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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ________________________________________
FORM 10-Q
________________________________________
 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_________to ________
Commission File Number: 0-10200
________________________________________ 
 
https://cdn.kscope.io/c9a4a34251656cba5bedba8e42bbb058-seinwnaka26.jpg
________________________________________
SEI INVESTMENTS COMPANY
(Exact Name of Registrant as Specified in its Charter)
________________________________________ 
Pennsylvania
 
23-1707341
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
1 Freedom Valley Drive, Oaks, Pennsylvania 19456-1100
(Address of Principal Executive Offices) (Zip Code)
(610) 676-1000
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) 
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
 
 
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
SEIC
 
The NASDAQ Stock Market LLC

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  x    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes  x    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
 
Accelerated filer

 
 
 
 
 
Non-accelerated filer
 
Smaller reporting company
 
 
 
 
 
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 is a shell company (as defined in Rule 12b-2 of the Act).  Yes      No  x
The number of shares outstanding of the registrant’s common stock, as of the close of business on October 17, 2019:
Common Stock, $0.01 par value
 
150,256,238






SEI INVESTMENTS COMPANY

TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
PART I - FINANCIAL INFORMATION
 
 
 
 
 
 
Page
Item 1.
Financial Statements.
 
 
 
Consolidated Balance Sheets (Unaudited) -- September 30, 2019 and December 31, 2018
 
 
Consolidated Statements of Operations (Unaudited) -- For the Three and Nine Months Ended September 30, 2019 and 2018
 
 
Consolidated Statements of Comprehensive Income (Unaudited) -- For the Three and Nine Months Ended September 30, 2019 and 2018
 
 
Consolidated Statements of Changes in Equity (Unaudited) -- For the Three and Nine Months Ended September 30, 2019 and 2018
 
 
Consolidated Condensed Statements of Cash Flows (Unaudited) -- For the Nine Months Ended September 30, 2019 and 2018
 
 
Notes to Consolidated Financial Statements
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
 
Item 4.
Controls and Procedures.
 
 
 
 
 
 
PART II - OTHER INFORMATION
 
 
 
 
 
 
 
Item 1.
Legal Proceedings.
 
Item 1A.
Risk Factors.
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
 
Item 6.
Exhibits.
 
 
Signatures
 



Page 1 of 48





PART I.        FINANCIAL INFORMATION

Item 1.    Consolidated Financial Statements.

SEI Investments Company
Consolidated Balance Sheets
(unaudited)
(In thousands, except par value)

 
September 30, 2019
 
December 31, 2018
Assets
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
767,809

 
$
754,525

Restricted cash
3,100

 
3,514

Receivables from investment products
52,140

 
49,869

Receivables, net of allowance for doubtful accounts of $1,311 and $718
349,332

 
315,336

Securities owned
32,862

 
30,892

Other current assets
34,894

 
36,676

Total Current Assets
1,240,137

 
1,190,812

Property and Equipment, net of accumulated depreciation of $346,377 and $338,206
154,584

 
145,863

Operating Lease Right-of-Use Assets
41,054

 

Capitalized Software, net of accumulated amortization of $430,644 and $395,171
300,848

 
309,500

Investments Available for Sale
101,580

 
111,901

Investments in Affiliated Funds, at fair value
5,533

 
4,887

Investment in Unconsolidated Affiliate
41,437

 
52,342

Goodwill
64,489

 
64,489

Intangible Assets, net of accumulated amortization of $7,853 and $5,090
28,907

 
31,670

Deferred Contract Costs
28,506

 
24,007

Deferred Income Taxes
1,421

 
2,042

Other Assets, net
32,109

 
34,155

Total Assets
$
2,040,605

 
$
1,971,668

The accompanying notes are an integral part of these consolidated financial statements.


Page 2 of 48





SEI Investments Company
Consolidated Balance Sheets
(unaudited)
(In thousands, except par value)

 
September 30, 2019
 
December 31, 2018
Liabilities and Equity
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
8,712

 
$
10,920

Accrued liabilities
193,919

 
279,634

Current portion of long-term operating lease liabilities
7,888

 

Deferred revenue
5,529

 
5,154

Total Current Liabilities
216,048

 
295,708

Long-term Income Taxes Payable

803

 
803

Deferred Income Taxes
56,339

 
57,795

Long-term Operating Lease Liabilities
37,816

 

Other Long-term Liabilities
26,292

 
24,215

Total Liabilities
337,298

 
378,521

Commitments and Contingencies

 

Shareholders' Equity:
 
 
 
Common stock, $0.01 par value, 750,000 shares authorized; 150,222 and 153,634 shares issued and outstanding
1,502

 
1,536

Capital in excess of par value
1,137,636

 
1,106,641

Retained earnings
599,949

 
517,970

Accumulated other comprehensive loss, net
(35,780
)
 
(33,000
)
Total Shareholders' Equity
1,703,307

 
1,593,147

Total Liabilities and Shareholders' Equity
$
2,040,605

 
$
1,971,668

The accompanying notes are an integral part of these consolidated financial statements.

Page 3 of 48





SEI Investments Company
Consolidated Statements of Operations
(unaudited)
(In thousands, except per share data)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
Asset management, administration and distribution fees
$
330,943

 
$
322,778

 
$
969,812

 
$
955,495

Information processing and software servicing fees
85,311

 
85,904

 
256,848

 
263,615

Total revenues
416,254

 
408,682

 
1,226,660

 
1,219,110

Expenses:
 
 
 
 
 
 
 
Subadvisory, distribution and other asset management costs
44,978

 
45,276

 
134,960

 
135,690

Software royalties and other information processing costs
7,198

 
7,767

 
22,719

 
24,462

Compensation, benefits and other personnel
130,579

 
127,480

 
386,913

 
379,132

Stock-based compensation
5,453

 
5,878

 
15,555

 
16,396

Consulting, outsourcing and professional fees
48,789

 
51,758

 
144,325

 
150,906

Data processing and computer related
22,338

 
21,754

 
65,514

 
63,478

Facilities, supplies and other costs
15,926

 
16,689

 
51,771

 
52,085

Amortization
12,947

 
12,405

 
38,407

 
36,420

Depreciation
7,409

 
7,255

 
22,162

 
21,515

Total expenses
295,617

 
296,262

 
882,326

 
880,084

Income from operations
120,637

 
112,420

 
344,334

 
339,026

Net gain (loss) from investments
611

 
89

 
2,121

 
(460
)
Interest and dividend income
4,167

 
3,482

 
12,737

 
9,146

Interest expense
(154
)
 
(122
)
 
(477
)
 
(511
)
Equity in earnings of unconsolidated affiliate
37,609

 
41,726

 
112,758

 
123,406

Income before income taxes
162,870

 
157,595

 
471,473

 
470,607

Income taxes
30,702

 
29,276

 
98,784

 
80,773

Net income
$
132,168

 
$
128,319

 
$
372,689

 
$
389,834

Basic earnings per common share
$
0.88

 
$
0.82

 
$
2.45

 
$
2.48

Shares used to compute basic earnings per share
150,855

 
156,283

 
152,009

 
157,086

Diluted earnings per common share
$
0.86

 
$
0.80

 
$
2.40

 
$
2.41

Shares used to compute diluted earnings per share
154,227

 
160,511

 
155,311

 
162,053

Dividends declared per common share
$

 
$

 
$
0.33

 
$
0.30

The accompanying notes are an integral part of these consolidated financial statements.

Page 4 of 48





SEI Investments Company
Consolidated Statements of Comprehensive Income
(unaudited)
(In thousands)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net income
 
 
$
132,168

 
 
 
$
128,319

 
 
 
$
372,689

 
 
 
$
389,834

Other comprehensive loss, net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
 
(5,207
)
 
 
 
(435
)
 
 
 
(4,687
)
 
 
 
(7,261
)
Unrealized gain (loss) on investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) during the period, net of income taxes of $(27), $91, $(497) and $463
71

 
 
 
(337
)
 
 
 
1,633

 
 
 
(1,662
)
 
 
Less: reclassification adjustment for losses (gains) realized in net income, net of income taxes of $(23), $(29), $(73) and $(75)
96

 
167

 
130

 
(207
)
 
274

 
1,907

 
(32
)
 
(1,694
)
Total other comprehensive loss, net of tax
 
 
(5,040
)
 
 
 
(642
)
 
 
 
(2,780
)
 
 
 
(8,955
)
Comprehensive income
 
 
$
127,128

 
 
 
$
127,677

 
 
 
$
369,909

 
 
 
$
380,879

The accompanying notes are an integral part of these consolidated financial statements.

Page 5 of 48





SEI Investments Company
Consolidated Statements of Changes in Equity
(unaudited)
(In thousands)

 
Shares of Common Stock
 
Common Stock
 
Capital In Excess of Par Value
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total Equity
 
For the Three Months Ended September 30, 2019
Balance, July 1, 2019
150,955

 
$
1,509

 
$
1,122,068

 
$
541,664

 
$
(30,740
)
 
$
1,634,501

Net income

 

 

 
132,168

 

 
132,168

Other comprehensive loss

 

 

 

 
(5,040
)
 
(5,040
)
Purchase and retirement of common stock
(1,400
)
 
(15
)
 
(7,469
)
 
(73,883
)
 

 
(81,367
)
Issuance of common stock under employee stock purchase plan
21

 
1

 
998

 

 

 
999

Issuance of common stock upon exercise of stock options
646

 
7

 
16,586

 

 

 
16,593

Stock-based compensation

 

 
5,453

 

 

 
5,453

Balance, September 30, 2019
150,222

 
$
1,502

 
$
1,137,636

 
$
599,949

 
$
(35,780
)
 
$
1,703,307


 
Shares of Common Stock
 
Common Stock
 
Capital In Excess of Par Value
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total Equity
 
For the Three Months Ended September 30, 2018
Balance, July 1, 2018
156,800

 
$
1,568

 
$
1,094,771

 
$
522,764

 
$
(28,221
)
 
$
1,590,882

Net income

 

 

 
128,319

 

 
128,319

Other comprehensive loss

 

 

 

 
(642
)
 
(642
)
Purchase and retirement of common stock
(1,668
)
 
(17
)
 
(8,117
)
 
(94,502
)
 

 
(102,636
)
Issuance of common stock under employee stock purchase plan
21

 
1

 
1,106

 

 

 
1,107

Issuance of common stock upon exercise of stock options
322

 
3

 
7,599

 

 

 
7,602

Stock-based compensation

 

 
5,878

 

 

 
5,878

Balance, September 30, 2018
155,475

 
$
1,555

 
$
1,101,237

 
$
556,581

 
$
(28,863
)
 
$
1,630,510

The accompanying notes are an integral part of these consolidated financial statements.

Page 6 of 48





SEI Investments Company
Consolidated Statements of Changes in Equity
(unaudited)
(In thousands)
 
Shares of Common Stock
 
Common Stock
 
Capital In Excess of Par Value
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total Equity
 
For the Nine Months Ended September 30, 2019
Balance, January 1, 2019
153,634

 
$
1,536

 
$
1,106,641

 
$
517,970

 
$
(33,000
)
 
$
1,593,147

Net income

 

 

 
372,689

 

 
372,689

Other comprehensive loss

 

 

 

 
(2,780
)
 
(2,780
)
Purchase and retirement of common stock
(4,950
)
 
(50
)
 
(26,408
)
 
(240,726
)
 

 
(267,184
)
Issuance of common stock under employee stock purchase plan
77

 
1

 
3,391

 

 

 
3,392

Issuance of common stock upon exercise of stock options
1,461

 
15

 
38,457

 

 

 
38,472

Stock-based compensation

 

 
15,555

 

 

 
15,555

Dividends declared ($0.33 per share)

 

 

 
(49,984
)
 

 
(49,984
)
Balance, September 30, 2019
150,222

 
$
1,502

 
$
1,137,636

 
$
599,949

 
$
(35,780
)
 
$
1,703,307


 
Shares of Common Stock
 
Common Stock
 
Capital In Excess of Par Value
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total Equity
 
For the Nine Months Ended September 30, 2018
Balance, January 1, 2018
157,069

 
$
1,571

 
$
1,027,709

 
$
467,467

 
$
(19,908
)
 
$
1,476,839

Cumulative effect upon adoption of ASC 606

 

 

 
14,402

 

 
14,402

Net income

 

 

 
389,834

 

 
389,834

Other comprehensive loss

 

 

 

 
(8,955
)
 
(8,955
)
Purchase and retirement of common stock
(4,419
)
 
(44
)
 
(21,507
)
 
(267,983
)
 

 
(289,534
)
Issuance of common stock under employee stock purchase plan
57

 
1

 
3,257

 

 

 
3,258

Issuance of common stock upon exercise of stock options
2,768

 
27

 
75,382

 

 

 
75,409

Stock-based compensation

 

 
16,396

 

 

 
16,396

Dividends declared ($0.30 per share)

 

 

 
(47,139
)
 

 
(47,139
)
Balance, September 30, 2018
155,475

 
$
1,555

 
$
1,101,237

 
$
556,581

 
$
(28,863
)
 
$
1,630,510

The accompanying notes are an integral part of these consolidated financial statements.


Page 7 of 48





SEI Investments Company
Consolidated Condensed Statements of Cash Flows
(unaudited)
(In thousands)
 
 
Nine Months Ended September 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
372,689

 
$
389,834

Adjustments to reconcile net income to net cash provided by operating activities (See Note 1)
8,846

 
28,064

Net cash provided by operating activities
381,535

 
417,898

Cash flows from investing activities:
 
 
 
Additions to property and equipment
(30,515
)
 
(21,652
)
Additions to capitalized software
(26,821
)
 
(33,371
)
Purchases of marketable securities
(126,030
)
 
(122,259
)
Prepayments and maturities of marketable securities
137,783

 
116,568

Cash paid for acquisition, net of cash acquired

 
(5,794
)
Other investing activities
2,538

 
(10,900
)
Net cash used in investing activities
(43,045
)
 
(77,408
)
Cash flows from financing activities:
 
 
 
Repayments under revolving credit facility

 
(30,000
)
Purchase and retirement of common stock
(262,861
)
 
(290,563
)
Proceeds from issuance of common stock
41,864

 
78,667

Payment of dividends
(100,745
)
 
(94,318
)
Net cash used in financing activities
(321,742
)
 
(336,214
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(3,878
)
 
(6,552
)
Net increase (decrease) in cash, cash equivalents and restricted cash
12,870

 
(2,276
)
Cash, cash equivalents and restricted cash, beginning of period
758,039

 
747,752

Cash, cash equivalents and restricted cash, end of period
$
770,909

 
$
745,476

 
 
 
 
Non-cash operating activities:
 
 
 
Operating lease right-of-use assets and lease liabilities recorded upon adoption of ASC 842
$
44,169

 
$

The accompanying notes are an integral part of these consolidated financial statements.

