SEI Reports Third-Quarter Revenues Down 10%, Net Income Down 53%
Net income negatively affected by $40.8 million in SIV-related charges
OAKS, Pa., Oct. 22 /PRNewswire-FirstCall/ -- SEI Investments Company (Nasdaq: SEIC) today announced financial results for third-quarter 2008, reporting decreases in revenues, net income and earnings per share compared to third-quarter 2007. Net income during the third-quarter 2008 was negatively affected by a $40.8 million pre-tax charge (approximately $.13 per share post-tax) for previously-disclosed structured investment vehicle-related issues involving SEI-sponsored money market funds. The total loss recognized during 2008 is $93.9 million and the total cumulative loss recognized is $119.0 million.
Consolidated Overview For the Three Months For the Nine Months
(In thousands, except Ended September 30, Ended September 30,
earnings per share)
2008 2007 % 2008 2007 %
Revenues
$316,086 $349,636 (10%) $979,517 $1,015,619 (4%)
Net Income Before
Taxes 54,305 111,727 (51%) 205,497 324,748 (37%)
Net Income 34,495 73,299 (53%) 129,605 206,177 (37%)
Diluted Earnings Per
Share $.18 $.37 (51%) $.66 $1.02 (35%)
"The turmoil in the capital markets made the third-quarter a particularly challenging one," said Alfred P. West, Jr., SEI Chairman and CEO.
"The current market environment presents one of the most challenging ever faced. However, our diverse portfolio of businesses and our strong capital base and balance sheet should enable us to maintain profitability, continue to generate cash and stay the course in the implementation of our new strategies.
"Rest assured, during these times, we will continue to work hard to improve our business and its results. We are firm in our belief that what we are doing will provide our clients with opportunities for success, position us to prosper as times get better."
Summary of Third-Quarter and Year to Date Results by Business Segment
(In thousands) For the Three Month For the Nine Month Period
Period Ended
Ended September 30, September 30,
2008 2007 % 2008 2007 %
Private Banks:
Revenues $99,882 $104,280 (4%) $310,538 $302,108 3 %
Expenses 79,545 82,846 (4%) 251,079 241,668 4 %
Operating Profit $20,337 $21,434 (5%) $59,459 $60,440 (2%)
Operating Margin 20 % 21 % 19 % 20 %
Investment Advisors:
Revenues 58,846 65,715 (10%) 181,213 192,724 (6%)
Expenses 30,775 31,257 (2%) 93,702 91,550 2 %
Operating Profit 28,071 34,458 (19%) 87,511 101,174 (14%)
Operating Margin 48 % 52 % 48 % 52 %
Institutional
Investors:
Revenues 52,757 51,275 3 % 154,746 146,815 5 %
Expenses 30,525 30,980 (1%) 89,993 89,334 1 %
Operating Profit 22,232 20,295 10 % 64,753 57,481 13 %
Operating Margin 42 % 40 % 42 % 39 %
Investment Managers:
Revenues 38,202 35,844 7 % 112,002 105,131 7 %
Expenses 26,566 25,445 4 % 77,542 74,649 4 %
Operating Profit 11,636 10,399 12 % 34,460 30,482 13 %
Operating Margin 30 % 29 % 31 % 29 %
Investments in New
Businesses:
Revenues 1,811 1,881 (4%) 5,509 5,347 3 %
Expenses 4,023 5,020 (20%) 12,822 14,597 (12%)
Operating Loss (2,212) (3,139) 30 % (7,313) (9,250) 21 %
Operating Margin n/a n/a n/a n/a
LSV:
Revenues 64,588 90,641 (29%) 215,509 263,494 (18%)
Expenses (1) 40,754 56,252 (28%) 133,950 162,411 (18%)
Operating Profit 23,834 34,389 (31%) 81,559 101,083 (19%)
Operating Margin 37 % 38 % 38 % 38 %
Consolidated Segment
Totals:
Revenues
$316,086 $349,636 (10%) $979,517 $1,015,619 (4%)
Expenses 212,188 231,800 (8%) 659,088 674,209 (2%)
Operating Profit $103,898 $117,836 (12%) $320,429 $341,410 (6%)
Operating Margin 33 % 34 % 33 % 34 %
(1) Includes $32,741 and $47,671 for the three-month period ended September 30, 2008 and 2007, respectively, and $112,051 and $139,204 for the nine-month period ended September 30, 2008 and 2007, respectively, of minority interest to the other partners of LSV.
