Good morning, and welcome to the Lazard's Third Quarter and 9-Month 2021 Earnings Conference Call. This call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to Alexandra Deignan, 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 9 months of 2021. I'm Alexandra Deignan, the Company's Head of Investor Relations and Corporate Sustainability. In addition to today's audio comments, we have posted our earnings release and an investor presentation, which you can access 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 performance. 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, including, but not limited to, those factors discussed in the company's SEC filings, which you can access on our website. Lazard assumes no responsibility for the accuracy or completeness of forward-looking statements and assumes no duty to update these forward-looking statements. Today's discussion, it 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 measures is provided in our earnings release and investor presentation. Hosting our call today are Kenneth Jacobs, Lazard's Chairman and Chief Executive Officer; and Evan Russo, our Chief Financial Officer. Evan 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, we will open the call to questions. Now, I'll turn the call over to Evan.

Good morning. Today, we reported record operating revenue for the third quarter and first 9 months of 2021, reflecting strong results across the firm. Third quarter revenue was a record $702 million, up 23% from a year ago. Revenue for the first 9 months was a record $2.2 billion, up 30% year-over-year. In Financial Advisory, record third quarter revenue of $381 million increased 24% from last year's period, reflecting broad-based activity across sectors, market cap and regions. Advisory revenue was driven primarily by M&A completions in the Americas and in Europe. A high percentage of these were in the $1 billion to $10 billion range. Private equity-related activity is increasing. Year-to-date, our advisory revenue from transactions involving financial sponsors has more than doubled. Our private and capital advisory franchise continues to show strength as we advise financial sponsors globally on fundraising and innovative secondary market solutions. As we've noted on previous calls, restructuring activity has been relatively subdued, reflecting the high level of liquidity across markets. Our sovereign and capital markets advisory businesses remain active, advising governments and corporations on financing, capital structure and shareholder strategy. Overall, our advisory activity is at an all-time high, and we currently expect record fourth quarter revenue for Financial Advisory with strong momentum going into 2022. Asset Management third quarter operating revenue of $311 million increased 19% from last year's period, reflecting a larger base of assets under management. Average AUM reached a record high of $278 billion for the third quarter, 23% higher than a year ago and 1% higher on a sequential basis. As of September 30, we reported AUM at quarter end of $273 billion, 20% higher than last year's period and 2% lower on a sequential basis. The decrease was primarily driven by negative foreign exchange movement of $3.3 billion…

Thank you, Evan. Market conditions remain excellent for both of our businesses. In the U.S., economic growth is generally robust and a strong recovery appears likely to continue into next year. In Europe, recovery remains on track as business conditions normalize. The strength of economic demand, combined with pandemic-related labor shortages is leading to supply chain disruptions and growing concerns about inflation and these developments are driving a new set of discussions with CEOs, boards and institutional investors. As travel restrictions ease, we are having more in-person meetings and reinforcing the personal engagement that's so important to both sides of our business. The M&A environment continues to be as good as we've seen, and we are as active as we've ever been. The forces driving global strategic activity remain in place. Technology-driven disruption continues to be a catalyst for M&A across industries. The global drive to reduce carbon emissions is an emerging catalyst and an abundance of private capital alongside strategic capital continues to drive activity. On the investor side, demand for risk assets with a growing focus on sustainability continues to create opportunities for active management to drive alpha. Our Asset Management franchise is providing clients with a growing and innovative array of investment strategies and customized solutions. The investments we've been making in both our businesses position us well for further growth. We continue to invest in people, resources and technology to enhance our market capabilities, geographic reach and sector-specific expertise. We remain focused on serving our clients well while managing the firm for profitable growth and shareholder value over the long run. Now, let's open the call to questions.

[Operator Instructions] Our first question will come from Richard Ramsden with Goldman Sachs.

So Ken, I know you talked about a recovery in M&A in Europe, last time you spoke. Can you just update us on whether that has accelerated into the third quarter? And then could you just expand a little bit on your comments around concerns around inflation and supply chain disruptions driving discussions with clients? Is that likely to impact M&A, restructuring or both in your view?

