SEI Investments Co (SEIC) 2013 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the SEI second-quarter 2013 earnings conference call. During today's presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions).

At this time, I'd like to turn the conference over to Al West, Chairman and CEO. Please go ahead, sir.

Thank you, and good afternoon, everybody, and welcome. All of our segment leaders are on the call, as well as Dennis McGonigle, SEI's CFO; and Kathy Heilig, SEI's Controller. I'm going to start by recapping the second quarter of 2013, and then I'll turn it over to Dennis to cover LSV and the investment in new business segment. After that, each of the business segment leaders will comment on the results of their segments. Then, finally, Kathy Heilig will provide you with some important Company-wide statistics. And, as usual, we'll field questions at the end of each report.

So let me start with the second quarter of 2013. Second-quarter earnings increased by 68% from a year ago. Diluted earnings per share for the second quarter of $0.47 represents a 68% increase from the $0.28 reported for the second quarter of 2012. Our earnings during the second quarter were positively impacted by the cash settlement payment related to a SIV security.

And now, due to this payment, we booked a gain of approximately $0.16 per share. We also reported a 14% increase in revenue from second-quarter 2012 to second-quarter 2013. In addition, during the second quarter of 2013, SEI's assets under management decreased by $1.5 billion due to a market depreciation. And LSV's assets under management grew by just under $0.5 billion during the quarter.

Finally, during the first quarter of 2013, we repurchased 1.7 million shares of SEI stock at an average price of just over $29 per share. That translates to $50.5 million of stock repurchases during the quarter.

Now, turning to sales, our net new recurring revenue sales remain strong. We generated $21.7 million of net new sales events, of which $19.8 million will be recurring revenues.

Each of the segment heads will address their sales activity.

Now, as you know, we are continuing our investment in SWP and its operational infrastructure. During the second quarter, we capitalized approximately $16.1 million of the SEI Wealth Platform development, and amortized approximately $8.4 million of previously capitalized development. Now, Dennis will explain the higher-than-normal numbers.

Our development agenda for SWP is to further automate our operations and deliver US and UK functionality important to the larger advisors and banks in the US and UK markets.

Now, turning to our business segments. In the banking segment, we have shifted our focus to selling and converting larger banks in both the UK and US, other than a very few number of smaller banks which we are using to execute a step-in strategy to the US banking market. Now, thus far, we are very encouraged with the progression in our sales agendas and the revenue opportunities they represent, although limiting the number of targets to large banks has made our events choppy. The lack of sales events this past quarter is caused by that, and we feel that is -- will possibly be the same next quarter.

The investments we are making continue to challenge banking profitability. We will improve the profit outlook as we sign and install the larger prospects we're selling to. They are who we have built the system for; and we know we are on the way to building a very large, profitable -- growing, profitable business. We wish we could've done it earlier, but the task is large.

Now to ensure that profitability follows the revenues from large banks, we are closely managing the cost of acquiring and absorbing new business, building excellence and scale in our operations, and keeping pace with the challenges of a rapidly changing UK and US regulatory environment.

Fortunately, we have a portfolio of businesses, and three business units are growing their profits nicely.

In the advisor segment, we have made solid progress in improving our asset gathering, as well as in preparing for the rollout of SWP to the US market. Both are important to accelerate our growth and profits of this business.

In the institutional segment, the market adoption of our differentiated solutions is reflected in our strong sales and profits globally.

Finally, our investment management services segment had a strong start to the year while managing the good problem of having a lot of new business to absorb.

And behind all of this, I am encouraged by the feedback I received from clients and prospects across our Company-started markets. For instance, just recently I hosted a dinner with the early adopter clients of the advisor unit, and the feedback was particularly positive.

Plus, our sales activities and events in all units confirm the positive feelings in our client basis.

So, in conclusion, we believe our investments in infrastructure and new service offerings, coupled with our financial strength, positions us well for the long-term growth.

Now this concludes my remarks, so I will now ask Dennis to give you an update on LSV and the investment in new business segment. After that I'll turn it over to the other business segments. Dennis?

Thanks, Al. Good afternoon, everyone. I will cover the second-quarter results for the investments in new business segment; discuss the results of LSV asset management; and address a couple of corporate items. During the second quarter of 2013, the investments in new business segment continued its focus on the ultra-high-net-worth investor; the integration of our capabilities acquired in the NorthStar acquisition; and the further development of new web-based investment services and the use of mobile technologies.

During the quarter, the investments in new business segment incurred a loss of just under $2.9 million, which compares to a $2.7 million loss during the second quarter of 2012. There has been no material change in this segment, and we expect losses in this segment to continue in this range during the remainder of 2013.

Regarding LSV, our earnings from LSV represent our approximately 39.3% ownership interest during the second quarter. LSV contributed approximately $27.8 million in income to SEI during the quarter. This compares to $22.7 million for the second quarter of 2012.

Asset balances grew by approximately $450 million during the quarter due to increased market valuation. Cash flows were slightly positive. Revenues for LSV for the quarter were $83.7 million.

In addition to the business update, I wanted to review a couple of events. During the quarter, as Al mentioned, we entered into a settlement agreement with respect to litigation captioned, Abu Dhabi commercial Bank, et al. versus Morgan Stanley and Company, Incorporated, et al., related to the purchase of Cheyne Finance LLC, a structured investment vehicle security.

As part of this settlement agreement, we received a cash payment of $43.4 million. This is reflected in our earnings for the second quarter under the caption Other Income, and equates to just under $0.16 per share. As a result of this event, coupled with the gain recognized on the sale of SEI Asset Korea, we have had to accelerate the recognition of stock-based compensation expense related to our equity option program.

As I'm sure you're aware, the equity option is granted as part of our compensation program, vest on the attainment of certain earnings per share targets net of equity compensation expense. The impact of these two positive events on the earnings will cause us, we believe, to reach the vesting targets on certain grants at least one year earlier than previously estimated; and in one grant's case, two years earlier.

This incremental expense will be recognized over the final three quarters of this year, starting in the second quarter. The incremental amount recognized in the second quarter when compared to first-quarter 2013, was approximately $5.3 million, or just over $0.02 per share. This was spread over the business segments, with Private Banks incurring $1.6 million in incremental expense, and the three other segments each incurring approximately $1 million. The remainder impacted G&A.

This incremental expense of approximately $16 million in 2013 will result in a reduction of a similar amount in future years, primarily 2014. The net of these two events is between $0.13 and $0.14 a share. Also during the quarter, we capitalized $16.1 million of SWP expenses, as Al mentioned. $8.8 million of this amount was related to a licensing fee option we exercised to pay a one-time buyout fee for a piece of software embedded in SWP, rather than incur a perpetual recurring charge for use of this software.

This will not add incremental expense; but, rather, as we add more accounts to the SEI Wealth Platform, will provide better cost leverage. Essentially what we did here was replaced a variable cost component with a fixed cost component.

