Jefferies Financial Group Announces Second Quarter 2020 Financial Results — Jefferies Group LLC Records Record Six Months Revenues and Net Income for First Half 2020

NEW YORK–(BUSINESS WIRE)–Jefferies Financial Group Inc. (NYSE: JEF) today announced its financial results for the three and six month periods ended May 31, 2020. In addition, the Jefferies Board of Directors declared a quarterly cash dividend equal to $0.15 per Jefferies common share payable on August 28, 2020 to record holders of Jefferies common shares on August 17, 2020. The Jefferies Board of Directors also increased the Company’s stock buyback authorization by $177 million to a total of $250 million. We expect to file our Form 10-Q on or about July 9, 2020.

Highlights for the three months ended May 31, 2020:

  • Jefferies Group LLC recorded quarterly net revenues of $1,034 million, pre-tax income of $173 million, net earnings of $129 million and return on tangible equity of 11.6%1

    • Record quarterly combined Capital Markets net revenues of $730 million; Equities net revenues of $237 million and record Fixed Income net revenues of $493 million
    • Investment Banking net revenues of $316 million, including Advisory net revenues of $182 million
    • Asset Management revenues (before allocated net interest2) of $19 million
  • Merchant Banking recorded a pre-tax loss of $75 million, reflecting the positive impact of hedging gains at Vitesse, solid results at Idaho Timber and a record quarter for FXCM, that were more than offset by a $44 million non-cash charge to write-down the value of our investment in the We Company in light of Softbank’s withdrawal of its $3 billion tender offer and We’s current performance outlook, a total of $12 million in write-downs of HomeFed’s interests in a hotel and a retail center significantly impacted by the external events of the second quarter and a continued operating loss at Linkem, which experienced increased subscriber growth and network usage
  • Net income attributable to Jefferies Financial Group common shareholders was $45 million, or $0.16 per diluted share
  • We repurchased 10.1 million shares for $166 million, or an average price of $16.42 per share, including the 8.0 million shares repurchased early in March and previously disclosed; a further $250 million now authorized for repurchase; 267.1 million shares outstanding and 290.7 million shares outstanding on a fully diluted basis3 at May 31, 2020; Jefferies book value per share was $34.92 and tangible book value per fully diluted share4 was $25.51 at the end of the second quarter
  • Jefferies Financial Group had parent company liquidity of $1.6 billion at May 31, 2020. Jefferies Group had a liquidity buffer of $6.5 billion of cash and unencumbered liquid collateral at May 31, 2020, which represented 15% of its total balance sheet.

Highlights for the six months ended May 31, 2020:

  • Jefferies Group recorded record six months net revenues of $2,205 million, record pre-tax income of $408 million, record net earnings of $300 million and return on tangible equity of 14.1%5

    • Investment Banking net revenues of $894 million, including record six months Advisory net revenues of $525 million
    • Record combined six months Capital Markets net revenues of $1,224 million, including record Equities net revenues of $483 million and record Fixed Income net revenues of $741 million
    • Asset Management revenues (before allocated net interest2) of $51 million
  • Merchant Banking pre-tax loss of $128 million, reflecting positive contributions from Vitesse, Idaho Timber and FXCM, and a gain of about $60 million from effective short-term hedges against mark-to-market and fair value decreases, more than offset by a $44 million non-cash charge to write-down our investment in We, $45 million in non-cash charges to mark-to-market investments in public companies, $68 million in non-cash write-downs related to real estate investments at HomeFed, and a $33 million non-cash charge to write-down our investment in JETX
  • Net income attributable to Jefferies Financial Group common shareholders of $158 million, or $0.53 per diluted share
  • Repurchases of 24.8 million shares for $492 million, or an average price of $19.85 per share

Rich Handler, our CEO, and Brian Friedman, our President, said:

From the very start of our second fiscal quarter on March 1st and for the duration of our second quarter, all of us at Jefferies Group endured a surreal environment unlike anything we could ever have imagined. The most challenging health crisis to overtake the world in over a century caused a shutdown of a large portion of the global economy. We at Jefferies immediately pivoted to operate from nearly 4,000 different home offices across the globe, as we worked tirelessly to keep our team safe, do our best to help our clients navigate unprecedented volatility and opacity, and protect Jefferies from the incredible financial storm. Peg Broadbent, our longstanding esteemed Jefferies Group CFO tragically died from complications of the Coronavirus in March. We lost an incredible individual whom we all cherished and miss dearly. In Peg’s memory, our clients, employees and firm came together to contribute $9.25 million to over 85 front line charities aiding those most affected by COVID-19 and in greatest need.

