Lazard, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with Lazard’s condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q (the “Form 10-Q”), as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) included in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “Form 10-K”). All references to “2024,” “2023,” “first quarter” or “the period” refer to, as the context requires, the three month periods ended March 31, 2024 and 2023. Forward-Looking Statements and Certain Factors that May Affect Our Business Management has included in Parts I and II of this Form 10-Q, including in its MD&A, statements that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “target,” “goal” or “continue,” and the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance based on our growth strategies, business plans and initiatives and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. These factors include, but are not limited to, those discussed in our Form 10-K under the caption “Risk Factors,” including the following: • a decline in general economic conditions or the global or regional financial markets; • a decline in our revenues, for example due to a decline in overall mergers and acquisitions (“M&A”) activity, our share of the M&A market or our assets under management (“AUM”); • losses caused by financial or other problems experienced by third parties; • losses due to unidentified or unanticipated risks; • a lack of liquidity, i.e., ready access to funds, for use in our businesses; • competitive pressure on our businesses and on our ability to retain and attract employees at current compensation levels; and • changes in relevant tax laws, regulations or treaties or an adverse interpretation of those items. These risks and uncertainties are not exhaustive. Other sections of the Form 10-K and this Form 10-Q describe additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for our management to predict all risks and uncertainties, nor can management assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Although we believe the statements reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance, achievements or events. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date of this Form 10-Q to conform our prior statements to actual results or revised expectations and we do not intend to do so. Forward-looking statements include, but are not limited to, statements about: • financial goals, including ratios of compensation and benefits expense to adjusted net revenue; • ability to deploy surplus cash through dividends, share repurchases and debt repurchases; • ability to offset stockholder dilution through share repurchases; • possible or assumed future results of operations and operating cash flows; • strategies and investment policies; 40 • financing plans and the availability of short-term borrowing; • competitive position; • future acquisitions, including the consideration to be paid and the timing of consummation; • potential growth opportunities available to our businesses; • potential impact of investments in our technology infrastructure and data science capabilities; • recruitment and retention of our managing directors and employees; • potential levels of compensation expense, including adjusted compensation and benefits expense, and non-compensation expense; • potential operating performance, achievements, productivity improvements, efficiency and cost reduction efforts; • statements regarding environmental, social and governance (“ESG”) goals and initiatives; • likelihood of success and impact of litigation; • ability to realize the anticipated benefits of Lazard’s conversion to a U.S. C-Corporation (the “ Conversion”) and impact on the trading price of our stock; • expected tax rates, including effective tax rates; • changes in interest and tax rates; • availability of certain tax benefits, including certain potential deductions; • potential impact of certain events or circumstances on our financial statements and operations; • changes in foreign currency exchange rates; • expectations with respect to the economy, the securities markets, the market for mergers, acquisitions, restructuring and other financial advisory activity, the market for asset management activity and other macroeconomic, regional and industry trends; • effects of competition on our business; and • impact of new or future legislation and regulation, including tax laws and regulations, on our business. The Company is committed to providing timely and accurate information to the investing public, consistent with our legal and regulatory obligations. To that end, Lazard and its operating companies use their websites, and other social media sites to convey information about their businesses, including the anticipated release of quarterly financial results, quarterly financial, statistical and business-related information, and the posting of updates of AUM in various mutual funds, hedge funds and other investment products managed by Lazard Asset Management LLC (together with its subsidiaries) (“LAM”) and Lazard Frères Gestion SAS (“LFG”). Investors can link to Lazard, Inc., Lazard Group and their operating company websites through http://www.lazard.com . Our websites and social media sites and the information contained therein or connected thereto shall not be deemed to be incorporated into this Form 10-Q. Business Summary Lazard, one of the world’s preeminent financial advisory and asset management firms, operates in North and South America, Europe, the Middle East, Asia and Australia. With origins dating to 1848, we have long specialized in crafting solutions to the complex financial and strategic challenges of a diverse set of clients around the world, including corporations, governments, institutions, partnerships, family offices and individuals. Our primary business purpose is to serve our clients. Our deep roots in business centers around the world form a global network of relationships with key decision-makers in corporations, governments and investing institutions. This network is both a competitive strength and a powerful resource for Lazard and our clients. As a firm that competes on the quality of our advice, we have two fundamental assets: our people and our reputation. We operate in cyclical businesses across multiple geographies, industries and asset classes. In recent years, we have expanded our geographic reach, bolstered our industry expertise and continued to build in growth areas. Companies, government bodies and investors seek independent advice with a geographic perspective, deep understanding of capital 41 structure, informed research and knowledge of global, regional and local economic conditions. We believe that our business model as an independent advisor will continue to create opportunities for us to attract new clients and key personnel. Our principal sources of revenue are derived from activities in the following business segments: • Financial Advisory, which offers corporate, partnership, institutional, government, sovereign and individual clients across the globe a wide array of financial advisory services regarding strategic and mergers and acquisitions (“M&A”) advisory, capital markets advisory, shareholder advisory, restructuring and liability management, sovereign advisory, geopolitical advisory, and other strategic advisory matters and capital raising and placement, and • Asset Management, which offers a broad range of global investment solutions and investment and wealth management services in equity and fixed income strategies, asset allocation strategies, alternative investments and private equity funds to corporations, public funds, sovereign entities, endowments and foundations, labor funds, financial intermediaries and private clients. In addition, we record selected other activities in our Corporate segment, including the management of cash, investments, deferred tax assets, outstanding indebtedness and certain contingent obligations. We also invest our own capital from time to time, generally alongside capital of qualified institutional and individual investors in alternative investments or private equity investments, and make investments to seed our Asset Management strategies. Our consolidated net revenue was derived from the following segments: Three Months Ended March 31, 2024 2023 Financial Advisory 59 % 51 % Asset Management 39 52 Corporate 2 (3) Total 100 % 100 % Business Environment and Outlook Economic and global financial market conditions can materially affect our financial performance. As described above, our principal sources of revenue are derived from activities in our Financial Advisory and Asset Management business segments. Our Financial Advisory revenues are primarily dependent on the successful completion of merger, acquisition, sale, restructuring, capital raising or similar transactions, and our Asset Management revenues are primarily driven by the levels of assets under management (“AUM”). Weak global economic and financial market conditions can result in a challenging business environment for M&A and capital-raising activity as well as our Asset Management business, but may provide opportunities for our restructuring business. The global macroeconomic environment is improving and capital market trends are positive. Market expectations have become more closely aligned with the higher for longer interest rate environment . At the same time, there is a high degree of geopolitical uncertainty that continues to be top of mind for decision-makers. In our Financial Advisory business, we are seeing M&A activity strengthen while financing, valuation, and regulatory headwinds abate. In our Asset Management business, we continue to see investor interest across a range of our actively managed strategies. However, with short term global interest rates rising significantly over the past years, cash and short duration investments are now accumulating as investors are showing patience in allocating additional capital into risk assets. Our outlook with respect to our Financial Advisory and Asset Management businesses is described below. • Financial Advisory—M&A announcements are up year-over-year with 2023 being at their lowest levels in a decade. We remained actively engaged with our clients. The global scale and breadth of our Financial Advisory business, with particular strength in both the U.S. and Europe, enables us to advise on a wide range of strategic and restructuring transactions across a variety of industries. Throughout 2024, we could see increased M&A activity occurring alongside greater restructuring activity as rates remain high and debt maturities approach. In addition, we continue to invest in our Financial Advisory business by selectively hiring 42 talented senior professionals in an effort to enhance our capabilities and sector expertise in M&A, capital structure, restructuring, and public and private capital markets. • Asset Management—Given our diversified, actively managed investment platform and our ability to provide investment solutions for a global mix of clients, we believe we are positioned to benefit from opportunities across the asset management industry. We are continually developing new investment strategies