SEIC

SEI Investments Company - 1998 Annual Report (10-K) Summary

Business Context and Reporting Period

Company: SEI Investments Company (SEI)
Reporting Period: Fiscal year ended December 31, 1998
Headquarters: Oaks, Pennsylvania
Business Model: SEI provides financial services through four primary segments: Technology Services (trust accounting software and outsourcing), Mutual Fund Services (administration and distribution), Asset Management (investment products for institutions and high-net-worth individuals), and Investments in New Business (international operations). The company serves approximately 3,200 clients globally.

Key Financial Metrics (1998)

Material Changes vs. Prior Period

• Revenue Growth: Consolidated revenues increased 25% to $366.1 million, driven by a 27% increase in Technology Services and a 46% surge in Asset Management.
• Profitability: Net income rose 63% to $43.7 million. Operating income grew 49% to $67.9 million.
• Segment Performance:
  • Technology Services: Revenues grew 27% to $164.6 million, aided by new client contracts and a one-time $15.0 million buyout fee from a terminated client.
  • Asset Management: Revenues jumped 46% to $90.1 million due to a 53% increase in average assets under management ($14.7 billion).
  • Investments in New Business: Reported an operating loss of $10.3 million (up from $5.8 million) due to strategic investments in foreign markets and a $2.7 million write-off of customer lists from a Latin American acquisition.
• One-Time Items: Results included a $4.8 million write-off of capitalized software costs and a $2.7 million write-off of customer lists. Excluding these and the buyout fee, management estimated revenue growth would have been 21% and earnings growth 37%.

Guidance, Outlook, and Risks

• Outlook: Management expects revenues and earnings to increase in 1999, contingent on sustaining sales momentum in Asset Management and the successful implementation of new trust technology clients.
• Year 2000 Compliance: Remediation and testing for proprietary systems (including TRUST 3000) were completed. Approximately 42% of vendor products were certified compliant as of early 1999. Management anticipates potential minor to moderate system issues but has contingency plans in place. Total projected cost is $10 million, with $6.3 million spent through 1998.
• Capital Allocation: The company continued its stock repurchase program, acquiring 867,000 shares for $55.2 million in 1998. Dividends were declared at $0.32 per share for the year.
• Risks:
  • Bank Consolidation: Mergers in the banking industry could reduce the number of potential clients or eliminate existing ones.
  • Market Volatility: Revenues in Asset Management and Mutual Fund Services are tied to asset values; unfavorable market changes could reduce fees.
  • Regulatory Changes: Changes in directed brokerage regulations or banking laws could impact service sales.

Investor Verification Checklist

• Recurring Revenue Quality: Verify the proportion of recurring revenue vs. one-time fees (buyout fees, implementation fees) to assess sustainable growth.
• Asset Under Management (AUM) Trends: Confirm the 53% growth in AUM for the Asset Management segment and its correlation to fee income.
• Year 2000 Status: Review the status of vendor compliance (58% remaining) and the adequacy of contingency plans for system failures.
• Software Write-offs: Assess the impact of the $4.8 million software write-off on future R&D capitalization and amortization schedules.
• International Expansion: Evaluate the timeline for profitability in the "Investments in New Business" segment, which currently operates at a loss.