Lazard Ltd. — FY2022 Form 10-K
Period: Fiscal year ended December 31, 2022. This is an annual filing; it does not provide a standalone fourth-quarter income statement. Comparisons below are year over year unless stated otherwise. Amounts are U.S. dollars.
Business context
Lazard is a global financial advisory and asset management firm operating in 43 cities across 26 countries. Its main businesses are Financial Advisory, including M&A and restructuring advice, and Asset Management. FY2022 results reflected weaker financial markets and lower global M&A activity, alongside a decline in assets under management.
Financial and operating results
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net revenue | $2.774 billion | $3.193 billion | Down 13% |
| Operating income | $517 million | $724 million | Down 29% |
| Operating margin | 18.6% | 22.7% | Down 4.1 percentage points |
| Net income attributable to Lazard Ltd | $358 million | $528 million | Down 32% |
| Diluted earnings per share | $3.51 | $4.63 | Down 24% |
| Cash provided by operating activities | $834 million | $866 million | Down $32 million |
- Financial Advisory: Revenue was $1.666 billion, down 6%; operating income was $361 million, down 11%, and margin was 21.7% versus 23.1%. The top ten fee-paying clients generated 19% of segment revenue; no single client exceeded 10%.
- Asset Management: Revenue was $1.205 billion, down 15%; operating income was $241 million, down 38%, and margin was 20.0% versus 27.5%. Management fees and other revenue fell 13%, while incentive fees declined to $67 million from $120 million.
- AUM: Year-end AUM was $216.1 billion, down $57.6 billion, or 21%. Net outflows were $16.9 billion; market depreciation was $31.5 billion and foreign-exchange depreciation was $9.2 billion. Average AUM fell 16% to $227.4 billion.
- Compensation and costs: GAAP compensation expense declined 13% to $1.656 billion. The company’s non-GAAP awarded compensation expense was $1.768 billion, with its ratio to operating revenue rising to 63.8% from 58.8%. Non-compensation expense increased 5% to $601 million, including higher travel-related marketing costs and technology investment.
Liquidity, debt and capital
- At year-end, cash and cash equivalents were $1.235 billion; deposits with banks and short-term investments were $779 million, and restricted cash was $625 million. Restricted cash includes funds subject to restrictions, including LGAC trust assets.
- Gross senior notes totaled $1.7 billion, with maturities of $400 million in 2025, $300 million in 2027, and $1.0 billion in 2028–2029. No amounts were drawn under the revolving credit facility. Approximately $204 million of unused credit lines were available; the $200 million facility was due to expire in July 2023.
- Lazard reported compliance with its credit-facility covenants; year-end leverage and interest coverage ratios were 1.63x and 14.82x, respectively. Management said operating cash flow should fund current obligations for the next 12 months.
- Total stockholders’ equity fell to $675 million from $1.078 billion. FY2022 cash uses included $692 million of share repurchases and $182 million of common dividends. The board declared a $0.50-per-share quarterly dividend in February 2023.
Material changes, outlook and notable items
- Global announced M&A value declined 37% in 2022, and completed M&A value declined 28%. Lazard said its advisory revenue fell primarily due to fewer mid-sized ($1 million–$5 million fee) engagements.
- Equity markets weakened materially: the S&P 500 and MSCI World fell 18%, while MSCI Emerging Markets fell 20%. Management cited inflation at multi-decade highs, rising interest rates and turbulent markets.
- Corporate segment revenue was a loss of $98 million versus revenue of $4 million in 2021, primarily reflecting investment-related losses in 2022 versus gains in 2021. The filing reports a $92.8 million unrealized investment loss in 2022, compared with a $14.2 million gain in 2021.
- Management described continued hiring and capability investment in Financial Advisory and development of Asset Management strategies and distribution, but provided no quantified earnings or revenue guidance. AUM had risen to $230.6 billion by January 31, 2023, driven mainly by market and currency appreciation, with net inflows also contributing.
- Key risks include cyclical and transaction-dependent advisory fees, market-linked AUM and fee income, client withdrawals, foreign exchange exposure, competition and retention of senior talent, regulation, litigation, tax uncertainty, and cyber and operational disruption. About 65% of AUM had foreign-currency exposure.
- The company said pending legal matters were not expected, in aggregate, to have a material effect based on information then available. Deloitte issued unqualified opinions on the financial statements and internal controls; management also concluded controls were effective at year-end.
- After year-end, LGAC redeemed its publicly held shares in February 2023 after failing to complete a business combination within the permitted period; its warrants had no redemption rights or liquidating distributions.
Important facts for investors to verify
- Whether the January 2023 AUM recovery continued, and how much reflected market gains versus net client flows.
- Whether advisory transaction activity and fee revenue stabilized after the 2022 decline, especially given the lack of long-term contracted revenue.
- Whether Asset Management investment performance, net flows and fee mix improve, and whether lower AUM continues to pressure margins.
- How Lazard funds dividends, repurchases and debt obligations, including the status and renewal or replacement of the July 2023 revolving facility.
- The effects of compensation awards, share repurchases and stock-based dilution on per-share earnings and equity.
- The final accounting and cash-flow implications of LGAC’s liquidation and any material developments in legal, tax, regulatory or contingent matters.