UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20172023
OR
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from_________to________
Commission File Number: 0-10200
SEI INVESTMENTS COMPANY
(Exact name of registrantRegistrant as specifiedSpecified in its charter)
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| Pennsylvania | | 23-1707341 |
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Pennsylvania | | 23-1707341 |
(State or other jurisdictionOther Jurisdiction of incorporationIncorporation or organization)Organization | | (I.R.S. Employer Identification No.) |
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1 Freedom Valley Drive, Oaks, Pennsylvania | | 19456-1100 |
(Address of principal executive offices) | | (Zip Code) |
1 Freedom Valley Drive
Oaks, PA 19456
(Address of Principal Executive Offices and Zip Code)
610-676-1000
(Registrant’s telephone number, including area code 610-676-1000Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | | Trading Symbol | | Name of each exchange on which registered |
| Common Stock, par value $.01 per share | | SEIC | | The NASDAQ Stock Market LLC |
| | | | (The NASDAQ Global Select Market®) |
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý☒ No ¨☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨☐ Noý☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý☒ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated” “accelerated filer,"” “smaller reporting company,” and "smaller reporting company"“emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filerx | ☒ | | Accelerated filero | ☐ |
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Non-accelerated filero(Do not check if a smaller reporting company)
| ☐ | | Smaller reporting companyo | ☐ |
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| Emerging growth company | ☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨☐ No ý☒
The aggregate market value of the voting common stock held by non-affiliates of the registrant was approximately $6.6$6.6 billion based on the closing price reported by NASDAQ on June 30, 20172023 (the last business day of the registrant’s most recently completed second fiscal quarter). For purposes of making this calculation only, the registrant has defined affiliates as including all executive officers, directors and beneficial owners of more than ten percent10% of the common stock of the registrant.
The number of shares outstanding of the registrant's common stock, as of the close of business on January 31, 2018:
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| Common Stock, $.01 par value | | 157,278,314131,352,305 |
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference herein:
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1. | The definitive proxy statement relating to the registrant’s 2018 Annual Meeting of Shareholders, to be filed within 120 days after the end of the fiscal year covered by this annual report, is incorporated by reference in Part III hereof.
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SEI Investments CompanyINVESTMENTS COMPANY
Fiscal Year Ended December 31, 20172023
TABLE OF CONTENTS
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| | PART I |
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PART I |
| Item 1. | Business. | |
| Item 1A. | Risk Factors. | |
| Item 1B. | Unresolved Staff Comments. | |
Item 2.1C. | Properties.Cybersecurity. | |
Item 3.2. | Legal Proceedings.Properties. | |
| Item 3. | Legal Proceedings. | |
| Item 4. | Mine Safety Disclosures. | |
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| PART II |
PART II |
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. | |
| Item 6. | Selected Financial Data.[Reserved] | |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. | |
| Item 8. | Financial Statements and Supplementary Data. | |
| Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. | |
| Item 9A. | Controls and Procedures. | |
| Item 9B. | Other Information. | |
| Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. | |
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| PART III |
| Item 10. | Directors, Executive Officers and Corporate Governance. | |
| Item 11. | Executive Compensation. | |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. | |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence. | |
| Item 14. | Principal Accounting Fees and Services. | |
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| PART IV |
PART IV |
| Item 15. | Exhibits,Exhibit and Financial Statement Schedules. | |
| Item 16. | Form 10-K Summary. | |
PART I
Forward LookingForward-looking Statements
This Annual Report on Form 10-K contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve certain known and unknown risks, uncertainties and other factors, many of which are beyond our control, and are not limited to those discussed in Item 1A, “RiskRisk Factors.” All statements that do not relate to historical or current facts are forward-looking statements. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,”"anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "will," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to present or anticipated strategies, products and markets, future revenues, capital expenditures and uses, expansion plans, future financing and liquidity, personnel, and other statements regarding matters that are not historical facts or statements of current condition.
Any or all forward-looking statements contained within this Annual Report on Form 10-K may turn out to be wrong. They can be affected by inaccurate assumptions we might make, or by known or unknown risks and uncertainties. Many factors mentioned in the discussion below will be important in determining future results. Consequently, we cannot guarantee any forward-looking statements. Actual future results may vary materially. Further information about factors that could materially affect its results of operations and financial condition include, but are not limited to, the discussion contained in Item 1A, Risk Factors, in this Annual Report on Form 10-K.
We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. You are advised, however, to consult any further disclosures we make on related subjects in our filings with the U.S. Securities and Exchange Commission (SEC).
Item 1. Business.Business.
Corporate Overview
Now in its 50th year of business, SEI (NASDAQ: SEIC) is a leading global provider ofdelivers technology and investment solutions that connect the financial services industry. With capabilities across investment processing, investmentoperations, and asset management, and investment operations platforms. We helpSEI works with corporations, financial institutions financial advisors, institutional investorsand professionals, and ultra-high-net-worth families createto help drive growth, make confident decisions, and manage wealth by providing comprehensive, innovative,protect futures.
SEI’s four core business segments provide outsourcing services to banks, investment advisors, investment managers and investment-business platforms. Asinstitutional investors. We serve a broad range of December 31, 2017, through its subsidiariesclient types of all sizes and partnershipscomplexity, including 10 of the top 20 U.S. banks and 48 of the top 100 investment managers worldwide. Investments in which the company hasNew Businesses is a significant interest, fifth segment, focused on other businesses, ventures or research and development activities intended to expand our solutions to new or existing markets.
SEI manages, advises, or administers $860.6 billionapproximately $1.4 trillion in hedge, private equity, mutual fundassets. We are headquartered in Oaks, Pennsylvania and pooled or separately managed assets, including $337.3 billion in assets under management and $518.4 billion in client assets under administration. Our affiliate, LSV Asset Management (LSV), manages $105.3 billion of assets which are included as assets under management.
Our business platforms include:
Investment processing outsourcing platforms for providers of institutional and private-client wealth management services, including banks, trust companies, independent wealth advisers and other financial services firms;
Investment management platforms for institutional investors, including retirement plan sponsors, not-for-profit organizations and affluent individual investors; and
Investment operations outsourcing platforms for investment management firms, banks and investment companies that sponsor and distribute mutual funds, hedge funds and alternative investments.
General Development of the Business
For almost 50 years, SEI has been a leading provider of wealth management business solutions for the financial services industry.
We began doing business in 1968 by providing computer-based training simulations for bank loan officers. We developed an investment accounting system for bank trust departments in 1972 and became a leading provider of investment-processing outsourcing services to banks and trust institutionssupport clients globally from service centers primarily located in the United States. Later, we broadened these outsourcing servicesStates, United Kingdom, Ireland, Canada, continental Europe, and began offering bank clients a family of mutual funds, as well as investment-operations outsourcing services.South Africa. We were founded in 1968 and became a public company in 1981.
We began to adapt and evolve these platforms for selected global markets in the 1990s, including: investment advisors, retirement plan sponsors and institutional investors, asset management distribution firms, investment managers and affluent individual investors. Today, we serve approximately 8,900 clients in the United States, Canada, the United Kingdom, continental Europe, South Africa and East Asia.
In each of these markets, we have combined our core competencies - investment processing, investment management and investment operations - to deliver broader and more strategic solutions for clients and markets. Today, we offer a global wealth and investment platform for private banks and wealth services firms; a complete wealth platform for operating an investment advisory business; a comprehensive fiduciary management platform for retirement plan sponsors and institutional investors; a
total operational outsourcing platform for investment managers and a complete life and wealth platform for ultra-high-net-worth families.
Mission and Strategy
SEI’s mission is to deliver innovativebuild brave futuresSM through the power of connection. The needs of wealth managers, investment managers, financial advisors, family offices, and comprehensive investment processing, investment managementinvestors continue to converge, particularly among larger firms and investment operations platformsinvestors. They face increasing competitive and market pressures, ever-growing regulations, and the need to help clients achieve lasting success. Wereplace aging legacy technologies. They also seek to achieve growth in earnings and shareholder value by strengthening our position as a provider of these platforms. To achieve these objectives, we have implemented these strategies:
Create broaderexpand services, offer differentiated solutions, for wealth service firms, globally. Banks, investment managers and financial advisors seek to enter new markets, expand their service offerings, provide a differentiated experience to their clients, improve efficiencies, reduce risksrisk, and better manage their businesses. With relationships across the financial services industry, we're uniquely positioned to meet our clients’ emerging and converging needs, help them make confident decisions and transform their businesses, and capture growth opportunities that increase shareholder value. Key strategies include:
•Transforming how we drive growth. We are focused on capitalizing on market trends and connecting addressable market opportunities to deliver the outsourced solutions our markets value. We continuously seek to enhance existing capabilities, create broader solutions, and invest in new ideas for new solutions. We enable an unbundled approach to delivery through aggregated data sourced from multiple systems and modularizing specific applications into standalone components. We believe this approach, as well as assessing opportunities for mergers and acquisitions, allow us to create flexible, client-responsive solutions, address the complex needs of larger firms, and expand the size of our addressable markets.
•Investing in talent. The attraction, retention, and development of diverse talent is paramount to continuing to deliver tech-forward solutions to our markets globally. We continue to evaluate opportunities to competitively position SEI as an employer of choice, including compensation, training, and development programs. We look to
leverage the talent, technology, and capabilities across the company for the benefit of our clients and to expand opportunities for our employees.
•Igniting our culture. We strive to cultivate an environment where our behavior aligns with our corporate values of courage, integrity, collaboration, inclusion, connection, and fun. Our focus on promoting flexibility and work/life integration for our employees, acting with a sense of urgency, and encouraging and rewarding positive risk-taking and productive debate enable us to deliver world-class service and solutions for our clients.
Business Model
Our growth strategies are anchored in our proven business model. We pursue growth by focusing on four critical elements: turning challenges into opportunities, driving mutual growth, meaningfully engaging clients and employees, and leveraging our financial strength.
•Turn challenges into opportunities. For more than 55 years, we have delivered solutions that anticipate and address complex business challenges. We balance our investments over the short, medium and long term to serve existing clients, enhance existing solutions, develop new capabilities, expand markets, and keep an eye toward the future to deliver new sources of growth.
•Drive mutual growth. We focus on the long term, helping our clients more intelligently deploy their capital and achieving sustainable growth by delivering enterprise-wide platforms to the markets we serve. We are growing the business through new-name sales, cross-sales, and solution delivery, as well as entering adjacent markets by delivering existing and new solutions. To enhance our capabilities, scale our competitive presence, or enable strategic growth, we pursue selective acquisitions.
•Engage clients and employees.We foster an open, collaborative, client-first culture to nurture a talented and engaged workforce, forge intimate, enduring client relationships, be a thought leader in the markets we serve, and craft “win-win” pricing models. We believe SEI’s long-lasting client relationships—some of which span decades—are fundamental to enhancing SEI’s financial strength.
•Leverage financial strength.We focus on achieving long-term, sustainable revenue and earnings growth. We maintain a strong balance sheet and are committed to research and development. We favor scalable businesses that generate recurring revenues and predictable cash flows. SEI’s revenue is highly recurring; we generate strong cash flow, and we have a long history of profitability. We return capital to shareholders through stock repurchases and paid dividends.
Other Competitive Advantages
Our experience in delivering technology and investment solutions, market leadership position, industry expertise, operational footprint, and proven business model serve as competitive advantages. Other key advantages include:
•We are uniquely positioned in the wealth and investment management industry. We provide critical capabilities across technology, operations, and asset management, delivered standalone or combined into comprehensive solutions. These capabilities and our multi-industry expertise uniquely position us to address the emerging and increasingly converging needs of wealth managers, asset owners, and investors.
•We leverage our assets across the company. We invest in business opportunities derived from our core competencies. We seek to make our assets, particularly technology, available as components for all of our markets. We are both a provider and a user of many of our services. This dual role helps to drive service quality and product innovation. As an example, we provide fund accounting capabilities for the investment products we manage, as well as for those we administer for clients. We also leverage our principal business platforms and assets across multiple market segments, further enhancing the potential for operating leverage.
•Our dynamic workforce is key to our success and is the foundation of our culture. Each of our employees brings a distinct set of skills, strengths, experiences, and backgrounds, which contribute to our individual and collective growth. We also believe our business should be conducted in a manner that achieves sustainable growth and demonstrates a commitment to corporate social responsibility (CSR). We expect all employees to exemplify our values and act responsibly, ethically, and with integrity in our dealings with each other, our clients, and the community.
•Business continuity planning and disaster recovery exercises continue to reinforce our preparedness. Our products and services are enabled by SEI’s information technology infrastructure and supported by onsite employees. We also maintain and regularly exercise enterprise-wide business continuity tests. During the pandemic-driven shutdown of onsite operations, we were able to maintain operational integrity for clients and seamlessly transition to a remote work environment for our global workforce. More recently, we were able to welcome back our workforce to our offices without disruption to our clients. This flexibility enables us to adapt sales and client-onboarding processes for virtual engagement, delivery, and operations.
•We are committed to bringing new solutions to our markets. We develop and nurture new business initiatives that we believe present opportunities for longer-term growth. An important component to achieving our growth goals is solidifying the foundation from which we launch new businesses that can contribute to our success. In order to consistently generate new business ideas, test, and launch them, our Investments in New Businesses segment explores opportunities to incubate and accelerate those new ideas and cultivate innovation that drives top-line growth. Our Corporate Development team focuses on the development, execution, and integration of potential strategic transactions to accelerate growth.
Core Capabilities
Sitting at the intersection of technology and investments, we combine one or more of three core capabilities, including technology services, investment operations, and asset management, into outsourced solutions tailored to the needs of each market we serve.
•Technology and operations
We provide technology and operations services to banks, wealth managers, trust companies, investment managers, asset owners, independent wealth advisers, investment advisors, financial planners, family offices, and other financial services firms. Our platforms include advanced technologies for asset management and wealth advisory and administration, as well as processing, infrastructure, and cybersecurity services.
Our platforms also include technology and operationally-enabled investment service capabilities for a broad range of traditional and alternative investments, delivered as unbundled product components for front, middle, and back offices. Capabilities include advanced technologies for data management and analytics, fund and investment accounting, administration, global regulatory and compliance services, investor servicing, and client reporting.
We also offer investment operations capabilities for family offices in the United States, including technology and outsourced services that support the accounting, investment management, and reporting functions for family offices, private banks, private wealth advisors, and alternative asset managers.
•Asset management
We provide comprehensive solutions for managing personal and institutional wealth. These solutions include investment strategies, customized asset management programs, and SEI-sponsored and third-party investment management products, as well as other consultative, operational, and technology components. We offer comprehensive platforms integrating technology, operating processes and financial products designedthese solutions to help these institutions better serve their clients and provide opportunities to improve their business success.
Help institutional investors manage retirement plans and operating capital, globally. Retirement plan sponsors, not-for-profit organizationswealth managers, investment advisors, and other institutional investors strive to meet their fiduciary obligations and financial objectives while reducing business risk. We deliver customized investment management solutions,intermediaries as part of a complete Outsourced Chief comprehensive asset management program for their investors, as well as directly to institutional investors and ultra-high-net worth investors.
Investment Officer (OCIO) platform,management programs include strategies customized to support an investor’s organizational or personal objectives, risk tolerances and other considerations. A typical long-term personal investor may have a series of goals, each with a specific investment strategy, appropriately diversified both globally and by asset class. Investment strategies are typically implemented with investment products that enable investors to make better decisions about theirinclude mutual funds, collective investment products, ETFs, alternative investments and to manage their assets more effectively.separately-managed accounts. Through our wholly-owned subsidiaries, we serve as sponsor, administrator, transfer agent, investment advisor, distributor, and shareholder servicer for many of these products.
Principal Business Platforms and Revenue Recognition
Our principal business platforms are the foundational components for modularization and unbundling:
Help affluent individual investors manage their life•Investment processing platforms provide technologies, business process outsourcing, and infrastructure services for wealth goals, globally.managers. We primarily deliver these services through our proprietary technology platforms, including the SEI Wealth PlatformSM Investors demand a holistic wealth management experience that focuses on their life goals and provides them with an integrated array of financial services that includes substantially more than traditional wealth management offerings. We help investors identify their goalsTRUST 3000®. Through our wholly-owned subsidiaries, we use these technologies to deliver operations and offer comprehensive life and wealth advisoryadministrative outsourcing services, including life planning, investmentscustodial and other financialback-office accounting services.
Continue to expand globally. Global markets are large and present significant opportunitiesRevenues for growth. We have evolved U.S.investment processing services include application software services, business models for the global wealth management marketplace, focusing on the needs of institutional investors, private banks, independent wealth advisers, investment managers, investment advisors and affluent individual investors.
Fundamental Principles
We are guided by these fundamental principles in managing the business and adopting these growth strategies:
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• | Achieve growth in revenue and earnings. We seek to grow organically by providing additional services to clients, adding new clients, introducing new products and adapting products for new markets. We may also make selective acquisitions to gain capabilities or platforms that enable future organic growth.
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• | Forge long-term client relationships. We strive to achieve high levels of customer satisfaction and to forge close and long lasting client relationships. We believe these relationships enable us to market additional services and acquire knowledge and insights that fuel the product development process.
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• | Invest in product development. We continually enhance products and services to keep pace with industry developments, regulatory requirements and the emerging needs of markets and clients. We believe ongoing investments in research and development give us a sustainable, competitive advantage in our markets.
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• | Maintain financial strength. We adopt business models that generate recurring revenues and positive cash flows. Predictable cash flows serve as a source of funds for continuing operations, investments in new products, common stock repurchases and dividend payments.
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• | Leverage investments across the business. We create scalable, enterprise-wide platforms designed to serve the needs of multiple markets, potentially offering operating efficiencies that can benefit corporate profitability.
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• | Create value for shareholders. The objective of achieving long-term sustainable growth in revenues and earnings strongly influences the management of the business. This philosophy guides corporate management practices, strategic planning activities and employee compensation practices.
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Business Platforms
Investment Processing
Investment processing platforms include outsourced software and processingprocess outsourcing services, professional services, and transaction-based services. We offer these services to providers of institutional and private-client wealth management services, including banks, trust companies, independent wealth advisers and other financial services firms. We also deliver these platforms,
combined with our investment management platform, to investment advisors and other wealth management and financial services firms.
Investment processing servicesThese revenues are delivered through two proprietary platforms: TRUST 3000® and the SEI Wealth PlatformSM (the SEI Wealth Platform or the Platform). We own, develop, maintain and operate these software applications and associated information processing infrastructure and facilities. Through our wholly-owned subsidiaries, we also provide business-process outsourcing services including custodial and sub-custodial services and back-office accounting services.
The TRUST 3000 platform is a comprehensive trust and investment accounting system that provides securitiesrecognized in Information processing and investment accountingsoftware servicing fees on the accompanying Consolidated Statements of Operations. Application and business process outsourcing revenues are earned from monthly fees for all types of domestic and global securities and support for multiple account types, including personal trust, corporate trust, institutional trust and non-trust investment accounts. This platform is delivered ascontracted Software as a Service (SaaS) or asand Platform as a Service (PaaS).
The SEI Wealth Platform provides a global, unified and scalable platform for operating a wealth management business. This comprehensive platform includes investment processing and infrastructure services, and advanced capabilities to support wealth advisory, asset management, and wealth administration functions. The Platform also provides global wealth management capabilities including a 24/7 operating model, global securities processing, and multi-currency accounting and reporting. Built around a client-centric relationship model, the Platform has an open architecture and supports workflow management and straight-through processing.
The Platform is offered in SaaS and PaaS delivery modes. We began delivering the SEI Wealth Platform (PaaS) to private banks and independent wealth advisers in the United Kingdom in 2007, to banks in the United States in 2012, and to investment advisor clients in the United States in 2015. We are currently implementing our first SaaS bank client through a multi-year conversion.
Investment processing revenues are earned as monthly fees for contracted SaaS and PaaS services. Revenues are primarily earned based upon the type and number of investor accounts serviced or as a percentage of the market value of the clients’ assets processed. These revenues are recognized in Information processing and software servicing fees on the accompanying Consolidated Statements of Operations.
Professional services revenues are earned from contracted, project-oriented services, including client implementations, and are recognized in Information processing and software servicing fees on the accompanying Consolidated Statements of Operations.
Transaction executionimplementations. Transaction-based revenues are earned primarily from commissions earned on securities trades executed on behalf of clients through one of our investment processing platforms. These revenues
•Investment operations platforms provide technologies, business process outsourcing, and infrastructure services for investment managers and asset owners.
Revenues for these investment operations services are earned primarily as a percentage of net assets under administration and are recognized as Transaction-basedin Asset management, administration, and trade executiondistribution fees on the accompanying Consolidated Statements of Operations. Revenues for the processing of institutional separate accounts and separately managed accounts are generally based on the number of investor accounts serviced. Assets associated with this separate account processing are not included in reported assets under administration.
•Investment Management
SEI'smanagement platforms provide comprehensive solutions for managing personal and institutional wealth. These platforms include goals-based investment management platform consists ofstrategies; SEI-sponsored and third-party investment products, including money market, fixed-income and equityETFs, mutual funds, collective investment products, alternative investment portfolios, and separately managed accounts. Through our wholly owned subsidiaries, we serve as sponsor, administrator, transfer agent, investment advisor, distributoraccounts; and shareholder servicer for many of these products. We distribute these investment products through investment advisory firms, including investment advisorsother market-specific advice, technology, and banks, and directly to institutional and individual investors.
Investment products are used to formulate an investment strategy tailored to meet the needs of different investors, taking into consideration their objectives and risk tolerances. SEI's clients, or the investors served by client intermediaries, are the investors in these products. Investors typically invest in a globally diversified portfolio that consists of multiple asset classes and investment styles.
We have expanded our investment management platform to include other consultative, operational and technology components, and have created comprehensive solutions tailored to the needs of a specific market. These components may include investment strategies, consulting services, administrative and processing services and technology tools.components.
As of December 31, 2017, SEI2023, we managed $232.0$342.7 billion in assets including: $172.6
•$175.5 billion invested in fixed-income and equity funds and separately managed account programs; $49.4
•$156.4 billion invested in collective trust fund programsprograms; and $10.0
•$10.8 billion invested in liquidity or money market funds.
An additional $105.3$89.3 billion in assets is managed by our unconsolidated affiliate LSV Asset Management (LSV), a registered investment advisor (RIA) that specializes in a value equity management style for theirits clients.
Investment management revenues are earned primarily earned as a percentage of net assets under management. These revenues are recognized in Asset management, administration, and distribution fees on the accompanying Consolidated Statements of
Operations. Our interest in the earnings of LSV is recognized in Equity in earnings of unconsolidated affiliates on the accompanying Consolidated Statements of Operations.
Human Capital
Our talented workforce is the key to our ability to serve our clients globally. At January 31, 2024, we had 5,061 full-time and 28 part-time employees.
Employee unions do not represent any of our employees.
Diversity, Equity, and Inclusion
SEI strives to create an environment where employees, clients, and strategic partners feel welcomed, heard, valued, and respected. We are committed to ensuring that no element of anyone’s diverse identity impedes them from accessing the opportunities and resources they need to achieve their fullest potential. Our community connects people, regardless of their race, sex, gender, religion, ethnicity, national origin, sexual orientation, dis/Ability, life experience, and viewpoints. We ask our employees to bring their whole selves to work because their talent, knowledge, experiences, and perspectives are core to what makes SEI so special and drives our company’s success. We ask them to have the courage to challenge convention and take risks, so we can unlock new opportunities to build brave futures—for our clients, our communities, and ourselves.
Our core principles of diversity, equity, and inclusion (DEI) work stem from the company’s inherent desire to welcome, respect, value and care for all individuals in our SEI community on a human level, in their collective and unique identities.
In 2022, we formed our Diversity & Inclusion Council, made up of colleagues and leaders from across the company who are passionate about DEI and share the goal of working as a group to help shape initiatives and hold SEI accountable to action. Since its formation, the Diversity & Inclusion Council has undertaken numerous initiatives:
•We launched a multiyear initiative to continue our efforts for DEI. CEO Ryan Hicke joined more than 2,200 CEOs and presidents in signing the CEO Action for Diversity & InclusionTM, pledging to “ACT ON” and supporting a more inclusive workplace for employees, communities, and society at large.
•We joined the DEI committee of the Investment OperationsCompany Institute, the leading association representing regulated investment funds, and we align our DEI work with their DEI framework.
Investment operations outsourcing platforms consist•We contributed to and partnered with nonprofit organizations focused on global diversity and creating opportunities for youth of accountingcolor.
Training and Development
We provide multiple tools to our employees to support their growth and professional development. Our continued commitment to employee education includes the introduction of new programs and learning content that suit their needs and development, along with the knowledge to fulfill their roles at SEI. We have also invested in a comprehensive learning
platform to remove the physical barriers of in-person training and provide employees with access to thousands of topical courses, enhancing how employees receive and interact with educational content.
We are committed to making as much of an investment in recruiting from our current staff as we do recruiting outside our walls. By moving around our company through a formalized internal mobility program, employees gain experience, skills, perspective, and knowledge about SEI to help drive their professional growth.
Our Design Thinking program, which aims to foster employee creativity and innovation, provides an in-depth immersion into the core methodology of design thinking, as well as the opportunity to immediately apply the mindset and tools and take this learning to everyday practices. The Gallup© CliftonStrengths assessment program also continues to help employees understand and build upon their unique strengths and develop as leaders.
Leadership Development
Women’s Development Series: With the continued focus and need to ensure gender diversity within all levels at SEI, our 11-week cohort provided a balance of learning sessions, networking, and discussion circles with a focus on the growth and development of women at SEI.
Manager Offsite: In partnership with St. Joseph’s University, we launched a two-day immersive leadership development experience facilitated by their faculty on their campus. This program is comprised of 30 managers throughout the organization that have been in their role for at least five years and have taken part in our Manager Series class offerings. Through panel discussions, lecturettes, networking, and teambuilding, the topics covered during the offsite include leading through change, conflict management, and inclusive leadership.
Emerge Program: Formerly the “5-15 Leadership Program,” Emerge brings together emerging and experienced leaders from across SEI, to learn, grow, and be challenged to think differently about the future of our business. Throughout each three-month program, they are given the opportunity to learn from each other, grow together, connect across organizational functions, gain exposure to executive management, and develop a leadership mindset–all while working on key SEI business topics.
Connected Leaders Academy: As part of SEI’s commitment to fostering an inclusive culture, we partnered with McKinsey’s Connected Leaders Academy to offer accelerated development opportunities to diverse talent. The goal of the Connected Leaders Academy is to accelerate the progression of leaders in our organization.
For our emerging leaders coming from universities across the globe, our Associates and Internship programs equip recent and soon-to-be graduates with the tools, exposure, and development opportunities necessary to launch their SEI careers and provide ongoing support for long-term success at SEI.
Employee Affinity Groups
We believe it is important to make a meaningful, positive impact on the communities we work in and serve. We strive to be stewards of advocacy, which may be best represented in our diversity initiatives and the grassroots efforts that define our employee-led volunteer groups. Each group follows a specified mission to accomplish their objectives. Our affinity groups are self-created, self-run, and self-sustained with a global reach.
•SEI Black Professionals Network: Fosters positive change and supports the advancement of Black professionals
•SEI Cares: Sponsors and identifies volunteer opportunities and awareness events and oversees an employee-led 501(c)(3) organization
•SEI enABLE: Provides resources and support for individuals who identify as and/or who support individuals who identify as Neurodivergent and/or as a person with dis/Abilities (PWD)
•SEI Green Team: Provides environmental education focused on creating a sustainable future
•SEI Pride: Supports SEI's LGBTQ+ community
•SEI Salutes: Supports veterans and their families in the transition from military service to civilian life
•SEI Women’s Network: Seeks to inspire and support the professional growth of women both at SEI and beyond
•Somos SEI: Honors Hispanic and Latin Americans
•Wellness Team: Promotes employees’ physical, financial, and social well-being
Workplace Health and Safety
The health and safety of our global workforce remains a top priority. Our Security and Life Safety committee coordinates activities to train staff in mental health first aid, management of aggressive behavior, the administration services, distribution support servicesof naloxone, CPR, first aid, and regulatoryAED use. We have a minimum of one AED per building at our corporate headquarters, and compliance services. our kitchens include first aid cabinets. SEI also offers its employees access to a range of health and wellness benefits through our
employee total rewards and assistance programs. The “Safe Secure SEI” program helps facilitate a consistent health and safety approach and communication strategy globally. Our global offices participate in corporate programs where applicable.
Sustainability
We deliver these platformsknow that our clients’ goals may often consider how ESG considerations could impact their business risk and results, and position them for future growth. We continue to formalize and build upon our efforts.
Sustainable Investing
We understand that ESG factors could have material impacts on the financial performance of an investment, management firmsthereby affecting investors’ ability to take advantage of opportunities, manage risk, and achieve their desired investment goals. We approach sustainable investing with the same curiosity and conviction that offer traditionalhave enabled our success for more than 55 years.
We have incorporated an in-depth analysis of each of our manager’s sustainable investing capabilities into our manager research process. Every firm and alternative products. We support traditional managers who adviseinvestment strategy considered for our platform undergoes an ESG due diligence review and receives an ESG score of strong, moderate, limited, or weak, determined by SEI. These ESG ratings are one of many factors available to SEI’s Portfolio Management team when selecting managers; however, there is no minimum ESG score a variety offirm or strategy must meet to be selected for a portfolio that does not have an express sustainable investing mandate. The degree to which ESG considerations affect our decisions varies and is considered on a case-by-case basis.
In addition to integrating sustainability into our investment research and processes, we aim to bring dedicated sustainable investment solutions to our clients through investment products including mutual funds, UCITS schemes, collective investment trusts (CITs), exchange-traded funds (ETFs), institutional accounts and separately managed accounts.customized solutions. We also provide comprehensive platformscontinue to introduce tools for our clients to use in building portfolios for their clients that meet their desired sustainability goals.
As active owners of our investments, we seek to utilize our voice to influence investment managers worldwide that sponsor and distribute alternative investment products such as hedge funds, funds of hedge funds, private equity funds and real estate funds, across both registered and partnership structures.
Accounting and administration services include account and fund administration, investment portfolio and fund accounting; cash administration and treasury services; trade capture, settlement and reconciliation; trustee and custodial services; legal, audit and tax support; and investor services. Distribution support services may include accessinvestee companies to distribution platforms and market and industry analyses to identify specific product distribution opportunities. Regulatory and compliance services assist clients in meeting global requirementsact in the areas of regulatory reporting, investor compliance, investment risk and firm compliance. These platforms are delivered by utilizing a highly integrated, robust and scalable technology platform adapted to fit the specific business needsbest interests of our investmentclients through manager clients.engagement, shareholder engagement, and proxy voting. We also act at the direction of our clients to fulfill their individual sustainability goals for their investments.
AsCorporate Social Sustainability
We believe that our business should be conducted in a manner that achieves sustainable growth and demonstrates a commitment to corporate responsibility. Each of December 31, 2017, we administered $518.4 billion in client assets for traditionalour company’s employee-led resource groups also contributes to SEI’s CSR efforts by engaging, educating, and alternative investment fund products, including mutual funds, hedge fundssupporting employees through grassroots programs focused on philanthropy and private equity funds. Revenues from these products are primarily earned as a percentage of net assets under administration.volunteerism, diversity, environmental sustainability, military and veterans support, women’s empowerment, and wellness.
Revenues forOur commitment to CSR includes managing our operations efficiently and working to reduce our environmental footprint. We aim to manage our greenhouse gas emissions, effectively manage our waste, and work to benefit the processing of institutional separate accounts and separately managed accounts are generally earned on the number of investor accounts serviced. Assets associated with this separate account processing are not included in reported assets under administration. Both revenue categories are recognized in Asset management, administration and distribution fees on the accompanying Consolidated Statements of Operations.local watershed near our corporate headquarters.
Business Segments Overview
Business segments are generally organized around our target markets. Financial information about each business segment is contained in Note 1312 to the Consolidated Financial Statements. Our business segments are:
Private Banks – providesProvides outsourced investment processing and investment management platforms to banks and trust institutions, independent wealth advisers, and financial advisors worldwide;
Investment Advisors – providesProvides investment management and investment processing platforms to affluent investors through a network of independent registered investment advisors, financial planners, and other investment professionals in the United States;
Institutional Investors – providesProvides Outsourced Chief Investment Officer solutions, including investment management and administrative outsourcing platforms to retirement plan sponsors, healthcare systems, higher education and other not-for-profit organizations worldwide;
Investment Managers – providesProvides investment operations outsourcing platforms to fund companies, banking institutions, and both traditional and non-traditional investment managers worldwide;worldwide, and family offices in the United States; and
Investments in New Businesses – focusesFocuses on providing investment management programssolutions to ultra-high-net-worth families residing in the United States; developing internet-based investment servicesnetwork and advice platforms;data protection services; modularizing larger technology platforms into stand-alone components; entering new markets; and conducting other research and development activities.
The percentage of consolidated revenues generated by eachour business segmentsegments for the last three years was:
| | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Private Banks | | 26 | % | | 29 | % | | 26 | % |
| Investment Advisors | | 23 | % | | 23 | % | | 25 | % |
| Institutional Investors | | 15 | % | | 16 | % | | 18 | % |
| Investment Managers | | 35 | % | | 31 | % | | 30 | % |
| Investments in New Businesses | | 1 | % | | 1 | % | | 1 | % |
| | 100 | % | | 100 | % | | 100 | % |
|
| | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Private Banks | | 31 | % | | 33 | % | | 34 | % |
| Investment Advisors | | 24 | % | | 23 | % | | 23 | % |
| Institutional Investors | | 21 | % | | 22 | % | | 22 | % |
| Investment Managers | | 23 | % | | 21 | % | | 20 | % |
| Investments in New Businesses | | 1 | % | | 1 | % | | 1 | % |
| | | 100 | % | | 100 | % | | 100 | % |
Private Banks
We areprovide investment processing outsourcing solutions to institutional and private-client wealth managers across a leading provider of investment-processing-outsourcing platforms forglobal wealth management marketplace, including banks, and trust institutions,companies, independent wealth advisers, andinvestment advisors, financial advisors worldwide.
We offer TRUST 3000 investment processing in both SaaS or PaaS delivery modes. SaaS clients outsource investment processing software services and information processing to SEI, but retain responsibility for back-office investment operations. PaaS clients also outsource investment operations, including custody and safekeeping of certain assets, income collection, securities settlementplanners, and other back-office accounting activities.financial services firms. Clients include 10 of the top 20 U.S. banks, as well as several financial institutions whose relationships span decades with SEI.
Marketing efforts in this segmentOur solutions are focused ondesigned to provide the SEI Wealth Platform which is currently delivered as PaaS. The Platform offers advanced operating infrastructure, technologies, and operational and administrative capabilities acrossthat are vital to the entire rangesuccess of wealth management processes, including those of large global wealth managers. The Platform enables banksorganizations, helping them achieve their business objectives, manage change and investment service firms of all types to manage the growing complexity of theircomplex operations, replace legacy platforms, comply with complex regulations, and makedeploy capital more effective use of capitaleffectively.
Our investment processing services are enabled by outsourcing wealth management services.
In 2015, we signed an existing TRUST 3000 client to be the first large national bank to implement the SEI Wealth PlatformSM (SWP) and the first client to operate the Platform as SaaS. This will be a multi-year conversion due to the client’s size, the development work involved to expand the Platform to be offered as SaaS, and the scope of integration activities required. While executing this large-scale implementation, we will continue to install other signed clients. We will also continue to manage our currentits predecessor, TRUST 3000 relationships toward eventual conversion®. SWP offers a modern, fully-integrated, single infrastructure solution that integrates technology, operational outsourcing, and asset management. Capabilities span the front, middle, and back office and are designed to the Platform.support a diverse mix of investors, accounts, and asset types, including portfolio management, client administration, accounting, and investment processing. SWP’s open architecture also allows for technology integrations with other SEI capabilities and client systems to enable an integrated and seamless private banking and wealth management experience.
Investment processing platforms are offered in Software-as-a-Service (SaaS) or Platform-as-a-Service (PaaS) delivery modes. SaaS includes investment processing software and information processing services. PaaS includes software and information processing services, as well as business processing outsourcing services, including back and middle-office operations, accounting, and custodial services.
Contracts withfor TRUST 3000 clients have initial terms that are® and SWP services generally threerange from five to seven years in length. Atyears. As of December 31, 2017,2023, we had significant relationships with 81109 clients, including TRUST 3000® relationships with 40 bank and trust institutions in the United States. Our principal competitors for this business are: Fidelity National Information Services, Inc. (FIS), Fi-Tek LLC, Innovest Portfolio Solutions, LLC, Charles Schwab & Co., Inc.States, and Fidelity Investments. Many large financial institutions develop, operate and maintain proprietary investment and trust accounting systems. We consider these “in-house” systems to be a form of competition.
Contracts with SEI Wealth Platform clients have initial terms that are generally five to seven years in length. At December 31, 2017, we had significantSWP relationships with 4169 signed banks, independent wealth advisers and other wealth managers located in the United Kingdom and the United States.
Our principal competitors for this business, in addition to those named above, are: Pershing LLC,include in-house information technology organizations, as well as wealth management technology service providers such as Fidelity National Information Services, Inc. (FIS), Fi-Tek, SS&C Innovest, FNZ UK Ltd., Temenos Group AG, Avaloq, SS&C Technologies, Fiserv, Inc. and smaller technology firms. We also consider “in-house” systems to be a form of competition.Avaloq.
This segment also offersprovides investment management programs to wealth managers and financial services intermediaries in North America, Europe, and Asia. These programs leverage more than four decades of experience with manager research and advice, asset allocation, and portfolio construction. We believe that we can provide flexible and better solutions and quicker speed to market through outsourcing. We deliver active, factor-based, and passively managed solutions to give firms the ability to focus on their clients while implementing and maintaining consistent, efficient processes that help them grow their businesses and manage risk.
As of December 31, 2023, we have asset management distribution programs forrelationships in this segment with banks, wealth managers, and other financial services intermediaries. These programs start with SEI’s standard investment solutions, strategies, funds and investment services. We also deliver customized solutionsfirms, including asset management strategies, as well as investment manager and portfolio research services. Increasingly, asset management distributors with established platforms are seeking to grow their businesses by offering broader investment solutions while outsourcing non-client facing investment services activities. We believe we offer our distribution partners a cost-effective way to grow their businesses and offer their investors differentiated investment choices, such as SEI’s goal-based investing solution.
We have business relationships with 306 banks, wealth managers and other financial services intermediaries at December 31, 2017. Our definition of an asset management distribution client for this segment includes financial intermediaries who have exceeded a minimal level of customer assets invested in our investment products. With the growth of our business, the minimal level of customer assets which defines a "business relationship" is adjusted from time to time. Our business is primarily based on 103 asset management distribution92 clients who at December 31, 2017, had at least $5.0 million each in customer assets invested in our programs. We also had single-product relationshipsprimarily serve clients and their investors in the United States, Canada, the United Kingdom, continental Europe, Hong Kong, and Singapore. We compete with 84 additional banksvarious other providers depending on the prospective client’s domicile and trust institutions. The principal competitors for this business are:requirements. Competitors may include in-house investment teams and global asset management firms, such as Russell Investment Group Fidelity Investments, Franklin Templeton Investments, discretionary portfolio managers and various multi-manager investment programs offered by other firms. We also consider “in-house” proprietary asset management capabilities to be a form of long-term competition.BlackRock.
Investment Advisors
We are a leading provider ofprovide wealth management technology and investment management solutions for independent financial advisors throughout the United States to registeredacross the RIA and independent broker/dealer market segments, including independent investment advisors, financial planners, and life insurance agents many of whom are registered with independent broker-dealers. These solutions include SEI’s investment management platform and investment processing platform and are usually offered on a bundled basis. We also help advisors manage and grow their businesses by giving them access to marketing support programs and practice management services which include, for example, workflow recommendations, succession planning advice, business assessment assistance and recommended management practices. We believeother wealth managers. Through our integrated solution helps investmentor unbundled solutions, we help advisors reduce risk, improve quality and gain operational efficiency which allowsefficiencies that enable them to devote more of their resources to acquiring new clientsgrowing their businesses and achieving better financial outcomes for their existing clients.
Advisors are responsible for the investor relationship, which includes creatingincluding financial plans, implementingplan creation, investment strategiesstrategy implementation, and educatingcustomer education and servicing their customers. Advisors mayservicing. We provide advisors with a flexible operating platform offering a complete end-to-end business, technology and operational solution with capabilities across the front, middle, and back office, including:
•Technology and Administrative Services. Enabled by the SEI Wealth Platform, these services include front-office investment management and end-investor collaboration capabilities, middle-office administrative outsourcing, and back-office processing and custody services.
•Customized Investment Management Programs. We provide advisors with an array of investment programs to customize portfolios to include separate account managers provided through our programs as well as SEI-sponsored mutual funds.for their personal or institutional investors. Our wealth and investment programs are designed to be attractive to affluent or high-net-worth individual investors and small to medium-sized institutional retirement plans.
We continually enhance our offering to meet the emerging needs of our advisors and their end clients. We anticipate the enhanced service offerings enabled through the SEI Wealth Platform will provide a more diverse range of back-office, front-office and client-facing investment processing and investment management capabilities. We began to implement selected groups of advisor clients onto the Platform in 2015. In 2016 and 2017, we completed large-scale migrations of existing advisor relationships onto the Platform, including larger, more sophisticated advisors. We will continue to focus on recruiting new advisors, improving net cash flows into our investment managementThese programs include goals-based strategies, SEI-sponsored mutual fund models, separately-managed account programs, and managing client relationships toward eventual migration onto the Platform.curated third-party investment products, including ETFs. Additionally, we offer specialized investment strategies focused on an investor’s needs across their life and wealth cycle, such as strategies designed to optimize tax-efficiency or income distribution. Advisors may also use models and funds of their own selection.
•Practice Management Expertise.We estimate we have business relationships with approximately 7,500 financialhelp advisors at December 31, 2017. Our definition of a client for this segment includes financial advisors who have exceeded a minimal level of customer assets invested in our investment products. With the growth ofmanage and grow their businesses by offering consultative practice management services, including access to our business the minimal level of customer assets which defines a "business relationship" is adjusted from time to time. Ourtransition services, case management expertise, thought leadership, and marketing and growth programs.
This business is primarily based on approximately 2,1002,300 investment advisors who at December 31, 2017, had at leasteach have a minimum of $5.0 million each in customer assets invested in our programs.
Revenues are primarily earned largely as a percentage of average daily assets under management. Revenues for non-managed assets are earned as a percentage of average daily assets processed.
The principal competition for our investment managementWe compete with other custodians and providers of advisor technology products, is from other active money managers passive investment management sponsors, other(both active and passive), turnkey asset management providers, mutual fund companies, custody serviceplatform providers, and the proprietary investment management programs of broker dealers. In thebroker-dealers with affiliated advisor distributor channel, the principalnetworks. Principal competitors include AssetMark Investment Services Inc., Brinker Capital, EnvestNet, Inc., Fidelity Investments, TD Ameritrade,diversified firms that focus on custody operations such as Charles Schwab & Co., Inc., Pershing LLC and other broker-dealers. As we introduce the Platform, we expect to more directly compete with custody service providers.Fidelity Investments, as well investment advisory platform providers, such as AssetMark Financial Holdings and Envestnet.
Institutional Investors
We areprovide institutional investors with a leading providervariety of solutions aligned with their investment implementation preferences. As one of the first and largest providers of outsourced investment management services, we deliver solutions that leverage the breadth of our investment management, advisory, administration, technology, and operational capabilities to help institutional investors make more confident decisions and achieve greater control, reduced risk, and improved efficiencies.
We primarily serve retirement plan sponsors, healthcare systems, higher education, not-for-profit organizations, and other institutional asset owners in the United States, Canada, the United Kingdom, continental Europe, South Africa, and East Asia.
SEI’s Outsourced Chief Investment Officer (OCIO) platforms for retirement plan sponsors, healthcare systems, and not-for-profit organizations globally. We have a broadly experienced team with specific expertise in defined benefit plans, defined contribution plans, endowments, foundations and balance sheet assets.
Our clients benefit from solutions that combine the breadth of SEI’splatform supports institutional investors who delegate investment management advisory, and administration services. Dependingdecisions through a flexible implementation model. Investors outsource some or all investment management functions based on their preferred governance structure, business needs, objectives, and risk tolerance, clients can electfinancial objectives. Our Unbundled OCIO platform supports internal investment teams through SEI NovusSM, a global portfolio intelligence tool, and SEI’s comprehensive investment processing, shadow accounting, and data and workflow management.
We acquired Atlas Master Trust from Capita in 2021 and National Pensions Trust from its parent company XPS Pensions Group in 2023 to either retain controlexpand our competitive presence in the United Kingdom’s growing market for institutional investor services.
We compete with various other providers depending on the prospective client’s national jurisdiction, business type, size, complexity and unique requirements. Competitors for OCIO services at larger institutional investors may include global advisory firms offering fiduciary management services such as Aon Hewitt and Willis Towers Watson, as well as with asset management firms like Mercer and Russell Investments. We also compete with numerous investment-management firms, including regional or outsource specific management functions. As a result, they can integrate SEI’s investment process, advisory services, and plan administration services into their existing best practices. This approach is designed to address the investor’s specific risk-return requirements, reduce business risk, provide ongoing due diligence, and increase operational efficiency.
SEI’s open architecture investment management approach provides access to manager research, manager selection and monitoring, portfolio construction and discretionary management. Advisoryboutique firms with an industry specialization. Competitors for Unbundled OCIO services include scenario modelingdata analytics software firms and customization of an asset allocation plan that is designed to meet long-term objectives. Plan administration services include trustee, custodial, and benefit payment services.
We will continue our efforts to build a globally diversified institutional client base, provide our clients with value-added advice and discretionary services, and place increased emphasis on defined contribution and not-for-profit organizations fiduciaryinvestment data management sales opportunities.providers.
Fees are primarily earned as a percentage of average assets under management calculated using the average of the four monthfour-month ending balances preceding the billing date. At December 31, 2017,2023, we had relationships with 482558 institutional clients. The principal competitors for this segment are boutique and large bank OCIO/fiduciary management firms, Mercer, Aon Hewitt, Willis Towers Watson, and Russell Investments.clients, which includes clients of SEI Novus.
Investment Managers
We are a a leading provider ofprovide investment operations outsourcing platformssolutions to alternative and traditional investment managers, fund companies, banking institutions,sovereign wealth funds and family offices across a global investment management marketplace. Our solutions provide the advanced operational infrastructure, technologies, and both traditionalskills critical to our clients’ success, enabling their ability to navigate constantly evolving markets and non-traditional investment managers worldwide. We provide investment organizations andincreasingly complex business challenges. Our clients include asset owners with the advanced operating infrastructure they need to be competitive while enabling them to efficiently navigateand a host of business and regulatory challenges. Our comprehensive global operating platform provides clients with customized and integrated capabilities in the areas of data and information management, investment operations, risk management and compliance support, as well as fund administration, fund accounting and distribution support.
We work with a diverse, and sophisticated group of alternative, traditional, and hybrid assetinvestment managersincluding approximately one-third48 of the top 100 managers worldwide. Clients choose
We believe clients select our full-service offeringintegrated operational infrastructure and solutions because of its flexibility, qualitythey are scalable, flexible and ability tocan effectively support their diverse and often bespoke business needs across multiple product types and structures, investment strategies, and asset classes. SEI has a global operating footprint which enables us to service funds in all major jurisdictions. Our outsourcing solutions accommodate investment managermanagers of all sizes and complexities, from the unique needs of emerging and start-up managers to the complex needs of global, multi-asset hybrid managers.
Our capabilities include data and information management and analytics; investment operations; regulatory and compliance support; fund administration, fund accounting and depository services; investor reporting; distribution support; and middle office services. We offer trustee, investment management, and administration services for collective investment trusts (CITs), serving the U.S. retirement market.
We help our clients view their business in a comprehensive and integrated way, providing insight into potential risks and giving them increased control over their business results.Addressing the continuously evolving and complex global regulatory environment, we offer a variety of packaging types,our clients regulatory support services, allowing them to aggregate data and meet increasingly stringent reporting deadlines.
Our clients are able to manage assets in almost any manner they are required, including hedge funds, private equity andfunds, private debt funds, business development companies (BDCs), real estate funds, open-ended and closed-ended mutual funds, interval and tender offer funds, separate accounts, ETFs, CITs, auction funds, UCITS, and closed-end funds. For clients focused on theother offshore vehicles. We support fund structures using standalone private or public fund vehicles or leveraging our SEC-registered U.S. retirement market who desire to manage assets within a collective investment’40 Act series trust we offer trustee and investment management services in addition to the aforementioned administration services. We also enhanced our platform, solution to accommodate the special needs of emerging and start-up alternative investment managers, enabling us to offer outsourcing services to a full spectrum of managers.The Advisors’ Inner Circle Fund®.
Because our operational platform enables managers to view their business in such a comprehensive and integrated way, it gives them more insight and thus control over their business risks and results.
Through our acquisition of Archway Technology Partners (Archway) in July 2017, we further enhanced our family office platform and are able toWe offer a more comprehensive suite of technologytechnology- and technology-enabledoperationally-enabled services for ultra-high net worthultra-high-net-worth families, their trusted advisors, and the institutions that servicewho serve the family office market.
Over the past few years, investors have faced multiple market crises Enabled by SEI's Archway PlatformSM, we handle complex partnership, portfolio, and rising volatility. Investment managers have responded with a range of innovative productscorporate accounting alongside bill payment, investment management, and multi-asset class data aggregation for alternative and traditional investment portfolios. Our family office services are designed to better manage volatilityhelp family offices and downside risk, and many now offer alternatives totheir advisors serve the pure long-only investing strategy historically used in traditional markets. This can be accomplishedultra-high-net-worth community in a standalone private or public fund vehicle or using our mutual fund series trust platform. Additionally, as competitivenessmore efficient manner.
We believe the competitive environment in which we operate will increasingly be basedcontinue to focus on capabilities other than just portfolio investment expertise,expertise. With that in mind, we offer managers solutions thatto help them gain scale and efficiency, run their businesses more intelligently through data analytics and intuitive online dashboards, and allow them to be more responsive to regulatory, investor, and intermediary needs. We also continually enhance our platforms to anticipate and adapt to economic, regulatory and industry changes.
We will continue our efforts to add new asset managers, asset owners, family offices, and private wealth advisors as clientèle,clientele, and grow our existing client relationships expandwhile expanding into new markets and further develop our solutions and global operations platform.markets.
Contracts for fund administrationthe outsourcing services we provide generally have terms ranging from three to five years. Feesyears, and fees are earned primarily earned as a percentage of average assets under management and administration. AIn addition, a portion of the revenues for this segment is earned as account servicing fees. AtAs of December 31, 2017,2023, we had relationships with 450545 investment management companies, alternative investment managers, family offices and private wealth advisors.
Our competitors vary according to the asset class or solutions provided and the domiciles in which they operate. They include large global custodian banks such as State Street, BNY Mellon, and Northern Trust, as well as independently-owned firms such as SS&C Technologies, and Citco.
Investments in New Businesses
The Investments in New Businesses segment represents other business ventures or research and development activities intended to expand our solutions to new or existing markets, including ultra-high-net-worth families who reside in the United States.
This segment also includes the costs associated with developing internet-based investmentmanaged security services through SEI Sphere, the modularization of larger technology platforms, and advice solutions. Thea family wealth management solution offersoffering flexible family-office type services through a highly personalized solution while utilizing a goals-based investmentplanning process.
The principal competitors Reported in this segment is also our recent acquisition of Altigo, a cloud-based technology platform that provides inventory, e-subscription, and reporting capabilities for the family wealth solution are diversified financial services providers focused on the ultra-high-net-worth market.
Research and Development
We are devotingcontinue to devote significant resources to research and development, including expenditures for new technology platforms, enhancements to existing technology platforms and new investment products and services. Our research and development expenditures for the last three years were: | | | (all dollar amounts in thousands) | | 2017 | | 2016 | | 2015 | (all dollar amounts in thousands) | | 2023 | | 2022 | | 2021 |
| Research and development expenditures | | $ | 155,252 |
| | $ | 134,323 |
| | $ | 102,923 |
|
| | | | | | | |
| Capitalization of costs incurred in developing computer software | | $ | 61,043 |
| | $ | 50,392 |
| | $ | 29,416 |
|
| Capitalization of costs incurred in developing computer software | |
| Capitalization of costs incurred in developing computer software | |
| | | | | | | |
| Research and development expenditures as a percentage of revenues | | 10.2 | % | | 9.6 | % | | 7.7 | % |
| Research and development expenditures as a percentage of revenues | |
| Research and development expenditures as a percentage of revenues | | | 7.2 | % | | 7.3 | % | | 8.8 | % |
OurThe majority of our research and development spending is related to adding capabilities to the SEI Wealth Platform (SWP) and the development of a new platform for the Investment Managers segment. SWP is the technology infrastructure for the business solutions now being marketed and delivered to clients in the United States and the United Kingdom served by the Private Banks segment. SWP also is the technology infrastructure for the business solutions now being marketed and delivered to clients in the United States served by the Investment Advisors segment. We believe the advanced capabilities of SWP will enable us to significantly extend and enhance the services we offer to clients and expand SEI’s addressable markets.
The decline in research and development expenditures in 2023 and 2022 was primarily due to decreased spending related to the One SEI strategy to modularize and leverage technologies across the company. Research and development expenditures as a percentage of revenues in 2022 was impacted by one-time early termination fees of $88.0 million recorded during the first quarter 2022 from a significant investment processing client of the Private Banks segment. Excluding this one-time fee, research and development expenditures as a percentage of revenues in 2022 would have been 7.6%.
Research and development expenditures are included in Compensation, benefits and other personnel and Consulting, outsourcing and professional fees on the accompanying Consolidated Statements of Operations.
The majority of our research and development spending is related to building the SEI Wealth Platform, which combines business service processing with asset management and distribution services. The Platform offers a client-centric, rather than an account-centric, process with model-based portfolio management services through a single platform. The Platform utilizes SEI’s proprietary applications with those built by third-party providers and integrates them into a single technology platform. This integration supports straight-through business processing and enables the transformation of our clients’ wealth services from operational investment processing services to client value-added services.
The Platform provides the technology infrastructure for the business solutions now being marketed and delivered to markets in the United States and the United Kingdom served by the Private Banks segment. The Platform also provides the technology infrastructure for the business solutions now being marketed and delivered to markets in the United States served by the Investment Advisors segment. We believe the advanced capabilities of the Platform will enable us to significantly extend and enhance the services we offer to clients and expand SEI’s addressable markets.
The Investment Managers segment is enhancing its business platforms to provide services to other areas of the investment firm. The new technology includes components that will aggregate, transact and process data to provide integration and aggregation capabilities, data management services, and risk and compliance reporting.
Marketing and Sales
Our business platforms are directly marketed to potential clients in our target markets. At January 31, 2018,2024, we employed approximately 105100 sales representatives who operate from offices located throughout the United States, Canada, the United Kingdom, continental Europe, South Africa, Asia, and other locations.
Customers
In 2017,2023, no single customer accounted for more than ten percent10% of revenues in any business segment.
Personnel
At January 31, 2018, we had 3,616 full-time and 34 part-time employees. Employee unions do not represent any of our employees. Management considers employee relations to be generally good.
