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SEI Investments Company (NASDAQ:SEIC)
Q2 2019 Earnings Call
Jul 24, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the SEI Second Quarter 2019 Earnings Call. [Operator Instructions] Later, we will conduct a question-and-answer session. Instructions will be given at that time.

[Operator Instructions] 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.

Alfred P. West -- Chairman and Chief Executive Officer

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 my recap in the second quarter of 2019. Then I'll turn it over to Dennis to cover LSV and the investment in new business segment. After that, each of the business segment leaders will comment on the results of their segments. Then finally, Kathy Heilig will provide you some important Companywide statistics. As usual, we will field questions at the end of each report.

So let me start with the second quarter 2019. Second quarter earnings increased by 4% over a year ago. Diluted earnings per share for the second quarter of $0.82 represents a 9% increase from the $0.75 reported for the second quarter of 2018. We also reported a 1% increase in revenue from second quarter 2018 to second quarter 2019. Also during the second quarter 2019, our non-cash asset balances under management increased by $3.4 billion. At the same time, LSV assets under management increased by $400 million. These increases in assets under management were primarily due to market appreciation.

Now in addition, during the second quarter 2019, we repurchased approximately 1.8 million shares of SEI stock at an average price of $53.17 per share. That translates to $97 million of stock repurchases during the quarter. Finally, in the second quarter, as part of the investments we make to create growth, we capitalized approximately $9.3 million of the SWP development and amortized approximately $11.8 million of previously capitalized SWP and IMS development.

Second quarter 2019 sales events, net of client losses, totaled approximately $12.7 million and are expected to generate net annualized recurring revenues of approximately $10.8 million. Even though this quarterly -- I mean, even though this quarter's sales results are an improvement over last quarters, we are still not satisfied with our second quarter sales results. We continue to experience slow contract negotiations in this tightly regulated environment, plus we faced continued rollover of the institutional business away from US corporate DB plans. And finally, all our asset management businesses faced fee compression due to the popularity of passive investing.

But there are bright spots. One is that across the Company, we have fully engaged sales teams and a lot of activity. Two, IMS sales continued to be strong. Three, the migration of advisors to SWP is now behind us. And finally, after the close of the quarter, we signed significant new SWP business. Our market unit heads will speak to the bright spots and their specific sales of strategies.

Now 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 then turn it over to the other business segment heads. Dennis?

Dennis J. McGonigle -- Executive Vice President, Chief Financial Officer

Thanks, Al. Good afternoon, everyone. I will cover the second quarter results for the investments in new business segment and discuss the results of LSV Asset Management. So in the second 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 research initiatives, including the digital services and hosting opportunity we spoke about in the past and the modernization of larger technology platforms in the stand-alone components for the wealth management and investment processing space.

During the quarter, the investments in new business segment incurred a loss of $3.7 million, which compared to a loss of $3.1 million during the second quarter 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 ventures during the second quarter. LSV contributed $37.8 million in income to SEI during the second quarter 2019. This compares to a contribution of $41.1 million in income during the second quarter of 2018. Assets during the quarter were up approximately $400 million. LSV experienced net negative cash flow during the quarter of approximately $2.1 million [Phonetic], which was offset by market appreciation.

Revenue at LSV was approximately $123 million and performance fees were minimal. Our effective tax rate for the quarter was 22%. I'm happy to take any questions.

Questions and Answers:

Operator

[Operator Instructions] And we do have a question from the line of Robert Lee with KBW. Please go ahead.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Hi, Al. Good afternoon. Hi, Dennis.

Alfred P. West -- Chairman and Chief Executive Officer

Hey, Rob.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Hi. First a quick question on LSV, the -- you mean the outflow. Is there any way of kind of characterizing it was kind of maybe one large account or was it kind of a -- sensitive with this. We're seeing a lot of rebounds. I'm just trying to see if there's any kind of underlying color if it was a little bit more of a one-off or something from the -- also and underneath?

