Lazard(US:LAZ)2023-07-30 16:00Part I. Financial Information This section presents the company's unaudited financial statements, management's analysis, market risk disclosures, and internal controls Item 1. Financial Statements (Unaudited) This section presents Lazard Ltd's unaudited condensed consolidated financial statements for the periods ended June 30, 2023, including statements of financial condition, operations, cash flows, and notes Condensed Consolidated Statements of Financial Condition Lazard's total assets decreased to $4.60 billion from $5.85 billion, primarily due to reduced cash and deposits, while total liabilities and equity also declined Condensed Consolidated Statements of Financial Condition (in thousands) | | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $4,602,937 | $5,852,561 | | Cash and cash equivalents | $697,756 | $1,234,773 | | Deposits with banks and short-term investments | $446,777 | $779,246 | | Restricted cash | $35,368 | $625,381 | | Receivables, net | $674,558 | $652,758 | | Investments | $690,199 | $698,977 | | Total Liabilities | $4,103,469 | $4,593,691 | | Deposits and other customer payables | $587,838 | $921,834 | | Accrued compensation and benefits | $601,689 | $735,576 | | Senior debt | $1,688,957 | $1,687,714 | | Total Stockholders' Equity | $415,885 | $675,399 | Condensed Consolidated Statements of Operations Lazard reported a net loss of $124.0 million in Q2 2023 and $146.2 million for H1 2023, driven by lower investment banking revenue and increased compensation expenses Condensed Consolidated Statements of Operations (in thousands) | | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $643,114 | $639,546 | $1,185,550 | $1,334,438 | | Investment banking and other advisory fees | $350,104 | $405,091 | $627,512 | $794,830 | | Asset management fees | $271,637 | $269,011 | $533,116 | $584,063 | | Total operating expenses | $753,187 | $513,708 | $1,332,547 | $1,048,872 | | Compensation and benefits | $572,231 | $363,830 | $1,022,198 | $760,671 | | Operating Income (Loss) | ($110,073) | $125,838 | ($146,997) | $285,566 | | Net Income (Loss) Attributable to Lazard Ltd | ($124,013) | $95,480 | ($146,185) | $209,356 | | Diluted EPS | ($1.41) | $0.92 | ($1.68) | $1.97 | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $210.4 million for H1 2023, a reversal from prior year, with financing activities using $1.24 billion due to LGAC redemption Summary of Cash Flows for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(210,422) | $85,101 | | Net cash used in investing activities | $(22,406) | $(19,484) | | Net cash used in financing activities | $(1,244,188) | $(62,174) | | Net Decrease in Cash and Cash Equivalents and Restricted Cash | $(1,459,499) | $(204,524) | - A significant use of cash in financing activities was the $585.9 million distribution to redeemable noncontrolling interests related to the LGAC redemption28 Notes to Condensed Consolidated Financial Statements These notes detail Lazard's accounting policies, including revenue recognition, investments, debt, compensation, cost-saving initiatives, segment performance, and regulatory capital - The company's two primary business segments are Financial Advisory and Asset Management. The Corporate segment handles cash management, investments, and debt4952 - On February 23, 2023, the company's sponsored SPAC, LGAC, was liquidated, resulting in a $585.9 million distribution to shareholders and a $17.9 million loss for Lazard68 - Firm-wide cost-saving initiatives incurred $167.4 million in expenses during H1 2023, primarily for severance and technology asset impairments223224 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's Q2 and H1 2023 performance, highlighting the impact of M&A slowdown, market volatility, and restructuring costs on net loss, alongside liquidity and critical accounting policies - The global M&A market is stabilizing, but completions remained low in H1 2023, with recovery expected to be slow despite increasing board confidence276 - Firm-wide cost-saving initiatives, including office closures, incurred significant expenses in Q2 2023304 Consolidated Operating Results Summary (in thousands) | | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $643,114 | $639,546 | $1,185,550 | $1,334,438 | | Operating Income (Loss) | $(110,073) | $125,838 | $(146,997) | $285,566 | | Net Income (Loss) Attributable to Lazard Ltd | $(124,013) | $95,480 | $(146,185) | $209,356 | Business Segments Financial