Segment Operating Results

9 Months Ended

Sep. 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. In addition, in October 2020, the Company announced the decision to transition its advisory presence in Mexico to a strategic alliance relationship with a newly-formed independent strategic advisory firm founded by certain former employees. See Note 5 for further information.

The Company's segment information for the three and nine months ended September 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. In 2020, Other Revenue also includes a gain on the sale of the ECB Trust Business.

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, including costs in 2020 associated with the sale of the ECB Trust Business.


•	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 nine months ended September 30, 2020.

The following information presents each segment's contribution.



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Investment Banking
Net Revenues⁽¹⁾	$	385,463	$	388,012	$	1,294,493	$	1,305,586
Operating Expenses	318,655		311,697		1,057,926		1,008,985
Other Expenses⁽²⁾	7,703		7,917		42,092		22,084
Operating Income	59,105		68,398		194,475		274,517
Income from Equity Method Investments	570		282		1,171		756
Pre-Tax Income	$	59,675	$	68,680	$	195,646	$	275,273
Identifiable Segment Assets	$	2,460,068	$	2,018,087	$	2,460,068	$	2,018,087
Investment Management
Net Revenues⁽¹⁾	$	17,052	$	14,186	$	42,104	$	42,985
Operating Expenses	12,171		12,040		36,529		36,206
Other Expenses⁽²⁾	300		200		332		308
Operating Income	4,581		1,946		5,243		6,471
Income from Equity Method Investments	2,541		2,280		7,381		6,470
Pre-Tax Income	$	7,122	$	4,226	$	12,624	$	12,941
Identifiable Segment Assets	$	185,390	$	193,016	$	185,390	$	193,016
Total
Net Revenues⁽¹⁾	$	402,515	$	402,198	$	1,336,597	$	1,348,571
Operating Expenses	330,826		323,737		1,094,455		1,045,191
Other Expenses⁽²⁾	8,003		8,117		42,424		22,392
Operating Income	63,686		70,344		199,718		280,988
Income from Equity Method Investments	3,111		2,562		8,552		7,226
Pre-Tax Income	$	66,797	$	72,906	$	208,270	$	288,214
Identifiable Segment Assets	$	2,645,458	$	2,211,103	$	2,645,458	$	2,211,103


(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,
	2020		2019		2020			2019
Investment Banking^(A)	$	4,449	$	2,709	$	(5,704	)	$	16,432
Investment Management	3,027		1,536		2,379			5,533
Total Other Revenue, net	$	7,476	$	4,245	$	(3,325	)	$	21,965


(A)	Investment Banking Other Revenue, net, includes interest expense on the Notes Payable and lines of credit of $4,218 and $13,594 for the three and nine months ended September 30, 2020, respectively, and $3,786 and $8,354 for the three and nine months ended September 30, 2019, respectively.


(2)	Other Expenses are as follows:



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Investment Banking
Amortization of LP Units and Certain Other Awards	$	—	$	4,551	$	1,067	$	12,346
Special Charges, Including Business Realignment Costs	7,380		1,029		39,582		3,087
Acquisition and Transition Costs	154		180		260		180
Intangible Asset and Other Amortization	169		2,157		1,183		6,471
Total Investment Banking	7,703		7,917		42,092		22,084
Investment Management
Special Charges, Including Business Realignment Costs	—		—		32		—
Acquisition and Transition Costs	300		200		300		308
Total Investment Management	300		200		332		308
Total Other Expenses	$	8,003	$	8,117	$	42,424	$	22,392

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,
	2020		2019		2020		2019
Net Revenues:⁽¹⁾
United States	$	285,271	$	317,203	$	1,042,248	$	977,870
Europe and Other	104,197		77,779		284,442		337,207
Latin America	5,571		2,971		13,232		11,529
Total	$	395,039	$	397,953	$	1,339,922	$	1,326,606

(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, 2020		December 31, 2019
Total Assets:
United States	$	2,260,680	$	2,158,347
Europe and Other	339,921		373,822
Latin America	44,857		66,444
Total	$	2,645,458	$	2,598,613