SEI(SEIC) - 2022 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements. This section presents the unaudited consolidated financial statements of SEI Investments Company, including the Balance Sheets, Statements of Operations, Comprehensive Income, Changes in Equity, and Condensed Statements of Cash Flows for the periods ended June 30, 2022, and December 31, 2021, or June 30, 2022 and 2021, respectively. These statements provide a snapshot of the company's financial position, performance, and cash movements Consolidated Balance Sheets (Unaudited) | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (2022 vs 2021) | | :----------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | | Assets: | | | | | Cash and cash equivalents | $771,673 | $831,407 | $(59,734) | | Total Current Assets | $1,375,531 | $1,404,229 | $(28,698) | | Total Assets | $2,234,929 | $2,354,702 | $(119,773) | | Liabilities & Equity: | | | | | Total Current Liabilities | $253,560 | $355,743 | $(102,183) | | Borrowings Under Revolving Credit Facility | $— | $40,000 | $(40,000) | | Total Liabilities | $312,841 | $493,939 | $(181,098) | | Total Shareholders' Equity | $1,922,088 | $1,860,763 | $61,325 | | Total Liabilities and Shareholders' Equity | $2,234,929 | $2,354,702 | $(119,773) | - Total assets decreased by $119.8 million, or 5.1%, from December 31, 2021, to June 30, 2022, primarily driven by a decrease in cash and cash equivalents and investments[12][15] - Total liabilities decreased by $181.1 million, or 36.7%, largely due to the repayment of $40.0 million under the revolving credit facility and a significant reduction in accrued liabilities[15] - Shareholders' equity increased by $61.3 million, or 3.3%, primarily due to retained earnings growth, partially offset by accumulated other comprehensive loss[15] Consolidated Statements of Operations (Unaudited) | Metric | 3 Months Ended June 30, 2022 (in thousands) | 3 Months Ended June 30, 2021 (in thousands) | YoY Change (%) | 6 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2021 (in thousands) | YoY Change (%) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :------------- | :---------------------------------------- | :---------------------------------------- | :------------- | | Total revenues | $481,670 | $475,651 | 1% | $1,063,113 | $931,337 | 14% | | Total expenses | $365,810 | $339,630 | 8% | $732,454 | $662,479 | 11% | | Income from operations | $115,860 | $136,021 | (15)% | $330,659 | $268,858 | 23% | | Net income | $111,276 | $133,778 | (17)% | $301,584 | $263,248 | 15% | | Basic earnings per common share | $0.82 | $0.94 | (13)% | $2.20 | $1.85 | 19% | | Diluted earnings per common share | $0.81 | $0.93 | (13)% | $2.17 | $1.82 | 19% | | Dividends declared per common share | $0.40 | $0.37 | 8% | $0.40 | $0.37 | 8% | - For the three months ended June 30, 2022, total revenues saw a slight increase of 1%, while net income decreased by 17% due to higher expenses and a net loss from investments[18] - For the six months ended June 30, 2022, total revenues increased by 14%, and net income increased by 15%, driven by higher information processing and software servicing fees, including one-time early termination fees[18][137] Consolidated Statements of Comprehensive Income (Unaudited) | Metric | 3 Months Ended June 30, 2022 (in thousands) | 3 Months Ended June 30, 2021 (in thousands) | 6 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2021 (in thousands) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net income | $111,276 | $133,778 | $301,584 | $263,248 | | Foreign currency translation adjustments | $(14,623) | $994 | $(19,181) | $2,679 | | Unrealized loss on investments, net of tax | $(3,088) | $(292) | $(7,057) | $(835) | | Reclassification adjustment for losses realized in net income, net of tax | $129 | $179 | $318 | $432 | | Total other comprehensive (loss) income, net of tax | $(17,582) | $881 | $(25,920) | $2,276 | | Comprehensive income | $93,694 | $134,659 | $275,664 | $265,524 | - Comprehensive income decreased significantly for the three months ended June 30, 2022, to $93.7 million from $134.7 million in the prior year, primarily due to foreign currency translation adjustments and unrealized losses on investments[21] - For the six months ended June 30, 2022, comprehensive income increased to $275.7 million from $265.5 million, despite substantial foreign currency translation adjustments and unrealized losses on investments[21] Consolidated