SEI INVESTMENTS CO - Quarter Report: 2020 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________

FORM 10-Q

________________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_________to ________

Commission File Number: 0-10200

________________________________________

SEI INVESTMENTS COMPANY

(Exact Name of Registrant as Specified in its Charter)

________________________________________


Pennsylvania						23-1707341
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

1 Freedom Valley Drive, Oaks, Pennsylvania 19456-1100

(Address of Principal Executive Offices) (Zip Code)

(610) 676-1000

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

SEIC

The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No x

The number of shares outstanding of the registrant’s common stock, as of the close of business on July 23, 2020:


Common Stock, $0.01 par value						146,501,594

SEI INVESTMENTS COMPANY

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Page

Item 1.

Financial Statements.

Consolidated Balance Sheets (Unaudited) -- June 30, 2020 and December 31, 2019

Consolidated Statements of Operations (Unaudited) -- For the Three and Six Months Ended June 30, 2020 and 2019

Consolidated Statements of Comprehensive Income (Unaudited) -- For the Three and Six Months Ended June 30, 2020 and 2019

Consolidated Statements of Changes in Equity (Unaudited) -- For the Three and Six Months Ended June 30, 2020 and 2019

Consolidated Condensed Statements of Cash Flows (Unaudited) -- For the Six Months Ended June 30, 2020 and 2019

Notes to Consolidated Financial Statements

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

Item 4.

Controls and Procedures.

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings.

Item 1A.

Risk Factors.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Item 6.

Exhibits.

Signatures

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements.

SEI Investments Company

Consolidated Balance Sheets

(unaudited)

(In thousands, except par value)


	June 30, 2020		December 31, 2019
Assets
Current Assets:
Cash and cash equivalents	$	758,276	$	841,446
Restricted cash	3,101		3,101
Receivables from investment products	49,873		54,165
Receivables, net of allowance for doubtful accounts of $1,079 and $1,201	351,614		340,358
Securities owned	35,030		33,486
Other current assets	35,005		32,289
Total Current Assets	1,232,899		1,304,845
Property and Equipment, net of accumulated depreciation of $367,677 and $353,453	182,273		160,859
Operating Lease Right-of-Use Assets	39,076		42,789
Capitalized Software, net of accumulated amortization of $466,937 and $442,677	284,341		296,068
Available for Sale and Equity Securities	105,361		116,917
Investments in Affiliated Funds, at fair value	4,749		5,988
Investment in Unconsolidated Affiliate	41,094		67,413
Goodwill	64,489		64,489
Intangible Assets, net of accumulated amortization of $10,615 and $8,773	26,145		27,987
Deferred Contract Costs	33,108		30,991
Deferred Income Taxes	2,343		2,822
Other Assets, net	37,722		30,202
Total Assets	$	2,053,600	$	2,151,370

The accompanying notes are an integral part of these consolidated financial statements.

SEI Investments Company

Consolidated Balance Sheets

(unaudited)

(In thousands, except par value)


	June 30, 2020		December 31, 2019
Liabilities and Equity
Current Liabilities:
Accounts payable	$	10,780	$	4,423
Accrued liabilities	210,711		272,801
Current portion of long-term operating lease liabilities	8,285		9,156
Deferred revenue	6,349		7,185
Total Current Liabilities	236,125		293,565
Long-term Income Taxes Payable	803		803
Deferred Income Taxes	50,219		55,722
Long-term Operating Lease Liabilities	35,224		38,450
Other Long-term Liabilities	22,604		24,052
Total Liabilities	344,975		412,592
Commitments and Contingencies
Shareholders' Equity:
Common stock, $0.01 par value, 750,000 shares authorized; 146,445 and 149,745 shares issued and outstanding	1,464		1,497
Capital in excess of par value	1,174,411		1,158,900
Retained earnings	566,929		601,885
Accumulated other comprehensive loss, net	(34,179)		(23,504)
Total Shareholders' Equity	1,708,625		1,738,778
Total Liabilities and Shareholders' Equity	$	2,053,600	$	2,151,370

The accompanying notes are an integral part of these consolidated financial statements.

SEI Investments Company

Consolidated Statements of Operations

(unaudited)

(In thousands, except per share data)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Revenues:
Asset management, administration and distribution fees	$	320,577	$	324,925	$	652,430	$	638,869
Information processing and software servicing fees	80,069		84,661		162,978		171,537
Total revenues	400,646		409,586		815,408		810,406
Expenses:
Subadvisory, distribution and other asset management costs	44,182		46,177		89,519		89,982
Software royalties and other information processing costs	7,389		7,393		14,836		15,521
Compensation, benefits and other personnel	125,331		125,999		256,812		256,334
Stock-based compensation	7,062		5,064		13,991		10,102
Consulting, outsourcing and professional fees	57,111		45,330		110,401		95,536
Data processing and computer related	24,506		22,184		47,210		43,176
Facilities, supplies and other costs	13,973		17,100		30,769		35,845
Amortization	13,140		12,781		26,217		25,460
Depreciation	7,640		7,422		15,113		14,753
Total expenses	300,334		289,450		604,868		586,709
Income from operations	100,312		120,136		210,540		223,697
Net gain (loss) from investments	1,903		231		(2,086)		1,510
Interest and dividend income	1,370		4,313		4,573		8,570
Interest expense	(151)		(166)		(303)		(323)
Equity in earnings of unconsolidated affiliate	28,276		37,832		58,183		75,149
Income before income taxes	131,710		162,346		270,907		308,603
Income taxes	30,644		35,806		60,599		68,082
Net income	$	101,066	$	126,540	$	210,308	$	240,521
Basic earnings per common share	$	0.69	$	0.83	$	1.42	$	1.58
Shares used to compute basic earnings per share	147,478		151,863		148,473		152,587
Diluted earnings per common share	$	0.68	$	0.82	$	1.39	$	1.54
Shares used to compute diluted earnings per share	149,598		155,165		150,983		155,853
Dividends declared per common share	$	0.35	$	0.33	$	0.35	$	0.33

The accompanying notes are an integral part of these consolidated financial statements.

SEI Investments Company

Consolidated Statements of Comprehensive Income

(unaudited)

(In thousands)


	Three Months Ended June 30,										Six Months Ended June 30,
	2020				2019					2020			2019
Net income		$	101,066		$	126,540		$	210,308		$	240,521
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		940			(2,877)			(12,136)			520
Unrealized gain on investments:
Unrealized gains during the period, net of income taxes of $(33), $(230), $(372) and $(470)	113			765			1,244			1,562
Reclassification adjustment for losses realized in net income, net of income taxes of $(35), $(26), $(63) and $(50)	116	229		92	857		217	1,461		178	1,740
Total other comprehensive income (loss), net of tax		1,169			(2,020)			(10,675)			2,260
Comprehensive income		$	102,235		$	124,520		$	199,633		$	242,781

The accompanying notes are an integral part of these consolidated financial statements.

SEI Investments Company

Consolidated Statements of Changes in Equity

(unaudited)

(In thousands)


	Shares of Common Stock	Common Stock		Capital In Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total Equity
	For the Three Months Ended June 30, 2020
Balance, April 1, 2020	147,903	$	1,479	$	1,170,649	$	597,486	$	(35,348)	$	1,734,266
Net income	—	—		—		101,066		—		101,066
Other comprehensive income	—	—		—		—		1,169		1,169
Purchase and retirement of common stock	(1,642)	(16)		(9,293)		(80,161)		—		(89,470)
Issuance of common stock under employee stock purchase plan	26	—		1,142		—		—		1,142
Issuance of common stock upon exercise of stock options	158	1		4,851		—		—		4,852
Stock-based compensation	—	—		7,062		—		—		7,062
Dividends declared ($0.35 per share)	—	—		—		(51,462)		—		(51,462)
Balance, June 30, 2020	146,445	$	1,464	$	1,174,411	$	566,929	$	(34,179)	$	1,708,625


	Shares of Common Stock	Common Stock		Capital In Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total Equity
	For the Three Months Ended June 30, 2019
Balance, April 1, 2019	152,276	$	1,523	$	1,111,366	$	552,381	$	(28,720)	$	1,636,550
Net income	—	—		—		126,540		—		126,540
Other comprehensive loss	—	—		—		—		(2,020)		(2,020)
Purchase and retirement of common stock	(1,825)	(18)		(9,737)		(87,273)		—		(97,028)
Issuance of common stock under employee stock purchase plan	24	—		1,071		—		—		1,071
Issuance of common stock upon exercise of stock options	480	4		14,304		—		—		14,308
Stock-based compensation	—	—		5,064		—		—		5,064
Dividends declared ($0.33 per share)	—	—		—		(49,984)		—		(49,984)
Balance, June 30, 2019	150,955	$	1,509	$	1,122,068	$	541,664	$	(30,740)	$	1,634,501

The accompanying notes are an integral part of these consolidated financial statements.

SEI Investments Company

Consolidated Statements of Changes in Equity

(unaudited)

(In thousands)


	Shares of Common Stock	Common Stock		Capital In Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total Equity
	For the Six Months Ended June 30, 2020
Balance, January 1, 2020	149,745	$	1,497	$	1,158,900	$	601,885	$	(23,504)	$	1,738,778
Net income	—	—		—		210,308		—		210,308
Other comprehensive loss	—	—		—		—		(10,675)		(10,675)
Purchase and retirement of common stock	(4,075)	(40)		(23,060)		(193,802)		—		(216,902)
Issuance of common stock under employee stock purchase plan	47	—		2,248		—		—		2,248
Issuance of common stock upon exercise of stock options	728	7		22,332		—		—		22,339
Stock-based compensation	—	—		13,991		—		—		13,991
Dividends declared ($0.35 per share)	—	—		—		(51,462)		—		(51,462)
Balance, June 30, 2020	146,445	$	1,464	$	1,174,411	$	566,929	$	(34,179)	$	1,708,625


	Shares of Common Stock	Common Stock		Capital In Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total Equity
	For the Six Months Ended June 30, 2019
Balance, January 1, 2019	153,634	$	1,536	$	1,106,641	$	517,970	$	(33,000)	$	1,593,147
Net income	—	—		—		240,521		—		240,521
Other comprehensive income	—	—		—		—		2,260		2,260
Purchase and retirement of common stock	(3,550)	(35)		(18,939)		(166,843)		—		(185,817)
Issuance of common stock under employee stock purchase plan	56	—		2,393		—		—		2,393
Issuance of common stock upon exercise of stock options	815	8		21,871		—		—		21,879
Stock-based compensation	—	—		10,102		—		—		10,102
Dividends declared ($0.33 per share)	—	—		—		(49,984)		—		(49,984)
Balance, June 30, 2019	150,955	$	1,509	$	1,122,068	$	541,664	$	(30,740)	$	1,634,501

The accompanying notes are an integral part of these consolidated financial statements.

