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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you very much for standing by. And welcome to the SEI Third Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given to you at that time. [Operator Instructions] Also as a reminder, today's conference is being recorded.
I would now like to turn the conference over to your Chairman and CEO, Al West. Please go ahead.
Thank you, and welcome everyone. All of our segment leaders are on the call as well as Dennis McGonigle, SEI's CFO; and Kathy Heilig, SEI's Controller.
I'll start by recapping the third quarter 2018. I'll then 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 with some important company-wide statistics. As usual, we will field questions at the end of each report.
So let me start with the third quarter 2018. Third quarter earnings increased by 26% from a year-ago. Diluted earnings per share for the third quarter of $0.80, represents a 27% increase from the $0.63 reported for the third quarter of 2017. We also reported a 6% increase in revenue from third quarter 2017 to third quarter 2018.
Also during the third quarter 2018, our non-cash asset balances under management increased by $3.6 billion. At the same time, LSV assets under management increased by $2.9 billion during the third quarter. These increases in assets under management were due to market appreciation.
In addition, during the third quarter 2018, we repurchased approximately 1.7 million shares of SEI stock at an average price of $61.55 per share. That translates to over $102 million of stock repurchases during the quarter.
Finally, in the third quarter, as part of the investments we made to create growth, we capitalized approximately $8.8 million of the SWP development and amortized approximately $11.4 million of previously capitalized SWP and IMS development.
Third quarter 2018 sales events, net of client losses, totaled approximately $27.9 million and are expected to generate net annualized recurring revenues of approximately $22.5 million. Our sales results reflect the fact that activity is very high and our pipelines are large, still we are experiencing that larger sales events are particularly complex and take longer to close. Each of our units will speak to their specific sales results.
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 segments heads. Dennis?
Thanks, Al. Good afternoon, everyone. I'll cover the third quarter results for the investments in new business segment and discuss the results of LSV Asset Management. During the third quarter 2018, the investments in new business segment continued its focus on our digital advice offering and on the ultra-high-net-worth investors segment through our private wealth management group.
During the quarter, the investments in new business segment incurred a loss of $2.8 million, which compared to a loss of $3.3 million during the third quarter 2017. This improvement reflects the growth of our private wealth management business.
Regarding LSV, our earnings from LSV represent our approximate 39% ownership interest during the third quarter. LSV contributed $41.7 million in income to SEI during the third quarter. This compares to a contribution of $39.3 million in income during the third quarter of 2017.
Assets grew approximately $2.9 billion for the quarter. LSV experienced net positive cash flow during the quarter of approximately $300 million. Revenue was approximately $133.9 million, of which less than 1% was performance fee-related. During the quarter, our effective tax rate was 18.6%.
I’ll now take any questions.
Okay. Thank you. [Operator Instructions] And we do have a question from the line of Chris Shutler. Please go ahead.
Hey Dennis. How are you?
Great. Chris about yourself?
Good. So a couple of questions. One was just on the tax rate, just what we should expect from here?
I think we'll probably back tax rate closer to what we were in the second quarter.
Okay. Got it. And then the corporate overhead expense was down a little quarter-over-quarter, I think it's usually up sequentially in Q3. So what happen in Q3 there and how should we look at that line going forward?
We added a small benefit from – we applied for a tax credit from the State of Pennsylvania [with taxes of mutual expenses] because of our investment in our data center operations that came through in the third quarter. So that helped a little bit, but I would say that kind of across the Company. We had a concerted effort on expenses during the third quarter.
Okay. So going forward, it’s probably not going to tick back up to the Q2 level somewhere in between?
That’s probably a good range.
Okay. Thank you.
We do have a question from the line of Robert Lee with KBW. Please go ahead.
Great. Thank you, and good afternoon, Dennis.
Hey, Rob.
Hey. So a quick question on LSV. I was curious a bit, I mean, possibly get any color on – do they have one or two specific maybe strategies that are kind of bucking the broader industry trend and seeing – generating their flows. Just trying to get a sense of kind of drilling down a little bit on what maybe driving this?
