SEI(SEIC) - 2024 Q3 - Quarterly Report

Financial Statements Consolidated Balance Sheets (Unaudited) As of September 30, 2024, the company's total assets increased to $2,684,429 thousand, an approximate 6.5% increase from the end of 2023, with significant growth in shareholders' equity and a decrease in total liabilities Consolidated Balance Sheet Key Data | Indicator | September 30, 2024 (thousand USD) | December 31, 2023 (thousand USD) | | :--------------------- | :--------------------- | :--------------------- | | Assets | | | | Cash and Cash Equivalents | 901,134 | 834,697 | | Total Assets | 2,684,429 | 2,520,003 | | Liabilities and Equity | | | | Total Liabilities | 330,019 | 388,175 | | Shareholders' Equity | 2,354,410 | 2,131,828 | Consolidated Statements of Operations (Unaudited) For the three and nine months ended September 30, 2024, the company achieved significant growth in both revenue and net income, with diluted EPS also substantially increasing, reflecting strong operational performance Consolidated Statements of Operations Key Data | Indicator | For the Three Months Ended September 30, 2024 (thousand USD) | For the Three Months Ended September 30, 2023 (thousand USD) | Year-over-Year Change (%) | | :------------------------- | :-------------------------- | :-------------------------- | :----------- | | Three Months | | | | | Total Revenue | 537,396 | 476,759 | 12.7% | | Operating Income | 143,832 | 108,472 | 32.6% | | Net Income | 154,900 | 115,661 | 34.0% | | Diluted EPS | 1.19 | 0.87 | 36.8% | | Nine Months | | | | | Total Revenue | 1,567,961 | 1,434,935 | 9.3% | | Operating Income | 406,197 | 322,840 | 25.8% | | Net Income | 425,420 | 341,527 | 24.6% | | Diluted EPS | 3.23 | 2.54 | 27.2% | Consolidated Statements of Comprehensive Income (Unaudited) For the three and nine months ended September 30, 2024, the company's comprehensive income significantly increased, primarily due to higher net income and positive impacts from foreign currency translation adjustments and unrealized investment gains Consolidated Statements of Comprehensive Income Key Data | Indicator | For the Three Months Ended September 30, 2024 (thousand USD) | For the Three Months Ended September 30, 2023 (thousand USD) | | :------------------------- | :-------------------------- | :-------------------------- | | Three Months | | | | Net Income | 154,900 | 115,661 | | Other Comprehensive Income (Loss), Net of Tax | 15,716 | (10,556) | | Comprehensive Income | 170,616 | 105,105 | | Nine Months | | | | Net Income | 425,420 | 341,527 | | Other Comprehensive Income (Loss), Net of Tax | 10,366 | (1,568) | | Comprehensive Income | 435,786 | 339,959 | Consolidated Statements of Changes in Equity (Unaudited) For the nine months ended September 30, 2024, the company's total equity significantly increased, primarily driven by net income contributions and growth in additional paid-in capital, despite common stock repurchases and dividend payments Consolidated Statements of Changes in Equity Key Data (Nine Months) | Indicator | September 30, 2024 (thousand USD) | September 30, 2023 (thousand USD) | | :------------------------- | :-------------------------- | :-------------------------- | | Beginning Balance (January 1) | 2,131,828 | 1,953,824 | | Net Income | 425,420 | 341,527 | | Other Comprehensive Income (Loss) | 10,366 | (1,568) | | Common Stock Repurchases and Cancellations | (252,978) | (241,848) | | Additional Paid-in Capital | 1,477,880 | 1,369,465 | | Retained Earnings | 901,908 | 763,635 | | Dividends Paid | (60,285) | (57,177) | | Ending Balance (September 30) | 2,354,410 | 2,083,881 | Consolidated Condensed Statements of Cash Flows (Unaudited) For the nine months ended September 30, 2024, the company's operating cash flow significantly increased, while cash outflows from investing activities rose, and financing cash outflows also increased due to stock repurchases and dividend payments Consolidated Statements of Cash Flows Key Data (Nine Months) | Indicator | For the Nine Months Ended September 30, 2024 (thousand USD) | For the Nine Months Ended September 30, 2023 (thousand USD) | | :------------------------- | :-------------------------- | :-------------------------- | | Net Cash from Operating Activities | 427,074 | 345,982 | | Net Cash from Investing Activities | (57,185) | (48,237) | | Net Cash from Financing Activities | (310,392) | (294,886) | | Effect of Exchange Rate Changes | 6,941 | (1,474) | | Net Increase in Cash, Cash Equivalents, and Restricted Cash | 66,438 | 1,385 | | Cash, Cash Equivalents, and Restricted Cash at End of Period | 901,436 | 854,744 | Notes to Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies This note outlines the company's business nature, financial statement preparation basis, treatment of variable interest entities, revenue recognition principles, cash and cash equivalents, restricted cash, capitalized software accounting, and EPS calculation methods. The company had no significant accounting policy changes in the first nine months of 2024 and is evaluating new accounting standards - The company provides comprehensive platforms, services, and infrastructure, including technology, operations, and investment management services, to help wealth managers, financial advisors, investment managers, family offices, institutions, and private investors create and manage wealth[22] - The company has concluded that it is not the primary beneficiary of any variable interest entities (VIEs) and therefore does not consolidate any collective investment vehicles for which it provides asset management, distribution, administration, and custody services[24] - As of September 30, 2024, the net book value of the SEI Wealth Platform (SWP) was $208,457 thousand, with a weighted-average remaining life of 8.4 years. The company capitalized $18,414 thousand in software development costs for ongoing SWP enhancements and new platform development for the Investment Managers segment in the first nine months of 2024[25] Earnings Per Share Calculation | Indicator | For the Three Months Ended September 30, 2024 | For the Three Months Ended September 30, 2023 | For the Nine Months Ended September 30, 2024 | For the Nine Months Ended September 30, 2023 | | :------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Income | 154,900 | 115,661 | 425,420 | 341,527 | | Basic EPS | 1.20 | 0.87 | 3.26 | 2.57 | | Diluted EPS | 1.19 | 0.87 | 3.23 | 2.54 | - The company is evaluating the impact of ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Taxes) on its consolidated financial statements and related disclosures[28] Note 2. Investment in Unconsolidated Affiliate The company holds a 38.6% equity interest in LSV Asset Management, accounted for using the equity method. As of September 30, 2024, the total investment in LSV was $49,675 thousand. For the first nine months of 2024, the company received $112,476 thousand in partnership distributions from LSV, recorded as operating cash inflow - The company holds a 38.6% partnership interest in LSV Asset Management, accounted for using the equity method[32] LSV Asset Management Condensed Financial Information | Indicator | For the Three Months Ended September 30, 2024 (thousand USD) | For the Three Months Ended September 30, 2023 (thousand USD) | For the Nine Months Ended September 30, 2024 (thousand USD) | For the Nine Months Ended September 30, 2023 (thousand USD) | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenue | 122,412 | 102,183 | 343,581 | 309,211 | | Net Income | 94,634 | 77,566 | 265,335 | 237,119 | | Company's Share of LSV Earnings | 36,513 | 29,927 | 102,375 | 91,517 | - For the first nine months of 2024, the company received $112,476 thousand in partnership distributions from LSV, an increase from $100,252 thousand in the same period of 2023[32] Note 3. Composition of Certain Financial Statement Captions This note details the composition of accounts receivable, property and equipment, deferred contract costs, and accrued liabilities. As of September 30, 2024, total accounts receivable and deferred contract costs increased, while accrued liabilities decreased, primarily due to reduced accrued dividend payments Accounts Receivable Composition | Indicator | September 30, 2024 (thousand USD) | December 31, 2023 (thousand USD) | | :-------------------- | :--------------------- | :--------------------- | | Trade Receivables | 174,091 | 115,356 | | Earned but Unbilled Fees | 418,561 | 372,291 | | Other Receivables | 18,975 | 14,450 | | Allowance for Doubtful Accounts | (1,833) | (663) | | Net Accounts Receivable | 609,794 | 501,434 | Property and Equipment Composition | Indicator | September 30, 2024 (thousand USD) | December 31, 2023 (thousand USD) | | :-------------------- | :--------------------- | :--------------------- | | Buildings | 216,418 | 216,968 | | Equipment | 194,591 | 193,096 | | Land | 27,317 | 26,450 | | Accumulated Depreciation | (489,143) | (474,034) | | Net Property and Equipment | 164,927 | 171,364 | - As of September 30, 2024, deferred contract costs were $42,527 thousand, an increase from $40,221 thousand as of December 31, 2023. Amortization expense for deferred contract costs was $7,931 thousand for the first nine months of 2024[36] Accrued Liabilities Composition | Indicator | September 30, 2024 (thousand USD) | December 31, 2023 (thousand USD) | | :-------------------- | :--------------------- | :--------------------- | | Accrued Employee Compensation | 103,977 | 107,495 | | Accrued Voluntary Separation Plan | 5,515 | 21,058 | | Accrued Dividend Payable | 1,042 | 61,104 | | Total Accrued Liabilities | 258,167 | 318,945 | Note 4. Fair Value Measurements The fair value of the company's financial assets and liabilities is determined based on a fair value hierarchy, with most assets classified as Level 1 or Level 2. Investments in LSV-sponsored funds are measured using Net Asset Value (NAV) as a practical expedient. As of September 30, 2024, the company had no Level 3 financial assets, and Level 3 financial liabilities consisted entirely of estimated fair value of contingent consideration from acquisitions - The fair value of the company's financial assets is primarily determined using Level 1 (quoted prices in active markets) and Level 2 (observable inputs) inputs, including open-end mutual funds, GNMA mortgage-backed securities, and U.S. government agency short-term notes[38][39] - Investments in LSV-sponsored funds are measured using Net Asset Value (NAV) per share as a practical expedient[39] Fair Value Measurement Assets (September 30, 2024) | Asset | Total (thousand USD) | Level 1 (thousand USD) | Level 2 (thousand USD) | | :-------------------- | :------------- | :------------- | :------------- | | Equity Securities | 40,251 | 40,251 | — | | Available-for-Sale Debt Securities | 135,471 | — | 135,471 | | Held-to-Maturity Fixed Income Securities | 30,289 | — | 30,289 | | LSV-Sponsored Investment Funds | 8,410 | | | | Total | 214,421 | 40,251 | 165,760 | - As of September 30, 2024, and December 31, 2023, the company had no Level 3 financial assets requiring recurring fair value measurement. Level 3 financial liabilities consisted entirely of the estimated fair value of contingent consideration arising from acquisitions[39] Note 5. Marketable Securities The company's marketable securities include money market funds, commercial paper, available-for-sale debt securities, SEI-sponsored and non-SEI-sponsored mutual funds, equities, and securities held by SIDCO. As of September 30, 2024, available-for-sale debt securities had a net unrealized loss of $5,580 thousand, primarily due to rising interest rates, but the company does not intend to sell these investments - As of September 30, 2024, the fair value of SEI-sponsored and non-SEI-sponsored money market funds and commercial paper classified as cash equivalents was $633,780 thousand, an increase from $565,588 thousand as of December 31, 2023[43] Available-for-Sale and Equity Securities (September 30, 2024) | Security Type | Cost Amount (thousand USD) | Gross Unrealized Gains (thousand USD) | Gross Unrealized Losses (thousand USD) | Fair Value (thousand USD) | | :-------------------- | :------------- | :------------- | :------------- | :------------- | | Available-for-Sale Debt Securities | 142,718 | — | (7,247) | 135,471 | | SEI-Sponsored Mutual Funds | 32,203 | 2,144 | — | 34,347 | | Equity and Other Mutual Funds | 5,418 | 486 | — | 5,904 | | Total | 180,339 | 2,630 | (7,247) | 175,722 | - As of September 30, 2024, available-for-sale debt securities had a net unrealized loss of $5,580 thousand (net of income tax benefit of $1,667 thousand), primarily due to rising interest rates. The company does not intend to sell these investments[44] - As of September 30, 2024, the fair value of LSV-sponsored funds was $8,410 thousand, and the company recognized $1,094 thousand in unrealized gains for the first nine months of 2024[46] Note 