Jefferies Announces Second Quarter 2022 Financial Results

Q2 Financial Highlights

  • Net income attributable to common shareholders of $114 million, or $0.45 per diluted share
  • Annualized return on adjusted tangible equity of 5.8%1
  • Total Investment Banking and Capital Markets and Asset Management Net Revenues of $1.13 billion
  • Investment Banking net revenues of $687 million
  • Combined Capital Markets net revenues of $416 million
  • Asset Management net revenues (before allocated net interest2) of $45 million
  • Repurchased 8.0 million shares of common stock for $258.0 million, or an average price of $32.20 per share; at May 31, 2022, we had 232.3 million shares outstanding and 259.6 million shares outstanding on a fully diluted basis3; our book value per share was $44.34 and tangible book value per fully diluted share4 was $33.36 at May 31, 2022
  • Since January 2018, Jefferies has repurchased 145.3 million shares of common stock5 for $3.4 billion, or an average price of $23.16 per share; Jefferies has returned to shareholders $4.6 billion, or 46% of shareholders' equity and 61% of tangible shareholders' equity6 at January 1, 2018
  • Our Board of Directors has authorized the repurchase in the future of an additional up to $250 million of our common stock

"Our second quarter results are reasonable in the face of an extremely challenging capital markets environment, with some markets being all but shut to new issues. We achieved Investment Banking and Capital Markets and Asset Management net revenues of over $1.1 billion despite the limited new issue market, as well as some unrealized markdowns in our mortgage inventory and leveraged finance commitments. Similarly, we incurred increased expenses for conferences, travel and other marketing, which will primarily benefit future periods, as well as our $14 million charitable contributions to support Ukraine.

"Our Investment Banking advisory activity remains strong as our clients continue to look to Jefferies to support them through this transition in economic and market conditions. We believe our market position continues to strengthen and we will reap the benefit of this as conditions normalize and the new issue market picks up. Our backlog7 is consistent with last quarter's strong levels but execution remains dependent on market conditions. Based on our ongoing dialogues with our clients, we believe that M&A and capital markets activity will pick up when stability and visibility improve.

"We are deeply appreciative of our entire team that is persevering through this period of instability, working tirelessly to add to our significant pipeline of future deals while we wait for the market to open. We have invested heavily in human capital throughout Jefferies over the past decade, and in particular these past two years. We remain optimistic of our long-term growth and trajectory and look forward to continued success serving our ever increasing and incredibly loyal client base."

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 August 26, 2022 to record holders of Jefferies common shares on August 15, 2022.

Financial Summary

(Dollars in thousands, except per share amounts)

Three Months Ended

May 31,

 

 

Six Months Ended

May 31,

 

 

 

2022

 

 

 

2021 (8)

% Change

 

 

2022

 

 

 

2021 (8)

% Change

Net revenues:

 

 

 

 

 

 

 

 

 

Investment Banking and Capital Markets

$

1,098,378

 

 

$

1,598,862

 

(31

)%

 

$

2,580,196

 

 

$

3,586,358

 

(28

)%

Asset Management

 

31,147

 

 

 

50,675

 

(39

)%

 

 

91,103

 

 

 

279,877

 

(67

)%

Merchant Banking

 

238,255

 

 

 

296,815

 

(20

)%

 

 

427,790

 

 

 

563,819

 

(24

)%

Corporate

 

1,818

 

 

 

724

 

151

%

 

 

2,564

 

 

 

1,314

 

95

%

Consolidation Adjustments

 

(516

)

 

 

3,431

 

(115

)%

 

 

(656

)

 

 

6,081

 

(111

)%

Net revenues

$

1,369,082

 

 

$

1,950,507

 

(30

)%

 

$

3,100,997

 

 

$

4,437,449

 

(30

)%

 

 

 

 

 

 

 

 

 

 

Income before income taxes

$

166,541

 

 

$

474,139

 

(65

)%

 

$

558,873

 

 

$

1,274,924

 

(56

)%

 

 

 

 

 

 

 

 

 

 

Net income attributable to common shareholders

$

114,014

 

 

$

352,596

 

(68

)%

 

$

441,461

 

 

$

935,031

 

(53

)%

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

$

0.45

 

