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| 8-K - 8-K - Hamilton Lane INC | earningsrelease8-kq32018.htm |
HAMILTON LANE INCORPORATED REPORTS THIRD QUARTER FISCAL 2018 RESULTS
BALA CYNWYD, PENN. – February 6, 2018 – Leading private markets asset management firm Hamilton Lane Incorporated (NASDAQ: HLNE) today reported its results for the third quarter of fiscal year 2018, the period ended December 31, 2017.
Hamilton Lane CEO Mario Giannini commented: “2017 was a year of milestones for our firm. We continued to grow our global team, expanded our geographic presence and investment capabilities, and invested more in technology; all to better serve our clients around the world. We also successfully completed an initial public offering, welcoming new shareholders to the Hamilton Lane family.
As a result of our expanding client base, our asset footprint reached a new high of approximately $424 billion in the third quarter, and each of our offerings experienced year-over-year revenue growth. With that, we remain optimistic about the current business environment and our ability to execute on a strategy that will continue to meet clients’ private markets needs and drive shareholder value.”
Hamilton Lane issued a full detailed presentation of its third quarter fiscal 2018 results, which can be viewed at http://ir.hamiltonlane.com.
Dividend
Hamilton Lane has declared a quarterly dividend of $0.175 per share of Class A common stock to record holders at the close of business on March 15, 2018. This dividend will be paid on April 5, 2018.
Conference Call
Hamilton Lane will discuss third quarter fiscal 2018 results in a webcast and conference call today, Tuesday, February 6, 2018, 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 (844) 579-6824 inside the U.S., or (734) 385-2616 for international callers. The conference ID is 1497296.
A replay of the webcast will be available on Hamilton Lane’s Investor Relations website 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 26 years, the firm currently employs approximately 340 professionals operating in offices throughout the U.S., Europe, Asia-Pacific, Latin America and the Middle East. With approximately $424 billion in total assets under management and supervision as of December 31, 2017, 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” and similar expressions are used 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 business with ours; the time, expense and effort associated with being a newly public company; 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, 2017 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
Demetrius Sidberry
dsidberry@hamiltonlane.com
+1 610 617 6768
Media Contact
Kate McGann
kmcgann@hamiltonlane.com
+1 610 617 5841
Fiscal Year 2018 Third Quarter Results
Earnings Presentation - February 6, 2018
Page 2
Today’s Speakers
Hartley Rogers
Chairman
Randy Stilman
Chief Financial Officer
Demetrius Sidberry
Head of Investor Relations
Erik Hirsch
Vice Chairman
Page 3
Period Highlights
• Total asset footprint (assets under management/advisement) reached a record
amount of approximately $424 billion, growing 28% compared to December 31, 2016
• Assets under management and fee-earning assets under management were
approximately $50 billion and $30 billion, respectively, as of December 31, 2017,
increases of 25% and 13%, respectively, compared to December 31, 2016
• Declared a quarterly dividend of $0.175 per share of Class A common stock to record
holders at the close of business on March 15, 2018
Business
Performance
Financial
Results
Dividend
USD in millions except per share amounts Q3 FY18 QTD Q3 FY18 YTD vs. Q3 FY17 YTD
Management and advisory fees $48.3 $146.3 16%
GAAP net income $(6.3) $3.8 N/A1
GAAP EPS $(0.35) $0.21 N/A1
Non-GAAP EPS2 $0.46 $1.05 N/A1
Fee Related Earnings2 $19.4 $62.4 17%
Adjusted EBITDA2 $36.1 $85.1 37%
1 Figures not available as a result of the company going public after the stated period.
2 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 21 and 27 of this presentation.
Page 4
Growing Asset Footprint & Influence
$36 $51
$77 $79
$95 $81
$129
$147 $147
$189 $205
$292
$374
$6
$7
$11 $13
$16 $19
$22
$24 $30
$32
$35
$40
$50
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Total AUA Total AUM
Total Assets Under Management/Advisement ($B)1
1 Data as of calendar year end 12/31 unless otherwise noted. Numbers may not tie due to rounding.
CAG
R: 21
%
$424B
AUM & AUAQ-o-Q Growth
AUA: 5%
AUM: 5%
Page 5
Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Dec-16 Dec-17
Customized Separate Accounts Specialized Funds
CAGR: 1
4%
Total Fee-Earning Assets Under Management ($B)1
$0
$5
$10
$15
$20
$25
$30
$35
$40
$11
$5
$16
$14
$5
$19
$16
$6
$22
$17
$7
$24
$18
$9
$27
$20
$9
$30
$18
$8
$26
13%
Y-o-Y Growth
0.58% 0.55% 0.56% 0.57% 0.58%0.56%
1 Data as of fiscal year end 3/31 unless otherwise noted. Numbers may not tie due to rounding.
Total Management Fee Revenues as a % of Average FEAUM
Fee-Earning AUM Driving Revenues
...and annual fee rates are stable
Fee-earning AUM growth continues...
