Lazard Ltd (LAZ) Q1 2018 Earnings Report, Transcript and Summary

Good morning, and welcome to Lazard's First Quarter 2018 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 would like to turn the call over to Alexandra Deignan, Lazard's Head of Investor Relations. Please go ahead.

Good morning, and thank you for joining our conference call to review Lazard's results for the first quarter of 2018. Hosting the call today are Kenneth Jacobs, Lazard's Chairman and Chief Executive Officer; and Evan Russo, Chief Financial Officer. A replay of this call will be available on the Lazard website beginning today by 10:00 a.m. Eastern. 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. These 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 reports on Form 10-Q and current reports on Form 8-K. Lazard assumes no responsibility for the accuracy or completeness of any of these forward-looking statements. Investors should not rely on forward-looking statements as predictions of future events. Lazard's 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 Evan will be happy to answer your questions. I'll now turn the call over to our Chairman and Chief Executive Officer, Ken Jacobs.

Good morning. Our year is off to a strong start. In the first quarter, we achieved our highest quarterly operating revenue in Lazard's history. This included record first quarters for both Financial Advisory and Asset Management significantly higher than last year's record levels. Our long-term trend remains strong. On an LTM basis, Lazard's operating revenue is a record $2.75 billion. Our adjusted results show the significant operating leverage in our model, with operating revenue up 16% for the quarter, pre-tax income up 28%, and our earnings per share were up 52%. We continue to benefit from increased productivity and investments we've made in the franchise, with both our businesses achieving broad-based growth. In Financial Advisory, we are serving clients with a differentiated model that combines deep local insights and relationships with an unrivaled global network. Our investments in areas such as shareholder advisory are having a significant impact in our business by helping us identify opportunities faster and provide innovative solutions for clients. In M&A, we continue to be a leader in advising on large, complex strategic transactions. We're advising on 3 of the 10 largest announcements made globally in the first quarter. We continue to invest for growth, beginning with our people. In Financial Advisory, all of our recent Managing Director promotions are individuals who built their carriers at Lazard. This ability to develop our own talent remains a powerful competitive strength. We also continue to hire senior talent selectively, including five MDs and a senior advisor so far this year in Europe and the U.S. In Asset Management, record first quarter operating revenue reflects the strength and quality of our global franchise. Despite significant market volatility, we finished the quarter with record AUM of $252 billion and net inflows of $2.4 billion. The quarter ending AUM was 11% higher than average AUM for the full year of 2017. We continue to benefit from a primarily institutional client base, which is focused on the long-term strategic allocation of capital. We're achieving organic growth in Asset Management through the incubation, development and scaling up of new strategies across our investment platforms. We continue to expand our distribution capabilities globally. We are also capitalizing on inorganic growth opportunities, including team lift-outs. Since the start of the year, we have brought on teams in international equity and quantamental strategies. We continue to look for talented asset management teams that would be a good fit with our business and culture. Evan will now provide color on our financial results and capital management. Then, I will comment on our outlook.

