JEF
$29.50
Jefferies Financial Group
$.40
1.37%
Earnings Details
3rd Quarter August 2022
Wednesday, September 28, 2022 4:15:00 PM
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Summary

Jefferies Financial Group (JEF) Recent Earnings

Jefferies Financial Group (JEF) reported 3rd Quarter August 2022 earnings of $1.10 per share on revenue of $1.5 billion. The consensus earnings estimate was $0.69 per share on revenue of $1.4 billion. Revenue fell 21.4% compared to the same quarter a year ago.

Jefferies Financial Group Inc. is a diversified financial services company engaged in investment banking and capital markets, asset management and direct investing.

Results
Reported Earnings
$1.10
Earnings Whisper
-
Consensus Estimate
$0.69
Reported Revenue
$1.52 Bil
Revenue Estimate
$1.36 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Jefferies Announces Third Quarter 2022 Financial Results

NEW YORK--(BUSINESS WIRE)--Q3 Financial Highlights

  • Net income attributable to common shareholders of $195 million, or $0.78 per diluted share; adjusted net income attributable to common shareholders1 of $275 million, or $1.10 per diluted share, after removing $80 million of expense related to a regulatory settlement in the quarter
  • Annualized return on adjusted tangible equity of 10.0%2; adjusted annualized return on adjusted tangible equity of 14.0%3
  • Total Investment Banking and Capital Markets and Asset Management net revenues of $1.12 billion
    • Investment Banking net revenues of $682 million
    • Combined Capital Markets net revenues of $452 million
    • Asset Management net loss (before allocated net interest4) of $3 million
  • Pre-tax gain on sale of Idaho Timber of $139 million
  • Repurchased 4.3 million shares of common stock for $134.1 million, or an average price of $31.39 per share, including 0.6 million shares repurchased after quarter end through September 27, 2022; at August 31, 2022, we had 228.8 million shares outstanding and 256.2 million shares outstanding on a fully diluted basis5; our book value per share was $44.98 and tangible book value per fully diluted share6 was $33.81
  • Since January 2018, Jefferies has repurchased 149.6 million shares of common stock7 for $3.5 billion, or an average price of $23.39 per share; Jefferies has returned to shareholders $4.8 billion since January 2018, or 48% of shareholders' equity and 63% of tangible shareholders' equity8 at the beginning of this effort
  • Our Board of Directors has increased our share buyback authorization back to a total of $250 million

"Our third quarter results reflect the strength and momentum of our Firm, our team, our brand and our market position, despite the challenges of the current market environment. Investment Banking and Equities were very resilient, and we expect we have gained market share in those areas as we continue to support our clients through this volatile time. Moreover, we achieved solid Investment Banking and Capital Markets and Asset Management net revenues of over $1.12 billion despite unrealized markdowns in our mortgage inventory and leveraged finance commitments as the current environment has particularly impacted those asset classes. Our 14.0% adjusted annualized return on adjusted tangible equity3 is respectable and was achieved despite the significant dislocation in the new issue capital markets for much of this period.

"We are working very closely with our clients, so that we are able to support them further when economic and market conditions improve, and new issue activity opens up. Our backlog9 is consistent with last quarter's levels, but realization remains dependent on market conditions.

"2022 is feeling like a transitional year in our business, but one in which we are making good progress in enhancing our market share. We continue to invest toward further growth, most notably in Investment Banking, guard our balance sheet and capital against the risk of the increased volatility, and prioritize our clients and our Jefferies' team. We believe this will yield a solid result for 2022, and set the stage for continued growth and success in 2023 and beyond."

Richard Handler, CEO, and Brian Friedman, President

Quarterly Cash Dividend

The Jefferies Board of Directors declared a quarterly cash dividend equal to $0.30 per Jefferies common share, payable on November 29, 2022 to record holders of Jefferies common shares on November 14, 2022. We continue to work diligently to effect the spin-off to shareholders of our holdings in Vitesse Energy by the end of our fiscal year, subject to necessary regulatory reviews and rulings.

Financial Summary

(Dollars in thousands, except per share amounts)

Three Months Ended
August 31,

 

 

Nine Months Ended
August 31,

 

 

2022

 

2021 (10)

% Change

 

2022

 

2021 (10)

% Change

Net revenues:

 

 

 

 

 

 

 

 

 

Investment Banking and Capital Markets

$

1,134,732

 

 

$

1,672,943

 

(32)%

 

$

3,714,928

 

 

$

5,259,301

 

(29)%

Asset Management

 

(13,803

)

 

 

13,327

 

(204)%

 

 

77,300

 

 

 

293,204

 

(74)%

Merchant Banking

 

397,847

 

 

 

248,690

 

60%

 

 

825,637

 

 

 

812,509

 

2%

Corporate

 

6,192

 

 

 

955

 

548%

 

 

8,756

 

 

 

2,269

 

286%

Consolidation Adjustments

 

(78

)

 

 

3,069

 

(103)%

 

 

(734

)

 

 

9,150

 

(108)%

Net revenues

$

1,524,890

 

 

$

1,938,984

 

(21)%

 

$

4,625,887

 

 

$

6,376,433

 

(27)%

 

 

 

 

 

 

 

 

 

 

Income before income taxes

$

301,850

 

 

$

553,616

 

(45)%

 

$

860,723

 

 

$

1,828,540

 

(53)%

 

 

 

 

 

 

 

 

 

 

Net income attributable to common shareholders

$

195,459

 

 

$

407,459

 

(52)%

 

$

636,920

 

 

$

1,342,490

 

(53)%

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

$

0.78

 

 

$

1.50

 

(48)%

 

$

2.48

 

 

$

4.93

 

(50)%

 

 

 

 

 

 

 

 

 

 

Weighted average diluted shares

 

251,239

 

 

 

271,405

 

 

 

 

258,083

 

 

 

271,746

 

