SEI Investments Co (SEIC) 2003 Q1 法說會逐字稿

Ladies and gentlemen, thank you for your patience. Please continue to hold. Your conference will be underway momentarily. Thank you for standing by. Welcome to the SEI Investments Q1 2003 earnings conference call. At this time, all lines are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. If you should require assistance during this call, please press zero then star. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, chairman and chief executive officer Mr. Alfred P. West, Jr. Please go ahead, sir.

Welcome, everybody. Good afternoon. All of our segment leaders are here with me on the call, as well as Dennis McGonigle, SEI's chief financial officer, and Kathy Heilig, SEI's controller. I'm going to start today by recapping the first quarter of 2003. I'll then turn it over to each one of the big segment leaders to comment on the results of their segments. And as usual, we will field questions at the end of each segment's report. And then finally, Kathy Heilig will give us some important company-wide statistics.

Now, my message today is the same as it has been for the last couple of quarters. Times continue tough. Revenues and profit are very difficult to grow, and while we've been successfully controlling expenses, we are, and I underscore "are," keeping to the strategic course that we set out three years ago. We believe the new solutions we are crafting for our target markets will lead to substantial future revenue and profit growth, but first we have to complete the investments these new solutions require. Now, let's review the first quarter. First quarter earnings grew 3 percent from a year ago on a ref revenue shortfall of 5 percent. Now due to stock buybacks, our diluted earnings per share grew at a slightly greater rate than earnings. Diluted earnings per share of 32 cents represents a growth of 7 percent over the 30 cents reported in the first quarter of 2002.

Now two related phenomena continue to adversely affect our business. The first phenomena is the poor performance of the equity markets. Since a decent portion of our revenues is tied to the performance of the equity markets, falling stock prices reduce our revenue directly. Our portfolio invested 60/40 in equities and fixed incomes respectively, which is a typical portfolio we managed for our clients, dropped another approximately 1.5 percent in the first quarter 2003. The second phenomenon is the fact that all of our clients are either investors or are in the investment business. Individual investors, particularly important to us in our advisor business, remain on the sidelines. Institutional investors, the prospects for our enterprise segments who earlier froze their decisions are starting to reassess their situations prior to searching for a better answer. Now that's good news because we're a better answer, but it's just not happening very fast. For those in the investment business, private banks and money managers particularly, they're going through what we've been going through, and if they're spending it all, they're spending very carefully on things that make or save them money. Now the good news here is that we do help them make or save money. But again, the pace of their decision-making is less than ideal.

Now despite the double-barreled effect of slow markets and buyer decision-making, our assets under management ended the quarter slightly higher than at the start of the quarter, and we're within a billion dollars of what they were in the end of first quarter 2002. Also, you'll hear from our segment leaders that we have made some important new sales and are detecting thawing in some of our important markets, so our hope for 2003 is that it marks the end of the buyer decision-making freeze, and through our 2003 marketing and investment activities, we hope to set 2004 up as the first positive year in a new string of positive years. Now to make this happen, first and foremost, we must continue to concentrate on investing in our strategic direction. We feel strongly that key investments can have extremely high payoff in the future, and we will not, we will not jeopardize them for sake of short-term profits. To do so would be foolhardy. Our primary investments are aimed at creating new differentiated solutions that further help our clients improve their business results, and most importantly, reposition us for meeting future client needs.

Of course, these investments are also designed to fuel our future product growth. We've been making these investments over the past two years, and they are as follows. Our first investment is being made in a straight-through processing platform designed to streamline investment processing for our clients, as well as our own operations. This investment will help fuel our future growth by providing new sources of revenue and new means of improving productivity. Electronic trading is the first deliverable. And we started delivering it in late 2002 and will continue to deliver functionality throughout 2003. Bob Crudup will elaborate on what this means to the private banking segment. Our second investment is a front-end desktop system for intermediaries to enhance their own and their customers' experience, and to streamline transaction processing. The desktop is an important aspect of our straight-through processing strategy, and will make us more competitive in all our intermediary distribution businesses. The first phase of the desktop system will be delivered late in 2003, and promises to dramatically improve how SEI in its business - and its clients do business.

We're also investing in our core investment processing platform. It will form the basis for now outsourcing - for intermediary clients throughout the world. These investments will provide us with more competitive services to sell and new sources of revenue in the private banking, advisor and global segments. Now these services are being delivered starting in late 2003.

Our fourth investment is the investment we are making in expanding our asset management business solutions worldwide. A new expanded retirement solution for U.S. plan sponsors is one example of this investment category. It's being delivered this year. And Ed Locklin will speak to its importance to the enterprise segment. Our European and Canadian market entrees are further examples of this investment category. The investments we are making there have been multiyear and Joe will update you on their progress. And finally, the comprehensive wealth advice solution for fluid and high net worth investors is part of this strategy. I'm sorry, part of this category. Carl Guarino will speak to its importance to the advisor segment.

Our fifth investment is creating expanded business solutions for money managers and alternative investment managers. These investments are necessary for us to create a very -- a new very large business supplying outsourcing businesses to money manager and investment manager markets. These investments will be delivered starting in 2003 and will carry over into 2004. Wayne will elaborate on them later in the call. Now we believe these investments are crucial to SEI's continued prosperity. We believe they will form the underpinnings of substantial growth in revenues and profits for years to come. We expect to accelerate expenditures on a number of these investments starting in the second quarter. Now some of them require -- will require a purchase of software components, and some will have capitalized development. Now, as I have said in the past, we only capitalize those projects that build core infrastructure.

Now, as we look to the near future, we're particularly hardened by strong sales pipelines in most of our businesses. But we know that any near-term EPS improvement will first be difficult and second will be a combination of modest growth in revenues, improvements in productivity, and enhanced focus. And believe me, we are working very hard on all fronts. Now in the longer run, we remain very optimistic. A tough climate such as these demonstrate the value of our outsourcing business solutions and make them more appropriate. And as we execute our investments in our market strategies this year, we are hopeful that we will be setting up 2004.

In every market we serve, our investments are helping us develop new expanded solutions for our clients, and these new solutions are designed to help distance us from our competitors and make us more attractive as a business partner to our clients. Now we invite you to visit us on our analyst day, June 11th. We'll provide more information on the progress of our investments, and we'll also explain why we feel they'll yield results.

We also remain bullish in the long run because of the fundamentals of our business. The recurring nature of our revenues, our very strong cash flow, the strong and growing market acceptance of these new solutions, the inherent leverage in our operations, and the diversity of the portfolio of businesses we are creating will serve us well in any future business climate. And as a footnote to this, our cash flow which remains strong has allowed us during the first quarter to buy back 1.6 million shares at an average price of 24.58.

Now this concludes my remarks, and I'd like to now move to our segments. And our segments will report in the following order. First private banking and trust, then we'll hear from money managers, and then investment advisor, followed by enterprises, and investments in new businesses. So we'll start with private banking and trust. I'm going to turn it over to Bob Crudup to discuss results in this segment. Bob?

Thank you, Al, and good afternoon, everyone. Our business environment within private banking and trust continues to be an interesting mix of challenges and opportunities. Much of my prepared comments today will be about capturing the opportunities. But first let's review the first quarter financials. Revenue for the quarter was76.9 million, down 7.3 percent compared to the same period last year. Profit margins improved by 3 percent, allowing us to keep year on year profits relatively flat at 33.6 million. This was accomplished by total expense reduction of almost6 million.

These savings came from three places. First, the harvesting of expense reductions associated with lost fund business, second, our leveraged product development model, and finally, normal fluctuation in compensation expenses. Looking at each business line within private banking and trust will give additional insight. First, investment processing. First quarter versus last year, revenue is down 1.9 million or 3.3 percent to 54.5 million. One-time project revenues as well as financial transaction revenues were both down for a total of 2.4 million the offset was a slight increase in recurring revenues. Next, the fund services business. The revenue run rate was flat Q4 to Q1 at slightly over 12 million, reflecting the full recognition of merger-related losses announced in late 2001. Note that our end of quarter balances under administration were down 11.6 billion compared to Q4. As it happens, this simply represents the early exit of previously reported lost assets.

Finally, investment management. Revenues continue to bounce around between 10 and 11 million per quarter just as they have for the last two years. On the other hand, balances in our non-liquidity products are up just over 600 million versus Q1 2002.

Now moving on to new business, we closed one mid sized regional bank, Rockland Trust to outsourced or BSP solution, we flipped one mid-sized client from ASP to BSP. We also won a small fund processing client, Central Bank of Kentucky. Frost (ph) National Bank and Commerce Bank purchased the Advent portfolio management platform. Total recurring revenues sold in the quarter including both new business and cross-sells totaled about 5 million. We did lose one small regional client due to merger.

Private banking and trust should and I believe will be a revenue growth engine for SEI. We are now on the right track, so let's talk about how we make that happen. We feel there are three opportunities that will affect our business in a very positive way. First, clients are embracing our straight-through processing trading solutions. Currently, there are three solutions that will generate revenue. These are equity brokerage execution services, fixed income execution services, and being an outsource service provider for mutual fund clearing.

