Earnings call transcript: SEI Investments Q4 2024 shows EPS growth

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Overview

The earnings call reveals strong financial performance, with a 31% YoY EPS growth and record share buybacks, signaling confidence in the company's prospects. Despite a slight decrease in Q4 sales events, net recurring sales increased significantly. The Q&A section highlights positive market engagement, strong client retention, and potential for M&A. The company's strategic investments and high cash reserves further support a positive outlook. However, some uncertainty remains regarding future terminations and alternative servicing revenue, slightly tempering the overall positive sentiment.

Key Financial Performance

Sales Events (Q4 2024) $38,000,000, down from last year's record, but reflects strong performance without delays or pull forwards from 2025.

Net Recurring Sales Events (Q4 2024) $28,000,000, contributing to a total of nearly $130,000,000 for the full year, with a 60% increase compared to 2023.

Earnings Per Share (EPS) (Q4 2024) $1.19, a 31% increase year-over-year, impacted by $0.04 from increased incentive compensation and $0.05 from stock compensation timing.

Full Year EPS $4.41, growing 27% versus 2023.

Assets Under Management (AUM) and Assets Under Administration (AUA) $1,600,000,000,000, nearly flat with the prior quarter despite modest headwinds from capital markets.

Investment Managers Revenue Growth (Q4 2024) 1% year-over-year growth, a marked improvement from a decline of over 4% in the first half of 2024.

Operating Margin (Q4 2024) Improved relative to the prior year and quarter, despite a combined 210 basis point negative impact from incentive and stock compensation.

Stock Repurchases (Q4 2024) $259,000,000, the highest amount in SEI's history, supported by strong free cash flow.

Total Capital Returns to Shareholders (2024) $620,000,000, representing nearly 6% of year-end market cap.

Acquisition of LifeShield Approximately $29,000,000 in cash plus a contingent earn-in, expected to enhance the Investment Advisors segment.

Cash Balance (Q4 2024) $840,000,000, with an additional $325,000,000 undrawn revolver.

Performance Fees from LSV (2024) $21,000,000, expected to moderate from 2024 levels.

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Operating Highlights

Integrated Cash Program: The integrated cash program ended the quarter at approximately $2.4 billion, with a normalized run rate expected to be around $2 to $2.1 billion in 2025.

LifeShield Acquisition: SEI announced the acquisition of LifeShield for approximately $29 million, which will enhance their Investment Advisors segment by integrating Tax Smart technology.

Sales Events: Sales events for Q4 2024 totaled $38 million, with a strong mix of new and existing clients contributing to growth.

Global Expansion: SEI is expanding its global footprint, particularly in the Investment Managers business, and focusing on regional and community banks in the Private Banking segment.

Employee Incentive Compensation: A one-time increase in 2024 incentive compensation was approved by the Board to reward employees for record results.

Operational Efficiencies: All business units reported revenue and operating profit growth, with a focus on cost discipline and leveraging healthy revenue growth.

Enterprise Mindset: SEI is adopting an enterprise-first mindset, enhancing client engagement and service delivery across all business units.

Investment Focus: The company is strategically allocating capital to areas with the strongest growth opportunities, including alternative investment products.

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Risk or Challenges

Asset Outflows: The institutional business experienced asset outflows due to planned terminations and structural pressures affecting active asset managers.

Regulatory Engagement: The UK subsidiary is under high supervisory engagement to meet regulatory expectations, which may pose challenges to growth.

Market Valuation Impact: Assets under management remained flat due to modest headwinds from capital markets and net outflows, indicating potential economic pressures.

Client Terminations: Planned terminations in the defined benefit space are expected to persist, impacting revenue and indicating a structural headwind.

Incentive Compensation: Increased incentive compensation impacted earnings per share, which may affect future profitability if similar increases occur.

Competitive Pressures: The company faces competitive pressures in the asset management space, particularly with the transition from active to passive investment strategies.

Investment in Infrastructure: Continued investment in infrastructure and compliance capabilities is necessary to align with client expectations and regulatory requirements.

Economic Factors: The company anticipates ongoing economic challenges, including potential declines in interest rates and their impact on investment strategies.

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Guidance & Outlook

Sales Events Q4 2024: Sales events for Q4 2024 were $38,000,000 with $28,000,000 net recurring. This marks the second consecutive quarter of significant growth in net sales events.

Full Year Net Sales Events: For the full year, net sales events reached nearly $130,000,000 with nearly $100,000,000 recurring, nearly 60% higher than 2023.

