Q1 2020 Earnings Call
Please standby.
Good morning, and welcome to Lazard first quarter 2020 earnings conference call.
This call is being recorded.
Currently all participants are any listen only mode.
During the remarks, we will conduct a question and answer session instructions will be provided I'm not time.
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At this time I will turn the call over to Alexandra Deignan.
It was arts head of Investor Relations. Please go ahead.
Good morning, and welcome to use our earnings call for the fourth quarter of 2020, and Alexandra Deignan, the company's head of Investor Relations.
In addition to today's audio common we posted earnings release, an investor presentation, which you can access on our website.
Do you play this call will also be available on our website later today.
Well, we begin let me remind you that we may make forward looking statements about our business in performance.
There are important factors that could cause our actual results level of activity performance sports achievements to differ materially from those expressed or implied by the forward looking statements, including but not limited to those doctors discussed in the Companys SBQ filings, which you can access on our website.
All these things no responsibility will be occupancy or complete much of these forward looking statements and assumes no duty to update. These forward looking statements. Today's discussion also includes certain non-GAAP financial measures that we believe a meaningful when evaluating companys performance.
A reconciliation of these non-GAAP financial measures to become comparable GAAP measures.
Provided in our earnings release, an investor presentation.
Hosting our call today are kinda Jacobs, Mozart's Chairman and Chief Executive Officer, and Evan Russo Chief Financial Officer. They will provide opening remarks, then we'll open the call the question.
Now I'll turn the call over 10.
Thank you.
Good morning, and thank you for joining today's call before we begin I'd like to acknowledge the extraordinary nature of the period, we were living true.
Well the human level, the suffering is unmatched you're only a couple of months into this pandemic and they're probably you seem to proceed on these calls he hasn't been touched personally directly or indirectly by there's so much.
Economic consequences are just beginning to be felt the massive rising unemployment typically in the United States is likely to lead to even more suffering.
Unless those with lost their jobs are quickly we integrated into the workforce. We may see strange centers society that we haven't experienced in generations.
The bravery and dedication of health care professionals first responders in frontline workers and are often times the most horrifying conditions.
Heroic to say the least we all odom enormous gratitude for their efforts and their sacrifice.
Well its artist Blessed with great people, great at their jobs, but they're also especially great human beings their efforts to support each other had been extraordinary but this but that is only the beginning.
The outpouring of support for their local communities through charitable works is inspiring at every level I'm humbled to lead this farm in this group of colleagues at this time.
From the start of the covert 19 outbreak or top concern, it's been a health and safety of our employees and we employ social distance you measure, Switzerland or people in Beijing in Hong Kong with the first to begin working from home by mid March virtually all of our employees around the world the government, saying.
Aided by investments in technology over the past several years as well as our robust continuity plan business continuity plan. Some dedication of our people in the resilience of our culture resorts transition to remote working with seamless using secure cloud based systems and integrated video conferencing, we're in heightened communication with each other and with clients.
As a firm we're reinventing our workplace.
The financial advisory our teams around the world are helping clients manage the effects of the Pandemics economic shock, we were serving clients with deep expertise in capital structure capital raising debt negotiations and restructuring and exchange offers supported by our global platform and industry sector teams.
For many companies the current environment is first and foremost to liquidity crisis, we're helping them find the necessity innovative financing options and advising on strategy and capital structure moving forward.
A preeminent restructuring franchise exposure is experiencing a surge of activity.
It is ranked number one in announced restructuring mandates for the first quarter of this year. We're currently working on more than 75 companies are creditors on restructuring matters worldwide.
We're pivoting additional bankers onto restructuring teams have we actually have done in previous cycles.
Our sovereign advisory practice has also seen an increasing activity as we continue to advise countries on debt restructuring.
Putting new assignments in Argentina in Lebanon, among others.
In addition, we are advising governments in developed economies on programs to support the private sector.
In asset management, we're serving clients with investment platforms that are broadly diversified across asset classes styles and regions.
Our focus on fundamental research can help investors navigate volatile markets.
Global orientation provides a broad base of opportunities worldwide network of local research and portfolio teams are expert in the markets. They cover across developed and emerging economies. They also have the regional perspective, and insights to identify opportunities and oversold sectors and our longstanding focus on U.S.G. and sustainability has become increasingly.