6. Line of Credit The company has a $325,000 thousand five-year credit agreement maturing in April 2026. As of October 22, 2024, the company had $4,866 thousand in outstanding letters of credit, with $320,134 thousand available for general corporate purposes. The company complied with all credit agreement terms in the first nine months of 2024 - The company has a $325,000 thousand five-year credit agreement, which matures in April 2026[48] - As of October 22, 2024, the company had $4,866 thousand in outstanding letters of credit, with $320,134 thousand available for general corporate purposes[48] - The company complied with all terms of its credit agreement for the first nine months of 2024[48] Note 7. Shareholders' Equity The company recognized $37,224 thousand in stock-based compensation expense in the first nine months of 2024 and repurchased 3.73 million shares of common stock for a total cost of $252,978 thousand. The Board of Directors approved an additional $400,000 thousand stock repurchase authorization on October 22, 2024. The company declared a cash dividend of $0.46 per share on May 29, 2024 Stock-Based Compensation Expense | Indicator | For the Three Months Ended September 30, 2024 (thousand USD) | For the Three Months Ended September 30, 2023 (thousand USD) | For the Nine Months Ended September 30, 2024 (thousand USD) | For the Nine Months Ended September 30, 2023 (thousand USD) | | :------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Stock-Based Compensation Expense | 13,696 | 7,979 | 37,224 | 23,458 | | Deferred Tax Benefit | (2,616) | (1,438) | (7,201) | (4,278) | | Net Stock-Based Compensation Expense | 11,080 | 6,541 | 30,023 | 19,180 | - The company repurchased 3.73 million shares of common stock for a total cost of $252,978 thousand in the first nine months of 2024. As of September 30, 2024, approximately $29,100 thousand remained authorized under the company's stock repurchase plan. On October 22, 2024, the Board of Directors approved an additional $400,000 thousand stock repurchase authorization, increasing the available authorization to approximately $429,100 thousand[51] - Cash dividends declared for the first nine months of 2024 were $60,285 thousand ($0.46 per share), an increase from $57,177 thousand in the same period of 2023[52] Note 8. Accumulated Other Comprehensive Loss As of September 30, 2024, the company's accumulated other comprehensive loss was $26,666 thousand, a decrease from $37,032 thousand on January 1, 2024, primarily due to positive changes in foreign currency translation adjustments and unrealized investment gains Accumulated Other Comprehensive Loss Composition | Indicator | Foreign Currency Translation Adjustments (thousand USD) | Unrealized Gains (Losses) on Investments (thousand USD) | Accumulated Other Comprehensive Loss (thousand USD) | | :------------------------- | :--------------------- | :-------------------------- | :--------------------- | | Balance as of January 1, 2024 | (30,157) | (6,875) | (37,032) | | Net Other Comprehensive Income for the Period | 9,071 | 1,295 | 10,366 | | Balance as of September 30, 2024 | (21,086) | (5,580) | (26,666) | Note 9. Business Segment Information The company reports five business segments: Private Banks, Investment Advisors, Institutional Investors, Investment Managers, and Investments in New Businesses. In Q1 2024, the company reorganized some segments based on the Chief Operating Decision Maker's (CODM) management approach and adjusted financial reporting accordingly. All segments showed revenue and operating profit growth in the first nine months of 2024, with the Investment Managers segment performing particularly well - The company's reported business segments include: Private Banks, Investment Advisors, Institutional Investors, Investment Managers, and Investments in New Businesses[54] - In the first quarter of 2024, the company reorganized certain business segments based on the CODM's management approach, reclassifying some client relationships from the Private Banks segment to the Investment Managers segment, and reclassifying the Family Office Services business from the Investment Managers segment to the Investments in New Businesses segment[54] Revenue and Operating Profit by Business Segment (Nine Months) | Segment | Revenue (thousand USD) | Operating Profit (thousand USD) | | :-------------------- | :------------- | :------------- | | Private Banks | 401,272 | 61,311 | | Investment Advisors | 370,141 | 164,078 | | Institutional Investors | 214,911 | 98,525 | | Investment Managers | 537,128 | 202,173 | | Investments in New Businesses | 44,509 | (10,894) | | Total | 1,567,961 | 515,193 | Capital Expenditures and Depreciation by Business Segment (Nine Months) | Segment | Capital Expenditures (thousand USD) | Depreciation (thousand USD) | | :-------------------- | :------------- | :------------- | | Private Banks | 13,782 | 8,356 | | Investment Advisors | 6,244 | 6,625 | | Institutional Investors | 2,589 | 1,816 | | Investment Managers | 21,260 | 4,874 | | Investments in New Businesses | 713 | 528 | | Total | 44,588 | 22,199 | Note 10. Income Taxes As of September 30, 2024, the company's total unrecognized tax benefits liability was $17,766 thousand, of which $17,604 thousand would impact the effective tax rate. The effective income tax rate for the first nine months of 2024 was 23.4%, slightly higher than 23.2% in the same period of 2023. The company does not expect Pillar Two global minimum corporate tax to have a material impact on its effective tax rate, consolidated operating results, financial position, or cash flows Total Unrecognized Tax Benefits Liability | Indicator | September 30, 2024 (thousand USD) | December 31, 2023 (thousand USD) | | :------------------------- | :--------------------- | :--------------------- | | Total Unrecognized Tax Benefits Liability | 17,766 | 15,532 | | Interest and Penalties on Unrecognized Benefits | 2,232 | 1,385 | | Total Uncertain Tax Positions | 19,998 | 16,917 | Effective Income Tax Rate | Indicator | For the Three Months Ended September 30, 2024 (%) | For the Three Months Ended September 30, 2023 (%) | For the Nine Months Ended September 30, 2024 (%) | For the Nine Months Ended September 30, 2023 (%) | | :------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Statutory Rate | 21.0 % | 21.0 % | 21.0 % | 21.0 % | | State Taxes (Net of Federal Benefit) | 2.9 % | 2.8 % | 2.9 % | 2.8 % | | Foreign Tax Fees and Rate Differences | 0.1 % | (0.1)% | 0.1 % | (0.1)% | | Stock-Based Compensation Tax Benefit | (0.4)% | (0.3)% | (0.4)% | (0.3)% | | Other, Net | (0.2)% | (0.2)% | (0.2)% | (0.2)% | | Effective Tax Rate | 23.5 % | 22.5 % | 23.4 % | 23.2 % | - The company has determined that the Pillar Two global minimum corporate tax will not have a material impact on its effective tax rate, consolidated operating results, financial position, or cash flows[63] Note 11. Commitments and Contingencies The company faces various legal proceedings and regulatory reviews, including fraud allegations related to Rubicon Wealth Management, lawsuits against SEI Private Trust Company, and a UK FCA regulatory review of SEI Investments (Europe) Limited. Despite uncertainties, the company currently does not believe these matters will have a material adverse effect on its overall financial condition - Nine clients of Rubicon Wealth Management filed a lawsuit against SEI Private Trust Company (SPTC), alleging breach of contract, breach of fiduciary duty, negligence, and violation of state consumer protection laws in connection with the transfer of client assets to an Orchard Park bank account. SPTC estimates the total assets involved to be approximately $15,000 thousand[66] - SEI Investments (Europe) Limited (SIEL) received a notice from the UK Financial Conduct Authority (FCA) requiring it to appoint a "Skilled Person" to conduct a two-phase review of SIEL's governance arrangements and control environment. The Phase 1 report is expected to be completed by early December 2024[66][67] - The company believes that other examinations, inquiries, litigation, and claims arising in the ordinary course of business will not have a material adverse effect on its financial condition or the manner in which it conducts its business[68] Note 12. Goodwill and Intangible Assets As of September 30, 2024, the company's total goodwill was $138,085 thousand, a slight increase from December 31, 2023, primarily due to foreign currency translation adjustments and segment reorganization. For the first nine months of 2024, the company recognized $10,066 thousand in amortization expense for acquired intangible assets Goodwill by Segment Change | Segment | Balance as of December 31, 2023 (thousand USD) | Balance as of September 30, 2024 (thousand USD) | | :-------------------- | :-------------------------- | :-------------------------- | | Institutional Investors | 61,884 | 62,639 | | Investment Managers | 56,990 | 55,276 | | Investments in New Businesses | 18,459 | 20,170 | | Total | 137,333 | 138,085 | - For the first nine months of 2024, the company recognized $10,066 thousand in amortization expense for acquired intangible assets, an increase from $9,178 thousand in the same period of 2023[69] - The company made a $1,547 thousand adjustment to contingent consideration in the first nine months of 2024, reducing its fair value. As of September 30, 2024, the fair value of contingent consideration was $2,611 thousand[69] Note 13. Revenues from Contracts with Customers The company's revenue primarily derives from asset management, administration, and distribution fees, as well as information processing and software service fees. This note categorizes revenue by major product line and geographic market and explains recognition methods for investment management fees, investment operations fees, Platform-as-a-Service (PaaS), and Software-as-a-Service (SaaS) processing fees - The company's primary revenue sources include: asset management, administration, and distribution fees based on a percentage of net assets under management or administration; and information processing and software service fees based on the number of serviced accounts, a percentage of the market value of assets processed on a platform, or project-based contracts[70] Revenue by Major Product Line and Geographic Market (For the Nine Months Ended September 30, 2024) | Product Line/Geographic Market | Private Banks (thousand USD) | Investment Advisors (thousand USD) | Institutional Investors (thousand USD) | Investment Managers (thousand USD) | Investments in New Businesses (thousand USD) | Total (thousand USD) | | :-------------------------- | :------------- | :------------- | :------------- | :------------- | :------------- | :------------- | | Major Product Lines | | | | | | | | Investment Management Fees from Pooled Investment Products | 99,913 | 176,368 | 36,185 | 273 | 1,323 | 314,062 | | Investment Management Fees from Investment Management Agreements | 3,229 | 144,203 | 162,046 | — | 13,663 | 323,141 | | Investment Operations Fees | 1,650 | 30,397 | — | 511,203 | 3,561 | 546,811 | | Investment Processing Fees - PaaS | 214,001 | 4,109 | 1,081 | 3,772 | 26 | 222,989 | | Investment Processing Fees - SaaS | 66,065 | — | 6,335 | 19 | 15,459 | 87,878 | | Professional Service Fees | 14,042 | — | — | 2,749 | 2,337 | 19,128 | | Account Fees and Other | 2,372 | 15,064 | 9,264 | 19,112 | 8,140 | 53,952 | | Total Revenue | 401,272 | 370,141 | 214,911 | 537,128 | 44,509 | 1,567,961 | | Major Geographic Markets | | | | | | | | United States | 262,886 | 370,141 | 177,134 | 484,785 | 44,509 | 1,339,455 | | United Kingdom | 93,264 | — | 28,305 | — | — | 121,569 | | Canada | 30,234 | — | 4,384 | — | — | 34,618 | | Ireland | 14,888 | — | 5,088 | 30,600 | — | 50,576 | | Luxembourg | — | — | — | 21,743 | — | 21,743 | | Total Revenue | 401,272 | 370,141 | 214,911 | 537,128 | 44,509 | 1,567,961 | - Investment operations fees include revenue from client cash balances held in FDIC-insured accounts through the SEI Integrated Cash Program[75] - Investment processing fees - SaaS include fees for hosted technology services provided through the Archway Platform for family offices and financial institutions, as well as data management, performance measurement, reporting, and risk analytics services provided through the SEI Novus investment portfolio intelligence tool[77] Note 14. Sale of Property On July 8, 2024, the company sold an apartment in New York and recognized a pre-tax net gain of $8,151 thousand, recorded in 'Other income' on the consolidated statements of operations - On July 8, 2024, the company sold an apartment in New York and recognized a pre-tax net gain of $8,151 thousand. This gain is included in 'Other income' on the consolidated statements of operations[78] Management's Discussion and Analysis of Financial Condition and Results of Operations Overview SEI provides technology and investment