – or quicker not quickly and we're pushing on them.

All right, thank you for taking my question.

Sure.

We also have a question for line of Chris Donat with Sandler O'Neill. Please go ahead.

Hey, good afternoon Steve.

Good afternoon, Chris. How are you?

Doing fine. How about you?

Going good.

So just on the two signings after the quarter closed. Two related questions, one is kind of following up on Rob, how long where these negotiations going sort of from start to closing and pick whatever metric you want for start or whatever point you want to use. And then implementation, how far – how far out will implementation be for CIBC, sounds like its big, I'm thinking it’s complicated, is it quarters away, years away, decades away, I want a color in it.

So Chris, two things, I really don't want to pinpoint – only it’s fair to pinpoint to the clients how long the exact processes, what I'd say, it was kind of the normal we see in this, the contract we process in particular, I think took the elongated cycle that we have been seeing and talking about for awhile. As far as implementation, I believe Dorsey, I announced that I said in the script and I know we went through a lot. We're looking for them to convert into SWP in 2020. CIBC as you can appreciate, it's a new client, is a large client and we're working through project plans now. So I wouldn't want to really put a date on it.

Okay, understood. Thank you.

Sure.

Next question will come from Glenn Greene with Oppenheimer. Please go ahead

Alright, thank you. Steve, good afternoon.

Hi, Glenn.

So a couple of quick questions, first, can you just remind us where we are on realizing the previously announced client losses.

We’re in that plan.

How much has been absorbed in the P&L, how much revenue has already hit, how much of revenues come out already from the previously announced losses?

So I'd say, the losses we had that we've announced, and I don't have an exact figure in front of me, Glenn, but I’m going to say anywhere between a quarter of that loss and 40% of what we kind of estimated or announced from a client standpoint. We still have more to go.

Okay. And then the – you had three client losses in the quarter, if I heard right, and two were due to mergers. What about the one that did leave or is going to leave in 2020, the TRUST 3000 client, any – did they give you any reason why they’re leaving?

Yes. We don’t really want to talk individually about clients. So what I’d say, Glenn, this is – as you know and have got to know, this is a complex business and development and technology cycles can take a little bit of a timeframe or a longer timeframe. And sometimes that timeframe doesn’t match up with the clients’ needs or what they’re looking at, and I’d say this one fell in that bucket.

Okay. And then finally, CIBC, congratulations.

Thank you.

But that’s just the U.S. part?

Yes.

Does that mean potentially – obviously, potentially, but Canada down the road.

What I’d say is it means the U.S. part now. We’re very happy with that. But as you know, we’re always looking for ways to grow with our clients.

Okay, thanks. Congrats again.

Thank you.

[Operator Instructions] At this time, there is no further questions in the queue.

Our next segment today is Investment Managers, and Steve Meyer will also address this segment. Steve?

Thanks, Al. And turning to Investment Managers. For the second quarter of 2019, revenues for the segment totaled $109.2 million, which was a $11.6 million or 11.9% higher as compared to our revenue in the second quarter of 2018. 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 $40.8 million was $6.6 million or 19.2% higher as compared to the second quarter of 2018. Higher profits were primarily driven by an increase in revenue, offset by a smaller increase in personnel and systems expense. We continue to manage expenses judiciously. Third-party asset balances at the end of the second quarter of 2019 were $607.1 billion or 3.6% higher, as compared to the asset balances at the end of the first quarter of 2019. This was due to an increase in assets due to net new client fundings of $10 billion, as well as market appreciation of $11.1 billion. Turning to market activity, during the second quarter of 2019, we had a very strong sales quarter with net new business events totalling $12 million in recurring revenues as well as recontracts with $23.8 million in recurring revenues. Most importantly, these sales were diverse and spanned our entire business and included both the new-name business and expansion of wallet share with current clients. These events include the following highlights, in our alternative market unit, in the second quarter we signed a significant $1 billion credit startup in a highly competitive process. Additionally, we added another client to our growing private equity real estate book of business. In our traditional market unit, we won a large middle office services mandate with an existing client further expanding our wallet share with that client. In Europe, we continue to win new private equity and private credit mandates from both existing and new clients, particularly related to funds domiciled in Ireland and Luxembourg. Finally, SEI Archway had new sales events in both the single family office and multifamily office market segments. We continue to invest in our platforms and see significant growth opportunities in numerous areas, including the private equity and real estate segments, the single and multifamily office arena, collective investment trust and ETF servicing as well as considerable demand for our front office investor platform, which is a real differentiator for us and our middle office solutions. Our pipeline remains very strong and I’m optimistic of our continued momentum. That concludes my prepared remarks, and I’ll now turn it over for any questions you may have.

[Operator Instructions] At this time – we do have a question from the line of Robert Lee with KBW. Please go ahead.

Hey Steve, you probably got away.

Hey, Rob, 38.4.

Okay, thank you.

38.4 million backlog end of the quarter. You’re like old reliable.

At this time, there’s no further questions in the queue.