The remainder of the capitalized amount, $7.3 million, is what I would term normal SWP product development.

I will now take any questions you have.

(Operator Instructions). Chris Donat, Sandler O'Neill.

Hi. Good afternoon, Dennis. Just one clarification on the comments about the early vesting of the stock-based comp. So you're saying that 2014 is effectively pulled forward to 2013? I guess I imagine that there would still be levels of stock-based comp, or elevated levels, but that's not the case. This really is a pull-forward of things that were expected to happen a year or two out?

Yes. Because the way the expense works, Chris, just maybe quickly, is you calculate what the value of those options are that were granted, and then you amortize that cost in over the vesting period. So if you think it's going to take three years to vest, you'd amortize over three years, or four years. And what we're doing is accelerating the amortization by a year on most of the grants. So, what we're doing is pulling the expense forward a year. So next year, you would see a lot less -- a much lower level of equity compensation expense as a result.

Okay. And then I would guess, then, we'll assume some sort of normalization in 2015?

Yes. Although even there's one tranche of options that we pulled forward two years --

Right.

-- that will get some benefit in 2015, as well, to this.

Okay. Okay, thanks.

Sure. It's really just a timing event.

Robert Lee, KBW.

Hello, guys. Hey, Dennis. Real quickly, just now that you've had the Korea sale; you've got this big chunk of cash from the settlement; I know you had talked about maybe putting some of the proceeds from the Korea sale into maybe some buybacks. Should we be thinking that maybe this puts a little bit more momentum behind buybacks over the near-term as you put it to work? Or at least for some period of time, that that would be the main intention for the incremental cash?

The Board here has talked about that, certainly, the primary use of capital besides investing in the businesses would be stock buyback. And I think also during the quarter, Al referenced that you saw an increase in the cash dividend as well; a fairly healthy increase. So, during the quarter, it is kind of a combination of those two things. But going forward, I'd say it would be similar.

Okay, great. That was it. Thanks.

Jeff Hopson, Stifel Nicolaus.

Okay, thanks. Dennis, so the accelerated amortization -- I had lower numbers. I'm just wondering if that -- so I had like $3.1 million, versus $5.3 million. Was I using post-tax versus the $5.3 million? And then in terms of the SWP amortization, I didn't hear that completely. Was there an additional expense this quarter that was recognized? And if so, is that ongoing, I guess?

Okay, sure. On the first question, Jeff -- hi, how are you, by the way -- on the first question about the option, I think you took our guidance coming out of first quarter accurately, which was the $3.1 million, I think. But as we got worked through this quarter, we realized there was a -- and this is all if you go through our proxy statements, and in the MD&A section of our K, you'll see this information. There's one tranche of options that would vest if we hit this adjusted EPS number of $1.60.

During the second quarter we felt -- our assumption now is that we're probably going to hit that this year. So that brought forward the cost associated with that particular tranche as well, which is really two years of expense on that one tranche. So that's how we went from the $3.1 million up to the -- a little over $5 million incremental. So your numbers were right; we just added to it as the quarter worked through.

Right.

On the second point, there wasn't any incremental expense associated with what we did on the capitalized asset with SWP. Essentially, one of the software licensing agreements we have for a software package we use on the platform was -- the way that was priced to us was per account. So for each new account we put on the platform, we had to pay an incremental charge for use of that software. And so it had a variable cost structure to it.

In that licensing agreement, we had the option to buy that contract out with a one-time payment, and then wind up with a perpetual license kind of at that one-time cost. There was a deadline on when we could exercise that option, which happened to be June 30. And our analysis, as we look forward, and we look at the -- certainly our expected growth of accounts and business on the platform, it just made sense to exercise that buyout.

And then what we will have now is a fixed cost, if you will, and that $8.8 million will amortize with the useful life of the platform; eventually go away, as the platform gets fully amortized, versus a variable cost.

But, incrementally, there's no incremental cost in terms of run rate because the two are essentially equivalent. That amortization cost over the remaining nine years, versus the account charge, was just about equal at this point.

Got it. Okay. Thank you.

Alec McAree, Highbridge Capital.

Hey, Dennis and Al. Guys, before we get into all the different segments, I really wanted to talk with you guys about the expense controls. Because it's been now several quarters, and each quarter we're hearing about how expenses are higher than you guys would like. And even -- I understand the comp costs and the pull-forward. But even when we X that out, you're still not showing the incremental margins that you historically have; and definitely inferior to what some of your peers are showing who are in that asset management processing businesses.

Maybe, Al, you could comment about it specifically, and what you're intending to do with these expense controls. Because it has been an issue now for a few years, actually. And we understand the investment in SWP, but it seems like we're just not getting there on the expenses, because revenue is starting to grow. I'm just curious when we should anticipate seeing the leverage that we have historically seen from you guys.

Well, I think the two places where expenses are higher than we would like is -- one is, we continue to make investments, and these things do cost a decent amount. And we're spending a lot of money on the front end, which is very popular, I guess. And it's something that, when we started, there was no such thing as front ends. And it's just been a very -- there just seems to be more and more that we develop.

But we've got a good handle on that. Our development process is showing real improvement in productivity, and so we're not very worried about that. It's just something we've got to do. And it's a one-time, as we do it, to get ready for these larger banks and larger advisors. So, we're accomplishing an awful lot there.

Now, the other area is in operations, and that's really the cost of operating; and we had some issues in the UK, because of us not understanding the cost of custody over there versus the US. And we made a couple other judgments there that we -- it's not terribly damaging to us. But as we put on more and more new business that is not of that ilk, then we can also adjust those fees at re-contracting.

And right now, our operations are still manual, and we are delivering a lot of new technology to that, to make that much more scalable than it is. So I think that's really the story. The scale on our production, which is the technology, is extremely high. And so we know as we add more and more clients, those will have a lot of scale there. And so we're after operational scale, and it's going to take some more technology to give us that.

And the other thing is, I guess, the UK doesn't have some of the automations that we have here that -- the industry itself. So it has taken us more -- it's a little more tougher to build that technology in that particular industry. But we've made a lot of progress there, too.

So how should we think about, Al, then, in terms of incremental margin? Is it that you need to have one of these large deals finally sign in the US in the SWP? Or do we need three or four of them? How should we think about that?

And then also on the UK, these costs -- are we on the other side of it now? Have we taken the brunt of that cost now that as you do some, as you said, either add new business or re-signings, we should see the incremental margin from here?

Yes. From here, we still do have these investments in technology that will -- but again, these are one-time. Those don't bother us as much as the others. And the others, we will definitely see scalability from here as we add these larger accounts.

And do you still feel like that, when we go back and look historically, obviously you guys had very significant incremental margins when you had product rollouts. And obviously SWP has been a longer product rollout than previous ones; some of it macro, some of it just the scale of what you're doing. Do you still feel that you can have the type of incremental growth and margins that you have shown historically when you've been successful with new product rollouts?

