10-Q 1 hlne6301810q.htm 10-Q

| UNITED STATES |
| SECURITIES AND EXCHANGE COMMISSION |
| Washington, D.C. 20549 |
| FORM 10-Q |
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________ to ___________________________
Commission file number 001-38021
HAMILTON LANE INCORPORATED
| (Exact name of Registrant as specified in its charter) |
| Delaware (State or other jurisdiction of incorporation or organization) |  |  | 26-2482738 (I.R.S. Employer Identification No.) |
| One Presidential Blvd., 4 th Floor Bala Cynwyd, PA (Address of principal executive offices) |  |  | 19004 (Zip Code) |
| (610) 934-2222 (Registrant’s telephone number, including area code) |

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o | Accelerated filer x
Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o
Emerging growth company x |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: As of August 6, 2018, there were 23,124,052 shares of the registrant’s Class A common stock, par value $0.001, and 25,601,056 shares of the registrant’s Class B common stock, par value $0.001, outstanding.

Table of Contents

| Page
PART I - FINANCIAL INFORMATION |
Item 1. Financial Statements | 3
Condensed Consolidated Balance Sheets as of June 30, 2018 and March 31, 2018 | 3
Condensed Consolidated Statements of Income for the three months ended June 30, 2018 and 2017 | 4
Condensed Consolidated Statements of Comprehensive Income for the three months ended June 30, 2018 and 2017 | 5
Condensed Consolidated Statements of Shareholders’ Equity for the three months ended June 30, 2018 and 2017 | 6
Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2018 and 2017 | 7
Notes to Condensed Consolidated Financial Statements | 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20
Item 3. Qualitative and Quantitative Disclosures about Market Risk | 38
Item 4. Controls and Procedures | 40
PART II - OTHER INFORMATION |
Item 1. Legal Proceedings | 41
Item 1A. Risk Factors | 41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 41
Item 6. Exhibits | 42
Signatures | 43

This Quarterly Report on Form 10-Q (“Form 10-Q”) includes certain information regarding the historical performance of our specialized funds and customized separate accounts. An investment in shares of our Class A common stock is not an investment in our specialized funds or customized separate accounts. In considering the performance information relating to our specialized funds and customized separate accounts contained herein, current and prospective Class A common stockholders should bear in mind that the performance of our specialized funds and customized separate accounts is not indicative of the possible performance of shares of our Class A common stock and is also not necessarily indicative of the future results of our specialized funds or customized separate accounts, even if fund investments were in fact liquidated on the dates indicated, and there can be no assurance that our specialized funds or customized separate accounts will continue to achieve, or that future specialized funds and customized separate accounts will achieve, comparable results.

We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business. In addition, our names, logos and website names and addresses are owned by us or licensed by us. We also own or have the rights to copyrights that protect the content of our solutions. Solely for convenience, the trademarks, service marks, trade names and copyrights referred to in this Form 10-Q are listed without the ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks, trade names and copyrights.
1

This Form 10-Q may include trademarks, service marks or trade names of other companies. Our use or display of other parties’ trademarks, service marks, trade names or products is not intended to, and does not imply a relationship with, or endorsement or sponsorship of us by, the trademark, service mark or trade name owners.

Unless otherwise indicated, information contained in this Form 10-Q concerning our industry and the markets in which we operate is based on information from independent industry and research organizations, other third-party sources (including industry publications, surveys and forecasts), and management estimates. Management estimates are derived from publicly available information released by independent industry analysts and third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data and our knowledge of such industry and markets that we believe to be reasonable. Although we believe the data from these third-party sources is reliable, we have not independently verified any third-party information.

Unless otherwise indicated or the context otherwise requires, all references in this Form 10-Q to “we,” “us,” “our,” the “Company,” “Hamilton Lane” and similar terms refer to Hamilton Lane Incorporated and its consolidated subsidiaries. As used in this Form 10-Q, (i) the term “HLA” refers to Hamilton Lane Advisors, L.L.C. and (ii) the terms “Hamilton Lane Incorporated” and “HLI” refer solely to Hamilton Lane Incorporated, a Delaware corporation, and not to any of its subsidiaries.

Cautionary Note Regarding Forward-Looking Information
Some of the statements in this Form 10-Q may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Words such as “will,” “expect,” “believe” and similar expressions are used to identify these forward-looking statements. Forward-looking statements discuss management’s current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and business. All forward-looking statements are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different, including risks relating to our ability to manage growth, fund performance, risk, changes in our regulatory environment and tax status; market conditions generally; our ability to access suitable investment opportunities for our clients; our ability to maintain our fee structure; our ability to attract and retain key employees; our ability to manage our obligations under our debt agreements; defaults by clients and third-party investors on their obligations to us; our ability to comply with investment guidelines set by our clients; our ability to consummate planned acquisitions and successfully integrate the acquired businesses with ours; and our ability to receive distributions from HLA to fund our payment of dividends, taxes and other expenses.
The foregoing list of factors is not exhaustive. For more information regarding these risks and uncertainties as well as additional risks that we face, you should refer to the “Risk Factors” detailed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2018 (our “2018 Form 10-K”) and in our subsequent reports filed from time to time with the Securities and Exchange Commission (the “SEC”). The forward-looking statements included in this Form 10-Q are made only as of the date we filed this report. We undertake no obligation to update or revise any forward-looking statement as a result of new information or future events, except as otherwise required by law.
2

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Hamilton Lane Incorporated
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share and per share amounts)

| June 30, |  | March 31,
| 2018 |  | 2018
Assets |  |  |
Cash and cash equivalents | $ | 53,641 |  |  | $ | 47,596 |
Restricted cash | 1,801 |  |  | 1,787 |
Fees receivable | 16,710 |  |  | 14,924 |
Prepaid expenses | 3,153 |  |  | 2,301 |
Due from related parties | 1,963 |  |  | 3,236 |
Furniture, fixtures and equipment, net | 5,800 |  |  | 4,782 |
Investments | 141,164 |  |  | 137,253 |
Deferred income taxes | 72,798 |  |  | 73,381 |
Other assets | 9,705 |  |  | 8,535 |
Total assets | $ | 306,735 |  |  | $ | 293,795 |
Liabilities and Equity |  |  |
Accounts payable | $ | 405 |  |  | $ | 1,700 |
Accrued compensation and benefits | 21,786 |  |  | 8,092 |
Deferred incentive fee revenue | 3,704 |  |  | 6,245 |
Debt | 83,707 |  |  | 84,162 |
Accrued members’ distribution | 4,618 |  |  | 11,837 |
Payable to related parties pursuant to tax receivable agreement | 34,335 |  |  | 34,133 |
Accrued dividends | 4,729 |  |  | 3,893 |
Other liabilities | 8,526 |  |  | 7,659 |
Total liabilities | 161,810 |  |  | 157,721 |
Commitments and contingencies (Note 14) |  |  |  |  |
Preferred stock, $0.001 par value, 10,000,000 authorized, none issued | — |  |  | — |
Class A common stock, $0.001 par value, 300,000,000 authorized; 23,127,291 and 23,139,476 issued and outstanding as of June 30, 2018 and March 31, 2018, respectively | 22 |  |  | 22 |
Class B common stock, $0.001 par value, 50,000,000 authorized; 25,700,068 issued and outstanding as of June 30, 2018 and March 31, 2018, respectively | 26 |  |  | 26 |
Additional paid-in-capital | 74,802 |  |  | 73,829 |
Retained earnings | 8,685 |  |  | 4,549 |
Total Hamilton Lane Incorporated stockholders’ equity | 83,535 |  |  | 78,426 |
Non-controlling interests in general partnerships | 6,709 |  |  | 7,266 |
Non-controlling interests in Hamilton Lane Advisors, L.L.C. | 54,681 |  |  | 50,382 |
Total equity | 144,925 |  |  | 136,074 |
Total liabilities and equity | $ | 306,735 |  |  | $ | 293,795 |

See accompanying notes to the consolidated financial statements.
3

Hamilton Lane Incorporated
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)

| Three Months Ended June 30,
| 2018 |  | 2017
Revenues |  |  |
Management and advisory fees | $ | 50,979 |  |  | $ | 51,684 |
Incentive fees | 12,383 |  |  | 1,017 |
Total revenues | 63,362 |  |  | 52,701 |
Expenses |  |  |
Compensation and benefits | 26,622 |  |  | 19,962 |
General, administrative and other | 11,048 |  |  | 8,458 |
Total expenses | 37,670 |  |  | 28,420 |
Other income (expense) |  |  |
Equity in (loss) income of investees | (114 | ) |  | 5,919 |
Interest expense | (765 | ) |  | (1,106 | )
Interest income | 42 |  |  | 316 |
Other non-operating loss | (135 | ) |  | (106 | )
Total other (expense) income | (972 | ) |  | 5,023 |
Income before income taxes | 24,720 |  |  | 29,304 |
Income tax expense | 1,617 |  |  | 3,692 |
Net income | 23,103 |  |  | 25,612 |
Less: (Loss) income attributable to non-controlling interests in general partnerships | (120 | ) |  | 898 |
Less: Income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C. | 14,378 |  |  | 19,250 |
Net income attributable to Hamilton Lane Incorporated | $ | 8,845 |  |  | $ | 5,464 |
Basic earnings per share of Class A common stock | $ | 0.40 |  |  | $ | 0.30 |
Diluted earnings per share of Class A common stock | $ | 0.39 |  |  | $ | 0.30 |
Dividends declared per share of Class A common stock | $ | 0.2125 |  |  | $ | 0.175 |

See accompanying notes to the condensed consolidated financial statements.
4

Hamilton Lane Incorporated
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(In thousands)

| Three Months Ended June 30,
| 2018 |  | 2017
Net income | $ | 23,103 |  |  | $ | 25,612 |
Amounts reclassified to net income: |  |  |
Realized loss on cash flow hedge | — |  |  | 35 |
Total other comprehensive income, net of tax | — |  |  | 35 |
Comprehensive income | 23,103 |  |  | 25,647 |
Less: |  |  |
Comprehensive (loss) income attributable to non-controlling interests in general partnerships | (120 | ) |  | 898 |
Comprehensive income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C. | 14,378 |  |  | 19,273 |
Total comprehensive income attributable to Hamilton Lane Incorporated | $ | 8,845 |  |  | $ | 5,476 |

See accompanying notes to the condensed consolidated financial statements.

