UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact Name of Registrant as Specified in its Charter)
( State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
Purchase Rights |
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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 ☐
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).
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 |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 22, 2021, the registrant had
Table of Contents
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PART I. |
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Item 1. |
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1 |
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2 |
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3 |
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4 |
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6 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
34 |
Item 3. |
49 |
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Item 4. |
50 |
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PART II. |
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Item 1. |
51 |
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Item 1A. |
51 |
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Item 2. |
51 |
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Item 3. |
51 |
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Item 4. |
51 |
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Item 5. |
51 |
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Item 6. |
52 |
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53 |
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
P10, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
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As of |
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As of |
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September 30, |
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December 31, |
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2021 |
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2020 |
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(Unaudited) |
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ASSETS |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Accounts receivable |
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Note Receivable |
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Due from related parties |
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Investment in unconsolidated subsidiaries |
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Prepaid expenses and other assets |
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Property and equipment, net |
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Right-of-use assets |
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Deferred tax assets, net |
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Intangibles, net |
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Goodwill |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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LIABILITIES: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Due to related parties |
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Other liabilities |
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Contingent consideration |
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Deferred revenues |
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Lease liabilities |
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Debt obligations |
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Total liabilities |
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REDEEMABLE NONCONTROLLING INTEREST |
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STOCKHOLDERS' EQUITY: |
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Common stock - $ |
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Treasury stock |
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( |
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( |
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Additional paid-in-capital |
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Accumulated deficit |
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( |
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( |
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Total stockholders' equity |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
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$ |
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$ |
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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)
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For the Three Months Ended |
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For the Nine Months Ended |
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September 30, |
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September 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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REVENUES |
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Management and advisory fees |
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$ |
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$ |
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$ |
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$ |
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Other revenue |
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Total revenues |
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OPERATING EXPENSES |
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Compensation and benefits |
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Professional fees |
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General, administrative and other |
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Amortization of intangibles |
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Total operating expenses |
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INCOME FROM OPERATIONS |
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OTHER (EXPENSE)/INCOME |
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Interest expense implied on notes payable to sellers |
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( |
) |
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( |
) |
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( |
) |
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( |
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Interest expense, net |
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( |
) |
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( |
) |
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( |
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( |
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Other income/(expense) |
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( |
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Total other (expense) |
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( |
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( |
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( |
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( |
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Net income/(loss) before income taxes |
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( |
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Income tax (expense)/benefit |
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( |
) |
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( |
) |
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NET INCOME |
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$ |
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$ |
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$ |
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$ |
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Less: preferred dividends attributable to redeemable |
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( |
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( |
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( |
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( |
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NET INCOME/(LOSS) ATTRIBUTABLE TO P10 |
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$ |
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$ |
( |
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$ |
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$ |
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Earnings per share |
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Basic earnings per share |
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$ |
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$ |
( |
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$ |
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$ |
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Diluted earnings per share |
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$ |
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$ |
( |
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$ |
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$ |
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Weighted average shares outstanding, basic |
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Weighted average shares outstanding, diluted |
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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)
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Total |
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Common Stock |
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Treasury stock |
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Additional |
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Accumulated |
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Stockholders' |
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Shares |
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Amount |
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Shares |
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Amount |
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Paid-in-capital |
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Deficit |
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Equity |
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Balance at December 31, 2019 |
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$ |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Net income attributable to P10 |
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— |
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— |
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— |
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— |
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— |
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Balance at March 31, 2020 |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Net income attributable to P10 |
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— |
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— |
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— |
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— |
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— |
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Balance at June 30, 2020 |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Net (loss) attributable to P10 |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balance at September 30, 2020 |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
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$ |
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Total |
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Common Stock |
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Treasury stock |
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Additional |
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Accumulated |
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Stockholders' |
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Units |
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Amount |
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Units |
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Amount |
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Paid-in-capital |
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Deficit |
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Equity |
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Balance at December 31, 2020 |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Net income attributable to P10 |
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— |
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— |
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— |
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— |
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— |
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Balance at March 31, 2021 |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Net income attributable to P10 |
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— |
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— |
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— |
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— |
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— |
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Balance at June 30, 2021 |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Net income attributable to P10 |
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— |
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— |
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— |
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— |
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— |
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Balance at September 30, 2021 |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
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$ |
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3
The Notes to Consolidated Financial Statements
are an integral part of these statements.
P10, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
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For the Nine Months Ended |
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September 30, |
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2021 |
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2020 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating |
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Stock-based compensation |
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Non-cash incentive compensation |
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— |
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Depreciation expense |
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Amortization of intangibles |
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Amortization of debt issuance costs and debt discount |
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Income from unconsolidated subsidiaries |
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( |
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— |
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Expense/(benefit) for deferred tax |
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( |
) |
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Change in operating assets and liabilities: |
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Accounts receivable |
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( |
) |
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Due from related parties |
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( |
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Prepaid expenses and other assets |
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( |
) |
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Right-of-use assets |
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Accounts payable |
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Accrued expenses |
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Due to related parties |
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( |
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— |
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Other liabilities |
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( |
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Deferred revenues |
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Lease liabilities |
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( |
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( |
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Net cash provided by operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Acquisitions, net of cash acquired |
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( |
) |
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( |
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Payments of contingent consideration |
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( |
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— |
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Purchase of intangible assets |
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( |
) |
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— |
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Note receivable |
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( |
) |
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— |
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Investments in unconsolidated subsidiaries |
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( |
) |
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— |
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Proceeds from investments in unconsolidated subsidiaries |
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— |
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Post-closing payments related to acquisitions |
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( |
) |
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( |
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Purchases of property and equipment |
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( |
) |
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( |
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Net cash used in investing activities |
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( |
) |
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( |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Issuance of redeemable noncontrolling interests |
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Borrowings on debt obligations |
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— |
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Repayments on debt obligations |
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( |
) |
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( |
) |
Payment of preferred stock dividends |
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( |
) |
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— |
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Debt issuance costs |
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( |
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( |
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Net cash provided by financing activities |
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Net change in cash, cash equivalents and restricted cash |
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( |
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CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning |
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CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of |
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$ |
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$ |
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||
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 Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
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2021 |
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2020 |
|
||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
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Cash paid for interest |
|
$ |
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$ |
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Cash paid for income taxes |
|
$ |
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$ |
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NON-CASH OPERATING ACTIVITIES |
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Additions to right-of-use assets |
|
$ |
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$ |
|
||
Additions to lease liabilities |
|
$ |
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$ |
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RECONCILIATION OF CASH, CASH EQUIVALENTS AND |
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Cash and cash equivalents |
|
$ |
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$ |
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Restricted cash |
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Total cash, cash equivalents and restricted cash |
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$ |
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|
$ |
|
||
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
P10, Inc. and its consolidated subsidiaries (the “Company”) operate as a multi-asset class private market solutions provider in the alternative asset management industry. Our mission is to provide our investors differentiated access to a broad set of solutions and investment vehicles across a multitude of asset classes and geographies. Our existing portfolio of solutions across private equity, venture capital, private credit and impact investing support our mission by offering a comprehensive set of investment vehicles to our investors, including primary fund of funds, secondary investment, direct investment and co-investments, alongside separate accounts (collectively the “Funds”).
