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Apr
28
2010

SEI Reports First-Quarter 2010 Financial Results

OAKS, Pa., April 28, 2010 -- SEI Investments Company (NASDAQ:SEIC) today announced financial results for first-quarter 2010, reporting an increase in net income attributable to SEI, and diluted earnings per share compared to first-quarter 2009. Diluted earnings per share were $0.31. Earnings were positively affected as a result of an increase in value of Structured Investment Vehicle (SIV) securities held on the company’s balance sheet due to cash flow from, and market appreciation of, the securities. First-quarter 2010 results reflect the deconsolidation of LSV Asset Management (LSV) returning to the equity method of accounting. This change in accounting treatment had no impact on net income attributable to SEI. Without LSV, revenues grew $13 million or six percent compared to first-quarter 2009.

Consolidated Overview (In thousands, except earnings per share)
For the Three Months Ended March 31,
2010 2009 %
Revenues $221,535 $248,611 (11%)
Net Income attributable to SEI 59,420 34,200 74%
Diluted Earnings Per Share $0.31 $0.18 72%

“Compared to a year ago, our first-quarter results reflect improving capital markets, the effects of last year’s cost reduction initiatives, and cash and non-cash enhancements to the value of the SIVs on our balance sheet,” said Alfred P. West, Jr., SEI Chairman and CEO.

“Our new sales activities are beginning to show results in a healthier economic climate, and we believe there are opportunities in all our segments to achieve growth in new business. In addition, we continue to make key investments in our company that will create long-term growth opportunities for us and for our clients.”

The table below provides a proforma comparison as if LSV was reported under the equity method beginning January 2009.

Proforma Consolidated Overview
(In thousands, except earnings per share)
For the Three Months Ended March 31,

2010
(Actual)

2009
(Proforma)
%
Revenues $221,535 $208,421 6%
Net Income attributable to SEI 59,420 34,200 74%
Diluted Earnings Per Share $0.31 $0.18 72%

Summary of First-Quarter Results by Business Segment (In thousands)
For the Three Month Period Ended March 31,
2010 2009 %
Private Banks:
Revenues $87,121 $96,948 (10%)
Expenses 77,599 78,798 (2%)
Operating Profit $9,522 $18,150 (48%)
Operating Margin 11% 19%
Investment Advisors:
Revenues 45,463 37,508 21%
Expenses 27,583 27,109 2%
Operating Profit 17,880 10,399 72%
Operating Margin 39% 28%
Institutional Investors:
Revenues 50,339 39,379 28%
Expenses 26,380 24,170 9%
Operating Profit 23,959 15,209 58%
Operating Margin 48% 39%
Investment Managers:
Revenues 37,610 33,332 13%
Expenses 24,559 22,867 7%
Operating Profit 13,051 10,465 25%
Operating Margin 35% 31%
Investments in New Businesses:
Revenues 1,002 1,254 (20%)
Expenses 2,661 3,293 (19%)
Operating Loss (1,659) (2,039) 19%
Operating Margin N/A N/A
LSV:
Revenues - 40,190 N/A
Expenses (1) - 26,446 N/A
Operating Profit - 13,744 N/A
Operating Margin - 34%
Totals:
Revenues $221,535 $248,611 (11%)
Expenses 158,782 182,683 (13%)
Corporate overhead expenses 9,717 9,641 1%
Noncontrolling interest reflected in segments (309) (19,063) N/A
LSV Employee Group expenses - 1,820 N/A
$53,345 $73,530 (27%)

(1) Includes 18,862 for the three-month period ended March 31, 2009 of noncontrolling interest to the other partners of LSV.

First-Quarter Business Commentary:

  • In January 2010, LSV was deconsolidated due to the adoption of newly issued accounting guidance. Our ownership interest in LSV was unchanged and our proportionate share in the earnings of LSV is reflected in “Equity in earnings of unconsolidated affiliate” on our Consolidated Statements of Operations. The deconsolidation of LSV had no impact on net income attributable to SEI or diluted earnings per share.
  • Revenues in first-quarter 2009 include $40.2 million from LSV. Excluding these revenues, revenues in first-quarter 2010 increased $13.1 million or six percent compared to first-quarter 2009. This increase was due to higher asset balances under management and administration from existing clients because of improved capital markets.
  • Revenues in fourth-quarter 2009 include $62.5 million from LSV. Excluding these revenues, revenues in first-quarter 2010 were essentially flat versus fourth-quarter 2009.
  • First-quarter 2010 revenues in the Private Banks segment decreased compared to first-quarter 2009 due to lower trade-execution fees from reduced trading activity as well as lower investment processing fees from bank clients previously reported to be involved in mergers and acquisitions.
  • Expenses in the Private Banks segment during the first-quarter 2010 include a one-time charge of $1.8 million related to a reduction in workforce.
  • The first-quarter 2010 net income attributable to SEI and diluted earnings per share results include gains of $17.3 million associated with SIV-related issues, of which $10.7 million is from cash distributions received for note principal payments, whereas results in first-quarter 2009 included losses of $14.4 million. SEI has recognized cumulative losses of $171.7 million associated with these SIV-related issues through March 31, 2010. Additional information pertaining to SIV-related issues involving SEI-sponsored money market funds is contained in SEI’s 2009 Form 10-K filed February 25, 2010.
  • Assets under management increased by $3.0 billion during the first-quarter 2010 to $161.9 billion, primarily due to market appreciation.
  • In the first quarter, SEI purchased 1,020,000 shares of its common stock for $19.5 million.

Proforma Consolidated Statement of Operations

The following proforma Consolidated Statements of Operations presents first quarter 2009 for comparative purposes only as if LSV and LSV Employee Group was deconsolidated on January 1, 2009. This report is being provided for informational purposes only and is not a restatement or reclassification of previously filed reports. Our interest in LSV is presented as a single line item in the Consolidated Statements of Operations titled “Equity in earnings of unconsolidated affiliate.” For additional information, we refer you to Note 2 to the Consolidated Financial Statements included in our 2009 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 25, 2010.

SEI INVESTMENTS COMPANY PROFORMA CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months Ended March 31,
As Reported SEI Consolidated 2010 Proforma SEI without LSV and LSVEG 2009 %
Total revenues $221,535 $208,421 6%
Total expenses 168,190 165,677 2%
Income from operations 53,345 42,744 25%
Net gain (loss) from investments 17,479 (14,450) N/A
Interest, net 1,229 1,318 (7%)
Equity in earnings of unconsolidated affiliate 24,074 13,754 75%
Net income before taxes 96,127 43,366 122%
Income taxes 36,269 8,929 306%
Net income 59,858 34,437 74%
Less Net Income attributable to the noncontrolling interest (438) (237) 85%
Net income attributable to SEI $59,420 $34,200 74%
Diluted earnings per share $0.31 $0.18 72%
Diluted shares outstanding 191,062 191,409 --

Earnings Conference Call
A conference call to review earnings is scheduled for 2:00 PM ET on April 28, 2010. Investors may listen to the call at www.seic.com/investors or listen at www.earnings.com, a service of Thomson Streetevents. The call may also be accessed at numerous financial services web sites including AOL and Yahoo. Investors may also listen to replays at these web sites, or by telephone at (USA) 1-800-475-6701; (International) 320-365-3844, access code 154929.

About SEI

SEI (NASDAQ:SEIC) is a leading global provider of outsourced asset management, investment processing and investment operations solutions. The company’s innovative solutions help corporations, financial institutions, financial advisors, and affluent families create and manage wealth. As of March 31, 2010, through its subsidiaries and partnerships in which the company has a significant interest, SEI administers $394 billion in mutual fund and pooled assets and manages $162 billion in assets. SEI serves clients, conducts or is registered to conduct business and/or operations, from numerous offices worldwide. For more information, visit www.seic.com.

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

SEI INVESTMENTS COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
(Unaudited)
Three Months Ended March 31,
2010 2009
Asset management, admin. and distribution fees $152,938 $169,364
Information processing and software servicing fees 58,626 62,217
Transaction–based and trade execution fees 9,971 17,030
Total revenues 221,535 248,611
Subadvisory, distribution and other asset mgmt costs 23,255 19,823
Brokerage commissions and royalties 13,373 17,730
Compensation, benefits and other personnel 67,216 73,438
Stock based compensation 6,657 3,430
Consulting, outsourcing and professional fees 20,707 21,150
Data processing and computer related 9,928 11,515
Facilities, supplies and other costs 15,948 15,433
Amortization 5,900 7,053
Depreciation 5,206 5,509
Total expenses 168,190 175,081
Income from operations 53,345 73,530
Net gain (loss) on investments 17,479 (14,450)
Interest and dividend income 1,700 1,711
Interest expense (471) (799)
Equity in earnings of unconsolidated affiliate 24,074 -
Income before taxes 96,127 59,992
Income taxes 36,269 8,929
Net income 59,858 51,063
Less: Net income attributable to the noncontrolling interest (438) (16,863)
Net income attributable to SEI $59,420 $34,200
Diluted earnings per common share $0.31 $0.18
Shares used to calculate diluted earnings per common share 191,062 191,409
Basic earnings per common share $0.31 $0.18
Shares used to calculate basic earnings per common share 189,948 191,084