Thank you, Steve. Our next segment today is Investment Advisors. And Wayne Withrow will cover this segment. Wayne?

Thank you, Al. In the second quarter of 2019, we focused on rebuilding the momentum, we lost throughout our migration onto the SEI Wealth Platform. With the migration complete, we also redirected resources toward value added technology development, client technology adoption and sales activities. Second quarter revenues total almost $100 million, which is essentially flat in the second quarter of last year. These results were positively impacted by market appreciation and a shift of liquidity products into equities. Factors which detracted from these results were net negative cash flow and a slight decrease in our average basis points earned on assets. Expenses were down $2.5 million from the second quarter last year and $2 million from the first quarter. Second quarter results include about $1 million in onetime savings. Also included in these results are increased direct costs tied to our asset growth and savings in the technology area tied to the completion of the migration and implementation of the cost-savings measures we began in the first quarter. Our profits increased $2.7 million from last year’s second quarter due to cost savings. Assets under management were $67.2 billion at June 30th an increase of $1.9 billion from June 30th 2018. During the first quarter, our net cash flow was a negative $201 million, while our flows during the quarter were still negative, they are trending in a positive direction. We recruited 81 new advisors during the quarter and our pipeline of new advisors remains active. In summary, during the second quarter, we posted good profit results. And while cash flow is not where I would like it to be, the quarter saw a tick up in our momentum. We are focused on reaching the benefits of the SEI Wealth Platform, now that we are fully migrated. I now welcome any questions you have.

[Operator Instructions] First to the line of Robert Lee with KBW. Please go ahead.

Yes, hi, Wayne. How are you?

Good Rob.

Quick question. You just – talking about the competitive environment a little bit, I mean, as Al mentioned upfront as we all know, kind of that the pressure on fees and competition from low-cost alternatives, and understanding that you made some adjustments, I think exact one was maybe a year or so ago, but are you – when you look at your kind of product pricing and maybe what kind of feedback you get from the advisors’ existing perspective? I mean any sense that you’ve changed some of your programs, whether it’s incremental fee changes or maybe even changing up some of the – some of the products to include more passive products? I know you have the ETF product, but just kind of curious kind of how you are reacting – steps you’re taking to react to the pricing environment.

Right. So I guess what I’d say is, if you look at it, we are experiencing strong growth in our ETF product line, I would say purely passive product. And we earned a little bit less on that and that’s reflected in the results. A little bit – for the end of the first quarter, we introduced – we made a change in our models that we introduce a passive large cap U.S. equity fund in the model that is auctioned or advised, they don’t want sort of that space to be active. So again, that is a little more, it’s a little lower fee and it’s passive U.S. large cap. So we are now actively marketing that too. So I think that’s two big changes I’d point out.

Okay. Great. And then maybe as a follow-up, just – now that you’ve completed the full migration, got everyone on it, as you’ve talked about kind of going – can refocus attention on the marketplace, I’m assuming that includes kind of them selling in the broader platform to capture a broader array of advisor assets. So are you –maybe it’s early stages, but are you seeing any early signs that your conversations with the types of advisors you’re talking to are filling in – just trying to fill in your pipeline or maybe larger more diverse than some of your historic advisors?

Yes, I would say that the advisor is looking at us for a broader solution to perhaps they looked at before. I know that we’ve necessarily moved very much upstream yet, although I would expect that. And we are seeing some flows what of what I – of non-SEI assets on to the platform as a result of advisors looking for a broader solution.

Okay. And I’m just curious – going, I mean, I’m sure – hope those non-SEI assets accelerate, but just kind of – just from a reporting perspective, would those be excluded from your net cash flows as you disclose them quarter-to-quarter?

All the assets we disclose flows into SEI managed products. We have not yet disclosed SEI administered products.

Great. Okay. Thank you.

And at this time, we have no further questions in the queue.

Thank you, Wayne. Our final segment today is the Institutional Investors segment. Paul Klauder will report on that segment. Paul?

Thanks, Alan. Good afternoon, everyone. I’m going to discuss the financial results for the second quarter of 2019. Second quarter revenues of $81.1 million decreased 3% compared to the second quarter of 2018. Second quarter operating profit of $41.7 million decreased 2% compared to the second quarter of 2018. Operating margins for the quarter was 51.5%. Both revenues and operating profits for the quarter were impacted by negative client fundings and currency impact versus the second quarter of 2018. Quarter-end asset balances of $88.2 billion reflect a $2.7 billion decrease compared to the second quarter of 2018. This decrease is driven primarily by negative client fundings. Net sales were a positive $1.2 billion for the quarter. Gross sales were $1.5 billion and client losses were about $300 million. The unfunded new client backlog at quarter-end was $1.2 billion and we would expect the majority of this to fund in the third quarter. The new client signings were diversified across new clients in Endowments and Foundations and UK Fiduciary Management, including a large new name. We believe our new business focus on longer-term asset pools across all global markets is beginning to pay dividends to the business and our sales pipeline is strong. We do continue to stay focused on all client situations, especially those in a rebid process or in M&A activity. Thank you very much. And I’m happy to entertain any questions that you may have.

