Jefferies Financial Group Inc. (NYSE: JEF):
Q3 Financial Highlights
"Our third quarter net revenues of $1.18 billion reflect an improving market environment. We are increasingly optimistic that we have come off the bottom of the cycle and that momentum in investment banking will continue.
"Investment Banking generated $645 million of net revenues, an increase of 28% from last quarter due to modestly improved mergers and acquisitions activity and a more receptive leveraged finance and new issue market, as the green shoots we mentioned last quarter have multiplied.
"Our strategy during down cycles has always been to play offense by investing in our future. This is the main theme for us in 2023, made possible by our strong capital base and solid global brand and platform. The dislocation and changes in strategy among some of our competitors created distinct opportunity this year. As we will discuss during our upcoming Investor Day on October 16, 2023, we are adding outstanding new Managing Directors to our Investment Banking effort across the globe. We started 2023 with 299 Managing Directors in Investment Banking and expect to begin 2024 with over 360 total Managing Directors, an increase of 20%. The 360 Managing Directors would be up 70% from the 212 Investment Banking Managing Directors that wore the Jefferies' jersey at the beginning of 2020. We look forward to the results we can achieve when we deliver our never better global investment banking capabilities in a more normal capital formation environment, which we anticipate in 2024, subject to unforeseen surprises. 2023 has been a challenging one in investment banking, with much of the new issue market shut or subdued until the last few months, but we couldn’t be more pleased with our future potential thanks to our existing and new Investment Banking Managing Directors.
"Capital markets revenues of $524 million are solid, but reflect some normalized seasonal slowness that summer often brings. Our team is solid and we have made ongoing investments in sales, trading, and research across the globe. As expected, we have kept our risk manageable throughout the volatility and are consistent in our passion to keep our balance sheet simple, clean and highly liquid. We are pleased with the diversification throughout our equities and fixed income businesses and take pride in the durable revenues they have generated globally over most recent quarters.
"Although we are still very early in our enhanced strategic alliance with SMBC, we completed several meaningful deals with joint clients during the third quarter and this has continued into the fourth quarter. It is early in our partnership, but we are more optimistic than ever that this is the right win-win combination in our industry.
"We are proud to have raised $7 million during the quarter for humanitarian support to help the victims of the Maui Wildfire. Time and again our clients, employee-partners, shareholders and vendors come together to help those less fortunate. We are all proud to be Jefferies."
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 28, 2023 to record holders of Jefferies common shares on November 13, 2023.
Financial Summary
(Dollars in thousands, except per share amounts) |
Three Months Ended August 31, |
|
|
Nine Months Ended August 31, |
|
||||||||||||||
|
|
2023 |
|
|
|
