Lazard(LAZ) - 2020 Q1 - Quarterly Report

FORM 10-Q Filing Information Provides key administrative details of the quarterly report, including registrant information and common stock outstanding - Quarterly Report filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the period ended March 31, 2020[2] - Registrant: LAZARD LTD, incorporated in Bermuda, with Commission File Number 001-32492[2] Securities Registered | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------ | :---------------- | :---------------------------------------- | | Class A Common Stock | LAZ | New York Stock Exchange | - As of April 24, 2020, there were 112,766,091 shares of common stock outstanding[4] TABLE OF CONTENTS Outlines the structure and page references for all sections of the Form 10-Q filing PART I. FINANCIAL INFORMATION Presents the unaudited financial statements and management's analysis of Lazard's financial performance and condition Item 1. Financial Statements (Unaudited) This section presents Lazard Ltd's unaudited condensed consolidated financial statements for the three months ended March 31, 2020, and 2019, along with comparative December 31, 2019 data, highlighting key financial changes and notes Condensed Consolidated Financial Highlights (Q1 2020 vs. Q1 2019/Dec 31, 2019) | Metric | Mar 31, 2020 ($ thousands) | Dec 31, 2019 ($ thousands) | Mar 31, 2019 ($ thousands) | Change (Q1 2020 vs Q1 2019) | Change (Q1 2020 vs Dec 31, 2019) | | :------------------------------------ | :------------------------- | :------------------------- | :------------------------- | :--------------------------- | :----------------------------- | | Statements of Financial Condition: | | | | | | | Total Assets | 5,095,123 | 5,639,581 | N/A | N/A | (9.66)% | | Total Liabilities | 4,535,506 | 4,958,007 | N/A | N/A | (8.52)% | | Total Stockholders' Equity | 559,617 | 681,574 | N/A | N/A | (17.89)% | | Cash and cash equivalents | 793,477 | 1,231,593 | N/A | N/A | (35.57)% | | Accrued compensation and benefits | 338,913 | 602,777 | N/A | N/A | (43.80)% | | Statements of Operations (3 months): | | | | | | | Total Revenue | 558,157 | N/A | 661,678 | (15.65)% | N/A | | Net Revenue | 538,014 | N/A | 643,674 | (16.42)% | N/A | | Operating Income | 84,097 | N/A | 119,663 | (29.73)% | N/A | | Net Income Attributable to Lazard Ltd | 64,022 | N/A | 97,042 | (34.03)% | N/A | | Diluted EPS | 0.56 | N/A | 0.80 | (30.00)% | N/A | | Effective Tax Rate | 30.6% | N/A | 19.4% | 11.2 ppt | N/A | | Statements of Cash Flows (3 months): | | | | | | | Net cash used in operating activities | (155,976) | N/A | (161,251) | 3.27% | N/A | | Net cash used in investing activities | (11,942) | N/A | (5,801) | (105.86)% | N/A | | Net cash used in financing activities | (310,178) | N/A | 93,572 | (431.49)% | N/A | | Net decrease in cash and cash equivalents and restricted cash | (539,947) | N/A | (103,220) | (423.10)% | N/A | - Adoption of new accounting guidance on credit losses (CECL) on January 1, 2020, resulted in a $7.575 million cumulative-effect adjustment to retained earnings[44] - Total share-based incentive awards expense was $72.161 million in Q1 2020, down from $84.681 million in Q1 2019[147] - The Tax Receivable Agreement obligation decreased to $221.787 million at March 31, 2020, following a $25.557 million payment in Q1 2020[198] - All regulatory subsidiaries were in compliance with their minimum regulatory capital requirements as of March 31, 2020[207] - The COVID-19 pandemic is expected to create a challenging near-term environment due to elevated uncertainty, market volatility, lower asset valuations, and a downturn in global M&A activity[217] Condensed Consolidated Statements of Financial Condition Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Changes in Stockholders' Equity Notes to Condensed Consolidated Financial Statements 1. Organization and Basis of Presentation 2. Recent Accounting Developments 3. Revenue Recognition 4. Receivables 5. Investments 6. Fair Value Measurements 7. Derivatives 8. Property 9. Goodwill and Other Intangible Assets 10. Senior Debt 11. Commitments and Contingencies 