SEI Investments Co (SEIC) 2015 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the SEI first-quarter 2015 earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Al West, Chairman and CEO. Please go ahead.

Thank you. Welcome, everybody. All of our segment leaders are on the call, as well as Dennis McGonigle, SEI's CFO; and Kathy Heilig, SEI's Controller. I'll start by recapping the first-quarter 2015. I'll then turn it over to Dennis to cover LSV and the investment in new business segment. And after that, each of the business segment leaders will comment on the results of their segments. And then, finally, Kathy Heilig will provide you with some important Companywide statistics.

Now, as usual, we will field questions at the end of each report. So let me start with the first-quarter 2015. First-quarter earnings increased by 13% from a year ago. Diluted earnings per share for the first quarter of $0.50 represents a 16% increase from the $0.43 reported for the first quarter of 2015.

We also reported an 8% increase in revenue from first-quarter 2014 to 2015. And in addition, during the first quarter 2015, our non-cash asset balances under management increased by $5.4 billion. SEI's assets grew by $3.9 billion, and LSV's assets grew by $1.5 billion.

Finally, during the first-quarter 2015, we repurchased 1.5 million shares of SEI stock at an average price of just over $43 per share. That translates to over $65 million of stock repurchases during the quarter.

Now turning to sales, our net new recurring revenue sales during the quarter were strong. Of the $31 million of net new sales events we generated, nearly $24 million are recurring revenues. Each of the segment heads will address their first-quarter sales activity.

As you know, we are continuing our investments in SWP and its operational infrastructure. During the first quarter we capitalized approximately $7.3 million of the SEI Wealth Platform development and amortized approximately $10.3 million of previously capitalized development. Now, our development agenda for SWP remains the same: to deliver functionality important to the large- and medium-sized advisors and banks in the US and UK markets, as well as to further automate our operations.

As we have previously discussed, we are facing long sales cycles with jumbo banks. We have made significant progress with a few jumbo prospects, and overall market activity continues to expand. Plus, we are making progress in developing the necessary functionality for jumbos.

While we are executing the sales process with some large potential clients, we have increased our attention on asset management distribution opportunities and improving profitability in the private banking segment. Signs of this focus are evident in the last few quarterly results for banking.

In the advisor segment we have made solid progress in improving our asset gathering as well as in preparing for the rollout of the SWP to the US market. In the institutional segment our strong sales and profits throughout the world are living proof of the strong market adoption of our differentiated fiduciary management solutions.

Finally, our investment management services segment continues its success in both selling and implementing new business while differentiating our solution. They are making progress selling to larger prospects and increasing the business we do with existing clients.

So behind all of our business units, I am encouraged by the feedback I received from clients and prospects across our Company's target markets. Our reputation for delivery remains intact, and the sales activities and events in all units confirm the positive feelings in our target markets and our client bases.

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

Thanks, Al. Good afternoon, everyone. I'll cover the first-quarter results for the investments in new business segment and discuss the results of LSV asset management. During the first-quarter 2015, the investments in new business segment continued its focus principally on two areas: the ultrahigh net worth investor segment and the development of a web-based investment services advice offering, coupled with the use of mobile technologies.

During the quarter this segment incurred a loss of $3.6 million, which compares to a $3.1 million loss during the first quarter of 2014. There has been no material change in this segment.

Regarding LSV, our earnings from LSV represent our 39.3% ownership interest during the first quarter. LSV contributed approximately $34.3 million in income to SEI during the quarter. This compares to a $32.2 million contribution for the first quarter of last year.

During the quarter asset balances grew by approximately $1.5 billion due to increased market valuation, offset by some negative cash flow. Revenue for LSV for the quarter was approximately $106 million, of which approximately 5% was performance fee related.

Finally, the volatile currency markets had a net negative impact on our earnings of approximately $1.5 million during the quarter when compared to the fourth quarter of 2014. We estimate primarily due to the Canadian dollar, the euro, and the British pound's performance against the dollar that revenue for the Company was impacted negatively by approximately $3 million, while expenses were positively impacted by approximately $1.5 million during the quarter when compared to the fourth quarter of 2014. This impact has spread across our business segments and our G&A costs.

With that, I'll now take any questions you may have.