Thank you, Ken. Lazard's first quarter results underscore the strength and stability of our model and the continued high performance of our businesses. Quarterly operating revenue of $724 million was an all-time record for the firm, 16% higher than last year's first quarter record. Diluted net income on an adjusted basis increased 52% to $1.26 per share. In Asset Management, operating revenue of $330 million was a first quarter record, up 18% from its record level last year. Management fees and other revenue increased 19% year-over-year to reach an all-time high of $324 million. Incentive fees were in line with last year's first quarter. AUM reached a record quarter ending level of $252 billion, 1% higher than the start of the quarter despite significant market volatility. The sequential increase in AUM was the sum of net inflows of $2.4 billion with positive foreign exchange movement of $2.6 billion, offset by market depreciation of $2.8 billion. Our net inflows were driven primarily by strategies in our global and emerging market equity platform and strategies in all of our fixed income platforms. As of April 20, AUM was approximately $251 billion, driven by market appreciation of $1.9 billion offset by net outflows of $1.1 billion and negative foreign exchange movement of $0.9 billion. Financial Advisory revenue in the first quarter increased 16% over last year's record level. The increase was driven primarily by record first quarter M&A revenue partially offset by a decrease in restructuring compared to last year's elevated levels. Our restructuring specialists remain active, considering the strength of the global economy and the low interest rate environment. The retail industry accounts for a significant proportion of our current assignments, and we are seeing significant activity outside of the United States. Starting in this quarter, we are no longer breaking out our restructuring revenue within our Financial Advisory segment. We have done this now because our Financial Advisory practices have become highly integrated and our assignments with clients often incorporate several disciplines. We will continue to provide commentary on our activity in restructuring and related assignments, but we believe that presenting unified Financial Advisory revenue is a more accurate representation of our business. For our Financial Advisory business overall, as we anticipated, Europe was the primary driver of the first quarter's increase in operating revenue. Our European business appears poised for continued growth. Looking ahead across our franchise, Asset Management entered the second quarter in a strong position, with AUM about $37 billion higher than one year ago and $25 billion higher than the average AUM for 2017. In Financial Advisory, our announcements this year are off to a strong start, with significant representation in the largest M&A transactions globally. In the second quarter, we will have challenging comparisons based on last year's record second quarter, but we will have easier comparisons in 2017 in the second half of this year. Turning to expenses, we are maintaining our cost discipline. In the first quarter, we accrued compensation at a 55.8% adjusted compensation ratio, consistent with our full year 2017 ratio and compared to 56.5% in the first quarter of last year. Our adjusted non-compensation ratio for the first quarter was 15.8% compared to 17.2% in the first quarter of last year. Non-comp expenses rose 6%, reflecting our continued investments in the business, marketing expenses related to higher levels of activity, as well the impact of foreign exchange movements in the quarter. Turning to taxes, our effective tax rate in the first quarter as adjusted was 13.9%, reflecting the impact of net tax benefits relating to share-based compensation as well as the reduction of the U.S. federal corporate tax rate. We expect an annual effective tax rate this year in the low 20s, and for the coming years, we continue to expect an effective tax rate in the mid 20s. Turning now to capital allocation, we continue to generate strong cash flow, which supports our share repurchases and dividends. In the first quarter, we returned $449 million to shareholders, including $202 million in dividends and $146 million in share repurchases. We have already exceeded our objective of our offsetting potential dilution from the 2017 year-end equity grants. We remain committed to gradually increasing our quarterly dividend over time and we are increasing it again this year from $0.41 to $0.44 per share. Ken will now conclude our remarks.

Thank you, Evan. The global macroeconomic environment for the near to mid-term remain supportive for our businesses. U.S. economic activity is robust and Europe's recovery continues to gain momentum. The environment for M&A continues to be favorable. Sentiment remains constructive among CEOs and in boardrooms globally and is motivated by the need to address top line growth, shareholder activism and the increasingly disruptive impact of technology. Financing remains widely available at historically low rates for investment grade credits and valuations are supported by continued macroeconomic growth. Our Financial Advisory business has momentum and it's in an excellent competitive position for this environment. Our Asset Management business also has momentum with a record level of AUM, a diversified set of investment strategy and a strong pattern of long-term performance. We continue to extend our platforms with innovative strategies for the evolving needs of the sophisticated client base. I'll wrap up with these key takeaways. We achieved record operating performance in the first quarter with momentum across our franchise. Despite market volatility, Asset Management finished the quarter with AUM 11%, above its average level in 2017. Financial Advisory's activity remains strong in the healthy M&A environment. We are investing in our businesses for continued growth. We are maintaining our cost discipline and we continue to return substantial cash to our shareholders. We remain focused on serving our clients well, while we manage the firm for profitable growth and shareholder value over the long-term. Now, let's open the call to questions.

Thank you. We shall take our first question from Mike Needham of Bank of America. Please go ahead, sir.

Hey. Good morning, everyone. Just first on opportunities for growth.

Hey, Mike.

Hey. So you guys had touched on it. In the Asset Management business, you've got the team lift-outs and new strategies you've built over the last few years. Is the Asset Management business really where you're focused on pursuing these growth opportunities? Are there things in Advisory as well as things appear to be getting better, particularly in Europe?

