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 comprehensive platforms for investment processing, investment operations and investment management to wealth managers, financial institutions, financial advisors, investment managers, institutional investors 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 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.
Investment management platforms consists of investment products including mutual funds, collective investment products, alternative investment portfolios and separately managed accounts. The Company serves as the administrator and investment advisor for many of these products. Revenues from investment management platforms are recognized in Asset management, administration and distribution fees on the accompanying Consolidated Statements of Operations.
Basis of Presentation
The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Certain financial information and accompanying note disclosure normally included in the Company’s Annual Report on Form 10-K have been condensed or omitted. The interim financial information is unaudited but reflects all adjustments (consisting of only normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of financial position of the Company as of September 30, 2020, the results of operations for the three and nine months ended September 30, 2020 and 2019, and cash flows for the nine-months ended September 30, 2020 and 2019. 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, 2019.
The Company adopted the requirements of Accounting Standards Update (ASU) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (Accounting Standards Codification (ASC) 326)) (ASU 2016-13) and subsequent amendments 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) and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses (ASU 2019-11) on January 1, 2020. ASU 2016-13 and the related amendments are hereafter referred to as ASC 326. ASC 326 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. The Company owns mortgage-backed securities issued by the Government National Mortgage Association (GNMA), a federal agency of the U.S. government classified as Available-for-sale debt securities which qualify for the zero credit risk allowance. The Company's U.S. Treasury and other U.S. government agency securities classified as Securities owned are outside the scope of ASC 326. There was no impact to the Company's disclosures related to its marketable securities from the implementation of ASC 326.
In accordance with ASC 326, the Company evaluated its receivable balances for credit risk based upon the source of revenue, its ability to collect fees directly from investment products or directly from assets in the client's account, a review of actual historical credit losses, and the potential for expected credit loss from its current client base. The Company has no meaningful historical credit loss data and a very limited amount of losses pertaining directly to a client's inability to satisfy its receivable balance even during periods of economic distress. The credit loss reserve recognized by the Company through the implementation of ASC 326 during the nine months ended September 30, 2020 was immaterial.
The Company also adopted the requirements of ASU 2017-04, Simplifying the Test for Goodwill Impairment (ASU 2017-04) on January 1, 2020. The adoption of ASU 2017-04 did not have a material impact on the Company's consolidated financial statements and related disclosures.
With the exception of the adoption of ASC 326 and ASU 2017-04, there have been no other significant changes in significant accounting policies during the nine months ended September 30, 2020 as compared to the significant accounting policies described in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
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 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 $8,575 and $6,390 in fees during the three months ended September 30, 2020 and 2019, respectively. During the nine months ended September 30, 2020 and 2019, the Company waived $24,930 and $21,091, 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). See Note 13 for related disclosures regarding revenue recognition.
Cash and Cash Equivalents
Cash and cash equivalents includes $305,382 and $414,581 at September 30, 2020 and December 31, 2019, respectively, primarily invested in SEI-sponsored open-ended money market mutual funds.
Restricted Cash
Restricted cash includes $3,000 at September 30, 2020 and December 31, 2019 segregated for regulatory purposes related to trade-execution services conducted by SEI Investments (Europe) Limited. Restricted cash also includes $101 at September 30, 2020 and December 31, 2019 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 $18,640 and $26,821 of software development costs during the nine months ended September 30, 2020 and 2019, respectively. The Company's software development costs primarily relate to significant enhancements to the SEI Wealth PlatformSM (SWP). The Company capitalized $17,208 and $26,029 of software development costs for significant enhancements to SWP during the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, the net book value of SWP was $264,085. The net book value includes $63,066 of capitalized software development costs in-progress associated with future releases of SWP. Capitalized software development costs in-progress associated with future releases of SWP were $55,332 as of December 31, 2019. SWP has a weighted average remaining life of 8.5 years. Amortization expense for SWP was $32,576 and $31,567 during the nine months ended September 30, 2020 and 2019, respectively.
Earnings per Share
The calculations of basic and diluted earnings per share for the three and nine months ended September 30, 2020 and 2019 are:
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Three Months Ended September 30,
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Nine Months Ended September 30,
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2020
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2019
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2020
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2019
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|
Net income
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$
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111,096
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|
$
|
132,168
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|
$
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321,404
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$
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372,689
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Shares used to compute basic earnings per common share
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145,812,000
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150,855,000
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147,586,000
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152,009,000
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Dilutive effect of stock options
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2,095,000
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3,372,000
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2,372,000
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3,302,000
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Shares used to compute diluted earnings per common share
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147,907,000
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154,227,000
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149,958,000
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155,311,000
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Basic earnings per common share
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$
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0.76
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$
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0.88
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$
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2.18
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$
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2.45
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Diluted earnings per common share
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$
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0.75
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$
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0.86
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$
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2.14
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$
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2.40
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During the three months ended September 30, 2020 and 2019, employee stock options to purchase 8,813,000 and 6,239,000 shares of common stock with an average exercise price of $57.98 and $54.91, respectively, were outstanding but not included in the computation of diluted earnings per common share. During the nine months ended September 30, 2020 and 2019, employee stock options to purchase 8,342,000 and 6,269,000 shares of common stock with an average exercise price of $58.18 and $54.84, respectively, were outstanding but not included in the computation of diluted earnings per common share. These options for the three and nine month periods were not included in the computation of diluted earnings per common share because either the performance conditions have not been satisfied or would not have been satisfied if the reporting date was the end of the contingency period or the options' exercise price was greater than the average market price of the Company’s common stock and the effect on diluted earnings per common share would have been anti-dilutive.
New Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (FASB) issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12). The standard removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the Company beginning in the first quarter of 2021. The Company does not believe the adoption of ASU 2019-12 will have a material impact on its consolidated financial statements and related disclosures.
Reclassifications
Certain prior year amounts have been reclassified to conform to current year presentation.
Statements of Cash Flows
For purposes of the Consolidated Statements of Cash Flows, the Company considers investment instruments purchased with an original maturity of three months or less to be cash equivalents.
The following table provides the details of the adjustments to reconcile net income to net cash provided by operating activities for the nine months ended September 30:
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2020
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2019
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Net income
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$
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321,404
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$
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372,689
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Adjustments to reconcile net income to net cash provided by operating activities:
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Depreciation
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23,058
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22,162
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Amortization
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39,417
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38,407
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Equity in earnings of unconsolidated affiliate
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(86,488)
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(112,758)
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Distributions received from unconsolidated affiliate
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119,821
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123,663
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Stock-based compensation
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20,458
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15,555
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Provision for losses on receivables
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109
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593
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Deferred income tax expense
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(7,731)
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(1,405)
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Net loss (gain) from investments
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1,310
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(2,121)
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Change in other long-term liabilities
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(4,442)
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2,077
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Change in other assets
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(965)
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(56)
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Contract costs capitalized, net of amortization
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(2,842)
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(4,499)
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Other
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(1,053)
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(721)
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Change in current assets and liabilities
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(Increase) decrease in
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Receivables from investment products
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2,521
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(2,271)
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Receivables
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(37,921)
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(34,589)
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Other current assets
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(6,186)
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729
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(Decrease) increase in
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Accounts payable
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8,615
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(2,208)
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Accrued liabilities
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8,809
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(34,087)
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Deferred revenue
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(1,370)
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|
375
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Total adjustments
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75,120
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8,846
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Net cash provided by operating activities
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$
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396,524
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$
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381,535
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Note 2. Investment in Unconsolidated Affiliate
LSV Asset Management
The Company has an investment in LSV Asset Management (LSV), a registered investment advisor that provides investment advisory services primarily to institutions, including pension plans and investment companies. LSV is currently an investment sub-advisor for a limited number of SEI-sponsored investment products. The Company's partnership interest in LSV as of September 30, 2020 was 38.8%. The Company accounts for its interest in LSV using the equity method because of its less than 50% ownership. The Company’s interest in the net assets of LSV is reflected in Investment in unconsolidated affiliate on the accompanying Consolidated Balance Sheets and its interest in the earnings of LSV is reflected in Equity in earnings of unconsolidated affiliate on the accompanying Consolidated Statements of Operations.