(Operator Instructions) Chris Shutler, William Blair & Company.

On the investments in new business segment, could you just talk about maybe what inning of investment you guys are in -- particularly on the online advice offering? You obviously hear a lot about new offerings in that space -- I think pretty much every other day. So just wondering if your offering there -- how it's unique? And any more details on monetizing it? Thanks.

Yes, I'd say we are still in the fairly early stages of development of that new capability. There's a number of facets to it. We focused mostly on the client experience of goal setting; as you know, we are very goals-based, -oriented across the Firm. And we apply goals-based investing, and the setting of goals, and then the implementation of portfolios against those goals in all of our asset management units.

With Goal Investor, which is what we've named this capability -- and we really focused our early-stage activities against that process. We see ourselves, as we go forward, doing some now backend testing to see if that experience would actually lead to an investor potentially using the platform, or using that capability to invest.

And that's very early-stage and I'd say very elementary in the testing mode. And then we at SEI would have to decide ultimately how to take that capability, dependent upon the results of our market testing, to determine how to apply it. And we see ourselves potentially applying it alongside of our existing capabilities in -- I'd say in the advisor business, in the banking business. Whether or not we do something with it stand-alone I'd say is to be determined.

Okay. Thanks.

(Operator Instructions) Robert Lee, KBW.

Real simple question, just on the LSV: could you just quantify the outflows? That's it.

Yes, they had -- their negative cash flow was about $700 million, and it was almost entirely rebalancing.

All right. Great. That was all I had. Thanks.

Thank you. And we have no additional questions at this time.

Thank you. I am now going to turn it over to Joe Ujobai to discuss our private banking segment. Joe?

Great. Thank you, Al. As a financial update, quarterly revenue of $111 million was up 6% from the year-ago quarter and roughly flat to Q4 2014. Quarterly profit was $12 million compared to $5 million in the year-ago quarter and also roughly flat to Q4 2014.

Given 25% of the banking revenue is from outside the US, this segment has been impacted by currency exchange. For the quarter we estimate a negative revenue impact of more than $2 million and a negative profit impact of almost $900,000 compared to Q4 2014. Q1 was also impacted by lower transaction-related revenue from brokerage and mutual fund trading programs.

Turning to new business, net sales events for the quarter were $13.2 million, of which $2.7 million is recurring investment processing revenue; $3.7 million recurring asset management distribution revenue; and $6.8 million nonrecurring investment processing-related professional services fees. During the quarter we recognized revenue for approximately one-third of the professional services sales event. The remainder should be recognized over the course of this year.

In our investment processing businesses in the US, we continue our focus on capturing a large bank client. We are making progress towards this goal. As I mentioned on previous calls, in certain cases we are able to enter into professional services agreements as we work through the discovery process and planning phases.

We are also targeting select mid-sized SWP prospects. Early in the quarter we signed a community bank for the full suite of SWP services. This is a new client to SEI, and we expect to convert this client by the fall.

During the quarter we successfully launched our SWP consultant certification program to provide third-party consultants, including large national and global firms, the knowledge and expertise necessary to advise wealth management firms as they seek to transform their business to recognize the value of SWP. In the US, the current revenue backlog of sold but not yet installed clients is $5.7 million.

Turning to the UK, as we regain sales momentum, we are also focused on growing current SWP clients. As we have discussed in the past, the SWP business model is aligned to our clients' success. As they grow, so will we.

Assets from current clients continue to grow. Net cash flow to SWP during the quarter was $1.1 billion, and assets under administration now total $35 billion.

In our asset management distribution business, for the quarter net cash flow was over $700 million, with assets under management now totaling $19.2 billion. In conclusion, we are making steady progress toward securing a large bank early-adopter client while we focus on growing our current clients and managing expense. Any questions?

(Operator Instructions) Robert Lee.

A quick question -- and I apologize; I think I missed a brief part of your comments. But did you -- I think you mentioned that there was a mid-sized advisory client in the US that you expected to bring on board later this year? Did I understand that correctly?

Yes. So we signed it early in the first quarter -- a community bank, which would be sort of a mid-sized target for us. And we would expect to convert them by the fall.

