Hamilton Lane Incorporated — FY2021 Form 10-K
Reporting period: Fiscal year ended March 31, 2021. The filing is an annual report, not a 2020 calendar-year or standalone fourth-quarter filing; it also provides unaudited results for the quarter ended March 31, 2021. Hamilton Lane is a global private-markets investment solutions provider. At year-end it reported approximately $88 billion of assets under management (AUM) and $631 billion of assets under advisement (AUA).
Financial performance and liquidity
- Revenue: $341.6 million, up 25% from $274.0 million. Management and advisory fees rose 18% to $289.4 million; incentive fees increased to $52.2 million from $29.1 million.
- Earnings: Income before tax was $193.2 million; consolidated net income was $168.8 million, compared with $126.8 million. Net income attributable to Hamilton Lane Incorporated was $98.0 million, up from $60.8 million. Diluted Class A EPS was $2.81 versus $2.15.
- Margins: Consolidated net income was about 49% of revenue; net income attributable to the Company was about 29%. Non-GAAP Fee Related Earnings (FRE) were $130.0 million (about 38% of revenue), and Adjusted EBITDA was $168.2 million (about 49%). These non-GAAP measures are not substitutes for GAAP results.
- Cash flow: Operating cash flow was $188.2 million, up from $116.4 million. Investing activities used $421.8 million, including $276.0 million placed in the SPAC trust and $90.5 million of other investment purchases. Financing activities provided $270.7 million. Year-end cash and cash equivalents were $87.0 million.
- Debt and liquidity: Debt principal was $163.6 million, versus $75.0 million a year earlier. The filing reported $35 million of additional availability under its loan agreements at March 31, 2021. Debt is secured by substantially all HLA assets and subject to financial and other covenants.
- Other metrics: Fee-earning AUM increased 9% to $42.0 billion. Class A dividends declared totaled $1.25 per share for FY2021. The Company reported total assets of $1.14 billion and total liabilities of $546.3 million.
- March-quarter results: Revenue was $102.9 million, consolidated net income was $64.6 million, net income attributable to the Company was $39.8 million, and diluted EPS was $1.00.
Material changes versus prior year
- Revenue growth reflected higher specialized-fund fees, customized-account activity and incentive fees. The latest secondary fund added $2.2 billion of fee-earning AUM and generated $18.2 million of retroactive management fees in FY2021.
- Compensation and benefits rose 36% to $136.3 million, mainly due to higher base compensation and bonus accruals. General, administrative and other expenses fell $7.9 million, partly because COVID-19 reduced travel costs.
- Other income increased, with equity income of investees rising to $32.4 million from $20.7 million. The Company’s ownership of HLA increased to approximately 67.2% from 55.1%, including exchanges funded through public offerings.
- Debt increased by $88.6 million in principal year over year. Investments and total assets also increased substantially, in part because the Company consolidated its SPAC and included its $276 million trust assets.
Outlook, commentary, risks and unusual items
- Management cited continued investor interest in alternatives and opportunities to grow through new products, global expansion, distribution partnerships, data and analytics, and retail and defined-contribution channels. The filing provides no numerical earnings or revenue guidance.
- COVID-19 created uncertainty around fundraising, investment deployment, realizations, incentive fees, portfolio valuations and operations. Private-market investment valuations are reported on a three-month lag; management stated that liquidity was adequate at year-end.
- Key risks include volatile and unpredictable carried-interest revenue, competition and fee pressure, investment performance and illiquid valuations, client termination or non-renewal, fundraising and deployment pace, leverage and covenant compliance, cybersecurity and regulation, and the controlled-company voting structure. Class B holders held 82% of combined voting power.
- In January 2021, the Company’s sponsored SPAC raised $276 million. In March, HLA invested $90 million in Russell Investments. The March equity offering generated $118.7 million of net proceeds, which were used to settle HLA unit exchanges. After year-end, the Company acquired substantially all assets of 361 Capital for approximately $13 million and amended loan facilities to increase borrowing capacity.
- Potentially significant items include a $194.8 million payable under the tax receivable agreement, under which 85% of specified realized or deemed tax savings is payable to legacy HLA owners, and $201.4 million of unfunded commitments to the Company’s investments. Management did not believe pending or threatened legal matters were probable to materially affect the consolidated financial statements.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. Critical audit matters included incentive-fee revenue recognition and recognition of deferred tax assets related to equity offerings and unit exchanges.
Investor verification priorities
- Separate recurring management and advisory fees from incentive fees, retroactive fees and other investment-related income; assess how sustainable FY2021 growth is.
- Review fee-earning AUM, fundraising and deployment trends, fund terms, and the lag in underlying investment valuations.
- Assess debt maturities, interest-rate exposure, covenant headroom, committed investment funding and the distinction between Company cash and SPAC trust assets.
- Evaluate the tax receivable agreement liability, potential future payments and the assumptions supporting deferred tax asset realization.
- Consider dilution and governance: Class B voting control, future unit exchanges and share sales, and the Company’s ability to sustain dividends.