Jefferies Financial Group Inc.

09/25/2024 | Press release | Distributed by Public on 09/25/2024 14:23

Jefferies Announces Third Quarter 2024 Financial Results

09/25/2024
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NEW YORK--(BUSINESS WIRE)-- Jefferies Financial Group Inc. (NYSE: JEF):

Q3 Financial Highlights

  • Net earnings attributable to common shareholders of $167 million, or $0.75 per diluted common share
  • Pre-tax income from continuing operations of $253 million
  • QTD and YTD annualized adjusted net earnings to shareholders on adjusted tangible shareholders' equity from continuing operations 1 of 10.3% and 10.0%, respectively
  • Net revenues of $1.68 billion
    • Investment Banking net revenues of $949 million, including record quarterly advisory revenues of $592 million
    • Capital Markets net revenues of $671 million
    • Asset Management net revenues (before allocated net interest 4 ) of $75 million
  • At August 31, 2024, we had 205.5 million common shares outstanding and 253.8 million shares outstanding on a fully diluted basis 2 . Our book value per common share was $48.89 and adjusted tangible book value per fully diluted share 3 was $31.87

Quarterly Cash Dividend

The Jefferies Board of Directors declared a quarterly cash dividend equal to $0.35 per Jefferies common share, payable on November 27, 2024 to record holders of Jefferies common shares on November 18, 2024

Management Comments

"Our third quarter net revenues of $1.68 billion reflect strong performance and continued momentum in Investment Banking, with particularly strong performance in Advisory and demonstrating the successful ongoing execution of our strategy to drive the growth of our business. We are pleased with the strength and direction of our profit margin and return metrics, and are optimistic about the balance of this year and our outlook for 2025.

"Our Investment Banking net revenues of $949 million were up 18.2% from the prior quarter and 47.3% from the same quarter last year, driven by an increase in advisory activity attributable to market share gains reflecting the early benefits of the investments we have made in our platform over the past few years, as well as improving market conditions.

"Capital Markets net revenues of $671 million were down only 3.0%versus an exceptionally strong prior quarter. Capital Markets net revenues were up 28.1% from the same quarter last year, driven by solid overall market conditions and strength across our diversified Equities and Fixed Income businesses. Equities net revenues increased 42.3% from the prior year comparable quarter, with strong performance in our cash and electronic businesses. Fixed Income net revenues increased 13.2% from the prior year comparable quarter, primarily reflecting strength across our credit trading businesses.

"While the market environment for certain of our Asset Management strategies proved challenging in the third quarter, our full year results are encouraging. Furthermore, we are very happy to have closed on the sale of OpNet during the quarter, the last in a series of transactions that monetized a substantial portion of our legacy merchant-banking assets. Achieving that goal further accelerates our efforts to build the very best 'pure play' global investment banking and capital markets firm.

"Our Investment Banking pipeline remains strong heading into year-end and momentum across all of our business lines continues. We feel we have the right (and expanded) global team that is positioned exceptionally well to serve our clients, especially in a backdrop of declining interest rates and increasing activity driven by pent up demand for capital markets and advisory deal flow. After our heavy recent investment in human capital during the slowdown, now is the time for us to focus on executing for our clients and enhancing our overall market position around the world."

Richard Handler, CEO, and Brian Friedman, President

Financial Summary

$ in thousands, except per share amounts

Three Months Ended

August 31,

Nine Months Ended

August 31,

2024

2023

% Change

2024

2023

% Change

Net revenues:

Investment Banking and Capital Markets

$

1,620,091

$

1,168,231

39

%

$

4,565,826

$

3,446,382

32

%

Asset Management

59,012

10,143

482

%

488,919

47,699

925

%

Other

4,449

3,735

19

%

23,455

9,130

157

%

Net revenues

1,683,552

1,182,109

42

%

5,078,200

3,503,211

45

%

Net earnings from continuing operations before income taxes

252,687

91,071

177

%

700,683

267,008

162

%

Income tax expense

78,011

37,124

110

%

207,077

75,053

176

%

Net earnings from continuing operations

174,676

53,947

224

%

493,606

191,955

157

%

Net earnings (losses) from discontinued operations (including gain on disposal), net of income taxes

6,363

-

N/M

(1,488

)

-

N/M

Net earnings

181,039

53,947

236

%

492,118

191,955

156

%

Net losses attributable to noncontrolling interests

(6,874

)

(3,772

)

