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SEI Investments Company (NASDAQ:SEIC)
Q2 2020 Earnings Call
Jul 22, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the SEI Second Quarter 2020 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would not like to turn the conference over to our host, Chairman and CEO, Al West. Please go ahead.

Alfred P. West, Jr. -- Chairman and Chief Executive Officer

Welcome, everyone and good afternoon. And all of our segment leaders are on the call, as well as Dennis McGonigle, SEI's CFO; and Kathy Heilig, SEI's Controller. I will start by recapping our situation in the second quarter 2020. I'll then turn it over to Dennis to cover LSV and the Investment in New Business segment. After that, each business segment leader will comment on the results of their segments. Then finally, Kathy Heilig will provide you with important companywide statistics. As usual, we will field questions at the end of each report. Before we cover the results of the second quarter, I will speak to the set of circumstances we face today. Around the globe, we are dealing with the COVID-19 pandemic.

To defeat this [Indecipherable] at our doorstep, we are all involved. And from the beginning of this health crisis, our priority has been on safety and health of our employees and their families, along with the seamless delivery of service to our clients. We first transitioned 99% of our workforce into their homes working remotely without compromising the robustness of our operations or the integrity of our services. Lately, we have begun to show -- we have begun the slow transition of certain employees back to the office. So far, we have returned approximately 200 employees to the workplace. I am incredibly grateful to our workforce for transitioning both workplace-to-home and home-to-workplace and all the while supporting our clients each other in our communities.

The strengths of SEI shine best when the challenges are extreme. At SEI, we take immense pride in investing for the long term. We have proven business models that have been shaped over the past 50 years of experience. They are the bedrock of our ability to weather the uncertainties of today and emerge from the current crisis stronger and better positioned to take advantage of tomorrow's opportunities. Our secret to success is straightforward: remain focused on keeping our workforce healthy and productive, invest in our best-in-class technology, innovate continuously, and deliver world-class service and solutions to our clients. We'll also be relentless in executing on our strategic vision in launching the growth-generating initiatives we believe will be at the heart of our future successes.

We look forward to sharing our progress with you. And while our accomplishments during the war with COVID-19 are impressive and we're proud of them, the real heroes are those folks on the frontlines caring for others and saving lives. We honor and thank those who are making the true sacrifices. So, let's turn our attention to the financial results of the second quarter 2020. Second quarter earnings decreased by 20% from a year ago. Diluted earnings per share for the second quarter of $0.68 is a decrease of 17% from the $0.82 reported for the second quarter of 2019. We also reported a 2% decrease in revenue from second quarter 2019 to second quarter 2020. The first and second quarter earnings results were affected by the arrival of the COVID-19 pandemic.

With the arrival of COVID came a major downturn in capital markets. This caused our non-cash asset balances to fall by $27.8 billion in the first quarter and rebound partially in the second by $14.8 billion for a net decrease of $13 billion by the end of the second quarter. For LSV, their balances during the first quarter dropped by $36.6 billion and rebound in the second quarter by $10.3 billion for a net decrease of $25.3 billion. Also during the second quarter, we repurchased approximately 1.6 million shares of SEI stock at an average price of $54.48 per share. That translates to $89.5 million of stock repurchases during the quarter. In the second quarter, we also continued our investment in the growth-generating platforms. The newest effort is One SEI, which is a large part of our growth strategy.

As you will recall, One SEI leverage is existing and new SEI platforms are making them accessible to all types of clients, all adjacent markets, and all other platform. As a byproduct, these investments we make in the second quarter we capitalize approximately $6.1 million of development and amortize approximately $12.2 million of previously capitalized development. To-date, we have not capitalized any of the One SEI work. Turning to revenue production, second quarter sales events, net of client losses, totaled approximately $22.1 million and are expected to generate net annualized recurring revenues of approximately $16.6 million. Clearly, we are encouraged with this year's sales results. They reflect the fact that throughout the company, we have successful and entrepreneurial sales teams driving revenue. Our unit heads will speak to their specific sales results.

In addition, a key objective of our business particularly in these times of uncertainty and volatility is to deliver smooth operations. This transition of our workflows from centralized operations through remote interconnected nodes went seamlessly, which again, is a credit to the work ethic and customer commitment of our employees. We know that things will never be the same and we will need to adapt to new mental models and realities. We look forward to catching the opportunities inherent and significant change. This concludes my formal remarks, so, I will turn it over to Dennis to give you an update on LSV and the Investments in New Business segment. After that, all segment heads will update the results in their segments.

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. During the second quarter 2020, the Investments in New Business segment continued its focus on the ultra-high net worth investors segment through our private wealth management group and additional business and research initiatives including those related to our IT services business opportunity and the modularization of larger technology platforms into stand-alone components for the wealth management and investment processing space to deliver on our One SEI strategy. During the quarter the Investments in New Business segment incurred a loss of $10.1 million, which compared to a loss of $7.5 million during the second quarter of 2019.

