Ladies and gentlemen, thank you for standing by. Welcome to the SEI Third Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Chairman and CEO, Al West. Please, go ahead.

Thank you for joining us today. All of our segment leaders are present, along with our CFO, Dennis McGonigle, and our Controller, Kathy Heilig. I will begin by summarizing our current situation and the third quarter results for 2020. Then, I will hand it over to Dennis to discuss LSV and our investment in the new business segment. Each segment leader will later share insights on their results, and finally, Kathy will provide key company-wide statistics. We will take questions at the end. Before discussing the third quarter results, I want to address the circumstances we are facing. We are still navigating the COVID pandemic worldwide. Since the onset of this health crisis, our top priority has been the safety and health of our employees and their families, alongside ensuring we continue to provide seamless service to our clients. I am extremely thankful to our workforce for their adaptability in moving between workplace and home, while supporting our clients and each other in our communities. Our strength at SEI is most evident in challenging times. We pride ourselves on long-term investments, backed by proven business models developed over the last 50 years. These are the foundation that allows us to endure uncertainties and emerge from today’s crisis even stronger and better positioned for future opportunities. Our formula for success is clear: focus on workforce health and productivity, invest in our leading technology, innovate constantly, and provide world-class service to our clients. We will persistently pursue our strategic vision and launch initiatives that will be central to our future achievements. We are eager to share our progress with you. Now, let's turn to the financial results from the third quarter of 2020. Earnings fell by 16% year-over-year, with diluted earnings per share at $0.75, down 13% from the $0.86 reported in the second quarter of 2019. However, revenue increased by 2% from the third quarter of 2019 to this year. These results benefited from a rebound in capital markets, with our non-cash asset balances growing by nearly $10 billion due to cash flows and market appreciation. LSV's balances increased by almost $1 billion during the quarter. We also repurchased around 2.1 million shares of SEI stock at an average price of $51.54, totaling approximately $109 million for the quarter. Additionally, we continued investing in our growth initiatives, including One SEI, a key part of our growth strategy that integrates existing and new SEI platforms for all client types and markets. From this investment suite in the third quarter, we capitalized about $6.1 million in development costs and amortized approximately $12.2 million of previously capitalized development. We have not yet capitalized any work from One SEI. Regarding revenue production, the third quarter sales events, net of client losses, amounted to about $28 million, expected to yield approximately $15 million in annualized recurring revenues. We are encouraged by this year's sales performance, which reflect the success of our entrepreneurial sales teams. Our unit heads will detail their specific sales results. We have set three business objectives: to ensure smooth and safe operations, to grow our business by aiding our clients in their growth, and to foster continuous innovation for future expansion. We recognize that the landscape has changed, and we have been adjusting our approaches accordingly. We feel prepared to seize the opportunities that arise from this significant change. This wraps up my formal comments. I will now hand it over to Dennis for an update on LSV and our new business segment investment. Dennis?

Thanks, Al. Good afternoon, everyone. I will cover the third quarter results for the investments in the new business segment and discuss the results of LSV Asset Management. During the third quarter 2020, the investments in the new business segment continued its focus on the ultra-high-net-worth investor segment through our private wealth management group and additional business and research initiatives, including those related to our IT services business opportunity and the modularization of larger technology platforms into standalone components for the wealth management and investment processing space to deliver on our One SEI strategy. During the quarter, the investments in new business segment incurred a loss of $9.8 million, which compared to a loss of $4.5 million during the third quarter of 2019. This increased loss reflects an increase in investments, specifically related to our One SEI strategy, which we have discussed in the prior couple of quarters. Of our expenses in this segment, approximately $8 million is tied to that effort. The One SEI strategy is a company-wide initiative to open business opportunities across our entire company, as well as creating new business lines. Regarding LSV, our earnings from LSV represent our approximate 39% ownership interest during the third quarter. LSV contributed $28.3 million in income to SEI during the third quarter of 2020. This compares to a contribution of $37.6 million in income during the third quarter of 2019. Assets during the second quarter grew approximately $1 billion. LSV experienced net negative cash flow during the quarter of approximately $2.2 billion, offsetting market appreciation of approximately $3.2 billion. Revenue was approximately $94.9 million for the quarter with no performance fees. Since I know the question is coming on expenses, I thought I would address that. Expenses grew approximately $13 million, or 4% from second quarter 2020 to third quarter 2020. Just under one-half of this expense growth, approximately $6 million relates to salary adjustments we made at the beginning of the quarter consistent with our annual compensation process for most of our workforce as well as continued hiring in areas of growth. In addition, approximately 20% or $3 million was due to a spike in health insurance costs during the quarter, which are not predictable and driven by actual experience since we are generally self-insured. The final 30%, or approximately $4.5 million is essentially one-time in nature related to some severance expense and professional services fees and costs associated with trade corrections as a result of a couple of incidents disclosed in our second quarter 10-Q. These costs are spread across our segments as well as general and administrative. I hope that breakdown helps. Finally, our effective tax rate for the quarter was 21.4%. I will now take any questions you have.

