SEI Investments Co (SEIC) 2004 Q2 法說會逐字稿

Welcome to the SEI Investments second-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, Al West. Please go ahead.

Thank you, and welcome, everybody and good afternoon. All of our segment leaders except Ed Loughlin are on the call today, as well as Dennis McGonigle, SEI's CFO and Kathy Heilig, SEI's Controller.

Now I will start by recapping the second quarter of 2004 and then I will turn it over to each one of the business 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. Finally, Kathy Heilig will give us some important company-wide statistics.

And so let me start first with the second quarter. Second-quarter earnings grew 20 percent from a year ago on a revenue growth of 8 percent. Now due to our stock buyback program, our diluted earnings per share grew slightly faster than earnings. Diluted earnings per share of 39 cents represents growth of 22 percent over the 32 cents reported for the second quarter of 2003. Now second-quarter profits were aided by approximately $2.8 million in expenses due to a mutual fund services client we previously lost. Bob Crudup will fill the details in on that event. Revenue growth was a result of higher level of assets under management. The contributors to this growth were rising -- really new assets. Our non-cash asset balances grew by $3.9 billion during the quarter. Now this growth, as I mentioned, was due to new assets since the 60-40 portfolio was down by half of a percent during the second quarter. We repurchased during the quarter over 1.4 million shares of stock at an average price of slightly over $29. That translates to $42.6 million of stock purchased in the first quarter and $74.4 million of stock purchased year-to-date.

Now while I am pleased to report continued progress in our financial results, the real news is the progress we're making in building our new solutions for our markets. We feel we have the right strategies and we are confident that the results will follow in time. Our new strategies and our new key markets are showing strong signs of acceptance. Our sales backlogs and our sales pipelines continue to grow. In every segment, we have a lot of very promising things going on. In the bank market, our pipeline with AM Trust clients has gotten even stronger during the second quarter. Also our BSP, that's our business service processing offering, is generating strong interest with current clients in the national bank market. In addition, regional and larger community banks are showing interest in our BSP services as well. And finally, our RIA turnkey offering is receiving some interest in the community bank market.

Now in the adviser market, the transformation of our RIA network to a more select one featuring closer relationships with SEI is progressing well. So is our testing of the light-well (ph) process that RIA's first and banks later will use to provide a broader set of integrated services to high net worth end clients. Important enhancements to our hedge fund processing capabilities along with our new separate account management offering should keep the Money Managers segment one of the faster growing businesses. And a new broader retirement solution has been introduced in the corporate market and that's helped us garner some new business as well as strengthened existing client relationships. Finally, our global distribution strategy is working well with three distributors and the Enterprises business in the UK continues to grow. We are also poised to enter the private bank outsourcing business in the UK.

Beneath the new strategies and the many new solutions we're taking to our markets are a number of investments. The largest investment is being made in our desktop platform in GIPP, short for global investment processing platform. Now we covered these investments and their progress in our investor conference last month. We believe that these platforms and the other investments we are making will provide significant revenue opportunities as well as operational and developmental leverage. And as I have covered in the past, the investments we are making in transforming our business and its infrastructure will add to our capitalized software and to our quarterly expenses throughout 2004 and 2005. So when you net it all out, we will continue to work hard in the short run to grow revenues and profits. In the intermediate and longer-term, we are receiving positive confirmation from our markets and believe that we are on the right path to move rapidly to more rapidly grow future revenues and profits.

And that concludes my remarks and I'd like now to move to our segments, and we will report the segments in the normal order, Private Banking and Trust first, followed by Investment Advisors and then Enterprises, Money Managers and then Investments in New Business. First, I would like to now turn it over to Private Banking and Trust, and Bob Crudup will discuss results in this segment.

Thanks, Al, and good afternoon, everyone. Let's start with the financial review. While segment revenues this quarter nearly matched last quarter's at just over $74 million, they fell 7.5 percent compared to the second quarter of last year. The recognition of previous losses of fund processing clients represented about $2 million of this loss. A reduction in onetime investment processing fees represented most of the rest of the loss. Investment management revenues continue to reflect the revenue losses due to the closure of products last year.