202214, 16 |
|
% Change |
|
|
2023 |
|
|
|
202214, 16 |
|
% Change |
||
Net revenues: |
|
|
|
|
|
|
|
|
|
||||||||||
Investment Banking and Capital Markets |
$ |
1,168,231 |
|
|
$ |
1,115,957 |
|
5 |
% |
|
$ |
3,446,382 |
|
|
$ |
3,688,667 |
|
(7 |
)% |
Asset Management |
|
10,143 |
|
|
|
398,250 |
|
(97 |
)% |
|
|
47,699 |
|
|
|
854,423 |
|
(94 |
)% |
Other |
|
3,735 |
|
|
|
(4,363 |
) |
N/M |
|
|
|
9,130 |
|
|
|
(2,334 |
) |
N/M |
|
Net revenues |
|
1,182,109 |
|
|
|
1,509,844 |
|
(22 |
)% |
|
|
3,503,211 |
|
|
|
4,540,756 |
|
(23 |
)% |
Net earnings before income taxes |
|
91,071 |
|
|
|
301,850 |
|
(70 |
)% |
|
|
267,008 |
|
|
|
860,723 |
|
(69 |
)% |
Income tax expense |
|
37,124 |
|
|
|
105,909 |
|
(65 |
)% |
|
|
75,053 |
|
|
|
219,949 |
|
(66 |
)% |
Net earnings |
|
53,947 |
|
|
|
195,941 |
|
(72 |
)% |
|
|
191,955 |
|
|
|
640,774 |
|
(70 |
)% |
Net losses attributable to noncontrolling interests |
|
(3,772 |
) |
|
|
(1,243 |
) |
203 |
% |
|
|
(13,340 |
) |
|
|
(1,116 |
) |
N/M |
|
Net losses attributable to redeemable noncontrolling interests |
|
— |
|
|
|
(345 |
) |
(100 |
)% |
|
|
(454 |
) |
|
|
(1,241 |
) |
(63 |
)% |
Preferred stock dividends |
|
6,300 |
|
|
|
2,070 |
|
204 |
% |
|
|
8,316 |
|
|
|
6,211 |
|
34 |
% |
Net earnings attributable to Jefferies Financial Group Inc. common shareholders |
$ |
51,419 |
|
|
$ |
195,459 |
|
(74 |
)% |
|
$ |
197,433 |
|
|
$ |
636,920 |
|
(69 |
)% |
Net earnings per common share attributable to Jefferies Financial Group Inc.: |
|
|
|
|
|
|
|
|
|
||||||||||
Basic |
$ |
0.22 |
|
|
$ |
0.80 |
|
(73 |
)% |
|
$ |
0.83 |
|
|
$ |
2.54 |
|
(67 |
)% |
Diluted |
$ |
0.22 |
|
|
$ |
0.78 |
|
(72 |
)% |
|
$ |
0.82 |
|
|
$ |
2.48 |
|
(67 |
)% |
Weighted average common shares |
|
228,353 |
|
|
|
243,853 |
|
|
|
|
236,666 |
|
|
|
250,168 |
|
|
||
Weighted average diluted common shares |
|
232,041 |
|
|
|
251,239 |
|
|
|
|
240,658 |
|
|
|
258,083 |
|
|
||
Annualized return on adjusted tangible equity1 |
|
2.9 |
% |
|
|
10.0 |
% |
|
|
|
3.4 |
% |
|
|
11.0 |
% |
|
N/M — Not Meaningful
Highlights
Three Months Ended August 31, 2023 |
|
Nine Months Ended August 31, 2023 |
|
|
|
|
|
|
Investment Banking and Capital Markets |
|
Investment Banking and Capital Markets |
|
|
|
Asset Management |
|
Asset Management |
|
|
|
* * * *
Amounts herein pertaining to August 31, 2023 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, 2023 will be provided upon filing our Quarterly Report on Form 10-Q with the SEC, which we expect to file on or about October 6, 2023.
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).
Selected Financial Information
(Amounts in Thousands) (Unaudited) |
Quarter Ended |
||||||||||
|
August 31,
|
|
May 31, 202316 |
|
August 31, 202214, 16 |
||||||
Net revenues by source: |
|
|
|
|
|
||||||
Advisory |
$ |
335,271 |
|
|
$ |
254,157 |
|
|
$ |
481,419 |
|
Equity underwriting |
|
154,211 |
|
|
|
148,429 |
|
|
|
150,972 |
|
Debt underwriting |
|
110,708 |
|
|
|
89,889 |
|
|
|
76,943 |
|
Total underwriting |
|
264,919 |
|
|
|
238,318 |
|
|
|
227,915 |
|
Other investment banking |
|
44,453 |
|
|
|
11,458 |
|
|
|
(52,497 |
) |
Total Investment Banking |
|
644,643 |
|
|
|
503,933 |
|
|
|
656,837 |
|
Equities |
|
268,015 |
|
|
|
278,691 |
|
|
|
275,641 |
|
Fixed income |
|
255,573 |
|
|
|
278,395 |
|
|
|
183,479 |
|
Total Capital Markets |
|
523,588 |
|