Page 8 of 48





Notes to Consolidated Financial Statements
(all figures are in thousands except share and per share data)
 
Note 1.    Summary of Significant Accounting Policies
Nature of Operations
SEI Investments Company (the Company), a Pennsylvania corporation, provides investment processing, investment management, and investment operations platforms to financial institutions, financial advisors, institutional investors, investment managers and ultra-high-net-worth families in the United States, Canada, the United Kingdom, continental Europe and various other locations throughout the world.
Investment processing platforms consist of application and business process outsourcing services, professional services and transaction-based services. Revenues from investment processing platforms are recognized in Information processing and software servicing fees on the accompanying Consolidated Statements of Operations.
Investment management programs consist of mutual funds, alternative investments and separate accounts. These include a series of money market, equity, fixed-income and alternative investment portfolios, primarily in the form of registered investment companies. The Company serves as the administrator and investment advisor for many of these products. Revenues from investment management programs are recognized in Asset management, administration and distribution fees on the accompanying Consolidated Statements of Operations.
Investment operations platforms consist of outsourcing services including fund and investment accounting, administration, reconciliation, investor servicing and client reporting. Revenues from investment operations platforms are recognized in Asset management, administration and distribution fees on the accompanying Consolidated Statements of Operations.
Basis of Presentation
The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Certain financial information and accompanying note disclosure normally included in the Company’s Annual Report on Form 10-K have been condensed or omitted. The interim financial information is unaudited but reflects all adjustments (consisting of only normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of financial position of the Company as of September 30, 2019, the results of operations for the three and nine months ended September 30, 2019 and 2018, and cash flows for the nine-month periods ended September 30, 2019 and 2018. These interim Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
The Company adopted the requirements of the Accounting Standards Update (ASU) No. 2016-2 Leases (Topic 842) (Accounting Standards Codifications (ASC) 842 (ASC 842)) using the modified retrospective method during the nine months ended September 30, 2019. As a result of the adoption of ASC 842, the Company recorded additional lease assets and net lease liabilities of $44,169 as of January 1, 2019. Upon implementation, the Company elected the package of practical expedients permitted under the transition guidance within the new standard which allowed the Company to carryforward the historical lease identification, classification and initial direct cost. ASC 842 did not materially impact the Company’s consolidated net income or consolidated cash flows (see following caption "Leases"). With the exception of the adoption of ASC 842, there have been no significant changes in significant accounting policies during the nine months ended September 30, 2019 as compared to the significant accounting policies described in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.
Variable Interest Entities
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

Page 9 of 48





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 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 $6,390 and $6,525 in fees during the three months ended September 30, 2019 and 2018, respectively. During the nine months ended September 30, 2019 and 2018, the Company waived $21,091 and $19,551, respectively, in fees.
Revenue Recognition
Revenue is recognized when the transfer of control of promised goods or services under the terms of a contract with customers are satisfied in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those promised goods or services. Certain portions of the Company’s revenues involve a third party in providing goods or services to its customers. In such circumstances, the Company must determine whether the nature of its promise to the customer is to provide the underlying goods or services (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).
Cash and Cash Equivalents
Cash and cash equivalents includes $319,977 and $315,840 at September 30, 2019 and December 31, 2018, respectively, primarily invested in SEI-sponsored open-ended money market mutual funds. The SEI-sponsored mutual funds are Level 1 assets.
Restricted Cash
Restricted cash includes $3,000 at September 30, 2019 and December 31, 2018 segregated for regulatory purposes related to trade-execution services conducted by SEI Investments (Europe) Limited. Restricted cash also includes $100 and $514 at September 30, 2019 and December 31, 2018, respectively, segregated in special reserve accounts for the benefit of customers of the Company’s broker-dealer subsidiary, SEI Investments Distribution Co. (SIDCO), in accordance with certain rules established by the Securities and Exchange Commission (SEC) for broker-dealers.
Capitalized Software
The Company capitalized $26,821 and $33,371 of software development costs during the nine months ended September 30, 2019 and 2018, respectively. The Company's software development costs primarily relate to significant enhancements to the SEI Wealth PlatformSM (SWP). The Company capitalized $26,029 and $32,526 of software development costs for significant enhancements to SWP during the nine months ended September 30, 2019 and 2018, respectively. As of September 30, 2019, the net book value of SWP was $283,128. The net book value includes $51,781 of capitalized software development costs in-progress associated with future releases. Capitalized software development costs in-progress associated with future releases of SWP were $42,238 as of December 31, 2018. SWP has a weighted average remaining life of 8.4 years. Amortization expense for SWP was $31,567 and $29,723 during the nine months ended September 30, 2019 and 2018, respectively.
Earnings per Share
The calculations of basic and diluted earnings per share for the three and nine months ended September 30, 2019 and 2018 are:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
132,168

 
$
128,319

 
$
372,689

 
$
389,834

Shares used to compute basic earnings per common share
150,855,000

 
156,283,000

 
152,009,000

 
157,086,000

Dilutive effect of stock options
3,372,000

 
4,228,000

 
3,302,000

 
4,967,000

Shares used to compute diluted earnings per common share
154,227,000

 
160,511,000

 
155,311,000

 
162,053,000

Basic earnings per common share
$
0.88

 
$
0.82

 
$
2.45

 
$
2.48

Diluted earnings per common share
$
0.86

 
$
0.80

 
$
2.40

 
$
2.41



Page 10 of 48





During the three months ended September 30, 2019 and 2018, employee stock options to purchase 6,239,000 and 6,183,000 shares of common stock with an average exercise price of $54.91 and $53.38, respectively, were outstanding but not included in the computation of diluted earnings per common share. During the nine months ended September 30, 2019 and 2018, employee stock options to purchase 6,269,000 and 6,153,000 shares of common stock with an average exercise price of $54.84 and $53.15, respectively, were outstanding but not included in the computation of diluted earnings per common share. These options for the three and nine month periods were not included in the computation of diluted earnings per common share because either the performance conditions have not been satisfied or would not have been satisfied if the reporting date was the end of the contingency period or the options' 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-dilutive.
Leases
The Company determines 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 the accompanying Consolidated Balance Sheet.
The operating lease ROU assets and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit interest rate, the Company utilizes an estimated incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. In determining the discount rate used in the present value calculation, the Company has elected to apply the portfolio approach for leases of equipment provided the leases commenced at or around the same time. This election allows the Company to account for leases at a portfolio level provided that the resulting accounting at this level would not differ materially from the accounting at the individual lease level. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
The Company has elected to account for lease 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 taxes and pass through charges. Only the lease components are included in the ROU assets and lease liabilities. Additionally, the Company has elected not to apply the recognition requirements of ASC 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 corporate facilities and equipment contain terms for renewal and extension of the lease agreement. The exercise of lease 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. The Company’s lease agreements do not contain any material variable lease payments, material residual value guarantees or any material restrictive covenants. The Company does not currently have any finance leases.
See Note 15 for information on related disclosures regarding leases.
New Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13) and a subsequent amendment ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (ASU 2019-04) in April 2019. ASU 2016-13 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 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 2019-04 provides certain improvements to ASU 2016-13. ASU 2016-13 and ASU 2019-04 become effective for the Company during the first quarter of 2020. Early adoption is permitted. The Company is currently finalizing its evaluation of ASU 2016-13 and ASU 2019-04 and does not believe the adoption of the updated standards will 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. ASU 2017-04 is effective for the Company beginning in the first quarter of 2020. Early adoption is permitted. The Company does not believe the adoption of ASU 2017-04 will have a material impact on its consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13) which modifies the disclosure requirements

Page 11 of 48





on fair value measurements. ASU 2018-13 is effective for the Company beginning in the first quarter of 2020. The Company is currently finalizing its evaluation of ASU 2018-13 and does not believe the adoption of the updated standard will have a material impact on its consolidated financial statements and related disclosures.
In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities (ASU 2018-17). The new standard changes how entities evaluate decision-making fees under the variable interest entity guidance. ASU 2018-17 is effective for the Company beginning in the first quarter of 2020. The Company does not believe the adoption of ASU 2018-17 will have a material impact on its consolidated financial statements and related disclosures.
Statements of Cash Flows
For purposes of the Consolidated Statements of Cash Flows, the Company considers investment instruments purchased with an original maturity of three months or less to be cash equivalents.
The following table provides the details of the adjustments to reconcile net income to net cash provided by operating activities for the nine months ended September 30:
 
2019
 
2018
Net income
$
372,689

 
$
389,834

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
22,162

 
21,515

Amortization
38,407

 
36,420

Equity in earnings of unconsolidated affiliate
(112,758
)
 
(123,406
)
Distributions received from unconsolidated affiliate
123,663

 
138,216

Stock-based compensation
15,555

 
16,396

Provision for losses on receivables
593

 
(29
)
Deferred income tax expense
(1,405
)
 
8,378

Net (gain) loss from investments
(2,121
)
 
460

Change in long-term income taxes payable

 
(9,859
)
Change in other long-term liabilities
2,077

 
1,930

Change in other assets
(56
)
 
(4,214
)
Contract costs capitalized, net of amortization
(4,499
)
 
(3,463
)
Other
(721
)
 
(99
)
Change in current assets and liabilities
 
 
 
(Increase) decrease in
 
 
 
Receivables from investment products
(2,271
)
 
2,263

Receivables
(34,589
)
 
(44,878
)
Other current assets
729

 
(5,955
)
(Decrease) increase in
 
 
 
Accounts payable
(2,208
)
 
3,893

Accrued liabilities
(34,087
)
 
(9,717
)
Deferred revenue
375

 
213

Total adjustments
8,846

 
28,064

Net cash provided by operating activities
$
381,535

 
$
417,898



Note 2.
Investment in Unconsolidated Affiliate
LSV Asset Management
The Company has an investment in 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 investment products. The Company's partnership interest in LSV as of September 30, 2019 was 38.9%. The Company accounts for its interest in LSV using the equity

Page 12 of 48





method because of its less than 50% ownership. The Company’s interest in the net assets of LSV is reflected in Investment in unconsolidated affiliate on the accompanying Consolidated Balance Sheets and its interest in the earnings of LSV is reflected in Equity in earnings of unconsolidated affiliate on the accompanying Consolidated Statements of Operations.
At September 30, 2019, the Company’s total investment in LSV was $41,437. The Company receives partnership distributions from LSV on a quarterly basis. The Company received partnership distributions from LSV of $123,663 and $138,216 in the nine months ended September 30, 2019 and 2018, respectively. 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’s proportionate share in the earnings of LSV was $37,609 and $41,726 during the three months ended September 30, 2019 and 2018, respectively. During the nine months ended September 30, 2019 and 2018, the Company’s proportionate share in the earnings of LSV was $112,758 and $123,406, respectively.
These tables contain condensed financial information of LSV:
Condensed Statement of Operations
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Revenues
 
$
121,232

 
$
133,921

 
$
365,164

 
$
397,750

Net income
 
96,699

 
107,284

 
289,918

 
317,295



Condensed Balance Sheets

 
September 30, 2019
 
December 31, 2018
Current assets
 
$
138,320

 
$
138,083

Non-current assets
 
4,721

 
1,165

Total assets
 
$
143,041

 
$
139,248

 
 
 
 
 
Current liabilities
 
$
75,192

 
$
47,874

Non-current liabilities
 
4,738

 

Partners’ capital
 
63,111

 
91,374

Total liabilities and partners’ capital
 
$
143,041

 
$
139,248



Note 3.
Composition of Certain Financial Statement Captions
Receivables
Receivables on the accompanying Consolidated Balance Sheets consist of: 
 
September 30, 2019
 
December 31, 2018
Trade receivables
$
91,372

 
$
76,362

Fees earned, not billed
241,340

 
226,001

Other receivables
17,931

 
13,691

 
350,643

 
316,054

Less: Allowance for doubtful accounts
(1,311
)
 
(718
)
 
$
349,332

 
$
315,336


Fees earned, not billed represents receivables from contracts with 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 an extended valuation process. Billings to these clients occur once the asset valuation processes are completed.
Receivables from investment products on the accompanying Consolidated Balance Sheets primarily represent fees receivable for distribution, investment advisory, and administration services to various regulated investment companies and other investment products sponsored by SEI.

Page 13 of 48





Property and Equipment
Property and Equipment on the accompanying Consolidated Balance Sheets consists of:
 
September 30, 2019
 
December 31, 2018
Buildings
$
162,677

 
$
160,796

Equipment
119,585

 
126,954

Land
10,830

 
10,772

Purchased software
142,693

 
139,245

Furniture and fixtures
18,478

 
18,103

Leasehold improvements
19,656

 
18,959

Construction in progress
27,042

 
9,240

 
500,961

 
484,069

Less: Accumulated depreciation
(346,377
)
 
(338,206
)
Property and Equipment, net
$
154,584

 
$
145,863


The Company recognized $22,162 and $21,515 in depreciation expense related to property and equipment for the nine months ended September 30, 2019 and 2018, respectively.
Deferred Contract Costs
Deferred contract costs, which primarily consist of deferred sales commissions, were $28,506 and $24,007 as of September 30, 2019 and December 31, 2018, respectively. The Company deferred expenses related to contract costs of $4,575 and $1,400 during the three months ended September 30, 2019 and 2018, respectively. During the nine months ended September 30, 2019 and 2018, the Company deferred expenses related to contract costs of $7,673 and $5,483, respectively. Amortization expense related to deferred contract costs were $3,174 and $2,020 during the nine months ended September 30, 2019 and 2018, respectively, and are included in Compensation, benefits and other personnel on the accompanying Consolidated Statements of Operations. There was no impairment loss in relation to deferred contract costs during the nine months ended September 30, 2019.
Accrued Liabilities
Accrued liabilities on the accompanying Consolidated Balance Sheets consist of: 
 
September 30, 2019
 
December 31, 2018
Accrued employee compensation
$
73,997

 
$
97,603

Accrued consulting, outsourcing and professional fees
27,491

 
31,000

Accrued sub-advisory, distribution and other asset management fees
45,495

 
42,583

Accrued dividend payable

 
50,761

Other accrued liabilities
46,936

 
57,687

Total accrued liabilities
$
193,919

 
$
279,634



Note 4.    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 consist mainly of investments in open-ended 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 2023 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

Page 14 of 48





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 pricing policies and procedures applied for our Level 1 and Level 2 financial assets during the nine months ended September 30, 2019 were consistent with those as described in our Annual Report on Form 10-K at December 31, 2018. The Company had no Level 3 financial assets at September 30, 2019 or December 31, 2018 that were required to be measured at fair value on a recurring basis. The Company's Level 3 financial liabilities at September 30, 2019 and December 31, 2018 consist entirely of the estimated contingent consideration resulting from an acquisition (See Note 12). The fair value of the contingent consideration was determined using a Monte-Carlo simulation model. Key assumptions for the Monte-Carlo simulation model include expected revenues, expected volatility, risk-free rate and correlation coefficient. There were no transfers of financial assets between levels within the fair value hierarchy during the nine months ended September 30, 2019.
The fair value of certain financial assets of the Company was determined using the following inputs:
 
 
 
 
Fair Value Measurements at the End of the Reporting Period Using
Assets
 
September 30, 2019
 
Quoted Prices
in
Active  Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
Equity available-for-sale securities
 
$
11,313

 
$
11,313

 
$

Fixed-income available-for-sale securities
 
90,267

 

 
90,267

Fixed-income securities owned
 
32,862

 

 
32,862

Investment funds sponsored by LSV (1)
 
5,533

 
 
 
 
 
 
$
139,975

 
$
11,313

 
$
123,129


 
 
 
 
Fair Value Measurements at the End of the Reporting Period Using
Assets
 
December 31, 2018
 
Quoted Prices
in
Active  Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
Equity available-for-sale securities
 
$
10,218

 
$
10,218

 
$

Fixed-income available-for-sale securities
 
101,683

 

 
101,683

Fixed-income securities owned
 
30,892

 

 
30,892

Investment funds sponsored by LSV (1)
 
4,887

 
 
 
 
 
 
$
147,680

 
$
10,218

 
$
132,575


(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 5).


Page 15 of 48





Note 5.    Marketable Securities
Investments Available for Sale
Investments available for sale classified as non-current assets consist of: 
 
At September 30, 2019
 
Cost
Amount
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Fair
Value
SEI-sponsored mutual funds
$
7,477

 
$
105

 
$
(411
)
 
$
7,171

Equities and other mutual funds
3,476

 
666

 

 
4,142

Debt securities
89,625

 
642

 

 
90,267

 
$
100,578

 
$
1,413

 
$
(411
)
 
$
101,580

 
At December 31, 2018
 
Cost
Amount
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Fair
Value
SEI-sponsored mutual funds
$
7,446

 
$

 
$
(788
)
 
$
6,658

Equities and other mutual funds
3,434

 
126

 

 
3,560

Debt securities
103,518

 

 
(1,835
)
 
101,683

 
$
114,398

 
$
126

 
$
(2,623
)
 
$
111,901


Net unrealized gains at September 30, 2019 of the Company's available-for-sale debt securities were $494 (net of income tax expense of $148). Net unrealized losses at December 31, 2018 of the Company's available-for-sale debt securities were $1,413 (net of income tax benefit of $422). These net unrealized gains and losses are reported as a separate component of Accumulated other comprehensive loss on the accompanying Consolidated Balance Sheets.
There were gross realized gains of $1,031 and gross realized losses of $1,520 during the nine months ended September 30, 2018. Gross realized gains and losses from available-for-sale securities during the nine months ended September 30, 2019 were immaterial. Gains and losses from available-for-sale securities, including amounts reclassified from accumulated comprehensive loss, are reflected in Net gain (loss) from investments on the accompanying Consolidated Statements of Operations.
Investments in Affiliated Funds
The Company has an investment in 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 primarily in securities of Canadian, Australian and Japanese companies as well as various other global securities. The underlying securities held by the funds are translated into U.S. dollars within the funds. The funds had a fair value of $5,533 and $4,887 at September 30, 2019 and December 31, 2018, respectively. The Company recognized gains of $646 and losses of $298 during the nine months ended September 30, 2019 and 2018, respectively, from the change in fair value of the funds. There were no material gains or losses during the three months ended September 30, 2019 and 2018 from the change in fair value of the 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 $32,862 and $30,892 at September 30, 2019 and December 31, 2018, respectively. There were no material net gains or losses related to the securities during the three and nine months ended September 30, 2019 and 2018.

