Ladies and gentlemen, thank you for standing by. Welcome to the SEI Third Quarter 2019 Earnings Call. At this time, all participants are in a listen only mode. Later, there will be an opportunity for questions and instructions will be given at that time. As a reminder, this conference is being recorded.
I'd now like to turn the conference over to Chairman and CEO, Al West. Please go ahead.
Welcome everyone. All of our segment leaders are on the call as well as Dennis McGonigle, SEI's CFO and Kathy Hyland, SEI's Controller. I'll start by recapping the Q3 2019. I'll then turn it over to Dennis to cover LSB and the investment in new business segment. After that, each of the business segment leaders will comment on the results of their segments with one exception.
Since Wayne Withrow is on vacation, Steve Onofrio, Head of Sales and Service for the Investment Advisors segment will report on that business. Then finally, Kathy Heilig will provide you with some important company wide statistics. As usual, we will fill questions at the end of each report. So let me start with the Q3 2019. 3rd quarter earnings increased by 3% from a year ago.
Diluted earnings per share for the Q3 of $0.86 represents a 10 I'm sorry, an 8% increase from the $0.80 per share reported for the Q3 of 2018. We also reported a 2% increase in revenue from Q3 2018 to Q3 2019. Also during the Q3 2019, our non cash asset balance under management increased by $1,000,000,000 At the same time, LSV assets under management decreased by $3,300,000,000 These increases in AUM were primarily due to market appreciation, while the decreases were caused by negative cash flow. A milestone was reached at the end of the quarter. SEI reached the $1,000,000,000,000 mark in total assets under management, assets under administration and advised assets.
In addition, during the Q3 2019, we repurchased approximately 1,400,000 shares of SEI stock at an average price of $58.12 per share. That translates to $81,400,000 of stock repurchases during the quarter. Finally, in the Q3, as part of the investments we make to create growth, we capitalized approximately $7,300,000 of the SWP development and amortized approximately 12 $1,000,000 of previously capitalized SWP and IMS development. Q3 2019 sales events net of client losses totaled approximately $42,700,000 and are expected to generate net annualized recurring revenues of approximately $33,200,000 We are satisfied with our 3rd quarter sales results in our technology and operational businesses, and we are becoming bullish about our future. While slow contract negotiations in this tightly regulated environment is still considered a headwind, we are becoming less troubled as our active pipelines grow.
Our asset management businesses continue to face headwinds. While our advisor business began to see positive flows during the quarter, the institutional investor business with U. S. Corporate DB plans continues to be a challenge. Now all that being said, there are bright spots.
1 is that across the company, we have fully engaged sales teams in a lot of activity. 2, IMS sales continue to be strong. 3, the advisor I'm sorry, the migration of advisors to SWP is now behind us. This allows our full attention to be on growth. And now 4, we signed significant new SWP business.
And 5th and last, we are moving forward with some of our promising new initiatives. Our market unit heads will speak to the right spot in their specific sales activities. This concludes my formal remarks. So I'll now turn it over to 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 segment, Ed. Dennis? Thanks, Al. Good afternoon, everyone. I will cover the 3rd quarter results for the investments in new Business segment and discuss the results of LSV Asset Management.
During the Q3 2019, the Investments in New Business segment continued its focus on the ultrahighnetworthinvestors segment through our Private Wealth Management Group and additional research initiatives including the digital 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 occurred a loss of $4,500,000 which compared to a loss of $2,900,000 during the Q3 of 2018. This increase in loss reflects the growth of our Private Wealth Management business, more than offset by other areas of investment. Regarding LSV, our earnings from LSV represent our approximate 39% ownership interest during the Q3. LSV contributed $37,600,000 in income to SEI during the quarter.
This compares to a contribution of $41,700,000 in income during the Q3 of 2018. Assets during the Q3 were down approximately $3,300,000,000 LSV experienced net negative cash flow during the quarter of approximately $3,500,000,000 which was offset by market appreciation. Revenue for LSV was approximately $121,200,000 and performance fees were minimal. Our effective tax rate for the quarter was 18.9 percent. And I will now take any questions.