 

$

1.30

 

(65

)%

 

$

1.70

 

 

$

3.43

 

(50

)%

 

 

 

 

 

 

 

 

 

 

Weighted average diluted shares

 

251,979

 

 

 

271,092

 

 

 

 

261,494

 

 

 

271,948

 

 

 

 

 

 

 

 

 

 

 

 

Annualized return on adjusted tangible equity1

 

5.8

%

 

 

19.2

%

 

 

 

11.2

%

 

 

27.0

%

 

Highlights

Three months ended May 31, 2022

 

Six months ended May 31, 2022

 

 

 

  • Net income attributable to common shareholders of $114 million, or $0.45 per diluted share.
  • Repurchased 8.0 million shares of common stock for $258.0 million, or an average price of $32.20 per share, including 7.8 million shares of common stock in the open market for $250.0 million under our current Board of Directors authorization and 0.2 million shares of common stock for $8.1 million in connection with net-share settlements under our equity compensation plan.
  • We had 232.3 million shares outstanding and 259.6 million shares outstanding on a fully diluted basis3 at May 31, 2022. Our book value per share was $44.34 and tangible book value per fully diluted share4 was $33.36 at May 31, 2022.
  • Our Board of Directors has authorized the repurchase in the future of an additional up to $250 million of our common stock.

 

  • Net income attributable to common shareholders of $441 million, or $1.70 per diluted share.
  • Repurchased 18.1 million shares of common stock for $622.2 million, or an average price of $34.47 per share, including 14.6 million shares of common stock in the open market for $500.0 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 May 31, 2022

 

Six months ended May 31, 2022

Investment Banking and Capital Markets

 

Investment Banking and Capital Markets

  • Investment Banking net revenues were $687 million, as our advisory activity remained strong, while our debt and equity underwriting net revenues were lower than the same period last year, consistent with a reduction in industry-wide deal activity.
  • Combined Capital Markets net revenues of $416 million were lower as compared to prior year quarter. Equities net revenues benefited from record high commissions, partially offset by a challenging environment for risk assets, as our results were impacted by market volatility and global instability. Fixed Income net revenues reflect lower trading volumes, unrealized mark to market losses on certain mortgage inventory positions and a slowdown in securitization activity as a result of increased uncertainty in respect of inflation and interest rates.

 

  • Investment Banking net revenues of $1.69 billion were driven by significantly higher advisory net revenues, offset by lower net revenues in debt and equity underwriting.
  • Combined Capital Markets net revenues of $896 million were lower as compared to prior year period. Equities net revenues were significantly impacted by market volatility and global instability. Fixed Income results were impacted by lower trading volumes in the face of inflation concerns and interest rate uncertainty.

Asset Management

 

Asset Management

  • Asset Management net revenues reflects a difficult trading environment as compared to 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 strong results at Idaho Timber, offset by mark-to-market hedging losses at Vitesse and a decline in the value of several of our investments in public companies. We continue to work toward the realization of the Merchant Banking portfolio.

 

  • Merchant Banking results reflect strong results at Idaho Timber as favorable pricing that began in 2020 has continued for much of the second quarter, offset by mark-to-market hedging losses at Vitesse and a decline in the value of several of our investments in public companies.

* * * *

Amounts herein pertaining to May 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 six months ended May 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 July 8, 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. 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.
  2. 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.
  3. 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 13 for reconciliation to U.S. GAAP amounts.
  4. 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 13 for reconciliation to U.S. GAAP amounts.
  5. The 145.3 million common shares repurchased since January 2018 includes 141.2 million shares of common stock repurchased in the open market for $3.2 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.
  6. 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 12 for reconciliation to U.S. GAAP amounts.
  7. 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.
  8. 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.

