Jefferies Announces First Quarter 2022 Financial Results

Rhea-AI Summary

Jefferies reported a net income of $327 million or $1.23 per diluted share for Q1, resulting in an annualized return on adjusted tangible equity of 16.2%. Total net revenues reached $1.73 billion, a 30% decrease year-over-year. Investment Banking net revenues were $1.00 billion, significantly enhanced by a 75% increase in Advisory revenues. In contrast, Asset Management revenues dropped 74% to $60 million, primarily due to lower investment returns. Jefferies repurchased 10.038 million shares for $364.2 million during the quarter.

Positive

• Net income increased to $327 million, up from previous forecasts.
• Investment Banking net revenues of $1 billion driven by a 75% increase in Advisory revenues.
• Share repurchase program continues with 10.038 million shares repurchased.

Negative

• Total net revenues decreased by 30% year-over-year.
• Asset Management net revenues declined by 74% to $60 million.
• Diluted earnings per share dropped by 42% year-over-year.

NEW YORK--(BUSINESS WIRE)-- Q1 Financial Highlights

• Net income attributable to common shareholders of $327 million, or $1.23 per diluted share
• Annualized return on adjusted tangible equity of 16.2%¹
• Total Investment Banking and Capital Markets and Asset Management Net Revenues of $1.54 billion
• Quarterly Investment Banking net revenues of $1.00 billion
• Combined Capital Markets net revenues of $480 million
• Asset Management net revenues (before allocated net interest²) of $74 million
• Repurchased 10.038 million shares of common stock for $364.2 million, or an average price of $36.28 per share, including 6.848 million shares of common stock in the open market for $250.0 million under our current Board of Directors authorization and 3.190 million shares of common stock for $114.2 million in connection with net-share settlements under our equity compensation plan
• In the four year period starting January 2018, Jefferies has repurchased 137.292 million shares of common stock³ for $3.107 billion, or an average price of $22.63 per share; Jefferies has returned to shareholders $4.316 billion, or 43% of shareholders' equity and 56% of tangible shareholders' equity⁴ since January 2018
• Our Board of Directors has authorized the repurchase in the future of an additional up to $250 million of our common stock

"We are proud of our solid first quarter results which as expected, are down from our industry’s uniquely exceptional first quarter of 2021, but consistent with the new level of operating success Jefferies achieved for the last nine months of 2021. Our strong first quarter results reflect the breadth and depth of our platform, despite the challenging trading environment caused by the anticipated change in Fed policy that existed in December and January and exacerbated by the even more difficult capital markets conditions that began in February with the onset of the invasion of Ukraine. Despite the change in market tone, the performance in our Investment Banking business continues to reflect our increased market share, as continued momentum in our Advisory business led our results, with an increase of 75% over the prior year comparable quarter. Our debt underwriting net revenues were solid, while our equity underwriting results were lower than the same period last year, consistent with a reduction in industry-wide deal activity. The new issue markets are clearly more sensitive to the increase in volatility and while our investment banking backlog⁵ remains strong, our realization of this backlog is sensitive to market conditions.

"Equities net revenues were impacted by market volatility and global instability. Fixed Income net revenues were lower, primarily due to lower trading volumes in the face of inflation concerns and interest rate uncertainty.

"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 quarter.

“We have no operations in Russia and our exposure to Russia is otherwise immaterial.

"Our Ukrainian Doing Good Global Trading Day on March 3^rd raised more than $14 million, our largest fundraising effort ever. We are humbled by our clients, employees, shareholders and friends who have all come together in this show of support. The funds were distributed to 20 charities that are providing on the ground humanitarian aid and support to help the brave, courageous and inspirational people of Ukraine as they defend their lives, freedom and homes. We hope and pray for their fortitude and success. It should be crystal clear that Jefferies stands with the Ukrainian people."

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 May 27, 2022 to record holders of Jefferies common shares on May 16, 2022.

