Segment Operating Results

Business Segments – The Company's business results are categorized into the following two segments: Investment Banking and Investment Management. Investment Banking includes providing advice to clients on significant mergers, acquisitions, divestitures and other strategic corporate transactions, as well as services related to securities underwriting, private placement services and commissions for agency-based equity trading services and equity research. Investment Management includes advising third-party investors in Institutional Asset Management and Wealth Management and interests in private equity funds which are not managed by the Company.

The Company's segment information for the three months ended March 31, 2019 and 2018 is prepared using the following methodology:


•	Revenue, expenses and income (loss) from equity method investments directly associated with each segment are included in determining pre-tax income.


•	Expenses not directly associated with specific segments are allocated based on the most relevant measures applicable, including headcount, square footage and other performance and time-based factors.


•	Segment assets are based on those directly associated with each segment, or for certain assets shared across segments, those assets are allocated based on the most relevant measures applicable, including headcount and other factors.


•	Investment gains and losses, interest income and interest expense are allocated between the segments based on the segment in which the underlying asset or liability is held.

Other Revenue, net, included in each segment's Net Revenues includes income (losses) earned on marketable securities, including our investment funds which are used as an economic hedge against our deferred cash compensation program, certificates of deposit, cash and cash equivalents and on the Company’s debt security investment in G5, as well as adjustments to amounts due pursuant to the Company’s tax receivable agreement, subsequent to its initial establishment related to changes in enacted tax rates, and gains (losses) resulting from foreign currency fluctuations, principal trading and realized and unrealized gains and losses on interests in Private Equity funds which are not managed by the Company. Other Revenue, net, also includes interest expense associated with the Company’s Notes Payable, subordinated borrowings and lines of credit, as well as revenue and expenses associated with repurchase or resale transactions.

Each segment's Operating Expenses include: a) employee compensation and benefits expenses that are incurred directly in support of the segment and b) non-compensation expenses, which include expenses for premises and occupancy, professional fees, travel and entertainment, communications and information services, execution, clearing and custody fees, equipment and indirect support costs (including compensation and other operating expenses related thereto) for administrative services. Such administrative services include, but are not limited to, accounting, tax, legal, technology, human capital, facilities management and senior management activities.

Other Expenses include the following:


•	Amortization of LP Units and Certain Other Awards - Includes amortization costs associated with the vesting of Class J LP Units issued in conjunction with the acquisition of ISI and certain other related awards.

•

Special Charges - Includes expenses in 2019 related to the acceleration of depreciation expense for leasehold improvements in conjunction with the previously announced expansion of the Company's headquarters in New York. Includes expenses in 2018 related to separation benefits and costs for the termination of certain contracts associated with closing the Company's agency trading platform in the U.K.


•	Acquisition and Transition Costs - Includes costs incurred in connection with acquisitions, divestitures and other ongoing business development initiatives, primarily comprised of professional fees for legal and other services.


•	Intangible Asset and Other Amortization - Includes amortization of intangible assets and other purchase accounting-related amortization associated with certain acquisitions.

The Company evaluates segment results based on net revenues and pre-tax income, both including and excluding the impact of the Other Expenses.

No client accounted for more than 10% of the Company's Consolidated Net Revenues for the three months ended March 31, 2019.

The following information presents each segment's contribution.



	For the Three Months Ended March 31,
	2019		2018
Investment Banking
Net Revenues⁽¹⁾	$	401,188	$	450,200
Operating Expenses	311,910		331,683
Other Expenses⁽²⁾	7,258		8,037
Operating Income	82,020		110,480
Income from Equity Method Investments	255		—
Pre-Tax Income	$	82,275	$	110,480
Identifiable Segment Assets	$	1,650,115	$	1,148,662
Investment Management
Net Revenues⁽¹⁾	$	14,139	$	13,363
Operating Expenses	12,241		11,273
Other Expenses⁽²⁾	108		21
Operating Income	1,790		2,069
Income from Equity Method Investments	1,956		2,125
Pre-Tax Income	$	3,746	$	4,194
Identifiable Segment Assets	$	194,822	$	268,991
Total
Net Revenues⁽¹⁾	$	415,327	$	463,563
Operating Expenses	324,151		342,956
Other Expenses⁽²⁾	7,366		8,058
Operating Income	83,810		112,549
Income from Equity Method Investments	2,211		2,125
Pre-Tax Income	$	86,021	$	114,674
Identifiable Segment Assets	$	1,844,937	$	1,417,653


(1)	Net revenues include Other Revenue, net, allocated to the segments as follows:



	For the Three Months Ended March 31,
	2019		2018
Investment Banking^(A)	$	6,487	$	(1,428	)
Investment Management	1,756		1,608
Total Other Revenue, net	$	8,243	$	180


(A)	Investment Banking Other Revenue, net, includes interest expense on the Notes Payable, subordinated borrowings and lines of credit of $2,264 and $2,261 for the three months ended March 31, 2019 and 2018, respectively.


(2)	Other Expenses are as follows:



	For the Three Months Ended March 31,
	2019		2018
Investment Banking
Amortization of LP Units and Certain Other Awards	$	4,072	$	3,983
Special Charges	1,029		1,897
Intangible Asset and Other Amortization	2,157		2,157
Total Investment Banking	7,258		8,037
Investment Management
Acquisition and Transition Costs	108		21
Total Investment Management	108		21
Total Other Expenses	$	7,366	$	8,058

Geographic Information – The Company manages its business based on the profitability of the enterprise as a whole.

The Company's revenues were derived from clients located and managed in the following geographical areas:



	For the Three Months Ended March 31,
	2019		2018
Net Revenues:⁽¹⁾
United States	$	274,122	$	386,517
Europe and Other	129,284		65,230
Latin America	3,678		11,636
Total	$	407,084	$	463,383

(1) Excludes Other Revenue, Including Interest and Investments, and Interest Expense.

The Company's total assets are located in the following geographical areas:



	March 31, 2019		December 31, 2018
Total Assets:
United States	$	1,522,403	$	1,757,589
Europe and Other	255,642		298,917
Latin America	66,892		69,161
Total	$	1,844,937	$	2,125,667