Earnings Call Transcript - LAZ Q4 2022

Operator, Operator

Good morning and welcome to Lazard's Full Year and Fourth Quarter 2022 Earnings Conference Call. This call is being recorded. At this time, I will turn the call over to Alexandra Deignan, Lazard's Head of Investor Relations and Corporate Sustainability. Please go ahead.

Alexandra Deignan, Head of Investor Relations and Corporate Sustainability

Thank you, good morning and welcome to Lazard's earnings call for the fourth quarter and full-year 2022. I'm Alexandra Deignan, Head of Investor Relations and Corporate Sustainability. In addition to today's audio comments, we’ve posted our earnings release and an investor presentation 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, 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 these forward-looking statements and assumes no duty to update these forward-looking statements. Today's discussion 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 measure is provided in our earnings release and investor presentation. Hosting our call today are Kenneth Jacobs, Lazard's Chairman and Chief Executive Officer; and Mary Ann Betsch, Lazard's Chief Financial Officer. Mary Ann 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, Ken and Mary Ann will be joined by Peter Orszag, Chief Financial Officer of Financial Advisory; and Evan Russo, Chief Executive Officer of Asset Management as they will open the call to questions. If you are currently on the call, please make sure your line is unmute. I'll now turn the call over to Mary Ann.

Mary Ann Betsch, Chief Financial Officer

Thanks, Alexandra, and good morning everyone. Today, we reported fourth quarter 2022 operating revenue of $671 million, a 31% decrease from record revenue of $968 million in the fourth quarter of 2021. Operating revenue for full-year 2022 was $2.8 billion, 12% lower than full-year 2021. For context, this represents the second highest annual operating revenue in Lazard's history, following the firm's record operating revenue in 2021. In Financial Advisory, we've reported fourth quarter revenue of $404 million, down 34% from last year's fourth quarter. For the full-year, operating revenue was $1.7 billion, 7% lower than record revenue in 2021. Despite the challenging market conditions of 2022, robust strategic M&A activity drove financial advisory to a record first nine months with activity slowing during the final months of the year. While the pace of announcements and completions moderated amid rising macroeconomic uncertainty, our client engagement remains active across geographies. In restructuring, our discussions with clients are increasing as a result of rising interest rates and demand for liability management, and we are currently engaged on a number of assignments in both the U.S. and Europe. In Asset Management, fourth quarter operating revenue was $259 million, 25% lower than the fourth quarter of 2021. Annual operating revenue was $1.1 billion, 17% lower than 2021, primarily reflecting lower average assets under management and lower incentive fees. Management fees and other revenue was $245 million for the fourth quarter, 18% lower than the prior year period, reflecting a 21% decrease in assets under management year-over-year, partly offset by a slight increase in the average fee rate. Management fees and other revenue was $1 billion for full-year 2022, a 15% decrease from the prior year. 2022 was a year of significant market volatility, geopolitical tensions, and quantitative tightening, which manifested in lower valuations across asset classes globally. Although markets showed signs of improvement in the fourth quarter, investors reallocated portfolios at year-end to de-risk assets and increase liquidity. The strength of the U.S. dollar was also a sustained headwind for our asset management business as approximately two-thirds of our AUM is held in non-U.S. dollar denominated assets. As of December 31, 2022, we reported AUM of $216 billion, up 9% from September 30. This increase was driven by market appreciation of $14.4 billion, foreign currency appreciation of $7.7 billion and net outflows of $3.7 billion. Net outflows in the fourth quarter moderated significantly from the $6.7 billion in net outflows during the fourth quarter of 2021. Average AUM for the fourth quarter was $211 billion, a decrease of 23% from a year earlier. On a sequential basis, average AUM was essentially flat compared to the third quarter of 2022, reflecting stabilizing market conditions and the weaker U.S. dollar. As of January 27, our AUM was approximately $230 billion, driven by market appreciation of $11 billion, foreign currency appreciation of $2 billion, and net inflows of $200 million. Now, turning to expenses. We accrued compensation and benefits expense and a 59.8% full-year adjusted ratio in 2022, compared to 58.5% in 2021. The 2022 ratio primarily reflects lower than anticipated advisory revenues in the fourth quarter, along with investments to expand our businesses and to ensure we are well-positioned to capitalize on market conditions when they improve. Our adjusted non-compensation expense for 2022 was $518 million, 10% higher than the prior year, reflecting the impact of increased travel and investments in technology. Our effective tax rate for full-year 2022 as adjusted was 25.7% versus 23.9% in 2021. The year-over-year increase was primarily due to the geographic mix of our earnings. We expect our annual effective tax rate in 2023 to be in the mid-20s. We generated strong cash flow in 2022 returning a record $936 million to shareholders, including $182 million in dividends and $692 million in share repurchases. Additionally, yesterday we declared a quarterly dividend of $0.50 per share. During the fourth quarter, we bought back 2.4 million shares at an average price of $32.91 per share. During the full-year 2022, we repurchased a record 19.7 million shares at an average price of $35.17 per share. Our weighted average share count as of the fourth quarter was 97 million shares, a reduction of 14% from the prior year quarter. Our total outstanding share repurchase authorization as of December 31 was $302 million. Ken will now provide his perspective on our performance and outlook.

