Lazard Ltd Reports Second-Quarter and First-Half 2019 Results

$630 million operating revenue for second quarter

$237 billion in average assets under management, up 4% from first quarter

$603 million of capital returned to shareholders in first half of 2019

NEW YORK–(BUSINESS WIRE)–Lazard Ltd (NYSE:LAZ) today reported operating revenue1 of $630 million for the quarter ended June 30, 2019. Net income, as adjusted2, was $86 million, or $0.73 per share (diluted) for the quarter. On a U.S. GAAP basis, second-quarter 2019 net income was $66 million, or $0.55 per share (diluted).

First-half 2019 net income, as adjusted, was $191 million, or $1.61 per share (diluted). On a U.S. GAAP basis, first-half net income was $163 million, or $1.36 per share (diluted).

“With growing momentum in Financial Advisory and increased average assets under management, we are well positioned for the second half of the year,” said Kenneth M. Jacobs, Chairman and Chief Executive Officer of Lazard. “We are making significant investments in our technology infrastructure to create new and differentiated capabilities and insights for our clients, building a foundation for enhanced growth.”

($ in millions, except

per share data and AUM)

Quarter Ended

June 30,

 

Six Months Ended

June 30,

2019

2018

%’19-’18

 

2019

2018

%’19-’18

Net Income

 

 

 

 

U.S. GAAP

$66

$147

(55)%

 

$163

$307

(47)%

Per share, diluted

$0.55

$1.13

(51)%

 

$1.36

$2.34

(42)%

Adjusted2

$86

$143

(40)%

 

$191

$309

(38)%

Per share, diluted

$0.73

$1.10

(34)%

 

$1.61

$2.35

(31)%

Operating Revenue1

 

 

 

 

Total operating revenue

$630

$741

(15)%

 

$1,250

$1,465

(15)%

Financial Advisory

$329

$415

(21)%

 

$659

$804

(18)%

Asset Management

$291

$329

(12)%

 

$575

$659

(13)%

AUM ($ in billions)

 

 

 

 

 

 

 

Period End

$237

$238

– %

 

Average

$237

$245

(3)%

 

$233

$251

(7)%

Note: Endnotes are on page 6 of this release. A reconciliation of adjusted GAAP to U.S. GAAP begins on page 13.

OPERATING REVENUE

Operating revenue1 was $630 million for the second quarter of 2019, and $1,250 million for the first half of 2019, down 15% and 15% for both periods from the respective 2018 periods.

Financial Advisory

Our Financial Advisory results include M&A Advisory, Capital Advisory, Capital Raising, Restructuring, Shareholder Advisory, Sovereign Advisory, and other strategic advisory work for clients.

For the second quarter of 2019, Financial Advisory operating revenue was $329 million, 21% lower than the second quarter of 2018. The decrease reflected softness in European M&A and global Restructurings.

For the first half of 2019, Financial Advisory operating revenue was $659 million, 18% lower than the first half of 2018.

During and since the second quarter of 2019, Lazard has been engaged in significant and complex M&A transactions and other advisory assignments globally, including: IBM’s $34 billion acquisition of Red Hat; Ingersoll-Rand in the $15 billion combination of its Industrial segment with Gardner Denver; Anheuser-Busch InBev’s AUD 16 billion sale of Carlton & United Breweries to Asahi Group Holdings; a consortium consisting of KIRKBI, Blackstone and CPPIB, in its recommended acquisition of Merlin Entertainments, valuing Merlin at £5.9 billion; MassMutual in the $5.7 billion strategic combination of Invesco and OppenheimerFunds; Capgemini’s €5.0 billion acquisition of Altran; Gilead’s R&D collaboration with Galapagos, including $5.1 billion in an upfront payment and an equity investment; El Paso Electric’s $4.3 billion sale to Infrastructure Investments Fund; and Carrefour’s sale of an 80% interest in Carrefour China to Suning.com, based on an enterprise value of €1.4 billion.

