LAZ

Lazard, Inc. Q1 2010 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2010. Lazard Ltd is a Bermuda holding company and the parent of Lazard Group LLC, a global financial advisory and asset management firm. The company operates through two primary segments: Financial Advisory (M&A, restructuring, capital structure) and Asset Management (equity, fixed income, alternative investments). A Corporate segment manages cash, investments, and the commercial banking activities of Lazard Frères Banque SA (LFB).

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net revenue increased 76% year-over-year to $438.2 million. Financial Advisory fees rose 65% to $268.5 million, driven by higher M&A and restructuring activity. Asset Management fees increased 85% to $187.8 million, primarily due to a 54% increase in average Assets Under Management (AUM) to $132.3 billion.
• Profitability Improvement: While the company reported a net loss of $33.5 million attributable to Lazard Ltd, this represented a significant improvement from the $53.5 million loss in Q1 2009. Excluding special items (restructuring and RSU amortization), operating income was positive at $77.5 million compared to a loss of $28.2 million in the prior year.
• Expense Increases: Total operating expenses rose to $472.7 million from $339.2 million. This increase was largely driven by a $87.1 million restructuring charge and a $24.9 million charge related to the acceleration of RSU amortization due to a retirement policy amendment.
• Cash Flow: Net cash used in operating activities was $230.8 million, compared to $20.4 million in Q1 2009. This outflow is typical for the first quarter due to the timing of incentive compensation payments and tax distributions.

Guidance, Outlook, and Risks

• Outlook: Management notes signs of economic recovery and improved market conditions but remains cautious regarding global vulnerabilities, including public finances in Euro economies and high unemployment. No specific numerical guidance for the full year was provided in this filing.
• Special Items: Results were significantly impacted by a 2010 Restructuring Plan ($87.1 million charge) and an amendment to the retirement policy regarding RSUs ($24.9 million charge). Management believes excluding these items provides a more meaningful comparison of operating performance.
• Liquidity: The company maintains strong liquidity with $704 million in cash and cash equivalents and $258 million in unused credit lines. A new $150 million, three-year revolving credit facility was entered into on April 29, 2010, replacing the prior facility.
• Risks: Key risks include declines in global economic conditions, counterparty credit risk (noting ongoing recovery efforts from the Lehman Brothers collapse), regulatory changes (including potential impacts of financial reform legislation), and the ability to retain key personnel.

Investor Verification Checklist

• Special Items Impact: Verify the non-GAAP reconciliation to understand core operating performance excluding the $112 million in restructuring and RSU charges.
• AUM Trends: Confirm the sustainability of the 54% increase in average AUM, which drove the Asset Management revenue surge.
• Debt Covenants: Review compliance with the new 2010 Credit Facility covenants (max leverage ratio 4.00:1, min interest coverage 3.00:1).
• Restructuring Liability: Monitor the remaining liability of $34.1 million associated with the 2010 Restructuring Plan for future cash outflows.
• Share Repurchases: Note the new $200 million share repurchase authorization; only $1 million was utilized in Q1 2010, leaving $199 million available.