Summary

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

 

 

 

 

 

 

 

 

Three Months Ended

May 31,

 

Six Months Ended

May 31,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Net revenues

$

1,369,082

 

 

$

1,950,507

 

 

$

3,100,997

 

 

$

4,437,449

 

Income before income taxes and loss related to associated companies

$

188,241

 

 

$

497,665

 

 

$

610,558

 

 

$

1,309,018

 

Loss related to associated companies

 

(21,700

)

 

 

(23,526

)

 

 

(51,685

)

 

 

(34,094

)

Income before income taxes

 

166,541

 

 

 

474,139

 

 

 

558,873

 

 

 

1,274,924

 

Income tax provision

 

49,683

 

 

 

120,820

 

 

 

114,040

 

 

 

339,056

 

Net income

 

116,858

 

 

 

353,319

 

 

 

444,833

 

 

 

935,868

 

Net (income) loss attributable to the noncontrolling interests

 

(1,096

)

 

 

669

 

 

 

(127

)

 

 

1,412

 

Net loss attributable to the redeemable noncontrolling interests

 

323

 

 

 

234

 

 

 

896

 

 

 

1,003

 

Preferred stock dividends

 

(2,071

)

 

 

(1,626

)

 

 

(4,141

)

 

 

(3,252

)

Net income attributable to common shareholders

$

114,014

 

 

$

352,596

 

 

$

441,461

 

 

$

935,031

 

 

 

 

 

 

 

 

 

Basic earnings per common share attributable to Jefferies common shareholders:

 

 

 

 

 

 

 

Net income

$

0.46

 

 

$

1.33

 

 

$

1.73

 

 

$

3.51

 

 

 

 

 

 

 

 

 

Basic: weighted average shares

 

249,142

 

 

 

263,280

 

 

 

253,330

 

 

 

264,829

 

 

 

 

 

 

 

 

 

Diluted earnings per common share attributable to Jefferies common shareholders:

 

 

 

 

 

 

 

Net income

$

0.45

 

 

$

1.30

 

 

$

1.70

 

 

$

3.43

 

 

 

 

 

 

 

 

 

Diluted: weighted average shares

 

251,979

 

 

 

271,092

 

 

 

261,494

 

 

 

271,948

 

A summary of results for the three months ended May 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

$

1,098,378

 

$

31,147

 

$

238,255

 

 

$

1,818

 

 

$

 

 

$

(516

)

 

$

1,369,082

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

 

 

130,449

 

 

 

 

 

 

 

 

 

 

 

 

130,449

 

Compensation and benefits

 

522,860

 

 

10,816

 

 

39,319

 

 

 

5,482

 

 

 

 

 

 

 

 

 

578,477

 

Non-compensation expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Floor brokerage and clearing fees

 

85,247

 

 

8,769

 

 

 

 

 

 

 

 

 

 

 

 

 

 

94,016

 

Selling, general and other expenses

 

279,442

 

 

10,122

 

 

32,834

 

 

 

6,043

 

 

 

 

 

 

(160

)

 

 

328,281

 

Interest expense

 

 

 

 

 

926

 

 

 

 

 

 

8,385

 

 

 

 

 

 

9,311

 

Depreciation and amortization

 

22,766

 

 

467

 

 

16,655

 

 

 

419

 

 

 

 

 

 

 

 

 

40,307

 

Total non-compensation expenses

 

387,455

 

 

19,358

 

 

50,415

 

 

 

6,462

 

 

 

8,385

 

 

 

(160

)

 

 

471,915

 

Total expenses

 

910,315

 

 

30,174

 

 

220,183

 

 

 

11,944

 

 

 

8,385

 

 

 

(160

)

 

 

1,180,841

 

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

 

188,063

 

 

973

 

 

18,072

 

 

 

(10,126

)

 

 

(8,385

)

 

 

(356

)

 

 

188,241

 

Loss related to associated companies

 

 

 

 

 

(21,700

)

 

 

 

 

 

 

 

 

 

 

 

(21,700

)

Income (loss) before income taxes

$

188,063

 

$

973

 

$

(3,628

)

 

$

(10,126

)

 

$

(8,385

)

 

$

(356

)

 

 

166,541

 

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

 

49,683

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

$

116,858

 

A summary of results for the three months ended May 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

$

1,598,862

 

$

50,675

 

$

296,815

 

 

$

724

 

 

$

 

 

$

3,431

 

 

$

1,950,507

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

 

 

143,847

 

 

 

 

 

 

 

 

 

 

 

 

143,847

 

Compensation and benefits

 

778,284

 

 

21,671

 

 

24,252

 

 

 

7,035

 

