SEI Investments Co (SEIC) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the SEI first quarter 2012 earnings 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)

I'd now like to turn the conversation over to Al West, Chairman and CEO. Please go ahead.

Thank you, and I welcome everybody. All of our segment leaders are here on the call with me, as well as Dennis McGonigle, SEI's CFO, and Kathy Heilig, SEI's Controller. Now I'm going to start by recapping the first quarter of 2012 and then I'll turn it over to Dennis to cover LSV and the Investment in New Business segment. Now after that, each business segment leader will comment on the results of their segment, and then finally, Kathy Heilig will give us some important company-wide statistics. As usual, we will field questions at the end of each report. So let me start with the first quarter 2012. First quarter earnings decreased by 13% from a year ago. Diluted earnings per share for the first quarter of $0.28 represents a 10% decrease from the $0.31 reported for the first quarter of 2011.

We also reported a 2% increase in revenue during the first quarter 2012, versus the first quarter 2011. Now first quarter revenues were up 5% over fourth quarter 2011 revenues. So our earnings for the first quarter of 2012 and 2011 were both affected by gains attributable to SIVs on our balance sheet. Now during the first quarter 2012, SIVs accounted for a gain of $2.9 million, while in first quarter 2011, SIVs netted to an increase to earnings of approximately $6.9 million. Also during the first quarter, we had one-time expenses of $1.8 million. Now in addition, during the first quarter 2012, our noncash asset balances under management increased by $16.3 billion. Of that, SEI's assets under management grew by $9.4 billion during the quarter, while LSV's assets under management grew by $6.9 billion.

Finally, during the first quarter 2012, we repurchased 1.8 million shares of SEI stock at an average price of just under -- or I'm sorry, just over $20 per share. That translates to over $37.7 million of stock repurchases during the quarter, and net new recurrent revenue sales continue to improve. We generated over $26 million of net new sales events, of which $23.5 million will be recurring revenues. All segments posted good sales quarters, and each of the segment heads will address their sales activity. We're continuing our investment in GWP and its operational infrastructure so critical to our future. Now during the first quarter, we capitalized approximately $9.3 million of the Global Wealth Platform development, and amortized approximately $7.6 million of previously capitalized developments.

While we're increasingly encouraged with our long-term opportunities with the rollout at GWP, we are also working hard to improve the profitability of our bank segment. Our GWP efforts remain concentrated on capturing UK GWP markets as well as launching GWP in the US. The next two GWP releases, along with the most recent release, will complete the baseline functionality for the US, significantly enhance the UK functionality, and then help to improve our operational efficiencies and scale, and I continue to be encouraged by the feedback I receive from our clients and prospects, and it's confirmed by our fourth and first quarter sales events across all our markets.

Our investments in infrastructure and new service offerings are helping us differentiate ourselves from our competitors, and we certainly expect to capitalize on this, even in these challenging markets. Now our new service offerings, coupled with our financial strength, position us well for the long term. Now this concludes my remarks, so I'll now ask Dennis McGonigle to give you an update on LSV and the Investment in New Business segment, and after that, I'll turn it over to the other business segments. Dennis?

Thanks, Al. Good afternoon, everyone. I will cover the first quarter results for the Investments in New Business segment, make a few brief comments on LSV asset management. During the first quarter of 2012, the Investments and New Business segment continued its focus on direct marketing and research activities, directed to the ultra high net worth investor and the further development of services. During the quarter, the Investments in New Business segment incurred a loss of $2.8 million, which compares to a $2.2 million loss during the fourth quarter of 2011. This increase in loss is due to the costs associated with the acquisition and operating run rate of NorthStar, which approximated $750,000.

As you will recall, we acquired the assets of NorthStar during the first quarter. We expect losses in this segment to continue in this range during 2012. Regarding LSV, we continue to own approximately 41% of LSV in the first quarter. LSV contributed approximately $27.3 million in income to SEI during the quarter. This compares to $23.4 million in the fourth quarter of 2011. The increase is due primarily to increased revenues at LSV from higher asset balances. Asset balances grew approximately $6.9 billion during the quarter, primarily from market appreciation. LSV's cash flow during the quarter were essentially flat. Also regarding LSV, under an equity compensation plan put in place a couple of years ago, a distribution was made from that plan in the second quarter of 2012 to certain key employees. That distribution will result in a reduction in our ownership percentage at LSV to approximately 40%. I will now take any questions you may have.

(Operator Instructions)

Jeff Hopson, Stifel Nicolaus & Company.

Thanks a lot. Dennis, in terms of new business, can you fill us in on, in terms of what NorthStar brings to you, and then how far away would you say we are from this business line generating higher revenues? When is it commercially viable, I guess?