Yes, I do believe that SWP will have a higher margin than Trust 3000 eventually, because SWP has a lot more scale in the production area. And if we can get it in the operations area, it will be particularly heavy revenues that come in.

Yes. Okay. Well, we look forward to seeing that.

You're not the only one.

Thanks, Al.

Sam Hoffman, BlueCrest Capital Management.

Good. Thanks for taking my question. Just had a couple of clarifications on LSV. Dennis, did you disclose the revenue from LSV in the quarter?

Yes, it was $83.7 million.

Okay. Can you explain why the earnings from LSV were that flat in the quarter when the markets -- when the average assets were up about 5%? It seems like there was a big step up in earnings from LSV between the fourth quarter of 2012 and the first quarter of 2013, but then they remained flat. So, was the first quarter particularly high in terms of fee rate or margin? Or was the second quarter more normal, or particularly low?

The second quarter, in terms of their business, they didn't see a 5% appreciation in total assets. But as I mentioned, their assets are about $450 million -- but also in Q2. But also in the quarter for expense, they had a one one-time expense event in their business during the quarter. They retooled their portfolio management technology platform. And I think there was, in terms of the one-time component of that expense that hit them in the second quarter, about $1.2 million of incremental expense. That won't happen in the third quarter, obviously. So that had a little bit of an impact on our -- since we're roughly 40% of earnings, and that would affect us to the tune of about 40% of that number. So that's the one other element they had. Their average fee levels are pretty stable.

Okay. And then the other question was that your ownership in LSV slipped down by about 50 basis points in the quarter. And it seems like in the second quarter of last year, your ownership also went down slightly. So can you remind us why that is, and what happens when your ownership slips down? Do you actually get cash in exchange for that?

That relates to, years back the partnership made a decision to set up an equity distribution plan to provide partnership distribution or equity interest in the firm as part of the compensation package to key employees as they shined. We contributed about 3% of our ownership interest to that equity plan. And over the years, our gradual distributions out of that plan -- they generally occur on April 1. At least the past few years, they've occurred on April 1.

So really what that 0.5 percentage point drop in our ownership interest reflects is our share of this year's equity distribution out of that equity distribution plan.

Okay. Would you expect that to be of recurring event, then, every year that your ownership would decline maybe 0.5% or 1%?

I wouldn't say that it's that straight line. Technically, the total contribution to that plan was about 5%. So once that full -- once that's fully distributed, there won't be anything else to distribute unless the partnership regroups and agrees to set up a new distribution plan. So, technically, the answer is no. Practically speaking, that's just something that the partnership would work out over the next couple years, I guess.

Okay. Terrific. Thank you.

(Operator Instructions). Tom McCrohan, Janney Montgomery Scott.

Hi, Dennis. Hi, Al. The $43 million gain from the SIV-related litigation, is that cash that's reflected in the balance sheet cash?

Yes.

Okay, great. And just one question on the expenses. Is there any way, Dennis, to frame out, for those incremental SWP-related items, which as Al had talked about with the front-end stuff -- is there any way to frame out maybe for everybody how much higher the expenses were this quarter, related to SWP development, maybe than you otherwise thought that was flowing to the P&L to help people normalize it? Because some of that stuff in the front end sounds like it's stepping up, and then it's going to taper off a little bit. So just trying to understand what the run rate is.

Yes, I think Al's comments were more longer-term than just quarter-to-quarter.

Yes.

Because quarter-to-quarter, really, if you back out the $5 million of option expense overall Company-wide, expenses were relatively flat quarter-to-quarter. But I think Al's comments were more longer-term that why as part of the progression of expenses on the Wealth Platform, it's really been over time. And, Tom, frankly, I'm not prepared to break that down. I don't have that in front of me.

Yes, I don't want to (multiple speakers) too granular. I guess just more in general then, is the trajectory of SWP expenses that are flowing through the P&L, are they still going up? Or plateaued? Going down? Just directionally, I think people are trying to get a sense of where we're at in that spend cycle.

Yes, the development cycle, as we talked in the past, we are kind of in this big push this year for US, to get to the US market. That will start to -- we have our goals -- Wayne is talking about early next year. Joe has begun to roll out to US banks, and he'll talk about that in his comments. He has what they call a (technical difficulty) strategy that development is kind of married up to, and that will occur over the next 12 months or so.

And then it's just a matter of what, in my view, at least -- and my peers can certainly chime in -- is that as we get to market with the core set of services, we need to be in market and to sell new business and deliver for new business. Then we can put more discipline around the actual spend level that we would like to spend. And it's that -- you've heard me use this analogy, I'm sure -- we don't have four wheels on the car yet.

Once we get all four wheels on the car and get the car on the road, then we can say, okay, how much do we want to spend? And put more discipline around that. And I'm actually getting some head nods as I say this, so I think I'm getting agreement. People are sharing the same view. And that's when I think, Tom, spending will start to move in a more downward trend. Unless, of course, we have some next great idea.

Okay. Thanks.

Thank you. Showing no further questions at this time. Please continue.

Thanks, Dennis. I'm going to turn it over to Joe Ujobai now to discuss our private banking segment. Joe?

Thanks, Al. In the private banking business, we are making good progress in both the continued buildout and sales activity of the SEI Wealth Platform. Despite our progress, we are challenged by the financial impact of our new offering. As I mentioned at the recent investor conference, profit improvement is slower than any of us would like. Progress will be made as we grow our revenue, and scale operational and technology delivery by selling and converting larger banks.

As an update on financials, revenue of $95 million declined 4%, or $3.6 million from the first quarter; and improved 8%, or $7 million, from the year-ago quarter. Revenue was impacted by $3 million in lower investment processing one-time revenues versus quarter one, and a $700,000 in lower brokerage transaction revenue. Private banking profits were negative $2.6 million compared to positive $2.4 million in Q1, and $3.4 million in Q2 2012.

Profit was impacted by the lower revenue and costs associated with the continued development and rollout of the SEI Wealth Platform. This includes some of the items Al mentioned -- continued development and operational infrastructure, as well as a fully staffed salesforce here in the US and the UK. And we are building increasingly towards a scale to look for larger clients.

And also profit was impacted by the costs associated with accelerating -- the accelerated vesting of stock options mentioned by Dennis. For the quarter, the sale of SEI Asset Korea had a $2.9 million negative revenue impact, and a $400,000 negative profit impact.

Turning to new business. We've shifted our sales strategy in both the UK and the US back towards larger prospects. These targets have longer sales cycles, but would likely implement the SEI Wealth Platform across multiple business segments. As Al mentioned, this focus in sales pushes out contract signings and will make quarter-to-quarter sales activity inconsistent or choppy, both now and in the coming quarters.

That said, I'm encouraged by our sales progress with current large prospects, as well as bringing new firms into the sales process. We've invested in a robust sales team and the supporting marketing programs to build a big business. Growth in sales events for the quarter were $5.6 million, $4.2 million of which is recurring. Net sales events were $2.7 million, of which $1.2 million was recurring.

