SEI Investments Co (SEIC) 2003 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the SEI Investments fourth quarter earnings conference call. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Chairman and CEO, Mr. Al West. Please go ahead.

Thank you and good afternoon everybody. and welcome. All of our segment leaders are here with me on the call, as well as Dennis McGonigle, SEI CFO; and Kathy Heilig, SEI Controller.

I will start by recapping the fourth quarter of 2003 and the year as a whole. I will then turn it over to Dennis McGonigle, who will comment on the regulatory environment that we live in, as well as the specific aspects of our financials. Then each one of the business segment leaders will comment on the results of their segments. And as usual, we will field questions at the end of each segment report. Finally, Kathy Heilig will give us some important company-wide statistics. So, let me start with the fourth quarter and the year 2003.

Fourth quarter earnings grew nine percent from a year ago on a revenue growth of eight percent. For the entire year earnings grew by two percent on revenue growth of one percent.

Due to our stock buy back program, our diluted earnings per share grew at a greater rate than earnings. Diluted earnings per share of 36 cents represents growth of 13 percent over the 32 cents reported for the fourth quarter of 2002. And for the entire year 2003 diluted earnings per share equaled $1.32, which represents a 6 percent growth year-over-year.

Now during 2003 we repurchased 3.5 million shares of stock at an average price of 27. And if you do the math, that means we bought back 95 million of stock in 2003.

Now turning to revenues, fourth quarter revenues a grew by 2 million over third quarter. This does not properly reflect the strength of the revenue growth because, as you will recall, third quarter's revenues were buoyed by about $7 million from one time revenues. The corresponding figure in the fourth quarter was only 1 million in onetime revenues.

Revenue growth was aided by growth in assets under management mostly. The contributors to this growth were rising capital markets and new sales events.

Our non-cash asset balances grew by $8 billion during the quarter, of which 5.8 billion was due to market appreciation and 2.2 billion was due to sales events. Now for the entire year 2003, non-cash assets grew by $20 billion, of which 12.2 billion was due to market appreciation and 7.8 billion due to sales events.

Sales events throughout the Company continue to increase, reflecting a steady but slow improvement in the business climate. And during the fourth quarter sales events throughout the Company amounted to approximately 21 million of annualized recurring revenue. More importantly from my perspective, many of the new events are early proof that our new strategies are starting to gain traction. Our strategic direction in private banking was an important factor in our recent sale to SunBank, one of AM Trust's clients. Also, the conversion of our First Community Bank to a new broadened life wealth solution is progressing well and we expect others to follow. Bob Crudup will tell you more about both the important new client and our progress in the community bank market.

We also sold a large alternative fund manager last quarter. Again, one of the key differentiators of our offering was our strategy in the alternative investment market. We also sold and are converting our first money manager to our new separate account management service. Wayne Withrow will talk to both of these.

The enterprise business has garnered a number of new relationships, and many of these wins were based on new retirement solutions for corporations. Ed Loughlin will address this.

In addition, we continue to add advisers to the SEI Advisers Network beta process as part of our efforts to transform our adviser business. Carl Guarino will speak to this.

The assets under management for the ACSBC (ph) relationship continues to climb as they expend SEI solution to more parts of the world. We have also kicked off a venture with Germany's Commerzbank where we provide our institutional solution to middle-sized German corporations. Joe Ujobai will speak to both of these strategic relationships.

Now beneath all of our new strategies and the many new solutions we're beginning to take to our markets are two new platforms, which recall we call and Desktop (ph) and GIP -- short for Global Investment Platform. Now these platforms will provide us significant operational and development leverage.

The Desktop is to be used by end clients, advisers and administrators to create the ultimate end customers' client experience. We have implemented portions of it internally and plan to deliver it to advisers this fall.

GIP is designed to streamline investment processing for our clients, as well as our own back office, and is now in build mode. Electronic trading is part of this platform.

Now to hear more about our strategies and the investments we're making, I invite you to attend our investor conference this June 2nd. We will be sending you details shortly on this.

Now we believe that these strategies and the related investments we're making are crucial to SEI's continued prosperity and our progress on almost all fronts is encouraging.

While we believe in our strategies and our investments, we also remain bullish on our long-term outlook because of the fundamentals of our business. The recurrent nature of our revenues, our strong cash flow, the strong market acceptance of outsource business solutions, the leverage in our operations and the portfolio businesses we're creating will continue to serve us well.

That will conclude my remarks, and I would now like to turn it over to Dennis McGonigle who will cover the regulatory environment and a couple of aspects of our financials.

Thanks Al. Good afternoon everyone and thanks for joining us this afternoon. Al has given you a review of the business results and market activities. In addition to the success we have had in the markets, we have also worked diligently in our operational and compliance areas. As most of you know, SEI and its subsidiaries are subject to extensive government regulation. We are registered with the SEC as an investment adviser, broker-dealer, transfer agent and an investment company. We are also registered with the US Office of Thrift Supervision and State Banking Authorities as a trust company. Our broker-dealer is also a member of the NASD.

SEI has responded and continues to respond to various regulatory examinations and requests for information. A number of these requests relate to market timing and late trading that have been received by most, if not all, industry participants. I just wanted to make note that responding to these inquiries have increased our G&A costs for 2003 and will possibly continue to do so into 2004.