Despite the incredibly challenging, volatile and sad environment, our Jefferies team not only survived the quarter, but truly achieved remarkable results and continued momentum across our products, services and geographies. We collectively demonstrated the distinct value to our clients and our shareholders of a diversified and integrated investment banking and capital markets platform with a true global reach. Without hyperbole, the Jefferies team operated at peak performance and the two of us are in awe of our team that was remarkably resilient, passionately dedicated and impeccably skilled in serving our clients exactly when they needed Jefferies most. We have been through many challenging periods in our combined 50 years at Jefferies, and all we can say at this time to everyone at Jefferies is ‘thank you for being truly the best.’

Our second quarter ended with the world beginning to come to grips with the racism, hatred, bigotry and unfairness that sadly still grips much of our nation and world today. As we move forward in our second half of 2020, we at Jefferies will be working to fully acknowledge and attempt to do our part to help eradicate the pain of racism so many African Americans (and others) have been living with for too long. We will listen intently and with open eyes, ears and hearts to learn how we can best be part of the solution. We are committed to action and results that will help make the world a better and more equal place for all people, and fully recognize that this likely will be an ongoing battle that will require long-term commitment and relentless dedication and passion, traits we have honed together in building Jefferies.

Finally, we implore everyone to wear a mask when out in public. When you wear a mask, you do it out of respect for your fellow humans and we believe masks (and testing) will be critical to allowing all of us to protect those most at risk as our medical experts work tirelessly to develop the needed therapeutics, vaccines and methods of delivering them in mass quantities. Working together will allow us all to best navigate this incredibly difficult period and bridge our path to a more normal way of life that we will never take for granted.”

* * * *

Amounts herein pertaining to May 31, 2020 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, 2020 will be provided upon filing our Quarterly Report on Form 10-Q with the SEC.

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).

 

 

 

 

1

Return on tangible equity (a non-GAAP financial measure) equals our three months ended May 31, 2020 annualized net earnings attributable to Jefferies Group LLC divided by our tangible Jefferies Group LLC member’s equity (a non-GAAP financial measure) of $4,503 million at February 29, 2020. Tangible Jefferies Group LLC member’s equity at February 29, 2020 equals Jefferies Group LLC member’s equity of $6,313 million less goodwill and identifiable intangibles assets of $1,810 million.

2

Allocated net interest represents the allocation of a ratable portion 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 all its business lines. Refer to Jefferies Group LLC’s summary of Net Revenues by Source on page 9 and 10.

3

Shares outstanding on a fully diluted basis, a non-GAAP measure, is defined as Jefferies Financial Group’s common shares outstanding plus restricted stock units and other shares. Refer to schedule on page 14 for reconciliation to U.S. GAAP amounts.

4

Tangible book value per fully diluted share, a non-GAAP measure, is defined as Tangible book value divided by shares outstanding on a fully diluted basis. Tangible book value, a non-GAAP measure, is defined as Jefferies Financial Group shareholders’ equity (book value) less Intangible assets, net and goodwill. Shares outstanding on a fully diluted basis, a non-GAAP measure, is defined as Jefferies Financial Group’s common shares outstanding plus restricted stock units and other shares. Refer to schedule on page 14 for reconciliation to U.S. GAAP amounts.

5

Return on tangible equity (a non-GAAP financial measure) equals our first six months of 2020 annualized net earnings attributable to Jefferies Group LLC divided by our tangible Jefferies Group LLC member’s equity (a non-GAAP financial measure) of $4,311 million at November 30, 2019. Tangible Jefferies Group LLC member’s equity at November 30, 2019 equals Jefferies Group LLC member’s equity of $6,125 million less goodwill and identifiable intangibles assets of $1,814 million.

Summary for Jefferies Financial Group Inc. and Subsidiaries

(In thousands, except per share amounts)

(Unaudited)

 

 

Three Months Ended

May 31, 2020

Three Months Ended

May 31, 2019

Six Months Ended

May 31, 2020

Six Months Ended

May 31, 2019

 

 

 

 

 

Net revenues

$

1,147,589

 

$

1,101,657

 

$

2,533,917

 

$

1,930,100

 

 

 

 

 

 

Income before income taxes and income (loss) related to associated companies

$

82,228

 

$

161,309

 

$

307,877

 

$

183,313

 

Income (loss) related to associated companies

(6,721

)

22,170

 

(74,576

)

49,483

 

Income before income taxes

75,507

 

183,479

 

233,301

 

