SEI Investments Co (SEIC) 2006 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to SEI's first quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (OPERATOR INSTRUCTIONS). As a reminder, this call is being recorded. And your hosting speaker, Chairman and CEO, Al West.

Thank you. Welcome everybody and thank you for your attendance today. All of our segment leaders are on the call with me as well as Dennis McGonigle, SEI's CFO and Kathy Heilig, SEI's Controller. I'll start by recapping the first quarter of 2006. And at the conclusion of the recap, Dennis McGonigle will briefly cover the reorganizations which became effective 1/1/06, including the consolidation of LSV in our operating results plus the initiation of expensing stock options.

After that, I will turn it over to each one of the business segment leaders to comment on the reports -- the results of their segments. Finally, Cathy Heilig will provide you with some important Company-wide statistics. Now, as usual, we will field question at the end of each report. So let me start with the first quarter.

First-quarter earnings grew 26% from a year ago on a revenue growth of 49%. The consolidation of LSV added 66 million of revenue. Without the effects of this consolidation, the revenues would have grown by 14%. Now, the diluted earnings per share of $0.54 represents growth of 29% over the $0.42 reported for the first quarter of 2005.

Now, revenue growth for the first quarter other than the increase in the reporting revenues, reported revenues from the LSV consolidation was the result of higher assets under management. Our non-cash asset balances grew by 11.6 billion during the quarter. This growth was due to a combination of new assets and market appreciation. Note that a 60/40 portfolio was up 4.2% during the quarter. In addition, about 55% of the asset growth was generated by LSV. Also please note that the reported results included stock option expense of 4.5 million.

Now, during the quarter, we repurchased close to 789,000 shares of stock at an average price of about $40.50 per share. That translates to $32 million of stock repurchases.

Now, while we're satisfied with the quarter's results, we look at them in light of a longer journey in transforming our company. The transformation I speak of is underway. Each of our segments has a new business model they're beginning to employ, and each segment is also executing a transition strategy which provides a path for clients and prospects to gradually move from the current solutions and business models to our news solutions and our new business models. The acceptance of our new solutions and transformation strategy continues to grow. You'll hear more about this in our segment reports.

Now, undergirding the transformation are three interrelated investments. First, we're building a Life and Wealth client process which is the basis for all our individual investor client processes. And second, we are investing in the Global Wealth Platform, which will be used to automate all of our client processes throughout the world. And finally, we will also be building the operational and service infrastructure necessary to handle clients on the new platform.

Now, the Global Wealth Platform is our future. All segments of our business will use it to conduct business. It enables us to serve our clients and new ways and it makes possible our entry into the large European and UK private bank market and facilitates (indiscernible) the U.S. national bank market from ASP to the larger business of providing BSP services. And finally, the platform will be used by our registered investment advisor clients to help them serve their clients in new and better ways.

Now, the status of the Global Wealth Platform development effort continues to be on track. During the fourth quarter of this year, we capitalized $19.4 million and we expect that the quarterly capitalization to be about this level through this year and then trend thereafter down, particularly as a percentage of revenue. Our plan is to internally pilot the platform during the second quarter of this year, and a successful pilot will then put us in a position to begin installation of first UK and European clients, and later U.S. clients, including advisers.

Now, in the UK and Europe, we are busy working the prospect pipeline that has recently been growing. And by the end of this year, we plan to complete the implementation of the new platform with a current international client. Thereafter, we will convert our first new international client hopefully in the first half of 2007. In the U.S., our plan is to launch marketing efforts later this year and to begin building a U.S. pipeline of prospects. Then we had to convert an existing U.S. bank client and our first U.S. adviser in 2007.

Now, to make all of this happen, we will be establishing operating and service capabilities and infrastructure here in the U.S. as well as in Europe over the next two years. We're certain these investments we're making will transform our company, giving us even larger markets to grow within and providing exciting new solutions to deliver to our markets. I rest assured we will continue to work hard in the short run to control costs and steadily grow revenues and profits, but in the longer run, we are firm in our belief that we're on the right path to more rapidly grow future revenues and profits.

Now, before I turn it over to Dennis and our segment heads, I want to remind you that SEI's investor day will be the 21st of June with a dinner that night before on the 20th. We will share our strategy and update you on the progress of the transformation of our businesses and the investments we're making. We'll also report on the results of our pilot of the Global Wealth Platform. Please save the dates and we welcome you.

Now, this concludes my remarks. I would like to turn it over to Dennis McGonigle to provide you more information concerning the organizational changes we're making, the consolidation of LSV and our reporting and expensing of stock options. Dennis will also give you a short segment report on LSV. Dennis?

Thanks Al. Good afternoon everyone. As you know, our reporting segments have been structured around our U.S.-based business while our non U.S. business initiatives have been reported through the investments and new business segment. As areas of our non U.S. business mature and our solutions prove themselves, we will consolidate these areas of non U.S. activity under a single globally run segment.

