HAMILTON LANE INCORPORATED REPORTS THIRD QUARTER FISCAL 2019 RESULTS
BALA CYNWYD, PENN. – February 5, 2019 – Leading private markets asset management firm Hamilton Lane Incorporated (NASDAQ: HLNE) today reported results for its third fiscal quarter ended December 31, 2018.
Hamilton Lane CEO Mario Giannini commented: “Hamilton Lane continued to demonstrate strong performance year to date, driven by solid momentum in the form of client re-ups, new client wins and growth across each of our service and product offerings. As we expand our platform and pipeline of new opportunities, our business continues to be well-positioned to serve our clients’ growing needs within the private markets.”
Hamilton Lane issued a full detailed presentation of its third quarter results, which can be accessed by clicking here.
Dividend
Hamilton Lane has declared a quarterly dividend of $0.2125 per share of Class A common stock to record holders at the close of business on March 15, 2019. This dividend will be paid on April 4, 2019.
Conference Call
Hamilton Lane will discuss third quarter fiscal 2019 results in a webcast and conference call today, Tuesday, February 5, 2019, at 11:00 a.m. Eastern Time. The call will be broadcast live via a webcast, which may be accessed on Hamilton Lane’s Investor Relations website. The call may also be accessed by dialing (866) 393-4306 inside the U.S., or (734) 385-2616 for international callers. The conference ID is 4598119.
A replay of the webcast will be available approximately two hours after the live broadcast for a period of one year and can be accessed in the same manner as the live webcast at the Hamilton Lane Investor Relations website.
About Hamilton Lane
Hamilton Lane (NASDAQ: HLNE) is a leading alternative investment management firm providing innovative private markets solutions to sophisticated investors around the world. Dedicated to private markets investing for 27 years, the firm currently employs 360 professionals operating in offices throughout the U.S., Europe, Asia-Pacific, Latin America and the Middle East. With approximately $469 billion in total assets under management and supervision as of December 31, 2018, Hamilton Lane offers a full range of investment products and services that enable clients to participate in the private markets asset class on a global and customized basis. For more information, please visit www.hamiltonlane.com or follow Hamilton Lane on Twitter: @hamilton_lane.
Forward-Looking Statements
Some of the statements in this release may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Words such as “will,” “expect,” “believe,” “estimate,” “continue,” “anticipate,” “intend,” “plan” and similar expressions are intended to identify these forward-looking statements. Forward-looking statements discuss management’s current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and business. All forward-looking statements are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different, including risks relating to our ability to manage growth, fund performance, risk, changes in our regulatory environment and tax status; market conditions generally; our ability to access suitable investment opportunities for our clients; our ability to maintain our fee structure; our ability to attract and retain key employees; our ability to manage our obligations under our debt agreements; defaults by clients and third-party investors on their obligations to us; our ability to comply with investment guidelines set by our clients; our ability to consummate planned acquisitions and successfully integrate the acquired businesses with ours; and our ability to receive distributions from Hamilton Lane Advisors, L.L.C. to fund our payment of dividends, taxes and other expenses.
The foregoing list of factors is not exhaustive. For more information regarding these risks and uncertainties as well as additional risks that we face, you should refer to the “Risk Factors” detailed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2018 and in our subsequent reports filed from time to time with the Securities and Exchange Commission. The forward-looking statements included in this release are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information or future events, except as otherwise required by law.
Investor Contact
Karen Greene
kgreene@hamiltonlane.com
+1 484 439 4657
Media Contact
Kate McGann
kmcgann@hamiltonlane.com
+1 610 617 5841
Fiscal Year 2019 Third Quarter Earnings Presentation - February 5, 2019
Today’s Speakers Hartley Rogers Erik Hirsch Randy Stilman Karen Greene Chairman Vice Chairman Chief Financial Officer Head of Investor Relations Hamilton Lane | Global Leader in the Private Markets Page 2