 

 

 

 

 

 

 

 

 

 

 

Annualized return on adjusted tangible equity2

 

10.0

%

 

 

21.4

%

 

 

 

11.0

%

 

 

26.1

%

 

Adjusted annualized return on adjusted tangible equity3

 

14.0

%

 

 

N/A

 

 

 

 

12.4

%

 

 

N/A

 

 

Highlights

Three months ended August 31, 2022

 

Nine months ended August 31, 2022

 

 

 

  • Net income attributable to common shareholders of $195 million, or $0.78 per diluted share; adjusted net income attributable to common shareholders1 of $275 million, or $1.10 per diluted share, after removing $80 million of expense related to a regulatory settlement in the quarter.
  • Repurchased 4.3 million shares of common stock for $134.1 million, or an average price of $31.39 per share, including 0.6 million shares repurchased after quarter end through September 27, 2022.
  • We had 228.8 million shares outstanding and 256.2 million shares outstanding on a fully diluted basis5 at August 31, 2022. Our book value per share was $44.98 and tangible book value per fully diluted share6 was $33.81 at August 31, 2022.
  • Our Board of Directors has increased our share buyback authorization back to a total of $250 million.
  • Effective tax rate of 35.1%, reflecting non-deductible $80 million regulatory settlement in the current quarter; adjusted effective tax rate11 of 27.7% without the cost of this settlement.

 

  • Net income attributable to common shareholders of $637 million, or $2.48 per diluted share; adjusted net income attributable to common shareholders1 of $717 million, or $2.79 per diluted share, after removing $80 million of expense related to a regulatory settlement in the third quarter.
  • Repurchased 22.3 million shares of common stock for $756.3 million, or an average price of $33.88 per share, including 0.6 million shares repurchased after quarter end through September 27, 2022; repurchases include 18.9 million shares of common stock in the open market for $634.0 million under our Board of Directors authorizations and 3.4 million shares of common stock for $122.2 million in connection with net-share settlements under our equity compensation plan.

 

 

Three months ended August 31, 2022

 

Nine months ended August 31, 2022

Investment Banking and Capital Markets

 

Investment Banking and Capital Markets

  • Investment Banking net revenues were $682 million, as our mergers and acquisitions net revenues remained strong. Our debt and equity underwriting net revenues were lower than the same quarter last year, consistent with a reduction in industry-wide deal activity.
  • Combined Capital Markets net revenues of $452 million were slightly higher as compared to the prior year quarter. Equities net revenues benefited from higher commissions and trading revenues, as our business continues to expand within the context of a more normalized trading environment. Fixed Income net revenues reflect mark to market losses on certain mortgage inventory positions and a slowdown in securitization activity as a result of continued uncertainty in respect of inflation and interest rates.

 

  • Investment Banking net revenues of $2.37 billion were driven by record advisory net revenues, offset by lower net revenues in debt and equity underwriting.
  • Combined Capital Markets net revenues of $1.35 billion were lower as compared to prior year period. Equities net revenues were impacted by market volatility and global instability, primarily in the first six months of the year. Fixed Income results were impacted by lower trading volumes, mark to market losses on certain mortgage inventory positions and a slowdown in securitization activity in the face of inflation concerns and interest rate uncertainty.
 

Asset Management

 

Asset Management

  • Asset Management net revenues reflect an increase in underlying fee revenue, offset by modest investment losses reflective of the difficult trading environment as compared to the profit realized in the prior year quarter.

 

  • Asset Management net revenues reflect higher asset management fees, offset by lower investment returns and lower revenues from strategic affiliates as compared to the prior year period.
 

Legacy Merchant Banking

 

Legacy Merchant Banking

  • Merchant Banking results reflect the $139 million pre-tax gain on the sale of Idaho Timber and strong results at Vitesse, partially offset by a decline in the value of several of our investments in public companies. We continue to work toward the liquidation of our Merchant Banking portfolio.

 

  • Merchant Banking results reflect strong results at Idaho Timber and Vitesse, as well as the gain on the sale of Idaho Timber, partially offset by a decline in the value of several of our investments in public companies.

* * * *

Amounts herein pertaining to August 31, 2022 represent a preliminary estimate as of the date of this earnings release and may be revised upon filing our Quarterly Report on Form 10-Q with the Securities and Exchange Commission (“SEC”). More information on our results of operations for the three and nine months ended August 31, 2022 will be provided upon filing our Quarterly Report on Form 10-Q with the SEC, which we expect to file on or about October 7, 2022.

This press release contains certain “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current views and include statements about our future and statements that are not historical facts. These forward-looking statements are usually preceded by the words “should,” “expect,” “intend,” “may,” “will,” "would," or similar expressions. Forward-looking statements may contain expectations regarding revenues, earnings, operations, and other results, and may include statements of future performance, plans, and objectives. Forward-looking statements may also include statements pertaining to our strategies for future development of our businesses and products. Forward-looking statements represent only our belief regarding future events, many of which by their nature are inherently uncertain. It is possible that the actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Information regarding important factors, including Risk Factors that could cause actual results to differ, perhaps materially, from those in our forward-looking statements is contained in reports we file with the SEC. You should read and interpret any forward-looking statement together with reports we file with the SEC. We undertake no obligation to update or revise any such forward-looking statement to reflect subsequent circumstances.

Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy will be profitable or equal the corresponding indicated performance level(s).

