SEI Investments Co (SEIC) 2004 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the SEI Investments fourth quarter earnings conference call. All this time, all the phone participants are in a listen-only mode, however, there will be an opportunity for questions. Instructions will be given at that time. If you need any assistance, please press star then zero. And as a reminder, this call is being recorded. I would now like to turn the conference over to the Chairman and Chief Executive Officer, Mr. Al West. Please go ahead.

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

I'll start by recapping the fourth quarter of 2004 and then cover 2004 as a whole. I'll then turn it over to each of the business segment leaders to comment on results of their segment, and as usual, we'll field questions at the end of each segment's report. And finally, Dennis McGonigle will make a few comments and Kathy Heilig will give us, report the companywide business. So let me start with the fourth quarter.

Fourth quarter earnings grew 13 percent from a year-ago on a revenue growth of 12 percent. Diluted earnings per share of $0.41represents growth of 14 percent over the $0.36 reported for the fourth quarter of 2003.

For the year, 2004 earnings were up 18 percent on revenue growth of 9 percent over the prior year, and EPS of $1.60 was up 21 percent over the $1.32 reported in 2003. Our revenue growth was the result of higher assets under management.

Our non-cash asset balances grew by $11.4 billion during the quarter. This growth was due to new assets and market appreciation of 60/40 portfolio was up 7.5 percent during the quarter, and about half of the growth was generated by LSV, an unconsolidated affiliate of SEI.

We repurchased close to 1 million shares during the quarter, at an average price of just over $38 per share. And for the year, we have repurchased over 4 million shares at an average price of just under $33 per share. These now translate to 38.2 million of stock repurchases in the fourth quarter and for the year $135.5 million worth of stock repurchases.

And we're proud of this year's results, although if you look at them in light of a longer journey one in which we started between three and four years ago. The goal of our journey is to entirely transform the Company, giving us exciting new solutions to provide to our markets and helping us deliver a new highly valuable client experience to each and every client, and we expect the results of this journey to be higher growth rates of revenues and profits.

We have completed the design phase of this transformation, and a couple of years ago entered the development phase. And the development phase involves a number of important investments, most of which we have started and have covered with you in past quarterly calls and investment day meetings.

In addition, as we reached the peak of our development phase, we have entered the implementation phase which involves building both infrastructure and implementation capabilities. Let me elaborate.

First, we're creating a global investment platform to be used by our clients throughout the world. Second, we're building the operational and service platform [inaudible] our infrastructure to handle clients on the new platform whether they be U.S. or international clients.

And third, we are providing [inaudible] disaster recovery and we are moving our of disaster recovery and business continuity capabilities in line with changing regulations and industry practices. The most important investment and the largest we're making is our global wealth platform, which is [desktop and] [inaudible] combined.

The platform will be used by everybody facing the ultimate client and that includes investment advisors, bank administrators, as well as SEI servicing personnel. In addition, the global wealth platform will account for all client investment portfolios and process all security movements.

Now, this platform is our future. All segments of our business will use it to conduct business. It underlies all of our client processes and will be the means of delivering an unprecedented client experience to all of our clients, as well as to the clients of our clients.

The platform will help us outdistance our competition and will give us economies of scale and productivity improvements we could not reach any other way. The global platform is critical to our entry into the large European private bank market and to moving the U.S. national bank market to the larger business of providing BSD services to regional and community banks.

Now the same platform will also be delivered to registered investment advisors to be used by them to change their practice from one of an investment provider or financial planner, to one we call a Life Wealth Advisor.

The status of this development effort is on track. We'll be able to demo the system at the spring investment conference and our goal is to prepare the platform to handle U.K., European, and U.S. private banks and advisors, as well as support our Life Wealth advice process.

We expect to be in a position in late 2005 to begin converting a U.K. or European bank. We would then move to be in a position to handle our U.S. line.

During 2004, we have capitalized approximately $37 million of quotable [inaudible]. During the fourth quarter we capitalized $13 million and we expect this level of development expenditures to continue through 2005 at or slightly higher [inaudible].

As a reminder, we capitalized a portion of our development expenses [inaudible] on these projects runs around 75 percent of the total [inaudible]. The remaining hitting our P&L and then spread amongst our segments, the largest of course being [inaudible].

Through the latter part of 2005, we'll get prepared to deliver to U.K. and European banks by building and operating [more] service capabilities in the U.K., and by locating a portion of our branches there. We'll not make that investments without a commitment of a U.K or European bank and these investments would not commence until about six to eight months prior to converting the bank.

Another investment that we're making is the enhancement of our disaster recovery and business continuity capabilities to meet new banking, SEC, NASD, and other regulatory guidance by 2007.

We mentioned this last quarter and at that time we thought that a bulk of the investments would fall in 2005. We have since determined that the investments will not start until late 2005.

Now, we are certain that the investments we are making will transform our Company, giving us even larger markets to grow within, and providing the same [inaudible] solutions to deliver to our market. And as you listen to the segment reports, the strong sales results of backlogs and pipelines are proof that these investments are beginning to pay off.

Also, rest assured we will continue to work hard in the short run to control costs and to grow revenues and profits. In the longer run we are absolutely firm in our belief that we are on the right path to more rapidly grow future revenues and [inaudible].