Period Highlights Business Performance • Total asset footprint (assets under management/advisement) reached approximately $469 billion, growing 10% compared to December 31, 2017 • Assets under management and fee-earning assets under management were approximately $59 billion and $32 billion, respectively, as of December 31, 2018, increases of 17% and 9%, respectively, compared to December 31, 2017 Financial Results USD in millions except per share amounts Q3 FY19 QTD Q3 FY19 YTD vs. Q3 FY18 YTD Management and advisory fees $55.6 $159.8 9% GAAP net income $5.5 $25.5 564% GAAP EPS $0.22 $1.08 415% Non-GAAP EPS1 $0.62 $1.55 48% Fee Related Earnings1 $22.6 $65.8 5% Adjusted EBITDA1 $30.1 $86.4 2% • Hamilton Lane’s effective tax rate dropped from 27.0% to 23.7% due to changes in our state income allocation which were finalized with the filing of the first full-year corporate income tax return for the public company. This has resulted in significant cash savings and will continue to do so on a go forward basis assuming no change to current tax law. The change has reduced Q3 GAAP EPS by 27 cents due to a one-time reduction of our deferred tax assets and tax receivable agreement (“TRA”) liability more than offsetting the lower tax rate. Q3 Non-GAAP EPS increased by 18 cents due to the lower tax rate. Dividend • Declared a quarterly dividend of $0.2125 per share of Class A common stock to record holders at the close of business on March 15, 2019 1 Non-GAAP earnings per share, Fee Related Earnings and Adjusted EBITDA are non-GAAP financial measures. For the reconciliations of our non-GAAP financial measures to the most directly comparable GAAP financial measures, see pages 20 and 26 of this presentation. Hamilton Lane | Global Leader in the Private Markets Page 3
Growing Asset Footprint & Influence 1 ���9B Total Assets Under Management/Advisement ($B) AUM � AUA ���� Y-o-Y Growth AUA: 10% ��� ��� AUM: 17% ���� ���� ��� ���� CAGR: 20� ���� ��� ��� ���� ���� ��� ��� ���� ��� ���� ��� ��� ���� ���� ��� ���� ��� ���� �� ��� �� ��� ��� ��� ��� ��� �� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� �otal ��� �otal ��M � �ata as o� �alendar �ear end ������ ��mbers ma� not tie d�e to ro�ndin�� Hamilton Lane | Global Leader in the Private Markets Page 4
Fee-Earning AUM Driving Revenues Fee-Earning AUM growth continues... Total Fee-Earning Assets Under Management ($B) �9% YoY Growth ��� 0.��� 0.��� 0.��� 0.��� 0.���� 0.���� ��� ��� $32 ��� ��� ��G�� ��� ��� ��� ��� ��� ��� ��� �� �� ��� ��� �� �� ��� �� ��� ��� ��� ��� ��� ��� ��� �� ��� �� Mar��� Mar��� Mar��� Mar��� Mar��� �e���� �e���� ��stomi�ed �e�arate ���o�nts ��e�iali�ed ��nds �otal Mana�ement �ee �even�es as a � o� �vera�e ����M � ��mbers ma� not tie d�e to ro�ndin� � �e�le�ts retroa�tive �ees o� ����M �rom o�r latest se�ondar� ��nd � �e�le�ts retroa�tive �ees o� ����M �rom o�r latest �o�investment ��nd ...and annual fee rates are stable Y-o-Y Drivers of Growth Customized Separate Accounts: Specialized Funds: • New client wins • Closed credit-oriented fund (2018) • Client re-ups • Fundraising co-investment, credit-oriented (2019) and fund-of-funds products Hamilton Lane | Global Leader in the Private Markets Page 5
AUM Growth AUM AUA Customized Specialized Advisory Separate Accounts Funds Services Diverse mix of existing and Select funds in market: Typically larger clients with wide- prospective clients seeking to • Co-investment fund ranging mandates which include further or establish relationship with technology-driven reporting, Hamilton Lane • Credit-oriented fund monitoring and analytics services, • Fund-of-funds and consulting services; opportunity set continues to be robust • +70% of our gross contributions • FEAUM added during Q3 FY19: • $36B in AUA added compared to during the last 12 months came from • Co-Investment fund: $120M prior year period existing clients • Credit-oriented fund (2018): $90M • Private equity fund-of-funds: $45M • Fund closing subsequent to 12/31/18: • Private equity fund-of-funds: $30M Hamilton Lane | Global Leader in the Private Markets Page 6
Hamilton Lane Data Hamilton Lane Fund Data Hamilton Lane Portfolio Company Data �� �trate�� �� �e�tor �ri�ination �istressed �at�ral �eso�r�es �ons�mer �is�retionar� �ons�mer �ta�les �ner�� � �tilities �n�rastr��t�re �ent�re �a�ital Gro�th ���it� �inan�ials Health�are �nd�strials �M�� ���o�t Me�a�Lar�e ���o�t �o��nvestment �� Materials �ele�om ��nd�o����nds �e�ondaries �eal �state �o�r�e� Hamilton Lane �ata ���l� ����� �o�r�e� Hamilton Lane �ata ���l� ����� Hamilton Lane | Global Leader in the Private Markets Page 7
Continued Outperformance 20-Year Asset Class Risk-Adjusted Performance 10-Year Asset Class Risk-Adjusted Performance �nn�ali�ed �ime��ei�hted �et�rn as o� ��������� �nn�ali�ed �ime��ei�hted �et�rn as o� ��������� ��� ��� ��� ��� �� �� �� �� �� �� �� �� Private ���it� M��� �orld �nde� Private ���it� M��� �orld �nde� 5-Year Asset Class Risk-Adjusted Performance �nn�ali�ed �ime��ei�hted �et�rn as o� ��������� ��� ��� �� �� �� �� Private ���it� M��� �orld �nde� �ndi�es �sed� Hamilton Lane �ll Private ���it� e�� �redit and �eal �ssets �ith volatilit� desmoothed� ��P ��� �nde�� ��ssell ���� �nde�� M��� �orld �nde�� H��� �om�osite �nde�� Hamilton Lane Private �redit �ith volatilit� desmoothed� �redit ��isse Hi�h �ield �nde�� �ar�la�s ���re�ate �ond �nde�� Hamilton Lane Private �eal �state �ith volatilit� desmoothed� Hamilton Lane Private �eal �ssets �ith volatilit� desmoothed� ����������� ���it� ���� �nde�� ��P Global �n�rastr��t�re �nde�� M��� �orld �ner�� �e�tor �nde�� Geometri� mean ret�rns in ���� �ss�mes risk �ree rate o� ����� re�resentin� the avera�e �ield o� the ten��ear treas�r� over the last t�ent� �ears� �o�r�e� Hamilton Lane �ata� �loomber� ��e�tember ����� Hamilton Lane | Global Leader in the Private Markets Page 8