|
|
557,086 |
|
|
|
459,120 |
|
Total Investment Banking and Capital Markets Net revenues5 |
|
1,168,231 |
|
|
|
1,061,019 |
|
|
|
1,115,957 |
|
Asset management fees and revenues6 |
|
16,358 |
|
|
|
15,929 |
|
|
|
17,069 |
|
Investment return4 |
|
31,658 |
|
|
|
32,477 |
|
|
|
(35,488 |
) |
Merchant banking, inclusive of net interest |
|
(25,145 |
) |
|
|
(66,180 |
) |
|
|
430,009 |
|
Allocated net interest4 |
|
(12,728 |
) |
|
|
(13,125 |
) |
|
|
(13,340 |
) |
Total Asset Management Net revenues |
|
10,143 |
|
|
|
(30,899 |
) |
|
|
398,250 |
|
Other |
|
3,735 |
|
|
|
7,490 |
|
|
|
(4,363 |
) |
Total Net revenues by source |
$ |
1,182,109 |
|
|
$ |
1,037,610 |
|
|
$ |
1,509,844 |
|
|
|
|
|
|
|
||||||
Non-interest expenses: |
|
|
|
|
|
||||||
Compensation and benefits |
$ |
644,059 |
|
|
$ |
575,868 |
|
|
$ |
559,593 |
|
Floor brokerage and clearing fees |
|
91,226 |
|
|
|
96,592 |
|
|
|
84,686 |
|
Underwriting costs |
|
14,877 |
|
|
|
13,169 |
|
|
|
11,672 |
|
Technology and communications |
|
122,579 |
|
|
|
118,936 |
|
|
|
111,379 |
|
Occupancy and equipment rental |
|
27,711 |
|
|
|
24,395 |
|
|
|
26,589 |
|
Business development |
|
41,467 |
|
|
|
43,587 |
|
|
|
36,322 |
|
Professional services |
|
64,897 |
|
|
|
68,514 |
|
|
|
61,428 |
|
Depreciation and amortization |
|
25,288 |
|
|
|
25,310 |
|
|
|
43,187 |
|
Cost of sales |
|
1,618 |
|
|
|
2,362 |
|
|
|
123,436 |
|
Other |
|
57,316 |
|
|
|
50,958 |
|
|
|
149,702 |
|
Total Non-interest expenses |
$ |
1,091,038 |
|
|
$ |
1,019,691 |
|
|
$ |
1,207,994 |
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
(Amounts in Thousands) (Unaudited) |
Nine Months Ended August 31, |
||||||
|
|
2023 |
|
|
|
202214, 16 |
|
Net revenues by source: |
|
|
|
||||
Advisory |
$ |
886,606 |
|
|
$ |
1,396,592 |
|
Equity underwriting |
|
428,085 |
|
|
|
429,507 |
|
Debt underwriting |
|
280,772 |
|
|
|
429,142 |
|
Total underwriting |
|
708,857 |
|
|
|
858,649 |
|
Other investment banking |
|
115,957 |
|
|
|
68,888 |
|
Total Investment Banking |
|
1,711,420 |
|
|
|
2,324,129 |
|
Equities |
|
852,000 |
|
|
|
804,852 |
|
Fixed income |
|
882,962 |
|
|
|
559,686 |
|
Total Capital Markets |
|
1,734,962 |
|
|
|
1,364,538 |
|
Total Investment Banking and Capital Markets Net revenues5 |
|
3,446,382 |
|
|
|
3,688,667 |
|
Asset management fees and revenues6 |
|
74,983 |
|
|
|
75,687 |
|
Investment return4 |
|
91,569 |
|
|
|
(19 |
) |
Merchant banking, inclusive of net interest |
|
(83,902 |
) |
|
|
821,225 |
|
Allocated net interest4 |
|
(34,951 |
) |
|
|
(42,470 |
) |
Total Asset Management Net revenues |
|
47,699 |
|
|
|
854,423 |
|
Other |
|
9,130 |
|
|
|
(2,334 |
) |
Total Net revenues by source |
$ |
3,503,211 |
|
|
$ |
4,540,756 |
|
|
|
|
|
||||
Non-interest expenses: |
|
|
|
||||
Compensation and benefits |
$ |
1,922,985 |
|
|
$ |
1,929,923 |
|
Floor brokerage and clearing fees |
|
268,292 |
|
|
|
262,663 |
|
Underwriting costs |
|
41,253 |
|
|
|
32,991 |
|
Technology and communications |
|
354,900 |
|
|
|
330,349 |
|
Occupancy and equipment rental |
|
79,421 |
|
|
|
79,581 |
|
Business development |
|
121,892 |
|
|
|
107,889 |
|
Professional services |
|
195,572 |
|
|
|
169,936 |
|
Depreciation and amortization |
|
83,890 |
|
|
|
129,431 |
|
Cost of sales |
|
6,148 |
|
|
|
349,556 |
|
Other |
|
161,850 |
|
|
|
287,714 |
|
Total Non-interest expenses |
$ |
