Oct 25, 2007
Executives
Al West - Chairman and CEO Dennis McGonigle - CFO Joe Ujobai - EVP Wayne Withrow - EVP Ed Loughlin - EVP Steve Meyer - EVP Kathy Heilig - Controller
Analysts
Terry Babe - ThinkEquity Partners Robert Lee - KBW Tom McCrohan - Janney Montgomery
Operator
Good day, ladies and gentlemen,and welcome to today's SEI Investments third quarter Earnings Call. (OperatorInstructions).
Now it is now my pleasure to announce your host Al West,Chairman and CEO.
Al West
Welcome, everybody, and goodafternoon. All of our segment leaders are here on the call, as well as DennisMcGonigle, SEI's CFO and Kathy Heilig, SEI's Controller.
I will start by recapping thethird quarter of 2007. I will then turn it over to Dennis first to cover LSVand the Investments in New Business segment and then cover a few financialmatters.
After that, each of the businesssegment leaders will comment on the results of their segments. And thenfinally, Kathy Heilig will provide you with some important company-widestatistics.
Then as usual, we will field questions at the end of each report. So let me start with the thirdquarter.
Third quarter earnings grew 21% from a year ago on a revenue growth of17%. Diluted earnings per share for the second quarter of $0.37 representsgrowth of 23% over the $0.30 reported for the third quarter of 2006.
Revenuegrowth for the quarter was a result of higher assets under management and feesfrom new clients across all of our major segments. Our non-cash asset balances grewby $3 billion during the quarter.
This growth was due to both cash flow andmarket appreciation. During the quarter, SEI's assetsunder management grew by $4.9 billion and LSV's assets under management fell by$1.9 billion.
And a global 60/40 portfolio was up 2.4% during the quarter. Alsoduring the quarter we repurchased 2,285,000 shares of stock at an average priceof just under $26 per share.
And that translates to 59 million of stockrepurchases. As I've mentioned many timesbefore, we're satisfied with these results, but we look at the results in lightof a longer journey in transforming our company.
The transformation is allunderway, and each one of our segments has a reinvented business model thatthey are employing and receiving good market acceptance. Now you hear in each of oursegment reports about how this is translated into new business during thequarter.
Now under-guarding the transformation are a number of interrelatedinvestments. Three notable ones are; first, as part of our new solutions foreach market, we're building new client processes in each one of the markets.And second, we are investing in the Global Wealth Platform, the technology thatis behind many of our transformation efforts.
And third, we're building theoperational and service infrastructure necessary to handle clients all over theworld on the new platform. Now the status of our largestinvestment, the Global Wealth Platform, continues to be on track.
During thesecond quarter, this year we capitalized $14.5 million of a Global WealthPlatform development, and we expect the quarterly capitalization to remain forawhile approximately in this range. The operation of HSBC'sLondon-based Private Bank, which we converted to the platform late in thesecond quarter, has gone as expected and serves as a proof statement to other UK andEuropean Private Banks.
Our market and sales activity in the UK and Europecontinue to be brisk, and Joe Ujobai will speak to our pipeline. US functionality will not bedelivered until the second half of next year, but we're ramping up ourmarketing efforts in anticipation of being able to convert US banks to theplatform.
And we are pleased with the progress we have made throughout, and theearly successes we have had with our platform bodes well for our UK andEuropean private banking marketing efforts. It gives us further confidencethat our investments will help us transform our company given us even largermarkets to grow within and providing exciting new solutions to deliver to ourmarkets.
Now rest assured, we will continue to work hard in the short run tocontrol costs and to steadily grow revenues and profits. And in the longer run,we're firm in our belief that we are on the right path to more rapidly growfuture revenues and profits.
Now this concludes my remarks, soI will now ask Dennis McGonigle to give you an update on LSV and the Investmentin New Business segment and to cover some company financial issues. And after that, I will turn itover to the other four business segment heads.
Dennis?
