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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 June 30, 2022

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
Identification No.)

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 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 registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

 

As of August 8, 2022, the registrant had 38,654,972 shares of the registrant's Class A common stock, par value $0.001, and 78,539,705 shares of the registrant's Class B common stock, par value $0.001, outstanding.

 

 


 

 

 


 

 

 

 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

 

 

Consolidated Balance Sheets

1

 

Consolidated Statements of Operations

2

 

Consolidated Statements of Changes in Stockholders' Equity

3

 

Consolidated Statements of Cash Flows

4

 

Notes to Unaudited Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

29

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

44

Item 4.

Controls and Procedures

44

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

46

Item 1A.

Risk Factors

46

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

46

Item 3.

Defaults Upon Senior Securities

46

Item 4.

Mine Safety Disclosures

46

Item 5.

Other Information

46

Item 6.

Exhibits

46

Signatures

47

 

 


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

P10, Inc.

Consolidated Balance Sheets

(in thousands, except share amounts)

 

 

 

As of

 

 

As of

 

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

23,613

 

 

$

40,916

 

Restricted cash

 

 

1,731

 

 

 

2,566

 

Accounts receivable

 

 

6,668

 

 

 

2,854

 

Note receivable

 

 

2,811

 

 

 

2,552

 

Due from related parties

 

 

23,616

 

 

 

12,357

 

Investment in unconsolidated subsidiaries

 

 

2,253

 

 

 

1,803

 

Prepaid expenses and other assets

 

 

3,665

 

 

 

4,759

 

Property and equipment, net

 

 

2,359

 

 

 

981

 

Right-of-use assets

 

 

13,591

 

 

 

14,789

 

Deferred tax assets, net

 

 

39,376

 

 

 

45,151

 

Intangibles, net

 

 

116,541

 

 

 

128,788

 

Goodwill

 

 

418,690

 

 

 

418,701

 

Total assets

 

$

654,914

 

 

$

676,217

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

Accounts payable

 

$

1,190

 

 

$

401

 

Accrued expenses

 

 

10,478

 

 

 

12,474

 

Due to related parties

 

 

800

 

 

 

2,258

 

Other liabilities

 

 

983

 

 

 

1,808

 

Contingent consideration

 

 

22,950

 

 

 

22,963

 

Deferred revenues

 

 

12,523

 

 

 

12,953

 

Lease liabilities

 

 

15,787

 

 

 

15,700

 

Debt obligations

 

 

187,913

 

 

 

212,496

 

Total liabilities

 

 

252,624

 

 

 

281,053

 

COMMITMENTS AND CONTINGENCIES (NOTE 14)

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

Class A common stock, $0.001 par value; 510,000,000 shares authorized; 37,307,745  issued and 37,307,745 outstanding as of June 30, 2022, and 34,464,920 issued and 34,464,920 outstanding as of December 31, 2021, respectively

 

 

37

 

 

 

34

 

Class B common stock, $0.001 par value; 180,000,000 shares authorized; 79,885,002 shares issued and 79,761,550 shares outstanding as of June 30, 2022, and 82,851,279 shares issued and 82,727,827 shares outstanding as of December 31, 2021, respectively

 

 

80

 

 

 

83

 

Treasury stock

 

 

(273

)

 

 

(273

)

Additional paid-in-capital

 

 

638,585

 

 

 

650,405

 

Accumulated deficit

 

 

(236,139

)

 

 

(255,085

)

Total stockholders' equity

 

 

402,290

 

 

 

395,164

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

654,914

 

 

$

676,217

 

 

1

The Notes to Consolidated Financial Statements

are an integral part of these statements.


 

P10, Inc.

Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share amounts)

 

 

 

For the Three Months
Ended June 30,

 

 

For the Six Months
Ended June 30,

 

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

Management and advisory fees

 

$

46,451

 

 

$

33,517

 

 

$

89,478

 

 

$

66,090

 

Other revenue

 

 

287

 

 

 

471

 

 

 

541

 

 

 

666

 

Total revenues

 

 

46,738

 

 

 

33,988

 

 

 

90,019

 

 

 

66,756

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

17,815

 

 

 

12,337

 

 

 

36,309

 

 

 

24,273

 

Professional fees

 

 

2,740

 

 

 

3,406

 

 

 

5,352

 

 

 

6,137

 

General, administrative and other

 

 

4,250

 

 

 

2,215

 

 

 

8,362

 

 

 

4,252

 

Contingent consideration expense

 

 

(140

)

 

 

132

 

 

 

(13

)

 

 

160

 

Amortization of intangibles

 

 

6,153

 

 

 

7,484

 

 

 

12,334

 

 

 

14,968

 

Strategic alliance expense

 

 

153

 

 

 

 

 

 

305

 

 

 

 

Total operating expenses

 

 

30,971

 

 

 

25,574

 

 

 

62,649

 

 

 

49,790

 

INCOME FROM OPERATIONS

 

 

15,767

 

 

 

8,414

 

 

 

27,370

 

 

 

16,966

 

OTHER (EXPENSE)/INCOME

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense implied on notes payable to sellers

 

 

 

 

 

(219

)

 

 

 

 

 

(434

)

Interest expense, net

 

 

(1,525

)

 

 

(5,245

)

 

 

(2,910

)

 

 

(10,500

)

Other income

 

 

791

 

 

 

257

 

 

 

1,120

 

 

 

545

 

Total other (expense)

 

 

(734

)

 

 

(5,207

)

 

 

(1,790

)

 

 

(10,389

)

Net income before income taxes

 

 

15,033

 

 

 

3,207

 

 

 

25,580

 

 

 

6,577

 

Income tax expense

 

 

(3,879

)

 

 

(734

)

 

 

(6,634

)

 

 

(1,395

)

NET INCOME

 

$

11,154

 

 

$

2,473

 

 

$

18,946

 

 

$

5,182

 

Less: preferred dividends attributable to redeemable
   noncontrolling interest

 

 

 

 

 

(495

)

 

 

-

 

 

 

(989

)

NET INCOME ATTRIBUTABLE TO P10

 

$

11,154

 

 

$

1,978

 

 

$

18,946

 

 

$

4,193

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.10

 

 

$

0.02

 

 

$

0.16

 

 

$

0.05

 

Diluted earnings per share

 

$

0.09

 

 

$

0.02

 

 

$

0.16

 

 

$

0.05

 

Dividends paid per share

 

$

0.03

 

 

$

 

 

$

0.03

 

 

$

 

Weighted average shares outstanding, basic

 

 

117,193

 

 

 

62,465

 

 

 

117,193

 

 

 

62,465

 

Weighted average shares outstanding, diluted

 

 

120,981

 

 

 

66,742

 

 

 

121,259

 

 

 

66,660

 

 

2

The Notes to Consolidated Financial Statements

are an integral part of these statements.


 

P10, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

Common Stock

 

 

Common Stock - Class A

 

 

Common Stock - Class B

 

 

Treasury stock

 

Additional

 

Accumulated

 

Stockholders'

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

568

 

 

 

 

568

 

Net income attributable to P10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,978

 

 

1,978

 

Balance at June 30, 2021

 

62,464

 

 

$

63

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

123

 

 

$

(273

)

$

325,302

 

$

(260,066

)

$

65,026

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

Common Stock

 

 

Common Stock - Class A

 

 

Common Stock - Class B

 

 

Treasury stock

 

Additional

 

Accumulated

 

Stockholders'

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

Paid-in-capital

 

Deficit

 

Equity

 

Balance at December 31, 2021

 

 

 

$

 

 

 

34,464

 

 

$

34

 

 

 

82,727

 

 

$

83

 

 

 

123

 

 

$

(273

)

$

650,405

 

$

(255,085

)

 

395,164

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,515

 

 

 

 

1,515

 

Deferred offering costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(70

)

 

 

 

(70

)

Net income attributable to P10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,792

 

 

7,792

 

Exchange of Class B common stock for Class A common stock

 

 

 

 

 

 

 

1,222

 

 

 

1

 

 

 

(1,220

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

Settlement of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,466

)

 

 

 

(12,466

)

Balance at March 31, 2022

 

 

 

$

 

 

 

35,686

 

 

$

35

 

 

 

81,507

 

 

$

82

 

 

 

123

 

 

$

(273

)

$

639,384

 

$

(247,293

)

$

391,935

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,717

 

 

 

 

2,717

 

Net income attributable to P10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,154

 

 

11,154

 

Exchange of Class B common stock for Class A common stock

 

 

 

 

 

 

 

1,622

 

 

 

2

 

 

 

(1,622

)

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

(1

)

Dividends paid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,515

)

 

 

 

(3,515

)

Balance at June 30, 2022

 

 

 

$

 

 

 

37,308

 

 

$

37

 

 

 

79,885

 

 

$

80

 

 

 

123

 

 

$

(273

)

$

638,585

 

$

(236,139

)

$

402,290

 

 

3

The Notes to Consolidated Financial Statements

are an integral part of these statements.


 

P10, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

For the Six Months
Ended June 30,

 

 

 

 

 

 

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net income

 

$

18,946

 

 

$

5,182

 

Adjustments to reconcile net income to net cash provided by operating
   activities:

 

 

 

 

 

 

Stock-based compensation

 

 

4,232

 

 

 

992

 

Depreciation expense

 

 

205

 

 

 

134

 

Amortization of intangibles

 

 

12,334

 

 

 

14,968

 

Amortization of debt issuance costs and debt discount

 

 

425

 

 

 

1,872

 

Income from unconsolidated subsidiaries

 

 

(1,110

)

 

 

(527

)

Deferred tax expense

 

 

5,775

 

 

 

206

 

Remeasurement of contingent consideration

 

 

(13

)

 

 

160

 

Post close purchase price adjustment

 

 

11

 

 

 

 

Change in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(3,816

)

 

 

(3,453

)

Due from related parties

 

 

(11,259

)

 

 

(1,820

)

Prepaid expenses and other assets

 

 

1,025

 

 

 

758

 

Right-of-use assets

 

 

2,088

 

 

 

806

 

Accounts payable

 

 

789

 

 

 

(426

)

Accrued expenses

 

 

(1,996

)

 

 

937

 

Due to related parties

 

 

(1,458

)

 

 

(1,100

)

Other liabilities

 

 

(825

)

 

 

(39

)

Deferred revenues

 

 

(430

)

 

 

(134

)

Lease liabilities

 

 

(1,752

)

 

 

(912

)

Net cash provided by operating activities

 

 

23,171

 

 

 

17,604

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Note receivable

 

 

(266

)

 

 

 

Proceeds from note receivable

 

 

7

 

 

 

 

Investments in unconsolidated subsidiaries

 

 

 

 

 

(2,637

)

Proceeds from investments in unconsolidated subsidiaries

 

 

660

 

 

 

3,552

 

Software capitalization

 

 

(87

)

 

 

 

Post-closing payments for Enhanced working capital

 

 

 

 

 

(1,519

)

Purchases of property and equipment

 

 

(634

)

 

 

(39

)

Net cash used in investing activities

 

 

(320

)

 

 

(643

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Borrowings on debt obligations

 

 

 

 

 

952

 

Repayments on debt obligations

 

 

(25,000

)

 

 

(10,266

)

Payment of preferred stock dividends

 

 

 

 

 

(719

)

Payments of contingent consideration

 

 

 

 

 

(518

)

Cash settlement of stock options

 

 

(12,466

)

 

 

 

Dividends paid

 

 

(3,515

)

 

 

 

Debt issuance costs

 

 

(8

)

 

 

(27

)

Net cash used in financing activities

 

 

(40,989

)

 

 

(10,578

)

Net change in cash, cash equivalents and restricted cash

 

 

(18,138

)

 

 

6,383

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning
   of period

 

 

43,482

 

 

 

12,783

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of
   period

 

$

25,344

 

 

$

19,166

 

 

4

The Notes to Consolidated Financial Statements

are an integral part of these statements.


