Ladies and gentlemen, thank you for standing by, and welcome to the SEI fourth quarter 2019 earnings conference call. At this time, all lines are in a listen-only mode. Later we will conduct a question and answer session with instructions being given at that time. As a reminder, today's call is being recorded. I would now like to turn the call over to our host, Al West, Chairman and CEO. Please go ahead, sir.
Thank you. Welcome, everyone. All of our segment leaders are on the call, as well as Dennis McGonigle, SEI CFO, and Kathy Heilig, SEI's Controller. I'll start by recapping the fourth quarter and full year 2019. I'll turn it over to Dennis to cover LSV and the investment in new business segments. After that, each of the business segment leaders will comment on the results of their segments. Finally, Kathy Heilig will provide you with some important company-wide statistics. As usual, we'll field questions at the end of each report. Let me start with the fourth quarter and full year 2019. Fourth quarter earnings increased by 11% from a year ago. Diluted earnings per share for the fourth quarter of $0.84 represents a 15% increase from the $0.73 reported for the fourth quarter of 2018.
For the year 2019, our earnings decreased by 1% over 2018 earnings. Diluted earnings per share for the full year of $3.24 is a 3% increase over the $3.14 reported in 2018. We also reported a 4% increase in revenue from fourth quarter 2018 to fourth quarter 2019, and a 2% increase for the full year. Also during the fourth quarter 2019, our non-cash asset balances under management increased by $13.2 billion. SEI's assets increased by $5.8 billion, and LSV assets increased by $7.4 billion. For the year, assets under management increased by $33.2 billion. In addition, during the fourth quarter 2019, we repurchased approximately 1.3 million shares of SEI stock at an average price of $63.66 per share. That translates to over $81.2 million of stock repurchases during the quarter.
For the entire year, we repurchased approximately 6.2 million shares at an average price of $55.96, representing just over $348.3 million of repurchases. Between our stock buybacks and cash dividends during 2019, we returned approximately $450 million in capital to shareholders. During the fourth quarter, we capitalized approximately $7.3 million of development and amortized approximately $12 million of previously capitalized development. During the year, we capitalized $34.1 million and amortized $47.5 million. Fourth quarter 2019 sales events net of client losses totaled approximately $26.1 million and are expected to generate net annualized recurring revenues of approximately $17.5 million. For the full year 2019, sales events net of client losses totaled approximately $87.5 million and are expected to generate net annualized recurring revenues of approximately $62.5 million. We are pleased with our fourth quarter and annual sales results in our technology and operational businesses.
That, combined with our active pipelines in these businesses, causes us to be bullish about future growth. Still, we faced headwinds. First, the full effect of some of the clients we lost over the past two years is hitting our books in 2020. Second, we, just like all the members of our industry, are subjected to asset management fee compression. Third, our net flows are impaired by the slow decline of the U.S. corporate DB plan market. As an answer to our headwinds, during the fourth quarter, we introduced the One- SEI theme at our recent investor conference. One- SEI drives our business strategy and defines our approach to our markets and how we will meet the rapidly changing, increasingly complex, and steadily converging needs of clients and markets.
The goal of One- SEI is to leverage existing and new SEI platforms, making them accessible to all types of clients, all adjacent markets, and all other platforms. While the road ahead in 2020 and beyond is challenging, it's also full of new opportunities. We believe that we will be better suited to capture the new opportunities with our One- SEI strategy. Now, this concludes my remarks. 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 fourth quarter and full-year results for the Investments in New Business segment and discuss the results of LSV Asset Management. During the fourth quarter of 2019, the Investments in 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 and hosting opportunity, and the modularization of larger technology platforms into standalone components for the wealth management and investment processing space. During the quarter, the Investments in New Business segment incurred a loss of $5.6 million, which compared to a loss of $3.2 million during the fourth quarter of 2018. For the full year, the Investments in New Business segment incurred a loss of $16.7 million compared to a loss for 2018 of $12.4 million.
This loss reflects the increase in investments mentioned earlier, offset by growth in our private wealth management business. Regarding LSV, our earnings from LSV represent our approximate 39% ownership interest during the fourth quarter. LSV contributed $39.1 million in income to SEI during the quarter. This compares to a contribution of $36.4 million in income during the fourth quarter of 2018. For the full year of 2019, LSV contributed $151.9 million in income, compared to $159.8 million in 2018. Assets during the fourth quarter grew approximately $7.2 billion. LSV experienced net negative cash flow during the quarter of approximately $2 billion, which was offset by market growth. Revenue was approximately $126.5 million for the quarter, and performance fees were minimal. For the company, our effective tax rate for the quarter was 19.5%.
