P10(PX) - 2023 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements, management's analysis of financial condition and results of operations, market risk disclosures, and internal controls and procedures Item 1. Financial Statements (Unaudited) The unaudited consolidated financial statements for the three months ended March 31, 2023, show a significant decrease in net income to $0.77 million from $7.79 million year-over-year, primarily driven by a 65% increase in operating expenses, notably in compensation and benefits. Total assets grew slightly to $834.6 million, while total liabilities also increased to $404.2 million. Cash flow from operations saw a substantial increase to $20.8 million Consolidated Balance Sheets Presents the company's financial position, showing total assets, liabilities, and stockholders' equity as of March 31, 2023, and December 31, 2022 Consolidated Balance Sheets (in thousands) | | As of March 31, 2023 (unaudited) | As of December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $834,631 | $826,360 | | Cash and cash equivalents | $25,050 | $20,021 | | Goodwill | $506,638 | $506,638 | | Intangibles, net | $144,577 | $151,795 | | Total Liabilities | $404,222 | $392,477 | | Debt obligations | $283,897 | $289,224 | | Total Stockholders' Equity | $430,409 | $433,883 | - Total assets increased slightly to $834.6 million as of March 31, 2023, from $826.4 million at year-end 2022[7] - Total liabilities also rose to $404.2 million from $392.5 million, while stockholders' equity saw a slight decrease[7] Consolidated Statements of Operations Details the company's revenues, operating expenses, and net income for the three months ended March 31, 2023, and 2022 Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total Revenues | $57,253 | $43,281 | | Management and advisory fees | $56,587 | $43,027 | | Total Operating Expenses | $52,382 | $31,678 | | Compensation and benefits | $35,642 | $18,494 | | Amortization of intangibles | $7,248 | $6,181 | | Income from Operations | $4,871 | $11,603 | | Interest expense, net | ($5,172) | ($1,385) | | Net Income | $769 | $7,792 | | Net Income Attributable to P10 | $605 | $7,792 | | Diluted EPS | $0.01 | $0.06 | - Revenues grew 32% YoY to $57.3 million, but operating expenses increased by 65% to $52.4 million, largely due to a 93% rise in compensation and benefits[9] - This led to a significant drop in net income attributable to P10 from $7.8 million to $0.6 million[9] Consolidated Statements of Cash Flows Outlines the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2023, and 2022 Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $20,777 | $7,622 | | Net cash (used in) investing activities | ($701) | ($424) | | Net cash (used in) financing activities | ($13,711) | ($25,008) | | Net change in cash, cash equivalents and restricted cash | $6,365 | ($17,810) | - Cash from operating activities increased significantly to $20.8 million in Q1 2023 from $7.6 million in Q1 2022[14] - Cash used in financing activities decreased to $13.7 million from $25.0 million, primarily due to lower debt repayments in the current period[14] Notes to Unaudited Consolidated Financial Statements Provides detailed explanations of the company's accounting policies, business operations, acquisitions, and financial instruments - P10 operates as a multi-asset class private market solutions provider, offering investment vehicles across private equity, venture capital, private credit, and impact investing[22][32] - The company has grown through a series of acquisitions, including WTI in October 2022[22][32] - The company consolidates several subsidiaries as Variable Interest Entities (VIEs) where it is the primary beneficiary, including RCP, TrueBridge, Bonaccord, Hark, and WTI[42] - Contingent consideration liabilities related to the Hark and Bonaccord acquisitions totaled $17.0 million as of March 31, 2023, and are remeasured to fair value each period[65][125][126] - As of March 31, 2023, the company had total debt obligations of $283.9 million, consisting of a $209.8 million term loan and $77.9 million drawn on its revolver facility[130][134] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 32% year-over-year revenue growth to both the inorganic impact of the WTI acquisition ($7.2 million) and organic growth across other platforms ($7.0 million). The significant 93% increase in compensation and benefits expense was driven by the WTI acquisition, related earn-out accruals ($6.4 million), and higher stock compensation. Fee-Paying Assets Under Management (FPAUM) grew to $21.6 billion. The company maintains compliance with its debt covenants and believes its cash flow and financing activities are sufficient to meet liquidity needs Results of Operations Comparison (Q1 2023 vs Q1 2022) (in thousands) | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $57,253 | $43,281 | $13,972 | 32% | | Total Operating Expenses | $52,382 | $31,678 | $20,704 | 65% | | Compensation and benefits | $35,642 | $18,494 | $17,148 | 93% | | Income from Operations | $4,871 | $11,603 | ($6,732) | (58)% | | Net Income | $769 | $7,792 | ($7,023) | (90)% | - Revenue growth of 32% was driven by $7.2 million from the WTI acquisition and $7.0 million in