Jefferies Announces Fourth Quarter 2022 Financial Results

By Business Wire News On Jan 10, 2023

NEW YORK–(BUSINESS WIRE)–Jefferies Financial Group Inc. (NYSE: JEF):

Q4 Financial Highlights

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Net earnings attributable to common shareholders of $140 million, or $0.57 per diluted share
Annualized return on adjusted tangible equity of 7.2%¹
Total net revenues of $1.44 billion
- Investment Banking net revenues of $568 million
- Capital Markets net revenues of $478 million
- Asset Management net revenues (before allocated net interest²) of $402 million, inclusive of $232 million of net revenues from merchant banking activities
Repurchased 3.9 million shares of common stock for $121 million, or an average price of $31.24 per share
Our Board of Directors has increased our share buyback authorization back to a total of $250 million
On November 1, 2022, we completed our merger with Jefferies Group LLC. This merger eliminated Jefferies Group LLC’s requirement to file Form 10-Qs, Form 10-Ks, and other duplicative processes, and resulted in us assuming Jefferies Group’s debt obligations. In connection with the merger we have transferred our legacy merchant banking investments to our Investment Banking and Capital Markets or Asset Management segment and have reorganized the presentation of our segments and Net revenues to align with the way we are now managing our business. Additionally, corporate activities are now fully allocated to these segments. Prior year amounts have been revised to conform to this current presentation. Refer to Note 18 for further information.

“Jefferies’ 2022 total investment banking revenues, while down 38% from an off-the-charts 2021, represented our second-best year ever and were substantially above 2019 levels. Our advisory net revenues were only 5% below last year’s all-time record result, while our underwriting net revenues were down 59%, due to the IPO and leveraged finance markets being substantially closed for much of the year. Our combined equities and fixed income net revenues were down only 19% versus 2021 and up meaningfully versus 2019.

“Most significantly, for our fiscal 2022, Jefferies was the #6 largest investment banking firm in both global M&A, as well as global equity capital markets (excluding China), up from #12 and #13, respectively, only five years ago. We also moved up one spot from the prior year to #7 globally in combined M&A, ECM and leveraged finance, an improvement from #10 in 2017. It is worth noting that all the competitors ahead of us on these lists are trillion dollar plus global bank holding companies who often lead with their balance sheet, while Jefferies leads with ideas, expertise and human capital.

“Our Equities franchise continued to expand in breadth and capability, while gaining market share across the majority of equity products in 2022. We achieved a U.S. ranking of #6 and a European ranking of #7 for equity research, while we were ranked #3 best overall in Asia for combined equity research and sales. While our Fixed Income business was down for the year, our fourth quarter was up over 71% and we carried that momentum through the first month of fiscal 2023.

“Monetizing our legacy merchant banking portfolio and returning capital to shareholders remains one of our overriding priorities, and we made continued progress in 2022. We expect to take a further important step later this week with our spin-off to shareholders of Vitesse Energy (‘Vitesse’). In 2022, we returned an aggregate of $1.14 billion to shareholders in the form of $280.1 million in dividends and the repurchase of 25.6 million shares for a total of $859.6 million, or $33.58 per share. Over the last five years, we have now returned $5.0 billion in total capital to shareholders, representing two-thirds of total tangible book value³ at January 1, 2018 and including 152.8 million shares repurchased at an average of $23.57 per share. Further, our Vitesse spin-off delivers to our shareholders an additional estimated more than $500 million of our shareholders’ equity. Pro forma for the Vitesse spin-off, we will have returned over $5.5 billion in total capital to shareholders over the last five years, representing over 72% of tangible book value³ at January 1, 2018.

“In sum, we achieved a respectable return on adjusted tangible equity of 10.3%¹ in a very difficult environment, enhanced our market position in our core businesses and simplified our corporate structure. As we move forward in 2023, we have never been more optimistic about our human capital, product capabilities, industry expertise and geographic breadth, which we intend to continue to aggressively deliver to our clients going forward. Our goal is to continue to gain market share, further strengthening our ‘never better’ competitive position, and continue our quest to be the best full service global investment banking firm.”

Richard Handler, CEO, and Brian Friedman, President

Please refer to the just-released Jefferies Financial Group Annual Letter from our CEO and President for broader perspective on 2022, as well as our strategy and outlook.