We are launching globally U.S. sustainability funds do you need strong and growing client demand.
It's always hard solid financial footing or deep relationship with clients and unrivaled expertise and strategic advisory restructuring and asset management solutions, we expect to emerge from this period in a position of strength now I think we'll discuss our financial results for the first quarter and then I will return with some comments on the outlook.
Thank you Ken.
Our first quarter results reflect the initial impact.
19 pandemic on the financial markets as extreme volatility affected our assets under management I'm Subadvisory transaction closings were delayed.
Financial Advisory is first quarter operating revenue of $295 million was down 11% from first quarter of 29 team.
This included a lower level of completed transactions in the Americas in contrast to Europe, where first quarter revenue increased year over year.
Asset management operating revenue of $269 million was down 5% from last years level, reflecting the sell off in global markets, especially outside the United States.
I. Appreciate you went for the first quarter was $222 billion, 3% lower than a year ago, and 7% lower than the fourth quarter of 29 team.
We finished the first quarter with anyway, I'm at a $193 billion, 22% lower than the started the year.
Decrease was primarily driven by market depreciation and negative foreign exchange movements with $4.9 billion of net outflows.
The quarters net outflows were driven primarily by equity and debt emerging markets as well as some local equity strategies.
In the first quarter, we had net inflows in our global multi regional fixed income strategies.
As of April 24th.
Approximately $190 billion, reflecting market appreciation of $7.6 billion during the month offset by net outflows of $1.8 billion and negative negative foreign exchange movement of $760 million.
Looking ahead across our franchise in financial advisory, while new M&A assignment announcements or mop, mostly on pause we are gaining a wide variety of strategic advisory assignments centered around restructuring capital advisory and sovereign advisory as well as liquidity focus mandates and potential divestitures.
The impact on revenue for 2020 remains uncertain, but we are encouraged by the level and quality of activity.
In asset management, our businesses performance will depend on average over the course of the year, which will fluctuate with the market.
Given our diversified platform and our ability to provide investment solutions for a global mix of clients. We believe we're positioned to benefit from improving market conditions.
Turning to expenses in the first quarter, we accrued compensation expense, 60% adjusted compensation ratio compared to 57.5% in the first quarter of last year.
Our accrued compensation level reflects higher amortization associated with previous years awards and lower revenue in this years first quarter.
Our full year compensation expectations will develop through the year based on revenues and business mix.
Non comp expenses were 3% lower than the same period last year, reflecting lower travel and business development costs.
Adjusted non compensation ratio for the first quarter was 20% compared to 18.7% in the first quarter of last year.
The higher ratio primarily reflects the lower revenue in this years first quarter.
Our effective tax rate in the first quarter as adjusted was 28.8%. We continue to expect annual effective tax rate for this year in the mid 20% range.
Turning now to capital allocation.
It was arts financial position remains strong with ample liquidity and balance sheet flexibility to navigate the challenging market environment.
As of March 31st our cash and cash equivalents were $793 million.
In the first quarter, we returned $211 million of capital to investors, primarily through share repurchases and dividends.
Yesterday, we declared a quarterly dividend our common stock a 47 cents per share.
We repurchased 2.9 million shares of our common stock in the first quarter exceeding our objective offsetting potential dilution from the 2019 year end equity grants.
Our total outstanding share repurchase authorization now stands at $306 million.
Our first quarter diluted weighted average share count declined 6% from a year ago 214 million shares.
Ken will now conclude our remarks.
Thank you Evan.
We've entered an unprecedented period of volatility for the global economy end markets regional economies around the world are facing recession and have experienced an unprecedented drop in aggregate demand a rising unemployment and supply shocks.
Central Bank interventions globally have stabilized that capital markets fiscal measures by governments around the world are attempting to offset the immediate drop in demand with varying degrees of success. The scientific community is collaborating globally with unprecedented way to identify therapeutics and ultimately hopefully a vaccine.
Shape the nature of the recovery is uncertain at this time it will depend greatly on a number of variables.
Of course, it depend dynamic.
The success governments have been relaxing social just can see measures and restarting economic activity.
Consumer psychology in a world, where the virus and still endemic.
The continued efficacy of monetary and fiscal measures.
And the potential for structural damage to the economy caused by the sharp drop in aggregate demand.