that extend our existing platforms and assessing potential product acquisitions or other inorganic growth opportunities. We operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge continuously, and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all potentially applicable factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. See Item 1A, “Risk Factors” in our Form 10-K. Furthermore, net income and revenue in any period may not be indicative of full-year results or the results of any other period and may vary significantly from year to year and quarter to quarter. Overall, we continue to focus on the development of our business, including the generation of revenue growth, earnings growth and shareholder returns, the evaluation of potential growth opportunities, the investment in new technology to support the development of existing and new business opportunities, the prudent management of our costs and expenses, the efficient use of our assets and the return of capital to our shareholders. Certain market data with respect to our Financial Advisory and Asset Management businesses is included below. Financial Advisory The following table sets forth global M&A industry statistics for completed and announced M&A transactions. Three Months Ended March 31, 2024 2023 % Incr / (Decr) ($ in billions) Completed M&A Transactions: All deals: Value $ 559 $ 733 (24) % Number 6,811 10,455 (35) % Deals Greater than $500 million: Value $ 431 $ 538 (20) % Number 196 255 (23) % Announced M&A Transactions: All deals: Value $ 840 $ 626 34 % Number 7,680 10,451 (27) % Deals Greater than $500 million: Value $ 676 $ 441 53 % Number 238 226 5 % ____________________________________ Source: Dealogic as of April 1, 2024. Global restructuring activity during the first quarter of 2024, one measure of which is the number of corporate defaults, decreased as compared to the first quarter of 2023. The number of defaulting issuers was 34 in the first quarter of 2024 according to Moody’s Investors Service, Inc., as compared to 38 in the first quarter of 2023. Net revenue trends in Financial Advisory are generally correlated to the level of completed industry-wide M&A transactions and restructuring transactions occurring subsequent to corporate debt defaults, respectively. However, deviations from this relationship can occur in any given year for a number of reasons. For instance, our results can diverge 43 from industry-wide activity where there are material variances from the level of industry-wide M&A activity in a particular market where Lazard has greater or lesser relative market share, or regarding the relative number of our advisory engagements with respect to larger-sized transactions, and where we are involved in non-public or sovereign advisory assignments. Asset Management The percentage change in major equity market indices at March 31, 2024, as compared to such indices at December 31, 2023 and at March 31, 2023, is shown in the table below: Percentage Changes March 31, 2024 vs. December 31, 2023 March 31, 2023 MSCI World Index 9 % 25 % Euro Stoxx 13 % 22 % MSCI Emerging Market 2 % 8 % S&P 500 11 % 30 % The fees that we receive for providing investment management and advisory services are primarily driven by the level of AUM and the nature of the AUM product mix. Accordingly, market movements, foreign currency exchange rate volatility and changes in our AUM product mix will impact the level of revenues we receive from our Asset Management business when comparing periodic results. A substantial portion of our AUM is invested in equities. Movements in AUM during the period generally reflect the changes in equity market indices. Financial Statement Overview Net Revenue The majority of Lazard’s Financial Advisory net revenue historically has been earned from advice and other services provided in M&A transactions. The amount of the fee earned can vary depending upon the type, size and complexity of the transaction Lazard is advising on. M&A fees can be earned as a retainer, working fee, announcement fee, milestone fee, opinion fee or transaction completion fee. Most fees are paid upon completion of a transaction, the timing of which can be impacted by delays to securing financing, board approvals, regulatory approvals, shareholder votes, changing market conditions or other factors. Our restructuring and liability management team advises on situations where our clients are financially distressed, providing advice on financial debt restructurings, liability management and M&A. Bankruptcy proceedings may require court approval of our fees. The capital markets advisory team advises both public and private issuers on the raising of capital, while the private capital advisory team provides fundraising and secondary advisory services for private equity, private credit, real estate and real assets-focused investment firms. Additionally, Lazard earns fees from providing strategic advice to clients, which may include shareholder advisory, geopolitical advisory and other strategic advisory matters, with such fees not being dependent on the completion of a transaction. Our Financial Advisory businesses may be impacted by overall M&A activity levels in the market, the level of corporate debt defaults and the environment for capital raising activities, among other factors. Significant fluctuations in Financial Advisory net revenue can occur over the course of any given year, because a significant portion of such net revenue is earned upon the successful completion of a transaction, restructuring or capital raising activity, the timing of which is uncertain and is not subject to Lazard’s control. Lazard’s Asset Management segment principally includes LAM, LFG, Lazard Frères Banque SA (“LFB”) and the Edgewater Funds (“Edgewater”). Asset Management net revenue is derived from fees for investment management and advisory services provided to clients. As noted above, the main driver of Asset Management net revenue is the level and product mix of AUM, which is generally influenced by the performance of the global equity markets and, to a lesser extent, fixed income markets as well as Lazard’s investment performance, which impacts its ability to successfully attract and retain assets. As a result, fluctuations (including timing thereof) in financial markets and client asset inflows and outflows have a direct effect on Asset Management net revenue and operating income. Asset Management fees are generally based on the level of AUM measured daily, monthly or quarterly, and an increase or reduction in AUM, due to market price fluctuations, currency fluctuations, changes in product mix, or net client asset flows will result in a corresponding increase 44 or decrease in management fees. Our investment advisory contracts are generally terminable at any time or on notice of 30 days or less. Institutional and individual clients, and firms with which we have strategic alliances, can terminate their relationship with us, reduce the aggregate amount of AUM or shift their funds to other types of accounts with different rate structures for a number of reasons, including investment performance, changes in prevailing interest rates and financial market performance. In addition, as Lazard’s AUM includes significant amounts of assets that are denominated in currencies other than U.S. Dollars, changes in the value of the U.S. Dollar relative to foreign currencies will impact the value of Lazard’s AUM and the overall amount of management fees generated by the AUM. Fees vary with the type of assets managed and the vehicle in which they are managed, with higher fees earned on equity assets and alternative investment funds, such as hedge funds and private equity funds, and lower fees earned on fixed income and cash management products. The Company earns performance-based incentive fees on various investment products, including traditional products and alternative investment funds, such as hedge funds and private equity funds. For hedge funds, incentive fees are calculated based on a specified percentage of a fund’s net appreciation, in some cases in excess of established benchmarks or thresholds. The Company records incentive fees on traditional products and hedge funds at the end of the relevant performance measurement period, when potential uncertainties regarding the ultimate realizable amounts have been determined. The incentive fee measurement period is generally an annual period (unless an account terminates or redemption occurs during the year). The incentive fees received at the end of the measurement period are not subject to reversal or payback. Incentive fees on hedge funds are often subject to loss carryforward provisions in which losses incurred by the hedge funds in any year are applied against certain gains realized by the hedge funds in future periods before any further incentive fees can be earned. For private equity funds, incentive fees may be earned in the form of a “carried interest” if profits arising from realized investments exceed a specified threshold. Typically, such carried interest is ultimately calculated on a whole-fund or investment by investment basis and, therefore, clawback of carried interest toward the end of the life of the fund can occur. As a result, the Company recognizes incentive fees earned on our private equity funds only when it is probable that a clawback will not occur. Corporate segment net revenue consists primarily of investment gains and losses on the Company’s investments to seed strategies in our Asset Management business, net of hedging activities, and principal investments in private equity funds, as well as gains and losses on investments held in connection with Lazard Fund Interests (“LFI”) and interest income and interest expense. Corporate net revenue can fluctuate due to changes in the fair value of debt and equity securities, as well as due to changes in interest and currency exchange rates and the levels of cash, investments and indebtedness. Corporate segment total assets represented 50% of Lazard’s consolidated total assets as of March 31, 2024, which are attributable to cash and cash equivalents, investments in debt and equity securities, interests in alternative investment, debt, equity and private equity funds and deferred tax assets. Operating Expenses The majority of Lazard’s operating expenses relate to compensation and benefits for managing directors and employees. Our compensation and benefits expense includes (i) salaries and benefits, (ii) amortization of the relevant portion of previously granted deferred incentive compensation awards, including (a) share-based incentive compensation under Lazard’s 2018 Incentive Compensation Plan, as amended (the “2018 Plan”) and (b) LFI and other similar deferred compensation arrangements (see Note 13 of Notes to Condensed Consolidated Financial Statements), (iii) a provision for discretionary or guaranteed cash bonuses and profit pools and (iv) when applicable, severance payments and cash retention awards. Compensation expense in any given period is dependent on many factors, including general economic and market conditions, our actual and forecasted operating and financial performance, staffing levels, estimated forfeiture rates, competitive pay conditions and the nature of revenues earned, as well as the mix between current and deferred compensation. We use “adjusted compensation and benefits expense” and the ratio of “adjusted compensation and benefits expense” to “adjusted net revenue,” both non-GAAP measures, for comparison of compensation and benefits expense between periods. For the reconciliations and calculations with respect to “adjusted compensation and benefits expense” and related ratios to “adjusted net revenue,” see the table under “Consolidated Results of Operations” below. 