A reconciliation of the totals reported for the business segments to the applicable line items in the Consolidated Statements of Income for the three and nine-month periods ended September 30, 2008 and 2007 is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Total operating profit from
business segments $103,898 $117,836 $320,429 $341,410
Corporate overhead expenses (10,420) (9,754) (30,876) (30,459)
Minority interest reflected in
segments 33,291 49,016 114,561 142,641
LSV Employee Group Expenses (1) (1,820) (1,820) (5,460) (5,460)
Income from operations $124,949 $155,278 $398,654 $448,132
(1) Includes $1,805 for the three-month period ending September 30, 2008 and 2007, and $5,416 for the nine-month period ended September 30, 2008 and 2007 of amortization expense related to intangible assets owned by LSV Employees Group LLC. The amortization is offset through Minority interest since SEI does not have any ownership in LSV Employee Group LLC.
Third-Quarter Business Commentary:
-- The Institutional Investors and Investment Managers segments generated gains in third-quarter 2008 revenues and operating profits versus third-quarter 2007 due to new client activity.
-- The LSV and Investment Advisors segments were most directly affected by the weakening capital markets resulting in substantial third-quarter 2008 revenue and operating profit declines from third-quarter 2007 levels.
-- The company's percentage ownership in LSV remained at approximately 43 percent. In the third-quarter 2008, the company recognized $23.8 million as its portion of the earnings from LSV versus $34.4 million in the third-quarter 2007.
-- Assets under management declined by $16.4 billion during third-quarter 2008 to $161.8 billion, primarily due to market depreciation.
-- The third-quarter 2008 results include a $34.2 million non-cash charge related to money market funds support agreements. Additionally, on September 30, 2008, SEI purchased all of the SIVs held by the SDIT Money Market fund for a cash purchase price of $15.3 million. The purchased securities on that date had a fair value of $8.7 million which resulted in a $6.6 million loss recognized in the third quarter. SEI has recognized losses of $93.9 million during 2008 and cumulative losses of $119.0 million associated with SIV-related issues involving SEI-sponsored money market funds. Additional information about the capital support agreements is attached to this release and is also contained in SEI's 2007 Form 10-K filed February 26, 2008 and SEI's 2008 second-quarter 10-Q filed July 31, 2008.
-- In the third-quarter 2008, SEI purchased 770,000 shares of its common stock for $16.7 million.
Earnings Conference Call
A conference call to review earnings is scheduled for 2:00 PM ET on October 22, 2008. Investors may listen to the call at www.seic.com (Investor Information section), 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 966006.
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 September 30, 2008, through its subsidiaries and partnerships in which the company has a significant interest, SEI administers $431 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 more than 20 offices in over a dozen countries. 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 INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended September 30,
2008 2007
Asset management, admin. and distribution
fees $243,162 $280,287
Information processing and software
servicing fees 56,577 58,485
Transaction-based and trade execution fees 16,347 10,864
Total revenues 316,086 349,636
Commissions and fees 42,336 44,184
Compensation, benefits and other personnel 80,932 88,463
Consulting, outsourcing and professional
fees 26,213 23,703
Data processing and computer related 11,325 10,410
Facilities, supplies and other costs 18,656 16,607
Depreciation and amortization 11,675 10,991
Total expenses 191,137 194,358
Income from operations 124,949 155,278
Minority interest (31,078) (46,463)
Net loss on investments (1) (2) (42,047) (202)
Interest and dividend income 3,384 4,381
Interest expense (903) (1,267)
Income before taxes 54,305 111,727
Income taxes 19,810 38,428
Net income $34,495 $73,299
Diluted earnings per common share $.18 $.37
Shares used to calculate diluted
earnings per common share 194,696 200,321
Basic earnings per common share $.18 $.38
Shares used to calculate basic
earnings per common share 191,554 194,930
(1) Includes $34,205 for the three month period ended September 30, 2008 of a non-cash charge related to money market funds support agreements.