 

 

 

 

 

 

 

 

831,242

 

Non-compensation expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Floor brokerage and clearing fees

 

66,211

 

 

10,599

 

 

 

 

 

 

 

 

 

 

 

 

 

 

76,810

 

Selling, general and other expenses

 

293,276

 

 

10,768

 

 

32,631

 

 

 

4,910

 

 

 

 

 

 

(25

)

 

 

341,560

 

Interest expense

 

5,271

 

 

 

 

843

 

 

 

 

 

 

13,829

 

 

 

 

 

 

19,943

 

Depreciation and amortization

 

20,805

 

 

489

 

 

17,268

 

 

 

878

 

 

 

 

 

 

 

 

 

39,440

 

Total non-compensation expenses

 

385,563

 

 

21,856

 

 

50,742

 

 

 

5,788

 

 

 

13,829

 

 

 

(25

)

 

 

477,753

 

Total expenses

 

1,163,847

 

 

43,527

 

 

218,841

 

 

 

12,823

 

 

 

13,829

 

 

 

(25

)

 

 

1,452,842

 

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

 

435,015

 

 

7,148

 

 

77,974

 

 

 

(12,099

)

 

 

(13,829

)

 

 

3,456

 

 

 

497,665

 

Loss related to associated companies

 

 

 

 

 

(23,526

)

 

 

 

 

 

 

 

 

 

 

 

(23,526

)

Income (loss) before income taxes

$

435,015

 

$

7,148

 

$

54,448

 

 

$

(12,099

)

 

$

(13,829

)

 

$

3,456

 

 

 

474,139

 

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

 

120,820

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

$

353,319

 

(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 six months ended May 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

$

2,580,196

 

$

91,103

 

$

427,790

 

 

$

2,564

 

 

$

 

 

$

(656

)

 

$

3,100,997

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

 

 

226,120

 

 

 

 

 

 

 

 

 

 

 

 

226,120

 

Compensation and benefits

 

1,247,136

 

 

30,752

 

 

78,642

 

 

 

11,631

 

 

 

 

 

 

 

 

 

1,368,161

 

Non-compensation expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Floor brokerage and clearing fees

 

157,413

 

 

20,564

 

 

 

 

 

 

 

 

 

 

 

 

 

 

177,977

 

Selling, general and other expenses

 

520,378

 

 

21,976

 

 

59,504

 

 

 

11,980

 

 

 

 

 

 

(300

)

 

 

613,538

 

Interest expense

 

 

 

 

 

1,623

 

 

 

 

 

 

16,776

 

 

 

 

 

 

18,399

 

Depreciation and amortization

 

46,321

 

 

829

 

 

38,251

 

 

 

843

 

 

 

 

 

 

 

 

 

86,244

 

Total non-compensation expenses

 

724,112

 

 

43,369

 

 

99,378

 

 

 

12,823

 

 

 

16,776

 

 

 

(300

)

 

 

896,158

 

Total expenses

 

1,971,248

 

 

74,121

 

 

404,140

 

 

 

24,454

 

 

 

16,776

 

 

 

(300

)

 

 

2,490,439

 

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

 

608,948

 

 

16,982

 

 

23,650

 

 

 

(21,890

)

 

 

(16,776

)

 

 

(356

)

 

 

610,558

 

Loss related to associated companies

 

 

 

 

 

(51,685

)

 

 

 

 

 

 

 

 

 

 

 

(51,685

)

Income (loss) before income taxes

$

608,948

 

$

16,982

 

$

(28,035

)

 

$

(21,890

)

 

$

(16,776

)

 

$

(356

)

 

 

558,873

 

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

 

114,040

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

$

444,833

 

A summary of results for the six months ended May 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

$

3,586,358

 

$

279,877

 

$

563,819

 

 

$

1,314

 

 

$

 

 

$

6,081

 

 

$

4,437,449

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

 

 

239,406

 

 

 

 

 

 

 

 

 

 

 

 

239,406

 

Compensation and benefits

 

1,887,979

 

 

44,456

 

 

48,781

 

 

 

22,569

 

 

 

 

 

 

 

 

 

2,003,785

 

Non-compensation expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Floor brokerage and clearing fees

