Q3 2023 Lazard Ltd Earnings Call

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Good morning, and welcome to Lazard to third quarter and first nine months of 2023 earnings Conference call. This call is being recorded.

Currently all participants are in a listen only mode. Following their remarks, we will conduct a question and answer session instructions will be provided at that time.

If anyone should require assistance during the call. Please press the star key followed by zero key on your telephone keypad.

At this time I'll turn the call over to Alexandra Deignan Lazard to head of Investor Relations Treasury and corporate sustainability. Please go ahead.

Thank you David good morning.

And welcome to Lazard to earnings call for the third quarter and first nine months of 2023.

Alexandra Deignan head of Investor Relations Treasury and corporate sustainability.

In addition to today's audio comments, we've posted our earnings release on our website a replay of this call will also be available on our website later today.

Before we begin let me remind you that we may make forward looking statements about our business and performance. There are important factors that could cause our actual results level of activity performance achievements or other events to differ materially from those expressed or implied by the forward looking statements, including but not limited to those factors discussed in the company's SEC filings, which you can access on our web.

Right.

<unk> assumes no responsibility for the accuracy or completeness of these forward looking statements and assumes no duty to update. These forward looking statement. Today's discussion also includes certain non-GAAP financial measures that we believe are meaningful when evaluating the company's performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP measures is provided in our earnings release and Investor presentation.

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Hosting our call today, Peter or that was <unk>, Chief Executive Officer, and Mary Ann.

Our Chief Financial Officer, Peter will begin with some brief remarks before turning the call over to Maryann, who will provide an overview of our financial results. Peter will then provide his perspective on current market conditions and the outlook for our business.

After our prepared remarks, Peter Marianne will be joined by Evan Russo Chief Executive Officer of asset management and they open the call for questions I'll now turn the call over to Peter.

Thanks, Allie and good morning, everyone I'd like to begin my first earnings call as CEO of Lazard by expressing my thanks to my predecessor, Ken Jacobs, we are thrilled that Ken one of the world's Premier bankers is now our executive chairman and has shifted his focus to advising clients.

Also want to thank our board of directors for Entrusting me with this role it is a privilege to work with such exceptionally talented colleagues across the firm and I look forward to serving and supporting them our clients and our shareholders.

Lazard is one of the world's preeminent financial advisory and asset management firms with one of the most powerful brands in the financial services industry and I am excited about our prospects to further elevate our relevance revenue and returns.

Ill provide more on our outlook and plans for Lazard later, but now let's turn the call over to Maryann to discuss our third quarter and nine months results.

Thanks, Peter and good morning, everyone.

Today, we reported operating revenue of $532 million for the third quarter of 2023, and 27% decrease from the third quarter of 2022.

Operating revenue for the first nine months was $1 7 billion compared to $2 1 billion in the first nine months of the prior year.

In financial Advisory, we reported third quarter revenue of $261 million and $879 million for the first nine months of the year.

Advisory operating revenue continues to be impacted by the ongoing slowdown in M&A and this quarter's results reflect the lagged state of M&A announcements from several quarters ago.

Looking ahead, we believe the M&A cycle is turning and we are well positioned as the market recovers to advise on a variety of transactions, including those associated with private capital as well as large cross border and complex transactions.

Side of M&A, we see continued momentum in several areas of the advisory business.

Private capital Advisory are primary and secondary capital raising group continues to see significant demand for services, especially in the secondaries business building on our strong second quarter and year to date results.

Lazard is global restructuring and liability management group also had a strong quarter with operating revenue, increasing both sequentially and year over year.

The pickup in restructuring activity is accelerating and the team is currently advising on a number of significant transactions for a wide range of debtor and creditor clients.

Our sovereign advisory business also continues to perform well and advised a number of governments during the quarter, including prominent assignments for Sri Lanka and Greece.

Lastly, one year after its launch client demand continues to increase for our geopolitical advisory services amid the growing demand from corporate leaders for advice concerning global risks.

In asset management third quarter operating revenue was $262 million flat compared to the third quarter last year and down 2% sequentially.

Management fees and other revenue for the third quarter were up 8% compared to the third quarter of 2022 and flat compared to the second quarter of 2023.

For the first nine months of the year management fees and other revenue declined 1% compared to the same period in 2022.

Asset management revenue was $794 million in the first nine months of 2023, 5% lower than the prior prior year period, reflecting lower incentive fees.

As of September 30, we reported AUM of $228 billion, 5% lower than June 32023, and 15% higher than September 32022.

The sequential decrease was driven by market depreciation of $5 8 billion foreign exchange depreciation of $3 3 billion and net outflows of $2 billion.

Average AUM for the third quarter was 236 billion, increasing 11% from a year earlier and flat on a sequential basis.

Average AUM for the first nine months of 2023 was $233 billion level with the first nine months of the prior year.

Now turning to expenses for the third quarter adjusted compensation expense was $364 million.

This equates to a 68, 4% adjusted ratio during the third quarter, which reflects our current best estimate for the remainder of the year.

Our non compensation expense was $137 million in the third quarter, 7% higher than the third quarter last year related to increased occupancy costs as well as higher technology and professional services expenses.

We are progressing on our cost saving initiatives announced in April to reduce head count by 10% by the first quarter of 2024.

Our goal to reduce overall cost includes a reduction in re prioritization of long term projects.

These changes reflect our commitment to return to our target expense ratios as revenues normalize.

Our effective tax rate for the third quarter as adjusted was eight 4%, which compares to 25, 1% in the prior year quarter.

Our current estimate for the full year tax rate is projected to be in the low to mid teens or.

Our estimate as always is dependent on the level and location of earnings as well as the impact of discrete items in the fourth quarter.

Turning to capital allocation in the third quarter of 2023, we returned $52 million to shareholders, primarily reflecting our quarterly dividend.

During the first nine months of the year, we returned $285 million to shareholders, including $129 million and dividends of $102 million in share repurchases and $54 million in satisfaction of employee tax obligations.

Additionally, yesterday, we declared a quarterly dividend of <unk> 50 per share.

I will now turn it back over to Peter for comments on the outlook. Thank you Maryann today's results underscore the lag effects of the slowdown in M&A announcements from several quarters ago.

Our asset management business and part of our advisory business, including restructuring and private capital secondary fundraising are offsetting some of the overall market weakness in M&A.

Looking forward and as we have previously stated we believe that the worst of M&A slowdown is behind US we continue to see signs that the market is bottoming out and stabilizing with the quarters ahead poised for a rebound in deal activity.

We are already seeing significant M&A activity in financial institutions healthcare and the energy transition among other sectors. We are also seeing early signs of an increase in cross border M&A activity, which with our global presence and expertise we are well positioned to capture.

This bottoming out reflects the interplay between the catalyst of activity, including ongoing technological innovation shifts in global supply chains, The life Sciences Revolution, and the energy transition and the headwinds which include a divergent and expectations between buyers and sellers because of the impact on valuations.

From the sharp increase in interest rates, the uncertainty and financing markets and regulatory concerns as.

As higher interest rates remain in place for a longer period as.

As monetary policy tightening likely nears its end and as some companies have one court victories on regulatory matters to her.

Headwinds have generally been easing in recent months.

One of the strong indications of this changing balance between catalysts and headwinds comes from the tenor of our client discussions which are growing more constructive.

There are two important lags between such a constructive shift in client discussions and revenue.

First there is a lag between active discussions and an increase in announcements, which for the market as a whole have now stabilized but are not yet increasing meaningfully.

After a pickup in announcements another logged on occurs to completions at which time the revenue impact of the rebound in activity begins to be felt.

In addition, as the M&A market begins to rebound. We are also seeing non M&A revenue opportunities within our capital solutions and restructuring businesses, both of which are seeing client activity accelerate.

Operator: Please stand by, your program is about to begin. Good morning and welcome to Lazard's third quarter and first nine months of 2023 earnings conference call. This call is being recorded. Currently, all participants are in a listen only mode. Following the remarks, we will conduct a question and answer session. Instructions will be provided at that time. If anyone should require assistance during the call, please press the star key, followed by zero key on your telephone key pad.

In asset management, despite volatility in the market the challenging interest rate environment and another surge in growth mainly attributable to a select group of technology companies. We saw strong performance across many of our investment strategies and groups, including emerging markets thematic and local strategies.

Alexandra Deignan: At this time, I'll turn the call over to Alexandra Deignan, Lazard's head of investor relations, Treasury and corporate sustainability. Please go ahead. Thank you, David.

While new money is being put to work the appeal of short term investments T bills in money market funds remains significant as such industrial appetite to allocate cash to equities in risk assets remains subdued nonetheless, institutional investors are showing interest in our global quant and thematic strategies.

Alexandra Deignan: Good morning and welcome to Lazard's earnings call for the third quarter and first nine months of 2023. I'm Alexandra Deignan, head of investor relations, Treasury and corporate sustainability. In addition to today's audio comments, we've posted our earnings release on our website. A replay of this call will also be available on our website later today.

Let's now turn to our future outlook for Lazard in.

In addition to our lives are sorry to our World class brand Lazard today has the potential to combine high return future growth with a significant underlying degree of stability.