solutions connecting the financial services industry, covering investment processing, operations, and asset management. As of September 30, 2024, the company managed, advised, or administered $1.6 trillion in assets. For the first nine months of 2024, revenue and net income grew by 9% and 25% respectively, driven by increased asset management fees, information processing fees, and LSV earnings, though operating expenses also rose - As of September 30, 2024, the company, through its subsidiaries and partnerships in which it has a significant interest, managed, advised, or administered $1.6 trillion in hedge funds, private equity, mutual funds, and collective or separately managed assets[81] Consolidated Statements of Operations Summary (Nine Months) | Indicator | 2024 (thousand USD) | 2023 (thousand USD) | Change (%) | | :------------------------- | :------------- | :------------- | :------- | | Revenue | 1,567,961 | 1,434,935 | 9% | | Expenses | 1,161,764 | 1,112,095 | 4% | | Operating Income | 406,197 | 322,840 | 26% | | Net Income | 425,420 | 341,527 | 25% | | Diluted EPS | 3.23 | 2.54 | 27% | - Revenue from asset management, administration, and distribution fees increased, primarily from cross-selling and new sales to existing alternative investment clients in the Investment Managers segment, as well as market appreciation and cash inflows into separately managed accounts and strategist programs in the Investment Advisors segment[82] - Revenue from information processing and software service fees increased, primarily from new client conversions and growth from existing SEI Wealth Platform (SWP) clients[82] - LSV earnings increased to $102.4 million, primarily due to market appreciation and higher performance fees[83] - Operating expenses increased, primarily due to higher personnel costs from business growth, stock-based compensation expense, and the impact of inflation on wages and services[83] - For the first nine months of 2024, the company repurchased 3.7 million shares of common stock for $253.0 million[83] Ending Asset Balances As of September 30, 2024, the company's total assets (including assets under management, advisement, or administration) reached $1,576,320 million, a 20% increase from September 30, 2023. All business segments experienced asset growth, with significant increases in client administered assets and collective trust fund assets for the Investment Managers segment Ending Asset Balances (As of September 30, 2024) | Segment | September 30, 2024 (million USD) | September 30, 2023 (million USD) | Change (%) | | :------------------------- | :-------------------------- | :-------------------------- | :------- | | Private Banks Total Assets | 37,867 | 31,080 | 22% | | Investment Advisors Total Platform Assets | 108,099 | 88,318 | 22% | | Institutional Investors Total Assets | 89,120 | 78,595 | 13% | | Investment Managers Total Assets | 1,227,177 | 1,018,556 | 20% | | Investments in New Businesses Total Assets | 20,202 | 18,286 | 10% | | LSV Equity and Fixed Income Programs | 93,855 | 83,684 | 12% | | Total | 1,576,320 | 1,318,519 | 20% | | Total Client Administered Assets | 1,045,974 | 890,781 | 17% | | Platform Exclusive Assets | 26,948 | 16,232 | 66% | - The Investment Managers segment's collective trust fund assets grew by 39%, and client administered assets grew by 17%[85] - The Investment Advisors segment's platform exclusive deposit program assets grew from zero, indicating significant new business growth[85] Average Asset Balances For the nine months ended September 30, 2024, the company's average total assets (including assets under management, advisement, or administration) reached $1,490,986 million, a 15% increase from the same period in 2023. Average asset balances generally increased across all business segments, with significant growth in average assets under management and client administered assets for the Investment Managers segment Average Asset Balances (For the Nine Months Ended September 30, 2024) | Segment | 2024 (million USD) | 2023 (million USD) | Change (%) | | :------------------------- | :------------- | :------------- | :------- | | Private Banks Total Assets | 36,166 | 31,474 | 15% | | Investment Advisors Total Platform Assets | 100,684 | 88,985 | 13% | | Institutional Investors Total Assets | 85,591 | 80,908 | 6% | | Investment Managers Total Assets | 1,157,620 | 993,525 | 17% | | Investments in New Businesses Total Assets | 19,341 | 19,449 | (1)% | | LSV Equity and Fixed Income Programs | 91,584 | 86,050 | 6% | | Total | 1,490,986 | 1,300,391 | 15% | | Total Client Administered Assets | 998,422 | 866,009 | 15% | | Platform Exclusive Assets | 22,066 | 15,635 | 41% | - The Investment Managers segment's average collective trust fund assets grew by 23%, and average client administered assets grew by 15%[89] - The Investment Advisors segment's platform exclusive deposit program average assets grew from zero, indicating strong new business growth[89] Business Segments The company's business segments generally achieved revenue and operating profit growth in the first nine months of 2024. Private Banks and Investment Advisors benefited from new client conversions, existing client growth, and market appreciation. Institutional Investors saw a slight revenue decline but still grew operating profit. Investment Managers achieved double-digit growth in both revenue and operating profit, driven by increased services for alternative fund clients and cash inflows. Investments in New Businesses grew revenue but remained in an operating loss position Revenue, Expenses, and Operating Profit by Business Segment (Nine Months) | Segment | Revenue (thousand USD) | Expenses (thousand USD) | Operating Profit (thousand USD) | Operating Profit Margin (%) | | :-------------------- | :------------- | :------------- | :------------- | :------------- | | Private Banks | 401,272 | 339,961 | 61,311 | 15% | | Investment Advisors | 370,141 | 206,063 | 164,078 | 44% | | Institutional Investors | 214,911 | 116,386 | 98,525 | 46% | | Investment Managers | 537,128 | 334,955 | 202,173 | 38% | | Investments in New Businesses | 44,509 | 55,403 | (10,894) | NM | | Total | 1,567,961 | 1,052,768 | 515,193 | | Private Banks The Private Banks segment's revenue grew by 8% and operating profit by 74% in the first nine months of 2024. Growth was driven by new SWP client conversions, existing client growth, and increased investment processing and management fees from market