Good day, and welcome to the Q4 2024 SEI Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Brad Burke, Head of Investor Relations. Please go ahead.

Thank you, and welcome, everyone. We appreciate you joining us today for our fourth quarter 2024 earnings call. On the call, we have Ryan Hicke, SEI's Chief Executive Officer, Sean Denham, Chief Financial Officer, and members of our executive management team, Jay Cipriano, Sandy Ewing, Paul Klauder, Michael Lane, Phil McCabe, Mike Peterson, Sneha Shah, and Sanjay Sharma. Before we begin, I would like to point out that our earnings press release and the presentation that will accompany today's call can be found under the investor relations section of our website at seic.com. This call is being webcast live, and a replay will be available on the events and webcast page of our website. We would like to remind you that during today's presentation, and in our responses to your questions, we have and will make certain forward-looking statements that are subject to risks and uncertainties that may cause actual results that differ materially. Please refer to our notices regarding forward-looking statements that appear in today's presentation slides in our filings with the Securities and Exchange Commission. We do not undertake to update any of our forward-looking statements. With that, please turn to Slide three as I turn the call to our CEO, Ryan Hicke. Ryan?

Thank you, Brad, and good afternoon, everyone. I know you've heard me use this quote before, but it's worth repeating. Anything that happens once may never happen again, but anything that happens twice can surely happen a third time. Sales events for Q4 2024 were $38 million, with $28 million net recurring. We also posted $1.19 of EPS for the quarter. This is the second consecutive quarter where SEI has realized significant growth in net sales events. We have made meaningful and consistent progress over the last 18 months, and we are surgically focused on maintaining and growing this momentum. For the full year, net sales events reached nearly $130 million, with nearly $100 million recurring. SEI net events for 2024 were nearly 60% higher than what we achieved in 2023 and almost double what we did in 2022. Most importantly, similar to last quarter, there isn't a single client or win driving these results, and we have not changed our pricing or value propositions. The sales are broad-based across the organization, coming from existing and new clients, both in the U.S. and globally. And while the third quarter benefited from some delays in the first half of the year, the fourth quarter did not benefit from delays or a pull forward from 2025. SEI has real momentum and increased confidence across the entire workforce. Our 5,000 employees have embraced a true enterprise-first mindset, putting in the time and energy to ignite our momentum. Because of their efforts and our strong financial performance during the year, we determined, with the board's unanimous approval, that a one-time increase to our 2024 incentive compensation was appropriate. We're confident that this is a decision that is in our company's best interest. Maybe not the optimal decision if only trying to maximize earnings per…

Thank you, Ryan. Please turn to Slide four. Our EPS of $1.19 in the quarter represents a 31% increase from the prior year with a positive contribution from all of SEI's business units. The fundamental earnings of the business also improved on a sequential basis. We did have some items in the quarter that affect the comparison. The first is a $0.04 impact from the increased incentive compensation that Ryan noted earlier in recognition of our employees enabling the record results achieved in the year. We also saw a $0.05 impact from the timing around stock compensation plans, our option plans best contingent upon achieving certain EPS thresholds. As a result of the strong EPS growth achieved during the year, we recognized an increased level of stock expense in the quarter. These were offset by a $0.02 benefit from foreign exchange gains and a $0.05 benefit from a lower tax rate from options exercised during the quarter as well as our year-end provision estimate. Absent these items, SEI would have achieved EPS growth on both an annual and sequential basis. Turning to our business unit financial performance on Slide five, each of our business units realized both revenue and operating profit growth over the prior year. Growth in our private banking and investment managers businesses has been supported by the strong sales events we have achieved during the year. In addition to the new client wins, growth has been driven by improved client retention, especially in our private banking business and growth within our existing client base, most notably in investment managers. Results in our investment advisors business was supported by a full quarter benefit from our integrated cash program, which contributed just over $20 million to the fourth quarter, a more than $10 million increase over the third quarter.…

Thank you. [Operator Instructions]. And our first question will come from the line of Owen Lau with Oppenheimer. Your line is open.

So first of all, thank you for creating the slide. It helps investors understand the story better. So I really appreciate it. For my question, could you please talk about the sales environment? Net sales were strong, $38 million in the fourth quarter. I'm wondering the driver of that growth. I know you touched on this a little bit on your prepared remark, but how much of that comes from pricing, existing and new clients, and how do you see the sales outlook in 2025? Thank you.

