Hamilton Lane(HLNE) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents Hamilton Lane Incorporated's unaudited condensed consolidated financial statements, including balance sheets, income statements, equity, cash flows, and detailed notes for the periods ended December 31, 2022 and 2021 Condensed Consolidated Balance Sheets The balance sheet shows a decrease in total assets, an increase in total liabilities, and growth in Hamilton Lane Incorporated's stockholders' equity | Metric | Dec 31, 2022 (in millions) | Mar 31, 2022 (in millions) | | :----------------------------------- | :------------------------- | :------------------------- | | Total assets | $1,124.361 | $1,294.946 | | Total liabilities | $594.403 | $557.460 | | Total Hamilton Lane Incorporated stockholders' equity | $394.661 | $346.878 | | Total equity | $529.958 | $461.486 | - Total assets decreased by $170.585 million from March 31, 2022, to December 31, 2022, primarily due to a significant decrease in 'Investments held in trust' from $276.016 million to $0, offset by increases in 'Cash and cash equivalents' and 'Investments'[16] - Total liabilities increased by $36.943 million, driven by increases in 'Accrued compensation and benefits' and 'Debt', partially offset by decreases in 'Other liabilities' and 'Liabilities of consolidated variable interest entities'[16] - Total Hamilton Lane Incorporated stockholders' equity increased by $47.783 million, reflecting growth in 'Retained earnings' and 'Additional paid-in-capital'[16] Condensed Consolidated Statements of Income The income statement reflects significant revenue growth driven by incentive fees, but a substantial decline in net income due to non-operating losses | Metric (in millions) | 3 Months Ended Dec 31, 2022 | 3 Months Ended Dec 31, 2021 | 9 Months Ended Dec 31, 2022 | 9 Months Ended Dec 31, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total revenues | $127.074 | $91.704 | $415.965 | $267.019 | | Total expenses | $68.702 | $50.658 | $225.242 | $143.722 | | Income before income taxes | $33.672 | $91.715 | $174.516 | $247.211 | | Net income | $21.884 | $80.196 | $135.750 | $209.696 | | Net income attributable to Hamilton Lane Incorporated | $9.669 | $51.849 | $78.034 | $132.161 | | Basic EPS of Class A common stock | $0.32 | $1.44 | $2.21 | $3.64 | | Diluted EPS of Class A common stock | $0.31 | $1.40 | $2.19 | $3.59 | | Dividends declared per share of Class A common stock | $0.40 | $0.35 | $1.20 | $1.05 | - Total revenues increased by 39% for the three months ended December 31, 2022, and by 56% for the nine months ended December 31, 2022, compared to the respective prior year periods, driven by growth in both management/advisory fees and incentive fees[18] - Net income attributable to Hamilton Lane Incorporated decreased significantly by 81% for the three months and 41% for the nine months ended December 31, 2022, primarily due to a substantial decrease in 'Other income (expense)', which included a large loss on an investment in the current period and significant gains in the prior period[18] - Basic and diluted EPS for Class A common stock saw a notable decline for both the three and nine months ended December 31, 2022, reflecting the decrease in net income attributable to the company[18] Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased, primarily due to net income, partially offset by dividends and member distributions | Metric (in millions) | Balance at Mar 31, 2022 | Balance at Dec 31, 2022 | | :-------------------- | :---------------------- | :---------------------- | | Total Equity | $461.486 | $529.958 | | Net income | $78.034 | $78.034 | | Dividends declared | $(44.413) | $(44.413) | | Equity-based compensation | $6.816 | $6.816 | - Total equity increased from $461.486 million at March 31, 2022, to $529.958 million at December 31, 2022, primarily driven by net income and adjustments of redeemable non-controlling interest to redemption value, partially offset by dividends declared and member distributions[20][22] - For the nine months ended December 31, 2022, net income contributed $78.034 million to equity, while dividends declared amounted to $44.413 million[20] Condensed Consolidated Statements of Cash Flows Cash flows show increased operating and investing inflows, but a significant rise in financing outflows, leading to an overall cash increase | Cash Flow Activity (in millions) | 9 Months Ended Dec 31, 2022 | 9 Months Ended Dec 31, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $213.371 | $152.512 | | Net cash provided by (used in) investing activities | $201.565 | $(55.664) | | Net cash used