Let's start with equities. Phase one is up and most of our customers are using the trading platform. Lower than normal trade volumes in financial markets have dampened our results. If these volumes move back to normal, we will definitely see revenue growth. Second, our fixed income trade execution service is on schedule for delivery in 2004. Finally, mutual fund clearing. This product is on schedule to begin client implementations during the third quarter, and in fact, 2 million of our sales reported this quarter were for mutual fund clearing. This is an indicator of client acceptance of this solution. These three solutions solidify our straight-through processing endeavors and will eventually drive substantial revenues.

The second opportunity I'd like to talk with you about is really a market trend. Interest in our back office outsourcing or BSP solution is at an all-time high. We have sales activity at a handful of larger banks while the community pipeline remains strong. We are confident that this will result in new larger BSP clients this year. Finally, AM Trust, a competitor in the National Bank market, has announced they are discontinuing their trust processing platform. This is an important opportunity for us. Quite possibly, several large banks will search for anew solution over the next few years.

Now, one caution as we move our business back to growth. Historically high margins will be difficult to maintain as we return to high growth. As Al mentioned to you several quarters ago, as we begin to grow again, profits will lag expenses. There are three more important reasons. First, sales commissions are front-loaded. Second, new deals will require ramping up installation and servicing staff prior to receiving recurring revenues, and lastly, large bank clients will need the enhancements we are making in our investment processing platform, again leading to front load expenses. Given our commitment to grow this business, and as Al has noted, we are making large important investments in both core processing and desktop systems, these investments will definitely strengthen our position in the marketplace.

Finally, we believe private banking and trust is a growth business. We intend to stay the course, and are making the investments needed to ensure future growth. Though financial markets and the economy are slowing our progress, we had been experiencing our most sales activity since the late 1990's. We have large investments to make, but our pipeline and potential for future growth makes investing a wise move for our shareholders. I'd be happy to answer any questions.

Are there any questions of Bob?

Ladies and gentlemen, if you wish to ask a question, please press the 1 on your touch-tone phone. You will hear a tone indicating your line has been placed in queue and you may remove yourself from queue at any time by pressing the pound key. Once again, if you do have a question, press 1 on your touch-tone phone at this time. Our first question comes from the line of Pete Heckmann. Please go ahead.

Hi, Bob. My question relates to the decrease in the -- I'm going to pick up my handset. I was getting some feedback -- in mutual fund, assets under administration within private banking and trust decreased by about $11 billion. Was that the National City loss we talked about on the last call or is that something else? Second question, as regards AM Trust, is that a service bureau platform that AM Trust is running or are these banks running an in-house system that they may have bought from AM Trust years ago?

Ok. This is Pete?

Yes.

Hi, Pete. How are you doing?

Good. How are you doing?

Good. Starting with your first question about the decrease in assets from Q4 to Q1, 11.7 billion, we've never actually I'd identified the client that we lost because we don't like to talk about single clients in reference to specific numbers, so I guess I'll let you make your assumptions about that. The case there is it's a small piece of the business that we had with them where we only did fund accounting. Very low revenue business for us. For whatever reason, they've decided to exit that piece of the business earlier than we expected. The second quarter revenue impact for that is very small, and I'll stand by my statement last quarter that you'll see almost all of the revenue loss associated with that loss starting at mid year. The second part of your question is about whether those are service bureau clients or not. I think they have a couple of clients that are service bureau, but the balance of them are installed systems at the bank data centers.

So the service bureau would maybe be the near-term opportunities and in-house system that is may have been maintained and customized or maybe the longer opportunities?

I think it will probably really line up along when their contracts expire. Because Fidelity intends to continue to serve this book of business until each of the individual clients' contracts expire. So my guess is that's the way the opportunity will line up.

Ok. Then one last question on the fund administration side. I've been hearing anecdotally among the industry that rising pressure is stepped up again and some of the players are cutting prices to win additional business. In terms of any renewals you've had lately or any new business you're trying to win, how important is price, and have you had to reduce price kind of like what happened back in 1998 and1999 to keep -- to re-renew existing fund administration clients?

Right. Like you say, in the late 1990's, there was a pretty significant shift in the market in the way these services were priced in the market and there was a pretty dramatic change there. What we're seeing in the market today is much more subtle than that. But I would tell you that, you know, each contract that we renew in that business, there are price pressures. As I told you on the last call, these large institutions don't make decisions, these important decisions just on price alone.

Thanks, Bob.

You're welcome.

Our next question comes from the line of (inaudible).

Thank you. Hi, Bob. I just had a question on price as well. Wanted to extend that question to your investment processing business. And what is the pricing like on some of your BSP contracts? Is it any different from your traditional ASP business, if you could speak to that a little bit? Thanks.

Yeah, if you look at the ASP versus the BSP business, the average revenue per client is between two and three times more and a full back office outsourcing versus an ASP. The re-contracting of current clients under the ASP model, what I would say is that there are price pressures there. I think the economic environment and the revenue environment that banks are doing business in has been putting intense pressure on us there. Our re-contract success rate is very, very high, and what we're really seeing there is a lack of ability to sell new services during the re-contracting -- up. So some of our organic growth we've had in the past around re-contracting is just not there.

Right. So when it comes down to, say, I guess the way you charge that business is on a per-account basis, is that correct? For the most part?

Both businesses are substantially on a per-account basis. As we move into some of our new services, especially around straight-through processing, you're going to see more transaction and brokerage type revenues associated with this business.

OK. But at this point, when you look at the per-account fee, again, does that tend to be similar across both segments, the BSP and ASP, or does that tend to be different? And if so, what is the differential?

Yeah, the base fee between ASP and BSP, the BSP solution is two to three times more extensive than the ASP solution.

I understand.

Just the base business.

Got it. Ok. Now, when I look at the margins, the margins did rise year over year but were down from the fourth quarter. Revenue was down as well. I just want to get a handle on what was the reason behind some margin contraction relative to the December quarter? Was that function of some investments that you didn't have in the December period or just a result of the revenue decline that you had quarter over quarter?

Yeah, it's those same reason that is I talked about in the formal part of my presentation. We're able to take some expenses out associated with losses in the fund services business, and we had some normal quarter to quarter compensation variability. As well as our leveraged investment model. But those are the three differences, both Q1 to Q1 and Q4 to Q1.

Did Q4 have any kind of one-time effect that may have helped the margins in that quarter relative to this time around?

Well, you know, as you know, our compensation plan here is strongly based on ability to reach profit goals.

Right.

And we did not reach our profit goals last year, so there was some comp fluctuation in fourth quarter that was there.

Ok. Thanks, Bob.

You're welcome.

Our next question comes from the line of Robert Lee. Please go ahead.

Thank you. Good afternoon, Bob.

Just a minute. This is Al. We're having trouble hearing the operator, but we can hear you fine. If everybody would introduce themselves before their question, we'd appreciate it.

Ok. It's Rob Lee from KBW.

Hello, Rob.

Just one quick question following up on the mutual fund admin business. I'm curious, back in 2001 if I remember correctly, you had a couple of large client losses, I believe it was in that business, and then you have the one that you had announced in the fourth quarter. Should we be concerned that there's something maybe systemic in that business that's causing you to lose some of these accounts, or is there -- you know, is it possible to characterize that there's similarities to what closed each of these accounts to move or were there a completely different set of circumstances and maybe talk about that a little bit?

Yeah, if you go back and look at it, Rob, the announcements that we made during 2001 were almost completely about two clients that left and it was merger-related. In other words, one of our banks got bought and they took it in house or took it to a third party, so that's something that we continue to run that as a business risk here. We did announce one small client loss to a competitor during that same time frame, and since then, we've had one competitive loss which we announced last quarter. Also since then, half a dozen pieces of business are down on the smaller market, and our pipeline for mutual services business in the regional bank market right now is pretty good. I feel that our offering today in the market is more competitive than it was a year ago, because we've been working really hard to reposition that business. The contracts are three to five years, so we're 25 percent of our contracts come up every year, so we are dealing with those re-contracts all the time.

Ok. Thank you.

You're welcome.

Our next question comes from the line of Bradley J. Moore.

Hi, Bob. It's Bradley J. Moore with Putnam Lovell NBF. Wanted to press a little further on the decline in AUA. Could you just explain to me then how that works with regard to the revenue in the roll-off of the assets associated with that client loss?

Yes. That was a big chunk of assets, Bradley J., but we were simply doing the fund accounting for that one specific book of business that we had with this client. It was a low revenue book of business for us, so you're not going to see very much of a swing in revenue at all in the second quarter having that business gone away. And what you will see starting in mid year is that entire book of business start to roll over -- roll off over a four-quarter period. Did that answer your question?

Yeah, that helps. OK. And could you just review again, I think you said with regard to new business, you said that you had one new regional bank ASP customer and one customer that flipped to an investment processing relationship.

Yes.

OK. And then did you say that there was an additional -- were there any other additional wins after that?

Well, we had a small fund services client and then the rest of the 5 million would be cross-sells to current clients. Two million of that went into our new mutual fund clearing offering that we'll begin installing in the third quarter. So I thought that was great news it's an early indication of market acceptance for that offering.

Ok. So when does the one new regional bank customer begin contributing economically?