Kenneth Jacobs, Chairman and Chief Executive Officer

Thank you, Mary Ann. While the global macroeconomic environment remains uncertain, conditions are generally better today than many were anticipating six months ago. Lazard enters 2023 having successfully navigated the volatility of the past year. The diversity and breadth of our business allowed us to weather the worst of these conditions and achieve the second best annual operating revenue in our history. However, the global slowdown in M&A activity in the second half of 2022 caught up with us in the fourth quarter and is likely to continue to impact our financial advisory performance through the first half of 2023. Although the near term outlook remains uncertain, we are cautiously optimistic regarding an improvement in the macroeconomic environment going into the second half of the year based on several factors. While global inflation remains elevated, recent data indicate that price increases are beginning to moderate. Central banks are slowing the pace of rate hikes, which may mean a shortening of the current tightening cycle. Equity markets have rallied, spreads have tightened, and volatility has receded, and unemployment is generally holding steady around the world while most developed economies maintain GDP growth. Since the beginning of the year, we've noted an increase in M&A dialogue, while market sentiment seems to be improving. We also took advantage of last year's downturn to make strategic investments in our Financial Advisory business. These investments included adding senior financial advisory hires in the U.S., Europe, and the Middle East, broadening our private credit and infrastructure advisory capabilities, launching our new geopolitical advisory group, and expanding our venture and growth banking group into the U.S. Because of these in-depth investments and others taken over the past year, as the M&A environment picks up, we are well-positioned to capitalize on the recovery and gain market share. Turning to our asset management business, there has been a notable improvement in the overall climate for asset management since the end of the third quarter. Assets under management are up approximately 16% since Q3 2022, positively impacting both revenue and the business's operating leverage going forward. Looking at performance, approximately two-thirds of our composite strategies with benchmarks are outperforming on a one-year and three-year basis. The weakening of the U.S. dollar is also providing a benefit as a long-standing headwind for our business is abating. Amid this improving outlook, we remain focused on our asset management clients, many of whom are reallocating portfolios in the wake of last year's repricing of risk. Investor sentiment also continues its shift towards research-driven fundamental investment style in which Lazard has global breadth and expertise. Our asset management business has momentum behind it and is well-positioned for 2023 with a diverse array of innovative strategies and custom solutions to meet the investing needs of a sophisticated client base. Finally, 2023 marks the 175th anniversary of Lazard’s founding. For the better part of two centuries, our firm has thrived by staying focused on our core businesses and guiding principles, striving for excellence, empowering our people, and engaging with clients. Lazard continues to strategically invest in people and technology, maintain discipline around expenses, deliver profitable growth and shareholder value, and remain focused on serving our clients. Let's open the call to questions. Thank you.

Operator, Operator

We'll take our first question from Manan Gosalia from Morgan Stanley.

Manan Gosalia, Analyst

Hey, good morning.

Kenneth Jacobs, Chairman and Chief Executive Officer

Good morning.