SEI Investments Company

Consolidated Condensed Statements of Cash Flows

(unaudited)

(In thousands)


	Six Months Ended June 30,
	2020		2019
Cash flows from operating activities:
Net income	$	210,308	$	240,521
Adjustments to reconcile net income to net cash provided by operating activities (See Note 1)	53,824		(22,876)
Net cash provided by operating activities	264,132		217,645
Cash flows from investing activities:
Additions to property and equipment	(34,442)		(18,239)
Additions to capitalized software	(12,533)		(19,188)
Purchases of marketable securities	(60,764)		(77,891)
Prepayments and maturities of marketable securities	71,782		85,012
Sales of marketable securities	64		—
Other investing activities	(1,500)		—
Net cash used in investing activities	(37,393)		(30,306)
Cash flows from financing activities:
Payment of contingent consideration	(633)		—
Purchase and retirement of common stock	(219,404)		(183,396)
Proceeds from issuance of common stock	24,587		24,272
Payment of dividends	(103,914)		(100,745)
Net cash used in financing activities	(299,364)		(259,869)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(10,545)		277
Net decrease in cash, cash equivalents and restricted cash	(83,170)		(72,253)
Cash, cash equivalents and restricted cash, beginning of period	844,547		758,039
Cash, cash equivalents and restricted cash, end of period	$	761,377	$	685,786

Non-cash operating activities:
Operating lease right-of-use assets and net lease liabilities recorded upon adoption of ASC 842	$	—	$	44,169

The accompanying notes are an integral part of these consolidated financial statements.

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 June 30, 2020, the results of operations for the three and six months ended June 30, 2020 and 2019, and cash flows for the six-months ended June 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 six months ended June 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 six months ended June 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 $9,714 and $6,796 in fees during the three months ended June 30, 2020 and 2019, respectively. During the six months ended June 30, 2020 and 2019, the Company waived $16,355 and $14,701, 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 $335,676 and $414,581 at June 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 June 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 June 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 $12,533 and $19,188 of software development costs during the six months ended June 30, 2020 and 2019, respectively. The Company's software development costs primarily relate to significant enhancements to the SEI Wealth Platform^SM(SWP). The Company capitalized $11,785 and $18,693 of software development costs for significant enhancements to SWP during the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, the net book value of SWP was $269,582. The net book value includes $60,504 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 8.4 years. Amortization expense for SWP was $21,656 and $20,900 during the six months ended June 30, 2020 and 2019, respectively.

Earnings per Share

The calculations of basic and diluted earnings per share for the three and six months ended June 30, 2020 and 2019 are:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net income	$	101,066	$	126,540	$	210,308	$	240,521
Shares used to compute basic earnings per common share	147,478,000		151,863,000		148,473,000		152,587,000
Dilutive effect of stock options	2,120,000		3,302,000		2,510,000		3,266,000
Shares used to compute diluted earnings per common share	149,598,000		155,165,000		150,983,000		155,853,000
Basic earnings per common share	$	0.69	$	0.83	$	1.42	$	1.58
Diluted earnings per common share	$	0.68	$	0.82	$	1.39	$	1.54

During the three months ended June 30, 2020 and 2019, employee stock options to purchase 8,154,000 and 6,244,000 shares of common stock with an average exercise price of $58.26 and $54.79, respectively, were outstanding but not included in the computation of diluted earnings per common share. During the six months ended June 30, 2020 and 2019, employee stock options to purchase 7,781,000 and 6,284,000 shares of common stock with an average exercise price of $58.50 and $54.80, respectively, were outstanding but not included in the computation of diluted earnings per common share. These options for the three and six month periods were not included in the computation of diluted earnings per common share because either the performance conditions have not been satisfied or would not have been satisfied if the reporting date was the end of the contingency period or the options' exercise price was greater than the average market price of the Company’s common stock and the effect on diluted earnings per common share would have been anti-dilutive.

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 is currently evaluating the impact of adopting ASU 2019-12 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 six months ended June 30:


	2020		2019
Net income	$	210,308	$	240,521
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	15,113		14,753
Amortization	26,217		25,460
Equity in earnings of unconsolidated affiliate	(58,183)		(75,149)
Distributions received from unconsolidated affiliate	84,502		77,288
Stock-based compensation	13,991		10,102
Provision for losses on receivables	(122)		383
Deferred income tax expense	(5,459)		(2,050)
Net loss (gain) from investments	2,086		(1,510)

Change in other long-term liabilities	(1,448)		1,129
Change in other assets	(6,135)		249
Contract costs capitalized, net of amortization	(2,117)		(1,125)
Other	(1,217)		122
Change in current assets and liabilities
(Increase) decrease in
Receivables from investment products	4,292		(2,538)
Receivables	(11,134)		(20,192)
Other current assets	(2,716)		3,708
(Decrease) increase in
Accounts payable	6,357		(5,426)
Accrued liabilities	(9,367)		(47,631)
Deferred revenue	(836)		(449)
Total adjustments	53,824		(22,876)
Net cash provided by operating activities	$	264,132	$	217,645

Note 2. Investment in Unconsolidated Affiliate

LSV Asset Management

The Company has an investment in LSV Asset Management (LSV), a registered investment advisor that provides investment advisory services primarily to institutions, including pension plans and investment companies. LSV is currently an investment sub-advisor for a limited number of SEI-sponsored investment products. The Company's partnership interest in LSV as of June 30, 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 June 30, 2020, the Company’s total investment in LSV was $41,094. The Company receives partnership distributions from LSV on a quarterly basis. The Company received partnership distributions from LSV of $84,502 and $77,288 in the six months ended June 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 $28,276 and $37,832 during the three months ended June 30, 2020 and 2019, respectively. During the six months ended June 30, 2020 and 2019, the Company's proportionate share in the earnings of LSV was $58,183 and $75,149, respectively.

These tables contain condensed financial information of LSV:


Condensed Statement of Operations	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Revenues	$	94,648	$	123,017	$	194,644	$	243,932
Net income	72,847		97,271		149,744		193,219


Condensed Balance Sheets	June 30, 2020		December 31, 2019
Current assets	$	114,909	$	144,547
Non-current assets	4,625		5,048
Total assets	$	119,534	$	149,595

Current liabilities	$	55,851	$	46,828
Non-current liabilities	4,980		5,326
Partners’ capital	58,703		97,441
Total liabilities and partners’ capital	$	119,534	$	149,595

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:


	June 30, 2020		December 31, 2019
Trade receivables	$	89,183	$	86,043
Fees earned, not billed	252,541		240,239
Other receivables	10,969		15,277
	352,693		341,559
Less: Allowance for doubtful accounts	(1,079)		(1,201)
	$	351,614	$	340,358

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:


	June 30, 2020		December 31, 2019
Buildings	$	162,999	$	162,882
Equipment	137,698		123,945
Land	10,830		10,830
Purchased software	145,816		143,705
Furniture and fixtures	20,032		18,835
Leasehold improvements	20,109		20,700
Construction in progress	52,466		33,415
	549,950		514,312
Less: Accumulated depreciation	(367,677)		(353,453)
Property and Equipment, net	$	182,273	$	160,859

The Company recognized $15,113 and $14,753 in depreciation expense related to property and equipment for the six months ended June 30, 2020 and 2019, respectively.

Deferred Contract Costs

Deferred contract costs, which primarily consist of deferred sales commissions, were $33,108 and $30,991 as of June 30, 2020 and December 31, 2019, respectively. The Company deferred expenses related to contract costs of $1,752 and $1,950 during the three months ended June 30, 2020 and 2019, respectively. During the six months ended June 30, 2020 and 2019, the Company deferred expenses related to contract costs of $4,749 and $3,076, respectively. Amortization expense related to deferred contract costs were $2,632 and $1,951 during the six months ended June 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 six months ended June 30, 2020.

Accrued Liabilities

Accrued liabilities on the accompanying Consolidated Balance Sheets consist of:


	June 30, 2020		December 31, 2019
Accrued employee compensation	$	50,858	$	96,991

Accrued consulting, outsourcing and professional fees	35,750		28,610
Accrued sub-advisory, distribution and other asset management fees	47,797		46,245

Accrued dividend payable	—		52,452
Accrued income taxes	24,739		2,010
Other accrued liabilities	51,567		46,493
Total accrued liabilities	$	210,711	$	272,801

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 six months ended June 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 June 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 June 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 six months ended June 30, 2020.