Alexandra Deignan: Before we begin, let me remind you that we may make forward-looking statements about our business and performance. There are important factors that could cause other actual results, level of activity, performance, achievements or other events to differ materially from those expressed or implied by the forward-looking statements, including but not limited to those factors discussed in the company's SEC filings, which you can access on our website. Lazard assumes no responsibility for the accuracy or completeness of these forward-looking statements, and assumes no duty to update these forward-looking statements.

Our growth will be built on a foundation of a resilient model that spans across businesses products and regions and a structure that is more secure than one focused solely on M&A in a specific geography.

Last month, I outlined our objectives between now and 2030.

Our growth will come from proactively leveraging our brand into new and expanded areas through talent development lateral hires and inorganic additions, while concurrently managing our existing business even more efficiently.

Alexandra Deignan: Today's discussion also includes certain non-gap financial measures that we believe are meaningful when evaluating the company's performance. A reconciliation of these non-gap financial measures to the comparable gap measures is provided in our earnings release and investor presentation.

Alexandra Deignan: Posting our call today, our Peter Orzad, Lazard's chief executive officer and Mary Ann Gutch, Lazard's chief financial officer. Peter will begin with some brief remarks before turning the call over to Mary Ann, who will provide an overview of our financial results. Peter will then provide his perspective on current market conditions and the outlook for our business. After our prepared remarks, Peter and Mary Ann will be joined by Evan Russo, chief executive officer of asset management, as they open the call for questions.

One important step on this path involves elevating our relevance through more involvement in top deals in advisory winning important mandates and asset management and leveraging our global insights with increased thought leadership and content rich convening.

Our Lazard 2030 vision also includes two specific and concrete goals for the firm to accomplish by the end of this decade the.

Peter Orszag: I'll now turn the call over to Peter. Thanks, Allie.

First is to double revenue firm wide by 2030 with increases split roughly evenly between asset management and financial advisory implying double digit revenue growth annually on average.

Peter Orszag: Good morning, everyone. I'd like to begin my first earnings call as CEO of Lazard by expressing my thanks to my predecessor, Ken Jacobs. We are thrilled that Ken, one of the world's premier bankers, is now our executive chairman and has shifted his focus to advising clients. I also want to thank our board of directors for entrusting me with this role. It is a privilege to work with such exceptionally talented colleagues across the firm, and I look forward to serving and supporting them, our clients, and our shareholders.

The second goal is for <unk> total shareholder return to average 10% to 15% per year through 2030.

Let me share a few more details on some of the specific actions, we will take to reach these goals.

Looking first at the asset management business, we have opportunities in both the core business and in Adjacencies and we intend to pursue these opportunities aggressively through both organic and targeted inorganic growth.

Peter Orszag: Lazard is one of the world's preeminent financial advisory and asset management firms with one of the most powerful brands in the financial services industry, and I am excited about our prospects to further elevate our relevance, revenue, and returns.

Private asset managers with some degree of established track record, but that are still relatively early in their AUM progression are of particular interest in any programmatic M&A for us over the coming years.

Mary Ann Gutch: I'll provide more on our outlook and plans for Lazard later, but now let's turn the call over to Mary Ann to discuss our third quarter and nine months results.

We believe opportunities of this kind, we will combine the strength of our brand and distribution with the benefits from a fund managers established investment performance, while optimizing shareholder value relative to the acquisition costs.

Mary Ann Gutch: Thanks, Peter, and good morning, everyone. Today, we reported operating revenue of $532 million for the third quarter of 2023, a 27% decrease from the third quarter of 2022. Operating revenue for the first nine months was 1.7 billion compared to 2.1 billion in the first nine months of the prior year. In financial advisory, we reported third quarter revenue of $261 million, and $879 million for the first nine months of the year. Advisory operating revenue continues to be impacted by the ongoing slowdown in M&A, and this quarter's results reflect the lag state of M&A announcements from several quarters ago.

We also see potential for asset management growth by investing in and expanding our distribution capabilities.

Evan has been implementing a strategic plan to maximize the value of our global distribution platform, which includes increasing our client reach worldwide with a particular focus on financial intermediaries in the U S and Europe and regional expansion in Asia, as well as engaging more effectively with our clients.

Additionally, we have continued to develop a group of recently launched strategies with strong investment track records that are poised for growth and we will continue to launch new ancillary products and vehicles to build upon our current investment capabilities and offerings.

Mary Ann Gutch: Looking ahead, we believe the M&A cycle is turning, and we are well positioned as the market recovers to advise on a variety of transactions, including those associated with private capital as well as large cross-border and complex transactions. Outside of M&A, we see continued momentum in several areas of the advisory business. Private capital advisory, our primary and secondary capital raising group, continues to see significant demand for services, especially in the secondary's business, building on its strong second quarter and year-to-date results.

Turning to financial advisory multiple pathways will contribute to doubling our revenue over the next seven years, including an expanded private capital efforts spanning our capital raising business, our new Lazard capital solutions practice.

And more extensive M&A fees from private equity.

Among our M&A clients, we see potential for growth in both the United States and Europe.

Mary Ann Gutch: Lesard's global restructuring and liability management group also had a strong quarter, with operating revenue increasing both sequentially and year-over-year. The pickup in restructuring activity is accelerating, and the team is currently advising on a number of significant transactions for a wide range of debtor and creditor clients. Our sovereign advisory business also continues to perform well and advise the number of governments during the quarter, including prominent assignments for Sri Lanka and Greece. Lastly, one year after its launch, client demand continues to increase for our geopolitical advisory services, amid the growing demand from corporate leaders for advice concerning global risks.

One key differentiator is that Lazard has long been known for its exceptional insight into geopolitical events and our ability to combine our business advice with an awareness of the geopolitical forces that could affect outcomes.

That's all the more valuable to clients today and our capabilities in this area have been reinforced by our outstanding geopolitical advisory team.

Turning to specific sectors.

Opportunities for us exist across many areas in North America, with particular growth potential and technology industrials power and energy and healthcare, while we continue to build on our historically strong positions in sectors, such as financial institutions and real estate.

Mary Ann Gutch: In asset management, third quarter operating revenue was $262 million, flat compared to the third quarter last year, and down 2 percent sequentially. Management fees and other revenue for the third quarter were up 8 percent compared to the third quarter of 2022, and flat compared to the second quarter of 2023. For the first nine months of the year, management fees and other revenues declined 1 percent compared to the same period in 2022.

We also see significant additional revenue opportunities in Europe, which would be accentuated by an expansion of U S. Europe M&A trade given our uniquely strong position in both continents. We are seeing increased interest among European companies seeking to acquire U S assets and Lazard is well positioned to advise these client.

Yeah.

All of this will require lazard to expand its ranks of managing directors.

Mary Ann Gutch: Asset management revenue was $794 million in the first nine months of 2023, 5 percent lower than the prior year period reflecting lower incentive fees. As of September 30th, we reported AUM of $228 billion, 5 percent lower than June 30th, 2023, and 15 percent higher than September 30th, 2022. The sequential decrease was driven by market depreciation of 5.8 billion, foreign exchange depreciation of 3.3 billion, and net outflows of 2 billion. Average AUM for the third quarter was 236 billion, increasing 11 percent from a year earlier and flat on a sequential basis. Average AUM for the first 9 months of 2023 was 233 billion, level with the first 9 months of the prior year.

Some will come from internal promotions, we are unique among the independent advisory firms and having an established track record of being able to develop our own productive bankers.

Part of the expansion will also come from more aggressive lateral hiring than Lazard has historically done in the past.

One question May naturally be whether we can maintain our historical margin targets as the market normalizes, which we expect to do if we are also going to undertake a significant increase in our number of managing directors.

The answer lies partially in our potential to raise productivity per M D.

More specifically if each of our advisory Mds generates an additional $1 million in revenue. The fact is to free up more than $50 million in total each year to invest in new lateral hires without any adverse impact on our compensation margin.

Mary Ann Gutch: Now turning to expenses. For the third quarter adjusted compensation expense was $364 million. This equates to a 68.4 percent adjusted ratio during the third quarter, which reflects our current best estimate for the remainder of the year. Our non-compensation expense was 137 million in the third quarter, 7 percent higher than the third quarter last year, related to increased occupancy costs as well as higher technology and professional services expenses. We are progressing on our cost saving initiatives announced in April to reduce our count by 10 percent by the first quarter of 2024.

We are confident that with increased intensity targeting a market opportunities being paid appropriately for the exceptional work, we do expanded use of cutting edge technology and more significant annual trimming of less productive Mds, we can substantially raise productivity over time.

We also expect to benefit from the embedded growth in the disproportionately high share of our current Mds, who are newly hired or newly promoted.

Mary Ann Gutch: Our goal to reduce overall costs includes a reduction and reprioritization of long-term projects. These changes reflect our commitment to return to our target expense ratios as revenues normalize. Our effective tax rate for the third quarter as adjusted was 8.4 percent, which compares to 25.1 percent in the prior year quarter. Our current estimate for the full-year tax rate is projected to be in the low-to-mid teens. Our estimate, as always, is dependent on the level and location of earnings as well as the impact of discrete items in the fourth quarter.

Such a high productivity growth path is the best way to combine our traditional emphasis on excellent with our expanded revenue opportunities and ambitions.