Statements of Changes in Equity (Unaudited) | Metric | 3 Months Ended June 30, 2022 (in thousands) | 3 Months Ended June 30, 2021 (in thousands) | 6 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2021 (in thousands) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Total Equity (Beginning Balance) | $1,973,083 | $1,829,108 | $1,860,763 | $1,739,907 | | Net income | $111,276 | $133,778 | $301,584 | $263,248 | | Other comprehensive (loss) income | $(17,582) | $881 | $(25,920) | $2,276 | | Purchase and retirement of common stock | $(109,293) | $(129,219) | $(209,383) | $(196,158) | | Dividends declared | $(54,378) | $(52,389) | $(54,378) | $(52,389) | | Total Equity (Ending Balance) | $1,922,088 | $1,805,606 | $1,922,088 | $1,805,606 | - For the three months ended June 30, 2022, total equity decreased from $1,973.1 million to $1,922.1 million, primarily due to common stock repurchases and dividends, partially offset by net income[24] - For the six months ended June 30, 2022, total equity increased from $1,860.8 million to $1,922.1 million, driven by net income, but significantly impacted by common stock repurchases totaling $209.4 million[27][78] Consolidated Condensed Statements of Cash Flows (Unaudited) | Metric | 6 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2021 (in thousands) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net cash provided by operating activities | $330,615 | $324,997 | | Net cash used in investing activities | $(42,516) | $(56,087) | | Net cash used in financing activities | $(332,173) | $(277,936) | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | $(15,660) | $2,578 | | Net decrease in cash, cash equivalents and restricted cash | $(59,734) | $(6,448) | | Cash, cash equivalents and restricted cash, end of period | $772,024 | $781,279 | - Net cash provided by operating activities increased slightly to $330.6 million in the first six months of 2022, up from $325.0 million in the prior year, primarily due to increased net income[30][178] - Net cash used in investing activities decreased to $42.5 million in the first six months of 2022, from $56.1 million in the prior year, mainly due to lower net purchases of marketable securities[30][179] - Net cash used in financing activities increased significantly to $332.2 million, from $277.9 million, driven by higher common stock repurchases and dividend payments, alongside the repayment of the revolving credit facility[30][180] Notes to Consolidated Financial Statements This section provides detailed disclosures and explanations for the figures presented in the consolidated financial statements, covering significant accounting policies, investments, financial caption compositions, fair value measurements, marketable securities, credit facilities, shareholders' equity, comprehensive loss, business segments, income taxes, commitments, goodwill, revenue recognition, and a voluntary separation program Note 1. Summary of Significant Accounting Policies - SEI Investments Company provides comprehensive technology, operational, and investment management services to wealth managers, financial advisors, investment managers, family offices, institutional and private investors[32] - The company's revenue streams are categorized into Investment processing platforms (Information processing and software servicing fees), Investment operations platforms (Asset management, administration and distribution fees), and Investment management platforms (Asset management, administration and distribution fees)[33][34][35] - The company waived $20.2 million and $21.5 million in fees during the six months ended June 30, 2022 and 2021, respectively, under expense limitation agreements with certain SEI-sponsored money market funds[40] - Capitalized software development costs, primarily for the SEI Wealth Platform (SWP), amounted to $13.8 million and $12.3 million for the six months ended June 30, 2022 and 2021, respectively, with the net book value of SWP at $224.7 million as of June 30, 2022[44] Note 2. Investment in Unconsolidated Affiliate - SEI holds a 38.6% partnership interest in LSV Asset Management (LSV), an investment advisor, accounted for using the equity method[47][49] | Metric | 3 Months Ended June 30, 2022 (in thousands) | 3 Months Ended June 30, 2021 (in thousands) | 6 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2021 (in thousands) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | SEI's