SEI Investments Company 2022 Form 10-K Summary
Business context and reporting period
SEI Investments Company provides technology, investment processing, operations, and asset-management solutions to banks, wealth managers, investment managers, institutional investors, financial advisors, and ultra-high-net-worth families. The filing covers the fiscal year ended December 31, 2022, with comparisons to 2021 and 2020. SEI managed, advised, or administered approximately $1.2 trillion of assets at year-end and employed 4,805 full-time and 32 part-time employees as of January 31, 2023.
The company operates through Private Banks, Investment Advisors, Institutional Investors, Investment Managers, and Investments in New Businesses. SEI owns approximately 38.6% of LSV Asset Management and accounts for that investment under the equity method.
Financial performance and key metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $1.991 billion | $1.918 billion | Up 4% |
| Income from operations | $475.8 million | $553.4 million | Down 14% |
| Net income | $475.5 million | $546.6 million | Down 13% |
| Diluted EPS | $3.46 | $3.81 | Down 9% |
| Operating margin | 23.9% | 28.9% | Down approximately 5.0 points |
| Net margin | 23.9% | 28.5% | Down approximately 4.6 points |
| Effective tax rate | 22.0% | 21.2% | Up 0.8 points |
| Net cash from operating activities | $566.1 million | $633.1 million | Down 11% |
- Asset management, administration, and distribution fees were $1.514 billion, down from $1.547 billion. Information processing and software servicing fees were $477.0 million, up from $371.3 million.
- Ending total assets managed, advised, or administered declined 8% to $1.233 trillion, primarily reflecting market depreciation, client losses, and negative cash flows. Average total assets declined 1% to $1.261 trillion.
- Average equity and fixed-income program assets declined 12% to $262.3 billion, while collective trust fund program assets increased 47% to $125.6 billion.
- Equity in earnings of LSV declined 12% to $120.7 million. LSV average assets under management declined 12% to $87.2 billion.
- Cash, cash equivalents, and restricted cash were $853.4 million at year-end, including $853.0 million of cash and cash equivalents on the balance sheet.
- Total assets were $2.384 billion and shareholders’ equity was $1.954 billion at December 31, 2022.
- SEI had no borrowings under its $325.0 million revolving credit facility at year-end after repaying $40.0 million during 2022. The facility expires in April 2026; $319.0 million was available for corporate purposes as of January 31, 2023, net of letters of credit.
- Capital expenditures and capitalized software costs totaled $72.8 million in 2022. Research and development expenditures were $144.5 million, or 7.3% of revenue.
- SEI repurchased approximately 5.914 million shares for $338.4 million and paid $109.8 million of cash dividends during 2022. The remaining repurchase authorization was approximately $92.9 million at year-end.
Material changes versus the prior comparable period
- Revenue growth was substantially driven by an $88.0 million early termination fee recognized in the first quarter from a significant Private Banks investment-processing client, as well as new client conversions. Excluding the termination fee and related direct costs, Private Banks operating profit would have been approximately $16.3 million rather than $102.4 million.
- Operating expenses increased 11%, led by higher personnel, consulting, technology, compliance, and acquisition-related costs.
- SEI recognized $54.8 million of one-time costs for a Voluntary Separation Program, primarily in corporate overhead. Most participating employees were expected to depart by the end of the first quarter of 2023, with all departures scheduled by year-end 2023.
- Investment Advisors revenue declined 7% and operating profit declined 19%, primarily due to market depreciation and negative cash flows following a significant client loss.
- Institutional Investors revenue declined 6% and operating profit declined 14%, reflecting market depreciation, defined-benefit client losses, foreign-exchange effects, and higher costs related to the SEI Novus and Atlas Master Trust acquisitions.
- Investment Managers revenue increased 8%, but operating profit declined 5% as personnel, vendor, consulting, and new-business investment costs grew faster than revenue.
- Private Banks operating margin increased to 18% from 6%, largely because of the one-time termination fee. Excluding that item, the reported improvement was materially smaller.
- Interest and dividend income increased to $13.3 million from $3.6 million as interest rates rose. Other income of $3.4 million reflected insurance recoveries related to weather damage at the corporate headquarters.
- Accumulated other comprehensive loss increased to $49.0 million, primarily due to foreign-currency translation losses and unrealized losses on available-for-sale debt securities.
Guidance, outlook, management commentary, risks, and unusual items
The filing does not provide quantitative revenue, earnings, margin, or asset-balance guidance. Management expects operating cash flow, existing cash, and available borrowing capacity to fund operating needs and the stock-repurchase program for at least the next 12 months and the foreseeable future.
Management expects capital-market conditions, inflation, interest-rate increases, labor-market tightness, geopolitical tensions, and possible recessionary conditions to influence 2023 and future results. Because a majority of revenue is linked directly or indirectly to assets under management, administration, or processing, market declines can reduce revenue and earnings.
- Key risks include market depreciation, investment-product underperformance, client losses, fee compression, passive-investment competition, and consolidation among clients.
- SEI faces significant cybersecurity, data privacy, technology-outage, software-defect, business-continuity, and third-party vendor risks.
- The company and regulated subsidiaries are subject to extensive and changing U.S. and international financial-services regulation, examinations, investigations, litigation, fines, remediation requirements, and potential restrictions on business activities.
- LSV is a significant contributor to SEI’s earnings and operating cash flow; weaker LSV investment performance, asset outflows, or lower performance fees could materially affect SEI.
- SEI relies on continued development and recoverability of the SEI Wealth Platform. Its net book value was $226.0 million at year-end, and recoverability was identified as the auditor’s critical audit matter. No impairment was recorded.
- Available-for-sale debt securities had $12.1 million of gross unrealized losses at year-end, primarily attributable to higher interest rates. Management stated that the securities were supported by U.S. government agency guarantees and that no impairment charge was required.
- Legal proceedings arise in the ordinary course and were not considered material by management, but the company stated that potential losses could not currently be estimated.
- KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022.
Most important facts for an investor to verify
- Determine the normalized 2022 revenue and profitability impact after removing the $88.0 million early termination fee and the $54.8 million Voluntary Separation Program cost.
- Track assets under management, administration, and processing, along with net client flows and market effects, particularly in Investment Advisors and Institutional Investors.
- Assess whether Investment Managers’ revenue growth can translate into margin recovery after elevated personnel, vendor, consulting, and new-business investment costs.
- Review LSV’s assets, earnings contribution, distributions, investment performance, and client flows.
- Monitor the recoverability and future returns of the $226.0 million net SEI Wealth Platform software asset and other capitalized development costs.
- Verify remaining repurchase authorization, dividend policy, share dilution from outstanding options, and the effect of future capital returns on liquidity.
- Confirm compliance with the revolving-credit-facility covenants and the availability of the approximately $319.0 million borrowing capacity.
- Evaluate exposure to cybersecurity incidents, regulatory enforcement, litigation, vendor failures, foreign-exchange movements, interest-rate changes, and prolonged capital-market weakness.