We have reached that point with our global institutional business. Starting in first quarter, we have consolidated all revenue and costs associated with our global institutional business under enterprise segment managed and reported on by Ed Loughlin. In addition to this change, we moved the franchise activity out of the investment advisers segment and into the investments and new business segment, consistent with the focus strategy Wayne Withrow discussed during the fourth quarter call.

Joe Ujobai will continue to report on the investments and new business segment, which includes our non U.S. private banking and asset management distribution business activities and our franchise in ultra high [network] business development activity.

Finally, we decided to consolidate all mutual fund administration business within the Money Manager segment. This enables us to deliver a consistent solution to all clients leveraging our domain expertise more effectively. With this change, we move the revenue and costs associated with this mutual fund business activity from the Private Banking & Trust segment to the Money Managers segment beginning in first quarter.

We have recently filed two Form 8-Ks covering the changes. One reflected how revenue and expense impacted each segment as a result of these changes. The others showed how assets under management were impacted by segment. I directed you to these two filings if you have not seen them. They were filed April 5th and April 21st respectively.

Finally, as it relates to financial reporting, in January, we filed a Form 8-K with the SEC disclosing a commitment we have made to provide an unsecured loan guarantee to certain partners of LSV Asset Management through an entity named LSV Employee Group. This transaction helped to facilitate the purchase and transfer of partnership units from two existing partners to other key employees.

Due to this transaction and other long-standing elements of our relationship, we concluded that we are required under Rule FIN 46 to begin to include LSV and the Employee Group in our financial statements as fully consolidated entities. We therefore have started reporting LSV as a new segment along with our existing five segments in the first quarter of 2006. Please note we continue to own approximately 43% of LSV.

You'll notice in our earnings release reported contribution to SEI from LSV to equal approximately $25 million in the first quarter of 2006. This compares to a contribution of 15.2 million in the first quarter of 2005 and 21 million in the fourth quarter of 2005. This increase in contribution was due to growth in assets from new clients as well as market appreciation, which drove both revenue and profit growth.

While this change did not impact bottom-line contribution from LSV, it did affect our gross revenues and cost of operations as well as our balance sheet. For instance, on our balance sheet, the impact of consolidation impacted our current assets in the areas of cash and receivables. Of our reported cash and short-term investments of approximately $173 million, 59 million is attributable to LSV at March 31st, 2006. Of our reported receivables of $199 million, approximately 67 million were LSV receivables at March 31st, 2006.

Liabilities were affected by the debt associated with our guarantee to the LSV Employee Group. This is reflected in both current liabilities, approximately 10 million, and long-term debt, approximately 73 million. Most other items of change are easily discerned.

On another topic, with a now effective FASB 123R, accounting for stock base compensation, SEI began to record option expense in the first quarter. Option expense for the first quarter totaled $4.5 million. We expect option expense to be approximately $17 to $18 million in 2006. We continually monitor this and will report any material changes in projections if necessary. Thank you for your attention and now I will take any questions you may have on SEI or the segment of LSV.

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

Thank you. Dennis, maybe you could talk about margins a little bit. Noticing that without the option expense, margins did improve. So as we consider that maybe the platform expenses are leveling off, but the service buildout is going to start, any thoughts on how the expense trend will be from here?

Well Jeff, as you know, we really don't like to comment on forward margins because there's a lot of moving parts that go into margins over time. Certainly we expect it as we make -- begin to transition from development, which we still have quite a bit to do, to implementation, our expense structure will change accordingly. At the same time, however, we expect to continue to be growing the business. So we're going to continue to manage it as well as we can.

Okay. And just the buildout of the service capabilities, relative to say the platform expenses, how meaningful of a cost and/or investment are we talking about over two years?

Over two years? Well, I guess the way I would say it, over the next two years, the shipping costs will probably be meaningful. But it may not, in terms of the delta of costs; I guess I really wouldn't talk too much about that. As Bob looks at his business, Wayne looks his business, Joe looks at his business, there's people on the books today that are doing work in these areas that we will move more and more towards the implementation and conversion activities related to [Quip], the new platform. So as I said, we'll try to -- our goal is to manage this as effectively as possible. We'll certainly have to add some resource and some talent, but we'll see how it plays out.

Okay. And in terms of Al's timeframe for some of these events, I think you said an existing international client going into test mode in the second half; other events thereafter. Would you say that anything has changed in the last quarter in regard to how you might have considered these events coming onstream?

In terms of amortization?

No, I mean the timing of when you would have I wanted the international client versus a new international client, things of that sort.

No, that's pretty consistent with what we've been working towards for awhile now.

Okay. So just I understand then, the pilot will be in the second half and theoretically, that -- the platform will go live with that existing client.

Yes, the pilot actually we're going to start this quarter.

That is an internal pilot.

That's an internal pilot.

Internal pilot. Okay.

