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Lazard Ltd Reports Full-Year and Fourth-Quarter 2018 Results

February 5, 2019

NEW YORK--(BUSINESS WIRE)--Feb 5, 2019--Lazard Ltd (NYSE: LAZ) today reported record annual operating revenue 1 of $2,755 million for the year ended December 31, 2018. Net income, as adjusted 2, was a record $539 million, or $4.16 per share (diluted) for the year. Net income on a U.S. GAAP basis for the year was $527 million, or $4.06 per share (diluted).

For the fourth quarter of 2018, net income, as adjusted 2, was $119 million, or $0.94 per share (diluted). On a U.S. GAAP basis, net income for the fourth quarter was $113 million, or $0.89 per share (diluted).

“Our record results for 2018 underscore our continued growth, the strength of our global franchise and the breadth and depth of our business,” said Kenneth M. Jacobs, Chairman and Chief Executive Officer of Lazard. “We are meeting the evolving needs of clients with highly differentiated advice and solutions. We are investing in our technology infrastructure and data science capabilities to enhance our Asset Management and Financial Advisory businesses.”

Note: Endnotes are on page 7 of this release. A reconciliation to U.S. GAAP is on page 15.

OPERATING REVENUE

Operating revenue 1 was a record $2,755 million for 2018, 4% higher than 2017. Fourth-quarter 2018 operating revenue was $685 million, flat with the fourth quarter of 2017.

Financial Advisory

Our Financial Advisory results include M&A Advisory, Capital Advisory, Capital Raising, Restructuring, Shareholder Advisory, Sovereign Advisory, and other strategic advisory work for clients.

Full Year

Financial Advisory operating revenue was a record $1,506 million for 2018, 9% higher than 2017. The results reflected an increase in M&A Advisory, partially offset by a decrease in Restructuring.

Lazard advised or continues to advise on a number of the largest global M&A transactions announced or ongoing in 2018, including (clients are in italics): Aetna’s $78 billion sale to CVS Health; Express Scripts’ $67 billion sale to Cigna; The Supervisory Board of innogy in the company’s €37.9 billion takeover by E.ON; IBM’s $34 billion acquisition of Red Hat; The Woodbridge Company in Thomson Reuters’ sale of a 55% stake in its Financial & Risk business to Blackstone, valuing the business at $20 billion; Sanofi’s $11.6 billion acquisition of Bioverativ; and AkzoNobel’s €10.1 billion sale of its Specialty Chemicals business to Carlyle and GIC.

In 2018, Lazard advised on 61 global announced M&A transactions valued at more than $1 billion, compared to 50 in the prior year (Source: Dealogic).

During or since 2018, we have been engaged in a broad range of highly visible and complex restructuring and debt advisory assignments for debtors or creditors, including roles involving Breitburn Energy Partners; Claire’s Stores; Community Health Systems; Danaos; Expro Group; FirstEnergy Solutions; PG&E Seadrill; Sears Holdings; Takata; Toshiba; and Toys “R” Us.

Our Capital and Shareholder Advisory practices remained active globally in 2018, advising on a broad range of public and private assignments. Our Sovereign Advisory practice also remained active, advising governments, sovereign and sub-sovereign entities across developed and emerging markets.

Fourth Quarter

Financial Advisory operating revenue was $399 million for the fourth quarter of 2018, 19% higher than the fourth quarter of 2017.

Among the major M&A transactions that were completed during the fourth quarter of 2018 were the following (clients are in italics): Aetna’s $78 billion sale to CVS Health ; Express Scripts’ $67 billion sale to Cigna; The Woodbridge Company in Thomson Reuters’ sale of a 55% stake in its Financial & Risk business to Blackstone, valuing the business at $20 billion; AkzoNobel’s €10.1 billion sale of its Specialty Chemicals business to Carlyle and GIC; and Forest City’s $11.4 billion sale to Brookfield.

Among the publicly announced Capital Advisory transactions or assignments on which Lazard advised during the fourth quarter of 2018 were the following (clients are in italics): Special Committee of Independent Directors of VMware in VMware’s declaration of an $11 billion cash dividend in connection with Dell’s Class V tracking stock exchange transaction; AXA in the $1.8 billion secondary offering of common stock in AXA Equitable Holdings; and Aston Martin Lagonda’s £1.1 billion initial public offering.

During the fourth quarter of 2018 we completed restructuring and debt advisory assignments for debtors and creditors involving the following companies: Claire’s Stores; General Healthcare Group; OTAS; Tops Markets; and Toys “R” Us.

For a list of publicly announced Financial Advisory transactions on which Lazard advised in the fourth quarter of 2018, or continued to advise or completed since December 31, 2018, please visit our website at .

Asset Management

In the text portion of this press release, we present our Asset Management results as 1) Management fees and other revenue, and 2) Incentive fees.

Full Year

Asset Management operating revenue was a record $1,242 million for 2018, slightly higher than 2017.

Management fees and other revenue was $1,221 million for 2018, 2% higher than 2017.

Average assets under management (AUM) for 2018 was $241 billion, 6% higher than 2017.

