Lazard, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Peter Orszag noted first quarter performance was solid with high client engagement and diversified business model. Financial advisory had increased global market share in announced transactions, with private capital revenue over 40% of total. Asset management saw improvement in flows with large wins in strategic areas. Announced partnerships in Europe, expansion in Middle East, and launched first active ETF product set in US.
• Mary Ann Betsch discussed financial advisory results with recent transactions and assignments, and asset management revenue details, AUM, and new business wins.
• Peter Orszag talked about geopolitical advisory group, addition of Patrick McHenry, recruitment in financial advisory, plans to expand ETF offerings in asset management, and welcomed new board member.

Segment Performance

• Financial Advisory: First quarter financial advisory adjusted net revenue was $370 million, 17% lower than the prior year. Over the past twelve months, revenue associated with private capital was over 40% of total financial advisory revenue. Recently announced transactions include Mallinckrodt Pharmaceuticals' $6.7 billion combination with Endo Pharmaceuticals, etc. Completed transactions include CD&R's €16 billion acquisition of a controlling stake in Sanofi's consumer health unit.
• Asset Management: Adjusted net revenue was $264 million for the first quarter of 2025, a decrease of 4% from the prior year quarter. Management fees were $206 million, down 1% from the prior quarter. Incentive fees totaled $9 million driven by strong performance in credit fixed income and Japanese equity strategies. As of March 31st, AUM was $227 billion, up from the previous quarter. Recently won new business includes a Swiss client funding $390 million into Emerging Markets Equity Advantage, etc.

Guidance

• Peter Orszag noted backlog in financial advisory is growing but dependent on tariff regime clarity. Comp ratio of 65.5% for first quarter, with 60% target dependent on market conditions. Asset management sees continued growth in secondaries market and balanced flow picture with elevated one but not funded mandates.

Risks

• Uncertainty around tariff regime which could impact M&A and private equity transactions.
• Market gyrations affecting valuation comparables for private companies.
• Disruptions in leveraged loan and high yield markets affecting private equity transactions.

Question and Answer

Q: Great. Good morning, and thanks for taking my questions. So, Peter, positive commentary on the backlog. That is great to hear. It sounds like it is growing and broad-based. Maybe just within the backlog, are you seeing a higher level than normal of M&A deals dropping out? So despite seeing the growth underneath the surface, are there some M&A deals that are actually dropping? And then do you see risk of that picking up at all?

A: Sure. So look. In any normal environment, you see some deals get pushed out, some deals get accelerated, deals go sideways. I would not say that we have seen an elevated level of that, but it bounces around from quarter to quarter. And I note, as I pointed out, that even within M&A, our backlog continues to expand. I also want to immediately emphasize that the degree to which that will continue is very path dependent, and depends on what happens during this ninety-day window to hopefully resolve the uncertainty over the tariff regime in particular. So that is point one. Point two is that we have a very diversified business model at this point across M&A, non-M&A, across public companies, private companies, across the US and Europe. And that ability to or that set of capabilities and geographic diversification means that we have the ability to escape to where opportunities are with our clients in a rapidly evolving environment. So point one is M&A market ring, but will be subject to challenges if the tariff regime is not clarified during this ninety-day window. And point b is we have a lot of products and strategies and services that we offer to our advisory clients beyond M&A.

Q: Okay. That is very clear. Thank you. Maybe just could you speak a little bit to the dynamics within restructuring? Could you talk about how trends have evolved in terms of separately liability management versus Chapter 11 and bankruptcy? And then the outlook for both these components. And then finally, maybe just how quickly could Chapter 11 potentially pick up if we were to see a weaker macro backdrop?

A: Sure. So I do think this is an important change in the marketplace. We have retooled our group to handle both restructuring through Chapter 11 and liability management mandates. Also serve both debtors and creditors more evenly, and when you look at the mix of our revenue mix within that group, it is a much more diversified debtor-creditor mix. And then specifically on your question, as private capital has become more dominant, both private equity and private credit, the tendency to do liability management as opposed to a formal Chapter 11 process has increased. And so we would anticipate that that will continue because the role of private capital is more dominant today than it was a decade or two ago. That is not to say there will not be formal Chapter 11 processes for some firms, but I do think the mix of business will continue to be disproportionately in the liability management camp.

