Lazard, Inc. (Lazard Ltd) — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; comparisons are to the same 2022 periods unless stated otherwise. Amounts below are in U.S. dollars. Lazard operates Financial Advisory and Asset Management businesses, plus a Corporate segment.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Net revenue | $643.1 million | $639.5 million | $1,185.6 million | $1,334.4 million |
| Operating income (loss) | $(110.1) million | $125.8 million | $(147.0) million | $285.6 million |
| Net income (loss) attributable to Lazard | $(124.0) million | $95.5 million | $(146.2) million | $209.4 million |
| Basic and diluted EPS | $(1.41) | $0.96 basic; $0.92 diluted | $(1.68) | $2.05 basic; $1.97 diluted |
| GAAP operating margin | (17.1)% | 19.7% | (12.4)% | 21.4% |
Q2 total revenue was $662.3 million, with $19.2 million of interest expense deducted to arrive at net revenue. First-half operating cash flow was negative $210.4 million, versus positive $85.1 million in the prior-year period. Cash, bank deposits and short-term investments, and restricted cash totaled $1.18 billion at June 30, compared with $2.64 billion at year-end 2022. Cash and cash equivalents alone were $697.8 million.
At June 30, senior debt had a $1.70 billion principal balance and $1.69 billion carrying value; all notes are unsecured, with maturities from 2025 through 2029. No revolving-credit borrowings were outstanding. Lazard reported approximately $209 million of unused credit lines and compliance with debt covenants. Total assets were $4.60 billion, down from $5.85 billion at December 31, 2022; stockholders’ equity was $415.9 million, down from $675.4 million.
Material changes and segment results
- Financial Advisory: Net revenue fell 14% in Q2 to $352.5 million and 21% in the first half to $630.1 million. The segment reported an Q2 operating loss of $87.0 million and first-half operating loss of $138.1 million, versus profits in both 2022 periods. Management cited fewer and smaller fee events; global completed M&A deal value declined 50% in the first half.
- Asset Management: Q2 net revenue was $288.3 million, approximately flat year over year; first-half revenue declined 9% to $572.4 million. First-half operating income fell 64% to $55.1 million, reflecting lower average AUM and incentive fees as well as higher expenses. AUM was $239.3 billion at June 30, up 11% from year-end, driven by market and foreign-exchange appreciation and net inflows; first-half inflows included approximately $3.9 billion from an acquisition.
- Costs and profitability: Q2 compensation and benefits expense rose 57% to $572.2 million, including $136.6 million tied to cost-saving initiatives. First-half initiative costs totaled $167.4 million, including severance and technology-asset impairments. Adjusted compensation expense was 68.4% of operating revenue in Q2 and 71.8% for the first half, up from 58.5% in both comparable periods. Management’s stated over-cycle goal for this ratio is the mid-to-high 50% range.
- Cash uses and capital returns: First-half financing cash outflow was $1.24 billion, including $585.9 million distributed following LGAC’s redemption, $99.1 million of share repurchases and $85.9 million of dividends. The Board declared a $0.50-per-share quarterly dividend on July 26, payable August 18, 2023.
Outlook, risks and unusual items
- Management said the macroeconomic environment was improving and M&A markets appeared to be stabilizing, but M&A completions remained low and any recovery was expected to be slow. The filing gives no specific earnings or revenue guidance.
- Management expects seasonal cash patterns to continue, including substantial incentive-compensation payments early in the year; it also anticipated August deferred-cash-award payments and continuing severance payments. Management believes available liquidity should cover obligations for the next 12 months.
- LGAC liquidated in February 2023 after failing to complete a business combination. The redemption used $585.9 million of trust cash; Lazard recorded a $17.9 million liquidation loss and reversed $20.1 million of deferred underwriting fees from liabilities to equity.
- A revaluation of the tax receivable agreement reduced its liability by $40.4 million and produced a first-half benefit. The obligation was $118.5 million at June 30, down from $191.2 million at year-end; actual future payments may differ materially from estimates.
- Key risks include volatility in M&A and restructuring activity, AUM levels and markets, client flows, compensation and retention pressures, liquidity, investment valuations, foreign exchange and interest rates, credit losses, litigation, and regulatory requirements. The filing reported no material change to the risk factors in the 2022 Form 10-K and no material effect expected from pending legal matters, based on information then available.
Investor facts to verify
- Whether advisory activity and completed transactions recover enough to restore Financial Advisory revenue and profitability.
- Whether AUM growth persists, and how much reflects market appreciation, acquisition-related assets, and organic client flows.
- Whether compensation and non-compensation costs—including cost-saving charges—decline sufficiently to improve margins.
- How operating cash flow and liquidity evolve after the LGAC distribution and seasonal compensation payments; monitor debt maturities and covenant headroom.
- Whether the tax receivable agreement estimate, deferred tax assets and related cash payments change materially.