 

132,785

 

 

20,441

 

 

 

 

 

 

 

 

 

 

 

 

 

 

153,226

 

Selling, general and other expenses

 

522,009

 

 

22,932

 

 

59,151

 

 

 

9,579

 

 

 

 

 

 

(174

)

 

 

613,497

 

Interest expense

 

10,824

 

 

 

 

1,755

 

 

 

 

 

 

27,731

 

 

 

 

 

 

40,310

 

Depreciation and amortization

 

41,515

 

 

968

 

 

33,982

 

 

 

1,742

 

 

 

 

 

 

 

 

 

78,207

 

Total non-compensation expenses

 

707,133

 

 

44,341

 

 

94,888

 

 

 

11,321

 

 

 

27,731

 

 

 

(174

)

 

 

885,240

 

Total expenses

 

2,595,112

 

 

88,797

 

 

383,075

 

 

 

33,890

 

 

 

27,731

 

 

 

(174

)

 

 

3,128,431

 

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

 

991,246

 

 

191,080

 

 

180,744

 

 

 

(32,576

)

 

 

(27,731

)

 

 

6,255

 

 

 

1,309,018

 

Loss related to associated companies

 

 

 

 

 

(34,094

)

 

 

 

 

 

 

 

 

 

 

 

(34,094

)

Income (loss) before income taxes

$

991,246

 

$

191,080

 

$

146,650

 

 

$

(32,576

)

 

$

(27,731

)

 

$

6,255

 

 

 

1,274,924

 

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

 

339,056

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

$

935,868

 

(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

 

May 31,

2022

 

February 28,

2022

 

May 31

2021 (1)

Investment Banking, Capital Markets and Asset Management Net Revenues:

 

 

 

 

 

 

 

 

 

 

 

Advisory

$

371,760

 

 

$

543,769

 

 

$

390,508

 

 

 

 

 

 

 

Equity underwriting

 

122,435

 

 

 

156,100

 

 

 

324,462

 

Debt underwriting

 

107,020

 

 

 

245,179

 

 

 

285,730

 

Total underwriting

 

229,455

 

 

 

401,279

 

 

 

610,192

 

 

 

 

 

 

 

Other investment banking (2)

 

85,746

 

 

 

58,134

 

 

 

82,461

 

 

 

 

 

 

 

Total investment banking

 

686,961

 

 

 

1,003,182

 

 

 

1,083,161

 

 

 

 

 

 

 

Equities

 

254,807

 

 

 

277,047

 

 

 

242,949

 

Fixed income

 

161,478

 

 

 

202,800

 

 

 

257,197

 

Total capital markets

 

416,285

 

 

 

479,847

 

 

 

500,146

 

 

 

 

 

 

 

Other (2)

 

(4,868

)

 

 

(1,211

)

 

 

15,555

 

 

 

 

 

 

 

Total Investment Banking and Capital Markets Net Revenues (3)

 

1,098,378

 

 

 

1,481,818

 

 

 

1,598,862

 

 

 

 

 

 

 

Asset management fees and revenues (4)

 

14,116

 

 

 

44,502

 

 

 

22,490

 

Investment return (5)

 

30,637

 

 

 

29,530

 

 

 

39,624

 

Allocated net interest (5)

 

(13,606

)

 

 

(14,076

)

 

 

(11,439

)

Total Asset Management Net Revenues

 

31,147

 

 

 

59,956

 

 

 

50,675

 

 

 

 

 

 

 

Total Investment Banking, Capital Markets and Asset Management Net Revenues

$

1,129,525

 

 

$

1,541,774

 

 

$

1,649,537

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

Floor brokerage and clearing fees

$

94,016

 

 

$

83,961

 

 

$

76,810

 

Underwriting costs

 

13,191

 

 

 

8,128

 

 

 

33,031

 

Technology and communications

 

108,630

 

 

 

104,555

 

 

 

95,285

 

Occupancy and equipment rental

 

24,561

 

 

 

25,250

 

 

 

28,771

 

Business development

 

47,880

 

 

 

24,376

 

 

 

27,039

 

Professional services

 

52,192

 

 

 

51,118

 

 

 

54,240

 

Depreciation and amortization

 