Thank you for your attention and I'd like now to move to the segments. And we'll report our segments in the typical order: Private Banking and Trust first, Investment Advisors second, followed by Enterprises, Money Managers, and finally Investments in New Business.

I'm going to now turn it over [inaudible] Private Banking and Trust to Bob Crudup to discuss results in this segment. Bob?

Thanks, Al. Good afternoon, everyone.

2004 was a significant year for Private Banking and Trust. We made progress with our new business strategy. More importantly we saw the market start accepting our new solutions.

This market acceptance was strongly confirmed in the fourth quarter. The confirmation came in two forms: important new clients and recontracting of significant large customers. But before I get to that, let's briefly review the quarter's financial results.

The fourth quarter confirmed a couple of comments I made last summer. Namely, [borrowing] significant new losses, our revenues had bottomed out, and that as we started to bring on large new clients, our expenses would grow faster than revenues. Both of these predictions were born out in the fourth quarter results.

Now, I want to remind you that throughout 2005, we will continue to absorb revenues, revenue losses related to the SunTrust fund services loss last year, Fleet investment processing loss due to the B of A acquisition.

Despite those previously announced losses, our revenue compared to the third quarter was up 4.4 percent, while profits declined 6.6 percent. It's a good sign that this revenue growth was attributed directly to our new strategy and to growth in the investment processing business.

This business continued to show underlying strength and growth of 8 percent versus last quarter, and growth of 3 percent versus the fourth quarter last year. As I had predicted, spending out ran revenues.

Increased expenses are primarily attributed to investment in the new platform, client conversion expenses, and increased sales commissions. These expenses more than offset the revenue gain, and as a result, margins dropped to 38 percent.

Shifting to market activity.

You will remember that we are creating two new business categories. For the large bank market the new category's Back Office Outsourcing or BSP.

This BSP business model offers the opportunity for us to dramatically increase revenues with both current and new clients. This year we've made significant progress building our BSP business by consistently selling this solution to larger and larger clients.

In the past year, new clients, such as Citizens Bank, First Hawaiian Bank, and First Tennessee Bank have confirmed market acceptance of this BSP solution. I believe this trend is significant and I'm pleased to say that new business this quarter represents the most sales success we've had in several years.

More importantly, acceptance of our BSP solution is at the forefront of our success. Let me frame up this quarter's BSP sales success.

We signed and began the installation of Harris, a well-known U.S. private bank. We also came to contract agreement and started the installation with the domestic operations of a large global bank.

Though we can't yet provide their name, they are a current client and will transition from our ASP solution to our BSP solution. These two banks, [inaudible] become our largest BSP customers. Again signaling the trend of this solution's movement into the large bank market.

We also signed five smaller banks that chose our BSP solution. These seven signings are a real vote of confidence in our BSP strategy.

On another note, our largest clients are expressing confidence in us as two of our largest ASP customers sign new contracts. Those are Mellon and Wells Fargo.

The JPM Chase project to merge the Bank One and Chase book of business running on SEI is targeted to complete in April, and our conversations to extend our relationship beyond the current agreement are going well. All in all, I'm extremely pleased that these large institutions are giving us this vote of confidence.

Further, during 2004, five of our largest clients selectively outsourced key back office operations to us. These include Mellon, Sun, Wachovia, and [M&T], further indicating keen interest in our outsourcing solution.

As an update on the AM Trust opportunity, Harris was an AM Trust client, leaving three AM Trust customers likely to make decisions in the next 12 months or so. The pipeline for our BSP business remains extremely robust, and I am particularly optimistic about our opportunity to continue to move into the large bank market and to be successful building this business.

The second new business category is the Life Wealth solution for the regional community bank market. We now have three beta clients testing the solution, and we're making good progress towards a full blown launch.

Many banks are expressing strong interest in this solution. You will remember that this business model is very similar to Carl's new business model.

We are excited about the market acceptance of our new solutions. There's no doubt we're getting traction with both BSP and Life Wealth. These new solutions are giving us a significant competitive advantage in the market and I expect to win more new business.

In closing, 2005 will be filled with opportunities and challenges, as we continue to absorb previously reported losses, with a great deal of effort installing new customers, and stand fast on investing in our new solutions and platform.

As I've said before, all of this will lead to expenses growing faster than revenues, and put pressure on this segment's profits throughout the year. On the other hand, our sales momentum is growing, and even with seven new deals this quarter, our pipeline has never been robust.

If you have questions, I'd be happy to answer.

And for those on the phone, if you would like to ask a question, please press star then one.

And we do have a question from the line of Jeff Hopson with A.G. Edwards. Please go ahead. Hi, Bob. Two questions. One, when would the full blown delivery of the Life Wealth be? That's the first question.

As I said in my comments that we've got three beta's in process and we've been looking to launch that sometime in the next 12 months or so.

Okay. And then on the global customer that's going from ASP to BSP, would you say that the conversion is consistent with that revenue ramp up that you've talked about going three to four or five times revenue from ASP over to BSP?

Yeah, I think, you know, I don't want to talk about the specifics inside a single client, because we will most likely be announcing this name a little bit later, but you can feel pretty consistent across our book of business as we convert our current client base from ASP to BSP that we'll look at that opportunity to have revenues increase by three times or slightly more.

Okay. And then looking out, it sounds like margins are going to be pressured for a time, but as long as new business is coming in quickly, does that mean, I mean, what type of time frame should we think about in terms of the margin stabilizing and then potentially improving?

