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
June 30, 2019
, the results of operations for the
three and six
months ended
June 30, 2019
and
2018
, and cash flows for the
six
-month periods ended
June 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
six
months ended
June 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
six
months ended
June 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
provided and include fair terms and conditions, or are entities that are limited partnerships which have substantive kick-out rights. The Company acts as a fiduciary and does not hold any other interests other than insignificant seed money investments in the pooled investment vehicles. For this reason, the Company also concluded that it is not required to consolidate the pooled investment vehicles under the voting interest entity (VOE) model.
The Company is a party to expense limitation agreements with certain SEI-sponsored money market funds subject to Rule 2a-7 of the Investment Company Act of 1940 which establish a maximum level of ordinary operating expenses incurred by the fund in any fiscal year including, but not limited to, fees of the administrator or its affiliates. Under the terms of these agreements, the Company waived
$6,796
and
$6,372
in fees during the three months ended
June 30, 2019
and
2018
, respectively. During the
six
months ended
June 30, 2019
and
2018
, the Company waived
$14,701
and
$13,026
, 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
$272,986
and
$315,840
at
June 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
June 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
$520
and
$514
at
June 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
$19,188
and
$24,613
of software development costs during the
six
months ended
June 30, 2019
and
2018
, respectively. The Company's software development costs primarily relate to significant enhancements to the SEI Wealth Platform
SM
(SWP). The Company capitalized
$18,693
and
$23,768
of software development costs for significant enhancements to SWP during the
six
months ended
June 30, 2019
and
2018
, respectively. As of
June 30, 2019
, the net book value of SWP was
$286,459
.
The net book value includes
$49,374
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
8.5 years
. Amortization expense for SWP was
$20,900
and
$19,599
during the
six
months ended
June 30, 2019
and
2018
, respectively.
Earnings per Share
The calculations of basic and diluted earnings per share for the
three and six
months ended
June 30, 2019
and
2018
are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Net income
|
$
|
126,540
|
|
|
$
|
121,677
|
|
|
$
|
240,521
|
|
|
$
|
261,515
|
|
|
Shares used to compute basic earnings per common share
|
151,863,000
|
|
|
157,542,000
|
|
|
152,587,000
|
|
|
157,488,000
|
|
|
Dilutive effect of stock options
|
3,302,000
|
|
|
4,683,000
|
|
|
3,266,000
|
|
|
5,337,000
|
|
|
Shares used to compute diluted earnings per common share
|
155,165,000
|
|
|
162,225,000
|
|
|
155,853,000
|
|
|
162,825,000
|
|
|
Basic earnings per common share
|
$
|
0.83
|
|
|
$
|
0.77
|
|
|
$
|
1.58
|
|
|
$
|
1.66
|
|
|
Diluted earnings per common share
|
$
|
0.82
|
|
|
$
|
0.75
|
|
|
$
|
1.54
|
|
|
$
|
1.61
|
|
During the
three months ended June 30
,
2019
and
2018
, employee stock options to purchase
6,244,000
and
6,221,000
shares of common stock with an average exercise price of
$54.79
and
$53.33
, respectively, were outstanding but not
included in the computation of diluted earnings per common share. During the
six
months ended
June 30, 2019
and
2018
, employee stock options to purchase
6,284,000
and
6,138,000
shares of common stock with an average exercise price of
$54.80
and
$53.03
, respectively, were outstanding but not included in the computation of diluted earnings per common share. These options for the
three and six
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, Short-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.
Reclassifications
Certain prior year amounts have been reclassified to conform to current year presentation.
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) which requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. ASU 2016-13 becomes effective for the Company during the first quarter of 2020. Early adoption is permitted. The Company is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.
In 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 is currently evaluating the impact of adopting ASU 2017-04 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 on fair value measurements. ASU 2018-13 is effective for the Company beginning in the first quarter of 2020. The
Company is currently evaluating the impact of adopting ASU 2018-13 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 is currently evaluating the impact of adopting ASU 2018-17 on its consolidated financial statements and related disclosures.
