P10(US:PX)2024-05-09 20:06PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) P10, Inc.'s unaudited consolidated financial statements for Q1 2024, detailing balance sheets, operations, equity, cash flows, and notes Consolidated Balance Sheets Details the company's financial position, including assets, liabilities, and equity, as of March 31, 2024, and December 31, 2023 | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Cash and cash equivalents | $28,996 | $30,467 | | Total assets | $832,810 | $834,074 | | Total liabilities | $432,724 | $408,912 | | Debt obligations | $314,036 | $289,844 | | Total equity | $400,086 | $425,162 | Consolidated Statements of Operations Presents the company's revenues, expenses, and net income for the three months ended March 31, 2024, and 2023 | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Total revenues | $66,115 | $57,253 | | Income from operations | $12,099 | $4,871 | | Net income | $5,243 | $769 | | Net income attributable to P10 | $5,021 | $605 | | Basic earnings per share | $0.04 | $0.01 | | Diluted earnings per share | $0.04 | $0.01 | Consolidated Statements of Changes in Equity Details changes in total equity, including stock repurchases, dividends, net income, and stock-based compensation, for the period - Total equity decreased from $425,162 thousand at December 31, 2023, to $400,086 thousand at March 31, 2024, primarily due to stock repurchases ($30,038 thousand) and dividends paid ($3,774 thousand), partially offset by net income ($5,243 thousand) and stock-based compensation ($6,175 thousand)14 Consolidated Statements of Cash Flows Presents the company's cash flows from operating, investing, and financing activities for the three months ended March 31, 2024, and 2023 | Cash Flow Activity | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Net cash provided by operating activities | $10,959 | $20,777 | | Net cash used in investing activities | $(260) | $(701) | | Net cash used in financing activities | $(12,725) | $(13,711) | | Net change in cash, cash equivalents and restricted cash | $(2,026) | $6,365 | | Cash, cash equivalents and restricted cash, end of period | $30,031 | $35,857 | Notes to Unaudited Consolidated Financial Statements Provides detailed explanations and disclosures supporting the unaudited consolidated financial statements Note 1. Description of Business Outlines P10, Inc.'s business as a multi-asset class private market solutions provider, detailing key acquisitions and recent corporate updates - P10, Inc. operates as a multi-asset class private market solutions provider in the alternative asset management industry, offering solutions across private equity, venture capital, private credit, and impact investing23 - The company completed several key acquisitions, including RCP Advisors, Five Points, TrueBridge, Enhanced Capital Group, Bonaccord, Hark, and WTI, expanding its portfolio of solutions272829303335 - The Board approved an additional $40.0 million for the share repurchase program on February 27, 2024, bringing the total spent to $59.5 million as of March 31, 202438 - Luke A. Sarsfield III was appointed CEO effective October 23, 2023, following an executive transition where former Co-CEOs Mr. Alpert and Mr. Webb transitioned to Executive Chairman and Executive Vice Chairman roles39 Note 2. Significant Accounting Policies Details significant accounting policies, including basis of presentation, consolidation principles, revenue recognition, and recent accounting pronouncements - The company consolidates entities where it has a controlling financial interest, either through a variable interest model (VIEs like P10 Intermediate, RCP, TrueBridge, Hark, Bonaccord, WTI) or a voting interest model (P10 Holdings, Five Points, P10 Advisors, ECG)4647 - Revenue is recognized when promised goods or services are transferred to customers, primarily from management and advisory fees based on committed or deployed capital, and other revenue from subscriptions, consulting, and referral fees85868791 - The company adopted ASU 2022-03 on January 1, 2024, clarifying that contractual sale restrictions on equity securities are not considered in fair value measurement, with no material impact106 - The company is evaluating the effects of ASU 2023-07 (Improvements to Reportable Segment Disclosure, effective 2025) and ASU 2023-09 (Improvements to Income Tax Disclosures, effective 2025)107110 Note 3. Revenue Provides a disaggregation of total revenues by product offering for the three months ended March 31, 2024, and 2023 | Revenue Type | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------- | :--------------------------------------------- | :--------------------------------------------- | | Management fees | $63,844 | $55,536 | | Advisory fees | $1,278 | $1,051 | | Subscriptions | $169 | $134 | | Other revenue | $824 | $532 | | Total revenues | $66,115 | $57,253 | Note 4. Strategic Alliance