None of this will occur overnight, but with consistent effort. We are confident that we can achieve our 2030 goals as we expand our business across asset management and financial advisory in the years ahead I look forward to updating you on our progress over time we.

We will also find the right moment to provide you with more detailed plans and targets for between now and 2030 to help you measure how we're doing along the way.

Mary Ann Gutch: Turning to capital allocation in the third quarter of 2023, we returned $52 million to shareholders, primarily reflecting our quarterly dividend. During the first nine months of the year, we returned $285 million to shareholders, including $129 million in dividends, $102 million in share repurchases, and $54 million in satisfaction of employee tax obligations. Additionally, yesterday we declared a quarterly dividend of $0.50 per share.

Over recent months I've been traveling extensively to meet with Lazard investors and hear their thoughts about the firm.

One of the clearest messages that has come through during this listening exercise is a widespread desire to see our corporate structure simplified.

For that reason, we are announcing today that lazard intends to convert its current structure to a new status as a U S Corporation or C Corp.

We believe conversion to a C Corp will simplified tax reporting May act as a catalyst for enhanced shareholder ownership and therefore provide liquidity benefits for our stock.

Peter Orszag: I will now turn it back over to Peter for comments on the outlook. Thank you, Marianne. Today's results underscore the lagged effects of the slowdown and M&A announcement from several quarters ago. However, our asset management business and part of our advisory business, including restructuring and private capital, secondary fundraising, are offsetting some of the overall market weakness in M&A. Looking forward, and as we have previously stated, we believe that the worst of M&A's slowdown is behind us.

One significant change relative to our previous evaluations in such a conversion is that the tax benefit of our current structure is declining materially due to changes in global tax laws, given the smaller tax impact than in the past, we believe that the benefits of conversion now outweigh those costs.

We expect the conversion to take place on January one 2024 subject to compliance with global regulatory requirements.

Peter Orszag: We continue to see signs that the market is bottoming out and stabilizing with the quarters ahead poised for a rebound in deal activity. We are already seeing significant M&A activity in financial institutions, healthcare, and energy transition among other sectors. We are also seeing early signs of an increase in cross-border M&A activity, which with our global presence and expertise, we are well positioned to capture. This bottoming out reflects the interplay between the catalysts of activity, including ongoing technological innovation, shift in global supply chains, the life sciences revolution, and the energy transition, and the headwinds, which include a divergence in expectations between buyers and sellers because of the impact on valuations from the sharp increase in interest rates, that uncertainty in financing markets and regulatory.

Lastly, as our 175th anniversary enters its final months, we are proud of our history and confident in our future for.

For the better part of two centuries, we have served as trusted advisers for our clients, providing an unparalleled level of expertise insight and global reach we have attracted and developed extraordinary talent and we have evolved and adapted into a stronger and more resilient institution.

It is our heritage resilience and commitment to excellence that make the Lazard brand. So extraordinary and we now have an opportunity to combine that resilience and excellent with significant growth going forward in the years ahead, we will leverage our brand our global business model and that's investments, we are making and expect to make.

Peter Orszag: As higher interest rates remain in place for a longer period, as monetary policy tightening likely nears its end, and as some companies have won court victories on regulatory matters, the headwinds have generally been easing in recent months. One of the strong indications of this changing balance between catalysts and headwinds comes from the tenor of our client discussions, which are growing more constructive. There are two important lags between such a constructive shift in client discussions and revenues, though.

And the extraordinary caliber and commitment of our people to expand our business and take Lazard to new Heights.

Now, let's open the call to questions.

Okay.

Paul apologies for the delay if you have a question at this time. Please press the star and one on your telephone keypad. If your question has been answered you may remove yourself from the queue by pressing star Ed too.

Peter Orszag: First, there is a lag between active discussions and an increase in announcements, which for the market as a whole have now stabilized that are not yet increasing meaningfully. After a pickup in announcements, another lag then occurs to completions at which time the revenue impact of the rebound and activity begins to be felt. In addition, as the M&A market begins to rebound, we are also seeing non-M&A revenue opportunities within our capital solutions and restructuring businesses, both of which are seeing client activity accelerate.

So others can hear your question clearly we ask that you pick up your handset for best sound quality.

We'll take our first question from Brennan Hawken with UBS. Please go ahead. Your line is open.

For taking my questions.

Yes.

I'd like to Peter you laid out a lot there.

And.

Hi, good morning.

And I'd love to drill down on some of it I'd say since you.

You sort of finance announced your ambition to double revenue by 2030, which as you know roughly seven years I'd say, the part where there's the most pushback on.

Peter Orszag: In asset management, despite volatility in the market, the challenging interest rate environment and another surge in growth mainly attributable to a select group of technology companies, we saw strong performance across many of our investment strategies and groups, including emerging markets, thematics, and local strategies. Well, new money is being put to work that peel of short-term investments, T-bills, and money market funds remain significant. As such, investor appetite to allocate cash to equities and risk assets remains subdued. Nonetheless, institutional investors are showing interest in our global, plant, and thematic strategies.

Asset management side.

In covering the industry, there's a lot of pressure right and the Big example.

That people point to when thinking about your plans, which seem to combine both organic and inorganic opportunities as you referenced in your comments.

Would be invesco over the past seven years Invesco has nearly doubled AUM AUM.

90%, so just about in line with your doubling ambition, but the problem is as the revenue translation hasnt been there at revenues only up 30% over that timeframe. So how are you thinking about the ways in which you can double the revenue.

Peter Orszag: Let's now turn to our future outlook for Lizard. In addition to our world-class brand, Lizard today has the potential to combine high-return future growth with a significant underlying degree of stability. Our growth will be built on a foundation of a resilient model that stands across businesses, products, and regions, and a structure that is more secure than one focused solely on M&A in a specific geography.

Over that time frame, despite the persistent fee rate pressure on this business.

Sure well the way I would put it is we're not interested in growth for growth's sake, and we're not interested in AUM accumulation for the sake of accumulating AUM. Our goals here are to grow in a high return way and in a way that enhances shareholder value. So the objectives are exactly the ones that you.

Peter Orszag: Last month, I outlined our objectives between now and 2030. Our growth will come from proactively leveraging our brand into new and expanded areas through talent development, lateral hires, and inorganic additions, while concurrently managing our existing business even more efficiently. One important step on this path involves elevating our relevance, through more involvement in top deals in advisory, winning important mandates in asset management, and leveraging our global insights with increased thought leadership and content-rich convening.

Forward that Hasnt been said, we see significant opportunity within the existing business too.

Continue to upgrade our performance and distribution.

<unk> will be helpful. In.

Maintaining our revenue and earnings streams.

A good example, where we're doing this call from the UK, where we just had our board meeting.

Both on the investment teams located here and on the distribution within the U K, we've seen changes that have been occurring under <unk> leadership that point to improved performance in both distribution and performance.

Peter Orszag: Our Lizard 2030 vision also includes two specific and concrete goals for the firm to accomplish by the end of this decade. The first is to double revenue firmwide by 2030, with the increases split roughly evenly between asset management and financial advisory, implying double digit revenue growth annually on average. The second goal is for Lizard's total shareholder return to average 10 to 15% per year through 2030. Let me share a few more details on some of the specific actions we will take to reach these goals.

There's a lot that can be done there and then on the inorganic side, we are interested in adjacencies, where we see.

Promise for revenue growth and for earnings growth.

Over time, and so <unk>.

Areas, such as private credit real estate and infrastructure are areas that we think will continue to attract capital allocation and.

Because they are less liquid continue to have.

Peter Orszag: Looking first at the asset management business, we have opportunities in both the core business and in adjacencies and we intend to pursue these opportunities aggressively through both organic and targeted inorganic growth. Private asset managers with some degree of established track record that are still relatively early in their AUM progression are of particular interest in any programmatic M&A for us over the coming years. We believe opportunities of this kind will combine the strength of our brand and distribution with the benefits from a fund managers established investment performance while optimizing shareholder value relative to the acquisition costs.

A healthy degree of fee associated with them.

Okay.

The valuation Delta though.

Is a bit challenging here, so so if youre going to be particularly looking to.

Acquire and add teams and capabilities within some of those private credit and more alternative structures.

How are you planning to finance that is is the idea of going to be you said in your comments whiffed outs in smaller teams that don't have that have really good capabilities on the investment side, but don't have the other capabilities that you can add like distribution and scale and whatnot. So that seems clear but is that going to be large we just cash deals.

Peter Orszag: We also see potential for asset management growth by investing in and expanding our distribution capabilities. Evan has been implementing a strategic plan to maximize the value of our global distribution platform which includes increasing our client reach worldwide with a particular focus on financial intermediaries in the US and Europe and regional expansion in Asia as well as engaging more effectively with our clients. Additionally, we have continued to develop a group of recently launched strategies with strong investment track records that are poised for growth and we will continue to launch new ancillary products and vehicles to build upon our current investment capabilities and offerings.

Is that have you earn outs and so youre going to change maybe a capital return structure to be more embedded to allocating capital to growing some of these businesses or are you going to be adding leverage like what what's your plan as far as financing these lift outs.

Sure. So first I think in terms of the the sweet spot.