Hey, Owen. Happy New Year, my friend. Thanks for the question. I can let some others provide some color. So I'll try to break it down in a couple of ways. So if you look at the sales events in Q4, we had a really nice mix of new logos and new names and continued growth from existing clients. But I think even more exciting, as Sean mentioned, it was broad-based across the units, but also broad-based domestically and globally. We saw some nice traction in our non-U.S. markets, especially in IMS and banking. I mean, I can't reiterate this any more clearly than I have in the last two calls. We're not changing our pricing, Owen. We have remained extremely consistent, confident, and convicted about the value proposition. But equally said, we're continuing to really lean into two fundamental areas that I think are driving continued sales. One, making sure we are meeting and exceeding client expectations wherever possible. And also, one thing we believe is a competitive differentiator for us is when these firms are making these decisions, these are critical strategic decisions for their business growth. And they're relying on us to deliver on time, on budget. And that is a hallmark and a principle that we hold really dear. And I think the blast radius of that reputation is continuing to expand. And firms are looking to engage with us because of the confidence they have, not just in our capabilities and our solutions, but they know that we pride ourselves on our delivery and ongoing client service. I would also say, the reason I opened the call with the way I opened the call, we don't give guidance, as you know, but we feel really, really positive about the level of engagement we have in the market, the breadth of activity we have in the market, our sales pipelines. And we mentioned in the call last time with Michael Lane joining, kind of a reignite and re-ignition, if you will, of our asset management-based businesses. So that's a lot for one question. All the unit leads are in the room, though, if you want to unpack any of that.

Okay. We'll go on to our next question. One moment, please. And that will come from the line of Aiden Hall with KBW. Your line is open.

Maybe just one to start, Sean, on the near-term margin comment about the pressure expected associated with, obviously, strong net sales events. It's a good problem to have. But any way to put a finer point on that, whether at the firm level or segment level, how long, before the upfront associated expenses kind of lap the revenue associated with that business coming in? Just trying to think about the margin profile in 2025 as it relates to 2024.

Sure. Nice to hear from you, Aiden. Thanks for the question. So, we need to make certain investments in costs prior to onboarding those clients. I know you're aware of that. We are still very, very confident in our margins to continue margin expansion. In 2025, just like every year, we are not making short-term decisions. We're making investments for the long-term. We're not here just to hit certain earnings targets that may be external or, for that matter. So, sales typically, depending on the business, from a sales event in Sanjay's business will take anywhere from 3 months to 18 months, or probably closer to 6 months to 18 months to bring that revenue online. With that comes, upfront costs that we have to get to onboard those clients. Same with Phil's business. Phil's business is more from 3 months, it can go all the way up to 18 months, but maybe think closer to a year. So, increasing headcount, making sure we have the right quality in place, the right leverage in place to onboard that client. We don't build massive teams. We try to do more of a little bit more of a just-in-time, if you think about that model. So, we bring in expense slightly ahead of when those sales events are coming online and then when we expect the revenue to hit. So, we do have certain expenses that we're going to have in 2025 in order to keep up with our infrastructure. So, that's how I think I would answer that question.

Okay. No, that's helpful. Maybe just one for Michael. I know last earnings call caught you only a month or two into the job and give some high-level thoughts about the opportunity and the asset management-based businesses. Just curious if you had any more tangible takeaways now a quarter further into the seat about how you're thinking about the largest opportunities for these segments.

Absolutely. In the last earnings call, we spoke about how we would be looking for ways to consolidate areas of overlap and free up dollars to invest in new distribution opportunities. We have started that process. We had project teams created to come back with proposals for areas that we have overlap between different business units. We are now in the process of exploring how we're going to repurpose those areas of savings into new markets. And when you look at the business that we have available to us with the existing product lines and the existing people that we have within the organization, we believe that there are tremendous opportunities for us to use the scale of our banking business, where we have $7 trillion running on our wealth platform and bringing that to the most scaled, being the largest, most successful firms out there that we have not actually brought that to, both from a technology custody and an investment perspective, whether that be in a model allocation or even in some of those relationships that will be in an individual fund opportunity for us. And so we are deep in that process right now of looking at the areas of consolidation, looking at areas of new investment in new businesses, using the areas of consolidation to fund that. And what I've been very impressed with, to be quite honest with you, is the collaboration across the different business units to bring that all together.

