Lazard Inc Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Devin Ryan - JMP Securities - Analyst : Great, Peter, Mary Ann and Evan, how are you? I want to start on the asset management business. I really appreciate the detail on the $10 billion of mandates just to kind of contextualize some of the progress there. It would be great to just understand how that compares to prior years. How that correlates to gross flows in the year ahead? And then maybe more importantly, you did touch on a high level some of the changes that you guys have been implementing to drive more wins there. So would be great to hear a little bit more about how that's specifically happening? And then where do you think we are? Can $10 billion REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 1:00PM, LAZ.N - Q4 2024 Lazard Inc Earnings Call next year grow to something much higher because you're still in the early innings of kind of this kind of process change that you've been making in asset management.

Question: Devin Ryan - JMP Securities - Analyst : Thank you for that comprehensive answer on that. Okay. A quick follow-up on Europe. And obviously, overall advisory results were very good firm wide. You called out Europe as kind of 1 area where activity was also strong. And so Lazard has obviously a pretty good window into Europe and maybe more than most. And so I want to just hear about how you're thinking about the outlook for M&A, specifically in Europe relative to the US market. As you think about your your projections over the next couple of years? Are the drivers -- does it feel like the same optimism or opportunity in Europe relative to the US or even more so, I'd love to just hear your thoughts on that given that it is an important part of the business.

Question: Devin Ryan - JMP Securities - Analyst : Okay, great color. Thank you so much appreciated.

Question: Brennan Hawken - UBS Investment Bank - Analyst : Good morning, Evan, and Mary Anne, and Peter. How you doing. I'd love to drill into your target for 60% comp ratio expectation in two believe Mary Ann referenced advisory revenue growth. So I'd love to maybe get some more texture around that assumption. I'm just struggling to figure out how to get there. Is there going to be any change in the structure of comp maybe like more deferrals or longer deferrals. What are the building blocks? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 1:00PM, LAZ.N - Q4 2024 Lazard Inc Earnings Call

Question: Brennan Hawken - UBS Investment Bank - Analyst : Appreciate that. So I'd have to circle back, though, on a component of my question, which is, is there going to be any change in the compensation structure as you're.

Question: Brennan Hawken - UBS Investment Bank - Analyst : Yes. And totally get that revenue and recruiting are going to be big factors. And for what it's worth, I'm not that far from your 60. I just can't get it all the way there. More revenue growth than I'm underwriting certainly will help. So -- the -- I'd love to ask a question on the share count. So I know you guys have buybacks on hold. But how is the war chest looking? Do you think at this stage, you have a sufficient war chest because -- and maybe REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 1:00PM, LAZ.N - Q4 2024 Lazard Inc Earnings Call it'd be helpful to understand the drivers of the fully diluted share count grinding up nearly 10% here this year and what your outlook is for maybe coming back to market with buybacks to at least neutralize some of this stock-based comp?

Question: Brennan Hawken - UBS Investment Bank - Analyst : Great. Thanks for that color.

Question: Brandon O'Brien - Wolfe Research - Analyst : Good morning and thanks for taking my questions. I guess, sorry, just a follow-up on the comp question from earlier. I understand that the comp ratio is largely going to be driven by improvement in the advisory business. But looking at the segment by segment disclosure and the debt, your comp ratio within asset management has increased pretty materially over the last 4 years. So I just want to get a sense as to whether you do need to see like management fee growth within the asset management business in order to get that comp ratio back down -- or if you fell short of that, whether excess growth within advisory and that mix shift could end up getting you there anyway?

Question: Brandon O'Brien - Wolfe Research - Analyst : Okay. That's helpful. And I guess just wanted to get a sense, you mentioned this in your prepared remarks, Peter, post election, a pickup in activity. Just wanted to get a sense as to how meaningful that improvement has been and whether we get a flavor of the difference between the level of dialogue between sponsors and at the moment?

Question: Brandon O'Brien - Wolfe Research - Analyst : Great. Thank you, guys, for taking my questions.

Question: Jim Mitchell - Seaport Global Securities - Analyst : Just, Peter, on the -- it's just sort of the productivity and headcount discussion. It seems like there was sort of another step down in the head count in the third quarter. So it seems like it would take a lot where you are today in the fourth -- at the end of the fourth quarter getting to the first REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 1:00PM, LAZ.N - Q4 2024 Lazard Inc Earnings Call quarter kind of target of 10% to 15% net growth. So is there that many new hires in the pipeline? Or also you have to think about the number of promotes, if maybe you can help get to 194 MDs to 210 plus would be helpful.