Expense Details the strategic alliance agreement related to the Bonaccord acquisition, including a third-party investor's share of earnings and equity options - Strategic alliance expense was $0.6 million for Q1 2024, up from $0.4 million in Q1 2023, due to an agreement with a third-party investor in connection with the Bonaccord acquisition112 - The third-party investor has the opportunity to acquire up to 5% equity in Bonaccord for Fund II and up to 4.9% for Fund III based on capital commitments, with the maximum commitment for Fund II already met as of March 31, 2024113114 Note 5. Notes Receivable Describes the company's notes receivable, primarily from BCP Partners Holdings, LP and Bonaccord employees, used to fund general partner commitments - Total notes receivable remained stable at $5.8 million as of March 31, 2024, and December 31, 2023119 - Notes receivable include an Advance Agreement with BCP for $5.0 million (matures Sept 2031, interest at 5.5% or AFR) and Secured Promissory Notes with Bonaccord employees for $1.0 million (matures Oct 2028, interest at SOFR + 2.10%)115117118 Note 6. Variable Interest Entities Explains the company's consolidation of Variable Interest Entities (VIEs) where it is the primary beneficiary, and its interests in unconsolidated VIEs - The company consolidates VIEs such as P10 Intermediate, Holdco, RCP 2, RCP 3, TrueBridge, Hark, Bonaccord, and WTI, where it is the primary beneficiary120 - Assets of consolidated VIEs totaled $566.6 million and liabilities $422.6 million as of March 31, 2024, with creditors generally having no recourse to P10's assets120 Note 7. Investment in Unconsolidated Subsidiaries Details the company's equity method investments in unconsolidated subsidiaries, primarily related to ECG's tax credit finance and RCP's investment manager - Investment in unconsolidated subsidiaries increased to $2.8 million as of March 31, 2024, from $1.7 million at December 31, 2023, primarily due to RCP's investment in a privately held investment manager123 - The company uses the equity method for entities where it exercises significant influence and the measurement alternative for others, such as RCP's investment in a privately held investment manager122123 Note 8. Property and Equipment Presents the breakdown of property and equipment, net of accumulated depreciation, as of March 31, 2024, and December 31, 2023 | Asset Category | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------- | :----------------------------- | :----------------------------- | | Computers and purchased software | $1,611 | $1,528 | | Furniture and fixtures | $1,671 | $1,666 | | Leasehold improvements | $3,058 | $2,894 | | Less: accumulated depreciation | $(2,975) | $(2,763) | | Total property and equipment, net | $3,365 | $3,325 | Note 9. Goodwill and Intangibles Details the company's goodwill and intangible assets, including indefinite-lived and finite-lived assets, and their amortization schedules - Goodwill remained constant at $506,038 thousand as of March 31, 2024127 | Intangible Asset Category | March 31, 2024 (Net Carrying Amount, in thousands) | December 31, 2023 (Net Carrying Amount, in thousands) | | :-------------------------- | :------------------------------------------------- | :------------------------------------------------- | | Indefinite-lived intangible assets | $17,405 | $17,405 | | Finite-lived intangible assets | $99,353 | $105,790 | | Total intangible assets | $116,758 | $123,195 | - Amortization expense for intangibles is projected to be $19,175 thousand for 2024, $21,269 thousand for 2025, and $16,640 thousand for 2026130 Note 10. Fair Value Measurements Discusses fair value measurements of liabilities, including the credit facility and contingent consideration related to acquisitions, using a fair value hierarchy - The credit facility's estimated fair value was $314.0 million as of March 31, 2024, using Level 2 inputs131 - Contingent consideration for the Bonaccord acquisition, a Level 3 fair value measurement, had an estimated fair value of $6.5 million as of March 31, 2024, down from $6.693 million at December 31, 2023132134 - The Hark contingent consideration of $5.4 million was fully paid during 2023, resulting in no expense for Q1 2024133 Note 11. Debt Obligations Provides details on the company's debt obligations, including the revolving credit facility, term loan, interest rates, and future principal maturities | Debt Type | March 31, 2024 (Net, in thousands) | December 31, 2023 (Net, in thousands) | | :---------------------- | :--------------------------------- | :--------------------------------- | | Revolver facility, net | $115,585 | $88,852 | | Term loan, net | $198,451 | $200,992 | | Total debt obligations, net | $314,036 | $289,844 | - The company's Credit Agreement includes a $125 million Revolver Facility and a $125 million Term Loan, with an exercised $125 million accordion feature, both with interest