LAZARD, INC. THIRD QUARTER 2026 EARNINGS - LAZARD INC

Explicit Guidance:

• Revenue & Earnings: The acquired Campbell Lutyens (Lazard CL) is projected to generate approximately $500 million in revenue and be accretive to earnings in 2027, with the analysis excluding potential future synergies.
• Compensation Ratio: Management is considering a reduction in the deferral rate for 2026 compensation. If implemented, this accounting change would accelerate expense recognition, raising the 2026 compensation ratio by a few percentage points and subsequently reducing it in future years (2027+) as the amortization of past deferrals reverses. The decision is pending a final determination at year-end.
• Tax Rate: The full-year adjusted effective tax rate for 2026 is expected to be in the high 20s percentage range, compared to 38.1% in Q3 2026.
• Capital Allocation: Share repurchases of $33 million were made in Q3 2026; the firm intends to continue buybacks through the remainder of the year. A quarterly dividend of $0.50 per share has been declared.
• Revenue Mix: For Q3 2026, approximately 60% of advisory revenue derived from M&A and 40% from non-M&A activities (financial advisory).
• Pipeline Growth: The weighted pipeline for 2027 is more than double the pipeline level at the same time in 2025 on a revenue-weighted basis.

Business-Segment Outlook:

• Financial Advisory: Expecting ongoing momentum with record third-quarter revenue driven by M&A, particularly in the Americas and the U.K. The business is emerging from a J-curve investment period, with 80 new/promoted Managing Directors in North America (focusing on healthcare, technology, and industrials) expected to drive continued growth. Lead table positions are at their best level in over a decade.
• Private Capital Advisory: Post-acquisition of Campbell Lutyens (closing early November), the combined entity will form the leading global private capital advisory platform. Synergies in revenue (cross-selling M&A referrals and fundraising) and expenses (vendor/IT consolidation) are anticipated to materialize immediately, with the business performing ahead of initial acquisition assumptions.
• Asset Management: Gross inflows reached a record $54 billion for the first nine months of 2026. The firm targets positive net flows for the full year. 70% of AUM is outperforming benchmarks over one year (best performance in five years). AUM is $284 billion (up 7% YoY). Management expects continued improvement in investment performance and flows into quantitative equities, emerging markets, and infrastructure strategies.
• Restructuring: Management expects continued growth in the restructuring practice in 2027, driven by elevated financial distress risks among "independent frontier labs" and "neocloud providers" in the AI ecosystem, as well as pressure from higher interest rates on lower-performing firms.

Market and Competitive Outlook:

• Deal Drivers: M&A activity is being driven less by cost of capital and more by strategic imperatives: the need for scale amid rapid technological change, vertical integration to address supply chain shocks, and geographic reconfiguration.
• Private Equity M&A: Activity is currently suppressed by a valuation disconnect between sellers (waiting for better valuations) and buyers (constrained by LP liquidity demands and higher rates). Management anticipates this will resolve, leading to a significant uptick in private equity M&A, which would further accelerate forward indicators.
• Software Sector: Activity in software M&A remains challenged by AI uncertainty and valuation gaps but is showing pockets of improvement relative to the sector's bottom.
• Share Gains: The firm aims to gain market share as it ramps up the newly hired Managing Director cohort, even if overall market volume decelerates.
• European Market: Despite a challenging macro/political backdrop in Europe, activity remains strong because many European firms are global entities with sales outside the region.

Macro / Industry Outlook:

• Interest Rates: Higher interest rates are not currently viewed as a material deterrent to deal flow; strategic drivers outweigh financing costs for large-cap transactions. However, rates are exacerbating the valuation disconnect in private equity.
• Regulatory Environment: The current regulatory environment in the U.S. is viewed as favorable and constructive, encouraging deal-making.
• 2028/2029 Outlook: Management notes that a shift in the U.S. administration in 2028 (potentially reinforced by midterm results) could alter the antitrust regulatory landscape, particularly within the Department of Justice. Companies are potentially accelerating transactions to "seize the window" before potential stricter antitrust enforcement in late 2028 or 2029.
• Global Economy: Global economic fracturing and the rise of "frontier firms" in sectors like AI are structural forces driving consolidation and M&A globally, including in Europe.

Strategic Initiatives:

• Acquisition (Lazard CL): Closing of the Campbell Lutyens acquisition is scheduled for early November 2026, creating a third global business line focused on private capital advisory (primary fundraising, secondary advisory, and GP capital).
• Lazard 2030 Strategy: Continued focus on revenue growth via investments in high-growth areas.
• Operational Efficiency: A project to modernize and simplify corporate support functions is underway, aiming to decouple expenses from revenue growth starting in 2027. Initiatives include vendor rationalization, workflow centralization, and process automation.
• AI Integration: Expanding the use of AI and agentic workflows across financial advisory (to allow junior bankers higher responsibility) and asset management (for client servicing and reporting). The goal is to reduce the Associate-to-MD ratio and improve margins over time.
• Asset Management Product Strategy: Plans to expand the number of active ETFs (hiring a head of product) and focus on scaled strategies (quantitative equity, emerging markets, infrastructure) while rationalizing sub-scale products to achieve operating leverage.

Risks and Headwinds to Outlook:

• Valuation Disconnect: The delay in private equity M&A due to valuation gaps between sellers and buyers remains a key headwind, potentially extending the period before a market recovery.
• Regulatory Shifts: A change in the U.S. administration or antitrust enforcement stance (particularly DOJ) post-2028 could alter the current favorable deal environment.
• Economic Distress: While rising rates could drive restructuring opportunities, a broader economic downturn or "challenging economic backdrop" could negatively impact client activity in other areas.
• Software Sector Uncertainty: AI disruption continues to create volatility and valuation uncertainty in the software M&A market.
• Deferral Policy Impact: The potential acceleration of compensation expense recognition could temporarily inflate the compensation ratio and impact reported earnings, though it is designed to improve long-term ratio quality and reduce dilution.

Management Tone on the Future:

• Confidence Level: High confidence and "encouraged" by forward indicators. Management states they are "firmly on track" to achieve Lazard 2030 objectives and are "ahead of schedule" relative to internal planning.
• Strategic Shift: Tone emphasizes a transition from a "J-curve" investment period to a realization phase, where investments in talent and platform are now "translating into results."
• Market Position: Asserts that the firm is "walking and chewing gum" (excelling in both large-cap strategic M&A and private capital) despite industry headwinds, and that their momentum is superior to general market trends.
• Shareholder Value: Expresses openness to structural changes (including M&A or separation of Asset Management) if it maximizes shareholder value, rejecting "dogmatic insistence" on the current two-leg structure.

Miscellaneous:

• Employee Sentiment: Internal survey shows all-time highs in employee pride, happiness, and likelihood to recommend the firm; AI tools are cited as a key strength improving productivity.
• Deal Pull-Forward: Q3 2026 included revenue pull-forwards of approximately $2-3 million (in line with the 2-year average), indicating no exceptional concentration of delayed deals.