45 Compensation and benefits expense is the largest component of our operating expenses. We seek to maintain discipline with respect to compensation, including the rate at which we award deferred compensation. We focus on a ratio of adjusted compensation and benefits expense to adjusted net revenue to manage costs, balancing a view of current conditions in the market for talent alongside our objective to drive long-term shareholder value. Our goal remains to deliver a ratio of adjusted compensation and benefits expense to adjusted net revenue over the cycle in the mid-to high-50s percentage range, while targeting a consistent deferral policy. While we have implemented policies and initiatives that we believe will assist us in maintaining ratios within this range, there can be no guarantee that we will be able to maintain such ratios, or that our policies or initiatives will not change, in the future. Our practice is to pay our employees competitively to foster retention and motivate performance and, in doing so, we look to the market for talent and other factors, which are typically correlated with industry revenues, but may vary year by year. At the same time, the amount of compensation we award in a particular year is, in part, deferred and amortized over the successive years. Increased competition for professionals, changes in the macroeconomic environment or the financial markets generally, lower adjusted net revenue resulting from, for example, a decrease in M&A activity, our share of the M&A market or our AUM levels, changes in the mix of revenues from our businesses, investments in our businesses or various other factors could prevent us from achieving this goal. Our operating expenses also include “non-compensation expense”, which includes costs for occupancy and equipment, marketing and business development, technology and information services, professional services, fund administration and outsourced services, amortization and other acquisition-related costs and other expenses. Our occupancy costs represent a significant portion of our aggregate operating expenses and are subject to change from time to time, particularly as leases for real property expire and are renewed or replaced with new, long-term leases for the same or other real property. We believe that “adjusted non-compensation expense”, a non-GAAP measure, when presented in conjunction with measures prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), provides a meaningful and useful basis for our investors to assess our operating results. For calculations with respect to “adjusted non-compensation expense”, see the table under “Consolidated Results of Operations” below. Our operating expenses also include our “benefit pursuant to tax receivable agreement”. To the extent inflation results in rising interest rates and has other effects upon the securities markets or general macroeconomic conditions, it may adversely affect our financial position and results of operations by impacting overall levels of M&A activity, reducing our AUM or net revenue, increasing non-compensation expense, or otherwise. Cost-Saving Initiatives The Company conducted firm-wide cost-saving initiatives over the course of 2023 and during the first quarter of 2024. See Note 15 of Notes to Condensed Consolidated Financial Statements. Provision for Income Taxes On January 1, 2024, we completed our Conversion from an exempted company incorporated under the laws of Bermuda named Lazard Ltd to a U.S C-Corporation named Lazard, Inc. Following the Conversion, all of our operating income will be subject to U.S. federal corporate income taxes, which we anticipate will increase our effective tax rate. Lazard, Inc. is subject to U.S. federal income taxes on all of its operating income and, through its subsidiaries, is also subject to state and local taxes on its income apportioned to various state and local jurisdictions. Lazard Group operates principally through subsidiary corporations including through those domiciled outside the U.S. that are subject to local income taxes in foreign jurisdictions. In addition, Lazard Group is subject to Unincorporated Business Tax (“UBT”) attributable to its operations apportioned to New York City. Additionally, the Organization for Economic Cooperation and Development (the “OECD”) reached agreement among various countries, including the EU member states, to establish a 15% minimum tax on certain multinational companies, commonly called “Pillar Two”. Many countries continue to announce changes in their tax laws and regulations to implement the OECD Pillar Two proposals. Lazard is continuing to evaluate the potential impact on future periods of the Pillar Two proposals, as new guidance becomes available. 46 See “Critical Accounting Policies and Estimates—Income Taxes” below and Notes 16 and 18 of Notes to Condensed Consolidated Financial Statements for additional information regarding income taxes, our deferred tax assets and the tax receivable agreement obligation. Net Income Attributable to Noncontrolling Interests Noncontrolling interests primarily consist of (i) amounts related to Edgewater’s management vehicles that the Company is deemed to control but not own, (ii) Lazard Growth Acquisition Corp. I (“LGAC”) interests (see Note 1 of Notes to Condensed Consolidated Financial Statements), (iii) profits interest participation rights and (iv) consolidated VIE interests held by employees. See Notes 12 and 21 of Notes to Condensed Consolidated Financial Statements for information regarding the Company’s noncontrolling interests and consolidated VIEs. Consolidated Results of Operations Lazard’s condensed consolidated financial statements are presented in U.S. Dollars. Many of our non-U.S. subsidiaries have a functional currency ( i.e ., the currency in which operational activities are primarily conducted) that is other than the U.S. Dollar, generally the currency of the country in which the subsidiaries are domiciled. Such subsidiaries’ assets and liabilities are translated into U.S. Dollars using exchange rates as of the respective balance sheet date, while revenue and expenses are translated at average exchange rates during the respective periods based on the daily closing exchange rates. Adjustments that result from translating amounts from a subsidiary’s functional currency are reported as a component of stockholders’ equity. Foreign currency remeasurement gains and losses on transactions in non-functional currencies are included in the condensed consolidated statements of operations. The condensed consolidated financial statements are prepared in conformity with U.S. GAAP. Selected financial data derived from the Company’s reported condensed consolidated results of operations is set forth below, followed by a more detailed discussion of both the consolidated and business segment results. Three Months Ended March 31, 2024 2023 ($ in thousands) Net Revenue $ 764,753 $ 542,436 Operating Expenses: Compensation and benefits 550,824 449,967 Non-compensation 159,368 169,828 Benefit pursuant to tax receivable agreement – (40,435) Total operating expenses 710,192 579,360 Operating Income (Loss) 54,561 (36,924) Provision (benefit) for income taxes 14,337 (21,725) Net Income (Loss) 40,224 (15,199) Less - Net Income Attributable to Noncontrolling Interests 4,469 6,973 Net Income (Loss) Attributable to Lazard $ 35,755 $ (22,172) Operating Income (Loss), as a % of net revenue 7.1 % (6.8) % The tables below describe the components of adjusted net revenue, adjusted compensation and benefits expense, adjusted non-compensation expense, adjusted operating income (loss) and related key ratios, which are non-GAAP measures used by the Company to manage its business. We believe such non-GAAP measures in conjunction with U.S. GAAP measures provide a meaningful and useful basis for comparison between present, historical and future periods, as described above. 47 Three Months Ended March 31, 2024 2023 ($ in thousands) Adjusted Net Revenue: Net revenue $ 764,753 $ 542,436 Adjustments: Interest expense (a) 20,650 19,410 Distribution fees, reimbursable deal costs, bad debt expense and other (b) (22,949) (26,681) Asset impairment charges – 19,129 Revenue related to noncontrolling interests (c) (7,103) (10,823) Gains related to LFI (d) (9,373) (16,453) Losses associated with cost-saving initiatives (e) 587 - Adjusted net revenue (f) $ 746,565 $ 527,018 ____________________________________ (a) Interest expense (excluding interest expense incurred by LFB) is added back in determining adjusted net revenue because such expense relates to corporate financing activities and is not considered to be a cost directly related to the revenue of our business. (b) Represents certain distribution, introducer and management fees paid to third parties, reimbursable deal costs and bad debt expenses relating to fees and other receivables that are deemed uncollectible for which an equal amount is excluded for purposes of determining adjusted non-compensation expense. (c) Revenue or loss related to the consolidation of noncontrolling interests is excluded from adjusted net revenue because the Company has no economic interest in such amount. (d) Represents changes in the fair value of investments held in connection with LFI and other similar deferred compensation arrangements for which a corresponding equal amount is excluded from compensation and benefits expense. (e) Represents losses associated with the closing of certain offices as part of the cost-saving initiatives including the reclassification of currency translation adjustments to earnings from accumulated other comprehensive loss. (f) Adjusted net revenue is a non-GAAP measure. Three Months Ended March 31, 2024 2023 ($ in thousands) Adjusted Compensation and Benefits Expense: Total compensation and benefits expense $ 550,824 $ 449,967 Adjustments: Compensation related to noncontrolling interests (a) (2,108) (3,010) Charges pertaining to LFI (b) (9,373) (16,453) Expenses associated with senior management transition (c) – (10,674) Expenses associated with cost-saving initiatives (46,610) (20,740) Adjusted compensation and benefits expense (d) $ 492,733 $ 399,090 Adjusted compensation and benefits expense, as a % of adjusted net revenue 66.0 % 75.7 % ____________________________________ (a) Expenses related to the consolidation of noncontrolling interests are excluded because Lazard has no economic interest in such amounts. 