Target zone, you have it basically right, which is we're looking for established track records, but earlier in the AUM progression to that.

We can optimize shareholder value even post the acquisition cost.

Because we think thats the right.

Part of that growth trajectory to get maximum benefit from our brand and our distribution. While also benefiting from the historical track record that target will have accumulated with regard to the financing options, obviously, that's going to depend deal by deal.

Peter Orszag: Turning to financial advisory, multiple pathways will contribute to doubling our revenue over the next seven years including an expanded private capital efforts spanning our capital raising business, our new lizard capital solutions practice and more extensive M&A fees from private equity. Among our M&A clients, we see potential for growth in both the United States and Europe. One key differentiator is that Lazard has long been known for its exceptional insight into geopolitical events and our ability to combine our business advice with an awareness of the geopolitical forces that could affect outcomes.

What I would say is we have two and normalized conditions, we have two very cash generative businesses.

One indicator of that is if you look at the buybacks that we've done beyond what's required.

The dividend out.

Beyond that and then take out what's required to offset the dilution from our deferred compensation packages.

We have bought back $1 billion of stock.

Peter Orszag: That's all the more valuable to clients today and our capabilities in this area have been reinforced by our outstanding geopolitical advisory team. Turning to specific sectors, opportunities for us exist across many areas in North America with particular growth potential in technology, industrials, power and energy and health care, while we continue to build on our historically strong positions in sectors such as financial institutions and real estate. We also see significant additional revenue opportunities in Europe which would be accentuated by an expansion of US Europe M&A trade given our uniquely strong position in both continents.

In additional buybacks over the past four years. So that's an indication of the firepower that would be available. We obviously also have equity there are lots of options earn outs et cetera, So I don't want to pin down.

Exactly how we will finance the inorganic options other than to highlight that we have we have two very cash generative businesses and we can do.

Deploy our cash flow at least in part towards value enhancing inorganic growth.

Okay. Thank you for the quite a lot more questions, but I'll hop back in the Shannon stick with two questions.

Paul.

We'll take our next question from Steven <unk> with Wolfe Research. Please go ahead. Your line is open.

Peter Orszag: We are seeing increased interest among European companies seeking to acquire US assets and Lazard is well positioned to advise these clients. All of this will require Lazard to expand its ranks of managing directors. Some will come from internal promotions. We are unique among the independent advisory firms and having an established track record of being able to develop our own productive banks. Part of the expansion will also come from more aggressive lateral hiring than Lazard has historically done in the past.

Hi, Good morning, Peter Good morning Marianne.

Good morning.

So wanted to start off with a question on the C Corp conversion.

As you noted prior management was reluctant to convert to a C corp, citing a significant potential increase in the tax rate you noted some upcoming changes in the tax code would result in a more modest increase.

Was hoping you could unpack what some of those changes were in the tax code that resulted in a more modest impact how you determined that the benefits might outweigh the costs here and what's the pro forma tax rate for the company following conversion.

Peter Orszag: One question may naturally be whether we can maintain our historical margin targets as the market normalizes, which we expect to do, if we are also going to undertake a significant increase in our number of managing directors. The answer lies partially in our potential to raise productivity per MD. More specifically, if each of our advisory MDs generates an additional $1 million in revenue, the effect is to free up more than $50 million in total each year to invest in new lateral hires without any adverse impact on our compensation margin.

Sure.

Do part of this and then Maryann will give another part.

Stepping back here as I laid out their pros and cons, we view the benefit of this is that it.

Is something that investors and potential investors raise as.

Something that would make the current structure being an impediment toning lazard and the conversion being a catalyst behind owning lazard.

I think that's.

Peter Orszag: We are confident that with increased intensity targeting market opportunities, being paid appropriately for the exceptional work we do, expanded use of cutting edge technology, and more significant annual trimming of less productive MDs, we can substantially raise productivity over time. We also expect to benefit from the embedded growth in the disproportionately high share of our current MDs who are newly hired or newly promoted. Such a high productivity growth path is the best way to combine our traditional emphasis on excellence with our expanded revenue opportunities and ambitions.

The benefit and there may be increase liquidity in our shares.

To the extent that there is expanded ownership and increased interest.

The cost is primary I mean, there are some minor.

Legal and administrative and other changes, but the cost is primarily a change in the effective tax rate.

And that cost has come down the impact on the effective tax rate is now in the low single digits.

As we move forward into a more normalized environment.

Before I turn it over to Maryann for a little bit more detail. What I would also say in addition to our judgment that the benefits now outweigh the costs.

We also hope that this shows that we are increasingly listening to our shareholders. This came up repeatedly in my discussions with them and also acting decisively.

Peter Orszag: None of this will occur overnight, but with consistent effort, we are confident that we can achieve our 2030 goals. As we expand our business across asset management and financial advisory in the years ahead, I look forward to updating you on our progress over time.

To pursue the shareholder value that we've articulated we want to achieve over time, but why don't I turn it over to maryann for any additional sure. So I mean as you can imagine this stuff is incredibly complicated so I'll try to keep it high level.

Peter Orszag: We will also find the right moment to provide you with more detailed plans and targets for between now and 2030 to help you measure how we are doing along the way. Over recent months, I've been traveling extensively to meet with Lizard investors and hear their thoughts about the firm. One of the clearest messages that has come through during this listening exercise is a widespread desire to see our corporate structure simplified.

But generally one of the things that has changed since we put the structure in place is that the U S tax rate has come down and so if you think about sort of the incremental costs of becoming a U S Corporation.

Peter Orszag: For that reason, we are announcing today that Lizard intends to convert its current structure to a new status as a US corporation or C-Corp. We believe conversion to a C-Corp will simplify tax reporting may act as a catalyst for enhanced shareholder ownership and therefore provide liquidity benefits for our stock. One significant change relative to our previous evaluations of such a conversion is that the tax benefit of our current structure is declining materially due to changes in global tax laws. Given the smaller tax impact in the past, we believe that the benefits of conversion now outweigh those costs.

<unk> tax rate is one of the factors. Additionally, the certain global alignment of tax regimes and the global minimum tax that is going to be coming online in various places over the next couple of years make that delta even smaller and so as we looked at that and we did sort of a range of scenario analyses looking at.

Peter Orszag: We expect a conversion to take place on January 1, 2024, subject to compliance with global regulatory requirements.

Different earnings mix and levels of pre tax earnings over the next few years, we were able to determine that.

Estimated range was really in the low single digits and as Peter said, that's why we.

Determined that that was the time to act.

That's great and it looks we have a similar problem to brennen and I have a lot of questions I want to add.

Got it.

Josh.

One on the comment you made Peter regarding milestones or checkpoints that youre going to offer along the way.

And ahead of the 2030 bogie or targets that you laid out wide was hoping you can give us some context in terms of what are some of the milestones that you're hoping to lay out that we can hold manageable management accountable to.

Peter Orszag: Lastly, as our 175th anniversary enters into final months, we are proud of our history and confident in our future. For the better part of two centuries, we have served as trusted advisors for our clients, providing an unparalleled level of expertise inside and global reach. We have attracted and developed extraordinary talent and we have evolved and adapted into a stronger and more resilient institution. It is our heritage, resilience and commitment to excellence that make the Lazard brand so extraordinary and we now have an opportunity to combine that resilience and excellence with significant growth going forward.

But we'll find the right time to do that.

We want to do that when there are some stepping stones and proof points already.

In hand, and so it's not just plans that youre starting to see the beginning of action also.

Think you should expect.

The normal things that one would look to in terms of monitoring how the business is operating so beyond revenue and earnings things like how we are expanding in the growth areas that.

Peter Orszag: In the years ahead, we will leverage our brand, our global business model, then that's investments we are making and expect to make and the extraordinary caliber and commitment of our people to expand our business and take Lazard to new heights.

That.

We see and on the asset management side of the business, how we're doing on improving performance within the existing business and moving into Adjacencies.

Any numbers you can put behind it Peter.

Operator: Now let's open the call to questions. Apologize for the delay. If you have a question at this time, please press the star and one on your telephone keypad. If your question has been answered, you may remove yourself from the queue by pressing star and two. So others can hear your question clearly. We ask that you pick up your handset for best sound quality.

At the right moment, yes.

Now is not the right moment.

Okay fair enough.

I'll hop back in the queue. Thanks for taking my questions.

We'll take our next question from Jim Mitchell with Seaport capital.

Okay Seaport Global. Please go ahead your line is open.

Okay. Thanks, good morning.

Peter just on your comments around.

Funding future MD head count growth with improved productivity can you kind of discuss kind of what your analysis was to kind of feel comfortable that whether it's $1 million or more in terms of per MD improvement you would feel comfortable that's achievable relative to whether its competitor analysis or how youre thinking about it.

Brennan Hawken: We'll take our first question from Brennan Hawken with UBS. Please go ahead. Your line is open.

Peter Orszag: I'd like to Peter, you wait out a lot there. Hi, good morning. And I'd love to drill down on some of it. I'd say since you, you will vote a sort of an answer and answer your ambition to double revenue by 2030, which is roughly seven years. I'd say the part where there's the most pushback is on the asset management side. In covering the industry, there's a lot of pressure, right. And the big example that people point to when thinking about your plans, which seem to combine both organic and inorganic opportunities, as you referenced in your comments, would be in Vesco.