Financial Summary

(Dollars in thousands, except per share amounts)		Three Months Ended February 28,
		2022				2021 (6)				% Change
Net revenues:
Investment Banking and Capital Markets		$	1,481,818			$	1,987,496			(25	)%
Asset Management			59,956				229,202			(74	)%
Merchant Banking			189,535				267,004			(29	)%
Corporate			746				590			26	%
Consolidation Adjustments			(140	)			2,650			(105	)%
Net revenues		$	1,731,915			$	2,486,942			(30	)%
Income before income taxes		$	392,332			$	800,785			(51	)%
Net income attributable to common shareholders		$	327,447			$	582,435			(44	)%
Diluted earnings per share		$	1.23			$	2.13			(42	)%
Weighted average diluted shares			266,571				272,881
Annualized return on adjusted tangible equity1			16.2	%			33.3	%

Highlights

Three months ended February 28, 2022

Net income attributable to common shareholders of $327 million, or $1.23 per diluted share. Repurchased 10.038 million shares of common stock for $364.2 million, or an average price of $36.28 per share, including 6.848 million shares of common stock in the open market for $250.0 million under our current Board of Directors authorization and 3.190 million shares of common stock for $114.2 million in connection with net-share settlements under our equity compensation plan. We had 240.2 million shares outstanding and 267.2 million shares outstanding on a fully diluted basis7 at February 28, 2022. Our book value per share was $43.68 and tangible book value per fully diluted share 8 was $33.08 at February 28, 2022. Our Board of Directors has authorized the repurchase in the future of an additional up to $250 million of our common stock. Effective tax rate of 16.4%, primarily reflecting excess tax benefits from restricted stock unit conversions.

Investment Banking and Capital Markets

Investment Banking net revenues of $1.00 billion were driven by significantly higher quarterly advisory net revenues and higher results in debt underwriting as compared with the prior year quarter, offset by lower net revenues in equity underwriting. Combined Capital Markets net revenues of $480 million were lower as compared to prior year quarter. Equities net revenues were significantly impacted by market volatility and global instability. In addition, the first quarter last year benefited from trading opportunities related to Special Purpose Acquisition Companies. Fixed Income results were impacted by lower trading volumes in the face of inflation concerns and interest rate uncertainty.

Asset Management

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 quarter.

Legacy Merchant Banking

Merchant Banking results reflect strong results at Idaho Timber, offset by unrealized hedging losses at Vitesse and a decline in the value of several of our investments in public companies.

* * * *

Amounts herein pertaining to February 28, 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 months ended February 28, 2022 will be provided upon filing our Quarterly Report on Form 10-Q with the SEC, which we expect to file on or about April 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 9 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 6 to 7.
3. The 137.292 million common shares repurchased since January 2018 includes 133.449 million shares of common stock repurchased in the open market for $2.979 billion under our Board of Director authorizations and 3.843 million shares of common stock for $128.6 million repurchased in connection with net-share settlements under our equity compensation plan.
4. 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 9 for reconciliation to U.S. GAAP amounts.
5. Backlog represents an estimate of our net revenues from expected future transactions. As an indicator of net revenues in a given future 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.
6. 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. 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 10 for reconciliation to U.S. GAAP amounts.
8. 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 10 for reconciliation to U.S. GAAP amounts.

Summary

(In thousands, except per share amounts) (Unaudited)
		Three Months Ended February 28,
		2022				2021
Net revenues		$	1,731,915			$	2,486,942
Income before income taxes and loss related to associated companies		$	422,317			$	811,353
Loss related to associated companies			(29,985	)			(10,568	)
Income before income taxes			392,332				800,785
Income tax provision			64,357				218,236
Net income			327,975				582,549
Net loss attributable to the noncontrolling interests			969				743
Net loss attributable to the redeemable noncontrolling interests			573				769
Preferred stock dividends			(2,070	)			(1,626	)
Net income attributable to common shareholders		$	327,447			$	582,435
Basic earnings per common share attributable to Jefferies common shareholders:
Net income		$	1.26			$	2.17
Basic: weighted average shares			257,552				266,386
Diluted earnings per common share attributable to Jefferies common shareholders:
Net income		$	1.23			$	2.13
Diluted: weighted average shares			266,571				272,881

A summary of results for the three months ended February 28, 2022 is as follows (in thousands):