The direct and indirect subsidiaries of the Company include P10 Holdings, P10 Intermediate Holdings, LLC (“P10 Intermediate”), which owns the subsidiaries P10 RCP Holdco, LLC (“Holdco”), Five Points Capital, Inc. (“Five Points”), TrueBridge Capital Partners, LLC (“TrueBridge”), Enhanced Capital Group, LLC (“ECG”), Bonaccord Capital Advisors, LLC ("Bonaccord") and Hark Capital Advisors, LLC ("Hark"). Holdco is the entity holding the acquisition financing debt and owns the subsidiaries RCP Advisors 2, LLC (“RCP 2”) and RCP Advisors 3, LLC (“RCP 3”). See Note 10 for further information on the acquisition financing debt.
Prior to November 19, 2016, P10, formerly Active Power, Inc. designed, manufactured, sold, and serviced flywheel-based uninterruptible power supply products and serviced modular infrastructure solutions. On November 19, 2016, we completed the sale of substantially all our assets and liabilities and operations to Langley Holdings plc, a United Kingdom public limited company. Following the sale, we changed our name from Active Power, Inc. to P10 Industries, Inc. and became a non-operating company focused on monetizing our retained intellectual property and acquiring profitable businesses. For the period from December 2016 through September 2017, our business primarily consisted of cash, certain retained intellectual property assets and our net operating losses (“NOLs”) and other tax benefits. On March 22, 2017, we filed for re-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
On October 5, 2017, we closed on the acquisition of RCP 2 and entered into a purchase agreement to acquire RCP 3 in January 2018. On January 3, 2018, we closed on the acquisition of RCP 3. RCP 2 and RCP 3 are registered investment advisors with the United States Securities and Exchange Commission.
On April 1, 2020, the Company completed the acquisition of Five Points. Five Points is a leading lower middle market alternative investment manager focused on providing both equity and debt capital to private, growth-oriented companies and limited partner capital to other private equity funds, with all strategies focused exclusively in the U.S. lower middle market. See Note 3 for additional information on the acquisition. Five Points is a registered investment advisor with the United States Securities and Exchange Commission.
On October 2, 2020, the Company completed the acquisition of TrueBridge. TrueBridge is an investment firm focused on investing in venture capital through fund-of-funds, co-investments, and separate accounts. See Note 3 for additional information on the acquisition. TrueBridge is a registered investment advisor with the United States Securities and Exchange Commission.
On December 14, 2020, the Company completed the acquisition of
6
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
manages equity and debt investments in impact initiatives across North America, targeting underserved areas and other socially responsible end markets including renewable energy, historic building renovations, and affordable housing. See Note 3 for additional information on the acquisitions. ECP is a registered investment advisor with the United States Securities and Exchange Commission.
On September 30, 2021, the Company completed acquisitions of Bonaccord and Hark. Bonaccord is an alternative asset manager focusing on acquiring minority equity interests in alternative asset management companies focused on private market strategies which may include private equity, private credit, real estate, and real asset strategies. Hark is engaged in the business of making loans to portfolio companies that are owned or controlled by financial sponsors, such as private equity funds or venture capital funds, and which do not meet traditional direct lending underwriting criteria but where the repayment of the loan by the portfolio company is guaranteed by its financial sponsor. See Note 3 for additional information on these acquisitions.
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 nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year ended December 31, 2021.
Certain entities in which the Company holds an interest are investment companies that follow specialized accounting rules under U.S. GAAP and reflect their investments at estimated fair value. Accordingly, the carrying value of the Company’s equity method investments in such entities retains the specialized accounting treatment.
Principles of Consolidation
The Company performs the variable interest analysis for all entities in which it has a potential variable interest. If the Company has a variable interest in the entity and the entity is a variable interest entity (“VIE”), we will also analyze whether the Company is the primary beneficiary of this entity and if consolidation is required.
Generally, VIEs are entities that lack sufficient equity to finance their activities without additional financial support from other parties, or whose equity holders, as a group, lack one or more of the following characteristics: (a) direct or indirect ability to make decisions, (b) obligation to absorb expected losses or (c) right to receive expected residual returns. A VIE must be evaluated quantitatively and qualitatively to determine the primary beneficiary, which is the reporting entity that has (a) the power to direct activities of a VIE that most significantly impact the VIE's economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.
To determine a VIE's primary beneficiary, we perform a qualitative assessment to determine which party, if any, has the power to direct activities of the VIE and the obligation to absorb losses and/or receive its benefits. This assessment involves identifying the activities that most significantly impact the VIE's economic performance and determine whether we, or another party, has the power to direct those activities. When evaluating whether we are the primary beneficiary of a VIE, we perform a qualitative analysis that considers the design of the VIE, the nature of our involvement and the variable interests held by other parties. See Note 6 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 P10 Intermediate, Holdco, RCP 2, RCP 3, TrueBridge, Bonaccord, and Hark. The assets and liabilities of the consolidated VIEs are presented gross in the Consolidated Balance Sheets. The assets of our consolidated VIE’s are owned by
7
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
those entities and not generally available to satisfy P10's obligations, and the liabilities of our consolidated VIE’s are obligations of those entities and their creditors do not generally have recourse to the assets of P10. See Note 6 for more information on both consolidated and unconsolidated VIEs.
Reclassifications
Certain reclassifications have been made within the Consolidated Financial Statements to conform prior periods with current period presentation.
Use of Estimates
The preparation of the Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents. As of September 30, 2021, and December 31, 2020, cash equivalents include money market funds of $
Restricted Cash
Restricted cash as of September 30, 2021 and December 31, 2020 was primarily cash that is restricted due to certain deposits being held 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,
Note Receivable
Note receivable is equal to contractual amounts owed from a signed, secured promissory note with the Company. 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,
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.
Computers and purchased software |
|
|
|
|
Furniture and fixtures |
|
|
|
Long-lived Assets
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 September 30, 2021, 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 September 30, 2021, the intangible assets are comprised of indefinite-lived intangible assets and finite-lived intangible assets related to the acquisitions of RCP 2, RCP 3, Five Points, TrueBridge, Enhanced, 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
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). At September 30, 2021, the Company determined that there was
Contingent Consideration
Contingent consideration is initially measured at fair value on the date of the acquisition. The liabilities are remeasured at fair value on each reporting date, with changes in the fair value reflected in other income on our Consolidated Statements of Operations. As of September 30, 2021, contingent consideration recorded relates to the acquisition of Hark and Bonaccord.