| 5 |

Hamilton Lane Incorporated
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
(In thousands)

| Class A Common Stock |  | Class B Common Stock |  | Additional Paid in Capital |  | Retained Earnings |  | Non-Controlling Interests in general partnerships |  | Non- Controlling Interests in Hamilton Lane Advisors, L.L.C. |  | Total Equity
Balance at March 31, 2018 | $ | 22 |  |  | $ | 26 |  |  | $ | 73,829 |  |  | $ | 4,549 |  |  | $ | 7,266 |  |  | $ | 50,382 |  |  | $ | 136,074 |
Cumulative-effect adjustment from adoption of accounting guidance | — |  |  | — |  |  | 411 |  |  | 20 |  |  | — |  |  | 566 |  |  | 997 |
Net income (loss) | — |  |  | — |  |  | — |  |  | 8,845 |  |  | (120 | ) |  | 14,378 |  |  | 23,103 |
Equity-based compensation | — |  |  | — |  |  | 678 |  |  | — |  |  | — |  |  | 932 |  |  | 1,610 |
Repurchase of Class A shares for employee tax withholding | — |  |  | — |  |  | (63 | ) |  | — |  |  | — |  |  | (87 | ) |  | (150 | )
Dividends declared | — |  |  | — |  |  | — |  |  | (4,729 | ) |  | — |  |  | — |  |  | (4,729 | )
Capital contributions from (distributions to) non-controlling interests, net | — |  |  | — |  |  | — |  |  | — |  |  | (437 | ) |  | — |  |  | (437 | )
Member distributions | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (11,543 | ) |  | (11,543 | )
Equity reallocation between controlling and non-controlling interests | — |  |  | — |  |  | (53 | ) |  | — |  |  | — |  |  | 53 |  |  | — |
Balance at June 30, 2018 | $ | 22 |  |  | $ | 26 |  |  | $ | 74,802 |  |  | $ | 8,685 |  |  | $ | 6,709 |  |  | $ | 54,681 |  |  | $ | 144,925 |

See accompanying notes to the condensed consolidated financial statements.

| 6 |

Hamilton Lane Incorporated
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)

| Three Months Ended June 30,
| 2018 |  | 2017
Operating activities: |  |  |
Net income | $ | 23,103 |  |  | $ | 25,612 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
Depreciation and amortization | 510 |  |  | 437 |
Change in deferred income taxes | 583 |  |  | 1,903 |
Change in payable to related parties pursuant to tax receivable agreement | 202 |  |  | — |
Amortization of deferred financing costs | 14 |  |  | 85 |
Equity-based compensation | 1,587 |  |  | 1,416 |
Equity in loss (income) of investees | 114 |  |  | (5,919 | )
Proceeds received from investments | 2,679 |  |  | 5,176 |
Other | 66 |  |  | 129 |
Changes in operating assets and liabilities: |  |  |
Fees receivable | (1,786 | ) |  | (7,361 | )
Prepaid expenses | (852 | ) |  | (126 | )
Due from related parties | 1,273 |  |  | 362 |
Other assets | (354 | ) |  | (672 | )
Accounts payable | (1,295 | ) |  | (40 | )
Accrued compensation and benefits | 13,694 |  |  | 8,126 |
Deferred incentive fees | (2,541 | ) |  | — |
Other liabilities | 867 |  |  | 58 |
Net cash provided by operating activities | 37,864 |  |  | 29,186 |
Investing activities: |  |  |
Purchase of furniture, fixtures and equipment | (1,413 | ) |  | (388 | )
Distributions received from investments | 1,960 |  |  | 3,465 |
Contributions to investments | (8,641 | ) |  | (6,589 | )
Net cash used in investing activities | (8,094 | ) |  | (3,512 | )
Financing activities: |  |  |
Repayments of debt | (469 | ) |  | (650 | )
Contributions from non-controlling interest in general partnerships | 17 |  |  | 40 |
Distributions to non-controlling interest in general partnerships | (454 | ) |  | (1,134 | )
Repurchase of Class A shares for employee tax withholding | (150 | ) |  | (663 | )
Proceeds received from option exercises | — |  |  | 313 |
Dividends paid | (3,893 | ) |  | — |
Members’ distributions | (18,762 | ) |  | (9,387 | )
Net cash used in financing activities | (23,711 | ) |  | (11,481 | )
Increase in cash, cash equivalents, and restricted cash | 6,059 |  |  | 14,193 |
Cash, cash equivalents, and restricted cash at beginning of the period | 49,383 |  |  | 34,135 |
Cash, cash equivalents, and restricted cash at end of the period | $ | 55,442 |  |  | $ | 48,328 |

See accompanying notes to the condensed consolidated financial statements.

| 7 |

Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(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. As of March 6, 2017, following its initial public offering (“IPO”) and related transactions, HLI became a publicly-traded entity, and 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 deferred tax assets and liabilities, payable to related parties pursuant to a tax receivable agreement, and dividends payable. As of June 30, 2018 and March 31, 2018, HLI held approximately 42.1% of the economic interest in HLA. As future exchanges of HLA units occur pursuant to the exchange agreement in place with HLA’s members, the economic interest in HLA held by HLI will increase.
HLA is a registered investment advisor with the United States Securities and Exchange Commission (“SEC”), providing asset management and advisory services, primarily to institutional investors, to design, build and manage private markets portfolios. HLA sponsors the formation, and serves as the general partner or managing member, of various limited partnerships or limited liability companies 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 co-investments, including investments in debt, equity, and other equity-based instruments. HLA, which includes certain subsidiaries that serve as the general partner or managing member of the Partnerships, may invest its own capital in the Partnerships and generally makes all investment and operating decisions for the Partnerships. HLA operates several wholly-owned entities through which it conducts its foreign operations.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Management believes it has made all necessary adjustments (which consisted of only normal recurring items) so that the condensed consolidated financial statements are presented fairly and that estimates made in preparing the condensed consolidated financial statements are reasonable and prudent. Results of operations for the three months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending March 31, 2019. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of March 31, 2018.
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:

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Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)

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

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

• | Level 3: 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 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.
The carrying amounts of the term loan and revolving loan facility of $73,257 and $10,450, respectively, as of June 30, 2018 approximated fair values based on then-current market rates for similar debt instruments and are classified as Level II within the fair value hierarchy.
Distributions and Dividends
Distributions and dividends are reflected in the condensed consolidated financial statements when declared. Distributions to members represent amounts paid to the non-controlling interest holders of HLA. All distributions received by HLI from HLA are eliminated in the condensed consolidated financial statements.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards update (ASU) No. 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09). ASU 2014-09 represents a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled to receive in exchange for those goods or services. The Company adopted the new standard on April 1, 2018 using the modified retrospective approach. Refer to Note 3 for additional information related to revenue recognition and impact from the adoption.
In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (ASU 2016-01), which requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those years, and entities may early adopt. The Company adopted the standard on April 1, 2018 and the adoption did not have a material impact on its condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases” (ASU 2016-02). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the consolidated balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated income statement. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. The Company expects its total assets and total liabilities on its condensed consolidated balance sheets to
9

Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)
increase upon adoption of this guidance as a result of recording a lease asset and lease liability related to our operating leases. The Company is continuing to evaluate the impact that this guidance will have on its consolidated financial statements. The Company expects to adopt the new leasing guidance on April 1, 2019.
In August 2016, the FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Payments” (ASU 2016-15). ASU 2016-15 clarifies cash flow classification of several discrete cash flows issues including debt prepayment costs and distributions received from equity method investees. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted the standard on April 1, 2018 and the adoption did not have a material impact on its condensed consolidated financial statements.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
3. Revenue Recognition
On April 1, 2018, the Company adopted the new Accounting Standards Codification 606, Revenue from Contracts with Customers, using the modified retrospective method and applied the guidance only to contracts that were not completed as of that date. As a result, prior period amounts continue to be reported under legacy GAAP. The adoption did not change the historical pattern of recognizing revenue for management and advisory fees and incentive fees. The Company recorded a cumulative-effect adjustment which increased beginning additional paid-in-capital, retained earnings and non-controlling interest in Hamilton Lane Advisors, L.L.C. by $411, $20 and $566, respectively. The adjustment related to commission payments that are considered a cost of obtaining a contract under the new guidance and are capitalized and amortized over the expected life of the contractual relationship. These amounts were previously expensed when incurred.
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 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.
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Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)
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 customer in connection with satisfying these performance obligations. For reimbursable travel, organization and syndication costs, the Company concluded it controls the services provided by its employees and other parties and therefore is a principal. Accordingly, the Company records the reimbursement for these costs incurred on a gross basis as revenue in management and advisory fees and as expense in general, administrative and other expenses in the Condensed 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, and 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 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 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 6% 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 which are outside of the Company’s control. Accordingly, incentive fees are considered variable consideration and are therefore constrained until it is probable that a significant reversal will not occur. Incentive fees from specialized funds and customized separate accounts are generally payable after all contributed capital and the preferred return on that capital has been distributed to investors. The Company recognizes incentive fees when it is probable that a significant reversal will not occur. Incentive fees received before the revenue recognition criteria have been met are deferred and recorded within deferred incentive fee revenue in the

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Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)
condensed consolidated balance sheets. The Company recognized $2,541 of incentive fees during the three months ended June 30, 2018 which was previously received and deferred.
The following presents management and advisory fee revenues disaggregated by product offering, which aligns with the identified performance obligations and the basis for calculating management and advisory fees:

| Three Months Ended June 30,
| 2018 |  | 2017
Customized separate accounts | $ | 20,387 |  |  | $ | 18,784 |
Specialized funds | 21,015 |  |  | 25,206 |
Advisory and reporting | 8,159 |  |  | 6,650 |
Distribution management | 1,088 |  |  | 1,044 |
Fund reimbursement revenue | 330 |  |  | — |
Total management and advisory fees | $ | 50,979 |  |  | $ | 51,684 |

Cost to obtain contracts
The Company incurs incremental costs related to non-discretionary sales commissions paid to certain employees directly related to customized separate account contracts. These incremental costs are capitalized and amortized over the expected contract length of 10 years proportionately to the management fee revenue expected to be recognized in each year as a percentage of the total expected revenue for the contract. The contract asset related to the cost to obtain contracts was $999 as of June 30, 2018 and is included in other assets in the Condensed Consolidated Balance Sheets. Amortization expense related to this contract asset was $122 for the three months ended June 30, 2018 and is included in general, administrative and other in the Condensed Consolidated Statements of Income.
4. Investments
Investments consist of the following:

| June 30, |  | March 31,
| 2018 |  | 2018
Equity method investments in Partnerships | $ | 110,520 |  |  | $ | 105,389 |
Equity method investments in Partnerships held by consolidated VIEs | 13,597 |  |  | 14,704 |
Other equity method investments | 794 |  |  | 876 |
Other investments | 16,253 |  |  | 16,284 |
Total Investments | $ | 141,164 |  |  | $ | 137,253 |

Equity method investments
The Company’s equity method investments in Partnerships represent its ownership in certain specialized funds and customized separate accounts. The strategies and geographic location of investments within the Partnerships vary by fund. The Company has a 1% interest in substantially all of the Partnerships. The Company’s other equity method investments represent its ownership in a technology company that provides benchmarking and analytics of private equity data and its ownership in a joint venture that automates the collection of fund and underlying portfolio company data from general

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Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)
partners. The Company recognized equity method (loss) income related to its investments in Partnerships and other equity method investments of ($114) and $5,919 for the three months ended June 30, 2018 and 2017, respectively.
Other investments
The Company’s other investments include equity securities in other proprietary investments for which fair value is not readily determinable. The accounting guidance 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.
5. Variable Interest Entities
The Company consolidates certain VIEs in which it is determined that the Company is the primary beneficiary. The consolidated VIEs are general partner entities of the Partnerships, which are not wholly owned by the Company. The total assets of the consolidated VIEs are $13,597 and $14,704 as of June 30, 2018 and March 31, 2018, respectively, and are recorded in Investments in the Condensed Consolidated Balance Sheets. The consolidated VIEs had no liabilities as of June 30, 2018 and March 31, 2018 other than deferred incentive fee revenue of $3,704 and $6,245 as of June 30, 2018 and March 31, 2018, respectively. The assets of the consolidated VIEs may only be used to settle obligations of the 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 claw back of previously distributed carried interest.
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 based upon the Company’s equity interest percentage in each of the VIEs. Certain 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. do not 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 June 30, 2018, the total commitments and remaining unfunded commitments from the limited partners and general partners to the unconsolidated VIEs are $14,454,389 and $5,458,926, respectively. These 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 partnerships or limited liability companies to serve as the general partner or managing member of the Partnerships.

