Hamilton Lane INC 10-K

Item 8. Financial Statements and Supplementary Data Index Page Reports of Independent Registered Public Accounting Firm (PCAOB ID Number 42 ) 97 Consolidated Balance Sheets 100 Consolidated Statements of Income 101 Consolidated Statements of Comprehensive Income 102 Consolidated Statements of Stockholders' Equity 103 Consolidated Statements of Cash Flows 104 Notes to Consolidated Financial Statements 106 96 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors of Hamilton Lane Incorporated Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Hamilton Lane Incorporated (the Company) as of March 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended March 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of March 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated May 26, 2022 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Recognition of Incentive Fee Revenue Description of the Matter For the year ended March 31, 2022, the Company recognized $53.7 million of incentive fee revenue. As explained in Note 2 to the consolidated financial statements, the Company considers incentive fees from specialized funds and customized separate accounts to be variable consideration which is constrained and recognized when it is probable that a significant reversal in the cumulative amount of incentive fee revenue will not occur. In evaluating incentive fees that are subject to contingencies as prescribed by the applicable fund or separate account documents, the Company estimates the amount and probability of additional future capital contributions that will be made from investors in specialized funds and customized separate accounts related to unfunded commitments or follow-on investment opportunities in investees. These estimates could impact the probability of a significant reversal in the cumulative amount of incentive fee revenue occurring. Auditing management’s assessment of whether it is probable that a significant reversal in the cumulative amount of incentive fee revenue will not occur is subjective and requires significant judgment, as the estimates described above are affected by future economic, market and investee-specific conditions. 97 How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls that address the risk of material misstatement relating to the recognition of incentive fee revenue. This included controls over management’s review of the estimates of the amount and probability of additional future capital contributions from investors in specialized funds and customized separate accounts. To test the recognition of incentive fee revenue, our audit procedures included, among others, evaluating the Company’s estimates of the amount and probability of additional future capital contributions described above. For example, we compared management’s assumptions about the probability that the investees will need additional capital to historical trends and financial information available from the investees, evaluated the change in the assumptions from the prior year and assessed the historical accuracy of management’s assumptions. We performed sensitivity analyses of management’s estimate of additional future capital contributions to evaluate the changes in the amount of incentive fee revenue recognized that would result from changes in the assumptions. In addition, we searched for and evaluated information that corroborated or contradicted management’s assumptions. Recognition of Net Deferred Tax Asset from Equity Offering and Unit Exchange Description of the Matter As further discussed in Note 12 to the consolidated financial statements, in connection with the Company’s equity offering and unit exchanges during the current year (the “Transactions”), the Company recorded a net deferred tax asset of $17.0 million. As further discussed in Note 2 to the consolidated financial statements, the resulting basis differences arising from the Transactions represent a temporary difference for which the Company records a deferred tax asset if it is more likely than not the deferred tax asset will be realized. Realization of this deferred tax asset is dependent upon, among other things, the future tax deductions of tax basis step-ups related to the Transactions. Auditing the Company’s recognition of the net deferred tax asset related to the Transactions is especially challenging, as the Company’s determination of the tax basis step-ups and related future tax deductions requires the application of complex tax laws and regulations for partnerships and the identification of historical basis differences. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s net deferred tax asset recognition process, including controls over management’s review of the determination of the tax basis step-ups and related future tax deductions and the identified historical basis differences described above. To test the recognition of the net deferred tax asset resulting from the Transactions, we involved tax subject matter professionals and performed procedures that included, among others, evaluating the technical merit of the Company’s determination of the tax basis step-ups and the related future tax deductions based on relevant tax law and regulations. We also used available tax-related information to evaluate the historical basis differences the Company used in its determination. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2008. Philadelphia, Pennsylvania May 26, 2022 98 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Hamilton Lane Incorporated Opinion on Internal Control Over Financial Reporting We have audited Hamilton Lane Incorporated’s internal control over financial reporting as of March 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Hamilton Lane Incorporated (the Company) maintained, in all material respects, effective internal control over financial reporting as of March 31, 2022, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of March 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended March 31, 2022, and the related notes and our report dated May 26, 2022 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Philadelphia, Pennsylvania May 26, 2022 99 Hamilton Lane Incorporated Consolidated Balance Sheets (In thousands, except share and per share amounts) March 31, 2022 2021 Assets Cash and cash equivalents $ 72,138 $ 87,025 Restricted cash 4,023 3,041 Fees receivable 51,869 29,202 Prepaid expenses 6,858 6,143 Due from related parties 1,872 2,495 Furniture, fixtures and equipment, net 28,842 23,308 Lease right-of-use assets, net 65,636 64,384 Investments 503,789 368,836 Deferred income taxes 245,046 251,949 Other assets 28,162 17,821 Assets of consolidated variable interest entities: Cash and cash equivalents 36 311 Investments held in trust 276,016 276,003 Investments 10,036 4,787 Other assets 623 1,214 Total assets $ 1,294,946 $ 1,136,519 Liabilities, redeemable non-controlling interests and equity Accounts payable 2,827 2,173 Accrued compensation and benefits 20,117 29,415 Accrued members’ distributions 27,119 16,877 Accrued dividend 12,947 11,201 Debt 171,326 163,175 Payable to related parties pursuant to tax receivable agreement 180,536 194,764 Lease liabilities 82,244 75,281 Other liabilities (includes $ 13,818 and $ 17,381 at fair value) 47,669 36,122 Liabilities of consolidated variable interest entities: Other liabilities 12,675 17,310 Total liabilities 557,460 546,318 Commitments and Contingencies (Note 16) Redeemable non-controlling interests 276,000 276,000 Preferred stock, $ 0.001 par value, 10,000,000 authorized, none issued — — Class A common stock, $ 0.001 par value, 300,000,000 authorized; 37,280,697 and 36,290,183 issued and outstanding as of March 31, 2022 and 2021, respectively 37 36 Class B common stock, $ 0.001 par value, 50,000,000 authorized; 16,033,359 and 16,739,846 issued and outstanding as of March 31, 2022 and 2021, respectively 16 17 Additional paid-in-capital 161,676 150,564 Retained earnings 185,149 87,512 Total Hamilton Lane Incorporated stockholders’ equity 346,878 238,129 Non-controlling interests in general partnerships 3,423 2,211 Non-controlling interests in Hamilton Lane Advisors, L.L.C. 111,185 73,861 Total equity 461,486 314,201 Total liabilities, redeemable non-controlling interests and equity $ 1,294,946 $ 1,136,519 See accompanying notes to the consolidated financial statements. 100 Hamilton Lane Incorporated Consolidated Statements of Income (In thousands, except per share amounts) Year Ended March 31, 2022 2021 2020 Revenues Management and advisory fees $ 314,228 $ 289,444 $ 244,920 Incentive fees 48,133 31,134 21,437 Consolidated variable interest entities related: Incentive fees 5,558 21,057 7,691 Total revenues 367,919 341,635 274,048 Expenses Compensation and benefits 129,165 136,319 100,138 General, administrative and other 68,040 49,210 57,481 Consolidated variable interest entities related: General, administrative and other 1,150 378 — Total expenses 198,355 185,907 157,619 Other income (expense) Equity in income of investees 78,813 32,389 20,731 Interest expense ( 4,634 ) ( 2,044 ) ( 2,816 ) Interest income 500 1,676 709 Non-operating income 64,469 5,894 6,172 Consolidated variable interest entities related: Equity in income (loss) of investees 483 ( 2,123 ) ( 481 ) Unrealized gains 4,485 2,141 — Interest expense ( 4 ) ( 459 ) — Total other income (expense) 144,112 37,474 24,315 Income before income taxes 313,676 193,202 140,744 Income tax expense 66,423 24,417 13,968 Net income 247,253 168,785 126,776 Less: Income (loss) attributable to non-controlling interests in general partnerships 376 ( 250 ) 85 Less: Income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C. 96,548 69,720 65,866 Less: Income attributable to redeemable non-controlling interests in Hamilton Lane Alliance Holdings I, Inc. 4,343 1,293 — Net income attributable to Hamilton Lane Incorporated $ 145,986 $ 98,022 $ 60,825 Basic earnings per share of Class A common stock $ 4.02 $ 2.82 $ 2.17 Diluted earnings per share of Class A common stock $ 3.98 $ 2.81 $ 2.15 Dividends declared per share of Class A common stock $ 1.40 $ 1.25 $ 1.10 See accompanying notes to the consolidated financial statements. 101 Hamilton Lane Incorporated Consolidated Statements of Comprehensive Income (In Thousands) Year Ended March 31, 2022 2021 2020 Net income $ 247,253 $ 168,785 $ 126,776 Other comprehensive income (loss), net of tax: Foreign currency translation — 130 ( 159 ) Total other comprehensive income (loss), net of tax — 130 ( 159 ) Comprehensive income $ 247,253 $ 168,915 $ 126,617 Less: Comprehensive income (loss) attributable to non-controlling interests in general partnerships 376 ( 250 ) 85 Comprehensive income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C. 96,548 69,772 65,792 Comprehensive income attributable to redeemable non-controlling interests in Hamilton Lane Alliance Holdings I, Inc. 4,343 1,293 — Total comprehensive income attributable to Hamilton Lane Incorporated $ 145,986 $ 98,100 $ 60,740 See accompanying notes to the consolidated financial statements. 