On a positive note, we continue to improve investment processing recurring revenues, growing 6.9 percent over last year, demonstrating the core underlying strength in the investment processing business. Earnings compared to this year's first quarter improved to 29.6 million. But this improvement is attributed to a $2.8 million reduction in expenses associated with the departure of SunTrust Fund Processing business. The explanation is simple. In this case, the expense reductions preceded the loss of the revenue. Absent that, earnings would have been substantially flat. Earnings were down 11 percent from the second quarter a year ago. This was due to three things -- first, the corresponding revenue loss; second, the continued investment in our new processing platforms; and lastly, to a substantial increase in marketing expenses associated with the rollout of our new strategies. This last point further demonstrates our continued commitment to these important new strategies.

Now a brief update on market activities. Clients and prospects continue to embrace our new strategies. Three of our largest national bank clients kicked off implementation projects for selective BSP solutions, a very strong indication of the soundness of our BSP strategy. Two of these customers chose to outsource their mutual fund back-office processing and the other outsourced their pension payment operations. You'll remember from the investor conference that the process of moving our current clients into our BSP business model was critical to the success of our strategy execution. The fact that these 3 very large banks chose to selectively outsource key back-office functions is a very positive trend. Regarding new clients in the national bank pipeline, it's making progress and remains quite strong. That completes my formal comments.

But I am going to anticipate a couple of questions I know that you have from communicating with you. First, I'd like to give you a brief update on the AM Trust clients. As you'll remember, there is a handful of clients that are on the AM Trust system. And our experience to date is that most of these clients are in the market, reviewing their options and I would expect over the next 12 to 18 months that several of these clients will make a decision to move to a new platform. The second question that I know that you have is a question regarding the status of the J. P. Morgan Chase, Bank One merger. In this case, I am reporting back to you that the status is the same as it was this time last quarter, which is that obviously Bank One is a current client and operates all their trust accounts on our system. J. P. Morgan uses our system for a substantial number of their clients and at this time, the decision is still pending. If you have any other questions, I'd be happy to address them.

(OPERATOR INSTRUCTIONS). Jeff Hobson, A.G. Edwards.

A few questions here. First in regard to the expenses, if you took out the million in the first quarter that was I guess transitionary expenses for, in preparation for clients coming on and then the 2.8 this quarter, you had about flat operating or development costs. How do you think that number is going to trend in terms of future spending on the new platforms? And then, can you comment on the Wachovia SouthTrust pending deal? And then third, I know you've had some regional community banks into SEI over the past few months to look at the newer products. Any response from them at this point?

Okay. Well regarding the expenses, Jeff, good afternoon, as we said and the Dow has said, we are going to stay the course on investing in these new platforms because they are very important to our future and are supporting our new business models.

With regards to Private Banking and Trust expenses going forward, I am going to say what I have said in the past, that over time, I am much more comfortable with margins in this business in the mid to upper 35 to 38 percent. We have been running a little bit better than that some quarters and then dropping back to that for a few quarters. But I don't think you are going to see margins change much from around those parameters. Regarding Wachovia and SunTrust, Wachovia runs -- I mean, SouthTrust, Wachovia runs a substantial portion of their institutional business on our platform. We would expect to have an opportunity to pick up some institutional business. But they run their personal trust business on a third-party platform.

And then finally, regarding our regional bank pipeline, that pipeline is extremely robust, in fact, as strong as it's been in a couple of years. And what we are seeing in the market right now is, some of our other market units are saying, the activity is strong and clients appear to be in decision-making modes. So we are expecting between now and the end of the year to see several decisions in the regional community bank market.

Okay, great. Thank you.

Glenn Greene, ThinkEquity Partners.

Just a clarification on the client loss that you alluded to, which you highlighted in the first quarter, could you just go back and give us a sense for what the revenue impact is going to be and when that will start to it?

