Lazard, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Advisory: Strong fourth quarter and full year results, with record revenue in Europe in 2024, expansion into private capital, and a leading restructuring/liability management practice. Anticipates continued strong growth in 2025.
• Asset Management: Consistent results in 2024, growth in incentive fees from key strategies, $10 billion of unfunded mandates entering 2025, and investments in distribution, research, and platforms. Differentiated dynamics between large U.S. sub-advised funds and other strategies.
• Costs: Adjusted compensation expense was $533 million for the fourth quarter and $1.9 billion for the full year 2024, resulting in a full year compensation ratio of 65.9%. Aiming for a 60% target compensation ratio in 2025. Adjusted non-compensation expense was $154 million for the fourth quarter and $575 million for the full year 2024, with a non-compensation ratio of 19.9% in 2024.
• Taxes: Effective tax rate for the fourth quarter was 18.1% compared to 16% for the prior year quarter. Full year 2024 effective tax rate was 24.4% due to a favorable court decision in a long-standing tax matter.
• Capital Allocation: Returned $61 million to shareholders in the fourth quarter of 2024 and $303 million for the full year 2024, including dividends and share repurchases. Declared a quarterly dividend of $0.50 per share for Q1 2025.

Segment Performance

• Financial Advisory: Fourth quarter adjusted net revenue was $508 million, up 6% from the prior year, and full year 2024 adjusted net revenue was $1.7 billion, up 28% compared to 2023. It achieved record revenue in Europe in 2024, with growth in private capital services and strong restructuring/liability management. Contributed approximately 55% of total firm-wide revenue.
• Asset Management: Fourth quarter adjusted net revenue was $287 million, up 5% compared to one year ago, and full year 2024 adjusted net revenue was $1.1 billion, up 3% compared to 2023. Management fees were up due to strong strategy performance. As of December 31st, AUM was $226 billion, 8% lower than December 2023. Average AUM for the full year was $243 billion, 4% higher than 2023. Contributed approximately 35% of total firm-wide revenue.

Guidance

• Financial Advisory expects continued strong growth in 2025.
• Asset Management enters 2025 with $10 billion of unfunded mandates, prioritizing areas like active ETFs and U.S. wealth management. Aim to achieve a 60% compensation ratio in 2025, dependent on Financial Advisory growth and hiring pace.

Risks

• Uncertainty in M&A and advisory business due to macroeconomic factors and market volatility.
• Impact of interest rate changes on various segments, though considered secondary to other drivers.
• Fluctuations in AUM and market conditions affecting Asset Management results.

Question and Answer

Q: Detail on $10 billion of mandates in Asset Management and how it correlates to gross flows?

A: $10 billion is higher than recent years but represents a minority of gross inflows. Investments in the platform, new portfolio managers, research, and sales/distribution efforts are driving results. The vast majority of revenue comes from segments outside large U.S. sub-advised funds.

Q: Outlook for M&A in Europe vs U.S.?

A: Europe has a plan to improve its macroeconomic backdrop, and European companies are looking to diversify supply chains. Lazard is well-positioned to benefit from European interest in U.S. firms.

Q: Comp ratio target 60% in 2025?

A: Dependent on Financial Advisory growth, a shift in the distribution of managing directors towards more productive ranges, and potential lateral hiring if needed.

Q: Share count and buybacks?

A: Amortization of awards, share price impact, and buybacks affect share count. Plan to increase buybacks in 2025 to mitigate dilution from stock-based compensation.

Q: Secondaries business performance and outlook?

A: The secondaries market is expected to continue growing, and Lazard's strong PCA team is well-positioned to capture additional share within it.

Q: Advisory revenue trajectory and first quarter outlook?

A: Fourth quarter results were stronger than mid-December expectations, with timing shifts netting out. The advisory business is in a constructive environment for 2025.

Q: Productivity and MD revenue target?

A: Surpassed the 2025 target of $8.5 million revenue per MD early and is ahead of schedule to surpass the 2028 target of $10 million per MD.

Q: IPO market impact on M&A?

A: The tepid IPO market recovery may drive more M&A activity as an exit strategy, with the IPO market expected to fully reopen in 2025 under a stable operating environment