That's really more heavy-duty testing.

Okay. Great.

Then the internal -- the client now we are talking about by the end of the year.

Bob Lee, KBW.

Thank you. Good afternoon. Just -- I guess I am just trying to get a little clarification on the implementation. The client you were thinking about implementing in Europe in the first part of '07, is that actually a signed client or is that just your view that of the pipeline you should have someone signed on the dotted line by then and converting?

It reflects our view of the pipeline.

Okay.

Wait a minute.

For next year.

For next year. For this year, it's an existing client.

Right. And they've already made the decision to go with it pending how your pilot turns out. Is that correct?

That is correct.

Okay. And the second thing was really just sort of -- Dennis, I guess a format question. In the past when you gave the segment reporting, you have broken out marketing and development costs and what not, and I guess when you redid the segments you just collapsed them into one. Is it possible at all in the future to put back -- should we expect that we may go back to the way it was, a little bit more line-item detail on the segments or not?

I guess we'll take a look at the. This is really a recommendation that came from our auditors [in] our presentation. They felt our presentation was kind of out of whack with the rest of the world. So we were the outliers in that. Now are in line.

Okay. Whatever world that is. Thanks.

Auditors run the place now.

Tom McCrohan, Janney Montgomery.

Just to clarify again on this implementation in pilot, is it fair to say you have a European bank scheduled to be piloted on your new systems this year. Incremental to that, you expect based on the pipeline you will have an additional new client next year? Is that what you're saying?

Yes. In the second quarter we will run an internal pilot. By the end of the year, we will have in existing client converted over to the platform and in the first half of next year we expect to have a new client.

Okay. And the existing client you're talking about, they're currently running on TRUST 3000 or --?

Yes.

Okay. And they're a European bank?

Yes.

Okay. And when you talked about the prospect pipeline growing, can you give us a little more color on the composition of the pipeline? Are these all UK based banks, all European banks? What --

I guess I would hold that until Joe and Bob present.

Okay. Lastly on the reconciliation, on the reclassification of all the operating segments, the profit margins for -- and maybe you want me to hold off on this, and investment advisers pro forma all the changes, kind of exited the year at like 37% -- I'm sorry, 57%, and they dropped like 53% this quarter. Was there something going on with this quarter or was there additional reclassifications that you did kind of final nits and nats that are not reflected in the 8-K?

I think Wayne will talk about his expense -- option expense certainly is part of that, because option expense is [to each] of the individual segments.

But there wasn't as much of kind of a variation from the 8-K on a profit margin side for all the segments. The only one that kind of jumps out is investment advisers. I am sure the stock option expense has the same impact for all the segments, so still curious why Investment Advisors kind of had that margin dip this quarter.

Option expense wasn't in that '05 schedule.

Okay. Well --

Certainly that will be part of it. And then Wayne I think will talk about what he's done since he moved into the segment around improving our prospects for business growth.

Bob Lee, KBW.

Thanks again. Just real quick, is it possible to get some sense of -- if you -- thinking about the existing client that will be converting from the old platform to the new, how should we think of that? In terms of say a revenue pickup or -- if I think of the -- what Bob has shown in the past moving, from ASP to BSP and you go from -- I don't remember the numbers -- $100 to $300 in the account, something like that. Is it a meaningful revenue pickup if someone is to convert to the new platform for you? Or is that something that sort of comes more down line the line if you sell more services?

Be more down the line because it's really -- the first conversion is -- they're already at BSP operating type client.

Okay great. Thank you.

(OPERATOR INSTRUCTIONS). We have no additional questions in queue.

Great. Thank you Dennis. We'll now hear from the business segment heads and we will start with Private Banking & Trust. I'm going to turn it over to Bob Crudup to discuss results for this segment. Bob?

Thanks Al. This quarter, we continued to show advancement in our efforts to transform our business by delivering a unique package of BSP services. I have frequently referred to this new solution as BSP Plus or Enhanced BSP. We're now formally calling this our Global Wealth Services solution.

First, I will review the financials for the quarter and then report on new sales and finish with a report on important progress with the new Global Wealth Services solution. Revenue of 69 million increased about 4% over fourth quarter with an increase of 1% versus last year. Profits were flat over the quarter and down about 7% versus last year. This reduction of profits in the fourth quarter is attributed to -- against the -- in the first quarter is attributed to substantially option costs and investment in technology and operations.

To update new business, we won an additional 6000 accounts at one of our largest customers. These accounts and previously run on an in-house system. We also successfully completed the National City conversion. As I mentioned, we continue to make progress with our new BSP solution. Previously, this progress has been marked by bringing on larger and larger new customers like Harris and HSBC. Today, I'm pleased to announce the signing of our first U.S. beta client to go onto the new platform.

An important part of our strategy has been to capture an early adopter to demonstrate the power of our new global platform. The platform we're building is the enabling technology for our new Global Wealth Services solution, and Centier Bank in Indiana will be our first customer. They are a current client and we will begin to the transition to the new platform this fall.