The only client loss that I think I referred to in my comments was the SunTrust.

(multiple speakers). That's what I'm referring to.

And I gave you the numbers on that last quarter. I think what I said last quarter is that the profit loss is about $1 million quarter.

And if I recall, is the revenue about 3 to 4 million a quarter?

Yes, I did not talk about the revenue and I think I'd prefer not to talk about the revenue of a single client.

And will we have a full quarter impact beginning this quarter?

You're going to start to see an impact beginning this quarter.

And on the AM Trust opportunity, I know you gave a wide parameter of sort of 12 to 18 months for decision cycles. Are any sort of close -- or give us a sense for sort of the aging of the pipeline? We have been talking about obviously for about a year or so. But are we closed on any of them and would you expect some decisions before the end of this year?

I think there's a possibility that we could get decisions before the end of the year.

Carla Cooper, Robert W. Baird.

Could you talk about the amount of annual recurring new business signed in the quarter. If you covered it, I missed it.

Yes I did, Carla, $3 million -- 2.9 million.

2.9 million, okay.

I will turn the call back over to you.

Thank you very much. Our second segment is Investment Advisors and Carl Guarino will cover this segment. Carl?

For the Advisors segment, the second quarter was a strong improvement over the year-ago period but fairly flat compared to the first quarter of this year. I will comment first on the financial results for the second quarter and then briefly update you on business progress.

Revenues and profits for the second quarter were each up 16 percent from the year-ago period but virtually flat with the first quarter. This flatness was due to weakness in the U.S. equity markets as well as flat cash flow, as inflows in the quarter of 1.4 billion were almost fully offset by outflows. Redemptions spiked up a bit in April, a normal phenomenon for us given tax season and inflows were down somewhat from the pretty strong first quarter as the market weakened into the second. Operating margins continue to be strong, although down slightly from the first quarter as we continue to make significant technology platform investments.

Strategically, we continue to focus on helping our advisory partners transition to a like-wealth (ph) business. We made significant efforts in the quarter to roll out our new like gold-based investment strategies, what we call bull-link (ph), holding over 25 road shows for over 500 advisers. We feel that this new investment offering is receiving good market acceptance with almost 250 million in assets to date. But we do see that adoption takes some time and training since it requires changes in the adviser's client and financial planning processes.

We also continue to make progress in developing and registering our new wealth network, a franchise of the lead advisers providing SEI's total like-wealth offering. Pending completion of all needed registrations, we're producing our efforts on establishing this network in the fall of this year with a small number of carefully selected advisers. I would be happy now to take any questions you may have.

(OPERATOR INSTRUCTIONS). Jeff Hobson, A.G. Edwards.

A couple questions, any distinct difference in the net flows between the frozen -- well can you comment on I guess outflows from the frozen advisers and then talk about net flows from your top 20 percent I guess, if you could?

We call frozen advisers, Jeff, it's had a pretty steady outflow for us; they do have a redemption rate higher than our (indiscernible) typical advisers, certainly. But we have not seen any big uptick or change in that. I think the thing that we saw this quarter compared to the first was a slowdown, particularly on the gross sales side from strategic and select advisers. We saw a little bit of uptick in redemptions across the board with strategics in April; that is pretty typical for us as a seasonal matter, and then it went back down to sort of the levels we have seen for the past few quarters now. But as the market continues to be sort of weak and choppy throughout the quarter, gross sales declined some.

(OPERATOR INSTRUCTIONS). Carla Cooper, Robert W. Baird.

Just back to the question on the cash flows, is it your best guess that it's market activity that caused the change in the cash flow and not anything else?

Yes, I don't like to speculate on it. I think the key thing I would point to is the redemption side. We are not seeing any sort of negative or unexpected action on the redemption side. A little uptick in April which always happens and then otherwise it's been normal. We do have a couple things going on. We've got market being choppy, we've got a new product being introduced, which we are in the midst of, so doing a lot of training and education. But I don't want to speculate too much as to what are the underlying reasons behind cash flows.