Dennis J. McGonigle -- Executive Vice President, Chief Financial Officer

Yeah, it's more -- the negative flows are really attributed to existing clients. We're moving some assets out. I really lost clients and they did have about $800 million of new sales in the quarter. So while they are net negative, there are still able to produce or establish new client relationships. Now the value is just -- value is in a top spot right now.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Great. Thank you.

Dennis J. McGonigle -- Executive Vice President, Chief Financial Officer

You're welcome.

Operator

We also have a question from line of Chris Shutler with William Blair. Please go ahead.

Chris Shutler -- William Blair -- Analyst

Hey, Dennis. Quick question on currency actually. So the dollar I think strengthened a bit versus the pound recently. Just -- could you just remind us the sensitivity to revenue and expenses in the segments?

Dennis J. McGonigle -- Executive Vice President, Chief Financial Officer

Sure. So -- I mean, some -- each of the segments, we should have that impacting our business. We could incorporate that in their comments. Kind of across the Company, I'll just make that comment first. The net impact kind of Q1 to Q2 is pretty neutral. Now, we have a slightly negative impact on revenue and a slightly positive impact on expense. When you compare it to Q2 of last year, that's a little bit more significant impact on revenue, but also similarly a little more significant impact on expense. So again, the net to the Company is pretty modest, that is slightly negative, less than $0.5 million. So across the total Company, it's fairly mute.

The business lines, as it affects a little bit more, it would be like a pause business. Q2 to Q2 comparatives as revenue number is probably a little bit -- under $1 million impacted as expense numbers. That positively impacted by about $400,000. So I'd say that it has a little bit of the larger impact on a net basis. Steve's business and banking, similarly as revenue was impacted by a negative kind of year-over-year about $1.5 million and expenses positive by a little over $1 million. So it does have a negative P&L impact to his business year-over-year, but across the Company, we -- it's almost like we have this a natural hedge against -- given the different currencies we operate in.

Chris Shutler -- William Blair -- Analyst

All right, thank you.

Dennis J. McGonigle -- Executive Vice President, Chief Financial Officer

Your welcome.

Operator

[Operator Instruction] At this time, there's no further questions in the queue.

Alfred P. West -- Chairman and Chief Executive Officer

Thank you. I am now going to turn it over to Steve Meyer to discuss our Private Banking segment. Steve?

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

Thank you, Al. Good afternoon, everyone. For the second quarter of 2019, revenues for this segment totaled $116.1 million, which is down 4.2% as compared to our revenue in the second quarter of 2018. This year-over-year revenue decrease was due primarily to some of the client loss as previously announced, along with decreased revenue in our asset management business.

Our quarterly profit for this segment of $8.3 million, increased $2 million as compared to the second quarter of 2018. This increase was mainly driven by our continued expense management. Our second quarter profit is up $1 million as compared to our profit first quarter. And turning to sales activities, during the second quarter, we signed $5.4 million in gross processing recurring sales events, and approximately a negative $2.7 million in net sales events.

Additionally, we had $0.5 million in one-time events. These events included the following; SWP conversion of an existing TRUST 3000 client. And existing TRUST 3000 client has signed to move to SWP and are scheduled to migrate their existing book of business, plus a new book of business currently on competitive form to the SEI Wealth Platform in the first half of 2020. Schroders Personal Wealth as reported in the UK, perhaps in November of 2018, SEI will power the new joint venture Schroders Personal Wealth forwards between Lloyds Banking Group and Schroders through our existing relationship with Fusion Wealth, which was recently extended until 2025 and we reported in our Q4 earnings call.

This event highlights a portion of the new ventures assets scheduled to start to migrate to our platform over the next 12 months. We expect to be to -- we expect there to be additional growth events here. We have mentioned to you before, the delays we encountered due to the long and complicated contract processes we have to go through in this market. This quarter was no different. I'm happy to report that after the second quarter was over, prior to our call today, we signed two new deals, which represent a total of $16.5 million in net annualized revenue. The first deal with a longtime client, law firm Dorsey & Whitney, who is scheduled to migrate their existing book of business to the platform in the middle of 2020.