Dennis McGonigle
Thanks Al. I will briefly coverthe third quarter results for the Investments in New Business and LSV segments.As a reminder, efforts in the Investments in New Business segment are focusedon direct to market to ultra and high net worth investors.
During the quarter, theInvestments in New Business segment generated a loss of $3.1 million. Thiscompares to a loss of $4.2 million for the third quarter of 2006.
The efforts in this segmentcontinue to be centered on learning, developing and delivering our life andwealth services to the ultra and high net worth segment. The learning we gainand the services we develop from this process will then be leveraged ifapplicable to other asset distribution units in the company.
As you know, SEI historically hasused the Investments in New Business segment as an incubator for newinitiatives. We view the losses in this segment as an investment in futuremarket opportunities and/or services.
You can expect losses in this segment tocontinue. I will now turn to LSV.
Wecontinue to own approximately 43% of LSV Asset Management. LSV given marketvolatility had a good quarter of financial performance.
Earnings contributionto SEI from LSV was approximately $34.5 million in the third quarter of 2007.This compares to a contribution of $29.1 million in the third quarter of 2006.This year-over-year increase was due to growth in assets, primarily from marketappreciation, which drove both revenue and profit growth. As we have discussed in the past,most of LSV's funds are closed to new investors.
This year-over-year growth hascome within that framework. During the third quarter, LSV'snet assets shrank approximately $1.9 million compared to second quarter.
Thiswas primarily a result of market depreciation. Revenues from LSV for the quarterwere approximately $90.6 million.
This compares to revenues of $75.1 million inthe third quarter of 2006. On SEI's balance sheet of ourreported cash and short-term investments of approximately $297 million, $88million is attributable to LSV at September 30, 2007.
Of our reportedreceivables of $283 million, $98 million were attributable to LSV. Liabilitieswere affected by the debt associated with our guarantee to the LSV employeegroup.
This is reflected in both current liabilities approximately $8 millionand long-term debt of approximately $50 million. In addition to the report on LSVand the Investments in New Business segment, I want to cover two other items.As mentioned earlier, we have gone live with our Global Wealth Platform at theend of the second quarter of 2007.
As a result, we have begun toamortize the two-date capitalized costs associated with its development. We areamortizing the cost over 15 years.
The amortization expense increase for thirdquarter incurred by bringing the platform live was approximately $3.2 million. In addition, our tax rate for thethird quarter was approximately 34% compared to 32% for the year ago quarterand 38% for the second quarter of 2007.
Thanks for your attention. I willnow answer any questions you may have.
Operator
(Operator Instructions). We doshow one question coming from the phone from Terry Babe from ThinkEquityPartners.
Terry Babe - ThinkEquity Partners
Good afternoon, Dennis.
Dennis McGonigle
Hi, Terry. How are you?
Terry Babe - ThinkEquity Partners
Doing well. Just a question onLSV.
Can you talk about the new product pipeline for LSV and any potentialtiming for new products?
Dennis McGonigle
Generally speaking I guess it issafe to say they are not -- I don't know if they have anything imminent interms of new products come in to market. They do look at new ideas on how toexpand their current capabilities across other market capitalizations or newmarket entry.
But I can't say they have anything that is imminent coming tomarket.
Terry Babe - ThinkEquity Partners
Okay. That's all I had.
Dennis McGonigle
.
Operator
Thank you once again. (OperatorInstructions).
And next question comes from Robert Lee from KBW.
Robert Lee - KBW
Thanks. Good afternoon Dennis.
Dennis McGonigle
Hi Rob.
Robert Lee - KBW
Two quick questions for you. Thetax rate, should we -- is there something one-time in the quarter that made itdip down, or is this something we should be thinking of the go forward taxrate?
Dennis McGonigle
Future like fourth quarter ratewe would expect to kick on the back in line with second quarter's rate, andthat is somewhere around 37, 38%. The dip down this quarter is -- third quarteris a typically a statutory expiration quarter.
So we do get occasionally somepickup when the statute runs down on different filing years. And also some ofour tax planning we were able to pick up the benefit on some foreign losses.