Particularly in the U.S. a high level of unemployment.
Well those are definitely fathers projecting performance for the remainder of the year is challenging given the uncertainty that Pandemics course, and its impact on the economy.
End market volatility that said.
In our advisory business, the breadth of our franchise and diversity of our revenue streams, whose buffering the impact of this volatility.
Our restructuring capital markets Advisory and sovereign advisory platform, So all highly active and position us well going forward as the year progress is we would expect to see distressed M&A activity across a range of impacted sectors much as we saw in the 2008 in 2009.
In the financial sector.
As he environment becomes more settled we would expect additional M&A activity is companies addressed supply chain disruptions.
Just a structural changes in the economy, resulting from the pandemic.
Our asset management business continues to provide a relatively steady and predictable stream of revenue in this volatile environment.
The diversity of our strategy is in platforms provide stability to this revenue stream.
We have 47 strategies, each with more than a billion dollars of assets under management.
We have investment platforms in fundamental and quantitative equities fixed income and multi asset solutions and we are adding new product offerings in the U.S. to space.
Our institutional base is stable and long term.
Our business model is highly cash generative.
And it's proven its strength and resilience across numerous business cycles.
Our people recognize and have confidence in the power of the Lazard model in difficult environments, and we excel at providing great advice to our clients during turbulent times.
Let's open the call to questions. Thank you.
Thank you.
Ask a question I can only pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure. Your mute function is turned off till I guess im not to reach our equipment again that is start wanted to ask a question well pause for just a moment to will not everyone an opportunity to signal.
Well take our first question from Michael Brown with KBW.
Hi, Michael.
Hi, Good morning on your line is open thank you.
Thank you.
Yeah, Hi, so, yes, all that being cash levels.
The quarter et cetera.
Right.
Well look bad.
Number of years, it looks to be part of the lowest levels it's done that.
So what gives you kinda talk that aims to pay the dividend and you expect to maintain the dividend going forward. Thanks.
Having you want to take that.
Sure Hey, Mike how are you this.
To start with the cash position. So as you said we ended the quarter at $793 million. Obviously this reflects the the cash bonus payments and the funding of our Ela fire warrants or fund interest awards, which which we fund.
For us at least we fund them immediately upon issuing them for year end compensation. So you know this is our seasonal low point in cash as you know we tend to build cash through the rest of the year. The difference between this year, probably the last couple of years in last couple of years, we had some additional financing that we had done so left some additional excess cash on the balance sheet.
In addition to that this corners cash we can't we usually fund Meola Fi Awards I just mentioned, we usually fund them at the beginning this quarter. This year, we yeah, we actually funded them and to be the beginning the end of the first quarter. So I would actually hit our first quarter cat ending cash balance.
And you mentioned the dividends as well look we announced and declared a regular dividend last night.
47 cents per share and this is consistent with our capital management policy, where are we returned all excess capital to our shareholders and look I think we expect to continue to do so of course look were mindful of the environment. We're in closely monitoring for additional signs of weakness, but weren't as strong a strong position from a balance sheet perspective.
Great. Thank you for that a clarification.
Just to change gears, a little bit appreciate the color on me, Brian mentioned that they get a little bit.
Sure.
Sure.
I guess can plus how do you kind of you this downturn compared to prior warm simple thing.
Traditional M&A.
Structuring standpoint.
And then.
What is your baseline expectation as it stands today as to when that that advisory and restructuring activity can meaningfully offset the M&A decline, obviously that 75 mandates right now that sounds like you can do a good buffer cleaners, but clearly not enough to offset a slowdown in ended.
And so any color on that handoff would be.
I appreciate it thanks.
Sure. So look a this downturn is very different from any we've ever experienced before well Wedo nine was obviously a very significant event, but it was highly.
But it was focused primarily at least initially on the financial sector. It radiated out or to a couple of other sectors realist or the auto industry. As an example, some areas of homebuilding real estate and such but largely once the financial sector was contained.
The crisis was contained but there's no small task to do that but at the crisis was contained and Ah. The recovery set him here. A this is very different from weighed on nine or for a bunch of reasons I mean first and foremost it's hit the entire economy.
And it's very dependent on.
The psychology of the consumer economic factors as to this rate and speed of the recovery that is once we are.