It would be about six months.

Ok. Just on another direction here.

Bradley J., one thing I would say is the closes this month aren't representative of our pipeline at all. Our pipeline is stronger than our closes were.

Ok. What is going on with regard to sales cycles then?

Well, you know we had a great first quarter. We had five transactions. We had a large transaction with First Hawaiian Bank, and we felt that that was a very significant thawing of our pipeline, so I was a little disappointed in this quarter's results given our pipeline. The pipeline remains very robust, and in fact, the pipeline has grown a good bit since the last quarterly call.

Ok. On another tack, with regard to the - can you give me a sense as to what you're seeing in terms of fundamental organic growth in terms of trust account creation or decreases? What do you see in terms of the organics for the trust business right now?

Yeah. You asked me that the last time we talked, and -- or someone did during this call, and I went back and looked at that, and, you know, what I saw is in a larger clients, it's very flat, and where we're seeing growth is down in the regional and community bank arena. But I'd say even the overall growth in current clients is very flat.

OK. All right. Very good. And then a couple of other quick things. With regard to -- can you give us a sense as to just how much transaction-related revenue on a percentage basis you have now?

Yes, I can, as soon as I run some numbers here real quickly.

And is that all associated then, should we assume that that's all associated with your new STP platform?

Yeah. Yes, it is representative of our platform. It's about 12 percent of our total revenue. I would tell you that we've had a brokerage transaction business, brokerage and transaction business for a while, and we've shifted it from some very rudimentary technology to this straight-through processing technology. The response in the market to our solution has been very positive, but as I said in my prepared comments, the transaction volumes in the financial market is dampening our results right now. We are getting clients to buy into the idea.

OK.

Our next question comes from the line of Glen Green of Bank Equity Partners.

Hi, Bob. Glen Green. In you could quantify the investment spending you alluded to and maybe break it down by category?

Hello, Glen. I didn't catch the question.

Can you hear me now?

Yes.

I was wondering if you could somehow quantify the investment spending and break it down by category, and what the implications might be near term for margins.

Yeah, I can't do that today. I'll take a look at that and be prepared to talk to you about it.

Can you give us a range of what level ?

You know what, let us bring you up to date on that in June. That will be a good -- that's a good thing for us to talk about when you're back here, because we're going to spend a lot of time talking about our investments.

OK. And then different tack. On the pipeline, you clearly seem pretty optimist optimistic about your pipeline activity. Where are you seeing the strength, what type of client, is the National Banks, the regional banks, the investment side, the mutual fund side? Just some more color on the pipeline.

Yeah, our real strength is in the mid and upper regional banks for BSP solution, and that's a transition that we've made over the last couple of years where we were participating with the small regionals and communities and we're seeing it move up market to the mid-size and in full regional banks.

And sort of on your more optimistic that your sort of close rate in the upcoming quarter will improve from what we saw this quarter?

Well, I don't think I want to take a forward look on that because we don't do that, but I tell you, our pipeline and our sales activities are the best that they've been since the late 1990's.

OK. Great. I'll leave it at that. Thanks,Bob.

You're welcome.

Our next question comes from the line of Gary F. Prestopino from Barrington Research. Please, go ahead.

Hi. It's Gary F., Barrington Research. Bob, these questions have almost been answered but I'm trying to get an idea on the pipeline. You said it's much better than Q4. Can you, like, kind of quantify it on a percentage basis? Is that possible?

I think first hello, Gary F., how are you doing?

Fine.

I think I want to stick with what I said to Glen Green, is that we have picked up, the pipeline is improved since the last quarter. We had a disappointing quarter from my perspective in closes, but our sales activity in the pipeline is as good as it's been since the late 1990's, which, you know, was very good back then.

And then your growth start today accelerate thereafter, right?

Yes.

Thank you.

Our next question comes from the line of Tim W. Willi (ph) with A.G. Edwards. Please go ahead.

Hi, Bob. Tim W. Willi with A.G. Edwards. A couple questions. One is just going back to the annual revenue that you said you closed on during the quarter, is the Bank of Hawaii included in that?

No.

OK. When will Bank of Hawaii revenue be coming on the income statement?

I believe they come on June 1st.Tim W. Willi: Ok. So that's basically -- we'll see that more so in the third quarter than the second.

Yes.

The other thing I had a question on is in the BSP pipelines, I think you talked historically that you would say that we're talking to people bigger than any client we currently have on the system, and then you signed bank of Hawaii which proved that true. When you're talking about larger regional banks, are you talking about comparable size to Bank of Hawaii, are we even talking bigger than that?

I think we'll continue to move up market.

OK.

And as I've said before, I don't expect it to be like giant leaps forward, but I think we're going to continue to move this product up market.

OK. My last question has to do with the asset management product in the bank channel. Could you, I guess, talk a bit about what the pipelines look like for that, and then also is that a product that is purely a cross-sell or is it something that increasingly is part of the initial RFP when you're pitching an outsourcing contact to a smaller regional or community bank?

You'll remember when we started investing in that solution in the bank market about two years ago, and we made a substantial investment in sales and marketing. We had an old book of business that we inherited when we moved back into the market, and that's continued to -- the old book has continued to dribble away, and our success has been selling our new package programs that we've had success selling in the advisor market. Our situation is a bit like -- I think you'll hear Carl tell you in the advisor market is that the individual investor tends to be a little bit on the sideline right now. Even with that in mind, we are continuing to grow assets. We believe the bank market is going to bifurcate over time into manufacturers and distributors. We're starting to see that happen a little bit, and we're starting to see some banks look at a distribution-only strategy, and I feel like that we will have bank clients that will adopt our asset management offering in the future.

OK.

And I've been very cautious about being particularly optimistic about this business in the bank market until it started to get some legs, and I do feel like the investment we've made so far has been a wise investment and the market holds real potential for us.

I was just trying to, I guess, get a feel for if historically, and it sounds like you said that when this product was being sold, it was to a current customer of SEI that might have been on the ASP or the BSP and you came in afterwards and sold this product. I guess I was trying to get a feel for if you're actually seeing more and more banks that are evaluating this manufacture versus distribution model at the same time that they're looking at, the entire back office, and does this asset management product, you know, further elevate your chance of getting that win if it's a brand new customer looking to outsource or somebody looking to leave their current vendor.

We just started seeing that trend in the last six months.

OK, but it is sort of happening?

It is a trend.

OK. Great. Thank you.

Our next question comes from the line of Carla N. Cooper with Robert W. Baird. Please go ahead.

Hi, good morning. It's Carla N. Cooper at Robert Baird. I just had a question on expenses. I guess looking at the rise in sales and marketing expense Q4 to Q1, is it fair to say that the Q4 was a bit unusual and so the step back up is one that puts you on just a higher run rate to pay compensation if sales do materialize?

Yes. That's true.

OK. And then I guess this might get back into stuff that you want to defer till June, but as we look at operating expenses in private bank and trust, I wondered if you could talk a little bit about -- are you talking about stepping up the level investment such that we'd see it come through as a significant impact on operating expenses?

Well, what I would say is, as we move this business back into a growth -- revenue growth business, we're going to have expenses that show up before the revenue shows up, and so as we grow, I do think you're going to see our expenses go up faster than our revenue, and sooner, initially. We are stepping up our investment in our investment processing platforms, and I think you will see some of that in our future expenses.

Thank you very much.

We're doing that because we are so confident in the market we're in and the solution that we are building.

Thank you.

You're welcome.

We have a question from the line of Bradley J. Moore, Putnam Lovell.

Bradley J. Moore again. Just a quick follow-up. With regard to the one lost regional client that you had announced, are there any other pending or potential client losses you're aware of in private banking?

No, right now we're doing a very good job of winning very substantial portion of the clients that we have when their contracts come up. The contracts in that business are five to seven years, so in any given year, we may be re-contracting 20 percent of our clients, so we've got that in front of us every year.

OK. And then what would be the timing again of this one lost client? When would we expect those assets to roll off?

Yeah, you won't see that revenue roll-off until Q1 next year.

Great. Thank you.

It's not a substantial amount of revenue.

Would it be fair to say that it's about equivalent to the size of the one new client win?

I don't -- if it were more than one client, I'd talk about the revenue, but I don't like to talk about revenues about one client.

OK. Thank you.

You're welcome.

we have a question from the line of Steve Gresgo (ph). Please go ahead.

Steve Gresgo (ph), Satellite Asset. I'm curious, when you lose clients, have you pinpointed the reason why that might be? Is it fund performance or pricing or something on the administrative end? I mean, what is the reason that clients might leave you?

Well, the one we lost this quarter was an acquisition by a bank that doesn't use our system. And I would say that most of the clients that we lose that have substantial revenues fall into that category. Other than that, there's -- you know, there's a handful of reasons that clients leave. It's you're usually mot about price. It's usually about change in personnel at the bank that has experience with another vendor or a change in strategic direction and the bank wants to move in a different way. Occasionally, it might be a mismatch of the services that were lined up to deliver in their expectations for service, but that's infrequent.

OK. Thanks.

Ladies and gentlemen, if you do have a question or a comment, please press 1 on your touch-tone pad now. There are no questions in queue at this time. Please continue.