appreciation, with cost control measures also contributing to profit growth - For the first nine months of 2024, the Private Banks segment's revenue grew by 8%, and operating profit grew by 74%[97] - Revenue growth primarily resulted from new SWP client conversions and growth from existing SWP clients (market appreciation and increased transaction volumes), as well as increased investment management fees from existing international clients[97] - Operating profit growth was primarily due to increased revenue and cost control measures (mainly reduced non-capitalized consulting and other vendor costs), partially offset by increased SWP amortization expense and higher personnel costs[97] Investment Advisors The Investment Advisors segment's revenue grew by 13% and operating profit by 22% in the first nine months of 2024. Growth was primarily driven by increases in separately managed accounts and strategist programs (existing clients and market appreciation) and new revenue from the SEI Integrated Cash Program launched in December 2023 - For the first nine months of 2024, the Investment Advisors segment's revenue grew by 13%, and operating profit grew by 22%[98][100] - Revenue growth primarily resulted from increases in separately managed accounts and strategist programs (existing clients and market appreciation), as well as new revenue from the SEI Integrated Cash Program ($30.4 million) for the first nine months of 2024[98] - Operating profit growth was primarily due to increased revenue and reduced non-capitalized consulting costs, partially offset by increased direct expenses related to separately managed accounts and higher personnel costs[100] Institutional Investors The Institutional Investors segment's revenue slightly decreased by 2% in the first nine months of 2024, but operating profit still grew by 5%. Revenue decline was mainly due to client attrition, but was partially offset by increased investment management fees from existing clients (market appreciation) and revenue from the acquisition of XPS Pensions (Nexus) Limited. Operating profit growth was primarily due to reduced direct expenses and personnel costs - For the first nine months of 2024, the Institutional Investors segment's revenue decreased by 2%, and operating profit grew by 5%[101] - Revenue decline was primarily due to reduced investment management fees from client attrition, partially offset by increased investment management fees from existing clients (market appreciation) and revenue from the acquisition of XPS Pensions (Nexus) Limited[101] - Operating profit growth was primarily due to reduced direct expenses related to investment management fees, lower personnel costs, and the elimination of a one-time operating expense ($4.5 million) in the second quarter of 2023, partially offset by decreased revenue and increased costs related to the acquisition of XPS Pensions (Nexus) Limited[101] Investment Managers The Investment Managers segment's revenue and operating profit both grew by 13% and 20% respectively in the first nine months of 2024. Growth was primarily driven by additional services for the largest alternative fund clients and cash inflows into alternative and traditional funds from new and existing clients, but partially offset by client attrition and fund closures - For the first nine months of 2024, the Investment Managers segment's revenue grew by 13%, and operating profit grew by 20%[101] - Revenue growth primarily resulted from additional services provided to the largest alternative fund clients, as well as cash inflows into alternative and traditional funds from new and existing clients[101] - Operating profit growth was primarily due to increased revenue and reduced non-capitalized investment expenditures (mainly consulting costs), partially offset by increased costs related to new business (primarily personnel and stock-based compensation costs, and third-party vendor costs) and technology maintenance costs[101] Investments in New Businesses The Investments in New Businesses segment's revenue grew by 15% in the first nine months of 2024 but remained in an operating loss position. Revenue growth was primarily from hosted technology services provided by SEI Family Office Services (non-recurring implementation fees and new business) and increased assets under advisement for SEI Private Wealth Management (market appreciation and new business) - For the first nine months of 2024, the Investments in New Businesses segment's revenue grew by 15%, but it remained in an operating loss position[103][104] - Revenue growth primarily resulted from hosted technology services provided by SEI Family Office Services (non-recurring implementation fees and new business) and increased assets under advisement for SEI Private Wealth Management (market appreciation and new business)[104] Other This section discusses other financial impacts, including corporate overhead expenses, other income and expense (such as net investment gains, interest and dividend income, property sale gains, and equity in earnings of LSV), amortization expense, income tax rate, and stock-based compensation expense. Corporate overhead and stock-based compensation expenses both increased, while LSV earnings also grew due to market appreciation and higher performance fees Corporate Overhead Expenses For the nine months ended September 30, 2024, corporate overhead expenses increased to $109.0 million, up from $94.5 million in the same period of 2023, primarily due to severance, stock-based compensation, and investments in technology upgrades and compliance infrastructure for corporate administration - For the first nine months of 2024, corporate overhead expenses were $109.0 million, an increase from $94.5 million in the same period of 2023[105] - The increase in expenses was primarily due to severance, stock-based compensation expense, and investments in various technology upgrades and compliance infrastructure for corporate administration[105] Other Income and Expense For the nine months ended September 30, 2024, net other income and expense increased to $149.4 million, up from $121.6 million in the same period of 2023. This was primarily driven by growth in net investment gains, interest and dividend income, an $8.2 million net gain from the sale of a New York apartment, and significantly increased equity in earnings of LSV Net Other Income and Expense Items (Nine Months) | Indicator | 2024 (thousand USD) | 2023 (thousand