In addition to responding to these inquiries, we have invested in specific project work to ensure the processes under which we operate are sound and effective. We also evaluated the cost and risk of increased regulatory requirements on specific product lines. For this reason we made a decision during the fourth quarter to close our repurchase agreement program. This was historically a low fee product area. Fees approximate a five basis points, with lower than normal margins. With potentially increased costs of operation it became a less attractive offering for SEI. This resulted in a reduction in the quarter of approximately 5 billion in cash assets under management.

Finally, the increasing regulatory requirements on businesses in our industry will continue to require investment. Compliance with new regulations like the Patriot Act and Sarbanes-Oxley are examples.

I also wanted to provide information on the financials in a couple of specific areas. Fourth quarter reflect the benefit of approximately one penny per share or $1.2 million from a reduced tax rate. Our current effective tax rate is 36.25 percent. In addition, the quarter and year-to-date results reflect a re-class of client expense rebuilds of approximately $2.5 million for the fourth quarter 2003 and 2.4 million for the comparable period in 2002. For the full year the amounts are $9.7 million for 2003 and $8.8 million for 2002. The effect of this re-class is an increase in revenue and expense for the same amount, so no impact on earnings.

The final area I would like to cover with you is the accounting rule EITF 021, which we have talked about in the past. This rule went effective in the third quarter of 2003. This role as essentially requires that implementation revenues related to a long-term service relationship must be recognized over the life of the client. For us this is nine years. In addition, expenses directly related to that implementation are also deferred and recognized at the same pace as revenues. While not affecting cash flows, this will have the effect of slowing the revenue growth normally associated with new PB&T clients -- Private Banking and Trust clients. This rule had no effect on fourth quarter, but will start to have an impact in the first quarter.

With that I'd be happy to take questions after Kathy provides you with our key statistics at the end of the call. Thank you. With that, I will turn it back to Al.

Thank you Dennis. Now I would like to move to our segment reports. We will report the segments in the following order -- first, Private Banking and Trust, then Investment Advisers, followed by Enterprises, Money Managers, and then finally Investments in New Businesses. So we will start with Private Banking and Trust. I'm going to turn it over to Bob Crudup to discuss results in this segment.

Thanks Al and good afternoon everyone. Today I want to cover two topics -- first, insight into private banking and trust financial results; then brief comments updating you on the progress of our new strategy.

Fourth quarter earnings were down 15 percent from a year ago with revenues down 5 percent. For 2003 overall earnings declined 9 percent with revenues off by 6.5 percent. Revenue losses are completely attributed to -- first, fund processing; and second, one time project-related investment processing.

Fund processing revenues were up 20 percent as a result of lost business. And investment processing onetime revenues decreased 45 percent, due mostly to lack of merger activity. Encouragingly, we continue to have growth in investment processing recurring revenue which grew 3 percent year-over-year.

Now I will move on to the exciting progress with our business strategies. We will continue to focus on our two new business strategies, which we described at the June investor conference. First, let's talk about our new BSP/investment manufacturing solution for large banks.

As you know, with the sun setting of the Fidelity-AM Trust processing platform, there's a great deal of activity in the large bank market. Once again we have great news this quarter. SunTrust announced this week that they are entering into an important relationship with SEI; they are adopting our investment processing platform to serve their private client and trust business. SunTrust will be our largest new client since 1998. Since the Fidelity announcement last fall, this is our second new client that will be moving from the Fidelity platform to SEI. Our sales activity in the large bank market is as robust as it was prior to Y2K when we closed seven large clients. With this activity we expect our average new deal size to be larger than in recent years.

Our agreement with SunTrust represents a giant step towards confirming our large bank strategy. It confirms that our global straight-through processing and electronic trading platform investments are important differentiators which will give us a competitive advantage. As we hoped, banks see it as a way to streamline investment processing, thereby reducing risk and lowering operating costs. It is clear our strategies and our critical investments are starting to pay off. Other large banks are expressing teen interest in these solutions, again confirming the soundness of our strategy.

As an aside, you should remember that our revenue recognition will be impacted by two issues. The first is that implementations for large national banks generally take about 15 months, and we don't collect recurring revenues until the conversion is complete. The second thing affecting revenue recognition is the new EITF accounting rule which Dennis mentioned.

All in all, we see very positive trends for our large bank business.

Now on to community banks, where we're building our new broadened life wealth solution. As we execute this new strategy, community banks will outsource operations, outsource investment management, and we will assist them with providing live wealth advice to their high net worth clients. This business model is very similar to Carl's adviser strategy. Our first client, citizens Bank, is coming along nicely.

(technical difficulty) the Desktop is a key investment for this a market. The Desktop is critical to the community bank strategy. In fact, we began called the Desktop our wealth advice platform. This is a better description of how it will be used in the community bank market. We will be begin installing the platform later this year at Citizens Bank.

During 2004 we will complete building this community bank solution, but even now we have several banks in our sales pipeline. The market seems to be confirming the soundness of this strategy.

As always, we have competition in every transaction. But the market is beginning to embrace our new solutions and I remain optimistic.

I will be happy to answer questions, if you have them.

