Lazard LTD.

morning and welcome to Lazard's third quarter and first nine months of 2022 earnings conference call. This call is being recorded. Currently, all participants are in a listen-only mode. Following the remarks, we will conduct a question and answer session. Instructions will be provided at that time. If anyone should require assistance during the call, please press the star key followed by the zero on your touchtone phone. At this time, I will turn the call over to Alexandra Dagnon, Lazard's Head of Investor Relations and Corporate Sustainability. Please go ahead.

Thank you, and good morning. Welcome to Lazard's earnings call for the third quarter and first nine months of 2022. I'm Alexandra Degnant, Head of Investor Relations and Corporate Sustainability. In addition to today's audio comments, we have posted our earnings release and an investor presentation on our website. A replay of this call will also be available on our website later today. Before we begin, let me remind you that we may make forward-looking statements about our business and performance. There are important factors that could cause our actual results, level of activity, performance, or achievements differ materially from those expressed or implied by the forward-looking statements, including but not limited to those factors discussed in the company's SEC filing, which you can access on our website. Lazard assumes no responsibility for the accuracy or completeness of these forward-looking statements and assumes no duty to update these forward-looking statements. Today's discussion also includes certain non-GAAP financial measures that we believe are meaningful when evaluating the company's performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP measure is provided in our earnings release and investor presentation. Hosting our call today are Kenneth Jacobs, Lazard's Chairman and Chief Executive Officer, and Marianne Betch, Lazard's new Chief Financial Officer. Mary Ann will start the discussion with an overview of our financial results, then Ken will provide his perspective on the outlook for our business. After that, Ken and Mary Ann will be joined by Peter Orszag, Chief Financial Officer of Financial Advisory, and Evan Russo, Chief Executive Officer of Asset Management, as they will open the call to questions. I'll now turn the call over to Mary Ann.

Thank you, Allie. Good morning. Let me begin by saying how happy I am to be here at Lazard. I'm looking forward to meeting many of you on the call today as I settle into my new role. Let's get started with a review of our financials. Today we reported record third quarter operating revenue of $724 million, a 3% increase from revenue of $702 million in the third quarter of 2021. Operating revenue for the first nine months of 2022 was $2.1 billion. 3% lower than in the first nine months of 2021. In financial advisory, we reported record third quarter revenue of $454 million, up 19% from last year's third quarter. For the first nine months of the year, operating revenue was also at a record level of 1.2 billion, 7% higher than the same period in 2021. As demonstrated by the record quarter, M&A has been active, particularly in Europe, where we advised on several high-profile transactions. In restructuring, although activity is still relatively low, our discussions with clients are increasing as a result of current market conditions and demand for liability management. In addition, our restructuring practice is ranked number one globally on announced transactions year-to-date. Our sovereign advisory team is also working on a number of complex assignments. In asset management, third quarter operating revenue was $263 million, 15% lower than third quarter 2021 revenue of $311 million. Management fees of $241 million decreased 20% year over year. Incentive fees in the third quarter were $22 million, compared to $7 million for the third quarter of 2021. For the first nine months of 2022, asset management revenue was $840 million, a decline of 14% compared to the first nine months of 2021, reflecting lower average assets under management. As of September 30th, we reported AUM of $198 billion, a decrease of 27% compared to September 30th, 2021, and 9% lower on a sequential basis from June 30th, 2022. The sequential decrease was driven by market depreciation of 10.3 billion, foreign currency depreciation of 6.6 billion, and net outflows of 2 billion. Average AUM for the third quarter was $212 billion, decreasing 24% from a year ago and 8% on a sequential basis. This reflected global markets continuing to weaken in both equities and fixed income during the third quarter. In addition, the strengthening U.S. dollar has been a headwind thus far in 2022. As of October 21st, our AUM was approximately $200 billion, driven by market appreciation of 3.4 billion, negative foreign currency impact of 0.6 billion, and net outflows of approximately 0.7 billion. Now turning to expenses. We accrued compensation expense at a 60% adjusted compensation ratio in the third quarter, compared to 58.5% in the second quarter of 2022. For the first nine months of 2022, we accrued at a 59% ratio. This is our best estimate for the full year, but is subject to performance during the remainder of 2022. Compensation levels reflect our significant investment for growth in both businesses, and our focus on investing in and preserving intellectual capital through the cycle. Our adjusted non-compensation expense for the third quarter was $128 million, 10% higher than the prior year, primarily reflecting the impact of increased travel and investments in technology. Our effective tax rate for the third quarter, as adjusted, was 25.1%, which is unchanged from the prior year quarter. For the first nine months of the year, our adjusted tax rate was 25.6% versus 26.2% in 2021. We expect this year's annual effective tax rate to be in the mid-20% range. We have generated strong cash flow year to date. In the third quarter, we returned $286 million to shareholders, including $46 million in dividends and $237 million in share repurchases. Additionally, yesterday we declared a quarterly dividend of $0.50 per share. During the third quarter, we bought back 6.7 million shares of stock at an average price of $35.63 per share. During the first nine months of 2022, we repurchased a record 17.2 million shares at an average price of $35.49 per share. Our weighted average share count at quarter end was 102 million shares, a decrease of 11% from 114 million shares in the prior year quarter. Our unweighted share count as of September 30th was less than 100 million shares. Our total outstanding share repurchase authorization as of September 30th was $382 million. Ken will now share his perspective on our performance and outlook.