Okay. Great. And I guess the large amount of kind of one-time professional fees -- and given your comment about sometimes you get hired for those when you are working on, maybe, some large potential clients -- I guess I'm just going to put two and two together and assume that most of that is being driven by your pipeline of prospects, the one-time fees?

The majority is coming from the pipeline of jumbo SWP clients. But there is some one-time opportunity there from current clients. The majority is coming from the pipeline.

All right. Great. Just if you would maybe give us some color on kind of how you are thinking about, over the course of this year, expense -- maybe margins? Obviously, you are focused on controlling expenses, and margin has been kind of stable the last two quarters. But assuming you get some at least moderate revenue growth, are you expecting year-over-year continued progress on margin improvement, or sequentially? How should we think about that?

Yes, I think it will be modest. We're aiming towards modest margin improvement. As I have said, though, before -- once we sign some jumbos, expense may not equally tie up to revenue recognition quarter by quarter. We're really focused on three things: securing a jumbo contract and beginning conversion of some bigger clients; trying to drive as much short- to mid-term revenue as we can from our current clients; and monitoring our expense. During that process we would expect to show some modest improvement, but again, that could be impacted by the expenses associated with signing and delivering a jumbo.

Sure. And maybe one last question, if you'll just indulge me. So just how you would define kind of -- just if you would remind us how you would define jumbo versus mid-sized from kind of a revenue perspective? Is a jumbo kind of a $5 million-plus, $10 million-plus? How should we be sizing that?

Yes, I think we said in the past that jumbos are more than $5 million. But again, we are trying to really drive scale and growth of the platform. So we have targeted firms that are bigger than that. And that's what's really making up a decent amount of the pipeline opportunity.

Great. Thanks for taking my questions.

There's also -- again, also I mentioned -- you had asked a question earlier about revenue growth. We also have, certainly, an effort around driving our asset management distribution business, which, again, I would expect will grow over the course of the year and help contribute to improvements in profitability.

Great. Thanks, Joe.

Chris Donat.

Just wanted to see if you could comment a little bit about the -- if we can parse out the margins between the asset management distribution and sort of the rest of private banks? Can you say a little bit there, since the asset management distribution is about 25% of revenue -- or, sorry -- I guess you didn't quantify it at this time. But I'm assuming it's about 25% of revenue.

I think directionally we've said in the past that the Trust 3000 business, which is still a significant part of our revenue, continues to enjoy pretty significant margins -- you know, in the mid- to high 30s. We have said that the asset management business inside of AMD -- inside of banking, they would call asset management distribution or AMD -- doesn't necessarily have the same margin as some of our other asset management businesses have, because we just don't have as much scale yet inside of banking. And as you know, though, SWP obviously is where we're investing a lot of our money. So there isn't, obviously, any margin contribution there. It's all -- you know, impacts the margin negatively.

Okay. But, like, on AMD -- as it scales, do you expect margin expansions there from that?

Yes, absolutely. Absolutely. These are generally large distribution contracts. And so it's somewhat different than Wayne's business. But yes, we would expect that that scales, for there to be some positive contribution from that margin.

Okay. Thank you.

Glenn Greene.

A few questions -- the first one -- just a couple of number questions. Can you disclose or tell us the AUA in the US for SWP? I know you give us the UK.

Yes, there's only five clients installed. So we think that it's pretty small at this point, still. So we aren't disclosing that at this point.

Okay. And just to clarify, the professional services fees in the quarter -- you recognized directionally a third of it? Is that what you said?

About a third of it, yes, we recognized as revenue, because we've done the work; and it is contracted to be done over the course of the rest of the year.

And is it the kind of thing where -- somewhere in the June quarter last year, where the expenses were recognized in prior quarters? Just trying to get a sense for the margin impact from the recognition of that revenue in the quarter.

No. I mean, last year it was one of the first times that we had entered in a professional services agreement with a large prospect. And so we really waited to recognize that revenue until we actually received it. In this case it's sort of more traditional that we'll talk about a sales event, and then we'll recognize the revenue and the expense as we actually provide the services to the prospects or the clients.

So is it fair to say that the revenue on this was somewhat margin dilutive?

No, not really. So we did some work in the first quarter which had revenue and expense associated with it --

Okay.

-- and we'll do some more work over the course of the year that will have both revenue and some profitability impact for us.