Robert Lee - KBW
Okay. And second question is onactually share repurchases.
You had a pretty healthy share repurchase in thequarter, and I guess it was yesterday or the day before, you upped yourauthorization, and it was a little bit larger than you normally do. Usually Iguess you do it in $50 million chunks, and this time you did it in a $100million chunk.
I'm reading too much into it to think that maybe there's somekind of sign that you have reached the plateau or peak in terms of your capitalneeds and if you feel more comfortable stepping up your share buyback? Or am Ireading too much into that?
Dennis McGonigle
I guess you probably read alittle bit too much into that. Certainly our share buyback over the past coupleof years has been heavier than prior 10 or 15 years of the program.
Part of itwas the timing of Board meetings and authorization, and we just wanted to makesure that the market did present some opportunities for buyback. We had theauthority to go ahead and do that.
Robert Lee - KBW
Okay. Great.
That was it. Thankyou.
Dennis McGonigle
Alright. You are welcome.
Operator
And we show another questioncoming from Tom McCrohan from Janney Montgomery.
Tom McCrohan - Janney Montgomery
Hi, Dennis. Can you mention thecash on your balance sheet that was LSV's portion of the $297 million?
I missedthat.
Dennis McGonigle
Sure. Tom, how are you anyway.
Itis $88 million.
Tom McCrohan - Janney Montgomery
$88 million. Thank you.
Do youdisclose or have any information on inflow, net inflows ex-market appreciationfor LSV?
Dennis McGonigle
We haven't disclosed thatspecifically historically. But again, in terms of the -- given the fact thatmost of their products are closer to money, again most of their market -- mostof their asset changes are typically due to market movement at this point.
Tom McCrohan - Janney Montgomery
You have mentioned in the pastthere is no leverage in that fund. Is it all equity, all pan-equity?
Dennis McGonigle
Long value equity.
Tom McCrohan - Janney Montgomery
It is all long value. There's nofixed-income stuff in LSV?
Dennis McGonigle
Not that I'm aware of.
Tom McCrohan - Janney Montgomery
Thanks.
Dennis McGonigle
Okay.
Operator
Thank you. I'm showing no furtherquestions at this time.
Presentation
Al West
Thank you. I'm now going to turnit over to Joe Ujobai to discuss Private Banking segment.
Joe Ujobai
Thank you, Al. During thequarter, we continue to make good progress towards the commercial expansion ofour Global Wealth Services solution.
As a financial update, revenue of justover $104 million grew by 11% from the year ago quarter. Revenue growth was due to a net increase inassets under management from distribution partners primarily in non-US markets,as well as an increase in recurring fees in our investment processing businessboth in the US and the UK.
Profit declined from the year agoquarter by approximately 5% to $21.4 million due to an $11.3 million increasein expenses. Increased expenses were primarily due to direct costs associatedwith asset management and the costs associated with the continued build-out anddeployment of the Global Wealth Platform.
This segment accounts for themajority of the overall expense of the platform. Margin for the quarter was 20.6%,a slight improvement from the previous quarter.
As I had mentioned duringrecent calls, we expect to have continued pressure on margins in this segmentas we launch global wealth services in Europe and in the US. Longer-term we expect strongmargins as we're making significant investments to grow and scale our privatebanking business.
Net new sales events for thequarter were approximately $6.2 million. With the successful conversion of ourfirst external client to the Global Wealth Platform, we're ramping up salesactivities for our Global Wealth Services solution.
As a reminder, GlobalWealth Services is the business solution designed to help our clients growrevenue, reduce cost and risks and redeploy their resources. Underpinning the Global WealthServices solution is our new investment processing platform and ourmulti-manager investment offering.
On the investment processing side, wecontinue to build the pipeline and are engaged with wealth managers in the UK and now in the US. The market has closely watchedour progress with the first client who are seeing increased interest in oursolution.
We are focused on closingadditional business in the UKand are confident about our worldwide market opportunity. Development continueson the platform.