102 Hamilton Lane Incorporated Consolidated Statements of Stockholders' Equity (In Thousands) Class A Common Stock Class B Common Stock Additional Paid in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Non-Controlling Interests in general partnerships Non-Controlling Interests in Hamilton Lane Advisors, L.L.C. Total Equity Balance at March 31, 2019 $ 27 $ 24 $ 92,482 $ 17,686 $ 7 $ 5,716 $ 53,780 $ 169,722 Net income — — — 60,825 — 85 65,866 126,776 Other comprehensive income — — — ( 85 ) — ( 74 ) ( 159 ) Equity-based compensation — — 3,830 — — — 3,405 7,235 Issuance of shares for contingent compensation payout — — 214 — — — 211 425 Purchase and retirement of Class A stock for tax withholding — — ( 3,227 ) — — — ( 2,654 ) ( 5,881 ) Deferred tax adjustment — — 6,526 — — — — 6,526 Dividends declared — — — ( 31,421 ) — — — ( 31,421 ) Capital contributions from (distributions to) non-controlling interests, net — — — — — ( 948 ) — ( 948 ) Member distributions — — — — — — ( 36,116 ) ( 36,116 ) Offerings adjustment 3 ( 2 ) 6,367 — — — ( 6,370 ) ( 2 ) Employee Share Purchase Plan share issuance — — 659 — — — 585 1,244 Vesting of restricted stock — — 333 — — — ( 333 ) — Equity reallocation between controlling and non-controlling interests — — 543 — — — ( 543 ) — Balance at March 31, 2020 $ 30 $ 22 $ 107,727 $ 47,090 $ ( 78 ) $ 4,853 $ 77,757 $ 237,401 Net income — — — 98,022 — ( 250 ) 69,720 167,492 Other comprehensive loss — — — — 78 — 52 130 Equity-based compensation — — 4,415 — — — 2,695 7,110 Purchase and retirement of Class A stock for tax withholding — — ( 3,935 ) — — — ( 2,084 ) ( 6,019 ) Deferred tax adjustment — — 19,252 — — — — 19,252 Dividends declared — — — ( 42,850 ) — — — ( 42,850 ) Capital contributions from (distributions to) non-controlling interests, net — — — — — ( 2,392 ) — ( 2,392 ) Member distributions — — — — — — ( 45,416 ) ( 45,416 ) Offering adjustment 6 ( 5 ) 21,684 — — — ( 21,690 ) ( 5 ) Employee Share Purchase Plan share issuance — — 900 — — — 547 1,447 Adjustment of redeemable non-controlling interest to redemption value — — — ( 14,750 ) — — ( 7,199 ) ( 21,949 ) Equity reallocation between controlling and non-controlling interests — — 521 — — — ( 521 ) — Balance at March 31, 2021 $ 36 $ 17 $ 150,564 $ 87,512 $ — $ 2,211 $ 73,861 $ 314,201 Net income — — — 145,986 — 376 96,548 242,910 Other comprehensive income — — — — — — — — Equity-based compensation — — 5,040 — — — 2,364 7,404 Purchase and retirement of Class A stock for tax withholding — — ( 2,204 ) — — — ( 1,281 ) ( 3,485 ) Deferred tax adjustment — — 2,747 — — — — 2,747 Dividends declared — — — ( 51,376 ) — — — ( 51,376 ) Capital contributions from (distributions to) non-controlling interests, net — — — — 836 — 836 Member distributions — — — — — — ( 57,953 ) ( 57,953 ) Offerings adjustment 1 ( 1 ) 4,097 — — — ( 4,098 ) ( 1 ) Employee Share Purchase Plan share issuance — — 1,265 — — — 595 1,860 Adjustment of redeemable non-controlling interest to redemption value — — — 3,027 — — 1,316 4,343 Equity reallocation between controlling and non-controlling interests — — 167 — — — ( 167 ) — Balance at March 31, 2022 $ 37 $ 16 $ 161,676 $ 185,149 $ — $ 3,423 $ 111,185 $ 461,486 See accompanying notes to the consolidated financial statements. 103 Hamilton Lane Incorporated Consolidated Statements of Cash Flows (In Thousands) Year Ended March 31, 2022 2021 2020 Operating activities: Net income $ 247,253 $ 168,785 $ 126,776 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,495 4,134 3,291 Change in deferred income taxes 23,944 7,027 7,929 Change in payable to related parties pursuant to tax receivable agreement ( 5,332 ) 897 ( 346 ) Equity-based compensation 7,404 7,079 7,183 Equity in income of investees ( 78,813 ) ( 32,389 ) ( 20,731 ) Gain on sale of investments valued under the measurement alternative ( 11,936 ) — ( 4,973 ) Fair value adjustment to investments valued under the measurement alternative ( 47,487 ) ( 6,229 ) ( 1,507 ) Proceeds received from partnerships 46,817 784 12,761 Non-cash lease expense 9,890 7,376 4,643 Other ( 815 ) 1,571 789 Changes in operating assets and liabilities: Fees receivable ( 22,667 ) 1,182 ( 10,003 ) Prepaid expenses ( 683 ) 845 ( 2,272 ) Due from related parties 623 110 23 Other assets 20 ( 549 ) ( 1,572 ) Accounts payable 654 205 ( 654 ) Accrued compensation and benefits ( 9,298 ) 18,611 ( 987 ) Lease liability ( 3,330 ) 3,105 ( 5,014 ) Other liabilities 12,311 10,003 556 Consolidated variable interest entities related: Unrealized gain on warrants measured at fair value ( 4,485 ) ( 2,141 ) — Equity in (income) loss of investees ( 483 ) 2,123 481 Change in deferred incentive fee revenue — ( 3,704 ) — Other assets and liabilities 441 ( 667 ) — Net cash provided by operating activities $ 169,523 $ 188,158 $ 116,373 Investing activities: Purchase of furniture, fixtures and equipment $ ( 8,526 ) $ ( 18,637 ) $ ( 1,978 ) Purchase of investments valued under the measurement alternative ( 18,997 ) ( 90,500 ) ( 3,967 ) Distributions received from investments valued under the measurement alternative 12,739 3,072 — Proceeds from sales of investments valued under the measurement alternative 12,623 — 6,419 Acquisition of business ( 10,096 ) — — Purchase of intangible assets — ( 1,000 ) ( 4,172 ) Loan to investee — — ( 157 ) Distributions received from partnerships 15,010 31,195 7,687 Contributions to investments ( 73,240 ) ( 69,911 ) ( 53,732 ) Consolidated variable interest entities related: Purchase of investments held in trust — ( 276,000 ) — Net cash used in investing activities $ ( 70,487 ) $ ( 421,781 ) $ ( 49,900 ) 104 Year Ended March 31, 2022 2021 2020 Financing activities: Proceeds from offering $ 73,833 $ 473,339 $ 147,122 Purchase of membership interests ( 73,833 ) ( 473,339 ) ( 147,122 ) Repayments of long term debt ( 1,840 ) ( 1,406 ) ( 71,250 ) Borrowings of debt, net of deferred financing costs 25,000 75,000 74,765 Drawdown of revolver — 15,000 15,000 Repayment of revolver ( 15,000 ) — ( 15,000 ) Secured financing — — 15,750 Repurchase of Class B common stock ( 1 ) ( 5 ) ( 2 ) Repurchase of Class A common stock for employee tax withholding ( 3,485 ) ( 6,019 ) ( 5,881 ) Proceeds received from issuance of shares under employee stock plans 1,860 1,447 1,244 Payments to related parties pursuant to the tax receivable agreement ( 23,170 ) ( 6,894 ) ( 1,952 ) Dividends paid ( 49,630 ) ( 39,676 ) ( 29,067 ) Members’ distributions paid ( 47,711 ) ( 34,368 ) ( 47,368 ) Other ( 75 ) — — Consolidated variable interest entities related: Contributions from non-controlling interest in general partnerships 1,424 252 45 Distributions to non-controlling interest in general partnerships ( 588 ) ( 2,644 ) ( 993 ) Proceeds from issuance of Class A units of Hamilton Lane Alliance Holdings I, Inc. — 276,000 — Offering costs paid for issuance of Class A units of Hamilton Lane Alliance Holdings I, Inc. — ( 6,027 ) — Net cash (used in) provided by financing activities $ ( 113,216 ) $ 270,660 $ ( 64,709 ) Effect of exchange rate changes on cash and cash equivalents $ — $ 130 $ ( 144 ) (Decrease) increase in cash, cash equivalents, and restricted cash ( 14,180 ) 37,167 1,620 Cash, cash equivalents and restricted cash at beginning of year 90,377 53,210 51,590 Cash, cash equivalents and restricted cash at end of year $ 76,197 $ 90,377 $ 53,210 Reconciliation of Cash and Cash Equivalents, Restricted Cash and Cash and Cash Equivalents Held at Consolidated Variable Interest Entities to the Consolidated Statements of Financial Condition: Cash and cash equivalents $ 72,138 $ 87,025 $ 50,124 Restricted cash 4,023 3,041 3,086 Cash and cash equivalents held at consolidated variable interest entities 36 311 — Total cash and cash equivalents, restricted cash, and cash and cash equivalents held at consolidated variable interest entities $ 76,197 $ 90,377 $ 53,210 See accompanying notes to the consolidated financial statements. 105 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) 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, payable 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 March 31, 2022 and 2021, HLI held approximately 68.9 % and 67.2 %, respectively, 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, 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 consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying financial statements include the accounts of the Company, and its consolidated subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. COVID-19 The COVID-19 pandemic continues to impact global economic markets. Given the amount of uncertainty regarding the scope and duration of the COVID-19 pandemic, it is not possible to predict the precise impact it will have on the Company’s financial statements. In addition, certain impacts may not be reported in the current quarter due to the Company’s investments in partnerships and unrealized carried interest amounts, which are reported on a three month lag, as discussed below in “Accounting for Differing Fiscal Periods” . 106 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Consolidation The Company performs an analysis to determine whether it is required to consolidate entities, by determining if the Company has a variable interest in each entity and whether that entity is a variable interest entity (“VIE”). The Company performs the variable interest analysis for all entities in which it has a potential variable interest, which primarily consist of all entities where the Company serves as the sponsor, general partner or managing member, and general partner entities not wholly owned by the Company. If the Company has a variable interest in the entity and the entity is a VIE, it will also analyze whether the Company is the primary beneficiary of this entity and whether consolidation is required. In evaluating whether it has a variable interest in the entity, the Company reviews the equity ownership and whether the Company absorbs risk created and distributed by the entity, as well as whether the fees charged to the entity are customary and commensurate with the level of effort required to provide services. Fees received by the Company are not variable interests if (i) the fees are compensation for services provided and are commensurate with the level of effort required to provide those services, (ii) the service arrangement includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm’s length and (iii) the Company’s other economic interests in the VIE held directly and indirectly through its related parties, as well as economic interests held by related parties under common control, where applicable, would not absorb more than an insignificant amount of the entity’s losses or receive more than an insignificant amount of the entity’s benefits. Evaluation of these criteria requires judgment. For entities determined to be VIEs, an evaluation is required to determine whether the Company is the primary beneficiary. The Company evaluates its economic interests in the entity specifically determining if the Company has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance (“the power”) and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE (“the benefits”). When making the determination on whether the benefits received from an entity are significant, the Company considers the total economics of the entity, and analyzes whether the Company’s share of the economics is significant. The Company utilizes qualitative factors, and, where applicable, quantitative factors, while performing the analysis. VIEs for which the Company is the primary beneficiary have been included in the Company’s consolidated financial statements. The portion of the consolidated subsidiaries owned by third parties and any related activity is eliminated through non-controlling interests in the Consolidated Balance Sheets and income (loss) attributable to non-controlling interests in the Consolidated Statements of Income. For entities that are not determined to be VIEs, the Company analyzes whether it has control through a majority voting interest to determine if consolidation is required. At each reporting date, the Company determines whether any reconsideration events have occurred that require it to revisit the primary beneficiary analysis and will consolidate or deconsolidate accordingly. See Note 6 for additional disclosure on VIEs. 107 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) 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 Consolidated Balance Sheets during the three month lag period. The Company’s revenue earned from Partnerships, including both management and advisory fee revenue and