 

P10, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

For the Six Months
Ended June 30,

 

 

 

 

 

 

 

2022

 

 

2021

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

 

 

Cash paid for interest

 

$

2,290

 

 

$

9,157

 

Net cash paid for income taxes

 

$

428

 

 

$

3,592

 

NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

Additions to right-of-use assets

 

 

890

 

 

 

1,823

 

Additions to lease liabilities

 

 

1,839

 

 

 

1,823

 

Additions to capex for leasehold improvements

 

 

949

 

 

 

 

Dividends declared

 

 

1

 

 

 

 

 

 

 

 

 

 

 

RECONCILIATION OF CASH, CASH EQUIVALENTS AND
   RESTRICTED CASH

 

 

 

 

 

 

Cash and cash equivalents

 

$

23,613

 

 

$

18,035

 

Restricted cash

 

 

1,731

 

 

 

1,131

 

Total cash, cash equivalents and restricted cash

 

$

25,344

 

 

$

19,166

 

 

5

The Notes to Consolidated Financial Statements

are an integral part of these statements.


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. 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 the reorganization and IPO are the consolidated financial statements of P10 Holdings as the predecessor to P10 for accounting and reporting purposes.

Following the reorganization and IPO, P10 has two classes of common stock, Class A common stock and Class B common stock. Each share of Class B common stock is entitled to 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"), Hark Capital Advisors, LLC ("Hark") and P10 Advisors, LLC ("P10 Advisors").

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-organization 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 is 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. 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. 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, “Enhanced”). Enhanced undertakes and 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. ECP is a registered investment advisor with the United States Securities and Exchange Commission.

6

 


P10, Inc.

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts stated in thousands)

 

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. See Note 3 for additional information on these acquisitions.

In June 2022, we formed P10 Advisors, a fully consolidated subsidiary, to manage investment opportunities that are sourced across the P10 platform but do not fit within an existing investment mandate.

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 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 six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2022.

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.

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 7 for further information.

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 Holdco, RCP 2, RCP 3, TrueBridge, Bonaccord, and Hark. The assets and liabilities of the consolidated VIEs are presented on a gross basis in the Consolidated Balance Sheets. As a result of the reorganization, it was determined that P10 Intermediate no longer qualifies as a VIE, but would still be consolidated under the voting interest model. This change has been retrospectively adjusted. See Note 7 for more information on both consolidated and unconsolidated VIEs.

7

 


P10, Inc.

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts stated in thousands)

 

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, P10 Intermediate, Five Points, P10 Advisors and ECG are concluded to be consolidated subsidiaries of P10 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 June 30, 2022, and December 31, 2021, cash equivalents include money market funds of $7.5 million and $10.7 million, respectively, which approximates fair value. The Company maintains its cash balances at various financial institutions, which may periodically exceed the Federal Deposit Insurance Corporation (“FDIC”) insured limits. The Company believes it is not exposed to any significant credit risk on cash.

Restricted Cash

Restricted cash as of June 30, 2022 and December 31, 2021 was primarily cash that is restricted due to certain deposits being held by the Company for its customers.

Accounts Receivable and Due from Related Parties

Accounts receivable is equal to contractual amounts reduced for allowances, if applicable. The Company considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts has been established as of June 30, 2022 and December 31, 2021. 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 reimbursable expenses. 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 PC are reflected in due from related parties on the Consolidated Balance Sheets. These amounts are expected to be fully collectible.

Note Receivable

Note receivable is equal to contractual amounts owed from a signed, secured promissory note with Bonaccord. In addition to contractual amounts, borrowers are obligated to pay interest on outstanding amounts. The Company considers the note receivable to be fully collectible; accordingly, no allowance for doubtful accounts has been established as of June 30, 2022 or December 31, 2021. If accounts are subsequently determined to be uncollectible, they will be expensed in the period that determination is made.

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 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.

For certain entities in which the Company does not have significant influence and fair value is not readily determinable, 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.

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 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.

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. 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.

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 June 30, 2022, goodwill recorded on our Consolidated Balance Sheets relates to the acquisitions of RCP 2, RCP 3, Five Points, TrueBridge, Enhanced, Bonaccord, and Hark. As of June 30, 2022, 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 and Hark.

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 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 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).

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 operating expenses on our Consolidated Statements of Operations. As of June 30, 2022 and December 31, 2021, contingent consideration recorded relates to the acquisitions of Hark and Bonaccord on the Consolidated Balance Sheets.

Debt Issuance Costs

 

Costs incurred which are directly related to the issuance of debt are deferred and amortized using 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.

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.

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 June 30, 2022 and December 31, 2021, 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.

10

 


P10, Inc.

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts stated in thousands)

 

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, prepaid assets, accounts payable, accounts receivable and due from related parties approximate fair values due to the short-term maturities of these instruments. The fair value of the credit and guarantee facility approximates the carrying value based on the interest rates which approximate current market rates. The Company has a contingent consideration liability related to the acquisitions of Hark and Bonaccord that is measured at fair value and is remeasured on a recurring basis. See Note 11 for additional information.

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 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.

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 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 Revenue

Other revenue 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 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 certain opportunities.

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.

11

 


P10, Inc.

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts stated in thousands)

 

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. See Note 17 for additional information. Prior to the IPO, redeemable noncontrolling interests represented third party and related party interests in the Company's consolidated subsidiary, P10 Intermediate. Prior to the conversion of the redeemable convertible preferred shares issued by P10 Intermediate to class B shares, the numerator in the computation of diluted EPS was impacted by the redeemable convertible preferred shares. 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.

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. 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 through stock options as well as RSUs awarded to employees and RSAs issued to non-employee directors as compensation for service on the Company's board. RSUs and RSAs stock compensation expense are recorded ratably over the vesting period at the fair market value on the grant date. 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 an 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. 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.

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 separate financial information is evaluated regularly by the chief operating decision maker(s) in deciding how to allocate resources and in assessing performance.

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 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

12

 


P10, Inc.

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts stated in thousands)

 

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 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.

Dividends

 

Dividends are reflected in the consolidated financial statements when declared.

Recent Accounting Pronouncements

 

The Company adopted ASU No. 2019-12, Income Taxes ("Topic 740"): Disclosure Framework - Simplifying the Accounting for Income Taxes, on 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.

Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 provides amendments to ASC 326, Financial Instruments - Credit Losses, which replaces the incurred loss impairment model with a current expected credit loss (“CECL”) model. CECL requires a company to estimate lifetime expected credit losses based on relevant information about historical events, current conditions and reasonable and supportable forecasts. The guidance must be applied using the modified retrospective adoption method on January 1, 2023, with early adoption permitted. We are evaluating the effects of these amendments on our financial reporting.

On October 28, 2021, the FASB issued ASU 2021-08, which amends ASC 805 to “require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.” Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date. The guidance is effective for fiscal years beginning after December 15, 2022. We are evaluating the effects of these amendments on our financial reporting.

On June 30, 2022, the FASB issued ASU No. 2022-03, Fair 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, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The guidance is effective for fiscal years beginning after December 15, 2023. We are evaluating the effects of these amendments on our financial reporting.

13

 


P10, Inc.

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts stated in thousands)

 

Note 3. Acquisitions

Acquisition of Bonaccord

On September 30, 2021, the Company completed the purchase of Bonaccord for total consideration of $56.4 million, which includes cash and contingent consideration. Bonaccord is engaged in the business of acquiring minority interests in alternative asset management 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

 

$

38,927

 

Contingent consideration

 

 

17,435

 

Total purchase consideration

 

$

56,362

 

 

A total of $35.0 million of the cash consideration was financed through an amendment to the term loan under the Facility with HPS Investment Partners, LLC ("HPS"). The additional draw had the same terms as the existing Facility, including the maturity date.

Included in total consideration is $17.4 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 fundraising targets and any amounts paid to the sellers will be paid by October 2027, at which point the contingent consideration expires. Total contingent consideration payments will not exceed $20.0 million.

The fair value was derived from an analysis of the option pricing model and the scenario based model. 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 June 30, 2022, the estimated fair value of the remaining contingent consideration totaled $19.1 million, with the increase since acquisition driven primarily by changes in the Company's borrowing rate due to the debt refinancing. See Note 11 for more details.

At the time of the acquisition, the Company entered into a Notice of Restricted Stock Units with certain employees of Bonaccord for 1,113,637 Restricted Stock Units ("Bonaccord Units") to be allocated and granted 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. As of June 30, 2022, certain performance metrics have been met however, no units have been allocated to specific employees. Therefore, no expense has been recorded in the Consolidated Statements of Operations.

In connection with the acquisition, the Company incurred a total of $0.7 million of acquisition-related expenses. Of the total acquisition-related expenses, $0.2 million and $0.2 million were recorded during the three and six months ended June 30, 2022 and $0 and $0 for the three and six months ended June 30, 2021, respectively. These costs are included in professional fees on the Consolidated Statements 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.

14

 


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

 

 

 

Prepaid expenses and other assets

 

 

9

 

Investment in partnership

 

 

1,396

 

Intangible assets

 

 

12,940

 

Total assets acquired

 

$

14,345

 

LIABILITIES

 

 

 

Accrued expenses

 

$

919

 

Total liabilities assumed

 

$

919

 

 

 

 

 

Net identifiable assets acquired

 

$

13,426

 

Goodwill

 

 

42,936

 

Net assets acquired

 

$

56,362

 

 

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

 

$

9,450

 

 

8

Value of trade name

 

 

3,490

 

 

10

Total identifiable intangible assets

 

$

12,940

 

 

 

 

In connection with the acquisition, Bonaccord assumed a Strategic Alliance Agreement ("SAA"), providing a 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 any subsequent fund, paid quarterly, in exchange for funding certain amounts of capital commitments to the fund. See Note 5 for more information.

 

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 purchase of Hark for total consideration of $7.2 million, which includes $5.0 million of cash and $2.2 million of estimated contingent consideration, with the fair value based on the scenario based method. 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. The total contingent consideration payment will not exceed $5.4 million.

At the time of the acquisition, the Company entered into a Notice of Restricted Stock Units with an employee, which grants 95,455 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. As of June 30, 2022, no Hark Units have vested and no expense has been recorded in the Consolidated Statements of Operations as we have not determined that the achievement of the performance metric is probable.

15

 


P10, Inc.

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts stated in thousands)

 

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 acquisition of Bonaccord was completed on January 1, 2021:

 

 

 

For the Six Months
Ended June 30,

 

 

 

 

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

Revenue

 

$

90,019

 

 

$

80,874

 

Net income attributable to P10

 

 

18,946

 

 

 

7,966

 

 

Pro forma adjustments include revenue and net income 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 acquisition as if the acquisition was completed on January 1, 2021.

Note 4. Revenue

 

The following presents revenues disaggregated by product offering:

 

 

 

For the Three Months
Ended June 30,

 

 

For the Six Months
Ended June 30,

 

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Management and advisory fees

 

$

46,451

 

 

$

33,517

 

 

$

89,478

 

 

$

66,090

 

Subscriptions

 

 

166

 

 

 

156

 

 

 

328

 

 

 

333

 

Other revenue

 

 

121

 

 

 

315

 

 

 

213

 

 

 

333

 

Total revenues

 

$

46,738

 

 

$

33,988

 

 

$

90,019

 

 

$

66,756

 

 

Note 5. Strategic Alliance Expense

In connection with the Bonaccord acquisition, Bonaccord assumed a SAA. 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 Fund I and subsequent funds, paid 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.

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

16

 


P10, Inc.