At September 30, 2020, the Company’s total investment in LSV was $33,117. The Company receives partnership distributions from LSV on a quarterly basis. The Company received partnership distributions from LSV of $119,821 and $123,663 in the nine months ended September 30, 2020 and 2019, 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 $28,305 and $37,609 during the three months ended September 30, 2020 and 2019, respectively. During the nine months ended September 30, 2020 and 2019, the Company's proportionate share in the earnings of LSV was $86,488 and $112,758, respectively.
These tables contain condensed financial information of LSV:
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Condensed Statement of Operations
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Three Months Ended September 30,
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Nine Months Ended September 30,
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2020
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2019
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2020
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2019
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Revenues
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$
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94,902
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$
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121,232
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$
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289,546
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$
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365,164
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Net income
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70,440
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96,699
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220,184
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289,918
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Condensed Balance Sheets
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September 30, 2020
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December 31, 2019
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Current assets
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$
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105,712
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$
|
144,547
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Non-current assets
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4,484
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|
5,048
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Total assets
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$
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110,196
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$
|
149,595
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Current liabilities
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$
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65,197
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$
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46,828
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Non-current liabilities
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4,802
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5,326
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Partners’ capital
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40,197
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|
97,441
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Total liabilities and partners’ capital
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$
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110,196
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$
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149,595
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On April 1, 2020, LSV provided an interest in the partnership to select key employees which reduced the ownership percentage of each existing partner on a pro-rata basis. As a result, the Company's total partnership interest in LSV was reduced slightly to approximately 38.8% from approximately 38.9%.
Note 3. Composition of Certain Financial Statement Captions
Receivables
Receivables on the accompanying Consolidated Balance Sheets consist of:
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September 30, 2020
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December 31, 2019
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Trade receivables
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$
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106,316
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$
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86,043
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Fees earned, not billed
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259,942
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240,239
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Other receivables
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13,222
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15,277
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379,480
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341,559
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Less: Allowance for doubtful accounts
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(1,310)
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(1,201)
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$
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378,170
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$
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340,358
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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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September 30, 2020
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|
December 31, 2019
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Buildings
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$
|
162,999
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$
|
162,882
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Equipment
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134,827
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123,945
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Land
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10,830
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10,830
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Purchased software
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145,110
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143,705
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Furniture and fixtures
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20,726
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18,835
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Leasehold improvements
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20,712
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20,700
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Construction in progress
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55,399
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33,415
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550,603
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|
514,312
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Less: Accumulated depreciation
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(370,072)
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(353,453)
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Property and Equipment, net
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$
|
180,531
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|
$
|
160,859
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The Company recognized $23,058 and $22,162 in depreciation expense related to property and equipment for the nine months ended September 30, 2020 and 2019, respectively.
Deferred Contract Costs
Deferred contract costs, which primarily consist of deferred sales commissions, were $33,833 and $30,991 as of September 30, 2020 and December 31, 2019, respectively. The Company deferred expenses related to contract costs of $2,521 and $4,575 during the three months ended September 30, 2020 and 2019, respectively. During the nine months ended September 30, 2020 and 2019, the Company deferred expenses related to contract costs of $7,270 and $7,673, respectively. Amortization expense related to deferred contract costs were $4,428 and $3,174 during the nine months ended September 30, 2020 and 2019, respectively, and are included in Compensation, benefits and other personnel on the accompanying Consolidated Statements of Operations. There was no impairment loss in relation to deferred contract costs during the nine months ended September 30, 2020.
Accrued Liabilities
Accrued liabilities on the accompanying Consolidated Balance Sheets consist of:
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|
|
September 30, 2020
|
|
December 31, 2019
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Accrued employee compensation
|
$
|
75,745
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|
|
$
|
96,991
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Accrued employee benefits and other personnel
|
13,870
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|
|
9,222
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|
|
Accrued consulting, outsourcing and professional fees
|
31,167
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|
|
28,610
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|
Accrued sub-advisory, distribution and other asset management fees
|
54,157
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|
|
46,245
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|
|
|
|
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|
|
Accrued dividend payable
|
—
|
|
|
52,452
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|
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|
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|
Other accrued liabilities
|
48,278
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|
|
39,281
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|
Total accrued liabilities
|
$
|
223,217
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|
|
$
|
272,801
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|
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 GNMA mortgage-backed securities held by the Company's wholly-owned limited purpose federal thrift subsidiary, SEI Private Trust Company (SPTC), Federal Home Loan Bank (FHLB) and other U.S. government agency short-term notes held by SIDCO. The financial assets held by SIDCO were purchased as part of a cash management program requiring only short term, top-tier investment grade government and corporate securities. The financial assets held by SPTC are debt securities issued by GNMA and are backed by the full faith and credit of the U.S. government. These securities were purchased for the sole purpose of satisfying applicable regulatory requirements and have maturity dates which range from 2023 to 2041.
The fair value of the Company's investment funds sponsored by LSV is measured using the net asset value per share (NAV) as a practical expedient. The NAVs of the funds are calculated by the funds' independent custodian and are derived
from the fair values of the underlying investments as of the reporting date. The funds allow for investor redemptions at the end of each calendar month. This investment has not been classified in the fair value hierarchy but is presented in the tables below to permit reconciliation to the amounts presented on the accompanying Consolidated Balance Sheets.
The valuation of the Company's Level 2 financial assets held by SIDCO and SPTC are based upon securities pricing policies and procedures utilized by third-party pricing vendors.
The pricing policies and procedures applied for our Level 1 and Level 2 financial assets during the nine months ended September 30, 2020 were consistent with those as described in our Annual Report on Form 10-K at December 31, 2019. The Company had no Level 3 financial assets at September 30, 2020 or December 31, 2019 that were required to be measured at fair value on a recurring basis. The Company's Level 3 financial liabilities at September 30, 2020 and December 31, 2019 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 other factors. There were no transfers of financial assets between levels within the fair value hierarchy during the nine months ended September 30, 2020.