Net sales events were impacted by a few lost clients and asset management direct costs. In the US during the quarter, we signed one additional SEI Wealth Platform client. And we converted our second bank, Pinnacle Trust, as part of our US step-in strategy. We now have seven signed, and two converted clients in the US.

During the quarter we had normal re-contracting activity. Approximately 80% of our Trust 3000 book is committed through 2015. In the UK, we had a good quarter converting the backlog, growing assets under administration, scaling the infrastructure, and progressing the large prospects opportunities. We had over $600 million in net cash flow from current clients.

Worldwide, the platform assets under administration at the end of the second quarter were up about $1 billion to approximately $24 billion. We have 28 signed contracts, and 20 clients are now live. We also have about 160,000 end client accounts. Worldwide, we have a backlog of approximately $6 million in recurring revenue that should install within the next 12 months.

An additional contributor to our business is asset management. Quarter-ending assets were up $500 million to almost $12.9 billion. In conclusion, 2013 is a year of solution buildout, sales execution in the US, and continuing momentum in the UK. Although our financials remain challenging, I'm encouraged by our progress as we build towards a large and profitable business.

Are there any questions?

(Operator Instructions). Robert Lee, KBW.

Great. Hi, Joe. How are you? First question is, I guess I'm just kind of curious when you guys talk about going after larger institutions, is there any way of -- well, how do you define that? Do you look at that and say it's just the number of trust accounts? Is it -- do you think of it in terms of -- what are the metrics that you use? And I'm just curious what those are.

And then secondly, follow-up to that, I understand that sales can be very lumpy with this -- and your focus is on larger banks. But is it your expectation that it's reasonable that you could sign one or two of these by the end of the year, and then we assume it's a 6- to 18-month conversion once signed? Is that a reasonable framework?

Okay. So, let me take your first question. How do you define large? We look at a number of things. Historically, we've been very focused on trust accounts, so we look at size on a number of trust accounts. That's a good indicator. Trust accounting, or trust, was the way that most US banks delivered wealth management, but that has evolved over time. So a big book of trust is good. But in some cases, trust books aren't growing so much.

We talked a lot about the platform being a single infrastructure. So then we try to identify what are the other areas of wealth management with inside a bank that we could utilize the SEI Wealth Platform as an infrastructure solution. So we can go beyond, say, the bank trust departments and look at maybe the advisors that they have either built or acquired over recent years. And potentially other areas of wealth management where they may have brought in clients now through digital our Internet-based channels.

We've done an assessment not only on our clients, but also on large prospects of how big really is the book of wealth management. It might be located across a variety of segments inside the bank, but we try to size that. And we size that by assets under management, and we also size it by number of accounts. And that would obviously imply average accounts size under management.

We're looking at firms that have somewhere north of $5 billion to $10 billion of assets under management. A lot of our first clients in the UK were closer to the $1 billion mark. We're focused on firms with $5 billion to $10 billion; and clearly firms with more than that in assets under management as really a way to qualify what's a large account.

We also look probably some other things -- firms that are looking for -- some firms such as regional banks are largely focused on -- are still largely focused on expense reduction. Some of the larger national or global banks have gotten past the focus on expense reduction, although certainly important to them, and are now focused on how would you grow your business and start to gain market share.

The selling opportunity is a little different across different segments or different types of firms. But as I said we've invested in and built out a pretty decent salesforce, both here in the US and the UK, and are spending a lot of time really doing a deep dive into prospects to identify big, solid ones and firms that have an impetus to make a change.

As far as the timing -- I think your second question was largely around timing. Timing is really difficult to predict. I can tell you that with inside pipeline that we described at the investor conference, just what seemed like a few short weeks ago, we are making progress with some of the larger firms inside of there. The purchasing inside of banks has evolved pretty dramatically over the years.

What's a relatively new activity for us is, we would spend obviously a lot of time doing discovery up front, trying to determine how we would show the clients, the firms, how the SEI Wealth Platform would help them. And we sell the business leaders. Then there's usually an effort of purchasing departments with inside of banks to actually negotiate the contract and renegotiate the pricing in things.

It's really hard to predict the timing. But back to some of Al's comments, we are increasingly encouraged by the interest in the market, the interest of larger firms as they come out of a tough period of time, given the crisis. So the activity is certainly picking up. The fact that legacy systems aren't getting any easier for banks to use are helpful. The fact that we do have 160,000 clients up and running. The fact that we had largely built a lot of the back end, and are focusing now more on some of this added value front end.

So, what's the experience of the advisor? Timing is difficult, but we are making progress. And I suspect, or firmly expect, we're going to have a big and very profitable business here. But I don't want to mislead you to say that something will sign in a period of time that is in some ways unpredictable. But we will have signings; I just can't tell you how quickly those are going to happen.

Then I guess it's fair to say, given that these will be larger, more complex, that -- and knowing every transaction is different, but that a typical implementation, even in the historic business, could be anywhere from six months to 18 months or so. Is that reasonable? There's no reason to expect that it would convert sooner than that, once the deal is announced.

One of the other differences is really -- is less of a big bank conversion. So, again, in our Trust 3000, our trust business, we identify a book of trust accounts that were usually within one segment within the bank. And we would build out a plan to convert all of those trust accounts at once, which would usually replace a stack of technology and operations.

As we're talking to these banks about a single infrastructure across multiple segments, I think the conversion will look a little differently. And we'll see staged conversions with books of business, where we would bring on trust or the discretionary book first in some cases, and then add other books like the advisory books or business that they generate other ways.

I think conversions, as we're looking and talking to banks about conversions, particularly with these large firms, it's more of a step-in conversion. And again, I think -- so that could take you from 6 to 12 months for the first conversion; over 2 to 3 years to get the entire book of business. These are obviously larger books of business than just trust in some cases. So, I see conversion -- and as we win some of these, we'll probably (technical difficulty).

But it would probably go from a year for these bigger banks to 3-plus years, depending on the -- how many systems we're taking down and which segments we're going to be supporting.

All right, great. That was it. Thanks for taking my questions.

Glenn Greene, Oppenheimer.

Thanks. Hey, Joe, how are you? A few questions. The first one, maybe you could talk a little bit about the lost clients. What was the reasoning? What happened there?

The lost clients were two small clients. We talked about a bigger client last quarter, and they're just typical reasons. We always lose a few clients over the course of a year. Sometimes people, they consolidate this one in some other book of business inside some other book of business. So, these were nothing unusual. Just some sort of normal course of a few small firms making some decisions about alternatives. Nothing to really worry about.

Okay. And then just to clarify, I might've missed it, but the net sales figure that you gave? I think it was, what? $2.7 million.

That's correct.

Okay. Did you give an update on pipeline sizes in the US and the UK? And if you didn't, could you?

