Lazard(US:LAZ)2023-10-26 16:00Financial Performance - Net revenue for Q3 2023 was $523.9 million, a decrease of $203 million or 28% compared to Q3 2022 [331]. - Operating revenue for Q3 2023 was $531.6 million, down $192 million or 27% from Q3 2022 [328]. - Net revenue decreased by $352 million, or 17%, with operating revenue decreasing by $419 million, or 20%, compared to the 2022 period [339]. - For the nine months ended September 30, 2023, the company reported a net loss attributable to Lazard Ltd of $139 million, compared to net income of $315 million in the same period of 2022 [338]. - The company reported an operating loss of $4.9 million for Q3 2023, compared to operating income of $158.1 million in Q3 2022 [335]. - Earnings from operations decreased by $131 million or 81% year-over-year, with a margin of 5.7% for Q3 2023 compared to 22.3% in Q3 2022 [335]. - For the nine months ended September 30, 2023, the company reported a net loss of $129 million compared to a net income of $335 million in the same period of 2022 [389]. - The effective tax rate for Q3 2023 was 239.5%, significantly higher than 22.4% in Q3 2022 [336]. Revenue Segments - Consolidated net revenue for the third quarter of 2023 was derived from Financial Advisory (51%), Asset Management (54%), and Corporate (-5%) segments, compared to 63%, 41%, and -4% respectively in the same quarter of 2022 [281]. - Financial Advisory revenues are primarily dependent on the successful completion of M&A and restructuring transactions, while Asset Management revenues are driven by levels of assets under management (AUM) [282]. - Lazard's Financial Advisory net revenue is primarily driven by M&A activity, capital raising, and restructuring, with significant fluctuations occurring due to the timing of transactions [296]. - The Asset Management segment's net revenue is influenced by the level and product mix of AUM, which is affected by global equity market performance and client asset flows [297]. - Net revenue for the Asset Management segment for the nine months ended September 30, 2023, was $857.212 million, a decrease of $69 million or 7% compared to the prior year [376]. M&A Activity - Total completed M&A transactions in the first nine months of 2023 decreased by 41% in value to $1,952 billion and by 24% in number to 24,843 deals compared to the same period in 2022 [291]. - The value of announced M&A transactions in the first nine months of 2023 decreased by 29% to $2,120 billion, with the number of transactions down by 20% to 26,820 compared to the same period in 2022 [291]. - Global restructuring activity saw a decrease in corporate defaults, with 119 defaults reported in the first nine months of 2023 compared to 128 in the same period of 2022 [292]. - The company is actively engaged in enhancing its Financial Advisory capabilities by selectively hiring senior professionals despite a lower level of M&A announcements in 2023 [284]. Asset Management - Total Assets Under Management (AUM) increased by $12 billion, or 6%, to $228 billion as of September 30, 2023, compared to $216 billion at December 31, 2022 [361]. - Approximately 84% of AUM was managed on behalf of institutional clients as of September 30, 2023, compared to 85% as of December 31, 2022 [362]. - Equity AUM reached $174.748 billion, with inflows of $17.751 billion and outflows of $21.299 billion, resulting in a net outflow of $3.548 billion [365]. - Fixed Income AUM increased to $45.178 billion, with inflows of $7.178 billion and outflows of $6.407 billion, resulting in a net inflow of $771 million [365]. Operating Expenses - Operating expenses are largely driven by compensation and benefits, with a goal to maintain a ratio of awarded compensation to operating revenue in the mid-to high-50s percentage range [308]. - Adjusted compensation and benefits expense for Q3 2023 was $364.6 million, a decrease of $71 million or 16% compared to Q3 2022 [333]. - Non-compensation expense increased by $16 million or 11% year-over-year, with adjusted non-compensation expense rising by $9 million or 7% [334]. - Non-compensation expense increased by $79 million, or 18%, primarily due to higher travel and business development expenses [342]. Cash Flow and Liquidity - Net cash used in operating activities was $(177) million, a significant decrease from $520 million provided in the same period of 2022 [389]. - The company anticipates cash payments for incentive compensation and other employee termination costs throughout the year, impacting liquidity [394]. - The company’s cash flow from operations is expected to be sufficient to meet its annual obligations for the next 12 months [401]. - As of September 30, 2023, the company had approximately $653 million in cash, including $382 million held outside the U.S. [396]. Shareholder Actions - The company declared a quarterly dividend of $0.50 per share on October 25, 2023, payable on November 17, 2023 [408]. - The company repurchased 2,782,662 shares at an average price of $36.67 during the nine months ended September 30, 2023, compared to 17,249,880 shares at $35.49 in the same period of 2022 [407]. - The company had $200 million of share repurchase authorization remaining as of September 30, 2023, which will expire on December 31, 2024 [407]. Tax and Deferred Assets - Lazard recorded gross deferred tax assets of approximately $598 million as of December 31, 2022, partially offset by a valuation allowance of approximately $88 million [420]. - The cumulative liability relating to Lazard's obligations under the Tax Receivable Agreement (TRA) was $119 million as of September 30, 2023, down from $191 million as of December 31, 2022 [432]. - The allowance for credit losses is determined based on historical charge-off experience and client creditworthiness assessments [415]. Market Conditions - The global macroeconomic environment is improving, with falling inflation and moderating expectations of interest rate hikes, which may stabilize the M&A market [283]. - The competitive landscape remains challenging, with new risks and uncertainties emerging continuously, impacting the company's ability to predict future performance [279].