Ladies and gentlemen, thank you for standing by. Welcome to the SEI First Quarter 2018 Earnings Call. At this time, all participant lines are in a listen-only mode. Later, there will be an opportunity for your questions. Instructions will be given at that time. As a reminder, today's conference call is being recorded. I would now like to turn the conference over to the Chairman and CEO, Al West. Please go ahead.
Thank you, and welcome everyone. All of our segment leaders are on the call, as well as Dennis McGonigle, SEI's CFO, and Kathy Heilig, SEI's Controller. I'll start by recapping the first quarter 2018. I'll then turn it over to Dennis to cover LSV and Investment in New Business segment. After that, each of the business segment leaders will comment on the results of their segments. Then finally, Kathy will provide you with some important company-wide statistics. As usual, we will field questions at the end of each report. Let me start with the first quarter 2018. First quarter earnings increased by 58% from a year ago. Diluted earnings per share for the first quarter of $0.86 represents a 56% increase from the $0.55 reported for the first quarter of 2017.
We also reported a 13% increase in revenue from first quarter 2017 to first quarter 2018. During the first quarter 2018, our non-cash asset balances under management were essentially flat. The positive flows we had were offset by drops in the market. In addition, during the first quarter 2018, we repurchased approximately 1.1 million shares of SEI stock at an average price of $73 per share. That translates to over $82 million of stock repurchases during the quarter. Finally, in the first quarter, as part of the investments we make to create growth, we capitalized approximately $12 million of the SWP development and amortized approximately $9.7 million of previously capitalized development. In the fourth quarter, we capitalized $900,000 of IMS development and amortized $1.3 million of previously capitalized IMS development.
First quarter 2018 sales events net of client losses totals approximately $18.8 million and are expected to generate net annualized recurring revenues of approximately $11.6 million. We remain disappointed with our sales results. While activity is very high and our pipelines are significant, larger deals are more complex today and take longer to close. Each of our units will speak to their specific sales results. This concludes my formal remarks, so I'll turn it over to Dennis to give you an update on LSV and the investment in our new business segment. I'll turn it over to the other business segment heads. Dennis?
Thanks, Al. Good afternoon, everyone. I will cover the first quarter results for the investments in new business segment and discuss the results of LSV Asset Management. During the first quarter of 2018, the investments in new business segment continued its focus on the operational development and testing of a web-based digital advice offering and on the ultra-high net worth investor segment through our private wealth management group. During the quarter, this segment incurred a loss of $3.2 million, which compared to a loss of $3.8 million during the fourth quarter of 2017. Regarding LSV, our earnings from LSV represent our approximate 39% ownership interest during the first quarter. LSV contributed $40.6 million in income to SEI during the quarter. This compares to a $43.3 million contribution for the fourth quarter of 2017. Assets grew approximately $500 million for the quarter.
LSV experienced positive cash flow during the quarter, which was offset by market depreciation. Revenue was approximately $131.7 million, of which approximately 1% was performance fee related. Our effective tax rate for the quarter was 11.9%. On December 22nd, the President signed into law the Tax Cuts and Jobs Act. This had the effect of lowering our overall tax rate. In addition, our tax rate benefited from the accounting rule change related to stock option expense, which we discussed last year. During the quarter, we adopted ASU 2014-09. This new accounting rule relates to revenue recognition. The adoption of this new rule did not change the accounting treatment for the majority of SEI's revenue arrangements and did not have a material impact to our financial statements.
One area of note, however, was on how we record the brokerage fees received and expenses incurred for research services provided in our private banking segment. Both revenue and expense were previously recorded on a gross basis, but now are netted in revenue. This resulted in a reduction of $3.7 million in both revenue and expense in the banking segment in the first quarter. We did not adjust in prior periods. There was no impact to net income in the segment or company. I direct you to our recently filed 10-K and soon to be filed 10-Q for more information on this accounting change. I will now take any questions.
Ladies and gentlemen, if you would like to ask a question, please press * one on your telephone keypad. You will hear a tone indicating you have been placed in queue. You may remove yourself from this queue by depressing the pound key. Our first question is from the line of Chris Shutler with William Blair. Please go ahead.
Hey, Dennis. Good afternoon.
Hi, Chris.