* Customized Separate Accounts:
• New client wins
• Client re-ups
? ?c?uisition of ?eal ?ssets firm?
• Closed Q2 FY18
• ?3 re?ects ??3??? of incremental ?????
• ?????? of ????? in total ac?uired
Drivers of Growth
Page 6
Year in Review: Calendar 2017
Expanding Client Base and Asset Footprint
• New client adds and separate account re-ups continue
• Completed the raise of our latest flagship secondary fund, Hamilton Lane Secondary Fund IV, L.P., which
attracted $1.9 billion in commitments--our largest specialized product to date
• Closed our credit-focused annual series fund, Hamilton Lane Strategic Opportunities Fund 2017, on $435
million in commitments, which is more than twice the size of the prior year’s fund
Investment Performance
• 522 bps of realized outperformance vs. MSCI World PME over a 10 year span1
Growing Global Presence
• Continued expanding our global footprint with the addition of three new offices in Sydney, Australia
Munich, Germany and Portland, Oregon
• Approximately 340 professionals dedicated to private markets around the globe
Continuation of Data & Technology Initiatives
• Partnered with Ipreo to form Private Market Connect, a data collection and management initiative
Transacting in Areas of Growth
• Closed the acquisition of Real Asset Portfolio Management, LLC, which broadens the firm’s real
assets capabilities
Enhanced Governance
• Added two new independent board members
Driving Shareholder Returns
• Declared dividends in our first four quarters as a public company
• Meaningful share price appreciation since the IPO
1 As of June 30, 2017
Page 7
It All Comes Back to Our Culture
People matterKeeping clients in sight Award-winning culture
2012 -
2017
2017
Page 8
The investable universe of private companies continues to grow
Private Markets Opportunity Set
Public Markets Growth
Source: World Bank, Capital IQ (October 2017)
Growth in Number of Public Companies
Growth in Listed Equities Market Cap
+5%
+46%
0%
40%
80%
120%
160%
200%
2011 2016
Private Markets Growth
0%
40%
80%
120%
160%
200%
+180%
+42%
2011 2016
+29%
Source: Hamilton Lane Data via Cobalt, Pitchbook, Capital IQ (October 2017)
Growth in Number of U.S. Private Equity-Backed Companies
Growth in Private Markets NAV
Growth in Number of Private Companies Globally
Public vs. Private Company Valuations
$0
$200
$400
$600
$800
$1,000
$200
$849
Median 2017 US LBO Size Median US-Listed Company
Source: Pitchbook, Capital IQ (January 2018). Median 2017 LBO size as of 9/30/2017.
Median US-Listed company size as of 1/9/2018
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Page 9
FAQs
1
AUM Growth
2
Incentive Fee
Revenue
3
Tax Reform Impact
Page 10
AUM Growth
Customized Separate
Accounts
Specialized
Funds
Advisory
Services
Diverse mix of existing and
prospective clients seeking to
further or establish relationship
with Hamilton Lane
Select funds in market:
• Co-Investment Fund
• Credit-Oriented Fund
• Private Equity Fund-of-Funds
Typically larger clients with
wide-ranging mandates;
opportunity set continues to
be robust
1
• $2.4B of net FEAUM added fiscal
year-to-date through 12/31/17
• ~70% of our gross contributions
added fiscal year-to-date through
12/31/17 came from existing
clients
• $481M of net FEAUM added fiscal
year-to-date through 12/31/17
• FEAUM added subsequent to
12/31/17:
• Co-Investment Fund: ~$690M
• Private Equity Fund-of-Funds:
~$60M
• $74.5B in AUA added fiscal year-
to-date through 12/31/17
AUM AUA
Page 11
Over the past five fiscal years, incentive fees represented an average of 7% of total revenue
Incentive Fee Revenue2
FY 2013
16 Carry Generating Vehicles
Today
>40 Carry Generating Vehicles
$93M of allocated carry $301M of allocated carry
Carry Evolution
Page 12
Tax Reform - Impact on the Private Markets3
• Several items in the tax reform bill will significantly impact the profitability and cash flow of private deals. Some
will result in lower tax expenses while others might raise them. For domestically-focused U.S. companies we
expect the overall impact to be positive, but much depends on the level of debt relative to profitability and the
capital intensity of the business.