Regulatory Considerations
OurWe conduct our operations through several regulated wholly-owned subsidiaries. These subsidiaries include include:
•SEI Investments Distribution Co., or SIDCO, SEI Investments Management Corporation, or SIMC, SEI Private Trust Company, or SPTC, SEI Trust Company, or STC, and SEI Investments (Europe) Limited, or SIEL, SEI Investments Canada Company, or SEI Canada, SEI Investments Global, Limited, or SIGL, SEI Investments - Global Fund Services, Ltd., or GFSL, and SEI Investments - Depositary and Custodial Services (Ireland) Limited, or D&C. SIDCO is a broker-dealer registered with the SEC under the Securities Exchange Act of 1934 and is a member of the Financial Industry Regulatory Authority, Inc. (FINRA)., or FINRA;
•SEI Investments Management Corporation, or SIMC, is an investment advisor registered with the SEC under the Investment Advisers Act of 1940 and with the Commodity Futures Trading Commission, (CFTC)or CFTC, under the Commodity Exchange Act.Act;
•SEI Private Trust Company, or SPTC, is a limited purpose federal thrift chartered and regulated by the Office of the Comptroller of the Currency.Currency;
•SEI Trust Company, or STC, is a Pennsylvania trust company, regulated by the Pennsylvania Department of Banking and Securities.Securities;
•SEI Institutional Transfer Agent, Inc., or SITA, a transfer agent registered with the SEC under the Securities Exchange Act of 1934.
•SEI Investments (Europe) Limited, or SIEL, is an investment manager and financial institution subject to regulation by the Financial Conduct Authority of the United Kingdom.Kingdom;
•SEI Investments Canada Company, or SEI Canada, an investment fund manager that has various other capacities that is regulated by the Ontario Securities Commission and various provincial authorities as an investment fund manager and in various other capacities.authorities;
•SEI Investments Global, Limited, or SIGL, is primarily regulated by the Central Bank of Ireland (CBI) as a management company for Undertakings for Collective Investment in Transferable Securities, or UCITS, and for Alternative
Investment Funds, or AIFs. GFSLAIFs, that is regulated primarily by the CBI andCentral Bank of Ireland, or CBI;
•SEI Investments - Global Fund Services, Ltd., or GFSL, an authorized to provideprovider of administration services for Irish and non-Irish collective investment schemes. D&Cschemes that is regulated by the CBICBI;
•SEI Investments - Depositary and Custodial Services (Ireland) Limited, or D&C, an authorized to provideprovider of depositary and custodial services. services that is regulated by the CBI;
•SEI Investments - Luxembourg S.A., or SEI Lux, a professional of the specialized financial sector subject to regulation by the Commission de Surveillance du Secteur Financier of the Grand Duchy of Luxembourg;
•SEI Investments Global (Cayman), Ltd., a full mutual fund administrator that is regulated by the Cayman Island Monetary Authority; and
•SEI Investments (South Africa) (PTY) Limited, a Private Company that is a licensed Financial Service Provider regulated by the Financial Sector Conduct Authority.
In addition various SEIto the regulatory authorities listed above, our subsidiaries are subject to the jurisdiction of regulatory authorities in other foreign countries. The Company hasIn addition to our wholly-owned subsidiaries, we also own a minority ownership interest of approximately 38.9 percent38.6% in LSV, which is also an investment advisor registered with the SEC.
The Company, its regulated subsidiaries, their regulated services and solutions and their customers are all subject to extensive legislation, regulation, and supervision that recently has been subject to, and continues to experience, significant change and increased regulatory activity. These changes and regulatory activities could have a material adverse effect on us and our clients.
The various governmental agencies and self-regulatory authorities that regulate or supervise the Company and its subsidiaries have broad administrative powers. In the event of a failure to comply with laws, regulations, and requirements of these agencies and authorities, the possible business process changes required or sanctions that may be imposed include the suspension of individual employees, limitations on our ability to engage in business for specified periods of time, the revocation of applicable registration as a broker-dealer, investment advisor or other regulated entity, and, as the case may be, censures and fines. Additionally, certain securities and banking laws applicable to us and our subsidiaries provide for certain private rights of action that could give rise to civil litigation. Any litigation could have significant financial and non-financial consequences including monetary judgments and the requirement to take action or limit activities that could ultimately affect our business.
Governmental scrutiny from regulators, legislative bodies, and law enforcement agencies with respect to matters relating to our regulated subsidiaries and their activities, services and solutions, our business practices, our past actions and other matters has increased dramatically in the past several years. Responding to these examinations, investigations, actions, and lawsuits, regardless of the ultimate outcome of the proceeding, is time consuming and expensive and can divert the time and effort of our senior management from our business. Penalties, fines and fineschanges to business processes sought by regulatory authorities have increased substantially over the last several years, and certain regulators have been more likely in recent years to commence enforcement actions or to advance or support legislation targeted at the financial services industry. We continue to be subject to inquiries from examinations and investigations by supervisory and enforcement divisions of regulatory authorities and expect this to continue in the future. We believe this is also the case with many of our regulated clients. Governmental scrutiny and legal and enforcement proceedings can also have a negative impact on our reputation, our relationship with clients and prospective clients, and on the morale and performance of our employees, which could adversely affect our businesses and results of operations.
We are subject to the USA PATRIOT Act of 2001, which containsU.S. and foreign anti-money laundering and financial transparency laws and requiresthat require implementation of regulations applicable to financial services companies, including standards for verifying client identification and monitoring client transactions and detecting and reporting suspicious activities. Anti-money laundering laws outside the United States contain similar requirements. We offer investment and banking solutions that also are subject to regulation by the federal and state securities and banking authorities, as well as foreign regulatory authorities, where applicable. Existing or future regulations that affect these solutions could lead to a reduction in sales of these solutions or require modifications of these solutions.
We must comply with economic sanctions and embargo programs administered by the Office of Foreign Assets Control (OFAC) and similar national and multinational bodies and governmental agencies outside the United States, as well as anti-corruption and anti-money laundering laws and regulations throughout the world. We can incur higher costs and face greater compliance risks in structuring and operating our businesses to comply with these requirements. Furthermore, a violation of a sanction or embargo program or anti-corruption or anti-money laundering laws and regulations could subject us and our subsidiaries, and individual employees, to regulatory enforcement actions as well as significant civil and criminal penalties.
Our businesses are also subject to privacy and data protection information security legal requirements concerning the use and protection of certain personal information. These include those adopted pursuant to the Gramm-Leach-Bliley Act and the Fair and Accurate Credit Transactions Act of 2003 in the United States, the General Data Protection Regulation (GDPR) in the EU, Canada’s Personal Information Protection and Electronic Documents Act, the Cayman Islands' Data Protection Law, and various other laws. Privacy and data security legislation is a priority issue in many states and localities in the United States, as well as foreign jurisdictions outside of the EU. For example, California enacted the California Consumer Privacy Act (CCPA) which broadly regulates the sale of the consumer information of California residents and grants California residents certain rights to, among other things, access and delete data about them in certain circumstances. Other states are considering similar proposals. Such attempts by the states to regulate have the potential to create a patchwork of differing and/or conflicting state regulations. Ensuring compliance under ever-evolving privacy legislation, such as GDPR and CCPA, is an ongoing commitment, which involves substantial costs.
Compliance with existing and future regulations and responding to and complying with recent increased regulatory activity affecting broker-dealers, investment advisors, investment companies, financial institutions, and their service providers could have a significant impact on us. We periodically undergo regulatory examinations and respond to regulatory inquiries and document requests. In addition, recent and continuing legislative activity in the United States and in other jurisdictions (including the European Union and the United Kingdom) have made and continue to make extensive changes to the laws regulating financial services firms. Recent changes include the effectiveness of the Markets in Financial Instruments Directive (MiFID II) and pending effectiveness of the General Data Protection Regulation in the European Union and the U.S. Department of Labor's Fiduciary Rule. As a result of these examinations, inquiries, and requests, as a result of increased civil litigation activity, and as a result of these new laws and regulations, we engage legal counsel and other subject matter experts, review our compliance procedures, solution and service offerings, and business operations, and make changes as we deem necessary.necessary or as may be required by the applicable authority. These additional activities and required changes may result in increased expense or may reduce revenues.
Our bank clients are subject to supervision by federal, state, and foreign banking and financial services authorities concerning the manner in which such clients purchase and receive our products and services. Our plan sponsor clients and our subsidiaries providing services to those clients are subject to supervision by the Department of Labor and compliance with employee benefit regulations. Investment advisor and broker-dealer clients are regulated by the SEC, state securities authorities, or FINRA. Existing or future regulations applicable to our clients may affect our clients’ purchase of our products and services.
In addition, see the discussion of governmental regulations in Item 1A, “Risk Factors”Risk Factors for a description of the risks that the current regulatory regimes and proposed regulatory changes may present for our business.
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Available Information
We maintain a website at seic.com and make available free of charge through the Investor Relations section of this website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We include our website in this Annual Report on Form 10-K only as an inactive textual reference and do not intend it to be an active link to our website. The material on our website is not part of this Annual Report on Form 10-K.
Item 1A. Risk Factors.Factors.
We believe that the risks and uncertainties described below are those that impose the greatest threat to the sustainability of our business. However, there are other risks and uncertainties that exist that may be unknown to us or, in the present opinion of our management, do not currently pose a material risk of harm to us. The risk and uncertainties facing our business, including those described below, could materially adversely affect our business, results of operations, financial condition, and liquidity.capital position, liquidity, competitive position or reputation, including by materially increasing expenses or decreasing revenues, which could result in material losses or a decrease in earnings.
Risks Related to Our Business Model
Our revenues and earnings are affected by changes in capital markets.marketsand significant changes in the value of financial instruments. A majority of our revenues are earned based on the value of assets invested in investment products that we manage or administer. Significant fluctuationsA decrease in securities prices may materially affect the value of these assets, whether due to general market movements or as a consequence of various products’ unique investment performance, would cause a decline in our assets under administration or management, and a corresponding decline in our revenue and earnings. And, in certain investment programs, a portion of our clients’ cash is swept into insured deposit accounts at third party banks on which we earn fees, which fees may be significant. A material change in interest rates could affect our profitability. Significant fluctuations in securities prices may also influence an investor’s decision to invest in and maintain an investment in a mutual fund or other investment product.products. Declining or adverse economic conditions and adverse changes in investor, consumer and business sentiment generally result in reduced business activity, which may decrease the demand for our products and services. Geopolitical events, market volatility, illiquid market conditions and other disruptions in the financial markets may make it extremely difficult to value or monetize certain financial instruments, particularly during periods of market displacement. Subsequent valuations of financial instruments in future periods, in light of factors then prevailing, may result in significant changes in the value of these instruments. Additionally, periods of extreme market dislocation may require us to monetize our assets or those of our clients at a significant loss. As a result, our revenues and earnings derived from assets under management andor administration, or our profitability or value as a firm, could be adversely affected.
We are exposed to product development risk. We continually strive to increase revenues and meet our customers' needs by introducing new products and services as well as maintaining and improving our existing products and services. As a result, we are subject to product development risk, which may result in loss if we are unable to develop and deliver products to our target markets that address our clients' needs, and that are developed on a timely basis, andor that reflect an attractive value proposition. We are also subject to the risk that new products and solutions we develop may not function as expected or may be prone to error or disruption, which may result in material losses or harm to our reputation and ability to market such solutions. The majority of our technology product development risk pertains to the evolution of the SEI Wealth Platform which provides a global, unified and scalableSM, TRUST 3000®, our platform for operating a wealth management business. It is designed to improve client experience capabilitiesthe Investment Managers segment, and strengthen operating efficiencies by providing straight through business processing solutionsour other proprietary technology platforms.
The development and transform the front, middleintroduction of new products and back office operations that exist today. New product development is primarily for the purpose of enhancing our competitive positionservices in the industry. Inmarkets in which we operate requires continued innovative efforts on our part and may require significant time and resources as well as ongoing support and investment. Substantial risk and uncertainties are associated with the event thatintroduction of new products and services, including the implementation of new and appropriate operational controls and procedures, shifting client and market preferences, the introduction of competing products or services and compliance with regulatory requirements.
Product development in the asset management arena has had significant growth in newer areas where investment criteria and performance metrics have not yet been fully defined or developed, such as Environmental, Social and Governance, or “ESG” products, Sustainable Investing products, and Tax Harvesting programs. New products often must be in the market place for three or more years in order to generate track records required to attract significant asset inflows. A failure to continue to innovate, to introduce successful new products and services, or to manage effectively the risks associated with such products and services, may impact our market share and may cause our revenues and earnings derived from assets under management and administration to decline.
We may not achieve significant revenue from new products or services for years, if at all. New products and services may not be profitable, and even if they are profitable, operating margins for some new products and services may not be as high as the margins we have experienced historically.
If we fail to develop new or enhanced products or services at an acceptable cost or on a timely basis, or if our development strategies are not accepted by our clients, we may recognize significant financial losses. Further, if we fail to deliver products and services which are of sound economic value to our clients and our target markets, or an inabilityare unable to support the product in a cost-effective and compliant manner, we may recognizeface reputational damage and incur significant financial losses.
We rely on third parties to provide products and services that may be difficult to replace or which could cause errors or failures in the services we signed an existing clientprovide. We rely on third parties we do not control to be the first large national bank to implement the SEI Wealth Platform,provide us with products and services, including software development, licensed software, software as a service, cloud services, hosting, web hosting, and the first clientAutomated Clearing House (ACH) network which transmit transaction data, process chargebacks and refunds, and perform clearing services in connection with our settlement activities. In the event these third parties fail to operate the Platform as an SaaS solution. This will beprovide these services adequately or in a multi-year conversion due to the client’s size, the development work involved to expand the Platform to be offeredtimely manner, including as a SaaS solution,result of errors in their systems or events beyond their control, or refuse to provide these services on terms acceptable to us or at all, and we are not able to find and implement timely suitable alternatives, we may no longer be able to provide certain services to customers, which could expose us and our clients to information security, financial, compliance and reputational risks, among others, and have a material adverse effect on our results of operations and financial condition. In addition, if we are unable to renew our existing contracts or licenses with key vendors, technology providers or service providers, we might not be able to replace the related product, application or service at all or at the same cost, which would negatively impact our offerings and our results of operations.
Pricing pressure from increased competition and disruptive technology may affect our revenues and earnings.The investment management industry is highly competitive and has relatively low barriers to entry. In recent years, we have experienced, and continue to experience, pricing pressures from the introduction of new, lower-priced investment products and services and the scopegrowth of integration activities required. The failurepassive investing, as well as from competitor firms offering automated portfolio management and other services based on technological innovations. These new investment products and technological innovations available to developboth institutional and implementretail investors have led to a general trend towards lower fees in some segments of the contractually-agreed uponinvestment management industry. We believe price competition and pricing pressures in these and other areas will continue as investors continue to reduce the amounts they are willing to pay and financial services onfirms seek to obtain market share by reducing fees or margins.
Financial technology companies and other non-traditional competitors may not be subject to banking regulation, or may be supervised by a timely basis for this clientnational or state regulatory agency that does not have the same resources or regulatory priorities as those regulatory agencies that supervise more diversified financial services firms such as us, or the financial services regulatory framework in a particular jurisdiction may favor financial institutions that are based in that jurisdiction. These types of differences in regulatory status and framework may result in losing market share to competitors that have a lower cost of compliance due to being less regulated than we are or not subject to regulation, especially with respect to unregulated financial products.
Over time, certain sectors of the financial services industry have become more concentrated, as institutions involved in a broad range of financial services have left businesses, been acquired by or merged into other firms, or have declared bankruptcy. Such changes could result in our remaining competitors gaining greater capital and other resources, such as the ability to offer a broader range of products and services and geographic diversity, or new competitors may emerge.
Our investment management platforms include investment management programs and back-office investment processing outsourcing services and are generally offered on a bundled basis. The breadth of our business solutions allows us to compete on a number of factors including:
•the performance of our investment products;
•the level of fees charged;
•the quality of our investment processing services;
•our reputation and position in the industry;
•our ability to adapt to disruptive technology developments or unforeseen market entrants; and
•our ability to address the complex and changing needs of our clients.
Increased competition on the basis of any of these factors could have an adverse impact on our competitive position resulting in a decrease in our revenues and earnings. Additionally, the trend toward direct access to automated, electronic markets will likely continue as additional markets move to more automated trading platforms. We have experienced and will likely continue to experience competitive pressures in these and other areas in the future.
Our earnings and cash flows are affected by the performance of LSV. We maintain a minority ownership interest in LSV which is a significant financial lossescontributor to our earnings. We also receive partnership distribution payments from LSV on a quarterly basis which contribute to our operating cash flows. LSV is a registered investment advisor that provides investment advisory services to institutions, including pension plans and investment companies. LSV is a value-oriented, contrarian money manager offering a deep-value investment alternative utilizing a proprietary equity investment model to identify securities generally considered to be out of favor by the market. Volatility in the capital markets or poor investment performance on the part of LSV, on a relative basis or an absolute basis, could result in a significant reduction in their assets under management and revenues and a reduction in performance fees. Consequently, LSV's contribution to our
earnings through our minority ownership, as well as to our operating cash flows through LSV's partnership distribution payments, could be adversely affected.
Consolidation within our target markets may affect our business. Merger and acquisition activity within the markets we serve could reduce the number of existing and prospective clients or reduce the amount of revenue and earnings we receive from retained clients. Consolidation activities may also cause larger institutions to internalize some or all of our services. These factors may negatively impact our ability to generate future growth in revenues derived fromand earnings.
External factors affecting the SEI Wealth Platform.
We are dependent upon third-party service providers in our operationsfiduciary management market could adversely affect us.. We utilize numerous third-party service providers locatedThe utilization of defined benefit plans by employers in the United States, Canada and the United Kingdom and other offshore locations in our operations, in the development of new products, and in the maintenancehas been steadily declining. A number of our proprietary systems. A failureclients have frozen or curtailed their defined benefit plans resulting in decreased revenues and earnings related to this market segment. We have also experienced increasing fee sensitivity and competition for certain fiduciary management services due to investor preferences toward lower-priced investment products including passive management approaches. The current growth strategies of our Institutional Investors segment include entering new global markets and placing greater emphasis on defined contribution and not-for-profit organizations fiduciary management sales opportunities. These strategies may not be successful in mitigating the impact of lower revenues and earnings caused by a third-party service providerthese external factors which could adversely affect our revenues and earnings.
We may experience software defects, development delays or installation difficulties, which would harm our business and reputation and expose us to an inabilitypotential liability.A significant portion of our revenue is dependent upon our ability to provide contractualdevelop, implement, maintain and enhance sophisticated software and computer systems. We may encounter delays when developing new applications and services. Further, the software underlying our services tomay contain undetected errors or defects when first introduced or when new versions are released. We may also experience difficulties in installing or integrating our technology on systems or with other programs used by our clients. Likewise, our clients may make a determination to delay or cancel the integration of our new applications and services. Defects in a timely basis. Additionally, if a third-party service provider is unableour software, failure to provide these services, we may incur significant costs to either internalize some of these servicesadequately maintain and enhance our software products, errors or find a suitable alternative.
We serve as the investment advisor for many of the products offered through our investment management programs and utilize the services of investment sub-advisers to manage the majority of these assets. A failuredelays in the performanceprocessing of our due diligence processeselectronic transactions or other difficulties could result in interruption of business operations, delay in market acceptance, additional development and controls related to the supervision and oversightremediation costs, diversion of these firms in detecting and addressing conflicts of interest, fraudulent activity, noncompliance with relevant securitiestechnical and other laws could cause usresources, loss of clients or client data, negative publicity or exposure to suffer financial loss, regulatory sanctions or damageliability claims. Although we attempt to limit our reputation.potential liability through disclaimers and limitation of liability provisions in our license and client agreements, we cannot be certain that these measures will successfully limit our liability.
Risks Related to Our Technology
We are exposed to data and cyber security risks. A Like other global financial service providers, we experience millions of cyber-attacks on our computer systems, software, networks and other technology assets on a daily basis. Cyber security and information risks for financial institutions have significantly increased in recent years in part because of the proliferation of new technologies, the use of the internet and mobile telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign state actors, in some circumstances as a means to promote political ends. In addition to the growing sophistication of certain parties, the commoditization of cyber tools which are able to be weaponized by less sophisticated actors has led to an increase in the exploitation of technological vulnerabilities. Any of these parties may also attempt to fraudulently induce employees, customers, clients, vendors or other third parties or users of our systems to disclose sensitive information in order to gain access to our data or that of our employees or clients. Cyber security and information security risks may also derive from:
•human error,
•fraud, or malfeasance on the part of our employees or third parties,
•accidental technological failure, or
•our failure to safeguard the integrity and confidentialityintroduce security patches provided by vendors in a timely manner.
In addition, third parties with whom we do business, their service providers, as well as other third parties with whom our customers do business, are sources of client data and our proprietary data from the infiltration by an unauthorized user may lead to modifications or theft of critical and sensitive data pertainingcyber security risk to us, particularly when their activities and systems are beyond our own security and control systems. A cyber-attack, information breach or loss, or technology failure of a third party could adversely affect our clients. Weability to effect transactions, service our clients, manage our exposure to risk, expand our businesses, or significantly harm our reputation. There is no guarantee that the strategies we have established a strategydeployed that are designed to protect against threats and vulnerabilities containing preventive and detective controls including, but not limited to, firewalls, intrusion detection systems, computer forensics, vulnerability scanning, server hardening, penetration testing, anti-virus software, data leak prevention, encryption and centralized event correlation monitoring. Despite our efforts to ensure the integritywill be effective or provide recoverability of our proprietary systems or our data or that of our clients given the techniques used in cyber-attacks are complex and information, it is possible that we may not be able to anticipatefrequently change.
A successful penetration or to implement effective preventive measures against all cyber threats,
especially because the methods used change frequently or are not recognized until launched. Additionally, security breaches or disruptions•significant disruption of our proprietary systems, oroperations and those of our service providers, could impactclients, customers and counterparties, including losing access to operational systems;
•misappropriation of our abilityconfidential information or that of our clients, counterparties, vendors, employees or regulators;
•damage to provide servicesour technology infrastructure or systems and those of our clients, vendors and counterparties;
•inability to fully recover and restore data that has been stolen, manipulated or destroyed, or to prevent systems from processing fraudulent transactions;
•violations by us of applicable privacy and other laws;
•financial loss to us or to our clients, whichvendors, counterparties or employees;
•loss of confidence in our cyber security measures;
•dissatisfaction among our clients or counterparties;
•significant exposure to litigation and regulatory fines, penalties or other sanctions; and
•harm to our reputation.
Any of the foregoing factors could expose us to liability for damages which may not be covered by insurance,insurance; but may result in the loss of customer business, damage to our reputation, subject us to regulatory scrutiny or expose us to civil litigation. In addition, the
The failure to upgrade or maintain our computer systems, software and networks as necessary, could also make us susceptible to breaches and unauthorized access and misuse. Data security breaches may also result from non-technical means, for example, employee misconduct or human error. We may be required to expend significant additional resources to modify, investigate or remediate vulnerabilities or other exposures arising from data and cyber security risks. Furthermore, even if not directed at us specifically, attacks on other financial institutions could disrupt the overall functioning of the financial system. As a result of the importance of communications and information systems to our business and our reliance on the services provided to us by third parties, we could also be adversely affected if attacks affecting our third partythird-party service providers impair our ability to process transactions and communicate with clients and counterparties.
Given our global footprint and the high volume of transactions we process, the large number of clients, partners, vendors and counterparties with which we do business, and the increasing sophistication of cyber-attacks, a cyber-attack or information security breach could occur and persist for an extended period of time without detection. We expect that any investigation of a cyber-attack would be inherently unpredictable and that it would take time before the completion of any investigation and before there is availability of full and reliable information. During such time we would not necessarily know the extent of the harm or how best to remediate it, and certain errors or actions could be repeated or compounded before they are discovered and remediated, all or any of which would further increase the costs and consequences of a cyber-attack.
While many of our agreements with partners and third-party vendors include indemnification provisions, we may not be able to recover sufficiently, or at all, under such provisions to adequately offset any losses. In addition, although we maintain insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber and information security risks, such insurance coverage may be insufficient to cover all losses.
The cost of managing cyber and information security risks and attacks along with complying with new and increasingly expansive regulatory requirements could adversely affect our business.
We are exposed to operational risks. Operational risk generally refers to the risk of loss resulting from our operations, including, but not limited to, improper or unauthorized executionthe disclosure and processingmisuse of transactions, deficiencies in our operating systems, inefficiencies in our operational business units, business disruptionspersonal data.We store and inadequacies or breaches in our internal control processes. We operate different businesses in diverse markets and are reliant on the abilityprocess large amounts of personally identifiable information of our customers. It is possible our security controls over personal data, our training of employees on data security, our vendor due diligence and systemsoversight processes, and other practices we follow may not prevent the improper disclosure or misuse of personal data that we or our vendors store and/or manage. Improper disclosure or misuse of personal data could harm our reputation, lead to process large volumeslegal exposure, or subject us to liability under laws that protect personal data, resulting in increased costs or loss of transactions often within short time frames. Inrevenue. Perceptions that the eventcollection, use, and retention of a breakdownpersonal information is not satisfactorily protected could inhibit sales of our products or improper operationservices. Additional security measures we may take to address customer concerns may cause higher operating expenses or hinder growth of systems, human error or improper action by employees, we could suffer significant financial loss, regulatory sanctions or damage to our reputation. In order to mitigateproducts and control operational risk, we continue to enhance policies and procedures that are designed to identify and manage operational risk.services.
We are exposed to systemsrisk of outages, data losses, and technology risksdisruptions of services. Through our proprietary systems, we We maintain and process data for our clients that is critical to their business operations. An unanticipated interruptionThe products and services used to process that data is increasingly complex, and maintaining, securing, and expanding this infrastructure is expensive. It requires that we maintain an Internet connectivity infrastructure and storage and compute capacity that is robust and reliable within competitive and regulatory constraints that continue to evolve. Inefficiencies or operational failures, including temporary or permanent loss of service may have significant ramifications, such as lostcustomer data, damaged software codes, delayed or inaccurate processing of transactions. As a result,transactions, insufficient Internet connectivity, or inadequate storage and compute capacity, could diminish the quality of our products, services, and user experience resulting in contractual liability, claims by customers and other third parties, regulatory actions, damage to our
reputation, and loss of current and potential users, each of which may adversely impact our consolidated financial statements. The costs necessary to rectify these problems may be substantial.substantial and may adversely impact our business.
The trend toward direct access to automated, electronic markets and the move to more automated trading platforms has resulted in the use of increasingly complex technology that relies on the continued effectiveness of the programming code and integrity of the data to process the trades. We rely on the ability of our employees, our consultants, our internal systems and third-party systems to operate our different businesses and process a high volume of transactions. Unusually high trading volumes or site usage could cause our systems to operate at an unacceptably slow speed or even fail. Disruptions to, destruction of, instability of or other failure to effectively maintain our information technology systems or external technology that allows our clients and customers to use our products and services could harm our business and our reputation. There can be no assurance that our business contingency and security response plans fully mitigate all potential risks to us.
We are exposed to intellectual property risks. Our continued success also depends in part on our ability to protect our proprietary technology and solutions and to defend against infringement claims of others. We primarily rely upon trade secret law, software security measures, copyrights and confidentiality restrictions in contracts with employees, vendors and customers. Our industry is characterized by the existence of a large number of trade secrets, copyrights and the rapid issuance of patents, as well as frequent litigation based on allegations of infringement or other violations of intellectual property rights of others. A successful assertion by others of infringement claims or a failure to maintain the confidentiality and exclusivity of our intellectual property may have a material adverse effect on our business and financial results.
Pricing pressure fromWe are dependent upon third-party service providers in our operations. In connection with our ongoing operations, we utilize the services of third-party suppliers, which we anticipate will continue and may increase in the future. These services include, for example, outsourced development, processing and support functions, and other professional services.
Third-party financial entities and technology systems upon which we rely are becoming more interdependent and complex. For example, in recent years, there has been significant consolidation among clearing agents, exchanges and clearing houses and increased competition, disruptive technologyinterconnectivity of multiple financial institutions with central agents, exchanges and clearing houses. This consolidation and interconnectivity increases the risk of operational failure, on both an individual and industry-wide basis, as disparate complex systems need to be integrated, often on an accelerated basis.
A failure by a third-party product or service provider may impair our ability to provide contractual services to our clients on a timely basis, to process transactions for our clients accurately, or to meet our regulatory obligations. If a third-party service provider is unable to provide services, we may incur significant costs to either internalize some of these services, find a suitable alternative, or to compensate our clients for any losses that may be sustained as a consequence of the actions or inactions of our third-party services providers. In the event of a breakdown or improper operation of a direct or indirect third-party’s systems or processes, or improper or unauthorized action by third parties, including consultants and subcontractors, we could suffer financial loss, a disruption of our businesses, regulatory sanctions or damage to our reputation.
Risks Related to Our Investment Products and Solutions
Our investment management business may be affected by the poor investment performance may affectof our revenues and earnings. investment products or a client preference for products other than those which we offer or for products that generate lower fees.ThePoor investment returns in our investment management industry is highly competitive and has relatively low barriersbusiness, due to entry. In recent years, the Company has experienced, and continueseither general market conditions or underperformance (relative to experience, pricing pressures from the introduction of new, lower-pricedour competitors or to benchmarks) by funds or accounts that we manage or investment products that we design or sell, affects our ability to retain existing assets and services as well asto attract new clients or additional assets from competitor firms offering automated portfolioexisting clients and could affect the management and other services basedincentive fees that we earn on technological innovations. These new investmentassets under management. To the extent that our clients choose to invest in products that we do not currently offer, we will suffer outflows and technological innovations availablea loss of management fees. Further, if, due to both institutional and retail investors have led to a general trend towardschanges in investor sentiment or the relative performance of certain asset classes or otherwise, clients invest in products that generate lower fees, our investment management business could be adversely affected.
Our investment advisory contracts may be terminated or may not be renewed on favorable terms. We derive a substantial portion of our revenue from providing investment advisory services. The advisory or management contracts we have entered into with clients, including the agreements that govern many of SEI’s investment funds, provide investors or, in some segmentscases, the independent directors of applicable investment funds, with significant latitude to terminate such contracts, withdraw funds or liquidate funds with limited notice or penalty. We also manage U.S. mutual funds under management contracts that must be renewed and approved annually by the funds’ respective boards of trustees, a majority of whom are independent from SEI. Our fee arrangements under any advisory or management contracts may be reduced (including at the behest of a fund’s board of trustees). In addition, if a number of our clients terminate their
contracts, liquidate funds or fail to renew management contracts on favorable terms, the fees we earn could be reduced, which may cause our assets under management, revenue and earnings to decline.
We rely on the services of third-party sub-advisers. We serve as the investment advisor for many of the investment management industry. We believe price competition and pricing pressures in these and other areas will continue as investors continue to reduce the amounts they are willing to pay and financial services firms seek to obtain market share by reducing fees or margins.
Our investment management platforms includeproducts offered through our investment management programs and back-officeutilize the services of investment processing outsourcing services and are generally offered on a bundled basis. The breadthsub-advisers to manage the majority of our business solutions allows us to compete on a number of factors including:these assets. A failure in the performance of our due diligence processes and controls related to the supervision and oversight of these firms, as well as errors, fraudulent activity, or noncompliance with relevant securities and other laws and regulations by those firms, could cause us to suffer financial loss, regulatory sanctions or damage to our reputation.
We are dependent upon third-party approvals. Many of the investment products;advisors through which we distribute our investment offerings are affiliated with independent broker-dealers or other networks, which have regulatory responsibility for the leveladvisor’s practice. As part of fees charged; the qualityregulatory oversight, these broker-dealers or networks must approve the use of our investment processing services; our reputation and position inproducts by affiliated advisors within their networks. Failure to receive such approval, or the industry; our ability to adapt to disruptive technology developments or unforeseen market entrants and our ability to addresswithdrawal of such approval, could adversely affect the complex and changing needsmarketing of our clients. Increased competition on the basis of any of these factors could have an adverse impact on our competitive position resulting in a decrease in our revenues and earnings.
Our ability to maintain our existing clients and attract new clients may be negatively affected if the performance of our mutual funds and other investment products, relative to market conditions and other comparable competitive investment products, is lower. Investors may decide to place their investable funds elsewhere which would reduce the amount of assets we manage resulting in a decrease in our revenues and earnings.
Our earnings and cashflows are affected by the performance of LSV.products. We maintain a minority ownership interest in LSV which is a significant contributor to our earnings. We also receive partnership distribution payments from LSV on a quarterly basis which contribute to our operating cashflows. LSV is a registered investment advisor that provides investment advisory services to institutions, including pension plans and investment companies. LSV is a value-oriented, contrarian money manager offering a deep-value investment alternative utilizing a proprietary equity investment model to identify securities generally considered to be out of favor by the market. Volatility in the capital markets or poor investment performance on the part of LSV, on a
relative basis or an absolute basis, could result in a significant reduction in their assets under management and revenues and a reduction in performance fees. Consequently, LSV's contribution to our earnings through our minority ownership as well as to our operating cashflows through LSV's partnership distribution payments could be adversely affected.
We are dependent on third partythird-party pricing services for the valuation of securities invested in our investment products. The majority of the securities held by our investment products are valued using quoted prices from active markets gathered by external third partythird-party pricing services. Securities for which market prices are not readily available are valued in accordance with procedures applicable to that investment product. These procedures may utilize unobservable inputs that are not gathered from any active markets and involve considerable judgment. If these valuations prove to be inaccurate, our revenues and earnings from assets under management could be adversely affected.
Risks Related to Our CompanyLegal, Regulatory and Compliance Environment
The financial services industry is subject to extensive regulations that impact our clientsbusiness. Legal, regulatory and compliance risk includes the risk of legal or regulatory sanctions, material financial loss including fines, penalties, judgments, damages and/or settlements, or loss to reputation we may suffer as a result of our failure to comply with laws, regulations, rules, related self-regulatory organization standards and codes of conduct applicable to our business activities. This risk also includes contractual and commercial risk, such as the risk that a counterparty’s performance obligations will be unenforceable. It also includes compliance with privacy, anti-money laundering, anti-corruption and terrorist financing rules and regulations.
As a major financial services firm, we are subject to extensive governmental regulation.regulation by U.S. federal and state regulatory agencies and securities exchanges and by regulators and exchanges in each of the major markets where we conduct our business. Our parent company, SEI Investments Company, is regulated by the FFIEC as a significant service provider to the financial industry and subject to SEC oversight as a publicly traded company. Our various business activities in the United States are conducted through entities such as an investment advisor, broker-dealer, commodity pool operator, transfer agent, investment company, national bank and trust company which may be registered with or regulated by the SEC, FINRA, CFTC, NFA, DOL, OCC, and CFTC as an investment advisor, a broker-dealer, a transfer agent, or an investment company, and with federal or state banking authorities as a trust company. Our broker-dealer is also a memberthe PA Department of the Financial Industry Regulatory Authority and is subject to its rules and oversight.Banking. In addition, some of our foreign subsidiaries are registered with, and subject to the oversight of, regulatory authorities primarily in the United Kingdom, Ireland, Canada, Luxembourg, South Africa, and the Republic of Ireland and Canada.Cayman Islands. Many of our clients are subject to substantial regulation by federal and state banking, securities, insurance or insurance authorities or the Department of Labor.employee benefit authorities. Compliance with existing and future regulations, responding to and complying with recent regulatory activity (new requirements, examinations and supervisory activity) affecting broker-dealers, investment advisors, investment companiesour financial intermediary clients and their service providers and financial institutions, and examination or other supervisory activities of our regulators or of the regulators of our clients, could have a significant impact on our operations or business or our ability to provide certain products or services.
We offer investmentfinancial services technology products and banking productsservices that also are subject to regulation by the federal and state securities and banking authorities, as well as foreign regulatory authorities, where applicable. Existing or future regulations that affect these products could lead to a reduction in sales of these products or an increase in the cost of providing these products. There can also be significant differences in the ways that similar regulatory initiatives affecting the financial services industry are implemented in the United States and in other countries. For example, when adopting rules that are intended to implement a global regulatory standard, a national regulator may introduce additional or more restrictive requirements, which can create competitive disadvantages for financial services firms such as ours that are subject to those enhanced regulations as a consequence of multi-jurisdictional operations.
In the United States, the Bank Secrecy Act, as amended by the USA PATRIOT Act of 2001 and the Anti-Money Laundering Act of 2020, imposes significant obligations on financial institutions to detect and deter money laundering and terrorist financing activity, including requiring banks, bank holding companies and their subsidiaries, broker-dealers, futures commission merchants, introducing brokers and mutual funds to implement anti-money laundering programs, verify the identity of customers that maintain accounts, and monitor and report suspicious activity to appropriate law enforcement or regulatory authorities. Outside the United States, applicable laws, rules and regulations similarly require designated types of financial institutions to implement compliance programs to address regulatory requirements related to
money laundering, financial crime and the financing of terrorist activities. Failure to implement comprehensive anti-money laundering programs across our globally-regulated businesses poses regulatory risk including fines for noncompliance.
We are also subject to sanctions, such as regulations and economic sanctions programs administered by the U.S. government, including the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) and the U.S. Department of State, and similar sanctions programs imposed by foreign governments or global or regional multilateral organizations. In addition, we are subject to anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, in the jurisdictions in which we operate. Anti-corruption laws generally prohibit offering, promising, giving or authorizing others to give anything of value, either directly or indirectly, to a government official or private party in order to influence official action or otherwise gain an unfair business advantage, such as to obtain or retain business. We can incur higher costs and face greater compliance risks in structuring and operating our businesses to comply with these requirements. Furthermore, a violation of a sanction or embargo program or anti-corruption or anti-money laundering laws and regulations could subject us and our subsidiaries, and individual employees, to regulatory enforcement actions as well as significant civil and criminal penalties.
Our businesses are also subject to privacy and data protection information security legal requirements concerning the use and protection of certain personal information. These include those adopted pursuant to the Gramm-Leach-Bliley Act and the Fair and Accurate Credit Transactions Act of 2003 in the United States, the General Data Protection Regulation (GDPR) in the EU, Canada’s Personal Information Protection and Electronic Documents Act, the Cayman Islands' Data Protection Law, and various other laws. Privacy and data security legislation is a priority issue in many states and localities in the United States, as well as foreign jurisdictions outside of the EU. These laws impose mandatory privacy and data protection obligations, including providing for individual rights, enhanced governance and accountability requirements and significant fines and litigation risk for noncompliance. Many other jurisdictions have adopted or are proposing to adopt standards similar to the GDPR. In addition, several jurisdictions have enacted or proposed personal data localization requirements and restrictions on cross-border transfer of personal data that may restrict our ability to conduct business in those jurisdictions or create additional financial and regulatory burdens to do so.
Many aspects of our businesses are subject to legal requirements concerning the use and protection of certain customer information. These include those adopted pursuant to the Gramm-Leach-Bliley Act and the Fair and Accurate Credit Transactions Act of 2003 in the U.S., as well as the privacy and cybersecurity laws referenced above. We have adopted measures designed to comply with these and related applicable requirements in all relevant jurisdictions. Well-publicized allegations involving the misuse or inappropriate sharing of personal information have led to expanded governmental scrutiny of practices relating to the use or sharing of personal data by companies in the United States and other countries. That scrutiny has in some cases resulted in, and could in the future lead to, the adoption of stricter laws and regulations relating to the use and sharing of personal information. These types of laws and regulations could prohibit or significantly restrict financial services firms from sharing information among affiliates or with third parties such as vendors, and thereby increase compliance costs, or restricting the use of personal data when developing or offering products or services to customers. These restrictions could inhibit our development or marketing of certain products or services, or increase the costs of offering them to customers.
The fees and assessments imposed on our regulated subsidiaries by federal, national, state and foreign regulatory authorities could have a significant impact on us. In the current regulatory environment, theThe frequency and scope of regulatory reform in the current regulatory environment may lead to an increase in fees and assessments resulting in increased expense, or an increase or change in regulatory requirements which could affect our operations and business.
A failure to address conflicts of interest appropriately could adversely affect our business and reputation. As a global financial services firm that provides products and services to a diversified group of clients, including public and private entities, financial institutions and individuals, we face potential conflicts of interest in the normal course of business. For example, potential conflicts can occur when there is a divergence of interests between us and a client, among clients, between an employee on the one hand and us or a client on the other, or situations in which we may be a creditor of a client. Moreover, we utilize multiple business channels, including those resulting from our acquisitions, and continue to enhance the collaboration across business segments, which may heighten the potential conflicts of interest or the risk of improper sharing of information. We have policies, procedures and controls that are designed to identify and address potential conflicts of interest, and we utilize various measures, such as the use of disclosure, to manage these potential conflicts. However, identifying and mitigating potential conflicts of interest can be complex and challenging and can become the focus of media and regulatory scrutiny. It is possible that potential conflicts could give rise to litigation or enforcement actions, which may lead to our clients being less willing to enter into transactions in which a conflict may occur and could adversely affect our businesses and reputation.
Our investment management operations may subject us to legal liability for client losses.Our fund and trust management and administration operations are complex activities and include functions such as recordkeeping and accounting, security pricing, corporate actions processing, compliance with investment restrictions, daily net asset value
computations, account reconciliations, and required distributions to fund shareholders. Failure to properly perform operational tasks or the misrepresentation of our services and products could subject us to regulatory sanctions, penalties or litigation and result in reputational damage, liability to clients, and the termination of investment management or administration agreements and the withdrawal of assets under our management.
In the management and administration of funds and client accounts, we use models and other tools and resources to support investment decisions and processes, including those related to risk assessment, portfolio management, trading and hedging activities and product valuations. Errors in the design, function, or underlying assumptions used in these models and tools, particularly if we fail to detect the errors over an extended period, could subject us to claims of a breach of fiduciary duty and potentially large liabilities for make-whole payments, litigation, and/or regulatory fines.
We are subject to litigation and regulatory examinations and investigations. The financial services industry faces substantial regulatory risks and litigation. Like many firms operating within the financial services industry, we are experiencing a difficult and continuously evolving regulatory environment across our markets. Our current scale and reach as a provider to the financial services industry;industry, the increased regulatory oversight of the financial services industry generally;generally, new laws and regulations affecting the financial services industry and ever-changing regulatory interpretations of existing laws and regulations, have made this an increasingly challenging and costly regulatory environment in which to operate. These examinationsExaminations or investigations could result in the identification of matters that may require remediation activities or enforcement proceedings by the regulator. The direct and indirect costs of responding to these examinations, or of defending ourselves in any enforcement investigation or litigation could be significant. Additionally, actions brought against us may result in settlements, awards, injunctions, fines and penalties. The outcome of litigationLitigation or regulatory action is inherently difficult to predictcould also harm our reputation with clients and couldprospects, have an adverse effect on our ability to offer some of our products and services.services, or impede our ability to maintain operations in certain jurisdictions.
Risks Related to Our Business Generally
If our management fails to develop and execute effective business strategies, and to anticipate changes affecting those strategies, our results could suffer.Our business strategies significantly affect our results of operations. These strategies relate to:
•the products and services we offer;
•the geographies in which we operate;
•the types of clients we serve;
•the counterparties with which we do business; and
•the manner in which we deploy our capital resources to take advantage of perceived opportunity in the short and long-term.
If management makes choices about these strategies and goals that prove to be incorrect, do not accurately assess the competitive landscape, the head winds and tailwinds affecting our business, or fail to address changing regulatory and market environments, then our growth prospects may suffer and our earnings could decline.
Our growth and prospects also depend on management’s ability to develop and execute effective business plans to address these strategic priorities, both in the near term and over longer time horizons. Management’s effectiveness in this regard will affect our ability to develop and enhance our resources, control expenses and return capital to shareholders. Each of these objectives could be adversely affected by any failure on the part of management to:
•devise effective business plans and strategies;
•effectively implement business decisions;
•institute controls that appropriately address the risks associated with business activities and any changes in those activities;
•offer products and services that are appropriately priced, meet the changing expectations of clients and customers and are delivered in ways that enhance client satisfaction;
•allocate capital in a manner that promotes long-term stability to enable us to build and invest in market-leading technologies and products, even in a highly-stressed environment;
•adequately respond to regulatory requirements;
•appropriately address shareholder concerns;
•react quickly to changes in market conditions or market structures, or
•develop and enhance the operational, technology, risk, financial and managerial resources necessary to grow and manage our business.
Additionally, our Board of Directors plays an important role in exercising appropriate oversight of management’s strategic decisions, and a failure by our Board of Directors to perform this function could also impair our results of operations.
We may be unable to fully capture the expected value from acquisitions, divestitures, joint ventures, minority stakes or strategic alliances.In connection with past or future acquisitions, divestitures, joint ventures, minority stakes or strategic alliances, we face numerous risks and uncertainties combining, transferring, separating or integrating the relevant businesses, systems and personnel, including the need to combine or separate accounting and data processing systems and management controls and to integrate relationships with clients, trading counterparties and business partners. In the case of joint ventures and minority stakes, we are subject to additional risks and uncertainties because we may be dependent upon, and subject to liability, losses or reputational damage relating to systems, controls and personnel that are not under our control.
In addition, conflicts or disagreements between us and any of our joint venture, strategic or minority partners may negatively impact the benefits to be achieved by the relevant venture.
There is no assurance that any of our acquisitions or divestitures will be successfully integrated or disaggregated or that any of these transactions or our joint ventures, minority stakes or strategic alliances will yield the anticipated benefits, synergies or objectives. If we are not able to integrate or disaggregate successfully our past and future acquisitions or dispositions, or we do not fully realize the anticipated benefits, synergies or objectives of the transactions that we undertake, there is a risk that our results of operations, financial condition and cash flows may be materially and adversely affected.
In addition, acquisitions that expand our geographic footprint often involve additional or increased risks that we may not mitigate, which, in turn could adversely affect our operations and profitability.These risks include, for example:
•managing geographically separated organizations, systems and facilities;
•integrating personnel with diverse business backgrounds and organizational cultures;
•complying with non-U.S. regulatory requirements;
•fluctuations in currency exchange rates;
•enforcement of intellectual property rights in some non-U.S. countries;
•difficulty entering new non-U.S. markets due to, among other things, consumer acceptance and business knowledge of these new markets; and
•general economic and political conditions.
Growth of our business could increase costs and regulatory risks. Providing a platform for new businesses, integrating acquired businesses, and partnering with other firms involve a number of risks and present financial, managerial, and operational challenges. We may incur significant expenses in connection with further expansion of our existing businesses or in connection with strategic acquisitions or investments, if and to the extent they arise from time to time. Our overall profitability would be negatively affected if investments and expenses associated with such growth are not matched or exceeded by the revenues that are derived from such investment or growth. Expansion may also create a need for additional compliance, risk management and internal control procedures, and often involves the hiring of additional personnel to monitor such procedures. To the extent such procedures are not adequate to appropriately monitor any new or expanded business, we could be exposed to a material loss or regulatory sanction.
Moreover, to the extent we pursue strategic acquisitions, we may be exposed to a number of risks, including additional demands on our existing employees; additional or new regulatory requirements, operating facilities and technologies; adverse effects in the event acquired goodwill or intangible assets become impaired; and the existence of liabilities or contingencies not disclosed to or otherwise known by us prior to closing a transaction. These risks could result in decreased earnings and harm to the Company’sour competitive position in the investment management industry.
We are exposed to operational risks. We are subject to the risk of loss, or of harm to our reputation, resulting from manual, inadequate or failed processes or systems. We are exposed to operational risk across the full scope of our business activities, including revenue-generating activities (e.g., sales and trading) and support and control groups (e.g., information technology, accounting systems and trade processing).
Our businesses are highly dependent on our ability to process and report, on a daily basis, a large number of transactions across numerous and diverse markets and asset classes in many currencies. Operational efficiency is modeled on
Notwithstanding evolving technology and technology-based risk and control systems, our products and services ultimately rely on people, including our employees and those of third-parties with which we conduct business. As a result of human error or engagement in violations of applicable policies, laws, or procedures, certain errors or violations are not always discovered immediately by our controls, which are intended to prevent and detect such errors or violations. These can include calculation or input errors, inadvertent or duplicate payments, errors in software or model development or implementation, or errors in judgment, as well as intentional efforts to disregard or circumvent applicable policies, laws, rules or procedures. Human errors and malfeasance, even if promptly discovered and remediated, can result in material losses and liabilities for us.
We have devoted significant resources to develop our risk management capabilities and expect to continue to do so in the future. Nonetheless, our risk management strategies, models and processes, including our use of various risk models for assessing market, credit, liquidity and operational exposures and other analysis, may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk, including risks that are unidentified or unanticipated.
The primary responsibility for the management of operational risk is with the business segments; the business managers maintain processes and controls designed to identify, assess, manage, mitigate and report operational risk. Oversight of operational risk is provided by the Enterprise Risk Management function, the Enterprise Risk Committee, legal entity boards, jurisdictional risk officers, committees and senior management. This governance structure may not adequately assess or address operational risk, which could lead to significant financial loss and reputational harm.
Consolidation withinDisruptions of operations of other participants in the global financial system could prevent us from delivering our target marketsproducts and services. The operations and systems of many participants in the global financial system are interconnected. Many of the transactions involving our products and services rely on multiple participants in the global financial system to move funds and communicate information to the next participant in the transaction chain. A disruption for any reason of the operations of a participant in the global financial system could impact our ability to obtain or provide information or cause funds to be moved in a manner to successfully deliver our products and services. Although we work with other participants to avoid any disruptions, there is no assurance that such efforts will be effective. Such a disruption could lead to our inability to deliver products and services, reputational damage, lost clients and revenue, loss of clients’ and their customers’ confidence, as well as additional costs, all of which could have a material adverse effect on our business, results of operations and financial condition.
Our businesses may be adversely affected if we are unable to hire and retain qualified employees.Our performance is largely dependent on the talents and efforts of highly-skilled people; therefore, our continued ability to compete effectively in our businesses, to manage our businesses effectively and to expand into new businesses and geographic areas depends on our ability to attract new talented and diverse employees and to retain and motivate our existing employees. Factors that affect our business. Mergerability to attract and acquisition activity between banksretain such employees include our compensation and other financial institutions could reducebenefits, and our reputation as a successful business with a culture of fairly hiring, training and promoting qualified employees. Declines in our profitability, or in the number of existingoutlook for our future profitability, as well as regulatory limitations on compensation levels and prospective clients or reduce the amount of revenue we receive from retained clients. Consolidation activities may also cause larger institutions to internalize some or all of our services. These factors mayterms, can negatively impact our ability to generatehire and retain highly-qualified employees.
Competition from within the financial services and technology industries and from businesses outside the financial services and technology industries for qualified employees has often been intense. Employment markets continue to grow in competitive intensity leading to higher costs.
Changes in law or regulation in jurisdictions in which our operations are located that affect taxes on employees’ income, or the amount/composition of compensation, may also adversely impact our ability to hire and retain qualified employees in those jurisdictions. As a global financial services and technology company, we are subject to limitations on compensation practices (which may or may not affect our competitors) by regulators worldwide. These limitations, including any imposed by or as a result of future growthlegislation or regulation, may require us to alter our compensation practices in revenues and earnings.
The exit by the United Kingdom from the European Unionways that could adversely affect our business. ability to attract and retain talented employees.
Our operations depend on the competence and integrity of our employees and third parties.The resultsOur ability to operate our businesses efficiently and profitably, and to offer products and services that meet the expectations of the referendum held in the United Kingdom announced in June 2016 led to a determination that the United Kingdom should exit the European Union (EU). It is currently unclear how the United Kingdom's access to the EU Single Market, and the wider trading, legal and regulatory environment in which we, our clients, is highly dependent on the competence and trustworthiness of our counterparties operate, willemployees and contractors, as well as those of third parties on which our operations rely, including vendors, custodians and financial intermediaries. Our businesses could be impacted and how this will affect our and their businesses and the global macroeconomic environment. The uncertainty surrounding the timing, terms and consequences of the United Kingdom's exit could adversely impact customer and investor confidence, result in additional market volatilitymaterially and adversely affectaffected by a significant operational breakdown or failure, theft, fraud or other unlawful conduct,
or other negative outcomes caused by poor judgement, human error or misconduct on the part of one of our business.employees or contractors or those of a third party on which our operations rely.
We are dependent upon third party approvals. Many of the investment advisors through which we distribute our investment offerings are affiliated with independent broker-dealersa holding company and, therefore, may not be able to receive dividends or other networks, which have regulatory responsibility forpayments in needed amounts from our subsidiaries.We are organized as a holding company, a legal entity separate and distinct from our operating entities. As a holding company without significant operations of its own, our principal assets are the advisor’s practice. As partshares of the regulatory oversight, these broker-dealers or networks must approve the usecapital stock of our investment products by affiliated advisors within their networks. Failuresubsidiaries. We rely on dividends and other payments from these subsidiaries to receive such approval, or the withdrawal of such approval, could adversely affect the marketingmeet our obligations for paying dividends to shareholders, repurchasing our common stock and paying corporate expenses. Certain of our investment products.
Wesubsidiaries are subject to financial and non-financial covenantsregulatory requirements of the jurisdictions in which they operate or other restrictions that may restrict our abilitylimit the amounts those subsidiaries can pay in dividends or other payments to manage liquidity needs. Our $300.0 million five-year senior unsecured revolving credit facility (Credit Facility) contains financial and non-financial covenants. The non-financial covenants include restrictions on indebtedness, mergers and acquisitions, sale of assets and investments. In the event of default, we have restrictions on paying dividends and repurchasing our common stock. We have one financial covenant, the Leverage Ratio, which restricts the level of indebtedness weus. No assurance can incur to a maximum of 1.75 times earnings before interest, taxes, depreciation and amortization (EBITDA). We believe our primary risk is with the financial covenant if we were to incur significant unexpected lossesbe given that would impact the EBITDA calculation. This would increase the Leverage Ratio andthere will not be further changes in law, regulatory actions, or other circumstances that could restrict the amount we could borrow under the Credit Facility. A restriction onability of our abilitysubsidiaries to fully utilizepay dividends or otherwise make payment to us. Furthermore, no assurance can be given that our Credit Facilitysubsidiaries may negatively affectbe able to make timely payments to us in order for us to meet our operating results, liquidity and financial condition.obligations.
Changes in, or interpretation of, accounting principles could affect our revenues and earnings. We prepare our consolidated financial statements in accordance with generally accepted accounting principles. A change in these principles can have a significant effect on our reported results and may even retrospectively affect previously reported results (See NotesNote 1 and 3 to the Consolidated Financial Statements for more information).
Changes in, or interpretations of, tax rules and regulations may adversely affect our effective tax rates. Unanticipated changes in our tax rates could affect our future results of operations. Our future effective tax rates could be adversely affected by changes in tax laws or the interpretation of tax laws. We are subject to possible examinations of our income tax returns by the Internal Revenue Service and state and foreign tax authorities. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes; however, there can be no assurance that the final determination of any examination will not have an adverse effect on our operating results or financial position.
Currency fluctuations could negatively affect our future revenues and earnings as our business grows globally. We operate and invest globally to expand our business into foreign markets. Our foreign subsidiaries use the local currency as the functional currency. As these businesses evolve, our exposure to changes in currency exchange rates may increase. Adverse movements in currency exchange rates may negatively affect our operating results, liquidity, contract values and financial condition.
Changes in interest rates may affect the value of our fixed-income investment securities. We own Government National Mortgage Association (GNMA) mortgage-backed securities for the sole purpose of satisfying applicable regulatory requirements imposed on our wholly-owned limited purpose federal thrift subsidiary, SPTC. The valuations of these securities are impacted by fluctuations in interest rates. Interest rates during the past several years have remained relatively low. The effect of a rising interest rate environment may negatively impact the value of these securities and thereby negatively affect our financial position and earnings.
We are subject to financial and non-financial covenants which may restrict our ability to manage liquidity needs. Our $325.0 million five-year senior unsecured revolving credit facility (Credit Facility) contains financial and non-financial covenants. The non-financial covenants include restrictions on our ability to execute transactions with affiliates other than wholly-owned subsidiaries or to incur liens or certain types of indebtedness as defined in the agreement. In the event of default, we have restrictions on paying dividends and repurchasing our common stock. We have one financial covenant, the Leverage Ratio, which restricts the level of indebtedness we can incur to a maximum of 2.25 times earnings before interest, taxes, depreciation and amortization (EBITDA). We believe our primary risk is with the financial covenant if we were to incur significant unexpected losses that would impact the EBITDA calculation. This would increase the Leverage Ratio and restrict the amount we could borrow under the Credit Facility. A restriction on our ability to fully utilize our Credit Facility may negatively affect our operating results, liquidity and financial condition.