Yes. I mean, most of their – I see more of the smaller cap, mid cap regional products are closed to new money. So their flows are still going into the more, I’d say, their bread and butter foundational products. The good news for them is their distribution activities, and the rest of course are also coming globally. So they're not just from U.S. clients are coming from other geographies in the U.S. products. So it's still their bread and butter stuff is helping them.
Great. Thank you very much.
You’re welcome.
[Operator Instructions] Thank you. And we'll go back to the line of Chris Shutler with William Blair. Please go ahead.
Hey, Dennis. Sorry, I had to ask another one here. But on LSV, could you give us any update on their performance in the third quarter or I guess so far in October? We had a great visibility into that stuff like through June 30. And I know they had some challenges earlier this year, great long-term performance, but just want to get an update?
Yes. I mean, again on their more traditional strategies, their performance is okay. Value has been a tough segment of the market as you probably aware, and that continue to play out during the third quarter, maybe the market cycle or kind of getting into down, that will change a little bit. Some of the other strategies, their performance is actually pretty good. But again, you can see it in their performance fees number coming down a little bit. Last year or this year or even our second or third quarter is down a little bit. So, yes performance is a little bit tougher.
Okay. It makes sense. Thank you.
You’re welcome.
There are no further questions. Please continue.
Thank you.
Thank you, Dennis. I'm now going to turn it over to Joe Ujobai to discuss our Private Banking segment. Joe?
Great. Thank you, Al. I'll start with the financial update on the third quarter, followed by an update on new business activity. Third quarter revenue of $118.5 million was down slightly from the second quarter, primarily due to a decline in mutual fund trading revenue.
For the quarter, operating profit of $2 million was also down from the second quarter due to the lower revenue and fairly higher expenses, largely tied to the SEI Wealth Platform. During the quarter, we signed one new SWP agreement, Cornerstone Advisors. It’s a new client to SEI. Year-to-date, we have signed seven new SWP clients.
In Q3, we also signed 3.5 million professional services fees related to SWP clients and prospects. In UK, we continue to cross-sell and gather solid net cash flow from current SWP clients.
Net cash flow for the third quarter from UK SWP clients was $1.4 billion. Sales activity in the U.S. and UK with current clients and new prospects is strong. As I mentioned, some of the larger decisions are very complex and frankly can be political with inside of larger organizations.
For example, at one UK client, we are negotiating a new SWP agreement to minister a large book of private client accounts. There’s some organizational and strategy change with the client, we would expect to deconvert some assets from SWP, while we begin to convert new books of business to the platform. We expected this to be a net positive growth event for SEI and this opportunity is still under negotiation.
Regarding TRUST 3000, during the quarter, we recontracted four clients for a total of $3.8 million. Included in the recontract numbers, is a TRUST 3000 client that gave us a terminations notice in Q4 2017 that they have since rescinded and as they have extended their SEI relationship. Year-to-date, we have recontracted 16 TRUST 3000 clients for $42 million of annualized revenue. There were no TRUST 3000 client losses during the quarter.
Our asset management distribution business experienced approximately $55 million in negative cash flows, mainly from non-U.S. based distributors. Overall, net sales events for the Private Banking segment were approximately $5 million of which $1.5 million is recurring annual revenue and $3.5 million is one-time or professional services revenue.
I did want to make a quick correction. Cornerstone Advisors is actually a new client for banking. They were not a TRUST 3000 client, but they are a client of SEI’s in the IMS space. Overall as an update on client conversions, we converted a UK client to the SEI Wealth Platform during the quarter. This brings the total to 37 clients currently processing on SWP.
Our total signed, but not installed backlog for SWP is approximately $29 million in net new recurring revenue. As I mentioned on previous calls, we are tracking a metric to illustrate our continued momentum with SWP. The total annual recurring revenue value of our SWP backlog, this number includes the recontracted value of the TRUST 3000 relationship plus the net new recurring revenue is greater than $72 million.
