Good morning, welcome to Lazard's Second Quarter 2026 Earnings conference call. This call is being recorded. Currently, all participants are in a listen-only mode. Following the remarks, we will conduct a question and answer session. Instructions will be provided at that time. If anyone should require assistance during the call, please press the star key followed by zero on your telephone keypad. At this time, I will turn the call over to William Murdock, Lazard's Head Strategy and Investor Relations. Please go ahead. Thanks, Chelsea. Good morning, welcome to Lazard's earnings call for the second quarter and first half of 2026. I'm William Murdock, Head of Strategy and Investor Relations. In addition to today's audio comments, we have posted our earnings release on our website. A replay of this call will also be available on our website later today. Before we begin, let me remind you that we may make forward-looking statements about our business and performance. There are important factors that could cause our actual results, level of activity, performance, achievements, or other events 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 these forward-looking statements and assumes no duty to update them. Please also note that, unless we state otherwise, all financial measures we discuss today are non-GAAP adjusted financial measures. We believe these non-GAAP financial measures are meaningful when evaluating the company's performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP measure is provided in our earnings release and our investor presentation. Hosting our call today are Peter Orszag, Lazard's Chief Executive Officer and Chairman, and Tracy Farr, Lazard's Chief Financial Officer. After our prepared remarks, Chris Hogbin, Chief Executive Officer of Asset Management, will join as we open for questions. I'll now turn this call over to Peter. Thank you, William, thank you to everyone for joining our call today. Firm-wide adjusted net revenue was $786 million for the second quarter and $1.5 billion for the first half of the year. Before Tracy takes you through the numbers, it has now been almost three years since we issued our Lazard 2030 plan, it seems appropriate to discuss where we are in our efforts to transform our firm for long-term profitable growth. When we laid out our vision for Lazard 2030, we said we would measure success through relevance, revenue, and returns. We're seeing tangible progress across all three. In the first half of this year, Financial Advisory achieved its strongest announced league table position since 2014. Asset Management delivered its best first-half net inflows in nearly 20 years and reached its highest reported AUM level ever. That progress is driven by the role we play for clients. Increasingly, board CEOs and asset owners are turning to Lazard for their most consequential decisions and investments. We believe this expanding client activity is due to our ability to deliver what we call contextual alpha by combining business analysis with broader insight into geopolitics and the regulatory environment. Clients also value that we can connect capital distribution and technology across a broader platform. With our acquisition of Campbell Lutyens, we will establish a third business that will be the leader in global private capital advisory, providing us with a full array of capabilities in private markets to complement our strength in public markets. At the same time, we are rapidly adopting AI and other technologies to serve clients more effectively and enhance productivity as part of our commitment to being the leading AI-enabled independent financial firm on Wall Street. In short, our work to advance Lazard's legacy is well underway. Tracy will now discuss our financial results along with the near-term effects of the investments we've made. I'm going to come back to provide more details on the progress we have made that is reinforcing our confidence and increased growth, productivity, and profitability over time. Thank you, Peter. Financial Advisory adjusted net revenue was $445 million for the second quarter and $801 million for the first half of 2026. Financial Advisory revenue during the quarter was driven primarily by M&A completions in North America. Across Europe and the Middle East, our business continued to perform well despite ongoing geopolitical uncertainty, with our advisory team in London performing particularly well during the quarter. Globally, Restructuring and Liability Management delivered strong results, achieving its best first-half performance in almost a decade. Our Private Capital Advisory business also saw increased client demand, particularly in primary fundraising, highlighting the opportunity ahead with our launch of Lazard CL later this year. Demonstrating increased client engagement and activity across the business, completed transactions include SunOpta on its $1.1 billion sale to Refresco, and Network Connex's sale to Olympus Partners. Recently announced transactions include Altice France's proposed sale of SFR for up to EUR 21 billion, and NextEra's landmark deal with its combination with Dominion Energy, creating an enterprise value of approximately $420 billion. Liability Management and Restructuring assignments include Republic National Distributing Company, Searles Valley Minerals, and Trinseo. In Private Capital Advisory, recent assignments include advising Corsair Capital and G Square on continuation funds and advising Regal Healthcare on the rates of Fund 4. We're encouraged by the growth opportunities across Financial Advisory overall, with continued strength in our forward indicators and client engagement supporting a stronger second half of the year. Peter will speak more about this in a moment. Turning to Asset Management. Adjusted net revenue was $331 million for the second quarter and $640 million for the first half of the year. Our revenues included management fees of $310 million for the second quarter, 23% higher than the second quarter of 2025, and up 5% on a sequential basis. During the quarter, we had market appreciation of $27 billion, foreign exchange depreciation of $1 billion, net outflows of $1.6 billion, and a $1 billion increase attributable to acquiring a controlling interest in Allied Partners. We delivered net inflows of $7.4 billion in the first half of the year. As of June 30th, we reported AUM of $285 billion, 15% higher than June 2025, and up 10% compared to the prior quarter. Average AUM for the quarter was $279 billion, 17% higher than the second quarter of 2025. Client engagement remains strong, and new mandates in the quarter reflect ongoing demand for our quant platform, emerging markets, Japanese equity, international equities, fixed income, and private markets. Our quantitative equity business, the Lazard Advantage platform, has more than doubled to $50 billion in assets under management in the past year. It has delivered strong performance that is resonating with clients. During the second quarter, we filed initial registration statements for three additional active ETFs, including our first fixed income ETF. This February, in less than a year