Lazard Ltd. Form 10-Q Summary — Quarter Ended June 30, 2021
The filing is for Lazard Ltd. (NYSE: LAZ), a global financial advisory and asset management firm, and covers the second quarter and first half of 2021. The filing reports unaudited results; amounts below are in U.S. dollars unless noted.
Financial results
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net revenue | $823 million | $572 million | $1,483 million | $1,110 million |
| Operating income | $166 million | $96 million | $301 million | $180 million |
| Net income attributable to Lazard Ltd. | $123 million | $73 million | $210 million | $137 million |
| Diluted earnings per share | $1.08 | $0.66 | $1.83 | $1.22 |
| GAAP operating margin | 20.2% | 16.8% | 20.3% | 16.2% |
| Operating cash flow | Not presented separately | Not presented separately | $15 million | $(0.3) million |
Q2 net revenue grew 44% year over year; first-half net revenue grew 34%. The filing also reports total revenue before interest expense of $843 million in Q2 and $1,523 million in the first half of 2021.
- Financial Advisory: net revenue was $452 million in Q2, up 48%, and $770 million for the first half, up 28%. Management attributed growth principally to more high-fee advisory assignments.
- Asset Management: net revenue was $365 million in Q2, up 43%, and $713 million for the first half, up 33%. Q2 incentive fees were $34 million versus $1 million a year earlier; first-half incentive fees were $67 million versus $2 million.
- Asset Management margins: segment operating margin was 26.3% in Q2 versus 23.5%; first-half margin was 29.6% versus 25.6%.
- Compensation and expenses: reported compensation and benefits expense rose 46% in Q2 and 37% in the first half, largely alongside higher revenue. Adjusted compensation expense was 59.5% of operating revenue in both periods, compared with 60.0% in 2020. Management’s stated through-cycle goal is a mid-to-high-50s percentage range. Adjusted non-compensation expense was 14.5% of operating revenue in Q2 and 15.1% for the first half, down from 18.3% and 19.2%, respectively.
Cash, debt and liquidity
- At June 30, 2021, cash and cash equivalents were $980 million; deposits with banks and short-term investments were $1.111 billion; restricted cash was $614 million. The combined balance of these items was $2.706 billion, including funds restricted for the LGAC trust and other purposes.
- Senior debt had a carrying value of $1.684 billion, representing $1.7 billion principal across notes due 2025, 2027, 2028 and 2029. No borrowings were outstanding under the $200 million revolving facility; approximately $213 million of total unused lines, including LFB facilities, was available.
- Lazard reported compliance with debt covenants. For the 12 months ended June 30, its leverage ratio was 1.50 and interest coverage ratio was 15.14, compared with covenant limits of 3.25 (with specified flexibility) and a minimum 3.00, respectively.
- First-half operating cash flow was $15 million, versus approximately break-even in 2020. Investing cash outflow was $17 million; financing cash inflow was $201 million, including the LGAC IPO. Cash and restricted cash increased $137 million, after a $62 million adverse effect from exchange-rate changes.
- Total stockholders’ equity declined to $932 million from $999 million at year-end 2020. During the first half, the company repurchased $234 million of shares and paid $99 million in common-stock dividends. The board declared a further $0.47-per-share dividend on July 29, payable August 20, 2021.
Changes, outlook and risks
- Asset Management AUM was $277.4 billion at June 30, up 7% from year-end. First-half market appreciation of $24.6 billion and foreign-exchange depreciation of $3.4 billion accompanied net outflows of $2.5 billion. Equity markets were broadly higher. AUM on July 23 was $277.6 billion, with market gains partly offset by FX depreciation and net outflows.
- Management described the global macroeconomic environment as strengthening, while emphasizing uncertainty from COVID-19 and the possibility of continued market disruption. It cited a very active M&A market and expected near-term uncertainty, including regulatory uncertainty. No specific company-wide revenue or earnings guidance was provided.
- Management said operating cash flows should be sufficient to fund current obligations for the next 12 months. It noted the usual seasonal pattern of cash use early in the year from incentive compensation payments.
- Key business sensitivities include transaction completion timing and M&A activity, market levels and client flows affecting AUM and fees, foreign-exchange movements, competition for senior talent, and the uncertain effects of COVID-19. Management cautioned that quarterly results can vary materially and may not predict future periods.
- The $575 million LGAC IPO proceeds are held in restricted cash and matched by $575 million of redeemable noncontrolling interests. LGAC is a consolidated SPAC; its warrants are fair-value liabilities, recorded at $13 million at quarter-end.
- A $23.6 million currency-translation loss related to restructuring and closing certain offices was reclassified from accumulated other comprehensive income into earnings in Q2. The tax receivable agreement obligation was $211 million; actual payment timing and amount may differ from estimates.
- The company described legal and regulatory proceedings, including former-employee claims, but said pending matters in aggregate were not expected to materially affect its business or financial condition. It reported no material change to previously disclosed risk factors.
Most important facts for investors to verify
- Whether strong advisory activity and higher AUM-related fees persist, particularly given revenue volatility and the reliance of advisory fees on transaction timing and completion.
- Whether Asset Management net outflows continue and how market returns, FX changes and incentive fees affect AUM and fee revenue.
- How compensation expense tracks revenue against management’s through-cycle target, and whether improved non-compensation expense ratios are sustainable.
- The liquidity treatment and redemption exposure associated with LGAC’s restricted trust assets, redeemable interests and warrant liabilities.
- Debt maturities, covenant compliance, share repurchase pace and the estimated timing and amount of tax receivable agreement payments.