SEI Investments : Reports Fourth-Quarter 2017 Financial Results

OAKS, Pa., Jan. 31, 2018 /PRNewswire/ -- SEI Investments Company (NASDAQ: SEIC) today announced financial results for the fourth-quarter 2017. Diluted earnings per share were $0.75 in fourth-quarter 2017 compared to $0.55 in fourth-quarter 2016. 

Consolidated Overview
(In thousands, except earnings per share)		For the Three Months Ended December 31,								For the Twelve Months  Ended December 31,
		2017			2016			%		2017			2016			%
Revenues		$408,219			$368,810			11%		$1,526,552			$1,401,545			9%
Net income		122,144			88,611			38%		404,389			333,817			21%
Diluted earnings per share		$0.75			$0.55			36%		$2.49			$2.03			23%

"Our financial results for both the fourth quarter and the full year reflect the growing adoption of our platforms across all of our business segments and the overall strength of our business," said Alfred P. West, Jr., SEI Chairman and CEO. "As we discussed at our Investor Conference in November, we are committed to a strategy of long-term sustainable growth, founded on our core mission, our values and our proven business model. The results for 2017 reflect that commitment.

"The wealth and investment management industries have headwinds to address and tailwinds to capitalize on. We believe our platforms position us well to assist our clients in their success and increase our opportunities for growth. This leads to increased shareholder value for our investors."

Summary of Fourth-Quarter Results by Business Segment

(In thousands)		For the Three Months Ended December 31,								For the Twelve Months Ended December 31,
		2017			2016			%		2017			2016			%
Private Banks:
Revenues		$126,955			$113,737			12%		$474,272			$457,886			4%
Expenses		118,410			109,062			9%		455,119			421,188			8%
Operating Profit		8,545			4,675			83%		19,153			36,698			(48)%
Gain on sale of subsidiary		—			—			—		—			2,791			NM
Segment Profit		8,545			4,675			83%		19,153			39,489			NM
Operating Margin (A)		7	%		4	%				4	%		8	%
Investment Advisors:
Revenues		98,171			86,857			13%		373,473			330,677			13%
Expenses		54,329			45,565			19%		201,833			180,140			12%
Operating Profit		43,842			41,292			6%		171,640			150,537			14%
Operating Margin		45	%		48	%				46	%		46	%
Institutional Investors:
Revenues		86,974			88,791			(2)%		322,457			312,584			3%
Expenses		44,141			44,242			—%		161,640			153,117			6%
Operating Profit		42,833			44,549			(4)%		160,817			159,467			1%
Operating Margin		49	%		50	%				50	%		51	%
Investment Managers:
Revenues		94,321			77,862			21%		349,444			294,390			19%
Expenses		60,761			50,296			21%		226,504			191,127			19%
Operating Profit		33,560			27,566			22%		122,940			103,263			19%
Operating Margin		36	%		35	%				35	%		35	%
Investments in New Businesses:
Revenues		1,798			1,563			15%		6,906			6,008			15%
Expenses		5,611			5,027			12%		20,678			20,962			(1)%
Operating Loss		(3,813)			(3,464)			NM		(13,772)			(14,954)			NM
Totals:
Revenues		$408,219			$368,810			11%		$1,526,552			$1,401,545			9%
Expenses		283,252			254,192			11%		1,065,774			966,534			10%
Corporate overhead expenses		18,004			16,477			9%		63,834			59,317			8%
Income from operations		$106,963			$98,141			9%		$396,944			$375,694			6%
(A) Percentage determined exclusive of gain on sale of subsidiary.