The fair value of certain financial assets of the Company was determined using the following inputs:


			Fair Value Measurements at the End of the Reporting Period Using
Assets	June 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Equity securities	$	11,194	$	11,194	$	—
Available-for-sale debt securities	94,167		—		94,167
Fixed-income securities owned	35,030		—		35,030
Investment funds sponsored by LSV (1)	4,749
	$	145,140	$	11,194	$	129,197


			Fair Value Measurements at the End of the Reporting Period Using
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 $445,941 and $543,765 at June 30, 2020 and December 31, 2019, respectively. There were no material unrealized or realized gains or losses from these investments during the six months ended June 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 June 30, 2020
	Cost Amount		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value
Available-for-sale debt securities	$	91,666	$	2,501	$	—	$	94,167
SEI-sponsored mutual funds	7,514		72		(594)		6,992
Equities and other mutual funds	3,600		602		—		4,202
	$	102,780	$	3,175	$	(594)	$	105,361


	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 June 30, 2020 of the Company's available-for-sale debt securities were $1,926 (net of income tax expense of $575). 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 $280 and $227 from available-for-sale debt securities during the six months ended June 30, 2020 and 2019, respectively. There were no gross realized gains from available-for-sale debt securities during the six months ended June 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 $196 and gross realized losses of $240 from mutual funds and equities during the six months ended June 30, 2020. During the six months ended June 30, 2019, there were gross realized gains of $56 and gross realized losses of $238 from mutual funds and equities. 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 $4,749 and $5,988 at June 30, 2020 and December 31, 2019, respectively. The Company recognized unrealized gains of $996 and $95 during the three months ended June 30, 2020 and 2019, respectively, from the change in fair value of the funds. The Company recognized unrealized losses of $1,239 and unrealized gains of $547 during the six months ended June 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 $35,030 and $33,486 at June 30, 2020 and December 31, 2019, respectively. There were no material net gains or losses related to the securities during the three and six months ended June 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 June 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 June 30, 2020 was $288,447.

The Company was in compliance with all covenants of the Credit Facility during the six months ended June 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 six months ended June 30, 2020 and 2019, respectively, as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Stock-based compensation expense	$	7,062	$	5,064	$	13,991	$	10,102
Less: Deferred tax benefit	(1,318)		(971)		(2,703)		(1,917)
Stock-based compensation expense, net of tax	$	5,744	$	4,093	$	11,288	$	8,185

As of June 30, 2020, there was approximately $59,935 of unrecognized compensation cost remaining related to unvested employee stock options that management expects will vest and is being amortized.

The Company issues new common shares associated with the exercise of stock options. The total intrinsic value of options exercised during the six months ended June 30, 2020 was $22,672. The total options exercisable as of June 30, 2020 had an intrinsic value of $127,233. The total intrinsic value for options exercisable is calculated as the difference between the market value of the Company’s common stock as of June 30, 2020 and the weighted average exercise price of the options. The market value of the Company’s common stock as of June 30, 2020 was $54.98 as reported by the Nasdaq Stock Market, LLC. The weighted average exercise price of the options exercisable as of June 30, 2020 was $37.98. Total options that were outstanding as of June 30, 2020 were 14,931,000. Total options that were exercisable as of June 30, 2020 were 7,483,000.

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 4,075,000 shares at a total cost of $216,902 during the six months ended June 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 June 30, 2020, the Company had approximately $150,627 of authorization remaining for the purchase of common stock under the program.

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 six months ended June 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	(12,136)		1,244		(10,892)
Amounts reclassified from accumulated other comprehensive loss	—		217		217
Net current-period other comprehensive loss	(12,136)		1,461		(10,675)

Balance, June 30, 2020	$	(36,105)	$	1,926	$	(34,179)

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 six months ended June 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 June 30, 2020 and 2019:


	Private Banks		Investment Advisors		Institutional Investors		Investment Managers		Investments In New Businesses		Total
	For the Three Months Ended June 30, 2020
Revenues	$	107,726	$	93,708	$	76,523	$	119,340	$	3,349	$	400,646
Expenses	107,723		50,149		36,937		74,668		13,466		282,943
Operating profit (loss)	$	3	$	43,559	$	39,586	$	44,672	$	(10,117)	$	117,703


	Private Banks		Investment Advisors		Institutional Investors		Investment Managers		Investments In New Businesses		Total
	For the Three Months Ended June 30, 2019
Revenues	$	116,092	$	100,122	$	81,109	$	109,202	$	3,061	$	409,586
Expenses	107,790		50,558		39,361		68,371		6,797		272,877
Operating profit (loss)	$	8,302	$	49,564	$	41,748	$	40,831	$	(3,736)	$	136,709

A reconciliation of the total operating profit reported for the business segments to income from operations in the Consolidated Statements of Operations for the three months ended June 30, 2020 and 2019 is as follows:


	2020		2019
Total operating profit from segments	$	117,703	$	136,709
Corporate overhead expenses	(17,391)		(16,573)
Income from operations	$	100,312	$	120,136

The following tables provide additional information for the three months ended June 30, 2020 and 2019 pertaining to our business segments:


	Capital Expenditures (1)						Depreciation
	2020		2019		2020		2019
Private Banks	$	6,634	$	8,761	$	3,965	$	3,585
Investment Advisors	3,803		4,558		1,172		1,165
Institutional Investors	1,029		1,049		301		414
Investment Managers	7,259		4,875		1,869		1,820
Investments in New Businesses	332		344		76		110
Total from business segments	$	19,057	$	19,587	$	7,383	$	7,094
Corporate overhead	798		586		257		328
	$	19,855	$	20,173	$	7,640	$	7,422

(1) Capital expenditures include additions to property and equipment and capitalized software.


	Amortization
	2020		2019
Private Banks	$	7,464	$	7,217
Investment Advisors	2,664		2,550
Institutional Investors	427		427
Investment Managers	2,342		2,346
Investments in New Businesses	185		185
Total from business segments	$	13,082	$	12,725
Corporate overhead	58		56
	$	13,140	$	12,781

The following tables highlight certain financial information about each of the Company’s business segments for the six months ended June 30, 2020 and 2019:


	Private Banks		Investment Advisors		Institutional Investors		Investment Managers		Investments In New Businesses		Total
	For the Six Months Ended June 30, 2020
Revenues	$	220,947	$	196,029	$	155,726	$	235,969	$	6,737	$	815,408
Expenses	218,376		102,581		75,204		148,957		24,376		569,494
Operating profit (loss)	$	2,571	$	93,448	$	80,522	$	87,012	$	(17,639)	$	245,914


	Private Banks		Investment Advisors		Institutional Investors		Investment Managers		Investments In New Businesses		Total
	For the Six Months Ended June 30, 2019
Revenues	$	234,351	$	194,883	$	161,222	$	213,851	$	6,099	$	810,406
Expenses	218,752		103,060		78,115		137,437		12,737		550,101
Operating profit (loss)	$	15,599	$	91,823	$	83,107	$	76,414	$	(6,638)	$	260,305

A reconciliation of the total operating profit reported for the business segments to income from operations in the Consolidated Statements of Operations for the six months ended June 30, 2020 and 2019 is as follows:


	2020		2019
Total operating profit from segments	$	245,914	$	260,305
Corporate overhead expenses	(35,374)		(36,608)
Income from operations	$	210,540	$	223,697

The following tables provide additional information for the six months ended June 30, 2020 and 2019 pertaining to our business segments:


	Capital Expenditures (1)						Depreciation
	2020		2019		2020		2019
Private Banks	$	16,559	$	17,222	$	7,847	$	7,134
Investment Advisors	9,193		8,505		2,323		2,344
Institutional Investors	2,387		1,920		603		819
Investment Managers	16,291		8,224		3,681		3,591
Investments in New Businesses	750		585		146		201
Total from business segments	$	45,180	$	36,456	$	14,600	$	14,089
Corporate Overhead	1,795		971		513		664
	$	46,975	$	37,427	$	15,113	$	14,753

(1) Capital expenditures include additions to property and equipment and capitalized software.


	Amortization
	2020		2019
Private Banks	$	14,885	$	14,358
Investment Advisors	5,316		5,073
Institutional Investors	854		860
Investment Managers	4,677		4,685
Investments in New Businesses	370		370
Total from business segments	$	26,102	$	25,346
Corporate Overhead	115		114
	$	26,217	$	25,460

Note 10. Income Taxes

The gross liability for unrecognized tax benefits at June 30, 2020 and December 31, 2019 was $17,122 and $15,356, respectively, exclusive of interest and penalties, of which $17,097 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 June 30, 2020 and December 31, 2019, the combined amount of accrued interest and penalties related to tax positions taken on tax returns was $2,387 and $1,962, respectively.


	June 30, 2020		December 31, 2019
Gross liability for unrecognized tax benefits, exclusive of interest and penalties	$	17,122	$	15,356
Interest and penalties on unrecognized benefits	2,387		1,962
Total gross uncertain tax positions	$	19,509	$	17,318
Amount included in Current liabilities	$	4,950	$	4,896
Amount included in Other long-term liabilities	14,559		12,422
	$	19,509	$	17,318

The Company's effective income tax rate for the three and six months ended June 30, 2020 and 2019 differs from the federal income tax statutory rate due to the following:


	Three Months Ended June 30,						Six Months Ended June 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)		(0.1)		(0.1)		(0.1)
Tax benefit from stock option exercises	(0.4)		(1.1)		(1.3)		(1.1)


Other, net	(0.4)		(0.3)		(0.4)		(0.3)
	23.3	%	22.1	%	22.4	%	22.1	%

The increase in the Company's effective tax rate for the three months ended June 30, 2020 was primarily due to decreased tax benefits related to the lower volume of stock option exercises as compared to the three months ended June 30, 2019 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 2016 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 $4,950 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 June 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.

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 is currently scheduled for July 30, 2020.

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 six months ended June 30, 2020, respectively, to the sellers and recorded a fair value adjustment related to the contingent consideration. As of June 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 six months ended June 30, 2020.

