The following excerpt is from the company's SEC filing.
New York, New York, July 3, 2019--Jefferies Financial Group Inc. (NYSE: JEF) today announced its financial results for the three and six month periods ended May 31, 2019.
Highlights for the three months ended May 31, 2019:
Net income attributable to Jefferies Financial Group common shareholders of $671 million, or $2.14 per diluted share, including the impact of a nonrecurring tax benefit of $545 million; adjusted net income of $126 million
, or $0.41 per diluted share
Jefferies Group (Investment Banking, Capital Markets and Asset Management) pre-tax income of
and net earnings of
Total Net Revenues of
Investment Banking Net Revenues of
Total Equities and Fixed Income Net Revenues of
Asset Management Revenues (before Allocated net interest
Merchant Banking pre-tax income of $51 million, reflecting strong performance from National Beef and Vitesse, offset by mark-to-market unrealized decreases in the values of several of our investments in public companies
Repurchase of 7.8 million shares for $150 million, or an average price of $19.33 per share
$336 million (based on July 2 closing stock price) remaining to be purchased under previously authorized share buyback
Jefferies Financial Group had parent company liquidity of $1.3 billion at May 31, 2019
Highlights for the six months ended May 31, 2019:
Net income attributable to Jefferies Financial Group common shareholders of $716 million, or $2.25 per diluted share, including the impact of a nonrecurring tax benefit of $545 million; adjusted net income of $171 million
, or $0.54 per diluted share
, below-normal due to the impact of market conditions in December and the shutdown of the U.S. Government in December and January
Merchant Banking pre-tax income of $71 million, reflecting strong performance from National Beef and Vitesse, offset by mark-to-market unrealized decreases in the values of several of our investments in public companies
Repurchase of 17.4 million shares for $344 million, or an average price of $19.86 per share
Rich Handler, our CEO, and Brian Friedman, our President, said:
"Jefferies Group, our financial services business, produced solid and promising performance in the second quarter in Investment Banking, Capital Markets and Asset Management. Overall Investment Banking results returned to more normal levels, although our Investment Banking advisory revenues were held back by the lag effect resulting from capital markets conditions in December and the U.S. government shutdown in December and January. We continue to take market share in our Equities business and posted solid results in our Fixed Income business on the back of strength in our credit businesses. Good results for the second quarter and first half of the year in our Asset
Management business suggest we are making continued progress toward building this business. Return on equity for Jefferies Group was 7.1% and return on tangible equity
"In the third quarter, we believe Investment Banking will continue to deliver solid results (subject to market conditions), as our transaction backlog is robust and we are seeing positive trends in both the M&A and leveraged finance markets. Additionally, we are optimistic regarding the increasing productivity of managing directors we hired during the last several years. In particular, we are expecting Investment Banking revenue growth in both the U.S. and Europe from a large number of our recently hired coverage managing directors in our Industrials, Technology and Consumer groups, as they continue to gain traction. We currently have 865 investment banking professionals globally, of which 212 are managing directors. The quality of our brand, human capital and market position has never been stronger.
"In Equities, we are realizing market share gains globally driven by our innovative electronic trading capabilities. We are also experiencing strong momentum in our prime services platform, with continued opportunity to grow our market share with emerging hedge fund managers. In addition, we are currently working to expand our Equities footprint by hiring additional capable research, sales and trading professionals, particularly in Japan, Hong Kong and Australia.
"In Fixed Income, we continue to heighten our focus and effort. We have just elevated Rob Lynn to become our Global Head of Fixed Income Sales and asked Jon Bass to lead our Fixed Income Senior Relationship coverage of our priority and focus clients. With Fred Jallot joining Jefferies earlier this year as Head of European Fixed Income in London, we are seeking to align more closely our European Fixed Income effort with our U.S. business, emphasizing the high yield, distressed and emerging markets areas, as well as structured credit. We recently combined our macro businesses across Fixed Income and Equities into a Cross Asset Macro unit under the leadership of Pete Seccia. Layla Royer and Andrew Lynch will co-lead the Macro distribution effort.