after launching, our U.S. ETF platform surpassed $1 billion in AUM, which had already doubled to $2 billion in July. Our Asset Management leadership is also advancing our broader Lazard 2030 objectives. We're embedding AI across research, portfolio construction, and client servicing. We have recently hired senior roles, including a head of global product to help us focus on our investment product set, and a head of corporate development to help us pursue targeted growth opportunities going forward. As we look ahead, firm-wide total revenue in the second half of the year is usually stronger than the first half, driven by Financial Advisory. This year, our current projections suggest that pattern will be somewhat more pronounced. Turning to firm-wide expenses, our adjusted non-compensation expense was $172 million for the second quarter, resulting in a non-compensation ratio of 21.8%. Our adjusted compensation expense was $550 million for the second quarter, resulting in a compensation ratio of 69.9%. Given several factors that could reduce our compensation ratio this year that are still evolving, we continue to accrue compensation in the second quarter at the same level we did in the first. Factors that could reduce compensation on a constant deferral rate include the closing of the Campbell Lutyens transaction, which we anticipate will reduce our adjusted compensation ratio over time, the degree to which we moderate hiring below last year's level, and whether our advisory pipeline continues to build at the current pace our leading indicators suggest. We'll have more to say about our full-year compensation ratio when we report third quarter results. Turning to taxes, our adjusted effective tax rate for the second quarter was 69.7%. This was a primary driver of the earnings reduction this quarter, anomalous and associated with a catch-up adjustment with the vesting of equity. It is not indicative of the full-year effective tax rate, which we still expect to be in the high 20% range on a GAAP basis. Regarding capital allocation, in the second quarter of 2026, we returned $103 million to shareholders, including a quarterly dividend of $49 million and share repurchases of $59. After pausing last quarter due to the Campbell Lutyens transaction, we are pleased to restart our share buybacks with a current repurchase authorization of just over $250 million. We expect to continue buybacks throughout the year, balancing investment and growth with further offsetting share issuances from compensation over time. In addition, yesterday, we declared a quarterly dividend of $0.50 per share. Now, let me turn the call back to Peter. Thank you, Tracy. Let me now provide details on our progress, which reinforce our confidence that the Lazard 2030 strategy will increasingly translate into revenue returns as our growth investments pay off. In Asset Management, over the past few years, we have sharpened our strategy, enhanced our investment platform and distribution efforts, and transformed our leadership. The result is a renewed focus on the products and strategies where we believe active management delivers advantage and where we can capture client demand. With this progress, Asset Management revenue is up 23% from one year ago. Even with our strong net inflows in the first half of the year, ongoing client demand has supported our won but not yet funded pipeline, which continues to replenish and is higher than it was at year-end 2025. Looking ahead, we remain on track to deliver positive net flows for the year. We remain confident in the sustained momentum of the business in the second half of the year and beyond. In Financial Advisory, the repositioning of our business by upgrading our managing directors has been guided by the core conviction that raising the bar on talent and productivity would unlock shareholder value over time. Transformation at this scale is unusual, and since we are now emerging from the period during which we made the strategic choice to turn over 40% of our advisory managing directors, we want to provide more context on our progress. While we do not necessarily intend to provide this level of detail on an ongoing basis, we are doing so now to help investors understand where we are in this transition, what we are seeing as we move through it. To that end, a number of our forward indicators are increasingly encouraging. Conflict clearances are up almost 40% year-over-year on a dollar-weighted basis and up over 100% for deals above $5 billion. Our weighted backlog for this year is building more rapidly than last year. Our weighted pipeline for 2027, while at an early stage, as is typical for July, is already more than twice the level it was for 2026 at the same time last year. Achieving our best position since 2014 in announced league tables is also a net positive for future revenue. We also see evidence of our strategy in client activity and market position. We have invested in talent in our healthcare and power energy and infrastructure groups over the past few years. As some examples, areas where we already have strength and see room to grow. This quarter, we were involved in eight announced biopharma transactions over $1 billion, while our role as lead financial advisor to NextEra on the largest energy transaction in history demonstrates the expanding global leadership of our PEI group. Taken together, these indicators reinforce our belief that the repositioning of our advisory business is proceeding as we planned. They also increase our confidence in our Managing Director by Managing Director analysis, which shows we are now exiting the transitional period in which the hard decisions required to upgrade our talent created a headwind, and moving toward a phase in which the investments we have already made shift to a meaningful tailwind for future growth. While progress in this business is not linear, and we may experience a slight dip in productivity this year, given the large number of new MDs we added last year, our MD by MD analysis also shows we remain fully on track to meet our next target of $10 million per MD by 2028. Moving forward, the ramping of our new hires and promotes is increasingly less burdened by the elevated level of separations we made the decision to undertake. This allows their expanding productivity to translate more powerfully into net revenue growth, delivering the longer-term structural improvement aligned with our Lazard 2030 vision and goals. Two other points are worth emphasizing. First, we are very pleased with the quality of talent we have at the firm, including those we have been able to attract to Lazard as growth from within. Even after only two years on our platform, the average annual productivity of our newly hired MDs has already exceeded the productivity of the MDs we parted with during our strategic repositioning. Our tenured MD sets the standard for global excellence, and it is encouraging to see the commercial and collegial integration taking place across the firm. Second, we are committed to bringing the compensation ratio down over time, not only through the operating leverage associated with higher productivity, but