Notes

  1. Adjusted net income attributable to common shareholders (a non-GAAP financial measure) excludes the $80 million expense ($80 million, net of tax) related to a regulatory settlement in the current quarter. Refer to schedule on page 12 for reconciliation to U.S. GAAP amounts.
  2. Return on adjusted tangible equity (a non-GAAP financial measure) is defined as Jefferies' annualized adjusted net income (a non-GAAP financial measure) divided by our beginning of period adjusted tangible shareholders' equity (a non-GAAP financial measure). Refer to schedule on page 12 for reconciliation to U.S. GAAP amounts.
  3. Adjusted return on adjusted tangible equity (a non-GAAP financial measure) is defined as Jefferies' annualized adjusted net income excluding the net income impact of the $80 million of expense ($80 million, net of tax) related to a regulatory settlement in the current quarter (a non-GAAP financial measure) divided by our beginning of period adjusted tangible shareholders' equity (a non-GAAP financial measure). Refer to schedule on page 13 for reconciliation to U.S. GAAP amounts.
  4. Allocated net interest represents an allocation to Asset Management of certain of our long-term debt interest expense, net of interest income on our Cash and cash equivalents and other sources of liquidity. Allocated net interest has been disaggregated to increase transparency and to make clearer actual Investment return. Refer to Selected Financial and Statistical Information on pages 8 to 10.
  5. Shares outstanding on a fully diluted basis (a non-GAAP financial measure) is defined as Jefferies common shares outstanding plus restricted stock units, stock options, conversion of redeemable convertible preferred shares and other shares. Refer to schedule on page 14 for reconciliation to U.S. GAAP amounts.
  6. Tangible book value per fully diluted share (a non-GAAP financial measure) is defined as adjusted tangible book value (a non-GAAP financial measure) divided by shares outstanding on a fully diluted basis (a non-GAAP financial measure). Refer to schedule on page 14 for reconciliation to U.S. GAAP amounts.
  7. The 149.6 million common shares repurchased since January 2018 includes 145.5 million shares of common stock repurchased in the open market for $3.4 billion under our Board of Director authorizations and 4.1 million shares of common stock for $136.6 million repurchased in connection with net-share settlements under our equity compensation plan.
  8. Tangible shareholders' equity (a non-GAAP financial measure), is defined as Jefferies Financial Group shareholders' equity less Intangible assets, net and goodwill. Refer to schedule on page 13 for reconciliation to U.S. GAAP amounts.
  9. Backlog represents an estimate of our net revenues from expected future transactions. As an indicator of net revenues in a given period, it is subject to limitations. The time frame for the realization of revenues from these expected transactions varies and is influenced by factors we do not control. Transactions not included in the estimate may occur, and expected transactions may also be modified or cancelled.
  10. In the first quarter of 2022, we transferred certain Merchant Banking net assets to our Investment Banking and Capital Markets and Asset Management segments. Prior year amounts have been reclassified to conform to current segment disclosure.
  11. Adjusted effective tax rate (a non-GAAP financial measure) excludes the $80 million expense related to a regulatory settlement in the current quarter. Refer to schedule on page 14 for reconciliation to U.S. GAAP amounts.

Summary

(In thousands, except per share amounts) (Unaudited)

 

 

 

 

 

 

 

 

Three Months Ended
August 31,

 

Nine Months Ended
August 31,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Net revenues

$

1,524,890

 

 

$

1,938,984

 

 

$

4,625,887

 

 

$

6,376,433

 

Income before income taxes and loss related to associated companies

$

306,677

 

 

$

580,792

 

 

$

917,235

 

 

$

1,889,810

 

Loss related to associated companies

 

(4,827

)

 

 

(27,176

)

 

 

(56,512

)

 

 

(61,270

)

Income before income taxes

 

301,850

 

 

 

553,616

 

 

 

860,723

 

 

 

1,828,540

 

Income tax provision

 

105,909

 

 

 

145,700

 

 

 

219,949

 

 

 

484,756

 

Net income

 

195,941

 

 

 

407,916

 

 

 

640,774

 

 

 

1,343,784

 

Net loss attributable to the noncontrolling interests

 

1,243

 

 

 

1,324

 

 

 

1,116

 

 

 

2,736

 

Net loss attributable to the redeemable noncontrolling interests

 

345

 

 

 

68

 

 

 

1,241

 

 

 

1,071

 

Preferred stock dividends

 

(2,070

)

 

 

(1,849

)

 

 

(6,211

)

 

 

(5,101

)

Net income attributable to common shareholders

$

195,459

 

 

$

407,459

 

 

$

636,920

 

 

$

1,342,490

 

 

 

 

 

 

 

 

 

Basic earnings per common share attributable to Jefferies common shareholders:

 

 

 

 

 

 

 

Net income

$

0.80

 

 

$

1.54

 

 

$

2.54

 

 

$

5.05

 

 

 

 

 

 

 

 

 

Basic: weighted average shares

 

243,853

 

 

 

263,087

 

 

 

250,168

 

 

 

264,248

 

 

 

 

 

 

 

 

 

Diluted earnings per common share attributable to Jefferies common shareholders:

 

 

 

 

 

 

 

Net income

$

0.78

 

 

$

1.50

 

 

$

2.48

 

 

$

4.93

 

 

 

 

 

 

 

 

 

Diluted: weighted average shares

 

251,239

 

 

 

271,405

 

 

 

258,083

 

 

 

271,746

 

A summary of results for the three months ended August 31, 2022 is as follows (in thousands):

 

Investment
Banking and
Capital
Markets

 

Asset
Management

 

Merchant
Banking

 

Corporate

 

Parent
Company
Interest

 

Consolidation
Adjustments

 

Total

Net revenues

$

1,134,732

 

$

(13,803

)

 

$

397,847

 

 

$

6,192

 

 

$

 

 

$

(78

)

 

$

1,524,890

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

 

 

 

123,436

 

 

 

 

 

 

 

 

 

 

 

 

123,436

 

Compensation and benefits

 

521,214

 

 

12,808

 

 

 

10,584

 

 

 

13,856

 

 

 

 

 

 

 

 

 

558,462

 

Non-compensation expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Floor brokerage and clearing fees

 

79,727

 

 

4,959

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

84,686

 

Selling, general and other expenses

 

343,648

 

 

11,662

 

 