Manan Gosalia, Analyst

I wanted to focus on the asset management side, it looks like another strong quarter on the fee rate here. And I know you noted earlier that part of this was from a mix shift. So, is this the right rate to assume going forward or are there any other influences there?

Evan Russo, Chief Executive Officer of Asset Management

Hi Manan, it’s Evan, I'll kick that off. Yes, look, we've seen – as you've seen over the last couple of quarters, the fee rate is starting to tick back up. As we've said in the past, the bulk of that is driven by the asset mix. A little bit more on the vehicle side this time as well, we saw some vehicle mix have a positive impact for us. We saw more coming into funds and a little less from some of the sub-advised and some of the SMAs that we have in our business. Also, as we pointed out over the last couple of quarters, some of the larger outflows that we had were in lower fee mandates. So that would, as you point out, sort of lead us to a starting run rate that's probably a little bit higher than it was a year ago. So, I think in general, yes, it seems to be the outlook, seems to be more stable than certainly the past few years where we're seeing it more contracting on a steady pace and now it seems to have leveled off a little bit. I think it'll be a little bit bumpy still. I mean, there's going to be quarter-to-quarter movement because all these flows sort of do play into it. The mix has a huge impact on it. And so as markets move around, you're going to continue to see that jump around a bit. But generally, it feels a lot better than it's been over the last several years.

Manan Gosalia, Analyst

Great. Thanks, Evan. And maybe just a big-picture question on the strategy in the asset management space. What is the environment like for lift-outs? What is your capacity and willingness to do them? And any general updates in your strategy as we look ahead to 2023?

Evan Russo, Chief Executive Officer of Asset Management

Yes, sure. So, when you think about the market last year, certainly the volatility has played a huge role in the way a lot of the teams, certainly smaller firms have been thinking about their own strategies. And whether or not they can go at it alone. They shift more towards larger institutional clients thinking about having fewer managers in their portfolio. All that plays into the idea that there are a lot of these smaller firms and certainly smaller teams from smaller firms that are looking for homes on bigger platforms and certainly they're focused on ones that have global distribution, which is a significant benefit for us given the breadth and depth of our distribution capabilities. We are certainly sought after by many of these teams. We are constantly reviewing what's out there from both a strategic acquisition and a lift-out scenario, sort of bringing teams onto the platform. We've done that selectively over the last couple of years. I would say from the market environment, you're asking how it feels today relative to the last couple of years. I would say the pace given the volatility of markets over the last year has certainly picked up in terms of the number of conversations, the number of firms that are looking to join larger platforms. I would expect that to continue over the course of the year.

Manan Gosalia, Analyst

Great. Thank you.

Operator, Operator

Our next question comes from Devin Ryan from JMP Securities.

Devin Ryan, Analyst

Good morning. Hey, I guess first I want to start on the move in the dollar. So, for Lazard, that's a bigger deal than some of your peers. And so, I'd like to just maybe remind us, kind of the order of magnitude, the benefit of the weakening dollar on both advisory and asset management? And then just, kind of bigger picture how that's driving strategic dialogue with clients as well just given the market shift we've seen here recently.

Kenneth Jacobs, Chairman and Chief Executive Officer

Let's break it into two parts. Evan, do you want to take the impact on the asset management business and I'll cover the advisory and the client side?

Evan Russo, Chief Executive Officer of Asset Management

Of course. So Devin, as we pointed out in past calls, our asset management business is certainly weighted towards non-U.S. dollar AUM. Approximately two-thirds or so of our AUM is in securities that are non-U.S. dollars. So that translation impact has had a big impact on our AUM generally as a firm over the last several years. I mean, even last year the FX that we call out was a $9 billion negative just that translation impact of our securities. So, it certainly is a positive. As you've seen just in the last four months. So, Q4 plus January, where you've seen a significant turnaround on the FX side with a weakening dollar. So that plays in just both on the translation of AUM. It also speaks to the way in which the investor sentiment and general investor sentiment of allocation of portfolios has been changing a little too. There's been a big focus on U.S. dollar investments, U.S.-centric investments, and people shifting portfolios to where the growth has been, and where market appreciation has been, which has been more U.S.-focused than international global and certainly EM over the last several years. As that starts to tilt and as people start to think about an environment where you may have several years of a not only weakening U.S. dollar but certainly not a strengthening U.S. dollar that starts to abate as we just called out, that would certainly be a positive for our business. And that generally will work from both the focus of investors thinking about allocating their portfolios, as well as the translation of AUM back into our business as well.