And the timing of the expenses to ramp out the new product, is that an '04 event or does that carry onto '05 in terms of big dollars?

I think you'll see pretty steady continued investment from us. We have been at this now, I mean you've looked really over the past 9 to 12 months and I think that will continue on into '05, in terms of some of the technology investments. We have also been stepping up some of our marketing activities working with advisers. I expect that to be pretty steady.

There are no other questions in the queue. Please continue.

Thank you. Our third segment is the enterprise segment, and I am going to turn it over to Dennis McGonigle, who is standing in for Ed Loughlin, and Dennis will cover this segment.

Good afternoon, everyone. Ed Loughlin sends his apologies. He had a trip today that he just could not cancel. I will focus my remarks on the overall financial results for the Enterprises segment compared to the second quarter, 2003 and also discuss sales results for the quarter.

New client funding and positive capital market appreciation enabled revenues for the second quarter, '04 to increase 12 percent compared to the second quarter of '03. Profits for the second quarter increased 14 percent to $7.2 million, comparing favorably to the year-ago period. Margins for the quarter were 45 percent, up slightly from second quarter year ago. Finally, average balances increased $1 billion compared to second quarter, '03. Ending assets as of June 30th totaled $18 billion. Net new client funding during the quarter was $506 million. The backlog of committed but unfunded sales increased to 1.5 billion as of June 30th. However, I want to point out that during the first several weeks of July, we had completed the funding of $1.1 billion of this backlog.

During the quarter, strong new client sales totaled $1.2 billion. We continue to see large pension plans interested in outsourcing their overall management of the retirement plan. Three new client relationships averaging $160 million in assets and one plan with assets of $500 million selected SEI during the quarter. Several notable new relationships include UA Local No. 198, Plumbers and Pipe Fitters; Cleveland-Cliffs; Evangelical Lutheran Church; and National Service Industries. We continue to see sales decision momentum continuing to grow and build and we remain optimistic about the growth prospects for the Enterprises segment. If you have any questions about the Enterprises segment at this time, I will take them now.

(OPERATOR INSTRUCTIONS). Glenn Greene, ThinkEquity Partners.

Hey, Dennis. Just trying to reconcile the backlog of fundings. What I heard is it sounded like you had over a billion of new sales in the quarter and that your backlog currently is about a billion 5. It was my understanding your backlog was over a billion heading into the quarter. So I've got a little bit of a disconnect there.

During the quarter, our net funding for the quarter was $500 million, net funding. We had some client assets leave. So we added -- our net positive funding during the quarter was just over $500 million. And then leaving the quarter, we added a backlog of $1.5 billion.

Okay, I've got it.

Of which 1.1 billion we have already funded.

Got it.

(OPERATOR INSTRUCTIONS). There are no other questions. Please continue.

Our fourth segment today is Money Managers. And I'm going to turn it over to Wayne Withrow to discuss this segment. Wayne?

During the second quarter, we continue to make progress in growing our recurring revenues and in more closely watching our margin in order to translate revenue growth into profitability growth. For the quarter, revenues totaled $19 million, a 44 percent increase from the same quarter in 2003. Our quarterly profit of $4 million represented 72 percent increase from the second quarter of 2003. New sales events for the quarter totaled an estimated $3.5 million in annualized revenue. Hedge funds sales accounted for about one-half of this total with the balance representing sales of our mutual fund processing solution and our processing solution for separately managed accounts.

Looking forward, our pipeline remains strong. We're beginning to see some traction for our Separately Managed Account and we continue to make progress with new product development. I will now entertain any questions.

(OPERATOR INSTRUCTIONS). Jeff Hobson, A.G. Edwards.

Two questions, one in regard to the expenses, in particular, how are you controlling your expenses? And then on the separately managed account side, how would you describe kind of where you are in the process? Are you still in exploration? Are you having serious discussions with select clients? Where are we in the ramp up of that pipeline?