 

37,651

 

 

 

5,339

 

 

 

 

 

 

(78

)

 

 

398,222

 

Interest expense

 

 

 

 

 

 

1,223

 

 

 

 

 

 

8,997

 

 

 

 

 

 

10,220

 

Depreciation and amortization

 

23,366

 

 

401

 

 

 

18,997

 

 

 

423

 

 

 

 

 

 

 

 

 

43,187

 

Total non-compensation expenses

 

446,741

 

 

17,022

 

 

 

57,871

 

 

 

5,762

 

 

 

8,997

 

 

 

(78

)

 

 

536,315

 

Total expenses

 

967,955

 

 

29,830

 

 

 

191,891

 

 

 

19,618

 

 

 

8,997

 

 

 

(78

)

 

 

1,218,213

 

Income (loss) before income taxes and loss related to associated companies

 

166,777

 

 

(43,633

)

 

 

205,956

 

 

 

(13,426

)

 

 

(8,997

)

 

 

 

 

 

306,677

 

Loss related to associated companies

 

 

 

 

 

 

(4,827

)

 

 

 

 

 

 

 

 

 

 

 

(4,827

)

Income (loss) before income taxes

$

166,777

 

$

(43,633

)

 

$

201,129

 

 

$

(13,426

)

 

$

(8,997

)

 

$

 

 

 

301,850

 

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

 

105,909

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

$

195,941

 

A summary of results for the three months ended August 31, 2021 is as follows (in thousands):

 

Investment
Banking and
Capital
Markets (1)

 

Asset
Management (1)

 

Merchant
Banking (1)

 

Corporate

 

Parent
Company
Interest

 

Consolidation
Adjustments (1)

 

Total

Net revenues

$

1,672,943

 

$

13,327

 

 

$

248,690

 

 

$

955

 

 

$

 

 

$

3,069

 

 

$

1,938,984

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

 

 

 

151,510

 

 

 

 

 

 

 

 

 

 

 

 

151,510

 

Compensation and benefits

 

762,725

 

 

15,468

 

 

 

17,584

 

 

 

6,466

 

 

 

 

 

 

 

 

 

802,243

 

Non-compensation expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Floor brokerage and clearing fees

 

64,441

 

 

4,541

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

68,982

 

Selling, general and other expenses

 

222,357

 

 

10,719

 

 

 

39,849

 

 

 

4,375

 

 

 

 

 

 

(38

)

 

 

277,262

 

Interest expense

 

4,982

 

 

 

 

 

762

 

 

 

 

 

 

13,774

 

 

 

 

 

 

19,518

 

Depreciation and amortization

 

21,065

 

 

494

 

 

 

16,554

 

 

 

564

 

 

 

 

 

 

 

 

 

38,677

 

Total non-compensation expenses

 

312,845

 

 

15,754

 

 

 

57,165

 

 

 

4,939

 

 

 

13,774

 

 

 

(38

)

 

 

404,439

 

Total expenses

 

1,075,570

 

 

31,222

 

 

 

226,259

 

 

 

11,405

 

 

 

13,774

 

 

 

(38

)

 

 

1,358,192

 

Income (loss) before income taxes and loss related to associated companies

 

597,373

 

 

(17,895

)

 

 

22,431

 

 

 

(10,450

)

 

 

(13,774

)

 

 

3,107

 

 

 

580,792

 

Loss related to associated companies

 

 

 

 

 

 

(27,176

)

 

 

 

 

 

 

 

 

 

 

 

(27,176

)

Income (loss) before income taxes

$

597,373

 

$

(17,895

)

 

$

(4,745

)

 

$

(10,450

)

 

$

(13,774

)

 

$

3,107

 

 

 

553,616

 

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

 

145,700

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

$

407,916

 

(1) In the first quarter of 2022, we transferred certain Merchant Banking net assets to our Investment Banking and Capital Markets and Asset Management segments. Prior year amounts have been reclassified to conform to current segment disclosure.

A summary of results for the nine months ended August 31, 2022 is as follows (in thousands):

 

Investment
Banking and
Capital
Markets

 

Asset
Management

 

Merchant
Banking

 

Corporate

 

Parent
Company
Interest

 

Consolidation
Adjustments

 

Total

Net revenues

$

3,714,928

 

$

77,300

 

 

$

825,637

 

 

$

8,756

 

 

$

 

 

$

(734

)

 

$

4,625,887

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

 

 

 

349,556

 

 

 

 

 

 

 

 

 

 

 

 

349,556

 

Compensation and benefits

 

1,768,350

 

 

43,560

 

 

 

89,226

 

 

 

25,487

 

 

 

 

 

 

 

 

 

1,926,623

 

Non-compensation expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Floor brokerage and clearing fees

 

237,140

 

 

25,523

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

262,663

 

Selling, general and other expenses

 

864,026

 

 

33,638

 

 

 

97,155

 

 

 

17,319

 

 

 

 

 

 

(378

)

 

 

1,011,760

 

Interest expense

 

 

 

 

 

 

2,846

 

 

 

 

 

 

25,773

 

 

 

 

 

 

28,619

 

Depreciation and amortization

 

69,687

 

 

1,230

 

 

 

57,248

 

 

 

1,266

 

 

 

 

 

 

 

 

 

129,431

 

Total non-compensation expenses

 

1,170,853

 

 

60,391

 

 

 

157,249

 

 

 

18,585

 

 

 

25,773

 

 

 

(378

)

 

 

1,432,473

 

Total expenses

 

2,939,203

 

 

103,951

 

 

 

596,031

 

 

 

44,072

 

 

 

25,773

 

 

 

(378

)

 

 

3,708,652

 

Income (loss) before income taxes and loss related to associated companies

 

775,725

 

 

(26,651

)

 

 

229,606

 

 

 

(35,316

)

 

 

(25,773

)

 

 

(356

)