"Solid returns in our Asset Management businesses during the second quarter were driven by our two multi-manager platforms (Weiss and Schonfeld), as well as our European long-short and our energy-focused strategies. We announced the launch of an investment platform with Craig Schortzmann and Sean Gallary to acquire stakes in general partners of hedge funds and private equity firms. During the period, we also partnered with Ross Berger, an experienced executive, to launch a trade finance asset manager, and are onboarding this week an experienced team in energy and energy-related ESG strategies. We also continued to add to our Asset Management marketing efforts, hiring a new Head of EMEA and a Head of Consultant Relations. Over the first six months of this fiscal year, Asset Management generated revenues of $92 million (before allocated net interest
) on our allocated capital of about $1 billion. We believe that these results represent a solid foundation on which we can continue to build and that our long-term opportunity is driven by the combination of excellent investment management capability, strong marketing, and a high quality and scalable operating platform.
"Our Merchant Banking portfolio had a carrying value of $3.4 billion at May 31, 2019. We estimate its fair market value
at May 31, 2019 was $4.4 billion, or $1.0 billion more than its carrying value. We are focused on driving higher the return on tangible equity in our core business, as well as continuing to re-deploy capital and cash flow from operations and our merchant banking portfolio into businesses yielding more consistent earnings streams.
"During the second quarter, we repurchased 7.8 million shares for $150 million, or an average price of $19.33 per share. So far this fiscal year, we have repurchased 17.4 million Jefferies shares for $344 million, or an average of $19.86 per share. Since January 1, 2018, we have repurchased an aggregate of 67 million shares at an average price of $22.08 per share. Combining share buybacks with the dividends paid from January 1, 2018 through May 31, 2019, we returned to our shareholders an aggregate of $1.7 billion, or 17% of our common shareholders’ equity (23% of our tangible equity
) as of the beginning of this seventeen month period. Our number of common shares outstanding declined by 18% from 356 million at January 1, 2018 to 291 million at May 31, 2019. Our fully diluted shares outstanding
declined by 16% from 373 million at January 1, 2018 to 312 million at May 31, 2019. Even after these buybacks and continuing investment in our business, we ended the second quarter with parent company liquidity of $1.3 billion.
"We will consider repurchasing our shares whenever our stock price is at an attractive discount to intrinsic value, always keeping in mind our relationship with our bondholders and rating agencies. We are pleased to have been recently upgraded by Moody's. We are currently authorized to repurchase up to an additional $336 million (based on July 2 closing stock price) worth of shares, including the shares that were used to purchase the remaining 30% interest in HomeFed, which closed on July 1.
"During the second quarter, in connection with the closing of our corporate available for sale portfolio, we realized a non-cash tax benefit of $545 million. This tax benefit was generated primarily through activity during 2008-2010 and since then has remained an unrealized balance within equity until the liquidation of the portfolio. This realization did not impact total equity, as the increase in retained earnings was offset by a corresponding decrease in accumulated other comprehensive income."
Amounts herein pertaining to May 31, 2019 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 month periods ended May 31, 2019 will be provided upon filing our Quarterly Report on Form 10-Q with the SEC. Jefferies expects to file its Form 10-Q on or about July 9, 2019.
This press release contains "forward-looking statements" within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements 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," 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 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.
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).
For further information, please contact:
Teresa S. Gendron
Chief Financial Officer
Tel. (212) 460-1932
Peregrine C. Broadbent
Jefferies Group LLC
Tel. (212) 284-2338
Jefferies Financial Group adjusted net income, a non-GAAP measure, is defined as Jefferies Financial Group's net income less AOCI nonrecurring tax benefit. Jefferies Financial Group adjusted diluted earnings per share, a non-GAAP measure, is defined as Jefferies Financial Group's diluted earnings per share less AOCI non-recurring tax benefit. Refer to schedule on page 15 for reconciliation to U.S. GAAP amounts.