As Al said, we anticipate completion by the end of next year. I believe this is a watershed event in the development of our new global platform and the services it will enable us to deliver. As I said before, this new solution will change the dynamics of the U.S. private banking marketplace, giving SEI a substantial competitive advantage. This new solution will allow us to grow revenues by moving our clients to the new platform, but importantly, it will give us a competitive advantage to sell and win new customers. I would be happy to answer any questions you have.

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

Yes, a couple of questions. The 6000 new accounts, that sounds meaningful to me. Are you making public who that customer was? And just so we're not confused, the beta client -- how does that work relative to what Al spoke about regarding adding clients in 2007? The distinction -- beta versus adding clients or --?

Right. What Al said was that in 2007, we anticipated bringing the first U.S. client on. This would be that client. And the 6000 accounts is one of our larger clients, but I'm not liberty to disclose the name right now.

Okay.

The business will come over at the end of the third quarter.

Okay. Bob, if I could follow-up, any change in client behavior? Clearly at least for the asset management industry, things have picked up a little bit in the first quarter in terms of activity. Is that translating to your clients at all in terms of psychology, mentality, behavior?

We have not observed that yet, but you're right. As the asset management business improves, our clients' attitude about investing in their platforms tends to improve. We haven't seen that yet.

Okay, thank you.

Glenn Greene, Think Equity Partners.

Good afternoon, Bob. First question is on the assets under administration, looked like they increased 5 billion sequentially. Is that due to a completed conversion? Just some color on why the big ramp in the assets.

Yes, that's that piece of fun processing business we announced last quarter with one of our clients that we were doing fund accounting for common collected funds -- trust funds.

Okay.

As opposed to registered mutual funds.

Okay. And the Harris conversion, which I think you had a partial quarter benefit last quarter, was it a full quarter benefit this quarter?

It was a full quarter in the fourth and first quarter.

It was? Okay. And then Nat City converted -- I suspect it was towards the tail end of the quarter?

Yes, at the very end.

Okay. So you didn't get really much of a lift in terms of revenue or profitability from Nat City in the first quarter?

Other than we've been collecting those in implementation fees throughout the term of the project.

Okay. Thank you.

Bob Lee, KBW.

I'm just trying to -- [you sort out] -- make sure I understand the beta client you're talking about. I guess I am a little confused. I remember about a year or so ago when we were discussing about rolling out I guess the franchise version into the [Trustbank] -- the sort of going out after trying to get a -- some Trustbanks sort of outsourced their business to you guys. I seem to recall that you had talked about tying on a beta client maybe with some bank in Michigan. If I -- if that's correct, I'm just trying to understand how this may differ from that or are we talking about two different business platforms or -- somehow I'm a little confused between the two.

Yes, the client in Michigan was an early adopter of our enhanced BSP solution that included some asset management services. And that was the -- in that transaction, the plus in that transaction was some asset management services. This new client that we're talking about today, Centier Bank, will be coming live on the new Global Wealth Platform, which will enable us to deliver an extended set of services eventually they are mostly like front office driven type services and straight through processing services.

Okay. So this is entirely the new platform where the other thing was more additional services, but essentially the old platform?

On the old 3000 platform. That's correct.

Tom McCrohan, Janney Montgomery.

Thanks for taking the call. A question on how you characterize your business. In the past, you kind of talked about kind of being in stabilization mode. And you talked about quarterly revenues kind of bumping around 70 million. Now with the conversion of Harris National City and now with the beta test, are you still comfortable with that characterization of this segment being kind of in stabilization mode or do you see it more now on a growth trajectory?

Yes, I gave you some sort a forward-looking advice a year and a half ago because of the particular situation we were in, and I'm going to go back to my old policy of trying to talk about the rear view mirror when we talk about -- tell you what has happened instead of what's going to happen, which is really the way we've always done business here.

Okay.

Glenn Greene.

Thanks. Bob, following up on the Centier Bank situation, just -- and I don't want to get specific on Centier, but thinking from big picture perspective, as you convert one of your existing clients to the new global platform, how should we think about the economics of it? And again, I'm not thinking talking specifically about Centier, but generally.

I think generally what you would expect is it's staging us to start to begin to deliver a new set of services that will be very much front office oriented and asset management oriented. And that stages us to take a client and begin to sell new services to them because of the capabilities on the platform

Okay, so to the extent -- so it's kind of like a base case and then you sell new services on top of that?

That's the way we'll start with the first few clients.

(OPERATOR INSTRUCTIONS). We have no further questions in queue at this time.

Thank you Bob. Our second segment is Investment Advisors and Wayne Withrow will cover this segment.