 

 

917,235

 

Loss related to associated companies

 

 

 

 

 

 

(56,512

)

 

 

 

 

 

 

 

 

 

 

 

(56,512

)

Income (loss) before income taxes

$

775,725

 

$

(26,651

)

 

$

173,094

 

 

$

(35,316

)

 

$

(25,773

)

 

$

(356

)

 

 

860,723

 

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

 

219,949

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

$

640,774

 

A summary of results for the nine months ended August 31, 2021 is as follows (in thousands):

 

Investment
Banking and
Capital
Markets (1)

 

Asset
Management (1)

 

Merchant
Banking (1)

 

Corporate

 

Parent
Company
Interest

 

Consolidation
Adjustments (1)

 

Total

Net revenues

$

5,259,301

 

$

293,204

 

$

812,509

 

 

$

2,269

 

 

$

 

 

$

9,150

 

 

$

6,376,433

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

 

 

390,916

 

 

 

 

 

 

 

 

 

 

 

 

390,916

 

Compensation and benefits

 

2,650,704

 

 

59,924

 

 

66,365

 

 

 

29,035

 

 

 

 

 

 

 

 

 

2,806,028

 

Non-compensation expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Floor brokerage and clearing fees

 

197,226

 

 

24,982

 

 

 

 

 

 

 

 

 

 

 

 

 

 

222,208

 

Selling, general and other expenses

 

744,366

 

 

33,651

 

 

99,000

 

 

 

13,954

 

 

 

 

 

 

(212

)

 

 

890,759

 

Interest expense

 

15,806

 

 

 

 

2,517

 

 

 

 

 

 

41,505

 

 

 

 

 

 

59,828

 

Depreciation and amortization

 

62,580

 

 

1,462

 

 

50,536

 

 

 

2,306

 

 

 

 

 

 

 

 

 

116,884

 

Total non-compensation expenses

 

1,019,978

 

 

60,095

 

 

152,053

 

 

 

16,260

 

 

 

41,505

 

 

 

(212

)

 

 

1,289,679

 

Total expenses

 

3,670,682

 

 

120,019

 

 

609,334

 

 

 

45,295

 

 

 

41,505

 

 

 

(212

)

 

 

4,486,623

 

Income (loss) before income taxes and loss related to associated companies

 

1,588,619

 

 

173,185

 

 

203,175

 

 

 

(43,026

)

 

 

(41,505

)

 

 

9,362

 

 

 

1,889,810

 

Loss related to associated companies

 

 

 

 

 

(61,270

)

 

 

 

 

 

 

 

 

 

 

 

(61,270

)

Income (loss) before income taxes

$

1,588,619

 

$

173,185

 

$

141,905

 

 

$

(43,026

)

 

$

(41,505

)

 

$

9,362

 

 

 

1,828,540

 

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

 

484,756

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

$

1,343,784

 

(1) In the first quarter of 2022, we transferred certain Merchant Banking net assets to our Investment Banking and Capital Markets and Asset Management segments. Prior year amounts have been reclassified to conform to current segment disclosure.

Selected Financial and Statistical Information

(Amounts in Thousands, Except Other Data) (Unaudited)

 

Quarter Ended

 

August 31,
2022

 

May 31,
2022

 

August 31
2021 (1)

Investment Banking, Capital Markets and Asset Management Net Revenues:

 

 

 

 

 

 

 

 

 

 

 

Advisory

$

486,762

 

 

$

371,760

 

 

$

583,887

 

 

 

 

 

 

 

Equity underwriting

 

150,972

 

 

 

122,435

 

 

 

367,460

 

Debt underwriting

 

76,943

 

 

 

107,020

 

 

 

229,273

 

Total underwriting

 

227,915

 

 

 

229,455

 

 

 

596,733

 

 

 

 

 

 

 

Other investment banking (2)

 

(32,877

)

 

 

85,746

 

 

 

42,997

 

 

 

 

 

 

 

Total investment banking

 

681,800

 

 

 

686,961

 

 

 

1,223,617

 

 

 

 

 

 

 

Equities

 

277,448

 

 

 

254,807

 

 

 

236,532

 

Fixed income

 

174,618

 

 

 

161,478

 

 

 

205,795

 

Total capital markets

 

452,066

 

 

 

416,285

 

 

 

442,327

 

 

 

 

 

 

 

Other (2)

 

866

 

 

 

(4,868

)

 

 

6,999

 

 

 

 

 

 

 

Total Investment Banking and Capital Markets Net Revenues (3)

 

1,134,732

 

 

 

1,098,378

 

 

 

1,672,943

 

 

 

 

 

 

 

Asset management fees and revenues (4)

 

17,069

 

 

 

14,116

 

 

 

18,869

 

Investment return (5)

 

(19,671

)

 

 

30,637

 

 

 

5,613

 

Allocated net interest (5)

 

(11,201

)

 

 

(13,606

)

 

 

(11,155

)

Total Asset Management Net Revenues

 

(13,803

)

 

 

31,147

 

 

 

13,327

 

 

 

 

 

 

 

Total Investment Banking, Capital Markets and Asset Management Net Revenues

$

1,120,929

 

 

$

1,129,525

 

 

$

1,686,270

 

 

 

 

 

 

 

Investment Banking, Capital Markets and Asset Management Non-compensation Expenses:

 

 

 

 

 

 

 

 

 

 

 

Floor brokerage and clearing fees

$

84,686

 

 

$

94,016

 

 

$

68,982

 

Underwriting costs

 

11,672

 

 

 

13,191

 

 

 

21,474

 

Technology and communications

 

108,256

 

 

 

108,630

 

 

 

93,808

 

Occupancy and equipment rental

 

24,944

 

 

 

24,561

 

 

 

24,961

 

Business development

 

36,658

 

 

 

47,880

 

 

 

24,380

 

Professional services

 