Okay. So, first on the Asset Management side of the business, this is just a steady progression of investments we've made in the business in terms of incubation of new strategies and lift-outs. We think it's a particularly interesting time to be looking at these lift-outs because of some of the turmoil in the hedge fund industry, certainly in the small or mid-sized hedge funds. And so there are probably more teams available today than it has been in the past. And there are certain specific areas that have been particularly attractive to us, some that are consistent with our core platform, some in areas where we've had recent success, as an example, and really strong success recently in the quant area, which we're trying to add to. So I think that's consistent. On the Advisory side, look, we've made – I think it's five, six hires in the first quarter, four of them in Europe in the first quarter and one last year at the end of the year in the first – in the end of last year. We were anticipating this turn up of activity in Europe and I think we're very well-positioned for that. On top of that, we've also made significant investments into our Shareholder Advisory capabilities, which have been sort of the leading edge of our marketing capabilities for the Advisory business as a whole. And I think still there's a lot of room for growth for us in the United States and we're going to really balance that growth between a mix of growing our own people, which we've got a lot of success with over the life of the firm, and where we see people that really make a difference to our platform from the outside.

Okay. And then the other I had on fund flows. The quarter was, I think, pretty good in a quarter that was challenging for some active managers. It sounded like there may have been some outflows so far this quarter. Maybe if you could just drill down on the things that are working, the strength of the emerging market strategy, which looks like it continues to attract assets. And if you have any comments on the unfunded pipeline or just how that business you think is going to do for the rest of the year? Thanks.

Okay. So, first, just in terms of performance, post the volatility of the first quarter or during the volatility of the first quarter, I think we saw a strong pattern of performance across a range of our strategies, which was very reinforcing of, I think, our platform as a whole. And in terms of flows, first, we've seen it really across a range of platforms, including the emerging markets. And we've seen some flows actually over the course of the end of last year, this year and some newer platforms for us in fixed income and also into the quant area that has been strong. And generally speaking, the outlook looks pretty good right now.

Okay. Thanks.

Our next question is from Brennan Hawken of UBS. Please proceed, sir.

Hey, good morning. Thanks for taking the question. One just a follow-up actually on Mike's – on your response there to Mike's question, Ken. You referenced hedge funds and quants when you were speaking about the lift-out opportunity. Is that where you intend to focus here as opposed to more traditional Asset Management teams? And would you expect to pursue this lift-out opportunity here? Is that more like a 2018 as we think about things, or is that more like the next few years, a shift in how you're approaching it?

Well, I think it's going to continue to be a mix. If you look at the growth of our Asset Management over time, it's been a mix of a weighting towards seeding our own strategies, incubating them, getting them to a level of maturity, and then rolling them out. And even in the cases where we've brought in teams from the outside, usually there's a period of incubation that takes place before they mature enough so they can be rolled out. So there's nothing inconsistent about what we're doing. I just think the environment is probably more conducive to it today than it has been in a long time. And then also, there's a few areas that we think are particularly interesting for us to build out on right now where we've had significant success. And so that's really the objective. I don't think it's just a 2018 event. This has been a 20 – well, this has been going on for a while, and I think it's going to continue into the future, but it's something we're very focused on at the moment.

Okay. Great. Thanks for that. And so not necessary – and the hedge fund comment not necessarily that you – that's just a part of the market that you think may be a – may result in particular opportunities at this stage. Is that the idea?

Exactly, exactly. It's just that, you know, because of the relative outflows, turmoil, relatively speaking, over the last couple years in the hedge fund market, there's probably more opportunity there than there had been previously, and that may continue for a while. So it's a good area for us to look.

Cool. Thanks for clarifying that. And then, one more here on Europe. There's a lot of improving sentiment around the momentum for advisory in Europe. It seems and you seem to have strike a positive tone in thinking about Europe here and in your comments. How should we think about that opportunity here over the next couple of years? Is there a frame of reference that you think is – would be – would make for a good parallel in trying to frame how good of an opportunity this could end up being for Lazard?