3,236,203 |
|
|
$ |
3,680,033 |
|
|
|
|
|
||||
|
|
|
|
Financial Data and Metrics
(Unaudited) |
Quarter Ended |
|||||||
|
August 31, 2023 |
|
May 31, 2023 |
|
August 31, 2022 |
|||
Other Data: |
|
|
|
|
|
|||
Number of trading days |
|
64 |
|
|
64 |
|
|
64 |
Number of trading loss days7 |
|
6 |
|
|
10 |
|
|
9 |
Average VaR (in millions)8 |
$ |
13.87 |
|
$ |
15.14 |
|
$ |
9.60 |
|
|
|
|
|
|
|||
|
|
|
Nine Months Ended August 31, |
|||||
|
|
|
|
2023 |
|
|
2022 |
|
Other Data: |
|
|
|
|
|
|||
Number of trading days |
|
|
|
188 |
|
|
189 |
|
Number of trading loss days7 |
|
|
|
19 |
|
|
27 |
|
Average VaR (in millions)8 |
|
|
$ |
13.98 |
|
$ |
11.18 |
(Amounts in Millions, Except Other Data) (Unaudited) |
Quarter Ended |
|||||||
|
August 31, 2023 |
|
May 31, 2023 |
|
August 31, 202215 |
|||
Financial position9: |
|
|
|
|
|
|||
Total assets |
$ |
56,045 |
|
$ |
53,740 |
|
$ |
51,477 |
Total assets less goodwill and intangible assets for the period15 |
|
54,173 |
|
|
51,867 |
|
|
49,603 |
Cash and cash equivalents |
|
8,817 |
|
|
8,005 |
|
|
9,478 |
Financial instruments owned15 |
|
22,805 |
|
|
21,002 |
|
|
18,776 |
Level 3 financial instruments owned10, 15 |
|
918 |
|
|
860 |
|
|
760 |
Goodwill and intangible assets |
|
1,872 |
|
|
1,873 |
|
|
1,874 |
Total equity |
|
9,765 |
|
|
9,765 |
|
|
10,360 |
Total shareholders' equity |
|
9,699 |
|
|
9,696 |
|
|
10,293 |
Tangible shareholders' equity11 |
|
7,827 |
|
|
7,823 |
|
|
8,418 |
Other data and financial ratios: |
|
|
|
|
|
|||
Leverage ratio9, 12, 15 |
|
5.7 |
|
|
5.5 |
|
|
5.0 |
Tangible gross leverage ratio9, 13, 15 |
|
6.9 |
|
|
6.6 |
|
|
5.9 |
Number of employees, at period end |
|
5,505 |
|
|
5,335 |
|
|
5,347 |
Components of Numerators and Denominators for Earnings Per Common Share
The numerators and denominators used to calculate basic and diluted earnings per common share are as follows (in thousands):
|
|
Three Months Ended August 31, 2023 |
|
Nine Months Ended August 31, 2023 |
Numerator for earnings per common share: |
|
|
|
|
Net earnings attributable to Jefferies Financial Group Inc. |
|
$ 57,719 |
|
$ 203,733 |
Allocation of earnings to participating securities |
|
(6,369) |
|
(7,344) |
Net earnings attributable to Jefferies Financial Group Inc. common shareholders for basic earnings per share |
|
51,350 |
|
196,389 |
Net earnings attributable to Jefferies Financial Group Inc. common shareholders for diluted earnings per share |
|
51,350 |
|
196,389 |
|
|
|
|
|
Denominator for earnings per common share: |
|
|
|
|
Weighted average common shares outstanding |
|
218,411 |
|
226,265 |
Weighted average shares of restricted stock outstanding with future service required |
|
(1,793) |
|
(1,923) |
Weighted average restricted stock units outstanding with no future service required |
|
11,735 |
|
12,324 |
Denominator for basic earnings per common share – weighted average shares |
|
228,353 |
|
236,666 |
Stock options and other share based awards |
|
2,047 |
|
2,064 |
Senior executive compensation plan restricted stock unit awards |
|
1,641 |
|
1,928 |
Denominator for diluted earnings per common share |
|
232,041 |
|
240,658 |
|
|
|
|
|
Net earnings per common share attributable to Jefferies Financial Group Inc.: |
|
|
|
|
Basic |
|
$ 0.22 |
|
$ 0.83 |
Diluted |
|
$ 0.22 |
|
$ 0.82 |
Notes
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.