During and since the second quarter of 2019 we have been engaged in a broad range of highly visible and complex restructuring and debt advisory assignments for debtors and creditors, including roles involving: Abengoa; Debenhams; FirstEnergy Solutions; Insys Therapeutics; Neiman Marcus; PG&E; Sears Holdings; Westmoreland Resource Partners; and Weatherford International.

Our Capital and Shareholder Advisory practices remain active globally, advising on a broad range of public and private assignments. Our Sovereign Advisory practice continues to be active advising governments, sovereign and sub-sovereign entities across developed and emerging markets.

For a list of publicly announced Financial Advisory transactions on which Lazard advised in the second quarter of 2019, or continued to advise or completed since June 30, 2019, please visit our website at www.lazard.com/businesses/transactions.

Asset Management

In the text portion of this press release, we present our Asset Management results as 1) Management fees and other revenue, and 2) Incentive fees.

For the second quarter of 2019, Asset Management operating revenue was $291 million, 12% lower than the second quarter of 2018. For the first half of 2019, Asset Management operating revenue was $575 million, 13% lower than the first half of 2018.

For the second quarter of 2019, management fees and other revenue was $286 million, 10% lower than the second quarter of 2018, and 1% higher than the first quarter of 2019. For the first half of 2019, management fees and other revenue was $569 million, 11% lower than the first half of 2018.

Average assets under management (AUM) for the second quarter of 2019 was $237 billion, 3% lower than the second quarter of 2018, and 4% higher than the first quarter of 2019. Average AUM for the first half of 2019 was $233 billion, 7% lower than the first half of 2018.

AUM as of June 30, 2019, was $237 billion, approximately even with June 30, 2018, and up 1% from March 31, 2019. The sequential increase was primarily driven by market appreciation and foreign exchange movement, offset by net outflows of $5.2 billion.

For the second quarter of 2019, incentive fees were $5 million, compared to $12 million for the second quarter of 2018. For the first half of 2019, incentive fees were $6 million, compared to $18 million for the first half of 2018.

OPERATING EXPENSES

Compensation and Benefits

In managing compensation and benefits expense, we focus on annual awarded compensation (cash compensation and benefits plus deferred incentive compensation with respect to the applicable year, net of estimated future forfeitures and excluding charges). We believe annual awarded compensation reflects the actual annual compensation cost more accurately than the GAAP measure of compensation cost, which includes applicable-year cash compensation and the amortization of deferred incentive compensation principally attributable to previous years’ deferred compensation. We believe that by managing our business using awarded compensation with a consistent deferral policy, we can better manage our compensation costs, increase our flexibility in the future and build shareholder value over time.

For the second quarter of 2019, we accrued compensation and benefits expense1 at an adjusted compensation1 ratio of 57.5%. This resulted in $362 million of adjusted compensation and benefits expense, compared to $413 million for the second quarter of 2018.

For the first half of 2019, adjusted compensation and benefits expense1 was $719 million, compared to $817 million for the first half of 2018.

We manage our compensation and benefits expense based on awarded compensation with a consistent deferral policy. We take a disciplined approach to compensation, and our goal is to maintain a compensation-to-operating revenue ratio over the cycle in the mid- to high-50s percentage range on both an awarded and adjusted basis, with consistent deferral policies.

Non-Compensation Expense

Adjusted non-compensation expense1 for the second quarter of 2019 was $128 million, 8% higher than the second quarter of 2018. The increase includes our accelerating investments in technology infrastructure. The ratio of adjusted non-compensation expense to operating revenue for the second quarter of 2019 was 20.3%, compared to 16.0% for the second quarter of 2018.

Adjusted non-compensation expense1 for the first half of 2019 was $244 million, 5% higher than the first half of 2018. The ratio of adjusted non-compensation expense to operating revenue for the first half of 2019 was 19.5%, compared to 15.9% for the first half of 2018.

Our goal remains to achieve an adjusted non-compensation expense-to-operating revenue ratio over the cycle of 16% to 20%.