Note 6.    Line of Credit
The Company has a five-year $300,000 Credit Agreement (the Credit Facility) with Wells Fargo Bank, National Association, and a syndicate of other lenders. The Credit Facility is scheduled to expire in June 2021, 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

Page 16 of 48





can range from 0.25% to 1.00% or the London InterBank Offered Rate (LIBOR) plus a premium that can range from 1.25% to 2.00% depending on the Company’s Leverage Ratio (a ratio of consolidated indebtedness to consolidated 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 Federal Funds Rate, as published by the Federal Reserve Bank of New York, plus 0.50%, b) the prime commercial lending rate of Wells Fargo, c) the applicable LIBOR plus 1.00%, or d) 0%. 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% of the amount of the unused portion to 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 a fronting fee of 0.175% of the aggregate face amount of the outstanding letters of credit issued under the Credit Facility.
The Credit Facility contains covenants that restrict the ability of the Company to engage in mergers, consolidations, asset sales, investments, transactions with affiliates other than wholly-owned subsidiaries, or to incur liens or other indebtedness including contingent obligations or guarantees, 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. 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.
As of September 30, 2019, the Company had outstanding letters of credit of $11,553 under the Credit Facility. These letters of credit were issued primarily for the expansion of the Company's headquarters and are scheduled to expire during the remainder of 2019. The amount of the Credit Facility that is available for general corporate purposes as of September 30, 2019 was $288,447.
The Company was in compliance with all covenants of the Credit Facility during the nine months ended September 30, 2019.

Note 7.    Shareholders’ Equity
Stock-Based Compensation
The Company has only non-qualified stock options outstanding under its equity compensation plans. All outstanding stock options have performance-based vesting provisions specific to each option grant that tie the vesting of the applicable stock options to the Company’s financial performance. The Company’s stock options vest at a rate of 50% when a specified diluted earnings per share target is achieved, and the remaining 50% when a second, higher specified diluted earnings per share target is achieved. Options do not vest due to the passage of time but solely 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 share 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 recognized stock-based compensation expense in its Consolidated Financial Statements in the three and nine months ended September 30, 2019 and 2018, respectively, as follows: 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Stock-based compensation expense
$
5,453

 
$
5,878

 
$
15,555

 
$
16,396

Less: Deferred tax benefit
(1,042
)
 
(1,311
)
 
(2,959
)
 
(3,556
)
Stock-based compensation expense, net of tax
$
4,411

 
$
4,567

 
$
12,596

 
$
12,840

As of September 30, 2019, there was approximately $50,330 of unrecognized compensation cost remaining related to unvested employee stock options that management expects will vest and is being amortized.
The Company issues new common shares associated with the exercise of stock options. The total intrinsic value of options exercised during the nine months ended September 30, 2019 was $43,246. The total options exercisable as of September 30, 2019 had an intrinsic value of $197,860. The total intrinsic value for options exercisable is calculated as

Page 17 of 48





the difference between the market value of the Company’s common stock as of September 30, 2019 and the weighted average exercise price of the options. The market value of the Company’s common stock as of September 30, 2019 was $59.26 as reported by the Nasdaq Stock Market, LLC. The weighted average exercise price of the options exercisable as of September 30, 2019 was $25.08. Total options that were outstanding as of September 30, 2019 were 14,132,000. Total options that were exercisable as of September 30, 2019 were 7,890,000.
Common Stock Buyback
The Company’s Board of Directors, under multiple authorizations, has authorized the repurchase of the Company’s common stock on the open market or through private transactions. The Company purchased 4,950,000 shares at a total cost of $267,184 during the nine months ended September 30, 2019, which reduced the total shares outstanding of common stock. The cost of stock purchases during the period includes the cost of certain transactions that settled in the following quarter. As of September 30, 2019, the Company had approximately $198,695 of authorization remaining for the purchase of common stock under the program.
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.
Cash Dividend
On May 29, 2019, the Board of Directors declared a cash dividend of $0.33 per share on the Company's common stock, which was paid on June 20, 2019, to shareholders of record on June 12, 2019. Cash dividends declared during the nine months ended September 30, 2019 and 2018 were $49,984 and $47,139, respectively.

Note 8.    Accumulated Other Comprehensive Loss
The components of Accumulated other comprehensive loss, net of tax, are as follows: 
 
Foreign
Currency
Translation
Adjustments
 
Unrealized
Gains (Losses)
on Investments
 
Accumulated Other Comprehensive Loss
Balance, January 1, 2019
$
(31,587
)
 
$
(1,413
)
 
$
(33,000
)
 
 
 
 
 
 
Other comprehensive loss before reclassifications
(4,687
)
 
1,633

 
(3,054
)
Amounts reclassified from accumulated other comprehensive loss

 
274

 
274

Net current-period other comprehensive loss
(4,687
)
 
1,907

 
(2,780
)
 
 
 
 
 
 
Balance, September 30, 2019
$
(36,274
)
 
$
494

 
$
(35,780
)


Note 9.    Business Segment Information
The Company’s reportable business segments are:
Private Banks – provides outsourced investment processing and investment management platforms to banks and trust institutions, independent wealth advisers and financial advisors worldwide;
Investment Advisors – provides 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 – provides investment management and administrative outsourcing platforms to retirement plan sponsors, healthcare systems and not-for-profit organizations worldwide;
Investment Managers – provides investment operations outsourcing platforms to fund companies, banking institutions, traditional and non-traditional investment managers worldwide and family offices in the United States; and
Investments in New Businesses – focuses on providing investment management solutions to ultra-high-net-worth families residing in the United States; developing internet-based investment services and advice platforms; entering new markets; and conducting other research and development activities.

Page 18 of 48





The information in the following tables is derived from the Company’s internal financial reporting used for corporate management purposes. There are no inter-segment revenues for the three and nine months ended September 30, 2019 and 2018. Management evaluates Company assets on a consolidated basis during interim periods. The accounting policies of the reportable business segments are the same as those described in Note 1 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
The following tables highlight certain financial information about each of the Company’s business segments for the three months ended September 30, 2019 and 2018:
 
Private
Banks
 
Investment
Advisors
 
Institutional
Investors
 
Investment
Managers
 
Investments
In New
Businesses
 
Total
 
For the Three Months Ended September 30, 2019
Revenues
$
117,250

 
$
103,033

 
$
80,337

 
$
112,186

 
$
3,448

 
$
416,254

Expenses
110,788

 
51,509

 
37,268

 
71,889

 
7,926

 
279,380

Operating profit (loss)
$
6,462

 
$
51,524

 
$
43,069

 
$
40,297

 
$
(4,478
)
 
$
136,874

 
Private
Banks
 
Investment
Advisors
 
Institutional
Investors
 
Investment
Managers
 
Investments
In New
Businesses
 
Total
 
For the Three Months Ended September 30, 2018
Revenues
$
118,449

 
$
102,550

 
$
83,466

 
$
101,275

 
$
2,942

 
$
408,682

Expenses
116,471

 
53,287

 
40,497

 
65,296

 
5,769

 
281,320

Operating profit (loss)
$
1,978

 
$
49,263

 
$
42,969

 
$
35,979

 
$
(2,827
)
 
$
127,362


A reconciliation of the total operating profit reported for the business segments to income from operations in the Consolidated Statements of Operations for the three months ended September 30, 2019 and 2018 is as follows:
 
2019
 
2018
Total operating profit from segments
$
136,874

 
$
127,362

Corporate overhead expenses
(16,237
)
 
(14,942
)
Income from operations
$
120,637

 
$
112,420


The following tables provide additional information for the three months ended September 30, 2019 and 2018 pertaining to our business segments:
 
Capital Expenditures (1)
 
Depreciation
 
2019
 
2018
 
2019
 
2018
Private Banks
$
8,018

 
$
7,999

 
$
3,640

 
$
3,427

Investment Advisors
4,468

 
3,927

 
1,162

 
1,168

Institutional Investors
1,070

 
962

 
393

 
410

Investment Managers
5,311

 
4,104

 
1,793

 
1,796

Investments in New Businesses
379

 
287

 
101

 
137

Total from business segments
$
19,246

 
$
17,279

 
$
7,089

 
$
6,938

Corporate overhead
663

 
460

 
320

 
317

 
$
19,909

 
$
17,739

 
$
7,409

 
$
7,255

(1) Capital expenditures include additions to property and equipment and capitalized software.

Page 19 of 48





 
Amortization
 
2019
 
2018
Private Banks
$
7,322

 
$
6,943

Investment Advisors
2,609

 
2,445

Institutional Investors
440

 
427

Investment Managers
2,334

 
2,346

Investments in New Businesses
185

 
186

Total from business segments
$
12,890

 
$
12,347

Corporate overhead
57

 
58

 
$
12,947

 
$
12,405


The following tables highlight certain financial information about each of the Company’s business segments for the nine months ended September 30, 2019 and 2018:
 
Private
Banks
 
Investment
Advisors
 
Institutional
Investors
 
Investment
Managers
 
Investments
In New
Businesses
 
Total
 
For the Nine Months Ended September 30, 2019
Revenues
$
351,601

 
$
297,916

 
$
241,559

 
$
326,037

 
$
9,547

 
$
1,226,660

Expenses
329,540

 
154,569

 
115,383

 
209,326

 
20,663

 
829,481

Operating profit (loss)
$
22,061

 
$
143,347

 
$
126,176

 
$
116,711

 
$
(11,116
)
 
$
397,179

 
Private
Banks
 
Investment
Advisors
 
Institutional
Investors
 
Investment
Managers
 
Investments
In New
Businesses
 
Total
 
For the Nine Months Ended September 30, 2018
Revenues
$
361,739

 
$
301,632

 
$
252,391

 
$
295,696

 
$
7,652

 
$
1,219,110

Expenses
343,515

 
158,792

 
122,617

 
191,955

 
16,807

 
833,686

Operating profit (loss)
$
18,224

 
$
142,840

 
$
129,774

 
$
103,741

 
$
(9,155
)
 
$
385,424


A reconciliation of the total operating profit reported for the business segments to income from operations in the Consolidated Statements of Operations for the nine months ended September 30, 2019 and 2018 is as follows: 
 
2019
 
2018
Total operating profit from segments
$
397,179

 
$
385,424

Corporate overhead expenses
(52,845
)
 
(46,398
)
Income from operations
$
344,334

 
$
339,026


The following tables provide additional information for the nine months ended September 30, 2019 and 2018 pertaining to our business segments: 
 
Capital Expenditures (1)
 
Depreciation
 
2019
 
2018
 
2019
 
2018
Private Banks
$
25,240

 
$
27,767

 
$
10,774

 
$
10,069

Investment Advisors
12,973

 
12,471

 
3,506

 
3,378

Institutional Investors
2,990

 
2,926

 
1,212

 
1,310

Investment Managers
13,535

 
9,994

 
5,384

 
5,411

Investments in New Businesses
964

 
731

 
302

 
442

Total from business segments
$
55,702

 
$
53,889

 
$
21,178

 
$
20,610

Corporate Overhead
1,634

 
1,134

 
984

 
905

 
$
57,336

 
$
55,023

 
$
22,162

 
$
21,515

(1) Capital expenditures include additions to property and equipment and capitalized software.

Page 20 of 48





 
Amortization
 
2019
 
2018
Private Banks
$
21,680

 
$
20,317

Investment Advisors
7,682

 
7,203

Institutional Investors
1,300

 
1,281

Investment Managers
7,019

 
7,036

Investments in New Businesses
555

 
410

Total from business segments
$
38,236

 
$
36,247

Corporate Overhead
171

 
173

 
$
38,407

 
$
36,420



Note 10.    Income Taxes
The gross liability for unrecognized tax benefits at September 30, 2019 and December 31, 2018 was $14,627 and $14,367, respectively, exclusive of interest and penalties, of which $14,183 and $13,774 would affect the effective tax rate if the Company were to recognize the tax benefit.
The Company classifies interest and penalties on unrecognized tax benefits as income tax expense. As of September 30, 2019 and December 31, 2018, the combined amount of accrued interest and penalties related to tax positions taken on tax returns was $1,520 and $1,289, respectively.
 
September 30, 2019
 
December 31, 2018
Gross liability for unrecognized tax benefits, exclusive of interest and penalties
$
14,627

 
$
14,367

Interest and penalties on unrecognized benefits
1,520

 
1,289

Total gross uncertain tax positions
$
16,147

 
$
15,656

Amount included in Current liabilities
$
1,008

 
$
3,131

Amount included in Other long-term liabilities
15,139

 
12,525

 
$
16,147

 
$
15,656


The Company's effective income tax rate for the three and nine months ended September 30, 2019 and 2018 differs from the federal income tax statutory rate due to the following:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Statutory rate
 
21.0
 %
 
21.0
 %
 
21.0
 %
 
21.0
 %
State taxes, net of federal tax benefit
 
2.6

 
2.3

 
2.6

 
2.3

Foreign tax expense and tax rate differential
 
(0.3
)
 
(0.2
)
 
(0.2
)
 
(0.2
)
Tax benefit from stock option exercises
 
(2.2
)
 
(1.4
)
 
(1.5
)
 
(4.8
)
Expiration of the statute of limitations
 
(1.2
)
 
(1.0
)
 
(0.4
)
 
(0.3
)
Provision-to-return adjustment
 
(0.6
)
 
(2.3
)
 
(0.2
)
 
(0.8
)
Other, net
 
(0.4
)
 
0.2

 
(0.3
)
 

 
 
18.9
 %
 
18.6
 %
 
21.0
 %
 
17.2
 %

The increase in the Company's effective tax rate for the nine months ended September 30, 2019 was primarily due to reduced tax benefits related to the lower volume of stock option exercises as compared to the nine months ended September 30, 2018.
The Company files income tax returns in the United States on a consolidated basis and in many U.S. state and foreign jurisdictions. The Company is subject to examination of income tax returns by the Internal Revenue Service (IRS) and other domestic and foreign tax authorities. The Company is no longer subject to U.S. federal income tax examination for years before 2015 and is no longer subject to state, local or foreign income tax examinations by authorities for years before 2014.
The Company estimates it will recognize $1,008 of gross unrecognized tax benefits. This amount is expected to be paid within one year or to be removed at the expiration of the statute of limitations and resolution of income tax audits and is netted against the current payable account. These unrecognized tax benefits are related to tax positions taken on certain

Page 21 of 48





federal, state, and foreign tax returns. However, the timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. While it is reasonably possible that some issues under examination could be resolved in the next twelve months, based upon the current facts and circumstances, the Company cannot reasonably estimate the timing of such resolution or the total range of potential changes as it relates to the current unrecognized tax benefits that are recorded as part of the Company’s financial statements.

Note 11.    Commitments and Contingencies
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 September 30, 2019 and December 31, 2018 related to these indemnifications.
Stanford Trust Company Litigation
SEI has been named in seven lawsuits filed in Louisiana courts; four of the cases also name SPTC as a defendant. The underlying allegations in all actions relate to 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 the sale of “certificates of deposit” issued by Stanford International Bank so as to be a “seller” of the certificates of deposit for purposes of primary liability under 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 originally 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, 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 remaining in Lillie 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.
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 (“Ahders Complaint”), alleging claims essentially the same as those in Lillie. In January 2017, the Judicial Panel on Multidistrict Litigation transferred the Ahders proceeding to the Northern District of Texas and the Stanford MDL. During February 2017, SEI filed its response to the Ahders 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. In both cases, as a result of the proceedings in the Northern District of Texas, only the plaintiffs’ secondary liability claims under Section 714(B) of the Louisiana Securities Law remain. Limited discovery and motions practice have occurred, including SEI and SPTC’s filing of a dispositive summary judgment motion in the Lillie proceeding. On January 31, 2019, the Judicial Panel on Multidistrict Litigation remanded the Lillie and Ahders proceedings to the Middle District of Louisiana.
On July 9, 2019, the District Court issued an order granting SEI’s Summary Judgment Motion to dismiss the remaining Section 714(B) claim in the Lillie proceeding and denying Plaintiffs’ Motion for Continuance of SEI and SPTC’s Motion for Summary Judgment pursuant to Rule 56(d).