One item of note for the company, during the quarter, we recorded incremental stock option expense of $3.6 million compared to the third quarter of 2019 due to a change in the estimate of the timing of when vesting will occur on a specific tranche of options. This expense is spread across all of our segments as well as in corporate overhead. This expense approximates $0.02 per share in earnings impact. I will now take any questions.
Thank you. Ladies and gentlemen on the phone, if you'd like to ask a question, please press one then zero on your touch-tone phone. If you are using a speakerphone, please pick up the handset before pressing the numbers. Again, if you'd like to ask a question, please press one, zero at this time. Our first question comes from Robert Lee from KBW. Please go ahead.
Good afternoon, Dennis.
Hey, Rob.
Hey. A quick question on the Investments in New Business. I know you went through some of the expense initiatives that are flowing through there. Should we be thinking, because it obviously stepped up last quarter versus where it had been running, should we be thinking this is a reasonable kind of area you expect it to be in for a while?
Yes.
Okay.
Yeah, I would say this is because we really started to put more into the IT services space and then in this modularization space, which we have been talking about for the past couple quarters. Yes.
Okay, great.
Now we have to get more growth out of private wealth management, so that should help a little bit.
Okay. Maybe just a quick follow-up. This really may be kind of a modeling thing, but on the tax rate, I know it gets affected by options exercised and a variety of other things, but how should we be thinking of a, let's call it a normal tax rate as we look forward? I don't know if the change in some of the stock-based comp expensing has any kind of impact on that.
Yeah. The stock-based comp expense doesn't have any impact on that.
All right.
It's more the exercise of options has an impact on that. In the fourth quarter, that probably helped us to around 2 percentage points on the tax rate. We look forward, we still use around 21.5% as our more normalized rate because we really can't predict some of these other things.
Right. Great. Thanks for taking my questions.
This quarter's tax rate is pretty comparable to last year's fourth quarter tax rate. It was around 19.3%, I think.
18.9%.
18.9%. Yeah. It's not that far off.
Yeah. Great. Thank you.
Yep.
Thank you. Now to the line of Chris Shutler from William Blair. Please go ahead.
Hey, Dennis. Good afternoon.
Hey, Chris.
For the options that were granted in the fourth quarter, is there an EPS target that you have to hit for those to vest?
There is. We'll publish that in our proxy when we file that in April.
Okay. I guess the other one's just on the buyback, the $1.3 billion in the quarter. Obviously, markets are strong, but just given you're noting improved momentum in the business and given all the cash on the balance sheet, I guess the question is just why not be more aggressive with the stock buyback? I know you've gotten that before, but would love to get a refresher.
I wouldn't say we have any necessarily change in mindset around buyback. There are just certain periods where it's a little bit easier to get the stock in the market just because of trading and trading patterns. Fourth quarter is no different, that there were some days where just wasn't enough volume to accommodate us being engaged. Even though we still did acquire a decent amount of stock. I wouldn't say we'll be any more aggressive or less aggressive. We'll just be pretty steady with it. If the opportunity presents itself, we'll get more aggressive.
Yep. Okay. Fair enough. Thank you.
Yep.
Thank you. Again, if you'd like to ask a question, please press one then zero at this time. We have no one queuing up. Please continue.
Thank you. I will turn it over to Steve Meyer to discuss both private banking and IMS segments. Steve.
Thank you, Al. For the fourth quarter of 2019, revenue of $118.7 million was up slightly from the third quarter of 2019, primarily due to an increase in asset management revenues. Fourth quarter revenue as compared to a year ago is down $2.7 million, mainly driven by previous announced client losses. For the fourth quarter 2019, operating profit of $5.1 million decreased from the third quarter due to increased expenses related to compensation and stock option expense. For the year, our profit grew by $1.9 million, mainly driven by expense management. In turning to sales activity, for the quarter, we closed $8.1 million in net processing recurring sales events, bringing our total 2019 net recurring events to $24.5 million. Also, during the quarter, we closed $7.2 million in one-time events, bringing the total to $18.3 million in one-time events for 2019.