Sure.

Let me start with I think a really important point, which I also briefly mentioned, which is we have.

A significant amount of embedded growth and also productivity enhancement that will come from the disproportionate share of managing directors today, who are just ramping up the productivity curve. So in normal years, historically going back we've had about 30% of or so of our managing directors.

Being in that kind of a new category either lateral or newly promoted today, it's 40% that 10% differential is a very large change.

Those people.

Peter Orszag: Over the past seven years in Vesco has nearly doubled AUM. AUM is up 90%. So just about in line with your doubling ambition. But the problem is is the revenue translation hasn't been there. Revenue is only up 30% over that time frame.

People are disproportionately in areas that we see.

Exciting opportunities going forward are Lazard capital solutions group.

<unk> effort in Germany.

<unk> coverage of private capital writ large investments in biotech and energy.

Peter Orszag: So how are you thinking about the ways in which you can double the revenue over that time frame, despite the persistent fee rate pressure on this business? Sure. Well, the way I would put it is we're not interested in growth for growth sake and we're not interested in AUM accumulation for the sake of accumulating AUM. Our goals here are to grow in a high return way and in a way that enhances shareholder value. So the objectives are exactly the ones that you put forward.

Our new team in the Middle East and then also our geopolitical team, which is best in class on Wall Street and is leading to it as reinforcing was arts historical dominance in <unk>.

Firms that are looking for the combination of business and geopolitical insight and I think in today's world that.

Extremely valuable.

So the first part is just the depreciation for the embedded growth and productivity pop. If you will that we have as they move forward.

Peter Orszag: That hadn't been said. We see significant opportunity within the existing business to continue to upgrade our performance and distribution, which will be helpful in maintaining our revenue and earning streams. A good example is we're doing this call from the UK where we just held our board meeting, both on the investment teams located here and on the distribution within the UK, we've seen changes that have been occurring under Evan's leadership. That's quite to improve performance on both distribution and performance.

In there in their ramp.

The second is that all the various things that I mentioned, it's not going to be one thing, but many different things from the fees that we charge to <unk>.

More aggressive culling of.

Less productive tenured Mds, so actually just to return to their former topic one of the reasons why we have that different mix today.

Part of it is the investments that I just mentioned the new lateral hires and also newly promoted managing directors in those areas, but partly it's also we have started earlier this year and we will continue to do this could be.

Peter Orszag: So there's there's there's a lot that can be done there. And then on the inorganic side, we are interested in the Jason sees where we see promise for revenue growth and for earnings growth over time. And so areas such as private credit, real estate and infrastructure are areas that we think will continue to attract capital allocation and because they are less likely to continue to have a healthy degree of fee associated with them.

Extremely rigorous about culling lower productivity managing directors each year after our signet after a sufficiently sufficient period of time.

A banker is not I've talked about being commercial and collegial both of those are super important and if we.

We have someone who is not living up to either end of that.

Those are it's not going to be the right great place for them, so multiple different pathways, but mostly it comes back to.

Peter Orszag: Okay, the valuation delta, though, is a bit challenging here. So, if you're going to be particularly looking to acquire and add teams and capabilities within some of those private credit and moral-perunded structures, how are you planning to finance that? Is the idea going to be, you said in your comments with doubts and smaller teams that don't have, you know, that have the good capabilities on the investment side but don't have the other capabilities that you can add like distribution and scale and whatnot.

Excited about the areas that we're investing in.

Some embedded growth already that may not be apparent above the surface and then really active management and being very committed to achieving the productivity improvements that will create the flywheel of reinforcement.

Enforcing resources that allow us to do another round of investment.

Okay. That's all helpful color, maybe just on the follow up on I know, it's not an easy question or one you can put hard.

Peter Orszag: So, that seems clear, but is that going to be largely just cash deals that have the earnouts? And so, you're going to change maybe a capital return structure to be more embedded to allocating capital to growing some of these businesses. Or are you going to be adding leverage? What's your plan as far as financing these doubts?

Hard number on it but I think everyone is struggling with.

The timing of the revenue rebound if we get it.

And comp ratios.

Or 10% of your head count is there a way for us to box around next year in terms of whether it's an absolute dollar amount of comp that needs to be accrued or just how to think about the parameters for the comp ratio.

Peter Orszag: Sure. Well, firstly, I think in terms of the sweet spot of the target zone, you have it basically right, which is we're looking for established track records, but earlier in the AUM progression so that we can optimize shareholder value even post that position cost because we think that's the right part of the growth trajectory to get maximum benefit from our brand and our distribution, while also benefiting from the historical track record that the target will have accumulated.

Let me give you a little bit on the outlook and then maybe maryann will do something on that on the comp ratio.

As you know you asked an impossible question. So thank you for acknowledging that.

What I would what I would say is we do expect just based on the on the constructive dialogue among clients, we expect 2000 and for it to be better than 2003. The question becomes how much and thats very difficult to predict right now.

I do think there are reasons that we believe lazard.

Peter Orszag: With regard to the financing options, obviously, that's going to depend deal by deal. What I would say is we have two in normalized conditions. We have two very cash generated businesses. One indicator of that is if you look at the buybacks that we've done beyond what's required, you know, take the dividend out beyond that and then take out what's required to offset the delusion from our deferred compensation packages. We have bought back $1 billion of stock in additional buybacks over the past four years.

<unk>.

Advantages relative to the markets and one way of thinking about it is whatever your view is of the market why why can lazard potentially performed better than that.

Peter Orszag: So that's an indication of the firepower that would be available. We obviously also have equity. There are lots of options, earnouts, et cetera. So I don't want to pin down exactly how we will finance the inorganic options other than to highlight that we have a we have two very cash generated businesses and we can deploy our cash flow at least in part towards value enhancing in organic growth.

Without taking a view on exactly when the market completions pick up and I would point to a few one is the investments in our.

Brennan Hawken: Okay, thank you for the question. A lot more questions, but I'll hop back in the two questions. Thanks.

Coverage of private capital writ large, especially our it was our capital solutions, which is getting a.

A significant amount of demand and creating the positive flywheel effect that we were hoping for from creating that group. The second is our excellence and geopolitical.

In today's world I think it's.

Clear that it's impossible to make a significant business decision without insight into geopolitics was arent as always it's part of our DNA to stand out along that domain and all the more so with our first in class.

Geopolitical advisory team. The third is that to the extent that the Europe U S. M&A trade does pick up thats something that Lazard.

Given that we're strong in both continents, we will naturally benefit from and then the fourth is what I mentioned with regard to the.

The elevated share of newer Mds. So those are some reasons why you may see different performance from Lazard relative to the market, but with regard to the market as a whole.

Stephen Chubach: We'll pick our next question from Stephen Chubach with Wolf Research. Please go ahead. Your line is open. Good morning, Peter. Good morning, Mary Ann. Good morning.

As you pointed out almost impossible I would just go back to what I said earlier, which is there clearly is a shift in the tone of client discussions.

Peter Orszag: So I wanted to start off with a question on the C Corp conversion. Peter, as you noted, prior management was reluctant to convert to a C Corp, citing a significant potential increase in the tax rate. You noted some upcoming changes in the tax code were resulted in a more modest increase. Now I was hoping you could unpack what some of those changes were in the tax code that resulted in a more modest impact.

Our more constructive today than they were six or nine months ago.

Sure I'll take the invitation of the comp ratio.

I mean youre seeing this year the effects not only of lower revenues, but also of the herd of lagged.

Peter Orszag: How you determine that the benefits might outweigh the cost here and what's the pro forma tax rate for the company following converts. Richard. Sure, I'm going to do part of this and then Mary Ann will do another part. Stepping back here as I laid out their pros and cons, we view the benefit of this is that it is something that investors and potential investors raise as something that would make the current structure being an impediment owning Lazard and the conversion being a catalyst behind owning Lazard.

<unk> that we had in 'twenty, one and 'twenty two 'twenty, one being a record year of revenues. So we had sort of an elevated comp that deferred into this year and we'll continue to see some of that in 'twenty four as well, but I really do think it's going to come down to the revenues and that as Peter laid out we're hopeful but there is uncertainty there so.

The cuts that we designed earlier this year were really meant to create the room not only to invest in areas, where we see growth, but also to allow us to get back to our target range is when the revenues have normalized and so that's starting to still how we're thinking about it and we're going to we're going to see how revenue.

Peter Orszag: There's a lot of liquidity in our shares to the extent that there's expanded ownership and increased interest. The cost is primarily, I mean, there's some minor legal administrative and other changes, but the cost is primarily a change in the effect of tax rate. And that cost has come down, the impact on the effect of tax rate is now in the low single digits as we move forward into a more normalized environment.

How quickly revenues come back.

Yeah, well, thanks for taking my impossible question.

Yeah.

We'll take our next question from Brian Kenney with Morgan Stanley. Please go ahead. Your line is open.

Hi, Good morning, Thanks for taking my question and thanks for all the detail in the prepared remarks.

Peter Orszag: And before I turn it over to Mary Ann for a little bit more detail, what I would also say in addition to our judgment that the benefits now outweigh the cost, we also hope that this shows that we are increasingly listening to our shareholders. This came up repeatedly in my discussions with them and also acting decisively to pursue the shareholder value that we've articulated.