Jeff Hobson (ph), A.G. Edwards.

Bob, can you comment in regard to SunTrust? If you think about the revenue per account -- and you've talked about that ramping up -- any sense of how far that moves forward with that particular transaction?

I think, as in the past, I hesitate to give specific financial information about a particular client. But I would just refer you back to our conversations in June about the willingness of clients to accept the new solutions and how we expect to move them across the value chain. This transaction for the most part fits into the current book of business that we have today.

And then there's two other M&A deals out in the marketplace. There's some concern about how you fit into those. Any comment that you can make in that regard?

I think history, hopefully, is the best predictor of future performance. And if you look back, since the late '80s we have been in this large bank merger environment that tends to peak and valley over time. But that phenomenon has been something that's been very good for our business over that period of time. Generally, because of our positioning in the large end of the bank market, we have had a lot of success with bank merger activity. On occasion we will lose a bank due to merger activity, but we much more frequently come out on top.

Thank you.

Robert Lee, KBW.

Just a quick question -- this is a margin related question that -- looks like they basically bounced back some from Q3, although still down from where it was in the first part of the year. I know in the past, Bob, you've talked about maybe the high 30s range being where you think it settles out long-term. Is there anything in the quarter that -- should we expect it to start to trend in that direction with investments in the Desktop and what not in the coming year? How should we be thinking about margins over '04?

The Q4 results was most affected by normal fluctuations in incentive sales compensation, but since midyear we have also been ramping up our expenses around development.

With the SunTrust, when do you pay the sales commissions for that? Will that be an '04 event, the sales commissions? The revenues obviously aren't going to probably come on until early '05, but should we expect some front loading of that contract?

Our general policy is to pay sales commissions when contracts are completed.

Thank you.

Carla Cooper, Robert W. Baird.

On the SunTrust contract can you talk about the conversion? I'm not familiar with a big conversion since I didn't cover you in 1998. But in terms of the revenue and the margin that you might be able to earn on a big conversion project, can you make any comment?

Our conversion activities and the profitability on our conversion activities generally fit in with our margins in general.

And the other thing -- just housekeeping. The split of revenue between investment processing and fund and investment management, could you give it to us for the quarter?

It's 74 percent -- I have the year numbers in front of me here. It's 74 percent for investment processing, 14 percent for fund processing and 12 percent for investment management. And the quarterly numbers were very close to that. As I remember, the investment processing was 75 percent for the quarter.

Thank you very much.

Peter Heckmann, Stifel Nicolaus.

In terms of two trust accounting conversions in the fourth quarter, can you give us some magnitude as to the combined run rate on a quarterly basis from those two? And secondly, could you comment on what other conversions -- I think the answer is that there aren't any -- but are there any conversions scheduled for 2004 of the small to mid-size trust accounting systems?

Yes, I think when those new clients came across the board I gave you the monthly contractual recurring revenue, and I don't think I should, of two clients, give you the quarterly recurring revenue. I'm sure we have some small conversions going on as we speak, because we almost always do, but I'm not sure exactly how many we have. But I can get back to you on that.

But there's none in the system the size of First Tennessee or any mid-size or large that maybe I missed?

The First Tennessee conversion is completed.

Are there any on the scheduled for 2004 of other mid-size banks that maybe I'm not aware of?

Not mid-size banks.

Can you give us an update on the Bureau of Indian Affairs contract? Is that one still generating a pretty decent run rate? I haven't heard -- there was a lot of excitement on that contract when it was first announced, and I haven't heard much about it lately. I just want to get an update.

We just completed recontracting that client and they remain among our largest clients.

What's the term of the recontract?

I don't have that information in front of me, and I don't think we generally comment on the term for a specific contract. Generally our contracts for recontracting our three, five and seven years.

Thanks Bob.

Glenn Greene, Think Equity Partners.

First question -- just a clarification. The SunTrust deal -- I'm assuming that was not included in the 21 million in annualized revenue that Al referred to?

Yes it was.

It is included?

Yes, but I don't think he gave you a number of 21 million. He did? Okay. Yes, it is included.

Similar to the line of questioning that Pete just had, but I just want to make sure -- the conversions that happened in the fourth quarter, I just want to make sure which ones they were and did you get a full quarter revenue impact from it? I'm thinking about Citizens, First Hawaii, First Tennessee. Just want to get clarification on when those converted.

First Hawaiian converted earlier in the year, toward midyear. First Tennessee came over December 1st. And Citizens completed I think in September -- no, they were December 1st also.

So you still haven't gotten a full quarter impact from First Tennessee and Citizens yet?

We have not.

Were there any usual or onetime items in the results for the quarter? Basically what I'm getting at is is this a good baseline to go forward, ex the fact that you only had a month activity of First Tennessee and Citizens?

Yes, there were no usual onetime fees in the fourth quarter.

Thanks Bob.

There are no other questions on the phone lines. Please continue.

Our second segment is Investment Advisers, and Carl Guarino will cover this segment.

Thanks Al and good afternoon. I want to comment on two areas, providing you some insight into the financial results for the fourth quarter, and providing a brief update on progress toward our strategic vision. First, the financial results.