also through efficiency initiatives that more directly reduce expenses, including through our expanded use of technology. Stepping back, there are broader, longer-term dynamics supporting our Financial A dvisory outlook. Companies continue to pursue scale and rapid technological change and see a constructive regulatory environment. Boards and C-suites increasingly treat geopolitical uncertainty as a feature of the landscape rather than a reason to wait, and an ongoing focus on corporate portfolio composition continues to drive both divestiture activity and M&A. While M&A activity has been robust, it has been concentrated in strategic transactions, and private equity M&A has remained subdued. Our forward indicators would be even more encouraging beyond their current levels if private equity M&A were to become more active. Together, market conditions, client activity, and strong evidence internally on our progress further validate the trajectory that we see. Integration planning is well underway for the Campbell Lutyens acquisition. As our teams have spent more time together, we have even greater conviction in the strategic logic and cultural fit behind the combination. We also are even more impressed by the quality of talent Campbell Lutyens brings to complement our world-class PCA bankers. In addition to the revenue opportunity with Lazard CL alone, we expect the broader connectivity between our M&A, restructuring, and fundraising businesses to compound over time. Without including revenue or expense synergies, as we said in the announcement, we expect this acquisition to be accretive to earnings in 2027 and thereafter, with clear potential for further upside. In sum, we are confident in our path toward our Lazard 2030 objectives, and I would like to thank our colleagues for their hard work and commitment to our clients. Before I close, I'd also like to welcome Kathy Elsesser to our board of directors, a retired Goldman Sachs partner with more than three decades of investment banking experience. Kathy has a broad perspective across both public and private markets. We're excited to have her join us as we build on our momentum in Financial Advisory, Asset Management, and firm-wide. We'll open the call to questions. Thank you. At this time, if you have a question, please press star one on your telephone keypad. If your question has been answered, you may remove yourself from the queue by pressing star two. Others can hear your questions clearly, we do ask that you please pick up your handset for best sound quality. We'll take our first question from Gab Angelini with Bank of America. Please go ahead. Hi. Good morning. Like you said, there's been a divergence year to date in strategic versus sponsor M&A activity. Maybe you can give us a mark-to-market on why we're seeing that divergence and what, in your conversations with sponsors and strategics, is causing that. Then also, if you can talk about the outlook for sponsor activity in the second half of this year and first half next year. Sure. I think the core challenge, it really involves valuations. The rise in interest rates that we saw from the exceptionally low period of rates that had existed for a while caused the net present value of cash flows to decline. That disconnect in valuations, I think, has led to some hesitation to sell portfolio companies that are held by private equity firms, especially if they are marked at a different level or if the return is not what the sponsor had hoped to achieve. I think that is what is causing the delay. Now, there is a counterpressure, which is that LPs would like to see some cash. There is building pressure both as this period of higher interest rates persists, and we could talk about the inflationary outlook and the rate environment, but I think that is likely to continue for some period of time. There is a bit of, "Well, what are we waiting for?" that is starting to emerge and also this demand for LPs for distributions. On the latter point, I would note that one of the accelerants in the continuation funds and secondary activity is exactly that. We are well-positioned not only with our existing PCA business, but with the Campbell Lutyens transaction and the new Lazard CL leg of Lazard to meet client demand for secondaries, which we see as quite robust. It is the interplay between this valuation effect and the demand for cash that I think is at the heart of the question of when private equity M&A will really pick up again. Beyond that, what I would say is, to your question about the second half and into 2027, if you listen to both private conversations and public conversations, the heads of the large alternative asset managers, which are the biggest players in private equity, they are suggesting that this is about to shift. We will await those words converting into action. That is kind of how I would characterize the state of play right now. Great. Thank you. That is helpful. Maybe just one for Chris. Obviously, you started in the Asset Management business in December, and I think there have been a number of changes that you have made since joining the business. Maybe if you can walk us through some of the most important changes and maybe some KPIs that we can track to watch the progress that you are making there. Thank you. Thank you for that question. Look, a number of changes that we've made to really try and strengthen the business. The first was to appoint a chief investment officer for the first time in the business because really the core of what we do is deliver investment outcomes for clients. Having somebody whose full-time job is to focus on bringing the strength and the breadth of our investment platform to bear for clients is important. He is, as you might imagine, working very closely with the portfolio managers to re-underwrite and help them improve their processes and make sure that we have the right level of data, resources, technology, et cetera, in all of the teams. There, I think that you really need to look at how our investment performance tracks. At the moment, we stand with 68% of AUM that we manage on behalf of clients outperforming their stated benchmarks over five years. The second big change I made was to appoint a new chief operating officer, Rosalie Berman, who is to help us really run the business more effectively and efficiently, to really make sure that we're focusing our resources on the areas that can drive the business forward. She's also overseen a lot of our efforts to adopt and drive AI across the business. She made an important hire in a head of AI for the Asset Management business. That's been a big part of what we've been focused on. As we roll into next week, we have two more executives joining our team. One is head of product, and one is head of corporate development for the Asset Management business. Both very long-tenured industry leaders who will help us think through what should the product roadmap look like going forward. Where do we want to prioritize? Where do we want to de-emphasize? We'll come back with more detail on that. Obviously, one of the things that people should track is what's happening to our