The fair value of certain financial assets of the Company was determined using the following inputs:
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Fair Value Measurements at the End of the Reporting Period Using
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Assets
|
|
September 30, 2020
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|
Quoted Prices
in
Active Markets
for Identical
Assets
(Level 1)
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Significant
Other
Observable
Inputs
(Level 2)
|
|
Equity securities
|
|
$
|
11,093
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|
|
$
|
11,093
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|
$
|
—
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|
|
Available-for-sale debt securities
|
|
105,471
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|
|
—
|
|
|
105,471
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|
|
Fixed-income securities owned
|
|
35,820
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|
|
—
|
|
|
35,820
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|
|
Investment funds sponsored by LSV (1)
|
|
5,207
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|
|
|
|
|
|
|
|
$
|
157,591
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|
|
$
|
11,093
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|
|
$
|
141,291
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Fair Value Measurements at the End of the Reporting Period Using
|
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|
|
Assets
|
|
December 31, 2019
|
|
Quoted Prices
in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Equity securities
|
|
$
|
12,119
|
|
|
$
|
12,119
|
|
|
$
|
—
|
|
|
Available-for-sale debt securities
|
|
104,798
|
|
|
—
|
|
|
104,798
|
|
|
Fixed-income securities owned
|
|
33,486
|
|
|
—
|
|
|
33,486
|
|
|
Investment funds sponsored by LSV (1)
|
|
5,988
|
|
|
|
|
|
|
|
|
$
|
156,391
|
|
|
$
|
12,119
|
|
|
$
|
138,284
|
|
(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
The Company's marketable securities include investments in money market funds and commercial paper classified as cash equivalents, available-for-sale debt securities, investments in SEI-sponsored and non-SEI-sponsored mutual funds, equities, investments in funds sponsored by LSV and securities owned by SIDCO.
Cash Equivalents
The Company's investments in money market funds and commercial paper classified as cash equivalents had a fair value of $412,663 and $543,765 at September 30, 2020 and December 31, 2019, respectively. There were no material unrealized or realized gains or losses from these investments during the nine months ended September 30, 2020 and 2019. The Company's investments in money market funds and commercial paper are Level 1 assets.
Available for Sale and Equity Securities
Available For Sale and Equity Securities on the accompanying Consolidated Balance Sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2020
|
|
|
|
|
|
|
|
|
Cost
Amount
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
(Losses)
|
|
Fair
Value
|
|
Available-for-sale debt securities
|
$
|
103,365
|
|
|
$
|
2,106
|
|
|
$
|
—
|
|
|
$
|
105,471
|
|
|
SEI-sponsored mutual funds
|
6,793
|
|
|
63
|
|
|
(277)
|
|
|
6,579
|
|
|
Equities and other mutual funds
|
3,605
|
|
|
909
|
|
|
—
|
|
|
4,514
|
|
|
|
$
|
113,763
|
|
|
$
|
3,078
|
|
|
$
|
(277)
|
|
|
$
|
116,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2019
|
|
|
|
|
|
|
|
|
Cost
Amount
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
(Losses)
|
|
Fair
Value
|
|
Available-for-sale debt securities
|
$
|
104,193
|
|
|
$
|
605
|
|
|
$
|
—
|
|
|
$
|
104,798
|
|
|
SEI-sponsored mutual funds
|
7,564
|
|
|
125
|
|
|
(39)
|
|
|
7,650
|
|
|
Equities and other mutual funds
|
3,637
|
|
|
832
|
|
|
—
|
|
|
4,469
|
|
|
|
$
|
115,394
|
|
|
$
|
1,562
|
|
|
$
|
(39)
|
|
|
$
|
116,917
|
|
Net unrealized gains at September 30, 2020 of the Company's available-for-sale debt securities were $1,622 (net of income tax expense of $484). Net unrealized gains at December 31, 2019 of the Company's available-for-sale debt securities were $465 (net of income tax expense of $140). These net unrealized gains are reported as a separate component of Accumulated other comprehensive loss on the accompanying Consolidated Balance Sheets.
There were gross realized losses of $582 and $347 from available-for-sale debt securities during the nine months ended September 30, 2020 and 2019, respectively. There were no gross realized gains from available-for-sale debt securities during the nine months ended September 30, 2020 and 2019. Realized losses from available-for-sale debt securities, including amounts reclassified from accumulated comprehensive loss, are reflected in Net gain (loss) from investments on the accompanying Consolidated Statements of Operations.
There were gross realized gains of $254 and gross realized losses of $250 from mutual funds and equities during the nine months ended September 30, 2020. Gains and losses from mutual funds and equities during the nine months ended September 30, 2019 were immaterial. Gains and losses from mutual funds and equities are reflected in Net gain (loss) from investments on the accompanying Consolidated Statements of Operations.
Investments in Affiliated Funds
The Company has an investment 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 $5,207 and $5,988 at September 30, 2020 and December 31, 2019, respectively. The Company recognized unrealized gains of $458 and $99 during the three months ended September 30, 2020 and 2019, respectively, from the change in fair value of the funds. The Company recognized unrealized losses of $781 and unrealized gains of $646 during the nine months ended September 30, 2020 and 2019, 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 $35,820 and $33,486 at September 30, 2020 and December 31, 2019, respectively. There were no material net gains or losses related to the securities during the three and nine months ended September 30, 2020 and 2019.
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% to 1.00% or the London InterBank Offered Rate (LIBOR) plus a premium that can range from 1.25% to 2.00% depending on the Company’s Leverage Ratio (a ratio of consolidated indebtedness to consolidated EBITDA for the four preceding fiscal quarters, all as defined in the related agreement). The Base Rate is defined as the highest of a) the Federal Funds Rate, as published by the Federal Reserve Bank of New York, plus 0.50%, b) the prime commercial lending rate of Wells Fargo, c) the applicable LIBOR plus 1.00%, or d) 0%. The Company also pays quarterly commitment fees based on the unused portion of the Credit Facility. The quarterly fees for the Credit Facility can range from 0.15% of the amount of the unused portion to 0.30%, depending on the Company’s Leverage Ratio. Certain wholly-owned subsidiaries of the Company have guaranteed the obligations of the Company under the agreement. The aggregate amount of the Credit Facility may be increased by an additional $100,000 under certain conditions set forth in the agreement. The Company may issue up to $15,000 in letters of credit under the terms of the Credit Facility. The Company pays a periodic commission fee of 1.25% plus a fronting fee of 0.175% of the aggregate face amount of the outstanding letters of credit issued under the Credit Facility.
The Credit Facility contains covenants that restrict the ability of the Company to engage in mergers, consolidations, asset sales, investments, transactions with affiliates other than wholly-owned subsidiaries, or to incur liens or other indebtedness including contingent obligations or guarantees, as defined in the agreement. In the event of a default under the Credit Facility, the Company would also be restricted from paying dividends on, or repurchasing its common stock without the approval of the lenders. Upon the occurrence of certain financial or economic events, significant corporate events, or certain other events of default constituting an event of default under the Credit Facility, all loans outstanding may be declared immediately due and payable and all commitments under the agreement may be terminated.
As of September 30, 2020, the Company had outstanding letters of credit of $11,553 under the Credit Facility. These letters of credit were issued primarily for the expansion of the Company's headquarters and are scheduled to expire during the remainder of 2020. The amount of the Credit Facility that is available for general corporate purposes as of September 30, 2020 was $288,447.
The Company was in compliance with all covenants of the Credit Facility during the nine months ended September 30, 2020.
Note 7. Shareholders’ Equity
Stock-Based Compensation
The Company has only non-qualified stock options outstanding under its equity compensation plans. All outstanding stock options have performance-based vesting provisions specific to each option grant that tie the vesting of the applicable stock options to the Company’s financial performance. The Company’s stock options vest at a rate of 50% when a specified financial vesting target is achieved, and the remaining 50% when a second, higher specified financial vesting 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. 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 financial vesting targets may be achieved. Any change in management’s estimate could result in the remaining amount of stock-based compensation expense to be accelerated, spread out over a longer period, or reversed. This may cause volatility in the recognition of stock-based compensation expense in future periods and could materially affect the Company’s earnings.