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts stated in thousands)

 

commitment made. 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. The maximum commitment requirement has been met as of June 30, 2022 with the first close of Fund II. 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 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 June 30, 2022 as Fund III has not yet had its final close. If commitment conditions to Funds subsequent to Funds II and III are 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. For the three and six months ended June 30, 2022, the strategic alliance expense reported was $0.2 million and $0.3 million, respectively. In the three and six months ended June 30, 2021, there was no strategic alliance expense. This is reported on the Consolidated Statements of Operations as strategic alliance expense in operating expenses.

Note 6. 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 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 $2.8 million was drawn as of June 30, 2022 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 U.S. Internal Revenue Code and (ii) 5.5%. Interest will be paid on December 31st of each year commencing December 31, 2021, with any unpaid accrued interest being capitalized and added to the outstanding principal balance. There was no cash paid for interest as of December 31, 2021 and the outstanding balance was capitalized to the note receivable. Principal payments will be made periodically as mandatorily required payments from available cash flows at BCP. As of June 30, 2022 and December 31, 2021, the outstanding balance was $2.8 million and $2.6 million, respectively. The Company recognized interest income of $0.1 million and $0.1 million for the three and six months ended June 30, 2022. The Company recognized no interest income for the three and six months ended June 30, 2021, as the note did not yet exist. This is presented in other revenue on the Consolidated Statement of Operations.

Note 7. 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 Holdco, RCP 2, RCP 3, TrueBridge, Hark and Bonaccord. See Note 2 for more information on the Company’s accounting policies related to the consolidation of VIEs. The assets of the consolidated VIEs totaled $400.6 million and $413.2 million as of June 30, 2022 and December 31, 2021, respectively. The liabilities of the consolidated VIEs totaled $48.5 million and $53.6 million as of June 30, 2022 and December 31, 2021, respectively. The assets of our consolidated VIE’s are owned by 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.

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 loss of assets recognized by the Company relating to these unconsolidated entities.

Note 8. Investment in Unconsolidated Subsidiaries

The Company’s investment in unconsolidated subsidiaries consist of equity method investments primarily related to ECG’s tax credit finance and asset management activities.

As of June 30, 2022, investment in unconsolidated subsidiaries totaled $2.3 million, of which $2.1 million related to ECG’s asset management businesses and $0.2 million related to ECG’s tax credit finance businesses. As of December 31, 2021, investment in unconsolidated subsidiaries totaled $1.8 million, of which $1.6 million related to ECG’s asset management businesses and $0.2 million related to ECG’s tax credit finance businesses.

17

 


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 million and $1.1 million for the three and six months ended June 30, 2022 and $0.3 million and $0.5 million for the three and six months ended June 30, 2021, respectively. For the three and six months ended June 30, 2022, ECG made $0 and $0 capital contributions and received distributions of $0.6 million and $0.7 million, respectively.

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 three and six months ended June 30, 2022, ECG made $0 and $0 of capital contributions and received distributions of $0 and $0, respectively.

Note 9. Property and Equipment

 

Property and equipment consist of the following:

 

 

 

As of June 30,

 

 

As of December 31,

 

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

Computers and purchased software

 

$

443

 

 

$

387

 

Furniture and fixtures

 

 

830

 

 

 

461

 

Leasehold improvements

 

 

1,548

 

 

 

601

 

Other

 

 

3

 

 

 

3

 

 

 

$

2,824

 

 

$

1,452

 

Less: accumulated depreciation

 

 

(465

)

 

 

(471

)

Total property and equipment, net

 

$

2,359

 

 

$

981

 

 

Note 10. Goodwill and Intangibles

Changes in goodwill for the six months ended June 30, 2022 is as follows:

 

Balance at December 31, 2021

 

$

418,701

 

Purchase price adjustment

 

 

(11

)

Increase from acquisitions

 

 

-

 

Balance at June 30, 2022

 

$

418,690

 

 

18

 


P10, Inc.

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts stated in thousands)

 

Intangibles consists of the following:

 

 

 

As of June 30, 2022

 

 

 

Gross Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net Carrying
Amount

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

Trade names

 

$

17,350

 

 

$

 

 

$

17,350

 

Technology

 

 

30

 

 

 

 

 

 

30

 

Total indefinite-lived intangible assets

 

 

17,380

 

 

 

 

 

 

17,380

 

Finite-lived intangible assets:

 

 

 

 

 

 

 

 

 

Trade names

 

 

21,440

 

 

 

(2,589

)

 

 

18,851

 

Management and advisory contracts

 

 

151,166

 

 

 

(72,189

)

 

 

78,977

 

Technology

 

 

2,298

 

 

 

(965

)

 

 

1,333

 

Total finite-lived intangible assets

 

 

174,904

 

 

 

(75,743

)

 

 

99,161

 

Total intangible assets

 

$

192,284

 

 

$

(75,743

)

 

$

116,541

 

 

 

 

As of December 31, 2021

 

 

 

Gross Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net Carrying
Amount

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

Trade names

 

$

17,350

 

 

$

 

 

$

17,350

 

Technology

 

 

30

 

 

 

 

 

 

30

 

Total indefinite-lived intangible assets

 

 

17,380

 

 

 

 

 

 

17,380

 

Finite-lived intangible assets:

 

 

 

 

 

 

 

 

 

Trade names

 

 

21,440

 

 

 

(1,785

)

 

 

19,655

 

Management and advisory contracts

 

 

151,166

 

 

 

(60,934

)

 

 

90,232

 

Technology

 

 

8,160

 

 

 

(6,639

)

 

 

1,521

 

Total finite-lived intangible assets

 

 

180,766

 

 

 

(69,358

)

 

 

111,408

 

Total intangible assets

 

$

198,146

 

 

$

(69,358

)

 

$

128,788

 

 

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 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 2022

 

$

12,320

 

2023

 

 

21,155

 

2024

 

 

17,590

 

2025

 

 

13,807

 

2026

 

 

10,878

 

Thereafter

 

 

23,411

 

Total amortization

 

$

99,161

 

 

19

 


P10, Inc.

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts stated in thousands)

 

Note 11. Fair Value Measurements

The Company measures certain liabilities at fair value on a recurring basis. The following tables provide details regarding the classification of these liabilities within the fair value hierarchy as of the dates presented:

 

 

As of June 30, 2022

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration obligation

$

-

 

 

$

-

 

 

$

22,950

 

 

$

22,950

 

Total liabilities

$

-

 

 

$

-

 

 

$

22,950

 

 

$

22,950

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2021

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration obligation

$

-

 

 

$

-

 

 

$

22,963

 

 

$

22,963

 

Total liabilities

$

-

 

 

$

-

 

 

$

22,963

 

 

$

22,963

 

 

For the liabilities presented in the tables above, there were no changes in fair value hierarchy levels during the periods ended June 30, 2022 and December 31, 2021.

 

The changes in the fair value of Level III financial instruments are set forth below:

 

Contingent Consideration Liability

 

 

 

 

For the Six Months Ended June 30,

 

 

For the Year Ended December 31,

 

 

 

 

 

 

2022

 

 

2021

 

Balance, beginning of year:

 

 

 

 

$

22,963

 

 

$

593

 

   Additions

 

 

 

 

 

-

 

 

 

19,625

 

   Change in fair value

 

 

 

 

 

(13

)

 

 

3,472

 

   Settlements

 

 

 

 

 

-

 

 

 

(727

)

Balance, end of period:

 

 

 

 

$

22,950

 

 

$

22,963

 

 

The fair value of the contingent consideration liability represents the fair value of future payments upon satisfaction performance targets. The assumptions used in the analysis are inherently subjective; therefore, the ultimate amount of the contingent consideration liability primarily relate to the expected future payments of obligations with a discount rate applied. The contingent consideration liability is included in contingent consideration on the Consolidated Balance Sheets. Changes in the fair value of the liability are included in contingent consideration expense on the Consolidated Statements of Operations.

20

 


P10, Inc.

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts stated in thousands)

 

Note 12. Debt Obligations

Debt obligations consists of the following:

 

 

 

As of

 

 

As of

 

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Gross revolving credit facility state tax credits

 

$

 

 

$

-

 

Debt issuance costs

 

 

 

 

 

(8

)

Revolving credit facility state tax credits, net

 

$

 

 

$

(8

)

Revolver facility

 

$

65,900

 

 

$

90,900

 

Debt issuance costs

 

 

(2,615

)

 

 

(2,981

)

Revolver facility, net

 

$

63,285

 

 

$

87,919

 

Term Loan

 

$

125,000

 

 

$

125,000

 

Debt issuance costs

 

 

(372

)

 

 

(415

)

Term loan, net

 

$

124,628

 

 

$

124,585

 

Total debt obligations

 

$

187,913

 

 

$

212,496

 

 

The table below summarizes the terms of the debt obligations.

 

 

 

June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

Maturity Date

 

Aggregate Facility Size

 

 

Outstanding Debt

 

 

Amount Available

 

 

Net Carrying Value

 

 

Average Interest Rate

 

Term Loan

 

12/22/2025

 

$

125,000

 

 

$

125,000

 

 

$

 

 

$

124,628

 

 

 

2.35

%

Revolver Facility

 

12/22/2025

 

 

125,000

 

 

 

65,900

 

 

 

59,100

 

 

 

63,285

 

 

 

2.62

%

Total

 

 

 

$

250,000

 

 

$

190,900

 

 

$

59,100

 

 

$

187,913

 

 

 

 

Refinancing

On December 22, 2021, the Company extinguished its debt outstanding with HPS, as described below in the Credit and Guaranty Facility section and simultaneously entered into a new credit agreement with JP Morgan Chase Bank, N.A. ("JP Morgan") in order to gain more favorable interest terms. The Company used the proceeds from the new credit agreement with JP Morgan not only to repay the outstanding balance with HPS but also to repay the notes payable to sellers as described below in the Notes Payable to Sellers section.

Revolving Credit Facility State Tax Credits

Enhanced State Tax Credit Fund III, LLC, a subsidiary of ECG, had a $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 bore interest at 0.25% above the Prime Rate and matured on June 15, 2022. The facility was not renewed upon maturity. There was no outstanding balance nor any interest incurred as of June 30, 2022 and December 31, 2021 respectively.

Notes Payable to Sellers

On October 5, 2017, 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 were set to mature on January 15, 2025. On December 23, 2021, the Company used the proceeds from the new credit agreement with JP Morgan to repay the outstanding balance of the 2017 Sellers Notes.

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 were set to mature on January 15, 2025. On December 23, 2021, the Company used the proceeds from the new credit agreement with JP Morgan to repay the outstanding balance of the 2018 Sellers Notes.

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 were set to mature on April 15,

21

 


P10, Inc.

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts stated in thousands)

 

2023. On December 23, 2021, the Company used the proceeds from the new credit agreement with JP Morgan to repay the outstanding balance of the TAB Payments.

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.

Non-cash interest expense was recorded on a periodic basis for the Notes Payable to Sellers. During the three and six months ended June 30, 2022, we recorded $0 and $0, respectively, and for the three and six months ended June 30, 2021, we recorded $0.1 million and $0.4 million, respectively, in interest expense related to the TAB Payments.

Credit and Guaranty Facility

The Company’s subsidiary, Holdco, entered into the Credit and Guaranty Facility (the "Facility") with HPS as administrative agent and collateral agent on October 7, 2017. The Facility initially provided for a $130.0 million senior secured credit facility in order to refinance the existing debt obligations of RCP Advisors and provide for the financing to repay the Seller Notes due resulting from the acquisition of RCP Advisors. The Facility provided for a $125 million five-year term, subject to certain EBITDA levels and conditions, and a $5 million one-year line of credit. The line of credit was repaid and subsequently expired during 2018. Holdco was permitted to draw up to $125 million in aggregate on the term loan in tranches through July 31, 2019.

