Jefferies Announces Second Quarter 2022 Financial Results

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NEW YORK, June 27, 2022--(BUSINESS WIRE)--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

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