The Company recognized stock-based compensation expense in its Consolidated Financial Statements in the three and nine months ended September 30, 2020 and 2019, respectively, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Stock-based compensation expense
|
$
|
6,467
|
|
|
$
|
5,453
|
|
|
$
|
20,458
|
|
|
$
|
15,555
|
|
|
Less: Deferred tax benefit
|
(1,229)
|
|
|
(1,042)
|
|
|
(3,932)
|
|
|
(2,959)
|
|
|
Stock-based compensation expense, net of tax
|
$
|
5,238
|
|
|
$
|
4,411
|
|
|
$
|
16,526
|
|
|
$
|
12,596
|
|
In September 2020, the Company revised its estimate of when some vesting targets are expected to be achieved which resulted in the amount of stock-based compensation expense to be spread out over a longer period than its initial estimate made at December 31, 2019. This change in management's estimate did not result in a material change to the Company's stock-based compensation expense recognized during the three or nine month periods ended September 30, 2020.
As of September 30, 2020, there was approximately $59,056 of unrecognized compensation cost remaining related to unvested employee stock options that management expects will vest and is being amortized.
The Company issues new common shares associated with the exercise of stock options. The total intrinsic value of options exercised during the nine months ended September 30, 2020 was $25,788. The total options exercisable as of September 30, 2020 had an intrinsic value of $96,715. The total intrinsic value for options exercisable is calculated as the difference between the market value of the Company’s common stock as of September 30, 2020 and the weighted average exercise price of the options. The market value of the Company’s common stock as of September 30, 2020 was $50.72 as reported by the Nasdaq Stock Market, LLC. The weighted average exercise price of the options exercisable as of September 30, 2020 was $38.11. Total options that were outstanding as of September 30, 2020 were 14,767,000. Total options that were exercisable as of September 30, 2020 were 7,352,000.
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 6,185,000 shares at a total cost of $325,644 during the nine months ended September 30, 2020, which reduced the total shares outstanding of common stock. The cost of stock purchases during the period includes the cost of certain transactions that settled in the following quarter. As of September 30, 2020, the Company had approximately $41,885 of authorization remaining for the purchase of common stock under the program. On October 20, 2020 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 $291,885.
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 June 3, 2020, the Board of Directors declared a cash dividend of $0.35 per share on the Company's common stock, which was paid on June 23, 2020, to shareholders of record on June 15, 2020. Cash dividends declared during the nine months ended September 30, 2020 and 2019 were $51,462 and $49,984, 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, 2020
|
$
|
(23,969)
|
|
|
$
|
465
|
|
|
$
|
(23,504)
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss before reclassifications
|
(5,051)
|
|
|
702
|
|
|
(4,349)
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
455
|
|
|
455
|
|
|
Net current-period other comprehensive loss
|
(5,051)
|
|
|
1,157
|
|
|
(3,894)
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2020
|
$
|
(29,020)
|
|
|
$
|
1,622
|
|
|
$
|
(27,398)
|
|
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, higher education and other 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; developing network and data protection services; modularizing larger technology platforms into stand-alone components; 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 nine months ended September 30, 2020 and 2019. 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, 2019.
The following tables highlight certain financial information about each of the Company’s business segments for the three months ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Banks
|
|
Investment
Advisors
|
|
Institutional
Investors
|
|
Investment
Managers
|
|
Investments
In New
Businesses
|
|
Total
|
|
|
For the Three Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
114,792
|
|
|
$
|
103,189
|
|
|
$
|
79,583
|
|
|
$
|
123,846
|
|
|
$
|
3,517
|
|
|
$
|
424,927
|
|
|
Expenses
|
113,066
|
|
|
51,519
|
|
|
37,812
|
|
|
79,838
|
|
|
13,315
|
|
|
295,550
|
|
|
Operating profit (loss)
|
$
|
1,726
|
|
|
$
|
51,670
|
|
|
$
|
41,771
|
|
|
$
|
44,008
|
|
|
$
|
(9,798)
|
|
|
$
|
129,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Banks
|
|
Investment
Advisors
|
|
Institutional
Investors
|
|
Investment
Managers
|
|
Investments
In New
Businesses
|
|
Total
|
|
|
For the Three Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
117,250
|
|
|
$
|
103,033
|
|
|
$
|
80,337
|
|
|
$
|
112,186
|
|
|
$
|
3,448
|
|
|
$
|
416,254
|
|
|
Expenses
|
110,788
|
|
|
51,509
|
|
|
37,268
|
|
|
71,889
|
|
|
7,926
|
|
|
279,380
|
|
|
Operating profit (loss)
|
$
|
6,462
|
|
|
$
|
51,524
|
|
|
$
|
43,069
|
|
|
$
|
40,297
|
|
|
$
|
(4,478)
|
|
|
$
|
136,874
|
|
A reconciliation of the total operating profit reported for the business segments to income from operations in the Consolidated Statements of Operations for the three months ended September 30, 2020 and 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Total operating profit from segments
|
$
|
129,377
|
|
|
$
|
136,874
|
|
|
Corporate overhead expenses
|
(18,040)
|
|
|
(16,237)
|
|
|
Income from operations
|
$
|
111,337
|
|
|
$
|
120,637
|
|
The following tables provide additional information for the three months ended September 30, 2020 and 2019 pertaining to our business segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures (1)
|
|
|
|
Depreciation
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Private Banks
|
$
|
7,652
|
|
|
$
|
8,018
|
|
|
$
|
4,222
|
|
|
$
|
3,640
|
|
|
Investment Advisors
|
3,234
|
|
|
4,468
|
|
|
1,255
|
|
|
1,162
|
|
|
Institutional Investors
|
698
|
|
|
1,070
|
|
|
298
|
|
|
393
|
|
|
Investment Managers
|
2,776
|
|
|
5,311
|
|
|
1,818
|
|
|
1,793
|
|
|
Investments in New Businesses
|
144
|
|
|
379
|
|
|
97
|
|
|
101
|
|
|
Total from business segments
|
$
|
14,504
|
|
|
$
|
19,246
|
|
|
$
|
7,690
|
|
|
$
|
7,089
|
|
|
Corporate overhead
|
274
|
|
|
663
|
|
|
255
|
|
|
320
|
|
|
|
$
|
14,778
|
|
|
$
|
19,909
|
|
|
$
|
7,945
|
|
|
$
|
7,409
|
|
(1) Capital expenditures include additions to property and equipment and capitalized software.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
2020
|
|
2019
|
|
Private Banks
|
$
|
7,505
|
|
|
$
|
7,322
|
|
|
Investment Advisors
|
2,683