Thanks Al. I will briefly review the first quarter financial results for the Advisors segment and comment on the progress we have made on some of our growth agendas. Revenues for the first quarter increased 14% from the year ago period. This increase was driven primarily by an increase in average assets under management for the quarter to 34.5 billion compared with 30.9 billion in the year ago period. An increase in the average basis points earned on assets also contributed to our growth.

Net cash flow for the quarter was essentially flat with gross sales of $1.7 billion in the quarter, almost completely offset by comparable redemptions. Profits for the quarter increased 7.2%, reflecting our revenue growth, offset in part by an increase in expenses primarily around reinvestment in the business and increase in sales compensation, and the impact of expensing options.

As I mentioned on our year-end call, as of December 31st, we separated our franchise advisory business from our core Advisor business. Our belief is that there are differences in the value propositions of these business models and separating them will allow us to focus intensely on the needs of each. We have received positive feedback on this renewed focus on the traditional advisory business, both in the press and at our annual client conference which we held in March. We are optimistic that this focus can result in improved operating results.

As an outgrowth of our focus on the traditional advisory business, we have established a new advisor sales team and have staffed it with six individuals focused solely on signing new advisors. We have also begun to hold new advisor days both in Oaks and in other cities throughout the United States. These daylong events allow us to both recruit and train new advisors.

In the first quarter, we also modified our previous strategy which was to focus primarily on large advisors. We realized that we needed to focus on a broader cross-section of advisors in order to fuel gross cash receipts. We also hope this broader focus will help reduce redemptions. As a result of this change, we will increase our field staff and this may result in some increased expense for the balance of the year.

As always, we continued to enhance our complete business platform, introducing enhancements such as increased automation through the implementation of electronic forms and improvements to our investor statements. Our goal is to make it easy for advisors to conduct business with us. And throughout 2006, we will continue to reinforce this position with investments in both operations and technology.

Now, the ultimate enhancement to our business platform will be the implementation of SEI's Global Wealth Platform in the advisor market. As Al mentioned, we're targeting the end of 2007 for the launch of that platform for a segment of our clients with a broader rollout to follow.

SEI's solutions for the advisor market continues to be an industry leader with over $35 billion in assets under management. As a result of this dominant position, our sharper focus and the strategy changes discussed above, we feel we are uniquely positioned to grow the core advisory business successfully. I will now entertain questions.

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

Did you mention what the cash flows were in the quarter? And too, curious how advisors are reacting given that there's a little bit of a reverting back or change of strategy. And is there any skepticism you are seeing from advisors, given the change in strategy?

The cash flow was $1.7 billion on a gross basis. The net cash flows were essentially flat. On your second question, what I would say is the -- overall, the marketplace is very receptive of our current positioning and focus on the core advisory market. There is always going to be one or two skeptics out there, but I think overwhelmingly the message is positive.

Bob Lee, KBW.

Quick question. The bump up in the fee realization rate in the -- I know you reclassified some things and maybe it's not relevant anymore, but my sense is that it has been sort of rising through a good chunk of last year as well. Wasn't -- is there anything specific driving that? Some different -- what kind of different product mix has been driving the increase in the fee realization rate?

It's -- restructuring somehow -- restructure a little bit, but it's primarily around a product mix shift. I would say going forward, that may continue, but I would not expect to see it as dramatic as it was Q1 to Q1 '05 to '06.

I guess I'm just curious what kind of product -- is it possible to be a little more specific? Is it more mutual fund wrap versus separate account or something else?

It's -- separate accounts are more than mutual funds. Hedge funds are more than mutual funds.

Okay.

And some of our newer investment products, which includes some of our latest thinking, so if you look at sort of a large cap growth strategy which includes portable alpha strategies, perhaps a little bit long short [strategy] in there, those products tend to carry slightly higher fees. There was also a -- in some of our funds, a one basis point increase in expense ratios that occurred -- that [we went through] last year.

Okay. And one quick follow. If I understand it correctly, I think some of your competitors in this space have moved to also rollout things like UMA accounts and things like that -- sort of more fee based brokerage type of accounts as opposed to just sort of a wrap platform -- a fund or a separate account platform. Is that a product that you're rolling out or you see a need to build to compete more effectively down the road?

Let me see if I have the question right. What I would say is if you look at the breadth of our product offering in this space, I think it's broader than the other competitors out there in terms of the product it offers and the needs it meets. If the question was do we intend to offer commission based products, the answer would be no.

I guess I was thinking more of these fee-based accounts where if the RIA -- if the independent broker or what have you is warehousing stocks or bonds that aren't part of (indiscernible) one of your -- using one of your funds or one of your separate accounts, but it's sort of a fee based accountant they can access. Is that something that -- maybe I misunderstand it, but is that something you feel the need to rollout as well?

We do -- that is more of what we would consider a custody offering, where they charge basically a cap level fee in exchange for custody of the assets. We do, for some of our very large clients, offer that as a service, but not as a revenue generating activity. And we would not anticipate moving towards a custody type model. We continue to concentrate on an asset-based model.

