Segment Operating Results

9 Months Ended

Sep. 30, 2019

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 and nine months ended September 30, 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 interest income and income (losses) earned on investment 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 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. and separation benefits and related charges associated with the Company's businesses in Mexico, as well as the acceleration of depreciation expense for leasehold improvements in conjunction with the expansion of the Company's headquarters in New York.


•	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.

One client accounted for more than 10% of the Company's Consolidated Net Revenues for the three months ended September 30, 2019.

The following information presents each segment's contribution.



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2019		2018		2019		2018
Investment Banking
Net Revenues⁽¹⁾	$	388,012	$	366,834	$	1,305,586	$	1,252,709
Operating Expenses	311,697		287,809		1,008,985		946,629
Other Expenses⁽²⁾	7,917		7,888		22,084		21,805
Operating Income	68,398		71,137		274,517		284,275
Income from Equity Method Investments	282		—		756		297
Pre-Tax Income	$	68,680	$	71,137	$	275,273	$	284,572
Identifiable Segment Assets	$	2,018,087	$	1,294,106	$	2,018,087	$	1,294,106
Investment Management
Net Revenues⁽¹⁾	$	14,186	$	14,425	$	42,985	$	40,590
Operating Expenses	12,040		11,022		36,206		32,973
Other Expenses⁽²⁾	200		—		308		21
Operating Income	1,946		3,403		6,471		7,596
Income from Equity Method Investments	2,280		2,298		6,470		6,545
Pre-Tax Income	$	4,226	$	5,701	$	12,941	$	14,141
Identifiable Segment Assets	$	193,016	$	411,501	$	193,016	$	411,501
Total
Net Revenues⁽¹⁾	$	402,198	$	381,259	$	1,348,571	$	1,293,299
Operating Expenses	323,737		298,831		1,045,191		979,602
Other Expenses⁽²⁾	8,117		7,888		22,392		21,826
Operating Income	70,344		74,540		280,988		291,871
Income from Equity Method Investments	2,562		2,298		7,226		6,842
Pre-Tax Income	$	72,906	$	76,838	$	288,214	$	298,713
Identifiable Segment Assets	$	2,211,103	$	1,705,607	$	2,211,103	$	1,705,607


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



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2019		2018		2019		2018
Investment Banking^(A)	$	2,709	$	4,108	$	16,432	$	3,219
Investment Management	1,536		1,747		5,533		3,987
Total Other Revenue, net	$	4,245	$	5,855	$	21,965	$	7,206


(A)	Investment Banking Other Revenue, net, includes interest expense on the Notes Payable, subordinated borrowings and lines of credit of $3,786 and $8,354 for the three and nine months ended September 30, 2019, respectively, and $2,300 and $6,861 for the three and nine months ended September 30, 2018, respectively.


(2)	Other Expenses are as follows:



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2019		2018		2019		2018
Investment Banking
Amortization of LP Units and Certain Other Awards	$	4,551	$	3,764	$	12,346	$	11,470
Special Charges	1,029		1,967		3,087		3,864
Acquisition and Transition Costs	180		—		180		—
Intangible Asset and Other Amortization	2,157		2,157		6,471		6,471
Total Investment Banking	7,917		7,888		22,084		21,805
Investment Management
Acquisition and Transition Costs	200		—		308		21
Total Investment Management	200		—		308		21
Total Other Expenses	$	8,117	$	7,888	$	22,392	$	21,826

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 September 30,				For the Nine Months Ended September 30,
	2019		2018		2019		2018
Net Revenues:⁽¹⁾
United States	$	317,203	$	290,944	$	977,870	$	1,023,686
Europe and Other	77,779		82,063		337,207		239,226
Latin America	2,971		2,397		11,529		23,181
Total	$	397,953	$	375,404	$	1,326,606	$	1,286,093

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

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



	September 30, 2019		December 31, 2018
Total Assets:
United States	$	1,867,620	$	1,757,589
Europe and Other	280,056		298,917
Latin America	63,427		69,161
Total	$	2,211,103	$	2,125,667