Quarterly Cash Dividend

The Jefferies Board of Directors declared a quarterly cash dividend equal to $0.30 per Jefferies common share, payable on February 24, 2023 to record holders of Jefferies common shares on February 13, 2023.

Financial Summary

(Dollars in thousands, except per share amounts)	Three Months Ended November 30,								Twelve Months Ended November 30,
	2022			2021¹⁸			% Change		2022			2021¹⁸			% Change
Net revenues:
Investment Banking and Capital Markets	$	1,046,434		$	1,615,752		(35	)%	$	4,726,150		$	6,917,774		(32	)%
Asset Management		395,228			151,177		161	%		1,257,693			1,092,624		15	%
Other		(3,580	)		(8,438	)	58	%		(5,005	)		3,428		N/M
Net revenues		1,438,082			1,758,491		(18	)%		5,978,838			8,013,826		(25	)%
Net earnings before income taxes		194,840			425,565		(54	)%		1,055,562			2,254,105		(53	)%
Income tax expense		53,903			91,973		(41	)%		273,852			576,729		(53	)%
Net earnings		140,937			333,592		(58	)%		781,710			1,677,376		(53	)%
Net earnings (losses) attributable to noncontrolling interests		(1,280	)		6,586		N/M			(2,397	)		3,850		N/M
Net earnings (loss) attributable to redeemable noncontrolling interests		(101	)		245		N/M			(1,342	)		(826	)	62	%
Preferred stock dividends		2,070			1,848		12	%		8,281			6,949		19	%
Net earnings attributable to Jefferies Financial Group Inc.	$	140,248		$	324,913		(57	)%	$	777,168		$	1,667,403		(53	)%
Basic earnings per common share	$	0.58		$	1.23		(53	)%	$	3.13		$	6.29		(50	)%
Weighted average shares		239,312			261,637					247,378			263,595
Diluted earnings per common share	$	0.57		$	1.20		(53	)%	$	3.06		$	6.13		(50	)%
Weighted average diluted shares		248,338			270,743					255,571			271,501
Annualized return on adjusted tangible equity¹		7.2	%		16.5	%				10.3	%		24.5	%
Adjusted annualized return on adjusted tangible equity⁴		7.2	%		16.5	%				11.3	%		24.5	%

N/M — Not Meaningful

Highlights

Three Months Ended November 30, 2022		Twelve Months Ended November 30, 2022
Net earnings attributable to common shareholders of $140 million, or $0.57 per diluted share. Repurchased 3.9 million shares of common stock for $121.0 million, or an average price of $31.24 per share. We had 226.1 million shares outstanding and 254.6 million shares outstanding on a fully diluted basis⁵ at November 30, 2022. Our book value per share was $45.25 and tangible book value per fully diluted share⁶ was $33.78at November 30, 2022. Our Board of Directors has increased our share buyback authorization back to a total of $250 million. Effective tax rate of 27.7%		Net earnings attributable to common shareholders of $777 million, or $3.06 per diluted share; adjusted net earnings attributable to common shareholders⁸ of $857 million, or $3.37 per diluted share, after removing $80 million of expense related to a regulatory settlement in the third quarter. Repurchased 25.6 million shares of common stock for $859.6 million, or an average price of $33.58 per share. Effective tax rate of 25.9%, reflecting non-deductible $80 million regulatory settlement during the year; adjusted effective tax rate¹⁷ of 24.1% without the cost of this settlement.

Three Months Ended November 30, 2022		Twelve Months Ended November 30, 2022
Investment Banking and Capital Markets		Investment Banking and Capital Markets
Investment Banking net revenues were $568 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. Capital Markets net revenues of $478 million were slightly higher as compared to the prior year quarter. Equities net revenues benefited from elevated client trading volumes and market volatility. Fixed Income net revenues reflect robust emerging market trading results partially offset by reduced market activity for various fixed income products.		Investment Banking net revenues of $2.90 billion were driven by near-record advisory net revenues, offset by lower net revenues in debt and equity underwriting, consistent with significant reduced industry activity. Capital Markets net revenues of $1.83 billion were lower as compared to the prior year. Equities net revenues were impacted by significantly reduced trading volumes related to a slowdown in new-issue offerings offset by strong client activity on market volatility and global instability. Fixed Income results were also impacted by significantly reduced trading volumes related to a decline in new-issue activity, lower overall 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.