No, I didn't. The pipeline looks pretty similar to what we talked about at the investor conference -- about $50 million in the UK and about $100 million in the US. Obviously, we haven't closed anything big to change that, but nor have we lost anything big in the process. The characteristics are, we're making progress on some of the key prospects, so they will fall out of the pipeline at some point. And our expectations are that they'd fall into the sales event category, given the good progress that we're making.

And the one new client signing in the quarter, was that a client that's previously been announced? Or is that a new one that you're announcing today?

We haven't announced it yet, but it's part of the step-in strategy. And it's a large trust book of business, or it's a small trust book of business. But behind that there's a large wealth management book of business at that firm. So they've committed to moving the trust book. But behind that, there is a substantial opportunity, and that's why we felt it fit into this step-in strategy. And we'll announce that sometime probably in the third quarter when we coordinate with the client.

And then just a final one. Did you give -- if you did, I missed it -- the SWP AUM in the quarter?

Yes, the AUM was up about $1 billion, and that's part cash flow and part -- a little bit up on -- and we did a client conversion in the US. But then a little bit down because of market depreciation and currency -- for a total of about $24 billion.

Okay, great. Thanks a lot.

Jeff Hopson, Stifel Nicolaus.

Okay, thanks. Joe, the client cash flows -- you told us, but I didn't get that. Can you give me that? And then in terms -- on the expenses, it seems like you're differentiating obviously between sales infrastructure, buildout, service infrastructure, and then additional technology investments for enhancements and/or building scale. So, in terms of the latter technology, any kind of timing that you can see for that basically being done, leveling out, I guess.

So --

Over the next 12 months or so, or however you see that playing out.

Okay. I'll answer your first question. Net cash flow onto the new platform was $600 million.

Okay.

And again that's after redemptions. And that's flows, redemptions, and then market depreciation and any currency issues. Because most of these clients are in the UK. We're up about $1 billion with net cash flow of about $600 million.

When it comes to investing, Al mentioned a couple things. One is we've invested in building out the salesforce, both here in the US and the UK, as well as the marketing surrounding that. You may be seeing some online marketing that we've been doing. Because as we want to go well beyond trust departments and banks, we want to make sure that people that didn't know us very well, because they maybe weren't in trust, would start to recognize the SEI name and the value of what we've built. And we've launched some marketing around that, and you'll start to see that. You're probably may already seeing that when you log on the Internet, and we'll do some more of that -- really trying to create a lot more presence in the market here in the US, outside of trust departments.

Sales expense will go up, because I think we'll be selling events and we'll be writing commission checks, which I think we all want to do. From a development standpoint, as Al mentioned, we started first with the back office. We are more focused now as that has wrapping up on the front office, meaning creating a better experience for the advisors, creating an improved experience for end investors.

That wasn't as important when we first started to build that. That is a very strong driver now in decisions at our prospects. And the great news is that we can deliver to the prospects in a fully integrated solution. And the good news is, they are also helping us as we build that out, identify what would make an advisor or a relationship manager a lot more efficient.

And that will go on for some time now. We just really started that investment in the last year or so, last couple of years. And I think it's just bigger, and there's more to do there, than there was when we first started to build this thing.

When we talk about scale, we really look at it in two things. One is technology scale. We have 160,000 accounts, but we expect to have millions of accounts on this system over time. We believe, from a technology scale standpoint, we're in pretty good shape. We'll have to buy more technology, and unfortunately a lot more operating system software as we add more and more accounts. But we feel like that is pretty scalable.

And we have tested and have forecasted what that would be. And those numbers are looking to us like pretty comprehensive and pretty encouraging numbers. The harder part -- and I've said this for the last several quarters -- is understanding operations scale. And that is that when we first built the platform we focused more on functionality than we did on scale.

We are now beginning to focus a lot on scale, as these big clients are coming our direction, at least from a prospect standpoint. Trying not to have to hire a lot of people as we bring on lots more of accounts. That isn't quite as easy to predict as, say, the technology scale is. So our goal is to automate as much as we possibly can to create greater scale around operations.

But that's been a fair amount of where we have been spending money in the past several quarters. We're looking at those things closely. I'd say two or three years ago, we looked at all of that in a big lump; now we're looking at it in much more finer chunks, and understanding and setting targets for ourselves. But we do see additional expenses as we grow this, or we create this infrastructure to take on fairly substantial scale.

Okay. And then one more. I'm sorry. Real quick. The revenue, the book but not converted of, I think, $6 million in revenue.

Yes.

Is that over the next 12 months or (multiple speakers)?

Yes, that will come in. That's expected to come in over the next 12 months, so it will drip in over the next four quarters.

Okay. Very good. Thank you.

Tom McCrohan, Janney Montgomery Scott.

Hi, Joe. Last quarter I think you mentioned there was a de-conversion that was going to be a headwind in Q3. Just want to understand the net effect relative to the pipeline assets that are coming onstream.

Yes. We mentioned that we had a US client who sold a book of their business as well as are converting their assets to an in-house system that already exists. That will start to hit us in the third quarter, and that was about a $4 million client -- a $4 million or $5 million client.

Annual revenue?

Annual client, yes, annual client.

Got it. Okay, great. And the $3 million -- in your prepared remarks you talked about aggregate revenue for the quarter, and why it was down sequentially. And you talked about $3 million lower one-time revenue. Was that just implementation fees? Can you get some clarification on that?

It's some implementation fees, but it's largely custom work we do for Trust 3000 clients. I would suspect over time, as clients begin to consider the SEI Wealth Platform, the custom activity on Trust 3000 will start to go down. Well, it is going down. But those clients haven't yet committed to a plan yet on the SEI Wealth Platform. So there's a bit of a gap here. But I would suspect, over time, that one time would come back up as clients commit to the new solution.

Great. And my last question -- on the new client that had a small trust business and a bigger wealth management business. Were they an existing Trust 3000 client?

That was a new name for us.

Completely new?

Yes, completely new. Yes.

All right. That's all I had. Thanks, Joe.

Eric Bertrand, Surveyor Capital.

Yes, hi. It's Peter Seuss, actually. How are you, Joe? Just wanted to follow-up on, I think, Rob's question on timing. I think it was Al that said at the investor day that just the decision period is 6 to 10 months away for a lot of the large banks. And so that was two months ago, so that would mean 4 to 8 months now. Has anything changed in terms of that timeframe?

I can tell you, we're very active with some really great prospects, but these are large organizations that require a lot of sign-off. And so I feel like we're making progress. But to talk in terms of a month or two here or there, it's really impossible for me to predict that. We're working as hard as we can to get these deals moved along and ultimately signed. But it's really very difficult to predict that.

Maybe three or four years from now, when we've signed a bunch of these, I can be a little bit more exact. But we are making progress. And I think we feel encouraged by the progress that we are making.

Do these decisions tend to be year-end type decisions? Or are they made at any point during the year?