Kenneth Jacobs, Chairman and Chief Executive Officer

And on the advisory side, two things to comment on. First, the advisory business itself is less impacted one way or the other. We tend to have a lot of our costs in local currency where the revenues are, so not as much impact. And in terms of clients, look, again, over time, I don't think that small shifts in currency make that much difference in terms of cross-border activity. When you have a large shift, there's a unique positioning of a company. Its cash flows, the way it can be financed that would help, but generally speaking, if someone's buying an asset in a different geography, they will finance it accordingly. So, one way or the other, it hasn't had as much impact as I think many observers think it does.

Devin Ryan, Analyst

Okay, great. Just a follow-up question on the growth of the firm. The Advisory headcount, I think, is up about 30% over the last three years. We've tracked a lot of managing directors have joined the firm, so you guys have been more active over the last three, four, five years in recruiting than you had been for some period of time. So, maybe just talk a little bit about just given the lags that occur when you bring somebody in externally or even promote somebody to hitting full run rate of potential? Like how this, kind of shift has set you up for growth moving forward? And then just also just expectations for continuation of bringing in senior talent.

Kenneth Jacobs, Chairman and Chief Executive Officer

Peter, you want to take this one?

Peter Orszag, Chief Financial Officer of Financial Advisory

Sure. So, on the ramp or onboarding, it does take somewhere between a year or two, sometimes three for people to be fully productive that can stretch out to four. In some cases, it depends on the sector and the person obviously. The internal promotions are a bit different than the laterals, but I think you should be thinking about a year or two to become fully productive. So, you're right that we've got this pipeline of managing directors that we've been adding in private debt in the Middle East, in Germany, and elsewhere that will be coming, kind of fully online in the months and years ahead. And then with regard to the opportunities, we still do see significant opportunities for us to be picking up additional people and wallet share. In fact, the hiring environment may become more attractive.

Devin Ryan, Analyst

Great. Thanks so much. I'll leave it there.

Operator, Operator

Our next question comes from Brennan Hawken from UBS.

Brennan Hawken, Analyst

Hey, good morning, Ken and Mary Ann. How are you? So, wanted to ask a follow-up, Ken, on your tone around advisory. That certainly sounded optimistic and seems like an improvement from the tone that we heard from December when there were a bunch of updates with conferences. So, we'd love to explore that a little bit and get a sense about whether or not it's just dialogue. In the past, we've heard that there's been a bit of a hesitance around pulling the trigger on deals? Are you sensing that that hesitance is abating or is it more that the dialogue is ramping and once there's some improved clarity, then we'll really see it follow through?

Kenneth Jacobs, Chairman and Chief Executive Officer

Great question. And I think you're right. There has been a bit of an improvement in sentiments from where we were in the middle or beginning to middle of fourth quarter. So, a couple of things to note. I point to these a lot, equity and credit conditions, equity prices, credit conditions, sentiment, and then usually there's a catalyst. On equity conditions, obviously, valuations are probably more reasonable than they were prior to the downturn early last year from the invasion. Credit conditions are clearly improving, and spreads have tightened since the beginning of the year. I think yesterday's announcement by the Fed, more importantly, the reaction of the market to it has been constructive. When you look at credit conditions and you think about where rates are today, historically, they're still pretty low, compared to most periods of time. Generally speaking, people would concede that today things are just better off than what they would have guessed they would be six months ago. This improvement helps around sentiment. The GDP numbers both here and in Europe have been better than expected, and we have China coming online in the second half of this year. Overall, I think the environment and sentiment in the boardroom is starting to improve. This is a precondition for activity because with poor credit conditions and unconstructive sentiment, M&A activity does not occur. Now, we have all three factors improving, and I think you're likely to see a pickup in activity. Additionally, the energy transition will be an enormous catalyst for M&A activity. We are likely to continue seeing significant pressure on re-shoring into the U.S., leading to M&A activity and infrastructure investment around many of these projects.