Largely as a result of continued improvement in the US equity markets, revenues and profits for the fourth quarter in this segment were up 15 percent and 22 percent respectively from the year ago period. Compared to the third quarter, revenues in Q4 declined only slightly. You will recall that onetime items boosted our third quarter revenue in the segment by approximately 3.5 million. Profits in the fourth quarter improved over the third, despite the 1.7 million in onetime profit items in the third quarter.

Now our margins increased in the quarter to 58.9 percent. Fourth quarter margins were aided by the market run-up. We had previously indicated that margins are not likely to be sustained at this level if net sales -- and thus sales compensation -- increase and as we continue to make key strategic investments.

Average assets under management for the fourth quarter increased to 27.1 billion due to market appreciation and a return to positive net cash flow for the quarter of 130 million. Assets increased throughout the quarter and we began 2004 with 27.7 billion in assets.

We had two key focus areas in 2003, each of which will continue throughout 2004. First, reshaping our adviser distribution force into a leaner, more strategic distribution channel that relies on SEI's business platforms. Second, establishing a network of elite life wealth advisers. We are making strong progress on both fronts.

On the reshaping front, we targeted last fall over 2,500 existing advisers, each with under 2.5 million in assets with SEI. As a result of further communications with these advisers, we have identified about 4 to 500 that we will focus on establishing strategic relationships with. And we will freeze the remaining 2,000 or so advisers; that is, they will be restricted from further offering our investment solutions, but not required to redeem existing assets.

Also during the quarter, a large insurance distribution network notified us that their representatives would no longer be opening new accounts with SEI.

Redemptions continue at higher than normal levels as we continue our reshaping efforts, but as we hoped we are also starting to see positive net cash flows from some of the more select advisers that are offsetting these redemptions. I caution you that we're still early in this process.

As we enter 2004, we are also beginning to focus in a targeted way on identifying new advisers that fit our profile.

Progress continues on the buildup of the more comprehensive business platform for our planned wealth adviser network. One important element of this platform is the new investment strategies, tailored to the individual goals and risk profiles of affluent investors. These strategies incorporate new asset classes such as hedge and zero coupons, permitting better alignment of portfolio performance with client expectations. These strategies became available toward the close of 2003, and we will concentrate our marketing efforts in 2004 on this launch.

We continue to add advisers to our beta testing process and business assessment programs, and continue to plan for a launch of our new adviser network in the second quarter of this year.

Thanks, and I will now take any questions you may have.

Jeff Hobson, A.G. Edwards.

Is it fair to say that the revenue from the 4 to 500 that you have identified is more than what you've lost from the other 2,000?

Just to clarify, the 2,000 or so advisers that are being frozen are just that; that is, they won't be selling our products going forward. That does not in and of itself mean we will lose the revenue from assets they currently have with us. To give you some sense of that, on average those frozen advisers have about 500,000 in assets with us each, so in total that group has a little more than $1 billion with us.

At this point in the whole process, how do you gauge the results relative to initial expectations?

I think overall we're pleased, I will say, with the market reception, which is to say I think the effort is being viewed as it was intended, which is a decision by us to become more strategic and in a sense more exclusive, if you will, to really focus on the advisers that adopt our platform as a business platform and not to be a mutual fund product that somebody has on the shelf. So even the advisers we've frozen in general I think the reaction is they fully understand that and they appreciate the fact that we've done this in a way that does not pull the rug out from under their existing business and cause pain to them or their existing clients. And I think our most select advisers are very pleased with this focus. Anecdotally, I got an e-mail the other day from one of the select advisers saying this is the smartest thing SEI has ever done. So obviously the people who really do accept our platform and want that strategic relationship with us are pleased by it.

In terms of how do the numbers play out and what we will see in redemptions versus asset growth, that's why I say it's still early in sort of calculating the returns.

Very good. Thank you.

Carla Cooper, Robert W. Baird.

I think I wasn't writing fast enough. Could you just go back and review the technology that I think you said you were going to roll out in Q2? Exactly what part of that and then did I hear right that it is Q2?

I may have been talking very fast. What I was talking about in Q2 was the official launch of what we call our Wealth Adviser Network where advisers would take a very complete business platform from us to run a life wealth adviser business and affiliate more directly with SEI in that. So I was not speaking specifically of any technology.

Now, there is the Desktop technology platform that Al has described to you, which is an important element of our solution to advisers, both those who would join this network, and even the other strategic advisers that we have. In general the roll out for that of the first version of that is planned more for the fall of this year.

Thank you. Is one way to think about the margin in the quarter that a lot of it was driven by increased market appreciation and the absence of substantial sales costs?

I think that is a good way to think of it.

Finally, the insurer who is not going to have their reps sell your services anymore, can you put some metrics around this on size? Would they resemble, say, the 2,000 accounts that you have just frozen in size?

Similar to Bob Crudup, I don't like to get into giving specific client information out; it's something that we consider confidential. But just to clarify, this is an insurance network that has a large number of representatives throughout the country. So you shouldn't compare that entire network to a single small adviser. And within that network there would be a mix -- a lot of advisers that, frankly, would be rather small in their individual positions with SEI, but a few advisers that would have larger positions.

Thank you.

Robert Lee, KBW.

