Segment Operating Results

6 Months Ended

Jun. 30, 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. In April 2020, the Company entered into an agreement for the leaders of its business in Mexico to purchase ECB, the Company's Mexico based broker-dealer focused principally on providing Investment Management services. This sale will be completed following regulatory approval. See Note 5 for further information.

The Company's segment information for the three and six months ended June 30, 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 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 and six months ended June 30, 2020.

The following information presents each segment's contribution.



	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2020			2019		2020		2019
Investment Banking
Net Revenues⁽¹⁾	$	495,374		$	516,386	$	909,030	$	917,574
Operating Expenses	399,476			385,378		739,271		697,288
Other Expenses⁽²⁾	9,163			6,909		34,389		14,167
Operating Income	86,735			124,099		135,370		206,119
Income from Equity Method Investments	65			219		601		474
Pre-Tax Income	$	86,800		$	124,318	$	135,971	$	206,593
Identifiable Segment Assets	$	2,358,662		$	1,749,339	$	2,358,662	$	1,749,339
Investment Management
Net Revenues⁽¹⁾	$	11,701		$	14,660	$	25,052	$	28,799
Operating Expenses	11,707			11,925		24,358		24,166
Other Expenses⁽²⁾	—			—		32		108
Operating Income (Loss)	(6		)	2,735		662		4,525
Income from Equity Method Investments	2,248			2,234		4,840		4,190
Pre-Tax Income	$	2,242		$	4,969	$	5,502	$	8,715
Identifiable Segment Assets	$	140,927		$	190,410	$	140,927	$	190,410
Total
Net Revenues⁽¹⁾	$	507,075		$	531,046	$	934,082	$	946,373
Operating Expenses	411,183			397,303		763,629		721,454
Other Expenses⁽²⁾	9,163			6,909		34,421		14,275
Operating Income	86,729			126,834		136,032		210,644
Income from Equity Method Investments	2,313			2,453		5,441		4,664
Pre-Tax Income	$	89,042		$	129,287	$	141,473	$	215,308
Identifiable Segment Assets	$	2,499,589		$	1,939,749	$	2,499,589	$	1,939,749


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



	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2020			2019		2020			2019
Investment Banking^(A)	$	11,254		$	7,236	$	(10,153	)	$	13,723
Investment Management	(1,252		)	2,241		(648		)	3,997
Total Other Revenue, net	$	10,002		$	9,477	$	(10,801	)	$	17,720


(A)	Investment Banking Other Revenue, net, includes interest expense on the Notes Payable and lines of credit of $4,534 and $9,376 for the three and six months ended June 30, 2020, respectively, and $2,304 and $4,568 for the three and six months ended June 30, 2019, respectively.


(2)	Other Expenses are as follows:



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2020		2019		2020		2019
Investment Banking
Amortization of LP Units and Certain Other Awards	$	—	$	3,723	$	1,067	$	7,795
Special Charges, Including Business Realignment Costs	8,558		1,029		32,202		2,058
Acquisition and Transition Costs	98		—		106		—
Intangible Asset and Other Amortization	507		2,157		1,014		4,314
Total Investment Banking	9,163		6,909		34,389		14,167
Investment Management
Special Charges, Including Business Realignment Costs	—		—		32		—
Acquisition and Transition Costs	—		—		—		108
Total Investment Management	—		—		32		108
Total Other Expenses	$	9,163	$	6,909	$	34,421	$	14,275

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 June 30,				For the Six Months Ended June 30,
	2020		2019		2020		2019
Net Revenues:⁽¹⁾
United States	$	391,762	$	386,545	$	756,977	$	660,667
Europe and Other	100,224		130,144		180,245		259,428
Latin America	5,087		4,880		7,661		8,558
Total	$	497,073	$	521,569	$	944,883	$	928,653

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

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



	June 30, 2020		December 31, 2019
Total Assets:
United States	$	2,138,684	$	2,158,347
Europe and Other	316,430		373,822
Latin America	44,475		66,444
Total	$	2,499,589	$	2,598,613