Fourth-Quarter Business Highlights:

• Revenue growth in the quarter was primarily driven by higher Asset management, administration, and distribution fees from market appreciation and positive cash flows from new and existing clients.
• Our average assets under management, excluding LSV, increased $32.2 billion, or 17 percent, to $227.0 billion, as compared to $194.8 billion during the fourth-quarter 2016. Our assets under management do not include advised assets (see attached Average Asset Balances schedules for further details).
• Our average assets under administration increased $51.3 billion, or 11 percent, to $517.0 billion in the fourth-quarter 2017, as compared to $465.7 billion during the fourth-quarter 2016 (see attached Average Asset Balances schedules for further details).
• In the fourth-quarter 2017, we recognized performance fees of $3.4 million and corresponding sub-advisory expense of $1.7 million associated with an SEI-sponsored investment product, resulting in a positive net impact of approximately $0.01 diluted earnings per share. In the fourth-quarter 2016, we recognized performance fees of $12.3 million and corresponding sub-advisory expense of $6.1 million for a diluted earnings per share impact of $0.03 from this investment product. These items are reflected in the Institutional Investors segment.
• Fourth-quarter 2017 sales events, net of client losses, totaled approximately $9.0 million and are expected to generate net annualized recurring revenues of approximately $355 thousand when contract values are fully realized. These numbers include the loss of our only federal government client who advised us they will not be renewing their TRUST 3000® contract which ends later this year. This will result in an approximate $17.8 million annual investment processing revenue loss commencing no sooner than the fourth-quarter 2018. Excluding this client loss, we would have generated $26.8 million of net sales events, of which $18.2 million would have been annualized recurring revenues when the contracts were fully realized. For the year ended 2017, sales events, net of client losses, totaled approximately $77.8 million and are expected to generate net annualized recurring revenues of approximately $49.1 million when contract values are fully realized.
• Our earnings from LSV increased by $9.3 million, or 27 percent, to $43.3 million in fourth-quarter 2017 as compared to $34.1 million in fourth-quarter 2016. The increase in earnings was due to an increase in assets under management from market appreciation and increased performance fees; however, our earnings were negatively impacted by increased personnel expenses of LSV.
• We capitalized $12.5 million and $17.2 million of software development costs in fourth-quarter 2017 and 2016, respectively, of which $10.8 million and $12.4 million are related to continued enhancements to the SEI Wealth Platform^SM (the Platform). The remaining amounts of our software development costs capitalized during the fourth quarter of 2017 and 2016 are related to an application for the Investment Managers segment. Our expenses related to maintenance and enhancements not eligible for capitalization have increased. A higher portion of these costs are recognized in personnel and consulting costs. These increased costs primarily impacted the Private Banks and Investment Advisors business segments.
• The remaining estimated useful life of certain components and functionality of the SEI Wealth Platform was adjusted effective October 1, 2017. As a result, amortization expense related to the Platform decreased to $9.2 million during the fourth-quarter 2017 as compared to $11.7 million during the fourth-quarter 2016.
• We expect amortization expense related to all of our capitalized software development costs in first-quarter 2018 to be approximately $10.9 million. This amount includes amortization expense related to the application for the Investment Managers segment placed into service in 2018.
• Our operating expenses, primarily personnel costs, in our Investment Advisors and Investment Managers segments increased. These expenses primarily consist of operational and marketing costs and are mainly related to servicing existing clients and acquiring and implementing new clients.
• Stock-based compensation expense in fourth-quarter 2017 increased by $12.9 million as compared to fourth-quarter 2016. This incremental expense reflects a change in our estimate of the timing of when stock option vesting targets will be achieved. The Private Banks and Investment Managers segments recognized $3.8 million and $3.0 million, respectively, of this incremental expense. The Investment Advisors and Institutional Investors segments each recognized $2.0 million in incremental expense. We expect stock-based compensation expense during 2018 to be approximately $20.1 million as compared to $36.4 million during 2017.
• Our effective tax rates were 19.9 percent in fourth-quarter 2017 and 33.4 percent in fourth-quarter 2016. Our rate in fourth-quarter 2017 reflected the estimated impact of the Tax Cuts and Jobs Act which included a $27.1 million tax benefit resulting from the re-measurement of our estimated net deferred tax liability as of December 31, 2017, and $14.7 million of tax expense relating to the estimated tax impact of the deemed repatriation and withholding tax of our previously undistributed foreign earnings, for a net benefit of $12.4 million.
• Our tax rate in fourth-quarter 2017 was also favorably impacted by the adoption of Accounting Standards Update (ASU) 2016-09 and the expiration of the statute of limitations pertaining to various state tax items.
• Our fourth-quarter 2017 earnings from SEI Archway in our Investment Managers segment were positively impacted by an adjustment of $3.8 million to the contingent purchase price related to the acquisition.
• We repurchased 865 thousand shares of our common stock for $59.8 million during the fourth-quarter 2017.