incentive fee revenue, is not accounted for on a lag. To the extent that management is aware of material events that affect the Partnerships during the intervening period, the impact of the events would be disclosed in the Notes to Consolidated Financial Statements. Foreign Currency The Company and substantially all of its foreign subsidiaries utilize the U.S. dollar as their functional currency. The assets and liabilities of the Company’s foreign subsidiaries with non-U.S. dollar functional currencies are translated at exchange rates prevailing at the end of each reporting period. The results of foreign operations are translated at the weighted average exchange rate for each reporting period. Translation adjustments are included in other comprehensive income (loss) within the consolidated financial statements until realized. Foreign currency transaction gains (losses) are included in general, administrative and other expenses in the Consolidated Statements of Income and were $ 281 , $ 78 , and $( 103 ) for the years ended March 31, 2022, 2021 and 2020, respectively. Cash, Cash Equivalents and Restricted Cash Cash deposits in interest-bearing money market accounts and highly liquid investments, with an original maturity of three months or less, are classified as cash equivalents. Interest earned on cash and cash equivalents is recorded as interest income in the Consolidated Statements of Income. Restricted cash at March 31, 2022 and 2021 was primarily cash held by the Company’s foreign subsidiaries to meet applicable government regulatory capital requirements. Investments Held in Trust by Consolidated Variable Interest Entities Investments held in trust represent an actively-traded money market fund of Hamilton Lane Alliance Holdings I, Inc. (“HLAH”), a consolidated special purpose acquisition company (“SPAC”), that is invested in U.S. Treasury securities purchased with funds raised through the initial public offering of the consolidated entity. Investments held in trust are classified as trading securities and are presented on the balance sheet at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of these securities are included in unrealized gains of consolidated variable interest entities on the Consolidated Statements of Income. The estimated fair values of investments held in the trust account are determined using 108 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) quoted prices in an active market and therefore are classified in Level 1 of the fair value hierarchy, as described in “Fair Value of Financial Instruments” below. Fees Receivable Fees receivable are equal to contractual amounts reduced for allowances, if applicable. The Company considers fees receivable to be fully collectible; accordingly, no allowance for doubtful accounts has been established as of March 31, 2022 or 2021. Due from Related Parties Due from related parties in the Consolidated Balance Sheets consist primarily of advances made on behalf of the Partnerships for the payment of certain operating costs and expenses for which the Company is subsequently reimbursed and refundable tax distributions made to members of HLA. Furniture, Fixtures and Equipment Furniture, fixtures and equipment consist primarily of leasehold improvements, office equipment, furniture and fixtures, and computer hardware and software and are recorded at cost, less accumulated depreciation. Depreciation is recognized in accordance with the straight-line method over the estimated useful lives as follows: Computer hardware and software 3 - 7 years Furniture and fixtures 5 years Office equipment 3 years Leasehold improvements are capitalized and depreciated over the shorter of their useful life or the life of the lease. Expenditures for improvements that extend the useful life of an asset are capitalized. Expenditures for ordinary repairs and maintenance are expensed as incurred. Leases The Company determines whether an arrangement contains a lease at inception. A lease is a contract that provides the right to control an identified asset for a period of time in exchange for consideration. For identified leases, the Company determines whether it should be classified as an operating or finance lease. The Company accounts for lease components and non-lease components as a single lease component. Lease right of use (“ROU”) assets and lease liabilities are recognized at the commencement date of the lease and measured based on the present value of lease payments over the lease term. Lease ROU assets include initial direct costs incurred by the Company and are presented net of deferred rent and lease incentives. Generally, the Company’s leases do not provide an implicit rate and as a result, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Some leases have the option to extend for an additional term or terminate early. Where it is reasonably certain that the Company will exercise the option, the option has been included in the lease term and reflected in the ROU asset and liability. The Company does not recognize a lease ROU asset or lease liability for short-term leases, which have lease terms of 12 months or less. Lease expense for lease payments on operating leases is recognized on a straight-line basis over the lease term. 109 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) Intangibles and Goodwill The Company’s intangible assets consist of customer relationship assets identified as part of previous acquisitions and purchased software. Identifiable finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from 7 to 10 years. The Company does not hold any indefinite-lived intangible assets. Intangible assets are reviewed for impairment quarterly, or when events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company has no t recognized any impairment charges in any of the periods presented. The carrying value of the intangible assets was $ 12,567 and $ 7,925 , and is included in other assets in the Consolidated Balance Sheets as of March 31, 2022 and 2021, respectively. The accumulated amortization of intangibles was $ 5,668 and $ 3,165 as of March 31, 2022 and 2021, respectively. Amortization of intangible assets was $ 2,503 , $ 1,403 , and $ 607 for each of the years in the three-year period ended March 31, 2022, respectively, and is included in general, administrative and other expenses in the Consolidated Statements of Income. The estimated amortization expense for each of the next five fiscal years is $ 2,499 , $ 2,458 , $ 2,458 , $ 2,222 , and $ 1,911 , respectively. Goodwill of $ 9,566 and $ 3,943 as of March 31, 2022 and 2021, respectively, is included in other assets in the Consolidated Balance Sheets and was recorded in conjunction with previous acquisitions. Goodwill is reviewed for impairment at least annually utilizing a qualitative or quantitative approach, and more frequently if circumstances indicate impairment may have occurred. The impairment testing for goodwill under the qualitative approach is based first on a qualitative assessment to determine if it is more likely than not that the fair value of the Company’s reporting unit is less than the respective carrying value. The reporting unit is the reporting level for testing the impairment of goodwill. If it is determined that it is more likely than not that a reporting unit’s fair value is less than its carrying value or when the quantitative approach is used, a two-step quantitative assessment is performed to (a) calculate the fair value of the reporting unit and compare it to its carrying value, and (b) if the carrying value exceeds its fair value, to measure an impairment loss. The Company performed the annual impairment assessment as of December 31, 2021 noting that no goodwill impairment existed. Equity Method Investments Investments over which the Company is deemed to exert significant influence but not control are accounted for using the equity method of accounting. For investments accounted for under the equity method of accounting, the Company’s share of income (losses) is included in equity in income of investees in the Consolidated Statements of Income. The Company’s equity in income of investees is generally comprised of realized and unrealized gains from the underlying funds and portfolio companies held by the Partnerships. The carrying amounts of equity method investments are reflected in investments in the Consolidated Balance Sheets. 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. 110 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) • Level 2: Values are determined using quoted prices for similar financial instruments and valuation models whose inputs are observable. • Level 3: V alues 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 Company uses these levels of hierarchy to measure the fair value of certain financial instruments on a recurring basis, such as for investments; on a non-recurring basis, such as for acquisitions and impairment testing; for disclosure purposes, such as for long-term debt; and for other applications, as discussed in their respective notes. 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. Redeemable Non-Controlling Interest Redeemable non-controlling interests represent the Class A shares issued by HLAH that are redeemable for cash by the public stockholders in the event of HLAH’s failure to complete a business combination or tender offer. The redeemable non-controlling interests are initially recorded at their original issue price, net of issuance costs and the initial fair value of separately traded warrants. The carrying amount was accreted to its full redemption value at March 31, 2022 and 2021. Derivative Warrant Liabilities Held by Consolidated Variable Interest Entities The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives pursuant to ASC 480 and ASC 815-15. The classification of derivative instruments, including whether such instrument should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Both the public warrants and private placement warrants issued in connection with the initial public offering of HLAH are recognized as derivative liabilities in accordance with ASC 815-40. Accordingly, the Company recognizes the warrant instruments as liabilities at fair value within other liabilities of consolidated variable interest entities in the Consolidated Balance Sheet. At each reporting period, the Company adjusts the instruments to fair value with any change in fair value recognized in unrealized gains of consolidated variable interest entities in Consolidated Statement of Income. The fair value of the public warrants have been measured based on the listed market price of such warrants, a Level 1 measurement, at March 31, 2021. The fair value of the private placement warrants have been estimated based on the observed price for the public warrants, a Level 2 measurement, at March 31, 2022 and 2021. Revenues Management and advisory fees The Company earns management fees from services provided to its specialized funds, customized separate accounts, and distribution management clients, and advisory fees from services provided to advisory clients where the Company does not have discretion over investment decisions. Revenue is recognized when control of the promised services is transferred to customers in an amount that reflects the consideration the Company expects to receive in exchange for those services. Specialized funds are structured as partnerships having multiple investors with a subsidiary of the Company serving as general partner or managing member. Customized separate accounts are generally contractual arrangements involving an investment management agreement between the Company and a single client. In some cases, a customized separate account will be 111 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) structured as a partnership with a subsidiary of the Company