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 ) 101 Consolidated Balance Sheets 104 Consolidated Statements of Income 105 Consolidated Statements of Comprehensive Income 106 Consolidated Statements of Stockholders' Equity 107 Consolidated Statements of Cash Flows 109 Notes to Consolidated Financial Statements 111 100 Report of Independent Registered Public Accounting Firm To the Stockholders and the 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, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2023, 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, 2023, 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 25, 2023 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 Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was 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 the critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Investment valued under the measurement alternative Description of the Matter As more fully described in Note 4 to the consolidated financial statements, the Company performs qualitative impairment assessments each quarter on its investments recorded under the measurement alternative. During the year ended March 31, 2023, as a result of this assessment, the Company determined that a quantitative assessment was required to be performed for one of its investments given a significant decrease in earnings performance and overall economic and market conditions. The fair value assessment performed at December 31, 2022, indicated that the fair value of the investment was less than the carrying value of the investment. As a result, the Company reduced the carrying amount to the estimated fair value and recognized a $43.3 million impairment loss, which is the amount by which the carrying value exceeded the estimated fair value of this investment. Auditing the Company's impairment measurement involved a high degree of subjectivity as estimates underlying the determination of fair value were based on assumptions about future market and economic conditions. The significant assumption used in the Company’s fair value estimate was the selection of the revenue multiple under the market approach. 101 Auditing the Company's impairment measurement involved a high degree of subjectivity as estimates underlying the determination of fair value were based on assumptions about future market and economic conditions. The significant assumption used in the Company’s fair value estimate was the selection of the revenue multiple under the market approach. 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 processes to determine the fair value of the investment and measure the impairment. This included controls over management's review of the significant assumption underlying the fair value determination Our testing of the Company's fair value measurement and related impairment included, among other procedures, evaluating the significant assumption and operating data used to estimate fair value. For example, we compared the prospective financial information to company specific and current industry and economic trends, performed a sensitivity analysis of the significant assumptions to evaluate the change in the fair value estimate that would result from changes in the assumptions and recalculated management's estimate. We also involved our valuation specialists to assist in our evaluation of the methodology and significant assumption used in the fair value estimate. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2008. Philadelphia, Pennsylvania May 25, 2023 102 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, 2023, 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, 2023, 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, 2023 and 2022, 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, 2023, and the related notes and our report dated May 25, 2023 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 25, 2023 103 Hamilton Lane Incorporated Consolidated Balance Sheets (In thousands, except share and per share amounts) March 31, 2023 2022 Assets Cash and cash equivalents $ 99,686 $ 72,138 Restricted cash 4,804 4,023 Fees receivable 47,140 51,869 Prepaid expenses 9,817 6,858 Due from related parties 7,186 1,872 Furniture, fixtures and equipment, net 28,425 28,842 Lease right-of-use assets, net 62,327 65,636 Investments 530,921 503,789 Deferred income taxes 233,912 245,046 Other assets 46,784 28,162 Assets of consolidated variable interest entities: Cash and cash equivalents 12,062 36 Investments held in trust — 276,016 Investments 57,044 10,036 Other assets 435 623 Total assets $ 1,140,543 $ 1,294,946 Liabilities, redeemable non-controlling interests and equity Accounts payable $ 4,559 $ 2,827 Accrued compensation and benefits 24,190 20,117 Accrued members’ distributions 15,723 27,119 Accrued dividend 15,049 12,947 Debt 213,533 171,326 Payable to related parties pursuant to tax receivable agreement 174,702 180,536 Lease liabilities 78,817 82,244 Other liabilities (includes $ 14,228 and $ 13,818 at fair value) 32,856 47,669 Liabilities of consolidated variable interest entities: Other liabilities 6,922 12,675 Total liabilities $ 566,351 $ 557,460 Commitments and contingencies (Note 16) Redeemable non-controlling interests — 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; 38,611,919 and 37,280,697 issued and outstanding as of March 31, 2023 and 2022, respectively 39 37 Class B common stock, $ 0.001 par value, 50,000,000 authorized; 15,409,507 and 16,033,359 issued and outstanding as of March 31, 2023 and 2022, respectively 15 16 Additional paid-in-capital 171,567 161,676 Retained earnings 243,823 185,149 Total Hamilton Lane Incorporated stockholders’ equity $ 415,444 $ 346,878 Non-controlling interests in general partnerships 3,877 3,423 Non-controlling interests in Hamilton Lane Advisors, L.L.C. 135,702 111,185 Non-controlling interests in consolidated funds 19,169 — Total equity $ 574,192 $ 461,486 Total liabilities, redeemable non-controlling interests and equity $ 1,140,543 $ 1,294,946 See accompanying notes to the consolidated financial statements. 