OK. I guess there's no more questions. Our second segment today is money managers, and I'm going to turn it over to Wayne to discuss this segment. Wayne?

Thank you, Al. Good afternoon. During the first quarter, the money manager segment recorded revenues of 12.3 million, an increase of 14 percent over the first quarter of 2002. Profits in this segment total 2 million, a 400,000 dollar decline from last year's first quarter. With respect to new business, we had sales generating a projected 1.4 million in annualized revenue. This included two new alternative investment managers as well as sales to existing customers. While this is one of our weaker new business quarters, I view this weakness as a quarterly fluctuation. Our overall pipeline remains strong and the number of larger deals continues to increase. Both factors are positive for future growth. Client assets under administration at the end of March were 75 billion, a slight increase for the quarter. This increase reflects1.9 billion in new funding offset by 1.2 billion in market declines and 200 million in closed funds.

Over the past few quarters, profits have benefited from increased scale and improved efficiencies and have been hurt by declining market values and reinvestment. Throughout 2002, the positives outweighed the negatives in both revenues and margins expanded. In fact, the underlying strength in this business was better than our financial results indicated due to the impact of declining market values on our asset-based revenue model. Looking forward to 2003, I expect this underlying strength to continue but translating this to strong profitability growth may be tough inventory achieve without some recovery in the equity markets were reduced reinvestment. As Al has mentioned, reinvestment is critical to our long-term growth. For example, competition for assets in the hedge fund space has recently intensified. As a result, fund managers are now looking for more than just performance to attract investors. By continually improving our offering with enhancements such as risk analytics and better investor reporting, we can help managers compete more effectively. This increases the attractiveness of our offering and our new sales opportunities.

In summary, I expect continued growth in this segment. Weak equity markets may mask the strength of that growth and reinvestment may -- longer term, however, the outlook for this business remains strong. I will now entertain questions.

Ladies and gentlemen, if do you have a question, please press 1 on your touch-tone phone. We do have a question from the line of Robert Lee. Please go ahead.

Good morning. I'm sorry, good afternoon. Just a follow-up on the comment you just made, something about the increased competition in the space and that a lot of alternative clients are looking for, you know, a broader offering. I mean, I guess a couple questions in that.

Number one, is that translating into more price-based competition, if you want to just renew the existing service, you know, you've got to cut price, and to what extent that you have to offer additional services that you can actually charge for those or is that sort of a de facto pricing pressure because you have to offer these services and you can't necessarily price up your offering?

In the alternative space, this tends to be a quality-driven purchaser, so an alternative manager is looking for a quality offering that helps them grow the business and they are not as focused on the price. I think that price reflects the margins that they enjoyed. To the extent that you can broaden our offering, and that offering helps them grow the business, A, they're not as price sensitive and B, they would be will to pay for increased value.

Ok. And just one follow-up question. You mentioned -- can you talk a little bit about in the traditional manager segment, what's going on there? I mean, are you seeing what's the pipeline like? It doesn't sound like you converted any new traditional fund managers in the first quarter. Do you think you'll see much movement there at all?

You know, we're seeing some slowing decisions in this space, although in the pipeline, we see a lot of activity, we just don't see many decisions occurring.

Ok. Thank you.

Next we have a question from the line of Tim W. Willi from A.G. Edwards.

Hi, Wayne. I apologize if you had just sort of touched on this. I got distracted for a second. But could you talk a bit about where you're reinvesting within your business line? Is it along the same stuff that Al talked about for the company as a whole or are there specific issues on the reporting front or something like that that you're trying to address as quickly as possible because of a lot of the scrutiny that we're starting to see come down on hedge funds potentially?

I'd put the reinvestment in two broad categories in this segment. The first is broadening our offering in the alternative space, and I gave some examples in my discussion in terms of expanding our offerings in risk analytics, expanding customer reporting capabilities and other areas like that. We're also making some more longer term investments and completely broadening our offering in the investment money manager market. We have a couple offerings under review right now, but nothing we're prepared to launch at this point.

Ok. That's it. Thank you.

Next we have a question from the line of Bradley J. Moore from Putnam Lovell NBF. Go ahead, please.

Hi, Wayne. Bradley J. Moore with Putnam Lovell NBF.

Good afternoon.

Can you tell me roughly how much of your revenue this quarter was transaction-related?

Less than 5 percent.

Ok. And were there any offsetting client losses this quarter?

I guess I hesitate to get into the accounting quarter on client losses in this space because we have -- unlike in the banking business where the chunks can come in much larger assets, we tend to have a broader array of clients across the scale. That having been said, I think we lost one client or maybe two of small size, but it's not a real area of focus.

Ok. All right. And then with regard to these two wins, were these clients that were previously using in-house or home-built solutions or were these competitive takeaways?

I believe it was one of each.

OK. All right. Thank you very much.

We have no further questions at this time. Please continue.

Thank you. Our third segment is investment advisors, and Carl Guarino will cover this segment. Carl?

Thanks, Al and good afternoon, everyone. This is my first opportunity to speak to you from my new role as head of the advisor segment. I transitioned into this role toward the end of last year with a great deal of help from Carmen Romeo, and have been spending the past quarter working with the unit management team and talking to advisory firms about our current business and future strategic direction. So this is a good opportunity to share with you my overall assessment of the segment.

My overall message is positive, but admittedly cautious with respect to the near term. From the standpoint of near-term results, the bad news is that in the first quarter of 2003, we have experienced a continuation of market conditions prevalent over the past year and more. Negative return to the equity markets and general economic and political uncertainty. These conditions continue to depress market valuations and negatively impact our cash flows.

The good news is that we continue to hold our own. Something fairly difficult to do in this environment. Achieving positive, although modest cash inflow, tightly managing short-term expenses yet investing in the longer term. The even better news is that we are convinced that the longer-term opportunity for growth in this segment is outstanding. Let me cover the near-term results and future prospects in a little more detail.

Our results from operations for the first quarter of this year reveal revenues of 35.9 million, and profits of 19.6 million, reflecting profit margins of 54.6 percent. So revenues are down 7.7 percent from the comparable 2002 period, reflecting the negative market valuations. Though we have been able to carefully control market expenses to achieve year-to-year profit and margin growth. Compared sequentially with the 2002 fourth quarter, revenues are up modestly, largely due to someone-time items with profits essentially even. We continue tight control over tactical marketing expenses, while making targeted investments in key areas to support our strategy as described below.

As Carmen cautioned last quarter, the relatively high margins reflected in current results are at least partly due to low incentive and sales compensation accruals as well as some one-time items. And thus not sustainable at these levels on an ongoing basis.

To measure our business in terms of assets, we now have 23.8 billion in assets under management at quarter-end, compared with about 24.1 billion at the end of last year. A reduction due entirely to market devaluation during the quarter. New gross sales did total about 1.5 billion in the first quarter, but net cash was a positive but modest 110 million in the quarter. This is because we continue to see higher than normal redemption rates, reflecting, we believe, a movement on the part of some affluent investors to the sidelines, but also a conscious decision on our part to focus our efforts on a subset of our advisor network. As you would expect, we are experiencing much lower redemption rates from select advisors and others that we are focused on.

Now for the longer term, why am I optimistic and even excited? First, market trends are favorable. By that, I don't mean the stock market, but rather the fact that if anything, the bad stock markets over the past two years have reaffirmed and even increased the desire and need of affluent families for advice. Independent and comprehensive advice. At the same time, advisors are more pressed than ever. To address the increased demands for advice across a spectrum of life and wealth needs, to achieve higher levels of business deficiency, and most importantly, to grow their businesses. This sets the stage, we believe, for the next transformation of the industry to a new generation of comprehensive wealth advisors.

Against the backdrop of these trends, SEI has several key strengths. Among them, a strong core network of existing vice or relationships, leading market share in the mutual fund rap category. First rate technology and operating platforms, and strong market presence and positioning. Our strategic direction seeks to capitalize on these positive trends and our existing strengths. Although this is not the forum to describe that strategy to you in detail, I will wait for our June conference for that. Let me highlight a few key elements. First, focusing on a more selective core of advisors who have committed to SEI's business proposition and who we believe have outstanding growth potential. Second, the development of amore complete business platform to enable advisors to operate a complete wealth advisory business in an efficient and scalable manner. This platform includes the desktop platform Al referred to in our list of key corporate investments. And third, the development of a more complete advice and wealth solution for advisors to deliver to affluent investors. Another one of our key investments.

So we believe that our best growth years are ahead of us for the segment although were main cautious in the near term due to the vagaries of the markets. Thank you, and I'd be happy to answer any questions you may have.

Ladies and gentlemen, once again if you do have a question, please press the 1 on your touch-tone phone. Our first question comes from the line of Pete Heckmann. Please go ahead.

Hi, Carl. My question is, could you go into a little bit more detail on the redemptions that you've seen in the period and then could you also talk about -- last quarter I brought up the performance overall and I went and did a little more research on it and it was from Morningstar, which may or may not be the best data, but looking at the five-year returns of your four biggest funds, it appears that they're just lagging their benchmarks and in some cases pretty significantly, so I guess what do you attribute this under-performance to, and do you think that the under-performance is hurting either new marketing or affecting redemptions coming from current advisors?