serving as general partner or managing member. The Company determined that the partnership is generally considered to be the customer with respect to specialized funds, while the individual investor or single limited partner is the customer with respect to customized separate accounts and advisory clients. Management fees generally exclude the reimbursement of any partnership expenses paid by the Company on behalf of its customers pursuant to its contracts, including amounts related to professional fees and other fund administrative expenses. For the professional and administrative services performed by third parties that the Company arranges for the partnerships, the Company concluded that the nature of its promise is to arrange for the services to be provided and it does not control the services provided by third parties before they are transferred to the customer. Therefore, the Company is acting as an agent. Accordingly, the reimbursement for these professional fees paid on behalf of the partnerships is generally presented on a net basis. The Company also incurs certain costs, primarily employee travel, organization and syndication costs, for which it receives reimbursement from its customers in connection with satisfying these performance obligations. For reimbursable travel, organization and syndication costs, the Company concluded it controls the services provided by its employees and other parties and therefore is a principal. Accordingly, the Company records the reimbursement for these costs incurred on a gross basis as revenue in management and advisory fees and as expense in general, administrative and other expenses in the Consolidated Statements of Operations. The Company considers its performance obligations in its customer contracts to be one of the following based upon the services promised: asset management services, arrangement of administrative services, distribution management services, or reporting services. For asset management and arrangement of administrative services, the Company satisfies these performance obligations over time as the services are rendered and the customer simultaneously receives and consumes the benefits of the services as they are performed. The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring the promised services to the customer. Management fees from these performance obligations for contracts where the Company has discretion over investment decisions are generally calculated by applying a percentage to unaffiliated committed capital or net invested capital under management and are usually billed quarterly. For many partnerships, fees are based on committed capital during the investment period and then net invested capital through the remainder of the partnership term. The management fee base is subject to factors outside the Company’s control and therefore estimates of future period management fees are not included in the transaction price, as those estimates would be considered constrained. Advisory fees from these performance obligations for contracts where the Company does not have discretion over investment decisions are generally based upon fixed amounts and are usually billed quarterly. For distribution management services, the Company satisfies these performance obligations at a point in time when shares are sold/liquidated and the proceeds are delivered and the customer receives and consumes the benefits of the services. Distribution management fees are generally calculated by applying a percentage to the amounts sold/liquidated and are billed at the completion of each transaction. For reporting services, the Company satisfies these performance obligations over time as the services are rendered and the customer simultaneously receives and consumes the benefits of the services as they are performed. Reporting fees are generally calculated by applying a fixed rate multiplied by the number of funds monitored and are billed quarterly. 112 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) Incentive Fees Contracts with certain customized separate accounts and specialized funds provide incentive fees, which generally range from 5 % to 12.5 % of profits, when investment returns exceed minimum return levels or other performance targets on either an annual or inception to date basis. Investment returns are highly susceptible to market factors and judgments and actions of third parties that are outside of the Company’s control. Accordingly, incentive fees are considered variable consideration in asset management services and are therefore constrained and not recognized until it is probable that a significant reversal will not occur. The primary contingency regarding incentive fees is the “clawback,” or the obligation to return distributions in excess of the amount prescribed by the applicable fund or separate account documents. Incentive fees are typically only required to be returned on a net of tax basis due to a clawback. As such, the tax-related portion of incentive fees is typically not subject to clawback and is therefore recognized as revenue immediately upon receipt. The Company estimates the amount and probability of additional future capital contributions to specialized funds and customized separate accounts, which could impact the probability of a significant reversal occurring. The additional future capital contributions relate to unfunded commitments or follow-on investment opportunities in underlying portfolio investments. Incentive fees received before the revenue recognition criteria have been met are deferred and recorded within deferred incentive fee revenue in the Consolidated Balance Sheets. Fund reimbursement revenue The Company incurs certain costs related to the organization and syndication of new Partnerships. These costs generally include professional fees, legal fees, and other related items. The Company expenses these costs as they are incurred. Once the Partnership is successfully formed and has held its first closing, the Company recognizes those costs as revenue in the Consolidated Statements of Income as the Partnership is then able to reimburse the Company for these costs. Compensation and Benefits Compensation and Benefits consists of (a) base compensation comprising salary, bonuses and benefits paid and payable to employees, (b) equity-based compensation associated with the grants of restricted stock awards to employees and (c) incentive fee compensation, which consists of carried interest and performance fee allocations as detailed below. Equity-based awards issued are measured at fair value at the date of grant. The fair value of the restricted stock grant is based on the closing stock price on the trading day before the date of grant less the present value of expected future dividends. Expenses related to employee equity-based compensation are recorded evenly over the vesting period using the straight-line method. See Note 10 for more information regarding accounting for equity-based awards. Incentive fee compensation expense includes compensation directly related to incentive fees. Certain employees of the Company are granted allocations or profit-sharing interests and are thereby, as a group, entitled to a 25 % portion of the incentive fees earned by the Company from certain Partnerships and certain managed accounts subject to vesting. Amounts payable pursuant to these arrangements are recorded as compensation expense when they have become probable and reasonably estimable. Incentive fee compensation may be expensed before the related incentive fee revenue is recognized. 113 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) Non-Operating Income Non-operating income consists primarily of gains recorded on sales of other investments, fair value adjustments on investments valued under the measurement alternative and adjustments to the payable to related parties pursuant to the tax receivable agreement. Income Taxes The Company accounts for income taxes using the asset and liability method. Deferred income taxes are recognized for the expected future tax consequences attributable to temporary differences between the carrying amount of the existing tax assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied in the years in which temporary differences are expected to be recovered or settled. The principal items giving rise to temporary differences are certain basis differences resulting from the acquisitions of HLA units. Realization of the deferred tax assets is primarily dependent upon (1) historic earnings, (2) forecasted taxable income, (3) future tax deductions of tax basis step-ups related to the IPO and subsequent unit exchanges, (4) future tax deductions related to payments under the tax receivable agreement, and (5) the Company’s share of HLA’s temporary differences that result in future tax deductions. Valuation allowances are established when necessary to reduce deferred tax assets to the amount more likely than not to be realized. HLA is organized as a limited liability company and treated as a “flow-through” entity for income taxes purposes. As a “flow-through” entity, HLA is not subject to income taxes apart from certain U.S. state and local taxes and foreign taxes attributable to its operations in foreign jurisdictions. Any taxable income or loss generated by HLA is passed through to and included in the taxable income or loss of its members, including HLI. As a result, the Company does not record income taxes on pre-tax income or loss attributable to the non-controlling interests in the general partnerships and HLA, except for foreign taxes discussed above. HLI is subject to U.S. federal and applicable state corporate income taxes with respect to its allocable share of any taxable income of HLA. The Company analyzes its tax filing positions in all of the U.S. federal, state, local and foreign tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in these jurisdictions. The Company evaluates tax positions taken or expected to be taken in the course of preparing an entity’s tax returns to determine whether it is “more-likely-than-not” that each tax position will be sustained by the applicable tax authority. Tax Receivable Agreement The Company’s purchase of HLA Class A units concurrent with its initial public offering and periodic exchanges by holders of HLA units for shares of the Company’s Class A common stock, or cash, pursuant to the Exchange Agreement, result in increases in its share of the tax basis of the tangible and intangible assets of HLA, which will increase the tax depreciation and amortization deductions that otherwise would not have been available to HLI. These increases in tax basis and tax depreciation and amortization deductions reduce the amount of cash taxes that HLI would otherwise be required to pay in the future. HLI has entered into a tax receivable agreement (“TRA”) with the other members of HLA (the “TRA Recipients”) that requires it to pay them 85 % of the amount of cash savings, if any, in U.S. federal, state, and local income tax that HLI actually realizes (or, under certain circumstances, is deemed to realize) as a result of the increases in tax basis in connection with exchanges by the TRA Recipients described above and certain other tax benefits attributable to payments under the TRA. 114 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) Segments The Company operates its business in a single segment, which is how the chief operating decision maker (who is the chief executive officer) reviews financial performance and allocates resources. Accordingly, the Company considers itself to be in a single operating and reportable segment structure. Concentrations of Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, restricted cash and fees receivable. The majority of the Company’s cash, cash equivalents, and restricted cash are held with one major financial institution and expose the Company to a certain degree of credit risk. Substantially all cash amounts on deposit with major financial institutions exceed insured limits. The concentration of credit risk with respect to fees receivable is generally limited due to the short payment terms extended to clients by the Company. The Company derives revenues from clients located in the United States and other foreign countries. The below table presents revenues by geographic location: Year Ended March 31, 2022 2021 2020 United States $ 178,250 $ 164,676 $ 134,347 Other foreign countries 189,669 176,959 139,701 Total revenues (1) $ 367,919 $ 341,635 $ 274,048 (1) Revenues are attributed to countries based on location of the client or investor. Dividends and Distributions Dividends and distributions are reflected in the consolidated financial statements when declared. Reclassifications Certain prior period amounts have been reclassified to conform with current period presentation. 