UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30,March 31, 20212024
OR
☐ | 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: 001-40937
P10, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware | 87-2908160 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer |
4514 Cole Ave, Suite 1600 Dallas, TX | 75205 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (214) 865-7998
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Class A Common Stock, $0.001 par value per share Series A Junior Participating Preferred Stock Purchase Rights | PX | NYSE |
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 ☐ NoYes ☒No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 | ☐ | Accelerated filer | ☒ | |||
Non-accelerated filer | ☐ | |||||
|
| Smaller reporting company | ☐ | |||
Emerging growth company | ☒ |
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. ☐
Indicate by check mark whether the registrantRegistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 22, 2021, the registrant hadMay 6, 2024, there were 23,000,00054,673,874 shares of the registrant's Class A common stock par value $0.001, and 94,155,59658,348,721 shares of the registrant'sRegistrant's Class B common stock, par value $0.001,issued and outstanding.
Table of Contents
Page | |||
FINANCIAL INFORMATION | |||
Item 1. | 1 | ||
1 | |||
2 | |||
3 | |||
4 | |||
6 | |||
Item 2. |
|
| |
Item 3. |
| ||
Item 4. |
| ||
| |||
OTHER INFORMATION | |||
Item 1. |
| ||
Item 1A. |
| ||
Item 2. |
| ||
Item 3. |
| ||
Item 4. |
| ||
|
| ||
|
| ||
| 47 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
P10, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
|
| As of |
| As of |
|
| As of |
| As of |
| ||||||
|
| September 30, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||||
|
| 2021 |
| 2020 |
|
| 2024 |
|
| 2023 |
| |||||
|
| (Unaudited) |
|
|
|
| (unaudited) |
|
|
| ||||||
ASSETS | ASSETS |
|
|
|
| ASSETS |
|
|
|
| ||||||
Cash and cash equivalents |
| $ | 21,656 |
|
| $ | 11,773 |
|
| $ | 28,996 |
|
| $ | 30,467 |
|
Restricted cash |
|
| 6,421 |
|
|
| 1,010 |
|
|
| 1,035 |
|
|
| 1,590 |
|
Accounts receivable |
|
| 7,656 |
|
|
| 2,494 |
|
|
| 23,293 |
|
|
| 20,620 |
|
Note Receivable |
|
| 2,270 |
|
|
| 0 |
| ||||||||
Notes receivable |
|
| 5,822 |
|
|
| 5,755 |
| ||||||||
Due from related parties |
|
| 3,615 |
|
|
| 2,667 |
|
|
| 62,756 |
|
|
| 57,696 |
|
Investment in unconsolidated subsidiaries |
|
| 1,977 |
|
|
| 2,158 |
|
|
| 2,795 |
|
|
| 1,738 |
|
Prepaid expenses and other assets |
|
| 3,355 |
|
|
| 3,368 |
|
|
| 12,423 |
|
|
| 15,011 |
|
Property and equipment, net |
|
| 1,000 |
|
|
| 1,124 |
|
|
| 3,365 |
|
|
| 3,325 |
|
Right-of-use assets |
|
| 7,095 |
|
|
| 6,491 |
|
|
| 19,724 |
|
|
| 17,087 |
|
Contingent payments to customers |
|
| 13,624 |
|
|
| 14,034 |
| ||||||||
Deferred tax assets, net |
|
| 35,494 |
|
|
| 37,621 |
|
|
| 36,181 |
|
|
| 37,518 |
|
Intangibles, net |
|
| 136,306 |
|
|
| 143,738 |
|
|
| 116,758 |
|
|
| 123,195 |
|
Goodwill |
|
| 417,401 |
|
|
| 369,982 |
|
|
| 506,038 |
|
|
| 506,038 |
|
Total assets |
| $ | 644,246 |
|
| $ | 582,426 |
|
| $ | 832,810 |
|
| $ | 834,074 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
| ||||||||||||
LIABILITIES AND EQUITY | LIABILITIES AND EQUITY |
|
|
|
| |||||||||||
LIABILITIES: |
|
|
|
|
|
|
|
|
|
| ||||||
Accounts payable |
| $ | 1,260 |
|
| $ | 1,103 |
| ||||||||
Accrued expenses |
|
| 12,040 |
|
|
| 12,505 |
| ||||||||
Accounts payable and accrued expenses |
| $ | 14,313 |
|
| $ | 15,054 |
| ||||||||
Accrued compensation and benefits |
|
| 45,204 |
|
|
| 45,081 |
| ||||||||
Due to related parties |
|
| 1,650 |
|
|
| 2,200 |
|
|
| 458 |
|
|
| 2,116 |
|
Other liabilities |
|
| 6,419 |
|
|
| 254 |
|
|
| 298 |
|
|
| 854 |
|
Contingent consideration |
|
| 19,160 |
|
|
| 0 |
|
|
| 6,509 |
|
|
| 6,693 |
|
Accrued contingent liabilities |
|
| 16,222 |
|
|
| 16,222 |
| ||||||||
Deferred revenues |
|
| 11,802 |
|
|
| 10,347 |
|
|
| 13,008 |
|
|
| 12,770 |
|
Lease liabilities |
|
| 8,126 |
|
|
| 7,682 |
|
|
| 22,676 |
|
|
| 20,278 |
|
Debt obligations |
|
| 315,517 |
|
|
| 290,055 |
|
|
| 314,036 |
|
|
| 289,844 |
|
Total liabilities |
|
| 375,974 |
|
|
| 324,146 |
|
|
| 432,724 |
|
|
| 408,912 |
|
COMMITMENTS AND CONTINGENCIES (NOTE 12) |
|
|
|
|
| |||||||||||
REDEEMABLE NONCONTROLLING INTEREST |
|
| 199,202 |
|
|
| 198,439 |
| ||||||||
STOCKHOLDERS' EQUITY: |
|
|
|
|
| |||||||||||
Common stock - $0.001 par value; 110,000,000 and 110,000,000 shares |
|
| 63 |
|
|
| 63 |
| ||||||||
COMMITMENTS AND CONTINGENCIES (NOTE 13) |
|
|
|
|
| |||||||||||
EQUITY: |
|
|
|
|
| |||||||||||
Class A common stock, $0.001 par value; 510,000,000 shares authorized; 59,983,472 issued and 54,582,698 outstanding as of March 31, 2024, and 59,340,269 issued and 57,622,895 outstanding as of December 31, 2023, respectively |
|
| 55 |
|
|
| 58 |
| ||||||||
Class B common stock, $0.001 par value; 180,000,000 shares authorized; 58,562,814 shares issued and 58,439,363 shares outstanding as of March 31, 2024, and 58,597,718 shares issued and 58,474,267 shares outstanding as of December 31, 2023, respectively |
|
| 58 |
|
|
| 58 |
| ||||||||
Treasury stock |
|
| (273 | ) |
|
| (273 | ) |
|
| (47,622 | ) |
|
| (17,588 | ) |
Additional paid-in-capital |
|
| 325,762 |
|
|
| 324,310 |
|
|
| 635,944 |
|
|
| 636,073 |
|
Accumulated deficit |
|
| (256,482 | ) |
|
| (264,259 | ) |
|
| (227,991 | ) |
|
| (233,012 | ) |
Total stockholders' equity |
|
| 69,070 |
|
|
| 59,841 |
| ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
| $ | 644,246 |
|
| $ | 582,426 |
| ||||||||
Noncontrolling interests |
|
| 39,642 |
|
|
| 39,573 |
| ||||||||
Total equity |
|
| 400,086 |
|
|
| 425,162 |
| ||||||||
TOTAL LIABILITIES AND EQUITY |
| $ | 832,810 |
|
| $ | 834,074 |
|
1
The Notes to Consolidated Financial Statements
are an integral part of these statements.
1
P10, Inc.
Consolidated Statements of Operations
(Unaudited)
(Unaudited, in thousands except per share amounts)
|
| For the Three Months Ended |
| For the Nine Months Ended |
|
| For the Three Months |
| ||||||||||||||||
|
| September 30, |
| September 30, |
|
|
|
| ||||||||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
|
| 2024 |
|
| 2023 |
| |||||||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Management and advisory fees |
| $ | 37,939 |
|
| $ | 15,222 |
| $ | 104,029 |
|
| $ | 41,821 |
|
| $ | 65,122 |
|
| $ | 56,587 |
| |
Other revenue |
|
| 206 |
|
|
| 159 |
|
| 872 |
|
|
| 861 |
|
|
| 993 |
|
| $ | 666 |
| |
Total revenues |
| 38,145 |
|
|
| 15,381 |
| 104,901 |
|
|
| 42,682 |
|
|
| 66,115 |
|
|
| 57,253 |
| |||
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Compensation and benefits |
| 14,009 |
|
|
| 5,918 |
| 38,119 |
|
|
| 15,818 |
|
|
| 37,109 |
|
|
| 35,642 |
| |||
Professional fees |
| 2,595 |
|
|
| 2,627 |
| 7,856 |
|
|
| 5,177 |
|
|
| 3,768 |
|
|
| 3,842 |
| |||
General, administrative and other |
| 3,019 |
|
|
| 1,068 |
| 8,310 |
|
|
| 3,160 |
|
|
| 6,057 |
|
|
| 4,857 |
| |||
Contingent consideration expense |
|
| 30 |
|
|
| 390 |
| ||||||||||||||||
Amortization of intangibles |
|
| 7,484 |
|
|
| 3,572 |
|
| 22,452 |
|
|
| 9,606 |
|
|
| 6,437 |
|
|
| 7,248 |
| |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Strategic alliance expense |
|
| 615 |
|
|
| 403 |
| ||||||||||||||||
Total operating expenses |
|
| 27,107 |
|
|
| 13,185 |
|
| 76,737 |
|
|
| 33,761 |
|
|
| 54,016 |
|
|
| 52,382 |
| |
INCOME FROM OPERATIONS |
| 11,038 |
|
|
| 2,196 |
| 28,164 |
|
|
| 8,921 |
|
|
| 12,099 |
|
|
| 4,871 |
| |||
OTHER (EXPENSE)/INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Interest expense implied on notes payable to sellers |
| (223 | ) |
|
| (216 | ) |
| (657 | ) |
|
| (771 | ) | ||||||||||
Interest expense, net |
| (5,261 | ) |
|
| (2,089 | ) |
| (15,761 | ) |
|
| (6,498 | ) |
|
| (5,776 | ) |
|
| (5,172 | ) | ||
Other income/(expense) |
|
| 283 |
|
|
| (1 | ) |
|
| 668 |
|
|
| 21 |
| ||||||||
Other income |
|
| 678 |
|
|
| 113 |
| ||||||||||||||||
Total other (expense) |
|
| (5,201 | ) |
|
| (2,306 | ) |
|
| (15,750 | ) |
|
| (7,248 | ) |
|
| (5,098 | ) |
|
| (5,059 | ) |
Net income/(loss) before income taxes |
| 5,837 |
|
|
| (110 | ) |
|
| 12,414 |
|
|
| 1,673 |
|
|
| 7,001 |
|
|
| (188 | ) | |
Income tax (expense)/benefit |
|
| (1,759 | ) |
|
| 175 |
|
|
| (3,154 | ) |
|
| 1,513 |
|
|
| (1,758 | ) |
|
| 957 |
|
NET INCOME |
| $ | 4,078 |
| $ | 65 |
|
| $ | 9,260 |
| $ | 3,186 |
|
| $ | 5,243 |
|
| $ | 769 |
| ||
Less: preferred dividends attributable to redeemable |
|
| (494 | ) |
|
| (153 | ) |
|
| (1,483 | ) |
|
| (306 | ) | ||||||||
NET INCOME/(LOSS) ATTRIBUTABLE TO P10 |
| $ | 3,584 |
| $ | (88 | ) |
| $ | 7,777 |
| $ | 2,880 |
| ||||||||||
|
|
|
|
|
|
| ||||||||||||||||||
Less: net income attributable to noncontrolling interests in P10 Intermediate |
|
| (222 | ) |
|
| (164 | ) | ||||||||||||||||
NET INCOME ATTRIBUTABLE TO P10 |
| $ | 5,021 |
|
| $ | 605 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic earnings per share |
| $ | 0.06 |
|
| $ | (0.00 | ) |
| $ | 0.12 |
|
| $ | 0.05 |
|
| $ | 0.04 |
|
| $ | 0.01 |
|
Diluted earnings per share |
| $ | 0.04 |
|
| $ | (0.00 | ) |
| $ | 0.08 |
|
| $ | 0.04 |
|
| $ | 0.04 |
|
| $ | 0.01 |
|
Weighted average shares outstanding, basic |
|
| 62,464 |
|
|
| 62,464 |
|
|
| 62,464 |
|
|
| 62,464 |
|
|
| 115,129 |
|
|
| 115,921 |
|
Weighted average shares outstanding, diluted |
|
| 66,787 |
|
|
| 62,464 |
|
|
| 66,702 |
|
|
| 64,442 |
|
|
| 122,841 |
|
|
| 123,926 |
|
2
The Notes to Consolidated Financial Statements
are an integral part of these statements.
2
P10, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
(Unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| |||||||
|
| Common Stock |
|
| Treasury stock |
|
| Additional |
|
| Accumulated |
|
| Stockholders' |
| |||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Paid-in-capital |
|
| Deficit |
|
| Equity |
| |||||||
Balance at December 31, 2019 |
|
| 62,464 |
|
| $ | 63 |
|
|
| 123 |
|
| $ | (273 | ) |
| $ | 323,596 |
|
| $ | (287,345 | ) |
| $ | 36,041 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 143 |
|
|
| — |
|
|
| 143 |
|
Net income attributable to P10 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,841 |
|
|
| 1,841 |
|
Balance at March 31, 2020 |
|
| 62,464 |
|
| $ | 63 |
|
|
| 123 |
|
| $ | (273 | ) |
| $ | 323,739 |
|
| $ | (285,504 | ) |
| $ | 38,025 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 187 |
|
|
| — |
|
|
| 187 |
|
Net income attributable to P10 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,127 |
|
|
| 1,127 |
|
Balance at June 30, 2020 |
|
| 62,464 |
|
| $ | 63 |
|
|
| 123 |
|
| $ | (273 | ) |
| $ | 323,926 |
|
| $ | (284,377 | ) |
| $ | 39,339 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 192 |
|
|
| — |
|
|
| 192 |
|
Net (loss) attributable to P10 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (88 | ) |
|
| (88 | ) |
Balance at September 30, 2020 |
|
| 62,464 |
|
| $ | 63 |
|
|
| 123 |
|
| $ | (273 | ) |
| $ | 324,118 |
|
| $ | (284,465 | ) |
| $ | 39,443 |
|
| Common Stock - Class A |
|
| Common Stock - Class B |
|
| Treasury stock |
| Additional |
| Accumulated |
| Non Controlling |
| Total |
| |||||||||||||||||||
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
| Paid-in-capital |
| Deficit |
| Interst |
| Equity |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balance at December 31, 2022 |
| 42,365 |
|
| $ | 42 |
|
|
| 73,008 |
|
| $ | 73 |
|
|
| 1,061 |
|
| $ | (9,926 | ) | $ | 628,828 |
| $ | (225,879 | ) | $ | 40,745 |
| $ | 433,883 |
|
Net Income |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| 605 |
|
| 164 |
|
| 769 |
| |
Stock-based compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| 3,252 |
|
|
|
|
|
| 3,252 |
| ||
Issuance of restricted stock units |
| 354 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1 |
|
Exchange of Class B common stock for Class A common stock |
| 76 |
|
|
| — |
|
|
| (76 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Exercise of stock options (net of tax and strike price) |
| 294 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Repurchase of common stock for employee tax witholding and exercised stock option strike price |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| (3,038 | ) |
| — |
|
| — |
|
| (3,038 | ) |
Stock repurchase |
| — |
|
|
| — |
|
|
| (100 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
| (851 | ) |
| — |
|
| — |
|
| (851 | ) |
Accrual for excise tax associated with stock repurchases |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| (7 | ) |
| — |
|
| — |
|
| (7 | ) |
Distributions to non-controlling interests, net |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| — |
|
| — |
|
| (122 | ) |
| (122 | ) |
Dividends declared |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| (1 | ) |
| — |
|
| — |
|
| (1 | ) |
Dividends paid per share $0.03 |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| (3,477 | ) |
| — |
|
| — |
|
| (3,477 | ) |
Balance at March 31, 2023 |
| 43,089 |
|
| $ | 43 |
|
|
| 72,832 |
|
| $ | 73 |
|
|
| 1,061 |
|
| $ | (9,926 | ) | $ | 624,706 |
| $ | (225,274 | ) | $ | 40,787 |
| $ | 430,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| Common Stock - Class A |
|
| Common Stock - Class B |
|
| Treasury stock |
| Additional |
| Accumulated |
| Non Controlling |
| Stockholders' |
| |||||||||||||||||||
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
| Paid-in-capital |
| Deficit |
| Interest |
| Equity |
| ||||||||||
Balance at December 31, 2023 |
| 57,623 |
|
| $ | 58 |
|
|
| 58,474 |
|
| $ | 58 |
|
|
| 1,841 |
|
| $ | (17,588 | ) | $ | 636,073 |
| $ | (233,012 | ) | $ | 39,573 |
| $ | 425,162 |
|
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| — |
|
| 5,021 |
|
| 222 |
|
| 5,243 |
|
Stock-based compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| 6,175 |
|
| — |
|
| — |
|
| 6,175 |
|
Issuance of restricted stock units |
| 619 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1 |
|
Exchange of Class B common stock for Class A common stock |
| 35 |
|
|
| — |
|
|
| (35 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Exercise of stock options |
| 289 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Repurchase of common stock for employee tax witholding and strike price |
| (300 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| (2,207 | ) |
| — |
|
| — |
|
| (2,207 | ) |
Stock repurchase |
| (3,683 | ) |
|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| 3,683 |
|
|
| (30,034 | ) |
| — |
|
| — |
|
| — |
|
| (30,038 | ) |
Accrual for excise tax associated with stock repurchases |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| (300 | ) |
| — |
|
| — |
|
| (300 | ) |
Distributions to non-controlling interests, net |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| — |
|
| — |
|
| (153 | ) |
| (153 | ) |
Dividends declared |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| (23 | ) |
| — |
|
| — |
|
| (23 | ) |
Dividends paid per share $0.03 |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| (3,774 | ) |
| — |
|
| — |
|
| (3,774 | ) |
Balance at March 31, 2024 |
| 54,583 |
|
| $ | 55 |
|
|
| 58,439 |
|
| $ | 58 |
|
|
| 5,524 |
|
| $ | (47,622 | ) | $ | 635,944 |
| $ | (227,991 | ) | $ | 39,642 |
| $ | 400,086 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| |||||||
|
| Common Stock |
|
| Treasury stock |
|
| Additional |
|
| Accumulated |
|
| Stockholders' |
| |||||||||||||
|
| Units |
|
| Amount |
|
| Units |
|
| Amount |
|
| Paid-in-capital |
|
| Deficit |
|
| Equity |
| |||||||
Balance at December 31, 2020 |
|
| 62,464 |
|
| $ | 63 |
|
|
| 123 |
|
| $ | (273 | ) |
| $ | 324,310 |
|
| $ | (264,259 | ) |
| $ | 59,841 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 424 |
|
|
| — |
|
|
| 424 |
|
Net income attributable to P10 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,215 |
|
|
| 2,215 |
|
Balance at March 31, 2021 |
|
| 62,464 |
|
| $ | 63 |
|
|
| 123 |
|
| $ | (273 | ) |
| $ | 324,734 |
|
| $ | (262,044 | ) |
| $ | 62,480 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 567 |
|
|
| — |
|
|
| 567 |
|
Net income attributable to P10 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,978 |
|
|
| 1,978 |
|
Balance at June 30, 2021 |
|
| 62,464 |
|
| $ | 63 |
|
|
| 123 |
|
| $ | (273 | ) |
| $ | 325,301 |
|
| $ | (260,066 | ) |
| $ | 65,025 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 461 |
|
|
| — |
|
|
| 461 |
|
Net income attributable to P10 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,584 |
|
|
| 3,584 |
|
Balance at September 30, 2021 |
|
| 62,464 |
|
| $ | 63 |
|
|
| 123 |
|
| $ | (273 | ) |
| $ | 325,762 |
|
| $ | (256,482 | ) |
| $ | 69,070 |
|
3
The Notes to Consolidated Financial Statements
are an integral part of these statements.
3
P10, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(Unaudited, in thousands)
|
| For the Nine Months Ended |
|
| For the Three Months |
| ||||||||||
|
| September 30, |
|
|
|
| ||||||||||
|
| 2021 |
| 2020 |
|
| 2024 |
|
| 2023 |
| |||||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
| $ | 9,260 |
|
| $ | 3,186 |
|
| $ | 5,243 |
|
| $ | 769 |
|
Adjustments to reconcile net income to net cash provided by operating |
|
|
|
|
|
|
|
|
|
| ||||||
Stock-based compensation |
| 1,452 |
|
|
| 522 |
|
|
| 6,715 |
|
|
| 7,099 |
| |
Non-cash incentive compensation |
| 1,396 |
|
|
| — |
| |||||||||
Depreciation expense |
| 202 |
|
|
| 21 |
|
|
| 218 |
|
|
| 155 |
| |
Amortization of intangibles |
| 22,452 |
|
|
| 9,606 |
|
|
| 6,437 |
|
|
| 7,248 |
| |
Amortization of debt issuance costs and debt discount |
| 2,798 |
|
|
| 1,315 |
|
|
| 348 |
|
|
| 330 |
| |
Income from unconsolidated subsidiaries |
| (781 | ) |
|
| — |
|
|
| (272 | ) |
|
| (114 | ) | |
Expense/(benefit) for deferred tax |
| 2,127 |
|
|
| (3,213 | ) | |||||||||
Deferred tax expense/(benefit) |
|
| 1,338 |
|
|
| (1,053 | ) | ||||||||
Amortization of contingent payment to customers |
|
| 410 |
|
|
| 367 |
| ||||||||
Remeasurement of contingent consideration |
|
| 30 |
|
|
| 390 |
| ||||||||
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||
Accounts receivable |
| (5,162 | ) |
|
| 550 |
|
|
| (2,673 | ) |
|
| (915 | ) | |
Due from related parties |
| (273 | ) |
|
| 173 |
|
|
| (5,060 | ) |
|
| (4,518 | ) | |
Prepaid expenses and other assets |
| 14 |
|
|
| (797 | ) |
|
| 1,738 |
|
|
| 442 |
| |
Right-of-use assets |
| 1,219 |
|
|
| 878 |
|
|
| 1,310 |
|
|
| 658 |
| |
Accounts payable |
| 157 |
|
|
| 3,682 |
| |||||||||
Accrued expenses |
| 152 |
|
|
| 966 |
| |||||||||
Accounts payable and accrued expenses |
|
| (881 | ) |
|
| 3,281 |
| ||||||||
Accrued compensation and benefits |
|
| (417 | ) |
|
| 3,896 |
| ||||||||
Due to related parties |
| (550 | ) |
|
| — |
|
|
| (1,658 | ) |
|
| (1,766 | ) | |
Other liabilities |
| 6,165 |
|
|
| (125 | ) |
|
| (556 | ) |
|
| 1,337 |
| |
Deferred revenues |
| 1,455 |
|
|
| 477 |
|
|
| 238 |
|
|
| 3,486 |
| |
Lease liabilities |
|
| (1,379 | ) |
|
| (949 | ) |
|
| (1,549 | ) |
|
| (315 | ) |
Net cash provided by operating activities |
| 40,704 |
|
|
| 16,292 |
|
|
| 10,959 |
|
|
| 20,777 |
| |
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
| |||||||||||
Acquisitions, net of cash acquired |
| (43,926 | ) |
|
| (46,640 | ) | |||||||||
Payments of contingent consideration |
| (518 | ) |
|
| — |
| |||||||||
CASH FLOWS USED IN INVESTING ACTIVITIES |
|
|
|
|
| |||||||||||
Purchase of intangible assets |
| (30 | ) |
|
| — |
|
|
| — |
|
|
| (21 | ) | |
Note receivable |
| (2,270 | ) |
|
| — |
| |||||||||
Funding of notes receivable |
|
| (111 | ) |
|
| (211 | ) | ||||||||
Proceeds from notes receivable |
|
| 44 |
|
|
| 2 |
| ||||||||
Investments in unconsolidated subsidiaries |
| (2,638 | ) |
|
| — |
|
|
| (3 | ) |
|
| — |
| |
Proceeds from investments in unconsolidated subsidiaries |
| 3,600 |
|
|
| — |
| |||||||||
Post-closing payments related to acquisitions |
| (1,519 | ) |
|
| (125 | ) | |||||||||
Distributions from investments in unconsolidated subsidiaries |
|
| 68 |
|
|
| 22 |
| ||||||||
Software capitalization |
|
| — |
|
|
| (9 | ) | ||||||||
Purchases of property and equipment |
|
| (78 | ) |
|
| (14 | ) |
|
| (258 | ) |
|
| (484 | ) |
Net cash used in investing activities |
| (47,379 | ) |
|
| (46,779 | ) |
|
| (260 | ) |
|
| (701 | ) | |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
| |||||||||||
Issuance of redeemable noncontrolling interests |
| 0 |
|
|
| 31,000 |
| |||||||||
CASH FLOWS USED IN FINANCING ACTIVITIES |
|
|
|
|
| |||||||||||
Borrowings on debt obligations |
| 35,952 |
|
|
| — |
|
|
| 47,500 |
|
|
| 16,000 |
| |
Repayments on debt obligations |
| (12,321 | ) |
|
| (2,582 | ) |
|
| (23,656 | ) |
|
| (21,657 | ) | |
Payment of preferred stock dividends |
| (720 | ) |
|
| — |
| |||||||||
Debt issuance costs |
|
| (942 | ) |
|
| (470 | ) | ||||||||
Net cash provided by financing activities |
|
| 21,969 |
|
|
| 27,948 |
| ||||||||
Repurchase of Class A common stock |
|
| (30,038 | ) |
|
| — |
| ||||||||
Repurchase of Class A common stock for employee tax withholding |
|
| (2,207 | ) |
|
| (3,038 | ) | ||||||||
Repurchase of Class B common stock |
|
| — |
|
|
| (851 | ) | ||||||||
Payment of contingent consideration |
|
| (214 | ) |
|
| (688 | ) | ||||||||
Dividends paid |
|
| (3,774 | ) |
|
| (3,477 | ) | ||||||||
Distributions to non-controlling interests |
|
| (336 | ) |
|
| — |
| ||||||||
Net cash used in financing activities |
|
| (12,725 | ) |
|
| (13,711 | ) | ||||||||
Net change in cash, cash equivalents and restricted cash |
| 15,294 |
|
|
| (2,539 | ) |
|
| (2,026 | ) |
|
| 6,365 |
| |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning |
|
| 12,783 |
|
|
| 19,462 |
|
|
| 32,057 |
|
|
| 29,492 |
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of |
| $ | 28,077 |
|
| $ | 16,923 |
|
| $ | 30,031 |
|
| $ | 35,857 |
|
4
The Notes to Consolidated Financial Statements
are an integral part of these statements.
4
P10, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(Unaudited, in thousands)
|
| For the Nine Months Ended |
|
| For the Three Months |
| ||||||||||
|
| September 30, |
|
|
|
| ||||||||||
|
| 2021 |
| 2020 |
|
| 2024 |
|
| 2023 |
| |||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
|
| ||||||
Cash paid for interest |
| $ | 13,712 |
|
| $ | 6,172 |
|
| $ | 5,406 |
|
| $ | 2,863 |
|
Cash paid for income taxes |
| $ | 4,637 |
|
| $ | 938 |
| ||||||||
NON-CASH OPERATING ACTIVITIES |
|
|
|
|
| |||||||||||
Net cash paid for income taxes |
| $ | 19 |
|
| $ | 58 |
| ||||||||
NON-CASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
| |||||||||||
Additions to right-of-use assets |
| $ | 1,823 |
|
| $ | 0 |
|
| $ | 3,947 |
|
| $ | 3,475 |
|
Additions to lease liabilities |
| $ | 1,823 |
|
| $ | 0 |
|
|
| 3,947 |
|
|
| 3,475 |
|
Dividends declared |
|
| 23 |
|
|
| 1 |
| ||||||||
|
|
|
|
|
| |||||||||||
RECONCILIATION OF CASH, CASH EQUIVALENTS AND |
|
|
|
|
|
|
|
|
|
| ||||||
Cash and cash equivalents |
| $ | 21,656 |
|
| $ | 16,167 |
|
| $ | 28,996 |
|
| $ | 25,050 |
|
Restricted cash |
|
| 6,421 |
|
|
| 756 |
|
|
| 1,035 |
|
|
| 10,807 |
|
Total cash, cash equivalents and restricted cash |
| $ | 28,077 |
|
| $ | 16,923 |
|
| $ | 30,031 |
|
| $ | 35,857 |
|
5
The Notes to Consolidated Financial Statements
are an integral part of these statements.