Well, look, I think we have a long history in Europe with a very strong local presence in all the major markets in Europe. It's one of the great engines of Lazard. It has been throughout our history. I think we've entered a much more favorable environment macroeconomically in Europe than we've been in for a very long time, and M&A tends to be highly correlated with an improving macroeconomic environment. It's a period of time when, generally speaking, CEO confidence rises and activity levels pick up. Financing is still historically cheap and valuations more reasonable in Europe than the U.S. And certainly, you're seeing improvement in earnings profile of many companies in Europe. So, I think the valuations overall are pretty reasonable. So if history is any guide, when you have an improving macroeconomic environment and you have building confidence, you tend to get more activity. So that's what leads us to believe this is a favorable time.

Terrific. Thanks for all the color.

Yeah.

Our next question is from Conor Fitzgerald of Goldman Sachs. Please go ahead, sir. Conor Fitzgerald - Goldman Sachs & Co. LLC: Hey, good morning. On the Asset Management side, just curious what you're seeing in terms of appetite from institution and endowments for quantitative and some of your robotics products. And do you get the sense that how these investors are thinking about their asset allocation to these types of products is changing?

Sure. Look, the quant area is an area in which we've obviously made a significant investment in and strides in over the last several years, and we continue to see healthy demand for those products. They're well-positioned against other products in the market, and we're seeing a lot of demand there right now. And it's an area which we're building into. We're pretty excited about that. Conor Fitzgerald - Goldman Sachs & Co. LLC: Got it. Thanks. And then, Evan, one for you. Cash balances are still up kind of year-over-year despite the fact like you said you'd done more than offset your dilution for the year, so just two questions on that. One, wondering to think about how to – how to think about the pace of the buyback going forward for this year. And then, two, you used to kind of reference $350 million as your kind of maintenance level for cash balances. How should we think about your minimum cash need kind of going forward? Thanks.

Sure. Hey, Conor. So, yeah, as you've referenced and as you've seen, we reduced our balance sheet – our cash on balance sheet considerably over the course of the quarter as we expected. We bought back, as you said, more shares than we needed for to offset dilution from compensation, which is our primary goal. And then, of course, continue to buy back shares post the quarter, as we announced in the earnings release today. We bought back 3.6 million shares since the beginning of this year. So, continue to think about share repurchases in the context of excess cash. Quarter-to-quarter, always difficult to predict, but primary goal is to reduce and reduce dilution from compensation and other dilution effects and to keep the share count as flat as possible, slowly declining. And I think going forward, thinking about cash balances, it's actually referenced $350 million plus or minus, that's sort of the minimum cash we need to operate the business. Obviously, we need operational cash as well. We take a look every year at the cash balances that we have around the world and think about the optimal use of that cash throughout the year as well as going into year-end and as we did last quarter, sort of announced special dividend to distribute back the cash at the end of the year. Conor Fitzgerald - Goldman Sachs & Co. LLC: Thanks for taking my questions.

Our next question is from Steven Chubak of Nomura Instinet.

Hi. Good morning. This is actually Sharon Leung filling in for Steven.

Hi, Steven.

So, first of all, just on your non-comp expenses, as a percentage of revenue, the ratio this quarter was at the low end of your guidance range. So we're just wondering if the positive revenue momentum continues to hold, how should we be thinking about the trajectory in non-comp expense from here?

Yeah. So, non-comp expense as we've said historically breaks down to two components. There's the variable component. We think about a third to a half of non-comp is basically variable with revenues and moves up and down based on the revenue of the firm. The other half essentially moves around with inflation. And so, over time, as you referenced, right, this quarter with the increase of revenue, we held non-comp tight. Always difficult to look quarter-over-quarter, specific quarter, it's better to look at it over several quarters to get a good sense as to the non-comp for the ongoing basis. But we continue to believe that if revenue continues to grow, there should be some benefits from the non-variable portion of non-comp towards increasing margin.

Okay, great. And then the second question is, we've had some general concerns that M&A and Asset Management businesses are typically very sensitive to equity market levels. What's your view on your business performance, if the current market choppiness continues to persist?