Vintage Year Performance Pooled Returns by �intage Year ��� ��� Buyout IRR vs. PME By Vintage Year ��� ��� �� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���o�t Pooled ��� ���o�t �st and �nd ��artile Pooled ��� M��� �orld PM� ��� Credit IRR vs. PME ��� By Vintage Year ��� ��� �� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� �redit Pooled ��� �redit �st and �nd ��artile Pooled ��� �redit ��isse Levera�ed Loan PM� �o�r�e� Hamilton Lane �ata� �loomber� ���l� ����� Hamilton Lane | Global Leader in the Private Markets Page 9
Volatility Impact Russell 3000 Performance vs. �olatility U.S. Buyout Outperformance vs. Russell 3000 �olatility ��������� ��������� ��� ��� ��� ��� ��� ��� ��� ��� �ollin� ���ear �ollin� ���ear �nn�ali�ed �et�rn �nn�ali�ed �� �� �ollin� ���ear �nn�ali�ed�ollin� ���ear ���� ���� ��t�er�orman�e ���� ���o�t o� ��nds ���� ���� �� ��� ��� ��� ��� ��� �� ��� ��� ��� ��� ��� �ollin� ���ear �eali�ed �olatilit� �ollin� ���ear �eali�ed �olatilit� o� ��ssell ���� �ote� �et�rn and volatilit� �al��lated �or rollin� three��ear �eriods based on ��arterl� total ret�rns� �ote� �et�rn and volatilit� �al��lated �or rollin� three��ear �eriods based on ��arterl� total ret�rns� ���� �o�r�e� Hamilton Lane �ata via �obalt� �loomber� ��e�tember ����� ���o�t ��nd ret�rns net o� �ees� �o�r�e� Hamilton Lane �ata via �obalt� �loomber� ��e�tember ����� Hamilton Lane | Global Leader in the Private Markets Page 10
Return Premiums Risk Premiums � �olatility Regimes �ased on �ollin� ���ear Periods ��������� Public E�uity Premium Buyout Premium Above the Risk-Free Rate Above Public E�uities ��� ��� �� �� �� �� �� ��� ��� ��� Lo�est �olatilit� Hi�hest �olatilit� Lo�est �olatilit� Hi�hest �olatilit� ��artile ��artile ��artile ��artile �o�r�e� Hamilton Lane �ata via �obalt� �loomber� ��e�tember ����� Hamilton Lane | Global Leader in the Private Markets Page 11
Opportunities Are Plentiful PPMs Received by Hamilton Lane ���� ��� ��� ��� ��� � ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� �o�r�e� Hamilton Lane �ili�en�e ��ebr�ar� ����� Hamilton Lane | Global Leader in the Private Markets Page 12
Financial Highlights
Consolidated Revenue Strong revenue growth across management and advisory fees and incentive fees Management and Advisory Fees YTD Long-Term Growth Y-o-Y Growth: 9� CAGR: 12� • Represented an average of 90% of total revenues over the past five 200 ���� fiscal years ���� 150 ���� • Y-o-Y increase of 9% 100 ���� • $0.9M in retroactive fees from our latest co-investment fund in the ��� in Millions 50 quarter 0 �� ���� �� ���� ���� ���� Incentive Fees • Incentive fees derived from a highly diversified pool of assets and YTD Long-Term Growth funds 200 • Allocated carried interest of $355M as of 12/31/18 diversified across Y-o-Y Growth: 2�� CAGR: �2� +3,000 assets and +50 funds 150 • Y-o-Y growth in incentive fees driven by $4.9M increase from 100 customized separate accounts ��� in Millions 50 • $2.5M of deferred carried interest from Co-Investment Fund II ��� ��� �� ��� recognized in Q1 FY19 0 �� ���� �� ���� ���� ���� Total Revenues YTD Long-Term Growth Y-o-Y Growth: 11� CAGR: 1�� 200 250 ���� • Total revenues increased by 11%, driven by incentive fee growth and ���� 200 150 ���� recurring management and advisory fee growth across core offerings 150 100 100 ���� ��� in Millions 50 50 0 0 �� ���� �� ���� ���� ���� Hamilton Lane | Global Leader in the Private Markets Page 14
Consolidated Earnings Profitability stable and growing Net Income Attributable to HLI YTD Long-Term Growth Y-o-Y Growth: ���� • $5M in net income attributable to HLI for the quarter ��� in Millions ��� �� ��� ��� �� ���� �� ���� ���� ���� Adjusted EBITDA1 YTD Long-Term Growth Y-o-Y Growth: 2� CAGR: 19� • Y-o-Y growth of 2% • Margins decreased Y-o-Y due to deferred carry recognition without ���� corresponding expense in the prior year period ��� ��� ��� in Millions ��� �� ���� �� ���� ���� ���� Fee Related Earnings1 YTD Long-Term Growth • Y-o-Y growth of 5% Y-o-Y Growth: �� CAGR: 12� • Long-term double digit growth in Fee Related Earnings ��� ��� ��� ��� ��� in Millions �� ���� �� ���� ���� ���� 1 Adjusted EBITDA and Fee Related-Earnings are non-GAAP financial measures. For a reconciliation from GAAP financial measures to non- GAAP financial measures, see pages 20 and 26 of this presentation. Hamilton Lane | Global Leader in the Private Markets Page 15
Other Key Items Strong balance sheet with investments in our own products and a modest amount of leverage... Investments $150 ���� $120 ���� ���� • For 12/31/18, the total investment balance consisted of ~$135M in $90 ���� ���� ��� equity method investments in our funds and ~$12M in technology- $60 related and other investments ��� in Millions $30 $0 Mar��� Mar��� Mar��� Mar��� Mar��� �e���� Gross Leverage Profile1 4.0x 3.0x • Principal amount of debt outstanding of $72.2M 2.0x as of 12/31/18 1.0x � ��M �d��sted ������ ���� ���� 0.0x Mar��� �e���� 1 Ratio of principal amount of debt outstanding to trailing twelve months Adjusted EBITDA. See page 27 for additional detail on calculation of gross leverage ratio. Hamilton Lane | Global Leader in the Private Markets Page 16