55,231

 

 

 

52,192

 

 

 

49,543

 

Depreciation and amortization

 

23,767

 

 

 

23,233

 

 

 

21,559

 

Other

 

118,549

 

 

 

43,110

 

 

 

23,892

 

 

 

 

 

 

 

Total Investment Banking, Capital Markets and Asset Management Non-compensation Expenses

$

463,763

 

 

$

406,813

 

 

$

328,599

 

 

 

 

 

 

 

Investment Banking, Capital Markets and Asset Management Compensation and Benefits Expenses:

 

 

 

 

 

Compensation and benefits

$

534,022

 

 

$

533,676

 

 

$

778,193

 

Compensation and benefits expenses as a percentage of net revenues

 

47.6

%

 

 

47.2

%

 

 

46.1

%

 

 

 

 

 

 

(Amounts in Thousands, Except Other Data) (Unaudited)

 

 

Nine Months Ended May 31,

 

 

2022

 

2021 (1)

Investment Banking, Capital Markets and Asset Management Net Revenues:

 

 

 

 

 

 

 

 

 

Advisory

 

$

1,402,291

 

 

$

1,285,834

 

 

 

 

 

 

Equity underwriting

 

 

429,507

 

 

 

1,186,728

 

Debt underwriting

 

 

429,142

 

 

 

712,370

 

Total underwriting

 

 

858,649

 

 

 

1,899,098

 

 

 

 

 

 

Other investment banking (2)

 

 

111,003

 

 

 

208,480

 

 

 

 

 

 

Total investment banking

 

 

2,371,943

 

 

 

3,393,412

 

 

 

 

 

 

Equities

 

 

809,302

 

 

 

1,010,497

 

Fixed income

 

 

538,896

 

 

 

826,351

 

Total capital markets

 

 

1,348,198

 

 

 

1,836,848

 

 

 

 

 

 

Other (2)

 

 

(5,213

)

 

 

29,041

 

 

 

 

 

 

Total Investment Banking and Capital Markets Net Revenues (3)

 

 

3,714,928

 

 

 

5,259,301

 

 

 

 

 

 

Asset management fees and revenues (4)

 

 

75,687

 

 

 

107,668

 

Investment return (5)

 

 

40,496

 

 

 

218,529

 

Allocated net interest (5)

 

 

(38,883

)

 

 

(32,993

)

Total Asset Management Net Revenues

 

 

77,300

 

 

 

293,204

 

 

 

 

 

 

Total Investment Banking, Capital Markets and Asset Management Net Revenues

 

$

3,792,228

 

 

$

5,552,505

 

 

 

 

 

 

Investment Banking, Capital Markets and Asset Management Non-compensation Expenses:

 

 

 

 

 

 

 

 

 

Floor brokerage and clearing fees

 

$

262,663

 

 

$

222,208

 

Underwriting costs

 

 

32,991

 

 

 

90,641

 

Technology and communications

 

 

321,441

 

 

 

281,032

 

Occupancy and equipment rental

 

 

74,755

 

 

 

77,515

 

Business development

 

 

108,914

 

 

 

69,410

 

Professional services

 

 

158,541

 

 

 

142,419

 

Depreciation and amortization

 

 

70,917

 

 

 

64,042

 

Other

 

 

201,022

 

 

 

132,806

 

 

 

 

 

 

Total Investment Banking, Capital Markets and Asset Management Non-compensation Expenses

 

$

1,231,244

 

 

$

1,080,073

 

 

 

 

 

 

Investment Banking, Capital Markets and Asset Management Compensation and Benefits Expenses:

 

 

 

 

Compensation and benefits

 

$

1,811,910

 

 

$

2,710,628

 

Compensation and benefits expenses as a percentage of net revenues

 

 

47.8

%

 

 

48.8

%

 

 

 

 

 

(Amounts in Thousands, Except Other Data) (Unaudited)

 

 

 

 

 

 

 

Quarter Ended

 

August 31,
2022

 

May 31,
2022

 

August 31
2021 (1)

Other Data:

 

 

 

 

 

Number of trading days

 

64

 

 

64

 

 

65

 

Number of trading loss days (6)

 

9

 

 

10

 

 

20

 

Average VaR (in millions) (7)

$

9.6

 

$

11.84

 

$

12.69

 

 

 

 

 

 

 

 

 

 

Nine Months Ended August 31,

 

 

 

2022

 

2021 (1)

Other Data:

 

 

 

 

 

Number of trading days

 

 

 

189

 

 

189

 

Number of trading loss days (6)

 

 

 

27

 

 

49

 

Average VaR (in millions) (7)

 

 

$

11.18

 

$

14.79

 

(1)

In the first quarter of 2022, we transferred certain Merchant Banking net assets to our Investment Banking and Capital Markets and Asset Management segments. Previously reported results are presented on a comparable basis.

(2)

In the first quarter of 2022, we also made a change to present our share of the net earnings of Berkadia Commercial Mortgage Holding LLC within Investment banking net revenues, which was previously presented within our Other business category. Previously reported results are presented on a comparable basis.

(3)

Allocated net interest is not separately disaggregated for Investment Banking and Capital Markets. This presentation is aligned to our Investment Banking and Capital Markets internal performance measurement.

(4)

Includes management and performance fees from funds and accounts managed by us as well as our share of fees received by affiliated asset management companies with which we have revenue and profit share arrangements, as well as earnings on our ownership interest in affiliated asset managers.

(5)

Allocated net interest represents an allocation to Asset Management of certain of our long-term debt interest expense, net of interest income on our Cash and cash equivalents and other sources of liquidity. Allocated net interest has been disaggregated to increase transparency and to make clearer actual Investment return. We believe that aggregating Investment return and Allocated net interest would obscure the Investment return by including an amount that is unique to our credit spreads, debt maturity profile, capital structure, liquidity risks and allocation methods.