On October 2, 2020 and December 14, 2020, in connection with the acquisitions of TrueBridge and Enhanced, the term loan under the Facility was amended adding an additional $91.4 million and $68.0 million to the Facility, respectively.

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.

On October 28, 2021, a payment of $88.6 million was made, which included an optional repayment of $86.8 million, required prepayment penalty of $1.2 million, and an accrued interest payment of $0.6 million.

On December 22, 2021, the remaining principal balance of $200 million was repaid using the proceeds of the new credit facility with JP Morgan. In accordance with the Facility, the Company also paid the remaining accrued interest balance of $2.1 million and an early extinguishment fee of $3.7 million.

Revolving Credit Facility and Term Loan

On December 22, 2021, the Company entered into a new credit agreement (the "Credit Agreement") with JPMorgan, in its capacity as administrative agent and collateral agent, and Texas Capital Bank, as joint lead arrangers and joint bookrunners, and the other loan parties party thereto. The Credit Agreement consists of two facilities. The first is a revolving credit facility with an available balance of $125 million (the "Revolver Facility"). The second is a term loan for $125 million (the "Term Loan"). In addition to the Term Loan and Revolver Facility, the Credit Agreement also includes a $125 million accordion feature.

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 is contractually repaid at a rate of 1.25% on the term 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. Certain P10 subsidiaries are encumbered by this debt agreement.

The Credit Agreement contains affirmative and negative covenants typical of such financing transactions, and specific financial covenants which require P10 to maintain a minimum leverage ratio. As of June 30, 2022, P10 was in compliance with its financial covenants required under the facility. In February 2022, the Company repaid $25 million of the principal balance

22

 


P10, Inc.

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts stated in thousands)

 

outstanding on the revolving credit facility. As of June 30, 2022, the balance drawn on the revolving credit facility is $65.9 million and on the term loan, the balance is $125.0 million. The balance as of December 31, 2021 was $90.9 million on the revolving credit facility and $125 million on the term loan. For the three and six months ended June 30, 2022 $1.3 million and $2.5 million of interest expense was incurred, respectively. For the three and six months ended June 30, 2021, $0 and $0 of interest expense was incurred, respectively.

Debt Payable

Future principal maturities of debt as of June 30, 2022 are as follows:

 

2022

 

$

 

2023

 

 

6,250

 

2024

 

 

6,250

 

2025

 

 

178,400

 

 

 

$

190,900

 

 

Debt Issuance Costs

Debt issuance costs are offset against the Revolving Credit Facility State Tax Credits, the Credit and Guaranty Facility, and the Revolver Facility and Term Loan. Unamortized debt issuance costs for the Credit and Guaranty Facility as of June 30, 2022 and December 31, 2021 were $0 and $0, respectively. Unamortized debt issuance costs for the Revolving Credit Facility State Tax Credits as of June 30, 2022 and December 31, 2021 were $0 and $8 thousand, respectively. Unamortized debt issuance costs for the Revolver Facility and Term Loan as of June 30, 2022 and December 31, 2021 were $3.0 million and $3.4 million, respectively. This is included in debt obligations on the consolidated balance sheets.

Amortization expense related to debt issuance costs totaled $0.2 million and $0.4 million for the three and six months ended June 30, 2022 and $0.7 million and $1.4 million for the three and six months ended June 30, 2021, respectively, and are included within interest expense, net on the accompanying Consolidated Statements of Operations. During the six months ended June 30, 2022 and June 30, 2021, we recorded $0.1 million and $0.1 million in debt issuance costs, respectively, which is included in debt obligations on the consolidated balance sheets.

Note 13. Related Party Transactions

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. P10 has paid $0.1 million and $0.1 million in rent to 210 Capital, LLC for the six months ended June 30, 2022 and June 30, 2021, respectively.

Effective April 1, 2020, P10 Intermediate paid a quarterly management fee of $250 thousand to Keystone Capital XXX, LLC, which was 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 $0.1 million and $0.5 million for the six months ended June 30, 2022 and June 30, 2021, respectively. This management fee was terminated effective October 20, 2021 when the Company's redeemable noncontrolling interest was converted to Class B shares in connection with the Company's IPO.

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 June 30, 2022, the total accounts receivable from the Funds totaled $5.2 million, of which $3.0 million related to reimbursable expenses and $2.2 million related to fees earned but not yet received. As of December 31, 2021, the total accounts receivable from the Funds totaled $2.4 million, of which $1.6 million related to reimbursable expenses and $0.8 million related to fees earned but not yet received. In certain instances, the Company may incur expenses related to specific products that never materialize. The costs are then removed from the balance sheet and expensed on the Consolidated Statement of Operations. The management fees described here are included in accounts receivable on the Consolidated Balance Sheet and the reimbursable expenses are included in due from related parties on the Consolidated Balance Sheets.

23

 


P10, Inc.

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts stated in thousands)

 

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 provides 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, and new projects undertaken by Enhanced PC. In exchange for those services, which commenced on January 1, 2021, ECG receives advisory fees from Enhanced PC based on a declining fixed fee schedule, initially totaling $76.0 million over 7 years. As a result of new projects during 2021, ECG will receive additional advisory fees from Enhanced PC totaling $22.0 million over 7 years, based on a declining fixed fee schedule. This agreement is subject to customary termination provisions. For the three and six months ended June 30, 2022, advisory fees earned or recognized under this agreement were $5.5 million and $11.1 million, respectively, and are reported in management and advisory fees on the Consolidated Statement of Operations. For the three and six months ended June 30, 2021, advisory fees earned or recognized under this agreement were $4.75 million and $9.5 million, respectively. As of June 30, 2022 and December 31, 2021, the receivable balance was $18.1 million and $9.5 million, respectively, and is included in due from related parties on the Consolidated Balance Sheets.

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 pay ECH for the use of their employees to provide services to Enhanced PC at the direction of ECG. The Company recognized $2.4 million and $4.6 million for the three and six months ended June 30, 2022 and $2.4 million and $5.2 million for the three and six months ended June 30, 2021, respectively, related to this agreement within compensation and benefits on our Consolidated Statements of Operations.

On September 10, 2021, Enhanced entered into a strategic partnership with Crossroads Systems, Inc, 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. The Company recognized $0.6 million and $1.0 million for the three and six months ended June 30, 2022, respectively, which is included in management and advisory fees on the Consolidated Statements of Operations. No revenues were recognized for the three and six months ended June 30, 2021.

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. For details, see Note 6.

Note 14. Commitments and Contingencies

 

Operating Leases

 

The Company leases office space and various equipment under non-cancelable operating leases, with the longest lease expiring in 2032. These lease agreements provide for various renewal options. Rent expense for the various leased office space and equipment was approximately $0.8 million and $1.6 million for the three and six months ended June 30, 2022 and $0.5 million and $1.1 million for the three and six months ended June 30, 2021, respectively.

The following table presents information regarding the Company’s operating leases as of June 30, 2022:

 

Operating lease right-of-use assets

 

$

13,591

 

Operating lease liabilities

 

$

15,787

 

Cash paid for lease liabilities

 

$

1,168

 

Weighted-average remaining lease term (in years)

 

 

7.51

 

Weighted-average discount rate

 

 

4.49

%

 

 

24

 


P10, Inc.

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts stated in thousands)

 

The future contractual lease payments as of June 30, 2022 are as follows:

 

Remainder of 2022

 

$

1,082

 

2023

 

 

2,976

 

2024

 

 

3,222

 

2025

 

 

2,066

 

2026

 

 

1,727

 

Thereafter

 

 

8,977

 

Total undiscounted lease payments

 

 

20,050

 

Less discount

 

 

(3,319

)

Less construction allowance

 

 

(944

)

Total lease liabilities

 

$

15,787

 

 

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 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.

Note 15. 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 for the six months ended June 30, 2022 was 25.94%. The effective tax rate differs from the federal statutory rate of 21% due primarily to state and local income taxes.

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 June 30, 2022, the Company has recorded a $12.8 million valuation allowance against deferred tax assets, primarily related to a note impairment. There was no change to the valuation allowance during the six months ended June 30, 2022.

The Company monitors federal and 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 tax authorities. The Company is not currently under audit.

Note 16. 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 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 previously granted under the 2018 Plan cliff vest over a period of four or five years. The term of each option is no more than ten years 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

25

 


P10, Inc.

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts stated in thousands)

 

date equal to the difference between the common stock’s fair market value on the exercise date and the option price. Terms of all future awards will be granted under the Plan, and no 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 Incentive Plan for a total of 9,300,000 shares. On June 17, 2022 at the Annual Meeting of Stockholders, the shareholders authorized an additional 5,000,000 of shares from the Plan creating a total of 14,300,000 shares.

On March 15, 2022, the Board of Directors approved the settlement of 1.1 million options from a grantee with a fair market value option price of $11.83, less a negotiated discount of 2.5%, totaling $12.5 million. This was paid on June 15, 2022.

A summary of stock option activity for the six months ended June 30, 2022 is as follows:

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

 

 

 

 

 

 

 

Contractual Life

 

 

Aggregate

 

 

 

Number of

 

 

Weighted Average

 

 

Remaining

 

 

Intrinsic Value

 

 

 

Shares

 

 

Exercise Price

 

 

(in years)

 

 

(whole dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding as of December 31, 2021

 

 

7,095,936

 

 

$

3.71

 

 

 

7.45

 

 

$

73,156,722

 

Granted

 

 

1,323,733

 

 

 

12.28

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

Settled

 

 

(1,120,000

)

 

 

0.41

 

 

 

 

 

 

 

Expired/Forfeited

 

 

(20,650

)

 

 

10.31

 

 

 

 

 

 

 

Outstanding as of June 30, 2022

 

 

7,279,019

 

 

$

5.76

 

 

 

7.77

 

 

$

41,195,852

 

Exercisable as of June 30, 2022

 

 

363,445

 

 

$

4.09

 

 

 

6.67

 

 

$

2,920,165

 

 

The weighted average assumptions used in calculating the fair value of stock options granted during the six months ended June 30, 2022 and June 30, 2021 were as follows:

 

 

 

For the Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

Expected life

 

7.5 (yrs)

 

 

7.5 (yrs)

 

Expected volatility

 

 

35.40

%

 

 

41.70

%

Risk-free interest rate

 

 

1.98

%

 

 

0.79

%

Expected dividend yield

 

 

0.00

%

 

 

0.00

%

 

The Company has granted restricted stock awards ("RSAs") to certain employees. 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, 2021

 

 

36,033

 

 

$

11.24

 

Granted

 

 

 

 

 

 

Vested

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

Outstanding as of June 30, 2022

 

 

36,033

 

 

$

11.24

 

 

26

 


P10, Inc.

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts stated in thousands)

 

The Company has granted restricted stock units ("RSUs") to certain employees. Holders of RSUs have no voting rights and 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.

 

 

 

Number of

 

 

Weighted-Average Grant

 

 

 

RSUs

 

 

Date Fair Value Per RSU

 

Outstanding as of December 31, 2021

 

 

59,654

 

 

$

12.74

 

Granted

 

 

508,135

 

 

 

12.30

 

Vested

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

Outstanding as of June 30, 2022

 

 

567,789

 

 

$

12.35

 

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 on our Consolidated Statements of Operations. The stock-based compensation expense for the three and six months ended June 30, 2022 was $2.7 million and $4.2 million and for the three and six months ended June 30, 2021 was $0.6 million and $1.0 million, respectively. Unrecognized stock-based compensation expense related to outstanding unvested stock options as of June 30, 2022 was $11.5 million and is expected to be recognized over a weighted average period of 2.8 years. Any future forfeitures will impact this amount.