proportionate share in LSV earnings | $29,813 | $35,065 | $62,272 | $68,415 | - The company received partnership distributions from LSV of $69.8 million and $68.1 million in the six months ended June 30, 2022 and 2021, respectively, classified as operating activities[48] Note 3. Composition of Certain Financial Statement Captions | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | Receivables: | | | | Trade receivables | $107,853 | $111,209 | | Fees earned, not billed | $337,445 | $315,255 | | Other receivables | $23,556 | $16,747 | | Less: Allowance for doubtful accounts | $(1,952) | $(1,602) | | Total Receivables, net | $466,902 | $441,609 | | Property and Equipment, net: | | | | Buildings | $209,907 | $209,766 | | Equipment | $167,591 | $153,158 | | Land | $26,411 | $24,651 | | Purchased software | $156,569 | $156,387 | | Total Property and Equipment, net | $178,946 | $178,869 | | Accrued Liabilities: | | | | Accrued employee compensation | $52,418 | $107,933 | | Accrued employee benefits and other personnel | $9,749 | $13,951 | | Accrued consulting, outsourcing and professional fees | $47,067 | $36,411 | | Accrued sub-advisory, distribution and other asset management fees | $58,400 | $58,661 | | Accrued dividend payable | $— | $55,452 | | Other accrued liabilities | $51,118 | $51,974 | | Total accrued liabilities | $218,752 | $324,382 | - Deferred contract costs, primarily deferred sales commissions, were $35.4 million as of June 30, 2022, down from $36.2 million at December 31, 2021, with amortization expense of $5.9 million for the six months ended June 30, 2022, including $1.8 million accelerated due to a client agreement termination[53] Note 4. Fair Value Measurements - The fair value of financial assets is determined using a hierarchy: Level 1 (quoted prices in active markets), Level 2 (significant observable inputs), and Level 3 (significant unobservable inputs)[55][59] - The company's Level 1 assets primarily consist of investments in open-ended mutual funds, while Level 2 assets include GNMA mortgage-backed securities and U.S. government agency short-term notes[55] - The fair value of investment funds sponsored by LSV is measured using the net asset value per share (NAV) as a practical expedient[56] - Level 3 financial liabilities consist entirely of estimated contingent consideration from an acquisition, valued using a Monte-Carlo simulation model[58] Note 5. Marketable Securities - Marketable securities include cash equivalents (money market funds, commercial paper), available-for-sale debt securities, SEI-sponsored and non-SEI-sponsored mutual funds, equities, LSV-sponsored funds, and securities owned by SIDCO[60] | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | Cash Equivalents (Fair Value) | $458,521 | $422,838 | | Available-for-sale debt securities (Fair Value) | $110,870 | $117,135 | | SEI-sponsored mutual funds (Fair Value) | $6,022 | $7,211 | | Equities and other mutual funds (Fair Value) | $4,790 | $5,195 | | Investment funds sponsored by LSV (Fair Value) | $6,000 | $6,916 | | Securities owned (Fair Value) | $31,171 | $28,267 | - Net unrealized losses on available-for-sale debt securities were $6.8 million at June 30, 2022, primarily due to interest rate increases affecting GNMA mortgage-backed securities[62] - The company recognized unrealized losses of $916 thousand from LSV-sponsored funds during the six months ended June 30, 2022, compared to unrealized gains of $766 thousand in the prior year[66] Note 6. Line of Credit - The company has a $325.0 million Credit Agreement expiring in April 2026, with interest rates based on a base rate or LIBOR plus a premium, and includes SOFR as a fallback rate[68] - During the six months ended June 30, 2022, the company fully repaid $40.0 million borrowed under the Credit Facility for an acquisition[71] - As of July 15, 2022, $319.0 million of the Credit Facility was available for general corporate purposes, after accounting for $6.0 million in outstanding letters of credit[72] Note 7. Shareholders' Equity | Metric | 3 Months Ended June 30, 2022 (in thousands) | 3 Months Ended June 30, 2021 (in thousands) | 6 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2021 (in thousands) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Stock-based compensation expense | $10,007 | $10,103 | $20,573 | $19,855 | | Less: Deferred tax benefit | $(1,839) | $(1,904) | $(3,934) | $(3,758) | | Stock-based compensation