• Overall, we expect the improvements in the tax rate and expensing capital goods to more than outweigh the
cost of limiting interest deductibility. The largest gains accrue to those companies with little interest expense
relative to EBIT and those with high current capital spending.
• One area of concern would be companies with high interest expense to EBITDA.
These companies may already be experiencing stress, and with the tax reform
they would lose some interest deduction. The associated negative cash flow
impact only worsens their stress.
“Private equity is very much a big
winner out of the reform”
- The Wall Street Journal 1/24/18
Our analysis suggests
values of private-equity-
owned companies
will get a boost of 3%
to 17% on average
Page 13
Tax Reform - Impact on HLNE3
Q2 FY18 total
estimated statutory
tax rate1
39.7%
FY18 total
estimated statutory
tax rate post U.S. tax
reform2
36.5%
FY19 total
estimated statutory
tax rate3
26.7%
Expected impact = ~20% tax impact to HLNE earnings
1 39.7% based on a federal tax statutory rate of 35.0% and a combined state income tax rate net of federal benefits of 4.7% estimated as of 9/30/17.
2 36.5% based on a blended 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% estimated as of 12/31/17.
3 26.7% based on a federal tax statutory rate of 21.0% and a combined state income tax rate net of federal benefits of 5.7% estimated as of 12/31/17.
Financial Highlights
Page 15
Revenues continue to be driven primarily by management and advisory fees
Consolidated Revenues
• Represented an average of 93% of total revenues over the
past five fiscal years
• Y-o-Y growth of 16%
• Growth across all management and advisory fee offerings
• 19% Y-o-Y growth in specialized funds’ management fees
driven by $0.5B raised in Secondary Fund IV during the
nine months ended December 31, 2017
• Incentive fees derived from a highly diversified pool of
assets and funds
• Allocated carried interest of $301M as of 12/31/17
diversified across +3,000 assets and ~40 funds
• Y-o-Y growth in incentive fees driven by $14.6M recognition
of deferred carried interest from Co-Investment Fund II
• Recognition of deferred carried interest positively impacted
Q3’s EPS by $0.16
• Total revenues increased by 25%, driven by growth across
core offerings
0
50
100
150
200
FY13 FY17Q3 FY17 Q3 FY18
$113
$173
Management and Advisory Fees
Incentive Fees
Total Revenues
$126
$146
Y-o-Y Growth: 16% CAGR: 11%
0
50
100
150
200
FY13 FY17Q3 FY17 Q3 FY18
$6 $7$7
$20
Y-o-Y Growth: 193% CAGR: 4%
0
50
100
150
200
FY13 FY17Q3 FY17 Q3 FY18
$119
$180
$133
$166
Y-o-Y Growth: 25% CAGR: 11%
Long-Term GrowthYTD
Long-Term GrowthYTD
Long-Term GrowthYTD
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Page 16
Profitability stable and growing
Consolidated Earnings
• Y-o-Y growth of 37%
• Margins increased Y-o-Y due to recognition of deferred
carried interest with no associated expense due to
accounting treatment
• $(6.3)M in net income attributable to HLI for
the quarter
• No comparable measure in prior period as that was
before the Company’s IPO
• Y-o-Y growth of 17%
• Long-term double digit growth in Fee Related Earnings
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 page 27 of this presentation.
Adjusted EBITDA1
Fee Related Earnings1
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Long-Term GrowthYTD
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FY13 FY17Q3 FY17 Q3 FY18
$55
$83
$62
$85
Y-o-Y Growth: 37% CAGR: 11%
Net Income Attributable to HLI
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Long-Term GrowthYTD
FY13 FY17Q3 FY17 Q3 FY18
N/A N/A$4 $1
Long-Term GrowthYTD
FY13 FY17Q3 FY17 Q3 FY18
$47
$72
$54
$62
Y-o-Y Growth: 17% CAGR: 11%
Page 17
Strong balance sheet with investments in our own products and a modest amount
of leverage...
