Hamilton Lane INC

1. Organization

Hamilton Lane Incorporated (“HLI”) was incorporated in the State of Delaware on December 31, 2007 and, following its 2017 initial public offering, is a holding company whose principal asset is a controlling equity interest in Hamilton Lane Advisors, L.L.C. (“HLA”). As the sole managing member of HLA, HLI operates and controls all of the business and affairs of HLA, and through HLA, conducts its business. As a result, HLI consolidates HLA’s financial results and reports a non-controlling interest related to the portion of HLA units not owned by HLI. The assets and liabilities of HLA represent substantially all of HLI’s consolidated assets and liabilities with the exception of certain cash, certain deferred tax assets and liabilities, payables to related parties pursuant to a tax receivable agreement, and dividends payable. Unless otherwise specified, “the Company” refers to the consolidated entity of HLI, HLA and subsidiaries throughout the remainder of these notes. As of December 31, 2023 and March 31, 2023, HLI held approximately 70.1% of the economic interest in HLA. As future exchanges of HLA units occur pursuant to the exchange agreement in place with HLA’s members, the economic interest in HLA held by HLI will increase.

HLA is a registered investment advisor with the United States Securities and Exchange Commission (“SEC”), providing asset management and advisory services, primarily to institutional investors, to design, build and manage private markets portfolios. HLA generates revenues primarily from management fees, by managing assets on behalf of customized separate accounts, specialized fund products and distribution management accounts, and advisory fees and by providing asset supervisory and reporting services. HLA sponsors the formation, and serves as the general partner or managing member, of various limited liability partnerships consisting of specialized funds and certain single client separate account entities (“Partnerships”) that acquire interests in third-party managed investment funds that make private equity and equity-related investments. The Partnerships may also make direct investments, including investments in debt, equity, and other equity-based instruments. The Company, which includes certain subsidiaries that serve as the general partner or managing member of the Partnerships, may invest its own capital in the Partnerships and generally makes all investment and operating decisions for the Partnerships. HLA operates several wholly-owned entities through which it conducts its foreign operations.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Management believes it has made all necessary adjustments (which consisted of only normal recurring items) so that the condensed consolidated financial statements are presented fairly and that estimates made in preparing the condensed consolidated financial statements are reasonable and prudent. Results of operations for the three and nine months ended December 31, 2023 are not necessarily indicative of the results that may be expected for the year ending March 31, 2024. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in HLI’s Annual Report on Form 10-K for the fiscal year ended March 31, 2023.

Accounting for Differing Fiscal Periods

The Partnerships primarily have a fiscal year end as of December 31, and the Company accounts for its investments in the Partnerships using a three-month lag due to the timing of financial information received from the investments held by the Partnerships. The Partnerships primarily invest in private equity funds, which generally require at least 90 days following the calendar year end to present audited financial statements. The Company records its share of capital contributions to and distributions from the Partnerships in investments in the Condensed Consolidated Balance Sheets during the three-month lag period.

Fair Value of Financial Instruments

The Company utilizes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach). The levels of the hierarchy are described below:

•Level 1: Values are determined using quoted market prices for identical financial instruments in an active market.

•Level 2: Values are determined using quoted prices for similar financial instruments and valuation models whose inputs are observable.

•Level 3: Values are determined using pricing models that use significant inputs that are primarily unobservable, discounted cash flow methodologies or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The carrying amount of cash and cash equivalents, fees receivable, and accounts payable approximate fair value due to the immediate or short-term maturity of these financial instruments.

Recent Accounting Pronouncements

In October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-06 - Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. The amendments in this ASU incorporate 14 of the 27 disclosure requirements published in SEC Release No. 33-10532 - Disclosure Update and Simplification into various topics within the Accounting Standards Codification (“ASC”). The amendments represent clarifications to, or technical corrections of, current requirements. For SEC registrants, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. Early adoption is prohibited. The amendments will be applied retrospectively to all prior periods presented in the financial statements. The Company is currently assessing the impact of the new requirements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures. This ASU enhances segment disclosures primarily around significant segment expenses for both interim and annual periods. The amendments in this ASU are to be applied retrospectively and are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years after December 15, 2024. Early adoption is permitted. The Company is currently assessing the impact of the new requirements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to enhance transparency and decision usefulness of income tax disclosures. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, on a prospective basis, with early adoption permitted. The Company is evaluating the impact of adopting this ASU.

