Jefferies Financial Group Inc DEFA14A, filed Jun 27, 2023

Jefferies Financial Group Inc. (JEF)

DEFA14A 2023-06-27

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☐	Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

☐	Definitive Proxy Statement

☑	Definitive Additional Materials

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☐	Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.

●	Net earnings attributable to common shareholders of $12 million, or $0.05 per diluted share, including $72 million of pre-tax losses related to OpNet (formerly Linkem), a legacy merchant banking investment
●	Annualized return on adjusted tangible equity¹ of 0.7%
●	Total net revenues of $1.04 billion, including $72 million of pre-tax losses related to OpNet

	➢	Investment Banking net revenues of $510 million
	➢	Capital Markets net revenues of $543 million

●	Repurchased 2.2 million shares of common stock for $67 million at an average price of $30.88 per share. At May 31, 2023, we had 231.4 million shares outstanding and 251.9 million shares outstanding on a fully diluted basis². Our book value per share was $41.90 and tangible book value per fully diluted share³ was $31.51 at May 31, 2023
●	Our Board of Directors has increased our share buyback authorization back to a total of $250 million

(Dollars in thousands, except per share amounts)	Three Months Ended May 31,									Six Months Ended May 31,
	2023			2022¹⁴			% Change			2023			2022¹⁴			% Change
Net revenues:
Investment Banking and Capital Markets	$	1,052,504		$	1,105,174			(5	)%	$	2,259,795		$	2,567,539			(12	)%
Asset Management		(22,384	)		233,977			N/	M		55,912			460,809			(88	)%
Other		7,490			(1,081	)		N/	M		5,395			2,564			110	%
Net revenues		1,037,610			1,338,070			(22	)%		2,321,102			3,030,912			(23	)%
Net earnings before income taxes		17,919			166,541			(89	)%		175,937			558,873			(69	)%
Income tax expense		9,235			49,683			(81	)%		37,929			114,040			(67	%
Net earnings		8,684			116,858			(93	)%		138,008			444,833			(69	%
Net earnings (losses) attributable to noncontrolling interests		(3,513	)		1,096			N/	M		(9,568	)		127			N/	M
Net losses attributable to redeemable noncontrolling interests		(198	)		(323	)		(39	)%		(454	)		(896	)		(49	%
Preferred stock dividends		—			2,071			(100	)%		2,016			4,141			(51	)%
Net earnings attributable to Jefferies Financial Group Inc.	$	12,395		$	114,014			(89	)%	$	146,014		$	441,461			(67	)%
Net earnings attributable to Jefferies Financial Group Inc.	$	0.05		$	0.46			(89	)%	$	0.60		$	1.73			(65	)%
Weighted average shares		242,568			249,142						240,825			253,330
Diluted earnings per common share	$	0.05		$	0.45			(89	)%	$	0.60		$	1.70			(65	)%
Weighted average diluted shares		245,413			251,979						246,870			261,494
Annualized return on adjusted tangible equity¹		0.7	%		5.8	%					3.8	%		11.2	%

Three Months Ended May 31, 2023		Six Months Ended May 31, 2023
● Net earnings attributable to common shareholders of $12 million, or $0.05 per diluted share, including $72 million of pre-tax losses related to OpNet. ● Repurchased 2.2 million shares of common stock for $67 million, at an average price of $30.88 per share, including 2.0 million shares of common stock in the open market for $61 million under our current Board of Directors authorization and 0.2 million shares of common stock for $6 million in connection with net-share settlements related to our equity compensation plans. ● We had 231.4 million shares outstanding and 251.9 million shares outstanding on a fully diluted basis² at May 31, 2023. Our book value per share was $41.90 and tangible book value per fully diluted share³ was $31.51at May 31, 2023. ● Our Board of Directors has increased our share buyback authorization back to a total of $250 million. ● Effective tax rate of 51.5%.		● Net earnings attributable to common shareholders of $146 million, or $0.60 per diluted share, including $80 million of pre-tax losses related to OpNet. ● Repurchased 4.7 million shares of common stock for $165 million, at an average price of $34.75 per share, including 2.0 million shares of common stock in the open market for $61 million under our current Board of Directors authorization and 2.7 million shares of common stock for $104 million in connection with net-share settlements related to our equity compensation plans. ● Effective tax rate of 21.6%.

