Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lazard Inc (LAZ, Financial) reported a 25% increase in total firm-wide adjusted net revenue for the first half of 2024, reaching $1.4 billion.
- Financial advisory adjusted net revenue set a record at $855 million for the first half of the year, up 38% from the prior year.
- The asset management business delivered solid results with adjusted net revenue of $541 million for the first half of the year.
- Lazard Inc (LAZ) achieved record revenue in the United States and was ranked number one globally for restructuring completions in the quarter.
- The company has been successful in attracting senior professionals, hiring nine managing directors in financial advisory so far this year.
Negative Points
- Asset management adjusted net revenue for the second quarter was $265 million, down 1% compared to the same quarter last year.
- The company reported net outflows of $6.6 billion in asset management during the second quarter.
- Adjusted compensation expense for the second quarter was $452 million, resulting in a high compensation ratio of 66%.
- Adjusted non-compensation expense for the second quarter was $149 million, up 3% compared to the prior year.
- The asset management business continues to face challenges with flow trends and remixing dynamics weighing on the fee rate.
Q & A Highlights
Q: Hi, good morning. A few of your peers have commented on sponsor activity really picking up in the second quarter behind the scenes. Are you seeing the same thing? And any color on what conversations with sponsors are looking like, and any significant change versus last quarter?
A: Sure. First, let me just start by saying we have been investing a lot in an expanded array of coverage efforts with regard to private capital. So that's a combination of our PCA business that does primary and secondary fundraising. Our Lazard Capital Solutions business that helps arrange innovative financing or strategics, often with private capital sources. It includes our reconfigured restructuring liability management team that now does both debtor and creditor work often in conjunction with private capital. It includes an expanded sponsor coverage effort, including a new senior hire and another senior hire covering sovereign wealth funds. And it includes more traditional private equity M&A coverage. So that all feeds on itself. The result of that is that the share of our revenue associated with private capital is currently more than one-third -- advisory revenue, let me be clear. And we do see increased activity coming from sponsors as the M&A cycle broadens and deepens.
Q: Great. Thank you. And just a follow-up on the election cycle. You mentioned before that global election cycle is a relative headwind to M&A activity picking up. Is that still the case? And how should we think about that headwind balancing versus the tailwinds of rate cuts coming and higher market levels that we saw on a year-over-year basis.
A: Yeah, I don't really view it as a headwind necessarily as opposed to just a factor that clients want to take into account as they consider what they do. I've said before and I believe it's still to be true today that you can't make an important business decision without taking geopolitical considerations into account. And we are seeing a more constructive environment across the Board despite the fact that there have been a lot of elections across the globe and there will continue to be some including an important one here in the United States. So it is something that is taken into account in boards and C-suites as it should. It is creating significant demand for our geopolitical team. And it is a relative strength of Lazard's to help navigate these sorts of issues.
Q: Good morning. So Peter talked, we've had record first half revenue on an annualized basis. It's the second-best year ever, except for '21. I think you had talked about in a normal year with the 10% headcount reduction and efforts to be more efficient on the non-comp side. You can get to your pre-tax margin goal. I realized not all those savings are hitting this year. But can you speak to where we stand on kind of hitting those targets given the improving revenue environment and obviously, the expectation that things could even be better next year?
A: Sure. Look, we remain committed to hitting those margin targets and goals as conditions continue to improve. I would note that while we see increasing momentum and believe that there is increasing traction with clients, we have to wait and see exactly how the year turns out before reaching the types of conclusions that you were reaching. But maybe turning to the biggest driver of that with regard to the comp ratio, I would note two things in particular. One is we are seeing and obtaining increasing traction with really talented bankers that want to join Lazard. I think they sense the momentum that we have. And we will be taking advantage of those opportunities to add to our talent pool as they arise, which may temporarily result in a bit of ongoing elevation in the comp ratio, even though the comp ratio has come down relative to last year. So we will grab those opportunities as they present themselves because they lead to future growth and future margin improvement down the line. And the second thing is that if the year does turn out to be a strong one. and again, we need to let this play out. But if it does turn out to be a strong one, we may have the opportunity -- we chose to take the opportunity to reduce our deferral rate, which would then mean lower comp ratios in the future as a result. So there are various factors that go into this year beyond just the state-of-the-market. Hopefully, that's responsive.
Q: Yeah. No, that's helpful. And maybe just to your point on investing, I know you've talked about trying to add on net 10 MDs or so every year. Are you on that? After the reduction in force, do you see adding that level or better this year?
A: Yes. We are -- again, as I mentioned at the open, we have hired nine managing directors in financial advisory in areas of new strength for us, including sports media and entertainment, including in restructuring, including in consumer, including in sponsor coverage, and sovereign wealth coverage, so areas that we see a lot of revenue potential in. There are more managing directors that have already signed up and that we will be adding to the rings in future months. And there are ongoing very active discussions with lots of talent across multiple different sectors. To answer your question that we are on track, measured Q1 to Q1 which is how we will be measuring the net add of 10 to 15 MDs per year. They are on track to hitting our objective. I'd also note, by the way, the other objective we had for next year was a productivity goal and we are tracking well on that too.
Q: Good morning. I guess to start, I just want to follow-up on the election question asked earlier. While the elections in the US could result in an FCC that is more conducive to M&A activity, it also bring in a far more protectionist regime. So I just want to get a sense as to how this could impact cross-border activity, given this is a big area of strength for your business?
A: Yeah. Look, I think we're -- in a hypothetical world, we don't know which way the election will turn out. Even if the election turns out in a particular way, we don't know how quickly or even if -- but especially how quickly some of the proposals that have been bandied about would be implemented. But just to go directly to your question, actually, the imposition of significant tariffs, while perhaps not ideal from a macroeconomic perspective, could lead to an increase in cross-border M&A because imagine that the US put up significant tariffs, there is increased demand for firms, especially from Europe, to then get inside of that tariff wall and thereby escape the tariffs. So again, we see increasing momentum under a wide variety of scenarios. And just to be very specific to answer your question, if anything, the imposition of tariffs should lead to more cross-border M&A, not less, for the reason that I just mentioned.
Q: Got you. And for my follow-up, I just wanted to touch on the asset management business. Flow trends there continue to be challenged which with remixing dynamics also weighing on the fee rate
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