82

%

(19,102

)

(13,340

)

43

%

Net losses attributable to redeemable noncontrolling interests

-

-

N/M

-

(454

)

(100

)%

Preferred stock dividends

20,785

6,300

230

%

48,501

8,316

483

%

Net earnings attributable to common shareholders

$

167,128

$

51,419

225

%

$

462,719

$

197,433

134

%

Earnings per common share:

Basic from continuing operations

$

0.75

$

0.22

241

%

$

2.12

$

0.83

155

%

Basic from discontinued operations

0.03

-

N/M

-

-

N/M

Basic

$

0.78

$

0.22

254

%

$

2.12

$

0.83

156

%

Diluted from continuing operations

$

0.72

$

0.22

227

%

$

2.06

$

0.82

151

%

Diluted from discontinued operations

0.03

-

N/M

-

-

N/M

Diluted

$

0.75

$

0.22

243

%

$

2.06

$

0.82

152

%

Weighted average common shares

214,452

228,353

218,106

236,666

Weighted average diluted common shares

221,699

232,041

224,180

240,658

N/M - Not Meaningful

Highlights

Quarterly Results 2024 Versus 2023

Year-to-Date Results 2024 Versus 2023

  • Net earnings attributable to common shareholders of $167 million, or $0.75 per diluted common share.
  • Annualized adjusted net earnings to shareholders on adjusted tangible shareholders' equity from continuing operations 1 of 10.3%.
  • We had 205.5 million common shares outstanding and 253.8 million common shares outstanding on a fully diluted basis 2 at August 31, 2024. Our book value per common share was $48.89 and tangible book value per fully diluted share 3 was $31.87.
  • Effective tax rate of 30.9%. The lower tax rate compared to the prior year quarter of 40.8% is primarily due to the higher amount of pre-tax income in the current quarter.
  • Net earnings attributable to common shareholders of $463 million, or $2.06 per diluted common share.
  • Annualized adjusted net earnings to shareholders on adjusted tangible shareholders' equity from continuing operations 1 of 10.0%.
  • Repurchased 1.1 million shares of common stock for $44 million, at an average price of $40.72 per share in connection with net-share settlements related to our equity compensation plans.
  • Effective tax rate of 29.6%. The higher tax rate compared to the prior year period of 28.1% is primarily due to the smaller impact from share based awards.

Investment Banking and Capital Markets

Investment Banking and Capital Markets

  • Investment Banking net revenues of $949 million were 47% higher than the prior year quarter, with particular strength within Advisory.
  • Advisory net revenues of $592 million represents our best quarter on record and was higher than the prior year quarter, due to market share gains and increased global mergers and acquisitions activity.
  • Underwriting net revenues of $333 million increased from the prior year quarter, driven by stronger leveraged finance activity. Equity underwriting net revenues remained flat compared to the prior year quarter.
  • Capital Markets net revenues of $671 million were higher compared to the prior year quarter primarily due to stronger performance in Equities attributable to increased volumes and more favorable trading opportunities, while Fixed Income net revenues increased primarily reflecting stronger results across our credit trading businesses.
  • Investment Banking net revenues of $2.49 billion were 46% higher than the prior year, with strength across all lines of business attributable primarily to market share gains in a stronger overall market for our services.
  • Advisory net revenues of $1.21 billion were higher than prior year period, attributable primarily to market share gains.
  • Underwriting net revenues of $1.13 billion increased from the prior year period, due to increased activity from both equity and debt underwriting.
  • Capital Markets net revenues of $2.07 billion were higher compared to the prior year period primarily driven by stronger Equities net revenues attributable to continued market share gains during the period. Fixed Income net revenues remained consistent from the prior year period.

Asset Management

Asset Management

  • Asset Management net revenues of $59 million were substantially higher than the prior year quarter, as Other investments 13 net revenues were meaningfully higher due to the consolidation of Stratos and Tessellis, which resulted in increased revenues, as well as the absence this year of losses in OpNet incurred in the prior year quarter. Investment return net revenues decreased from the prior year quarter as the market environment for certain of our strategies proved challenging during the current quarter.
  • Asset Management net revenues of $489 million were substantially higher than the prior year period, as Investment return net revenues improved due to stronger performance across multiple investment strategies and funds. In addition, Other investments 13 net revenues were meaningfully higher than the prior year period largely due to the consolidation of Stratos and Tessellis which resulted in increased revenues.