One quick question. With the adviser network, can you give us some sense of how many people you now have -- how many people have agreed to become part of that and how many you expect to be part of the initial rollout and your goals for sort of growing it from there?

I think right now we have probably 75 or 80 advisers that have gone through what we call business assessment. That's a preliminary stage in which we take a very detailed look at their existing business and client relationships, and then have a dialogue with them around what it would mean to join the network -- the changes that would have to occur in their business, etc. We probably have about 15 or 20 that are more actively engaged in what we call this beta process, which involves extensive training at SEI, and then working more directly with our advice team on real clients cases. No one has officially signed on, if you will, to the network because we're not at a stage where we have asked for or offered any contractual relationship. That will not happen until the second quarter.

Longer-term what are you thinking in terms of how you would like this to expand? Are you sort of thinking each major market you want sort of a half-dozen sort of --?

We do look sort of demographically at areas and regions and see what do we think makes sense from a distribution and penetration standpoint. We are mindful of the fact that advisers have niche markets, if you will, that they operate well in. So it's not strictly a sort of geographic thing. There are advisers who do well with business owners and others who are more effective with corporate executives; there are some that have focused on particular demographics like, for example, women executives and business owners. So it does mean that geographic areas typically can support multiple advisers without having lots of overlap or conflict between those advisers.

Thank you.

Glenn Greene, Think Equity Partners.

Carl, I just wonder if you could help me reconcile the increase in the asset levels quarter-to-quarter (indiscernible) talking about inflows, redemptions and the pick up from the market.

I'm not sure I have all the data. Is there something specific that --?

Do you have the net inflows?

The net inflows for the fourth quarter were 130 million.

Was the balance just market appreciation?

Yes. I don't have that difference for you, I don't have the third quarter average with me. But yes, the remaining delta is market appreciation.

Going forward, obviously as you're transitioning and focusing on these more strategic advisers, what are your thoughts on the inflows in the first half of '04 if you had to net them? Obviously, you have frozen a couple thousand and you've got the more strategic ones, but obviously you're hoping you are going to drive asset flows. How do you think that balances out?

Obviously our bet here is that overall the positive impact, if you will, from the advisers who are sort of committing to us and the select advisers who feel better about the more focused, exclusive nature of the network will more than offset any increased outflow from the frozen advisers. I obviously don't want to make a prediction on that, but that's the theory.

That's helpful. Thank you.

Chris Arndt, Select Equity Group.

Just a question on the large insurance distribution network. They announced that their -- is it correct their agents will no longer be able to sell SEI project?

No new accounts, yes.

Have you determined -- how have their agents responded? Are there agents since they can't sell additional accounts of SEI, are they responding by liquidating existing accounts? Or do you think they will kind of keep their existing accounts in place and just move on to sell different products?

I think it's early to measure in terms of actual activity. I think the reaction that we've gotten anecdotally from the field is that the agents -- or at least a number of them -- are disappointed that they are no longer able to open new accounts, but are not looking to disrupt their existing client relationships or do something which might be less than beneficial for the client. They are certainly not receiving an indication, as we understand it, from the insurance carriers. They are not being told or directed to do that.

Okay.

Mayank Tandon, Janney Montgomery Scott.

I just had one question, and you probably gave this before -- the redemption rate in the quarter and how that compares to the trend in the September quarter.

I just gave a net number which was the 130 million (multiple speakers)

Is there a percentage for redemption?

I'm sorry?

Is there a percentage that you can share with us on the redemption rate?

I don't have that. I will say redemptions in the third quarter, as you recall, were actually a little bit unusually high because of a large redemption that we had from an offshore investor. So the third was probably not a very good measuring stick. In general I would say, if you take that out, redemptions have been fairly steady throughout the year at a rate which we would consider to be higher than normal.

Is a 15 percent number a good number? That used to be sort of the rate, I think, a couple of quarters ago. Is that a fair ballpark number?

I think it's been a little higher than that.

Fair enough. Thanks.

There are no other questions on the phone line. Please continue.

Thank you Carl. Our third segment is the enterprise segment. I am going to turn it over to Ed Loughlin to discuss this segment.

Thanks Al and good afternoon everyone. My remarks are going to focus on two areas -- the financial results for the segment; and also, our continued progress toward our growth objectives.

On the financial side improved capital markets and new client fundings enabled revenues to grow by 11 percent from the year ago period. For the fourth quarter revenues declined by $2 million compared to the third quarter. As you will recall, during the third quarter revenues in this segment did benefit by approximately $3 million from onetime items. Profits for the entire year grew 34 percent, approaching $30 million. Profitability for the segment was aided by improved capital markets, onetime revenue events and new client fundings.

Margins for the segment continue to improve, ending the year at 47 percent. As we've noted and reported earlier, increased sales and incentive compensation associated with increased sales activity and modest investments, will pressure near term profits and margins.

Average asset balances increased throughout the year to $17.5 billion. Enterprise year-end asset balances reflect a reduction of approximately 1.4 billion as a result of closing our repurchase agreement program.

Finally, our backlog of committed but unfunded sales is $1 billion. There is a significant 401(k) client conversion in process that is in the backlog that is scheduled to occur in July.