Wanted to follow up on that comp ratio.

Commentary. So you mentioned that a component of the revenue growth plan is to expand MD count partially from promotions partially from lateral hires.

Just give us an update on what the recruiting environment is like I know earlier in the year, we've been hearing from our peer group that it was a strong recruiting environment does recent optimism on Gemini rebound make it harder to recruit and could that put more pressure on the comp ratio near term.

Mary Ann Gutch: We want to achieve overtime, but why don't I turn over to Mary Ann for any additional cost? Sure. So, I mean, as you can imagine, this stuff is incredibly complicated, so try to sort of keep it high level. But generally, you know, one of the things that's changed since we put this structure in place is that the US tax rate has come down. And so, if you think about sort of the incremental cost of becoming a US corporation, the US tax rate is one of the factors.

So we were in the midst of active discussions.

First I would note we have again the embedded growth that I mentioned before from.

Mds in key areas that are ramping up but with regard to the new lateral hires active discussions with.

Then adding for example in restructuring we just had a new restructuring MD join it start in Europe, and there are others coming.

Mary Ann Gutch: Additionally, the sort of global alignment of tax regimes and the global minimum tax that's going to be coming online in various places over the next couple of years makes that delta even smaller. And so, as we looked at that and we did sort of a range of scenario analyses looking at different earnings mix and levels of pretext earnings over the next few years, we were able to determine that that, you know, that estimated range was really in the low single digits. And as Peter said, that's where we determined that that was the time to act.

The issue is that we are very we're selective in making sure that our lateral hires are a good cultural fit and also in the areas, where obviously, we want to expand and then also.

In areas and productive in those areas clearly.

And then also.

Right.

Expectation with regard to their compensation.

And so I won't comment on what other people are doing that's their business, but with regard to ours, we're very comfortable with the tenor of the discussions we're having the attractiveness of those our platform going forward. There's a lot of interest in joining lazard from.

Stephen Chubach: That's great. And looks like I have a similar problem to Brennan. I have a load of questions I want to ask, but I'm going to limit it to just one on the comment you made, Peter, regarding milestones or checkpoints that you're going to offer along the way. You know, but in ahead of the 2030 bogey or target to you and outlined, was hoping you can give us some context in terms of what are some of the milestones that you're hoping to lay out that we can hold managed management accountable to.

Stephen Chubach: Well, we'll find the right time to do that. We want to do that when there are some stepping stones and proof points already, you know, in hand. And so it's not just plans, but you're starting to see the beginning of action also. But I think you should expect a, you know, the normal things that one would look to in terms of monitoring how the business is operating. So beyond revenue and earnings, things like how we're expanding in the growth areas that that, you know, we see and on the asset management side of the business, how we're doing on improving performance within existing business and moving into. Any numbers you can put behind the Peter? At the right moment. Yes, and now is not the right moment. Okay.

A wide array of different.

Different bankers and we're going to be selective in the matching function to make sure that we wind up.

Stephen Chubach: Fair enough. I'll hop back in the queue. Thanks for taking my questions.

Maximizing the chances that the.

This is a good one.

And think we can do that.

In the U S.

Shareholder friendly and growth <unk> only other thing I would finally say is I want to really emphasize the point I made about our ability to grow our own talent and too.

Create productive bankers through internal promotion, we stand out and having a long history of being able to do that as to why you should expect going forward from US is that continued excellent and internal talent development, coupled with more aggressive lateral hiring than we may have done during some historical periods.

Thanks.

On the comment of eventually getting back to target range on the comp ratio and I once revenue.

Environment Normalizes is that still mid to high Fifty's.

Yes.

Thanks.

Yeah.

We will take our next question from James <unk> with Goldman Sachs. Please go ahead. Your line is open.

Hi, Good morning, and thank you for taking my questions I just wanted to start first with the impact of the U S elections next year and what that could mean.

Jim Mitchell: We'll take our next question from Jim Mitchell with Seaport Capital. Excuse me. Seaport Bliple, please go ahead. Your line is open. Okay. Thanks. Good morning. Peter, just on your comment around funding future MD headcount growth with improved productivity. Can you kind of discuss kind of what your analysis was to kind of feel comfortable that, you know, whether it's a million or more in terms of her MD improvement, you feel comfortable that's achievable relative to, you know, whether it's competitor analysis or how you're thinking about it.

For both of your businesses.

Okay.

I would say.

The U S election at this point is something that comes up in the first five minutes. The client discussions before you turn to the actual matter that youre discussing.

I expect that as we move into 2024 more fully.

<unk> allocated to that topic will increase a bit but.

Again, when I said the tone of client discussions have turned more constructive that that's the dominant factor in obviously.

Jim Mitchell: Sure. Let me start with it. I think a really important point, which I also briefly mentioned, which is we have a significant amount of embedded growth and also productivity enhancement that will come from the disproportionate share of managing directors today, who are just ramping up the productivity curve. So in normal years, historically going back, we've had about 30% of our managing directors being in that kind of new category, either lateral or newly promoted today.

As we move into 2024.

Jim Mitchell: It's 40%. That 10% differential is a very large change. The, those people, the newer people are disproportionately in areas that we see as exciting opportunities going forward, our lizard capital solutions group, a revamped effort in Germany, expanded coverage of private capital writ large investments in biotech and energy. We are new team in the Middle East, and then also our geopolitical team, which is best in class on Wall Street. It is leading, it is reinforcing was arts historical dominance in firms that are looking for the combination of business and geopolitical insight.

U S election, I think will be another thing that generates demand for our geopolitical insights but.

We don't see it right now having a massive effect on the trajectory that we're that we're looking at in either business.

Okay, that's very constructive maybe just turning to the asset management business again, I just wanted to touch on the financing for potential acquisitions. Once more how are you thinking about your leverage levels today and would you contemplate adding to these to fund any potential deals.

Well, we are comfortable that we have two very cash generative businesses. The number I gave you for example on.

The amount of buybacks that we've done above the dilution offset over the past four years is indicative of that and so that that provides some perspective on the cash flow that we have available.

That having been said I don't want to rule out any options it will depend on the particular target.

If we were to hypothetically finance part of an acquisition through additional debt. Obviously, we would be motivated to reduce that leverage quickly over time as one would expect in any M&A transaction, but I think we've got lots of options available to us moving forward.

Jim Mitchell: And I think in today's world that an extremely valuable thing. So the first part is just appreciation for the embedded growth and productivity top, if you will, that we have as they move forward in their, in their ramp. The second is the, you know, all the various things that I mentioned, it's not going to be one thing, but many different things from the fees that we charge to more aggressive culling of less productive tenured empties.

Okay. Thank you so much.

Okay.

We will take our next question from Devin Ryan with JMP Securities. Please go ahead. Your line is open.

Okay. Thanks, very much good morning, Peter.

Alright.

I wanted to start off kind of a first big picture question.

Founded in between 48.

Most of your independent peers were founded over the past couple of decades.

Jim Mitchell: So actually just to return to the former topic, one of the reasons why we have that different next today part of it is the investments that I just mentioned, the new lateral hires and also newly promoted managing directors in those areas. But partly it's also we have started earlier this year and we will continue to do this to be extremely rigorous about calling lower productivity managing directors each year after a significant, after sufficiently sufficient period of time.

I think many of them would argue that they built their firms.

Piece of paper and so that allows for a much more efficient cost structure just as you go.

And so I just want to talk little bit about kind of the expense structure. You. Obviously, you have expense initiatives underway and I hear you on kind of getting back to a more normalized margins, but when you think about the overall infrastructure of Lazard today.

<unk> global footprint.

Even mix, it's kind of where you have offices.

C over time kind of more opportunity to get more efficient.

Jim Mitchell: If a banker is not, I've talked about being commercial and collegial, both of those are super important. And if we have someone who's not living up to either end of that, those arts not going to be the right, right place for them. So multiple different pathways, but mostly it comes back to excited about the areas that we're investing in some embedded growth already that may not be apparent above the surface. And then, you know, really active management and being very committed to achieving the productivity improvements that will create the flywheel of reinforcement reinforcing resources that allow us to do another round of investments.

Around the expense structure or even maybe more dynamic on expenses as you move forward here.

Let me say a couple of things first there were significant adjustments that we've made not all of which have been fully implemented yet because it takes a while sometimes too.

Close offices in other countries, but we did.

Take a very careful look at.

Places that we didn't think would meet our productivity hurdles and we will continue to do that now I think at its core Lazard has always been harkening back to that.

History has always been deep in Europe, and the U S and that defines lazard in some way and that will continue but we're going to be aggressive about making sure that we're only in places where we think we can expand in a high productivity way because I think thats what leads to a.

Jim Mitchell: Okay, that's all helpful color. Maybe just on the follow-up on, I know it's not an easy question or one you can put a hard number on, but I think everyone's struggling with the timing of the revenue rebound if we get it and what that and and comp ratios and you guys are cutting 10% of your headcounts. Is there a way for us to box around next year in terms of whether it's an absolute dollar amount of comp that needs to be accrued or just had to think about the parameters for the comp ratio?

