Lazard, Inc. (Lazard Ltd) — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; compared with the same periods in 2021 unless otherwise noted. Lazard provides Financial Advisory and Asset Management services, with other activities reported in Corporate. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net revenue | $726.7M | $717.4M | $2,061.2M | $2,200.7M |
| Operating income | $158.1M | $155.0M | $443.7M | $455.5M |
| Net income attributable to Lazard Ltd | $105.8M | $107.2M | $315.2M | $317.7M |
| Diluted earnings per share | $1.06 | $0.94 | $3.03 | $2.78 |
| Operating margin | 21.8% | 21.6% | 21.5% | 20.7% |
- Q3 advisory fees rose 18% to $454.3M; Asset Management fees, including incentive fees, fell 14% to $279.0M.
- For the first nine months, advisory fees increased 6% to $1,249.1M, while Asset Management fees declined 13% to $863.1M.
- Q3 reported net income was $122.8M, including $17.0M attributable to noncontrolling interests. Nine-month reported net income was $335.4M.
- Adjusted compensation expense was 60.0% of operating revenue in Q3 and 59.0% year to date. Adjusted non-compensation expense was 17.7% and 17.9%, respectively. These are company-defined non-GAAP measures.
Segments and material changes
- Financial Advisory: Net revenue increased 19% in Q3 to $456.5M and 9% year to date to $1,254.6M. Operating income rose to $114.9M in Q3 and $298.2M for nine months. Management cited more advisory fees above $10M. Industry-wide announced and completed M&A activity declined in the first nine months versus 2021.
- Asset Management: Net revenue fell 12% in both Q3 and the first nine months, to $298.8M and $926.4M. Segment operating income declined 30% in Q3 to $65.2M and 28% year to date to $218.8M. AUM was $197.8B at September 30, down 28% from year-end 2021, reflecting market and foreign-exchange depreciation and net outflows.
- AUM flows and markets: Nine-month net outflows were $13.2B; market depreciation was $45.9B and foreign-exchange depreciation was $16.9B. Average AUM declined 24% in Q3 and 14% year to date versus the comparable 2021 periods. AUM was $199.9B on October 21, 2022, up $2.1B from quarter-end, mainly from market appreciation.
- Corporate: Segment net revenue was a loss of $28.6M in Q3 and $119.9M for nine months, compared with losses of $6.3M and $6.1M in 2021. Management attributed the year-to-date deterioration mainly to investment losses related to Lazard Fund Interests (LFI), versus gains in 2021; associated deferred-compensation expense also moved lower.
Cash flow, balance sheet and capital
- Cash provided by operating activities was $519.7M for the first nine months, versus $413.2M in 2021. Investing activities used $32.2M; financing activities used $600.8M. The exchange-rate effect on cash and restricted cash was a negative $353.9M.
- Cash, bank deposits and short-term investments, and restricted cash totaled $2.963B at September 30, including $621.1M of restricted cash. Cash and cash equivalents alone were $1.000B. These totals include restricted funds and customer-related balances and should not be treated as entirely freely available liquidity.
- Senior debt carrying value was $1.687B, with $1.700B principal outstanding. No borrowings were outstanding under the $200M revolving credit facility; approximately $208M in unused credit lines was available. The facility expires in July 2023. Lazard reported compliance with its debt covenants and leverage and interest-coverage tests.
- Total stockholders’ equity was $677.3M, down from $1.078B at December 31, 2021. The change included $612.2M of share repurchases, $138.9M of dividends and $110.5M of other comprehensive loss, partly offset by income and share-based compensation activity.
- The company repurchased 17.25M shares for $612.2M during the first nine months, at an average $35.49 per share. Repurchase authorization remaining at September 30 was $381.7M. The board declared a $0.50 per-share quarterly dividend on October 26, payable November 18, 2022.
Outlook, risks and contingencies
- Management described the environment as uncertain, citing multi-decade-high inflation, rising interest rates and turbulent capital markets. It noted that weak markets can challenge M&A, capital raising and Asset Management, while potentially creating restructuring opportunities.
- No specific quarterly or full-year earnings or revenue guidance is provided in the supplied filing text. Management said operating cash flows should be sufficient to fund current obligations for the next 12 months and reiterated a long-term goal of keeping awarded and adjusted compensation ratios in the mid-to-high 50% range over the cycle; results are not assured.
- Key exposures include transaction timing and M&A activity, market-driven AUM and client flows, foreign exchange, investment valuations, competition for talent, liquidity, third-party credit and operational risks. The filing also describes legal and regulatory proceedings; management did not expect pending matters in aggregate to materially affect the business or financial condition based on information then available.
- Currency translation contributed to a $110.5M nine-month other comprehensive loss. Investment fair-value changes were also significant: unrealized losses on equity and trading debt securities still held were $134.1M for the first nine months of 2022, compared with gains of $6.0M in 2021.
- The filing reported no material change in previously disclosed risk factors, no defaults on senior securities, and effective disclosure controls and procedures.
Important facts for investors to verify
- Whether the sharp decline in AUM and continuing client outflows stabilize, and how market and foreign-exchange movements affect fee revenue.
- Whether Financial Advisory growth persists amid declining industry M&A activity and uncertain transaction completion timing.
- How Corporate investment results, including LFI-related gains or losses and their compensation offsets, affect reported and adjusted earnings.
- Cash availability after distinguishing restricted cash, customer-related balances and regulatory capital from funds available for corporate uses; also monitor the July 2023 revolving facility maturity.
- The ongoing effect of share repurchases and dividends on equity, liquidity and per-share results, alongside the company’s compensation costs and share-based dilution.