Q3 2024 Earnings Summary
- SEI reported double-digit revenue growth and margin expansion across multiple segments, driven by new client wins and expansion with existing clients, indicating strong operational performance.
- The company achieved record-level net sales events that are well-diversified across segments and clients, reflecting effective execution of their enterprise sales approach and strong market demand.
- SEI is investing in AI and automation to enhance operational efficiency and achieve margin expansion without compromising on R&D expenses, positioning the company for sustainable growth.
- The company's strong Q3 performance was bolstered by significant one-time items, including an $8 million gain on the sale of real estate and a $5.5 million one-time performance fee from LSV, which contributed $0.09 to EPS but are not expected to recur in future quarters. This raises concerns about the sustainability of earnings growth.
- The balances in the integrated cash program fluctuated significantly after quarter end, making it difficult to give a precise outlook on future contributions to operating income. The uncertainty in this program could lead to earnings volatility in upcoming quarters.
- The strong net sales events totaling $46 million in Q3 were partly due to delays from the first half of the year, with some sales accelerating closure in Q3. This timing shift may result in lower sales momentum in future quarters if such delays do not recur.
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Sustainability of Strong Quarter Results
Q: Is this strong quarter a one-off or sustainable?
A: Management believes the strong quarter reflects both immediate factors and cumulative efforts over the past two years. While they are satisfied with short-term results, they remain focused on medium to long-term indicators like pipeline growth and market positioning. Some benefits were due to timing, especially in the banking sector, but they emphasize ongoing structural improvements across all business units. They aim to expand margins and grow EPS while making investments for future growth. -
FDIC Cash Program Growth and Fee Impact
Q: What's driving growth in the FDIC cash program and fee expectations?
A: The FDIC cash program balance increased to $2.4 billion at the end of Q3, up from an average balance of $1.2 billion. This increase is due to modifications made on September 30, which allocate all non-positional cash above 1% to the integrated cash program unless advisors opt out. Management expects fees to nearly double in Q4, projecting around $20 million. The average yield is close to 4%, with the investor credit rate adjusted from 90 basis points to 100 basis points. -
Sales Event Strength and Concentration of Wins
Q: Were new sales concentrated or spread out across segments?
A: The strong sales events in the quarter were broad-based, without reliance on any single large deal. Wins were spread across all products and jurisdictions, particularly strong in private assets, semi-liquid products, and CITs. Management reports record sales and a record number of new clients, with 40% new business and 60% cross-sales, involving over 90 different clients. This breadth reflects successful execution of their go-to-market strategy and positions them well for future growth. -
Private Banks Revenue Growth Drivers
Q: What's driving revenue growth in private banks?
A: Revenue growth in private banks is attributed to a combination of factors: solid backlog delivery, operating expense management, signing new clients, and growth in professional services and data cloud offerings. These offerings help with change management for clients, speeding up backlog delivery and aiding in winning new business. Management emphasizes that investments in R&D remain critical, focusing on efficiency improvements rather than cutting R&D expenses. -
Positive Net Flows Details
Q: What drove positive net flows this quarter?
A: Positive net flows were driven by strong adoption across all product mixes, including strategies, SMAs, ETFs, and direct indexing. Repricing on April 1 contributed to the growth. While SEI mutual funds faced headwinds in the active mutual funds market, assets are staying on the platform and redistributing among other products. Management notes a net positive cash flow of $1.1 billion in the advisor market and a record addition of 114 new qualified advisors in the quarter. Tailwinds such as globalization, convergence of public and private markets, retailization of alternatives, and growth in private assets and credit are fueling significant cross-selling opportunities.
Research analysts covering SEI INVESTMENTS.