|
|
|
2,609
|
|
|
Institutional Investors
|
426
|
|
|
440
|
|
|
Investment Managers
|
2,343
|
|
|
2,334
|
|
|
Investments in New Businesses
|
186
|
|
|
185
|
|
|
Total from business segments
|
$
|
13,143
|
|
|
$
|
12,890
|
|
|
Corporate overhead
|
57
|
|
|
57
|
|
|
|
$
|
13,200
|
|
|
$
|
12,947
|
|
The following tables highlight certain financial information about each of the Company’s business segments for the nine months ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Banks
|
|
Investment
Advisors
|
|
Institutional
Investors
|
|
Investment
Managers
|
|
Investments
In New
Businesses
|
|
Total
|
|
|
For the Nine Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
335,739
|
|
|
$
|
299,218
|
|
|
$
|
235,309
|
|
|
$
|
359,815
|
|
|
$
|
10,254
|
|
|
$
|
1,240,335
|
|
|
Expenses
|
331,442
|
|
|
154,100
|
|
|
113,016
|
|
|
228,795
|
|
|
37,691
|
|
|
865,044
|
|
|
Operating profit (loss)
|
$
|
4,297
|
|
|
$
|
145,118
|
|
|
$
|
122,293
|
|
|
$
|
131,020
|
|
|
$
|
(27,437)
|
|
|
$
|
375,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Banks
|
|
Investment
Advisors
|
|
Institutional
Investors
|
|
Investment
Managers
|
|
Investments
In New
Businesses
|
|
Total
|
|
|
For the Nine Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
351,601
|
|
|
$
|
297,916
|
|
|
$
|
241,559
|
|
|
$
|
326,037
|
|
|
$
|
9,547
|
|
|
$
|
1,226,660
|
|
|
Expenses
|
329,540
|
|
|
154,569
|
|
|
115,383
|
|
|
209,326
|
|
|
20,663
|
|
|
829,481
|
|
|
Operating profit (loss)
|
$
|
22,061
|
|
|
$
|
143,347
|
|
|
$
|
126,176
|
|
|
$
|
116,711
|
|
|
$
|
(11,116)
|
|
|
$
|
397,179
|
|
A reconciliation of the total operating profit reported for the business segments to income from operations in the Consolidated Statements of Operations for the nine months ended September 30, 2020 and 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Total operating profit from segments
|
$
|
375,291
|
|
|
$
|
397,179
|
|
|
Corporate overhead expenses
|
(53,414)
|
|
|
(52,845)
|
|
|
Income from operations
|
$
|
321,877
|
|
|
$
|
344,334
|
|
The following tables provide additional information for the nine months ended September 30, 2020 and 2019 pertaining to our business segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures (1)
|
|
|
|
Depreciation
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Private Banks
|
$
|
24,211
|
|
|
$
|
25,240
|
|
|
$
|
12,069
|
|
|
$
|
10,774
|
|
|
Investment Advisors
|
12,427
|
|
|
12,973
|
|
|
3,578
|
|
|
3,506
|
|
|
Institutional Investors
|
3,085
|
|
|
2,990
|
|
|
901
|
|
|
1,212
|
|
|
Investment Managers
|
19,067
|
|
|
13,535
|
|
|
5,499
|
|
|
5,384
|
|
|
Investments in New Businesses
|
894
|
|
|
964
|
|
|
243
|
|
|
302
|
|
|
Total from business segments
|
$
|
59,684
|
|
|
$
|
55,702
|
|
|
$
|
22,290
|
|
|
$
|
21,178
|
|
|
Corporate Overhead
|
2,069
|
|
|
1,634
|
|
|
768
|
|
|
984
|
|
|
|
$
|
61,753
|
|
|
$
|
57,336
|
|
|
$
|
23,058
|
|
|
$
|
22,162
|
|
(1) Capital expenditures include additions to property and equipment and capitalized software.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
2020
|
|
2019
|
|
Private Banks
|
$
|
22,390
|
|
|
$
|
21,680
|
|
|
Investment Advisors
|
7,999
|
|
|
7,682
|
|
|
Institutional Investors
|
1,280
|
|
|
1,300
|
|
|
Investment Managers
|
7,020
|
|
|
7,019
|
|
|
Investments in New Businesses
|
556
|
|
|
555
|
|
|
Total from business segments
|
$
|
39,245
|
|
|
$
|
38,236
|
|
|
Corporate Overhead
|
172
|
|
|
171
|
|
|
|
$
|
39,417
|
|
|
$
|
38,407
|
|
Note 10. Income Taxes
The gross liability for unrecognized tax benefits at September 30, 2020 and December 31, 2019 was $16,348 and $15,356, respectively, exclusive of interest and penalties, of which $16,104 and $15,194 would affect the effective tax rate if the Company were to recognize the tax benefit.
The Company classifies interest and penalties on unrecognized tax benefits as income tax expense. As of September 30, 2020 and December 31, 2019, the combined amount of accrued interest and penalties related to tax positions taken on tax returns was $2,212 and $1,962, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
Gross liability for unrecognized tax benefits, exclusive of interest and penalties
|
$
|
16,348
|
|
|
$
|
15,356
|
|
|
Interest and penalties on unrecognized benefits
|
2,212
|
|
|
1,962
|
|
|
Total gross uncertain tax positions
|
$
|
18,560
|
|
|
$
|
17,318
|
|
|
Amount included in Current liabilities
|
$
|
3,986
|
|
|
$
|
4,896
|
|
|
Amount included in Other long-term liabilities
|
14,574
|
|
|
12,422
|
|
|
|
$
|
18,560
|
|
|
$
|
17,318
|
|
The Company's effective income tax rate for the three and nine months ended September 30, 2020 and 2019 differs from the federal income tax statutory rate due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Statutory rate
|
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
|
State taxes, net of federal tax benefit
|
|
3.3
|
|
|
2.6
|
|
|
3.2
|
|
|
2.6
|
|
|
Foreign tax expense and tax rate differential
|
|
(0.2)
|
|
|
(0.3)
|
|
|
(0.1)
|
|
|
(0.2)
|
|
|
Tax benefit from stock option exercises
|
|
(0.4)
|
|
|
(2.2)
|
|
|
(1.0)
|
|
|
(1.5)
|
|
|
Expiration of the statute of limitations
|
|
(1.3)
|
|
|
(1.2)
|
|
|
(0.5)
|
|
|
(0.4)
|
|
|
Provision-to-return adjustment
|
|
(0.4)
|
|
|
(0.6)
|
|
|
(0.1)
|
|
|
(0.2)
|
|
|
Other, net
|
|
(0.6)
|
|
|
(0.4)
|
|
|
(0.5)
|
|
|
(0.3)
|
|
|
|
|
21.4
|
%
|
|
18.9
|
%
|
|
22.0
|
%
|
|
21.0
|
%
|
The increase in the Company's effective tax rate for the three and nine months ended September 30, 2020 was primarily due to decreased tax benefits related to the lower volume of stock option exercises in 2020 compared to the prior year periods as well as an increase in the state effective tax rate.
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 2017 and is no longer subject to state, local or foreign income tax examinations by authorities for years before 2015.
The Company estimates it will recognize $3,986 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
In the ordinary course of business, the Company from time to time enters into contracts containing indemnification obligations of the Company. These obligations may require the Company to make payments to another party upon the occurrence of certain events including the failure by the Company to meet its performance obligations under the contract. These contractual indemnification provisions are often standard contractual terms of the nature customarily found in the type of contracts entered into by the Company. In many cases, there are no stated or notional amounts included in the indemnification provisions. There are no amounts reflected on the Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 related to these indemnifications.