During the fourth quarter, we signed two new SWP agreements. First, a longtime TRUST 3000 client, Edward Jones Trust Company, signed on to adopt SWP. Edward Jones Trust Company has been a client since 2002 and will convert their existing book of business to SWP. Our second signing was Connor Broadley, a U.K. wealth manager who has chosen to take advantage of all the components of SEI's full end-to-end wealth management platform, incorporating technology, core processing, and operational outsourcing for the front, middle, and back office. Also during the quarter, we finalized our contract with the Principal Financial Group to provide our trust platform to service their acquired Wells Fargo institutional retirement and trust business. This deal is significant for us, not only from a financial standpoint, but also Principal is a market leader, and we are encouraged about the opportunity to expand our relationship from here.
In the fourth quarter, we successfully converted a new client to SEI, Bankers Trust in Des Moines, Iowa. Bankers Trust is Iowa's largest privately owned bank and had previously been running on a competitor platform. The conversion went very well, and we are excited to welcome Bankers Trust, including BTC Capital Management, a registered investment advisor and affiliate of the bank, to the SEI family. In addition to this SWP implementation, we recontracted three TRUST 3000 clients during the quarter. I'm also pleased to announce that after the quarter end, but before today's call, we signed a long-term agreement out of our U.K. office with a large global bank to provide our SWP platform to support their private bank's global discretionary and alternatives books of business across their various global locations.
We are not naming the bank currently as we are working on a joint communication that will be announced later in the quarter. This deal is not included in our event numbers announced for the fourth quarter, and we will include it in our Q1 events. In addition to the size of the deal and financial impact, this is significant for us for several reasons. First, this business requires a true global solution that will cover multi-jurisdictions for a large global bank, a true global watermark for our SWP platform. Second, this deal incorporates our One- SEI strategy, specifically leveraging the IMS platform along with SWP to offer services across the entirety of this business and asset types. Third, this firm is a large global organization that offers many opportunities for us to expand our relationship with. We are excited about this opportunity.
I look forward to sharing more details in the future. As an update on our backlog, our total signed but not installed backlog is approximately $53.6 million in net new recurring revenue. This number does include Principal but does not include the global bank discussed previously. From an asset management standpoint, total assets under management ended the period at $23.9 billion, representing a $1.3 billion increase quarter-over-quarter and $3.4 billion increase in year-over-year assets. Our AUM increase is mainly due to market appreciation. We continue to build a strong global pipeline in our AMD business. In looking back at 2019, we are pleased with our efforts and our progress, and most importantly, our regained momentum as evidenced by our sales events for the year.
As I mentioned to you in the beginning of 2019, our focus for the year was steadfastly on growing our business, monetizing our investment in SWP, installing our backlog, and expanding our opportunities through the leveraging of other SEI platforms and solutions. While we are pleased with our progress, we are still not satisfied with our results. We still have much work to do on continuing to grow our business, absorbing previously lost business, and providing sustainable and accelerating growth to our margins. Simply said, we want to keep the accelerator down on moving the business forward. This serves as a good segue to the year ahead. Turning to 2020, our focus is on the following. First, maintaining our momentum and continue to execute on our growth agenda with new sales. Second, expanding our markets and solutions to expand our growth opportunity.
Third, continuing our strategy of One- SEI, which enables us to offer the full power of all of SEI's platforms and assets and enables us to address our clients' emerging needs and problems in ways no one else can. Fourth, managing through the financial headwinds of the lost business we had previously announced, which will be in full effect for 2020. This will be a challenge to manage, as the lost revenue typically outpaces the rate of bringing new revenue on as we implement our backlog of business. Our focus is on managing through this financial challenge with an eye on establishing a sustainable and accelerating margin rate as we exit out of the year and manage through the downward pressure of this aforementioned lost business. In summary, we have an active pipeline across the U.S. and U.K.
We feel well-positioned to grow our private banking business globally and feel we have a great opportunity offering the power and capability of all of SEI's technology and processing platforms across the wealth management market. We are excited for the future. That concludes my prepared remarks, and I will now turn it over to any questions you may have.
Thank you. Ladies and gentlemen, again, if you'd like to ask a question, please press one then zero at this time. We have a question from Robert Lee of KBW. Please go ahead.