104 Hamilton Lane Incorporated Consolidated Statements of Income (In thousands, except per share amounts) Year Ended March 31, 2023 2022 2021 Revenues Management and advisory fees $ 371,874 $ 314,228 $ 289,444 Incentive fees 149,931 48,133 31,134 Consolidated variable interest entities related: Incentive fees 6,948 5,558 21,057 Total revenues 528,753 367,919 341,635 Expenses Compensation and benefits 198,412 129,165 136,319 General, administrative and other 89,395 68,040 49,210 Consolidated variable interest entities related: General, administrative and other 906 1,150 378 Total expenses 288,713 198,355 185,907 Other income (expense) Equity in income of investees 5,088 78,813 32,389 Interest expense ( 8,617 ) ( 4,634 ) ( 2,044 ) Interest income 1,789 500 1,676 Non-operating (loss) income ( 5,243 ) 64,469 5,894 Consolidated variable interest entities related: Equity in income (loss) of investees 1,455 483 ( 2,123 ) Unrealized gain 4,773 4,485 2,141 Interest expense — ( 4 ) ( 459 ) Interest income 3,325 — — Total other income (expense) 2,570 144,112 37,474 Income before income taxes 242,610 313,676 193,202 Income tax expense 55,425 66,423 24,417 Net income 187,185 247,253 168,785 Less: Income (loss) attributable to non-controlling interests in general partnerships 986 376 ( 250 ) Less: Income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C. 71,027 96,548 69,720 Less: Income attributable to redeemable non-controlling interests in Hamilton Lane Alliance Holdings I, Inc. 5,617 4,343 1,293 Less: Income attributable to non-controlling interests in consolidated funds 435 — — Net income attributable to Hamilton Lane Incorporated $ 109,120 $ 145,986 $ 98,022 Basic earnings per share of Class A common stock $ 3.05 $ 4.02 $ 2.82 Diluted earnings per share of Class A common stock $ 3.01 $ 3.98 $ 2.81 Dividends declared per share of Class A common stock $ 1.60 $ 1.40 $ 1.25 See accompanying notes to the consolidated financial statements. 105 Hamilton Lane Incorporated Consolidated Statements of Comprehensive Income (In Thousands) Year Ended March 31, 2023 2022 2021 Net income $ 187,185 $ 247,253 $ 168,785 Other comprehensive income, net of tax: Foreign currency translation — — 130 Total other comprehensive income, net of tax $ — $ — $ 130 Comprehensive income $ 187,185 $ 247,253 $ 168,915 Less: Comprehensive income (loss) attributable to non-controlling interests in general partnerships 986 376 ( 250 ) Comprehensive income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C. 71,027 96,548 69,772 Comprehensive income attributable to redeemable non-controlling interests in Hamilton Lane Alliance Holdings I, Inc. 5,617 4,343 1,293 Comprehensive income attributable to non-controlling interests in consolidated funds 435 — — Total comprehensive income attributable to Hamilton Lane Incorporated $ 109,120 $ 145,986 $ 98,100 See accompanying notes to the consolidated financial statements. 106 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 Interest in Consolidated Funds Non-Controlling Interests in General Partnerships Non-Controlling Interests in Hamilton Lane Advisors, L.L.C. Total Equity 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 income — — — — 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 distributions to non-controlling interests, net — — — — — — ( 2,392 ) — ( 2,392 ) Member distributions — — — — — — — ( 45,416 ) ( 45,416 ) Offerings 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 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 non-controlling interests, net — — — — — — 836 — 836 Member distributions — — — — — — — ( 57,953 ) ( 57,953 ) Offering 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 $ 461,486 107 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 Interest in Consolidated Funds Non-Controlling Interests in General Partnerships Non-Controlling Interests in Hamilton Lane Advisors, L.L.C. Total Equity Balance at March 31, 2022 $ 37 $ 16 $ 161,676 $ 185,149 $ — $ — $ 3,423 $ 111,185 $ 461,486 Net income — — — 109,120 — 435 986 71,027 181,568 Equity-based compensation — — 6,873 — — — — 3,077 9,950 Purchase and retirement of Class A stock for tax withholding — — ( 1,611 ) — — — — ( 714 ) ( 2,325 ) Deferred tax adjustment — — 1,813 — — — — — 1,813 Dividends declared — — — ( 59,462 ) — — — — ( 59,462 ) Capital contributions from (distributions to) non-controlling interests, net — — — — — 18,734 ( 532 ) — 18,202 Member distributions — — — — — — — ( 52,048 ) ( 52,048 ) Offering adjustment 1 ( 1 ) 5,013 — — — — ( 5,014 ) ( 1 ) Employee Share Purchase Plan share issuance 1 — 1,337 — — — — 599 1,937 Adjustment of redeemable non-controlling interest to redemption value — — — 9,016 — — — 4,056 13,072 Equity reallocation between controlling and non-controlling interests — — ( 3,534 ) — — — — 3,534 — Balance at March 31, 2023 $ 39 $ 15 $ 171,567 $ 243,823 $ — $ 19,169 $ 3,877 $ 135,702 $ 574,192 See accompanying notes to the consolidated financial statements. 108 Hamilton Lane Incorporated Consolidated Statements of Cash Flows (In Thousands) Year Ended March 31, 2023 2022 2021 Operating activities: Net income $ 187,185 $ 247,253 $ 168,785 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,443 5,495 4,134 Change in deferred income taxes 20,433 23,944 7,027 Change in payable to related parties pursuant to tax receivable agreement ( 3,251 ) ( 5,332 ) 897 Equity-based compensation 9,950 7,404 7,079 Equity in income of investees ( 5,088 ) ( 78,813 ) ( 32,389 ) Gain on sale of investment ( 12,230 ) ( 11,936 ) — Fair value adjustment of other investments ( 20,730 ) ( 47,487 ) ( 6,229 ) Proceeds received from partnerships 15,981 46,817 784 Non-cash lease expense 7,460 9,890 7,376 Gain on sale of intangible asset 2,771 — — Impairment of other investment 43,289 — — Other ( 2,813 ) ( 815 ) 1,571 Changes in operating assets and liabilities: Fees receivable 4,729 ( 22,667 ) 1,182 Prepaid expenses ( 2,959 ) ( 683 ) 845 Due from related parties ( 5,313 ) 623 110 Other assets ( 6,721 ) 20 ( 549 ) Accounts payable 1,733 654 205 Accrued compensation and benefits 4,072 ( 9,298 ) 18,611 Lease liability ( 7,577 ) ( 3,330 ) 3,105 Other liabilities ( 13,216 ) 12,311 10,003 Consolidated variable interest entities related: Change in warrant liability measured at fair value ( 2,883 ) ( 4,485 ) ( 2,141 ) Equity in (income) loss of investees ( 1,455 ) ( 483 ) 2,123 Change in deferred incentive fee revenue — — ( 3,704 ) Other assets and liabilities 5,779 441 ( 667 ) Net cash provided by operating activities $ 226,589 $ 169,523 $ 188,158 Investing activities: Purchase of furniture, fixtures and equipment ( 4,747 ) ( 8,526 ) ( 18,637 ) Cash paid for acquisition of business ( 1,500 ) ( 10,096 ) — Loans to investees ( 2,535 ) — — Purchase of investments ( 37,025 ) ( 18,997 ) ( 90,500 ) Proceeds from sales of investments 13,478 12,623 — Distributions received from investments 1,406 12,739 3,072 Distributions received from Partnerships 14,438 15,010 31,195 Contributions to Partnerships ( 84,557 ) ( 73,240 ) ( 69,911 ) Purchase of intangible assets — — ( 1,000 ) Consolidated variable interest entities related: Sale (purchase) of investments held in trust 278,954 — ( 276,000 ) Net cash provided by (used in) investing activities $ 177,912 $ ( 70,487 ) $ ( 421,781 ) 109 Year Ended March 31, 2023 2022 2021 Financing activities: Proceeds from offering $ 43,686 $ 73,833 $ 473,339 Purchase of membership interests ( 43,686 ) ( 73,833 ) ( 473,339 ) Borrowings of debt, net of deferred financing costs 31,682 24,925 75,000 Repayments of long term debt ( 4,496 ) ( 1,840 ) ( 1,406 ) Drawdown of revolver 40,000 — 15,000 Repayment of revolver ( 25,000 ) ( 15,000 ) — Repurchase of Class B common stock — ( 1 ) ( 5 ) Repurchase of Class A common stock for employee tax withholding ( 2,325 ) ( 3,485 ) ( 6,019 ) Proceeds received from issuance of shares under Employee Share Purchase Plan 1,937 1,860 1,447 Payments to related parties pursuant to the tax receivable agreement ( 10,345 ) ( 23,170 ) ( 6,894 ) Dividends paid ( 72,409 ) ( 49,630 ) ( 39,676 ) Members’ distributions paid ( 63,444 ) ( 47,711 ) ( 34,368 ) Consolidated variable interest entities related: Contributions from non-controlling interest in general partnerships 725 1,424 252 Distributions to non-controlling interest in general partnerships ( 1,257 ) ( 588 ) ( 2,644 ) (Proceeds) redemption from Class A units of Hamilton Lane Alliance Holdings I, Inc. ( 278,205 ) — 276,000 Offering costs paid for issuance of Class A units of Hamilton Lane Alliance Holdings I, Inc. — — ( 6,027 ) Contributions from consolidated funds 18,991 — — Net cash (used in) provided by financing activities $ ( 364,146 ) $ ( 113,216 ) $ 270,660 Effect of exchange rate changes on cash and cash equivalents $ — $ — $ 130 Increase (decrease) in cash, cash equivalents, and restricted cash 40,355 ( 14,180 ) 37,167 Cash, cash equivalents, restricted cash, and cash and cash equivalents held at consolidated variable interest entities at beginning of the year 76,197 90,377 53,210 Cash and cash equivalents, restricted cash, and cash and cash equivalents held at consolidated variable interest entities at end of the year $ 116,552 $ 76,197 $ 90,377 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 $ 99,686 $ 72,138 $ 87,025 Restricted cash 4,804 4,023 3,041 Cash and cash equivalents held at consolidated variable interest entities 12,062 36 311 Total cash and cash equivalents, restricted cash, and cash and cash equivalents held at consolidated variable interest entities $ 116,552 $ 76,197 $ 90,377 See accompanying notes to the consolidated financial statements. 110 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 (“IPO”), is a holding company whose principal asset is a controlling equity interest in Hamilton Lane Advisors, L.L.C. (“HLA”). As the sole managing member of HLA, HLI operates and controls all of the business and affairs of HLA, and through HLA, conducts its business. As a result, HLI consolidates HLA’s financial results and reports a non-controlling interest related to the portion of HLA units not owned by HLI. The assets and liabilities of HLA represent substantially all of HLI’s consolidated assets and liabilities with the exception of certain cash, certain deferred tax assets and liabilities, payables to related parties pursuant to a tax receivable agreement, and dividends payable. Unless otherwise specified, “the Company” refers to the consolidated entity of HLI, HLA and subsidiaries throughout the remainder of these notes. As of March 31, 2023 and 2022, HLI held approximately 70.1 % and 68.9 %, 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 and by providing asset supervisory and reporting services. HLA sponsors the formation, and serves as the general partner or managing member, of various limited liability partnerships consisting of specialized funds and certain single client separate account entities (“Partnerships”) that acquire interests in third-party managed investment funds that make private equity and equity-related investments. The Partnerships may also make direct investments, including investments in debt, equity, and other equity-based instruments. The Company, which includes certain subsidiaries that serve as the general partner or managing member of the Partnerships, may invest its own capital in the Partnerships and generally makes all investment and operating decisions for the Partnerships. HLA operates several wholly owned entities through which it conducts its foreign operations. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying 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, its wholly owned subsidiaries, and entities in which the Company is deemed to be the primary beneficiary under the variable interest model. Certain of the consolidated variable interest entities are investment companies that follow specialized accounting guidance and reflect their investments at estimated fair value. All intercompany transactions and balances have been eliminated in consolidation. 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. 111 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) 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. 112 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 results of our consolidated VIEs are reported on a three-month lag, due to the timing of the receipt of related financial statements. To the extent that the Company is aware of material events during the intervening period, the impact of the events would be disclosed in the Notes to the Consolidated Financial Statements. 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. 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, 2023 and 2022 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 represented a money market fund of Hamilton Lane Alliance Holdings I, Inc. (“HLAH”), a special purpose acquisition company (“SPAC”) that was previously consolidated, which was invested in U.S. Treasury securities purchased with funds raised through the IPO of the consolidated entity. Investments held in trust were classified as trading securities and were presented on the balance sheet at fair value at the end of the reporting period. Gains and losses resulting from the change in fair value of these securities were 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 were determined 113 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) using quoted prices in an active market and therefore were 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 credit losses has been established as of March 31, 2023 or 2022. Due from Related Parties Due from related parties in the Consolidated Balance Sheets consists 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. 114 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 $ 6,285 and $ 12,567 , and is included in other assets in the Consolidated Balance Sheets as of March 31, 2023 and 2022, respectively. The accumulated amortization of intangibles was $ 6,666 and $ 5,668 as of March 31, 2023 and 2022, respectively. Amortization of intangible assets was $ 2,277 , $ 2,503 , and $ 1,403 for each of the years in the three-year period ended March 31, 2023, 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 $ 1,701 , $ 1,701 , $ 1,465 , $ 1,154 , and $ 264 , respectively. Goodwill of $ 9,566 and $ 9,566 as of March 31, 2023 and 2022, 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, 2022 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. 