The $3.7 million item in private banks, I know that there's offsetting revenue and expenses, but just as we model going forward, should we think about that same kind of magnitude hitting the remaining quarters of the year?
Yes, I would say so.
Okay.
Really, if you just take first quarter forward.
Yep, exactly. The flows for LSV, Dennis, you said that they were positive. Can you quantify it?
They were positive, about just under $1.9 billion.
Okay. A really good quarter then.
Yeah, it was a good quarter. It was mostly new clients.
Mostly new clients? Okay.
Yeah.
Lastly, the tax rate. Just how should we think about tax rate from here for the remaining quarters?
Yeah. Kathy will cover that in her comments, I think the way we're looking at it, the way we plan for it is, you have the statutory rate is set. We can't really predict option exercising activity, which has this accounting impact. Also we know if we don't have that, the rate's going to go up a little bit as you kind of level set it for the year. I'm still using that 21% range as our kind of normalized rate in the way we model.
Yeah. Our expectation would be that the first quarter was extremely low for a couple reasons. One, of course, it was the difference in the statutory rate. We had a lot of stock options vest, and we had a lot of exercises. We would not expect that level to repeat going forward. The other thing is too, the impact of it on the first quarter is significant in terms of percentage because pre-tax income is only one quarter's worth.
As you work through the year, it gets adjusted. I would certainly be modeling a higher rate than what we experienced in the first quarter.
Okay. Thank you.
We operate at the statutory rate in our model.
Thanks, Dennis.
There are no other questions. You may continue.
Thank you, Dana. I'm now going to turn it over to Joe Ujobai to discuss our Private Banking segment. Joe?
Thanks, Al. I'll start with a financial update on the first quarter, followed by an update on new business activity. First quarter revenue of $122 million was down 4%, mainly due to recent accounting changes mentioned by Dennis. For the quarter, operating profit of $10 million was up $1.4 million from the fourth quarter. Sales activity for SWP and asset management distribution is robust, both with current clients and new name prospects. The decision and contracting process remains challenging and elongated. We're making progress, and the solution is gaining market acceptance. During the quarter, we signed and announced an important long-term SWP agreement with BMO Wealth Management. An SEI client since 2005, BMO will migrate their existing book of business currently on Trust 3000 to the SEI Wealth Platform in 2019.
We also signed another Trust 3000 client, Bremer Trust, to a long-term SWP agreement expected to convert by the end of this year. In the U.K., we continue to cross-sell and gather solid net cash flow from current SWP clients. Net cash flow for the first quarter was $1.5 billion. During the quarter, we received notification from True Potential that they will not renew their SWP contract when it expires at the end of the first quarter of 2019. TPS decided to run their business on an in-house homegrown system. During the quarter, we had strong professional services or one-time revenue related to SWP sales agendas, conversions, and other client activity. Regarding Trust 3000, during the quarter, we recontracted three clients for a total of $4.5 million. There were some recontract net downs, mostly due to changes in client business models.
There were no competitive losses during the quarter, but we did lose two smaller clients due to merger and acquisition activity. Our asset management distribution business ended the first quarter with positive cash flows of $332 million of net new assets. The new flows were representative of key distributors in Asia and in Europe. In February, we announced our first client for this platform, Janney Montgomery Scott. As an overall tally for SWP, Trust 3000, and AMD sales events, net of client losses totaled approximately $3.6 million, of which negative $2.3 million is recurring revenue and $5.9 million is non-recurring or professional services revenue. Our total signed but not installed backlog for SWP is approximately $30 million in net new recurring revenue encompassing eight uninstalled clients.
As a new metric to illustrate our continued momentum with SWP, the total recurring revenue value of our SWP backlog, including the recontracted value of the Trust 3000 relationships, plus the net new recurring revenue, is greater than $70 million. As a reminder, the average SWP contract is greater than six years, so these relationships represent substantial revenue commitments to SEI. Regarding the backlog, I'd like to give you an update on Wells Fargo. We continue to make great progress working in collaboration with Wells Fargo. To date, we've both met all our key milestones, including SWP development. At this point, I expect the Wells Fargo conversion will push, and we are working closely with them to assess and reset the dates for conversion.
In conclusion, we remain focused on the following: capitalizing on our momentum to grow the backlog by contracting events and progressing the rest of the prospects through the sales process, installing the backlog, and improving profitability of the banking segment to return the unit to historical profit margins. Any questions?