I think recently, Pete, over the past couple years, we have seen particularly in the large cap area that our performance is a little less than the benchmarks that we follow, and Morningstar is really not a sort of good indicator of how the sort of portfolios are built to -- are built to produce against. But really in this area, probably the greatest factor influencing investors are not relative performance to benchmarks, but more the absolute performance. Investors here have seen two years now of pretty significant drops in the U.S. equity markets, and I think in terms of the redemption activity you see with us, I mean, certainly there is some factor there of either investors who are in some case advisors pulling out from that. Moving to, say, safer product categories from their perspective, we've seen asset flows into insurance products, into bank products, into more hedge products and the like. So that clearly has some impact. I think the other impact for us on the redemption side is what's going on in terms of just the advisor network for us, and I think we're looking at that network and say where do we want to concentrate our efforts?

Where do we think has the greatest growth potential and sustainability for us? And this is a process that's really been ongoing for some time where we have concentrated more and more of our efforts on a core of advisors, and when we look at the results of redemption activity, there's a pretty market difference between redemption rates from what we call select advisors that SEI has a strong relationship with and advisors that have a much more tenuous connection, I'll say, with SEI. They come in different shapes and sizes. I mean, one area -- in the past when we had a bull market, we had advisors who were primarily insurance agents who started to sort of put their toes into the investment area. Some of those are moving their businesses in a different direction. So, you know, it's caused us to sort of re-look at what's the right sort of profile for us for advisors in the network.

Ok. Can you comment on what is the percentage of total customers and what's the percentage of total assets represented by these committed advisors, so we'll get an idea of kind of what's the maybe core assets and what are the assets that you don't even mind losing because they're not as committed or maybe more focused on other attributes than what the SEI platform is bringing?

Let me put it this way. Obviously what sort of a core strategic -- is a little bit of a sort of qualitative analysis on our part, but this is an area where clearly there's an 80/20 rule. In fact, it's probably even, you know, sharper than that. That is to say, 20 percent of our advisors are responsible for more than 80 percent of the assets that we have. And if you look at where our growth is coming from, that's even more pronounced.

Ok. Thanks.

Our next question comes from the line of Robert Lee.

Thank you. Couple questions really sort of follow up. In thinking about the 100 odd million of net inflows, I mean, liquidity funds in the --grew a little over a hundred million. Does that100 million include the total assets in the segment or should I conclude from this that the equity and fixed income programs were actually in slight outflow?

They're independent pieces so you see there's a significant inflow of assets as we talked about on the gross sale level, 1.5 billion. That is generally coming into our portfolio solutions. That's what we focus on in the market and that's what advisors focus on, which is to say that some form of a balanced account, whether in mutual funds or in separate accounts, that includes equity and fixed income. Now, beneath that, there is a little shifting of assets going on. I mean, some of the times when investors are a little cautious, the advisor may, you know, modify their asset allocation or in extreme case, may move them into a cash position for a period of time for them to get some comfort. So you are right in saying that there is a sort of modest shifting in terms of the mix, the asset allocation mix that we have toward fixed income. There is a little bit of up-tick in liquidity, but it's not very pronounced and there's not a sort of one-to-one correspondence, if you will, by any means between what's coming in the door and the increases in those underlying asset classes.

You talk about 100 million of outflows --excuse me, net inflows in the period. Is that --you know, should I think of that in terms of the total 23.8 billion of assets which includes liquidity assets which were up 100 million? I'm trying to look at it -- you know, just from a net flow perspective, equity and fixed and outflow and the 100 million of inflows came from -

I think you you're comparing apples to oranges a little bit. We had gross sales of 1.5 billion. Redemptions of about 1.4, a little less than that, meaning the net cash was a little over 100 million positive. So that's money in, money out for us. The money in side of that again is generally coming into balanced portfolios of some sort. It's not going to a specific asset class like cash. When you look at the total 23.8 billion that we have, that is a mixture of equity fixed income and cash, and yes, there is a slight up-tick, relatively modest in terms of what's in liquidity and what's in fixed income reflecting the fact that on the margin, there may have been some movement of assets to a higher fixed income asset allocation, but that doesn't show up in cash flow. It's assets we have that just changes the mix. It's not a redemption.

Ok. And I'm just curious, the mutual fund wrap (ph) versus separate account wrap (ph), are you seeing one of those where maybe your weaker sales growth or maybe net outflow which is being offset by stronger flows in separate accounts, can you sort of characterize the business in both and where.

Overall, you see a little more strength for separate account sort of product side. We've just initiated an enhanced version of our separate account program that we call Imap (ph) which provides for enhanced tax harvesting across separate accounts, so that's an area that certainly has generated some interest and attraction in the marketplace, and so some of the -- in terms of the inflow side, you're seeing more come into a program like that and we think that has good prospects for us. But it does depend a little bit on the sort of type of business whether the mutual fund program versus separate account or Imap (ph) is the best alternative for the investor. Obviously, if the money is not tax-sensitive, for example, it's an IRA account, then, you know, Imap (ph) for separate accounts has less application to it.

Last question. You know, with the difficult markets of the past couple years, are you seeing any pushback from advisors on your fees? Because clearly you have the fee that you charge the advisors and then if I understand it correctly, they pay much to tack on their own fees. In an environment of negative equity returns and even fixed income return has been positive, taking 1.5,2 percent out of those turns a big chunk. Are you seeing any pushback from advisors that they're facing pricing pressures that they're trying to pass them on to you?

Let me clarify a couple things. In terms of the fee structure, we don't charge advisors any fees. The assets from investors go into either our mutual fund program which has the fees in the funds or a separate account program, and either way, the ultimate investor is essentially burying that fee expense. It's not a charge to the advisor. Certainly there's somewhat more sensitivity and discussion around fees in an environment when the market is weak and investors are not seeing appreciation. So is it an issue that investors talk more to their advisors about? Yes. Have we gotten strong pressure to adjust our fees with respect to funds or separate accounts? I'd say no. Again, when you do change product mix, however, I mean, we do make less money, say, on liquidity certainly and some fixed income portfolios than the equity side, so you can have some relative change in our average basis point fees as a result of changes in the product mix. But that product mix change is not driven primarily by product fee issues. That's driven by people's sensitivity around market conditions.

Thanks a lot.

Thank you.

We have a question from the line of Bradley J. Moore with Putnam Lovell NBF. Please go ahead.

Hi, Carl. Brood Moore with Putnam Lovell NBF. A couple things. Just a follow-on to the prior questions. With regard to your fee, I'm curious to know, do you have an incremental fee structure so that as the client relationship grows in terms of volume, it's fair to say that the fees are on a relative basis lower?

Generally with respect to mutual funds, the mutual fund has to have a stated fee that applies across the board for investors, so it's not possible to have changes in that by relationship or client. It is possible to do that, and we dodo that to some extent on the separate account side, so particularly large account can see a reduction in fees in separate account mode.

OK. And then is it fair to say that to the extent that you are concentrating your efforts on a core of advisors, would you say that these core advisors are more focused on the separately managed account program or are they still focused in promoting the mutual fund program as well?

I don't think there's a big difference, Bradley J., in terms of from a product standpoint for an advisor, whether they're more separate accounts or mutual funds. Again, some of that depends on the nature of the client or the prospect, so they may present separate accounts to a higher level, you know, larger account tax sensitive client where if they have a small plan 401(k), if it's a more modest sized account, they're going to use mutual funds. Sometimes it does reflect just the advisor's own preferences, if you will, as to a particular sort of model, but it does not, you know, neatly sort of tie to is that a select advisor or not. I don't see any correlation there. I think the industry as a whole, separate accounts, you know, has taken on some more emphasis and focus within the industry as a whole, as people focus more and more on the issue of taxes and after-tax return for those accounts that do have tax sensitivity.

OK. And then do you see any clients flipping from -- flipping their assets from traditional mutual fund product to your separately managed account program, and if so, how do you treat that in your flow numbers that you gave us earlier?

Yes, you do. I mean, there can be changes in somebody moving from mutual funds to Imap (ph) should not show up in the cash flows either way as cash in or redemptions. The only way it would is if they literally sort of redeemed out, went into cash fully and came back in. But in the normal case, that would not be the circumstance.

OK. And then finally, were there any - did you lose any customers during the quarter, and do you anticipate losing any customers in the foreseeable future?

Well, I think if by customers, Bradley J., you're talking about advisors?

Yes, the financial advisors.

I think that we're going to actively lose some advisors in the future as we go through this identifying who are the advisors that we are really going to focus our efforts on. So it's --as we look forward, it's less and less a game of having more and more advisors and what's the number of advisors that we have, and it's going to be more and more a focus on what is the sort of core of advisors that gives us the best stability and growth potential. Though it may seem counterintuitive, the more advisors means the more growth opportunity, I think our experience is that that is not the case. That a smaller number of advisors that we concentrate more of our efforts and focus on can actually give us higher yield. It makes the overall offering more selective in the marketplace, it means it's presented better to the end client. The advisors that we do work with have given us every indication that they have a strong preference for that, and we've seen better results from that.