AUM as of December 31, 2018 was $215 billion, down 14% from December 31, 2017. Net outflows for 2018 were $4.9 billion.

Incentive fees were $21 million for 2018, compared to $46 million for 2017.

Fourth Quarter

Asset Management operating revenue was $281 million for the fourth quarter of 2018, 17% lower than the fourth quarter of 2017.

Management fees and other revenue was $280 million for the fourth quarter of 2018, 13% lower than the fourth quarter of 2017, and 6% lower than the third quarter of 2018.

Average AUM for the fourth quarter of 2018 was $225 billion, 8% lower than the fourth quarter of 2017, and 6% lower than the third quarter of 2018.

AUM as of December 31, 2018 decreased 11% from September 30, 2018. The sequential decrease was primarily driven by market depreciation and net outflows of $3.2 billion during the fourth quarter.

Incentive fees were $1 million for the fourth quarter of 2018, compared to $19 million for the fourth quarter of 2017.

OPERATING EXPENSES

Compensation and Benefits

In managing compensation and benefits expense, we focus on annual awarded compensation (cash compensation and benefits plus deferred incentive compensation with respect to the applicable year, net of estimated future forfeitures and excluding charges). We believe annual awarded compensation reflects the actual annual compensation cost more accurately than the GAAP measure of compensation cost, which includes applicable-year cash compensation and the amortization of deferred incentive compensation principally attributable to previous years’ deferred compensation. We believe that by managing our business using awarded compensation with a consistent deferral policy, we can better manage our compensation costs, increase our flexibility in the future and build shareholder value over time.

Adjusted compensation and benefits expense 1 for 2018 was $1,517 million, 2% higher than 2017, with a consistent deferral policy. The corresponding adjusted compensation ratio 1 was 55.1% for 2018, compared to 55.8% for 2017.

Awarded compensation expense 1 for 2018 was $1,537 million, 4% higher than 2017. The corresponding awarded compensation ratio 1 was 55.8% for 2018, compared to 55.6% for 2017.

We take a disciplined approach to compensation, and our goal is to maintain a compensation-to-operating revenue ratio over the cycle in the mid- to high-50s percentage range on both an awarded and adjusted basis, with consistent deferral policies.

Non-Compensation Expense

Adjusted non-compensation expense 1 for 2018 was $484 million, 5% higher than 2017. The ratio of non-compensation expense to operating revenue 1 was 17.6% for 2018, compared to 17.4% for 2017.

Adjusted non-compensation expense 1 for the fourth quarter of 2018 was $142 million, 12% higher than the fourth quarter of 2017, primarily reflecting investments in our technology infrastructure as well as pension plan expenses associated with new accounting guidelines implemented in 2018. The ratio of non-compensation expense to operating revenue 1 was 20.8% for the fourth quarter of 2018, compared to 18.5% for the fourth quarter of 2017.

Our goal remains to achieve an adjusted non-compensation expense-to-operating revenue ratio over the cycle of 16% to 20%.

TAXES

The provision for taxes, on an adjusted basis 1, was $159 million for full-year 2018 and $46 million for the fourth quarter of 2018. The effective tax rate on the same basis was 22.7% for full-year 2018, compared to 24.1% for full-year 2017.

CAPITAL MANAGEMENT AND BALANCE SHEET

Our primary capital management goals include managing debt and returning capital to shareholders through dividends and share repurchases.

In 2018, Lazard returned $1,023 million to shareholders, which included: $360 million in dividends; $553 million in share repurchases of our Class A common stock; and $110 million in satisfaction of employee tax obligations in lieu of share issuances upon vesting of equity grants.

During 2018, we repurchased 12.2 million shares of our Class A common stock for an average price of $45.29 per share. This included the repurchase of 6.4 million shares in the fourth quarter at an average price of $38.43 per share. In line with our objectives, these repurchases more than offset the potential dilution from our 2017 year-end equity-based compensation awards (net of estimated forfeitures and tax withholding to be paid in cash in lieu of share issuances), which were granted at an average price of $56.22 per share.

On February 4, 2019, our Board of Directors authorized additional share repurchases of up to $300 million, which expires as of December 31, 2020, bringing our total outstanding share repurchase authorization to $510 million.

On February 4, 2019, Lazard declared dividends totaling $0.94 per share, comprised of a quarterly dividend of $0.44 per share and an extra cash dividend of $0.50 per share, on Lazard’s outstanding Class A common stock. The dividends are payable on March 1, 2019, to stockholders of record on February 15, 2019.

Lazard’s financial position remains strong. As of December 31, 2018, our cash and cash equivalents were $1,247 million, and stockholders’ equity related to Lazard’s interests was $917 million.

CONFERENCE CALL

Lazard will host a conference call at 8:00 a.m. EST on February 5, 2019, to discuss the company’s financial results for the full year and fourth quarter of 2018. The conference call can be accessed via a live audio webcast available through Lazard’s Investor Relations website at www.lazard.com, or by dialing 1 (888) 218-8032 (U.S. and Canada) or +1 (323) 794-2586 (outside of the U.S. and Canada), 15 minutes prior to the start of the call.