Thank you. One moment for our next question. And that will come from the line of Jeff Schmidt with William Blair. Your line is open.

So private banks obviously continues to do really well. Do you think you can keep growing that business in the double digits? I guess now that comparisons are going to be a lot tougher. And any details you can give on client retention improvements in that business over the last year or two would be helpful too.

Hey, Jeff, I hope you're doing well. I'll turn that one over to Sanjay. I think the good news is I hope we answer this question consistently every quarter. So I'll let Sanjay continue to unpack what we're doing with banking and why we expect to maintain that momentum.

I think, first of all, that's a great question. Thank you, Jeff. If you look at private banking, our strategy has been very consistent over the last eight plus quarters. You've seen that growth through existing clients that happens by improving our engagement with the clients. So our clients, they're trusting on us and they are outsourcing their technology in all basis. In that process, we are building good credibility with their client base. And you're seeing consistently our client retention is very high. And that is enabling us to grow through our existing client base. And that's where you're seeing that the new services or new segments, expansion initiatives we announced. For example, SEI Data Cloud, SEI Professional Services, digital onboarding now. Through those, we are able to grow our footprint with existing client base. So that's a really good growth engine. The second part, if you look at it, we focused on segment-specific growth initiative, be it on our global markets, be it on the regional community bank segment. And then, we started small bank initiative as well. And there is a very laser-focused initiative in terms of what solution is needed for those segments. And we have invested significantly in terms of, as Ryan called out earlier, that we are absolutely certain about that we have to make sure we don't provide adverse experience or impact our client's business as part of that onboarding process. So delivery certainty, delivery experience, delivery excellence, those are absolute requirements for us. So that's where you could see that we are going through those segment-specific sales strategies. So those two, I would say, those two core pillars, they're really helping us. And as I called out, the reason why I invested in professional services was so that we can help our clients to focus on growing their business, while they can rely on us to manage that overall transformation journey. Ryan, Sean, do you want to add anything else?

That's great.

Okay, great. And then a question on capital management, share buybacks, I think we're record in the quarter. Does this signal a shift in your strategy there, or is there potential that we may see you look to do more M&A in 2025 if activity kind of picks up there? I mean, obviously, you have a ton of dry powder for that, too.

Yes. So I was expecting that question, especially after the buybacks and repurchases in Q4. So, I mean, how we're thinking about it, we are, just like we have every single quarter, we're looking at what our cash balance is, what available cash is, our free cash flow is. And in Q4, we saw a significant increase in Q4, especially early Q4. A lot of these repurchases occurred more in the December timeframe. I've done an analysis in Q1 on what we think the buyback will be on it for Q1. And so, I don't think we're taking a long-term view of this. We do see a very good return on our capital when we think about economic value added and return on invested capital. We do believe this is a good use of our capital. And as a result, will we accelerate that? Maybe. But I think we continue to look at what our cash needs, our capital needs are. And really, it's more on a quarter-by-quarter decision.

Thank you. One moment for our next question. And that will come from the line of Ryan Kenny with Morgan Stanley. Your line is open.

So, first, just on the incentive comp, appreciate you breaking it out in terms of the impact by segment. Should we think of that as a one-off, or if we get strong net sales next year as well, could that also come with elevated incentive comp in 4Q '25?

So, Ryan, we're thinking about that currently as a one-off. The shift from going to a vertical strategy to a horizontal strategy is something the entire organization embraced. The great fiscal year that we had as a leadership team, as Ryan mentioned, the board unanimously approved that. But we are thinking about that really as a one-off. And so, we will look at that on a year-by-year basis, but we're not expecting really a shift or a recurrence of that necessarily.

But I would add to that, Ryan, Sean's absolutely right. It's certainly a one-off in respect to expense, but we hope it's not a one-off in terms of the board and executive management team feeling empowered and compelled to reward the workforce for record sales and record earnings results.