Annualized Return on Adjusted Tangible Equity Reconciliation
The table below reconciles our Net earnings attributable to common shareholders to adjusted net earnings and our Shareholders' equity to adjusted tangible shareholders' equity (in thousands):
|
|
Three Months Ended August 31, |
|
Nine Months Ended August 31, |
||||||||||||
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Net earnings attributable to Jefferies Financial Group Inc. common shareholders (GAAP) |
|
$ |
51,419 |
|
|
$ |
195,459 |
|
|
$ |
197,433 |
|
|
$ |
636,920 |
|
Intangible amortization and impairment expense, net of tax |
|
|
1,480 |
|
|
|
1,638 |
|
|
|
4,700 |
|
|
|
6,350 |
|
Adjusted net earnings (non-GAAP) |
|
$ |
52,899 |
|
|
$ |
197,097 |
|
|
$ |
202,133 |
|
|
$ |
643,270 |
|
Annualized adjusted net earnings (non-GAAP) |
|
$ |
211,596 |
|
|
$ |
788,388 |
|
|
$ |
269,511 |
|
|
$ |
857,693 |
|
|
|
May 31, |
|
November 30, |
||||||||||||
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2022 |
|
|
|
2021 |
|
Shareholders' equity (GAAP) |
|
$ |
9,695,655 |
|
|
$ |
10,300,177 |
|
|
$ |
10,232,845 |
|
|
$ |
10,553,755 |
|
Less: Intangible assets, net and goodwill |
|
|
(1,873,123 |
) |
|
|
(1,885,043 |
) |
|
|
(1,875,576 |
) |
|
|
(1,897,500 |
) |
Less: Deferred tax asset |
|
|
(502,442 |
) |
|
|
(401,268 |
) |
|
|
(387,862 |
) |
|
|
(327,547 |
) |
Less: Weighted average impact of dividends and share repurchases |
|
|
(49,481 |
) |
|
|
(93,106 |
) |
|
|
(147,972 |
) |
|
|
(539,674 |
) |
Adjusted tangible shareholders' equity (non-GAAP) |
|
$ |
7,270,609 |
|
|
$ |
7,920,760 |
|
|
$ |
7,821,435 |
|
|
$ |
7,789,034 |
|
Annualized return on adjusted tangible equity (non-GAAP) |
|
|
2.9 |
% |
|
|
10.0 |
% |
|
|
3.4 |
% |
|
|
11.0 |
% |
Adjusted Tangible Book Value and Fully Diluted 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):
|
|
August 31, 2023 |
||
Book value (GAAP) |
|
$ |
9,698,847 |
|
Stock options(1) |
|
|
114,939 |
|
Intangible assets, net and goodwill |
|
|
(1,872,144 |
) |
Adjusted tangible book value (non-GAAP) |
|
$ |
7,941,642 |
|
Common shares outstanding (GAAP) |
|
|
210,428 |
|
Preferred shares |
|
|
21,000 |
|
Restricted stock units ("RSUs") |
|
|
14,221 |
|
Stock options(1) |
|
|
5,065 |
|
Other |
|
|
1,350 |
|
Fully diluted shares outstanding (non-GAAP)(2) |
|
|
252,064 |
|
Book value per common share outstanding |
|
$ |
46.09 |
|
Tangible book value per fully diluted share outstanding (non-GAAP) |
|
$ |
31.51 |
|
|
|
|
(1) |
Stock options added to book value are equal to the total number of stock options outstanding as of August 31, 2023 of 5,064,740 multiplied by the weighted average exercise price of $22.69 on August 31, 2023. Stock options added to fully diluted shares are equal to the total stock options outstanding on August 31, 2023. |
|
(2) |
Fully diluted shares outstanding include vested and unvested RSUs as well as the target number of RSUs issuable under the senior executive compensation plans until the performance period is complete. Fully diluted shares outstanding also include all stock options and the impact of mandatorily convertible preferred shares if-converted to common shares. |
View source version on businesswire.com: https://www.businesswire.com/news/home/20230927383931/en/
Jonathan Freedman 212.778.8913