A replay of the conference call will be available by 10:00 a.m. EST on February 5, 2019, via the Lazard Investor Relations website, or by dialing 1 (888) 203-1112 (U.S. and Canada) or +1 (719) 457-0820 (outside of the U.S. and Canada). The replay access code is 8207893.

ABOUT LAZARD

Lazard, one of the world’s preeminent financial advisory and asset management firms, operates from 43 cities across 27 countries in North America, Europe, Asia, Australia, Central and South America. With origins dating to 1848, the firm provides advice on mergers and acquisitions, strategic matters, restructuring and capital structure, capital raising and corporate finance, as well as asset management services to corporations, partnerships, institutions, governments and individuals. For more information on Lazard, please visit www.lazard.com. Follow Lazard at @Lazard.

Cautionary Note Regarding Forward-Looking Statements:

This press release contains 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 these forward-looking statements.

These factors include, but are not limited to, those discussed in our Annual Report on Form 10-K under Item 1A “Risk Factors,” and also discussed from time to time in our reports on Forms 10-Q and 8-K, 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; and Competitive pressure on our businesses and on our ability to retain and attract employees at current compensation levels.

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. 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 release to conform our prior statements to actual results or revised expectations and we do not intend to do so.

Lazard Ltd 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, Lazard’s Twitter account (twitter.com/Lazard) 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 assets under management in various mutual funds, hedge funds and other investment products managed by Lazard Asset Management LLC and Lazard Frères Gestion SAS. Investors can link to Lazard and its operating company websites through .

ENDNOTES

1 A non-U.S. GAAP measure. See attached financial schedules and related notes for a detailed explanation of adjustments to corresponding U.S. GAAP results. We believe that presenting our results on an adjusted basis, in addition to U.S. GAAP results, is the most meaningful and useful way to compare our operating results across periods.

2 2018 adjusted results 1 exclude pre-tax charges of (i) $10.0 million in the fourth quarter and full year relating to costs associated with an unconditional commitment to the Lazard Foundation; (ii) $8.2 million and $28.7 million in the fourth quarter and full year, respectively, of costs associated with the implementation of a new Enterprise Resource Planning (ERP) system; (iii) $(0.1) million and $2.3 million in the fourth quarter and full year, respectively, of office space reorganization costs primarily relating to incremental rent expense and lease abandonment costs; (iv) $6.8 million in the third quarter and full year relating to a debt refinancing by Lazard Ltd’s subsidiary Lazard Group LLC, which redeemed $250 million of its outstanding $500 million of 4.25% Senior Notes maturing in November 2020; and (v) $6.5 million in the fourth quarter and full year relating to the reduction in our Tax Receivable Agreement (TRA) obligation. In addition, fourth quarter and full-year 2018 adjusted results exclude a benefit of $2.9 million and $18.9 million, respectively, of acquisition-related items, primarily reflecting changes in fair value of contingent consideration associated with certain business acquisitions. On a U.S. GAAP basis, these items resulted in a net charge of $5.5 million, or $0.04 (diluted) per share, in the fourth quarter, and a net charge of $12.1 million, or $0.09 (diluted) per share, for full-year 2018.

LAZ-EPE

This presentation includes non-GAAP measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for the corresponding U.S. GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with U.S. GAAP. For a detailed explanation of the adjustments made to the corresponding U.S. GAAP measures, see Reconciliation of U.S. GAAP to Selected Summary Financial Information and Notes to Financial Schedules.

This presentation includes non-U.S. GAAP (“non-GAAP”) measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for the corresponding U.S. GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with U.S. GAAP. For a detailed explanation of the adjustments made to the corresponding U.S. GAAP measures, see Reconciliation of U.S. GAAP to Selected Summary Financial Information and Notes to Financial Schedules.

This presentation includes non-U.S. GAAP (“non-GAAP”) measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable U.S. GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with U.S. GAAP. For a detailed explanation of the adjustments made to comparable U.S. GAAP measures, see Reconciliation of U.S. GAAP to Adjusted Statement of Operations and Notes to Financial Schedules.

Note: Average AUM generally represents the average of the monthly ending AUM balances for the period.

This presentation includes non-GAAP measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable U.S. GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with U.S. GAAP. For a detailed explanation of the adjustments made to comparable U.S. GAAP measures, see Notes to Financial Schedules.

View source version on businesswire.com:https://www.businesswire.com/news/home/20190205005479/en/

CONTACT: Media Contact: Judi Frost Mackey +1 212 632 1428judi.mackey@lazard.com

Investor Contact: Alexandra Deignan +1 212 632 6886alexandra.deignan@lazard.com

KEYWORD: UNITED STATES NORTH AMERICA NEW YORK

INDUSTRY KEYWORD: PROFESSIONAL SERVICES BANKING FINANCE

SOURCE: Lazard Ltd

Copyright Business Wire 2019.

PUB: 02/05/2019 06:49 AM/DISC: 02/05/2019 06:49 AM

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