We may become subject to stockholder activism efforts that each could cause material disruption to our business.Certain influential institutional investors and hedge funds have taken steps to involve themselves in the governance and strategic direction of certain companies due to governance or strategic related disagreements between such companies and such stockholders. If we become subject to such stockholder activism efforts, it could result in substantial costs and a diversion of management's attention and resources, which could harm our business and adversely affect the market price of our common stock. In addition, third party organizations that place ESG ratings on companies may create brand impact as a result of a rating that we do not control.
We rely on our executive officers and senior management. Most of our executive officers and senior management personnel do not have employment agreements with us. The loss of these individuals may have a material adverse effect on our future operations.
We may incur losses if our risk management and business continuity strategies, models and processes are not fully effective in mitigating our risk exposures in all market environments or against all types of risk.We seek to monitor and control our risk exposure through a risk and control framework encompassing a variety of separate but complementary financial, credit, operational, compliance and legal reporting systems, internal controls, management review processes and other mechanisms. Our risk management process seeks to balance our ability to profit from our business activities, with our exposure to potential losses and liabilities. While we employ a broad and diversified set of risk monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application cannot anticipate every economic and financial outcome or the specifics and timing of such outcomes. As our businesses change and grow, and the markets in which we operate evolve, our risk management strategies, models and processes may not always adapt with those changes. Some of our methods of managing risk are based upon our use of observed historical market behavior and management’s judgment. As a result, these methods may not predict future risk exposures, which could be significantly greater than the historical measures indicate. In addition, the use of models in connection with risk management and numerous other critical activities presents risks that such models may be ineffective, either because of poor design or ineffective testing, improper or flawed inputs, as well as unpermitted access to such models resulting in unapproved or malicious changes to the model or its inputs. Market conditions in recent years have involved unprecedented dislocations and highlight the limitations inherent in using historical data to manage risk. Thus, we may, in the course of our activities, incur losses.
Despite the business contingency, disaster recovery and security response plans we have in place, there can be no assurance that such plans will fully mitigate all potential risks to us. Our ability to conduct business may be adversely affected by a disruption in the infrastructure that supports our business and the communities where we are located, which are concentrated in the Philadelphia metropolitan area, London and Dublin. This may include a disruption involving physical site access, cyber or information security incidents, terrorist activities, disease pandemics, catastrophic events, natural disasters, severe weather events, electrical outage, environmental hazard, computer servers, communications or other services used by us or third parties with whom we conduct business.
Although we employ backup systems for our data, those backup systems may be unavailable following a disruption, the affected data may not have been backed up or may not be recoverable from the backup, or the backup data may be costly to recover, which could adversely affect our business.
We may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, extreme weather events or other natural disasters. The occurrence of unforeseen or catastrophic events, including the emergence of a pandemic, extreme terrestrial or solar weather events or other natural disasters, could create economic and financial disruptions, and could lead to operational difficulties (including travel limitations) that could impair our ability to manage our businesses and may adversely affect our operations, financial condition, and results of operations.
The extent to which an event negatively affects our businesses, results of operations and financial condition, as well as its regulatory capital and liquidity ratios, will depend on future developments that are uncertain and cannot be fully predicted, including:
•the ultimate scope and duration of the event;
•the effectiveness and acceptance of vaccines, other treatments, and their availability in certain regions;
•actions taken by governmental authorities and other third parties in response to the event; and
•the effect that the event may have on the pace of economic growth, inflation and the cost of the labor market.
Increased geopolitical unrest and other events could adversely affect the global economy or specific international, regional and domestic markets, which may cause our revenue and earnings to decline. Geopolitical risks, including those arising from trade tension and/or the imposition of trade tariffs, European fragmentation, military conflicts and terrorist activity, political conflict and economic sanctions involving Russia, China and other countries, as well as acts of civil or international hostility, are increasing. In particular, the military conflict between Russia and Ukraine, the war between Israel and Hamas in the Gaza region, and the attacks on Western military and commercial targets in the Middle East and related reprisals, have resulted in and may continue to increase geopolitical instability and adversely affect the global economy or specific markets, which could continue to have an adverse impact or cause volatility in the financial services industry generally or on our results of operations and financial conditions. In addition, these geopolitical tensions can cause an increase in volatility in commodity and energy prices, creating supply chain issues, and causing instability in financial markets. Sanctions imposed by the United States and other countries in response to such conflict could further adversely impact the financial markets and the global economy, and any economic countermeasures by the affected countries or others, could exacerbate market and economic instability. While we do not have any operations in Russia or any clients with significant Russian operations and we have minimal market risk related to securities of companies either domiciled or operating in Russia, the specific consequences of the conflict in Ukraine and its potential spread on our business is difficult to predict at this time. In addition to inflationary pressures affecting our operations, we,
and the infrastructure we rely upon, may also experience an increase in cyberattacks against us and our third-party service providers from Russia or its allies. Any such events, and responses thereto, may cause significant volatility and declines in the global markets, disruptions to commerce (including to economic activity, travel and supply chains), loss of life and property damage, and may adversely affect the global economy or capital markets, as well as our products, clients, vendors and employees, which may cause our revenue and earnings to decline. Our exposure to geopolitical risks may be heightened to the extent such risks arise in countries in which we currently operate or are seeking to expand our presence.
Climate change concerns and incidents could disrupt our businesses, adversely affect the profitability of certain of our investments, adversely affect client activity levels, adversely affect the creditworthiness of our counterparties, or damage our reputation. There continues to be increasing concern over the risks of climate change and related environmental sustainability matters. Climate change may cause extreme weather events that disrupt operations at one or more of our or our customer’s or client’s locations, which may negatively affect our ability to service and interact with our clients, and also may adversely affect the value of certain of our investments, including our real estate investments. Climate change, as well as uncertainties related to the transition to a lower carbon dependent economy, may also have a negative impact on the financial condition of our clients, which may decrease revenues from those clients and increase the credit risk associated with loans and other credit exposures to those clients. Additionally, our reputation and client relationships may be damaged as a result of our involvement, or our clients’ involvement, in certain industries or projects associated with causing or exacerbating climate change, as well as any decisions we make to continue to conduct or change our activities in response to considerations relating to climate change.
New regulations or guidance relating to climate change and the transition to a lower carbon dependent economy, as well as the perspectives of legislative bodies, shareholders, employees and other stakeholders regarding climate change, may affect whether and on what terms and conditions we engage in certain activities or offer certain products, as well as impact our business reputation and efforts to recruit and retain employees and customers. The risks associated with, and the perspective of regulators, governments, shareholders, employees and other stakeholders regarding, climate change are continuing to evolve rapidly, which can make it difficult to assess the ultimate impact on us of climate change-related risks and uncertainties.
We are subject to risks relating to environmental, social, and governance (ESG) matters that could adversely affect our reputation, business, financial condition, and results of operations, as well as the price of our stock. We are subject to increasing scrutiny from clients, investors, regulators, elected officials, shareholders and other stakeholders with respect to ESG matters. Our various stakeholders hold diverse and often conflicting views on ESG topics, including the role of ESG in the investment process. This increases the risk that any action or lack thereof with respect to ESG matters will be perceived negatively by at least some stakeholders. Views on ESG practices, particularly those related to climate issues, have also become political issues, which can amplify these risks. Any adverse publicity or reaction in connection with ESG issues could damage our reputation, ability to attract and retain clients and employees, compete effectively, and grow our business.
A growing interest on the part of investors and regulators in ESG factors, and increased demand for, and scrutiny of, ESG-related disclosures by companies and asset managers, has increased the risk that we could be accused of making inaccurate or misleading statements regarding our ESG efforts or initiatives, commonly referred to as “greenwashing.” Further, certain government officials have suggested that ESG-related investing practices may result in breaches of fiduciary duty or violations of law, including antitrust laws. Such perceptions or accusations could damage our reputation, result in litigation or regulatory enforcement actions, and adversely affect our business. Regardless of the outcome of any governmental enforcement or litigation matter, responding to such matters is time-consuming and expensive and can divert the attention of senior management.
Certain U.S. states have adopted laws or regulations that provide that asset managers that have adopted policies that restrict investing in certain industries or sectors, such as traditional energy, may not be permitted to manage money belonging to these states and their pension funds. If such a state deems our policies to contain such restrictions, whether accurate or not, it could impair our ability to access capital from certain clients and investors.
A lack of harmonization globally in relation to ESG laws and regulations leads to a risk of fragmentation across global jurisdictions. This may create conflicts across our global business, which could impact our competitiveness in the market and damage our reputation resulting in a material adverse effect on our business.
We may, from time to time, communicate certain initiatives, targets, or goals regarding environmental matters, diversity, responsible sourcing, or other ESG matters. These initiatives, targets, or goals could be difficult and expensive to implement, and we may not be able to accomplish them within the timelines we announce or at all. Our reputation, business, financial performance, and growth could be adversely affected if stakeholders react negatively to the targets or
goals that we set, or if our ESG-related data, processes, and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to ESG targets or goals.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
Cybersecurity risk management is an important part of our overall risk management efforts. Our industry is prone to cybersecurity threats and attacks, and we regularly experience cybersecurity incidents of varying degrees. At any given time, we face known and unknown cybersecurity risks and threats that are not fully-mitigated, and we discover vulnerabilities in our Cybersecurity Program. We continuously work to enhance our Cybersecurity Program and risk management efforts. As of the date of this report, we are not aware of any risks from cybersecurity threats that have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations and financial condition.
We use a risk management framework based on applicable laws and regulations, and informed by industry standards and industry-recognized practices, for managing cybersecurity risks within our products and services, infrastructure, and corporate resources. This risk management framework is implemented through our Cybersecurity Program. Our Cybersecurity Program is designed to provide a framework for assessing the potential threats to the security and integrity of our systems, networks, databases, applications, electronic information and intellectual property and developing appropriate defenses based on these assessments. We routinely invest to develop and implement numerous cybersecurity programs and processes, including risk management and assessment programs, security and event monitoring capabilities, detailed incident response plans, and other advanced detection, prevention and protection capabilities, including practices and tools to monitor and mitigate insider threats. We regularly assess cybersecurity risks to identify and enumerate threats to us and vulnerabilities these threats can exploit to adversely impact our business operations. In some instances, we engage third parties to conduct or assist us with conducting cybersecurity risk assessments. We have developed and implemented a security infrastructure designed to ensure infrastructure and data confidentiality, integrity, and availability.
Key components of our Cybersecurity Program include, but are not limited to, the following:
•Information Security Governance: We designed what we believe are appropriate measures, policies and procedures to ensure that information and information systems are properly protected given the nature of our businesses and the size and complexity of our organization, including our reliance on third parties;
•Organization: The Information Security team, led by the Chief Information Security Officer (CISO), is responsible for implementing and managing the Cybersecurity Program with executive oversight from the Chief Executive Officer and Chief Financial Officer, as well as oversight from our Board of Directors. Our CISO has extensive cybersecurity knowledge and skills gained from over 26 years of work experience on the information security team at SEI. In addition to the CISO’s cybersecurity experience, he has certifications in risk and information systems control along with information systems auditing;
•Cybersecurity Controls: We have implemented what we believe are appropriate preventative measures to protect SEI’s infrastructure, systems, and data. These measures include network architecture segmentation, system and platform hardening, in-transit and at-rest encryption, dynamic security awareness training, regular vulnerability scanning and penetration testing, firewalls, web proxy filtering, and multifactor authentication, all of which we constantly evaluate and upgrade as we believe is needed based on our risk assessments;
•Managed Detection and Response: Our security operations center’s uninterrupted monitoring processes utilize tools such as network and host-based intrusion detection systems, endpoint detection and response technology, distributed denial of service detection and mitigation service, and centralized security and information event management (SIEM). These efforts are further supplemented by signals operations and threat hunting that provide the incident responders the ability to write custom detections to complement commercial technology controls and execute triage/analysis, threat intelligence, and response;
•Independent Audits: We are subject to industry regulatory examinations. Our internal audit function provides independent assessment and assurance on the overall operations of our Cybersecurity and Privacy Programs and the supporting control frameworks. We also engage various reputable third parties to perform independent auditing and testing as well as network and web application penetration testing;
•Risk Management Oversight: Enterprise Risk Management, through the Enterprise Risk Committee, provides independent monitoring and reporting of cybersecurity risks commensurate with our Technology Risk Program. In
•Privacy Oversight: In addition to our Enterprise Risk Management functions, our Legal and Compliance team maintains a privacy risk management program to assess, manage and report privacy risks related to how we are collecting, using, sharing, and storing user data. Our Privacy team works with our Third Party Risk and Information Security teams to manage privacy-related issues.
As part of the governance and oversight of the Cybersecurity Program, regular reporting is performed for the Legal and Regulatory Oversight Committee of our Board of Directors along with SEI’s various subsidiaries’ boards of directors. The reports include cybersecurity metrics/statistics, details of relevant events, results of testing, and overview of current threats. Should any material incidents arise, those will be timely and appropriately communicated to the relevant subsidiary's board of directors.
Additional information about cybersecurity risks we face is discussed in Item 1A of Part I, “Risk Factors,” under the heading “We are exposed to data and cyber security risks,” which should be read in conjunction with the information above.
Item 2. Properties.Properties.
Our corporate headquarters is located in Oaks, Pennsylvania and consists of nineten buildings situated on approximately 90134 acres. We own and operate the land and buildings, which encompass approximately 524,000628,000 square feet of office space and 34,000 square feet of data center space. We lease other offices which aggregate 233,000155,000 square feet. We also own a 3,400 square foot condominium that is used for business purposes in New York, New York.
Item 3. Legal Proceedings.Proceedings.
SEI has been namedThe Company is party to various disputes, actions and claims arising in seven lawsuits filed in Louisiana courts; fourthe normal course of business that the cases also name SPTC asCompany does not believe are material. The Company believes that the ultimate resolution of any of these matters will not have a defendant. The underlying allegations in all actions relate tomaterial adverse effect on the purported role of SPTC in providing back-office services to Stanford Trust Company. The complaints allege that SEI and SPTC participated in someCompany's financial position or the manner in which the saleCompany conducts its business. Currently, the Company does not believe the amount of “certificateslosses associated with these matters can be estimated. While the Company does not believe that the amount of deposit” issued by Stanford International Bank so assuch losses will, when liquidated or estimable, be material to its financial position, the assumptions may be incorrect and any such loss could have a “seller”material adverse effect on the Company's results of operations or the certificates of deposit for purposes of primary liability undermanner in which the Louisiana Securities Law or so as to be secondarily liable under that statute for sales of certificates of deposit made by Stanford Trust Company. Two of the actions also include claims for violations of the Louisiana Racketeering Act and possibly conspiracy, and a third also asserts claims of negligence, breach of contract, breach of fiduciary duty, violations of the uniform fiduciaries law, negligent misrepresentation, detrimental reliance, violations of the Louisiana Racketeering Act, and conspiracy.
The procedural status of the seven cases varies. The Lillie case, filed originallyCompany conducts its business in the 19th Judicial District Court for the Parish of East Baton Rouge, was brought as a class action and is procedurally the most advanced of the cases. SEI and SPTC filed exceptions,period(s) during which the Court granted in part, dismissing claims under the Louisiana Unfair Trade Practices Act and permitting the claims under the Louisiana Securities Law to go forward. On March 11, 2013, newly-added insurance carrier defendants removed the case to the United States District Court for the Middle District of Louisiana. On August 7, 2013, the Judicial Panel on Multidistrict Litigation transferred the matter to the Northern District of Texas where MDL 2099, In re: Stanford Entities Securities Litigation (“the Stanford MDL”), is pending. On September 22, 2015, the District Court on the motion of SEI and SPTC dismissed plaintiffs’ claims for primary liability under Section 714(A) of the Louisiana Securities Law, but declined to dismiss plaintiffs’ claims for secondary liability under Section 714(B) of the Louisiana Securities Law based on the allegations pled by plaintiffs. On November 4, 2015, the District Court granted SEI and SPTC's motion to dismiss plaintiffs' claims under Section 712(D) of the Louisiana Securities Law. Consequently, the only claims of plaintiffs still pending before the District Court in Lillie underlying matters are plaintiffs' claims for secondary liability against SEI and SPTC under Section 714(B) of the Louisiana Securities Law. On May 2, 2016, the District Court certified the class as being "all persons for whom Stanford Trust Company purchased or renewed Stanford Investment Bank Limited certificates of deposit in Louisiana between January 1, 2007 and February 13, 2009". Notice of the pendency of the class action was mailed to potential class members on October 4, 2016.resolved.
On December 1, 2016, a group of plaintiffs who opted out of the Lillie class filed a complaint against SEI and SPTC in the United States District Court in the Middle District of Louisiana, alleging claims essentially the same as those in Lillie. In January 2017, the Judicial Panel on Multidistrict Litigation transferred the proceeding to the Northern District of Texas and the Stanford MDL. During February 2017, SEI filed its response to the Complaint and in March 2017 the District Court for the Northern District of Texas approved the stipulated dismissal of all claims in this complaint predicated on Section 712(D) or Section 714(A) of the Louisiana Securities Law.
Another one of the cases, filed in the 23rd Judicial District Court for the Parish of Ascension, also was removed to federal court and transferred by the Judicial Panel on Multidistrict Litigation to the Northern District of Texas and the Stanford MDL. The schedule for responding to that Complaint has not yet been established.
The plaintiffs in two of the cases remaining in the Parish of East Baton Rouge have granted SEI and SPTC indefinite extensions to respond to the petitions.
In the two additional cases, filed in East Baton Rouge and brought by the same counsel who filed the Lillie action, virtually all of the litigation to date has involved motions practice and appellate litigation regarding the existence of federal subjection matter jurisdiction under the federal Securities Litigation Uniform Standards Act (SLUSA). After the matter was removed to the United States District Court for the Northern District of Texas, that court dismissed the action under SLUSA. The Court of Appeals for the Fifth Circuit reversed that order, and the Supreme Court of the United States affirmed the Court of Appeals judgment on February 26, 2014. The matter was remanded to state court and no material activity has taken place since that date.
While the outcome of this litigation remains uncertain, SEI and SPTC believe that they have valid defenses to plaintiffs' claims and intend to defend the lawsuits vigorously. Because of uncertainty in the make-up of the Lillie class, the specific theories of liability that may survive a motion for summary judgment or other dispositive motion, the relative lack of discovery regarding damages, causation, mitigation and other aspects that may ultimately bear upon loss, the Company is not reasonably able to provide an estimate of loss, if any, with respect to the foregoing lawsuits.
On November 26, 2014, a Writ of Summons was issued to two of our subsidiaries, SEI Investments - Global Fund Services Limited (GFSL) and SEI Investments - Depositary & Custodial Services (Ireland) Limited (D&C), to appear before the Court of First Instance Antwerp, Belgium. The plaintiffs in this case allege that through their initial investments in collective
investment funds domiciled in Netherlands and subsequent transfer of claim rights to a Belgium domiciled partnership, they are beneficial owners of a portfolio of life settlement policies (the Portfolio) which lapsed due to a failure to make premium payments. The plaintiffs seek to recover jointly and severally from nine defendants including GFSL and D&C, damages of approximately $84 million. GFSL and D&C’s involvement in the litigation appears to arise out of their historical provision of administration and custody services, respectively, to the Strategic Life Settlement Fund PLC, who, together with its managers, appear to be the principal defendants in this claim. On December 4, 2015, the Belgium court dismissed plaintiff's claims for a lack of jurisdiction. On December 22, 2015, the plaintiffs appealed the dismissal. During October 2017, the Belgium appellate court dismissed plaintiff's appeal.
While the outcome of this action is uncertain given its early phase and the lack of specific theories of liability asserted against GFSL and D&C, each of GFSL and D&C believe that they have valid defenses to plaintiffs’ claims and intend to defend the lawsuit vigorously, and GFSL and D&C are not reasonably able to provide an estimate of the ultimate loss, if any, with respect to this lawsuit.
Executive Officers of the Registrant
Information about our executive officers is contained in Item 10 of this report and is incorporated by reference into this Part I.
Item 4. Mine Safety Disclosures.Disclosures.
None.
Page 16 of 80
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Price Range of Common Stock and Dividends:
Our common stock is traded on The Nasdaq Global Select Market® (NASDAQ) under the symbol “SEIC.” The following table shows the high and low sales prices for our common stock as reported by NASDAQ and the dividends declared on our common stock for the last two years. Our Board of Directors intends to declare future dividends on a semiannual basis.
| | | | | | | | | | | | | | | | | | | | |
| 2023 | | High | | Low | | Dividends |
| First Quarter | | $ | 64.69 | | | $ | 53.93 | | | $ | — | |
| Second Quarter | | 59.87 | | | 56.10 | | | 0.43 | |
| Third Quarter | | 64.43 | | | 58.25 | | | — | |
| Fourth Quarter | | 64.94 | | | 52.20 | | | 0.46 | |
|
| | | | | | | | | | | | |
| 2017 | | High | | Low | | Dividends |
| First Quarter | | $ | 52.60 |
| | $ | 47.88 |
| | $ | — |
|
| Second Quarter | | 54.57 |
| | 49.45 |
| | 0.28 |
|
| Third Quarter | | 61.71 |
| | 52.20 |
| | — |
|
| Fourth Quarter | | 72.48 |
| | 60.78 |
| | 0.30 |
|
| | | 2016 | | High | | Low | | Dividends |
| 2022 | | 2022 | | High | | Low | | Dividends |
| First Quarter | | $ | 51.94 |
| | $ | 32.01 |
| | $ | — |
|
| Second Quarter | | 51.75 |
| | 42.04 |
| | 0.26 |
|
| Third Quarter | | 52.54 |
| | 42.12 |
| | — |
|
| Fourth Quarter | | 50.60 |
| | 43.54 |
| | 0.28 |
|
According to the records of our transfer agent, there were 285202 holders of record of our common stock on January 31, 2018.2024. Because many of such shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
For information on our equity compensation plans, refer to Note 87 to the Consolidated Financial Statements and Item 12 of this Annual Report on Form 10-K.
Stock Performance Graph:
The following graph shows a comparison from December 31, 2018 through December 31, 2023 of the cumulative total return for our common stock, the NASDAQ Market Index and an Industry Index, a blend of indices including 79% NASDAQ US Asset Managers and Custodians and 21% NASDAQ US Software. This information is obtained from sources believed to be reliable; however, we cannot guarantee their accuracy. Returns are based on historical performance and are not indicative of future results.
ASSUMES $100 INVESTED ON JANUARY 1, 2013 &DECEMBER 31, 2018
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDED DECEMBER 31,
Issuer Purchases of Equity Securities:
Our Board of Directors has authorized the repurchase of up to $3.478$5.578 billion worth of our common stock. Currently, there is no expiration date for our common stock repurchase program (See Note 87 to the Consolidated Financial Statements). On December 15, 2023, our Board of Directors approved an increase in the stock repurchase program by an additional $250.0 million.
Information regarding the repurchase of common stock during the three months ended December 31, 20172023 is:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid per Share (1) | | Total Number of
Shares Purchased as
Part of Publicly
Announced Program | | Approximate Dollar
Value of Shares that
May Yet Be
Purchased
Under the Program |
| October 2023 | | 175,000 | | | $ | 53.58 | | | 175,000 | | | $ | 91,628,000 | |
| November 2023 | | 625,000 | | | 56.89 | | | 625,000 | | | 56,069,000 | |
| December 2023 | | 387,000 | | | 61.41 | | | 387,000 | | | 282,079,000 | |
| Total | | 1,187,000 | | | 57.88 | | | 1,187,000 | | | |
(1) Average price paid per share does not include excise tax on stock repurchases.
Item 6. [Reserved]
is:
|
| | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program |
| October 1 – 31, 2017 | | 50,000 |
| | $ | 64.18 |
| | 50,000 |
| | $ | 227,267,000 |
|
| November 1 – 30, 2017 | | 315,000 |
| | 66.52 |
| | 315,000 |
| | 206,313,000 |
|
| December 1 – 31, 2017 | | 500,000 |
| | 71.41 |
| | 500,000 |
| | 170,638,000 |
|
| Total | | 865,000 |
| | 69.21 |
| | 865,000 |
| | |
Item 6.
Selected Financial Data.
(In thousands, except per-share data)
This table presents selected consolidated financial information for the five-year period ended December 31, 2017. This data should be read in conjunction with the financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Annual Report on Form 10-K.
|
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Revenues | | $ | 1,526,552 |
| | $ | 1,401,545 |
| | $ | 1,334,208 |
| | $ | 1,266,005 |
| | $ | 1,126,132 |
|
| Total expenses | | 1,129,608 |
| | 1,025,851 |
| | 975,995 |
| | 913,221 |
| | 877,723 |
|
| Income from operations | | 396,944 |
| | 375,694 |
| | 358,213 |
| | 352,784 |
| | 248,409 |
|
| Other income, net | | 160,095 |
| | 132,791 |
| | 142,267 |
| | 136,878 |
| | 186,989 |
|
| Income before income taxes | | 557,039 |
| | 508,485 |
| | 500,480 |
| | 489,662 |
| | 435,398 |
|
| Income taxes | | 152,650 |
| | 174,668 |
| | 168,825 |
| | 170,949 |
| | 146,924 |
|
| Net income | | 404,389 |
| | 333,817 |
| | 331,655 |
| | 318,713 |
| | 288,474 |
|
| Less: Net income attributable to the noncontrolling interest | | — |
| | — |
| | — |
| | — |
| | (350 | ) |
| Net income attributable to SEI Investments | | 404,389 |
| | 333,817 |
| | 331,655 |
| | 318,713 |
| | 288,124 |
|
| Basic earnings per common share | | $ | 2.56 |
| | $ | 2.07 |
| | $ | 2.00 |
| | $ | 1.89 |
| | $ | 1.68 |
|
| Shares used to compute basic earnings per common share | | 158,177 |
| | 161,350 |
| | 165,725 |
| | 168,246 |
| | 171,561 |
|
| Diluted earnings per common share | | $ | 2.49 |
| | $ | 2.03 |
| | $ | 1.96 |
| | $ | 1.85 |
| | $ | 1.64 |
|
| Shares used to compute diluted earnings per common share | | 162,269 |
| | 164,431 |
| | 169,598 |
| | 172,565 |
| | 175,718 |
|
| Cash dividends declared per common share | | $ | 0.58 |
| | $ | 0.54 |
| | $ | 0.50 |
| | $ | 0.46 |
| | $ | 0.42 |
|
| Financial Position as of December 31, | | | | | | | | | | |
| Cash and cash equivalents | | $ | 744,247 |
| | $ | 695,701 |
| | $ | 679,661 |
| | $ | 667,446 |
| | $ | 578,273 |
|
| Total assets | | 1,853,369 |
| | 1,636,823 |
| | 1,588,628 |
| | 1,542,875 |
| | 1,439,169 |
|
| SEI Investments Shareholders’ equity | | 1,476,839 |
| | 1,303,114 |
| | 1,289,720 |
| | 1,247,613 |
| | 1,156,002 |
|
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.Operations.
(In thousands, except share and per-share data)
This discussion reviews and analyzes the consolidated financial condition at December 31, 20172023 and 2016,2022, the consolidated results of operations for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, and other factors that may affect future financial performance. This discussion should be read in conjunction with the Selected Financial Data included in Item 6 of this Annual Report and the Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report.
Certain information contained in this discussion is or may be considered forward-looking. Forward-looking statements relate to future operations, strategies, financial results, expenditures and other uses of capital or other developments. Forward-looking statements are based upon estimates and assumptions that involve certain judgments, 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. Further information about factors that could materially affect our results of operations and financial condition include, but are not limited to, the discussion contained in Item 1A, Risk Factors, in this Annual Report on Form 10-K. We have no obligation to publicly update or revise any forward-looking statements.
Overview
Consolidated Summary
We are a leading global provider ofSEI delivers technology and investment solutions that connect the financial services industry. With capabilities across investment processing, investmentoperations, and asset management, and investment operations platforms. We helpSEI works with corporations, financial institutions financial advisorsand professionals, and ultra-high-net-worth families createto help drive growth, make confident decisions, and manage wealth by providing comprehensive, innovative, investment and investment-business platforms.protect futures. Investment processing fees are earned as either monthly fees for contracted services including computer processing services, software licenses and investment operations services,or as well as transaction-based fees for providing securities valuation and trade-execution.a percentage of the market value of our clients' assets processed on our platforms. Investment operations and investment management fees are earned as a percentage of average assets under management, administration or advised assets. As of December 31, 2017,2023, through our subsidiaries and partnerships in which we have a significant interest, we manage, advise or administer $860.6 billionapproximately $1.4 trillion in hedge, private equity, mutual fund and pooled or separately managed assets, including $337.3 billion in assets under management and $518.4 billion in client assets under administration. Our affiliate, LSV Asset Management (LSV), manages $105.3 billion of assets which are included as assets under management.assets.
Our Condensed Consolidated Statements of Operations for the years ended 2017, 20162023, 2022 and 20152021 were:
| | | Year Ended December 31, | | 2017 | | 2016 | | Percent Change* | | 2015 | | Percent Change | Year Ended December 31, | | 2023 | | 2022 | | Percent
Change* | | 2021 | | Percent
Change |
| Revenues | | $ | 1,526,552 |
| | $ | 1,401,545 |
| | 9 | % | | $ | 1,334,208 |
| | 5 | % | Revenues | | $ | 1,919,793 | | | $ | | $ | 1,991,037 | | | (4) | | (4) | % | | $ | 1,918,309 | | | 4 | | 4 | % |
| Expenses | | 1,129,608 |
| | 1,025,851 |
| | 10 | % | | 975,995 |
| | 5 | % | Expenses | | 1,495,269 | | | 1,515,284 | | 1,515,284 | | | (1) | | (1) | % | | 1,364,928 | | | 11 | | 11 | % |
| Income from operations | | 396,944 |
| | 375,694 |
| | 6 | % | | 358,213 |
| | 5 | % | Income from operations | | 424,524 | | | 475,753 | | 475,753 | | | (11) | | (11) | % | | 553,381 | | | (14) | | (14) | % |
| Net gain (loss) from investments | | 1,269 |
| | 112 |
| | NM |
| | (456 | ) | | NM |
| Net gain (loss) from investments | | 2,757 | | | (3,078) | | (3,078) | | | NM | | NM | | (366) | | | NM | | NM |
| Interest income, net of interest expense | | 6,276 |
| | 3,785 |
| | 66 | % | | 2,875 |
| | 32 | % | Interest income, net of interest expense | | 40,444 | | | 12,559 | | 12,559 | | | 222 | | 222 | % | | 3,086 | | | 307 | | 307 | % |
| Other income | | Other income | | — | | | 3,379 | | | NM | | — | | | NM |
| Equity in earnings of unconsolidated affiliates | | 152,550 |
| | 126,103 |
| | 21 | % | | 137,057 |
| | (8 | )% | Equity in earnings of unconsolidated affiliates | | 126,930 | | | 120,667 | | 120,667 | | | 5 | | 5 | % | | 137,572 | | | (12) | | (12) | % |
| Gain on sale of subsidiary | | — |
| | 2,791 |
| | NM |
| | 2,791 |
| | — | % |
| Income before income taxes | | 557,039 |
| | 508,485 |
| | 10 | % | | 500,480 |
| | 2 | % | Income before income taxes | | 594,655 | | | 609,280 | | 609,280 | | | (2) | | (2) | % | | 693,673 | | | (12) | | (12) | % |
| Income taxes | | 152,650 |
| | 174,668 |
| | (13 | )% | | 168,825 |
| | 3 | % | Income taxes | | 132,397 | | | 133,813 | | 133,813 | | | (1) | | (1) | % | | 147,080 | | | (9) | | (9) | % |
| Net income | | 404,389 |
| | 333,817 |
| | 21 | % | | 331,655 |
| | 1 | % | Net income | | 462,258 | | | 475,467 | | 475,467 | | | (3) | | (3) | % | | 546,593 | | | (13) | | (13) | % |
| Diluted earnings per common share | | $ | 2.49 |
| | $ | 2.03 |
| | 23 | % | | $ | 1.96 |
| | 4 | % | Diluted earnings per common share | | $ | 3.46 | | | $ | | $ | 3.46 | | | — | | — | % | | $ | 3.81 | | | (9) | | (9) | % |
* Variances noted "NM" indicate the percent change is not meaningful.
Significant Items Impacting Our Financial Results in 20172023
Revenues increased$125.0decreased $71.2 million,, or nine percent4%, to $1.5$1.9 billion in 20172023 compared to 2016.2022. Net income increased$70.6decreased $13.2 million,, or 21 percent3%, to $404.4$462.3 million and diluted earnings per share increased to $2.49remained unchanged at $3.46 per share in 20172023 compared to $2.03 per share in 2016.2022. We believe the following items were significant to our business results during 2023:
•2017Revenue from Information processing and software servicing fees decreased primarily from one-time early termination fees of $88.0 million from a significant client of the Private Banks segment recorded during the first quarter 2022. A one-time early contractual buyout fee of $10.5 million recorded during the second quarter 2023 from an investment processing client of the Private Banks segment acquired by an existing client partially offset the decline in revenues. Revenue from Information processing and software servicing fees was positively impacted by new client conversions and growth from existing SEI Wealth Platform:SM (SWP) clients during 2023.
•Revenue growthfrom Assets under management, administration, and distribution fees was primarily drivenfavorably impacted by higher assets under administration due to new products and additional services provided to existing alternative investment clients of the Investment Managers segment. Average assets under administration increased $38.4 billion, or 5%, to $880.3 billion during 2023 as compared to $841.9 billion during 2022.
•Revenue from Asset management, administration and distribution fees was unfavorably impacted by lower assets under management in equity and fixed income programs from negative cash flows from SEI fund programs and declining average basis points earned on assets in the Investment Advisors segment and client losses in the Institutional Investors segment. The unfavorable impact was partially offset by market appreciation and positive cash flows from new and existing clients. Our averageinto separately managed account programs of the Investment Advisors segment. Average assets under management in equity and fixed income programs, excluding LSV, increased $24.2decreased $6.5 billion, or 13 percent,4%, to $214.1$168.6 billion during 20172023 as compared to $189.9$175.1 billion during 2016. Our average assets under administration2022.
•Earnings from LSV increased $57.7 billion,by $6.3 million, or 13 percent, to $497.6 billion during 2017 as compared to $439.9 billion during 2016.
Information processing and software servicing fees5%, in our Private Banks segment increased $16.6 million in 2017 primarily due to increased assets from new and existing clients processed on the SEI Wealth Platform and increased non-recurring professional services fees.
Our proportionate share in the earnings of LSV was $152.6 million in 2017 as compared to $126.1 million in 2016, an increase of 21 percent. The increase was primarily due to increased assets under management from LSV's existing clients2023 due to market appreciation and increasedhigher performance fees associated with their investment products.fees. Negative cash flows from existing clients and client losses partially offset the increase in earnings from LSV.
We capitalized $51.4•The decline in operating expenses was primarily due to total costs of $54.8 million in 2017 for the SEI Wealth Platform as compared to $39.8 million in 2016. Amortization expense related to the Platform increased to $46.5 millionVoluntary Separation Program (VSP) recognized during 2017 as compared to $45.0 million during 2016 due to continued development. We adjusted the remaining useful life of certain components and functionality of the Platform effective October 1, 2017 (See the caption "SEI Wealth Platform - Recent Developments" later in this discussion for more information).
As we continue the development of new elements of the Platform, our expenses related to maintenance, enhancements and support have increased.third quarter 2022. These one-time costs are primarily recognized in personnel and consulting costs and are expensed as incurred. These increased costs primarily impacted the Private Banks and Investment Advisors business segments.
We also capitalized $9.7 million in 2017 as compared to $10.6 million in 2016 for new technological capabilities for the Investment Managers segment. This new offering includes components that leverage upon the current infrastructure and add significant enhancements designed to aggregate, transact and process data. We expect this new technology will be placed into service during the first quarter of 2018 with an estimated useful life of five to seven years.
We recognized a $3.4 million performance fee and a corresponding $1.7 million sub-advisory expense associated with an SEI-sponsored investment product during the fourth quarter 2017. These items resulted in a positive net impact of approximately $0.01 diluted earnings per share and were reflected in the Institutional Investors segment.
Our operating expenses, primarily personnel costs, in our Investment Advisors and Investment Managers segments increased. These expenses primarily consist of operational, technology and marketing costs and are mainly related to servicing existing clients and acquiring new clients. These operating expenses are included in Compensation, benefits and other personnel costs on the accompanying Consolidated StatementsStatement of Operations.Operations and are reported in corporate overhead expenses (See Note 14 to the Consolidated Financial Statements). Decreased non-capitalized consulting costs also contributed to the decline in operating expenses during 2023.
Stock-based•Operational expenses unrelated to the VSP increased in 2023 due to higher personnel costs from business growth, primarily in the Investment Managers segment, competitive labor markets, and investments in compliance infrastructure to meet new regulatory requirements. The increased personnel costs were primarily related to salary and incentive compensation expense increased by $20.3costs.
•Capitalized software development costs were $34.0 million during 2017 as comparedin 2023, of which $18.2 million was for continued enhancements to 2016the SEI Wealth PlatformSM (SWP). Capitalized software development costs also include $15.8 million of software development costs for a new platform for the Investment Managers segment.
•Management decided to abandon certain functionality within the platform for the Investment Managers segment due to a change in our estimatedevelopment strategy and wrote off $5.3 million of previously capitalized software development costs during the fourth quarter 2023. The expense associated with the write off is included in Facilities, supplies and other costs on the accompanying Consolidated Statement of Operations.
•Amortization expense related to SWP was $25.6 million in 2023 as compared to $35.6 million in 2022. The decline in amortization expense was due to the amortization period of the timing of when stock option vesting targets will be achieved and stock options awards grantedinitial development costs related to SWP which ended in late 2016second-quarter 2022 (See the caption "Stock-Based Compensation""Capitalized software development costs" later in this discussion for more information).
•Interest and dividend income was $41.0 million in 2023 as compared to $13.3 million in 2022. The direct costs associated with our investment management programs increasedincrease in our Private Banks, Investment Advisorsinterest and Institutional Investors segments. These costsdividend income was primarily relatedue to fees charged by investment advisory firms for day-to-day portfolio management of SEI-sponsored investment products. These costs are includedan increase in Sub-advisory, distribution and other asset management costs on the accompanying Consolidated Statements of Operations.market interest rates.
Our•The effective tax rate during 20172023 was 27.4 percent22.3% as compared to 34.3 percent22.0% during 2016. Our2022. The increase in the effective rate was primarily due to reduced tax rate for 2017 reflectsbenefits related to stock option exercises.
•On November 20, 2023, our wholly-owned operating subsidiary in the estimated impactUnited Kingdom closed the acquisition of XPS Pensions (Nexus) Limited, principal employer and scheme funder of the Tax CutsNational Pensions Trust. We paid a cash consideration of $43.9 million, net for the acquisition and Jobs Act (Tax Act) and includesrecorded a tax benefit resulting fromcontingent consideration of $3.9 million that may be earned by the re-measurement of our estimated net deferred tax liability as of December 31, 2017, partially offset by a one-time transition tax relatingseller over the two years after the closing, subject to the estimated tax impactachievement of the deemed repatriation and withholding tax of our previously undistributed foreign earnings. Our 2017 tax rate was also positively impacted by the adoption of a new accounting standard which requires all excess tax benefits recognized on stock-based compensation expense to be recorded as an income tax benefit in the income statementcertain post-closing performance measurements (See the caption "Income Taxes" later in this discussion for more information).
On July 3, 2017, we acquired Archway Technology Partners, LLC (Archway), a provider of operating technologies and services to the family office industry, for $81.6 million in cash consideration. We borrowed $40.0 million under our credit facility to fund this acquisition and made principal payments of $10.0 million each in October 2017 and January 2018. The results of operations of Archway are included in our Investment Managers business segment (See Notes 7 and 16Note 15 to the Notes to Consolidated Financial Statements).
| |
• | We continued our stock repurchase program during 2017 and purchased approximately 4,403,000 shares at an average price of $56.36 per share for a total cost of $248.1 millionOn December 20, 2023, we acquired Altigo, a cloud-based technology platform that provides inventory, e-subscription, and reporting capabilities for alternative investments, for a cash consideration of $12.5 million (See Note 15 to the Notes to Consolidated Financial Statements).
•Cash flow from operations was $447.0 million during 2023. •SEI repurchased 5.2 million shares of its common stock at an average price of $59.34 per share for a total cost of $310.8 million and paid $114.8 million in cash dividends to shareholders during 2023. |
Significant Items Impacting Our Financial Results in 20162022
Revenues increased $67.3$72.7 million, or five percent,4%, to $1.4$2.0 billion in 20162022 compared to 2015.2021. Net income increased $2.2decreased $71.1 million, or one percent,13%, to $333.8$475.5 million and diluted earnings per share increaseddecreased to $2.03$3.46 per share in 20162022 compared to $1.96$3.81 per share in 2015.2021. We believe the following items were significant to our business results during 2016:2022:
•Revenue growth wasfrom Information processing and software servicing fees increased primarily driven by higherfrom early termination fees of $88.0 million recorded during the first quarter 2022 and new client conversions.
•Revenue from Asset management, administration and distribution fees declined from improvedlower assets under management from market depreciation during 2022 and negative cash flows from newSEI fund programs due to client losses in the Investment Advisors and existing clients and market appreciation. Our averageInstitutional Investors segments. The decline was partially offset by positive cash flows into separately managed account programs of the Investment Advisors segment. Average assets under management
in equity and fixed income programs, excluding LSV, increased $13.4decreased $22.1 billion, or eight percent,11%, to $189.9$175.1 billion during 20162022 as compared to $176.5$197.2 billion during 2015. Our average2021.
•Revenue from Asset management, administration and distribution fees increased from existing alternative investments clients of the Investment Managers segment due to new products and additional services. Average assets under administration increased $43.3 billion, or 11 percent, to $439.9 billionreflect a loss of a significant client which was not charged asset-based fees.
•Revenues from our acquisitions of SEI Novus and Atlas Master Trust were $11.3 million and $4.8 million, respectively, during 2016 as compared to $396.6 billion during 2015.
We recognized a $12.3 million performance fee2022. SEI Novus and a corresponding $6.1 million sub-advisory expense associated with an SEI-sponsored investment productAtlas Master Trust were acquired during the fourth quarter 2016. These items resulted in a positive net impact of approximately $0.03 diluted earnings per share2021 and were reflectedare reported in the Institutional Investors segment.
Information•Earnings from LSV decreased by $16.9 million, or 12%, in 2022 due to negative cash flows from existing clients, market depreciation and client losses. Increased performance fees during 2022 partially offset the decrease in earnings from LSV.
•Operating expenses increased from higher personnel and consulting costs due to business growth and competitive labor markets. Operational expenses also increased due to personnel costs and investments in compliance infrastructure to meet new regulatory requirements. The increase was partially offset by lower direct costs related to asset management revenues and lower amortization expense.
•We initiated the VSP to long-tenured employees as part of our commitment to professional development and expanded responsibilities for current and new employees by increasing advancement opportunities. We recognized one-time costs of $54.8 million during 2022 from the program.
•The Institutional Investors segment includes personnel, professional fees, amortization and other costs related to SEI Novus and Atlas Master Trust. These expenses are primarily included in Compensation, benefits and other personnel costs, Consulting, outsourcing and professional fees, and Amortization on the accompanying Consolidated Statements of Operations.
•Capitalized software development costs were $25.7 million in 2022 for SWP as compared to $25.9 million in 2021. Amortization expense related to SWP decreased to $35.6 million during 2022 as compared to $47.8 million during 2021 due to the fully amortized initial SWP development costs.
•The effective tax rate during 2022 was 22.0% as compared to 21.2% during 2021. The increase in the effective rate was primarily due to reduced tax benefits related to a lower volume of stock option exercises and an increase in the state effective tax rate.
•Cash flow from operations was $566.1 million during 2022.
•SEI repurchased 5.9 million shares of its common stock at an average price of $57.22 per share for a total cost of $338.4 million and paid $109.8 million in cash dividends to shareholders during 2022.
Other Significant Items Impacting Our Business
Infrastructure Investments
We believe that a critical component of our long-term success is our ability to continually improve our technology infrastructure. Accordingly, we endeavor to:
•automate selected manual processes in our operational, compliance, risk, control and other functions in order to create internal efficiencies;
•evolve our cyber-security and data privacy systems to combat known and emerging threats and meet and exceed industry and regulatory standards around the world;
•increase the resiliency and reliability of our systems; and
•create more efficient technology solutions to scale our various businesses.
We will continue to invest in improving our technology infrastructure in order to maintain the foundation that we believe enables us to best serve our clients’ needs.
Investment Processing and Software Servicing Fees
Investment processing and software servicing fees in our Private Banks segment increased $9.3 million in 2016 primarily due to increased assets from newinclude application and existing clientsbusiness-process-outsourcing services, professional fees and transaction-based services. Application and business-process-outsourcing services revenues are based upon the type and number of investor accounts serviced or as a percentage of the market value of the clients’ asset processed on our platforms. Professional services revenues are earned from contracted, project-oriented services. Transaction-based revenues are primarily earned from fees earned on securities trades executed on behalf of our clients. Approximately 43% of our investment processing and software servicing fees are earned as a percentage of the SEI Wealth Platformmarket value of clients’ asset processed, primarily from SWP and increased non-recurring professional services fees.our solution clients.
Investment Management Platforms
Our proportionate share in the earnings of LSV was $126.1 million in 2016 as compared to $138.4 million in 2015, a decrease of nine percent. The decrease was primarily due to lower performance fees and increased personnel expenses of LSV.
The direct costs associated with ourinvestment management platforms include investment management programs increased in our Private Banks, Investment Advisors and Institutional Investors segments. These costs primarily relate to fees charged byback-office investment advisory firms for day-to-day portfolio management of SEI-sponsored investment products and include the $6.1 million sub-advisory expense associated with performance fees mentioned previously. These costs are included in Sub-advisory, distribution and other asset management costs on the accompanying Consolidated Statements of Operations.
We capitalized $50.4 million and $29.4 million in software development costs in 2016 and 2015, respectively. Of these amounts, $39.8 million in 2016 and $24.5 million in 2015 directly relate to the SEI Wealth Platform. Amortization expense related to capitalized software was $45.0 million during 2016 as compared to $42.4 million during 2015 due to continued enhancements to the Platform.
As we continue the development of new elements of the Platform, our expenses related to maintenance, enhancements and support have increased. These costs are primarily recognized in personnel and consulting costsprocessing outsourcing services and are expensed as incurred. These increased costs primarily impacted the Private Banks and Investment Advisors business segments. We expect these costs to continue to increase into 2017.
We progressed in the development phase ofgenerally offered on a new application for the Investment Managers segment and capitalized $10.6 million in software development costs in 2016. This new offering includes components that leverage upon the current infrastructure and add significant enhancements designed to aggregate, transact and process data.
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 new clients. These operating expenses are included in Compensation, benefits and other personnel costs on the accompanying Consolidated Statements of Operations.
The strengthening of the U.S. dollar against the British pound during 2016 negatively impacted our revenues and operating income of our Private Banks and Institutional Investors segments. A prolonged period of a strengthening U.S. dollar against the British pound could have a further negative impact to our revenues and operating profits of these segments.
We recorded our final pre-tax gain of $2.8 million, or $0.01 diluted earnings per share, in 2016 from the sale of SEI Asset Korea (SEI AK) which was completed during the first quarter 2013. This gain was the result of the third in a series of three annual payments related to the contingent purchase pricebundled basis. Although we received from the sale. The gain from the sale is included in Gain on sale of subsidiary on the accompanying Consolidated Statement of Operations (See Note 15 to the Consolidated Financial Statements for more information).
Our effective tax rate was 34.3 percent in 2016 as compared to 33.7 percent in 2015. Our tax rate in 2015 benefited from a favorable settlement of a tax petition filed with the State of Pennsylvania (See the caption "Income Taxes" later in this discussion for more information).
We continued our stock repurchase program during 2016 and purchased approximately 6,600,000 shares at an average price of $44.60 per share for a total cost of $294.4 million.
SEI Wealth Platform - Recent Developments
The SEI Wealth Platform combines business service processing with asset management distribution services and operates as an integral business platform for the Private Banks and Investment Advisors business segments. The capabilities of the Platform have and continue to expand the services we offer to large global financial institutions, investment advisors, and other similar institutions and provide us the opportunity to enter into new markets.
The SEI Wealth Platform has primarily been offered under the Platform as a Service (PaaS) business model. The SEI Wealth Platform (PaaS) model includes client acquisition, portfolio management, enrollment and a unified product catalog that contains a single location for all of the client’s investment products used to construct model portfolios as well as enabling
the Investment Advisors business segment to enter into the flexible turn-key asset management platform (TAMP) market by providing clients with access to third-party funds, ETFs, equities, fixed-income and alternative investments into portfolios that are not currently available.
Our recent development efforts include offering the SEI Wealth Platform through a Software as a Service (SaaS) delivery mode to serve different types of clients in the wealth management marketplace. The SEI Wealth Platform (SaaS) business model will target the large bank marketplace and is expected to create significant revenue and cash flow opportunity. We believe both business models have received market acceptance as evidenced by the signing of Wells Fargo Bank (Wells Fargo) for the SaaS model and the installation of Regions Bank (Regions) for the PaaS model.
The technical and business validation of the configuration and data migration for the conversion of the entire Wells Fargo wealth management business under the Saas model is currently in progress and meeting expectations. In early October 2017, Regions began operating on the Platform in a live environment and we completed our largest conversion of Investment Advisors segment clients to date.
The Platform provides an enabling technology infrastructure for our businesses and clients for the future and was built using mainstream technologies using market-leading vendors. It is our expectation that the operating system, the database operating platform and the software programming language which comprise the underlying architecture will allow it to adapt to both market changes and technology changes over time. We believe the breadth of our business solutions offer a competitive advantage, factors such as the servicesunderperformance of investment products that we manage relative to our competitors or to benchmarks and client preferences for lower cost investment products offered through the Platform provide us an advantage over our competitors. These services are core functions tounbundled model have resulted in cash outflows and a loss of management fees primarily impacting the global financial services industry regardless of current market conditions. The global financial services industry is highly regulated and demand for the capabilities of the Platform is only expected to increase.
The initial version of the Platform was placed into service in July 2007 with an estimated useful life of 15 years. All significant enhancements to the Platform were originally being amortized over the remaining useful life and would have been fully expensed by June 2022. As a result of these recent developments, we adjusted the remaining useful life of certain components and functionality of the Platform effective October 1, 2017. After the adjustment of these components and as of December 31, 2017, the Platform has a weighted average remaining life of 8.2 years. Based upon our assessment, we estimate amortization expense related to components and functionality of the Platform currently in use as of December 31, 2017 will be approximately $9.7 million during the first quarter 2018. This estimate does not include our software development costs in-progress associated with future releases of the Platform of $38.1 million as of December 31, 2017. The release date for these capitalized software development costs in-progress has not yet been determined.
Additionally, future enhancements to the Platform may replace significant existing components or functionality. Once new enhancements are completed and ready to be placed into service, existing components or functionality that are being replaced may be abandoned. If this occurs, the remaining net book value of the previously capitalized software development costs related to the Platform will be expensed over the remaining useful life of those components or written off.
As we progress through the different stages of deployment of the Platform to a broader market, we expect to encounter numerous challenges; however, the Platform promises to provide a significant opportunity to expand our services into new markets that will increase revenues and profits in the long term. Until we attain a level of revenues that technological and operational scale can be achieved, we expect continued pressure on our operating margins in the Private Banks and Investment Advisors business segments from increased investment spending in 2018.segment.
Sensitivity of our revenues and earnings to capital market fluctuations
The majority of our revenues are based on the value of assets invested in investment products that we manage or administer which are affected by changes in the capital markets.markets and the portfolio strategy of our clients or their customers. The prevailinggenerally favorable capital market conditions during 2017 and 20162023 had a net positive impact on our asset-based fees thereby increasingcontributing to growth in our base revenues. Conversely, theMacroeconomic factors such as stagnant or recessionary economies, persistent inflationary pressures, continuation of interest rate increases, declining property markets and consumer confidence, tight labor markets and geopolitical tensions, among others, could have significant influence on capital markets during the second half of 2015in 2024 and early first quarter 2016 negatively impacted our asset-based fee revenues and partially offset our revenue growth.beyond. Any prolonged future downturns in general capital market conditions could have adverse effects on our revenues and earnings derived from assets under management and administration.
SEI Integrated Cash program
In December 2023, we launched the SEI Integrated Cash program, an enhanced cash sweep program offered through SPTC's custody services utilizing an SEI-sponsored money market mutual fund for investment-related cash allocations and FDIC-insured deposit accounts through a network of independent banks. Under the terms of the program, SPTC will earn interest income based on the portion of its client’s cash balances held in the FDIC-insured accounts. We expect this program could generate significant revenue for the Investment Advisors segment in 2024 assuming interest rates remain at current levels. A decline in interest rates will significantly reduce the earnings derived from this program. The assets related to the SEI Integrated Cash program are included in Platform-only assets-deposit program of the Investment Advisors segment on the accompanying Ending Assets Balances and Average Assets Balances schedules.
Business Acquisitions
To enhance our capabilities, scale our competitive presence, or enable strategic growth, we pursue selective acquisitions. During 2023, we acquired the National Pensions Trust and Altigo. In 2021, we acquired Finomial Corporation and Novus Partners. If we are not able to successfully integrate our past and future acquisitions, or we do not fully realize the anticipated benefits, synergies or objectives of these transactions, we may incur additional costs such as impairment charges to goodwill or intangible assets recognized from acquisitions that could adversely affect our results of operations or financial condition.