Ladies and gentlemen, if you have any questions, press star one. We go to the line of Chris Donat with Sandler O'Neill. Please go ahead.
Go ahead.
Hey, thanks for taking my call, Joe. Just on the Wells Fargo getting pushed back, should we expect some revenue impact in 2019 from that? Because they are already an existing account, nothing material? Can you help us out?
Really nothing material, and we still have a reasonable amount of one-time revenue, so we continue to work very actively on the conversion and the build-out of custom. There really isn't much impact to the revenue, though, in 2018 or 2019, no.
Okay. I'll try asking it, see how you answer it. Is the getting pushed back you or them, or can you say?
Yeah, we're working really closely together and these are very complex conversions. As I said earlier, both sides met all of our key deliverables, and I think as we get to a firmer date, we can explain more about the delays.
Okay. Thanks, Joe.
Next we go to the line of Glenn Greene with Oppenheimer. Please go ahead.
Yeah, good afternoon, Joe. Just following up on the last question, do you have a reasonable sense of the timing when Wells is likely to convert at this point, or just too much up in the air?
Look, I think both sides want to get this thing converted as soon as possible. They bought the SEI Wealth Platform because they believe it adds a lot of value to their business. We're working really closely to figure out the best timing. Again, as soon as we get firm dates, I think you'll all probably know those before anybody. It seems you guys know everything before things go official. We'll tell you as soon as possible. We're working really closely with them to figure out the best dates.
The two SWP clients that are not going to renew, just to be clear, were those U.K. clients? Just a little bit more color why they're not renewing and the order of magnitude of the dollar impact.
I mentioned there were two Trust 3000 clients that we did not recontract because of M&A situations. I also mentioned there was a client in the U.K. called True Potential. They were an early client of ours. They decided to take the platform in-house. They have a little bit of a technology bend. They built some finance software. Their business is a fairly simple mutual fund-managed account business. They've decided to try to build that on their own.
What's the assets for True Potential? It's just one SWP client that's not renewing. I misheard that.
Yeah, that's what we talked about. That's what I announced today. We don't announce individual assets for the clients.
Okay, just a little bit more color. It sounds like you're enthused by the pipeline, but still frustrated with getting deals over the goal line. Just maybe a little bit more color in terms of activity you're seeing.
We think BMO Harris, or BMO Wealth Management, as it's called now, is a terrific win for us. They're a very substantial BSP client of ours, and they're a terrific book of business for us. There's lots more opportunity as a global organization. That's a big win for us. Again, these large wins are very complex sales situations. That's another great one for us to get that helps a lot. As firms like that decide to move to SWP, that's helpful. As I've said and as Al's mentioned, these are complex contracting processes. We have a lot of activity, but getting the contracts inked is the hard part. Sales activity is very strong, and we are at it every day.
Okay, thanks. Good luck.
Thanks.
Next we go to the line of Robert Lee with KBW. Please go ahead.
Yeah. Hi, good afternoon, Joe.
Hi, Rob.
Hi. I was just curious. Can you maybe update us, in the U.K. at least, obviously you talked about strong net cash flows and unfortunately had the one client who's leaving the SWP. I'm just kind of curious about sales and pipeline activity there for SWP with new U.K. or clients.
We've been disappointed that we haven't closed that many deals in the U.K. in the last couple of years. We are actively engaged in some very robust sales agendas on the larger side of the market. We've got to move those agendas through the sales process. I think a lot of the market was really bogged down with some of the regulatory changes with MiFID II and some of the other changes that were going on in the industry. Some vendors delivered MiFID II. We did a good job of that. Others didn't deliver so well. That's opened up some opportunities for us. I suspect we'll continue to progress some agendas there this year. We're actively engaged. We have some of the U.K. team here this week, and I'll spend some time in the pipeline. I'm there next week, and there's some interesting agendas there.
We're working hard to get some new business there because we're happy with the organic growth of the clients that we have on the platform there today. If we can get some new names to add to that organic growth, we think that continues to be an interesting opportunity for us.
Okay. Maybe just to follow up on the, I guess it was about $5 million, call it $6 million of one-time revenues. I'm just kind of curious, are most of those one-time revenues related to kind of clients who've already kind of signed on, like Wells or others, and you're just going through the process? Are you still seeing a reasonable amount of one-time fees from people who haven't signed yet, kind of in the pipeline, but you're kind of going through the exploratory process?