115 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 represented the Class A shares issued by HLAH that were 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 were 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. 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 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 116 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) 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. 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 117 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) 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. Non-Operating Income (loss) Non-operating income (loss) consists primarily of gains recorded on sales of other assets, 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 bases. 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. 118 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) 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 certain U.S. state and local taxes and 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 IPO 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. 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 Federal Deposit Insurance Corporation 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. 119 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) The below table presents revenues by geographic location: Year Ended March 31, 2023 2022 2021 United States $ 207,954 $ 178,250 $ 164,676 Other foreign countries 320,799 189,669 176,959 Total revenues (1) $ 528,753 $ 367,919 $ 341,635 (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. 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 2023 2022 2021 Specialized funds $ 196,268 $ 150,079 $ 148,023 Customized separate accounts 117,763 103,229 93,963 Advisory 24,785 24,972 26,439 Reporting and other 24,792 23,327 11,134 Distribution management 2,560 10,466 6,701 Fund reimbursement revenue 5,706 2,155 3,184 Total management and advisory fees $ 371,874 $ 314,228 $ 289,444 Year Ended March 31, Incentive fees 2023 2022 2021 Specialized funds $ 118,212 $ 30,332 $ 13,241 Customized separate accounts 31,719 17,801 17,893 Consolidated variable interest related: Specialized funds 6,948 5,558 21,057 Total incentive fees $ 156,879 $ 53,691 $ 52,191 The Company recognized incentive fee revenues of $ 3,704 during the year ended March 31, 2021 that were previously received and deferred. 120 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, 2023 2022 Equity method investments in Partnerships $ 340,603 $ 326,296 Other equity method investments — 1,573 Other investments 21,586 19,820 Investments valued under the measurement alternative 168,732 156,100 Total Investments $ 530,921 $ 503,789 Investments of consolidated VIEs consist of the following: March 31, 2023 2022 Equity method investments in Partnerships $ 12,292 $ 10,036 Fair value investments 44,752 — Total Investments of Consolidated VIEs $ 57,044 $ 10,036 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. During the year ended March 31, 2023, the Company sold its ownership interests in its joint venture, Private Markets Connect, for $ 10,000 and recognized a gain of $ 9,783 , which is recorded in non-operating (loss) income in the Consolidated Statements of Income. Immediately preceding the sale, the Company received a distribution from the joint venture of $ 1,406 , which was treated as a return of capital. The Company’s equity method investments in Partnerships consist of the following types: March 31, 2023 2022 Primary funds $ 95,477 $ 88,089 Secondary funds 50,022 50,070 Direct investment funds 83,963 80,601 Customized separate accounts 111,141 107,536 Total equity method investments in Partnerships $ 340,603 $ 326,296 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, 2023 and 2022, 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. 121 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, 2023 2022 Assets Investments $ 33,672,215 $ 31,256,185 Other assets 842,994 1,135,980 Total assets $ 34,515,209 $ 32,392,165 Liabilities and Partners’ Capital Debt $ 87,451 $ 43,328 Other liabilities 235,080 117,907 Total liabilities 322,531 161,235 Partners’ capital 34,192,678 32,230,930 Total liabilities and partners’ capital $ 34,515,209 $ 32,392,165 Year Ended March 31, 2023 2022 2021 Investment income $ 362,176 $ 654,285 $ 389,571 Expenses 281,011 237,633 201,791 Net investment income 81,165 416,652 187,780 Net realized and unrealized gain ( 509,389 ) 7,022,084 3,232,126 Net income $ ( 428,224 ) $ 7,438,736 $ 3,419,906 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 amortized cost of the assets held as collateral was $ 7,429 and $ 7,853 as of March 31, 2023 and 2022, respectively. 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 investments held as collateral 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 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. 122 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) The Company recognized a gain of $ 1,434 , $ 1,130 , and $ 7,281 on other investments during the years ended March 31, 2023, 2022, and 2021, respectively, and recognized a loss of $ 1,434 , $ 1,130 , and $ 7,281 on the secured financing liability during the years ended March 31, 2023, 2022 and 2021, respectively. Gains and losses related to other investments and the secured financing liability are recorded in non-operating income (loss) 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. The Company’s equity investments that the company has elected to account for under the measurement alternative are presented below: Year Ended March 31, 2023 2022 2021 Carrying amount beginning of the year $ 156,100 $ 109,822 $ 17,091 Adjustments related to equity investments Purchases 37,576 18,995 90,500 Sales / return of capital — ( 13,903 ) ( 3,072 ) Net unrealized (loss) gain 1 ( 24,944 ) 47,189 5,303 Reclassifications 2 — ( 6,003 ) — Carrying amount, end of year $ 168,732 $ 156,100 $ 109,822 (1) Net unrealized (loss) gain consists of fair value adjustments for observable price changes of identical or similar investments or impairments. (2) Reclassifications relate to investments that no longer qualify for the measurement alternative or for which the Company elects to no longer apply the measurement alternative. The following table summarizes the cumulative gross unrealized gains and cumulative gross unrealized losses related to our investments under the measurement alternative: As of March 31, 2023 2022 2021 Cumulative gross unrealized gains $ 69,058 $ 50,713 $ 6,229 Cumulative gross unrealized losses $ ( 43,289 ) $ — $ ( 987 ) The Company performs qualitative impairment assessments at each quarter end on its investments recorded under the measurement alternative. As a result of this assessment as of December 31, 2022, the Company determined that a quantitative assessment was required to be performed for one of its investments given a significant decrease in earnings performance and overall economic and market conditions. The assessment indicated that the fair value was less than the carrying value at December 31, 2022. Prior to the impairment recorded, the carrying value of the investment was $ 74,189 . The impairment amount was $ 43,289 123 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) and is included in non-operating (loss) income in the Condensed Consolidated Statements of Income. The fair value was estimated using Level 3 inputs with the significant input as shown in Note 5. 