All right. Thanks. That's helpful. And then separately on alternative servicing, I know it's a growth area for you, and you laid that out in the prepared remarks. How should we think about how big alternative servicing is as a percentage of the IMS segment? Is there any stats you could share in terms of percent of revenues or percent of assets? And what really differentiates your products there?

Yes, I can take that. So, thanks, Ryan. Couple things real quick. Normally, the alternatives business, if you include the global component of it, is about 70% of our revenue. So, that's approximately the number. And I think it's growing based upon industry tailwinds. We talked in the last call about globalization, retail alternatives, private assets, especially private credit, and the convergence of public and private markets. So, it's a pretty significant and growing component of that business. But we expect the traditional side to grow as well as they launch alternative products and as alternative clients are going in traditional market for distribution. So, hopefully, that answers your question. Anything to add? Okay. Thank you.

The only thing to add, Phil, which we called out in the call is that we made investments in 2023 and 2024 to expand our footprint with frontline talent globally, especially in the European markets. And as we have spoken about before, we will continue to invest. And to Jeff's question on the M&A front, there are areas we're always kind of considering and contemplating strategically to expand our footprint to service U.S. and non-U.S. clients that are growing their footprint.

And I'll add something to that very quickly. So, our international team had the best quarter that they've ever had and the best year that they've ever had. So, the investments that we made over the last couple of years are bearing fruit. We're getting larger clients over there, which should lead to more future cross-sales. So, it's really looking bright over there. And it was something we focused on over the last couple of years, and our lux offering is really strong. I think we're the seventh largest private asset administrator in that space, and we've only been there for two or three years.

Thank you. One moment for our next question. And we do have a follow-up from Owen Lau with Oppenheimer. Your line is open.

Thank you for taking my follow-up. Could you please talk about the progress of your integrated cash program? I think the balance around $2.4 billion in the fourth quarter. Is there any room to expand it further? And again, what is your outlook for this program in 2025? Thanks.

Hey, Owen. It's Paul. How are you? So, we entered the quarter at about $2.4 billion. We exited the quarter just a little shy of $2.4 billion, but a lot of volatility during the quarter because what hits FDIC first are the fees that we pay to advisors, which average about $180 million per quarter, and any disbursement. So, the average balance during the quarter was about $2.18 billion. And we think as we move into 2025, something closer to around two, maybe two-one, is a more realistic target on a normalized run rate. As we get cash flow into the business, cash flow will matriculate to the FDIC program, but we don't see another kind of conversion that we're going to be doing. We think we have an appropriate level of diversification with the other money fund options that advisors have, and the right disclosure is in place. So, we think if, from a modeling perspective, somewhere between 2 to 2.1 is probably a fair number to model on a go-forward basis. And we saw the rates did move today, so our net yield is about 380 basis points presently on the program.

Got it. That's very helpful. And then on institutional investors, could you please talk about the unusually but expected large impact on determinations? What were the drivers of that? And is it one-off or something that could happen more frequently in the future? Thanks.

Sure. Hey, Owen, this is Jay. Thanks for the question. As we've talked about the headwinds in the defined benefit space, currently we talk quite a bit with our clients, and when we're over that 110%, 115% funding rate, some clients make the decision to annuitize. In this case, we had some clients we were talking to. It's very difficult to predict the timing of our client based on their own individual business needs when they'll make the decision to annuitize. But in this case, a client did, clients did decide to annuitize at that time, and it hit us in the fourth quarter. We'd expect the headwinds in the defined benefit space to persist through 2025. Rates continue to be elevated, and based off of recent comments, we don't know when they'll fall. And it's advantageous to the plans in these higher-rate environments to hit a higher funding status and explore opportunities to move that liability off their balance sheet. So it's difficult to predict the timing when a plan will do it, but in this environment, we do expect to continue to hit those headwinds in 2025.

Thank you. One moment for our next question. And that will come from the line of Patrick O'Shaughnessy with Raymond James. Your line is open. Patrick O’Shaughnessy: Just one question from me. I want to follow up on the discussion around retention within private banks. One of the historical challenges in that segment was big negative events from client cancellations or recontracting events. We haven't seen a lot of those big downside risks or downside events in recent quarters. Have you guys been lucky, or have you been good?

Go ahead, Ryan.