Yeah, well, most of the, all of the smaller clients that we talked about, that we sold this quarter, will be up and running in the spring. As you know, SunTrust will also be up and running in April. The two large clients that we announced this quarter will be in the fall. So as we ramp those revenues up, and continue to bring new clients on, I think there's a tipping point somewhere along the way, where our recurring revenues will be growing fast enough to let us start to grow margins again. I'm not really prepared to say when that might be yet.

Okay. Very good. Thank you.

You're welcome.

We have a question from Carla Cooper with Robert W Baird. Please go ahead.

Hi and good afternoon. My question is about the comment, I believe, that Al made about the investment in the platform coming in late '05 rather than sort of throughout '05. How much does that affect your unit, Bob? It strikes me that that might be a better question at the end.

Carla, this is Al. My comment on the investments that we're starting in late 2005 was I guess there were probably two sets of them. One was the disaster recovery business continuity. In that one [inaudible] earlier. That's not the case.

The second is when we are prepared to bring on the European bank, if we were to sign a European bank, those investments, we would pick an installation date and then those investments would start six to eight months prior to that installation.

And the third investment which is [ready] throughout 2005 and has been running is the one on our global platform, and that's the [inaudible]. And that one's going to be continuous and will continue throughout 2005. Does that kind of clear up what you were talking about?

Yeah, I think so. And actually, Al, you're very hard to hear. So I think I got it, but I'm having trouble hearing a little bit. I guess my second question is, just, Bob, if you could, I think in the year-ago quarter you talked about 21 million in annualized signings that you booked in the fourth quarter a year-ago. Wondered if you have the number for this quarter?

If I look at the fourth quarter signings for this year, the amount under contract is about 10 million, and I would expect that the eventual revenues attributed to those clients could be 20 to 30 percent more than that by the time you put non-contractual fees on top of that.

Thank you.

We have a question from Brad Moore with Sandler O'Neill. Please go ahead.

Hi. I'm also having quite a bit of trouble hearing a good part of that so, I apologize if this is repeat. Bust first of all, Bob, can you tell me, was a there any, in the fourth quarter results, did any of that reflect anything having to do with timing differences between revenue and expense, and/or were there any one-timers in revenue in the quarter?

Brad, can you hear me okay?

Yeah, that's better.

Okay. No, there were not.

Okay. Can you talk about organic growth at the client level in terms of what you're seeing from your existing clients today in terms of them being able to grow their own businesses?

Yeah, I haven't taken a look at that in a while. But if you look at the, you know, the trust business in the U.S. market today, the growth rate there has been 3 to 6 percent or several years. I believe that the private client business and this life wealth business, where we're really moving into the investment processing business, and the wealth processing business, that we're going to see, we have the potential for much, for growth much more dramatic than that. And as we install these two new business categories, you know a lot of our motivation is to get into a business that has a higher sort intrinsic growth rate.

Okay. Can you also talk about how much of the growth in client assets was attributed to the market versus cash flows?

Yeah, I think Al said that 60/40 portfolio grew by 7.5 percent. Due to the market or in total?

Due to the market and the fourth quarter.

Okay. So the balance was all, was client cash flow?

Yes.

Okay. And sorry, could you just repeat the comment with regard to the timing of some of these development expenses in '05?

Yeah. Al, do you want to go through that again, the timing of the [inaudible] expenses in '05?

Okay, can everybody hear me now?

Yeah, that's a little bit better.

Okay. The timing of the development is our first development is the build of the platform itself, and that has been, we've been working on that for a couple of years now, and it is kind of hit its stride and it will continue through 2005 at about the rate a little bit higher, maybe than the rate that we had in the fourth quarter which was 13 million. And that will continue through 2005.

Then there's two other investments that are hitting later in 2005, one of them is [gated] or wouldn't take place without a new client in Europe. And that investment where we're building out infrastructure for service and/or [partial] operations doesn't, would start six to eight months before [inaudible] date with that client. When we [note], and when we have the client and we [note] the first date, then we'll figure out when we want to start that.

The third is our disaster recovery and business continuity investment and that one will start very late in 2005. And that's the one we thought was going to start earlier, but we have determined that it doesn't need to start earlier.

Okay. Thank you.

We have a question from Robert Lee with KBW. Please go ahead.

Thanks. Good afternoon, everyone. Bob, just two quick questions. Could you just refresh my memory on when does the B of A business expected to begin to run off? I believe the STI business, I guess, already did the last quarter or two, or started to.

And then I'm curious with the big clients that you have recontracted. Can you talk a little bit about what the pricing environment was like to retain them, were there price concessions needed or conversely, was pricing stable but you found you had to maybe provide some additional services? Could you just sort of maybe address that a little bit?

Yeah, the complete B of A book of business will go away in April. That revenue growth will go away in April. Your second question was about, ask me that again, Rob.

Just on the clients that you have recontracted in the quarter.

Okay. Yeah, I got it. Again, I don't want to talk about a specific client, but I can give you a backdrop on where we are with recontracting in general.

In the economic environment that we have been in for the, you know, sort of the previous three years, we would see some pressures around cost and recontracting. Nothing dramatic.

Now that we're moving into the economic cycle that we're moving into now, clients are more interested in new services as part of a recontract. So I feel that we're in pretty good shape with, you know, regards to maintaining and improving revenues as part of the recontracting process this year and, you know, as long as the economy stays as healthy as it seems to be.

