Business context and reporting period
Hamilton Lane Incorporated is a private-markets investment manager and adviser. This Form 10-K covers the fiscal year ended March 31, 2018, not calendar 2017 Q4. The company reported approximately $54 billion of assets under management (AUM) and $397 billion of assets under advisement (AUA), serving more than 450 institutions and intermediaries.
Its services include customized separate accounts, specialized funds, investment advisory, distribution management, and reporting and analytics. The company operates as a holding company controlling Hamilton Lane Advisors, L.L.C.; legacy owners retain substantial economic interests and voting control.
Financial and operating highlights
| Metric | FY2018 | FY2017 |
|---|---|---|
| Total revenue | $244.0 million | $179.8 million |
| Management and advisory fees | $195.0 million | $172.7 million |
| Incentive fees | $49.0 million | $7.1 million |
| Total expenses | $121.1 million | $103.7 million |
| Consolidated net income | $106.3 million | $74.4 million |
| Net income attributable to Hamilton Lane Incorporated | $17.3 million | $0.6 million |
| Operating cash flow | $96.7 million | $81.7 million |
| Cash and cash equivalents at year-end | $47.6 million | $32.3 million |
| Debt at year-end | $84.2 million | $84.3 million |
- Revenue increased 36%; management and advisory fees rose 13%, reflecting higher fee-earning AUM, new and expanded accounts, and fund activity.
- Fee-earning AUM increased 14% to $30.7 billion: customized separate accounts were $20.9 billion and specialized funds $9.8 billion. Total AUM was $54 billion; AUA was $397 billion.
- Fee Related Earnings, a non-GAAP measure, were $81.2 million versus $72.3 million. Adjusted EBITDA, also non-GAAP, was $132.6 million versus $83.0 million. The filing cautions that these measures are not substitutes for GAAP results.
- FY2018 basic and diluted Class A EPS were $0.94 and $0.93. FY2017 EPS of $0.03 covers only the period after the March 2017 IPO, so it is not a full-year comparison.
- Cash flow from investing activities was negative $21.8 million, including investment contributions and the RAPM acquisition. Financing cash outflow was $59.7 million, including debt repayments, distributions, and dividends.
- Debt comprised approximately $73.7 million under a term loan and $10.5 million drawn on a $25 million revolving facility. Cash less reported debt was approximately $36.6 million; this simple calculation excludes restricted cash and other liquidity considerations.
- Contractual obligations totaled $215.2 million, including $101.1 million of investment commitments, $84.5 million of debt principal, and $18.3 million of operating leases.
Material changes and unusual items
- Incentive fees rose by $41.9 million. This included $40.6 million of previously deferred carried interest recognized in FY2018 after contingencies were resolved. The recognition was non-cash in FY2018; the related $38.9 million had been received in FY2016 and deferred.
- The $40.6 million item represented approximately 17% of FY2018 total revenue. Incentive fees are contingent and may vary substantially between periods.
- Income tax expense increased to $33.3 million from $0.3 million, with a 23.9% effective rate versus 0.4%. The change reflects the post-IPO corporate structure and the Tax Cuts and Jobs Act, including provisional tax-reform effects; the filing states the tax analysis was not complete.
- Other income included a $5.0 million non-cash benefit from remeasurement of the tax receivable agreement liability following tax-rate changes. Interest expense declined to $6.0 million from $14.6 million, reflecting lower debt and refinancing-related items.
- The company raised approximately $125.2 million net in a March 2018 share offering and used all proceeds to cash-settle exchanges of HLA units. In August 2017 it acquired RAPM for approximately $5.8 million, with an additional estimated $6.1 million contingent on continued employment of the principals; that amount is treated as compensation, not purchase consideration.
- The board declared $0.70 per Class A share in FY2018 dividends. A subsequent quarterly dividend of $0.2125 per share was declared in June 2018.
Outlook, risks and contingencies
The filing provides no quantified forward guidance. Management describes investor demand for alternatives, global expansion, product development, and data capabilities as growth opportunities, while emphasizing dependence on investment performance, fundraising, access to attractive opportunities, and the ability to sustain fees.
- Key business risks include competition and fee compression; short-notice termination or non-renewal of advisory and separate-account contracts; market, valuation, liquidity, and leverage risks in private investments; and reliance on key investment professionals and fund-manager relationships.
- Regulatory, tax, and compliance risks include evolving U.S. and foreign rules, the Tax Act, GDPR, MiFID II, ERISA requirements, and potential scrutiny of fees, conflicts, and valuation practices.
- The company’s debt is secured by substantially all HLA assets and includes financial and operating covenants. Floating-rate exposure was estimated to add $0.8 million of annual interest expense for a 100-basis-point rate increase.
- The tax receivable agreement requires payment to legacy owners of 85% of specified realized or deemed tax benefits. Payments may be substantial and, in specified circumstances, accelerated; the recorded liability was $34.1 million at year-end.
- Unrecognized carried interest allocated by partnerships was $303.8 million, subject to continuing contingencies. If ultimately received, up to $75.3 million could be payable to employees and third parties; this amount was not recorded as a liability.
- Management reported no material pending or threatened legal proceedings. It concluded disclosure controls and internal control over financial reporting were effective at March 31, 2018; the auditor did not attest to internal-control effectiveness because the company was an emerging growth company.
Important facts for investors to verify
- Separate recurring management and advisory fee growth from lumpy incentive fees, especially the $40.6 million deferred-carry recognition, and assess the cash economics of carried interest.
- Review the full GAAP-to-non-GAAP reconciliations and the allocation of consolidated earnings to non-controlling owners; FY2018 consolidated net income substantially exceeded income attributable to the public company.
- Assess liquidity against $101.1 million of investment commitments, scheduled debt service, dividend policy, and potential tax receivable agreement payments.
- Check the assumptions and remaining provisional items in the Tax Act accounting, deferred tax assets, and tax receivable agreement liability.
- Consider governance and dilution: Class B holders controlled approximately 91.7% of combined voting power, and substantial Class B and Class C units remained exchangeable into Class A shares.
- Do not treat fund performance tables as a proxy for Class A stock returns; reported fund returns include unrealized valuations and exclude Hamilton Lane’s own fees and expenses.