At this time have no further questions.

Thank you, Wayne. Our next segment is the Enterprise segment. I am going to turn it over to Ed Loughlin to discuss this segment.

Thanks Al. Good afternoon everyone. Today I'm going to report on the recently restructured Enterprise segment, which combines the institutional client revenue and expenses from the U.S., Canada, UK, Europe, Asia, and our South African operations. Combined, the global enterprise business enjoys relationships with 450 institutional investors around the world with assets approaching $38 billion.

On the financial side, strong new client funding and capital market appreciation over the past year has enabled revenues to grow 29% compared to the restated first quarter of 2005. Profits for the first quarter increased 49% to over $14 million, comparing favorably to the year ago period and a 12% increase over the fourth quarter. Restated margins for the quarter were 36%, an increase from the prior year first quarter. This is a result of the new client fundings during the prior year.

Worldwide institutional asset balances increased over $8 billion from the first quarter of 2005, ending the quarter approaching $38 billion. Assets funded during the first quarter of 2006 were $579 million and the backlog of committed but unfunded sales was 459 million at the end of the quarter.

During the first quarter, new client sales from the U.S., Canada, UK, Netherlands, and South Africa totaled $768 million. Combining the U.S. enterprise business and the non U.S. enterprise business enables SEI to enhance the overall client experience of many of our multinational clients and also provides for continued business leverage as we buildout our global solutions. We continue to be encouraged by the worldwide market acceptance of our retirement and not-for-profit solutions and believe the global enterprise business will continue to provide growth opportunities for SEI.

That concludes my remarks and I'm happy to entertain any questions.

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

Ed, the U.S. business I guess has had such good growth and apparently you're at such scale that the investment on international side, while it shows up in the absolute numbers, doesn't -- your margins are increasing. Can you talk a little bit about how much further investment on international side you need to make to get it to full-scale?

Well, I think strategy, Jeff, at this particular point in time is the markets that we selected to enter outside of the U.S. are good markets. They offer a lot of growth potential. I think that the investment is going to be somewhat on the product and the solution buildout to customize things for those markets. I would not anticipate it to be extensive because there's a lot of synergy in the problem that we're trying to help clients solve around the world with these pension plans. So we're pretty encouraged by the opportunity that we see and the synergy that we see around the world. And our focus is really going to the growing in the markets we are in.

Okay great. Thank you.

Bob Lee, KBW.

Thanks Ed. Just a quick question. Some of the big I guess asset servicing banks have started rolling out sort of a [pooled tension] product, which I understand it's more sort of a custody and admin product, but is that kind of capability that you have to develop or maybe have developed as you [stand] your business globally and look to the Netherlands and UK and whatnot?

Well, I guess if you're talking about custody and administrative services, our solution today combines that. So when clients hire us, we pretty much take on the responsibility and accountability to be their advisor, their consultant, the Money Manager through our [multi-manager] funds. And we can and in most of the times we do provide the back end administrative services where we service trustee and custodian from almost all the accounts in the U.S. and Canada. And outside of the U.S., we typically will at least provide custodial types of services. So that's always been kind of packaged into the bundled offering.

I guess what I was referring to was it is part of the custody and admin solution, but if I understand it correctly, it's where they could take multiple pensions in different jurisdictions whether it's the Netherlands or Nordic countries of the UK and literally pool it into one vehicle with sort of sub accounting for the local regulations.

Okay, so for the pooling concept that you see in Europe?

Yes.

We do have that capability with our offshore fund complex, so we're doing that outside of the U.S. We're not doing it right now in the U.S.

Tom McCrohan.

Is there anything fundamentally different in your business that you think [has] the best scale amongst all operating segments at SEI? And I'm wondering if that's because the investments in your platform or -- are less intensive at this point in time, because other segments had equally impressive growth in assets under management this quarter. But you certainly had the best benefit in operating margin. So just looks like you have just tremendous scale at this point. I'm just wondering if there's anything you can share with us conceptually on why that might be.

I guess if I shared it with you I'd have to share with my colleagues here as well. No, I think there's a fundamental difference. We are dealing with institutions. So typically when we get some type of assignment, there's a lot of zeros behind the dollars. We're dealing with one client and I think there's some economies of scale. Clearly, in an institutional business, first, many of our other businesses, there's -- we're dealing with an institution, but behind that there's a lot of individual High Net Worth types of accounts.

So as we look and we put these two businesses together, again, I think I mentioned this in Rob's question, there's a lot of synergy here. So as we put more assets and more revenue on a global type of a basis, we're going to get more financial leverage out of the business.

We have no further questions at this time.

Thank you Ed. And our next segment today is Money Managers and I am going to turn it over to Steve Meyer to discuss this segment. Steve?