Other Key Items
• Vast majority of our investments are those made
alongside our clients
• For 12/31/17, the total investment balance consisted of
~$114M in equity method investments in our funds and
~$17M in technology-related investments
• Principal amount of debt outstanding of $85.0M
as of 12/31/17
$0
$30
$60
$90
$120
$150
Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
$78
$92
$103 $103
$120
Dec-17
$131
Investments
$0
$1
$2
$3
$4
Dec-17
0.8x
Mar-17
1.0x
Gross Leverage Profile1
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B
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A
1 Ratio of principal amount of debt outstanding to trailing twelve months Adjusted EBITDA. See page 28 for additional detail on calculation of gross leverage ratio.
Fiscal Year 2018 Third Quarter Results
Earnings Presentation - February 6, 2018
Appendix
Page 20
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) 2016 2017 % Change 2016 2017 % Change
Revenues
Management and advisory fees $42,009 $48,344 15% $126,273 $146,326 16%
Incentive fees 322 16,670 5,077% 6,868 20,098 193%
Total revenues 42,331 65,014 54% 133,141 166,424 25%
Expenses
Compensation and benefits 16,739 20,006 20% 53,161 60,247 13%
General, administrative and other 8,840 10,704 21% 22,925 27,586 20%
Total expenses 25,579 30,710 20% 76,086 87,833 15%
Other income (expense)
Equity in income of investees 3,085 2,895 (6)% 8,882 13,066 47%
Interest expense (2,924) (664) (77)% (8,780) (5,282) (40)%
Interest income 39 67 72% 159 472 197%
Other non-operating income 222 4,188 1,786% 232 4,169 1,697%
Total other income 422 6,486 1,437% 493 12,425 2,420%
Income before income taxes 17,174 40,790 138% 57,548 91,016 58%
Income tax expense (benefit) 111 22,957 20,582% (264) 29,337 N/A
Net income 17,063 17,833 5% 57,812 61,679 7%
Less: Income attributable to non-controlling interests in general partnerships 64 768 1,100% 1,024 1,750 71%
Less: Income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C. 16,999 23,374 38% 56,788 56,086 (1)%
Net (loss) income attributable to Hamilton Lane Incorporated $- $(6,309) N/A $- $3,843 N/A
Basic (loss) earnings per share of Class A common stock $(0.35) $0.21
Diluted (loss) earnings per share of Class A common stock $(0.35) $0.21
Weighted-average shares of Class A common stock outstanding - basic 18,126,532 18,075,035
Weighted-average shares of Class A common stock outstanding - diluted 18,126,532 18,703,650
Page 21
Non-GAAP Financial Measures
Three Months Ended December 31, Nine Months Ended December 31,
(Dollars in thousands except share and per share amounts) 2016 2017 % Change 2016 2017 % Change
Adjusted EBITDA
Management and advisory fees $42,009 $48,344 15% $126,273 $146,326 16%
Total expenses 25,579 30,710 20% 76,086 87,833 15%
Less:
Incentive fee related compensation1 (158) (1,027) 550% (3,370) (2,709) (20)%
Contingent compensation related to acquisition - (771) N/A - (1,198) N/A
Management fee related expenses 25,421 28,912 14% 72,716 83,926 15%
Fee Related Earnings $16,588 $19,432 17% $53,557 $62,400 17%
Incentive fees2 322 16,670 5,077% 6,868 20,098 193%
Incentive fees attributable to non-controlling interests2 - (834) N/A - (834) N/A
Incentive fee related compensation1 (158) (1,027) 550% (3,370) (2,709) (20)%
Interest income 39 67 72% 159 472 197%
Equity-based compensation 1,169 1,284 10% 3,506 4,272 22%
Depreciation and amortization 467 486 4% 1,440 1,396 (3)%
Adjusted EBITDA $18,427 $36,078 96% $62,160 $85,095 37%
Adjusted EBITDA margin 44% 55% 47% 51%
Non-GAAP earnings per share reconciliation
Net (loss) income attributable to Hamilton Lane Incorporated $(6,309) $3,843
Income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C. 23,374 56,086
Income tax expense 22,957 29,337
Write-off of deferred financing costs3 - 2,544
Impact of Tax Act on TRA liability4 (4,186) (4,186)
Impact of Tax Act on IPO related compensation5 (669) (669)
Contingent compensation related to acquisition 771 1,198
Adjusted pre-tax net income 35,938 88,153
Adjusted income taxes6 (11,450) (32,185)
Adjusted net income $24,488 $55,968
Adjusted shares7 53,316,965 53,142,319
Non-GAAP earnings per share $0.46 $1.05
1 Incentive fee related compensation includes incentive fee compensation expense as well as bonus and other revenue sharing allocated to carried interest classified as base compensation.