Exit the social distancing measures how to people behave and how quickly do they go back to their old at there the economic habits. They had prior to the crisis.
That plus you also have the issue of the just the sheer drop in aggregate demand and the very substantial unemployment and that becomes another factor that we have to watch carefully because how quickly. These unemployed get you got employed.
Get we integrated into the economy or affects also the ability for the economy to recover. So this is very different from all ido nine or there are aspects of it that could allow for a quicker recovery, but they're also aspects of it we have to watch very carefully that would make it or more likely that this isn't.
An extended recovery more like what we would describe as a you were.
For better and elongated you.
So that's that's the first part now how that impacts M&A and distresses it.
It's a difficult question too and then restructure is a difficult question to answer right now, but I can't I Kinda think our sense is that we're going to be an.
Liquidity constrained environment for some time here or there was an initial burst of activity around restructuring or with the advent of the crisis that involved a lot of companies, which were already in a level of distress going into the crisis that we said the oil and gas sector. Some in the retail sector.
There was a.
Lot of activity around that very quickly then you saw the massive actions of the fed a which we've taken some of the liquidity concerns off the table and bought some time for companies. We expect that to probably result in more activity pick and it is resulting in more activity picking up.
Now it's people come to grips with the fact that they still are gonna have liquidity problems. Because this economy may not recover as quickly as people oak.
And so that's that's but I would almost called the second wave and then there's likely to be more that follows that now as far as how it affects our pipeline look M&A restructuring never substitutes or at least our experiences it's been that M&A or restructuring never really substitutes for M&A dollar for dollar that was you know wedo.
Nine we saw very significant increase in restructuring backlog or but it never really substitute M&A for dollar for dollar but at the same time. It does provide a very important buffer at least for US. It has in previous crises I expect it will here as well I'm also the breadth of the capital advisory platform and the sovereign.
Advisory platform also provide some buffering for us and one of the seems to watch is really when does M&A come back right now it's a there's very little activity. Our expectation is that we're probably going to see some activity like we didnt know ito nine or that is born out of distress or probably sometime in this.
Summer across a range of sectors that have been hit hard here and then you have supply chain.
Issues, which are gonna have to be addressed which lead to a classic five versus build issue, which could lead to more activity and then ultimately there's going to be reconfiguration of companies because there's a reconfiguration of the economy going on as a result, with a pandemic that will likely take place hard to predict when all this happens, but it's it's almost inevitable that we will see some activity as a result of though.
Massive disruption that's taken place.
Thank you and we'll take our next question from Steven Chubak with Wolfe Research.
Hey, guys. This is Chris Walsh filling in for Stephen.
Hey, Chris Good morning.
Maybe one for Evan.
On the operating margin you've seen that very nicely both businesses over the last few years.
But covered 19 related disruption couldn't they'd be forced out the other way here what are you doing on the cost side to protect margins, but on comp and not top and how much lower do you think you can flex non-GAAP.
Yeah. So look I did you say look it's early in the year for us to be really talking about compensation, we accrue at our best estimate for the year or which is sort of what we put out in Q1 at this point in time.
I really look we have to see this parity in the duration of the impact of disruption before we're going to have a better view and as we said, we generally do a compensation decisions really in Q4, so I'll leave that part out on the non comp side as we mentioned this quarter.
We got a little bit of the benefit of lower travel in business development offset by some of that work from home and other tech expenses, others ins and outs, but ultimately having less travel and business development expenses led to a lower non-GAAP number and I think we would expect tickets with this new working paradigm, where all in.
I would say we expect to see continued.
Weakness and the travel and entertainment part of our non comp line or lower travel entertainment expenses or at least into the second quarter. So I think we're gonna get a little bit a benefit from that and then of course on top of that you no longer term as we've always done we're continuing to review all non comp in line to the current environment and the new work.
In paradigm I'm thinking a little bit more about on longer term projects and see what we could delay or forestall just because of the changing environment that we're in.
Look we have as you mentioned, we have a long history of cost control and discipline and both of our businesses and then across the entire firms I'd expect us to continue to be vigilant as we as we move through the next couple of quarters.
Got it. Thank you and then as you think about the difference.
[laughter] different says I guess across geography is can you kind of speak to what you're seeing and as certain parts of the world began reopening.