In fact, this week we have an important release designed tosupport compliance with the new European [miffed] regulation. In US, I'm happy to report twosignificant transactions within the Investment Processing business.
M&TBank, a large ASP client since 2001, has signed a multiyear extension to ourrelationship. I'm also pleased to announce that we have retained the Mellonbusiness and have begun the conversion of BoNY's personal trust clients to theTrust 3000 platform.
Although we will process bothM&T and BoNY-Mellon on Trust 3000, these commitments from important USclients were based on SEI's strategic Global Wealth Services vision. While we are building out theinvestment processing pipeline, we're making good progress with the growth ofour worldwide investment management business.
Average assets under managementnow totaled $21.6 billion, an increase of 46% from the year ago quarter. Through the third quarter of thisyear, net new assets totaled approximately $3.8 billion with a total increasein assets under management of approximately $5 billion due to the new assets,market appreciation and currency movement.
Investment management is anincreasingly important revenue driver of the Private Banking business. During the quarter we announced adistribution agreement with Standard Life, a major UK headquartered financial servicescompany.
Standard Life will give us access to some of the largest privateclient managers in the UK. In US, we have increasedinvestment management sales activities, and we're seeing some early adoption ofour investment solution.
In summary, SEI's Global WealthServices solution will provide the strategic infrastructure to help privatebanks grow and keep pace with a rapidly changing wealth management industry.The Global Wealth Platform will enable us to significantly grow our business inthe coming years. During the third quarter, we made good progress towards thelaunch of our strategy.
Any questions?
Operator
(Operator Instructions). And I amshowing our first question coming from Tom McCrohan from Janney Montgomery.
Tom McCrohan - Janney Montgomery
Hi, Joe. The Mellon business, wasMellon a legacy trust client and you converted the BoNY piece or vice versa?
Joe Ujobai
Mellon has been a client since Ithink about 2000, and they, as you know, were acquired by the Bank of New York.And so we're adding the BoNY accounts to the Trust 3000 platform.
Tom McCrohan - Janney Montgomery
And when is that going to startbeing evidenced in the numbers? When will that be converted?
Joe Ujobai
The recurring revenue would startduring the third quarter of 2008, but we have begun the conversion.
Tom McCrohan - Janney Montgomery
Great. Congratulations on thatwin.
Can you quantify that for us in revenue terms?
Joe Ujobai
No, we would never give youspecific information about any one account. It would roughly be adding a smallto mid-sized ASP client.
Tom McCrohan - Janney Montgomery
Okay. And when you disclosed thenet new sales number for this quarter, the 6.2 million net new sales, so thatmetric pertains to the assets you gather through your third-party distributors?
Joe Ujobai
Yes, as well as additionalrevenue in the investment processing space.
Tom McCrohan - Janney Montgomery
Okay. So what was the net new AUMthrough the non USdistributors for this quarter?
Joe Ujobai
It was about -- if you will holdon one second here. New business was about -- I think it was $800 million, andmarket movement was about $300 million, so for a total of $1.2 billion.
Tom McCrohan - Janney Montgomery
Great. Thank you Joe.
Joe Ujobai
Thanks.
Operator
Thank you sir. Our next questioncomes from Robert Lee from KBW.
Robert Lee - KBW
Hi. Good afternoon Joe.
Joe Ujobai
Hi Rob.
Robert Lee - KBW
Just have a follow-up question onthe new business. I'm just curious with the M&T Bank, the multiyearextension, I mean is there a net revenue pickup in that or sort of same termsas before?
But you obviously extended it a few more years.
Joe Ujobai
Yes, we did and we're hoping toadd some additional products to that relationship. And so we're not expecting asignificant change in revenue from the M&T relationship.
Robert Lee - KBW
Maybe a follow-up, and I guessyou hinted at it a little bit, but the fact that M&T signed up again andyou were converting BoNY, is there some understanding that somewhere down theroad that they will ultimately convert to the new platform?