Ending Asset Balances
This table presents ending asset balances of our clients, or of our clients’ customers, for which we provide management or administrative services through our subsidiaries and partnerships in which we have a significant interest. | | | Ending Asset Balances | | | Ending Asset Balances | | |
| (In millions) | | As of December 31, | (In millions) | | As of December 31, |
| | | | | | | Percent Change | | | | Percent Change | | | | | | | Percent Change | | | | Percent Change |
| | | 2017 | | 2016 | | 2015 | |
| Private Banks: | | | | | | | | | | |
| Private Banks: | |
| Private Banks: | |
| Equity and fixed-income programs | |
| Equity and fixed-income programs | |
| Equity and fixed-income programs | | $ | 22,764 |
| | $ | 17,926 |
| | 27 | % | | $ | 18,150 |
| | (1 | )% | | $ | 24,496 | | | $ | | $ | 22,377 | | | 9 | | 9 | % | | $ | 26,281 | | | (15) | | (15) | % |
| Collective trust fund programs | | 4 |
| | 3 |
| | 33 | % | | 4 |
| | (25 | )% | Collective trust fund programs | | 4 | | | 7 | | 7 | | | (43) | | (43) | % | | 6 | | | 17 | | 17 | % |
| Liquidity funds | | 3,864 |
| | 4,230 |
| | (9 | )% | | 5,835 |
| | (28 | )% | Liquidity funds | | 3,916 | | | 3,201 | | 3,201 | | | 22 | | 22 | % | | 4,724 | | | (32) | | (32) | % |
| Total assets under management | | $ | 26,632 |
| | $ | 22,159 |
| | 20 | % | | $ | 23,989 |
| | (8 | )% | Total assets under management | | $ | 28,416 | | | $ | | $ | 25,585 | | | 11 | | 11 | % | | $ | 31,011 | | | (17) | | (17) | % |
| Client proprietary assets under administration | | 22,980 |
| | 19,255 |
| | 19 | % | | 17,532 |
| | 10 | % |
| Client assets under administration | | Client assets under administration | | 7,267 | | | 4,151 | | | 75 | % | | 4,481 | | | (7) | % |
| Total assets | | $ | 49,612 |
| | $ | 41,414 |
| | 20 | % | | $ | 41,521 |
| | — | % | Total assets | | $ | 35,683 | | | $ | | $ | 29,736 | | | 20 | | 20 | % | | $ | 35,492 | | | (16) | | (16) | % |
| Investment Advisors: | | | | | | | | | | |
| Equity and fixed-income programs | | $ | 61,908 |
| | $ | 52,847 |
| | 17 | % | | $ | 46,123 |
| | 15 | % |
| Collective trust fund programs | | 5 |
| | 5 |
| | — | % | | 7 |
| | (29 | )% |
| Equity and fixed-income programs | |
| Equity and fixed-income programs | | | $ | 71,634 | | | $ | 66,240 | | | 8 | % | | $ | 81,686 | | | (19) | % |
| Liquidity funds | | 2,414 |
| | 2,741 |
| | (12 | )% | | 4,924 |
| | (44 | )% | Liquidity funds | | 4,812 | | | 5,436 | | 5,436 | | | (11) | | (11) | % | | 4,317 | | | 26 | | 26 | % |
| Total assets under management | | $ | 64,327 |
| | $ | 55,593 |
| | 16 | % | | $ | 51,054 |
| | 9 | % |
| Total Platform assets under management | | Total Platform assets under management | | $ | 76,446 | | | $ | 71,676 | | | 7 | % | | $ | 86,003 | | | (17) | % |
| Platform-only assets | | Platform-only assets | | 18,324 | | | 13,931 | | | 32 | % | | 14,564 | | | (4) | % |
| Platform-only assets-deposit program | | Platform-only assets-deposit program | | 843 | | | — | | | NM | | — | | | NM |
| Total Platform assets | | Total Platform assets | | $ | 95,613 | | | $ | 85,607 | | | 12 | % | | $ | 100,567 | | | (15) | % |
| Institutional Investors: | | | | | | | | | | |
| Equity and fixed-income programs | |
| Equity and fixed-income programs | |
| Equity and fixed-income programs | | $ | 86,727 |
| | $ | 76,465 |
| | 13 | % | | $ | 72,263 |
| | 6 | % | | $ | 77,208 | | | $ | | $ | 73,178 | | | 6 | | 6 | % | | $ | 91,719 | | | (20) | | (20) | % |
| Collective trust fund programs | | 78 |
| | 93 |
| | (16 | )% | | 96 |
| | (3 | )% | Collective trust fund programs | | 1 | | | 5 | | 5 | | | (80) | | (80) | % | | 5 | | | — | | — | % |
| Liquidity funds | | 2,937 |
| | 2,903 |
| | 1 | % | | 2,883 |
| | 1 | % | Liquidity funds | | 1,734 | | | 1,557 | | 1,557 | | | 11 | | 11 | % | | 2,118 | | | (26) | | (26) | % |
| Total assets under management | | $ | 89,742 |
| | $ | 79,461 |
| | 13 | % | | $ | 75,242 |
| | 6 | % | Total assets under management | | $ | 78,943 | | | $ | | $ | 74,740 | | | 6 | | 6 | % | | $ | 93,842 | | | (20) | | (20) | % |
| Advised assets | | 4,802 |
| | — |
| | NM |
| | — |
| | NM |
| Advised assets | | 6,120 | | | 4,314 | | 4,314 | | | 42 | | 42 | % | | 4,857 | | | (11) | | (11) | % |
| Total assets | | $ | 94,544 |
| | $ | 79,461 |
| | 19 | % | | $ | 75,242 |
| | 6 | % | Total assets | | $ | 85,063 | | | $ | | $ | 79,054 | | | 8 | | 8 | % | | $ | 98,699 | | | (20) | | (20) | % |
| Investment Managers: | | | | | | | | | | |
| Equity and fixed-income programs | | $ | 96 |
| | $ | 81 |
| | 19 | % | | $ | 66 |
| | 23 | % |
| Collective trust fund programs | | 49,340 |
| | 36,991 |
| | 33 | % | | 32,117 |
| | 15 | % |
| Collective trust fund programs (A) | |
| Collective trust fund programs (A) | |
| Collective trust fund programs (A) | | | $ | 156,376 | | | $ | 141,285 | | | 11 | % | | $ | 92,549 | | | 53 | % |
| Liquidity funds | | 743 |
| | 667 |
| | 11 | % | | 832 |
| | (20 | )% | Liquidity funds | | 114 | | | 199 | | 199 | | | (43) | | (43) | % | | 423 | | | (53) | | (53) | % |
| Total assets under management | | $ | 50,179 |
| | $ | 37,739 |
| | 33 | % | | $ | 33,015 |
| | 14 | % | Total assets under management | | $ | 156,490 | | | $ | | $ | 141,484 | | | 11 | | 11 | % | | $ | 92,972 | | | 52 | | 52 | % |
| Client proprietary assets under administration | | 495,447 |
| | 448,708 |
| | 10 | % | | 390,282 |
| | 15 | % |
| Client assets under administration | | Client assets under administration | | 935,564 | | | 810,491 | | | 15 | % | | 907,377 | | | (11) | % |
| Total assets | | $ | 545,626 |
| | $ | 486,447 |
| | 12 | % | | $ | 423,297 |
| | 15 | % | Total assets | | $ | 1,092,054 | | | $ | | $ | 951,975 | | | 15 | | 15 | % | | $ | 1,000,349 | | | (5) | | (5) | % |
| Investments in New Businesses: | | | | | | | | | | |
| Equity and fixed-income programs | |
| Equity and fixed-income programs | |
| Equity and fixed-income programs | | $ | 1,104 |
| | $ | 884 |
| | 25 | % | | $ | 764 |
| | 16 | % | | $ | 2,174 | | | $ | | $ | 1,912 | | | 14 | | 14 | % | | $ | 2,096 | | | (9) | | (9) | % |
| Liquidity funds | | 53 |
| | 61 |
| | (13 | )% | | 47 |
| | 30 | % | Liquidity funds | | 209 | | | 215 | | 215 | | | (3) | | (3) | % | | 240 | | | (10) | | (10) | % |
| Total assets under management | | $ | 1,157 |
| | $ | 945 |
| | 22 | % | | $ | 811 |
| | 17 | % | Total assets under management | | $ | 2,383 | | | $ | | $ | 2,127 | | | 12 | | 12 | % | | $ | 2,336 | | | (9) | | (9) | % |
| Advised assets | | 49 |
| | — |
| | NM |
| | — |
| | NM |
| Advised assets | | 1,150 | | | 1,077 | | 1,077 | | | 7 | | 7 | % | | 1,410 | | | (24) | | (24) | % |
| Total assets | | $ | 1,206 |
| | $ | 945 |
| | 28 | % | | $ | 811 |
| | 17 | % | Total assets | | $ | 3,533 | | | $ | | $ | 3,204 | | | 10 | | 10 | % | | $ | 3,746 | | | (14) | | (14) | % |
| LSV: | | | | | | | | | | |
| Equity and fixed-income programs | | $ | 105,278 |
| | $ | 87,248 |
| | 21 | % | | $ | 78,335 |
| | 11 | % |
| Total: | | | | | | | | | | |
| Equity and fixed-income programs | | $ | 277,877 |
| | $ | 235,451 |
| | 18 | % | | $ | 215,701 |
| | 9 | % |
| Collective trust fund programs | | 49,427 |
| | 37,092 |
| | 33 | % | | 32,224 |
| | 15 | % |
| Liquidity funds | | 10,011 |
| | 10,602 |
| | (6 | )% | | 14,521 |
| | (27 | )% |
| Total assets under management | | $ | 337,315 |
| | $ | 283,145 |
| | 19 | % | | $ | 262,446 |
| | 8 | % |
| Advised assets | | 4,851 |
| | — |
| | NM |
| | — |
| | NM |
|
| Client proprietary assets under administration | | 518,427 |
| | 467,963 |
| | 11 | % | | 407,814 |
| | 15 | % |
| Total assets under management, advisement and administration | | $ | 860,593 |
| | $ | 751,108 |
| | 15 | % | | $ | 670,260 |
| | 12 | % |
| Equity and fixed-income programs (B) | |
| Equity and fixed-income programs (B) | |
| Equity and fixed-income programs (B) | | | $ | 89,312 | | | $ | 83,753 | | | 7 | % | | $ | 98,984 | | | (15) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total: | | | | | | | | | | |
| Equity and fixed-income programs (C) | | $ | 264,824 | | | $ | 247,460 | | | 7 | % | | $ | 300,766 | | | (18) | % |
| Collective trust fund programs | | 156,381 | | | 141,297 | | | 11 | % | | 92,560 | | | 53 | % |
| Liquidity funds | | 10,785 | | | 10,608 | | | 2 | % | | 11,822 | | | (10) | % |
| Total assets under management | | $ | 431,990 | | | $ | 399,365 | | | 8 | % | | $ | 405,148 | | | (1) | % |
| Advised assets | | 7,270 | | | 5,391 | | | 35 | % | | 6,267 | | | (14) | % |
| Client assets under administration (D) | | 942,831 | | | 814,642 | | | 16 | % | | 911,858 | | | (11) | % |
| Platform-only assets | | 19,167 | | | $ | 13,931 | | | 38 | % | | 14,564 | | | (4) | % |
| Total assets | | $ | 1,401,258 | | | $ | 1,233,329 | | | 14 | % | | $ | 1,337,837 | | | (8) | % |
(A)Collective trust fund program assets are included in assets under management since SEI is the trustee. Fees earned on this product are less than fees earned on customized asset management programs.
(B)Equity and fixed-income programs include $1.9 billion of assets managed by LSV in which fees are based solely on performance and are not calculated as an asset-based fee (as of December 31, 2023).
(C)Equity and fixed-income programs include $6.3 billion of assets invested in various asset allocation funds at December 31, 2023.
(D) In addition to the assets presented, SEI also administers an additional $11.2 billion in Funds of Funds assets on which SEI does not earn an administration fee (as of December 31, 2023).
Average Asset Balances
This table presents average asset balances of our clients, or of our clients’ customers, for which we provide management or administrative services through our subsidiaries and partnerships in which we have a significant interest. |
| | | | | | | | | | | | | | | | | | |
| Average Asset Balances | | |
| (In millions) | | For the Year Ended December 31, |
| | | | | | | Percent Change | | | | Percent Change |
| | | 2017 | | 2016 | | | 2015 | |
| Private Banks: | | | | | | | | | | |
| Equity and fixed-income programs | | $ | 20,139 |
| | $ | 18,186 |
| | 11 | % | | $ | 19,106 |
| | (5 | )% |
| Collective trust fund programs | | 4 |
| | 3 |
| | 33 | % | | 7 |
| | (57 | )% |
| Liquidity funds | | 3,717 |
| | 4,799 |
| | (23 | )% | | 5,491 |
| | (13 | )% |
| Total assets under management | | $ | 23,860 |
| | $ | 22,988 |
| | 4 | % | | $ | 24,604 |
| | (7 | )% |
| Client proprietary assets under administration | | 21,397 |
| | 18,433 |
| | 16 | % | | 17,652 |
| | 4 | % |
| Total assets | | $ | 45,257 |
| | $ | 41,421 |
| | 9 | % | | $ | 42,256 |
| | (2 | )% |
| Investment Advisors: | | | | | | | | | | |
| Equity and fixed-income programs | | $ | 57,475 |
| | $ | 49,537 |
| | 16 | % | | $ | 45,968 |
| | 8 | % |
| Collective trust fund programs | | 5 |
| | 6 |
| | (17 | )% | | 9 |
| | (33 | )% |
| Liquidity funds | | 2,380 |
| | 3,601 |
| | (34 | )% | | 3,550 |
| | 1 | % |
| Total assets under management | | $ | 59,860 |
| | $ | 53,144 |
| | 13 | % | | $ | 49,527 |
| | 7 | % |
| Institutional Investors: | | | | | | | | | | |
| Equity and fixed-income programs | | $ | 81,956 |
| | $ | 75,347 |
| | 9 | % | | $ | 73,804 |
| | 2 | % |
| Collective trust fund programs | | 84 |
| | 94 |
| | (11 | )% | | 95 |
| | (1 | )% |
| Liquidity funds | | 2,995 |
| | 2,805 |
| | 7 | % | | 3,082 |
| | (9 | )% |
| Total assets under management | | $ | 85,035 |
| | $ | 78,246 |
| | 9 | % | | $ | 76,981 |
| | 2 | % |
| Advised assets | | 3,961 |
| | — |
| | NM |
| | — |
| | NM |
|
| Total assets | | $ | 88,996 |
| | $ | 78,246 |
| | 14 | % | | $ | 76,981 |
| | 2 | % |
| Investment Managers: | | | | | | | | | | |
| Equity and fixed-income programs | | $ | 88 |
| | $ | 73 |
| | 21 | % | | $ | 34 |
| | 115 | % |
| Collective trust fund programs | | 43,323 |
| | 33,808 |
| | 28 | % | | 23,476 |
| | 44 | % |
| Liquidity funds | | 898 |
| | 805 |
| | 12 | % | | 1,004 |
| | (20 | )% |
| Total assets under management | | $ | 44,309 |
| | $ | 34,686 |
| | 28 | % | | $ | 24,514 |
| | 41 | % |
| Client proprietary assets under administration | | 476,207 |
| | 421,446 |
| | 13 | % | | 378,970 |
| | 11 | % |
| Total assets | | $ | 520,516 |
| | $ | 456,132 |
| | 14 | % | | $ | 403,484 |
| | 13 | % |
| Investments in New Businesses: | | | | | | | | | | |
| Equity and fixed-income programs | | $ | 990 |
| | $ | 816 |
| | 21 | % | | $ | 776 |
| | 5 | % |
| Liquidity funds | | 59 |
| | 48 |
| | 23 | % | | 68 |
| | (29 | )% |
| Total assets under management | | $ | 1,049 |
| | $ | 864 |
| | 21 | % | | $ | 844 |
| | 2 | % |
| Advised assets | | 70 |
| | — |
| | NM |
| | — |
| | NM |
|
| Total assets | | $ | 1,119 |
| | $ | 864 |
| | 30 | % | | $ | 844 |
| | 2 | % |
| LSV: | | | | | | | | | | |
| Equity and fixed-income programs | | $ | 96,705 |
| | $ | 80,620 |
| | 20 | % | | $ | 82,785 |
| | (3 | )% |
| Total: | | | | | | | | | | |
| Equity and fixed-income programs | | $ | 257,353 |
| | $ | 224,579 |
| | 15 | % | | $ | 222,473 |
| | 1 | % |
| Collective trust fund programs | | 43,416 |
| | 33,911 |
| | 28 | % | | 23,587 |
| | 44 | % |
| Liquidity funds | | 10,049 |
| | 12,058 |
| | (17 | )% | | 13,195 |
| | (9 | )% |
| Total assets under management | | $ | 310,818 |
| | $ | 270,548 |
| | 15 | % | | $ | 259,255 |
| | 4 | % |
| Advised assets | | 4,031 |
| | — |
| | NM |
| | — |
| | NM |
|
| Client proprietary assets under administration | | 497,604 |
| | 439,879 |
| | 13 | % | | 396,622 |
| | 11 | % |
| Total assets under management, advisement and administration | | $ | 812,453 |
| | $ | 710,427 |
| | 14 | % | | $ | 655,877 |
| | 8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Average Asset Balances | | |
| (In millions) | | For the Year Ended December 31, |
| | | | | | | Percent Change | | | | Percent Change |
| | | 2023 | | 2022 | | | 2021 | |
| Private Banks: | | | | | | | | | | |
| Equity and fixed-income programs | | $ | 23,638 | | | $ | 23,326 | | | 1 | % | | $ | 25,857 | | | (10) | % |
| Collective trust fund programs | | 6 | | | 7 | | | (14) | % | | 6 | | | 17 | % |
| Liquidity funds | | 3,537 | | | 3,834 | | | (8) | % | | 4,019 | | | (5) | % |
| Total assets under management | | $ | 27,181 | | | $ | 27,167 | | | — | % | | $ | 29,882 | | | (9) | % |
| Client assets under administration | | 4,976 | | | 4,204 | | | 18 | % | | 4,451 | | | (6) | % |
| Total assets | | $ | 32,157 | | | $ | 31,371 | | | 3 | % | | $ | 34,333 | | | (9) | % |
| Investment Advisors: | | | | | | | | | | |
| Equity and fixed-income programs | | $ | 68,407 | | | $ | 70,394 | | | (3) | % | | $ | 77,596 | | | (9) | % |
| Liquidity funds | | 4,960 | | | 5,682 | | | (13) | % | | 3,509 | | | 62 | % |
| Total Platform assets under management | | $ | 73,367 | | | $ | 76,076 | | | (4) | % | | $ | 81,105 | | | (6) | % |
| Platform-only assets | | 16,026 | | | 13,574 | | | 18 | % | | 13,426 | | | 1 | % |
| Platform-only assets-deposit program | | 70 | | | — | | | NM | | — | | | NM |
| Total Platform assets | | $ | 89,463 | | | 89,650 | | | — | % | | 94,531 | | | (5) | % |
| Institutional Investors: | | | | | | | | | | |
| Equity and fixed-income programs | | $ | 74,546 | | | $ | 79,415 | | | (6) | % | | $ | 91,832 | | | (14) | % |
| Collective trust fund programs | | 4 | | | 5 | | | (20) | % | | 44 | | | (89) | % |
| Liquidity funds | | 1,636 | | | 1,939 | | | (16) | % | | 2,609 | | | (26) | % |
| Total assets under management | | $ | 76,186 | | | $ | 81,359 | | | (6) | % | | $ | 94,485 | | | (14) | % |
| Advised assets | | 4,479 | | | 4,330 | | | 3 | % | | 4,533 | | | (4) | % |
| Total assets | | $ | 80,665 | | | $ | 85,689 | | | (6) | % | | $ | 99,018 | | | (13) | % |
| Investment Managers: | | | | | | | | | | |
| Collective trust fund programs (A) | | 148,097 | | | 125,595 | | | 18 | % | | 85,622 | | | 47 | % |
| Liquidity funds | | 261 | | | 311 | | | (16) | % | | 496 | | | (37) | % |
| Total assets under management | | $ | 148,358 | | | $ | 125,906 | | | 18 | % | | $ | 86,118 | | | 46 | % |
| Client assets under administration | | 875,369 | | | 837,647 | | | 5 | % | | 850,510 | | | (2) | % |
| Total assets | | $ | 1,023,727 | | | $ | 963,553 | | | 6 | % | | $ | 936,628 | | | 3 | % |
| Investments in New Businesses: | | | | | | | | | | |
| Equity and fixed-income programs | | $ | 2,053 | | | $ | 1,968 | | | 4 | % | | $ | 1,906 | | | 3 | % |
| Liquidity funds | | 205 | | | 247 | | | (17) | % | | 202 | | | 22 | % |
| Total assets under management | | $ | 2,258 | | | $ | 2,215 | | | 2 | % | | $ | 2,108 | | | 5 | % |
| Advised assets | | 1,089 | | | 1,191 | | | (9) | % | | 1,395 | | | (15) | % |
| Total assets | | $ | 3,347 | | | $ | 3,406 | | | (2) | % | | $ | 3,503 | | | (3) | % |
| LSV: | | | | | | | | | | |
| Equity and fixed-income programs (B) | | $ | 85,661 | | | $ | 87,220 | | | (2) | % | | $ | 99,591 | | | (12) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total: | | | | | | | | | | |
| Equity and fixed-income programs (C) | | $ | 254,305 | | | $ | 262,323 | | | (3) | % | | 296,782 | | | (12) | % |
| Collective trust fund programs | | 148,107 | | | 125,607 | | | 18 | % | | 85,672 | | | 47 | % |
| Liquidity funds | | 10,599 | | | 12,013 | | | (12) | % | | 10,835 | | | 11 | % |
| Total assets under management | | $ | 413,011 | | | $ | 399,943 | | | 3 | % | | $ | 393,289 | | | 2 | % |
| Advised assets | | 5,568 | | | 5,521 | | | 1 | % | | 5,928 | | | (7) | % |
| Client assets under administration (D) | | 880,345 | | | 841,851 | | | 5 | % | | 854,961 | | | (2) | % |
| Platform-only assets | | 16,096 | | | 13,574 | | | 19 | % | | 13,426 | | | 1 | % |
| Total assets | | $ | 1,315,020 | | | $ | 1,260,889 | | | 4 | % | | $ | 1,267,604 | | | (1) | % |
(A) Collective trust fund program average assets are included in assets under management since SEI is the trustee. Fees earned on this product are less than fees earned on customized asset management programs.
(B) Equity and fixed-income programs include assets managed by LSV in which fees are based solely on performance and are not calculated as an asset-based fee. The average value of these assets for the year ended December 31, 2023 was $2.0 billion.
(C) Equity and fixed-income programs include $6.2 billion of average assets invested in various asset allocation funds for the year ended December 31, 2023.
(D) In addition to the assets presented, SEI also administers an additional $11.8 billion of average assets in Funds of Funds assets for the year ended December 31, 2023 on which SEI does not earn an administration fee.
In the preceding tables, assets under management are total assets of our clients or their customers invested in our equity and fixed-income investment programs, collective trust fund programs, and liquidity funds for which we provide asset management services through our subsidiaries and partnerships in which we have a significant interest. Advised assets include assets for which we provide advisory services through a subsidiary to the accounts but do not manage the underlying assets. Assets under administration include total assets of our clients or their customers for which we provide administrative services, including client fund balances for which we provide administration and/or distribution services through our subsidiaries and partnerships in which we have a significant interest. Platform-only assets-deposit program include assets of our clients in the SEI Integrated Cash program for which we provide custody services through our federal thrift subsidiary. The assets presented in the preceding tables do not include assets processed on the SEI Wealth PlatformSWP and are not included in the accompanying Consolidated Balance Sheets because we do not own them.
Business Segments
Revenues, Expenses and Operating profit (loss) for our business segments for the year ended 20172023 compared to the year ended 2016,2022, and for the year ended 20162022 compared to the year ended 20152021 were:
|
| | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2017 | | 2016 | | Percent Change | | 2015 | | Percent Change |
| Private Banks: | | | | | | | | | | |
| Revenues | | $ | 474,272 |
| | $ | 457,886 |
| | 4 | % | | $ | 456,516 |
| | — | % |
| Expenses | | 455,119 |
| | 421,188 |
| | 8 | % | | 410,975 |
| | 2 | % |
| Operating profit | | $ | 19,153 |
| | $ | 36,698 |
| | (48 | )% | | $ | 45,541 |
| | (19 | )% |
| Gain on sale of subsidiary | | — |
| | 2,791 |
| | NM |
| | 2,791 |
| | — | % |
| Total profit | | $ | 19,153 |
| | $ | 39,489 |
| | NM |
| | $ | 48,332 |
| | NM |
|
| Operating margin (a) | | 4 | % | | 8 | % | | | | 10 | % | | |
| Investment Advisors: | | | | | | | | | | |
| Revenues | | 373,473 |
| | 330,677 |
| | 13 | % | | 306,620 |
| | 8 | % |
| Expenses | | 201,833 |
| | 180,140 |
| | 12 | % | | 171,968 |
| | 5 | % |
| Operating profit | | $ | 171,640 |
| | $ | 150,537 |
| | 14 | % | | $ | 134,652 |
| | 12 | % |
| Operating margin | | 46 | % | | 46 | % | | | | 44 | % | | |
| Institutional Investors: | | | | | | | | | | |
| Revenues | | 322,457 |
| | 312,584 |
| | 3 | % | | 297,568 |
| | 5 | % |
| Expenses | | 161,640 |
| | 153,117 |
| | 6 | % | | 145,851 |
| | 5 | % |
| Operating profit | | $ | 160,817 |
| | $ | 159,467 |
| | 1 | % | | $ | 151,717 |
| | 5 | % |
| Operating margin | | 50 | % | | 51 | % | | | | 51 | % | | |
| Investment Managers: | | | | | | | | | | |
| Revenues | | 349,444 |
| | 294,390 |
| | 19 | % | | 267,963 |
| | 10 | % |
| Expenses | | 226,504 |
| | 191,127 |
| | 19 | % | | 172,094 |
| | 11 | % |
| Operating profit | | $ | 122,940 |
| | $ | 103,263 |
| | 19 | % | | $ | 95,869 |
| | 8 | % |
| Operating margin | | 35 | % | | 35 | % | | | | 36 | % | | |
| Investments in New Businesses: | | | | | | | | | | |
| Revenues | | 6,906 |
| | 6,008 |
| | 15 | % | | 5,541 |
| | 8 | % |
| Expenses | | 20,678 |
| | 20,962 |
| | (1 | )% | | 20,656 |
| | 1 | % |
| Operating loss | | $ | (13,772 | ) | | $ | (14,954 | ) | | NM |
| | $ | (15,115 | ) | | NM |
|
(a) Percentage determined exclusive of gain from sale of subsidiary (See Note 15 to the Consolidated Financial Statements). | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2023 | | 2022 | | Percent
Change | | 2021 | | Percent
Change |
| Private Banks: | | | | | | | | | | |
| Revenues | | $ | 503,317 | | | $ | 575,625 | | | (13) | % | | $ | 493,570 | | | 17 | % |
| Expenses | | 455,820 | | | 473,209 | | | (4) | % | | 462,796 | | | 2 | % |
| Operating profit | | $ | 47,497 | | | $ | 102,416 | | | (54) | % | | $ | 30,774 | | | 233 | % |
| Operating margin | | 9 | % | | 18 | % | | | | 6 | % | | |
| Investment Advisors: | | | | | | | | | | |
| Revenues | | 436,298 | | | 447,766 | | | (3) | % | | 482,949 | | | (7) | % |
| Expenses | | 259,142 | | | 251,650 | | | 3 | % | | 240,334 | | | 5 | % |
| Operating profit | | $ | 177,156 | | | $ | 196,116 | | | (10) | % | | $ | 242,615 | | | (19) | % |
| Operating margin | | 41 | % | | 44 | % | | | | 50 | % | | |
| Institutional Investors: | | | | | | | | | | |
| Revenues | | 289,708 | | | 323,353 | | | (10) | % | | 343,805 | | | (6) | % |
| Expenses | | 165,455 | | | 172,252 | | | (4) | % | | 168,070 | | | 2 | % |
| Operating profit | | $ | 124,253 | | | $ | 151,101 | | | (18) | % | | $ | 175,735 | | | (14) | % |
| Operating margin | | 43 | % | | 47 | % | | | | 51 | % | | |
| Investment Managers: | | | | | | | | | | |
| Revenues | | 670,486 | | | 624,918 | | | 7 | % | | 581,157 | | | 8 | % |
| Expenses | | 437,174 | | | 404,850 | | | 8 | % | | 348,655 | | | 16 | % |
| Operating profit | | $ | 233,312 | | | $ | 220,068 | | | 6 | % | | $ | 232,502 | | | (5) | % |
| Operating margin | | 35 | % | | 35 | % | | | | 40 | % | | |
| Investments in New Businesses: | | | | | | | | | | |
| Revenues | | 19,984 | | | 19,375 | | | 3 | % | | 16,828 | | | 15 | % |
| Expenses | | 45,437 | | | 45,159 | | | 1 | % | | 53,219 | | | (15) | % |
| Operating loss | | $ | (25,453) | | | $ | (25,784) | | | NM | | $ | (36,391) | | | NM |
For additional information pertaining to our business segments, see Note 1312 to the Consolidated Financial Statements.
Private Banks
| | | Year Ended December 31, | | 2017 | | 2016 | | Percent Change | | 2015 | | Percent Change | Year Ended December 31, | | 2023 | | 2022 | | Percent
Change | | 2021 | | Percent
Change |
| Revenues: | | | | | | | | | | |
| Investment processing and software servicing fees | | $ | 315,021 |
| | $ | 298,382 |
| | 6 | % | | $ | 289,056 |
| | 3 | % |
| Investment processing and software servicing fees | |
| Investment processing and software servicing fees | | | $ | 370,730 | | | $ | 453,531 | | | (18) | % | | $ | 356,655 | | | 27 | % |
| Asset management, administration & distribution fees | | 138,564 |
| | 133,740 |
| | 4 | % | | 138,606 |
| | (4 | )% | Asset management, administration & distribution fees | | 132,587 | | | 122,094 | | 122,094 | | | 9 | | 9 | % | | 136,915 | | | (11) | | (11) | % |
| Transaction-based and trade execution fees | | 20,687 |
| | 25,764 |
| | (20 | )% | | 28,854 |
| | (11 | )% |
| Total revenues | | $ | 474,272 |
| | $ | 457,886 |
| | 4 | % | | $ | 456,516 |
| | — | % | Total revenues | | $ | 503,317 | | | $ | | $ | 575,625 | | | (13) | | (13) | % | | $ | 493,570 | | | 17 | | 17 | % |
Revenues increased $16.4decreased $72.3 million, or four percent,13%, in 20172023 compared to the prior year. Revenues during 20172023 were primarily affected by:
Increased recurring•One-time early termination fees of $88.0 million from a significant investment processing client recorded during the first quarter 2022;
•A negative adjustment to fees from an investment processing client which reduced their business processed with us through divestment;
•Reduced investment processing fees earned on our mutual fund trading solution; and
•Lower investment processing fees from the growth inrecontacting of existing clients; partially offset by
•Increased investment processing fees from new andclient conversions;
•One-time early termination fees of $10.5 million from an investment processing client acquired by an existing client assets processedrecorded in second quarter 2023;
•Increased revenues from U.K. clients on the SEI Wealth Platform;cash balances due to increased interest rates, and
•Increased non-recurring professional servicesinvestment management fees from existingmarket appreciation.
Revenues increased $82.1 million, or 17%, in 2022 compared to the prior year. Revenues during 2022 were primarily affected by:
•An increase in one-time termination fees, including an $88.0 million fee recorded during the first quarter 2022 from a significant investment processing client;
•Increased investment processing fees from new client conversions; and
•Increased revenues from U.K. clients as well asimpacted by increased interest rates; partially offset by
•Decreased investment processing fees from lost clients scheduled for implementation on the SEI Wealth Platform; and market depreciation during 2022;
Increased•Decreased investment management fees from existing international clients due to higher average assets under management resulting from market appreciation and positive net cash flows; partially offset bydepreciation during 2022;
Decreased trade execution fees due to lower trading volumes;
•The negative impact from foreign currency exchange rate fluctuations between the U.S. dollar and the British pound on our foreign operations; and
Decreased investment management•A negative adjustment to fees from liquidity products due to changes in product mix; and
Decreased investment processing fees from the loss of TRUST 3000® clients.
Revenues increased slightly in 2016 compared to the prior year. Revenues during 2016 were primarily affected by:
Increased recurring investment processing fees from the growth in new and existing client assets processed on the SEI Wealth Platform;
Increased non-recurring professional services fees from existing clients as well as clients scheduled for implementation on the SEI Wealth Platform; and
Non-recurring contract buyout fees of $1.6 million from an investment processing client; partially offset by
Decreased investment management fees from existing international clients due to negative cash flows associated with client losses and the deployment of a new product strategy for a global distribution client;
Lower recurring investment processing fees earned on our mutual fund trading solution due to price reductions; and
The negative impact from foreign currency exchange rate fluctuations between the U.S. dollar and the British pound.which reduced their business processed through divestment.
Operating margins were four percent9% in 20172023 and eight percent18% in 2016.2022. Operating income decreased $17.5$54.9 million, or 48 percent,54%, in 20172023 compared to the prior year. Operating income in 20172023 was primarily affected by:
•A decrease in revenues;
•Increased personnel costs due to competitive labor markets; and
•Increased costs, mainly personnel costs, primarily related to maintenance, support and client migrations to SWP; partially offset by
•Decreased non-capitalized consulting costs;
•Decreased amortization expense related to SWP; and
•Decreased amortization expense related to deferred sales commissions.
Operating margins were 18% in 2022 and 6% in 2021. Operating income increased $71.6 million, or 233%, in 2022 compared to the prior year. Operating income in 2022, excluding the previously mentioned early termination fees of $88.0 million, net of direct costs of $1.9 million, would have been $16.3 million. Operating income in 2022 was primarily affected by:
•An increase in revenues; and
•Decreased direct expenses associated with lower investment management fees from existing international clients; partially offset by
•Increased personnel costs due to competitive labor markets;
•Increased costs, mainly personnel and consulting costs, primarily related to maintenance, support and support of the SEI Wealth Platform;client migrations to SWP; and
Increased stock-based compensation costs of approximately $6.1 million primarily due to the change in management's estimate of the timing of the achievement of stock option vesting targets;
•The net negative impact from foreign currency exchange rate fluctuations between the U.S. dollar and the British pound on our foreign operations;operations.
Increased personnel costs, mainly salary and sales compensation costs; and
Increased direct expenses associated with increasedInvestment Advisors
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2023 | | 2022 | | Percent
Change | | 2021 | | Percent
Change |
| Revenues: | | | | | | | | | | |
| Investment management fees-SEI fund programs | | $ | 239,244 | | | $ | 263,266 | | | (9) | % | | $ | 301,581 | | | (13) | % |
| Separately managed account fees | | 174,418 | | | 162,762 | | | 7 | % | | 158,181 | | | 3 | % |
| Other fees | | 22,636 | | | 21,738 | | | 4 | % | | 23,187 | | | (6) | % |
| Total revenues | | $ | 436,298 | | | $ | 447,766 | | | (3) | % | | $ | 482,949 | | | (7) | % |
Revenues decreased $11.5 million, or 3%, in 2023 compared to the prior year. Revenues during 2023 were primarily affected by:
•Decreased investment management fees from existing international clients;SEI fund programs resulting from negative cash flows and a decrease in average basis points earned on assets; partially offset by
An increase•Increased fees from separately managed account programs from positive cash flows; and
•The positive impact from market appreciation on our asset-based fees.
Revenues decreased $35.2 million, or 7%, in revenues;2022 compared to the prior year. Revenues during 2022 were primarily affected by:
•Decreased investment management fees from SEI fund programs resulting from market depreciation and negative cash flows primarily from a significant client loss during the third-quarter 2022; partially offset by
Decreased direct expenses associated with the decreased trade execution fees.•Increased fees from separately managed account programs from positive cash flows and market appreciation occurring during 2021.
Operating margins were eight percent41% in 20162023 and ten percent44% in 2015.2022. Operating income decreased $8.8$19.0 million, or 19 percent,10%, in 20162023 compared to the prior year. Operating income in 20162023 was primarily affected by:
•A decrease in revenues;
•Increased personnel costs;
•Increased net direct expenses primarily associated with the increase in separately managed account fees; and
•Increased non-capitalized costs, mainly personnel and consulting costs, related to maintenance and enhancements to the SEI Wealth Platform;costs; partially offset by;
Increased•Decreased amortization expense related to SWP.
Operating margins were 44% in 2022 and 50% in 2021. Operating income decreased $46.5 million, or 19%, in 2022 compared to the SEI Wealth Platform;prior year. Operating income in 2022 was primarily affected by:
•A decrease in revenues;
•Increased direct expenses associated with increased assets into our separately managed account program; and
•Increased personnel and technology costs as well as increased promotion costs; partially offset by
•Decreased direct expenses related to a significant client loss during third-quarter 2022.
Institutional Investors
Revenues decreased $33.6 million, or 10%, in 2023 compared to the prior year. Revenues during 2023 were primarily affected by:
•Decreased investment management fees from defined benefit client losses; partially offset by
•Revenues from new Outsourced Chief Investment Officer (OCIO) platform clients; and
•The netpositive impact from market appreciation on our asset-based fees.
Revenues decreased $20.5 million, or 6%, in 2022 compared to the prior year. Revenues during 2022 were primarily affected by:
•Decreased investment management fees from defined benefit client losses and market depreciation; and
•The negative impact from foreign currency exchange rate fluctuations between the U.S. dollar and the British pound on our foreign operations; partially offset by
The write-off•Added revenues from the acquisitions of approximately $3.6 million of previously capitalized software development costsSEI Novus and purchased software related to the SEI Wealth Platform in the third quarter 2015; and
Decreased direct expenses associated with decreased investment management fees from existing international clients.
Investment Advisors
|
| | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2017 | | 2016 | | Percent Change | | 2015 | | Percent Change |
| Revenues: | | | | | | | | | | |
| Investment management fees-SEI fund programs | | $ | 278,819 |
| | $ | 251,333 |
| | 11 | % | | $ | 238,120 |
| | 6 | % |
| Separately managed account fees | | 78,902 |
| | 64,280 |
| | 23 | % | | 54,987 |
| | 17 | % |
| Other fees | | 15,752 |
| | 15,064 |
| | 5 | % | | 13,513 |
| | 11 | % |
| Total revenues (a) | | $ | 373,473 |
| | $ | 330,677 |
| | 13 | % | | $ | 306,620 |
| | 8 | % |
(a) All amounts are reflected in Asset management, administration and distribution fees except for $888, $727 and $742 in 2017, 2016 and 2015, respectively, which are reflected in Transaction-based and trade execution fees.
Revenues increased $42.8 million, or 13 percent, in 2017 and increased $24.1 million, or 8 percent, in 2016 compared to 2015. Revenues during 2017 and 2016 were primarily affected by:
Increased investment management fees and separately managed account program fees due to higher assets under management caused by market appreciation and positive net cash flows from new and existing advisors.Atlas Master Trust.
Operating margins were 46 percent43% in 20172023 and 2016.47% in 2022. Operating income increased $21.1decreased $26.8 million, or 14 percent,18%, in 2017 compared to the prior year. Operating income in 2017 was primarily affected by:
An increase in revenues; partially offset by
Increased direct expenses associated with increased assets in our investment management programs;
Increased personnel costs for marketing to and servicing new advisors;
Increased non-capitalized costs, mainly personnel and consulting costs, related to maintenance, support and client migrations to the SEI Wealth Platform; and
Increased stock-based compensation costs of approximately $3.0 million primarily due to the change in management's estimate of the timing of the achievement of stock option vesting targets.
Operating margins were 46 percent in 2016 and 44 percent in 2015. Operating income increased $15.9 million, or 12 percent, in 2016 compared to the prior year. Operating income in 2016 was primarily affected by:
An increase in revenues;
The write-off of approximately $2.4 million of previously capitalized software development costs related to the SEI Wealth Platform in the third quarter 2015; and
Decreased sales compensation expense; partially offset by
Increased direct expenses associated with increased assets in our investment management programs;
Increased personnel costs for marketing to and servicing new advisors;
Increased non-capitalized costs, mainly personnel and consulting costs, related to maintenance, enhancements and client migrations to the SEI Wealth Platform; and
Increased amortization expense related to the SEI Wealth Platform.
Institutional Investors
Revenues increased $9.9 million, or three percent, in 2017 and increased $15.0 million, or five percent, in 2016 compared to 2015. Revenues during 2017 and 2016 were primarily affected by:
Increased investment management fees from existing clients due to higher assets under management caused by market appreciation;
Performance fees of $3.4 million and $12.3 million earned during the fourth quarter 2017 and 2016, respectively, from an SEI-sponsored investment product; and
Asset funding from new sales of our retirement and not-for-profit solutions; partially offset by
Client losses;
The negative impact from foreign currency exchange rate fluctuations between the U.S. dollar and the British pound; and
A decrease in the average basis points earned on client assets.
Operating margins were 50 percent in 2017 and 51 percent in 2016. Operating income increased slightly in 20172023 compared to the prior year. Operating income during 20172023 was primarily affected by:
An increase•A decrease in revenues;
•A one-time operational charge of $4.5 million related to a client reimbursement; partially offset by
Sub-advisory fees of $1.7 million related to the previously mentioned performance fees;
Increased•Decreased direct expenses associated with investment management fees; and
Increased stock-based compensation costs of approximately $3.3 million primarily due to the change in management's estimate of the timing of the achievement of stock option vesting targets;
Increased personnel compensation costs; and
The net negative impact from foreign currency exchange rate fluctuations between the U.S. dollar and the British pound on our foreign operations.•Decreased professional fees.
Operating margins were 51 percent47% in 20162022 and 2015.51% in 2021. Operating income increased $7.8 million, or five percent,slightly in 20162022 compared to the prior year. Operating income during 20162022 was primarily affected by:
An increase•A decrease in revenues;
•Increased personnel, professional fees, amortization and
Decreased personnel other costs mainly sales compensation expenses;related to the acquisitions of SEI Novus and Atlas Master Trust; partially offset by
Sub-advisory expense of $6.1 million related to the previously mentioned performance fees;
Increased•Decreased direct expenses associated with investment management fees; andfees.
The net negative impact from foreign currency exchange rate fluctuations between the U.S. dollar and the British pound on our foreign operations.
Investment Managers
Revenues increased $55.1$45.6 million, or 19 percent,7%, in 2017 and increased $26.4 million, or 10 percent, in 20162023 compared to 2015.the prior year. Revenues during 2017 and 20162023 were primarily affected by:
Higher valuations of existing client assets•Increased revenues from improved capital markets:new products launched and additional services provided to our largest alternative fund clients; and
•Positive cash flows into alternative and traditional funds from new and existing clients; partially offset by
•Client losses and fund closures.
Revenues increased $43.8 million, or 8%, in 2022 compared to the prior year. Revenues during 2022 were primarily affected by:
•Increased revenues from new products launched and additional services provided to our largest alternative fund clients; and
•Positive cash flows into alternative and separately managed account offerings from new and existing clients; and
Added revenues of $10.2 million from the acquisition of Archway during the third quarter 2017; partially offset by
•Client losses, fund closures and the impact of market depreciation during 2022 to revenue from traditional fund closures.clients.
Operating margins were 35 percent35% in 20172023 and 2016.2022. Operating income increased $19.7$13.2 million, or 19 percent,6%, in 20172023 compared to the prior year. Operating income during 20172023 was primarily affected by:
•An increase in revenues; and
A net reduction of $3.8 million to the contingent purchase price during the fourth quarter 2017 related to the acquisition of Archway; partially offset by
Increased personnel expenses, technology and other operational costs to service new and existing clients;
Increased stock-based compensation costs of approximately $4.8 million primarily due to the change in management's estimate of the timing of the achievement of stock option vesting targets;
Increased incentive compensation costs;
Increased personnel and amortization expense related to the Archway acquisition; and
Increased•Decreased non-capitalized investment spending, mainly consulting costs; partially offset by
•Increased costs associated with new business, primarily personnel expenses and third-party vendor costs;
•Increased personnel costs due to competitive labor markets; and
•The write off of $5.3 million in previously capitalized software development costs.
Operating margins were 35 percent35% in 20162022 and 36 percent40% in 2015.2021. Operating income increased $7.4decreased $12.4 million, or eight percent,5%, in 20162022 compared to the prior year. Operating income during 20162022 was primarily affected by:
An increase in revenues; partially offset by
•Increased personnel costs due to competitive labor markets;
•Increased costs associated with new business, primarily personnel expenses technology and other operational costs to service newthird-party vendor costs; and existing clients; and
•Increased non-capitalized investment spending, mainly consulting costs.costs; partially offset by
Other
Corporate overhead expenses
Corporate overhead expenses primarily consist of general and administrative expenses and other costs not directly attributable to a reportable business segment. Corporate overhead expenses were $63.8$132.2 million, $59.3$168.2 million and $54.5$91.9 million in 2017, 20162023, 2022 and 2015,2021, respectively. The increasedecrease in corporate overhead expenses during 2023 is primarily due to personnel costs associated with the VSP of $54.8 million recorded in the third quarter of 2022 (See Note 14 to the Consolidated Financial Statements). Non-recurring consulting costs related to corporate strategic planning, target market review and other corporate analysis projects as well investments in upgrading and enhancing various technologies utilized by corporate overhead units partially offset the decrease in corporate overhead expenses in 2017 is2023. Additionally, personnel costs increased primarily due to increased stock-based compensation costs of approximately $2.5 million primarily due to the change in management's estimate of the timing of the achievement of stock option vesting targetsenhance and other personnel-related costs. The increase in corporate overhead expenses in 2016 was primarily due to higher salaryfurther build our compliance infrastructure and other personnel-related costs and expenses associated with ongoing litigation and regulatory activity.strategic development initiatives.
Other income and expense items
Other income and expense items on the accompanying Consolidated Statements of Operations consist of:
| | | Year Ended December 31, | | 2017 | | 2016 | | 2015 | Year Ended December 31, | | 2023 | | 2022 | | 2021 |
| Equity in earnings of unconsolidated affiliates | |
| Interest and dividend income | |
| Net gain (loss) from investments | | $ | 1,269 |
| | $ | 112 |
| | $ | (456 | ) |
| Interest and dividend income | | 7,057 |
| | 4,316 |
| | 3,358 |
|
| Interest expense | | (781 | ) | | (531 | ) | | (483 | ) |
| Equity in earnings of unconsolidated affiliates | | 152,550 |
| | 126,103 |
| | 137,057 |
|
| Gain on sale of subsidiary | | — |
| | 2,791 |
| | 2,791 |
|
| Other income | |
| Total other income and expense items, net | | $ | 160,095 |
| | $ | 132,791 |
| | $ | 142,267 |
|
Equity in earnings of unconsolidated affiliates
Equity in earnings of unconsolidated affiliates includesaffiliate reflects our 38.6% ownership interest in LSV. The table below presents the revenues and net income of LSV and our proportionate share in LSV's earnings. | | | | | 2017 | | 2016 | | Percent Change | | 2015 | | Percent Change |
| | 2023 | | | | 2023 | | 2022 | | Percent Change | | 2021 | | Percent Change |
| Revenues | | $ | 491,872 |
| | $ | 399,462 |
| | 23 | % | | $ | 427,653 |
| | (7 | )% | Revenues | | $ | 426,270 | | | $ | | $ | 406,895 | | | 5 | | 5 | % | | $ | 456,259 | | | (11) | | (11) | % |
| Net income | | 392,141 |
| | 323,381 |
| | 21 | % | | 352,845 |
| | (8 | )% | Net income | | 328,905 | | | 312,180 | | 312,180 | | | 5 | | 5 | % | | 354,964 | | | (12) | | (12) | % |
| | | | | | | | | | | |
| SEI's proportionate share in the earnings of LSV | | $ | 152,550 |
| | $ | 126,103 |
| | 21 | % | | $ | 138,407 |
| | (9 | )% |
| SEI's proportionate share in the earnings of LSV | |
| SEI's proportionate share in the earnings of LSV | | | $ | 126,930 | | | $ | 120,667 | | | 5 | % | | $ | 137,572 | | | (12) | % |
The increase in our earnings from LSV in 20172023 was primarily due to higher performance fees and market appreciation. Net negative cash flows from existing clients and client losses partially offset the increase in earnings from LSV. Average assets under management from LSV's existing clients due to market appreciation and increased performance fees associated with their investment products; however, our earnings were negatively impacted by increased personnel expenses of LSV. LSV’s average assets under management increased $16.1LSV decreased $1.5 billion to $96.7$85.7 billion during 20172023 as compared to $80.6$87.2 billion during 2016, an increase2022, a decrease of 20 percent.
2%. The decrease in 2016earnings from LSV in 2022 was due to negative cash flows from existing clients, market depreciation and client losses. Increased performance fees during 2022 partially offset the decrease in earnings from LSV.
Interest and dividend income
Interest and dividend income is earned based upon the amount of cash that is invested daily. The increases in interest and dividend income in 2023 and 2022 was due to increased market interest rates.
Net gain (loss) from investments
Net gains and losses from investments during 2023 and 2022 were primarily due to a reduction in performance feesrealized and increased personnel expenses of LSV. LSV’s average assets under management decreased $2.2 billion to $80.6 billion during 2016 as compared to $82.8 billion during 2015, a decrease of three percent.
In April 2016, LSV provided an interest in the partnership to select key employees which reduced the ownership percentage of each existing partner on a pro-rata basis. As a result, our total partnership interest in LSV was reduced from approximately 39.2 percent to approximately 38.9 percent.
Gain on sale of subsidiary
On July 31, 2012, we entered into an agreement to sell all of our ownership interest in SEI AKunrealized gains and completed the sale on March 28, 2013. We recorded gains from the sale of $2.8 million during 2016 and 2015. The gainlosses recorded in 2016 was the result of the final in a series of three annual paymentscurrent earnings related to the contingent purchase price we received frominvestment funds sponsored by LSV, equity holdings and SEI-sponsored mutual funds (See Note 5 to the sale. These gains are included in Gain on sale of subsidiaryConsolidated Financial Statements).
Amortization
Amortization expense on the accompanying Consolidated StatementStatements of Operations consists of:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | Percent Change | | 2021 | | Percent Change |
| Capitalized software development costs | $ | 26,227 | | | $ | 41,437 | | | (37)% | | $ | 53,568 | | | (23)% |
| Intangible assets | 12,161 | | | 12,580 | | | (3)% | | 5,260 | | | 139% |
| Other | 281 | | | 263 | | | 7% | | 324 | | | (19)% |
| Total amortization expense | $ | 38,669 | | | $ | 54,280 | | | (29)% | | $ | 59,152 | | | (8)% |
Capitalized software development costs
Capitalized software development costs are amortized on a project basis using the straight-line method over the estimated economic life of the product or enhancement. The capitalization of the initial development work related to SWP began in mid-2007 when the platform was determined to be ready for its intended use. The amortization expense related to the initial software development costs ended in the second quarter of 2022, resulting in declines in amortization expense related to capitalized software development costs in 2023 and 2022 compared to the prior year (See Note 151 to the Consolidated Financial Statements for more information)Statements).
Intangible assets
The increase in amortization expense related to intangible assets and asset purchases in 2022 was due to the acquisitions of Finomial, SEI Novus and Atlas Master Trust during the fourth quarter 2021. Through these transactions, we acquired intangible assets related to technology, trade names and client relationships which are amortized over the estimated useful life of the assets.
Income Taxes
Our effective tax rate was 27.4 percent22.3% for 2017, 34.3 percent2023, 22.0% for 20162022 and 33.7 percent21.2% for 2015. Our2021. The effective tax rate is affected by recurring items, such as the U.S. federal tax rates and tax rates in various states and foreign jurisdictions and the relative amount of income we earned in those jurisdictions. These amounts haveThe income earned by jurisdiction has been fairly consistent in prior years. Ourconsistent. The effective tax rate is also affected by discrete items that may occur in any given year, but are not consistent from year to year.
Below are the most significant recurring and discrete items (See Note 1211 to the Consolidated Financial Statements for more information): | | | Year Ended December 31, | 2017 | | 2016 | | 2015 | Year Ended December 31, | 2023 | | 2022 | | 2021 |
| Statutory rate | 35.0 | % | | 35.0 | % | | 35.0 | % | Statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| State taxes, net of federal tax benefit | 1.3 |
| | 1.3 |
| | 1.6 |
|
| Foreign tax expense and tax rate differential | (1.1 | ) | | (0.8 | ) | | (1.2 | ) |
| Tax benefit from stock option exercises | (3.9 | ) | | — |
| | — |
|
| Enactment of the Tax Cuts and Jobs Act: | | | | | |
| Re-measurement of deferred tax liability | (4.9 | ) | | — |
| | — |
|
| One-time transition tax on repatriation of foreign earnings and withholding tax | 2.6 |
| | — |
| | — |
|
| Research and development tax credit | (0.9 | ) | | (0.8 | ) | | (0.6 | ) |
| Domestic Production Activities Deduction | (0.5 | ) | | (0.6 | ) | | (0.6 | ) |
| Settlement of state tax petition | — |
| | — |
| | (0.8 | ) |
Foreign-Derived Intangible Income Deduction (FDII)
| |
| Other, net | (0.2 | ) | | 0.2 |
| | 0.3 |
|
| | 27.4 | % | | 34.3 | % | | 33.7 | % |
| 22.3 | | | 22.3 | % | | 22.0 | % | | 21.2 | % |
The decreaseincreases in our taxthe effective rate for 2017in 2023 and 2022 was primarily due to the adoption of ASU 2016-09 and the estimated impact from the enactment of the Tax Act in December 2017. According to ASU 2016-09, we no longer record excessreduced tax benefits fromrelated to stock option exercises as an increasecompared to additional paidthe prior year.
The Organization for Economic Co-operation and Development (OECD) has a framework to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as Pillar 2), with certain aspects of Pillar 2 effective January 1, 2024 and other aspects effective January 1, 2025. While it is uncertain whether the United States will enact legislation to adopt Pillar 2, certain countries in capital, but record such excess tax benefits as a reduction of income tax expensewhich we operate have adopted legislation, and other countries are in the reporting period in which the exercises occur.
The Tax Act was enactedprocess of introducing legislation to implement Pillar 2. We do not expect Pillar 2 to have a material impact on December 22, 2017 and included numerous changes to the current tax law including a permanent reduction in the corporate tax rate from 35.0 percent to 21.0 percent, as well as the imposition of a territorial rather than worldwide system which requires a one-time transition tax on the repatriation of previously deferred foreign earnings. Under the Tax Act, the undistributed earnings from our foreign subsidiaries are deemed repatriated. As a result, we determined that a portion of these foreign earnings are no longer indefinitely reinvested and therefore accrued foreign withholding taxes.
The impact of the Tax Act to our 2017 tax rate was a combination of a $27.1 million benefit from the re-measurement of our estimated net deferred tax liability as of December 31, 2017 based upon the new corporate tax rate of 21.0 percent offset by the one-time transition tax expense of $11.5 million relating to the estimated impact of the deemed repatriation and withholding taxes of $3.2 million for our previously undistributed foreign earnings for a net tax benefit of $12.4 million. Under the enactment of the Tax Act, the Domestic Production Activities Deduction will no longer be available to us beginning in 2018. We expect our effective tax rate in 2018, exclusiveor our consolidated results of the impact of stock option exercises, to be approximately 20.0 percent to 22.0 percent. The increase in our tax rate for 2016 was primarily due to lower foreign income in jurisdictions with lower effective ratesoperations, financial position and the one-time reduction in 2015 due to a favorable settlement of a state tax petition.cash flows.
Stock-Based Compensation
During 2017, 20162023, 2022 and 2015,2021, we recognized approximately $36.4$31.3 million,, $16.0 $39.4 million and $17.3$41.5 million,, respectively, in stock-based compensation expense. AllOur stock-based compensation expense in 2023 primarily consisted of our$21.5 million related to stock options and $9.1 million related to restricted stock units (RSUs) which we began awarding to employees in
2022. RSUs vest through time-based requirements and do not have performance-based vesting provisions that tieconditions. Stock options vest from the achievement of financial vesting oftargets and include a service condition which requires a minimum two or four year waiting period from the options to our financial performance and do not contain any time-based vesting provisions.grant date. The amount of stock-based compensation expense related to stock options is recognized is based upon an estimate of when the earnings per sharefinancial vesting targets may be achieved. Any change in our estimate could result in the remaining amount of stock-based compensation expense to be accelerated, spread out over a longer period, or reversed. This may cause volatility in the recognition of stock-based compensation expense and materially affect our earnings.earnings (See Note 7 to the Consolidated Financial Statements for more information).
During 2017,2023, 2022 and 2021, we revised the estimate made as of December 31, 2016estimates of when certain vesting targets for stock options were expected to be achieved. This changeThese changes in estimateestimates resulted in an increase of $11.2 milliona decrease in stock-based compensation expense of $6.9 million and $4.9 million in 2017. The change2023 and 2022, respectively, and an increase in our estimate resulted from the higher than expected growthstock-based compensation expense of $5.9 million in earnings from the market appreciation of our assets under management and administration and the estimated impact from the enactment of the Tax Act in December 2017.2021.
There was approximately $62.1$89.1 million of unrecognized compensation cost related to unvested employee stock options at December 31, 20172023 and we expect to recognize approximately $20.1$36.6 million in stock-based compensation costs for stock options in 2018. These amounts do not reflect any estimate2024.