In April 2019, the FASB issued 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), which provided certain improvements to ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01) and ASU 2016-13. As the Company adopted ASU 2016-01 on January 1, 2018, the improvements in ASU 2019-04 are effective in the first quarter of 2020. Early adoption is permitted. The Company expects to adopt ASU 2016-13 in the first quarter of 2020, as described above, and the improvements in ASU 2019-04 will be adopted concurrently. The Company is currently evaluating the impact of adopting ASU 2019-04 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
six months ended June 30
:
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|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Net income
|
$
|
240,521
|
|
|
$
|
261,515
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
Depreciation
|
14,753
|
|
|
14,260
|
|
|
Amortization
|
25,460
|
|
|
24,015
|
|
|
Equity in earnings of unconsolidated affiliate
|
(75,149
|
)
|
|
(81,680
|
)
|
|
Distributions received from unconsolidated affiliate
|
77,288
|
|
|
89,362
|
|
|
Stock-based compensation
|
10,102
|
|
|
10,518
|
|
|
Provision for losses on receivables
|
383
|
|
|
(90
|
)
|
|
Deferred income tax expense
|
(2,050
|
)
|
|
4,893
|
|
|
Net (gain) loss from investments
|
(1,510
|
)
|
|
549
|
|
|
Change in long-term income taxes payable
|
—
|
|
|
(1,000
|
)
|
|
Change in other long-term liabilities
|
1,129
|
|
|
1,222
|
|
|
Change in other assets
|
249
|
|
|
(4,713
|
)
|
|
Contract costs capitalized, net of amortization
|
(1,125
|
)
|
|
(2,880
|
)
|
|
Other
|
122
|
|
|
(326
|
)
|
|
Change in current assets and liabilities
|
|
|
|
|
(Increase) decrease in
|
|
|
|
|
Receivables from investment products
|
(2,538
|
)
|
|
3,280
|
|
|
Receivables
|
(20,192
|
)
|
|
(31,835
|
)
|
|
Other current assets
|
3,708
|
|
|
(5,090
|
)
|
|
(Decrease) increase in
|
|
|
|
|
Accounts payable
|
(5,426
|
)
|
|
2,251
|
|
|
Accrued liabilities
|
(47,631
|
)
|
|
(22,121
|
)
|
|
Deferred revenue
|
(449
|
)
|
|
746
|
|
|
Total adjustments
|
(22,876
|
)
|
|
1,361
|
|
|
Net cash provided by operating activities
|
$
|
217,645
|
|
|
$
|
262,876
|
|
|
|
|
|
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
June 30, 2019
was
38.9 percent
. The Company accounts for its interest in LSV using the equity method because of its less than
50
percent 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
June 30, 2019
, the Company’s total investment in LSV was
$50,203
. The Company receives partnership distributions from LSV on a quarterly basis. The Company received partnership distributions from LSV of
$77,288
and
$89,362
in the
six months ended June 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
$37,832
and
$41,073
during the
three months ended June 30
,
2019
and
2018
, respectively. During the
six
months ended
June 30, 2019
and
2018
, the Company’s proportionate share in the earnings of LSV was
$75,149
and
$81,680
, respectively.
These tables contain condensed financial information of LSV:
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|
Condensed Statement of Operations
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Revenues
|
|
$
|
123,017
|
|
|
$
|
132,111
|
|
|
$
|
243,932
|
|
|
$
|
263,829
|
|
|
Net income
|
|
97,271
|
|
|
105,605
|
|
|
193,219
|
|
|
210,011
|
|
|
|
|
|
|
|
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|
Condensed Balance Sheets
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Current assets
|
|
$
|
147,554
|
|
|
$
|
138,083
|
|
|
Non-current assets
|
|
4,777
|
|
|
1,165
|
|
|
Total assets
|
|
$
|
152,331
|
|
|
$
|
139,248
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
61,823
|
|
|
$
|
47,874
|
|
|
Non-current liabilities
|
|
4,881
|
|
|
—
|
|
|
Partners’ capital
|
|
85,627
|
|
|
91,374
|
|
|
Total liabilities and partners’ capital
|
|
$
|
152,331
|
|
|
$
|
139,248
|
|
|
|
|
|
Note 3.
|
Composition of Certain Financial Statement Captions
|
Receivables
Receivables on the accompanying Consolidated Balance Sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Trade receivables
|
$
|
77,063
|
|
|
$
|
76,362
|
|
|
Fees earned, not billed
|
242,712
|
|
|
226,001
|
|
|
Other receivables
|
16,470
|
|
|
13,691
|
|
|
|
336,245
|
|
|
316,054
|
|
|
Less: Allowance for doubtful accounts
|
(1,101
|
)
|
|
(718
|
)
|
|
|
$
|
335,144
|
|
|
$
|
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.
Property and Equipment
Property and Equipment on the accompanying Consolidated Balance Sheets consists of:
|
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|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Buildings
|
$
|
162,449
|
|
|
$
|
160,796
|
|
|
Equipment
|
130,486
|
|
|
126,954
|
|
|
Land
|
10,772
|
|
|
10,772
|
|
|
Purchased software
|
140,887
|
|
|
139,245
|
|
|
Furniture and fixtures
|
18,429
|
|
|
18,103
|
|
|
Leasehold improvements
|
20,024
|
|
|
18,959
|
|
|
Construction in progress
|
19,291
|
|
|
9,240
|
|
|
|
502,338
|
|
|
484,069
|
|
|
Less: Accumulated depreciation
|
(352,293
|
)
|
|
(338,206
|
)
|
|
Property and Equipment, net
|
$
|
150,045
|
|
|
$
|
145,863
|
|
The Company recognized
$14,753
and
$14,260
in depreciation expense related to property and equipment for the
six months ended June 30
,
2019
and
2018
, respectively.
Deferred Contract Costs
Deferred contract costs, which primarily consist of deferred sales commissions, were
$25,132
and
$24,007
as of
June 30, 2019
and
December 31, 2018
, respectively. The Company deferred expenses related to contract costs of
$1,950
and
$2,267
during the three months ended
June 30, 2019
and
2018
, respectively. During the
six
months ended
June 30, 2019
and
2018
, the Company deferred expenses related to contract costs of
$3,076
and
$4,083
, respectively. Amortization expense related to deferred contract costs were
$1,951
and
$1,201
during the
six
months ended
June 30, 2019
and
2018
, respectively. There was
no
impairment loss in relation to deferred contract costs during the
six
months ended
June 30, 2019
.