Earnings Conference Call
A conference call to review earnings is scheduled for 4:30 p.m. Eastern time on Jan. 31, 2018. Investors may listen to the call at seic.com, Investors section, Events and Webcasts. Investors may also listen to a replay by telephone at (USA) 800-475-6701; (International) 320-365-3844, access code 443279.

About SEI
Now in its 50th year of business, SEI (NASDAQ: SEIC) is a leading global provider of investment processing, investment management, and investment operations solutions that help corporations, financial institutions, financial advisors, and ultra-high-net-worth families create and manage wealth. As of December 31, 2017, through its subsidiaries and partnerships in which the company has a significant interest, SEI manages, advises or administers $861 billion in hedge, private equity, mutual fund and pooled or separately managed assets, including $337 billion in assets under management and $518 billion in client assets under administration. For more information, visit seic.com.

Many of the statements in this release may be considered "forward looking statements" and include discussions about future operations, strategies and financial results. Forward-looking statements are based upon estimates and assumptions that involve risks and uncertainties, many of which are beyond our control or are subject to change. Although we believe our assumptions are reasonable, they could be inaccurate. Our actual future revenues and income could differ materially from our expected results. We have no obligation to publicly update or revise any forward-looking statements.

 

SEI INVESTMENTS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
		For the Three Months       Ended December 31,						For the Twelve Months Ended December 31,
		2017			2016			2017			2016
Asset management, admin. and distribution fees		$313,844			$286,534			$1,180,789			$1,072,176
Information processing and software servicing fees		88,240			75,512			321,741			300,346
Transaction–based and trade execution fees		6,135			6,764			24,022			29,023
Total revenues		408,219			368,810			1,526,552			1,401,545
Subadvisory, distribution and other asset mgmt costs		47,813			48,310			179,181			170,961
Software royalties and other information processing costs		8,438			7,379			31,275			30,323
Brokerage commissions		4,682			5,087			17,845			22,152
Compensation, benefits and other personnel		121,818			107,272			458,737			414,622
Stock-based compensation		16,839			3,973			36,366			16,017
Consulting, outsourcing and professional fees		48,366			45,057			186,357			166,769
Data processing and computer related		18,805			16,849			71,909			64,930
Facilities, supplies and other costs		17,588			18,051			72,352			68,245
Amortization		9,943			11,708			48,275			45,392
Depreciation		6,964			6,983			27,311			26,440
Total expenses		301,256			270,669			1,129,608			1,025,851
Income from operations		106,963			98,141			396,944			375,694
Net gain (loss) on investments		233			(208)			1,269			112
Interest and dividend income		2,129			1,174			7,057			4,316
Interest expense		(210)			(115)			(781)			(531)
Equity in earnings of unconsolidated affiliate		43,337			34,061			152,550			126,103
Gain on sale of subsidiary		—			—			—			2,791
Income before income taxes		152,452			133,053			557,039			508,485
Income taxes		30,308			44,442			152,650			174,668
Net income		$122,144			$88,611			$404,389			$333,817
Basic earnings per common share		$0.78			$0.55			$2.56			$2.07
Shares used to calculate basic earnings per share		157,390			159,674			158,177			161,350
Diluted earnings per common share		$0.75			$0.55			$2.49			$2.03
Shares used to calculate diluted earnings per share		163,478			162,567			162,269			164,431
Dividends declared per common share		$0.30			$0.28			$0.58			$0.54

 

 