There was approximately $39.9 million of forfeitures or cancellationsunrecognized compensation cost related to RSUs at December 31, 2023 and we expect to recognize approximately $16.4 million in future periods. Actual forfeitures and cancellations occurring in a future period will reduce our stock-based compensation expense.
Fair Value Measurements
The fair value of our financial assets and liabilities, except for the investment funds sponsored by LSV, is determined in accordance with the fair value hierarchy. The fair value of the investment funds sponsored by LSV is measured using the net asset value per share (NAV) as a practical expedient. The fair value of all other financial assets are determined using Level 1 or Level 2 inputs and consist mainly of investments in equity or fixed-income mutual funds that are quoted daily and Government National Mortgage Association (GNMA) and other U.S. government agency securities that are single issuer pools that are valued based on current market data of similar assets. We did not have anyLevel 3 financial liabilities at December 31, 2017 or 2016 that were required to be measured at fair value on a recurring basis2023 and December 31, 2022 consist of contingent considerations resulting from business acquisitions (See Note 515 to the Notes to Consolidated Financial Statements for more information)Statements).
Regulatory Matters
Like many firms operating within the financial services industry, we are experiencing a difficultcomplex and changing regulatory environment across our markets. Our current scale and reach as a provider to the financial services industry, the introduction and implementation of new solutions for our financial services industry clients, the increased regulatory oversight of the financial services industry generally, new laws and regulations affecting the financial services industry and ever-changing regulatory interpretations of existing laws and regulations, and a greater propensity of regulators to pursue enforcement actions and other sanctions against regulated entities, have made this an increasingly challenging and costly regulatory environment in which to operate.
SEI and some of our regulated subsidiaries have undergone or been scheduled to undergo a range of periodic or thematic reviews, examinations or investigations by numerous regulatory authorities around the world, including the Office of the Comptroller of the Currency, the Securities and Exchange Commission, the Financial Industry Regulatory Authority, the Financial Conduct Authority of the United Kingdom (FCA), the Central Bank of Ireland (CBI), the Commission de Surveillance du Secteur Financier (CSSF) of the Grand Duchy of Luxembourg, and others. These regulatory activities typically result in the identification of matters or practices to be addressed by us or our subsidiaries and, in certain circumstances, the regulatory authorities require remediation activities or pursue enforcement proceedings against us or our subsidiaries. As described under the caption “Regulatory Considerations” in Item 1 of this report, the range of possible sanctions that are available to regulatory authorities include limitations on our ability to engage in business for specified periods of time, the revocation of registration, censures and fines. The direct and indirect costs of responding to these regulatory activities and of complying with new or modified regulations, as well as the potential financial costs and potential reputational impact against us of any enforcement proceedings that might result, is uncertain but could have a material adverse impact on our operating results or financial position.
Acquisition of Archway45
On July 3, 2017, we acquired Archway, a provider of operating technologies and services to the family office industry, for $81.6 million in cash consideration with up to an additional $8.0 million payable to the seller as a contingent purchase price with respect to two one-year periods ending December 31, 2017 and 2018 depending upon whether Archway achieves specified financial measures during such periods. The results of operations of Archway and any adjustments related to the acquisition are included in the Investment Managers business segment (See Note 16 to the Notes to Consolidated Financial Statements).
Liquidity and Capital Resources
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2023 | | 2022 | | 2021 |
| Net cash provided by operating activities | | $ | 447,030 | | | $ | 566,119 | | | $ | 633,101 | |
| Net cash used in investing activities | | (141,543) | | | (89,809) | | | (164,883) | |
| Net cash used in financing activities | | (331,324) | | | (437,235) | | | (422,319) | |
| Effect of exchange rate changes on cash and cash equivalents | | 7,476 | | | (17,474) | | | (1,868) | |
| Net (decrease) increase in cash and cash equivalents | | (18,361) | | | 21,601 | | | 44,031 | |
| Cash, cash equivalents and restricted cash, beginning of year | | 853,359 | | | 831,758 | | | 787,727 | |
| Cash, cash equivalents and restricted cash, end of year | | $ | 834,998 | | | $ | 853,359 | | | $ | 831,758 | |
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| | | | | | | | | | | | |
| Year Ended December 31, | | 2017 | | 2016 | | 2015 |
| Net cash provided by operating activities | | $ | 459,898 |
| | $ | 434,220 |
| | $ | 407,516 |
|
| Net cash used in investing activities | | (172,302 | ) | | (79,585 | ) | | (78,015 | ) |
| Net cash used in financing activities | | (253,633 | ) | | (328,672 | ) | | (305,861 | ) |
| Effect of exchange rate changes on cash and cash equivalents | | 14,583 |
| | (9,923 | ) | | (11,425 | ) |
| Net increase in cash and cash equivalents | | 48,546 |
| | 16,040 |
| | 12,215 |
|
| Cash and cash equivalents, beginning of year | | 695,701 |
| | 679,661 |
| | 667,446 |
|
| Cash and cash equivalents, end of year | | $ | 744,247 |
| | $ | 695,701 |
| | $ | 679,661 |
|
Cash requirements and liquidity needs are primarily funded through our cash flow from operations and our capacity for additional borrowing. At December 31, 2017, our unused sources of liquidity consisted of our cash and cash equivalents and the amount available under our credit facility.
OurThe credit facility provides for borrowings of up to $300.0$325.0 million and is scheduled to expire in June 2021 (See Note 7April 2026. As of January 31, 2024, we had outstanding letters of credit of $4.9 million which reduced the amount available under the credit facility. These letters of credit were primarily issued for the expansion of the corporate headquarters and are due to expire in 2025. As of January 31, 2024, the Consolidated Financial Statements). amount of the credit facility available for corporate purposes was $320.1 million.
The availability of the credit facility is subject to compliance with certain covenants set forth in the agreement. The credit facility contains covenants which restrict our ability to engage in mergers, consolidations, asset sales, investments, transactions with affiliates other than wholly-owned subsidiaries or to incur liens or certain types of indebtedness as defined in the agreement. In the
event of a default under the credit facility, we would also be restricted from paying dividends on, or repurchasing, our common stock. Currently, our ability to borrow from the credit facility is not limited by any covenant of the agreement. In July 2017, we borrowed $40.0 million under the credit facility for the acquisition of Archwayagreement (See Note 166 to the Consolidated Financial Statements). We made principal payments of $10.0 million each in the months of October 2017 and January 2018. As of January 31, 2018, the amount of
On April 17, 2023, we amended the credit facility availableagreement with the lenders to add the Secured Overnight Financing Rate (SOFR) as an alternative reference rate for corporate purposes was $280.0 million.borrowings in place of LIBOR. All other terms and conditions of the original agreement remain in effect.
The majority of our excess cash reserves are primarily placed in accounts located in the United States that invest in SEI-sponsored money market mutual funds denominated in the U.S. dollar. We also utilize demand deposit accounts or money market accounts at several well-established financial institutions located in the United States. Accounts used to manage these excess cash reserves do not impose any restrictions or limitations that would prevent us from being able to access such cash amounts immediately. As of January 31, 2018,2024, the amount of cash and cash equivalents considered free and immediately accessible for other general corporate purposes was $227.9$355.2 million.
Our cashCash and cash equivalents include accounts managed by our subsidiaries that are used in their operations or to cover specific business and regulatory requirements. The availability of this cash for other purposes beyond the operations of these subsidiaries may be limited. We therefore do not include accounts of our foreign subsidiaries in ourthe calculation of free and immediately accessible cash for other general corporate purposes. With the enactment of the Tax Act, aA portion of the undistributed earnings of our foreign subsidiaries are deemed repatriated and we have accrued the estimated one-time transition tax under this legislation in 2017.repatriated. Any subsequent transfer of available cash related to the repatriated earnings of our foreign subsidiaries could significantly increase our free and immediately accessible cash.
Cash flows from operations increased $25.7decreased $119.1 million in 20172023 compared to 20162022 primarily due to the decrease in net income, the increase in receivables from clients of the Investment Managers segment, and a decrease in accrued liabilities primarily from payments related to the VSP. Cash flows from operations decreased $67.0 million in 2022 compared to 2021 primarily from the increasedecrease in our net income, higher distributions payments receivednon-cash items and lower repayments of advances due from our unconsolidated affiliate, LSV, and non-cash items such asrelated to their working capital accounts. The positive impact from the increase in stock-based compensation expense. The increase was partially offset by the net change in ourthe Company's working capital accounts mainly receivables. The increase in cash flows from operations in 2017 was also partially offset by the retrospective reclassification of excess tax benefits recognized on stock-based compensation expense. Cash flows from operations increased $26.7 million in 2016 compared to 2015 primarily from net change in our working capital accounts, mainly receivables. The increase was partially offset by lower distribution payments received from LSV.decrease.
Net cash used in investing activities includes:
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• | Cash paid for acquisition, net of cash acquired. We completed the acquisition of Archway in July 2017. The purchase price paid included $81.6 million in cash consideration; however, we acquired $1.4 million in cash during the transaction for a net cash payment of $80.2 million (See Note 16 to the Consolidated Financial Statements).
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•Purchases, sales and maturities of marketable securities. Our purchases, sales and maturities of marketable securities during 2017, 20162023, 2022 and 20152021 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Purchases | | $ | (143,389) | | | $ | (178,217) | | | $ | (216,260) | |
| Sales and maturities | | 121,988 | | | 161,160 | | | 195,096 | |
| Net investing activities from marketable securities | | $ | (21,401) | | | $ | (17,057) | | | $ | (21,164) | |
See Note 5 to the Consolidated Financial Statements for more information related to marketable securities.
•The capitalization of costs incurred in developing computer software. We capitalized $34.0 million, $35.3 million and $26.0 million of software development costs in 2023, 2022 and 2021, respectively. The majority of our
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| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Purchases | | $ | (69,525 | ) | | $ | (73,193 | ) | | $ | (52,538 | ) |
| Sales and maturities | | 65,830 |
| | 69,293 |
| | 46,312 |
|
| Net investing activities from marketable securities | | $ | (3,695 | ) | | $ | (3,900 | ) | | $ | (6,226 | ) |
Marketable securities purchased generally consisted of investments in short-term U.S. government agency securities through SIDCO's cash management program, additional GNMA securitiessoftware development costs are related to satisfy applicable regulatory requirements of SPTC and investmentssignificant enhancements for the start-upexpanded functionality of the SEI Wealth Platform. We also capitalized $15.8 million and $9.6 million of software development costs during 2023 and 2022, respectively, for a new investment products. Proceeds received from salesplatform for the Investment Managers segment.
•Capital expenditures. Capital expenditures in 2023, 2022 and maturities2021 primarily included maturitiesinclude capital outlays for purchased software and equipment for data center operations. We continue to evaluate improvements to our information technology infrastructure which, if implemented, will result in additional expenditures for purchased software and equipment for data center operations.
•Cash paid for acquisitions, net of short-term securities owned by SIDCOcash acquired.In November 2023, we made a net cash payment of $43.9 million to complete the acquisition of XPS Pensions (Nexus) Limited, principal employer and salesscheme funder of the National Pensions Trust in the United Kingdom. In December 2023, we made a net cash payment of $12.5 million to acquire Altigo, a cloud-based technology platform that provides inventory, e-subscription, and principal prepayments relatedreporting capabilities for alternative investments (See Note 15 to the GNMA securities owned by SPTC.
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• | The capitalization of costs incurred in developing computer software. We capitalized $61.0 million, $50.4 million and $29.4 million of software development costs in 2017, 2016 and 2015, respectively. Amounts capitalized primarily include costs for significant enhancements and upgrades for the expanded functionality of the SEI Wealth Platform. Our capitalized software amounts also include $9.7 million, $10.6 million and $4.9 million in 2017, 2016 and 2015, respectively, for new technological capabilities for the Investment Managers segment. We expect this new technology to be placed into service during the first quarter of 2018 with an estimated useful life of five to seven years.Consolidated Financial Statements).
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| |
• | Capital expenditures. Our capital expenditures in 2017, 2016 and 2015 primarily include purchased software and equipment for our data center operations. Our expenditures in 2016 also include software and equipment for a new U.S. disaster recovery site. Our expenditures in 2015 include $13.8 million to relocate our London operations to a new facility. In 2018, we intend to expand our corporate headquarters. Cash outlays during 2018 for the expansion are estimated to range from approximately $12.0 million to $15.0 million. This phase of the expansion is currently estimated to be completed in late 2019.
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• | Receipt of contingent payment from sale of SEI AK. The sale of SEI AK was completed during the first quarter of 2013. We received cash of $2.8 million during 2016 and 2015 resulting from annual payments related to the contingent purchase price from the sale. The cash received in 2016 was the final payment in the series of annual payments. Additional information pertaining to the sale is presented in Note 15 to the Consolidated Financial Statements.
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Net cash used in financing activities includes:
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• | Borrowings and principal repayments on revolving credit facility.•The repurchase of our common stock. The Board of Directors has authorized the repurchase of common stock through multiple authorizations. Currently, there is no expiration date for the common stock repurchase program. The following table lists information regarding repurchases of common stock during 2023, 2022 and 2021: In July 2017, we borrowed $40.0 million for the funding of the acquisition of Archway. We made principal payments of $10.0 million each during October 2017 and January 2018 and intend to repay the entire outstanding balance during 2018 (See Note 7 to the Consolidated Financial Statements). |
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• | The repurchase of our common stock. Our Board of Directors has authorized the repurchase of our common stock through multiple authorizations. Currently, there is no expiration date for our common stock repurchase program. The following table lists information regarding repurchases of our common stock during 2017, 2016 and 2015:
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| | | | | | | | | | | |
| Year | | Total Number of Shares Repurchased | | Average Price Paid per Share | | Total Cost |
| 2017 | | 4,403,000 |
| | $ | 56.36 |
| | $ | 248,114 |
|
| 2016 | | 6,600,000 |
| | 44.60 |
| | 294,374 |
|
| 2015 | | 5,951,000 |
| | 48.66 |
| | 289,587 |
|
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• | Proceeds from the issuance of our common stock. We received $53.6 million, $48.3 million and $65.5 million in proceeds from the issuance of our common stock during 2017, 2016 and 2015, respectively. The proceeds we receive from the issuance of our common stock is directly attributable to the levels of stock option exercise activity.
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• | Dividend payments. Our cash dividends paid during 2017, 2016 and 2015 were as follows:
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| | | | | | | | |
| Year | | Cash Dividends Paid | | Cash Dividends Paid per Share |
| 2017 | | $ | 88,862 |
| | $ | 0.56 |
|
| 2016 | | 84,686 |
| | 0.52 |
|
| 2015 | | 80,030 |
| | 0.48 |
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| | | | | | | | | | | | | | | | | | | | |
| Year | | Total Number of
Shares Repurchased | | Average Price
Paid per Share | | Total Cost |
| 2023 | | 5,237,000 | | | $ | 59.34 | | | $ | 310,769 | |
| 2022 | | 5,914,000 | | | 57.22 | | | 338,442 | |
| 2021 | | 6,747,000 | | | 61.00 | | | 411,534 | |
Our•Proceeds from the issuance of our common stock.We received $101.2 million, $58.2 million and $55.2 million in proceeds from the issuance of common stock during 2023, 2022 and 2021, respectively. The proceeds we receive from the issuance of common stock is directly attributable to the levels of stock option exercise activity.
•Payment of contingent consideration.In July 2023, we exercised the option to settle the contingent consideration related to the acquisition of Huntington Steele and made final payments totaling $8.0 million to the sellers. As of December 31, 2023, we no longer have any obligation for future payments to the sellers related to the acquisition of Huntington Steele.
•Dividend payments. Cash dividends paid during 2023, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | |
| Year | | Cash Dividends Paid | | Cash Dividends
Paid per Share |
| 2023 | | $ | 114,837 | | | $ | 0.86 | |
| 2022 | | 109,830 | | | 0.80 | |
| 2021 | | 105,516 | | | 0.74 | |
The Board of Directors declared a semi-annual cash dividend of $0.30$0.46 per share on December 12, 2017.15, 2023. The dividend was paid on January 8, 20189, 2024 for a total of $47.2 million.$61.1 million.
Cash Requirements
Cash requirements and liquidity needs are primarily funded through cash flow from operations and our capacity for additional borrowing. At December 31, 2023, unused sources of liquidity consisted of cash and cash equivalents and the amount available under our credit facility.
We are obligated to make payments in connection with the credit facility, operating leases, maintenance contracts and other commitments (See Notes 6, 10 and 18 to the Consolidated Financial Statements). We believe our operating cash flow, available borrowing capacity, and existing cash and cash equivalents shouldwill provide adequate funds for these obligations and ongoing operations; continued investment in new productsoperations. We currently anticipate that our available funds and equipment;cash flow from operations will be sufficient to meet our commonoperational cash needs and fund our stock repurchase program for at least the next 12 months and future dividend payments.for the foreseeable future.
Significant Arrangement
On October 1, 2012, we provided an unsecured guaranty of the obligations of LSV Employee Group III to CIBC Bank USA (formerly The PrivateBank and Trust Company) and certain other lenders. We entered into this agreement in order to facilitate the acquisition of certain partnership interests of LSV by LSV Employee Group III. In June 2017, LSV Employee Group III made the final principal payment and, therefore, the Company has no further obligation regarding the agreement. Additional information pertaining to the agreement is presented in Note 2 to the Consolidated Financial Statements.
Contractual Obligations and Contingent Obligations
As of December 31, 2017, the Company is obligated to make payments in connection with its lines of credit, operating leases, maintenance contracts and other commitments in the amounts listed below. The Company has no unrecorded obligations other than the items noted in the following table:
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| | | | | | | | | | | | | | | | | | | | |
| | | Total | | 2018 | | 2019 | | 2020 to 2021 | | 2022 and thereafter |
| Line of credit (a) | | $ | 34,266 |
| | $ | 1,231 |
| | $ | 1,231 |
| | $ | 31,804 |
| | $ | — |
|
| Operating leases and maintenance agreements (b) | | 63,139 |
| | 10,046 |
| | 9,427 |
| | 14,495 |
| | 29,171 |
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| Other commitments (c) | | 14,819 |
| | 4,190 |
| | 904 |
| | 1,808 |
| | 7,917 |
|
| Total | | $ | 112,224 |
| | $ | 15,467 |
| | $ | 11,562 |
| | $ | 48,107 |
| | $ | 37,088 |
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(a) | Amounts include estimated interest charges, commitment fees and the outstanding balance of our credit facility. Our credit facility is scheduled to expire in 2021. See Note 7 to the Consolidated Financial Statements. |
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(b) | See Note 11 to the Consolidated Financial Statements. |
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(c) | Amounts include the portion of uncertain tax liabilities classified as a current liability and the estimated tax impact of the deemed repatriation of our previously undistributed foreign earnings associated with the Tax Act. The actual cash payment associated with these commitments may differ. See Note 12 to the Consolidated Financial Statements. |
Critical Accounting Policies and Estimates
The accompanying consolidated financial statements and supplementary information were prepared in accordance with accounting principles generally accepted in the United States. Our significant accounting policies are discussed in Note 1 to the Consolidated Financial Statements. Inherent in the application of many of these accounting policies is the need for management to make estimates andwhich require extensive judgments in the determination of certain
revenues, expenses, assets and liabilities. Materially different financial results can occur as circumstances change and additional information becomes known. We believe that the followingassumptions and estimates associated with computer software development costs, income taxes, stock-based compensation and the valuation of long-lived assets including goodwill and intangible assets acquired in an acquisition, when applicable, have the greatest potential to have a material impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies require extensive judgment by our management to determine the recognition and timing of amounts recorded in our financial statements.
Revenue Recognition:
Revenues are recognized in the periods in which the related services are performed provided that persuasive evidence of an agreement exists, the fee is fixed or determinable, and collectibility is reasonably assured. Cash received by us in advance of the performance of services is deferred and recognized as revenue when earned. Our principal sources of revenues are: (1) asset management, administration and distribution fees calculated as a percentage of the total average daily net assets under management or administration; (2) information processing and software servicing fees that are either recurring and primarily earned based upon the number of trust accounts being serviced or a percentage of the total average daily market valueestimates. All of our clients' assets processed on our platforms, or non-recurring and based upon project-oriented contractual agreements related to client implementations; and (3) transaction-based fees for providing trade-execution services.
Our revenuessignificant accounting policies are based on contractual arrangements. Certain portions of our revenues require management’s consideration of the nature of the client relationshipdiscussed in determining whether to recognize as revenue the gross amount billed or net amount retained after payments are made to vendors for certain services relatedNote 1 to the product or service offering. For the majority of our services, we are the primary obligor responsible for fulfilling the performance obligations of the contract. In addition, we retain full discretion in establishing the price charged to the customer, control the nature, type, characteristics or specifications of the performance obligations identified in the contract, and assume all credit risk associated with the client. Based on the foregoing, fees received from our clients for these services are recorded as gross revenues and vendor costs are recorded as gross expenses. However, we are also party to certain arrangements whereby we are not the primary obligor responsible for fulfilling the performance obligations of the contract. Fees received for those arrangements are reported net of costs associated with the provision of those services.Consolidated Financial Statements.
Computer Software Development Costs:
We utilize internally developed computer software as part of our product offerings. In the development of a new software product, substantial consideration must be given by management to determine whether costs incurred are research and development costs, or internal software development costs eligible for capitalization. Management must consider a number of different factors during their evaluation of each computer software development project that includes estimates and assumptions. Costs considered to be research and development are expensed as incurred. After meeting specific requirements, internal software development costs are capitalized as incurred. The capitalization and ongoing assessment of recoverability of software development costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, technological and economic feasibility, and estimated economic life. Amortization of capitalized software development costs begins when the product is ready for its intended use. Capitalized software development costs are amortized on a project basis using the straight-line method over the estimated economic life of the product or enhancement.
We evaluate the carrying value of our capitalized software when circumstances indicate the carrying value may not be recoverable. The review of capitalized software for impairment requires significant assumptions and estimates about operating strategies, underlying technologies utilized, and external market factors. Our capitalized software was developed using mainstream technologies that are industry standards and are based on technology developed by multiple vendors that are significant industry leaders. External market factors include, but are not limited to, expected levels of competition, barriers to entry by potential competitors, stability in the target market and governmental regulations.
Income Tax Accounting:Taxes:
We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Management must make assumptions, judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against a deferred tax asset.
Our assumptions,Assumptions, judgments and estimates relative to the current provision for income taxes take into account current tax laws, our interpretationinterpretations of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. We have established reserves for income taxes to address potential exposures involving tax positions that could be challenged by tax authorities. Although we believe ourthe assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretationinterpretations of tax laws and the resolution of any future tax audits could significantly impact the amounts provided for income taxes in ourthe consolidated financial statements.
Our assumptions,Assumptions, judgments and estimates relative to the value of a deferred tax asset take into account predictions of the amount and category of future taxable income, such as income from operations or capital gains income.income and from which subsidiary or jurisdiction such income is expected to be realized. Actual operating results and the underlying amount and category of income in future years could render ourthe current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate. Any of the assumptions, judgments and estimates mentioned above could cause our actual income tax obligations to differ from ourthe estimates, thus materially impacting our financial position and results of operations.
Stock-Based Compensation:
Stock-based compensation cost for awards under share-based compensation plans is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is the vesting period. We currently use the Black-Scholes option pricing model to determine the fair value of stock options.option awards. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as various other assumptions. These assumptions include our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends. We account for forfeitures as they occur. The amount of stock-based compensation expense for stock options that is recognized in a given period is dependent upon management’s estimate of when the earnings per sharefinancial vesting targets are expected to be achieved. If this estimate proves to be inaccurate, the remaining amount of stock-based compensation expense for stock options could be accelerated, spread out over a longer period, or reversed. We currently base our expectations for these assumptions from historical data and other applicable factors. These expectations are subject to change in future periods.
Valuation of Assets Acquired in an Acquisition Including Goodwill and Intangible Assets:
We allocate the fair value of the total purchase price paid for acquisitions to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of the purchase price consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill to reporting units based on the expected benefit from the business combination. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Allocation of the purchase price consideration to identifiable assets and liabilities affects our amortization expense, as acquired finite-lived intangible assets are amortized over the useful life, whereas any indefinite-lived intangible assets, including goodwill, are not amortized. During the measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Goodwill is tested for impairment at the reporting unit level annually or more frequently if events or changes in circumstances would more likely than not reduce the fair value of a reporting unit below its carrying value. We have three reporting units subject to goodwill impairment testing. As of December 31, 2023, no impairment of goodwill has been identified.
Intangible assets acquired in an acquisition are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate from the use and eventual disposition. If such review indicates that the carrying amount of intangible assets is not recoverable, the carrying amount is reduced to fair value. We have not recorded any material impairment charges during the years presented.
The useful lives of our finite-lived intangible assets are determined by management when those assets are initially recognized and are routinely reviewed for the remaining estimated useful lives. The current estimate of useful lives represents management’s best estimate based on current facts and circumstances, but may differ from the actual useful lives due to changes in future circumstances such as changes to our business operations, changes in the planned use of assets, and technological advancements. When we change the estimated useful life assumption for any asset, the remaining carrying amount of the asset is accounted for prospectively and depreciated or amortized over the revised estimated useful life.
The assessment of critical accounting policies and estimates is not meant to be an all-inclusive discussion of the uncertainties to financial results that can occur from the application of the full range of our accounting policies. Materially different financial results could occur in the application of other accounting policies as well. Also, materially different results can occur upon the adoption of new accounting standards.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.Risk.
Information required by this item is set forth under the captions "Our revenues and earnings are affected by changes in capital markets"markets and significant changes in the value of financial instruments" and "Changes in interest rates may affect the value of our fixed-income investment securities" in Item 1A, "Risk Factors"Risk Factors and under the caption "Sensitivity of our revenues and earnings to capital market fluctuations" in Item 7, "Management'sManagement's Discussion and Analysis of Financial Condition and Results of Operations."
Page 35 of 80
Item 8. Financial Statements and Supplementary Data.
| | | | | |
| |
| |
| Index to Financial Statements: | Page |
| |
| Reports of Independent Registered Public Accounting Firm | |
| Auditor Name: KPMG LLP | |
| Audit Firm ID: 185 | |
| Auditor Location: Philadelphia, PA | |
Consolidated Balance Sheets — December 31, 20172023 and 20162022 | |
Consolidated Statements of Operations — For the years ended December 31, 2017, 20162023, 2022 and 20152021 | |
Consolidated Statements of Comprehensive Income — For the years ended December 31, 2017, 20162023, 2022 and 20152021 | |
Consolidated Statements of Changes in Equity — For the years ended December 31, 2017, 20162023, 2022 and 20152021 | |
Consolidated Statements of Cash Flows — For the years ended December 31, 2017, 20162023, 2022 and 20152021 | |
| Notes to Consolidated Financial Statements | |
Schedule II - Valuation and Qualifying Accounts and Reserves — For the years ended December 31, 2017, 20162023, 2022 and 20152021 | |
All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto.
Page 36 of 80
Report of Independent Registered Public Accounting Firm
To the stockholdersShareholders and boardBoard of directorsDirectors
SEI Investments Company:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of SEI Investments Company and subsidiaries (the Company) as of December 31, 20172023 and 2016,2022, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the years in the three‑yearthree-year period ended December 31, 2017,2023, and the related notes and financial statement Scheduleschedule II referred to in Item 15(2) of this Form 10-K (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172023 and 2016,2022, and the results of its operations and its cash flows for each of the years in the three‑yearthree-year period ended December 31, 2017,2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 22, 201820, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for stock-based compensation in 2017 due to the adoption of Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Recoverability of SEI Wealth PlatformSM (SWP) Capitalized Software Development Costs
As discussed in Note 1 to the consolidated financial statements, the Company’s capitalized software development costs primarily relate to the further development of SWP. As of December 31, 2023, the net book value of SWP was $218,521. The Company evaluates the carrying value of capitalized software development costs when circumstances indicate the carrying value may not be recoverable. The review of capitalized software development costs for recoverability requires significant assumptions about operating strategies, underlying technologies utilized, and external market factors. External market factors include, but are not limited to, expected levels of competition, barriers to entry by potential competitors, stability in the target market and government regulations.
We identified the assessment of recoverability of SWP capitalized software costs as a critical audit matter. Assessing the Company’s identification of changes in circumstances that indicate the carrying value of SWP may not be recoverable involved subjective auditor judgement. The judgments included consideration of factors that are external and internal to the Company, such as operating strategies, underlying technologies utilized, and external market factors.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the capitalized software development costs process. This included controls related to the Company’s assessment of circumstances indicating the carrying value of SWP capitalized software development costs may not be recoverable. We evaluated management’s assessment to identify changes in circumstances that indicate the carrying value of SWP may not be recoverable, including consideration of the Company’s operating strategies underlying technologies utilized, and external market factors by (1) inquiring of management responsible for SWP software development, (2) reading board of director minutes, shareholder presentations, press releases and available peer and industry information, and (3) analyzing the nature of SWP software costs capitalized in the current year.
/s/ KPMG LLP
We have served as the Company’s auditor since 2014.
Philadelphia, Pennsylvania
February 22, 201820, 2024
Report of Independent Registered Public Accounting Firm
To the stockholdersShareholders and boardBoard of directorsDirectors
SEI Investments Company:
Opinion on Internal Control Over Financial Reporting
We have audited SEI Investments Company and subsidiaries’subsidiaries' (the Company) internal control over financial reporting as of December 31, 2017,2023, based on criteria established inInternal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20172023 and 2016,December 31, 2022, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2017,2023, and the related notes and financial statement Scheduleschedule II referred to in Item 15(2) of this Form 10-K (collectively, the consolidated financial statements), and our report dated February 22, 201820, 2024 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting (Item 9A).Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 22, 2018
| | | | | | | | | | | |
| | | |
| | | |
| Consolidated Balance Sheets | SEI Investments Company |
(In thousands)Dollars in thousands, except per share data) | and Subsidiaries |
|
| | | | | | | | | | |
| | | 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 Affiliates | | 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 |
|
| | | | | | | | | | | | | | |
| December 31, | | 2023 | | 2022 |
| Assets | | | | |
| Current Assets: | | | | |
| Cash and cash equivalents | | $ | 834,697 | | | $ | 853,008 | |
| Restricted cash | | 301 | | | 351 | |
| Receivables from investment products | | 55,886 | | | 62,014 | |
| Receivables, net of allowance for doubtful accounts of $663 and $901 | | 501,434 | | | 457,084 | |
| Securities owned | | 31,334 | | | 32,148 | |
| Other current assets | | 54,464 | | | 48,703 | |
| Total Current Assets | | 1,478,116 | | | 1,453,308 | |
Property and Equipment, net of accumulated depreciation of $474,034 and $440,861 | | 171,364 | | | 181,029 | |
| Operating Lease Right-of-Use Assets | | 22,477 | | | 24,992 | |
Capitalized Software, net of accumulated amortization of $612,971 and $586,744 | | 239,783 | | | 237,302 | |
| Available For Sale and Equity Securities | | 155,413 | | | 128,201 | |
Investments in Affiliated Funds, at fair value | | 7,316 | | | 6,366 | |
| Investment in Unconsolidated Affiliate | | 110,781 | | | 104,673 | |
| Goodwill | | 137,333 | | | 115,599 | |
Intangible Assets, net of accumulated amortization of $42,520 and $30,261 | | 82,443 | | | 55,532 | |
| Deferred Contract Costs | | 40,221 | | | 37,928 | |
| Deferred Income Taxes | | 37,709 | | | 4,936 | |
Other Assets, net | | 37,047 | | | 33,687 | |
| Total Assets | | $ | 2,520,003 | | | $ | 2,383,553 | |
The accompanying notes are an integral part of these consolidated financial statements.
| | | | | | | | | | | |
| | | |
| | | |
| Consolidated Balance Sheets | SEI Investments Company |
(In thousands)Dollars in thousands, except per-share data) | and Subsidiaries |
|
| | | | | | | | | | |
| | | December 31, | | 2017 | | 2016 |
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 Income 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 |
|
| | | Commitments and Contingencies | |
| |
|
| | | Shareholders' Equity: | | | | |
| | | Series Preferred stock, $.05 par value, 50 shares authorized; no shares issued and outstanding | | — |
| | — |
|
| | | 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 Equity | | $ | 1,853,369 |
| | $ | 1,636,823 |
|
| | | | | | | | | | | | | | |
| December 31, | | 2023 | | 2022 |
| Liabilities and Equity | | | | |
| Current Liabilities: | | | | |
| Accounts payable | | $ | 10,618 | | | $ | 13,283 | |
| Accrued liabilities | | 318,945 | | | 359,363 | |
| Current portion of long-term operating lease liabilities | | 8,118 | | | 10,344 | |
| Deferred revenue | | 15,366 | | | 14,893 | |
| Total Current Liabilities | | 353,047 | | | 397,883 | |
| | | | |
| Long-term Income Taxes Payable | | 803 | | | 803 | |
| | | | |
| Long-term Operating Lease Liabilities | | 17,235 | | | 18,786 | |
| Other Long-term Liabilities | | 17,090 | | | 12,257 | |
| Total Liabilities | | 388,175 | | | 429,729 | |
| Commitments and Contingencies | | | | |
| Shareholders' Equity: | | | | |
| Common stock, $.01 par value, 750,000,000 shares authorized; 131,177,513 and 134,162,002 shares issued and outstanding | | 1,312 | | | 1,342 | |
| Capital in excess of par value | | 1,404,962 | | | 1,307,162 | |
| Retained earnings | | 762,586 | | | 694,287 | |
| Accumulated other comprehensive loss, net | | (37,032) | | | (48,967) | |
| Total Shareholders' Equity | | 2,131,828 | | | 1,953,824 | |
| Total Liabilities and Equity | | $ | 2,520,003 | | | $ | 2,383,553 | |
The accompanying notes are an integral part of these consolidated financial statements.
Page 40 of 80
| | | | | | | | |
| | |
| | |
| Consolidated Statements of Operations | | SEI Investments Company |
(InDollars in thousands, except per-share data) | | and Subsidiaries |
| | | Year Ended December 31, | | 2017 | | 2016 | | 2015 | Year Ended December 31, | | 2023 | | 2022 | | 2021 |
| Revenues: | | | | | | |
| Asset management, administration and distribution fees | | $ | 1,180,789 |
| | $ | 1,072,176 |
| | $ | 1,010,511 |
|
| Asset management, administration and distribution fees | |
| Asset management, administration and distribution fees | |
| Information processing and software servicing fees | | 321,741 |
| | 300,346 |
| | 290,893 |
|
| Transaction-based and trade execution fees | | 24,022 |
| | 29,023 |
| | 32,804 |
|
| Total revenues | | 1,526,552 |
| | 1,401,545 |
| | 1,334,208 |
|
| Expenses: | | | | | | |
| Subadvisory, distribution and other asset management costs | | 179,181 |
| | 170,961 |
| | 160,062 |
|
| Subadvisory, distribution and other asset management costs | |
| Subadvisory, distribution and other asset management costs | |
| Software royalties and other information processing costs | | 31,275 |
| | 30,323 |
| | 31,497 |
|
| Brokerage commissions | | 17,845 |
| | 22,152 |
| | 24,388 |
|
| Compensation, benefits and other personnel | | 458,737 |
| | 414,622 |
| | 395,774 |
|
| Stock-based compensation | | 36,366 |
| | 16,017 |
| | 17,312 |
|
| Consulting, outsourcing and professional fees | | 186,357 |
| | 166,769 |
| | 146,436 |
|
| Data processing and computer related | | 71,909 |
| | 64,930 |
| | 58,884 |
|
| Facilities, supplies and other costs | | 72,352 |
| | 68,245 |
| | 74,968 |
|
| Amortization | | 48,275 |
| | 45,392 |
| | 42,630 |
|
| Depreciation | | 27,311 |
| | 26,440 |
| | 24,044 |
|
| Total expenses | | 1,129,608 |
| | 1,025,851 |
| | 975,995 |
|
| Income from operations | | 396,944 |
| | 375,694 |
| | 358,213 |
|
| Net gain (loss) from investments | | 1,269 |
| | 112 |
| | (456 | ) |
| Interest and dividend income | | 7,057 |
| | 4,316 |
| | 3,358 |
|
| Interest expense | | (781 | ) | | (531 | ) | | (483 | ) |
| Other income | |
| Equity in earnings of unconsolidated affiliates | | 152,550 |
| | 126,103 |
| | 137,057 |
|
| Gain on sale of subsidiary | | — |
| | 2,791 |
| | 2,791 |
|
| Income before income taxes | | 557,039 |
| | 508,485 |
| | 500,480 |
|
| Income taxes | | 152,650 |
| | 174,668 |
| | 168,825 |
|
| Net income | | $ | 404,389 |
| | $ | 333,817 |
| | $ | 331,655 |
|
| | | | | | | |
| Basic earnings per common share | | $ | 2.56 |
| | $ | 2.07 |
| | $ | 2.00 |
|
| Basic earnings per common share | |
| Basic earnings per common share | |
| Shares used to compute basic earnings per share | | 158,177 |
| | 161,350 |
| | 165,725 |
|
| Diluted earnings per common share | | $ | 2.49 |
| | $ | 2.03 |
| | $ | 1.96 |
|
| Shares used to compute diluted earnings per share | | 162,269 |
| | 164,431 |
| | 169,598 |
|
| Dividends declared per common share | | $ | 0.58 |
| | $ | 0.54 |
| | $ | 0.50 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Page 41 of 80
| | | | | | | | |
| | |
| | |
| Consolidated Statements of Comprehensive Income | | SEI Investments Company |
(InDollars in thousands) | | and Subsidiaries |
| | | Year Ended December 31, | | 2017 | | 2016 | | 2015 | Year Ended December 31, | | 2023 | | 2022 | | 2021 |
| Net income | | $ | 404,389 |
| | $ | 333,817 |
| | $ | 331,655 |
|
| Other comprehensive gain (loss), net of tax: | | | | | | |
| Other comprehensive income (loss), net of tax: | |
| Foreign currency translation adjustments | |
| Foreign currency translation adjustments | |
| Foreign currency translation adjustments | | 17,597 |
| | (12,131 | ) | | (14,900 | ) |
| Unrealized holding gain (loss) on investments: | | | | | | |
| Unrealized holding gains (losses) during the period, net of income taxes of $1, $457 and $822 | | 190 |
| | (918 | ) | | (1,659 | ) |
| Less: reclassification adjustment for losses realized in net income, net of income taxes of $(99), $(201) and $(76) | | 260 |
| | 384 |
| | 164 |
|
| Total other comprehensive gain (loss), net of taxes | | 18,047 |
| | (12,665 | ) | | (16,395 | ) |
| Unrealized holding gains (losses) during the period, net of income taxes of $(675), $2,893 and $728 | |
| Unrealized holding gains (losses) during the period, net of income taxes of $(675), $2,893 and $728 | |
| Unrealized holding gains (losses) during the period, net of income taxes of $(675), $2,893 and $728 | |
| Less: reclassification adjustment for losses realized in net income, net of income taxes of $(48), $(134) and $(246) | |
| Total other comprehensive income (loss), net of taxes | |
| Comprehensive income | | $ | 422,436 |
| | $ | 321,152 |
| | $ | 315,260 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Page 42 of 80
| | | | | | | | |
| | |
| | |
| Consolidated Statements of Changes in Equity | | SEI Investments Company |
(InDollars in thousands, except per-share data) | | and Subsidiaries |
| | | Year Ended December 31, | | 2017 | | 2016 | | 2015 | Year Ended December 31, | | 2023 | | 2022 | | 2021 |
| Shares of Common Stock | | | | | | |
| Beginning balance | | 159,031 |
| | 163,733 |
| | 166,688 |
|
| Beginning balance | |
| Beginning balance | |
| Purchase and retirement of common stock | | (4,403 | ) | | (6,600 | ) | | (5,951 | ) |
| Issuance of common stock under the employee stock purchase plan | | 71 |
| | 88 |
| | 69 |
|
| Issuance of common stock upon exercise of stock options | | 2,370 |
| | 1,810 |
| | 2,927 |
|
| Issuance of common stock under share-based award plans | |
| Ending balance | | 157,069 |
| | 159,031 |
| | 163,733 |
|
| | | | | | | |
| Common Stock | | | | | | |
| Common Stock | |
| Common Stock | |
| Beginning balance | |
| Beginning balance | |
| Beginning balance | | $ | 1,590 |
| | $ | 1,637 |
| | $ | 1,667 |
|
| Purchase and retirement of common stock | | (44 | ) | | (66 | ) | | (60 | ) |
| Issuance of common stock under the employee stock purchase plan | | 1 |
| | 1 |
| | 1 |
|
| Issuance of common stock upon exercise of stock options | | 24 |
| | 18 |
| | 29 |
|
| Issuance of common stock under share-based award plans | |
| Ending balance | | $ | 1,571 |
| | $ | 1,590 |
| | $ | 1,637 |
|
| | | | | | | |
| Capital In Excess of Par Value | | | | | | |
| Capital In Excess of Par Value | |
| Capital In Excess of Par Value | |
| Beginning balance | | $ | 955,461 |
| | $ | 910,513 |
| | $ | 834,615 |
|
| Cumulative effect upon adoption of ASU 2016-09 | | 2,582 |
| | — |
| | — |
|
| Beginning balance | |
| Beginning balance | |
| Purchase and retirement of common stock | | (20,243 | ) | | (28,306 | ) | | (22,984 | ) |
| Issuance of common stock under the employee stock purchase plan | | 3,280 |
| | 3,357 |
| | 2,798 |
|
| Issuance of common stock upon exercise of stock options | | 50,263 |
| | 44,896 |
| | 62,716 |
|
| Issuance of common stock under share-based award plans | |
| Stock-based compensation | | 36,366 |
| | 16,017 |
| | 17,312 |
|
| Tax benefit on stock options exercised | | — |
| | 8,984 |
| | 16,056 |
|
| Ending balance | | $ | 1,027,709 |
| | $ | 955,461 |
| | $ | 910,513 |
|
| | | | | | | |
| Retained Earnings | | | | | | |
| Retained Earnings | |
| Retained Earnings | |
| Beginning balance | | $ | 384,018 |
| | $ | 402,860 |
| | $ | 420,226 |
|
| Cumulative effect upon adoption of ASU 2016-09 | | (1,669 | ) | | — |
| | — |
|
| Beginning balance | |
| Beginning balance | |
| Net income | | 404,389 |
| | 333,817 |
| | 331,655 |
|
| Purchase and retirement of common stock | | (227,827 | ) | | (266,002 | ) | | (266,543 | ) |
| Dividends declared ($0.58, $0.54 and $0.50 per share) | | (91,444 | ) | | (86,657 | ) | | (82,478 | ) |
| Dividends declared ($0.89, $0.83 and $0.77 per share) | |
| Ending balance | | $ | 467,467 |
| | $ | 384,018 |
| | $ | 402,860 |
|
| | | | | | | |
| Accumulated Other Comprehensive Loss | | | | | | |
| Accumulated Other Comprehensive Loss | |
| Accumulated Other Comprehensive Loss | |
| Beginning balance | | $ | (37,955 | ) | | $ | (25,290 | ) | | $ | (8,895 | ) |
| Other comprehensive gain (loss) | | 18,047 |
| | (12,665 | ) | | (16,395 | ) |
| Beginning balance | |
| Beginning balance | |
| Other comprehensive income (loss) | |
| Ending balance | | $ | (19,908 | ) | | $ | (37,955 | ) | | $ | (25,290 | ) |
| | | | | | | |
| Total Equity | | $ | 1,476,839 |
| | $ | 1,303,114 |
| | $ | 1,289,720 |
|
| Total Equity | |
| Total Equity | |
The accompanying notes are an integral part of these consolidated financial statements.
Page 43 of 80
| | | | | | | | |
| | |
| | |
| Consolidated Statements of Cash Flows | | SEI Investments Company |
(InDollars in thousands) | | and Subsidiaries |
| | | Year Ended December 31, | | 2017 | | 2016 | | 2015 | Year Ended December 31, | | 2023 | | 2022 | | 2021 |
| Cash flows from operating activities: | | | | | | |
| Net income | | $ | 404,389 |
| | $ | 333,817 |
| | $ | 331,655 |
|
| Net income | |
| Net income | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
| Depreciation | |
| Depreciation | |
| Depreciation | | 27,311 |
| | 26,440 |
| | 24,044 |
|
| Amortization | | 48,275 |
| | 45,392 |
| | 42,630 |
|
| Equity in earnings of unconsolidated affiliates | | (152,550 | ) | | (126,103 | ) | | (137,057 | ) |
| Distributions received from unconsolidated affiliate | | 143,517 |
| | 125,224 |
| | 141,767 |
|
| Partner distributions received from unconsolidated affiliate | |
| Stock-based compensation | | 36,366 |
| | 16,017 |
| | 17,312 |
|
| Provision for losses on receivables | | 172 |
| | (126 | ) | | (135 | ) |
| Deferred income tax expense | | (21,046 | ) | | 4,794 |
| | (1,394 | ) |
| Gain from sale of SEI AK | | — |
| | (2,791 | ) | | (2,791 | ) |
| Deferred income tax benefit | |
| Net (gain) loss from investments | | (1,269 | ) | | (112 | ) | | 456 |
|
| Tax benefit on stock options exercised | | — |
| | 8,984 |
| | 16,056 |
|
| Change in long-term taxes payable | | 10,629 |
| | — |
| | — |
|
| Change in other long-term liabilities | | (2,265 | ) | | 3,248 |
| | 1,070 |
|
| Change in other assets | | (1,489 | ) | | (1,917 | ) | | 783 |
|
| Write off of capitalized and purchased software | | — |
| | — |
| | 6,055 |
|
| Contract costs capitalized, net of amortization | |
| Write off of fixed assets and capitalized software | |
| Other | | (2,191 | ) | | 390 |
| | (2,440 | ) |
| Change in current assets and liabilities: | | | | | | |
| Decrease (increase) in: | | | | | | |
| Decrease (increase) in: | |
| Decrease (increase) in: | |
| Receivables from investment products | |
| Receivables from investment products | |
| Receivables from investment products | | 5,095 |
| | (13,663 | ) | | 295 |
|
| Receivables | | (52,726 | ) | | (4,807 | ) | | (28,469 | ) |
| Other current assets | | (3,583 | ) | | (1,368 | ) | | (8,014 | ) |
| Advances due from unconsolidated affiliate | |
| Increase (decrease) in: | | | | | | |
| Accounts payable | |
| Accounts payable | |
| Accounts payable | | (909 | ) | | 1,455 |
| | (5,441 | ) |
| Accrued liabilities | | 20,992 |
| | 18,851 |
| | 10,498 |
|
| Deferred revenue | | 1,180 |
| | 495 |
| | 636 |
|
| Total adjustments | | 55,509 |
| | 100,403 |
| | 75,861 |
|
| Net cash provided by operating activities | | $ | 459,898 |
| | $ | 434,220 |
| | $ | 407,516 |
|
The accompanying notes are an integral part of these consolidated financial statements.
| | | | | | | | |
| | |
| | |
| Consolidated Statements of Cash Flows | | SEI Investments Company |
(InDollars in thousands) | | and Subsidiaries |
| | | Year Ended December 31, | | 2017 | | 2016 | | 2015 | Year Ended December 31, | | 2023 | | 2022 | | 2021 |
| Cash flows from investing activities: | | | | | | |
| Decrease in restricted cash | | — |
| | 2,000 |
| | 301 |
|
| Additions to property and equipment | |
| Additions to property and equipment | |
| Additions to property and equipment | | (25,525 | ) | | (31,397 | ) | | (44,465 | ) |
| Additions to capitalized software | | (61,043 | ) | | (50,392 | ) | | (29,416 | ) |
| Purchases of marketable securities | | (69,525 | ) | | (73,193 | ) | | (52,538 | ) |
| Prepayments and maturities of marketable securities | | 65,830 |
| | 54,141 |
| | 38,551 |
|
| Sales of marketable securities | | — |
| | 15,152 |
| | 7,761 |
|
| Cash paid for acquisition, net of cash acquired | | (80,234 | ) | | — |
| | — |
|
| Receipt of contingent payment from sale of SEI AK | | — |
| | 2,791 |
| | 2,791 |
|
| Cash paid for acquisitions, net of cash acquired | |
| Proceeds from insurance settlements | |
| Other investing activities | | (1,805 | ) | | 1,313 |
| | (1,000 | ) |
| Net cash used in investing activities | | (172,302 | ) | | (79,585 | ) | | (78,015 | ) |
| Cash flows from financing activities: | | | | | | |
| Payments under revolving credit facility | |
| Payments under revolving credit facility | |
| Payments under revolving credit facility | |
| Borrowings under revolving credit facility | | 40,000 |
| | — |
| | — |
|
| Repayments under revolving credit facility | | (10,000 | ) | | — |
| | — |
|
| Payment of contingent consideration | |
| Purchase and retirement of common stock | | (248,339 | ) | | (292,258 | ) | | (291,374 | ) |
| Proceeds from issuance of common stock | | 53,568 |
| | 48,272 |
| | 65,543 |
|
| Payment of dividends | | (88,862 | ) | | (84,686 | ) | | (80,030 | ) |
| Net cash used in financing activities | | (253,633 | ) | | (328,672 | ) | | (305,861 | ) |
| | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | 14,583 |
| | (9,923 | ) | | (11,425 | ) |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | |
| | | | | | | |
| Net increase in cash and cash equivalents | | 48,546 |
| | 16,040 |
| | 12,215 |
|
| Net (decrease) increase in cash, cash equivalents and restricted cash | |
| Net (decrease) increase in cash, cash equivalents and restricted cash | |
| Net (decrease) increase in cash, cash equivalents and restricted cash | |
| | | | | | | |
| Cash and cash equivalents, beginning of year | | 695,701 |
| | 679,661 |
| | 667,446 |
|
| Cash, cash equivalents and restricted cash, beginning of year | |
| Cash, cash equivalents and restricted cash, beginning of year | |
| Cash, cash equivalents and restricted cash, beginning of year | |
| | | | | | | |
| Cash and cash equivalents, end of year | | $ | 744,247 |
| | $ | 695,701 |
| | $ | 679,661 |
|
| Cash, cash equivalents and restricted cash, end of year | |
| Cash, cash equivalents and restricted cash, end of year | |
| Cash, cash equivalents and restricted cash, end of year | |
| | | | | | | |
| Interest paid | |
| Interest paid | |
| Interest paid | | $ | 699 |
| | $ | 531 |
| | $ | 460 |
|
| Income taxes paid | | $ | 165,049 |
| | $ | 157,255 |
| | $ | 159,605 |
|
| | | | | | | |
| Non-cash financing activities | | | | | | |
| Non-cash investing and financing activities | |
| Non-cash investing and financing activities | |
| Non-cash investing and financing activities | |
| Acquisition of businesses in current assets, property and equipment, current liabilities and other long-term liabilities | |
| Acquisition of businesses in current assets, property and equipment, current liabilities and other long-term liabilities | |
| Acquisition of businesses in current assets, property and equipment, current liabilities and other long-term liabilities | |
| Dividends declared but not paid | | $ | 47,179 |
| | $ | 44,596 |
| | $ | 42,625 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Page 45 of 80
| | | | | | | | |
| | |
| | |
| Notes to Consolidated Financial Statements | | SEI Investments Company |
| (all figures are in thousands except share and per-share data) | | and Subsidiaries |
Note 1 – Summary of Significant Accounting Policies
Nature of Operations
SEI Investments Company (the Company), a Pennsylvania corporation, provides investment processing,comprehensive solutions, services and infrastructure–encompassing technology, operational, and investment management and investment operations platforms services–to financial institutions,help wealth managers, financial advisors, institutional investors, investment managers, family offices, institutional and ultra-high-net-worth families in the United States, Canada, the United Kingdom, continental Europeprivate investors create and other various locations throughout the world. manage wealth.
Investment processing platforms consist of applicationprovide technologies and business process outsourcing services professionalfor wealth managers. These solutions include investment advisory, client relationship, and other technology-enabled capabilities for the front office; administrative and investment services for the middle office; and transaction-based services.accounting and processing services for the back office. Revenues from investment processing platformsservices are recognized in Information processing and software servicing fees on the accompanying Consolidated Statements of Operations, except for fees earned associated with trade execution services.Operations.
Investment management programs consistoperations platforms provide business process outsourcing services for investment managers and asset owners. These platforms support a broad range of mutual funds,traditional and alternative investments and separate accounts. These include a series of money market, equity, fixed-incomeprovide technology-enabled information analytics and alternative investment portfolios, primarily ininvestor capabilities for the form of registered investment companies. The Company serves as the administratorfront office; administrative and investment advisorservices for many of these products.the middle office; and fund administration and accounting services for the back office. Revenues from investment management programsoperations services are recognized in Asset management, administration and distribution fees on the accompanying Consolidated Statements of Operations.
Investment operationsmanagement platforms offerprovide comprehensive solutions for managing personal and institutional wealth. These platforms include goals-based investment managers support for traditionalstrategies; SEI-sponsored and third-party investment products, such asincluding mutual funds, ETFs, collective investment trusts, exchange-traded funds,products, alternative investment portfolios and separately managed accounts (SMA); and other market-specific advice, technology and operational components. These services are offered to wealth managers as part of a complete goals-based investment program for their end-investors. For institutional investors, the Company provides an Outsourced Chief Investment Officer (OCIO) platform and separate accounts, by providing outsourcing services including fundUnbundled OCIO platform that include investment management programs, as well as advisory and investment accounting, administration, reconciliation, investor servicing and client reporting. These platforms also provide support to managers focused on alternative investments who manage hedge funds, funds of hedge funds, private equity funds and real estate funds, across registered, partnership and separate account structures domiciled in the United States and overseas.administrative services. Revenues from investment operations platformsmanagement services are recognized in Asset management, administration and distribution fees on the accompanying Consolidated Statements of Operations.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries and entities in which it holds a controlling financial interest. The Company determines whether it has a controlling financial interest either by its decision-making ability through voting interests or by the extent of the Company’s participation in the economic risks and rewards of the entity through variable interests. The Company’s principal subsidiaries are SEI Investments Distribution Co. (SIDCO), SEI Investments Management Corporation (SIMC), SEI Private Trust Company (SPTC), SEI Trust Company (STC), SEI Global Services, Inc. (SGSI) and, SEI Investments (Europe) Limited (SIEL), SEI Investments - Global Fund Services, Ltd. (GFSL), SEI Investments Canada Company (SEI Canada) and SEI Investments - Luxembourg S.A. (SEI Lux). All intercompany accounts and transactions have been eliminated.
The Company accounts for investments in unconsolidated entities that are 20 percent20% to 50 percent50% owned or are 20 percent20% or less owned and have the ability to exercise significant influence over the operating and financial policies of the entity under the equity method of accounting. Under this method of accounting, the Company’s interest in the net assets of unconsolidated entities is reflected in Investment in unconsolidated affiliates on the accompanying Consolidated Balance Sheet and its interest in the earnings or losses of unconsolidated entities is reflected in Equity in earnings of unconsolidated affiliates on the accompanying Consolidated Statement of Operations. Any investments in entities not consolidated or accounted for under the equity method are accounted for under the cost method of accounting.
Variable Interest Entities
The Company has involvement with various variable interest entities (VIE or VIEs) primarily co-sponsoredits affiliates have created numerous investment products established for its clients created in the form of various types of legal entity structures. Effective January 1, 2016,The Company serves as the Manager, Administrator and Distributor for these investment products and may also serve as the Trustee for some of the investment products. The Company receives asset management, distribution, administration and custodial fees for these services. Clients are the equity investors and participate in proportion to their ownership percentage in the net income or loss and net capital gains or losses of the products, and, on liquidation, will participate in proportion to their ownership percentage in the remaining net assets of the products after satisfaction of outstanding liabilities.