115 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) 3. Revenue The following presents revenues disaggregated by product offering, which aligns with the identified performance obligations and the basis for calculating each amount: Year Ended March 31, Management and advisory fees 2022 2021 2020 Specialized funds $ 150,079 $ 148,023 $ 111,803 Customized separate accounts 103,229 93,963 90,750 Advisory 24,972 26,439 24,160 Reporting and other 23,327 11,134 9,102 Distribution management 10,466 6,701 4,920 Fund reimbursement revenue 2,155 3,184 4,185 Total management and advisory fees $ 314,228 $ 289,444 $ 244,920 Year Ended March 31, Incentive fees 2022 2021 2020 Specialized funds $ 30,332 $ 13,241 $ 6,680 Customized separate accounts 17,801 17,893 14,757 Consolidated variable interest related: Specialized funds 5,558 21,057 7,691 Total incentive fees $ 53,691 $ 52,191 $ 29,128 The Company recognized incentive fee revenues of $ 3,704 during the year ended March 31, 2021 that were previously received and deferred. Cost to obtain contracts The Company incurs incremental costs related to sales commissions paid to certain employees directly related to customized separate account contracts. These incremental costs are capitalized and amortized over the expected contract length proportionately to the management fee revenue expected to be recognized in each year as a percentage of the total expected revenue for the contract. The contract asset related to the cost to obtain contracts was $ 1,031 and $ 964 as of March 31, 2022 and 2021, respectively, and is included in other assets in the Consolidated Balance Sheets. Amortization expense related to this contract asset was $ 532 , $ 526 and $ 504 for the years ended March 31, 2022, 2021 and 2020, respectively, and is included in general, administrative and other in the Consolidated Statements of Income. 116 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) 4. Investments Investments consist of the following: March 31, 2022 2021 Equity method investments in Partnerships $ 326,296 $ 240,337 Other equity method investments 1,573 1,297 Other investments 19,820 17,381 Investments valued under the measurement alternative 156,100 109,821 Total Investments $ 503,789 $ 368,836 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. The Company’s other equity method investment represents its ownership in a joint venture that automates the collection of fund and underlying portfolio company data from general partners. The Company recognized equity method income related to its investments in Partnerships and other equity method investments of $ 78,813 , $ 32,389 , and $ 20,731 for the years ended March 31, 2022, 2021, and 2020, respectively. The Company’s equity method investments in Partnerships consist of the following types: March 31, 2022 2021 Primary funds $ 88,089 $ 74,064 Secondary funds 50,070 31,054 Direct investment funds 80,601 63,061 Customized separate accounts 107,536 72,158 Total equity method investments in Partnerships $ 326,296 $ 240,337 The Company evaluates each of its equity method investments to determine if any were significant pursuant to the requirements of Regulation S-X. As of and for the years ended March 31, 2022 and 2021, no individual equity method investment held by the Company met the significance criteria, and, as a result, the Company is not required to present separate financial statements for any of its equity method investments. 117 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) The summarized financial information of the Company’s equity method investments in Partnerships is as follows: March 31, 2022 2021 Assets Investments $ 31,256,185 $ 22,445,159 Other assets 1,135,980 610,672 Total assets $ 32,392,165 $ 23,055,831 Liabilities and Partners’ Capital Debt $ 43,328 $ 11,838 Other liabilities 117,907 116,593 Total liabilities 161,235 128,431 Partners’ capital 32,230,930 22,927,400 Total liabilities and partners’ capital $ 32,392,165 $ 23,055,831 Year Ended March 31, 2022 2021 2020 Investment income $ 654,285 $ 389,571 $ 300,121 Expenses 237,633 201,791 185,769 Net investment income 416,652 187,780 114,352 Net realized and unrealized gain 7,022,084 3,232,126 1,830,599 Net income $ 7,438,736 $ 3,419,906 $ 1,944,951 Other investments The Company’s other investments represent a publicly traded security and investments in private equity funds and direct credit and direct equity investments that are held as collateral for 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 direct credit investments are debt securities classified as trading securities. The direct equity investments and private equity funds are measured at fair value with unrealized holding gains and losses included in earnings. In May 2019, the Company transferred the investments held as collateral for $ 15,750 in cash to a Partnership that is a VIE of which the Company is the general partner but does not consolidate as the Company is not the primary beneficiary. Due to continuing involvement with these assets at the Partnership, the Company accounted for this transfer as a secured financing as it has not met the criteria in ASC 860, “Transfers and Servicing”, to qualify as a sale and, therefore, has recorded a financial liability for the secured financing which is included in other liabilities in the Consolidated Balance Sheets. The cash received was recorded as a secured financing in financing activities in the Consolidated Statements of Cash Flows. The Company accounts for this financial liability 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 other investments delivered as collateral which are estimated using Level 3 inputs. 118 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) The Company recognized a gain (loss) of $ 1,130 , $ 7,281 , and $( 748 ) on other investments during the years ended March 31, 2022, 2021, and 2020, respectively, and recognized a (loss) gain of $( 1,130 ), $( 7,281 ), and $ 43 on the secured financing liability during the years ended March 31, 2022, 2021 and 2020, respectively. Gains and losses related to other investments and the secured financing liability are recorded in non-operating income in the Consolidated Statements of Income. Investments valued under the measurement alternative The Company’s investments valued under the measurement alternative include equity securities in other proprietary investments for which the Company does not have significant influence and fair value is not readily determinable. ASC 321 requires equity securities to be recorded at cost and adjusted to fair value at each reporting period. However, the guidance allows for a measurement alternative, which is to record the investments at cost, less impairment, if any, and subsequently adjust for observable price changes of identical or similar investments of the same issuer. Fiscal 2022 Transactions In June 2021, an investment held by the Company launched an initial public offering (“IPO”) and began trading on a public exchange. As part of the IPO, the Company agreed to a lockup restriction on selling or transferring the security for a period of 180 days. As the investment has a readily determinable fair value at the end of each reporting period, it no longer qualified to be recorded under the measurement alternative and transferred to a Level 3 due to the lockup restriction. The investment is recorded at fair value with changes in value recorded to net income. As the lockup restriction expired during the quarter ended December 31, 2021, the Company transferred the investment from Level 3 to Level 1 at December 31, 2021. In July 2021 and December 2021, there were observable price changes in two investments held by the Company. As a result of the transactions, the Company marked the investments to fair value based upon the transaction prices, which resulted in total unrealized gains of $ 44,484 that are recorded in non-operating income in the Consolidated Statement of Income. In October 2021, the Company made investments in two private companies. The Company invested $ 13,500 in a company maintaining a platform of solutions designed to aid individual investors and various wealth management platforms with their wealth management needs and $ 4,500 in a company that provides environmental, social and governance (“ESG”) reporting metrics and analysis to private market firms and private companies. Due to the lack of readily determinable fair values for these investments, over which the Company does not have significant influence, the Company values the investments under the measurement alternative. In October 2021, an entity in which the Company held an investment with a total carrying amount of $ 687 was sold to a third party. The Company received cash proceeds of $ 12,623 and recorded a gain of $ 11,936 in connection with the transaction that is recorded in non-operating income in the Consolidated Statement of Income. Fiscal 2021 Transactions In March 2021, the Company invested approximately $ 90,000 in Russell Investments Group, Ltd., a leading outsourced CIO (OCIO) provider and global investment solutions firm. Due to the lack of readily determinable fair values for the investment and the Company’s lack of significant influence, the Company values the investment under the measurement alternative. 119 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) In December 2020, there was an observable price change for an investment held by the Company and valued under the measurement alternative. As a result of the transaction, the Company marked that investment to fair value based upon the transaction price, which resulted in an unrealized gain of $ 6,229 that was recorded in non-operating income in the Consolidated Statements of Income for the year ended March 31, 2021. Fiscal 2020 Transactions On January 31, 2020, an observable price transaction occurred for one of the Company’s investments valued under the measurement alternative. The Company recorded a fair value adjustment of $ 1,507 , which is recorded in non-operating income in the Consolidated Statements of Income for the year ended March 31, 2020. On July 1, 2019, an acquisition of an entity in which the Company held an investment with a carrying value of $ 1,446 was completed. The Company received cash proceeds of $ 6,419 and recorded a gain of approximately $ 4,973 in connection with the transaction, which was recorded in non-operating income in the Consolidated Statements of Income for the year ended March 31, 2020. 