Turning our attention to the business activity, the pace of sales activity for the past several years continues to improve. For calendar year 2003 net new sales were 2.6 billion, an increase of 500 million of net new sales compared to 2002. During the fourth quarter, new client sales of $600 million were offset by several client redemptions of almost equal value. Changes in our clients' board (ph) composition and strategic direction prompted the redemption.

Improving business conditions in our target markets has enabled financial executives to focus on the needs of both the retirement and endowment assets. As a result, we continue to see increased receptivity to our outsource business solution. We are encouraged that the enhanced advice and administrative services we're developing have been well-received by clients and prospects and we remain optimistic about the growth opportunities in the enterprise market.

Thank you very much, and I'm happy to entertain any questions that you would have.

Peter Heckmann, Stifel Nicolaus.

As regards this repurchase program, can you tell me -- Dennis commented on it, that one of the reasons you closed it was due to some higher anticipated costs. But is this something that -- I'm not familiar with that type of cash instrument. Is that something that's very popular, very competitive? And was there no way to kind of retain some of those assets in other vehicles?

Some of the assets that we had in the short-term cash program in this segment were not involved at this at all. This is a program where someone who wanted to just have overnight repurchase agreements types of program, commercial paper, that type of thing, we would accommodate that with this particular program. The capital requirements based on the regulatory environment really changed to a point where from a business perspective for us to put emphasis either to sell this or to service these particular clients just didn't make a lot of good strategic business sense. So that's why we made the decision to terminate the program.

How are things looking on the defined benefit side? Are there new rules within Sarbanes-Oxley or other areas that continue to place pressure on in-house fiduciaries?

I don't think Sarbanes-Oxley per se has put on additional pressure for them. I think the biggest change -- and we have talked about this in the past -- was the fact that the whole impact on corporate finance of this pension plan continues to be one that I think is of concern to Chief Financial Officers. Again, even though we had good, strong capital markets last year, we continue to see the liabilities increase because of the interest rate situation. So from a total funded status, most plans did not make much headway last year. So they continue to be looking at an unfunded liability that in many situations is of concern to them because of the impact it's going to have on making continued contributions. So that dynamic has not changed.

Thanks.

Carla Cooper, Robert W. Baird.

My question is about the margins that you're likely to see in this division in '04, and whether as a whole you would consider the margins that the unit achieved in '03 as being sort of unsustainable. Or was it really only levels that you reached in the latter part of the year that might reflect that?

I would say that certainly the margins insofar as the 50 percent margin we had in the fourth quarter, that clearly is not going to be something that we can sustain. I think if you were to look at the margins earlier in the year, and so far is in the lower 40s and I think that that's a more reasonable run rate for this particular segment, based on what we do, again, anticipate insofar as increased sales activity, and therefore compensation, and some additional reinvestments.

That is good. Thank you very much.

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

Our fourth segment today is Money Managers. For that I will turn it over to Wayne Withrow to discuss this segment.

Thank you Al. The fourth quarter was (technical difficulty) accomplishments for the Money Managers segment. We recorded record quarterly revenues and profits, record new business sales and introduced a new solution from which we should see benefit in 2004 and beyond.

Revenues totaled $15.5 million, a 26 percent increase in the same quarter in 2002. Our quarterly profit of $2.4 million represents a 12 percent increase from 2002.

For the year revenues increased 19 percent. Profits, on the other hand, increased 2.7 percent, reflecting increased reinvestments. Looking forward, I expect robust revenue growth, but not dramatic margin improvement due to continue reinvestments.

New business sales events for the quarter totaled an estimated $7.5 million in annualized revenue. Fourth quarter sales were concentrated in the alternative manager space. For the year sales events totaled $16 million.

Our new business success is in part due to our differentiated offerings in the alternative fund market. A key element of this offering is our front end reporting system that organizes, aggregates and gives our clients real-time views into their data. This system reduces our clients' expenses by eliminating the manual processes previously required and its flexibility reporting capability helps our clients better manage their business. We introduced the first version of this product in mid-2003 and have enhanced in this plan throughout 2004. I expect it to be a key differentiator going forward.

Both our record revenues and sales events evidence the customer acceptance of our existing offerings. But the more exciting item for the quarter was the introduction of our outsourcing solution for separately managed accounts. We went to live with our first client on December 17th and our pipeline of prospects is building. The addition of this new solution will help diversify our revenue stream and allow us to participate in the separate account space, one of the fastest-growing portions of the financial services industry.

Looking forward, our pipeline remains strong and I feel positive about the future for this segment.

I will now entertain questions

Jeff Hobson, A.G. Edwards.

Can you tell us a little bit more about the new clients separate account program? Is it fully installed, up and running? And is the clients base small, medium, large-sized clients?

It fully installed and up and running and it is small client.

In terms of the initial feedback from the client on how it's working, anything you can give us there?

The client is very happy they made the decision (ph).

In terms of the pipeline, you said it is building; is that activity at this point or do you think that you will be closing deals sooner versus later?

What I would say is the pipeline is building, but the prospects are very early in the whole pipeline process, would be the first point. The second point is with this product line I believe the sales cycle will be somewhat longer than our existing product offering.

Very good. Thank you.

Glenn Greene, Think Equity Partners.