5
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
Note 1. Description of Business
Description of Business
On October 20, 2021, P10 Holdings, Inc. ("P10 Holdings"), in connection with its Initial Public Offering ("IPO"), completed a reorganization and restructure. In connection with the reorganization, P10, Inc. ("P10") became the parent company and all of the existing equity of P10 Holdings, and its consolidated subsidiaries, including the convertible preferred units of P10 Intermediate, as defined below, were converted into common stock of P10.subsidiaries. The offering and reorganization included a reverse stock split of P10 Holdings common stock on a 0.7-for-1 basis pursuant to which every outstanding share of common stock decreased to 0.7 shares. The number of shares have been retrospectively adjusted within these financial statements to reflect this stock split. The reorganization was considered a transaction between entities under common control. As a result, the consolidated financial statements for periods prior to
Following the reorganization and IPO, are the consolidated financial statementsP10 has two classes of P10 Holdings as the predecessorcommon stock, Class A common stock and Class B common stock. Each share of Class B common stock is entitled to P10 for accounting and reporting purposes.ten votes while each share of Class A common stock is entitled to one vote.
P10, Inc. and its consolidated subsidiaries (the “Company”) operate as a multi-asset class private market solutions provider in the alternative asset management industry. Our mission is to provide our investors differentiated access to a broad set of solutions and investment vehicles across a multitude of asset classes and geographies. Our existing portfolio of solutions across private equity, venture capital, private credit and impact investing support our mission by offering a comprehensive set of investment vehicles to our investors, including primary fund of funds, secondary investment, direct investment and co-investments, alongside separate accounts (collectively the “Funds”).
The direct and indirect subsidiaries of the Company include P10 Holdings, P10 Intermediate Holdings, LLC (“P10 Intermediate”), which owns the subsidiaries P10 RCP Holdco, LLC (“Holdco”), Five Points Capital, Inc. (“Five Points”), TrueBridge Capital Partners, LLC (“TrueBridge”), Enhanced Capital Group, LLC (“ECG”), Bonaccord Capital Advisors, LLC ("Bonaccord") and, Hark Capital Advisors, LLC ("Hark"). Holdco is the entity holding the acquisition financing debt, P10 Advisors, LLC ("P10 Advisors"), and owns the subsidiaries RCPWestern Technology Investment Advisors 2, LLC (“RCP 2”) and RCP Advisors 3, LLC (“RCP 3”("WTI"). See Note 10 for further information on the acquisition financing debt.
Prior to November 19, 2016, P10, formerly Active Power, Inc., designed, manufactured, sold, and serviced flywheel-based uninterruptible power supply products and serviced modular infrastructure solutions. On November 19, 2016, we completed the sale of substantially all our assets and liabilities and operations to Langley Holdings plc, a United Kingdom public limited company. Following the sale, we changed our name from Active Power, Inc. to P10 Industries, Inc. and became a non-operating company focused on monetizing our retained intellectual property and acquiring profitable businesses. For the period from December 2016 through September 2017, our business primarily consisted of cash, certain retained intellectual property assets and our net operating losses (“NOLs”) and other tax benefits. On March 22, 2017, we filed for re-organizationreorganization under Chapter 11 of the Federal Bankruptcy Code, using a prepackaged plan of reorganization. The Company emerged from bankruptcy on May 3, 2017.
On December 1, 2017, the Company changed its name from P10 Industries, Inc. to P10 Holdings, Inc. We were founded as a Texas corporation in 1992 and reincorporated in Delaware in 2000. Our headquarters isare in Dallas, Texas.
On October 5, 2017, we closed on the acquisition of RCP Advisors 2, LLC ("RCP 2") and entered into a purchase agreement to acquire RCP Advisors 3, LLC ("RCP 3") in January 2018. On January 3, 2018, we closed on the acquisition of RCP 3. RCP 2 and RCP 3 are registered investment advisors with the United States Securities and Exchange Commission.
On April 1, 2020, the Company completed the acquisition of Five Points. Five Points is a leading lower middle market alternative investment manager focused on providing both equity and debt capital to private, growth-oriented companies and limited partner capital to other private equity funds, with all strategies focused exclusively in the U.S. lower middle market. See Note 3 for additional information onIn 2022, Five Points established the acquisition.Reynolda brand that specializes in direct equity funds. Five Points is a registered investment advisor with the United States Securities and Exchange Commission.
On October 2, 2020, the Company completed the acquisition of TrueBridge. TrueBridge is an investment firm focused on investing in venture capital through fund-of-funds, co-investments, and separate accounts. See Note 3 for additional information on the acquisition. TrueBridge is a registered investment advisor with the United States Securities and Exchange Commission.
On December 14, 2020, the Company completed the acquisition of 100% of the equity interest in ECG, and a noncontrolling interest in Enhanced Capital Partners, LLC (“ECP”) (collectively,, and collectively with ECG, “Enhanced”). Enhanced undertakes and manages equity and debt investments in impact initiatives across North America, targeting underserved areas
6
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
manages equity and debt investments in impact initiatives across North America, targeting underserved areas and other socially responsible end markets including renewable energy, historic building renovations, and affordable housing. See Note 3 for additional information on the acquisitions. ECP is a registered investment advisor with the United States Securities and Exchange Commission.
On September 30, 2021, the Company completed acquisitions of Bonaccord and Hark. Bonaccord is an alternative asset manager focusing on acquiring minority equity interests in alternative asset management companies focused on private market strategies which may include private equity, private credit, real estate, and real asset strategies. Hark is engaged in the business of making loans to portfolio companies that are owned or controlled by financial sponsors, such as private equity funds or venture capital funds, and which do not meet traditional direct lending underwriting criteria but where the repayment of the loan by the portfolio company is guaranteed by its financial sponsor.
In June 2022, the Company formed P10 Advisors, a wholly-owned consolidated subsidiary, to manage investment opportunities that are sourced across the P10 platform but do not fit within an existing investment mandate.
On October 13, 2022, the Company completed the acquisition of all of the issued and outstanding membership interests of WTI. WTI provides senior secured financing to early-stage and emerging stage life sciences and technology companies. WTI is a registered investment advisor with the United States Securities and Exchange Commission.
Simultaneously with the acquisition of WTI, the Company completed a restructuring of P10 Intermediate and subsidiaries to LLC entities that are considered disregarded entities for federal income tax purposes. This allowed the WTI sellers to obtain a partnership interest in P10 Intermediate and all of its subsidiaries. As a result of the acquisition, the WTI sellers obtained 3,916,666 membership units of P10 Intermediate, which can be exchanged into 3,916,666 shares of P10 Class A common stock. As of March 31, 2024, no units have been exchanged into shares of P10 Class A common stock.
The Company reports noncontrolling interests related to the partnership interests which are owned by the WTI sellers. This is recorded as noncontrolling interests on the Consolidated Balance Sheets. Noncontrolling interests is allocated a share of income or loss in the respective consolidated subsidiaries in proportion to their relative ownership interest. Additionally, the Company makes periodic distributions to the WTI sellers for tax related and other agreed upon expenses in accordance with the terms of the P10 Intermediate operating agreement.
During 2022, the Board approved a program to repurchase up to $40.0 million of outstanding shares of our Class A and Class B common stock. On February 27, 2024, the Board approved an additional $40.0 million to be used towards repurchases. These shares may be repurchased from time to time in the open market at prevailing market prices, in privately negotiated transactions, in block trades, in accordance with Rule 10b5-1 trading plans and/or through other legally permissible means. As of March 31, 2024, $59.5 million has been spent to buy back shares under this program.
On October 20, 2023, the Company had a transition of executives ("Executive Transition") and entered into an executive transition agreement with each of Mr. Alpert and Mr. Webb (each, a “Transition Agreement”). Pursuant to the Transition Agreements, Mr. Alpert and Mr. Webb ceased to serve as Co-Chief Executive Officer, and Mr. Alpert and Mr. Webb were appointed as Executive Chairman and Executive Vice Chairman, respectively, for a one-year period. Additionally, Mr. Webb's Transition Agreement provides a one year transition period to continue serving the Company in a mergers and acquisitions capacity. Effective October 23, 2023, the board of the Company appointed Luke A. Sarsfield III as Chief Executive Officer (“CEO”) of the Company. In connection with his appointment as CEO, the Company entered into an employment agreement with Mr. Sarsfield (the “Employment Agreement”) setting forth the terms of his employment and compensation. In connection with both the Transition Agreements and the Employment Agreement, provisions were made for severance and sign-on compensation, respectively. The associated expenses were recorded in compensation and benefits on the Consolidated Statements of Operations. See Note 315 for additional information on these acquisitions.further information.
Note 2. Significant Accounting Policies
Basis of Presentation
The accompanying Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Management believes it has made all necessary adjustments so that the Consolidated Financial Statements are presented fairly and that estimates made in preparing the Consolidated Financial Statements are reasonable and prudent. The Consolidated Financial Statements include the accounts of the Company, its wholly owned or majority-owned subsidiaries and entities in which the Company is deemed to have a direct or indirect
7
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
controlling financial interest based on either a variable interest model or voting interest model. All intercompany transactions and balances have been eliminated upon consolidation. The results for the ninethree months ended September 30, 2021March 31, 2024 are not necessarily indicative of the results to be expected for the full year ended December 31, 2021.
Certain entities in which the Company holds an interest are investment companies that follow specialized accounting rules under U.S. GAAP and reflect their investments at estimated fair value. Accordingly, the carrying value of the Company’s equity method investments in such entities retains the specialized accounting treatment.2024.
Principles of Consolidation
The Company performs the variable interest analysis for all entities in which it has a potential variable interest. If the Company has a variable interest in the entity and the entity is a variable interest entity (“VIE”), we will also analyze whether the Company is the primary beneficiary of this entity and if consolidation is required.
Generally, VIEs are entities that lack sufficient equity to finance their activities without additional financial support from other parties, or whose equity holders, as a group, lack one or more of the following characteristics: (a) direct or indirect ability to make decisions, (b) obligation to absorb expected losses or (c) right to receive expected residual returns. A VIE must be evaluated quantitatively and qualitatively to determine the primary beneficiary, which is the reporting entity that has (a) the power to direct activities of a VIE that most significantly impact the VIE's economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.
To determine a VIE's primary beneficiary, we perform a qualitative assessment to determine which party, if any, has the power to direct activities of the VIE and the obligation to absorb losses and/or receive its benefits. This assessment involves identifying the activities that most significantly impact the VIE's economic performance and determinedetermining whether we, or another party, has the power to direct those activities. When evaluating whether we are the primary beneficiary of a VIE, we perform a qualitative analysis that considers the design of the VIE, the nature of our involvement and the variable interests held by other parties. See Note 6 for further information.
ThePrimarily due to the governance structure at subsidiaries, the Company has determined that certain of its subsidiaries are VIEs, and that the Company is the primary beneficiary of the entities, because it has the power to direct activities of the entities that most significantly impact the VIE’s economic performance and has a controlling financial interest in each entity. Accordingly, the Company consolidates these entities, which includes P10 Intermediate, Holdco, RCP 2, RCP 3, TrueBridge, Bonaccord, Hark, and Hark.WTI. The assets and liabilities of the consolidated VIEs are presented on a gross basis in the Consolidated Balance Sheets. The assets of our consolidated VIE’s are owned by
7
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
those entities and not generally available to satisfy P10's obligations, and the liabilities of our consolidated VIE’s are obligations of those entities and their creditors do not generally have recourse to the assets of P10. See Note 6 for more information on both consolidated and unconsolidated VIEs.
Entities that do not qualify as VIEs are assessed for consolidation under the voting interest model. Under the voting interest model, the Company consolidates those entities it controls through a majority voting interest or other means. P10 Holdings, Five Points, P10 Advisors, and ECG are concluded to be consolidated subsidiaries of P10 Intermediate under the voting interest model.
Reclassifications
Certain reclassifications have been made within the Consolidated Financial Statements to conform prior periods with current period presentation.
Use of Estimates
The preparation of the Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents. As of September 30, 2021,March 31, 2024, and December 31, 2020,2023, cash equivalents include money market funds of $7.811.3 million and $2.811.1 million, respectively, which approximates fair value. The Company maintains its cash balances at various financial institutions among multiple accounts, which may periodically exceed the Federal Deposit Insurance Corporation (“FDIC”)
8
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
insured limits. The Company believes it is not exposed to any significantCompany's credit risk in the event of failure of these financial institutions is represented by the difference between the FDIC limit and the total amounts on cash.deposit. Management monitors the financial institutions' credit worthiness in conjunction with balances on deposit to minimize risk. The Company from time to time may have amounts on deposit in excess of the insured limits.
Restricted Cash
Restricted cash as of September 30, 2021March 31, 2024 and December 31, 20202023 was primarily cash that ison deposit from third parties related to pending tax credit projects. There are deposit liabilities associated with restricted due to certain deposits being held for its customers.cash reported in other liabilities on the Consolidated Balance Sheets.
Accounts Receivable and Due from Related Parties
Accounts receivable is equal to contractual amounts reduced for allowances, if applicable. Management fees are collected on a quarterly basis. Certain subsidiaries management fee contracts are collected at the beginning of the quarter, while others are collected in arrears. The management fees reflected in accounts receivable at period end are those that are collected in arrears.
Due from related parties represents receivables from the Funds for reimbursable expenses, and management fees collected by a related party of RCP 2 that are owed to RCP 2. Additionally, fees owed to the Company for the advisory agreement entered into upon the closing of the acquisitions of ECG and ECP ("Advisory Agreement") where ECG provides advisory services to Enhanced Permanent Capital, LLC ("Enhanced PC") are reflected in due from related parties on the Consolidated Balance Sheets.
Notes Receivable
Notes receivable is related to contractual amounts owed from signed, secured promissory notes with BCP Partners Holdings, LP ("BCP") as well as certain employees. In addition to contractual amounts, borrowers are obligated to pay interest on outstanding amounts. Refer to Note 5 for further information.
Current Expected Credit Losses
We evaluateour accounts receivable, due from related parties, and notes receivable using the current expected credit loss model. We determine a current estimate of all expected credit losses over the life of each financial instrument, which may result in recognition of credit losses on loans and receivables before an actual event of default. We establish reserves for any estimated credit losses with a corresponding charge in our Consolidated Statements of Operations.
The Company considersestimates that accounts receivable, to bedue from related parties, and notes receivable are fully collectible; based on historical events, current conditions, and reasonable and supportable forecasts; accordingly, 0 allowance for doubtful accounts hasno allowances have been established as of September 30, 2021March 31, 2024 and December 31, 2020.2023. If accounts are subsequently determined to be uncollectible, they will be expensed in the period that determination is made.
Due from related parties represents receivables from the Funds for management fees earned but not yet received, reimbursable expenses from the FundsPrepaid Expenses and notes receivable due from affiliates. These amounts are expected to be fully collectible.Other Assets
Note Receivable
Note receivable is equalPrepaid expenses and other assets consist primarily of prepaid expenses related to contractual amounts owed from a signed, secured promissory notetechnology, insurance, and professional fees. From time to time, there are also investments in allocable state tax credits on the Consolidated Balance Sheets due to timing differences associated with the Company. In addition to contractual amounts, borrowers are obligated to pay interest on outstanding amounts. The Company considerspurchase and sale of state tax credits in the note receivable to be fully collectible; accordingly, 0 allowance for doubtful accounts has been established astax credit finance business. As of September 30, 2021March 31, 2024 and December 31, 2020. If accounts are subsequently determined to be uncollectible, they will be expensed in2023, respectively, there is $8.5 million and $9.6 million within prepaid expenses and other assets on the period that determination is made.Consolidated Balance Sheets associated with allocable state tax credits purchases.
8
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
Investment in Unconsolidated Subsidiaries
For equity investments in entities that we do not control, but over which we exercise significant influence, we use the equity method of accounting. The equity method investments are initially recorded at cost, and their carrying amount is adjusted for the Company’s share in the earnings or losses of each investee, and for distributions received. The Company discontinues applying the equity method if the investment (and net advances) is reduced to zero and shall not record
9
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
additional losses unless the Company has guaranteed obligations of the investee or is otherwise committed to provide further financial support for the investee. The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable. The Company accounts for its investment in ECP, Enhanced PC, and the ECG's asset management businesses using the equity method of accounting.
For certain entities in which the Company does not have significant influence and fair value is not readily determinable, these investments are not accounted for on the equity method, but instead as equity securities and we value these investments under the measurement alternative. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 825, Financial Instruments, 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. The Company accounts for RCP's investment in a privately held investment manager and ECG's tax credit finance division under this method. Distributions from investments in unconsolidated subsidiaries are presented on the accompanying Consolidated Statements of Cash Flows consistent with the nature of the underlying distribution.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the terms of the respective leases or service lives of the improvements, whichever is shorter, using the straight-line method. Expenditures for major renewals and betterments that extend the useful lives of the property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. The estimated useful lives of the various assets are as follows:
Computers and purchased software |
|
|
| 3 - 5 years |
Furniture and fixtures |
|
|
| 7 - 10 years |
Long-lived Assets
Long-lived assets including property and equipment, lease right-of-use assets, and definite lived intangibles are evaluated for impairment under FASB ASC 360, Property, Plant, and Equipment. Long-lived assets are reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The carrying value of long-lived assets are determined to not be recoverable if the undiscounted estimated future net operating cash flows directly related to the asset or asset group, including any disposal value, is less than the carrying amount of the asset. If the carrying value of an asset is determined to not be recoverable, the impairment loss is measured as the amount by which the carrying value of the asset exceeds its fair value on the measurement date. Fair value is based on the best information available, including prices for similar assets and estimated discounted cash flows.
Leases
The Company recognizes a lease liability and right-of-use asset in our Consolidated Balance Sheets for contracts that it determines are leases or contain a lease. The Company’s leases primarily consist of operating leases for various office spaces. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. The Company’s right-of-use assets and lease liabilities are recognized at lease commencement based on the present value of lease payments over the lease term. Lease right-of-use assets include initial direct costs incurred by the Company and are presented net of deferred rent, lease incentives, and certain other existing lease liabilities. Absent an implicit interest rate in the lease, the Company uses its incremental borrowing rate, adjusted for the effects of collateralization, based on the information available at commencement in determining the present value of lease payments. The Company’s lease terms may include options to extend or terminate the lease, and the Company would account for this when it is reasonably certain that the Company will exercise those options. Lease expense is recognized on a straight-line basis over the lease term. Additionally, upon amendments or other events, the Company may be required to remeasure our lease liability and right-of-use asset.
10
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
The Company does not recognize a lease liability or right-of-use asset on our Consolidated Balance Sheets for short-term leases. Instead, the Company recognizes short-term lease payments as an expense on a straight-line basis over the lease term.when incurred. A short-term lease is defined as a lease that, at the commencement date, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise. When determining whether
9
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
a lease qualifies as a short-term lease, the Company evaluates the lease term and the purchase option in the same manner as all other leases.
Revenue Share and Repurchase Arrangement
The Company recognizes an accrued contingent liability and contingent payments to customers asset in our Consolidated Balance Sheets for an agreement between ECG and a third party. The agreement requires ECG to share in certain revenues earned with the third party and also includes an option for the third party to sell back the revenue share to ECG at a set multiple. Additionally, ECG holds the option to buy back 50% of the revenue share at a set multiple. The options to repurchase the revenue share are exercisable starting in July 2025. The Company believes it is probable that the third party will exercise its option to sell back the revenue share and has recognized a liability on the Consolidated Balance Sheets. The Company has also recognized a contingent payment to customers associated with the agreement and will amortize the asset against revenue over the contractual term of the management contract. The amortization is reported in management and advisory fees on the Consolidated Statements of Operations. The Company will reassess the fair value at each reporting period. Refer to Note 13 for further information.
Goodwill and Intangible Assets
Goodwill is initially measured as the excess of the cost of the acquired business over the sum of the amounts assigned to identifiable assets acquired, less the liabilities assumed. As of September 30, 2021,March 31, 2024, goodwill recorded on our Consolidated Balance Sheets relates to the acquisitions of RCP 2, RCP 3, Five Points, TrueBridge, Enhanced, Bonaccord, Hark, and Hark.WTI. As of September 30, 2021,March 31, 2024, the intangible assets are comprised of indefinite-lived intangible assets and finite-lived intangible assets related to the acquisitions of RCP 2, RCP 3, Five Points, TrueBridge, Enhanced, Bonaccord, Hark, and Hark.WTI.
Indefinite-lived intangible assets and goodwill are not amortized. Finite-lived technology is amortized using the straight-line method over its estimated useful life of 4 years. Finite-lived management and advisory contracts, which relate to acquired separate accounts and funds and investor/customer relationships with a specified termination date, are amortized in line with contractual revenue to be received, which range between 7 and 16 years. Certain of our trade names are considered to have finite-lives. Finite-lived trade names are amortized over 10 years in line with the pattern in which the economic benefits are expected to occur.
Goodwill isand indefinite lived intangibles are reviewed for impairment at least annually as of September 30 utilizing a qualitative or quantitative approach and more frequently if circumstances indicate impairment may have occurred. The impairment testing for goodwill and indefinite lived intangibles under the qualitative approach is based first on a qualitative assessment to determine if it is more likely than not that the fair value of the Company’s reporting unit or asset is less than the respective carrying value. The reporting unit is the reporting level for testing the impairment of goodwill.goodwill and indefinite lived intangibles. If it is determined that it is more likely than not that aan asset's or reporting unit’s fair value is less than its carrying value, then the difference is recorded asCompany will determine the fair value of the reporting unit or asset and record an impairment charge for the difference between fair value and carrying value (not to exceed the carrying amount of goodwill)goodwill or indefinite lived intangible). At September 30, 2021, the Company determined that there was 0 impairment to goodwill.
Contingent Consideration
Contingent consideration is initially measured at fair value on the date of the acquisition. The liabilities are remeasured at fair value on each reporting date, with changes in the fair value reflected in other incomeoperating expenses on our Consolidated Statements of Operations. As of September 30, 2021,March 31, 2024 and December 31, 2023, the contingent consideration recorded relatesis related to the acquisition of HarkBonaccord on the Consolidated Balance Sheets.
Accrued Compensation and Bonaccord.Benefits
Accrued compensation and benefits consists of employee salaries, bonuses, benefits, severance, and acquisition-related earnouts (contingent on employment) that has not yet been paid. The acquisition-related earnout contingent on employment is a result of the acquisition of WTI. The sellers and certain employees of WTI are eligible to earn up to $70.0 million
11
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
contingent upon meeting certain EBITDA related hurdles and continued employment. Upon the achievement of $20.0 million, $22.5 million, and $25.0 million of EBITDA, $35.0 million, $17.5 million, and $17.5 million are earned, respectively. The earnout period is through December 31, 2027 with the potential to extend an additional two years. Refer to Note 13 for further information.
Debt Issuance Costs
Costs incurred which are directly related to the issuance of debt are deferred and amortized on a straight-line basis over the terms of the underlying obligation, which approximatesusing the effective interest method and are presented as a reduction to the carrying value of the associated debt on our Consolidated Balance Sheets. As these costs are amortized, they are included in interest expense, net within our Consolidated Statements of Operations.
Redeemable Noncontrolling InterestInterests
Redeemable noncontrollingNoncontrolling interests ("NCI") reflect the portion of income or loss and the corresponding equity attributable to third-party equity holders and employees in certain consolidated subsidiaries that are not 100% owned by the Company. Noncontrolling interests is presented as a separate component in our Consolidated Statements of Operations to clearly distinguish between our interests and the economic interest representsof third party and related party interestsparties in those entities. Net income attributable to P10, as reported in the Company's consolidated subsidiary, P10 Intermediate. This interestConsolidated Statements of Operations, is redeemable at the optionpresented net of the investors and thereforeportion of net income attributable to holders of non-controlling interest. NCI is not treated as permanent equity. Redeemable noncontrolling interest is presented at the greaterallocated a share of its carrying amountincome or redemption value at each reporting dateloss in the Company’s Consolidated Balance Sheets. Any changesrespective consolidated subsidiaries in redemption value are recordedproportion to retained earnings, or in the absence of retained earnings, additional paid-in capital. See Note 16 for additional information.their relative ownership interest.
Treasury Stock
The Company records common stock purchased for treasury at cost. At the date of subsequent reissuance, the treasury stock account is reduced by the cost of such stock using the average cost method.
10
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between independent and knowledgeable parties who are willing and able to transact for an asset or liability at the measurement date. We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value and then we rank the estimated values based on the reliability of the inputs used following the fair value hierarchy set forth by the FASB.
As of September 30, 2021March 31, 2024 and December 31, 2020,2023, we used the following valuation techniques to measure fair value for assets and there were no changes to these methodologies during the periods presented:
Level 1—Assets were valued using the closing price reported in the active market in which the individual security was traded.
Level 2—Assets were valued using quoted prices in markets that are not active, broker dealer quotations, and other methods by which all significant inputs were observable at the measurement date.
Level 3—Assets were valued using unobservable inputs in which little or no market data exists as reported by the respective institutions at the measurement date.
The carrying values of financial instruments comprising cash and cash equivalents, restricted cash, prepaid assets, accounts payable, accounts receivable, and due from related parties approximate fair values due to the short-term maturities of these instruments. TheWe estimate the fair value of the credit and guarantee facility approximatesusing level two inputs. We discount the carrying value based on thefuture cash flows using current interest rates at which approximate current market rates.we could obtain similar borrowings. The carrying values of the seller notes payable and tax amortization benefits approximate fair value. As of September 30, 2021, the Company has a contingent consideration liability related to the acquisitionsacquisition of Hark and Bonaccord that is measured at fair value. The Company measures these liabilitiesvalue and is remeasured on a recurring basis. The Company also had a contingent consideration liability related to the acquisition of Hark, which was paid in full on July 27, 2023. See Note 10 for additional information.
12
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
Revenue Recognition
Revenue is recognized when, or as, the Company transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services. While the determination of who is the customer is in a contractual arrangement will be made on a contract-by-contract basis, the customer will generally be the investment fund for the Company’s significant management and advisory contracts.
Management and Advisory Fees
The Company earns management fees for asset management services provided to the Funds where the Company has discretion over investment decisions. The Company primarily earns fees for advisory services provided to clients where the Company does not have discretion over investment decisions. Management and advisory fees received in advance reflects the amount of fees that have been received prior to the period the fees are earned. These fees are recorded as deferred revenuerevenues on the Consolidated Balance Sheets.Sheets due to the performance obligation not being satisfied at the time of collection.
For asset management and advisory services, the Company typically satisfies its performance obligations over time as the services are rendered, since the customers simultaneously receive and consume the benefits provided as a distinct series of daily performance obligations that the Company performs the service. The transaction price is the amount of consideration to which the Company expects to be entitledcustomer simultaneously benefits from as they are performed. Asset management fees are based on the contractual terms of the arrangement. For certain funds, managementeach contract which differ, such as fees arecalculated based on committed capital or deployed capital, fees initially calculated based on committed capital during the investment period and on net invested capital through the remainder of the fund’s term. Additionally, the management fee mayterm, fees that step down during specified periods of the fund's term, or in limited instances, fees based on assets under management. At contract inception, no revenue is estimated as the fees are dependent variable amounts which are susceptible to factors outside of our control. Fees are recognized for services provided during the period, which are distinct from services provided in other periods. In certain funds depending onasset management and advisory agreements progress is measured using the contractual arrangement. practical expedient under the output method resulting in the recognition of revenue in the amount for which the Company has a right to invoice.
Advisory services fees are generally based upon fixed amountsdetermined using fixed-rate fees and billed quarterly.are recognized over time as the related services are completed. Other advisory services include transaction and management fees associated with managing the origination and ongoing compliance of certain investments.
The Company is applying the optional disclosure exemption for variable consideration for unsatisfied performance obligations, as the variable consideration relates to these unsatisfied performance obligations being fulfilled as a series. The performance obligations related to these contracts are expected to be satisfied over the next 1 -10 years as services are provided to the customer.
Catch-up fees are earned from investors that make commitments to the fund after the first fund closing occurs during the fundraising period of funds originally launched in prior periods, and as such the investors are required to pay a catch-up fee as if they had committed to the fund at the first closing. Catch-up fees are recorded as revenue when such commitments are made as variable consideration.