Note 17. 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, diluted EPS reflects the potential dilution that could occur if convertible preferred shares of P10 Intermediate were converted into common shares of P10 Intermediate. This is only applicable for the three and six months ended June 30, 2021 as the preferred shares of P10 Intermediate converted to Class B common shares effective with the IPO.

The following table presents a reconciliation of the numerators and denominators used in the computation of basic and diluted EPS:

 

 

 

For the Three Months
Ended June 30,

 

 

For the Six Months
Ended June 30,

 

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Numerator for earnings per share assuming
   dilution

 

$

11,154

 

 

$

1,501

 

 

$

18,946

 

 

$

3,146

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic calculation—Weighted-
   average shares

 

 

117,193

 

 

 

62,465

 

 

 

117,193

 

 

 

62,465

 

Weighted shares assumed upon exercise of stock
   options

 

 

3,788

 

 

 

4,277

 

 

 

4,066

 

 

 

4,195

 

Denominator for earnings per share assuming dilution

 

 

120,981

 

 

 

66,742

 

 

 

121,259

 

 

 

66,660

 

Earnings per share—basic

 

$

0.10

 

 

$

0.02

 

 

$

0.16

 

 

$

0.05

 

Earnings per share—diluted

 

$

0.09

 

 

$

0.02

 

 

$

0.16

 

 

$

0.05

 

 

The computations of diluted earnings per share excluded options to purchase 1.4 million and 1.0 million shares of common stock for the three and six months ended June 30, 2022 and 2.9 million and 2.9 million shares for the three and six months ended June 30, 2021, respectively, because the options were anti-dilutive.

Note 18. 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

27

 


P10, Inc.

Notes to Consolidated Financial Statements

(Unaudited, dollar amounts stated in thousands)

 

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 represented 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 represented a noncontrolling interest in P10 Intermediate, which the Company had a controlling interest in. Dividends on the preferred shares were recognized as preferred dividends attributable to redeemable non-controlling interest in our Consolidated Statements of Operations. In connection with the IPO on October 20, 2021, all preferred shares were contractually converted to Class B common shares.

Note 19. Subsequent Events

On July 27, 2022, the Company paid down $12.0 million of the principal balance outstanding on the Revolver Facility reducing the outstanding balance from $65.9 million to $53.9 million.

The Board of Directors of the Company has declared a quarterly cash dividend of $0.03 per share of Class A and Class B common stock, payable on September 20, 2022, to the holders of record as of the close of business on August 29, 2022.

In accordance with ASC 855, Subsequent Events, the Company evaluated all material events or transactions that occurred after June 30, 2022, the Consolidated Balance Sheet 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.

 

28

 


 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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. 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 due to the effects of acquisitions which occurred during the year ended December 31, 2021, but may not have had a material impact on our statements of operations due to the limited period of time which they were included in our consolidated results. This quarterly report reflects the historical results of operations and financial position of P10 Holdings, our predecessor for accounting purposes, prior to the Reorganization and IPO. 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, and in our annual report on Form 10-K for the year ended December 31, 2021, particularly in "Risk Factors" and the "Forward-Looking Information." Unless otherwise indicated, references in this Quarterly Report on Form 10-Q to fiscal 2022 and 2021 are to our fiscal years ended December 31, 2022 and 2021, 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.

During 2020, we completed several acquisitions to expand the private market solutions available to our investors. On April 1, 2020, we completed our acquisition of Five Points to serve as our Private Credit solution (which also offers certain private equity solutions). On October 2, 2020, we completed our acquisition of TrueBridge Capital Partners, LLC (TrueBridge) to serve as our Venture Capital solution. On December 14, 2020, we completed our acquisition of 100% of the equity interest in Enhanced Capital Group, LLC (ECG) to serve as our Impact Investing solution. 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, Equity Method and Joint Ventures (“ASC 323").

On September 30, 2021, we completed the acquisitions of Hark Capital Advisors, LLC (Hark) and Bonaccord Capital Advisors, LLC (Bonaccord) to further expand on solutions available to our investors. The effect of these acquisitions is reflected in our Consolidated Balance Sheet at December 31, 2021 and the Consolidated Statement of Operations from September 30, 2021 to December 31, 2021. These acquisitions were accounted for as business combinations and are reported as consolidated subsidiaries of P10.

On October 20, 2021, P10 Holdings, in connection with its IPO, completed a reorganization and restructure. In connection with the reorganization, P10 became the parent company and all of the existing equity of P10 Holdings, which is a wholly owned subsidiary of P10, and its consolidated subsidiaries, including the convertible preferred units of P10 Intermediate were converted into common stock of P10. 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. Net proceeds from the sale of our Class A common stock, after deducting underwriting discounts and commissions but before expenses was approximately $129.4 million. Of the proceeds, $86.8 million was used to pay down outstanding term loan debt, $12.4 million was used to pay off RCP Seller's Notes, $1.1 million was used to cash settle certain option awards, $1.0 million was used to fund the dividend on P10 Intermediate's preferred stock and $4.5 million was used to pay expenses incurred in connection with the offering.

29

 


 

Following the reorganization and IPO, P10 has two classes of common stock, Class A common stock and Class B common stock. Each share of Class B common stock is entitled to ten votes while each share of Class A common stock is entitled to one vote.

On December 22, 2021, P10 entered into a $250 million credit agreement with a syndicate of banks, including JP Morgan Chase Bank and Texas Capital Bank as joint lead arrangers and bookrunners, which provided for the Term Loan in an aggregate principal amount of $125 million and Revolver Facility in an aggregate principal amount of $125 million with a four year term and an additional $125 million accordion feature. The variable interest rate is 210 basis points over the SOFR. Borrowings were used to pay down the outstanding balance under the previous credit facility with HPS and related transaction expenses, pay off Seller's Notes related to the RCP acquisition and to finance working capital needs and for general corporate purposes. During the first quarter of 2022, the Company paid down $25 million of the outstanding balance under the Revolver Facility and as of June 30, 2022, the outstanding balance was $65.9 million. In July 2022, the Company paid down an additional $12 million of the outstanding balance under the Revolver Facility.

As of June 30, 2022, our private market solutions were comprised of the following:

Private Equity Solutions (PES). Under PES, we make direct and indirect investments in middle and lower- middle market private equity across North America. PES also makes minority equity investments in a diversified portfolio of mid-sized managers across private equity, private credit and real assets. The PES investment team, which is comprised of 38 investment professionals with an average of 24+ years of experience, has deep and long-standing investor and fund manager relationships in the middle and lower-middle market which it has cultivated over the past 20 years, including over 1,800+ investors, 200+ fund managers, 400+ private market funds and 1,900+ portfolio companies. We have 42 active investment vehicles. PES occupies a differentiated position within the private markets ecosystem helping our investors access, perform due diligence, analyze and invest in what we believe are attractive middle and lower-middle market private equity opportunities. We are further differentiated by the scale, depth, diversity and accuracy of our constantly expanding proprietary private markets database that contains comprehensive information on more than 4,900 investment firms, 9,000 funds, 43,000 individual transactions, 29,000 private companies and 260,000 financial metrics. As of June 30, 2022, PES managed $10.4 billion of Fee Paying Assets Under Management ("FPAUM").
Venture Capital Solutions (VCS). Under VCS, we make investments in venture capital funds across North America and specialize in targeting high-performing, access-constrained opportunities. The VCS investment team, which is comprised of 15 investment professionals with an average of 20+ years of experience, has deep and long-standing investor and fund manager relationships in the venture market which it has cultivated over the past 14+ years, including over 540+ investors, 60+ fund managers, 55 direct investments, 230+ private market funds and 6,500+ portfolio companies. We have 14 active investment vehicles. Our VCS solution is differentiated by our innovative strategic partnerships and our vantage point within the venture capital and technology ecosystems, maximizing advantages for our investors. In addition, since 2011, we have partnered with Forbes to publish the Midas List, a ranking of the top value-creating venture capitalists. As of June 30, 2022, VCS managed $5.1 billion of FPAUM.
Impact Investing Solutions (IIS). Under IIS, we make equity, tax equity, and debt investments in impact initiatives across North America. IIS primarily targets investments in renewable energy development and historic building renovation projects, as well as providing capital to small businesses that are women or minority owned or operating in underserved communities. The IIS investment team, which is comprised of 12 investment professionals with an average of 21+ years of experience, has deep and long-standing relationships in the impact market which it has cultivated over the past 20 years, including deploying capital on behalf of over 82 investors. We currently have 35 active investment vehicles. We are differentiated in both the breadth of impact areas served, the type of capital deployed and the duration of our track record. We have collectively deployed over $4.8 billion into 750+ projects, supporting 400+ businesses across 38 states since 2000. We have invested $2.6 billion in Impact Assets across our Small Business Lending, Impact Real Estate and Climate Finance Strategies. Investments in solar assets have generated over 781 million KWh of renewable energy over the lifetime of the portfolio. As of June 30, 2022, IIS managed $1.7 billion of FPAUM.
Private Credit Solutions (PCS). Under PCS, we primarily make debt investments across North America, targeting lower middle market companies owned by leading financial sponsors and also offer certain private equity solutions. PCS also provides loans to mid-life, growth equity, venture and other funds backed by the unrealized investments at the fund level and provide financing for companies that would otherwise require equity. The PCS investment team, which is comprised of 24 investment professionals with an average of 22+ years of experience, has deep and long-standing relationships in the private credit market which it has cultivated over the past 22 years, including 270+ investors across 11 active investment vehicles and 70+ portfolio companies with over $1.9+ billion capital deployed. Our PCS is differentiated by our relationship-driven sourcing approach providing capital solutions for

30

 


 

growth-oriented companies. We are further synergistically strengthened by our PES network of fund managers, characterized by more than 575 credit opportunities annually. We currently maintain 45+ active sponsor relationships and have 60+ platform investments. As of June 30, 2022, PCS managed $1.3 billion of FPAUM.

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:

Primary Investment Funds. Primary investment funds refer to investment vehicles which target investments in new private markets funds, which in turn invest directly in portfolio companies. P10’s primary investment funds include both commingled investment vehicles with multiple investors as well as customizable separate accounts, which typically include one investor. Primary investments are made during a fundraising period in the form of capital commitments, which are called upon by the fund manager and utilized to finance its investments in portfolio companies during a predefined investment period. We receive a fee stream that is typically based on our investor’s committed, locked-in capital; capital commitments that typically average ten to fifteen years, though they may vary by fund and strategy. We offer primary investment funds across private equity and venture capital solutions. Often, the fees are structured such that they step down, or decrease, over the life of the fund. Our primary funds comprise approximately $11.1 billion of our FPAUM as of June 30, 2022.
Direct and Co-Investment Funds. Direct and co-investments involve acquiring an equity interest in or making a loan to an operating company, project, property, alternative asset manager, or asset, typically by co-investing alongside an investment by a fund manager or by investing directly in the underlying asset. P10’s direct and co- investment funds include both commingled investment vehicles with multiple investors as well as customizable separate accounts, which typically include one investor. Capital committed to direct investments and co-investments is typically invested immediately, thereby advancing the timing of expected returns on investment. We typically receive fees from investors based upon committed capital, with some funds receiving fees based on invested capital; capital commitments, typically average ten to fifteen years, though they may vary by fund. We offer direct and co-investment funds across our private equity, venture capital, impact investing and private credit solutions. Often, the fees are structured such that they step down, or decrease, over the life of the fund. Our direct investing platform comprises approximately $6.1 billion of our FPAUM as of June 30, 2022.
Secondaries. Secondaries refer to investments in existing private markets funds through the acquisition of an existing interest in a private markets fund by one investor from another in a negotiated transaction. In so doing, the buyer agrees to take on future funding obligations in exchange for future returns and distributions. Because secondary investments are generally made when a primary investment fund is three to seven years into its investment period and has deployed a significant portion of its capital into portfolio companies, these investments are viewed as more mature. We typically receive fees from investors on committed capital for a decade, the typical life of the fund. We currently offer secondaries funds across our private equity solutions. Often, the fees are structured such that they step down, or decrease, over the life of the fund. Our secondary funds comprise approximately $1.3 billion of our FPAUM as of June 30, 2022.

