Lazard, Inc. — 2023 Form 10-K Summary
Business context and reporting period
Reports the fiscal year ended December 31, 2023; the filing does not provide a separate fourth-quarter financial summary. Lazard operates globally through Financial Advisory, Asset Management and a Corporate segment. On January 1, 2024, it converted from a Bermuda exempted company, Lazard Ltd, to a Delaware C-corporation, Lazard, Inc.; the reported 2023 results are for the pre-conversion company.
Financial and operating metrics
| Metric | 2023 | 2022 |
|---|---|---|
| Net revenue | $2.515 billion | $2.774 billion |
| Operating income (loss) | $(80) million | $517 million |
| Net income (loss) attributable to Lazard | $(75) million | $358 million |
| Basic and diluted EPS | $(0.90) | $3.68 basic; $3.51 diluted |
| Operating cash flow | $165 million | $834 million |
| Adjusted earnings from operations (non-GAAP) | $166 million; 6.8% of operating revenue | $594 million; 21.5% |
- Financial Advisory revenue was $1.385 billion, down 17%; segment operating loss was $105 million, versus $361 million operating income in 2022.
- Asset Management revenue was $1.151 billion, down 4%; segment operating income was $140 million, down 42%, and its operating margin declined to 12.2% from 20.0%.
- Assets under management were $246.7 billion at year-end, up 14% from $216.1 billion. Appreciation and foreign exchange gains more than offset net outflows of $3.5 billion; average AUM increased 2%.
- Cash and cash equivalents were $971 million; deposits with banks and short-term investments were another $220 million, and restricted cash was $34 million. Total cash, deposits and restricted cash fell to $1.225 billion from $2.639 billion.
- Senior debt was $1.7 billion, with maturities of $400 million in 2025, $300 million in 2027, and $500 million each in 2028 and 2029. Lazard had no revolver borrowings and approximately $209 million of unused credit lines. Management said available liquidity should fund obligations for the next 12 months.
- Total stockholders’ equity was $482 million, down from $675 million. The board declared a $0.50-per-share quarterly dividend in January 2024.
Material changes versus 2022
- Net revenue fell 9%, while operating results swung from $517 million of operating income to an $80 million loss. Advisory fees declined $275 million, and Asset Management fees, including incentive fees, declined $48 million.
- Compensation and benefits expense rose 17% to $1.946 billion; non-compensation expense rose 15% to $693 million. Adjusted compensation expense was $1.703 billion, and its ratio to operating revenue increased to 69.8% from 59.8%. Management’s stated through-cycle target is the mid-to-high 50% range.
- Global completed M&A transaction value declined 32% and transaction count declined 23%. Lazard completed 47 M&A transactions valued above $500 million, compared with 91 in 2022.
- Year-end AUM rebounded with market appreciation after the prior-year decline, but net client flows remained negative. Incentive fees decreased to $30 million from $67 million.
- Operating cash flow decreased substantially; financing activities used $1.571 billion, including customer deposit withdrawals, the $586 million LGAC shareholder redemption, dividends and share repurchases.
Outlook, commentary, risks and unusual items
- Management described improving macro conditions and positive capital-market trends, with Financial Advisory M&A activity strengthening and financing, valuation and regulatory headwinds easing. It said 2024 could bring higher M&A activity alongside restructuring demand as rates remain high and debt maturities approach. No numerical earnings or revenue guidance was provided.
- Management expects the U.S. C-corporation conversion to increase the effective tax rate. It believes the change may broaden the shareholder base and improve liquidity, but cautions that benefits may not occur or offset conversion costs.
- Firm-wide cost-saving initiatives generated approximately $200 million of expenses and losses in 2023, including $182 million of severance and employee termination costs. Management said initiatives would continue through Q1 2024; approximately $40 million of additional compensation expense was incurred in Q1 2024, with most remaining severance-related payments expected through the first half of 2024.
- LGAC liquidated in February 2023 after failing to complete a business combination; Lazard recorded a $17.9 million loss. A $20.1 million deferred underwriting-fee liability was reversed.
- Key risks include cyclical transaction activity and fee volatility, competition for clients and talent, AUM market and flow changes, foreign-exchange exposure, regulation and litigation, cybersecurity and operational disruptions, and the ability of subsidiaries to distribute funds to service holding-company obligations. Approximately 64% of year-end AUM had foreign-currency exposure.
- Lazard reported pending legal and regulatory matters but said, based on currently available information, their aggregate outcome was not expected to 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 advisory activity and transaction completions recover in 2024, and whether restructuring fees offset any M&A weakness.
- Whether AUM growth persists after separating market and currency appreciation from client net flows, and whether investment performance supports retention and new mandates.
- Progress and cash costs of the cost-saving program, including whether expenses and severance payments remain elevated in 2024.
- The post-conversion effective tax rate, conversion costs and realized shareholder-base or liquidity benefits.
- Liquidity and cash-flow trends, customer deposit movements, and the plan for the $400 million senior-note maturity in 2025.
- The drivers of the 2023 GAAP loss and the non-GAAP adjusted operating measure; adjusted earnings are not a substitute for GAAP results.