Asset Management		Asset Management
● Asset Management net revenues of negative $22 million were primarily due to losses from OpNet. Additionally, we sold our interests in Idaho Timber in the third quarter of 2022 and spun-off our interests in Vitesse Energy in the first quarter of 2023, and the results of those operations are no longer included in our results.		● Asset Management net revenues were $56 million and reflects the spin-off of our interests in Vitesse Energy in January 2023.

(Amounts in Thousands) (Unaudited)	Quarter Ended
	May 31, 2023			February 28, 2023			May 31,2022¹⁴
Net revenues by source:
Advisory	$	254,157		$	297,178		$	371,404
Equity underwriting		148,429			125,445			122,435
Debt underwriting		89,889			80,175			107,021
Total underwriting		238,318			205,620			229,456
Other investment banking		17,338			65,132			88,030
Total Investment Banking		509,813			567,930			688,890
Equities		283,316			308,661			254,807
Fixed income		259,375			330,700			161,477
Total Capital Markets		542,691			639,361			416,284
Total Investment Banking and Capital Markets Net revenues⁵		1,052,504			1,207,291			1,105,174
Asset management fees and revenues⁶		15,929			42,696			14,116
Investment return⁴		32,477			27,434			26,580
Merchant banking, inclusive of net interest		(62,558	)		11,608			205,425
Allocated net interest⁴		(8,232	)		(3,442	)		(12,144	)
Total Asset Management Net revenues		(22,384	)		78,296			233,977
Other		7,490			(2,095	)		(1,081	)
Total Net revenues by source	$	1,037,610		$	1,283,492		$	1,338,070

Non-interest expenses:
Compensation and benefits	$	575,868		$	703,058		$	579,578
Floor brokerage and clearing fees		96,592			80,474			94,016
Underwriting costs		13,169			13,207			13,191
Technology and communications		118,936			113,385			111,113
Occupancy and equipment rental		24,395			27,315			26,027
Business development		43,587			36,838			44,695
Professional services		68,514			62,161			55,766
Depreciation and amortization		25,310			33,292			40,307
Cost of sales		2,362			2,168			130,449
Other		50,958			53,576			76,387
Total Non-interest expenses	$	1,019,691		$	1,125,474		$	1,171,529

(Amounts in Thousands) (Unaudited)	Six Months Ended May 31,
	2023			2022¹⁴
Net revenues by source:
Advisory	$	551,335		$	915,173
Equity underwriting		273,874			278,535
Debt underwriting		170,064			352,199
Total underwriting		443,938			630,734
Other investment banking		82,470			125,500
Total Investment Banking		1,077,743			1,671,407
Equities		591,977			531,854
Fixed income		590,075			364,278
Total Capital Markets		1,182,052			896,132
Total Investment Banking and Capital Markets Net revenues⁵		2,259,795			2,567,539
Asset management fees and revenues⁶		58,625			58,618
Investment return⁴		59,911			35,469
Merchant banking		(50,950	)		391,216
Allocated net interest⁴		(11,674	)		(24,494	)
Total Asset Management Net revenues		55,912			460,809
Other		5,395			2,564
Total Net revenues by source	$	2,321,102		$	3,030,912

Non-interest expenses:
Compensation and benefits	$	1,278,926		$	1,370,330
Floor brokerage and clearing fees		177,066			177,977
Underwriting costs		26,376			21,319
Technology and communications		232,321			218,129
Occupancy and equipment rental		51,710			52,992
Business development		80,425			71,567
Professional services		130,675			108,508
Depreciation and amortization		58,602			86,244
Cost of sales		4,530			226,120
Other		104,534			138,853
Total Non-interest expenses	$	2,145,165		$	2,472,039

(Unaudited)	Quarter Ended
	May 31, 2023		February 28, 2023		May 31,2022
Other Data:
Number of trading days		64		60		64
Number of trading loss days⁷		10		3		10
Average VaR (in millions)⁸	$	15.14	$	12.85	$	11.84

			Six Months Ended May 31,
				2023		2022
Other Data:
Number of trading days				124		125
Number of trading loss days⁷				13		18
Average VaR (in millions)⁸			$	14.03	$	11.98