And as the average contract term on our backlog is greater than six years, these uninstalled clients represent more than $450 million in contracted revenue to SEI. We continue to actively work with Wells Fargo on the conversion to SWP, but I've not yet set a new conversion date. Overall, conversion activity is robust with 40% of the backlog is expected to convert by the end of 2019 and the remaining to convert after that time.
In conclusion, we remained focused on the following; capitalizing on our momentum to grow the SWP business; installing the backlog to matriculate the revenue; and improving profitability of the banking segment to return the unit to its historical profit margins.
Any questions please?
[Operator Instructions] And we’ll go to the line of Robert Lee with KBW. Please go ahead.
Great. Thanks. Thanks for taking my questions. Good afternoon, Joe.
Hi, Rob.
Hi. I was just curious, could you update us, as we look at the backlog and the clients we’re signing up for SWP? I mean, I know the original intent of the platform was to make a much more asset-based, so you obviously get that asset growth over time not withstanding short-term volatility like we have now. But can you maybe give us a sense of on these new relationships or even existing ones kind of have the mix of shaking up between the proportion that maybe asset-based versus maybe account-based or flat fee, just trying to get a sense of how we should think of it?
Yes. It's still largely asset-based. Although, the pricing we have evolve the pricing over the history of SWP. And in the UK, the mix of clients are generally is higher growth, fairly high growth wealth manager advisory clients. So we're seeing not only growth from the market appreciation, but those businesses are have a tendency have been growing – many of our clients have been growing organically and through acquisition, but also organically, and that's certainly helped. We've seen good revenue growth from that.
In the U.S., the clients have a slightly different sort of background, some of them have been our TRUST 3000 clients, which again were largely an asset-based solution, but we have added more pricing mechanisms around accounts and seat depending on the nature of the underlying functionality. But still overall, it's still very much an asset-based – majority of the pricing is asset-based.
Okay. And then, maybe just a quick update on the TRUST 3000 that you did resign, can you maybe just update us on kind of what type of if any kind of pricing concessions you're seeing and then maybe any sense of – if we look forward over the coming quarters, there's a lot of – are you pretty much through kind of repricing or resigning?
Yes. Well, I’ve a couple comments. One is, there are some net downs, but they're single-digit net downs, and in some cases it's been where a bank may not have as many accounts on the platform on TRUST 3000 that they would have had in the past. We've had a pretty solid year on recontracting. And most of our important clients are either recontracted or well on their way to recontract. But also we're talking, engaging those clients with their eventual move to SWP. So we typically have a pretty long-term strategic conversation with them. Some will choose to recontract for two to three or so more years on Trust. But in all those conversations, we're talking about the eventual move to SWP.
Great. Thank you for taking my questions.
Thanks.
And next we’ll go to the line of Chris Donat with Sandler O'Neill. Please go ahead.
Great. Thanks for taking my question, Joe. I want to ask one question about something you've been disclosing in the press releases when you announced SWP wins which is the number of clients and implementation and it's been, sort of around the eight, nine number. Does that represent something of your maximum implementation number? Or is that really a function of things not just number of clients, but really accounts or assets or something else?
That's not a maximum for us. We think we can handle considerably more than that. That's more of a reflection as we – not selling this thing fast enough. But we could certainly have more than eight or nine clients in the backlog.
Okay. And then just on the 3.5 million of professional services signed this quarter. Is that something we should expect in the next couple quarters as it flows in?
Yes, some of that has already flowed in. So in some cases that's usually – it matriculates more quickly. And so some of that is tied to the conversions that we're doing and some of that is tied to projects that are more in, we call the discovery or the sales space. But yes, we recognized that revenue generally fairly quickly.
Okay. But to confirm some is in the sales space or the discovery?
That's correct.
Got it. Okay. Thanks Joe.
Thanks.
And then we'll go to Chris Shutler with William Blair. Please go ahead.
Hey Joe.
Hi. Good afternoon, Chris.
So I just want to dig into the couple of examples that you gave. So the UK client, just if you could reiterate what you said there, maybe talk about that a little bit more. And then, I think you said that one client that originally gave a termination notice in last year is now onboard, so just what kind of change there?