OK. Great. All right. Thank you.

Our next question comes from the line of Carla N. Cooper with Robert Baird. Please go ahead.

Good afternoon. It's Carla N. Cooper at Robert Baird. Wondered if you could just fill in a few data points unless I missed it, I was wondering if you could talk about the number of new advisors in the quarter, and then also the amount of assets that you have in separate accounts today.

Yeah, the second piece of that, Carla N., the assets in separate accounts is 1.65 billion. In terms of number of new advisors, I know we have spoken of that in the past. I'm going to hold off from doing that just because of my comments earlier that I think it's not really indicative of where we are going with the business, just the absolute number of advisors, we don't think in terms of strategically where we're headed is a good indication of growth, and as we move forward, in fact, you'll see the opposite from us, you'll see us sort of reducing the number of advisors who can offer our investments programs and offerings to the marketplace.

Got it. And then I have a second question which is just on competition, you know, SEI is clearly not the only one who thinks there's opportunity hereto build around this model or this channel. Can you talk about any changes you've seen in the competitive landscape?

Well, I think you're quite right in saying there's a lot of people obviously over the years who have seen the power of the advisory channel and have been seeking to address that with a whole variety of sort of product and offerings including, you know, various sorts of separate account programs. I think what has distinguished us in the past, and I think what will distinguish us in the future is the extent to which -- that we can provide advisors with really the a superior business platform. I think that was the result for success with respect to the mutual fund wrap (ph) business, if you will. And as we look ahead and see the industry moving toward this more comprehensive wealth advisory space, we think we are particularly well positioned to provide advisors with a complete business platform to run a wealth advisory business. And in doing that, I think we'll have a very, very distinctive offering. There are plenty of folks coming to the market with different product offerings, and some of that, frankly, will be, you know, very much commoditized. So we're not seeking oh to sort of play in that way.

Thank you.

We have a question from the line of Tim W. Willi with A.G. Edwards.

Hi, Carl. I just had one housekeeping question. Could you give some kind of quantification or feel for what the one-time revenues are that you mention in your narrative?

Good afternoon, Tim. I'd say one time for the quarter was less than a million dollars.

OK.

And this reflects mostly ancillary kinds of fees and revenues that we get on the business.

OK. Is that something that typically happens in the first quarter? I don't recall knowing that.

It's not particularly seasonal. I mean, you'll see variations from time to time in account fees, brokerage and other ancillary revenues that we get on the business. But it doesn't particularly tie to any particular quarter or season.

OK. I guess I just have a follow-up question, come to think of it. Could you talk a little bit, I guess in terms of this focus on a more select group of advisors, I think over the last couple of years, the investment advisor division has reached out a bit more to its advisors with, you know, user conferences and I think SEI going out more to the advisor. In terms of that approach or the expense associated with that, would we see any kind of material shift in these kind of outbound support events even as you potentially whittle down the size of the advisors you're dealing with, or will it be the same kind of number, just higher dollars per advisor you'll be spending?

Well, I think it's what you're suggesting, which is you'd see higher dollars per advisor and then fewer advisors. You have already seen, if you look over the past year or so, a shifting. I mean, some of the reduction in market expense that you see in our numbers reflects the fact that we have scaled back on the scope of just widespread seminars and that kind of activity as we have become much more focused on a select group of advisors. And going forward, I think you'll see that we'll be much more focused on how do we assist those advisors in actively growing their businesses. So you're correct in saying on a sort of per advisor basis, you may actually see an increase in the expenditures resource wise and financially on the part of SEI in helping them grow their business, but on an overall basis, in terms of total marketing expenses and the like, you can continue to see some decline in that area. And we've already seen a significant decline over the past year or so.

Ok. Thank you.

There are no further questions at this time. Please continue.

Thank you. Our fourth segment is the enterprise segment. I'm going to turn that over to Ed Locklin to discuss this segment.

Thanks, Al, and good afternoon. As you've already heard, the first quarter continued to present an unusual degree of both uncertainty and also risk for all investors, and enterprises were really no exception. In the short term, institutional investors have continued to be preoccupied with their businesses, and was slow to make changes to retirement and investment programs. This business preoccupation really speaks well for our outsourcing position, but keeping institutions focused on completing their due diligence and decision-making process continues to be one of our biggest challenges. Weak equity markets and falling interest rates have caused corporate retirement plans and ratios to fall by 40 percent since1999. Retirement plant sponsors are concerned with rising contributions and rising pension expenses, but also the financial impact to the income statement and the balance sheet. Today, CFO's are required to make pension contributions which compete with other corporate growth initiatives. The recent survey revealed that over80 percent of the corporate pension plans were under-funded. And forecasts show that the median pension plan for the 70 percent funded will need seven to10 years to achieve full funding status. Needless to say, pension plans are becoming a strategic issue for CFO's and certainly a strategic opportunity for SEI. To capitalize on this growing opportunity, SEI is investing in our retirement solution to incorporate some additional funding and investment strategies, and some additional strategic advice to help retirement plan sponsors deal with the changing dynamics of pension funding and finance. Longer term, we believe the current under-funded status of many pension plans will be a significant growth catalyst for the enterprise business.

Now let me start to review the results for the first quarter. Revenues for the first quarter were 14 million dollars. A 5 percent decline compared to the first quarter of 2002. Revenues were negatively impacted during this period due to negative Capital Markets, and positively impacted by a one-time event totaling around 800,000 dollars. Profits for the quarter were 6.4 million dollars, a 20 percent increase over the first quarter of 2002. Lower technology costs and reduced sales compensation positively impacted profits for the year over year reporting period. We believe incentive compensation levels will increase throughout the year with improved sales results. Operating margins for the quarter were 45 percent compared to 36 percent a year ago. The relative high margin for this quarter is a direct result of the positive one-time revenue event and lower expenses. And it's also not expected to be sustainable.

Equity and fixed income asset balances at quarter-end were 10.8 billion, a 330 million dollar decline from the first quarter of 2002. Cash and liquidity balances were4.3 billion, a 200 million dollar increase from the first quarter of 2002. Total assets at quarter-end were 15.1 billion. For the first quarter of 2003, cash and liquidity balances declined by 800 million dollars, and this was due to the seasonal variation in short-term cash assets. During the quarter, 11 new client relationships were established with retirement and Treasury assets totaling 635 million dollars. And lastly, retirement and Treasury client funding for the quarter was 460 million dollars, leaving an unfunded backlog of 195 million dollars. In summary, the challenging economic and Capital Markets continue to impact the enterprise segment.

Institutional investors have started to make change decisions but still not at the pace we experienced before the economic bubble burst. We remain confident that the under-funded status of retirement programs will be a catalyst for institutional investors to consider new solutions and SEI is poised to benefit from this trend. To fully capitalize on this opportunity, we need to continue to build our pipeline and also strategically invest in our retirement solution. We are quite optimistic about the long-term market opportunities and are commit today capitalize on the favorable long-term trends in the retirement marketplace. Thank you very much, and I'm happy to entertain your questions.

If there are any questions at this time, please press the 1 on your touch-tone phone. We have a question from the line of Bradley J. Moore, Putnam Lovell NBF. Please go ahead.

Hi, Ed. It's Bradley J. Moore with Putnam Lovell NBF.

Hi, Bradley J..

Just curious to know who you are seeing in the way of competition today and how would you characterize your sort of win/loss experience?

The competition really hasn't changed all that dramatically in the business. The first level of competition we'd see, again, clients are looking for some help and advice, would be the consulting model, and then the second level would be other manager, manager type of programs, so firms like Northern Trust is in this particular space. We see State Street occasionally. We're also, though, starting to see at the lower end of the market maybe some insurance companies that would have some administrative capability. They're kind of coming in from that angle.

OK. Very good. And can you also give me again the comparable numbers for the prior quarter in terms of funding and unfunded backlog?

Sure. Insofar as for funding for this quarter?

For the prior quarter, for the fourth quarter.

What the funding was for the fourth quarter? Sure. Hold on a second. Funding for the fourth quarter 2002 was 552 million, and the unfunded backlog at the end of the fourth quarter was 44 million.

OK. Very good. All right. Thank you.

We have a question from the line of Robert Lee. Please go ahead.

Thank you. Just a follow-up. You talked about what was funded but could you comment on a loss business and I'd like to think of these businesses to some degree in terms of sort of the net flow, you know, did new money come into the business or was there, you know, some net outflow?

There wasn't really any net outflow for the quarter, so we did not lose any clients during the quarter. Other than market depreciation.

OK. Thank you.

There are no further questions at this time. Please continue.

Ok. Last and -- fifth and last segment is the investment/new business. Joe (ph) will discuss this segment. Joe?

Thank you, Al, and good afternoon. The investments/new business segment reflects our global initiatives primarily activities outside of the United States as well as or extra strategic longer term investments. I assumed this role at the end of last year but have worked closely with Carl Guarino on our global expansion since its inception and over the past four years have initiated and led the development of our UK, European and South African businesses from our office in London. Our business strategy abroad leverages our US business models while localizing the solution and delivery. We offer outsource business solutions led by our multi-manager capabilities to enable our clients to focus on their core competencies. We are experiencing growing market acceptance in Canada, the U.K. and continental Europe, and will continue to focus on these regions.