Joe Ujobai
I think the US market is very interested inwhat we have built and are making decisions based on our strategic vision inaddition to the good quality service that we provide to them today.
Robert Lee - KBW
Okay. Thank you.
Joe Ujobai
Thanks.
Operator
Thank you. Our next questioncomes from Terry Babe from ThinkEquity Partners.
Terry Babe - ThinkEquity Partners
Good afternoon Joe. Just on theGlobal Wealth initiative in Europe, I know thepipelines are strong, and the timing is pretty long on these conversations.
Butany expectations of signing some new deals or announcing new deals before youare under or just anything around timing you can share?
Joe Ujobai
Yes, it is really hard to predictthe timing of these things. As I said, the market looked very closely andwatched very closely the conversion of our first client.
As we've mentioned,that has gone as expected. And so we are seeing increased interest on the partof some of our prospects.
You will be the first to know when we announce thenew names.
Terry Babe - ThinkEquity Partners
Okay. And then on margins,margins appeared pretty strong.
A nice uptick sequentially and better than Iexpected despite some of the amortized costs running through the P&L. Iknow they will bounce around and be variable, but any thoughts on near-termtrends with those margins?
Joe Ujobai
Yes, I think the thoughts on thenear-term trends are we will continue to bounce around over the coming quartersas we ramp up sales and marketing efforts and we install additional clients.
Terry Babe - ThinkEquity Partners
Great. Thanks.
Joe Ujobai
Thanks.
Operator
I'm showing no further questionsat this time.
Presentation
Al West
Thank you, Joe. Our next segmentis Investment Advisors, and Wayne Withrow will cover this segment.
Wayne?
Wayne Withrow
Thanks Al. Revenues for the thirdquarter increased 19% from the year ago period.
This growth was primarilydriven by an increase in average assets under management to $40.6 billioncompared with $35.1 billion in the year ago period. Quarter-end assets undermanagement increased $1 billion with $300 million coming from net cash flow andthe balance being attributable to market appreciation.
Cash receipts for the quartertotaled $1.8 billion, and redemptions totaled approximately $1.5 billion. Forthe first nine months of the year, net cash flow totaled $1.1 billion comparedwith $200 million in the first nine months of 2006.
Profits for the quarter increased25% from the year ago period. Strong revenue growth offset in part by increasedexpenses associated with our Global Wealth Platform and our investmentmanagement function was the primary driver of this increase.
While the third quarter markedanother record for revenues and profits, I am more excited about the progresswe are making in the execution of our growth strategy. Growth cash flow fromour existing advisors continues to grow as evidenced by our year-to-date grosscash flow receipts of $5.8 billion, which represents almost $1 billionimprovement from last year.
Our pipeline of high quality newadvisors also remained stronger than it has been in years. Perhaps moreimportantly, new product initiatives continue and should contribute to ourmomentum.
For example, we have launched our new proposal tool and in the thirdquarter completed the rollout to over 1,000 advisors. This month we officiallylaunched our new distribution focused investment solutions or DFS for short.
Weare currently in the middle of a 32-city roadshow discussing our completeproduct offering and featuring both DFS and the proposal tool. Current market feedback for bothof these solutions from these roadshows is very positive.
If you remember, weoffer a total business solution which includes both the operationsinfrastructure advisor's need for their internal operations, as well asworld-class investment solutions for advisors to offer to their clients. Thesetwo new products represent progress on both fronts.
In summary, our financial resultshave been good, and we continue to build momentum for our future growth. I willnow entertain any questions.
Operator
(Operator Instructions). And I amshowing, we have another question coming from Tom McCrohan from JanneyMontgomery.
Tom McCrohan - Janney Montgomery
Hi, Wayne. Can you talk to thenumber of registered investment advisors that are currently clients?
And isgrowth going to be coming from selling new registered investment advisors, orare you looking more to kind of just penetrate the current base of clients thatyou have today?