So I’ll take that one first. So with the client, with the long-term TRUST 3000 client, it was smaller to more of a community bank type client. They were acquired by another bank that was on another system. The plan was to move off of trust onto the competitive system that the acquirer had. After reconsideration and moving towards conversion, they came back to us and said that they did not want to move on to the other system and that they wanted to recontract on TRUST 3000 for a couple of years and they wanted to consider SWP for the larger merged entity.
So that’s, I think, is what we've seen. I think we've talked about it in some other calls, where there have been firms that have been interested in some of our competitive systems, whether it’d be for price or maybe for convenience in this case with the merger and ultimately come back to us. So we're happy about that, and we'd like to see more of that with some of the losses we've experienced over really last year or – well, most of those losses happened last year in 2017 or sooner than that.
And then in the UK, I just wanted to sort of give an example that we're having good conversations with large firms both prospects and clients. And we have a situation with the client there, and we believe that we have an opportunity to grow our business there, but the mix of the underlying accounts might change because of some changes with inside of that firm and the strategy inside of that firm. So I think the point there I wanted to make is that, these are complex, but we're working with these large firms to identify what's our best opportunity and were SWP fits and making some good progress there. But in the meantime, they may change around the mix of underlying accounts.
Okay. And then I think, also Joe you mentioned that the main reason for the decline in revenue quarter-over-quarter was mutual fund trading revenue. Can you just give us a little bit more detail?
Yes, we have an outsource service where we executed mutual fund trades for our clients, and we are paid usually basis points to do that as an administration fee. And we're finding that some clients are no longer participating. But we're still doing the trading, but the fees are coming down or they're deciding not to take administration fees from the funds essentially.
So I think that's sort of an industry pattern, it's still a big business for us, and we still have significant revenue associated with that. But some of those volumes has declined, either the clients are trading less in funds or they might be going directly to the funds and not participating in the service any more.
This was 12b-1?
Yes, it's 12b-1 or others administration fees that they would share with us or give to us for the services that we provide.
Okay. Thank you.
Some banks are just deciding not to invest in funds with those kinds of shareholder servicing fees.
Thanks Joe.
Thanks.
Thank you. And next we'll go to the line of Glenn Greene with Oppenheimer. Please go ahead.
Thanks. Good afternoon, Joe.
Hi, Glenn.
Just a couple sort of just data points. Were you in terms of how many TRUST 3000 clients you have left and as you're reconstructing them, you mentioned a few recontracting this quarter. What's the average duration of these recontracts?
I think the average duration is about three years or so, three or four years and there's still a lot to recontract. So there's obviously some of the very large ones and there are still a decent number. We had about 90 or so clients and we still have a decent amount of those two. I'm sorry not to recontract, but we move to SWP.
So what I'm trying to get as – are you anywhere close to or where do you get to a tipping point where you can more aggressive with the existing TRUST 3000 where you sort of dissent send them to stay on TRUST 3000 if you known I mean or in some time to move to SWP?
Yes, I think where getting close to that. So the platform as very robust functionality for U.S. based trust departments. We have strong functionality there, and we have more maturity in the platform. So I think in almost every case with every contract, we lead with a move to SWP, and sometimes that depends on what else the client is trying to accomplish from a technology standpoint outside of our area, but we're – I’d say increasingly more, more aggressive about that.
Okay. And then just the final question, I don't know how you want to answer this. But given the Wells Fargo conversion to way, you obviously presumably have a hole on your sort of conversion backlog? What are you doing to sort of address that if I’m correct about the thesis?
Well, we're still working and we're still getting paid by Wells Fargo to implement the conversion. The conversion taking longer then we would have expected. So there are still significant amount of people working on that and we're getting – I think we're getting paid for that and in the meantime, we're trying to sell the still the rest of the pipeline and so there are – I guess eight or nine accounts, one of those accounts is Wells.
But the goal is to continue to sell more to utilize the resource that we have. But people are not sitting around waiting for work because some of these conversions are more complex than some of the original conversions. So we're working to get those done as fast as possible.