Leads to a model that works over time on behalf of our bankers and our shareholders and allows us to serve our clients with excellence that they have come to expect from Lazard.

The only other thing I'd say about expenses is we will.

Jim Mitchell: Let me give you a little bit on the outlook and then maybe Mary Ann will do something on that on the comp ratio. As you know, you asked an impossible question so thank you for acknowledging that. What I would say is we do expect just based on the on the constructive dialogue among clients we expect 24 to be better than 23. The question becomes how much and that's very difficult to predict right now.

B Lazar folk we are going to be aggressively pursuing a an agenda of.

Making sure that whereas lean as possible because we see that as an delayering. It's one reason why I didn't replace myself as head of advisory.

We see an opportunity for not only.

<unk>.

Lower cost ratios from leaner teams, but also better experiences for our people we have extremely talented people.

Jim Mitchell: I do think there are reasons that we believe Lazard has some advantaged relative to the market. So one way of thinking about it is whatever your view is of the market, why could Lazard potentially perform better than that without taking a view on exactly when the market completion pick up and I'd point to a few. One is the investment in our coverage of private capital writ large especially our Lazard capital solutions which is getting a significant amount of demand in creating the positive flywheel effect that we were hoping for from creating that group.

And.

We believe that with more running room for each participant on a on a mandate.

The talent development and experiences better on behalf of our clients. So.

We are continuing to take just a return to your question continuing to take a careful look at each office in each geography at its core Lazard.

It has always been strong in Europe, and the U S don't expect that to change.

And we're committed to being as lean as possible moving forward.

Jim Mitchell: The second is our excellence in geopolitical. In today's world I think it's clear that it's impossible to make a significant business decision without insight into geopolitics. Lazard is always part of our DNA to stand out along that domain and all the more so with our first-in-class geopolitical advisory team. The third is that to the extent that the Europe U.S. M&A trade does pick up that's something that Lazard has you know given that we're strong and both continent will naturally benefit from.

Got it okay terrific.

I guess another one for you.

Ben CEO here for just a few weeks now but already some pretty marked changes around both communications, but also shareholder matters like the C Corp.

Structure announced today.

There is something that many have also been talking to our clients about and writing about for years. So.

Youll, obviously in a few weeks a lot changing from a cultural perspective, what do you want your legacy to be both kind of inside and outside of those hard and what if anything do you see changing around the brand or culture.

Jim Mitchell: And then the fourth is what I mentioned with regard to the elevated share of newer MDs. So those are some reasons why you may see different performance from Lazard relative to the market but with regard to the market as a whole it's as you pointed out almost impossible to know I would just go back to what I said earlier which is clearly is a shift in the tone of client discussions that are more constructive today than they were six or nine months ago.

Implement some of these changes and clearly you have a firm that has an.

It's actually hundreds of years of history, but at the same time.

These are big changes and things that are relatively dynamic. So just wanted to get a sense from you how youre thinking about kind of your legacy as well.

I appreciate the question I would say look what we are trying to do here as we.

Pursue these was our 2030 goals is.

Jim Mitchell: I'll take the invitation I'll be compression. So I mean you know you're seeing this year the effects not only of lower revenues but also of the sort of lagged deferrals that we had in 21 and 22, 21 being a record year of revenues so we had sort of elevated comp that's deferred into this year and we'll continue to see some of that in 24 as well. But I really do think it's going to come down to the revenues in that you know as Peter laid out we're hopeful but there's uncertainty there so you know the cuts that we designed earlier this year were really meant to create the room not only to invest in areas where we see growth but also to allow us to get back to our target ranges when the revenues have normalized and so that's you know sort of still how we're thinking about it and we're going to see how revenues how quickly revenues come back Well, thanks for taking my impossible question.

Chris pursue growth in an ambitious and aggressive way, but also in a way that is high return and high productivity and to act decisively when it's clear that something is shareholder enhancing so.

That's really what we hope we are starting to demonstrate but it's obviously early days and we plan to continue to demonstrate that with regard to internal culture, I really emphasize the combination of being commercial and collegial. Both parts of that are super important to the pathway forward and that means being.

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Aggressive on behalf of our clients and ambitious on behalf of our clients, but it also means <unk>.

Acting like a team in treating one another with respect and I think thats.

What I would hope the legacy will be.

Okay.

Okay terrific. Thank you.

Okay.

And our next question will come from Brennan Hawken with UBS. Please go ahead.

Peter Orszag: We'll take our next question from Ryan Kenney with Morgan Stanley. Please go ahead. Your line is open. Hi, good morning. Thanks for taking my question and thanks for all of the detail and the prepared remarks. Just wanted to follow up on that Compratio commentary. So, you mentioned that a component of the revenue growth plan is to expand MD count partially from promotions, partially from lateral hires. Can you just give us an update on what the recruiting environment is like?

Hey, Brendan your line is open.

Sorry about that was muted.

It was just so excited to get my follow up questions.

Hi.

Alright here, we go so so.

<unk>.

How should we think about MD advisory MD head count by yearend.

Yeah.

Peter Orszag: I know earlier in the year, we've been hearing from the peer group that it was a strong recruiting environment. Does, you know, recent optimism on them and they rebound make it harder to recruit and could that put more pressure on the company in your term? So, we, you know, we're in the midst of active discussions. Well, first I'd note we have again the embedded growth that I mentioned before from the MDs and key areas that are ramping up.

Have announced.

<unk> plans to.

Make some reductions.

But so far versus yearend yearend was I believe the numbers, we have out of the filings 212 at year end last year and now in.

Peter Orszag: But with regard to the new lateral hires, active discussions, we've been adding, for example, in restructuring. We just had a new restructuring MD join start in Europe and there are others coming. The issue is that we're very selective in making sure that our lateral hires are a good cultural fit and also in the areas where obviously we want to expand. And then also in the areas in productive in those areas clearly.

In the Q4 <unk> was 227, so maybe where do we stand on advisory Mds now where do you expect by year end and then what should how should we be thinking about the trajectory of that MD count given your plans for productivity enhancement.

Sure first let me say, we are before I turn the NDS, we are on target to hit our goal of reducing head count by 10% measured from the first quarter of 2020.

Three to the first quarter of 2020 overall, that's not specific to Mds.

Second before I actually answer your question, just a little bit of framing which is again.

Peter Orszag: And then also at, you know, the right expectation with regard to their compensation. And so I won't comment on what other people are doing. That's their business. But with regard to ours, we're very comfortable with the tenor of the discussions we're having. The tractiveness of those art platform going forward. There's a lot of interest in joining was art from a wide array of different, different bankers and we are going to be selective in the matching function to make sure that we wind up. Maximizing the chances that the skid is a good one. And think we can do that in a, you know, in a, in a shareholder friendly and growth-hunting way.

Really focused on in.

In the year end process, having high bars on being commercial and collegial or higher bars to that.

Following the pandemic wind for natural reasons, there might have been a.

A bit more of a generous policy with regard to remaining at Lazard, we are very focused on raising productivity and making sure that people are collaborative moving forward then with regard to your specific question Youll see in the Q for this quarter, a number of <unk> that will come down.

Already with regret that include some people who will be departing but they are still counted in the queue and by year end it will be down from that.

Again, consistent with our overall goal of 10% head count adjustments.

Mary Ann Gutch: Only other thing I'd finally say is I want to really emphasize the point I made about our ability to grow our own talent and to create productive bankers through internal promotion. We stand out and having a long history being able to do that. So what you should expect going forward from us is that continued excellence in internal talent development, coupled with more aggressive lateral hiring than we may have done during some historical periods. Thanks. So just on the comment of eventually getting back to target range on the Compratio, you know, once revenue environment normalizes. Is that still mid to high fifties? Yes, it is. Thanks.

Perfect. Thank you for that and then.

You part of your plans Peter include internal development, and so and enhancing productivity right. So so what I'd be curious about have you gone through the exercise of breaking down that M D.

Right.

Little over 200.

<unk> strata in other words X percent produce.

Eight plus million or 10 plus million right.

Well.

Whereas and then theres, the middle strata and Theres, a lower strata and so I guess, the 10% reduction is going to be very heavily focused on that lower strata and then and then also have you looked at of the promotes how many are able to get into that top tier.

Ryan Kenney: We'll take our next question from James Yarrow with Bolton Tax. Please go ahead. Your line is open.

And what can you learn about their journey in order to ensure the promotions are as effective as possible.

Peter Orszag: Good morning, and thank you for taking my questions. I just want to start first with the impact of the US elections next year and what that could mean for both of you. This is. I'd say the U.S, election at this point is something that comes up in the first five minutes of client discussions before you turn to the actual matter that you're discussing. I expect that as we move into 2024 more fully, the time allocated to that topic will increase a bit.

Excellent question. So a few a few comments again, just a reminder, about the 40% that are not that are still ramping which is.

An extra roughly 2020, managing directors with embedded productivity.

Kind of ahead, you won't be surprised to know that we do exhaustive analysis of.

Productivity at the individual level by quintile by quartile et cetera.

Peter Orszag: But again, when I said the tone of client discussions have turned more constructive, that's the dominant factor and obviously as we move into 2024, the U.S, election I think will be another thing that generates demand for our geopolitical insights. But we don't see it right now having a massive effect on the trajectory that we're looking at in either business.