Accrued Liabilities
Accrued liabilities on the accompanying Consolidated Balance Sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Accrued employee compensation
|
$
|
55,188
|
|
|
$
|
97,603
|
|
|
Accrued consulting, outsourcing and professional fees
|
30,155
|
|
|
31,000
|
|
|
Accrued sub-advisory, distribution and other asset management fees
|
46,611
|
|
|
42,583
|
|
|
Accrued dividend payable
|
—
|
|
|
50,761
|
|
|
Other accrued liabilities
|
46,519
|
|
|
57,687
|
|
|
Total accrued liabilities
|
$
|
178,473
|
|
|
$
|
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
2021
to
2041
.
The fair value of the Company's investment funds sponsored by LSV is measured using the net asset value per share (NAV) as a practical expedient. The NAVs of the funds are calculated by the funds' independent custodian and are derived from the fair values of the underlying investments as of the reporting date. The funds allow for investor redemptions at the end of each calendar month. This investment has not been classified in the fair value hierarchy but is presented in the tables below to permit reconciliation to the amounts presented on the accompanying Consolidated Balance Sheets.
The valuation of the Company's Level 2 financial assets held by SIDCO and SPTC are based upon securities pricing policies and procedures utilized by third-party pricing vendors.
The pricing policies and procedures applied for our Level 1 and Level 2 financial assets during the
six months ended June 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
June 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
June 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
six months ended June 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
|
|
June 30, 2019
|
|
Quoted Prices
in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Equity available-for-sale securities
|
|
$
|
11,342
|
|
|
$
|
11,342
|
|
|
$
|
—
|
|
|
Fixed-income available-for-sale securities
|
|
95,329
|
|
|
—
|
|
|
95,329
|
|
|
Fixed-income securities owned
|
|
32,289
|
|
|
—
|
|
|
32,289
|
|
|
Investment funds sponsored by LSV (1)
|
|
5,434
|
|
|
|
|
|
|
|
|
$
|
144,394
|
|
|
$
|
11,342
|
|
|
$
|
127,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
).
Note 5. Marketable Securities
Investments Available for Sale
Investments available for sale classified as non-current assets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2019
|
|
|
Cost
Amount
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
(Losses)
|
|
Fair
Value
|
|
SEI-sponsored mutual funds
|
$
|
7,464
|
|
|
$
|
108
|
|
|
$
|
(341
|
)
|
|
$
|
7,231
|
|
|
Equities and other mutual funds
|
3,477
|
|
|
634
|
|
|
—
|
|
|
4,111
|
|
|
Debt securities
|
94,905
|
|
|
424
|
|
|
—
|
|
|
95,329
|
|
|
|
$
|
105,846
|
|
|
$
|
1,166
|
|
|
$
|
(341
|
)
|
|
$
|
106,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
June 30, 2019
of the Company's available-for-sale debt securities were
$327
(net of income tax expense of
$97
). 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
$1,004
and gross realized losses of
$1,310
during the
six months ended June 30
,
2018
. Gross realized gains and losses from available-for-sale securities during the
six months ended June 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
$5,434
and
$4,887
at
June 30, 2019
and
December 31, 2018
, respectively. The Company recognized gains of
$95
and
$205
during the three months ended
June 30, 2019
and
2018
, respectively, from the change in fair value of the funds. The Company recognized gains of
$547
and losses of
$295
during the
six
months ended
June 30, 2019
and
2018
, respectively, 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
$32,289
and
$30,892
at
June 30, 2019
and
December 31, 2018
, respectively. There were
no
material net gains or losses related to the securities during the
three and six
months ended
June 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 can range from
0.25 percent
to
1.00 percent
or the London InterBank Offered Rate (LIBOR) plus a premium that can range from
1.25 percent
to
2.00 percent
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 percent
, b) the prime commercial lending rate of Wells Fargo, c) the applicable LIBOR plus
1.00 percent
, or d)
0 percent
. 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 percent
of the amount of the unused portion to
0.30 percent
, 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 percent
plus a fronting fee of
0.175 percent
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, or to incur liens, as defined in the agreement. In the event of a default under the Credit Facility, the Company would also be restricted from paying dividends on, or repurchasing, its common stock without the approval of the lenders. None of the covenants of the Credit Facility negatively affect the Company’s liquidity or capital resources. Upon the occurrence of certain financial or economic events, significant corporate events, or certain other events of default constituting an event of default under the Credit Facility, all loans outstanding may be declared immediately due and payable and all commitments under the agreement may be terminated.
As of
June 30, 2019
, the Company had outstanding letters of credit of
$11,713
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
June 30, 2019
was
$288,287
.
