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Rating:Three Things to Know from SEI's Earnings Not Rated 0.0 Email Routing List Email & Route  Print Print
Thursday, April 25, 2013

Three Things to Know from SEI's Earnings

Reported by Tommy Fernandez

Multi-faceted firm gains boost from overseas sale, infrastructure investments and advisor outreach. SEI saw its earnings jump 46 percent this quarter thanks to the sale of a Korean asset, growth among a number of wealth platforms and number of wins amongst advisors.

First the basics. If you peruse the company's earnings information and the SeekingAlpha transcript of the earnings call, you'd note that SEI reported 41-cent earnings per share for the first quarter, compared to 28-cents a year ago. This includes an 8-cent gain coming from the sale of SEI Asset Korea, of which SEI owned approximately 56.1 percent. Net income was up 44 percent, to $71.9 million, while revenue was up 14 percent from a year ago, to $271.88 million.

There are at least three important themes to glean here. They are.

POINT 1: The South Korea Sale Means Big Money, At Least for Now
POINT 2: SEI Is Going Gaga Over Platforms
POINT 3: It's All About the Advisors


Now to drill down more into these points.

POINT 1: The South Korea Sale Means Big Money, At Least for Now
Chairman and chief executive officer Alfred West had this to say about the sale of SEI Asset Korea at different points during the analyst call.

Now our earnings during the first quarter were positively impacted by the sale of a partially owned subsidiary, SEI Asset Korea. Now due to the sale, we booked a gain of $22.1 million or approximately $0.08 per share.

We also reported a 14% increase in revenue during the first quarter. Now during the first quarter, in addition, SEI's assets under management grew before the effects of the sale of SEI Asset Korea by $5.6 billion during the quarter due to market appreciation and newfundings. And the sale of SEI Asset Korea caused us to deduct $7 billion of securities SEI Asset Korea manages from SEI's end of quarter assets under management.

Chief financial officer and executive vice president Dennis McGonigle had this to say.

In addition to the business update, I wanted to review one event that occurred during the quarter. On March 28, 2013, SEI completed the previously announced sale of SEI Asset Korea, a Korean manager -- asset manager of which we owned approximately 56.1%. This sale, as Al mentioned, resulted in a gain of $22.1 million recorded in the first quarter. Our proceeds from this sale were $21.6 million, net of $2.5 million in transaction cost at closing. And we will receive -- an additional $32.7 million was placed in an escrow account that will be paid to SEI during the second quarter of 2013 upon final delivery of all remaining outstanding shares of SEI Asset Korea owned by SEI.

There is an additional $11.2 million payable to SEI as a contingent purchase price with respect to 3 1-year periods ending December 31, 2013, '14 and '15, depending upon whether SEI Asset Korea achieves specified revenue measures during such periods.

As I mentioned, the company's ownership interest in SEI Asset Korea was 56.1%. As referenced, the company consolidated the assets, liabilities and operations of SEI Asset Korea in its consolidated financial statements. As of December 31, 2012, SEI Asset Korea had total corporate assets of $54.8 million, of which $48.3 million was included in cash and cash equivalents on the consolidated balance sheet.

POINT 2: SEI Is Going Gaga Over Platforms
SEI is investing heavily in infrastructure improvements, including expansion of its Global Wealth Platform. West had this to say on the subject.

And as you know, we are continuing our investment in GWP and its operational infrastructure. So during the first quarter, we capitalized approximately $6 million of the Global Wealth Platform Development and amortized approximately $8.2 million of previously capitalized development.

Now our development agenda for GWP is to further automate our operations and deliver U.S. functionality that's important to the advisor and banking markets in their entry to U.S. markets.

Now turning now to our business segments. In the banking segment, we are increasingly encouraged with the sales activity and intermediate-term revenue potential associated with the rollout of GWP in the U.S. At the same time, we're working hard to manage the costs of absorbing new business, building scale and keeping pace with the challenges of a rapidly changing U.K. and U.S. regulatory environment.

Now our GWP sales and marketing efforts are concentrating on launching GWP in the U.S., as well as shifting our sales focus in the U.K. to larger prospects.

POINT 3: It's All About the Advisors
West had this to say on the subject of advisor growth.

Now in the advisor segment, we have made solid progress in improving our asset gathering, as well as in preparing for the rollout of GWP to the U.S. markets. Both are important to accelerate our growth.
Meanwhile, EVP Wayne Withrow had these things to say on the subject.

Thanks, Al. During the first quarter, we continued to build upon the momentum we established last year and continued to work with our early adopter clients on raying [ph] the wealth platform for its broader U.S. advisor rollout.

Assets under management were $36.3 billion at March 31, a 7.5% improvement from December 31. During the quarter, we had almost $1 billion of positive net cash flow. Revenues for the quarter were $55.2 million. This compares to $52.5 million for the fourth quarter and $49.5 million for the first quarter of last year. We managed to hold the line on expenses, so all revenue growth for the quarter dropped to the bottom line, resulting in a 300 basis point improvement in margins.

On the new business front, we signed 130 new advisors during the quarter. Our pipeline of new advisors remains very strong.

Moving on to the status of the wealth platform. The early adopter process has been very beneficial and has not only allowed us to test the existing functionality but has also provided valuable feedback on how we can improve the platform for U.S. advisors in a real-life environment.

We have already rolled out some enhancements as a direct result of our early adopter feedback and expect more significant releases incorporating this feedback during the balance of the year. While I had hoped for a more generalized release to advisors in the latter part of 2013, I now expect to start in early 2014, since that will give us time to incorporate the early adopter's suggested improvements.

Momentum on our existing platform remains strong and there is no need to rush the rollout before we have a chance to improve our platform even more by incorporating this valuable feedback.

In summary, net cash flow and new advisory recruiting were very positive for the quarter. Momentum continues to build and the wealth platform release is on the horizon.



To learn more, read the company's earnings information and the SeekingAlpha transcript of the earnings call

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