Are you seeing any green shoots a CEO confidence on them and those areas relative to others.
Let me just any trends by geography, it would be helpful.
Excuse me for said, let's start just with Asia first in China, you probably had been market open the longest a and there is a little bit of a pickup activity a little bit pick up in terms of optimism.
But it's still it's still early days Europe, we haven't seen anything yet because the social distance. He measures are just standing in Germany, and or several weeks off and the rest of the continent right now.
So we haven't seen much in the way of change there yet obviously, the saying in the U.S.
I think it's going to be it's going to take several several weeks if not a few months before you really sort of see a shift in people's perceptions.
About the environment.
I think the obviously the market the rallies in the equity markets helps a bit in certain sectors that have been less affected and and probably in some of those sectors, whether its health care Tech. We made on the bio pharma side, we may see a little bit activity earlier.
They said I think you guys.
Next question comes from Brennan Hawken with yes.
Good morning can you go to me.
Yes, right area.
Great. Thank you.
Having I think you talked about a bit of a pull forward on the five funding here, even want to Q instead of as seasonally normal into Q with that level of Lf I funding different this year and what drove that and what drove the decision to pull the timing hearing in one Q versus Twoq just.
Seems a little unusual given the magnitude of uncertainty in the environment.
Yeah. So this was planned from the beginning I mean, it's not really a change I mean, we historically grant deal if I worse employees, just a question of way to win when they choose not to make those investments and we put that cash in on their behalf as soon as they do usually we wait wait a few weeks post earnings or a month to month in half.
Post earnings that falls into Q2, we plan to try to bring it forward. This year just to try to line up with one compensation was given so it was a change that didn't plan for a while it doesn't matter to us effectively since were.
Planning to put that cash into the funds and so it doesn't have a material impact from us whatever happens in Q1 or Q2.
And then the mix part of the question or whether they ask you know.
Yeah. So this year was a little bit larger part of that is due to you know employee just just choosing which they want for their portfolio. We give employees of choice for part of their compensation relating to some of their bonus whether to put it nullify or other components. This year. It was slightly higher than it was it'll be a probably about 100 and.
$340 million this year versus a somewhere in the $75 million range in previous years.
Okay, great. Thank you and then [laughter] looking at the cash flow statement from last year.
You know out of the K it looks like a if we took a look into cash from operations. You know you guys generated is somewhere in the neighborhood of.
180 million box and and then if we look at the financing.
Usage aside from.
Debt issuance and and buyback.
You know we're looking at a total of about five little over 550 million. So we'll see if there's a little bit of an excess about 100 million Bucks.
<unk>, how should we think about given that 2020 and this might be a lot of trick here a year here how should we think about the room that we have there.
They are likely to be some.
Pull back on buyback in order to make sure that you guys constrained.
Hold on to some liquidity in the.
Remarkably uncertain outlook and is there any noise or or factories, we should think about when we look at the cash flow statement out of the cash.
Sure. So I mean look as you mentioned are highly cash generative business can you just mentioned that as well.
And one of the largest uses of cash we have is returning cash to shareholders through share repurchases as well as dividends. You mentioned you know we produce it's important to start with thinking about the fact that our cash flow is larger than the net income we produced in any given year.
First and foremost.
Difference between our cash tax cost in our book <unk> tax costs on top of net income and then on top of that you've got all the amortization of comp that effectively as excess cash on top of that so yeah. We produce I think last few was approximately $700 million.
Of cash we don't have any significant capex in any given year, although there's always a little bit of movement around receivables and working capital, but not not to two material if for any given period of time and said look we return.
90, plus percent probably to shareholders through dividends and share repurchases through the year and in Q1, what we did as we bought back a lot of a shares relating to the compensation a more than offsetting the compensation from year end awards in Q1 of this year, we bought back 2.9 million shares sort of frontloaded that with the weakness and the stock.
I'd expect us to continue to think about using excess cash for share repurchases, but obviously given the given the uncertainty in the environment, we're probably going to take it quarter to quarter on share repurchases to think about additional share repurchases from the excess cash.
I'd say in this environment is likely to be limited for the next quarter or so.
And we'll see where the environment does.
