Segment Operating Results

3 Months Ended

Mar. 31, 2020

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, 2020 and 2019 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 and futures contracts 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 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, Including Business Realignment Costs – Includes expenses in 2020 related to separation and transition benefits and related costs as a result of the Company's review of its operations and the acceleration of depreciation expense for leasehold improvements and certain other fixed assets in conjunction with the previously announced expansion of the Company's headquarters in New York and the Company's business realignment initiatives. 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.


•	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, 2020.

The following information presents each segment's contribution.



	For the Three Months Ended March 31,
	2020		2019
Investment Banking
Net Revenues⁽¹⁾	$	413,656	$	401,188
Operating Expenses	339,795		311,910
Other Expenses⁽²⁾	25,226		7,258
Operating Income	48,635		82,020
Income from Equity Method Investments	536		255
Pre-Tax Income	$	49,171	$	82,275
Identifiable Segment Assets	$	2,070,887	$	1,650,115
Investment Management
Net Revenues⁽¹⁾	$	13,351	$	14,139
Operating Expenses	12,651		12,241
Other Expenses⁽²⁾	32		108
Operating Income	668		1,790
Income from Equity Method Investments	2,592		1,956
Pre-Tax Income	$	3,260	$	3,746
Identifiable Segment Assets	$	150,665	$	194,822
Total
Net Revenues⁽¹⁾	$	427,007	$	415,327
Operating Expenses	352,446		324,151
Other Expenses⁽²⁾	25,258		7,366
Operating Income	49,303		83,810
Income from Equity Method Investments	3,128		2,211
Pre-Tax Income	$	52,431	$	86,021
Identifiable Segment Assets	$	2,221,552	$	1,844,937


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



	For the Three Months Ended March 31,
	2020			2019
Investment Banking^(A)	$	(21,407	)	$	6,487
Investment Management	604			1,756
Total Other Revenue, net	$	(20,803	)	$	8,243


(A)	Investment Banking Other Revenue, net, includes interest expense on the Notes Payable and lines of credit of $4,842 and $2,264 for the three months ended March 31, 2020 and 2019, respectively.


(2)	Other Expenses are as follows:



	For the Three Months Ended March 31,
	2020		2019
Investment Banking
Amortization of LP Units and Certain Other Awards	$	1,067	$	4,072
Special Charges, Including Business Realignment Costs	23,644		1,029
Acquisition and Transition Costs	8		—
Intangible Asset and Other Amortization	507		2,157
Total Investment Banking	25,226		7,258
Investment Management
Special Charges, Including Business Realignment Costs	32		—
Acquisition and Transition Costs	—		108
Total Investment Management	32		108
Total Other Expenses	$	25,258	$	7,366

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,
	2020		2019
Net Revenues:⁽¹⁾
United States	$	365,215	$	274,122
Europe and Other	80,021		129,284
Latin America	2,574		3,678
Total	$	447,810	$	407,084

(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, 2020		December 31, 2019
Total Assets:
United States	$	1,881,621	$	2,158,347
Europe and Other	295,598		373,822
Latin America	44,333		66,444
Total	$	2,221,552	$	2,598,613