in financing activities | $(338.038) | $(104.885) | | Increase (decrease) in cash, cash equivalents, and restricted cash | $76.898 | $(8.037) | | Cash, cash equivalents, and restricted cash at end of period | $153.095 | $82.340 | - Net cash provided by operating activities increased by $60.859 million for the nine months ended December 31, 2022, compared to the prior year, primarily due to higher net income and changes in operating assets and liabilities[25] - Investing activities shifted from a net cash outflow of $55.664 million in 2021 to a net cash inflow of $201.565 million in 2022, largely driven by the sale of investments held in trust ($278.954 million) in 2022[25] - Net cash used in financing activities significantly increased to $338.038 million in 2022 from $104.885 million in 2021, mainly due to the redemption of Class A common shares of Hamilton Lane Alliance Holdings I, Inc. ($278.205 million)[27] Notes to Condensed Consolidated Financial Statements Detailed notes provide context on the company's financial statements, covering accounting policies, investments, debt, equity, and other key financial areas 1. Organization This note describes Hamilton Lane Incorporated's structure as a holding company controlling Hamilton Lane Advisors, L.L.C., and its economic interest - Hamilton Lane Incorporated (HLI) is a holding company that controls Hamilton Lane Advisors, L.L.C. (HLA), which provides asset management and advisory services to institutional investors. HLI's economic interest in HLA was approximately 69.0% as of December 31, 2022, up from 68.9% at March 31, 2022[30] 2. Summary of Significant Accounting Policies This note outlines the company's interim financial statement preparation, investment accounting, and fair value measurement hierarchy - The financial statements are unaudited and prepared in accordance with GAAP for interim information, with management making necessary adjustments. The Company accounts for investments in Partnerships using a three-month lag due to timing of financial information[32][33] - Fair value measurements are prioritized using a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs), and Level 3 (unobservable inputs)[34][37] - The Company is evaluating ASU 2022-03, effective for fiscal years beginning after December 15, 2023, regarding fair value measurement of equity securities subject to contractual sale restrictions[35] 3. Revenue This note details the composition of total revenues, highlighting growth in management/advisory fees and a significant increase in incentive fees | Revenue Type (in millions) | 3 Months Ended Dec 31, 2022 | 3 Months Ended Dec 31, 2021 | 9 Months Ended Dec 31, 2022 | 9 Months Ended Dec 31, 2021 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Management and advisory fees | $97.355 | $79.836 | $276.182 | $229.653 | | Incentive fees | $29.719 | $11.868 | $139.783 | $37.366 | | Total revenues | $127.074 | $91.704 | $415.965 | $267.019 | - Total revenues increased by 39% for the three months and 56% for the nine months ended December 31, 2022, compared to the prior year periods. This growth was primarily driven by a significant increase in incentive fees (150% for three months, 274% for nine months) and a solid increase in management and advisory fees (22% for three months, 20% for nine months)[39] 4. Investments This note provides a breakdown of investment types, noting an overall increase in total investments and an impairment on one investment | Investment Type (in millions) | Dec 31, 2022 | Mar 31, 2022 | | :----------------------------- | :----------- | :----------- | | Equity method investments in Partnerships | $328.311 | $326.296 | | Other investments | $20.189 | $19.820 | | Investments valued under the measurement alternative | $165.832 | $156.100 | | Total Investments | $514.332 | $503.789 | - Total investments increased by $10.543 million from March 31, 2022, to December 31, 2022, primarily due to growth in investments valued under the measurement alternative and equity method investments[40] - The Company sold its ownership in Private Markets Connect for $10.000 million, recognizing a gain of $9.783 million in non-operating income during the quarter ended September 30, 2022[42] - An impairment of $43.289 million was recorded on one investment valued under the measurement alternative as of December 31, 2022, due to a significant decrease in earnings performance and market conditions[51] 5. Fair Value Measurements This note presents the fair value hierarchy for financial assets and liabilities, emphasizing the use of Level 3 unobservable inputs for certain investments | Financial Assets (in millions) | Level 1 (Dec 31, 2022) | Level 2 (Dec 31, 2022) | Level 3 (Dec 31, 2022) | Total (Dec 31, 2022) | | :------------------------------ | :--------------------- | :--------------------- | :--------------------- | :------------------- | | Other investments | $6.235 | $— | $13.954 | $20.189 | | Total financial assets | $6.235 | $— | $13.954 | $20.189 | | Financial Liabilities (in millions) | Level 1 (Dec 31, 2022) | Level 2 (Dec 31, 2022) | Level 3 (Dec 31, 2022) | Total (Dec 31, 2022) | | :------------------------------ | :--------------------- | :--------------------- | :--------------------- | :------------------- | | Secured financing | $— | $— | $13.954 | $13.954 | - As of December 31, 2022, Level 3 inputs were significant for valuing 'Other investments' ($13.954 million) and 'Secured financing' ($13.954 million), indicating reliance on unobservable inputs[52] - Valuation methodologies for Level 3 assets include adjusted net asset value for private equity funds, discounted cash flow for direct credit investments, and market approach (EBITDA/Equity multiple) for direct equity investments[58] 6. Acquisitions This note details recent acquisition activities, including the purchase of 361 Capital, LLC assets and the transfer of an advisory arrangement - On April 1, 2021, the Company acquired substantially all assets of 361 Capital, LLC for $13.096 million, recording $7.145 million in definite-lived intangible assets and $5.623 million in goodwill. The first of two equal installments of the remaining $3.000 million was paid on April 1, 2022[60] - In December 2022, the Company finalized the transfer of an advisory arrangement to a third party, recognizing a gain of $2.771 million on the sale of advisory agreements[61] 7. Variable Interest Entities This note discusses the consolidation of certain VIEs, the liquidation of a sponsored SPAC, and the company's maximum exposure to loss from nonconsolidated VIEs - The Company consolidates certain Variable Interest Entities (VIEs) where it is the primary beneficiary, with total assets of consolidated VIEs at $41.498 million as of December 31, 2022, up from $10.036 million at March 31, 2022[63] - Hamilton Lane Alliance Holdings I, Inc. (HLAH), a previously sponsored and consolidated SPAC, was liquidated on December 15, 2022, as it could not consummate a business combination within the required timeframe[64] - For nonconsolidated VIEs, the Company's maximum exposure to loss was $207.520 million as of December 31, 2022, primarily from investments and fees receivable[67] 8. Debt This note outlines the company's debt structure, including term loans and multi-draw facilities, and recent modifications to credit agreements | Debt Type (in millions) | Principal Outstanding (Dec 31, 2022) | Carrying Value (Dec 31, 2022) | Interest Rate (Dec 31, 2022) | Principal Outstanding (Mar 31, 2022) | Carrying Value (Mar 31, 2022) | Interest Rate (Mar 31, 2022) | | :----------------------- | :----------------------------------- | :---------------------------- | :--------------------------- | :----------------------------------- | :---------------------------- | :--------------------------- | | Term Loan | $100.0 | $99.578 | 6.25% | $71.754 | $71.574 | 2.25% | | 2020 Multi-Draw Facility | $100.0 | $99.548 | 3.50% | $100.0 | $99.752 | 3.50% | | Total Debt | $200.0 | $199.126 | | $171.754 | $171.326 | | - Total debt increased to $200.0 million as of December 31, 2022, from $171.754 million at March 31, 2022, following modifications to existing credit facilities in October 2022[68][69] - The modifications extended maturity dates, increased the principal outstanding under the term loan to $100.0 million, and added borrowing capacity up to an overall cap of $325.0 million[69] 9. Equity This note details changes in Class A and Class B Common Stock outstanding, primarily due to share awards and repurchases for tax withholdings | Common Stock | March 31, 2022 | December 31, 2022 | | :------------- | :------------- | :---------------- | | Class A Common Stock | 37,280,697 | 37,868,691 | | Class B Common Stock | 16,033,359 | 15,953,682 | - Class A Common Stock outstanding increased by 587,994 shares from March 31, 2022, to December 31, 2022, primarily due to awards granted and shares issued under the Employee Share Purchase Plan, partially offset by forfeitures and repurchases for employee tax withholdings[71] 10. Equity Based Compensation This note describes the company's equity-based compensation plans, including restricted stock and performance awards, and associated unrecognized expenses | Restricted Stock Activity | March 31, 2022 | December 31, 2022 | | :------------------------ | :------------- | :---------------- | | Total Unvested | 281,307 | 305,083 | | Granted | | 41,160 | | Vested | | (11,485) | | Forfeited | | (5,899) | - Total unvested restricted stock increased to 305,083 shares as of December 31, 2022, with $14.950 million in total unrecognized compensation expense remaining[72] - The Company granted 528,282 performance awards in September 2022, subject to market-based and service-based vesting conditions, with $14.815 million in unrecognized expense as of December 31, 2022[75] 11. Compensation and Benefits This note breaks down compensation expenses, showing increases in base, incentive fee, and equity-based compensation | Compensation Type (in millions) | 3 Months Ended Dec 31, 2022 | 3 Months Ended Dec 31, 2021 | 9 Months Ended Dec 31, 2022 | 9 Months Ended Dec 31, 2021 | | :------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Base compensation and benefits | $35.473 | $29.340 | $116.549 | $79.014 | | Incentive fee compensation | $7.368 | $2.953 | $34.870 | $9.308 | | Equity-based compensation | $2.835 | $1.711 | $6.816 | $5.706 | | Total compensation and benefits | $45.676 | $34.004 | $158.235 | $94.028 | - Total compensation and benefits increased by 34% for the three months and 68% for the nine months ended December 31, 2022, compared to the prior year periods, driven by increases in base compensation and incentive fee compensation[76] 12. Income Tax This note explains the company's effective tax rate and the factors influencing its significant increase in the current periods | Metric | 3 Months Ended Dec 31, 2022 | 3 Months Ended Dec 31, 2021 | 9 Months Ended Dec 31, 2022 | 9 Months Ended Dec 31, 2021 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Effective tax rate | 35.0% | 12.6% | 22.2% | 15.2% | - The effective tax rate increased significantly for both the three and nine months ended December 31, 2022, compared to the prior year periods, primarily due to a valuation allowance for deferred tax assets and discrete tax adjustments[78][157] 13. Earnings per Share This note details the calculation of basic and diluted EPS, highlighting the impact of lower net income and excluded performance awards | EPS Metric | 3 Months Ended Dec 31, 2022 | 3 Months Ended Dec 31, 2021 | 9 Months Ended Dec 31, 2022 | 9 Months Ended Dec 31, 2021 | | :--------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic EPS of Class A common stock | $0.32 | $1.44 | $2.21 | $3.64 | | Diluted EPS of Class A common stock | $0.31 | $1.40 | $2.19 | $3.59 | - Basic and diluted EPS for Class A common stock decreased substantially for both the three and nine months ended December 31, 2022, reflecting lower net income attributable to HLI[82] - The calculation of diluted EPS excludes 528,282 Performance Awards for both periods in 2022 as the market condition for vesting was not achieved[84] 14. Related Party Transactions This note discloses revenues from management, advisory, and incentive fees generated from related party Partnerships | Metric (in millions) | 3 Months Ended Dec 31, 2022 | 3 Months Ended Dec 31, 2021 | 9 Months Ended Dec 31, 2022 | 9 Months Ended Dec 31, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Management and advisory fees from Partnerships | $70.929 | $53.701 | $198.973 | $150.955 | | Incentive fees from Partnerships | $28.652 | $10.335 | $137.545 | $34.669 | | Fees receivable from Partnerships (period end) | $35.263 | | $35.263 | $27.728 | - Management and advisory fees from Partnerships increased by 32% for the three months and 32% for the nine months ended December 31, 2022. Incentive fees from Partnerships saw a substantial increase of 177% for the three months and 297% for the nine months[85] 15. Supplemental Cash Flow This note provides details on non-cash investing and financing activities, including lease liabilities, asset sales, and declared but unpaid distributions | Non-Cash Activity (in millions) | 9 Months Ended Dec 31, 2022 | 9 Months Ended Dec 31, 2021 | | :------------------------------- | :-------------------------- | :-------------------------- | | Establishment of lease liability in exchange for right of use asset | $5.401 | $7.950 | | Establishment of receivable for intangible assets sold | $6.776 | $— | | Dividends declared but not paid | $14.810 | $12.916 | | Member distributions declared but not paid | $19.161 | $11.769 | - Non-cash investing activities in 2022 included the establishment of a $6.776 million receivable for intangible assets sold. Non-cash financing activities included significant declared but unpaid