(6)

Number of trading loss days is calculated based on trading activities in our Investment Banking and Capital Markets and Asset Management business segments.

(7)

VaR estimates the potential loss in value of trading positions in our Investment Banking and Capital Markets and Asset Management business segments due to adverse market movements over a one-day time horizon with a 95% confidence level. For a further discussion of the calculation of VaR, see "Value-at-Risk" in Part II, Item 7A "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the year ended November 30, 2021.

Financial Data and Metrics

(Amounts in Millions, Except Other Data) (Unaudited)

 

 

Quarter Ended

 

August 31,
2022

 

May 31,
2022

 

August 31
2021 (1)

Financial position (1):

 

 

 

 

 

Total assets

$

55,230

 

$

57,214

 

$

58,037

Total assets less goodwill and intangible assets for the period

$

53,355

 

$

55,329

 

$

56,132

Cash and cash equivalents

$

9,478

 

$

8,523

 

$

9,481

Financial instruments owned

$

20,249

 

$

20,248

 

$

19,735

Level 3 financial instruments owned (2)

$

764

 

$

740

 

$

671

Goodwill and intangible assets

$

1,874

 

$

1,885

 

$

1,905

Total equity

$

10,360

 

$

10,368

 

$

10,401

Total shareholders' equity

$

10,293

 

$

10,300

 

$

10,382

Tangible equity (3)

$

8,418

 

$

8,415

 

$

8,477

 

 

 

 

 

 

Other data and financial ratios:

 

 

 

 

 

Leverage ratio (1) (4)

 

5.3

 

 

5.5

 

 

5.6

Tangible gross leverage ratio (1) (5)

 

6.3

 

 

6.6

 

 

6.6

 

 

 

 

 

 

Number of employees, at period end

 

5,347

 

 

5,619

 

 

5,493

(1)

Amounts pertaining to August 31, 2022 represent a preliminary estimate as of the date of this earnings release and may be revised in our Quarterly Report on Form 10-Q for the three and nine months ended August 31, 2022.

(2)

Level 3 financial instruments represent those financial instruments classified as such under Accounting Standards Codification 820, accounted for at fair value and included within Financial instruments owned.

(3)

Tangible equity (a non-GAAP financial measure) represents total Jefferies shareholders' equity less goodwill and identifiable intangible assets. We believe that tangible equity is meaningful for valuation purposes, as financial companies are often measured as a multiple of tangible equity, making these ratios meaningful for investors.

(4)

Leverage ratio equals total assets divided by total equity.

(5)

Tangible gross leverage ratio (a non-GAAP financial measure) equals total assets less goodwill and identifiable intangible assets divided by tangible equity. The tangible gross leverage ratio is used by rating agencies in assessing our leverage ratio.

Components of Denominator for Earnings Per Share

The denominators used to calculate basic and diluted earnings per share are as follows (in thousands):

 

 

Three Months Ended
August 31, 2022

 

Nine Months Ended
August 31, 2022

 

 

 

 

 

Weighted average common shares outstanding

 

230,988

 

 

236,546

 

Weighted average shares of restricted stock with future service

 

(710

)

 

(1,075

)

Weighted average restricted stock units outstanding with no future service

 

13,575

 

 

14,697

 

Denominator for basic earnings per share

 

243,853

 

 

250,168

 

Stock options and other share based awards

 

1,171

 

 

1,485

 

Senior executive compensation plan restricted stock unit awards

 

1,774

 

 

1,989

 

Mandatorily redeemable convertible preferred shares

 

4,441

 

 

4,441

 

Denominator for diluted earnings per share

 

251,239

 

 

258,083

 

Non-GAAP Reconciliations

The following tables reconcile our non-GAAP measures to their respective U.S. GAAP measures. Management believes such non-GAAP measures are useful to investors as they allow them to view our results through the eyes of management, while facilitating a comparison across historical periods. These measures should not be considered a substitute for, or superior to, measures prepared in accordance with U.S. GAAP.

Net Income Attributable to Common Shareholders and Earnings Per Share GAAP Reconciliation

Reconciliation of Jefferies net income attributable to common shareholders to adjusted net income attributable to common shareholders and diluted earnings per share to adjusted diluted earnings per share (in thousands, except per share amounts):

 

 

Three Months Ended
August 31, 2022

 

Nine Months Ended
August 31, 2022

 

 

 

 

 

Net income attributable to common shareholders (GAAP)

 

$

195,459

 

$

636,920

Net income impact for regulatory settlement

 

 

80,000

 

 

80,000

Adjusted net income attributable to common shareholders (non-GAAP)

 

$

275,459

 

$

716,920

 

 

 

 

 

Jefferies Financial Group diluted earnings per share (GAAP)

 

$

0.78

 

$

2.48

Diluted earnings per share impact for regulatory settlement

 

 

0.32

 

 

0.31

Adjusted Jefferies Financial Group diluted earnings per share (non-GAAP)

 

$

1.10

 

$

2.79

Return on Adjusted Tangible Equity Reconciliation

The table below reconciles our Net income attributable to common shareholders to adjusted net income and our Shareholders' equity to adjusted tangible shareholders' equity (in thousands):

 

 

Three Months Ended August 31,

 

Nine Months Ended August 31,

 

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

 

 

 

 

 

 

 

 

Net income attributable to common shareholders (GAAP)

 

$

195,459

 

 

$

407,459

 

 

$

636,920

 

 

$

1,342,490

 

Intangible amortization and impairment expense, net of tax

 

 

1,638

 

 

 

2,618

 

 

 

6,350

 

 

 

7,869

 

Adjusted net income (non-GAAP)

 

$

197,097

 

 

$

410,077

 

 

$

643,270

 

 

$

1,350,359

 

Annualized adjusted net income (non-GAAP)

 

$

788,388

 

 

$

1,640,308

 

 

$

857,693

 