There's a little bit of that. There are some prospects that, again, are paying us as part of the process that haven't yet signed contracts. The bulk of that revenue is related to conversions of clients that have already signed.
Okay, great. Thank you for taking my questions.
Thanks.
Next we go to the line of Chris Shutler with William Blair. Please go ahead.
Hey, Joe.
Hey, Chris.
Regarding the True Potential in the U.K., I just want to confirm that is in the net sales events for Q1, correct?
Absolutely. Otherwise, we would not have had negative net sales events. Yes, correct.
Okay. Is it all revenue from True Potential that you will lose, including the asset management component?
No, it's sort of an average of what we had from them as an investment processing revenue last year. It is not the asset management revenue. We expect the asset management revenue to continue there. Like I said, they fashion themselves as a technology firm in addition to a financial services firm, and they've decided to try to build something and take it in-house.
Okay. Is the asset management revenue or the kind of the platform revenue, the bigger component?
It was about 50/50 in the past.
Okay.
It's been about 50/50 in the past.
Okay. That helps.
Great.
On Wells, I just want to make absolutely sure I'm clear on this. You're basically saying no change to the revenue outlook around Wells, just kind of a push out in the go-live date, right?
Yeah. Certainly in 2018 and 2019, there's no change and, yeah, a push out on the go-live date. Yes, absolutely. That's correct.
Okay. Do you think that you need Wells to go live to be able to sign other large ASP clients?
No, I think we're talking very actively with some of our other large clients, as well as some other large global banks that would prefer an ASP over our software as a service model. Our expectation had been that Wells would be the first, but there are certainly other opportunities for us.
Okay. Thanks a lot.
Thanks.
Next is the line of Tom McCrohan with Mizuho. Please go ahead.
Hey, Joe. Just two follow-ups on Wells. Has the Wells conversion come to a halt or until a new date is framed up, or is work being done?
Not at all. We have the same team. We're very actively involved in the conversion. We have continued to develop the technology that, again, is specific to ASP or software as a service. They continue to have a substantial number of people on the project, and the conversion continues.
Just in terms of magnitude of the delay, are we talking about quarters, years? I mean, if there's any way to think about that.
It's really hard to tell that. It will be delayed, otherwise we probably wouldn't be talking about it. It's really hard for me to predict that at this point. Frankly, as soon as we have a better sense of it, I'm sure that, as I said earlier, you all will find out about it in the market, and I think Wells is committed with us to talk more openly about it. I don't want to give you information that isn't correct until we feel that we have a good understanding of it.
Okay, thanks. That's all I had.
Thanks. Look, we have a good relationship with Wells Fargo. Wells Fargo is very excited about SWP and the platform. We are very excited about Wells Fargo being a client of ours, and we're working very closely with them to make this a reality.
There are no further questions. You may continue.
Thank you, Joe. Our next segment is Advisors. Wayne Withrow will cover this segment. Wayne?
Thanks, Al. In the first quarter of 2018, we continued to grow our revenues and profits while simultaneously making big strides in the migration of our business to the SEI Wealth Platform. First quarter revenues totaled over $99 million. These revenues were $11 million better than the first quarter of last year. This increase was driven by positive net cash flow and market appreciation, offset in part by fee reductions in some of our investment products. Expenses were up in the first quarter versus last year's first quarter due to increased direct costs and personnel expense tied to our growth. SEI Wealth Platform migration expenses, together with increased development expense, net of capitalization, also contributed to the increase. Our profits grew 14.8% from last year's first quarter. Our margins grew slightly as many expense categories increased roughly in line with our revenue growth.
Assets under management was $64.6 billion at March 31st, an increase of $6.6 billion from March 31st, 2017. The increase was driven by positive net cash flow and market appreciation. During the first quarter, our net cash flow was $935 million. This positive cash flow, partially offset by declining markets, was the cause of our AUM increase from the end of last year. During the quarter, we recruited 130 new advisors. Our pipeline of new advisors remains strong. On March 31st, we completed another migration of advisors onto the SEI Wealth Platform. This migration included roughly 86,000 accounts and over $11 billion in assets. We now have close to 80% of our assets migrated onto the SEI Wealth Platform. Another large migration is planned for the end of September, and a final smaller migration is planned for March 31st, 2019.