Okay. Thank you.

You're welcome.

We have a question from Glenn Greene with ThinkEquity Partners. Please go ahead.

Thank you. Hey, Bob, just, you know, there's a bunch of moving parts here in terms of your business. I'm just trying to get a sense for, you know, where you are in terms of recognizing the SunTrust loss and obviously we've got the Fleet loss that's going to impact you starting in April. And granted you had a nice contract signing quarter in the fourth quarter, how does this all shake out in terms of what you're thinking about in terms of revenue growth for '05?

Yeah, I'm going to stick with the comment that I made last summer when I said I felt like revenues had bottomed out and that, you know, we could see a few quarters where they sort of floated along that bottom. You know, this quarter was obviously a little bit of an uptick, which I think is a good sign.

The SunTrust loss kicked in, I think, July/August last year. So we'll, you know, continue to absorb that on a, versus this time last year quarter till late summer.

But is that out of your book of business today?

It's out of the book of business, if, you know, if you, well, we continue to recognize the loss through August, July/August. And it's obviously out of Q4.

Okay. So if we look at the baseline number for Q4, the 72 million revenue.

Yes.

Is that a reasonable run rate to grow from and it shouldn't decelerate from there?

Yeah, you know Al's not going to let me talk with you about where we think revenues are going to be in the future. You do a good job of trying every quarter, though Glenn, I'll give you credit.

All right. Thanks.

You're welcome.

There are no further questions. Please continue.

Sorry. Our second segment is Investment Advisors and Carl Guarino will cover this segment. Carl?

Thanks, Al and good afternoon, everyone. I will first review the fourth quarter financial results for the Advisors segment and then comment on 2004 as a whole and our direction for 2005.

Now, revenues and profits for the fourth quarter were up 18 percent and 10 percent respectively for the year-ago period as average assets under management for the quarter rose to 30.3 billion, compared with 27.2 billion in the year-ago quarter.

Year-over-year comparative results are impacted by the adoption of the accounting rule discussed with you last call, relating to fees paid to separate account managers and record keepers. This increased revenues and expenses by 2.5 million in the fourth quarter over the comparable period of last year.

Operating margins continue to be strong, with much of the apparent decrease from the prior year resulting from this same accounting rule adoption.

Our net cash flows in Q4 continue to be flat. Inflows in the quarter of about 1.24 billion were slightly exceeded by outflows of about 1.48 billion.

We experienced this flat trend through much of 2004, which obscures some good news about the segment that I will get to in a minute. On the whole, 2004 was a bit of a transition year for us as we focused on preparing our Advisor segment for the longer term market developments we foresee, a movement toward providing more holistic wealth advice to the next generation boomer wealth segment.

This transition has several elements. First, SEI sharpened its focus in 2004 on a smaller number of advisory relationships with an emphasis on developing stronger and more strategic ties.

We froze a number of smaller advisory relationships and more importantly, concentrated even more efforts on a select group of approximately 200 advisors. This approach yielded good results, as this select advisory group produced approximately $1.3 billion in positive net cash flow for 2004.

We expect to continue to sharpen our Advisor focus in 2005, and to design and implement a more comprehensive program to understand our advisor's goals and help them transition into the emerging life wealth advisor space.

Second, we took initial steps in 2004 to redesign our offering to end clients toward a broader wealth solution. Central to this strategy was the redesign of our investment strategies into a client goals-based approach, our [goaling] solution.

Through our initial efforts in 2004, we have brought in approximately 750 million in assets into our new strategies. We expect in 2005 to focus on increasing Advisor adoption rate, developing our goals-based approach into a complete end-to-end client system, and further broadening our end client offering.

One area of expansion is the addition through a bank partner of a credit offering for clients backed by their investment account at SEI. We have been engaged in a successful beta test of this offering with some of our advisors, and expect to launch this offering to our broader advisor base in 2005.

Third, with the longer term perspective in mind, we launched toward the end 2004 our new SEI wealth network, a franchise of elite advisors providing SEI's total life wealth offering. I indicated to you in our last call that our focus will be on signing and converting a small number of carefully selected early adopters through 2005.

We have now signed three advisors, all of whom have existing relationships with SEI to this new network, and expect to continue to add selected advisory firms in 2005 including both existing and new relationships.

Finally, we will place renewed emphasis in 2005 on signing new advisor relationships targeting advisors who we believe will become strong, strategic partners of SEI in the wealth advice market.

Thank you all and I'd be happy to answer any questions you may have.

And once again, if you do have a question, please press star one. And we have a question, a follow-up from Brad Moore. Please go ahead.

Hi, Carl. Can you talk about your margin outlook for the business, given what sounds to be several developmental projects?

Yeah, Brad, I mean, you know, margin's a function of a few things for us. Obviously key is the market itself, since revenues will drive off appreciation in the market and that's, you know, by definition high margin for us.

Secondly, our sales activity, and as I've indicated before, you know, in a funny way, if sales are flat, our sales comp remains under control, which in a sense artificially increases profit margins. I'd love to see sales increase even though the impact of that in the year might be to slightly reduce margins.

Finally, we have some of the investments that Al outlined to you, as well as our continued investments into our life wealth offerings, but those are the driving factors now, you know, how that all plays out in the year will be a function of what goes on in the market, what happens with our sales activity.

