Lazard Ltd (LAZ) Q2 2016 Earnings Report, Transcript and Summary

Please stand by, we're about to begin. Good morning, and welcome to Lazard's Second Quarter 2016 Earnings Conference Call. This call is being recorded. At this time, 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. At this time, I'll turn the call over to Judi Frost Mackey, Lazard's Director of Global Communications. Please go ahead.

Good morning and thank you for joining our conference call to review Lazard's results for the second quarter and first half of 2016. Hosting the call today are Kenneth Jacobs, Lazard's Chairman and Chief Executive Officer; and Matthieu Bucaille, Chief Financial Officer. A replay of this call will be available on the Lazard website beginning today by 10:00 AM Eastern Daylight Time. Today's call may contain forward-looking statements. These statements are based on our current expectations about future events and are subject to known and unknown risks, uncertainties and assumptions. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from those expressed or implied by the forward-looking statements. These factors include, but are not limited to, those discussed in Lazard's filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K, Quarterly Report on Form 10-Q and Current Report on Form 8-K. Lazard assumes no responsibility for the accuracy or completeness of any of these forward-looking statements. Investors should not rely upon forward-looking statements as predictions of future events. Lazard is under no duty to update any of these forward-looking statements after the date on which they are made. Today's discussion may also include certain non-GAAP financial measures. A description of these non-GAAP financial measures and their reconciliation to the comparable GAAP measures are contained in our earnings release, which has been issued this morning. For today's call, we will focus on highlights of our performance. The details of our earnings can be found in our press release issued this morning and in our investor presentation, both of which are posted on our website. Following their remarks, Ken and Matthieu will be happy to answer your questions. I will now turn the call over to our Chairman and Chief Executive Officer, Ken Jacobs. Kenneth M. Jacobs - Chairman & Chief Executive Officer: Good morning. In the second quarter, Lazard maintained a strong competitive position in turbulent market conditions. Operating revenue was down compared to last year's record levels, but our Advisory business remain active on many of the largest and most significant assignments around the world. And Asset Management achieved net inflows and growth in assets under management. We continue to expect Advisory revenues to be back-end loaded in 2016 with a higher level of M&A closings during the second half of the year. Our market share of large M&A transactions remain strong. For the first half of the year, our announced volume was down, but our number of large announcements valued at over $500 million increased 15%, even if the market decreased 5%. In Europe, Lazard played a lead advisory role on two of the largest announcements following the Brexit vote. We advised ARM Holdings on its sale to SoftBank, the largest-ever Asian acquisition of a UK company and Danone on its acquisition of the U.S. company WhiteWave. Our activity in this period of macroeconomic uncertainty again underscores the strength of our Advisory franchise. Lazard's is best-positioned to advise clients on the complex challenges of this environment with global perspective and capabilities, deep insight into local markets and unrivaled breadth and depth of expertise. We continue to be active across our Advisory practices. Restructuring had another strong quarter. Lazard is ranked number one globally for completed and announced restructuring assignments in the first half of the year. Our activity continues to be centered around the energy and commodity related sectors. Our Corporate Preparedness and Shareholder Advisory business is serving a growing base of clients and is an increasingly important component of our M&A and strategic advice. Our Sovereign Advisory business continues to be in high demand, advising governments in both emerging and developed markets. And our Capital Advisory services remain active, advising companies on balance sheet matters and capital raising. In June, we advised the Danish power company DONG Energy on its initial public offering, the largest IPO globally year-to-date. Asset Management achieved strong results in the second quarter's volatile markets. Management fees increased 5% from the first quarter of this year. Assets under management were up slightly at quarter-end despite the volatility in global markets after the Brexit vote. In July, AUM continued to grow in the improving market environment. We continue to achieve a high level of gross inflows across our platforms, with net inflows in the quarter. Inflows were primarily driven by strategies in our global, multi-regional, and local equity platforms, with significant growth in our quantitative strategies. Asset Management's resilience in volatile markets in an uncertain environment reflects the strength of our institutional client base. The great majority of our Asset Management clients are strategic allocators of capital, with a long-term investment outlook. Our relative investment performance has been strong this year in many strategies across our platforms. Performance in the emerging markets equity platform has been robust on a relative and absolute basis. We continue to build our Asset Management franchise through the development and scaling-up of new strategies. During the second quarter, we expanded our multi-asset offerings with the launch of a new global fund. Matthieu will now provide color on our financial results and capital management. Then I will comment on our outlook.

