Lazard, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Amounts below are in U.S. dollars. Lazard completed its conversion from a Bermuda exempted company to a Delaware C-corporation on January 1, 2024; the prior-year comparison is for Lazard Ltd before conversion.
Business context and results
Lazard operates Financial Advisory and Asset Management businesses, with selected financing and investment activities in Corporate. Results are cyclical: advisory fees depend substantially on transaction activity and timing, while Asset Management fees are driven chiefly by assets under management (AUM), market performance and client flows.
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $785.5 million | $561.9 million |
| Net revenue | $764.8 million | $542.4 million |
| Operating income (loss) | $54.6 million | $(36.9) million |
| Net income (loss) | $40.2 million | $(15.2) million |
| Net income (loss) attributable to Lazard | $35.8 million | $(22.2) million |
| Basic / diluted EPS | $0.38 / $0.35 | $(0.27) / $(0.27) |
| GAAP operating margin | 7.1% | (6.8)% |
Segment performance and material changes
- Financial Advisory: Net revenue was $453.5 million, up 63%; operating income was $25.5 million versus a $51.2 million loss. The company cited more completed large M&A transactions for Lazard, despite a decline in industry-wide completed M&A activity.
- Asset Management: Net revenue was $295.5 million, up 4%, while operating income declined 6% to $33.8 million. AUM ended the quarter at $250.4 billion, up 2% from year-end, primarily due to market appreciation, partly offset by net outflows and foreign-exchange depreciation. Net flows were negative $6.6 billion; average AUM rose 9% year over year.
- Corporate: Net revenue was $15.8 million versus a $19.2 million loss, reflecting investment gains in 2024 compared with prior-year investment impairment and the LGAC liquidation loss.
- Adjusted net revenue, a non-GAAP measure, increased 42% to $746.6 million. Adjusted operating income was $119.5 million, or 16.0% of adjusted net revenue, compared with a $14.3 million loss and a (2.7)% margin. Adjusted compensation expense was $492.7 million; its ratio to adjusted net revenue improved to 66.0% from 75.7%. Management’s stated over-the-cycle goal for this ratio is the mid-to-high 50% range.
Cash flow, debt and liquidity
- Operating cash flow was negative $90.0 million, compared with negative $411.4 million a year earlier. Management says first-quarter cash use is typically affected by incentive compensation payments; cash flow also reflects working-capital movements and payments related to cost-saving initiatives.
- Investing cash flow was negative $6.6 million; financing cash flow was positive $98.5 million. Cash, cash equivalents and restricted cash decreased $20.3 million to $1.205 billion. This total includes $923.2 million of cash and cash equivalents, $247.8 million of deposits and short-term investments, and $33.6 million of restricted cash.
- Senior debt carrying value was $1.851 billion, versus $1.690 billion at year-end. In March, Lazard Group issued $400 million of 6.00% notes due 2031 and used part of the proceeds to tender for $235.7 million of 3.75% notes due 2025, leaving $164.3 million of 2025 notes outstanding. No revolver borrowings were outstanding; approximately $209 million of unused credit lines were available.
- The company reported compliance with its debt covenants, including leverage and interest-coverage requirements. Management believes available liquidity should cover obligations for the next 12 months.
- Total stockholders’ equity was $448.5 million, down from $482.2 million at December 31, 2023. First-quarter common dividends were $43.7 million, and share repurchases under the program were $22.0 million.
Outlook, risks and unusual items
- Management described global macro conditions as improving and capital-market trends as positive, with M&A activity strengthening and financing, valuation and regulatory headwinds abating. It also noted elevated geopolitical uncertainty, continued investor caution in allocating to risk assets, and potential for restructuring activity as debt maturities approach. No specific financial guidance was provided.
- Industry indicators were mixed: announced global M&A value rose 34% year over year, while completed deal value fell 24%; completed deal counts fell 35%. Lazard cautioned that quarterly results are not indicative of full-year or future results.
- The conversion makes Lazard subject to U.S. federal corporate income tax on all operating income; management expects the change to increase its effective tax rate. The Q1 effective tax rate was 26.3%, compared with a 58.8% benefit-rate comparison in Q1 2023.
- Cost-saving initiatives generated $48.7 million of Q1 expenses, including $46.6 million of severance and employee termination costs. Lazard also paid approximately $92 million in cash retention awards, generally subject to a three-year service condition; about $11 million was expensed in Q1.
- The tax receivable agreement obligation was $115.0 million; the company expects approximately $32 million to be paid in Q2 2024. Timing and amount may differ from estimates.
- Management cited sensitivity to economic and market conditions, M&A and restructuring volumes, AUM and client flows, talent competition, liquidity, foreign exchange, tax changes and third-party or operational risks. It said pending legal matters are not expected, in aggregate, to materially affect the business or financial condition; no material changes to previously disclosed risk factors were reported.
- Executive Chairman Kenneth M. Jacobs adopted a Rule 10b5-1 plan to sell up to 1 million shares, expiring May 30, 2025 or upon completion of the sales.
Important facts for investors to verify
- Whether advisory revenue and large-deal completions remain strong, given the timing sensitivity of transaction fees and the gap between announced and completed industry M&A.
- Whether AUM net outflows persist and how market returns, foreign exchange and client flows affect Asset Management revenue and margins.
- How compensation costs, including deferred awards and retention incentives, affect the adjusted compensation ratio and earnings as revenue changes.
- The impact of the U.S. corporate conversion on future effective tax rates, deferred tax assets and tax receivable agreement payments.
- Debt refinancing costs, covenant headroom and liquidity after seasonal compensation payments and other cash uses.