Great. Good afternoon, Steve.
Good afternoon, Rob.
Just, let's see, a couple of questions, real quickly, with the Principal business, just trying to get a sense of the puts and takes of the net recurring. You had Principal come in, not the global bank. How does the Wells Fargo kind of fit into that, given some of the commentary, I guess, that's come out of there? If you can maybe go through the puts and takes of the net recurring, that may be helpful because there's so many moving pieces this quarter.
A couple things, I guess, Rob. The net recurring that we closed during the quarter, and again, it's net, so there's a gross number and then any losses or go backs and clients would come off of this, was $8.1 million. Principal is included in that number. The global bank I just mentioned is not net number. We look at that as a Q1 event. Wells Fargo has no impact on that number, as Wells Fargo continues to be, as it has for the past 40+ years, a current client and will continue to be a client. As mentioned on a previous call, they've just delayed the SWP implementation, and there's no new news on that. From a high level, is there anything specific other than that, Rob?
Well, I guess, Wells is still in that backlog, and then maybe if you talk a little bit about Principal, kind of how you think about that coming on. Is that going to roll in over the course of 2021? How should we think about that coming on board?
The uptick of Wells going to SWP, that uptick is in that backlog. What I'd say to you is not the majority of that backlog. There's a majority of other new business in that backlog. Principal will come on to our platform. We're already underway with implementation, but that will come on majority in 2021, end of 2021, in there.
Great. I'll get back in the queue. Let other questions come. Thanks.
Okay.
Thank you. Now to the line of Chris Donat from Piper Sandler. Please go ahead.
Good afternoon, Steve. How are you doing?
Good. How are you doing, Chris?
Doing fine. Just one clarification on the lost business with Department of the Interior. Was that in or no longer in the fourth quarter? Can you remind us the dates of when that revenue would have ceased?
Yeah, that came out. It actually left us in the fourth quarter, towards the beginning of the fourth quarter. The majority of it in the quarter was out. Keep in mind now we'll have the full year impact of that.
Okay. Whatever. It's pointless to ask you a question on the global bank that's out of the U.K. I didn't catch everything. We can expect an announcement during the quarter?
Yes.
Clarification. Okay.
Yes. I appreciate it, Chris. As you can imagine, we're telling you what we can. We want to be a good partner, and we want to have a joint communication. When that is done, hopefully in the quarter, we will certainly put that out, and we're excited to talk more about it when we can.
Okay. The adjective you used with it was significant, but that's about it, right?
Yes, my tone was neutral.
Understood.
All right. Thank you. Now to the line of Chris Shutler from William Blair. Please go ahead.
Hey, Steve. How are you?
Good. How are you, Chris?
Good. I just wanted a couple of quick clarifications. You already covered these, but Principal, you said that's going to come on when?
Primarily, we're already in implementation moving over, but I would look toward 2021.
Okay. The flows from the AMD business in the quarter?
Flows from AMD were about $63 million.
Got it.
Year- to- date, net cash flows were $296 million.
Okay. I guess lastly, you noted the sales number, the $8.1 million is net. Is there anything to call out that was lost in the quarter?
No. Typical business. Losses, unfortunately, as much as I hate losing any business, sometimes are a part of the business. We had, I would say not significant, but normal course of business. Nothing needed to call out.
Okay. Lastly, on the U.K. bank, presumably whoever that is, they are on a system from one of your chief competitors. Is that accurate?
For part of the business, yes.
Okay. Thanks a lot.
Sure.
Thank you. Now to the line of Robert Lee from KBW. Please go ahead.
Great. Thanks again. Just maybe, Steve, two quick clarifications. The $7 million of one-time event, $7.2 million, that pretty much all flowed through in the quarter, or?
No, about 10% of that flowed through. Of the $7.2 billion announced, about $700 million flowed through. However, remember we had other one-time revenue that we announced and about $6.6 billion of that flowed through the quarter.
Okay, great. You gave some commentary around margin progression. Can you maybe just repeat that or maybe clarify? I just want to make sure I understand how we should be thinking in the segment.