(Amounts in Millions, Except Other Data) (Unaudited)	Quarter Ended
	May 31, 2023		February 28, 2023		May 31,2022¹⁵
Financial position⁹:
Total assets	$	53,740	$	52,033	$	52,919
Total assets less goodwill and intangible assets for the period¹⁵		51,867		50,160		51,034
Cash and cash equivalents		8,005		7,509		8,523
Financial instruments owned¹⁵		21,002		21,083		18,493
Level 3 financial instruments owned¹⁰^,¹⁵		860		819		730
Goodwill and intangible assets		1,873		1,873		1,885
Total equity		9,765		9,811		10,368
Total shareholders' equity		9,696		9,755		10,300
Tangible shareholders' equity¹¹		7,823		7,882		8,415
Other data and financial ratios:
Leverage ratio⁹^,¹²^,¹⁵		5.5		5.3		5.1
Tangible gross leverage ratio⁹^,¹³^,¹⁵		6.6		6.4		6.1
Number of employees, at period end		5,335		5,401		5,619

	Three Months Ended May 31, 2023			Six Months Ended May 31, 2023
Weighted average common shares outstanding		232,842			230,193
Weighted average shares of restricted stock with future service		(1,853	)		(1,989	)
Weighted average restricted stock units outstanding with no future service		11,579			12,621
Denominator for basic earnings per share		242,568			240,825
Stock options and other share based awards		1,618			2,086
Senior executive compensation plan restricted stock unit awards		1,227			2,072
Mandatorily redeemable convertible preferred shares		—			1,887
Denominator for diluted earnings per share		245,413			246,870

1.	Annualized return on adjusted tangible equity (a non-GAAP financial measure) is defined as annualized adjusted net earnings (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 for a reconciliation to U.S. GAAP amounts.
2.	Shares outstanding on a fully diluted basis (a non-GAAP financial measure) is defined as common shares outstanding plus restricted stock units, stock options and other shares. Refer to schedule on page for a reconciliation to U.S. GAAP amounts.
3.	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 for a 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 present direct Asset Management revenues. We believe that aggregating Allocated net interest would obscure the revenue results by including an amount that is unique to our credit spreads, debt maturity profile, capital structure, liquidity risks and allocation methods. Refer to Selected Financial Information on page .
5.	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.
6.	Asset management fees and revenues include 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.
7.	Number of trading loss days is calculated based on trading activities in our Investment Banking and Capital Markets and Asset Management business segments.
8.	VaR estimates the potential loss in value of trading positions 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, 2022.
9.	Amounts pertaining to May 31, 2023 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 quarterly period ended May 31, 2023.
10.	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.
11.	Tangible shareholders' equity (a non-GAAP financial measure), is defined as shareholders' equity less Intangible assets and goodwill. 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.
12.	Leverage ratio equals total assets divided by total equity.
13.	Tangible gross leverage ratio (a non-GAAP financial measure) equals total assets less goodwill and intangible assets divided by tangible equity. The tangible gross leverage ratio is used by rating agencies in assessing our leverage ratio.
14.	On November 1, 2022, we completed our merger with Jefferies Group LLC. In connection with the merger, we transferred our legacy merchant banking investments to our Investment Banking and Capital Markets or Asset Management segment and reorganized the presentation of our segments and Net revenues to align with the way we are now managing our business. In addition, we have reclassified the presentation of certain line items within our Net revenues by source to streamline our financial statements to better align the presentation of our firm with the strategy of building our investment banking and capital markets and asset management businesses as we continue to reduce our legacy merchant banking portfolio. Historical periods have been recast to conform to these reclassification and presentation changes.

	May 31, 2023
Book value (GAAP)	$	9,695,654
Stock options⁽¹⁾		115,161
Intangible assets, net and goodwill		(1,873,123	)
Adjusted tangible book value (non-GAAP)	$	7,937,692
Common shares outstanding (GAAP)		231,411
Restricted stock units ("RSUs")		14,068
Stock options⁽¹⁾		5,075
Other		1,335
Fully diluted shares outstanding (non-GAAP)⁽²⁾		251,889
Book value per share outstanding	$	41.90
Tangible book value per fully diluted share outstanding (non-GAAP)	$	31.51

⁽¹⁾	Stock options added to book value are equal to the total number of stock options outstanding as of May 31, 2023 of 5,074,740 multiplied by the weighted average exercise price of $22.69 on May 31, 2023. Stock options added to fully diluted shares are equal to the total stock options outstanding on May 31, 2023.
⁽²⁾	Fully diluted shares outstanding include vested and unvested RSUs as well as the target number of RSUs issuable under the senior executive compensation plans until the performance period is complete. Fully diluted shares outstanding also include all stock options.