Page 22 of 48





On July 16, 2019, SEI and SPTC filed a Motion for Summary Judgment pursuant to Rule 56(d) in the Ahders proceeding to have the remaining Section 714(B) claim dismissed.
On July 17, 2019, Plaintiffs filed a Motion for Reconsideration and/or New Trial as to the July 9, 2019 Ruling and Order (ECF 146) by the Honorable Brian A. Jackson denying a continuance of SEI’s Motion for Summary Judgment pursuant to Rule 56(d). The Court denied Plaintiffs’ Motion and entered a Final Judgment in favor of SEI on August 15, 2019.
On August 27, 2019, Plaintiffs filed a Notice of Appeal to the United States Court of Appeal for the Fifth Circuit of the District Court's dismissal of the matter. Plaintiffs’ Motion in Support of the Notice of Appeal must be filed with the Court by November 20, 2019. If Plaintiffs’ Motion in Support of Appeal is filed, SEI intends to contest the Plaintiffs' appeal.
Another case, 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.
Two additional cases remain in the Parish of East Baton Rouge. Plaintiffs filed petitions in 2010 and have granted SEI and SPTC indefinite extensions to respond. No material activity has taken place since.
In 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 subject matter jurisdiction under the federal Securities Litigation Uniform Standards Act (SLUSA). The matters were removed to the United States District Court for the Northern District of Texas and consolidated. The court then 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 matters were 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.
SEI Capital Accumulation Plan Litigation
On September 28, 2018, a class action complaint was filed in the United States District Court for the Eastern District of Pennsylvania by Gordon Stevens, individually and as the representative of similarly situated persons, and on behalf of the SEI Capital Accumulation Plan (the “Plan”) naming the Company and its affiliated and/or related entities SEI Investments Management Corporation, SEI Capital Accumulation Plan Design Committee, SEI Capital Accumulation Plan Investment Committee, SEI Capital Accumulation Plan Administration Committee, and John Does 1-30 as defendants (the “Stevens Complaint”). The Stevens Compliant seeks unspecified damages for defendants’ breach of fiduciary duties under ERISA with respect to selecting and monitoring the Plan’s investment options and by retaining affiliated investment products in the Plan.
Although SEI believes its defenses against the plaintiff’s allegations were valid, the Company agreed to settle this matter in the very early stages of the litigation in order to avoid the high cost of protracted class-action litigation and internal distractions such cases bring. The written settlement agreement was submitted to the Court on July 26, 2019, and is a matter of public record. A Preliminary Approval Order approving the settlement agreement was issued by the Court and the Court has scheduled a fairness hearing for December 18, 2019. The settlement agreement will not be finalized until the Court has issued a final approval after the December 18, 2019. The Company expects final Court approval of the settlement by year-end. The Company expects the financial impact of the settlement agreement to be immaterial.
Other Matters
The Company is also a party to various other actions and claims arising in the normal course of business that the Company does not believe are material. The Company believes that the ultimate resolution of these matters will not have a material adverse effect on the Company's financial position or the manner in which the Company conducts its business. Currently, the Company does not believe the amount of losses associated with these matters can be estimated. While the Company does not believe that the amount of such losses will, when liquidated or estimable, be material to its financial position, the assumptions may be incorrect and any such loss could have a material adverse effect on the Company's results of operations or the manner in which the Company conducts its business in the period(s) during which the underlying matters are resolved.


Page 23 of 48





Note 12.    Business Acquisition
On April 2, 2018, the Company acquired all ownership interests of Huntington Steele, LLC (Huntington Steele), a registered investment advisor based in Seattle, Washington servicing the ultra-high-net-worth market. The total purchase price for Huntington Steele was $17,914, which includes $5,794 in cash consideration, net of $125 in cash acquired, and a contingent purchase price of $12,120. The contingent purchase price consists of amounts payable to the sellers upon the attainment of specified financial measures determined at various intervals occurring between 2019 and 2023. The Company made a payment of $433 to the sellers during the nine months ended September 30, 2019. As of September 30, 2019, the current portion of the contingent purchase price of $535 is included in Accrued liabilities on the accompanying Balance Sheet. The long-term portion of the contingent consideration of $11,152 is included in Other long-term liabilities on the accompanying Balance Sheet.

Note 13.    Goodwill and Intangible Assets
On April 2, 2018, the Company acquired all ownership interests of Huntington Steele (See Note 12). The total purchase price was allocated to Huntington Steele’s net tangible and intangible assets based upon their estimated fair values at the date of purchase. The excess purchase price over the value of the identifiable intangible assets was recorded as goodwill. The total amount of goodwill from this transaction amounted to $11,499 and is included on the accompanying Consolidated Balance Sheets.
In July 2017, the Company acquired all ownership interests of Archway Technology Partners, LLC, Archway Finance & Operations, Inc. and Keystone Capital Holdings, LLC (collectively, Archway), a provider of operating technologies and services to the family office industry. The total purchase price was allocated to Archway’s net tangible and intangible assets based upon their estimated fair values at the date of purchase. The excess purchase price over the value of the net tangible and identifiable intangible assets was recorded as goodwill. The total amount of goodwill from this transaction amounted to $52,990 and is included on the accompanying Consolidated Balance Sheets.
There were no changes to the Company's goodwill during the nine months ended September 30, 2019.
The Company recognized $2,763 and $2,617 of amortization expense related to the intangible assets acquired through the acquisitions of Huntington Steele and Archway during the nine months ended September 30, 2019 and 2018, respectively.

Note 14.    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 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 related to client implementations.
Disaggregation of Revenue
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 the three months ended September 30, 2019 and 2018:

Page 24 of 48





 
Private
Banks
 
Investment
Advisors
 
Institutional
Investors
 
Investment
Managers
 
Investments
In New
Businesses
 
Total
Major Product Lines:
For the Three Months Ended September 30, 2019
Investment management fees from pooled investment products
$
34,074

 
$
72,150

 
$
13,602

 
$
161

 
$
323

 
$
120,310

Investment management fees from investment management agreements
314

 
26,240

 
66,373

 

 
3,099

 
96,026

Investment operations fees
434

 

 

 
102,543

 

 
102,977

Investment processing fees - PaaS
43,462

 

 

 

 

 
43,462

Investment processing fees - SaaS
34,018

 

 

 
2,789

 

 
36,807

Professional services fees
3,533

 

 

 
1,398

 

 
4,931

Account fees and other
1,415

 
4,643

 
362

 
5,295

 
26

 
11,741

Total revenues
$
117,250

 
$
103,033

 
$
80,337

 
$
112,186

 
$
3,448

 
$
416,254

 
 
 
 
 
 
 
 
 
 
 
 
Primary Geographic Markets:
 
 
 
 
 
 
 
 
 
 
 
United States
$
76,864

 
$
103,033

 
$
63,405

 
$
104,859

 
$
3,448

 
$
351,609

United Kingdom
24,604

 

 
12,717

 

 

 
37,321

Canada
10,985

 

 
1,743

 

 

 
12,728

Ireland
4,797

 

 
2,310

 
7,327

 

 
14,434

Other

 

 
162

 

 

 
162

Total revenues
$
117,250

 
$
103,033

 
$
80,337

 
$
112,186

 
$
3,448

 
$
416,254


 
Private
Banks
 
Investment
Advisors
 
Institutional
Investors
 
Investment
Managers
 
Investments
In New
Businesses
 
Total
Major Product Lines:
For the Three Months Ended September 30, 2018
Investment management fees from pooled investment products
$
34,897

 
$
73,663

 
$
14,614

 
$
206

 
$
267

 
$
123,647

Investment management fees from investment management agreements
197

 
24,525

 
68,318

 
79

 
2,641

 
95,760

Investment operations fees
381

 

 

 
92,185

 

 
92,566

Investment processing fees - PaaS
44,836

 

 

 
624

 

 
45,460

Investment processing fees - SaaS
32,925

 

 

 
2,417

 

 
35,342

Professional services fees
3,408

 

 

 
1,792

 

 
5,200

Account fees and other
1,805

 
4,362

 
534

 
3,972

 
34

 
10,707

Total revenues
$
118,449

 
$
102,550

 
$
83,466

 
$
101,275

 
$
2,942

 
$
408,682

 
 
 
 
 
 
 
 
 
 
 
 
Primary Geographic Markets:
 
 
 
 
 
 
 
 
 
 
 
United States
$
73,188

 
$
102,550

 
$
64,601

 
$
95,132

 
$
2,942

 
$
338,413

United Kingdom
28,647

 

 
13,817

 

 

 
42,464

Canada
11,730

 

 
1,895

 

 

 
13,625

Ireland
4,884

 

 
2,828

 
6,143

 

 
13,855

Other

 

 
325

 

 

 
325

Total revenues
$
118,449

 
$
102,550

 
$
83,466

 
$
101,275

 
$
2,942

 
$
408,682



Page 25 of 48





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 the nine months ended September 30, 2019 and 2018:
 
Private
Banks
 
Investment
Advisors
 
Institutional
Investors
 
Investment
Managers
 
Investments
In New
Businesses
 
Total
Major Product Lines:
For the Nine Months Ended September 30, 2019
Investment management fees from pooled investment products
$
100,498

 
$
208,860

 
$
41,062

 
$
550

 
$
957

 
$
351,927

Investment management fees from investment management agreements
1,299

 
75,526

 
199,620

 

 
8,510

 
284,955

Investment operations fees
1,172

 

 

 
297,342

 

 
298,514

Investment processing fees - PaaS
130,529

 

 

 

 

 
130,529

Investment processing fees - SaaS
103,502

 

 

 
7,931

 

 
111,433

Professional services fees
9,896

 

 

 
4,363

 

 
14,259

Account fees and other
4,705

 
13,530

 
877

 
15,851

 
80

 
35,043

Total revenues
$
351,601

 
$
297,916

 
$
241,559

 
$
326,037

 
$
9,547

 
$
1,226,660

 
 
 
 
 
 
 
 
 
 
 
 
Primary Geographic Markets:
 
 
 
 
 
 
 
 
 
 
 
United States
$
229,207

 
$
297,916

 
$
189,383

 
$
304,711

 
$
9,547

 
$
1,030,764

United Kingdom
75,649

 

 
39,323

 

 

 
114,972

Canada
32,527

 

 
5,178

 

 

 
37,705

Ireland
14,218

 

 
6,977

 
21,326

 

 
42,521

Other

 

 
698

 

 

 
698

Total revenues
$
351,601

 
$
297,916

 
$
241,559

 
$
326,037

 
$
9,547

 
$
1,226,660


Page 26 of 48





 
Private
Banks
 
Investment
Advisors
 
Institutional
Investors
 
Investment
Managers
 
Investments
In New
Businesses
 
Total
Major Product Lines:
For the Nine Months Ended September 30, 2018
Investment management fees from pooled investment products
$
105,251

 
$
218,562

 
$
45,819

 
$
445

 
$
729

 
$
370,806

Investment management fees from investment management agreements
609

 
70,678

 
205,202

 
242

 
6,824

 
283,555

Investment operations fees
1,138

 

 

 
267,951

 

 
269,089

Investment processing fees - PaaS
133,336

 

 

 
1,749

 

 
135,085

Investment processing fees - SaaS
102,980

 

 

 
7,152

 

 
110,132

Professional services fees
13,022

 

 

 
5,660

 

 
18,682

Account fees and other
5,403

 
12,392

 
1,370

 
12,497

 
99

 
31,761

Total revenues
$
361,739

 
$
301,632

 
$
252,391

 
$
295,696

 
$
7,652

 
$
1,219,110

 
 
 
 
 
 
 
 
 
 
 
 
Primary Geographic Markets:
 
 
 
 
 
 
 
 
 
 
 
United States
$
226,990

 
$
301,632

 
$
193,417

 
$
279,736

 
$
7,652

 
$
1,009,427

United Kingdom
85,177

 

 
42,498

 

 

 
127,675

Canada
34,847

 

 
6,700

 

 

 
41,547

Ireland
14,725

 

 
8,282

 
15,960

 

 
38,967

Other

 

 
1,494

 

 

 
1,494

Total revenues
$
361,739

 
$
301,632

 
$
252,391

 
$
295,696

 
$
7,652

 
$
1,219,110


Investment management fees from pooled investment products - Revenues associated with clients' assets invested in Company-sponsored pooled investment products. Contractual fees are stated as a percentage of the average market 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 Institutional Investors segment primarily invested in Company-sponsored products. Each client is charged an investment management fee that is stated as a percentage of the average market value of all assets under management. The client is billed directly on a quarterly basis. Revenues are recognized in Asset management, administration and distribution fees on the accompanying Consolidated Statements of Operations.
Revenues associated with the separately managed account program offered through registered investment advisors located throughout the United States. The contractual fee is stated as a percentage of the average market value of all assets invested in the separately managed account and collected on a quarterly basis. 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 value of 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.
Investment processing fees - Software as a Service - Revenues associated with clients that outsource investment processing technology software and computer processing by accessing our proprietary software and data center remotely

Page 27 of 48





but 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 are recognized in Information processing and software servicing fees on the accompanying Consolidated Statements of Operations.
Professional services fees - 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, account terminations, reimbursements received for out-of-pocket expenses, and other fees for the provision of ancillary services.
Revenue is recognized by the Company when the performance obligations are satisfied and transfer of control to the client is completed. The majority of the Company’s performance obligations are satisfied and control is transferred to the client continuously. Therefore, revenue is recognized on a monthly basis. The amount of revenue recognized reflects the amount of consideration expected to be received by the Company in exchange for satisfied performance obligations.
The Company does not disclose the value of unsatisfied performance obligations as the majority of its contracts relate to: 1) contracts with an original term of one year or less; 2) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed; and 3) contracts that are based on the value of assets under management or administration.

Note 15.    Leases
The Company has operating leases for corporate facilities and equipment. The Company's expense related to leases during the three and nine months ended September 30, 2019 was $2,502 and $7,599, respectively, and is included in Facilities, supplies and other costs on the accompanying Consolidated Statement of Operations.
The Company's future minimum lease payments under non-cancelable leases as of September 30, 2019 are as follows:
2019 (excluding the nine months ended September 30, 2019)
 
$
2,515

2020
 
8,955

2021
 
7,657

2022
 
7,369

2023
 
7,374

Thereafter
 
16,726

Total future minimum lease payments
 
50,596

Less: Imputed interest
 
(4,892
)
Total
 
$
45,704


The following table provides supplemental Consolidated Balance Sheet information related to the Company's leases:
 
 
September 30, 2019
Current portion of long-term operating lease liabilities
 
$
7,888

Long-term operating lease liabilities
 
37,816

Total operating lease liabilities
 
$
45,704

 
 
 
Weighted average remaining lease term
 
6.5 years

 
 
 
Weighted average discount rate
 
2.66
%


Page 28 of 48





The following table provides supplemental cash flow information related to the Company's leases:
 
 
For the Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
 
$
8,053

 
 
 
Right-of-use assets obtained in exchange for lease obligations
 
4,178





Page 29 of 48





Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(In thousands, except asset balances and per share data)
This discussion reviews and analyzes the consolidated financial condition, the consolidated results of operations and other key factors that may affect future performance. This discussion should be read in conjunction with the Consolidated Financial Statements, the Notes to the Consolidated Financial Statements and the Annual Report on Form 10-K for the year ended December 31, 2018.