Yes. I would say the acquisition of NorthStar, as you probably saw in the press release, was an asset purchase, and I'd say that not just in the structure of the transaction, but what we were really interested, it was the assets of the company, which is really their technology. We were interested in that for a couple of reasons. One, it was solid technology that we felt could further extend our capabilities and offering into the front office of our clients in the Advisory business, the Wealth Management business, and the Bank GWP, Global Wealth Services Offering.

NorthStar gave us some components that we had not billed out in Global Wealth Platform, and will enhance that platform more richly in the front office, which, as we've worked in the market, over the past few years, there's keen interest on the part of the market in improving front office execution capabilities -- efficiency, compliance, and sales quality. So the technical functionality is what we were after, versus the business of NorthStar itself. Secondly, the NorthStar capabilities, although some of the capabilities we have actually already built in GWP, there was some overlap.

It further extends also the straight through processing nature of our offerings, direct from that client sales interaction all the way through to client implementation and transaction processing, and Joe and Wayne, who we expect those businesses for sure will benefit from that increased functional capability, once we sort through the integration issues with the Goldwell platform, could speak to it more directly. I wouldn't say that we are in the business -- we're didn't take NorthStar as a business and are now trying to grow the NorthStar business as it existed prior to acquisition. There are some other applications of NorthStar we are looking at, independent of the Global Wealth Platform, for example its potential integration with Trust 3000, as that exists, its potential integration with other third-party custody platforms that we may come across in our Global Wealth services or Trust 3000 client relationships, but that's, I'd say I'd put that in kind of the R&D category of things we're investigating further.

Okay. Thank you.

NorthStar really didn't have much of a P&L, if you will, when we bought them.

(Operator Instructions)

Robert Lee, KBW.

Just two questions. Well, the first one is just on LSV. Are all their strategies, or main strategies, still open at this point to new investors?

Yes. The simplest way is to say their larger cap strategies are open. Their smaller cap, or more niche global market type products, I'd say for the most part are closed. Some of those are still open as well, but their core products are still open.

All right, great, and second question I have is just kind of, and I don't know if this is something, Dennis, to ask you or to ask all of segment heads, but I guess I will start by asking you. I believe towards the end of last year heading into this year, as a firm, I think you had taken some initiatives to kind of look at the expense base, see how you were doing some things, see how you could maybe drive some efficiencies, and I'm sure that's ongoing, but can you maybe update us kind of more broadly? I mean, are you at a point where you can look and say, gee, we think we can take $5 million, $10 million, or something out of the expense base, kind of some of the initiatives we have, or any way of kind of providing some road map or guidelines on how you're thinking about some of the initiatives you're taking?

Well, I'm not sure my peers will want me to answer this question. (Laughter) Because my answer might be different than theirs.

You're breaking up. (Laughter)

But Rob, I really think it's best at the unit, in each unit, because each unit is at a different spot. So Joe certainly will talk about expenses, and then kind of the transition of expenses, and some of the things we've done, or working on operationally, but also on the sales and marketing client [implementation] side, the good news there is that we certainly expect to have more sales, grow our clients. That will need some costs to support. It takes the Investment Manager Services business, Steve Meyer's business, a growing business. It's not in a profit pressure, cost pressure mode. It's in a growth absorption mode, if anything. Institutional, while the leverage and scale in that business with revenue growth and similarly in Advisor business, asset growth can be very productive for us profit-wise, even though Wayne also will have some, certainly some expense management to work through as he rolls out the Global Wealth services and Global Wealth Platform to his advisory clients and begins to transition his business off of the existing infrastructure to the new infrastructure. So I'd really think it is unit by unit.

Well, I appreciate that, and I guess now, all of the guys know what questions are coming. (Laughter)

Yes. That's why I spoke so long, to give them time. (Laughter)

Thank you. At this time we have no further questions. Please continue.

Thank you. I'm now going to turn it over to Joe Ujobai to discuss our Private Banking segment.

Great. Thank you, Al. Today I'd like to give you an update on our activity and a review of the current financials for the Private Banking segment. I will focus primarily on a comparison to the fourth quarter of 2011. Revenue for the quarter was up compared to the previous quarter at $88 million. Expenses for the quarter increased by approximately $2.7 million. Expenses for the quarter include an additional one-time charge of approximately $1 million related to accrued asset management distribution fees in our Canadian business. I mentioned this during the last investor call. Expenses also included a one-time expense of approximately $700,000 associated with the restructuring of our GWP operations.

Restructuring of operations is part of an overall program to control GWP infrastructure costs as we improve quality and build for scale. We expect to have additional expense related restructuring in the second quarter. While we focus on GWP infrastructure cost control, we do expect to see higher sales, marketing, and implementation expenses based on our growing new business activity. Our goal is to control our overall GWP expenses as we move from the build to the growth phase of this business. Turning to new business. Sales events for the quarter were $9 million, approximately 70% of this is recurring revenue. In the UK, we continue to see three key positive dynamics converging at the same time.

