SEI Investments Co 2026 Q3 Earnings Call

Thank you, and welcome everyone to SEI's third quarter 2026 earnings call. We appreciate you joining us today. On the call, we have Ryan Hicke, SEI's Chief Executive Officer, Sean Denham, our Chief Financial and Chief Operating Officer, and members of our executive management team, including Kristie Edling-Day, Michael Lane, Phil McCabe, Mike Peterson, Sneha Shah, Sanjay Sharma, and Amy Sliwinski. Before we begin, I'd like to point out that our earnings press release and the presentation accompanying today's call can be found under the investor relations section of our website at seic.com. This call is being webcast live, and a replay will be available on the events and webcast page of our website. With that, I'll now turn the call over to Ryan.

Ryan? Thank you, Brad. Good afternoon, everyone.

The results SEI delivered in the third quarter reinforce the conversations we have been having with this audience for the last couple of years, and they confirm why we had the conviction in the strategy we discussed at the investor day last year. The results provide repeatable evidence that the strategic changes we have made are showing up across the company. It also demonstrates that the nature of our client relationships have evolved. SEI is now engaging with clients at the top of the organization on more strategic issues and bringing a broader set of capabilities to the relationship. In the third quarter, SEI reported revenue growth of 14%, adjusted operating profit growth of 25%, and adjusted EPS growth of 24% compared to the prior year.

For some longer historical context, the adjusted EPS achieved in the third quarter is nearly 50% above where the company stood two years ago. Our growth continues to broaden across the company, with contributions from multiple businesses in both financial performance and sales activity. Speaking of sales events, third-quarter net events totaled $47 million, bringing our year-to-date total to $157 million. With a full quarter still remaining in the year, we have already exceeded the highest level of full-year sales results in the history of the company. We're excited by the results and the trajectory of the business. Sean will walk through the results in more detail, but I want to spend a couple of minutes talking about what we're seeing in each of the businesses at a macro level. In IMS, demand remains strong, especially among large alternative asset managers.

We continue to be the partner of choice for those looking for global scale, asset class breadth, and modern technology. What has become clear to us over the last 18 months is that SEI's reputation is one of our strongest competitive advantages. When firms evaluate outsourcing partners, they speak with our existing clients. They ask, "Who can execute? Who can handle complexity? Who can support future growth?" They also ask, "Who has a client-centric culture and truly understands the nature of partnership?" Those conversations are opening new doors with some of the largest first-time outsourcers in the industry. We are also encouraged by the strong demand for solutions for retail efforts. We had a successful launch with our retail transfer agency, and our alts in CIT capability is showing momentum, with multiple clients launched in Q3 and more expected to fund shortly.

Our private banking business delivered another strong quarter, and we expect sales activity to remain solid. Professional services is a key driver of this acceleration. When I step back and look at why we have seen sales activity accelerate and why our pipelines are strong, professional services looks less like a separate offering in banking and more like the missing piece that is now complementing the SEI offering. This is a solution set that we believe has resonance across all of our client bases in the enterprise. What does that mean? Just a few years ago, our discussions with clients were driven entirely by the platform offering. "Here's the platform. Do you want to buy it?" When you do that, you box yourself in as a vendor.

Those client conversations have evolved into discussions around transformation, how to simplify technology environments, modernize operating models, increase client acquisition, improve the use of data, harness AI, and position for future growth. Clients are looking for a partner that can help them define the future state of their business. As a result, the largest opportunities in our pipeline are no longer just platform replacements. They are comprehensive enterprise transformation initiatives. On AI specifically, I understand there's been a lot of concern in the market about how AI might impact SEI. The only effect we are seeing is that AI has accelerated client interest in partnering with SEI. It is driving more demand, not less, and we can point to multiple specific examples in our pipeline where this is the case. Turning to asset management business, the team has moved beyond reimagining and is building momentum in the execution phase.