Overview
Consolidated Summary
We are a leading global provider of investment processing, investment management and investment operations platforms. We help corporations, financial institutions, financial advisors and ultra-high-net-worth families create and manage wealth by providing comprehensive, innovative, investment and investment-business platforms. Investment processing fees are earned as monthly fees for contracted services, including computer processing services, software licenses and investment operations services, as well as transaction-based fees for providing securities valuation and trade-execution. Investment processing fees can be stated as a percentage of the value of assets processed on the our platforms. Investment operations and investment management fees are earned as a percentage of average assets under management, administration or advised assets. As of September 30, 2019, through our subsidiaries and partnerships in which we have a significant interest, we manage, advise or administer $1.0 trillion in hedge, private equity, mutual fund and pooled or separately managed assets, including $334.7 billion in assets under management and $662.0 billion in client assets under administration. Our affiliate, LSV Asset Management (LSV), manages $100.3 billion of assets which are included as assets under management.
Our Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018 were:
 
Three Months Ended September 30,
 
Percent Change*
 
Nine Months Ended September 30,
 
Percent Change*
 
2019
 
2018
 
 
2019
 
2018
 
Revenues
$
416,254

 
$
408,682

 
2%
 
$
1,226,660

 
$
1,219,110

 
1%
Expenses
295,617

 
296,262

 
—%
 
882,326

 
880,084

 
—%
Income from operations
120,637

 
112,420

 
7%
 
344,334

 
339,026

 
2%
Net gain (loss) from investments
611

 
89

 
NM
 
2,121

 
(460
)
 
NM
Interest income, net of interest expense
4,013

 
3,360

 
19%
 
12,260

 
8,635

 
42%
Equity in earnings from unconsolidated affiliate
37,609

 
41,726

 
(10)%
 
112,758

 
123,406

 
(9)%
Income before income taxes
162,870

 
157,595

 
3%
 
471,473

 
470,607

 
—%
Income taxes
30,702

 
29,276

 
5%
 
98,784

 
80,773

 
22%
Net income
132,168

 
128,319

 
3%
 
372,689

 
389,834

 
(4)%
Diluted earnings per common share
$
0.86

 
$
0.80

 
8%
 
$
2.40

 
$
2.41

 
—%
* Variances noted "NM" indicate the percent change is not meaningful.
The following items had a significant impact on our financial results for the three and nine months ended September 30, 2019 and 2018:
Revenue from Asset management, administration and distribution fees increased primarily from higher assets under administration in our Investment Managers segment. Our average assets under administration increased $77.3 billion, or 14%, to $623.9 billion in the first nine months of 2019 as compared to $546.6 billion during the first nine months of 2018. Our average assets under management, excluding LSV, decreased $1.1 billion to $228.3 billion in the first nine months of 2019 as compared to $229.4 billion during the first nine months of 2018.
Information processing and software servicing fees in our Private Banks segment decreased by $5.9 million during the first nine months of 2019 due to decreased non-recurring fees and previously announced client losses.
Our proportionate share in the earnings of LSV decreased to $112.8 million in the first nine months of 2019 as compared to $123.4 million in the first nine months of 2018 due to negative cash flows, lost clients, lower performance fees and lower assets under management from LSV's existing clients from the significant market depreciation in late 2018. Market appreciation and new client activity during 2019 partially offset the decline in LSV's assets under management.

Page 30 of 48





Our operating expenses, primarily personnel costs, increased in the first nine months of 2019. These expenses are primarily related to servicing existing clients and acquiring new clients. The increase was partially offset by cost containment measures implemented in late 2018 and early 2019. These operating expenses are included in Compensation, benefits and other personnel costs on the accompanying Consolidated Statements of Operations.
We capitalized $26.0 million in the first nine months of 2019 for the SEI Wealth Platform as compared to $32.5 million in the first nine months of 2018. Amortization expense related to SWP increased to $31.6 million during the first nine months of 2019 as compared to $29.7 million during the first nine months of 2018.
Our effective tax rate during the third quarter of 2019 was 18.9% as compared to 18.6% during the third quarter of 2018. Our tax rate was 21.0% during the first nine months of 2019 as compared to 17.2% during the first nine months of 2018. The increase in our effective tax rate in the nine month period was primarily due to reduced tax benefits from a lower volume of stock option exercise activity (See the caption "Income Taxes" later in this discussion for more information).
We continued our stock repurchase program during 2019 and purchased 5.0 million shares for $267.2 million in the nine month period.



Page 31 of 48





Ending Asset Balances
(In millions)
 
As of September 30,
 
Percent Change
 
2019
 
2018
 
Private Banks:
 
 
 
 
 
Equity and fixed-income programs
$
22,580

 
$
22,739

 
(1)%
Collective trust fund programs
4

 
4

 
—%
Liquidity funds
3,695

 
3,142

 
18%
Total assets under management
$
26,279

 
$
25,885

 
2%
Client assets under administration
23,985

 
23,394

 
3%
Total assets
$
50,264

 
$
49,279

 
2%
Investment Advisors:
 
 
 
 
 
Equity and fixed-income programs
$
65,059

 
$
63,958

 
2%
Collective trust fund programs
4

 
5

 
(20)%
Liquidity funds
2,673

 
3,182

 
(16)%
Total assets under management
$
67,736

 
$
67,145

 
1%
Institutional Investors:
 
 
 
 
 
Equity and fixed-income programs
$
82,659

 
$
85,248

 
(3)%
Collective trust fund programs
81

 
74

 
9%
Liquidity funds
2,290

 
2,544

 
(10)%
Total assets under management
$
85,030

 
$
87,866

 
(3)%
Client assets under advisement
4,467

 
4,131

 
8%
Total assets
$
89,497

 
$
91,997

 
(3)%
Investment Managers:
 
 
 
 
 
Equity and fixed-income programs
$

 
$
99

 
NM
Collective trust fund programs
53,169

 
46,934

 
13%
Liquidity funds
477

 
580

 
(18)%
Total assets under management
$
53,646

 
$
47,613

 
13%
Client assets under administration (A)
637,986

 
552,411

 
15%
Total assets
$
691,632

 
$
600,024

 
15%
Investments in New Businesses:
 
 
 
 
 
Equity and fixed-income programs
$
1,621

 
$
1,179

 
37%
Liquidity funds
132

 
162

 
(19)%
Total assets under management
$
1,753

 
$
1,341

 
31%
Client assets under advisement
825

 
730

 
13%
Total assets
$
2,578

 
$
2,071

 
24%
LSV:
 
 
 
 
 
Equity and fixed-income programs (B)
$
100,295

 
$
109,363

 
(8)%
Total:
 
 
 
 
 
Equity and fixed-income programs (C)
$
272,214

 
$
282,586

 
(4)%
Collective trust fund programs
53,258

 
47,017

 
13%
Liquidity funds
9,267

 
9,610

 
(4)%
Total assets under management
$
334,739

 
$
339,213

 
(1)%
Client assets under advisement
5,292

 
4,861

 
9%
Client assets under administration (D)
661,971

 
575,805

 
15%
Total assets under management, advisement and administration
$
1,002,002

 
$
919,879

 
9%

Page 32 of 48





(A)
Client assets under administration in the Investment Managers segment include $52.6 billion of assets that are at fee levels below our normal full service assets (as of September 30, 2019).
(B)
Equity and fixed-income programs include assets managed by LSV in which fees are based on performance only. The ending value of these assets as of September 30, 2019 was $2.4 billion.
(C)
Equity and fixed-income programs include $5.7 billion of assets invested in various asset allocation funds at September 30, 2019.
(D)
In addition to the numbers presented, SEI also administers an additional $12.4 billion in Funds of Funds assets (as of September 30, 2019) on which SEI does not earn an administration fee.

Page 33 of 48





Average Asset Balances
(In millions)
 
Three Months Ended September 30,
 
Percent Change
 
Nine Months Ended September 30,
 
Percent Change
 
2019
 
2018
 
 
2019
 
2018
 
Private Banks:
 
 
 
 
 
 
 
 
 
 
 
Equity and fixed-income programs
$
22,432

 
$
22,516

 
—%
 
$
22,117

 
$
22,933

 
(4)%
Collective trust fund programs
4

 
4

 
—%
 
4

 
4

 
—%
Liquidity funds
3,625

 
3,376

 
7%
 
3,573

 
3,537

 
1%
Total assets under management
$
26,061

 
$
25,896

 
1%
 
$
25,694

 
$
26,474

 
(3)%
Client assets under administration
23,717

 
23,175

 
2%
 
22,980

 
23,059

 
—%
Total assets
$
49,778

 
$
49,071

 
1%
 
$
48,674

 
$
49,533

 
(2)%
Investment Advisors:
 
 
 
 
 
 
 
 
 
 
 
Equity and fixed-income programs
$
64,761

 
$
63,399

 
2%
 
$
61,971

 
$
62,980

 
(2)%
Collective trust fund programs
5

 
5

 
—%
 
5

 
5

 
—%
Liquidity funds
2,580

 
2,958

 
(13)%
 
3,781

 
2,559

 
48%
Total assets under management
$
67,346

 
$
66,362

 
1%
 
$
65,757

 
$
65,544

 
—%
Institutional Investors:
 
 
 
 
 
 
 
 
 
 
 
Equity and fixed-income programs
$
82,398

 
$
84,885

 
(3)%
 
$
82,240

 
$
85,712

 
(4)%
Collective trust fund programs
80

 
74

 
8%
 
79

 
74

 
7%
Liquidity funds
2,287

 
2,469

 
(7)%
 
2,335

 
2,665

 
(12)%
Total assets under management
$
84,765

 
$
87,428

 
(3)%
 
$
84,654

 
$
88,451

 
(4)%
Client assets under advisement
3,797

 
4,263

 
(11)%
 
3,644

 
4,316

 
(16)%
Total assets
$
88,562

 
$
91,691

 
(3)%
 
$
88,298

 
$
92,767

 
(5)%
Investment Managers:
 
 
 
 
 
 
 
 
 
 
 
Equity and fixed-income programs
$

 
$
95

 
NM
 
$

 
$
100

 
NM
Collective trust fund programs
52,587

 
45,856

 
15%
 
50,006

 
46,915

 
7%
Liquidity funds
460

 
555

 
(17)%
 
505

 
679

 
(26)%
Total assets under management
$
53,047

 
$
46,506

 
14%
 
$
50,511

 
$
47,694

 
6%
Client assets under administration (A)
630,328

 
541,063

 
16%
 
600,967

 
523,564

 
15%
Total assets
$
683,375

 
$
587,569

 
16%
 
$
651,478

 
$
571,258

 
14%
Investments in New Businesses:
 
 
 
 
 
 
 
 
 
 
 
Equity and fixed-income programs
$
1,609

 
$
1,148

 
40%
 
$
1,480

 
$
1,114

 
33%
Liquidity funds
142

 
146

 
(3)%
 
174

 
104

 
67%
Total assets under management
$
1,751

 
$
1,294

 
35%
 
$
1,654

 
$
1,218

 
36%
Client assets under advisement
842

 
777

 
8%
 
822

 
547

 
50%
Total assets
$
2,593

 
$
2,071

 
25%
 
$
2,476

 
$
1,765

 
40%
LSV:
 
 
 
 
 
 
 
 
 
 
 
Equity and fixed-income programs (B)
$
100,094

 
$
109,527

 
(9)%
 
$
102,510

 
$
109,270

 
(6)%
Total:
 
 
 
 
 
 
 
 
 
 
 
Equity and fixed-income programs (C)
$
271,294

 
$
281,570

 
(4)%
 
$
270,318

 
$
282,109

 
(4)%
Collective trust fund programs
52,676

 
45,939

 
15%
 
50,094

 
46,998

 
7%
Liquidity funds
9,094

 
9,504

 
(4)%
 
10,368

 
9,544

 
9%
Total assets under management
$
333,064

 
$
337,013

 
(1)%
 
$
330,780

 
$
338,651

 
(2)%
Client assets under advisement
4,639

 
5,040

 
(8)%
 
4,466

 
4,863

 
(8)%
Client assets under administration (D)
654,045

 
564,238

 
16%
 
623,947

 
546,623

 
14%
Total assets under management, advisement and administration
$
991,748

 
$
906,291

 
9%
 
$
959,193

 
$
890,137

 
8%

Page 34 of 48





(A)
Average client assets under administration in the Investment Managers segment for the three months ended September 30, 2019 include $52.6 billion that are at fee levels below our normal full service assets.
(B)
Equity and fixed-income programs include assets managed by LSV in which fees are based on performance only. The average value of these assets for the three months ended September 30, 2019 was $2.7 billion.
(C)
Equity and fixed-income programs include $5.7 billion of average assets invested in various asset allocation funds for the three months ended September 30, 2019.
(D)
In addition to the numbers presented, SEI also administers an additional $12.4 billion of average assets in Funds of Funds assets for the three months ended September 30, 2019 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. Assets under advisement 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. The assets presented in the preceding tables do not include assets processed on SWP 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 three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018 were as follows:
 
Three Months Ended September 30,
 
Percent
Change
 
Nine Months Ended September 30,
 
Percent
Change
 
2019
 
2018
 
 
2019
 
2018
 
Private Banks:
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
117,250

 
$
118,449

 
(1)%
 
$
351,601

 
$
361,739

 
(3)%
Expenses
110,788

 
116,471

 
(5)%
 
329,540

 
343,515

 
(4)%
Operating Profit
$
6,462

 
$
1,978

 
227%
 
$
22,061

 
$
18,224

 
21%
Operating Margin
6
%
 
2
%
 
 
 
6
%
 
5
%
 
 
Investment Advisors:
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
103,033

 
$
102,550

 
—%
 
$
297,916

 
$
301,632

 
(1)%
Expenses
51,509

 
53,287

 
(3)%
 
154,569

 
158,792

 
(3)%
Operating Profit
$
51,524

 
$
49,263

 
5%
 
$
143,347

 
$
142,840

 
—%
Operating Margin
50
%
 
48
%
 
 
 
48
%
 
47
%
 
 
Institutional Investors:
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
80,337

 
$
83,466

 
(4)%
 
$
241,559

 
$
252,391

 
(4)%
Expenses
37,268

 
40,497

 
(8)%
 
115,383

 
122,617

 
(6)%
Operating Profit
$
43,069

 
$
42,969

 
—%
 
$
126,176

 
$
129,774

 
(3)%
Operating Margin
54
%
 
51
%
 
 
 
52
%
 
51
%
 
 
Investment Managers:
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
112,186

 
$
101,275

 
11%
 
$
326,037

 
$
295,696

 
10%
Expenses
71,889

 
65,296

 
10%
 
209,326

 
191,955

 
9%
Operating Profit
$
40,297

 
$
35,979

 
12%
 
$
116,711

 
$
103,741

 
13%
Operating Margin
36
%
 
36
%
 
 
 
36
%
 
35
%
 
 
Investments in New Businesses:
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
3,448

 
$
2,942

 
17%
 
$
9,547

 
$
7,652

 
25%
Expenses
7,926

 
5,769

 
37%
 
20,663

 
16,807

 
23%
Operating Loss
$
(4,478
)
 
$
(2,827
)
 
NM
 
$
(11,116
)
 
$
(9,155
)
 
NM
For additional information pertaining to our business segments, see Note 9 to the Consolidated Financial Statements.

Page 35 of 48





Private Banks
 
Three Months Ended September 30,
 
Percent
Change
 
Nine Months Ended September 30,
 
Percent
Change
 
2019
 
2018
 
 
2019
 
2018
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Information processing and software servicing fees
$
82,503

 
$
82,921

 
(1)%
 
$
248,850

 
$
254,764

 
(2)%
Asset management, administration & distribution fees
34,747

 
35,528

 
(2)%
 
102,751

 
106,975

 
(4)%
Total revenues
$
117,250

 
$
118,449

 
(1)%
 
$
351,601

 
$
361,739

 
(3)%
Revenues decreased $1.2 million, or 1%, in the three month period and decreased $10.1 million, or 3%, in the nine month period ended September 30, 2019 and were primarily affected by:
Decreased investment processing fees from the loss of clients offset by new client conversions and growth from existing clients;
Decreased non-recurring professional services fees from existing clients as well as clients scheduled for implementation;
Decreased investment management fees from existing international clients due to negative cash flows; and
The negative impact from foreign currency exchange rate fluctuations between the U.S. dollar and the British pound on our foreign operations.
Operating margins increased to 6% compared to 2% in the three month period and increased to 6% compared to 5% in the nine month period. Operating income increased by $4.5 million, or 227%, in the three month period and increased $3.8 million, or 21%, in the nine month period and was primarily affected by:
Decreased costs, mainly personnel and consulting costs, related to maintenance, support and client migrations to SWP;
Decreased direct expenses associated with decreased investment management fees from existing international clients; and
Decreased direct expenses associated with client losses; partially offset by
A decrease in revenues;
Increased amortization expense related to SWP due to continued enhancements; and
The net negative impact from foreign currency exchange rate fluctuations between the U.S. dollar and the British pound on our foreign operations.