rates based on SOFR plus 2.10%142143 - Future principal maturities of debt are $7,969 thousand in 2024 and $308,450 thousand in 2025, with the Revolving Credit Facility maturing on December 22, 2025143145 Note 12. Related Party Transactions Describes various transactions with related parties, including sublease agreements, receivables from funds, advisory agreements, and employee promissory notes - The company has a sublease agreement with 210 Capital, LLC, a related party, for its corporate headquarters, with rent expense of $0.1 million for Q1 2024146 - Receivables from funds for reimbursable expenses and management fees totaled $23.8 million as of March 31, 2024147 - Advisory fees earned from Enhanced PC under an Advisory Agreement were $4.2 million for Q1 2024, with $43.9 million in remaining performance obligations148 - Advisory fees from Crossroads Impact Corp were $2.2 million for Q1 2024152 Note 13. Commitments and Contingencies Outlines the company's operating lease commitments, WTI acquisition earnout payments, revenue share arrangements, and COO severance payment - Operating lease liabilities totaled $22.5 million as of March 31, 2024, with a weighted-average remaining lease term of 6.92 years157 - Earnout payments related to the WTI acquisition could reach up to $70.0 million, contingent on EBITDA hurdles and continued employment, with $29.2 million accrued as of March 31, 2024159 - Accrued contingent liabilities for revenue share arrangements with third parties were $16.2 million as of March 31, 2024, with corresponding contingent payments to customers assets of $13.6 million161 - A severance payment of $1.2 million is payable to the retiring COO, accrued in Q4 2023164 Note 14. Income Taxes Discusses the company's income tax provision, effective tax rate, deferred tax assets and liabilities, and valuation allowances - The effective income tax rate was 25.11% for Q1 2024, compared to a non-meaningful rate in Q1 2023 due to a discrete item, with a rate of 29.44% excluding discrete items167 - A valuation allowance of $12.8 million was recorded against deferred tax assets as of March 31, 2024, primarily related to a note impairment168 Note 15. Stockholders' Equity Details the company's equity-based compensation plans, including stock options, RSAs, and RSUs, along with associated expenses and vesting schedules - The company has 18,300,000 shares available for grant under the P10 Holdings, Inc. 2021 Stock Incentive Plan and the 2018 Plan173 - Stock option compensation expense was $2.8 million for Q1 2024, with $14.2 million in unrecognized expense remaining174 - RSU compensation includes Bonaccord Units ($0.4 million expense in Q1 2024), Executive Transition Units ($0.6 million expense in Q1 2024), and Executive Market Units ($0.7 million expense in Q1 2024)178180183 Note 16. Earnings Per Share Provides a reconciliation of numerators and denominators for basic and diluted earnings per share for Class A and Class B common stock | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Net income attributable to P10 | $5,021 | $605 | | Weighted average shares outstanding, basic | 115,129 | 115,921 | | Denominator for earnings per share assuming dilution | 122,841 | 123,926 | | Basic EPS (Class A/B) | $0.04 | $0.01 | | Diluted EPS (Class A/B) | $0.04 | $0.01 | - 12.0 million options were excluded from diluted EPS computation for Q1 2024 as they were anti-dilutive191 Note 17. Subsequent Events Discloses events after the balance sheet date, including a declared quarterly cash dividend and an amendment to an executive transition agreement - A quarterly cash dividend of $0.035 per share of Class A and Class B common stock was declared, payable on June 20, 2024192 - An amendment to Robert Alpert's Transition Agreement was executed on May 9, 2024, resigning him as Executive Chairman and Chairman of the Board effective June 14, 2024192 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of P10, Inc.'s financial condition and results of operations for Q1 2024, including business overview, revenue, segments, market trends, and critical accounting policies Business Overview Provides an overview of P10's business as a multi-asset class private market solutions provider, including leadership changes and share repurchase updates - P10 is a leading multi-asset class private market solutions provider in the alternative asset management industry, aiming to offer differentiated access to investment vehicles across various asset classes and geographies196 - Luke A. Sarsfield III was appointed CEO effective October 23, 2023, following the transition of former Co-CEOs Mr. Alpert and Mr. Webb to Executive Chairman and Executive Vice Chairman roles197 | Solution Category | FPAUM (as of March 31, 2024, in billions) | | :------------------------ | :---------------------------------------- | | Private Equity Solutions (PES) | $12.5 | | Venture Capital Solutions (VCS) | $6.5 | | Impact Investing Solutions (IIS) | $1.9 | | Private Credit Solutions (PCS) | $2.9 | - The Board authorized an additional $40.0 million for the stock repurchase program on February 27, 2024, with $59.5 million spent as of March 31, 2024200 Sources of Revenue Describes the primary sources of revenue, mainly from long-term, fixed-fee management and advisory contracts based on committed capital - The majority of revenues are generated through long-term, fixed-fee management and advisory contracts, typically based on committed capital for ten to fifteen years202 | Investment Vehicle | FPAUM (as of March 31, 2024, in billions) | | :-------------------------- | :---------------------------------------- | | Primary Investment Funds | $13.8 | | Direct and Co-Investment Funds | $8.4 | | Secondaries | $1.6 | Operating Segments Explains that P10 operates as a single operating segment, reflecting how the CEO evaluates financial performance and allocates resources - P10 operates its business as a single operating segment, which is how the CEO evaluates financial performance and allocates resources206 Trends Affecting Our Business Discusses key market trends, including demand for private markets solutions, regulatory changes, growth strategies, and the impact of interest rates - Key trends include accelerating demand for private markets solutions, favorable lower/lower-middle market dynamics, and the need to expand asset class solutions and geographic reach209211 - Increasing regulatory requirements are expected to raise compliance costs and potentially restrict business activities211 - The company's growth depends on its ability to raise capital for acquisitions and strategic initiatives, with data advantage crucial for competitive positioning211 - Counter-cyclical strategies, particularly private credit products with floating rates, benefit from a higher interest rate environment212 Key Financial & Operating Metrics Highlights key financial and operating metrics, including revenue sources, compensation expenses, and the nature of FPAUM - Revenues are primarily from long-term, fixed management and advisory fees, typically based on committed capital, with an average fee rate of approximately 1%215226 - Compensation and benefits are the largest expense, expected to rise with headcount growth and competitive compensation needs, with investment professionals retaining carried interests218 - FPAUM reflects assets from which management and advisory fees are earned, primarily based on committed capital, making it less susceptible to market fluctuations223 Results of Operations Analyzes the company's financial performance for Q1 2024, focusing on total revenues, operating expenses, income from operations, and FPAUM growth | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | $ Change | % Change | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------- | :------- | | Total revenues | $66,115 | $57,253 | $8,862 | 15% | | Total operating expenses | $54,016 | $52,382 | $1,634 | 3% | | Income from operations | $12,099 | $4,871 | $7,228 | 148% | | Net income | $5,243 | $769 | $4,474 | 582% | - Total revenues increased by $8.9 million (15%) driven by organic FPAUM growth at Bonaccord and TrueBridge, with catch-up fees contributing $7.7 million in Q1 2024226227 - Operating expenses increased by $1.6 million (3%), primarily due to higher general, administrative, and other expenses (+25%) and compensation and benefits (+4%), partially offset by lower amortization of intangibles (-11%) and contingent consideration expense (-92%)230231232233235 - FPAUM increased by $0.6 billion (2.5%) to $23.8 billion as of March 31, 2024, driven by capital raised and deployed from private equity and venture capital solutions239240 Non-GAAP Financial Measures Discusses the use of non-GAAP measures like Fee-Related Revenue, Fee-Related Earnings, Adjusted Net Income, and Adjusted EBITDA to assess performance - Non-GAAP measures like Fee-Related Revenue (FRR), Fee-Related Earnings (FRE), Adjusted Net Income (ANI), and Adjusted EBITDA are used to assess performance, excluding non-cash expenses, financing costs, and acquisition-related expenses243244 | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :---------------------- | :--------------------------------------------- | :--------------------------------------------- | | Adjusted EBITDA | $30,825 | $28,406 | | Adjusted Net Income | $25,400 | $25,485 | | Fee-Related Revenue | $65,007 | $56,133 | | Fee-Related Earnings | $30,741 | $28,190 | Financial Position, Liquidity and Capital Resources Analyzes the company's financial position, liquidity, and capital resources, including cash, assets, liabilities, debt, and equity changes | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | $ Change | % Change | | :------------------------------------------ | :----------------------------- | :----------------------------- | :------- | :------- | | Cash and cash