Allocated net interest represents the allocation of Jefferies Group LLC's long-term debt interest expense to Jefferies Group LLC's Asset Management reportable segment, net of interest income on Jefferies Group LLC's Cash and cash equivalents and other sources of liquidity, which allocation is consistent with Jefferies Group LLC's policy of allocating such items to its business lines. Refer to Jefferies Group LLC's summary of Net Revenues by Source on pages 10 and 11.
Return on tangible equity, a non-GAAP financial measure, equals Jefferies Group LLC's second quarter of 2019 annualized net earnings divided by tangible Jefferies Group LLC member's equity (a non-GAAP financial measure). Tangible Jefferies Group LLC member's equity of $4,326 million at February 28, 2019 is a non-GAAP measure and equals Jefferies Group LLC member's equity of $6,151 million less goodwill and identifiable intangible assets of $1,826 million.
The estimated fair value of our merchant banking portfolio is a non-GAAP measure and equals our merchant banking carrying value plus estimated fair value adjustments. Refer to schedule on page 14 for reconciliation to U.S. GAAP amounts.
Tangible equity of $7,643 million at December 31, 2017 is a non-GAAP measure and equals Jefferies Financial Group's common shareholders' equity of $10,106 million less Intangible assets, net and goodwill of $2,463 million.
Fully diluted shares outstanding, a non-GAAP measure, is defined as common shares outstanding plus restricted stock units and other diluted shares. Refer to schedule on page 15 for reconciliation to U.S. GAAP amounts.
Summary for Jefferies Financial Group Inc. and Subsidiaries
(In thousands, except per share amounts)
For the Three Months Ended
For the Six Months Ended
Income from continuing operations before income taxes and income related to associated companies
Income related to associated companies
Income tax provision (benefit)
Income from discontinued operations, net of income tax provision of $0, $31,111, $0 and $47,045
Gain on disposal of discontinued operations, net of income tax provision of $0, $229,553, $0 and $229,553
Net (income) loss attributable to the noncontrolling interests
Net income attributable to the redeemable noncontrolling interests
Preferred stock dividends
Net income attributable to Jefferies Financial Group Inc. common shareholders
Basic earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:
Number of shares in calculation
Diluted earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:
A summary of results for the three months ended May 31, 2019 is as follows (in thousands):
Parent Company Interest
Compensation and benefits
Cost of sales
Floor brokerage and clearing fees
Depreciation and amortization
Selling, general and other expenses
Income (loss) from continuing operations before income taxes and income related to associated companies
Income tax benefit from continuing operations
A summary of results for the three months ended June 30, 2018 is as follows (in thousands):
Income tax provision from continuing operations
A summary of results for the six months ended May 31, 2019 is as follows (in thousands):
A summary of results for the six months ended June 30, 2018 is as follows (in thousands):
The following financial tables provide information for the results of Jefferies Group LLC and should be read in conjunction with Jefferies Group LLC's Quarterly Report on Form 10-Q for the quarter ended
February 28, 2019
and Annual Report on Form 10-K for the year ended November 30, 2018. Amounts herein pertaining to
May 31, 2019
represent a preliminary estimate as of the date of this earnings release and may be revised in Jefferies Group LLC's Quarterly Report on Form 10-Q for the quarter ended
Jefferies Group LLC and Subsidiaries
Consolidated Statements of Earnings
(Amounts in Thousands)
May 31, 2018
Commissions and other fees
Asset management fees
Technology and communications
Occupancy and equipment rental
Total non-compensation expenses
Total non-interest expenses
Earnings before income taxes
Income tax expense
Net earnings (loss) attributable to noncontrolling interests
Net earnings attributable to Jefferies Group LLC
Pre-tax operating margin
Effective tax rate
Net earnings attributable to noncontrolling interests
Effective tax rate (1)
The effective tax rate for the three months ended May 31, 2018 includes an estimated provisional tax charge of approximately $160 million as a result of the Tax Cuts and Jobs Act ("Tax Act").