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Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)
The carrying amount of assets and liabilities recognized in the Condensed 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:

| June 30, |  | March 31,
| 2018 |  | 2018
Investments | $ | 80,526 |  |  | $ | 77,016 |
Fees receivable | 4,837 |  |  | 517 |
Due from related parties | 433 |  |  | 1,837 |
Total VIE Assets | 85,796 |  |  | 79,370 |
Deferred incentive fee revenue | 3,704 |  |  | 6,245 |
Non-controlling interests | (6,709 | ) |  | (7,266 | )
Maximum exposure to loss | $ | 82,791 |  |  | $ | 78,349 |

6. Acquisition
On August 11, 2017, HLA acquired substantially all the assets of Real Asset Portfolio Management LLC (“RAPM”) for a total aggregate purchase price of approximately $5,840, of which $5,228 was paid in cash with the remainder settled in 27,240 shares of Class A common stock valued at approximately $612. An additional amount based upon an agreed multiple of earnings, which is currently estimated at approximately $7,925 of which $6,172 has previously been recognized since the acquisition date through June 30, 2018, could be payable to the principals of RAPM who are now employees of HLA if they remain employed by HLA through the expected payment date in October 2018. As the amount is contingent upon future employment, the amount will be recognized as compensation expense over the required performance period. The Company recorded approximately $2,948 of intangible assets related to the acquired investment management contracts, which assets will be amortized over eight years, and $2,874 of goodwill, which are both recorded in other assets in the Condensed Consolidated Balance Sheets. The remaining assets acquired and liabilities assumed were not material to the condensed consolidated financial statements. Revenue and net income attributable to the acquisition of RAPM were not material for the three months ended June 30, 2018, and pro forma information related to this acquisition is not included because the impact on the Company’s Condensed Consolidated Statements of Income is not considered to be material.
7. Equity
The following table shows a rollforward of the Company’s common stock outstanding since March 31, 2018:

| Class A Common Stock |  | Class B Common Stock
March 31, 2018 | 23,139,476 |  | 25,700,068 |
Shares repurchased for employee tax withholdings | (3,328 | ) |  | — |
Forfeitures of restricted stock | (8,857 | ) |  | — |
June 30, 2018 | 23,127,291 |  |  | 25,700,068 |

During the three months ended June 30, 2018, the Company retired 3,328 shares of Class A common stock at a total cost of $150, which were purchased from employees to fund statutory tax withholding requirements.

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Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)
8. Equity-Based Compensation
A summary of restricted stock activity for the three months ended June 30, 2018 is presented below:

| Total Unvested |  | Weighted- Average Grant-Date Fair Value of Award
March 31, 2018 | 893,557 |  | $ | 19.32 |
Granted | — |  |  | $ | — |
Vested | (10,108 | ) |  | $ | 17.61 |
Forfeited | (8,857 | ) |  | $ | 14.43 |
June 30, 2018 | 874,592 |  |  | $ | 19.39 |

As of June 30, 2018, total unrecognized compensation expense related to restricted stock was $14,957.
9. Compensation and Benefits
The Company has recorded the following amounts related to compensation and benefits:

| Three Months Ended June 30,
| 2018 |  | 2017
Base compensation and benefits | $ | 19,854 |  |  | $ | 18,292 |
Incentive fee compensation | 2,408 |  |  | 254 |
Equity-based compensation | 1,587 |  |  | 1,416 |
Contingent compensation related to acquisition | 2,773 |  |  | — |
Total compensation and benefits | $ | 26,622 |  |  | $ | 19,962 |

10. Income Taxes
HLI is the sole managing member of HLA, which is organized as a limited liability company and treated as a “flow-through” entity for income tax purposes. As a “flow-through” entity, HLA is not subject to income taxes apart from certain local taxes assessed at the limited liability company level 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, on a pro rata basis. 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 local 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 from HLA.
The Company’s effective tax rate used for interim periods is based on an estimated annual effective tax rate including the tax effect of items required to be recorded discretely in the interim period in which those items occur. The effective tax rate is dependent on many factors, including the estimated amount of income subject to income tax; therefore, the effective tax rate can vary from period to period.

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Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)
The Company’s effective tax rate was 6.5% and 12.6% for the three months ended June 30, 2018 and 2017, respectively. These rates were less than the statutory rate primarily due to the portion of income allocated to the non-controlling entities and discrete tax adjustments recorded in the three months ended June 30, 2018.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted, resulting in significant changes to U.S. federal income tax laws which include, but are not limited to: (1) a reduction of the corporate income tax rate from a maximum graduated tax rate of 35% to a flat tax rate of 21% effective January 1, 2018, (2) a limitation of the tax deduction for interest expense, (3) expensing the cost of acquired qualified property, and (4) a one-time transition tax on accumulated, undistributed earnings of certain foreign subsidiaries. The SEC Staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) in December 2017 which addresses situations where the information needed to account for the income tax effects of the Tax Act is either not available, not prepared, or incomplete for the reporting period in which the Tax Act was enacted. During the year ended March 31, 2018, the Company recorded a provisional amount as a reasonable estimate of the impact of the Tax Act in accordance with SAB 118. As of June 30, 2018, the Company has not completed the accounting for the effects of the Tax Act and there have been no changes to the previously recorded provisional amounts.
The Company evaluates the realizability of its deferred tax asset on a quarterly basis and adjusts the valuation allowance when it is more likely than not that all or a portion of the deferred tax asset may not be realized.
As of June 30, 2018, the Company had no unrecognized tax positions and believes there will be no changes to uncertain tax positions within the next 12 months.
Tax Receivable Agreement
HLI’s purchase of HLA Class A units in connection with the IPO, and the subsequent and future exchanges by holders of HLA units for shares of HLI’s Class A common stock pursuant to the exchange agreement, are expected to result in increases in HLI’s share of the tax basis of the tangible and intangible assets of HLA. This 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 are expected to reduce the amount of cash taxes that HLI would otherwise be required to pay in the future. On March 6, 2017, HLI entered into a tax receivable agreement (“TRA”) with the other members of HLA that requires HLI to pay exchanging HLA unitholders (the “TRA Recipients”) 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.
Based on current projections, we anticipate having sufficient taxable income to utilize these tax attributes and receive corresponding tax deductions in future periods. Changes in the projected liability resulting from the TRA may occur based on changes in anticipated future taxable income, changes in applicable tax rates or other changes in tax attributes that may occur and could affect the expected future tax benefits to be received by us.
The payable to related parties pursuant to the TRA increased to $34,335 as of June 30, 2018 from $34,133 as of March 31, 2018 as a result of being re-measured due to changes in state tax rates. The change in liability was recorded to other non-operating loss in the Condensed Consolidated Statements of Income. No amounts were paid to TRA Recipients during the three months ended June 30, 2018.

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Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)
11. Earnings per Share
Shares of the Company’s Class B common stock do not share in the earnings or losses attributable to HLI, and therefore are not participating securities. As a result, a separate presentation of basic and diluted earnings per share of Class B common stock under the two-class method has not been included. Shares of the Company’s Class B common stock are, however, considered potentially dilutive to the Class A common stock because 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:

| Three Months Ended
| June 30, 2018 |  | June 30, 2017
| Net income attributable to HLI |  | Weighted-Average Shares |  | Per share amount |  | Net income attributable to HLI |  | Weighted-Average Shares |  | Per share amount
Basic EPS of Class A common stock | $ | 8,845 |  |  | 22,248,547 |  |  | $ | 0.40 |  |  | $ | 5,464 |  |  | 17,981,601 |  |  | $ | 0.30 |
Adjustment to net income: |  |  |  |  |  |  |  |  |  |  |
Assumed exercise and vesting of employee awards | 119 |  |  |  |  |  |  | 83 |  |  |  |  |
Effect of dilutive securities: |  |  |  |  |  |  |  |  |  |  |
Assumed exercise and vesting of employee awards |  |  | 524,940 |  |  |  |  |  |  | 477,814 |  |  |
Diluted EPS of Class A common stock | $ | 8,964 |  |  | 22,773,487 |  |  | $ | 0.39 |  |  | $ | 5,547 |  |  | 18,459,415 |  |  | $ | 0.30 |

The calculation of diluted earnings per share for the three months ended June 30, 2018 and 2017 excludes 30,603,983 and 34,438,669 outstanding Class B and C Units of HLA, respectively, which are exchangeable into Class A common stock under the “if-converted” method, because the inclusion of such shares would be antidilutive.
12. Related-Party Transactions
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 $30,593 and $32,867 for the three months ended June 30, 2018 and 2017, respectively. The Company earned incentive fees from Partnerships of $11,892 and $598 for the three months ended June 30, 2018 and 2017, respectively.
The Company entered into a service agreement on June 1, 2017 with its joint venture pursuant to which it had expenses of $1,195 for the three months ended June 30, 2018 that are included in general, administrative and other expenses in the Condensed Consolidated Statements of Income. The Company also has a payable to the joint venture of $405 and $393 as of June 30, 2018 and March 31, 2018, respectively, which is included in other liabilities in the Condensed Consolidated Balance Sheets.