And we actually have no lines queuing up at this time.
Thank you, Dennis. I'm now going to turn it over to Steve Meyer to discuss our Private Banking segment. Steve? Thank you, Alex.
For the Q3 of 2019, revenues for the segment totaled $117,300,000 which is down 1% as compared to our revenue in the Q3 of 2018. This year over year revenue decrease was due primarily to some of the client losses previously announced along with decreased revenue in our asset management business. Our quarterly profit for the segment of $6,500,000 increased $4,500,000 as compared to the Q3 of 2018. Our Q3 profit is down $1,800,000 as compared to our profit in the Q2 of 2019 due mainly to 2 items. As a sign of maturity, our development work has moved from larger items to maintenance and product enhancements.
We expense this type of work as it occurs and do not capitalize it. 2nd, in Q3, we had the effect of midyear compensation adjustments, which contributed to our expense increase in Q3 compared to Q2. We continue to manage expenses tightly, but with an eye in supporting the growth momentum we are building in new events. And turning to sales activity for the quarter, we signed approximately $18,800,000 in net sales events. Additionally, we had $7,300,000 in one time events.
These events included the following: The two deals previously discussed on our Q2 call. As a reminder, they are CIBC U. S. Private Wealth Management, who is a leading North American financial institution. Its U.
S. Private Wealth Management business offers investment management, wealth strategies and legacy planning solutions. The second was a long time client, law firm Dorsey and Whitney. During the quarter, we also signed 2 additional clients to SWP, both our existing Trust 3000 clients, which are scheduled to migrate their existing books of business to the SEI Wealth Platform in the second half of twenty twenty. Additionally, as you might have seen in the press, we are pleased to announce that after the quarter end, but before today's call, we entered into an agreement with the Principal Financial Group to provide our trust platform to service their acquired Wells Fargo institutional retirement and trust business.
The deal is not included in our announced events for this quarter, and we will work over this quarter to finalize the contract. 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. And turning to an update on our Trust 3,000 business. In the Q3, we successfully converted 3 Trust 3,000 clients to the SEI Wealth Platform. They were BMO Wealth Management, Rockland Trust Company and Securian Trust Company.
All three conversions went very well and demonstrate our ability to increasingly scale our implementation strategy as well as prove our value proposition against increasingly aggressive competition. We also re contracted 1 trust client with a contract term of 5 years. As an update on our backlog, our total signed but not installed backlog is approximately $48,600,000 in net new recurring revenue, not including the principal business mentioned previously. From an asset management standpoint, total assets under management ended the period at $22,600,000,000 representing flat quarter over quarter and slightly lower year over year assets. We did see negative cash flows of 106,000,000 dollars however, we continue to build a strong global pipeline in our AMD business.
Turning to a couple of client updates. First, an update on the Department of Interior business that we previously disclosed will be leaving us. After several rescheduled conversion dates, this business did deconvert off our Truss platform at the end of the Q3. The full effect of that loss will be in our 4th quarter numbers, and as mentioned several times before, we will need to navigate this headwind as we continue to gain momentum and grow our business. Also during the quarter, we worked with Wells Fargo on a number of initiatives.
As mentioned previously, Wells has recently sold their institutional retirement and trust business. Also as disclosed in the past, Wells continues to have other important and pressing technology projects and have recently had the appointment of a new CEO. In light of the need to change priorities, Wells Fargo has informed us that it must pause the scheduled SWP implementation in order to redirect resources to other more immediate technology leads, including the IRT conversion. SEI is working closely with Wells Fargo on these other priorities, and we will be providing Wells with professional service support around these initiatives. Currently, no dates have been finalized for when the SWP implementation will restart, and we will work with wells on their current priorities in the interim.
These recent developments have demonstrated to us that there are factors that have significant influence over Wells' expense and business priorities that are not within our control. Consequently, we cannot reasonably estimate the timing of implementation. Accordingly, we will not be giving updates on new conversion dates until Wells finalizes them. More importantly, we will focus on the momentum the business is generating in both the U. S.