dividends ($14.810 million) and member distributions ($19.161 million)[87] 16. Commitments and Contingencies This note addresses potential legal proceedings, unrecognized incentive fees subject to clawback, unfunded commitments, and operating lease liabilities - The Company does not believe any pending or threatened legal proceedings would materially affect its financial statements[89] - Unrecognized incentive fees subject to contingencies (clawback) were $952.188 million as of December 31, 2022, with $238.047 million potentially payable to employees and third parties if realized[90][91] - Aggregate unfunded commitments to Partnerships increased to $212.895 million as of December 31, 2022, from $186.164 million at March 31, 2022[92] - Operating lease liabilities totaled $79.549 million as of December 31, 2022, with a weighted average remaining lease term of 14.0 years[95] 17. Subsequent Events This note reports on significant events occurring after the reporting period, specifically a declared quarterly dividend - On February 7, 2023, the Company declared a quarterly dividend of $0.40 per share of Class A common stock, payable on April 6, 2023[96] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Hamilton Lane's financial condition and operational results, detailing business segments, key financial and operating metrics, consolidated financial performance, fee-earning AUM trends, non-GAAP financial measures, investment performance, and liquidity and capital resources. It highlights significant revenue growth driven by incentive fees, increased expenses, and a notable decrease in net income due to non-operating losses, while also discussing the company's debt structure, dividend policy, and future liquidity plans Business Overview This section describes Hamilton Lane's global private markets investment solutions, including AUM/AUA for various client types - Hamilton Lane is a global private markets investment solutions provider offering customized separate accounts ($81 billion AUM), specialized funds ($27 billion AUM), and advisory services ($724 billion AUA) as of December 31, 2022[101][102] - The company serves a diversified client base of institutional investors globally, including pension funds, sovereign wealth funds, financial institutions, endowments, foundations, family offices, and high-net-worth individuals[103] Key Financial and Operating Measures This section defines key financial metrics, including revenue sources, expense components, and the calculation of fee-earning AUM - Revenues are primarily generated from management and advisory fees (based on committed capital or net invested capital) and incentive fees (carried interest and performance fees, recognized when clawback risk is not probable)[106][112][114][115] - Compensation and benefits is the largest expense, including base compensation, equity-based compensation, and incentive fee compensation, with approximately 25% of incentive fees from certain funds awarded to plan participants[116][118] - Fee-earning AUM, a key metric, is based on capital commitments, net invested capital, or NAV, and is not significantly affected by market appreciation or depreciation[127] Consolidated Results of Operations This section analyzes the company's consolidated financial performance, highlighting revenue and expense trends, and the impact of non-operating items on net income | Metric (in millions) | 3 Months Ended Dec 31, 2022 | 3 Months Ended Dec 31, 2021 | 9 Months Ended Dec 31, 2022 | 9 Months Ended Dec 31, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total revenues | $127.074 | $91.704 | $415.965 | $267.019 | | Total expenses | $68.702 | $50.658 | $225.242 | $143.722 | | Income before income taxes | $33.672 | $91.715 | $174.516 | $247.211 | | Net income attributable to Hamilton Lane Incorporated | $9.669 | $51.849 | $78.034 | $132.161 | - Total revenues increased by 39% (QoQ) and 56% (YoY) due to significant growth in incentive fees and management/advisory fees, particularly from specialized funds and customized separate accounts[135][136][137][139][140] - Total expenses rose by 36% (QoQ) and 57% (YoY), driven by increased compensation and benefits (due to bonus accruals and headcount) and general, administrative, and other expenses (commissions, travel, consulting)[141][142][143][145][146][147] - Other income (expense) decreased significantly, resulting in a $24.7 million loss (QoQ) and a $16.2 million loss (YoY), primarily due to a $43.3 million loss on an investment in the current period and lower equity in income of investees compared to prior year gains[149][150][151][153][154][155] Fee-Earning