They're made at any point during the year, although certainly firms or banks are budgeting for 2014, and that's more about things like one-time and custom types of costs. But the third quarter historically was slow. In the last couple of years it actually hasn't been bad. Because sometimes maybe second-quarter decisions get -- so it's not really that seasonal. But people -- there is a psychological -- you're trying to get things done by the end of the year on both sides.

But I don't think that's a big driver. And, again, but what's a bigger driver is this is a new, exciting solution. And we're getting a lot of interest. And it's going well beyond our historical opportunity set. So, it's probably more complex decisions, but bigger opportunities for us.

And, sorry, just one last quick follow-up. When you talked about a three-year implementation period, can you just give us -- and I know it varies by client -- but just a general base case for a large client? If you were to announce a win at the end of this year, how would that revenue phase in over the course of those three years?

With large clients, there's typically some sort of upfront cost associated with conversion. It could be costs associated with custom development; costs associated with interfaces. So you'd start to see one-time kick in relatively soon from signing. And then again, depending on the size of the book of business, depending on the other activities that may be going on at the bank, the bank may be converting in other systems so they put off converting the wealth management system.

So, it's really hard to predict, but it's probably no sooner than 12 months. But, like I said, we have been trying, to going forward, given these are big opportunities, really break them up in logical conversions. And again I think as we have some experience with these larger firms, we'll share with you some of that progress. And we'll know how to better answer that question a few years from now when we've done this a couple times.

Got it. Okay, great. Thank you.

Robert Lee, KBW.

Great. And I appreciate you guys taking the time. Actually two quick questions. First -- and I apologize, because I think I may have missed it -- but there is the one client that starting in the third quarter will be coming off the shelf. And that's -- I'm sorry -- a $4 million annualized revenue client, is that correct?

Between $4 million and $5 million, yes.

Okay. Just wanted to make sure I had that right. In the second thing is, going back to the expense side, looking out, understanding that you've been investing particularly in the front end on getting the US up and running. Is there a certain amount of, I'll call it, temporary spend that you're going through that you feel like when you get to the end of this year that will be done? And there will be actually some expenses that once the front end is built out, obviously you'll have a higher ongoing cost, but there's maybe some kind of -- whether it's consulting costs, or what have you, that will fall away.

Assuming revenue continues to grow from here, you'll actually see expenses flatline for a while, because you're getting rid of some incremental costs.

Yes. I can't predict that's going to happen at the end of this year, but if you look at it and you look at sort of the sequence. We built a very robust back office. Then we started focusing on the front office. And now we are also beginning to focus on how to scale everything that we built. So, that will go on. It's not easy to predict it's going to -- it's not going to end at the end of this year, but yes, of course. And in any spending beyond that would be either driven by -- we think we can take out cost by making more money in development on the platform and make the platform more efficient. Or we have revenue tied to additional functionality.

So, yes, but we still have a lot of core stuff to do, whether it be back -- back again -- largely done front we're focusing on, and then scale really going from 160,000 accounts to millions of accounts. So, yes, it will flatline and then maybe go down, or be much more what we would call discretionary.

Great. That was it. Thank you.

Sam Hoffman, BlueCrest Capital Management.

Thanks for taking my question. I just had a follow-up on the expenses relative to the revenues for the larger clients. When you -- you said you immediately take in one-time revenues when you sign the larger client. So, are those revenues associated with an expense which is being made concurrently; and, therefore, there's limited margin on that expense, so that your very high incremental margins only come 12 months out? Or are the upfront conversion one-time revenues funding costs that you've already spent this year?

It's largely associated with specific expense with, like I said, either the conversion of the data, the buildout of specific interfaces, or the buildout of specific functionality that the client might request. (Technical difficulty) trust we had a fairly decent margin on one-time, but the real margin comes in the recurring revenue.

Okay, terrific. Thanks.

Thank you. And I'm showing no further questions at this time.

Well, thanks. I didn't expect to get any questions, since you asked Al and Dennis a few of the ones you'd normally ask me.

But now I'm going to pass it back to Al.

Thanks, Joe. Our next segment is Investment Advisors, and Wayne Withrow will cover the segment.

Thanks, Al. During the second quarter, we continued the cash flow momentum we established last year, and had another solid quarter of new advisor recruiting. Assets under management were $36.6 billion at June 30, a 15.3% improvement from a year ago. During the quarter, we had $929 million of positive net cash flow, bringing our net cash flow for the year up to $1.9 billion, and surpassing our total net cash flow from last year.

Revenues for the quarter were $59.3 million. This compares to $49.4 million for the second quarter of last year. Expenses increased during the quarter primarily due to the increase in option expense Dennis mentioned, and an increased in direct costs tied to our revenue increase. Despite these expense increases, our margin still improved to 44.5%, which is a 180 basis point improvement from the first quarter of this year, and a 330 basis point improvement from the second quarter of last year.

On the new business front, we signed 169 new advisors during the quarter. This represents a high-water mark for us, and our pipeline of new advisors remains very strong.

Moving on to the status of the Wealth Platform, we continue to work with our early adopters to solicit valuable feedback which we can incorporate into the platform.

An early example of this feedback is our new advisor desktop. The first version of this desktop went into production at the end of the quarter and has been very well received. Our more general release of the platform to our client base remains on track for early next year.

In summary, net cash flow and new advisor recruiting were very positive for the quarter; momentum remains strong; and the Wealth Platform release is on the horizon.

I will now entertain any questions you have.

Robert Lee, KBW.

Thanks. Hi, Wayne. How are you?

Good, Rob. How are you doing?

Good, thanks. Two quick questions. First, and I apologize -- I think I missed -- was the net cash flow for the quarter about $400 million?

$929 million.

I was way off. Okay, great. And secondly I just -- it looks like, at least the fee realization rate kind of popped up in the quarter. And I don't know if that's just -- was it mix, or were there some kind of one-time or other non-asset-based revenues flowing through? Which I assume, as you roll out SWP over time, the mix will change some. That's part of the intention, I guess, to try to generate other revenues besides just the asset management fees. But was there anything in the quarter that may have influenced it?

There's really nothing in the quarter that's unusual, Rob. I think that it's simply a reflection of the scale you see in this business. And if you look historically, as we've been growing recently, you'll see that that realization rate has been creeping up.

Okay. And no reason to expect that the pop in the margin to almost 45% shouldn't be sustainable?

No reason.

Great. Thank you.

Jeff Hopson, Stifel Nicolaus.

Okay, Wayne, the strong flows just slightly less than last quarter. Obviously there was a fair amount of redemption activity in fixed income. So, one, did you see the same type of thing? And then, two, the thought here is that even if you saw that, you retained it either in cash or that money moving into other areas. Can you comment on that? And anything new in July that you're seeing relative to the Q2?

I'm sorry, Jeff. I didn't quite hear your comment on redemptions.

Yes. Obviously in the industry in terms of mutual funds and such we saw accelerated redemptions, particularly in fixed income. So to the extent you saw any of that, given that cash flows remained strong, that you would have retained. Or seeing that those -- any redemptions go into other products and/or cash, but generally staying on the SEI platform.