Thank you Al. Good afternoon everyone. I will focus my comments today first on the Money Managers segment's financial results and then I will provide an update on our new business activity and our progress on our strategy. Regarding our financial results, for the first quarter, revenues totaled $27.3 million, a 13% increase from the same quarter in 2004. These revenues reflect the complete impact of the Schwab loss that was discussed in the fourth quarter.

Our quarterly profit of $4.8 million was essentially flat from the first quarter of 2005. As I mentioned on the fourth quarter call, we feel that margins have stabilized for this segment and we have an opportunity to improve margins. In fact, on an apples-to-apples basis, that is excluding stock option expense in 2006 results, we have made progress on margin improvement in the first quarter.

Asset balances at the end of the first quarter of 2006 were $151.7 billion or 4.3 billion higher than at December 31st. Approximately two-thirds of this increase is attributable to additional client funding and one-third is market appreciation. Market acceptance of our solutions remains strong, marked by new business sales events for the quarter of $4.1 million in annualized revenue. These events included new business from our hedge fund, mutual funds, and separately managed account solutions.

Additionally, I am pleased to announce we have signed our second total operational outsourcing client. While revenue from this solution will not be significant in 2006, this signing provides a strong second beta client for us to continue to progress towards our strategic vision.

As we have discussed previously, our strategy for this segment is focused on providing a complete operational platform across our Money Managers' entire business, encompassing all investment products they manage. While we are pleased with our financial results for the quarter and our continued new business activity, we are equally pleased with the progress we have made towards this strategy.

From a market perspective, the outsourcing needs of investment managers continue to rise and we feel our strategy provides a compelling solution for these market needs.

In summary, our business in this segment continues to grow. Our pipeline for our current solutions remains strong and we're focused on the continued buildout of our future strategy, centered on total operational outsourcing. I will now turn it over for any questions you may have.

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

Okay thanks. I'm going to ask the same question that I asked Bob in terms of a little bit better environment for the equity markets in quarter one, whether that has had any impact on clients getting off the fence in terms of making decisions.

I think we continued to keep our pipeline strong. I don't think we've seen really any major uptick in the pipeline or movement. But certainly, the pipeline still remains strong, so I would say we have a continued sense of strength in the market.

And we have no additional questions.

If there's no more questions, sorry I didn't hear you. Thanks Steve. Our final segment is Investments and New Businesses. I'm going to turn it over to Joe Ujobai to discuss this segment.

Thanks Al. Today I will update you on the Investments and New Businesses segment which now consists primarily of our banking, our private banking, and asset management distribution relationships outside of the U.S. and our wealth network activities worldwide including the franchise efforts in the U.S.

Revenue of almost $21 million grew by 40% from the restated year ago quarter and the operating loss narrowed to just under $4 million. We expect to continue to incur operating losses in this segment as we launch the Global Wealth Platform and enter new markets. During the quarter, average assets under management in this segment were over $12.5 billion versus 11.9 billion in the previous quarter and 10.8 billion in the year ago quarter, which included approximately $3 billion in assets from a lost client.

Specifically in our global private banking and other distribution businesses, assets under management now total almost 8.5 billion, up from 7.4 billion in the previous quarter. We continue to see growth in our investment programs through current distributors as we add additional partners in Europe. As Al mentioned, we will convert our first existing global client to the new platform later this year as we build a pipeline and begin converting new UK and European private banks in the first half of 2007. We see increasing interest in our Global Wealth Services solutions are actively engaged with prospects in the UK and in Europe.

In the wealth network, we continue to focus on our franchise approach to high network boomers through the early adopter advisors and a community bank, as well as the creation of our Ultra High Net Worth offering. As mentioned during the last call, our focus in 2006 will be on improving on our model with less emphasis on signing up additional network members in the near-term. At this point, I'm happy to entertain any questions.

(OPERATOR INSTRUCTIONS). Jeff Hopson.

Thank you. This might be hard to but that can you characterize kind of how the discussions with the European clients are going these days versus six months ago? Obviously, you're closer to being able to deliver the full platform, but can you give us any insight into how those discussions have changed?

We're -- Jeff, we're actively engaged with a handful of prospects with a focus on the UK, but also talking to other institutions on the continent in Europe. And as we mentioned, we're planning for a conversion during the first half of 2007, so we feel pretty positive about the pipeline at this point.

Okay great. Thanks.

Tom McCrohan.

Thanks for taking my call. The -- [your] segment I guess historically I thought of as being more of an international segment that would be franchise investment advisor business being moved (indiscernible) -- I'm assuming that's -- you're doing some domestic stuff as well now. I just want to clarify that. And as a follow on I think if I heard you correctly you said it was regarding the franchise kind of Life Wealth solution, seems like you're not anticipating or setting any type of targets to sign new advisers, but you expect to sign some additional advisers to that franchise platform. Or is that not t focus right now?

No, that isn't the focus right now. The focus right now is to take the sort of 10 incidents and work with them to continue to fine-tune that strategy. And I just report on this segment. I don't manage the Life and Wealth or the Wealth Network portion.