I don't think its appropriate to share those.

Numbers here, but like in any organization youre going to have a skew to that distribution and we are therefore are really focused on.

Giving people some time to become productive and everyone can have everyone from time to time, we'll have an off year, but if over a prolonged period of time a matter of several years.

Either the collegiality or the productivity is not there.

Peter Orszag: Okay, that's very constructive. Maybe just turn to the asset manager business again. I just wanted to touch on the the financing for potential acquisitions once more. How are you thinking about your leverage levels today and would you contemplate adding to these to fund any potential deals? Well, we're comfortable that we have two very cash-generative businesses. The number I gave you, for example, on the amount of high-backs that we've done above the dilution offset over the past four years is indicative of that.

We're going to part company with.

With the managing directors that was our core.

Kind of filter for the adjustments that we did make earlier in the year and it will be in our core.

Core filter going forward, then with regard to the kind of the productivity ramp if you will and what we can learn from past experience on.

People, who are promoted and also lateral hires.

We have invested in a significant amount of.

Peter Orszag: That provides some perspective on the cash flow that we have available. That having been said, I don't want to rule out any options. It will depend on the particular target. If we were to hypothetically finance part of an acquisition through additional debt, obviously we would be motivated to reduce that leverage quickly over time as one would expect in any M&A transaction. But I think we've got lots of options available to us moving forward.

Of analysis around that question I think we are getting.

Ryan Kenney: Okay, thank you so much.

Better theres always going to be some degree of uncertainty because until someone's actually NSE, it's always a little bit hard theres always some uncertainty around that but we.

We feel confident that we have some of the markers for what.

Ups the odds are it makes it less likely.

For someone to be productive on our platform.

Alright, well look forward to learning more about that as a journey of progressive. Thanks. Thanks for taking my follow ups.

Devon Ryan: We'll take our next question from Devon Ryan with JMP Securities. Please go ahead. Your line is open. Okay, thanks very much. Good morning, Peter Merriott and Evan. I just want to start, I've got a first big picture question. You know, Lazar founded in 1848. Most of your independent peers were founded over the past couple of decades. I think many of them would argue that they built their firms off of a blank piece of paper and so that allows for much more efficient cost structure just as you go.

Thanks, Brian.

Okay.

Okay.

Thank you and this now concludes <unk> third quarter 2023 earnings Conference call you may now disconnect.

Yeah.

Hum.

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Devon Ryan: And so I just want to talk a little bit about the expense structure. Obviously, you have expense initiatives underway, and I hear you getting back to more normalized margins. But when you think about the overall infrastructure of Lazar today, the whole global footprint, or even nicks of where you have offices, you see over time more opportunity to get more efficient around the expense structure or even maybe more dynamic on expenses as you move forward here.

Okay.

Okay.

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Okay.

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Peter Orszag: Let me say a couple things. First, there were, you know, significant adjustments that we've made not all of which have been fully implemented yet because it takes a while sometimes to close offices in other countries. But we did take a very careful look at places that we didn't think would meet our productivity hurdles. And we'll continue to do that. Now, I think as its core, Lazar does always been, are coming back to that history has always been deep in Europe and the US and that defines Lazar in some way and that will continue.

Hum.

Uh huh.

Hum.

[music].

Okay.

[music].

Peter Orszag: But we're going to be aggressive about making sure that we're only in places where we think we can expand in a high productivity way because I think that's what leads to a model that works over time on behalf of our bankers and our shareholders and allows us to serve our clients with the excellence that they have come to expect from Lazar. The only other thing I'd say about expenses is we will The Lazard Folk, we are going to be aggressively pursuing an agenda of making sure that we're as lean as possible, because we see that as in delaying.

Peter Orszag: It's one reason why I didn't replace myself as head of advisory. We see an opportunity for not only lower cost ratios from leaner teens, but also better experiences for our people. We have extremely talented people, and we believe that with more running room for each participant on an mandate, the talent development experiences better on behalf of our clients. We are continuing to take just to return to your question, continue to take a careful look at each office and each geography at its core.

Mhm.

Hmm.

Hum.

Mhm.

[music].

Okay.

[music].

Hello.

Peter Orszag: Lazard has always been strong in Europe and the US. Don't expect that to change. And we're committed to being as lean as possible moving forward. Got it. Okay, terrific. I guess another one for you. So you've been CEO here for just a few weeks now, but already some pretty marked changes around. I think both communications but also shareholder matters like the court structure announced today and there's something that many of us have been talking to our clients about and writing about for years.

[music].

Hum.

Peter Orszag: So, you know, obviously in a few weeks a lot changing. From a cultural perspective, you know, what do you want your legacy to be both kind of inside and outside those art? And what if anything, do you see changing around the brand or culture as you implement some of these changes, you know, clearly, you have a firm that has, you know, exactly hundreds of years of history for the same time. These are big changes and things that are relatively dynamic.

Okay.

Peter Orszag: So just want to get a sense for you how you're thinking about kind of your legacy as well. Appreciate the question. I would say look, what we are trying to do here as we pursue these was our 2030 goals is pursue, pursue growth in an ambitious and aggressive way, but also in a way that is high return and high productivity and to act decisively when it's clear that something is shareholder enhancing.

Hum.

Yes.

Okay.

Yes.

Okay.

Okay.

Okay.

Peter Orszag: So, that's really what we hope we're starting to demonstrate, but it's obviously early days and we plan to continue to demonstrate that with regard to internal culture. I've really emphasized the combination of being commercial and collegial, both parts of that are super important to the pathway forward and that means being aggressive on behalf of our clients and ambitious on behalf of our clients. But it also means acting like a team and treating one another with respect. And I think that's what I would hope the legacy will be. Okay, terrific. Thank you.

Okay.

Uh-huh.

[music].

Hum.

Hmm.

[music].

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Okay.

[music].

Okay.

[music].

Brennan Hawken: And our next questions will come from Brennan Hawking with UBS. Please go ahead. And Brennan, your line is open. Sorry about that was muted. It was just so excited to get my follow-up questions in. All right, here we go. So how should we think about advisory MD head count by year end? You have announced plans to make some reductions, but so far versus year end, year end was I believe the numbers we have out of the filings, 212 at year end last year.

Brennan Hawken: And now, you know, in the queue for two to 27. So maybe where do we stand on advisory MDs now? Where do you expect by year end? And then how should we be thinking about the trajectory of that MD count given your plans for productivity enhancement?

Peter Orszag: Sure, first let me say we are, before I turn to the MDs, we are on target to hit our goal of reducing head count by 10 percent measured from the first quarter of 2023 to the first quarter of 2024 overall. That's not specific to MDs. Second before I get to actually answer your question just a little bit of framing, which is, again, really focused on in the year-end process having high bars on being commercial and collegial or higher bars so that following the pandemic, when for natural reasons there might have been a bit more of a generous policy with regard to remaining at Lazard.

Peter Orszag: We are very focused on raising productivity and making sure that people are collaborative moving forward. Then with regard to your specific question, you'll see in the queue for this quarter a number of two-fifteen. That will come down already with regard, that includes some people who will be departing, but they are still counted in the queue and by year-end it will be down from that. Again, consistent with our overall goal of 10 percent head count adjustment.

Peter Orszag: Perfect, thank you for that. And then you, part of your plans, Peter, include internal development and enhance productivity. So what I'd be curious about, have you gone through the exercise of breaking down that MD count, the little over 200 by like strata, in other words, X percent produce 8 plus million or 10 plus million whereas and then there's the middle strata and there's a lower strata and so I guess the 10 percent reduction is going to be very heavily focused on that lower strata and then also have you looked at of the promotes, how many are able to get into that top tier and what can you learn about their journey in order to ensure the promotions are as effective as possible.

Peter Orszag: Excellent question. So a few comments again, just a reminder about the 40 percent that are not that are still ramping, which is, you know, an extra roughly 20 managing directors with embedded productivity kind of ahead. You won't be surprised to know that we do exhaustive analysis of productivity at the individual level by quintile, by quartile, etc. I don't think it's appropriate to share those numbers here, but like in any organization, you're going to have a skew to that distribution and we are therefore really focused on giving people some time to be productive and everyone can have everyone from time to time will have an off year.

Peter Orszag: But if over a prolonged period of time, you know, a matter of several years, either the collegiality or the productivity is not there. We're going to part company with with the managing directors. That was a core kind of filter for the adjustments that we did make earlier in the year and it will be an core filter going forward. That was regard to the kind of the productivity ramp, if you will, and what we can learn from past experience on people who are promoted and also lateral hires but we have invested in a significant amount of of analysis around that question.

Peter Orszag: I think we are getting better. There's always going to be some degree of uncertainty because until someone's actually in a seat, it's always a little bit hard. There's always some uncertainty around that. But we feel confident that we have some of the markers for what ups the odds or makes it less likely for someone to be productive on our platform.

Brennan Hawken: All right, well, we'll look forward to learning more about that as the journey progresses. Thanks for taking my follow-ups. Thanks, Brian. Thank you.

Operator: And this now concludes Lazard's third quarter, 2023 earnings conference call. You may now disconnect. .