flows, because ultimately that will reflect how clients think we are performing for them. The good news there is, for the first half of the year, we saw $7.5 billion of net inflows. As Peter said in his remarks, are the strongest level of net inflows we've seen for almost two decades in the first half with a good breadth of different investment services, regions, and clients contributing to that. Thank you. Our next question will come from Brennan Hawken with BMO. Please go ahead. Good morning. Thanks for taking my question. You've spoken to a stronger second half in advisory. Peter, I believe you referenced that you expect it to be somewhat more pronounced than typical. It would be great if you could add some further color to that. What kind of magnitude would be reasonable when you look at your pipelines and think about what is expected to close, and which businesses do you expect to drive the greater than normal seasonality in the back half? Thanks. First, I think that was Tracy, I'm going to let him characterize things. On the different lines of business, I'll give a little color. Maybe a couple of different pieces that are relevant. Our M&A, non-M&A balance is staying roughly 60/40, that has not really evolved. We are seeing a bit more shift towards North America in the overall mix of our revenue. That's not to be too surprising because just coming back to this J-curve and the ramping of our managing directors, you look at the number of tenured managing directors, that's MDs on our platform for more than three years, we're going to be more than tripling that number between the base of 2023 to 2025 and 2028. Those people are already on the platform. They're just ramping. That's a large number of increasingly productive MDs that are showing up in revenue. Those are disproportionately people that we've added in healthcare, industrials, technology, also in some other areas, we made a defense tech hire that will be coming online we're excited about, and more broadly in private capital. Those are some of the areas where we're seeing increased activity. You're also seeing that show up in the league tables. I mentioned the statistic about the increased activity that we're seeing in healthcare with those people that we're bringing on ramping nicely. Tracy, I'll let you characterize your comments. Yeah. Brennan, I think the comment was, I think you know this actually pretty well, if you were to look historically, primarily on the Financial Advisory side of the business, the second half is usually stronger than the first half. My comment was simply to say that given the first half being lighter on revenue than we had maybe expected at the end of last year, which we've talked at length about, the growth in some of those factors Peter just mentioned. Just strong performance in some of these ramping MDs, in the tenured MDs that we've had, the pace of that pipeline build, which we've probably talked about in the past, that first half versus second half trend might be more pronounced this year. That's what I was trying to highlight there. Peter highlighted the reasons for that. I think the only thing I would add to that is that pace of growth into the second half has been just at a higher pace than in years past, and it's part of the reason that when, I'm sure there may be a question on comp ratio, it's part of the reason that we think that there's probably some potential for improvement in that. It's just at this point in the year, that revenue growth continuing at that pace is higher than in years past. It's just we have a slightly lower visibility to how much that comp ratio could improve in the second half. Got it. Okay, thanks. Sorry, Tracy. That's okay. That's all right, man. It's a good first half. No, I sure hope not. I'll really tick you off if that's the case at different times. One more. My follow-up. You touched on this a little bit in your comments, Peter, MD headcount. We saw MD headcount decline a bit quarter-over-quarter. Can you talk about what drove that and how we should think about headcount for the rest of the year? You commented on the J-curve and improving some of the ramp. You spoke in your answer to my other question on the quantum of MDs that you guys have added. What are some of the important things we should think about on that front? Yeah. First, I wouldn't focus too much on the quarter-to-quarter fluctuations in the MD count because that involves some idiosyncratic things about exactly when garden leave expires and someone can join the platform, and also exactly when on the separation front, the departures happen. I guess the key point is at the end of the first quarter, I believe the number of our advisory managing directors was 238. I'm getting a nod. Okay. 238. We will be at least at 248, if not more, by the end of the first quarter of 2027. We remain on track to continue adding 10 to 15 net MDs per year. We already have visibility into achieving that objective. That's what I would say about the managing directors. In terms of where we're hiring, I already gave a little bit of context, healthcare, industrials, technology. We have a very active recruitment effort. We are recruiting talent in Europe also. You should expect it to be disproportionate in the U.S., but still adding talent elsewhere in the world. I don't know if that answers what you were asking. Yeah. I was kind of hoping to understand a little bit about the ramping. Oh, sure. Okay. Yeah. Let me talk about that. Look, Brennan, we've done a very detailed analysis of the separations that we strategically made the choice to do, the new people that we're bringing on. What I think is important to realize is, I kind of feel for you on this, we're providing more clarity at this moment in time because what we've done is unusual, on purpose again, with a significant amount of basically turnover on purpose in our MD ranks. Specifically, the ramping that we're seeing from our new Managing Directors is very encouraging. For you, it may be a little bit, or anyone on the outside, I don't mean you specifically, that is a little bit obfuscated by this J-curve that we've talked about where there is some, not proportionate to the number of Managing Directors that we separated with because they were disproportionately lower productivity, but still some revenue loss associated with those separations. Then you have the ramping of the new Managing Directors. That is, I don't want to say unique to Lazard, but we have done something that is unusual and exceptional. Again, we're excited about the evidence that we're seeing that it's playing out as we had hoped it to do. Two more comments on this. One, if you look at the Managing Director by Managing Director ramp, it is looking very encouraging. I give you one statistic that even after two years on the platform, they're already above the separated MDs. That's consistent with the pattern that we would like to be seeing and very encouraging. That was only one data point among many that we have about the ramping occurring in a constructive way and on the schedule that we expected. Second point is that will all be increasingly visible to you as we are now exiting