Fiscal Year 2019 Third Quarter Earnings Presentation - February 5, 2019
Appendix
Condensed Consolidated Statements of Income (Unaudited) Three Months Ended December 31, Nine Months Ended December 31, (Dollars in thousands except share and per share amounts) 2017 2018 % Change 2017 2018 % Change Revenues Management and advisory fees $48,344 $55,617 15% $146,326 $159,844 9% Incentive fees 16,670 10,379 (38)% 20,098 25,347 26% Total revenues 65,014 65,996 2% 166,424 185,191 11% Expenses Compensation and benefits 20,006 23,843 19% 60,247 73,236 22% General, administrative and other 10,704 13,916 30% 27,586 36,659 33% Total expenses 30,710 37,759 23% 87,833 109,895 25% Other income (expense) Equity in income of investees 2,895 4,934 70% 13,066 10,096 (23)% Interest expense (664) (767) 16% (5,282) (2,260) (57)% Interest income 67 82 22% 472 167 (65)% Other non-operating income 4,188 8,892 112% 4,169 20,951 403% Total other income 6,486 13,141 103% 12,425 28,954 133% Income before income taxes 40,790 41,378 1% 91,016 104,250 15% Income tax expense 22,957 18,463 (20)% 29,337 25,660 (13)% Net income 17,833 22,915 28% 61,679 78,590 27% Less: Income attributable to non-controlling interests in general partnerships 768 681 (11)% 1,750 1,075 (39)% Less: Income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C. 23,374 16,776 (28)% 56,086 51,990 (7)% Net income (loss) attributable to Hamilton Lane Incorporated $(6,309) $5,458 N/A $3,843 $25,525 564% Basic earnings (loss) per share of Class A common stock $(0.35) $0.22 $0.21 $1.09 Diluted earnings (loss) per share of Class A common stock $(0.35) $0.22 $0.21 $1.08 Weighted-average shares of Class A common stock outstanding - basic 18,126,532 25,051,094 18,075,035 23,329,134 Weighted-average shares of Class A common stock outstanding - diluted 18,126,532 25,574,818 18,703,650 23,870,617 Hamilton Lane | Global Leader in the Private Markets Page 19
Non-GAAP Financial Measures Three Months Ended December 31, Nine Months Ended December 31, (Dollars in thousands except share and per share amounts) 2017 2018 % Change 2017 2018 % Change Adjusted EBITDA Management and advisory fees $48,344 $55,617 15% $146,326 $159,844 9% Total expenses 30,710 37,759 23% 87,833 109,895 25% Less: Incentive fee related compensation1 (1,027) (4,746) 362% (2,709) (10,716) 296% Contingent compensation related to acquisition (771) - (100)% (1,198) (5,100) 326% Management fee related expenses 28,912 33,013 14% 83,926 94,079 12% Fee Related Earnings $19,432 $22,604 16% $62,400 $65,765 5% Incentive fees2 16,670 10,379 (38)% 20,098 25,347 26% Incentive fees attributable to non-controlling interests2 (834) (387) (54)% (834) (651) (22)% Incentive fee related compensation1 (1,027) (4,746) 362% (2,709) (10,716) 296% Interest income 67 82 22% 472 167 (65)% Equity-based compensation 1,284 1,594 24% 4,272 4,778 12% Depreciation and amortization 486 619 27% 1,396 1,759 26% Adjusted EBITDA $36,078 $30,145 (16)% $85,095 $86,449 2% Adjusted EBITDA margin 55% 46% 51% 47% Non-GAAP earnings per share reconciliation Net income (loss) attributable to Hamilton Lane Incorporated3 $(6,309) $5,458 N/A $3,843 $25,525 564% Income (loss) attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C. 23,374 16,776 (28)% 56,086 51,990 (7)% Income tax expense 22,957 18,463 (20)% 29,337 25,660 (13)% Write-off of deferred financing costs4 - - N/A 2,544 - (100)% Impact of Tax Act on TRA liability5 (4,186) - (100)% (4,186) - (100)% Impact of Tax Act on IPO related compensation6 (669) - (100)% (669) - (100)% Contingent compensation related to acquisition 771 - (100)% 1,198 5,100 326% Adjusted pre-tax net income 35,938 40,697 13% 88,153 108,275 23% Adjusted income taxes7 (11,450) (7,408) (35)% (32,185) (25,661) (20)% Adjusted net income $24,488 $33,289 36% $55,968 $82,614 48% Adjusted shares outstanding8 53,316,965 53,394,748 53,142,319 53,401,775 Non-GAAP earnings per share $0.46 $0.62 35% $1.05 $1.55 48% 1 Incentive fee related compensation includes incentive fee compensation expense, bonus and other revenue sharing related to carried interest that is classified as base compensation. Incentive fee related compensation for the nine months ended December 31, 2018 and 2017 excludes compensation expenses related to the recognition of incentive fees included in net income from one of our co-investment funds of $2.5 million and $13.7 million, respectively, as the related incentive fee compensation was recognized in fiscal 2016. 2 Incentive fees for the nine months ended December 31, 2018 includes $3.2 million of non-cash carried interest. Of the $3.2 million, $2.5 million is included in net income and $0.7 million is attributable to non-controlling interests. Incentive fees for the nine months ended December 31, 2017 includes $14.6 million of non-cash carried interest. Of the $14.6 million, $13.7 million is included in net income and $0.8 million is attributable to non-controlling interests. 3 The Company recorded gains due to decreases in the TRA liability from provision to return adjustments primarily related to state income tax apportionment of $9.1 million and $0.1 million for the nine months ended December 31, 2018 and 2017, respectively. These amounts are included in adjusted net income as recurring items. 