And U. K. And focus on implementing our current and growing backlog including the conversion of the IRT business which will result in new client to SEI, Principal Financial Group. In closing, I would like to highlight our momentum. As you can see by our backlog of signed yet to be installed clients combined with our market activity, we feel a resurgence of growth momentum.
We have an active pipeline across the U. S. And U. K. And look to continue that momentum into 2020.
We feel well positioned to grow our private banking business and feel we have great opportunity offering the power and capabilities of all of SEI's technology processing platforms across the wealth management market. We are excited for the future. That concludes my prepared remarks, and I'll now turn it over for any questions you may have.
We do have a question from Robert Lee with KBW. Please go ahead.
Great, thanks. Good afternoon, Steve.
Good afternoon,
Rob. Quick question. So just to I want to make sure I understand kind of the moving pieces. The $18,800,000 of net sales, I mean, if I remember correctly, when you had talked about CIBC and the other transaction in the last earnings call, that was about $16 odd 1,000,000 of recurring sales. So does that $18,800,000 kind of include that $16,000,000 the new and then you're also backing out wells from that?
No. So you were right up until the wells point. So if you remember, we announced CIBC or mentioned CIBC at the end of the Q2 call. We did not include that in those events. They are included in Q3 events, the 18.8.
Wells has no impact on that net sales number. They are still a client and we still have that in the backlog. What is that is a net number though that 18.8 so it takes in the sales gross sales we had minus any net downs or losses in clients for the quarter as normally we announce.
And did I have it correct the wells and the other one were about $16,000,000 recurring when you had announced them last quarter?
You keep mentioning wells, I think Ralph, I'm not I'm hearing
CIBC. CIBC. Yes, CIBC and
the other one we announced last quarter at 16.2 and then we had other events this quarter. There was other events plus CIBC, and I believe it was Dorsey, minus any net downs or losses is what results in the net $18,800,000 for the quarter.
Okay, great. Thanks for taking my question.
Sure. No problem.
Thank you. And for our next question, we'll go to Chris Donat at Sandler O'Neill. Please go ahead.
Hey, good afternoon, Steve. Good afternoon, Chris.
Just on the Department of the Interior contract, can you remind us what the expected revenue hit should be in the Q4? And is there any expense offset you expect Q4 or over time with that?
Chris, not to be smart, but we never really told you the amount. We don't really talk to specific amounts. I think there is speculation on the amount. But it is a larger amount. It was a very profitable account.
And again, that will all come out in Q4. But we don't specifically tie revenue to individual clients.
Okay. And then just on the expense side, there's should I assume that there's will there be any expense change related to this or
not really? Very little expense change.
Okay.
Any of those expense savings we've been working on all along the way, so very little.
Thank you. We'll move now to Chris Shutler at William Blair. Please go ahead.
Hey, Steve. How are you?
Good. How are you, Chris?
Good. So let's see. I want to talk about the new the conversions that happened in the quarter. So BMO and the other 2, how should we think about the incremental revenue that we will see in Q4 from the combination of those clients relative to the current quarter to Q3?
Well, I'd say 2 things. 1, keep in mind, on trust flips, typically, they're we only announce in the events when we announce them, we only announce the net up from the SWP pricing that's from Truss 3000. 2, I would say the net uptick in revenue from them and others will be somewhat muted by the Department of Interior loss and other losses. So it will probably get lost a little bit in the shuffle of the revenue decreases versus the revenue increases.
Okay. And then the I know it's tough to isolate clients, but like Wells, is the fact that they're kind of putting a pause on things? How does that impact the P and L?
Well, Wells is still an active client and a large client for Trust 3000 and will continue to be. And also we will continue, as I mentioned in the script, we will continue to work with them on a number of initiatives that we can currently working on with them, but also some new initiatives on some of the new projects they have. So I would expect some of our one times and in flights to continue.
Okay. And then lastly, Trust 3000 attrition and net downs, you mentioned it a couple of times. Can you maybe give any more specifics on what happened in the quarter there, if anything?
We did have one loss of a Trust 3,000 client that was netted out of our events, and we also had one recontract for 5 years that I mentioned.