* * * *

Amounts herein pertaining to August 31, 2024 represent a preliminary estimate as of the date of this earnings release and may be revised upon filing our Quarterly Report on Form 10-Q with the Securities and Exchange Commission ("SEC"). More information on our results of operations for the three and nine months ended August 31, 2024 will be provided upon filing our Quarterly Report on Form 10-Q with the SEC, which we expect to file on or about October 9, 2024.

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

$ in thousands (unaudited)

Three Months Ended

Nine Months Ended

August 31,
2024

May 31,
2024

August 31,
2023

August 31,
2024

August 31,
2023

Net revenues by source:

Advisory

$

592,462

$

283,898

$

335,271

$

1,214,927

$

886,606

Equity underwriting

150,096

249,187

154,211

608,586

428,085

Debt underwriting

183,078

205,499

110,708

517,771

280,772

Total underwriting

333,174

454,686

264,919

1,126,357

708,857

Other investment banking

23,846

64,594

44,453

151,048

115,957

Total Investment Banking

949,482

803,178

644,643

2,492,332

1,711,420

Equities

381,426

407,092

268,015

1,147,656

852,000

Fixed income

289,183

284,177

255,573

925,838

882,962

Total Capital Markets

670,609

691,269

523,588

2,073,494

1,734,962

Total Investment Banking and Capital Markets Net revenues 5

1,620,091

1,494,447

1,168,231

4,565,826

3,446,382

Asset management fees and revenues 6

13,261

16,818

16,358

89,736

74,983

Investment return

(40,135

)

32,942

31,658

110,447

91,569

Other investments, inclusive of net interest 13

101,902

122,767

(25,145

)

335,767

(83,902

)

Allocated net interest 4

(16,016

)

(16,003

)

(12,728

)

(47,031

)

(34,951

)

Total Asset Management Net revenues

59,012

156,524

10,143

488,919

47,699

Other

4,449

5,474

3,735

23,455

9,130

Total Net revenues by source

$

1,683,552

$

1,656,445

$

1,182,109

$

5,078,200

$

3,503,211

Non-interest expenses:

Compensation and benefits

$

889,098

$

861,993

$

644,059

$

2,677,962

$

1,922,985

Brokerage and clearing fees

101,119

110,536

91,226

321,325

268,292

Underwriting costs

14,017

18,552

14,877

51,053

41,253

Technology and communications

136,953

135,238

122,579

409,703

354,900

Occupancy and equipment rental

30,078

29,327

27,711

87,558

79,421

Business development

68,152

68,630

41,467

194,433

121,892

Professional services

64,630

75,493

64,897

217,967

195,572

Depreciation and amortization

45,977

49,946

25,288

139,125

83,890

Cost of sales

37,400

37,462

1,618

109,533

6,148

Other

43,441

41,514

57,316

168,858

161,850

Total Non-interest expenses

$

1,430,865

$

1,428,691

$

1,091,038

$

4,377,517

$

3,236,203

Financial Data and Metrics

Unaudited

Three Months Ended

Nine Months Ended

August 31,

2024

May 31,

2024

August 31,

2023

August 31,

2024

August 31,

2023

Other Data:

Number of trading days

63

64

64

188

188

Number of trading loss days 7

7

1

6

11

19

Average VaR (in millions) 8

$

11.35

$

13.36

$

13.87

$

13.26

$

13.98

In millions, except other data (unaudited)

Three Months Ended

August 31,

2024

May 31,

2024

August 31,

2023

Financial position:

Total assets

$

63,275

$

63,001

$

56,045

Cash and cash equivalents

10,573

10,842

8,817

Financial instruments owned

24,039

22,787

22,805

Level 3 financial instruments owned 9

693

691

918

Goodwill and intangible assets

2,073

2,057

1,872

Total equity

10,115

9,952

9,765

Total shareholders' equity

10,046

9,875

9,699

Tangible shareholders' equity 10

7,973

7,818

7,827

Other data and financial ratios:

Leverage ratio 11

6.3

6.3

5.7

Tangible gross leverage ratio 12

7.7

7.8

6.9

Number of employees at period end

7,624

7,611

5,505

Number of employees excluding OpNet and Stratos at period end

5,926

5,635

5,505

Components of Numerators and Denominators for Earnings Per Common Share

Three Months Ended

August 31,

Nine Months Ended

August 31,

In thousands, except per share amounts

2024

2023

2024

2023

Numerator for earnings per common share from continuing operations:

