Lazard, Inc. Q3 FY2024 earnings call

• Financial Advisory: Achieved strong year-over-year performance in Europe in Q3 and record revenue in Americas YTD. Restructuring and liability management contributed to revenue growth. M&A activity rebounded with M&A announced volume up over 20% in the first three quarters of 2024. Private equity active with high holding periods, and private markets interactions revenue up over 50% YTD.
• Asset Management: Delivered solid results while strengthening the platform. Hired senior leadership for asset management as global head of ETF. Launched Lazard Global Listed Infrastructure Active ETF in Australia. AUM at $248B as of 9/30/2024, with market/appreciation and outflows noted. Core and specialty products like global listed infrastructure, Japanese equities saw strong performance.
• Culture and People: Employee engagement surveys showed substantial improvements, best results since launching surveys, reflecting colleagues' commitment.
• Hiring and Talent: Hired 16 new Managing Directors in financial advisory, investing in talent and technology, including implementing AI tools for research, content creation, etc.

Financial Advisory: Third quarter adjusted net revenue was $369 million, up 41% from the same period last year. For the first nine months of 2024, financial advisory adjusted net revenue was $1.2 billion, up 39% year-over-year. It contributed significantly to firm-wide revenue growth. Asset Management: Third quarter adjusted net revenue was $272 million, up 4% compared to the third quarter last year. Management fees for the third quarter were $269 million, up 3%. As of September 30, 2024, assets under management (AUM) were $248 billion, 8% higher than September 2023.

• Anticipate comp ratio at or below 60% in 2025 if market recovery continues and recruiting meets Lazar 2030 plan.
• Expect M&A activity to strengthen, asset management to benefit from rate cuts and risk-oriented active management.
• Returned $51 million to shareholders in Q3, including a quarterly dividend of $0.50 per share declared, with $356 million share repurchase authorization remaining.

• Geopolitical risks impacting business decisions.
• Uncertainty in market environment affecting operating leverage.
• Idiosyncratic client flows impacting asset management fee rates.

Q: Drill down on comp ratio commentary and revenue growth needed to get to below 60%.

A: Market development as anticipated and hiring consistent with Lazar 2030 plan are needed. If market develops as expected and hiring stays on baseline, comp ratio can be below 60%; additional talent hires could accelerate but may slightly affect comp ratio.

Q: Expense side flexibility for comp leverage.

A: Substantial operating leverage from expanded activity levels, especially raising managing director productivity levels. Non-MD expenses don't vary much with MD productivity, so higher productivity drives comp ratio down.

Q: Emerging market equities interest driver.

A: Clients have been under-allocated, rate cuts, and more appealing valuation levels for global and emerging market equities support demand.

Q: M&A environment divergence between US and Europe.

A: US macro more auspicious than Europe due to structural challenges, but sectoral trends matter; Lazard's deep local roots in both markets are beneficial.

Q: Advisory recovery and normalization.

A: More upside potential due to deep roots in US and Europe, sector focus in Lazar 2030 plan, and private capital infrastructure expanding.

Q: C Corp conversion impact.

A: Positive reaction, opening to new investors, with oversubscribed IR conferences and new investors like Capital Group showing interest. Index inclusion could be additional upside.

Q: Asset management fee rate impact from large outflow.

A: The large outflow was idiosyncratic; the client's strategy and size caused lower fee rate, but it's not reflective of steady state. Business mix is key driver.

Q: Comp ratio and deferred comp in 4Q.

A: Best estimate ratio at current point, unlikely to pick up significantly; intent to manage deferrals to help reach comp ratio target.

Q: Asset management organic growth trends.

A: Slower growth inflows due to rate environment, lumpy and choppy until year end as allocations adjust; gross inflows expected to rebound next year as yields fall.

Q: Non-comp growth trajectory.

A: Third quarter is typically light, fourth quarter heavy seasonally. Disciplined cost cuts offset growth-related increases, full-year non-comp likely tick up slightly.