SEI Investments (NASDAQ: SEIC) reported Q4 EPS of $0.75, $0.15 better than the analyst estimate of $0.60. Revenue for the quarter came in at $408.22 million versus the consensus estimate of $398.26 million.

Fourth-Quarter Business Highlights:

• Revenue growth in the quarter was primarily driven by higher Asset management, administration, and distribution fees from market appreciation and positive cash flows from new and existing clients.
• Our average assets under management, excluding LSV, increased $32.2 billion, or 17 percent, to $227.0 billion, as compared to $194.8 billion during the fourth-quarter 2016. Our assets under management do not include advised assets (see attached Average Asset Balances schedules for further details).
• Our average assets under administration increased $51.3 billion, or 11 percent, to $517.0 billion in the fourth-quarter 2017, as compared to $465.7 billion during the fourth-quarter 2016 (see attached Average Asset Balances schedules for further details).
• In the fourth-quarter 2017, we recognized performance fees of $3.4 million and corresponding sub-advisory expense of $1.7 million associated with an SEI-sponsored investment product, resulting in a positive net impact of approximately $0.01 diluted earnings per share. In the fourth-quarter 2016, we recognized performance fees of $12.3 million and corresponding sub-advisory expense of $6.1 million for a diluted earnings per share impact of $0.03 from this investment product. These items are reflected in the Institutional Investors segment.
• Fourth-quarter 2017 sales events, net of client losses, totaled approximately $9.0 million and are expected to generate net annualized recurring revenues of approximately $355 thousand when contract values are fully realized. These numbers include the loss of our only federal government client who advised us they will not be renewing their TRUST 3000® contract which ends later this year. This will result in an approximate $17.8 million annual investment processing revenue loss commencing no sooner than the fourth-quarter 2018. Excluding this client loss, we would have generated $26.8 million of net sales events, of which $18.2 million would have been annualized recurring revenues when the contracts were fully realized. For the year ended 2017, sales events, net of client losses, totaled approximately $77.8 million and are expected to generate net annualized recurring revenues of approximately $49.1 million when contract values are fully realized.
• Our earnings from LSV increased by $9.3 million, or 27 percent, to $43.3 million in fourth-quarter 2017 as compared to $34.1 million in fourth-quarter 2016. The increase in earnings was due to an increase in assets under management from market appreciation and increased performance fees; however, our earnings were negatively impacted by increased personnel expenses of LSV.
• We capitalized $12.5 million and $17.2 million of software development costs in fourth-quarter 2017 and 2016, respectively, of which $10.8 million and $12.4 million are related to continued enhancements to the SEI Wealth PlatformSM (the Platform). The remaining amounts of our software development costs capitalized during the fourth quarter of 2017 and 2016 are related to an application for the Investment Managers segment. Our expenses related to maintenance and enhancements not eligible for capitalization have increased. A higher portion of these costs are recognized in personnel and consulting costs. These increased costs primarily impacted the Private Banks and Investment Advisors business segments.
• The remaining estimated useful life of certain components and functionality of the SEI Wealth Platform was adjusted effective October 1, 2017. As a result, amortization expense related to the Platform decreased to $9.2 million during the fourth-quarter 2017 as compared to $11.7 million during the fourth-quarter 2016.
• We expect amortization expense related to all of our capitalized software development costs in first-quarter 2018 to be approximately $10.9 million. This amount includes amortization expense related to the application for the Investment Managers segment placed into service in 2018.
• Our operating expenses, primarily personnel costs, in our Investment Advisors and Investment Managers segments increased. These expenses primarily consist of operational and marketing costs and are mainly related to servicing existing clients and acquiring and implementing new clients.
• Stock-based compensation expense in fourth-quarter 2017 increased by $12.9 million as compared to fourth-quarter 2016. This incremental expense reflects a change in our estimate of the timing of when stock option vesting targets will be achieved. The Private Banks and Investment Managers segments recognized $3.8 million and $3.0 million, respectively, of this incremental expense. The Investment Advisors and Institutional Investors segments each recognized $2.0 million in incremental expense. We expect stock-based compensation expense during 2018 to be approximately $20.1 million as compared to $36.4 million during 2017.
• Our effective tax rates were 19.9 percent in fourth-quarter 2017 and 33.4 percent in fourth-quarter 2016. Our rate in fourth-quarter 2017 reflected the estimated impact of the Tax Cuts and Jobs Act which included a $27.1 million tax benefit resulting from the re-measurement of our estimated net deferred tax liability as of December 31, 2017, and $14.7 million of tax expense relating to the estimated tax impact of the deemed repatriation and withholding tax of our previously undistributed foreign earnings, for a net benefit of $12.4 million.
• Our tax rate in fourth-quarter 2017 was also favorably impacted by the adoption of Accounting Standards Update (ASU) 2016-09 and the expiration of the statute of limitations pertaining to various state tax items.
• Our fourth-quarter 2017 earnings from SEI Archway in our Investment Managers segment were positively impacted by an adjustment of $3.8 million to the contingent purchase price related to the acquisition.
• We repurchased 865 thousand shares of our common stock for $59.8 million during the fourth-quarter 2017.

For earnings history and earnings-related data on SEI Investments (SEIC) click here.