USD) | | :------------------------- | :------------- | :------------- | | Net Investment Gains (Losses) | 3,349 | 1,053 | | Interest and Dividend Income | 35,950 | 29,453 | | Interest Expense | (419) | (396) | | Equity in Earnings of Unconsolidated Affiliate | 102,375 | 91,517 | | Other Income | 8,151 | — | | Total Net Other Income and Expense Items | 149,406 | 121,627 | - Net investment gains primarily resulted from unrealized mark-to-market gains from LSV-sponsored investment funds and company-sponsored investment funds[106] - Interest and dividend income increased due to higher overall interest rates and increased investment cash balances[107] - Other income includes an $8.2 million pre-tax net gain recognized from the sale of an apartment in New York in July 2024[107] - Equity in earnings of LSV increased primarily due to market appreciation and higher performance fees, with LSV's average assets under management growing by 6% for the first nine months of 2024[110] Amortization For the nine months ended September 30, 2024, total amortization expense increased to $31,284 thousand, an 8% increase from the same period in 2023. Amortization expense for capitalized software development costs increased, primarily due to significant enhancements to the SEI Wealth Platform (SWP) Amortization Expense (Nine Months) | Indicator | 2024 (thousand USD) | 2023 (thousand USD) | Change (%) | | :------------------------- | :------------- | :------------- | :------- | | Capitalized Software Development Costs | 20,961 | 19,470 | 8% | | Intangible Assets Acquired Through Acquisitions and Asset Purchases | 10,066 | 9,178 | 10% | | Other | 257 | 203 | 27% | | Total Amortization Expense | 31,284 | 28,851 | 8% | - The increase in amortization expense for capitalized software development costs was primarily due to significant enhancements to the SEI Wealth Platform (SWP)[111] Income Taxes The effective income tax rate for the nine months ended September 30, 2024, was 23.4%, slightly higher than 23.2% in the same period of 2023, primarily influenced by state taxes (net of federal benefit) and foreign tax fees and rate differences Effective Income Tax Rate Composition (Nine Months) | Indicator | 2024 (%) | 2023 (%) | | :------------------------- | :-------- | :-------- | | Statutory Rate | 21.0 % | 21.0 % | | State Taxes (Net of Federal Benefit) | 2.9 % | 2.8 % | | Foreign Tax Fees and Rate Differences | 0.1 % | (0.1)% | | Stock-Based Compensation Tax Benefit | (0.4)% | (0.3)% | | Other, Net | (0.2)% | (0.2)% | | Effective Tax Rate | 23.4 % | 23.2 % | Stock-Based Compensation For the nine months ended September 30, 2024, stock-based compensation expense increased to $37.2 million, up from the same period in 2023, primarily due to new equity awards granted in Q4 2023. Changes in management's estimates for performance goal achievement timing led to a $3.1 million increase in stock-based compensation expense for the first nine months of 2024 - For the first nine months of 2024, stock-based compensation expense was $37.2 million, an increase from $23.5 million in the same period of 2023, primarily due to new equity awards granted in the fourth quarter of 2023[113] - Changes in management's estimates for the timing of achieving certain vesting goals resulted in an increase of $3.1 million in stock-based compensation expense for the first nine months of 2024[114] - The company expects to recognize approximately $31.9 million in stock-based compensation expense for the remainder of 2024[114] Fair Value Measurements The fair value of the company's financial assets and liabilities is determined based on a fair value hierarchy, with most assets using Level 1 or Level 2 inputs. Investments in LSV-sponsored funds are measured using Net Asset Value (NAV) as a practical expedient. Level 3 financial liabilities consist entirely of estimated fair value of contingent consideration from acquisitions - The fair value of the company's financial assets and liabilities is determined based on a fair value hierarchy, with most assets using Level 1 or Level 2 inputs[115] - Investments in LSV-sponsored funds are measured using Net Asset Value (NAV) per share as a practical expedient[115] - As of September 30, 2024, and December 31, 2023, Level 3 financial liabilities consisted entirely of the estimated fair value of contingent consideration arising from acquisitions[115] Regulatory Matters The company faces a complex and evolving regulatory environment, including examinations, inquiries, and investigations from multiple global regulators. Regulatory activities may lead to issues, remediation, or enforcement actions, potentially having a material adverse effect on the company's operating results or financial condition. The company and its subsidiaries are subject to US and foreign anti-money laundering, financial transparency, economic sanctions, data privacy, and protection laws, incurring high compliance costs and increased risks - The company faces a complex and evolving regulatory environment, including examinations, inquiries, and investigations from agencies such as the Office of the Comptroller of the Currency, the Securities and Exchange Commission, the Financial Industry Regulatory Authority, the UK Financial Conduct Authority, and the Central Bank of Ireland[116] - Regulatory activities may lead to issues, remediation, or enforcement actions, and could have a material adverse effect on the company's operating results or financial condition[116] - The company and its subsidiaries are subject to US and foreign anti-money laundering, financial transparency, economic sanctions, data privacy, and protection laws, incurring high compliance costs and increased risks[124][125] Liquidity and Capital Resources The company's liquidity is primarily met through operating cash flow and its line of credit. As of October 22, 2024, the company had $320.1 million available under its credit line. For the first nine months of 2024, operating cash flow increased by $81.1 million, mainly due to net income growth. Investing cash outflows increased, primarily for marketable securities purchases and capitalized software development. Financing cash outflows increased, mainly for stock repurchases and dividend payments. The company expects existing funds and operating cash flow to be sufficient for future operating needs and stock repurchase plans - As of October 22, 2024, the company had $320.1 million available under its credit line and complied with