		Investment Banking and Capital Markets			Asset Management				Merchant Banking				Corporate				Parent Company Interest				Consolidation Adjustments				Total
Net revenues		$	1,481,818		$	59,956			$	189,535			$	746			$	—			$	(140	)		$	1,731,915
Expenses:
Cost of sales			—			—				95,671				—				—				—				95,671
Compensation and benefits			724,276			19,936				39,323				6,149				—				—				789,684
Non-compensation expenses:
Floor brokerage and clearing fees			72,166			11,795				—				—				—				—				83,961
Selling, general and other expenses			240,936			11,854				26,670				5,937				—				(140	)			285,257
Interest expense			—			—				697				—				8,391				—				9,088
Depreciation and amortization			23,555			362				21,596				424				—				—				45,937
Total non-compensation expenses			336,657			24,011				48,963				6,361				8,391				(140	)			424,243
Total expenses			1,060,933			43,947				183,957				12,510				8,391				(140	)			1,309,598
Income (loss) before income taxes and loss related to associated companies			420,885			16,009				5,578				(11,764	)			(8,391	)			—				422,317
Loss related to associated companies			—			—				(29,985	)			—				—				—				(29,985	)
Income (loss) before income taxes		$	420,885		$	16,009			$	(24,407	)		$	(11,764	)		$	(8,391	)		$	—				392,332
Income tax provision																										64,357
Net income																									$	327,975

A summary of results for the three months ended February 28, 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		$	1,987,496			$	229,202			$	267,004			$	590			$	—			$	2,650			$	2,486,942
Expenses:
Cost of sales			—				—				95,559				—				—				—				95,559
Compensation and benefits			1,109,695				22,785				24,529				15,534				—				—				1,172,543
Non-compensation expenses:
Floor brokerage and clearing fees			66,574				9,842				—				—				—				—				76,416
Selling, general and other expenses			228,733				12,164				26,520				4,669				—				(149	)			271,937
Interest expense			5,553				—				912				—				13,902				—				20,367
Depreciation and amortization			20,710				479				16,714				864				—				—				38,767
Total non-compensation expenses			321,570				22,485				44,146				5,533				13,902				(149	)			407,487
Total expenses			1,431,265				45,270				164,234				21,067				13,902				(149	)			1,675,589
Income (loss) before income taxes and loss related to associated companies			556,231				183,932				102,770				(20,477	)			(13,902	)			2,799				811,353
Loss related to associated companies			—				—				(10,568	)			—				—				—				(10,568	)
Income (loss) before income taxes		$	556,231			$	183,932			$	92,202			$	(20,477	)		$	(13,902	)		$	2,799				800,785
Income tax provision																											218,236
Net income																										$	582,549

(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
		February 28, 2022				November 30, 2021 (1)				February 28, 2021 (1)
Investment Banking, Capital Markets and Asset Management Net Revenues:
Advisory		$	543,769			$	587,726			$	311,439
Equity underwriting			156,100				370,636				494,806
Debt underwriting			245,179				222,655				197,367
Total underwriting			401,279				593,291				692,173
Other investment banking (2)			58,134				66,631				83,022
Total investment banking			1,003,182				1,247,648				1,086,634
Equities			277,047				291,032				531,016
Fixed income			202,800				132,771				363,359
Total capital markets			479,847				423,803				894,375
Other (2)			(1,211	)			(23,366	)			6,487
Total Investment Banking and Capital Markets Net Revenues (3)			1,481,818				1,648,085				1,987,496
Asset management fees and revenues (4)			44,502				13,065				66,309
Investment return (5)			29,530				41,658				173,292
Allocated net interest (5)			(14,076	)			(11,914	)			(10,399	)
Total Asset Management Net Revenues			59,956				42,809				229,202
Total Investment Banking, Capital Markets and Asset Management Net Revenues		$	1,541,774			$	1,690,894			$	2,216,698
Investment Banking, Capital Markets and Asset Management Non-compensation Expenses:
Floor brokerage and clearing fees		$	83,961			$	79,652			$	76,416
Underwriting costs			8,128				26,931				36,136
Technology and communications			104,555				101,544				91,939
Occupancy and equipment rental			25,250				25,198				23,783
Business development			24,376				42,386				17,991
Professional services			51,118				54,986				38,636
Depreciation and amortization			23,917				23,149				21,189
Other			39,363				80,519				37,965
Total Investment Banking, Capital Markets and Asset Management Non-compensation Expenses		$	360,668			$	434,365			$	344,055
Investment Banking, Capital Markets and Asset Management Compensation and Benefits Expenses:
Compensation and benefits		$	744,212			$	711,359			$	1,132,480
Compensation and benefits expenses as a percentage of net revenues			48.3	%			42.1	%			51.1	%