Thank you, Ken. Lazard's second-quarter operating revenue of $542 million was 11% lower than the record second quarter of last year; that's 7% higher than the first quarter of this year. On a constant currency basis, operating revenue for the second quarter was 10% lower than the second quarter of last year, and 7% higher than the first quarter of this year. Second quarter 2016 diluted net income per share was $0.61 post on an adjusted and U.S. GAAP basis. This compares to $0.98 per share for last year's second quarter on an adjusted basis and $2.82 per share on a GAAP basis, which primarily reflected the reversal of our valuation allowance in 2016. In Financial Advisory, Strategic Advisory operating revenue was 26% lower than the record second quarter of last year, but this was partially offset by a nearly threefold increase in Restructuring revenue. Restructuring revenue has increased for several quarters in a row, but closings tend to be lumpy. Asset Management's operating revenue was 14% lower than the record second quarter of last year, which included the impact of the disposal of our Australian private equity business. Management fees were down 8% compared to the second quarter of last year due to lower average AUM and the change in the mix of our assets. On a sequential basis, Asset Management operating revenue increased 5% from the first quarter of this year, reflecting a 5% increase in management fees. During the second quarter of 2016, AUM increased by $1.3 billion from March 31 to $192 billion. This increase was driven by net inflows of $453 million, market appreciation of $2.1 billion and negative foreign exchange movements of $1.2 billion. We achieved net inflows in the quarter despite $1.7 billion of net outflows in one of our global equity strategies. As of July 22, 2016, AUM was approximately $197 billion, a $4.8 billion increase from the end of the second quarter. The increase was driven by net inflows of $332 million, market appreciation of $5.8 billion and negative foreign exchange movements of $1.3 billion. Turning to expenses, for the second quarter we accrued compensation at a 56.5% adjusted compensation ratio, approximately 1 point higher than the full year 2015 ratio of 55.4%. As we have said before, this increase primarily reflects higher expected RSU amortization in 2016. Regarding non-compensation, the second-quarter adjusted expense was $112 million, 2% higher than last year, primarily due to investment in our businesses, partially offset by lower activity-related expenses. Turning to taxes, our tax rate for the second quarter was 28.4%. For the full year 2016, we expect our annual tax rate to be around the low end of our estimated range, which as we've said before is between the high 20s% and low 30s%. As always, the quarterly rates (09:58). Regarding capital management, we returned $491 million to shareholder in the first half of 2016 primarily through dividends and share repurchases and year-to-date, we have spent $209 million buying back shares compared to $118 million at this time last year. We have already exceeded our objective of offsetting potential dilution from the 2015 year-end equity grant. NASDAQ financial positions remain strong. In the second quarter Moody's upgraded our credit rating to investment grade aligning it with S&P and Fitch. We continue to generate strong cash flow and expect to continue deploying future excess cash towards share repurchase and dividends. Ken will now conclude our remarks. Kenneth M. Jacobs - Chairman & Chief Executive Officer: Thank you, Matthieu. I'll provide some perspective on our outlook, and then we'll open the call to questions. The uncertain macro and geopolitical environment led to an industry-wide slowdown for M&A announcements in the first half of this year. But the backdrop remains in place for a sustained period of M&A activity. The global disinflationary environment continues to be a powerful catalyst for M&A, as the companies looked for strategic options to grow or to rationalize their business. Low and negative interest rates through most of the developed world implied that this environment may persist for some time. The capital markets of Europe recovered from the initial shock of Britain's vote to leave the EU. The M&A market has been relatively active as well, including large transactions with European companies both as buyers and sellers. Lazard's trade in Europe puts us in an excellent position to advise on these opportunities. Regarding Brexit's potential effect on Asset Management, we expect to see minimal impact, thanks to our primary institutional client base and the global nature of our business. The longer-term outlook for Asset Management remains positive as our franchise continues to demonstrate quality and consistency. We have traction across most of our investment platforms and significant capacity for organic growth. To summarize, four takeaways from the quarter and first half. First, our Asset Management business has achieved sequential growth in management fees, net inflows and a strong pattern of investment performance in a turbulent market. Two, in Financial Advisory despite the positive announcements, the backdrop remains in place for a sustained period of M&A activity. Three, we continue to expect revenue in 2016 to be back-end loaded with a higher level of M&A closings during the second half of the year. And finally Lazard's cash flow remains strong. We expect to continue deploying excess cash toward share repurchases and dividends. Finally, we remain focused on serving our clients well while we manage the firm for profitable growth and shareholder value over the long term. Let's open the call to questions.