TAXES

The provision for taxes, on an adjusted basis1, was $35 million for the second quarter of 2019 and $60 million for the first half of 2019. The effective tax rate on the same basis was 28.8% for the second quarter and 23.9% for the first half of 2019, compared to 26.9% and 20.4% for the respective 2018 periods.

CAPITAL MANAGEMENT AND BALANCE SHEET

Our primary capital management goals include managing debt and returning capital to shareholders through dividends and share repurchases.

For the second quarter of 2019, Lazard returned $217 million to shareholders, which included: $52 million in dividends; $160 million in share repurchases of our Class A common stock; and $5 million in satisfaction of employee tax obligations in lieu of share issuances upon vesting of equity grants.

For the first half of 2019, Lazard returned $603 million to shareholders, which included: $155 million in dividends; $352 million in share repurchases of our Class A common stock; and $96 million in satisfaction of employee tax obligations in lieu of share issuances upon vesting of equity grants.

During the first half of 2019, we repurchased 9.7 million shares at an average price of $36.20 per share, which included 4.5 million shares repurchased in the second quarter at an average price of $35.18 per share. In line with our objectives, these repurchases have more than offset the potential dilution from our 2018 year-end equity-based compensation awards (net of estimated forfeitures and tax withholding to be paid in cash in lieu of share issuances), which were granted at an average price of $37.69 per share. As of June 30, 2019, our remaining share repurchase authorization was $244 million.

On July 24, 2019, Lazard declared a quarterly dividend of $0.47 per share on its outstanding common stock. The dividend is payable on August 16, 2019, to stockholders of record on August 5, 2019.

Lazard’s financial position remains strong. As of June 30, 2019, our cash and cash equivalents were $919 million, and stockholders’ equity related to Lazard’s interests was $619 million.

CONFERENCE CALL

Lazard will host a conference call at 8:00 a.m. EDT on July 25, 2019, to discuss the company’s financial results for the second quarter and first half of 2019. The conference call can be accessed via a live audio webcast available through Lazard’s Investor Relations website at www.lazard.com, or by dialing 1 (800) 289-0438 (U.S. and Canada) or +1 (323) 794-2423 (outside of the U.S. and Canada), 15 minutes prior to the start of the call.

A replay of the conference call will be available by 10:00 a.m. EDT on July 25, 2019, via the Lazard Investor Relations website, or by dialing 1 (888) 203-1112 (U.S. and Canada) or +1 (719) 457-0820 (outside of the U.S. and Canada). The replay access code is 7242427.

ABOUT LAZARD

Lazard, one of the world’s preeminent financial advisory and asset management firms, operates from 43 cities across 27 countries in North America, Europe, Asia, Australia, Central and South America. With origins dating to 1848, the firm provides advice on mergers and acquisitions, strategic matters, restructuring and capital structure, capital raising and corporate finance, as well as asset management services to corporations, partnerships, institutions, governments and individuals. For more information on Lazard, please visit www.lazard.com. Follow Lazard at @Lazard.

Cautionary Note Regarding Forward-Looking Statements:

This press release contains forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may”, “might”, “will”, “should”, “could”, “would”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “target,” “goal”, or “continue”, and the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance based on our growth strategies, business plans and initiatives and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by these forward-looking statements.

These factors include, but are not limited to, those discussed in our Annual Report on Form 10-K under Item 1A “Risk Factors,” and also discussed from time to time in our reports on Forms 10-Q and 8-K, including the following:

  • A decline in general economic conditions or the global or regional financial markets;
  • A decline in our revenues, for example due to a decline in overall mergers and acquisitions (M&A) activity, our share of the M&A market or our assets under management (AUM);
  • Losses caused by financial or other problems experienced by third parties;
  • Losses due to unidentified or unanticipated risks;
  • A lack of liquidity, i.e., ready access to funds, for use in our businesses; and
  • Competitive pressure on our businesses and on our ability to retain and attract employees at current compensation levels.

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date of this release to conform our prior statements to actual results or revised expectations and we do not intend to do so.