A second deal, we were pleased to announce was CIBC US Private Wealth Management. CIBC or Canadian Imperial Bank of Commerce is a leading North American financial institution. Its US private wealth management business offered investment management wealth strategies and legacy planning solutions. This agreement is significant to SEI for a couple of reasons. Under the new relationship with SEI, CIBC can leverage the SEI Wealth Platform and benefit from the integration of SEI's unique array of comprehensive operating platforms that will address its complex business needs and support its hybrid custody [Phonetic] model as it grows in the US.

SEI solution can support CIBC with a comprehensive set of front office wealth management capabilities and end client experiences, coupled with the core processing support for both internal and external customer relationships. These events are not included in our sales events reported for this quarter, but will be included with our Q3 sales events. We were pleased with the addition of these new clients and the momentum we are gaining within the segment.

And turning to an update on our TRUST 3000 business, in the second quarter we successfully converted two TRUST 3000 clients to the SEI Wealth Platform. Legacy trusts and clients since 2004 and BBVA Compass, a client since 1996. BBVA had previously provided notice to SEI that they were going to go to a competitor, but changed their mind and never de-converted. They decided to stay and ultimately migrated to SWP during the quarter. Both 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 recontracted three TRUST lines with contract terms of three years or greater.

During the quarter, we did receive notice from a TRUST line we had planned to move to SWP, but will be leaving our Trust platform in 2020. Also, we received notice from two clients; one in the US on Trust 3000 and one in the UK on SWP, who have been acquired and their businesses will be moving to the respective acquirers' current platform by early 2020. The impact of these client losses are in the net sales events reported for this quarter.

As an update on the Wealth Platform backlog, our total signed, but not installed backlog for SWP is approximately $35 million in net new recurring revenue or $51.5 million if you include the two most recent signings after the quarter.

Our Asset Management Distribution business mirrored the global marketplace in which investors remain cautious. While total assets under management ended the period at $22.6 billion representing increases quarter-over-quarter and year-over-year, we did see negative cash flows of $147 million. We continue to build a strong global pipeline in our AMD business.

As we look to the rest of the year, there are a couple of important focus areas for us to note. First, momentum. We were very encouraged on our sales this quarter and the momentum we are seeing in the market and our pipeline, as well as the success we are having with implementation of clients on the SWP. Sustainable growth is our focus, and I believe we have the foundation for this. While the sales processes are still taking longer than we would like in our market, we are seeing strong and maintained activity.

Second, managing headwinds. At the risk of sounding like a broken record, we still have several headwinds facing us, primarily the impact of lost business that we have previously discussed that will be coming off our platforms in the remainder of the year. While we will continue to manage our expenses judiciously, as we continue to forge through our growth initiatives, these headwinds will have an impact to both our top and bottom line growth in the near term. We continue to push forward to building a foundation for sustainable and accelerating growth.

And lastly, our continuation of our 2019 strategic themes. As I mentioned to you before, these strategic themes are; one, growing our business globally; two, monetizing our investment in SWP; three, implementing our backlog of sold, yet to be installed clients; and four, expanding our markets and solutions to provide further growth. We believe that the results of this quarter reflect all of these themes and we look to continue this progress.

That concludes my prepared remarks, and I'll now turn it over for any questions you may have.

Operator

[Operator Instructions] First, we will go to the line of Robert Lee with KBW. Please go ahead.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Hey, Steve. How are you? Good morning.

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

Good.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Good afternoon.

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

How you doing Rob?

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Good, thanks. There's a lot of stuff, so I'll kind of run through quickly. So first on just kind of really numbers thing. If -- was it $5.4 million of gross sales, but $7.2 million of kind of losses, or kind of the -- the gross losses? I just want to make sure I have those numbers.

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

Yeah, that's about right. I think actually if you look at it, that would be $8.2 million, isn't it?