expense, net of tax | $8,168 | $8,199 | $16,639 | $16,097 | - The company repurchased 3.7 million shares of common stock for $209.4 million during the six months ended June 30, 2022, with $221.9 million remaining authorization[78] - A cash dividend of $0.40 per share was declared on June 1, 2022, totaling $54.4 million for the six months ended June 30, 2022, an increase from $52.4 million in the prior year[80] Note 8. Accumulated Other Comprehensive Loss | Component | January 1, 2022 (in thousands) | Other comprehensive loss before reclassifications (in thousands) | Amounts reclassified from accumulated other comprehensive loss (in thousands) | Net current-period other comprehensive loss (in thousands) | June 30, 2022 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------------------------------- | :---------------------------------------------------------- | :------------------------------------------------------- | :----------------------------- | | Foreign Currency Translation Adjustments | $(19,781) | $(19,181) | $— | $(19,181) | $(38,962) | | Unrealized Gains (Losses) on Investments | $(62) | $(7,057) | $318 | $(6,739) | $(6,801) | | Total Accumulated Other Comprehensive Loss | $(19,843) | $(26,238) | $318 | $(25,920) | $(45,763) | - Accumulated other comprehensive loss increased from $(19.8) million at January 1, 2022, to $(45.8) million at June 30, 2022, primarily due to foreign currency translation adjustments and unrealized losses on investments[81] Note 9. Business Segment Information - SEI operates through five reportable business segments: Private Banks, Investment Advisors, Institutional Investors, Investment Managers, and Investments in New Businesses[82] | Segment | 3 Months Ended June 30, 2022 Revenues (in thousands) | 3 Months Ended June 30, 2021 Revenues (in thousands) | YoY Change (%) | 6 Months Ended June 30, 2022 Revenues (in thousands) | 6 Months Ended June 30, 2021 Revenues (in thousands) | YoY Change (%) | | :-------------------------- | :------------------------------------- | :------------------------------------- | :------------- | :------------------------------------- | :------------------------------------- | :------------- | | Private Banks | $124,184 | $123,676 | 0% | $337,732 | $241,284 | 40% | | Investment Advisors | $113,194 | $119,396 | (5)% | $232,424 | $232,690 | 0% | | Institutional Investors | $83,483 | $85,699 | (3)% | $170,322 | $170,198 | 0% | | Investment Managers | $155,926 | $142,808 | 9% | $312,827 | $279,227 | 12% | | Investments in New Businesses | $4,883 | $4,072 | 20% | $9,808 | $7,938 | 24% | | Total Revenues | $481,670 | $475,651 | 1% | $1,063,113 | $931,337 | 14% | | Segment | 3 Months Ended June 30, 2022 Operating Profit (Loss) (in thousands) | 3 Months Ended June 30, 2021 Operating Profit (Loss) (in thousands) | YoY Change (%) | 6 Months Ended June 30, 2022 Operating Profit (Loss) (in thousands) | 6 Months Ended June 30, 2021 Operating Profit (Loss) (in thousands) | YoY Change (%) | | :-------------------------- | :------------------------------------------------ | :------------------------------------------------ | :------------- | :------------------------------------------------ | :------------------------------------------------ | :------------- | | Private Banks | $3,124 | $6,022 | (48)% | $94,717 | $12,906 | NM | | Investment Advisors | $49,819 | $60,263 | (17)% | $104,529 | $118,530 | (12)% | | Institutional Investors | $39,558 | $43,804 | (10)% | $81,039 | $89,145 | (9)% | | Investment Managers | $55,119 | $57,813 | (5)% | $113,183 | $111,212 | 2% | | Investments in New Businesses | $(7,961) | $(9,559) | NM | $(14,986) | $(19,097) | NM | | Total Operating Profit (Loss) | $139,659 | $158,343 | (12)% | $378,482 | $312,696 | 21% | Note 10. Income Taxes | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | Gross liability for unrecognized tax benefits | $16,861 | $14,887 | | Interest and penalties | $1,642 | $1,338 | | Total gross uncertain tax positions | $18,503 | $16,225 | | Component | 3 Months Ended June 30, 2022 (%) | 3 Months Ended June 30, 2021 (%) | 6 Months Ended June 30, 2022 (%) | 6 Months Ended June 30, 2021 (%) | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Statutory rate | 21.0 | 21.0 | 21.0 | 21.0 | | State taxes, net of federal tax benefit | 2.8 | 3.2 | 2.8 | 3.2 | | Foreign tax expense and tax rate differential | (0.1) | (0.1) | (0.1) | (0.1) | | Tax benefit from stock option exercises | (0.3) | (1.2) | (0.3) | (1.2) | | Other, net | (0.3) | (0.6) | (0.3) | (0.4) | | Effective tax rate | 23.1 | 22.3 | 23.1 | 22.5 | - The increase in the effective tax rate for the three and six months ended June 30, 2022, was primarily due to decreased tax benefits from lower stock option exercises, partially offset by a decrease in state tax expense[91] - Pennsylvania House Bill 1342, signed July 8, 2022, reduces the corporate income tax rate from 9.99% to 4.99% in phases, with management evaluating the impact, not expecting it to be material[94] Note 11. Commitments and Contingencies - The company is involved in various legal proceedings, including the SS&C Advent Litigation, where a New York State Court granted SEI's motion for injunctive relief and affirmed that SS&C Advent's purported contract termination was 'pretextual' and breached the agreement[97][100][106][110] - SEI continues to believe it will not need to change providers under its contract with SS&C Advent and expects the financial impact of litigating the Advent Matter to be immaterial[106][107] - Other legal matters arising in the normal course of business are not believed to have a material adverse effect on the company's financial position[108] Note 12. Goodwill and Intangible Assets | Segment | December 31, 2021 (in thousands) | Measurement period adjustments (in thousands) | Foreign currency translation adjustments (in thousands) | June 30, 2022 (in thousands) | | :------------------- | :----------------------------- | :------------------------------------ | :---------------------------------------------- | :----------------------------- | | Institutional Investors | $48,911 | $(11) | $— | $48,900 | | Investment Managers | $56,822 | $211 | $(27) | $57,006 | | Investments in New Businesses | $11,499 | $— | $— | $11,499 | | Total Goodwill | $117,232 | $200 | $(27) | $117,405 | - Goodwill increased slightly to $117.4 million at June 30, 2022, primarily due to measurement period adjustments from the Finomial and Novus acquisitions in Q4 2021[111][112] - Amortization expense related to intangible assets acquired through acquisitions was $6.5 million for the six months ended June 30, 2022, a significant increase from $2.1 million in the prior year, due to recent acquisitions[115] Note 13. Revenues from Contracts with Customers - The company's principal revenue sources are asset management, administration, and distribution fees (percentage of net assets) and information processing and software servicing fees (monthly fees, percentage of assets processed, or project-oriented)[116] | Major Product Line | 6 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2021 (in thousands) | YoY Change (%) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :------------- | | Investment management fees from pooled investment products | $235,136 | $242,419 | (3)% | | Investment management fees from investment management agreements | $223,148 | $222,367 | 0% | | Investment operations fees | $290,825 | $258,194 | 13% | | Investment processing fees - PaaS | $112,833 | $106,622 | 6% | | Investment processing fees - SaaS | $73,104 | $63,813 | 15% | | Professional services fees | $97,849 | $10,349 | 845% | | Account fees and other | $30,218 | $27,573 | 10% | | Total Revenues | $1,063,113 | $931,337 | 14% | - Professional services fees for the Private Banks segment include $88.0 million in one-time early termination fees recorded in Q1 2022 from a significant client, significantly boosting this category's revenue[119] Note 14. Voluntary Separation Program - In June 2022, SEI initiated a Voluntary Separation Program (VSP) for long-tenured U.S. employees to enhance talent attraction and development[130] - The VSP includes a severance package, continuation of benefits, and allowances related to stock option vesting, which will be considered modifications to equity compensation plans[131] - The company expects a one-time increase of $54.0 million to $58.0 million in personnel costs associated with the VSP during the third quarter of 2022[132] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This section provides management's perspective on the company's financial performance and condition, highlighting key drivers, segment results, and significant events, covering revenue and expense trends, asset balances, and the impact of strategic initiatives and market conditions Overview - SEI is a global provider of technology-driven wealth and investment management