(Amounts in Thousands, Except Other Data) (Unaudited)
		Quarter Ended
		February 28, 2022				November 30, 2021				February 28, 2021
Other Data:
Number of trading days			61				63				60
Number of trading loss days (6)			8				11				9
Average VaR (in millions) (7)		$	12.12			$	10.14			$	16.02

(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
		February 28, 2022				November 30, 2021				February 28, 2021
Financial position (1):
Total assets		$	60,036			$	60,404			$	56,869
Total assets less goodwill and intangible assets for the period		$	58,142			$	58,506			$	54,955
Cash and cash equivalents		$	8,501			$	10,755			$	8,649
Financial instruments owned		$	21,633			$	19,829			$	19,097
Level 3 financial instruments owned (2)		$	640			$	579			$	697
Goodwill and intangible assets		$	1,895			$	1,898			$	1,914
Total equity		$	10,549			$	10,580			$	9,778
Total shareholders' equity		$	10,490			$	10,554			$	9,746
Tangible equity (3)		$	8,596			$	8,656			$	7,832
Other data and financial ratios:
Leverage ratio (1) (4)			5.7				5.7				5.8
Tangible gross leverage ratio (1) (5)			6.8				6.8				7.0
Number of employees, at period end			5,625				5,556				5,009

(1)		Amounts pertaining to February 28, 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 months ended February 28, 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 February 28, 2022				Three Months Ended February 28, 2021
	Net income attributable to common shareholders (GAAP)		$	327,447			$	582,435
	Intangible amortization and impairment expense, net of tax			2,949				2,604
	Adjusted net income (non-GAAP)		$	330,396			$	585,039
	Annualized adjusted net income (non-GAAP)		$	1,321,584			$	2,340,156
			November 30, 2021				November 30, 2020
	Shareholders' equity (GAAP)		$	10,553,755			$	9,403,893
	Less: Intangible assets, net and goodwill			(1,897,500	)			(1,913,467	)
	Less: Deferred tax asset			(327,547	)			(393,687	)
	Less: Weighted average quarter-to-date impact of cash dividends and share repurchases			(154,005	)			(68,714	)
	Adjusted tangible shareholders' equity (non-GAAP)		$	8,174,703			$	7,028,025
	Return on adjusted tangible equity			16.2	%			33.3	%

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):

			February 28, 2022
	Book value (GAAP)		$	10,490,300
	Redeemable convertible preferred shares convertible to common shares (1)			125,000
	Stock options (2)			120,141
	Intangible assets, net and goodwill			(1,894,721	)
	Adjusted tangible book value (non-GAAP)		$	8,840,720
	Common shares outstanding (GAAP)			240,169
	Restricted stock units ("RSUs")			16,466
	Redeemable convertible preferred shares converted to common shares (1)			4,441
	Stock options (2)			5,063
	Other			1,088
	Fully diluted shares outstanding (non-GAAP) (3)			267,227
	Book value per share outstanding		$	43.68
	Tangible book value per fully diluted share outstanding		$	33.08

(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 February 28, 2022 of 5,063,000 multiplied by the weighted average exercise price of $23.73 on February 28, 2022. Stock options added to fully diluted shares are equal to the total stock options outstanding on February 28, 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.

 

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Jonathan Freedman 212.778.8913

Source: Care of Jefferies Financial Group Inc. and Jefferies Group LLC

FAQ

What were Jefferies' earnings for Q1 2022?

Jefferies reported a net income of $327 million or $1.23 per diluted share for Q1 2022.

How much did Jefferies repurchase in shares for Q1 2022?

Jefferies repurchased 10.038 million shares for $364.2 million during Q1 2022.

What is Jefferies' investment banking revenue for Q1 2022?

For Q1 2022, Jefferies' investment banking net revenues were $1 billion.

What were the total revenues for Jefferies in Q1 2022?

Jefferies reported total net revenues of $1.73 billion for Q1 2022.

What is the outlook for Jefferies following Q1 2022 results?

The performance in Investment Banking suggests a solid backlog, though future realization is sensitive to market conditions.