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Yeah. I'll take another look. Yeah.

Dennis J. McGonigle -- Executive Vice President, Chief Financial Officer

Yeah, it's $8.1 million.

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

$8.1 million.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

$8.1 million. I'm sorry, $8.1 million total loss?

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

Yes.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Okay, right. All right. Great. And then just kind of curious, obviously, the expense control is in place, but with the -- should we expect with the pickup in -- post quarter pickup in sales activity? I mean, if you could refresh your memory when it is you pay sales commissions? Is it on installation or kind of the signing of the contract? I'm just trying...

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

Well, it's broken up and there is a portion of the paid upon signing of contract and then some held. But I think generally, what you're looking for is, kind of an outlook on expense. And what I'd say is that we're going to continue to manage expenses. I feel that we're doing a very good job maybe reallocating the expense we have right now to the priorities. But as we start to grow this, and as I start to push on that sustainable and accelerating growth, we're not afraid to invest [Indecipherable] expense in light of driving that growth.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Okay, and maybe one last question. Thanks for...

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

Rob, just one thing. On the sales, remind you with the new rules -- sales comp, remember [Indecipherable] accounting standpoint is deferred. So remember that with those new rules, it's deferred now. I think the life of the --

Alfred P. West -- Chairman and Chief Executive Officer

The life of the client [Speech Overlap] estimate that.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Okay, great. Thanks for the reminder. I'm just kind of curious, so -- I mean, I'm sure with CIBC and the other transaction with the law firm, I'm guessing that's probably been in works for a while. But is it possible anyway that you kind of look at that and say, gee, no, we were able to kind of maybe -- would you attribute the signing of those or the timing of it to anything -- anything that maybe the changes you feel like you implemented kind of early on, that kind of help cushion through the pipeline faster? Then maybe they had been moving like kind of accelerated things or...?

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

No, Rob. I think we have a very dedicated and strong group of individuals who've been working for a very long time. And the way I would classify this is, while certainly we've changed some things that I think have helped overall the business, I think this is finally them getting really the credit review on the hard work they put in over the past couple of years. So the CIBC was a long process, all these tend to be longer process, but I think we're finding ways to look at things a little differently and change and make some slight changes. But I think momentum, we get some momentum. And I think the one thing we're looking is, we see strong momentum in our pipeline. We're working very aggressively on those deals that we see that can move quickly -- quicker, not quickly and we're pushing on them.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Great. Thank you for taking my questions.

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

Sure. My pleasure, Rob.

Operator

We also have a question from the line of Chris Donat with Sandler O'Neill. Please go ahead.

Christopher Donat -- Sandler O'Neill -- Analyst

Hey, good afternoon, Steve.

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

Good afternoon, Chris. How are you?

Christopher Donat -- Sandler O'Neill -- Analyst

Doing fine. How about you?

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

Very good.

Christopher Donat -- Sandler O'Neill -- Analyst

So just on the two signings after the quarter closed, two related questions. One is, kind of following up on Rob. How long were these negotiations going sort of from start to closing and pick whatever metrics you want for start -- whatever point you want to use? And then implementation, how far -- how far out will implementation be for CIBC? It sounds like it's big, I'm thinking it's complicated. Is it quarters away, years away, decades away? A little color.

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

So it's, Chris, two things. I really don't want to pinpoint. I don't think it's fair to pinpoint to client how long -- what -- the process -- exact process. What I'd say is, it was kind of the normal, we see in this, the contract process, in particular, I think took the elongated cycle that we have been seeing and talking about for a while. As far as implementation, I believe -- Dorsey, I announced that -- I said in the script, I know we went through a lot. We're looking for them to converting to SWP in 2020. CIBC as you can appreciate, it's a new client, it is a large client and we're working through project plans now. So I wouldn't want to really put a date on it.

Christopher Donat -- Sandler O'Neill -- Analyst

Okay, understood. Thank you.

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

Sure.

Operator

Next question will come from Glenn Greene with Oppenheimer. Please go ahead.