Patrick, I'd answer that and say we have not been lucky. I think we have been much more aggressive in ongoing engagement with our client base. Sanjay has not just been personally present, his entire team, I think is just extremely active in the market. I think we are leveling up at a higher level of organizations and engaging more of the executives and decision makers of those firms. We are expanding and exposing, I think, a broader set of capabilities from SEI beyond just like our solutions and products. I think they get access more to our people and our culture, and that resonates. But I'll let Sanjay provide a little more color, but this is one I would say definitely not been lucky. This has been real hard work and something we think is sustainable.

I think you got it all. I'll just add one more thing. Sean, you called it out earlier. The major difference we made now is enterprise mindset. I mean, think about the private banks, the wealth management. They are consuming many, many services, not just what we are providing in private banking unit. So that's what we expose to our client base, and that really helped us with the retention strategy. Another thing is when you look at the retention strategy, our engagement, be it on the operations side, be it on the technology side, be it on the business side. So they are seeing SEI as a true partner. And we are on a table where they are defining their next year strategy. The questions we are exchanging now is, okay, where do you want to see your business in the next three to five years timeframe? But think about many of these banks, they are going through M&A, and we are helping them to onboard that business very efficiently. So they are truly now experiencing the power of SEI enterprise, and that has been a major game changer. Another thing which, again, I'm going to call out is the professional services. SEI professional services are really helping our existing client base, because they are reaching out to some other third-party consulting companies, and they're teaching them their business. They're teaching them our platforms and our capabilities to deliver those services. That's what was happening in prior times, but now they are relying more and more on SEI to deliver those services. And that is really helping us to grow our footprint to existing client base and improve retention.

I think the only thing I'd add, and maybe it's a great way to almost close. There's two positions you can occupy with your client base. You can be a vendor or a strategic partner. I would love to tell you we occupy the latter with every single one of our clients, but that's our aspiration. And I think we allowed ourselves to get put in the vendor bucket for a lot of our banking clients for many years, and Sanjay and the team have done a marvelous job of repositioning and moving SEI from that space, Patrick, into more of that strategic partner category.

Thank you. One moment for our next question. And that will come from the line of Aiden Hall with KBW. Your line is open.

Great. Thanks for taking my follow-up. Maybe just staying on that topic, Sanjay, I wanted to get your thoughts on how you think SEI is positioned for Bank M&A or the potential consolidation of banks here in the U.S. over the next couple of years. I see some puts and takes with the opportunity for new business as some of your larger regional banking clients acquire down cap for scale, but at that smaller cap level or the relationships there, it seems like potentially more of a risk or maybe opportunity for investment contracts coming under review. So how would you kind of characterize that trend over the next couple of years?

No, that's a great question, Aiden. If you look at it in the industry right now, I see that M&A traffic is increasing, and that is presenting two opportunities for us. Let's take the first opportunity, which is our existing client is acquiring somebody else. Great opportunity for us. We are helping. We have done many such projects in the past, and we are helping in terms of overall technology transformation, operational specialization, and onboarding that business to our platform. We have really good experience in that, and we are seeing many such opportunities in play as we speak. The second opportunity is that our existing client is getting acquired by somebody else who is not on our platform. I like that opportunity because now I can further grow our business. I'm thinking about a scenario. Because our existing client base is solid, they are referenceable, they like the partnership, and now when they're moving and getting acquired by somebody else, that presents an opportunity that I can go now and convince the acquiring party to come on our platform. I see this as a very positive thing for SEI. Sean, Ryan, do you want to add anything further?

I'll throw a question. I don't know have the number. I know you do off the top of your head, but our attrition rate on those clients where we were historically a lot higher as a result of everything you just said is somewhere around 1%, 2%? Somewhere around there?

Yes, 1%.

1%, I thought. That's the number I thought.

I like losing gracefully so that we can go back to the client and bring them back.

I mean, a 1% attrition rate is amazing in my mind.

Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call over to management for any closing remarks.

I just want to thank everybody for taking the time and actually the level of engagement today has been fantastic. We really appreciate the breadth of the questions. We enjoy it. And it does feel like the SEI momentum and story is resonating, and we're focused on what we need to do to continue to maintain and grow that. Belated Happy New Year to everybody. We look forward to seeing everyone in person and wish you a good evening.

Thank you all for participating. This concludes today's program. You may now disconnect.