That was a net down?
Well, there was a net down of revenue from the lost clients that we netted against our gross events, but that is in that net 18.8.
Okay. Thank you.
Sure.
We do have a follow-up from Robert Lee at KBW. Please excuse me, no. We have no one in queue at this time now.
Thank you, Steve. Now our next segment today is Investment Managers and Steve Meyer will also discuss this segment. Steve?
Great. Thanks again, Al. And turning to investment managers, for the Q3 of 2019, revenues for the segment totaled $112,200,000 which was $10,900,000 or 10.8 percent higher as compared to our revenue in the Q3 of 2018. This year over year revenue increase was due primarily to net new client fundings and existing client expansion. Our quarterly profit for the segment of $40,300,000 was $4,300,000 or 12% higher as compared to the Q3 of 2018.
Higher profits were primarily driven by an increase in revenue, offset by a smaller increase in personnel expense and investments. 3rd party asset balances at the end of the Q3 of 2019 were $638,000,000,000 or 5.1 percent higher as compared to the asset balances at the end of the Q2 of 2019. This was due to an increase in assets due to net new client fundings of $21,100,000,000 as well as market appreciation of $9,800,000,000 And turning to market activity, during the Q3 of 2019, we had a very strong sales quarter with net new business events totaling $15,100,000 in recurring revenues. Encouragingly, these sales were diverse and spanned our entire business and included both new name business and expansion of wallet share with current clients. These events include the following highlights.
In our alternative market unit, in the Q3, we converted a $16,000,000,000 debt diverse shop from a competitor and launched several new multibillion dollar funds to our growing private equity business. In our traditional market unit, we continue to have success across all product lines, particularly in collective investment trusts. We are also pleased to announce a mandate 1 in our 40 Act Turnkey Series Trust from a $1,000,000,000,000 global manager who is establishing a family of mutual funds. SEI Archway had new sales events in both the single family office and multi family office market segments. At the end of the Q3, our backlog of announced but not yet converted business was $39,600,000 an increase of $1,200,000 over the end of the Q2 of 2019.
From a market standpoint, we remain excited at the growth opportunities ahead of us. Our vision is to provide the leading integrated platform covering the front, middle and back office for wealth managers. We feel the investments we have made in our technology and platforms have not only differentiated us, but they are resonating extremely well in the market. That concludes my prepared remarks, and I'll now turn it over for any questions you may have.
We go to Chris Shutler at William Blair. Please go ahead.
All right. The expenses in the quarter, Steve, look like they bumped up about $3,000,000 quarter over quarter. Just what was that related to? How much of that was performance related given the strong sales?
Well, keep in mind, Chris, so sales we amortize, so it's less of the sales compensation, if that was your question. The $3,000,000 was primarily a little bit like the private banking market. We had the impact of midyear market compensation adjustments. We also had an increase in investments and an increase of obviously we're bringing in business faster, so we're obviously hiring and adding people.
So we should look at the I guess, we should look at that 3rd quarter number as a jumping off point for subsequent quarters?
I wouldn't say that necessarily. I would say, depending on where we stick with investments and we continue to look to scale the business. I think I've said this before, it's tough to look at a quarter over quarter look from especially from an expense standpoint. As you can see, we're in a pretty good sales mode and I want to keep that sales mode up and certainly adding the expense we have to add to support that revenue. So depending on quarter over quarter, that will impact it.
Okay. And then just I wanted to also ask about the $1,000,000,000,000 manager. Could you just explain that a little bit more, what exactly you want and who this client is?
Well, certainly, we can't mention the name, but it's a very large manager. And similar to what we've looked at with other business, we think this is an initial product that they are looking to start. They have quite a bit of funding to start a range of mutual funds that they have been looking for and they're asking us to provide the full service, full front, middle, back office. And we are looking at this as an opportunity to start a new relationship and expand from there.
All right. Thank you.
At this time, there are no more questions in queue. Please continue.
Thank you, Steve. Our next segment is Investment Advisors. Steve Arnolfrio standing in for Wayne Withrow will cover this segment. Steve?