AUM This section details the changes in fee-earning assets under management, showing growth driven by contributions to customized separate accounts and specialized funds | Fee-Earning AUM (in millions) | Customized Separate Accounts (Dec 31, 2022) | Specialized Funds (Dec 31, 2022) | Total (Dec 31, 2022) | | :---------------------------- | :------------------------------------------ | :------------------------------- | :------------------- | | Balance, beginning of period (Sep 30, 2022) | $32,333 | $20,354 | $52,687 | | Contributions | $1,432 | $1,472 | $2,904 | | Distributions | $(576) | $(213) | $(789) | | Balance, end of period (Dec 31, 2022) | $33,089 | $21,776 | $54,865 | - Fee-earning AUM increased by $2.2 billion (4.2%) during the three months ended December 31, 2022, reaching $54.9 billion, driven by contributions from both customized separate accounts ($0.8 billion increase) and specialized funds ($1.4 billion increase)[160][161][162] - For the nine months ended December 31, 2022, fee-earning AUM increased by $5.7 billion (11.6%), with customized separate accounts growing by $2.2 billion and specialized funds by $3.6 billion[163][164][165] Non-GAAP Financial Measures This section presents non-GAAP metrics like Fee Related Earnings, Adjusted EBITDA, and non-GAAP EPS, providing alternative views of financial performance | Non-GAAP Metric (in millions) | 3 Months Ended Dec 31, 2022 | 3 Months Ended Dec 31, 2021 | 9 Months Ended Dec 31, 2022 | 9 Months Ended Dec 31, 2021 | | :----------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Fee Related Earnings (FRE) | $41.519 | $36.886 | $118.094 | $106.274 | | Adjusted EBITDA | $63.705 | $44.325 | $204.522 | $133.969 | | Non-GAAP earnings per share | $0.43 | $1.27 | $2.38 | $3.50 | - Fee Related Earnings (FRE) increased by 12.6% (QoQ) and 11.1% (YoY), indicating improved profitability from recurring management fees[171] - Adjusted EBITDA increased by 43.7% (QoQ) and 52.7% (YoY), reflecting strong core business performance[171] - Non-GAAP earnings per share decreased by 66.1% (QoQ) and 32.0% (YoY), primarily due to the significant decrease in adjusted net income, which was impacted by the non-operating losses[174] Investment Performance This section provides historical investment performance data for various fund types, emphasizing that past results are not indicative of future outcomes - The historical performance of specialized funds is not indicative of future results, as market conditions, fund maturity, competition, and investment-specific risks can vary[178][180] | Fund Type (Vintage Year) | Gross IRR (%) | Net IRR (%) | Gross Multiple | Net Multiple | | :----------------------- | :------------ | :---------- | :------------- | :----------- | | Primaries (PEF IX, 2015) | 20.8% | 18.9% | 1.9 | 1.9 | | Secondaries (Secondary Fund V, 2019) | 33.8% | 34.9% | 1.4 | 1.5 | | Direct/Co-investments (Co-Investment Fund IV, 2018) | 26.3% | 24.6% | 1.9 | 1.8 | | Strategic Opportunities (Strat Opps 2017, 2017) | 11.5% | 9.1% | 1.3 | 1.2 | - Performance is evaluated against public market equivalent (PME) indices like S&P 500, MSCI World, CS HY II, and CS LL, using pooled IRR and multiple calculations[182][184][185] Liquidity and Capital Resources This section discusses the company's cash position, debt structure, liquidity needs, and capital allocation strategies, including dividends and tax receivable payments - Cash and cash equivalents increased to $146.1 million as of December 31, 2022, from $72.1 million at March 31, 2022[189] - The Company modified its Loan Agreements in October 2022, extending maturity dates and increasing borrowing capacity to an aggregate cap of $325 million. Total debt outstanding was $200 million as of December 31, 2022[192][197] - Primary liquidity needs include funding business growth, investment commitments, operating expenses, tax receivable agreement payments, capital expenditures, debt service, and dividends[202] - The Company intends to continue paying quarterly cash dividends and is required to make payments under a tax receivable agreement based on realized tax benefits from HLA membership unit exchanges[205][206] Off-Balance Sheet Arrangements This section confirms no material changes to off-balance sheet arrangements since the prior fiscal year-end - There have been no material changes in off-balance sheet arrangements from those discussed in the 2022 Form 10-K[213] Contractual Obligations, Commitments and Contingencies This section states no material changes to contractual obligations, commitments, and contingencies from the previous annual report - No material