This increased loss reflects an increase in investments specifically related to our One SEI strategy. We accelerated our efforts on this initiative during the second quarter making significant progress. Of our expenses in this segment approximately $8 million is tied to that effort. The One SEI strategy as Al mentioned is a companywide initiative to open business opportunity across our entire company, as well as creating new business lines. We expect losses in this range for the remainder of the year in this segment. Regarding LSV, our earnings from LSV represent our approximate 39% ownership interest during the second quarter. LSV contributed $28.3 million in income to SEI during the quarter. This compares to a contribution of $37.8 million in income during the second quarter of 2019. Assets during the second quarter grew approximately $10.2 billion. LSV experienced net negative cash flow during the quarter of approximately $1.9 billion offsetting market appreciation. Revenue was approximately $94.6 million for the quarter with no performance fees. During the quarter, our effective tax rate was 23.3%.

And before I turn it over to Steve, I'll be happy to take any questions. Operator, are there any questions?

Questions and Answers:

Operator

[Operator Instructions] And we'll go to the line of Chris Donat with Piper Sandler. Please go ahead.

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

Hi Chris.

Operator

Chris, your line is open. We'll go to the next line of Chris Shutler with William Blair. Please go ahead.

Christopher Shutler -- William Blair & Company, LLC -- Analyst

Hey Dennis, how are you?

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

Good, Chris. How about yourself?

Christopher Shutler -- William Blair & Company, LLC -- Analyst

I'm good. Just on the Investments in New Business segment you mentioned the expenses should remain around the Q2 levels for the remainder of the year. Any thoughts on timing or magnitude of when they will fall off beyond 2020?

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

Yeah. We've did take an opportunity to accelerate things this quarter. So there is an expectation that they will start to fall off beginning of next year. They won't go away completely but our goal -- other folks on the call also could address this. Our goal is to really have this behind, all the work behind us by -- in the first half of next year. We certainly should see a decline entering next year.

Christopher Shutler -- William Blair & Company, LLC -- Analyst

So I guess is there any way to like -- to categorize at a high level -- will 2021 expenses look a lot like more like fiscal '19? Is that the right way to think about it?

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

Yeah. I would say more like the fourth quarter?

Christopher Shutler -- William Blair & Company, LLC -- Analyst

More like fourth quarter. Okay.

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

Yeah.

Christopher Shutler -- William Blair & Company, LLC -- Analyst

And then anything on LSV on the pipeline? Obviously I think that some of the investment performance there has been difficult but anything that you're hearing on the pipeline as we look forward?

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

Yeah. I mean, similar story to some of the prior quarters even though they had net -- net negative cash flows, it was really blended. They did sign new business, some significant size accounts during the quarter. They lost one large account in a global product. And that was really the bit -- what carried really their net-negative event. And from what we hear from the leadership at LSV, they are active in the market now. We all know value is not the segment of the market that people are in love with right now. And that being said, deep value is even less and low -- people are less in love even with deep value. But it's interesting when we talk to LSV and hear -- get really a perspective of when they've gone through these tougher cycles in the past. A lot of firms that may have been in their space with -- they, the firm itself would capitulate whereas LSV is very disciplined. They know what they're good at and they believe in what they're doing. They have strong conviction that the sun will shine again and they are going to do really well when it does.

Christopher Shutler -- William Blair & Company, LLC -- Analyst

All right. Thanks a lot.

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

You're welcome.

Operator

Thank you. Next, over to the line of Robert Lee with KBW. Please go ahead.

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

Thanks. And Dennis, I hope you're doing well. But my questions were just asked. Thank you.

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

Thanks, Rob. Hope you're doing well as well and your family.

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

Thank you. You too.

Operator

Thank you. And next we'll go to the line of Michael Lipper with Lipper Advisory Services. Please go ahead.

Michael Lipper -- Lipper Advisory Services, Inc. -- Analyst

Good afternoon. Do you have any more current information on LSV since the end of the quarter, as evidenced the value from last week started to outperform growth? Are they participating in that or did that [Indecipherable] deep value?

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

Yeah, great. I guess I would comment on things that are kind of post quarter. It's safe to say that the value segment of the market begins to outperform that will -- they will definitely participate in that. And now their segment of value being more deep value, it wouldn't be on an equal footing as the broad value space. But clearly they -- therefore they would participate in the improved performance of value. And as we remind ourselves we've had these moments over the past couple of years -- the past year value having a strong, very short period of recovery and then only to be overwhelmed by the tech sector again.

Michael Lipper -- Lipper Advisory Services, Inc. -- Analyst

Thank you.

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

You're welcome, Michael.

Operator

Thank you. And next we'll go to the line of Ken Hill with Rosenblatt. Please go ahead.

Kenneth Hill -- Rosenblatt Securities -- Analyst

Hi. Good afternoon, everyone. Hope you're doing well.

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

You too Ken.

Kenneth Hill -- Rosenblatt Securities -- Analyst

Just had a quick -- good, just had a quick one on the COVID-19 kind of work-from-home. It seems like you guys moved pretty quickly to that digital type of environment. I'm wondering as far as how that relates to the One SEI spend, if there's anything that's maybe precluding you from moving further down some of those tasks or things you would accelerate or things to get markedly better from here or kind of conversely if things get markedly worst does that increase the spend or decrease the spend at all as far as you see One SEI type strategy there?

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

I think we're -- generally that we're able to get more assets on this project from some of the firms we work with on this type of work. I don't see that change one way or the other. And the work on One SEI really isn't affected by whether we're working from home or not and the work will continue apace.

Kenneth Hill -- Rosenblatt Securities -- Analyst

Okay. Fair enough. Thanks.

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

All right, Ken.

Operator

Thank you. And next, we'll go to the line of Chris Donat with Piper Sandler. Please go ahead.