Wayne Withrow
Tom, I think both of thosestrategies are critically important to this unit. To give you a metric, as Ilook at the unit this year throughout our planning process, we projected goinginto the year that about 20% to 25% of that growth would come from newadvisors.
But it is vitally important that we continue to grow our existingadvisor base. And our focus when recruiting new advisors is recruit advisorsthat have the potential to grow.
So, the focus is on both. But new recruitingefforts are focused on those that can continue to grow after we sign them inthe initial year.
Tom McCrohan - Janney Montgomery
And can you talk a little bitabout the competitive environment, particularly some of the larger firms outthere. Fidelity this week announced some new platform called Wealth Central.I'm sure you are much more familiar with it than I am.
But if you can just talkabout the competitive environment. It seems like a lot of players are goingafter the space and where you guys are differentiated and what gives youconviction in your ability to meet your objectives this year.
Wayne Withrow
The big difference between us andFidelity and us and Fidelity and Schwab and TD Waterhouse is they are an openarchitecture primarily custody provider, tool provider, giving them access, ifyou will, to kind of the world of investments. We're a total business solution.So, we take over the middle office operations for an advisor.
They run on ourtechnology platform. We build investment products that they add to ourmanager's program which they distribute.
So, we're a total business solution.And that makes us really completely different from Fidelity. If you chooseFidelity, you are choosing a different way to do business than a total turnkeyoutsource solution, which is the SEI value proposition.
Tom McCrohan - Janney Montgomery
Okay. Fair enough.
Thanks Wayne.
Operator
Thank you. I'm showing no furtherquestions.
Presentation
Al West
Our next segment is theInstitutional Investors segment, and I'm going to turn it over to Ed Loughlinto discuss this segment. Ed?
Ed Loughlin
Thanks, Al. Good afternoon,everyone.
As usual, I will speak to the financial results for the third quarterof 2007 compared to the year ago period, and I'm also going to touch onworldwide institutional sales activity. The financial results for thequarter continue to show significant growth compared to the year ago period.For the quarter revenues of $51 million increased 22% and profits of $20million increased 36% compared to the third quarter of 2006.
Revenue and profitgrowth for the period were fueled by strong new client funding and positivecapital markets. Margins for this segment were40%, representing a 5 percentage point increase over the year ago period.Quarter-end balances approaching $49 billion reflect the $9 billion increasecompared to the third quarter of 2006 and a $2.8 billion increase from thesecond quarter of 2007.
Net new client funding for the quarter was $730million. And the backlog of committed but unfunded sales grew to $2.7 billionat the end of the quarter.
We would anticipate that the backlog will be fundedby year-end. Sales activity worldwide was alsostrong with new client signings for the third quarter totaling $2.4 billion.
Weremain encouraged by the asset size and also the number of prospects that weare actively pursuing globally. Worldwide pension funding and accounting reformhas really made pension management more complex and can negatively impactclient's business results.
SEI's pension and corporatefinance modeling and advice capability has global applicability and enablesplan sponsors and trustees to carry out their fiduciary obligations. SEI'sPensionConnect also provides a consistent leverageable platform for globalcompanies to simplify worldwide pension management with a single globalpartner.
This concludes my preparedremarks, and I'm happy to entertain any questions that you may have.
Operator
(Operator Instructions). And I amshowing one question coming from Robert Lee from KBW.
Robert Lee - KBW
Hi, Ed. How are you?
Ed Loughlin
Hey, Rob. How are you?
Robert Lee - KBW
Pretty good, thanks. I have aquestion on the margin.
It's been in a fairly steadily marching upwards if Ilook at it sequentially year-over-year. How should I think about the ability tocontinue to expand margins here?
And does this segment have the potential toreach margins similar to what Waynehas in the Investment Advisors business?
Ed Loughlin
I don't think I could ever reachwhat my colleague Waynehas achieved in this lifetime here. I think we have touched on this before, butI think the fact that we have globalized the business and we have put thebusiness together.