Debt Issuance Costs
Costs incurred which are directly related to the issuance of debt are deferred and amortized on a straight-line basis over the terms of the underlying obligation, which approximates the effective interest method, and are presented as a reduction to the carrying value of the associated debt on our Consolidated Balance Sheets. As these costs are amortized, they are included in interest expense, net within our Consolidated Statements of Operations.
Redeemable Noncontrolling Interest
Redeemable noncontrolling interest represents third party and related party interests in the Company's consolidated subsidiary, P10 Intermediate. This interest is redeemable at the option of the investors and therefore is not treated as permanent equity. Redeemable noncontrolling interest is presented at the greater of its carrying amount or redemption value at each reporting date in the Company’s Consolidated Balance Sheets. Any changes in redemption value are recorded to retained earnings, or in the absence of retained earnings, additional paid-in capital. See Note 16 for additional information.
Treasury Stock
The Company records common stock purchased for treasury at cost. At the date of subsequent reissuance, the treasury stock account is reduced by the cost of such stock using the average cost method.
10
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between independent and knowledgeable parties who are willing and able to transact for an asset or liability at the measurement date. We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value and then we rank the estimated values based on the reliability of the inputs used following the fair value hierarchy set forth by the FASB.
As of September 30, 2021 and December 31, 2020, we used the following valuation techniques to measure fair value for assets and there were no changes to these methodologies during the periods presented:
Level 1—Assets were valued using the closing price reported in the active market in which the individual security was traded.
Level 2—Assets were valued using quoted prices in markets that are not active, broker dealer quotations, and other methods by which all significant inputs were observable at the measurement date.
Level 3—Assets were valued using unobservable inputs in which little or no market data exists as reported by the respective institutions at the measurement date.
The carrying values of financial instruments comprising cash and cash equivalents, 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 carrying values of the seller notes payable and tax amortization benefits approximate fair value. As of September 30, 2021, the Company has a contingent consideration liability related to the acquisitions of Hark and Bonaccord that is measured at fair value. The Company measures these liabilities on a recurring basis.
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
11
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
Income Taxes
Current income tax expense represents our estimated taxes to be paid or refunded for the current period. In accordance with ASC 740, Income Taxes (“ASC 740”), we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect 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.
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 15 for additional information. The numerator in the computation of diluted EPS is impacted by the redeemable convertible preferred shares issued by P10 Intermediate since these preferred shares are convertible into common shares of P10 Intermediate. Under the if converted method, diluted EPS reflects a reduction in earnings that P10 would recognize by owning a smaller percentage of P10 Intermediate when the preferred shares are assumed to be converted.
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
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
12
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
addition, the Company also performs a screen test to determine when a set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set of assets is not a business. If the set of assets and activities is not considered a business, it is accounted for as an asset acquisition using a cost accumulation model. In the cost accumulation model, the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on the basis of relative fair values.
The Company includes the results of operations of acquired businesses beginning on the respective acquisition dates. In accordance with ASC 805, the Company allocates the purchase price of an acquired business to its identifiable assets and liabilities based on the estimated fair values using the acquisition method. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill. The excess value of the net identifiable assets and liabilities acquired over the purchase price of an acquired business is recorded as a bargain purchase gain. The Company uses all available information to estimate fair values of identifiable intangible assets and property acquired. In making these determinations, the Company may engage an independent third-party valuation specialist to assist with the valuation of certain intangible assets, notes payable, and tax amortization benefits.
The consideration for certain of our acquisitions may include liability classified contingent consideration, which is determined based on formulas stated in the applicable purchase agreements. The amount to be paid under these arrangements is based on certain financial performance measures subsequent to the acquisitions. The contingent consideration included in the purchase price is measured at fair value on the date of the acquisition. The liabilities are remeasured at fair value on each reporting date, with changes in the fair value reflected in general, administrative and 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.
Recent Accounting Pronouncements
The Company adopted ASU No. 2017-04, Intangibles—Goodwill and Other (“ASC 350”) Simplifying the Test for Goodwill Impairment on January 1, 2020. The adoption of this new guidance did not have a material impact on our Consolidated Financial Statements and related disclosures.
The Company adopted ASU No. 2018-13, Fair Value Measurement (“ASC 820”): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement on January 1, 2020. The adoption of this new guidance did not have a material impact on our Consolidated Financial Statements and related disclosures.
The Company adopted ASU No. 2018-07, Compensation—Stock Compensation ("Topic 718"): Improvements to Nonemployee Share-Based Payment Accounting, on December 15, 2018. This guidance was related to the restricted stock awards granted to our board members as compensation for their participation on our board in the third quarter of 2021. The adoption of this new guidance did not have a material impact on our Consolidated Financial Statements and related disclosures.
The Company adopted ASU No. 2019-12, Income Taxes ("Topic 740"): Disclosure Framework - Simplifying the Accounting for Income Taxes, in January 1, 2021, which simplified the accounting for income taxes by removing certain exceptions to the general principles of Topic 740 and clarifying and amending existing guidance. The adoption of this standard did not have a material impact on our financial statements.
Pronouncements not yet adopted
13
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
Note 3. Acquisitions
Five Points Capital
On
The following is a summary of consideration paid:
|
|
Fair Value |
|
|
Cash |
|
$ |
|
|
Preferred stock |
|
|
|
|
Total purchase consideration |
|
$ |
|
|
Consideration paid in the transaction consisted of both cash and equity. See Note 16 for additional information on the preferred stock issued in the connection with the acquisition of Five Points.