With respect to your expense question, we really have not changed the manner in which we are managing expenses. What I would say is as the revenue base has grown, you see the impact of sales expense and the impact of investment in the business have less of an impact on the business, which is allowing us to grow the margins.

With respect to SMA's, I would say nothing has changed from last quarter. And basically, outsourcing SMA processing to third-party providers is a new trend and I would say we are at the beginning of starting to see that happen. We are in serious discussions with many clients and decisions are starting to happen but we are still at the beginning of this trend.

Okay. And anyone new in beta testing for that or is that process over?

We are in full production mode. Full production at this point.

Very good, thank you.

Robert Lee, K.B.W.

A quick question for you. The topline -- you had about a 12 percent sequential increase, which was about double the increase in assets. Is there anything within the product mix that suggests that maybe the realization rate from assets is going to be higher or are there any one-time things in there?

We always had some small one-time items in there but nothing sort of out of the ordinary that we would not have sort of quarter-to-quarter. So I would say nothing unusual in the number. The revenue fluctuates, that's based upon if the fundings come earlier or later in the quarter. In this quarter, we happened to have some fundings heavily weighted more towards the earlier portion of the quarter rather than the later portion of the quarter, which tends to help margins and drive the revenue line.

One last question, you gave some color about new account wins, new business wins between mutual funds and hedge funds. Can you just give us maybe an update on, if we look at the segment overall, what the mix is between the hedge fund and the mutual funds admin businesses?

In terms of new business wins, this quarter, it was pretty evenly divided. My expectation going forward is that we will continue to see new business wins weighted more heavily in the hedge fund area. And hedge funds will continue to take a more dominant role in this segment. And closely following that, we expect to see some traction in the SMA space.

Okay, great. Thanks, a lot.

Glenn Greene, ThinkEquity Partners.

Just a quick question on the margins, you saw a nice pickup in the margins and you sort of alluded to some of the scale benefits. Is it reasonable to think that margins should continue to scale as revenue grows here? Or is investment spending going to sort of hold that back somewhat?

What I would say is I wouldn't look at margins on a quarter-to-quarter basis. I would look at margins sort of a trailing 6 to 12 month basis. And I would use that sort of projection in the future. Because of the timing of fundings and the timing of expenses, they can vary quarter to quarter.

There are no other questions in the queue. Please continue.

Okay. Our fifth and final segment is Investments in New Business and I am going to turn it over to Joe Ujobai to discuss the global portion of this segment.

Good afternoon. Today I will report on the Investments in New Business segment, but as usual, I will focus on our global business.

Revenue within this business segment continues to grow. Revenue of $16.9 million in the quarter has grown by 48 percent from the year-ago quarter and the bottom-line results have improved from a loss of 5.1 million in the year-ago quarter to 4.3 million in Q2. Average assets under management have increased by $800 million and at quarter-end, our committed but unfunded backlog is an additional $800 million.

In our global enterprise business, our initiative with corporations in the UK continues to grow. We now have more than 40 institutional clients with more than 2.6 billion in funded or committed assets under management. We're making good progress in the Netherlands and Germany and have secured our first institutional client in Hong Kong.

In our global private client business, our Canadian independent financial adviser channel continues to make progress. In June, 10 percent of all Canadian mutual fund inflows were to SEI funds. In addition, we have launched our global distribution relationship with Bank Wyumi (ph) and continue to expand our relationship with HSBC Private Bank. In the UK, we see strong interest in our new private banking outsource platform as we prepare for the 2005 launch of the SEI desktop and global investment processing platform.

In conclusion, we continue to grow the revenue in this segment and in order to do this, we continue to make additional investment in our infrastructure and our new markets. Are there any questions?

(OPERATOR INSTRUCTIONS). Carla Cooper, Robert W. Baird.

I think I heard Al say in his opening remarks that you expected to be in the global trust processing business in the UK soon. I did not know if there were any specific comments that you could make with respect to that statement.