And for example, we announced I believe in the first quarter, a UK client for the platform and we converted them fairly quickly in the third quarter. So part of this is also trying to get things use the resource and experience we have to get things converted more quickly.
Okay. Thanks Joe.
Matriculate revenue more faster.
Yes, faster. Okay, thanks.
Thank you. And our next question comes from the line of Robert Lee with KBW. Please go ahead.
Okay, thanks and thanks for taking my follow-up. Joe, I guess I had a question on really the asset manager programs, I know a couple years ago that was pretty quickly growing kind of segment within the private – within your overall segment and notwithstanding some outflows – modest outflows this quarter. Can you maybe update us on kind of where – what's going on with that part of the business, I mean…?
Yes, as we've talked before it’s about a 30% of our business and we have some really solid distributors that have been good this year. The business is a little bit more non-U.S. than U.S. and we have strong teams now on the ground in the U.S. in Canada and in the UK. We have a good solid pipeline there. We're looking for big deals that will drive assets. We've signed some deals this year. But it does take you to take a little bit of time for those assets to matriculate.
So we signed sort of a deal with at headquarters level and then we've got to go in and train and get the sales force there promoting the solution. So I said the pipeline is solid. We've got some deal sign that we would expect funding to start to flow in and then we would calculate those as events as the assets actually matriculate into our funds.
And then maybe just one more follow-up if I could. Just – this goes back to, I guess I'll call it decommissioning TRUST 3000 to an earlier question. I mean, assuming it some point, when you're going to have to announce that you’re not going to support for past certain date and then assuming, unfortunately not everyone's going to go to SWP. So how much the lead time do you think you need to give clients and you kind of make that decision? Is it three years, two years? How do you kind of think of that in a way that in the…?
I mean it's not like some big event. I mean we're talking to all of our clients about the eventual take down of TRUST 3000. They are all aware of what our plans are, and certain clients would need more time than others based on the complexity of their business.
I think we've said on multiple calls though the firms that are interested have a strategy – a growth strategy are very interested in eventually moving to SWP. There are some smaller clients or older clients that trust and the services that we've provided have been sort of an – are now more of an accommodation to their client base as they have evolved their strategy over the years.
To some of those clients, we suspect might leave. We might want them to leave, but those are generally smaller ones that wouldn't take a long time to convert. But we're having these conversations with every client understanding their situation and ultimately understanding talking about the benefits to move to SWP and we expect that most will move, mostly one of them.
Okay. Thank you.
Thank you. And our next question comes from the line of Thomas McCrohan with Mizuho. Please go ahead.
Hey Joe. On the mutual fund trading revenue, can you quantify the impact this quarter and what kind of margins are you getting on that business? It sounds like there’s a low margin business, so I just want to confirm it.
Yes. It is a lower margin business and we were probably down about 15%.
Okay and then any thoughts on the trajectory of margins from here?
Obviously, we like to see sequentially better margins every quarter, but a quarter is a short period of time and different things happen in the quarter. But again, we are working hard to convert this backlog and to sell more and continue to build out the backlog, and the margins will improve as we get this backlog converted.
Okay. Thank you.
Thank you. And our next question comes from the line of Patrick O'Shaughnessy with Raymond James. Please go ahead.
Hi Patrick.
Hey, Joe. So we’re about a year into the Regions Bank install, any key takeaways that you would say that you've learned over that year and maybe anything that surprised you – or it's been different than what you had expected?
So it’s been a year, you’re right. We've just sort of been talking about the year, so the year, not celebration, but the year anniversary. I think that – we think that some of the buy – platform from front to back. From front to back is going to get the greatest benefit and value out of their relationship with SEI.
We were able to provide a really solid solution there on the private client side. They are one of our – well, they are our largest institutional trust user. So we had to build out some more services for them on the institutional trust side. And that includes some calculations and reporting in those kinds of things.