Okay, and are you looking for a relatively steady rate of investment in life wealth or do you expect any sort of a ramp at some point?

I don't expect enormous increase in that for 2005, except for the investments that, leaving aside the investments that Al outlined with respect to the technology platforms.

Okay. Thank you.

And we have a question from Carla Cooper. Please go ahead.

Hi, Carl, if you gave the average assets in the period, I missed it. Could you --

Hi, Carla. The average assets for the fourth quarter were 30.3 billion.

Okay.

And the comparable number year-over-year is 27.2.

Okay. Thanks. And then the other question I had was in what percentage of the business that you sell is LSV a, you know, part of the solution, that ultimately the client buys?

That's a very small percentage, Carla. Probably on average, depending on the model that the client chooses, less than 2 percent.

Okay. Thank you.

And there are no further questions. Please continue.

Thank you. Our third segment is the Enterprise segment and I'm going to turn it over to Ed Loughlin to discuss this segment.

Thanks, Al. Good afternoon, everyone. I'm going to focus my remarks on the financial results and sales activity for the segment for the calendar year 2004.

Positive capital markets and new client funding enabled revenues to grow 13 percent from the year-ago period and profits to grow 9 percent from the year-ago period. Margins for the period were 46 percent, similar to year-end 2003.

Asset balances increased $4.2 billion throughout the year, approaching 22 billion at year-end. Our backlog of committed but unfunded sales at year-end was $400 million.

Now, sales momentum continued to grow throughout the year. New sales increased $600 million compared to 2003 sales, and 32 new relationships totaling $3.2 billion were sold during the year.

Our new pension strategy linking corporate finance and pension finance has been well-received by the marketplace and has positioned SEI as an attractive solution to both larger asset pools and multinational corporations.

During 2004, we funded $4.1billion in new client assets, and two of the new clients funded were billion dollar plus pension plans. The size of the pipeline, and the average client size continues to increase.

As we enter 2005, we are encouraged by the continuing opportunity to attract new clients, the market acceptance of our outsource solution, and the overall momentum in the marketplace.

That concludes my comments. Thank you very much. And I'm happy to entertain any questions.

And we do have a question, a follow-up from Robert Lee. Please go ahead.

Thanks. Good afternoon. I'm just curious, I mean it was, I guess I would have expected given the success you've had all year of new business wins and the strength of the market in Q4 that you would have seen a little bit more sequential asset growth in the quarter. Was there anything in, it seemed relatively low. There one or two lost clients in the quarter that maybe left that subdued and if that's the case was it more sort of a one off, and, you don't really see that happening going forward?

No, it really didn't have anything to do with lost clients, it was really that the sales that we get are not really prorated throughout the year. If you were to look at the sales results that were kind of, the first quarter and the fourth quarter were the low points, it was the second and third last year that were over billion dollar sales quarters. There's no rhyme or reason year-to-year for that.

I would say that our experience so far this year is that we're going to have a, you know, an attractive first quarter. So it's fairly random as to when these decisions get made.

Okay. And just one follow-up question. I mean you have competition in this space, and, you know, I've heard about some other people looking at doing something, maybe not exactly the same, but a similar strategy. Are you seeing, you know the competitive environment change at all? Is that impacting a fee that you can charge, are you seeing anything along those lines?

I wouldn't say that we've seen the competitive environment change with fees, but I would say, though, that the way that our fee schedule does work, the larger asset pools, you know, they have more money so their fee, the absolute fee that they would pay would be lower than some of the midsize clients because they have more money on a declining fee schedule.

Mm-hmm.

So we get an absolute higher amount of revenue as you would expect, but the per client fee at that level on a basis point basis would be lower than the average midsize.

Okay. Thank you.

Mix would change.

Right. Thanks.

And we have a question from Jeff Hopson. Please go ahead.

Hi, Ed.

Hi, Jeff.

In terms of 2005, it seems like there's, for you, relative to some of the other areas, there's less change. It seems like you're executing on some changes that have already been put in place. Is that in fact, true? And then remind us how your area will be affected by the new platform.

Sure. I would say that a lot of the change that we wanted to get implemented was implemented last year and so far as new capabilities and kind of new marketing processes. So I think you're correct there.

The impact of the change on the platform will be one for our business where the platform won't be that visible to clients but it will be a productivity increase for us because we'll use that to really service the clients. So that will impact our particular group from that particular perspective.

I would say, though, to you, that we are part of the investment. I mean the fact that it's a profitable unit, you know, we would be allocated some of those investment expenses for those platforms. So they do get reflected in these numbers from an investment perspective.

Okay. Very good. Thank you.

Mm-hmm.

And we have a question from Brad Moore. Please go ahead.

Hi, Ed.

Hi, Brad.

I wonder if you could give us some of these sales metrics. You quoted a lot of metrics for '04, but wonder if you could give us some of the metrics in the fourth quarter? In particular, I'm looking for new sales activity from new clients.

Sure. Sales, just sales for the fourth quarter were $400 million. Fundings for the fourth quarter were 213 million.

Okay. And then how about your pipeline, how did that change from the end of Q3 to the end of Q4?

Well, the pipeline so far as new prospects continues to grow. The unfunded backlog, if that's the question, in third quarter, it was 218 million, in the fourth quarter it was 405 million.