Lazard Ltd is committed to providing timely and accurate information to the investing public, consistent with our legal and regulatory obligations. To that end, Lazard and its operating companies use their websites to convey information about their businesses, including the anticipated release of quarterly financial results, quarterly financial, statistical and business-related information, and the posting of updates of assets under management in various mutual funds, hedge funds and other investment products managed by Lazard Asset Management LLC and Lazard Frères Gestion SAS. Investors can link to Lazard and its operating company websites through www.lazard.com.

ENDNOTES

1 A non-U.S. GAAP measure. See attached financial schedules and related notes for a detailed explanation of adjustments to corresponding U.S. GAAP results. We believe that presenting our results on an adjusted basis, in addition to the U.S. GAAP results, is the most meaningful and useful way to compare our operating results across periods.

2 Second-quarter and first-half 2019 adjusted results1 exclude pre-tax charges of (i) $7.6 million and $10.8 million, respectively, of costs associated with the implementation of a new Enterprise Resource Planning (ERP) system, (ii) $2.3 million and $6.8 million, respectively, relating to a first quarter debt refinancing by Lazard Ltd’s subsidiary Lazard Group LLC; (iii) $4.6 million and $7.7 million, respectively, of acquisition-related costs, primarily reflecting changes in fair value of contingent consideration associated with certain business acquisitions; and (iv) $11.9 million of private equity investment adjustments in the second quarter. On a U.S. GAAP basis, these items resulted in a net charge of $20 million, or $0.17 (diluted) per share, for the second quarter, and a net charge of $28 million, or $0.24 (diluted) per share, for the first half of 2019.

LAZ-EPE

LAZARD LTD
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(U.S. GAAP)
 
Three Months Ended % Change From
June 30, March 31, June 30, March 31, June 30,
($ in thousands, except per share data)

2019

2019

2018

2019

2018

 
Total revenue

$650,801

$661,678

$771,528

(2%)

(16%)

Interest expense

(20,111)

(18,004)

(13,590)

Net revenue

630,690

643,674

757,938

(2%)

(17%)

Operating expenses:
Compensation and benefits

372,470

372,254

416,159

0%

(10%)

 
Occupancy and equipment

30,953

28,295

29,240

Marketing and business development

28,784

27,984

28,228

Technology and information services

38,825

32,055

32,527

Professional services

19,144

14,217

16,714

Fund administration and outsourced services

28,493

28,930

33,227

Amortization and other acquisition-related (benefits) costs

5,042

3,470

(8,483)

Other

5,294

16,806

10,386

Subtotal

156,535

151,757

141,839

3%

10%

Operating expenses

529,005

524,011

557,998

1%

(5%)

 
Operating income

101,685

119,663

199,940

(15%)

(49%)

 
Provision for income taxes

28,172

23,187

51,561

21%

(45%)

Net income

73,513

96,476

148,379

(24%)

(50%)

Net income (loss) attributable to noncontrolling interests

7,736

(566)

1,416

Net income attributable to Lazard Ltd

$65,777

$97,042

$146,963

(32%)

(55%)

 
Attributable to Lazard Ltd Common Stockholders:
Weighted average shares outstanding:
Basic

111,981,204

111,944,255

120,306,257

0%

(7%)

Diluted

116,175,349

120,820,084

130,249,054

(4%)

(11%)

 
Net income per share:
Basic

$0.57

$0.87

$1.22

(34%)

(53%)

Diluted

$0.55

$0.80

$1.13

(31%)

(51%)

LAZARD LTD
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(U.S. GAAP)
 
Six Months Ended
June 30, June 30,
($ in thousands, except per share data)

2019

2018

% Change

 
Total revenue

$1,312,479

$1,539,733

(15%)

Interest expense

(38,115)

(27,097)

Net revenue

1,274,364

1,512,636

(16%)

Operating expenses:
Compensation and benefits

744,724

821,206

(9%)

 
Occupancy and equipment

59,248

59,478

Marketing and business development

56,768

53,887

Technology and information services

70,880

65,779

Professional services

33,361

29,145

Fund administration and outsourced services

57,423

68,411

Amortization and other acquisition-related (benefits) costs

8,512

(7,617)