5. Fair Value The following tables summarize the Company’s financial assets and financial liabilities recorded at fair value by fair value hierarchy level: As of March 31, 2022 Level 1 Level 2 Level 3 Total Amortized Cost Financial assets: Other investments $ 6,002 $ — $ 13,818 $ 19,820 $ 10,853 Investments held in trust 276,016 — — 276,016 276,000 Total financial assets $ 282,018 $ — $ 13,818 $ 295,836 $ 286,853 Financial liabilities: Warrant liability (1) $ 2,484 $ 399 $ — $ 2,883 Secured financing (2) — — 13,818 13,818 Total financial liabilities $ 2,484 $ 399 $ 13,818 $ 16,701 As of March 31, 2021 Level 1 Level 2 Level 3 Total Amortized Cost Financial assets: Other investments $ — $ 4,083 $ 13,298 $ 17,381 $ 9,902 Investments held in trust 276,003 — — 276,003 276,000 Total financial assets $ 276,003 $ 4,083 $ 13,298 $ 293,384 $ 285,902 Financial liabilities: Warrant liability (1) $ 6,348 $ 1,020 $ — $ 7,368 120 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) Secured financing (2) — 4,083 13,298 17,381 Total financial liabilities $ 6,348 $ 5,103 $ 13,298 $ 24,749 (1) Warrant liability is recorded within other liabilities of consolidated variable interests in the Consolidated Balance Sheet. (2) Secured financing is recorded within other liabilities in the Consolidated Balance Sheet. The following is a reconciliation of other investments for which significant unobservable inputs (Level 3) were used in determining value: Private equity funds Direct credit investments Direct equity investments Publicly traded equity security Total other investments Balance as of March 31, 2020 $ 5,786 $ 1,756 $ 5,852 $ — $ 13,394 Contributions 246 — — — 246 Distributions ( 1,566 ) ( 1,025 ) ( 949 ) — ( 3,540 ) Net gain 1,788 254 5,427 — 7,469 Transfer out — — ( 4,271 ) — ( 4,271 ) Balance as of March 31, 2021 $ 6,254 $ 985 $ 6,059 $ — $ 13,298 Contributions 244 — 28 — 272 Distributions ( 680 ) ( 202 ) — — ( 882 ) Net gain (loss) 1,206 ( 9 ) ( 67 ) ( 165 ) 965 Transfer in — — — 6,455 6,455 Transfer out — — — ( 6,290 ) ( 6,290 ) Balance as of March 31, 2022 $ 7,024 $ 774 $ 6,020 $ — $ 13,818 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 assets were as follows: March 31, 2022 Significant Fair Valuation Unobservable Weighted Value Methodology Inputs Range Average Private equity funds $ 7,024 Adjusted net asset value Selected market return ( 0.6 )% - ( 1.3 )% ( 1.1 )% Direct credit investments $ 774 Discounted cash flow Market yield 11.7 % - 11.7 % 11.7 % Direct equity investments $ 6,020 Market approach EBITDA multiple 8.00 x - 14.00 x 10.67 x Market approach Equity multiple 1.57 x 1.57 x 121 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) March 31, 2021 Significant Fair Valuation Unobservable Weighted Value Methodology Inputs Range Average Private equity funds $ 6,254 Adjusted net asset value Selected market return 2 % - 12.4 % 4.2 % Direct credit investments $ 985 Discounted cash flow Market yield 9.3 % - 9.3 % 9.3 % Direct equity investments $ 6,059 Market approach EBITDA multiple 7.75 x - 14.75 x 10.42 x Market approach Equity multiple 1.52 x 1.52 x For the significant unobservable inputs listed in the table above, (1) a significant increase or decrease in the selected market return would result in a significantly higher or lower fair value measurement, respectively; (2) a significant increase or decrease in the market yield would result in a significantly lower or higher fair value measurement, respectively; and (3) 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 consolidates certain VIEs for which it is determined that the Company is the primary beneficiary as described in Note 2. Consolidated Variable Interest Entities The Company consolidates general partner entities of certain Partnerships, which are not wholly owned by the Company. The total assets of the consolidated general partner entities are $ 10,036 and $ 4,787 as of March 31, 2022 and 2021, respectively. The general partner entities had no liabilities as of March 31, 2022 and 2021. The assets of the consolidated general partner entities represent equity-method investments in direct equity funds and customized separate accounts and may only be used to settle obligations of the general partners, if any. In addition, there is no recourse to the Company for the general partners’ liabilities, except for certain entities in which there could be a claw back of previously distributed carried interest. The Company sponsored and consolidates HLAH through HL Alliance Holdings Sponsor LLC, a wholly owned subsidiary of the Company. On January 15, 2021, HLAH completed an initial public offering raising total gross proceeds of $ 276,000 which were placed in a trust and can only be utilized for funding a business combination or the redemption of Class A shares of HLAH. In a private placement concurrent with the initial public offering, HLAH sold warrants to HL Alliance Holdings Sponsor LLC for gross proceeds of $ 7,520 which were used by HLAH to pay the offering costs and also provide working capital. The total assets of HLAH are $ 276,675 and $ 277,528 and liabilities are $ 12,675 and $ 17,310 as of March 31, 2022 and 2021, respectively. The assets of HLAH held outside of the trust can only be used to settle obligations of HLAH and there is no recourse to the Company for HLAH’s liabilities. All warrants and Class B common stock of HLAH held by the Company are eliminated in consolidation. Nonconsolidated Variable Interest Entities The Company holds variable interests in certain Partnerships that are VIEs, which are not consolidated, as it is determined that the Company is not the primary beneficiary. Such Partnerships are considered VIEs because limited partners lack the ability to remove the general partner or dissolve the entity without cause, by 122 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) simple majority vote (i.e. have substantive “kick out” or “liquidation” rights). The Company’s involvement with such entities is in the form of direct equity interests in, and 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. As of March 31, 2022, the total remaining unfunded commitments from the Company’s general partner entities to the unconsolidated VIEs was $ 104,804 . Investor commitments are the primary source of financing for the unconsolidated VIEs. The maximum exposure to loss represents the potential loss of assets recognized by the Company relating to these unconsolidated entities. The Company believes that its maximum exposure to loss is limited because it establishes separate limited liability or limited partnership entities to serve as the general partner or managing member of the Partnerships. The carrying amount of assets and liabilities recognized in the Consolidated Balance Sheets related to the Company’s interests in these non-consolidated VIEs and the Company’s maximum exposure to loss relating to non-consolidated VIEs were as follows: March 31, 2022 2021 Investments $ 191,378 $ 138,092 Fees receivable 9,754 4,133 Due from related parties 778 837 Total VIE assets 201,910 143,062 Non-controlling interests ( 1,873 ) ( 2,211 ) Maximum exposure to loss $ 200,037 $ 140,851 7. Furniture, Fixtures, and Equipment Furniture, fixtures, and equipment consist of the following: March 31, 2022 2021 Computer hardware and software $ 7,788 $ 6,859 Furniture and fixtures 3,975 2,003 Leasehold improvements 21,975 22,687 Office equipment 2,346 1,822 36,084 33,371 Less: accumulated depreciation 7,242 10,063 Furniture, fixtures, and equipment, net $ 28,842 $ 23,308 Depreciation expense was $ 2,992 , $ 2,731 and $ 2,684 for the years ended March 31, 2022, 2021 and 2020, respectively, and is included in general, administrative and other expenses in the Consolidated Statements of Income. 123 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) 8. Debt The Company’s debt consisted of the following: As of March 31, 2022 2021 Principal Outstanding Carrying Value Interest Rate Principal Outstanding Carrying Value Interest Rate Term Loan $ 71,754 $ 71,574 2.25 % $ 73,594 $ 73,378 2.25 % Multi-Draw Facility 100,000 99,752 3.50 % 75,000 74,797 3.50 % Revolver — — 2.25 % 15,000 15,000 2.25 % Total Debt $ 171,754 $ 171,326 $ 163,594 $ 163,175 The Company has a Term Loan Agreement, a Revolving Loan Agreement (together the “Loan Agreements”) and a Multi-Draw Term Loan Agreement with First Republic Bank. The Term Loan Agreement has a maturity date of July 1, 2027, provides for additional uncommitted term advances not to exceed $ 25,000 in the aggregate, as well as additional committed term advances not to exceed $ 25,000 in the aggregate, until March 24, 2023, and the interest rate is a floating per annum rate equal to the prime rate minus 1.5 % subject to a floor of 2.25 %. The Revolving Loan Agreement has a $ 25,000 borrowing capacity, a maturity date of March 24, 2023, and the interest rate is a floating per annum rate equal to the prime rate minus 1.5 % subject to a floor of 2.25 %. The Multi-Draw Term Loan Agreement (the “Multi-Draw Facility”) provides for a term loan in the aggregate principal amount of $ 100,000 that the Company has fully drawn down. Borrowings accrue interest at a fixed per annum rate of 3.5 % and mature on July 1, 2030. The Loan Agreements and Multi-Draw Facility contain covenants that, among other things, limit HLA’s ability to incur indebtedness, transfer or dispose of assets, merge with other companies, create, incur or allow liens, make investments, make distributions, engage in transactions with affiliates and take certain actions with respect to management fees. They also require HLA to maintain, among other requirements, (i) a specified amount of management fees, (ii) a specified amount of adjusted EBITDA, as defined therein, and (iii) a specified minimum tangible net worth, during the term of each of the Loan Agreements and Multi-Draw Facility. The obligations under the Loan Agreements and Multi-Draw Facility are secured by substantially all of the assets of HLA. The aggregate minimum principal payments on the Company’s outstanding debt are due as follows: For the fiscal year ending March 31, 2023 $ 1,828 2024 4,570 2025 6,855 2026 19,289 2027 40,742 Thereafter 98,470 Total $ 171,754 The fair value of the outstanding balance of the Company’s debt instruments at March 31, 2022 and 2021 approximated par value based on current market rates for similar debt instruments and are classified as Level 2 within the fair value hierarchy. 124 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) 9. Equity The Company has two classes of common stock outstanding, Class A common stock and Class B common stock. Class A common stock Holders of Class A common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Additionally, holders of shares of Class A common stock are entitled to receive dividends when and if declared by the Board of Directors, subject to any statutory or contractual restrictions on the payment of dividends and to any restrictions on the payment of dividends imposed by the terms of any outstanding preferred stock. Class B common stock Holders of Class B common stock are entitled to ten votes for each share held of record on all matters submitted to a vote of stockholders, but have de minimis economic rights. Shares of Class B common stock were issued in the Reorganization to the holders of Class B units of HLA at a one -to-one ratio. Shares of Class B common stock (together with the corresponding Class B units) may be exchanged for shares of Class A common stock on a one -to-one basis, or, at the Company’s election, for cash in an amount equal to the net proceeds from the sale of shares of Class A common stock equal to the number of shares of Class B common stock being exchanged, subject to certain restrictions. 