5. Fair Value Measurement 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, 2023 Level 1 Level 2 Level 3 NAV (3) Total Financial assets: Other investments $ 7,358 $ — $ 14,228 $ — $ 21,586 Consolidated VIEs Fair value investments — — 21,163 23,589 44,752 Total financial assets $ 7,358 $ — $ 35,391 $ 23,589 $ 66,338 Financial liabilities: Secured financing (1) $ — $ — $ 14,228 $ — $ 14,228 Total financial liabilities $ — $ — $ 14,228 $ — $ 14,228 As of March 31, 2022 Level 1 Level 2 Level 3 NAV (3) Total Financial assets: Other investments $ 6,002 $ — $ 13,818 $ — $ 19,820 Investments held in trust 276,016 — — — 276,016 Total financial assets $ 282,018 $ — $ 13,818 $ — $ 295,836 Financial liabilities: Warrant liability (2) $ 2,484 $ 399 $ — $ — $ 2,883 Secured financing (1) — — 13,818 — 13,818 Total financial liabilities $ 2,484 $ 399 $ 13,818 $ — $ 16,701 (1) Secured financing is recorded within other liabilities in the Consolidated Balance Sheets. (2) Warrant liability is recorded within other liabilities of consolidated variable interests in the Consolidated Balance Sheets. (3) Investments are recorded at estimated fair value based upon the net asset value of the fund utilizing the practical expedient under ASC 820, “Fair Value Measurement.” The fair value amounts presented in this column are intended to permit reconciliation of the fair value hierarchy to the amounts presented in Note 4. 124 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) 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, 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 Contributions 284 — — — 284 Distributions ( 1,283 ) ( 25 ) — — ( 1,308 ) Net gain 639 41 754 — 1,434 Balance as of March 31, 2023 $ 6,664 $ 790 $ 6,774 $ — $ 14,228 The following is a reconciliation of investments held by our consolidated VIEs for which significant unobservable inputs (Level 3) were used in determining value: Direct credit investments Balance as of March 31, 2022 $ — Contributions 21,275 Distributions ( 23 ) Net loss ( 89 ) Balance as of March 31, 2023 $ 21,163 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, 2023 Significant Fair Valuation Unobservable Weighted Value Methodology Inputs Range Average Private equity funds $ 6,664 Adjusted net asset value Selected market return 4.9 % - 10.4 % 9.1 % Direct credit investments $ 790 Discounted cash flow Market yield 12.4 % - 12.4 % 12.4 % Direct equity investments $ 6,774 Market approach EBITDA multiple 8.25 x - 14.5 x 11.77 x Market approach Equity multiple 1.7 x 1.7 x Investments of consolidated VIE Direct credit investments $ 21,163 Recent precedent transactions 125 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) 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 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 non-recurring Level 3 fair value measurements of financial assets were as follows, as of December 31, 2022: Significant Fair Valuation Unobservable Weighted Value Methodology Inputs Range Average Investment valued under the measurement alternative $ 30,900 Market approach Revenue Multiple 3.50 x 3.50 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 and a fund in which it is currently the primary beneficiary, which are not wholly-owned by the Company. The assets of the consolidated general partner VIEs represent equity method-investments in direct investment funds and customized separate accounts and the assets of the consolidated fund represent cash and direct credit investments. The assets may only be used to settle obligations of the respective consolidated VIEs, if any. In addition, there is no recourse to the Company for the consolidated VIEs’ liabilities, except for certain entities in which there could be a clawback of previously distributed carried interest. 126 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) The Company previously sponsored and consolidated Hamilton Lane Alliance Holdings I, Inc. (“HLAH”) through HL Alliance Holdings Sponsor LLC, an indirect wholly-owned subsidiary of the Company. On January 15, 2021, HLAH completed an IPO raising total gross proceeds of $ 276,000 , which were placed in a trust and could only be utilized for funding a business combination or the redemption of Class A shares of HLAH. In a private placement concurrent with the IPO, 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 to provide working capital. On December 15, 2022, HLAH was liquidated, as it was determined that HLAH would be unable to consummate an initial business combination within the time period required by its governing documents. In connection with the liquidation, HLAH redeemed all of the outstanding shares of Class A common stock, cancelled all of the outstanding public and private warrants and settled all other outstanding liabilities. 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 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, 2023, the total remaining unfunded commitments from the Company’s general partner entities to the unconsolidated VIEs was $ 136,097 . 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, 2023 2022 Investments $ 199,858 $ 191,378 Fees receivable 15,829 9,754 Due from related parties 1,960 778 Total VIE assets 217,647 201,910 Non-controlling interests ( 1,665 ) ( 1,873 ) Maximum exposure to loss $ 215,982 $ 200,037 127 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) 7. Furniture, Fixtures, and Equipment Furniture, fixtures, and equipment consist of the following: March 31, 2023 2022 Computer hardware and software $ 9,764 $ 7,788 Furniture and fixtures 4,244 3,975 Leasehold improvements 23,261 21,975 Office equipment 3,367 2,346 40,636 36,084 Less: accumulated depreciation 12,211 7,242 Furniture, fixtures, and equipment, net $ 28,425 $ 28,842 Depreciation expense was $ 5,165 , $ 2,992 and $ 2,731 for the years ended March 31, 2023, 2022 and 2021, respectively, and is included in general, administrative and other expenses in the Consolidated Statements of Income. 