In roughly 11 months, all advisor accounts will be on the SEI Wealth Platform. As we complete these conversions, we will be simultaneously helping all of our advisors adopt the new features of the Platform, especially its straight-through processing capabilities. In summary, the first quarter reflected our continued financial growth and solid progress towards completion of our migration to the SEI Wealth Platform. These items give us confidence in the long-term opportunity in front of us. I welcome any questions you have.
Ladies and gentlemen, once again, press *1 if you have a question. We go to the line of Robert Lee with KBW. Please go ahead. Mr. Lee, do you have your phone muted, sir?
Sorry about that. Thanks. Hi, Wayne. How are you?
I'm great.
Just on the fee reductions, were those Because I know you've talked about this several times over the past year or so. Was this the flow-through impact of prior reductions, or were there some new reductions implemented, say, at the start of the year that saw the impact? Maybe if you could give us a sense of where that's happening. Is it more of a mixed thing with the products or just seeing that you have to lower management fees on some products?
Well, early last year, we reduced the expense ratio of some of our mutual funds. That was early last year. Then in the middle of last year, we reduced the expenses of our ETF portfolio strategies and our SMA strategies for our larger clients. Then at the very beginning of this year, we reduced the expense ratio of one of our larger mutual funds, U.S.-based mutual funds. So basically, all those numbers are reflected in the first quarter results.
Okay, great. I'm just curious, your new advisor headcount's been pretty good quarter-over-quarter. Can you maybe update us a little bit on the competitive environment you see out there? We do see and hear about different competitors coming up with different types of technology platforms. I think there's firms like AdvisorEngine and others who seem like they're trying to target the same advisor segments. Could you maybe talk a little bit about what you're seeing in the competitive environment, any new entrants or anything?
Yeah. At the highest level, I would take some of the technology platforms like AdvisorEngine, I would look at them as the same way I would look at asset management firms. What I mean by that is they're appealing to the do-it-yourself advisor who wants to assemble a platform for their business that they can run themselves. They can construct portfolios, pick the components of the portfolios. They can pick the custody platform. They can pick the surround technology, whether it be fee collection platform, aggregation platform, performance measurement. We're a complete bundled solution. We appeal to the advisor that wants to outsource the complete platform be it investment or technology or operations, and wants to concentrate primarily on servicing their existing clients and selling new clients. The value propositions are very different, and I think we go after advisors with different mindsets.
Okay, great. That's helpful. That's all I had. Thank you.
There are no further questions. You may continue.
Thank you, Wayne. Our next segment is Institutional Investors Segment, and Paul Klauder will report on this segment. Paul?
Thanks, Al. Good afternoon, everyone. I'm going to discuss the financial results for the first quarter of 2018. First quarter revenues of $85.5 million increased 11% compared to the first quarter of 2017. First quarter operating profits of $44.4 million increased 16% compared to the first quarter of 2017. Both revenues and operating profits were positively impacted by market appreciation, client fundings, positive currency translation, and changes in asset class diversification by our client base. Approximately $2 million of the revenue and operating profit in the first quarter was one-time in nature due to retro private equity firms and specific client performance-based fees. Quarter end asset balances of $92.6 billion reflect a $7.6 billion increase compared to the first quarter of 2017. This increase is driven by higher capital markets and positive client fundings. Net fundings were flat for the quarter.
This included approximately $850 million in losses, which was, as previously discussed, the continuation of partial curtailments of DB clients and a client merger. The unfunded new client backlog at quarter end was $700 million, but will be impacted by second quarter client losses. New client signings for the quarter were $1.1 billion. This was primarily diversified across new clients in endowments and foundations, U.S. healthcare, and U.K. fiduciary management. Continued sales penetration in the not-for-profit segments will continue to yield a higher consumption rate of higher fee alternative investment asset classes. Our sales pipeline is strong, and we will continue to focus on key growth markets in 2018. I welcome any questions that you might have.
Once again, if you have any questions, please press star one. We go to the line of Robert Lee with KBW. Please go ahead.
Hi, good afternoon.
Hi, Robert.
Hey, how are you? Just, I guess, a quick follow-up. You mentioned that pipeline be impacted by client losses in subsequent quarters. Are there some sizable client redemptions you're anticipating as we look ahead to the current quarter?