48 (b) Represents changes in fair value of the compensation liability recorded in connection with LFI and other similar deferred incentive compensation awards for which a corresponding equal amount is excluded from adjusted net revenue. (c) Represents expenses associated with senior management transition reflecting the departure of certain executive officers. (d) Adjusted compensation and benefits expense is a non-GAAP measure. Three Months Ended March 31, 2024 2023 ($ in thousands) Adjusted Non-Compensation Expense: Total non-compensation expense $ 159,368 $ 169,828 Adjustments: Distribution fees, reimbursable deal costs, bad debt expense and other (a) (22,949) (26,681) Amortization and other acquisition-related costs (68) (48) Non-compensation expense related to noncontrolling interests (b) (526) (841) Expenses associated with cost-saving initiatives (1,532) – Adjusted non-compensation expense (c) $ 134,293 $ 142,258 Adjusted non-compensation expense, as a % of adjusted net revenue 18.0 % 27.0 % ____________________________________ (a) Represents certain distribution, introducer and management fees paid to third parties, reimbursable deal costs and bad debt expenses relating to fees and other receivables that are deemed uncollectible for which an equal amount is included for purposes of determining adjusted net revenue. (b) Expenses related to the consolidation of noncontrolling interests are excluded because the Company has no economic interest in such amounts. (c) Adjusted non-compensation expense is a non-GAAP measure. Three Months Ended March 31, 2024 2023 ($ in thousands) Adjusted Operating Income (Loss) (a): Adjusted net revenue $ 746,565 $ 527,018 Deduct: Adjusted compensation and benefits expense (492,733) (399,090) Adjusted non-compensation expense (134,293) (142,258) Adjusted operating income (loss) $ 119,539 $ (14,330) Adjusted operating income (loss), as a % of adjusted net revenue 16.0 % (2.7) % ____________________________________ (a) Adjusted operating income (loss) is a non-GAAP measure. 49 Headcount information is set forth below: As of March 31, 2024 December 31, 2023 March 31, 2023 Headcount: Managing Directors: Financial Advisory 199 210 230 Asset Management 117 114 124 Corporate 21 26 24 Total Managing Directors 337 350 378 Other Business Segment Professionals and Support Staff: Financial Advisory 1,287 1,393 1,470 Asset Management 1,063 1,107 1,107 Corporate 427 441 487 Total 3,114 3,291 3,442 Operating Results The Company’s quarterly revenue and profits can fluctuate materially depending on the number, size and timing of completed transactions on which it advised, as well as seasonality, the performance of equity markets and other factors. Accordingly, the revenue and profits in any particular quarter may not be indicative of future results. Lazard management believes that annual results are the most meaningful basis for comparison among present, historical and future periods. Three Months Ended March 31, 2024 versus March 31, 2023 The Company reported net income attributable to Lazard of $36 million, as compared to net loss attributable to Lazard of $22 million in the 2023 period. Net revenue increased $222 million, or 41%, with adjusted net revenue increasing $220 million, or 42%, as compared to the 2023 period. Fee revenue from investment banking and other advisory activities increased $176 million, or 63%, as compared to the 2023 period. Asset management fees, including incentive fees, increased $15 million, or 6%, as compared to the 2023 period. In the aggregate, interest income, other revenue and interest expense increased $31 million as compared to the 2023 period, the majority of which is recorded in the Corporate segment. Compensation and benefits expense increased $101 million, or 22%, as compared to the 2023 period. Adjusted compensation and benefits expense (which excludes certain items and which we believe allows for improved comparability between periods, as described above) was $493 million, an increase of $94 million, or 23%, as compared to $399 million in the 2023 period. The ratio of adjusted compensation and benefits expense to adjusted net revenue was 66.0% for the 2024 period, as compared to 75.7% for the 2023 period. Non-compensation expense decreased $10 million, or 6%, as compared to the 2023 period reflecting lower professional services and other expenses. Adjusted non-compensation expense decreased $8 million, or 6%, as compared to the 2023 period. The ratio of adjusted non-compensation expense to adjusted net revenue was 18.0% for the 2024 period, as compared to 27.0% for the 2023 period. The Company reported operating income of $55 million, as compared to an operating loss of $37 million in the 2023 period. The Company reported adjusted operating income of $120 million as compared to an adjusted operating loss of $14 million in the 2023 period, and, as a percentage of adjusted net revenue, was 16.0% for the 2024 period, as compared to (2.7)% in the 2023 period. 50 The provision for income taxes reflects an effective tax rate of 26.3%, as compared to 58.8% for the 2023 period. The change in the effective tax rate principally relates to changes in the geographic mix of earnings inclusive of losses without tax benefits in 2023 and the impact of discrete items. Net income attributable to noncontrolling interests decreased $3 million, or 36% as compared to the 2023 period. Business Segments The following is a discussion of net revenue and operating income (loss) for the Company’s segments: Financial Advisory, Asset Management and Corporate. See Note 20 of Notes to Condensed Consolidated Financial Statements for further information regarding segments. Financial Advisory The following table summarizes the reported operating results attributable to the Financial Advisory segment: Three Months Ended March 31, 2024 2023 ($ in thousands) Net Revenue $ 453,507 $ 277,574 Operating Expenses (a) 428,008 328,735 Operating Income (Loss) $ 25,499 $ (51,161) Operating Income (Loss), as a % of net revenue 5.6 % (18.4) % _______________________________________ (a) See Note 15 of Notes to Condensed Consolidated Financial Statements for information regarding cost-saving initiatives. Certain Lazard fee and transaction statistics for the Financial Advisory segment are set forth below: Three Months Ended March 31, 2024 2023 Lazard Statistics: Number of clients with fees greater than $1 million: Financial Advisory 77 55 Percentage of total Financial Advisory net revenue from top 10 clients 45% 38% Number of M&A transactions completed with values greater than $500 million (a) 17 9 ________________________________________ (a) Source: Dealogic as of April 1, 2024. 51 The geographical distribution of Financial Advisory net revenue is set forth below in percentage terms and is based on the Lazard offices that generate Financial Advisory net revenue, which are located in the Americas (primarily in the U.S.), EMEA (primarily in the U.K., France, Germany, Italy and Spain) and the Asia Pacific region and therefore may not be reflective of the geography in which the clients are located. Three Months Ended March 31, 2024 2023 Americas 63 % 49 % EMEA 37 50 Asia Pacific – 1 Total 100 % 100 % The Company’s managing directors and many of its professionals have significant experience, and many of them are able to use this experience to advise on a combination of M&A, restructuring and other strategic advisory matters, depending on clients’ needs. This adaptability enables Lazard to more effectively deploy its professionals to best advantage based on the often counter-cyclical nature of restructuring as compared to our M&A business. While Lazard measures revenue by practice area, Lazard does not separately measure the costs or profitability of M&A services as compared to restructuring or other services. Accordingly, Lazard measures performance in its Financial Advisory segment based on overall segment adjusted net revenue and operating income margins. Financial Advisory Results of Operations Financial Advisory’s quarterly revenue and profits can fluctuate materially depending on the number, size and timing of completed transactions on which it advised, as well as seasonality and other factors. Accordingly, the revenue and profits in any particular quarter or period may not be indicative of future results. Lazard management believes that annual results are the most meaningful basis for comparison among present, historical and future periods. Three Months Ended March 31, 2024 versus March 31, 2023 Financial Advisory net revenue increased $176 million, or 63%, as compared to the 2023 period. The increase in Financial Advisory net revenue was primarily driven by increased number of completed M&A transactions with values greater than $500 million as compared to the 2023 period, despite a decline in industry-wide completed M&A transactions. Operating expenses increased $99 million, or 30%, as compared to the 2023 period primarily due to increased compensation and benefits expense associated with increased adjusted net revenue. The Financial Advisory operating income was $25 million as compared to an operating loss of $51 million in the 2023 period and, as a percentage of net revenue, was 5.6%, as compared to (18.4)% in the 2023 period. Asset Management Assets Under Management AUM primarily consists of debt and equity instruments, which have a value that is readily available based on either prices quoted on a recognized exchange or prices provided by external pricing services. Prices of equity and debt securities and other instruments that comprise our AUM are provided by well-recognized, independent, third-party vendors. Such third-party vendors rely on prices provided by external pricing services which are obtained from recognized exchanges or markets, or, for certain fixed income securities, from evaluated bids or other similarly sourced price. Either directly, or through our third-party vendors, we perform a variety of regular due diligence procedures on our pricing service providers. 52 The following table shows the composition of AUM for the Asset Management segment (see Item 1, “Business—Principal Business Lines—Asset Management—Investment Strategies”): As of March 31, 2024 December 31, 2023 ($ in millions) AUM by Asset Class: Equity: Emerging Markets $ 24,779 $ 25,288 Global 55,544 53,528 Local 54,841 52,208 Multi-Regional 60,089 59,114 Total Equity 195,253 190,138 Fixed Income: Emerging Markets 9,080 9,525 Global 10,664 10,762 Local 6,378 6,080 Multi-Regional 21,098 21,740 Total Fixed Income 47,220 48,107 Alternative Investments 3,201 3,330 Other Alternative Investments 2,643 2,799 Private Equity 1,486 1,623 Cash Management 629 654 Total AUM $ 250,432 $ 246,651 Total AUM at March 31, 2024 was $250 billion, an increase of $3 billion, or 2%, as compared to total AUM of $247 billion at December 31, 2023 due to market appreciation partially offset by net outflows and foreign exchange depreciation. Average AUM for the first quarter of 2024 increased 9% as compared to the first quarter of 2023 and increased 6% as compared to the fourth quarter of 2023. As of March 31, 2024, approximately 84% of our AUM was managed on behalf of institutional and intermediary clients, including corporations, labor unions, public pension funds, insurance companies and banks, and through sub-advisory relationships, mutual fund sponsors, broker-dealers and registered advisors, compared to 85% as of December 31, 2023. As of March 31, 2024, approximately 16% of our AUM was managed on behalf of individual client relationships, compared to approximately 15% as of December 31, 2023. As of March 31, 2024, AUM with foreign currency exposure represented approximately 60% of our total AUM as compared to 64% at December 31, 2023. AUM with foreign currency exposure generally declines in value with the strengthening of the U.S. Dollar and increases in value as the U.S. Dollar weakens, with all other factors held constant. 