4 Represents write-off of debt issuance costs and realized loss on interest rate caps related to the payoff of our predecessor credit facility in the prior year period. 5 Represents gain recorded as a result of re-measurement due to lower federal tax rates. The gain was recorded to other non-operating income in the Condensed Consolidated Statements of Income. 6 Represents reduction in expense due to the impact of tax rate changes on the $1.9 million expense accrued in fiscal 2017 to induce members of HLA to exchange their HLA units for HLI common stock in connection with the corporate reorganization effected at the time of our initial public offering. 7 Represents corporate income taxes at our estimated statutory tax rate of 23.7% for the nine month period ended December 31, 2018 and 36.5% for the nine month period ended December 31, 2017 applied to adjusted pre-tax net income. The 23.7% is based on a federal tax statutory rate of 21.0% and a combined state income tax rate net of federal benefits of 2.7%. The 36.5% was based on a federal tax statutory rate of 35.0% for 275 days and 21.0% for 90 days and a combined state income tax rate net of federal benefits of 5.0%. 8 Assumes the full exchange of Class B and Class C units in HLA for Class A common stock of HLI pursuant to the exchange agreement. Hamilton Lane | Global Leader in the Private Markets Page 20
Management and Advisory Fees Three Months Ended December 31, Nine Months Ended December 31, (Dollars in thousands) 2017 2018 % Change 2017 2018 % Change Management and advisory fees Customized separate accounts $19,860 $21,595 9% $58,253 $63,087 8% Specialized funds 19,132 23,413 22% 63,582 67,164 6% Advisory and reporting 7,479 8,186 9% 20,958 24,660 18% Distribution management 1,873 1,975 5% 3,533 3,773 7% Fund reimbursement revenue - 448 N/A - 1,160 N/A Total management and advisory fees $48,344 $55,617 15% $146,326 $159,844 9% �ther �dvisor� �� and re�ortin� ��� ��stomi�ed se�arate a��o�nts ��� Nine Months Ended December �1� 201� ��e�iali�ed ��nds ��� Hamilton Lane | Global Leader in the Private Markets Page 21
Incentive Fees Three Months Ended December 31, Nine Months Ended December 31, (Dollars in thousands) 2017 2018 % Change 2017 2018 % Change Incentive fees Secondary Fund II $1,124 $741 (34)% $2,239 $1,324 (41)% Co-investment Fund II 14,579 8,618 (41)% 14,579 14,959 3% Other specialized funds 868 867 0% 862 1,753 103% Customized separate accounts 99 152 54% 2,418 7,311 202% Incentive fees $16,670 $10,379 (38)% $20,098 $25,347 26% As of December 31, 2017 September 30, 2018 December 31, 2018 YoY % Change QoQ % Change Allocated carried interest Secondary Fund II $6,031 $5,698 $4,838 (20)% (15)% Secondary Fund III 34,158 38,278 39,066 14% 2% Secondary Fund IV 11,815 24,922 31,033 163% 25% Co-investment Fund II 94,385 66,932 62,361 (34)% (7)% Co-investment Fund III 29,978 45,001 49,520 65% 10% Other specialized funds 26,641 37,392 47,375 78% 27% Customized separate accounts 97,519 114,458 121,275 24% 6% Total allocated carried interest $300,527 $332,681 $355,468 18% 7% Hamilton Lane | Global Leader in the Private Markets Page 22
Assets Under Management (Dollars in millions) December 31, 2017 September 30, 2018 December 31, 2018 YoY % Change QoQ % Change Assets under management / advisement Assets under management $50,295 $58,092 $58,840 17% 1% Assets under advisement 374,132 394,083 409,924 10% 4% Total assets under management / advisement $424,427 $452,175 $468,764 10% 4% Fee-earning assets under management Customized separate accounts Balance, beginning of period $19,721 $20,209 $20,832 6% 3% Contributions 783 999 933 19% (7)% Distributions (443) (267) (536) 21% 101% Foreign exchange, market value and other 322 (109) (18) (106)% (83)% Balance, end of period $20,383 $20,832 $21,211 4% 2% Specialized funds Balance, beginning of period $9,439 $10,333 $10,773 14% 4% Contributions 240 547 359 50% (34)% Distributions (401) (101) (110) (73)% 9% Foreign exchange, market value and other (4) (6) 1 N/A N/A Balance, end of period $9,274 $10,773 $11,023 19% 2% Total Balance, beginning of period $29,160 $30,542 $31,605 8% 3% Contributions 1,023 1,546 1,292 26% (16)% Distributions (844) (368) (646) (23)% 76% Foreign exchange, market value and other 318 (115) (17) (106)% (84)% Balance, end of period $29,657 $31,605 $32,234 9% 2% Hamilton Lane | Global Leader in the Private Markets Page 23