Sure. So first on Europe, we could -- I think the recovery in Europe, by and large, is underestimated in the U.S. by most observers, both from an economic standpoint as well as in terms of activity levels. We're seeing a record level of activity, at least for our business across Europe right now, which is very encouraging. As far as inflation is concerned, look, there are 2 camps here, 1 which is essentially -- we're -- this is a inflation transitory weaker economic growth is going to alleviate some of the pressures. The supply chain issues will diminish and the Fed will be able to control it. Largely speaking, the bond market until recently was more or less in that camp. I think the other camp is the supply chain is here to -- supply chain disruptions are going to last longer. Consumer demand is driving up prices. The Fed is behind the Eightball on this. And that we’re in for a longer period of inflation. Frankly, I think the debate is wide open at the moment, and we’re going to have a better feel for that as we enter into early next year. And the second quarter weakness, perhaps some weakness in China, you could argue on one hand is going to keep it in check. On the other hand, clearly, the supply chain disruptions as we heard last night from Amazon and Apple are concerning.

Our next question comes from Manan Gosalia with Morgan Stanley.

Can you expand on your comments that advisory activity is at an all-time high and 4Q should be a record? So while this quarter was a record for third quarter revenues, it was lighter compared to peers. But then again, you had a very strong second quarter, and I think you had a similar dynamic going from the first to the second quarter. So I just wanted to assess how much of this is timing more than anything else.

Sure. Manan, it's Evan. Let me start there. Look, I think at the end of the day, what we're saying is we're -- as Ken pointed out, we've got a high level of activity across the firm. There's lots of business activity. As you mentioned, we had a great second quarter coming in. It's a record third quarter for us. Lots of positives coming out, and we just see a terrific outlook for us on the business side. And what's shaping up, as you can see from the visible pipeline that you guys see out there, you can certainly see that things are very, very busy here. And we're expecting to have a -- at this point in time, we currently expect there to be a record for Q4 for financial advisory for us and then strength into 2022 as well. And so I think this is just a continuation of what we've seen across the last couple of quarters, certainly the significant strength we had in Q2 was terrific. And then Q3, again, a record quarter. We always get a little bit of some slowdown in Q3 just in terms of closings, but the pipeline we have and sort of the opportunity set that we see ahead of us across the continent, as Ken just mentioned in Europe as well as well as the Americas. But really, on a global basis, we're just seeing very high levels of activity.

If I can just follow up on that. In terms of cross-border M&A, with more economies opening up, are you seeing that starting to accelerate? Or do you think that’s yet to pick up and we need to see supply chain issues say it before things really accelerate on that front?

I'd say cross-Atlantic, not as much as we've seen in the past. Within Europe, for sure. A lot of that is supply chain, it's private equity, of course. And importantly, it is, I think, the beginnings of energy transition. I think we're going to see a lot more within Europe, eventually probably more across the Atlantic, but I'm not sure that we're going to see as much as we've seen in the past for a little while.

Our next question comes from Brennan Hawken with UBS.

Ken, you’ve spoken in the past about an effort to hire more NVs in certain sectors in advisory. A bit of a bias to the U.S. geographically. Evan referenced 20 senior hires in his prepared remarks, but maybe could you give us a little bit more specifics on how that’s proceeding? I believe your advisory MD headcount ended last year at 171. So given the hires you made pipelines, any that you might expect could be joining here it’s a little wait in a year, but maybe there’s a few. Where do you think you’ll end the year? And where are you adding? Is that in the places that you’ve identified? Could you maybe just give a little bit on that front?

Sure. So this has been a very aggressive year for us in terms of growth outside hires. I think actually, we're close to 2 dozen outside hires now not quite there, but almost and senior hires between partners and -- or MDs and senior advisers. The focus for us has been on, I think, the areas we've outlined in the past. I mean, clearly, the growth in private equity opens the aperture for us of people that will succeed on the Lazard platform and also opens the aperture for many of our younger partners and directors, I think, which others have talked about as well because of the ability to pursue that business for them. So that's been a real positive for us. And as you've seen, we've done hires, obviously, this accelerated group of hires plus the promotions in the last year really impact -- will impact the MD headcount. In terms of other areas, clearly, biopharma is important. Technology is important, and anything around the energy transition is important. As you can see, we made a recent hire just in the last week in London around that. So this has been a very good year for recruiting for us. I think it will slow down a little bit in the fourth quarter as it always does, but we have, I think, a good pipeline for next year ahead of us.