The Company was in compliance with all covenants of the Credit Facility during the
six
months ended
June 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
percent when a specified diluted earnings per share target is achieved, and the remaining
50
percent 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 six
months ended
June 30, 2019
and
2018
, respectively, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Stock-based compensation expense
|
$
|
5,064
|
|
|
$
|
5,323
|
|
|
$
|
10,102
|
|
|
$
|
10,518
|
|
|
Less: Deferred tax benefit
|
(971
|
)
|
|
(1,142
|
)
|
|
(1,917
|
)
|
|
(2,245
|
)
|
|
Stock-based compensation expense, net of tax
|
$
|
4,093
|
|
|
$
|
4,181
|
|
|
$
|
8,185
|
|
|
$
|
8,273
|
|
As of
June 30, 2019
, there was approximately
$55,538
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
six months ended June 30
,
2019
was
$21,816
. The total options exercisable as of
June 30,
2019
had an intrinsic value of
$192,595
. The total intrinsic value for options exercisable is calculated as the difference between the market value of the Company’s common stock as of
June 30, 2019
and the weighted average exercise price of the options. The market value of the Company’s common stock as of
June 30, 2019
was
$56.10
as reported by the Nasdaq Stock Market, LLC. The weighted average exercise price of the options exercisable as of
June 30, 2019
was
$33.55
. Total options that were outstanding as of
June 30, 2019
were
14,784,000
. Total options that were exercisable as of
June 30, 2019
were
8,540,000
.
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
3,550,000
shares at a total cost of
$185,817
during the
six months ended June 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
June 30, 2019
, the Company had approximately
$30,061
of authorization remaining for the purchase of common stock under the program. On
July 23, 2019
, the Company's Board of Directors approved an increase in the stock repurchase program by an additional
$250,000
, increasing the available authorization to approximately
$280,061
.
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
six
months ended
June 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 income before reclassifications
|
520
|
|
|
1,562
|
|
|
2,082
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
178
|
|
|
178
|
|
|
Net current-period other comprehensive income
|
520
|
|
|
1,740
|
|
|
2,260
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2019
|
$
|
(31,067
|
)
|
|
$
|
327
|
|
|
$
|
(30,740
|
)
|
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.
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 six
months ended
June 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
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Banks
|
|
Investment
Advisors
|
|
Institutional
Investors
|
|
Investment
Managers
|
|
Investments
In New
Businesses
|
|
Total
|
|
|
For the Three Months Ended June 30, 2019
|
|
Revenues
|
$
|
116,092
|
|
|
$
|
100,122
|
|
|
$
|
81,109
|
|
|
$
|
109,202
|
|
|
$
|
3,061
|
|
|
$
|
409,586
|
|
|
Expenses
|
107,790
|
|
|
50,558
|
|
|
39,361
|
|
|
68,371
|
|
|
6,797
|
|
|
272,877
|
|
|
Operating profit (loss)
|
$
|
8,302
|
|
|
$
|
49,564
|
|
|
$
|
41,748
|
|
|
$
|
40,831
|
|
|
$
|
(3,736
|
)
|
|
$
|
136,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Banks
|
|
Investment
Advisors
|
|
Institutional
Investors
|
|
Investment
Managers
|
|
Investments
In New
Businesses
|
|
Total
|
|
|
For the Three Months Ended June 30, 2018
|
|
Revenues
|
$
|
121,126
|
|
|
$
|
99,890
|
|
|
$
|
83,434
|
|
|
$
|
97,566
|
|
|
$
|
2,814
|
|
|
$
|
404,830
|
|
|
Expenses
|
114,842
|
|
|
53,052
|
|
|
40,871
|
|
|
63,321
|
|
|
5,940
|
|
|
278,026
|
|
|
Operating profit (loss)
|
$
|
6,284
|
|
|
$
|
46,838
|
|
|
$
|
42,563
|
|
|
$
|
34,245
|
|
|
$
|
(3,126
|
)
|
|
$
|
126,804
|
|
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 June 30
,
2019
and
2018
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Total operating profit from segments
|
$
|
136,709
|
|
|
$
|
126,804
|
|
|
Corporate overhead expenses
|
(16,573
|
)
|
|
(16,514
|
)
|
|
Income from operations
|
$
|
120,136
|
|
|
$
|
110,290
|
|
The following tables provide additional information for the
three months ended June 30
,
2019
and
2018
pertaining to our business segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures (1)
|
|
Depreciation
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Private Banks
|
$
|
8,761
|
|
|
$
|
9,529
|
|
|
$
|
3,585
|
|
|
$
|
3,323
|
|
|
Investment Advisors
|
4,558
|
|
|
4,284
|
|
|
1,165
|
|
|
1,105
|
|
|
Institutional Investors
|
1,049
|
|
|
997
|
|
|
414
|
|
|
452
|
|
|
Investment Managers
|
4,875
|
|
|
3,370
|
|
|
1,820
|
|
|
1,806
|
|
|
Investments in New Businesses
|
344
|
|
|
240
|
|
|
110
|
|
|
155
|
|
|
Total from business segments
|
$
|
19,587
|
|
|
$
|
18,420
|
|
|
$
|
7,094
|
|
|
$
|
6,841
|
|
|
Corporate overhead
|
586
|
|
|
366
|
|
|
328
|
|
|
297
|
|
|
|
$
|
20,173
|
|
|
$
|
18,786
|
|
|
$
|
7,422
|
|
|
$
|
7,138
|
|
(1) Capital expenditures include additions to property and equipment and capitalized software.