Three Months Ended November 30, 2022		Twelve Months Ended November 30, 2022
Asset Management		Asset Management
Asset Management net revenues reflect a challenging trading environment resulting in modest investment losses offset by the sale of our Oak Hill investment as well as merchant banking revenues, which include revenues from the sale of a multi-family project completed at HomeFed.		Asset Management net revenues reflect revenues from sales of certain assets, partially offset by lower investment returns as compared to the prior year.

* * * *

Amounts herein pertaining to November 30, 2022 represent a preliminary estimate as of the date of this earnings release and may be revised upon filing our Annual Report on Form 10-K with the Securities and Exchange Commission (“SEC”). More information on our results of operations for the year ended November 30, 2022 will be provided upon filing our Annual Report on Form 10-K with the SEC, which we expect to file on or about January 27, 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, Except Other Data) (Unaudited)	Quarter Ended
	November 30, 2022			August 31, 2022¹⁸			November 30, 2021¹⁸
Net revenues by source:
Advisory	$	381,412		$	481,419		$	587,476
Equity underwriting		109,439			150,972			370,636
Debt underwriting		61,731			76,943			222,655
Total underwriting		171,170			227,915			593,291
Other investment banking		15,892			(49,222	)		11,181
Total Investment Banking		568,474			660,112			1,191,948
Equities		251,280			277,448			291,033
Fixed income		226,680			174,618			132,771
Total Capital Markets		477,960			452,066			423,804
Total Investment Banking and Capital Markets Net revenues⁹		1,046,434			1,112,178			1,615,752
Asset management fees and revenues¹⁰		13,440			17,069			13,065
Investment return²		156,613			(35,488	)		41,554
Merchant banking		231,805			430,009			108,472
Allocated net interest²		(6,630	)		(9,934	)		(11,914	)
Total Asset Management Net revenues		395,228			401,656			151,177
Other		(3,580	)		(3,990	)		(8,438	)
Total Net revenues by source	$	1,438,082		$	1,509,844		$	1,758,491

Non-interest expenses:
Compensation and benefits	$	659,121		$	559,593		$	746,185
Floor brokerage and clearing fees		85,143			84,685			79,652
Underwriting costs		9,076			11,672			26,932
Technology and communications		114,957			110,925			103,054
Occupancy and equipment rental		28,420			26,589			26,027
Business development		42,610			36,322			42,381
Professional services		71,042			61,428			58,773
Depreciation and amortization		43,471			43,187			40,536
Cost of sales		91,281			123,436			79,954
Other		98,121			150,157			129,432
Total Non-interest expenses	$	1,243,242		$	1,207,994		$	1,332,926

(Amounts in Thousands, Except Other Data) (Unaudited)	Twelve Months Ended November 30,
	2022			2021¹⁸
Net revenues by source:
Advisory	$	1,778,003		$	1,873,204
Equity underwriting		538,946			1,557,364
Debt underwriting		490,873			935,131
Total underwriting		1,029,819			2,492,495
Other investment banking		92,170			291,423
Total Investment Banking		2,899,992			4,657,122
Equities		1,060,582			1,301,530
Fixed income		765,576			959,122
Total Capital Markets		1,826,158			2,260,652
Total Investment Banking and Capital Markets Net revenues⁹		4,726,150			6,917,774
Asset management fees and revenues¹⁰		89,127			120,733
Investment return²		156,594			260,316
Merchant banking		1,053,031			756,482
Allocated net interest²		(41,059	)		(44,907	)
Total Asset Management Net revenues		1,257,693			1,092,624
Other		(5,005	)		3,428
Total Net revenues by source	$	5,978,838		$	8,013,826

Non-interest expenses:
Compensation and benefits	$	2,589,044		$	3,554,760
Floor brokerage and clearing fees		347,805			301,860
Underwriting costs		42,067			117,572
Technology and communications		444,011			388,134
Occupancy and equipment rental		108,001			106,254
Business development		150,500			109,772
Professional services		240,978			215,761
Depreciation and amortization		172,902			157,420
Cost of sales		440,837			470,870
Other		387,131			337,318
Total Non-interest expenses	$	4,923,276		$	5,759,721