solutions, managing, advising, or administering $1.3 trillion in assets as of June 30, 2022[135] | Metric | 3 Months Ended June 30, 2022 (in thousands) | 3 Months Ended June 30, 2021 (in thousands) | YoY Change (%) | 6 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2021 (in thousands) | YoY Change (%) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :------------- | :---------------------------------------- | :---------------------------------------- | :------------- | | Revenues | $481,670 | $475,651 | 1% | $1,063,113 | $931,337 | 14% | | Expenses | $365,810 | $339,630 | 8% | $732,454 | $662,479 | 11% | | Income from operations | $115,860 | $136,021 | (15)% | $330,659 | $268,858 | 23% | | Net income | $111,276 | $133,778 | (17)% | $301,584 | $263,248 | 15% | | Diluted earnings per common share | $0.81 | $0.93 | (13)% | $2.17 | $1.82 | 19% | - Revenue from Asset management, administration and distribution fees increased due to higher average assets under administration from 2021 market appreciation and positive cash flows, despite 2022 market declines, with average assets under administration increasing 7% to $895.4 billion in the first six months of 2022[137][139] - Revenue from Asset management, administration and distribution fees were negatively impacted by a shift into lower fee products[137][139] - One-time early termination fees of $88.0 million were recorded in Q1 2022 from a significant investment processing client[137][139] - Acquisitions of SEI Novus and Atlas Master Trust contributed $6.1 million and $2.5 million in revenue, respectively, during the first six months of 2022[137][139] - Earnings from LSV decreased by 9% to $62.3 million in the first six months of 2022 due to negative cash flows, market depreciation, and client losses[137][139] - Operating expenses increased due to higher personnel and consulting costs, partially offset by lower direct costs related to asset management revenues[137][139] Introduction of Voluntary Separation Program - In June 2022, SEI launched an enhanced voluntary separation program for long-tenured U.S. employees to foster professional development and advancement opportunities[138] - The program is expected to result in a one-time increase of $54.0 million to $58.0 million in personnel costs during the third quarter of 2022[138] Ending Asset Balances | Segment | June 30, 2022 (in millions) | June 30, 2021 (in millions) | YoY Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------- | | Private Banks Total assets | $29,873 | $34,337 | (13)% | | Investment Advisors Total Platform assets (E) | $86,717 | $95,169 | (9)% | | Institutional Investors Total assets | $81,383 | $100,097 | (19)% | | Investment Managers Total assets | $1,027,402 | $963,427 | 7% | | Investments in New Businesses Total assets | $3,221 | $3,537 | (9)% | | LSV Equity and fixed-income programs (B) | $81,940 | $102,404 | (20)% | | Total Assets | $1,310,536 | $1,298,971 | 1% | - Total assets across all segments increased by 1% to $1.31 trillion as of June 30, 2022, compared to June 30, 2021[141] - Investment Managers segment showed significant growth in total assets, increasing by 7% to $1.03 trillion, primarily driven by collective trust fund programs[140] Average Asset Balances | Segment | 3 Months Ended June 30, 2022 (in millions) | 3 Months Ended June 30, 2021 (in millions) | YoY Change (%) | 6 Months Ended June 30, 2022 (in millions) | 6 Months Ended June 30, 2021 (in millions) | YoY Change (%) | | :-------------------------- | :------------------------------------- | :------------------------------------- | :------------- | :------------------------------------- | :------------------------------------- | :------------- | | Private Banks Total assets | $31,678 | $34,301 | (8)% | $33,113 | $33,821 | (2)% | | Investment Advisors Total Platform assets (E) | $90,648 | $93,502 | (3)% | $93,677 | $91,284 | 3% | | Institutional Investors Total assets | $87,060 | $100,723 | (14)% | $91,714 | $99,468 | (8)% | | Investment Managers Total assets | $1,025,081 | $938,832 | 9% | $1,000,501 | $917,344 | 9% | | Investments in New Businesses Total assets | $3,443 | $3,512 | (2)% | $3,576 | $3,377 | 6% | | LSV Equity and fixed-income programs (B) | $87,818 | $103,583 | (15)% | $92,134 | $100,530 | (8)% | | Total Assets | $1,325,728 | $1,274,453 | 4% | $1,314,715 | $1,245,824 | 6% | - Average total assets increased by 4% for the three months and 6% for the six months ended