The Company recognized $1,842 of amortization expense related to the intangible assets acquired through the acquisitions of Huntington Steele and Archway during the six months ended June 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 June 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 June 30, 2020
Investment management fees from pooled investment products	$	30,307	$	62,251	$	12,894	$	163	$	348	$	105,963
Investment management fees from investment management agreements	292		26,545		62,924		—		2,908		92,669
Investment operations fees	438		—		—		109,078		—		109,516
Investment processing fees - PaaS	44,191		—		—		—		—		44,191
Investment processing fees - SaaS	28,047		—		—		3,392		—		31,439
Professional services fees	3,157		—		—		1,384		—		4,541
Account fees and other	1,294		4,912		705		5,323		93		12,327
Total revenues	$	107,726	$	93,708	$	76,523	$	119,340	$	3,349	$	400,646

Primary Geographic Markets:
United States	$	71,607	$	93,708	$	60,414	$	111,137	$	3,349	$	340,215
United Kingdom	22,345		—		12,280		—		—		34,625
Canada	9,726		—		1,431		—		—		11,157
Ireland	4,048		—		2,265		8,203		—		14,516
Other	—		—		133		—		—		133
Total revenues	$	107,726	$	93,708	$	76,523	$	119,340	$	3,349	$	400,646


	Private Banks		Investment Advisors		Institutional Investors		Investment Managers		Investments In New Businesses		Total
Major Product Lines:	For the Three Months Ended June 30, 2019
Investment management fees from pooled investment products	$	33,451	$	70,087	$	13,799	$	184	$	325	$	117,846
Investment management fees from investment management agreements	283		25,448		67,076		—		2,713		95,520
Investment operations fees	362		—		—		99,932		—		100,294
Investment processing fees - PaaS	43,156		—		—		—		—		43,156
Investment processing fees - SaaS	34,776		—		—		2,593		—		37,369
Professional services fees	2,586		—		—		1,548		—		4,134
Account fees and other	1,478		4,587		234		4,945		23		11,267
Total revenues	$	116,092	$	100,122	$	81,109	$	109,202	$	3,061	$	409,586

Primary Geographic Markets:
United States	$	74,889	$	100,122	$	63,653	$	101,794	$	3,061	$	343,519
United Kingdom	25,695		—		13,140		—		—		38,835
Canada	10,882		—		1,708		—		—		12,590
Ireland	4,626		—		2,356		7,408		—		14,390
Other	—		—		252		—		—		252
Total revenues	$	116,092	$	100,122	$	81,109	$	109,202	$	3,061	$	409,586


	Private Banks		Investment Advisors		Institutional Investors		Investment Managers		Investments In New Businesses		Total
Major Product Lines:	For the Six Months Ended June 30, 2020
Investment management fees from pooled investment products	$	63,151	$	132,431	$	26,211	$	356	$	707	$	222,856
Investment management fees from investment management agreements	639		53,965		128,634		—		5,871		189,109
Investment operations fees	913		—		—		215,279		—		216,192
Investment processing fees - PaaS	90,344		—		—		—		—		90,344
Investment processing fees - SaaS	57,216		—		—		6,643		—		63,859
Professional services fees	5,872		—		—		2,658		—		8,530
Account fees and other	2,812		9,633		881		11,033		159		24,518
Total revenues	$	220,947	$	196,029	$	155,726	$	235,969	$	6,737	$	815,408

Primary Geographic Markets:
United States	$	145,621	$	196,029	$	122,503	$	219,580	$	6,737	$	690,470
United Kingdom	46,704		—		25,104		—		—		71,808
Canada	20,127		—		3,029		—		—		23,156
Ireland	8,495		—		4,795		16,389		—		29,679
Other	—		—		295		—		—		295
Total revenues	$	220,947	$	196,029	$	155,726	$	235,969	$	6,737	$	815,408


	Private Banks		Investment Advisors		Institutional Investors		Investment Managers		Investments In New Businesses		Total
Major Product Lines:	For the Six Months Ended June 30, 2019
Investment management fees from pooled investment products	$	66,424	$	136,710	$	27,460	$	389	$	634	$	231,617
Investment management fees from investment management agreements	985		49,286		133,247		—		5,411		188,929
Investment operations fees	738		—		—		194,799		—		195,537
Investment processing fees - PaaS	87,067		—		—		—		—		87,067
Investment processing fees - SaaS	69,484		—		—		5,142		—		74,626
Professional services fees	6,363		—		—		2,965		—		9,328
Account fees and other	3,290		8,887		515		10,556		54		23,302
Total revenues	$	234,351	$	194,883	$	161,222	$	213,851	$	6,099	$	810,406

Primary Geographic Markets:
United States	$	152,343	$	194,883	$	125,978	$	199,852	$	6,099	$	679,155
United Kingdom	51,045		—		26,606		—		—		77,651
Canada	21,542		—		3,435		—		—		24,977
Ireland	9,421		—		4,667		13,999		—		28,087
Other	—		—		536		—		—		536
Total revenues	$	234,351	$	194,883	$	161,222	$	213,851	$	6,099	$	810,406

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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(In thousands, except asset balances and per share data)

This discussion reviews and analyzes the consolidated financial condition, the consolidated results of operations and other key factors that may affect future performance. This discussion should be read in conjunction with the Consolidated Financial Statements, the Notes to the Consolidated Financial Statements and the Annual Report on Form 10-K for the year ended December 31, 2019.

Overview

Consolidated Summary

SEI is a leading global provider of technology-driven wealth and investment management solutions. We deliver comprehensive platforms, services and infrastructure – encompassing investment processing, investment operations and investment management – to help wealth managers, financial advisors, investment managers, institutional and private investors create and manage wealth. Investment processing fees are earned as either monthly fees for contracted services or as a percentage of the market value of our clients' assets processed on our platforms. Investment operations and investment management fees are earned as a percentage of assets under management, administration or advised assets (See Note 13 to the Consolidated Financial Statements for more information pertaining to our revenues). As of June 30, 2020, through our subsidiaries and partnerships in which we have a significant interest, we manage, advise or administer $1.0 trillion in hedge, private equity, mutual fund and pooled or separately managed assets, including $317.8 billion in assets under management and $692.5 billion in client assets under administration. Our affiliate, LSV Asset Management (LSV), manages $81.1 billion of assets which are included as assets under management.

Our Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019 were:


	Three Months Ended June 30,					Percent Change*			Six Months Ended June 30,				Percent Change*
	2020		2019					2020			2019
Revenues	$	400,646	$	409,586	(2)%	$	815,408		$	810,406		1%
Expenses	300,334		289,450		4%	604,868			586,709			3%
Income from operations	100,312		120,136		(17)%	210,540			223,697			(6)%
Net (loss) gain from investments	1,903		231		NM	(2,086)			1,510			NM
Interest income, net of interest expense	1,219		4,147		(71)%	4,270			8,247			(48)%
Equity in earnings from unconsolidated affiliate	28,276		37,832		(25)%	58,183			75,149			(23)%
Income before income taxes	131,710		162,346		(19)%	270,907			308,603			(12)%
Income taxes	30,644		35,806		(14)%	60,599			68,082			(11)%
Net income	101,066		126,540		(20)%	210,308			240,521			(13)%
Diluted earnings per common share	$	0.68	$	0.82	(17)%	$	1.39		$	1.54		(10)%

* Variances noted "NM" indicate the percent change is not meaningful.

The following items had a significant impact on our financial results for the three and six months ended June 30, 2020 and 2019:

•Revenue from Asset management, administration and distribution fees in the first six months of 2020 increased primarily from higher average assets under administration from positive cash flows from new and existing clients in the Investment Managers segment. The market volatility beginning in March 2020 and continuing into the second quarter caused by the COVID-19 pandemic negatively impacted our revenues from assets under management, most notably in our Investment Advisors and Institutional Investors segments. Our average assets under administration increased $67.1 billion, or 11%, to $676.0 billion in the first six months of 2020 as compared to $608.9 billion during the first six months of 2019. Our average assets under management, excluding LSV, increased $6.1 billion to $232.0 billion in the first six months of 2020 as compared to $225.9 billion during the first six months of 2019.

•Information processing and software servicing fees in our Private Banks segment decreased by $10.1 million during the first six months of 2020 due to previously announced client losses and decreased non-recurring fees.

•Our proportionate share in the earnings of LSV decreased to $58.2 million in the first six months of 2020 as compared to $75.1 million in the first six months of 2019 due to lower assets under management from negative cash flows from existing clients, market volatility caused by the COVID-19 pandemic and client losses.

•We continue to invest in new business opportunities such as our One SEI strategy and IT Services offering. The majority of these costs are recorded in the Investments in New Businesses segment and are included in Consulting, outsourcing and professional fees on the accompanying Consolidated Statements of Operations.

•Travel and promotional-related expenses declined by $7.4 million during the first six months of 2020 as our sales and client relationship personnel adapted to COVID-19 restrictions.

•We capitalized $11.8 million in the first six months of 2020 for the SEI Wealth Platform as compared to $18.7 million in the first six months of 2019. Amortization expense related to SWP increased to $21.7 million during the first six months of 2020 as compared to $20.9 million during the first six months of 2019.

•Our effective tax rate during the second quarter of 2020 was 23.3% as compared to 22.1% during the second quarter of 2019. Our tax rate was 22.4% during the first six months of 2020 as compared to 22.1% during the first six months of 2019. The increase in our tax rate for both periods was primarily due to an increase in our state effective tax rate. Our second quarter 2020 tax rate was also impacted by decreased tax benefits associated with stock option exercises.

•We continued our stock repurchase program during 2020 and purchased 4.1 million shares for $216.9 million in the six month period.

Impact of COVID-19 and Other Events

The occurrence of unforeseen or catastrophic events, including the emergence of a pandemic or other widespread health emergency or concerns over the possibility of such an emergency, could create economic and financial disruptions, and could lead to operational difficulties that could impair our ability to manage our business. In December 2019, a novel strain of coronavirus (COVID-19) was identified in Wuhan, China. COVID-19 quickly spread globally, leading the World Health Organization to declare the COVID-19 virus outbreak a global pandemic in March 2020. Since that time, governmental authorities have implemented numerous and varying measures to stall the spread and ameliorate the impact of COVID-19, including travel bans and restrictions, quarantines, curfews, shelter in place and safer-at-home orders, business shutdowns and closures, and have also implemented multi-step policies with the goal of re-opening domestic and global markets. Certain jurisdictions have begun re-opening only to return to restrictions in the face of increases in new COVID-19 cases.

