Jefferies Announces Second Quarter 2023 Financial Results

Jefferies Financial Group Inc. (NYSE: JEF):

Q2 Financial Highlights

• Net earnings attributable to common shareholders of $12 million, or $0.05 per diluted share, including $72 million of pre-tax losses related to OpNet (formerly Linkem), a legacy merchant banking investment
• Annualized return on adjusted tangible equity¹ of 0.7%
• Total net revenues of $1.04 billion, including $72 million of pre-tax losses related to OpNet
  • Investment Banking net revenues of $510 million
  • Capital Markets net revenues of $543 million
• Repurchased 2.2 million shares of common stock for $67 million at an average price of $30.88 per share. At May 31, 2023, we had 231.4 million shares outstanding and 251.9 million shares outstanding on a fully diluted basis². Our book value per share was $41.90 and tangible book value per fully diluted share³ was $31.51 at May 31, 2023
• Our Board of Directors has increased our share buyback authorization back to a total of $250 million

"We believe our second quarter results reflect a cyclically low period and a particularly challenging environment. Jefferies generated net revenues of $1.1 billion from Investment Banking and Capital Markets. Our pre-tax income for the quarter of $18 million includes $72 million of pre-tax losses from our legacy merchant banking investment in OpNet. While we are disappointed with the OpNet results, we remain confident that we will ultimately realize value in excess of the book value of our residual merchant banking portfolio.

"Investment Banking net revenues for the quarter were $510 million, down 10% from the prior quarter and 26% from the same quarter last year, primarily due to subdued mergers and acquisitions activity. Capital Markets net revenues of $543 million were down 15% from the prior quarter and up 30% versus the same quarter last year.

"The challenges in the operating environment during our second quarter included the fallout from the regional banking crisis, the government-supported forced merger of Credit Suisse and UBS, and the tumultuous process of extending the U.S. debt ceiling. As a result, the uncharacteristically low volumes of capital markets issuances and mergers and acquisition activity that has followed the rapid increase in interest rates was even more evident during this three-month period. Our trading businesses navigated this challenging environment very well and we believe we have continued to increase market share in all of our businesses.

"The month of June has brought green shoots in our investment banking and capital markets business and we are growing increasingly optimistic about the return to a more normal environment. These developments include a more forward-looking attitude from our investor base and a stronger willingness from our corporate clients to engage in capital formation and other major strategic initiatives. While there is always the potential for further adverse developments, with several major impediments behind us and the approaching of a consensus and more stable interest rate environment, we believe the second half of the year could be more productive for Jefferies.

"There continue to be changes and developments at some of our primary competitors, which are creating further market opportunity for our Jefferies platform and allowing us to recruit talent that is incremental to our existing team. Within Investment Banking, we recruited 21 new Managing Directors since the beginning of fiscal 2023. We expect these Managing Directors to have a meaningful impact in advancing and growing our business, with the bulk of their client coverage being incremental to our existing coverage universe. We continue to recruit additional talent and plan to comfortably integrate these new joiners with our exceptional existing team. Our strong financial foundation and culture is allowing us to play prudent offense in this otherwise challenging environment.

"As previously announced, SMBC intends to increase its economic interest in Jefferies from approximately 4.5% today up to approximately 15% on an as-converted, fully-diluted basis via direct and indirect open-market purchases. A special meeting of our shareholders to approve the creation of nonvoting common shares will occur tomorrow, with a view to facilitating SMBC’s increased investment. We look forward to welcoming SMBC’s increased ownership and enhanced partnership, as we believe this strategic alliance will further strengthen each firm’s ability to support client needs."

Richard Handler, CEO, and Brian Friedman, President

Quarterly Cash Dividend

The Jefferies Board of Directors declared a quarterly cash dividend equal to $0.30 per Jefferies common share, payable on August 25, 2023 to record holders of Jefferies common shares on August 14, 2023. We currently have a $250 million authorization for future share repurchases.

Financial Summary

Highlights

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Amounts herein pertaining to May 31, 2023 represent a preliminary estimate as of the date of this earnings release and may be revised upon filing our Quarterly Report on Form 10-Q with the Securities and Exchange Commission (“SEC”). More information on our results of operations for the three and six months ended May 31, 2023 will be provided upon filing our Quarterly Report on Form 10-Q with the SEC, which we expect to file on or about July 7, 2023.

Additional Information and Where to Find It

This communication may be deemed to be solicitation material in respect of the shareholder approval (the “Shareholder Approval”) of the amended and restated certificate of incorporation authorizing the creation of non-voting common stock. In connection with a special meeting of its shareholders for the Shareholder Approval, Jefferies Financial Group Inc. (the “Company”) has filed and intends to file relevant materials with the SEC, including the Company’s definitive proxy statement on Schedule 14A for its 2023 Special Meeting of Shareholders, which was filed with the SEC on May 25, 2023 (the “Special Meeting Proxy Statement”). Investors and shareholders of the Company are urged to read all relevant documents filed with the SEC, including the Special Meeting Proxy Statement, because they contain or will contain important information about the proposed amended and restated certificate of incorporation. Investors and security holders are or will be able to obtain the documents (if and when available) free of charge at the SEC’s website at www.sec.gov, or free of charge from the Company by directing a request to Laura Ulbrandt DiPierro, Corporate Secretary, 520 Madison Avenue, New York, NY 10022.

Participants in the Solicitation

The Company and its directors, executive officers and other members of management and employees, under SEC rules, may be deemed to be “participants” in the solicitation of proxies from shareholders of the Company in favor of the Shareholder Approval. Information about the Company’s directors and executive officers is set forth in the Company’s Proxy Statement on Schedule 14A for its 2023 Annual Meeting of Shareholders, which was filed with the SEC on February 17, 2023. To the extent holdings of the Company’s securities by its directors or executive officers have changed since the amounts set forth in such 2023 proxy statement, such changes have been or will be reflected on Initial Statements of Beneficial Ownership on Form 3 or Statements of Change in Ownership on Form 4 filed with the SEC. Additional information concerning the direct or indirect interests, by security holdings or otherwise, of the Company’s participants in the solicitation, which may, in some cases, be different than those of the Company’s shareholders generally, are set forth in the Special Meeting Proxy Statement.

Forward-Looking Statements

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, including the Company and SMBC’s strategic alliance. In particular, forward-looking statements include statements about the potential benefits of the collaboration with SMBC and SMBC’s intention to increase its equity investment in the Company, as SMBC is under no obligation to do so. 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