June 30, 2022, compared to the prior year periods[144] - The Investment Managers segment showed a consistent 9% increase in average total assets for both the three and six-month periods, driven by collective trust fund programs[143] Business Segments | Segment | 3 Months Ended June 30, 2022 Operating Margin (%) | 3 Months Ended June 30, 2021 Operating Margin (%) | 6 Months Ended June 30, 2022 Operating Margin (%) | 6 Months Ended June 30, 2021 Operating Margin (%) | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Private Banks | 3% | 5% | 28% | 5% | | Investment Advisors | 44% | 50% | 45% | 51% | | Institutional Investors | 47% | 51% | 48% | 52% | | Investment Managers | 35% | 40% | 36% | 40% | | Investments in New Businesses | NM | NM | NM | NM | - Private Banks: Revenues increased 40% for the six-month period due to $88.0 million in early termination fees and increased investment processing fees, partially offset by foreign currency fluctuations and decreased investment management fees, with operating margin for the six-month period increasing significantly to 28% from 5%[151][152][153][154][155] - Investment Advisors: Revenues decreased 5% for the three-month period and were flat for the six-month period, impacted by decreased investment management fees from SEI fund programs due to market conditions, partially offset by increased separately managed account fees, with operating margin declining to 44% (3 months) and 45% (6 months)[151][152][153][154][155] - Institutional Investors: Revenues decreased 3% for the three-month period and were flat for the six-month period, benefiting from SEI Novus and Atlas Master Trust acquisitions, but offset by client losses and foreign currency impacts, with operating margin decreasing to 47% (3 months) and 48% (6 months)[151][152][153][154][155] - Investment Managers: Revenues increased 9% for the three-month period and 12% for the six-month period, driven by higher valuations of existing client assets and positive cash flows into alternative and traditional offerings, with operating margin decreasing to 35% (3 months) and 36% (6 months)[151][152][153][154][155] Other - Corporate overhead expenses increased to $47.8 million for the six months ended June 30, 2022, from $43.8 million in the prior year, primarily due to higher personnel, consulting, and professional fees[156] | Metric | 3 Months Ended June 30, 2022 (in thousands) | 3 Months Ended June 30, 2021 (in thousands) | 6 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2021 (in thousands) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net (loss) gain from investments | $(2,620) | $377 | $(3,109) | $709 | | Interest and dividend income | $1,853 | $878 | $2,701 | $1,823 | | Interest expense | $(211) | $(130) | $(461) | $(253) | | Equity in earnings of unconsolidated affiliate | $29,813 | $35,065 | $62,272 | $68,415 | | Total other income and expense items, net | $28,835 | $36,190 | $61,403 | $70,694 | - Net losses from investments for the three and six months ended June 30, 2022, were primarily due to unrealized mark-to-market losses on LSV-sponsored and company-sponsored mutual funds amid market declines[158] - Amortization expense increased by 15% for both the three and six-month periods ended June 30, 2022, driven by intangible assets acquired through the Finomial, SEI Novus, and Atlas Master Trust acquisitions[162][164] - The effective income tax rate increased to 23.1% for both the three and six months ended June 30, 2022, mainly due to decreased tax benefits from lower stock option exercises[165] - The company faces a complex and changing regulatory environment, with increased scrutiny and potential for enforcement actions, which could materially impact operating results or financial position[169][171] Liquidity and Capital Resources | Metric | 6 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2021 (in thousands) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net cash provided by operating activities | $330,615 | $324,997 | | Net cash used in investing activities | $(42,516) | $(56,087) | | Net cash used in financing activities | $(332,173) | $(277,936) | | Net decrease in cash, cash equivalents and restricted cash | $(59,734) | $(6,448) | | Cash, cash equivalents and restricted cash, end of period | $772,024 | $781,279 | - As of July 15, 2022, the company had $386.2 million in free and immediately accessible cash and cash equivalents for general corporate