So, over the long run, obviously, I think all asset managers are going to be impacted by overall levels in equity markets. And obviously, it depends on your mix of assets, where they're invested, is it domestic U.S., is it global or is it fixed income or is it weighted towards equity. So you have to disaggregate the performance of markets from where the actual assets are invested, but there is a high correlation between markets in the Asset Management business. The Advisory business over the long run is very much driven and very – at least for us, historically, has been very much tied to the GDP cycle, the macroeconomic environment. And there have been a lot of periods of time where markets have performed and there's been relatively stagnant M&A activity. I mean think of the period, 2009 to 2013, where there was a massive recovery in the equity markets and yet not much growth in M&A activity. And there's also periods of time, maybe I go back to the mid-80s, where you had stagnant stock markets for a couple of years and you had a burst of activity in M&A. So I think M&A activity tend – our experience is M&A activity tends to be much more correlated with the GDP cycle, confidence level, availability of financing and valuations than it does per se tied directly to the equity markets. I think volatility has an impact. Obviously, if you go through long periods of volatility, elevated volatility, like you did in the OA (00:26:17) crisis. You can obviously have a big impact on confidence levels, which obviously then impact things, but right now, we're as strong in the macroeconomic environment globally as we did in perhaps a couple of decades. And so it feels pretty good for the M&A business.

Great. Thanks for taking my questions.

Our next question is from Jeff Harte of Sandler O'Neill. Jeffery J. Harte - Sandler O'Neill & Partners LP: Good morning, guys. Couple of questions.

Morning, Jeff. Jeffery J. Harte - Sandler O'Neill & Partners LP: Looking at the Financial Advisory, so when we look at kind of the visible pipeline data, it didn't suggest close to a record or second kind of record quarter in revenues there and we don't get the financial restructuring breakout anymore that maybe the part of it. But can you help me to reconcile a bit, what drove the revenue strength there this quarter, relative to the kind of visible public transaction data we could see?

Evan, do you want to take a shot at that?

Sure. So, we started the year off with a strong momentum. I'd say the types of transactions we're working on sometimes are much broader, right. They're including a lot of larger transactions or including other transactions that are smaller that don't get picked up in the numbers, but we're seeing strength across the board and we're seeing really strength on a global basis in almost every geography. So, Restructuring, as we said, was down on a quarter-over-quarter the last basis as we expected moving into the lower part of the Restructuring cycle, but the M&A business and the regular Financial Advisory as a whole, we continue to see growth in, on a global basis, across all sorts of transactions, many of which just don't get picked up in the visible pipeline that you guys see on the outside.

Yeah. And also, I think geologic and some of the other data sources do better with U.S. data than they do with global data. And obviously, to the extent that Europe picks up, that may be something that they have to work – do a better job on estimating. Jeffery J. Harte - Sandler O'Neill & Partners LP: Okay. Kind of going along those lines, when we look at the visible industry data out there, announced dollar volumes are way up, but deal counts actually looks like they're down a bit. Admitting that some of the smaller deals are harder to catch, you guys are somewhat unique in being clearly strong in both megadeals and kind of in the middle markets. Are you seeing the type of strength in the middle markets that we're seeing in the megadeal space? Or can you just kind of compare and contrast those smaller versus larger end of the markets as far as what you're seeing in M&A?

Look, the year is off to a strong start. I'd say the closings on the (00:29:10) were a little weaker in the first quarter, but the activity levels in that businesses are strong right now. And again, you have to remember, closings are a function of the activity that took place 6, 9, 12 months before, not what's happening in that particular quarter. So, if you look at our deal announcements 6, 9, 12 months ago and you look at the activity level in the first quarter, you see an outlook for the year, which is pretty good. I mean, we had tough comps for the first quarter. We have tough comps for the second quarter. We obviously did better than the comps and we did very well against the comps in the first quarter. I think the year looks okay. Based on activity levels right now, it feels pretty good. Jeffery J. Harte - Sandler O'Neill & Partners LP: Okay. Just to touch back to the buyback, I mean if we combine the offsets of comp, it looks like a $240 million buyback in the quarter. That's historically really high. I mean, is this just a function of having extra cash, or is it potentially a signal, a move away from what you guys have historically leaned on more of a special dividend at the end of the year to return excess cash. Any think – change in your thinking there?