53 The following is a summary of changes in AUM by asset class for the three month periods ended March 31, 2024 and 2023: Three Months Ended March 31, 2024 AUM Beginning Balance Inflows Outflows Net Flows Market Value Appreciation/ (Depreciation) Foreign Exchange Appreciation/ (Depreciation) AUM Ending Balance ($ in millions) Equity $ 190,138 $ 4,027 $ (10,485) $ (6,458) $ 14,182 $ (2,609) $ 195,253 Fixed Income 48,107 1,782 (1,571) 211 (199) (899) 47,220 Other 8,406 275 (658) (383) (12) (52) 7,959 Total $ 246,651 $ 6,084 $ (12,714) $ (6,630) $ 13,971 $ (3,560) $ 250,432 Net flows were primarily driven by outflows across all platforms within the Equity asset class. Three Months Ended March 31, 2023 AUM Beginning Balance Inflows Outflows Net Flows Market Value Appreciation/ (Depreciation) Foreign Exchange Appreciation/ (Depreciation) AUM Ending Balance ($ in millions) Equity $ 167,395 $ 7,027 $ (7,289) $ (262) $ 10,750 $ 745 $ 178,628 Fixed Income 43,386 3,352 (2,622) 730 721 624 45,461 Other 5,344 3,281 (750) 2,531 149 27 8,051 Total $ 216,125 $ 13,660 $ (10,661) $ 2,999 $ 11,620 $ 1,396 $ 232,140 Inflows include approximately $3.9 billion related to a wealth management acquisition. Average AUM for the three month periods ended March 31, 2024 and 2023 for each significant asset class is set forth below. Average AUM generally represents the average of the monthly ending AUM balances for the period. Three Months Ended March 31, 2024 2023 ($ in millions) Average AUM by Asset Class: Equity $ 191,619 $ 175,372 Fixed Income 47,312 45,190 Alternative Investments 3,150 4,057 Other Alternative Investments 2,722 826 Private Equity 1,519 876 Cash Management 628 528 Total Average AUM $ 246,950 $ 226,849 54 The following table summarizes the reported operating results attributable to the Asset Management segment: Three Months Ended March 31, 2024 2023 ($ in thousands) Net Revenue $ 295,476 $ 284,044 Operating Expenses (a) 261,680 248,051 Operating Income $ 33,796 $ 35,993 Operating Income, as a % of net revenue 11.4 % 12.7 % _______________________________________ (a) See Note 15 of Notes to Condensed Consolidated Financial Statements for information regarding cost-saving initiatives. The geographical distribution of Asset Management net revenue is set forth below in percentage terms, and is based on the Lazard offices that manage and distribute the respective AUM amounts. Such geographical distribution may not be reflective of the geography of the investment products or clients. Three Months Ended March 31, 2024 2023 Americas 41 % 41 % EMEA 46 45 Asia Pacific 13 14 Total 100 % 100 % Asset Management Results of Operations Asset Management’s quarterly revenue and profits in any particular quarter or period may not be indicative of future results and may fluctuate based on the performance of the equity and other capital markets. Lazard management believes that annual results are the most meaningful basis for comparison among present, historical and future periods. Three Months Ended March 31, 2024 versus March 31, 2023 Asset Management net revenue increased $11 million, or 4%, as compared to the 2023 period. Management fees and other revenue was $287 million, an increase of $8 million, or 3%, as compared to $279 million in the 2023 period. Incentive fees were $9 million, an increase of $4 million as compared to $5 million in the 2023 period. Operating expenses increased $14 million, or 5%, as compared to the 2023 period. Asset Management operating income was $34 million, a decrease of $2 million, or 6%, as compared to operating income of $36 million in the 2023 period and, as a percentage of net revenue, was 11.4%, as compared to 12.7% in the 2023 period. 55 Corporate The following table summarizes the reported operating results attributable to the Corporate segment: Three Months Ended March 31, 2024 2023 ($ in thousands) Interest income $ 6,794 $ 7,319 Interest expense (20,642) (19,396) Net Interest Expense (13,848) (12,077) Other Revenue (Loss) 29,618 (7,105) Net Revenue (Loss) 15,770 (19,182) Benefit pursuant to tax receivable agreement – (40,435) Other operating expenses (a) 20,504 43,009 Operating Expenses 20,504 2,574 Operating Loss $ (4,734) $ (21,756) _________________________________ (a) See Note 15 of Notes to Condensed Consolidated Financial Statements for information regarding cost-saving initiatives. Corporate Results of Operations Corporate operating results in any particular quarter or period may not be indicative of future results and may fluctuate based on a variety of factors. Lazard management believes that annual results are the most meaningful basis for comparison among present, historical and future periods. Three Months Ended March 31, 2024 versus March 31, 2023 Net interest expense increased $2 million, or 15%, as compared to the 2023 period. Other revenue (loss) was positively impacted by investment gains in the 2024 period, as compared to losses incurred from the impairment of equity method investments and the liquidation of LGAC in the 2023 period. Operating expenses excluding the benefit pursuant to TRA, decreased $23 million as compared to the 2023 period, reflecting lower professional services and other expenses. Cash Flows The Company’s cash flows are influenced primarily by the timing of the receipt of Financial Advisory and Asset Management fees, the timing of distributions to shareholders, payments of incentive compensation to managing directors and employees and purchases of common stock. M&A and other advisory and Asset Management fees are generally collected within 60 days of billing, while Restructuring fee collections may extend beyond 60 days, particularly those that involve bankruptcies with court-ordered holdbacks. Fees from our Private Capital Advisory activities are generally collected over a four-year period from billing and typically include an interest component. The Company makes cash payments for a significant portion of its incentive compensation with respect to the prior year’s results during the first three months of each calendar year. See the Condensed Consolidated Financial Statements—Consolidated Statements of Cash Flows for further detail. 56 Summary of Cash Flows: Three Months Ended March 31, 2024 2023 ($ in millions) Cash Provided By (Used In): Operating activities: Net income (loss) $ 40 $ (15) Adjustments to reconcile net income to net cash provided by operating activities (a) 134 175 Other operating activities (b) (264) (572) Net cash provided by (used in) operating activities (90) (412) Investing activities (7) (15) Financing activities (c) 99 (1,072) Effect of exchange rate changes (22) 16 Net Decrease in Cash and Cash Equivalents and Restricted Cash (20) (1,483) Cash and Cash Equivalents and Restricted Cash (d): Beginning of Period 1,225 2,639 End of Period $ 1,205 $ 1,156 ________________________________________ (a) Consists primarily of amortization of deferred expenses and share-based incentive compensation, noncash lease expenses, depreciation and amortization of property and deferred tax provision (benefit). (b) Includes net changes in operating assets and liabilities. (c) Consists primarily of purchases of shares of common stock, tax withholdings related to the settlement of vested RSUs, vested RSAs and vested PRSUs, common stock dividends, changes in customer deposits, distributions to noncontrolling interest holders, activity related to borrowings (including in 2024, the issuance of the 2031 Notes and the partial redemption of the 2025 Notes), distributions to redeemable noncontrolling interests associated with LGAC's redemption of all its outstanding Class A ordinary shares in 2023. (d) Consists of cash and cash equivalents, deposits with banks and short-term investments and restricted cash. Liquidity and Capital Resources Sources and Uses of Liquidity Net revenue, operating income and cash receipts fluctuate significantly between periods and could be affected by various risks and uncertainties. While cash flow from Asset Management activities is relatively stable, in the case of Financial Advisory, fee receipts are generally dependent upon the successful completion of client transactions, the occurrence and timing of which is irregular and not subject to Lazard’s control. Liquidity is significantly impacted by cash payments for incentive compensation, a significant portion of which are made during the first three months of the year. As a consequence, cash on hand generally declines in the beginning of the year and gradually builds over the remainder of the year. We also pay certain tax advances during the year on behalf of certain managing directors, which serve to reduce their respective incentive compensation payments. Additionally, we made payments in the first quarter of 2024 relating to severance and other employee termination costs associated with the cost-saving initiatives. (See Note 15 of Notes to Condensed Consolidated Financial Statements). Also see “Senior Debt” below for senior debt refinancing in the first quarter of 2024. Liquidity is also affected by the level of LFB customer-related demand deposits, primarily from clients and funds managed by LFG. To the extent that such deposits rise or fall, and assuming unchanged asset allocation, this has a corresponding impact on liquidity held at LFB, with the majority of such amounts generally being recorded in “deposits with banks and short-term investments”. LFB is subject to, and in compliance with, regulatory liquidity coverage ratios and liquidity levels are monitored on a daily basis. We regularly monitor our liquidity position, including cash levels, lease obligations, investments, credit lines, principal investment commitments, interest and principal payments on debt, capital expenditures, dividend payments, 57 purchases of shares of common stock, compensation and matters relating to liquidity and to compliance with regulatory net capital requirements. At March 31, 2024, Lazard had approximately $923 million of cash and cash equivalents, including approximately $427 million held at Lazard’s operations outside the U.S. Lazard provides for income taxes on substantially all of its foreign earnings. We expect that no material amount of additional taxes would be recognized upon receipt of dividends or distributions of such earnings from our foreign operations. As of March 31, 2024, the Company’s remaining lease obligations were $62 million for 2024 (April 1 through December 31), $139 million from 2025 through 2026, $124 million from 2027 through 2028 and $222 million through 2034. As of March 31, 2024, Lazard had approximately $209 million in unused lines of credit available to it, including