Okay. And was this, like, multiple prospects that you were doing professional services fees and work for? Or just sort of like one jumbo?

It's a couple. So it's a couple of firms.

Okay. And then, finally, related to the AMD part of the business, any way to frame how fast that business grew in the quarter and what proportion of the segment it now is?

I mentioned that we had a net cash flow of about $700 million. That was up over the fourth quarter of last year. And asset management is roughly about a third of our business from a revenue standpoint.

Okay. Great. Thank you.

(Operator Instructions) Chris Shutler.

So first, just wondering -- the outlook for the CapEx on SWP, the capitalized costs? So I know you were at, I think, $39 million or so in 2013. That trended down a little bit last year to $34 million. Now it's -- I think I heard there was about $7 million in Q1.

So is that a trend? And so how should we be looking at the capitalized costs over the next few years? And then on the amortized piece of previously-developed SWP costs, when should we be thinking about that beginning to plateau?

So Kathy or Dennis typically answer these questions, because we look at these more at a corporate level. So I could turn this over to them.

Chris, it is safe to say the capitalization is trending down from prior years, and we would expect that to continue. As it relates to amortization, I wouldn't say we are at peak yet; and that will take a little bit of time, because we still -- as we build things, and capitalize that portion of that build, and we bring those items into service, it adds to the amortization expense. But as you also know, we have about seven years left in terms of remaining life of the asset.

Yes.

We add to the asset and begin to amortize, it assumes the remaining life. So anything we would, let's say, bring into service today that we have capitalized would assume the remaining seven-year life. So we're not quite at peak. And I would say that will happen in a couple years.

Okay. Makes sense.

But it won't be significant between now and then.

Yes. Okay. Great. And then, Joe, just one other one. As you guys talk to larger bank prospects, what are the key functions that you think those banks are likely to want to move from in-house to outsourced with SEI?

I think at the largest banks, you are talking about back- and middle-office legacy systems that are expensive to maintain and don't necessarily meet the needs of their clients or their advisors. So at the largest banks you see a focus on the back towards the front; the mid-sized banks like the one I mentioned earlier today -- they will consume the whole suite of services from us.

In some cases, some banks have tried to build some of those finance services and haven't been particularly successful. So there is some consideration of front-end capabilities, too.

Okay. Thanks.

There are no additional questions at this time.

Thank you, Joe. Our next segment is investment advisors. Wayne Withrow will cover this segment. Wayne?

Thank you, Al. During the first quarter we continued good cash flow momentum and had a very solid quarter of new advisor recruiting. Assets under management were $48.9 billion at March 31, a 14% improvement from a year ago.

During the quarter we had almost $1 billion of positive net cash flow. Revenues for the quarter were $74 million. This compared to $66.4 million for the first quarter of last year, an increase of 11%.

Net cash flow was the largest driver of revenue growth, aided by market depreciation. Spreads for the quarter increased from the first quarter of last year, primarily due to an increase in direct cost and personnel costs associated with our asset growth and increased expenses associated with the SEI Wealth Platform.

On the new business front, we signed 195 new advisors. This is a new quarterly record. Our pipeline of prospects remains very strong.

Moving on to the status of the SEI Wealth Platform, we continued to implement the learnings from our previous conversions and are in the middle of planning a larger conversion for October 31 of this year. After this conversion we will begin looking for new revenue opportunities enabled by the platform.

In summary, net cash flow and new advisory recruiting were very positive for the quarter. Momentum remained strong, and we continued to make progress on the Wealth Platform. I now welcome any questions you may have.

(Operator Instructions) Robert Lee.

Two questions, first -- and I apologize; I seem to keep missing things today. Did you comment on kind of what the net cash flows were?

We had almost $1 billion net.

Okay. Great. And then I'm just kind of curious if the DoL proposal about a fiduciary standard for retirement accounts, and the SEC looking at it to -- acting at some point. So how are you thinking about that for the impact on your business?

I presume it would be a good thing. But how do you think maybe it changes advisor demand for what you do? Or maybe -- just kind of getting a sense of how you think, how you take it for your business.

Right. Well, it obviously depends on how this whole thing -- the final rules -- shake out. But one thing to keep in mind is all of our clients are fee-based advisors as opposed to commission-based advisors. So anything -- the regulation on that front tends to favor fee-based advisors as opposed to commission-based advisors.