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
2019
|
|
2018
|
|
Private Banks
|
$
|
7,217
|
|
|
$
|
6,747
|
|
|
Investment Advisors
|
2,550
|
|
|
2,401
|
|
|
Institutional Investors
|
427
|
|
|
427
|
|
|
Investment Managers
|
2,346
|
|
|
2,345
|
|
|
Investments in New Businesses
|
185
|
|
|
184
|
|
|
Total from business segments
|
$
|
12,725
|
|
|
$
|
12,104
|
|
|
Corporate overhead
|
56
|
|
|
57
|
|
|
|
$
|
12,781
|
|
|
$
|
12,161
|
|
The following tables highlight certain financial information about each of the Company’s business segments for the
six
months ended
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Banks
|
|
Investment
Advisors
|
|
Institutional
Investors
|
|
Investment
Managers
|
|
Investments
In New
Businesses
|
|
Total
|
|
|
For the Six Months Ended June 30, 2019
|
|
Revenues
|
$
|
234,351
|
|
|
$
|
194,883
|
|
|
$
|
161,222
|
|
|
$
|
213,851
|
|
|
$
|
6,099
|
|
|
$
|
810,406
|
|
|
Expenses
|
218,752
|
|
|
103,060
|
|
|
78,115
|
|
|
137,437
|
|
|
12,737
|
|
|
550,101
|
|
|
Operating profit (loss)
|
$
|
15,599
|
|
|
$
|
91,823
|
|
|
$
|
83,107
|
|
|
$
|
76,414
|
|
|
$
|
(6,638
|
)
|
|
$
|
260,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Banks
|
|
Investment
Advisors
|
|
Institutional
Investors
|
|
Investment
Managers
|
|
Investments
In New
Businesses
|
|
Total
|
|
|
For the Six Months Ended June 30, 2018
|
|
Revenues
|
$
|
243,290
|
|
|
$
|
199,082
|
|
|
$
|
168,925
|
|
|
$
|
194,421
|
|
|
$
|
4,710
|
|
|
$
|
810,428
|
|
|
Expenses
|
227,044
|
|
|
105,505
|
|
|
82,120
|
|
|
126,659
|
|
|
11,038
|
|
|
552,366
|
|
|
Operating profit (loss)
|
$
|
16,246
|
|
|
$
|
93,577
|
|
|
$
|
86,805
|
|
|
$
|
67,762
|
|
|
$
|
(6,328
|
)
|
|
$
|
258,062
|
|
A reconciliation of the total operating profit reported for the business segments to income from operations in the Consolidated Statements of Operations for the
six
months ended
June 30, 2019
and
2018
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Total operating profit from segments
|
$
|
260,305
|
|
|
$
|
258,062
|
|
|
Corporate overhead expenses
|
(36,608
|
)
|
|
(31,456
|
)
|
|
Income from operations
|
$
|
223,697
|
|
|
$
|
226,606
|
|
The following tables provide additional information for the
six
months ended
June 30, 2019
and
2018
pertaining to our business segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures (1)
|
|
Depreciation
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Private Banks
|
$
|
17,222
|
|
|
$
|
19,768
|
|
|
$
|
7,134
|
|
|
$
|
6,642
|
|
|
Investment Advisors
|
8,505
|
|
|
8,544
|
|
|
2,344
|
|
|
2,210
|
|
|
Institutional Investors
|
1,920
|
|
|
1,964
|
|
|
819
|
|
|
900
|
|
|
Investment Managers
|
8,224
|
|
|
5,890
|
|
|
3,591
|
|
|
3,615
|
|
|
Investments in New Businesses
|
585
|
|
|
444
|
|
|
201
|
|
|
305
|
|
|
Total from business segments
|
$
|
36,456
|
|
|
$
|
36,610
|
|
|
$
|
14,089
|
|
|
$
|
13,672
|
|
|
Corporate Overhead
|
971
|
|
|
674
|
|
|
664
|
|
|
588
|
|
|
|
$
|
37,427
|
|
|
$
|
37,284
|
|
|
$
|
14,753
|
|
|
$
|
14,260
|
|
(1) Capital expenditures include additions to property and equipment and capitalized software.