 

$

1,800,479

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 31,

 

November 30,

 

 

 

2022

 

 

 

2021

 

 

 

2021

 

 

 

2020

 

 

 

 

 

 

 

 

 

 

Shareholders' equity (GAAP)

 

$

10,300,177

 

 

$

10,072,634

 

 

$

10,553,755

 

 

$

9,403,893

 

Less: Intangible assets, net and goodwill

 

 

(1,885,043

)

 

 

(1,912,480

)

 

 

(1,897,500

)

 

 

(1,913,467

)

Less: Deferred tax asset

 

 

(401,268

)

 

 

(452,467

)

 

 

(327,547

)

 

 

(393,687

)

Less: Weighted average quarter-to-date or year-to-date impact of cash dividends and share repurchases

 

 

(93,106

)

 

 

(56,862

)

 

 

(539,674

)

 

 

(189,771

)

Adjusted tangible shareholders' equity (non-GAAP)

 

$

7,920,760

 

 

$

7,650,825

 

 

$

7,789,034

 

 

$

6,906,968

 

 

 

 

 

 

 

 

 

 

Return on adjusted tangible equity

 

 

10.0

%

 

 

21.4

%

 

 

11.0

%

 

 

26.1

%

Adjusted Return on Adjusted Tangible Equity Reconciliation

The table below reconciles our Net income attributable to common shareholders to adjusted net income excluding regulatory settlement expense and our Shareholders' equity to adjusted tangible shareholders' equity (in thousands):

 

 

Three Months Ended
August 31, 2022

 

Nine Months Ended
August 31, 2022

 

 

 

 

 

Net income attributable to common shareholders (GAAP)

 

$

195,459

 

 

$

636,920

 

Intangible amortization and impairment expense, net of tax

 

 

1,638

 

 

 

6,350

 

Net income impact for regulatory settlement

 

 

80,000

 

 

 

80,000

 

Adjusted net income excluding regulatory settlement (non-GAAP)

 

$

277,097

 

 

$

723,270

 

Annualized adjusted net income excluding regulatory settlement (non-GAAP)

 

$

1,108,388

 

 

$

964,360

 

 

 

 

 

 

 

 

May 31, 2022

 

November 30, 2021

 

 

 

 

 

Shareholders' equity (GAAP)

 

$

10,300,177

 

 

$

10,553,755

 

Less: Intangible assets, net and goodwill

 

 

(1,885,043

)

 

 

(1,897,500

)

Less: Deferred tax asset

 

 

(401,268

)

 

 

(327,547

)

Less: Weighted average quarter-to-date or year-to-date impact of cash dividends and share repurchases

 

 

(93,106

)

 

 

(539,674

)

Adjusted tangible shareholders' equity (non-GAAP)

 

$

7,920,760

 

 

$

7,789,034

 

 

 

 

 

 

Adjusted return on adjusted tangible equity

 

 

14.0

%

 

 

12.4

%

 

 

 

 

 

Jefferies Shareholders' Equity GAAP Reconciliation

At the beginning of the press release, we disclose how much we have returned to shareholders through buybacks and dividends since the beginning of 2018 and what percentage that is of shareholders' equity and tangible shareholders' equity at the beginning of 2018. The table below reconciles our shareholders' equity to tangible shareholders' equity at the beginning of 2018 (in thousands):

 

 

December 31, 2017

 

 

 

Shareholders' equity (GAAP)

 

$

10,105,957

 

Intangible assets, net and goodwill

 

 

(2,463,180

)

Tangible shareholders' equity (non-GAAP)

 

$

7,642,777

 

Jefferies Book Value and Shares Outstanding GAAP Reconciliation

The table below reconciles our book value (shareholders' equity) to adjusted tangible book value and our common shares outstanding to fully diluted shares outstanding (in thousands, except per share amounts):

 

 

August 31, 2022

 

 

 

Book value (GAAP)

 

$

10,292,531

 

Redeemable convertible preferred shares convertible to common shares (1)

 

 

125,000

 

Stock options (2)

 

 

119,384

 

Intangible assets, net and goodwill

 

 

(1,874,435

)

Adjusted tangible book value (non-GAAP)

 

$

8,662,480

 

 

 

 

Common shares outstanding (GAAP)

 

 

228,807

 

Restricted stock units ("RSUs")

 

 

16,792

 

Redeemable convertible preferred shares converted to common shares (1)

 

 

4,441

 

Stock options (2)

 

 

5,027

 

Other

 

 

1,155

 

Fully diluted shares outstanding (non-GAAP) (3)

 

 

256,222

 

 

 

 

Book value per share outstanding

 

$

44.98

 

Tangible book value per fully diluted share outstanding

 

$

33.81

 

(1)

Redeemable convertible preferred shares added to book value and fully diluted shares assume that the redeemable convertible preferred shares are converted to common shares.

(2)

Stock options added to book value are equal to the total number of stock options outstanding as of August 31, 2022 of 5,026,532 multiplied by the weighted average exercise price of $23.75 on August 31, 2022. Stock options added to fully diluted shares are equal to the total stock options outstanding on August 31, 2022.

(3)

Fully diluted shares outstanding include vested and unvested RSUs as well as the target number of RSUs issuable under the senior executive compensation plans. Fully diluted shares outstanding also include all stock options and the additional common shares if our redeemable convertible preferred shares were converted to common shares.

Effective Tax Rate GAAP Reconciliation

The table below reconciles our effective tax rate to adjusted effective tax rate:

 

 

Three Months Ended
August 31, 2022

 

 

 

Effective tax rate (GAAP)

 

35.1%

Effective tax rate impact for regulatory settlement

 

(7.4) %

Adjusted effective tax rate (non-GAAP)

 

27.7%

 

Jonathan Freedman 212.778.8913

Source: Care of Jefferies Financial Group Inc. and Jefferies Group LLC