Glenn Greene -- Oppenheimer -- Analyst

Thanks. Hey, Steve. Good afternoon.

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

Hi, Glenn.

Glenn Greene -- Oppenheimer -- Analyst

So a couple of quick questions. So first, can you just remind us where we are on realizing the previously announced client losses?

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

Explain that, Glenn.

Glenn Greene -- Oppenheimer -- Analyst

How much has been absorbed in the P&L, how much revenue has already hit, how much of revenue has come out already from the previously announced losses?

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

So I'd say the losses we had -- that we've announced -- and I don't have an exact figure in front of me, Glenn, but I'm going to say anywhere between a quarter of that loss and 40% of what we kind of estimated, or now from a client standpoint. We still have more to go.

Glenn Greene -- Oppenheimer -- Analyst

Okay, and then you had three client losses in the quarter for [Indecipherable] and two were due to mergers.

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

Yes.

Glenn Greene -- Oppenheimer -- Analyst

What about the one -- the one that did leave or is going to leave in 2020, the TRUST 3000 client. Any -- did they give you any reason why they're leaving?

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

Yeah, we don't really want to talk [Indecipherable]. So what I would say, Glenn here, this is as you know, [Indecipherable] is a complex business and development and technology cycles can take a little bit of the time -- time frame or longer time frame and sometimes that time frame doesn't match up with the clients' needs or what they're looking at. And I'd say this one fell in that bucket.

Glenn Greene -- Oppenheimer -- Analyst

Okay. And then your finally CIBC. Congratulations.

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

Thanks.

Glenn Greene -- Oppenheimer -- Analyst

So that's just the US part? Is -- does that mean potentially, obviously potentially, but Canada down the road?

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

What I'd say is, it means the US part now and we're very happy with that. But as you know, we're always looking for ways to grow with our clients.

Glenn Greene -- Oppenheimer -- Analyst

Okay, thanks. Congrats again.

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

Thank you.

Operator

[Operator Instructions] At this time, there is no further questions in the queue.

Alfred P. West -- Chairman and Chief Executive Officer

Thank you, Steve. Our next segment today is Investment Manager, and Steve Meyer will also address this segment. Steve?

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

Thanks, Al. And turning to Investment Managers, for the second quarter of 2019, revenues for the segment totaled $109.2 million, which was $11.6 million or 11.9% higher as compared to our revenue in the second quarter of 2018. This year-over-year revenue increase was due primarily to net new client fundings and existing client expansion.

Our quarterly profit for this segment of $40.8 million was $6.6 million or 19.2% higher as compared to the second quarter of 2018. Higher profits were primarily driven by an increase in revenue offset by a smaller increase in personnel and systems expense. We continue to manage expenses judiciously.

Third-party asset balances at the end of the second quarter of 2019 were $607.1 billion or 3.6% higher as compared to the asset balances at the end of the first quarter of 2019. This was due to an increase in assets due to net new client fundings of $10 billion, as well as market appreciation of $11.1 billion.

Turning to market activity, during the second quarter of 2019, we had a very strong sales quarter with net new business events totaling $12 million and recurring revenues, as well as recontracts of $23.8 million in recurring revenues. Most importantly, these sales were diverse and spanned our entire business, 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 second quarter, we signed a significant $1 billion credit start-up in a highly competitive process. Additionally, we added another client to our growing private equity real estate book of business. In our traditional market unit, we won a large middle office services mandate with an existing client, further expanding our wallet share with that client. 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.

Finally SEI also had new sales events in both the single-family office and multi-family office market segments. We continue to invest in our platforms and see significant growth opportunities in numerous areas, including the private equity and real estate segments, the single and multi-family office arena, collective investment trusts and PPS servicing, as well as considerable demand for our front office investor platform, which is a real differentiator for us and our middle office solutions.

Our pipeline remains very strong and I'm optimistic of our continued momentum. That concludes my prepared remarks, and I'll now turn it over for any questions you may have.