Thank you. Our first question comes from Conor Fitzgerald with Goldman Sachs. Conor Fitzgerald - Goldman Sachs & Co.: Hi, good morning. Thanks for taking my question. I guess, just maybe starting on restructuring, I know you previously talked about how the dot-com bubble was maybe a good proxy for what you're seeing in energy this cycle. I know this can – this revenue item can be pretty lumpy. But at least from 2Q perspective, you're kind of already tracking above that. So based on what you've seen in 2Q, do you still think that's a good way to think about the opportunity set or are you seeing more upside based on the early returns? Kenneth M. Jacobs - Chairman & Chief Executive Officer: Once again it'd be nice to be able to say that we expect the trend on 2Q but I think unfortunately it's probably more the way we originally described it, which is much like what we saw during the dot-coms. It's concentrated primarily in the natural resources sector. As we said before, I think as long as the U.S. economy remains in as good a shape as it appears to be at the moment, it probably will definitely expand outside of that. Conor Fitzgerald - Goldman Sachs & Co.: That's helpful, thanks. And then just for European M&A you've seen a little bit on the corporates kind of issuing debt, the ECB kind of buying the CSPP and then basically being an acceler for M&A. I guess when you're talking to corporates how important are they thinking about their cost of funding in Europe as an opportunity kind of to pursue M&A, especially given some of the negative debt spreads we see over there? Kenneth M. Jacobs - Chairman & Chief Executive Officer: Yeah, look, I think the key on the financing is how you use it. I think we had a – we've been in an environment for quite a while where financing has been relatively inexpensive. I think it's probably even cheaper today than any of us anticipated. But I think the challenge when you – for boards and CEOs is how you put that money to work effectively. So if you're going to do something particularly in a disinflationary environment it's probably why, it has to be something which is going to lead to growth so that you don't run the risk of undermining your financial picture in the long term. So I think our view is that money is cheap, yes, but it's very, you have to be very wise about how you deploy it right now. But I think we will continue to see activity for all the reasons I've said about that. Conor Fitzgerald - Goldman Sachs & Co.: That's helpful. Thanks for taking my questions.

