SEI Investments Company — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2023. The interim financial statements are unaudited. SEI provides technology, investment processing, investment operations, and investment management platforms and services. As of June 30, 2023, SEI managed, advised, or administered approximately $1.3 trillion in assets.
Financial performance
| Metric | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 |
|---|---|---|---|---|
| Total revenue | $489.1 million | $481.7 million | $958.2 million | $1,063.1 million |
| Income from operations | $112.6 million | $115.9 million | $214.4 million | $330.7 million |
| Net income | $118.9 million | $111.3 million | $225.9 million | $301.6 million |
| Diluted EPS | $0.89 | $0.81 | $1.68 | $2.17 |
| Net cash from operating activities | — | — | $182.5 million | $330.6 million |
- Second-quarter revenue increased 2%, while six-month revenue declined 10%.
- Second-quarter operating margin was approximately 23.0%, compared with 24.1% in the prior-year quarter; six-month operating margin was approximately 22.4%, compared with 31.1%.
- Second-quarter net margin was approximately 24.3%, compared with 23.1%; six-month net margin was approximately 23.6%, compared with 28.4%.
- Interest and dividend income increased to $18.3 million for the six months from $2.7 million, primarily because of higher interest rates. Equity earnings from LSV were $61.6 million, compared with $62.3 million.
Financial position, cash flow, debt and liquidity
- Cash and cash equivalents were $777.1 million at June 30, 2023, compared with $853.0 million at December 31, 2022. Cash, cash equivalents and restricted cash totaled $777.4 million at June 30, 2023.
- Total assets were $2.325 billion and total liabilities were $301.4 million. Shareholders’ equity was $2.024 billion.
- SEI had no borrowings under its revolving credit facility at June 30, 2023. The facility provides capacity of $325 million and expires in April 2026. As of July 13, 2023, $320.1 million was available for general corporate purposes after $4.9 million of letters of credit.
- Operating cash flow declined $148.2 million year over year, primarily because of lower net income and unfavorable working-capital changes.
- Investing cash outflows were $25.8 million, including $16.5 million of property and equipment additions and $18.0 million of capitalized software costs.
- Financing cash outflows were $239.5 million, including $156.2 million of share repurchases and $114.8 million of dividend payments.
- Management stated that available cash, operating cash flow, and borrowing capacity are expected to fund operating needs and the stock-repurchase program for at least the next 12 months.
Material changes versus the prior comparable period
- Six-month information processing and software servicing revenue fell primarily because the first quarter of 2022 included an $88.0 million early termination fee from a significant Private Banks client. A $10.5 million early contractual buyout fee in the second quarter of 2023 partially offset the comparison.
- Asset management, administration and distribution fees declined because of lower average assets from 2022 market depreciation and negative fund-program cash flows. Average equity and fixed-income assets, excluding LSV, fell 9% to $168.4 billion for the six months.
- Investment Managers revenue increased 4% for the six months, supported by new products, additional alternative-fund services, and positive client cash flows.
- Private Banks six-month revenue decreased 24% and operating profit decreased 72%, while Investment Advisors revenue declined 7% and Institutional Investors revenue declined 12%.
- Corporate overhead increased to $63.5 million from $47.8 million for the six months, driven by strategic consulting, technology investments, compliance infrastructure, and higher personnel costs.
- Amortization expense decreased 43% to $19.1 million for the six months, primarily because initial SEI Wealth Platform development costs completed their amortization period in 2022.
- SEI repurchased 2.651 million shares for $155.9 million during the six months. The board authorized an additional $250 million of repurchase capacity in April 2023; approximately $187.0 million remained available at June 30.
Guidance, outlook, risks and unusual items
- No quantitative earnings or revenue guidance was provided. Management expects liquidity to be sufficient for operations and planned repurchases.
- SEI entered into an option agreement to acquire XPS Pensions (Nexus) Limited for cash consideration of up to £42.5 million, including £35.0 million at closing and up to £7.5 million of deferred consideration. Closing was expected before year-end 2023, subject to regulatory approval and customary conditions.
- SEI recognized a $4.5 million one-time operational charge related to a client reimbursement in the Institutional Investors segment during the six months.
- Stock-based compensation expense was $15.5 million for the six months. A change in vesting estimates reduced expense by $2.8 million; approximately $99.9 million of unrecognized compensation cost remained at June 30.
- Key risks include capital-market and asset-level volatility, client losses and fee pressure, performance and cash flows at LSV, competition, technology failures, cybersecurity and data privacy, regulatory examinations and enforcement, foreign-exchange and interest-rate movements, litigation, dependence on third-party providers, and employee retention.
- SEI reported various ordinary-course legal disputes that it does not believe are material, but stated that ultimate losses cannot currently be estimated. It also reported $18.4 million of gross uncertain tax positions, including interest and penalties.
- Management concluded that disclosure controls were effective and that no material change occurred in internal control over financial reporting during the quarter.
Investor verification checklist
- Verify the sustainability of revenue and earnings after excluding the $10.5 million 2023 contractual buyout fee and the $88.0 million 2022 termination fee.
- Track average assets, net flows, fee rates, and market sensitivity across Private Banks, Investment Advisors, Institutional Investors, Investment Managers, and LSV.
- Assess whether higher personnel, compliance, technology, and strategic costs pressure operating margins.
- Confirm available liquidity after the planned Nexus acquisition, dividends, capital expenditures, software investment, and share repurchases.
- Monitor the remaining stock-repurchase authorization and the effect of repurchases on diluted EPS and share count.
- Review regulatory examinations, tax examinations, legal contingencies, and the terms and closing status of the Nexus transaction.