Thanks, Al. In the Q3 of 2019, we continued to build sales momentum after the completion of the migration onto the SEI Wealth Platform. We also continued our focus on value added technology development and client technology adoption. 3rd quarter revenues totaled $103,000,000 up always slightly from the Q3 of last year. These results were primarily driven by market appreciation, offset in part by negative cash flow in the 1st 6 months of this year.
Expenses were down over 3% from last year's Q3. Savings were realized in most categories with technology leading the way. We did have increased direct costs primarily tied to our managed accounts growth, but other savings more than offset these increases. Our profits increased $2,200,000 from last year's Q3 due to cost savings. Assets under management were essentially flat from the 3rd quarter of 2018 with market appreciation being offset by negative cash flow.
During the Q3, our net cash flow was a positive $70,000,000 We are encouraged with our quarterly progress as we regain sales traction. We recruited 75 new advisors during the quarter and our pipeline of new advisors remains active. In summary, during the Q3, we posted good profit results. And while cash flow is short of where it needs to be, it is trending in the right direction. We are focused on reaping the benefits of the SEI Wealth Platform now that we are fully migrated.
I welcome any questions you may have.
We first go to Glenn Greene at Oppenheimer. Please go ahead.
Yes. Hey, good afternoon. Could you just give us any color on if you're getting any traction given that you've now converted to SWP in terms of new pools of assets or a higher, bigger advisors or just sort of a different pool of advisors that may be being attracted? It's not really showing up yet in the flows, but give us a sense for what you're seeing in terms of business activity.
Well, whether they would be larger advisors or a larger share of an advisor's book, the expanded services of the wealth platform include the ability to consolidate advisors on one platform. I think we would be a good option to a broader segment of advisors as we move forward.
Okay. Thank you.
Next, we'll go to Robert Lee at KBW. Please go ahead.
Great. Thanks for taking my question. Just if possible, I mean a little bit of color on the flows. I mean you mentioned kind of feel like you're seeing some benefit from are you seeing our advisors kind of starting to reengage more of their clients? I mean kind of lack of better way of putting in any signs kind of rerisking or whatnot?
Or is this really just a function of more sales and then out there more focused on generating just trying to get a sense of kind of the underlying momentum?
I don't think it's necessarily related to the advisors clients rerisking. I think we're encouraged by the sales that we have in the short term. We're headed in the right direction. It's difficult to predict going forward, but we have seen a correlation between the time that we spend with advisors helping them to adopt the technology, the new wealth platform technology after the migration and the ease in doing business with SEI. So we're seeing a correlation in asset growth based
on that work that we've been doing.
And maybe just one follow-up. I think Wayne has definitely talked in the past about you've been seeing good demand for your, I guess, your ETF allocation product, which I assume has somewhat lower fee structure compared to more traditional products. Is that still the case? And I guess to some degree maybe been a little bit surprised that the fee rate, if you just look at revenue to average AUM, it's held up pretty well despite kind of some of the underlying shifts. So I don't know if there's are we making too much of this kind of movement to the ETF kind of allocation product or kind of what's helping support kind of fee rate where it is?
No, I think you're right. I mean fee pressure is real in the industry and we've only had a slight impact, 2 hours. And I do believe it's the result of the continued growth of our ETF program. It's also the growth in our mutual fund models that offer the option of our large cap passive fund. But I think the real strength of SEI is the fact that we have a fully comprehensive SMA program, a comprehensive mutual fund program.
We offer it in taxable and tax managed. And when you look at an advisor's business, they have a diverse set of clients that use all of those products. So the blended fee that we receive is across the entire product line, which we think is more resilient to market pressure.
Great. Thanks for taking my question.
And at this time, we have no further questions in queue.
Thank you. Thanks, Steve. Our final segment today is the Institutional segment. Paul Carter will report on this segment. Paul?
Thanks, Al. Good afternoon, everyone. I'm going to discuss the financial results for the Q3 of 2019. 3rd quarter revenues of $80,300,000 decreased 4% compared to the Q3 of 2018. 3rd quarter operating profit of $43,100,000 was flat as compared to the Q3 of 2018.