Other Revenue
Other revenue on our Consolidated Statements of Operations primarily consists of subscriptions, consulting agreements, interest income, and referral fees. Interest income is from interest bearing fund bank accounts managed by the Company and is additional consideration per the Limited Partner Agreements. Interest income is recognized as it is earned. The subscription and consulting agreements typically have renewable one-year lives, and revenue is recognized ratably over the current term of the subscription or the agreement. If subscriptions or fees have been paid in advance, these fees are recorded as deferred revenuerevenues on our Consolidated Balance Sheets. Referral fee revenue is recognized upon closing of certain opportunities.
11
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
Income Taxes
Current income tax expense represents our estimated taxes to be paid or refunded for the current period. In accordance with ASC 740, Income Taxes (“ASC 740”), we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect
13
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
for the year in which the differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets to the amount we believe is more likely than not to be realized.
Uncertain tax positions are recognized only when we believe it is more likely than not that the tax position will be upheld on examination by the taxing authorities based on the merits of the position. We recognize interest and penalties, if any, related to uncertain tax positions in income tax expense.
We file various federal and state and local tax returns based on federal and state local consolidation and stand-alone tax rules as applicable.
Earnings Per Share
Basic earnings per share (“EPS”) is calculated by dividing net income attributable to common stockholders by the weighted-average number of common shares. Diluted EPS includes the determinants of basic EPS and common stock equivalents outstanding during the period adjusted to give effect to potentially dilutive securities.securities, if the Company is in a net income position. Because the impact of these items is generally anti-dilutive during periods of net loss, there is no difference between basic and diluted loss per common share for periods with net losses. See Note 1516 for additional information. The numerator in the computation of diluted EPS is impacted by the redeemable convertible preferred shares issued by P10 Intermediate since these preferred shares are convertible into common shares of P10 Intermediate. Under the if converted method, diluted EPS reflects a reduction in earnings that P10 would recognize by owning a smaller percentage of P10 Intermediate when the preferred shares are assumed to be converted.
TheWhen the Company is in a net income position, the denominator in the computation of diluted EPS is impacted by additional common shares that would have been outstanding if dilutive potential shares of common stock had been issued. Potential shares of common stock that may be issued by the Company include shares of common stock that may be issued upon exercise of outstanding stock options.options as well as the vesting of restricted stock units. Also included in the diluted EPS denominator are the units of P10 Intermediate owned by the sellers of WTI, assuming the option to exchange the units for shares of Class A common stock of the Company is exercised in full. Under the treasury stock method, the unexercised options are assumed to be exercised at the beginning of the period or at issuance, if later. The assumed proceeds are then used to purchase shares of common stock at the average market price during the period.
Stock-Based Compensation Expense
Stock-based compensation relates to grants for shares of P10 awarded to our employees. Stock-basedemployees through stock options as well as RSUs awarded to employees and RSAs issued to non-employee directors as compensation costfor service on the Company's board. Stock compensation expense for awards that cliff-vest after a service period is estimatedrecorded ratably over the vesting period at the grant date basedfair market value on the fair-value ofgrant date. For awards with graded vesting, and vesting only requires a service condition, the award, which is determined using the Black Scholes option valuation modelCompany elected, in accordance with ASC 718, Compensation - Stock Compensation ("ASC 718"), to treat these awards as single awards for recognition purposes and is recognized as expense ratablyrecognize compensation on a straight-line basis over the requisite service period of the entire award. For awards with graded vesting and require either a performance condition or market condition to vest, the Company treats each expected vesting tranche as an individual award generally five years. The share price used in the Black Scholes model is based on the trading price of our shares on the OTC Market. Expected life is based onand recognizes expense ratably over the vesting period at the fair market value on the grant date. Certain acquisition-related RSUs vest after meeting certain performance metrics. For these, the Company uses the tranche method and expiration daterecognizes expense for each tranche of the option. Stock price volatility is estimated basedRSUs deemed probable of vesting on a group of similar publicly traded companies determined to be most reflective ofstraight-line basis over the expected volatilityvesting period. The Company evaluates the probability of the Company due to the nature of operations of these entities. The risk-free ratesvesting at each reporting period. Unvested units are basedremeasured quarterly against performance metrics as a liability on the U.S. Treasury yield in effect at the time of grant.Consolidated Balance Sheets. Refer to Note 15 for further discussion. Forfeitures are recognized as they occur.
Segment Reporting
The Company operates as an integrated private markets solution provider and a single operating segment. According to ASC 280, Disclosures about Segments of an Enterprise and Related Information, operating segments are defined as components of an enterprise for which separatediscrete financial information is evaluated regularly by the chief operating decision maker(s)maker in deciding how to allocate resources and in assessing performance. The Company operates our business as a single operating segment, which is how our chief operating decision maker (our Chief Executive Officer) evaluates financial performance and makes decisions regarding the allocation of resources.
14
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
Business Acquisitions
In accordance with ASC 805, Business Combinations (“ASC 805”), the Company identifies a business to have three key elements; inputs, processes, and outputs. While an integrated set of assets and activities that is a business usually has outputs, outputs are not required to be present. In addition, all the inputs and processes that a seller uses in operating a set of assets and activities are not required if market participants can acquire the set of assets and activities and continue to produce outputs. In
12
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
addition, the Company also performs a screen test to determine when a set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set of assets is not a business. If the set of assets and activities is not considered a business, it is accounted for as an asset acquisition using a cost accumulation model. In the cost accumulation model, the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on the basis of relative fair values.
The Company includes the results of operations of acquired businesses beginning on the respective acquisition dates. In accordance with ASC 805, the Company allocates the purchase price of an acquired business to its identifiable assets and liabilities based on the estimated fair values using the acquisition method. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill. The excess value of the net identifiable assets and liabilities acquired over the purchase price of an acquired business is recorded as a bargain purchase gain. The Company uses all available information to estimate fair values of identifiable intangible assets and property acquired. In making these determinations, the Company may engage an independent third-party valuation specialist to assist with the valuation of certain intangible assets, notes payable, and tax amortization benefits.
The consideration for certain of our acquisitions may include liability classified contingent consideration, which is determined based on formulas stated in the applicable purchase agreements. The amount to be paid under these arrangements is based on certain financial performance measures subsequent to the acquisitions. The contingent consideration included in the purchase price is measured at fair value on the date of the acquisition. The liabilities are remeasured at fair value on each reporting date, with changes in the fair value reflected in general, administrative and otheroperating expenses on our Consolidated Statements of Operations.
For business acquisitions, the Company recognizes the fair value of goodwill and other acquired intangible assets, and estimated contingent consideration at the acquisition date as part of purchase price. This fair value measurement is based on unobservable (Level 3) inputs.
Dividends
Dividends are reflected in the Consolidated Financial Statements when declared.
Recent Accounting Pronouncements
TheEffective January 1, 2024, the Company adopted ASU No. 2017-04,2022-03, Intangibles—GoodwillFair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions ("ASU 2022-03"). The amendments in this update affect all entities that have investments in equity securities measured at fair value that are subject to a contractual sale restriction. The amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, Other (“ASC 350”)therefore, is not considered in measuring fair value. The amendSimplifying the Test for Goodwill Impairment on January 1, 2020.ments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The adoption of this new guidanceASU 2022-03 did not have a material impact on ourthe Company's Consolidated Financial Statements and related disclosures.
The Company adopted ASU No. 2018-13, Fair Value Measurement (“ASC 820”): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement on January 1, 2020. The adoption of this new guidance did not have a material impact on our Consolidated Financial Statements and related disclosures.
The Company adopted ASU No. 2018-07, Compensation—Stock Compensation ("Topic 718"): Improvements to Nonemployee Share-Based Payment Accounting, on December 15, 2018. This guidance was related to the restricted stock awards granted to our board members as compensation for their participation on our board in the third quarter of 2021. The adoption of this new guidance did not have a material impact on our Consolidated Financial Statements and related disclosures.
The Company adopted ASU No. 2019-12, Income Taxes ("Topic 740"): Disclosure Framework - Simplifying the Accounting for Income Taxes, in January 1, 2021, which simplified the accounting for income taxes by removing certain exceptions to the general principles of Topic 740 and clarifying and amending existing guidance. The adoption of this standard did not have a material impact on our financial statements.Statements.
Pronouncements not yet adoptedNot Yet Adopted
In June 2016,On November 27, 2023, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments2023-07, (“Improvements to Reportable Segment Disclosure ("ASU 2016-13”2023-07"). ASU 2016-13 provides amendments to ASC 326, Financial Instruments - Credit Losses, which replacesrequires incremental disclosures related to a public entity’s reportable segments. Required disclosures include, on an annual and interim basis, significant segment expenses that are regularly provided to the incurredchief operating decision maker (CODM) and included within each reported measure of segment profit or loss, impairment model withan amount for other segment items (which is the difference between segment revenue less segment expenses and less segment profit or loss) and a current expected creditdescription of its composition, the title and position of the CODM, and an explanation of how the CODM uses the reported measure(s) of segment profit or loss (“CECL”) model. CECL requires a companyin assessing segment performance and deciding how to estimate lifetime expected credit losses based on relevant information about historical events, current conditionsallocate resources. The standard also permits disclosure of more than one measure of segment profit. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and reasonable and supportable forecasts. The guidance must be applied using the modified retrospective adoption method on January 1, 2023, with early adoption permitted.
1315
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
interim periods within fiscal years beginning after December 15, 2024. We are evaluating the effects of these amendments on our financial reporting.
On December 14, 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures ("ASU 2023-09") to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for our annual periods beginning January 1, 2025. We are evaluating the effects of these amendments on our financial reporting.
Note 3. AcquisitionsRevenue
Five Points Capital
On April 1, 2020, we completed the acquisition of 100% of the capital stock of Five Points, an independent private equity manager focused exclusively on the U.S. lower middle market. The transaction was accounted for as a business combination under the acquisition method of accounting pursuant to ASC 805.
The following is a summary of consideration paid:presents revenues disaggregated by product offering:
|
| Fair Value |
| |
Cash |
| $ | 46,751 |
|
Preferred stock |
|
| 20,100 |
|
Total purchase consideration |
| $ | 66,851 |
|
|
| For the Three Months |
| |||||
|
|
|
| |||||
|
| 2024 |
|
| 2023 |
| ||
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 |
|
Consideration paid in the transaction consisted of both cash and equity. See Note 16 for additional information on the preferred stock issued in the connection with the acquisition of Five Points.4. Strategic Alliance Expense
In connection with the acquisition, the Company incurred a total of $2.3 million of acquisition-related expenses. Of the total acquisition-related expenses, $0 and $0 million were recorded during the nine and three months ended September 30, 2021 and $1.1 and $0 million were recorded during the nine and three month ended September 30, 2020, respectively. These costs are included in professional fees on our Consolidated Statements of Operations.
The following table presents the fair value of the net assets acquired as of the acquisition date:
|
| Fair Value |
| |
ASSETS |
|
|
| |
Cash and cash equivalents |
| $ | 111 |
|
Accounts receivable |
|
| 295 |
|
Due from related parties |
|
| 27 |
|
Prepaid expenses and other |
|
| 13 |
|
Property and equipment |
|
| 87 |
|
Right-of-use assets |
|
| 339 |
|
Intangible assets |
|
| 23,960 |
|
Total assets acquired |
| $ | 24,832 |
|
LIABILITIES |
|
|
| |
Accounts payable |
| $ | 358 |
|
Accrued expenses |
|
| 390 |
|
Long-term lease obligation |
|
| 339 |
|
Deferred tax liability |
|
| 5,524 |
|
Total liabilities assumed |
| $ | 6,611 |
|
|
|
|
| |
Net identifiable assets acquired |
| $ | 18,221 |
|
Goodwill |
|
| 48,630 |
|
Net assets acquired |
| $ | 66,851 |
|
The following table presents the fair value of identifiable intangible assets acquired:
|
|
|
|
| Weighted- | |
|
|
|
|
| Average | |
|
|
|
|
| Amortization | |
|
| Fair Value |
|
| Period | |
Value of management contracts |
| $ | 19,900 |
|
| 10 |
Value of trade name |
|
| 4,060 |
|
| 10 |
Total identifiable intangible assets |
| $ | 23,960 |
|
|
|
14
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
Goodwill
The goodwill recorded as part of the acquisition includes benefits that management believes will result from the acquisition, including expanding the Company’s product offering into private credit. The goodwill is 0t expected to be deductible for tax purposes.
Acquisition of TrueBridge Capital
On October 2, 2020, the Company completed the acquisition of 100% of the issued and outstanding membership interests of TrueBridge for a total consideration of $189.1 million, which includes cash, contingent consideration and preferred stock of P10 Intermediate. TrueBridge is a leading venture capital firm that invests in both venture funds and directly in select venture-backed companies. The transaction was accounted for as a business combination under the acquisition method of accounting pursuant to ASC 805.
The following is a summary of consideration paid:
|
| Fair Value |
| |
Cash |
| $ | 94,216 |
|
Contingent consideration |
|
| 572 |
|
Preferred stock |
|
| 94,350 |
|
Total purchase consideration |
| $ | 189,138 |
|
A net cash amount of $89.5 million was financed through an amendment to the existing term loan under the credit and guarantee facility with HPS Investment Partners, LLC (“HPS”), an unrelated party. The additional draw has the same terms as the existing Facility including the maturity date. See Note 16 for additional information on the preferred stock issued in the connection with the acquisition of TrueBridge.
Included in total consideration is $572 thousand of contingent consideration, representing the fair value of expected future payments on the date of the acquisition. The amount ultimately owed to the sellers is based on achieving specific fundraising targets, and all amounts under this arrangement were paid by October 2021. As of September 30, 2021, the fair value of the remaining contingent consideration totaled $209 thousand. For the nine months ended September 30, 2021, a total of $518 thousand was paid to the sellers of Truebridge and $134 thousand in expense was recognized in other income on the Consolidated Statements of Operations for the change in estimated value of the contingent consideration.
In connection with the acquisition, the Company incurred a total of $1.7 million of acquisition-related expenses. Of the total acquisition-related expenses, $0 and $0 were recorded during the nine and three months ended September 30, 2021 and $1.6 and $1.2 million were recorded during the nine and three months ended September 30, 2020, respectively.
15
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
The following table presents the fair value of the net assets acquired as of the acquisition date:
|
| Fair Value |
| |
ASSETS |
|
|
| |
Cash and cash equivalents |
| $ | 6,537 |
|
Accounts receivable |
|
| 14 |
|
Due from related parties |
|
| 55 |
|
Prepaid expenses and other |
|
| 60 |
|
Property and equipment |
|
| 1,061 |
|
Right-of-use assets |
|
| 1,627 |
|
Intangible assets |
|
| 43,600 |
|
Total assets acquired |
| $ | 52,954 |
|
LIABILITIES |
|
|
| |
Accounts payable |
| $ | 20 |
|
Accrued expenses |
|
| 323 |
|
Deferred revenues |
|
| 6,491 |
|
Long-term lease obligation |
|
| 2,031 |
|
Deferred tax liability |
|
| 5,518 |
|
Total liabilities assumed |
| $ | 14,383 |
|
|
|
|
| |
Net identifiable assets acquired |
| $ | 38,571 |
|
Goodwill |
|
| 150,567 |
|
Net assets acquired |
| $ | 189,138 |
|
The following table presents the fair value of identifiable intangible assets acquired:
|
|
|
|
| Weighted- | |
|
|
|
|
| Average | |
|
|
|
|
| Amortization | |
|
| Fair Value |
|
| Period | |
Value of management contracts |
| $ | 34,100 |
|
| 10 |
Value of trade name |
| $ | 7,300 |
|
| 10 |
Value of technology |
|
| 2,200 |
|
| 4 |
Total identifiable intangible assets |
| $ | 43,600 |
|
|
|
Goodwill
The goodwill recorded as part of the acquisition includes the expected benefits that management believes will result from the acquisition, including the Company’s build out of its investment product offering. Approximately $73.7 million of goodwill is expected to be deductible for tax purposes.
Acquisition of Enhanced
On December 14, 2020, the Company completed the acquisition of 100% of the equity interest in ECG and a non-controlling interest in ECP’s outstanding equity, comprised of a 49% voting interest and a 50% economic interest, for total consideration of $111.0 million. The consideration included cash, estimated working capital adjustments and preferred stock of P10 Intermediate. ECG is an alternative asset manager and provider of tax credit transaction and consulting services focused on underserved areas and other socially responsible end markets such as renewable energy (impact investing). The alternative asset management business includes providing management, transaction, and consulting services to various entities which have historically been wholly owned by subsidiaries and affiliates of ECG. ECP’s primary business is to participate in various state sponsored premium tax credit investment programs through debt, equity, and equity-related investments. The acquisition of ECG was accounted for as a business combination under the acquisition method of accounting pursuant to ASC 805, while ECP is reported as an unconsolidated investee of P10 and accounted for under the equity method of accounting.
Upon the completion of the acquisitions, certain agreements contemplated in the Securities Purchase Agreement became effective immediately upon the closing of the acquisitions. The allocation of the consideration paid for the assets acquired and
16
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
liabilities assumed takes into consideration the fact that these agreements occurred contemporaneously with the closing of the acquisitions.
Prior to and through the date of the acquisition by the Company, ECG had certain consolidated subsidiaries and funds whose primary activities consisted of issuing qualified debt or equity instruments to tax credit investors in order to make investments in qualified businesses, which are referred to as the “Permanent Capital Subsidiaries.” Pursuant to a Reorganization Agreement, upon the closing of P10’s acquisition of ECG, the Permanent Capital Subsidiaries were contributed by ECG to Enhanced Permanent Capital, LLC (“Enhanced PC”), a newly formed entity. In exchange for this contribution of the Permanent Capital Subsidiaries, ECG obtained a non-controlling equity interest in Enhanced PC. The ownership in Enhanced PC was evaluated by management, and it was determined to be a variable interest. However, ECG was concluded to not be the primary beneficiary of Enhanced PC and, accordingly, Enhanced PC is not consolidated by ECG. Rather, the interest in Enhanced PC is reflected as an equity method investment by ECG. In addition to the Reorganization Agreement, see Note 11 for information on the Advisory Agreement and Administrative Services Agreement.
The acquisition of the equity interests in ECG and ECP were negotiated simultaneously for a single purchase price. The following tables illustrate the consideration paid for Enhanced, and the allocation of the purchase price to the acquired assets and assumed liabilities.
|
| Fair Value |
| |
Cash |
| $ | 82,596 |
|
Estimated post-closing working capital adjustment |
|
| 1,519 |
|
Preferred stock |
|
| 26,904 |
|
Total purchase consideration |
| $ | 111,019 |
|
A total of $66.6 million of the cash consideration was financed through an amendment to the existing term loan under the Facility with HPS. The additional draw has the same terms as the existing Facility, including the maturity date. See Note 16 for additional information on the preferred stock issued in the connection with the acquisition of Enhanced.
In connection with the acquisition, the Company incurred a total of $3.7 million of acquisition-related expenses. Of the total acquisition-related expenses, $77 thousand and $0 were recorded during the nine and three months ended September 30, 2021 and $0 and $0 million were recorded during the nine and three months ended September 30, 2020, respectively. These costs are included in professional fees on our Consolidated Statements of Operations.
The acquisition date fair values of certain assets and liabilities, including intangible assets acquired and related weighted average expected lives and deferred income taxes, are provisional and subject to revision within one year of the acquisition date. As such, our estimates of fair values are pending finalization, which may result in adjustments to goodwill.
17
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
The following table presents the provisional fair value of the net assets acquired as of the acquisition date:
|
| Fair Value |
| |
ASSETS |
|
|
| |
Cash and cash equivalents |
| $ | 2,752 |
|
Restricted cash |
|
| 254 |
|
Accounts receivable |
|
| 3,424 |
|
Due from related parties |
|
| 257 |
|
Prepaid expenses and other assets |
|
| 2,099 |
|
Investment in unconsolidated subsidiaries |
|
| 2,158 |
|
Intangible assets |
|
| 36,820 |
|
Total assets acquired |
| $ | 47,764 |
|
LIABILITIES |
|
|
| |
Accrued expenses |
| $ | 551 |
|
Other liabilities |
|
| 288 |
|
Deferred revenues |
|
| 2,110 |
|
Due to related parties |
|
| 2,059 |
|
Debt obligations |
|
| 1,693 |
|
Deferred tax liability |
|
| 3,318 |
|
Total liabilities assumed |
| $ | 10,019 |
|
|
|
|
| |
Net identifiable assets acquired |
| $ | 37,745 |
|
Goodwill |
|
| 73,274 |
|
Net assets acquired |
| $ | 111,019 |
|
The following table presents the provisional fair value of identifiable intangible assets acquired:
|
|
|
|
| Weighted- | |
|
|
|
|
| Average | |
|
|
|
|
| Amortization | |
|
| Fair Value |
|
| Period | |
Value of management and advisory contracts |
| $ | 30,820 |
|
| 12 |
Value of trade name |
|
| 6,000 |
|
| 10 |
Total identifiable intangible assets |
| $ | 36,820 |
|
|
|
Goodwill
The goodwill recorded as part of the acquisition includes the expected benefits that management believes will result from the acquisition, including the Company’s build out of its investment product offering. Approximately $18.7 million of goodwill is expected to be deductible for tax purposes.
Acquisition of Bonaccord
On September 30, 2021, the Company completed the purchase of Bonaccord for total consideration of $55.9 million, which includes cash and contingent consideration. Bonaccord is engaged in the business of acquiring minority interests in alternative asset mangement companies focused on private market strategies which may include private equity, private client, real estate, and real asset strategies. The acquisition was accounted for as a business combination under the acquisition method of accounting pursuant to ASC 805.
The following is a summary of consideration paid:
|
| Fair Value |
| |
Cash |
| $ | 38,926 |
|
Contingent consideration |
|
| 16,970 |
|
Total purchase consideration |
| $ | 55,896 |
|
18
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
A total of $35.0 million of the cash consideration was financed through an amendment to the existing term loan under the facility with HPS. The additional draw has the same terms as the existing Facility, including the maturity date.
Included in total consideration is $17.0 million of contingent consideration, representing the fair value of expected future payments on the date of the acquisition. The amount ultimately owed to the sellers is based on achieving specific revenue related targets, and all amounts under this arrangement are expected to be paid by October 2027. Total payment ranges from $0 to $20.0 million.
The fair value is based on the scenario based method. The assumptions used in the analysis are inherently subjective; therefore, the ultimate amount of the liability may differ materially from the current estimate. As of September 30, 2021, the estimated fair value of the remaining contingent consideration totaled $17.0 million. A total of $0 was paid to the sellers of Bonaccord and $0 in expense was recognized in other income on the Consolidated Statements of Operations for the change in estimated value of the contingent consideration.
In connection with the acquisition, the Company incurred a total of $1.9 million of acquisition-related expenses. Of the total acquisition-related expenses, $1.9 million and $1.9 were recorded during the nine months and three months ended September 30, 2021 and $0 and $0 million were recorded for the nine and three months ended September 30, 2020, respectively. Of these costs, $1.6 millions relates to a one time bonus to employees associated with the acquisition, which is included in compensation and benefits on the consolidates statements of operations. The remaining costs are included in professional fees on the Consolidated Statement of Operations.
The acquisition date fair value of certain assets and liabilities, including intangible assets acquired and related weighted average expected lives are provisional and subject to revision within one year of the acquisition date. As such, our estimates of fair values are pending finalization, which may result in adjustments to goodwill.
The following table presents the provisional fair value of the net assets acquired as of the acquisition date:
|
| Fair Value |
| |
ASSETS |
|
|
| |
Prepaid expenses and other assets |
|
| 9 |
|
Investment in partnership |
|
| 1,396 |
|
Intangible assets |
|
| 12,480 |
|
Total assets acquired |
| $ | 13,885 |
|
LIABILITIES |
|
|
| |
Accrued expenses |
| $ | 919 |
|
Total liabilities assumed |
| $ | 919 |
|
|
|
|
| |
Net identifiable assets acquired |
| $ | 12,966 |
|
Goodwill |
|
| 42,930 |
|
Net assets acquired |
| $ | 55,896 |
|
The following table presents the provisional fair value of the identifiable intangible assets acquired:
|
|
|
|
| Weighted- | |
|
|
|
|
| Average | |
|
|
|
|
| Amortization | |
|
| Fair Value |
|
| Period | |
Value of management and advisory contracts |
| $ | 8,930 |
|
| 8 |
Value of trade name |
|
| 3,550 |
|
| 10 |
Total identifiable intangible assets |
| $ | 12,480 |
|
|
|
In connection with the acquisition, Bonaccord entered into a Strategic Alliance Agreement ("SAA"), providing with a third-party investor. This SAA provides the third-party the right to receive 15% of the net management fee earnings, which includes the management fees minus applicable expenses, for Bonaccord Fund I ("Fund I"),and subsequent funds, paid quarterly. quarterly, in exchange for funding certain amounts of capital commitments to the fund. Net management fee earnings the third-party has the right to receive is based on the total capital committed. For the three months ended March 31, 2024 and 2023, the strategic alliance expense reported was $0.6 million and $0.4 million, respectively. This is reported on the Consolidated Statements of Operations as strategic alliance expense in operating expenses.
Within 60 days following the final closing of the next fund, Bonaccord Fund II ("Fund II"), the third-party has the opportunity to acquire, at the price at the time of the original acquisition, equity interests in Bonaccord based on the amount of commitment mademade. For each $5.0 million, up to a maximum of $250.0 million in irrevocable capital commitments to Fund II, the third-party can acquire 10 basis points up to a maximum of 5% equity in Bonaccord. The third party would be entitled to receive distributions of net management fee earnings by the percentage acquired, retroactive to the date of the first close in Fund II. The maximum commitment requirement has been met as of March 31, 2024. Fund II has not yet reached the final close but the Company believes it is probable that the third-party will exercise the option to acquire equity in Bonaccord and has begun to accrue an additional 5% of net management fee earnings, which is included in the strategic alliance expense. If executed, the purchase price shall be reduced by the amount of management fee distributions which the third-party would have been paid as of the initial closing of Fund II.
Similar terms apply for Bonaccord Fund III ("Fund III") with the exception that the third-party can acquire 9.8 basis points for every $5.0 million committed up to 4.9%. This commitment has not yet been met as of March 31, 2024 as Fund III has not yet started raising capital. If commitment conditions to funds subsequent to Funds II and III that ranges from 0.1%-9.9% of equity in Bonaccord. Ifare not satisfied, then within 60 days of the final closing of such subsequent fund giving rise to the condition not being satisfied, the Company may elect to repurchase the equity granted to the third-party. The repurchase shall be at the fair market value of such equity at that point in time.
Note 5. Notes Receivable
The Company has two types of notes receivable. The first is an Advance Agreement and Secured Promissory Note that was executed on September 30, 2021 between the Company and BCP to lend funds to certain employees to be used to pay general partner commitments to certain funds managed by Bonaccord. This agreement provides for a note to BCP for $5.0 million, of which $4.8 million was drawn as of March 31, 2024 with a maturity date of September 30, 2031. The note will
1916
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
of Funds II and III, the third-party has not met specific equity commitments in the SAA, Bonaccord may elect to repurchase the equity interests at fair market value. In addition to this SAA, there is another agreement with a third-party, similar to a placement fee arrangement, whereby they will receive 5% of net management fee revenues for Fund I.
Goodwill
The goodwill recorded as part of the acquisition includes the expected benefits that management believes will result from the acquisition, including the Company’s build out of its investment product offering. Approximately $42.9 million of goodwill is expected to be deductible for tax purposes.
Acquisition of Hark
On September 30, 2021, the Company completed the purchases of Hark for total consideration of $7.2 million, which includes $5.0 million of cash and $2.2 million of estimated contingent consideration. The acquisition was accounted for as a business combination under the acquisition method of accounting pursuant to ASC 805. Hark is engaged in the business of making loans to portfolio companies that are owned or controlled by financial sponsors, such as private equity funds or venture capital funds, and which do not meet traditional direct lending underwriting criteria, but where the repayment of the loan by the portfolio company is guaranteed by its financial sponsor. The provisional fair value consisted of $2.5 million in net assets and $4.7 million in goodwill.
Identifiable Intangible Assets
The fair value of management and advisory contracts acquired were estimated using the excess earnings method. Significant inputs to the valuation model include existing revenue, estimates of expenses and contributory asset charges, the economic life of the contracts and a discount rate based on a weighted average cost of capital.