Condensed Consolidated Balance Sheets (Unaudited) (Dollars in thousands except share and per share amounts) March 31, 2018 December 31, 2018 Assets Cash and cash equivalents $47,596 $78,941 Restricted cash 1,787 2,200 Fees receivable 14,924 16,963 Prepaid expenses 2,301 2,368 Due from related parties 3,236 2,508 Furniture, fixtures and equipment, net 4,782 8,125 Investments 137,253 147,411 Deferred income taxes 73,381 95,006 Other assets 8,535 10,330 Total assets $293,795 $363,852 Liabilities and Equity Accounts payable $1,700 $2,445 Accrued compensation and benefits 8,092 32,798 Deferred incentive fee revenue 6,245 3,704 Debt 84,162 71,878 Accrued members' distributions 11,837 8,206 Payable to related parties pursuant to tax receivable agreement 34,133 58,378 Dividends payable 3,893 5,325 Other liabilities 7,659 7,987 Total liabilities 157,721 190,721 Preferred stock, $0.001 par value, 10,000,000 authorized, none issued - - Class A common stock, $0.001 par value, 300,000,000 authorized; 25,915,770 and 23,139,476 issued and 22 26 outstanding as of December 31, 2018 and March 31, 2018, respectively Class B common stock, $0.001 par value, 50,000,000 authorized; 24,228,382 and 25,700,068 issued and 26 24 outstanding as of December 31, 2018 and March 31, 2018, respectively Accrumulated other comprehensive income - 11 Additional paid-in-capital 73,829 88,234 Retained earnings 4,549 15,311 Total Hamilton Lane Incorporated stockholders’ equity 78,426 103,606 Non-controlling interests in general partnerships 7,266 6,554 Non-controlling interests in Hamilton Lane Advisors, L.L.C. 50,382 62,971 Total equity 136,074 173,131 Total liabilities and equity $293,795 $363,852 Hamilton Lane | Global Leader in the Private Markets Page 24
Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended December 31, (Dollars in thousands) 2017 2018 Operating activities Net income $61,679 $78,590 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,396 1,759 Change in deferred income taxes 22,913 18,945 Change in payable to related parties pursuant to tax receivable agreement (4,298) (9,134) Amortization of deferred financing costs 153 41 Write-off of deferred financing costs 1,657 - Equity-based compensation 4,272 4,777 Equity in income of investees (13,066) (10,096) Gain on sale of investments - (11,133) Proceeds received from investments 11,337 11,652 Changes in operating assets and liabilities 8,271 22,031 Other unrealized gains - (589) Other 1,030 66 Net cash provided by operating activities $95,344 $106,909 Investing activities Purchase of furniture, fixtures and equipment $(1,152) $(4,758) Proceeds from sales of other investments - 22,531 Cash paid for acquisition of business (5,228) - Loan to investee - (944) Distributions received from investments 10,792 8,166 Contributions to investments (19,609) (30,642) Net cash used in investing activities $(15,197) $(5,647) Financing activities Proceeds from offering $0 $129,626 Purchase of membership interests - (129,626) Repayments of debt (86,569) (12,325) Borrowings of debt, net of deferred financing costs 85,066 - Contributions from non-controlling interest in general partnerships 231 30 Distributions to non-controlling interest in general partnerships (3,519) (1,817) Repurchase of Class B common stock - (2) Repurchase of Class A shares for employee tax withholding (680) (174) Proceeds received from option exercises 313 - Dividends paid (6,340) (13,351) Members’ distributions (32,320) (41,878) Net cash used in financing activities $(43,818) $(69,517) Effect of exchange rate changes on cash and cash equivalents - 13 Increase in cash, cash equivalents, and restricted cash 36,329 31,758 Cash, cash equivalents, and restricted cash at beginning of the period 34,135 49,383 Cash, cash equivalents, and restricted cash at end of the period $70,464 $81,141 Hamilton Lane | Global Leader in the Private Markets Page 25
Non-GAAP Reconciliation Reconciliation from Net Income Three Months Ended December 31, Nine Months Ended December 31, (Dollars in thousands) 2017 2018 2017 2018 Net income (loss) attributable to Hamilton Lane Incorporated $(6,309) $5,458 $3,843 $25,525 Income attributable to non-controlling interests in general partnerships 768 681 1,750 1,075 Income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C. 23,374 16,776 56,086 51,990 Incentive fees1 (16,670) (10,379) (20,098) (25,347) Incentive fee related compensation2 1,027 4,746 2,709 10,716 Interest income (67) (82) (472) (167) Interest expense 664 767 5,282 2,260 Income tax expense 22,957 18,463 29,337 25,660 Equity in income of investees (2,895) (4,934) (13,066) (10,096) Contingent compensation related to acquisition 771 - 1,198 5,100 Other non-operating income (4,188) (8,892) (4,169) (20,951) Fee Related Earnings $19,432 $22,604 $62,400 $65,765 Depreciation and amortization 486 619 1,396 1,759 Equity-based compensation 1,284 1,594 4,272 4,778 Incentive fees1 16,670 10,379 20,098 25,347 Incentive fees attributable to non-controlling interests1 (834) (387) (834) (651) Incentive fee related compensation2 (1,027) (4,746) (2,709) (10,716) Interest income 67 82 472 167 Adjusted EBITDA $36,078 $30,145 $85,095 $86,449 Non-GAAP earnings per share reconciliation Net (loss) income attributable to Hamilton Lane Incorporated3 $(6,309) $5,458 $3,843 $25,525 Income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C. 23,374 16,776 56,086 51,990 Income tax expense 22,957 18,463 29,337 25,660 Write-off of deferred financing costs4 - - 2,544 - Impact of Tax Act on TRA liability5 (4,186) - (4,186) - Impact of Tax Act on IPO related compensation6 (669) - (669) - Contingent compensation related to acquisition 771 - 1,198 5,100 Adjusted pre-tax net income 35,938 40,697 88,153 108,275 Adjusted income taxes7 (11,450) (7,408) (32,185) (25,661) Adjusted net income $24,488 $33,289 $55,968 $82,614 Weighted-average shares of Class A common stock outstanding - diluted 18,126,532 25,574,818 18,703,650 23,870,617 Exchange of Class B and Class C units in HLA8 34,438,669 27,819,930 34,438,669 29,531,158 Restricted stock excluded from diluted share count 751,764 - - - Adjusted shares outstanding 53,316,965 53,394,748 53,142,319 53,401,775 Non-GAAP earnings per share $0.46 $0.62 $1.05 $1.55 1 Incentive fees for the nine months ended December 31, 2018 includes $3.2 million of non-cash carried interest. Of the $3.2 million, $2.5 million is included in net income and $0.7 million is attributable to non-controlling interests. Incentive fees for the nine months ended December 31, 2017 includes $14.6 million of non-cash carried interest. Of the $14.6 million, $13.7 million is included in net income and $0.8 million is attributable to non-controlling interests. 