No, I think, as we've said, I mean, we continue to focus on offsetting compensation dilution, as you said, this year. I mean, obviously, with the stronger levels of revenue, we had a buyback of a few more shares, also the impact of trying to offset some of the impact of the treasury stock method on the higher share price, so it required us to buy back more shares already in the quarter. There really isn't a change – no significant change in our capital management strategy that we've seen, but continue to – as you saw yesterday, we bought back a significant number of shares. Therefore, we have increased the authorization – share repurchase authorization. Wouldn't read much into that other than saying we continue to look for opportunities to buy back shares and we take a balanced approach through the year. When we see the opportunities, we make sure we're offsetting dilution. And then, at the end of the year, we take another look and see where there's excess cash and return to shareholders. Jeffery J. Harte - Sandler O'Neill & Partners LP: Okay. Thank you.

We shall now take our next question from Ann Dai of KBW. Please go ahead. Ann Dai - Keefe, Bruyette & Woods, Inc.: Hi. Thanks and good morning. In your presentation, you highlighted your business development efforts in areas like LatAm, China and Canada, and it's very helpful you size the markets by the number of deals. And I was just wondering if you could elaborate a little bit about the nature of those markets and the addressable fee pool relative to more established markets like the U.S. and parts of Europe. Just maybe compare and contrast a little bit.

Sure. Well, the predominant fee pool is North America, and then second to that is really Europe as a whole. And then you can break down geographies in Europe and such. And I think we basically matched people with fee pool. The opportunity in Canada and Latin America was to number one, we've been incubating a business in Latin America for some period of time in Lazard MBA. And it reached a level of maturity both in terms of its performance and in terms of the developments of – at least we thought we'd take the opportunity in those markets where it made sense to bring it completely into Lazard. And Canada is just a natural extension of our business in the United States and North America as a whole. The opportunity in Canada and Latin America also ties very directly to the businesses we have in Asia and in Europe because a lot of the activity into Canada is driven not only out of North America but also out of Asia. And a lot of the activity into Latin America that we're seeing right now is also not only driven out of North America but especially driven out of Europe and in Asia. So this was a natural way to complement platforms that are very strong for us and are in our, you know, the two core fee producing markets, which are the U.S. and Europe. Ann Dai - Keefe, Bruyette & Woods, Inc.: Okay. That's very helpful. And just a quick one on Asset Management. The color on the strategies that contributed to net flows in the first quarter was very helpful. Can you provide some of that same color on what's been driving the net outflows quarter to (00:33:42)?

Look, there's kind of a natural attrition in the Asset Management business where you have just decision making changing at different institutional managers, life of assets and such. And so, I think the important measure for us in every quarter is not only the net inflows but just the absolute level of gross inflows. And this was I think one of our best quarters ever for gross inflows. And that is a very important statistic for us. And the outflows, I don't think were dominated by – I know were not dominated by any one particular area. It was kind of across the board and very similar to what's been the case in the past. And we've had a – just as we've had sort of a diversified set of outflows, we've had a very diversified set of inflows as well during this period of time at the gross level. Ann Dai - Keefe, Bruyette & Woods, Inc.: Okay. Thanks for your time.

We shall take our next question from Devin Ryan of JMP Securities. Please go ahead.

Great. Thanks. Good morning, Ken. Good morning, Evan. How are you?

Great.

Good. So I guess first question here, when you think about the various Advisory revenue businesses and I guess the revenue pie, if you will, the opportunity in M&A Advisory has always been by far the largest for the industry. But clearly, there's some ancillary advisory activities that are becoming bigger opportunities like capital advisory and shareholder activism, which I know you can't completely disconnect from M&A. So the question is really, when you think about the growth outlook for Lazard over the next handful of years, based on how you see some of these ancillary areas growing, and then just your outlook for how big those revenue pies could evolve into, would love to just get some perspective around like how much more meaningful those businesses can become for Lazard and just kind of within the mix of Lazard?