2 Incentive fees for the three and nine months ended December 31, 2017 include $14.6 million of non-cash carry related to the $41.5 million of incentive fee payments received in fiscal 2016. Of the $14.6 million, $13.7 million is included in net income and
$0.8 million is attributable to non-controlling interests.
3 Represents write-off of debt issuance costs and realized loss on interest rate caps related to the payoff of our predecessor credit facility during the nine months ended December 31, 2017.
4 Represents change in payable to related parties pursuant to the TRA as a result of being re-measured due to the tax rate change. The change in liability was recorded to other non-operating income in the Condensed Consolidated Statements of Income.
5 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 the Reorganization.
6 Represents corporate income taxes at our estimated statutory tax rate of 36.51% for the nine months ended December 31, 2017 applied to adjusted pre-tax net income. The 36.51% is based on a federal tax statutory rate of 31.55% and a combined state
income tax rate net of federal benefits of 4.96%.
7 Assumes the full exchange of HLA Class B and Class C units for HLI Class A common stock.
Page 22
Management and Advisory Fees
Three Months Ended December 31, Nine Months Ended December 31,
(Dollars in thousands) 2016 2017 % Change 2016 2017 % Change
Management and advisory fees
Customized separate accounts $17,826 $19,860 11% $52,794 $58,253 10%
Specialized funds 17,124 19,132 12% 53,407 63,582 19%
Advisory and reporting 6,021 7,479 24% 17,680 20,958 19%
Distribution management 1,038 1,873 80% 2,392 3,533 48%
Total management and advisory fees $42,009 $48,344 15% $126,273 $146,326 16%
Specialized
funds
44%
Customized
separate
accounts
40%
Advisory
and reporting
14%
Distribution
management
2%
Nine Months Ended December 31, 2017
Page 23
Incentive Fees
(Dollars in thousands)
Three Months Ended December 31, Nine Months Ended December 31,
2016 2017 % Change 2016 2017 % Change
Incentive fees
Secondary Fund II $469 $1,124 140% $2,110 $2,239 6%
Co-investment Fund II - 14,579 N/A - 14,579 N/A
Other specialized funds 86 868 909% 4,174 862 (79)%
Customized separate accounts (233) 99 N/A 584 2,418 314%
Incentive fees $322 $16,670 5,077% $6,868 $20,098 193%
December 31,
2016
September 30,
2017
December 31,
2017
YoY % Change QoQ % Change
Allocated carried interest
Secondary Fund II $8,437 $7,145 $6,031 (29)% (16)%
Secondary Fund III 24,559 32,074 34,158 39% 6%
Secondary Fund IV 2,016 10,884 11,815 486% 9%
Co-investment Fund I 1,144 - - (100)% N/A
Co-investment Fund II 94,863 108,907 94,385 (1)% (13)%
Co-investment Fund III 11,243 28,775 29,978 167% 4%
Other specialized funds 10,769 24,576 26,641 147% 8%
Customized separate accounts 59,816 87,998 97,519 63% 11%
Total allocated carried interest $212,847 $300,359 $300,527 41% 0%
Page 24
Assets Under Management
(Dollars in millions) December 31, 2016 September 30, 2017 December 31, 2017 YoY % Change QoQ % Change
Assets under management / advisement
Assets under management $40,367 $47,819 $50,295 25% 5%
Assets under advisement 292,178 356,774 374,132 28% 5%
Total assets under management / advisement $332,545 $404,593 $424,427 28% 5%
Fee-earning assets under management
Customized separate accounts
Balance, beginning of period $17,542 $18,186 $19,721 12% 8%
Contributions 488 1,295 783 60% (40)%
Distributions (200) (229) (443) 121% 94%
Foreign exchange, market value and other (93) 469 322 N/A (31)%
Balance, end of period $17,737 $19,721 $20,383 15% 3%
Specialized funds
Balance, beginning of period $8,311 $9,437 $9,439 14% 0%
Contributions 223 97 240 8% 148%
Distributions (44) (98) (401) 818% 309%
Foreign exchange, market value and other (3) 3 (4) 59% (239)%
Balance, end of period $8,487 $9,439 $9,274 9% (2)%
Total
Balance, beginning of period $25,853 $27,623 $29,160 13% 6%
Contributions 711 1,392 1,023 44% (26)%
Distributions (244) (327) (844) 246% 158%
Foreign exchange, market value and other (96) 472 318 N/A (33)%
Balance, end of period $26,224 $29,160 $29,657 13% 2%
Page 25