2 Incentive fee related compensation includes incentive fee compensation expense, bonus and other revenue sharing related to carried interest that is classified as base compensation. Incentive fee related compensation for the nine months ended December 31, 2018 and 2017 excludes compensation expenses related to the recognition of incentive fees included in net income from one of our co-investment funds of $2.5 million and $13.7 million, respectively, as the related incentive fee compensation was recognized in fiscal 2016. 3 The Company recorded gains due to decreases in the TRA liability from provision to return adjustments primarily related to state income tax apportionment of $9.1 million and $0.1 million for the nine months ended December 31, 2018 and 2017, respectively. These amounts are included in adjusted net income as recurring items. 4 Represents write-off of debt issuance costs and realized loss on interest rate caps related to the payoff of our predecessor credit facility in the prior year period. 5 Represents gain recorded as a result of re-measurement due to lower federal tax rates. The gain was recorded to other non-operating income in the Condensed Consolidated Statements of Income. 6 Represents reduction in expense due to the impact of tax rate changes on the $1.9 million expense accrued in fiscal 2017 to induce members of HLA to exchange their HLA units for HLI common stock in connection with the corporate reorganization effected at the time of our initial public offering. 7 Represents corporate income taxes at our estimated statutory tax rate of 23.7% for the nine month period ended December 31, 2018 and 36.5% for the nine month period ended December 31, 2017 applied to adjusted pre-tax net income. The 23.7% is based on a federal tax statutory rate of 21.0% and a combined state income tax rate net of federal benefits of 2.7%. The 36.5% was based on a federal tax statutory rate of 35.0% for 275 days and 21.0% for 90 days and a combined state income tax rate net of federal benefits of 5.0%. 8 Assumes the full exchange of Class B and Class C units in HLA for Class A common stock of HLI pursuant to the exchange agreement. Hamilton Lane | Global Leader in the Private Markets Page 26
Gross Leverage Ratio Twelve Months Ended (Dollars in thousands) March 31, 2018 December 31, 2018 Principal amount of debt outstanding $84,513 $72,188 Adjusted EBITDA 132,586 133,940 Gross leverage ratio 0.6x 0.5x Hamilton Lane | Global Leader in the Private Markets Page 27
Terms Adjusted EBITDA is used to measure our profitability including carried interest. We believe Adjusted EBITDA is useful to investors because it enables them to better evaluate the performance of our core business across reporting periods. Adjusted EBITDA represents net income excluding (a) interest expense on our outstanding debt, (b) income tax expense, (c) depreciation and amortization expense, (d) equity-based compensation expense, (e) other non-operating income and (f) certain other significant items that we believe are not indicative of our core performance. Fee Related Earnings (“FRE”) is used to highlight our earnings from recurring management fees. FRE represents net income excluding (a) incentive fees and related compensation, (b) interest income and expense, (c) income tax expense, (d) equity in income of investees, (e) other non-operating income and (f) certain other significant items that we believe are not indicative of our core performance. We believe FRE is useful to investors because it provides additional insight into the operating profitability of our business. FRE is presented before income taxes. Non-GAAP earnings per share measures our per-share earnings excluding certain significant items that we believe are not indicative of our core performance and assuming all Class B and Class C units in HLA were exchanged for Class A common stock in HLI. Non-GAAP earnings per share is calculated as adjusted net income divided by adjusted shares outstanding. Adjusted net income is income before taxes fully taxed at our estimated statutory tax rate. We believe Non-GAAP earnings per share is useful to investors because it enables them to better evaluate per-share operating performance across reporting periods. Our assets under management (“AUM”) comprise primarily the assets associated with our customized separate accounts and specialized funds. We classify assets as AUM if we have full discretion over the investment decisions in an account. We calculate our AUM as the sum of: (1) the net asset