23,233

 

 

 

23,917

 

 

 

21,294

 

Other

 

43,110

 

 

 

39,363

 

 

 

70,949

 

 

 

 

 

 

 

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

$

406,813

 

 

$

360,668

 

 

$

407,419

 

 

 

 

 

 

 

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

 

 

 

 

 

Compensation and benefits

$

533,676

 

 

$

744,212

 

 

$

799,955

 

Compensation and benefits expenses as a percentage of net revenues

 

47.2

%

 

 

48.3

%

 

 

48.5

%

 

 

 

 

 

 

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

 

 

Six Months Ended May 31,

 

 

 

2022

 

 

 

2021 (1)

Investment Banking, Capital Markets and Asset Management Net Revenues:

 

 

 

 

 

 

 

 

 

Advisory

 

$

915,529

 

 

$

701,947

 

 

 

 

 

 

Equity underwriting

 

 

278,535

 

 

 

819,268

 

Debt underwriting

 

 

352,199

 

 

 

483,097

 

Total underwriting

 

 

630,734

 

 

 

1,302,365

 

 

 

 

 

 

Other investment banking (2)

 

 

143,880

 

 

 

165,483

 

 

 

 

 

 

Total investment banking

 

 

1,690,143

 

 

 

2,169,795

 

 

 

 

 

 

Equities

 

 

531,854

 

 

 

773,965

 

Fixed income

 

 

364,278

 

 

 

620,556

 

Total capital markets

 

 

896,132

 

 

 

1,394,521

 

 

 

 

 

 

Other (2)

 

 

(6,079

)

 

 

22,042

 

 

 

 

 

 

Total Investment Banking and Capital Markets Net Revenues (3)

 

 

2,580,196

 

 

 

3,586,358

 

 

 

 

 

 

Asset management fees and revenues (4)

 

 

58,618

 

 

 

88,799

 

Investment return (5)

 

 

60,167

 

 

 

212,916

 

Allocated net interest (5)

 

 

(27,682

)

 

 

(21,838

)

Total Asset Management Net Revenues

 

 

91,103

 

 

 

279,877

 

 

 

 

 

 

Total Investment Banking, Capital Markets and Asset Management Net Revenues

 

$

2,671,299

 

 

$

3,866,235

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Floor brokerage and clearing fees

 

$

177,977

 

 

$

153,226

 

Underwriting costs

 

 

21,319

 

 

 

69,167

 

Technology and communications

 

 

213,185

 

 

 

187,224

 

Occupancy and equipment rental

 

 

49,811

 

 

 

52,554

 

Business development

 

 

72,256

 

 

 

45,030

 

Professional services

 

 

103,310

 

 

 

92,876

 

Depreciation and amortization

 

 

47,150

 

 

 

42,483

 

Other

 

 

82,473

 

 

 

108,914

 

 

 

 

 

 

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

 

$

767,481

 

 

$

751,474

 

 

 

 

 

 

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

 

 

 

 

Compensation and benefits

 

$

1,277,888

 

 

$

1,932,435

 

Compensation and benefits expenses as a percentage of net revenues

 

 

47.8

%

 

 

50.0

%

 

 

 

 

 

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

 

 

 

 

 

 

 

Quarter Ended

 

May 31,

2022

 

February 28,

2022

 

May 31

2021 (1)

Other Data:

 

 

 

 

 

Number of trading days

 

64

 

 

61

 

 

64

 

Number of trading loss days (6)

 

10

 

 

8

 

 

20

 

Average VaR (in millions) (7)

$

11.84

 

$

12.12

 

$

15.77

 

 

 

 

 

 

 

 

 

 

Six Months Ended May 31,

 

 

 

2022

 

 

2021 (1)

Other Data:

 

 

 

 

 

Number of trading days

 

 

 

125

 

 

124

 

Number of trading loss days (6)

 

 

 

18

 

 

29

 

Average VaR (in millions) (7)

 

 

$

11.98

 

$

15.89

 

(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

 

May 31,

2022

 

February 28,

2022

 

May 31

2021 (1)

Financial position (1):

 

 

 

 

 

Total assets

$

57,214

 

$

60,036

 