Investment Advisors
 
Three Months Ended September 30,
 
Percent
Change
 
Nine Months Ended September 30,
 
Percent
Change
 
2019
 
2018
 
 
2019
 
2018
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Investment management fees-SEI fund programs
$
72,150

 
$
73,663

 
(2)%
 
$
208,860

 
$
218,562

 
(4)%
Separately managed account fees
26,240

 
24,525

 
7%
 
75,526

 
70,678

 
7%
Other fees
4,643

 
4,362

 
6%
 
13,530

 
12,392

 
9%
Total revenues
$
103,033

 
$
102,550

 
—%
 
$
297,916

 
$
301,632

 
(1)%
Revenues increased slightly in the three month period and decreased $3.7 million, or 1%, in the nine month period ended September 30, 2019 and were primarily affected by:
Decreased investment management fees as favorable market conditions were more than offset by negative cash flows and a decrease in average basis points earned on assets due to client-directed shifts into lower fee investment products including SEI's ETF program; partially offset by
Increased separately managed account program fees from positive cash flows into SEI’s ETF programs.


Page 36 of 48





Operating margin increased to 50% compared to 48% in the three month period and increased to 48% compared to 47% in the nine month period. Operating income increased $2.3 million, or 5%, in the three month period and increased slightly in the nine month period and was primarily affected by:
Decreased costs, mainly personnel and consulting costs, related to maintenance, support and client migrations to SWP;
Decreased sales compensation expense; and
Decreased costs associated with accounts formerly processed on TRUST 3000® due to client migrations to SWP; partially offset by
A decrease in revenues;
Increased personnel costs for marketing to and servicing new advisors;
Increased direct expenses associated with increased assets into our investment products; and
Increased amortization expense related to SWP due to continued enhancements.

Institutional Investors
Revenues decreased $3.1 million, or 4%, in the three month period and decreased $10.8 million, or 4%, in the nine month period ended September 30, 2019 and were primarily affected by:
Defined benefit client losses, mainly resulting from acquisitions and plan curtailments; 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
Asset funding from new sales of our investment management platforms; and
Increased investment management fees from market appreciation.
Operating margin increased to 54% compared to 51% in the three month period and increased to 52% compared to 51% in the nine month period. Operating income increased slightly in the three month period and decreased $3.6 million, or 3%, in the nine month period and was primarily affected by:
A decrease in revenues; and
The net negative impact from foreign currency exchange rate fluctuations between the U.S. dollar and the British pound on our foreign operations; partially offset by
Decreased direct expenses associated with investment management fees.

Investment Managers
Revenues increased $10.9 million, or 11%, in the three month period and increased $30.3 million, or 10%, in the nine month period ended September 30, 2019 and were primarily affected by:
Positive cash flows into alternative, traditional and separately managed account offerings from new and existing clients; partially offset by
Client losses and fund closures.
Operating margin remained at 36% in the three month period and increased to 36% compared to 35% in the nine month period. Operating income increased $4.3 million, or 12%, in the three month period and increased $13.0 million, or 13%, in the nine month period and was primarily affected by:
An increase in revenues; and
The net positive impact from foreign currency exchange rate fluctuations between the U.S. dollar and the Euro on our foreign operations; partially offset by
Increased personnel expenses, technology and other operational costs to service new and existing clients; and
Increased non-capitalized investment spending, mainly consulting costs.

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 $16.2 million and $14.9 million in the

Page 37 of 48





three months ended September 30, 2019 and 2018, respectively, and $52.8 million and $46.4 million in the nine months ended September 30, 2019 and 2018, respectively. The increase in corporate overhead expenses is primarily due to increased non-recurring personnel-related costs, primarily severance costs.
Other income and expense
Other income and expense items on the accompanying Consolidated Statements of Operations consists of: 
 
Three Months Ended September 30,

Nine Months Ended September 30,
 
2019

2018

2019

2018
Net gain (loss) from investments
$
611

 
$
89

 
$
2,121

 
$
(460
)
Interest and dividend income
4,167

 
3,482

 
12,737

 
9,146

Interest expense
(154
)
 
(122
)
 
(477
)
 
(511
)
Equity in earnings of unconsolidated affiliate
37,609

 
41,726

 
112,758

 
123,406

Total other income and expense items, net
$
42,233

 
$
45,175

 
$
127,139

 
$
131,581

Interest and dividend income
Interest and dividend income is earned based upon the amount of cash that is invested daily. The increase in interest and dividend income in the three and nine months ended September 30, 2019 was due to an overall increase in interest rates.
Equity in earnings of unconsolidated affiliate
Equity in earnings of unconsolidated affiliate reflects our less than 50% ownership in LSV. As of September 30, 2019, our total partnership interest in LSV was 38.9%. The table below presents the revenues and net income of LSV and our proportionate share in LSV's earnings.
 
Three Months Ended September 30,
 
Percent Change
 
Nine Months Ended September 30,
 
Percent Change
 
2019
 
2018
 
 
2019
 
2018
 
Revenues of LSV
$
121,232

 
$
133,921

 
(9)%
 
$
365,164

 
$
397,750

 
(8)%
Net income of LSV
96,699

 
107,284

 
(10)%
 
289,918

 
317,295

 
(9)%
 
 
 
 
 
 
 
 
 
 
 
 
SEI's proportionate share in earnings of LSV
$
37,609

 
$
41,726

 
(10)%
 
$
112,758

 
$
123,406

 
(9)%
The decline in our earnings from LSV in the three and nine months ended September 30, 2019 was due to negative cash flows, lost clients, lower performance fees and decreased assets under management from LSV's existing clients due to the significant market depreciation in late 2018. Market appreciation and new client activity during the first nine months of 2019 partially offset the decline in LSV's assets under management. Average assets under management by LSV decreased $6.8 billion to $102.5 billion during the nine months ended September 30, 2019 as compared to $109.3 billion during the nine months ended September 30, 2018, a decrease of 6%.
Income Taxes
Our effective income tax rates for the three and nine months ended September 30, 2019 and 2018 differs from the federal income tax statutory rate due to the following:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Statutory rate
21.0
 %
 
21.0
 %
 
21.0
 %
 
21.0
 %
State taxes, net of federal tax benefit
2.6

 
2.3

 
2.6

 
2.3

Foreign tax expense and tax rate differential
(0.3
)
 
(0.2
)
 
(0.2
)
 
(0.2
)
Tax benefit from stock option exercises
(2.2
)
 
(1.4
)
 
(1.5
)
 
(4.8
)
Expiration of the statute of limitations
(1.2
)
 
(1.0
)
 
(0.4
)
 
(0.3
)
Provision-to-return adjustment
(0.6
)
 
(2.3
)
 
(0.2
)
 
(0.8
)
Other, net
(0.4
)
 
0.2

 
(0.3
)
 

 
18.9
 %
 
18.6
 %
 
21.0
 %
 
17.2
 %

Page 38 of 48





The increase in our effective tax rate for the nine months ended September 30, 2019 was primarily due to reduced tax benefits due to a lower volume of stock option exercise activity as compared to the prior year period.
Stock-Based Compensation
We recognized $15.6 million and $16.4 million in stock-based compensation expense during the nine months ended September 30, 2019 and 2018, respectively. The amount of stock-based compensation expense we recognize is based upon our estimate of when earnings per share targets may be achieved. Any change in our estimate could result in the 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 our earnings.
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. The Company's Level 3 financial liabilities at September 30, 2019 and December 31, 2018 consist entirely of the estimated contingent consideration resulting from an acquisition (See Note 12 to the Consolidated Financial Statements). We did not have any other financial liabilities at September 30, 2019 or December 31, 2018 that were required to be measured at fair value on a recurring basis (See Note 4 to the Consolidated Financial Statements).
Regulatory Matters
Like many firms operating within the financial services industry, we are experiencing a difficult and increasingly complex regulatory environment across our markets. Our current scale and reach as a provider to the financial services industry, the introduction and implementation of new platforms 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 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, Inc., the Financial Conduct Authority of the United Kingdom, the Central Bank of Ireland 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. From time to time, the regulators in different jurisdictions will elevate their level of scrutiny of our operations as our business expands or is deemed critical to the operations of the relevant financial markets. As described under the caption “Regulatory Considerations” in our Annual Report on Form 10-K, 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, implementation of any remediation actions, 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.

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Liquidity and Capital Resources 
 
Nine Months Ended September 30,
 
2019
 
2018
Net cash provided by operating activities
$
381,535

 
$
417,898

Net cash used in investing activities
(43,045
)
 
(77,408
)
Net cash used in financing activities
(321,742
)
 
(336,214
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(3,878
)
 
(6,552
)
Net increase (decrease) in cash, cash equivalents and restricted cash
12,870

 
(2,276
)
Cash, cash equivalents and restricted cash, beginning of period
758,039

 
747,752

Cash, cash equivalents and restricted cash, end of period
$
770,909

 
$
745,476

Cash requirements and liquidity needs are primarily funded through our cash flow from operations and our capacity for additional borrowing. At September 30, 2019, our unused sources of liquidity consisted of cash and cash equivalents and the amount available under our credit facility.
Our credit facility provides for borrowings of up to $300.0 million and is scheduled to expire in June 2021 (See Note 6 to the Consolidated Financial Statements). As of October 17, 2019, we had outstanding letters of credit of $11.6 million which reduced our amount available under the credit facility to $288.4 million. These letters of credit were primarily issued for the expansion of our corporate headquarters and are due to expire during the fourth quarter of 2019.
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 other indebtedness including contingent obligations or guarantees, 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.
Our credit facility contains terms that utilize the London InterBank Offered Rate (LIBOR) as a potential component of the interest rate to be applied to the borrowings we may undertake under the agreement (See Note 6 to the Consolidated Financial Statements). We are currently monitoring the actions of LIBOR’s regulator and the implementation of alternative reference rates in advance of the expected discontinuation of LIBOR after 2021 to determine any potential impact to our current credit facility and negotiations for subsequent borrowing agreements.
The majority of our excess cash reserves are primarily placed in accounts located in the United States that invest entirely 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 October 17, 2019, the amount of cash and cash equivalents considered free and immediately accessible for other general corporate purposes was $397.0 million.
Our cash 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 our calculation of free and immediately accessible cash for other general corporate purposes. With the enactment of the Tax Act, a portion of the undistributed earnings of our foreign subsidiaries are deemed 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 decreased $36.4 million in the first nine months of 2019 compared to the first nine months of 2018 primarily from the decrease in our net income, lower distribution payments received from our unconsolidated affiliate, LSV, and the negative impact from the change in our working capital accounts.

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Net cash used in investing activities includes:
Purchases, sales and maturities of marketable securities. Our purchases, sales and maturities of marketable securities in the first nine months of 2019 and 2018 were as follows:
 
Nine Months Ended September 30,
 
2019
 
2018
Purchases
$
(126,030
)
 
$
(122,259
)
Sales and maturities
137,783

 
116,568

Net investing activities from marketable securities
$
11,753

 
$
(5,691
)
The capitalization of costs incurred in developing computer software. We capitalized $26.8 million of software development costs in the first nine months of 2019 as compared to $33.4 million in the first nine months of 2018. The majority of our software development costs are related to significant enhancements for the expanded functionality of the SEI Wealth Platform.
Capital expenditures. Our capital expenditures in the first nine months of 2019 were $30.5 million as compared to $21.7 million in the first nine months of 2018. Our expenditures in 2019 and 2018 primarily include purchased software, equipment for our data center operations and the expansion of our corporate headquarters, which is scheduled to be completed in mid 2020. Total expenditures in 2020 related to the expansion are expected to be approximately $20.0 million.
Net cash used in financing activities includes:
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. We had total capital outlays of $262.9 million during the first nine months of 2019 and $290.6 million during the first nine months of 2018 for the repurchase of our common stock.
Proceeds from the issuance of our common stock. We received $41.9 million in proceeds from the issuance of our common stock during the first nine months of 2019 as compared to $78.7 million during the first nine months of 2018. The decrease in proceeds is primarily attributable to a lower level of stock option exercise activity.
Dividend payments. Cash dividends paid were $100.7 million in the first nine months of 2019 as compared to $94.3 million in the first nine months of 2018.
Principal repayments on revolving credit facility. In July 2017, we borrowed $40.0 million for the funding of an acquisition. We made principal payments of $10.0 million each during October 2017 and March 2018 and a final payment of $20.0 million in April 2018 to repay the entire outstanding balance.
We believe our operating cash flow, available borrowing capacity, and existing cash and cash equivalents should provide adequate funds for ongoing operations; continued investment in new products and equipment; our common stock repurchase program, expansion of our corporate headquarters and future dividend payments.
Forward-Looking Information and Risk Factors
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain information contained in this discussion is or may be considered forward-looking. Forward-looking statements relate to future operations, strategies, financial results or other developments. Forward-looking statements are based upon estimates and assumptions that involve certain risks and uncertainties, many of which are beyond our control or are subject to change. Although we believe our assumptions are reasonable, they could be inaccurate. Our actual future revenues and income could differ materially from our expected results. We have no obligation to publicly update or revise any forward-looking statements.
Among the risks and uncertainties which may affect our future operations, strategies, financial results or other developments are those risks described in our latest Annual Report on Form 10-K in Part I, Item 1A. These risks include the following:
changes in capital markets that may affect our revenues and earnings;
product development risk;
risk of failure by a third-party service provider;
data and cyber security risks;
operational risks associated with the processing of investment transactions;

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systems and technology risks;
pricing pressure from increased competition, disruptive technology and poor investment performance;
the affect on our earnings and cashflows from the performance of LSV Asset Management;
third party pricing services for the valuation of securities invested in our investment products;
external factors affecting the fiduciary management market;
the affect of extensive governmental regulation;
litigation and regulatory examinations and investigations;
our ability to capture the expected value from acquisitions, divestitures, joint ventures, minority stakes or strategic alliances;
increased costs and regulatory risks from the growth of our business;
consolidation within our target markets;
our ability to receive dividends or other payments in needed amounts from our subsidiaries;
the exit by the United Kingdom from the European Union;
third party approval of our investment products with advisors affiliated with independent broker-dealers or other networks;
the effectiveness of our risk management and business continuity strategies, models and processes;
financial and non-financial covenants which may restrict our ability to manage liquidity needs;
changes in, or interpretation of, accounting principles or tax rules and regulations;
fluctuations in foreign currency exchange rates;
fluctuations in interest rates affecting the value of our fixed-income investment securities;
our ability to hire and retain qualified employees;
stockholder activism efforts;
retention of executive officers and senior management personnel; and
unforeseen or catastrophic events, including the emergence of pandemic, terrorist attacks, extreme weather events or other natural disasters.
We conduct our operations through several regulated wholly-owned subsidiaries. These subsidiaries are:
SEI Investments Distribution Co., or SIDCO, a broker-dealer registered with the SEC under the Securities Exchange Act of 1934 and a member of the Financial Industry Regulatory Authority, Inc., or FINRA;
SEI Investments Management Corporation, or SIMC, an investment advisor registered with the SEC under the Investment Advisers Act of 1940 and with the Commodity Futures Trading Commission, or CFTC, under the Commodity Exchange Act;
SEI Private Trust Company, or SPTC, a limited purpose federal thrift chartered and regulated by the Office of the Comptroller of the Currency;
SEI Trust Company, or STC, a Pennsylvania trust company, regulated by the Pennsylvania Department of Banking and Securities;
SEI Investments (Europe) Limited, or SIEL, an investment manager and financial institution subject to regulation by the Financial Conduct Authority of the United 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;
SEI Investments Global, Limited, or SIGL, a management company for Undertakings for Collective Investment in Transferable Securities, or UCITS, and for Alternative Investment Funds, or AIFs, that is regulated primarily by the Central Bank of Ireland, or CBI;
SEI Investments - Global Fund Services, Ltd., or GFSL, an authorized provider of administration services for Irish and non-Irish collective investment schemes that is regulated by the CBI; and
SEI Investments - Depositary and Custodial Services (Ireland) Limited, or D&C, an authorized provider of depositary and custodial services that is regulated by the CBI.
In addition to the regulatory authorities listed above, our subsidiaries are subject to the jurisdiction of regulatory authorities in other foreign countries. In addition to our wholly-owned subsidiaries, we also own a minority interest of approximately 38.9 percent in LSV, which is also an investment advisor registered with the SEC.