Operating margin for the quarter was 53.6%. Revenues were impacted by negative client fundings, client fee reductions associated with successful rebids and currency impact versus the Q3 of 2018. Operating profits were positively impacted by 2 one time expense items: 1, lower than anticipated sub advisor expenses in certain products in the Q3 of 2019 and 2, an operations error that resulted in a higher than normal expenses in the Q3 of 2018. Quarter end asset balances of $89,500,000,000 reflect a $2,500,000,000 decrease compared to the Q3 of 2018. This decrease is driven primarily by negative client fundings.
Net sales were a negative $1,700,000,000 for the quarter. Gross sales were $1,100,000,000 However, client losses were about $2,800,000,000 Losses were primarily tied to 3 clients. Two losses were acquisition related and one loss was an unsuccessful rebid of a long term client. The unfunded new client backlog at quarter end was $650,000,000 and we would expect the majority of this to fund in the 4th quarter. The new client signings were diversified across new clients in endowments and foundations, U.
K. Fiduciary management, U. S. Defined benefit and a U. K.
Defined contribution win. We believe the new business focus on longer term asset pools across all global markets is paying dividends for the business and our sales pipeline is strong. We continue to stay focused in all client situations, especially those that are in rebid process or in M and A activity. Thank you very much, and I'm happy to entertain any questions that you may have.
And our first question will come from Patrick O'Shaughnessy with Raymond James. Please go ahead.
Hey, good afternoon. I was just hoping to dig into your commentary about lower than anticipated sub advisor expenses. Is that a one time issue, some sort of catch up in the quarter? Because I think your commentary suggested it was one time. Or is that something that we could think about kind of being sustained going forward?
Yes. It was just Patrick, it was just one time for the quarter. So some of our alternative investment, sub adviser expenses, we make an estimate based on the contract and where the run rate is. And in this particular quarter, 2 of the alternatives we were over accrued for the 1st set, 2 quarters and we had a true up. So we had lower expenses in the 3rd quarter and also a write down of what Got it.
And then maybe a bigger picture question about margins.
I guess,
Got it. And then maybe a bigger picture question about margins. I think it's obviously somewhat unusual to see a business that's having top line pressures showing the year over year margin improvements that you guys have shown year to date. And it does sound like some of that might be non recurring in nature. But how do you think about the sustainability margins kind of in this general range?
Dennis is looking at me and just saying it's strong good management, but I guess that's not a good answer. I think we've been very smart in managing expenses and doing it judiciously, but also looking at the business strategically. When we have the Investor Day, we'll be talking about some other initiatives that we're looking for to really springboard us into other incremental markets that we're not in now. So there may be some investment from that standpoint. We've got a benefit of getting more diversification in alternative investments.
The reality is that we're more efficient on how we service our clients. Technology is part of that process now that wasn't part of the process maybe 3, 4, 5 years ago. But as we move forward, the sustainability of 53% profit margins are now there for business given some of the headwinds and we would expect that to come down. And more importantly, we're really thinking about how we get focused on long term growth and how we get into new markets to be able to get us back to a growth engine for SEI.
Great. Thank you.
And next we'll go to Chris Donat at Sandler O'Neill. Please go ahead.
Hey, Paul. Actually, you know what, the Patrick's question, the way you covered it, that satisfies me and I don't want to make any more trouble for you with Dennis.
Thanks, Chris. I appreciate it.
Thank you. We'll move then to Robert Lee at KBW. Please go ahead.
Great. Thanks. Good afternoon, Paul.
Hi, Robert.
Hi. Just kind of curious,
I mean, you gave some color about the backlog and the sources of it. And just maybe if you could update us on some of your U. S. DC initiatives. I know it's something you guys have talked about as a channel you have some priority on, although it feels like it's been maybe a little tough sweating, getting too much there.
Can you maybe just give us a quick update on what you see there?