Christopher Donat -- Piper Sandler -- Analyst

Hey, Dennis. Let me try this without being muted this time.

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

I was going to say you're off mute, Chris. I knew [Indecipherable] yourself.

Christopher Donat -- Piper Sandler -- Analyst

It was a better question the first time [Indecipherable]. I did want to ask just about the geography of the income statement. You referenced in the release that there were some higher travel or sorry -- lower travel and promotional expenses. Can you just help us understand where those appear in the income statement lines?

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

Travel would be in the -- that would show kind of in facility supplies and other costs.

Christopher Donat -- Piper Sandler -- Analyst

Okay, got it. So as we think about that going forward, that's going to be dependent on how much travel goes on and promotion in the, whatever, broader economy.

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

Yeah.

Christopher Donat -- Piper Sandler -- Analyst

Okay. Thank you.

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

When you can come visit us again?

Christopher Donat -- Piper Sandler -- Analyst

Exactly.

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

Right, right.

Operator

And I have no further questions in queue at this time.

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

Thank you. Now, with that, I'll turn it over to Steve and he'll give you an update on Private Banking and Investment Management Services.

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

Thank you, Dennis. For the second quarter of 2020, revenues for the segment for Private Banking totaled $107.7 million, which was down 7.2% from the second quarter of 2019, which was due primarily to previously announced client losses and a decrease in our asset management revenues. For the second quarter 2020, quarterly profit for the segment was down $8.3 million and thus breakeven as compared to the second quarter of 2019. This decrease was primarily driven by the previously announced client losses and a decline in our asset management revenue. And turning to sales activity, in the quarter we closed $26 million of gross recurring sales events and we contracted 11 clients for another $17.6 million in recurring revenue, which in total solidified $43.6 million of recurring revenue during the quarter and resulted in $5.1 million in net new recurring sales events.

The average term for our recontract this quarter was 3.3 years. We had no client losses during the quarter. In addition to our recurring events, we closed $3.6 million in one-time sales for the quarter. We are pleased to announce that we recently have expanded and extended our relationship with our longtime client First Horizon Bank. First Horizon has been an SEI client since 2003. In July 2020 First Horizon merged with IBERIABANK, which is currently running on a competitor platform but will migrate their business to SEI in 2021. This deal allows us to continue providing our current scope of technology and services to the new larger organization. Additionally, as we mentioned last quarter we are pleased to announce that we recently have expanded and extended our relationship with our longtime client SunTrust Bank, which last year merged with BB&T to create Truist, the sixth largest bank in the US.

This deal allows us to continuing to provide our current scope of technology and services to the new larger organization. Another event in Q2 was a large migration of Schroders Personal Wealth account that continue as part of SEI's relationships with Fusion. In turning to implementation activity, in the second quarter, we successfully converted three clients to the SEI Wealth platform, Hills Bank & Trust and Dorsey & Whitney Trust Company both existing TRUST 3000 clients and Connor Broadley, a new UK client all to work live on SWP in a 100% remote environment. In late Q1 those SEO and our partner teams immediately adjusted to remote environment and met all milestones and live days to avoid any disruption to our client's businesses.

The teams have enhanced our remote training and implementation capabilities and the success of these conversions will incur commutability to bring clients live under unforeseen circumstances. This capability to finalize these implementations during these disruptive times is a testament to our clients, our workforce and bodes well for the future. As an update on our backlog, our total signed but not installed backlog is approximately $76.3 million in net new recurring revenue. From an asset management standpoint, total assets under management ended the period at $22.9 billion, representing a 2% increase from second quarter of 2019. Our AUM increase was due to a market appreciation. Despite end of period assets being up, our average asset during the quarter were down which caused our revenues to be down for the quarter.

Our cash flow for the second quarter of 2020 was a negative $483.5 million. And turning to the business in general, despite the ongoing pandemic and challenges that has brought, we continue to operate business as usual and our workforce continues to rise to the occasion, and across our company, have executed extremely well. On the prior quarter's call, I outlined our focus for the year. These priorities remain true and as we enter the second half of the year, we continue to center our efforts on growth. This includes continuing to manage through the downward pressure of lost business we have previously discussed, continue to push our One SEI strategy and continue the expansion of our markets and solutions. We will also continue to expand our capabilities in the market across our platform, implementations and solution. While this will result in our expenses up-ticking in the next few quarters, I view this as an investment in our business and to support the implementation of our strong backlog of revenue.

That concludes my prepared remarks and I will now turn it over to any questions you may have.

Operator

Thank you. [Operator Instructions] And first, we'll go to the line of Robert Lee with KBW. Please go ahead.

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

Great. Thanks. Hi, Steve. I hope you're doing well.

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

Thanks, Rob. How are you? I hope you're doing well as well.

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

Pretty good. Thank you. All things considered. Just a couple of quick questions. First one, as you know, just want to make sure I'm kind of thinking about the movement with all the sales with pretty high gross sales, with contracts being -- so relative to that, kind of the net recurring revenue seemed, I guess, low. So should -- is that kind of factoring down maybe some of the recontracting and whatnot that you two are, I guess like a better of price concessions or something that kind of offset and then kind of factored that [Indecipherable] number?