The Company has concluded that it is not the primary beneficiary of the entities and, therefore, is not required to consolidate any of the pooled investment vehicles for which it receives asset management, distribution, administration and
custodial fees under the VIE model. The entities either do not meet the definition of a VIE or the Company adopteddoes not hold a variable interest in the amendments containedentities. The entities either qualify for the money market scope exception, or are entities in Accounting Standards Update (ASU) No. 2015-02, Consolidation (Topic 810): Amendmentswhich the Company’s asset management, distribution, administration and custodial fees are commensurate with the services provided and include fair terms and conditions, or are entities that are limited partnerships which have substantive kick-out rights. The Company acts as a fiduciary and does not hold any other interests other than insignificant seed money investments in the pooled investment vehicles. For this reason, the Company also concluded that it is not required to consolidate the Consolidation Analysis (ASU 2015-02) which amends the current guidance for both the VIE andpooled investment vehicles under the voting interest entity (VOE) consolidation models. This guidance rescinds the indefinite deferralmodel.
The Company is a party to expense limitation agreements with certain SEI-sponsored money market funds subject to Rule 2a-7 of the VIE guidance for investment companies that permitted applicationInvestment Company Act of 1940 which establish a maximum level of ordinary operating expenses incurred by the fund in any fiscal year including, but not limited to, fees of the risksadministrator or its affiliates. Under the terms of these agreements, the Company waived $22,092, $35,426 and rewards based approach. The adoption of ASU 2015-02 did not have any affect on the consolidated financial statements$45,129 in fees during 2023, 2022 and related disclosures (See Note 3).2021, respectively.
Management’s Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company’s principal sourcesRevenue is recognized when the transfer of revenues are: (1) asset management, administration and distribution fees earned based uponcontrol of promised goods or services under the terms of a contractual percentage of net assets under management or administration; (2) information processing and software servicing feescontract with customers are satisfied in an amount that are either recurring and primarily earned based uponreflects the number of trust accounts being serviced or a percentage of the total average daily market value of the clients' assets processed on the Company's platforms, or non-recurring and based upon project-oriented contractual agreements relatedconsideration to client implementations; and (3) transaction-based fees for providing trade-execution services.
The Company’s revenues are based on contractual arrangements. Revenues are recognized in the periods in which the related services are performed provided that persuasive evidence of an agreement exists, the fee is fixedCompany expects to be entitled in exchange for those promised goods or determinable, and collectibility is reasonably assured. Cash received by the Company in advance of the performance of services is deferred and recognized as revenue when earned. Reimbursements received for out-of-pocket expenses incurred are recorded as revenue.services. Certain portions of the Company’s revenues require management’s consideration ofinvolve a third party in providing goods or services to its customers. In such circumstances, the Company must determine whether the nature of the client relationship in determining whether to recognize as revenue the gross amount billed or net amount retained after payments are made to suppliers for certain services relatedits promise to the productcustomer is to provide the underlying goods or service offering. Forservices (the Company is the principal in the transaction and reports the transaction gross) or to arrange for a third party to provide the underlying goods or services (the entity is the agent in the transaction and reports the transaction net). The Company does not disclose the value of unsatisfied performance obligations as the majority of the Company's services,its contracts relate to: 1) contracts with an original term of one year or less; 2) contracts for which the Company isrecognizes revenue at the primary obligor responsibleamount to which it has the right to invoice for fulfilling the performance obligations of the contract. In addition, management retains full discretion in establishing the price charged to the customer, control the nature, type, characteristics or specifications of the performance obligations identified in the contract,services performed; and assume all credit risk associated with the client. Based3) contracts that are based on the foregoing, fees received by the Companyvalue of assets under management or administration. See Note 17 for these services are recorded as gross revenues and vendor costs are recorded as gross expenses. However, the Company is also party to certain arrangements whereby the Company is not the primary obligor responsible for fulfilling the performance obligations of the contract. Fees received for those arrangements are reported net of costs associated with the provision of those services.related disclosures regarding revenue recognition.
Cash and Cash Equivalents
The Company considers investment instruments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents include $401,292$397,838 and $374,760$305,434 at December 31, 20172023 and 2016,2022, respectively, primarily invested in SEI-sponsored open-ended money market mutual funds. The SEI-sponsored mutual funds are considered Level 1 assets.
Restricted Cash
Restricted cash includes $3,000$250 at December 31, 20172023 and 20162022 segregated for regulatory purposes related to trade-execution services conducted by SIEL. Restricted cash also includes $505$51 and $500$101 at December 31, 20172023 and 2016,2022, respectively, segregated in special reserve accounts for the benefit of SIDCO customers in accordance with certain rules established by the Securities and Exchange Commission for broker-dealers.
Allowances for Doubtful Accounts
The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable.
Concentration of Credit Risk
Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of cash equivalents and trade receivables. Cash equivalents are principally invested in short-term money market funds or placed with major banks and high-credit qualified financial institutions. Cash deposits maintained with institutions are in excess of federally insured limits. Concentrations of credit risk with respect to the Company's receivables are limited due to the large number of clients and their dispersion across geographic areas. No single group or customer represents greater than ten percent10% of total accounts receivable.
Property and Equipment
Property and Equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. Construction in progress includes the cost of construction and other direct costs attributable to the construction. When property and equipment are retired or disposed of, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss
is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives using the straight line method for financial statement purposes. No provision for depreciation is made for construction in progress until such time as the relevant assets are completed and put into service. The Company uses other depreciation methods, generally accelerated, for tax purposes where appropriate. Buildings and building improvements are depreciated over 25 to 39 years.years. Equipment, purchased software and furniture and fixtures have useful lives ranging from 3 to 5 years.years. Amortization of leasehold improvements is computed using the straight line method over the shorter of the remaining lease term or the estimated useful lives of the improvements.
Marketable Securities
The classification of investments in marketable securities is determined at the time of purchase and reevaluated at each balance sheet date. Debt and equity securities classified as available-for-sale are reported at fair value as determined by the most recently traded price of each security at the balance sheet date. Unrealized gains and losses associated with the Company's available for sale debt securities, net of income taxes, are reported as a separate component of comprehensive income.
SIDCO, the Company’s broker-dealer subsidiary, reports changes in fair value of marketable securities through current period earnings due to specialized accounting practices related to investments by broker-dealers.
The Company records its investments in money market funds and commercial paper classified as cash equivalents, funds sponsored by LSV and equity securities not accounted for under the equity method on the accompanying Consolidated Balance Sheets at fair value. Unrealized gains and losses from the change in fair value of these securities are recognized in current period earnings.
The specific identification method is used to compute the realized gains and losses on all of the Company’s marketable securities (See Note 6)5).
The Company evaluates the realizable value of its marketableavailable for sale debt securities on a quarterly basis. In the event that the carrying value of an investment exceeds itsother-than-temporary decline in fair value andhas occurred, the amount of the decline in valuerelated to a credit loss is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis for the investment is established.reported through current period earnings. Some of the factors considered in determining other-than-temporary impairment for equity securities include, but are not limited to, significant or prolonged declines in the fair value of the investments, the Company’s ability and intent to retain the investment for a period sufficient to allow the value to recover, and the financial condition of the investment. Some of the factors considered in determining other-than-temporary impairment for debt securities include, but are not limited to, the intent of management to sell the security, the likelihood that the Company will be required to sell the security before recovering its cost, and management’s expectation to recover the entire amortized cost basis of the security even if there is no intent to sell the security. The Company did not recognize any impairment charges related to its available for sale debt securities in 2023, 2022 or 2021.
Fair Value of Financial Instruments
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy describes three levels of inputs that may be used by the Company to measure fair value:
Level 1 – Quoted prices in active markets for identical assets or liabilities without adjustment. The Company’s Level 1 assets primarily include investments in mutual funds sponsored by SEI that are quoted daily.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 financial assets consist of Government National Mortgage Association (GNMA)GNMA mortgage-backed securities, Federal Home Loan Bank (FHLB) and other U.S. government agency short-term notes. The investments in GNMA mortgage-backed securities were purchased for the sole purpose of satisfying applicable regulatory requirements imposed on ourthe Company's wholly-owned limited purpose federal thrift subsidiary, SPTC. The investments in FHLB and other U.S. government agency short-term notes were purchased as part of a cash management program requiring only short term, top-tier investment grade government and corporate securities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment by management. The Company had no Level 3 financial assets or liabilities at December 31, 20172023 or 20162022 that were required to be measured at fair value on a recurring basis. The Company's Level 3 financial liabilities at December 31, 2023 and 2022 consist entirely of estimated contingent considerations resulting from business acquisitions (See Note 15).
The fair value of an asset or liability may include inputs from more than one level in the fair value hierarchy. The lowest level of significant inputs used to value the asset or liability determines which level the asset or liability is classified in its entirety. Transfers between levels of the fair value hierarchy are reported at fair value as of the beginning of the period in which the transfers occur.
See Note 54 for information on related disclosures regarding fair value measurements.
Capitalized Software
Costs incurred for the development of internal use software to be offered in a hosting arrangement is capitalized during the development stage of the software application. These costs include direct external and internal costs to design the software configuration and interfaces, coding, installation, and testing. Costs incurred during the preliminary and post-implementation stages of the software application are expensed as incurred. Costs associated with significant enhancements to a software application are capitalized while costs incurred to maintain existing software applications are expensed as incurred. The capitalization of software development costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, technological and economic feasibility, and estimated economic life.ensure the costs incurred will result in additional functionality of the software. Amortization of capitalized software development costs begins when the product is ready for its intended use. Capitalized software development
costs are amortized on a product-by-product basis using the straight-line method over the estimated economic life of the product or enhancement.
The Company capitalized $61,043, $50,392$33,958, $35,293 and $29,416$26,037 of software development costs during 2017, 20162023, 2022 and 2015, respectively. The Company's capitalized software development costs primarily relate2021, respectively, to further the further development of the SEI Wealth PlatformSM ((SWP) and the Platform).development of a new platform for the Investment Managers segment. The Company capitalized $51,353, $39,785$18,183, $25,735 and $24,515$25,938 of software development costs for significant enhancements to the PlatformSWP during 2017, 20162023, 2022 and 2015,2021, respectively. As of December 31, 2017,2023, the net book value of the PlatformSWP was $285,207.$218,521. The net book value includes $38,093$5,916 of capitalized software development costs in-progress associated with future releases.
The Company also capitalized $9,690, $10,607$15,775 and $4,901$9,558 of software development costs during 2017, 20162023 and 2015,2022, respectively, related to an applicationa new platform for the Investment Managers segment. Capitalized software development costs in-progress at December 31, 2017 associated with this applicationplatform were $25,198.$20,083 as of December 31, 2023. The applicationplatform is expected to be placed into service during the first quarter 2018.not yet ready for use.
The amount of amortization expense recognized related to the SEI Wealth Platform is based upon management’s estimate of its useful life. Management continually reassesses the estimated useful life of the PlatformSWP and any change in management’s estimate could result in the remaining amortization expense to be accelerated or spread out over a longer period. The initial version of the Platform was placed into service in July 2007 with an estimated useful life of 15 years. All significant enhancements to the Platform were being amortized over the remaining useful life and would have been fully amortized by June 2022. As a result of recent development efforts, successful client installation onto the Platform of a large-scale regional bank and market acceptance as evidenced by a contractual arrangement with a large-scale national bank, the Company adjusted the remaining useful life of certain components and functionality of the Platform that were placed into service during the past several years. This change in estimate was applied prospectively effective October 1, 2017. The initial version of the Platform and certain subsequent releases were not adjusted. The adjustment resulted in a decrease to the Company's amortization expense in 2017 of $4,347, and accordingly, increased income from operations by $4,347 and increased net income by $3,156, or $0.02 diluted earnings per share. As of December 31, 2017, the Platform2023, SWP has a weighted average remaining life of 8.28.9 years. Amortization expense for the PlatformSWP was $46,505, $45,047$25,637, $35,638 and $42,401$47,769 in 2017, 20162023, 2022 and 2015,2021, respectively, and is included in Amortization expense on the accompanying Consolidated Statements of Operations.
The Company currently expects to recognize amortization expense related to all capitalized software development costs placed into service as of December 31, 20172023 each year from 20182024 through 20222028 as follows:
|
| | | |
| 2018 | $ | 43,717 |
|
| 2019 | 43,717 |
|
| 2020 | 43,717 |
|
| 2021 | 43,439 |
|
| 2022 | 29,556 |
|
| | | | | |
| Year | Expected Amortization Expense Related to Capitalized Software |
| 2024 | $ | 27,025 | |
| 2025 | 27,025 | |
| 2026 | 26,018 | |
| 2027 | 24,401 | |
| 2028 | 22,463 | |
The Company evaluates the carrying value of capitalized software development costs when circumstances indicate the carrying value may not be recoverable. The review of capitalized software development costs for impairment requires significant assumptions about operating strategies, underlying technologies utilized, and external market factors. External market factors include, but are not limited to, expected levels of competition, barriers to entry by potential competitors, stability in the target market and governmental regulations. During 2015, the Company determined that specific2023, management decided to abandon certain functionality within the Platform was no longerplatform for the Investment Managers segment due to a change in usedevelopment strategy and wrote off $5,533$5,250 of previously capitalized software development costs reported under the Private Banks and Investment Advisors business segments.costs. The expense associated with the write off is reflected in the Investment Managers segment and included in Facilities, supplies and other costs on the accompanying Consolidated Statement of Operations. The Company did not recognize any impairment charges related to its capitalized software development costs in 20172022 or 2016.2021.
Business Combinations
The Company accounts for business combinations in accordance with Accounting Standards Codification Topic 805, Business Combinations (ASC 805). ASC 805 establishes principles and requirements for recognizing the total consideration transferred, assets acquired and liabilities assumed in a business combination. ASC 805 also provides guidance for recognizing and measuring goodwill acquired in a business combination and requires the acquirer to disclose information needed to evaluate and understand the financial impact of the business combination. The Company recognizes assets and liabilities acquired at their estimated fair values. Management uses judgment to identify the acquired assets and liabilities assumed; estimate the fair value of these assets and liabilities; estimate the useful life of the
assets; and assess the appropriate method for recognizing depreciation or amortization expense over the estimated useful life of the assets.
Goodwill and Other Intangible Assets
The Company reviews long-lived assets and identifiable definite-lived intangible assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. For purposes of recognizing and measuring an impairment loss, a long-lived asset is grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent.
Identifiable definite-lived intangible assets on the Company’s Consolidated Balance Sheet are amortized on a straight-line basis according to their estimated useful lives. Goodwill is not amortized but is reviewed for impairment annually or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Current guidance requirerequires that a two-step, fair value based testqualitative assessment be performed to assess goodwill for impairment. In the first step, theThe fair value of each reporting unit is compared with its carrying value, including goodwill. If the fair value exceeds the carrying value, goodwill is not impaired and no further testing is performed. The second step is performed ifIf the qualitative assessment indicates the carrying value exceeds the fair value.value, a quantitative impairment test is then utilized to identify potential goodwill impairment and measure the amount of a goodwill impairment loss to be recognized. The second step requires an allocationCompany did not recognize any impairment charges related to its goodwill or other intangible assets in 2023, 2022 or 2021. See Note 16 for related disclosures regarding goodwill and intangible assets.
Contingent Consideration Liabilities
The Company may be required to pay additional future consideration in connection with business acquisitions based on the attainment of fair value tospecified financial measures. The Company estimates the individual assets and liabilities using a purchase price allocation in order to determine the implied fair value of goodwill.these potential future obligations at the time a business combination is consummated and records a contingent consideration liability on the Consolidated Balance Sheets. If the implied fair valueexpected payment amounts subsequently change, the contingent consideration liabilities are adjusted through current period earnings and included in Facilities, supplies and other costs on the accompanying Consolidated Statement of goodwill is less than the carrying amount, an impairment loss is recognized.Operations. See Note 15 for related disclosures regarding contingent consideration liabilities.
Income Taxes
The Company applies the asset and liability approach to account for income taxes whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. See Note 11 for related disclosures regarding income taxes.
Foreign Currency Translation
The assets and liabilities and results of operations of the Company’s foreign subsidiaries are measured using the foreign subsidiary’s local currency as the functional currency. Assets and liabilities have been translated into U.S. dollars using the rates of exchange at the balance sheet dates. The results of operations have been translated into U.S. dollars at average exchange rates prevailing during the period. The resulting translation gain and loss adjustments are recorded as a separate component of comprehensive income.
Transaction gains and losses from exchange rate fluctuations are included in the results of operations in the periods in which they occur. There were no material gains or losses from exchange rate fluctuations in 2017, 20162023, 2022 or 2015.2021.
Earnings Per Common Share
Basic earnings per common share is computed by dividing net income attributable to SEI Investments common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed by dividing net income attributable to SEI Investments common shareholders by the combination of the weighted average number of common shares outstanding and the dilutive potential common shares such as stock options, outstanding during the period. The Company's dilutive potential common shares consist of equity awards including stock options and restricted stock units.
The calculations of basic and diluted earnings per share for 2017, 20162023, 2022 and 20152021 are:
| | | | | 2017 | | 2016 | | 2015 | | | 2023 | | 2022 | | 2021 |
| Net income | | $ | 404,389 |
| | $ | 333,817 |
| | $ | 331,655 |
|
| Shares used to compute basic earnings per common share | | 158,177,000 |
| | 161,350,000 |
| | 165,725,000 |
|
| Dilutive effect of stock options | | 4,092,000 |
| | 3,081,000 |
| | 3,873,000 |
|
| Dilutive effect of equity awards | |
| Shares used to compute diluted earnings per common share | | 162,269,000 |
| | 164,431,000 |
| | 169,598,000 |
|
| Basic earnings per common share | | $ | 2.56 |
| | $ | 2.07 |
| | $ | 2.00 |
|
| Diluted earnings per common share | | $ | 2.49 |
| | $ | 2.03 |
| | $ | 1.96 |
|
Employee stock options to purchase approximately 5,196,000, 10,632,00011,388,000, 12,439,000 and 10,730,00011,755,000 shares of common stock, with an average exercise price per share of $45.49, $35.02$61.32, $60.35 and $33.99,$58.43, were outstanding during 2017, 20162023, 2022 and 2015,2021, respectively, but not included in the computation of diluted earnings per common share because either the performance conditions have not been satisfied or would have been satisfied if the reporting date was the end of the contingency period or the option’s exercise price was greater than the average market price of the Company’s common stock and the effect on diluted earnings per common share would have been anti-dilutiveanti-dilutive. Restricted stock units not included in the computation of diluted earnings per common share were immaterial during 2023 and 2022 (See Note 8)7).
Stock-Based Compensation
The Company recognizes stock-based compensation for all share-based awards made to employees and directors, including stock options, restricted stock units, and employee stock purchases related to an employee stock purchase plan. Stock-based compensation cost for awards under share-based compensation plans is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is the vesting period. The Company accounts for forfeitures as they occur. Restricted stock units are time-based and are not based on the achievement of performance targets. The amount of stock-based compensation expense that isfor stock options recognized in a given period is dependent upon management’s estimate of when the vesting targets are expected to be achieved. If this estimate proves to be inaccurate, the remaining amount of stock-based compensation expense for stock options could be accelerated, spread out over a longer period, or reversed (See Note 8)7).
Leases
The Company adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (ASU 2016-09) during 2017. As required by ASU 2016-09, excess tax benefits recognizeddetermines if an arrangement is a lease at the inception of the contract. The Company's operating leases are included in Operating lease right-of-use (ROU) assets, Current portion of long-term operating lease liabilities, and Long-term operating lease liabilities on stock-based compensation expense are reflected in the accompanying Consolidated StatementsBalance Sheets.
The operating lease ROU assets and operating lease liabilities are recognized based on the present value of Operations as a componentfuture minimum lease payments over the lease term at commencement date. As most of the provision for income taxesCompany’s leases do not provide an implicit interest rate, the Company utilizes an estimated incremental borrowing rate based on a prospective basis (See Note 12). Additionally, excess tax benefits or deficiencies recognized on stock-based compensation expense are classified as an operating activitythe information available at commencement date in determining the present value of future payments. In determining the discount rate used in the accompanying Consolidated Statements of Cash Flows. Thepresent value calculation, the Company has applied this provision retrospectivelyelected to apply the portfolio approach for all periods presented. As a result, net cashleases of equipment provided by operating activities for 2016 and 2015 increased by $8,984 and $16,056, respectively, with corresponding offsets to net cash used for financing activities.
ASU 2016-09 alsothe leases commenced at or around the same time. This election allows for the optionCompany to account for forfeitures as they occur when determiningleases at a portfolio level provided that the amount of compensation cost to beresulting accounting at this level would not differ materially from the accounting at the individual lease level. Lease expense for minimum lease payments is recognized rather than estimating expected forfeitureson a straight-line basis over the course of a vesting period. lease term.
The Company has elected to account for forfeitureslease and non-lease components separately. Operating lease ROU assets include all contractual lease payments and initial direct costs incurred, less any lease incentives. Facility leases generally only contain lease expense and non-component items such as they occur. In addition, ASU 2016-09 eliminates anticipated windfallstaxes and shortfalls that werepass through charges. Only the lease components are included in the calculationROU assets and lease liabilities. Additionally, the Company has elected not to apply the recognition requirements of assumed proceedsASC 842 to leases which have a lease term of less than one year at the commencement date.
The majority of the Company's leases for computingcorporate facilities and equipment contain terms for renewal and extension of the dilutive effectlease agreement. The exercise of share-basedlease renewal options is generally at the Company’s sole discretion. The Company includes the lease extensions when it is reasonably certain the Company will exercise the extension. Several of the Company's leases are subject to periodic market rent review adjustments which are not tied to an index or specific interest rate. Rather, the review adjustments represent market conditions on the date of the review. The variable lease payments consist of payments beyond the initial contractual payment awards in the calculation of diluted earnings per share. No adjustmentsamounts prior to the Company'smarket rent review. The Company’s lease agreements do not contain any material residual value guarantees or any material restrictive covenants. The Company does not currently have any finance leases. See Note 18 for related disclosures regarding leases.
Reclassifications
Certain prior period reported diluted earnings per shareyear amounts were permitted by ASU 2016-09.have been reclassified to conform to current year presentation (See Note 17).
The net cumulative effect to the Company from the adoption of ASU 2016-09 was an increase to paid-in capital of $2,582, a reduction to retained earnings of $1,669 and an increase to deferred tax assets of $913 as of January 1, 2017.
Recently Adopted Accounting Pronouncements
In May 2014,October 2021, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, RevenueAccounting Standards Update (ASU) 2021-08, Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 606) (ASU 2014-09)2021-08). ASU 2014-09 provides a single comprehensive modelThis update amends Topic 805 to be used inadd contract assets and contract liabilities to the accounting for revenue arising from contracts with customerslist of exceptions to the recognition and supersedes most current revenue recognition guidance. The principal concept in ASU 2014-09 ismeasurement principles that apply to business combinations and to require that an entity should(acquirer) recognize revenue to depict the transfer of promised goods or services to customersand measure contract assets and contract liabilities in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.accordance with ASC 606. The new standard requires an entity to apply a five-step model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when (or as) an entity satisfies a performance obligation. The standard also specifies the accounting for certain costs to obtain or fulfill a contract with a customer and requires expanded disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
The FASB issued several amendments toCompany adopted ASU 2014-09. These amendments include, but are not limited to, clarification of principal versus agent guidance in situations in which a revenue transaction involves a third party in providing goods or services to a customer. In such circumstances, an entity must determine whether the nature of its promise to the customer is to provide the underlying goods or services (the entity is the principal in the transaction and reports the transaction gross) or to arrange for a third party to provide the underlying goods or services (the entity is the agent in the transaction and reports the transaction net). The amendments also clarify, in terms of identifying performance obligations, how entities would determine whether promised goods or services are separately identifiable from other promises in a contract and, therefore, would be accounted for separately.
ASU 2014-09 is effective for the Company2021-08 on January 1, 2018 and provides for either full retrospective adoption or a modified retrospective adoption by which it is applied only to the most current period presented. The Company has concluded that it will utilize the modified retrospective method of adoption with a cumulative catch up adjustment and will provide additional disclosures in its 2018 consolidated financial statements. The Company has completed analyses, executed project management relative to the process of adopting ASU 2014-09, and conducted detailed reviews of customer contracts to complete necessary adjustments to existing accounting policies. The Company has implemented changes to its accounting systems, processes and internal controls over revenue reporting and the new disclosure requirements, as necessary, in the application of the new standard.
The adoption of ASU 2014-09 did not change the accounting for the majority of the Company’s revenue arrangements and will not have a2023. There was no material impact to the Company’sCompany's consolidated financial statements. A summary ofstatements from the Company’s assessment and the primary changes that will be implemented in the first quarter of 2018 due to the adoption of the new standard are presented below:
•The majority of the Company’s services are bundled together, and provided and completed for the client on a monthly basis. For these revenue arrangements, the Company will continue to recognize revenue on a monthly basis as the client
consumes the benefits continuously over time. The timing and recognition of revenues from these arrangements will not change as a result of the adoptionimplementation of ASU 2014-09.2021-08.
•Some contracts include implementation fees, which are recognized in Information processing and software servicing fees, and fund conversion fees, which are recognized in Asset management, administration and distribution fees. The Company concluded that for most of the arrangements that included implementation or fund conversion services were a distinct and separate performance obligation. As a result, upon the adoption of ASU 2014-09, the timing and recognition of fees from most of these arrangements did not change. However, future revenue arrangements that include implementation or fund conversion services may not be considered distinct performance obligations which would require such fees to be recognized over the life of the client which could longer. The Company will evaluate each contract in accordance with the requirements of ASU 2014-09.
•Research services provided by SIDCO, the Company’s broker-dealer subsidiary, to customers in soft-dollar arrangements were determined to be a separate performance obligation that should be allocated a portion of the transaction price. Research services provided by a broker-dealer may be internally generated or provided by a third party and paid directly by the broker-dealer on the customer’s behalf. It was determined that SIDCO is considered an agent since it does not control the research services before they are transferred to the customer. Therefore, fees received for research services should be recorded net of amounts paid for the soft dollar arrangement. These amounts paid by the Company were previously recorded as an expense and beginning January 1, 2018 will be recorded net of any revenue recognized. The amounts recorded as an expense in 2017, 2016 and 2015 were $14,623, $18,409, and $20,333 respectively.
•Incremental contract acquisition costs, primarily sales compensation costs paid to the Company's sales personnel, related to information processing contracts in the Private Banks segment and fund administration contracts in the Investment Managers segment will be deferred and recognized over the expected client life. The deferred asset from contract acquisition costs is assessed for impairment on a periodic basis. The Company will utilize the practical expedient permitting the expensing of costs to obtain a contract when the expected amortization period is one year or less. As a result, incremental contract acquisition costs will be capitalized and subsequently amortized upon adoption on January 1, 2018 as a cumulative-effect adjustment to equity.
The Company is in the process of finalizing its assessment of the cumulative-effect adjustment of initially applying the new revenue standard but does not believe there are any remaining significant implementation items associated with the adoption of the new standard that have not yet been addressed. The cumulative-effect adjustment to equity of initially applying the new standard on January 1, 2018 is expected to be immaterial.New Accounting Pronouncements
In January 2016,November 2023, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2016-01) that will significantly change the income statement impact of equity investments held by an entity, and the recognition of changes in fair value of financial liabilities when the fair value option is elected.2023-07) which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The Company adopted ASU 2016-01 during the first quarter 2018. Management currently believes the most significant impact will be the requirement to recognize all changes in fair value of available-for-sale equity securities in current period earnings. Previously, these changes in fair value were recognized as a separate component of comprehensive income. ASU 2016-01 will require a cumulative-effect adjustment to retained earnings as of January 1, 2018. The Company does not believe the cumulative-effect adjustment will have a material impact to its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (ASU 2016-02) requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the income statement. Lessor accounting is similar to the current model but updated to align with certain changes to the lessee model. Lessors will continue to classify leases as operating, direct financing or sales-type leases. The new standard must be adopted using a modified retrospective transition and requires application of the new guidance at the beginning of the earliest comparative period presented. The updated standard isamendments are effective for the Companyfiscal years beginning in the first quarter of 2019.after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments in ASU 2023-07 apply retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the transition method that will be elected and the effect that the updated standard will haveimpact of adopting ASU 2023-07 on its consolidated financial statements and related disclosures.
In June 2016,December 2023, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses2023-09, Income Taxes (Topic 326)740): MeasurementImprovement to Income Tax Disclosures (ASU 2023-09) to enhance the transparency and decision usefulness of Credit Losses on Financial Instruments (ASU 2016-13) which requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. ASU No. 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. ASU 2016-13 becomes effective for the Company during the first quarter of 2020. Early adoption is permitted. The Company is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18) which requires restricted cash and cash equivalents to be included with cash and cash equivalents when reconciling
beginning-of-period and end-of-period amounts shown on the statement of cash flows. Under this guidance, the statement of cash flows should explain the total change in cash balances, including amounts described as restricted. The Company adopted ASU 2016-18 during the first quarter 2018. The Company has determined ASU 2016-18 will not have a material impact on its consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (ASU 2017-04). The objective of ASU 2017-04 is to simplify the subsequent measurement of goodwill by entities performing their annual goodwill impairment tests by comparing the fair value of a reporting unit, including income tax effects from any tax-deductible goodwill, with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds fair value.disclosures. ASU 2017-042023-09 is effective for the Companyannual periods beginning in the first quarter of 2020.after December 15, 2024 on a prospective basis. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2017-042023-09 on its consolidated financial statements and related disclosures.
Reclassifications
Certain prior year amounts have been reclassified to conform to current year presentation.
Note 2 – Investment in Unconsolidated Affiliates
LSV Asset Management
The Company has an investment in the general partnership LSV Asset Management (LSV), a registered investment advisor that provides investment advisory services primarily to institutions, including pension plans and investment companies. LSV is currently an investment sub-advisor for a limited number of SEI-sponsored mutual funds.investment products. As of December 31, 2017,2023, the Company's total partnership interest in LSV was approximately 38.9 percent. 38.6%.
The Company accounts for its interest in LSV using the equity method because of its less than 50 percent50% ownership. The Company’s interest in the net assets of LSV is reflected in Investment in unconsolidated affiliatesaffiliate on the accompanying Consolidated Balance Sheets and its interest in the earnings of LSV is reflected in Equity in earnings of unconsolidated affiliates on the accompanying Consolidated Statements of Operations.
At December 31, 2017,2023, the Company’s total investment in LSV was $59,492.$110,781. The Company’s proportionate share in the earnings of LSV was $152,550, $126,103$126,930, $120,667 and $138,407$137,572 in 2017, 20162023, 2022 and 2015,2021, respectively. The Company receives partnership distributions related to the earnings of LSV on a quarterly basis. As such, the Company considers these distribution payments as returns on investment rather than returns of the Company's original investment in LSV and has therefore classified the associated cash inflows as an operating activity on the Consolidated Statements of Cash Flows. The Company received partnership distribution payments from LSV of $143,517, $125,224$121,582, $120,849 and $141,767$131,170 in 2017, 20162023, 2022 and 2015,2021, respectively.
These tables contain condensed financial information of LSV:
| | | | | | | | | | | | | | | | | | | | |
Condensed Statement of Operations Year ended December 31, | | 2023 | | 2022 | | 2021 |
| Revenues | | $ | 426,270 | | | $ | 406,895 | | | $ | 456,259 | |
| Net income | | $ | 328,905 | | | $ | 312,180 | | | $ | 354,964 | |
|
| | | | | | | | | | | | |
Condensed Statement of Operations Year ended December 31, | | 2017 | | 2016 | | 2015 |
| Revenues | | $ | 491,872 |
| | $ | 399,462 |
| | $ | 427,653 |
|
| Net income | | $ | 392,141 |
| | $ | 323,381 |
| | $ | 352,845 |
|
68
| | | | | | | | | | | | | | |
Condensed Balance Sheets December 31, | | 2023 | | 2022 |
| Current assets | | $ | 169,867 | | | $ | 158,326 | |
| Non-current assets | | 6,568 | | | 6,019 | |
| Total assets | | $ | 176,435 | | | $ | 164,345 | |
| | | | | |
| Current liabilities | | $ | 74,853 | | | $ | 77,306 | |
| Non-current liabilities | | 2,182 | | | 3,050 | |
| Partners’ capital | | 99,400 | | | 83,989 | |
| Total liabilities and partners’ capital | | $ | 176,435 | | | $ | 164,345 | |
|
| | | | | | | | |
Condensed Balance Sheets December 31, | | 2017 | | 2016 |
| Current assets | | $ | 155,239 |
| | $ | 125,872 |
|
| Non-current assets | | 1,407 |
| | 1,927 |
|
| Total assets | | $ | 156,646 |
| | $ | 127,799 |
|
| | | | | |
| Current liabilities | | $ | 46,486 |
| | $ | 39,303 |
|
| Partners’ capital | | 110,160 |
| | 88,496 |
|
| Total liabilities and partners’ capital | | $ | 156,646 |
| | $ | 127,799 |
|
Guaranty Agreement with LSV Employee Group III
In October 2012, a group of existing employees of LSV formed a new limited liability company called LSV Employee Group III and agreed to purchase a portion of the partnership interest of existing LSV employees for $77,700, of which $69,930 was financed through syndicated term loan facilities contained in a credit agreement with CIBC Bank USA (formerly The PrivateBank and Trust Company). LSV Employee Group III owns the purchased partnership interest. The Company provided an unsecured guaranty for $45,000 of the obligations of LSV Employee Group III to the lenders through a guaranty agreement.
In addition, LSV agreed to provide an unsecured guaranty for the remaining $24,930 of the obligations of LSV Employee Group III to the lenders through a separate guaranty agreement.
The Company’s direct interest in LSV was unchanged as a result of this transaction. The Company determined that LSV Employee Group III was a VIE; however, the Company was not considered the primary beneficiary because it did not have the power to direct the activities that most significantly impact the economic performance of LSV Employee Group III either directly or through any financial responsibility from the guaranty.
In September 2014 and June 2017, LSV Employee Group III made the final principal payments related to the term loans guaranteed by LSV and the Company, respectively, and has no further obligation regarding the agreement. The Company has no other interests in LSV Employee Group III and, therefore, no longer considers LSV Employee Group III to be a VIE.
Note 3 – Variable Interest Entities – Investment Products
The Company or its affiliates have created numerous investment products for its clients in various types of legal entity structures. The Company serves as the Manager, Administrator and Distributor for these investment products and may also serve as the Trustee for some of the investment products. The Company receives asset management, distribution, administration and custodial fees for these services. Clients are the equity investors and participate in proportion to their ownership percentage in the net income or loss and net capital gains or losses of the products, and, on liquidation, will participate in proportion to their ownership percentage in the remaining net assets of the products after satisfaction of outstanding liabilities.
The Company has concluded that it is not the primary beneficiary of the entities and; therefore, is not required to consolidate any of the pooled investment vehicles for which it receives asset management, distribution, administration and custodial fees under the VIE model. The entities either do not meet the definition of a VIE or the Company does not hold a variable interest in the entities. The entities either qualify for the money market scope exception, or are entities in which the Company’s asset management, distribution, administration and custodial fees are commensurate with the services provided and include fair terms and conditions, or are entities that are limited partnerships which have substantive kick-out rights. The Company acts as a fiduciary and does not hold any other interests other than insignificant seed money investments in the pooled investment vehicles. For this reason, the Company also concluded that it is not required to consolidate the pooled investment vehicles under the voting interest entity (VOE) model.
The Company is a party to expense limitation agreements with certain SEI-sponsored money market funds subject to Rule 2a-7 of the Investment Company Act of 1940 which establish a maximum level of ordinary operating expenses incurred by the fund in any fiscal year including, but not limited to, fees of the administrator or its affiliates. Under the terms of these agreements, the Company waived $27,434, $41,227 and $55,713 in fees during 2017, 2016 and 2015, respectively.
Note 43 – Composition of Certain Financial Statement Captions
Receivables
Receivables on the accompanying Consolidated Balance Sheets consist of:
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Trade receivables | | $ | 76,760 |
| | $ | 48,683 |
|
| Fees earned, not billed | | 194,331 |
| | 168,971 |
|
| Other receivables | | 12,310 |
| | 10,826 |
|
| | | 283,401 |
| | 228,480 |
|
| Less: Allowance for doubtful accounts | | (695 | ) | | (523 | ) |
| Receivables, net | | $ | 282,706 |
| | $ | 227,957 |
|
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| Trade receivables | | $ | 115,356 | | | $ | 110,722 | |
| Fees earned, not billed | | 372,291 | | | 320,700 | |
| Other receivables | | 14,450 | | | 26,563 | |
| | 502,097 | | | 457,985 | |
| Less: Allowance for doubtful accounts | | (663) | | | (901) | |
| Receivables, net | | $ | 501,434 | | | $ | 457,084 | |
Fees earned, not billed represents receivables from contracts from customers earned but unbilled and results from timing differences between services provided and contractual billing schedules. These billing schedules generally provide for fees to be billed on a quarterly basis. In addition, certain fees earned from investment operations services are calculated based on assets under administration that have a prolongedan extended valuation process which delays billingsprocess. Billings to clients.
Property and Equipment
Property and Equipment on the accompanying Consolidated Balance Sheets consists of:
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Buildings | | $ | 153,961 |
| | $ | 152,171 |
|
| Equipment | | 115,546 |
| | 106,759 |
|
| Land | | 10,030 |
| | 10,030 |
|
| Purchased software | | 134,610 |
| | 128,008 |
|
| Furniture and fixtures | | 18,114 |
| | 17,292 |
|
| Leasehold improvements | | 18,017 |
| | 15,175 |
|
| Construction in progress | | 6,105 |
| | 2,077 |
|
| | | 456,383 |
| | 431,512 |
|
| Less: Accumulated depreciation | | (309,955 | ) | | (285,322 | ) |
| Property and Equipment, net | | $ | 146,428 |
| | $ | 146,190 |
|
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| Buildings | | $ | 216,968 | | | $ | 210,626 | |
| Equipment | | 193,096 | | | 179,318 | |
| Land | | 26,450 | | | 26,439 | |
| Purchased software | | 165,348 | | | 160,714 | |
| Furniture and fixtures | | 23,025 | | | 21,956 | |
| Leasehold improvements | | 19,827 | | | 20,879 | |
| Construction in progress | | 684 | | | 1,958 | |
| | 645,398 | | | 621,890 | |
| Less: Accumulated depreciation | | (474,034) | | | (440,861) | |
| Property and Equipment, net | | $ | 171,364 | | | $ | 181,029 | |
Depreciation expense related to property and equipment for 2017, 20162023, 2022 and 20152021 was $27,311, $26,440$35,300, $33,657 and $33,481, respectively.
Deferred Contract Costs
The Company's incremental contract acquisition costs are related to information processing contracts in the Private Banks segment and investment operations contracts in the Investment Managers segment. These deferred costs primarily consist of sales compensation payments to the Company's sales personnel. The Company defers and amortizes incremental contract acquisition costs using the straight-line method over the expected client life, which ranges from 6 to 15 years.
Deferred contract costs were $40,221 and $37,928 as of December 31, 2023 and 2022, respectively. The Company deferred expenses related to contract costs of $11,342, $12,751 and $11,201 during 2023, 2022 and 2021, respectively. Amortization expense related to deferred contract costs were $9,049, $11,059 and $8,746 during 2023, 2022 and 2021, respectively, and is included in Compensation, benefits and other personnel on the accompanying Consolidated Statements of Operations. Amortization expense during 2022 includes $1,784 in expense accelerated as a result of the termination of a contractual agreement with a significant client (See Note 17). There were no material impairment losses in relation to deferred contract costs during 2023, 2022 or 2021.
Other Assets
Other assets consist of long-term prepaid expenses, deposits, other investments at cost and various other assets. Amortization expense for certain other assets for 2017, 20162023, 2022 and 20152021 was $218, $345$281, $262 and $229,$324, respectively.
Accrued Liabilities
Accrued Liabilities on the accompanying Consolidated Balance Sheets consist of:
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| Accrued employee compensation | | $ | 107,495 | | | $ | 100,566 | |
| Accrued employee benefits and other personnel | | 9,797 | | | 9,852 | |
| Accrued voluntary separation program | | 21,058 | | | 53,821 | |
| Accrued consulting, outsourcing and professional fees | | 32,285 | | | 37,009 | |
| Accrued sub-advisory, distribution and other asset management fees | | 49,405 | | | 52,916 | |
| | | | |
| Accrued dividend payable | | 61,104 | | | 58,051 | |
| | | | |
| Other accrued liabilities | | 37,801 | | | 47,148 | |
| Accrued liabilities | | $ | 318,945 | | | $ | 359,363 | |
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Accrued employee compensation | | $ | 88,960 |
| | $ | 79,735 |
|
| Accrued consulting, outsourcing and professional fees | | 29,658 |
| | 24,428 |
|
| Accrued sub-advisory, distribution and other asset management fees | | 42,365 |
| | 41,666 |
|
| Accrued dividend payable | | 47,179 |
| | 44,596 |
|
| Other accrued liabilities | | 56,896 |
| | 50,100 |
|
| Accrued liabilities | | $ | 265,058 |
| | $ | 240,525 |
|
Note 54 – Fair Value Measurements
The fair value of the Company’s financial assets and liabilities, except for the Company's investment funds sponsored by LSV, is determined in accordance with the fair value hierarchy. The fair value of the Company’s Level 1 financial assets consists mainly of investments in open-endedopen-end and closed-end mutual funds that are quoted daily. Level 2 financial assets consist of Government National Mortgage Association (GNMA) mortgage-backed securities held by the Company's wholly-owned limited purpose federal thrift subsidiary, SEI Private Trust Company (SPTC), Federal Home Loan Bank (FHLB) and other U.S. government agency short-term notes held by SIDCO. The financial assets held by SIDCO were purchased as part of a cash management program requiring only short term, top-tier investment grade government and corporate securities. The financial assets held by SPTC are debt securities issued by GNMA and are backed by the full faith and credit of the U.S. government. These securities were purchased for the sole purpose of satisfying applicable regulatory requirements and have maturity dates which range from 20202027 to 2041.
The fair value of the Company's investment funds sponsored by LSV is measured using the net asset value per share (NAV) as a practical expedient. The NAVs of the funds are calculated by the funds' independent custodian and are derived from the fair values of the underlying investments as of the reporting date. The funds allow for investor redemptions at the end of each calendar month. This investment has not been classified in the fair value hierarchy but is presented in the tables below to permit reconciliation to the amounts presented on the accompanying Consolidated Balance Sheets.
The valuation of the Company's Level 2 financial assets held by SIDCO and SPTC are based upon securities pricing policies and procedures utilized by third-party pricing vendors. The Company had no Level 3 financial assets or liabilities at December 31, 20172023 or 20162022 that were required to be measured at fair value on a recurring basis. The Company's Level 3 financial liabilities at December 31, 2023 and 2022 consist entirely of the estimated fair value of contingent considerations resulting from business acquisitions (See Note 15). There were no transfers of financial assets between levels within the fair value hierarchy during 2017.
Valuation of GNMA and Other U.S. Government Agency Securities
All of the Company's investments in GNMA, FHLB and other U.S. government agency securities are held in accounts at well-established financial institutions. The Company's selection of a financial institution for the purpose of purchasing securities considered a number of various factors including, but not limited to, securities pricing policies and procedures utilized by that financial institution. Each financial institution utilizes the services of independent pricing vendors. These vendors utilize evaluated and industry accepted pricing models that vary by asset class and incorporate available trade, bid and other market information to determine the fair value of the securities. The market inputs, listed in approximate order of priority, include: benchmark yields, reported trade, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. The Company evaluated the information regarding the pricing methodologies and processes utilized by the independent pricing vendors during the selection process of the financial institution. The Company analyzed this information for the purpose of classifying the securities into the appropriate level within the fair value hierarchy and to ensure that each pricing model for each asset class provided the fair value of those specific securities in accordance with generally accepted accounting principles. The Company continually monitors the price of each security for any unanticipated deviations from the previously quoted price or deviations from anticipated changes in a security's price based upon an assessment of market factors and other factors relative to a specific issue expected to affect a security's price. In the event of any significant unanticipated deviations in a security's price, additional analysis is conducted which may include the comparison of the security's price as determined by other independent pricing vendors.conducted. The Company's investments in GNMA, FHLB and other U.S. government agency securities have been recorded at the prices provided by the independent pricing vendor without adjustment.
The fair value of certain financial assets and liabilities of the Company was determined using the following inputs:
| | | | | | | | | | | | | | | | | | | | |
| | | | | Fair Value Measurements at Reporting Date Using |
| | | December 31, 2023 | | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) |
| Assets | | | | | | |
| Equity securities | | $ | 36,661 | | | $ | 36,661 | | | $ | — | |
| Available-for-sale debt securities | | 118,752 | | | — | | | 118,752 | |
| Fixed-income securities owned | | 31,334 | | | — | | | 31,334 | |
| Investment funds sponsored by LSV (1) | | 7,316 | | | | | |
| | $ | 194,063 | | | $ | 36,661 | | | $ | 150,086 | |
|
| | | | | | | | | | | | |
| | | | | Fair Value Measurements at Reporting Date Using |
| | | December 31, 2017 |
| | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) |
| Assets | | | | | | |
| Equity available-for-sale securities | | $ | 11,250 |
| | $ | 11,250 |
| | $ | — |
|
| Fixed-income available-for-sale securities | | 76,733 |
| | — |
| | 76,733 |
|
| Fixed-income securities owned | | 21,526 |
| | — |
| | 21,526 |
|
| Investment funds sponsored by LSV (1) | | 6,034 |
| | | | |
| | | $ | 115,543 |
| | $ | 11,250 |
| | $ | 98,259 |
|
|
| | | | | | | | | | | | |
| | | | | Fair Value Measurements at Reporting Date Using |
| | | December 31, 2016 |
| | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) |
| Assets | | | | | | |
| Equity available-for-sale securities | | $ | 9,581 |
| | $ | 9,581 |
| | $ | — |
|
| Fixed-income available-for-sale securities | | 74,452 |
| | — |
| | 74,452 |
|
| Fixed-income securities owned | | 21,339 |
| | — |
| | 21,339 |
|
| Investment funds sponsored by LSV (1) | | 4,858 |
| | | | |
| | | $ | 110,230 |
| | $ | 9,581 |
| | $ | 95,791 |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | Fair Value Measurements at Reporting Date Using |
| | | December 31, 2022 | | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) |
| Assets | | | | | | |
| Equity securities | | $ | 10,900 | | | $ | 10,900 | | | $ | — | |
| Available-for-sale debt securities | | 117,301 | | | — | | | 117,301 | |
| Fixed-income securities owned | | 32,148 | | | — | | | 32,148 | |
| Investment funds sponsored by LSV (1) | | 6,366 | | | | | |
| | $ | 166,715 | | | $ | 10,900 | | | $ | 149,449 | |
(1) The fair value amounts presented in the tables above are intended to permit reconciliation of the fair value hierarchy to the amounts presented on the accompanying Consolidated Balance Sheets (See Note 6)5).
Note 65 – Marketable Securities
Investments The Company's marketable securities include investments in money market funds and commercial paper classified as cash equivalents, available-for-sale debt securities, investments in SEI-sponsored and non-SEI-sponsored mutual funds, equities, investments in funds sponsored by LSV and securities owned by SIDCO.
Cash Equivalents
The Company's investments in money market funds and commercial paper classified as cash equivalents had a fair value of $565,588 and $450,240 at December 31, 2023 and 2022, respectively. There were no material unrealized or realized gains or losses from these investments during 2023 and 2022.
Available For Sale and Equity Securities
Investments available for sale classified as non-current assetsAvailable For Sale and Equity Securities on the accompanying Consolidated Balance Sheets consist of:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | At December 31, 2023 |
| | | Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
(Losses) | | Fair Value |
| Available for sale debt securities | | $ | 127,681 | | | $ | — | | | $ | (8,929) | | | $ | 118,752 | |
| SEI-sponsored mutual funds | | 30,427 | | | 818 | | | (19) | | | 31,226 | |
| Equities and other mutual funds | | 5,301 | | | 134 | | | — | | | 5,435 | |
| | $ | 163,409 | | | $ | 952 | | | $ | (8,948) | | | $ | 155,413 | |
|
| | | | | | | | | | | | | | | | |
| | | At December 31, 2017 |
| | | Cost | | Gross Unrealized Gains | | Gross Unrealized (Losses) | | Fair Value |
| SEI-sponsored mutual funds | | $ | 7,369 |
| | $ | 110 |
| | $ | (143 | ) | | $ | 7,336 |
|
| Equities and other mutual funds | | 3,456 |
| | 458 |
| | — |
| | 3,914 |
|
| Debt securities | | 77,745 |
| | — |
| | (1,012 | ) | | 76,733 |
|
| | | $ | 88,570 |
| | $ | 568 |
| | $ | (1,155 | ) | | $ | 87,983 |
|
|
| | | | | | | | | | | | | | | | |
| | | At December 31, 2016 |
| | | Cost | | Gross Unrealized Gains | | Gross Unrealized (Losses) | | Fair Value |
| SEI-sponsored mutual funds | | $ | 7,357 |
| | $ | 24 |
| | $ | (996 | ) | | $ | 6,385 |
|
| Equities and other mutual funds | | 2,968 |
| | 228 |
| | — |
| | 3,196 |
|
| Debt securities | | 74,843 |
| | — |
| | (391 | ) | | 74,452 |
|
| | | $ | 85,168 |
| | $ | 252 |
| | $ | (1,387 | ) | | $ | 84,033 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | At December 31, 2022 |
| | | Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
(Losses) | | Fair Value |
| Available for sale debt securities | | $ | 129,372 | | | $ | — | | | $ | (12,071) | | | $ | 117,301 | |
| SEI-sponsored mutual funds | | 6,207 | | | — | | | (176) | | | 6,031 | |
| Equities and other mutual funds | | 5,026 | | | — | | | (157) | | | 4,869 | |
| | $ | 140,605 | | | $ | — | | | $ | (12,404) | | | $ | 128,201 | |
Net unrealized holding losses at December 31, 2017 and 20162023 of the Company's available-for-sale debt securities were $386$6,875 (net of income tax benefit of $201) and $836$2,054). Net unrealized losses at December 31, 2022 of the Company's available-for-sale debt securities were $9,294 (net of income tax benefitexpense of $2,777). These unrealized losses are associated with the Company’s investments in mortgage-backed securities issued by GNMA and were caused by interest rate increases (See Note 4). The contractual cash flows of these securities are guaranteed by an agency of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost bases of the Company's investments. The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases.$299), respectively. These net unrealized gains and losses are reported as a separate component of Accumulated other comprehensive loss on the accompanying Consolidated Balance Sheets.
The following tables provide the scheduled maturities of the Company's available-for-sale debt securities:
| | | | | | | | | | | | | | |
| | At December 31, 2023 |
| | Cost | | Fair Value |
| Within one year | | $ | — | | | $ | — | |
| After one year through five years | | 5,679 | | | 5,035 | |
| After 5 years through 10 years | | 31,162 | | | 28,084 | |
| After 10 years | | 90,840 | | | 85,633 | |
| | | $ | 127,681 | | | $ | 118,752 | |
| | | | | | | | | | | | | | |
| | At December 31, 2022 |
| | Cost | | Fair Value |
| Within one year | | $ | 10 | | | $ | 9 | |
| After one year through five years | | 4,299 | | | 3,800 | |
| After 5 years through 10 years | | 21,398 | | | 18,929 | |
| After 10 years | | 103,665 | | | 94,563 | |
| | | $ | 129,372 | | | $ | 117,301 | |
There were gross realized gains of $529 and gross realized losses of $888$215, $602 and $1,160 from available-for-sale debt securities during 2017. In 2016, there2023, 2022 and 2021, respectively. There were no gross realized gains of $284 and gross realized losses of $869 from available-for-sale securities. There were gross realized gains of $489 and gross realized losses of $729 from available-for-saledebt securities during 2015. Gains2023, 2022 and 2021. Realized losses from available-for-sale debt securities, including amounts reclassified from accumulated comprehensive incomeloss, are reflected in Net gain (loss), from investments on the accompanying Consolidated Statements of Operations.
There were gross realized gains of $661 and gross realized losses of $349 from mutual funds and equities during 2023. In 2022, there were gross realized gains of $263 and gross realized losses of $773 from mutual funds and equities. In 2021, there were gross realized gains of $741 and gross realized losses of $72 from mutual funds and equities. Gains and losses from mutual funds and equities are reflected in Net gain (loss) from investments on the accompanying Consolidated Statements of Operations.
Investments in Affiliated Funds
The Company has an investment related to the startup of investmentin funds sponsored by LSV. The Company records this investment on the accompanying Consolidated Balance Sheets at fair value. Unrealized gains and losses from the change in fair value of these funds are recognized in Net gain (loss) from investments on the accompanying Consolidated Statements of Operations.
The investment primarily consists of U.S. dollar denominated funds that invest in equity securities of Canadian, Australian and Japanese companies. The underlying securities held by the funds are translated into U.S. dollars within the funds. The funds had a fair value of $6,034$7,316 and $4,858$6,366 at December 31, 20172023 and 2016,2022, respectively. The Company recognized gains of $1,176$950 and $819$750 during 2023 and 2021, respectively, and losses of $389$550 during 2022 from the change in fair value of the funds during 2017, 2016 and 2015, respectively.funds.
Securities Owned
The Company’s broker-dealer subsidiary, SIDCO, has investments in U.S. government agency securities with maturity dates less than one year. These investments are reflected as Securities owned on the accompanying Consolidated Balance Sheets. Due to specialized accounting practices applicable to investments by broker-dealers, the securities are reported at fair value and changes in fair value are recorded in current period earnings. The securities had a fair value of $21,526$31,334 and $21,339$32,148 at December 31, 20172023 and 2016,2022, respectively. There were no material net gains or losses from the change in fair value of the securities during 2017, 20162023, 2022 and 2015.2021.
Note 76 – Line of Credit
On June 13, 2016, theThe Company entered intohas a five-year $300,000$325,000 Credit Agreement (the Credit Facility) with Wells Fargo Bank, National AssociationN.A. (Wells Fargo), and a syndicate of other lenders. The Credit Facility is scheduled to expire in June 2021,April 2026, at which time any aggregate principal amount of loans outstanding becomes payable in full. Any borrowings made under the Credit Facility will accrue interest at rates that, at the Company's option, are based on a base rate (the Base Rate) plus a premium that can range from 0.25 percent0.25% to 1.00 percent1.00% or the London InterBank OfferedAdjusted Term Secured Overnight Financing Rate (LIBOR)(SOFR) plus a premium that can range from 1.25 percent1.25% to 2.00 percent2.00% depending on the Company’s Leverage Ratio (a ratio of consolidated
indebtedness to consolidated EBITDAearnings before interest, taxes, depreciation and amortization (EBITDA) for the four preceding fiscal quarters, all as defined in the related agreement). The Base Rate is defined as the highest of a) the Prime Rate, b) the Federal Funds Rate as published by the Federal Reserve Bank of New York, plus 0.50 percent, b) the prime commercial lending rate of Wells Fargo,0.50% and c) the applicable LIBORAdjusted Term SOFR for a one-month tenor in effect on such day plus 1.00 percent, or d) 0 percent. 1.00%.
The Company also pays quarterly commitment fees based on the unused portion of the Credit Facility. The quarterly fees for the Credit Facility can range from 0.15 percent0.15% of the amount of the unused portion to 0.30 percent,0.30%, depending on the Company’s Leverage Ratio. Certain wholly-owned subsidiaries of the Company have guaranteed the obligations of the Company under the agreement. The aggregate amount of the Credit Facility may be increased by an additional $100,000 under certain conditions set forth in the agreement. The Company may issue up to $15,000 in letters of credit under the terms of the Credit Facility. The Company pays a periodic commission fee of 1.25% plus an issuance fee of 0.20% of the aggregate face amount of the outstanding letters of credit issued under the Credit Facility.