Number one, consistent acceleration of new name sales. In the first quarter we signed three new GWS contracts. The first is an additional contract to process an offshore book of business for one of our larger PCIM clients signed last year. With this new client, we are expanding our solution to include offshore custody services. This is a traditional infrastructure client and the assets will convert later this year. The second new client, Broadstone Wealth Management, represents another important new signing for GWS. Broadstone has both discretionary and advisory business that will convert to GWS this year. The discretionary book is currently serviced by a key competitor in the UK, and gives us greater credibility in the market with GWS positioning as a single infrastructure.

Our third new signing is a large private client investment manager. This new client has selected GWS to drive a conversion of a subset of their individual managed accounts into a new, scalable investment offering. This is a key value proposition of the Global Wealth Platform, so this new client is further proof of our solution design. Secondly, GWS assets under administration at the end of the first quarter were up $1.8 billion to just over $17 billion. Approximately $800 million was due to net cash flow on business transition clients and $1 billion due to market appreciation. We also have an unfunded but committed backlog of $2 billion from conversion or infrastructure clients sold over the past two quarters.

We expect to convert this backlog in 2012. As a reminder, business transition clients convert over a period of time, and infrastructure clients typically convert 9 to 18 months after signing. The third dimension is a continuous increase in the depth and quality of our UK pipeline. Regulation continues to be a positive catalyst for change in this market. Turning to the US, our US investment processing pipeline is the largest it has been in recent years, and is moving away from Trust 3000 toward TWS. On GWS agendas in the US, we have significantly increased activity with both existing SEI clients and new names. We believe that the value proposition that resonates well in the UK has direct relevance in the US to both bank and other wealth managers for SEI.

During the quarter, we recontracted eight clients for $4.7 million. We have worked hard to secure our current business, and about 72% of our Trust 3000 revenue is recontracted until 2015 or longer. Finally, as a review of our asset management distribution business, ending asset balances grew to $17.2 billion, largely due to market appreciation. In conclusion, the investments we have made over the past several years are beginning to deliver positive sales results. We remain focused on growing our existing clients, adding the right new clients, and successfully launching GWS in the US. Investments and new senior hires in 2010 and '11 are bearing dividends for SEI in the UK. We are working to drive the revenue as quickly as possible and controlling costs while building for scale. Any questions?

(Operator Instructions)

Chris Donat, Sandler O'Neil.

Just one quick one on the Canadian asset management expenses. We had it last quarter, you had $1 million this quarter. Is it done, or is it something that might come back in the second quarter?

No, it is done.

Okay, and then just trying to see if we can quantify any of the additional expenses in the second quarter that you alluded to. We're talking low single digit millions incrementally, I would assume?

In additional expenses or -- I'm not sure I understand the question.

Sorry. Like tied to restructuring?

Yes I would say it'd be similar to what we've experienced in the first quarter.

Okay. So it wouldn't necessarily be an increase, it would be like the first quarter?

Yes. I think we've, as part of the overall cost control, as we move from what I've called earlier a build phase to a growth phase, you look at, there's really four big areas of expense. One we've certainly spent a lot of money on, and that's development. Al and others have talked about that we're getting very close to having baseline done. I think going forward, development expenses will be more maintenance, and then discretionary based on either efficiency and/or entering new markets. So development is an area we can focus on over time, expense reduction. We talked about an operational restructure to raise the quality of our service, as well as to create scale. We've focused heavily on that over the last quarter or so. That's where most of these one-time expense have occurred. We were trying to drive the operations closer to the client.

So we're moving some of the operations that were based here in Oaks to London. I think we're in pretty good shape in what I called sort of the baseline infrastructure of operations in London as we execute against this restructuring. We still need to build out some of the US operations, though, as we enter the market. So there's room in those two places for us to make expense improvements. There's other areas where we're going to spend more money. So growth marketing and relationship management, and I think that's a good thing because it means we're selling more, we have more clients, and then implementations. I think we're finding we can scale implementations so the cost of an implementation, per implementation, is beginning to go down, but we're expect to do a lot more of them. So there is sort of a balance here, as we progress this business from build to grow. Our goal here is to oversee that, and manage that, so that ultimately we can control these expenses, and drive more of our revenue to the bottom line.

Glenn Greene, Oppenheimer.

Sounds like good progress. Just a couple of questions. First, on the three GWS signings in the UK, any way to sort of frame the asset levels, and if you're more comfortable doing it in aggregate, that's fine.

Yes, these three are all conversion or infrastructure clients. So we'll see these assets this year. All three of them have fairly substantial growth planned. So we'll, over time, I think see some growth from them. The $9 million of sales events, which I mentioned 70% or so was recurring, that's heavily tied to these three clients. So they're generally a little bit bigger than most of the clients we've signed in the past, and again, we would expect the assets to convert more quickly because they're business transition clients.