changes outside the ordinary course of business in contractual obligations, commitments, and contingencies from the 2022 Form 10-K[215] Critical Accounting Policies This section refers to the detailed discussion of critical accounting policies and estimates in the company's annual Form 10-K - The preparation of financial statements requires significant estimates and judgments, which are detailed in the 2022 Form 10-K[217][218] Recent Accounting Pronouncements This section directs readers to Note 2 for information on recent accounting developments and their potential impact - Information on recent accounting developments and their impact is provided in Note 2 to the condensed consolidated financial statements[220] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section outlines Hamilton Lane's exposure to various market risks, including price, interest rate, and foreign exchange rate risks. It clarifies that management and advisory fees are not significantly impacted by investment value changes, while equity in income of investees is sensitive to underlying investment performance. The company's interest rate risk is primarily tied to its floating-rate debt, with an estimated $1.0 million increase in interest expense for every 100 basis point rise in rates - The predominant market risk exposure relates to the fair value movements of investments in specialized funds and customized separate accounts, which can affect equity in income of investees[222] - Management and advisory fees are not significantly affected by changes in investment values, as they are generally based on committed capital or net invested capital[225] - A 100 basis point increase in interest rates is estimated to result in an increased interest expense of $1.0 million over the next 12 months, based on $200.0 million in floating-rate borrowings outstanding as of December 31, 2022[224][225] - Foreign exchange rate risk is limited to the Company's general partner interest (typically 1%) in non-U.S. dollar denominated investments, and is not expected to materially impact financial statements[223] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of December 31, 2022, concluding they were effective. There have been no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of December 31, 2022[227][229] - No material changes in internal control over financial reporting occurred during the quarter ended December 31, 2022[230] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is subject to various legal, regulatory, and administrative proceedings in the ordinary course of business, but management does not believe any pending or threatened claims would individually or in aggregate materially affect its condensed consolidated financial statements - Management believes no current or threatened legal proceedings will materially affect the condensed consolidated financial statements[233] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in Part I, Item 1A of the company's 2022 Form 10-K - No material changes to risk factors from the 2022 Form 10-K[234] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's repurchase activity for Class A common stock, primarily for employee tax withholdings, and confirms the continued availability of the Stock Repurchase Program | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :------------------ | :------------------------------- | :--------------------------- | | December 1-31, 2022 | 991 | $72.27 | - The repurchased shares were Class A common stock tendered by employees for tax withholdings on restricted stock vesting[235] - The full $50 million authorization under the Stock Repurchase Program remains available, as no shares have been repurchased under this program, which was re-approved in December 2022[236] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, loan agreements, certifications, and financial information formatted in Inline XBRL - Includes organizational documents (Amended and Restated Certificate of Incorporation, Bylaws), recent loan agreements (Multi-Draw Term Loan, Revolving Loan, Term Loan, 2020 Multi-Draw Term Loan amendments), and certifications (SOX 302 and 906)[237] - Financial information for the quarter ended December 31, 2022, is provided in Inline XBRL format[237] Signatures The report is duly signed on behalf of Hamilton Lane Incorporated by its Chief Financial Officer and Treasurer, Atul Varma, and Managing Director and Controller, Michael Donohue, on February 7, 2023 - The report was signed by Atul Varma, Chief Financial Officer and Treasurer, and Michael Donohue, Managing Director and Controller, on February 7, 2023[241]