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
2019
|
|
2018
|
|
Private Banks
|
$
|
14,358
|
|
|
$
|
13,374
|
|
|
Investment Advisors
|
5,073
|
|
|
4,758
|
|
|
Institutional Investors
|
860
|
|
|
854
|
|
|
Investment Managers
|
4,685
|
|
|
4,690
|
|
|
Investments in New Businesses
|
370
|
|
|
224
|
|
|
Total from business segments
|
$
|
25,346
|
|
|
$
|
23,900
|
|
|
Corporate Overhead
|
114
|
|
|
115
|
|
|
|
$
|
25,460
|
|
|
$
|
24,015
|
|
Note 10. Income Taxes
The gross liability for unrecognized tax benefits at
June 30, 2019
and
December 31, 2018
was
$15,479
and
$14,367
, respectively, exclusive of interest and penalties, of which
$15,126
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
June 30, 2019
and
December 31, 2018
, the combined amount of accrued interest and penalties related to tax positions taken on tax returns was
$1,677
and
$1,289
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Gross liability for unrecognized tax benefits, exclusive of interest and penalties
|
$
|
15,479
|
|
|
$
|
14,367
|
|
|
Interest and penalties on unrecognized benefits
|
1,677
|
|
|
1,289
|
|
|
Total gross uncertain tax positions
|
$
|
17,156
|
|
|
$
|
15,656
|
|
|
Amount included in Current liabilities
|
$
|
2,964
|
|
|
$
|
3,131
|
|
|
Amount included in Other long-term liabilities
|
14,192
|
|
|
12,525
|
|
|
|
$
|
17,156
|
|
|
$
|
15,656
|
|
The Company's effective income tax rate for the
three and six
months ended
June 30, 2019
and
2018
differs from the federal income tax statutory rate due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 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
|
|
(0.1
|
)
|
|
(0.1
|
)
|
|
(0.1
|
)
|
|
(0.1
|
)
|
|
Tax benefit from stock option exercises
|
|
(1.1
|
)
|
|
(2.0
|
)
|
|
(1.1
|
)
|
|
(6.5
|
)
|
|
Other, net
|
|
(0.3
|
)
|
|
(0.1
|
)
|
|
(0.3
|
)
|
|
(0.2
|
)
|
|
|
|
22.1
|
%
|
|
21.1
|
%
|
|
22.1
|
%
|
|
16.5
|
%
|
The increase in the Company's effective tax rate for the
three and six
months ended
June 30, 2019
was primarily due to reduced tax benefits related to the lower volume of stock option exercises as compared to the
three and six
months ended June 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
$2,964
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 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
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). SEI and SPTC expect to file an answer to Plaintiffs’ Motion for Reconsideration on or before the deadline for responding of August 8, 2019.
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.
On May 14, 2019, Plaintiff and SEI filed notice with the court of their collective intent to settle the Stevens Litigation. As of the date of this report, the terms of the settlement have not yet been finalized, and will be subject to court review and approval. Although SEI has 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, SEI believes its defenses against the plaintiff’s allegations remain valid.
While the outcome of this litigation remains uncertain, the defendants believe that they have valid defenses to plaintiffs’ claims and intend to defend the allegations contained in the Stevens Complaint vigorously. Because of uncertainty in the make-up of the purported class named in the Stevens Complaint, the specific theories of liability that may survive a motion for summary judgment or other dispositive motion, the lack of specificity or 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 matters set forth in the Stevens Complaint.
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.
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 three months ended June 30, 2019. As of
June 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
six
months ended
June 30, 2019
.
The Company recognized
$1,842
and
$1,696
of amortization expense related to the intangible assets acquired through the acquisitions of Huntington Steele and Archway during the
six
months ended
June 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
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Banks
|
|
Investment
Advisors
|
|
Institutional
Investors
|
|
Investment
Managers
|
|
Investments
In New
Businesses
|
|
Total
|
|
Major Product Lines:
|
For the Three Months Ended June 30, 2019
|
|