8. Debt The Company’s debt consisted of the following: As of March 31, 2023 2022 Principal Outstanding Carrying Value Interest Rate Principal Outstanding Carrying Value Interest Rate Term Loan $ 99,375 $ 98,969 6.75 % $ 71,754 $ 71,574 2.25 % 2020 Multi-Draw Facility 100,000 99,564 3.50 % 100,000 99,752 3.50 % Revolver 15,000 15,000 6.50 % — — 2.25 % Total Debt $ 214,375 $ 213,533 $ 171,754 $ 171,326 In October 2022, the Company modified its existing credit agreements. The modifications took the form of a new 2022 Multi-Draw Term Loan and Security Agreement (the “2022 Multi-Draw Term Loan Agreement”), as well as amendments to the existing Revolving Loan and Security Agreement (the “Revolving Loan Agreement”), Term Loan and Security Agreement (the “Term Loan Agreement”) and 2020 Multi-Draw Term Loan and Security Agreement (the “2020 Multi-Draw Term Loan Agreement”, and together with the 2022 Multi-Draw Term Loan Agreement, the Revolving Loan Agreement and the Term Loan Agreement, the “Loan Agreements”). The modifications extended the maturity dates of the Loan Agreements, increased the principal outstanding under the Term Loan Agreement to $ 100,000 and added borrowing capacity across the Loan Agreements, subject to an overall cap of $ 325,000 of loan principal outstanding. The obligations under the Loan Agreements are secured by substantially all of HLA’s personal property assets, subject to certain excluded assets. The Loan Agreements contain financial and operational covenants, events of default and remedies that the Company believes to be customary. The Term Loan Agreement has a maturity date of January 1, 2030, and the Company is entitled to request additional uncommitted term advances not to exceed $ 25 million in the aggregate through December 31, 2023, subject to the overall cap described above. The Revolving Loan Agreement has a $ 50,000 borrowing capacity, a maturity date of March 24, 2025, and the interest rate is a floating per annum rate equal to the 128 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) prime rate minus 1.50 % subject to a floor of 2.25 %. The 2020 Multi-Draw Term Loan Agreement 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 3.50 % and matures on July 1, 2030. The 2022 Multi-Draw Term Loan Agreement provides for a term loan in the aggregate principal amount of $ 75,000 . Borrowings accrue interest at a fixed per annum rate equal to the prime rate minus 1.50 % subject to a floor of 3.00 % and matures on October 1, 2029. As of March 31, 2023, the Company had no borrowings outstanding under the 2022 Multi-Draw Term Loan Agreement. The Loan Agreements 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, pay dividends or 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. The aggregate minimum principal payments on the Company’s outstanding debt are due as follows: For the fiscal year ending March 31, 2024 $ 17,500 2025 2,500 2026 7,500 2027 16,875 2028 27,500 Thereafter 142,500 Total $ 214,375 The carrying value of the Company’s outstanding debt as of March 31, 2023 and March 31, 2022 approximated fair value except for amounts owed pursuant to the 2020 Multi-Draw Term Loan Agreement, which had an estimated fair value of $ 88,136 and $ 95,226 as of March 31, 2023 and 2022, respectively. The estimated fair value of debt is based on then-current market rates for similar debt instruments and is classified as Level 2 within the fair value hierarchy. 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. 129 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) 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. Holders of Class B units of HLA hold shares of Class B common stock 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. Shares of Common Stock Outstanding The following table shows a rollforward of our common stock outstanding: Class A Class B March 31, 2020 29,842,784 22,049,727 Shares issued (repurchased) in connection with offerings 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 Shares issued (repurchased) in connection with offering 586,737 ( 539,237 ) Shares issued in connection with ESPP 34,655 — Shares repurchased for employee tax withholdings ( 37,372 ) — Forfeitures ( 9,295 ) ( 84,615 ) Restricted stock granted 756,497 — March 31, 2023 38,611,919 15,409,507 Income and equity allocations to non-controlling interests are based upon the relative ownership percentage of the consolidated VIE 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 130 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) made distributions in excess of required tax distributions to members in an aggregate amount of $ 39,733 , $ 36,979 , and $ 34,167 for the years ended March 31, 2023, 2022, and 2021, respectively. March 2023 Offering In March 2023, the Company and a selling stockholder completed a registered offering of an aggregate of 671,737 shares of Class A common stock at a price to the underwriter of $ 76.41 per share (the “March 2023 Offering”). The shares sold consisted of 100,000 shares held by the selling stockholder and 571,737 shares newly issued by the Company. The Company received $ 43,686 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 539,237 Class B units and 32,500 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. 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 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 shares sold consisted of 94,245 shares held by the selling stockholders and 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. 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, stock appreciation rights, restricted stock, performance stock, restricted stock units or performance stock units. Awards under the Plan generally vest over four years , with options expiring not more than ten years from the date of grant, three 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, 2023, there were 2,454,877 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. 