(2) Includes $6,588 for the three month period ended September 30, 2008 of a loss related to the purchase of structured investment vehicles from a SEI- sponsored money market fund.
SEI INVESTMENTS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Nine Months Ended September 30,
2008 2007
Asset management, admin. and distribution
fees $764,152 $813,338
Information processing and software
servicing fees 173,804 168,131
Transaction-based and trade execution fees 41,561 34,150
Total revenues 979,517 1,015,619
Commissions and fees 130,676 129,857
Compensation, benefits and other personnel 248,353 261,293
Consulting, outsourcing and professional
fees 79,581 67,199
Data processing and computer related 33,102 31,404
Facilities, supplies and other costs 54,458 51,867
Depreciation and amortization 34,693 25,867
Total expenses 580,863 567,487
Income from operations 398,654 448,132
Minority interest (107,837) (134,439)
Net loss on investments (1) (2) (93,387) (1,515)
Interest and dividend income 10,745 13,314
Interest expense (2,678) (3,696)
Other -- 2,952
Income before taxes 205,497 324,748
Income taxes 75,892 118,571
Net income $129,605 $206,177
Diluted earnings per common share $.66 $1.02
Shares used to calculate diluted
earnings per common share 196,300 202,875
Basic earnings per common share $.67 $1.05
Shares used to calculate basic
earnings per common share 192,457 196,720
(1) Includes $87,301 for the nine month period ended September 30, 2008 of a non-cash charge related to money market funds support agreements.
(2) Includes $6,588 for the three month period ended September 30, 2008 of a loss related to the purchase of structured investment vehicles from a SEI- sponsored money market fund.
SEI INVESTMENTS COMPANY
CONDENSED BALANCE SHEETS
(In thousands)
(Unaudited)
September 30, December 31,
2008 2007
Assets
Cash and short-term investments $345,790 $360,921
Restricted cash 34,250 10,250
Receivables 253,776 275,109
Securities owned 12,093 16,777
Other current assets 68,208 31,877
Total current assets 714,117 694,934
Property and equipment, net 150,735 143,516
Marketable securities 86,017 77,169
Capitalized software, net 258,190 231,684
Goodwill 22,842 22,842
Intangible assets 54,434 60,177
Other assets, net 17,039 22,043
Total assets $1,303,374 $1,252,365
Liabilities
Current liabilities (1) $267,515 $230,367
Long-term debt 29,623 43,971
Deferred income taxes 81,978 73,600
Long term liabilities 12,021 11,895
Minority interest 128,858 136,149
Shareholders' Equity 783,379 756,383
Total liabilities and
shareholders' equity $1,303,374 $1,252,365
(1) Includes $112,423 and $25,122 for the period ended September 30, 2008 and December 31 2007, respectively, of an accrual related to money market funds support agreements.