In March 2020, we executed upon our business resiliency and contingency plans. To date, our remote capabilities have proven to be effective during the disruption caused by the COVID-19 pandemic with almost the entire workforce working remotely, with only a very limited number of on-site activities in our operational offices continuing to be performed.

We continue to closely monitor the domestic and international landscape for changes in governmental measures both in the United States and in the locations where we rely on critical outsourced services. We continue to be in regular contact with regulators, clients and vendors to confirm the measures taken to continue operating during this crisis, taking into consideration the latest announcements from state and federal authorities. We are also in continuous communication with our workforce to provide for the health and welfare of our employees working remotely and have implemented a return plan that is available for review on our website for those employees working in our operational offices. Currently, we have approximately 250 employees that routinely work out of our offices world-wide. We will monitor the ability of these individuals to work as safely as possible at our offices and make adjustments to the number of on-site personnel (either increases or decreases) accordingly. We expect that the individual circumstances of our employees regarding school, childcare, care-giving and underlying health concerns will significantly impact our ability to return staff to their primary office locations.

The majority of our revenues are based on the value of assets invested in investment products that we manage or administer which are affected by changes in the capital markets and the portfolio strategy of our clients or their customers. The market volatility in response to measures taken to contain the spread of COVID-19 negatively impacted our asset-based fee revenues and partially offset our revenue growth. Additionally, changes in the portfolio strategy of our clients or their customers in response to market volatility resulted in asset flows into our lower margin liquidity products and negatively impacted our earnings.

While we have developed and implemented and continue to develop and implement health and safety protocols, business continuity plans and crisis management protocols designed to mitigate the potentially negative impact of COVID-19 to our employees and our business, the extent of the impact of the pandemic on our business and financial results will continue to depend on numerous evolving factors that we are not able to accurately predict and which will vary by market, including the duration and scope of the pandemic, global economic conditions during and after the pandemic, governmental actions that have been taken, or may be taken in the future, in response to the pandemic, the extent that critical public and private infrastructure functions upon which we rely are suspended and changes in investor and consumer behavior in response to

the pandemic. The resulting market conditions may adversely affect our revenues and earnings derived from assets under management and administration.

We are aware of a ransomware attack that occurred on May 17, 2020, at M.J. Brunner (Brunner), one of our third-party developers/vendors that provides development services and application management for two of our client applications. We are also aware that certain client data was illegally accessed and revealed by cybercriminal(s). The applications themselves were not compromised by this attack. We take our clients’ security very seriously, and we are working with Brunner, the FBI and our impacted clients to understand the extent to which SEI’s or our clients’ data has been exposed. We are also working with the appropriate parties with respect to notification and remediation protocols. The root cause of the attack was not predicated on vulnerability within SEI’s network, and neither SEI’s network nor operations were compromised, attacked or otherwise affected as part of this incident. While there were direct and indirect expenses associated with the incident in the second-quarter 2020, and will be in the third-quarter 2020, it is not expected these will be material.

On July 1, 2020, one of our storage arrays supported by our third party vendor, Dell-EMC, failed due to the operation of an application deployed by the vendor as part of our production infrastructure. As a consequence of the hardware failure, transactional activities on our platforms were extremely limited on July 1st and 2nd. All systems are currently on-line and 100% functional. This event was not caused by a third-party actor. While there will be direct and indirect expenses in the third-quarter 2020 associated with the outage, it is not expected these will be material. In response to the outage, we have launched a project internally, that will be supported by third-party experts, to identify tactical and strategic improvements that we should make across our enterprise technology footprint, including a review and improvement of our technical and operational resiliency plans and capabilities. We expect that this work will lead to recommendations that will result in additional investments of capital in hardware, software and personnel. We expect these costs will include both new investments as well as a reprioritization of current spend. Currently, we are not able to fully-estimate the total amount of additional expense as this will be part of an ongoing strategy around recovery and resiliency.

Ending Asset Balances

(In millions)


	As of June 30,					Percent Change
	2020		2019
Private Banks:
Equity and fixed-income programs	$	22,974	$	22,563	2%
Collective trust fund programs	5		4		25%
Liquidity funds	4,291		3,322		29%
Total assets under management	$	27,270	$	25,889	5%
Client assets under administration	23,903		23,387		2%
Total assets	$	51,173	$	49,276	4%
Investment Advisors:
Equity and fixed-income programs	$	59,958	$	64,591	(7)%
Collective trust fund programs	3		6		(50)%
Liquidity funds	6,648		2,618		154%
Total assets under management	$	66,609	$	67,215	(1)%
Institutional Investors:
Equity and fixed-income programs	$	80,257	$	82,335	(3)%
Collective trust fund programs	103		78		32%
Liquidity funds	1,924		2,173		(11)%
Total assets under management	$	82,284	$	84,586	(3)%
Client assets under advisement	3,326		3,598		(8)%
Total assets	$	85,610	$	88,184	(3)%
Investment Managers:
Collective trust fund programs	$	58,178	$	51,838	12%
Liquidity funds	664		472		41%
Total assets under management	$	58,842	$	52,310	12%
Client assets under administration (A)	668,611		607,086		10%
Total assets	$	727,453	$	659,396	10%
Investments in New Businesses:
Equity and fixed-income programs	$	1,498	$	1,566	(4)%
Liquidity funds	194		141		38%
Total assets under management	$	1,692	$	1,707	(1)%
Client assets under advisement	1,193		887		34%
Total assets	$	2,885	$	2,594	11%
LSV:
Equity and fixed-income programs (B)	$	81,134	$	103,575	(22)%
Total:
Equity and fixed-income programs (C)	$	245,821	$	274,630	(10)%
Collective trust fund programs	58,289		51,926		12%
Liquidity funds	13,721		8,726		57%
Total assets under management	$	317,831	$	335,282	(5)%
Client assets under advisement	4,519		4,485		1%
Client assets under administration (D)	692,514		630,473		10%
Total assets under management, advisement and administration	$	1,014,864	$	970,240	5%

(A)Client assets under administration in the Investment Managers segment include $49.6 billion of assets that are at fee levels below our normal full service assets (as of June 30, 2020).

(B) Equity and fixed-income programs include assets managed by LSV in which fees are based on performance only. The ending value of these assets as of June 30, 2020 was $1.6 billion.

(C) Equity and fixed-income programs include $7.4 billion of assets invested in various asset allocation funds at June 30, 2020.

(D) In addition to the numbers presented, SEI also administers an additional $11.3 billion in Funds of Funds assets (as of June 30, 2020) on which SEI does not earn an administration fee.

Average Asset Balances

(In millions)


	Three Months Ended June 30,					Percent Change			Six Months Ended June 30,				Percent Change
	2020		2019					2020			2019
Private Banks:
Equity and fixed-income programs	$	22,229	$	22,088	1%	$	23,443		$	21,960		7%
Collective trust fund programs	5		4		25%	5			4			25%
Liquidity funds	4,366		3,388		29%	3,974			3,547			12%
Total assets under management	$	26,600	$	25,480	4%	$	27,422		$	25,511		7%
Client assets under administration	23,819		23,124		3%	24,330			22,611			8%
Total assets	$	50,419	$	48,604	4%	$	51,752		$	48,122		8%
Investment Advisors:
Equity and fixed-income programs	$	57,429	$	62,419	(8)%	$	61,181		$	60,576		1%
Collective trust fund programs	3		6		(50)%	3			6			(50)%
Liquidity funds	6,923		3,465		100%	5,104			4,382			16%
Total assets under management	$	64,355	$	65,890	(2)%	$	66,288		$	64,964		2%
Institutional Investors:
Equity and fixed-income programs	$	77,037	$	82,597	(7)%	$	78,482		$	82,161		(4)%
Collective trust fund programs	100		78		28%	93			79			18%
Liquidity funds	2,476		2,342		6%	2,409			2,359			2%
Total assets under management	$	79,613	$	85,017	(6)%	$	80,984		$	84,599		(4)%
Client assets under advisement	3,362		3,641		(8)%	3,561			3,568			—%
Total assets	$	82,975	$	88,658	(6)%	$	84,545		$	88,167		(4)%
Investment Managers:
Collective trust fund programs	$	54,061	$	50,108	8%	$	55,007		$	48,715		13%
Liquidity funds	482		497		(3)%	550			528			4%
Total assets under management	$	54,543	$	50,605	8%	$	55,557		$	49,243		13%
Client assets under administration (A)	649,012		600,509		8%	651,699			586,287			11%
Total assets	$	703,555	$	651,114	8%	$	707,256		$	635,530		11%
Investments in New Businesses:
Equity and fixed-income programs	$	1,468	$	1,436	2%	$	1,566		$	1,415		11%
Liquidity funds	182		178		2%	175			190			(8)%
Total assets under management	$	1,650	$	1,614	2%	$	1,741		$	1,605		8%
Client assets under advisement	1,148		917		25%	1,185			813			46%
Total assets	$	2,798	$	2,531	11%	$	2,926		$	2,418		21%
LSV:
Equity and fixed-income programs (B)	$	80,395	$	102,919	(22)%	$	84,227		$	103,718		(19)%
Total:
Equity and fixed-income programs (C)	$	238,558	$	271,459	(12)%	$	248,899		$	269,830		(8)%
Collective trust fund programs	54,169		50,196		8%	55,108			48,804			13%
Liquidity funds	14,429		9,870		46%	12,212			11,006			11%
Total assets under management	$	307,156	$	331,525	(7)%	$	316,219		$	329,640		(4)%
Client assets under advisement	4,510		4,558		(1)%	4,746			4,381			8%
Client assets under administration (D)	672,831		623,633		8%	676,029			608,898			11%
Total assets under management, advisement and administration	$	984,497	$	959,716	3%	$	996,994		$	942,919		6%

(A) Average client assets under administration in the Investment Managers segment for the three months ended June 30, 2020 include $50.1 billion that are at fee levels below our normal full service assets.