a $200 million, five-year, senior revolving credit facility under the Second Amended and Restated Credit Agreement. The Second Amended and Restated Credit Agreement contains customary terms and conditions, including limitations on consolidations, mergers, indebtedness and certain payments, as well as financial condition covenants relating to leverage and interest coverage ratios. Lazard Group’s obligations under the Second Amended and Restated Credit Agreement may be accelerated upon customary events of default, including non-payment of principal or interest, breaches of covenants, cross-defaults to other material debt, a change in control and specified bankruptcy events. Borrowings under the Second Amended and Restated Credit Agreement generally will bear interest at adjusted term SOFR plus an applicable margin for specific interest periods determined based on Lazard Group’s highest credit rating from an internationally recognized credit agency. The Second Amended and Restated Credit Agreement includes financial covenants that require that Lazard Group not permit (i) its Consolidated Leverage Ratio (as defined in the Second Amended and Restated Credit Agreement) for the 12-month period ending on the last day of any fiscal quarter to be greater than 3.25 to 1.00, provided that the Consolidated Leverage Ratio may be greater than 3.25 to 1.00 for four (consecutive or nonconsecutive) quarters so long as it is not greater than 3.50 to 1.00 on the last day of any such quarter, or (ii) its Consolidated Interest Coverage Ratio (as defined in the Second Amended and Restated Credit Agreement) for the 12-month period ending on the last day of any fiscal quarter to be less than 3.00 to 1.00. For the 12-month period ended March 31, 2024, Lazard Group was in compliance with such ratios. In any event, no amounts were outstanding under the Second Amended and Restated Credit Agreement as of March 31, 2024. In addition, the Second Amended and Restated Credit Agreement contains certain other covenants (none of which relate to financial condition), events of default and other customary provisions. At March 31, 2024, the Company was in compliance with all of these provisions. Lazard’s annual cash flow generated from operations historically has been sufficient to enable it to meet its annual obligations. We believe that the sources of liquidity described above should be sufficient for us to fund our current obligations for the next 12 months. See also Notes 11, 13, 14, 16, 18 and 19 of Notes to Condensed Consolidated Financial Statements regarding information in connection with commitments, incentive plans, employee benefit plans, income taxes, tax receivable agreement obligations and regulatory requirements, respectively. 58 Senior Debt The table below sets forth our corporate indebtedness as of March 31, 2024 and December 31, 2023. The agreements with respect to this indebtedness are discussed in more detail in our condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q and in our Form 10-K. Outstanding as of March 31, 2024 December 31, 2023 Senior Debt Maturity Principal Unamortized Debt Costs Carrying Value Principal Unamortized Debt Costs Carrying Value ($ in millions) Lazard Group 2025 Senior Notes 2025 $ 164.3 $ 0.2 $ 164.1 $ 400.0 $ 0.5 $ 399.5 Lazard Group 2027 Senior Notes 2027 300.0 1.1 298.9 300.0 1.3 298.7 Lazard Group 2028 Senior Notes 2028 500.0 3.8 496.2 500.0 4.0 496.0 Lazard Group 2029 Senior Notes 2029 500.0 3.8 496.2 500.0 4.0 496.0 Lazard Group 2031 Senior Notes 2031 400.0 4.0 396.0 – – – $ 1,864.3 $ 12.9 $ 1,851.4 $ 1,700.0 $ 9.8 $ 1,690.2 In the first quarter of 2024, we issued $400 million of 6.0% senior notes due March 2031 to refinance the upcoming maturity of our 2025 Notes. We used part of the net proceeds to purchase in a tender offer $236 million of the 2025 Notes ($164 million remains outstanding). We invested the net proceeds in short-term U.S. Treasury securities which are included in cash and cash equivalents on the condensed consolidated statements of financial condition as of March 31, 2024. The indenture and supplemental indentures relating to Lazard Group’s senior notes contain certain covenants (none of which relate to financial condition), events of default and other customary provisions. At March 31, 2024, the Company was in compliance with all of these provisions. We may, to the extent required and subject to restrictions contained in our financing arrangements, use other financing sources, which may cause us to be subject to additional restrictions or covenants. See Note 10 of Notes to Condensed Consolidated Financial Statements for additional information regarding senior debt. 59 Stockholders’ Equity At March 31, 2024, total stockholders’ equity was $449 million, as compared to $482 million at December 31, 2023, including $393 million and $424 million attributable to Lazard, Inc. on the respective dates. The net activity in stockholders’ equity during the three month period ended March 31, 2024 is reflected in the table below (in millions of dollars): Stockholders’ Equity - January 1, 2024 $ 482 Increase (decrease) due to: Net income (a) 38 Other comprehensive loss (14) Amortization of share-based incentive compensation 70 Purchase of common stock (22) Settlement of share-based incentive compensation (b) (56) Common stock dividends (44) Other - net (5) Stockholders’ Equity - March 31, 2024 $ 449 ________________________________________ (a) Excludes net income associated with redeemable noncontrolling interests of $3 million in 2024. (b) The tax withholding portion of share-based compensation is settled in cash, not shares. See the Consolidated Financial Statements—Consolidated Statements of Changes in Stockholders’ Equity and Redeemable Noncontrolling Interests for further detail. The Board of Directors of Lazard has issued a series of authorizations to repurchase common stock, which help offset the dilutive effect of our share-based incentive compensation plans. The Company aims to repurchase at least as many shares as it expects to issue pursuant to such compensation plans in respect of year-end incentive compensation over time. The rate at which the Company purchases shares in connection with this annual objective may vary from period to period due to a variety of factors. Purchases with respect to such program are set forth in the table below: Three Months Ended March 31: Number of Shares Purchased Average Price Per Share 2023 2,692,161 $ 36.75 2024 564,692 $ 38.97 As of March 31, 2024, a total of $178 million of share repurchase authorization remaining available under Lazard, Inc.’s share repurchase program will expire on December 31, 2024. During the three month period ended March 31, 2024, Lazard, Inc. had in place trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), pursuant to which it effected stock repurchases in the open market. On April 24, 2024, the Board of Directors of Lazard declared a quarterly dividend of $0.50 per share on our common stock. The dividend is payable on May 17, 2024 to stockholders of record on May 6, 2024. See Notes 12 and 13 of Notes to Condensed Consolidated Financial Statements for additional information regarding Lazard’s stockholders’ equity and incentive plans, respectively. Regulatory Capital We actively monitor our regulatory capital base. Our principal subsidiaries are subject to regulatory requirements in their respective jurisdictions to ensure their general financial soundness and liquidity, which require, among other things, that we comply with rules regarding certain minimum capital requirements. These regulatory requirements may restrict the flow of funds to and from affiliates. See Note 19 of Notes to Condensed Consolidated Financial Statements for further 60 information. These regulations differ in the U.S., the U.K., France and other countries in which we operate. Our capital structure is designed to provide each of our subsidiaries with capital and liquidity consistent with its business and regulatory requirements. For a discussion of regulations relating to us, see Item 1, “Business—Regulation” included in our Form 10-K. Critical Accounting Policies and Estimates The preparation of Lazard’s condensed consolidated financial statements, in conformity with U.S. GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, Lazard evaluates its estimates, including those related to revenue recognition, the allowance for credit losses, compensation liabilities, income taxes (including the impact on the tax receivable agreement obligation), and goodwill. Lazard bases these estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments, including judgments regarding the carrying values of assets and liabilities, that are not readily apparent from other sources. Actual results may differ from these estimates. The following is a description of Lazard’s critical accounting estimates and judgments used in the preparation of its condensed consolidated financial statements. Revenue Recognition Lazard generates substantially all of its revenue from providing Financial Advisory and Asset Management services to clients. Lazard recognizes revenue in accordance with the criteria in Note 2 of Notes to Consolidated Financial Statements in our Form 10-K. Assessment of these criteria requires the application of judgment in determining the timing and amount of revenue recognized, including the probability of collection of fees. Allowance for Credit Losses We maintain an allowance for credit losses to provide coverage for estimated losses from our receivables. We determine the adequacy of the allowance under the current expected credit losses (“CECL”) guidance by (i) applying a bad debt charge-off rate based on historical charge-off experience; (ii) estimating the probability of loss based on our analysis of the client’s creditworthiness resulting in specific reserves against exposures where we determine the receivables are uncollectible, which may include situations where a fee is in dispute or litigation has commenced; and (iii) performing qualitative assessments to monitor economic risks that may require additional adjustments. The allowance for credit losses involves judgment including the incorporation of historical loss experience and assessment of risk characteristics of our clients. The bad debt charge-off rate based on historical charge-off experience was an average annual rate estimated using the most recent two years of charge-off data. When assessing risk characteristics of individual clients, we considered the macroeconomic environment in the local market, our collection experience and recent communication with the client, as well as any potential future engagement with the client. Compensation Liabilities Annual discretionary compensation represents a significant portion of our annual compensation and benefits expense. We allocate the estimated amount of such annual discretionary compensation to interim periods in proportion to the amount of adjusted net revenue earned in such periods based on an estimated annual ratio of adjusted compensation and benefits expense to adjusted net revenue. See “Financial Statement Overview—Operating Expenses” for more information on our periodic compensation