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Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)
Due from related parties in the Condensed 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.
Fees receivable from the Partnerships were $6,446 and $1,929 as of June 30, 2018 and March 31, 2018, respectively, and are included in fees receivable in the Condensed Consolidated Balance Sheets.
13. Supplemental Cash Flow Information

| Three Months Ended June 30,
| 2018 |  | 2017
Cumulative-effect adjustment from adoption of accounting guidance | $ | 997 |  |  | $ | — |
Non-cash financing activities: |  |  |
Dividends declared but not paid | $ | 4,729 |  |  | $ | 3,167 |
Member distributions declared but not paid | $ | 4,618 |  |  | $ | 4,598 |

14. Commitments and Contingencies
Litigation
In the ordinary course of business, the Company may be subject to various legal, regulatory, and/or administrative proceedings from time to time. Although there can be no assurance of the outcome of such proceedings, in the opinion of management, the Company does not believe it is probable that any pending or, to its knowledge, threatened legal proceeding or claim would individually or in the aggregate materially affect its condensed consolidated financial statements.
Incentive Fees
In connection with carried interest from the Partnerships, the Company only recognizes its allocable share of the Partnerships’ earnings to the extent that this income is not subject to continuing contingencies. Carried interest allocated to the Company from the Partnerships that is subject to continuing contingencies is not recognized in the accompanying Condensed Consolidated Balance Sheets. The Partnerships have allocated carried interest still subject to contingencies and that did not meet the Company’s criteria for recognition in the amounts of $292,893 and $303,766, net of amounts attributable to non-controlling interests, at June 30, 2018 and March 31, 2018, respectively, of which $3,704 and $6,245 at June 30, 2018 and March 31, 2018, respectively, has been received and deferred by the Company.
If the Company ultimately receives the unrecognized carried interest, a total of $73,223 and $75,306 as of June 30, 2018 and March 31, 2018, respectively, would potentially be payable to certain employees and third parties pursuant to compensation arrangements related to carried interest profit-sharing plans. Such amounts have not been recorded in the Condensed Consolidated Balance Sheets or Condensed Consolidated Statements of Income as the payment is not yet probable.

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Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)
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 $102,617 and $101,054 as of June 30, 2018 and March 31, 2018, respectively.
15. Subsequent Events
On July 12, 2018, the Company fully repaid the outstanding balance on its revolving loan facility of $10,450.
On August 2, 2018, the previously announced acquisition of an entity in which the Company held an investment closed. The Company estimates it will record a gain of approximately $7,600 in connection with the transaction during the fiscal second quarter ending September 30, 2018.
On August 7, 2018, the Company declared a quarterly dividend of $0.2125 per share of Class A common stock to record holders at the close of business on September 14, 2018. The payment date will be October 4, 2018.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this Form 10-Q, and our audited financial statements, notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2018 Form 10-K for a more complete understanding of our financial position and results of operations.
The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Investors should review the “Cautionary Note Regarding Forward-Looking Information” above and the “Risk Factors” detailed in Part I, Item 1A of our 2018 Form 10-K for a discussion of those risks and uncertainties that have the potential to cause actual results to be materially different. Our results of operations for interim periods are not necessarily indicative of results to be expected for the full year or for any other period. Unless otherwise indicated, references in this Form 10-Q to fiscal 2018, fiscal 2017 and fiscal 2016 are to our fiscal years ended March 31, 2018, 2017 and 2016, respectively.
Business Overview
We are a global private markets investment solutions provider. We offer a variety of investment solutions to address our clients’ needs across a range of private markets, including private equity, private credit, real estate, infrastructure, natural resources, growth equity and venture capital. These solutions are constructed from a range of investment types, including primary investments in funds managed by third-party managers, direct/co-investments alongside such funds and acquisitions of secondary stakes in such funds, with a number of our clients utilizing multiple investment types. These solutions are offered in a variety of formats covering some or all phases of private markets investment programs:

• | Customized Separate Accounts: We design and build customized portfolios of private markets funds and direct investments to meet our clients’ specific portfolio objectives with regard to return, risk tolerance, diversification and liquidity. We generally have discretionary investment authority over our customized separate accounts, which comprised approximately $45 billion of our assets under management (“AUM”) as of June 30, 2018.

• | Specialized Funds: We organize, invest and manage specialized primary, secondary and direct/co-investment funds. Our specialized funds invest across a variety of private markets and include equity, equity-linked and credit funds offered on standard terms as well as shorter duration, opportunistically oriented funds. We launched our first specialized fund in 1997, and our product offerings have grown steadily, comprising approximately $11 billion of our AUM as of June 30, 2018.

• | Advisory Services: We offer investment advisory services to assist clients in developing and implementing their private markets investment programs. Our investment advisory services include asset allocation, strategic plan creation, development of investment policies and guidelines, the screening and recommending of investments, legal negotiations, the monitoring of and reporting on investments and investment manager review and due diligence. Our advisory clients include some of the largest and most sophisticated private markets investors in the world. We had approximately $415 billion of assets under advisement (“AUA”) as of June 30, 2018.

• | Distribution Management: We offer distribution management services through active portfolio management to enhance the realized value of publicly traded stock they receive as distributions from private equity funds.

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• | Reporting, Monitoring, Data and Analytics: We provide our clients with comprehensive reporting and investment monitoring services, usually bundled into our broader investment solutions offerings, but occasionally on a stand-alone, fee-for-service basis. Private markets investments are unusually difficult to monitor, report on and administer, and our clients are able to benefit from our sophisticated infrastructure, which provides clients with real time access to reliable and transparent investment data, and our high-touch service approach, which allows for timely and informed responses to the multiplicity of issues that can arise. We also provide comprehensive research and analytical services as part of our investment solutions, leveraging our large, global, proprietary and high-quality database of private markets investment performance and our suite of proprietary analytical investment tools.

Our client base primarily comprises institutional investors that range from those seeking to make an initial investment in alternative assets to some of the world’s largest and most sophisticated private markets investors. As a highly customized, flexible outsourcing partner, we are equipped to provide investment services to institutional clients of all sizes and with different needs, internal resources and investment objectives. Our clients include prominent institutional investors in the United States, Europe, the Middle East, Asia, Australia and Latin America. We believe we are a leading provider of private markets solutions for U.S. labor union pension plans, and we serve numerous smaller public and corporate pension plans, sovereign wealth funds, financial institutions and insurance companies, endowments and foundations, as well as family offices and selected high-net-worth individuals.
Operating Segments
We operate our business in a single segment, which is how our chief operating decision maker (who is our chief executive officer) reviews financial performance and allocates resources.
Key Financial and Operating Measures
Our key financial measures are discussed below.
Revenues
On April 1, 2018, we adopted the new Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective method. As a result, prior period amounts continue to be reported under legacy GAAP. The adoption did not change the historical pattern of recognizing revenue for management and advisory fees and incentive fees. See Note 2 to our condensed consolidated financial statements for more information on our adoption of ASC 606.
We generate revenues primarily from management and advisory fees, and to a lesser extent, incentive fees.
Management and advisory fees comprise specialized fund and customized separate account management fees, advisory and reporting fees and distribution management fees.
Revenues from customized separate accounts are generally based on a contractual rate applied to committed capital or net invested capital under management. These fees often decrease over the life of the contract due to built-in declines in contractual rates and/or as a result of lower net invested capital balances as capital is returned to clients. In certain cases, we also provide advisory and/or reporting services, and therefore we also receive fees for services such as monitoring and reporting on a client’s existing private markets investments. In addition, we may provide for investments in our specialized funds as part of our customized separate accounts. In these cases, we reduce the management fees on
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customized separate accounts to the extent that assets in the accounts are invested in our specialized funds so that our clients do not pay duplicate fees.
Revenues from specialized funds are based on a percentage of limited partners’ capital commitments to, or net invested capital in, our specialized funds. The management fee during the commitment period is generally charged on capital commitments and after the commitment period (or a defined anniversary of the fund’s initial closing) is reduced by a percentage of the management fee for the preceding year or charged on net invested capital. In the case of certain funds, we charge management fees on capital commitments, with the management fee increasing during the early years of the fund’s term and declining in the later years. Management fees for certain funds are discounted based on the amount of the limited partners’ commitments or if the limited partners are investors in our other funds.
Revenues from advisory and reporting services are generally annual fixed fees, which vary depending on the services we provide. In limited cases, advisory service clients are charged basis point fees annually based on the amounts they have committed to invest pursuant to their agreements with us. In other cases where our services are limited to monitoring and reporting on investment portfolios, clients are charged a fee based on the number of investments in their portfolio.
Distribution management fees are generally earned by applying a percentage to AUM or proceeds received. Certain active management clients may elect a fee structure under which they are charged an asset-based fee plus a performance fee based on net realized and unrealized gains and income net of realized and unrealized losses.
Incentive fees comprise carried interest earned from our specialized funds and certain customized separate accounts structured as single-client funds in which we have a general partner commitment, and performance fees earned on certain other customized separate accounts.
For each of our secondary funds, direct/co-investment funds and credit funds, we earn carried interest equal to a fixed percentage of net profits, usually 10.0% to 12.5%, subject to a compounded annual preferred return that is generally 6.0% to 8.0%. To the extent that our primary funds also directly make secondary investments and direct/co-investments, they generally earn carried interest on a similar basis. Furthermore, certain of our primary funds earn carried interest on their investments in other private markets funds on a primary basis that is generally 5.0% of net profits, subject to the fund’s compounded annual preferred return.
We recognize carried interest when it is probable that a significant reversal will not occur. In the event that a payment is made before it can be recognized as revenue, this amount would be included as deferred incentive fee revenue on our consolidated balance sheet and recognized as income in accordance with our revenue recognition policy. 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.
Performance fees, which are a component of incentive fees, are based on the aggregate amount of realized gains earned by the applicable customized separate account, subject to the achievement of defined minimum returns to the clients. Performance fees range from 5.0% to 12.5% of net profits, subject to a compounded annual preferred return that varies by account but is generally 6.0% to 8.0%. Performance fees are recognized when the risk of clawback or reversal is not probable.
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Expenses
Compensation and benefits is our largest expense and 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 and (c) incentive fee compensation which consists of carried interest and performance fee allocations. We expect to continue to experience a general rise in compensation and benefits expense commensurate with expected growth in headcount and with the need to maintain competitive compensation levels as we expand geographically and create new products and services.
Our compensation arrangements with our employees contain a significant bonus component driven by the results of our operations. Therefore, as our revenues, profitability and the amount of incentive fees earned by our customized separate accounts and specialized funds increase, our compensation costs rise.
Certain current and former employees participate in a carried interest program whereby approximately 25% of incentive fees from certain of our specialized funds and customized separate accounts are awarded to plan participants. We record compensation expense payable to plan participants as the incentive fees become estimable and collection is probable.
General, administrative and other includes travel, accounting, legal and other professional fees, commissions, placement fees, office expenses, depreciation and other costs associated with our operations. Our occupancy-related costs and professional services expenses, in particular, generally increase or decrease in relative proportion to the number of our employees and the overall size and scale of our business operations.
We expect that we will incur additional expenses as compared to certain prior periods as a result of becoming a public company for director and officer insurance, independent director compensation and additional personnel. This includes the cost of investor relations professionals, tax professionals, SEC reporting and Sarbanes-Oxley Act compliance professionals, and other similar expenses.
Other Income (Expense)
Equity in income (loss) of investees primarily represents our share of earnings from our investments in our specialized funds and certain customized separate accounts in which we have a general partner commitment. Equity income primarily comprises our share of the net realized and unrealized gains (losses) and investment income partially offset by the expenses from these investments.
We have general partner commitments in our specialized funds and certain customized separate accounts that invest solely in primary funds, secondary funds and direct/co-investments, as well as those that invest across investment types. Equity in income (loss) of investees will increase or decrease as the change in underlying fund investment valuations increases or decreases. Since our direct/co-investment funds invest in underlying portfolio companies, their quarterly and annual valuation changes are more affected by individual company movements than our primary and secondary funds that have exposures across multiple portfolio companies in underlying private markets funds. Our specialized funds and customized separate accounts invest across industries, strategies and geographies, and therefore our general partner investments do not include any significant concentrations in a specific sector or area outside the United States.
Interest expense includes interest paid and accrued on our outstanding debt, along with the amortization of deferred financing costs, amortization of original issue discount and the write-off of deferred financing costs due to the repayment of previously outstanding debt.
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Interest income is income earned on cash and cash equivalents.
Other non-operating income (loss) consists primarily of gains and losses on certain investments, changes in liability under the tax receivable agreement and other non-recurring or non-cash items.
Fee-Earning AUM
We view fee-earning AUM as a metric to measure the assets from which we earn management fees. Our fee-earning AUM comprise assets in our customized separate accounts and specialized funds from which we derive management fees. We classify customized separate account revenue as management fees if the client is charged an asset-based fee, which includes the majority of our discretionary AUM accounts but also includes certain non-discretionary AUA accounts. Our fee-earning AUM is equal to the amount of capital commitments, net invested capital and net asset value (“NAV”) of our customized separate accounts and specialized funds depending on the fee terms. Substantially all of our customized separate accounts and specialized funds earn fees based on commitments or net invested capital, which are not affected by market appreciation or depreciation. Therefore, revenues and fee-earning AUM are not significantly affected by changes in market value.
Our calculations of fee-earning AUM may differ from the calculations of other asset managers, and as a result, this measure may not be comparable to similar measures presented by other asset managers. Our definition of fee-earning AUM is not based on any definition that is set forth in the agreements governing the customized separate accounts or specialized funds that we manage.
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Consolidated Results of Operations
The following is a discussion of our consolidated results of operations for the three months ended June 30, 2018 and 2017. This information is derived from our accompanying condensed consolidated financial statements prepared in accordance with GAAP.