value of our clients’ and funds’ underlying investments; (2) the unfunded commitments to our clients’ and funds’ underlying investments; and (3) the amounts authorized for us to invest on behalf of our clients and fund investors but not committed to an underlying investment. Management fee revenue is based on a variety of factors and is not linearly correlated with AUM. However, we believe AUM is a useful metric for assessing the relative size and scope of our asset management business. Our assets under advisement (“AUA”) comprise assets from clients for which we do not have full discretion to make investments in their account. We generally earn revenue on a fixed fee basis on our AUA client accounts for services including asset allocation, strategic planning, development of investment policies and guidelines, screening and recommending investments, legal negotiations, monitoring and reporting on investments and investment manager review and due diligence. Advisory fees vary by client based on the amount of annual commitments, services provided and other factors. Since we earn annual fixed fees from the majority of our AUA clients, the growth in AUA from existing accounts does not have a material impact on our revenues. However, we view AUA growth as a meaningful benefit in terms of the amount of data we are able to collect and the degree of influence we have with fund managers. Fee-earning assets under management (Fee-earning "AUM" or "FEAUM"), is a metric we use to measure the assets from which we earn management fees. Our fee-earning AUM comprise assets in our cus- tomized separate accounts and specialized funds from which we derive management fees. We classify customized separate account revenue as management fees if the client is charged an asset-based fee, which includes the majority of our discretionary AUM accounts but also includes certain non-discretionary AUA accounts. Our fee-earning AUM is equal to the amount of capital commitments, net invested capital and net asset value of our customized separate accounts and specialized funds depending on the fee terms. Substantially all of our customized separate accounts and specialized funds earn fees based on commitments or net invested capital, which are not affected by market appreciation or depreciation. Therefore, revenues and fee-earning AUM are not significantly affected by changes in market value. Our calculations of fee-earning AUM may differ from the calculations of other asset managers, and as a result, this measure may not be comparable to similar measures presented by other asset managers. Our definition of fee-earning AUM is not based on any definition that is set forth in the agreements governing the customized separate accounts or specialized funds that we manage. Hamilton Lane Incorporated (or “HLI”) was incorporated in the State of Delaware on December 31, 2007. The Company was formed for the purpose of completing an initial public offering (“IPO”) and related transactions (“Reorganization”) in order to carry on the business of Hamilton Lane Advisors, L.L.C. (“HLA”) as a publicly-traded entity. As of March 6, 2017, HLI became the sole managing member of HLA. Hamilton Lane | Global Leader in the Private Markets Page 28
Disclosures Some of the statements in this presentation may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Words such as “will,” “expect,” “believe,” "estimate," "continue," "anticipate," "intend," "plan," and similar expressions are intended to identify these forward-looking statements. Forward-looking statements discuss management’s current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and business. All forward-looking statements are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different, including risks relating to our ability to manage growth, fund performance, risk, changes in our regulatory environment and tax status; market conditions generally; our ability to access suitable investment opportunities for our clients; our ability to maintain our fee structure; our ability to attract and retain key employees; our ability to consummate planned acquisitions and successfully integrate the acquired businesses with ours; our ability to manage our obligations under our debt agreements; defaults by clients and third-party investors on their obligations to us; our ability to comply with investment guidelines set by our clients; and our ability to receive distributions from Hamilton Lane Advisors, L.L.C. to fund our payment of dividends, taxes and other expenses. The foregoing list of factors is not exhaustive. For more information regarding these risks and uncertainties as well as additional risks that we face, you should refer to the “Risk Factors” detailed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2018, and in our subsequent reports filed from time to time with the Securities and Exchange Commission. The forward-looking statements included in this presentation are made only as of the date presented. We undertake no obligation to update or revise any forward-looking statement as a result of new information or future events, except as otherwise required by law. As of February 5, 2019 Hamilton Lane | Global Leader in the Private Markets Page 29