Other

22,100

36,579

Subtotal

308,292

305,662

1%

Operating expenses

1,053,016

1,126,868

(7%)

 
Operating income

221,348

385,768

(43%)

 
Provision for income taxes

51,359

75,728

(32%)

Net income

169,989

310,040

(45%)

Net income attributable to noncontrolling interests

7,170

3,385

Net income attributable to Lazard Ltd

$162,819

$306,655

(47%)

 
Attributable to Lazard Ltd Common Stockholders:
Weighted average shares outstanding:
Basic

111,962,729

120,118,182

(7%)

Diluted

118,497,717

131,195,725

(10%)

 
Net income per share:
Basic

$1.44

$2.55

(44%)

Diluted

$1.36

$2.34

(42%)

LAZARD LTD
UNAUDITED CONDENSED CONSOLIDATED
STATEMENT OF FINANCIAL CONDITION
(U.S. GAAP)
 
June 30, December 31,
($ in thousands)

2019

2018

 
ASSETS
 
Cash and cash equivalents

$919,221

$1,246,537

Deposits with banks and short-term investments

1,301,520

1,006,969

Cash deposited with clearing organizations and other segregated cash

39,761

38,379

Receivables

705,114

685,534

Investments

575,424

575,148

Goodwill and other intangible assets

374,436

375,318

Operating lease right-of-use assets

477,432

Deferred tax assets

589,076

597,776

Other assets

525,489

471,580

 
Total Assets

$5,507,473

$4,997,241

 
LIABILITIES & STOCKHOLDERS’ EQUITY
 
Liabilities
Deposits and other customer payables

$1,480,684

$1,154,207

Accrued compensation and benefits

331,636

585,484

Senior debt

1,678,131

1,434,260

Tax receivable agreement obligation

246,953

270,640

Operating lease liabilities

555,324

Other liabilities

496,867

582,557

Total liabilities

4,789,595

4,027,148

 
Commitments and contingencies
 
Stockholders’ equity
Preferred stock, par value $.01 per share

Common stock, par value $.01 per share

1,298

1,298

Additional paid-in capital

582,342

750,692

Retained earnings

1,179,901

1,195,563

Accumulated other comprehensive loss, net of tax

(271,984)

(273,818)

Subtotal

1,491,557

1,673,735

Class A common stock held by subsidiaries, at cost

(872,755)

(756,884)

Total Lazard Ltd stockholders’ equity

618,802

916,851

Noncontrolling interests

99,076

53,242

Total stockholders’ equity

717,878

970,093

 
Total liabilities and stockholders’ equity

$5,507,473

$4,997,241

LAZARD LTD
SELECTED SUMMARY FINANCIAL INFORMATION (a)
(Non-GAAP – unaudited)
Three Months Ended % Change From
June 30, March 31, June 30, March 31, June 30,
($ in thousands, except per share data)

2019

2019

2018

2019

2018

 
Revenues:
 
Financial Advisory

$328,814

$329,994

$415,006

(0%)

(21%)

Asset Management

291,269

283,734

329,409

3%

(12%)

Corporate

9,617

6,262

(3,713)

54%

NM

 
Operating revenue (b)

$629,700

$619,990

$740,702

2%

(15%)

 
Expenses:
 
Adjusted compensation and benefits expense (c)

$362,078

$356,494

$413,312

2%

(12%)

Ratio of adjusted compensation to operating revenue

57.5%

57.5%

55.8%

 
Non-compensation expense (d)

$128,014

$115,737

$118,481

11%

8%

Ratio of non-compensation to operating revenue

20.3%

18.7%

16.0%

 
Earnings:
 
Earnings from operations (e)

$139,608

$147,759

$208,909

(6%)

(33%)

Operating margin (f)

22.2%

23.8%

28.2%

 
Adjusted net income (g)

$85,746

$105,537

$143,020

(19%)

(40%)

 
Diluted adjusted net income per share

$0.73

$0.87

$1.10

(16%)

(34%)

 
Diluted weighted average shares (h)

117,422,884

120,934,661

130,249,054

(3%)