this transitional J-curve moment. We've done a very detailed analysis of the net impact, if you will, of the separations and the new hires. That was a significant headwind in 2024. It was moving more towards neutrality in 2025 and 2026, but still weighing on our results to some degree. As we move into 2027, it becomes a quite significant tailwind when you go MD by MD very granularly. That is consistent with the forward indicators that we're seeing. From roughly this point forward as there are more indicators that we're emerging from this transitional J-curve moment, you should see the external results of the ramping more consistent with the patterns that you may have seen at other firms because they did not have the large number of necessary separations. The go forward, you'll just see the ramping of new hires increasingly translate into net revenue growth and then into earnings and comp leverage. Thank you. Our next question will come from Mike Brown with UBS. Please go ahead. Great. Good morning. Thanks for taking my questions. I wanted to start on the Asset Management side. The first half, $7.5 billion of net inflows, clearly a really positive start to the year. Clearly tracking to the positive net flows for the year. I guess what's clear is you've had that successful first half, it's also clear that you have a large cushion here for the second half. I assume you're not expecting the second half to be kind of the mirror image or opposite of the first half. Maybe any comments on the puts and takes for flows in the second half, and maybe just touch on where you're seeing the most traction there. Thank you. Thanks, Mike. That's a great question. Look, we are very confident in the sustained momentum, the commercial momentum we're seeing in the Asset Management business. As you said, it's a very strong first half. Underlying that, there's a real breadth to what's contributing. You're seeing that notably from our systematic equities platform, our advantage platform that has doubled in size to $50 billion over the last year. There's a large number of other services contributing. Emerging markets, listed infrastructure, Japan, robotics, and some fixed income strategies as well. There's real breadth to it from a product perspective. There's real breadth to it from a geographic perspective. We're seeing net inflows in Asia. We're seeing net inflows in Europe. We're seeing net inflows in the U.S. Looking forward, if we look at our won but not funded pipeline, it is at a level today that is higher than we had at the end of last year. That gives us a lot of confidence in the sustained momentum going forward. As you track through month by month, there's two parts. You can kind of split the business in half. There's a retail business that's been a very steady contributor to the net flow picture. We have institutional that by its nature is lumpier with big mandates that we can win and also big mandates we can see redeemed. That will give us some volatility month to month. Given the level of commercial activity, I'm feeling very confident as we look through the remainder of the year. Okay, great. Thank you, Chris. If we just shift back to the comp leverage discussion, comp ratio discussion a little bit. Lots of good color there, and I know you don't have a crystal ball, and it's going to be very kind of revenue dependent. If Asset Management continues on the path it's on, I guess it'll be kind of FA driven here. Clearly, optimism's high in the second half. I guess if I frame it this way. If Financial Advisory is up, say, 40% or so in the second half versus the first half or call it 20% versus the second half of last year, can you get to that 65.5 level for the comp ratio that you were at last year? Thank you. Yeah, this is a really good question. I think probably we're going to get a few more questions on this. If you don't mind, I'm actually going to maybe get into a bit more detail here because to Peter's point, I know that there's certain things that we're seeing in the business that you don't have around that forward momentum. I would point out, I don't know if we mentioned it, but there was a new slide in the investor presentation that exactly highlights quickly some of the volume of change in the MDs and some of the curves that I'll talk to in just a second. I think it was on page 24 of the investor deck. I might point that out because that could be helpful to some people. Let me just take a minute. I mentioned, first off, a few factors that would limit visibility at this point in the year. Let me flag that. With perhaps one exception in the past decade, our Q2 accrual has always kind of mirrored our Q1 accrual. If you went back to our Q1 accrual, we had a lighter Q1 on revenue. We had higher fixed costs. A vast majority, if not almost all of the Q1 accrual was due to fixed comp, significantly more than in 2025, and that ties back to Peter's comment about the hiring. To maintain that consistency, that's partly why we had this Q2 accrual, but that's regular practice on our end. It's not really until the second half of the year that we have better visibility. You're right, if revenue performs, and that's partly why we had that caveat, if revenue continues to perform, that comp ratio can come down in the second half of the year. I'm not going to get into specifics about where it could end up, but I think you're thinking about it the right way, that it is kind of indexed to FA performance in the second half of the year, and we'll get more visibility in that second half or certainly into Q3. I do want to step back and address something I continue to think that people may be underappreciating. Peter just highlighted this, the significance of that repositioning and that J-curve impact that Peter mentioned. I want to just touch on that briefly. It exists on both the revenue and expense sides of the comp ratio. On the revenue side, Peter just mentioned this, revenue from our new MDs takes time to build. We're very excited about the pace of that and the MD productivity even by cohort. The revenue that we lost from the separated MDs is more immediate. On the expense side, there's a related but inverted dynamic, basically an inverted curve. Lateral MDs, which were a higher proportion of rebuilding that, over 90 MDs hired since 2023, that's very different. That gross impact is very different than kind of the 10-15 net MDs per year that I think a lot of people focus on. I think the impact of the comp ratio largely comes from the accounting impact and delayed amortization related to that gross change in the MD pool that really happened between effectively end of 2023 and 2024. Just as a reminder, since 2023, we separated with over MDs and replaced them with roughly 90 new hires and promotes. That gross impact is far more significant than that net add would suggest. If you're only focused on that 10-15 with the elevated hiring that Peter focuses on, you're probably underappreciating and may not be accounting enough for the higher amortization levels. If you dig into it, I could get into this more if we wanted to, the kind of fixed costs related to guarantees and the amortization