Lazard(LAZ) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported operating revenue of $532 million for Q3 2023, a 27% decrease from Q3 2022. For the first nine months, operating revenue was$ 1.7 billion compared to $2.1 billion in the same period last year [9][12] - The effective tax rate for Q3, as adjusted, was 8.4%, down from 25.1% in the prior year quarter. The full-year tax rate is projected to be in the low to mid-teens [14][60] Business Line Data and Key Metrics Changes - Financial Advisory revenue for Q3 was$ 261 million, with a total of $879 million for the first nine months, impacted by a slowdown in M&A activity [9][34] - Asset Management revenue was$ 794 million for the first nine months of 2023, reflecting a 5% decrease from the prior year, with average AUM for Q3 at $236 billion, an 11% increase year-over-year [12][13] - The Global Restructuring and Liability Management Group reported strong performance, with operating revenue increasing both sequentially and year-over-year [11] Market Data and Key Metrics Changes - AUM as of September 30 was$ 228 billion, down 5% from June 30, 2023, but up 15% from September 30, 2022, driven by market depreciation and net outflows [120] - The company noted increased interest in cross-border M&A activity, particularly among European companies seeking to acquire U.S. assets [22][34] Company Strategy and Development Direction - The company aims to double revenue firm-wide by 2030, with growth expected to be evenly split between Asset Management and Financial Advisory, targeting double-digit annual growth [21][37] - Lazard plans to convert its current structure to a U.S. corporation (C-Corp) to simplify tax reporting and enhance shareholder ownership [23][60] - The company is focusing on expanding its presence in sectors such as technology, industrials, power and energy, and healthcare, while also enhancing its geopolitical advisory services [22][39] Management's Comments on Operating Environment and Future Outlook - Management believes the M&A cycle is turning, with signs of stabilization and potential recovery in deal activity, particularly in financial institutions, healthcare, and energy transition sectors [10][34] - The company is optimistic about future growth, emphasizing the importance of geopolitical insights in business decisions [39][84] Other Important Information - The company is progressing on cost-saving initiatives, aiming for a 10% reduction in headcount by Q1 2024 [14][34] - A quarterly dividend of $0.50 per share was declared [33] Q&A Session Summary Question: Concerns about Asset Management growth - Management emphasized that growth is not just about AUM accumulation but enhancing shareholder value through high-return growth strategies [44][45] Question: C-Corp conversion details - Management discussed the benefits of conversion, including simplified tax reporting and potential increased liquidity for shares, with a projected low single-digit increase in effective tax rate post-conversion [48][69] Question: Milestones for 2030 goals - Management indicated that milestones will be shared when there are actionable proof points, focusing on revenue, earnings, and expansion in growth areas [50][51] Question: Impact of U.S. elections on business - Management noted that while the U.S. elections may generate demand for geopolitical insights, it is not expected to significantly impact the business trajectory [84][101] Question: Financing for potential acquisitions - Management highlighted the cash-generative nature of their businesses and various financing options available for acquisitions, including equity and earn-outs [65][102]