| Three Months Ended June 30, |
($ in thousands) | 2018 |  | 2017 |
Revenues |  |  |  |
Management and advisory fees | $ | 50,979 |  |  | $ | 51,684 |  |
Incentive fees | 12,383 |  |  | 1,017 |  |
Total revenues | 63,362 |  |  | 52,701 |  |
Expenses |  |  |  |
Compensation and benefits | 26,622 |  |  | 19,962 |  |
General, administrative and other | 11,048 |  |  | 8,458 |  |
Total expenses | 37,670 |  |  | 28,420 |  |
Other income (expense) |  |  |  |
Equity in (loss) income of investees | (114 | ) |  | 5,919 |  |
Interest expense | (765 | ) |  | (1,106 | ) |
Interest income | 42 |  |  | 316 |  |
Other non-operating loss | (135 | ) |  | (106 | ) |
Total other (expense) income | (972 | ) |  | 5,023 |  |
Income before income taxes | 24,720 |  |  | 29,304 |  |
Income tax expense | 1,617 |  |  | 3,692 |  |
Net income | 23,103 |  |  | 25,612 |  |
Less: (Loss) income attributable to non-controlling interests in general partnerships | (120 | ) |  | 898 |  |
Less: Income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C. | 14,378 |  |  | 19,250 |  |
Net income attributable to Hamilton Lane Incorporated | $ | 8,845 |  |  | $ | 5,464 |  |

Revenues

| Three Months Ended June 30,
($ in thousands) | 2018 |  | 2017 |
Management and advisory fees |  |  |  |
Customized separate accounts | $ | 20,387 |  |  | $ | 18,784 |  |
Specialized funds | 21,015 |  |  | 25,206 |  |
Advisory and reporting | 8,159 |  |  | 6,650 |  |
Distribution management | 1,088 |  |  | 1,044 |  |
Fund reimbursement revenue | 330 |  |  | — |  |
Total management and advisory fees | 50,979 |  |  | 51,684 |  |
Incentive fees | 12,383 |  |  | 1,017 |  |
Total revenues | $ | 63,362 |  |  | $ | 52,701 |  |

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Three months ended June 30, 2018 compared to three months ended June 30, 2017
Total revenues increased $10.7 million, or 20%, to $63.4 million, for the three months ended June 30, 2018 compared to the three months ended June 30, 2017, due to an increase in incentive fees.
Management and advisory fees decreased $0.7 million, or 1%, to $51.0 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017. Specialized funds revenue decreased $4.2 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017, due primarily to $5.8 million in retroactive fees from our latest secondary fund in the prior year period. This was partially offset by a $2.6 million increase from our latest co-investment fund, which added $0.9 billion in fee-earning AUM between periods. Included in our latest co-investment fund’s revenue for the quarter was $0.5 million in retroactive fees. Retroactive fees are management fees earned in the current period from investors that commit to a specialized fund towards the end of the fundraising period and are required to pay a catch-up management fee as if they had committed to the fund at the first closing in a prior period. Customized separate accounts revenue increased $1.6 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 due to the addition of several new accounts and additional allocations from existing accounts as compared to the prior year period. Advisory and reporting fees increased $1.5 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017, due primarily to the addition of new accounts during the preceding 12 months.
Incentive fees increased $11.4 million to $12.4 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017, due primarily to $6.4 million recognized from one of our customized separate accounts which included the general partner catch-up and $5.2 million from one of our co-investment funds in the period. Recognition of $2.7 million of carried interest did not result in cash incentive fee payments for the period as $0.2 million was attributable to non-controlling interests and $2.5 million was related to the $41.5 million of incentive fee payments that were received in fiscal 2016 but were not recognized as revenue in that period.
Expenses
Three months ended June 30, 2018 compared to three months ended June 30, 2017
Total expenses increased $9.3 million, or 33%, to $37.7 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 due to increases in compensation and benefits and general, administrative and other expenses.
Compensation and benefits expenses increased $6.7 million, or 33%, to $26.6 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017, due to increased base compensation, incentive fee compensation and contingent compensation. Base compensation increased $1.6 million, or 9%, for the three months ended June 30, 2018 compared to the three months ended June 30, 2017, due primarily to increased salary expense from additional headcount in the current year period compared to the prior year period. Incentive fee compensation increased $2.2 million due to the increase in incentive fee revenue. Contingent compensation related to the RAPM acquisition was $2.8 million for the three months ended June 30, 2018. The $26.6 million of compensation expense reported above excludes compensation expense related to the $2.5 million recognition of deferred incentive fees from one of our co-investment funds. The compensation expense related to these incentive fees was recognized in fiscal 2016 when the incentive fee payments were received. Of the $10.4 million of incentive fee compensation and the $9.9 million of base compensation and benefits recognized in advance of the
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associated revenue in fiscal 2016, $0.6 million and $0.6 million, respectively, was related to the $2.5 million of deferred incentive fees recognized in this period.
General, administrative and other expenses increased by $2.6 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017. This change consisted primarily of a $1.4 million increase in consulting and professional fees, which included $0.9 million in fees related to Private Market Connect, our joint venture, as well as increases in accounting and legal fees.
Other Income (Expense)
The following shows the equity in income of investees included in other income (expense):

| Three Months Ended June 30, |
($ in thousands) | 2018 |  | 2017 |
Equity in (loss) income of investees |  |  |  |
Primary funds | $ | 427 |  |  | $ | 851 |  |
Direct/co-investment funds | (818 | ) |  | 3,092 |  |
Secondary funds | 154 |  |  | 340 |  |
Customized separate accounts | 228 |  |  | 1,758 |  |
Other equity method investments | (105 | ) |  | (122 | ) |
Total equity in (loss) income of investees | $ | (114 | ) |  | $ | 5,919 |  |

Three months ended June 30, 2018 compared to three months ended June 30, 2017
Other income decreased $6.0 million to ($1.0) million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017, due primarily to an decrease in equity in income of investees.
Equity in income of investees decreased $6.0 million to ($0.1) million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017. This included an $0.8 million loss in our direct/co-investment funds compared to a $3.1 million gain in the prior year period and a $1.5 million decrease in gains from our customized separate accounts.
Interest expense decreased $0.3 million to $0.8 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017, due to an interest rate reduction from our debt refinancing between periods.
Interest income decreased $0.3 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017, due primarily to late closing interest received from one of our funds in the prior year period.
Income Tax Expense
The Company’s effective tax rate was 6.5% and 12.6% for the three months ended June 30, 2018 and 2017, respectively. These rates were less than the statutory rate due primarily to the portion of income allocated to the non-controlling entities and discrete tax adjustments recorded in the three months ended June 30, 2018. The decrease in the effective tax rate for the three months ended June 30, 2018 was primarily due to the effects of the Tax Act, which reduced the federal corporate income tax rate to 21% from 35%, effective January 1, 2018.
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Fee-Earning AUM
The following table provides the period to period rollforward of our fee-earning AUM.

| Three Months Ended June 30, |  | Three Months Ended June 30,
($ in millions) | 2018 |  | 2017
| Customized Separate Accounts | Specialized Funds | Total |  | Customized Separate Accounts | Specialized Funds | Total
Balance, beginning of period | $ | 20,931 |  | $ | 9,758 |  | $ | 30,689 |  |  | $ | 18,028 |  | $ | 8,793 |  | $ | 26,821 |
Contributions (1) | 1,073 |  | 746 |  | 1,819 |  |  | 997 |  | 759 |  | 1,756 |
Distributions (2) | (1,863 | ) | (166 | ) | (2,029 | ) |  | (754 | ) | (113 | ) | (867 | )
Foreign exchange, market value and other (3) | 68 |  | (5 | ) | 63 |  |  | (85 | ) | (2 | ) | (87 | )
Balance, end of period | $ | 20,209 |  | $ | 10,333 |  | $ | 30,542 |  |  | $ | 18,186 |  | $ | 9,437 |  | $ | 27,623 |

(1) | Contributions represent (i) new commitments from customized separate accounts and specialized funds that earn fees on a committed capital fee base and (ii) capital contributions to underlying investments from customized separate accounts and specialized funds that earn fees on a net invested capital or NAV fee base.

(2) | Distributions represent (i) returns of capital in customized separate accounts and specialized funds that earn fees on a net invested capital or NAV fee base, (ii) reductions in fee-earning AUM from separate accounts and specialized funds that moved from a committed capital to net invested capital fee base and (iii) reductions in fee-earning AUM from customized separate accounts and specialized funds that are no longer earning fees.

(3) | Foreign exchange, market value and other consists primarily of (i) the impact of foreign exchange rate fluctuations for customized separate accounts and specialized funds that earn fees on non-U.S. dollar denominated commitments and (ii) market value appreciation (depreciation) from customized separate accounts that earn fees on a NAV fee base.