And the large PCIM that you alluded to, is that an entirely new client for you?

It is a brand new client for us. The third one I mentioned, and they're looking to move some of their managed accounts to a much more scalable infrastructure, and it's not all of their business, but it's an interesting portion of their growing business, and it's a big important win for us.

Are you able to name a name, or will you at some point, or not allowed to?

In the beginning, with our first handful of clients, we always forced -- we encouraged them to help us with our disclosures, and so we always announced their names, generally pretty close to the signings. As we've gotten more of these clients, some of them would rather have the names announced more on their schedule than our schedule. So I would expect we would announce that name, but as they start to roll out this service, to their advisors and clients, that name would come out.

Then moving to the US, you sound continually excited about the pipeline. Where are we in terms of new signings for GWS from the US, and it did you have any signings, first of all, in the quarter? It sounded like you didn't, but it sounds like you're encouraged by the pipeline.

Yes, I'm encouraged by the pipeline. I mean, there's a long sales cycle on these things, and we've been talking to our clients about this for a long time, but really towards the end of last year and early this year, we have ratcheted up our sales events and really moved all of our focus in the US sales force towards GWP. I wouldn't expect a name in the next quarter or two, but I think we're lining up for -- we're excited about the engagement we're having, and moving quickly from sales to what we would call discovery, to really try to determine the viability of each prospect.

Jeff Hopson, Stifel Nicolaus & Company.

Joe, so from a practical standpoint, when do you see some of these starting to hit revenues more significantly, I guess? Then in terms of the timing, so as we look forward to, say, next year, you're talking about development costs probably that will start moderating, and then you have marketing costs that probably will accelerate a little bit, and then, I guess, servicing costs that maybe will be flat or down. So anything additionally that you can give us in terms of timing of expenses, relative to revenues?

So timing of revenue. I'll [answer] that in two ways. I think we've got some good indications with our business transition clients. So as I mentioned earlier, we booked about $800 million of net cash flow from business transition clients in the first quarter. That's a substantial improvement over our run rate in previous quarters, and what we're finding is that some of the clients that came on in late 2010 or early 2011 are starting to drive some fairly significant assets. So what we're learning is that it may take 6, 9, 12-plus months for a business transition client to really rev up and get momentum around asset gatherings. So we have 13 or so clients -- we have 16 clients signed, we have 13 clients installed.

A lot of those first 13 clients are business transition, and so we would expect to see continued growth from business transition clients, given that many of them are up and running, and we have experience with them and they have experience with us, and we're seeing some positive momentum in that space. So that's good ongoing recurring increased revenue for us. We're able to continue to drive what I really call pipes. We've got 13 pipes now up and running, another three to convert, based on the sales we've had. The more pipes we have, the more that's going to grow, and again those pipes will get more efficient as we get some experience.

So I think we'll start to see, again, continued growth from these business transition clients, but as I mentioned earlier, a lot of the new clients are more traditional conversions. So we'll see some of these clients that we announced today, or ones we announced in the fourth quarter, most of those assets will convert this year. So we'll start to see, quarter by quarter, positive trend on the revenue. I don't see a breakout on the revenue this year, or probably early next year, but we're definitely seeing positive trend on the revenue based on assets under administration growth, and expenses, as I've said, it's a balance between moderating, using your word moderating, what we have been investing heavily in and scaling what we've built combined, balanced with additional sales and implementation expenses.

Some of the restructuring we did in the first quarter and we'll do in the second quarter, there are obviously one-time costs associated with that, and then we'll start to see some of those savings in those areas start to impact expenses in the third and fourth quarter. So we look at it sort of the four areas I mentioned earlier, development, operations, sales, and implementations. We're trying to balance that, and ultimately drive an impact, so that this revenue starts to hit the bottom line a bit.

Okay, and in terms of the pipeline, any comments, either quantitatively or qualitatively?

Well, in the UK, we're pretty much, as we sell them, we're filling the pipeline. The pipeline still looks around $50 million plus. I would say that the firms are larger and the firms are more business -- or sorry, more conversion than we've had in the past. They're still sort of in the small to mid-size. I don't anticipate us closing a jumbo in the next couple of quarters.

I know that in the past, you talked about a couple of potential jumbo -- well, you had started to have some conversations with some jumbos. Anything to say as far as how those are coming along?

I think those are long conversations. I hope over time they become shorter. I think they're positive conversations. The more clients we close, the more assets we gather, the more experience we get, there certainly is an increased level of confidence amongst larger firms with our solution. I think the more case studies and the more referencable we become, that certainly helps. I can tell you that most of these large firms aren't really making decisions, alternative decisions to us, they're just not making decisions, but again, as this thing continues to stabilize and grow, I also think as we bring this to the US market, there are a lot of very large opportunities in the US market, not only with current clients but with new prospects, and there's just, by sheer numbers, lots of opportunity that we're beginning to focus on.