Okay. All right. Thanks.

Mm-hmm.

And no further questions in queue. Please continue.

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

Thank you, Al.

The fourth quarter for the Money Managers segment reflected both positives and negatives. On the positive side we had strong sales, recorded record profits and continued positive momentum in the sale of our new [inaudible] solution with separately managed accounts.

The negative was that we experienced higher than normal client losses which in turn hurt revenue growth. Revenues totaled $20.4 million, a 32 percent increase in the same quarter in 2003.

Our quarterly profit of $4.2 million represents a 73 percent increase in 2003. Compared to the third quarter of 2004, which I'll remind you included a $600,000 contract buyout, revenues were essentially flat. While revenues from new business continued to be strong, lost client revenue partially offset this growth.

Now the only reason I'm mentioning client losses, which really are just part of doing business, is that the dollar amount of them in the fourth quarter was an anomaly compared to our loss history, and it will take us another quarter to absorb them. This will make revenue growth challenging in the first quarter of 2005.

For the year, revenues increased 39 percent and profits increased 61 percent. Revenue growth and improved scale fueled our profitability growth as we improved our net operating margin by 260 basis points.

Partially offsetting our gross margin improvement was increased investment in our hedge fund and separately managed account operating platforms. As always we will continue to invest in our platforms and in 2005, I expect to also increase the investment in our operations infrastructure with separately managed accounts in anticipation of a strong new business year.

What this means is that revenues from that product line will yield low margins, and when averaged with the margins from our mutual fund and hedge fund business, may, in the short-term, make further margin growth difficult. While this is a slight short-term negative, this is actually very good news for the segment as a new revenue engine kicks into gear.

New business sales events for the quarter totaled an estimated $5.6 million in annualized revenue. Included in this total were sales to mutual funds, hedge funds, and back office outsourcing clients. For the year, sales events totaled $14.3 million.

For 2004, the majority of new business continued to be in the hedge fund space. However, it was a lesser percent of the total as we also saw improvement in the sale of our mutual fund processing product and met positive success in the sale of our solution for separately managed accounts.

In 2005, I expect growth from all three of these solutions with especially strong growth in our solution for separately managed account. In this space, our integrated back office accounting engine, middle office workflow tools, and front end manager dashboard allows us to differentiate ourselves in this new and growing market.

We also expect to enhance this platform so we can extend its application into institutional and private client account thereby creating a complete outsourcing solution for Money Managers.

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

I will now take any questions you have.

Once again, if you'd like to ask a question, please press star one and we'll go to Jeff Hopson. Please go ahead.

Hi, Wayne. Can you give us any details on the reason for the client losses and then any more description of the pipeline for SMA, more people in the pipeline, people getting closer to a decision, size of clients, et cetera?

Okay. What I would say about the loss is, first of all, you look at the positive, we had probably one of our biggest recontracting years ever and we successfully recontracted the majority of those clients and I would say we did so holding firm on pricing, so that's really the good news.

But when you look at losses they occurred in both the mutual fund and the hedge fund space and really were due to, you know, spread out over a variety of reasons, which include things like fund closures, we had a couple of firms that were acquired, and we had a couple of clients that put the business out to competitive bid and we just simply did not emerge as the winner. I mean these occur all the time. It was an abnormally large amount.

Okay.

On the SMA side, what I would say is we did not close a transaction in the fourth quarter but the pipeline continues to fill and we actually moved some clients significantly through the pipeline, where they are now at the final stages of the sales process and the outlook's looking positive for them.

Great. Thank you.

And there are no further questions in queue.

Thank you, Wayne. Finally, in our fifth and final segment is Investments in New Business. I'm going to turn it over to Joe Ujobai to discuss this segment. Joe?

Good afternoon.

Today I will report on the Investments in New Business segment, with as usual, a focus on global business. This segment also includes investments associated with the buildout of our life wealth solutions and other new business efforts.

Revenue within the segment continues to grow. Revenue of $22.7 million in the quarter has grown by 21 percent from the previous quarter. For the year-to-year period, revenues have increased by 45 percent to approximately $75 million.

During the fourth quarter, the bottom line declined to a loss of 6.6 million and [inaudible] an annual loss of 20.3 million as we continue to invest in market expansion. The fourth quarter included a one-time expense of over $2 million related to the launch of our private banking BSP business in Europe.

Average assets under management have increased by 1.8 billion since the last quarter. At year-end our average assets under management were 15.8 billion with a committed, but unfunded backlog of an additional $900 million.

In our global enterprise business, assets under management now total 5.6 billion. During the quarter, we secured our 50th institutional client in the U.K., closed our second institutional client in Hong Kong, and began the globalization of our corporate pension strategy for the Canadian and U.K. markets.

We now have significant presence in most of the world's major institutional markets including Canada, the U.K., Northern Europe, and South Africa. We're making good progress in Asia, demonstrated by our recent wins in Hong Kong.

In our global advisory business, our assets under management now total 3.25 billion. During the quarter, we launched our separate accounts program in Canada and have started to build out our life wealth and goals-based investment solutions for global advisors.

Similar to the U.S. advisor market, we're moving our relationship model in two important ISA markets, Canada and the U.K. with a closer franchise-like relationship with life wealth and goals-based investments.

In the global private banking and distribution business, our assets under management increased to 4.6 billion. During the quarter, we continued to roll out our bank distribution partnerships and work towards securing an early adopter of our new global wealth platform in Europe.