organic growth from Bonaccord, ECG, RCP, and Truebridge[208] - The 93% increase in compensation and benefits was primarily due to the WTI acquisition ($3.2M), stock compensation ($5.6M, with $4.5M from acquisitions), and WTI-related earn-out and bonus accruals ($6.4M)[213] Fee-Paying Assets Under Management (FPAUM) Roll-Forward (Actual Basis) (in millions) | (in millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Balance, Beginning of Period | $21,206 | $17,263 | | Capital raised | $665 | $496 | | Capital deployed | $246 | $224 | | Expiration of fee period | ($427) | ($316) | | Balance, End of period | $21,601 | $17,592 | Non-GAAP Financial Measures Reconciliation (in thousands) | (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net income | $769 | $7,792 | | Adjustments (Depreciation, Interest, Taxes, etc.) | $18,041 | $13,386 | | Earn out related compensation | $6,394 | - | | Adjusted EBITDA | $28,406 | $22,453 | | Less: Cash interest & taxes | ($2,921) | ($162) | | Adjusted Net Income | $25,485 | $22,291 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposures are interest rate risk and credit risk. Management fees are generally based on committed capital, mitigating the direct impact of investment value fluctuations on revenue. A hypothetical 100-basis point increase in interest rates is estimated to increase annual interest expense by approximately $1.7 million related to its Term Loan - The company's main market risk is related to its role as a general partner/investment manager, but since management fees are typically based on committed capital, revenue is not significantly impacted by changes in investment values[263] - The company is exposed to interest rate risk on its $209.8 million Term Loan, which is based on SOFR[265] - A 100-basis point increase in the interest rate would result in an approximate $1.7 million increase in annual interest expense[265] - Credit risk is managed by limiting counterparties to reputable financial institutions for financial services and transactions[266] Item 4. Controls and Procedures Management, including the Co-CEOs and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2023. There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls - Based on an evaluation as of the end of the reporting period, the Co-CEOs and CFO concluded that the company's disclosure controls and procedures are effective at a reasonable assurance level[268] - No material changes were made to the company's internal control over financial reporting during the quarter ended March 31, 2023[269] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, other information, and a list of exhibits Item 1. Legal Proceedings The company states that information regarding legal proceedings can be found in Note 14, "Commitments and Contingencies," of the consolidated financial statements. Note 14 indicates the company is not involved in any litigation expected to have a material adverse effect - Information on legal proceedings is incorporated by reference from Note 14 of the financial statements, which states the company is not involved in any matters expected to result in material losses beyond amounts already recognized[272][153] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes have occurred from the risk factors disclosed in the Form 10-K for the year ended December 31, 2022[273] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended March 31, 2023, the company repurchased 100,000 shares of its common stock at an average price of $8.51 per share. As of March 31, 2023, approximately $18.9 million remained available for future repurchases under the authorized stock repurchase program Share Repurchase Activity (Q1 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Maximum Dollar Value Remaining for Purchase | | :--- | :--- | :--- | :--- | | January 2023 | — | — | $19,787,024 | | February 2023 | — | — | $19,787,024 | | March 2023 | 100,000 | $8.51 | $18,936,024 | | Total | 100,000 | $8.51 | | - The Board of Directors has authorized a total of $40 million for the Stock Repurchase Program[274] - The program may be terminated or amended at any time[274] Item 5. Other Information Effective May 12, 2023, the company entered into amended and restated employment agreements with Co-CEOs Robert Alpert and C. Clark Webb, and a new agreement with William F. Souder, primarily to reflect a corporate restructuring where P10 Intermediate became the employer. Additionally, a separation and severance agreement was executed with Jeff P. Gehl in connection with his retirement on May 15, 2023, which includes a severance payment of $1,025,000 and other benefits - Amended and restated employment agreements were executed for Co-CEOs Robert Alpert and C. Clark Webb, and a new agreement for William F. Souder, effective May 12, 2023, with P10 Intermediate Holdings LLC as the new employer entity[277][281] - A Separation Agreement was entered into with Jeff P. Gehl for his retirement on May 15, 2023, providing a severance payment of $1,025,000, COBRA reimbursement, and immediate vesting of equity awards[286] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, rights agreements, employment and separation agreements, and required certifications by the CEO and CFO