Thank you. And now we will go to the first line of Ryan Kenny with Morgan Stanley. Please go ahead.

Hey, Dennis, how are you?

Hey, Ryan. Good. Welcome onboard.

Thank you. Just want to get a sense of how you're thinking about the trajectory of One SEI spend. Do you still think that it's something that peaks this year and in 2021 should more or less resemble 4Q 2019 or is there more to do next year?

Yeah. There's – as I think, we said on the last call, there's still more to do in the early part of the year, but it'll start to come down over the course of the first half of the year and then certainly into the second half of the year. So we're – as we said in the past, it's a project, and it'll take the trajectory more of a project than a sustainable platform build.

Thanks.

You’re welcome.

Thank you. Next we’ll go to the line of Robert Lee with KBW. Please go ahead.

Great. Hi. Thanks, Dennis. So far all is well with you.

Yeah. Thanks, Rob. You too.

Thank you, on the hear. Two quick questions. I guess, just with LSV, I mean, obviously they've been struggling with flows and I mean assets down a bunch year-to-date like 24%. I mean, I don't know if there's any color insight you may have into kind of it’s known – if they have anything in terms of known redemptions that we should be thinking about as we look ahead? Or any reason to think that this – there could be some change in the near-term trends over the coming quarters?

The trends are clearly not favorable, particularly for value investing, and since LSV focuses on that market segment, they are affected as well. There isn't much predictability from quarter to quarter. In the last quarter, around half of the negative flows came from clients who left and the other half from existing clients who were simply reallocating. If the outlook for value investing improves, we might see a turnaround as more capital returns to that part of the equity markets. However, it's really unpredictable. A couple of quarters ago, they had positive movements, which adds to the uncertainty. So we're just...

Sure.

We expressed strong confidence during the last call about what we're doing and the value we provide. Our team understands their strengths well. The department has faced challenges like this before, although this particular situation is more extended than past experiences. Historically, when conditions change, they tend to shift significantly in our favor.

Great, I appreciate it. As a follow-up, I'm curious if the $4.5 million you mentioned includes any expenses related to the ransomware attack on one of your vendors at the end of July, which exposed some client data. Have you experienced any financial impact from that? Additionally, has this incident affected your approach to working with outside vendors?

No. There is a part of the $4.5 million expense related to that event, and we do not expect it to happen again. Some of that cost was incurred to ensure we managed that particular vendor effectively. We are always striving for constant improvement, and vendor management is an area where, regardless of this incident, we would maintain our consistent approach to risk management. This situation highlights that our vendor program would have identified those issues even if they had existed beforehand. We are reviewing everything related to this matter. I will defer any follow-up questions to Steve as they pertain more to end-market elements. However, we believe that, from a market perspective, this incident is behind us, and our focus is on assessing our situation and enhancing our processes moving forward.

I mean, should we expect that there may be at least for a couple of quarters a little bit more kind of trailing expenses related to this or that it's pretty much behind you?

Yes, I would say they are incrementally looking at this. Given what we expensed in the third quarter, I don't see anything additional beyond that; it will probably decrease slightly. The only area where we might have some out-of-pocket expenditures will be on professional services, like consultants and others. However, I wouldn't characterize it as being greater than what we incurred in the third quarter.

Okay. Great. Thank you for taking my questions, Dennis.

No problem. Thank you.

Thank you. Next we'll go to the line of Chris Shutler with William Blair. Please go ahead.

Hi, Dennis, good afternoon.

Hi, Chris.

So let's see. I guess, first, I want to ask about the One SEI just to reiterate. So you said about $8 million of expense in the new business segment was One SEI?

Yes. That's consistent with second quarter as well.

Yes. In terms of our outlook going forward, we plan to maintain the expense level of approximately $8 million per quarter into early next year, after which we anticipate it will start to decrease. How much do you expect it to decline as you move through 2021?

Yes. I expect it to be gradual in the first quarter, slightly more in the second quarter, and then significantly more in the third quarter, hopefully leading to it being mostly resolved by the end of the year.