Question: Jim Mitchell - Seaport Global Securities - Analyst : Okay, that's great. And do you feel -- it seems like there has been a lot of hiring even this last year, even though head count as growth. So do you feel very positive about sort of the upgrades that you've done and the momentum from the new hires you had already this year?

Question: Jim Mitchell - Seaport Global Securities - Analyst : Okay, great. Thanks.

Question: James Yaro - Goldman Sachs - Analyst : So I just want to start on secondary. Your secondary team recently put out industry report suggesting that 2024 secondary volumes were up by nearly 40% year-on-year. In their forecast for 2022, the growth slows notably year-on-year. I think in the central case, year-on-year growth, it's about 15%. A few questions here. Maybe you could just help us think about your secondaries business and how it performed relative to those industry forecasts. And second is a very material contributor to results in the fourth quarter of this -- of 2024. And then finally, could you just comment on whether you are of the view that the growth rate in this business could slow in 2025?

Question: James Yaro - Goldman Sachs - Analyst : Okay. That's very clear. Maybe just one more on the advisory revenue. You obviously had a nice sequential increase in the fourth quarter. Maybe you could just help us think about the trajectory for the first quarter? And specifically, was there any material pull forward that we saw in the fourth quarter I think in my numbers, the multiplier relative to geologic numbers for the fourth quarter was the highest since 2010. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 1:00PM, LAZ.N - Q4 2024 Lazard Inc Earnings Call

Question: James Yaro - Goldman Sachs - Analyst : That's very helpful. One last one quickly, just on non-comp you had very good discipline in the quarter relative to the revenue. Maybe you could just speak to the noncomp growth trajectory from here and whether you might be able to continue to grow at the mid-single-digit growth rate that you saw for 2024.

Question: James Yaro - Goldman Sachs - Analyst : Thank you.

Question: Aidan Hall - Keefe, Bruyette, & Woods, Inc. - Analyst : Good morning, everyone. Maybe just following up there on the mid-single-digit noncomp guide, you comp guide for the year under the current revenue assumptions for $25 million I was just curious how you're thinking about the margins for both for the 2 businesses against the 23% in advisory this year and 24% in Asset Management just given where some of the hirings taking place and some of those dynamics playing out?

Question: Aidan Hall - Keefe, Bruyette, & Woods, Inc. - Analyst : Got it. Okay. Understood. I appreciate the color. Maybe just switching gears on the asset management side of the business. The fee rate saw some nice sequential trends and I know there's some 3Q noise with a lumpy outflow. And then it sounds like the impact of sub-advised outflows in 4Q, making up half. So it was just -- curious if you could give us a little more color on the right way to think about the fee rate and maybe the answer is kind of in the pipeline fee rate right now as we think about some of that pipeline mandates being funded?

Question: Ryan Kenny - Morgan Stanley - Analyst : Hi, good morning. Want to dig in on productivity. Clearly, it's an important driver into the comp ratio improvement, and you surpassed your 2025 target of $8.5 million year early. So any thoughts on whether you can hit your 2028 target of $10 million per MD sooner? And is there a scenario that's realistic where you can surpass that bar this cycle?

Question: Ryan Kenny - Morgan Stanley - Analyst : Okay. Great. right. And then separately, you sound still very constructive even in a range of interest rate scenario where the forward look hasn't baked in as many rate cuts as we were originally expecting. So can you just give some color on, is there any impact at all on the pipeline if we get no rate cuts this year versus 1 or 2? And are elevated 10-year yields impacting the pipeline at all? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 1:00PM, LAZ.N - Q4 2024 Lazard Inc Earnings Call

Question: Ryan Kenny - Morgan Stanley - Analyst : I will turn out. Thank you.

Question: Mike Brown - Wells Fargo - Analyst : Great. I just wanted to circle back on the share count, and maybe just put a little finer point on how to think about that for '25. So if we assume a flat share price would that mean you could keep the share count kind of flattish year-over-year? And obviously, hopefully, share price goes up, but just curious how to think about that in terms of maybe a framework for '25.

Question: Mike Brown - Wells Fargo - Analyst : Okay. Great. Okay. That's helpful. And then, Peter, maybe just a high-level question. I guess 1 thing that we've been focusing on is just this capital markets recovery, but on the IPO side, that recovery has been much more tepid and some of the recent IPOs that kind of underperformed and some have broken price. So it might be too early to tell how that market will progress from here. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 1:00PM, LAZ.N - Q4 2024 Lazard Inc Earnings Call But if the recovery is weaker or slower do you think that's a bit of a catalyst for M&A activity for your business? Does that just become a much more -- M&A just become a much more attractive exit strategy for sponsors and then some better M&A activity overall? Or in your view, is it kind of better to see that healthy IPO market, too?

Question: Mike Brown - Wells Fargo - Analyst : Thank you.