The Credit Facility contains covenants that restrictwith restrictions on the ability of the Company to engage in mergers, consolidations, asset sales, investments,do transactions with affiliates other than wholly-owned subsidiaries or to incur liens or certain types of indebtedness as defined in the agreement. In the event of a default under the Credit Facility, the Company would also be restricted from paying dividends on, or repurchasing, its common stock without the approval of the lenders. None of the covenants of the Credit Facility negatively affect the Company’s liquidity or capital resources. Upon the occurrence of certain financial or economic events, significant corporate events, or certain other events of default constituting an event of default under the Credit Facility, all loans outstanding may be declared immediately due and payable and all commitments under the agreement may be terminated.
In July 2017,On April 17, 2023, the Company borrowed $40,000 underand the lenders amended the Credit Facility to add SOFR as an alternative reference rate for borrowings in place of the fundingLondon InterBank Offered Rate (LIBOR). All other terms and conditions of an acquisition (See Note 16). In October 2017, the original agreement remained in effect.
The Company made a principal paymenthad no borrowings related to the Credit Facility as of $10,000. December 31, 2023.
As of December 31, 2017,2023, the Company had outstanding balanceletters of credit of $4,866 under the Credit Facility. These letters of credit are scheduled to expire during 2024. The amount of the Credit Facility available for general corporate purposes as of January 31, 2024 was $30,000 and is included in Borrowings Under Revolving Credit Facility on the accompanying Consolidated Balance Sheet.$320,134. The Company was in compliance with all covenants of the Credit Facility during 2017.
In January 2018, the Company made a principal payment of $10,000. As of January 31, 2018, the amount of the Credit Facility that is available for general corporate purposes was $280,000.2023.
The Company considers the book value of long-term debt related to the borrowings through the Credit Facility to be representative of its fair value.
The Company incurred $781, $531$583, $749 and $483$563 in interest charges and commitment fees relating to the currentCredit Facility during 2023, 2022 and since expired lines of credit during 2017, 2016 and 2015,2021, respectively, which are reflected in Interest expense on the accompanying Consolidated Statements of Operations. The weighted average interest rate applied to the outstanding balance of the Credit Facility during 2017 was 2.58 percent.
Note 87 – Shareholders’ Equity
Stock-Based Compensation
The Company's active equity compensation plan, the 2014 Omnibus Equity Compensation Plan (the 2014 Plan), is the successor plan to the 2007 Equity Compensation Plan (the 2007 Plan) which was merged with and into the 2014 Plan in May 2014. The 2014 Plan provides for the grant of stock options, stock units, stock awards, stock appreciation rights, dividend equivalents and other stock-based awards.
Outstanding grants under the 2007 Plan will continue according to the terms in effect before the plan merger, but the outstanding shares will be issued or transferred under the 2014 Plan. The 2014 Plan provides for the grant of stock options, stock units, stock awards, stock appreciation rights, dividend equivalents and other stock-based awards. Permitted grantees under the 2014 Plan include employees, non-employee directors and consultants who perform services for the Company. The plan is administered by the Compensation Committee of the Board of Directors of the Company. TheAs of December 31, 2023, the Company has onlyrestricted stock units and non-qualified stock options outstanding under the 2014 Plan.
The Company recognized stock-based compensation expense in its Consolidated Financial Statements in 2023, 2022 and 2021 as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Stock-based compensation expense | | $ | 31,308 | | | $ | 39,403 | | | $ | 41,451 | |
| Less: Deferred tax benefit | | (5,989) | | | (7,340) | | | (8,444) | |
| Stock-based compensation expense, net of tax | | $ | 25,319 | | | $ | 32,063 | | | $ | 33,007 | |
Stock Options
All outstanding stock options have performance-based vesting provisions that tie the vesting of stock options to the Company’s financial performance.performance which are established at the time of grant. The Company’s stock options vest at a rate of 50 percent when a specified diluted earnings per sharefinancial vesting target is achieved, and the remaining 50 percent when a second, higher-specified diluted earnings per sharefinancial vesting target is achieved. Options do not vest solely due to the passage of time but as a result of achievement of the financial vesting targets. Options granted in December 2017 and thereafter include a service condition which requires a minimum two or four year waiting period from the grant date along with the attainment of the applicable financial vesting target. Earnings per share targets exclude the impact of stock-based compensation and are established at time of grant. The targets are measured annually on December 31. The amount of stock-based compensation expense recognized in the period is based upon management’s estimate of when the earnings per sharefinancial vesting targets may be achieved. Any change in management’s estimate could result in the remaining amount of stock-based compensation expense to be accelerated, spread out over a longer period, or reversed. This may cause volatility in the recognition of stock-based compensation expense in future periods and could materially affect the Company’s earnings.
The Company uses the Black-Scholes option pricing model to determine the fair value of stock options. The determination of the fair value of stock options on the date of grant using an option-pricing model is affected by the price of the Company’s common stock as well as other variables. These variables include expected stock price volatility over the term of the awards, actual and projected employee stock exercise behaviors, risk-free interest rate and expected dividends. The
Company primarily uses historical data to estimate the variables used in the option-pricing model except expected volatility. The Company uses a combination of historical and implied volatility.
The weighted average fair value of the Company’s stock options granted during 2017, 20162023, 2022 and 20152021 were $16.78, $12.43$15.70, $17.95 and $12.16,$14.94, respectively, using the following assumptions:
|
| | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Expected term (in years) | | 6.00 |
| | 6.00 |
| | 5.58 |
|
| Expected volatility | | 22.58 | % | | 25.44 | % | | 23.86 | % |
| Expected dividend yield | | 0.82 | % | | 1.10 | % | | 1.00 | % |
| Risk-free interest rate | | 2.29 | % | | 2.18 | % | | 1.90 | % |
| | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Expected term (in years) | | 5.32 | | 5.84 | | 5.60 |
| Expected volatility | | 24.32 | % | | 27.79 | % | | 28.67 | % |
| Expected dividend yield | | 1.49 | % | | 1.40 | % | | 1.30 | % |
| Risk-free interest rate | | 3.95 | % | | 3.79 | % | | 1.37 | % |
The Company recognized stock-based compensation expense inreviews its Consolidated Financial Statements in 2017, 2016 and 2015 as follows:
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Stock-based compensation expense | | $ | 36,366 |
| | $ | 16,017 |
| | $ | 17,312 |
|
| Less: Deferred tax benefit | | (7,891 | ) | | (5,612 | ) | | (6,107 | ) |
| Stock-based compensation expense, net of tax | | $ | 28,475 |
| | $ | 10,405 |
| | $ | 11,205 |
|
During 2017, 2016 and 2015, theestimates of when vesting targets will be achieved based upon financial performance on an annual basis. The Company revised its estimates during 2023 which resulted in a decrease of when some vesting targets are expected$6,941 in stock-based
compensation in comparison to be achieved.the previous management estimate. The change in management’s estimate during 20172022 resulted in a decrease of $4,915 and the change in estimate in 2021 resulted in an increase of $11,206$5,880 in stock-based compensation expense in 2017. comparison to the previous management estimates.
The changesCompany initiated a voluntary separation program to long-tenured employees in management’s estimatesJuly 2022. Certain allowances provided to the participating employees in the program resulted in modifications to the Company's equity compensation plans related to the vesting of stock options during 2016 or 2015 were not material.2022 and the period in which the employee may exercise vested stock options after the termination of employment (See Note 14). These modifications impacted 52 grantees of stock options. The Company incurred additional stock-based compensation expense of $2,532 as a result of these modifications. During 2023 and 2022, the Company reversed previously recognized stock-option expense of $1,783 and $3,562, respectively, as a result of the cancellation of certain stock option awards to employees participating in the voluntary separation program.
As of December 31, 2017,2023, there was approximately 6,088,00010,661,000 unvested employee stock options with an unrecognized compensation cost of $62,070$89,130 that the Company expects will vest and be expensed through 20222027 with a weighted average period of 2.31.8 years.
This table presents certain information relating to the Company’s stock option plans for 2017, 20162023, 2022 and 2015:2021:
|
| | | | | | | |
| | | Number of Shares | | Weighted Avg. Price |
| Balance as of December 31, 2014 | | 20,461,000 |
| | $ | 25.26 |
|
| Granted | | 2,005,000 |
| | 53.34 |
|
| Exercised | | (2,927,000 | ) | | 21.44 |
|
| Expired or canceled | | (302,000 | ) | | 28.97 |
|
| Balance as of December 31, 2015 | | 19,237,000 |
| | $ | 28.71 |
|
| Granted | | 2,310,000 |
| | 49.57 |
|
| Exercised | | (1,809,000 | ) | | 24.82 |
|
| Expired or canceled | | (1,669,000 | ) | | 30.86 |
|
| Balance as of December 31, 2016 | | 18,069,000 |
| | $ | 31.57 |
|
| Granted | | 2,057,000 |
| | 69.87 |
|
| Exercised | | (2,370,000 | ) | | 21.22 |
|
| Expired or canceled | | (1,044,000 | ) | | 33.42 |
|
| Balance as of December 31, 2017 | | 16,712,000 |
| | $ | 37.63 |
|
| | | | | |
| Exercisable as of December 31, 2017 | | 10,624,000 |
| | $ | 28.99 |
|
| Available for future grant as of December 31, 2017 | | 24,108,000 |
| | |
| | | | | | | | | | | | | | |
| | Number of
Shares | | Weighted
Average Price |
| Balance as of December 31, 2020 | | 18,495,000 | | | $ | 51.15 | |
| Granted | | 3,323,000 | | | 60.48 | |
| Exercised | | (1,719,000) | | | 29.73 | |
| Expired or canceled | | (1,015,000) | | | 57.92 | |
| Balance as of December 31, 2021 | | 19,084,000 | | | $ | 54.35 | |
| Granted | | 2,215,000 | | | 61.74 | |
| Exercised | | (1,537,000) | | | 35.03 | |
| Expired or canceled | | (992,000) | | | 59.52 | |
| Balance as of December 31, 2022 | | 18,770,000 | | | $ | 56.52 | |
| Granted | | 1,871,000 | | | 62.01 | |
| Exercised | | (2,148,000) | | | 45.11 | |
| Expired or canceled | | (1,073,000) | | | 59.79 | |
| Balance as of December 31, 2023 | | 17,420,000 | | | $ | 58.31 | |
| | | | |
| Exercisable as of December 31, 2023 | | 6,759,000 | | | $ | 54.95 | |
| Available for future grant as of December 31, 2023 | | 8,509,000 | | | |
As of December 31, 20162023 and 2015,2022, there were 6,692,0006,759,000 and 8,508,0009,043,000 shares exercisable, respectively. The expiration dates for options outstanding at December 31, 20172023 range from April 22, 2024 to December 16, 2018 to December 12, 202715, 2033 with a weighted average remaining contractual life of 6.3 years.years.
Upon exercise of stock options, the Company will issue new shares of its common shares. The Company does not hold any shares in treasury. The total intrinsic value of options exercised during 20172023 and 20162022 was $83,628$34,499 and $41,607,$36,576, respectively. The total options exercisable as of December 31, 20172023 had an intrinsic value of $455,528.$64,577. The total options outstanding as of December 31, 20172023 had an intrinsic value of $572,024.$103,189. The total intrinsic value for options outstanding and options exercisable is calculated as the difference between the market value of the Company’s common stock as of
December 31, 2017and the exercise price of the shares. The market value of the Company’s common stock as of December 31, 201729, 2023 was $71.86$63.55 as reported by the Nasdaq Stock Market, LLC.
Restricted Stock Units
The Company's restricted stock units (RSUs) are equivalent to one share of the Company's common stock. These equity awards are time-based and are not based on the achievement of performance targets. RSUs accrue dividends based on dividends paid on the Company's common stock and are paid in cash upon satisfaction of the vesting requirements related to the underlying RSU. The majority of the Company's RSUs will vest on the third anniversary of the issuance date. There was no activity related to the Company's RSUs during 2021.
This table summarizespresents certain information relating to all options outstandingthe Company’s RSUs for 2023 and exercisable at 2022:
| | | | | | | | | | | | | | |
| | Number of
RSUs | | Weighted
Average Grant-Date Fair Value |
| Balance as of December 31, 2021 | | — | | | $ | — | |
| Granted | | 467,000 | | | 61.27 | |
| Vested | | — | | | — | |
| Expired or canceled | | — | | | — | |
| Balance as of December 31, 2022 | | 467,000 | | | $ | 61.27 | |
| Granted | | 373,000 | | | 61.76 | |
| Vested | | (20,000) | | | 57.39 | |
| Expired or canceled | | (24,000) | | | 61.85 | |
| Balance as of December 31, 2023 | | 796,000 | | | $ | 61.58 | |
As of December 31, 2017:
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | Options Outstanding at December 31, 2017 | | Options Exercisable at December 31, 2017 |
| Range of Exercise Prices (Per Share) | Number of Shares | | Weighted Average Exercise Price (Per Share) | | Weighted Average Remaining Contractual Life (Years) | | Number of Shares | | Weighted Average Exercise Price (Per Share) | | Weighted Average Remaining Contractual Life (Years) |
| $ | 14.62 |
| - | 15.77 | 2,178,000 |
| | $ | 15.45 |
| | 3.16 | | 2,178,000 |
| | $ | 15.45 |
| | 3.16 |
| 17.65 |
| - | 21.05 | 1,174,000 |
| | 17.67 |
| | 2.01 | | 1,174,000 |
| | 17.67 |
| | 2.01 |
| 22.45 |
| - | 23.86 | 3,432,000 |
| | 23.19 |
| | 3.95 | | 3,422,000 |
| | 23.19 |
| | 3.96 |
| 27.03 |
| - | 39.15 | 1,815,000 |
| | 33.65 |
| | 6.09 | | 747,000 |
| | 33.58 |
| | 6.09 |
| 40.64 |
| - | 53.16 | 4,190,000 |
| | 45.49 |
| | 8.54 | | 2,095,000 |
| | 45.49 |
| | 8.08 |
| 53.34 |
| - | 71.12 | 3,923,000 |
| | 62.01 |
| | 9.05 | | 1,008,000 |
| | 53.39 |
| | 8.14 |
| | | | 16,712,000 |
| | | | | | 10,624,000 |
| | | | |
Employee Stock Purchase Plan
The Company has an employee stock purchase plan that provides for offerings of common stock to eligible employees at a price equal to 85 percent of the fair market value of the stock at the end of the stock purchase period, as defined. The Company has reserved 15,600,00015,652,000 shares for issuance under this plan. At December 31, 2017, 11,962,0002023, 12,482,000 cumulative shares have been issued. There were no material costs incurred by the Company related to the employee stock purchase plan in 2017, 20162023, 2022 and 2015.2021.
Common Stock Buyback
The Board of Directors, under multiple authorizations, has authorized the purchase of the Company’s common stock on the open market or through private transactions. As of December 31, 2017,2023, the Company had approximately $170,638$282,079 of authorization remaining for the purchase of common stock. The following table provides the total number of shares repurchased and the related total costs in 2017, 20162023, 2022 and 2015:2021:
|
| | | | | | | |
| Year | | Total Number of Shares Repurchased | | Total Cost |
| 2017 | | 4,403,000 |
| | $ | 248,114 |
|
| 2016 | | 6,600,000 |
| | 294,374 |
|
| 2015 | | 5,951,000 |
| | 289,587 |
|
| | | | | | | | | | | | | | |
| Year | | Total Number of
Shares Repurchased | | Total Cost |
| 2023 | | 5,237,000 | | | $ | 310,769 | |
| 2022 | | 5,914,000 | | | 338,442 | |
| 2021 | | 6,747,000 | | | 411,534 | |
The Company immediately retires its common stock when purchased. Upon retirement, the Company reduces Capital in excess of par value for the average capital per share outstanding and the remainder is charged against Retained earnings. If the Company reduces its Retained earnings to zero, any subsequent purchases of common stock will be charged entirely to Capital in excess of par value.
Rights Agreement
In December 2008, the Company’s Board of Directors declared a dividend distribution pursuant to a Rights Agreement (the Rights Agreement) which became effective on January 6, 2009. The purpose of the Rights Agreement is to deter coercive or unfair takeover tactics and to prevent a person or group (an Acquiring Person) from acquiring control of the Company without offering a fair price to all shareholders. Under the Rights Agreement, all common shareholders receive one Right for each common share outstanding. Each Right entitles the registered holder to purchase from the Company a unit consisting of one twenty-thousandths of a share of Series A Junior Participating Preferred Shares, $0.05 par value per share, or a combination of securities and assets of equivalent value, at a purchase price of $150.00 per unit, subject to adjustment. The Rights will become exercisable and trade separately from the common stock ten days following a public announcement that an Acquiring Person has beneficial ownership of more than 20 percent of the outstanding common stock of the Company or the commencement of a tender or exchange offer that would result in an Acquiring Person owning 20 percent or more of the outstanding common stock of the Company. Upon exercise, holders, other than an Acquiring Person, will have the right to purchase the common stock of the Company equal to twice the value of the exercise price of the Rights. In lieu of requiring payment of the purchase price upon exercise of the Rights following certain events, the Company may permit the holders simply to surrender the Rights, in which event they will be entitled to receive common shares and other property, as the case may be, with a value of 50 percent of what could be purchased by payment of the full purchase price. The Rights, which do not
have voting rights, will expire on January 6, 2019, and may be redeemed by the Company any time until ten days following the announcement of an Acquiring Person at a price of $0.01 per Right.
Cash Dividends
On May 24, 2017,31, 2023, the Board of Directors declared a cash dividend of $0.28$0.43 per share on the Company’s common stock, which was paid on June 16, 2017,21, 2023, to shareholders of record on June 7, 2017.12, 2023. On December 12, 2017,15, 2023, the Board of Directors declared a cash dividend of $0.30$0.46 per share on the Company’s common stock, which was paid on January 8, 2018,9, 2024, to shareholders of record on December 27, 2017.28, 2023.
The cash dividends declared in 2017, 20162023, 2022 and 20152021 were $91,444, $86,657$117,894, $112,429 and $82,478,$107,840, respectively. The Board of Directors has indicated its intention to declare future cash dividends on a semiannual basis.
Note 98 – Accumulated Other Comprehensive Income (Loss)
Other comprehensive income (loss) consists of net income and other gains and losses affecting shareholders’ equity that are excluded from net income. Other comprehensive income (loss) includes unrealized gains and losses on available for sale debt securities and foreign currency translation adjustments. The Company presents other comprehensive income (loss) in its Consolidated Statements of Comprehensive Income. Components of Accumulated other comprehensive income (loss), net of tax, consisted of:
| | | | | | | | | | | | | | | | | | | | |
| | Foreign Currency Translation Adjustments | | Unrealized
Holding
Gains (Losses)
on Investments | | Accumulated
Other
Comprehensive
Income (Loss) |
| Balance, January 1, 2021 | | $ | (18,349) | | | $ | 1,551 | | | $ | (16,798) | |
| | | | | | |
| Other comprehensive loss before reclassifications | | (1,432) | | | (2,527) | | | (3,959) | |
| Amounts reclassified from accumulated other comprehensive loss | | — | | | 914 | | | 914 | |
| Net current-period other comprehensive loss | | (1,432) | | | (1,613) | | | (3,045) | |
| | | | | | |
| Balance, December 31, 2021 | | $ | (19,781) | | | $ | (62) | | | $ | (19,843) | |
| | | | | | |
| Other comprehensive loss before reclassifications | | (19,892) | | | (9,700) | | | (29,592) | |
| Amounts reclassified from accumulated other comprehensive loss | | — | | | 468 | | | 468 | |
| Net current-period other comprehensive loss | | (19,892) | | | (9,232) | | | (29,124) | |
| | | | | | |
| Balance, December 31, 2022 | | $ | (39,673) | | | $ | (9,294) | | | $ | (48,967) | |
| | | | | | |
| Other comprehensive income before reclassifications | | 9,516 | | | 2,252 | | | 11,768 | |
| Amounts reclassified from accumulated other comprehensive loss | | — | | | 167 | | | 167 | |
| Net current-period other comprehensive income | | 9,516 | | | 2,419 | | | 11,935 | |
| | | | | | |
| Balance, December 31, 2023 | | $ | (30,157) | | | $ | (6,875) | | | $ | (37,032) | |
|
| | | | | | | | | | | | |
| | | Foreign Currency Translation Adjustments | | Unrealized Holding Gains (Losses) on Investments | | Accumulated Other Comprehensive Income (Loss) |
| Balance, January 1, 2015 | | $ | (10,088 | ) | | $ | 1,193 |
| | $ | (8,895 | ) |
| | | | | | | |
| Other comprehensive loss before reclassifications | | (14,900 | ) | | (1,659 | ) | | (16,559 | ) |
| Amounts reclassified from accumulated other comprehensive loss | | — |
| | 164 |
| | 164 |
|
| Net current-period other comprehensive loss | | (14,900 | ) | | (1,495 | ) | | (16,395 | ) |
| | | | | | | |
| Balance, December 31, 2015 | | $ | (24,988 | ) | | $ | (302 | ) | | $ | (25,290 | ) |
| | | | | | | |
| Other comprehensive loss before reclassifications | | (12,131 | ) | | (918 | ) | | (13,049 | ) |
| Amounts reclassified from accumulated other comprehensive loss | | — |
| | 384 |
| | 384 |
|
| Net current-period other comprehensive loss | | (12,131 | ) | | (534 | ) | | (12,665 | ) |
| | | | | | | |
| Balance, December 31, 2016 | | $ | (37,119 | ) | | $ | (836 | ) | | $ | (37,955 | ) |
| | | | | | | |
| Other comprehensive gain before reclassifications | | 17,597 |
| | 190 |
| | 17,787 |
|
| Amounts reclassified from accumulated other comprehensive loss | | — |
| | 260 |
| | 260 |
|
| Net current-period other comprehensive gain | | 17,597 |
| | 450 |
| | 18,047 |
|
| | | | | | | |
| Balance, December 31, 2017 | | $ | (19,522 | ) | | $ | (386 | ) | | $ | (19,908 | ) |
Note 109 – Employee Benefit Plan
The Company has a tax-qualified defined contribution plan (the Plan). The Plan provides retirement benefits, including provisions for early retirement and disability benefits, as well as a tax-deferred savings feature. After satisfying certain requirements, participants are vested in employer contributions at the time the contributions are made. All Company contributions are discretionary and are made from available profits. The Company contributed $10,929, $9,665$18,069, $16,859 and $9,162$14,777 to the Plan in 2017, 20162023, 2022 and 2015,2021, respectively.
Note 1110 – Commitments and Contingencies
The Company leases software, facilities, and data processing equipment under non-cancelable operating leases, some which contain escalation clauses for increased taxes and operating expenses. The Company has entered into maintenance agreements primarily for its data processing equipment. Rent expense, primarily related to user licenses for software, was $32,619, $28,016$71,962, $65,792 and $25,074$57,880 in 2017, 20162023, 2022 and 2015,2021, respectively.
The aggregate noncancellable minimum commitments at December 31, 20172023 are:
| | | | | |
| Year | Aggregate Noncancellable Minimum Commitments |
| 2024 | $ | 8,754 | |
| 2025 | 7,529 | |
| 2026 | 7,088 | |
| 2027 | 4,167 | |
| 2028 and thereafter | 3,363 | |
| $ | 30,901 | |
|
| | | |
| 2018 | $ | 10,046 |
|
| 2019 | 9,427 |
|
| 2020 | 7,413 |
|
| 2021 | 7,082 |
|
| 2022 and thereafter | 29,171 |
|
| | $ | 63,139 |
|
In the ordinary course of business, the Company from time to time enters into contracts containing indemnification obligations of the Company. These obligations may require the Company to make payments to another party upon the occurrence of certain events including the failure by the Company to meet its performance obligations under the contract. These contractual indemnification provisions are often standard contractual terms of the nature customarily found in the type of contracts entered into by the Company. In many cases, there are no stated or notional amounts included in the indemnification provisions. There are no amounts reflected on the Consolidated Balance Sheets as of December 31, 20172023 and 20162022 related to these indemnifications.
InLegal Proceedings
The Company is party to various disputes, actions and claims arising in the normal course of business that the Company is party to various claims and legal proceedings.
SEI has been named in seven lawsuits filed in Louisiana courts; fourdoes not believe are material. The Company believes that the ultimate resolution of any of these matters will not have a material adverse effect on the cases also name SPTC as a defendant. The underlying allegations in all actions relate toCompany's financial position or the purported role of SPTC in providing back-office services to Stanford Trust Company. The complaints allege that SEI and SPTC participated in some manner in which the saleCompany conducts its business. Currently, the Company does not believe the amount of “certificateslosses associated with these matters can be estimated. While the Company does not believe that the amount of deposit” issued by Stanford International Bank so assuch losses will, when liquidated or estimable, be material to its financial position, the assumptions may be incorrect and any such loss could have a “seller”material adverse effect on the Company's results of operations or the certificates of deposit for purposes of primary liability undermanner in which the Louisiana Securities Law or so as to be secondarily liable under that statute for sales of certificates of deposit made by Stanford Trust Company. Two of the actions also include claims for violations of the Louisiana Racketeering Act and possibly conspiracy, and a third also asserts claims of negligence, breach of contract, breach of fiduciary duty, violations of the uniform fiduciaries law, negligent misrepresentation, detrimental reliance, violations of the Louisiana Racketeering Act, and conspiracy.
The procedural status of the seven cases varies. The Lillie case, filed originallyCompany conducts its business in the 19th Judicial District Court for the Parish of East Baton Rouge, was brought as a class action and is procedurally the most advanced of the cases. SEI and SPTC filed exceptions,period(s) during which the Court granted in part, dismissing claims under the Louisiana Unfair Trade Practices Act and permitting the claims under the Louisiana Securities Law to go forward. On March 11, 2013, newly-added insurance carrier defendants removed the case to the United States District Court for the Middle District of Louisiana. On August 7, 2013, the Judicial Panel on Multidistrict Litigation transferred the matter to the Northern District of Texas where MDL 2099, In re: Stanford Entities Securities Litigation (“the Stanford MDL”), is pending. On September 22, 2015, the District Court on the motion of SEI and SPTC dismissed plaintiffs’ claims for primary liability under Section 714(A) of the Louisiana Securities Law, but declined to dismiss plaintiffs’ claims for secondary liability under Section 714(B) of the Louisiana Securities Law based on the allegations pled by plaintiffs. On November 4, 2015, the District Court granted SEI and SPTC's motion to dismiss plaintiffs' claims under Section 712(D) of the Louisiana Securities Law. Consequently, the only claims of plaintiffs still pending before the District Court in Lillie underlying matters are plaintiffs' claims for secondary liability against SEI and SPTC under Section 714(B) of the Louisiana Securities Law. On May 2, 2016, the District Court certified the class as being "all persons for whom Stanford Trust Company purchased or renewed Stanford Investment Bank Limited certificates of deposit in Louisiana between January 1, 2007 and February 13, 2009". Notice of the pendency of the class action was mailed to potential class members on October 4, 2016.resolved.
On December 1, 2016, a group of plaintiffs who opted out of the Lillie class filed a complaint against SEI and SPTC in the United States District Court in the Middle District of Louisiana, alleging claims essentially the same as those in Lillie. In January 2017, the Judicial Panel on Multidistrict Litigation transferred the proceeding to the Northern District of Texas and the Stanford MDL. During February 2017, SEI filed its response to the Complaint and in March 2017 the District Court for the Northern District of Texas approved the stipulated dismissal of all claims in this complaint predicated on Section 712(D) or Section 714(A) of the Louisiana Securities Law.
Another one of the cases, filed in the 23rd Judicial District Court for the Parish of Ascension, also was removed to federal court and transferred by the Judicial Panel on Multidistrict Litigation to the Northern District of Texas and the Stanford MDL. The schedule for responding to that Complaint has not yet been established.
The plaintiffs in two of the cases remaining in the Parish of East Baton Rouge have granted SEI and SPTC indefinite extensions to respond to the petitions.
In the two additional cases, filed in East Baton Rouge and brought by the same counsel who filed the Lillie action, virtually all of the litigation to date has involved motions practice and appellate litigation regarding the existence of federal subjection matter jurisdiction under the federal Securities Litigation Uniform Standards Act (SLUSA). After the matter was
removed to the United States District Court for the Northern District of Texas, that court dismissed the action under SLUSA. The Court of Appeals for the Fifth Circuit reversed that order, and the Supreme Court of the United States affirmed the Court of Appeals judgment on February 26, 2014. The matter was remanded to state court and no material activity has taken place since that date.
While the outcome of this litigation remains uncertain, SEI and SPTC believe that they have valid defenses to plaintiffs' claims and intend to defend the lawsuits vigorously. Because of uncertainty in the make-up of the Lillie class, the specific theories of liability that may survive a motion for summary judgment or other dispositive motion, the relative lack of discovery regarding damages, causation, mitigation and other aspects that may ultimately bear upon loss, the Company is not reasonably able to provide an estimate of loss, if any, with respect to the foregoing lawsuits.
On November 26, 2014, a Writ of Summons was issued to two of our subsidiaries, SEI Investments - Global Fund Services Limited (GFSL) and SEI Investments - Depositary & Custodial Services (Ireland) Limited (D&C), to appear before the Court of First Instance Antwerp, Belgium. The plaintiffs in this case allege that through their initial investments in collective investment funds domiciled in Netherlands and subsequent transfer of claim rights to a Belgium domiciled partnership, they are beneficial owners of a portfolio of life settlement policies (the Portfolio) which lapsed due to a failure to make premium payments. The plaintiffs seek to recover jointly and severally from nine defendants including GFSL and D&C, damages of approximately $84 million. GFSL and D&C’s involvement in the litigation appears to arise out of their historical provision of administration and custody services, respectively, to the Strategic Life Settlement Fund PLC, who, together with its managers, appear to be the principal defendants in this claim. On December 4, 2015, the Belgium court dismissed plaintiff's claims for a lack of jurisdiction. On December 22, 2015, the plaintiffs appealed the dismissal. During October 2017, the Belgium appellate court dismissed plaintiff's appeal.
While the outcome of this action is uncertain given its early phase and the lack of specific theories of liability asserted against GFSL and D&C, each of GFSL and D&C believe that they have valid defenses to plaintiffs’ claims and intend to defend the lawsuit vigorously, and GFSL and D&C are not reasonably able to provide an estimate of the ultimate loss, if any, with respect to this lawsuit.
Note 1211 – Income Taxes
The federal and state and foreign income tax provision is summarized as follows:
|
| | | | | | | | | | | | |
| Year Ended December 31, | | 2017 | | 2016 | | 2015 |
| Current | | | | | | |
| Federal | | $ | 154,776 |
| | $ | 158,411 |
| | $ | 159,774 |
|
| State | | 11,645 |
| | 10,500 |
| | 7,756 |
|
| Foreign | | 8,002 |
| | 5,137 |
| | 5,224 |
|
| | | 174,423 |
| | 174,048 |
| | 172,754 |
|
| Deferred | | | | | | |
| Federal | | (26,350 | ) | | 788 |
| | (5,343 | ) |
| State | | 1,378 |
| | (168 | ) | | 1,414 |
|
| Foreign | | 3,199 |
| | — |
| | — |
|
| | | (21,773 | ) | | 620 |
| | (3,929 | ) |
| Total income taxes | | $ | 152,650 |
| | $ | 174,668 |
| | $ | 168,825 |
|
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2023 | | 2022 | | 2021 |
| Current | | | | | | |
| Federal | | $ | 133,465 | | | $ | 126,780 | | | $ | 120,939 | |
| State | | 23,621 | | | 27,267 | | | 24,492 | |
| Foreign | | 8,807 | | | 26,255 | | | 9,480 | |
| | 165,893 | | | 180,302 | | | 154,911 | |
| Deferred | | | | | | |
| Federal | | (29,837) | | | (40,619) | | | (7,106) | |
| State | | (3,620) | | | (4,949) | | | (735) | |
| Foreign | | (39) | | | (921) | | | 10 | |
| | (33,496) | | | (46,489) | | | (7,831) | |
| Total income taxes | | $ | 132,397 | | | $ | 133,813 | | | $ | 147,080 | |
Annual tax provisions include amounts considered sufficient to pay assessments that may result from examination of prior year tax returns; however, the amount ultimately paid upon resolution of issues raised may differ materially from the amount accrued. The examination and the resolution process may last longer than one year.
The components of Income before income taxes are summarized as follows:
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2023 | | 2022 | | 2021 |
| Domestic | | $ | 545,642 | | | $ | 474,894 | | | $ | 641,403 | |
| Foreign | | 49,013 | | | 134,386 | | | 52,270 | |
| | $ | 594,655 | | | $ | 609,280 | | | $ | 693,673 | |
|
| | | | | | | | | | | | |
| Year Ended December 31, | | 2017 | | 2016 | | 2015 |
| Domestic | | $ | 523,044 |
| | $ | 481,760 |
| | $ | 472,384 |
|
| Foreign | | 33,995 |
| | 26,725 |
| | 28,096 |
|
| | | $ | 557,039 |
| | $ | 508,485 |
| | $ | 500,480 |
|
78
The effective income tax rate differs from the federal income tax statutory rate due to the following:
|
| | | | | | | | |
| Year Ended December 31, | 2017 | | 2016 | | 2015 |
| Statutory rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
| State taxes, net of federal tax benefit | 1.3 |
| | 1.3 |
| | 1.6 |
|
| Foreign tax expense and tax rate differential | (1.1 | ) | | (0.8 | ) | | (1.2 | ) |
| Tax benefit from stock option exercises | (3.9 | ) | | — |
| | — |
|
| Enactment of the Tax Cuts and Jobs Act: | | | | | |
| Re-measurement of deferred tax liability | (4.9 | ) | | — |
| | — |
|
| One-time transition tax on repatriation of foreign earnings and withholding tax | 2.6 |
| | — |
| | — |
|
| Research and development tax credit | (0.9 | ) | | (0.8 | ) | | (0.6 | ) |
| Domestic Production Activities Deduction | (0.5 | ) | | (0.6 | ) | | (0.6 | ) |
| Settlement of state tax petition | — |
| | — |
| | (0.8 | ) |
| Other, net | (0.2 | ) | | 0.2 |
| | 0.3 |
|
| | 27.4 | % | | 34.3 | % | | 33.7 | % |
The decrease in the Company's effective income tax rate in 2017 was primarily due to the adoption of ASU 2016-09 and the estimated impact of the Tax Cuts and Jobs Act (Tax Act). As required by ASU 2016-09, the Company no longer records excess tax benefits from stock option exercises as an increase to additional paid in capital, but records such excess tax benefits as a reduction of income tax expense in the reporting period in which the exercises occur.
The Tax Act was enacted on December 22, 2017 and included numerous changes to the current tax law including a permanent reduction in the corporate tax rate from 35.0 percent to 21.0 percent, as well as the imposition of a territorial rather than worldwide system which requires a one-time transition tax on the repatriation of previously deferred foreign earnings. The Company's estimate of the one-time transition tax as of December 31, 2017 was $11,544, of which $915 is expected to be paid within one year and $10,629 is included in Long-term income taxes payable on the accompanying Consolidated Balance Sheet.
Under the Tax Act, the undistributed earnings of the Company’s foreign subsidiaries are deemed repatriated. As a result, the Company has determined that a portion of these earnings are no longer indefinitely reinvested and therefore accrued foreign withholding taxes. The Company's foreign withholding tax was $3,199 and is included in Deferred income taxes on the accompanying Consolidated Balance Sheet as of December 31, 2017.
The impact to the Company's effective tax rate in 2017 from the Tax Act was a combination of a $27,153 tax benefit from the re-measurement of the Company's estimated net deferred tax liability as of December 31, 2017 based upon the new 21.0 percent corporate tax rate offset by expense of $14,743 from the preliminary estimate of the one-time transition tax relating to the impact of the deemed repatriation and withholding tax of the Company's previously undistributed foreign earnings. The net impact to the Company's tax rate in 2017 from the Tax Act was a net tax benefit of $12,410, or $0.08 diluted earnings per share. | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | 2023 | | 2022 | | 2021 |
| Statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| State taxes, net of federal tax benefit | 2.6 | | | 2.9 | | | 2.6 | |
| Foreign tax expense and tax rate differential | (0.3) | | | (0.2) | | | (0.1) | |
| Tax benefit from stock option exercises | (0.3) | | | (0.7) | | | (1.2) | |
| Research and development tax credit | (1.1) | | | (1.1) | | | (1.0) | |
| Foreign-Derived Intangible Income Deduction (FDII) | (0.3) | | | (0.3) | | | (0.2) | |
| Other, net | 0.7 | | | 0.4 | | | 0.1 | |
| 22.3 | % | | 22.0 | % | | 21.2 | % |
The increase in the Company's taxeffective rate for 2016in 2023 was primarily due to lower foreign income in jurisdictions with lower effective rates and the one-time reduction in 2015 duereduced tax benefits related to a favorable settlement of a state tax petition.
The SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act and allows the registrant to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. The Company's preliminary estimate of the one-time transition tax and the remeasurement of deferred tax assets and liabilities is subjectstock option exercises as compared to the finalization of management’s analysis related to certain matters, such as developing interpretations of the provisions of the Tax Act, changes to certain estimates and amounts related to the earnings and profits of certain subsidiaries and the filing of our tax returns. U.S. Treasury regulations, administrative interpretations or court decisions interpreting the Tax Act may require further adjustments and changes in estimates. The final determination of the one-time transition tax and the remeasurement of the Company's deferred assets and liabilities will be completed as additional information becomes available, but no later than one year from the enactment of the 2017 Tax Act in accordance with SAB 118.
Deferred income taxes for 2017, 20162023 and 20152022 reflect the impact of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. Significant components of our deferred tax assets and liabilities at December 31, 20172023 and 20162022 are as follows:
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| Deferred Tax Assets: | | | | |
| Stock-based compensation expense | | $ | 35,999 | | | $ | 35,865 | |
| Federal net operating loss and R&D Credit carryforward | | 5,477 | | | 6,565 | |
| State net operating loss carryforward | | 39,820 | | | 40,249 | |
| Foreign net operating loss carryforward and other | | 7,486 | | | 7,339 | |
| Capitalized research and development | | 11,759 | | | — | |
| Accrued expense associated with voluntary separation program | | 3,796 | | | 9,792 | |
| Basis differences in investments | | 5,111 | | | 2,432 | |
| Federal benefit of state tax deduction for uncertain tax positions | | 2,039 | | | 1,891 | |
| Revenue and expense recognized in different periods for financial reporting and income tax purposes | | 2,306 | | | 2,827 | |
| Other assets | | 2,509 | | | 4,021 | |
| Total deferred income tax assets | | 116,302 | | | 110,981 | |
| Less: Federal net operating loss and R&D valuation allowance | | (794) | | | (794) | |
| Less: State net operating loss valuation allowance | | (36,966) | | | (36,963) | |
| Less: Foreign net operating loss valuation allowance | | (7,486) | | | (7,339) | |
| Net deferred income tax assets | | $ | 71,056 | | | $ | 65,885 | |
| | | | |
| Deferred Tax Liabilities: | | | | |
| Capitalized research and development | | $ | — | | | $ | (24,764) | |
| Difference in financial reporting and income tax depreciation methods | | (9,679) | | | (12,694) | |
| Difference between book and tax basis of other assets | | (7,652) | | | (7,265) | |
| Goodwill and other intangibles | | (6,784) | | | (7,482) | |
| | | | |
| Capitalized contract costs | | (9,232) | | | (8,744) | |
| | | | |
| Total deferred income tax liabilities | | $ | (33,347) | | | $ | (60,949) | |
| Net deferred income tax assets | | $ | 37,709 | | | $ | 4,936 | |
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Deferred Tax Assets: | | | | |
| Stock-based compensation expense | | $ | 24,725 |
| | $ | 33,459 |
|
| Foreign and state net operating loss carryforward | | 71,236 |
| | 20,049 |
|
| Basis differences in investments | | 4,191 |
| | 6,165 |
|
| Federal benefit of state tax deduction for uncertain tax positions | | 1,918 |
| | 3,647 |
|
| Revenue and expense recognized in different periods for financial reporting and income tax purposes | | 2,631 |
| | 5,022 |
|
| Other assets | | 273 |
| | 813 |
|
| Total deferred income tax assets | | 104,974 |
| | 69,155 |
|
| Less: valuation allowance | | (68,469 | ) | | (17,922 | ) |
| Net deferred income tax assets | | $ | 36,505 |
| | $ | 51,233 |
|
| | | | | |
| Deferred Tax Liabilities: | | | | |
| Capitalized software currently deductible for tax purposes, net of amortization | | $ | (70,575 | ) | | $ | (107,897 | ) |
| Difference in financial reporting and income tax depreciation methods | | (3,182 | ) | | (5,190 | ) |
| Difference between book and tax basis of other assets | | (3,549 | ) | | (4,597 | ) |
| Goodwill and other intangibles | | (1,001 | ) | | — |
|
| Foreign Dividend Withholding Tax | | (3,199 | ) | | — |
|
| Other liabilities | | (704 | ) | | (1,115 | ) |
| Total deferred income tax liabilities | | $ | (82,210 | ) | | $ | (118,799 | ) |
| Net deferred income tax liabilities | | $ | (45,705 | ) | | $ | (67,566 | ) |
December 31, 2023 associated with this provision of the Tax Act which reduced the Company's net deferred tax liabilities related to capitalized research and development expenditures.
As of December 31, 2023, the Company has federal operating loss carryovers of $19,880 remaining from the acquisition of Novus Partners as well as research and development credit carryovers remaining of $1,302. The Company has recorded a deferred tax asset associated with these carryovers of $5,477 and a related valuation allowance of $794 associated with the statutory limitations of the carryforwards. Operating loss carryovers generated after December 31, 2017 have an indefinite carryforward period, while those generated before December 31, 2017 will expire beginning in 2033 through 2037.
The valuation allowances against deferred tax assets at December 31, 20172023 and 20162022 are related to federal and state net operating losses from certain domestic subsidiaries, as well as foreign net operating losses from certain foreign subsidiaries.subsidiaries and the restriction of the use of the foreign tax credits. Internal Revenue Code Section 382 places an annual limitation on the amount of operating losses and tax credits an acquiring entity can use of operating loss and tax credit carryforwards of acquired entities. Certain state and foreign tax statutes significantly limit the utilization of net operating losses for domestic and foreign subsidiaries. Furthermore, these net operating losses cannot be used to offset the net income of other subsidiaries.
The Company recognizes uncertain tax positions in accordance with the applicable accounting guidance and adjusts these liabilities when management’s judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from ourthe Company's current estimate of the tax liabilities. The Company’s total unrecognized tax benefit, not including interest and penalties, as of December 31, 20172023 was $14,480,$16,917, of which $13,737$14,878 would affect the effective tax rate if the Company were to recognize the tax benefit. The gross amount of uncertain tax liability of $3,275 which$3,837 is expected to be paid within one year and is netted against the current payable account while the remaining amount of $12,380$13,080 is included in Other long-term liabilities on the accompanying Consolidated Balance Sheets.Sheet. During the year ended December 31, 2017,2023, the Company recognized $5,846$3,383 of previously unrecognized tax benefits relating to the lapse of the statute of limitation.limitation and settlements.
The Company files a consolidated federal income tax return and separate income tax returns with various states. Certain subsidiaries of the Company file tax returns in foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examination for years before 20142020 and is no longer subject to state, local or foreign income tax examinations by authorities for years before 2010.
A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Balance as of January 1 | | $ | 17,287 |
| | $ | 14,517 |
| | $ | 14,018 |
|
| Tax positions related to current year: | | | | | | |
| Gross additions | | 3,180 |
| | 3,756 |
| | 1,954 |
|
| Tax positions related to prior years: | | | | | | |
| Gross additions | | 211 |
| | 1,762 |
| | 297 |
|
| Settlements | | (352 | ) | | (378 | ) | | — |
|
| Lapses on statute of limitations | | (5,846 | ) | | (2,370 | ) | | (1,752 | ) |
| Balance as of December 31 | | $ | 14,480 |
| | $ | 17,287 |
| | $ | 14,517 |
|
| | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Balance as of January 1 | | $ | 15,204 | | | $ | 14,886 | | | $ | 15,911 | |
| Tax positions related to current year: | | | | | | |
| Gross additions | | 3,395 | | | 3,481 | | | 3,672 | |
| Tax positions related to prior years: | | | | | | |
| Gross additions | | 120 | | | 251 | | | 382 | |
| Settlements | | — | | | — | | | (678) | |
| Lapses on statute of limitations | | (3,187) | | | (3,414) | | | (4,401) | |
| Balance as of December 31 | | $ | 15,532 | | | $ | 15,204 | | | $ | 14,886 | |
The above reconciliation of the gross unrecognized tax benefit will differ from the amount which would affect the effective tax rate because of the recognition of the federal and state tax benefits.benefits and interest and penalties.
The Company classifies all interest and penalties as income tax expense. The Company has recorded $1,175, $1,227$1,385, $1,118 and $1,391$1,338 in liabilities for tax-related interest and penalties in 2017, 20162023, 2022 and 2015,2021, respectively.
The Company estimates it will recognize $3,275$3,837 of unrecognized tax benefits within the next twelve months due to lapses on the statute of limitation.
The Company includes its direct and indirect subsidiaries in its U.S. consolidated federal income tax return. The Company’s tax sharing allocation agreement provides that any subsidiary having taxable income will pay a tax liability equivalent to what that subsidiary would have paid if it filed a separate income tax return. If the separately calculated federal income tax provision for any subsidiary results in a tax loss, the current benefit resulting from such loss, to the extent utilizable on a separate return basis, is accrued and paid to that subsidiary.
Note 1312 – Business Segment Information
The Company’s reportable business segments are:
Private Banks – providesProvides outsourced investment processing and investment management platforms to banks and trust institutions, independent wealth advisers, and financial advisors worldwide;
Investment Advisors – providesProvides investment management and investment processing platforms to affluent investors through a network of independent registered investment advisors, financial planners, and other investment professionals in the United States;
Institutional Investors – providesProvides Outsourced Chief Investment Officer solutions, including investment management and administrative outsourcing platforms to retirement plan sponsors, healthcare systems, higher education and other not-for-profit organizations worldwide;
Investment Managers – providesProvides investment operations outsourcing platforms to fund companies, banking institutions, and both traditional and non-traditional investment managers worldwide;worldwide, and family offices in the United States; and
Investments in New Businesses – focusesFocuses on providing investment management programssolutions to ultra-high-net-worth families residing in the United States; developing internet-based investment servicesnetwork and advice platforms;data protection services; modularizing larger technology platforms into stand-alone components; entering new markets; and conducting other research and development activities.
In 2017, 20162023, 2022 and 2015,2021, no single customer accounted for more than ten percent10% of revenues in any business segment.
The following tables highlight certain financial information about each of the Company’s business segments for the years ended December 31, 2017, 20162023, 2022 and 2015:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Private Banks | | Investment
Advisors | | Institutional
Investors | | Investment
Managers | | Investments
in New
Businesses | | Total |
| | For the Year Ended December 31, 2023 |
| Revenues | | $ | 503,317 | | | $ | 436,298 | | | $ | 289,708 | | | $ | 670,486 | | | $ | 19,984 | | | $ | 1,919,793 | |
| Expenses | | 455,820 | | | 259,142 | | | 165,455 | | | 437,174 | | | 45,437 | | | 1,363,028 | |
| Operating profit (loss) | | $ | 47,497 | | | $ | 177,156 | | | $ | 124,253 | | | $ | 233,312 | | | $ | (25,453) | | | $ | 556,765 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Private
Banks | | Investment
Advisors | | Institutional
Investors | | Investment
Managers | | Investments
in New
Businesses | | Total |
| | For the Year Ended December 31, 2022 |
| Revenues | | $ | 575,625 | | | $ | 447,766 | | | $ | 323,353 | | | $ | 624,918 | | | $ | 19,375 | | | $ | 1,991,037 | |
| Expenses | | 473,209 | | | 251,650 | | | 172,252 | | | 404,850 | | | 45,159 | | | 1,347,120 | |
| Operating profit (loss) | | $ | 102,416 | | | $ | 196,116 | | | $ | 151,101 | | | $ | 220,068 | | | $ | (25,784) | | | $ | 643,917 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Private
Banks | | Investment
Advisors | | Institutional
Investors | | Investment
Managers | | Investments
in New
Businesses | | Total |
| | For the Year Ended December 31, 2021 |
| Revenues | | $ | 493,570 | | | $ | 482,949 | | | $ | 343,805 | | | $ | 581,157 | | | $ | 16,828 | | | $ | 1,918,309 | |
| Expenses | | 462,796 | | | 240,334 | | | 168,070 | | | 348,655 | | | 53,219 | | | 1,273,074 | |
| Operating profit (loss) | | $ | 30,774 | | | $ | 242,615 | | | $ | 175,735 | | | $ | 232,502 | | | $ | (36,391) | | | $ | 645,235 | |
81
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Private Banks | | Investment Advisors | | Institutional Investors | | Investment Managers | | Investments In New Businesses | | Total |
| | | For the Year Ended December 31, 2017 |
| Revenues | | $ | 474,272 |
| | $ | 373,473 |
| | $ | 322,457 |
| | $ | 349,444 |
| | $ | 6,906 |
| | $ | 1,526,552 |
|
| Expenses | | 455,119 |
| | 201,833 |
| | 161,640 |
| | 226,504 |
| | 20,678 |
| | 1,065,774 |
|
| Operating profit (loss) | | $ | 19,153 |
| | $ | 171,640 |
| | $ | 160,817 |
| | $ | 122,940 |
| | $ | (13,772 | ) | | $ | 460,778 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Private Banks | | Investment Advisors | | Institutional Investors | | Investment Managers | | Investments In New Businesses | | Total |
| | | For the Year Ended December 31, 2016 |
| Revenues | | $ | 457,886 |
| | $ | 330,677 |
| | $ | 312,584 |
| | $ | 294,390 |
| | $ | 6,008 |
| | $ | 1,401,545 |
|
| Expenses | | 421,188 |
| | 180,140 |
| | 153,117 |
| | 191,127 |
| | 20,962 |
| | 966,534 |
|
| Operating profit (loss) | | $ | 36,698 |
| | $ | 150,537 |
| | $ | 159,467 |
| | $ | 103,263 |
| | $ | (14,954 | ) | | $ | 435,011 |
|
| Gain on sale of subsidiary | | 2,791 |
| | — |
| | — |
| | — |
| | — |
| | 2,791 |
|
| Total profit (loss) | | $ | 39,489 |
| | $ | 150,537 |
| | $ | 159,467 |
| | $ | 103,263 |
| | $ | (14,954 | ) | | $ | 437,802 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Private Banks | | Investment Advisors | | Institutional Investors | | Investment Managers | | Investments In New Businesses | | Total |
| | | For the Year Ended December 31, 2015 |
| Revenues | | $ | 456,516 |
| | $ | 306,620 |
| | $ | 297,568 |
| | $ | 267,963 |
| | $ | 5,541 |
| | $ | 1,334,208 |
|
| Expenses | | 410,975 |
| | 171,968 |
| | 145,851 |
| | 172,094 |
| | 20,656 |
| | 921,544 |
|
| Operating profit (loss) | | $ | 45,541 |
| | $ | 134,652 |
| | $ | 151,717 |
| | $ | 95,869 |
| | $ | (15,115 | ) | | $ | 412,664 |
|
| Gain on sale of subsidiary | | 2,791 |
| | — |
| | — |
| | — |
| | — |
| | 2,791 |
|
| Total profit (loss) | | $ | 48,332 |
| | $ | 134,652 |
| | $ | 151,717 |
| | $ | 95,869 |
| | $ | (15,115 | ) | | $ | 415,455 |
|
A reconciliation of the total reported for the business segments to income from operations in the Consolidated Statements of Operations for the years ended December 31, 2017, 20162023, 2022 and 20152021 is as follows:
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2023 | | 2022 | | 2021 |
| Total operating profit from segments above | | $ | 556,765 | | | $ | 643,917 | | | $ | 645,235 | |
Corporate overhead expenses (1) | | (132,241) | | | (168,164) | | | (91,854) | |
| Income from operations | | $ | 424,524 | | | $ | 475,753 | | | $ | 553,381 | |
|
| | | | | | | | | | | | |
| Year Ended December 31, | | 2017 | | 2016 | | 2015 |
| Total operating profit from segments above | | $ | 460,778 |
| | $ | 435,011 |
| | $ | 412,664 |
|
| Corporate overhead expenses | | (63,834 | ) | | (59,317 | ) | | (54,451 | ) |
| Income from operations | | $ | 396,944 |
| | $ | 375,694 |
| | $ | 358,213 |
|
The following tables provide additional information for the years ended December 31, 2017, 20162023, 2022 and 20152021 pertaining to ourthe Company's business segments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Capital Expenditures (2) | | Depreciation |
| Year Ended December 31, | | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| Private Banks | | $ | 19,331 | | | $ | 32,454 | | | $ | 26,472 | | | $ | 21,888 | | | $ | 21,237 | | | $ | 19,040 | |
| Investment Advisors | | 9,329 | | | 13,027 | | | 11,100 | | | 2,040 | | | 1,933 | | | 3,646 | |
| Institutional Investors | | 1,639 | | | 3,884 | | | 2,614 | | | 1,207 | | | 1,142 | | | 1,241 | |
| Investment Managers | | 26,643 | | | 20,968 | | | 10,275 | | | 9,013 | | | 8,468 | | | 8,185 | |
| Investments in New Businesses | | 817 | | | 787 | | | 924 | | | 285 | | | 164 | | | 351 | |
| Total from business segments | | $ | 57,759 | | | $ | 71,120 | | | $ | 51,385 | | | $ | 34,433 | | | $ | 32,944 | | | $ | 32,463 | |
| Corporate Overhead | | 1,384 | | | 1,714 | | | 1,151 | | | 867 | | | 713 | | | 1,018 | |
| | $ | 59,143 | | | $ | 72,834 | | | $ | 52,536 | | | $ | 35,300 | | | $ | 33,657 | | | $ | 33,481 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Capital Expenditures (1) | | Depreciation |
| Year Ended December 31, | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Private Banks | | $ | 47,526 |
| | $ | 45,940 |
| | $ | 41,972 |
| | $ | 16,479 |
| | $ | 13,222 |
| | $ | 12,348 |
|
| Investment Advisors | | 17,450 |
| | 17,610 |
| | 13,206 |
| | 3,364 |
| | 3,880 |
| | 3,410 |
|
| Institutional Investors | | 4,020 |
| | 4,319 |
| | 5,301 |
| | 1,121 |
| | 1,367 |
| | 1,200 |
|
| Investment Managers | | 15,863 |
| | 11,209 |
| | 10,119 |
| | 4,698 |
| | 4,877 |
| | 4,040 |
|
| Investments in New Businesses | | 546 |
| | 726 |
| | 736 |
| | 826 |
| | 2,197 |
| | 2,278 |
|
| Total from business segments | | $ | 85,405 |
| | $ | 79,804 |
| | $ | 71,334 |
| | $ | 26,488 |
| | $ | 25,543 |
| | $ | 23,276 |
|
| Corporate Overhead | | 1,163 |
| | 1,985 |
| | 2,547 |
| | 823 |
| | 897 |
| | 768 |
|
| | | $ | 86,568 |
| | $ | 81,789 |
| | $ | 73,881 |
| | $ | 27,311 |
| | $ | 26,440 |
| | $ | 24,044 |
|
(1)(2) Capital expenditures include additions to property and equipment and capitalized software.
| | | | | | | | | | | | | | | | | | | | |
| | | Amortization |
| Year Ended December 31, | | 2023 | | 2022 | | 2021 |
| Private Banks | | $ | 19,094 | | | $ | 25,886 | | | $ | 34,159 | |
| Investment Advisors | | 7,620 | | | 9,905 | | | 11,654 | |
| Institutional Investors | | 7,324 | | | 8,166 | | | 2,321 | |
| Investment Managers | | 3,771 | | | 9,400 | | | 9,955 | |
| Investments in New Businesses | | 579 | | | 660 | | | 739 | |
| Total from business segments | | $ | 38,388 | | | $ | 54,017 | | | $ | 58,828 | |
| Corporate Overhead | | 281 | | | 263 | | | 324 | |
| | $ | 38,669 | | | $ | 54,280 | | | $ | 59,152 | |
|
| | | | | | | | | | | | |
| | | Amortization |
| Year Ended December 31, | | 2017 | | 2016 | | 2015 |
| Private Banks | | $ | 32,696 |
| | $ | 31,675 |
| | $ | 29,819 |
|
| Investment Advisors | | 10,930 |
| | 10,458 |
| | 9,880 |
|
| Institutional Investors | | 1,599 |
| | 1,674 |
| | 1,558 |
|
| Investment Managers | | 2,593 |
| | 1,092 |
| | 1,029 |
|
| Investments in New Businesses | | 239 |
| | 146 |
| | 116 |
|
| Total from business segments | | $ | 48,057 |
| | $ | 45,045 |
| | $ | 42,402 |
|
| Corporate Overhead | | 218 |
| | 347 |
| | 228 |
|
| | | $ | 48,275 |
| | $ | 45,392 |
| | $ | 42,630 |
|
|
| | | | | | | | |
| | | Total Assets |
| | | 2017 | | 2016 |
| Private Banks | | $ | 523,214 |
| | $ | 471,435 |
|
| Investment Advisors | | 139,697 |
| | 160,717 |
|
| Institutional Investors | | 117,286 |
| | 109,879 |
|
| Investment Managers | | 278,540 |
| | 158,621 |
|
| Investments in New Businesses | | 19,269 |
| | 4,910 |
|
| Total from business segments | | $ | 1,078,006 |
| | $ | 905,562 |
|
| Corporate Overhead (2) | | 775,363 |
| | 731,261 |
|
| | | $ | 1,853,369 |
| | $ | 1,636,823 |
|
(2) Unallocated assets primarily consist of cash and cash equivalents, marketable securities, and certain other shared services assets.