(B) Equity and fixed-income programs include assets managed by LSV in which fees are based on performance only. The average value of these assets for the three months ended June 30, 2020 was $1.4 billion.

(C) Equity and fixed-income programs include $7.4 billion of average assets invested in various asset allocation funds for the three months ended June 30, 2020.

(D) In addition to the numbers presented, SEI also administers an additional $11.3 billion of average assets in Funds of Funds assets for the three months ended June 30, 2020 on which SEI does not earn an administration fee.

In the preceding tables, assets under management are total assets of our clients or their customers invested in our equity and fixed-income investment programs, collective trust fund programs, and liquidity funds for which we provide asset management services through our subsidiaries and partnerships in which we have a significant interest. Assets under advisement include assets for which we provide advisory services through a subsidiary to the accounts but do not manage the underlying assets. Assets under administration include total assets of our clients or their customers for which we provide administrative services, including client fund balances for which we provide administration and/or distribution services through our subsidiaries and partnerships in which we have a significant interest. The assets presented in the preceding tables do not include assets processed on SWP and are not included in the accompanying Consolidated Balance Sheets because we do not own them.

Business Segments

Revenues, Expenses and Operating Profit (Loss) for our business segments for the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019 were as follows:


	Three Months Ended June 30,							Percent Change				Six Months Ended June 30,					Percent Change
	2020			2019							2020				2019
Private Banks:
Revenues	$	107,726		$	116,092		(7)%	$	220,947			$	234,351			(6)%
Expenses	107,723			107,790			—%	218,376				218,752				—%
Operating Profit	$	3		$	8,302		(100)%	$	2,571			$	15,599			(84)%
Operating Margin	—		%	7		%		1		%		7		%
Investment Advisors:
Revenues	$	93,708		$	100,122		(6)%	$	196,029			$	194,883			1%
Expenses	50,149			50,558			(1)%	102,581				103,060				—%
Operating Profit	$	43,559		$	49,564		(12)%	$	93,448			$	91,823			2%
Operating Margin	46		%	50		%		48		%		47		%
Institutional Investors:
Revenues	$	76,523		$	81,109		(6)%	$	155,726			$	161,222			(3)%
Expenses	36,937			39,361			(6)%	75,204				78,115				(4)%
Operating Profit	$	39,586		$	41,748		(5)%	$	80,522			$	83,107			(3)%
Operating Margin	52		%	51		%		52		%		52		%
Investment Managers:
Revenues	$	119,340		$	109,202		9%	$	235,969			$	213,851			10%
Expenses	74,668			68,371			9%	148,957				137,437				8%
Operating Profit	$	44,672		$	40,831		9%	$	87,012			$	76,414			14%
Operating Margin	37		%	37		%		37		%		36		%
Investments in New Businesses:
Revenues	$	3,349		$	3,061		9%	$	6,737			$	6,099			10%
Expenses	13,466			6,797			98%	24,376				12,737				91%
Operating Loss	$	(10,117)		$	(3,736)		NM	$	(17,639)			$	(6,638)			NM

For additional information pertaining to our business segments, see Note 9 to the Consolidated Financial Statements.

Private Banks


	Three Months Ended June 30,					Percent Change			Six Months Ended June 30,				Percent Change
	2020		2019					2020			2019
Revenues:
Information processing and software servicing fees	$	76,655	$	82,045	(7)%	$	156,288		$	166,347		(6)%
Asset management, administration & distribution fees	31,071		34,047		(9)%	64,659			68,004			(5)%
Total revenues	$	107,726	$	116,092	(7)%	$	220,947		$	234,351		(6)%

Revenues decreased $8.4 million, or 7%, in the three month period and decreased $13.4 million, or 6%, in the six month period ended June 30, 2020 and were primarily affected by:

•Decreased investment processing fees from the loss of clients;

•Decreased investment management fees from existing international clients due to negative cash flows and market volatility caused by the COVID-19 pandemic; and

•Lower recurring investment processing fees earned on our mutual fund trading solution; partially offset by

•Increased investment processing fees from new SWP client conversions and growth from existing SWP clients.

Operating margins were essentially flat in the three and six month periods ended June 30, 2020 as compared to 7% in the three and six month periods ended June 30, 2019. Operating income decreased by $8.3 million, or 100%, in the three month period and decreased $13.0 million, or 84%, in the six month period and was primarily affected by:

•A decrease in revenues; and

•Increased costs, mainly personnel and consulting costs, related to maintenance, support and client migrations to SWP; partially offset by

•Decreased direct expenses associated with decreased investment management fees from existing international clients; and

•Decreased promotion and travel costs due to COVID-19 restrictions.

Investment Advisors


	Three Months Ended June 30,					Percent Change			Six Months Ended June 30,				Percent Change
	2020		2019					2020			2019
Revenues:
Investment management fees-SEI fund programs	$	62,251	$	70,087	(11)%	$	132,431		$	136,710		(3)%
Separately managed account fees	26,545		25,448		4%	53,965			49,286			9%
Other fees	4,912		4,587		7%	9,633			8,887			8%
Total revenues	$	93,708	$	100,122	(6)%	$	196,029		$	194,883		1%

Revenues decreased $6.4 million, or 6% in the three month period ended June 30, 2020 and were primarily affected by:

•The impact to investment management fees from the market volatility caused by the COVID-19 pandemic, negative cash flows and a decrease in average basis points earned on assets due to client-directed shifts into liquidity products and SEI's ETF program; partially offset by

•Increased separately managed account program fees from positive cash flows into new and existing SEI-sponsored programs.

Revenues increased $1.1 million, or 1%, in the six month period ended June 30, 2020 and were primarily affected by:

•Increased separately managed account program fees from positive cash flows into new and existing SEI-sponsored programs; partially offset by

Operating margin decreased to 46% compared to 50% in the three month period and increased to 48% compared to 47% in the six month period. Operating income decreased $6.0 million, or 12%, in the three month period and increased $1.6 million, or 2%, in the six month period and was primarily affected by:

•An increase in revenues during the six month period;

•Decreased costs associated with accounts formerly processed on TRUST 3000^® due to client migrations to SWP; and

•Decreased promotion and travel costs due to COVID-19 restrictions; partially offset by

•Increased direct expenses associated with increased assets into our investment products; and

•Increased sales compensation expense.

Institutional Investors

Revenues decreased $4.6 million, or 6%, in the three month period and decreased $5.5 million, or 3%, in the six month period ended June 30, 2020 and were primarily affected by:

•Defined benefit client losses, mainly resulting from acquisitions and plan curtailments; and

•The impact to investment management fees from the market volatility caused by the COVID-19 pandemic; partially offset by

•Asset funding from new sales of our investment management platforms.

Operating margin increased to 52% compared to 51% in the three month period and remained at 52% in the six month period. Operating income decreased $2.2 million, or 5%, in the three month period and decreased $2.6 million, or 3%, in the six month period and was primarily affected by:

•A decrease in revenues; partially offset by

•Decreased direct expenses associated with investment management fees; and

•Decreased travel costs due to COVID-19 restrictions.

Investment Managers

Revenues increased $10.1 million, or 9%, in the three month period and increased $22.1 million, or 10%, in the six month period ended June 30, 2020 and were primarily affected by:

•Positive cash flows into alternative, traditional and separately managed account offerings from new and existing clients; partially offset by

•The impact from the market volatility caused by the COVID-19 pandemic to assets under administration; and

•Client losses and fund closures.

Operating margin remained at 37% in the three month period and increased to 37% compared to 36% in the six month period. Operating income increased $3.8 million, or 9%, in the three month period and increased $10.6 million, or 14%, in the six month period and was primarily affected by:

•An increase in revenues; and

•Decreased promotion and travel costs due to COVID-19 restrictions; partially offset by

•Increased costs associated with new business, primarily personnel expenses and third-party vendor costs; and

•Increased non-capitalized investment spending, mainly consulting costs.

Other

Corporate overhead expenses

Corporate overhead expenses primarily consist of general and administrative expenses and other costs not directly attributable to a reportable business segment. Corporate overhead expenses were $17.4 million and $16.6 million in the three months ended June 30, 2020 and 2019, respectively, and $35.4 million and $36.6 million in the six months ended June 30, 2020, respectively. The decrease in corporate overhead expenses during the six month period is primarily due to a decrease in non-recurring personnel-related costs.

Other income and expense

Other income and expense items on the accompanying Consolidated Statements of Operations consists of:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net gain (loss) from investments	$	1,903	$	231	$	(2,086)	$	1,510
Interest and dividend income	1,370		4,313		4,573		8,570
Interest expense	(151)		(166)		(303)		(323)
Equity in earnings of unconsolidated affiliate	28,276		37,832		58,183		75,149
Total other income and expense items, net	$	31,398	$	42,210	$	60,367	$	84,906

Net gain (loss) from investments

Net gains from investments in the three months ended June 30, 2020 were primarily due to unrealized gains recorded in current earnings related to LSV-sponsored investment funds and Company-sponsored mutual funds from market appreciation. Net loss from investments in the six months ended June 30, 2020 were primarily due to unrealized losses recorded in current earnings related to LSV-sponsored investment funds and Company-sponsored mutual funds from the market volatility caused by the COVID-19 pandemic (See Note 5).

Interest and dividend income

Interest and dividend income is earned based upon the amount of cash that is invested daily. The decrease in interest and dividend income in the three and six months ended June 30, 2020 was due to an overall decline in interest rates.

Equity in earnings of unconsolidated affiliate

Equity in earnings of unconsolidated affiliate reflects our less than 50% ownership in LSV. As of June 30, 2020, our total partnership interest in LSV was 38.8%. The table below presents the revenues and net income of LSV and our proportionate share in LSV's earnings.