from prior periods. If you look at first half of 2026 versus first half of 2025, there's a pretty big difference that's again contributing to that. I just wanted to highlight that gross emphasis on the MD pool change that drives a lot of it. To tie back to your original question, I think you're thinking about it right. The improvement in the comp ratio in the second half of the year is really indexed to the FA performance in the second half of the year, Peter highlighted all of that positive momentum that we're seeing. Thank you. Our next question will come from James Yaro with Goldman Sachs. Please go ahead. Thanks for taking the question. I want to touch a little bit on AI impacts on investment banking. I would posit that much of the AI impact on investment bank activity appears to be in financing markets rather than M&A. I'd just love to get your perspective on the ways in which Lazard's strategic advisory business can benefit from AI, and specifically on M&A, but more broadly on strategic advisory and maybe in the secondaries business as well. Okay. Let me answer that in a couple different ways. First, with regard to client activity, we have, through Lazard Capital Solutions, a lot of capabilities in matching strategics with sources of private capital, including insurance capital. That is a very active vector for a lot of AI investments. Frankly, even beyond AI, a lot of corporate balance sheet optimization. That's one piece. I think secondly, especially as we move towards the Lazard CL, third leg of Lazard in Private Capital Advisory, there's an exceptionally good data asset that the combined businesses will have in terms of insight into GPs and LPs, and deploying our AI technologies to that data we already know will provide lots of insight that is commercially relevant and valuable to clients. One of the things we haven't talked a lot about but that we're excited about is ways of deploying that data asset, if you will, with the scale that the Lazard CL combination will bring. The third piece I'd say is with regard to how we serve our clients. I've spoken about this before, and I mentioned it briefly, but we are committed to being at the forefront of this ongoing revolution in technology, and it is an exciting moment because the tools continue to advance quite rapidly. The deployment of AI within Lazard to our banking teams and to the Asset Management side of the business is v ery encouraging. Every day there are new use cases. I'm very excited about the ability of our adoption of this technology to help us better serve clients and serve clients in new and innovative ways. A lot more to come on that topic as we continue to pursue new opportunities. I would just call out the exceptional AI team we have internally, and then also the fact that we've got Dmitry Shevelenko, the deputy board, who is a fantastic resource for helping guide us to where the puck is going and not just where it currently sits. That's very helpful. I just wanted to zoom in and clarify one point on the advisory strength in the quarter. I would argue a strong result here and ahead of what we had at least forecasted. Was there anything that changed relative to your commentary at the intra-quarter conference whether that be in terms of faster closings, pull forwards or something else? Just trying to put this quarter's results into context relative to your, what I would characterize as quite constructive second half outlook for strategic advisory. What I would say is there was no exceptional pull forward or that sort of thing. The point is instead it's not really a quarterly business because things can bounce around. What we're seeing is increasing momentum across the business, some of which showed up in this quarter. There wasn't any particular M&A, non-M&A mix shift et cetera. It's just an indication of a bit more strengthening as we're emerging from this J-curve period in our momentum. Thank you. Our next question will come from Connell Schmitz with Morgan Stanley. Please go ahead. Good morning. Thanks for taking my question. I'm sticking with the AI point. You've added a new piece to your AI progression timeline with the rollout of Claude, but you have not spoken much about it. Does this mark a bit of a shift in your AI strategy from a provider standpoint? Broadly, this involves increased tech investment. How should we think about the model around non-comp expenses trajectory for the remainder of the year? Has there been any progress made so far regarding the reduction in corporate overhead expenses that have been talked about? Thanks. I'll take the first part and Tracy can take the second part. We have always been, throughout this AI journey, committed to not locking into a single model, not having a kind of sole source vulnerability or choke point, if you will. We've been very explicit in having a variety of models that sit inside of our firewall and that can be used by our banking teams. I think the rollout of Claude is just consistent with that general philosophy. Claude is not the only model that sits inside of the firewall, as it were. We've got multiple different models. I think the important thing that we're trying to drive is the cultural change in terms of how work is undertaken. To be able to easily swap out the underlying model as we do that work is very explicitly part of our AI strategy. I wouldn't make too much about Claude or any of the other models other than to say the progression and the quality of the output is remarkable, and it's exciting to see. One final comment is I'd say at this point, our AI spend and token cost is still quite modest, not really material from any non-comp expense perspective. I'll let Tracy comment more broadly about non-comp. Just before I close out, relative to the opportunity, the spend here is still quite modest. We will obviously watch that. We see huge opportunity here and are trying to drive the adoption culturally, and are pleased with what we're seeing. Tracy. Peter, I'd echo that same point. We track the AI spend really closely. As Peter mentioned, we have access to a lot of models, we can track that actually by vendor going around non-comp spend at the end. You asked about some of the cost efficiency things. Firm-wise, we're kind of trying to simplify our corporate and support function processes and structure broadly. Before I talk about that, when you think about the two businesses, in Asset Management, we already talked about streamlining our research platform, portfolio managers and analysts working more efficiently and closer coordination across the equity businesses. In Asset Management, there was already in the past month a series of headcount reductions reflecting that efficiency and some just business as usual improvement, which I think is positive. In Financial Advisory, Peter's already mentioned this, we're looking towards smaller deal teams. We've talked about in the past is really a lower total associate equivalent to MD ratio. Really speaking to that MD headcount. As far as whether it's AI or team structures affecting the front offices, if you want to think about it that way from an expense perspective, we'll have a