Robert Lee, KBW.

Just had two questions for you. First one is, in talking about the kind of, well, the pipeline of transition-oriented clients, you mentioned that you're seeing some improvement acceleration. You'd mentioned the $800 million net cash inflows, but is there any way to kind of size the in-aggregate, the book of business, that's kind of you're waiting on, and any sense of your expectations over the time frame you expect to get that? Is it $5 billion of potential assets that could transition over the next two years? I mean what's your thoughts on that?

Yes. I would say that, as we said, we have about $17 billion of assets now on the platform. With the business transition clients, we still have a relatively small percentage of their assets. Now, obviously, that's improving as we see cash flows improve, but it's still a relatively small percentage of their assets, 20%, 30% of their assets. I think that's probably at the higher end. So I think, again, the more success we have in converting assets, this is really a momentum business. So the more success we have at converting assets, the faster this is going to grow. As I said earlier, we have now 16 -- we'll have 16 pipes into the platform because most, if not all, of our clients have fairly aggressive growth plans, whether it be organic or through acquisitions.

So we should start to, I think, see some, again, increased momentum over the coming quarters on those current clients, and then you add in these new clients. As I mentioned earlier, there's a $2 billion backlog that's committed to us contractually from our infrastructure clients, but we'd also expect those firms to grow too. So I think the answer is the momentum is heading in the right direction. We are seeing some very positive flows from some of our 13 or 16 clients, and we would expect to continue to focus on three things -- gathering more assets from current clients, selling more clients, and entering the US so we have even more pipes into the [thing].

Maybe a follow-up. One perception, or at least my perception, thinking back over the last couple of years is that one of the revenue challenges, I think maybe has been, even as you've kind of been rolling out in the UK and finding clients, the incremental revenue, there's been some offset just with price concessions and what-not on recontracting in the US, on Trust 3000 and other things. I mean, can you kind of maybe update us on where pricing is in the US? When you do recontract, and assuming that I'm reasonably on track, that you're kind of getting over that hump now where the business is growing fast enough, big enough, that you kind of can overcome some incremental pricing pressure on recontracting here?

We, as I mentioned earlier, we have about 72% of our Trust 3000 revenue contracted through 2015 or longer. I feel we're pretty good shape where we're out recontracting. That's, I think, certainly our competition, the one thing they have, or really probably the only thing they have is cut price to compete. So we're certainly see that with every recontract that we experience, but the further along we get with GWP and making that a reality to the US, I think the more we can work to protect our current pricing with our current clients. What's hurt us more than recontracting in the past has been losing some clients, mostly due to M&A activity.

So I'd answer that question, if it's sort of general business as usual recontracting, then the recontracting rates, despite some fairly significant price pressure, because of the market conditions, have generally improved, and again, I think that's largely due to the investment we've made in the future of this industry. What kills us the most is when we have an M&A transaction and we don't win that, largely due to who's made the acquisition. Typically in the last seven or eight years it's been about 50/50. We win 50% of the time and lose 50% of the time, but short of that large acquisition, I think we feel pretty good about our ability to recontract clients, and in fact now we're going back to these clients that are recontracting going forward, and talking about an ultimate move to GWP, which certainly strengthens our position in the market.

Tom McCrohan, Janney.

Question just on the sales events. So this quarter you mentioned $9 million. I think last quarter was $11 million. So you had about $20 million of sales events over the past couple of quarters. So can you remind of us how these revenues are going to be reflected in reported results, how it's going to phase into the model?

Yes. So again, some of those are one-time, so some of those come in over the next quarter or two, but if I look at the recurring revenue, as I've mentioned, a business transition client that comes in over time, so we think that's sort of three to five years, and the way we calculate that sales event is we give sort of an average annual revenue associated with the contract. So if it's a five-year contract, we give you the average annual revenue over the course of the five years, and we think that it generally picks up year two, and momentum in years three, four, and five. On an infrastructure client, it takes anywhere from 9 to 18 months to see that revenue matriculate, and so we'll start to see some of the revenue we've sold in the fourth and the first quarter start to come in towards the end of this year, into next year.

So given that, and assuming the market cooperates, market valuations, let's say [just] assume they remain at current levels, and given you've recontracted about 75% of your existing base business, shouldn't revenues trend higher from here on a sequential basis, given that you're layering in these new businesses, new business wins?

Yes, that's our goal, is to have revenues trend higher. We have other businesses with inside of banking, of this banking segment, asset management, that's heavily dependent on that business, 100% dependent on the market valuation. We have a cash management business that is taking a fair licking, given the rates of money market funds and our ability to take the same fee levels. So we have brokerage, which bounces around a little bit. So we have some more transactional businesses, but in our core recurring revenue business, with wealth processing, or investment processing, we expect to see that continue to trend in the right direction.