Strategic Partnerships: The strategic partnership with Close Brothers is an example of an enterprise-wide partnership that has contributed to sales.

Investment Focus: SEI is focused on allocating capital to areas with the strongest growth opportunities, including expanding the global footprint of the Investment Managers business.

Infrastructure Investment: Continued investment in infrastructure, client experience, and global regulatory capabilities is planned.

Acquisition of LifeShield: SEI announced the acquisition of LifeShield for approximately $29,000,000, expected to enhance their Investment Advisors segment.

EPS Growth: EPS reached $4.41 for the full year, growing 27% versus 2023.

2025 Outlook: SEI is optimistic about continued growth in 2025, driven by strong sales pipelines and client engagement.

Capital Management: In Q4, SEI repurchased $259,000,000 in stock and increased the semiannual dividend by $0.03, indicating a strong capital return strategy.

Alternative Investment Demand: Strong demand for alternative investment products is expected to continue, particularly in the Investment Managers business.

Margin Pressure: Near-term margin pressure is anticipated due to upfront costs associated with onboarding new clients.

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Shareholder Return Plan

Semiannual Dividend Increase: Increased by $0.03, representing a 6.5% increase.

Share Repurchase Program: Repurchased $259,000,000 in stock during Q4, the highest amount in SEI's history.

Total Capital Returns to Shareholders: Totaled $620,000,000 for the full year, representing nearly 6% of year-end market cap.

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Key Q&A

Q:Could you please talk about the sales environment? Net sales were strong, dollars 38,000,000 in the 4th quarter. I'm wondering the driver of that growth. How much of that comes from pricing, existing and new clients? And how do you see the sales outlook in 2025?

A:We had a really nice mix of new logos and continued growth from existing clients. We are not changing our pricing and remain confident about our value proposition. We see strong engagement in the market and positive sales pipelines.

Q:Any way to put a finer point on the near term margin comment about the pressure expected associated with strong net sales events? How long before the upfront associated expenses kind of lap the revenue associated with that business coming in?

A:Sales typically take anywhere from 3 to 18 months to bring revenue online, with upfront costs incurred to onboard clients. We are confident in our margins to continue margin expansion.

Q:Do you think you can keep growing the private banking business in the double digits? Any details on client retention improvements in that business over the last year or two?

A:Our strategy has been consistent, focusing on improving engagement with clients, which has led to high client retention and growth through existing clients.

Q:Does the record share buybacks signal a shift in your strategy? Or is there potential that we may see you look to do more M&A in 2025?

A:We are looking at our cash balances and capital needs on a quarter-by-quarter basis. We see good returns on capital and may accelerate buybacks, but we are also considering M&A opportunities.

Q:Should we think of the increased incentive compensation as a one-off?

A:We are thinking about that currently as a one-off, but we hope to continue rewarding the workforce for record sales and earnings results.

Q:How should we think about how big alternative servicing is as a percentage of the IMS segment?

A:The alternatives business is about 70% of our revenue and is growing based on industry tailwinds.

Q:Could you please talk about the unusually large impact on the terminations? What were the drivers of that? Is it one-off or something that could happen more frequently in the future?

A:The headwinds in the defined benefit space are expected to persist through 2025 due to clients annuitizing when they reach certain funding levels.

Q:Have you guys been lucky or have you been good in terms of client retention in private banking?

A:We have not been lucky; we have been aggressive in ongoing engagement with our client base, which has improved retention.

Q:How do you think SEI is positioned for bank M&A or the potential consolidation of banks in the U.S. over the next couple of years?

A:M&A activity is increasing, presenting opportunities for us to help existing clients with acquisitions and to grow our business with new clients.

Q:Review of Unclear Management Responses

A:Management appeared to avoid giving a direct answer regarding the specific percentage of revenue or assets that alternative servicing represents within the IMS segment, as well as the exact timing and frequency of future terminations in the institutional business.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

SEIC Transcript

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The earnings call summary and Q&A indicate strong financial performance, with growth in AUA and AUM, robust performance fees, and significant share repurchases. The company is investing in future growth, with a focus on alternatives and international markets. Despite some margin pressure from investments, the overall sentiment is positive, supported by optimistic guidance and a strategic focus on long-term growth. The Q&A revealed no major risks or concerns, and the management's responses were generally reassuring.

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Earnings call transcript: SEI Investments Q4 2024 shows EPS growth

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