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Jefferies Announces Third Quarter 2022 Financial Results

NEW YORK, September 28, 2022--(BUSINESS WIRE)--Q3 Financial Highlights

  • Net income attributable to common shareholders of $195 million, or $0.78 per diluted share; adjusted net income attributable to common shareholders1 of $275 million, or $1.10 per diluted share, after removing $80 million of expense related to a regulatory settlement in the quarter

  • Annualized return on adjusted tangible equity of 10.0%2; adjusted annualized return on adjusted tangible equity of 14.0%3

  • Total Investment Banking and Capital Markets and Asset Management net revenues of $1.12 billion

    • Investment Banking net revenues of $682 million

    • Combined Capital Markets net revenues of $452 million

    • Asset Management net loss (before allocated net interest4) of $3 million

  • Pre-tax gain on sale of Idaho Timber of $139 million

  • Repurchased 4.3 million shares of common stock for $134.1 million, or an average price of $31.39 per share, including 0.6 million shares repurchased after quarter end through September 27, 2022; at August 31, 2022, we had 228.8 million shares outstanding and 256.2 million shares outstanding on a fully diluted basis5; our book value per share was $44.98 and tangible book value per fully diluted share6 was $33.81

  • Since January 2018, Jefferies has repurchased 149.6 million shares of common stock7 for $3.5 billion, or an average price of $23.39 per share; Jefferies has returned to shareholders $4.8 billion since January 2018, or 48% of shareholders' equity and 63% of tangible shareholders' equity8 at the beginning of this effort

  • Our Board of Directors has increased our share buyback authorization back to a total of $250 million

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

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

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

Richard Handler, CEO, and Brian Friedman, President

Quarterly Cash Dividend

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

Financial Summary

(Dollars in thousands, except per share amounts)

Three Months Ended
August 31,

Nine Months Ended
August 31,

2022

2021 (10)

% Change

2022

2021 (10)

% Change

Net revenues:

Investment Banking and Capital Markets

$

1,134,732

$

1,672,943

(32)%

$

3,714,928

$

5,259,301

(29)%

Asset Management

(13,803

)

13,327

(204)%

77,300

293,204

(74)%

Merchant Banking

397,847

248,690

60%

825,637

812,509

2%

Corporate

6,192

955

548%

8,756

2,269

286%

Consolidation Adjustments

(78

)

3,069

(103)%

(734

)

9,150

(108)%

Net revenues

$

1,524,890

$

1,938,984

(21)%

$

4,625,887

$

6,376,433

(27)%

Income before income taxes

$

301,850

$

553,616

(45)%

$

860,723

$

1,828,540

(53)%

Net income attributable to common shareholders

$

195,459

$

407,459

(52)%

$

636,920

$

1,342,490

(53)%

Diluted earnings per share

$

0.78

$

1.50

(48)%

$

2.48

$

4.93

(50)%

Weighted average diluted shares

251,239

271,405

258,083

271,746

Annualized return on adjusted tangible equity2

10.0

%

21.4

%

11.0

%

26.1

%

Adjusted annualized return on adjusted tangible equity3

14.0

%

N/A

12.4

%

N/A

Highlights

Three months ended August 31, 2022

Nine months ended August 31, 2022

  • Net income attributable to common shareholders of $195 million, or $0.78 per diluted share; adjusted net income attributable to common shareholders1 of $275 million, or $1.10 per diluted share, after removing $80 million of expense related to a regulatory settlement in the quarter.

  • Repurchased 4.3 million shares of common stock for $134.1 million, or an average price of $31.39 per share, including 0.6 million shares repurchased after quarter end through September 27, 2022.

  • We had 228.8 million shares outstanding and 256.2 million shares outstanding on a fully diluted basis5 at August 31, 2022. Our book value per share was $44.98 and tangible book value per fully diluted share6 was $33.81 at August 31, 2022.

  • Our Board of Directors has increased our share buyback authorization back to a total of $250 million.

  • Effective tax rate of 35.1%, reflecting non-deductible $80 million regulatory settlement in the current quarter; adjusted effective tax rate11 of 27.7% without the cost of this settlement.

  • Net income attributable to common shareholders of $637 million, or $2.48 per diluted share; adjusted net income attributable to common shareholders1 of $717 million, or $2.79 per diluted share, after removing $80 million of expense related to a regulatory settlement in the third quarter.

  • Repurchased 22.3 million shares of common stock for $756.3 million, or an average price of $33.88 per share, including 0.6 million shares repurchased after quarter end through September 27, 2022; repurchases include 18.9 million shares of common stock in the open market for $634.0 million under our Board of Directors authorizations and 3.4 million shares of common stock for $122.2 million in connection with net-share settlements under our equity compensation plan.

Three months ended August 31, 2022

Nine months ended August 31, 2022

Investment Banking and Capital Markets

Investment Banking and Capital Markets

  • Investment Banking net revenues were $682 million, as our mergers and acquisitions net revenues remained strong. Our debt and equity underwriting net revenues were lower than the same quarter last year, consistent with a reduction in industry-wide deal activity.

  • Combined Capital Markets net revenues of $452 million were slightly higher as compared to the prior year quarter. Equities net revenues benefited from higher commissions and trading revenues, as our business continues to expand within the context of a more normalized trading environment. Fixed Income net revenues reflect mark to market losses on certain mortgage inventory positions and a slowdown in securitization activity as a result of continued uncertainty in respect of inflation and interest rates.