232,796

 

Income tax provision (benefit)

31,962

 

(488,797

)

77,735

 

(486,495

)

Net income

43,545

 

672,276

 

155,566

 

719,291

 

Net (income) loss attributable to the noncontrolling interests

2,580

 

191

 

4,709

 

(875

)

Net (income) loss attributable to the redeemable noncontrolling interests

198

 

(427

)

480

 

(289

)

Preferred stock dividends

(1,404

)

(1,276

)

(2,826

)

(2,552

)

Net income attributable to Jefferies Financial Group Inc. common shareholders

$

44,919

 

$

670,764

 

$

157,929

 

$

715,575

 

 

 

 

 

 

Basic earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:

 

 

 

 

Net income

$

0.16

 

$

2.17

 

$

0.53

 

$

2.29

 

 

 

 

 

 

Number of shares in calculation

286,764

 

307,010

 

294,590

 

311,108

 

 

 

 

 

 

Diluted earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:

 

 

 

 

Net income

$

0.16

 

$

2.14

 

$

0.53

 

$

2.25

 

 

 

 

 

 

Number of shares in calculation

286,764

 

312,527

 

295,301

 

317,736

 

A summary of results for the three months ended May 31, 2020 is as follows (in thousands):

 

Investment Banking and Capital Markets (1)

Asset Management (1)

Merchant Banking (1)

Corporate

Parent Company Interest

Consolidation Adjustments

Total

Net revenues

$

1,028,832

$

7,391

 

$

107,162

 

$

1,525

 

$

 

$

2,679

 

$

1,147,589

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

Compensation and benefits

551,821

26,502

 

13,973

 

6,171

 

 

 

598,467

 

Cost of sales (2)

67,601

7,878

 

80,771

 

 

 

 

156,250

 

Interest expense

 

8,282

 

 

12,878

 

 

21,160

 

Depreciation and amortization

19,981

2,133

 

17,378

 

874

 

 

 

40,366

 

Selling, general and other expenses

174,895

12,431

 

54,753

 

7,334

 

 

(295

)

249,118

 

Total expenses

814,298

48,944

 

175,157

 

14,379

 

12,878

 

(295

)

1,065,361

 

Income (loss) before income taxes and loss related to associated companies

214,534

(41,553

)

(67,995

)

(12,854

)

(12,878

)

2,974

 

82,228

 

Loss related to associated companies

 

(6,721

)

 

 

 

(6,721

)

Income (loss) from before income taxes

$

214,534

$

(41,553

)

$

(74,716

)

$

(12,854

)

$

(12,878

)

$

2,974

 

75,507

 

Income tax provision

 

 

 

 

 

 

31,962

 

Net income

 

 

 

 

 

 

$

43,545

 

A summary of results for the three months ended May 31, 2019 is as follows (in thousands):

 

Investment Banking and Capital Markets (1)

Asset Management (1)

Merchant Banking (1)

Corporate

Parent Company Interest

Consolidation Adjustments

Total

Net revenues

$

859,275

$

44,362

$

185,379

$

8,974

 

$

 

$

3,667

 

$

1,101,657

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

Compensation and benefits

470,530

13,338

13,931

12,761

 

 

 

510,560

 

Cost of sales (2)

50,218

10,169

80,415

 

 

 

140,802

 

Interest expense

8,372

 

14,766

 

 

23,138

 

Depreciation and amortization

18,588

505

16,826

867

 

 

 

36,786

 

Selling, general and other expenses

177,358

12,240

30,356

9,231

 

 

(123

)

229,062

 

Total expenses

716,694

36,252

149,900

22,859

 

14,766

 

(123

)

940,348

 

Income (loss) before income taxes and income related to associated companies

142,581

8,110

35,479

(13,885

)

(14,766

)

3,790

 

161,309

 

Income related to associated companies

120

22,050

 

 

 

22,170

 

Income (loss) before income taxes

$

142,581

$

8,230

$

57,529

$

(13,885

)

$

(14,766

)

$

3,790

 

183,479

 

Income tax benefit

 

 

 

 

 

 

(488,797

)

Net income

 

 

 

 

 

 

$

672,276

 

(1)

We now present Asset Management as a separate reporting segment. Prior year amounts have been reclassified to conform to current segment disclosure.

(2)

Includes Floor brokerage and clearing fees.