3. Revenue

The following table presents revenues disaggregated by product offering, which aligns with the identified performance obligations and the basis for calculating each amount:

4. Investments

Investments consist of the following:

Investments of consolidated variable interest entities (“VIEs”) consist of the following:

Equity method investments

The Company’s equity method investments in Partnerships represent its ownership in certain specialized funds and customized separate accounts. The strategies and geographic location of investments within the Partnerships vary by fund. The Company has a 1% interest in substantially all of the Partnerships, representing a general partner interest. The Company’s other equity method investments represent its ownership in a technology company to develop an AI-powered investment assistant for private markets.

Fair value investments

The Company’s fair value investments represent a publicly traded security and investments in private equity funds, direct credit and equity investments that are held as collateral on the Company’s secured financing. The private equity fund investments can only be redeemed through distributions received from the liquidation of underlying investments of the fund, and the timing of distributions is currently indeterminable. The amortized cost of the assets held as collateral was $6,430 and $7,429 as of December 31, 2023 and March 31, 2023, respectively. The direct credit investments were debt securities classified as trading securities. Fair value investments are measured at fair value with unrealized gains and losses recorded in non-operating loss in the Condensed Consolidated Statements of Income.

The Company accounts for its secured financing at fair value under the fair value option. The primary reason for electing the fair value option is to mitigate volatility in earnings from using different measurement attributes. The significant input to the fair value of the secured financing is the fair value of the fair value investments delivered as collateral which are estimated using Level 3 inputs with the significant inputs as shown in Note 5 below.

The Company recognized a gain of $637 and a loss of $230 on fair value investments held as collateral during the three and nine months ended December 31, 2023, respectively, and a gain of $821 and $915 during the three and nine months ended December 31, 2022, respectively, that are recorded in non-operating (loss) income. The Company recognized a gain of $637 and a loss of $230 on the secured financing liability during the three and nine months ended December 31, 2023, respectively, and a loss of $821 and $915 during the three and nine months ended December 31, 2022, respectively, that are recorded in non-operating (loss) income in the Condensed Consolidated Statements of Income.

Investments valued under the measurement alternative

(1)Net unrealized gain (loss) consists of fair value adjustments for observable price changes of identical or similar investments.

The following table summarizes the cumulative gross unrealized gains and cumulative gross unrealized losses related to the Company’s investments under the measurement alternative:

5. Fair Value Measurements

The following tables summarize the Company’s financial assets and financial liabilities recorded at fair value by fair value hierarchy level:

(1)Secured financing is recorded within other liabilities in the Condensed Consolidated Balance Sheets.

(2) Investments are recorded at estimated fair value based upon the net asset value of the fund utilizing the practical expedient under ASC 820, “Fair Value Measurement.” The fair value amounts presented in this column are intended to permit reconciliation of the fair value hierarchy to the amounts presented in Note 4.

The following is a reconciliation of other investments for which significant unobservable inputs (Level 3) were used in determining fair value:

The following is a reconciliation of investments held by our consolidated VIEs for which significant

unobservable inputs (Level 3) were used in determining value:

The valuation methodologies, significant unobservable inputs, range of inputs and the weighted average input determined based upon relative fair value of the investments used in recurring Level 3 fair value measurements of financial assets were as follows, as of December 31, 2023:

For the significant unobservable inputs listed in the tables above: (1) a significant increase or decrease in the selected market return would result in a significantly higher or lower fair value measurement, respectively; and (2) a significant increase or decrease in the selected multiple would result in a significantly higher or lower fair value measurement, respectively.

6. Variable Interest Entities

The Company holds variable interests in entities that are considered variable interest entities (“VIEs”) because limited partners lack the ability to remove the general partner or dissolve the entity without cause by simple majority vote (i.e., limited partners do not have substantive “kick out” or “liquidation” rights). The Company’s variable interest in such entities is in the form of direct equity interests in, and/or fee arrangements with, the Partnerships in which it also serves as the general partner or managing member. In the Company’s role as general partner or managing member, it generally considers itself the sponsor of the applicable Partnership and makes all investment and operating decisions. The Company consolidates VIEs in which it is determined that the Company is the primary beneficiary.