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

No. I know I threw a lot of numbers at you, Rob, so let me explain. So in the recontracts we did in Q2 our -- across the board our fees pretty much stayed the same. I think in total the net down was less than 1% of total fees of recontracted. I think the delta that you're looking for there the $26 million gross that includes the couple of clients I mentioned that literally went out for large -- had large mergers and put their business out basically into the market. So we had to go even though they're our clients, resell those clients and we obviously were successful. And while if we had unfortunately lost the business which we didn't, I would have announced and netted the loss of the current revenue. I'm not going to take credit for the current revenue even though it was an active sales agenda that's in the door. The only net that I'm going to announce sits in that $5.1 million is the net new up revenue.

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

Okay. I understand. That makes sense. Thank you for clarifying that. And I'm just curious in very sizable kind of backlog. But given the environment as you look forward what is the thinking about kind of the versus original expectation around the pace of putting the backlog to work in the sense off -- I assume a lot of banks are pretty focused on other things at the moment even things are running efficiently -- work from home. Are you expecting them to kind of fund over a longer period of time than maybe you did January 1?

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

Yeah. So that's a great question, Rob. So those -- what I say is yeah, we've seen some delays in it and obviously this pandemic has impact to that. But I think pointing out to three conversions we had during the quarter, I think we've proven we can do this in a remote environment and I think that we've certainly relayed that communication to our client base. And I think they're very eager to continue. With that said, I'd say right now, as I'm looking at that backlog, I would say about 50% of it as of right now we are hopeful that we'll fund within the next 18 months, 50% over your --extended out past 18 months.

Will that change a little bit? Yeah, probably. Do I think it will drastically change? No, I'm hopeful not. I'm hopeful. That's why I called out the fact that we did these conversions and implementations in a remote environment. So while some of the larger clients do have other things to focus on, we still do move all of our implementations and conversions and our backlog. We are active. I just think the longer this goes, yeah, there could be some delays but I don't think there'll be -- at least we're not expecting right now significant delays.

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

And maybe if I can squeeze one more in. With the strong kind of recontracting, keeping clients that were at the bid, I'm assuming a fair amount of that kind of was in process or everything kind of expand more or less? So, in terms of new sales activity, are you starting to now see that kind of stretch out more just like the?

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

Yeah. I'd say -- yeah, so as far as the new activity, what I'd say is it's very engaged and active. So, in the U.S. alone, we have over 22 active agendas that we're pursuing right now. And I'd say they are all still moving. My prediction and I said this in the prior quarter call I think it will delay a little bit. I just think -- especially for new business. I just think doing the due diligence and going through everything we have to do is a little bit harder in remote process. There's a lot we can continue to do and we are doing through virtual presentation. But I just think the end decision-making and contract signing might be delayed a little bit. But it's not like things were put on hold or pause, things are moving and that's very positive from my standpoint. And while I do believe things might push a quarter or two I think we're seeing, I feel hopeful that a number of these agendas will come to fruition this year.

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

Okay, great. Thanks for taking my questions.

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

Sure, no problem, Rob.

Operator

Thank you. And next we'll go to the line of Chris Shutler with William Blair. Please go ahead.

Christopher Shutler -- William Blair & Company, LLC -- Analyst

Hey, Steve. Good afternoon.

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

Hi, Chris. How are you?

Christopher Shutler -- William Blair & Company, LLC -- Analyst

Good. So, I just want to go back to the last -- the first question previously. And just to be clear, the only number that we should really be looking at as far as sales is the $5 million, right? And the $21 million delta is business that you already had that is remaining at SEI? Is that correct?

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

Yes, that's a good way to look at it. However, what I say is -- I don't think $5.1 million is the only number you want to be concerned about. Obviously our business we're driving two things right now to achieve growth, retention of our current revenue and expansion and growth of our current revenue. And I think the number that I would focus on while I understand the $5.1 million is one that drives new revenue and new growth, we basically secured $43.6 million, which is a strong number in the quarter. So, I think that, I think that's not a number to pass over.

Christopher Shutler -- William Blair & Company, LLC -- Analyst

Yes. Okay. That all makes sense. And then secondly, just could you give us an update on the competitive environment and to the extent possible bifurcate what you're seeing at larger FIs versus competition in the smaller FI segment. And then lastly, any thoughts on some of the announcements out there. I'm thinking like State Street FNZ. Any impact competitively that could have on SCI longer term?

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

Yeah. So two -- I think you have really at the heart two questions there. So the first one, I'd say Chris, the competitive environment remains the same. We're still seeing the same competitors that you know well competing with us. I think everyone is dealing with this new normal and the pandemic. But we're staying in our lane and do what we do best and I think that's still resonating very well. The power of our platform, our people, our technology is still resonating and I think we have a very strong value proposition. So from a competitor standpoint, while I look at them, I'm focused more on what we're doing and sticking to our playbook. As far as announcements, there's always announcements. There's been consolidation in this industry. The specific one you brought up FNZ, so it was announced and made public this year. State Street's Wealth Management business, Services business which is part -- have been a client of ours for a long time. They sold off that business to FNZ which is a competitor overseas. So that business is still client of ours and they are still under contract and we have talked to the folks at State Street and we're in discussions with them what that means long term for us but really no update on that. What it needs from a competitive standpoint, it's another competitor really from outside the U.S., entering the U.S. market.

Christopher Shutler -- William Blair & Company, LLC -- Analyst

Okay. Thanks a lot, Steve.

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

Sure.

Operator

I have no further questions in queue in this time.