(10%)

 
Effective tax rate (i)

28.8%

19.4%

26.9%

This presentation includes non-GAAP measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for the corresponding U.S. GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with U.S. GAAP. For a detailed explanation of the adjustments made to the corresponding U.S. GAAP measures, see Reconciliation of U.S. GAAP to Selected Summary Financial Information and Notes to Financial Schedules.
LAZARD LTD
SELECTED SUMMARY FINANCIAL INFORMATION (a)
(Non-GAAP – unaudited)
Six Months Ended
June 30, June 30,
($ in thousands, except per share data)

2019

2018

% Change

 
Revenues:
 
Financial Advisory

$658,808

$803,862

(18%)

Asset Management

575,003

659,264

(13%)

Corporate

15,879

1,511

NM

 
Operating revenue (b)

$1,249,690

$1,464,637

(15%)

 
Expenses:
 
Adjusted compensation and benefits expense (c)

$718,572

$817,268

(12%)

Ratio of adjusted compensation to operating revenue

57.5%

55.8%

 
Non-compensation expense (d)

$243,751

$232,562

5%

Ratio of non-compensation to operating revenue

19.5%

15.9%

 
Earnings:
 
Earnings from operations (e)

$287,367

$414,807

(31%)

Operating margin (f)

23.0%

28.3%

 
Adjusted net income (g)

$191,283

$308,935

(38%)

 
Diluted adjusted net income per share

$1.61

$2.35

(31%)

 
Diluted weighted average shares (h)

119,178,774

131,195,725

(9%)

 
Effective tax rate (i)

23.9%

20.4%

This presentation includes non-U.S. GAAP (“non-GAAP”) measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for the corresponding U.S. GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with U.S. GAAP. For a detailed explanation of the adjustments made to the corresponding U.S. GAAP measures, see Reconciliation of U.S. GAAP to Selected Summary Financial Information and Notes to Financial Schedules.
LAZARD LTD
ASSETS UNDER MANAGEMENT (“AUM”)
(unaudited)
($ in millions)
 
As of Variance
June 30, March 31, December 31,

2019

2019

2018

Qtr to Qtr YTD
 
Equity:
Emerging Markets

$42,836

$45,112

$41,899

(5.0%)

2.2%

Global

47,559

46,788

41,490

1.6%

14.6%

Local

40,575

40,083

36,020

1.2%

12.6%

Multi-Regional

64,888

63,112

57,589

2.8%

12.7%

Total Equity

195,858

195,095

176,998

0.4%

10.7%

Fixed Income:
Emerging Markets

15,692

15,308

14,980

2.5%

4.8%

Global

6,195

6,410

4,851

(3.4%)

27.7%

Local

5,767

5,378

6,113

7.2%

(5.7%)

Multi-Regional

8,935

7,912

6,994

12.9%

27.8%

Total Fixed Income

36,589

35,008

32,938

4.5%

11.1%

Alternative Investments

2,492

2,659

2,430

(6.3%)

2.6%

Private Equity

1,383

1,393

1,469

(0.7%)

(5.9%)

Cash Management

1,144

824

899

38.8%

27.3%

Total AUM

$237,466

$234,979

$214,734

1.1%

10.6%

 
 
 
Three Months Ended June 30, Six Months Ended June 30,

2019

2018

2019

2018

 
AUM – Beginning of Period

$234,979

$251,680

$214,734

$249,459

 
Net Flows

(5,246)

(3,846)

(5,208)

(1,439)

Market and foreign exchange
appreciation (depreciation)

7,733

(9,958)

27,940

(10,144)

 
AUM – End of Period

$237,466

$237,876

$237,466

$237,876

 
Average AUM

$236,978

$245,127

$232,740

$250,614

 
% Change in average AUM

(3.3%)

(7.1%)

Contacts

Media Contact:

Judi Frost Mackey, +1 212 632 1428

judi.mackey@lazard.com

Investor Contact:

Alexandra Deignan, +1 212 632 6886

alexandra.deignan@lazard.com

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