Okay. Great. Can you quickly explain the healthcare cost item you mentioned? Just to confirm, is the $3 million an ongoing expense?

No, there are several factors at play. First, we are self-insured for healthcare, which means we have catastrophic coverage but generally we pay as we go. In the third quarter, we noticed a significant increase in healthcare usage as many people who had deferred their medical appointments and treatments due to COVID in the second quarter returned for care. This led to a catch-up effect in healthcare usage. Additionally, we faced one particularly significant individual health case that contributed to our expenses. I do not anticipate this situation recurring in the fourth quarter, although there may still be some catch-up, but things should return to normal.

Thanks for the information. Could you clarify the one-time expenses you mentioned, totaling $4.5 million? Were there any segments where these expenses were more significant than others?

It was likely a mix of general and administrative expenses, with some linked to investment managers and severance costs in the institution, along with a small amount in banking. Overall, the costs were fairly widespread.

Okay. All right. Thanks a lot, guys.

So its pretty good by the way.

Okay. Make sense. Thank you.

And I do have a question from Owen Lau with Oppenheimer. Please go ahead.

Thank you for taking my question, Dennis. So some companies started to talk about upside and downside of working from home. Could you please give us an updated view of SEI's operating model going into 2021? And how should we think of maybe the T&E save any potential, would that say save or any other additional G&A spend going into 2021? Thank you.

Sure. Currently, we have about 250 employees in our offices, primarily in Pennsylvania. We've recently informed our workforce that we will not be bringing back a significant number of employees until at least March 1. A few months ago, we were optimistic that the pandemic would have progressed more, allowing us to bring back more employees by now. Alongside this announcement, we reminded our team that there could be situations where some employees might need to come into the office for specific job functions, especially as we approach year-end processing. Regarding costs or adjustments, I don't anticipate any significant changes over the next quarter. We're mindful of ensuring that our employees have a comfortable work-from-home experience, and we've already implemented many measures in that area. We also recognize the challenges faced by working parents, particularly those with school-aged or younger children, and have made some adjustments to provide support. As for travel and entertainment, I don't expect any changes in the upcoming quarter. We do not plan any major client events or celebrations. Travel and movement of our workforce into the field, as well as client visits to our campus, are happening but on a very limited basis. I expect this to gradually increase over time, but it won't return to what one might consider normal for some time. This is mainly because we are cautious regarding our employees' safety and also because clients are not keen on having many visitors. We are prepared for safe campus visits and have established protocols for employees who need to travel, whether by client demand or willingly, but I do not see significant changes in travel and entertainment.

Thanks very helpful. Thank you.

Welcome. Thank you.

Thank you. Next we go to the line of Robert Lee with KBW. Please go ahead.

Great. Thanks. Just a tax follow-up maybe 2. I know it's always hard to predict just given moves around with option exercises and what not. But any venture where you sit now, what you're kind of thinking of that as a kind of tax rate going forward?

Yes. I think it will be in this range. In the third quarter, we receive a slight tax benefit from certain expiring elements, and for the most part, it should be in a similar range in the fourth quarter as it was in the third quarter.

Great. And perhaps one last thing regarding a few straightforward patients. I know discussing hypotheticals is not ideal, but if we were to face higher corporate tax rates in the future, do you expect that a 700 basis point increase would represent the full impact on your operations? Or do you believe it could potentially affect foreign-sourced income differently, resulting in a lesser impact? I'm trying to understand your perspective on this.

Hypothetically, I think we would have to prepare for any, I would say flat direct increase in the statutory rate without any other elements of adjustment. It will probably hit us pretty directly.

Okay. Thank you for taking my hypothetically.

Yes, and I don't know if you recall when the tax cut occurred, we got pretty much full benefit from that as well.

Right.

And there's also this little thing on most companies' balance sheet called deferred tax assets or liabilities. Those have to adjust as well. So you get these one-quarter anomalies on that, and we all have that. We don't have it probably as much as most companies something to watch out for hypothetically, hypothetically.

Hypothetically. Thank you. Appreciate it.

Thank you. And I have no further questions in queue at this time.

All right. With that, I'll now pass it on to Steve to talk about the Private Banking segment. Steve?