A summary of results for the six months ended May 31, 2020 is as follows (in thousands):

 

Investment Banking and Capital Markets (1)

Asset Management (1)

Merchant Banking (1)

Corporate

Parent Company Interest

Consolidation Adjustments

Total

Net revenues

$

2,177,661

$

27,720

 

$

311,721

 

$

11,317

 

$

 

$

5,498

 

$

2,533,917

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

Compensation and benefits

1,172,745

48,723

 

31,163

 

16,029

 

 

 

1,268,660

 

Cost of sales (2)

120,475

14,185

 

153,214

 

 

 

 

287,874

 

Interest expense

 

17,055

 

 

25,659

 

 

42,714

 

Depreciation and amortization

39,097

2,758

 

36,219

 

1,762

 

 

 

79,836

 

Selling, general and other expenses

380,853

24,536

 

127,833

 

14,134

 

 

(400

)

546,956

 

Total expenses

1,713,170

90,202

 

365,484

 

31,925

 

25,659

 

(400

)

2,226,040

 

Income (loss) before income taxes and loss related to associated companies

464,491

(62,482

)

(53,763

)

(20,608

)

(25,659

)

5,898

 

307,877

 

Loss related to associated companies

 

(74,576

)

 

 

 

(74,576

)

Income (loss) from before income taxes

$

464,491

$

(62,482

)

$

(128,339

)

$

(20,608

)

$

(25,659

)

$

5,898

 

233,301

 

Income tax provision

 

 

 

 

 

 

77,735

 

Net income

 

 

 

 

 

 

$

155,566

 

A summary of results for the six months ended May 31, 2019 is as follows (in thousands):

 

Investment Banking and Capital Markets (1)

Asset Management (1)

Merchant Banking (1)

Corporate

Parent Company Interest

Consolidation Adjustments

Total

Net revenues

$

1,517,522

$

75,107

$

318,071

$

13,167

 

$

 

$

6,233

 

$

1,930,100

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

Compensation and benefits

831,844

30,192

27,834

30,282

 

 

 

920,152

 

Cost of sales (2)

97,354

14,901

147,336

 

 

 

259,591

 

Interest expense

16,628

 

29,528

 

 

46,156

 

Depreciation and amortization

35,918

960

32,120

1,722

 

 

 

70,720

 

Selling, general and other expenses

354,708

19,980

59,378

16,391

 

 

(289

)

450,168

 

Total expenses

1,319,824

66,033

283,296

48,395

 

29,528

 

(289

)

1,746,787

 

Income (loss) before income taxes and income related to associated companies

197,698

9,074

34,775

(35,228

)

(29,528

)

6,522

 

183,313

 

Income related to associated companies

340

49,143

 

 

 

49,483

 

Income (loss) before income taxes

$

197,698

$

9,414

$

83,918

$

(35,228

)

$

(29,528

)

$

6,522

 

232,796

 

Income tax benefit

 

 

 

 

 

 

(486,495

)

Net income

 

 

 

 

 

 

$

719,291

 

(1)

We now present Asset Management as a separate reporting segment. Prior year amounts have been reclassified to conform to current segment disclosure.

(2)

Includes Floor brokerage and clearing fees.

The following financial tables provide information for the results of Jefferies Group LLC and should be read in conjunction with Jefferies Group LLC’s Annual Report on Form 10-K for the year ended November 30, 2019. Amounts herein pertaining to May 31, 2020 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, 2020.

Jefferies Group LLC and Subsidiaries

Consolidated Statements of Earnings

(Amounts in Thousands)

(Unaudited)

 

 

 

 

 

Quarter Ended

 

May 31, 2020

February 29, 2020

May 31, 2019

Revenues:

 

 

 

Commissions and other fees (1)

$

243,267

 

$

179,535

 

$

167,698

 

Principal transactions

467,283

 

371,902

 

248,831

 

Investment banking

387,491

 

592,002

 

430,087

 

Asset management fees and revenues (2)

4,576

 

11,720

 

5,099

 

Interest

211,941

 

294,668

 

418,451

 

Other (1)(2)

(47,275

)

29,729

 

44,327

 

Total revenues

1,267,283

 

1,479,556

 

1,314,493

 

Interest expense

232,916

 

308,860

 

412,642

 

Net revenues

1,034,367

 

1,170,696

 

901,851

 

 

 

 

 

Non-interest expenses:

 

 

 

Compensation and benefits

571,547

 

635,230

 

477,885

 

 

 

 

 

Non-compensation expenses:

 

 

 

Floor brokerage and clearing fees

77,619

 

60,580

 

62,474

 

Technology and communications

95,594

 

89,184

 

81,645

 

Occupancy and equipment rental

24,395

 

27,503

 

29,748

 