The fair value of trade names acquired were estimated using the relief from royalty method. Significant inputs to the valuation model include estimates of existing and future revenue, estimated royalty rate, economic life and a discount rate based on a weighted average cost of capital.
The fair value of technology acquired was estimated using the relief from royalty method. Significant inputs to the valuation model include a royalty rate, an estimated life and a discount rate.
The management and advisory contracts, trade names and the acquired technology all have a finite useful life. The carrying value of the management fund and advisory contracts and trade names will be amortized in line with the pattern in which the economic benefits arise and are reviewed at least annually for indicators of impairment in value that is other than temporary. The technology will be amortized on a straight-line basis.
Pro-forma Financial Information
The following unaudited pro forma condensed consolidated results of operations of the Company assumes the acquisitions of Five Points, TrueBridge, Enhanced, and Bonaccord were completed on January 1, 2020:
|
| For the Nine Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Revenue |
| $ | 120,057 |
|
| $ | 90,075 |
|
Net income attributable to P10 |
|
| 12,749 |
|
|
| 5,435 |
|
Pro forma adjustments include revenue and net income (loss) of the acquired business for each period. Other pro forma adjustments include intangible amortization expense and interest expense based on debt issued or repaid in connection with the acquisitions as if the acquisitions were completed on January 1, 2020. The pro forma adjustments also give effect to the reorganization of Enhanced and formation of Enhanced Permanent Capital, as well as the impacts of the advisory services agreement as further described at Note 11.
Note 4. Revenue
20
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
The following presents revenues disaggregated by product offering:
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Management and advisory fees |
| $ | 37,939 |
|
| $ | 15,222 |
|
| $ | 104,029 |
|
| $ | 41,821 |
|
Subscriptions |
|
| 153 |
|
|
| 156 |
|
|
| 486 |
|
|
| 496 |
|
Consulting agreements and referral fees |
|
| 0 |
|
|
| 0 |
|
|
| 150 |
|
|
| 55 |
|
Other revenue |
|
| 53 |
|
|
| 3 |
|
|
| 236 |
|
|
| 310 |
|
Total revenues |
| $ | 38,145 |
|
| $ | 15,381 |
|
| $ | 104,901 |
|
| $ | 42,682 |
|
Note 5. Note Receivable
The Company's note receivable consists of an Advance Agreement and Secured Promissory Note that was executed on September 30, 2021 between the Company and BCP Partners Holdings, LP ("BCP") to lend funds to cover their GP commitments. This agreement provides for a note to BCP for $5.0 million, of which $2.3 million was drawn as of September 30, 2021 with a maturity date of September 30, 2031. The note will earn interest at the greater of (i) the applicable federal rate that must be charged to avoid imputation of interest under Section 1274(d) of the codeU.S. Internal Revenue Code and (ii) 5.5%. The stated interest rate is the effective rate. Interest will be paid on December 31st of each year commencing December 31, 2021.2021, with any unpaid accrued interest being capitalized and added to the outstanding principal balance. Principal payments will be made periodically from mandatorymandatorily required payments from available cash flows at BCP.
The second consists of Secured Promissory Notes that were executed on October 13, 2023 between the Company and certain employees of Bonaccord to lend funds to be used to pay general partner commitments to certain funds managed by Bonaccord. The notes provided $1.0 million of cash, in aggregate, to certain employees and is collateralized by such employees' privately owned shares of the Company. The term of the additional notes is five years, maturing on October 13, 2028 with all principal due at maturity. The notes will accrue interest at SOFR plus 2.10% and is payable annually in arrears.
As of September 30, 2021March 31, 2024 and December 31, 2020,2023, the total notes receivable balance was $2.35.8 million and $05.8, million, respectively. The Company recognized interest revenueincome of $00.1 million and $00.1 million for the nine and three months ended September 30, 2021March 31, 2024 and 2020,2023, respectively.
Note 6. Variable Interest Entities
Consolidated VIEs
The Company consolidates certain VIEs for which it is the primary beneficiary. VIEs consist of certain operating entities not wholly owned by the Company and include P10 Intermediate, Holdco, RCP 2, RCP 3, TrueBridge, Hark, Bonaccord, and Bonaccord. See Note 2 for more information on the Company’s accounting policies related to the consolidation of VIEs.WTI. The assets of the consolidated VIEs totaled $418.3566.6 million and $361.7579.4 million as of September 30, 2021March 31, 2024 and December 31, 2020,2023, respectively. The liabilities of the consolidated VIEs totaled $325.9422.6 million and $287.1397.6 million as of September 30, 2021March 31, 2024 and December 31, 2020,2023, respectively. TheWith the exception of the Credit Facility, the assets of our consolidated VIE’sVIEs are owned by those entities and not generally available to satisfy P10’s obligations, and theobligations. The liabilities of our consolidated VIE’sVIEs are obligations of those entities and their creditors do not generally have recourse to the assets of P10.
Unconsolidated VIEs
Through its subsidiary, ECG, the Company holds variable interests in the form of direct equity interests in certain VIEs that are not consolidated because the Company is not the primary beneficiary. The Company's maximum exposure to loss is limited to the potential loosloss of assets recognized by the Company relating to these unconsolidated entities. These variable interests are included in investment in unconsolidated subsidiaries on the accompanying Consolidated Balance Sheets.
Note 7. Investment in Unconsolidated Subsidiaries
The Company’s investment in unconsolidated subsidiaries consist of unconsolidated equity method investments primarily related to ECG’s tax credit finance and asset management activities. Additionally, the investment in Enhanced Capital Partners and Enhanced PC is recorded at zero. The Company, therefore, suspended the use of the equity method of accounting because the Company has no guaranteed obligations or commitments to provide financial support to the investee.
As of September 30, 2021,March 31, 2024, investment in unconsolidated subsidiaries totaled $2.02.8 million, of which $1.40.9 million related to RCP's investment in a privately held investment manager, $1.9 million related to ECG’s asset management businesses, and $0.60 million related to ECG’s tax credit finance businesses. As of December 31, 2020,2023, investment in unconsolidated subsidiaries totaled $2.21.7 million, of which $2.00 related to RCP's investment in a privately held investment manager, $1.7 million related to ECG’s asset management businesses, and $0.20 million related to ECG’s tax credit finance businesses.
2117
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
Asset Management
ECG manages some of its alternative asset management funds through various unconsolidated subsidiaries and records these investments under the equity method of accounting. ECG recorded its share of income in the amount of $0.8 and $0.3 million for the nine and three months ended September 30, 2021 and $0 and $0 million for the nine and three months ended September 30, 2020, respectively. For the nine and three months ended September 30, 2021, ECG made $0 and $0 capital contributions and received distributions of $1.4 and $0.1 million.
Tax Credit Finance
ECG provides a wide range of tax credit transactions and consulting services through various entities which are wholly owned subsidiaries of Enhanced Tax Credit Finance, LLC (“ETCF”), which is a wholly owned subsidiary of ECG. Some of these subsidiaries own nominal interests, typically under 1.0%, in various VIEs and record these investments under the measurement alternative described in Note 2 above. For the nine and three months ended September 30, 2021, ECG made $2.6 and $0 million of capital contributions and received distributions of $2.2 and $0 million.
Note 8. Property and Equipment
Property and equipment consist of the following:
|
| As of |
|
| As of |
| ||||||||||
|
| September 30, |
|
| December 31, |
|
| As of March 31, |
|
| As of December 31, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2024 |
|
| 2023 |
| ||||
Computers and purchased software |
| $ | 345 |
| $ | 281 |
|
| $ | 1,611 |
|
| $ | 1,528 |
| |
Furniture and fixtures |
| 461 |
| 449 |
|
|
| 1,671 |
|
|
| 1,666 |
| |||
Leasehold improvements |
| 595 |
| 595 |
|
|
| 3,058 |
|
|
| 2,894 |
| |||
Other |
|
| 3 |
|
| 0 |
| |||||||||
|
| $ | 1,404 |
| $ | 1,325 |
|
|
| 6,340 |
|
|
| 6,088 |
| |
Less: accumulated depreciation |
|
| (404 | ) |
|
| (201 | ) |
|
| (2,975 | ) |
|
| (2,763 | ) |
Total property and equipment, net |
| $ | 1,000 |
| $ | 1,124 |
|
| $ | 3,365 |
|
| $ | 3,325 |
|
Note 9. Goodwill and Intangibles
Changes in goodwill for the ninethree months ended September 30, 2021 isMarch 31, 2024 are as follows:
Balance at December 31, 2020 |
| $ | 369,982 |
|
Purchase price adjustment |
|
| (188 | ) |
Increase from acquisitions |
|
| 47,607 |
|
Balance at September 30, 2021 |
| $ | 417,401 |
|
Balance at December 31, 2023 |
| $ | 506,038 |
|
Increase from acquisitions |
|
| - |
|
Balance at March 31, 2024 |
| $ | 506,038 |
|
Intangibles consists of the following:
|
| As of September 30, 2021 |
|
| As of March 31, 2024 |
| ||||||||||||||||||
|
| Gross Carrying |
| Accumulated |
| Net Carrying |
|
| Gross Carrying |
|
| Accumulated |
|
| Net Carrying |
| ||||||||
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Trade names |
| $ | 17,350 |
|
| $ | — |
|
| $ | 17,350 |
|
| $ | 17,375 |
|
| $ | — |
|
| $ | 17,375 |
|
Technology |
|
| 30 |
|
|
| — |
|
|
| 30 |
|
|
| 30 |
|
|
| — |
|
|
| 30 |
|
Total indefinite-lived intangible assets |
|
| 17,380 |
|
|
| — |
|
|
| 17,380 |
|
|
| 17,405 |
|
|
| — |
|
|
| 17,405 |
|
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Trade names |
|
| 21,500 |
|
|
| (1,392 | ) |
|
| 20,108 |
|
|
| 28,240 |
|
|
| (6,422 | ) |
|
| 21,818 |
|
Management and advisory contracts |
| 150,646 |
|
|
| (53,866 | ) |
|
| 96,780 |
|
|
| 194,666 |
|
|
| (117,528 | ) |
|
| 77,138 |
| |
Technology |
|
| 8,160 |
|
|
| (6,122 | ) |
|
| 2,038 |
|
|
| 2,380 |
|
|
| (1,983 | ) |
|
| 397 |
|
Total finite-lived intangible assets |
|
| 180,306 |
|
|
| (61,380 | ) |
|
| 118,926 |
|
|
| 225,286 |
|
|
| (125,933 | ) |
|
| 99,353 |
|
Total intangible assets |
| $ | 197,686 |
|
| $ | (61,380 | ) |
| $ | 136,306 |
|
| $ | 242,691 |
|
| $ | (125,933 | ) |
| $ | 116,758 |
|
22
|
| As of December 31, 2023 |
| |||||||||
|
| Gross Carrying |
|
| Accumulated |
|
| Net Carrying |
| |||
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
| |||
Trade names |
| $ | 17,375 |
|
| $ | — |
|
| $ | 17,375 |
|
Technology |
|
| 30 |
|
|
| — |
|
|
| 30 |
|
Total indefinite-lived intangible assets |
|
| 17,405 |
|
|
| — |
|
|
| 17,405 |
|
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
| |||
Trade names |
|
| 28,240 |
|
|
| (5,789 | ) |
|
| 22,451 |
|
Management and advisory contracts |
|
| 194,666 |
|
|
| (111,873 | ) |
|
| 82,793 |
|
Technology |
|
| 2,380 |
|
|
| (1,834 | ) |
|
| 546 |
|
Total finite-lived intangible assets |
|
| 225,286 |
|
|
| (119,496 | ) |
|
| 105,790 |
|
Total intangible assets |
| $ | 242,691 |
|
| $ | (119,496 | ) |
| $ | 123,195 |
|
18
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
|
| As of December 31, 2020 |
| |||||||||
|
| Gross Carrying |
|
| Accumulated |
|
| Net Carrying |
| |||
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
| |||
Trade names |
| $ | 17,350 |
|
| $ | — |
|
| $ | 17,350 |
|
Total indefinite-lived intangible assets |
|
| 17,350 |
|
|
| — |
|
|
| 17,350 |
|
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
| |||
Trade names |
|
| 17,360 |
|
|
| (368 | ) |
|
| 16,992 |
|
Management and advisory contracts |
|
| 139,796 |
|
|
| (33,967 | ) |
|
| 105,829 |
|
Technology |
|
| 8,160 |
|
|
| (4,593 | ) |
|
| 3,567 |
|
Total finite-lived intangible assets |
|
| 165,316 |
|
|
| (38,928 | ) |
|
| 126,388 |
|
Total intangible assets |
| $ | 182,666 |
|
| $ | (38,928 | ) |
| $ | 143,738 |
|
Management and advisory contracts and finite lived trade names are amortized over 7 - 16 years and are being amortized in line with pattern in which the economic benefits arise.that are expected to occur. Technology is amortized on a straight-line basis over 4 years. The amortization expense for each of the next five years and thereafter are as follows:
Remainder of 2021 |
| $ | 7,980 |
| ||||
2022 |
| 24,545 |
| |||||
2023 |
| 21,098 |
| |||||
2024 |
| 17,532 |
|
| $ | 19,175 |
| |
2025 |
| 13,749 |
|
|
| 21,269 |
| |
2026 |
|
| 16,640 |
| ||||
2027 |
|
| 13,307 |
| ||||
2028 |
|
| 9,986 |
| ||||
Thereafter |
|
| 34,022 |
|
|
| 18,976 |
|
|
|
|
| |||||
Total amortization |
| $ | 118,926 |
|
| $ | 99,353 |
|
DuringNote 10. Fair Value Measurements
The Company measures certain liabilities at fair value on a recurring basis which are discussed below. The credit facility's estimated fair value was $314.0 million and $289.8 million as of March 31, 2024 and December 31, 2023, respectively using Level 2 inputs.
Earnouts associated with the nineacquisitions of Bonaccord and Hark
Included in total consideration of the acquisition of Bonaccord is an earnout payment not to exceed $20 million. The amount ultimately owed to the sellers is based on achieving specific fundraising targets and any amounts paid to the sellers will be paid by October 2027, at which point the earnout expires. Payments are made after each close. As of March 31, 2024, $13.4 million has been paid in total contingent consideration associated with the earnout, of which $0.2 million was paid in the three months ended September 30, 2021, we identified adjustments relatedMarch 31, 2024. Total remeasurement expense recognized for the three months ended March 31, 2024 and March 31, 2023 was $0 and $0.3 million, respectively. This is included in contingent consideration expense on the Consolidated Statements of Operations. The Company's contingent consideration is considered to be a Level 3 fair value measurement as the significant inputs are unobservable and require significant judgment or estimation. The remainder of the earnout is highly probable to be achieved given the fundraising amount to date and projected fundraising should satisfy the targets. As of March 31, 2024, the estimated fair value of the remaining contingent consideration totaled $6.5 million. Following March 31, 2024, through the date these financial statements were issued, the Company has paid $1.0 million towards the remaining contingent consideration.
Included in the total consideration of the acquisition of Hark is an earnout not to exceed $5.4 million. Total remeasurement expense recognized for the three months ended March 31, 2024 and March 31, 2023 totaled $0 and $0.1 million, respectively. This is included in contingent consideration expense on the Consolidated Statements of Operations. The entirety of the Hark contingent consideration of $5.4 million was paid during the year ended December 31, 2023.
The following tables provide details regarding the classification of these liabilities within the fair value hierarchy as of the dates presented:
| As of March 31, 2024 |
| |||||||||||||
| Level I |
|
| Level II |
|
| Level III |
|
| Total |
| ||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
| ||||
Contingent consideration obligation | $ | - |
|
| $ | - |
|
| $ | 6,509 |
|
| $ | 6,509 |
|
Total liabilities | $ | - |
|
| $ | - |
|
| $ | 6,509 |
|
| $ | 6,509 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
| As of December 31, 2023 |
| |||||||||||||
| Level I |
|
| Level II |
|
| Level III |
|
| Total |
| ||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
| ||||
Contingent consideration obligation | $ | - |
|
| $ | - |
|
| $ | 6,693 |
|
| $ | 6,693 |
|
Total liabilities | $ | - |
|
| $ | - |
|
| $ | 6,693 |
|
| $ | 6,693 |
|
19
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
For the liabilities presented in the tables above, there were no changes in fair value hierarchy levels during the three months ended March 31, 2024 and December 31, 2023.
The changes in the fair value of Level III financial instruments are set forth below:
Contingent Consideration Liability |
|
|
|
| For the Three Months Ended March 31, |
| |||||
|
|
|
|
| 2024 |
|
| 2023 |
| ||
Balance, beginning of year: |
|
|
|
| $ | 6,693 |
|
| $ | 17,337 |
|
Change in fair value |
|
|
|
|
| 30 |
|
|
| 390 |
|
Settlements |
|
|
|
|
| (214 | ) |
|
| (688 | ) |
Balance, end of period: |
|
|
|
| $ | 6,509 |
|
| $ | 17,039 |
|
The fair value of the contingent consideration liability represents the fair value of future payments upon satisfaction of performance targets. The assumptions used in the analysis are inherently subjective; therefore, the ultimate amount of the contingent consideration liability primarily relate to the timingexpected future payments of amortization of certain finite lived intangible assets.obligations with a discount rate applied. The table above has been adjusted to reflect those timing differences. There was no impact to the Consolidated Statement of Operations norcontingent consideration liability is included in contingent consideration on the Consolidated Balance Sheets asSheets. Changes in the adjustments related to amounts scheduled to be expensed subsequent to December 31, 2020. We do not believe the impactfair value of the adjustments is material to our consolidated financial statements for any previously issued financial statements taken as a whole, and any impact to our expected net income for future periods has been adjusted forliability are included in contingent consideration expense on the table above.Consolidated Statements of Operations.
Note 10.11. Debt Obligations
Debt obligations consists of the following:
|
| As of |
|
| As of |
| ||
|
| September 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Gross revolving credit facility state tax credits |
| $ | 0 |
|
| $ | 1,533 |
|
Debt issuance costs |
|
| (12 | ) |
|
| (25 | ) |
Revolving credit facility state tax credits, net |
| $ | (12 | ) |
| $ | 1,508 |
|
Gross notes payable to sellers |
| $ | 41,064 |
|
| $ | 41,064 |
|
Less debt discount |
|
| (8,548 | ) |
|
| (9,205 | ) |
Notes payable to sellers, net |
| $ | 32,516 |
|
| $ | 31,859 |
|
Gross credit and guaranty facility |
| $ | 286,847 |
|
| $ | 261,683 |
|
Debt issuance costs |
|
| (3,834 | ) |
|
| (4,995 | ) |
Credit and guaranty facility, net |
| $ | 283,013 |
|
| $ | 256,688 |
|
Total debt obligations |
| $ | 315,517 |
|
| $ | 290,055 |
|
|
| As of |
|
| As of |
| ||
|
| March 31, |
|
| December 31, |
| ||
|
| 2024 |
|
| 2023 |
| ||
|
|
|
|
|
|
| ||
Revolver facility |
| $ | 117,200 |
|
| $ | 90,700 |
|
Debt issuance costs |
|
| (1,615 | ) |
|
| (1,848 | ) |
Revolver facility, net |
| $ | 115,585 |
|
| $ | 88,852 |
|
|
|
|
|
|
|
| ||
Term Loan |
| $ | 199,219 |
|
| $ | 201,875 |
|
Debt issuance costs |
|
| (768 | ) |
|
| (883 | ) |
Term loan, net |
| $ | 198,451 |
|
| $ | 200,992 |
|
Total debt obligations, net |
| $ | 314,036 |
|
| $ | 289,844 |
|
Revolving Credit Facility State Tax Credits20
23
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
Enhanced State Tax Credit Fund III, LLC, a subsidiaryThe principal balance consists of ECG, has a $the following tranches:10 million revolving credit facility with a regional financial institution restricted solely for the purchase of allocable state tax credits from various state tax credit incentive programs. The facility bears interest at 0.25% above the Prime Rate and matures on June 15, 2022. As of September 30, 2021 and December 31, 2020, the credit facility had an outstanding balance of $0 and $1.5 million, respectively, and is reported net of unamortized debt issuance costs on our Consolidated Balance Sheets. As of September 30, 2021 and December 31, 2020, the Company’s investment in allocable state tax credits was $0 and $1.5 million.
Notes Payable to Sellers
|
|
| ||||||||||||
|
| March 31, 2024 | ||||||||||||
|
| Principal Amount |
|
| Base Rate |
|
| SOFR Rate |
|
| Rate Expiration Date | |||
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Term Loan |
| $ | 117,188 |
|
|
| 2.10 | % |
|
| 5.18 | % |
| 6/28/2024 |
Term Loan |
|
| 82,031 |
|
|
| 2.10 | % |
|
| 5.45 | % |
| 4/18/2024 |
|
|
|
|
|
|
|
|
|
|
|
| |||
Revolver Facility |
|
| 16,500 |
|
|
| 2.10 | % |
|
| 5.34 | % |
| 5/29/2024 |
Revolver Facility |
|
| 9,500 |
|
|
| 2.10 | % |
|
| 5.32 | % |
| 4/29/2024 |
Revolver Facility |
|
| 14,000 |
|
|
| 2.10 | % |
|
| 5.31 | % |
| 6/27/2024 |
Revolver Facility |
|
| 12,000 |
|
|
| 2.10 | % |
|
| 5.33 | % |
| 6/14/2024 |
Revolver Facility |
|
| 2,000 |
|
|
| 2.10 | % |
|
| 5.33 | % |
| 4/8/2024 |
Revolver Facility |
|
| 3,500 |
|
|
| 2.10 | % |
|
| 5.32 | % |
| 4/30/2024 |
Revolver Facility |
|
| 5,500 |
|
|
| 2.10 | % |
|
| 5.34 | % |
| 5/28/2024 |
Revolver Facility |
|
| 12,100 |
|
|
| 2.10 | % |
|
| 5.32 | % |
| 4/8/2024 |
Revolver Facility |
|
| 4,600 |
|
|
| 2.10 | % |
|
| 5.32 | % |
| 6/11/2024 |
Revolver Facility |
|
| 2,000 |
|
|
| 2.10 | % |
|
| 5.32 | % |
| 5/23/2024 |
Revolver Facility |
|
| 7,500 |
|
|
| 2.10 | % |
|
| 5.33 | % |
| 4/15/2024 |
Revolver Facility |
|
| 10,500 |
|
|
| 2.10 | % |
|
| 5.34 | % |
| 6/3/2024 |
Revolver Facility |
|
| 17,500 |
|
|
| 2.10 | % |
|
| 5.33 | % |
| 4/22/2024 |
Total |
| $ | 316,419 |
|
|
|
|
|
|
|
|
|
Revolving Credit Facility and Term Loan
On October 5, 2017,December 22, 2021, the Company issued Secured Promissory Notes Payable (“2017 Seller Notes”) in the amount of $81.3 million to the owners of RCP 2 in connection with the acquisition of that entity. The 2017 Seller Notes mature on January 15, 2025. The 2017 Seller Notes are non-interest bearing and will be paid using cash generated from the business operations and borrowings under the Credit and Guaranty Facility (“Facility”) described below. The 2017 Seller Notes were recorded at their discounted fair value in the amount of $78.7 million. Non-cash interest expense was recorded on a periodic basis increasing the 2017 Seller Notes to their gross value. As of September 30, 2021 and December 31, 2020, the gross value of the 2017 Seller Notes was $6.4 million.
On January 3, 2018, the Company issued Secured Promissory Notes Payable (“2018 Seller Notes”) in the amount of $22.1 million to the owners of RCP 3 in connection with the acquisition of that entity. The 2018 Seller Notes mature on January 15, 2025. The 2018 Seller Notes are non-interest bearing and will be paid using cash generated from the business operations and borrowings under the Facility described below. The 2018 Seller Notes were recorded at their discounted fair value in the amount of $21.2 million. Noncash interest expense was recorded on a periodic basis increasing the 2018 Seller Notes to their gross value. As of September 30, 2021 and December 31, 2020, the gross value of the 2018 Seller Notes was $3.0 million.
On January 3, 2018, the Company issued tax amortization benefits in the amount of $48.4 million (“TAB Payments”) to the owners of RCP 3 in connection with the acquisition of that entity. The TAB Payments are non-interest bearing and will be paid in equal annual installments beginning April 15, 2023. The TAB Payments mature on April 15, 2037. The TAB Payments were recorded at their discounted fair value in the amount of $28.9 million. Non-cash interest expense is recorded on a periodic basis increasing the TAB Payments to their gross value. On April 1, 2020, the holders of the TAB Payments contributed $16.8 million of their TAB Payments to P10 Intermediate in exchange for receiving 3.3 million shares of Series C preferred stock. The discounted fair value of the TAB Payments received was $10.0 million on the date of the Five Points acquisition, April 1, 2020. See Note 16 for additional information. As of September 30, 2021 and December 31, 2020, the gross value of the 2018 TAB Payments was $31.7 million.
During the nine and three months ended September 30, 2021, we recorded $0.7 and $0.3 million and for the nine and three months ended September 30, 2020, we recorded $0.8 million and $0.2 million in interest expense related to the TAB Payments, respectively.
The 2017 Seller Notes, the 2018 Seller Notes and the TAB Payments are collectively referred to as “Notes payable to sellers” on our Consolidated Financial Statements.
Credit and Guaranty Facility
The Company’s subsidiary, Holdco, entered into the Facilitya new credit agreement (the "Credit Agreement") with HPSJPMorgan, in its capacity as administrative agent and collateral agent, on October 7, 2017.and Texas Capital Bank, as joint lead arrangers and joint bookrunners, and the other loan parties party thereto. The Facility initially provided forCredit Agreement consists of two facilities. The first is a revolving credit facility with an available balance of $130.0125 million senior secured credit facility in order(the "Revolver Facility"). The second is a term loan for $125 million (the "Term Loan"). In addition to refinance the existing debt obligations of RCP AdvisorsTerm Loan and provide forRevolver Facility, the financing to repay the Seller Notes due resulting from the acquisition of RCP Advisors. The Facility provided forCredit Agreement also includes a $125 million five-year term, subject to certain EBITDA levels and conditions, and aaccordion feature. In October 2022, the accordion feature was exercised with the acquisition of WTI at which point it was split into $587.5 million one-year lineworth of credit. The line of credit was repaidterm loan and subsequently expired during 2018. Holdco was permitted to draw up to $12537.5 million in aggregateof revolver.
Both facilities are "Term SOFR Loans" meaning loans bearing interest based upon the "Adjusted Term SOFR Rate". The Adjusted Term SOFR Rate is the Secured Overnight Financing Rate ("SOFR") at the date of election, plus 2.10%. The Company can elect one or three months for the Revolver Facility and three or six months for the Term Loan. Principal for the Term Loan is contractually repaid at a rate of 1.25% on the term loan in tranches throughquarterly effective March 31, 2023. The Revolving Credit Facility has no contractual principal repayments until maturity, which is July 31, 2019December 22, 2025. for both facilities. Certain P10 subsidiaries are encumbered by this debt agreement.
On October 2, 2020The Credit Agreement contains affirmative and December 14, 2020,negative covenants typical of such financing transactions, and specific financial covenants which require P10 to maintain a minimum leverage ratio. As of March 31, 2024, P10 was in connectioncompliance with the acquisitions of TrueBridge and Enhanced, the term loanits financial covenants required under the Facility was amended adding an additionalfacility. For the three months ended March 31, 2024 and March 31, 2023, $91.45.4 million and $68.04.8 million to the Facility,of interest expense was incurred, respectively.
2421
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
On September 30, 2021, in connection with the acquisition of Bonaccord, the term loan under the Facility was amended adding an additional $35.0 million to the Facility.
Interest is calculated upon each tranche at LIBOR for either one, two, three, or six months, as selected by Holdco, plus an applicable margin of 6.00% per annum. To date, Holdco has chosen three-month and six-month LIBOR at the time of each draw and each subsequent repricing at the end of the chosen LIBOR period. Principal is contractually repaid at a rate of 0.75% of the original tranche draw per calendar quarter. The maturity date of the Facility is October 7, 2022.
Due to the maturity of the Facility being within one year of issuance, the Company assessed its ability to pay its obligations. The Company believes it will be able to fulfill its obligations using cash on hand, cash from continuing operations, and a debt refinancing that the Company is currently negotiating.
The Facility contains affirmative and negative covenants typical of such financing transactions, and specific financial covenants which require Holdco to maintain a minimum leverage ratio, asset coverage ratio and a fixed charge ratio. The Facility also contains restrictions regarding the creation of indebtedness, the occurrence of mergers or consolidations, the payment of dividends and other restrictions. As of September 30, 2021, Holdco was in compliance with all the financial covenants required under the Facility. The outstanding balance of the Facility was $286.8 million and $261.7 million as of September 30, 2021 and December 31, 2020, respectively, and is reported net of unamortized debt issuance costs on our Consolidated Balance Sheets.