131 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) 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, 2023 is as follows: Total Unvested Weighted- Average Grant-Date Fair Value of Award March 31, 2022 281,307 $ 67.50 Granted 228,215 61.36 Vested ( 122,559 ) 61.34 Forfeited ( 9,295 ) 70.95 March 31, 2023 377,668 $ 65.70 The weighted-average grant-date fair value per share of restricted stock awarded during the years ended March 31, 2023, 2022 and 2021 was $ 61.36 , $ 73.20 , and $ 82.97 , respectively. The total fair value of restricted stock that vested during the years ended March 31, 2023, 2022 and 2021 was $ 8,029 , $ 10,923 , and $ 19,961 , respectively. As of March 31, 2023, total unrecognized compensation expense related to restricted stock was $ 23,691 with a weighted-average amortization period of 3.2 years. The total tax (expense) benefit recognized from share-based compensation for the years ended March 31, 2023, 2022 and 2021 was $( 115 ), $ 522 and $ 1,528 , respectively. Performance Awards In September 2022, the Company granted performance stock awards to certain employees that are subject to both a market-based vesting and a service-based vesting condition (“Performance Awards”). The Performance Awards will vest based upon (i) the market price of HLI Class A common stock achieving certain price thresholds from $ 150 per share to $ 230 per share and (ii) continued employment through the date the price target is met (with a minimum of five years of service required after the grant date for vesting). If the price target is met prior to the fifth anniversary of the grant date, the vesting date will be the fifth anniversary of the grant date. Holders of the Performance Awards do not participate in dividends until such awards have met both their market-based and service-based vesting requirements. Due to the existence of the service requirement, the vesting period for these awards will vary with each respective tranche as the employees must be employed with the Company on the date the market requirement is met with a minimum of five years of service required after the grant date for vesting. As such, compensation expense will be recognized ratably for each vesting tranche from the grant date to the end for the employee’s service period. The fair value of the awards granted are based on a Monte-Carlo simulation valuation model. 132 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) A summary of Performance Award activity for the year ended March 31, 2023 is presented below: Total Unvested Weighted- Average Grant-Date Fair Value of Award March 31, 2022 — $ — Granted 528,282 $ 29.79 Vested — $ — Forfeited — $ — March 31, 2023 528,282 $ 29.79 Below is a summary of the grant date fair value based on the Monte Carlo simulation valuation model and the significant assumptions used to estimate the grant date fair value of the Performance Awards granted September 16, 2022: Grant Date Fair Value $ 29.79 Closing share price as of grant date $ 69.67 Risk Free Rate 3.6 % Volatility 37.0 % Dividend Yield 2.3 % As of March 31, 2023, total estimated unrecognized expense related to the unvested Performance Awards was $ 14,039 , and none of the Performance Awards had met their market price based vesting condition. 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 884,507 shares were available as of March 31, 2023. 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, 2023, 2022 and 2021, the Company recorded expense of $ 342 , $ 330 and $ 256 , respectively, related to the ESPP. 11. Compensation and Benefits The Company has recorded the following amounts related to compensation and benefits: Year Ended March 31, 2023 2022 2021 Base compensation and benefits $ 149,318 $ 108,395 $ 116,371 Incentive fee compensation 39,144 13,366 12,869 Equity-based compensation 9,950 7,404 7,079 Total compensation and benefits $ 198,412 $ 129,165 $ 136,319 133 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) 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 $ 2,709 , $ 2,251 , and $ 1,906 for the years ended March 31, 2023, 2022 and 2021, respectively, and is included in compensation and benefits expense in the Consolidated Statements of Income. 12. Income Tax The Company’s income before income taxes consisted of the following: Year Ended March 31, 2023 2022 2021 Domestic income before income taxes $ 236,198 $ 309,918 $ 190,459 Foreign income before income taxes 6,412 3,758 2,743 Total income before income taxes $ 242,610 $ 313,676 $ 193,202 Components of income tax expense consist of the following: Year Ended March 31, 2023 2022 2021 Current: Federal $ 28,829 $ 36,206 $ 14,121 State and local 5,075 5,676 2,513 Foreign 1,068 597 756 Total current income tax expense $ 34,972 $ 42,479 $ 17,390 Deferred: Federal $ 15,073 $ 19,947 $ 7,245 State and local 4,694 3,893 ( 211 ) Foreign 686 104 ( 7 ) Total deferred income tax expense 20,453 23,944 7,027 Total income tax expense $ 55,425 $ 66,423 $ 24,417 A reconciliation of the U.S. statutory income tax rate to the Company’s effective tax rate is as follows: Year Ended March 31, 2023 2022 2021 Federal tax at statutory rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 3.4 % 3.3 % 0.6 % Non-controlling interest ( 6.8 ) % ( 6.8 ) % ( 7.6 ) % Valuation allowance 3.5 % 4.6 % ( 1.0 ) % Other 1.7 % ( 0.9 ) % ( 0.4 ) % Effective tax rate 22.8 % 21.2 % 12.6 % 134 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) The significant components of deferred tax assets and liabilities are as follows: Year Ended March 31, 2023 2022 Deferred tax assets: Basis difference in HLA $ 261,087 $ 260,766 Tax Receivable Agreement 49,659 49,979 Fixed assets 24 48 Net operating loss carryforwards 37 1,126 Valuation allowance ( 77,207 ) ( 67,578 ) State taxes 313 717 Other ( 1 ) ( 12 ) Total deferred tax assets $ 233,912 $ 245,046 As of March 31, 2023 and 2022, the Company had net operating loss carryforwards of $ 169 and $ 4,817 . These net operating losses can be carried forward indefinitely and the tax benefits are expected to be realized. In connection with the March 2023 Offering and related unit exchanges, the Company recorded a deferred tax asset in the amount of $ 9,299 , which is net of a valuation allowance of $ 1,942 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 March 2023 Offering and related unit exchanges, the Company recorded a payable to related parties pursuant to the tax receivable agreement of $ 7,761 . 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 $ 9,629 , which was recorded through additional paid-in-capital and income tax expense. As of March 31, 2023 , 2022, and 2021, 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. 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, 2023, the Company’s income tax returns from 2019 remain open and are subject to examination. Tax Receivable Agreement The Company has recorded a liability related to the tax receivable agreement of $ 174,702 and $ 180,536 as of March 31, 2023 and 2022, respectively. Payments of $ 10,345 and $ 23,170 were made during the years ended March 31, 2023 and 2022, respectively. 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 $ 15,703 . 135 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) 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. 