Selected Statistical Information
(Amounts in Thousands, Except Other Data)
Net Revenues by Source:
Total sales and trading
Other investment banking
Total investment banking
Total Capital Markets (1) (2)
Asset management fees
Investment return (3) (4)
Allocated net interest (3) (5)
Total Asset Management
Number of trading days
Number of trading loss days
Average firmwide VaR (in millions) (6) (7)
Includes net interest revenue (expense) of $16.4 million, $4.6 million and ($18.8) million for the quarters ended May 31, 2019, February 28, 2019 and May 31, 2018, respectively.
Allocated net interest is not separately disaggregated in presenting our Capital Markets reportable segment within our Net Revenues by Source. This presentation is aligned to our Capital Markets internal performance measurement.
Beginning with the first quarter of 2019, Net revenues attributed to the Investment return in Jefferies Group LLC's Asset Management reportable segment have been disaggregated to separately present Investment return and Allocated net interest (see footnote 4). This disaggregation is intended to increase transparency and to make clearer actual Investment return. We offer third-party investors the opportunity to co-invest in our asset management funds and separately managed accounts alongside Jefferies Group LLC. We believe that aggregating Investment return and Allocated net interest would obscure the Investment return by including an amount that is unique to Jefferies Group LLC's credit spreads, debt maturity profile, capital structure, liquidity risks and allocation methods, none of which are pertinent to the Investment returns generated by the performance of the portfolio.
Includes net interest revenue (expense) of ($0.6) million, ($1.2) million and $0.6 million for the quarters ended May 31, 2019, February 28, 2019 and May 31, 2018, respectively.
Allocated net interest represents the allocation of Jefferies Group LLC's long-term debt interest expense to Jefferies Group LLC's Asset Management reportable segment, net of interest income on Jefferies Group LLC's Cash and cash equivalents and other sources of liquidity (refer to page 12).
The quarters ended May 31, 2019 and February 28, 2019 information includes higher investments in certain separately managed accounts and funds, primarily due to the transfer of certain investments to Jefferies Group LLC on October 1, 2018 from Jefferies Financial Group Inc.
VaR estimates the potential loss in value of Jefferies Group LLC's 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 7 "Management's Discussion and Analysis" in Jefferies Group LLC's Annual Report on Form 10-K for the year ended November 30, 2018.
Includes net interest revenue (expense) of $21.0 million and ($18.1) million for the six months ended May 31, 2019 and 2018, respectively.
Includes net interest expense of $1.7 million and $0.9 million for the six months ended May 31, 2019 and 2018, respectively.
The six months ended May 31, 2019 information includes higher investments in certain separately managed accounts and funds, primarily due to the transfer of certain investments to Jefferies Group LLC on October 1, 2018 from Jefferies Financial Group Inc.
(Amounts in Millions, Except Where Noted)
Total assets (1)
Average total assets for the period (1)
Average total assets less goodwill and intangible assets for the period (1)
Cash and cash equivalents (1)
Cash and cash equivalents and other sources of liquidity (1) (2)
Cash and cash equivalents and other sources of liquidity - % total assets (1) (2)
Cash and cash equivalents and other sources of liquidity - % total assets less goodwill and intangible assets (1) (2)
Financial instruments owned (1)
Goodwill and intangible assets (1)
Total equity (including noncontrolling interests) (1)
Total Jefferies Group LLC member's equity (1)
Tangible Jefferies Group LLC member's equity (1) (3)
Level 3 financial instruments:
Level 3 financial instruments owned (1) (4) (5)
Level 3 financial instruments owned - % total assets (1) (4)
Level 3 financial instruments owned - % total financial instruments (1) (4)
Level 3 financial instruments owned - % tangible Jefferies Group LLC member's equity (1) (4)
Other data and financial ratios:
Total long-term capital (1) (6)
Leverage ratio (1) (7)
Tangible gross leverage ratio (1) (8)
Number of trading loss days
Average firmwide VaR (5) (9)
Number of employees, at period end
Financial Highlights - Footnotes
Amounts pertaining to May 31, 2019 represent a preliminary estimate as of the date of this earnings release and may be revised in Jefferies Group LLC's Quarterly Report on Form 10-Q for the quarter ended May 31, 2019.