Operating Segments

We operate our business as a single operating segment, which is how our chief operating decision makers (our Co-Chief Executive Officers) evaluate financial performance and make 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 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. With interest rates continuing to rise and the global economy outlook remaining uncertain, we continue to see investors turning towards alternative investments to achieve consistent and higher yields with our contractually guaranteed fee rate.

31

 


 

The continued growth of our business may be influenced by several factors, including the following market trends:

Accelerating demand for private markets solutions. Our ability to attract new capital is dependent on investor demand for private markets solutions. We believe the composition of public markets is fundamentally shifting and will drive growth in private markets investing as fewer companies elect to become public corporations, while more companies are choosing to stay privately held or return to being privately held. Furthermore, investors continue to increase their exposure to passive strategies in search for lower fee alternatives as relative returns in active public market strategies have compressed. We believe the continued move away from active public market strategies into passive strategies will support growth in private market solutions as investors seek higher risk-adjusted returns. Additional trends driving investor demand are 1) increasing long-term investor allocations towards private market asset classes, 2) legislation that allows retirement plans to add private equity vehicles as an investment option, and 3) the adoption of Environmental, Social, and Corporate Governance (“ESG”) and impact investing by the institutional and high net worth investor community.
Favorable lower and lower-middle market dynamics, and data driven sourcing. We attribute our strong investment performance track record to several factors, including: our broad private market relationships and access to fund managers and investments, our diligent and responsible investment process, our tenured investing experience and our premier data, technology, and analytic capabilities. Our ability to continue generating strong returns will be impacted by lower and lower-middle market dynamics and our ability to source deals efficiently and effectively using data analytics. As more companies choose to remain private, we believe smaller companies will continue to dominate market supply, with significantly less capital in pursuit. This favorable lower and lower-middle market dynamic implies a larger pool of opportunities at compelling purchase price valuations with significant return potential. In addition, our premier data and analytic capabilities, driven by our proprietary database, support our robust and disciplined sourcing criteria, which fuels our highly selective investment process. Our database stores and organizes a universe of managers and opportunities with powerful tracking metrics that we believe drive optimal portfolio management and monitoring and enable a portfolio grading system, as well as repository of investment evaluation scorecards. Our ability to maintain our data advantage is dependent on a number of factors, including our continued access to a broad set of private market information on an on-going basis.
Expanding asset class solutions, broaden geographic reach and grow private markets network effect. Our ability to continue growing is impacted by our scalability and ability to maximize investor relationships. The purview of private markets has meaningfully broadened over the last decade. As investors increase their allocations to private markets investments, we believe the demand for asset class diversification will rise. Furthermore, as part of this evolution we believe investors will seek out private market solutions providers with scale and an ability to deliver multiple asset classes and vehicle solutions to streamline relationships and pursue cost efficiency. Our scalable business model is well positioned to expand and grow our footprint as we develop our position within the private markets ecosystem to further leverage our synergistic solutions offering. We currently have a leading presence in North America, but believe that expanding our investor presence into international markets can be a significant growth driver for our business as investors continue to seek geographically diverse private market exposure. Further, expanding into additional asset class solutions will enable us to further enhance our integrated network effect across private markets by, among other benefits, fostering deeper manager relationships. We believe that the growing number of private markets focused fund managers increases the operational burden on investors and will lead to a greater reliance on highly trusted advisors to help investors navigate the complexity associated with multi- asset class manager selection.
Increasing regulatory requirements and political uncertainty. The complex regulatory and tax environment could restrict our operations and subject us to increased compliance costs and administrative burdens, as well as restrictions on our business activities. There is additional uncertainty around potential legal, regulatory, and tax changes, which may impact our profitability or impact our ability to operate and grow our business.
Our ability to raise capital in order to fund acquisitions and strategic growth initiatives. In addition to organic growth of our existing solutions and services, our growth will continue to depend, in part, on our ability to identify, evaluate and acquire high performing and high-quality asset management businesses in order to expand our team of asset managers and advisors, as well as expand the industries and end markets which we serve. These acquisitions may require us to raise additional capital through debt financing or the issuance of equity securities. Our ability to obtain debt with acceptable terms will be influenced by the corporate debt markets and prevailing interest rates, as well as our current credit worthiness. The funding available through the issuance of equity securities will be determined in part by the market price of our shares.
Increased competition to work with top private equity fund managers. There has been a trend amongst larger private markets investors to consolidate the number of general partners in which they invest and work with. At times, this

32

 


 

has led to certain funds being oversubscribed due to the increasing flow of capital. This has resulted in some investors, primarily smaller investors or less strategically important investors, not being able to gain access to certain funds. Our ability to invest and maintain our sphere of influence with these high-performing fund managers is critical to our investors’ success and our ability to maintain our competitive position and grow our revenue.
Data advantage relative to competitors. We believe that the general trend towards transparency and consistency in private markets reporting will create new opportunities for us to leverage our databases and analytical capabilities. We intend to use these advantages afforded to us by our proprietary databases, analytical tools and deep industry knowledge to drive our performance, provide our clients with customized solutions across private markets asset classes and continue to differentiate our products and services from those of our competitors. Our ability to maintain our data advantage is dependent on a number of factors, including our continued access to a broad set of private market information on an on-going basis, as well as our ability to maintain our investment scale, considering the evolving competitive landscape and potential industry consolidation.

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 statements for additional information regarding the way revenues are recognized.

We earn management and advisory fees based on a percentage of investors’ capital commitments in our funds or 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.

Operating Expenses

Compensation and benefits are our largest expense and consists of salaries, bonuses, stock-based compensation, 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 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.

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. Our professional fees will fluctuate commensurate with our strategic objectives and potential acquisitions, and certain recurring accounting

33

 


 

advisory, audit and tax expenses are expected to increase as our Company has become an SEC registrant and we must comply with additional regulatory requirements.

General, administrative and other includes occupancy, 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 a Strategic Alliance Agreement (SAA) that Bonaccord had entered into with an investor at the time Bonaccord was acquired in exchange for a portion of net management fee earnings and net distributable carried interest at the time of acquisition.

Other Income (Expense)

Interest expense includes interest paid and accrued on our outstanding debt, along with the amortization of deferred financing costs, amortization of original issue discount and the write-off of deferred financing costs due to the repayment of previously outstanding debt. Interest expense also includes the effects of the imputed interest on certain non-interest-bearing notes payable.

Income Tax Expense/Benefit

Income tax expense/benefit is comprised of current and deferred tax expense/benefit. Current income tax expense/benefit 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 six months ended June 30, 2022 and June 30, 2021.

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

$ Change

 

 

% Change

 

 

2022

 

 

2021

 

 

$ Change

 

 

% Change

 

REVENUES

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

Management and advisory fees

 

$

46,451

 

 

$

33,517

 

 

$

12,934

 

 

 

39

%

 

$

89,478

 

 

$

66,090

 

 

$

23,388

 

 

 

35

%

Other revenue

 

 

287

 

 

 

471

 

 

 

(184

)

 

 

(39

)%

 

 

541

 

 

 

666

 

 

 

(125

)

 

 

(19

)%

Total revenues

 

 

46,738

 

 

 

33,988

 

 

 

12,750

 

 

 

38

%

 

 

90,019

 

 

 

66,756

 

 

 

23,263

 

 

 

35

%

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

17,815

 

 

 

12,337

 

 

 

5,478

 

 

 

44

%

 

 

36,309

 

 

 

24,273

 

 

 

12,036

 

 

 

50

%

Professional fees

 

 

2,740

 

 

 

3,406

 

 

 

(666

)

 

 

(20

)%

 

 

5,352

 

 

 

6,137

 

 

 

(785

)

 

 

(13

)%

General, administrative and other

 

 

4,250

 

 

 

2,215

 

 

 

2,035

 

 

 

92

%

 

 

8,362

 

 

 

4,252

 

 

 

4,110

 

 

 

97

%

Contingent consideration expense

 

 

(140

)

 

 

132

 

 

 

(272

)

 

 

(206

)%

 

 

(13

)

 

 

160

 

 

 

(173

)

 

 

(108

)%

Amortization of intangibles

 

 

6,153

 

 

 

7,484

 

 

 

(1,331

)

 

 

(18

)%

 

 

12,334

 

 

 

14,968

 

 

 

(2,634

)

 

 

(18

)%

Strategic alliance expense

 

 

153

 

 

 

 

 

 

153

 

 

 

100

%

 

 

305

 

 

 

 

 

 

305

 

 

 

100

%

Total operating expenses

 

 

30,971

 

 

 

25,574

 

 

 

5,397

 

 

 

21

%

 

 

62,649

 

 

 

49,790

 

 

 

12,859

 

 

 

26

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

 

15,767

 

 

 

8,414

 

 

 

7,353

 

 

 

87

%

 

 

27,370

 

 

 

16,966

 

 

 

10,404

 

 

 

61

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER (EXPENSE)/INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense implied on notes
   payable to sellers

 

 

 

 

 

(219

)

 

 

219

 

 

 

(100

)%

 

 

 

 

 

(434

)

 

 

434

 

 

 

(100

)%

Interest expense, net

 

 

(1,525

)

 

 

(5,245

)

 

 

3,720

 

 

 

(71

)%

 

 

(2,910

)

 

 

(10,500

)

 

 

7,590

 

 

 

(72

)%

Other income

 

 

791

 

 

 

257

 

 

 

534

 

 

 

208

%

 

 

1,120

 

 

 

545

 

 

 

575

 

 

 

106

%

Total other (expense)

 

 

(734

)

 

 

(5,207

)

 

 

4,473

 

 

 

(86

)%

 

 

(1,790

)

 

 

(10,389

)

 

 

8,599

 

 

 

(83

)%

Net income before income taxes

 

 

15,033

 

 

 

3,207

 

 

 

11,826

 

 

 

369

%

 

 

25,580

 

 

 

6,577

 

 

 

19,003

 

 

 

289

%

Income tax expense

 

 

(3,879

)

 

 

(734

)

 

 

(3,145

)

 

 

428

%

 

 

(6,634

)

 

 

(1,395

)

 

 

(5,239

)

 

 

376

%

NET INCOME

 

$

11,154

 

 

$

2,473

 

 

$

8,681

 

 

 

351

%

 

$

18,946

 

 

$

5,182

 

 

$

13,764

 

 

 

266

%

 

34

 


 

 

Revenues

Three Months Ended June 30, 2022 and June 30, 2021

Our 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 June 30, 2022 and June 30, 2021. For the three months ended June 30, 2022 compared to the three months ended June 30, 2021, revenues increased $12.8 million or 38% due to both higher management fees primarily from the impact of organic 2022 growth as well as 2021 acquisitions of Hark and Bonaccord.

Management fees increased $12.9 million, or 39%, to $46.5 million for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 due primarily to organic growth efforts in 2022, which contributed management fee and advisory revenues of $9.1 million. This growth is driven by increases in FPAUM, primarily from additional fund closings and capital raised. The remaining increase of $3.8 million represents an increase in the Company’s management fees due to the acquisitions of Hark and Bonaccord in September 2021. Catch up fees during the second quarter of 2022 were $1.8 million associated with the fund closings at TrueBridge and RCP. Catch up fees were $0.3 million during the second quarter of 2021.

Other revenues, which represent ancillary elements of our business, decreased by $0.2 million or 39% to $0.3 million for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 driven primarily by ad hoc referral fees.