Great. And there also was a comment, I believe, Evan, that you made it about sponsor activity doubling. And Ken -- that’s clearly an area where you’re looking to grow. Do you have an estimate for how much of your advisory revenue either today or has been involved or touching a sponsor in one way or another? And do you have a sense for where that stands and where you’re interested in driving that as your -- as you continue to build out that business and make hires in places that you think can move the needle there? Do you have any parameters? A – Evan Russo : Sure. So we've doubled it this year. I think we're close to -- we're getting close to 40% for the first 9 months. We were in the low 20s last year, just above 20%. Many of our competitors are indexing up around 60% to 80%. So there's a lot of white space ahead of us. And frankly speaking, if you look at that, it's been historically more skewed towards Europe for us. So there's a lot of white space for us in the United States on sponsors. That's an area where we think there's a lot of growth right now.

And do you – is the goal to just eliminate that gap to the 60% to 80% and therefore, basically potentially double again from the 40%? A – Kenneth Jacobs: I think there’s room for a lot more growth in that business. Look, there’s ups and downs in the markets. And obviously, you have to modulate between where the activities are in the strategic and private side, and a lot of it is growing out these sleeves in private equity. But yes, there’s a lot of room for growth for us here.

Our next question comes from Devin Ryan with JMP Securities.

This is Brian McKenna for Devin. So within Asset Management, it was another quarter of modest net outflows. But how should we be thinking about flows moving forward? I know it takes some time for mandates to come through and now flows to abate, but do you have any sense of when we’ll start to see an inflection here? A – Evan Russo : Kevin?

Sure. Let me start with that. Look, on the flow side, as we called out before, gross flows have been strong. And that's the key for us in our business. We continue to see strong gross inflows in so many of our products. As you mentioned, look, we had some slight net outflows in the quarter. But as we've talked about in previous years, we're starting to see that be more balanced. And that's sort of as we expected, we're starting to see a little bit more balance in the outflows versus the inflows. You're starting to see months where we have positive net inflows. But yes, it's still a little lumpy, right? It's still a little bit choppy. We still expect it to remain a little bit lumpy for the next few months ahead. And that's just because mix of reallocations of a lot of our corporate clients as markets have traded up as pension plans become more fulsome, there's different risk reductions going on in some of the institutional client bases. And a little bit also a change in investment philosophy just as the markets change and as the environment changes out of the pandemic. And so we normally expect to see some lumpy and choppy movements in the institutional space, and that's what we're seeing. But gross flows remain strong, and we continue to build a great pipeline of new products that we keep talking about, I think as those come on, certainly in the next year or 2, that's going to be also helpful from a flow perspective. But as gross flows is what we focus on. Those continue to remain strong. And I think as we continue to play out the rest of this year and get into next year with the new products, we should be in a better position. But we're just going to continue to focus on great performance in our business. We're starting to see some real turnaround as we called out, 2/3 of our composite strategies ahead on a performance basis that also plays in over time to driving even more strength in gross inflows in the coming quarters ahead.

Got it. Helpful. And then noncompensation costs declined about 2% sequentially in the quarter. So how should we think about the trajectory of these expenses into the fourth quarter and then next year? And then within that, do you have any expectations around how quickly or to what magnitude T&E will recover? A – Evan Russo : Sure. Look, I think we did $117 million of noncomp in Q3. You're saying it's down a couple of million dollars from Q2, but I think we're getting to sort of that sort of newish level, the ratio as we said, coming in about 16.6% through the 9 months, we're at the low end of our normal noncomp range. I'd make a couple of comments about noncomp. I think the first part, as you mentioned, T&E, we're starting to see a little bit of an uptick in travel in the third quarter of this year, most specifically in September. And of course, as you get into October. So as people are coming back to the offices, as our clients are coming back to their offices, as clients are demanding more -- not demanding, but asking for more meetings in person as we're getting out more on the road to develop new client relationships, we're starting to see more travel pick up. Of course, we're starting from a very, very low level. But we're starting to see that come up a little bit. I think it's going to still take -- it's going to accelerate over the next couple of quarters. But it's going to take a little bit of time until you get back to a more normalized environment. But I don't think you're ever going to get back to sort of the pre-pandemic levels, you're probably going to get back to a…

[Operator Instructions] At this time, I'm showing no further questions. This now concludes the Lazard conference call. Thank you for joining. Have a good day.