I was wondering if you could just talk about the relative economics of the separately managed accounts program, so your sort of core base business. I was wondering if you could give us an idea on the 7.5 million in annualized revenue, what portion is from alternative managers as opposed to more traditional money managers?

The vast majority of the 7.5 is alternative managers, to answer your second question.

On the first question, what I would say is I believe the separately managed account offering looks more like the community bank back office outsourcing business than our traditional business. It's a pure back office outsourcing play.

Sort of an assets under administration type business (technical difficulty) basis points on assets under administration?

I think the market has not yet spoken yet. As we talk to prospects, some are interested in a basis point fee and some are more interested in a traditional account-based fee.

Thanks.

There are no other questions on the phone line. Please continue.

Our fifth and final segment is investment in new business. I'm going to turn it over to Joe Ujobai to discuss this segment.

Thank you Al. Today I will report on the investments in new business segment with, as always, a focus on our global business. In this segment most of the revenue is related to global, but expenses include other strategic longer-term investments. I want to focus on two areas -- a brief review of the financial results; and an update on progress with global private clients and global enterprise businesses.

Revenue continues to grow at an encouraging rate in this business segment. Revenue of $15.7 million in the quarter has grown by 23 percent from the last quarter and 50 percent from the year ago quarter. Revenue for the fourth quarter reflects approximately $1 million in onetime events.

Assets under management in this segment have increased for the year-to-year period from 7.5 billion to $10.6 billion.

The message I want to leave with you today is that we're continuing to see sustainable momentum across all our major market initiatives, both our private clients and enterprise businesses.

Last year proved to be an exciting time in the global private client business. Our global distribution relationship with HSBC Private Bank is off to a strong start in Europe and Asia, and we will launch in Latin America and other offshore centers this quarter. Our continued efforts through IFAs in Canada and the UK are showing signs of progress. In total we funded $290 million of new assets in this fourth quarter. You end assets in the global private client group now total just over $5.7 billion.

In our global enterprise business we continue to make progress. We funded seven new institutional clients in the fourth quarter, totaling $290 million. We have an unfunded backlog of over 350 million at year-end, which we expect we will largely fund during this quarter. The pipeline is a strong, and earlier this month we launched the Commerzbank distribution relationship, targeting pools of institutional assets at small to medium-sized German businesses. We're making additional investment to expand our institutional business in Northern Europe, and are planning to open office in the Netherlands later this year. Year-end assets in the global enterprises group now total $3.3 billion.

We are pleased that the global business is growing and developing this planned. Sales momentum continues to build. However, as I always remind you, we will continue to invest in market expansion and the infrastructure necessary to support sustainable global growth.

Any questions?

Peter Heckmann, Stifel Nicolaus.

What would you estimate was the currency impact on revenue in the quarter?

We had a positive currency impact of about $400,000, but actually overall we had net negative P&L effects for a couple of reasons. One, we are still losing money in this segment and some of our revenues are in dollars, but most of our expenses are in local currencies. So positive on the revenue side at about 400,000, but overall negative of about 250,000 on the P&L side.

Have you consolidated any of the countries? I haven't heard much on your operations in like Korea, South Africa, Brazil; are those still ongoing?

We never had any operations in Brazil. We still have the joint venture in Korea where we have a majority stake. And South Africa -- we are at tending to leverage more and more of what we do in the UK and Europe as we continue to drive the business in South Africa.

Where would you say you're making the most progress? Italy and the UK or --?

Canada has had a strong year and the UK, particular on the institutional side in the UK, and the private client side on the European continent.

Thank you.

There are no other questions on the phone line. Please continue.

Thank you, Joe. Now I'm going to turn it over to Kathy Heilig to give us a few company-wide statistics. Kathy?

Thanks Al. Good afternoon everyone. I have some additional corporate information about this quarter.

Fourth quarter cash flows from operations was 54.1 million or 51 cents per share. Fourth quarter free cash flow was 39.6 million or 37 cents per share. Year-to-date cash flow from operations 178 million and year-to-date free cash flow 130.3 million.

In the fourth quarter capital expenditures were about 7.3 million, which includes around 2 million for new facilities. In addition, in the fourth quarter capitalized software was 4.5 million.

Fourth quarter depreciation was 3.4 million and fourth quarter amortization was 673,000.

Capital expenditures for equipment next year will be approximately 12 to 15 million.

Accounts payable balance at 12/31 was 7.4 million. It was a little bit higher than what we have had the other quarters, but it was really just timing of when we closed accounts payable. But there were some invoices that we had to accrue for.

Finally, we would like to remind you that many of our responses are based upon assumptions that involve risk. Future revenues and income could differ from expected results. We have no obligation to publicly update any forward-looking statements.

We're available to take any questions now.

Peter Heckmann, Stifel Nicolaus.

Kathy, could you go over those capitalized software numbers again for the quarter?

It was 4.5 million.

How does that compare to the third quarter?

3.5 million third quarter.

And then in terms of the hedges that you have that we continue to see below the operating line, can you talk about the rationale for those again? And do you think that is something you will continue to utilize?