Great. Thanks for taking my question.

Chris Donat.

Just wanted to ask on the record number of advisors -- what do you think is driving that? Is that where you stand now with SWP? Is that helping convert? Or have you been making more of a sales effort? Or is there something in the advisor world that's causing them to flock to you right now?

I couldn't point to one single factor. I think the SEI Wealth Platform is definitely a contributor. I think we've expanded the sales force over the past couple of years, and that's really starting to get a lot more traction. I think the environment is a little bit better. So I can't contribute (sic - attribute) it to one cause. I just think it's a lot of singles and doubles along the way.

Okay. And then you made a comment that cost for SWP rose. Is that something that will continue to rise, like your share of some of the amortization, as more assets get put on from your segment? Or is there something else going on there?

I think we implement a lot of learnings from the clients we previously converted. And we increased the spending on the platform. I think we're trying to make it more robust. We are trying to capture -- to increase revenue opportunities, and we'll invest wherever we need to invest to do that.

Okay. So this is more of an investment spending from your side on SWP?

Yes.

Okay. Got it. Understood.

Chris Shutler.

So first, on the Halloween conversion you talked about for later this year -- just wondering what percentage of the advisor base is going to be on SWP after that?

We haven't told anyone who's -- that we are converting. We haven't told them yet. So maybe I'll wait until next quarter to tell you, but I think we will probably more than double the amount of assets we have in the platform.

Okay. Great. And then the fee rate ticked down, I think, about 1 basis point in the quarter. Anything to call out there? Just wondering how you are feeling about fees in general. Do you expect stability from here? Or is there any reason to believe that you could see fees increase or decrease by a few basis points between now and the end of the year?

I don't think there's much variation in fees quarter over quarter. I think they actually went up a little bit, didn't they?

I might be wrong. I might have the wrong math in front of me. I apologize.

Yes, I think before the first they went up. I think first -- at first it they went down a little bit.

Yes, okay.

And if you remember, we had some fee reductions we did in the fourth quarter that we talked about.

Yes.

But they are not going to affect sequential comparisons past the fourth quarter of last year.

Okay. Thank you.

(Operator Instructions) And we have no additional 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.

Thanks, Al. Good afternoon, everyone. As usual, I'm going to start with the financials for the quarter and then discuss sales activity. Revenues of $72 million for the first quarter increased 7% compared to the year-ago period. New client funding and market appreciation contributed to the increased revenues.

Quarterly profits of $38 million increased 11% compared to the first quarter of 2014. Margins increased to 52% for the first quarter. Asset balances increased by $5.7 billion during the last 12 months, approaching $78 billion on March 31. Net new client assets funded during the quarter were $1.9 billion, and the backlog of committed but unfunded assets at quarter-end was $1.7 billion.

First-quarter sales totaled $2 billion. Our continued sales growth is consistent with increasing market demand for outsourced investment providers. We do assume fiduciary responsibility and investment discretion on behalf of their clients.

SEI's 20-year track record, rich resource model, and large global client base of fiduciary management relationship positions us well to continue to grow our institutional business. And we 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) Glenn Greene.

Could you just maybe give us an update on the DC opportunity -- what kind of traction you getting there? Is it still really early?

Sure. We have a lot of focus -- there's a lot of energy on the DC opportunity. I think we're getting positive reinforcement out in the marketplace and growing a pipeline of nice opportunities. So we are encouraged.

Okay. And then just on the core base business, the sales -- the $2 billion seems, you know, a pretty solid quarter. Maybe just sort of commentary on sort of the sales activity broadly and pipeline activity going forward? Kind of how you are feeling?

Yes. We continued to execute insofar as all of our different programs were lead generation. And the pipeline is solid; I think it's going to continue to support the growth that we are expecting and we are planning.

Okay. And then just lastly, the margin uptick of almost 200 basis points Q-to-Q -- and I don't know if it's a new record, but certainly a very high number -- was there anything unusual in the quarter? Or would you sort of be tempering our expectations going forward?

