Yahoo Finance Lazard Ltd (NYSE:LAZ) Q1 2024 Earnings Call Transcript
Lazard Ltd (NYSE:LAZ) Q1 2024 Earnings Call Transcript April 25, 2024
Lazard Ltd beats earnings expectations. Reported EPS is $0.66, expectations were $0.58. LAZ isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning and welcome to Lazard's First Quarter 2024 Earnings Conference Call. This call is being recorded. Currently all participants are in a listen-only mode. following the remarks, we’ll conduct a question-and-answer session. [Operator Instructions]. At this time, I would like to turn the call over to Alexandra Deignan, Lazard’s Head Of Investor Relations, Treasury, and Corporate Sustainability. Please go ahead.
Alexandra Deignan: Thank you, Brittany. Good morning, everyone, and welcome to Lazard’s earnings call for the first quarter of 2024. I'm Alexandra Deignan, head of investor relations, treasury, and corporate sustainability. In addition to today's audio comments, we have posted our earnings release on our website. A replay of this call will also be available on our website later today. Before we begin, let me remind you that we may make forward-looking statements about our business and performance. There are important factors that could cause our actual results, level of activity, performance, achievements, or other events to differ materially from those expressed or implied by the forward-looking statements, including but not limited to those factors discussed in the company's SEC filings, which you can access on our website.
Lazard assumes no responsibility for the accuracy or completeness of these forward-looking statements and assumes no duty to update these forward-looking statements. Today's discussion also includes certain non-GAAP financial measures that we believe are meaningful when evaluating a company's performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP measures is provided in our earnings release and investor presentation. Hosting our call today is Peter Orszag, Lazard’s chief executive officer, and Mary Ann Betsch, Lazard’s chief financial officer. After our prepared remarks, Peter and Mary Ann will be joined by Evan Russo, chief executive officer of asset management, as they open the call for questions. I'll now turn the call over to Peter.
Peter Orszag: Thank you, Ale, and good morning to everyone. As we continue to pursue our long-term objectives, Lazard reported a record first quarter with firm-wide adjusted net revenue of $747 million, an increase of 42% year-over-year. Going into 2024, we anticipated that interest rates would stay higher for longer. During the first quarter, we saw this environment materialize with implications largely as expected. Relative to a world in which interest rates are rising, even stability in rates facilitates increased activity in M&A as buyers and sellers align on valuations and deal financing becomes more readily available. And beyond M&A, approaching debt maturities are interacting with this higher for longer landscape to produce stronger activity in restructuring, liability management, and private capital solutions.
The impact of this market backdrop, along with our focus on growth and increasing productivity, drove record first quarter revenues within our advisory business. At the same time, higher rates increased the appeal of short-term investments, such as T-bills and money market funds, which reduces new allocations into active equity strategies. This effect should dissipate as rates eventually decline and investors put more money to work. Despite the current prolonged higher rate environment, we had solid revenue growth within asset management in the first quarter, and average AUM increased 6% from year end 2023. First quarter performance also reflects continued efforts to further strengthen our platform by delivering excellence in the products we already offer, enhancing our distribution structure and team, and investing in areas of future opportunity.
Lazard's strong first quarter results represent the ongoing execution of our long-term strategic plan and reinforce our belief that 2024 will be a better year for our business. I'll share more on our outlook shortly, but let me first turn the call over to Mary Ann, who will provide further details on the quarter.
Mary Ann Betsch: Thank you. As Peter noted, today we reported record first quarter firm-wide adjusted net revenue of $747 million, up 42% from the year prior. Increase in firm-wide revenue was driven primarily by our financial advisory business. Financial advisory adjusted net revenue was $447 million for the first quarter, up 63% from the first quarter last year. We had strong performance across the U.S. and Europe, which included several large-cap transactions completed during the first quarter, as well as in public and private capital markets and restructuring activity. We saw the pace pick up across deal sizes and geographies, which also contributed to this quarter's revenue growth. Lazard completed a number of marquee transactions in the first quarter, including ImmunoGen's acquisition by AbbVie, CymaBay Therapeutics' acquisition by Gilead, and LXi's merger with LondonMetric.
We also advised on several capital markets listings in Europe, including Galderma's IPO and Sodexo's spinoff and listing of Pluxee, as well as fundraising for Wynnchurch Capital, Rubicon Founders, and McCarthy Capital. Turning to asset management, adjusted net revenue was $276 million for the first quarter, up 1% from the fourth quarter and 4% higher than the first quarter last year. Management fees for the first quarter were up 4% from the fourth quarter and up 3% compared to the first quarter last year, reflecting higher assets under management. As of March 31, we reported AUM of $250 billion, 2% higher than December 31st, 2023, and 8% higher than March 31, 2023. During the quarter, net outflows of $6.6 billion and foreign exchange depreciation of $3.6 billion were more than offset by market appreciation of $14 billion.
Average AUM for the first quarter was $247 billion, up 6% on a sequential basis, and 9% higher than the first quarter of 2023. We continue to have positive and constructive engagement with clients, and we are seeing increased client interest in strong performing strategies across our international and emerging markets platforms and quantitative products. Firm-wide revenue also included corporate revenue of $24 million in the first quarter, consisting primarily of investment gains and interest income, along with a one-time gain on the sale of a legacy investment. Now turning to expenses, for the first quarter of 2024, our adjusted compensation expense was $493 million, equating to a ratio of 66%. This compares to 75.7% for the first quarter one year ago.