Our next question comes from Ashley Serrao with Credit Suisse. Ashley Neil Serrao - Credit Suisse Securities (USA) LLC (Broker): Good morning. Kenneth M. Jacobs - Chairman & Chief Executive Officer: Hi, Ashley. Ashley Neil Serrao - Credit Suisse Securities (USA) LLC (Broker): Ken, just first I guess a question on just expenses and non-comp costs, I think most Wall Street firms nowadays are discovering new ways to optimize costs. I was just curious to get your thoughts on whether there's any room for further efficiencies in Lazard's cost structure. And what will it take to get that non-comp ratio closer to 16%, up to 16% to 20% range that you're targeting? Kenneth M. Jacobs - Chairman & Chief Executive Officer: Well, I think looking at the non-comp on a quarterly basis is a little tough, because of the fluctuations in business and expenses over a short period of time. I think if you look over the last 12 months, you have a better picture of how we're doing on the non-comp expenses. And I think that there's always opportunity to do more. And again, you have to look at those, the non-comp expense, in two categories, the variable and the fixed. On the variable side, I think we've pretty much done what we said we were going to do in terms of the two-thirds, one-third you go up with the business and a little bit down as the business goes down; and on the fixed, there we're always looking for opportunities. They usually come in spurts, they don't – and so we're just, we're always chasing. I think we've done a pretty good job over the last couple of years of finding them. And I think we'll continue to do that. Ashley Neil Serrao - Credit Suisse Securities (USA) LLC (Broker): Okay. And then I know you landed two large deals post-Brexit but I wanted to get your thoughts on whether you think the depreciation of the pound will spur a wave of M&A and then also if you have any early thoughts on the impact of U.S. election on the M&A environment? Kenneth M. Jacobs - Chairman & Chief Executive Officer: I think we were all pleasantly surprised, especially the markets, by how the markets have performed post-Brexit. So I think we've probably, I think, settled down a little bit quicker globally than probably people originally anticipated given the surprise of the vote. Overall, as you know, volatility is never a good thing for confidence and therefore for M&A. I think their stability probably helped, I think what the markets are essentially saying is that there's an impact of Brexit, I think at this point is largely reflected in what's happened to the sterling, pound sterling and then also the ups and downs in various stocks in the market. It doesn't seem to have had much impact on the U.S. obviously because just when you look at the overall exposure of the U.S. to it, it is pretty minimal, as you'd expect. And with regard to Europe, I think, again, somewhat more benign than most people anticipated. So the effect on volatility, confidence, diminished. I think overall this is again going to be a strong driver for many of the multinationals in Europe to really think about where they're going to get growth from. And while there's a little bit more complexity in between the UK and Europe itself in terms of what the trade arrangements are going to be, I don't think there's any more complexity between how Europe interacts with the U.S., for that matter, Asia or how Britain interacts with the U.S. or for that matter other parts of the world. And so consequently I think this is going to be again another trigger to think about how to build out their businesses globally. And as far as U.S. elections are concerned, I think so far there's a lot of rhetoric around free trade and barriers to trade. But I don't think the markets have really started to take that seriously yet. If they do, then – if people start to – if that rhetoric starts to be taken seriously, I think it could have an effect on markets, but so far we haven't seen it. Ashley Neil Serrao - Credit Suisse Securities (USA) LLC (Broker): Okay. And just a final quick one here and I think I know the answer, but I guess given the SEC's focus on non-GAAP disclosure, do you expect it to impact you in any way? Kenneth M. Jacobs - Chairman & Chief Executive Officer: I think we're pretty happy with our disclosure. I mean, it's probably the best-of-class for the people that we compare ourselves to, I mean everybody has everything they need to analyze our earnings and I think the difference between what we call GAAP and real GAAP and our wording is very clear, very understandable and I think that it should continue to benefit investors. Ashley Neil Serrao - Credit Suisse Securities (USA) LLC (Broker): All right. Great, thank you for taking my questions.

Our next question comes from Brennan Hawken with UBS.

Good morning, thanks for taking the question. I guess first on the Asset Management business, can you talk, I know you gave some color on, I think you said that there was a $1.7 billion outflow in a global strategy. Was that Global Thematic? And can you update us on the AUM in that product and where we go from here? Kenneth M. Jacobs - Chairman & Chief Executive Officer: Yes, it was Global Thematic and I think the AUM in that product now is about 5...

...point 9. Kenneth M. Jacobs - Chairman & Chief Executive Officer: $5.9 billion. So, as you can see, it has increasingly less impact on us today than it would have a couple of years ago.

Great. And then can you talk about what you're seeing as far as RFP trends in your Asset Management business, how your engagement with clients is around your product line-up. And there's a decent amount of investor concern around EM-oriented strategies. Could you just give us some color on whether or not you think that concern is warranted and what you're seeing actually on the ground? Kenneth M. Jacobs - Chairman & Chief Executive Officer: Okay. So first let me start with the EM. Actually we're not seeing that at all, I think generally speaking obviously we have a very well-respected and I think very well-performing platform on the EM side. And I think we're feeling pretty good about the level of inquiries, pretty good overall about RFP activity. And we've had a pretty good six months so far this year in terms of inflows, net inflows across really most of the product ranges for us.