Operator

[Operator Instruction] At this time -- oh, we do have a question from the line of Robert Lee with KBW. Please go ahead.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Thanks. [Indecipherable] got away?

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

Hey, Rob. $38.4 million.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Okay, thank you.

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

$38.4 million backlog end of the quarter.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Thanks.

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

Sure.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

You are reliable.

Operator

At this time, there is no further questions in the queue.

Alfred P. West -- Chairman and Chief Executive Officer

Thank you, Steve. Our next segment today is Investment Advisors, and Wayne Withrow will cover this segment. Wayne?

Wayne M. Withrow -- Head of Independent Advisor Solutions

Thanks, Al. In the second quarter of 2019, we focus on rebuilding the momentum we lost throughout our migration on to the SEI Wealth Platform. With the migration complete, we also redirected resources toward value-added technology development, client technology adoption, and sales activities.

Second quarter revenues totaled almost $100 million, which is essentially flat in the second quarter of last year. These results were positively impacted by market appreciation and a shift of liquidity products in the equities. Factors which detracted from these results, were net negative cash flow and a slight decrease in our average basis points earned on assets. Expenses were down $2.5 million in the second quarter of last year and $2 million from the first quarter.

Second quarter results include about $1 million in one-time savings. Also included in these results are increased direct costs tied to our asset growth and savings in the technology area tied to the completion of the migration and implementation of the cost savings measures we began in the first quarter.

Our profit increased $2.7 million from last year's second quarter due to cost savings. Assets under management were $67.2 billion at June 30, an increase of $1.9 billion from June 30, 2018. During the first [Phonetic] quarter, our net cash flow was a negative $201 million. While our flows during the quarter were still negative, they are trending in a positive direction. We recruited 81 new advisors during the quarter and our pipeline of new advisors remains active.

In summary, during the second quarter, we posted good profit results and while cash flow is not what I would like it to be, the quarter saw a pickup in our momentum. We are focused on reaping the benefits of the SEI Wealth Platform now that we are fully migrated.

I now welcome any questions you have.

Operator

[Operator Instruction] First we have the line of Robert Lee, KBW. Please go ahead.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Yeah, hi, Wayne. How are you?

Wayne M. Withrow -- Head of Independent Advisor Solutions

Good Rob.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Quick question. You just -- talking about the competitive environment a little bit, I mean, as Al mentioned upfront as we all know, kind of that the pressure on fees and competition from low-cost alternatives, and understanding that you made some adjustments, I think exact one was maybe a year or so ago, but are you -- when you look at your kind of product pricing and maybe what kind of feedback you get from the advisors' existing perspective? I mean any sense that you've changed some of your programs, whether it's incremental fee changes or maybe even changing up some of the -- some of the products to include more passive products? I know you have the ETF product, but just kind of curious kind of how you are reacting -- steps you're taking to react to the pricing environment.

Wayne M. Withrow -- Head of Independent Advisor Solutions

Right. So I guess what I'd say is, if you look at it, we are experiencing strong growth in our ETF product line, I would say purely passive product. And we earned a little bit less on that and that's reflected in the results. A little bit -- for the end of the first quarter, we introduced -- we made a change in our models that we introduce a passive large cap US equity fund in the model that is auctioned or advised, they don't want sort of that space to be active. So again, that is a little more, it's a little lower fee and it's passive US large cap. So we are now actively marketing that too. So I think that's two big changes I'd point out.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Okay. Great. And then maybe as a follow-up. Just -- now that you've completed the full migration, got everyone on it, as you've talked about kind of going -- can refocus attention on the marketplace, I'm assuming that includes kind of them selling in the broader platform to capture a broader array of advisor assets. So are you --maybe it's early stages, but are you seeing any early signs that your conversations with the types of advisors you're talking to are filling in -- just trying to fill in your pipeline or maybe larger more diverse than some of your historic advisors?

