Good morning, ladies and gentlemen, and welcome to the Hamilton Lane Second Quarter Fiscal 2024 Earnings Call. [Operator Instructions] This call is being recorded on Tuesday, November 7, 2023. And I would now like to turn the conference over to John Oh, Head of Shareholder Relations. Please go ahead.

Thank you, Nina. Good morning, and welcome to the Hamilton Lane Q2 fiscal 2024 earnings call. Today, I will be joined by Mario Giannini, CEO; Erik Hirsch, Vice Chairman; and Jeff Armbrister, CFO. Earlier this morning, we issued a press release and slide presentation, which are available on our website. Before we discuss the quarter's results, we want to remind you that we will be making forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and business. These forward-looking statements do not guarantee future events or performance and are subject to risks and uncertainties that may cause our actual results to differ materially from those projected. For a discussion of these risks, please review the cautionary statements and risk factors included in the Hamilton Lane's fiscal 2023 10-K and subsequent reports we file with the SEC. These forward-looking statements are made only as of today and, except as required, we undertake no obligation to update or revise any of them. 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 made available on the Shareholders section of the Hamilton Lane website. Our detailed financial results will be made available when our 10-Q is filed. Please note that nothing on this call represents an offer to sell or a solicitation of an offer to purchase interest in any of Hamilton Lane's products. Beginning with the financial highlights. Year-to-date, our management and advisory fee revenue grew by 20%, while our fee-related earnings also grew by 20% versus the prior year period, translated into GAAP EPS of $1.92 based on $73 million of GAAP net income and non-GAAP EPS of $1.83 based on $99 million of adjusted net income. We have also declared a dividend of $0.445 per share this quarter, which keeps us on track for the 11% increase over last fiscal year, equating to the targeted $1.78 per share for fiscal year 2024. With that, I'll now turn the call over to Mario.

Thank you, John, and good morning, everyone. I'll start with addressing the CEO transition announcement we made several weeks ago. At the beginning of calendar 2024, I will be stepping down as CEO of Hamilton Lane after having served the last 22 years in that capacity. I will move into an executive co-chair role alongside Hartley Rogers, our current Chairman. At that time, Erik Hirsch and Juan Delgado-Moreira will become the new co-CEOs of Hamilton Lane. I want to emphasize that I will not be moving on or back from Hamilton Lane and, in fact, quite the opposite. I'm a significant shareholder and I plan to remain very active and do my part in continuing to grow and scale our business. Once as a fund manager, how you know if someone is a good CEO? His answer was that you don't know until a couple of years after that person is no longer CEO. Because the mark of a good CEO is that his or her transition to another CEO is smooth and the successor continues to run the business successfully. That's the measure that I am certain that I will be regarded as a good CEO, because this transition has and will continue to be seamless, and Juan and Erik will be great CEOs at Hamilton Lane. I've worked with both of them over many years here, and there has been no decision or strategic discussion over the last 15-plus years of which they haven't been an integral part. Their thoughts and judgments have been a key part of Hamilton Lane's success and we would be nowhere near what we are today without them helping to spearhead the growth of the business over the last decade and longer. Both Erik and Juan have highly complementary investment in strategic management skill sets and bring fresh perspectives on the future of our business. Juan will primarily focus on leading Hamilton Lane's global sales effort and client service organization, while Erik will take the lead on the strategic direction and operations of the firm. Erik and Juan will jointly lead our global investment team. We look forward to working with them as Hamilton Lane builds on its market leadership position. I will now turn it over to Erik.

Thank you, Mario, and good morning, everyone. Before I get into detail around the quarter's results, I want to take this opportunity to thank the Board, Hartley, and Mario for entrusting me and Juan with this new responsibility. We are excited to continue to build on the firm's strong position and momentum. Juan will join the next earnings call to introduce himself to you all. But our plan going forward is that future calls will be led by me, Jeff Armbrister and John, and to keep our interaction with you and the market consistent. With that, let's move on to the results for the quarter. I'll start with our total asset footprint, which we define as the sum of our AUM and AUA. This stood at $854 billion and represents a 4% increase to our footprint year-over-year and highlights our continued and steady growth as a firm. AUM stood at $119 billion at quarter-end and grew $12 billion or 11%. The growth came from both our specialized funds and customized separate accounts. AUA was up $18 billion or 3% year-over-year, primarily the result of the addition of reporting and advisory mandates. As a reminder, AUA can fluctuate for a variety of reasons, but the revenue associated with AUA does not necessarily move in lockstep with those changes. Let's turn now to fee-earning AUM, which continues to be the largest driver of management fees. And despite a challenging fundraising environment over recent quarters, we have experienced strong growth in both our customized separate accounts and specialized funds. Our total fee-earning AUM stood at $61.4 billion and grew $8.7 billion or 17% relative to the prior year period. Taken separately, $3.9 billion of net fee-earning AUM came from our customized separate accounts, and over the same time period, $4.8 billion came from…