Yeah that makes a lot a sense. Thanks for all that color Evan I just one quick follow up as I was thinking about that hundred 3200, 40 million versus 70 million on the L. I find that does that mean that youre, the lazard base or the stock based component of compensation.
And would be that much less this year as some employees opted for some of the other options for indexing their deferred.
<unk>.
Yes, that's exactly right. It's just the mix question between between the two.
So ultimately if employees are choosing more fun to interest then there's less stock network granting as part of that deferred compensation component of their award.
Okay, and I didn't quite frankly, we gave we gave a little more flexibility to employees to make those choices here, so that probably accounted for somebody increase.
Makes sense, thanks to the color.
Well take our next question from Devin Ryan with JMP Securities.
I get a great. Good morning, good morning.
Most of them asked but a few years I guess the first one here just to maybe dig a little bit more around some of the regional differences in activity and as we think about your European activity coming into this recession, it's off a much lower base, but a decade ago and I'm trying to just think about how that might play into the magnitude.
The potential slow down and I'm, just getting it is or less room to fall there and then just thinking about on the restructuring side of the business capital markets just continued to develop outside.
The U.S. are still private waters opportunity in the U.S., but you guys have arguably the best position outside the U.S. So just trying to think about you said that the you maybe restructuring opportunities today outside the U.S. relative to a decade ago.
Sure. So source, you're right Europe was coming off generally speaking for the market a pretty low base and the last few years relative to a decade ago or more in terms of cycle. We have seen as we sort of pretended last year of improvement in the second half a year and we saw some of that eating into the first quarter.
All of this year.
Which was good part of that was market part of it was market position for us, but it does come off a relatively low base. So there that you're I think your observation how much can it fall or will fall is there's a good good observation second is I'm on restructuring in U.S. versus outside the U.S. so far the restructuring.
In burn and seems to have picked up a little quicker than the U.S. impart I suspect that is because that the first wave of this restructuring a involved a lot of companies that were already in a discussion around liquidity issues and balance sheet issues prior to the crisis and those quickly turned into were traditionally.
Altering assignments are out there wasn't as much of that in Europe in part because you don't have you oil and gas sector in.
The retail sector aside from one country wasn't hit as hard in Europe.
As it is in the U.S.
So I think that first burst of pipeline build oh wasn't as significant hasn't been a significant in Europe is in the U.S. that said, we're starting to see now I'll pick up activity in Europe as you'd expect as you start to now deal with the liquidity concerns associated with it crisis itself and and I think we're pretty well position to that.
The strong team both in the UK and on the continent that has you know several cycles of experience dealing with this and you know we should be in a reasonably good position to benefit it use the word benefit but to take to Oh, you know see some gains from Miss from this environment.
Got it really helpful color again, and then just a follow up <unk> expenses more broadly you guys have one of the biggest real estate footprints in the industry I know, having a regional presence and comments like you're up there has been important but just trying to think about you know the.
The real state footprint coming out of this year work from home as Ben I think smoother than many people thought heading and I think the way business as Don could potentially change on the other side of this as well. So just you know maybe thinking about some of the implications of that whether it's real estate or somewhere else and then you also on expenses and spending year just did.
Recruiting.
I'm kind of opportunity your thoughts in a lot of firms are probably hunkering down here, but you know this might be an opportunity to pick up some good talent. So just trying to think about your kind of overall spending views kind of intermediate term in long term.
Okay. Good question I'm real estate, something we're actually give me a lot of thought to right now and it's a very practical question as well I. The reality is for the next six to 12 months, we're going to be in a reduced.
Office environment, I mean, I'm not sure the exact words to use for the some certain I'm sure someone's going to coined the phrase along the way, but it's pretty unlikely that any of US are gonna go back to something close anywhere near 100% workforce in the office anytime soon our expectation is it's going to start slow maybe first of all we're not going to rush to get back.
Okay.
Because actually we're finding that this work from home environment is very effective or both in terms of our internal communication and also in terms of our ability to communicate with clients.
There is gonna be limited travel for the next six to nine months at least I'm. So we're going to be working in this kind of fashion with clients. During this period of time going back to the office is probably going to start with maybe 10 or 20% of the workforce and then maybe you get to 25 or 40, and maybe you get close to 50, but the expectation.