Okay, terrific. And the dynamics you're seeing as far as RFPs and such suggest that things should remain stable and healthy? Kenneth M. Jacobs - Chairman & Chief Executive Officer: Yeah, it's improved over the course of the year.

Great, great, thank you. Last one from me, and it's – apologies, it's a bit of a existential one, but I've been frustrated and I know a lot of your investors have been frustrated in the valuation in Lazard's stock. You guys – your primary – two primary businesses, M&A Advisory and Asset Management, you seem to trade at a discount to both of those proxies. And I guess what I'd ask you is you guys are leaders in restructuring. You have some of the most talented restructuring bankers. Have you approached your own restructuring bankers to take a look at your business? And why there is this disconnect in between what many investors believe is the intrinsic value of your business? And how that gets reflected in the public markets? Kenneth M. Jacobs - Chairman & Chief Executive Officer: Yeah, and we say what we think.

And closing that gap? Kenneth M. Jacobs - Chairman & Chief Executive Officer: So we say it's all of us as investment bankers. Look, I would say we are probably the most critical, intent analysts of our own performance in the stock market as anybody could be. We've looked at it every way, upside-down, which way, I think we have some internal views about it which a little difficult to share broadly so let me just say the following. One, we are amongst the largest shareholders in this business, the employees, myself, the senior members of Lazard. We look at the value of the stock over the long term, we really have a deep belief in this franchise. I think there is – to share with you there's a level of frustration also about valuation from time to time. I think you can see that we've been investing in our own business by buying back significantly more shares in the first half of this year than we've done before, it was double what we did last year and we anticipated these levels, we continue to be an active buyer of shares. So yeah, I mean this is something that we think about a lot. And there is some structural reasons that relate to tax rates and formal ownership, which we have some control over, over the longer term, that we carefully consider.

Okay. Great, thanks for all the color. I certainly appreciate how you all are certainly and probably as frustrated as we are. Kenneth M. Jacobs - Chairman & Chief Executive Officer: Yes.

Our next question comes from Devin Ryan with JMP Securities.

Hey, thanks. Good morning, guys. Just a couple here. I guess first, restructuring revenue strength, obviously great to see. Actually, if you can give any more context around how much of that is retainer versus completion fees? And just trying to get a sense of whether your retainers are still increasing in this backdrop you described for the economy, just trying to think about new assignments moving forward. Kenneth M. Jacobs - Chairman & Chief Executive Officer: I would say it's kind of a mix, I don't think you could expect this run rate to continue, I think this was a good quarter for restructuring. But I wouldn't annualize a run rate like this. And we've been pretty cautious about that, telling everyone that along the way. But we've had real – a significant share in the restructuring market, particularly in the oil and gas sector over the course of this year. But as I said earlier, we don't expect – it's only as the U.S. economy remains as good a shape as it is at the moment. We don't expect this really to spread much outside of the natural resources sector and as oil price starts to go up, some of these opportunities start to diminish. But overall, we've had a good run here and we continue to expect there to be a decent level of activity in this sector.