Three months ended June 30, 2018
Fee-earning AUM decreased $0.1 billion to $30.5 billion during the three months ended June 30, 2018, due primarily to customized separate accounts distributions.
Customized separate accounts fee-earning AUM decreased $0.7 billion, or 3%, to $20.2 billion for the three months ended June 30, 2018. Customized separate accounts contributions were $1.1 billion for the three months ended June 30, 2018, due primarily to new allocations from existing clients. Distributions were $1.9 billion for the three months ended June 30, 2018, due primarily to accounts reaching the end of their term.
Specialized funds fee-earning AUM increased $0.6 billion, or 6%, to $10.3 billion for the three months ended June 30, 2018. Specialized fund contributions were $0.7 billion for the three months ended June 30, 2018, due primarily to $0.3 billion in new commitments to our co-investment fund in market during the period and $0.3 billion in contributions from accounts earning fees on a net invested capital fee base. Distributions were $0.2 billion for the three months ended June 30, 2018, due to returns of capital in funds earning fees on a net invested capital fee base.
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Non-GAAP Financial Measures
Below is a description of our unaudited non-GAAP financial measures. These are not measures of financial performance under GAAP and should not be considered a substitute for the most directly comparable GAAP measures, which are reconciled below. These measures have limitations as analytical tools, and when assessing our operating performance, you should not consider these measures in isolation or as a substitute for GAAP measures. Other companies may calculate these measures differently than we do, limiting their usefulness as a comparative measure.
Fee Related Earnings
Fee Related Earnings (“FRE”) is used to highlight our earnings from recurring management fees. FRE represents net income excluding (a) incentive fees and related compensation, (b) interest income and expense, (c) income tax expense, (d) equity in income of investees, (e) other non-operating income and (f) certain other significant items that we believe are not indicative of our core performance. We believe FRE is useful to investors because it provides additional insight into the operating profitability of our business. FRE is presented before income taxes.
Adjusted EBITDA
Adjusted EBITDA is used to measure our profitability including carried interest. We believe Adjusted EBITDA is useful to investors because it enables them to better evaluate the performance of our core business across reporting periods. Adjusted EBITDA represents net income excluding (a) interest expense on our outstanding debt, (b) income tax expense, (c) depreciation and amortization expense, (d) equity-based compensation expense, (e) other non-operating income and (f) certain other significant items that we believe are not indicative of our core performance.
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The following table shows a reconciliation of net income attributable to Hamilton Lane Incorporated to Fee Related Earnings and Adjusted EBITDA for the three months ended June 30, 2018 and 2017:

| Three Months Ended June 30, |
($ in thousands) | 2018 |  | 2017 |
Net income attributable to Hamilton Lane Incorporated | $ | 8,845 |  |  | $ | 5,464 |  |
(Loss) income attributable to non-controlling interests in general partnerships | (120 | ) |  | 898 |  |
Income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C. | 14,378 |  |  | 19,250 |  |
Incentive fees (1) | (12,383 | ) |  | (1,017 | ) |
Incentive fee related compensation (2) | 4,727 |  |  | 499 |  |
Interest income | (42 | ) |  | (316 | ) |
Interest expense | 765 |  |  | 1,106 |  |
Income tax expense | 1,617 |  |  | 3,692 |  |
Equity in loss (income) of investees | 114 |  |  | (5,919 | ) |
Contingent compensation related to acquisition | 2,773 |  |  | — |  |
Other non-operating loss | 135 |  |  | 106 |  |
Fee Related Earnings | $ | 20,809 |  |  | $ | 23,763 |  |
Depreciation and amortization | 510 |  |  | 437 |  |
Equity-based compensation | 1,587 |  |  | 1,416 |  |
Incentive fees (1) | 12,383 |  |  | 1,017 |  |
Incentive fees attributable to non-controlling interests (1) | (211 | ) |  | — |  |
Incentive fee related compensation (2) | (4,727 | ) |  | (499 | ) |
Interest income | 42 |  |  | 316 |  |
Adjusted EBITDA | $ | 30,393 |  |  | $ | 26,450 |  |

(1) | Incentive fees for the three months ended June 30, 2018 include $2.7 million of non-cash carry. Of the $2.7 million, $2.5 million is included in net income and $0.2 million is attributable to non-controlling interests.

(2) | Incentive fee related compensation includes incentive fee compensation expense, bonus and other revenue sharing related to carried interest that is classified as base compensation. Incentive fee related compensation for the three months ended June 30, 2018 excludes compensation expense related to the $2.5 million recognition of incentive fees included in net income from one of our co-investment funds during the period as the related incentive fee compensation was recognized in fiscal 2016.

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Non-GAAP Earnings Per Share
Non-GAAP earnings per share measures our per-share earnings excluding certain significant items that we believe are not indicative of our core performance and assuming all Class B and Class C units in HLA were exchanged for Class A common stock in HLI. Non-GAAP earnings per share is calculated as adjusted net income divided by adjusted shares outstanding. Adjusted net income is income before taxes fully taxed at our estimated statutory tax rate. We believe non-GAAP earnings per share is useful to investors because it enables them to better evaluate per-share operating performance across reporting periods.
The following table shows a reconciliation of adjusted net income to net income attributable to Hamilton Lane Incorporated and adjusted shares outstanding to weighted-average shares of Class A common stock outstanding for the three months ended June 30, 2018 and 2017:

| Three Months Ended June 30,
| 2018 |  | 2017 |
(in thousands, except share and per-share amounts) |  |
Net income attributable to Hamilton Lane Incorporated | $ | 8,845 |  |  | $ | 5,464 |  |
Income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C. | 14,378 |  |  | 19,250 |  |
Income tax expense | 1,617 |  |  | 3,692 |  |
Contingent compensation related to acquisition | 2,773 |  |  | — |  |
Adjusted pre-tax net income | 27,613 |  |  | 28,406 |  |
Adjusted income taxes (1) | (7,458 | ) |  | (11,431 | ) |
Adjusted net income | $ | 20,155 |  |  | $ | 16,975 |  |
Weighted-average shares of Class A common stock outstanding - diluted | 22,773,487 |  |  | 18,459,415 |  |
Exchange of Class B and Class C units in HLA (2) | 30,603,983 |  |  | 34,438,669 |  |
Adjusted shares outstanding | 53,377,470 |  |  | 52,898,084 |  |
Non-GAAP earnings per share | $ | 0.38 |  |  | $ | 0.32 |  |

(1) | Represents corporate income taxes at our estimated statutory tax rate of 27.01% for the three month period ended June 30, 2018 and 40.24% for the three month period ended June 30, 2017 applied to adjusted pre-tax net income. The 27.01% is based on a federal tax statutory rate of 21.00% and a combined state income tax rate net of federal benefits of 6.01%. The 40.24% was based on a federal tax statutory rate of 35.00% and a combined state income tax rate net of federal benefits of 5.24%.

(2) | Assumes the full exchange of Class B and Class C units in HLA for Class A common stock of HLI pursuant to the exchange agreement.

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Investment Performance
The following tables present information relating to the historical performance of our discretionary investment accounts. The data for these investments is presented from the date indicated through March 31, 2018 and have not been adjusted to reflect acquisitions or disposals of investments subsequent to that date.
When considering the data presented below, you should note that the historical results of our discretionary investments are not indicative of the future results you should expect from such investments, from any future investment funds we may raise or from an investment in our Class A common stock, in part because:

• | market conditions and investment opportunities during previous periods may have been significantly more favorable for generating positive performance than those we may experience in the future;

• | the performance of our funds is generally calculated on the basis of net asset value (“NAV”) of the funds’ investments, including unrealized gains, which may never be realized;

• | our historical returns derive largely from the performance of our earlier funds, whereas future fund returns will depend increasingly on the performance of our newer funds or funds not yet formed;

• | our newly established funds may generate lower returns during the period that they take to deploy their capital;

• | in recent years, there has been increased competition for investment opportunities resulting from the increased amount of capital invested in private markets alternatives and high liquidity in debt markets, and the increased competition for investments may reduce our returns in the future; and

• | the performance of particular funds also will be affected by risks of the industries and businesses in which they invest.

The historical and potential future returns of the investment funds we manage are not directly linked to returns on our Class A common stock. Therefore, you should not conclude that continued positive performance of the investment funds we manage will necessarily result in positive returns on an investment in our Class A common stock. As used in this discussion, internal rate of return (“IRR”) is calculated on a pooled basis using daily cash flows. Gross IRR is presented net of management fees, carried interest and expenses charged by the general partners of the underlying investments, but does not include our management fees, carried interest or expenses. See “Performance Methodology” below for more information on how our returns are calculated.
Specialized Fund Performance
We organize, invest and manage primary, secondary and direct/co-investment funds. Our funds invest across a variety of private markets and include equity, equity-linked and credit funds offered on standard terms, as well as shorter duration, opportunistically oriented funds. Below is performance information across our various specialized funds. All of these funds are globally focused, and they are grouped by the investment strategy utilized.
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Gross Returns — Realized

Fund | Vintage year | Fund size ($M) | Realized Capital invested ($M) | Realized Gross multiple | Realized Gross IRR (%) | Realized Gross Spread vs. S&P 500 PME | Realized Gross Spread vs. MSCI World PME
Primaries (Diversified) |  |  |  |  |  |  |
PEF I | 1998 | 122 | 117 | 1.3 | 5.4% | 378 bps | 322 bps
PEF IV | 2000 | 250 | 238 | 1.7 | 16.2% | 1,302 bps | 1,171 bps
PEF V | 2003 | 135 | 127 | 1.7 | 15.1% | 951 bps | 1,066 bps
PEF VI | 2007 | 494 | 467 | 1.6 | 12.5% | 182 bps | 515 bps
PEF VII | 2010 | 262 | 117 | 1.6 | 19.2% | 409 bps | 826 bps
PEF VIII | 2012 | 427 | 5 | 1.7 | 18.8% | 873 bps | 1,240 bps
PEF IX | 2015 | 517 | 15 | 1.6 | 58.4% | 4,018 bps | 4,152 bps
Secondaries |  |  |  |  |  |  |
Pre-Fund | — | — | 363 | 1.5 | 17.1% | 1,320 bps | 1,165 bps
Secondary Fund I | 2005 | 360 | 353 | 1.2 | 5.2% | 114 bps | 341 bps
Secondary Fund II | 2008 | 591 | 534 | 1.6 | 22.0% | 691 bps | 1,100 bps
Secondary Fund III | 2012 | 909 | 206 | 1.7 | 27.9% | 1,265 bps | 1,721 bps
Secondary Fund IV | 2016 | 1,916 | 45 | 1.7 | 53.0% | 3,358 bps | 3,443 bps
Co-investments |  |  |  |  |  |  |
Pre-Fund | — | — | 239 | 2.0 | 21.7% | 1,716 bps | 1,658 bps
Co-Investment Fund | 2005 | 604 | 450 | 1.2 | 3.3% | (267) bps | (15) bps
Co-Investment Fund II | 2008 | 1,195 | 787 | 2.5 | 22.6% | 1,017 bps | 1,389 bps
Co-Investment Fund III | 2014 | 1,243 | 15 | 5.0 | 136.8% | 12,940 bps | 13,525 bps
Fund | Vintage year | Fund size ($M) | Realized Capital invested ($M) | Realized Gross multiple | Realized Gross IRR (%) | Realized Gross Spread vs. CS HY II PME | Realized Gross Spread vs. ML HY II PME
Strategic Opportunities (Tail-end secondaries and credit) |  |  |  |  |
Strat Opps 2015 | 2015 | 71 | 27 | 1.3 | 25.0% | 1,470 bps | 1,916 bps
Strat Opps 2016 | 2016 | 214 | 67 | 1.2 | 23.4% | 1,439 bps | 1,746 bps
Strat Opps 2017 | 2017 | 435 | — | — | — | — | —