We have not seen -- in that book of business, we have not seen a major move to cash. And our disbursement rate still is very strong for what we historically recognized. So we have not experienced -- and that industry trend has not trickled through to our business.

Okay. Very good. Thank you.

Thank you. And I'm showing no further questions at this time.

Okay. Thank you, Wayne. And 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 $62 million for this second quarter increased 14% compared to the year-ago period. New client funding and market appreciation during the period contributed to these increases. Quarterly profits of $31 million increased 13% compared to the second quarter of 2012.

Margins were 48% for the period. Increased stock option expense, direct subadvisor costs associated with new UK sales, and additional investment in client-facing personnel, caused expenses to grow faster than revenue during the period. Ending asset balances, approaching $65 billion on June 30, declined 3% due to negative capital market experience for the quarter.

SEI's typical pension client portfolio is globally diversified with large allocations to fixed income. While SEI client portfolios performed better than the market, a typical US and Canadian pension portfolio realized a negative 2% portfolio return for the quarter, with a UK pension portfolio returning a negative 4.5% for the quarter.

Net new client assets funded during the quarter were $834 million. And the backlog of committed but unfunded assets at quarter-end was $800 million. New client sales closed during the quarter were $1.9 billion, and total $4.2 billion year-to-date through June. New clients were well diversified by market segment and also by geography.

We're especially pleased with the acceptance of our discretionary management solution by UK institutional investors. SEI has a long track record serving clients as a discretionary fiduciary manager. And we have consistently enhanced our solution to support increasing client needs. We are well positioned to differentiate our offering from increased competition; we enjoyed a strong pipeline; and remain optimistic about the growth opportunities for this segment.

Thank you very much. And I'm happy to entertain any questions you may have.

(Operator Instructions). Chris Donat, Sandler O'Neill.

Hey, Ed.

Chris, you don't have to feel sorry for me again this quarter by asking a question (laughter).

You know, Ed, actually -- you're really the person I wanted to talk to the most today (laughter).

Okay, well, come on.

Got it. So, I appreciate the commentary about the US and Canadian pensions typically being down 2%, and the UK down 4.5%.

Yes.

I guess what I'm looking at, or trying to get my arms around is -- can you give us sort of a ballpark throughout the mix of AUM that you have, fixed income versus equities? And then also maybe throw out something about -- are there main currencies we should be watching, for sensitivities to their moves?

Sure. Our asset mix has changed over time because of the fact that we're doing a lot of liability matching for these pension plans. So that pretty much prompts them to be probably about 45%, I guess I would say on average, in fixed income.

A lot of that you should recognize is also in long duration. So, if you were to look at the UK gilts, they were down like negative 10%. The US long bond was down negative 6%. And I think that the Canadian long-term bonds were down like 2.25%. But in addition to that, we are pretty well diversified, so most if not all of these clients typically have US high-yield, which was down; they have emerging market debt, that was down; and outside of that 45%, they have real return assets, and that was also unfortunately kind of negative.

You flip to the equity side, and there it was really kind of a choppy market. The US large-cap was up, will say, a little bit over 2%. Small-cap was up a little -- kind of close to 5%. But outside of that, the developed MSI was down 3%. Emerging market equity, which we have been a long time investor in for our clients, was down 7%. So, it was a challenging capital markets environment.

Okay. And then mix of assets -- let's say, US, Canada, UK -- or even just US, non-US. Can you give us some kind of ballpark number there?

Yes. The bulk of our assets are in the US. It would be the US, UK, Canada, would be how you would proportion them.

Okay. And safe to say that more than 50% is US?

Yes.

Okay, got it. That's it for me then, Ed. I appreciate it.

All right, good talking to you.

Robert Lee, KBW.

Hi, Ed. You're not going to escape that easily.

Hey, Rob. You're on the clock.

I'm watching close. I got two questions for you. The first one is, you haven't seen it manifest itself in a fee rate, but you have talked about the pipeline of potential clients, and some of the actual clients being larger than historic. And there's also somewhat of a trend within the fiduciary space towards unbundling, which could lead to some fee compression.

Is it reasonable to expect, or are you starting to see that some of the newer clients or relationships that you are bringing on -- or even the older ones that are growing -- that we'll start to see a little bit of either break points or fee compression going forward? Or is that just being offset by mix? Or maybe there's a higher content of alternatives and stuff, so that is kind of offsetting what otherwise would be some fee compression.

Sure. As you point out, there's a variety of things that are going on. I would say to you that there is still a pretty large core market that, to a large degree, they're not really looking for a separate advisory fee from the manufacturing or the money managers' fee. So those fees pretty much have come down over the last 15 years. But I think what we have seen is the asset mix has changed, so there is more money that is going into some higher fee alternative investments in that particular space.

When you get to the larger clients that are really looking for the advisory fee, I think that, to a large degree, they see that we are going to realize with some of these larger clients, for at least the transactions that we've seen, it is kind of where it was in a bundled type of world. But I think as the market becomes more competitive, and that's the focus is only on the single advisory fee, it's going to be pretty heavily negotiated.

That advisory fee can increase, depending upon the role we play and the service we provide around the alternative space. So I think we have to really see how this plays out, because we're kind of early in the game of the separate advisory fee.

Okay, great. And then -- this is the last question -- aside from the $1 million of equity increased expense there, you talked about some other things that may have flowed through. Should we think of those just being the new run rate? Or maybe they are kind of one-and-done, and maybe you get a little bit of margin lift, even you even if you have kind of flattish revenues over the near-term?

Well, I guess insofar as -- the other big cost was this direct cost. As you may recall, the way that we account for non-US assets, we book that gross, and then we have to show an expense item for the cost of the money management. So we're seeing our assets grow outside of the US; which is good news, significantly, so we have to pay the manager across there. So that was $1.8 million, so it's a decent number.

Okay, great. That's helpful. Thank you.

Thank you. And I'm showing no further questions at this time.

Thanks, Ed. Our final segment today is investment managers. And I'm going to turn it over to Steve Meyer to discuss the segment.

Steve?

Thanks, Al. Good afternoon, everyone. For the second quarter of 2013, revenues for the segment totaled $55.5 million, which was $8.7 million, or 18.7%, higher than our revenue for the second quarter of last year. This increase in revenue was primarily due to an increase in our asset balances, along with new client fundings.

Our quarterly profit for the segment of $18.9 million was approximately $2.4 million, or 14.5%, higher than the second quarter of 2012. This increase in profit was largely due to the increase in our revenue for the quarter, offset by an increase in our investment and ongoing operational expenses, as well as the increase in stock option expense.

As mentioned previously, our expenses are trending a little higher as we continue to invest in our solutions and build out our infrastructure ahead of new business. Third-party asset balances at the end of the second quarter of 2013 were $289.8 billion; approximately $14.2 billion, or 5.1%, higher as compared to our asset balances at the end of the first quarter of 2013.

