Business context and reporting period
This is P10, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2023; the supplied company metadata says Ridgepost Capital, Inc., which does not match the registrant named in the filing. P10 is a multi-asset private-markets investment manager, with private equity, venture capital, impact investing and private credit solutions. Its revenue is primarily management and advisory fees. The results include WTI, acquired in October 2022.
Financial performance and position
Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise stated.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $58.9 | $50.0 | $178.7 | $140.0 |
| Operating income | $0.4 | $10.3 | $15.6 | $37.6 |
| Net income (loss) | $(8.8) | $5.6 | $(5.9) | $24.6 |
| Net income (loss) attributable to P10 | $(8.4) | $5.6 | $(6.0) | $24.6 |
| Operating cash flow | Not separately stated | Not separately stated | $45.8 | $43.9 |
- Margins: Q3 operating margin was approximately 0.7%, versus 20.5% a year earlier; nine-month operating margin was approximately 8.7%, versus 26.9%. Net margins were approximately (14.8%) and (3.3%) for Q3 and nine months 2023, respectively.
- Cash and liquidity: September 30 cash, cash equivalents and restricted cash totaled $22.2 million, down $7.3 million from year-end 2022. Operating cash flow was $45.8 million for the first nine months; financing activities used $52.4 million and investing activities used $0.7 million.
- Debt: Debt obligations were $261.9 million net of issuance costs ($265.0 million principal), down from $289.2 million net at December 31, 2022. Nine-month net interest expense was $16.1 million, compared with $5.3 million. The company reported compliance with its minimum-leverage covenant, which requires a ratio of no more than 3.50.
- Other balance-sheet measures: Total assets were $814.8 million and stockholders’ equity $427.6 million. Due from related parties was $52.9 million, including $44.0 million under the Enhanced PC advisory agreement. Accrued compensation and benefits rose to $52.1 million from $18.9 million.
- Fee-paying assets under management (FPAUM): $22.7 billion at quarter-end, up 2.4% during the quarter and 7.0% for the first nine months. Management reported $12.0 billion in private equity, $6.0 billion in venture capital, $2.0 billion in impact investing and approximately $2.7 billion in private credit FPAUM.
Material changes versus the prior comparable period
- Q3 revenue grew 18%; nine-month revenue grew 28%. Management attributed growth to WTI and organic FPAUM growth, including at Bonaccord, RCP and TrueBridge. Catch-up fees were $2.0 million in Q3 and $9.9 million for the nine months.
- Operating expenses rose 47% in Q3 and 59% year to date, led by compensation and benefits, which increased 76% and 89%, respectively. Drivers included WTI-related compensation, earnout and bonus accruals, higher management compensation, increased headcount and CEO-transition costs.
- Operating income declined materially and the company moved from prior-year profit to net losses. Higher operating costs and sharply higher interest expense were key contributors.
- Cash flow from operations increased 4% year to date, but included a $31.7 million increase in accrued compensation and benefits. Management also cited higher interest payments and increased receivables related to the Enhanced PC advisory agreement as cash-flow factors.
Outlook, commentary, risks and unusual items
- Management expects to continue expanding fundraising and FPAUM through new specialized vehicles and asset-class offerings. The filing gives no specific revenue, earnings or cash-flow guidance.
- Management said committed-capital fee arrangements support relatively stable fee rates, while acknowledging risks from market and economic conditions, fundraising cycles, manager competition, regulation, access to financing and the ability to make acquisitions. It noted higher interest rates may benefit some floating-rate private-credit and venture-debt strategies.
- The credit facilities bear floating SOFR-based interest. Management estimated that a 100-basis-point rate increase would add approximately $2.0 million of annual interest expense on the term loan alone.
- WTI earnouts: Up to $70.0 million may be payable subject to EBITDA milestones and continued employment. As of September 30, management considered the first two hurdles probable; $17.9 million of expense was recognized year to date, with $23.1 million accrued. No earnout payments had been made.
- Oregon investigation: A subsidiary’s Oregon New Markets Tax Credit transactions are under investigation. No formal claim had been filed; mediation occurred and a settlement was negotiated, pending Board and Oregon DOJ approval. The company accrued $3.6 million year to date and recorded a $1.5 million insurance receivable. Management said it did not expect a material adverse effect.
- Leadership transition: After quarter-end, Luke A. Sarsfield III became CEO, succeeding co-CEOs Robert Alpert and C. Clark Webb, who moved to Board roles. The filing reports $4.9 million of transition-related expense in the quarter, including severance and accelerated bonus expense. The new CEO’s agreement includes salary, incentive compensation and equity awards; the former co-CEOs’ agreements include severance and accelerated vesting.
- The company reported no material changes to previously disclosed risk factors, no material control changes, and effective disclosure controls. A $0.0325 per-share quarterly dividend was declared after quarter-end, payable December 20, 2023.
Important facts for investors to verify
- Confirm the issuer identity: the filing is for P10, Inc., not Ridgepost Capital, Inc.
- Assess whether FPAUM growth and recurring fees can offset higher compensation, WTI earnouts, amortization and floating-rate interest costs.
- Review the composition and collectability timing of the $52.9 million due from related parties, especially the Enhanced PC advisory balance.
- Monitor WTI EBITDA performance and the probability, timing and potential cash or equity settlement of earnouts and related bonuses.
- Track approval and final cost of the Oregon settlement, including the insurance recovery.
- Review debt maturities, refinancing requirements, covenant headroom and sensitivity to SOFR; scheduled principal maturities are concentrated in 2025.
- Consider the CEO and co-CEO transition costs, incentive awards and potential dilution alongside reported GAAP results.