Great, and just to clarify the number of clients in the UK, I think last quarter you said it was 15. Obviously with these 3, you're at 18. How many are currently live? Well, just confirm it is 18 and how many are live right now on the platform?

It's actually 17 because we sort of counted 1 as 2, because as I mentioned, this quarter we signed a significant new book of business with a private client investment manager that would be their offshore book, which wasn't in the original contract. So it is 17 contracts with 16 signed, and we have 2 signed contracts in the US. So there's a total of 19 signed GWP deals, and of that, I think 12 books of business are converted, or are open for business, 12 or 13. I don't know the exact number anymore, because we're getting more of them.

All right, I just want to make sure. So 17, you have 17 GWP customers in the UK, plus a couple extra here in the US, is that what you said?

Yes.

We have no further questions at this time.

Thank you, Joe. Our next segment is Investment advisors, and Wayne Withrow has that segment. Wayne?

Thanks, Al. During the first quarter, we saw significant improvement in our net cash flow, which together with positive markets resulted in a marked improvement in our financial results. Assets under management were $32.6 billion at March 31, a 7% improvement from December 31. This increase was driven by $374 million in net positive cash flow, and an overall increase in market valuations. Gross cash receipts for the quarter were $1.6 billion. Our quarterly net cash flow was the best we have seen since 2007. Revenues for the quarter were $49.5 million, a $4.4 million increase from the fourth quarter. We also saw our margins improve quarter over quarter by 200 basis points, from 38.8%, to 40.8%.

On the new business front, we signed 120 new advisors during the quarter. As discussed last year, we are being more selective in the advisors we recruit. Our pipeline into advisors remains very strong. Our improvement in revenues, profits, and net cash flow are all exciting news, but even more exciting is that we remain on track for the US rollout of GWP. We have 85 small beta clients on the system, and are scheduled to begin implementation of our early adopter clients at the end of the second quarter. If you recall, the beta clients are all small advisors, while the early adopters are among our largest, most complex clients. After the early adopter implementations, we expect to slowly ramp up the US rollout of GWP in the last half of 2012, with a more aggressive rollout beginning in 2013. In summary, net cash flow, profits, and new advisor recruiting were strong during the first quarter, and the imminent US rollout of GWP bodes well for the segment. I welcome any questions you may have.

(Operator Instructions)

Jeff Hopson, Stifel Nicolaus & Company.

Wayne, so the revenue rate, the fee rate, I guess, looked like it blipped up a little bit, and I did notice that liquidity assets were down. So is that part of the equation, I guess, from here in terms of the revenue?

That is part of the equation. We had positive markets, $374 million in net positive cash flow, and then that's amplified in the revenue recognition because we did see a shift from liquidity balances into more long term products.

Okay, and then the cash flow number, I didn't know if that was gross or net. Was that $1.6 billion of gross or net?

$1.6 billion was gross, $3.74 million is net.

Tom McCrohan, Janney.

Any learnings or takeaways from the 85 small beta clients that are running on GWP? What have you learned from that whole experience, and what tweaks, if any, are you making to the platform?

I wouldn't say we're making any tweaks to the platform. That's not how I would characterize it. What I would say is we've discovered areas where we had to improve the work flow perhaps, so we could become more efficient, and we found other areas that maybe didn't work exactly how we wanted them to. I mean, it's exactly what you would expect in a beta. So we wanted to make sure that we had small clients on, so we could make the fixes, before we would bring on the more larger, more complex clients.

All right, and is there any major event coming up, or events coming up this year, where you're going to really showcase this new platform, that we should be paying attention to, or is it case-by-case, you're going out selectively and waiting for kind of the more aggressive rollout until next year?

We're at the early stages of beginning the marketing rollout of the platform.

Robert Lee, KBW.

Just had a quick question. Just if you could refresh our memory, as you rollout GWP in your channel, I mean, how should we think of that from a revenue perspective? I guess I'm kind of thinking that there's not really so much an initial revenue benefit so much as getting them on the platform, and then I guess hopefully capturing more business from those advisors, and helping them grow their business faster, but there isn't necessarily a distinct revenue capture, at least upfront. I mean am I thinking of that correctly?

Well, yes. The way I look at it is, it makes our current offering, sort of this turnkey platform, much more attractive because it's a better platform, and that will help us recruit advisors into that model, bit it also will enable us to move upstream more, for someone to wants more flexibilities than what the platform can do. So it will enable us to recruit larger advisors. Now, in connection with that, right now our revenues are primarily driven through the asset management fees. As we move towards these larger advisors, we may get a combination of platform-based fees and asset management fees, but to answer, we see the big revenue opportunity in new advisors, not -- while there's incremental revenue from our existing client base, the focus is on recruiting new.