The increase in assets was primarily due to net positive cash flows of $6.5 billion, enhanced by market appreciation of $7.6 billion.

And turning to market activity, during the second quarter of 2013 we had a strong sales quarter. Net new business sales events totaled $10.3 million in annualized revenue during the quarter. These sales were well diversified among all of our solutions and, encouragingly, approximately 60% came from existing clients. We continue to see steady market activity and opportunity for growth, and we feel well positioned to execute on this opportunity.

That concludes my prepared remarks, and I'll now turn it over for any questions you may have.

Jeff Hopson, Stifel Nicolaus.

Okay, thanks. Hey, Steve. Can you give us an update -- so the $6.5 billion of existing cash flow, was that -- do you mean business -- old signings that had converted? Or cash flow to your clients?

It really comprises both, but the majority this quarter was from fundings of existing backlog and previous sales, fundings from new business.

Okay. And then last quarter you had mentioned a very large, I think around $12 billion, that was in -- moved to short-term. What's the status of that?

So, I think you're referring to -- we did have had a short-term product; it's actually in our global group, that it's really a funding vehicle. That is still there. It actually took on some more assets, more cash this quarter. But it is kind of in a wait-and-see mode to -- for it to create funding to happen at some point, either later this year or next year.

Okay. But is there any risk of it leaving SEI and going elsewhere, instead of going from a shorter-term product to some longer-term product?

Yes, there is. But what I would say to you is, the revenue associated with that is minimal and would have no impact on us whatsoever. The hope is that the funding would go into a product that we would then service, but that is not clear or guaranteed yet.

Got it, okay. And would you say, despite the strong new -- it sounds like despite what you booked this quarter, that the pipeline that you had talked about at the conference still remains fairly vibrant.

Yes. The pipeline still remains the same. I think I talked about in the US about a $130 million pipeline at the investor day. I would say that it's probably still in that area; maybe around $128 million; taking off some -- but has actually replenished some -- but taking off some for what we've funded. And global is hanging in right around where it was, around $30 million.

Okay, great. Thanks a lot.

Thank you. And I'm showing no further questions at this time.

Thanks, Steve. And now I'd like to turn it over to Kathy Heilig to give you of few Company-wide statistics.

Kathy?

Thanks, Al. Good afternoon, everyone. I have some additional corporate information regarding this quarter. Second-quarter 2013 cash flows from operations was $84.3 million, or $0.48 per share. And that does reflect receiving the $43.4 million of cash from the SIV settlement. Year-to-date June cash flow from operations was $123.8 million or $0.70 per share.

The second-quarter free cash flow is $66.3 million; and year-to-date free cash flow, $97.9 million. Capital expenditures, excluding capitalized software, were $1.8 million. For the year, that's $3.6 million. And we would expect those expenditures -- and they exclude capitalized software -- to be about $12 million.

In addition to that $12 million, we are going to begin probably, shortly, construction of a new building. And that has an estimated cost of about $11 million. We would expect that to start and be completed by the second quarter of next year.

The tax rate for the quarter was 35.5%. We still expect the annual tax rate to fall between 35% to 36%, although the tax rate always does vary by quarter.

Accounts payable balance at June 30 was $1.8 million.

We also would like to remind you that many of our comments are forward-looking statements and are based upon assumptions that involve risk, and that the financial information presented in our release and on this call is unaudited.

Future revenues and income could differ from expected results. We have no obligation to publicly update or correct any statements here and 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.

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

(Operator Instructions). Glenn Greene, Oppenheimer.

Thanks. Hey, Dennis. A couple questions. At the beginning of the call when you were talking about the accelerated vesting of the stock options, and you have suggested hitting your EPS targets, you alluded to comfort getting to $1.60 number for 2013, or at least that's what I heard. And I assume -- a couple questions related to that. That assumes the one-time gains, both this quarter and in the first quarter, I assume.

And then it also implies -- and I know you don't give guidance -- but it implies about $0.72 in the back half of the year, which is a meaningful acceleration from the pace that we're on right now. So are there other one-time gains contemplated in the back half, and am I interpreting this right? And then I got a follow-up.

You're almost right. One thing about our EPS calculation for option vesting, that is part of it, is we add back the expense number related to equity options to EPS. And that's what triggers the vesting. Otherwise we'd have a circular problem.

Okay.

So you have to sort through that, as well. It's not a reported EPS; it's an EPS adjusted for the cost of -- or the equity compensation costs.

I got it. So, including -- basically you'd have to add back that $15 million of stock compensation cost you are talking about, accelerated.

Correct. (Multiple speakers). Total for the year, what we expect to be for the year.

So is it the $15 million accelerated, plus some additional? Or is it just that $15 million you'd have to add back?

No, no. If you take currently year-to-date, our expense on stock-based compensation is -- bear with me. It's about $15 million, $16 million year to date.

Okay. I got you.

So then we'll have another $30 million or so over the next two quarters, and that will get you -- or, I'm sorry, not $30 million; another $20 million or so over the next two quarters.

I got you.

And then that, we back out of EPS.

Okay, I'm with you. And then totally different topic. When I look at the net sales figure, the (multiple speakers).

It was a good attempt to get us to give guidance, Glenn.

No, I know you don't give guidance. And I don't think you wanted to, so that's why I wanted to clarify that. So, people could have interpreted that one way or another.

(Multiple speakers). I think.

The other question was -- the net sales events, the $21.7 million for the Company --

Yes.

I always struggle with this, but it's pretty clear from -- Joe's business was $2.7 million net; and Steve's business was $10.3 million net. So I am kind of at $13 million. But I always struggle with Wayne and Ed's business, getting to that net sales events in those businesses to reconcile to the total.

Well, I struggle with their businesses also sometimes. But essentially what we do with Wayne's is, the net cash flow he has into his business, multiplied by the earnings rate that we expect off that -- those assets. And then Ed's is basically -- it's the net sales events he has, times his earnings rate we expect off that business.

And Ed mentioned the UK and how we have the investment management fees outside of -- or as an expense in the P&L. So we use the hard net revenue take in his business.

Okay. I think that gets me close enough. Thanks.

Thank you. There are no further questions at this time.

Okay, thank you. So, ladies and gentlemen, we are concentrating our efforts on maintaining highly satisfied clients; growing new business events; gaining operational scale; and investing in projects that are critical to our future. Now our focus on growth in revenues and profits is unwavering. And, as our momentum grows, I am very bullish about our intermediate and longer-term business opportunities and feel good about what we're accomplishing in the short term.

So, I'll give you one more chance to ask Ed a question, and then we'll say good afternoon.

(Operator Instructions).

If there's no questions, thank you very much for your attendance, and good afternoon.

Thank you, sir. Ladies and gentlemen, that does conclude the SEI second-quarter 2013 earnings conference call. Thank you very much for your participation and for using AT&T executive teleconference. You may now disconnect.