I think we're very proud of our progress in the first year. They are a referenceable client, in fact we just had a prospect and a very important prospects on the ground in Birmingham, a week or so ago. And so we're excited about how they're using the platform. We’re excited about the progress we've made. We're excited about how they've moved – how they've evolved their business, and they are referenceable and should be a help to us as we grow the business.
Great. Thank you.
Thanks.
[Operator Instructions] And there are no further questions in queue, please continue.
Thank you, Joe. Our next segment is Investment Advisors. Wayne Withrow will cover this segment. Wayne?
Thanks, Al. In the third quarter of 2018, we continued to grow our revenues and profits, while simultaneously making big strides in our migration to the SEI Wealth Platform. Third quarter revenues totaled almost $103 million. These revenues were $8 million better than the third quarter of last year. This increase was driven by market appreciation and positive net cash flow, offset in part by previously announced fee reductions in some of our investment products.
Expenses were up in the third quarter versus last year. The year-over-year increase was due to increased direct cost and personnel expense tied to our growth. As compared to the second quarter, expenses were relatively flat. The Q3 versus Q2 comparison benefited from there being some one-time expense items in the second quarter that did not repeat in the third quarter. Our profits grew $12.6 million from last year's third quarter and our margins improved 1.6%.
Assets under management were $67.1 billion at September 30, an increase of $1.8 billion from June 30. The increase was driven by both market appreciation and positive net cash flow. During the third quarter, our net cash flow was $324 million. During the quarter, we recruited 81 new advisers. Our pipeline of new advisers remains active.
With respect to the SEI Wealth Platform, we continued to work on the migration of our advisers. At the end of September, we migrated over 100,000 accounts and over $12 billion in assets. We now have 47,000 accounts and $4.7 billion in assets remaining on TRUST 3000 and continue on target to migrate these remaining assets on March 31 of next year.
While the completion of the migration is targeted for March 31, we will continue throughout 2019 to help our advisors benefit from the new features on the platform, especially its straight-through processing capabilities. In summary, the third quarter reflected our continued financial growth and solid progress in our migration to the SEI Wealth Platform. These items give us confidence in the long-term opportunity in front of us.
I now welcome any questions you have.
[Operator Instructions] And our first question comes from the line of Chris Donat with Sandler O'Neill. Please go ahead.
Hey, Wayne.
How are you doing?
Good. So one thing that surprised me a little bit this quarter as we saw your fee rate, as we calculated, tick up to 62 basis points from 61 basis points in the second quarter, and that's not something we see in a lot of places these days. So just wondering is there something in your mix shift or as you migrate clients to SWP that causes a little higher fee or something else going on. Just happy to see it Wayne, and make sure understand why it's going on?
Yes, I can't tell you I’ve a really good explanation. We get some – we slightly get a little platform fee, is just a lot of little things. I can’t tell you there’s one factor driving it.
Okay. But never like, no changes in your fees on the positive side, but more small things….
No, I wish it work.
Okay. That helps. Thanks.
Thank you. And our next question comes from the line of Robert Lee with KBW.
Good afternoon, Wayne. How are you?
Good Rob.
First question is really just kind of on the maybe investor behavior and environment. I mean, usually when you start getting to these kinds of environments, you start to see the risk of trade so to speak, advisors, clients, kind of try to take down the risk levels. Are you starting to see some of that or you kind of expecting as we kind of look ahead a little bit to start to see some that kind of filters through and if this, kind of this environment kind of stays in place for a little longer?
Yes, I don't know – we're seeing a lot of risk off. I mean, I think if you look year-over-year, I think our liquidity balances are higher percentage of our overall asset balances, and I think there’s a small migration for that as you recall risk off status. And I think this is a little – maybe a little more [accuracy on] announcements, people know what direction to go. But I haven't seen a major change yet.
Okay. And without maybe reading too much into any one quarter's flows, but last quarter or this quarter, you have seen some slowdown in inflows and kind of a number of advisors was still obviously growing, maybe a little slower pace and it's been a while was – is there anything maybe around that related to just client preferences or just one of those quarters were slow and just seen is there anything we should be thinking about kind of trend line.