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

Okay. Thank you. So if there's no questions I'll turn to Investment Managers. So turning to the Investment Manager segment for the second quarter of 2020 revenues for the segments totaled $119.3 million, which was $10.1 million or 9.3% higher as compared to our revenue in the second quarter 2019. This year-over-year revenue increase was due primarily to net new client fundings and existing client expansion. Our quarterly profit for the segment of $44.7 million was $3.8 million or 9.4% higher as compared to the second quarter of 2019. Higher profits year-over-year were primarily driven by an increase in revenue offset by a smaller increase in personnel expense and investments. Third-party asset balances at the end of the second quarter of 2020 were $668.6 billion approximately $57.8 billion higher than the asset balances at the end of the first quarter of 2020.

This increase was due to net new client fundings of $19 billion and market appreciation of $38.8 billion. And turning to market activity during the second quarter 2020, we had a strong sales quarter with net new business events totaling $15.2 million in recurring revenue, as well as recontracts of $9.9 million in recurring revenues. Our backlog of sold but not yet implemented events stands at $34.6 million at June 30, 2020. Our events for the quarter included the following highlights: our alternative market unit sales to existing clients were robust as many of our larger sophisticated managers seize market opportunities and launch new products or deployed additional capital. In addition, we were selected by a $60 billion debt diverse manager to automate their fund subscription process and a start-up venture capital firm for full administration.

In our traditional market unit, in addition to continuing our momentum with collective investment trust and all product lines for new and existing clients, we also had success expanding middle office servicing relationships with three existing clients. In Europe, private credit and private equity continue to be main drivers of new names as well as cross-sell with existing clients. And in the family office services unit, we've signed seven new single family office clients to the Archway platform and continue to see strong demand from this segment. From an overall standpoint on the market and our business, the word engaged comes this to mind. We see our clients and prospects highly engaged with us as we continue to navigate through the pandemic and new business model of work from home.

Across SEI from our sales team to our frontline operations, our workforce has continued to be nothing less than impressive than the resiliency and execution in this new norm. It is noticed and appreciated by our clients. While we see some slowing in the process of new sales, we see this as a delay not a stoppage and we will remain highly engaged in the market with clients and prospects. The value of our platform, technology, and services shines well in disruptive times like these and we feel well-positioned to execute on our growth strategy.

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

Operator

Thank you. [Operator Instructions] And we'll go to the line of Robert Lee with KBW. Please go ahead.

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

Great. Thanks. Thanks again, Steve. A question on margins, I mean margins is holding up really well. I think if my numbers are right you may have your highest margin -- over the last [Indecipherable] years, maybe ever. So, I mean do you think that maybe you're getting to the scale in this or maybe your level of profitability [Indecipherable] ora couple of hundred points higher than where maybe you had brought historically call it that 35-ish percent range. Now, it looks like you get to more like closer to 36% to 37% and change? Is that fair? Do you think ultimately?

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

Yeah. Yeah, I get you, Rob. So what I'd say is what I always say. I'm confident with this business being in the mid-30s. That means over some of the quarters it might bump up 36%, 37%, might bump down 33%, 34%. I do think the business has been at scale. I think with the larger client space we've had and really grown over the past five years, obviously, that adds a good bit of scale for the business. And listen, we're getting better and we're adding more automation and more tools and investing in our business. So that helps. I do think the way to look at those is not really quarter-over-quarter. It's year-over-year and how that trend goes. I'd say this quarter we had a lot going on. We were doing a lot. There was a lot of client movement, but there are still things that I'm looking at that I continue to want to invest in and build out for sustainable growth and that's the most important to me for the future. So could the business pick up a little bit over 35%? Sure, it could. But I do think it's going to be within that range for a while because I do think there will be continued investment we'll make.

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

Great. That's helpful. Thanks, Steve.

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

Sure.

Operator

Thank you. And I have no further questions in queue at this time.

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

Okay, great. If there's no questions then I'm going to turn it over to Wayne Withrow to discuss the Advisor segment. Wayne?

Wayne M. Withrow -- Executive Vice President, Independent Advisor Solutions

Thanks, Steve. During the second quarter of 2020, we started to settle into an operating model reflecting the COVID-19 crisis. Both the migration to this model and improvements to it are a focus for us. Second quarter revenues totaled $94 million. These revenues were down 6% from the second quarter of last year. The impact of COVID-19 on market valuation and a corresponding de-risking of portfolios was a dominant factor reflected in these results. Expenses were down 1% compared to the second quarter of last year. As Dennis predicted on the first quarter conference call, we had significant savings in the travel and client event area. These were mostly offset by increases in personnel costs, some technology increases and increases in sub advisory fees mostly attributable to growth in our SMA program.

Our profits decreased 12% from last year year's second quarter following our revenue decline and reflecting our leverage operating model. Our assets under management at the end of the second quarter was $66.6 billion. This is down roughly 1% from June 30, 2019, while reflecting recovery of March, of the steep market declines in March. Following some recovery in our cash flow during the first quarter, our second quarter net cash flow lost ground and was a negative $642 million. We recruited 63 new advisors during the quarter in line with our first quarter recruitment rate. Moving past the numbers, there were changes in our product line, operational model and client engagement model during the quarter. As to our operations model, we hit the ground running when our operations transitioned to a work from home environment.