Investment management fees from pooled investment products
|
$
|
33,451
|
|
|
$
|
70,087
|
|
|
$
|
13,799
|
|
|
$
|
184
|
|
|
$
|
325
|
|
|
$
|
117,846
|
|
|
Investment management fees from investment management agreements
|
283
|
|
|
25,448
|
|
|
67,076
|
|
|
—
|
|
|
2,713
|
|
|
95,520
|
|
|
Investment operations fees
|
362
|
|
|
—
|
|
|
—
|
|
|
99,932
|
|
|
—
|
|
|
100,294
|
|
|
Investment processing fees - PaaS
|
43,156
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
43,156
|
|
|
Investment processing fees - SaaS
|
34,776
|
|
|
—
|
|
|
—
|
|
|
2,593
|
|
|
—
|
|
|
37,369
|
|
|
Professional services fees
|
2,586
|
|
|
—
|
|
|
—
|
|
|
1,548
|
|
|
—
|
|
|
4,134
|
|
|
Account fees and other
|
1,478
|
|
|
4,587
|
|
|
234
|
|
|
4,945
|
|
|
23
|
|
|
11,267
|
|
|
Total revenues
|
$
|
116,092
|
|
|
$
|
100,122
|
|
|
$
|
81,109
|
|
|
$
|
109,202
|
|
|
$
|
3,061
|
|
|
$
|
409,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographic Markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
$
|
74,889
|
|
|
$
|
100,122
|
|
|
$
|
63,653
|
|
|
$
|
101,794
|
|
|
$
|
3,061
|
|
|
$
|
343,519
|
|
|
United Kingdom
|
25,695
|
|
|
—
|
|
|
13,140
|
|
|
—
|
|
|
—
|
|
|
38,835
|
|
|
Canada
|
10,882
|
|
|
—
|
|
|
1,708
|
|
|
—
|
|
|
—
|
|
|
12,590
|
|
|
Ireland
|
4,626
|
|
|
—
|
|
|
2,356
|
|
|
7,408
|
|
|
—
|
|
|
14,390
|
|
|
Other
|
—
|
|
|
—
|
|
|
252
|
|
|
—
|
|
|
—
|
|
|
252
|
|
|
Total revenues
|
$
|
116,092
|
|
|
$
|
100,122
|
|
|
$
|
81,109
|
|
|
$
|
109,202
|
|
|
$
|
3,061
|
|
|
$
|
409,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Banks
|
|
Investment
Advisors
|
|
Institutional
Investors
|
|
Investment
Managers
|
|
Investments
In New
Businesses
|
|
Total
|
|
Major Product Lines:
|
For the Three Months Ended June 30, 2018
|
|
Investment management fees from pooled investment products
|
$
|
35,164
|
|
|
$
|
72,481
|
|
|
$
|
15,347
|
|
|
$
|
239
|
|
|
$
|
237
|
|
|
$
|
123,468
|
|
|
Investment management fees from investment management agreements
|
214
|
|
|
23,389
|
|
|
67,608
|
|
|
80
|
|
|
2,549
|
|
|
93,840
|
|
|
Investment operations fees
|
375
|
|
|
—
|
|
|
—
|
|
|
88,311
|
|
|
—
|
|
|
88,686
|
|
|
Investment processing fees - PaaS
|
43,915
|
|
|
—
|
|
|
—
|
|
|
642
|
|
|
—
|
|
|
44,557
|
|
|
Investment processing fees - SaaS
|
35,453
|
|
|
—
|
|
|
—
|
|
|
2,370
|
|
|
—
|
|
|
37,823
|
|
|
Professional services fees
|
4,195
|
|
|
—
|
|
|
—
|
|
|
1,981
|
|
|
—
|
|
|
6,176
|
|
|
Account fees and other
|
1,810
|
|
|
4,020
|
|
|
479
|
|
|
3,943
|
|
|
28
|
|
|
10,280
|
|
|
Total revenues
|
$
|
121,126
|
|
|
$
|
99,890
|
|
|
$
|
83,434
|
|
|
$
|
97,566
|
|
|
$
|
2,814
|
|
|
$
|
404,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographic Markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
$
|
75,669
|
|
|
$
|
99,890
|
|
|
$
|
64,048
|
|
|
$
|
92,845
|
|
|
$
|
2,814
|
|
|
$
|
335,266
|
|
|
United Kingdom
|
29,005
|
|
|
—
|
|
|
13,894
|
|
|
—
|
|
|
—
|
|
|
42,899
|
|
|
Canada
|
11,516
|
|
|
—
|
|
|
2,134
|
|
|
—
|
|
|
—
|
|
|
13,650
|
|
|
Ireland
|
4,936
|
|
|
—
|
|
|
3,027
|
|
|
4,721
|
|
|
—
|
|
|
12,684
|
|
|
Other
|
—
|
|
|
—
|
|
|
331
|
|
|
—
|
|
|
—
|
|
|
331
|
|
|
Total revenues
|
$
|
121,126
|
|
|
$
|
99,890
|
|
|
$
|
83,434
|
|
|
$
|
97,566
|
|
|
$
|
2,814
|
|
|
$
|
404,830
|
|
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
six
months ended
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Banks
|
|
Investment
Advisors
|
|
Institutional
Investors
|
|
Investment
Managers
|
|
Investments
In New
Businesses
|
|
Total
|
|
Major Product Lines:
|
For the Six Months Ended June 30, 2019
|
|
Investment management fees from pooled investment products
|
$
|
66,424
|
|
|
$
|
136,710
|
|
|
$
|
27,460
|
|
|
$
|
389
|
|
|
$
|
634
|
|
|
$
|
231,617
|
|
|
Investment management fees from investment management agreements
|
985
|
|
|
49,286
|
|
|
133,247
|
|
|
—
|
|
|
5,411
|
|
|
188,929
|
|
|
Investment operations fees
|
738
|
|
|
—
|
|
|
—
|
|
|
194,799
|
|
|
—
|
|
|
195,537
|
|
|
Investment processing fees - PaaS
|
87,067
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
87,067
|
|
|
Investment processing fees - SaaS
|
69,484
|
|
|
—
|
|
|
—
|
|
|
5,142
|
|
|
—
|
|
|
74,626
|
|
|
Professional services fees
|
6,363
|
|
|
—
|
|
|
—
|
|
|
2,965
|
|
|
—
|
|
|
9,328
|
|
|
Account fees and other
|
3,290
|
|
|