lot more detail in the second half of the year, that's where the focus is right now. In the back office or in the corporate, we've launched an in-depth review, there's a lot of work being done on that. As I highlighted before, when we think about the corporate expense what we're most interested in is structural change that is sticky, that delivers a kind of divorce in the relationship of inflation in those corporate and support functions from revenue growth. As Peter's highlighted, we're very positive on the forward-looking trajectory on revenue. My hope is that the efforts we're doing in corporate lower the growth rate in that corporate expense as the total revenue grows for the firm. That is a long-term project. We will have a lot more detail towards the end of the year on that, but that's where the efforts are going. The only point I would make on coming back to the AI spend, as Peter mentioned, it's not material, but the promising indicator is more cultural, if anything. We have the data as we look at the non-comp spend in the AIPs that shows this cultural adoption of AI within Lazard, and we're pretty confident about the return on investment there. One thing that I don't think will be a near-term impact, but will be something industry-wide to watch is as we shift more of those expenses toward technology over time, nothing near term, you might see actually some shift between comp expense and non-comp expense as just the workflow streams. That's not anything near term. Right now, what we're observing is just a cultural adoption of AI throughout the organization. Thank you. That's very helpful. Just one quick follow-up on buybacks and M&A. Given you're restarting buybacks, is it fair to conclude that inorganic growth within the wealth space is unlikely in the near term as you look to increase wealth distribution from here? How's that strategy going? I wouldn't classify, characterize it the way that you mentioned. We were excited to restart our buyback activity after we were kind of precluded from doing that with the Campbell Lutyens transaction. We expect that to continue. Even, I think it's a fair characterization that actually our buyback activity remains while healthy. It's still a modest level versus historical levels. It wouldn't preclude any kind of investment from a strategic or inorganic perspective, as Peter mentioned. I think the question was different, if I understood it, which is, does this signal that you're not at a stage in an inorganic process that precludes current buybacks? I think that would be a fair conclusion from our statements. We've also said we are actively looking at lots of inorganic options, so it depends on what you mean by the timetable. We're actively looking at lots of different options. Sorry, Tracy. No, I think that's all fair. Was that the nature of the question? Yeah, that was very helpful. Thank you. Thank you. Our next question will come from Steven Chubak with Wolfe Research. Please go ahead. Hi, good morning, and thanks for taking my questions. Appreciate all the detail unpacking some of the underlying business momentum that admittedly is obscured by the MD J-curve. Also recognize the comp flex that you spoke to in the second half is certainly going to be contingent on the magnitude of the FA ramp. Looking beyond 2026, I was hoping you could speak to expectations for the comp trajectory. If you just extrapolate based on the current ramp that you're seeing in productivity from new hires while still staying the course in terms of the commitment to adding talent in line with the 2030 targets. That is a great question. We see, obviously, the comp ratio coming down as we continue to pursue the Lazard 2030 plan while also making the new investments. Again, to Tracy's point, I think the underappreciated point here is that elevated level of separations on a one-time basis that we had to do then necessitated, or it was always part of the plan, was matched with an elevated level of gross lateral hires, not net, gross lateral hires. That creates a temporary bump in the comp ratio. There are kind of three things to highlight as we move into 2027 and 2028. One is just with time, the comp ratio comes down because the one-time effects of those buyouts, if you will, fade out of the equation. Secondly, as we continue to raise productivity, again, I underscored our conviction that we're on track to hit our $10 million per MD productivity target by 2028. We get operating leverage out of the non-MD comp pool because as productivity per MD goes up, the non-MD comp to revenue ratio goes down. The third is that we do see the opportunity for efficiencies in how we go to market and in some of our corporate and other functions. There's a time effect, there's an operating leverage effect, and then there's a kind of direct efficiency effect. The combination suggests a significant decline in 2027 and 2028 in the comp ratio. I don't know, Tracy, if you wanted to elaborate. I think that's really helpful. I think just to maybe even dig in a bit deeper on that timeline expectation. Peter and I have talked about these J-curves, Peter highlighted how in 2026 you're kind of seeing the headwind from a revenue perspective die out and that turning into a tailwind in 2027. Or yeah, 2027. I think from a timing perspective, this is really just accounting, I would emphasize this again, a lot of the compensation expense that is driving some of the comp story already happened. It happened as those elevated hiring levels on a gross basis that Peter highlighted, which has really kind of already happened. As you know, given our deferrals and our vesting schedules and everything else, a lot of that comp expense amortizes over three years. As Peter highlighted with the revenue growth, we're kind of seeing even in the second year, these ramping MDs exceed their productivity versus the MDs that were separated. What does that all mean from a timing perspective? Just trend-wise, I think what you'll see is that there'll be a revenue tailwind in 2027. On the comp side, I think you really see it revert back to a normalized basis really in 2028 because it's kind of a lag. When you think about comp expense on its own as its layer of the comp ratio, it's got a little bit of a lag versus the revenue showing up simply because of the accounting amortization. I agree with the way that Peter just characterized it, that there's this downward trend that is going to be evident both in 2027 and 2028, and that it's really material over that two-year period. Part of it is just a better appreciation for the unwind of the amortization that's happening from an accounting perspective on the comp ratio and this dramatic build on the revenue side from the J-curve that Peter highlighted earlier. Thank you both. That's really helpful color. Just for my follow-up, wanted to just get an update on the non-M&A businesses, whether it's Private Capital Advisory or restructuring, just how you see momentum trending across the different geographies. Yeah. Well, on the geographies, I mentioned that we've seen a bit of a shift towards North America. I think that's partly market-driven. It's partly driven by