Quite frankly, this will influence our operations thinking going forward. Our client engagement model however was not so easy, as SEI, our advisors, and our advisor's clients are all changing at the same time. The good news is that client and prospect engagement at our virtual activity has been strong. And we are investing in digital marketing and sales activities with the goal to convert that virtual activity to actual cash flow. Moving on to product line changes, we announced a partnership with the American Fund and have launched the SEI American Fund models.

These models are designed, constructed, and maintained by the SEI Investment Management Unit, and are implemented with American Funds managed by the Capital Group. Bringing together the power of both organizations should result in an attractive offering for advisors. Early indications support this thesis. In summary, the COVID-19 crisis and its fallout dominated the second quarter and will have a prominent role in what we do going forward. Our scale, strong financial position, and resilient infrastructure will allow us to make the best of this challenge. At its core, restoring growth rate remains our primary objective.

I now welcome any questions you may have.

Operator

Thank you. [Operator Instructions] And we'll go to the line of Chris Donat with Piper Sandler. Please go ahead.

Christopher Donat -- Piper Sandler -- Analyst

Hi, Wayne. How are you doing?

Wayne M. Withrow -- Executive Vice President, Independent Advisor Solutions

Hi. Good afternoon, Chris. Great.

Christopher Donat -- Piper Sandler -- Analyst

Wanted to ask about your comment about the de-risking of portfolios. Is that something that was more prevalent early on in the quarter and then we -- have seen any real rerisking since then? I'm asking because I'm curious that what we might see a recovery in the revenue yield in incoming quarters with maybe a higher mix of -- or with less cash probably.

Wayne M. Withrow -- Executive Vice President, Independent Advisor Solutions

Well, I guess Chris, the latter part of your question was your real question and yes, that's exactly what happened. And when you look at the yield, the yield reflects -- if you look, the point to point in the change in money market and other less risky assets, the point to point increase has not currently reflect as much as the average basis. So the average was really what drove the revenue. So yeah, it has started recovering and the de-risking occurred during the quarter but it could go the other way. I would expect it to go the other way going forward.

Christopher Donat -- Piper Sandler -- Analyst

Okay. Thanks very much.

Operator

Thank you. And next we'll go to Ken Hill with Rosenblatt. Please go ahead.

Kenneth Hill -- Rosenblatt Securities -- Analyst

Oh, hi. So just a quick question on client engagement as you're thinking about it here moving forward. I mean, what types of tools are you looking at or different process that you're thinking about bringing in that's kind of going to engage client in a little bit more of a digital way for the current environment? Just kind of hoping to kind of learn a little bit how you're thinking through that here?

Wayne M. Withrow -- Executive Vice President, Independent Advisor Solutions

Yeah. I think a lot of the engagement is -- historically, a lot of the engagement has been face-to-face. Now we're doing, you know, traditional -- what I would call traditional digital engagement with Webex and Zoom and kind of digital means. But then we're supplementing that with, if you will, kind of on-demand videos around certain components of the offering, certain components in the sales cycle. So, you see a little bit of a shift from a push kind of sales process to a pull kind of sales process. We're making catalogs of digital engagement available to advisors, so they can, if you will, shop at their own pace. I would say that's the major changes.

Kenneth Hill -- Rosenblatt Securities -- Analyst

Got it. And then from advisor perspective, I think you mentioned 63 coming in that's kind of on par with the prior quarter. What's the pipeline there look like and any color you can provide kind of looking a little bit further out?

Wayne M. Withrow -- Executive Vice President, Independent Advisor Solutions

Yeah, I think our pipeline of new advisors remains very strong and we're very -- the amount of digital engagement is really strong. So, we feel pretty good about it.

Kenneth Hill -- Rosenblatt Securities -- Analyst

Okay. Any particular areas those are coming from or is it just more broadly?

Wayne M. Withrow -- Executive Vice President, Independent Advisor Solutions

I think it's pretty broad, it's across the board.

Kenneth Hill -- Rosenblatt Securities -- Analyst

Got it. Okay thanks for taking the questions.

Operator

Thank you. Next we'll go to the line of Robert Lee with KBW. Please go ahead.

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

Great, thanks. Hi, Wayne, hope you're doing OK.

Wayne M. Withrow -- Executive Vice President, Independent Advisor Solutions

I'm doing great, you too.

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

Good. Thanks. A couple of questions, so first just make sure I understand the numbers right. The net cash flows in the quarter was -- the minus $650 million and then I just want to clarify the numbers but also I think you had started last quarter kind of breaking that down between kind of cash flows from your conditional business, cash flows to -- on to the more on a AUA side of the fence so to speak. So, can you maybe give us that breakdown?

Wayne M. Withrow -- Executive Vice President, Independent Advisor Solutions

Yeah. What I gave you is cash flow into the managed programs. I didn't mention but I will tell you the cash flow into what I would call the AUA, we had $600 million in positive cash flow in the AUA level, right, that wasn't in my comments but that's the number.

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

Okay. And then the traditional platform of asset under management, the minus -- was it minus $660 million? Just I'm trying to [Indecipherable].

Wayne M. Withrow -- Executive Vice President, Independent Advisor Solutions

Yes, you had it right. It was $600 million.