Brennan Hawken, Analyst

Excellent. Thank you for that detailed rundown, Ken. That's appreciated. Thanks for the asset management update through January 27. Evan, I believe you're on usually the end of the month can be pretty active for flows given your institutional orientation. So, any insights into whether that plus $200 million in flows is going to hold and if we would see a positive month or how should we be thinking about that?

Kenneth Jacobs, Chairman and Chief Executive Officer

Brennan, as you said, the last couple of days, you can always see some movement and some of that we don't actually see right away. Sometimes it takes a couple of days post quarter-end until you get all the specific movement on some of the models and wraps and other things that we manage. So, it does take a couple of extra days post quarter-end, but so far it feels like a good month for us from a flow perspective. I would say it's very similar to what Ken mentioned earlier. We started to see that moderation, the more balance in our flow story to November. December had its usual quarter-end, year-end type reallocations, we also saw less people wanting to put money to work and to allocate due to the volatility in the markets and the shift up. As we got into this year, we're continuing to see good activity levels, a lot of interest in the types of products that we specialize in deep research fundamental investing that we do. The market certainly has moved a little bit away from the growth and momentum styles towards relative value. In this space, which is where we focus, we are seeing good activity levels from clients and a lot of interest across our platforms. So far, it feels more balanced as we said towards year-end, and that trend is continuing as we got into the beginning of this year as well.

Brennan Hawken, Analyst

Great. Thanks for that.

Operator, Operator

Our next question comes from Jim Garrow from Goldman Sachs.

Unidentified Analyst, Analyst

Hey, good morning. So, I just want to touch on your European M&A business. You were obviously very clear on the broader advisory backdrop and outlook there, but given your unique perspective on Europe, how has your outlook for European M&A changed?

Kenneth Jacobs, Chairman and Chief Executive Officer

Well, I was pretty surprised by our performance in Europe last year because we ended up having, in spite of everything, I think record years in Europe on our advisory business. Given the events in Europe and the slowdown in the economies and all the fear, I was pleasantly surprised by that. Today, I'm kind of pinching myself. Clearly, the first half of the year is going to be slower than last year just given the pace of announcements in the second half of last year, but I'd say it's pretty even right now in terms of U.S. and Europe in terms of dialogues. We may see the same pickup as the year progresses in Europe as we've seen in the U.S. if these dialogues turn into announcements, and so we'll see. I wouldn’t differentiate too much between my comments about the M&A market generally and thinking there are big differences between Europe and the U.S. at the moment.

Unidentified Analyst, Analyst

That's very clear. And then, sort of related one, obviously financing markets have begun to reopen. Maybe you could speak to the specific impact this is having on your business or maybe it's too early? And then have there been differences in the impact of financing markets reopening across Europe or the U.S. or is it sort of more similar?

Kenneth Jacobs, Chairman and Chief Executive Officer

Well, look, I think as I said before, this is important to M&A activity. These events all have to happen: unique constructive equity markets, favorable valuations in equity markets, and improving sentiment for M&A to start to evolve. It tends to be pretty procyclical. Right now, the fact that credit conditions are improving and are clearly improving in the U.S. as well as in Europe indicates that dialogues will pick up as a result of that, and then announcements will follow if sustained. That's really the key point. We are in a more positive environment right now than we've been in over the last year. Generally, speaking the consensus is that things are better than anyone anticipated they would be at this point. If you look back six months, if this market sentiment stays intact, that's a good sign for our advisory business as the year progresses.

Unidentified Analyst, Analyst

Okay. Thank you so much.

Operator, Operator

Our next question comes from Matt Moon from KBW.

Matt Moon, Analyst

Hi guys. Good morning. So, just one on the restructuring cycle. I think there's been some optimism that the cycle could be relatively elevated for a prolonged period of time. And it sounds like from your prepared remarks that this thought remains. Just wanted to take a pause on that sentiment today. I mean, I think there are some kind of shifts in expectations since the start of the year and particularly for heightened expectations for a soft landing. So, just wanted to get your updated thoughts there, particularly as we see Lazard on a lot of mandates and as we sit through the news.