At May 31, 2019, other sources of liquidity include high quality sovereign government securities and reverse repurchase agreements collateralized by U.S. government securities and other high quality sovereign government securities of $1,175 million, in aggregate, and $313 million, being the estimated amount of additional secured financing that could be reasonably expected to be obtained from Jefferies Group LLC's financial instruments that are currently not pledged after considering reasonable financing haircuts. The corresponding amounts included in other sources of liquidity at February 28, 2019 were $1,194 million and $365 million, respectively, and at May 31, 2018, were $940 million and $361 million, respectively.
Tangible Jefferies Group LLC member's equity (a non-GAAP financial measure) represents total Jefferies Group LLC member's equity less goodwill and identifiable intangible assets. We believe that tangible Jefferies Group LLC member's equity is meaningful for valuation purposes, as financial companies are often measured as a multiple of tangible equity, making these ratios meaningful for investors.
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.
At May 31, 2019, February 28, 2019 and May 31, 2018, total long-term capital includes Jefferies Group LLC's long-term debt of $5,265 million, $5,742 million and $6,428 million, respectively, and total equity. Long-term debt included in total long-term capital is reduced by amounts outstanding under the revolving credit facility and the amount of debt maturing in less than one year, as applicable.
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 Jefferies Group LLC member's equity. The tangible gross leverage ratio is used by rating agencies in assessing Jefferies Group LLC's leverage ratio.
Merchant Banking Net Asset Overview
As of May 31, 2019
Estimated Fair Value (2)
Basis for Fair Value Estimate
Investments in Public Companies
Mark-to-market (same for GAAP book value)
Mark-to-market (equity method for GAAP book value)
Investments in Private Companies
Income approach and market comparable method
Income approach, market comparable and market transaction method
Oil and Gas (Vitesse and JETX)
Market transaction method and option pricing theory
Total Merchant Banking Business
Includes FXCM, Foursight, Golden Queen, M Science and various other investments.
The following table reconciles financial results reported in accordance with U.S. GAAP to non-GAAP financial results. The table above contains non-GAAP financial information to aid investors in viewing our businesses and investments through the eyes of management while facilitating a comparison across historical periods. However, these non-GAAP financial measures should be viewed in addition to, and not as a substitute for, reported results prepared in accordance with U.S. GAAP.
Reconciliation of Book Value of Merchant Banking Investments to Estimated Fair Value
Book Value May 31, 2019
Fair Value Adjustments
Estimated Fair Value May 31, 2019
The following tables reconcile Jefferies Financial Group 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.
Jefferies Financial Group Net Income and Earnings Per Share GAAP Reconciliation
Reconciliation of Jefferies Financial Group net income to adjusted net income (a non-GAAP measure) and diluted earnings per share to adjusted diluted earnings per share (a non-GAAP measure) (in thousands, except per share amounts):
Three months ended May 31, 2019
Six months ended May 31, 2019
Jefferies Financial Group net income (GAAP)
Accumulated other comprehensive income tax benefit
Jefferies Financial Group adjusted net income (non-GAAP)
Jefferies Financial Group diluted earnings per share (GAAP)
Jefferies Financial Group adjusted diluted earnings per share (non-GAAP)
Jefferies Financial Group Fully Diluted Shares Outstanding GAAP Reconciliation
Reconciliation of Jefferies Financial Group common shares outstanding to fully diluted shares outstanding (a non-GAAP measure) (in thousands of shares):
Common shares outstanding (GAAP)
Restricted stock units
Fully diluted shares outstanding (Non-GAAP)
The above information was disclosed in a filing to the SEC. To see the filing, click here.
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