Sure. We're very happy with the momentum, but we're not satisfied with where we are results-wise, as I said. What I'd say is this year is going to be a tough year as we manage that lost business that we've talked about, I know to you guys at nauseam. That's going to put some downward pressure on our margins. Our goal is to move the margins to get through that challenge and come out of the year, hopefully, into 2021, where I can start to establish a sustainable, a level of margin, whatever that is, and then an accelerating path from there. We're hoping that the downward pressure from these losses will get through this year and then be able to start to manage through a more sustainable and accelerating path back to our normal margins in this business.
Great. Thank you.
Thank you. Now to the line of Glenn Greene from Oppenheimer. Please go ahead.
Good afternoon. How are you?
Good. How are you, Glenn?
Congrats on the large bank win. Anxious to hear it. I just want to go back to Wells Fargo. The reason I ask it, there's been a lot of chatter or concern out in the market. Wells has indicated they're taking some significant write-downs in their wealth management business from your technology investments, whatnot. Can we just definitively say there's been no change in the status of your relationship with Wells Fargo at this point?
There's been no change in the status of our relationship with Wells Fargo. If you were to ask for my comment on it, I think our relationship has strengthened because we've treated them like a true partner, as we have for over the past 40 years and will continue to do so. I understand the chatter going on in the industry, but as you can imagine, we are not the only technology or system provider they use. Quite frankly, we're not the largest we use. They have their other challenges to go through, and we are focused on supporting them as a strong partner, as we always have.
All right, great. That's all I needed. Thank you.
Great.
Thank you. Now to the line of Chris Shutler from William Blair. Please go ahead.
Hey, Steve. Thanks for taking the follow-up.
Sure.
Just to put a finer point on that, have you confirmed with Wells that the impairments do not relate to SEI?
We've not talked to Wells about that. That's their disclosure, and I'd have no reason to talk to them about that, to be honest with you, Chris.
Okay. Thank you.
Thank you. We have no one else in queue.
Okay. Our next segment is investment advisors. Wayne Withrow will cover this segment.
No. I'm going to go back from the investment managers. Sorry. Turning to the Investment Manager segment.
Oh. All right.
That's all right. Turning to the Investment Manager segment.
Forgettable.
For the fourth quarter of 2019, revenues for the segment totaled $114.8 million, which was $12.4 million, or 12.1% higher as compared to our revenue in the fourth quarter of 2018. This year-over-year revenue increase was due primarily to net new client fundings and existing client expansion. For the full year of 2019, our revenue was $440.8 million, which was $42.7 million, or 10.7% higher than the full year of 2018. Our quarterly profit for the segment of $42.1 million was $7.4 million, or 21.4% higher as compared to the fourth quarter of 2018. Our full-year profit for the segment of $158.8 million was approximately $20.4 million, or 14.7% higher than the annual profit of 2018. Higher profits were primarily driven by an increase in revenue, offset by a smaller increase in personnel expense and investments.
Third-party asset balances at the end of the fourth quarter of 2019 were $657.5 billion, approximately $19.6 billion higher than the asset balances at the end of the third quarter of 2019. This increase was due to net new client fundings of $9.1 billion, as well as market appreciation of $10.4 billion. Turning to market activity, during the fourth quarter of 2019, we had a strong sales quarter with net new business events totaling $11.9 million in recurring revenues, as well as recontracts of $7.5 million in recurring revenues. Most importantly, these sales were diverse and spanned our entire business, and included both new name business and expansion of existing wallet share with current clients. These events include the following highlights.
In our alternative market unit, we added a $20 billion private equity insourcing shop who selected SEI as their first third-party administrator, as well as two existing private equity managers that left their current administrators to become SEI clients. Additionally, we added another client to our growing private equity real estate practice. In our traditional market unit, in addition to continuing our momentum with collective investment trusts from new and existing clients, we also had success expanding middle-office servicing relationships with four existing clients. In Europe, we continue to win new private equity and private credit mandates from both existing and new clients, particularly related to funds domiciled in Ireland and Luxembourg. In the family office services business, we had continued success with new sales events within the single family office and multi-family office market.
Our total net business sales events for 2019 were just over $49 million, which was comparable to our 2018 net sales events of $50 million. 2019 marks the second-highest annual total for net sales in the Investment Manager Segment. Our backlog of signed but not yet implemented sales stand at $42.1 million at the end of the fourth quarter of 2019. In the beginning of 2019, I covered what our focus areas for the year would be. These included expansion of our sales and growth opportunities, expansion of our platform into the front office, continued expansion of our emerging solutions such as global regulatory and compliance, and leveraging our platforms and solutions to support growth opportunities in other market segments, thus our One- SEI initiative.