There's a similar curtailment that we now know of in the second quarter that's probably somewhere in the magnitude of the gross backlog.
Okay, that's helpful. Then can you maybe, again, also talk a little bit about the competitive environment? I know it's talked in the past about new entrants in the OCIO marketplace, consultants and others, and that has also put some pricing pressure, I guess, on the industry. Could you maybe just update us, and to the extent you see that you're losing some business here or there, is it mainly to these lower priced competitors? Or how do you?
Sure
Are you seeing them impact your pipelines? Just get a feel for that.
Yeah. I think the beauty of our segueing into endowments and foundations is they are not low price buyers. They are high quality buyers, and they want to find organizations that have scale, scope, resources that can manage their endowment and foundation for the next 30-odd years. Unlike someone, say, a DB plan was in the market right now that was only going to be around for four or five years, they might be a low-cost buyer because they're not really going to be a going concern, so to speak. The endowments and foundations, they're going to do a competitive process. They're going to make sure that your rates are competitive vis-à-vis others. They're not going to just buy the cheapest provider. The other benefit that I mentioned in my remarks is that these types of investors consume alternative investments at a much higher clip.
Our revenue model for alternatives is higher, just like it is with other competitors. That will certainly be a direct benefit, and we saw some of that benefit in the first quarter.
Great. That was it. Thank you for taking my question.
No problem, Robert.
Next we go to the line of Chris Shutler with William Blair. Please go ahead.
Hey, Paul.
Hey, Chris.
I just wanted to follow up on that last comment around alternatives. Just putting it all together with increasing mix of alternatives, fee pressure elsewhere, how should we think about the blended revenue yield in your part of the business?
It's really stayed fairly flat, maybe gone down a little bit, Chris. We have two dimensions. We have historical DB accounts that we won 10 years ago that are curtailing or we're losing, where when we won them 10 years ago, we had a much higher OCIO fee or fiduciary management fee. We're now replacing that with endowments and foundations where the OCIO fee might be lower, but the net up we get from alternative investments is much higher because the DB plans did not have as much alternative investments. Consequently, it kind of levels it out. As the DB runs off and we replace it with more of these endowments and foundations, we feel confident that the yield rate will actually increase over time, but I don't see that in the foreseeable future. My goal in the foreseeable future is to keep it levelized.
One of the real benefits that we did over the last six months is we had our largest raise in private equity with our clients we've ever had. That's a tremendous asset class for the investors. It's very helpful for us. Investors that would put assets in private equity, they're making a commitment for eight to 10 years, as you know. That's a real good benefit we've brought to them and also a commitment that they have for us as a OCIO firm.
All right. That helps. Thank you.
Thank you.
There are no other questions. You may continue.
Thank you, Paul. Our final segment today is Investment Managers. Now I'm going to turn it over to Stephen Meyer to discuss this segment. Steve.
Thanks, Al. Good afternoon, everyone. For the first quarter of 2018, revenues for the segment totaled $96.9 million, which was $16.4 million, or 20.3% higher as compared to our revenue in the first quarter of 2017. This year-over-year revenue increase was due to net new client fundings, market appreciation, and the acquisition of Archway. Our quarterly profit for this segment of $33.5 million was $5.1 million, or 17.9% higher as compared to the first quarter of 2017. Higher profits were primarily driven by an increase in revenue, offset by an increase in personnel and investment expense. Our increase in investment expense included amortization of our investments in the front office portion of our platform and the amortization of Archway acquisition. We expect our increase in investment expense and related amortization to continue for the next several quarters.
Third-party asset balances at the end of the first quarter of 2018 were $507.7 billion, approximately $50.3 billion, or 11% higher as compared to the asset balances at the end of the first quarter of 2017. This increase in assets was primarily due to net new client fundings of $42.8 billion and market appreciation of $7.5 billion. In turning to market activity, during the first quarter of 2018, we had a strong sales quarter with net new business events totaling $8.1 million. These sales were comprised of new name business as well as an expansion of existing business with current clients across all of our segments. These wins included a new middle office outsourcing mandate and a collective fund mandate with two prominent traditional managers, an ETF servicing mandate, and several private equity outsourcing deals, one in a competitive process. Additionally, we signed several new family office clients.