Thanks, Dennis. Good afternoon everyone. For the third quarter of 2020, revenues for the segment totaled $114.8 million, which was down 2.1% from the third quarter 2019, which was due primarily to previously announced client losses and a decrease in our asset management revenues. In comparison to the second quarter of 2020, revenues for the segment were up 6.6% for the third quarter, which was due primarily to one-time revenues tied to implementation activities. For the third quarter of 2020, quarterly profit for the segment was down $4.7 million from the third quarter of 2019. This year-over-year decrease was primarily driven by previously announced client losses and a decline in our asset management business. Quarterly profit was up about $1.7 million from the second quarter of 2020, mainly driven by our increase in one-time revenues. Turning to sales activity. For the quarter, we closed $29.8 million of gross recurring sales events and recontracted 8 clients for another $22.6 million in revenue, which in total solidified $52.4 million of recurring revenue and resulted in approximately $600,000 of net recurring events for the investment processing business, offset by a negative $1.3 million in asset management events. This offset brought our total net recurring events for the quarter to a negative $700,000 for the segment. The difference between our gross events and the net events was primarily due to a small net down in one of our deals signed for the quarter. The average term for our recontracts this quarter was 3.9 years. And also in the quarter we closed $11 million on one-time sales. I'm pleased to announce that during the quarter, we signed an agreement with one of our largest and longest-running client partners U.S. Bank to adopt the SEI Wealth Platform. U.S. Bank, the fifth largest bank in the nation, has been a client of SEI since 1977 and will join over 50 other signed clients committed to utilizing SWP as the core technology and infrastructure to grow and modernize their wealth management business. In July, U.S. Bank signed this long-term SWP contract and implementation agreement. U.S. Bank selected the SEI Wealth Platform to fuel their global growth strategic initiatives and to take advantage of an upgraded technology and infrastructure solution set that will power the future of their wealth management and investment services business. U.S. Bank will consume SWP in a Software as a Service model. As this is a large-scale implementation, we expect a multi-phase multi-year conversion. In the interim, U.S. Bank will remain on our TRUST 3000 platform. We have started implementation activities with U.S. Bank. This event is significant for us for several reasons. First, it validates our One SEI strategy, as we are able to modularize our platform and approach to offer only core-to-core back-office for SWP and move this agenda faster finalizing it during the pandemic. Second, it allows us to land SWP with U.S. Bank and then provides us the opportunity to expand our additional SWP front-office capabilities to U.S. Bank. Third, this is a large-scale SaaS adoption of SWP, further validating the broad capabilities of SEI's Wealth Platform. And finally, this will allow us to support U.S. Bank's continued global growth in a more meaningful way. We have enjoyed many milestones as long-time partners with U.S. Bank in this industry, and we are thrilled to be able to continue our long-term partnership as well as to expand our relationship. Also during the quarter, we signed an agreement with a new client to SEI, Pacific Premier Trust, a division of Pacific Premier Bank. We won this business in a competitive process and we expect Pacific Premier Trust to migrate to SWP from a competitor platform in the first half of 2021. We look forward to welcoming them to the SEI family and supporting their future growth initiatives. From a U.K. perspective, we continue to see – continue expansion and growth from the Fusion/Schroders migration and continue progression with the HSBC implementation. As an update on our backlog, our total signed but not installed backlog is approximately $73.1 million in net new recurring revenue. Turning to implementation activity. In the third quarter we successfully converted two clients to the SEI Wealth platform: Choate, Hall & Stewart LLP in Boston Massachusetts; and Legacy Trust Company in Houston Texas, both existing TRUST 3000 clients. Both clients were successfully brought live on SWP in a 100% remote environment. While others in the industry are experiencing implementation delays, we continue to install clients on time and on budget. Throughout the quarter, SEI and our client partner teams continue to successfully operate in a virtual environment and met all milestones and live dates to avoid any disruption to our clients' business. The teams have enhanced our remote training and implementation capabilities and the continued success of these conversions will ensure our ongoing ability to bring clients live under unforeseen circumstances. This capability to finalize these implementations during these disruptive times is a testament to our clients, our workforce and bodes well for the future. From an asset management standpoint, total assets under management ended the period at $23.5 billion, representing a 2% increase from the second quarter of 2020. Our AUM increase was due to market appreciation. Our cash flow for the third quarter 2020 was a negative $314 million. Turning to the business environment. Despite the ongoing pandemic and the challenges that has brought, we continue to operate as business as usual and our workforce continues to rise to the occasion. And across our company we have executed extremely well finding new ways to engage clients and prospects. I'm encouraged by the continued strong market activity we are seeing and the growth opportunities in front of us. I am further encouraged by the execution of our One SEI strategy and the investments we are making in our platforms and business to drive sustainable growth. Our people, our culture and our technology are differentiators, and I feel well positioned due to them. That concludes my prepared remarks and I'll now turn it over to any questions you may have.

