Lazard, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2021; filed November 1, 2021. Amounts below are U.S. dollars. Lazard operates Financial Advisory and Asset Management businesses, with selected financing, investment and LGAC activities reported in Corporate.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $737.8m | $598.0m | $2,261.0m | $1,748.4m |
| Net revenue, after interest expense | $717.4m | $577.7m | $2,200.7m | $1,688.0m |
| Operating income | $155.0m | $104.7m | $455.5m | $284.6m |
| Net income attributable to Lazard Ltd | $107.2m | $75.1m | $317.7m | $212.6m |
| Diluted EPS | $0.94 | $0.66 | $2.78 | $1.88 |
| Operating margin on net revenue | 21.6% | 18.1% | 20.7% | 16.9% |
Q3 investment banking and other advisory fees were $384.8m, up 26%; Asset Management fees were $323.7m, up 22%. For the nine months, advisory fees rose 30% to $1,177.8m and Asset Management fees rose 28% to $997.2m. Nine-month Asset Management incentive fees were $74.8m, versus $5.5m a year earlier.
By segment, Q3 Financial Advisory net revenue was $385.0m and operating income $80.5m (20.9% margin); Asset Management net revenue was $338.7m and operating income $92.7m (27.4% margin). Nine-month segment operating income was $223.7m for Financial Advisory and $304.0m for Asset Management. Corporate reported a nine-month operating loss of $72.2m.
Asset Management AUM was $272.6bn at September 30, up 5% from year-end 2020. The increase reflected $25.5bn market appreciation, partly offset by $4.8bn net outflows and $6.7bn foreign-exchange depreciation. Average AUM increased 23% in Q3 and 24% for the first nine months versus 2020. AUM on October 22, 2021 was $278.9bn, including $1.1bn net outflows since quarter-end.
Cash, debt and liquidity
- Nine-month cash from operating activities was $413.2m, versus $255.4m in 2020. Investing activities used $24.6m; financing activities provided $321.3m, including $575m of LGAC IPO proceeds and share repurchases, dividends and other payments. Cash, deposits and restricted cash totaled $3.161bn at September 30.
- Balance-sheet cash and cash equivalents were $1.185bn; deposits with banks and short-term investments were $1.361bn; restricted cash was $615.3m. The restricted amount primarily includes LGAC IPO funds held in trust and is not equivalent to freely deployable cash.
- Senior debt had $1.700bn principal outstanding and a $1.685bn carrying value, essentially unchanged from year-end. No borrowings were outstanding on the $200m revolving facility; approximately $212.7m of total unused credit lines were reported. Management said the company was in covenant compliance.
- Total assets were $6.727bn, versus $5.972bn at year-end; total liabilities were $5.174bn. Deposits and other customer payables rose to $1.451bn from $1.201bn, largely reflecting LFB customer deposits. Stockholders’ equity was $977.7m, down from $999.4m.
Material changes and capital returns
- Q3 net revenue increased 24% year over year; nine-month net revenue rose 30%. Higher advisory activity and Asset Management fees supported growth, while operating income grew faster than revenue.
- Management’s non-GAAP adjusted compensation ratio was 59.5% of operating revenue for both Q3 and the first nine months, compared with 60.0% in 2020. Adjusted non-compensation expense was 16.6% of operating revenue in Q3 and 15.6% year to date, versus 18.1% and 18.8%, respectively.
- Lazard repurchased 6.47m shares for $286.2m during the first nine months, at an average $44.24 per share, and paid $147.6m in dividends. The board declared a further $0.47-per-share quarterly dividend on October 28, 2021.
- The February 2021 LGAC IPO added $575m of restricted trust cash and a corresponding $575m redeemable noncontrolling interest. LGAC remains a consolidated SPAC; its eventual business combination, shareholder redemptions and warrant fair-value changes may affect reported balances and results.
Outlook, risks and contingencies
Management described global announced M&A activity as exceptionally strong, with record transaction value in Q3 and the first nine months of 2021, and said Lazard was focused on client work and selective senior hiring. It also cited near-term uncertainty from COVID-19, inflation concerns and tighter regulation. Asset Management strategy includes new products and continued ESG and sustainability offerings; the filing gives no specific earnings or revenue guidance.
Management’s stated long-term objective is to keep awarded and adjusted compensation expense ratios in the mid-to-high-50% range of operating revenue over the cycle; actual ratios may vary. Management said operating cash flow should be sufficient to fund current obligations for the next 12 months. Results remain sensitive to transaction timing, equity markets, AUM flows and mix, foreign exchange, compensation costs and competition. Management expects seasonal cash-flow patterns, including significant incentive-compensation payments early in the year.
The company reported ordinary-course legal, regulatory and arbitration matters, including former-employee claims; management did not expect pending matters in aggregate to materially affect the business or financial condition. No material risk-factor changes from the 2020 Form 10-K were reported. The tax receivable agreement liability was $211.2m; payment timing and amount could differ from estimates. Nine-month results also included $23.6m of currency translation losses reclassified to earnings in connection with office restructuring and closures.
Key facts for investors to verify
- Whether elevated M&A activity converts into completed transactions and sustainable advisory fees.
- Asset Management net flows, market and FX effects, AUM product mix, and the fee implications of the reported outflows.
- How much reported cash and liquidity is available for corporate use after accounting for restricted LGAC funds, customer deposits and regulated-entity requirements.
- Compensation expense, deferred awards, share repurchases and dilution; compare actual compensation ratios with management’s through-cycle objective.
- LGAC’s trust, redemption and business-combination developments, plus warrant remeasurement effects; also monitor the tax receivable agreement obligation and legal contingencies.