SEI Investments Company — Q1 2024 Form 10-Q Summary
Business Context and Reporting Period
SEI provides technology, investment processing, investment operations, administration, and investment management platforms to wealth managers, financial institutions, investment managers, institutional investors, family offices, and private investors. The filing covers the unaudited three months ended March 31, 2024, compared with the three months ended March 31, 2023.
SEI managed, advised, or administered approximately $1.5 trillion in assets through its subsidiaries and significant-interest partnerships at March 31, 2024. The company reported five segments: Private Banks, Investment Advisors, Institutional Investors, Investment Managers, and Investments in New Businesses.
Key Financial Metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $511.6 million | $469.1 million | +9% |
| Income from operations | $125.9 million | $101.8 million | +24% |
| Net income | $131.4 million | $107.0 million | +23% |
| Diluted EPS | $0.99 | $0.79 | +25% |
| Operating margin | 24.6% | 21.7% | +2.9 percentage points |
| Net margin | 25.7% | 22.8% | +2.9 percentage points |
| Net cash from operating activities | $112.3 million | $114.4 million | -2% |
Asset management, administration, and distribution fees were $404.4 million, up from $371.8 million. Information processing and software servicing fees were $107.2 million, up from $97.3 million. Income before taxes was $170.4 million, and the effective tax rate declined to 22.9% from 23.6%.
Interest and dividend income increased to $10.8 million from $8.8 million. Equity earnings from 38.6%-owned LSV Asset Management increased to $31.6 million from $28.9 million. Net investment gains were $2.3 million versus $0.7 million.
Financial Position, Cash Flow, Debt, and Liquidity
- Cash, cash equivalents, and restricted cash totaled $846.9 million at March 31, 2024, compared with $835.0 million at December 31, 2023.
- Total assets were $2.57 billion and total liabilities were $309.4 million. Shareholders’ equity was $2.26 billion.
- SEI had no reported borrowings under its $325.0 million revolving credit facility. The facility expires in April 2026; $320.1 million was available for general corporate purposes as of April 11, 2024 after $4.9 million of letters of credit.
- Management reported $497.5 million of cash and cash equivalents as free and immediately accessible for general corporate purposes as of April 11, 2024.
- Operating cash flow was $112.3 million. Investing activities used $37.6 million, including $13.1 million of property and equipment additions, $6.3 million of capitalized software costs, and a $10.0 million strategic investment in an innovation platform.
- Financing activities used $62.2 million, including $60.4 million of dividends and $46.8 million of share repurchases, partly offset by $45.0 million of proceeds from common-stock issuance, primarily from stock-option exercises.
- SEI repurchased 808,000 shares for $56.0 million during the quarter. Approximately $226.1 million remained under the repurchase authorization at March 31, 2024.
Material Changes Versus the Prior Comparable Period
- Average assets under administration increased 14% to $961.7 billion, while average assets under management excluding LSV increased 5% to $175.9 billion.
- Total ending assets increased 14% to $1.46 trillion. Ending assets under management increased 8% to $443.6 billion, and client assets under administration increased 16% to $983.3 billion.
- Investment Managers revenue increased 12% to $172.7 million and operating profit increased 19% to $63.1 million, supported by alternative-fund growth and additional services for large clients.
- Investment Advisors revenue increased 15% to $122.7 million, including $9.6 million from the SEI Integrated Cash Program launched in December 2023. Operating profit increased 30% to $55.8 million.
- Private Banks operating profit increased 103% to $17.2 million, primarily from higher revenue and lower consulting and outsourced-vendor costs.
- Institutional Investors revenue declined 3% to $71.8 million and operating profit declined 5% to $31.7 million, primarily due to client losses.
- Corporate overhead increased to $37.8 million from $31.2 million, primarily due to $6.2 million of severance costs, technology investments, and higher compliance personnel costs.
- Stock-based compensation increased to $11.1 million from $8.1 million. Management revised certain vesting estimates, increasing Q1 2024 expense by $0.3 million.
- Effective January 1, 2024, SEI reorganized certain segment reporting relationships and reclassified prior-period amounts to conform to the new presentation.
Guidance, Outlook, Management Commentary, Risks, and Unusual Items
Management stated that operating cash flow, available borrowing capacity, and existing cash are expected to fund operational needs and the stock repurchase program for at least the next 12 months and the foreseeable future. The filing does not provide formal revenue or earnings guidance.
- Management expects approximately $42.5 million of additional stock-based compensation expense during the remainder of 2024, subject to changes in vesting estimates.
- A planned sale of a New York condominium is expected to close in the second quarter of 2024, subject to completion of the transaction terms. If completed, SEI expects a net pretax gain of approximately $8.0 million to $8.5 million.
- Unrealized losses on government-guaranteed GNMA securities totaled $8.2 million after tax at March 31, 2024. Management does not intend to sell these investments and does not expect to be required to sell them before recovery of cost.
- SEI has contingent consideration obligations related to the 2023 XPS Pensions acquisition, totaling $3.5 million at March 31, 2024.
- The company reported ordinary-course disputes and claims that it does not believe are material, but stated that loss amounts cannot currently be estimated.
- Key risks include capital-market and interest-rate volatility, investment performance and client cash flows, LSV performance, competition and pricing pressure, technology defects or outages, cybersecurity and data privacy, third-party service-provider failures, regulatory examinations and enforcement, litigation, talent retention, acquisitions, foreign exchange, and geopolitical or catastrophic events.
- Management stated that there were no material changes to previously disclosed risk factors and no material changes to market-risk disclosures from the 2023 Form 10-K.
Important Facts for Investors to Verify
- Whether growth in assets under administration, alternative investments, separately managed accounts, and the Integrated Cash Program continues to offset client losses and negative cash flows in certain businesses.
- The sustainability and volatility of LSV’s contribution, including performance-fee exposure and client-flow trends.
- The effect of severance, technology investment, personnel growth, inflation, and expected stock-based compensation on future operating margins.
- The timing and final gain from the planned condominium sale.
- Future cash deployment among dividends, share repurchases, strategic investments, and software development.
- Potential effects of regulatory examinations, enforcement actions, cybersecurity incidents, legal proceedings, and changing financial-services regulations.
- The company’s adoption impact from ASU 2023-07 on segment disclosures and ASU 2023-09 on income-tax disclosures; the filing states that evaluation was ongoing.