For the first quarter, our adjusted Non-Compensation expense was $134 million, 6% lower than the prior year, equating to a ratio of 18% compared to 27% the year prior. The year-over-year decrease was primarily due to lower professional services fees and other expenses, partially offset by higher travel expenses. During the first quarter, we completed our target headcount reduction of 10%, which has been in progress since April of last year. We remain focused on expense management while making targeted investments in the business. Shifting to taxes, our adjusted effective tax rate for the first quarter was 32.6%, compared to 32.1% for the first quarter of 2023. We currently expect our full-year tax rate to be in the high 20% range. Turning to capital allocation, in the first quarter of 2024, we returned $121 million to shareholders, including a quarterly dividend of $44 million, share repurchases of $22 million, and $56 million in satisfaction of employee tax obligations.
Year-to-date, we have repurchased 958,000 shares, and we have remaining authorization available for $163 million. Additionally, yesterday we declared a quarterly dividend of $0.50 per share. We remain committed to balancing investments and growth with the return of capital to our shareholders. Finally, during the quarter, we refinanced a portion of our debt by issuing $400 million in seven-year senior notes at a 6% coupon. Now I'll turn the call back to Peter.
Peter Orszag: Thank you, Mary Ann. Our outlook for a productive 2024 is reinforced by our strong first quarter results and is further supported by several factors. As we have said before, in financial advisory, the tailwinds behind transactions include powerful factors, such as innovation in technology, energy transition, the biotech revolution, and the shift of supply chains as companies de-risk. These tailwinds continue to propel M&A activity. Meanwhile, headwinds have generally diminished in force over the past few quarters. During the first quarter, market expectations became more closely aligned with the higher-for-longer rate environment, reducing a source of mispricing risk in the markets. In addition, the difficulty of finding financing when rates were rising has largely abated, and the government's deterrence effect on regulatory matters has weakened in the wake of recent court decisions.
While many headwinds have tapered, geopolitical concerns remain top of mind, with significant focus on the potential for escalation and spillovers from the ongoing conflict in Ukraine and the Middle East. These concerns result in increased client demand for our geopolitical advisory team and, in general, are more than offset by the fading of other headwinds. Overall, the interplay between these tailwinds and headwinds remains a shift towards a more constructive market environment. This shift is occurring alongside our effort to increase revenue per MD, which is trending well. The combined effect of the market and our own efforts is ongoing momentum and fairly widespread M&A activity, including in health care, industrials, tech, and energy across both North America and Europe.
We have also significantly expanded our connectivity to private capital, which is another growing source of strength. Various efforts across sponsor coverage, capital solutions, fundraising, and structuring liability management increasingly build on one another and attract new business opportunities. In liability management specifically, conversations with clients are growing as they seek innovative ideas to address approaching debt maturities. While historically we've been more debtor-focused, we've invested over the past few years to evolve our restructuring and liability management practice, and we now cover both creditors and debtors quite effectively. Finally, attracting world-class talent to Lazard remains a top priority for financial advisory.
We are pleased to have hired four new managing directors during the first quarter and this month, with ongoing productive recruiting conversations underway. Turning to asset management, we continue to strengthen our platform and pursue excellence in our core strategies and products as we evolve into newer areas of opportunity. Clients look to us to deliver solutions that help diversify and manage risk in their portfolios, and we remain focused on enhancing performance and distribution to strengthen the core strategies, products, and areas that meet our existing client demand. Examples include recently refreshing the depth and expertise of our US. equity team and welcoming a new head of our Japan business as we expand client engagement and distribution efforts more broadly across Asia-Pacific markets.
As I mentioned earlier, the current interest rate environment means that across the investment industry, cash is accumulating on the sidelines. Investors are patient given current short-term yields and are looking to be opportunistic about returning to risk markets. This environment will eventually shift as central banks move to reduce rates, and our ongoing efforts to strengthen the current platform support our ability to capture demand when cash is put back to work and investors look to diversify. As we evolve the business into newer areas of opportunity, we completed our initial investment in a strategic partnership with Alaya Partners in Paris. The result is a new asset management client offering that provides private market solutions within the technology industry.
This partnership reflects our long-term strategic plan to meet future client opportunities by providing private market, alternative investment, and wealth management solutions, balanced with investing in the strategies we believe will be most attractive within liquid public markets in the years to come. As evidenced by our strong first quarter results, we continue to make progress towards Lazard 2030 and our long-term strategic objective to double firm-wide revenue and deliver an average annual shareholder return of between 10% and 15% through 2030. In pursuit of enhancing insights for clients and increasing overall firm efficiency over time, we are actively exploring and deploying generative AI, and we believe that 2024 will be a critical transition year to a new way of conducting business in both financial advisory and asset management.
We are excited about the prospects for serving our clients even more effectively while freeing internal resources for higher value-added activities as the technology evolves. In addition, our re-energized focus on brand and culture is resulting in increased client conversations and new business opportunities. Through insightful research and unique convening events, we are building on our highly regarded brand and further enhancing our relevance for clients. And a high degree of enthusiasm across the firm to aim higher together is reinforcing our increasingly commercial and collegial culture. Importantly, it is when risks and opportunities are most complex that business, investment leaders, and government reach out to Lazard. Our global network, intellectual capital, and long history of collective experience and knowledge continue to further our unwavering mission to provide the most sophisticated and differentiated advice and investment solutions for our clients.
Now let's open the call to questions.
Operator: Thank you. [Operator Instructions] We'll take our first question from Steven Chubak from Wolfe Research. Your line is open.
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