	Three Months Ended June 30,					Percent Change			Six Months Ended June 30,				Percent Change
	2020		2019					2020			2019
Revenues of LSV	$	94,648	$	123,017	(23)%	$	194,644		$	243,932		(20)%
Net income of LSV	72,847		97,271		(25)%	149,744			193,219			(23)%

SEI's proportionate share in earnings of LSV	$	28,276	$	37,832	(25)%	$	58,183		$	75,149		(23)%

The decline in our earnings from LSV in the three and six months ended June 30, 2020 was due to lower assets under management from negative cash flows from existing clients, the market volatility caused by the COVID-19 pandemic and client losses. Average assets under management by LSV decreased $15.6 billion to $84.2 billion during the six months ended June 30, 2020 as compared to $103.7 billion during the six months ended June 30, 2019, a decrease of 19%.

Income Taxes

Our effective income tax rates for the three and six months ended June 30, 2020 and 2019 differs from the federal income tax statutory rate due to the following:


	Three Months Ended June 30,						Six Months Ended June 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)		(0.1)		(0.1)		(0.1)
Tax benefit from stock option exercises	(0.4)		(1.1)		(1.3)		(1.1)


Other, net	(0.4)		(0.3)		(0.4)		(0.3)
	23.3	%	22.1	%	22.4	%	22.1	%

The increase in our tax rate for both periods was primarily due to an increase in our state effective tax rate. Our second quarter 2020 tax rate was also impacted by decreased tax benefits associated with stock option exercises.

Stock-Based Compensation

We recognized $14.0 million and $10.1 million in stock-based compensation expense during the six months ended June 30, 2020 and 2019, respectively. The amount of stock-based compensation expense we recognize is based upon our estimate of when financial vesting targets may be achieved. Any change in our estimate could result in the 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 our earnings.

Fair Value Measurements

The fair value of our financial assets and liabilities, except for the investment funds sponsored by LSV, is determined in accordance with the fair value hierarchy. The fair value of the investment funds sponsored by LSV is measured using the net asset value per share (NAV) as a practical expedient. The fair value of all other financial assets are determined using Level 1 or Level 2 inputs and consist mainly of investments in equity or fixed-income mutual funds that are quoted daily and Government National Mortgage Association (GNMA) and other U.S. government agency securities that are single issuer pools that are valued based on current market data of similar assets. The Company's Level 3 financial liabilities at June 30, 2020 and December 31, 2019 consist entirely of the estimated contingent consideration resulting from an acquisition (See Note 12 to the Consolidated Financial Statements). We did not have any other financial liabilities at June 30, 2020 or December 31, 2019 that were required to be measured at fair value on a recurring basis (See Note 4 to the Consolidated Financial Statements).

Regulatory Matters

Like many firms operating within the financial services industry, we are experiencing a difficult and increasingly complex regulatory environment across our markets. Our current scale and reach as a provider to the financial services industry, the introduction and implementation of new platforms for our financial services industry clients, the increased regulatory oversight of the financial services industry generally, new laws and regulations affecting the financial services industry and ever-changing regulatory interpretations of existing laws and regulations, and a greater propensity of regulators to pursue enforcement actions and other sanctions against regulated entities, have made this an increasingly challenging and costly regulatory environment in which to operate.

SEI and our regulated subsidiaries have undergone or been scheduled to undergo a range of periodic or thematic reviews, examinations or investigations by numerous regulatory authorities around the world, including the Office of the Comptroller of the Currency, the Securities and Exchange Commission, the Financial Industry Regulatory Authority, Inc., the Financial Conduct Authority of the United Kingdom, the Central Bank of Ireland and others. These regulatory activities typically result in the identification of matters or practices to be addressed by us or our subsidiaries and, in certain circumstances, the regulatory authorities require remediation activities or pursue enforcement proceedings against us or our subsidiaries. From time to time, the regulators in different jurisdictions will elevate their level of scrutiny of our operations as our business expands or is deemed critical to the operations of the relevant financial markets. As described under the caption “Regulatory Considerations” in our Annual Report on Form 10-K, the range of possible sanctions that are available to regulatory authorities include limitations on our ability to engage in business for specified periods of time, the revocation of registration, censures and fines. The direct and indirect costs of responding to these regulatory activities, implementation of any remediation actions, and of complying with new or modified regulations, as well as the potential financial costs and potential reputational impact against us of any enforcement proceedings that might result, is uncertain but could have a material adverse impact on our operating results or financial position.

Liquidity and Capital Resources


	Six Months Ended June 30,
	2020		2019
Net cash provided by operating activities	$	264,132	$	217,645
Net cash used in investing activities	(37,393)		(30,306)
Net cash used in financing activities	(299,364)		(259,869)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(10,545)		277
Net decrease in cash, cash equivalents and restricted cash	(83,170)		(72,253)
Cash, cash equivalents and restricted cash, beginning of period	844,547		758,039
Cash, cash equivalents and restricted cash, end of period	$	761,377	$	685,786

Cash requirements and liquidity needs are primarily funded through our cash flow from operations and our capacity for additional borrowing. At June 30, 2020, our unused sources of liquidity consisted of cash and cash equivalents and the amount available under our credit facility.

Our credit facility provides for borrowings of up to $300.0 million and is scheduled to expire in June 2021 (See Note 6 to the Consolidated Financial Statements). As of July 23, 2020, we had outstanding letters of credit of $11.6 million which reduced our amount available under the credit facility to $288.4 million. These letters of credit were primarily issued for the expansion of our corporate headquarters and are due to expire in late 2020.

The availability of the credit facility is subject to compliance with certain covenants set forth in the agreement. The credit facility contains covenants which restrict our ability 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, we would also be restricted from paying dividends on, or repurchasing, our common stock. Currently, our ability to borrow from the credit facility is not limited by any covenant of the agreement. Our credit facility is provided through Wells Fargo Bank, National Association, and a syndicate of other well-established financial institutions. As of July 23, 2020, we are not aware of any issues related to the ability of the lenders to honor the borrowing terms in our credit facility agreement.

Our credit facility contains terms that utilize the London InterBank Offered Rate (LIBOR) as a potential component of the interest rate to be applied to the borrowings we may undertake under the agreement (See Note 6 to the Consolidated Financial Statements). We are currently monitoring the actions of LIBOR’s regulator and the implementation of alternative reference rates in advance of the expected discontinuation of LIBOR after 2021 to determine any potential impact to our current credit facility and negotiations for subsequent borrowing agreements.

The majority of our excess cash reserves are primarily placed in accounts located in the United States that invest entirely in SEI-sponsored money market mutual funds denominated in the U.S. dollar. We also utilize demand deposit accounts or money market accounts at several well-established financial institutions located in the United States. Accounts used to manage these excess cash reserves do not impose any restrictions or limitations that would prevent us from being able to access such cash amounts immediately. As of July 23, 2020, the amount of cash and cash equivalents considered free and immediately accessible for other general corporate purposes was $370.6 million.

Our cash and cash equivalents include accounts managed by our subsidiaries that are used in their operations or to cover specific business and regulatory requirements. The availability of this cash for other purposes beyond the operations of these subsidiaries may be limited. We therefore do not include accounts of our foreign subsidiaries in our calculation of free and immediately accessible cash for other general corporate purposes. A portion of the undistributed earnings of our foreign subsidiaries are deemed repatriated. Any subsequent transfer of available cash related to the repatriated earnings of our foreign subsidiaries could significantly increase our free and immediately accessible cash.

Cash flows from operations increased $46.5 million in the first six months of 2020 compared to the first six months of 2019 primarily from the positive impact from the change in our working capital accounts and higher distribution payments received from our unconsolidated affiliate, LSV. The increase was partially offset by the decline in our net income.

Net cash used in investing activities includes:

•Purchases, sales and maturities of marketable securities. Our purchases, sales and maturities of marketable securities in the first six months of 2020 and 2019 were as follows:


	Six Months Ended June 30,
	2020		2019
Purchases	$	(60,764)	$	(77,891)
Sales and maturities	71,846		85,012
Net investing activities from marketable securities	$	11,082	$	7,121

•The capitalization of costs incurred in developing computer software. We capitalized $12.5 million of software development costs in the first six months of 2020 as compared to $19.2 million in the first six months of 2019. The majority of our software development costs are related to significant enhancements for the expanded functionality of the SEI Wealth Platform.

•Capital expenditures. Our capital expenditures in the first six months of 2020 were $34.4 million as compared to $18.2 million in the first six months of 2019. Our expenditures in 2020 and 2019 primarily include purchased software, equipment for our data center operations and the expansion of our corporate headquarters which is

scheduled to be completed by the fourth quarter 2020. Total expenditures related to the expansion for the remainder of 2020 are expected to be approximately $5.6 million.

Net cash used in financing activities includes:

•The repurchase of our common stock. Our Board of Directors has authorized the repurchase of our common stock through multiple authorizations. Currently, there is no expiration date for our common stock repurchase program. We had total capital outlays of $219.4 million during the first six months of 2020 and $183.4 million during the first six months of 2019 for the repurchase of our common stock.

•Proceeds from the issuance of our common stock. We received $24.6 million in proceeds from the issuance of our common stock during the first six months of 2020 as compared to $24.3 million during the first six months of 2019. The increase in proceeds is primarily attributable to a higher level of stock option exercise activity.

•Dividend payments. Cash dividends paid were $103.9 million in the first six months of 2020 as compared to $100.7 million in the first six months of 2019.

We believe our operating cash flow, available borrowing capacity, and existing cash and cash equivalents should provide adequate funds for ongoing operations; continued investment in new products and equipment; our common stock repurchase program, expansion of our corporate headquarters and future dividend payments.