125 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) Shares of Common Stock Outstanding The following table shows a rollforward of our common stock outstanding: Class A Class B March 31, 2019 27,367,477 23,516,439 Shares issued (repurchased) in connection with offerings 2,451,633 ( 1,466,712 ) Shares issued in connection with contingent compensation payment 7,692 — Shares issued in connection with ESPP 25,640 — Shares repurchased for employee tax withholdings ( 100,683 ) — Forfeitures ( 27,834 ) — Restricted stock granted 118,859 — March 31, 2020 29,842,784 22,049,727 Shares issued (repurchased) in connection with offering 6,415,760 ( 5,309,881 ) Shares issued in connection with ESPP 23,130 — Shares repurchased for employee tax withholdings ( 69,962 ) — Forfeitures ( 1,917 ) — Restricted stock granted 80,388 — March 31, 2021 36,290,183 16,739,846 Shares issued (repurchased) in connection with offering 877,400 ( 695,505 ) Shares issued in connection with ESPP 24,931 — Shares repurchased for employee tax withholdings ( 43,934 ) — Forfeitures ( 7,420 ) ( 10,982 ) Restricted stock granted 139,537 — March 31, 2022 37,280,697 16,033,359 Income and equity allocations to non-controlling interests are based upon the relative ownership percentage of the consolidated variable interest entity held by non-controlling owners. The reallocation adjustment between HLI stockholders’ equity and non-controlling interests in Hamilton Lane Advisors, L.L.C. relates to the impact of changes in economic ownership percentages during the period and adjusting previously recorded equity transactions to the economic ownership percentage as of the end of each reporting period. HLA Operating Agreement In accordance with the limited liability company agreement of HLA (the “HLA Operating Agreement”), profits and losses from HLA are allocated on a pro rata basis based upon each member’s economic interests. The HLA Operating Agreement provides that distributions are made on a pro rata basis to pay income taxes owed by the members on their share of HLA’s taxable income. In addition to these tax distributions, HLA made distributions in excess of required tax distributions to members in an aggregate amount of $ 36,979 , $ 34,167 , and $ 34,014 for the years ended March 31, 2022, 2021, and 2020, respectively. September 2021 Offering In September 2021, the Company and certain selling stockholders completed a registered offering of an aggregate of 950,751 shares of Class A common stock at a price to the underwriter of $ 84.15 per share (the 126 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) “September 2021 Offering”). The shares sold consisted of 73,351 shares held by the selling stockholders and 877,400 shares newly issued by the Company. The Company received $ 73,833 in net proceeds from the sale of its shares and used all of the proceeds to settle exchanges by certain members of HLA of a total of 695,505 Class B units and 181,895 Class C units. In connection with the exchange of the Class B units, the Company also repurchased for par value and canceled a corresponding number of shares of Class B common stock. The Company did not receive any proceeds from the sale of shares by the selling stockholders. March 2021 Offering In March 2021, the Company and certain selling stockholders completed a registered offering of an aggregate of 1,453,110 shares of Class A common stock at a price of $ 87.36 per share (the “March 2021 Offering”). The shares sold consisted of (i) 94,245 shares held by the selling stockholders and (ii) 1,358,865 shares newly issued by the Company. The Company received approximately $ 118,710 in net proceeds from the sale of its shares and used all of the proceeds to settle exchanges by certain members of HLA of a total of 1,101,365 Class B units and 257,500 Class C units. In connection with the exchange of the Class B units, the Company also repurchased for par value and canceled a corresponding number of shares of Class B common stock. The Company did not receive any proceeds from the sale of shares by the selling stockholders. September 2020 Offering In September 2020, the Company and a certain selling stockholder completed a registered offering of an aggregate of 2,207,380 shares of Class A common stock at a price of $ 70.18 per share (the “September 2020 Offering”). The shares sold consisted of (i) 75,000 shares held by the selling stockholder and (ii) 2,132,380 shares newly issued by the Company. The Company received approximately $ 149,650 in net proceeds from the sale of its shares and used all of the proceeds to settle exchanges by certain members of HLA of a total of 1,936,880 Class B units and 195,500 Class C units. In connection with the exchange of the Class B units, the Company also repurchased for par value and canceled a corresponding number of shares of Class B common stock. The Company did not receive any proceeds from the sale of shares by the selling stockholder. June 2020 Offering In June 2020, the Company and certain selling stockholders completed a registered offering of an aggregate of 2,995,757 shares of Class A common stock at a price of 70.09 per share (the “June 2020 Offering”). The shares sold consisted of (i) 71,242 shares held by the selling stockholders and (ii) 2,924,515 shares newly issued by the Company. The Company received approximately $ 204,979 in proceeds from the sale of its shares, net of underwriting discounts and commissions, and used all of the proceeds to settle in cash exchanges by certain members of HLA of a total of 2,271,636 Class B units and 652,879 Class C units. In connection with the exchange of the Class B units, the Company also repurchased for par value and canceled a corresponding number of shares of Class B common stock. The Company did not receive any proceeds from the sale of shares by the selling stockholders. 10. Equity-Based Compensation 2017 Equity Incentive Plan The Company has adopted its 2017 Equity Incentive Plan, as amended (the “Plan”), which permits the issuance of up to 5,000,000 shares of Class A common stock, which may be granted as incentive stock options, nonqualified stock options, SARs, restricted stock, restricted stock units, or PSUs. Awards under the Plan generally vest over four years , with options expiring not more than ten years from the date of grant, three 127 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) months after termination of employment or one year after the date of death or termination due to disability of the grantee. As of March 31, 2022, there were 3,164,707 shares of Class A common stock available to grant under the Plan. Pursuant to the terms of the Plan, awards may not be granted after February 28, 2027. Restricted Stock Holders of restricted stock have all of the rights of a stockholder with respect to such shares, including the right to vote the shares but not the right to receive dividends or other distributions. Substantially all of the awards vest over four years in equal annual installments. On each vesting date, the related employee tax liabilities are either paid in cash by the employee or stock is sold back to the Company at the then-current fair value to offset the required minimum tax withholding obligations. Forfeitures are recognized as they occur. Compensation expense related to the awards is recognized ratably each month over the vesting period. The change in unvested restricted stock for the year ended March 31, 2022 is as follows: Total Unvested Weighted- Average Grant-Date Fair Value of Award March 31, 2021 288,857 $ 55.58 Granted 139,537 73.20 Vested ( 139,667 ) 48.77 Forfeited ( 7,420 ) 63.38 March 31, 2022 281,307 $ 67.50 The weighted-average grant-date fair value per share of restricted stock awarded during the years ended March 31, 2022, 2021 and 2020 was $ 73.20 , $ 82.97 , and $ 54.71 , respectively. The total fair value of restricted stock that vested during the years ended March 31, 2022, 2021 and 2020 was $ 10,923 , $ 19,961 , and $ 18,141 , respectively. As of March 31, 2022, total unrecognized compensation expense related to restricted stock was $ 18,286 with a weighted-average amortization period of 3.1 years. The total tax benefit recognized from share-based compensation for the years ended March 31, 2022, 2021 and 2020 was $ 552 , $ 1,528 and $ 1,229 , respectively. Employee Share Purchase Plan On September 6, 2018, the Company’s stockholders approved the Hamilton Lane Incorporated Employee Share Purchase Plan (as amended, the “ESPP”). The ESPP provides for a purchase price equal to 85 % of the closing price of the Company’s Class A common stock on the last trading day of each offering period, which begins the first day of each fiscal quarter and ends on the last day of that fiscal quarter. Our initial offering period started January 1, 2019. At inception, there were 1,000,000 shares available for purchase through the ESPP and 919,162 shares were available as of March 31, 2022. The benefit received by the employees, which is equal to a 15 % discount on the shares of the Company’s Class A common stock purchased, is recognized as equity-based compensation expense on the date of each purchase. During the years ended March 31, 2022, 2021 and 2020, the Company recorded expense of $ 330 , $ 256 and $ 220 respectively, related to the ESPP. 128 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) 11. Compensation and Benefits The Company has recorded the following amounts related to compensation and benefits: Year Ended March 31, 2022 2021 2020 Base compensation and benefits $ 108,395 $ 116,371 $ 85,763 Incentive fee compensation 13,366 12,869 7,192 Equity-based compensation 7,404 7,079 7,183 Total compensation and benefits $ 129,165 $ 136,319 $ 100,138 The Company provides defined contribution plans covering eligible employees subject to minimum age and service guidelines. Eligible employees may contribute a percentage of their annual compensation subject to statutory guidelines. The Company makes discretionary and/or matching contributions to the plans, which amounted to $ 2,251 , $ 1,906 , and $ 1,561 for the years ended March 31, 2022, 2021 and 2020, respectively, and is included in compensation and benefits expense in the Consolidated Statements of Income. 12. Income Taxes The Company’s income before income taxes consisted of the following: Year Ended March 31, 2022 2021 2020 Domestic income before income taxes $ 309,918 $ 190,459 $ 138,537 Foreign income before income taxes 3,758 2,743 2,207 Total income before income taxes $ 313,676 $ 193,202 $ 140,744 Components of income tax expense consist of the following: Year Ended March 31, 2022 2021 2020 Current: Federal $ 36,206 $ 14,121 $ 4,885 State and local 5,676 2,513 754 Foreign 597 756 400 Total current income tax expense $ 42,479 $ 17,390 $ 6,039 Deferred: Federal $ 19,947 $ 7,245 $ 6,589 State and local 3,893 ( 211 ) 1,315 Foreign 104 ( 7 ) 25 Total deferred income tax expense 23,944 7,027 7,929 Total income tax expense $ 66,423 $ 24,417 $ 13,968 129 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) A reconciliation of the U.S. statutory income tax rate to the Company’s effective tax rate is as follows: Year Ended March 31, 2022 2021 2020 Federal tax at statutory rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 3.3 % 0.6 % 1.7 % Non-controlling interest ( 6.8 ) % ( 7.6 ) % ( 9.8 ) % Valuation allowance 4.6 % ( 1.0 ) % ( 0.9 ) % Other ( 0.9 ) % ( 0.4 ) % ( 2.1 ) % Effective tax rate 21.2 % 12.6 % 9.9 % The significant components of deferred tax assets and liabilities are as follows: Year Ended March 31, 2022 2021 Deferred tax assets: Basis difference in HLA $ 260,766 $ 248,586 Tax Receivable Agreement 49,979 48,480 Fixed assets 48 42 Net operating loss carryforwards 1,126 983 Valuation allowance ( 67,578 ) ( 46,728 ) State taxes 717 586 Other ( 12 ) — Total deferred tax assets $ 245,046 $ 251,949 As of March 31, 2022 and 2021, the Company had net operating loss carryforwards of $ 4,817 and $ 5,045 . These net operating losses can be carried forward indefinitely. As of March 31, 2022 and 2021, it is more likely than not that the tax benefits from certain of these net operating loss carryforwards will not be realized, therefore, a valuation allowance of $ 416 and $ 176 has been established, respectively. In connection with the offering in fiscal 2022 and related unit exchanges, the Company recorded a deferred tax asset in the amount of $ 16,996 , which is net of a valuation allowance of $ 2,786 related to the portion of tax benefits that it is more likely than not will not be realized. Additionally, in connection with recording the deferred tax asset for the fiscal 2022 offering and related unit exchanges, the Company recorded a payable to related parties pursuant to the tax receivable agreement of $ 14,277 . The Company believes it is more likely than not that the deferred tax assets (except those identified above) will be realized based on the Company’s historic earnings, forecasted income, and the reversal of temporary differences. The net change in the valuation allowance was an increase of $ 20,850 , which was recorded through additional paid-in-capital and income tax expense. As of March 31, 2022 , 2021, and 2020, the Company had no unrecognized tax positions. The Company does not expect any material increase or decrease in its gross unrecognized tax positions during the next twelve months. If and when the Company does record unrecognized tax positions in the future, any interest and penalties related to unrecognized tax positions will be recorded in the income tax expense line in the Consolidated Statements of Income. 