Hamilton Lane Incorporated

Good morning. My name is Jason and I will be your conference operator today. At this time, I would like to welcome everyone to the Hamilton Lane Incorporated fourth quarter fiscal year 2020 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during the session, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. Thank you. Jono, Investor Relations Manager, you may begin your conference.

Thank you, Jason. Good morning and welcome to the Hamilton Lane Fiscal Q4 2020 Earnings Call. Today, I will be virtually joined by Mario Giannini, CEO, Erik Hirsch, Vice Chairman, and Atul Varma, CFO, as we continue to work remotely from our Pennsylvania headquarters. Before we discuss the quarter's results, we want to remind you that we will be making forward-looking statements based on our current expectations for the business. These statements are subject to risks and uncertainties that may cause the actual results to differ materially. For discussion of these risks, please review the risk factors included in the Hamilton Lane Fiscal 2019 10-K and subsequent reports we file with the SEC. We will also be referring to non-GAAP measures that we view as important in assessing the performance of our business. Reconciliation of those non-GAAP measures to GAAP can be found in the earnings presentation materials, which we will be referencing throughout the call and will also be shown on the webcast. These materials are available on the public investor relations section of the Hamilton Lane website. Our detailed financial results will be made available when our 10-K is filed. Please note that nothing on this call represents an offer to sell or a solicitation to purchase interest in any of Hamilton Lane's products. Beginning on slide three. For the fiscal year, our revenue from management and advisory fees grew 12% versus the prior year. This translated into full-year non-GAAP EPS of $2.01 based on approximately $107 million of adjusted net income and GAAP EPS of $2.15 based on approximately $61 million of GAAP net income. Lastly, our board has approved a 13.6% increase Thank you, John, and good morning.

Let me start, as many others before me have done, by simply saying thank you. Thank you to those on the front lines. Thank you to those putting themselves in danger to protect us. Thank you to all of those making sacrifices for the good of their communities. and a special thank you to so many of our clients whose members are part of the front lines. You're all very much in our thoughts. For Hamilton Lane, we've had certain offices in a remote work situation since December, and while some of our international offices have already begun to reopen, the majority of our offices continue to work remotely, including our headquarters here in Pennsylvania. I'm pleased to report that despite the challenges we are all facing, our ability to work and service our clients is incredibly strong. Perhaps stating the obvious, but our long-standing commitment to technology and data is serving us well in these times. We are leaning heavily on a combination of purchased and proprietary systems and solutions that continue to benefit our clients. Lastly, I'm very proud of our teams and the effort they exert every day, servicing our clients while simultaneously managing their own lives and families. To them, I also say thank you. And while this time brings uncertainty and discomfort, The Hounsland spirit of creativity and innovation remains strong and is keeping us close together. A quick glance through our Slack channels, aside from all the work-related content, would find pictures of working at home with pets, barbecue tips, videos of family concerts, and reading suggestions. What you'd also see are weekly town hall video updates by me, featuring updates from various teams and employees throughout the firm, ensuring that communication is frequent and transparent. Our already strong culture is getting even stronger through this trying time, and I am proud to be a part of this firm. Now at this point, you've heard plenty of public company CEOs tell you this environment is unprecedented and it is. So rather than till that same ground, we are simply going to give you some of our perspective on what we know at this point and what we don't. I'll start by answering some questions that we've been fielding from investors. First, how much of our revenue is fixed versus variable? We continue to be a management fee heavy business. Even with a strong year of carried interest, management and advisory fees accounted for approximately 90% of our total fiscal year 2020 revenue. In addition, less than 3% of our management and advisory fees are based on net asset value, which protects our revenue stream from temporary mark-to-market moves. Second, you expect LPs, limited partners, to default on their capital commitments. We don't. These commitments are legally binding and carry financial penalties for defaulting. In 2008, we did not, nor did the industry at large, experience any meaningful level of LP defaults. During that entire recession, Hamilton Lane only experienced a single partial defaulting $1 million LP across our entire client base. Third, will the drop in plan values, i.e. the denominator effect, cause LPs to bull pack from the asset class? In general, we think the answer here is no, though this will partially depend on where the markets go from here. As of yesterday's close, we simply haven't seen a drop significant enough to cause concern. While there may be instances of some LPs finding themselves stretched for various reasons and choosing to pull back, we believe there will also be plenty of examples of LPs who are more determined to lean into what feels like an interesting buying opportunity. And as we said before, we have a number of clients who find themselves way below their target allocation. We believe that LPs have now seen the data for vintage year performance following past market downturns, 2000 and 2001, and again with 2009 and 2010, and understand that following times of economic correction, the private markets provide a strong investment opportunity. Fourth, what are your expectations around carried interest payments over the next 12 months? Well, no question they will be lower until the markets normalize, but there are a few things to remember about our carry. First, as I said earlier, carry represented around 10% of our revenues last fiscal year. Second, our carry is incredibly diversified. Over 60 vehicles with thousands of underlying companies. It is spread across companies of different sizes, industries, and geographies. We see some natural hedging as a result of this diversity, but as you know, we don't control these positions, and thus, we don't control the timing of the exits. Fifth, will you be able to achieve your same levels of historical growth? Today, this is a tough question to answer as we are essentially two months into our fiscal year in a very unstable and unprecedented environment. We remain optimistic about our ability to grow and have continued to close new business as well as re-ups in the month of April and May. Our sales team remains active, our pipeline remains strong, but our inability to travel, to see our clients, to host events are all challenges. While we did grow through the 2008-2009 timeframe, something that should provide some additional comfort on the denominator concern, This is a very different environment. And again, our current inability to interact with potential investors, particularly limited partners with whom we don't currently maintain a relationship, will create some challenges. Now let me turn to the results for the quarter, which were strong across the board. Beginning on slide four, here we highlight our total asset footprint, which we define as the sum of our AUM, assets under management, and AUA, assets under advisement. Total asset for the footprint For the quarter stood at approximately 503 billion U.S. dollars and represents a 4% increase to our footprint year-over-year, continuing our long-term growth trend. Consistent with prior quarters, AUM growth year-over-year, which was over 7 billion U.S. dollars, or 12%, came from both our specialized funds and customized separate accounts and continues to be diversified across client type, size of client, and geographic region. Our focus remains simply growing and winning across both lines of business, and we are pleased with the success. Moving to AUA. As was seen with AUM, AUA growth year-over-year, which came in at approximately $12 billion, or 3%, was from across client type and geographic region. As we mentioned on prior earnings calls, AUA can fluctuate quarter-to-quarter for a variety of reasons, but the revenue associated with AUA does not necessarily move in lockstep with those changes. And while this quarter saw an increase in AUA dollars relative to the previous quarter, we will continue to emphasize that no direct correlation exists between the scale of AUA dollars and revenue generation. Continued growth and scale of our AUA remains an area of focus over the longer term, given the advantages those dollars bring. However, growth and scale will not supersede our disciplined approach to ensure that we are finding the appropriate match between our services and the needs of the particular client. Let me now turn it over to Erik.