And that we're going to get to 100% of the workforce all in at the same time in the next six months or so I think is a little bit optimistic and so that leads you to think about if your effective working like this and that's gonna be environment going forward I mean, there's going to be a period of time, we're going to need.
Some social distancing and separation with the office, which works against reducing your real estate footprint, but there's going to be a point in time, we expect over the next year, or so where theres going to be a real opportunity to rethink what the workplace looks like how much office space you need what work from home what kind of people can work from home three or four days a week.
Or one or two days, a week and be in the office three or four days a week and can you take out 10 or 15% of your footprint from a real estate perspective, or maybe even more I mean, those are all things, which we're gonna be thinking about I'm sure everybody and these personal service industries, you can think about as well.
And then on the recruiting side look we are always opportunistic in environments like this with recruiting you saw we just.
Hi, George ballistic rejoin us seems very senior banker, obviously, one of my senior bankers in the industry on the power and energy and general aside and we're grateful to have George back I think we will continue to be opportunistic where we see you know great talent, obviously, it's an environment, where you're going to be thoughtful, but you know you have to be opportunistic.
These times I'm. This is the since when you make your franchise.
Yes.
Okay, great. Thanks, guys appreciate the answers yep.
Yep.
Yeah.
Well take our next question from Jeff Harte with Piper Sandler.
Morning, guys. Most questions have been hit on one to follow up on can you give us any color on kind of the level and makeup of client dialogue on the strategic side I guess I'm trying to get a feel her whether a strategic is there any kind of a whole pattern because a shelter in place versus.
More kinda survival mode like we saw back in a way no nine.
Sure So first of all actually.
I think our general.
Experienced so far is that clients remain a highly accessible during this environment. We've actually found that video conferencing is a very effective way to interact with clients.
During this period of time and you know our restructuring businesses operating a virtually a very effectively in this in this environment.
On strategic dialogue, it really depends on what industry or in a what the nature of your businesses at that point in time and such there's some industries, where you really are hunkered down and you really are focused on into it on.
[laughter] on liquidity and you know you can I think it's easy to kind of identify those industries are several that have effectively gone from country to zero, where the lights were on and then they went out lot of those are in the travel leisure entertainment arenas and there the issues are really around liquidity at least initially and then there are other and.
Histories, where you're probably a two concentric circles out from.
The crisis.
And your business is still operating amazing be doing a little bit better in some instances and their there are a real dialogues that start to take place around.
Resiliency and strengthening market position and such and the other area where.
There was dialogue, which I think it's going to increase is really around supply chain and this is probably both in industries, where you have a strong company, but weak either suppliers are customers and you have to think about how you buttress that either through helping them with liquidity or alternatively through some form of M&A.
And then and then the other is gonna be around thinking about sourcing and how you are benefit your own position in sourcing.
Because people are very focused on having the ability to secure supply and there were certain industries, which you're gonna be highly focused on that I would say pharmaceutical industry is one some of the technology industry parts and technology industry is another.
And then last is you know thinking people are beginning to think through okay.
If I've got a strong position and I've got a strong balance sheet are there some consolidation opportunities no one's acting right now I think there's just too much distress in a little too much fear of distress in the markets too much uncertainty around the markets for people to act right now, but the dialogues are beginning and they're going to accelerate as we get a better sense of where the.
Economies headed and day or less volatile.
Capital markets.
Okay, and finally looking at restructuring or is it reasonable to look at kind of your historic disclosures. When you broke the revenues out to try and get some kind of an idea if they'd be the potential revenue size or kind of like this restructuring cycle could turn into.
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Good question.
The reason we are eliminated disclosure it became too hard to distinguish between a pure restructuring assignment of capital advisory side of the distress M&A assignment and.
<unk> difficult time, making those assessments.
I suspect in terms of magnitude, it's probably a good starting place or it's just I would caution you in in this environment. There are two things that are very different from previous ones. The first is it's across the entire economy, which is very different from all eight or nine which was concentrated in the financial services sector and yes radiated.
Now to automobiles and some of the real estate or homebuilding sectors, but it was pretty contain this is potentially across a much broader a part of the economy. That's the first observation. The second is which works and the other way is the fed ER and the central banks have been.
Particularly effective at providing liquidity to markets and reducing levels of volatility and and making financing accessible for a broad range of companies which was.
Not available to the financial services sector.