SEI INVESTMENTS COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
		December 31,			December 31,
		2017			2016
Assets
Current Assets:
Cash and cash equivalents		$744,247			$695,701
Restricted cash		3,505			3,500
Receivables from investment products		56,666			61,761
Receivables, net of allowance for doubtful accounts of $695 and $523		282,706			227,957
Securities owned		21,526			21,339
Other current assets		31,158			27,575
Total Current Assets		1,139,808			1,037,833
Property and Equipment, net of accumulated depreciation of $309,955 and $285,322		146,428			146,190
Capitalized Software, net of accumulated amortization of $350,045 and $303,540		310,405			295,867
Investments Available for Sale		87,983			84,033
Investments in Affiliated Funds, at fair value		6,034			4,858
Investment in Unconsolidated Affiliate		59,492			50,459
Goodwill		52,990			—
Intangible Assets, net of accumulated amortization of $1,552		28,578			—
Deferred Income Taxes		2,767			2,127
Other Assets, net		18,884			15,456
Total Assets		$1,853,369			$1,636,823
Liabilities and Equity
Current Liabilities:
Accounts payable		$5,268			$5,966
Accrued liabilities		265,058			240,525
Deferred revenue		4,723			2,880
Total Current Liabilities		275,049			249,371
Borrowings Under Revolving Credit Facility		30,000			—
Long-term Taxes Payable		10,629			—
Deferred Income Taxes		48,472			69,693
Other Long-term Liabilities		12,380			14,645
Total Liabilities		376,530			333,709
Shareholders' Equity:
Common stock, $.01 par value, 750,000 shares authorized; 157,069 and 159,031 shares issued and outstanding		1,571			1,590
Capital in excess of par value		1,027,709			955,461
Retained earnings		467,467			384,018
Accumulated other comprehensive loss, net		(19,908)			(37,955)
Total Shareholders' Equity		1,476,839			1,303,114
Total Liabilities and Shareholders' Equity		$1,853,369			$1,636,823

 

 

ENDING ASSET BALANCES
(In millions)  (Unaudited)
			Dec 31,			Mar. 31,			Jun. 30,			Sept. 30,			Dec 31,
			2016			2017			2017			2017			2017
Private Banks:
Equity and fixed-income programs			$17,926			$19,034			$20,185			$21,196			$22,764
Collective trust fund programs			3			5			4			4			4
Liquidity funds			4,230			3,903			3,589			3,345			3,864
Total assets under management			$22,159			$22,942			$23,778			$24,545			$26,632
Client assets under administration			19,255			20,760			20,951			22,107			22,980
Total assets			$41,414			$43,702			$44,729			$46,652			$49,612
Investment Advisors:
Equity and fixed-income programs			$52,847			$55,311			$57,358			$59,455			$61,908
Collective trust fund programs			5			5			5			5			5
Liquidity funds			2,741			2,645			2,451			2,327			2,414
Total assets under management			$55,593			$57,961			$59,814			$61,787			$64,327
Institutional Investors:
Equity and fixed-income programs (E)			$76,465			$78,954			$81,723			$84,939			$86,727
Collective trust fund programs			93			89			80			82			78
Liquidity funds			2,903			2,759			2,468			3,699			2,937
Total assets under management			$79,461			$81,802			$84,271			$88,720			$89,742
Advised assets			—			3,228			4,255			4,450			4,802
Total assets			$79,461			$85,030			$88,526			$93,170			$94,544
Investment Managers:
Equity and fixed-income programs			$81			$84			$92			$93			$96
Collective trust fund programs			36,991			40,646			42,662			46,087			49,340
Liquidity funds			667			911			999			799			743
Total assets under management			$37,739			$41,641			$43,753			$46,979			$50,179
Client assets under administration (A)			448,708			457,356			476,543			493,538			495,447
Total assets			$486,447			$498,997			$520,296			$540,517			$545,626
Investments in New Businesses:
Equity and fixed-income programs			$884			$931			$997			$1,052			$1,104
Liquidity funds			61			79			46			71			53
Total assets under management			$945			$1,010			$1,043			$1,123			$1,157
Advised assets			—			85			69			54			49
Total assets			$945			$1,095			$1,112			$1,177			$1,206
LSV Asset Management:
Equity and fixed-income programs			$87,248			$90,611			$94,774			$101,893			$105,278
Total:
Equity and fixed-income programs (B)			$235,451			$244,925			$255,129			$268,628			$277,877
Collective trust fund programs			37,092			40,745			42,751			46,178			49,427
Liquidity funds			10,602			10,297			9,553			10,241			10,011
Total assets under management			$283,145			$295,967			$307,433			$325,047			$337,315
Advised assets (C)			—			3,313			4,324			4,504			4,851
Client assets under administration (D)			467,963			478,116			497,494			515,645			518,427
Total assets			$751,108			$777,396			$809,251			$845,196			$860,593