And we'll take our next question from Ryan Kenny at Morgan Stanley. Please proceed.

Just a question on the fee rate. So, if I look at investment managers' revenues over your average assets under administration and management it looks like the fee rate came down a bit this quarter. I just want to check is that because of pricing pressure? Or is it asset appreciation and onboarding coming in at the end so the fee rate should then roll forward? Thanks.

Yeah. I think it's more of the latter. And if you think of this quarter our new events and even looking at the new events that funded a lot of it is with existing clients. Many of those clients might be reaching higher tiers or lower tiers of their breakpoints et cetera. So I would say, it's more a function of that as well as, as we look for some of our products and solutions they're less tied to assets and more tied to a platform fee and some other volume increases. But I'd say, the primary for the quarter is more of the type of business that came in from clients.

Thanks. That's helpful.

Thank you. And next over to the line of Robert Lee with KBW. Please go ahead.

Hi, again, Steve. You can probably predict my first question.

Backlog.

Yeah.

I leave it out, so you can ask me for it. It's $36.9 million at the end of the quarter.

Great. Thanks. Regarding the recontracting, it seems to be $9 million. Can you provide some insight into what you observed this quarter or perhaps the last, and what you anticipate? Are you recontracting at a similar revenue level while adding some additional services? I'm trying to understand the details better.

Yeah. So, every – Rob, every client is a little different. Some clients have – depending on the segment, some clients have had a rough year, and maybe their assets have dropped. And certainly, we're a good partner, and we'll lean in to help them as we recontract and look for the future and potentially to sell them other business. But I think, mostly for this quarter, we saw recontracting at the same fee level and just a continuation and expansion of years and in some case an expansion of services and uptick, because of the expansion of those services.

Next we go to the line of Owen Lau with Oppenheimer.

Steve just a quick modeling question. For the $5 million uptick in expense line item, was there any one-time consulting expenses related to investigation of compliance? Or this incremental expense would stay there because of the personnel expense you mentioned? Thank you.

In this segment, I would attribute about half of the increase to personnel changes. This increase stems from our midyear salary adjustments and promotions, along with hiring new employees for new business opportunities, which is a positive development. Our investments increased by approximately 20%. Additionally, there were some related expenses in consulting and professional services, as Dennis pointed out, tied to professional fees and costs from various situations we encountered earlier this year. Overall, we aim to manage expenses carefully. While we expect some personnel-related increases, we are focused on generating new revenue and business at a modest pace.

Got it. Thank you, Steve.

Sure.

Thank you. I have no further questions in queue at this time.

Okay. Thank you. If there's no other questions, I will turn it over to Wayne Withrow to go over the adviser segment. Wayne?

Thanks, Steve. During the third quarter of 2020, we progressed with our business strategy in a virtual environment. Although we made strides, we are continuously refining our virtual model and believe we are well-positioned to capitalize on this new reality. Third-quarter revenues reached $103 million, which was flat compared to the same quarter last year. While revenues remained unchanged, our asset balances grew year-over-year; however, the mix of assets led to this growth not translating into revenue increases. The positive aspect is that these assets are on our platform, and we anticipate receiving higher fees as they transition into equity and fixed income products. Similar to revenues, expenses were flat compared to last year’s third quarter. The overall increases discussed by Dennis and the rise in sub-advisory expenses driven by our SMA program were largely offset by savings in various areas, including travel and sales compensation. Our profits remained constant compared to last year’s third quarter. At the end of the third quarter, our assets under management stood at $69.4 billion, which represents an increase of approximately 2.5% from September 30, 2019. Our average assets under management during the quarter also rose by a similar percentage compared to last year. Positive market conditions and strong cash flow from sales contributed to overall asset growth, but portfolio repositioning into money market products hindered revenue growth. The net cash flow for the quarter was $140 million, net of $158 million in advisory fees received by our advisers. Moving forward, I plan to report cash flow before these advisory fees since they are not generated from sales activity. Excluding these fees, the cash flow for the quarter was $272 million. Additionally, we saw $250 million in cash flow into non-managed assets on our platform. We added 56 new advisers during the quarter. As mentioned in SEI's second quarter call, our investment management unit is now selecting products managed by third-party asset managers, leading to growth in these curated products. In summary, we continue to experience strong momentum in the business and among our client base. This year has had its challenges, and I am incredibly proud of our workforce, who are key to our ongoing success. Their determination and resilience in confronting these challenges have been truly remarkable, and our clients have taken notice and appreciate this effort. As we approach the end of 2020, we will keep focusing on growth opportunities and investing in our overall platform, including the front-end platform, which we believe has significant growth potential for us. That concludes my prepared remarks, and I will now hand it over for any questions you may have.