Page 42 of 48





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 changes 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 contains anti-money laundering and financial transparency laws and requires 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.
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. 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 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” in our latest Annual Report on Form 10-K for a description of the risks that proposed regulatory changes may present for our business.


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Item 3.    Quantitative and Qualitative Disclosures About Market Risk.
Information required by this item is set forth under the captions "Our revenues and earnings are affected by changes in capital markets" and "Changes in interest rates may affect the value of our fixed-income investment securities" in Item 1A "Risk Factors" and under the caption "Sensitivity of our revenues and earnings to capital market fluctuations and client portfolio strategy" in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2018. There have been no material changes to this information as it is disclosed in our Annual Report on Form 10-K for 2018.

Item 4.    Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are effective in ensuring that information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 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. A controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
(b) Change in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during the quarter ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We implemented internal controls to ensure we adequately evaluated our leases and properly assessed the impact of the new accounting standard related to leases on our consolidated financial statements to facilitate the adoption of this standard on January 1, 2019 as well as the ongoing accounting under the new standard. There were no significant changes to our internal control over financial reporting during 2019 as a result of the ongoing accounting under the new accounting standard.

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PART II.    OTHER INFORMATION

Item 1.    Legal Proceedings.
Stanford Trust Company Litigation
SEI has been named in seven lawsuits filed in Louisiana courts; four of the cases also name SPTC as a defendant. The underlying allegations in all actions relate to 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 the sale of “certificates of deposit” issued by Stanford International Bank so as to be a “seller” of the certificates of deposit for purposes of primary liability under 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 originally 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, 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 remaining in Lillie 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.
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 (“Ahders Complaint”), alleging claims essentially the same as those in Lillie. In January 2017, the Judicial Panel on Multidistrict Litigation transferred the Ahders proceeding to the Northern District of Texas and the Stanford MDL. During February 2017, SEI filed its response to the Ahders 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. In both cases, as a result of the proceedings in the Northern District of Texas, only the plaintiffs’ secondary liability claims under Section 714(B) of the Louisiana Securities Law remain. Limited discovery and motions practice have occurred, including SEI and SPTC’s filing of a dispositive summary judgment motion in the Lillie proceeding. On January 31, 2019, the Judicial Panel on Multidistrict Litigation remanded the Lillie and Ahders proceedings to the Middle District of Louisiana.
On July 9, 2019, the District Court issued an order granting SEI’s Summary Judgment Motion to dismiss the remaining Section 714(B) claim in the Lillie proceeding and denying Plaintiffs’ Motion for Continuance of SEI and SPTC’s Motion for Summary Judgment pursuant to Rule 56(d).
On July 16, 2019, SEI and SPTC filed a Motion for Summary Judgment pursuant to Rule 56(d) in the Ahders proceeding to have the remaining Section 714(B) claim dismissed.
On July 17, 2019, Plaintiffs filed a Motion for Reconsideration and/or New Trial as to the July 9, 2019 Ruling and Order (ECF 146) by the Honorable Brian A. Jackson denying a continuance of SEI’s Motion for Summary Judgment pursuant to Rule 56(d). The Court denied Plaintiffs’ Motion and entered a Final Judgment in favor of SEI on August 15, 2019.
On August 27, 2019, Plaintiffs filed a Notice of Appeal to the United States Court of Appeal for the Fifth Circuit of the District Court's dismissal of the matter. Plaintiffs’ Motion in Support of the Notice of Appeal must be filed with the Court by November 20, 2019. If Plaintiffs’ Motion in Support of Appeal is filed, SEI intends to contest the Plaintiffs' appeal.
Another case, 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.

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Two additional cases remain in the Parish of East Baton Rouge. Plaintiffs filed petitions in 2010 and have granted SEI and SPTC indefinite extensions to respond. No material activity has taken place since.
In 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 subject matter jurisdiction under the federal Securities Litigation Uniform Standards Act (SLUSA). The matters were removed to the United States District Court for the Northern District of Texas and consolidated. The court then 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 matters were 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.
SEI Capital Accumulation Plan Litigation
On September 28, 2018, a class action complaint was filed in the United States District Court for the Eastern District of Pennsylvania by Gordon Stevens, individually and as the representative of similarly situated persons, and on behalf of the SEI Capital Accumulation Plan (the “Plan”) naming the Company and its affiliated and/or related entities SEI Investments Management Corporation, SEI Capital Accumulation Plan Design Committee, SEI Capital Accumulation Plan Investment Committee, SEI Capital Accumulation Plan Administration Committee, and John Does 1-30 as defendants (the “Stevens Complaint”). The Stevens Compliant seeks unspecified damages for defendants’ breach of fiduciary duties under ERISA with respect to selecting and monitoring the Plan’s investment options and by retaining affiliated investment products in the Plan.
Although SEI believes its defenses against the plaintiff’s allegations were valid, the Company agreed to settle this matter in the very early stages of the litigation in order to avoid the high cost of protracted class-action litigation and internal distractions such cases bring. The written settlement agreement was submitted to the Court on July 26, 2019, and is a matter of public record. A Preliminary Approval Order approving the settlement agreement was issued by the Court and the Court has scheduled a fairness hearing for December 18, 2019. The settlement agreement will not be finalized until the Court has issued a final approval after the December 18, 2019. The Company expects final Court approval of the settlement by year-end. The Company expects the financial impact of the settlement agreement to be immaterial.
Other Matters
The Company is also a party to various other actions and claims arising in the normal course of business that the Company does not believe are material. The Company believes that the ultimate resolution of these matters will not have a material adverse effect on the Company's financial position or the manner in which the Company conducts its business. Currently, the Company does not believe the amount of losses associated with these matters can be estimated. While the Company does not believe that the amount of such losses will, when liquidated or estimable, be material to its financial position, the assumptions may be incorrect and any such loss could have a material adverse effect on the Company's results of operations or the manner in which the Company conducts its business in the period(s) during which the underlying matters are resolved.

Item 1A.     Risk Factors.
Information regarding risk factors appears in Part I – Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for 2018.


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Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

(e)
Our Board of Directors has authorized the repurchase of up to $4.178 billion worth of our common stock through multiple authorizations. Currently, there is no expiration date for our common stock repurchase program.
Information regarding the repurchase of common stock during the three months ended September 30, 2019 is as follows:
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
July 2019

 
$

 

 
$
280,061,000

August 2019
725,000

 
56.85

 
725,000

 
238,847,000

September 2019
675,000

 
59.49

 
675,000

 
198,695,000

Total
1,400,000

 
$
58.12

 
1,400,000

 
 

Item 6.    Exhibits.
The following is a list of exhibits filed as part of the Form 10-Q. 
  
 
 
  
 
 
  
 
 
 
 
 
 
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.DEF
  
XBRL Taxonomy Extension Definition Linkbase Document
 
 
101.LAB
  
XBRL Taxonomy Extension Label Linkbase Document
 
 
101.PRE
  
XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES
Pursuant to the requirements 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:
 
October 24, 2019
 
By:
 
/s/ Dennis J. McGonigle

 
 
 
 
 
 
Dennis J. McGonigle
 
 
 
 
 
 
Chief Financial Officer


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Exhibit


Exhibit 31.1
CERTIFICATIONS
I, Alfred P. West, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of SEI Investments Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: October 24, 2019
/s/ Alfred P. West, Jr.
Alfred P. West, Jr.
Chairman and Chief Executive Officer



Exhibit
Exhibit 31.2
CERTIFICATIONS
I, Dennis J. McGonigle, certify that:
1. I have reviewed this quarterly report on Form 10-Q of SEI Investments Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: October 24, 2019
/s/ Dennis J. McGonigle
Dennis J. McGonigle
Chief Financial Officer




Exhibit
Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
I, Alfred P. West, Jr., Chairman and Chief Executive Officer, and I, Dennis J. McGonigle, Chief Financial Officer, of SEI Investments Company, a Pennsylvania corporation (the “Company”), hereby certify that, to my knowledge:
(1) The Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
(2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:
October 24, 2019
 
Date:
October 24, 2019
 
 
 
 
 
/s/ Alfred P. West, Jr.
 
/s/ Dennis J. McGonigle
Alfred P. West, Jr.
 
Dennis J. McGonigle
Chairman and Chief Executive Officer
 
Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.


Exhibit

Exhibit 99.1

https://cdn.kscope.io/c9a4a34251656cba5bedba8e42bbb058-seiexhibit991logoa28.jpg

Investor Contact:                         Media Contact:
Lindsey Opsahl                        Leslie Wojcik
SEI                                SEI
+1 610-676-4052                        +1 610-676-4191
lopsahl@seic.com                        lwojcik@seic.com
Pages:        7

FOR IMMEDIATE RELEASE

SEI Reports Third-Quarter 2019 Financial Results

Company Hits $1 Trillion in Combined Assets under Management, Administration and Advisement

OAKS, Pa., Oct. 23, 2019 – SEI Investments Company (NASDAQ:SEIC) today announced financial results for the third-quarter 2019. Diluted earnings per share were $0.86 in third-quarter 2019 compared to $0.80 in third-quarter 2018.
Consolidated Overview
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except earnings per share)
 
For the Three Months Ended Sept. 30,
 
 
 
For the Nine Months Ended Sept. 30,
 
 
 
 
2019
 
2018
 
%
 
2019
 
2018
 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 

$416,254

 

$408,682

 
2%
 

$1,226,660

 

$1,219,110

 
1%
Net income
 
132,168

 
128,319

 
3%
 
372,689

 
389,834

 
(4)%
Diluted earnings per share
 

$0.86

 

$0.80

 
8%
 

$2.40

 

$2.41

 
—%
"Our third-quarter financial and new business sales results reflect continued success in our Investment Management Services business and growing momentum in our Private Banks segment," said Alfred P. West, Jr., SEI Chairman and CEO.
"We continue to invest in technology and business platforms that position us to take advantage of large opportunities and provide innovative client solutions. We are pleased with our progress and will continue to execute our strategy to deliver long-term value for our shareholders, clients and employees.”





Summary of Third-Quarter Results by Business Segment
(In thousands)
 
For the Three Months Ended Sept. 30,
 
 
 
For the Nine Months Ended Sept. 30,
 
 
 
 
2019
 
2018
 
%
 
2019
 
2018
 
%
Private Banks:
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 

$117,250

 

$118,449

 
(1)%
 

$351,601

 

$361,739

 
(3)%
Expenses
 
110,788

 
116,471

 
(5)%
 
329,540

 
343,515

 
(4)%
Operating Profit
 
6,462

 
1,978

 
227%
 
22,061

 
18,224

 
21%
Operating Margin
 
6
%
 
2
%
 
 
 
6
%
 
5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment Advisors:
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
103,033

 
102,550

 
—%
 
297,916

 
301,632

 
(1)%
Expenses
 
51,509

 
53,287

 
(3)%
 
154,569

 
158,792

 
(3)%
Operating Profit
 
51,524

 
49,263

 
5%
 
143,347

 
142,840

 
—%
Operating Margin
 
50
%
 
48
%
 
 
 
48
%
 
47
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Institutional Investors:
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
80,337

 
83,466

 
(4)%
 
241,559

 
252,391

 
(4)%
Expenses
 
37,268

 
40,497

 
(8)%
 
115,383

 
122,617

 
(6)%
Operating Profit
 
43,069

 
42,969

 
—%
 
126,176

 
129,774

 
(3)%
Operating Margin
 
54
%
 
51
%
 
 
 
52
%
 
51
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment Managers:
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
112,186

 
101,275

 
11%
 
326,037

 
295,696

 
10%
Expenses
 
71,889

 
65,296

 
10%
 
209,326

 
191,955

 
9%
Operating Profit
 
40,297

 
35,979

 
12%
 
116,711

 
103,741

 
13%
Operating Margin
 
36
%
 
36
%
 
 
 
36
%
 
35
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments in New Businesses:
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
3,448

 
2,942

 
17%
 
9,547

 
7,652

 
25%
Expenses
 
7,926

 
5,769

 
37%
 
20,663

 
16,807

 
23%
Operating Loss
 
(4,478
)
 
(2,827
)
 
NM
 
(11,116
)
 
(9,155
)
 
NM
 
 
 
 
 
 
 
 
 
 
 
 
 
Totals:
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 

$416,254

 

$408,682

 
2%
 

$1,226,660

 

$1,219,110

 
1%
Expenses
 
279,380

 
281,320

 
(1)%
 
829,481

 
833,686

 
(1)%
Corporate Overhead Expenses
 
16,237

 
14,942

 
9%
 
52,845

 
46,398

 
14%
Income from Operations
 

$120,637

 

$112,420

 
7%
 

$344,334

 

$339,026

 
2%



2



Third-Quarter Business Highlights:

Revenues from Asset management, administration, and distribution fees increased primarily from higher assets under administration in our Investment Managers segment.
Our average assets under administration increased $94.8 billion, or 16%, to $654.0 billion in the third-quarter 2019, as compared to $564.2 billion during the third-quarter 2018 (see attached Average Asset Balances schedules for further details).
Our average assets under management, excluding LSV, increased $5.5 billion, or 2%, to $233.0 billion in the third-quarter 2019, as compared to $227.5 billion during the third-quarter 2018 (see attached Average Asset Balances schedules for further details).
Sales events, net of client losses, during third-quarter 2019 totaled approximately $42.7 million and are expected to generate net annualized recurring revenues of approximately $33.2 million when contract values are fully realized.
Our earnings from LSV decreased by $4.1 million, or 10%, to $37.6 million in third-quarter 2019 as compared to $41.7 million in third-quarter 2018. The decrease in earnings was due to negative cash flows, client losses, reduced performance fees earned by LSV and a decline in assets under management from market depreciation.
We capitalized $7.3 million of software development costs in third-quarter 2019 for continued enhancements to the SEI Wealth PlatformSM (SWP). Amortization expense related to SWP was $10.7 million in third-quarter 2019.
Our effective tax rates were 18.9% in third-quarter 2019 and 18.6% in third-quarter 2018.
We repurchased 1.4 million shares of our common stock for $81.4 million during the third-quarter 2019.

Earnings Conference Call
A conference call to review earnings is scheduled for 4:30 p.m. Eastern Time on Oct. 23, 2019. Investors may listen to the call at seic.com/ir-events. Investors may also listen to a replay by telephone at (USA) 866-207-1041; (International) 402-970-0847; Access Code: 5136905.

About SEI
After 50 years in business, SEI (NASDAQ:SEIC) remains a leading global provider of investment processing, investment management, and investment operations solutions that help corporations, financial institutions, financial advisors, and ultra-high-net-worth families create and manage wealth.
As of Sept. 30, 2019, through its subsidiaries and partnerships in which the company has a significant interest, SEI manages, advises or administers $1 trillion in hedge, private equity, mutual fund and pooled or separately managed assets, including $335 billion in assets under management and $662 billion in client assets under administration. For more information, visit seic.com.