Thank you, Erik, and good morning, everyone. As this is my first HLNE earnings call as Hamilton Lane's CFO, I'd like to start by conveying how excited I am to be working alongside the Board, Erik, Juan, and the rest of the senior leadership team here. With the last 5 years leading and growing Hamilton Lane's direct equity platform, now I'm looking forward to this exciting opportunity to continue to help drive growth at the firm. Let's move on now to the financial results. Fiscal year-to-date, we achieved strong growth in our business with management and advisory fees up 20% versus the prior year period. Specialized funds revenue increased by $29 million or 32% compared to the prior year period. This was driven primarily by a $1.8 billion increase to fee-earning AUM in our Evergreen platform in the last 12 months and over $3 billion raised since inception in our latest secondary fund. Retro fees for the fiscal year were $8.8 million from our secondary funded market versus $1.2 million from our direct equity fund in the prior year period. As a reminder, investors that come into later closes during a fundraise pay retroactive fees dating back to the fund's first close. We expect to generate additional retro fees as we hold subsequent closes for secondary Fund VI. Erik mentioned earlier, we received an extension for the final close for secondary Fund VI out to calendar Q1 of 2024 that will extend out the timing of receiving the associated retro fees. This now has potential to cause interim movements in our quarterly FRE margins. But on an annual basis, we expect to maintain our current levels. Moving on to customized separate accounts. Revenue increased $6 million or 10% compared to the prior year period due to re-ups from existing clients,…

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And your first question comes from the line of Kenneth Worthington from JPMorgan.

This is Alex on for Ken. Maybe to double-click on the Evergreen platform, and congratulations on all the continued success there. Maybe just initially to get a better sense of the decision process that you're making across choosing to launch new products versus trying to onboard existing products onto some of the larger distribution platforms, which is the wirehouses you discussed. Maybe if we can start there, please.

Sure, Alex. It's Mario. The decision is fairly straightforward in the sense that, obviously, these products that we have on the platforms are having great success. And so we fully intend to expand the product offerings. As you're aware, we have a credit offering outside the United States on those platforms. So we have already expanded. And we look at it and think that we will have an additional number of offerings. But really, it's a function of making sure that we have the right investment platforms that both the platforms want and in which their space to provide them. But we would expect that we will continue to be providing products into that platform and expanding our own platform there.

Got it. And maybe as a follow-up, some of your peers that also had Evergreen products have been looking at some more innovative structures such as ticker subscriptions and things of that nature. Do you see merit there? And is that something that you're considering? Or how are you framing that question?

Alex, it's Mario again. Look, I think everyone is looking at developments in that market. What does the market want? And clearly, as you see in our numbers, the market wants what we're offering. So as we think about do we need to change that in order to increase demand, we just haven't seen that need. With that said, I would expect that you'll continue to see innovation around the kinds of things like you described where either it's necessary or the market requires it. But as I said, in terms of the existing products we have, we've not had much demand for people saying, if you tweak it this way, you will get more incremental demand. You've seen the flows. They're healthy. And so I would not expect any time soon that we're going to be changing that. But sure, products looking forward, I think as the markets change, we will certainly change and hopefully beat some of them.

And your next question comes from the line of Michael Brown from KBW.

This is Evan Holeman on for Mike Brown. The FRE margin has been fairly stable the last several quarters. And as the Evergreen platform continues to grow its contribution to the business, is there an embedded operating leverage that can support further expansion? Or is there further investment that would limit this dynamic? And if so, can you just kind of help us quantify that?

Sure, Evan, it's Erik. Thanks for the question. I think as Jeff said in his section, we're thrilled with the success we're having, particularly with the wirehouses, but that does come with that kind of upfront cost and then kind of the revenue coming later. So I think what you're seeing with margin right now, I think, is actually noteworthy, in an environment where we're certainly seeing margins falling across peers in the market segment, I think the fact that we're holding steady with this growth and with those upfront costs, I think is noteworthy and sort of shows that I think management is doing a good job on sort of managing all of those dynamics. Going forward, you would say in a vacuum that margins could be rising as you start to get -- as you've now paid the upfront cost and now you're just benefiting from revenue. That would be a margin enhancer, particularly given the margin on this product. That said, I think management's focus here continues to be on growth and investing in growth. To Mario's point, new product expansion, continuing sort of building out of the sales force. So I think our focus today is not on can we increase margins further, it's how can we continue to invest smartly in the business to make sure that we're continuing to put up these significant growth numbers.

Great. That's helpful. And then maybe just a quick follow-up on any color or visibility you guys have to additional wirehouses that the Evergreen product may be added to just as we think through kind of that dislocation in revenue and expenses, that would be great.

Sure. I mean our focus -- I mean, the team continues to build in the U.S. and outside the U.S. And our focus is just putting the product in as many locations as we think makes sense. We want to make sure you're doing that in a way that not only are you adding on to those platforms, but in order to be successful, you have to actually support it once it's there. There's a tremendous need for education, customer support and the like. So I think we view this as really a marathon and the race is just getting started. So while we're thrilled with the success that we've had and we're thrilled that we're already on some wirehouses, as you look forward, I think what you should expect to see is addition of more distribution partners and an addition of more product and a continued kind of reinvestment in our resources around all of those areas. But again, I think from management's perspective, we're viewing this as this is a long road, which is exciting. That's one of the big growth drivers we see as the future of the business, but this is all not going to be coming in tomorrow.

[Operator Instructions] Mr. Erik Hirsch, there are no further questions at this time. Please proceed.

Again, thank you for the time. We know it was a very, very busy day for a number of you. So we appreciate the participation. And again, wish everyone well. Thank you.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you all for participating. You may all disconnect.