$

57,979

Total assets less goodwill and intangible assets for the period

$

55,329

 

$

58,142

 

$

56,066

Cash and cash equivalents

$

8,523

 

$

8,501

 

$

8,443

Financial instruments owned

$

20,248

 

$

21,633

 

$

19,938

Level 3 financial instruments owned (2)

$

740

 

$

640

 

$

735

Goodwill and intangible assets

$

1,885

 

$

1,895

 

$

1,912

Total equity

$

10,368

 

$

10,549

 

$

10,095

Total shareholders' equity

$

10,300

 

$

10,490

 

$

10,073

Tangible equity (3)

$

8,415

 

$

8,596

 

$

8,160

 

 

 

 

 

 

Other data and financial ratios:

 

 

 

 

 

Leverage ratio (1) (4)

 

5.5

 

 

5.7

 

 

5.7

Tangible gross leverage ratio (1) (5)

 

6.6

 

 

6.8

 

 

6.9

 

 

 

 

 

 

Number of employees, at period end

 

5,619

 

 

5,625

 

 

5,151

(1)

Amounts pertaining to May 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 six months ended May 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.

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.

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 May 31,

 

Six Months Ended May 31,

 

 

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common shareholders (GAAP)

 

$

114,014

 

 

$

352,596

 

 

$

441,461

 

 

$

935,031

 

 

Intangible amortization and impairment expense, net of tax

 

 

1,739

 

 

 

2,664

 

 

 

4,781

 

 

 

5,251

 

 

Adjusted net income (non-GAAP)

 

$

115,753

 

 

$

355,260

 

 

$

446,242

 

 

$

940,282

 

 

Annualized adjusted net income (non-GAAP)

 

$

463,012

 

 

$

1,421,040

 

 

$

892,484

 

 

$

1,880,564

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

February 28,

 

November 30,

 

 

 

 

2022

 

 

 

2021

 

 

 

2021

 

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity (GAAP)

 

$

10,490,300

 

 

$

9,745,862

 

 

$

10,553,755

 

 

$

9,403,893

 

 

Less: Intangible assets, net and goodwill

 

 

(1,894,721

)

 

 

(1,914,322

)

 

 

(1,897,500

)

 

 

(1,913,467

)

 

Less: Deferred tax asset

 

 

(382,741

)

 

 

(410,420

)

 

 

(327,547

)

 

 

(393,687

)

 

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

 

 

(162,339

)

 

 

(36,759

)

 

 

(378,907

)

 

 

(142,189

)

 

Adjusted tangible shareholders' equity (non-GAAP)

 

$

8,050,499

 

 

$

7,384,361

 

 

$

7,949,801

 

 

$

6,954,550

 

 

 

 

 

 

 

 

 

 

 

 

Return on adjusted tangible equity

 

 

5.8

%

 

 

19.2

%

 

 

11.2

%

 

 

27.0

%

Jefferies Shareholders' Equity GAAP Reconciliation

The table below reconciles our shareholders' equity to tangible shareholders' equity (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):

 

 

 

May 31, 2022

 

 

 

 

 

Book value (GAAP)

 

$

10,300,177

 

 

Redeemable convertible preferred shares convertible to common shares (1)

 

 

125,000

 

 

Stock options (2)

 

 

120,089

 

 

Intangible assets, net and goodwill

 

 

(1,885,043

)

 

Adjusted tangible book value (non-GAAP)

 

$

8,660,223

 

 

 

 

 

 

Common shares outstanding (GAAP)

 

 

232,321

 

 

Restricted stock units ("RSUs")

 

 

16,629

 

 

Redeemable convertible preferred shares converted to common shares (1)

 

 

4,441

 

 

Stock options (2)

 

 

5,061

 

 

Other

 

 

1,141

 

 

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

 

 

259,593

 

 

 

 

 

 

Book value per share outstanding

 

$

44.34

 

 

Tangible book value per fully diluted share outstanding

 

$

33.36

 

(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 May 31, 2022 of 5,061,000 multiplied by the weighted average exercise price of $23.73 on May 31, 2022. Stock options added to fully diluted shares are equal to the total stock options outstanding on May 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.

 

Contacts

Jonathan Freedman 212.778.8913

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