Advisory reported a $138.1 million operating loss in H1 2023 due to lower M&A revenue, while Asset Management's operating income fell 64% to $55.1 million Segment Operating Income (Loss) - Six Months Ended June 30 (in thousands) | Segment | 2023 | 2022 | | :--- | :--- | :--- | | Financial Advisory | $(138,129) | $183,268 | | Asset Management | $55,087 | $153,590 | | Corporate | $(63,955) | $(51,292) | | Total Operating Loss/Income | $(146,997) | $285,566 | Liquidity and Capital Resources Lazard held $698 million in cash as of June 30, 2023, with $209 million in unused credit lines, and $1.7 billion in senior debt, maintaining sufficient liquidity for the next 12 months - Cash on hand generally declines at the beginning of the year due to incentive compensation payments and builds over the remainder of the year383 - As of June 30, 2023, the company had approximately $698 million of cash and $209 million in unused lines of credit, including a $200 million revolving credit facility385386 Senior Debt Outstanding (in millions) | Senior Debt | Maturity | Principal (June 30, 2023) | | :--- | :--- | :--- | | Lazard Group 2025 Senior Notes | 2025 | $400.0 | | Lazard Group 2027 Senior Notes | 2027 | $300.0 | | Lazard Group 2028 Senior Notes | 2028 | $500.0 | | Lazard Group 2029 Senior Notes | 2029 | $500.0 | | Total | | $1,700.0 | Critical Accounting Policies and Estimates Management identifies critical accounting policies requiring significant judgment, including revenue recognition, credit loss allowances, compensation accruals, income taxes, TRA liability valuation, and goodwill impairment testing - The allowance for credit losses is determined using historical charge-off rates, specific client creditworthiness analysis, and qualitative assessments of economic risks407 - Significant judgment is required for income taxes, particularly in assessing deferred tax asset realizability and valuation allowance needs; an $88 million valuation allowance was recorded as of December 31, 2022411412416 - The Tax Receivable Agreement (TRA) liability revaluation resulted in a $40 million benefit in H1 2023, with an outstanding liability of $119 million as of June 30, 2023423424 Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the 'Risk Management' discussion within the MD&A for quantitative and qualitative disclosures regarding market risk - Disclosures about market risk are located in the MD&A section under the 'Risk Management' heading453 Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting - The CEO and CFO have certified that the company's disclosure controls and procedures are effective as of the end of the reporting period454 - No changes occurred during the quarter that materially affected, or are likely to materially affect, internal control over financial reporting456 Part II. Other Information This section provides additional information including legal proceedings, risk factors, equity repurchases, and exhibits Item 1. Legal Proceedings The company is involved in various legal and regulatory proceedings, but management does not anticipate a material adverse effect on its financial condition from their aggregate outcome - The company believes that the results of any pending legal matters, in aggregate, will not have a material effect on its business or financial condition458 Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022, were reported - No material changes to risk factors were reported for the period459 Issuer Repurchases of Equity Securities Lazard repurchased 5,466 common shares for $0.2 million in Q2 2023, with $203.0 million remaining under the repurchase authorization expiring December 31, 2024 Issuer Repurchases of Equity Securities (Q2 2023) | Period | Total Shares Purchased | Average Price Paid per Share | Purchased as Part of Publicly Announced Program | | :--- | :--- | :--- | :--- | | Total Q2 2023 | | | | | Share Repurchase Program | 5,466 | $31.35 | 5,466 | | Employee Transactions (Tax Withholding) | 115,257 | $30.92 | - | - As of the end of Q2 2023, $203.0 million remained available under the company's share repurchase authorization, which is set to expire on December 31, 2024462464 Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, debt agreements, material contracts, incentive plans, and CEO/CFO certifications - Key exhibits filed include the Second Amended and Restated Credit Agreement dated June 6, 2023, and certifications from the CEO and CFO pursuant to Sarbanes-Oxley Sections 302 and 906474