Stanford Trust Company Litigation
SEI has been named in seven lawsuits filed in Louisiana courts; four of the cases also name SPTC as a defendant. The underlying allegations in all actions relate to the purported role of SPTC in providing back-office services to Stanford Trust Company. The complaints allege that SEI and SPTC participated in some manner in the sale of “certificates of deposit” issued by Stanford International Bank so as to be a “seller” of the certificates of deposit for purposes of primary liability under the Louisiana Securities Law or so as to be secondarily liable under that statute for sales of certificates of deposit made by Stanford Trust Company. Two of the actions also include claims for violations of the Louisiana Racketeering Act and possibly conspiracy, and a third also asserts claims of negligence, breach of contract, breach of fiduciary duty, violations of the uniform fiduciaries law, negligent misrepresentation, detrimental reliance, violations of the Louisiana Racketeering Act, and conspiracy.
The procedural status of the seven cases varies. The Lillie case, filed originally in the 19th Judicial District Court for the Parish of East Baton Rouge, was brought as a class action and is procedurally the most advanced of the cases. SEI and SPTC filed exceptions, which the Court granted in part, dismissing claims under the Louisiana Unfair Trade Practices Act
and permitting the claims under the Louisiana Securities Law to go forward. On March 11, 2013, newly-added insurance carrier defendants removed the case to the United States District Court for the Middle District of Louisiana. On August 7, 2013, the Judicial Panel on Multidistrict Litigation transferred the matter to the Northern District of Texas where MDL 2099, In re: Stanford Entities Securities Litigation (“the Stanford MDL”), is pending. On September 22, 2015, the District Court on the motion of SEI and SPTC dismissed plaintiffs’ claims for primary liability under Section 714(A) of the Louisiana Securities Law, but declined to dismiss plaintiffs’ claims for secondary liability under Section 714(B) of the Louisiana Securities Law based on the allegations pled by plaintiffs. On November 4, 2015, the District Court granted SEI and SPTC's motion to dismiss plaintiffs' claims under Section 712(D) of the Louisiana Securities Law. Consequently, the only claims of plaintiffs remaining in Lillie are plaintiffs' claims for secondary liability against SEI and SPTC under Section 714(B) of the Louisiana Securities Law. On May 2, 2016, the District Court certified the class as being "all persons for whom Stanford Trust Company purchased or renewed Stanford Investment Bank Limited certificates of deposit in Louisiana between January 1, 2007 and February 13, 2009". Notice of the pendency of the class action was mailed to potential class members on October 4, 2016.
On December 1, 2016, a group of plaintiffs who opted out of the Lillie class filed a complaint against SEI and SPTC in the United States District Court in the Middle District of Louisiana (“Ahders Complaint”), alleging claims essentially the same as those in Lillie. In January 2017, the Judicial Panel on Multidistrict Litigation transferred the Ahders proceeding to the Northern District of Texas and the Stanford MDL. During February 2017, SEI and SPTC filed their 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.
With respect to the Lillie proceeding, on July 9, 2019, the District Court issued an order granting SEI’s Summary Judgment Motion to dismiss the remaining Section 714(B) claim and denying Plaintiffs’ Motion for Continuance of SEI and SPTC’s Motion for Summary Judgment pursuant to Rule 56(d). On July 17, 2019, Plaintiffs filed a Motion for Reconsideration and/or New Trial. The Court denied Plaintiffs’ Motion for Reconsideration and/or New Trial and entered a Final Judgment in favor of SEI and SPTC on August 15, 2019. On August 27, 2019, Plaintiffs-Appellants filed a Notice of Appeal to the United States Court of Appeals for the Fifth Circuit of the District Court's dismissal of the Lillie matter. On November 20, 2019, Plaintiffs-Appellants filed a Motion in Support of the Notice of Appeal. On January 17, 2020, SEI and SPTC timely filed their brief in opposition to the Plaintiffs-Appellants' motion for appeal. On February 7, 2020, Plaintiffs- Appellants filed their reply brief. The parties are currently waiting for oral argument to be scheduled.
With respect to the Ahders proceeding, on July 16, 2019, SEI and SPTC filed a Motion for Summary Judgment pursuant to Rule 56(d) to have the remaining Section 714(B) claim dismissed. On January 24, 2020, the District Court issued an order granting SEI’s Summary Judgment Motion to dismiss the remaining Section 714(B) claim. On March 17, 2020, Plaintiffs-Appellants filed a Notice of Appeal to the United States Court of Appeals for the Fifth Circuit of the District Court's dismissal of the Ahders matter. Similar to the Lillie matter, all motions and briefs in support of the parties’ positions have been filed and the parties are currently waiting for oral argument to be scheduled.
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.
SS&C Advent Matter
On February 28, 2020, SEI Global Services, Inc. ("SGSI"), a wholly-owned subsidiary of the Company, filed a complaint under seal in the United States District Court for the Eastern District of Pennsylvania against SS&C Advent ("Advent") and SS&C Technologies Holdings, Inc. ("SS&C") alleging that SS&C and Advent breached the terms of the contract between the parties and asking the Court to hold SS&C and Advent to their bargained-for obligations (the "Advent Matter"). In addition to Breach of Contract, the complaint also includes counts for Declaratory Judgment, Tortious Interference with Existing and Prospective Contractual Relations, Violation of the New York General Business Law Section 349, Violations of Section 2 of the Sherman Antitrust Act, Promissory Estoppel and Breach of the Covenant of Good Faith and Fair Dealing. SGSI seeks various forms of relief, including declaratory judgment, specific performance under the contract, and monetary damages, including treble damages and attorney’s fees.
Following various procedural actions, including an amendment of the Company’s complaint to include additional breach of contract claims, SS&C and Advent filed a motion to dismiss the Company’s compliant. The oral argument regarding the motion to dismiss has occurred. The Court has not yet issued its judgment in the matter.
SEI does not believe that it will have to change providers under the current terms of its contract with SS&C or Advent and that the process of litigating its rights under this contract may be a multi-year process. Consequently, SEI does not believe that the Advent Matter will create any consequence to the services it provides to its clients in the near term. SEI believes that it has alternatives available to it that will enable it to continue to provide currently provided services to its clients in all material respects in the unlikely event that there ultimately is a negative outcome in the Advent Matter.
SEI believes it has a strong basis for proving the actions it alleges in the Advent Matter and looks forward to the opportunity to assert its rights under contract. SEI expects the financial impact of litigating the Advent Matter to be immaterial.
Other Matters
The Company is also a party to various other actions and claims arising in the normal course of business that the Company does not believe are material. The Company believes that the ultimate resolution of these matters will not have a material adverse effect on the Company's financial position or the manner in which the Company conducts its business. Currently, the Company does not believe the amount of losses associated with these matters can be estimated. While the Company does not believe that the amount of such losses will, when liquidated or estimable, be material to its financial position, the assumptions may be incorrect and any such loss could have a material adverse effect on the Company's results of operations or the manner in which the Company conducts its business in the period(s) during which the underlying matters are resolved.
Note 12. Goodwill and Intangible Assets
On April 2, 2018, the Company acquired all ownership interests of Huntington Steele, LLC (Huntington Steele). 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. The total purchase price for Huntington Steele included a contingent purchase price payable to the sellers upon the attainment of specified financial measures determined at various intervals occurring between 2019 and 2023. The Company made payments of $433 and $633 during 2019 and the nine months ended September 30, 2020, respectively, to the sellers and recorded a fair value adjustment related to the contingent consideration. As of September 30, 2020, the current portion of the contingent consideration of $3,577 is included in Accrued liabilities on the accompanying Balance Sheet. The long-term portion of the contingent consideration of $8,045 is included in Other long-term liabilities on the accompanying Balance Sheet.