I'm pleased to say that we made substantial progress on all these focus areas, and we believe our strong sales year serves as a validation of our progress and market acceptance. As we enter 2020, our focus and investment will be centered on the following areas. First, continued execution of our strong pipeline and growth opportunities. Second, sustained push of our platform into the front office, supporting our clients and investors. Third, continued expansion to our market adjacencies and growth in key markets such as private equity and private equity real estate, as well as expansion of our solutions in these areas. Finally, execution of our One- SEI strategy, leveraging our platforms and solutions to support growth opportunities in other market segments and providing the power of all of SEI to our clients.
We are encouraged with the progress we have made and with the continual evolution of our solutions and platforms that we are investing in. We believe that this investment will drive sustainable growth. Our pipeline remains strong. We are encouraged about our future. That concludes my prepared remarks. I will now turn it over for any questions you may have.
Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press one zero at this time. Again, if you'd like to ask a question, please press one zero at this time. We have no one queuing up.
Okay. Now, are you ready, Wayne? The next segment is Investment Advisors. Wayne Withrow will cover this segment.
Finally, Al. In 2019, after five years of diligent effort, we celebrated the completion of our migration onto the SEI Wealth Platform. It is now time to monetize the value of this platform and grow our business. Fourth quarter revenues totaled $106 million, up from $97 million in the fourth quarter of last year. The impact of positive markets was partially offset by negative net cash flows in our assets under management. We managed to hold our revenue recognition rate relatively steady. Expenses were relatively flat compared to last year's fourth quarter. As compared to the third quarter, expenses were up due primarily to increased stock option expense and non-recurring expenses in our operation. From a big-picture perspective, expense increases from this non-recurring item and direct costs tied to our AUM growth masked the savings recognized in both development and operations due to completion of the migration.
Our profits were up significantly compared to last year's fourth quarter. Completion of the migration and the expenses associated with it allowed us to drop much of our revenue growth to the bottom line. During the quarter, we attracted $125 million in new assets onto our platform, putting our total assets under administration over $80 billion. Of this total, almost $71 billion were assets under management, an increase of over $9 billion from December 31st, 2018. During the quarter, our net cash flow in managed assets, including fees, was a - $193 million. While recent cash flows in assets under management was negative, our flows are trending in the right direction, and newer products are being well-received. I would expect these directional trends to continue. During the quarter, we recruited 76 new advisors, bringing our total for the year to 327. Our pipeline of new advisors remains active.
In 2020, we will concentrate on two main areas. First, we are focusing on monetizing the value of the SEI Wealth Platform now that the migration is complete.
The challenges presented by the migration from both our existing clients and our internal operations are now essentially behind us, and we are focused on growth unencumbered by these challenges. As part of this process, our technology development leverages the One- SEI strategy and targets functions that help strengthen the overall advisor experience. The first example is our digital account open process, which will be using technology originally built for the IMS unit. We expect to introduce this new capability in the first half of this year. Second, with the migration no longer our primary focus, we turn to the investment product area where opportunities exist to help today's advisors. As an example, our third-party ETF strategies incorporating tax loss harvesting and liquidity management were our top-selling investment strategy in 2019. In summary, we spent 2019 getting over the hangover from our multi-year migration onto the SEI Wealth Platform.
We are now beginning to see the positives of having that behind us and are excited about our future prospects. I now welcome any questions you may have.
Thank you. Again, one zero if you'd like to ask a question. We have a question from Chris Shutler. Please go ahead.
Hey, Wayne. Could you give us the cash flows again? You ran through those numbers pretty quickly. I think I missed some of them.
Right. This is sort of a new statistic. We have $125 million in new assets onto our platform, and that's an AUA number. The assets under management were -$193 million for the quarter, bringing the total to $71 billion assets under management.
Okay. Just to be clear, the - $193 million, that's the number you've always reported as net new assets?
That's always the number we've always reported, and that's net of fees.
Yep, exactly. Okay.
It includes fees in it. Includes fees in it.
Right. Yep. I guess I'm just trying to figure out, you're talking about improved momentum, yet that number is slightly negative in the quarter, and it's actually, I think, worse than it was in the third quarter. What are you seeing kind of behind the scenes that gives you more comfort? Is there anything you can say beyond anecdotally? Are there any numbers you can give us to give us some comfort about the trajectory?