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, 2023 2022 2021 Basic net income per share: Numerator Net income attributable to HLI $ 109,120 $ 145,986 $ 98,022 Less: Impact of changes in carrying amount of redeemable non-controlling interests 3,808 951 ( 4,637 ) Net income attributable to Class A common stockholders - basic $ 112,928 $ 146,937 $ 93,385 Denominator Weighted-average shares of Class A common stock outstanding - basic 37,059,654 36,511,507 33,152,318 Basic earnings per share $ 3.05 $ 4.02 $ 2.82 Diluted earnings per share: Numerator Net income attributable to Class A common stockholders - basic $ 112,928 $ 146,937 $ 93,385 Adjustment to net income: Assumed vesting of employee awards 2 121 229 Assumed conversion of Class B and Class C Units 48,813 66,666 — Net income attributable to Class A common stockholders - diluted $ 161,743 $ 213,724 $ 93,614 Denominator Weighted-average shares of Class A common stock outstanding - basic 37,059,654 36,511,507 33,152,318 Weighted-average effect of dilutive securities: Assumed vesting of employee awards 1,773 97,531 210,047 Assumed conversion of Class B and Class C Units 16,637,254 17,065,255 — Weighted-average shares of Class A common stock outstanding - diluted 53,698,681 53,674,293 33,362,365 Diluted earnings per share $ 3.01 $ 3.98 $ 2.81 The adjustments to net income for dilutive securities are based upon the additional income that would be allocated to HLI for the change in its ownership percentage due to the dilutive securities and adjusted for the incremental income tax expense related to the additional allocated income. Net income (loss) recorded by HLI 136 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) on a standalone basis will determine if the Class B and Class C units are dilutive or antidilutive in each respective period. The calculations of diluted earnings per share excludes the following: Year Ended March 31, 2023 2022 2021 Outstanding Class B and C units of HLA — — 17,553,234 Performance Awards 528,282 — — 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 $ 270,710 , $ 209,977 , and $ 199,422 for the years ended March 31, 2023, 2022 and 2021, respectively. The Company earned incentive fees from Partnerships of $ 154,578 , $ 43,742 , and $ 47,962 for the years ended March 31, 2023, 2022 and 2021, respectively. Fees receivable from the Partnerships were $ 31,684 and $ 27,728 as of March 31, 2023 and 2022, respectively, and are included in fees receivable in the Consolidated Balance Sheets. 15. Supplemental Cash Flow Information Year Ended March 31, 2023 2022 2021 Non-cash operating activities: Cash paid during the year for interest $ 8,467 $ 4,591 $ 1,986 Cash paid during the year for income taxes $ 50,880 $ 33,682 $ 6,331 Establishment of lease liability in exchange for ROU asset $ 2,346 $ 7,950 $ 61,725 Non-cash investing activities: Conversion of note receivable $ 550 $ — $ — Establishment of receivable for intangible assets sold $ 6,776 $ — $ — Non-cash financing activities: Establishment of net deferred tax assets related to tax receivable agreement $ 9,299 $ 16,996 $ 121,065 Deferred underwriter fees related to consolidated entity $ — $ — $ 9,660 Dividends declared but not paid $ 15,049 $ 12,947 $ 11,201 Members’ distributions declared but not paid $ 15,723 $ 27,119 $ 16,877 137 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) 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 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 $ 1,022,250 and $ 1,191,066 at March 31, 2023 and 2022, respectively. If the Company ultimately receives the unrecognized carried interest, a total of $ 255,562 and $ 297,766 as of March 31, 2023 and 2022, 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 following table shows lease costs and other supplemental information related to the Company’s operating leases: Year Ended March 31, 2023 2022 2021 Operating lease costs $ 7,943 $ 9,675 $ 5,216 Variable lease costs $ 1,475 $ 1,196 $ 863 Cash paid for amounts included in the measurement of operating lease liabilities $ 8,302 $ 6,734 $ 7,352 Weighted average remaining lease term (in years) 13.8 14.6 15.4 Weighted average discount rate 3.3 % 3.2 % 3.4 % 138 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) As of March 31, 2023, the maturities of operating lease liabilities were as follows: For the fiscal year ending March 31, 2024 $ 7,770 2025 7,390 2026 6,799 2027 6,804 2028 6,444 Thereafter 63,967 Total lease payments $ 99,174 Less: imputed interest ( 20,357 ) Total operating lease liabilities $ 78,817 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 $ 211,556 and $ 186,164 as of March 31, 2023 and 2022, respectively. The Company has an unrealized net gain on its investments valued under the measurement alternative of $ 31,157 as of March 31, 2023, of which up to 15 % may be paid as a discretionary bonus as those gains are realized. The Company offers an Employee Investment Program (“EIP”) through which certain employees are able to invest directly into certain company managed funds as individual limited partners (“LP”). The employees also have an option to enter into a loan agreement with a third-party lender to fund committed capital. The loan is collateralized by the underlying LP interest in the fund and return of capital distributions are utilized to pay the outstanding loan balance. The Company entered into a separate agreement with the third-party lender to backstop the employee’s performance under the loan with a commitment to purchase the LP interest from the lender at the greater of fair value or the outstanding balance of the loan in the event of a default by the employee. As of March 31, 2023, the total amount of outstanding loans under the EIP was $ 693 , and the Company believes the risk of default by an employee to be remote. 17. Acquisitions 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 was paid in two equal installments on the first and second anniversaries of the closing. The first anniversary payment of $ 1,500 was paid during the year ended March 31, 2023 and the final anniversary payment was made after the period. 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. In December 2022, the Company finalized the transfer of the acquired investment management contracts to a third party for an agreed upon percentage of the respective funds’ management fees over two calendar years. The Company recognized a gain of $ 2,771 on the sale of the investment management contracts that is 139 Hamilton Lane Incorporated Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) recorded in non-operating (loss) income in the Consolidated Statements of Income for the year ended March 31, 2023. 18. Subsequent Event On May 25, 2023, the Company declared a quarterly dividend of $ 0.445 per share of Class A common stock to record holders at the close of business on June 15, 2023. The payment date will be July 7, 2023. 140 Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.