In July 2017, the Company acquired all ownership interests of Archway Technology Partners, LLC, Archway Finance & Operations, Inc. and Keystone Capital Holdings, LLC (collectively, Archway), a provider of operating technologies and services to the family office industry. The total purchase price was allocated to Archway’s net tangible and intangible assets based upon their estimated fair values at the date of purchase. The excess purchase price over the value of the net tangible and identifiable intangible assets was recorded as goodwill. The total amount of goodwill from this transaction amounted to $52,990 and is included on the accompanying Consolidated Balance Sheets.
There were no changes to the Company's goodwill during the nine months ended September 30, 2020.
The Company recognized $2,763 of amortization expense related to the intangible assets acquired through the acquisitions of Huntington Steele and Archway during the nine months ended September 30, 2020 and 2019.
Note 13. Revenues from Contracts with Customers
The Company’s principal sources of revenues are: (1) asset management, administration and distribution fees primarily earned based upon a contractual percentage of net assets under management or administration; and (2) information processing and software servicing fees that are either recurring and primarily earned based upon the number of trust accounts being serviced or a percentage of the total average daily market value of the clients' assets processed on the Company's platforms, or non-recurring and based upon project-oriented contractual agreements related to client implementations.
Disaggregation of Revenue
The following tables provide additional information pertaining to our revenues disaggregated by major product line and primary geographic market based on the location of the use of the products or services for each of the Company’s business segments for the three months ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Banks
|
|
Investment
Advisors
|
|
Institutional
Investors
|
|
Investment
Managers
|
|
Investments
In New
Businesses
|
|
Total
|
|
Major Product Lines:
|
For the Three Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees from pooled investment products
|
$
|
32,256
|
|
|
$
|
68,287
|
|
|
$
|
13,417
|
|
|
$
|
180
|
|
|
$
|
356
|
|
|
$
|
114,496
|
|
|
Investment management fees from investment management agreements
|
421
|
|
|
29,761
|
|
|
65,811
|
|
|
—
|
|
|
3,041
|
|
|
99,034
|
|
|
Investment operations fees
|
446
|
|
|
—
|
|
|
—
|
|
|
113,037
|
|
|
—
|
|
|
113,483
|
|
|
Investment processing fees - PaaS
|
47,393
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
47,393
|
|
|
Investment processing fees - SaaS
|
27,567
|
|
|
—
|
|
|
—
|
|
|
3,479
|
|
|
—
|
|
|
31,046
|
|
|
Professional services fees
|
5,663
|
|
|
—
|
|
|
—
|
|
|
2,016
|
|
|
—
|
|
|
7,679
|
|
|
Account fees and other
|
1,046
|
|
|
5,141
|
|
|
355
|
|
|
5,134
|
|
|
120
|
|
|
11,796
|
|
|
Total revenues
|
$
|
114,792
|
|
|
$
|
103,189
|
|
|
$
|
79,583
|
|
|
$
|
123,846
|
|
|
$
|
3,517
|
|
|
$
|
424,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographic Markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
$
|
74,633
|
|
|
$
|
103,189
|
|
|
$
|
62,699
|
|
|
$
|
116,196
|
|
|
$
|
3,517
|
|
|
$
|
360,234
|
|
|
United Kingdom
|
25,234
|
|
|
—
|
|
|
12,930
|
|
|
—
|
|
|
—
|
|
|
38,164
|
|
|
Canada
|
10,596
|
|
|
—
|
|
|
1,298
|
|
|
—
|
|
|
—
|
|
|
11,894
|
|
|
Ireland
|
4,329
|
|
|
—
|
|
|
2,526
|
|
|
7,650
|
|
|
—
|
|
|
14,505
|
|
|
Other
|
—
|
|
|
—
|
|
|
130
|
|
|
—
|
|
|
—
|
|
|
130
|
|
|
Total revenues
|
$
|
114,792
|
|
|
$
|
103,189
|
|
|
$
|
79,583
|
|
|
$
|
123,846
|
|
|
$
|
3,517
|
|
|
$
|
424,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Banks
|
|
Investment
Advisors
|
|
Institutional
Investors
|
|
Investment
Managers
|
|
Investments
In New
Businesses
|
|
Total
|
|
Major Product Lines:
|
For the Three Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees from pooled investment products
|
$
|
34,074
|
|
|
$
|
72,150
|
|
|
$
|
13,602
|
|
|
$
|
161
|
|
|
$
|
323
|
|
|
$
|
120,310
|
|
|
Investment management fees from investment management agreements
|
314
|
|
|
26,240
|
|
|
66,373
|
|
|
—
|
|
|
3,099
|
|
|
96,026
|
|
|
Investment operations fees
|
434
|
|
|
—
|
|
|
—
|
|
|
102,543
|
|
|
—
|
|
|
102,977
|
|
|
Investment processing fees - PaaS
|
43,462
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
43,462
|
|
|
Investment processing fees - SaaS
|
34,018
|
|
|
—
|
|
|
—
|
|
|
2,789
|
|
|
—
|
|
|
36,807
|
|
|
Professional services fees
|
3,533
|
|
|
—
|
|
|
—
|
|
|
1,398
|
|
|
—
|
|
|
4,931
|
|
|
Account fees and other
|
1,415
|
|
|
4,643
|
|
|
362
|
|
|
5,295
|
|
|
26
|
|
|
11,741
|
|
|
Total revenues
|
$
|
117,250
|
|
|
$
|
103,033
|
|
|
$
|
80,337
|
|
|
$
|
112,186
|
|
|
$
|
3,448
|
|
|
$
|
416,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographic Markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
$
|
76,864
|
|
|
$
|
103,033
|
|
|
$
|
63,405
|
|
|
$
|
104,859
|
|
|
$
|
3,448
|
|
|
$
|
351,609
|
|
|
United Kingdom
|
24,604
|
|
|
—
|
|
|
12,717
|
|
|
—
|
|
|
—
|
|
|
37,321
|
|
|
Canada
|
10,985
|
|
|
—
|
|
|
1,743
|
|
|
—
|
|
|
—
|
|
|
12,728
|
|
|
Ireland
|
4,797
|
|
|
—
|
|
|
2,310
|
|
|
7,327
|
|
|
—
|
|
|
14,434
|
|
|
Other
|
—
|
|
|
—
|
|
|
162
|
|
|
—
|
|
|
—
|
|
|
162
|
|
|
Total revenues
|
$
|
117,250
|
|
|
$
|
103,033
|
|
|
$
|
80,337
|
|
|
$
|
112,186
|
|
|
$
|
3,448
|
|
|
$
|
416,254
|
|
The following tables provide additional information pertaining to our revenues disaggregated by major product line and primary geographic market based on the location of the use of the products or services for each of the Company’s business segments for the nine months ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Banks
|
|
Investment
Advisors
|
|
Institutional
Investors
|
|
Investment
Managers
|
|
Investments
In New
Businesses
|
|
Total
|
|
Major Product Lines:
|
For the Nine Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees from pooled investment products
|
$
|
95,407
|
|
|
$
|
200,718
|
|
|
$
|
39,628
|
|
|
$
|
536
|
|
|
$
|
1,063
|
|
|
$
|
337,352
|
|
|
Investment management fees from investment management agreements
|
1,060
|
|
|
83,726
|
|
|
194,445
|
|
|
—
|
|
|
8,912
|
|
|
288,143
|
|
|
Investment operations fees
|
1,359
|
|
|
—
|
|
|
—
|
|
|
328,316
|
|
|
—
|
|
|
329,675
|
|
|
Investment processing fees - PaaS
|
137,737
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
137,737
|
|
|
Investment processing fees - SaaS
|
84,783
|
|
|
—
|
|
|
—
|
|
|
10,122
|
|
|
—
|
|
|
94,905
|
|
|
Professional services fees
|
11,535
|
|
|
—
|
|
|
—
|
|
|
4,674
|
|
|
—
|
|
|
16,209
|
|
|
Account fees and other
|
3,858
|
|
|
14,774
|
|