Yeah, I think if you look at the past six months, what I would say is I think that a lot of the numbers were influenced by a bad December. I guess, is the way I'd answer that question.
I guess I would've thought the fourth quarter being super strong would've been kind of counter to that point, that advisors would be very engaged, but it's not the case.
Wasn't for us.
Okay. That's all I had. Thank you.
Thank you. now to the line of Chris Donat. Please go ahead.
Hey, Wayne. Just wanted to stay on sort of the same topic of the flows. With it improving year- to- date, can you compare it to what flows you typically have seen in other Januaries? I'm looking at other data, and maybe I'm comparing apples and oranges here, but it seems like January's typically a pretty strong month for fund flows for asset managers.
I was talking about December, not January.
Okay. I thought you said you'd seen an improvement in momentum since the fourth quarter in your prepared remarks, or did I mishear that?
I think throughout last year- to- date, like as of right now, we're seeing improved momentum.
Okay.
We haven't talked about January yet.
Wait, sorry. When you say year- to- date improvement, are you talking 2020 or?
From January 1st, 2019 until now, momentum is improving.
Okay.
That's 13 months.
Okay. That improvement, it's more of a secular trend, it's not a typical seasonal pattern?
It's neither one. It's a trend with us. I don't think it's seasonal. I think it's kind of hard to look at this business as seasonal.
Okay.
If you look at December, right, December's going to be influenced by which way the market's going, or are people putting money in or tax loss harvesting out or what people are doing.
Okay. I think I'm chasing the wrong thing there. Move on.
All right. Thank you. We have no one else in queue. Please continue.
Our next segment is the Institutional Investor Segment. Paul Klauder will report on this segment. Paul?
Thanks, Al. Good afternoon, everyone. I'm going to discuss the financial results for the fourth quarter of 2019 as well as the entire year. Fourth quarter 2019 revenues of $80.5 million were similar to the fourth quarter 2018 revenues. Full year revenues of $322 million decreased 3% compared to 2018. Market appreciation positively impacted revenue for the quarter and the year, while net client losses was the primary detractor. Operating profits for the fourth quarter 2019 were $42 million, 5% higher than fourth quarter 2018 due to the previously mentioned items and lower operating expenses. 2019 full year profits were $168.1 million and decreased 1% compared to 2018. Higher capital markets and lower operating expenses were positives, offset by net client fundings. Operating margins for full year 2019 were 52%. Quarter end asset balances of $90.1 billion reflect a $6.7 billion increase versus the fourth quarter of 2018.
This was due to much higher capital markets at 12/31/2019 versus 12/31/2018. Net asset events for the fourth quarter were a negative $615 million. Gross sales were $260 million, and client losses totaled $885 million. Total new client signings for 2019 was $3.5 billion. That represents $10.9 million in revenue. The client loss numbers for the quarter and the year were primarily driven by acquisitions, DB terminations or curtailments, and unsuccessful rebids of competitive tenders. The unfunded client backlog at year-end was $560 million. While I am disappointed with the new business sales for Q4 2019, I have confidence in the pipeline, and our sales force is very active.
Our focus in 2020 will be to continue to diversify new business growth out of the U.S. defined benefit market, bring new strategic initiatives to the market, including our One- SEI strategy of integrating multiple SEI platforms, and we will continue to differentiate our OCIO offering around the globe. Thank you very much, and I'm happy to entertain any questions you may have.
Thank you. Ladies and gentlemen, again, if you'd like to ask a question, please press one, then zero. We have no one queuing up on this topic.
Thank you, Paul. I would now like Kathy Heilig to give you a few company-wide statistics. Kathy?
Thanks, Al. Good afternoon, everyone. I have some additional corporate information about this quarter. Fourth quarter 2019 cash flow from operations was $163.6 million, or $1.06 per share. Year-to-date cash flow from operations, $545.1 million or $3.52 per share. The fourth quarter free cash flow was $143.8 million, and year-to-date free cash flow, $468 million. In the fourth quarter, our capital expenditures, excluding our software, was $12.6 million. That does include $6 million for our new facilities. Year-to-date capital expenditures excluding capitalized software were $43.1 million, which includes around $25.5 million for the facility expansion. We project our capital expenditures for 2020, excluding capitalized software, to be $45 million, and this also includes about $25 million related to the facility.