Net earnings from continuing operations

$

174,676

$

53,947

$

493,606

$

191,955

Less: Net losses attributable to noncontrolling interests

(6,304

)

(3,772

)

(16,541

)

(13,794

)

Mandatorily redeemable convertible preferred share dividends

-

-

-

(2,016

)

Allocation of earnings to participating securities

(20,785

)

(6,369

)

(48,501

)

(7,344

)

Net earnings from continuing operations attributable to common shareholders for basic earnings per share

$

160,195

$

51,350

$

461,646

$

196,389

Net earnings from continuing operations attributable to common shareholders for diluted earnings per share

$

160,195

$

51,350

$

461,646

$

196,389

Numerator for earnings per common share from discontinued operations:

Net earnings (losses) from discontinued operations (including gain on disposal), net of taxes

$

6,363

$

-

$

(1,488

)

$

-

Less: Net losses attributable to noncontrolling interests

(570

)

-

(2,561

)

-

Net earnings (losses) from discontinued operations attributable to common shareholders for basic and diluted earnings per share

$

6,933

$

-

$

1,073

$

-

Net earnings attributable to common shareholders for basic earnings per share

$

167,128

$

51,350

$

462,719

$

196,389

Net earnings attributable to common shareholders for diluted earnings per share

$

167,128

$

51,350

$

462,719

$

196,389

Denominator for earnings per common share:

Weighted average common shares outstanding

206,418

218,411

209,997

226,265

Weighted average shares of restricted stock outstanding with future service required

(2,305

)

(1,793

)

(2,346

)

(1,923

)

Weighted average restricted stock units outstanding with no future service required

10,339

11,735

10,455

12,324

Weighted average basic common shares

214,452

228,353

218,106

236,666

Stock options and other share-based awards

4,189

2,047

3,369

2,064

Senior executive compensation plan restricted stock unit awards

3,058

1,641

2,705

1,928

Weighted average diluted common shares

221,699

232,041

224,180

240,658

Earnings (losses) per common share:

Basic from continuing operations

$

0.75

$

0.22

$

2.12

$

0.83

Basic from discontinued operations

0.03

-

-

-

Basic

$

0.78

$

0.22

$

2.12

$

0.83

Diluted from continuing operations

$

0.72

$

0.22

$

2.06

$

0.82

Diluted from discontinued operations

0.03

-

-

-

Diluted

$

0.75

$

0.22

$

2.06

$

0.82

Notes

  1. Annualized adjusted net earnings to shareholders on adjusted tangible shareholders' equity from continuing operations represents a non-GAAP financial measure. Refer to schedule on page 10for a reconciliation to U.S. GAAP amounts.
  2. Shares outstanding on a fully diluted basis (a non-GAAP financial measure) is defined as common shares outstanding plus preferred shares, restricted stock units, stock options and other shares. Refer to schedule on page 11for a reconciliation to U.S. GAAP amounts.
  3. 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 11for a reconciliation to U.S. GAAP amounts.
  4. Allocated net interest represents an allocation to Asset Management of certain of our long-term debt interest expense, net of interest income on our Cash and cash equivalents and other sources of liquidity. Allocated net interest has been disaggregated to increase transparency and to present direct Asset Management revenues. We believe that aggregating Allocated net interest would obscure the revenue results by including an amount that is unique to our credit spreads, debt maturity profile, capital structure, liquidity risks and allocation methods.
  5. Allocated net interest is not separately disaggregated for Investment Banking and Capital Markets. This presentation is aligned to our Investment Banking and Capital Markets internal performance measurement.
  6. Asset management fees and revenues include management and performance fees from funds and accounts managed by us as well as our share of fees received by affiliated asset management companies with which we have revenue and profit share arrangements, as well as earnings on our ownership interest in affiliated asset managers.
  7. Number of trading loss days is calculated based on trading activities in our Investment Banking and Capital Markets and Asset Management business segments, excluding certain Other investments.
  8. VaR estimates the potential loss in value of trading positions due to adverse market movements over a one-day time horizon with a 95% confidence level. For a further discussion of the calculation of VaR, see "Value-at-Risk" in Part II, Item 7A "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the year ended November 30, 2023.
  9. 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.
  10. Tangible shareholders' equity (a non-GAAP financial measure) is defined as shareholders' equity less Intangible assets and goodwill. We believe that tangible shareholders' equity is meaningful for valuation purposes, as financial companies are often measured as a multiple of tangible shareholders' equity, making these ratios meaningful for investors.
  11. Leverage ratio equals total assets divided by total equity.
  12. Tangible gross leverage ratio (a non-GAAP financial measure) equals total assets less goodwill and intangible assets divided by tangible shareholders' equity. The tangible gross leverage ratio is used by rating agencies in assessing our leverage ratio.
  13. Beginning in fiscal 2024, we now refer to "Merchant banking" as "Other investments" in our Asset Management reportable segment.