all credit agreement terms[117][119] - As of October 22, 2024, free and immediately available cash and cash equivalents for general corporate purposes totaled $520.6 million[119] Cash Flow Statement Summary (Nine Months) | Indicator | 2024 (thousand USD) | 2023 (thousand USD) | | :------------------------- | :------------- | :------------- | | Net Cash from Operating Activities | 427,074 | 345,982 | | Net Cash from Investing Activities | (57,185) | (48,237) | | Net Cash from Financing Activities | (310,392) | (294,886) | | Net Increase in Cash, Cash Equivalents, and Restricted Cash | 66,438 | 1,385 | | Cash, Cash Equivalents, and Restricted Cash at End of Period | 901,436 | 854,744 | - For the first nine months of 2024, operating cash flow increased by $81.1 million, primarily due to net income growth[119] - Investing cash outflows were primarily for purchases of marketable securities (net outflow of $13.3 million), capitalized software development ($18.4 million), and capital expenditures ($27.2 million)[120] - Financing cash outflows were primarily for common stock repurchases ($252.9 million) and dividend payments ($120.3 million)[120] Forward-Looking Information and Risk Factors This section contains forward-looking statements and alerts investors to various risks and uncertainties that could affect the company's future operations, strategy, and financial performance. These risks include capital market changes, product development risks, competitive pressures, third-party service provider risks, cybersecurity risks, regulatory environment changes, legal litigation, talent retention, and unforeseen catastrophic events. The company operates through multiple regulated subsidiaries and is subject to extensive laws, regulations, and oversight - Forward-looking statements are based on estimates and assumptions and involve certain risks and uncertainties that could cause actual future revenues and profits to differ materially from expected results[122] - Key risks include changes in capital markets, product development risks, failure of third-party service providers, competitive pressures, impact of LSV Asset Management's performance, software defects, data and cybersecurity risks, changes in the regulatory environment, legal litigation, talent retention, unforeseen catastrophic events, and geopolitical instability[122][123] - The company operates through multiple regulated subsidiaries and is subject to extensive laws, regulations, and oversight, which could have a material adverse effect on the company and its clients[124][125] PART II. OTHER INFORMATION Item 1. Legal Proceedings. The company and certain subsidiaries are parties to litigation and other proceedings, examinations, and investigations arising in the ordinary course of business. The company does not consider these matters material, although an unfavorable resolution of any matter could have a material impact on net income for any particular interim reporting period - The company and certain of its subsidiaries are parties to litigation and other proceedings, examinations, and investigations arising in the ordinary course of business[130] - The company believes that the outcome of any of these matters is unlikely to have a material adverse effect on SEI as a whole, although an unfavorable resolution of any matter could have a material impact on net income for any particular interim reporting period[130] - These matters include the proceedings summarized in Note 11, "Commitments and Contingencies," to the consolidated financial statements[130] Item 1A. Risk Factors. The risk factor information in this report is not materially changed from the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - The risk factor information in this report is not materially changed from the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023[131] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. The company repurchased 1,273,000 shares of common stock at an average cost of $66.81 per share (excluding excise tax) during the third quarter of 2024. As of September 30, 2024, approximately $29.1 million remained authorized under the company's stock repurchase plan. The Board of Directors approved an additional $400.0 million stock repurchase authorization on October 22, 2024, increasing the available authorization to approximately $429.1 million Common Stock Repurchase Information (Third Quarter 2024) | Period | Total Number of Shares Purchased | Average Price Per Share (1) | Number of Shares Purchased Under Publicly Announced Plans | | :----------- | :----------- | :---------------- | :------------------- | | July 2024 | 125,000 | $67.28 | 125,000 | | August 2024 | 623,000 | $66.02 | 623,000 | | September 2024 | 525,000 | $67.64 | 525,000 | | Total | 1,273,000 | $66.81 | 1,273,000 | - As of September 30, 2024, approximately $29.1 million remained authorized under the company's stock repurchase plan. On October 22, 2024, the Board of Directors approved an additional $400.0 million stock repurchase authorization, increasing the available authorization to approximately $429.1 million[134] Item 5. Other Information During the three months ended September 30, 2024, no officers or directors adopted or terminated any contract, instruction, or written plan for the purchase or sale of securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c), nor were there any 'non-Rule 10b5-1 trading arrangements' - During the three months ended September 30, 2024, no officers or directors adopted or terminated any contract, instruction, or written plan for the purchase or sale of securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c), nor were there any "non-Rule 10b5-1 trading arrangements"[132] Item 6. Exhibits. This report includes a series of exhibits, including employment agreements, certifications from the Chief Executive Officer and Chief Financial Officer, and XBRL-related documents - Exhibits include employment agreements, certifications from the Chief Executive Officer and Chief Financial Officer, and XBRL instance document, taxonomy extension schema document, calculation linkbase document, definition linkbase document, label linkbase document, and presentation linkbase document[135] Signatures This report was formally signed by Sean J. Denham, Chief Financial Officer of SEI Investments Company, on October 25, 2024 - This report was signed by Sean J. Denham, Chief Financial Officer of SEI Investments Company, on October 25, 2024[136]