Lazard Ltd. 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. The filing is for Lazard Ltd. (NYSE: LAZ), a global financial advisory and asset management firm operating in 41 cities across 26 countries. Results are annual, not a standalone fourth-quarter report.
Financial results
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net revenue | $3.193 billion | $2.566 billion | +24% |
| Operating income | $724 million | $502 million | +44% |
| Net income attributable to Lazard Ltd. | $528 million | $402 million | +31% |
| Diluted earnings per share | $4.63 | $3.54 | +31% |
| Operating margin | 22.7% | 19.6% | +3.1 percentage points |
| Net cash from operating activities | $866 million | $576 million | +$290 million |
Financial Advisory generated $1.765 billion in revenue, up 24%, and $408 million in operating income, with a 23.1% margin (20.4% in 2020). Asset Management generated $1.425 billion in revenue, up 22%, and $392 million in operating income, with a 27.5% margin (26.2% in 2020). Corporate recorded a $76 million operating loss, compared with a $94 million loss in 2020.
Asset Management incentive fees rose to $120 million from $58 million. Year-end AUM was $273.7 billion, up 6%; market appreciation was partly offset by net outflows and foreign-exchange depreciation. Net flows were negative $11.6 billion for the year. Average AUM increased 21% to $272.1 billion.
At year-end, cash and cash equivalents were $1.465 billion; deposits with banks and short-term investments were $1.348 billion; and restricted cash was $617 million, primarily related to the LGAC IPO trust. Total stockholders’ equity was $1.078 billion. Senior notes totaled $1.7 billion principal ($1.685 billion carrying value), with maturities from 2025 through 2029. No amounts were drawn on the $200 million revolving credit facility; Lazard reported $207 million of unused credit lines and compliance with its debt covenants.
Material changes versus 2020
- Investment banking and advisory fees increased 26%; management and other Asset Management fees rose 18%, supported by higher average AUM.
- Growth in M&A activity supported Financial Advisory results: announced global M&A value rose 62%, while completed transaction value rose 43%. Corporate defaults fell to 54 from 216.
- Compensation and benefits expense increased 22% to $1.896 billion. The company’s non-GAAP awarded-compensation ratio declined to 58.8% of operating revenue from 59.8%.
- Adjusted non-compensation expense rose 9%, but declined to 15.0% of operating revenue from 17.1%.
- Share repurchases were $406 million, versus $95 million in 2020; common dividends were $196 million, broadly similar to 2020. A quarterly dividend of $0.47 per share was declared in February 2022.
Outlook, risks and unusual items
- Management described 2021 M&A markets as very active, but identified near-term uncertainty from COVID-19, inflation, tighter regulation and geopolitical instability. It gave no specific financial guidance.
- As of February 11, 2022, AUM had fallen $14.1 billion from year-end to $259.6 billion, reflecting $9.1 billion of market depreciation and $5.3 billion of net outflows, partly offset by foreign-exchange appreciation.
- Results are exposed to transaction timing and market cycles: Financial Advisory fees often depend on successful transaction completion, while Asset Management fees depend on AUM, investment performance and client flows. Management cautioned that quarterly and annual results may vary substantially.
- Other material risks include talent retention and compensation, competition and fee pressure, currency movements, investment valuation changes, cyber and operational disruption, extensive regulation, tax uncertainty and the potential effects of the pandemic.
- 2021 included $23.6 million of losses from reclassifying currency translation adjustments associated with office restructuring and closures. The 2021 effective tax rate was 25.0%, versus 19.8% in 2020.
- The company reported pending legal matters that, in aggregate and based on information available, it did not believe would materially affect its business or financial condition. Deloitte issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether AUM outflows and the February 2022 decline continued, and how markets and foreign exchange affected subsequent fee revenue.
- Whether strong 2021 advisory activity and revenue growth are sustainable, given transaction-based fees and market cyclicality.
- Cash availability after distinguishing operating cash from restricted cash and customer-related bank deposits and payables.
- Debt maturities, revolving-credit availability, covenant compliance and the company’s capacity to maintain dividends and repurchases.
- Compensation expense, deferred awards and dilution, alongside the company’s non-GAAP compensation and expense ratios.
- Developments in tax exposures, including the $213 million tax receivable agreement liability and deferred-tax-asset realizability.