Wayne M. Withrow -- Head of Independent Advisor Solutions

Yeah, I would say that the advisor is looking at us for a broader solution to perhaps they looked at before. I know that we've necessarily moved very much upstream yet, although I would expect that. And we are seeing some flows what of what I -- of non-SEI assets on to the platform as a result of advisors looking for a broader solution.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Okay. And I'm just curious -- going, I mean, I'm sure -- hope those non-SEI assets accelerate, but just kind of -- just from a reporting perspective, would those be excluded from your net cash flows as you disclose them quarter-to-quarter?

Wayne M. Withrow -- Head of Independent Advisor Solutions

All the assets we disclose flows into SEI managed products.Wwe have not yet disclosed SEI administered products.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Great. Okay. Thank you.

Operator

And at this time, we have no further questions in the queue.

Alfred P. West -- Chairman and Chief Executive Officer

Thank you, Wayne. Our final segment today is the Institutional Investors segment. Paul Klauder will report on that segment. Paul?

Paul F. Klauder -- Executive Vice President, Head of Institutional Group

Thanks, Alan. Good afternoon, everyone. I'm going to discuss the financial results for the second quarter of 2019. Second quarter revenues of $81.1 million decreased 3% compared to the second quarter of 2018. Second quarter operating profit of $41.7 million decreased 2% compared to the second quarter of 2018. Operating margins for the quarter was 51.5%.

Both revenues and operating profits for the quarter were impacted by negative client fundings and currency impact versus the second quarter of 2018. Quarter-end asset balances of $88.2 billion reflect a $2.7 billion decrease compared to the second quarter of 2018. This decrease is driven primarily by negative client fundings.

Net sales were a positive $1.2 billion for the quarter. Gross sales were $1.5 billion and client losses were about $300 million. The unfunded new client backlog at quarter-end was $1.2 billion and we would expect the majority of this to fund in the third quarter. The new client signings were diversified across new clients in Endowments and Foundations and UK Fiduciary Management, including a large new name.

We believe our new business focus on longer-term asset pools across all global markets is beginning to pay dividends to the business and our sales pipeline is strong. We do continue to stay focused on all client situations, especially those in a rebid process or in M&A activity.

Thank you very much. And I'm happy to entertain any questions that you may have.

Operator

[Operator Instructions] First question comes from the line of Robert Lee. Please go ahead.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Great. Hi, good afternoon, Paul.

Paul F. Klauder -- Executive Vice President, Head of Institutional Group

Hi, Robert.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

First thing is simply, can you repeat with the unfunded pipeline was, was it $1.5 billion?

Paul F. Klauder -- Executive Vice President, Head of Institutional Group

So gross sales were $1.5 billion, losses were $300 million for the quarter. The unfunded new client backlog that is going to be funded is $1.2 billion and we expect that all to occur in the third quarter. Does that answer your question, Robert?

Operator

He removed himself from queue.

Paul F. Klauder -- Executive Vice President, Head of Institutional Group

Okay, no problem.

Operator

And there are no other participants queued up.

Alfred P. West -- Chairman and Chief Executive Officer

Thank you, Paul. I would now like Kathy Heilig to give you a Companywide statistics. Kathy?

Kathy C. Heilig -- Chief Accounting Officer & Controller

Thanks, Al. Good afternoon, everyone. I had some additional corporate information regarding this quarter. Second quarter 2019 cash flow from operations was $167.7 million or $1.02 per share. Year-to-date cash flow from operations is $217.6 million or $1.40 per share. Second quarter 2019 free cash flow was $137.6 million and year-to-date free cash flow is $180.2 million.

Second quarter capital expenditures, including -- excluding capitalized software was $10.9 million, which does include expansion of our campus. And the year-to-date capital expenditures were -- excluding capitalized software were $18.2 million and that includes about $10 million for facility expansion. We project -- because we are expanding our facility, that capital expenditures will be approximately another $22 million.