  • Investment Banking net revenues of $2.37 billion were driven by record advisory net revenues, offset by lower net revenues in debt and equity underwriting.

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

Asset Management

Asset Management

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

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

Legacy Merchant Banking

Legacy Merchant Banking

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

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

* * * *

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

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

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

Notes

  1. Adjusted net income attributable to common shareholders (a non-GAAP financial measure) excludes the $80 million expense ($80 million, net of tax) related to a regulatory settlement in the current quarter. Refer to schedule on page 12 for reconciliation to U.S. GAAP amounts.

  2. Return on adjusted tangible equity (a non-GAAP financial measure) is defined as Jefferies' annualized adjusted net income (a non-GAAP financial measure) divided by our beginning of period adjusted tangible shareholders' equity (a non-GAAP financial measure). Refer to schedule on page 12 for reconciliation to U.S. GAAP amounts.

  3. Adjusted return on adjusted tangible equity (a non-GAAP financial measure) is defined as Jefferies' annualized adjusted net income excluding the net income impact of the $80 million of expense ($80 million, net of tax) related to a regulatory settlement in the current quarter (a non-GAAP financial measure) divided by our beginning of period adjusted tangible shareholders' equity (a non-GAAP financial measure). Refer to schedule on page 13 for reconciliation to U.S. GAAP amounts.

  4. Allocated net interest represents an allocation to Asset Management of certain of our long-term debt interest expense, net of interest income on our Cash and cash equivalents and other sources of liquidity. Allocated net interest has been disaggregated to increase transparency and to make clearer actual Investment return. Refer to Selected Financial and Statistical Information on pages 8 to 10.

  5. Shares outstanding on a fully diluted basis (a non-GAAP financial measure) is defined as Jefferies common shares outstanding plus restricted stock units, stock options, conversion of redeemable convertible preferred shares and other shares. Refer to schedule on page 14 for reconciliation to U.S. GAAP amounts.

  6. Tangible book value per fully diluted share (a non-GAAP financial measure) is defined as adjusted tangible book value (a non-GAAP financial measure) divided by shares outstanding on a fully diluted basis (a non-GAAP financial measure). Refer to schedule on page 14 for reconciliation to U.S. GAAP amounts.

  7. The 149.6 million common shares repurchased since January 2018 includes 145.5 million shares of common stock repurchased in the open market for $3.4 billion under our Board of Director authorizations and 4.1 million shares of common stock for $136.6 million repurchased in connection with net-share settlements under our equity compensation plan.

  8. Tangible shareholders' equity (a non-GAAP financial measure), is defined as Jefferies Financial Group shareholders' equity less Intangible assets, net and goodwill. Refer to schedule on page 13 for reconciliation to U.S. GAAP amounts.

  9. Backlog represents an estimate of our net revenues from expected future transactions. As an indicator of net revenues in a given period, it is subject to limitations. The time frame for the realization of revenues from these expected transactions varies and is influenced by factors we do not control. Transactions not included in the estimate may occur, and expected transactions may also be modified or cancelled.

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

  11. Adjusted effective tax rate (a non-GAAP financial measure) excludes the $80 million expense related to a regulatory settlement in the current quarter. Refer to schedule on page 14 for reconciliation to U.S. GAAP amounts.

Summary

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

Three Months Ended
August 31,

Nine Months Ended
August 31,

2022

2021

2022

2021

Net revenues

$

1,524,890

$

1,938,984

$

4,625,887

$

6,376,433

Income before income taxes and loss related to associated companies

$

306,677

$

580,792

$

917,235

$

1,889,810

Loss related to associated companies

(4,827

)

(27,176

)

(56,512

)

(61,270

)

Income before income taxes

301,850

553,616

860,723

1,828,540

Income tax provision

105,909

145,700

219,949

484,756

Net income

195,941

407,916

640,774

1,343,784

Net loss attributable to the noncontrolling interests

1,243

1,324

1,116

2,736

Net loss attributable to the redeemable noncontrolling interests

345

68

1,241

1,071

Preferred stock dividends

(2,070

)

(1,849

)

(6,211

)

(5,101

)

Net income attributable to common shareholders

$

195,459

$

407,459

$

636,920

$

1,342,490

Basic earnings per common share attributable to Jefferies common shareholders:

Net income

$

0.80

$

1.54

$

2.54

$

5.05

Basic: weighted average shares

243,853

263,087

250,168

264,248

Diluted earnings per common share attributable to Jefferies common shareholders:

Net income

$

0.78

$

1.50

$

2.48

$

4.93

Diluted: weighted average shares

251,239

271,405

258,083

271,746

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

Investment
Banking and
Capital
Markets

Asset
Management

Merchant
Banking

Corporate

Parent
Company
Interest

Consolidation
Adjustments

Total

Net revenues

$

1,134,732

$

(13,803

)

$

397,847

$

6,192

$

$

(78

)

$

1,524,890

Expenses:

Cost of sales

123,436

123,436

Compensation and benefits

521,214

12,808

10,584

13,856

558,462

Non-compensation expenses:

Floor brokerage and clearing fees

79,727

4,959

84,686

Selling, general and other expenses

343,648

11,662

37,651

5,339

(78

)

398,222

Interest expense

1,223

8,997

10,220

Depreciation and amortization

23,366

401

18,997

423

43,187

Total non-compensation expenses

446,741

17,022

57,871

5,762

8,997

(78

)

536,315

Total expenses

967,955

29,830

191,891

19,618

8,997

(78

)

1,218,213

...