Revenues for the new business segment for the first quarter were$11.4 million, down 3.3 percent from the year-ago period. Despite continued weakness in the markets globally, revenues increased 8.8 percent from the fourth quarter of 2002 as we gained momentum in funding new primarily institutional assets. Average asset balances for the quarter were $7.6 billion, compared to 8.4 billion in the year-ago period. Assets remain flat from the fourth quarter of 2002as we too experienced market depreciation and replaced lower fee business with higher fee, more strategic assets. The loss for the quarter is 4.4 million dollars, compared to 3.3 million in the year-ago quarter, and flat compared to the fourth quarter of 2002. The increased loss from the year-ago period reflects continued investing in globalization and increased investments outside of our global initiatives.

We are gaining momentum in our institutional markets. In the1.4 trillion dollar UK pensions market, we had four new mandate wins totaling 250 million dollars. This brings our client count in the UK to 22, and total committed assets to over 1.25 billion dollars. We funded 400 million dollars during the quarter with a second quarter unfunded backlog of approximately 450 million dollars. New funded clients include BOC and our largest UK.client to date, the DiamondTrading company, a unit of DeBiers. Our product pipeline in the UK and Canada remains strong, and we hope to launch our institutional solution in the Netherlands, a 500 billion dollar pension market, later this year. Asset growth from the segment through distribution partners continues to be modest in all regions due to poor investor sentiment globally. We do continue to build our global distribution network focusing on independent financial advisors in Canada and the UK and private banks on the European continent. In the first quarter, we signed agreements with two large European head quartered global private banks to launch co-branded multi-manager investment programs for worldwide distribution later this year. We expect to announce the names of these banks by the June analyst conference. We believe our expanding global distribution network positions us well for growth in this segment.

Looking down the current market conditions, we remain very optimistic about the prospects for our global business initiatives. We expect to continue to invest in sales and marketing and the infrastructure that Al mentioned earlier in this call. This infrastructure will support an important new business opportunity. Global expansion into private banking outsource as well as other strategic new business initiatives. And we will, therefore, just continue to incur operating losses in this segment. Any questions?

Ladies and gentlemen, if have you a question, please press 1 on your touch-tone phone. We have a question from the line of Tim W. Willi with A.G. Edwards. Please go ahead.

Joe, could you go back over what you just had said about the couple of large European banks you had signed but couldn't tell us who they were? I didn't catch all of what you said the arrangement was going to be with them.

Yes, there are two large -- the European headquartered but they're really global private banks and they will be launching what we would call a global mutual fund account managed program, so these are similar program that is we offer through investment vice advisors here in the U.S., so it's using mutual funds in a series of portfolios that would be recommended based on different objectives of the clients. The only reason we haven't been able to announce -- because of these banks' competitors, until they actually launched the programs, they've asked us not to announce their names yet.

I understand. Could you talk about would the distribution largely be -- I'm assuming Europe and the continent, or would this potentially move you into some other geographic areas because of these banking franchises that you're currently not in?

We expect that the bulk of these assets, at least in early stages, would come from European clients, but both our large global banks and one in particular has a strong presence in Asia. They all have presence in Latin America, as well as here in the states.

Wonderful. Thank you.

Our next question comes from the line of Pete Heckman. Please go ahead.

Hi, Joe. A press release came across the tape a couple weeks ago with regards an SEI relationship with CIBC. Could you just quantify that a little bit? It was confusing to me in what it said was going on. It appeared that CIBC said they were assuming some fund accounting responsibilities for your portfolio, so if you could just comment on that and then secondly, if you could give us some quantification of what you think might be a quarterly loss rate. Will it be stable, will it be less or more as we go throughout 2003?

OK. Your first question regarding CIBC, we don't do fund accounting in Canada, so we do do fund accounting here in the US and in Dublin, so where we have fund accounting capabilities, we hire SEI to do the fund accounting. In Canada, because we don't have that, we hired a third party fund accountant, and that was CIBC. As far as prediction about losses for future quarters, we'll expect to continue to incur losses. There are other businesses we're investing and developing, so we really don't typically make comments about any changes or expected changes in those losses.

OK. But maybe a range of negative two to negative six might be a decent range to target?

Could you repeat that, please?

Just trying to get some quantification. I mean, this seems like such a nice -- there's a lot of opportunity for revenue upside here, but there's also a lot of opportunity for future earnings, and I'm just wondering if -- did we see, you know a turn coming this year or are we just --are we -- are the investments going to be roughly the same on a growing base of revenue or are the investments growing at the same rate the revenue is growing?

I think that revenue will continue to grow substantially on the global side, and investments across the board, and the company will be - will also grow, but I don't see that it's going to grow at substantial rates.

All right. Thank you.

We have a question from the line of Glen Green with bank Equity Partners.

Thank you. Glen Green. Just wanted to get some color regarding that, and what kind of opportunity you really see there and why you're sort of targeting that market.

We think there's substantial opportunity in the UK and Europe for the types of services that we offer here in the US to private banks, and so there is a significant amount of investment going on to make our systems work efficiently in those markets. We think that's a really great opportunity for us going forward, and we've got to make some investment to really be able to access that market.

Are there some clients, potential clients who are sort of asking for this kind of service? I'm just trying to understand what's sort of driving you to sort of invest in this at this point.

There's a lot of published reports about movement towards outsourcing worldwide, private banks and money managers. I think the trends look very strong particularly as those come under pressure in current market conditions, so the answer is yes, we're in early stages talking to potential prospects but we're seeing some very interesting opportunities.

And who competes in that market?

I think the (inaudible) banks to some extent are trying to compete in that market, but we believe in the outsource model that we have some significant opportunity.

Great. Thanks, Joe.

We have a question from the line of K.C. Ambreth (ph) from Millenium Partners.

Good afternoon. Thank you for taking my questions. First, is this a right time to ask questions more for the whole corporation or are you going to have a another round for the audience?

You can go ahead. We'll give you another opportunity at the end as we.

OK. Well, first I'm relatively new to the company, but one suggestion I have would be to --you know, I'd suggest that you might want to shorten the call significantly. I think the transparency is probably welcome in this environment, but I think the length of the call kind of dilutes the story. My question though is more for thoughts on Capital Management and the operating margins. As a the company plans to reinvest heavily in the second quarter and throughout the year in '03, how does that work into your thoughts on share repurchase? That's my first question.

Well, we are heavy buyers of our shares, and we'll continue certainly through this year and I would -- we were very heavy last year, and if I had to guess, I would say we're going to be heavier than even that this year.

OK. And can you kind of help us size what that additional expenditures you plan? I know you mentioned five or six initiatives, so let me try to pin it down to one segment and we're a little short on the numbers. Generally, how big should these new capital expenditures be?

Well, first of all, we've been doing these for awhile. We're just stepping them up a bit because of the stages that they're in, and the desktop, for instance, is a stage that's going into pretty heavy build. But we have been spending somewhere around 60 million dollars in R and D, which we have reported for the last few years, and we have not varied from that number. It will go up this year. We do not have a fixed number and we also don't forecast but it will be going up from 60 million this year.

Ok. And then finally, my last question, it looks like the operating profit margins for the corporation are around 38 percent, up last year from around 35 percent. What would be a good run rate to model to for '03?

That's your job.

OK. Well t looks like expenses are going up, revenue is immaterializing, so 38 might be a little high ? Is that a good way to think about it?

Well, let's look at how we got to 38. We don't have -- we have not been selling very much, and we have been working very, very diligently on cost control, and at the same time, we have not given up on our investments. And in fact, this year we're going to start investing a little heavier because as I mentioned, because of the stage that the investments are in. So given all these things, you've got some things that made the margins higher to be able to turn a profit. We're hopeful, as we said earlier, that the thawing is starting and we will turn to sales, and you'll have to watch it for the next couple quarters to see if that does happen. If it does, the margins will probably go down based on that because of some front-end expenses as we go back the other way. So I think 38 is about as high as hopefully you'll see the margins, because quite frankly, if our margins are higher, it means we have continued in a weak environment. So that's why margin is not something that I certainly personally watch.

OK. Great. That's all I need. Thank you very much.

There are no further questions at this time.

If there are no further questions, then we're going to turn it over now to Kathy Heilig, and she will give us some important company-wide statistics.

Thanks, Al. Good afternoon, everyone. I have some additional corporate information about this quarter. First quarter cash flow from operations was 28.4 million, or 26 cents per share. First quarter free cash flow, 17.3 million or 16 cents per share. First quarter capital expenditures were 5.1 million, which included 3.3 million for our new facilities, and 500,000 of capitalized software. First quarter depreciation, 3.9 million, and first quarter amortization,.4 million. Expected capital expenditures for2003 are approximately 19 million. Expected within there, the expected cost of our new facilities for 2003 are approximately 13 million. Our accounts payable balance at March 31st was 2.9 million.

Also, we would like to remind you that many of our responses are based upon assumptions that involve risk, and that future revenues and income could differ from those expected results. And we have no obligation to publicly update any forward-looking statements. And at this time, please feel free to ask any other questions that you may have.