Business development

8,359

 

29,957

 

36,349

 

Professional services

41,994

 

44,665

 

38,066

 

Underwriting costs

12,485

 

17,529

 

12,823

 

Other

29,506

 

30,670

 

7,723

 

Total non-compensation expenses

289,952

 

300,088

 

268,828

 

Total non-interest expenses

861,499

 

935,318

 

746,713

 

Earnings before income taxes

172,868

 

235,378

 

155,138

 

Income tax expense

43,972

 

64,013

 

45,319

 

Net earnings

128,896

 

171,365

 

109,819

 

Net loss attributable to noncontrolling interests

(1,842

)

(2,024

)

(101

)

Net earnings attributable to Jefferies Group LLC

$

130,738

 

$

173,389

 

$

109,920

 

 

 

 

 

Pre-tax operating margin

16.7

%

20.1

%

17.2

%

Effective tax rate

25.4

%

27.2

%

29.2

%

(1)

In the third quarter of 2019, Jefferies Group LLC reorganized the presentation of certain other fees, primarily related to prime brokerage services offered to clients. Jefferies Group LLC’s Consolidated Statement of Earnings reflects the reclassification of revenues of $7.9 million from Other revenues to Commissions and other fees for the three months ended May 31, 2019. There is no impact on Total revenues as a result of this change in presentation.

 

(2)

In the fourth quarter of 2019, Jefferies Group LLC reorganized the presentation of revenues from arrangements which entitle us to certain portions of revenues and/or profits of strategic asset management partners. Jefferies Group LLC’s Consolidated Statement of Earnings reflects the reclassification of revenues of $0.5 million from Other revenues to Asset management fees and revenues for the three months ended May 31, 2019. There is no impact on Total revenues as a result of this change in presentation.

Jefferies Group LLC and Subsidiaries

Consolidated Statements of Earnings

(Amounts in Thousands)

(Unaudited)

 

 

 

 

Six Months Ended

 

May 31, 2020

May 31, 2019

Revenues:

 

 

Commissions and other fees (1)

$

422,802

 

$

322,840

 

Principal transactions

839,185

 

483,129

 

Investment banking

979,493

 

715,683

 

Asset management fees and revenues (2)

16,296

 

12,130

 

Interest

506,609

 

779,426

 

Other (1)(2)

(17,546

)

56,157

 

Total revenues

2,746,839

 

2,369,365

 

Interest expense

541,776

 

781,796

 

Net revenues

2,205,063

 

1,587,569

 

 

 

 

Non-interest expenses:

 

 

Compensation and benefits

1,206,777

 

849,570

 

 

 

 

Non-compensation expenses:

 

 

Floor brokerage and clearing fees

138,199

 

114,451

 

Technology and communications

184,778

 

160,815

 

Occupancy and equipment rental

51,898

 

58,287

 

Business development

38,316

 

66,904

 

Professional services

86,659

 

74,993

 

Underwriting costs

30,014

 

21,398

 

Other

60,176

 

23,428

 

Total non-compensation expenses

590,040

 

520,276

 

Total non-interest expenses

1,796,817

 

1,369,846

 

Earnings before income taxes

408,246

 

217,723

 

Income tax expense

107,985

 

61,539

 

Net earnings

300,261

 

156,184

 

Net earnings (loss) attributable to noncontrolling interests

(3,866

)

283

 

Net earnings attributable to Jefferies Group LLC

$

304,127

 

$

155,901

 

 

 

 

Pre-tax operating margin

18.5

%

13.7

%

Effective tax rate

26.5

%

28.3

%

(1)

In the third quarter of 2019, Jefferies Group LLC reorganized the presentation of certain other fees, primarily related to prime brokerage services offered to clients. Jefferies Group LLC’s Consolidated Statement of Earnings reflects the reclassification of revenues of $15.7 million from Other revenues to Commissions and other fees for the six months ended May 31, 2019. There is no impact on Total revenues as a result of this change in presentation.

 

(2)

In the fourth quarter of 2019, Jefferies Group LLC reorganized the presentation of revenues from arrangements which entitle us to certain portions of revenues and/or profits of strategic asset management partners. Jefferies Group LLC’s Consolidated Statement of Earnings reflects the reclassification of revenues of $0.9 million from Other revenues to Asset management fees and revenues for the six months ended May 31, 2019. There is no impact on Total revenues as a result of this change in presentation.