Q: Oh, great. Thank you. I wanted to shift gears maybe to asset management. Peter, you mentioned previously that, you know, you are entering the year with, you know, 2025 could be an inflection for your asset management business much like 2024 was for financial advisory with maybe the potential goal of hitting your net zero flows. And you have been active, obviously, as you mentioned in your prepared remarks about launching active ETFs in the US and also the general shift of investor interest going beyond the US should benefit your global strategies. So just curious, how do you feel about that net flow target today? And then also maybe if you could provide us a mark to market on how the flow picture is looking for April, that would be great.

A: So what I would say is two things. First, if you look at the first quarter, net outflows were significantly lower than last year. And that occurred despite the fact that our one but not funded mandates increased. So I think there had been some speculation or commentary that we might have been eating into that one, but not yet funded mandate quantum, and that is it has been the opposite. It has gone up, it has risen. And I would note coming back to the geographic, the majority of that one but not funded mandate comes from investors in Europe, in particular, and so that shows the benefits of the diversification. And I will let Evan give an update on or any additional color, including if you want to say about April? Evan Russo: Sure. Yeah. So clearly, you know, we have been trending better than last year as we had expected coming into this year. And we talked about a more balanced flow picture coming into the year based on several factors. One was the strong foundation. As you mentioned, the one but not funded sort of that pipeline. That we started with this year. And as Peter mentioned, the elevated pipeline that we started this year with is not only not declined, but it has actually been growing steadily a little bit over the course of the first quarter, which continues to give us confidence. Also, the investments that we have made across our business both on the investment side, of course, on distribution changes we have made and organizational changes that made across the platform over the past year. And then importantly, it is really was based on the performance that we have had in many of the products that we expected to be interesting focused products for the market this year, the strong performance that we had, was going to give us a lot of confidence. Then finally, it was the new vectors of growth as you mentioned ETFs and others, which will play out and help us out over time. So all of that was the reason we expected there to be a more balanced picture of flows this year and we are seeing all that play out. I think it is a little bit of a continuation of that trend into Q2. You know, it is going to be lumpy month to month as it always is. But we are continuing to see a more balanced picture. And given the fact that we remain with the higher elevated one but not funded, it continuing to have new wins come in this quarter in both Quants and Japanese equities, international global, all those strategies that are, you know, make sense for the market today and are doing really, really well. We would expect that to continue. So I think it is generally the continuation of the positive trend and the expectations we came in at the beginning of the year.

Q: Hey. This is Alex Jenkins filling in for Devin. Appreciate you guys taking my question. I guess just to follow-up on the asset management side, that $10 billion asset management mandate that you highlighted last quarter, can you speak to whether any of that has been funded today and just the timeline for full deployment? And specifically, are there any challenges or opportunities in executing this mandate that you would like to highlight today?

A: Well, again, and I will let Evan elaborate, but that figure was the one, but not yet funded mandates overall. And as we have noted before, the quantum in that category has actually gone up, not down. So always things that come ahead and get funded, but then there are new mandates that come in. And on net, it has increased, not declined, which is what I think there had been perhaps some confusion about. But it has risen. And I do not know, Evan, if you wanted to add it. Evan Russo: Yeah. I would say, Alex, it is not one mandate. It is a series it is sort of the backlog of things that we were told we won a mandate, but it just has not funded yet. So it is just a question of timing until that they decide to actually deploy the capital, but they have chosen us to be their provider for the asset management services. And so it is a whole series of things across lots and lots of different products. And, you know, we are constantly rolling some of those things in. You know, they are constantly funding. But as Peter and I mentioned, it has actually grown over the first quarter slightly, so it is starting at a very high elevated level relative to where we are historically. At the beginning of the year, we were at a higher and elevated level. That is why it continues to grow. But it is a mix of lots of different strategies with several lots of different clients. We expect, you know, a lot of that start to hit both in the second quarter, probably into the third quarter of this year, but it is constantly being replenished. So it is a question of how fast that gets. You know, we can continue to win new mandates in this environment. Those things, you know, sometimes can move around quarter to quarter because if there is volatility and institutions may decide, let us not invest, let us not put the capital to work for a new mandate, in a period of high volatility. They may wait for a more stable environment so that can move things out for a few weeks or a month based on their original timing, but those things are very, very highly likely and, you know, almost certainty going to fund over the next, you know, twelve to fifteen months or so.