Phase-Out of LIBOR
In July 2017, the UK's Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR as a benchmark by the end of 2021. At the present time, our Facility has a term that extends beyond 2021. The Facility provides for a mechanism to amend the underlying agreements to reflect the establishment of an alternate rate of interest. However, we have not yet pursued any amendment or other contractual alternative to our Facility to address this matter. We are currently evaluating the potential impact of the eventual replacement of the LIBOR interest rate.
Debt Payable
Future principal maturities of debt as of September 30, 2021March 31, 2024 are as follows:
Remainder of 2021 |
| $ | 2,318 |
| ||||
2022 |
| 284,529 |
| |||||
2023 |
| 0 |
| |||||
2024 |
| 2,111 |
|
| $ | 7,969 |
| |
2025 |
| 2,111 |
|
|
| 308,450 |
| |
2026 |
|
| - |
| ||||
Thereafter |
|
| 36,842 |
|
|
| - |
|
|
| $ | 327,911 |
|
| $ | 316,419 |
|
Debt Issuance Costs
Debt issuance costs are offset against the Revolving Credit Facility State Tax Credits and the Credit and Guaranty Facility. Unamortized debt issuance costs for the Credit and Guaranty Facility as of September 30, 2021 and December 31, 2020 were $3.8 million and $5.0 million, respectively. Unamortized debt issuance costs for the Revolving Credit Facility State Tax Credits as of September 30, 2021 and December 31, 2020 were $12 thousand and $25 thousand, respectively.
Amortization expense related to debt issuance costs totaled $2.1 and $0.7 million for the nine and three months ended September 30, 2021 and $0.5 and $0.1 million for the nine and three months ended September 30, 2020, respectively, and are included within interest expense, net on the accompanying Consolidated Statements of Operations. During the nine months ended September 30, 2021 and September 30, 2020, we recorded $0.9 million and $0.5 in debt issuance costs, respectively, which is included in debt obligations on the consolidated balance sheets.
25
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
Note 11.12. Related Party Transactions
Effective May 1, 2018, P10 started paying a monthly services fee of $31.7 thousand for administration and consulting services along with a monthly fee of $18.8 thousand for certain reimbursable expenses to 210/P10 Acquisition Partners, LLC, which owns approximately 24.9% of P10. These services were terminated effective December 31, 2020. P10 paid $0 and $0.5 million for administrative and consulting services and reimbursable expenses respectively for the nine months ended September 30, 2021 and September 30, 2020.
Effective January 1, 2021, the Company entered into a sublease with 210 Capital, LLC, a related party, for office space serving as our corporate headquarters. The monthly rent expense is $20.3 thousand, and the lease expires December 31, 2029. In the fourth quarter of 2022, the Company sublet an additional amount of office space in the corporate headquarters. This contributed an additional $3.4 thousand monthly. P10 has paid $0.20.1 million and $00.1 million in rent to 210 Capital, LLC for the ninethree months ended September 30, 2021March 31, 2024 and September 30, 2020,March 31, 2023, respectively.
On June 30, 2020, RCP 2 entered into an intercompany services agreement with Five Points whereby RCP 2 will provide certain accounting, human resources, back office, administrative functions and such other services to Five Points as mutually agreed upon from time to time. In consideration for the services provided, Five Points shall pay RCP 2 a quarterly fee in the amount of $850 thousand. As a result of the agreement, Five Points paid RCP 2 $2.6 million and $1.7 million for the nine months ended September 30, 2021 and September 30, 2020, respectively. These amounts were eliminated in consolidation.
Effective April 1, 2020, P10 Intermediate pays a quarterly management fee of $250 thousand to Keystone Capital XXX, LLC, which is the holder of the Series B preferred shares issued by P10 Intermediate in connection with the acquisition of Five Points. As a result of that agreement, P10 Intermediate paid $0.8 million and $0.5 million for the nine months ended September 30, 2021 and September 30, 2020, respectively. See Note 16 below for additional information.
As described in Note 1, through its subsidiaries, the Company serves as the investment manager to the Funds. Certain expenses incurred by the Funds are paid upfront and are reimbursed from the Funds as permissible per fund agreements. As of September 30, 2021,March 31, 2024, the total accounts receivable from the Funds totaled $1.723.8 million, of which $0.76.9 million related to reimbursable expenses and $1.016.9 million related to fees earned but not yet received. As of December 31, 2020,2023, the total accounts receivable from the Funds totaled $2.618.9 million, of which $0.65.5 million related to reimbursable expenses and $2.013.4 million related to fees earned but not yet received. Reimbursable expenses and fees earned but not yet received are included in due from related parties and accounts receivable on the Consolidated Balance Sheets, respectively. In certain instances, the Company may incur expenses related to specific products that never materialize.
Upon the closing of the Company’s acquisition of ECG and ECP, the Advisory Agreement between ECG and Enhanced PC immediately became effective. Under this agreement, ECG will provideprovides advisory services to Enhanced PC related to the assets and operations of the permanent capital subsidiaries owned by Enhanced PC, as contributed by both ECG and ECP.ECP, and new projects undertaken by Enhanced PC. In exchange for those services, which commenced on January 1, 2021, ECG will receivereceives advisory fees from Enhanced PC based on a declining fixed fee schedule, totalingthat is commensurate with the level of services being performed as the projects expire. The Company did not adjust the promised amount of consideration for the effects of a significant financing component at each contract inception as the Company expected that the period between services being provided and cash collection would be less than one year. The total advisory fees are $76.0110.1 million over 7ten years. inclusive of new projects added since inception. This agreement is subject to customary termination provisions. Since inception, $66.2 million of the total $110.1 million advisory fees have been recognized as revenue. There was $43.9 million in remaining performance obligations related to this agreement, which will be recognized between April 1, 2024 and December 31, 2031. For the nine and three months ended September 30, 2021,March 31, 2024 and March 31, 2023, advisory fees earned or recognized under this agreement were $14.3 and $4.84.2 million and were $0 and $04.9 million, for the nine and three months ended September 30, 2020, respectively, and is reported in management and advisory fees on the Consolidated StatementStatements of Operations. The Company also earns interest income on the balance outstanding. Revenues from interest were $0.2 million and $0.1 million for the three months ended March 31, 2024 and March 31, 2023, respectively, which is included in management and advisory fees on the Consolidated Statements of Operations. As of March 31, 2024 and December 31, 2023, the associated receivable was $52.7 million and $48.5 million and is included in due from related parties on the Consolidated Balance Sheets. Payment is expected to be collected as the permanent capital subsidiaries complete and liquidate multi-year projects covered under this agreement.
Upon the closing of the Company’s acquisition of ECG and ECP, the Administrative Services Agreement between ECG and Enhanced Capital Holdings, Inc. (“ECH”), the entity which holds a controlling equity interest in ECP, immediately became effective. Under this agreement, ECG will paypays ECH for the use of their employees to provide services to Enhanced PC at the direction of ECG. The invoice associated with this agreement is paid quarterly in arrears and subject to 5% of interest per annum. The Company recognized $6.13.2 million and $0.93.2 million for the nine and three months ended September 30, 2021March 31, 2024 and $0 and $0 for the nine and three months ended September 30, 2020,March 31, 2023, respectively, related to this agreement within compensation and benefits in our Consolidated Statements of Operations. As of March 31, 2024 and December 31, 2023, the associated accrual was $0.4 million and $2.1 million, respectively, and is included in due to related parties on ourthe Consolidated Balance Sheets.
22
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
On September 10, 2021, Enhanced entered into a strategic partnership with Crossroads Impact Corp ("Crossroads"), the parent company of Capital Plus Financial ("CPF"), a leading certified development financial institution. Under the terms of the agreement, Enhanced will originate and manage loans across its diverse lines of business including small business loans to women and minority owned businesses, and loans to renewable energy and community development projects. The loans will be held by CPF and CPF will pay an advisory fee to Enhanced.
On July 6, 2022, Crossroads entered into the Advisory Agreement (the "Crossroads Advisory Agreement") with ECG. The Crossroads Advisory Agreement provides for ECG to receive a services fee of approximately 1.5% per year of the capital deployed by Crossroads under the Crossroads Advisory Agreement (0.375% quarterly) and an incentive fee of 15% over a 7% hurdle rate. In relation to the strategic partnership with Crossroads effective September 10, 2021 and the Crossroads Advisory Agreement, the Company recognized $2.2 million and $2.3 million for the three months ended March 31, 2024 and March 31, 2023, respectively, which is included in management and advisory fees on the Consolidated Statements of Operations.
On July 6, 2022, certain funds managed by the Company purchased 4,646,840 shares of Crossroads common stock at $10.76 per shares, for an aggregate amount of approximately $50 million. On August 1, 2022, an additional purchase of 1,394,052 shares of Crossroads common stock at $10.76 per share occurred. The funds managed by the Company do not have the ability to change the investment strategy of Crossroads. Two members of the Board of Directors of the Company, including the Executive Chairman, are directors of Crossroads and have recused themselves from any decisions related to Crossroads or CPF. The Company recognizes an annual fee from the funds of $20 thousand of which $5 thousand and $5 thousand have been recognized for the three months ended March 31, 2024 and March 31, 2023, which is included in management and advisory fees on the Consolidated Statements of Operations.
Upon the closing of the Bonaccord acquisition on September 30, 2021, an Advance Agreement and Secured Promissory Note was signed with BCP, an entity that was formed by employees of the Company. Additional Secured Promissory Notes were signed with certain Bonaccord employees on October 13, 2023. For details, see Note 5.
Note 12.13. Commitments and Contingencies
Operating Leases
26
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
The Company leases office space and various equipment under non-cancelable operating leases, with the longest lease expiring in 2027.2032. These lease agreements provide for various renewal options. Rent expense for the various leased office space and equipment was approximately $1.6 and $0.51.0 million for the nine and three months ended September 30, 2021March 31, 2024 and $0.9 and $0.30.8 million for the nine and three months ended September 30, 2020, respectively.March 31, 2023.
The Company leases an insignificant amount of office equipment under non-cancelable financing leases, with the longest lease expiring in 2028. The finance lease right-of-use asset is included in right-of-use assets and the finance lease liability is included in lease liabilities in the Consolidated Balance Sheets. Amortization and interest expense for the finance leased equipment is included in general, administrative, and other in the Consolidated Statements of Operations.
The following table presents information regarding the Company’s operating leases as of September 30, 2021:March 31, 2024:
Operating lease right-of-use assets |
| $ | 7,095 |
|
Operating lease liabilities |
| $ | 8,126 |
|
Cash paid for lease liabilities |
| $ | 1,719 |
|
Weighted-average remaining lease term (in years) |
|
| 4.56 |
|
Weighted-average discount rate |
|
| 5.13 | % |
Operating lease right-of-use assets |
| $ | 19,551 |
|
Operating lease liabilities |
| $ | 22,498 |
|
Cash paid during three months ended March 31, 2024 for operating lease liabilities |
| $ | 1,038 |
|
Weighted-average remaining lease term (in years) |
|
| 6.92 |
|
Weighted-average discount rate |
|
| 4.95 | % |
23
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
The future contractual lease payments as of September 30, 2021March 31, 2024 are as follows:
Remainder of 2021 |
| $ | 576 |
|
2022 |
|
| 2,184 |
|
2023 |
|
| 2,180 |
|
2024 |
|
| 2,011 |
|
2025 |
|
| 854 |
|
Thereafter |
|
| 1,260 |
|
Total undiscounted lease payments |
|
| 9,065 |
|
Less discount |
|
| (939 | ) |
Total lease liabilities |
| $ | 8,126 |
|
2024 |
| $ | 2,123 |
|
2025 |
|
| 3,175 |
|
2026 |
|
| 3,909 |
|
2027 |
|
| 3,829 |
|
2028 |
|
| 3,549 |
|
Thereafter |
|
| 10,745 |
|
Total undiscounted lease payments |
|
| 27,330 |
|
Less imputed interest |
|
| (4,832 | ) |
Total operating lease liabilities |
| $ | 22,498 |
|
Earnout Payment
With the acquisition of WTI, an earnout payment of up to $70.0 million of cash and common stock may be earned upon meeting certain performance metrics. Upon the achievement of $20.0 million, $22.5 million, and $25.0 million of EBTIDA, $35.0 million, $17.5 million, and $17.5 million are earned, respectively. Of the total amount, $50.0 million can be earned by the sellers and the remaining $20.0 million would be allocated to employees of the Company at the time the earnout is earned. Payment to both sellers and employees is contingent on continued employment and, therefore, these earnout payments are recorded as compensation and benefits expense on the Consolidated Statements of Operations. Payments will be made in cash, with the option to pay up to 50.0% in units of P10 Intermediate, no later than 90 days following the last day of the calendar quarter in which a milestone payment is achieved. Total payments will not exceed $70.0 million and any amounts paid will be paid by October 2027, at which point the earnout expires. The Company will evaluate whether each earn-out hurdle is probable of occurring and recognize an expense over the period the hurdle is expected to be achieved. As of March 31, 2024, the Company has determined that only the first two EBITDA hurdles are probable of being achieved. For the three months ended March 31, 2024 and March 31, 2023, $3.0 million and $5.9 million of expense was recognized, respectively, which is included in compensation and benefits in the Consolidated Statements of Operations. As of March 31, 2024 and December 31, 2023, the balance was $29.2 million and $26.2 million, respectively, which is included in accrued compensation and benefits in the Consolidated Balance Sheets. No payments have been made on the earnout.
Bonus Payment
In connection with the acquisition of WTI, certain employees entered into employment agreements. As part of these employment agreements, certain employees may receive a one-time bonus payment if the employee is employed by the Company as of the fifth anniversary of the effective date and the trailing-twelve month EBITDA of WTI at that time is equal to or greater than $20.0 million. Payment can be made in cash or stock of P10, provided that no more than $5.0 million will be payable in cash. Total payment will not exceed $10.0 million and any amounts will be paid in October 2027, the fifth anniversary of the effective date. For the three months ended March 31, 2024 and March 31, 2023, the Company recognized $0.5 million and $0.5 million of expense, respectively, which is included in compensation and benefits in the Consolidated Statements of Operations. As of March 31, 2024 and December 31, 2023, the balance was $2.9 million and $2.4 million, respectively, and is included in accrued compensation and benefits in the Consolidated Balance Sheets.
Revenue Share Arrangement
The Company recognizes accrued contingent liabilities and contingent payments to customers assets in our Consolidated Balance Sheets for agreements that exist between ECG and third party customers. The agreements require ECG to share in certain revenues earned with the third parties and also include an option for the third parties to sell back the revenue share to ECG at a set multiple. The Company’s contingent liabilities and corresponding contingent payments to customers are recognized once determined to be probable and estimable. The contingent payments to customers are amortized and recorded within management and advisory fees on the Consolidated Statements of Operations over the revenue share agreements. As of March 31, 2024, the Company has determined that the put options are probable of being exercised and have accrued estimated contingent liabilities and contingent payments to customers. As of March 31, 2024 and December 31, 2023, the associated liabilities were $16.2 million and $16.2 million, respectively, and are included in accrued contingent liabilities on the Consolidated Balance Sheets. The associated contingent payments to customers assets were $13.6 million and $14.0 million as of March 31, 2024 and December 31, 2023, respectively. The Company recognized $0.4 million
24
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
Contingenciesand $0.4 million of amortization of contingent payments to customers for the three months ended March 31, 2024 and March 31, 2023, respectively, which is included in management and advisory fees on the Consolidated Statements of Operations. The Company will reassess each period and recognize all changes as if they occurred at inception.
Departure of Chief Operating Officer
The Company announced that William "Fritz" Souder, the Company's Chief Operating Officer ("COO"), will be retiring from P10 in May of 2024. Associated with his termination, the COO will receive $1.2 million of severance payments. As of March 31, 2024 and December 31, 2023, the Company has $1.2 million of severance payable related to the retirement, which is included in accrued compensation and benefits in the Consolidated Balance Sheets. The severance expense was accrued in the fourth quarter of 2023 and has no impact on the Consolidated Statements of Operations for the three months ended March 31, 2024 and March 31, 2023. In addition, the COO will be granted options to purchase 34,608 shares of common stock of the Company.
Contingencies
We may be involved, either as plaintiff or defendant, in a variety of ongoing claims, demands, suits, investigations, tax matters and proceedings that arise from time to time in the ordinary course of our business. We evaluated all potentially significant litigation, government investigations, claims or assessments in which we are involved and disclosed anything more likely than not to be recognized below, if any are applicable. We do not believe that any of these matters, individually or in the aggregate, will result in losses that are materially in excess of amounts already recognized, if any.
COVID-19
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) a global pandemic, which has resulted in significant disruption and uncertainty in the global economic markets. The extent of the operational and financial impact the COVID-19 pandemic may have on the Company has yet to be determined and is dependent on its duration and spread, any related operational restrictions and the overall economy. Currently, we have activated our Business Continuity Plan, which assures the ability for all aspects of our business to continue operating without interruption. COVID-19 has not negatively impacted our business in a material way and our business continuity plan is operating as planned with limited interruptions. We are closely monitoring developments related to COVID-19 and assessing any negative impacts to our business. It is possible that our future results may be adversely affected by slowdowns in fundraising activity and the pace of capital deployment, which could result in delayed or decreased management fees.
Note 13.14. Income Taxes
The Company calculates its tax provision using the estimated annual effective tax rate methodology. The tax expense or benefit caused by an unusual or infrequent item is recorded in the quarter in which it occurs. To the extent that information is not available for the Company to fully determine the full year estimated impact of an item of income or tax adjustment, the Company calculates the tax impact of such item discretely.
Based on these methodologies, the Company’s effective income tax rate was 25.11% for the ninethree months ended September 30, 2021March 31, 2024. The Company's effective income tax rate for the three months ended March 31, 2023 was not meaningful due to the impact of a discrete item recognized in the tax rate for the period that related to windfall tax benefits associated with employee stock options exercised during the period. Absent any discrete items for both years, the Company's effective tax rates would be 25.4129.44%. and 28.64% for the three months ended March 31, 2024 and March 31, 2023, respectively. The effective tax rate differs from the federal statutory rate of 21% primarily due to the releaseexecutive compensation subject to Section 162(m) limitation, state taxes, and a discrete period recognition of valuation allowance, expiration of NOL, a partnership non-controlling interest, nonconsolidated subsidiaries, and state taxes.
27
P10, Inc.
Noteswindfall tax adjustments related to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
options exercised year-to-date.
The Company records deferred tax assets and liabilities for the future tax benefit or expense that will result from differences between the carrying value of its assets for income tax purposes and for financial reporting purposes, as well as for operating loss and tax credit carryovers. A valuation allowance is recorded to bring the net deferred tax assets to a level that, in management's view, is more likely than not to be realized in the foreseeable future. This level will be estimated based on a number of factors, especially the amount of net deferred tax assets of the Company that are actually expected to be realized, for tax purposes, in the foreseeable future. As of September 30, 2021,March 31, 2024, the Company has recorded a $12.912.8 million valuation allowance against deferred tax assets, mostlyprimarily related to partnership outside basis differencea note impairment. There was no change to the valuation allowance during the period.
The Company monitors federal and note impairment.
state legislative activity and other developments that may impact our tax positions and their relation to the income tax provision. Any impacts will be recorded in the period in which the legislation is enacted or new regulations are issued. The Company is subject to examination by the United States Internal Revenue Service as well as state and local and tax authorities. The Company is not currently under audit.
25
P10, Inc.
In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740) - Disclosure Framework - Simplifying the Accounting for Income Taxes, which simplified the accounting for income taxes by removing certain exceptionsNotes to the general principles of Topic 740 and clarifying and amending existing guidance. We adopted this new standard as of September 30, 2021. The adoption of this standard did not have a material impact on our financial statements.Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
Note 14.15. Stockholders' Equity
Equity-Based Compensation
On July 20, 2021, the Board of Directors approved the P10 Holdings, Inc. 2021 Stock Incentive Plan (the "Plan"), which replaced the 2018 Incentive Plan ("2018 Plan"), our previously existing equity compensation plan. The Plan provides for the issuance of 1,000,000 shares available for grant, in addition to those approved in the 2018 Incentive Plan ("2018 Plan"), for a total of 10,000,000 shares. Per the Plan, the Compensation Committee of the Board of Directors may issue equity-based awards including stock options, stock appreciation rights, restricted stock units, and restricted stock awards. Options previouslyStarting with options granted in 2024 under the Plan, vesting occurs on a graded schedule with 25% vesting on each of the second, third, fourth, and fifth anniversary of the grant date, but only if the grantee is continuously employed by the Company or a subsidiary through each such date. Options granted prior to 2024 under both the Plan and the 2018 Incentive Plan cliff vest over a period of up to four years andor five yearsyear, respectively.s. The term of each option is no more than ten yearsyears from the date of grant. When the options are exercised, the Board of Directors has the option of issuing shares of common stock or paying a lump sum cash payment on the exercise date equal to the difference between the common stock’s fair market value on the exercise date and the option price. AllTerms of all future awards will be granted under the Plan, and 0no additional awards will be granted under the 2018 Plan. Awards granted under the 2018 Plan continue to follow the 2018 Plan.
The 2018 Plan provided for an initial 6,300,000 shares (adjusted for the reverse stock split). The Plan provided for the issuance of 3,000,000 shares available for grant, in addition to those approved in the 2018 Plan for a total of 9,300,000 shares.
On June 17, 2022, at the Annual Meeting of Stockholders, the shareholders authorized an increase of 5,000,000 shares that may be issued under the Plan. On December 9, 2022, a special meeting of stockholders was held to increase the number of shares issuable under the Plan by 4,000,000 shares, resulting in a total of 18,300,000 shares available for grant under the Plan and the 2018 Plan.
A summary of stock option activity for the ninethree months ended September 30, 2021March 31, 2024 is as follows:
|
|
|
|
|
| Weighted Average |
|
|
|
|
|
|
|
| Weighted Average |
|
|
| ||||||||||||||
|
|
|
|
|
| Contractual Life |
| Aggregate |
|
|
|
|
|
| Contractual Life |
| Aggregate |
| ||||||||||||||
|
| Number of |
| Weighted Average |
| Remaining |
| Intrinsic Value |
|
| Number of |
| Weighted Average |
| Remaining |
| Intrinsic Value |
| ||||||||||||||
|
| Shares |
| Exercise Price |
| (in years) |
| (whole dollars) |
|
| Shares |
|
| Exercise Price |
|
| (in years) |
|
| (whole dollars) |
| |||||||||||
Outstanding as of December 31, 2020 |
| 5,350,800 |
| $ | 1.69 |
|
|
| 7.75 |
| $ | 41,442,250 |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Outstanding as of December 31, 2023 |
|
| 12,715,381 |
|
| $ | 8.15 |
|
|
| 7.82 |
|
| $ | 30,872,113 |
| ||||||||||||||||
Granted |
| 2,101,750 |
| 8.11 |
|
|
|
|
|
|
|
|
| 2,470,917 |
|
|
| 7.99 |
|
|
|
|
|
|
| |||||||
Exercised |
| 0 |
| 0 |
|
|
|
|
|
|
|
|
| (288,575 | ) |
|
| 1.17 |
|
|
|
|
|
|
| |||||||
Expired/Forfeited |
|
| (320,600 | ) |
|
| 3.27 |
|
|
|
|
|
|
|
|
| (38,584 | ) |
|
| 9.49 |
|
|
|
|
|
|
| ||||
Outstanding as of September 30, 2021 |
|
| 7,131,950 |
| $ | 3.50 |
|
|
| 7.67 |
| $ | 87,034,525 |
| ||||||||||||||||||
Exercisable as of September 30, 2021 |
|
| 1,178,800 |
|
| $ | 0.60 |
|
|
| 5.49 |
|
| $ | 17,747,150 |
| ||||||||||||||||
Outstanding as of March 31, 2024 |
|
| 14,859,139 |
|
| $ | 8.25 |
|
|
| 7.99 |
|
| $ | 19,536,214 |
| ||||||||||||||||
Exercisable as of March 31, 2024 |
|
| 2,563,271 |
|
| $ | 4.37 |
|
|
| 6.18 |
|
| $ | 11,036,795 |
|
The weighted average assumptions used in calculating the fair value of stock options granted during the nine months ended September 30, 2021 and September 30, 2020 were as follows:
|
| For the Nine Months Ended September 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Expected life |
| 7.5 (yrs) |
|
| 7.5 (yrs) |
| ||
Expected volatility |
|
| 40.33 | % |
|
| 36.85 | % |
Risk-free interest rate |
|
| 1.68 | % |
|
| 1.39 | % |
Expected dividend yield |
|
| 0.00 | % |
|
| 0.00 | % |
28
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
Compensation expense equal to the grant date fair value is recognized for these awards over the vesting period and is included in compensation and benefits onin our Consolidated Statements of Operations. Stock option compensation cost is estimated at the grant date based on the fair-value of the award, which is determined using the Black Scholes option valuation model and is recognized as expense ratably over the requisite service period of the award, generally five years. The share price used in the Black Scholes model is based on the trading price of our shares on the public markets. Expected life is based on the vesting period and expiration date of the option. Until October 2023, stock price volatility was estimated based on a group of similar publicly traded companies determined to be most reflective of the expected volatility of the Company due to the nature of operations of these entities. Since October 2023, stock price volatility is estimated using a weighted average of P10 and a group of similar publicly traded companies determined to be most reflective of the expected volatility of the Company due to the nature of operations of these entities.The risk-free rates are based on the U.S. Treasury yield in effect at the time of grant. The dividend yield is based on a $0.0325 per share quarterly dividend. The stock-based compensation expense for the nine and three months ended September 30, 2021stock options was $1.5 and $0.5 million and for the nine and three months ended September 30, 2020 was $0.52.8 million and $0.21.6 million for the three months ended March 31, 2024 and March 31, 2023, respectively. Unrecognized stock-based compensation expense related to outstanding unvested stock options as of September 30, 2021March 31, 2024 was $8.414.2 million and is expected to be recognized over a weighted average period of 3.063.22 years. Any future forfeitures will impact this amount.
A summary of restricted stock activity for the nine months ended September 30, 2021 is presented below:26
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
|
| Number of |
|
| Weighted-Average Grant |
| ||
|
| RSAs |
|
| Date Fair Value Per RSA |
| ||
Outstanding as of December 31, 2020 |
|
| 0 |
|
| $ | 0 |
|
Granted |
|
| 26,582 |
|
|
| 11.29 |
|
Exercised |
|
| 0 |
|
|
| 0 |
|
Expired/Forfeited |
|
| 0 |
|
|
| 0 |
|
Outstanding as of September 30, 2021 |
|
| 26,582 |
|
| $ | 11.29 |
|
The weighted average assumptions used in calculating the fair value of stock options granted during the three months ended March 31, 2024 and March 31, 2023 were as follows:
|
| For the Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Expected life (in years) |
| 6.75 |
|
| 7.5 |
| ||
Expected volatility |
|
| 37.50 | % |
|
| 38.77 | % |
Risk-free interest rate |
|
| 4.23 | % |
|
| 4.08 | % |
Expected dividend yield |
|
| 1.63 | % |
|
| 1.13 | % |
The Company has granted restricted stock awards ("RSAs") to certain non-employee directors. Holders of RSAs have no voting rights and accrue dividends until vesting with payment being made once they vest. All of the shares currently vest one year from the grant date.
|
| Number of |
|
| Weighted-Average Grant |
| ||
|
| RSAs |
|
| Date Fair Value Per RSA |
| ||
Outstanding as of December 31, 2023 |
|
| 32,722 |
|
| $ | 11.46 |
|
Granted |
|
| — |
|
|
| — |
|
Vested |
|
| — |
|
|
| — |
|
Forfeited |
|
| — |
|
|
| — |
|
Outstanding as of March 31, 2024 |
|
| 32,722 |
|
| $ | 11.46 |
|
The Company has granted restricted stock units ("RSUs") to certain employees. Holders of RSUs have no voting rights and generally are not eligible to receive dividends or other distributions paid with respect to any RSUs that have not vested. All of the shares currently vest one year from the grant date excluding the Hark, Bonaccord, and Executive Market Units, which are discussed in more detail below.
