SEI Investments Company: FY2021 Form 10-K Summary
Business context and reporting period
SEI Investments Company provides technology, investment processing, operations outsourcing and asset-management solutions to banks, investment advisors, institutional investors, investment managers and ultra-high-net-worth families. This Form 10-K covers the fiscal year ended December 31, 2021, with comparative results for 2020 and 2019. SEI managed, advised or administered approximately $1.3 trillion of assets at year-end, including $405.1 billion under management and $911.9 billion under administration.
Financial results and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $1.918 billion | $1.684 billion | +14% |
| Income from operations | $553.4 million | $445.9 million | +24% |
| Net income | $546.6 million | $447.3 million | +22% |
| Diluted EPS | $3.81 | $3.00 | +27% |
| Operating margin | 28.9% | 26.5% | +240 basis points |
| Effective tax rate | 21.2% | 21.3% | Down 10 basis points |
| Cash flow from operations | $633.1 million | $488.7 million | +30% |
| Cash, cash equivalents and restricted cash | $831.8 million | $787.7 million | +$44.0 million |
Asset management, administration and distribution fees rose 15% to $1.547 billion, while information processing and software servicing fees increased 10% to $371.3 million. Average assets under administration increased 19% to $855.0 billion, and average assets under management, excluding LSV, increased 21% to $293.7 billion.
Segment operating margins were 6% for Private Banks, 50% for Investment Advisors, 51% for Institutional Investors, 40% for Investment Managers and negative 216% for Investments in New Businesses. Corporate overhead was $91.9 million.
SEI owns approximately 38.7% of LSV Asset Management. Equity in LSV earnings increased 17% to $137.6 million, and LSV's average assets under management increased 17% to $99.6 billion.
Liquidity, capital structure and shareholder returns
- Operating cash flow was $633.1 million; investing activities used $164.9 million and financing activities used $422.3 million.
- SEI had $40.0 million outstanding under a new $325.0 million five-year revolving credit facility maturing in April 2026. The facility has a 2.25-times maximum leverage-ratio covenant. SEI stated that it was in compliance with all covenants.
- Outstanding letters of credit totaled $5.8 million at year-end. After a $10.0 million principal payment in February 2022, corporate borrowing availability was $289.2 million as of February 17, 2022.
- Cash and cash equivalents available for general corporate purposes were $352.3 million as of February 17, 2022; some subsidiary cash is restricted by operating or regulatory requirements.
- SEI repurchased 6.747 million shares for $411.5 million in 2021 and paid $105.5 million of cash dividends. The year-end repurchase authorization remaining was approximately $231.3 million.
- Total assets were $2.355 billion and shareholders' equity was $1.861 billion at December 31, 2021.
Material changes versus the prior comparable period
- Revenue and profitability benefited from market appreciation, positive client flows and higher assets under management and administration.
- Investment Managers revenue increased 19% and operating profit increased 29%, driven by higher asset values and positive flows into alternative, traditional and separately managed account offerings.
- Investment Advisors revenue increased 18%, primarily from separately managed account growth and market appreciation, although negative flows from SEI-sponsored mutual funds continued.
- Private Banks operating profit increased 245% as higher revenue and lower non-capitalized SWP maintenance and migration costs more than offset higher personnel, stock compensation and software amortization costs.
- Institutional Investors revenue increased 8%, but operating margin declined to 51% from 53% because of higher direct and personnel costs; defined-benefit client losses remained a headwind.
- SEI acquired Finomial for approximately $8.2 million and Novus Partners for approximately $72.0 million of net cash, and also acquired a digital collaboration platform and a U.K. defined-contribution master trust.
- Stock-based compensation increased to $41.5 million from $27.0 million, including a $5.9 million increase from revised estimates of financial vesting timing.
Guidance, outlook, risks and unusual items
Management did not provide formal revenue or earnings guidance in the filing. SEI expects One SEI investment levels to decline in 2022. It also expects SWP-related amortization to decline by approximately $14.5 million in 2022, while amortization of acquired intangible assets is expected to increase to approximately $12.3 million.
- Results remain sensitive to capital-market movements because a majority of revenue is based on assets under management, administration or processing.
- Key risks include investment-product underperformance, fee pressure and passive-investing trends, client losses, LSV performance, cybersecurity and data privacy incidents, system outages, third-party service-provider failures, regulatory scrutiny, litigation, talent retention, foreign exchange and geopolitical conditions.
- The COVID-19 pandemic continued to create operational and market uncertainty, although remote-work and business-continuity capabilities maintained operational integrity during 2021.
- SEI reported ongoing Stanford Trust-related ancillary litigation but stated that the principal class-action dismissals were final and that remaining matters could not be reasonably estimated. The company also remains involved in litigation with SS&C Advent; management expects an immaterial financial impact and believes alternative providers are available if necessary.
- No goodwill or material intangible-asset impairment was recorded in 2021. The filing identifies capitalization of internal-use software costs as a critical audit matter; $26.0 million was capitalized during 2021.
- KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether market appreciation and asset-based revenue growth persist if capital markets weaken.
- Net client flows, retention and fee rates across Investment Advisors, Institutional Investors and Investment Managers.
- Progress and economic returns from the SWP, One SEI and other new-business investments.
- Integration and revenue contribution from Novus, Finomial and the other 2021 acquisitions.
- LSV assets, performance, client flows and distributions, given its significant contribution to earnings and operating cash flow.
- Remaining stock-repurchase authorization, dividend capacity and compliance with the revolving-credit-facility covenants.
- Developments in the SS&C Advent litigation, remaining Stanford Trust-related matters and regulatory examinations.
- Cybersecurity, privacy, operational-resilience and third-party technology risks, including potential effects on client contracts and reputation.