Forward-Looking Information and Risk Factors

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain information contained in this discussion is or may be considered forward-looking. Forward-looking statements relate to future operations, strategies, financial results or other developments. Forward-looking statements are based upon estimates and assumptions that involve certain risks and uncertainties, many of which are beyond our control or are subject to change. Although we believe our assumptions are reasonable, they could be inaccurate. Our actual future revenues and income could differ materially from our expected results. We have no obligation to publicly update or revise any forward-looking statements.

Among the risks and uncertainties which may affect our future operations, strategies, financial results or other developments are those risks described in our latest Annual Report on Form 10-K in Part I, Item 1A. These risks include the following:

•changes in capital markets that may affect our revenues and earnings;

•product development risk;

•risk of failure by a third-party service provider;

•data and cyber security risks;

•operational risks associated with the processing of investment transactions;

•systems and technology risks;

•pricing pressure from increased competition, disruptive technology and poor investment performance;

•the affect on our earnings and cashflows from the performance of LSV Asset Management;

•third party pricing services for the valuation of securities invested in our investment products;

•external factors affecting the fiduciary management market;

•the affect of extensive governmental regulation;

•litigation and regulatory examinations and investigations;

•our ability to capture the expected value from acquisitions, divestitures, joint ventures, minority stakes or strategic alliances;

•increased costs and regulatory risks from the growth of our business;

•fiduciary or other legal liability for client losses from our investment management operations;

•consolidation within our target markets;

•our ability to receive dividends or other payments in needed amounts from our subsidiaries;

•the exit by the United Kingdom from the European Union;

•third party approval of our investment products with advisors affiliated with independent broker-dealers or other networks;

•the effectiveness of our business, risk management and business continuity strategies, models and processes;

•financial and non-financial covenants which may restrict our ability to manage liquidity needs;

•changes in, or interpretation of, accounting principles or tax rules and regulations;

•fluctuations in foreign currency exchange rates;

•fluctuations in interest rates affecting the value of our fixed-income investment securities;

•our ability to hire and retain qualified employees;

•the competence and integrity of our employees and third-parties;

•stockholder activism efforts;

•retention of executive officers and senior management personnel; and

•unforeseen or catastrophic events, including the emergence of pandemic, terrorist attacks, extreme weather events or other natural disasters.

We conduct our operations through many regulated wholly-owned subsidiaries. These subsidiaries are:

•SEI Investments Distribution Co., or SIDCO, a broker-dealer registered with the SEC under the Securities Exchange Act of 1934 and a member of the Financial Industry Regulatory Authority, Inc., or FINRA;

•SEI Investments Management Corporation, or SIMC, an investment advisor registered with the SEC under the Investment Advisers Act of 1940 and with the Commodity Futures Trading Commission, or CFTC, under the Commodity Exchange Act;

•SEI Private Trust Company, or SPTC, a limited purpose federal thrift chartered and regulated by the Office of the Comptroller of the Currency;

•SEI Trust Company, or STC, a Pennsylvania trust company, regulated by the Pennsylvania Department of Banking and Securities;

•SEI Investments (Europe) Limited, or SIEL, an investment manager and financial institution subject to regulation by the Financial Conduct Authority of the United Kingdom;

•SEI Investments Canada Company, or SEI Canada, an investment fund manager that has various other capacities that is regulated by the Ontario Securities Commission and various provincial authorities;

•SEI Investments Global, Limited, or SIGL, a management company for Undertakings for Collective Investment in Transferable Securities, or UCITS, and for Alternative Investment Funds, or AIFs, that is regulated primarily by the Central Bank of Ireland, or CBI;

•SEI Investments - Global Fund Services, Ltd., or GFSL, an authorized provider of administration services for Irish and non-Irish collective investment schemes that is regulated by the CBI; and

•SEI Investments - Depositary and Custodial Services (Ireland) Limited, or D&C, an authorized provider of depositary and custodial services that is regulated by the CBI.

In addition to the regulatory authorities listed above, our subsidiaries are subject to the jurisdiction of regulatory authorities in other foreign countries. In addition to our wholly-owned subsidiaries, we also own a minority interest of approximately 38.8 percent in LSV, which is also an investment advisor registered with the SEC.

The Company, its regulated subsidiaries, their regulated services and solutions and their customers are all subject to extensive legislation, regulation and supervision that recently has been subject to, and continues to experience, significant change and increased regulatory activity. These changes and regulatory activities could have a material adverse effect on us and our clients.

The various governmental agencies and self-regulatory authorities that regulate or supervise the Company and its subsidiaries have broad administrative powers. In the event of a failure to comply with laws, regulations and requirements of these agencies and authorities, the possible business process changes required or sanctions that may be imposed include the suspension of individual employees, limitations on our ability to engage in business for specified periods of time, the revocation of applicable registration as a broker-dealer, investment advisor or other regulated entity, and, as the case may be, censures and fines. Additionally, certain securities and banking laws applicable to us and our subsidiaries provide for certain private rights of action that could give rise to civil litigation. Any litigation could have significant financial and non-financial consequences including monetary judgments and the requirement to take action or limit activities that could ultimately affect our business.

Governmental scrutiny from regulators, legislative bodies and law enforcement agencies with respect to matters relating to our regulated subsidiaries and their activities, services and solutions, our business practices, our past actions and other matters has increased dramatically in the past several years. Responding to these examinations, investigations, actions and lawsuits, regardless of the ultimate outcome of the proceeding, is time consuming and expensive and can divert the

time and effort of our senior management from our business. Penalties, fines and changes to business processes sought by regulatory authorities have increased substantially over the last several years, and certain regulators have been more likely in recent years to commence enforcement actions or to advance or support legislation targeted at the financial services industry. We continue to be subject to inquiries from examinations and investigations by supervisory and enforcement divisions of regulatory authorities and expect this to continue in the future. We believe this is also the case with many of our regulated clients. Governmental scrutiny and legal and enforcement proceedings can also have a negative impact on our reputation, our relationship with clients and prospective clients, and on the morale and performance of our employees, which could adversely affect our businesses and results of operations.

We are subject to the USA PATRIOT Act of 2001, which contains anti-money laundering and financial transparency laws and requires implementation of regulations applicable to financial services companies, including standards for verifying client identification and monitoring client transactions and detecting and reporting suspicious activities. Anti-money laundering laws outside the United States contain similar requirements. We offer investment and banking solutions that also are subject to regulation by the federal and state securities and banking authorities, as well as foreign regulatory authorities, where applicable. Existing or future regulations that affect these solutions could lead to a reduction in sales of these solutions or require modifications of these solutions.

Compliance with existing and future regulations and responding to and complying with recent increased regulatory activity affecting broker-dealers, investment advisors, investment companies, financial institutions and their service providers could have a significant impact on us. We periodically undergo regulatory examinations and respond to regulatory inquiries and document requests. In addition, recent and continuing legislative activity in the United States and in other jurisdictions (including the European Union and the United Kingdom) have made and continue to make extensive changes to the laws regulating financial services firms. As a result of these examinations, inquiries and requests, as a result of increased civil litigation activity, and as a result of these new laws and regulations, we engage legal counsel and other subject matter experts, review our compliance procedures, solution and service offerings, and business operations, and make changes as we deem necessary or as may be required by the applicable authority. These additional activities and required changes may result in increased expense or may reduce revenues.

Our bank clients are subject to supervision by federal, state and foreign banking and financial services authorities concerning the manner in which such clients purchase and receive our products and services. Our plan sponsor clients and our subsidiaries providing services to those clients are subject to supervision by the Department of Labor and compliance with employee benefit regulations. Investment advisor and broker-dealer clients are regulated by the SEC, state securities authorities, or FINRA. Existing or future regulations applicable to our clients may affect our clients’ purchase of our products and services.

In addition, see the discussion of governmental regulations in Item 1A “Risk Factors” in our latest Annual Report on Form 10-K for a description of the risks that proposed regulatory changes may present for our business.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Information required by this item is set forth under the captions "Our revenues and earnings are affected by changes in capital markets" and "Changes in interest rates may affect the value of our fixed-income investment securities" in Item 1A "Risk Factors" and under the caption "Sensitivity of our revenues and earnings to capital market fluctuations and client portfolio strategy" in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2019. There have been no material changes to this information as it is disclosed in our Annual Report on Form 10-K for 2019.

Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are effective in ensuring that information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. A controls system, no matter how well designed and operated, cannot provide absolute

assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

(b) Change in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during the quarter ended June 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

Stanford Trust Company Litigation

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.

SS&C Advent Matter

Other Matters

Item 1A. Risk Factors.

Information regarding risk factors appears in Part I – Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for 2019.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(e) Our Board of Directors has authorized the repurchase of up to $4.428 billion worth of our common stock through multiple authorizations. Currently, there is no expiration date for our common stock repurchase program.

Information regarding the repurchase of common stock during the three months ended June 30, 2020 is as follows:


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
April 2020	—	$	—	—	$	240,097,000
May 2020	612,000	51.26		612,000	208,710,000
June 2020	1,030,000	56.39		1,030,000	150,627,000
Total	1,642,000	$	54.48	1,642,000

Item 6. Exhibits.

The following is a list of exhibits filed as part of the Form 10-Q.


31.1			Rule 13a-15(e)/15d-15(e) Certification of Chief Executive Officer.

31.2			Rule 13a-15(e)/15d-15(e) Certification of Chief Financial Officer.

32			Section 1350 Certifications.

99.1			Press release dated July 22, 2020 of SEI Investments Company related to the Company's financial and operating results for the second quarter ended June 30, 2020.

101.INS			XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH			XBRL Taxonomy Extension Schema Document

101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF			XBRL Taxonomy Extension Definition Linkbase Document

101.LAB			XBRL Taxonomy Extension Label Linkbase Document

101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SEI INVESTMENTS COMPANY

Date:

July 28, 2020

By:

/s/ Dennis J. McGonigle

Dennis J. McGonigle

Chief Financial Officer