Thank you. Now we will move to Ryan Kenny from Morgan Stanley. Please proceed.

Can you hear me?

I can, Ryan. Hi.

Hi. Just want to see if you could give us an update on the competitive environment, specifically in the turnkey asset management program what you're seeing there and how we should think about any pricing pressure going forward? Thanks.

Yes. I mean, I think the competition in the turnkey space is fierce, and it's other turnkey providers and it's also competition from the internally managed broker-dealer platforms. And I think you will continue to see pricing pressure in those markets. However, I mean, I would say that if you look at the leverage inherent in our business model, I think we are really well positioned in a fee compression world right now.

Thanks. And has the remote working environment impacted demand for your platforms at all?

I can't say for sure if it has increased demand for our platform. However, in a remote setting, the functionality and ease of processing on our platform have allowed us to succeed. I believe people are now more open to outsourcing than they were before. Ultimately, the platform is a significant enabler, and it performs just as effectively in a virtual environment as it does in person.

Thanks.

Thank you. Next we go to the line of Robert Lee with KBW. Please go ahead.

Thank you. Hi, Wayne.

I'm great, Rob, and I don't have a backlog to talk to you about.

I just want to clarify your comments regarding the net cash flows and the changes starting this quarter. Could you go through that again and explain why it's changing?

Yes. Every quarter, our advisers withdraw their advisory fees from the investment accounts. Traditionally, we have counted these withdrawals as negative cash flow, similar to redemptions used to pay the advisory fees in our cash flow figures. However, if you consider cash flow as an indicator of sales activity, this really does not reflect that. As our business has expanded, this amount has become more significant. As I mentioned last quarter, $160 million was allocated just to cover the advisory fees for advisers. Therefore, we will now classify this amount under market appreciation and depreciation, as it is more relevant to that category. It is not a direct or indirect effect of sales activity.

Okay. I see. So it's kind of like you'll report AUM net as opposed to gross, but gross to be kind of grossed up so same dollars...

We report AUM and AUA net. I'm just saying that in the net calculation, we're not going to include the fees paid to advisers.

Okay. Great. I think I understand. You mentioned the $250 million of cash flows related to non-managed assets, which is becoming increasingly important. I was trying to clarify what your assets under administration or your non-managed assets on the platform are today.

Yes, I would say it's over $10 billion. However, the AUA, which is mainly focused on pure custody, isn't a significant revenue generator; instead, it allows us to collect assets on our platform. This approach is part of our strategy to expand gradually, as Steve mentioned. It helps us serve our existing clients better, addressing their growing or diverse needs with additional products.

Thanks, Wayne.

Thank you. And I have no further questions in queue at this time.

Okay. With that, I will turn it over to Paul, who will discuss our Institutional segment.

Thanks Wayne. Good afternoon everyone. I'm going to discuss the financial results for the third quarter of 2020. Third quarter revenues of $79.6 million decreased 1% compared to the third quarter of 2019. Third quarter operating profits of $41.8 million decreased 3% compared to the third quarter of 2019. Operating margin for the quarter was 52.5%. Revenue decreases were impacted by negative client fundings and were offset by higher capital markets. Operating profits were negatively impacted by one-time severance expenses and a one-time trading error, but positively impacted by lower travel costs. Quarter end asset balances of $89.7 billion reflect a $200 million increase compared to the third quarter of 2019. This slight increase is driven by positive capital markets offset by negative client fundings. Net sales were a positive $1.65 billion for the quarter, which was comprised of gross sales of $2.35 billion and client losses of $700 million. New OCIO signings were strong and included U.S. healthcare, U.S. not-for-profit, governmental and fiduciary management defined benefit. The unfunded new client backlog at quarter end was $925 million. Sales momentum saw a positive turn with increased activity and a return to in-person execution in select accounts, while also enhancing our virtual interactions with prospects. OCIO RFPs and inbound inquiries continue to be strong in the quarter and in the early stage of the fourth quarter. We are very focused on existing clients as our current clients are apt to also go through a formal rebid process due to a time anniversary with SEI. On the new strategic initiative side, we formally launched our enhanced CIO/ECIO solution to the large end of the institutional marketplace in the third quarter. We are actively marketing this solution and building a pipeline and looking to add more sales resources. This solution is consistent with the One SEI mindset. We continue to research other strategic initiatives and evaluate new markets globally. Thank you very much and I'm happy to answer any questions that you may have.