Non-GAAP Reconciliations

The following tables reconcile our non-GAAP financial measures to their respective U.S. GAAP financial measures. Management believes such non-GAAP financial measures are useful to investors as they allow them to view our results through the eyes of management, while facilitating a comparison across historical periods. These measures should not be considered a substitute for, or superior to, measures prepared in accordance with U.S. GAAP.

Annualized Return on Adjusted Tangible Equity Reconciliation

Three Months Ended

August 31,

Nine Months Ended

August 31,

$ in thousands

2024

2023

2024

2023

Net earnings attributable to common shareholders (GAAP)

$

167,128

$

51,419

$

462,719

$

197,433

Intangible amortization and impairment expense, net of tax

5,958

1,480

15,900

4,700

Adjusted net earnings to common shareholders (non-GAAP)

173,086

52,899

478,619

202,133

Preferred stock dividends

20,785

6,300

48,501

8,316

Adjusted net earnings to total shareholders (non-GAAP)

$

193,871

$

59,199

$

527,120

$

210,449

Annualized adjusted net earnings to total shareholders (non-GAAP)

$

775,484

$

236,796

$

702,827

$

280,599

Net earnings impact for net (earnings) losses from discontinued operations, net of noncontrolling interests

(6,933

)

-

(1,073

)

-

Adjusted net earnings to total shareholders from continuing operations (non-GAAP)

186,938

59,199

526,047

210,449

Annualized adjusted net earnings to total shareholders from continuing operations (non-GAAP)

747,752

236,796

701,396

280,599

May 31,

November 30,

2024

2023

2023

2022

Shareholders' equity (GAAP)

$

9,875,056

$

9,695,655

$

9,709,827

$

10,232,845

Less: Intangible assets, net and goodwill

(2,057,302

)

(1,873,123

)

(2,044,776

)

(1,875,576

)

Less: Deferred tax asset, net

(512,042

)

(502,442

)

(458,343

)

(387,862

)

Less: Weighted average impact of dividends and share repurchases

(57,836

)

(49,481

)

(157,739

)

(147,972

)

Adjusted tangible shareholders' equity (non-GAAP)

$

7,247,876

$

7,270,609

$

7,048,969

$

7,821,435

Annualized return on adjusted tangible shareholders' equity (non-GAAP)

10.7

%

3.3

%

10.0

%

3.6

%

Annualized adjusted net earnings to shareholders on adjusted tangible shareholders' equity from continuing operations (non-GAAP)

10.3

%

3.3

%

10.0

%

3.6

%

Adjusted Tangible Book Value and Fully Diluted Shares Outstanding GAAP Reconciliation

Reconciliation of book value (shareholders' equity) to adjusted tangible book value and common shares outstanding to fully diluted shares outstanding:

$ in thousands, except per share amounts August 31, 2024
Book value (GAAP)

$

10,045,945

Stock options (1)

114,939

Intangible assets, net and goodwill

(2,073,105

)

Adjusted tangible book value (non-GAAP)

$

8,087,779

Common shares outstanding (GAAP)

205,495

Preferred shares

27,563

Restricted stock units ("RSUs")

14,298

Stock options (1)

5,065

Other

1,378

Adjusted fully diluted shares outstanding (non-GAAP) (2)

253,799

Book value per common share outstanding

$

48.89

Adjusted tangible book value per fully diluted share outstanding (non-GAAP)

$

31.87

(1)

Stock options added to book value are equal to the total number of stock options outstanding as of August 31, 2024 of 5.1 million multiplied by the weighted average exercise price of $22.69 on August 31, 2024.

(2)

Fully diluted shares outstanding include vested and unvested RSUs as well as the target number of RSUs issuable under the senior executive compensation plans until the performance period is complete. Fully diluted shares outstanding also include all stock options and the impact of convertible preferred shares if-converted to common shares.

Jonathan Freedman 212.778.8913

Source: Jefferies Financial Group Inc.

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