Okay. So a number of these activities don't necessarily generate their own revenue flow. And most importantly, oftentimes, one of the – as Evan alluded to with the restructuring revenues, it's very hard to put bright lines around these businesses. Fundamentally, what we're doing here is adding capabilities. Every one of the capabilities we've added to Lazard either addresses a market we're not addressing today. That was probably at the core of why we went and built out the Lazard middle market business. But even that business benefits from a lot of the industry expertise and knowledge of the firm as a whole. So it's kind of hard to delineate a separation of the middle market business from the firm as a whole. But almost everything we do is adding a capability that creates a stronger proposition for our clients. That is, why should you hire Lazard is really made more evident by the breadth of the capabilities we're able to bring to the table. So M&A actually is a way we get pace. That is when a deal happens, it tends to be the consummation of that deal results in a fee. But what it takes to get that deal, what it takes to develop a relationship with the clients, what it takes to have an overall strategic advisory relationship with the client involves a set of skills and a set of capabilities that go way beyond just the execution of the deal, at least for us. And that's always how we've positioned our business. So the things were focused on are the things that we think are really differentiating in terms of our ability to give great advise. And so, that kind of starts with understanding, obviously, M&A and what strategically is important to decision makers at companies and boards, that's really the core strategic proposition that we bring to our clients. The second, and just as important, is the ability to speak intelligently about capital structure. And so, in that regard, we developed real core expertise about – thinking about balance sheet. I mean, in part, that was helped dramatically when we added the Restructuring capability of Lazard, but we also have great capability around investment grade expertise. We're very good at thinking about the impact of changes in balance sheet, sort of climate or deals and their impact on ratings, and the cost of capital. And when it comes time to transact, particularly on the buy side, we're very effective with companies in helping them think through how they go about establishing a capital structure for the transaction. We're not obviously providing the money, but we can get pretty close to the final structure and very close to the final structure and very close to final pricing ever before there's a conversation with a bank. And then on the Shareholder Advisory component, that's been a core investment for us over the last decade, both in terms of people, but especially in terms of analytical and quantitative capabilities because one of the core areas of concern for any CEO, any CFO is what are my shareholders going to do, how are they thinking, how are they behaving? And that's not only in an activist situation, but it's in everyday events. What's going to happen if I raise my dividend? What happens if I miss or beat consensus by a lot? What's going to happen if I do this deal? How are my shareholders going to react to a spinoff? I mean, these are all things, which if you have strong capability, gives you a real edge in terms of the ability to advise clients. And of course, it is core to our M&A capability because one of the most important aspects of an M&A transaction is how is the market going to react. And there has been such dramatic changes in the nature of equity markets over the last decade with the growth of passage and the importance of passage and the change in the nature of investing by hedge funds and also by active investors that understanding this dynamic is probably more important than ever. And that's part of the – that's a great reason for the investment we've made here. So when I look out to the future, it's all about complementing the capabilities we have to improve and strengthen the relationship we have with clients and the value that we can add to that relationship.

Okay, great. Appreciate all the perspectives there. And then just a follow-up here, a number of investors we speak with are obviously trying to think about the various scenarios for operating margins, and I guess, really, how to think about positive operating leverage potential from here. So you touched on some of the non-compensation expense dynamics in the non-comp ratio. When we look at the comp expense and we think about the comp ratio, are we approaching a point where there's just not a lot more room to flex there in either Advisory or Asset Management? I know we're kind of getting into that mid-50s range. So I'm just kind of curious how we should think about that if we have a view that revenues could still improve from here.

Look, I think that flat revenues or small changes in revenues probably don't give us a lot of ability to have leverage on – we'll create a lot of leverage on the compensation line. But frankly speaking, if we have strong revenue growth, we should continue to see leverage of off the compensation line as we have done in the past. I mean, it may not – you get to the point where it's a little asymptotic, but my guess is in a very strong revenue environment, you'll continue to see some leverage on the comp line like we've done in the past decade. The area where – the one offset always is investment and we want to make sure that we're constantly investing in the business. As you know, all of our investment effectively gets expensed. There's no special carve-outs for that and we try to go a long way towards giving disclosure around that. But at the same time, this is a good environment for us. And where we see investments, we'll make them and that would be the offset to the leverage in a strong revenue environment.

Got it. Understood. Okay. Thanks a lot.

All right.

Ladies and gentlemen, this now concludes the Lazard's first quarter conference call. Thank you for your participation. You may now disconnect.