12. Stockholders' Equity 13. Incentive Plans 14. Employee Benefit Plans 15. Business Realignment 16. Income Taxes 17. Net Income Per Share of Common Stock 18. Related Parties 19. Regulatory Authorities 20. Segment Information 21. Consolidated VIEs 22. COVID-19 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Lazard's financial condition and results of operations for the three months ended March 31, 2020, highlighting the significant impact of the COVID-19 pandemic and strategic responses - The COVID-19 pandemic has created unprecedented volatility and is expected to result in a challenging near-term environment due to elevated uncertainty, capital markets volatility, lower asset valuations, and a downturn in global M&A activity[217][233] - Financial Advisory expects increased activity in restructuring, capital advisory, and sovereign advisory, but a severe impact on M&A volume and timing in the near term[236] - Asset Management anticipates negative impacts from capital market volatility, but is developing new investment strategies, including ESG and AI capabilities[237] Global M&A and Restructuring Activity (Q1 2020 vs. Q1 2019) | Metric | Q1 2020 | Q1 2019 | Change | | :------------------------------------ | :------ | :------ | :----- | | Completed M&A Transactions: | | | | | Value ($B) | 653 | 939 | (30)% | | Number | 7,679 | 8,707 | (12)% | | Announced M&A Transactions: | | | | | Value ($B) | 689 | 1,072 | (36)% | | Number | 8,021 | 8,722 | (8)% | | Corporate Defaults (Number): | 28 | 20 | 40% | - Major equity market indices generally decreased in Q1 2020 compared to prior periods (e.g., MSCI World Index down 21% vs. Dec 31, 2019), directly impacting Asset Management's AUM and revenues[246] Consolidated Financial Performance (Q1 2020 vs. Q1 2019) | Metric | Q1 2020 ($ thousands) | Q1 2019 ($ thousands) | Change | | :------------------------------------ | :-------------------- | :-------------------- | :----- | | Net Revenue | 538,014 | 643,674 | (16)% | | Operating Income | 84,097 | 119,663 | (30)% | | Net Income Attributable to Lazard Ltd | 64,022 | 97,042 | (34)% | | Effective Tax Rate | 30.6% | 19.4% | 11.2 ppt | | Adjusted compensation and benefits expense as % of operating revenue | 60.0% | 57.5% | 2.5 ppt | | Adjusted non-compensation expense as % of operating revenue | 20.0% | 18.7% | 1.3 ppt | Segment Operating Results (Q1 2020 vs. Q1 2019) | Segment | Net Revenue Q1 2020 ($ thousands) | Net Revenue Q1 2019 ($ thousands) | Operating Income Q1 2020 ($ thousands) | Operating Income Q1 2019 ($ thousands) | | :----------------- | :-------------------------- | :-------------------------- | :----------------------------- | :----------------------------- | | Financial Advisory | 298,966 | 338,370 | 52,119 | 58,109 | | Asset Management | 282,521 | 301,833 | 77,752 | 94,485 | | Corporate | (43,473) | 3,471 | (45,774) | (32,931) | - Total AUM at March 31, 2020, was $193 billion, a decrease of 22% from $248 billion at December 31, 2019, due to market depreciation, net outflows, and foreign exchange depreciation[297] - Net decrease in cash and cash equivalents and restricted cash was $540 million in Q1 2020, primarily driven by net cash used in financing activities[315] - As of March 31, 2020, Lazard had approximately $793 million in cash and cash equivalents and $168 million in unused lines of credit, and was in compliance with all debt covenants[324][325][327] - The company repurchased 2,912,035 shares of common stock for $95.2 million in Q1 2020, with $305.6 million of share repurchase authorization remaining[336] Forward-Looking Statements and Certain Factors that May Affect Our Business Business Summary Business Environment and Outlook Financial Advisory Asset Management Financial Statement Overview Consolidated Results of Operations Business Segments Financial Advisory Results of Operations Asset Management Results of Operations Corporate Results of Operations Cash Flows Liquidity and Capital Resources Critical Accounting Policies and Estimates Revenue Recognition Compensation Liabilities Income Taxes Amended and Restated Tax Receivable