SEI INVESTMENTS COMPANY
ASSET BALANCES
(In millions)
(Unaudited)
Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30,
2007 2007 2008 2008 2008
Private Banks:
Equity/Fixed Income
prgms. $21,816 $21,160 $18,904 $18,163 $14,436
Collective Trust Fund
prgm. 1,056 1,007 1,008 955 1,028
Liquidity funds 8,836 8,886 9,198 8,345 9,253
Total assets under
mgmt. $31,708 $31,053 $29,110 $27,463 $24,717
Client assets under
admin. 15,655 14,235 13,897 13,242 12,301
Total assets $47,363 $45,288 $43,007 $40,705 $37,018
Investment Advisors:
Equity/Fixed Income
prgms. $37,751 $36,378 $32,736 $31,938 $27,817
Collective Trust Fund
prgm. 2,325 2,295 2,310 2,259 2,471
Liquidity funds 1,619 2,079 2,461 2,410 2,859
Total assets under
mgmt. $41,695 $40,752 $37,507 $36,607 $33,147
Institutional Investors:
Equity/Fixed Income
prgms. $43,504 $44,833 $43,134 $43,608 $39,775
Collective Trust Fund
prgm. 907 897 924 947 1,001
Liquidity funds 4,342 3,629 4,077 3,950 3,930
Total assets under
mgmt. $48,753 $49,359 $48,135 $48,505 $44,706
Investment Managers:
Equity/Fixed Income
prgms. $24 $24 $20 $19 $10
Collective Trust Fund
prgm. 6,814 6,651 6,571 6,572 6,453
Liquidity funds 360 325 571 438 699
Total assets under
mgmt. $7,198 $7,000 $7,162 $7,029 $7,162
Client assets under
admin. 205,251 215,124 225,005 228,722 256,553
Total assets $212,449 $222,124 $232,167 $235,751 $263,715
Investments in New
Businesses:
Equity/Fixed Income
prgms. $907 $929 $869 $838 $704
Liquidity funds 40 74 77 98 115
Total assets under
mgmt. $947 $1,003 $946 $936 $819
LSV Asset Management
Equity/Fixed Income
prgms. $71,349 $67,599 $61,765 $57,692 $51,296
Consolidated:
Equity/Fixed Income
prgms (A) $175,351 $170,923 $157,428 $152,258 $134,038
Collective Trust Fund
prgm. 11,102 10,850 10,813 10,733 10,953
Liquidity funds 15,197 14,993 16,384 15,241 16,856
Total assets under
mgmt. $201,650 $196,766 $184,625 $178,232 $161,847
Client assets under
admin. (B) 220,906 229,359 238,902 241,964 268,854
Total assets $422,556 $426,125 $423,527 $420,196 $430,701
(A) Equity/Fixed Income programs include $2,697 of assets invested in various asset allocation funds at September 30, 2008.
(B) In addition to the numbers presented, SEI also administers an additional $6,485 in Funds of Funds assets (as of September 30, 2008) on which SEI does not earn an administration fee.
SEI Investments Company
Impact of Support Provided to Sponsored Money Market Funds
Third-Quarter 2008 and Cumulative as of September 30, 2008
(in thousands)
Transaction Par Value Support
Dates of Amount
Securities
Securities currently held by
funds:
Capital Support Agreement (1) Nov 2007 $274,069 $150,000
Capital Support Agreement (2) Dec 2007 74,286 20,000
Total of securities currently
held by funds 348,355 170,000
Securities purchased from funds:
Gryphon (formerly Cheyne) Sept 2008 15,321 15,321
Total of all Securities $363,676 $185,321
Third Quarter 2008 Cumulative
Gross After-Tax Gross After-Tax
Charge Charge Charge Charge
Securities currently held by
funds:
Capital Support Agreement (1) $27,871 $17,698 $93,659 $59,099
Capital Support Agreement (2) 7,289 4,629 18,765 11,841
Total of securities
currently held by funds 35,160 22,327 112,424 70,940
Securities purchased from
funds:
Gryphon (formerly Cheyne) 5,634 3,578 6,588 4,157
Total of all Securities $40,794 $25,905 $119,012 $75,097
(1) Pertains to SEI Daily Income Trust Prime Obligation Fund
(2) Pertains to SEI Liquid Asset Trust Prime Obligation Fund
SOURCE SEI
Released October 22, 2008