And we'll now take questions from Ryan Kenny with Morgan Stanley. Please proceed.

Hi, Paul. How are you?

Good, Ryan. Yourself?

Good. On the ECIO, just want to understand how material of a driver that is for revenues at this point?

Well, it's not a driver at all. There's no revenue in our group for ECIO. So we're just launching this into the large institutional marketplace. We think globally there's about 1,800 suspects that fit the qualitative and quantitative definition of those that want to in-source and have a team and the solution is to make the team more efficient and more effective. So anything that we do with respect to ECIO, we have not had a transaction yet, would be incremental to the revenue and incremental to the profits of the unit.

Got it. Thanks. And then one more question. I understand that there's some benefit from lower rates on the DB businesses from delays in the funding status. How should we think about quantifying the revenue impact, if long-end rates were to rise from here?

If long-end rates were to rise, it'd be hard for me to just give you a quick quantification on from a revenue perspective. But our book is about $32 billion or $33 billion of corporate-defined benefit assets. The average funded status of those defined benefit plans presently is about 84% on a PBO basis. 100 basis points would certainly give them a better inflection point and would probably move the funded status 3% or 4%, all things being equal with the assets. Certainly, not in a position to annuitize or immunize the portfolio, but it may be for certain clients that are more funded or certain clients that have more cash that type of move might give them an opportunity to do a curtailment. So, certainly, it's a tailwind for our business when long rates are low and it would be a headwind as long rates raise over time, because legacy-defined benefit plans may decide to take action.

Got it. Thanks.

Thank you.

Thank you. Next we’ll go to the line of Robert Lee with KBW. Please go ahead.

Hi, Paul. How are you?

Good, Robert. Good to talk to you.

I wanted to clarify your comments regarding net flows and funding. I was a bit confused, which is not unusual for me. I was trying to confirm if I understood you correctly: the increase in AUM for the quarter was driven by market performance, but there were also some outflows. You mentioned there were about $1.6 billion in net inflows. I want to ensure I have this correct, as I might have misunderstood something.

I'm comparing the quarter-end asset balance to the previous year. Over the last four quarters, we've experienced more outflows than inflows specifically for the third quarter. We sold $2.35 billion and lost $700 million, with a backlog of $925 million. Not all sales from the third quarter were funded in the same quarter. Usually, there’s a 30 to 45-day lag before these sales come into the portfolio and we begin accruing revenue. My comments regarding negative client fundings are focused on year-over-year comparisons, not between quarters.

That's insightful. I'm curious about your margins, which seem quite robust. Looking ahead, especially with the launch of the ECIO initiative and the varying costs associated with One SEI in different segments, how should we anticipate margin development going forward? Do you foresee peak margins or a return towards 50 being more realistic? I'm just trying to understand this better.

Yes. The main concern regarding Robert is that if we lose a client from our OCIO platform and do not gain a similar amount elsewhere, our profitability will likely decrease. We may be losing more revenue than we bring in. This is a reality we face, especially during client rebids, as we may not be able to retain clients at the previous rate. However, we can counterbalance this with clients who are more diversified and may invest more in alternative investments. The benefit of ECIO is that a significant portion of its technology has already been developed and is akin to what Steve and Phil McCabe offer to the investment management services unit. This means minimal additional capital investment is needed. Moreover, it presents a strong opportunity for SEI to leverage its capabilities in a related market.

Great. Thank you. Appreciate the color.

Thank you.

Next we'll go to the line of Chris Shutler with William Blair.

Hey Paul, good afternoon. So first could you break out the net new assets in the quarter versus the market appreciation?

So again the net new assets meaning that the sales are just sales. There's no market appreciation in the sales. Are you saying the second quarter versus the third quarter?

Correct. To get from the second quarter ending assets to the third quarter ending assets how much of it was markets versus how much of it was net new or new business won?

Yes. It looks like it's about roughly $2.5 billion would be market about $1.5 billion roughly is probably based on new events.

Okay. And then I think going back a year or two ago, you were talking about at least thinking about doing tuck-in acquisitions in your space or maybe making select higher or 2 mainly to address the endowment foundation area. Is that still something that's a strategic priority? Or maybe just an update on that would be great.