In the same way in 2008, nine and so in some ways. It's very you know you've got a broader set of opportunities in other ways you have probably more support for a companies at least in the initial round of this.
So.
I think generally speaking I think we're going to see a very high level of activity. Its just a little hard to predict right now exactly how that unfolds and for how long are because it's going to depend a lot on the nature of the recovery are we going to be which is looking less and less likely to be the case Orient something more extended in which case, we're probably going to see.
And you know a couple of waves of restructuring activity, but that's something we'll have a much better idea everyone.
Over the next couple of months.
Okay. Thank you.
And our final question comes from Mynetwork affiliate with Morgan Morgan Stanley.
Hi, good morning.
Good morning, I was wondering guy on the on the asset management side. You previously mentioned that institutional funds that then I rebalancing that portfolios driving some net outflows.
So I was wondering if that's possible to categorize see outflows you saw on why don't you between yeah. The ongoing rebalancing and you know how much effect was just resolved to us to a weaker macro environment or you know maybe if the environment just accelerated rebalancing and I'm going to maybe if you can comment on how you're thinking about half flows going forward.
Sure, having you want to touch on the outflows and I'll touch on the flows going forward sure. Yeah. So I'm going on as you mentioned, we've talked about the rebalancing of portfolios in the past, which was the driver if somebody outflows I think this corner, we continue to see I mean them for the most part as we called out this morning, the outflows were in the.
Platform and then a couple local strategies.
So a lot of that he is the rebalancing I don't think there was a as much as an institutional client.
Base.
They tend not to jump when markets move in the first signs of volatility and so I don't think a lot of the any of the flows that we've seen really related to the early parts of this pandemic, what we'll see how that plays out I was kinda talk about in the second but look a lot of this really relates to the growth versus value paradigm that we've been in that we've talked about in the power.
You know our portfolios remain and are heavily value tilted and even in this recent currency volatility value is as underperformed quite significantly underperformed growth and this place here and so I think that that's a.
A little bit of the sort of a continuation of this rebalancing god trends that transaction that we've seen over the course of the last couple of quarters and then I think we would expect to see a little bit more of that coming forward, but very little bit has to do with the dependent.
And then going forward flows I would say we are I would say.
Pleasantly surprised by the level of RFP activity right now I think it's the highest level of RFP activity, we've seen in a couple of years.
And Ah.
And it's across a range of our our products. So you know it's gonna be interesting to see how this plays over the next couple of months or so I think there you know the recent moves in the markets have given you know all investors a little bit of pause about thinking about allocations and and where they want to make their bets and with the next couple of years or so because we're going to be in a very different type of.
Economic environment than the one we've been in for the last several years or so and so I think it's getting a lot of it's getting a lot of institutional investors and investors generally thoughts about how they how they make the how they make.
There are allocations going forward and I think that's reflected in this high level of RFP activity right now and you know given our offerings I think we're pretty hopeful that is going to work toward benefit.
Got it and GAAP any oh, he is generally read on chosen April.
Evan.
Yes, we called out this morning 1.8 billion as of April 24th net outflows I think that's just the continuation of what we've seen.
In the first quarter.
Got it Tom and then just a clarification sorry, if I missed that but into corporate segment you had a negative revenues. This quarter should we think of that has that returning can you all know and the next quarter.
Yeah, So as we talked about corporate revenue, we had a loss.
And $900000 in the quarter, there's a lot of components as we've talked about in some of the previous calls a lots of components in the corporate line I mean, there's cash interest theres the seed portfolio gains and losses some of the movements in our legacy P. interest from FX adjustments I said literally a myriad of things that go into a quarter to quarter.
I'd say this quarter, we had we've taken some revaluation related to the small a small.
Piece of the private equity interests that rolled into legacy private equity interest there were holding given the given the market conditions, but yeah. I mean, I think I expect that over the next couple of quarters to go back to a more normalized rate.
Great. Thanks.
I would add that I should add that book with lower interest rates around the world, we're running less on the cash as well. So that's a that's gonna be sort of a lower stuff than we've been working through that in the last year. When short term interest rates are rising we're earning more on the cash which has the end of the day the largest driver if the corporate revenue line item, which is never a significant but it's still the bigger.
Component of it.
Okay got it thank you.
And this now concludes flips our conference call.
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