our MD mix, which is growing disproportionately in North America on purpose. With regard to the non-M&A businesses, just to give you again that we're at roughly 60% M&A and 40% non-M&A in the advisory business. The non-M&A piece will expand as we move to integrating Campbell Lutyens. Just as one indicator of that, we have said previously, and we still believe that the Lazard CL combination will produce $500 million in revenue in 2027, next year. The underlying trends that we're seeing in this year, PCA often has a lot of activity in the fourth quarter, but it's trending in the ways that we expected in healthy business, the fundraising business. I'd say the same thing in restructuring. The restructuring team is flat out. Sorry, I should say restructuring and liability management since most of it's liability management. Thank you. Our next question will come from Devin Ryan with Citizens JMP. Please go ahead. Thanks. Good morning, Peter, Tracy, Chris. I'll just ask one question here. Peter, you mentioned conflict clearances are up over 100% for deals over $5 billion. That stood out to us. I know that's a material acceleration from the 50% you mentioned last quarter. Obviously, Lazard's always been involved in kind of large, complex deals. Can you just talk about some of the recent acceleration and whether that's a function of the kind of diverging backdrop between strategics and sponsors versus being a result of maybe a concerted effort under your leadership within Lazard just to concentrate on larger deals and perhaps maybe the mix is shifting within the firm and even increasing market share there? Thanks. Yeah. A couple comments on this. First, I think you may be mixing and matching slightly. We'll get back to you. The up 40% overall dollar-weighted conflict clearances and more than 100% for deals above $5 billion is a fee-weighted estimate. The prior number you may be citing was the number of conflict clearances up. We'll get back to you to make sure. The broader point holds regardless of that detail. We'll get back to you on that, which is we are seeing a significant uplift in our large cap activity. I think that's the reflection of three things. The first is that that's what's happening in the marketplace. Coming back to the private equity discussion we were just having, disproportionately strategic activity is the thing driving M&A right now, and disproportionately large deals are driving the strategic activity. That's partly market. Second, I think we articulated this on one of the prior earnings calls. We were pleased with the investments that we had been making in our private capital coverage efforts, but we set ourselves the task of lead table prominence and large cap prominence, including in 2026. This is partly a kind of leadership and management initiative. It's always been core to Lazard to play in that arena. The third thing I think is the operating model that we've adopted, the increased level of relationship building and convening, and also the hiring that we've been doing. We are in an increasing number of boardrooms and C-suites, and we're pleased with the progress that isn't even in the conflict clearance numbers, which is the traction we're getting with large clients. I'd just highlight there also Lazard's historical ability, which has been refreshed and renewed and reinforced to deliver contextual alpha, that is to incorporate the geopolitical piece into the analysis. I think is part of what's giving us traction there. Partly market, partly leadership initiative, and partly our talent and our competitive advantage in what I call contextual alpha. Yeah. Got it. Thank you, Peter. You're correct. Yeah, I was citing the conflict clearances about five from last quarter. Yeah, that was number comparison. Yeah. The point still holds. There's disproportionate activity there. Yeah. Appreciate it. Okay, I'll leave it there. Thank you, guys. Appreciate it. Thank you. Our last question will come from Alex Bond with KBW. Please go ahead. Hey, good morning, everyone. Thanks for squeezing me in here. Follow-up to the last question actually around deals in the $1 billion-$5 billion range. You obviously cited the $5 billion-plus range has been quite strong year to date. Wondering if you've seen any pickup in activity in this sub $5 billion range. I know part of the equation here is obviously the still depressed sponsor activity. Is there anything else that you'd point to here that might help get this deal cohort more active here moving forward? I think a lot of that activity is going to come back to the private equity dynamic we talked about. The reason we gave you the overall dollar-weighted conflict clearances is to give a sense of overall activity. It is still skewing somewhat towards the very large transactions. If private equity in particular were to become even, you would see a significant pickup in smaller deal sizes coexisting with those large strategic ones. I guess the way I would characterize it is the forward indicators that are very encouraging are encouraging despite the fact that private equity M&A has not yet kind of fully reawakened. If it were to do so, the forward indicators would be even stronger. Do one more just quickly on the non-comp side. Just wondering if your previous guide of mid to high single digits year-over-year for non-comp growth still holds. Just any commentary on upward pressures on things like travel expense from higher energy prices. I think you touched on this a little bit earlier, AI-related costs on the tech side would be helpful as well. Thank you. Yeah. On the non-comp, that guidance still holds. I think it might be up a point or two from what I said before, but still in that mid to high single-digit increase. I think the point on that, there might be a little bit more noise in it this year also because of the Campbell Lutyens transaction and some of the advisory that's related to that. We'll try our best to kind of carve that out or at least identify it. On the AI spend, Peter mentioned that. That will be increasing. Again, we've highlighted that adoption, but it's not yet material. Again, the return there is very strong. You mentioned travel. This is an area where I'm not too sure I want to distinguish between actual energy costs versus actual activity. What I would highlight is travel activity, convening client meetings is on the rise, as Peter mentioned. We're very bullish on that. That's probably an area of non-comp that, while we always want to be efficient, it's not something we're trying to dial back. We're trying to make sure our bankers and our portfolio managers are with their clients, that there's a lot of activity. We see that as a differentiator for Lazard, particularly in an environment where AI is increasing. We view the client relationship as paramount. That convening activity, that higher T&E spend will be offset by some of the savings that we're trying to do in other areas of non-comp. We actually see that as almost a revenue driver, if anything else. Great. Thank you. This now concludes Lazard's second quarter 2026 earnings conference call. 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