8-K
Jefferies Financial Group Inc. (JEF)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (date of earliest event reported): September 28, 2022
JEFFERIES FINANCIAL GROUP INC.
(Exact name of registrant as specified in its charter)
| New York | 1-5721 | 13-2615557 | |
|---|---|---|---|
| (State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification No.) | |
| 520 Madison Avenue | New York, | New York | 10022 |
| (Address of Principal Executive Offices) | (Zip Code) |
(212) 460-1900
Registrant's telephone number, including area code
(Former name or former address, if changed since last report)
______________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock; Par Value $1.00 Per Share | JEF | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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.
Item 2.02. Results of Operations and Financial Condition
On September 28, 2022, we issued a press release announcing financial results for the quarter and nine months ended August 31, 2022. A copy of the press release is attached hereto as Exhibit 99 and is incorporated herein by reference.
The information provided in this Item 2.02, including the exhibits hereto, is intended to be "furnished" and shall not be deemed "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any other filing under the Securities Act or the Exchange Act, except as expressly set forth by specific reference in such a filing.
Item 9.01. Financial Statements and Exhibits
The following exhibits are furnished with this report:
Exhibit No. Description
99 Press Release issued by Jefferies Financial Group Inc. - Quarter and nine months ended August 31, 2022
104 Cover Page Interactive Data File (embedded within the Inline XBRL 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 hereunto duly authorized.
Date: September 28, 2022
| JEFFERIES FINANCIAL GROUP INC. | |
|---|---|
| By: | /s/ Teresa S. Gendron |
| Name: | Teresa S. Gendron |
| Title: | Vice President and Chief Financial Officer |
Document
| FOR MORE INFORMATION<br><br>Jonathan Freedman 212.778.8913 |
|---|
For Immediate Release
Jefferies Financial Group Inc. (NYSE: JEF)
September 28, 2022
Jefferies Announces Third Quarter 2022 Financial Results
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
Ø Investment Banking net revenues of $682 million
Ø Combined Capital Markets net revenues of $452 million
Ø 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
| 1 Jefferies Financial Group |
|---|
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<br>August 31, | Nine Months Ended<br>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.<br><br>•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.<br><br>•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.<br><br>•Our Board of Directors has increased our share buyback authorization back to a total of $250 million.<br><br>•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.<br><br>•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. | |||
| 2 Jefferies Financial Group | ||||
| --- | ||||
| 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.<br><br>•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.<br><br>•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.
| 3 Jefferies Financial Group |
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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.
| 4 Jefferies Financial Group |
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Summary
| (In thousands, except per share amounts) (Unaudited) | ||||||||
|---|---|---|---|---|---|---|---|---|
| Three Months Ended<br><br>August 31, | Nine Months Ended<br><br>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 | ||||
| 5 Jefferies Financial Group | ||||||||
| --- |
A summary of results for the three months ended August 31, 2022 is as follows (in thousands):
| Investment <br>Banking and <br>Capital <br>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 <br>Banking and <br>Capital <br>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.
| 6 Jefferies Financial Group |
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A summary of results for the nine months ended August 31, 2022 is as follows (in thousands):
| Investment <br>Banking and <br>Capital <br>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 <br>Banking and <br>Capital <br>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.
| 7 Jefferies Financial Group |
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Selected Financial and Statistical Information
| (Amounts in Thousands, Except Other Data) (Unaudited) | |||||||
|---|---|---|---|---|---|---|---|
| Quarter Ended | |||||||
| August 31, <br>2022 | May 31, <br>2022 | August 31 <br>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% | |||
| 8 Jefferies Financial Group | |||||||
| --- | |||||||
| (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% | |||||
| 9 Jefferies Financial Group | |||||||
| --- | |||||||
| (Amounts in Thousands, Except Other Data) (Unaudited) | |||||||
| --- | --- | --- | --- | --- | --- | --- | |
| Quarter Ended | |||||||
| August 31, <br>2022 | May 31, <br>2022 | August 31 <br>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.
| 10 Jefferies Financial Group |
|---|
Financial Data and Metrics
| (Amounts in Millions, Except Other Data) (Unaudited) | ||||||
|---|---|---|---|---|---|---|
| Quarter Ended | ||||||
| August 31, <br>2022 | May 31, <br>2022 | August 31 <br>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 |
| 11 Jefferies Financial Group | ||
| --- |
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 | % | ||||
| 12 Jefferies Financial Group | ||||||||||||
| --- |
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 |
| 13 Jefferies Financial Group | ||
| --- |
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):
| Book value (GAAP) | 10,292,531 | |
| Redeemable convertible preferred shares convertible to common shares (1) | ||
| Stock options (2) | ||
| Intangible assets, net and goodwill | ||
| Adjusted tangible book value (non-GAAP) | 8,662,480 | |
| Common shares outstanding (GAAP) | ||
| Restricted stock units ("RSUs") | ||
| Redeemable convertible preferred shares converted to common shares (1) | ||
| Stock options (2) | ||
| Other | ||
| Fully diluted shares outstanding (non-GAAP) (3) | ||
| 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. |
All values are in US Dollars.
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 | % |
| 14 Jefferies Financial Group | ||
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