(A)	Client assets under administration in the Investment Managers segment include $43.5 billion of assets that require limited services and therefore are at fee levels below our normal full service assets (as of December 31, 2017).
(B)	Equity and fixed-income programs include $5.7 billion of assets invested in various asset allocation funds at December 31, 2017.
(C)	Assets for which SEI acts as an advisor to the accounts. These assets were excluded in previous periods.
(D)	In addition to the numbers presented, SEI also administers an additional $11.2 billion in Funds of Funds assets (as of December 31, 2017) on which SEI does not earn an administration fee.
(E)	Ending asset balance for Institutional Investors as of Mar. 31, 2017 were revised from $80.1 billion to $79.0 billion.

 

 

AVERAGE ASSET BALANCES
(In millions) (Unaudited)
			4th Qtr.			1st Qtr.			2nd Qtr.			3rd Qtr.			4th Qtr.
			2016			2017			2017			2017			2017
Private Banks:
Equity and fixed-income programs			$17,945			$18,498			$19,610			$20,699			$21,748
Collective trust fund programs			3			4			5			4			4
Liquidity funds			4,030			4,051			3,677			3,555			3,584
Total assets under management			$21,978			$22,553			$23,292			$24,258			$25,336
Client assets under administration			19,010			20,223			21,166			21,441			22,759
Total assets			$40,988			$42,776			$44,458			$45,699			$48,095
Investment Advisors:
Equity and fixed-income programs			$52,267			$54,446			$56,319			$58,406			$60,730
Collective trust fund programs			5			5			5			5			5
Liquidity funds			2,638			2,559			2,390			2,335			2,235
Total assets under management			$54,910			$57,010			$58,714			$60,746			$62,970
Institutional Investors:
Equity and fixed-income programs			$77,040			$77,852			$80,561			$83,696			$85,713
Collective trust fund programs			92			90			85			80			80
Liquidity funds			2,766			2,891			2,861			3,177			3,052
Total assets under management			$79,898			$80,833			$83,507			$86,953			$88,845
Advised assets			—			3,125			3,687			4,376			4,656
Total assets			$79,898			$83,958			$87,194			$91,329			$93,501
Investment Managers:
Equity and fixed-income programs			$79			$75			$84			$92			$99
Collective trust fund programs			36,170			39,081			41,615			44,824			47,772
Liquidity funds			813			860			937			952			843
Total assets under management			$37,062			$40,016			$42,636			$45,868			$48,714
Client assets under administration			446,666			453,766			470,701			486,158			494,201
Total assets			$483,728			$493,782			$513,337			$532,026			$542,915
Investments in New Businesses:
Equity and fixed-income programs			$851			$909			$954			$1,016			$1,079
Liquidity funds			60			63			64			55			54
Total assets under management			$911			$972			$1,018			$1,071			$1,133
Advised assets			—			82			73			73			50
Total assets			$911			$1,054			$1,091			$1,144			$1,183
LSV Asset Management:
Equity and fixed-income programs			$84,676			$90,274			$93,094			$99,279			$104,174
Total:
Equity and fixed-income programs			$232,858			$242,054			$250,622			$263,188			$273,543
Collective trust fund programs			36,270			39,180			41,710			44,913			47,861
Liquidity funds			10,307			10,424			9,929			10,074			9,768
Total assets under management			$279,435			$291,658			$302,261			$318,175			$331,172
Advised assets			—			3,207			3,760			4,449			4,706
Client assets under administration			465,676			473,989			491,867			507,599			516,960
Total assets			$745,111			$768,854			$797,888			$830,223			$852,838

 

 

Investor Contact:	Media Contact:
Lindsey Opsahl	Dana Grosser
SEI	SEI
[phone]	[phone]
[e-mail]	[e-mail]

 

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SOURCE SEI Investments Company