Consolidated Variable Interest Entities

The Company consolidates general partner entities of certain Partnerships that are not wholly-owned by the Company. The assets of the consolidated general partner VIEs represent equity method-investments in direct investment funds and customized separate accounts. The assets may only be used to settle obligations of the respective consolidated VIEs, if any. In addition, there is no recourse to the Company for the consolidated VIEs’ liabilities, except for certain entities in which there could be a clawback of previously distributed carried interest.

The Company previously consolidated a Partnership in which it was the primary beneficiary. On October 1, 2023, the Company no longer qualified as the primary beneficiary and deconsolidated all the assets and liabilities of the non-controlling interest in the Partnership from the condensed consolidated financial statements. No gain or loss was recognized as part of the deconsolidation for the three and nine months ended December 31, 2023. Subsequent to the deconsolidation of the Partnership, the Company records its interest in the Partnership using the equity method, within investments in the Condensed Consolidated Balance Sheets.

Nonconsolidated Variable Interest Entities

Certain Partnerships that are VIEs are not consolidated because the Company has determined it is not the primary beneficiary based upon the Company’s equity interest percentage in each of the applicable VIEs. As of December 31, 2023, the total remaining unfunded commitments from the Company’s general partner entities to the nonconsolidated VIEs was $157,092. Investor commitments are the primary source of financing for the nonconsolidated VIEs.

The maximum exposure to loss represents the potential loss of assets recognized by the Company relating to these nonconsolidated VIEs. The Company believes that its maximum exposure to loss is limited because it establishes separate limited partnerships or limited liability companies to serve as the general partner or managing member of the Partnerships.

The carrying value of assets and liabilities recognized in the Condensed Consolidated Balance Sheets related to the Company’s interests in these nonconsolidated VIEs and the Company’s maximum exposure to loss relating to non-consolidated VIEs were as follows:

7. Debt

The Company’s debt consisted of the following:

The carrying value of the Company’s outstanding debt as of December 31, 2023 and March 31, 2023 approximated fair value except for the 2020 multi-draw facility, which had an estimated fair value of $88,588 and $88,136 as of December 31, 2023 and March 31, 2023, respectively. The estimated fair value of debt is based on then-current market rates for similar debt instruments and is classified as Level 2 within the fair value hierarchy.

8. Equity

The following table shows a rollforward of the Company’s common stock outstanding since March 31, 2023:

9. Equity Based Compensation

Restricted Stock Awards

A summary of restricted stock activity for the nine months ended December 31, 2023 is presented below:

As of December 31, 2023, total unrecognized compensation expense related to restricted stock was $17,531.

Performance Awards

A summary of performance award activity for the nine months ended December 31, 2023 is presented below:

As of December 31, 2023, total estimated unrecognized expense related to the unvested performance awards was $11,092 and none of the performance awards have met their market price-based vesting condition.

10. Compensation and Benefits

The Company has recorded the following amounts related to compensation and benefits:

11. Income Tax

The Company’s effective tax rate used for interim periods is based on an estimated annual effective tax rate including the tax effect of items required to be recorded discretely in the interim period in which those items occur. The effective tax rate is dependent on many factors, including the estimated amount of income subject to income tax; therefore, the effective tax rate can vary from period to period. The Company evaluates the realizability of its deferred tax asset on a quarterly basis and adjusts the valuation allowance when it is more likely than not that all or a portion of the deferred tax asset may not be realized.

The Company’s effective tax rate was 31.4% and 18.5% for the three and nine months ended December 31, 2023, respectively, and 35.0% and 22.2% for the three and nine months ended December 31, 2022, respectively. The effective tax rates were different from the statutory tax rates due to the portion of income allocated to non-controlling interests, valuation allowance recorded against deferred tax assets and discrete tax adjustments to true-up prior fiscal year estimated investment taxable income to actual investment taxable income reported to the Company after the prior fiscal year end.

As of December 31, 2023, the Company hadno unrecognized tax positions and believes there will be no changes to uncertain tax positions within the next 12 months.

12. Earnings per Share

Shares of the Company’s Class B common stock do not share in the earnings or losses attributable to HLI, and, therefore, are not participating securities. As a result, a separate presentation of basic and diluted earnings per share of Class B common stock under the two-class method has not been included. Shares of the Company’s Class B common stock are, however, considered potentially dilutive to the Class A common stock because the Class B units to which the Class B common stock corresponds are exchangeable for shares of Class A common stock on aone-for-one basis, at which time the share of Class B common stock is surrendered in exchange for a payment of its par value.