We would also like to remind you that many of our comments are forward-looking statements and are based upon assumptions that involve risk, and that the financial information presented in our release and on this call is unaudited. In some cases, you can identify forward-looking statements by terminology such as may, will, expect, believe, continue, or appear. Our forward-looking statements include our expectations as to the revenue that we believe will be generated by sales events that occurred during the quarter or when our unfunded backlog may fund, the benefits we will derive from our investments and our ability to monetize these investments, our ability to manage our expenses, scale our offerings, and establish sustainable and accelerating margins, our ability to take advantage of opportunities to expand client relationships, the strength of our pipelines and growth opportunities, and our ability to execute on and the success of our strategic objectives.
You should not place undue reliance on our forward-looking statements as they are based on current beliefs and expectations of our management and subject to significant risks and uncertainties, many of which are beyond our control or are 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 our Risk Factors section of our annual report, Form 10-K, for the year ended December 31st, 2018. Now please feel free to ask any other questions that you may have.
Thank you. Again, one-zero if you'd like to ask a question. Now to the line of Chris Donat from Piper Sandler. Please go ahead, sir.
Thanks for taking my question. Dennis, wanted to ask a couple on expenses. Looking at the sub-advisory fees, just saw a tick up there if you look at it relative to certain assets. I was just wondering if there's anything there. Secondly, in the little bit bigger number, the facilities, supplies, and other costs picked up like $3 million quarter-on-quarter. Any call-outs there?
Sure. On the sub-advisory fees, that's really just a direct expense associated with revenue growth. Whenever we get asset management growth, regardless of the source, it's-
You're generally going to see a tick-up in sub-advisory fees as well. On the facility supplies and other costs line item, it's really around, I would say, the supplies and other costs area. There's a couple things going on there that I would consider one-time in nature for fourth quarter. One, in terms of the delta, we had a sales tax revenue or sales tax benefit in the third quarter of about $1 million that did not repeat in the fourth quarter. Third quarter was under by about $1 million, that didn't repeat. We had fourth quarter, and this happens generally every year, we call statement production costs, so the cost to produce statements. We generally have a one fourth quarter hit, and that's about a little over $1 million as well. That won't repeat in first quarter.
That's really a fourth quarter phenomenon. We had a good news, bad news. The bad news is we had about a $600,000 expense related to our Huntington Steele acquisition of a little while ago. The good news is, the reason for that is because the business has performed better than we had expected when we made that acquisition. I'd say that's generally it.
Okay. The Huntington Steele, though, was that in compensation or was that in some other expense line?
That would be more related to acquisition costs and goodwill.
Okay.
That's just part of the earn-out.
Yep. Understood. Okay, thank you.
You're welcome.
Thank you. Now to Chris Shutler. Please go ahead.
Thanks. One more for Steve, as if I didn't ask enough questions already, I know. On the U.K. bank win, anything you can say about your early thoughts on the timing of when that could go live? Is it likely to be phased or all at once for the initial books of business that you won?
Well, there's not much I can say. I'm pretty sure it'll be phased. That's about all I can say at this point, Chris.
Okay. Thank you.
Thank you. Now to the line of Patrick O'Shaughnessy from Raymond James. Please go ahead.
Hey, thanks. Non-recurrent sales have been elevated the last couple of quarters, and I think particularly in private banks. Is there anything specific you would be pointing to that's driving those types of sales?
I think we certainly have some momentum. I think our strategy that we announced about making it easier to do business with SEI, modularizing the platform. I also think it's the set cycle in the market where a lot of these larger firms, including banks, are looking to make decisions. I think all of those have come together. Our pipeline is strong, and we're seeing the deals move through in the proper cycle, a little bit faster than we saw before. We're hoping to continue that momentum into 2020.
Great. Thank you.
Sure.
Thank you. We have no one else in queue. Please continue.
Thank you, Kathy. Ladies and gentlemen, I'm encouraged by the direction each of our businesses are taking and the progress they are making. I believe that the investments we are making, combined with One- SEI, will help us benefit from all the changes taking place in our industry. Have a good day, and thank you for attending our call.
Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Conferencing Services. You may now disconnect.