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Gross Returns — Realized and Unrealized

Fund | Vintage year | Fund size ($M) | Capital invested ($M) | Gross multiple | Net Multiple | Gross IRR (%) | Net IRR (%) | Gross Spread vs. S&P 500 PME | Net Spread vs. S&P 500 PME | Gross Spread vs. MSCI World PME | Net Spread vs. MSCI World PME
Primaries (Diversified) |  |  |  |  |  |  |  |  |  |  |
PEF I | 1998 | 122 | 117 | 1.3 | 1.2 | 5.4% | 2.5% | 378 bps | 76 bps | 322 bps | 16 bps
PEF IV | 2000 | 250 | 238 | 1.7 | 1.5 | 16.2% | 11.2% | 1,302 bps | 828 bps | 1,171 bps | 707 bps
PEF V | 2003 | 135 | 132 | 1.7 | 1.6 | 14.5% | 9.9% | 867 bps | 390 bps | 977 bps | 495 bps
PEF VI | 2007 | 494 | 508 | 1.6 | 1.6 | 12.2% | 9.4% | 125 bps | (113) bps | 459 bps | 215 bps
PEF VII | 2010 | 262 | 274 | 1.5 | 1.5 | 14.7% | 10.4% | 70 bps | (360) bps | 461 bps | 23 bps
PEF VIII | 2012 | 427 | 329 | 1.3 | 1.2 | 12.3% | 8.6% | (8) bps | (402) bps | 281 bps | (118) bps
PEF IX | 2015 | 517 | 280 | 1.3 | 1.2 | 21.1% | 20.7% | 674 bps | 597 bps | 855 bps | 729 bps
Secondaries |  |  |  |  |  |  |  |  |  |  |
Pre-Fund | — | — | 363 | 1.5 | N/A | 17.1% | N/A | 1,320 bps | N/A | 1,165 bps | N/A
Secondary Fund I | 2005 | 360 | 353 | 1.2 | 1.2 | 5.2% | 3.8% | 114 bps | (60) bps | 341 bps | 160 bps
Secondary Fund II | 2008 | 591 | 571 | 1.6 | 1.5 | 20.6% | 14.6% | 528 bps | (78) bps | 942 bps | 325 bps
Secondary Fund III | 2012 | 909 | 798 | 1.4 | 1.4 | 19.8% | 15.9% | 673 bps | 250 bps | 1,043 bps | 623 bps
Secondary Fund IV | 2016 | 1,916 | 814 | 1.3 | 1.3 | 39.5% | 68.5% | 2,518 bps | 6,150 bps | 2,643 bps | 6,125 bps
Co-investments |  |  |  |  |  |  |  |  |  |  |
Pre-Fund | — | — | 244 | 1.9 | N/A | 21.3% | N/A | 1,653 bps | N/A | 1,601 bps | N/A
Co-Investment Fund | 2005 | 604 | 577 | 1.1 | 1.0 | 1.3% | -0.1% | (480) bps | (648) bps | (228) bps | (400) bps
Co-Investment Fund II | 2008 | 1,195 | 1,130 | 2.1 | 1.8 | 19.8% | 15.9% | 747 bps | 352 bps | 1,120 bps | 721 bps
Co-Investment Fund III | 2014 | 1,243 | 1,227 | 1.4 | 1.3 | 21.3% | 16.8% | 824 bps | 384 bps | 1,058 bps | 598 bps
Fund | Vintage year | Fund size ($M) | Capital invested ($M) | Gross multiple | Net Multiple | Gross IRR (%) | Net IRR (%) | Gross Spread vs. CS HY II PME | Net Spread vs. CS HY II PME | Gross Spread vs. ML HY II PME | Net Spread vs. ML HY II PME
Strategic Opportunities (Tail-end secondaries and credit) |  |  |  |  |  |  |
Strat Opps 2015 | 2015 | 71 | 67 | 1.3 | 1.2 | 16.0% | 12.5% | 652 bps | 293 bps | 1,002 bps | 640 bps
Strat Opps 2016 | 2016 | 214 | 213 | 1.2 | 1.1 | 16.8% | 14.2% | 921 bps | 701 bps | 1,089 bps | 866 bps
Strat Opps 2017 | 2017 | 435 | 320 | 1.0 | 1.0 | 9.7% | 9.6% | 854 bps | 909 bps | 465 bps | 438 bps

Performance Methodology
The indices presented for comparison are the S&P 500, MSCI World, Credit Suisse High Yield II (“CS HY II”) and Bank of America Merrill Lynch High Yield Master II (“ML HY II”), calculated on a PME basis. We believe these indices are commonly used by private markets and credit investors to evaluate performance. The PME calculation methodology allows private markets investment performance to be evaluated against a public index and assumes that capital is being invested in, or withdrawn from, the index on the days the capital was called and distributed from the underlying fund managers. The S&P 500 Index is a total return capitalization-weighted index that measures the performance of 500 U.S. large cap stocks. The MSCI World Index is a free float-adjusted market capitalization-weighted index of over 1,600 world stocks that is designed to measure the equity market performance of developed markets. The CS HY II Index, formerly known as the DLJ High Yield Index, is designed to mirror the investable universe of the U.S. dollar denominated high yield debt market. Prices for the CS HY II Index are available on a weekly basis. The ML HY II Index consists of below investment grade U.S. dollar denominated corporate bonds that are publicly issued in the U.S. domestic market. Issues included in the index have maturities of one year or more and have a credit rating lower than BBB-/Baa3, but are not in default.
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Our IRR represents the pooled IRR for all discretionary investments for the period from inception to March 31, 2018. The returns are net of management fees, carried interest and expenses charged by the underlying fund managers, but do not include our management fees, carried interest or expenses. Our IRR would decrease with the inclusion of our management fees, carried interest and expenses.
The “Realized IRR” represents the pooled IRR for those discretionary investments that we consider realized for purposes of our track record, which are investments where the underlying investment fund has been fully liquidated, has generated a distributions to paid-in capital ratio (“DPI”) greater than or equal to 1.0 or is older than six years and has a residual value to paid-in capital ratio (“RVPI”) less than or equal to 0.2. Hamilton Lane Secondary Realized includes investments that have been fully liquidated, have a DPI greater than or equal to 1.0 or a RVPI less than or equal to 0.2. Hamilton Lane Realized Co-Investment and Hamilton Lane Realized Strategic Opportunities include investments that have been fully liquidated or have a DPI greater than or equal to 1.0. “Unrealized” includes all investments that do not meet the aforementioned criteria. DPI represents total distributions divided by total invested capital. RVPI represents the remaining market value divided by total invested capital. “Capital Invested” refers to the total amount of all investments made by a fund, including commitment-reducing and non-commitment-reducing capital calls. “Multiple” represents total distributions from underlying investments to the fund plus the fund’s market value divided by total contributed capital. “Gross Multiple” is presented net of management fees, carried interest and expenses charged by the fund managers of the underlying investments.
Specialized fund and pre-fund performance does not include ten funds-of-funds that have investor-specific investment guidelines.
Certain of our specialized funds utilize revolving credit facilities, which provide capital that is available to fund investments or pay partnership expenses and management fees. Borrowings may be paid down from time to time with investor capital contributions or distributions from investments. The use of a credit facility affects the fund’s return and magnifies the performance on the upside or on the downside.
Liquidity and Capital Resources
Historical Liquidity and Capital Resources
We have managed our historical liquidity and capital requirements primarily through the receipt of management and advisory fee revenues. Our primary cash flow activities involve: (1) generating cash flow from operations, which largely includes management and advisory fees; (2) realizations generated from our investment activities; (3) funding capital commitments that we have made to certain of our specialized funds and customized separate accounts; (4) making distributions to holders of HLA units and dividend payments to our stockholders; and (5) borrowings, interest payments and repayments under our outstanding debt. As of June 30, 2018 and March 31, 2018, our cash and cash equivalents, including investments in money market funds, were $53.6 million and $47.6 million, respectively.
Our material sources of cash from our operations include: (1) management and advisory fees, which are collected monthly or quarterly; (2) incentive fees, which are volatile and largely unpredictable as to amount and timing; and (3) fund distributions related to investments in our specialized funds and certain customized separate accounts that we manage. We use cash flow from operations primarily to pay compensation and related expenses, general, administrative and other expenses, debt service, capital expenditures and distributions to our owners. We also use our cash flows to fund commitments to certain of our specialized funds and customized separate accounts. If cash flow from operations were insufficient to fund distributions to our owners, we expect that we would suspend paying such distributions.
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Term Loan and Revolving Credit Facility
In August 2017, we entered into a Term Loan and Security Agreement (the “Term Loan Agreement”) and a Revolving Loan and Security Agreement (the “Revolving Loan Agreement” and, together with the Term Loan Agreement, the “Loan Agreements”) with First Republic Bank. Proceeds from the Loan Agreements were utilized to pay off the outstanding principal amount and accrued interest of the predecessor credit facility.
The Term Loan Agreement provides for a term loan facility in an aggregate principal amount of $75.0 million and also contains an accordion feature that allows HLA to increase the commitment under the facility by up to $25.0 million under certain conditions (the “Term Loan Facility”). Borrowings under the Term Loan Facility accrue interest at a floating per annum rate equal to the greater of (i) the prime rate minus 1.25% and (ii) 2.75%. The Term Loan Facility matures on November 1, 2024.
The Revolving Loan Agreement provides for a revolving credit facility up to an aggregate principal amount of $25.0 million (the “Revolving Loan Facility”). The Revolving Loan Facility is for working capital and general corporate purposes. Borrowings under the Revolving Loan Facility accrue interest at a floating per annum rate equal to the greater of (i) the prime rate minus 1.50% and (ii) 2.50%. The Revolving Loan Facility matures on August 21, 2020 and requires compliance with conditions precedent that must be satisfied prior to any borrowing.
As of June 30, 2018 and March 31, 2018, the principal amount of debt outstanding equaled $84.0 million and $84.5 million, respectively. 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. The Loan Agreements also require HLA to maintain (i) a specified amount of management fees in each fiscal year during the term of each of the Loan Agreements, (ii) adjusted EBITDA less dividend distributions on a trailing six-month basis of $12.5 million or greater, tested semi-annually, and (iii) a specified tangible net worth during each fiscal year during the term of each of the Loan Agreements. The obligations under the Loan Agreements are secured by substantially all the assets of HLA.
Future Sources and Uses of Liquidity
We generate significant cash flows from operating activities. We believe that we will be able to continue to meet our current and long-term liquidity and capital requirements through our cash flows from operating activities, existing cash and cash equivalents and our ability to obtain future external financing.
We expect that our primary current and long-term liquidity needs will comprise cash to (1) provide capital to facilitate the growth of our business, (2) fund commitments to our investments, (3) pay operating expenses, including cash compensation to our employees, (4) make payments under the tax receivable agreement, (5) fund capital expenditures, (6) pay interest and principal due on our outstanding debt, (7) pay income taxes, and (8) make distributions and dividend payments to our stockholders and holders of HLA units in accordance with our distribution policy.
We are required to maintain minimum net capital balances for regulatory purposes for our Hong Kong, United Kingdom and broker-dealer subsidiaries. These net capital requirements are met by retaining cash. As a result, we may be restricted in our ability to transfer cash between different operating entities and jurisdictions. As of June 30, 2018 and March 31, 2018, we were required to maintain
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approximately $1.8 million in liquid net assets within these subsidiaries to meet regulatory net capital and capital adequacy requirements. We are in compliance with these regulatory requirements.
Cash Flows
Three Months Ended June 30, 2018 and 2017