I think we see a lot of leverage in what we are offering tomeet clients' needs around the world. I think that really what you'reseeing is that we're having a lot of market acceptance for that.
So, thetop-line revenue continues to grow. And that is what is really helping to fuelthese margin increases.
You know we don't really forecast things going forward.But we are always looking to see what we can do to improve the financials forthe unit.
Robert Lee - KBW
So, I will take that as a yes,there is some potential.
Ed Loughlin
I think you should ask Wayne.
Robert Lee - KBW
Thanks.
Operator
(Operator Instructions). Thereare no further questions at this time.
Presentation
Al West
Thank you, Ed and Wayne. Ourfinal segment today is Investment Managers, and I'm going to turn it over toSteve Meyer to discuss this segment.
Steve?
Steve Meyer
Thank you, Al. Good afternoon,everyone.
As I usually do, I will first give an overview of the financialresults for the quarter and then give a brief update on our strategic progress. For the third quarter, theInvestment Managers segment continued to grow in both revenue and profit.Specifically for the third quarter, revenues for this segment totaled $35.8million, a $6 million or 20% increase compared to the third quarter of 2006.This growth was due primarily to new client fundings and existing clientgrowth.
Our quarterly profit of $10.4 million was up approximately 35.5% fromthe same quarter in 2006. Third-party asset balances at the end of the thirdquarter of 2007 were $205.3 billion compared to a $161 billion at the end ofthe third quarter of 2006.
This also represents an increase of $12.4 billion inassets from the second quarter of this year. Quarter-over-quarter,approximately $10.9 billion of this increase is attributable to additional net clientfundings, and $1.5 billion is due to market appreciation.
In the third quarter of 2007, wehad an exceptionally strong new business development quarter with new businesssales events totaling approximately $15 million in annualized revenue. Whilethis is a new record for this segment, and we are pleased with thisaccomplishment, we are even more pleased with the continued market acceptanceof our solutions that this represents.
Also of added importance is thefact that all of our solutions are represented in this number. While our hedgesolution was the majority of the quarter's events, we also had events in all ofour other solutions, as well as adding another total operational outsourcingclient.
Additionally four of these events were from our European-based salesefforts and marked continued progress on our plan to grow our businessglobally. In addition to strong newbusiness events for the quarter, we also had a strong recontracting quarter, inwhich we recontracted over $8 million of revenue from existing clients.
On a slight down note, wereceived notice from two of our clients that they would not be renewing theircontract with us at the end of this year. If you recall from the second quarterearnings call, I mentioned that we felt we might have some challengesrecontracting some of our legacy clients, whose focus was on a different valueproposition than ours.
While these two losses may putsome downward pressure on top-line and bottom-line growth in early 2008, as weabsorb the loss and convert in our new business, we feel that with our strongnew business momentum and continued growth we have, in effect, replaced thisrevenue and feel confident that we will grow through these losses in 2008. From a strategic view, we remainon track and make continued progress.
From a market standpoint, all newbusiness we acquire, we do so with an eye towards our strategy providing totaloperational outsourcing and the ability to transition to that higher valueproposition model. Additionally, we now have several clients up and running onin our I/O solution set and continue to execute on this model as we build andinvest for our future.
In summary, we continue toexecute on our strategic direction, we continue to have strong marketacceptance of our solutions, and we continue to focus on and execute on ourclients' emerging needs. The pipeline of new businessremained strong, and I remained very encouraged on the future outlook of ourbusiness.
I will now turn it over for anyquestions you may have.
Operator
(Operator Instructions). And I amshowing another question coming from Robert Lee, from KBW.
Robert Lee - KBW
Thanks. Hi, Steve.
Steve Meyer
Hi, Rob.
Robert Lee - KBW
I promise I will save you fromthe margin question, so I will ask you something else. I'm just curious, youhave had a couple -- there have been a couple of mergers among yourcompetitors.
Are you seeing any of the pickup in new business related to somefallout from those?
Steve Meyer
Yeah. And I think we've gone overthis couple of times.