Okay. Thanks.

Glenn Greene, Think Equity.

Could you just sort of talk us through sort of your conversion capacity, meaning you got one that -- existing client intended to be converted later this year and then hopefully one in the first half of '07. How should we sort of think about your capacity and like the amount of magnitude you have to do conversions, number of clients?

We're not prepared to really talk about that now. We historically have had a lot of success and many of the banks in the U.S. have noted our strong ability to help convert banks on time and on budget. So we're taking everything we know from the last 35 years and are applying that and believe (technical difficulty) that will be -- with a new platform, with more modern technology, that we should be able to do these more efficiently going forward. But that's about really all we can talk about now.

We have -- we talked about today four different things that we're working on -- the internal pilot, the conversion of the first global internal -- or current global client, the conversion of a new global client, and the conversion of a U.S. client. But again, we will make sure that we continue to reinvent and improve the conversion process so that we can do a significant number of these over the next several years.

I guess what I'm getting at, and I guess from the sense from your answer, is that a limiting factor and are you trying to sort of manage I guess to a degree how these signings come on and the conversion timing? And maybe Al wants to step in if that's relevant. I don't know. But if you know where I am going with the question.

It's obviously important for us to convert these first four incidents very successfully, but I think longer term it is not going to be a limiting factor for us.

Okay. Thank you.

Tom McCrohan.

If you take your businesses -- everything that right now is housed in Investments and New Businesses and went to distribute that amongst the other four businesses within SEI, where would the majority of the revenues and earnings fall, under which segment?

Private banking. (technical difficulty)

Does that answer your question sir?

I think I missed that.

I'm sorry. It would be private banking.

Thank you.

And at this time we have no further questions in queue.

Okay. Thanks Joe. I would like now to turn it over to Kathy Heilig to give you a few companywide statistics. Kathy?

Thanks Al. Good afternoon everyone. I have some additional corporate information about this quarter. The following cash flow information excludes LSV cash flow. First quarter cash flow from operations was 46.6 million or $0.46 per share, and the first quarter free cash flow was 15.9 million or $0.16 per share. First quarter capital expenditures were 5.5 million, first quarter depreciation 4 million and first quarter amortization 1.4 million.

Now, the capital expenditures for the remainder of 2006, which would exclude capitalized software, are expected to be between 35 to 40 million which includes expenses for our facility expansion which for the remainder of the year should be around 20 million. The tax rate for the first quarter was 36.7% and we expect our tax rate to fluctuate over the quarters between 36 and 37%. And the Accounts Payable balance at March 31st was 6.5 million.

We would also like to remind you that many of our comments are forward-looking statements and are based upon assumptions that involve risk and that have -- and that the financial information presented in our release and on this call are 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 descriptions of various risks and uncertainties that could affect our future financial results.

I now will take any other questions that you may have.

(OPERATOR INSTRUCTIONS). Glenn Greene, Think Equity.

Just a quick question for Dennis related to LSV. If you can sort of help us understand the sequential ramp in the assets which were up 13%, how much was market and how much was inflows?

I think it's 6.4 billion in quarter to quarter growth, about 3.6 million was new assets. The rest was market appreciation.

Got it. Thanks.

Bob Lee, KBW.

Thanks. This is more of a request I guess than a question, but Dennis, would it at all be possible given how much Bob and others talk about -- as you move people up the food chain to -- from ASP to BSP Plus to I guess this new Global Services platform, that the revenue per account should scale up? Is it at all possible -- and I know I asked in the past, but to start reporting on a quarterly basis the number of accounts that you are processing so we can sort of track hopefully the progress over time?

We'll take a look at it. When we could do it possibly is at the investor conference. Bob has typically reported that at the investor's conference in June. Use that as another point of reporting, try and take it from there.

Okay. All right. Great. Thank you.

We have no further questions at this time.

Thank you, Kathy. Ladies and gentlemen, we're excited about what we're building and look forward to delivering the potential that we see here. And I would like to leave you with a few thoughts. First, our market acceptance of our new solutions continued to encourage us that we're on the right path. And our progression -- our transformation has been steady and while we have a lot yet to accomplish, we are executing on schedule. And third, the basics of the Company, our new solutions and strategies, our recurring revenue model, our strong cash flow and our operational leverage as well as the portfolio markets that we serve all serve to support our goal of creating long-term sustainable growth in revenues and profit.

And finally, we're in the business solutions business and our clients do business with us because we're solving fundamental problems from them and making their businesses and their lives better. And this is a high value added proposition. It differentiates us from our competition and we believe it serves us well in the future -- will serve us well in the future. And so that concludes today. I always give you one more chance to ask a question if something came to you.

(OPERATOR INSTRUCTIONS).

Thank you very much for your time, and have a great afternoon.

Ladies and gentlemen, that does conclude your conference. We thank you for your participation. You may now disconnect. Have a good day.