Six Months Ended June 30, 2022 and June 30, 2021

Total revenues increased $23.3 million, or 35%, to $90.0 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, due to higher management and advisory fees, largely attributable to organic growth as well as our acquisitions, partially offset by a small decrease in other revenues.

Management fees increased by $23.4 million, or 35%, to $89.5 million for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 due primarily to organic growth of FPAUM, which contributed $15.8 million to management fee and advisory revenues, in total. Revenue also increased by $7.6 million due to the acquisitions of Hark and Bonaccord in September 2021. Catch up fees for the six months ended June 30, 2022 were $2.5 million associated with the fund closings at TrueBridge and RCP. Catch up fees were $1.2 million during the six months ended June 30, 2021.

Other revenues decreased by $0.1 million, or 19% to $0.5 million, from the six months ended June 30, 2022 compared to the six months ended June 30, 2021. This decrease was primarily attributable to a decrease in ad hoc referral fees.

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

$ Change

 

 

% Change

 

 

2022

 

 

2021

 

 

$ Change

 

 

% Change

 

OPERATING EXPENSES

 

(in thousands)

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

Compensation and benefits

 

$

17,815

 

 

$

12,337

 

 

$

5,478

 

 

 

44

%

 

$

36,309

 

 

$

24,273

 

 

$

12,036

 

 

 

50

%

Professional fees

 

 

2,740

 

 

 

3,406

 

 

$

(666

)

 

 

(20

)%

 

 

5,352

 

 

 

6,137

 

 

 

(785

)

 

 

(13

)%

General, administrative, and other

 

 

4,250

 

 

 

2,215

 

 

$

2,035

 

 

 

92

%

 

 

8,362

 

 

 

4,252

 

 

 

4,110

 

 

 

97

%

Contingent consideration expense

 

 

(140

)

 

 

132

 

 

$

(272

)

 

 

(206

)%

 

 

(13

)

 

 

160

 

 

 

(173

)

 

 

(108

)%

Amortization of intangibles

 

 

6,153

 

 

 

7,484

 

 

$

(1,331

)

 

 

(18

)%

 

 

12,334

 

 

 

14,968

 

 

 

(2,634

)

 

 

(18

)%

Strategic alliance expense

 

 

153

 

 

 

 

 

$

153

 

 

 

100

%

 

 

305

 

 

 

 

 

 

305

 

 

 

100

%

Total operating expenses

 

$

30,971

 

 

$

25,574

 

 

$

5,397

 

 

 

21

%

 

$

62,649

 

 

$

49,790

 

 

$

12,859

 

 

 

26

%

 

Operating Expenses

Three Months Ended June 30, 2022 and June 30, 2021

Total operating expenses increased by $5.4 million, or 21%, to $31.0 million, for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 primarily driven by increases in compensation and benefits and general and administrative expenses associated with the growth of P10 since acquiring Hark and Bonaccord in September 2021 and
D&O insurance driven by the IPO transaction at the end of 2021.

35

 


 

Compensation and benefits expense increased by $5.5 million, or 44%, to $17.8 million for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021. The acquisition of Hark and Bonaccord in September 2021 brought an additional $1.9 million of compensation expense. The remaining $3.6 million increase is recognized across the existing entities. Stock compensation accounts for $2.2 million of the $3.6 million increase. This was driven by RSUs and stock options granted to employees during the first quarter of 2022 as well as RSAs granted in late 2021. There was a $0.5 million increase associated with the build out of P10 back office to meet compliance needs of a public company. The final driver is a $1.0 million increase associated with an increase in headcount across all subsidiaries.

Professional fees decreased by $0.7 million, or 20% to $2.7 million. This is primarily driven by timing of acquisitions. The acquisition of Enhanced occurred so late in 2020 that the Company incurred professional fees well into 2021. Whereas, the acquisitions of Hark and Bonaccord were the only acquisitions of 2021 and did not close until the last day of the third quarter.

General, administrative and other increased by $2.0 million, or 92% to $4.3 million and was primarily due to the increase of insurance expense as noted above in D&O insurance driven by the IPO transaction at the end of 2021. This added an additional $0.7 million of expense compared to the second quarter of 2021. The acquisitions of Hark and Bonaccord brought an additional $0.5 million of expense. The Company entered into two new leases since June 30, 2021 which added an additional $0.3 million of expense. The remaining $0.5 million of additional general and administrative expense is derived from additional IT expenses and increased travel since last year.

Amortization of intangibles decreased by $1.3 million, or 18% to $6.2 million, for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021. The decrease is driven by a fully amortized intangible asset at RCP and less amortization at ECG in 2022 than in 2021 driven by unique syndication fee contracts. This is offset by added intangible assets at Bonaccord and Hark following their acquisitions in September 2021.

The SAA at Bonaccord added an additional $0.2 million of expense in the second quarter of 2022.

Six Months Ended June 30, 2022 and June 30, 2021

Total operating expenses increased by $12.9 million, or 26%, to $62.6 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. This increase was primarily due to increases in compensation and benefits and general and administrative expenses and offset by a decrease in amortization expense of intangible assets. This is primarily driven by increases in stock compensation associated with RSU, RSA and stock option grants at the end of 2021 and beginning of 2022 as well as insurance expense associated with D&O insurance driven by the IPO transaction at the end of 2021. The acquisitions of Hark and Bonaccord in September 2021 also contributed to these increases.

Compensation and benefits expense increased by $12.0 million, or 50%, to $36.3 million, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The acquisitions of Hark and Bonaccord made up $4.2 million of this increase. Another $3.2 million consisted of stock compensation expense related to RSUs and stock options issued to employees during the first quarter of 2022 as well as RSAs issued in late 2021. There was a $1.6 million increase associated with the build out of P10 back office to meet compliance needs of a public company. An additional $1.6 million related to increases in headcount across all subsidiaries. Finally, Five Points made a $1.7 million one time payment to buyout the employment contracts for the prior partners during the first quarter of 2022.

Professional fees decreased by $0.8 million, or 13%, to $5.4 million primarily due to timing of acquisitions as we had less acquisition-related professional fees in the first half of 2022 as compared to 2021.

General, administrative and other increased by $4.1 million, or 97% to $8.4 million. The acquisitions of Hark and Bonaccord added an additional $0.8 million of expense for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. As previously mentioned, D&O insurance added an additional $1.3 million of expense related to the IPO transaction. Additional office space in New York added $0.6 million of rent expense. The additional $1.4 million of expense relates to increased costs associated with expanded headcount and increased travel expenses.

Amortization of intangibles decreased by $2.6 million, or 18%, to $12.3 million, for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. The decrease is driven by a fully amortized intangible asset at RCP and less amortization at ECG in 2022 than in 2021 driven by unique syndication fee contracts. This is offset by added intangible assets at Bonaccord and Hark following their acquisitions in September 2021.

36

 


 

The SAA at Bonaccord added an additional $0.3 million of expense in 2022.

Other Income (Expense)

Three Months Ended June 30, 2022 and June 30, 2021

Other expenses decreased $4.5 million, or 86%, to $0.7 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. This decrease was primarily due to a $3.7 million decrease in interest expense related to the extinguishment and replacement of the credit and guaranty facility with the revolver and term loan facility. The credit and guaranty facility incurred interest at a rate of 7%. This was replaced with the revolving credit facility and term loan which incurs interest at a base rate of 2.1% plus SOFR. The decline in interest expense for the three months ended June 30 2022, as compared to the three months ended June 30, 2021 is a function both of lower interest rates as well as $65.1 million less in outstanding interest-bearing principal as of June 30, 2022. The lower principal balance was a result of the paydown of debt with IPO proceeds and operating cash flow during the last year. P10 completed an additional pay down of $12 million of principal on the revolving credit facility in July 2022. There was also a $0.5 million increase in income from unconsolidated subsidiaries at ECG.

Six Months Ended June 30, 2022 and June 30, 2021

Other expenses decreased by $8.6 million, or 83%, to $1.8 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. This decrease was primarily due to a $7.6 million decrease in interest expense related to the debt refinance mentioned in the above paragraph that took place in December 2021. Other income increased by $0.6 million driven by ECG’s increase income from unconsolidated subsidiaries in the first six months of 2021.

Income Tax/Benefit Expense

Three Months Ended June 30, 2022 and June 30, 2021

Income tax expense increased by $3.1 million to $3.9 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 due primarily to higher net income during the 2022 period.

Six Months Ended June 30, 2022 and June 30, 2021

Income tax expense increased by $5.2 million to $6.6 million for the six months ended June 30, 2022 compared to a benefit of $1.5 million for the six months ended June 30, 2021. The increase was primarily due to higher net income during 2022.

37

 


 

FPAUM

The following table provides a period-to-period roll-forward of our fee earning AUM on a pro forma basis as if Hark and Bonaccord were acquired on January 1, 2021.

 

 

 

For the Three Months Ended

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(in millions)

 

 

(in millions)

 

 

(in millions)

 

 

(in millions)

 

Balance, Beginning of Period

 

$

17,593

 

 

$

13,712

 

 

$

17,263

 

 

$

13,269

 

Add:

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

 

 

 

 

 

 

 

 

 

 

Capital raised (1)

 

 

944

 

 

 

1,340

 

 

 

1,440

 

 

 

1,741

 

Capital deployed (2)

 

 

212

 

 

 

190

 

 

 

435

 

 

 

271

 

Net Asset Value Change (3)

 

 

4

 

 

 

3

 

 

 

8

 

 

 

7

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Scheduled fee base stepdowns

 

 

(30

)

 

 

(130

)

 

 

(109

)

 

 

(162

)

Expiration of fee period

 

 

(269

)

 

 

(32

)

 

 

(585

)

 

 

(43

)

Balance, End of period

 

$

18,454

 

 

$

15,083

 

 

$

18,452

 

 

$

15,083

 

 

(1)
Represents new commitments from funds that earn fees on a committed capital fee base.
(2)
In certain vehicles, fees are based on capital deployed, as such increasing FPAUM.
(3)
Net asset value change consists primarily of the impact of market value appreciation (depreciation) from funds that earn fees on a net asset value basis.

The following table provides a period-to-period roll-forward of our fee-earning AUM on an actual basis.

 

 

 

For the Three Months Ended

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(in millions)

 

 

(in millions)

 

 

(in millions)

 

 

(in millions)

 

Balance, Beginning of Period

 

$

17,593

 

 

$

12,935

 

 

$

17,263

 

 

$

12,624

 

Add:

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

 

 

 

 

 

 

 

 

 

 

Capital raised (1)

 

 

944

 

 

 

1,161

 

 

 

1,440

 

 

 

1,443

 

Capital deployed (2)

 

 

212

 

 

 

190

 

 

 

435

 

 

 

258

 

Net Asset Value Change (3)

 

 

4

 

 

 

3

 

 

 

8

 

 

 

7

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Scheduled fee base stepdowns

 

 

(30

)

 

 

(85

)

 

 

(109

)

 

 

(117

)

Expiration of fee period

 

 

(269

)

 

 

(32

)

 

 

(585

)

 

 

(43

)

Balance, End of period

 

$

18,454

 

 

$

14,172

 

 

$

18,452

 

 

$

14,172

 

 

(1)
Represents new commitments from funds that earn fees on a committed capital fee base.
(2)
In certain vehicles, fees are based on capital deployed, as such increasing FPAUM.
(3)
Net asset value change consists primarily of the impact of market value appreciation (depreciation) from funds that earn fees on a net asset value basis.

