SEI Investments Company: FY2023 Form 10-K Summary
Business context and reporting period
SEI Investments Company provides technology, investment-processing, investment-operations, and asset-management solutions to banks, wealth managers, investment managers, institutional investors, advisors, and family offices. The filing covers the fiscal year ended December 31, 2023, with comparisons to 2022 and 2021; it is not a quarterly filing despite the requested “2023 Q4” metadata.
SEI managed, advised, or administered approximately $1.4 trillion of assets at year-end. Reportable segments are Private Banks, Investment Advisors, Institutional Investors, Investment Managers, and Investments in New Businesses. The company had 5,061 full-time and 28 part-time employees at January 31, 2024.
Financial performance and key metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $1.920 billion | $1.991 billion | Down 4% |
| Income from operations | $424.5 million | $475.8 million | Down 11% |
| Operating margin | 22.1% | 23.9% | Down approximately 180 bps |
| Net income | $462.3 million | $475.5 million | Down 3% |
| Diluted EPS | $3.46 | $3.46 | Unchanged |
| Effective tax rate | 22.3% | 22.0% | Up 30 bps |
| Cash flow from operations | $447.0 million | $566.1 million | Down $119.1 million |
Revenue consisted of $1.515 billion of asset-management, administration, and distribution fees and $405.0 million of information-processing and software-servicing fees. Interest and dividend income increased to $41.0 million from $13.3 million, primarily because of higher market interest rates. Equity in earnings from SEI’s approximately 38.6% interest in LSV Asset Management increased 5% to $126.9 million.
Ending total assets managed, advised, or administered were $1.401 trillion, up 14% from $1.233 trillion. Average assets under administration increased 5% to $880.3 billion, while average equity and fixed-income program assets excluding LSV declined 4% to $168.6 billion.
Segment operating margins were 9% for Private Banks, 41% for Investment Advisors, 43% for Institutional Investors, 35% for Investment Managers, and negative for Investments in New Businesses. Investment Managers was the strongest major segment, with revenue up 7% and operating profit up 6%.
Cash flow, balance sheet, debt, and capital allocation
- Cash, cash equivalents, and restricted cash were $835.0 million at December 31, 2023, compared with $853.4 million at year-end 2022.
- Total assets were $2.520 billion and shareholders’ equity was $2.132 billion at year-end. Total liabilities were $388.2 million.
- SEI had no borrowings under its $325.0 million revolving credit facility at December 31, 2023. The facility matures in April 2026 and had $4.9 million of outstanding letters of credit; availability for corporate purposes was approximately $320.1 million as of January 31, 2024.
- The facility includes a maximum leverage ratio of 2.25 times EBITDA and restrictions that could limit dividends and share repurchases following a default. SEI reported compliance with all covenants during 2023.
- Investing cash outflows were $141.5 million, including $34.0 million of capitalized software development costs and $56.4 million of acquisition payments.
- SEI repurchased 5.2 million shares for $310.8 million and paid $114.8 million in dividends during 2023. The board increased the repurchase authorization by $250.0 million in December 2023; approximately $282.1 million remained available at year-end.
- Management stated that operating cash flow, existing cash, and available borrowing capacity should fund operations and the stock-repurchase program for at least the next 12 months and the foreseeable future.
Material changes versus the prior comparable period
- 2022 included an $88.0 million early termination fee from a significant Private Banks client. In 2023, a $10.5 million contractual buyout fee partially offset the comparison.
- Private Banks revenue declined 13% and operating profit declined 54%, primarily because of the absence of the 2022 termination fee, client-related revenue reductions, and higher personnel and platform-support costs.
- Investment Advisors revenue declined 3%, reflecting negative flows and lower average basis points in SEI fund programs, partly offset by growth in separately managed accounts.
- Institutional Investors revenue declined 10%, primarily because of defined-benefit client losses. Operating profit also included a one-time $4.5 million client-reimbursement charge.
- Investment Managers revenue increased 7% from new products, additional alternative-fund services, and positive client cash flows. The segment recorded a $5.3 million write-off of previously capitalized software costs after changing its development strategy.
- Operating expenses declined 1%, mainly because 2022 included $54.8 million of Voluntary Separation Program costs. Underlying personnel costs and compliance spending increased in 2023.
- SEI acquired National Pensions Trust-related operations in the United Kingdom for $43.9 million net cash and acquired Altigo for $12.5 million. The acquisitions were not material to consolidated results individually.
- Capitalized software totaled $239.8 million at year-end, including a $218.5 million net book value for the SEI Wealth Platform. KPMG identified recoverability of SWP capitalized software costs as the critical audit matter.
Outlook, management commentary, risks, and unusual items
Management expects the SEI Integrated Cash program, launched in December 2023, to generate significant Investment Advisors revenue in 2024 if interest rates remain at current levels. A decline in interest rates would significantly reduce earnings from the program. The filing does not provide quantitative 2024 revenue or earnings guidance.
Management emphasized continued investment in the SEI Wealth Platform, a new Investment Managers platform, cybersecurity, data privacy, operational resilience, compliance infrastructure, and new businesses. Research and development expenditures were $137.5 million in 2023, or 7.2% of revenue.
- Results remain sensitive to capital-market levels, asset values, client flows, investment performance, fee rates, and interest rates because a substantial portion of revenue is asset-based.
- LSV is a significant contributor to earnings and operating cash flow; weaker LSV investment performance, asset outflows, or lower performance fees could reduce SEI’s results.
- Principal operating risks include cybersecurity incidents, data loss, system outages, software defects, third-party service-provider failures, operational errors, and business-continuity events.
- SEI faces extensive and changing U.S. and international financial-services, privacy, cybersecurity, anti-money-laundering, sanctions, and ESG-related regulation. Regulatory examinations or enforcement actions could increase costs, restrict activities, or result in fines and reputational damage.
- Competition, fee compression, passive investing, client consolidation, defined-benefit plan declines, and client contract terminations could pressure revenue and margins.
- The company reported no known cybersecurity threats that had materially affected or were reasonably likely to materially affect its business, results, or financial condition as of the filing date, while acknowledging continuing incidents and vulnerabilities.
- SEI reported ordinary-course legal disputes that it does not believe are material, but stated that losses cannot currently be estimated and that assumptions could prove incorrect.
Most important facts for an investor to verify
- Whether the 2024 performance of the Integrated Cash program offsets any pressure from lower interest rates.
- Net client flows, fee rates, and investment performance in SEI fund programs, separately managed accounts, and Institutional Investors.
- Sustainability of Investment Managers’ growth and the execution, cost, and recoverability of its new technology platform.
- Actual operating cash flow after acquisitions, working-capital movements, share repurchases, and dividend payments.
- LSV assets, cash flows, performance fees, distributions, and contribution to SEI earnings.
- Remaining repurchase authorization, dividend policy, and compliance with the revolving-credit facility’s leverage covenant.
- Progress integrating National Pensions Trust and Altigo and any resulting goodwill, intangible-asset, or contingent-consideration changes.
- Potential effects of regulatory examinations, litigation, cybersecurity events, privacy requirements, tax examinations, and changes in interest rates or capital markets.