| Three Months Ended June 30,
($ in thousands) | 2018 |  | 2017
Net cash provided by operating activities | $ | 37,864 |  |  | $ | 29,186 |
Net cash used in investing activities | (8,094 | ) |  | (3,512 | )
Net cash used in financing activities | (23,711 | ) |  | (11,481 | )
Increase in cash, cash equivalents and restricted cash | $ | 6,059 |  |  | $ | 14,193 |

Operating Activities
Net cash provided by operating activities was $37.9 million and $29.2 million during the three months ended June 30, 2018 and 2017, respectively. These operating cash flows were driven primarily by:

• | net income of $23.1 million and $25.6 million during the three months ended June 30, 2018 and 2017, respectively;

• | proceeds received from investments of $2.7 million and $5.2 million during the three months ended June 30, 2018 and 2017, respectively, which represent a return on investment from specialized funds and certain customized separate accounts; and

• | net change in operating assets and liabilities of $9.0 million and $0.3 million during the three months ended June 30, 2018 and 2017, respectively, primarily for the accrual related to our annual bonus program that is paid in March.

Investing Activities
Our net cash flow used in investing activities was ($8.1) million and ($3.5) million during the three months ended June 30, 2018 and 2017, respectively. These amounts were driven primarily by:

• | net contributions to investments of ($6.7) million and ($3.1) million during the three months ended June 30, 2018 and 2017, respectively; and

• | purchases of furniture, fixtures and equipment consisting primarily of computer software and hardware of ($1.4) million and ($0.4) million during the three months ended June 30, 2018 and 2017, respectively.

Financing Activities
Our net cash flow used in financing activities was ($23.7) million and ($11.5) million during the three months ended June 30, 2018 and 2017, respectively. Cash used in financing activities was attributable primarily to:

• | debt repayments of ($0.5) million and ($0.7) million during the three months ended June 30, 2018 and 2017, respectively;

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• | distributions to non-controlling interest in general partnerships of ($0.5) million and ($1.1) million during the three months ended June 30, 2018 and 2017, respectively;

• | purchases of shares of Class A common stock for tax withholdings of ($0.2) million and ($0.7) million during the three months ended June 30, 2018 and 2017, respectively;

• | dividends paid of ($3.9) million during the three months ended June 30, 2018; and

• | distributions to HLA members of ($18.8) million and ($9.4) million during the three months ended June 30, 2018 and 2017, respectively.

Off-Balance Sheet Arrangements
There has been no material change in our off-balance sheet arrangements discussed in our 2018 Form 10-K.
Contractual Obligations, Commitments and Contingencies
There have been no material changes outside of the ordinary course of business in our contractual obligations, commitments and contingencies from those specified in our 2018 Form 10-K.
Critical Accounting Policies
The preparation of our condensed consolidated financial statements requires us to make estimates that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent liabilities. We base our judgments on our historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making estimates about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
For a more complete discussion of the accounting judgments and estimates that we have identified as critical in the preparation of our condensed consolidated financial statements, please refer to our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2018 Form 10-K.
Recent Accounting Pronouncements
Information regarding recent accounting developments and their impact on our results can be found in Note 2, “Summary of Significant Accounting Policies” in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
Item 3. Qualitative and Quantitative Disclosures about Market Risk
In the normal course of business, we are exposed to a broad range of risks inherent in the financial markets in which we participate, including price risk, interest-rate risk, access to and cost of financing risk, liquidity risk, counterparty risk and foreign exchange-rate risk. Potentially negative effects of these risks may be mitigated to a certain extent by those aspects of our investment approach, investment strategies, fundraising practices or other business activities that are designed to benefit, either in relative or absolute terms, from periods of economic weakness, tighter credit or financial market dislocations.
Our predominant exposure to market risk is related to our role as general partner or investment manager for our specialized funds and customized separate accounts and the sensitivities to movements in the fair value of their investments, which may adversely affect our equity in income of investees. Since
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our management fees are generally based on commitments or net invested capital, our management fee and advisory fee revenue is not significantly impacted by changes in investment values.
Fair value of the financial assets and liabilities of our specialized funds and customized separate accounts may fluctuate in response to changes in the value of securities, foreign currency exchange rates, commodity prices and interest rates. The impact of investment risk is as follows:

• | Equity in income of investees changes along with the realized and unrealized gains of the underlying investments in our specialized funds and certain customized separate accounts in which we have a general partner commitment. Our general partner investments include thousands of unique underlying portfolio investments with no significant concentration in any industry or country outside of the United States.

• | Management fees from our specialized funds and customized separate accounts are not significantly affected by changes in fair value as the management fees are not generally based on the value of the specialized funds or customized separate accounts, but rather on the amount of capital committed or invested in the specialized funds or customized separate accounts, as applicable.

• | Incentive fees from our specialized funds and customized separate accounts are not materially affected by changes in the fair value of unrealized investments because they are based on realized gains and subject to achievement of performance criteria rather than on the fair value of the specialized fund’s or customized separate account’s assets prior to realization. We had $3.7 million of deferred incentive fee revenue on our balance sheet as of June 30, 2018. Minor decreases in underlying fair value would not affect the amount of deferred incentive fee revenue subject to clawback.

Exchange Rate Risk
Several of our specialized funds and customized separate accounts hold investments denominated in non-U.S. dollar currencies that may be affected by movements in the rate of exchange between the U.S. dollar and foreign currency, which could impact investment performance. The currency exposure related to investments in foreign currency assets is limited to our general partner interest, which is typically one percent of total capital commitments. We do not possess significant assets in foreign countries in which we operate or engage in material transactions in currencies other than the U.S. dollar. Therefore, changes in exchange rates are not expected to materially impact our financial statements.
Interest Rate Risk
As of June 30, 2018, we had $84.0 million in borrowings outstanding under our Loan Agreements. The annual interest rate on the Term Loan Agreement, which is at the prime rate minus 1.25%, subject to a floor of 2.75%, was 3.75% as of June 30, 2018. The annual interest rate on the Revolving Loan Agreement, which is at the prime rate minus 1.50%, subject to a floor of 2.50%, was 3.50% as of June 30, 2018.
Based on the floating rate component of our Loan Agreements payable as of June 30, 2018, we estimate that a 100 basis point increase in interest rates would result in increased interest expense related to the loan of $0.8 million over the next 12 months.
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Credit Risk
We are party to agreements providing for various financial services and transactions that contain an element of risk in the event that the counterparties are unable to meet the terms of such agreements. In such agreements, we depend on the respective counterparty to make payment or otherwise perform. We generally endeavor to minimize our risk of exposure by limiting the counterparties with which we enter into financial transactions to reputable financial institutions. In other circumstances, availability of financing from financial institutions may be uncertain due to market events, and we may not be able to access these financing markets.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2018. Our disclosure controls and procedures are intended to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
In designing and evaluating our disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on management’s evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at June 30, 2018.
Changes in Internal Control over Financial Reporting
There have been no changes to our internal control over financial reporting during the quarter ended June 30, 2018 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business, we may be subject to various legal, regulatory and/or administrative proceedings from time to time. Currently, there are no material proceedings pending or, to our knowledge, threatened against us.
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of our 2018 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table provides information about our share repurchase activity for the quarter ended June 30, 2018:

Period |  | Total Number of Shares Purchased(1) |  | Average Price Paid per Share |  | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |  | Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
April 1-30, 2018 |  | — |  |  | $ | — |  |  | — |  | —
May 1-31, 2018 |  | 3,328 |  |  | $ | 45.19 |  |  | — |  | —
June 1-30, 2018 |  | — |  |  | $ | — |  |  | — |  | —
Total |  | 3,328 |  |  | $ | — |  |  |  |  |

(1) Includes shares of Class A common stock tendered by employees as payment of taxes withheld on the vesting of restricted stock granted under HLI’s 2017 Equity Incentive Plan.
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Item 6. Exhibits

|  |  | Incorporated By Reference | Filed Herewith
Exhibit No. |  | Description of Exhibit | Form | Exhibit | Filing Date | File No.
3.1 |  | Amended and Restated Certificate of Incorporation of Hamilton Lane Incorporated | 8-K | 3.1 | 3/10/17 | 001-38021 |
3.2 |  | Amended and Restated Bylaws of Hamilton Lane Incorporated | 10-K | 3.2 | 6/27/17 | 001-38021 |
10.1 |  | Amendment No. 2 to the Fourth Amended and Restated Limited Liability Company Agreement of Hamilton Lane Advisors, L.L.C., dated as of June 13, 2018, by and among Hamilton Lane Advisors, L.L.C. and its members | 10-K | 10.3 | 6/14/18 | 001-38021 |
10.2 |  | Hamilton Lane Advisors, L.L.C. 2016 Carried Interest Plan (amended and restated, effective as of January 1, 2018) |  |  |  |  | X
31.1 |  | Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley |  |  |  |  | X
31.2 |  | Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley |  |  |  |  | X
32‡ |  | Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  |  |  |  |
100.INS |  | XBRL Instance Document |  |  |  |  | X
101.SCH |  | XBRL Taxonomy Extension Schema |  |  |  |  | X
101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase |  |  |  |  | X
101.LAB |  | XBRL Taxonomy Extension Label Linkbase |  |  |  |  | X
101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase |  |  |  |  | X
101.DEF |  | XBRL Taxonomy Extension Definition Linkbase |  |  |  |  | X

‡ Furnished herewith.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 9th day of August, 2018.

HAMILTON LANE INCORPORATED
By: | /s/ Randy M. Stilman
| Name: Randy M. Stilman
| Title: Chief Financial Officer and Treasurer
By: | /s/ Michael Donohue
| Name: Michael Donohue
| Title: Managing Director and Controller