SEIC

SEI Investments Company - 10-Q Summary (Period Ended Sept 30, 2003)

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2003, and the nine-month period ended on the same date. SEI Investments Company provides investment processing, fund processing, and investment management solutions across five segments: Private Banking and Trust, Investment Advisors, Enterprises, Money Managers, and Investments in New Businesses. The company serves banks, private trust companies, investment advisors, corporations, and money managers globally.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue: Consolidated revenues increased 5% ($7.7 million) for the quarter compared to the prior year, driven largely by $7.0 million in non-recurring brokerage fees from transition management services. For the nine-month period, revenues decreased 1% ($6.2 million) due to declines in fund processing fees and non-recurring project fees, partially offset by higher investment management fees.
• Profitability: Net income remained relatively flat, decreasing 1% for both the quarter and the nine-month period. Operating income from operations declined 7% for the quarter and 2% for the nine-month period.
• Segment Performance:
  • Private Banking and Trust: Revenues declined 8% (quarter) and 7% (nine-month) due to lower transaction-based and fund processing fees.
  • Investment Advisors: Revenues increased 18% (quarter) and 1% (nine-month), boosted by non-recurring fees and higher average assets.
  • Enterprises: Revenues grew 34% (quarter) and 9% (nine-month), aided by non-recurring fees and new business.
  • Investments in New Businesses: Continued to report operating losses, which widened 38% for the nine-month period due to infrastructure investments in Europe and Canada.
• Other Income: Increased significantly (73% for the quarter) primarily due to a 120% increase in equity earnings from the unconsolidated affiliate, LSV Asset Management.

Guidance, Outlook, and Risks

Outlook: Management remains optimistic about long-term prospects but notes uncertainty in capital markets. They anticipate continued investment in European and Canadian operations, which will likely result in ongoing operating losses for the "Investments in New Businesses" segment through 2004. A corporate headquarters expansion and data center relocation are underway, expected to be completed by early 2004.

Risks and Contingencies:

• Market Risk: Revenues are sensitive to the market value of assets managed; declines in asset values negatively impact earnings.
• Regulatory Risk: Increased compliance costs related to recent regulatory examinations and new requirements (e.g., Sarbanes-Oxley) have impacted General and Administrative expenses.
• Investment Losses: The company recorded a $0.6 million impairment charge for other-than-temporary declines in securities and a $2.6 million loss from hedge ineffectiveness during the nine-month period.

Investor Verification Checklist

• Non-Recurring Revenue: Verify the sustainability of the $7.0 million in transition management fees recognized in Q3 2003, which significantly boosted quarterly revenue.
• Asset Flows: Monitor net asset funding trends, as redemptions (including the closing of a variable annuity fund and loss of a large offshore client) offset market appreciation in the Investment Advisors segment.
• Segment Losses: Track the trajectory of operating losses in the "Investments in New Businesses" segment as international expansion costs continue.
• Stock Repurchases: Confirm the remaining authorization under the buyback program ($23.3 million remaining as of Oct 31, 2003) and its impact on share count and EPS.
• Regulatory Costs: Assess the potential for continued increases in General and Administrative expenses due to ongoing regulatory compliance efforts.