Jefferies Group LLC and Subsidiaries

Selected Statistical Information

(Amounts in Thousands, Except Other Data)

(Unaudited)

 

 

 

 

 

Quarter Ended

 

May 31, 2020

February 29, 2020

May 31, 2019

Net Revenues by Source:

 

 

 

 

 

 

 

Advisory

$

182,081

 

$

343,158

 

$

178,554

 

 

 

 

 

Equity underwriting

124,383

 

131,692

 

108,022

 

Debt underwriting

81,027

 

117,152

 

151,511

 

Total underwriting

205,410

 

248,844

 

259,533

 

Other investment banking

(71,234

)

(14,529

)

9,634

 

Total investment banking

316,257

 

577,473

 

447,721

 

 

 

 

 

Equities

237,131

 

245,641

 

206,083

 

Fixed income

493,144

 

248,182

 

173,253

 

Total capital markets

730,275

 

493,823

 

379,336

 

 

 

 

 

Other

(17,700

)

77,533

 

32,218

 

 

 

 

 

Total Investment Banking and Capital Markets (1) (2)

1,028,832

 

1,148,829

 

859,275

 

 

 

 

 

Asset management fees and revenues (3)

4,576

 

11,720

 

5,099

 

Investment return (3) (4) (5)

13,944

 

20,839

 

47,526

 

Allocated net interest (4) (6)

(12,985

)

(10,692

)

(10,049

)

Total Asset Management

5,535

 

21,867

 

42,576

 

 

 

 

 

Net Revenues

$

1,034,367

 

$

1,170,696

 

$

901,851

 

 

 

 

 

Other Data:

 

 

 

Number of trading days

63

 

61

 

64

 

Number of trading loss days

11

 

4

 

4

 

 

 

 

 

Average firmwide VaR (in millions) (7)

$

9.16

 

$

7.39

 

$

8.70

 

(1)

Includes net interest revenue (expense) of $(0.8) million, $2.9 million and $16.4 million for the quarters ended May 31, 2020, February 29, 2020, and May 31, 2019, respectively.

 

 

(2)

Allocated net interest is not separately disaggregated in presenting our Investment Banking and Capital Markets reportable segment within Jefferies Group LLC’s Net Revenues by Source. This presentation is aligned to our Investment Banking and Capital Markets internal performance measurement.

 

 

(3)

In the fourth quarter of 2019, Jefferies Group LLC reorganized the presentation of revenues from arrangements which entitle us to certain portions of revenues and/or profits of strategic asset management partners. Jefferies Group LLC’s Net Revenues by Source reflects the reclassification of revenues of $0.5 million from Investment return revenues to Asset management fees and revenues for the three months ended May 31, 2019. There is no impact on Total Asset Management revenues as a result of this change in presentation.

 

 

(4)

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 footnotes 5 and 6). This disaggregation is intended 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 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.

 

 

(5)

Includes net interest expense of $7.2 million, $6.4 million and $0.6 million for the quarters ended May 31, 2020, February 29, 2020, and May 31, 2019, respectively.

 

 

(6)

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 11).

 

 

(7)

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, 2019.

Jefferies Group LLC and Subsidiaries

Selected Statistical Information

(Amounts in Thousands, Except Other Data)

(Unaudited)

 

 

 

 

Six Months Ended

 

May 31, 2020

May 31, 2019

Net Revenues by Source:

 

 

 

 

 

Advisory

$

525,239

 

$

359,036

 

 

 

 

Equity underwriting

256,075

 

159,359

 

Debt underwriting

198,179

 

205,288

 

Total underwriting

454,254

 

364,647

 

Other investment banking

(85,763

)

1,992

 

Total investment banking

893,730

 

725,675

 

 

 

 

Equities

482,772

 

380,622

 

Fixed income

741,326

 

370,012

 

Total capital markets

1,224,098

 

750,634

 

 

 

 

Other

59,833

 

41,213

 

 

 

 

Total Investment Banking and Capital Markets (1) (2)

2,177,661

 

1,517,522

 

 

 

 

Asset management fees and revenues (3)

16,296

 

12,130

 

Investment return (3) (4) (5)

34,783

 

79,576

 

Allocated net interest (4) (6)

(23,677

)

(21,659

)

Total Asset Management

27,402

 

70,047

 

 

 

 

Net Revenues

$

2,205,063

 

$

1,587,569

 

 

 

 

Other Data:

 

 

Number of trading days

124

 

123

 

Number of trading loss days

15

 

13

 

 

 

 

Average firmwide VaR (in millions) (7)

$

8.29

 

$

8.87

 

(1)

Includes net interest revenue of $2.1 million and $21.0 million for the six months ended May 31, 2020 and 2019, respectively.