130 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) The Company files income tax returns as required by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company may be subject to examination by federal and certain state and local tax authorities. As of March 31, 2022, the Company’s income tax returns from 2018 remain open and are subject to examination. Tax Receivable Agreement The Company has recorded a liability related to the TRA of $ 180,536 and $ 194,764 as of March 31, 2022 and 2021. Payments of $ 23,170 and $ 6,894 were made during the years ended March 31, 2022 and 2021, respectively. During the year ended March 31, 2022, the Company determined to make lump sum payments to certain TRA participants to terminate their right to receive future payments, as permitted by the TRA. As a result of the early termination payments, the Company recognized a gain of $ 4,319 during the year ended March 31, 2022 that is recorded in non-operating income in the Consolidated Statement of Income. In the event that the valuation allowance related to tax benefits associated with the tax receivable agreement is released in a future period, an additional estimated payable will be due to the TRA Recipients of $ 11,333 . 13. Earnings per Share Basic earnings per share of Class A common stock is computed by dividing net income attributable to HLI by the weighted-average number of shares of Class A common stock outstanding. Diluted earnings per share of Class A common stock is computed by dividing net income attributable to HLI by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities. 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 each share of Class B common stock, together with a corresponding Class B unit, is exchangeable for a share of Class A common stock on a one -for-one basis. 131 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) 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: Year Ended March 31, 2022 2021 2020 Basic net income per share: Numerator Net income attributable to HLI $ 145,986 $ 98,022 $ 60,825 Less: Impact of changes in carrying amount of redeemable NCI 951 ( 4,637 ) — Net income attributable to Class A common stockholders - basic $ 146,937 $ 93,385 $ 60,825 Denominator Weighted-average shares of Class A common stock outstanding - basic 36,511,507 33,152,318 28,088,578 Basic earnings per share $ 4.02 $ 2.82 $ 2.17 Diluted earnings per share: Numerator Net income attributable to Class A common stockholders - basic $ 146,937 $ 93,385 $ 60,825 Adjustment to net income: Assumed vesting of employee awards 121 229 352 Assumed conversion of Class B and Class C Units 66,666 — — Net income attributable to Class A common stockholders - diluted $ 213,724 $ 93,614 $ 61,177 Denominator Weighted-average shares of Class A common stock outstanding - basic 36,511,507 33,152,318 28,088,578 Weighted-average effect of dilutive securities: Assumed vesting of employee awards 97,531 210,047 350,194 Assumed conversion of Class B and Class C Units 17,065,255 — — Weighted-average shares of Class A common stock outstanding - diluted 53,674,293 33,362,365 28,438,772 Diluted earnings per share $ 3.98 $ 2.81 $ 2.15 The calculations of diluted earnings per share exclude 17,553,234 and 23,968,994 outstanding Class B and C units of HLA for the years ended March 31, 2021 and 2020, respectively, which are exchangeable into Class A common stock under the “if-converted” method, because the inclusion of such shares would be antidilutive. 14. 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 $ 209,977 , $ 199,422 , and $ 161,323 for the years ended March 31, 2022, 2021 and 2020, respectively. The Company earned incentive fees from Partnerships of $ 43,742 , $ 47,962 , and $ 24,077 for the years ended March 31, 2022, 2021 and 2020, respectively. Fees receivable from the Partnerships were $ 27,728 and $ 14,814 as of March 31, 2022 and 2021, respectively, and are included in fees receivable in the Consolidated Balance Sheets. 132 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) Expenses and Payables The Company entered into a service agreement on June 1, 2017 with a joint venture pursuant to which it incurred expenses of $ 4,325 , $ 3,978 and $ 5,289 for the years ended March 31, 2022, 2021, and 2020 respectively, which amounts are included in general, administrative and other expenses in the Consolidated Statements of Income. The Company also has a payable to the joint venture of $ 752 and $ 325 as of March 31, 2022 and 2021, respectively, which is included in other liabilities in the Consolidated Balance Sheets. Other Transactions On January 31, 2020, the convertible promissory note (the “Note”) held by the Company issued by one of its equity method investments was settled by converting the outstanding principal and accrued interest into shares of the investee per the terms of the Note. The Company received 2,278,524 shares of the investee which were recorded at the carrying value of the Note of $ 902 at the date of conversion. These shares were included with similar shares of that investee as investments held under the measurement alternative. On January 31, 2020, the Company entered into an asset purchase agreement with one of its equity method investments for the code and an exclusive license to distribute the Cobalt LP software. The cost of the asset acquisition was $ 6,373 , which consisted of an upfront cash payment of $ 4,000 , a previously deferred cash payment of $ 1,000 made during the fiscal year ended March 31, 2021, contribution of equity shares of the investee valued at $ 2,201 and direct transaction fees of $ 172 . The assets purchased were recorded as intangible assets in other assets in the Consolidated Balance Sheets and will be amortized over 7 years. 15. Supplemental Cash Flow Information Year Ended March 31, 2022 2021 2020 Cash paid during the year for interest $ 4,591 $ 1,986 $ 2,854 Cash paid during the year for income taxes $ 33,682 $ 6,331 $ 7,804 Shares issued for contingent compensation payment $ — $ — $ 425 Establishment of lease liability in exchange for ROU asset $ 7,950 $ 61,725 $ 14,776 Non-cash investing activities: Conversion of note receivable $ — $ — $ 902 Contribution of investment for purchase of intangible assets $ — $ — $ 2,201 Non-cash financing activities: Establishment of net deferred tax assets related to tax receivable agreement $ 16,996 $ 121,065 $ 37,394 Deferred underwriter fees related to consolidated entity $ — $ 9,660 $ — Dividends declared but not paid $ 12,947 $ 11,201 $ 8,027 Members’ distributions declared but not paid $ 27,119 $ 16,877 $ 5,829 16. 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 133 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) 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 consolidated financial statements. Incentive Fees The Partnerships have allocated carried interest, which has not yet been received or recognized, in the amounts of $ 1,191,066 and $ 648,772 at March 31, 2022 and 2021, respectively. If the Company ultimately receives the unrecognized carried interest, a total of $ 297,766 and $ 162,193 as of March 31, 2022 and 2021, respectively, would be potentially payable to certain employees and third parties pursuant to compensation arrangements related to the carried interest profit-sharing plans. Such amounts have not been recorded in the Consolidated Balance Sheets or Consolidated Statements of Income as this liability is not yet probable. Leases The Company’s leases consist primarily of operating leases for office space and office equipment in various locations around the world, which have remaining lease terms of one year to 16 years. Some leases have the option to extend for an additional term or terminate early. Short-term lease costs are not material. The Company entered into a 17 -year lease agreement for its new headquarters in a newly constructed building. The Company was granted access to the space in October 2020 and began building various leasehold improvements. The Company moved into the property in June 2021. The following table shows lease costs and other supplemental information related to the Company’s operating leases: Year Ended March 31, 2022 2021 2020 Operating lease costs $ 9,675 $ 5,216 $ 4,838 Variable lease costs $ 1,196 $ 863 $ 557 Cash paid for amounts included in the measurement of operating lease liabilities $ 6,734 $ 7,352 $ 5,108 Weighted average remaining lease term (in years) 14.6 15.4 2.9 Weighted average discount rate 3.2 % 3.4 % 5.2 % 134 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) As of March 31, 2022, the maturities of operating lease liabilities were as follows: For the fiscal year ending March 31, 2023 $ 7,951 2024 7,553 2025 7,123 2026 6,553 2027 6,700 Thereafter 70,273 Total lease payments $ 106,153 Less: imputed interest ( 23,909 ) Total operating lease liabilities $ 82,244 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 aggregate unfunded commitment of the general partners to the Partnerships was $ 186,164 and $ 201,442 as of March 31, 2022 and 2021, respectively. 17. Acquisition On April 1, 2021, the Company acquired substantially all the assets of 361 Capital, LLC for a total aggregate cash amount of $ 13,096 , of which $ 10,096 was paid on the closing date of the acquisition. The remaining $ 3,000 will be paid in two equal installments on the first and second anniversaries of the closing. The purchase price based upon the fair value of consideration transferred at the date of acquisition is $ 12,946 . The Company recorded $ 7,145 of definite lived intangible assets related primarily to the acquired investment management contracts, which will be amortized over seven years , and $ 5,623 of goodwill, which are both recorded in other assets in the Consolidated Balance Sheets. The remaining assets acquired and liabilities assumed are not material to the consolidated financial statements. 18. Subsequent Events The Company participated in a new funding round for an existing investment that it values under the measurement alternative in which it contributed $ 5,236 of cash for additional equity interests. Based upon the terms of the new equity interests being similar to its existing equity interests, the Company estimates that it will record an unrealized gain of $ 6,700 on its original investment. On May 26, 2022, the Company declared a quarterly dividend of $ 0.40 per share of Class A common stock to record holders at the close of business on June 15, 2022. The payment date will be July 7, 2022. 135 Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.