The market continues to stay active, and we continue to see strong demand for our platforms as well as a market need for our new solutions, including our front office platform, global regulatory and compliance, and our hosting platform. We feel well-positioned with the investments we have made and feel optimistic regarding our future growth opportunity. That concludes my prepared remarks, and I'll now turn it over for any questions you may have.
Thank you. Ladies and gentlemen, once again, press star one for any questions. We go to the line of Chris Donat with Sandler O'Neill. Please go ahead.
Hey, Steve.
Hi, Chris. How are you?
Doing fine. How about you?
Good.
Just wanted to ask on the competitive environment. You guys did an acquisition last year for your business, but we've seen a lot of activity away from you with particularly SS&C and DST merger, and then some noise this past quarter around Fidessa, which I realize is kind of away from you. I'm just wondering, when you have this sort of consolidation in the industry, does that create more competition for you? Does it create opportunities to call on new clients? Just wondering how it affects your sales process or business or if it doesn't, really.
Well, I think anytime you have a transaction like this, anytime there's what I would call noise like that in the industry, there's always opportunities. I think it's something we've seen, we'll continue to see. We don't see huge inflection points from it. Especially as these deals get larger, as consolidation happens. It's tough for people. It's a big event for someone to move their business, especially the larger they become. However, what we do see is, clients are still pushing. As managers look to change their business model, as they're under increased complexity from regulation, from them looking at how to scale their business, expand their business, they are looking for capability. Whether acquisitions and consolidations provide that among certain providers or not, I think that's the driving force we see and we see the most opportunity with.
Got it. Okay. Thank you.
Sure.
There are no other questions. You may continue.
Thanks, Steve. 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. First quarter cash flow from operations was $104.2 million, or $0.64 per share. First quarter free cash flow was $85.7 million. First quarter capital expenditures excluding the capitalized software was $5.6 million. We're projecting capital expenditures excluding capitalized software to be about $37 million for the year because that does include money set aside for expansion of our facility. As we talked about earlier, the tax rate was 11.9%, and it is due to the combination of the new Tax Act and the tax benefit of the first quarter stock option exercises. As you're aware, our rate will fluctuate as a result of the timing of stock option exercises.
We also would 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. Future revenues and income could differ from expected results. We have no obligation to publicly update or correct any statements herein as a result of future developments. You should refer to our periodic SEC filings for a description of various risks and uncertainties that could affect our future financial results. Now, please feel free to ask any other questions that you may have.
Ladies and gentlemen-
Ladies and gentlemen
Ladies and gentlemen, once again, if you have a question, press star one. We go to the line of Chris Shutler with William Blair. Please go ahead.
Thank you. Steve, I had a couple of follow-ups I didn't get in queue quick enough.
No problem, Chris. No problem.
One was just the fundings in the quarter. I know you gave a number. Can you just give us the number for the quarter?
Fundings for the quarter? This is again, the assets. It's year-over-year quarters, Chris. It was $50.3 billion of assets going up. Out of that, net new client fundings were $42.8 billion. Again, Q1 2008 versus Q1 2017. If you're trying to look at where we are sequentially.
Yeah
Quarter-over-quarter, Q4, we were about 2.5% up asset-wise, quarter-over-quarter, Q4 to Q1.
That was all from client fundings or how much of that was markets versus the fundings?
Actually, it was about net new client fundings, about $27.3 billion, offset by depreciation of $15.1.
Okay.
That's Q4 to Q1.
Got it. Okay. The backlog and retention, did you give those numbers? Or the backlog number at least?
Backlog is at the end of the quarter, about 38.6.
38.6. Okay. Lastly, just general question, the amortization on the P&L, the 11.8 in Q1, is that a good run rate to use going forward?
I think for the next several quarters, that's probably in line, directionally correct. There's two points here to remember. There's the amortization of Archway, the acquisition, and amortization of our capitalized investment expenses that we mentioned. As I mentioned on the write-up, I think that's going to be pretty consistent over the next several quarters.
Okay. Thank you.
Sure.
There are no other questions. You may continue.
Thank you. Ladies and gentlemen, I am encouraged by the direction our businesses are taking and the progress they're making. While we face short-term headwinds, we believe that the investments we are making will help us benefit from all the changes taking place in our industry. This concludes our call. Have a great day, and thank you for attending our call. Appreciate it.
Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.