[Operator Instructions] First question comes from the line of Robert Lee. Please go ahead.

Great. Hi, good afternoon, Paul.

Hi, Robert.

First thing is simply, could you repeat with the unfunded pipeline was, was it $1.5 billion?

So gross sales were $1.5 billion, losses were $300 million for the quarter. The unfunded new client backlog that is going to be funded is $1.2 billion and we expect that all to occur in the third quarter. Does that answer your question, Robert?

He removed himself from queue.

Okay, no problem.

And there are no other participants queued up.

Thank you, Paul. I would now like Kathy Heilig to give you a company-wide statistics. Kathy?

Thanks, Al. Good afternoon, everyone. I had some additional corporate information regarding this quarter. Second quarter 2019 cash flow from operations was $167.7 million or $1.02 per share. Year-to-date cash flow from operations is $217.6 million or $1.40 per share. Second quarter 2019 free cash flow was $137.6 million and year-to-date free cash flow is $180.2 million. Second quarter capital expenditures, including – excluding capitalized software was $10.9 million, which does include expansion of our campus. And the year-to-date capital expenditures were – excluding capitalized software were $18.2 million and that includes about $10 million for facility expansion. We project – because we are expanding our facility, that capital expenditures will be approximately another $22 million. As noted in those releases, second quarter tax rate was 22% and our effective tax rate could fluctuate as a result of the timing of tax benefit relating to stock option exercises. We also would like to remind you that many of our comments are forward-looking statements and are based upon assumptions that involve risks and that the financial information presented in our release on this call is unaudited. In some cases, you can identify forward-looking statements by terminology such as may, will, expect, believe, and 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, the benefits we will derive from our investments, our ability to manage our expenses and scale our offering, the strength of our pipelines and growth opportunities, and our ability to execute on, and the success of our strategic objectives. You should not place undue reliance on our forward-looking statements as they are based on the 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 described in our forward-looking statements can be found in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2018 that we filed with the Securities and Exchange Commission. And now, please feel free to ask any other questions you may have.

[Operator Instructions] And our first question comes from the line of Chris Donat with Sandler O’Neill. Please go ahead.

Hi. I had one clarifying question for Dennis. Just wanted to double check with the compensation line on a consolidated basis. Just that there was no severance this quarter unlike the prior two quarters. And kind of related question, Dennis if you wouldn’t mind re-saying what the expense recognition is on sales compensation? I’m not sure I caught that – it was part of Steve’s discussion earlier?

Sure. So there was a minimal severance in the second quarter compared to first quarter, particularly. And on sales compensation, under the new accounting rules that came into play last year, as it relates to some of our business lines and it’s principally in banking and a little bit of an Investment Manager services as well, when you have these longer-tail contracts, we have delivery of services over time rather than more immediate the 10 year you’re required to – the further recognition of that sales compensation expense and then recognize it over the life of the client – the estimated life of the client. So that’s – that was the answer to Rob Lee’s question about sales comp relative to third quarter expenses.

Okay, got it. Thanks very much, Dennis.

You’re welcome.

And next we’ll go to line of Robert Lee representing KBW. Your line is open.

Great. Thanks for taking my follow-up. And actually this is one for Steve on SWP. And – really in the UK, could you just update us on kind of a new business flows are like there? And I guess, particularly interested in any kind of color as it relates to impacts you’re seeing around Brexit concerns. I mean, certainly when you look at least in the asset management business there, it’s kind of suffering through outflows. But what are your kind of clients experiencing with their client portfolios or maybe just rebalancing to more conservative investments?

Yes, well, I think – as I said in my write up, I think from an investor standpoint that we’re seeing at least on the asset management side, that should remain cautious. And I think that’s something we’re seeing across the board. Specifically to UK, if you ask me about kind of our processing clients and processing prospects – investment processing, we can see the momentum there and activity in our pipeline. I think the announcement of the – which we talked about the Schroders Personal Wealth is a great piece of business that is certainly – that’s something that we’re looking is going to drive growth. And I see a good bit of momentum in our activities there in our pipeline. We have added to the sales force there and we’re hopeful that, that will start to drive more results out of the UK.

Great. Thank you very much.

Sure.

There are no other participants queued up at this time.

Thank you. So, ladies and gentlemen, while sales results were below expectations in the second quarter, third quarter is off to a good start. We remain encouraged by our pipelines and the progress we’re making. We believe that the investments we’re making in our products and organization will help us benefit from all the changes taking place in our industry. Now before you go, please note that we are holding an Investment – Investor Conference on November 12th and 13th, at SEI’s Oak’s headquarters. Dinner will be served on the 12th followed by the conference in the 13th. Please save the date. Thanks for attending this afternoon, and have a great day.

Ladies and gentlemen, that will conclude our conference for today. Thank you for your participation and for using the AT&T teleconference, you may now disconnect.