I guess what was unusual is you got to it before Chris Donat, so that's unusual. No, I think the margins a pretty sensitive to little changes. So I think as the year goes by, you'll continue to see increased sales expense, because we ratchet up our sales expectations quarter by quarter. That's how the plan is kind of built. So those costs clearly impact the margins.

One point I should note on the sales for this quarter is that the $2 billion of sales -- there was one large client in there, and that large client would be one of these clients where the advisory fee would be separate from the asset management costs or the money manager fees. So I wouldn't look at that and say that's a 35 basis point kind of revenue calculation.

I can't give you a lot more guidance, because again, these deals -- especially the larger ones -- kind of happen in two tranches. We understand what the public market fee would be, kind of, and revenue, day one; but we don't always understand the opportunity for the alternatives, because that doesn't happen until after you do the asset allocation and the goalsetting work.

So it's kind of premature to give you an exact sense of what that revenue would be. It would be less than what you normally would have in your model.

Okay. That's helpful. Thank you.

Chris Donat.

I got nothing. Glenn asked the question. You answered it. (laughter)

Chris Shutler.

Just wondering to what extent you are seeing opportunities with organizations looking to outsource kind of their whole operation versus maybe just certain sleeves? So, for example, alternatives? And then maybe if you could just touch on what you are doing in the alternatives area -- I've seen some hires recently -- and just where you stand from a capabilities perspective versus where you want to be?

Sure. Well, we really started our business insofar as really going after a full, complete outsource for a client. We felt as though that was where the most value was for us. So if you were to look at our revenue base and our client base, I would say that 95% to maybe 97% -- maybe even a higher number -- is really kind of full outsource.

And by that I mean the client hires us; we become their advisor. We give them advice. We implement that advice, okay, and we do all the -- if you will, the administration the trust custody and that type of work for them.

So our value proposition has always been along those particular lines. Certainly, as the marketplace has gotten more invested and more sophisticated in the alternatives space, we've continue to add that as other asset capabilities for our clients.

So we have pretty much a full range of alternatives. So we have several different hedge funds. We have several products that would be, like, a structured credit, very focused kinds of opportunities. We have real estate; we have private equity. So we have a pretty full spectrum of an offering there for our clients.

Okay. Thanks.

(Operator Instructions) Robert Lee.

So keeping with my theme of missing pieces bits and pieces here or there, what were the net client fundings in the quarter? And any color you can give behind that -- like, how much may have been, as you kind of describe with the sales events, kind of the advisory versus assets? I'm just trying to get a sense of the breakdown.

The funding for the last quarter is $1.9 billion. Insofar as the bulk of that, I believe -- let me just check -- would probably be in sort of a traditional kind of a bundle type of an approach. Yes, I think we're okay. Yes, that's accurate.

Okay. Great. That was it. Thank you.

Thank you. And we have no additional questions at this time.

Thank you, Ed. Our final segment today is investment managers. I'm going to turn it over to Steve Meyer to discuss this segment. Steve?

Thanks, Al. Good afternoon, everyone. For the first quarter of 2015, revenues for this segment totaled $65.4 million, which was $4.4 million or 7.1% higher than our revenue in the first quarter of last year. This increase in revenue was primarily due to an increase in our asset balances along with new client fundings in the alternative market.

Our quarterly profit for this segment of $24.7 million was approximately $2.9 million or 13.4% higher than the first quarter of 2014. This increase in profit was largely due to the increase in our revenue for the quarter, offset by an increase in our ongoing operational and personnel expenses.

Third-party asset balances at the end of the first quarter of 2015 were $372.1 billion, approximately $16.2 billion or 4.6% higher as compared to our asset balances at the end of the fourth-quarter 2014. The increase in assets was primarily due to net positive cash flows of $15.4 billion, enhanced by market appreciation of $800,000.

And turning to market activity during the first quarter of 2015, we had another strong sales quarter. Net new business sales events totaled $8 million in annualized revenue during the quarter. Overall we continue to execute on our growth strategy and see strong market acceptance of our solutions and value proposition. While the market is more competitive than ever, we continue to focus our efforts and investments on the emerging needs of our clients and prospects.

Middle-office, global compliance and regulatory needs, risk management, data services, and robust technology continue to drive demand in the market. Managers are in need of a comprehensive platform for their business. To that end, we will continue to invest in our solutions and operations as we see continued growth opportunity for our business.