Thanks, Carla. We have obviously been out marketing and talking to a number of private banks about the desktop and the GIPP products. And we have I think a very interesting pipeline and would hope to be able to sell some clients sometime next year when the solutions are ready.

And then also, could you give us an update -- you just mentioned broadly, I think, that HSBC and Bank Wyumi were ramping up. I guess any other size metrics you could give us there, growth metrics, that we could look to?

No, I think the only thing I would mention as I said before is that in both cases, the banks are quite pleased with the programs because most of the assets that they are collecting are new assets to the bank. And I think that's going to create additional momentum in these organizations.

(OPERATOR INSTRUCTIONS). There are no other questions from the phone lines. Please continue.

Thank you. That concludes the quarterly reports from our segments. And I'd now like to have Kathy Heilig give us a few company-wide statistics.

Good afternoon, everyone, I have some additional corporate information about this quarter. Second-quarter cash flow from operations was 34.7 million or 33 cents per share. Second-quarter free cash flow was 26 million or 25 cents per share. And year-to-date cash flow from operations is 77.5 million. Second-quarter capital expenditures were 3.3 million. Second-quarter capitalized software was 8 million. Second-quarter depreciation, 3.3 million and second-quarter amortization, 709,000. We would expect capital expenditures for equipment purchases for the rest of the year to be somewhere between 6 to 8 million. Accounts Payable at June 30th was 8.9 million.

We would also like to remind you that many of our responses are based upon assumptions that involve risks. Future revenues and income could differ from these expected results. We have no obligation to publicly update any forward-looking statements. And now we would be happy to take any other questions that you may have.

(OPERATOR INSTRUCTIONS). John Shafer (ph), Hahn Capital Management.

My question has to do with the equity line. There seems to be a fairly large increase in the contribution to equity earnings. I was wondering what was involved in that particular line item?

You mean any unconsolidated affiliate?

Yes, that's correct.

Okay. They had extremely -- a large increase in assets first to second quarter.

I mean are we referring to the LSV asset here?

Yes.

, Okay, and then as a follow-on to that question, I don't have a lot of history with SEI. How did that investment in LSV come about, and does SEI as a Company contemplate any other investments in money management firms?

I will answer that. This is Al West. LSV came about some time ago, and at the time, we were having a lot of trouble with our value segment, of finding managers in our value segment, particularly deep value. And there was a proposal made to us by these three professors and it hit a cord and there was nothing else in the market so we did fund their start. We don't anticipate doing any more of that. That has been very successful -- they have been very successful outside SEI, we may have also been successful inside of SEI with their performance and the deep value continues to be an important part of our overall asset allocation. And so it has been a real success for us, but we do not look to, this is kind of a one-time thing, that is not our business. But like I say, it has worked out very, very well.

And maybe one more question if you will allow it. Do you have any sort of long-term plans to either sell your portion of it back to the founders or otherwise monetize that asset? Or are you just sort of content -- I mean, obviously it's performing very well right now -- are you content to sort of hold onto that asset for the long-term?

We are content to hold onto the asset for the long-term, and it's really up to the founders. They probably will drive what happens more than we will with that business. And if they do monetize it, we will do that. But I don't believe they have any desire to go out and buy our portion back.

Okay, perfect. Thank you.

Let me just add one thing to that. Many of you on the call may remember that last year, we added to our position with that firm by about 3 percent. And at the time we added to that position, we provided an option to the remaining partners to be able to buy that back from us at some point in the future at their call. And so that's the only piece. You may see that piece get bought back by the partners, but the remaining 43 percent or so that we own is not caught up in that.

We did that, by the way, to help them buy out one of their partners that had been inactive for a number of years.

Matt Peerford (ph), Atlanta Capital Management.

Could you help me understand what is driving the reduction in the current liabilities line since the end of '03, as well as the end of the first quarter?

Yes, from the first to second quarter, especially, there were tax payments. We make a tax payment in April and in June so there really is not a tax payment made in the first quarter.

Okay.

