Hamilton Lane(HLNE) - 2023 Q2 - Quarterly Report

Part I - Financial Information Financial Statements The company's total assets grew to $1.39 billion, with net income decreasing to $113.9 million despite higher revenues, mainly due to lower other income Condensed Consolidated Balance Sheets Total assets increased to $1.39 billion by September 30, 2022, driven by cash and investments, with equity rising to $525.0 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2022 | March 31, 2022 | | :--- | :--- | :--- | | Total Assets | $1,387,742 | $1,294,946 | | Cash and cash equivalents | $121,764 | $72,138 | | Investments | $533,889 | $503,789 | | Total Liabilities | $586,764 | $557,460 | | Accrued compensation and benefits | $64,210 | $20,117 | | Debt | $194,115 | $171,326 | | Total Equity | $524,978 | $461,486 | Condensed Consolidated Statements of Income Total revenues significantly increased to $288.9 million for H1 2022, though net income decreased to $68.4 million due to higher expenses Statement of Income Summary (in thousands) | Metric | Q2 2022 (Three Months) | Q2 2021 (Three Months) | H1 2022 (Six Months) | H1 2021 (Six Months) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $153,382 | $96,320 | $288,891 | $175,315 | | Management and advisory fees | $92,880 | $75,934 | $178,826 | $149,818 | | Incentive fees | $59,237 | $21,362 | $108,760 | $23,726 | | Total Expenses | $83,556 | $49,819 | $156,540 | $93,064 | | Net Income | $57,739 | $84,820 | $113,866 | $129,501 | | Net Income Attributable to HLI | $34,881 | $52,145 | $68,365 | $80,313 | | Diluted EPS | $0.97 | $1.41 | $1.88 | $2.19 | Condensed Consolidated Statements of Stockholders' Equity Total equity increased to $525.0 million by September 30, 2022, primarily due to $110.9 million in net income - Total equity grew by $63.5 million over the six months ended September 30, 2022, reaching $525.0 million, mainly due to net income of $110.9 million, partially offset by dividends and member distributions[21] Condensed Consolidated Statements of Cash Flows Net cash from operations significantly increased to $155.9 million, leading to a $49.2 million rise in cash and equivalents Cash Flow Summary (in thousands) | Activity | Six Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $155,854 | $83,923 | | Net cash used in investing activities | $(60,668) | $(19,609) | | Net cash used in financing activities | $(46,029) | $(65,120) | | Increase (decrease) in cash | $49,157 | $(806) | Notes to Condensed Consolidated Financial Statements Notes detail organizational structure, accounting policies, revenue disaggregation, investments, debt, equity compensation, and subsequent credit facility modification Revenue by Product Offering (Six Months Ended Sep 30, in thousands) | Product | 2022 | 2021 | | :--- | :--- | :--- | | Specialized funds | $90,799 | $69,702 | | Customized separate accounts | $57,758 | $49,434 | | Total management and advisory fees | $178,826 | $149,818 | | Total incentive fees | $110,065 | $25,497 | - During the quarter ended September 30, 2022, the company sold its ownership interests in its joint venture, Private Markets Connect, for $10.0 million, recognizing a gain of $9.8 million[44] - The company's aggregate unfunded commitment to its Partnerships was $205.0 million as of September 30, 2022, an increase from $186.2 million at March 31, 2022[86] - On October 20, 2022, the company modified its credit facility, extending maturity dates and adding borrowing capacity up to an overall cap of $325 million[92][93] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 65% revenue growth driven by incentive fees, a 68% expense increase, and $3.6 billion AUM growth, maintaining strong liquidity Business Overview Hamilton Lane provides global private markets investment solutions, including Customized Separate Accounts, Specialized Funds, and Advisory Services - The company's primary business lines as of September 30, 2022 include: - Customized Separate Accounts: ~$82 billion in AUM - Specialized Funds: ~$25 billion in AUM - Advisory Services: ~$717 billion in AUA[99] Consolidated Results of Operations Total revenues grew 65% to $288.9 million driven by incentive fees, while expenses rose 68%, and other income declined significantly Revenue Analysis (Six Months Ended Sep 30, in millions) | Revenue Category | 2022 | 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Management and advisory fees | $178.8 | $149.8 | +$29.0 | +19% | | Incentive fees | $110.1 | $25.5 | +$84.6 | +332% | | Total Revenues | $288.9 | $175.3 | +$113.6 | +65% | Expense Analysis (Six Months Ended Sep 30, in