The progress we have seen reflects substantial effort around client segmentation, distribution, advisor engagement, pricing, product development, and new client acquisition. We're seeing stronger engagement with RIAs, improving activity across the institutional pipeline, and continued adoption of our ETF strategies, which now total more than $9 billion in AUM, up from only $4 billion just last year. We continue to invest in distribution, products, partnerships, and talent. That includes the recent addition of Kristie Edling-Day as our new Chief Information Officer, bringing deep financial services and technology experience to help advance our technology and product strategy. We believe the business is moving in the right direction, and we expect that direction to continue improving. Also, our conviction in independent financial advice and the Stratos partnership increases every day.

We got to see that firsthand at our recent advisor conference in Nashville, where more than 500 advisors, including Stratos advisors and their leadership team, came together with real enthusiasm about what we can all accomplish together. After a year of working closely with Jeff and the Stratos team, we are even more confident that we chose the right partner to build alongside in the U.S. The combination is already creating new opportunities across both Stratos and SEI, and we believe there is substantially more we can accomplish together. Before concluding, I want to touch on profitability. Adjusted operating margins in the third quarter remained near record levels, and this was not driven by some short-sighted cost-cutting initiative. It is the result of building a more scalable business and pairing thoughtful investment with strong revenue growth. We believe that combination creates significant value for shareholders.

As I often say on these calls, an enormous thank you goes to our global workforce for their passion and their delivery, but also to our clients for their continued trust and partnership. In conclusion, the results this quarter are great, but in the words of Jelly Roll, "The windshield is bigger than the rear view mirror for a reason, because what's in front of you is so much more important than what's behind you." I have a lot of confidence in what underpins our results. Strong pipelines, enthusiastic clients, and a business that is becoming more capable and efficient with each passing day. Some people tell us SEI is back. Well, to that, we say thank you, but we believe SEI hasn't even remotely defined who we will be yet. With that, I will turn the call over to Sean.

Thank you, Ryan. Turning to slide 4, SEI delivered another outstanding quarter. Ryan already covered the highlights, so I will focus on just a few items that affected results. The third quarter included one notable item within operating expenses. Given the strength of our results year to date and our outlook for the remainder of the year, we increased our incentive compensation accrual during the quarter. This adjustment reduced operating profit by $6 million and adjusted operating margins by roughly 100 basis points. While it impacted reported profitability in the quarter, it is ultimately a reflection of the strong performance being delivered across the business. Sustaining that performance requires the best people and a commitment to rewarding them. Adjusted EPS declined by $0.02 compared to the second quarter, driven by two items. First, net gains on investments in variable interest entities declined by $8 million from the second quarter.

These investment gains can be volatile, and Q3 reflects what we believe is a more normalized level of contribution. The second item is the incentive compensation adjustment I just discussed. Excluding that adjustment, adjusted operating profit would have increased approximately 4% and adjusted operating margins would have expanded by roughly 20 basis points compared to Q2. The quarter also benefited from a slightly lower effective tax rate than normal, driven by elevated employee stock option exercises after SEI shares reached a record high. In addition, GAAP net income was reduced by $32.5 million recorded in other expenses related to our mutual agreement with Stratos to terminate the planned acquisition of NSC, its Mexican RIA. Please turn to slide 5 for the business segment results. SEI's strong financial performance was broad-based. Investment managers led SEI's organic growth with revenue and operating profit, both increasing by 14% compared to the prior year.

Absent the elevated compensation accrual, operating profit would have increased by 17%. Growth was driven by the conversion of prior sales success into revenue and our clients continuing to deploy capital at healthy levels. Private banking also posted another strong quarter, with revenue increasing 11% and operating profit increasing 38% compared to the prior year. That performance reflects strong operating leverage, with revenue growth driven by balanced contributions from professional services, platform expansion, and international asset management. Advisors benefited from the acquisition of Stratos, which contributed $23 million of revenue and $4 million of operating profit during the quarter, including $7 million of amortization. Stratos generated $11.5 million of EBITDA in Q3, an increase of 17% from the second quarter. Stratos also completed a tuck-in acquisition and onboarded several advisors during the quarter, with additional opportunities in the pipeline.