Kenneth Jacobs, Chairman and Chief Executive Officer

Yes, I think our view on this is probably a little bit more nuanced in the following way. I'd say that the restructuring cycle here is going to be liquidity-driven more than it is anything else since a lot of the financings have been pushed out. They're kind of covenant light. So, I think that the transactions we will see will be more liquidity-driven. From our perspective, this cycle may last longer because of that, but it may not get to the heights that we've seen in previous cycles. A lot depends on how that unfolds, but that's our hunch at the moment.

Matt Moon, Analyst

Great. And then shifting gears just on the asset management. You guys recently announced the hire of Jennifer Ryan from BlackRock for the asset management business. I'm just curious, Evan, if you could speak to the rationale of the hire, especially since you've been at the helm for that business for over a quarter now? I would love to hear how you expect her to bring to the table for Lazard and how she'll be additive to the leadership capabilities? And then just appreciate the update to AUM inflows was just curious if you could drill down a little further into the products where you're seeing both strengths, as well as weaknesses as it relates to that $200 million in inflows you’ve seen so far year to date?

Evan Russo, Chief Executive Officer of Asset Management

So, as Ken mentioned, look, we seek to continue to focus on investing in talent when we find great people. This is just a continuation of that. We obviously have a tremendous focus on continuing to strengthen the team we have and add to it frankly to take advantage of what we're seeing in the marketplace today. In many ways, making senior hires in distribution is not surprising for us, right. We're continually expanding our distribution network, our global distribution across all of our channels over the last several years. It's been a strategic focus for us to continue to broaden, strengthen, and deepen in every channel we have. Adding Jen to this team is just a continuation of that and shows the focus that we have to capture the potential value off the great performance of so many of our funds. As we said, more than two-thirds of our funds are outperforming on a one and three-year basis. It's a great opportunity for us to be out there. We're seeing a lot of interest in many of our products, and I think just continuing to strengthen and deepen those relationships and build out a broader team is a great addition. Our focus on distribution will continue. We'll keep building out and strengthening the team. There are myriad opportunities for us. It's been a strategic area for us and will continue to be under my direction as well. I'm very excited to continue that strength and to work with Jen as she joins us early this year. In terms of the flows, I'd say it's been fairly broad. We continue to see strength in Q4, driven by fixed income and U.S. equities, and others saw nice flows. The beginning of this year maintains that strength where we're starting to see it more broadly distributed. Even the EM space is seeing a lot of quantitative searches, a lot of quality searches that we're participating in and working with clients for new mandates that are coming online over the first six months of this year. So, I would say there's not any one specific area driving this. It's spread across most of our platforms. It continues to feel like it's strengthening across the board.

Matt Moon, Analyst

Great. Appreciate the color.

Operator, Operator

Our next question comes from Jim Mitchell from Seaport Global.

Jim Mitchell, Analyst

Hey, good morning. You talked a little bit about, Ken, starting some new groups like Geopolitical Advisory. We've discussed restructuring, but maybe taking a step back and thinking about your non-M&A businesses more broadly, can you help us understand the size, contribution from those businesses and how you think they are a little bit less volatile than M&A? Can they help you navigate through this slower M&A period in a reasonably good way? How should we be thinking about those businesses near-term and over the long-term?

Kenneth Jacobs, Chairman and Chief Executive Officer

Peter, you want to take that one?

Peter Orszag, Chief Financial Officer of Financial Advisory

Sure. Look, I think that these businesses are less volatile in the sense that they're less lumpy. Many of these businesses tend to be more retainer-based fee structures rather than dealer success-based fee structures, and for that reason, they are less lumpy. With regard to size, geopolitical is a great example. We just launched it a few months ago, so it is in a growth stage and we're really pleased with the initial feedback from clients and the mandates that we're exploring and winning, but it's early days so you shouldn't expect something considerable in terms of revenue yet. We're excited about building that over time. Broadly speaking, you're spot on in terms of the objectives, which is to obtain additional sources of fees and revenue, as well as diversify our revenue away from the core M&A business.