FPAUM as of June 30, 2022

FPAUM increased $0.8 billion, or 4.9%, to $18.5 billion on a pro forma basis and actual basis for the three months ended June 30, 2022. This increase is due primarily to an increase in capital raised from our private equity and venture capital solutions. FPAUM increased $1.2 billion, or 6.9%, to $18.5 billion on a pro forma basis and $1.2 billion or 6.9% to $18.5 billion on an actual basis for the six months ended June 30, 2022, due primarily to an increase in capital raised from our private

38

 


 

equity and venture capital solutions. 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.

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 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. 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 income for the following items:

Expenses that typically do not require us to pay them in cash in the current period (such as depreciation, amortization and stock-based compensation),
The cost of financing our business,
Acquisition-related expenses which reflects the actual costs incurred during the period for the acquisition of new businesses, which primarily consists of fees for professional services including legal, accounting, and advisory,
Registration-related expenses includes professional services associated with our prospectus process incurred during the period, and does not reflect expected regulatory, compliance, and other costs associated with those that were incurred subsequent to our Initial Public Offering, and
The effects of income taxes.

Adjusted Net Income in 2021 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 that existed. Similarly, the cash income taxes paid during the 2022 and 2021 periods differ significantly from the net income tax expense, which is primarily comprised of deferred tax expense as described in the results of operations.

 

 

 

For the Three

 

 

For the Six Months

 

 

 

Months Ended

 

 

Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

 

(in thousands)

 

Net income

 

$

11,154

 

 

$

1,978

 

 

$

18,946

 

 

$

4,193

 

Add back (subtract):

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation & amortization

 

 

6,264

 

 

 

7,551

 

 

 

12,540

 

 

 

15,102

 

Interest expense, net

 

 

1,525

 

 

 

5,464

 

 

 

2,910

 

 

 

10,934

 

Income tax expense

 

 

3,878

 

 

 

734

 

 

 

6,633

 

 

 

1,395

 

Non-recurring expenses

 

 

207

 

 

 

612

 

 

 

2,938

 

 

 

1,411

 

Non-cash stock based compensation

 

 

2,717

 

 

 

568

 

 

 

4,232

 

 

 

992

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

25,745

 

 

 

16,907

 

 

 

48,199

 

 

 

34,027

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Cash interest expense

 

 

(1,892

)

 

 

(4,533

)

 

 

(2,290

)

 

 

(9,157

)

Cash income taxes, net of taxes related to
   acquisitions

 

 

(664

)

 

 

(740

)

 

 

(428

)

 

 

(1,147

)

Adjusted Net Income

 

$

23,190

 

 

$

11,634

 

 

$

45,481

 

 

$

23,723

 

 

39

 


 

Financial Position, Liquidity and Capital Resources

Selected Statements of Financial Position

 

 

 

As of

 

 

As of

 

 

 

 

 

 

 

 

 

June 30,

 

 

December 31,

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

$ Change

 

 

% Change

 

 

 

(in thousands)

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

23,613

 

 

$

40,916

 

 

$

(17,303

)

 

 

(42

)%

Goodwill and other intangibles

 

 

535,231

 

 

 

547,489

 

 

 

(12,258

)

 

 

(2

)%

Total assets

 

 

654,914

 

 

 

676,217

 

 

 

(21,303

)

 

 

(3

)%

Debt obligations

 

 

187,913

 

 

 

212,496

 

 

 

(24,583

)

 

 

(12

)%

Stockholders’ equity

 

$

402,290

 

 

$

395,164

 

 

$

7,126

 

 

 

2

%

 

There was a decrease in cash from $40.9 million as of December 31, 2021 to $23.6 million as of June 30, 2022 due to the paydown of $25 million on the revolving credit facility principal balance in February 2022 and a $3.5 million dividend payment in June 2022 offset by excess operating cash flows. There was a decrease in goodwill and intangible assets of $12.3 million due to amortization of intangibles during the six months ended June 30, 2022. Remaining total assets increased in the same period by $8.3 million. This was primarily driven by amounts due to related parties increased by $12.7 million due to the Advisory Agreement between ECG and Enhanced PC that is discussed in Note 13 of our consolidated financial statements.

 

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.

On 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 revolving credit facility provides for an additional $125.0 million. There is also a $125 million accordion feature available in the credit agreement.

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. The Company elected a six month SOFR rate at the time of draw for the term loan and a one month SOFR rate for the Revolver Facility at the time of draw. Principal is contractually repaid at a rate of 1.25% on the term 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 June 30, 2022, the Term Loan is incurring interest at a SOFR rate of 2.61%. As of June 30, 2022, the Revolver Facility is split into three tranches. The first tranche has a principal balance of $12.0 million and incurs interest at a SOFR rate of 1.59% for a one month period through July 2022. The second tranche has a principal balance of $40.0 million and incurs interest at a SOFR rate of 1.43% for a three month period through August 2022. The third tranche has a principal balance of $13.9 million and incurs interest at a SOFR rate of 2.10% for a three month period through September 2022.

The Credit Agreement contains affirmative and negative covenants typical of such financing transactions, and specific financial covenants which require P10 to maintain a minimum leverage ratio. As of June 30, 2022, P10 was in compliance with its financial covenants required under the facility. In February 2022, the Company repaid $25 million of the principal balance outstanding on the revolving credit facility. As of June 30, 2022, the balance drawn on the revolving credit facility is $65.9 million and on the term loan, the balance is $125.0 million. For the three and six months ended June 30, 2022 and June 30, 2021, $2.5 million and $0 and $1.6 million and $0 interest expense was incurred, respectively. On July 27, 2022, the $12.0 million tranche of debt on the Revolver Facility incurring interest on a one month period was repaid in full.

40

 


 

Cash Flows

Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021

The following table reflects our cash flows for the six months ended June 30, 2022 and 2021:

 

 

 

For the Six Months
Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

$ Change

 

 

% Change

 

 

 

(in thousands)

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

23,171

 

 

$

17,604

 

 

$

5,567

 

 

 

32

%

Net cash used in investing activities

 

 

(320

)

 

 

(643

)

 

 

323

 

 

 

(50

)%

Net cash used in financing activities

 

 

(40,989

)

 

 

(10,578

)

 

 

(30,411

)

 

 

287

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents and
   restricted cash

 

$

(18,138

)

 

$

6,383

 

 

$

(24,521

)

 

 

(384

)%

 

Operating Activities

Cash from operating activities increased $5.6 million or 32%, to $23.2 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The components of this net increase primarily consisted of a $13.8 million increase in net income and the following changes in operating assets and liabilities:

An increase of $5.8 million in due from related parties driven primarily by the receivable from the Advisory Agreement between ECG and ECP as further discussed in Note 13;
An increase in expense for deferred taxes of $5.6 million primarily driven by reduction of deferred tax assets;
An increase of $4.0 million in accounts receivable driven by closing of new funds at the end of the quarter and collections in arrears;
A decrease in amortization of intangibles of $2.6 million driven by a fully amortized intangible asset at RCP and less amortization at ECG in 2022 than in 2021 driven by unique syndication fee contracts. This is offset by added intangible assets at Bonaccord and Hark following their acquisitions in September 2021.

 

Investing activities

The cash used in investing activities increased by $0.3 million, or (50)% to $0.3 million, for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. This increase in the cash used was due almost entirely to the increased note receivable balance as discussed in Note 6 coupled with an increase of purchases in property and equipment attributable to leasehold improvements on the newly rented spaces in New York and North Carolina.

Financing Activities

We used a net $41.0 million of cash for the six months ended June 30, 2022 for financing activities, as compared to cash used in financing activities of $10.6 million for the six months ended June 30, 2021 due primarily to the pay down of $25.0 million on the Revolving Facility in the first quarter of 2022. We also settled 1.1 million stock options from a grantee with a fair market value option price of $11.83, less a negotiated discount of 2.5%, totaling $12.5 million and paid a dividend of $3.5 million.

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.

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.

41

 


 

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 June 30, 2022:

 

 

 

Total

 

 

 

2022

 

 

2023

 

 

2024

 

 

2025

 

 

2026

 

 

Thereafter

 

 

 

(in thousands)

 

Operating lease obligations (1)

 

$

20,050

 

 

 

$

1,082

 

 

$

2,976

 

 

$

3,222

 

 

$

2,066

 

 

$

1,727

 

 

$

8,977

 

Debt obligations (2)

 

 

190,900

 

 

 

 

 

 

 

6,250

 

 

 

6,250

 

 

 

178,400

 

 

 

 

 

 

 

Total

 

$

210,950

 

 

 

$

1,082

 

 

$

9,226

 

 

$

9,472

 

 

$

180,466

 

 

$

1,727

 

 

$

8,977

 

 

1)
We lease office space under agreements that expire periodically through 2032. The table only includes guaranteed minimum lease payments under these agreements and does not project other related payments.
2)
Debt obligations presented in the table reflect scheduled principal payments related to the various debt instruments of the Company.

Critical Accounting Policies

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. See Note 2, “Significant Accounting Policies” 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 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.

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

42

 


 

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 7 for further information.

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 include Holdco, RCP 2, RCP 3, TrueBridge, Hark and Bonaccord. The assets and liabilities of the consolidated VIEs are presented gross in the Consolidated Balance Sheets. 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 7 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 Intermediate, P10 Holdings, and ECG are concluded to be consolidated subsidiaries of P10 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. 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.

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 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.

Income Taxes

Current income tax expense represents our estimated taxes to be paid or refunded for the current period. In accordance with Accounting Standards Codification (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.

43

 


 

We file various federal and state and local tax returns based on federal and state local consolidation and stand- alone tax rules as applicable.

Item 3. Qualitative and Quantitative Disclosures about Market Risk

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.

Interest Rate Risk

As of June 30, 2022, we had $190.9 million in outstanding principal under our Term Loan and Revolving Credit Facility. The annual interest rate on the Term Loan is based on SOFR, subject to a floor of 0.10%, plus 2.00%. On June 30, 2022, the interest rate on these borrowings was 2.10% + SOFR. We estimate that a 100-basis point increase in the interest rate would result in an approximately $0.5 million increase in interest expense related to the loan over the next 12 months.

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-Chief Executive Officers 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 judgement 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-Chief Executive Officers 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-Chief Executive Officers and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and

44

 


 

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-Chief Executive Officers 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 June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

45

 


 

PART II—OTHER INFORMATION

 

The information required with respect to this item can be found under “Contingencies” in Note 14, Commitments and Contingencies, to our consolidated financial statements included elsewhere in this quarterly 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 annual report on Form 10-K for the year ended December 31, 2021.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable.

 

Item 3. Defaults Upon Senior Securities.

Not applicable.

 

Item 4. Mine Safety Disclosures.

Not applicable.

 

Item 5. Other Information.

Not applicable.

Item 6. Exhibits.

Furnish the exhibits required by Item 601 of Regulation S-K (§ 229.601 of this chapter).

 

Exhibit

Number

 

Description

 

 

 

 3.1

 

Amended and Restated Certificate of Incorporation of P10, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 26, 2021).

3.2

 

Amended and Restated Bylaws of P10, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on October 26, 2021).

4.1

 

Rights Agreement, dated as of October 20, 2021, by and among the Company and American Stock Transfer & Trust Company, LLC, as rights agent (incorporate by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 26, 2021).

 

 

 

 

 

 

31.1*

 

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

 

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.3*

 

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

 

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*

 

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.3*

 

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Extension Schema Document

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith.

 

 

46

 


 

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: August 15, 2022

 

By:

/s/ Robert Alpert

 

 

 

Robert Alpert

 

 

 

Co-Chief Executive Officer

 

 

 

 

Date: August 15, 2022

 

By:

/s/ C. Clark Webb

 

 

 

C. Clark Webb

 

 

 

Co-Chief Executive Officer

 

 

 

 

Date: August 15, 2022

 

By:

/s/ Amanda Coussens

 

 

 

Amanda Coussens

 

 

 

Chief Financial Officer

 

47

 


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