and benefits expense. Income Taxes As part of the process of preparing our consolidated financial statements, we estimate our income taxes for each of our tax-paying entities in its respective jurisdiction. In addition to estimating actual current tax liabilities for these jurisdictions, we also must account for the tax effects of differences between the financial reporting and tax reporting of items, such as basis adjustments, compensation and benefits expense, and depreciation and amortization. Differences which are temporary in nature result in deferred tax assets and liabilities. Significant judgment is required in determining our 61 provision for income taxes, our deferred tax assets and liabilities, any valuation allowance recorded against our deferred tax assets and our unrecognized tax benefits. We recognize a deferred tax asset if it is more likely than not (defined as a likelihood of greater than 50%) that a tax benefit will be accepted by the relevant taxing authority. The measurement of deferred tax assets and liabilities is based upon currently enacted tax rates in the applicable jurisdictions. Subsequent to the initial recognition of deferred tax assets, we also must continually assess the likelihood that such deferred tax assets will be realized. If we determine that we may not fully derive the benefit from a deferred tax asset, we consider whether it would be appropriate to apply a valuation allowance against the applicable deferred tax asset, taking into account all available information. The ultimate realization of a deferred tax asset for a particular entity depends, among other things, on the generation of taxable income by such entity in the applicable jurisdiction. We consider multiple possible sources of taxable income when assessing a valuation allowance against a deferred tax asset. See Note 2 of Notes to Consolidated Financial Statements in our Form 10-K for additional information on sources of taxable income, and the information considered when assessing whether a valuation allowance is required. The weight we give to any particular item is, in part, dependent upon the degree to which it can be objectively verified. We give greater weight to the recent results of operations of a relevant entity. Pre-tax operating losses on a three year cumulative basis or lack of sustainable profitability are considered objectively verifiable evidence and will generally outweigh a projection of future taxable income. Certain of our tax-paying entities have individually experienced losses on a cumulative three year basis or have tax attributes that may expire unused. In addition, some of our tax-paying entities have recorded a valuation allowance on substantially all of their deferred tax assets due to the combined effect of operating losses in certain subsidiaries of these entities as well as foreign taxes that together substantially offset any U.S. tax liability. Taking into account all available information, we cannot determine that it is more likely than not that deferred tax assets held by these entities will be realized. Consequently, we have recorded valuation allowances on deferred tax assets held by these entities as of December 31, 2023. We record tax positions taken or expected to be taken in a tax return based upon our estimates regarding the amount that is more likely than not to be realized or paid, including in connection with the resolution of any related appeals or other legal processes. Accordingly, we recognize liabilities for certain unrecognized tax benefits based on the amounts that are more likely than not to be settled with the relevant taxing authority. Such liabilities are evaluated periodically as new information becomes available and any changes in the amounts of such liabilities are recorded as adjustments to “income tax expense.” Liabilities for unrecognized tax benefits involve significant judgment and the ultimate resolution of such matters may be materially different from our estimates. In addition to the discussion above regarding deferred tax assets and associated valuation allowances, as well as unrecognized tax benefit liability estimates, other factors affect our provision for income taxes, including changes in the geographic mix of our business, the level of our annual pre-tax income, transfer pricing and intercompany transactions. See Item 1A, “Risk Factors” in our Form 10-K and Note 16 of Notes to Condensed Consolidated Financial Statements for additional information related to income taxes. Tax Receivable Agreement The Second Amended and Restated Tax Receivable Agreement, dated as of October 26, 2015 (the “TRA”), between Lazard and LTBP Trust (the “Trust”) provides for payments by our subsidiaries to the owners of the Trust, who include certain of our executive officers. The amount of the TRA liability is an undiscounted amount based upon current tax laws and the structure of the Company and various assumptions regarding potential future operating profitability. The assumptions reflected in the estimate involve significant judgment, and if our structure or actual income are different than our assumptions, we could be required to accelerate payments under the TRA. As such, the actual amount and timing of payments under the TRA could differ materially from our estimates. See Note 18 of Notes to Condensed Consolidated Financial Statements for additional information regarding the TRA. 62 The Company currently expects that approximately $32 million of such obligation will be paid in the second quarter of 2024. Goodwill Goodwill has an indefinite life and is tested for impairment annually, as of November 1, or more frequently if circumstances indicate impairment may have occurred. The Company performs a qualitative assessment about whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount in lieu of actually calculating the fair value of the reporting unit. The qualitative assessment includes significant judgment on the business outlook assumptions of each reporting unit based on historical data, current economic conditions, stock performance and industry trends. If events indicate that it is more likely than not that the reporting unit’s fair value is less than its carrying value, the Company performs a quantitative assessment to determine the fair value of the reporting unit and compares it to its carrying values. If the carrying value of a reporting unit exceeds its fair value, the Company would recognize an impairment loss equal to the excess. The goodwill impairment tests indicated no reporting units were at risk of impairment. See Note 9 of Notes to Condensed Consolidated Financial Statements for additional information regarding goodwill. Consolidation The condensed consolidated financial statements include entities in which Lazard has a controlling financial interest. Lazard determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”) under U.S. GAAP. • Voting Interest Entities. VOEs are entities in which (i) the total equity investment at risk is sufficient to enable the entity to finance itself independently and (ii) the equity holders have the obligation to absorb losses, the right to receive residual returns and the right to make decisions about the entity’s activities. Lazard is required to consolidate a VOE if it holds a majority of the voting interest in such VOE. • Variable Interest Entities. VIEs are entities that lack one or more of the characteristics of a VOE. If Lazard has a variable interest, or a combination of variable interests, in a VIE, it is required to analyze whether it needs to consolidate such VIE. Lazard is required to consolidate a VIE if we are the primary beneficiary having (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of, or receive benefits from, the VIE that could be potentially significant to the VIE. Lazard’s involvement with various entities that are VOEs or VIEs primarily arises from LFI investments, seed and other investments in our Asset Management business. Lazard consolidates these entities when it has a controlling financial interest. The impact of seed and LFI investment entities that require consolidation on the condensed consolidated financial statements, including any consolidation or deconsolidation of such entities, is not material to our financial statements. Our exposure to loss from entities in which we have made such investments is limited to the extent of our investment in, or investment commitment to, such entities. Generally, when the Company initially invests to seed an investment entity, the Company is the majority owner of the entity. Our majority ownership in seed investment entities represents a controlling financial interest, except when we are the general partner in such entities and the third-party investors have the right to replace the general partner. To the extent material, we consolidate seed and LFI investment entities in which we own a controlling financial interest, and we would deconsolidate any such entity when we no longer have a controlling financial interest in such entity. Seed investments held in entities in which the Company maintained a controlling financial interest were $109 million in eleven entities as of March 31, 2024, as compared to $114 million in eleven entities as of December 31, 2023. LFI investments held in entities in which the Company maintained a controlling financial interest were $105 million in nine entities as of March 31, 2024, as compared to $144 million in nine entities as of December 31, 2023. As of March 31, 2024 and December 31, 2023, the Company did not consolidate any seed investment entities or LFI investment entities, with the exception of the consolidation of certain LFI funds (see Note 21 of Notes to Condensed Consolidated Financial Statements). As such, seed investments and substantially all of LFI investments included in “investments” on the condensed consolidated statements of financial condition represented the Company’s economic interest in the seed and LFI investments. 