purposes[176] - Cash flows from operations increased by $5.6 million in the first six months of 2022, primarily due to higher net income, partially offset by changes in working capital[178] - Net cash used in financing activities increased due to $210.3 million in common stock repurchases and $109.8 million in dividend payments during the first six months of 2022[180] Forward-Looking Information and Risk Factors - The company's future operations, strategies, and financial results are subject to various risks and uncertainties, including changes in capital markets, product development, third-party service provider failures, and increased competition[182][183] - Significant risks include the impact of LSV Asset Management's performance, software defects, data and cybersecurity risks, extensive governmental regulation, and litigation[183] - The company operates through many regulated subsidiaries and is subject to extensive and changing legislation, regulation, and supervision, which could have a material adverse effect on its business and clients[184][186] Item 3. Quantitative and Qualitative Disclosures About Market Risk. This section refers to previous disclosures regarding market risk, specifically how changes in capital markets and interest rates can affect revenues, earnings, and the value of fixed-income investment securities, with no material changes to this information reported - Information on market risk, including the impact of capital market changes and interest rate fluctuations on revenues, earnings, and fixed-income investment securities, remains consistent with the disclosures in the Annual Report on Form 10-K for the year ended December 31, 2021[196] Item 4. Controls and Procedures. Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2022, concluding they are effective, with no material changes in internal control over financial reporting occurring during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[197] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2022[199] PART II - OTHER INFORMATION Item 1. Legal Proceedings. The company is involved in various legal proceedings and investigations in the ordinary course of business, which are not believed to be material, and while outcomes are uncertain, the probability of a material adverse effect on SEI as a whole is considered remote - The company is party to various legal proceedings and investigations arising in the ordinary course of business, which are not considered material[201] - The probability of any of these matters having a material adverse effect on SEI as a whole is believed to be remote, although an unfavorable resolution could materially affect net earnings in a particular interim period[201] Item 1A. Risk Factors. There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes have occurred in the risk factors from those disclosed in the Annual Report on Form 10-K for 2021[202] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. The Board of Directors authorized an additional $200.0 million for the common stock repurchase program on June 1, 2022, and during the three months ended June 30, 2022, the company repurchased 1.97 million shares for $109.3 million, with $221.9 million remaining authorization | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program | | :------- | :------------------------------- | :--------------------------- | :---------------------------------------------------------------- | | April 2022 | 450,000 | $56.95 | $105,578,000 | | May 2022 | 750,000 | $55.30 | $64,105,000 | | June 2022 | 770,000 | $54.81 | $221,910,000 | | Total | 1,970,000 | $55.48 | | - The Board of Directors approved an additional $200.0 million for the common stock repurchase program on June 1, 2022, bringing the total authorization to $5.328 billion with no expiration date[203] Item 6. Exhibits. This section lists the exhibits filed as part of the Form 10-Q, including various certifications, the XBRL instance document, and taxonomy extension documents - The exhibits include certifications from the Chief Executive Officer and Chief Financial Officer (Rule 13a-15(e)/15d-15(e) and Section 1350), along with XBRL instance and taxonomy extension documents[205] SIGNATURES The report was duly signed on behalf of SEI Investments Company by Dennis J. McGonigle, Chief Financial Officer, on July 25, 2022 - The report was signed by Dennis J. McGonigle, Chief Financial Officer of SEI Investments Company, on July 25, 2022[207]