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

(Operator Instructions) Chris Donat.

Just on your margins, at 38%, that's as high as I've seen in the last few years. Anything interesting going on there? Because as I look at your incremental margins, like in the last -- over the last year, for every $1.00 you've added of revenue, it's been $0.67 of profit on that.

How high can we expect these margins to go for you in this environment? Or is there something you need to be spending on in the future?

Chris, you never disappoint me. You are always the one with the margin question.

So the margin -- we have talked about this before. I feel comfortable saying that the margin, we feel, is sustainable in kind of that mid-30% range. I think the reason we've seen a little bit of an uptick in the margin is fundings have picked up a little bit. And as we've talked over the years, as we go to larger clients, I think we are achieving a little bit more scale.

I think also some of our investments that we had planned last year, while we are still investing, we might not have invested as much as we had planned to. But what I would say is certainly this year we have a plan to continue to invest. We are building out several new solutions. So while 38% is a good number, and we are always looking for ways to scale, I wouldn't be surprised if that's a little choppy quarter to quarter as we uptick investment.

Okay. And on the revenue side, as I look at, say, the growth over the last year or two, can you give us a rough sense of how much is from existing clients and how much is from new?

Well, if I look at last year, kind of at -- you know, I'll talk in terms of new events. I believe last year we actually led the way with new names, but it was probably around 60%/40% in total, new names versus standing client share or existing alt share.

If I look at the Q1 sales results, it actually flip-flopped, and 60% came from expanding our existing wallet share with clients, and 40% were new names. The good news is we have a strong pipeline both of new prospects, new names, non-SEI clients as well as additional services and solutions with existing clients, so I'm expecting strong growth from both.

Okay. Thanks very much.

Robert Lee.

I guess my question is -- and maybe this isn't the best way to think about revenues -- but if I look at kind of the year-over-year revenue growth, and this probably doesn't fully reflect what you took on board in the first quarter, but the year-on-year revenue growth in the segment, I guess, is around 7% or so. So if I look at the growth in the underlying assets you are administering, that's been growing at a low teens rate, I guess.

So I guess historically I've kind of thought of this in the context of revenues per average asset. But is that maybe not the right way to look at it? Because if I look at that over time, it's been pretty steadily trending downwards. So maybe that's just a reflection of larger clients, or -- how should we be thinking about that? And any reason to think that that trend won't continue?

Well, I'd say there's a couple of things. One, we have a diverse portfolio of solutions and clients. So while on our traditional side, we might bring in a less complex mutual fund or collective fund and the processing around that, obviously the revenue associated with that is on the lower side -- versus a more complex, full-service, middle-office alternative client. So it really depends on the mix of clients we're bringing in.

But what I would say is -- especially with the asset -- you know, in some of the services we do, the assets somewhat outweigh the revenue you get, just because they are lower-level services, or maybe back-office or limited middle-office versus larger asset pools. So that might be having a little bit of a dilutive effect.

What I do see is, as we are going forward and even with some of the larger -- while there are larger managers and larger assets, we are seeing some complexity to them. So I would expect for that number to normalize and even out over the next 12 to 16 months.

Great. That's helpful. Thank you, Steve.

Glenn Greene.

I actually have a very similar question to Rob. So if I sort of -- but looking at it a different way -- so if revenue growth is 7% this quarter; it was roughly 8% last quarter, looking at your sales events, which -- you know, call it $35 million each of the last two years, and directionally on pace for similar this year, at least through the first quarter. On a base business of $250 million, the sales events that you've seen in recent quarters would suggest faster revenue growth than you are seeing. Your sales numbers last year were like 14%, 15% of your total base of business. Now we are seeing 7%, 8% revenue growth. So I've got a disconnect on that.

Well, that's assuming that if I sell everything, it funds and gets installed within a year, which it does not. So as a matter of fact, we've talked about the longer sales cycle. So while the sales cycles are long and can take anywhere from 12 to 16 months, then, especially as you go upstream, you have larger, complex organization -- the parallel period, the time it takes to implement, and usually it's chunked up into different phases -- that takes a longer period to come in. So the piece you are probably missing is our backlog, which are sales that we've had that have not funded yet -- that are not driving revenue yet.