As noted in those releases, second quarter tax rate was 22% and our effective tax rate could fluctuate as a result of the timing of tax benefit relating to 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 risks and that the financial information presented in our release on this call is unaudited. In some cases, you can identify forward-looking statements by terminology such as may, will, expect, believe, and 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, the benefits we will derive from our investments, our ability to manage our expenses and scale our offering, 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 the 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 described in our forward-looking statements can be found in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2018 that we filed with the Securities and Exchange Commission.

And now, please feel free to ask any other questions you may have.

Operator

[Operator Instructions] And our first question comes from the line of Chris Donat with Sandler O'Neill. Please go ahead.

Christopher Donat -- Sandler O'Neill -- Analyst

Hi. I had one clarifying question for Dennis. Just wanted to double check with the compensation line on a consolidated basis. Just that there was no severance this quarter unlike the prior two quarters. And kind of related question, Dennis if you wouldn't mind resaying what the expense recognition is on sales compensation? I'm not sure I caught that -- it was part of Steve's discussion earlier?

Dennis J. McGonigle -- Executive Vice President, Chief Financial Officer

Sure. So there was a minimal severance in the second quarter compared to first quarter, particularly. And on sales compensation, under the new accounting rules that came into play last year, as it relates to some of our business lines and it's principally in banking and a little bit of an Investment Manager services as well, when you have these longer-tail contracts, we have delivery of services over time rather than more immediate the 10-year you're required to -- the further recognition of that sales compensation expense and then recognize it over the life of the client -- the estimated life of the client. So that's -- that was the answer to Rob Lee's question about sales comp relative to third quarter expenses.

Christopher Donat -- Sandler O'Neill -- Analyst

Okay, got it. Thanks very much, Dennis.

Dennis J. McGonigle -- Executive Vice President, Chief Financial Officer

You're welcome.

Operator

And next we'll go to line of Robert Lee representing KBW. Your line is open.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Great. Thanks for taking my follow-up. And actually this is one for Steve on SWP. And -- really in the UK, could you just update us on kind of a new business flows are like there? And I guess, particularly interested in any kind of color as it relates to impacts you're seeing around Brexit concerns. I mean, certainly when you look at least in the asset management business there, it's kind of suffering through outflows. But what are your kind of clients experiencing with their client portfolios or maybe just rebalancing to more conservative investments?

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

Yeah, well, I think -- as I said in my write up, I think from an investor standpoint that we're seeing at least on the asset management side, that should remain cautious. And I think that's something we're seeing across the board. Specifically to UK, if you ask me about kind of our processing clients and processing prospects -- investment processing, we can see the momentum there and activity in our pipeline. I think the announcement of the -- which we talked about the Schroders Personal Wealth is a great piece of business that is certainly -- that's something that we're looking is going to drive growth. And I see a good bit of momentum in our activities there in our pipeline. We have added to the sales force there and we're hopeful that, that will start to drive more results out of the UK.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Great. Thank you very much.

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

Sure.

Operator

There are no other participants queued up at this time.

Alfred P. West -- Chairman and Chief Executive Officer

Thank you. So, ladies and gentlemen, while sales results were below expectations in the second quarter, third quarter is off to a good start. We remain encouraged by our pipelines and the progress we're making. We believe that the investments we're making in our products 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 Investment -- Investor Conference on November 12th and 13th, at SEI's Oak's headquarters. Dinner will be served on the 12th followed by the conference in the 13th. Please save the date. Thanks for attending this afternoon, and have a great day.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Alfred P. West -- Chairman and Chief Executive Officer

Dennis J. McGonigle -- Executive Vice President, Chief Financial Officer

Steve Meyer -- Executive Vice President, Head of Global Wealth Management Services

Wayne M. Withrow -- Head of Independent Advisor Solutions

Paul F. Klauder -- Executive Vice President, Head of Institutional Group

Kathy C. Heilig -- Chief Accounting Officer & Controller

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Chris Shutler -- William Blair -- Analyst

Christopher Donat -- Sandler O'Neill -- Analyst

Glenn Greene -- Oppenheimer -- Analyst

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