In connection with the acquisition, the Company incurred a total of $
The following table presents the fair value of the net assets acquired as of the acquisition date:
|
|
Fair Value |
|
|
ASSETS |
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
Accounts receivable |
|
|
|
|
Due from related parties |
|
|
|
|
Prepaid expenses and other |
|
|
|
|
Property and equipment |
|
|
|
|
Right-of-use assets |
|
|
|
|
Intangible assets |
|
|
|
|
Total assets acquired |
|
$ |
|
|
LIABILITIES |
|
|
|
|
Accounts payable |
|
$ |
|
|
Accrued expenses |
|
|
|
|
Long-term lease obligation |
|
|
|
|
Deferred tax liability |
|
|
|
|
Total liabilities assumed |
|
$ |
|
|
|
|
|
|
|
Net identifiable assets acquired |
|
$ |
|
|
Goodwill |
|
|
|
|
Net assets acquired |
|
$ |
|
|
The following table presents the fair value of identifiable intangible assets acquired:
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Amortization |
|
|
|
Fair Value |
|
|
Period |
|
Value of management contracts |
|
$ |
|
|
||
Value of trade name |
|
|
|
|
||
Total identifiable intangible assets |
|
$ |
|
|
|
|
14
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
Goodwill
The goodwill recorded as part of the acquisition includes benefits that management believes will result from the acquisition, including expanding the Company’s product offering into private credit. The goodwill is
Acquisition of TrueBridge Capital
On
The following is a summary of consideration paid:
|
|
Fair Value |
|
|
Cash |
|
$ |
|
|
Contingent consideration |
|
|
|
|
Preferred stock |
|
|
|
|
Total purchase consideration |
|
$ |
|
|
A net cash amount of $
Included in total consideration is $
In connection with the acquisition, the Company incurred a total of $
15
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
The following table presents the fair value of the net assets acquired as of the acquisition date:
|
|
Fair Value |
|
|
ASSETS |
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
Accounts receivable |
|
|
|
|
Due from related parties |
|
|
|
|
Prepaid expenses and other |
|
|
|
|
Property and equipment |
|
|
|
|
Right-of-use assets |
|
|
|
|
Intangible assets |
|
|
|
|
Total assets acquired |
|
$ |
|
|
LIABILITIES |
|
|
|
|
Accounts payable |
|
$ |
|
|
Accrued expenses |
|
|
|
|
Deferred revenues |
|
|
|
|
Long-term lease obligation |
|
|
|
|
Deferred tax liability |
|
|
|
|
Total liabilities assumed |
|
$ |
|
|
|
|
|
|
|
Net identifiable assets acquired |
|
$ |
|
|
Goodwill |
|
|
|
|
Net assets acquired |
|
$ |
|
|
The following table presents the fair value of identifiable intangible assets acquired:
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Amortization |
|
|
|
Fair Value |
|
|
Period |
|
Value of management contracts |
|
$ |
|
|
||
Value of trade name |
|
$ |
|
|
||
Value of technology |
|
|
|
|
||
Total identifiable intangible assets |
|
$ |
|
|
|
|
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 $
Acquisition of Enhanced
On
Upon the completion of the acquisitions, certain agreements contemplated in the Securities Purchase Agreement became effective immediately upon the closing of the acquisitions. The allocation of the consideration paid for the assets acquired and
16
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
liabilities assumed takes into consideration the fact that these agreements occurred contemporaneously with the closing of the acquisitions.
Prior to and through the date of the acquisition by the Company, ECG had certain consolidated subsidiaries and funds whose primary activities consisted of issuing qualified debt or equity instruments to tax credit investors in order to make investments in qualified businesses, which are referred to as the “Permanent Capital Subsidiaries.” Pursuant to a Reorganization Agreement, upon the closing of P10’s acquisition of ECG, the Permanent Capital Subsidiaries were contributed by ECG to Enhanced Permanent Capital, LLC (“Enhanced PC”), a newly formed entity. In exchange for this contribution of the Permanent Capital Subsidiaries, ECG obtained a non-controlling equity interest in Enhanced PC. The ownership in Enhanced PC was evaluated by management, and it was determined to be a variable interest. However, ECG was concluded to not be the primary beneficiary of Enhanced PC and, accordingly, Enhanced PC is not consolidated by ECG. Rather, the interest in Enhanced PC is reflected as an equity method investment by ECG. In addition to the Reorganization Agreement, see Note 11 for information on the Advisory Agreement and Administrative Services Agreement.
The acquisition of the equity interests in ECG and ECP were negotiated simultaneously for a single purchase price. The following tables illustrate the consideration paid for Enhanced, and the allocation of the purchase price to the acquired assets and assumed liabilities.
|
|
Fair Value |
|
|
Cash |
|
$ |
|
|
Estimated post-closing working capital adjustment |
|
|
|
|
Preferred stock |
|
|
|
|
Total purchase consideration |
|
$ |
|
|
A total of $
In connection with the acquisition, the Company incurred a total of $
The acquisition date fair values of certain assets and liabilities, including intangible assets acquired and related weighted average expected lives and deferred income taxes, are provisional and subject to revision within one year of the acquisition date. As such, our estimates of fair values are pending finalization, which may result in adjustments to goodwill.
17
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
The following table presents the provisional fair value of the net assets acquired as of the acquisition date:
|
|
Fair Value |
|
|
ASSETS |
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
Restricted cash |
|
|
|
|
Accounts receivable |
|
|
|
|
Due from related parties |
|
|
|
|
Prepaid expenses and other assets |
|
|
|
|
Investment in unconsolidated subsidiaries |
|
|
|
|
Intangible assets |
|
|
|
|
Total assets acquired |
|
$ |
|
|
LIABILITIES |
|
|
|
|
Accrued expenses |
|
$ |
|
|
Other liabilities |
|
|
|
|
Deferred revenues |
|
|
|
|
Due to related parties |
|
|
|
|
Debt obligations |
|
|
|
|
Deferred tax liability |
|
|
|
|
Total liabilities assumed |
|
$ |
|
|
|
|
|
|
|
Net identifiable assets acquired |
|
$ |
|
|
Goodwill |
|
|
|
|
Net assets acquired |
|
$ |
|
|
The following table presents the provisional fair value of identifiable intangible assets acquired:
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Amortization |
|
|
|
Fair Value |
|
|
Period |
|
Value of management and advisory contracts |
|
$ |
|
|
||
Value of trade name |
|
|
|
|
||
Total identifiable intangible assets |
|
$ |
|
|
|
|
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 $
Acquisition of Bonaccord
On
The following is a summary of consideration paid:
|
|
Fair Value |
|
|
Cash |
|
$ |
|
|
Contingent consideration |
|
|
|
|
Total purchase consideration |
|
$ |
|
|
18
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
A total of $
Included in total consideration is $
The fair value is based on the scenario based method. The assumptions used in the analysis are inherently subjective; therefore, the ultimate amount of the liability may differ materially from the current estimate. As of September 30, 2021, the estimated fair value of the remaining contingent consideration totaled $
In connection with the acquisition, the Company incurred a total of $
The acquisition date fair value of certain assets and liabilities, including intangible assets acquired and related weighted average expected lives are provisional and subject to revision within one year of the acquisition date. As such, our estimates of fair values are pending finalization, which may result in adjustments to goodwill.