Financial Data and Metrics

(Amounts in Thousands, Except Other Data) (Unaudited)	Quarter Ended
	November 30, 2022		August 31, 2022		November 30, 2021
Other Data:
Number of trading days		63		64		63
Number of trading loss days¹¹		3		9		11
Average VaR (in millions)¹²	$	10.62	$	9.60	$	10.14

			Twelve Months Ended November 30,
			2022		2021
Other Data:
Number of trading days				252		252
Number of trading loss days¹¹				30		60
Average VaR (in millions)¹²			$	11.04	$	13.63

(Amounts in Millions, Except Other Data) (Unaudited)	Quarter Ended
	November 30, 2022		August 31, 2022		November 30, 2021
Financial position¹³:
Total assets¹⁹	$	51,058	$	51,477	$	56,107
Total assets less goodwill and intangible assets for the period¹⁹		49,182		49,603		54,209
Cash and cash equivalents		9,703		9,478		10,755
Financial instruments owned¹⁹		18,666		18,776		18,025
Level 3 financial instruments owned^{14, 19}		791		790		575
Goodwill and intangible assets		1,876		1,874		1,898
Total equity		10,295		10,360		10,580
Total shareholders’ equity		10,233		10,293		10,554
Tangible shareholders’ equity⁷		8,357		8,419		8,656
Other data and financial ratios:
Leverage ratio^{13, 15, 19}		5.0		5.0		5.3
Tangible gross leverage ratio^{13, 16, 19}		5.9		5.9		6.3
Number of employees, at period end		5,381		5,347		5,556

Components of Denominator for Earnings Per Share

The denominators used to calculate basic and diluted earnings per share are as follows (in thousands):

	Three Months Ended November 30, 2022		Twelve Months Ended November 30, 2022
Weighted average common shares outstanding	227,395		234,258
Weighted average shares of restricted stock with future service	(1,789	)	(1,330	)
Weighted average restricted stock units outstanding with no future service	13,706		14,450
Denominator for basic earnings per share	239,312		247,378
Stock options and other share based awards	1,617		1,518
Senior executive compensation plan restricted stock unit awards	2,968		2,234
Mandatorily redeemable convertible preferred shares	4,441		4,441
Denominator for diluted earnings per share	248,338		255,571

Notes

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 10 for reconciliation to U.S. GAAP amounts.
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 pages 5 to 6.
Tangible book value (a non-GAAP financial measure) is defined as shareholders’ equity less intangible assets, net and goodwill. Refer to schedule on page 11 for reconciliation to U.S. GAAP amounts.
Adjusted annualized return on adjusted tangible equity (a non-GAAP financial measure) is defined as Jefferies’ annualized adjusted net earnings excluding the net earnings impact of the $80 million of expense ($80 million, net of tax) related to a regulatory settlement during the current year (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 10 for reconciliation to U.S. GAAP amounts.
Shares outstanding on a fully diluted basis (a non-GAAP financial measure) is defined as common shares outstanding plus restricted stock units, stock options, conversion of redeemable convertible preferred shares and other shares. Refer to schedule on page 11 for reconciliation to U.S. GAAP amounts.
Adjusted 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 11 for reconciliation to U.S. GAAP amounts.
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.
Adjusted net earnings 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 third quarter. Refer to schedule on page 9 for reconciliation to U.S. GAAP amounts.
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.
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.
Number of trading loss days is calculated based on trading activities in our Investment Banking and Capital Markets and Asset Management business segments.
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, 2021.
Amounts pertaining to November 30, 2022 represent a preliminary estimate as of the date of this earnings release and may be revised in our Annual Report on Form 10-K for the year ended November 30, 2022.
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.
Leverage ratio equals total assets divided by total equity.
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.
Adjusted effective tax rate (a non-GAAP financial measure) excludes the $80 million expense related to a regulatory settlement in the current year. Refer to schedule on page 10 for reconciliation to U.S. GAAP amounts.
We have reclassified the presentation of certain line items within our Net revenues by sources 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.
We have changed the accounting for our secondary trading activity related to the purchases and sales of corporate loans.

Contacts

Jonathan Freedman 212.778.8913

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