 

 

(2)

Allocated net interest is not separately disaggregated in presenting our Investment Banking and Capital Markets reportable segment within Jefferies Group LLC’s Net Revenues by Source. This presentation is aligned to our Investment Banking and Capital Markets internal performance measurement.

 

 

(3)

In the fourth quarter of 2019, Jefferies Group LLC reorganized the presentation of revenues from arrangements which entitle us to certain portions of revenues and/or profits of strategic asset management partners. Jefferies Group LLC’s Net Revenues by Source reflects the reclassification of revenues of $0.9 million from Investment return revenues to Asset management fees and revenues for the six months ended May 31, 2019. There is no impact on Total Asset Management revenues as a result of this change in presentation.

 

 

(4)

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 footnotes 5 and 6). This disaggregation is intended 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 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.

 

 

(5)

Includes net interest expense of $13.6 million and $1.7 million for the six months ended May 31, 2020 and 2019, respectively.

 

 

(6)

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 11).

 

 

(7)

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, 2019.

Jefferies Group LLC and Subsidiaries

Financial Highlights

(Amounts in Millions, Except Where Noted)

(Unaudited)

 

 

 

 

 

 

 

Quarter Ended

 

May 31, 2020

 

February 29, 2020

 

May 31, 2019

Financial position:

 

 

 

 

 

Total assets (1)

$

45,084

 

 

$

46,203

 

 

$

42,818

 

Average total assets for the period (1)

$

56,480

 

 

$

55,333

 

 

$

53,675

 

Average total assets less goodwill and intangible assets for the period (1)

$

54,673

 

 

$

53,518

 

 

$

51,851

 

 

 

 

 

 

 

Cash and cash equivalents (1)

$

5,252

 

 

$

4,901

 

 

$

4,213

 

Cash and cash equivalents and other sources of liquidity (1) (2)

$

6,542

 

 

$

6,371

 

 

$

5,701

 

Cash and cash equivalents and other sources of liquidity – % total assets (1) (2)

14.5

%

 

13.8

%

 

13.3

%

Cash and cash equivalents and other sources of liquidity – % total assets less goodwill and intangible assets (1) (2)

15.1

%

 

14.4

%

 

13.9

%

 

 

 

 

 

 

Financial instruments owned (1)

$

18,125

 

 

$

17,897

 

 

$

16,096

 

Goodwill and intangible assets (1)

$

1,800

 

 

$

1,810

 

 

$

1,818

 

Right-of-use assets (1) (3)

$

501

 

 

$

512

 

 

N/A

 

 

 

 

 

 

Total equity (including noncontrolling interests) (1)

$

6,430

 

 

$

6,332

 

 

$

6,179

 

Total Jefferies Group LLC member’s equity (1)

$

6,412

 

 

$

6,313

 

 

$

6,173

 

Tangible Jefferies Group LLC member’s equity (1) (4)

$

4,612

 

 

$

4,503

 

 

$

4,355

 

 

 

 

 

 

 

Level 3 financial instruments:

 

 

 

 

 

Level 3 financial instruments owned (1) (5)

$

413

 

 

$

346

 

 

$

367

 

Level 3 financial instruments owned – % total assets (1) (5)

0.9

%

 

0.7

%

 

0.9

%

Level 3 financial instruments owned – % total financial instruments (1) (5)

2.3

%

 

1.9

%

 

2.3

%

Level 3 financial instruments owned – % tangible Jefferies Group LLC member’s equity (1) (5)

9.0

%

 

7.7

%

 

8.4

%

 

 

 

 

 

 

Other data and financial ratios:

 

 

 

 

 

Total long-term capital (1) (6)

$

12,102

 

 

$

12,706

 

 

$

11,444

 

Leverage ratio (1) (7)

7.0

 

 

7.3

 

 

6.9

 

Tangible gross leverage ratio (1) (8)

9.4

 

 

9.9

 

 

9.4

 

Adjusted tangible gross leverage ratio (1) (3) (9)

10.4

 

 

11.0

 

 

N/A

 

 

 

 

 

 

Number of trading days

63

 

 

61

 

 

64

 

Number of trading loss days

11

 

 

4

 

 

4

 

Average firmwide VaR (10)

$

9.16

 

 

$

7.39

 

 

$

8.70

 

 

 

 

 

 

 

Number of employees, at period end

3,850

 

 

3,822

 

 

3,656

 

 

N/A — Not Applicable

Jefferies Group LLC and Subsidiaries

Financial Highlights – Footnotes

 

 

 

 

 

 

 

 

(1)

Amounts pertaining to May 31, 2020 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, 2020.