Sure. Well, I'll just pivot real quick to the UK. So our master trust in the UK, which is our largest way that people consume our defined contribution services was approved by the FDA. So we had a nice incremental win in the Q3 of a new client coming into that. So we're quite positive about that as we move forward because we're one of the early ones that got the approval.
Pivoting to your question with respect to the U. S, it has been slower on D. C. One of the realities with regard to defined contribution plans is we still are in a market that extensively is going up. So there's not as much pain on the lineup for plant sponsors.
Consequently, they're less likely to change their diversification options. So I've talked about this before. This is one of those markets that if we had some more volatility and we had some frustration either at the participant level or at the sponsor level, we think we would be in a better position for getting the multi manager kind of white level approach into DC plans. We're still actively talking to a lot of our defined benefit customers. But again, it's a little bit of an inertia just because the line ups are doing pretty well.
We do think long term, and again, we'll talk about at the Investor Day about some other things that could happen in the 401 defined contribution world that we think could be beneficial, but we don't see them on the short term horizon. They would be more long term initiatives.
Great. And maybe just a quick follow-up. And then going back to the sub advisor expense question, could you size that for what that impact was in the quarter?
That was about $800,000
Okay, great. Thanks so much.
Yes, no problem. Thank you.
Thank you. Next we have Chris Shutler at William Blair. Please go ahead.
Hey, Paul.
Hey, Chris.
So I
wanted to follow-up on that and just so you just gave the one time benefit from sub advisor. On the second piece, the operations error, I guess, can you size that? And can you just reiterate exactly what that item was?
Yes, that was from the Q3 of 2018. That was a little bit Got you. So it's not in 2019. So it's a little bit less than $1,000,000 that was in 2018. So from a comparative perspective, that's why I called that out.
Okay, got it. Makes sense. Thank you.
Thank you.
There are now no more questions in queue.
Thank you, Paul.
Before I turn it over to Kathy Heilig, I'm going to give the mic to Steve Meyer to cover something that's come up.
Yes. This is Jeff's response, Chris. Just two follow ups. 1, you had asked about the Department of Interior. I get to plead ignorance because it was pre Steve, but apparently we did in the Q4 of 2017 have a conversation during the call about the amount of that client was $17,800,000 So I just want to clarify that.
And secondly, on the expense uptick, Chris, that you brought up, the one thing I think you're probably looking for that might help you in our personnel expense and uptick due to the performance of IMS, we did do a catch up for our IC because where we are tracking in Scholes in the quarter. So that one time uptick was about $2,400,000 for the year. Just wanted to follow-up to clarify those. Thanks.
Thank you. And now, Cassie, I'd like to give a few company wide statistics.
Thanks, Sam. Good afternoon, everyone. I do have some additional corporate information about this quarter. 3rd quarter 2019 cash flow from operations was $163,900,000 or $1.06 per share, bringing year to date September cash flow from operations to $381,500,000 or $2.45 per share. 3rd quarter free cash flow was $144,000,000 dollars and year to date free cash flow is $324,200,000 In the 3rd quarter, we had significant part of that was related to our facility expansion.
In the Q4, we would expect to have capital expenditures excluding capitalized software of $15,000,000 and about half of that would be related to the facility. Our projected capital expenditures for next year are about $40,000,000 and again about half of that is related to the facility. 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 may, will, expect, believe, continue or appear. Our forward looking statements include our expectations as to 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 our ability to manage our expenses and scale our offerings the timing of our implementations and conversions the services we may provide to clients the momentum of our businesses 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 current beliefs and expectations of our 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 are described in our forward looking statements can be found in Risk Factors section of our Annual Report Form 10 ks for the year 2018. And now please feel free to ask any other questions that you may have.
We do have a question from Chris Shutler at William Blair. Please go ahead.
Hey, guys. Just a couple more. First for Dennis, the on the investments in new business, the expenses grew about $1,000,000 sequentially in Q2 and then another $1,000,000 sequentially in Q3. Just explain why that was? I think you said growth in the Private Wealth Management business, but just explain what that was and how sustainable that is?