We don't see a huge disruption because I do think it isstill early in the process, although we are seeing certainly some people whoare opting out of a new merged entity that they would rather not stay with. I thinkit comes more fundamentally down to what clients want.
What is the valueproposition they are looking for? Are they looking for something that's bigger,maybe more focused on the commodity end of the market or something that isdriven more towards helping them grow and succeed?
Robert Lee - KBW
And I am just curious with thetwo clients that have announced that they are not going to be re-signing withyou, when you talk about them not signing for your value proposition, was itthat they are going somewhere else that was mainly price driven or cost driven?
Steve Meyer
I think, and we have talked aboutthis before in previous quarters, specifically these two clients I think theirfocus is on really getting a level of service for the lowest price, and that'snot really where our value proposition is. So, when you look at that, I thinkit is very tough to look at a long-term relationship when you know your valuepropositions don't match up.
So, I think more than anything, we grew apart inthese two relationships.
Operator
Okay, that was it. Thank you.(Operator Instructions).
There are no further questions.
Presentation
Al West
Thank you, Steve. And I wouldlike now to turn it over to Kathy Heilig to give you a few company-widestatistics.
Kathy?
Kathy Heilig
Thanks, Al. Good afternoon,everyone.
I have some additional corporate information about this quarter. Third quarter cash flow fromoperations was $132.5 million or $0.66 per share.
Third quarter free cash flowwas $100 million or $0.50 per share, and year-to-date cash flow from operations$265.9 million. Third quarter capital expenditures, excluding capitalizedsoftware, $7.2 million, which did include $3.2 million for our new facilitywhich is now completed.
Capital expenditures for the fourth quarter we wouldexpect to be between $5 million to $6 million. Again, that's excludingcapitalized software.
The Accounts Payable balance at9/30 was $12.6 million. Stock-based compensation for the third quarter was $7million, and the stock-based compensation estimate for this year is around $27million.
We would also like to remind youthat many of our comments are forward-looking statements and are based uponassumptions that involve risks and that the financial information presented inour release and on this call is unaudited. Future revenues and incomes coulddiffer from expected results.
We have no obligation to publicly update orcorrect any statements herein as a result of future developments. You shouldrefer to our periodic SEC filings for a description of various risks anduncertainties that could affect our future financial results.
And now please feel free to askany other questions that you may have.
Operator
(Operator Instructions). I showno questions at this time.
Presentation
Al West Thank you, Kathy. So, ladies andgentlemen, we continue to be excited about what we're building.
We areexecuting our transformation and look forward to delivering the potential thatwe believe is there. And I would like to leave you with three things.
First, market acceptance of ournew solutions continues to encourage us that our strategies are on the rightpath. Second, our progress on ourtransformation has been steady, and while we have a lot to do yet, we aremaking important strides in our journey to transform our businesses.
And third, our new solutions andstrategies, our recurring revenue model, our strong cash flow and ouroperational leverage, as well as our portfolio of markets, all serve to supportour goal of creating long-term sustainable growth in revenues and profits. And finally, we are in thebusiness solutions business.
Our clients do business with us because we'rehelping them to succeed, by making their businesses and their lives better.That's a very high value-added proposition, and it differentiates us from ourcompetition, and we believe it will serve us well in the future. So, before we sign-off, we willgive you one more chance to ask anything that might have come to you.
Operator
(Operator Instructions). And Ishow no questions.
Al West
Thank you all very much forjoining us and good afternoon.
Operator
Ladies and gentlemen, this doesconclude your conference for today. As a reminder, this conference will be availablefor replay after 9:00 PM Eastern today through December 25, 2007.
You mayaccess the AT&T Teleconference Replay System at any time by dialing1-800-475-6701 and entering the access code 889135. International participantsdial 320-365-3844.
Those numbers again are 1-800-475-6701 and 320-365-3844,access code 889135. That does conclude our conferencefor today.
Thank you for your participation and for using AT&T ExecutiveTeleconference. You may now disconnect.