The following table presents the provisional fair value of the net assets acquired as of the acquisition date:
|
|
Fair Value |
|
|
ASSETS |
|
|
|
|
Prepaid expenses and other assets |
|
|
|
|
Investment in partnership |
|
|
|
|
Intangible assets |
|
|
|
|
Total assets acquired |
|
$ |
|
|
LIABILITIES |
|
|
|
|
Accrued expenses |
|
$ |
|
|
Total liabilities assumed |
|
$ |
|
|
|
|
|
|
|
Net identifiable assets acquired |
|
$ |
|
|
Goodwill |
|
|
|
|
Net assets acquired |
|
$ |
|
|
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 |
|
$ |
|
|
||
Value of trade name |
|
|
|
|
||
Total identifiable intangible assets |
|
$ |
|
|
|
|
In connection with the acquisition, Bonaccord entered a Strategic Alliance Agreement ("SAA"), providing a third-party the right to receive
19
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
of Funds II and III, the third-party has not met specific equity commitments in the SAA, Bonaccord may elect to repurchase the equity interests at fair market value. In addition to this SAA, there is another agreement with a third-party, similar to a placement fee arrangement, whereby they will receive
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 $
Acquisition of Hark
On
Identifiable Intangible Assets
The fair value of management and advisory contracts acquired were estimated using the excess earnings method. Significant inputs to the valuation model include existing revenue, estimates of expenses and contributory asset charges, the economic life of the contracts and a discount rate based on a weighted average cost of capital.
The fair value of trade names acquired were estimated using the relief from royalty method. Significant inputs to the valuation model include estimates of existing and future revenue, estimated royalty rate, economic life and a discount rate based on a weighted average cost of capital.
The fair value of technology acquired was estimated using the relief from royalty method. Significant inputs to the valuation model include a royalty rate, an estimated life and a discount rate.
The management and advisory contracts, trade names and the acquired technology all have a finite useful life. The carrying value of the management fund and advisory contracts and trade names will be amortized in line with the pattern in which the economic benefits arise and are reviewed at least annually for indicators of impairment in value that is other than temporary. The technology will be amortized on a straight-line basis.
Pro-forma Financial Information
The following unaudited pro forma condensed consolidated results of operations of the Company assumes the acquisitions of Five Points, TrueBridge, Enhanced, and Bonaccord were completed on January 1, 2020:
|
|
For the Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Revenue |
|
$ |
|
|
$ |
|
||
Net income attributable to P10 |
|
|
|
|
|
|
||
Pro forma adjustments include revenue and net income (loss) of the acquired business for each period. Other pro forma adjustments include intangible amortization expense and interest expense based on debt issued or repaid in connection with the acquisitions as if the acquisitions were completed on
Note 4. Revenue
20
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
The following presents revenues disaggregated by product offering:
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Management and advisory fees |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Subscriptions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consulting agreements and referral fees |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Note 5. Note Receivable
The Company's note receivable consists of an Advance Agreement and Secured Promissory Note that was executed on September 30, 2021 between the Company and BCP Partners Holdings, LP ("BCP") to lend funds to cover their GP commitments. This agreement provides for a note to BCP for $
Note 6. Variable Interest Entities
Consolidated VIEs
The Company consolidates certain VIEs for which it is the primary beneficiary. VIEs consist of certain operating entities not wholly owned by the Company and include P10 Intermediate, Holdco, RCP 2, RCP 3, TrueBridge, Hark 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 $
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 loos of assets recognized by the Company relating to these unconsolidated entities.
Note 7. 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 September 30, 2021, investment in unconsolidated subsidiaries totaled $
21
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 $
Tax Credit Finance
ECG provides a wide range of tax credit transactions and consulting services through various entities which are wholly owned subsidiaries of Enhanced Tax Credit Finance, LLC (“ETCF”), which is a wholly owned subsidiary of ECG. Some of these subsidiaries own nominal interests, typically under 1.0%, in various VIEs and record these investments under the measurement alternative described in Note 2 above. For the nine and three months ended September 30, 2021, ECG made $
Note 8. Property and Equipment
Property and equipment consist of the following:
|
|
As of |
|
|
As of |
|
||
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2021 |
|
|
2020 |
|
||
Computers and purchased software |
|
$ |
|
|
$ |
|
||
Furniture and fixtures |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total property and equipment, net |
|
$ |
|
|
$ |
|
||
Note 9. Goodwill and Intangibles
Changes in goodwill for the nine months ended September 30, 2021 is as follows:
Balance at December 31, 2020 |
|
$ |
|
|
Purchase price adjustment |
|
|
( |
) |
Increase from acquisitions |
|
|
|
|
Balance at September 30, 2021 |
|
$ |
|
Intangibles consists of the following:
|
|
As of September 30, 2021 |
|
|||||||||
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
|||
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|||
Trade names |
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Technology |
|
|
|
|
|
— |
|
|
|
|
||
Total indefinite-lived intangible assets |
|
|
|
|
|
— |
|
|
|
|
||
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|||
Trade names |
|
|
|
|
|
( |
) |
|
|
|
||
Management and advisory contracts |
|
|
|
|
|
( |
) |
|
|
|
||
Technology |
|
|
|
|
|
( |
) |
|
|
|
||
Total finite-lived intangible assets |
|
|
|
|
|
( |
) |
|
|
|
||
Total intangible assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
22
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
|
|
As of December 31, 2020 |
|
|||||||||
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
|||
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|||
Trade names |
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Total indefinite-lived intangible assets |
|
|
|
|
|
— |
|
|
|
|
||
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|||
Trade names |
|
|
|
|
|
( |
) |
|
|
|
||
Management and advisory contracts |
|
|
|
|
|
( |
) |
|
|
|
||
Technology |
|
|
|
|
|
( |
) |
|
|
|
||
Total finite-lived intangible assets |
|
|
|
|
|
( |
) |
|
|
|
||
Total intangible assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Management and advisory contracts and finite lived trade names are amortized over
Remainder of 2021 |
|
$ |
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
Thereafter |
|
|
|
|
Total amortization |
|
$ |
|
During the nine months ended September 30, 2021, we identified adjustments related to the timing of amortization of certain finite lived intangible assets. The table above has been adjusted to reflect those timing differences. There was no impact to the Consolidated Statement of Operations nor the Consolidated Balance Sheets as the adjustments related to amounts scheduled to be expensed subsequent to December 31, 2020. We do not believe the impact of the adjustments is material to our consolidated financial statements for any previously issued financial statements taken as a whole, and any impact to our expected net income for future periods has been adjusted for in the table above.