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands except share and per share amounts) March 31, 2017 December 31, 2017
Assets
Cash and cash equivalents $32,286 $68,677
Restricted cash 1,849 1,787
Fees receivable 12,113 13,287
Prepaid expenses 2,593 1,584
Due from related parties 3,313 4,275
Furniture, fixtures and equipment, net 4,063 4,061
Investments 120,147 130,765
Deferred income taxes 61,223 39,766
Other assets 3,030 8,844
Total assets $240,617 $273,046
Liabilities and Equity
Accounts payable $1,366 $1,080
Accrued compensation and benefits 3,417 28,051
Deferred incentive fee revenue 45,166 31,422
Debt 84,310 84,617
Accrued members' distributions 2,385 4,520
Dividends payable - 3,172
Payable to related parties pursuant to tax receivable agreement 10,734 6,436
Other liabilities 6,612 5,730
Total liabilities 153,990 165,028
Preferred stock, $0.001 par value, 10,000,000 authorized, none issued - -
Class A common stock, $0.001 par value, 300,000,000 authorized; 19,287,882 and 19,151,033 issued and
19,287,882 and 19,036,504 outstanding as of December 31, 2017 and March 31, 2017, respectively
19 19
Class B common stock, $0.001 par value, 50,000,000 authorized; 27,935,255 issued and outstanding as of
December 31, 2017 and March 31, 2017
28 28
Additional paid-in-capital 61,845 62,853
Accumulated other comprehensive loss (311) -
(Accumulated deficit) retained earnings 612 (5,057)
Less: Treasury stock, at cost, 114,529 shares of class A common stock as of March 31, 2017 (2,151) -
Total Hamilton Lane Incorporated stockholders’ equity 60,042 57,843
Non-controlling interests in general partnerships 9,901 8,363
Non-controlling interests in Hamilton Lane Advisors, L.L.C. 16,684 41,812
Total equity 86,627 108,018
Total liabilities and equity $240,617 $273,046
Page 26
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended December 31,
(Dollars in thousands) 2016 2017
Operating activities
Net income $57,812 $61,679
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,440 1,396
Change in deferred income taxes - 22,913
Change in payable to related parties pursuant to tax receivable agreement - (4,298)
Amortization of deferred financing costs 661 153
Write-off of deferred financing costs - 1,657
Equity-based compensation 3,506 4,272
Equity in income of investees (8,882) (13,066)
Proceeds received from investments 6,825 11,337
Changes in operating assets and liabilities 16,265 8,271
Other - 1,029
Net cash provided by operating activities 77,627 95,343
Investing activities
Purchase of furniture, fixtures and equipment (719) (1,152)
Cash paid for acquisition of business - (5,227)
Distributions received from investments 6,991 10,792
Contributions to investments (20,622) (19,609)
Net cash (used in) investing activities (14,350) (15,196)
Financing activities
Repayments of debt (1,950) (86,569)
Borrowings of debt, net of deferred financing costs - 85,066
Contributions from non-controlling interest in general partnerships 489 231
Distributions to non-controlling interest in general partnerships (2,372) (3,519)
Sale of membership interests 4,668 -
Repurchase of Class A shares for employee tax witholding - (680)
Purchase of membership interests (6,059) -
Proceeds received from option exercises 879 313
Dividends paid - (6,340)
Members’ distributions (72,467) (32,320)
Other (611) -
Net cash (used in) financing activities (77,423) (43,818)
Increase (decrease) in cash, cash equivalents, and restricted cash (14,146) 36,329
Cash, cash equivalents, and restricted cash at beginning of the period 70,382 34,135
Cash, cash equivalents, and restricted cash at end of the period $56,236 $70,464
Page 27
Non-GAAP Reconciliation
Three Months Ended December 31, Nine Months Ended December 31,
(Dollars in thousands) 2016 2017 2016 2017
Net (loss) income attributable to Hamilton Lane Incorporated1 $- $(6,309) $- $3,843
Income attributable to non-controlling interests in general partnerships 64 768 1,024 1,750
Income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C. 16,999 23,374 56,788 56,086
Incentive fees2 (322) (16,670) (6,868) (20,098)
Incentive fee related compensation3 158 1,027 3,370 2,709
Interest income (39) (67) (159) (472)