Assets are not allocated to segments for internal reporting presentations. The following table presents revenues based on the location of the use of the products or services:
| | | For the Year Ended December 31, | | 2017 | | 2016 | | 2015 | For the Year Ended December 31, | | 2023 | | 2022 | | 2021 |
| United States | | $ | 1,298,381 |
| | $ | 1,191,640 |
| | $ | 1,123,165 |
|
| International operations | | 228,171 |
| | 209,905 |
| | 211,043 |
|
| | | $ | 1,526,552 |
| | $ | 1,401,545 |
| | $ | 1,334,208 |
|
| | $ | |
The following table presents assets based on their location:
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| United States | | $ | 2,041,083 | | | $ | 1,983,102 | |
| International operations | | 478,920 | | | 400,451 | |
| | $ | 2,520,003 | | | $ | 2,383,553 | |
|
| | | | | | | | |
| | | 2017 | | 2016 |
| United States | | $ | 1,471,260 |
| | $ | 1,317,235 |
|
| International operations | | 382,109 |
| | 319,588 |
|
| | | $ | 1,853,369 |
| | $ | 1,636,823 |
|
Note 1413 – Related Party Transactions
The Company, either by itself or through its wholly-owned subsidiaries, serves as the sponsor, administrator, investment advisor, distributor and shareholder servicer for SEI-sponsored investment products. These investment products are offered to clients of the Company and its subsidiaries. Fees earned by the Company for the related services are recognized pursuant to the provisions of investment advisory, fund administration, distribution, and shareholder services agreements directly with the investment products. These fees totaled $453,438, $431,318$389,219, $420,206 and $426,301$473,161 in 2017, 2016 2023, 2022
and 2015, respectively, and are reflected in Asset management, administration and distribution fees on the accompanying Consolidated Statements of Operations.2021, respectively. The Company alsoCompany's broker-dealer subsidiary, SIDCO, serves as an introducing broker-dealer for securities transactions of SEI-sponsored investment products. The Company recognized $1,216, $561$1,352, $2,601 and $365$1,917 in commissions during 2017, 20162023, 2022 and 2015,2021, respectively. TheseBoth of these fees are reflected in Transaction-basedAsset management, administration and trade executiondistribution fees on the accompanying Consolidated Statements of Operations.
Receivables from investment products on the accompanying Consolidated Balance Sheets primarily represent fees receivable for distribution, investment advisory, and administration services to various investment products sponsored by SEI.
Note 1514 – SaleVoluntary Separation Program
The Company initiated a Voluntary Separation Program (VSP) to long-tenured employees which was finalized in July 2022. The VSP was offered to long-tenured employees as part of SEI Asset Koreaits commitment to professional development and expanded responsibilities for current and new employees by increasing advancement opportunities.
On July 31, 2012,The VSP was made available to employees in the United States who met the long-term tenure requirements and included a severance package and the continuation of certain benefits based upon years of service. The severance package also included allowances related to the vesting of certain stock option awards during 2022 and the period in which the employee may exercise vested stock options after the termination of employment. These allowances are considered modifications to the Company's equity compensation plans.
All employees accepted into the program finished their employment. In accordance with accounting guidance, the Company MetLife International Holdings, Inc. (MetLife)was required to recognize all costs related to termination salary and International Finance Corporation (IFC) enteredbenefits under the VSP in the period in which the participating employees are irrevocably accepted into the program and the amount is reasonably estimated. As a definitive agreementresult, the Company recognized $54,756 in net personnel costs associated with Baring Asset Management Limited (Barings) to sell all ownership interest in SEI Asset Korea (SEI AK). SEI AK was located in South Korea and provided domestic equity and fixed-income investment management services to financial institutions and pension funds.
On March 28, 2013, all conditions subject to closing the transaction were satisfied and all ownership interests in SEI AK were transferred to Barings. Under the terms of the agreement, a portion of the purchase price was paid upon closing with up to an additional $11,220 payableVSP during 2022. These personnel costs included stock-based compensation expense from modifications to the Company as a contingent purchase price with respectCompany's equity compensation plans related to three one-year periods ending on December 31, 2013, 2014 and 2015 depending upon whether SEI AK achieves specified revenue measures during such periods. The Company recognized a pre-tax gainthe vesting of $2,791, or $0.01 diluted earnings per share, during 2015 and 2016.stock options awarded to employees participating in the VSP net of options forfeited (See Note 7). The Company's gainspersonnel costs recognized from the sale of SEI AKVSP are includedreflected in Gain on sale of subsidiaryCompensation, benefits and other personnel on the accompanying Consolidated StatementStatements of Operations.
Note 1615 – Business Acquisitions
XPS Pensions (Nexus) Limited
On July 3, 2017,November 20, 2023, the CompanyCompany's wholly-owned operating subsidiary in the United Kingdom, SIEL, acquired all ownership interests of Archway Technology Partners, LLC, Archway Finance & Operations, Inc.the outstanding equity of XPS Pensions (Nexus) Limited, principal employer and Keystone Capital Holdings, LLC (collectively, Archway)scheme funder of the National Pensions Trust (NPT), a provider of operating technologies and servicesfrom its parent company, XPS Pensions Group PLC (XPS) to the family office industry, from Keystone International Holdings, Inc. With this acquisition, the Company expandsexpand its positionpresence in the single and multi-family office servicesdefined contribution market by diversifying its technology and operating solutions.in the United Kingdom.
Under the acquisition method of accounting, the total purchase price was allocated to Archway'sthe net tangible and intangible assets of XPS Pensions (Nexus) Limited based upon their estimated fair values as of July 3, 2017. November 20, 2023.
The total purchase price for ArchwayXPS Pensions (Nexus) Limited was $81,635$46,205 in cash consideration with up to an additional $8,000 payableand a contingent consideration of $3,932 subject to the seller as a contingent purchase price with respect toachievement of certain post-closing performance measurements determined during intervals occurring within two one-year periods ending December 31, 2017 and 2018 depending upon whether Archway achieves specified financial measures during such periods. The fair value ofyears immediately following the contingent consideration was estimated to be $4,800 on the acquisitionclosing date. Archway did not attain the specified financial measure for the period ended December 31, 2017. As a result, as of December 31, 2017, the Company reversed the value allocated to the contingent consideration established at the acquisition date. Additionally, the Company recognized a liability for post-acquisition obligations to the members of Archway. The net adjustment of $3,800 was recorded as a reduction in expense and is reflected in Facilities, supplies and other costs on the accompanying Consolidated Statement of Operations.
The Company acquired $1,401$2,306 in cash during the acquisition, resulting in $80,234$43,899 net cash paid for Archway. According to the terms of the purchase agreement, a portion of the purchase price was placed into escrow to indemnify the Company of any pre-acquisition damages. As of December 31, 2017, the balance available in escrow was $8,000.XPS Pensions (Nexus) Limited.
The purchase price allocation related to the XPS Pensions (Nexus) Limited acquisition is as follows:
| | | | | | | | | | | |
| Estimated Fair Value | | Estimated Useful Life |
| Current assets, net of current liabilities | $ | 2,528 | | | |
| Property and equipment, net | 440 | | | |
| Goodwill | 14,492 | | | |
| Identifiable intangible assets: | | | |
| Client relationships | 32,677 | | | 10 years |
| Contingent consideration | (3,932) | | | |
| Net cash consideration | $ | 46,205 | | | |
|
| | | | | | |
| | | Estimated Fair Value | | Estimated Useful Life |
| Current assets, net of current liabilities | | $ | 2,539 |
| | |
| Property and equipment | | 776 |
| | |
| Goodwill | | 52,990 |
| | |
| Identifiable intangible assets | | | | |
| Acquired technology | | 13,510 |
| | 10 years |
| Client relationships | | 10,760 |
| | 15 years |
| Non-competition agreements | | 3,470 |
| | 5 years |
| Trade names | | 2,390 |
| | 7 years |
| Contingent consideration | | (4,800 | ) | | |
| Total purchase price allocation | | $ | 81,635 |
| | |
The results of operations of Archway and any adjustments related to the acquisitionXPS Pensions (Nexus) Limited are included in the Investment Managers businessInstitutional Investors segment and are reflected in the Company's Consolidated Statement of Operations since the completion of the acquisition on July 3, 2017.
All tangible and intangible assets resulting from the Archway transaction have been allocated to the Investment Managers business segment. Amortization expense related to the intangible assets acquired was $1,552 during the period ended December 31, 2017. The Company currently expects to recognize approximately $3,104 in amortization expense related to the intangible assets each year from 2018 through 2021 and $2,757 in expense in 2022.acquisition. Any goodwill generated for income tax purposes from the acquisition is fully deductible for income tax purposes.
Pro forma information has not been presented because the effect of the Archway acquisition is not material to the Company's consolidated financial results.
On December 20, 2023, the Company acquired substantially all of the assets comprising Altigo, a cloud-based technology platform that provides inventory, e-subscription, and reporting capabilities for alternative investments. Under the acquisition method of accounting, the total purchase price was allocated to the net tangible and intangible assets related to the Altigo platform based upon their estimated fair values as of December 20, 2023. The total purchase price for Altigo was $12,536.
The purchase price allocation related to the Altigo acquisition is as follows:
| | | | | | | | | | | |
| Estimated Fair Value | | Estimated Useful Life |
| Current assets, net of current liabilities | $ | 36 | | | |
| Goodwill | 6,960 | | | |
| Identifiable intangible assets: | | | |
| Acquired technology | 5,240 | | | 5 years |
| Trade name | 300 | | | 3 years |
| Net cash consideration | $ | 12,536 | | | |
The results of operations of Altigo are included in the Investments in New Businesses segment and are reflected in the Company's Consolidated Statement of Operations since the completion of the acquisition. Any goodwill generated for income tax purposes from the acquisition is fully deductible (See Note 16).
Pro forma information has not been presented because the effect of the acquisition is not material to the Company's consolidated financial results.
Huntington Steele
In April 2018, the Company acquired all ownership interests of Huntington Steele, LLC (Huntington Steele). The total purchase price for Huntington Steele included a contingent purchase price payable to the sellers which is determined at various intervals occurring between 2019 and 2023. In July 2023, the Company exercised its option to settle the contingent consideration. The Company made total payments of $8,799 and $868 during 2023 and 2022, respectively, to the sellers related to the contingent consideration. As of December 31, 2023, the Company no longer has any obligation for future payments to the sellers related to the acquisition of Huntington Steele.
Note 16 – Goodwill and Intangible Assets
The carrying amount of the Company's goodwill by segment at December 31, 2023 and 2022 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Institutional Investors | | Investment Managers | | Investments in New Businesses | | Total |
| | | | |
| Balance, December 31, 2021 | | $ | 48,911 | | | $ | 56,822 | | | 11,499 | | | $ | 117,232 | |
| Measurement period adjustments | | (1,803) | | | 215 | | | | | (1,588) | |
| Foreign currency translation adjustments | | — | | | (45) | | | — | | | (45) | |
| Balance, December 31, 2022 | | $ | 47,108 | | | $ | 56,992 | | | $ | 11,499 | | | $ | 115,599 | |
| Acquisitions (See Note 15) | | 14,492 | | | — | | | 6,960 | | | 21,452 | |
| | | | | | | | |
| Foreign currency translation adjustments | | 284 | | | (2) | | | — | | | 282 | |
| Balance, December 31, 2023 | | $ | 61,884 | | | $ | 56,990 | | | $ | 18,459 | | | $ | 137,333 | |
The Company's intangible assets consist of:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | Weighted Average Estimated Useful Life | | 2022 | | Weighted Average Estimated Useful Life |
| Client relationships | $ | 63,803 | | | 10.4 years | | $ | 30,173 | | | 8.3 years |
| Acquired technology | 53,020 | | | 7.7 years | | 47,780 | | | 8.5 years |
| Trade name | 4,670 | | | 15.1 years | | 4,370 | | | 14.1 years |
| Non-competition agreements | 3,470 | | | 5.0 years | | 3,470 | | | 5.0 years |
| 124,963 | | | | | 85,793 | | | |
| Less: Accumulated amortization | (42,520) | | | | | (30,261) | | | |
| Intangible assets, net | $ | 82,443 | | | | | $ | 55,532 | | | |
The Company recognized $12,161, $12,580 and $5,260 of amortization expense related to intangible assets during 2023, 2022 and 2021, respectively.
The Company currently expects to recognize amortization expense related to intangible assets as of December 31, 2023 each year from 2024 through 2028 as follows:
| | | | | |
| Year | Expected Amortization Expense Related to Intangible Assets |
| 2024 | $ | 12,441 | |
| 2025 | 12,222 | |
| 2026 | 12,114 | |
| 2027 | 9,567 | |
| 2028 | 8,650 | |
Note 17 – Quarterly Financial Data (Unaudited)Revenues from Contracts with Customers
The Company’s principal sources of revenues are: (1) asset management, administration and distribution fees primarily earned based upon a contractual percentage of net assets under management or administration; and (2) information processing and software servicing fees that are either recurring and primarily earned based upon the number of trust accounts being serviced or a percentage of the market value of the clients' assets processed on the Company's platforms, or non-recurring and based upon project-oriented contractual agreements related to client implementations.
|
| | | | | | | | | | | | | | | | |
| | | For the Three Months Ended |
| 2017 | | March 31 | | June 30 | | September 30 | | December 31(1) |
| Revenues | | $ | 359,984 |
| | $ | 372,331 |
| | $ | 386,018 |
| | $ | 408,219 |
|
| Income before income taxes | | $ | 128,660 |
| | $ | 135,158 |
| | $ | 140,769 |
| | $ | 152,452 |
|
| Net income | | $ | 88,737 |
| | $ | 91,769 |
| | $ | 101,739 |
| | $ | 122,144 |
|
| Basic earnings per share | | $ | 0.56 |
| | $ | 0.58 |
| | $ | 0.64 |
| | $ | 0.78 |
|
| Diluted earnings per share (2) | | $ | 0.55 |
| | $ | 0.57 |
| | $ | 0.63 |
| | $ | 0.75 |
|
| | | | | | | | | |
| Effective income tax rate | | 31.0 | % | | 32.1 | % | | 27.7 | % | | 19.9 | % |
The following tables provide additional information pertaining to our revenues disaggregated by major product line and primary geographic market based on the location of the use of the products or services for each of the Company’s business segments for 2023, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Private Banks | | Investment
Advisors | | Institutional
Investors | | Investment
Managers | | Investments
in New
Businesses | | Total |
| Major Product Lines: | For the Year Ended December 31, 2023 |
| Investment management fees from pooled investment products | $ | 127,388 | | | $ | 239,244 | | | $ | 47,943 | | | $ | 401 | | | $ | 1,382 | | | $ | 416,358 | |
| Investment management fees from investment management agreements | 3,091 | | | 174,418 | | | 223,212 | | | — | | | 16,647 | | | 417,368 | |
| Investment operations fees | 1,572 | | | — | | | — | | | 616,829 | | | — | | | 618,401 | |
| Investment processing fees - PaaS | 248,926 | | | 4,635 | | | 457 | | | 244 | | | 42 | | | 254,304 | |
| Investment processing fees - SaaS | 90,150 | | | — | | | 10,118 | | | 17,188 | | | — | | | 117,456 | |
Professional services fees (1) | 28,069 | | | — | | | — | | | 3,306 | | | — | | | 31,375 | |
| Account fees and other | 4,121 | | | 18,001 | | | 7,978 | | | 32,518 | | | 1,913 | | | 64,531 | |
| Total revenues | $ | 503,317 | | | $ | 436,298 | | | $ | 289,708 | | | $ | 670,486 | | | $ | 19,984 | | | $ | 1,919,793 | |
| | | | | | | | | | | |
| Primary Geographic Markets: | | | | | | | | | | | |
| United States (1) | $ | 332,543 | | | $ | 436,298 | | | $ | 242,945 | | | $ | 608,339 | | | $ | 19,984 | | | $ | 1,640,109 | |
| United Kingdom | 113,221 | | | — | | | 34,485 | | | 94 | | | — | | | 147,800 | |
| Canada | 39,974 | | | — | | | 5,652 | | | — | | | — | | | 45,626 | |
| Ireland | 17,579 | | | — | | | 6,626 | | | 38,319 | | | — | | | 62,524 | |
| Luxembourg | — | | | — | | | — | | | 23,734 | | | — | | | 23,734 | |
| | | | | | | | | | | |
| Total revenues | $ | 503,317 | | | $ | 436,298 | | | $ | 289,708 | | | $ | 670,486 | | | $ | 19,984 | | | $ | 1,919,793 | |
(1) DuringProfessional services fees of the fourth quarter 2017,Private Banks segment includes a one-time early contractual buyout fee of $10,457 recorded during 2023 from an investment processing client acquired by an existing client.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Private
Banks | | Investment
Advisors | | Institutional
Investors | | Investment
Managers | | Investments
in New
Businesses | | Total |
| Major Product Lines: | For the Year Ended December 31, 2022 |
| Investment management fees from pooled investment products | $ | 125,430 | | | $ | 263,266 | | | $ | 54,656 | | | $ | 396 | | | $ | 1,476 | | | $ | 445,224 | |
| Investment management fees from investment management agreements | 2,187 | | | 162,762 | | | 251,256 | | | — | | | 16,117 | | | 432,322 | |
| Investment operations fees | 1,410 | | | — | | | — | | | 578,403 | | | — | | | 579,813 | |
| Investment processing fees - PaaS | 228,556 | | | 5,100 | | | 396 | | | 186 | | | 40 | | | 234,278 | |
| Investment processing fees - SaaS | 112,096 | | | — | | | 11,425 | | | 15,581 | | | — | | | 139,102 | |
| Professional services fees (2) | 102,169 | | | — | | | — | | | 2,673 | | | — | | | 104,842 | |
| Account fees and other | 3,777 | | | 16,638 | | | 5,620 | | | 27,679 | | | 1,742 | | | 55,456 | |
| Total revenues | $ | 575,625 | | | $ | 447,766 | | | $ | 323,353 | | | $ | 624,918 | | | $ | 19,375 | | | $ | 1,991,037 | |
| | | | | | | | | | | |
| Primary Geographic Markets: | | | | | | | | | | | |
| United States | $ | 317,399 | | | $ | 447,766 | | | $ | 267,928 | | | $ | 570,554 | | | $ | 19,375 | | | $ | 1,623,022 | |
| United Kingdom (2) | 199,294 | | | — | | | 42,777 | | | — | | | — | | | 242,071 | |
| Canada | 43,108 | | | — | | | 5,311 | | | — | | | — | | | 48,419 | |
| Ireland | 15,824 | | | — | | | 7,075 | | | 37,466 | | | — | | | 60,365 | |
| Luxembourg | — | | | — | | | — | | | 16,898 | | | — | | | 16,898 | |
| Other | — | | | — | | | 262 | | | — | | | — | | | 262 | |
| Total revenues | $ | 575,625 | | | $ | 447,766 | | | $ | 323,353 | | | $ | 624,918 | | | $ | 19,375 | | | $ | 1,991,037 | |
(2) Professional services fees of the Private Banks segment includes one-time early termination fees of $88,000 related to a contractual agreement with a significant client of the Company. In accordance with ASC 606, the entire amount of the fees received were recorded during 2022 as there were no future performance obligations of the Company recognized an estimated net tax benefit of $12,410, or $0.08 diluted earnings per share, resultingrelated to the agreement upon termination.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Private
Banks | | Investment
Advisors | | Institutional
Investors | | Investment
Managers | | Investments
in New
Businesses | | Total |
| Major Product Lines: | For the Year Ended December 31, 2021 |
| Investment management fees from pooled investment products | $ | 134,617 | | | $ | 301,581 | | | $ | 57,716 | | | $ | 134 | | | $ | 1,330 | | | $ | 495,378 | |
| Investment management fees from investment management agreements | 2,271 | | | 158,181 | | | 282,797 | | | — | | | 14,838 | | | 458,087 | |
| Investment operations fees | 1,512 | | | — | | | — | | | 538,446 | | | — | | | 539,958 | |
| Investment processing fees - PaaS | 215,473 | | | 6,907 | | | 308 | | | 300 | | | 21 | | | 223,009 | |
| Investment processing fees - SaaS | 113,964 | | | — | | | 1,207 | | | 13,792 | | | — | | | 128,963 | |
| Professional services fees | 22,054 | | | — | | | — | | | 3,508 | | | — | | | 25,562 | |
| Account fees and other | 3,679 | | | 16,280 | | | 1,777 | | | 24,977 | | | 639 | | | 47,352 | |
| Total revenues | $ | 493,570 | | | $ | 482,949 | | | $ | 343,805 | | | $ | 581,157 | | | $ | 16,828 | | | $ | 1,918,309 | |
| | | | | | | | | | | |
| Primary Geographic Markets: | | | | | | | | | | | |
| United States | $ | 315,040 | | | $ | 482,949 | | | $ | 274,867 | | | $ | 539,843 | | | $ | 16,828 | | | $ | 1,629,527 | |
| United Kingdom | 111,900 | | | — | | | 53,888 | | | — | | | — | | | 165,788 | |
| Canada | 48,325 | | | — | | | 4,396 | | | — | | | — | | | 52,721 | |
| Ireland | 18,305 | | | — | | | 10,151 | | | 41,314 | | | — | | | 69,770 | |
| Other | — | | | — | | | 503 | | | — | | | — | | | 503 | |
| Total revenues | $ | 493,570 | | | $ | 482,949 | | | $ | 343,805 | | | $ | 581,157 | | | $ | 16,828 | | | $ | 1,918,309 | |
Investment management fees from the impactspooled investment products - Revenues associated with clients' assets invested in Company-sponsored pooled investment products. Contractual fees are stated as a percentage of the enactmentmarket value of assets under management and collected on a monthly basis. Revenues are recognized in Asset management, administration and distribution fees on the accompanying Consolidated Statements of Operations.
Investment management fees from investment management agreements - Revenues based on assets of clients of the Tax Act on December 22, 2017 (See Note 12).
(2) The sumInstitutional Investors segment primarily invested in Company-sponsored products. Each client is charged an investment management fee that is stated as a percentage of the individualmarket value of all assets under management. The client is billed directly on a quarterly earnings per share amounts may not agreebasis. Revenues are recognized in Asset management, administration and distribution fees on the accompanying Consolidated Statements of Operations.
Revenues associated with the annual earnings per share amountseparately managed account program offered through registered investment advisors located throughout the United States. The contractual fee is stated as eacha percentage of the market value of all assets invested in the separately managed account and collected on a quarterly computationbasis. Revenues are recognized in Asset management, administration and distribution fees on the accompanying Consolidated Statements of Operations.
Investment operations fees - Revenues earned from accounting and administrative services, distribution support services and regulatory and compliance services to investment management firms and family offices. The Company contracts directly with the investment management firm or family office. The contractual fees are stated as a percentage of net assets under administration and billed when asset valuations are finalized. Revenues are recognized in Asset management, administration and distribution fees on the accompanying Consolidated Statements of Operations.
Investment processing fees - Platform as a Service - Revenues associated with clients that outsource their entire investment operation and back-office processing functions. Through the use of the Company's proprietary platforms, the Company assumes all back-office investment processing services including investment processing, custody and safekeeping of assets, income collections, securities settlement and other related trust activities. The contractual fee is based on a monthly fee plus additional fees determined on a per-account or per-transaction basis. Contractual fees can also be stated as a percentage of the weighted average numbervalue of shares outstanding during that period.assets processed on the Company's platforms each month as long as the fee is in excess of a monthly contractual minimum. The client is billed directly on a monthly basis. Revenues are recognized in Information processing and software servicing fees on the accompanying Consolidated Statements of Operations.
Revenues associated with clients of the mutual fund trading solution are fees recognized for shareholder services and related services through the use of the Company's proprietary platform or through third-party vendor agreements. Contractual fees are stated as a percentage of the value of total assets or positions processed on the Company's platform or subject to third-party vendor agreements each month. Fees are billed and collected on a monthly and quarterly basis. These revenues were previously classified under Account fees and other in 2022 and 2021 and have been reclassified to conform to the current year presentation
Investment processing fees - Software as a Service - Revenues associated with clients of the Private Banks segment for application software services. Clients retain responsibility for all investment operations, client administration and other back-office trust operations. The contractual fee is based on a monthly fee plus additional fees determined on a per-account or per-transaction basis. The client is billed directly on a monthly basis.
Revenues associated with clients of the Investment Managers segment processed on the Archway PlatformSM are fees for hosted technology services to family offices and financial institutions. The Archway Platform is an integrated technology platform used for investment, operations, accounting and client reporting by these institutions. The contractual fee is based on a monthly subscription fee to access the Archway Platform along with additional fees on a per transaction basis.
Revenues associated with clients of the Institutional Investors segment processed on the SEI NovusSM portfolio intelligence tool are fees for data management, performance measurement, reporting, and risk analytics. The contractual fee is based on a fixed fee to access SEI Novus and includes fees for integration of historical fund data and custom reporting.
All revenues from investment processing fees are recognized in Information processing and software servicing fees on the accompanying Consolidated Statements of Operations.
Professional servicesfees - Revenues associated with the business services migration for investment processing clients of the Private Banks segment and investment operations clients of the Investment Managers segment. In addition, Professional services include other services such as business transformation consulting. Typically fees are stated as a contractual fixed fee. The client is billed directly and fees are collected according to the terms of the agreement.
Account fees and other - Revenues associated with custody account servicing, income from client cash balances held in the FDIC-insured accounts through the SEI Integrated Cash program, account terminations, reimbursements received for out-of-pocket expenses, and other fees for the provision of ancillary services.
|
| | | | | | | | | | | | | | | | |
| | | For the Three Months Ended |
| 2016 | | March 31 | | June 30 | | September 30 | | December 31(3) |
| Revenues | | $ | 334,263 |
| | $ | 343,831 |
| | $ | 354,641 |
| | $ | 368,810 |
|
| Income before income taxes | | $ | 119,638 |
| | $ | 124,904 |
| | $ | 130,890 |
| | $ | 133,053 |
|
| Net income | | $ | 77,497 |
| | $ | 81,005 |
| | $ | 86,704 |
| | $ | 88,611 |
|
| Basic earnings per share | | $ | 0.48 |
| | $ | 0.50 |
| | $ | 0.54 |
| | $ | 0.55 |
|
| Diluted earnings per share (2) | | $ | 0.47 |
| | $ | 0.49 |
| | $ | 0.53 |
| | $ | 0.55 |
|
| | | | | | | | | |
| Effective income tax rate | | 35.2 | % | | 35.2 | % | | 33.8 | % | | 33.4 | % |
(3)
Note 18 – Leases
The Company has operating leases for corporate facilities and equipment. The Company's expense related to leases during 2023, 2022 and 2021 was $10,334, $10,328 and $11,190, respectively, and is included in Facilities, supplies and other costs on the accompanying Consolidated Statements of Operations. During the fourth quarter 2016,2023, 2022 and 2021 the Company recognized a performance feeincurred variable lease costs of $12,286$1,084, $906 and a corresponding sub-advisory expense$2,110, respectively included in total expense.
The Company's future minimum lease payments under non-cancelable leases as of $6,143 associated with an SEI-sponsored investment product. These items resultedDecember 31, 2023 are as follows:
| | | | | | | | |
| Year | | Future Minimum Lease Payment |
| 2024 | | $ | 8,473 | |
| 2025 | | 6,235 | |
| 2026 | | 5,794 | |
| 2027 | | 3,520 | |
| 2028 | | 1,456 | |
| Thereafter | | 1,907 | |
| Total future minimum lease payments | | 27,385 | |
| Less: Imputed interest | | (2,032) | |
| Total | | $ | 25,353 | |
The following table provides supplemental Consolidated Balance Sheet information related to the Company's leases:
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| Current portion of long-term operating lease liabilities | | $ | 8,118 | | | $ | 10,344 | |
| Long-term operating lease liabilities | | 17,235 | | | 18,786 | |
| Total operating lease liabilities | | $ | 25,353 | | | $ | 29,130 | |
| | | | |
| Weighted average remaining lease term | | 4.2 years | | 3.9 years |
| | | | |
| Weighted average discount rate | | 3.05 | % | | 2.37 | % |
The following table provides supplemental cash flow information related to the Company's leases:
| | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31,
| | 2023 | | 2022 | | 2021 | | |
| Cash paid for amounts included in the measurement of lease liabilities | | $ | 11,092 | | | $ | 10,982 | | | $ | 10,132 | | | |
| | | | | | | | |
| Right-of-use assets obtained in exchange for lease obligations | | $ | 6,009 | | | $ | 1,571 | | | $ | 3,778 | | | |
As of December 31, 2023, the Company had $14,952 in an after-tax net profit of $4,091, or $0.03 diluted earnings per share.
| | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Schedule II - Valuation and Qualifying Accounts and Reserves | | | | SEI Investments Company |
| (In thousands) | | | | | | | | and Subsidiaries |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | | Additions | | | | |
| Description | | Balance at
Beginning
of Year | | Charged to
Costs and
Expenses | | Charged
to Other
Accounts | | (Deductions) | | Balance
at End
of Year |
| Allowance for doubtful accounts: | | | | | | | | | | |
| 2023 | | $ | 901 | | | $ | — | | | $ | — | | | $ | (238) | | | $ | 663 | |
| 2022 | | 1,602 | | | — | | | — | | | (701) | | | 901 | |
| 2021 | | 1,100 | | | 502 | | | — | | | — | | | 1,602 | |
| Deferred income tax valuation allowance: | | | | | | | | | | |
| 2023 | | $ | 45,096 | | | $ | 150 | | | $ | — | | | $ | — | | | $ | 45,246 | |
| 2022 | | 63,799 | | | — | | | — | | | (18,703) | | | 45,096 | |
| 2021 | | 68,776 | | | — | | | — | | | (4,977) | | | 63,799 | |
|
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | | Additions | | | | |
| Description | | Balance at Beginning of Year | | Charged to Costs and Expenses | | Charged to Other Accounts | | (Deductions) | | Balance at End of Year |
| Allowance for doubtful accounts: | | | | | | | | | | |
| 2017 | | $ | 523 |
| | $ | 172 |
| | $ | — |
| | $ | — |
| | $ | 695 |
|
| 2016 | | 649 |
| | — |
| | — |
| | (126 | ) | | 523 |
|
| 2015 | | 784 |
| | — |
| | — |
| | (135 | ) | | 649 |
|
| Deferred income tax valuation allowance: | | | | | | | | | | |
| 2017 (1) | | $ | 17,922 |
| | $ | — |
| | $ | 50,547 |
| | $ | — |
| | $ | 68,469 |
|
| 2016 | | 14,548 |
| | — |
| | 3,374 |
| | — |
| | 17,922 |
|
| 2015 | | 16,509 |
| | (1,142 | ) | | (819 | ) | | — |
| | 14,548 |
|
(1) Additions to deferred income tax valuation allowance in 2017 reflect the Pennsylvania state tax law change in October 2017 regarding the use of net operating losses.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.Disclosure.
None.
Item 9A. Controls and Procedures.Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of the end of the period covered by this annual report to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control – Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2017.2023.
The effectiveness of our internal control over financial reporting as of December 31, 20172023 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during the quarter ended December 31, 20172023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other InformationInformation.
During the three months ended December 31, 2023, none of our officers or directors adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement" (as defined in Item 408 (c) of Regulation S-K).
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.Governance.
Identification of Directors
Information with respect to the members of the Board of Directors of the Company is set forth under the caption “Election of Directors” in the Company’s definitive proxy statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference.
Identification of Executive Officers
The Board of Directors of the Company has determined that the Company’s executive officers within the meaning of Rule 3b-7 promulgated under the Securities Exchange Act of 1934, as amended, are as follows:
ALFRED P. WEST, JR., 75, 81, has been the Executive Chairman of theour Board of Directors andsince June 2022. Prior to June 2022, Mr. West served as our Chief Executive Officer of the Company since its inceptionwe were founded in 1968. Additionally, Mr. West wasalso served as our President from June 1979 to August 1990.
KEVINRYAN P. BARR, 52,HICKE, 46, has been an employee of the Company since May 2000.1998, and our Chief Executive Officer since June 2022. Prior to his appointment as our Chief Executive Officer, Mr. Barr has been anHicke was one of our Executive Vice Presidents from November 2018 until June 2022. Mr. Hicke served as our Chief Information Officer from November 2018 to June 2022, and was a Senior Vice President since May 2008.from 2015 until November 2018.
ROBERT F. CRUDUP, 70,PHILIP N. MCCABE, 61, has been an employee since February 1989, and one of the Company since 1987. Mr. Crudup has been anour Executive Vice Presidents since March 2022. Mr. McCabe was a Senior Vice President sincefrom January 2001.2016 until March 2022.
KATHY C. HEILIG, 59,DENNIS J. MCGONIGLE, 63, has been an employee since August 1985 and has served as our Chief Financial Officer since December 2002, as well as one of the Companyour Executive Vice Presidents since November 1987. Ms. HeiligJuly 1996. Mr. McGonigle was a Senior Vice President from May 1995 until July 1996.
MICHAEL N. PETERSON, 57, has been Chief Accounting Officer and Controller since May 1999. Ms. Heilig was Treasurer from May 1997 to May 2005.
N. JEFFREY KLAUDER, 65, has beenone of our Executive Vice PresidentPresidents and has served as our General Counsel of the Company since August 2004.June 2018. Prior to August 2004,February 2018, Mr. KlauderPeterson was a partner of Morgan, Lewis & Bockius LLP, a law firm, and from February 2018 until May 2018, Mr. Peterson was a partner of Reed Smith LLP, a law firm.
PAUL F. KLAUDER, 50,SANJAY K. SHARMA, 54, has been an employeeone of the Company since May 1993. Mr. Klauder has been anour Executive Vice PresidentPresidents since February 2016 andJune 2022. Mr. Sharma was a Senior Vice President since May 2004.from August 2008 until June 2022.
DENNIS J. MCGONIGLE, 57, has been an employee of the Company since August 1985. Mr. McGonigle has been the Chief Financial Officer since December 2002 and an Executive Vice President since July 1996 and a Senior Vice President since May 1995.
STEPHEN G. MEYER, 53, has been an employee of the Company since November 1992. Mr. Meyer has been an Executive Vice President since December 2006 and a Senior Vice President since December 2005.
JOSEPH P. UJOBAI,MARK A. WARNER, 56, has been an employee of the Company since May 1998. Mr. Ujobai1990, and has served as our Chief Accounting Officer and Controller since March 2023.
WAYNE M. WITHROW, 68, has been an employee since January 1990, and one of our Executive Vice PresidentPresidents since May 2003 andMarch 2000. Mr. Withrow was a Senior Vice President sincefrom January 2001.
WAYNE M. WITHROW, 62, has been an employee of the Company since January 1990.1994 until March 2000. Mr. Withrow has been an Executive Vice President since March 2000 and a Senior Vice President since January 1994. Mr. Withrow wasserved as our Chief Information Officer from March 2000 to May 2002.
Section 16(a) Beneficial Ownership Reporting Compliance
Information with respect to the Section 16(a) compliance of the directors and executive officers of the Company is set forth under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s definitive proxy statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference.
Code of Conduct
The Company has adopted a Code of Conduct applicable to all of its employees, including its executive officers, as well as a Code of Ethics for Senior Financial Officers. The Code of Conduct and the Code of Ethics for Senior Financial Officers is posted on our website, www.seic.com under the Investors/Corporate Investors relations/Governance section.
Item 11. Executive Compensation.Compensation.
Information required by this item is set forth under the caption “Executive Compensation” in the Company’s definitive proxy statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.Matters.
Information required by this item is set forth under the caption “Ownership of Shares” in the Company’s definitive proxy statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference.
The following table provides information regarding the aggregate number of securities to be issued under all of our equity compensation plans upon exercise of outstanding options, stock units, warrants, and other rights and their weighted-average exercise price as of December 31, 2017.2023. Material features of each of the plans reflected in the table are described below.
| | | | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | Weighted –average exercise price of outstanding options, warrants and rights (b) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
| | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | Weighted –average
exercise price of
outstanding options,
warrants and rights
(b) | | Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c) |
| Equity compensation plans approved by security holders | | 16,712,177 |
| | $ | 37.63 |
| | 24,107,806 |
|
| Equity compensation plans not approved by security holders | | — |
| | — |
| | — |
|
| Total | | 16,712,177 |
| | $ | 37.63 |
| | 24,107,806 |
|
The 2014 Omnibus Equity Compensation Plan:
On March 19, 2014, the Board of Directors adopted the 2014 Omnibus Equity Compensation Plan (the 2014 Plan), and the Company’s shareholders approved the adoption of the 2014 Plan on May 21, 2014 (the Effective Date). The 2014 Plan replaced the 2007 Equity Compensation Plan (The(the 2007 Plan). The 2007 Plan has been merged with and into the 2014 Plan as of the Effective Date. Outstanding grants under the 2007 Plan will continue according to the terms in effect before the plan merger, but the outstanding shares with respect to those outstanding grants will be issued or transferred under the 2014 Plan. No additional grants shall be made after the Effective Date under the 2007 Plan.
The 2014 Plan provides for grants of stock options (incentive stock options and nonqualified stock options), restricted stock units, stock awards, stock appreciation rights (SARs), dividend equivalents and other stock-based awards to all employees (including employees who are also directors) of the Company or its subsidiaries, consultants who perform valuable services to the Company or its subsidiaries and members of the Board of Directors who are not employees of the Company. The Company has only granted nonqualified stock options and restricted stock units under the 2014 Plan.
The 2014 Plan is administered and interpreted by the Compensation Committee (the Committee) or another committee appointed by our Board of Directors; however, the Board of Directors or its delegate will administer and interpret all grants under the 2014 Plan to non-employee directors. The Committee has the authority to (i) determine the individuals to whom grants will be made under the 2014 Plan, (ii) determine the type, size and terms and conditions of the grants, (iii) determine the time when grants will be made and the duration of any applicable exercise or restriction period, including the criteria for exercisability and the acceleration of exercisability, (iv) amend the terms and conditions of any previously issued grant, and (v) deal with any other matters arising under the 2014 Plan.
Options granted under the 2014 Plan may be “incentive stock options,” which are intended to qualify within the meaning of Section 422 of the Internal Revenue Code, and “nonqualified stock options” which are not intended to so qualify. Options are granted under the 2014 Plan with an exercise price equal to or greater than the fair market value of the Company’s common stock on the date of grant and the term of which may not exceed ten years from the date of grant. The vesting period for options commences on the date of grant, or upon the achievement of such vesting requirements, and ends on such date as is determined in each case by the Committee, in its sole discretion, which is specified in the grant agreement. Options may be exercised only while the participant is actively employed by or actively providing service to the Company unless the Committee provides for a period after such employment or service in which the option may be exercised. The Committee may only grant incentive stock options to employees of the Company or its subsidiaries.
The Committee may grant SARs to anyone eligible to participate in the 2014 Plan. Upon exercise of a SAR, the participant will receive an amount equal to the excess of the fair market value of the Company’s common stock on the date of exercise over the base amount set forth in the grant agreement. Such payment to the participant will be in cash, in shares of common stock, or in a combination of cash and shares of common stock as determined by the Committee. The Committee will determine the period when SARs vest and become exercisable, the base amount of the SARs, and whether SARs will be granted in connection with, or independently of, any options. SARs may be exercised only while the participant is actively employed by or actively providing service to the Company unless the Committee provides for a period after such employment or service in which the option may be exercised.
The Committee may grant stock units to anyone eligible to participate in the 2014 Plan. A stock unit is a phantom unit that represents the right to receive a share of common stock or an amount based on the value of a share of the Company’s common stock. The Committee will determine the number of stock units that a participant will receive and the terms and conditions applicable to such stock units as specified in the grant agreement. The Committee may grant stock units that are payable at the end of a specified vesting period or if specified performance goals or other conditions are met, or under other circumstances. Such payment to the participant will be in cash, in shares of common stock, or in a combination of cash and shares of common stock. The Committee will determine the period and conditions when stock units vest. The Committee will determine in the grant agreement under what circumstances a participant may retain stock units if after employment or service with the Company prior to the vesting of any stock units and the circumstances under which a participant will forfeit stock units.
The Committee may grant dividend equivalents in connection with stock units, under such terms and conditions the Committee deems appropriate. Dividend equivalents may be paid as and when the underlying stock units are paid, or may be deferred. The dividend equivalent amount with respect to a stock unit is determined by multiplying the number of shares of the Company’s common stock subject to the stock unit by the per share cash dividend, or the per share fair market value for non-cash dividends, paid by the Company with respect to a dividend record date. Dividend equivalents may be accrued as a cash obligation, or may be converted to additional stock units, and deferred dividend equivalents may accrue interest, all as determined by the Committee. The Company may provide that dividend equivalents are payable based on the achievement of specific performance goals. Dividend equivalents may be paid in cash, shares of common stock, or in a combination of the two, as determined by the Committee.
The Committee may grant stock awards to anyone eligible to participate in the 2014 Plan. A stock award is a grant of shares of the Company’s common stock, which may be subject to restrictions. The Committee will determine whether a stock award will be granted, the number of shares that will be subject to such award, when and how restrictions, if any, will lapse, and whether a purchase price must be paid for the shares subject to the award. The Committee will determine the period and conditions when stock awards vest. The Committee will determine in the grant agreement under what circumstances a participant may retain stock awards if after employment or service with the Company prior to the vesting of any stock awards and the circumstances under which a participant will forfeit stock awards.
For each share of common stock that is actually issued or transferred pursuant to a grant, other than a stock option or SAR, and which is settled by the issuance of common stock, will count as three shares against the share limits. Each share of common stock that is actually issued or transferred pursuant to a stock option or SAR will count as one share against the share limits. If and to the extent grants under the 2014 Plan (including stock options granted under the 2007 Plan) terminate, expire, or are canceled, forfeited, exchanged, or surrendered without having been exercised, the shares subject to such grants will again be available for purposes of the 2014 Plan, taking into account the ratios described above.
If there is any change in the number or kind of shares of common stock outstanding by reason of a stock dividend, spin-off, recapitalization, stock split, or combination or exchange of shares, by reason of a merger, reorganization or consolidation, by reason of a recapitalization or change in par value or by reason of any other extraordinary or unusual event affecting the outstanding common stock as a class without the Company’s receipt of consideration, or if the value of outstanding shares of common stock is substantially reduced as a result of a spin-off or the Company’s payment of an extraordinary dividend or distribution, the maximum number of shares of common stock available for issuance under the 2014 Plan, the maximum number of shares of common stock which any individual may receive pursuant to grants in any year, the kind and number of shares covered by outstanding grants, the kind and number of shares issued and to be issued under the 2014 Plan, and the price per share or the applicable market value of such grants shall be appropriately adjusted by the Committee, in such manner as the Committee deems appropriate, to reflect any increase or decrease in the number of, or change in the kind or value of, the issued shares of common stock to preclude, to the extent practicable, the enlargement or dilution of rights and benefits under the 2014 Plan and such outstanding grants.
Unless otherwise set forth in the grant agreement, with respect to stock options, stock units, stock awards, stock appreciation rights or other stock based awards, if (a) a change of control occurs and (b) during the period commencing on the date of the change of control and ending on the date that is 24 months following the change of control, the participant’s employment or service is terminated (i) by the Company or its subsidiaries without “cause” (as defined in the 2014 Plan), (ii) by the participant for “good reason” (as defined in the 2014 Plan), (iii) by the Company or its subsidiaries on account of the participant’s Disability (as defined in the 2014 Plan), or (iv) on account of the participant’s death, then all outstanding stock options and stock appreciation rights will vest and become exercisable and all other outstanding grants will vest and all restrictions pertaining to such other grants will lapse and have no further effect.
The Board of Directors may amend or terminate the 2014 Plan at any time, subject to shareholder approval. No grants may be issued under the 2014 Plan after May 20, 2024.
As of December 31, 2017,2023, options to acquire 16,712,17718,215,938 shares were outstanding under the 2014 Plan, out of a total of 46,934,334 shares of common stock reserved for issuance under the 2014 Plan. The 2014 Plan authorizes the issuance of an additional 30,000,000 new shares of common stock. This is in addition to 16,235,712 shares of common stock which were
subject to outstanding grants under the 2007 Plan as of the Effective Date and 698,622 shares of common stock which remained available for issuance or transfer under the 2007 Plan but not subject to previously exercised, vested or paid grants as of the Effective Date. A total of 24,107,8068,509,149 shares of common stock remain available for issuance under the 2014 Plan for future grants.
The 2007 Equity Compensation Plan:
On April 3, 2007, the Board of Directors adopted the 2007 Equity Compensation Plan (the 2007 Plan), and the Company’s shareholders approved the adoption of the 2007 Plan on May 23, 2007. The 2007 Plan provided for grants of stock options (incentive stock options and nonqualified stock options) and stock appreciation rights (SARs) to all employees (including employees who are also directors) of the Company or its subsidiaries, consultants who perform valuable services to the Company or its subsidiaries and members of the Board of Directors who are not employees of the Company. The Company did not grant any incentive stock options or stock appreciation rights under the 2007 Plan.
The 2007 Plan has been merged with and into the 2014 Plan as of May 21, 2014. Outstanding grants under the 2007 Plan will continue according to the terms in effect before the plan merger, but the outstanding shares with respect to those outstanding grants will be issued or transferred under the 2014 Plan. No additional grants shall be made after May 21, 2014 under the 2007 Plan.
Item 13. Certain Relationships and Related Transactions, and Director Independence.Independence.
Information required by this item is set forth under the captions “Election of Directors,” “Executive Compensation,” and “Director Compensation” in the Company’s definitive proxy statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference.
Item 14. Principal AccountingAccountant Fees and Services.Services.
Information required by this item is set forth under the caption “Ratification or Appointment of Independent Public Accountants” in the Company’s definitive proxy statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference.
PART IV
Item 15. Exhibits,Exhibit and Financial Statement Schedules.
| | | | | |
| |
| |
| 1 and 2. | Financial Statements and Financial Statement Schedules. The following is a list of the Consolidated Financial Statements of the Company and its subsidiaries and supplementary data filed as part of Item 8 hereof: |
| |
| Reports of Independent Registered Public Accounting Firm |
| Consolidated Balance Sheets — December 31, 20172023 and 20162022 |
| Consolidated Statements of Operations — For the years ended December 31, 2017, 20162023, 2022 and 20152021 |
| Consolidated Statements of Comprehensive Income — For the years ended December 31, 2017, 20162023, 2022 and 20152021 |
| Consolidated Statements of Changes in Equity — For the years ended December 31, 2017, 20162023, 2022 and 20152021 |
| Consolidated Statements of Cash Flows — For the years ended December 31, 2017, 20162023, 2022 and 20152021 |
| Notes to Consolidated Financial Statements |
| Schedule II - Valuation and Qualifying Accounts and Reserves — For the years ended December 31, 2017, 20162023, 2022 and 20152021 |
| All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto. |
| 3. | Exhibits, Including Those Incorporated by Reference. The exhibits to this Report are listed on the accompanying index to exhibits and are incorporated herein by reference or are filed as part of this Annual Report on Form 10-K. |
Item 16. Form 10-K Summary.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | | | | |
| | | | | |
| | | SEI INVESTMENTS COMPANY |
| | | |
Date: | February 22, 2018 | | By: | | /s/ Dennis J. McGonigle |
| | | | | Dennis J. McGonigle |
| | | | | Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on dates indicated.
|
| | | | | |
Date: | February 22, 2018 | | By: | | /s/ Alfred P. West, Jr. |
| | | | | Alfred P. West, Jr. |
| | | | | Chairman of the Board, Chief Executive Officer, and |
| | | | | Director |
| | | |
Date: | February 22, 2018 | | By: | | /s/ Carmen V. Romeo |
| | | | | Carmen V. Romeo |
| | | | | Director |
| | | |
Date: | February 22, 2018 | | By: | | /s/ William M. Doran |
| | | | | William M. Doran |
| | | | | Director |
| | | |
Date: | February 22, 2018 | | By: | | /s/ Kathryn M. McCarthy |
| | | | | Kathryn M. McCarthy |
| | | | | Director |
| | | |
Date: | February 22, 2018 | | By: | | /s/ Sarah W. Blumenstein |
| | | | | Sarah W. Blumenstein |
| | | | | Director |
| | | | | |
Date: | February 22, 2018 | | By: | | /s/ Carl A. Guarino |
| | | | | Carl A. Guarino |
| | | | | Director |
EXHIBIT INDEX
The following is a list of exhibits filed as part of this annual report on Form 10-K. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated in parentheses.
| | | | | | | | | | | |
| 3.1 | (P) | | | |
3.1 |
| (P) | | Articles of Incorporation of the Registrant as amended on January 21, 1983. (Incorporated by reference to exhibit 3.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1982.) |
| 3.1.2 |
| (P) | | Amendment to Articles of Incorporation of the Registrant, dated May 21, 1992. (Incorporated by reference to exhibit 3.1.2 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1992.) |
| 3.1.3 |
| (P) | | Amendment to Articles of Incorporation of the Registrant, dated May 26, 1994. (Incorporated by reference to exhibit 3.1.3 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1994.) |
| 3.1.4 |
| (P) | | Amendment to Articles of Incorporation of the Registrant, dated November 21, 1996. (Incorporated by reference to exhibit 3.1.4 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) |
| 3.1.5 | |
| | |
| 3.2 | |
| | |
3.2.14.2 | |
| | |
4.1 |
| | | |
4.2 |
| | | |
| | |
| | | | | Note: Exhibits 10.410.1 through 10.1110.13 constitute the management contracts and executive compensatory plans or arrangements in which certain of the directors and executive officers of the Registrant participate. |
| | |
| 10.1 | | | |
10.410.2 |
| | |
| 10.4 | | | |
| 10.4.1 | |
| | |
| 10.5 |
| | | |
| 10.6 | |
| | |
10.910.10 | |
| | |
10.10 |
| | | |
| 10.11 | |
| | |
10.2210.12 | |
| |
| 10.13 | | | |
| 10.14 | | | |
|
| 10.22.2 | | | | |
10.22.2 |
| | | |
10.2410.27 | |
| | $300,000 Credit Agreement, dated February 2, 2012,as of April 23, 2021 among SEI Investments Company, the Lenders, Party thereto, U.S. Bank National Association, as Syndication Agent, Bank of America, N.A., Citizens Bank, of Pennsylvania andN.A., Manufacturers and Traders Trust Company eachand Regions Bank, as Documentation Agent,Agents, and Wells Fargo Bank, National Association, as Administrative Agent (Incorporated by reference to exhibit 10.2410.27 to the Registrant’s CurrentQuarterly Report on Form 8-K/A dated February 2, 2012.10-Q for the quarterly period ended March 31, 2021.) |
10.2510.27.1 | |
| | |
10.26 |
| | | Credit Agreement dated as of June 13, 2016April 17, 2023 among SEI Investments Company, the Lenders, U.S. Bank National Association, as Syndication Agent, Bank of America, N.A., Citizens Bank, of Pennsylvania andN.A., Manufacturers and Traders Trust Company eachand Regions Bank, as Documentation Agent,Agents, and Wells Fargo Bank, National Association, as Administrative Agent (Incorporated by reference to exhibit 10.2610.27.1 to the Registrant’sRegistrant's Current Report on Form 8-K dated June 13, 2016.April 17, 2023.) |
| 14 | |
| | |
| 21 |
| * | | |
| 23.1 |
| * | | |
| 23.2 |
| * | | |
| 31.1 |
| * | | |
| 31.2 |
| * | | |
| 32 |
| * | | |
99.197 |
| | |
| 99.11 | | | |
99.299.12 |
| | | |
99.399.13 |
| | | |
99.499.14 |
| | | |
99.5101.INS | |
| | | |
99.6 |
| | | |
99.7 |
| | | |
99.8 |
| * | | |
101.INS |
| | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
|
| 101.SCH |
| * | | XBRL Taxonomy Extension Schema Document |
| 101.CAL |
| * | | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.LAB |
| * | | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE |
| * | | XBRL Taxonomy Extension Presentation Linkbase Document |
| 101.DEF |
| * | | XBRL Taxonomy Extension Definition Linkbase Document |
| | | | | |
| * | |
* | Filed herewith as an exhibit to this Annual Report on Form 10-K. |
| (P) | Paper exhibit. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | | | | | | | |
| | | | | |
| | | SEI INVESTMENTS COMPANY |
| | | |
| Date: | February 20, 2024 | | By: | | /s/ Dennis J. McGonigle |
| | | | | Dennis J. McGonigle |
| | | | | Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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| Date: | February 20, 2024 | | By: | | /s/ Alfred P. West, Jr. |
| | | | | Alfred P. West, Jr. |
| | | | | Executive Chairman of the Board and Director |
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| Date: | February 20, 2024 | | By: | | /s/ Ryan P. Hicke |
| | | | | Ryan P. Hicke |
| | | | | Chief Executive Officer and Director |
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| Date: | February 20, 2024 | | By: | | /s/ Carmen V. Romeo |
| | | | | Carmen V. Romeo |
| | | | | Director |
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| Date: | February 20, 2024 | | By: | | /s/ William M. Doran |
| | | | | William M. Doran |
| | | | | Director |
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| Date: | February 20, 2024 | | By: | | /s/ Kathryn M. McCarthy |
| | | | | Kathryn M. McCarthy |
| | | | | Director |
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| Date: | February 20, 2024 | | By: | | /s/ Stephanie D. Miller |
| | | | | Stephanie D. Miller |
| | | | | Director |
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| Date: | February 20, 2024 | | By: | | /s/ Carl A. Guarino |
| | | | | Carl A. Guarino |
| | | | | Director |
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| Date: | February 20, 2024 | | By: | | /s/ Jonathan A. Brassington |
| | | | | Jonathan A. Brassington |
| | | | | Director |