Note 10. Debt Obligations
Debt obligations consists of the following:
|
|
As of |
|
|
As of |
|
||
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2021 |
|
|
2020 |
|
||
Gross revolving credit facility state tax credits |
|
$ |
|
|
$ |
|
||
Debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Revolving credit facility state tax credits, net |
|
$ |
( |
) |
|
$ |
|
|
Gross notes payable to sellers |
|
$ |
|
|
$ |
|
||
Less debt discount |
|
|
( |
) |
|
|
( |
) |
Notes payable to sellers, net |
|
$ |
|
|
$ |
|
||
Gross credit and guaranty facility |
|
$ |
|
|
$ |
|
||
Debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Credit and guaranty facility, net |
|
$ |
|
|
$ |
|
||
Total debt obligations |
|
$ |
|
|
$ |
|
||
Revolving Credit Facility State Tax Credits
23
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
Enhanced State Tax Credit Fund III, LLC, a subsidiary of ECG, has a $
Notes Payable to Sellers
On October 5, 2017, the Company issued Secured Promissory Notes Payable (“2017 Seller Notes”) in the amount of $
On January 3, 2018, the Company issued Secured Promissory Notes Payable (“2018 Seller Notes”) in the amount of $
On January 3, 2018, the Company issued tax amortization benefits in the amount of $
During the nine and three months ended September 30, 2021, we recorded $
The 2017 Seller Notes, the 2018 Seller Notes and the TAB Payments are collectively referred to as “Notes payable to sellers” on our Consolidated Financial Statements.
Credit and Guaranty Facility
The Company’s subsidiary, Holdco, entered into the Facility with HPS as administrative agent and collateral agent on October 7, 2017. The Facility initially provided for a $
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 $
24
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
On September 30, 2021, in connection with the acquisition of Bonaccord, the term loan under the Facility was amended adding an additional $
Due to the maturity of the Facility being within
The Facility contains affirmative and negative covenants typical of such financing transactions, and specific financial covenants which require Holdco to maintain a minimum leverage ratio, asset coverage ratio and a fixed charge ratio. The Facility also contains restrictions regarding the creation of indebtedness, the occurrence of mergers or consolidations, the payment of dividends and other restrictions. As of September 30, 2021, Holdco was in compliance with all the financial covenants required under the Facility. The outstanding balance of the Facility was $
Phase-Out of LIBOR
In July 2017, the UK's Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR as a benchmark by the end of 2021. At the present time, our Facility has a term that extends beyond 2021. The Facility provides for a mechanism to amend the underlying agreements to reflect the establishment of an alternate rate of interest. However, we have not yet pursued any amendment or other contractual alternative to our Facility to address this matter. We are currently evaluating the potential impact of the eventual replacement of the LIBOR interest rate.
Debt Payable
Future principal maturities of debt as of September 30, 2021 are as follows:
Remainder of 2021 |
|
$ |
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
Debt Issuance Costs
Debt issuance costs are offset against the Revolving Credit Facility State Tax Credits and the Credit and Guaranty Facility. Unamortized debt issuance costs for the Credit and Guaranty Facility as of September 30, 2021 and December 31, 2020 were $
Amortization expense related to debt issuance costs totaled $
25
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
Note 11. Related Party Transactions
Effective May 1, 2018, P10 started paying a monthly services fee of $
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 $
On June 30, 2020, RCP 2 entered into an intercompany services agreement with Five Points whereby RCP 2 will provide certain accounting, human resources, back office, administrative functions and such other services to Five Points as mutually agreed upon from time to time. In consideration for the services provided, Five Points shall pay RCP 2 a quarterly fee in the amount of $
Effective April 1, 2020, P10 Intermediate pays a quarterly management fee of $
As described in Note 1, through its subsidiaries, the Company serves as the investment manager to the Funds. Certain expenses incurred by the Funds are paid upfront and are reimbursed from the Funds as permissible per fund agreements. As of September 30, 2021, the total accounts receivable from the Funds totaled $
Upon the closing of the Company’s acquisition of ECG and ECP, the Advisory Agreement between ECG and Enhanced PC immediately became effective. Under this agreement, ECG will provide 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. In exchange for those services, which commenced on January 1, 2021, ECG will receive advisory fees from Enhanced PC based on a declining fixed fee schedule totaling $
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 $
Upon the closing of Bonaccord 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 5.
Note 12. Commitments and Contingencies
Operating Leases
26
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
The Company leases office space and various equipment under non-cancelable operating leases, with the longest lease expiring in 2027. These lease agreements provide for various renewal options. Rent expense for the various leased office space and equipment was approximately $
The following table presents information regarding the Company’s operating leases as of September 30, 2021:
Operating lease right-of-use assets |
|
$ |
|
|
Operating lease liabilities |
|
$ |
|
|
Cash paid for lease liabilities |
|
$ |
|
|
Weighted-average remaining lease term (in years) |
|
|
|
|
Weighted-average discount rate |
|
|
% |
The future contractual lease payments as of September 30, 2021 are as follows:
Remainder of 2021 |
|
$ |
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
Thereafter |
|
|
|
|
Total undiscounted lease payments |
|
|
|
|
Less discount |
|
|
( |
) |
Total lease liabilities |
|
$ |
|
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.
COVID-19
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) a global pandemic, which has resulted in significant disruption and uncertainty in the global economic markets. The extent of the operational and financial impact the COVID-19 pandemic may have on the Company has yet to be determined and is dependent on its duration and spread, any related operational restrictions and the overall economy. Currently, we have activated our Business Continuity Plan, which assures the ability for all aspects of our business to continue operating without interruption. COVID-19 has not negatively impacted our business in a material way and our business continuity plan is operating as planned with limited interruptions. We are closely monitoring developments related to COVID-19 and assessing any negative impacts to our business. It is possible that our future results may be adversely affected by slowdowns in fundraising activity and the pace of capital deployment, which could result in delayed or decreased management fees.
Note 13. 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 nine months ended September 30, 2021 was
27
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
The Company records deferred tax assets and liabilities for the future tax benefit or expense that will result from differences between the carrying value of its assets for income tax purposes and for financial reporting purposes, as well as for operating loss and tax credit carryovers. A valuation allowance is recorded to bring the net deferred tax assets to a level that, in management's view, is more likely than not to be realized in the foreseeable future. This level will be estimated based on a number of factors, especially the amount of net deferred tax assets of the Company that are actually expected to be realized, for tax purposes, in the foreseeable future. As of September 30, 2021, the Company recorded a $
The Company is subject to examination by the United States Internal Revenue Service as well as state, local and tax authorities. The Company is not currently under audit.
In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740) - Disclosure Framework - Simplifying the Accounting for Income Taxes, which simplified the accounting for income taxes by removing certain exceptions to the general principles of Topic 740 and clarifying and amending existing guidance. We adopted this new standard as of September 30, 2021. The adoption of this standard did not have a material impact on our financial statements.