8,887
|
|
|
515
|
|
|
10,556
|
|
|
54
|
|
|
23,302
|
|
|
Total revenues
|
$
|
234,351
|
|
|
$
|
194,883
|
|
|
$
|
161,222
|
|
|
$
|
213,851
|
|
|
$
|
6,099
|
|
|
$
|
810,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographic Markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
$
|
152,343
|
|
|
$
|
194,883
|
|
|
$
|
125,978
|
|
|
$
|
199,852
|
|
|
$
|
6,099
|
|
|
$
|
679,155
|
|
|
United Kingdom
|
51,045
|
|
|
—
|
|
|
26,606
|
|
|
—
|
|
|
—
|
|
|
77,651
|
|
|
Canada
|
21,542
|
|
|
—
|
|
|
3,435
|
|
|
—
|
|
|
—
|
|
|
24,977
|
|
|
Ireland
|
9,421
|
|
|
—
|
|
|
4,667
|
|
|
13,999
|
|
|
—
|
|
|
28,087
|
|
|
Other
|
—
|
|
|
—
|
|
|
536
|
|
|
—
|
|
|
—
|
|
|
536
|
|
|
Total revenues
|
$
|
234,351
|
|
|
$
|
194,883
|
|
|
$
|
161,222
|
|
|
$
|
213,851
|
|
|
$
|
6,099
|
|
|
$
|
810,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Banks
|
|
Investment
Advisors
|
|
Institutional
Investors
|
|
Investment
Managers
|
|
Investments
In New
Businesses
|
|
Total
|
|
Major Product Lines:
|
For the Six Months Ended June 30, 2018
|
|
Investment management fees from pooled investment products
|
$
|
70,354
|
|
|
$
|
144,899
|
|
|
$
|
31,205
|
|
|
$
|
239
|
|
|
$
|
462
|
|
|
$
|
247,159
|
|
|
Investment management fees from investment management agreements
|
412
|
|
|
46,153
|
|
|
136,884
|
|
|
163
|
|
|
4,183
|
|
|
187,795
|
|
|
Investment operations fees
|
757
|
|
|
—
|
|
|
—
|
|
|
175,766
|
|
|
—
|
|
|
176,523
|
|
|
Investment processing fees - PaaS
|
88,500
|
|
|
—
|
|
|
—
|
|
|
1,125
|
|
|
—
|
|
|
89,625
|
|
|
Investment processing fees - SaaS
|
70,055
|
|
|
—
|
|
|
—
|
|
|
4,735
|
|
|
—
|
|
|
74,790
|
|
|
Professional services fees
|
9,614
|
|
|
—
|
|
|
—
|
|
|
3,868
|
|
|
—
|
|
|
13,482
|
|
|
Account fees and other
|
3,598
|
|
|
8,030
|
|
|
836
|
|
|
8,525
|
|
|
65
|
|
|
21,054
|
|
|
Total revenues
|
$
|
243,290
|
|
|
$
|
199,082
|
|
|
$
|
168,925
|
|
|
$
|
194,421
|
|
|
$
|
4,710
|
|
|
$
|
810,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographic Markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
$
|
153,802
|
|
|
$
|
199,082
|
|
|
$
|
128,816
|
|
|
$
|
184,604
|
|
|
$
|
4,710
|
|
|
$
|
671,014
|
|
|
United Kingdom
|
56,530
|
|
|
—
|
|
|
28,681
|
|
|
—
|
|
|
—
|
|
|
85,211
|
|
|
Canada
|
23,117
|
|
|
—
|
|
|
4,805
|
|
|
—
|
|
|
—
|
|
|
27,922
|
|
|
Ireland
|
9,841
|
|
|
—
|
|
|
5,454
|
|
|
9,817
|
|
|
—
|
|
|
25,112
|
|
|
Other
|
—
|
|
|
—
|
|
|
1,169
|
|
|
—
|
|
|
—
|
|
|
1,169
|
|
|
Total revenues
|
$
|
243,290
|
|
|
$
|
199,082
|
|
|
$
|
168,925
|
|
|
$
|
194,421
|
|
|
$
|
4,710
|
|
|
$
|
810,428
|
|
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 - 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 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.
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.
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.
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 six
months ended
June 30, 2019
was
$2,529
and
$5,097
, 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
June 30, 2019
are as follows:
|
|
|
|
|
|
|
|
|
2019 (excluding the six months ended June 30, 2019)
|
|
$
|
2,328
|
|
|
2020
|
|
8,929
|
|
|
2021
|
|
7,618
|
|
|
2022
|
|
7,326
|
|
|
2023
|
|
7,326
|
|
|
Thereafter
|
|
17,530
|
|
|
Total future minimum lease payments
|
|
51,057
|
|
|
Less: Imputed interest
|
|
(3,371
|
)
|
|
Total
|
|
$
|
47,686
|
|
The following table provides supplemental Consolidated Balance Sheet information related to the Company's leases:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
Short-term operating lease liabilities
|
|
$
|
8,259
|
|
|
Long-term operating lease liabilities
|
|
39,427
|
|
|
Total operating lease liabilities
|
|
$
|
47,686
|
|
|
|
|
|
|
Weighted average remaining lease term
|
|
6.8 years
|
|
|
|
|
|
|
Weighted average discount rate
|
|
2.78
|
%
|
The following table provides supplemental cash flow information related to the Company's leases:
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
$
|
5,405
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations
|
|
2,810
|
|
As of
June 30, 2019
, the Company has additional operating lease exposure that have not yet commenced of
$1,291
. These operating leases will have a commencement date occurring in the remainder of 2019 and have a lease term of
five years
.