I guess what I would say is I think, at the end of March and at the end of September, we had the two biggest migrations to-date, and when I look at the field force and service force. We are focused on getting these clients migrated and it is a little bit of a distraction.
Great, Thank you.
Thank you.
Thank you. And our next question comes from the line of Christ Shutler with William Blair. Please go ahead. Chris, your line is open.
Hey, Wayne.
Hey, Chris.
Hey, my questions were already answered. Thanks.
Thank you. And currently there are no further questions in queue.
Thank you, Wayne. Our next segment is the Institutional Investors segment. Paul Klauder will report on the segment. Paul?
Thanks, Al. Good afternoon, everyone. I'm going to discuss the financial results for the third quarter of 2018. Third quarter revenue is of $83.5 million, increased 4% compared to the second quarter of 2017. Third quarter operating profit of $43 million increased 6% compared to the third quarter of 2017. Both revenues and operating profits for the quarter were positively impacted by market appreciation, positive net client fundings and changes in asset-class diversification by our client base.
Quarter-end asset balances of $92 billion reflect a $1.2 billion decrease compared to the third quarter of 2017. This decrease is driven by lower, low fee liquidity balances, net client losses, but offset by positive market depreciation.
Net fundings for the quarter were a positive $450 million. The unfunded new client backlog at quarter-end was $450 million. New client signings for the quarter were $1 billion. This was primarily new clients in U.S. endowments and foundations, U.S. hospitals and UK Fiduciary Management.
Client events and revenue terms were strong due to the consumption of higher earning asset classes. Our sales pipeline is solid and growing and we continue to be aggressive in our pursuit of new business. We continue to believe that volatility in the financial markets would be a tailwind for new business as it would be a catalyst for investors that would evaluate their current investment program.
Thank you very much, and I'm happy to entertain any questions you may have.
[Operator Instructions] And currently there are no questions in queue. Please continue.
Thank you, Paul. And our final segment today is Investment Managers. I'm going to turn it over to Steve Meyer to discuss this segment. Steve?
Thanks, Al. Good afternoon, everyone. For the third quarter of 2018, revenues for the segment totaled $101.3 million, which was $10.3 million or 11.3% higher as compared to our revenue in the third quarter of 2017. This year-over-year revenue increase was due to net new client fundings and market appreciation. Our quarterly profit for this segment of $363 million was $4.8 million or 15.4% higher as compared to the third quarter of 2017.
Third-party asset balances at the end of the third quarter of 2018 were $552.4 billion, approximately $29.7 billion or 5% higher as compared to the asset balances at the end of the second quarter of 2018. This increase in assets was primarily due to net new client fundings of $22.7 billion, a market appreciation of $7 billion.
And turning to market activity, during the third quarter of 2018, we have our strongest sales quarter this year with net new business events totaling $15 million in recurring revenues as well as recontract of $8.5 million on recurring revenues
Most importantly, these sales were diverse and expand our entire business and include both new-name business and increased wallet share with current clients. These events included expansion of our business with several large enterprise clients. The win of traditional manager and the servicing of the mutual fund family, which was one in a competitive process and the win of a large new family office servicing mandates.
From a marketing standpoint, we continue to see the dynamics of the industry changing. From the demands of investors, the fee compression in the industry, the new evolving needs of Investment Managers globally, all creates some level of disruption. We feel strongly that this disruption presents an opportunity for continued growth for us. Strategically, we continue to feel well positioned. That concludes my prepared remarks and I’ll now turn it over for any questions you may have.
And we have a question from the line of Robert Lee with KBW.
Hey, good afternoon, Steve.
Good afternoon, Rob.
I'm just curious, I mean well in the past when they have been – when there's been M&A and transactions in the industry, you generally viewed that as an opportunity to get some new clients, and states would obviously just did a larger acquisition, I guess with Charles River. And then I mean does that create any kind of potential disruption that you could benefit from? Is it too early to tell? I mean, how do you think of that?
Well, I think that specific transaction and then there was another purchase of front office system, I think it’s too early to say. But I’d say any type of M&A activities, especially in regards to change the focus of the acquired present some disruption in the market now obviously, [presents] opportunity for us.