At the time of the Bonaccord acquisition, the Company entered into a Notice of Restricted Stock Units with certain employees of Bonaccord for grants of Restricted Stock Units ("Bonaccord Units") to be allocated to employees at a later date for meeting certain performance metrics. The Bonaccord Units may not be transferred, sold, pledged, exchanged, assigned or otherwise encumbered or disposed of by any grantee until it has become vested. On August 16, 2022, allocations were finalized pursuant to which an aggregate a value of $17.5 million of units may vest at each future achievement of performance metrics. As of March 31, 2024, certain performance metrics have been met and specific employees have earned $8.8 million in value, which $6.6 million was issued in shares and $2.2 million was issued in cash. The Company evaluates whether it is probable that the Bonaccord Units will vest and applies the tranche method to determine the amount of expense to recognized during the period. Future vested tranches will be settled in cash. An expense of $0.4 million and $3.6 million has been recorded for the three months ended March 31, 2024 and March 31, 2023, respectively, on the Consolidated Statements of Operations. The unrecognized expense associated with the Bonaccord Units was $4.3 million as of March 31, 2024.
At the time of the Hark acquisition, the Company entered into a Notice of Restricted Stock Units with an employee, which grants Restricted Stock Units ("Hark Units") for meeting a certain performance metric. The Hark Units may not be transferred, sold, pledged, exchanged, assigned or otherwise encumbered or disposed of by any grantee until they have become vested. All Hark Units have vested and been issued in 2023. An expense of $0 and $0.3 million has been recorded for the three months ended March 31, 2024 and March 31, 2023, respectively, on the Consolidated Statements of Operations.
At the time of Executive Transition, the Company entered into an Executive Transition Agreement with a certain former executive, which granted Restricted Stock Units ("Executive Transition Units") for meeting a service requirement. The Executive Transition Units may not be transferred, sold, pledged, exchanged, assigned or otherwise encumbered or disposed of by any grantee until they have become vested. The award has a stated value of $4.0 million and will be issued in $1.0 million increments quarterly beginning on October 20, 2023 and at the start of each of the following three quarters. Each $1.0 million increment will vest one year following issuance. Attributes of this award include graded vesting and service conditions, therefore, the expense recognition of this award is recognized on straight-line basis over the requisite service period of the award in line with the policy election discussed in Note 2. As of March 31, 2024, $2.0 million has been issued. For the three months ended March 31, 2024, $0.6 million of stock compensation was recognized on the Consolidated
27
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
Statements of Operations. No stock compensation expense for these units was incurred for the three months ended March 31, 2023. The unrecognized expense associated with the Executive Transition Units was $2.9 million as of March 31, 2024.
At the time of Executive Transition, the Company entered into an Employment Agreement with a certain executive, which granted Restricted Stock Units ("Executive Market Units") for meeting a service requirement and achieving certain share price performance hurdles based on the thirty-day volume-weighted average price ("VWAP"). The executive is entitled to receive RSUs upon the thirty-day VWAP of the Company's common stock reaching certain per share prices at any time prior to the fifth anniversary of the start date. There are five price per share performance hurdles for the executive to meet with each hurdle achievement allowing for the issuance of $8.0 million of units, with the number of shares determined by dividing $8.0 million by the applicable stock price performance hurdle, for a total of up to $40.0 million of units or approximately 2 million shares. The Executive Market Units may not be transferred, sold, pledged, exchanged, assigned or otherwise encumbered or disposed of by any grantee until they have become vested. The RSUs shall vest ratably on the third, fourth, and fifth anniversaries of the executive's start date, provided that no such units shall vest earlier than the first anniversary of the applicable issuance date of such units. The fair value was determined using a Monte Carlo simulation as of the executive's start date of October 23, 2023, and was determined to be $10.8 million. As of March 31, 2024, none of the Executive Market Units have vested. For the three months ended March 31, 2024, $0.7 million of stock compensation was recognized on the Consolidated Statements of Operations. No stock compensation was incurred for the three months ended March 31, 2023. The unrecognized expense associated with the Executive Market Units was $9.6 million as of March 31, 2024.
The below table shows the assumptions used in the Monte Carlo simulation for the Executive Market Units' fair value.
As of | ||
October 23, 2023 | ||
Expected life | 5.0 (yrs) | |
Expected volatility | 40.00% | |
Risk-free interest rate | 4.81% | |
Expected dividend yield | 1.42% |
The below table excludes Executive Market Units that the market conditions have not been satisfied, Executive Transition Units that have not vested and are recorded as a liability, and Bonaccord or Hark that were issued outside of the Plan, that have not vested and are recorded as a liability or vested and settled in cash.
|
| Number of |
|
| Weighted-Average Grant |
| ||
|
| RSUs |
|
| Date Fair Value Per RSU |
| ||
Outstanding as of December 31, 2023 |
|
| 1,418,094 |
|
| $ | 9.15 |
|
Granted |
|
| 943,242 |
|
|
| 8.22 |
|
Vested |
|
| (618,623 | ) |
|
| 9.93 |
|
Forfeited |
|
| — |
|
|
| — |
|
Outstanding as of March 31, 2024 |
|
| 1,742,713 |
|
| $ | 8.37 |
|
Note 15.16. Earnings Per Share
The Company presents basic EPS and diluted EPS for our common stock. Basic EPS excludes potential dilution and is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if shares of common stock were issued pursuant to our stock-based compensation awards. Additionally,For the three months ended March 31, 2024 and March 31, 2023, diluted EPS also reflects the potential dilution that could occur if convertible preferredassuming that all units in P10 Intermediate that were granted as a result of the WTI acquisition are converted to shares of Class A common stock. Because the impact of these items is generally anti-dilutive during periods of net loss, there is no difference between basic and diluted loss per common share for periods with net losses.
The Company has Class A and Class B shares outstanding, therefore follows the two-class method. However the shares are entitled to the same amount of the Company's earnings therefore the earnings per share calculation for Class A and Class B shares will always be equivalent.
28
P10, Intermediate were converted into common shares of P10 Intermediate.Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
The following table presents a reconciliation of the numerators and denominators used in the computation of basic and diluted EPS:
29
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Numerator for basic calculation—Net income/(loss) |
| $ | 3,584 |
|
| $ | (88 | ) |
| $ | 7,777 |
|
| $ | 2,880 |
|
Adjustment for: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Preferred dividends attributable to redeemable |
|
| 494 |
|
|
| 153 |
|
|
| 1,483 |
|
|
| 306 |
|
Proportionate share of subsidiary's earnings |
|
| (1,563 | ) |
|
| (233 | ) |
|
| (3,599 | ) |
|
| (568 | ) |
Numerator for earnings per share |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Numerator for earnings per share assuming |
| $ | 2,515 |
|
| $ | (168 | ) |
| $ | 5,661 |
|
| $ | 2,618 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Denominator for basic calculation—Weighted- |
|
| 62,464 |
|
|
| 62,464 |
|
|
| 62,464 |
|
|
| 62,464 |
|
Weighted shares assumed upon exercise of stock |
|
| 4,323 |
|
|
| 0 |
|
|
| 4,238 |
|
|
| 1,978 |
|
Denominator for earnings per share assuming dilution |
|
| 66,787 |
|
|
| 62,464 |
|
|
| 66,702 |
|
|
| 64,442 |
|
Earnings per share—basic |
| $ | 0.06 |
|
| $ | (0.00 | ) |
| $ | 0.12 |
|
| $ | 0.05 |
|
Earnings per share—diluted |
| $ | 0.04 |
|
| $ | (0.00 | ) |
| $ | 0.08 |
|
| $ | 0.04 |
|
|
| For the Three Months |
|
| |||||
|
|
|
|
| |||||
|
| 2024 |
|
| 2023 |
|
| ||
Numerator: |
|
|
|
|
|
|
| ||
Numerator for basic calculation—Net income |
|
|
|
|
|
|
| ||
Numerator for basic calculation—Net income |
| $ | 5,021 |
|
| $ | 605 |
|
|
Adjustment for: |
|
|
|
|
|
|
| ||
Net income attributable to noncontrolling interests in P10 Intermediate |
|
| 222 |
|
|
| 164 |
|
|
Numerator for earnings per share |
|
|
|
|
|
|
| ||
Numerator for earnings per share assuming dilution |
| $ | 5,243 |
|
| $ | 769 |
|
|
Denominator: |
|
|
|
|
|
|
| ||
Denominator for basic calculation—Weighted- |
|
| 115,129 |
|
|
| 115,921 |
|
|
Weighted shares assumed upon exercise of partnership units |
|
| 3,917 |
|
|
| 3,917 |
|
|
Weighted shares assumed upon exercise of stock |
|
| 3,795 |
|
|
| 4,088 |
|
|
Denominator for earnings per share assuming dilution |
|
| 122,841 |
|
|
| 123,926 |
|
|
Earnings per Class A share—basic |
| $ | 0.04 |
|
| $ | 0.01 |
|
|
Earnings per Class A share—diluted |
| $ | 0.04 |
|
| $ | 0.01 |
|
|
Earnings per Class B share—basic |
| $ | 0.04 |
|
| $ | 0.01 |
|
|
Earnings per Class B share—diluted |
| $ | 0.04 |
|
| $ | 0.01 |
|
|
T
Thehe computations of diluted earnings per share excluded options to purchaseon a weighted average basis would exclude 0.012.0 million and 2.9 million shares of common stockoptions for the three and nine months ended September 30, 2021March 31, 2024, and 0.05.1 million and 2.0 million sharesoptions for the three and nine months ended September 30, 2020,March 31, 2023, respectively, because the options were anti-dilutive.
Note 16. Redeemable Noncontrolling Interest
In connection with the closing of the acquisition of Five Points on April 1, 2020, the Company formed a new subsidiary, P10 Intermediate, which was the acquiring entity of Five Points. On April 1, 2020, P10 Intermediate issued three series (A, B and C) of redeemable convertible preferred shares. On October 2, 2020 and December 14, 2020, P10 Intermediate issued two additional series (D and E) in connection with the acquisitions of TrueBridge and Enhanced. The preferred shares on an as-if-converted basis represent approximately 40.9% of the aggregate issued and outstanding share capital of P10 Intermediate with P10 owning the remaining 59.1% through its 100% ownership of the outstanding common stock of P10 Intermediate. The third-party ownership interest represents a noncontrolling interest in P10 Intermediate, which we have a controlling interest in. There are common features among all three series of preferred shares, including:
30
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
The following is a summary of each individual series and any additional features they have:
Series A
P10 Intermediate issued to the Five Points sellers 6,700,000 shares of Series A redeemable convertible preferred shares at a price of $3.00 per share for an aggregate issuance price of $20.1 million. These shares were a part of the purchase consideration in the acquisition of Five Points described in Note 3.
Series B
P10 Intermediate issued to Keystone Capital XXX, LLC (“Keystone”) 10,000,000 shares of Series B redeemable convertible preferred shares at a price of $3.00 per share for an aggregate issuance price of $30.0 million. The shares were issued in exchange for cash. The cash received was used as part of the cash consideration in the acquisition of Five Points described in Note 3.
In addition to the rights listed above, the Series B preferred shares also feature a call option that gives the shareholder the ability to purchase up to an additional 5,000,000 Series B preferred shares at an exercise price of $3 per share; provided the option may only be used for funding the cash purchase price of an acquisition and any related fees. The option may only be exercised with respect to a definitive agreement related to an acquisition and the option expires on the second anniversary of the Five Points acquisition close date.
On October 2, 2020, in connection with the acquisition of TrueBridge, Keystone exercised its option purchasing 1,333,333 shares of Series B redeemable convertible preferred shares at a price of $3.00 per share for an aggregate issuance price of $4.0 million.
On December 14, 2020, in connection with the acquisition of Enhanced, Keystone exercised its option purchasing 3,333,334 shares of Series B redeemable convertible preferred shares at a price of $3.00 per share for an aggregate issuance price of $10.0 million.
The Series B preferred shareholder is also granted additional protective rights with respect to certain matters.
Series C
P10 Intermediate issued to the holders of the TAB Payments 3,337,470 shares of Series C redeemable convertible preferred shares at a price of $3.00 per share for an aggregate issuance price of $10.0 million. The shares were issued in a non-cash exchange for a portion of the TAB Payments held. The gross value of the TAB payments received was $16.8 million.
Additionally, P10 Intermediate issued to certain key members of Five Points management 333,333 shares of Series C redeemable convertible preferred shares at a price of $3.00 per share for an aggregate issuance price of $1.0 million. The shares were issued in exchange for cash.
Series D
P10 Intermediate issued to the TrueBridge sellers 28,590,910 shares of Series D redeemable convertible preferred shares at a price of $3.30 per share for an aggregate issuance price of $94.4 million. These shares were a part of the purchase consideration in the acquisition of TrueBridge described in Note 3.
Additionally, on December 14, 2020, P10 Intermediate issued to certain TrueBridge employees 285,714 shares of Series D redeemable convertible preferred shares at a price of $3.50 per share for an aggregate issuance price of $1.0 million. The shares were issued in exchange for cash.
The Series D preferred shareholders are also granted additional protective rights with respect to certain matters.
Series E
31
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
P10 Intermediate issued to the Enhanced sellers 7,686,925 shares of Series E redeemable convertible preferred shares at a price of $3.50 per share for an aggregate issuance price of $26.9 million. These shares were a part of the purchase consideration in the acquisition of Enhanced described in Note 3.
Additionally, P10 Intermediate issued to certain key members of Enhanced management 100,714 shares of Series E redeemable convertible preferred shares at a price of $3.50 per share for an aggregate issuance price of $0.4 million. The shares were issued in exchange for cash.
Since the preferred shares are redeemable at the option of the holder and the redemption is not solely in the control of the Company, the preferred shares are accounted for as a redeemable noncontrolling interest and classified within temporary equity in the Company’s Consolidated Balance Sheets. The redeemable noncontrolling interest was initially measured at the fair value of the consideration paid. Redemption was not deemed probable by the Company at September 30, 2021 and therefore no subsequent measurement or adjustment was deemed necessary. Dividends on the preferred shares are recognized as preferred dividends attributable to redeemable non-controlling interest in our Consolidated Statements of Operations.
The table below presents the reconciliation of changes in redeemable noncontrolling interests:
Balance at December 31, 2020 |
| $ | 198,439 |
|
Issuance of subsidiary preferred stock |
|
| 0 |
|
Distribution of preferred dividends attributable to |
|
| (720 | ) |
Preferred dividends attributable to redeemable |
|
| 1,483 |
|
Balance at September 30, 2021 |
| $ | 199,202 |
|
Cumulative dividends in arrears on the preferred stock were $1.5 million and $0.7 million as of September 30, 2021 and December 31, 2020, respectively.
Note 17. Subsequent Events
The Board of Directors of the Company has evaluated subsequent events through November 22, 2021, the date on which these financial statements were available to be issued. There were no significant subsequent events other than the matters described below.
Reorganization
On October 20, 2021, in connection with the IPO, the Company completeddeclared a reorganization and restructure. P10 adopted and filed an amended and restated certificatequarterly cash dividend of incorporation to, among other things, provide for$0.035 per share of Class A common stock and Class B common stock. Allstock, payable on June 20, 2024, to the holders of record as of the existing equityclose of P10 Holdings, Inc. and its consolidated subsidiaries, including the convertible preferred units of P10 Intermediate, were converted into Class B common stock of P10business on a 1-for-1 basis, while P10 Holdings, Inc. became a wholly owned subsidiary of P10.
Conversion of Redeemable Noncontrolling InterestMay 31, 2024.
On October 20, 2021, in connection with the IPO and the reorganization, the redeemable noncontrolling interest was converted into Class B common stock of P10. The conversion occurred immediately priorMay 9, 2024 an amendment to the reorganization.
Initial Public Offering
On October 20, 2021, P10 announced the pricing of its initial public offering of 20,000,000 shares of its Class A common stock at a price to the public of $12.00 per share. Of the offered shares, 11,500,000 shares of Class A common stock were being sold by P10Transition Agreement with Robert Alpert was executed, resigning him as Executive Chairman and 8,500,000 shares of Class B common stock were being sold by certain stockholders of P10. Shares that were sold
32
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
by the stockholders were converted to Class A shares upon sale. Trading began on the New York Stock Exchange on October 21, 2021, under the ticker symbol “PX”. The offering closed on October 25, 2021. The proceeds to the Company from the IPO, before expenses, were approximately $138.0 million. Proceeds were primarily used to repay debt obligationsChairman of the Company.
P10 also underwent a reverse stock split of P10's common stock on a 0.7-for-1 basis pursuant to which every outstanding share of common stock decreased to 0.7 shares. The number of shares have been retrospectively adjusted within these consolidated financial statements.
The Company has reviewed the state and federal income tax impacts of the IPO transaction and related restructuring. We have determined that these transactions do not result in a material change to our 2021Board effective tax rate or our ability to fully utilize existing net operating losses that existed as of the date of the IPO.Company's Annual Meeting on June 14, 2024.
As part of the reorganization, P10 assumed the employee benefit plan, incentive compensation plan, and other similar plans. Additionally, the shares authorized under the Plan were increased from 1,000,000 to 3,000,000.
Repayment of Debt Obligations
On October 28, 2021,In accordance with ASC 855, Subsequent Events, the Company made a payment of $evaluated all material events or transactions that occurred after March 31, 2024, the Consolidated Balance Sheets date, through the date the Consolidated Financial Statements were issued, and determined there have been no additional events or transactions that would materially impact the Consolidated Financial Statements.1.9 million for the 2017 Seller Notes, $0.9 million for the 2018 Seller Notes, and $9.6 million for the TAB payments.
On October 29 2021, the Company made a payment for its Facility with HPS of $88.6 million, which included an optional repayment of $86.8 million, required prepayment of $1.2 million, and an interest payment of $0.6 million.
Option Exercise
On November 18, 2021, pursuant to the underwriting agreement, the underwriters elected to fully exercise their option to purchase an additional 3,000,000 shares of Class A common stock for $12.00 per share, less underwriting discounts and commissions. These shares are being sold by certain stockholders of P10 and P10 will 0t receive any proceeds from the sale of these shares of Class A common stock.
33
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsOperations.
The following discussion and analysis relates to the activities and operations of P10. As used in this section, “P10,” the “Company”, “we” or “our” includes P10 and only its consolidated subsidiaries. The following information should be read in conjunction with our selected financial and operating data and the accompanying consolidated financial statements and related notes contained elsewhere in this quarterly report on Form 10-Q, and our audited financial statements, the related notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our prospectus dated October 20, 2021 , filed with the U.S. Securities and Exchange Commission ("SEC") on October 22, 2021.10-Q. Our historical results discussed below, and the way we evaluate our results, may differ significantly from the descriptions of our business and key metrics used elsewhere in this quarterly report on Form 10-Q. The following discussion may contain forward-looking statements that reflects our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Form 10-Q, due to the effects of acquisitions which occurred duringand in our annual report on Form 10-K for the year ended December 31, 2020, but may not have had a material impact2023, particularly in "Risk Factors" and the "Forward-Looking Information." Unless otherwise indicated, references in this Quarterly Report on Form 10-Q to fiscal 2024 and 2023 are to our statements of operations due to the limited period of time which they were included in our consolidated results. The below historical results also do not include any activities or positions of P10, Inc., or give effect to any of the reorganization activities which have occurred in connection with the Initial Public Offering discussed in the subsequent events.fiscal years ended December 31, 2024 and 2023, respectively.
Business Overview
We are a leading multi-asset class private market solutions provider in the alternative asset management industry. Our mission is to provide our investors differentiated access to a broad set of solutions and investment vehicles across highly attractive asset classes and geographies that generate superior risk-adjusted returns. Our success and growth have been driven by our position in the private markets’ ecosystem, providing investors with specialized private market solutions across a comprehensive set of investment strategies, including primary investment funds, secondary investment, direct investment and co-investments and advisory solutions. As investors entrust us with additional capital, our relationships with our fund managers are strengthened, which drives additional investment opportunities, sources more data, enables portfolio optimization and enhances returns, and in turn attracts new investors.
DuringOn October 20, 2023, the year ended December 31, 2020, we completed several acquisitionsCompany entered into an executive transition agreement with each of Mr. Alpert and Mr. Webb (each, a "Transition Agreement"). Pursuant to expand the private market solutions available to our investors. On April 1, 2020, we completed our acquisition of Five PointsTransition Agreements, Mr. Alpert and Mr. Webb ceased to serve as our Private Credit solution (which also offers certain private equity solutions). Five Points’ results are includedCo-Chief Executive Officer, and Mr. Alpert and Mr. Webb were appointed as Executive Chairman and Executive Vice Chairman, respectively, for a one-year period. Additionally, Mr. Webb's Transition Agreement provides a one-year transition period to continue serving the Company in oura mergers and acquisitions capacity. Effective October 23, 2023, the board of the Company appointed Luke A. Sarsfield III as Chief Executive Officer ("CEO") of the Company. In connection with his appointment as CEO, the Company entered into an employment agreement with Mr. Sarsfield (the "Employment Agreement") setting forth the terms of his employment and compensation. In connection with both the Transition Agreements and the Employment Agreement, provisions were made for severance and sign-on compensation, respectively. The associated expenses were recorded in compensation and benefits on the Consolidated Statements of Operations for the period from April 1, 2020 through December 31, 2020 and for the nine months ended September 30, 2021. On October 2, 2020, we completed our acquisition of TrueBridge Capital Partners, LLC (TrueBridge) to serve as our Venture Capital solution. TrueBridge’s results are included in our Consolidated Statements of Operations for the period from October 2, 2020 through December 31, 2020 and for the nine months ended September 30, 2021. On December 14, 2020, we completed our acquisition of 100% of the equity interest in ECG to serve as our Impact Investing solution. ECG’s results are included in our Consolidated Statements of Operations for the period from December 14, 2020 through December 31, 2020 and for the nine months ended September 30, 2021. These acquisitions were accounted for as business combinations, and these entities are reported as consolidated subsidiaries of P10. Additionally, on December 14, 2020, we completed our acquisition of approximately 49% of the voting interests and 50% of the economic interests in ECP, which is a related party of ECG. As we only acquired a non-controlling interest in ECP, it is reported as an equity method investment in accordance with ASC 323.
On September 30, 2021, we completed the acquisitions of Hark and Bonaccord to further expand on solutions available to our investors. The effect of these acquisitions is reflected in our Consolidated Balance Sheet at September 30, 2021. These acquisitions were accounted for as business combinations and are reported as consolidated subsidiaries of P10.Operations.
As of September 30, 2021,March 31, 2024, our private market solutions were comprised of the following:
34
30
During 2022, the Board approved a program to repurchase up to $40.0 million of outstanding shares of our Class A and Class B common stock. Upon completion of purchases under the prior authorizations, on February 27, 2024, the Board of Directors authorized an additional $40.0 million for repurchases under the Stock Repurchase Program. These shares may be repurchased from time to time in the open market at prevailing market prices, in privately negotiated transactions, in block trades, in accordance with Rule 10b5-1 trading plans and/or through other legally permissible means. The timing and amount of any repurchases pursuant to the program will depend on various factors including, the market price of our Class A Common Stock, trading volume, ongoing assessment of our working capital needs, general market conditions, and other factors. As of March 31, 2024, $59.5 million has been spent to buy back shares under this program.
Sources of Revenue
Our sources of revenue currently include fund management fee contracts, advisory service fee contracts, consulting agreements, referral fees, subscriptions and other services. The majority of our revenues are generated through long-term, fixed fee management and advisory contracts with our investors for providing investment solutions in the following vehicles for our investors:
3531
Operating Segments
We operate our business as a single operating segment, which is how our chief operating decision makers (our Co-Chief Executive Officers) evaluatemaker evaluates financial performance and makemakes decisions regarding the allocation of resources.
Trends Affecting Our Business
Our business is affected by a variety of factors, including conditions in the financial markets and economic and political conditions in the North American markets in which we operate, as well as changes in global economic conditions, including the effects of COVID-19 as described below, and regulatory or other governmental policies or actions, which can materially affect the values of the funds our platforms manage, as well as our ability to effectively manage investments. Withinvestments and attract capital. Despite rising interest rates and the global economy outlook remaining historically low,uncertain, we continue to see investors turning towards alternative investments to achieve consistent and higher yields.yields with our contractually guaranteed fee rate.
The continued growth of our business may be influenced by several factors, including the following market trends:
36
32
COVID-1933
In March 2020, the World Health Organization declared the outbreak
37
the structure of our contracts. While it is premature to accurately predict its full impact, the pandemic may affect our ability to raise capital for future funds.
Key Financial & Operating Metrics
Revenues
We generate revenues primarily from management fees and advisory contracts, and to a lesser extent, other consulting arrangements and services. See Significant Accounting Policies in Note 2 of our consolidated financial statementsConsolidated Financial Statements for additional information regarding the way revenues are recognized.
We earn management and advisory fees based on a percentage of investors’ capital commitments to, in funds or in selected cases, net invested capital in, or NAV, of our investment funds.deployed capital. Management and advisory fees during the commitment period are 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 and advisory fees for the preceding years or charged on net invested capital or NAV, in selected cases. Fee schedules are generally fixed and set for the expected life of the funds, which typically are between ten to fifteen years. These fees are typically staged to 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 investors. We also earn revenues through catch-up fees ("catch up fees") on the funds we manage. Catch-up fees are earned from investors that make commitments to the fund after the first fund closing occurs during the fundraising period of funds originally launched in prior periods, and as such the investors are required to pay a catch-up fee as if they had committed to the fund at the first closing. While catch-up fees are not a significant component of our overall revenue stream, they may result in a temporary increase in our revenues in the period in which they are recognized.
Other revenue consists of subscription and consulting agreements and referral fees that we offer in certain cases. Subscription and consulting agreements provide advisory and/or reporting services to our investors such as monitoring and reporting on an investor’s existing private markets investments. The subscription and consulting agreements typically have renewable one-year lives, and revenue is recognized ratably over the current term of the subscription or the agreement. If subscriptions or fees have been paid in advance, these fees are recorded as deferred revenue on our Consolidated Balance Sheets. Referral fee revenue is recognized upon closing of opportunities where we have referred credit opportunities that do not match our investment criteria.
The Company recognizes an accrued contingent liability and contingent payments to customers in our Consolidated Balance Sheets for agreements between ECG and third parties. The agreements require ECG to share in certain revenues earned with the third party and also includes an option for the third party to sell back the revenue share to ECG at a set multiple. Additionally, ECG holds the option to buy back 50% of the revenue share at a set multiple. The options to repurchase the revenue share are not exercisable until a certain period of time has lapsed per the agreements. The Company believes it is probable that the third parties will exercise their options to sell back the revenue share and has recognized liabilities on the Consolidated Balance Sheets. The Company has also recognized contingent payments to customers assets associated with the agreements and will amortize the assets against revenue over the length of the management contracts. The amortization is reported in management and advisory fees on the Consolidated Statements of Operations.
Operating Expenses
Compensation and benefits are our largest expense and consists of salaries, bonuses, severance, stock-based compensation, earnout and bonus payments related to the acquisition of WTI, employee benefits and employer-related payroll taxes. Despite our general operating leverage that exists, we expect to continue to experience an incremental rise in compensation and benefits expense commensurate with expected growth in headcount and with the need to maintain competitive compensation levels as we expand into new markets to create new products and services. In substantially all instances, the Company does not hold carried interests in the funds that we manage. Carried interest is typically structured to stay with the investment professionals. As such, while this does not impact the compensation we pay to our employees, it allows our investment professionals to receive additional benefit and provides an economic incentive for them to outperform on behalf of our investors. This structure differs from that of most of our competitors, which we believe better aligns the objectives of our stockholders, investors and investment professionals. The result is the substantial majority of our compensation and benefit expense is predictable.
34
Professional fees primarily consist of legal, advisory, accounting and tax fees which may include services related to our strategic development opportunities such as due diligence performed in connection with potential acquisitions. OurAs our Company is an SEC registrant, our professional fees will fluctuate commensurate with our strategic objectives and potential acquisitions, and certain recurring accounting advisory, audit and tax expenses are expectedwill increase to increase as our Company has become an SEC registrant and we must comply with additional regulatory requirements. However, much of this investment was made during the first half of 2021.
General, administrative and other includes occupancy,rent, travel and entertainment, technology, insurance and other general costs associated with operating our business.
Strategic alliance expense is included in operating expenses. This expense is driven by the Strategic Alliance Agreement that Bonaccord entered into with an investor at the time Bonaccord was acquired in exchange for a portion of net management fee earnings.
Other (Expense)/ Income (Expense)
Interest expense, net, includes interest paid and accrued on our outstanding debt, along with the amortization of deferred financing costs, amortizationcosts. Other (expense)/income includes any accrued expenses related to litigation and regulatory activity as necessary, which would be discussed in Note 13 of original issue discount and the write-off of deferred financing costs due to the repayment of
38
previously outstanding debt. Interest expense also includes the effects of the imputed interest on certain non-interest-bearing notes payable.our Consolidated Financial Statements.
