Lazard(LAZ) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the first nine months of 2025, total firm-wide revenue was $2.1 billion, including record Financial Advisory revenue of $1.3 billion [4] - Third-quarter firm-wide revenue reached $725 million, up 12% year-over-year, driven by both business segments [8] - Financial Advisory revenue for the third quarter totaled $422 million, up 14% from the previous year [8] - Asset Management revenue for the third quarter was $294 million, an increase of 8% year-over-year and 10% sequentially [9] Business Line Data and Key Metrics Changes - Financial Advisory was active in M&A across healthcare, industrials, and consumer sectors, with notable transactions including Mallinckrodt Pharmaceuticals' $6.7 billion deal [8] - Asset Management saw record gross inflows for the third quarter, with total AUM increasing by 17% year-to-date [6][10] - Management fees for Asset Management increased by 6% year-over-year, while incentive fees rose to $9 million from $3 million [9][10] Market Data and Key Metrics Changes - The company reported net positive flows of $1.6 billion year-to-date in Asset Management, with AUM reaching $265 billion, a 7% increase from both September 2023 and June 2023 [10] - The effective tax rate for the third quarter was 21.4%, down from 32.5% in the same quarter last year [12] Company Strategy and Development Direction - The company is focused on long-term growth strategies, including expanding its team of Financial Advisory Managing Directors and enhancing productivity [15][20] - The introduction of new active ETFs and a focus on quantitative and emerging market strategies are part of the Asset Management growth strategy [17][18] - The company aims to double firm-wide revenue from 2023 to 2030 and deliver an average annual shareholder return of 10% to 15% [20][21] Management's Comments on Operating Environment and Future Outlook - Management sees an increasingly constructive environment for advisory activity, despite potential impacts from the U.S. government shutdown [13][14] - The company anticipates continued growth in both M&A and restructuring activities, driven by a diverse range of client needs [14][16] - Management expressed confidence in achieving or exceeding productivity goals, with average revenue per Managing Director increasing to nearly $9 million [15] Other Important Information - The company returned $60 million to shareholders in the third quarter, including a quarterly dividend of $47 million [12] - Chris Hogan will join as CEO of Lazard Asset Management in December, expected to accelerate growth [6][18] Q&A Session Summary Question: Hiring environment and talent retention - Management noted strong success in attracting high-quality talent and minimal regrettable departures, indicating a healthy Managing Director pool [25][26] Question: Recent success in Asset Management net inflows - Inflows are primarily from quantitative strategies and emerging markets, with a strong geographic mix outside the U.S. [30][31] Question: Trends in gross outflows - Gross outflows have decreased compared to last year, particularly from sub-advised accounts, with a more promising trajectory outside that category [40] Question: Operating leverage and achieving 60% comp ratio - Management is confident in achieving operating leverage in 2026, driven by improved productivity and strategic hiring [42] Question: Secondary market outlook - The company expects strong trends in the secondary market to continue, with no signs of slowing down [84] Question: Fee rates on inflows and outflows - A small increase in average fee rates was noted, with expectations for stability in the near term [86]