With global distribution relationships such as HSBC Private Bank, complimented by local distribution partners primarily in Europe, we have significantly expanded our access to private clients worldwide, including Hong Kong, Singapore, the U.K., continental Europe, and major Latin American markets.

The development of the global wealth management platform will allow to us further scale the distribution business of our life wealth solutions and enter a significant new market, the private banking BSP business outside of the United States.

Thank you. Any questions?

And once again, if you have a question, that's star one. And we have a question from Carla Cooper. Please go ahead.

Hi. Can you talk about the new client that will trigger the buildout of the platform in Europe? Can you talk a little bit more about what you expect that client to look like, and then what kinds of spending would have to take place?

Carla, thanks for the question. As Al mentioned, we expect to have the conversion in place by the end of the year. But we really don't comment on prospective clients. As I mentioned in the past, we are actively in the market and we're encouraged by our progress and as soon as we have something to talk about, we'll let you know.

Okay. Well, I'll try once more. What, under what, I guess, would this be, this, the new, what would trigger a new investment would be a trust client. Is that right, as opposed to the current clients that you have now that are in the investment side with those products?

It would trigger probably a private banking client.

Okay.

And [inaudible] the cost associated with the buildout of the infrastructure and local operations will depend on the size of the client, the scope, the timing. And I think Al mentioned that we would need to begin investing six to eight months prior to a complete conversion.

Okay. Thanks.

And we have a question from Glenn Greene. Please go ahead.

Hey, Joe. I was wondering if you could talk about the expense ramp in the quarter and I know you referenced the sort of 2 million as what you reference as one-time items. I wonder if you could give some color around that and what sort of explains the rest of the sort of the 6 million sequential expense increase?

Sure, Glenn. As I mentioned earlier, there was more than $2 million spent primarily on a consulting project based on the European private banking BSP market entry. But really over the course of the year, we made several significant investments in the global business and I'll give you some highlights.

One being the expansion of our enterprise business into continental Europe and Hong Kong, and this included the addition of sales and marking expenses and offices, the buildout of a worldwide sales force and support infrastructure to support the growth of our global distribution business. And as I mentioned earlier, the sales support and market entry investments required to start to launch this private banking BSP business.

As we go forward, are you, you obviously are getting to a nice healthy sort of revenue ramp rate and it sounds like the prospects are really good. When do you think you start getting leverage to the bottom line?

Well as I mentioned, we've made a lot of investments in 2004, and we're anticipating, again, the launch into the private client space, and the costs associated with that buildout will depend on a number of things as I said, size, scope, when the first client comes on board, so it's really difficult at this point to identify when that will change.

All right. Thank you.

And we have a question from Robert Lee. Please go ahead.

Actually, they just asked my question. Thank you.

And there are no further questions in queue.

That concludes the quarterly reports from our segment. I'd like now to turn it over to Dennis to make a few remarks.

Thanks, Al. Before we move into statistics from Kathy, I wanted to remind everyone that the FASB did issue the long anticipated FASB Statement 123R. This revised this FASB [stated] 123, accounting for stock based compensation.

This rule becomes effective for reporting periods beginning after June 15, 2005. This means SEI will begin to include the costs associated with equity compensation in the third quarter of this year. I recommend that you all look to our prior 10-Q filings as well as our upcoming 10-K filing for the information you'll need to determine the impact this accounting change will have on SEI.

With that, I'll turn it over to Kathy for additional statistical information. Thanks.

Okay, thanks, Dennis. Good afternoon, everyone. I have some additional corporate information regarding this quarter.

Fourth quarter cash flow from operations was 67.1 million, or $0.64 per share. Fourth quarter free cash flow was 45.9 million, or $0.44 per share, and year-to-date cash flow from operations was 186.5 million.

Our fourth quarter capital expenditures were 5.6 million, fourth quarter depreciation, 3.3 million, and fourth quarter amortization 800,000. Now for 2005 we would expect capital expenditures to be approximately 15 million.

For 2005, the tax rate will most likely fluctuate quarter-to-quarter and will be somewhere between 36 and 37 percent. And the accounts payable balance at December 31st was 7.4 million.

We also would like to remind you that many of our comments are forward-looking statements and are based upon assumptions that involve risk and that the financial information presented in our release and on this call is unaudited. Future revenues and income could differ from expected results. We have no obligation to publicly update or correct any statements herein as a result of future developments. You should refer to our periodic SEC filings for a description of various risks and uncertainties that could effect our future financial results.

And now, feel free to ask any other questions that you may have.

We do have a question from Robert Lee. Please go ahead.

Thanks. I have a question on LSV. I mean, clearly that's been, at least the past year or so, you know, a key contributor to earnings growth for the company. I mean they've grown assets, you know, very rapidly. Are they starting to run into any type of capacity constraints in any of their products? I mean, what's your own thoughts about their pipelines that's so key to your earnings growth?

And I guess a third question would be, you know where are they at in terms of their interests in staying, and not selling to a, you know, a third party and if they were, you know, how would you view that?

Hi. This is Al. LSV has, for the last couple of years, has had a capacity constraint in the small cap area and a little bit in the mid cap, but they have been selling the large cap and they're global, and continue to increase their capacity with different products.