Income Tax Expense/BenefitBenefit/(Expense)
Income tax expense/benefitbenefit/(expense) is comprised of current and deferred tax expense/benefit.benefit (expense). Current income tax expense/benefitbenefit/(expense) represents our estimated taxes to be paid or refunded for the current period. In accordance with ASC 740, Income Taxes (“ASC 740”), we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets to the amount we believe is more likely than not to be realized.
Fee-Paying Assets Under Management, or FPAUM
FPAUM reflects the assets from which we earn management and advisory fees. Our vehicles typically earn management and advisory fees based on committed capital, and in certain cases, net invested capital, depending on the fee terms. Management and advisory fees based on committed capital are not affected by market appreciation or depreciation.
Results of Operations
For the three and nine months ended September 30, 2021March 31, 2024 and September 30, 2020.March 31, 2023.
|
| For the Three Months Ended |
| For the Nine Months Ended |
|
| For the three months | ||||||||||||||||||||||||||||||||||||||||
|
| September 30, |
| September 30, |
|
|
| ||||||||||||||||||||||||||||||||||||||||
|
| 2021 |
| 2020 |
| $ Change |
| % Change |
| 2021 |
| 2020 |
| $ Change |
| % Change |
|
| 2024 |
|
| 2023 |
|
| $ Change |
|
| % Change | |||||||||||||||||||
REVENUES |
| (in thousands) |
|
|
| (in thousands) |
|
|
|
|
| (in thousands) |
|
|
|
|
| ||||||||||||||||||||||||||||||
Management and advisory fees |
| $ | 37,939 |
| $ | 15,222 |
| $ | 22,717 |
| 149 | % |
| $ | 104,029 |
| $ | 41,821 |
| $ | 62,208 |
| 149 | % |
| $ | 65,122 |
|
| $ | 56,587 |
|
| $ | 8,535 |
|
| 15% | |||||||||
Other revenue |
|
| 206 |
|
| 159 |
|
| 47 |
|
| 30 | % |
|
| 872 |
|
| 861 |
|
| 11 |
|
| 1 | % |
|
| 993 |
|
|
| 666 |
|
|
| 327 |
|
| 49% | |||||||
Total revenues |
| 38,145 |
| 15,381 |
| 22,764 |
| 148 | % |
| 104,901 |
| 42,682 |
| 62,219 |
| 146 | % |
|
| 66,115 |
|
|
| 57,253 |
|
|
| 8,862 |
|
| 15% | |||||||||||||||
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Compensation and benefits |
| 14,009 |
| 5,918 |
| 8,091 |
| 137 | % |
| 38,119 |
| 15,818 |
| 22,301 |
| 141 | % |
|
| 37,109 |
|
|
| 35,642 |
|
|
| 1,467 |
|
| 4% | |||||||||||||||
Professional fees |
| 2,595 |
| 2,627 |
| (32 | ) |
| (1 | )% |
| 7,856 |
| 5,177 |
| 2,679 |
| 52 | % |
|
| 3,768 |
|
|
| 3,842 |
|
|
| (74 | ) |
| (2)% | ||||||||||||||
General, administrative and other |
| 3,019 |
| 1,068 |
| 1,951 |
| 183 | % |
| 8,310 |
| 3,160 |
| 5,150 |
| 163 | % |
|
| 6,057 |
|
|
| 4,857 |
|
|
| 1,200 |
|
| 25% | |||||||||||||||
Contingent consideration expense |
|
| 30 |
|
|
| 390 |
|
|
| (360 | ) |
| (92)% | |||||||||||||||||||||||||||||||||
Amortization of intangibles |
|
| 7,484 |
|
| 3,572 |
|
| 3,912 |
|
| 110 | % |
|
| 22,452 |
|
| 9,606 |
|
| 12,846 |
|
| 134 | % |
|
| 6,437 |
|
|
| 7,248 |
|
|
| (811 | ) |
| (11)% | |||||||
Strategic alliance expense |
|
| 615 |
|
|
| 403 |
|
|
| 212 |
|
| 53% | |||||||||||||||||||||||||||||||||
Total operating expenses |
|
| 27,107 |
|
| 13,185 |
|
| 13,922 |
|
| 106 | % |
|
| 76,737 |
|
| 33,761 |
|
| 42,976 |
|
| 127 | % |
|
| 54,016 |
|
|
| 52,382 |
|
|
| 1,634 |
|
| 3% | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
INCOME FROM OPERATIONS |
| 11,038 |
| 2,196 |
| 8,842 |
| 403 | % |
| 28,164 |
| 8,921 |
| 19,243 |
| 216 | % |
|
| 12,099 |
|
|
| 4,871 |
|
|
| 7,228 |
|
| 148% | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
OTHER (EXPENSE)/INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Interest expense implied on notes |
| (223 | ) |
| (216 | ) |
| (7 | ) |
| 3 | % |
| (657 | ) |
| (771 | ) |
| 114 |
| (15 | )% | ||||||||||||||||||||||||
Interest expense, net |
| (5,261 | ) |
| (2,089 | ) |
| (3,172 | ) |
| 152 | % |
| (15,761 | ) |
| (6,498 | ) |
| (9,263 | ) |
| 143 | % |
|
| (5,776 | ) |
|
| (5,172 | ) |
|
| (604 | ) |
| 12% | |||||||||
Other income |
|
| 283 |
|
| (1 | ) |
|
| 284 |
|
| (28,400 | )% |
|
| 668 |
|
| 21 |
|
| 647 |
|
| 3,081 | % |
|
| 678 |
|
|
| 113 |
|
|
| 565 |
|
| 500% | ||||||
Total other (expense) |
|
| (5,201 | ) |
|
| (2,306 | ) |
|
| (2,895 | ) |
|
| 126 | % |
|
| (15,750 | ) |
|
| (7,248 | ) |
|
| (8,502 | ) |
|
| 117 | % |
|
| (5,098 | ) |
|
| (5,059 | ) |
|
| (39 | ) |
| 1% | |
Net income/(loss) before income taxes |
| 5,837 |
| (110 | ) |
| 5,947 |
| (5,406 | )% |
| 12,414 |
| 1,673 |
| 10,741 |
| 642 | % |
|
| 7,001 |
|
|
| (188 | ) |
|
| 7,189 |
|
| 3,824% | ||||||||||||||
Income tax (expense)/benefit |
|
| (1,759 | ) |
|
| 175 |
|
| (1,934 | ) |
|
| (1,105 | )% |
|
| (3,154 | ) |
|
| 1,513 |
|
| (4,667 | ) |
|
| (308 | )% |
|
| (1,758 | ) |
|
| 957 |
|
|
| (2,715 | ) |
| (284)% | |||
NET INCOME/(LOSS) |
| $ | 4,078 |
| $ | 65 |
| $ | 4,013 |
|
| 6,174 | % |
| $ | 9,260 |
| $ | 3,186 |
| $ | 6,074 |
|
| 191 | % | |||||||||||||||||||||
NET INCOME |
| $ | 5,243 |
|
| $ | 769 |
|
| $ | 4,474 |
|
| 582% |
35
Revenues
Three Months Ended September 30, 2021March 31, 2024 and September 30, 2020March 31, 2023
Our total revenue is composed almost entirely of recurring management and advisory fees, with the vast majority of fees earned on committed capital that is typically subject to ten to fifteen year lock up agreements, therefore our average fee rates have remained stable at approximately 1% for the three months ended September 30, 2021March 31, 2024 and September 30, 2020.March 31, 2023. For the three months ended September 30, 2021March 31, 2024 compared to the three months ended September 30, 2020,March 31, 2023, total revenues increased $22.8by $8.9 million or 148%15% due to both higher management fees primarily from the impact of 2020 acquisitions, as well as an increase in other revenues.organic FPAUM growth across Bonaccord and TrueBridge.
Management and advisory fees increased $22.7by $8.5 million, or 149%15%, to $37.9$65.1 million for the three months ended September 30, 2021March 31, 2024 as compared to the three months ended September 30, 2020March 31, 2023 due primarily to organic FPAUM growth of $8.9 million at Bonaccord and TrueBridge, slightly offset by fee step-downs at Five Points Capital for $0.3 million. Catch-up fees for the acquisitionsthree months ended March 31, 2024 were $7.7 million of TrueBridge and ECG during the fourth quarter of 2020, which contributed$65.1 million in management fee and advisory revenues of $18.2 million. The remaining increase of $4.5 million represents an increase in the Company’s management fees due to increases in FPAUM, primarily from capital
39
raised and additional fund closings during the third quarter of 2021. Catch up fees during the third quarter of 2021 were $1.7 million associated with the fund closings at Bonaccord, TrueBridge, and RCP.RCP compared to the $3.0 million associated with fund closings at Bonaccord, TrueBridge, and RCP for the three months ended March 31, 2023.
Other revenues, which represent ancillary elements of our business, increased by $47 thousand$0.3 million or 30%49% to $0.2$1.0 million for the three months ended September 30, 2021March 31, 2024 as compared to the three months ended September 30, 2020March 31, 2023 driven primarily by administrative fees.
Nine Months Ended September 30, 2021 and September 30, 2020
Total revenues increased $62.2an increase of $0.3 million or 146%, to $104.9 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, due to higher management and advisory fees, largely attributable to our acquisitions, partially offset by a small decreaseof interest income in other revenues.
Management fees increased by $62.2 million, or 149%, to $104.0 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 due primarily to the acquisitions of Five Points, TrueBridge, and ECG during fiscal 2020, which contributed $54.8 million to management fee and advisory revenues, in total. Revenue also increased by $5.9 million due to an increase in primary fund closings and $1.4 million related to a private credit fund closing. Catch up fees during Q3 2021 were $2.9 million associated with the fund closings at TrueBridge and RCP.
Other revenues increased by $11 thousand, or 1% to $0.9 million, from the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. This increase was primarily attributable to a increase in referral fees during the first half of 2021.revenue.
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||||||||||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| $ Change |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| $ Change |
|
| % Change |
| ||||||||
OPERATING EXPENSES |
| (in thousands) |
|
|
|
|
|
|
|
| (in thousands) |
|
|
|
|
|
|
| ||||||||||||||
Compensation and benefits |
| $ | 14,009 |
|
| $ | 5,918 |
|
| $ | 8,091 |
|
|
| 137 | % |
| $ | 38,119 |
|
| $ | 15,818 |
|
| $ | 22,301 |
|
|
| 141 | % |
Professional fees |
|
| 2,595 |
|
|
| 2,627 |
|
|
| (32 | ) |
|
| (1 | )% |
|
| 7,856 |
|
|
| 5,177 |
|
|
| 2,679 |
|
|
| 52 | % |
General, administrative |
|
| 3,019 |
|
|
| 1,068 |
|
|
| 1,951 |
|
|
| 183 | % |
|
| 8,310 |
|
|
| 3,160 |
|
|
| 5,150 |
|
|
| 163 | % |
Amortization of intangibles |
|
| 7,484 |
|
|
| 3,572 |
|
|
| 3,912 |
|
|
| 110 | % |
|
| 22,452 |
|
|
| 9,606 |
|
|
| 12,846 |
|
|
| 134 | % |
Total operating expenses |
| $ | 27,107 |
|
| $ | 13,185 |
|
| $ | 13,922 |
|
|
| 106 | % |
| $ | 76,737 |
|
| $ | 33,761 |
|
| $ | 42,976 |
|
|
| 127 | % |
|
|
| For the three months |
| ||||||||||||
|
|
| 2024 |
|
| 2023 |
| $ Change |
|
| % Change |
| ||||
OPERATING EXPENSES |
|
| (in thousands) |
|
|
|
|
|
| |||||||
Compensation and benefits |
|
| $ | 37,109 |
|
| $ | 35,642 |
| $ | 1,467 |
|
|
| 4 | % |
Professional fees |
|
|
| 3,768 |
|
|
| 3,842 |
|
| (74 | ) |
|
| (2 | )% |
General, administrative, and other |
|
|
| 6,057 |
|
|
| 4,857 |
|
| 1,200 |
|
|
| 25 | % |
Contingent consideration expense |
|
|
| 30 |
|
|
| 390 |
|
| (360 | ) |
|
| (92 | )% |
Amortization of intangibles |
|
|
| 6,437 |
|
|
| 7,248 |
|
| (811 | ) |
|
| (11 | )% |
Strategic alliance expense |
|
|
| 615 |
|
|
| 403 |
|
| 212 |
|
|
| 53 | % |
Total operating expenses |
|
| $ | 54,016 |
|
| $ | 52,382 |
| $ | 1,634 |
|
|
| 3 | % |
Operating Expenses
For the Three Months Ended September 30, 2021March 31, 2024 and September 30, 2020March 31, 2023
Total operating expenses increased by $13.9$1.6 million, or 106%3%, to $27.1$54.0 million for the three months ended September 30, 2021 asMarch 31, 2024 compared to the three months ended September 30, 2020March 31, 2023. This increase was primarily driven bydue to increases in general, administrative and other expenses as well as compensation and benefits general and administrative expenses, andexpense offset slightly by decreases in amortization expense of intangibles also attributable to the acquisitions completed in fiscal 2020 and the compensation and benefits attributable to the acquisitions of Hark and Bonaccord during the third quarter of 2021.contingent consideration expense.
Compensation and benefits expense increased by $8.1$1.5 million, or 137%4%, to $14.0$37.1 million, for the three months ended September 30, 2021March 31, 2024 compared to the three months ended March 31, 2023. The increase was primarily driven by a $1.8 million increase due to increases in headcount and associated benefits across the Company as well as merit-based salary raises to retain and motivate talent across the Company offset by a decrease in stock compensation expense recognized in the first quarter of 2024 as compared to the first quarter of 2023, respectively. Stock compensation expense decreased by $0.3 million, which was primarily driven by remeasurement for the fair value of the Bonaccord Units and Hark Units related to the acquisition of Bonaccord and Hark. In 2023, the Hark Units were fully earned and recognized, therefore, there was no correlating expense in 2024 associated with the Hark Units. Moreover, The Bonaccord Units, which are recognized using the tranche method, had a decrease in expense for the first quarter of 2024 compared to the first quarter of 2023.
Professional fees decreased by $0.1 million, or 2%, to $3.8 million. The primary cost in professional fees for the three months ended March 31, 2024 and 2023 are audit, tax, and legal fees associated with year end reporting and strategic planning.
General, administrative and other increased by $1.2 million, or 25%, to $6.1 million, due primarily to ongoing enhancements to infrastructure, technology, and security as well as marketing efforts.
Contingent consideration expense decreased by $0.4 million, to $0, for the three months ended March 31, 2024 as compared to the three months ended September 30, 2020. The primary driversMarch 31, 2023. This was driven by remeasurement for the increase in compensation and benefits arefair value of the acquisitions of TrueBridge and ECG which resulted in a total of $4.3 million additional compensation expense as well as an increase in headcount and compensation related to building out the corporate function as the Company prepared for an initial public offering of $1.6 million. Additionally, there was an increase in compensation cost for acquisition related employee incentive bonuses of $1.6 million from the third quarter of 2020 to the third quarter of 2021. The remaining increase in compensation cost of $0.5 million is driven by increases in salaries at subsidiaries not associated with acquisitions.contingent
Professional fees decreased by $32 thousand, to $2.6 million. ECG and TrueBridge contributed $0.4 million of additional professional fees for the three months ended September 30, 2021 that did not exist in the three months ended September 30, 2020 as they were acquired later in 2020. This was offset by reductions in professional fees36
consideration related to the acquisition of ECGBonaccord. The Hark contingent consideration was fully earned and TrueBridgepaid in 2023 and the three months ended September 30, 2020 that were not recurring in the three months ended September 30, 2021 of $0.3Bonaccord contingent consideration remaining fair value is $6.5 million as well as non-recurring audit fees at Five Points of $0.2 million in 2020. General, administrative and other increased by $2.0 million, or 183% to $3.0 million due to the full quarter of expenses incurred at TrueBridge and ECG that were not yet acquired at September 30, 2020. This drove $1.7 million of the $2.0 million increase.
40
March 31, 2024.
Amortization of intangibles increaseddecreased by $3.9$0.8 million, or 110%(11)%, to $7.5$6.4 million, for the three months ended September 30, 2021March 31, 2024 as compared to the three months ended September 30, 2020. The increaseMarch 31, 2023. This is due to the addition of $80.4 million of gross finite lived intangible assets in the acquisitions of TrueBridge and ECG.
Nine Months Ended September 30, 2021 and September 30, 2020
Total operating expenses increased by $43.0 million, or 127%, to $76.7 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. This increase was primarily due to increases in compensation and benefits as well as amortization of intangibles associated with the acquisitions of TrueBridge, Five Points, anddecreases at ECG, completed in fiscal 2020.
Compensation and benefits expense increased by $22.3 million, or 141%, to $38.1 million, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The primary driver for the increase in compensation and benefits were the acquisitions completed after the second quarter of 2020 which resulted in a total of $13.0 million of additional compensation expense including TrueBridge and ECG. Five Points, which was acquired in Q2 2020, contributed to a full six months of compensation expense which drove $2.3 million of the six months ended change. There was also an increase in headcount and compensation cost related to building out the corporate function as the Company prepared for an initial public offering of $4.5 million. A smaller driver of the increase was $1.6 million in compensation cost for acquisition related employee incentive bonuses. Additionally, there was an increase in compensation cost for employees not associated with TrueBridge, Five Points and ECG acquisitions of $0.8 million.
Professional fees increased by $2.7 million, or 52%, to $7.9 million and general, administrative and other increased by $5.2 million, or 163% to $8.3 million, due primarily to the acquisitions of TrueBridge, Five Points and ECG. The acquisitions resulted in an increase in professional fees of $1.7 million and an increase in general and administrative costs of $4.7 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. Professional fees increased by an additional $1.7 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 due to additional legal, advisory and tax fees associated with the acquisition transactions of Hark and Bonaccord and the initial public offering. This was offset by a $0.6 million decrease in legal expenses related to borrowings for acquisitions related to ECGRCP, and TrueBridge.
Amortization The decrease at ECG is driven by unique syndicate contracts and advisory contracts' amortization schedule, which is based on projected revenues at the time of intangibles increasedacquisition. The decreases at RCP and TrueBridge are driven by $12.8 million, or 134%, to $22.5 million, forasset management fee contracts' amortization schedule, which is based on projected revenues at the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. The increase is due to the additiontime of $80.4 million of gross finite lived intangible assets in the acquisitions of TrueBridge, Five Points and ECG.acquisition.
Other (Expense)/Income (Expense)
For the Three Months Ended September 30, 2021March 31, 2024 and September 30, 2020March 31, 2023
Other expenses increased $2.9 million,by $39 thousand, or 126%1%, to $5.2$5.1 million for the three months ended September 30, 2021March 31, 2024 compared to the three months ended September 30, 2020.March 31, 2023. This increase was primarily due to a $3.2 milliondriven by an increase in interest expense related toof $600 thousand on the credit facility due to rising SOFR rates and guaranty facilitya larger draw on debt in the first three months ended March 31, 2024. This was offset by $565 thousand of income primarily as a result of the $159.4 million principal increases under the credit and guaranty facility to fund the acquisitions of TrueBridge and ECG.
Nine Months Ended September 30, 2021 and September 30, 2020
Other expenses increased by $8.5 million, or 117%, to $15.8 millioninterest earned for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. This increase was primarily due to a $9.3 million increase in interest expense related to the credit and guaranty facility as a result of the $159.4 million principal increases under the credit and guaranty facility to fund the acquisitions of TrueBridge and ECG. This increase was offset by $0.6 million in other income driven by ECG’s pick up of income from unconsolidated subsidiaries in the first nine months of 2021.money market accounts.
Income Tax/Tax (Expense)/Benefit Expense
For the Three Months Ended September 30, 2021March 31, 2024 and September 30, 2020March 31, 2023
Income tax expense increased by $1.9$2.7 million to $1.8 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 due to the reduction of deferred tax assets during 2021.
Nine Months Ended September 30, 2021 and September 30, 2020
41
Income tax expense increased by $4.7 million to $3.2 million for the nine months ended September 30, 2021March 31, 2024 compared to a benefit of $1.5$1.0 million for the ninethree months ended September 30, 2020.March 31, 2023. The increase was primarily due to additional income, and a decrease in the reduction of deferredstock-based compensation-related tax assets during 2021.benefit.
FPAUM
The following table provides a period-to-period roll-forward of our fee earning AUM on a pro forma basis as if Five Points, True Bridge and ECG were acquired on January 1, 2020.
|
| For the Three Months Ended |
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
|
| For the Nine Months Ended |
| ||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (in millions) |
|
| (in millions) |
|
| (in millions) |
|
| (in millions) |
| ||||
Balance, Beginning of Period |
| $ | 15,082 |
|
| $ | 12,505 |
|
| $ | 13,351 |
|
| $ | 11,894 |
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Acquisitions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Capital raised (1) |
|
| 1,112 |
|
|
| 284 |
|
|
| 2,771 |
|
|
| 766 |
|
Capital deployed (2) |
|
| 161 |
|
|
| 122 |
|
|
| 431 |
|
|
| 340 |
|
Net Asset Value Change (3) |
|
| 1 |
|
|
| (1 | ) |
|
| 8 |
|
|
| (3 | ) |
Less: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Scheduled fee base stepdowns |
|
| (79 | ) |
|
| (109 | ) |
|
| (241 | ) |
|
| (183 | ) |
Expiration of fee period |
|
| (18 | ) |
|
| (19 | ) |
|
| (61 | ) |
|
| (33 | ) |
Balance, End of period |
| $ | 16,259 |
|
| $ | 12,782 |
|
| $ | 16,259 |
|
| $ | 12,781 |
|
The following table provides a period-to-period roll-forward of our fee-earning AUMpaying assets under management on an actual basis.
|
| For the Three Months Ended |
| For the Three Months Ended |
| For the Nine Months Ended |
| For the Nine Months Ended |
|
| For the three months |
| For the three months |
| ||||||||||
|
| September 30, |
| September 30, |
| September 30, |
| September 30, |
|
|
|
|
|
| ||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
|
| 2024 |
|
| 2023 |
| |||||||||
|
| (in millions) |
| (in millions) |
| (in millions) |
| (in millions) |
|
| (in millions) |
| (in millions) |
| ||||||||||
Balance, Beginning of Period |
| $ | 14,172 |
| $ | 7,020 |
| $ | 12,706 |
| $ | 5,770 |
|
| $ | 23,259 |
|
| $ | 21,206 |
| |||
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Acquisitions |
|
| 952 |
| 0 |
| 952 |
| 1,020 |
|
|
| — |
|
|
| — |
| ||||||
Capital raised (1) |
|
| 1,077 |
| 236 |
| 2,443 |
| 445 |
|
|
| 469 |
|
|
| 665 |
| ||||||
Capital deployed (2) |
|
| 175 |
| 66 |
| 394 |
| 99 |
|
|
| 199 |
|
|
| 246 |
| ||||||
Net Asset Value Change (3) |
|
| 1 |
| (1 | ) |
| 8 |
| (3 | ) |
|
| — |
|
|
| (19 | ) | |||||
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Scheduled fee base stepdowns |
|
| (73 | ) |
| (1 | ) |
| (183 | ) |
| (11 | ) |
|
| (57 | ) |
|
| (70 | ) | |||
Expiration of fee period |
|
| (45 | ) |
|
| (0 | ) |
|
| (61 | ) |
|
| (0 | ) |
|
| (24 | ) |
|
| (427 | ) |
Balance, End of period |
| $ | 16,259 |
| $ | 7,320 |
| $ | 16,259 |
| $ | 7,320 |
|
| $ | 23,846 |
|
| $ | 21,601 |
|
FPAUM as of September 30, 2021March 31, 2024
FPAUM increased $1.2by $0.6 billion, or 7.8%2.5%, to $16.3$23.8 billion on a pro forma basis and $2.1 billion, or 14.7%, to $16.3 billion on an actual basis for the three months ended September 30, 2021. On a pro forma basis, this increase isMarch 31, 2024, due primarily to an increase in capital raised and deployed from our private equity and venture capital solutions. On an actual basis, $1.1 billion of the increase is due to the previously mentioned organic growthsolutions and $1.0 billion is due to the acquisitions of Harkoffset by expirations and Bonaccord. FPAUM increased $2.9 billion, or 21.8%, to $16.3 billion on a pro forma basis and $3.6 billion or 28.0% to $16.3 billion on an actual
42
basis for the nine months ended September 30, 2021, due primarily to an increase in capital raised from our private equity and venture capital solutions.scheduled fee stepdowns. Our FPAUM growth and concentration across solutions and vehicles has been relatively consistent over time but can vary in particular periods due to the systematic fundraising cycles of new funds, which typically lasts 12-24 months. We expect to continue to expand our fundraising efforts and grow FPAUM with the launch of new specialized investment vehicles and asset class solutions.
37
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 construed as 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.
We use Fee-Related Revenue ("FRR"), Fee-Related Earnings ("FRE"), Adjusted Net Income, or ANI, as well as Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) to provide additional measures of profitability. We use the measures to assess our performance relative to our intended strategies, expected patterns of profitability, and budgets, and use the results of that assessment to adjust our future activities to the extent we deem necessary. Fee-Related Revenues is calculated as Total Revenues less any incentive fees. Fee-Related Earnings is a non-GAAP performance measure used to monitor our baseline earnings less any incentive fee revenue and excluding any incentive fee-related expenses. ANI reflects our actual cash flows generated by our core operations. ANI is calculated as Adjusted EBITDA, less actual cash paid for interest and federal and state income taxes.
In order to compute Adjusted EBITDA, we adjust our GAAP net (loss)/income for the following items:
Adjusted Net Income reflects the cash payments made for interest, which differs significantly from total interest expense that includes non-cash interest on the non-interest-bearing Seller Notes related to our acquisitions of RCP 2 and RCP 3. Similarly, theThe cash income taxes paid during the periods isthree months ended March 31, 2024 and March 31, 2023 differ significantly lower thanfrom the net income tax benefit,expense, which is primarily comprised of deferred tax expense as described in the results of operations.