And I'd say it was the growth in expenses is really a result of spending on some of our newer initiatives that were capturing those costs in the investments in new business segment. And the 2 that I mentioned on the call earlier were the digital services offering, we call it SEI IT Services, so that what we used to call hosting services. So the development and build out of that those capabilities and beginning to take those to market as well as some of the modularization work on different technology components around the company that we believe are going to open up access for those capabilities to newer new markets. Then those costs were offset by growth in the Private Wealth Management business.
Okay, got it.
Okay.
So it sounds like those expenses, the current run rate that's the run rate in Q3 is the 3rd quarter going forward?
Yes, I would go forward with that.
Okay.
We'll spend more time with that on the investor conference as well.
Okay, great. And then one last one for Steve on Wells. Just curious, when were you made aware of Wells being on hold? And was it post the new CEO coming on board? And any idea if this pause by Wells was specific to SEI or have they paused a bunch of their IT projects?
Or any more color there would be great.
Well, as far as when we knew, we've been in conversations with Wells over the past several weeks. I would not tie this directly to the new CEO. I think there's a number of things on Wells' plate that caused this. As far as speculating to other providers, I do not believe this is just focused on SEI. But from our standpoint, I don't want to speak for Wells or speculate on their point on their part.
I think the most important thing out of this is Wells has asked us in their time of need for us to be a good partner and that's what we're going to do. We've done that for the past 40 years and quite frankly I think the solace we get is that we're putting our client speeds buzz ours. We're a little disappointed obviously in pushing this, but we're going to continue to work on their current priorities. Wells has continued
to be a large
client of SEI. And I think the bigger story for us in private banking is the large backlog we have that is growing and the momentum that is putting off, and that's what I want to focus on.
And I guess confidence that there's no change in the long term relationship with Wells as a result of this extremely high or how would you describe it?
Well, again, my view is Wells, we've had a long history of 4 years with Wells, and I expect that to continue for a very long time. They're currently a large client and we'll continue with that. And as I said, we're going to help them work on their current priorities right now as we wait for them to look at when they can reconsider SWP dates. And when they are ready to reconsider SWP dates, we're ready, willing and
able. Our next question is from Robert Lee at KBW.
Actually, Steve, maybe just have 1 or 2 quick questions for you still. The one time revenue to $7,000,000 did that I assume that all flowed through in the quarter? I mean, I know every quarter you've got some, but did that all come?
No. So the 7.3 was obviously tied to new business implementations about $1,000,000 of that flowed in Q3. The rest will come in over the next 12 or so months.
Okay, great. And then, I know you have I don't think you've mentioned this call and I apologize if you didn't, I missed it. But CIBC, fairly large new client, any sense of when you think that's going to begin coming on board?
Well, we're in active implementation with them. Obviously, there's a large project on their side and our side. We will look to work through the next 12 to 14 months. But I think there'll be phases that we start to bring in towards the end of 2020. But obviously, there's an implementation fee that we'll start to recognize as we go through the implementation as well.
Great. And then maybe, Dennis, I just had a quick question for you. I mean, obviously, I know the tax rate moves around with certainly around the options and equity based comps and things. But how should we be thinking of kind of any change in kind of your normal tax rate or kind of basic core tax rate?
I mean, 4th quarter will look more like 1st and second quarter. 3rd quarter, we also get the benefit of tax years closing out. So you get some reserve reversals as a result that benefit us. So 3rd quarter is usually a quarter where the tax rate is a little bit lower historically. 4th quarter will be similar to 1st and second, more in the 21% range.
Great. Thanks for taking my questions.
You're welcome.
And now there are no further questions in queue.
Thank you. And so ladies and gentlemen, sales results were solid this quarter and we are encouraged by the size of our pipelines and the progress we're making throughout the company. Further, we believe that the investments we are making in our platforms and organization will help us benefit from all the changes taking place in our industry. Now before you go, please note that we are holding an investor conference on November 12th 13th at SEI's Oaks headquarters and dinner will be served on 12th followed by the conference on 13th. I hope you make it.
Thank you very much for attending this afternoon and have a great day.
That does conclude our conference for today. Thank you for your participation, and you may now disconnect.