The second is, the second question was, what are their interest in selling and at this point they have no interest in selling.

Okay. Thank you.

And we have a question from Bob Latell with M.D. [inaudible]. Please go ahead.

Yes. Thank you. Dennis, in referring to FASB 123R, some companies have indicated that they would find a ways to reduce the impact from the historical level of stock option expensing. Does SEI have any intentions to do that?

You're asking are we looking to change our overall compensation structure which does include equity compensation as a component of that, and at this point in time we have not entertained such a change.

Okay. So historical record is pretty much what we will expect in the future as far as stock options?

As we sit here today, yes.

Thank you.

And we have a question from Chris Arendt with Select Equity Group. Please go ahead.

Yes. Maybe you mentioned this and I didn't hear it, but what was the capitalized software in the quarter the number of capitalized software in the quarter and what do you expect capitalized software would be for the year 2005?

Capitalized software in the quarter was $13 million, 13 to $14 million, and as Al had said about the, well, the expected charge of investments on our global wealth platform over the course of this year, we would expect that to increase slightly during the course of the year.

So that annualized rate of, I guess, it's 52 million would edge up in 2005?

I think that would be the direction we would suggest, yes.

Okay. And at what point, as you enter into 2006, do you essentially stop this capitalization and start seeing a lot more depreciation or amortization of that software?

I would say that you see that necessarily at the very, in 2006, in the beginning, but as the solution, the technology solution comes online in live production with client activity, that's when the amortization of those components [in our lives would begin], and it's almost similar to Al talking about the six to eight months prior to a client coming live that would give you an [open] window to project when amortization will begin as well.

Okay. But in terms of the investment, the capitalized investment, would that start to tail off in 2005 or does that continue through 2006?

I would expect it to begin to decline in 2006 although not go away because we have, [inaudible] kind of a continued investment in platform that we see over the next few years.

Okay. And last question is, the LSV revenue in the quarter, did that include a, or what portion of it was an incentive fee? It was based off of incentive fees.

None of it. Their revenue was all from asset-based.

100 percent asset-based fees?

Right. There were no performance fees in the fourth quarter.

Okay. All right. Thanks.

And we have a question from Glenn Greene. Please go ahead.

Just a question for Al. Just, you know, obviously we've sort of been in this investment mode for two or three years now and I guess the game plan is to sort of get, as you said in your prepared comments to get to accelerating revenue and profit growth. I was wondering if you could just sort of frame where we are, first through ninth inning in terms of the investment ramp and sort of when you're sort of thinking about sort of getting to that accelerated state of profitability and revenue growth? If there's any way to think about that.

I don't know as far as one through nine innings but I would say you'd probably put that in the midpoint of the investment mid 2005.

The mid point would be mid 2005?

Yes.

Thank you.

We have a question from Brad Moore. Please go ahead.

Yep. Just a follow-up to that question. What, given all these moving pieces, if you were to look globally at the margin for the entire business, how would you expect the margin to move throughout 2005?

I don't know if I can answer that question, you know, for the entire company. We do see 2005 as the last of the transition. We are certainly hopeful that we'll show the kind of new sales event progress in 2005 which will demonstrate that the margins will begin, start to come up again. So we're really firm in our belief that we will turn north and that we're on the right path.

Okay. So if I were to read between the lines it kind of feels like towards the end of '05 that you fell like that's--

Those are your lines.

Okay. And then, again, given all the moving pieces how would you expect your interest in share repurchases to evolve in '05?

Continued at the rate we have, which has been fairly heavy.

Thank you.

And we have a question from Chris Arendt. Please go ahead.

One follow-up question for Carl. Carl, I think redemptions in the quarter were 1.4 billion, do you have a sense of whether the pace of redemptions is picking up in investment advisory business or is it starting to slow? I know you were, you know, calling some advisors or at least not focusing on certain advisor segments. Do you expect the slowdown in the rate of redemption in that business?

Yeah, it's hard to do a prediction on the redemption side. It's obviously influenced by several factors one big one being the market itself as a whole and market conditions and you see some ebb and flow quarter-to-quarter, with respect to that.

So, you know, I just say going into the year, I mean we continue to still to be in somewhat of a transition mode in terms of refocusing efforts on advisors. That does mean I would expect to see some continuation of what I would call higher than normal redemption rates, but hard for me to predict when does that begin to ebb or what the impact of the market might be on that as we enter this year.

Thanks.

And there are no further questions in queue.

Okay. Thank you, everybody. We're executed what we're building and we do look forward to deliver on the potential that we see.

I'd like to leave you as usual with three things. First, as you have heard, market acceptance has been positive. Our sales results, our recent sales results, backlogs, and pipelines are strong. And these results encourage us that our investments are on the right path.

Secondly, as we look out ahead, we're optimistic and confident. Our new strategies and solutions that we're investing in, our recurrent revenue model, our strong cash flow, and our operational leverage, as well as our portfolio of markets, all serve to support our goal of creating long-term sustainable growth and revenues and profits.

And finally, underlying everything is the fact that we are in the business solutions business. Our clients do business with us because we're solving fundamental problems for them and making their businesses and their lives better. This is a very high value added proposition and it does differentiate us from our competition, and we do believe it will serve us well in the future.

And if there's not no lingering questions, we can close, but we will give you one more shot. Thank you very much for your attendance today, and good afternoon.

And ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and you may now disconnect.