38
|
| For the Three |
|
| For the Nine Months |
| ||||||||||
|
| Months Ended |
|
| Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
Net income |
| $ | 4,078 |
|
| $ | 65 |
|
| $ | 9,260 |
|
| $ | 3,186 |
|
Add back (subtract): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation & amortization |
|
| 7,553 |
|
|
| 3,579 |
|
|
| 22,654 |
|
|
| 9,627 |
|
Interest expense, net |
|
| 5,484 |
|
|
| 2,325 |
|
|
| 16,418 |
|
|
| 7,269 |
|
Income tax (benefit)/expense |
|
| 1,759 |
|
|
| (175 | ) |
|
| 3,154 |
|
|
| (1,513 | ) |
Non-recurring expenses |
|
| 2,422 |
|
|
| 2,800 |
|
|
| 3,833 |
|
|
| 3,412 |
|
Non-cash stock based compensation |
|
| 461 |
|
|
| 187 |
|
|
| 1,452 |
|
|
| 522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Adjusted EBITDA |
|
| 21,757 |
|
|
| 8,781 |
|
|
| 56,771 |
|
|
| 22,503 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash interest expense, net |
|
| (4,555 | ) |
|
| (1,529 | ) |
|
| (13,712 | ) |
|
| (6,172 | ) |
Cash income taxes, net of taxes related to |
|
| (1,046 | ) |
|
| (689 | ) |
|
| (2,192 | ) |
|
| (938 | ) |
Adjusted Net Income |
| $ | 16,156 |
|
| $ | 6,563 |
|
| $ | 40,867 |
|
| $ | 15,393 |
|
43
|
| For the Three |
| |||||
|
| Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
| (in thousands) |
| |||||
Net income |
| $ | 5,243 |
|
| $ | 769 |
|
Adjustments: |
|
|
|
|
|
| ||
Depreciation & amortization |
|
| 7,083 |
|
|
| 7,770 |
|
Interest expense, net |
|
| 5,776 |
|
|
| 5,172 |
|
Income tax expense/(benefit) |
|
| 1,758 |
|
|
| (957 | ) |
Non-recurring expenses |
|
| 691 |
|
|
| 2,159 |
|
Non-cash stock based compensation |
|
| 5,945 |
|
|
| 2,598 |
|
Non-cash stock based compensation - acquisitions |
|
| 771 |
|
|
| 4,501 |
|
Earn out related compensation |
|
| 3,558 |
|
|
| 6,394 |
|
|
|
|
|
|
|
| ||
Adjusted EBITDA |
| $ | 30,825 |
|
| $ | 28,406 |
|
Less: |
|
|
|
|
|
| ||
Cash interest expense, net |
|
| (5,406 | ) |
|
| (2,863 | ) |
Net cash paid on income taxes |
|
| (19 | ) |
|
| (58 | ) |
Adjusted Net Income |
| $ | 25,400 |
|
| $ | 25,485 |
|
|
|
|
|
|
|
| ||
Total GAAP Revenue |
| $ | 66,115 |
|
| $ | 57,253 |
|
Adjustments: |
|
|
|
|
|
| ||
Non-Fee Related Revenue |
|
| (1,108 | ) |
|
| (1,120 | ) |
Fee-Related Revenue |
| $ | 65,007 |
|
| $ | 56,133 |
|
|
|
|
|
|
|
| ||
Adjusted EBITDA |
| $ | 30,825 |
|
| $ | 28,406 |
|
Less: |
|
|
|
|
|
| ||
Non-Fee Related Income |
|
| (84 | ) |
|
| (216 | ) |
Fee-Related Earnings |
| $ | 30,741 |
|
| $ | 28,190 |
|
Financial Position, Liquidity and Capital Resources
Selected Statements of Financial Position
|
| As of |
|
| As of |
|
|
|
|
|
|
| ||||
|
| September 30, |
|
| December 31, |
|
|
|
|
|
|
| ||||
|
| 2021 |
|
| 2020 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands) |
|
|
|
|
|
|
| |||||||
Cash and cash equivalents |
| $ | 21,656 |
|
| $ | 11,773 |
|
| $ | 9,883 |
|
|
| 84 | % |
Goodwill and other intangibles |
|
| 553,707 |
|
|
| 513,720 |
|
|
| 39,987 |
|
|
| 8 | % |
Total assets |
|
| 644,246 |
|
|
| 582,426 |
|
|
| 61,820 |
|
|
| 11 | % |
Debt obligations |
|
| 315,517 |
|
|
| 290,055 |
|
|
| 25,462 |
|
|
| 9 | % |
Redeemable noncontrolling interest |
|
| 199,202 |
|
|
| 198,439 |
|
|
| 763 |
|
|
| 0 | % |
Stockholders’ equity |
| $ | 69,070 |
|
| $ | 59,841 |
|
| $ | 9,229 |
|
|
| 15 | % |
|
| As of |
|
| As of |
|
|
|
|
|
| |||
|
| March 31, |
|
| December 31, |
|
|
|
|
|
| |||
|
| 2024 |
|
| 2023 |
|
| $ Change |
|
| % Change | |||
|
| (in thousands) |
|
|
|
|
|
| ||||||
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)% |
Accrued compensation and benefits |
|
| 45,204 |
|
|
| 45,081 |
|
|
| 123 |
|
| 0% |
Debt obligations |
|
| 314,036 |
|
|
| 289,844 |
|
|
| 24,192 |
|
| 8% |
Equity |
| $ | 400,086 |
|
| $ | 425,162 |
|
| $ | (25,076 | ) |
| (6)% |
There was an increasea decrease in cash and cash equivalents of $2.0 million from $11.8December 31, 2023 to $30.0 million as of DecemberMarch 31, 2020 to $21.7 million as of September 30, 20212024 primarily due to excess operating cash flows.timing of debt facility maturities and associated repayments. There was an increasea decrease in goodwill and intangible assets of $22.4$6.4 million due to the acquisitions of Hark and Bonaccord offset by a $7.4 million reduction from December 31, 2020 to September 30, 2021 due to amortization of intangibles during the ninethree months ended September 30, 2021.March 31, 2024. Remaining total assets also increased in the same period by $5.4 million of restricted cash due to cash held$7.2 million. The increase is driven by ECG in escrow for deals not yet closed and an increase in receivablesaccounts receivable from related parties which is primarily due to ECG's Advisory Agreement with Enhanced PC. Additionally, amountsPC and Crossroads. Debt obligations increased by $24.2 million which is driven by revolver activity due to related parties increased by $2.3 million due tocommon stock repurchases during the related party note agreement balance between BCP and Bonaccord Partners Holdings as of September 30, 2021. The Company also paid down debt obligations of $12.3 million in the nine months ended September 30, 2021 which was offset by an increase in principal by $35.0 million related to the acquisitions of Hark Capital and Bonaccord Capital.period.
39
Historical Liquidity and Capital Resources
We have continued to support our ongoing operations through the receipt of management and advisory fee revenues. However, to fund our continued growth, we have utilized capital obtained through debt and equity raises. Our ability to continue to raise funds will be critical as we pursue additional business development opportunities and new acquisitions.
In order to fundOn December 22, 2021, P10, Inc. entered into a Term Loan and Revolving Credit Facility with JP Morgan Chase Bank, N.A.. The term loan and revolving credit facility provides financing for acquisition activity. The term loan provides for a $125.0 million facility and the acquisitions of RCP 2, in October 2017, the Company issued non-interest bearing Secured Promissory Notes Payable (“2017 Seller Notes”)revolving credit facility provides for an additional $125.0 million. There is also a $125.0 million accordion feature available in the amountcredit agreement, which we exercised in September 2022. The accordion was not drawn until October 2022, at which point it was divided to $87.5 million of $81.3term loan and $37.5 million toof revolver. The Company incurred $1.4 million of up front fees during the sellersexercise which are reflected as deferred issuance costs in debt obligations on the Consolidated Balance Sheets.
Both facilities are Term SOFR Loans. The Company can elect one or three months for the Revolver Facility and three or six months for the Term Loan. Principal is contractually repaid at a rate of RCP 2. On January 3, 2018,1.25% on the Company issued non-interest bearing Secured Promissory Notes Payable (“2018 Seller Notes”) interm loan quarterly effective March 31, 2023. The Revolving Credit Facility has no contractual principal repayments until maturity, which is December 22, 2025 for both facilities.
As of March 31, 2024, the amountTerm Loan with a balance of $22.1$199.2 million tois incurring interest at a weighted average SOFR rate of 7.39%. As of March 31, 2024, the sellers of RCP 3. Additionally, in connection with the acquisition, the Company issued non-interest-bearing tax amortization benefits in the amount of $48.4Revolver Facility is split into thirteen tranches. The total principal outstanding is $117.2 million (“TAB Payments”) to the owners of RCP 3. The 2017 Seller Notes, the 2018 Seller Notes, and the TAB Paymentsweighted average SOFR rate amongst the tranches is 7.43%. The tranches are collectively referredall incurring interest at a set rate for one, three, or six month periods and are subsequently reset at the current SOFR rate. Refer to as “Notes payable to sellers.”Note 11 of our Consolidated Financial Statements for further details provided on the tranches and associated interest periods.
The Company’s indirect wholly owned subsidiary,Credit Agreement contains affirmative and negative covenants typical of such financing transactions, and specific financial covenants which require P10 RCP Holdco, LLC (“HoldCo”), entered intoto maintain a Credit and Guaranty Facilityminimum leverage ratio of less than or equal to 3.50. As of March 31, 2024, P10 was in compliance with HPS Investment Partners, LLC (HPS), an unrelated party, as administrative agent and collateral agentits financial covenants required under the facility. As of March 31, 2024, the balance drawn on October 7, 2017 (the Facility). The Facility provides for a $130.0 million senior securedthe revolving credit facility is $117.2 million. The Company has incurred $5.4 million in order to refinance the existing debt obligations of RCP Advisors and provideinterest expense for the financing to repay the seller notes (the “Seller Notes”) due resulting from the acquisition of RCP Advisors. The Facility provides for a $125 million five-year term loan and a $5 million one-year line of credit. The line of credit was repaid and subsequently expired during 2018. This Facility was amended in the past year, on October 2, 2020 and December 14, 2020 to provide additional term loan borrowings as further described below.
During the yearthree months ended DecemberMarch 31, 2020, we raised $46.4 million of cash through the issuance of redeemable preferred equity interests through the issuance of shares in our subsidiary, P10 Intermediate. Additionally, we incurred $159.4 million under the Facility, which matures in October 2022. As of December 31, 2020, we had $261.7 million outstanding under the Facility. We utilized these funds and cash on hand, as well as the issuance of $141.4 million of P10 Intermediate shares to the sellers to fund the acquisitions of Five Points, TrueBridge, ECG and ECP. As of September 30, 2021, we had $286.8 million outstanding under the Facility. This increased from December 31, 2020 due to a $35.0 million draw to fund the acquisitions of Hark and Bonaccord and was offset by quarterly principal paydowns of $9.8 million.
44
2024.
Cash Flows
NineThree Months Ended September 30, 2021March 31, 2024 Compared to the NineThree Months Ended September 30, 2020March 31, 2023
The following table reflects our cash flows for the ninethree months ended September 30, 2021March 31, 2024 and 2020:2023:
|
| For the Nine Months Ended |
|
|
|
|
|
|
| |||||||
|
| September 30, |
|
|
|
|
|
|
| |||||||
|
| 2021 |
|
| 2020 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands) |
|
|
|
|
|
|
| |||||||
Net cash provided by operating activities |
| $ | 40,704 |
|
| $ | 16,292 |
|
| $ | 24,412 |
|
|
| 150 | % |
Net cash used in investing activities |
|
| (47,379 | ) |
|
| (46,779 | ) |
|
| (600 | ) |
|
| 1 | % |
Net cash provided by financing activities |
|
| 21,969 |
|
|
| 27,948 |
|
|
| (5,979 | ) |
|
| (21 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Increase (decrease) in cash and cash equivalents and |
| $ | 15,294 |
|
| $ | (2,539 | ) |
| $ | 17,833 |
|
|
| (702 | )% |
|
| For the Three Months |
|
|
|
| ||||||||
|
|
|
|
|
|
| ||||||||
|
| 2024 |
|
| 2023 |
|
| $ Change |
|
| % Change | |||
|
| (in thousands) |
|
|
|
|
|
| ||||||
Net cash provided by operating activities |
| $ | 10,959 |
|
| $ | 20,777 |
|
| $ | (9,818 | ) |
| (47)% |
Net cash (used in) investing activities |
|
| (260 | ) |
|
| (701 | ) |
|
| 441 |
|
| (63)% |
Net cash (used in) financing activities |
|
| (12,725 | ) |
|
| (13,711 | ) |
|
| 986 |
|
| (7)% |
(Decrease) Increase in cash, cash equivalents and |
| $ | (2,026 | ) |
| $ | 6,365 |
|
| $ | (8,391 | ) |
| (132)% |
Operating Activities
Three Months Ended March 31, 2024 and March 31, 2023
Cash from operating activities increased $24.4decreased by $9.8 million, or 150%(47)%, to $40.7$11.0 million for the ninethree months ended September 30, 2021March 31, 2024 compared to the ninethree months ended September 30, 2020.March 31, 2023. The components of this net increasedecrease primarily consisted of a $6.1 million increase in net income and the following changes in revenue and operating assets and liabilities:
40
Investing activities
Three Months Ended March 31, 2024 and March 31, 2023
The cash used in investing activities increaseddecreased by $0.6$0.4 million, or 1%(63)%, to ($47.4)0.3) million, for the ninethree months ended September 30, 2021March 31, 2024 as compared to the ninethree months ended September 30, 2020.March 31, 2023. This increasedecrease in the cash used was due almost entirely to purchases of additional property and equipment in the acquisitions of Hark Capital and Bonaccord Capital on September 30, 2021, which resulted in net cash payments of $46.9 million during the thirdfirst quarter of 2021.2023.
Financing Activities
Three Months Ended March 31, 2024 and March 31, 2023
We obtainedrecorded a net $22.0$12.7 million of cash for the ninethree months ended September 30, 2021March 31, 2024 for cash used in financing activities, as compared to cash provided byused in financing activities of $27.9$13.7 million for the ninethree months ended September 30, 2021 due primarily toMarch 31, 2023. The change is driven by the borrowingrepurchase of $35.0 million related to the Hark Capital and Bonaccord Capital acquisitionscommon stock in the thirdfirst quarter of 2021. The cash obtained for financing activities for the first nine months of 2020 was primarily due to the proceeds from the issuance of redeemable noncontrolling interests. The was2024 offset by $9.7 million of repayments ofan increase in draws on debt obligations forduring the nine months ended September 31, 2021.period.
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 external financing activities which may include refinancing of existing indebtedness or the pay down of debt using proceeds of equity offerings.
We intend to use a portion of the proceeds raised in the Initial Public Offering completed on October 25, 2021 to pay down the debt obligations of the Company which existed as of September 30, 2021. We believe we will also continue to
45
evaluate opportunities, based on market conditions, to access the capital markets and use proceeds from the issuance of equity securities or debt instruments, to continue funding acquisitions and expanding our operations.
Subsequent Events
On October 25, 2021, we completed our Initial Public Offering to the New York Stock Exchange. We issued 20,000,000 of our Class A common stock at a price to the public of $12.00 per share. We then used the proceeds from the offering mostly to pay down the term loan. On October 29, 2021, the Company paid down $86.8 million of our total principal outstanding on the term loan.
Off Balance Sheet Arrangements
We do not invest in any off-balance sheet vehicles that provide liquidity, capital resources, market or credit risk support, or engage in any activities that expose us to any liability that is not reflected in our consolidated financial statements.
Contractual Obligations, Commitments and Contingencies
In the ordinary course of business, we enter contractual arrangements that require future cash payments. The following table sets forth information regarding our anticipated future cash payments under our contractual obligations as of September 30, 2021:
|
| Total |
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| Thereafter |
| |||||||
|
| (in thousands) |
| |||||||||||||||||||||||||
Operating lease obligations (1) |
| $ | 9,065 |
|
| $ | 576 |
|
| $ | 2,184 |
|
| $ | 2,180 |
|
| $ | 2,011 |
|
| $ | 854 |
|
| $ | 1,260 |
|
Debt obligations (2) |
|
| 327,911 |
|
|
| 2,318 |
|
|
| 284,529 |
|
|
| — |
|
|
| 2,111 |
|
|
| 2,111 |
|
|
| 36,842 |
|
Total |
| $ | 336,976 |
|
| $ | 2,894 |
|
| $ | 286,713 |
|
| $ | 2,180 |
|
| $ | 4,122 |
|
| $ | 2,965 |
|
| $ | 38,102 |
|
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of the Company and its consolidated subsidiaries. The preparation of the Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. We believe the following critical accounting policies could potentially produce materially different results if we were to change the underlying assumptions, estimates, or judgements.judgments. See Note 2 “Significant Accounting Policies”of our consolidated financial statements for a summary of our significant accounting policies.
Basis of Presentation
The accompanying Consolidated Financial Statements are prepared in accordance with GAAP. Management believes it has made all necessary adjustments so that the Consolidated Financial Statements are presented fairly and that estimates made in preparing the Consolidated Financial Statements are reasonable and prudent. The Consolidated Financial Statements
41
include the accounts of the Company, its wholly owned or majority-owned subsidiaries and entities in which the Company is deemed to have a direct or indirect controlling financial interest based on either a variable interest model or voting interest model. All intercompany transactions and balances have been eliminated upon consolidation. Certain entities in which the Company holds an interest are investment companies that follow specialized accounting rules under GAAP and reflect their investments at estimated fair value. Accordingly, the carrying value of the Company’s equity method investments in such entities retains the specialized accounting treatment.
46
Principles of Consolidation
The Company performs the variable interest analysis for all entities in which it has a potential variable interest. If the Company has a variable interest in the entity and the entity is a variable interest entity (“VIE”), we will also analyze whether the Company is the primary beneficiary of this entity and if consolidation is required.
Generally, VIEs are entities that lack sufficient equity to finance their activities without additional financial support from other parties, or whose equity holders, as a group, lack one or more of the following characteristics: (a) direct or indirect ability to make decisions, (b) obligation to absorb expected losses or (c) right to receive expected residual returns. A VIE must be evaluated quantitatively and qualitatively to determine the primary beneficiary, which is the reporting entity that has (a) the power to direct activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.
To determine a VIE’s primary beneficiary, we perform a qualitative assessment to determine which party, if any, has the power to direct activities of the VIE and the obligation to absorb losses and/or receive its benefits. This assessment involves identifying the activities that most significantly impact the VIE’s economic performance and determine whether we, or another party, has the power to direct those activities. When evaluating whether we are the primary beneficiary of a VIE, we perform a qualitative analysis that considers the design of the VIE, the nature of our involvement and the variable interests held by other parties. See Note 6 of our consolidated financial statements for further information.
The Company has determined that certain of its subsidiaries are VIEs, and that the Company is the primary beneficiary of the entity,entities, because it has the power to direct activities of the entities that most significantly impact the VIE’s economic performance and has a controlling financial interest in each entity. Accordingly, the Company consolidates these entities, which includesinclude P10 Intermediate, Holdco, RCP 2, RCP 3, TrueBridge, Hark, Bonaccord, and Bonaccord.WTI. The assets and liabilities of the consolidated VIEs are presented gross in the Consolidated Balance Sheets. The assets of our consolidated VIE’s are owned by those entities and not generally available to satisfy P10 Holding’s obligations, and the liabilities of our consolidated VIE’s are obligations of those entities and their creditors do not generally have recourse to the assets of P10. See Note 6 of our consolidated financial statements for more information on both consolidated and unconsolidated VIEs.
Entities that do not qualify as VIEs are assessed for consolidation as voting interest entities under the voting interest model. Under the voting interest model, the Company consolidates those entities it controls through a majority voting interest or other means. Five Points, P10 Holdings, and ECG are concluded to be consolidated subsidiaries of P10 Intermediate under the voting interest model.
Revenue Recognition of Management Fees and Management Fees Received in Advance
On January 1, 2019, the Company adopted ASC 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 fees. Accordingly, the Company did not record a cumulative adjustment upon adoption.
Revenue is recognized when the Company transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services.
While the determination of who is the customer in a contractual arrangement will be made on a contract-by-contract basis, the customer will generally be the investment fund for the Company’s significant management and advisory contracts.
Management and Advisory Fees
The Company earns management fees for asset management services provided to the Funds where the Company has discretion over investment decisions. The Company primarily earns fees for advisory services provided to clients where the Company does not have discretion over investment decisions. Management and advisory fees received in advance reflects the amount of fees that have been received prior to the period the fees are earned. These fees are recorded as deferred revenue on the Consolidated Balance Sheets.
42
For asset management and advisory services, the Company typically satisfies its performance obligations over time as the services are rendered, since the customers simultaneously receive and consume the benefits provided as the Company performs the service. The transaction price is the amount of consideration to which the Company expects to be entitled based
47
on the terms of the arrangement. For certain funds, management fees are initially calculated based on committed capital during the investment period and on net invested capital through the remainder of the fund’s term. Additionally, the management fee may step down for certain funds depending on the contractual arrangement. Advisory services are generally based upon fixed amounts and billed quarterly. Other advisory services include transaction and management fees associated with managing the origination and ongoing compliance of certain investments.
Other RevenueStock-Based Compensation Expense
Other revenueStock-based compensation relates to grants for shares of P10 awarded to our employees through stock options as well as RSUs awarded to employees and RSAs issued to non-employee directors as compensation for service on our Consolidated Statements of Operations primarily consists of subscriptions, consulting agreements and referral fees. The subscription and consulting agreements typically have renewable one-year lives, and revenuethe Company's board. Stock compensation expense for awards that cliff-vest after a service period is recognizedrecorded ratably over the current termvesting period at the fair market value on the grant date. For awards with graded vesting, and vesting only requires a service condition, the Company elected, in accordance with ASC 718, to treat these awards as single awards for recognition purposes and recognize compensation on a straight-line basis over the requisite service period of the subscriptionentire award. For awards with graded vesting and require either a performance condition or market condition to vest, the agreement. If subscriptions or fees have been paid in advance,Company treats each expected vesting tranche as an individual award and recognizes expense ratably over the vesting period at the fair market value of the grant date. Certain acquisition-related RSUs vest after meeting certain performance metrics. For these, feesthe Company uses the tranche method and recognizes expense for each tranche of RSU's deemed probable of vesting on a straight-line basis over the expected vesting period. The Company evaluates the probability of vesting at each reporting period. Unvested units are recordedremeasured quarterly against performance metrics as deferred revenuea liability on ourthe Consolidated Balance Sheets. Referral fee revenue isRefer to Note 15 to our Consolidated Financial Statements for further discussion. Forfeitures are recognized upon closing of certain opportunities.as they occur.
Income Taxes
Current income tax expense represents our estimated taxes to be paid or refunded for the current period. In accordance with ASC 740, Income Taxes (“ASC 740”), we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets to the amount we believe is more likely than not to be realized.
Uncertain tax positions are recognized only when we believe it is more likely than not that the tax position will be upheld on examination by the taxing authorities based on the merits of the position. We recognize interest and penalties, if any, related to uncertain tax positions in income tax expense.
We file various federal and state and local tax returns based on federal and state local consolidation and stand- alone tax rules as applicable.
Stock-Based Compensation Expense
Stock-based compensation relates to option grants for shares of P10 awarded to our employees. Stock- based compensation cost is estimated at the grant date based on the fair-value of the award, which is determined using the Black Scholes option valuation model and is recognized as expense ratably over the requisite service period of the award, generally five years. The share price used in the Black Scholes model is based on the trading price of our shares on the OTC Market. Expected life is based on the vesting period and expiration date of the option. Stock price volatility is estimated based on a group of similar publicly traded companies determined to be most reflective of the expected volatility of the Company due to the nature of operations of these entities. The risk-free rates are based on the U.S. Treasury yield in effect at the time of grant. Forfeitures are recognized as they occur.
Business Acquisitions
In accordance with ASC 805, the Company identifies a business to have three key elements: inputs, processes, and outputs. While an integrated set of assets and activities that is a business usually has outputs, outputs are not required to be present. In addition, all the inputs and processes that a seller uses in operating a set of assets and activities are not required if market participants can acquire the set of assets and activities and continue to produce outputs. In addition, the Company also performs a screen test to determine when a set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set of assets is not a business. If the set of assets and activities is not considered a business, it is accounted for as an asset acquisition using a cost accumulation model. In the cost accumulation model, the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on the basis of relative fair values.
The Company includes the results of operations of acquired businesses beginning on the respective acquisition dates. In accordance with ASC 805, the Company allocates the purchase price of an acquired business to its identifiable assets and liabilities based on the estimated fair values using the acquisition method. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill. The excess value of the net identifiable assets and liabilities acquired over the purchase price of an acquired business is recorded as a bargain purchase gain. The Company uses all available
48
information to estimate fair values of identifiable intangible assets and property acquired. In making these determinations, the Company may engage an independent third-party valuation specialist to assist with the valuation of certain intangible assets, notes payable, and tax amortization benefits.
The consideration for certain of our acquisitions may include liability classified contingent consideration, which is determined based on formulas stated in the applicable purchase agreements. The amount to be paid under these arrangements is based on certain financial performance measures subsequent to the acquisitions. The contingent consideration included in the purchase price is measured at fair value on the date of the acquisition. The liabilities are remeasured at fair value on each reporting date, with changes in the fair value reflected in general, administrative and other on our Consolidated Statements of Operations.
For business acquisitions, the Company recognizes the fair value of goodwill and other acquired intangible assets, and estimated contingent consideration at the acquisition date as part of purchase price. This fair value measurement is based on unobservable (Level 3) inputs.
Goodwill and Intangible Assets
Goodwill is initially measured as the excess of the cost of the acquired business over the sum of the amounts assigned to identifiable assets acquired less the liabilities assumed. As of September 30, 2021, goodwill recorded on our Consolidated Balance Sheets relates to the acquisitions of RCP 2, RCP 3, Five Points, TrueBridge, Enhanced, Hark, and Bonaccord. As of September 30, 2021, the intangible assets are comprised of indefinite-lived intangible assets and finite-lived intangible assets related to the acquisitions of RCP 2, RCP 3, Five Points, TrueBridge, Enhanced, Hark, and Bonaccord.
Indefinite-lived intangible assets and goodwill are not amortized. Finite-lived technology is amortized using the straight-line method over its estimated useful life of 4 years. Finite-lived management and advisory contracts, which relate to acquired separate accounts and funds and investor/customer relationships with a specified termination date, are amortized in line with contractual revenue to be received, which range between 7 and 16 years. Certain of our trade names are considered to have finite-lives. Finite-lived trade names are amortized over 10 years in line with the pattern in which the economic benefits are expected to occur.
Goodwill is reviewed for impairment at least annually utilizing a qualitative or quantitative approach and more frequently if circumstances indicate impairment may have occurred. The impairment testing for goodwill under the qualitative approach is based first on a qualitative assessment to determine if it is more likely than not that the fair value of the Company’s reporting unit is less than the respective carrying value. The reporting unit is the reporting level for testing the impairment of goodwill. If it is determined that it is more likely than not that a reporting unit’s fair value is less than its carrying value, then the difference is recorded as an impairment (not to exceed the carrying amount of goodwill).
The Company performed the annual goodwill impairment assessment as of September 30, 2021 and 2020 and concluded that goodwill was not impaired. The Company has not recognized any impairment charges in any of the periods presented.
Item 3. Qualitative and Quantitative Disclosures about Market RiskRisk.
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, and counterparty risk. Potentially negative effects of these risks may be mitigated to a certain extent by those aspects of our investment approach, investment strategies 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 investment vehicles and the sensitivities to movements in the fair value of their investments and overall returns for our investors. Since 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, but unfavorable changes in the value of the assets we manage could adversely impact our ability to attract and retain our investors.
Fair value of the financial assets and liabilities of our specialized investment vehicles may fluctuate in response to changes in the value of underlying assets, and interest rates.
4943
Interest Rate Risk
As of September 30, 2021,March 31, 2024, we had $253.9$199.2 million in outstanding principal in Term Loans under our CreditTerm Loan and Guaranty$117.2 million under our Revolving Credit Facility. The annual interest rate on the Term Loan is based on LIBOR,SOFR, subject to a floor of 1.00%0.10%, plus 6.00%2.00%. On September 30, 2021,March 31, 2024, the interest rate on these borrowings was 7.00%.2.1% + SOFR. We estimate that a 100-basis point increase in the interest rate would result in an approximately $2.6$2.0 million increase in interest expense related to the loan over the next 12 months.
In July 2017, the UK’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR as a benchmark by the end of 2021. At the present time, our Facility has a term that extends beyond 2021. The Facility provides for a mechanism to amend the underlying agreements to reflect the establishment of an alternate rate of interest. However, we have not yet pursued any amendment or other contractual alternative to our Facility to address this matter. We are currently evaluating the potential impact of the eventual replacement of the LIBOR interest rate.
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
We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Co-ChiefChief Executive OfficersOfficer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing disclosure controls and procedures, our management necessarily was required to apply its judgementjudgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives.
Our management, under the supervision and with the participation of our Co-ChiefChief Executive OfficersOfficer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Co-ChiefChief Executive OfficersOfficer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are effective to provide reasonable assurance that information that we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Co-ChiefChief Executive OfficersOfficer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Controls over Financial Reporting
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent quarter ended September 30, 2021March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
5044
PART II—II - OTHER INFORMATION
Item 1. Legal Proceedings.
The information required with respect to this item can be found under “Contingencies” in Note 12,13, Commitments and Contingencies, to our condensed consolidated financial statements included elsewhere in this quarterlyannual report, and such information is incorporated by reference into this Item 1.
Item 1A. Risk Factors.
There have been no material changes from the risk factors previously disclosed in “Risk Factors” included in our prospectus dated October 20, 2021, filed withannual report on Form 10-K for the SEC on October 22, 2021.year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not applicable.The following table provides information about our repurchase activity with respect to shares of our common stock for the quarter ended March 31, 2024:
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plan or Program (1) Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) 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
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5.3. Other Information.Information
Not applicable.Neither the Company nor any of our officers or directors adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement as defined by Item 408(a) and Item 408(d) of Regulation S-K during the last fiscal quarter.
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Item 4. Exhibits.
Item 6. Exhibits.
Furnish the exhibits required by Item 601 of Regulation S-K (§ 229.601 of this chapter).
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10.2* | ||
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10.3* | ||
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31.1* | ||
31.2* | ||
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32.1* |
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32.2* | ||
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101.INS | Inline XBRL Instance Document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
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| Cover Page Interactive Data File (embedded within the Inline XBRL | |
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* Filed 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.
P10, Inc. | |||
Date: | By: | /s/ | |
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Date: |
| By: | /s/ Amanda Coussens |
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| Amanda Coussens |
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| Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
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