Okay. Is that a figure you can sort of disclose us or tell us the trend on?

Yes. I think right now that is -- I don't have the exact number in front of me, but is hovering -- it's been consistently hovering -- it's around, I think, right now around $32 million.

Okay. I guess big picture, it's -- the conversion timelines are taking somewhat longer, all else equal. And I know you did maybe 18, 24 months ago?

Yes.

Because it's more complex deals that you are winning?

Yes, Glenn. I'd say the one other phenomenon we've seen -- and we had a little bit of this in first quarter -- while we actually had pretty decent fundings in Q1, we also had a number of funds, whether they be in the private equity realm, which were at their drawdown stage, so they went away; or some liquidations -- some funds that were not growing -- maybe the manager decided a different strategy or to return the investments back to their shareholders. We did have an uptick in those, which I think muted Q1 a little bit.

Okay. Great. Thanks, Steve.

(Operator Instructions) Chris Shutler.

Sorry, I just missed the comment you made on the $32 million. What was that again?

Backlog. So there are deals that we have sold and have not yet funded.

Okay. Perfect. And then just one bigger-picture question, Steve. You talked on the last call about, I think, SEI being one of the fund administrators that's you feel is really focused on enabling technologies and being on the leading edge for clients compared to, I think you said, some more commodity-type accounting players. Can you maybe just give us a few examples of what you mean by enabling technologies and the ways that you do think you differentiate yourself from some of the bigger peers?

Yes, sure. We'll probably get into this a little bit more for our investor day. But in the past, people just focused on providing a back-office or a middle-office operational solution. And what we really see now is the need -- especially as it's become much more competitive for investment managers -- they really need a comprehensive platform, a technology platform that not only provides them reporting and information around their portfolios; their back-office; their middle office; their client; but really data and analytics around their business, trends around their business, and certainly around compliance and regulatory issues.

We've been investing pretty steadily over the past several years, at least the past 4 to 5 years, in building out that technology, so they have one seamless platform powered by a very detailed and comprehensive dashboard that gives them a look into their business. That really sits on top of everything we do -- you know, the underlying operational back-office, middle-office processing. So at 60,000 feet, that's kind of a general overview of what we're investing in and where we think the differentiator is.

All right. That's helpful. Thank you.

(Operator Instructions) And we have no additional questions at this time.

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

Thanks, Al. Good afternoon, everyone. I have some additional corporate information about this quarter. First-quarter 2015 cash flow from operations was $77.9 million or $0.46 per share. Our first-quarter free cash flow was $62.5 million or $0.37 per share. And first-quarter capital expenditures, excluding the capitalized software, were $7.4 million. And we project that the remaining capital expenditures, again excluding capitalized software, would be around $19 million.

Our tax rate was 35.4% for the first quarter. And that's really in line with our expectation of what the annual tax rate will be.

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

(Operator Instructions) Michael Lipper.

Kathy, you are probably the absolute worst person to answer this. But I looked across all of your segments, and collected funds seem to be flat to down. Is there anything that you can do that would excite that market?

Generally our collected funds services are really more admin-oriented, not asset management focused in terms of our selling as part of our asset management solution. We do use a collected fund structure to wrap some of our asset management services, but the collected fund line item in our -- on that one schedule in the earnings release is really more attributable to administrative services. So I guess we would like nothing more than -- you know, it would be great if those who were clients of ours on the investment management services side grew their business in the collective side, because that would enhance our service offering. But we're not really focused directly on the collective structure as a market per se.

So you don't see anything that will generally excite that market?

No, we wouldn't even view it as a market per se. We would you it as a product structure that wraps around asset management capabilities that's scalable to particularly the institutional space.

Thank you.

Thank you. And we have no additional questions at this time.

Thank you, Kathy. So, everybody, in summary we feel that first-quarter 2015 was a solid quarter, created by concentrating our efforts on maintaining highly satisfied clients and growing new business events, controlling costs, and investing in projects that are critical to our future. So looking ahead, we intend to keep our focus on long-term growth in revenue and profits.

So that concludes all of our remarks today. I'll give you one more chance to ask any questions you might have.

(Operator Instructions) We have no additional questions at this time.

Well, thank you all for joining us today, and have a good afternoon. Thanks a lot.

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