Okay. And since I have asked my typical question every quarter, can you maybe just update us on kind of your backlog and how you think of that funding over the coming year or so?
Sure. So our backlog going into the quarter was $44.7 million. Our backlog coming out was $44.9 million. What you should take from that is, we sold 15. At the end of the day, we matriculated in around 15, so we had decent funding this quarter from the backlog. When I look at the backlog, it’s very diverse from our alternative business traditional. It might have a slight edge more in the alternative side. And I believe the majority of that will fund over the next 12 to 14 months.
Great. Thank you.
Sure.
Thank you. And our next question comes from the line of Josh Schwartz with CJE Investments. Please go ahead.
Hi, I'm looking at sort of more rapid growth of this segment and I'm just wondering is this a market share win for the Company? Or is the industry growing out quicker?
Well, I think the industry is growing, Josh, but certainly I think we're winning a good bit of the market right now and we've been doing that for a decent period of time. But the industry is expanding, there are new manager starting even though you see shrinking in some segments. But I think clearly from our standpoint, we're moving more upstream we've start to do that two years or so ago and we continue to do that.
Okay. And what are the fee basis points looking like in the segment? Is there a compression or is it stabilizing.
Well, I think there is pressure from – if you look at the pressures, which – I mentioned in my – there's pressure at the manager level and their products, and that certainly works the way down to their partners, including the areas we service. I think though we pride ourselves on having not a commoditized offering, but a premium offering, and I think we've been able to battle that fee compression with increase service and kind of a premium service level.
But it is something out there. There will be continued pressure. Again, I view it a little bit as a tailwind for us, because I think the more pressure on the managers in this segment, the investment managers is requiring them to really look at their business models and looking how they scale their internal business and operations, and that presents an opportunity for them now to outsource more.
Okay. Great. Thank you.
Sure.
And there are no further questions in queue, please continue.
Thank you, Steve. And I’d now like to turn it over to Kathy Heilig to give you a few company-wide statistics. Kathy?
Thanks Al. Good afternoon, everyone. I have some additional corporate information about this quarter. Third quarter 2018 cash flow from operations was $155 million or $0.96 per share, bringing year-to-date cash flow from operations to $417.9 million or $2.58 per share. Our third quarter free cash flow was $137.3 million, and year-to-date free cash flow was $362.9 million.
The capital expenditures for the third quarter excluding capitalized software were $9 million and that did include about $3 million of facility, expansion, year-to-date capital expenditures, again excluding capitalized software were $21.7 million was about $5 million of facility expansion costs in there, and we project the capital expenditures for the fourth quarter excluding capitalized software to be $15 million, but – and about $10 million of that does relate to the facility.
As we noted in the earnings release, the tax rate was 18.6%, that’s due to combination of the Tax Act and tax benefit option exercises and our effective tax rate could fluctuate as a result. We also would like to remind you that many of our comments are forward-looking statements and are based upon assumptions that involve risk and that the financial information presented in our release and on this call is unaudited.
Our forward-looking statements include our expectations as to the revenue that we believe will be generated by sales events that occurred during the quarter. The timing and scope of client implementations and our ability to capitalize on our strategy. And also market conditions that will create opportunities for us to grow our business.
Although we believe these assumptions upon which we base our forward-looking statements are reasonable they can be inaccurate. Some of the risk and important factors that could cause actual results to differ from those described in our forward-looking statements can be found in the risk factor section of our Annual Report, Form 10-K for the year ended December 31, 2017, which we have filed with the Securities and Exchange Commission.
Now please feel free to ask any further questions.
End of Q&A
[Operator Instructions] And there are no questions in queue. Please continue.
Thank you, Kathy. So ladies and gentlemen, I am encouraged by the direction our businesses are taking and the progress we’re making. While we face short-term headwinds, we believe that the investments we are making will help us identify a benefit from all the changes taking place in our industry. Have a good day, and thank you for attending our call.
Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you very much for your participation. You may now disconnect.