millions) | Expense Category | 2022 | 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Compensation and benefits | $112.6 | $60.0 | +$52.6 | +88% | | General, administrative and other | $43.4 | $32.4 | +$11.0 | +34% | | Total Expenses | $156.5 | $93.1 | +$63.4 | +68% | - Equity in income of investees decreased by $55.2 million to a loss of $7.5 million for the six months ended September 30, 2022, compared to income of $47.7 million in the prior-year period, primarily due to prior year gains from strong public market valuations which were not repeated in the current period[145][151] Fee-Earning AUM Fee-Earning AUM grew 7.3% to $52.7 billion, driven by $5.8 billion in contributions, partially offset by distributions Fee-Earning AUM Rollforward (Six Months Ended Sep 30, 2022, in millions) | Category | Beginning Balance | Contributions | Distributions | FX/Other | Ending Balance | | :--- | :--- | :--- | :--- | :--- | :--- | | Customized Separate Accounts | $30,938 | $3,166 | $(1,729) | $(42) | $32,333 | | Specialized Funds | $18,193 | $2,665 | $(503) | $(1) | $20,354 | | Total | $49,131 | $5,831 | $(2,232) | $(43) | $52,687 | - Specialized funds fee-earning AUM grew 12% to $20.4 billion in the six-month period, driven by $2.7 billion in contributions, primarily from the latest secondary fund ($1.1 billion) and evergreen funds ($0.4 billion)[162] Non-GAAP Financial Measures Non-GAAP metrics show Fee Related Earnings at $76.6 million and Adjusted EBITDA at $141.7 million, with Non-GAAP EPS at $1.95 Non-GAAP Financial Measures (in thousands, except per-share amounts) | Metric | H1 2022 (Six Months) | H1 2021 (Six Months) | | :--- | :--- | :--- | | Fee Related Earnings | $76,574 | $69,389 | | Adjusted EBITDA | $141,696 | $89,644 | | Adjusted Net Income | $104,654 | $119,616 | | Non-GAAP Earnings Per Share | $1.95 | $2.23 | Liquidity and Capital Resources Liquidity is strong with $121.8 million cash, supported by operating cash flow and expanded credit facilities, with $194.6 million debt outstanding - As of September 30, 2022, the company had $194.6 million in total debt outstanding under its loan agreements with First Republic Bank[191] - In October 2022, the company amended its loan agreements, extending maturities and increasing total borrowing capacity to a cap of $325 million[92][93][192] - A stock repurchase program for up to $50 million of Class A common stock is authorized, though no shares have been repurchased under it to date[196][233] Quantitative and Qualitative Disclosures about Market Risk Market risk primarily impacts investment fair values, while management fees are insulated; interest rate and foreign exchange risks are limited - The company's management and advisory fees are not significantly impacted by market value changes, as they are generally based on commitments or net invested capital rather than asset values[216][217] - A 100 basis point (1%) increase in interest rates would result in an estimated $0.9 million increase in annual interest expense on the company's floating-rate debt[221] Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[226] - No changes were made to internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[227] Part II - Other Information Legal Proceedings Management believes no pending or threatened legal proceedings will materially affect the company's financial statements - In the opinion of management, it is not probable that any pending or threatened legal proceeding would materially affect the company's condensed consolidated financial statements[230] Risk Factors No material changes to risk factors were reported from the previously disclosed 2022 Form 10-K - No material changes from the risk factors disclosed in the 2022 Form 10-K were reported[231] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 1,293 Class A shares for tax purposes, separate from the $50 million authorized stock repurchase program Issuer Purchases of Equity Securities (Q3 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 1-31, 2022 | — | $— | | August 1-31, 2022 | — | $— | | September 1-30, 2022 | 1,293 | $69.67 | | Total | 1,293 | $69.67 | - The company has a $50 million stock repurchase program authorized, but has not yet purchased any shares under this specific program[233] Exhibits Exhibits include CEO/CFO certifications and incorporated documents like loan agreements and equity incentive plans - Exhibits filed include CEO/CFO certifications (31.1, 31.2, 32), and XBRL data. Several documents are incorporated by reference, including amendments to loan agreements and the 2017 Equity Incentive Plan[234]