Got it. Okay. Maybe bigger picture just around how you think about Lazard's growth outlook and really ability to continue to take market share. You've had got some nice market share gains here. But the firm is already mature, I think there's maybe some perception that you're going to grow kind of with the industry trends. I'm just trying to get a sense of what's going to drive actually your market share up even if the industry maybe is flat or growing. Just trying to think about how you continue to take market share. Kenneth M. Jacobs - Chairman & Chief Executive Officer: Okay. So let me touch on the Asset Management side first. These are two parts where we're going to get growth, and then second come back to the Advisory side. I think on Asset, look, you grow by expanding or improving your current product portfolio and getting more assets in the existing group of assets, that's basically what we've – what you're doing. I think we demonstrated a real capacity to drive really well-received, well-managed new product. And roughly half of the products we have today in Asset Management didn't exist, I think it's like seven years or eight years ago. And so that's something we are highly focused on and that's mostly internal development and every now and then it's a outside-hire team but we've done a good job of seeding investments and then kind of bringing them along when there's investor support for them and we believe that we can manage them well. And I think we've done a good job of that and I think we'll continue to do that. It's steady and it's been pretty consistent. On the Advisory side, the beauty of our franchise is on one hand it's fully built out in the sense that we have a critical mass in all the markets we want to be in, but there are certain markets and certain segments in the markets where we have enormous opportunity to still gain share. I mean, the place where we're particularly focused at the moment, when you look at the size of our franchise where we're obviously critical mass do really well, but opportunities such as United States, I mean, this is a huge market. And when we map it, we still see an enormous amount of white space for our franchise here. And then second, there is some product range or some capabilities that, where if we complement our teams we think there will, ability to capture additional share as well. So when you look at some of the hires we've done there are people that can really complement the existing teams here and really propel productivity. So we're very focused on really two things. One is, making sure that anything we do with regards to hires on the Advisory side are very high-quality and make a real substantive difference, not growth for the sake of growth in terms of people. And that is really well-mapped against where we think there's (28:51). And there is a – we think there's significant (28:51) (28:54) out there that's un-addressed, that we can focus on.

Great, very helpful. Maybe last quick one here. Share repurchases, you're diverging a little bit from the stated policy of neutralizing stock-based comp. Just curious, as we kind of look into the back half of the year, should we think about that on the margin or if the stock stays around here it's actually be something that's meaningful? Kenneth M. Jacobs - Chairman & Chief Executive Officer: Look, we've have been aggressive buyer of our stock over the first half of this year at or below levels we're at right now, little above, little below. I think it's been a good time to buy back stock for us, given the valuation. I mean, we doubled – almost doubled the buyback from the purchase amount dedicated to buyback from the first half of 2015 to the first half of 2016. And I think in this environment we're going to continue to be aggressive about buying back shares at these levels, yet at the same time this play can generate a lot of cash, so we continue to do both that and continue to return cash to shareholders for dividend and such. Now, we're very focused on returning capital and we're very focused on the plays that's going to have the biggest bang for the buck. And I think you can see by our actions in the first half of the year what we're doing.

Absolutely. Great, thank you guys.

Our next question comes from Steven Chubak with Nomura.

Hi, good morning. Kenneth M. Jacobs - Chairman & Chief Executive Officer: Hi, Steven.

Hi there. I was a bit surprised that you actually didn't mention or explicitly address the three key ingredients for M&A: CEO confidence, valuation, and financing. I know you touched a bit on the financing component in response to an earlier question. But I was hoping you can give some perspective as to where CEO confidence lies? And in particular I'm interested on valuation just given that markets have actually been quite resilient despite some macro fears or hiccups? Kenneth M. Jacobs - Chairman & Chief Executive Officer: Yeah, so look, on financing I think it's pretty straightforward. On confidence, again, this is really a function of stability, and volatility and macroeconomic outlook. And I think – I'd remiss in saying that confidence levels today are the same as they were a year ago. I don't think they are. I think you have more volatility, more likelihood of volatility in the future than you've had in a while. And I also think that the macroeconomic picture is a little bit more cloudy even perhaps it was six months or 12 months ago. I think U.S. is still, feels good, but just the nature of the kind of geopolitical events we're facing and some of the decisions that have been made in Europe, I think just put a little bit of a cloud on the macro environment. So I think CEO confidence is probably not at the levels that we saw a year ago, I think that it's probably a little better than probably we would have guessed post-Brexit, but that's something to keep an eye on. And on valuation, I mean the challenge on valuation is that we're in a world where money is essentially free and people are investing heavily in risk-based assets and that's driven up valuations. And on top of that you've had this massive move into passive funds, which, I mean fortunately for us we've been able to so far weather well on our Asset Management side, but to the market as a whole, and when you have this kind of movement into passive funds, you kind of have indiscriminate buying of equities, which tends to drive up valuations. So I think valuations are something I think you have to be very discriminating about right now, particularly if you're someone who is engaging in M&A. And on top of that something which I don't think people have given a lot of thought to, is that when you borrow money in a deflationary environment, you get that money back in the long run because you have the time value line working against you, you don't have the benefit of inflation making your debt cheaper every year, it's actually the opposite. You have to be particularly thoughtful about how you invest your money. And so you're going to want to buy assets that fundamentally are growing. And I think that's going to be one of the things that dominates this M&A cycle is as people start to think about how they deploy capital, they're going to have to be very thoughtful about deploying it in places where they're borrowing money in a deflationary environment, they're investing in assets that are going to grow. And I think that's going to dominate this cycle.