Note 14. 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, our previously existing equity compensation plan. The Plan provides for the issuance of
A summary of stock option activity for the nine months ended September 30, 2021 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, 2020 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expired/Forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Outstanding as of September 30, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable as of September 30, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
The weighted average assumptions used in calculating the fair value of stock options granted during the nine months ended September 30, 2021 and September 30, 2020 were as follows:
|
|
For the Nine Months Ended September 30, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Expected life |
|
|
|
|
||||
Expected volatility |
|
|
% |
|
|
% |
||
Risk-free interest rate |
|
|
% |
|
|
% |
||
Expected dividend yield |
|
|
% |
|
|
% |
||
28
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
Compensation expense equal to the grant date fair value is recognized for these awards over the vesting period and is included in compensation and benefits on our Consolidated Statements of Operations. The stock-based compensation expense for the nine and three months ended September 30, 2021 was $
A summary of restricted stock activity for the nine months ended September 30, 2021 is presented below:
|
|
Number of |
|
|
Weighted-Average Grant |
|
||
|
|
RSAs |
|
|
Date Fair Value Per RSA |
|
||
Outstanding as of December 31, 2020 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Exercised |
|
|
|
|
|
|
||
Expired/Forfeited |
|
|
|
|
|
|
||
Outstanding as of September 30, 2021 |
|
|
|
|
$ |
|
||
Note 15. 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.
The following table presents a reconciliation of the numerators and denominators used in the computation of basic and diluted EPS:
29
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Numerator for basic calculation—Net income/(loss) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
Adjustment for: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Preferred dividends attributable to redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Proportionate share of subsidiary's earnings |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Numerator for earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Numerator for earnings per share assuming |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator for basic calculation—Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted shares assumed upon exercise of stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator for earnings per share assuming dilution |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per share—basic |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
Earnings per share—diluted |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
The computations of diluted earnings per share excluded options to purchase
Note 16. Redeemable Noncontrolling Interest
In connection with the closing of the acquisition of Five Points on April 1, 2020, the Company formed a new subsidiary, P10 Intermediate, which was the acquiring entity of Five Points. On April 1, 2020, P10 Intermediate issued three series (A, B and C) of redeemable convertible preferred shares. On October 2, 2020 and December 14, 2020, P10 Intermediate issued two additional series (D and E) in connection with the acquisitions of TrueBridge and Enhanced. The preferred shares on an as-if-converted basis represent approximately
30
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
The following is a summary of each individual series and any additional features they have:
Series A
P10 Intermediate issued to the Five Points sellers
Series B
P10 Intermediate issued to Keystone Capital XXX, LLC (“Keystone”)
In addition to the rights listed above, the Series B preferred shares also feature a call option that gives the shareholder the ability to purchase up to an additional
On October 2, 2020, in connection with the acquisition of TrueBridge, Keystone exercised its option purchasing
On December 14, 2020, in connection with the acquisition of Enhanced, Keystone exercised its option purchasing
The Series B preferred shareholder is also granted additional protective rights with respect to certain matters.
Series C
P10 Intermediate issued to the holders of the TAB Payments
Additionally, P10 Intermediate issued to certain key members of Five Points management
Series D
P10 Intermediate issued to the TrueBridge sellers
Additionally, on December 14, 2020, P10 Intermediate issued to certain TrueBridge employees
The Series D preferred shareholders are also granted additional protective rights with respect to certain matters.
Series E
31
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
P10 Intermediate issued to the Enhanced sellers
Additionally, P10 Intermediate issued to certain key members of Enhanced management
Since the preferred shares are redeemable at the option of the holder and the redemption is not solely in the control of the Company, the preferred shares are accounted for as a redeemable noncontrolling interest and classified within temporary equity in the Company’s Consolidated Balance Sheets. The redeemable noncontrolling interest was initially measured at the fair value of the consideration paid. Redemption was not deemed probable by the Company at September 30, 2021 and therefore no subsequent measurement or adjustment was deemed necessary. Dividends on the preferred shares are recognized as preferred dividends attributable to redeemable non-controlling interest in our Consolidated Statements of Operations.
The table below presents the reconciliation of changes in redeemable noncontrolling interests:
Balance at December 31, 2020 |
|
$ |
|
|
Issuance of subsidiary preferred stock |
|
|
|
|
Distribution of preferred dividends attributable to |
|
|
( |
) |
Preferred dividends attributable to redeemable |
|
|
|
|
Balance at September 30, 2021 |
|
$ |
|
Cumulative dividends in arrears on the preferred stock were $
Note 17. Subsequent Events
The Company has evaluated subsequent events through November 22, 2021, the date on which these financial statements were available to be issued. There were no significant subsequent events other than the matters described below.
Reorganization
On October 20, 2021, in connection with the IPO, the Company completed a reorganization and restructure. P10 adopted and filed an amended and restated certificate of incorporation to, among other things, provide for Class A common stock and Class B common stock. All of the existing equity of P10 Holdings, Inc. and its consolidated subsidiaries, including the convertible preferred units of P10 Intermediate, were converted into Class B common stock of P10 on a
Conversion of Redeemable Noncontrolling Interest
On October 20, 2021, in connection with the IPO and the reorganization, the redeemable noncontrolling interest was converted into Class B common stock of P10. The conversion occurred immediately prior to the reorganization.
Initial Public Offering
On October 20, 2021, P10 announced the pricing of its initial public offering of
32
P10, Inc.
Notes to Consolidated Financial Statements
(Unaudited, dollar amounts stated in thousands)
by the stockholders were converted to Class A shares upon sale. Trading began on the New York Stock Exchange on October 21, 2021, under the ticker symbol “PX”. The offering closed on
P10 also underwent a reverse stock split of P10's common stock on a
The Company has reviewed the state and federal income tax impacts of the IPO transaction and related restructuring. We have determined that these transactions do not result in a material change to our 2021 effective tax rate or our ability to fully utilize existing net operating losses that existed as of the date of the IPO.
As part of the reorganization, P10 assumed the employee benefit plan, incentive compensation plan, and other similar plans. Additionally, the shares authorized under the Plan were increased from
Repayment of Debt Obligations
On October 28, 2021, the Company made a payment of $
On October 29, 2021, the Company made a payment for its Facility with HPS of $
Option Exercise
On November 18, 2021, pursuant to the underwriting agreement, the underwriters elected to fully exercise their option to purchase an additional
33
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, and our audited financial statements, the related notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our prospectus dated October 20, 2021 , filed with the U.S. Securities and Exchange Commission ("SEC") on October 22, 2021. 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, 2020, 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. The below historical results also do not include any activities or positions of P10, Inc., or give effect to any of the reorganization activities which have occurred in connection with the Initial Public Offering discussed in the subsequent events.