Jim Mitchell, Analyst

Okay. Fair enough. But I think some of your more established non-M&A businesses, whether sales advisory, sovereign advisory, private capital, how are you thinking about those in this environment?

Peter Orszag, Chief Financial Officer of Financial Advisory

It really varies by the individual business. The sovereign business is busy, and the big question there comes back to the restructuring question Ken answered regarding corporates, which is, are we going to see a wave over the next year or two of countries that have significant debt restructurings? There is a class of countries looking forward where that is possible. In the PCA business, that is very tied to private equity, so the trends there are quite different than in the sovereign world. We do have established businesses, and yes, the trends tend to be different. In aggregate, we are pleased that they provide some offset or diversification away from just the core M&A business.

Jim Mitchell, Analyst

Okay. Fair enough. And maybe just as a follow-up, a quick question on the buyback. You guys were very aggressive buying your shares last year. How do we think about the pace in 2023?

Mary Ann Betsch, Chief Financial Officer

Yes, sure. I'll take that one. So, obviously, a very good year for buybacks in 2022. We decreased below 100 million shares outstanding, which was an important milestone. The average price at which we've been able to buy them back has been really attractive. Looking forward, as we see higher prices and lower volumes, I would expect that to moderate. I would also mention that we continue to plan to buy back shares to offset dilution from compensation and use excess cash to return it to shareholders based on the prices that we see and the attractiveness of the value.

Jim Mitchell, Analyst

Okay, great. Thanks for taking my questions.

Operator, Operator

And our last question comes from Steven Chubak from Wolfe Research.

Steven Chubak, Analyst

Hi. Good morning. Thanks for squeezing me in here. I had a couple on expenses. The first is just on the comp ratio. Ken, you noted the challenging setup for first half 2023 advisory revenues, which was really an extension of some of the pressures that you saw in the fourth quarter. Just given the upward pressure on comp that we saw in the most recent quarter, the lower jumping-off point for the first half, how should we think about the comp trajectory versus the 60% accrual that we saw this past year? Could you speak also to what drove the divergence in awarded versus adjusted comp in 2022?

Kenneth Jacobs, Chairman and Chief Executive Officer

Sure. Great questions. Spot on. Look, on the comp ratio going into 2023, first we don't set it until first quarter. I would just make the note, which I've been pretty consistent with and spoken on, is that when revenues go down, GAAP ratios become more challenging because you have fixed charges against declining revenues, and we saw that in the fourth quarter. The extent that we see a drop in revenue in the first half of next year poses a challenge. Flipside is, you guys can see our compensation practices by the deferral rates that we show in the earnings release, and you can also see it in what we do on awarded compensation. The disconnect or separation between awarded and GAAP this year really just reflects the investments we've made in the business over the course of the last year, and the fact that we're trying to keep them in place depending on how the cycle unfolds. This is going to be an interesting first half when it comes to thinking about projections for ratios for the year.

Steven Chubak, Analyst

Thanks for that color, Ken. And just for my follow-up, because you were talking about some of the investments that you're making in the business. You've been making a lot of investments on the technology side. We've certainly seen that translating to some level of elevated non-comp inflation. Can you talk about your ability to bend the cost curve on the non-comp side? How should we think about non-comp inflation as we look out to 2023?

Kenneth Jacobs, Chairman and Chief Executive Officer

Yes. So, non-comp inflation this year, when you cut through, it results from a couple of things. We first have new facilities in Paris and we're also taking new offices in London, which will be a little bit of an elevation. There's a lot of inflation in travel expenses, especially in a post-pandemic world. I think some of that inflation will abate over the course of this year, if inflation continues to decline across the economy, but let's wait and see what happens. We're focused on this. In addition, we've increased IT expense to modernize our advisory side, asset management side, and also for information security. I think at this point, we're probably through most of those investments and you should start to see that abate over the next couple of years. We are very focused on this and I expect there'll be some progress.

Steven Chubak, Analyst

Very helpful color, Ken. Thanks for taking my questions.

Kenneth Jacobs, Chairman and Chief Executive Officer

Sure. Thank you.

Operator, Operator

This now concludes the Lazard conference call. You may hang up. Have a great day.