63 Risk Management Investments Investments consist primarily of debt and equity securities, and interests in alternative investment, debt, equity and private equity funds. These investments are carried at fair value on the condensed consolidated statements of financial condition, and any increases or decreases in the fair value of these investments are reflected in earnings. The fair value of investments is generally based upon market prices or the net asset value (“NAV”) or its equivalent for investments in funds. See Note 6 of Notes to Condensed Consolidated Financial Statements for additional information on the measurement of the fair value of investments. Lazard is subject to market and other risks on investments held. As such, gains and losses on investment positions held, which arise from sales or changes in the fair value of the investments, are not predictable and can cause periodic fluctuations in net income. Data relating to investments is set forth below: March 31, 2024 December 31, 2023 ($ in thousands) Seed investments by asset class: Debt $ 546 $ 4,285 Equity (a) 120,771 112,807 Fixed income 16,120 15,860 Alternative investments 34,337 33,073 Private equity 18,807 19,361 Total seed investments 190,581 185,386 Other investments owned: Private equity 11,168 10,963 Fixed income and other 2,141 2,119 Total other investments owned 13,309 13,082 Subtotal 203,890 198,468 Private equity consolidated, not owned 17,382 16,494 LFI 399,343 487,002 Total investments $ 620,615 $ 701,964 _______________________ (a) At March 31, 2024 and December 31, 2023, seed investments in directly owned equity securities were invested as follows: March 31, 2024 December 31, 2023 Percentage invested in: Financials 14 % 14 % Consumer 31 32 Industrial 15 15 Technology 21 20 Other 19 19 Total 100 % 100 % The Company makes investments primarily to seed strategies in our Asset Management business or to reduce exposure arising from LFI and other similar deferred compensation arrangements. The Company manages its net economic exposure to market and other risks arising from seed investments and other investments owned. The Company does not 64 hedge investments associated with LFI and other similar deferred compensation arrangements, or investments in funds owned entirely by the noncontrolling interest holders as there is no net economic exposure. The market risk associated with investments held in connection with LFI and other similar deferred compensation arrangements is equally offset by the market risk associated with the derivative liability with respect to awards expected to vest. The Company is subject to market risk associated with any portion of such investments that employees may forfeit. See “—Risk Management—Risks Related to Derivatives” for risk management information relating to derivatives. Risk sensitivities include the effects of economic hedging. For equity market price risk, investment portfolios and their corresponding hedges are beta-adjusted to the All-Country World equity index. Interest rate and credit spread risk and foreign exchange rate risk are hedged using relevant benchmark indices. Private equity risk is not hedged due to lack of proxy hedging instruments. Fair value and sensitivity measurements presented herein are based on various portfolio exposures at a particular point in time and may not be representative of future results. Risk exposures may change as a result of ongoing portfolio activities and changing market conditions, among other things. Equity Market Price Risk—At March 31, 2024 and December 31, 2023, the Company’s exposure to equity market price risk in its investment portfolio, which primarily relates to investments in equity securities, equity funds and hedge funds, was approximately $158 million and $150 million, respectively. The Company hedges market exposure arising from a significant portion of our equity investment portfolios by entering into total return swaps. The Company estimates that a hypothetical 10% adverse change in market prices would result in a net decrease of approximately $1.5 million as of March 31, 2024 and a net increase of approximately $0.2 million as of December 31, 2023, in the carrying value of such investments, including the effect of the hedging transactions. Interest Rate and Credit Spread Risk—At both March 31, 2024 and December 31, 2023, the Company’s exposure to interest rate and credit spread risk in its investment portfolio related to investments in debt securities or funds which invest primarily in debt securities was $18 million. The Company hedges market exposure arising from a portion of our debt investment portfolios by entering into total return swaps. The Company estimates that a hypothetical 100 basis point adverse change in interest rates or credit spreads would not result in a net change in the carrying value of such investments as of March 31, 2024 and December 31, 2023, respectively, including the effect of the hedging transactions. Foreign Exchange Rate Risk—At March 31, 2024 and December 31, 2023, the Company’s exposure to foreign exchange rate risk in its investment portfolio, which primarily relates to investments in foreign currency denominated equity and debt securities and, at December 31, 2023, private equity investments, was $72 million and $69 million, respectively. A significant portion of the Company’s foreign currency exposure related to our equity and debt investment portfolios is hedged through the aforementioned total return swaps. The Company estimates that a 10% adverse change in foreign exchange rates versus the U.S. Dollar would result in a net decrease of approximately $2.9 million and $2.0 million in the carrying value of such investments as of March 31, 2024 and December 31, 2023, respectively, including the effect of the hedging transactions. Private Equity—The Company invests in private equity primarily as a part of its co-investment activities and in connection with certain legacy businesses. At both March 31, 2024 and December 31, 2023, the Company’s exposure to changes in fair value of such investments was approximately $30 million. The Company estimates that a hypothetical 10% adverse change in fair value would result in a decrease of approximately $3.0 million in the carrying value of such investments as of both March 31, 2024 and December 31, 2023, respectively. For additional information regarding risks associated with our investments, see Item 1A, “Risk Factors—Other Business Risks—Our results of operations may be affected by fluctuations in the fair value of positions held in our investment portfolios” in our Form 10-K. Risks Related to Receivables We maintain an allowance for credit losses to provide coverage for expected losses from our receivables. At March 31, 2024, total receivables amounted to $750 million, net of an allowance for credit losses of $30 million. As of that date, Financial Advisory and Asset Management fees, and customers and other receivables comprised 61% and 39% of total receivables, respectively. At December 31, 2023, total receivables amounted to $762 million, net of an allowance for credit losses of $29 million. As of that date, Financial Advisory and Asset Management fees, and customers and other receivables comprised 74% and 26% of total receivables, respectively. See also “Critical Accounting Policies and 65 Estimates—Revenue Recognition” above and Note 4 of Notes to Condensed Consolidated Financial Statements for additional information regarding receivables. LFG and LFB offer wealth management and banking services to high net worth individuals and families. At March 31, 2024 and December 31, 2023, customers and other receivables included $82 million and $86 million, respectively, of such LFB loans which are fully collateralized and monitored for counterparty creditworthiness. Therefore, there was no allowance for credit losses required at those dates related to such receivables. Credit Concentrations The Company monitors its exposures to individual counterparties and diversifies where appropriate to reduce the exposure to concentrations of credit. Risks Related to Derivatives Lazard enters into forward foreign currency exchange contracts and interest rate swaps to hedge exposures to currency exchange rates and interest rates and uses total return swap contracts on various equity and debt indices to hedge a portion of its market exposure with respect to certain investments that seed strategies in our Asset Management business. Derivative contracts are recorded at fair value. In entering into derivative agreements, the Company is subject to counterparty risk. Net derivative assets amounted to $3 million at both March 31, 2024 and December 31, 2023, respectively, and net derivative liabilities, excluding the derivative liability arising from the Company’s obligation pertaining to LFI and other similar deferred compensation arrangements amounted to $4 million and $3 million at March 31, 2024 and December 31, 2023, respectively. The Company also records derivative liabilities relating to its obligations pertaining to LFI awards and other similar deferred compensation arrangements, the fair value of which is based on the value of the underlying investments, adjusted for estimated forfeitures. Changes in the fair value of the derivative liabilities are equally offset by the changes in the fair value of investments which are expected to be delivered upon settlement of LFI awards. Derivative liabilities relating to LFI amounted to $282 million and $365 million at March 31, 2024 and December 31, 2023, respectively. Risks Related to Cash and Cash Equivalents and Corporate Indebtedness A significant portion of the Company’s indebtedness has fixed interest rates, while its cash and cash equivalents generally have market interest rates. Based on account balances as of March 31, 2024, Lazard estimates that its annual operating income relating to cash and cash equivalents would increase by approximately $9 million in the event interest rates were to increase by 1% and decrease by approximately $9 million if rates were to decrease by 1%. As of March 31, 2024, the Company’s cash and cash equivalents totaled approximately $923 million. Substantially all of the Company’s cash and cash equivalents were invested in (i) highly liquid institutional money market funds (a significant majority of which were invested solely in U.S. Government or agency money market funds), (ii) in short-term interest bearing and non-interest bearing accounts at a number of leading banks throughout the world, (iii) in short-term certificates of deposit from such banks and (iv) short-term U.S. Treasury securities. Cash and cash equivalents are continuously monitored. On a regular basis, management reviews its investment profile as well as the credit profile of its list of depositor banks in order to adjust any deposit or investment thresholds as necessary. Operational Risk Operational risk is inherent in all of our businesses and may, for example, manifest itself in the form of errors, breaches in the system of internal controls, employee misconduct, business interruptions, fraud, including fraud perpetrated by third parties, legal actions due to operating deficiencies, noncompliance or cyber attacks. The Company maintains a framework including policies and a system of internal controls designed to monitor and manage operational risk and provide management with timely and accurate information. Management within each of our operating subsidiaries is primarily responsible for its operational risk programs. The Company has in place business continuity and disaster recovery programs that manage its capabilities to provide services in the case of a disruption. We purchase insurance policies designed to help protect the Company against accidental loss and losses that may significantly affect our financial objectives, personnel, property or our ability to continue to meet our responsibilities to our various stakeholder groups. See Item 1A, “Risk Factors” in our Form 10-K for more information regarding operational risk in our business and Item 1C, 66 “Cybersecurity” in our Form 10-K for more information on the Company’s processes to identify, assess and manage cybersecurity risks. Item 3. Quantitative and Qualitative Disclosures About Market Risk Risk Management Quantitative and qualitative disclosures about market risk are included under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management”.