Yes, I would believe that we would continue to utilize these hedges. Economically we're hedging investments for new products. So globally we will start some products and they need critical mass; we will put money in there. We don't necessarily want to be an investor, so we hedge it. Because our products are sort of complicated, you cannot get a hedge for accounting purposes. For accounting purposes it is very strict. It's really a one-for-one; the hedge and the investment have to be perfect. We can't do that. We need to come up with a hedge that is a combination of hedges to actually hedge our products. So therefore, we have a timing difference. And what you're really seeing a reflection of this quarter is the market and our investments actually have done very well. But they are unrealized and they are in other comprehensive income. And you're seeing currently the flip-side, which is the loss on the hedge.

Lastly, do you think we can get a copy of the quarterly income statement to reflect the modest (ph) restatements?

Yes, that will be definitely laid out in our 10-K.

Also, approximately for '03 those rebuild numbers were about what they were in the fourth quarter, quarter-to-quarter. And in '02 they were about the same as well -- just slightly less than that. If you look at the total year numbers, and they are pretty close.

You can kind of divide it across the quarters?

Right.

Robert Lee, KBW.

I just want to clarify -- I think Dennis up front mentioned tax rate for the quarter, the effective tax rate. Could you just repeat that? I think I may have missed that. And what would you expect for it to be going forward?

It's 36 and a quarter -- 36.25. That's what we would expect it to be going forward.

Great. Was there anything else in the interest income, any other onetime items in the gain on investments or interest income that may have moved the needle at all?

No. I realize that loss on investments is very large, but that is really the hedges, and that is just a result of the market going up.

The equity at earnings of unconsolidated affiliates -- I guess it is LSV -- I don't know if anyone there has any color in terms of -- their assets have I guess almost doubled in about the past year. Any color on their pipeline as you enter '04 and what their business (indiscernible) that momentum going to continue?

I can comment a little bit about their fourth quarter. Their assets, of course, also went up. They had new sales events. They also had quite a bit of market appreciation and really increased their revenue and their expenses were relatively flat. So that's why you're seeing such a strong fourth quarter for them.

Thank you very much.

Carla Cooper, Robert W. Baird.

Thanks. My question was answered.

Chris Arndt, Select Equity Group.

Can you just clarify what you expect for capital expenditures in 2004? You mentioned 12 to 15 million on equipment. Is there an additional component for software capitalization? And are you spending more on new facilities as well?

We do not anticipate spending more on facilities and we have completed our most recent project. We have to do some -- there will be some facilities cost associated with returning old lease space (ph) to its prior state, but that shouldn't be material. The other thing that we will continue to invest, As Al talked about, into our platform technologies -- Desktop and GIP. And those expenditures will continue to run at least where they ran in the fourth quarter. (multiple speakers) primary investment.

About 4.5 million capitalized software development (multiple speakers)

You may even see that north of that as we work through the year.

So we're talking in total about 35 million of combined -- or 40 million of combined CapEx?

I wouldn't be able to give you that specific a number, but again I'd look to the fourth quarter as a benchmark.

There are no other questions from the phone lines. Please continue.

Thank you. And so, ladies and gentlemen, we are excited about what we're building and look forward to delivering the potential that we see.

In the short run we continue to invest in our businesses, as you were just talking about. Market acceptance has been very encouraging, that's for sure. But at the same time, we are a long ways from hitting our stride. So revenue and profit growth are our focus, and will remain challenging in the short run.

However, I cannot stress enough that in the longer run we're very optimistic and confident. Our recurring revenues, strong cash flow, the market acceptance and the growing market acceptance of our business solutions and our operational leverage added to continuous investment in new solutions and our portfolio businesses will serve us well looking forward and will help us supported our goal of creating long-term sustainable growth in revenues and profits.

And I do always want to remind you, we're in the business solutions business. And that fact is even more evident and more important in all these new directions in all our markets. Our clients do business with us because we are solving essential, fundamental problems for them and making their businesses and their lives better. This is a very high value added proposition, and it differentiates us from our competition and we believe it will serve us well in the future.

Now, if you do have any other questions, we will entertain them now, otherwise we will say good afternoon.

Carla Cooper, Robert W. Baird.

Going back I think to Bob Crudup's area, just a question on the rollout of some desktop projects. I believe there was a big rollout scheduled for the fall and if you talked about it, I missed it. Am I might correct in my thinking and could you give us and update?

I think the only thing I talked about rolling out in my comments was we intend to roll the desktop, or what we are calling the Wealth Advice Platform out later this year at Citizens Bank, which is a very important element to our community bank strategy. Was that what you were referring to?

I think so. Thank you.

I might point out that that platform is the same platform that we will deliver the Adviser Advice Platform.

Glenn Greene, Think Equity Partners.

A question for Al or Dennis. Probably three-quarters ago you sort of alluded to stepped up investment spending mode. I wanted to get a sense for where we are in that ramped up investment. Are we ate a steady state and how much longer do we have to go at this sort of higher level?

I will take that. This is Al. We were very close to hitting our steady state, and that will probably happen, I would say, in the first quarter. And then it will certainly run throughout this year, and then we expect it probably to start tapering off in 2005.

Thank you.

There are no other questions. Please continue.

The only thing we have left is to say good afternoon and thank you very much for joining us. Thanks a lot. Have a great day.

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