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

Alright, great. And then I'm just kind of curious, just post the American Funds initiative, which seems like a pretty -- from its pre-launch Archer from what you historically done to kind of your architecture kind of picking the right managers or your products and here, a great organization but you're just picking one manager, I guess kind of environment. Maybe just trying to get a sense of how you think of your value-added to that was really a way from American Funds to reach your advisors in different way? I mean, just trying to get a sense of what you think about that from the advisor perspective versus something they would go to American Funds today.

Wayne M. Withrow -- Executive Vice President, Independent Advisor Solutions

I think there's a couple of different aspects to it. Number one, the models are constructed and maintained by the SEI Investment Management Unit, we're taking our -- all of our experience and history and sort of portfolio constructure and management. So we're co-managing them, if you will, with the American Funds and the components, if you will, the implementation component so far what the American Funds provide. In addition, all these assets are on the SEI operating platform, so it's a strength of our technology platform, which is also available to us. So in many ways, it is offering, if you will, an asset -- a brand of asset management product to implement our portfolio thinking at the portfolio structure level on our platform. That's what makes it different. Now it still adheres to our goal based investment management strategy, it's still out overall investments structure. It's just some of the -- it's when you think about it, it's no different than what we do when we offer ETF products in our portfolios where we have ETFs and we don't manage ETFs they're third party ETFs. But we structured and we manage them we do the tax loss harvesting, we run them on our platform it's all those components.

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

Great. And maybe just kind of curious if there's any sense you can give us some kind of how business trended through the quarter? I mean, the market [Indecipherable] mostly straight up since the end of March. But I mean, have you kind of made your way through the quarter and as the market rebounded notwithstanding the health economics you've got there? Is there any sense that the client -- advisor and client engagements was changing or improving over the course of the quarter or is it pretty spotty and any color you may have on that?

Wayne M. Withrow -- Executive Vice President, Independent Advisor Solutions

I guess I would say -- you look earlier in the quarter everyone was just reacting to the crisis. And I don't want to say there's panic but volumes were astronomical and people were just reacting derisking portfolios, stabilizing their clients. I think as we progress through the quarter we're not entirely there but we're slowly when I say us and our advisors slowly returning to wealth. It may be a little bit of a new operating environment in this COVID-19 world but we got to get back to business again. So I think that would describe the change I think during the quarter.

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

Okay, great. Thank you for taking my question.

Operator

Thank you. And next, we'll go the line Chris Shutler with William Blair. Please go ahead.

Christopher Shutler -- William Blair & Company, LLC -- Analyst

Hi Wayne. Good afternoon.

Wayne M. Withrow -- Executive Vice President, Independent Advisor Solutions

Good afternoon, Chris.

Christopher Shutler -- William Blair & Company, LLC -- Analyst

So on the outflows in the quarter -- were those due to I guess tougher new sales or greater attrition or both?

Wayne M. Withrow -- Executive Vice President, Independent Advisor Solutions

I would say it was more outflows from the existing business and not new as advisor signings. I think the new advisory activity is new. But I think what you're seeing is people moving out to manage products into safer maybe guarantee type products and you're just seeing an overall slowdown in just a receipt. I mean it's entirely consistent with what we've seen in other periods of financial market stress.

Christopher Shutler -- William Blair & Company, LLC -- Analyst

Okay. And then I guess secondly, just there's a lot of consolidation activity happening in the TAM space and I think some other firms out there are growing at frankly are better clip than your businesses today. So I guess the question is are you contemplating, making anymore -- a feel there's a need to make any more material changes to the business or the structure of the business to see a real pickup in growth?

Wayne M. Withrow -- Executive Vice President, Independent Advisor Solutions

I don't know exactly how to answer that. I mean we're constantly making changes. I think we need to continue to change our product lines and continue to change our technology platforms going forward. In terms of anything more specific, I'm not really prepared to talk about it in this type of public forum.

Christopher Shutler -- William Blair & Company, LLC -- Analyst

Okay. Thank you, Wayne.

Operator

Thank you. And I have no further questions in queue at this time.

Wayne M. Withrow -- Executive Vice President, Independent Advisor Solutions

Thank you very much. At this point I'd like to turn it over to Paul Klauder to talk about our Institutional segment.

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

Thanks Wayne. Good afternoon, everyone. I'm going to discuss the financial results for the second quarter of 2020. Second quarter revenues of $76.5 million decreased 6% compared to the second quarter of 2019. Second quarter operating profits of $39.6 million decreased 5% compared to the second quarter of 2019. Operating margin for the quarter was 52%. Both revenues and operating profits were impacted by negative point fundings, lower capital markets and currency translation. Operating profits were positively impacted by lower travel costs and reduce costs associated with client events. Quarter end asset balances of $85.6 billion, reflects a $2.6 billion decrease compared to the second quarter of 2019. This decrease is driven primarily by negative client fundings. Net sales were a positive $400 million for the quarter, which was comprised of gross sales of $900 million and client losses of $500 million.

New signings including the U.S. hospital, UK DB fiduciary management and a U.S. not-for-profit relationship. The unfunded new client backlog at quarter end was $460 million. New sales momentum and activity has been impacted by the crisis as prospects have extended their time frames. However. we did see an increase in OCIO fees, inbound inquiries and formal decision-making processes in the second half of the quarter. We continue to receive positive feedback from our clients on our proactiveness and attentiveness. We've spent much time learning and enhancing our delivery approach in this virtual environment. Regarding new strategic initiatives, we have made progress on our large investor platform of offering technology, non-fiduciary investment services and risk management, consistent with the One SEI mindset. We are moving forward to a formal launch in the third quarter.