Thanks, Ken. That's really helpful color. And since you touched on the topic of valuation, maybe to follow up to Brennan's earlier question regarding the multiple discount at which you guys currently trade. Certainly, you provided some really interesting perspective on how are you thinking about creating shareholder value just given some of the performance challenges in terms of your stock despite really good fundamentals? And at the very end of your remarks, you touched on structural issues relating to tax rates that you could control. I know there has been some debate about whether you should consider alternative structures like converting to a C corp. And I know that you've talked that down, but wanted to get a sense as to whether your view on that has actually changed? Kenneth M. Jacobs - Chairman & Chief Executive Officer: Yeah, I think one of the things that we have to be conscious of is that by being in a partnership structure, we have there – some constraints on ownership on the part of institutions and also the ability to be in indexes. And that's something we're conscious of. The solutions to this are not easy and they are costly. But I think you could assume that we're carefully monitoring this and thinking about it and how to deal with it.

And if you guys were to consider conversion, is 40% still the right tax rate to think about or just given your more diversified geographic footprint that you could actually manage to something lower than that? Kenneth M. Jacobs - Chairman & Chief Executive Officer: I think you have – look, part of this whole question is just really looking at what all the alternatives are and seeking the best possible solution. I mean, status quo is one; in the long run markets are pretty efficient and they price out discounts. And that's something which could happen. The second is then thinking about what the alternatives are and then also being somewhat confident about whether those alternatives are stable alternatives because of the nature of political decision taking place here and elsewhere. And so all of that is in the mix about thinking about this and it's not something you can kind of rush into, because there's obviously a cost to any changes. But there are also potentially some benefits. But all I can say to everyone on this is, is that this is something we're highly conscious of. We spent a lot of time thinking about it. And we're going to be – we're on top of it.

Thanks, Ken. I appreciate you taking my questions.

Our final question comes from Jim Mitchell with Buckingham Research.

Hey, good morning. Maybe just, Matthieu, you had mentioned earlier that the non-comp sort of increase was – there was investments in the franchise, could you maybe kind of detail some of those investments? I think that would be helpful.

Right, well, it's a combination of items. Some of them are marketing and development – business development expenses. Some of them are in the IT systems and also we've grown some of our teams here and there. And that comes also with additional non-comp expenses that, I would say those are the major items.

So, would you say it's the investments more heavily weighted to Asset Management, kind of split 50/50 between Advisory and Asset Management, and how do we think about where you're putting resources?

I'd say it's been in both businesses but maybe a little bit more geared on a net basis towards Financial Advisory because in the Asset Management business we have a more variable cost structure of our fund administration and outsourced services which you've seen has decreased year-over-year.

Okay, fair. And just last question on the share count. I appreciate that you guys have stepped up the buyback. But if we look at the diluted share count it's still pretty flat year-over-year. Is that simply a function in the first half you have more share issuance that you need to absorb and then the second half we'd see more of a net reduction if you keep this pace up?

That's right. I mean it's been down about 0.5 million shares or so. But you're right about your comment on the first quarter versus the second quarter.

Okay. Great, thanks.

Thank you. This now concludes the Lazard conference call. You may now disconnect.