 

 

(2)

At May 31, 2020, 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 $998 million, in aggregate, and $292 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 29, 2020 were $638 million and $832 million, respectively, and at May 31, 2019, were $1,175 million and $313 million, respectively.

 

 

(3)

Jefferies Group LLC adopted the new lease standard on December 1, 2019 using a modified retrospective transition approach. Accordingly, reported financial information for historical comparable periods is not revised and continues to be reported under the accounting standards in effect during those historical periods. We elected not to reassess whether existing contracts are or contain leases, or the lease classification and initial direct costs of existing leases upon transition. At transition on December 1, 2019, the adoption of this standard resulted in the recognition of ROU assets of $520 million, reflected in Premises and equipment in Jefferies Group LLC’s Consolidated Statement of Financial Condition.

 

 

(4)

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.

 

 

(5)

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.

 

 

(6)

At May 31, 2020, February 29, 2020, and May 31, 2019, total long-term capital includes Jefferies Group LLC’s long-term debt of $5,672 million, $6,374 million and $5,265 million, respectively, and total equity. Long-term debt included in total long-term capital is reduced by amounts outstanding under the revolving credit facility, amounts from secured term loans and the amount of debt maturing in less than one year, as applicable.

 

 

(7)

Leverage ratio equals total assets divided by total equity.

 

 

(8)

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.

 

 

(9)

Adjusted tangible gross leverage ratio (a non-GAAP financial measure) equals total assets less goodwill and identifiable intangible assets and right-of-use assets divided by tangible Jefferies Group LLC member’s equity less right-of-use assets.

 

 

(10)

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, 2019.

Merchant Banking Net Asset Overview

As of May 31, 2020

($ Millions)

 

 

 

(Unaudited) Book Value

 

Estimated Fair Value (2)

 

Basis for Fair Value Estimate

Linkem

 

$

214

 

 

$

630

 

 

Income approach and market comparable method

Real estate assets (1)

 

541

 

 

557

 

 

Various

Oil and Gas (Vitesse and JETX)

 

576

 

 

547

 

 

Income approach, market comparable and market transaction method

Idaho Timber

 

85

 

 

155

 

 

Income approach, market comparable and market transaction method

FXCM

 

130

 

 

144

 

 

Income approach and market comparable method

Investments in Public Companies

 

127

 

 

127

 

 

Mark-to-market (same for GAAP book value)

Other

 

266

 

 

323

 

 

Various

Total Portfolio

 

$

1,939

 

 

$

2,483

 

 

 

(1)

Primarily HomeFed

(2)

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

($ Millions)

 

 

(Unaudited)

Book Value

May 31, 2020

 

Fair Value Adjustments

 

Estimated

Fair Value

May 31, 2020

 

(GAAP)

 

 

 

(Non-GAAP)

Linkem

$

214

 

 

$

416

 

 

$

630

 

Real estate assets

541

 

 

16

 

 

557

 

Oil and Gas (Vitesse and JETX)

576

 

 

(29

)

 

547

 

Idaho Timber

85

 

 

70

 

 

155

 

FXCM

130

 

 

14

 

 

144

 

Investments in Public Companies

127

 

 

 

 

127

 

Other

266

 

 

57

 

 

323

 

Total Portfolio

$

1,939

 

 

$

544

 

 

$

2,483

 

Jefferies Financial Group Inc.

Non-GAAP Reconciliation

The following table reconciles 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 Book Value and Shares Outstanding GAAP Reconciliation

The table below reconciles our book value to tangible book value and our common shares outstanding to fully diluted shares outstanding (in thousands, except per share amounts):

 

 

As Reported,

May 31, 2020

 

 

 

Book value (GAAP)

 

$

9,326,554

 

Less: Intangibles assets, net and goodwill

 

(1,910,204

)

Tangible book value (non-GAAP)

 

$

7,416,350

 

 

 

 

Common shares outstanding (GAAP)

 

267,111

 

Restricted stock units (“RSUs”)

 

22,471

 

Other

 

1,092

 

Fully diluted shares outstanding (non-GAAP) (1)

 

290,674

 

 

 

 

Book value per share outstanding

 

$

34.92

 

Tangible book value per fully diluted share outstanding

 

$

25.51

 

 

 

 

(1) Fully diluted shares outstanding exclude preferred shares as they are antidilutive. Fully diluted shares outstanding include vested RSUs as well as the target number of RSUs issuable under the senior executive compensation plans.

 



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