Ladies and gentlemen, if do you have a question at this time, please press the 1 on your touch-tone phone. We have a question from the line of Pete Heckman. Please go ahead. .

Hi. Al this, is a follow-up question for you and the only reason I'm asking this is because I've never seen it before, but apparently you filed a 13D last night that shows that you pledged around $15 million of SEI stock to J.P. Morgan as collateral for a loan, and what you do with that money is your own personal business, but I'm just wondering -- certainly that could be a very big loan, so I was just wondering if you have any comment on that transaction.

Let me tell you the circumstances that - the loan has been outstanding for some while, and they have just changed their requirements, and so I had to sign a collateral agreement that was stronger and so it became something that we had to put in the proxy. But I am a firm believer in the company, and so I sell stock at the last possible opportunity, so anything that I have invested in, I tend to keep my SEI shares as high as possible.

OK. So that's not a signal in any way that you're going to be selling stock. It's just because the bank's rules changed?

That is correct. I usually sell some stock every year just as a way to keep the loan and my wife's spending in balance.

You're going to get in trouble for that one. Thanks, Al.

We have a question from the line of Carla N. Cooper, Robert Baird. Please go ahead.

Good afternoon I wanted to come back to a point that Al West made in the very opening remarks, I didn't quite understand, and I think it's financially related. You made a comment about this is again getting back to the stepped-up technology investments, and a comment about --that we would see more capitalization, and I wondered -- that was all confusing to me, that discussion. I wondered if you can come back to that and maybe clarify what you said originally.

That's correct. I think with the steepened investments, we will have two bits of capitalization that will be higher. Some of these will require us to purchase some software outside, software components, and we have to capitalize those. The second capitalization, because right now we're hardly capitalizing anything. The second capitalization will be a couple of these infrastructure projects that we're moving into a build, and we just haven't done infrastructure for a little bit, and we normally have capitalized infrastructure. That was not a signal that it's going to go through the roof or anything. It was just a comment that we know that's going to take place and so we wanted to mention it.

Thank you.

We have a question from the line of Robert Lee. Please go ahead.

Thank you. Two questions. The first one, just a follow-up to the last one. I'm assuming that when Kathy mentioned you expect 19 million of CAPEX this year, that includes the capitalized software within that number?

No, that does not.

That does not? OK. Is there any sense of the magnitude then of what we can expect from that, or?

You know, it's really difficult this time because we're in the -- formulating the exact plans, and we're trying to make that as small as possible. So it's probably a little bit early and I will speak to it next quarter after we've had these plans per perfected.

Ok. And maybe going back to the margin question, I hate to beat a dead horse, but I guess I'm just trying to reconcile two things. It seems like, you know, you're talking about accelerating some build-outs in a different project that reach a certain stage, and that I guess to me, when you say accelerate means, you know, there should be some kind of margin, increased expenditures, on the other hand, I think you're also I think basically saying that margins will go down when revenue takes off, because that's when marketing expenses will arrive faster and some other costs. It almost seems to me like they should be - if I'm thinking about accelerating expenditures, that even if revenues don't take off, you're still going to have margin pressure over the near term. Is that correct?

That's correct. We've had profit pressure for almost three years now.

I guess I'm just trying to make sure I understand it correctly because it sounded like -

I think you've got working in one direction, let's say things keep going side-wards like they are. The margin pressure will be our investment program, which we do not want to give up, OK? The second issue -- and that's a given. So the second, then, what will happen if the -- when the revenues turn up, therefore a little bit, the expenses will outrun the revenue, but I think you will be able to see what we have sold, and then you can kind of look ahead and say, well, how long will that pressure take place, and we'll help you with that.

OK. Fair enough. And one last question on this. I'm just curious, you know, you talk about accelerating the expenditures. I mean, you talked all along about continuing to make investments in the future -- in projects for future growth, now you're talking about accelerating some of them. Was there anything in the competitive environment that made you sit back and say, gee, we better step up the program in certain lines, other competitors trying to do the same thing, maybe talk about that a little bit?

OK. Acceleration is maybe the wrong word, because we're going into a build phase, and one or two particular ones that we do feel an urgency. We do not feel an urgency necessarily from a competitive environment as much as it gives us capability that will both improve our productivity, which is still very, very keen to us, even when we start growing revenues again, and the other is that it does reposition us firmly in the market as a business solution provider, not a product provider. We still have clients that look at us that way. And I would think particularly this is the case in the banking -- the private banking industry and it is the case in Europe, and we do feel a certain urgency to get those going and show some tangible results, and it will open up the market, so it's really tied to our ability to sell faster.

Great. I appreciate it. Thank you very much.

Our next question comes from the line of Bradley J. Moore with Putnam Lovell NBF. Please go ahead.

Hi. It's Bradley J. Moore with Putnam Lovell NBF. This may be a question that might best be directed to

Bob Crudup, but I was curious to know what your feelings were with regard to how the proposed regulations concerning the treatment of soft dollar commission arrangements both here in the US and the UK. would affect your business and perhaps more in again Bob's end of the business?

Well, that business, Bradley J., probably as you know runs under the safe harbor 28E, and at this point, I'm unaware of a change in that regulation.

OK. Assuming that there is a requirement on asset management firms to raise the transparency -- their transparency with regard to the use of soft dollar commissions and if the use of that kind of a commission arrangement was restricted in its usage, what would be the hypothetical impact to your business, would you think?

OK, well, let me back up for a second. Let's first look at electronic trading. The mutual fund clearing business is not a soft dollar business, and our fixed income execution business won't be a soft dollar business, we will see some trading of equities. If there was regulation that caused the light of day on that business, frankly, I would welcome it. We've been in that business for 15years. It's a business we understand, and our solution and the reporting that comes out of our electronic trading will be an advantage for us.

OK. How much of your commission volume do you think is related to the soft dollar business?

Oh. I'll get back to you on that. I don't have that number at hand.

OK. Great. Thank you.

Sure.

Our next question comes from the line of Tim W. Willi with A.G. Edwards. Please go ahead.

Hi. I just had a question. I guess this probably would tie into share repurchase a little bit. I was wondering if you could just talk about, I guess, the capital structure of the company relative to your accelerated investments or stepped up investments and still wanting to be a fairly assertive buyer of stock. I would imagine you could still borrow money fairly cheap, you feel very confident about the cash flow of the company. Is it something being debated more so than in the past to go out and potentially borrow some money to preserve the cash position but also deal with share repurchase?

You know, this is something that we have been looking at over the last two, three years, and now is a particularly good time to review that again. And I can't say too much more than that, but our investments are not straining any sense at all, is not straining our cash flow situation. Very, very, very heavy stock buyback would require borrowing.

OK. Thank you.

We have a question from the line of (inaudible).

Thank you. I just had a follow-up question on a margin issue, and Al, could you give us a sense of what the incentive compensation was last year, and how much was it up or down relative to the year before, and how should we look at that going into -- or in 2003? Thanks.

I don't have -- on the top of my head, I don't have 2002 versus 2001. Both of them were lower than 2000, I can tell you that, and I believe 2002was lower than 2001 by a decent amount. And 2003,we're hopeful that it's higher because that would mean we as a company are doing well and we're really setting 2004 up very well. And our accruals are being made at a higher level than we paid at last year.

OK. So you are building in higher growth expectations in general as you moved through '03relative to '02, is that correct?

Yes, at this point. That's correct.

Now, would Kathy have any kind of rough estimates in terms of what the percentage was of incentive compensation again in '02 versus '01?

Yeah, in '02, it was 55 percent, and it was 65 percent in '01.

I'm sorry, 65 percent off -

Of target.

Can we get a sense of what that would be if the total operating cost base?

Yeah, I don't have those off the top of my he. I'll get back to you.

Ladies and gentlemen, if there are any additional questions at this time, please press 1 on your touch-tone phone. There are no further questions. Please continue.

OK. Thank you very much. So just kind of recap, we'll begin to manage to eek out some growth in earnings in some very trying times, and to keep that going, as I think we've just talked about, we'll need some revenue growth to supplement productivity and some focus improvement. And we're working very hard this year to build some sales momentum in our key markets, and I think you've heard from each one of our segment leaders their desire to do that. We're also making investments in a number of new solutions designed to help us sell faster, grow revenues, and then profits. Hopefully for a longtime.

And I can't stress enough in the longer run, we're very optimistic and confident. As I always say, our recurring revenues, our strong cash flow, market acceptance of our business solutions, particularly our new ones, and our operational leverage allows us to continue to invest in our markets and expand our portfolio businesses. Now all of this serves to support our goal of creating long-term sustainable growth in revenues and profits. And once again, I'd like to leave you that we are in the business solutions business. Our clients do business with us because we're solving essential business problems for them. And making their businesses better. And this is a high value-added proposition, and it differentiates us from our competition, and we believe it will serve us well during -- as we go forward.

Finally, I'd like to remind you of the June 11th analyst day and invite you, and it starts with dinner on the 10th. And the invitations have gone out, I believe. I'd love to see you then. Thank you very much. If there are no more questions, I assume there are not?

There are no questions, sir.

Thank you very much.

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