|
1,236
|
|
|
16,167
|
|
|
279
|
|
|
36,314
|
|
|
Total revenues
|
$
|
335,739
|
|
|
$
|
299,218
|
|
|
$
|
235,309
|
|
|
$
|
359,815
|
|
|
$
|
10,254
|
|
|
$
|
1,240,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographic Markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
$
|
220,254
|
|
|
$
|
299,218
|
|
|
$
|
185,202
|
|
|
$
|
335,776
|
|
|
$
|
10,254
|
|
|
$
|
1,050,704
|
|
|
United Kingdom
|
71,938
|
|
|
—
|
|
|
38,034
|
|
|
—
|
|
|
—
|
|
|
109,972
|
|
|
Canada
|
30,723
|
|
|
—
|
|
|
4,327
|
|
|
—
|
|
|
—
|
|
|
35,050
|
|
|
Ireland
|
12,824
|
|
|
—
|
|
|
7,321
|
|
|
24,039
|
|
|
—
|
|
|
44,184
|
|
|
Other
|
—
|
|
|
—
|
|
|
425
|
|
|
—
|
|
|
—
|
|
|
425
|
|
|
Total revenues
|
$
|
335,739
|
|
|
$
|
299,218
|
|
|
$
|
235,309
|
|
|
$
|
359,815
|
|
|
$
|
10,254
|
|
|
$
|
1,240,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Banks
|
|
Investment
Advisors
|
|
Institutional
Investors
|
|
Investment
Managers
|
|
Investments
In New
Businesses
|
|
Total
|
|
Major Product Lines:
|
For the Nine Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees from pooled investment products
|
$
|
100,498
|
|
|
$
|
208,860
|
|
|
$
|
41,062
|
|
|
$
|
550
|
|
|
$
|
957
|
|
|
$
|
351,927
|
|
|
Investment management fees from investment management agreements
|
1,299
|
|
|
75,526
|
|
|
199,620
|
|
|
—
|
|
|
8,510
|
|
|
284,955
|
|
|
Investment operations fees
|
1,172
|
|
|
—
|
|
|
—
|
|
|
297,342
|
|
|
—
|
|
|
298,514
|
|
|
Investment processing fees - PaaS
|
130,529
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
130,529
|
|
|
Investment processing fees - SaaS
|
103,502
|
|
|
—
|
|
|
—
|
|
|
7,931
|
|
|
—
|
|
|
111,433
|
|
|
Professional services fees
|
9,896
|
|
|
—
|
|
|
—
|
|
|
4,363
|
|
|
—
|
|
|
14,259
|
|
|
Account fees and other
|
4,705
|
|
|
13,530
|
|
|
877
|
|
|
15,851
|
|
|
80
|
|
|
35,043
|
|
|
Total revenues
|
$
|
351,601
|
|
|
$
|
297,916
|
|
|
$
|
241,559
|
|
|
$
|
326,037
|
|
|
$
|
9,547
|
|
|
$
|
1,226,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographic Markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
$
|
229,207
|
|
|
$
|
297,916
|
|
|
$
|
189,383
|
|
|
$
|
304,711
|
|
|
$
|
9,547
|
|
|
$
|
1,030,764
|
|
|
United Kingdom
|
75,649
|
|
|
—
|
|
|
39,323
|
|
|
—
|
|
|
—
|
|
|
114,972
|
|
|
Canada
|
32,527
|
|
|
—
|
|
|
5,178
|
|
|
—
|
|
|
—
|
|
|
37,705
|
|
|
Ireland
|
14,218
|
|
|
—
|
|
|
6,977
|
|
|
21,326
|
|
|
—
|
|
|
42,521
|
|
|
Other
|
—
|
|
|
—
|
|
|
698
|
|
|
—
|
|
|
—
|
|
|
698
|
|
|
Total revenues
|
$
|
351,601
|
|
|
$
|
297,916
|
|
|
$
|
241,559
|
|
|
$
|
326,037
|
|
|
$
|
9,547
|
|
|
$
|
1,226,660
|
|
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 to clients of the Investment Advisors segment through registered investment advisors located throughout the United States. The contractual fee is stated as a percentage of the average market value of all assets invested in the separately managed account and collected on a quarterly basis. Revenues are recognized in Asset management, administration and distribution fees on the accompanying Consolidated Statements of Operations.
Investment operations fees - Revenues earned from accounting and administrative services, distribution support services and regulatory and compliance services to investment management firms and family offices. The Company contracts directly with the investment management firm or family office. The contractual fees are stated as a percentage of net assets under administration and billed when asset valuations are finalized. Revenues are recognized in Asset management, administration and distribution fees on the accompanying Consolidated Statements of Operations.
Investment processing fees - Platform as a Service - Revenues associated with clients that outsource their entire investment operation and back-office processing functions. Through the use of the Company's proprietary platforms, the Company assumes all back-office investment processing services including investment processing, custody and safekeeping of assets, income collections, securities settlement and other related trust activities. The contractual fee is based on a monthly fee plus additional fees determined on a per-account or per-transaction basis. Contractual fees can also be stated as a percentage of the value of assets processed on the Company's platforms each month as long as the fee is in excess of a monthly contractual minimum. The client is billed directly on a monthly basis. Revenues are recognized in Information processing and software servicing fees on the accompanying Consolidated Statements of Operations.
Investment processing fees - Software as a Service - Revenues associated with clients that outsource investment processing technology software and computer processing by accessing our proprietary software and data center remotely but retain responsibility for all investment operations, client administration and other back-office trust operations. The contractual fee is based on a monthly fee plus additional fees determined on a per-account or per-transaction basis. The client is billed directly on a monthly basis. Revenues are recognized in Information processing and software servicing fees on the accompanying Consolidated Statements of Operations.
Professional services fees - Revenues associated with the business services migration for investment processing clients of the Private Banks segment and investment operations clients of the Investment Managers segment. In addition, Professional services include other services such as business transformation consulting. Typically, fees are stated as a contractual fixed fee. The client is billed directly and fees are collected according to the terms of the agreement.
Account fees and other - Revenues associated with custody account servicing, account terminations, reimbursements received for out-of-pocket expenses, and other fees for the provision of ancillary services.
Revenue is recognized by the Company when the performance obligations are satisfied and transfer of control to the client is completed. The majority of the Company’s performance obligations are satisfied and control is transferred to the client continuously. Therefore, revenue is recognized on a monthly basis. The amount of revenue recognized reflects the amount of consideration expected to be received by the Company in exchange for satisfied performance obligations.
The Company does not disclose the value of unsatisfied performance obligations as the majority of its contracts relate to: 1) contracts with an original term of one year or less; 2) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed; and 3) contracts that are based on the value of assets under management or administration.