Agreement Investments Assets Under Management Goodwill Consolidation Risk Management Investments Risks Related to Receivables Credit Concentrations Risks Related to Derivatives Risks Related to Cash and Cash Equivalents and Corporate Indebtedness Operational Risk Recent Accounting Developments Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the "Risk Management" discussion within Management's Discussion and Analysis of Financial Condition and Results of Operations for detailed quantitative and qualitative disclosures regarding market risk exposures - Quantitative and qualitative disclosures about market risk are included under the "Risk Management" section of MD&A[392] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal control over financial reporting during the quarter - Disclosure controls and procedures were effective as of March 31, 2020[393] - No material changes in internal control over financial reporting occurred during the quarter[394] PART II. OTHER INFORMATION Contains disclosures on legal proceedings, risk factors, equity sales, and other required information not covered in Part I Item 1. Legal Proceedings The company is routinely involved in various judicial, regulatory, and arbitration proceedings, with management believing the aggregate outcome will not materially affect its business or financial condition - Company is involved in judicial, regulatory, and arbitration proceedings in the ordinary course of business[397] - Management believes the aggregate outcome of pending legal matters will not have a material effect on business or financial condition[397] Item 1A. Risk Factors This section introduces a new risk factor concerning the material adverse effects of the COVID-19 pandemic on Lazard's business, financial condition, and results of operations, including economic downturn, market volatility, and operational challenges - The COVID-19 pandemic is a new risk factor with potential material adverse effects on Lazard's business, financial condition, and results of operations[399] - Pandemic has led to an economic downturn, global financial market volatility, and potential decreases in M&A volume and AUM[400] - Remote work arrangements may result in reduced productivity, communication limitations, and heightened risks of operational interruptions and security breaches[401][403] - Increased credit risk due to potential counterparty defaults in the financial services industry[400] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details Lazard's equity repurchase activities during the first quarter of 2020, including shares repurchased under its program and shares withheld for tax purposes Common Stock Repurchases (Q1 2020) | Category | Shares Purchased | Average Price Per Share | Total Value ($ thousands) | | :-------------------------- | :--------------- | :---------------------- | :------------------------ | | Share Repurchase Program | 2,912,035 | $32.70 | 95,227 | | Employee Transactions (Tax Withholding) | 1,712,378 | $38.97 | N/A | - As of March 31, 2020, $305.6 million of share repurchase authorization remained available[407] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the three-month period ended March 31, 2020 - No defaults upon senior securities were reported[410] Item 4. Mine Safety Disclosures This item is not applicable to Lazard Ltd - Not applicable[411] Item 5. Other Information No other information was reported under this item for the period - No other information was reported[412] Item 6. Exhibits This section lists all documents filed as exhibits to the Form 10-Q, including organizational documents, debt indentures, incentive compensation plans, and required certifications - Exhibits include organizational documents (Certificate of Incorporation, Bye-Laws), debt indentures, incentive compensation plans (2005, 2008, 2018), and Rule 13a-14(a) and Section 1350 certifications[416][417][418] SIGNATURES Confirms the official submission of the Form 10-Q by authorized financial officers - Report signed on May 4, 2020, by Evan L. Russo (Chief Financial Officer) and Dominick Ragone (Chief Accounting Officer)[421]