 

SEI INVESTMENTS COMPANY CONDENSED BALANCE SHEETS
(In thousands)
(Unaudited)
March 31, 2010
December, 31 2009
Assets:
Cash and short-term investments $500,661 $590,877
Restricted cash 22,000 20,000
Receivables 166,016 212,451
Other current assets 19,436 18,075
Total current assets 708,113 841,403
Property and equipment, net 143,018 146,053
Marketable securities 187,374 181,897
Capitalized software, net 281,412 278,656
Investment in unconsolidated affiliate 60,595 -
Goodwill - 22,842
Intangible assets, net - 44,859
Other assets, net 18,211 18,098
Total assets $1,398,723 $1,533,808
Liabilities:
Current liabilities $127,993 $163,055
Long-term debt 200,000 247,152
Deferred income taxes 88,494 86,257
Long-term liabilities 5,328 5,726
Total SEI Investments Company shareholders’ equity 963,140 909,723
Noncontrolling interest 13,768 121,895
Total Equity 976,908 1,031,618
Total liabilities and equity $1,398,723 $1,533,808

SEI INVESTMENTS COMPANY ASSET BALANCES (In millions) (Unaudited)
Mar. 31, 2009 Jun. 30, 2009 Sep. 30, 2009 Dec. 31, 2009 Mar. 31, 2010
Private Banks:
Equity/Fixed Income prgms. $9,679 $10,892 $12,479 $12,690 $12,635
Collective Trust Fund prgm. 1,198 1,176 1,098 1,067 1,023
Liquidity funds 8,929 7,581 6,524 6,035 5,329
Total assets under mgmt. $19,806 $19,649 $20,101 $19,792 $18,987
Client assets under admin. 9,920 10,143 10,941 11,213 11,429
Total assets $29,726 $29,792 $31,042 $31,005 $30,416
Investment Advisors:
Equity/Fixed Income prgms. $18,832 $21,705 $24,739 $25,392 $26,222
Collective Trust Fund prgm. 2,716 2,621 2,521 2,423 2,284
Liquidity funds 3,458 2,469 2,243 1,929 1,731
Total assets under mgmt. $25,006 $26,795 $29,503 $29,744 $30,237
Institutional Investors:
Equity/Fixed Income prgms. $32,565 $36,955 $43,672 $44,322 $45,891
Collective Trust Fund prgm. 791 755 707 684 657
Liquidity funds 3,802 3,462 4,624 3,370 3,198
Total assets under mgmt. $37,158 $41,172 $49,003 $48,376 $49,746
Investment Managers:
Equity/Fixed Income prgms. $3 $3 $4 $4 $2
Collective Trust Fund prgm. 6,917 6,794 7,075 7,428 7,639
Liquidity funds 898 505 528 412 447
Total assets under mgmt. $7,818 $7,302 $7,607 $7,844 $8,088
Client assets under admin. (A) 221,798 213,930 216,222 221,680 220,807
Total assets $229,616 $221,232 $223,829 $229,524 $228,895
Investments in New Businesses:
Equity/Fixed Income prgms. $472 $473 $473 $520 $534
Liquidity funds 157 133 93 75 72
Total assets under mgmt. $629 $606 $566 $595 $606
LSV Asset Management:
Equity/Fixed Income prgms. $32,308 $40,210 $49,349 $52,488 $54,189
Consolidated:
Equity/Fixed Income prgms (B) $93,859 $110,238 $130,716 $135,416 $139,473
Collective Trust Fund prgm. 11,622 11,346 11,401 11,602 11,603
Liquidity funds 17,244 14,150 14,012 11,821 10,777
Total assets under mgmt. $122,725 $135,734 $156,129 $158,839 $161,853
Client assets under admin. (C) 231,718 224,073 227,163 232,893 232,236
Total assets $354,443 $359,807 $383,292 $391,732 $394,089

(A) Client assets under administration in the Investment Managers segment include $59,033 of assets balances that require limited services and therefore are at fee levels below our normal full service assets (as of March 31, 2010).
(B) Equity/Fixed Income programs include $2,455 of assets invested in various asset allocation funds at March 31, 2010.
(C) In addition to the numbers presented, SEI also administers an additional $9,040 in Funds of Funds assets (as of March 31, 2010) on which SEI does not earn an administration fee.