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock:

The adjustments to net income for dilutive securities are based upon the additional income that would be allocated to HLI for the change in its ownership percentage due to the dilutive securities and adjusted for the incremental income tax expense related to the additional allocated income. Net income (loss) recorded by HLI on a standalone basis will determine if the Class B and Class C units are dilutive or antidilutive in each respective period.

The calculation of diluted earnings per share excludes 502,336 and 509,641 weighted-average shares underlying performance awards for the three and nine months ended December 31, 2023, respectively, as the market condition was not achieved as of December 31, 2023.

13. Related Party Transactions

The Company considers its employees, directors, and equity method investments to be related parties.

Revenue and Receivables

The Company has investment management agreements with various specialized funds and customized separate accounts that it manages. The Company earned management and advisory fees from Partnerships of $87,482 and $251,502 for the three and nine months ended December 31, 2023, respectively, and $70,929 and $198,973 for the three and nine months ended December 31, 2022, respectively. The Company earned incentive fees from Partnerships of $11,432 and $46,659 for the three and nine months ended December 31, 2023, respectively, and $28,652 and $137,545 for the three and nine months ended December 31, 2022, respectively.

Fees receivable from the Partnerships were $51,760 and $31,684 as of December 31, 2023 and March 31, 2023, respectively, and are included in fees receivable in the Condensed Consolidated Balance Sheets.

14. Supplemental Cash Flow

15. Commitments and Contingencies

Litigation

In the ordinary course of business, the Company may be subject to various legal, regulatory, and/or administrative proceedings from time to time. Although there can be no assurance of the outcome of such proceedings, in the opinion of management, the Company does not believe it is probable that any pending or, to its knowledge, threatened legal proceeding or claim would individually or in the aggregate materially affect its condensed consolidated financial statements.

Incentive Fees

The Partnerships have allocated carried interest still subject to contingencies that did not meet the Company’s criteria for revenue recognition in the amounts of $1,125,678 and $1,022,250, net of amounts attributable to non-controlling interests, at December 31, 2023 and March 31, 2023, respectively.

If the Company ultimately receives the unrecognized carried interest, a total of $281,419 and $255,562 as of December 31, 2023 and March 31, 2023, respectively, would potentially be payable to certain employees and third parties pursuant to compensation arrangements related to carried interest profit-sharing plans. Such amounts have not been recorded in the Condensed Consolidated Balance Sheets or Condensed Consolidated Statements of Income as the payment is not yet probable.

Commitments

The Company serves as the investment manager of the Partnerships. The general partner or managing member of each Partnership is generally a separate subsidiary of the Company and has agreed to invest funds on the same basis as the limited partners in most instances. The Company’s aggregate unfunded commitment to the Partnerships was $232,227 and $211,556 as of December 31, 2023 and March 31, 2023, respectively.

The Company has an unrealized net gain on its investments valued under the measurement alternative and a fair value investment of $30,429 as of December 31, 2023, of which up to 15% may be paid as a discretionary bonus as those gains are realized.

The Company offers an Employee Investment Program (“EIP”) through which certain employees are able to invest directly into certain Company managed funds as individual limited partners (“LPs”). The employees also have an option to enter into a loan agreement with the Company or a third-party lender to fund committed capital. The loan is collateralized by the underlying LP interest in the fund and return of capital distributions are utilized to pay the outstanding loan balance. The Company entered into a separate agreement with the third-party lender to backstop the employee’s performance under the loan with a commitment to purchase the LP interest from the lender at the greater of fair value or the outstanding balance of the loan in the event of a default by the employee. As of December 31, 2023, the total amount of outstanding loans at the third-party lender under the EIP was $736, and the Company believes the risk of default by an employee to be remote.

Leases

The Company’s leases consist primarily of operating leases for office space and office equipment in various locations around the world. Some leases have the option to extend for an additional term or terminate early. Short-term lease costs are not material.

The following table shows lease costs and other supplemental information related to the Company’s operating leases:

As of December 31, 2023, the maturities of operating lease liabilities were as follows:

16. Subsequent Events

On February 6, 2024, the Company announced a quarterly dividend of $0.445 per share of Class A common stock to record holders at the close of business on March 15, 2024. The payment date will be April 4, 2024.