This release contains forward looking statements within the meaning or the rules and regulations of the Securities and Exchange Commission. In some cases you can identify forward-looking statements by terminology such as ‘‘may’’, ‘‘will’’, ‘‘expect’’, ‘‘believe’’ and ‘‘continue’’ or ‘‘appear.’’ Our forward-looking statements include our current expectations as to:
revenue that we believe will be generated by sales events that occurred during the quarter,
the growth and momentum of our businesses,
the degree to, and the manner in, which invest in our technologies and platforms,
the degree to which our investments will position us to take advantage of market opportunities, and
whether our current initiatives will create value for our employees, clients and shareholders.
You should not place undue reliance on our forward-looking statements as they are based on the current beliefs and expectations of our management and subject to significant risks and uncertainties many of which are beyond our control or are subject to change. Although we believe the assumptions upon which we base our forward-looking statements are reasonable, they could be inaccurate. Some of the risks and important factors that could cause actual results to differ from those described in our forward-looking statements can be found in the “Risk Factors” section of our Annual Report on Form 10 -K for the year ended December 31, 2018, filed with the Securities and Exchange Commission.
# # #


3



SEI INVESTMENTS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
 
For the Three Months Ended Sept. 30,
 
For the Nine Months Ended Sept. 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Asset management, admin. and distribution fees
 

$330,943

 

$322,778

 

$969,812

 

$955,495

Information processing and software servicing fees
 
85,311

 
85,904

 
256,848

 
263,615

 
 
 
 
 
 
 
 
 
Total revenues
 
416,254

 
408,682

 
1,226,660

 
1,219,110

 
 
 
 
 
 
 
 
 
Subadvisory, distribution and other asset mgmt. costs
 
44,978

 
45,276

 
134,960

 
135,690

Software royalties and other information processing costs
 
7,198

 
7,767

 
22,719

 
24,462

Compensation, benefits and other personnel
 
130,579

 
127,480

 
386,913

 
379,132

Stock-based compensation
 
5,453

 
5,878

 
15,555

 
16,396

Consulting, outsourcing and professional fees
 
48,789

 
51,758

 
144,325

 
150,906

Data processing and computer related
 
22,338

 
21,754

 
65,514

 
63,478

Facilities, supplies and other costs
 
15,926

 
16,689

 
51,771

 
52,085

Amortization
 
12,947

 
12,405

 
38,407

 
36,420

Depreciation
 
7,409

 
7,255

 
22,162

 
21,515

 
 
 
 
 
 
 
 
 
Total expenses
 
295,617

 
296,262

 
882,326

 
880,084

 
 
 
 
 
 
 
 
 
Income from operations
 
120,637

 
112,420

 
344,334

 
339,026

 
 
 
 
 
 
 
 
 
Net gain (loss) on investments
 
611

 
89

 
2,121

 
(460
)
Interest and dividend income
 
4,167

 
3,482

 
12,737

 
9,146

Interest expense
 
(154
)
 
(122
)
 
(477
)
 
(511
)
Equity in earnings of unconsolidated affiliate
 
37,609

 
41,726

 
112,758

 
123,406

 
 
 
 
 
 
 
 
 
Income before income taxes
 
162,870

 
157,595

 
471,473

 
470,607

 
 
 
 
 
 
 
 
 
Income taxes
 
30,702

 
29,276

 
98,784

 
80,773

 
 
 
 
 
 
 
 
 
Net income
 

$132,168

 

$128,319

 

$372,689

 

$389,834

 
 
 
 
 
 
 
 
 
Basic earnings per common share
 

$0.88

 

$0.82

 

$2.45

 

$2.48

 
 
 
 
 
 
 
 
 
Shares used to calculate basic earnings per share
 
150,855

 
156,283

 
152,009

 
157,086

 
 
 
 
 
 
 
 
 
Diluted earnings per common share
 

$0.86

 

$0.80

 

$2.40

 

$2.41

 
 
 
 
 
 
 
 
 
Shares used to calculate diluted earnings per share
 
154,227

 
160,511

 
155,311

 
162,053

 
 
 
 
 
 
 
 
 
Dividends declared per common share
 

$—

 

$—

 

$0.33

 

$0.30





4



SEI INVESTMENTS COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

 
 
Sept. 30,
 
Dec. 31,
 
 
2019
 
2018
Assets
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
 

$767,809

 

$754,525

Restricted cash
 
3,100

 
3,514

Receivables from investment products
 
52,140

 
49,869

Receivables, net of allowance for doubtful accounts of $1,311 and $718
 
349,332

 
315,336

Securities owned
 
32,862

 
30,892

Other current assets
 
34,894

 
36,676

Total Current Assets
 
1,240,137

 
1,190,812

 
 
 
 
 
Property and Equipment, net of accumulated depreciation of $346,377 and $338,206
 
154,584

 
145,863

Operating Lease Right-of-Use Assets
 
41,054

 

Capitalized Software, net of accumulated amortization of $430,644 and $395,171
 
300,848

 
309,500

Investments Available for Sale
 
101,580

 
111,901

Investments in Affiliated Funds, at fair value
 
5,533

 
4,887

Investment in Unconsolidated Affiliate
 
41,437

 
52,342

Goodwill
 
64,489

 
64,489

Intangible Assets, net of accumulated amortization of $7,853 and $5,090
 
28,907

 
31,670

Deferred Contract Costs
 
28,506

 
24,007

Deferred Income Taxes
 
1,421

 
2,042

Other Assets, net
 
32,109

 
34,155

Total Assets
 

$2,040,605

 

$1,971,668

 
 
 
 
 
Liabilities and Equity
 
 
 
 
Current Liabilities:
 
 
 
 
Accounts payable
 

$8,712

 

$10,920

Accrued liabilities
 
193,919

 
279,634

Short-term operating lease liabilities
 
7,888

 

Deferred revenue
 
5,529

 
5,154

Total Current Liabilities
 
216,048

 
295,708

 
 
 
 
 
Long-term Taxes Payable

 
803

 
803

Deferred Income Taxes
 
56,339

 
57,795

Long-term Operating Lease Liabilities
 
37,816

 

Other Long-term Liabilities
 
26,292

 
24,215

Total Liabilities
 
337,298

 
378,521

 
 
 
 
 
Shareholders' Equity:
 
 
 
 
Common stock, $0.01 par value, 750,000 shares authorized; 150,222 and 153,634 shares issued and outstanding
 
1,502

 
1,536

Capital in excess of par value
 
1,137,636

 
1,106,641

Retained earnings
 
599,949

 
517,970

Accumulated other comprehensive loss, net
 
(35,780
)
 
(33,000
)
Total Shareholders' Equity
 
1,703,307

 
1,593,147

Total Liabilities and Shareholders' Equity
 

$2,040,605

 

$1,971,668




5



ENDING ASSET BALANCES
(In millions) (Unaudited)
 
 
Sept. 30,
 
Dec 31,
 
Mar. 31,
 
Jun. 30,
 
Sept. 30,
 
 
2018
 
2018
 
2019
 
2019
 
2019
Private Banks:
 
 
 
 
 
 
 
 
 
 
Equity and fixed-income programs
 

$22,739

 

$20,453

 

$22,369

 

$22,563

 

$22,580

Collective trust fund programs
 
4

 
4

 
4

 
4

 
4

Liquidity funds
 
3,142

 
3,633

 
3,753

 
3,322

 
3,695

Total assets under management
 

$25,885

 

$24,090

 

$26,126

 

$25,889

 

$26,279

Client assets under administration
 
23,394

 
20,226

 
22,886

 
23,387

 
23,985

Total assets
 

$49,279

 

$44,316

 

$49,012

 

$49,276

 

$50,264

 
 
 
 
 
 
 
 
 
 
 
Investment Advisors:
 
 
 
 
 
 
 
 
 
 
Equity and fixed-income programs
 

$63,958

 

$55,395

 

$61,277

 

$64,591

 

$65,059

Collective trust fund programs
 
5

 
7

 
5

 
6

 
4

Liquidity funds
 
3,182

 
5,948

 
4,362

 
2,618

 
2,673

Total assets under management
 

$67,145

 

$61,350

 

$65,644

 

$67,215

 

$67,736

 
 
 
 
 
 
 
 
 
 
 
Institutional Investors:
 
 
 
 
 
 
 
 
 
 
Equity and fixed-income programs
 

$85,248

 

$78,765

 

$82,578

 

$82,335

 

$82,659

Collective trust fund programs
 
74

 
79

 
79

 
78

 
81

Liquidity funds
 
2,544

 
2,234

 
2,529

 
2,173

 
2,290

Total assets under management
 

$87,866

 

$81,078

 

$85,186

 

$84,586

 

$85,030

Client assets under advisement
 
4,131

 
3,359

 
3,694

 
3,598

 
4,467

Total assets
 

$91,997

 

$84,437

 

$88,880

 

$88,184

 

$89,497

 
 
 
 
 
 
 
 
 
 
 
Investment Managers:
 
 
 
 
 
 
 
 
 
 
Equity and fixed-income programs
 

$99

 

$89

 

$—

 

$—

 

$—

Collective trust fund programs
 
46,934

 
42,804

 
49,232

 
51,838

 
53,169

Liquidity funds
 
580

 
336

 
704

 
472

 
477

Total assets under management
 

$47,613

 

$43,229

 

$49,936

 

$52,310

 

$53,646

Client assets under administration (A)
 
552,411

 
552,318

 
585,997

 
607,086

 
637,986

Total assets
 

$600,024

 

$595,547

 

$635,933

 

$659,396

 

$691,632

 
 
 
 
 
 
 
 
 
 
 
Investments in New Businesses:
 
 
 
 
 
 
 
 
 
 
Equity and fixed-income programs
 

$1,179

 

$1,257

 

$1,466

 

$1,566

 

$1,621

Liquidity funds
 
162

 
189

 
218

 
141

 
132

Total assets under management
 

$1,341

 

$1,446

 

$1,684

 

$1,707

 

$1,753

Client assets under advisement
 
730

 
687

 
729

 
887

 
825

Total assets
 

$2,071

 

$2,133

 

$2,413

 

$2,594

 

$2,578

 
 
 
 
 
 
 
 
 
 
 
LSV Asset Management:
 
 
 
 
 
 
 
 
 
 
Equity and fixed-income programs (B)
 

$109,363

 

$96,114

 

$103,163

 

$103,575

 

$100,295

 
 
 
 
 
 
 
 
 
 
 
Total:
 
 
 
 
 
 
 
 
 
 
Equity and fixed-income programs (C)
 

$282,586

 

$252,073

 

$270,853

 

$274,630

 

$272,214

Collective trust fund programs
 
47,017

 
42,894

 
49,320

 
51,926

 
53,258

Liquidity funds
 
9,610

 
12,340

 
11,566

 
8,726

 
9,267

Total assets under management
 

$339,213

 

$307,307

 

$331,739

 

$335,282

 

$334,739

Client assets under advisement
 
4,861

 
4,046

 
4,423

 
4,485

 
5,292

Client assets under administration (D)
 
575,805

 
572,544

 
608,883

 
630,473

 
661,971

Total assets
 

$919,879

 

$883,897

 

$945,045

 

$970,240

 

$1,002,002

(A)
Client assets under administration in the Investment Managers segment include $52.6 billion of assets that are at fee levels below our normal full-service assets (as of Sept. 30, 2019).
(B)
Equity and fixed-income programs include $2.4 billion of assets managed by LSV in which fees are based on performance only (as of Sept. 30, 2019).
(C)
Equity and fixed-income programs include $5.7 billion of assets invested in various asset allocation funds at Sept. 30, 2019.
(D)
In addition to the numbers presented, SEI also administers an additional $12.4 billion in Funds of Funds assets (as of
Sept. 30, 2019) on which SEI does not earn an administration fee.

6



AVERAGE ASSET BALANCES
(In millions) (Unaudited)
 
 
3rd Qtr.
 
4th Qtr.
 
1st Qtr.
 
2nd Qtr.
 
3rd Qtr.
 
 
2018
 
2018
 
2019
 
2019
 
2019
Private Banks:
 
 
 
 
 
 
 
 
 
 
Equity and fixed-income programs
 

$22,516

 

$21,383

 

$21,831

 

$22,088

 

$22,432

Collective trust fund programs
 
4

 
4

 
4

 
4

 
4

Liquidity funds
 
3,376

 
3,265

 
3,706

 
3,388

 
3,625

Total assets under management
 

$25,896

 

$24,652

 

$25,541

 

$25,480

 

$26,061

Client assets under administration
 
23,175

 
21,608

 
22,098

 
23,124

 
23,717

Total assets
 

$49,071

 

$46,260

 

$47,639

 

$48,604

 

$49,778

 
 
 
 
 
 
 
 
 
 
 
Investment Advisors:
 
 
 
 
 
 
 
 
 
 
Equity and fixed-income programs
 

$63,399

 

$59,954

 

$58,732

 

$62,419

 

$64,761

Collective trust fund programs
 
5

 
4

 
5

 
6

 
5

Liquidity funds
 
2,958

 
3,452

 
5,298

 
3,465

 
2,580

Total assets under management
 

$66,362

 

$63,410

 

$64,035

 

$65,890

 

$67,346

 
 
 
 
 
 
 
 
 
 
 
Institutional Investors:
 
 
 
 
 
 
 
 
 
 
Equity and fixed-income programs
 

$84,885

 

$81,833

 

$81,725

 

$82,597

 

$82,398

Collective trust fund programs
 
74

 
75

 
79

 
78

 
80

Liquidity funds
 
2,469

 
2,449

 
2,375

 
2,342

 
2,287

Total assets under management
 

$87,428

 

$84,357

 

$84,179

 

$85,017

 

$84,765

Client assets under advisement
 
4,263

 
3,566

 
3,494

 
3,641

 
3,797

Total assets
 

$91,691

 

$87,923

 

$87,673

 

$88,658

 

$88,562

 
 
 
 
 
 
 
 
 
 
 
Investment Managers:
 
 
 
 
 
 
 
 
 
 
Equity and fixed-income programs
 

$95

 

$96

 

$—

 

$—

 

$—

Collective trust fund programs
 
45,856

 
44,009

 
47,322

 
50,108

 
52,587

Liquidity funds
 
555

 
480

 
559

 
497

 
460

Total assets under management
 

$46,506

 

$44,585

 

$47,881

 

$50,605

 

$53,047

Client assets under administration (A)
 
541,063

 
561,043

 
572,065

 
600,509

 
630,328

Total assets
 

$587,569

 

$605,628

 

$619,946

 

$651,114

 

$683,375

 
 
 
 
 
 
 
 
 
 
 
Investments in New Businesses:
 
 
 
 
 
 
 
 
 
 
Equity and fixed-income programs
 

$1,148

 

$1,198

 

$1,394

 

$1,436

 

$1,609

Liquidity funds
 
146

 
179

 
202

 
178

 
142

Total assets under management
 

$1,294

 

$1,377

 

$1,596

 

$1,614

 

$1,751

Client assets under advisement
 
777

 
958

 
708

 
917

 
842

Total assets
 

$2,071

 

$2,335

 

$2,304

 

$2,531

 

$2,593

 
 
 
 
 
 
 
 
 
 
 
LSV Asset Management:
 
 
 
 
 
 
 
 
 
 
Equity and fixed-income programs (B)
 

$109,527

 

$99,791

 

$104,517

 

$102,919

 

$100,094

 
 
 
 
 
 
 
 
 
 
 
Total:
 
 
 
 
 
 
 
 
 
 
Equity and fixed-income programs (C)
 

$281,570

 

$264,255

 

$268,199

 

$271,459

 

$271,294

Collective trust fund programs
 
45,939

 
44,092

 
47,410

 
50,196

 
52,676

Liquidity funds
 
9,504

 
9,825

 
12,140

 
9,870

 
9,094

Total assets under management
 

$337,013

 

$318,172

 

$327,749

 

$331,525

 

$333,064

Client assets under advisement
 
5,040

 
4,524

 
4,202

 
4,558

 
4,639

Client assets under administration (D)
 
564,238

 
582,651

 
594,163

 
623,633

 
654,045

Total assets
 

$906,291

 

$905,347

 

$926,114

 

$959,716

 

$991,748

(A)
Average client assets under administration in the Investment Managers segment during third-quarter 2019 include $52.6 billion that are at fee levels below our normal full-service assets.
(B)
Equity and fixed-income programs include $2.7 billion of average assets managed by LSV in which fees are based on performance only during third-quarter 2019.  
(C)
Equity and fixed-income programs include $5.7 billion of average assets invested in various asset allocation funds during third-quarter 2019.
(D)
In addition to the numbers presented, SEI also administers an additional $12.4 billion of average assets in Funds of Funds assets during third-quarter 2019 on which SEI does not earn an administration fee.

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