We have no further questions at this time.

Thank you, Wayne. Our next segment is the Institutional Investors segment, and I'm going to turn it over to Ed Loughlin to discuss this segment. Ed?

Thanks, Al. Good afternoon, everyone. I'm going to start with the financials for the quarter and then discuss sales activity. Revenues of $53 million for the first quarter increased 7% compared to the fourth quarter, primarily due to new client fundings and market appreciation during the quarter. Quarterly profits of $25 million increased 9% versus the fourth quarter, with margins of 47%, increasing slightly compared to the prior quarter. Asset balances increased by $5 billion during the quarter, approaching $59 billion on March 31. Net new client assets funded during the quarter were $1.8 billion, and the backlog of committed but unfunded assets at quarter end was $1.2 billion.

First quarter sales from seven new clients in our global markets totaled $2.8 billion, representing a strong sales quarter for the segment. Continued sales growth supports the increasing institutional market demand for outsourced investment providers who take on significant accountability and also investment discretion on behalf of their clients. SEI's 20-year track record and resource model rooted in fiduciary management positions us well to continue to grow the global institutional business, and we're optimistic about the growth opportunities for this segment. Thank you very much. I'm happy to entertain any questions you might have.

(Operator Instructions)

Jeff Hopson, Stifel Nicolaus & Company.

Ed, in terms of the sales in the quarter, I guess typically from a seasonality standpoint, the first quarter is a big quarter to make changes. Is that true? Did that affect the number of signings, and anything else that is helping kind of release the logjam?

Typically we don't necessarily see the sales come in 25% each quarter. So I'd have to go look to see if the first quarter is typically the largest from the sales production, but let's assume that there's a certain amount of demand that is pushed early in the year. That did exist this year. I think that we have focused on trying to get larger investors. That's been a big part of our strategy. The difference between a good year and a great year is getting a couple larger ones, and so I think that's probably a major contributing factor.

Okay, and then the expense, I assume there was some sales expenses that hit in the quarter on the high side. Is that true?

Yes. If were you to look at the fourth quarter versus the first quarter, the biggest increase, okay, of the $1.4 million increase in expense, $900,000 of that was direct costs associated with those assets. In that direct cost would be the money managers' costs, if there is any kind of advisor that we're paying as a referral. So that is the biggest part of that.

Chris Donat, Sandler O'Neil.

Just for another on the $2.8 billion of new assets. Can you give us a sense on the sales cycles for those? When were the first discussions, and that sort of go backwards, and how that got us to $2.8 billion in the first quarter.

Yes. I would say that they're kind of all over the lot, but just generally, I would say to you that the sales process has changed somewhat because of the fact that I think clients or prospects are kind of engaging us the way they want to engage us. By what I mean there is probably 55% of our deals now come through an RFP process. So historically that really hasn't been the case. So there's a lot more work that the client is doing research-wise, or the prospect, before they kind of get us involved. The process is still pretty long, because there was one situation that we announced as a not-for-profit.

They sent the RFP to 55 prospective bidders. They narrowed it down to 12, then to 8, then to 4, and then we got it. So it's not only a longer time period on our side, but the fact that they're going through this type of a discovery process, there's a lot of work on their side, and so that prolongs the overall process. Generally, I would say -- I can't comment that the process is shorter. I just think that clients seem to be more committed to ending, the prospects ending the process. So we don't see as many delays at the end. It is more important for them to finalize the due diligence, make a decision, and then convert the assets. So that's the most encouraging thing.

Tom McCrohan, Janney.

Just a quick question. Did you say new client sales this quarter was $2.8 billion?

Yes, $2.8 billion.

So that seems like one of the highest levels in a while, right? I mean, looking at trends.

It's good. It's a strong quarter.

Okay. I'm looking at the trends, like Q4 is $1.8 billion, $754 in Q3, $1.1 billion 2Q, $1.4 billion in 1Q. So it looks like it's pretty solid relative to the last four quarters.

Yes. I mean we want to get back to the production level that we had prior to the financial crisis.

Can you remind me what that was?

That was $7 billion

Thank you. At this time we have no further questions. Please continue.

Thank you, Ed. Our final segment today is Investment Management, and I'm going to turn it over to Steve Meyer to discuss the segment.

Thanks, Al. Good afternoon, everyone. As usual, I'll give a brief recap of the financial results for the quarter and then give an update on the market. For the first quarter of 2012, revenues for the segment totaled $46.2 million, which was $1.7 million, or 3.9% higher than the fourth quarter of 2011. This quarter-over-quarter increase in revenue was primarily due to an increase in asset balances, as well as one-time revenue events received in the first quarter. Our quarterly profit for the segment of $15.8 million was approximately $600,000, or 3.7% higher than our profit for the fourth quarter of 2011. This quarter-over-quarter increase in profit was largely due to an increase in our revenue for the quarter, offset by an increase in certain expenses, such as sales compensation and workforce expenses.

