JEF - Jefferies Announces Third Quarter 2023 Financial Results

Jefferies Financial Group Inc. (NYSE: JEF):

Q3 Financial Highlights

• Net earnings attributable to common shareholders of $51 million, or $0.22 per basic and diluted common share, inclusive of a meaningful pre-tax loss from our legacy merchant banking portfolio which generated negative net revenues of $25 million primarily as a result of certain fair value adjustments taken during the period
• Annualized return on adjusted tangible equity ¹ of 2.9%
• Net revenues of $1.18 billion
  • Investment Banking net revenues of $645 million
  • Capital Markets net revenues of $524 million
  • Asset Management net revenues (before allocated net interest ⁴ ) of $23 million, inclusive of a meaningful pre-tax loss from our legacy merchant banking portfolio which generated negative net revenues of $25 million primarily as a result of certain fair value adjustments taken during the period
• At August 31, 2023, we had 210.4 million common shares outstanding and 252.1 million shares outstanding on a fully diluted basis ² . Our book value per common share was $46.09 and tangible book value per fully diluted share ³ was $31.51 at August 31, 2023
• We currently have a $250 million authorization for future share repurchases

"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

N/M — Not Meaningful

Highlights

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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

Financial Data and Metrics

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):

Notes

1. Annualized return on adjusted tangible equity (a non-GAAP financial measure) is defined as annualized adjusted net earnings (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 11 for a reconciliation to U.S. GAAP amounts.
2. Common shares outstanding on a fully diluted basis (a non-GAAP financial measure) is defined as common shares outstanding plus restricted stock units, stock options and other shares. Refer to schedule on page 12 for a reconciliation to U.S. GAAP amounts.
3. Tangible book value per fully diluted common share (a non-GAAP financial measure) is defined as adjusted tangible book value (a non-GAAP financial measure) divided by common shares outstanding on a fully diluted basis (a non-GAAP financial measure). Refer to schedule on page 12 for a 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 present direct Asset Management revenues. We believe that aggregating Allocated net interest would obscure the revenue results by including an amount that is unique to our credit spreads, debt maturity profile, capital structure, liquidity risks and allocation methods. Refer to Selected Financial Information on page 6 .
5. 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.
6. Asset management fees and revenues include 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.
7. Number of trading loss days is calculated based on trading activities in our Investment Banking and Capital Markets and Asset Management business segments, excluding merchant banking.
8. VaR estimates the potential loss in value of trading positions 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, 2022.
9. Amounts pertaining to August 31, 2023 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 quarterly period ended August 31, 2023.
10. 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.
11. Tangible shareholders' equity (a non-GAAP financial measure), is defined as shareholders' equity less Intangible assets and goodwill. 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.
12. Leverage ratio equals total assets divided by total equity.
13. Tangible gross leverage ratio (a non-GAAP financial measure) equals total assets less goodwill and intangible assets divided by tangible equity. The tangible gross leverage ratio is used by rating agencies in assessing our leverage ratio.
14. On November 1, 2022, we completed our merger with Jefferies Group LLC. In connection with the merger, we transferred our legacy merchant banking investments to our Investment Banking and Capital Markets or Asset Management segment and reorganized the presentation of our segments and Net revenues to align with the way we are now managing our business. In addition, we have reclassified the presentation of certain line items within our Net revenues by source to streamline our financial statements to better align the presentation of our firm with the strategy of building our investment banking and capital markets and asset management businesses as we continue to reduce our legacy merchant banking portfolio. Historical periods have been recast to conform to these reclassification and presentation changes.
15. As of November 30, 2022, we have changed the accounting for our secondary trading activity related to the purchases and sales of corporate loans. Historically, we have accounted for purchases and sales of corporate loans on trade date recognizing the total amount of purchased loans within Financial instruments owned and a corresponding liability within Payables - brokers, dealers and clearing organizations and the total amount of loans sold within Financial instruments sold, not yet purchased and a corresponding asset within Receivables - brokers, dealers and clearing organizations on the Consolidated Statements of Financial Condition for the cash to be paid or received upon settlement. We have determined that it is more preferable to recognize this trading activity on a settlement date basis and recognize firm commitments to purchase and/or sell loans on the date of trade execution due to the extended settlement period for this trading activity. There was no impact to net earnings or total equity as a result of this change in accounting policy. Historical periods have been recast to conform to this change in accounting policy.
16. During the quarter ended August 31, 2023, we refined our allocated net interest methodology to better reflect net interest expense across our business units based on use of capital. As a results, the presentation of Net revenues and Net revenues by source for historical periods have been recast to conform with the revised methodology.

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):

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):

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Jonathan Freedman 212.778.8913