equivalents (including restricted cash) | $30,031 | $32,057 | $(2,026) | (6)% | | Goodwill and other intangibles | $622,796 | $629,233 | $(6,437) | (1)% | | Total assets | $832,810 | $834,074 | $(1,264) | (0)% | | Debt obligations | $314,036 | $289,844 | $24,192 | 8% | | Equity | $400,086 | $425,162 | $(25,076) | (6)% | - Cash from operating activities decreased by $9.8 million (47%) to $11.0 million in Q1 2024, primarily due to increased income tax expense, compensation, and general & administrative expenses, and changes in working capital253254261 - Debt obligations increased by $24.2 million due to revolver activity for common stock repurchases247 - The company expects to meet liquidity needs through operating cash flows, existing cash, and external financing, including potential refinancing or equity offerings257 Critical Accounting Policies and Estimates Outlines critical accounting policies and estimates, including basis of presentation, consolidation, revenue recognition, stock-based compensation, and income taxes - Key critical accounting policies include the basis of presentation, principles of consolidation, revenue recognition for management and advisory fees, stock-based compensation expense, and income taxes260261263268272273 - Management makes estimates and assumptions that affect reported amounts, and actual results could differ260 Item 3. Quantitative and Qualitative Disclosures About Market Risk Discusses the company's exposure to market risks, including interest rate risk and credit risk, and how these risks are managed - The company is exposed to market risks such as price risk, interest-rate risk, access to financing risk, liquidity risk, and counterparty risk275 - Management fees are generally based on commitments or net invested capital, so revenue is not significantly impacted by changes in investment values, but unfavorable changes could affect investor attraction/retention276 - A 100-basis point increase in interest rates would result in an approximately $2.0 million increase in interest expense over the next 12 months, given $316.4 million in outstanding principal on Term Loans and Revolving Credit Facility279141 - Credit risk is managed by limiting counterparties to reputable financial institutions280 Item 4. Controls and Procedures Assesses the effectiveness of the company's disclosure controls and procedures and reports on any changes in internal controls over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2024, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely282 - There have been no material changes in internal control over financial reporting during the quarter ended March 31, 2024283 PART II - OTHER INFORMATION Item 1. Legal Proceedings Refers to Note 13, "Commitments and Contingencies," for information regarding legal proceedings - Information on legal proceedings is incorporated by reference from "Contingencies" in Note 13 of the consolidated financial statements285 Item 1A. Risk Factors States no material changes to risk factors from the Form 10-K for the year ended December 31, 2023 - No material changes to risk factors from the Form 10-K for the year ended December 31, 2023286 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Provides information on the company's common stock repurchase activity for Q1 2024 under its Stock Repurchase Program | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plan or Program | Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | | :-------------------- | :------------------------------- | :--------------------------- | :--------------------------------------------------------------------------- | :--------------------------------------------------------------------------------------------- | | January 1 - 31, 2024 | — | $ - | — | $10,566,370 | | February 1 - 29, 2024 | — | $ - | — | $50,566,370 | | March 1 - 31, 2024 | 3,683,400 | $8.15 | 3,683,400 | $20,524,759 | | Total | 3,683,400 | $8.15 | 3,683,400 | | - The Board authorized an additional $40 million for repurchases under the Stock Repurchase Program on February 27, 2024287 Item 3. Other Information Confirms no Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by the company or its officers/directors during the last fiscal quarter - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by the company or its officers/directors during the last fiscal quarter288 Item 4. Exhibits Lists the exhibits filed with the Form 10-Q, including employment agreements, certifications, and XBRL documents - The exhibits include employment agreements (10.1, 10.2, 10.3), CEO/CFO certifications (31.1, 31.2, 32.1, 32.2), and Inline XBRL documents (101.INS, 101.SCH, 104)289 Signatures Contains the signatures of the Chief Executive Officer and Chief Financial Officer, certifying the report - The report is signed by Luke A. Sarsfield III, Chief Executive Officer and Director, and Amanda Coussens, Chief Financial Officer, on May 9, 2024291