Third-party asset balances at the end of the first quarter of 2012 were $228.3 billion, approximately $7.1 billion, or 3.2% higher, as compared to our asset balances at the end of the fourth quarter of 2011. The increase in assets was primarily due to net positive cash flows of $1.7 billion and market appreciation of $5.4 billion. During the first quarter of 2012, we had net new business sales events totaling $8.3 million in annualized revenue. This represents a strong quarter in new revenue events. Equally of importance, these new events were diversified among all of our solutions and represented both US and non-US growth opportunities.

In turning to the market, I am pleased to report that activity has increased in the first quarter, but in an undertone of engaged activity. Specifically, firms seem to be executing and making decisions. While the economy and broader stock market still has an effect on clients' decision-making, we are cautiously optimistic that we are seeing the beginning of a thawing cycle regarding investment decisions. In summary, we continue to execute on our strategy, focus on our key growth opportunities, and invest in our solutions. This, combined with a positive sentiment in the investor managers' market, should bode well for us. Thanks for your time, and I'll now turn it over for any questions you have.

(Operator Instructions)

Chris Donat, Sandler O'Neil.

Just want to make sure I heard that right. You had $8.3 million of annualized revenue? That's what you said?

Yes. $8.3 million.

And then just in terms of what's going on, maybe away from you but maybe impacting some customer decisions, any comments on the activity related to GlobeOp, and if that's impacting customer activity?

Well, I typically don't like to mention and give air time to any of my competitors, but I'd say is certainly when you have consolidation in the industry, I think it takes everyone to take a step back and kind of reconsider where they are, and certainly we look at that as a potential opportunity for us.

At this time we have no further questions. Please continue. We do have a question from the line of Glenn Greene from Oppenheimer, please go ahead.

Maybe just the mix of the new business between traditional managers and alternatives?

Traditional actually was a little bit higher this quarter, which was good to see. Traditional's about 60% of it, 60% versus 40%, and the global was about, just under about 15% or so of the new business.

How big was the one-time revenue item you called out?

One-time, of the $1.7 million was about $700,000 or a little bit more, and that related to a change in service with two of our clients.

(Operator Instructions)

Jeff Hopson, Stifel Nicolaus & Company.

So of the $8.3 million, did any of that hit in this quarter?

Of the $8.3 million, very little of that hit this quarter but we do expect it to hit this year.

Thank you. At this time, we have no further questions. Please continue.

Thank you, Steve. I would now like Kathy Heilig to give you a few company-wide statistics. Kathy?

Thanks, Al. Good afternoon, everyone. I have some additional corporate information about this quarter. The first quarter 2012 cash flow from operations is $39.2 million, or $0.22 per share. In the first quarter, free cash flow was $17.8 million, or $0.10 per share. First quarter capital expenditures, excluding capitalized software, were $12.1 million, but that included the $10 million for the NorthStar acquisition. The remaining capital expenditures for this year are projected to be about an additional $10 million. The tax rate was 37.2%, which compares with a tax rate of 34.7% last quarter, but that did reflect some tax planning strategies.

We would expect, assuming everything stays status quo with our business as well as with the R&D tax credit not being extended, that our rate will be around 37%. The accounts payable balance at the end of March was $2.2 million. We also would like to remind you that many of our comments are forward-looking statements and are based upon assumptions that involve risks, 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 affect our future financial results. Now please feel free to ask any other questions that you might have.

Glenn Greene, Oppenheimer.

Maybe for Dennis, two questions. First is help me reconcile either the $26 million or the $23 million in sales. I heard the $9 million from Joe and the $8 million from Steve. Is the difference largely Ed's business?

The difference is institutional, because you have the revenue off the asset sales of Ed, which is about $8 million, and also the revenues off the net positive cash flow from Wayne in the quarter.

Okay, and then I ask this every quarter, so I'll ask it again. The LSV revenue in the quarter?

$77.4 million.

(Operator Instructions)

We have no further questions. Please continue.

Thank you. So, ladies and gentlemen, as we look ahead to 2012, that although new net sales events have been promising, we expect short-term revenue and profit growth to remain difficult to achieve. Now we'll continue to concentrate on our efforts on maintaining highly satisfied clients, growing new business investments, and controlling cost. Now, I remain bullish about our longer term business opportunity and the positive impact we are making on the markets we serve. Our focus is on long-term growth and revenues and profits is unwavering. Now, before you go, our annual Investor Day will be held on the 30th of May this year with a dinner the night before on the 29. Please save the date. I give you one more chance to ask anybody a question. If you have no questions, thank you very much for joining us and have a great afternoon.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.