Sure, sure. It is something formally we looked at last year or fourth quarter. We did have an outside firm present us some opportunities. So we have decided to pause on the properties that we saw. We did not think they would bring anything incremental to us or differential to us. So we have set our sights more on a personnel strategy of select individuals that enhance the capabilities for an E&F solution which we've already delivered on two fronts and there's another one that we're looking at. But also part of that process when we were looking at properties and specifically the larger end of the market confirmed our belief that many of the larger end of the markets actually don't want to outsource. They want to in-source and that really kind of unleashed with the capability of One SEI to really go to market with this enhanced CIO solution. Rather than fight the flight of trying to sell a $2 billion endowment that you should outsource we are going to deploy our capabilities and saying we can make you more efficient from a technological standpoint. So I think that was a breakthrough series of work that we were able to do both internally and externally.

Got it. Okay. Thanks for the update.

Thanks.

Thank you. And I have no further questions in queue at this time.

Great. I will now turn the call over to Kathy Heilig, SEI's Controller.

Thanks Paul and good afternoon everyone. I have some additional corporate information about this quarter. The third quarter cash flow from operations was $131.1 million or $0.89 per share bringing year-to-date cash flow from operations to $395.2 million or $2.64 per share. Third quarter free cash flow was $116.3 million bringing year-to-date free cash flow to $333.5 million. In the third quarter our capital expenditures excluding capitalized software were $8.7 million. This number includes the expansion of our facility. Our year-to-date capital expenditures excluding capitalized software are $43.1 million. We project for the fourth quarter the capital expenditures will be approximately $15 million. We also would like to remind you that many of our comments are forward-looking statements that are based upon assumptions that involve risks and that the financial information presented in our release and on this call is unaudited. In some cases you can identify forward-looking statements by terminology such as should, may, will, expect, believe, continue or appear. Our forward-looking statements include our expectations as to the time horizons of our investments and the ability to take advantage of opportunities; our ability to expand our relationships and revenue opportunities with existing clients; the degree to which we benefit from our scale, resources, technology and infrastructure; our ability to bring clients live in unforeseen circumstances; the demand for our products and services and the components of our business that will drive growth; revenue that we believe will be generated by sales events that occurred during the quarter or when our unfunded backlog may fund; our resource allocations and technology and platforms in which we choose to invest including our One SEI initiative; the strategic initiatives and business segments that we will pursue, the strength of our pipeline and growth opportunities and our ability to execute on and the success of our strategic objectives. You should not place undue reliance on forward-looking statements as they are based on the current beliefs and expectations of management and subject to significant risks and uncertainties, many of which are beyond our control or subject to change. Although we believe the assumptions upon which we base our forward-looking statements are reasonable, they could be inaccurate. Some of the risks and important factors that could cause actual results to differ from those described in our forward-looking statements can be found in the Risk Factors section of our annual report Form 10-K for December 31 2019. That report is available on our website. There may be additional risks that we do not presently know or that we currently believe are immaterial, which could also cause actual results to differ from those contained in our forward-looking statements. We do not update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statement. And now, please feel free to ask any other questions that you may have.

And we'll now take questions from Chris Shutler with William Blair. Please go ahead.

Thanks. I have one more question for Steve. Steve, I want to revisit the discussion about U.S. Bank and explore whether there is a strong reason for a bank to only purchase the backend custody platform while not using SEI for the front office tools. I would assume that utilizing SEI for both areas would provide a more integrated and improved experience. Can you help us understand the reasoning behind a bank's decision-making process regarding the backend implementation and the potential risks of not adopting SEI for other solutions?

Yes, Chris, I understand, but I think you're overthinking it a little. So look at it this way. I think it's very compelling to use the whole platform. However, as we discussed numerous times a lot of times when adopting the whole platform would be like open-heart surgery. It's quite a large transformation. And part of our plan to increase growth was to adopt the One SEI mindset to modularize our platforms and give the ability to adopt pieces of the platform. Now obviously in this case, they're adopting the core-to-core back office, which is a large part of it. However, there's a lot of great front-end technology and other services that are packaged with the platform. And I think the real key here is it gives the ability for any institution to lean in and adopt SEI and move in a less impactful way and not as many hurdles and then certainly add more components as they go. So I think quite frankly, it gives optionality, which in this day and age and especially dealing with large financial institutions I think is much needed and more positive. So I quite frankly look at this as a huge positive move and positive outcome with a great opportunity for the future.

Okay. Thanks for that. Appreciate the clarification.

So ladies and gentlemen, we are fighting on two fronts: first, the COVID-19 disruption; and second, growing revenues and profits during this difficult time. On the first front, we were very fortunate to have planned well and been able to keep our workforce healthy and productive. On the second front, we face short-term headwinds, but we believe that we will prevail, thanks to our motivated and innovative workforce and the strategic investments we are making in our future. Please be safe and remain healthy. Have a great day. Thank you for attending.

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