So that was a big difference there. And generally I would say from the end of the year, of course the tax payments were a part of it and also, we had decreases in our turns debt, dividends payable and in accrued compensation. There also was a change in some of the ways that we are processing our transactions from our trust company to our funds. We used to have a little bit of a trading delay and if you noticed, the restricted cash used to be higher.

Yes.

That's down and so is the liability that was associated with that cash.

Pete Heckmann, Stifel.

Kathy, on the capitalized software of about 8 million, I think that compared to about 5 to 6 in the first quarter -- you gave an outlook for CapEx in the second half. Do you have an outlook for capitalized software in the second half, is that a decent run rate?

Yes, that would be a decent run rate.

Okay. And then I would assume that most of that is related to GIPP and the desktop. Does capitalization continue into '05? Or do we begin to see a bit of amortization?

I think capitalization will continue as the project continues. But some of these projects are modules or components. They will start to go into production and we will start to see increases in amortization.

Okay.

Probably at the end of this year.

End of this year, okay. And as regards the gain, last quarter, there was a little bit of gain on, I think it was on currencies, offset by losses on the equity hedges. Can you kind of break down how that gain looked like this quarter and whether you have added to or reduced your hedging?

The gain this quarter, lion's share of it, is realized gains that came out of some of our investments. And they already gained -- there was also a little bit of a gain on a hedge on a fixed income product.

Okay. Hedge, okay. Then lastly had a follow-up question for Bob Crudup. I missed what you said, Bob, as regards some existing ASP clients -- I didn't hear if you said they were considering BSP, if they're interested in BSP, if they had committed to convert to BSP. Could you just clarify that comment?

Sure. Pete, if you'll remember when we talked in June about our strategy that a core part of our strategy is to take our current ASP clients and offer selected BSP services to them. In other words, instead of transferring their entire back-office to us, we will go in and take a portion of the back-office over. By doing that, we can demonstrate capability without putting them in such a risk profile. This quarter, we were -- three large banks took us up on that offer to outsource a portion of their back-office to us. And I think that's a very positive trend for us --

Okay.

Very positive. I mean the fact that one quarter, three big banks make a big step like that, it's a good thing.

Yes, definitely. And then while I've got you on the line, just one last follow-up. Can you talk about Penn Trust and Citizens and any progress being made on taking over their asset management process?

Sure. You're talking about our RIA like offering in the bank market, right?

Yes.

Okay. We've made some progress there. At Pinnacle, we picked up -- we had sold some clients into the program in cooperation with the bank, so we are seeing some progress there. But what I would say is both of those programs are still into beta and we are continuing to build infrastructure and process and I would not expect to roll out the full-service offering until later this year.

Gary Prestopino, Barrington Research.

This is a question for Bob. Bob, I did not quite get you, you're doing processing for Bank One and what did you say you're doing for J.P. Morgan?

We have a portion of their private trust business running on our platform.

Okay. Thank you.

There are no other questions from the queue. Please continue.

Thank you. So ladies and gentlemen, we are excited about what we're building and look forward to delivering the potential that we see. I would like to leave you with three things -- first, in the short-term, we are continuing to invest in our businesses and are encouraged with what we see. Now while we are certainly a long way from hitting our stride, we do believe we are on the right path. Our market acceptance has been positive, pipelines and backlogs are strong and momentum is building. Secondly, as we look out a little longer, we are optimistic and confident. Our new strategies in solutions, our recurring revenue model, our strong cash flow and our operational leverage, as well as our portfolio of markets, will all serve to support our goal of creating long-term, sustainable growth in revenues and profits. And finally, we are in the solutions business. Our clients do business with us because we are solving fundamental problems for them and making their businesses and their lives better. This is a high-value added proposition. It differentiates us from competition and we believe it will serve us well in the future.

Thank you very much for attending today. I will give you one more shot at any questions that you might have and then we will say good afternoon. Since there are no questions, have a good afternoon and thank you for your attention and your time. We appreciate it.