Interest expense 2,924 664 8,780 5,282
Income tax expense (benefit) 111 22,957 (264) 29,337
Equity in income of investees (3,085) (2,895) (8,882) (13,066)
Contingent compensation related to acquisition - 771 - 1,198
Other non-operating income (222) (4,188) (232) (4,169)
Fee Related Earnings $16,588 $19,432 $53,557 $62,400
Depreciation and amortization 467 486 1,440 1,396
Equity-based compensation 1,169 1,284 3,506 4,272
Incentive fees2 322 16,670 6,868 20,098
Incentive fees attributable to non-controlling interests2 - (834) - (834)
Incentive fee related compensation3 (158) (1,027) (3,370) (2,709)
Interest income 39 67 159 472
Adjusted EBITDA $18,427 $36,078 $62,160 $85,095
Non-GAAP earnings per share reconciliation
Net (loss) income attributable to Hamilton Lane Incorporated1 $(6,309) $3,843
Income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C. 23,374 56,086
Income tax expense 22,957 29,337
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
Adjusted pre-tax net income 35,938 88,153
Adjusted income taxes7 (11,450) (32,185)
Adjusted net income $24,488 $55,968
Weighted-average shares of Class A common stock outstanding 18,126,532 18,703,650
Exchange of Class B and Class C units in HLA8 34,438,669 34,438,669
Assumed exercise and vesting of employee awards 751,764 -
Adjusted shares 53,316,965 52,142,319
Non-GAAP earnings per share $0.46 $1.05
1 Prior to our IPO, HLI was a wholly-owned subsidiary of HLA with no operations or assets.
2 Incentive fees for the three and nine months ended December 31, 2017 include $14.6 million of non-cash carry related to the $41.5 million of incentive fee payments received in fiscal 2016. Of the $14.6 million, $13.7 million is included in net income and
$0.8 million is attributable to non-controlling interests.
3 Incentive fee related compensation includes incentive fee compensation expense and bonus and other revenue sharing allocated to carried interest classified as base compensation.
4 Represents write-off of debt issuance costs and realized loss on interest rate caps related to the payoff of our predecessor credit facility during the nine months ended December 31, 2017.
5 Represents change in payable to related parties pursuant to the TRA as a result of being re-measured due to the tax rate change. The change in liability 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 the Reorganization.
7 Represents corporate income taxes at our estimated statutory tax rate of 36.51% for the nine months ended December 31, 2017 applied to adjusted pre-tax net income. The 36.51% is based on a federal tax statutory rate of 31.55% and a combined state
income tax rate net of federal benefits of 4.96%.
8 Assumes the full exchange of HLA Class B and Class C units for HLI Class A common stock.
Reconciliation from Net Income
Page 28
Gross Leverage Ratio
Twelve Months Ended,
(Dollars in thousands) March 31, 2017 December 31, 2017
Principal amount of debt outstanding $86,100 $84,981
Adjusted EBITDA 83,031 105,966
Gross leverage ratio 1.0x 0.8x
Page 29
Terms
Adjusted EBITDA is our primary internal measure of profitability. 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 loan agreements and predecessor credit facility, (b) income tax expense,
(c) depreciation and amortization expense, (d) equity-based compensation expense, (e) non-operating income (loss) 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 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, or fee-earning AUM, is a metric we use to measure the assets from which we earn management fees. Our fee-earning AUM comprise assets in our
customized 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.
Page 30
Disclosures
As of February 2, 2018
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” and similar expressions are used 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
business 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; the time, expense and effort associated with being a newly public company; 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 10K for the fiscal year ended March 31, 2017, 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.