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

Operator

[Operator Instructions] And we'll go to the line of Robert Lee with KBW. Please go ahead.

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

Yeah. Hi, thanks. Hi, Paul. How are you?

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

Good, Robert.

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

Can you maybe expand a little bit on the new business initiative, the product launch? Just want to make sure I understand it fully kind of what product capabilities that tells maybe over time how we should think about how that maybe changing the -- through all the economic functions, changed economic function of the business?

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

Yeah. Absolutely, Robert. So this was something that we introduced the concept last November at the Investor Day. This would be going to larger institutional investors, typically over $2 billion, doesn't have to be over $2 billion but that's effectively these would be organizations who don't want to outsource, who want to have an investment team, who want to have investment talent and are looking for technology similar to the technology that Steve sells through the investment manager market segment. So technology to help with the entire administration, valuation, all the alternative investments, non-fiduciary investment services, so we would not be taking accountability for picking and overseeing managers.

But we would be providing access to them and opinions for them about managers and about asset allocation studies and then a full risk management platform. So, in essence, it would be taking all the capabilities of the firm and offering them in a flexible environment. And Robert, this represents a whole new market for us because at some level, it states $2 billion, maybe $3 billion, maybe it's $1 billion depending on the segment, there are organizations that will not outsource. They are committed to their investment process and their team. So, this is a whole new incremental marker for us to be able to go into and take all that worst part of SEI and be able to offer it to this market segment.

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

And I mean, I guess on the -- I don't want to just characterize it, but it almost kinds of feel that going back to what you did decades ago which likely better way to be consulted. No, that's not a fair way of thinking of it or is it -- are there something really kind of much more different about it?

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

Yeah, I would not categorize that we're trying to be an investment consultant. This at its heart is technology sale. This is technology that these organizations need. Again, very similar to the technology that Steve has delivered to the Investment Management segment to help them be able to run their sophisticated investment process. Most of the time, these types of organization have a myriad of Excel spreadsheets and have a global custodian and it is a very fragmented and non-integrated process. So, I would say, it's far more of a technology sale. Some of the sweeteners that we can add are not fiduciary services with regard to how -- giving opinions about managers and asset allocation studies. But at the heart of it, we'll definitely be much more technology than it would be trying to sell consulting services.

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

Great. Those are my questions. Thank you.

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

Thank you, Robert.

Operator

Thank you. And I have no further questions in queue at this time.

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

I would now like to turn it over to Kathy Heilig, SEI's Controller.

Kathy C. Heilig -- Chief Accounting Officer and Controller

Thanks, Paul. Good afternoon, everyone. I have some additional corporate information about this quarter. Second quarter 2020 cash flow from operations was $165.2 million or $1.10. Year-to-date June 2020 cash flow from operations is $264.1 million or $1.75 per share. Second quarter free cash flow $145.3 million and year-to-date free cash flow $217.2 million. For the second quarter, capital expenditures excluding the capitalized software were $13.8 million which did include $5.5 million toward the new building, bringing year-to-date capital expenditures excluding capitalized software to $34.4 million and about $15.7 million relates to the new building. We're projecting remaining capital expenditures for the year excluding capitalized software to be about $60 million which includes about $9 million related to the facility.

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 and on this call is unaudited. In some cases, you can identify forward-looking statements by terminologies such as should, may, will, expect, believe, continue or peer. Our forward-looking statements include our expectations as to the long-term consequences of a potential opportunities resulting from the disruptions precipitated by the COVID-19 pandemic, the degree to which you will benefit from our scale resources, technology and infrastructure. The client offerings, business segments, and client types that will drive our growth. Revenue that we believe will be generated by sales events that occurred during the quarter or when our unfunded backlog may fund.

Our resources allocations in technology and platforms in which we choose to invest, including our One SEI initiative. The strategic initiatives and business segments that we will pursue, our ability to manage our expenses, scale our offerings, and established sustainable and accelerating margins. The sense of our pipeline increase 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 subject to significant risk and uncertainly many of which are beyond our control are subject to change. Although we believe the assumptions upon which we base our forward-looking seems 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, 2019.

And now please feel free to ask any additional questions that you may have.

Operator

Thank you. [Operator Instructions] And I have no questions in queue at this time.

Alfred P. West, Jr. -- Chairman and Chief Executive Officer

So, ladies and gentlemen, we are fighting on two fronts. First, the COVID-19 disruption and second growing revenues and profits during disruptive time. On the first front, we were very fortunate to have planned well that have been able to keep our workforce healthy and productive. On the second front, we face short term headwinds but we believe that we will prevail, thanks to our motivated and innovative workforce and the strategic investments we're making in our future. So please be safe and remain happy and healthy and have a good day. Thank you for attending our call.

Operator

[Operator Closing Remarks]

Duration: 64 minutes

Call participants:

Alfred P. West, Jr. -- 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 -- Executive Vice President, Independent Advisor Solutions

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

Kathy C. Heilig -- Chief Accounting Officer and Controller

Christopher Shutler -- William Blair & Company, LLC -- Analyst

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

Michael Lipper -- Lipper Advisory Services, Inc. -- Analyst

Kenneth Hill -- Rosenblatt Securities -- Analyst

Christopher Donat -- Piper Sandler -- Analyst

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