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 the year ended December 31, 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). Five Points’ results are included in our Consolidated Statements of Operations for the period from April 1, 2020 through December 31, 2020 and for the nine months ended September 30, 2021. On October 2, 2020, we completed our acquisition of TrueBridge Capital Partners, LLC (TrueBridge) to serve as our Venture Capital solution. TrueBridge’s results are included in our Consolidated Statements of Operations for the period from October 2, 2020 through December 31, 2020 and for the nine months ended September 30, 2021. On December 14, 2020, we completed our acquisition of 100% of the equity interest in ECG to serve as our Impact Investing solution. ECG’s results are included in our Consolidated Statements of Operations for the period from December 14, 2020 through December 31, 2020 and for the nine months ended September 30, 2021. These acquisitions were accounted for as business combinations, and these entities are reported as consolidated subsidiaries of P10. Additionally, on December 14, 2020, we completed our acquisition of approximately 49% of the voting interests and 50% of the economic interests in ECP, which is a related party of ECG. As we only acquired a non-controlling interest in ECP, it is reported as an equity method investment in accordance with ASC 323.
On September 30, 2021, we completed the acquisitions of Hark and Bonaccord to further expand on solutions available to our investors. The effect of these acquisitions is reflected in our Consolidated Balance Sheet at September 30, 2021. These acquisitions were accounted for as business combinations and are reported as consolidated subsidiaries of P10.
As of September 30, 2021, our private market solutions were comprised of the following:
34
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:
35
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 which we operate, as well as changes in global economic conditions, including the effects of COVID-19 as described below, and regulatory or other governmental policies or actions can materially affect the values of the funds our platforms manage, as well as our ability to effectively manage investments. With interest rates remaining historically low, we continue to see investors turning towards alternative investments to achieve higher yields.
The continued growth of our business may be influenced by several factors, including the following market trends:
36
COVID-19
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) a global pandemic, which has resulted in significant disruption and uncertainty in the global economic markets. The full extent of the operational and financial impact the COVID-19 pandemic may have on the Company has yet to be determined and is dependent on its duration and spread, the effectiveness of treatments and measures of prevention, and any related operational restrictions and the overall economy. Currently, we have activated our Business Continuity Plan, which assures the ability for all aspects of our business to continue operating without interruption. We are unable to accurately predict how COVID-19 will affect the results of our operations because the virus’s severity, the effectiveness, availability and public acceptance of vaccines, as well as the duration of the pandemic are uncertain. However, we do not expect a significant impact to our near-term results given
37
the structure of our contracts. While it is premature to accurately predict its full impact, the pandemic may affect our ability to raise capital for future funds.
Key Financial & Operating Metrics
Revenues
We generate revenues primarily from management fees and advisory contracts, and to a lesser extent, other consulting arrangements and services. See Significant Accounting Policies in Note 2 of our consolidated financial statements for additional information regarding the way revenues are recognized.
We earn management and advisory fees based on a percentage of investors’ capital commitments to or, in selected cases, net invested capital in, or NAV, of our investment funds. 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, 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 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. However, much of this investment was made during the first half of 2021.
General, administrative and other includes occupancy, travel and entertainment, technology, insurance and other general costs associated with operating our business.
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
38
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 nine months ended September 30, 2021 and September 30, 2020.
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||||||||||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||||||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||||||
REVENUES |
|
(in thousands) |
|
|
|
|
|
(in thousands) |
|
|
|
|
||||||||||||||||||||
Management and advisory fees |
|
$ |
37,939 |
|
|
$ |
15,222 |
|
|
$ |
22,717 |
|
|
|
149 |
% |
|
$ |
104,029 |
|
|
$ |
41,821 |
|
|
$ |
62,208 |
|
|
|
149 |
% |
Other revenue |
|
|
206 |
|
|
|
159 |
|
|
|
47 |
|
|
|
30 |
% |
|
|
872 |
|
|
|
861 |
|
|
|
11 |
|
|
|
1 |
% |
Total revenues |
|
|
38,145 |
|
|
|
15,381 |
|
|
|
22,764 |
|
|
|
148 |
% |
|
|
104,901 |
|
|
|
42,682 |
|
|
|
62,219 |
|
|
|
146 |
% |
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Compensation and benefits |
|
|
14,009 |
|
|
|
5,918 |
|
|
|
8,091 |
|
|
|
137 |
% |
|
|
38,119 |
|
|
|
15,818 |
|
|
|
22,301 |
|
|
|
141 |
% |
Professional fees |
|
|
2,595 |
|
|
|
2,627 |
|
|
|
(32 |
) |
|
|
(1 |
)% |
|
|
7,856 |
|
|
|
5,177 |
|
|
|
2,679 |
|
|
|
52 |
% |
General, administrative and other |
|
|
3,019 |
|
|
|
1,068 |
|
|
|
1,951 |
|
|
|
183 |
% |
|
|
8,310 |
|
|
|
3,160 |
|
|
|
5,150 |
|
|
|
163 |
% |
Amortization of intangibles |
|
|
7,484 |
|
|
|
3,572 |
|
|
|
3,912 |
|
|
|
110 |
% |
|
|
22,452 |
|
|
|
9,606 |
|
|
|
12,846 |
|
|
|
134 |
% |
Total operating expenses |
|
|
27,107 |
|
|
|
13,185 |
|
|
|
13,922 |
|
|
|
106 |
% |
|
|
76,737 |
|
|
|
33,761 |
|
|
|
42,976 |
|
|
|
127 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
INCOME FROM OPERATIONS |
|
|
11,038 |
|
|
|
2,196 |
|
|
|
8,842 |
|
|
|
403 |
% |
|
|
28,164 |
|
|
|
8,921 |
|
|
|
19,243 |
|
|
|
216 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
OTHER (EXPENSE)/INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest expense implied on notes |
|
|
(223 |
) |
|
|
(216 |
) |
|
|
(7 |
) |
|
|
3 |
% |
|
|
(657 |
) |
|
|
(771 |
) |
|
|
114 |
|
|
|
(15 |
)% |
Interest expense, net |
|
|
(5,261 |
) |
|
|
(2,089 |
) |
|
|
(3,172 |
) |
|
|
152 |
% |
|
|
(15,761 |
) |
|
|
(6,498 |
) |
|
|
(9,263 |
) |
|
|
143 |
% |
Other income |
|
|
283 |
|
|
|
(1 |
) |
|
|
284 |
|
|
|
(28,400 |
)% |
|
|
668 |
|
|
|
21 |
|
|
|
647 |
|
|
|
3,081 |
% |
Total other (expense) |
|
|
(5,201 |
) |
|
|
(2,306 |
) |
|
|
(2,895 |
) |
|
|
126 |
% |
|
|
(15,750 |
) |
|
|
(7,248 |
) |
|
|
(8,502 |
) |
|
|
117 |
% |
Net income/(loss) before income taxes |
|
|
5,837 |
|
|
|
(110 |
) |
|
|
5,947 |
|
|
|
(5,406 |
)% |
|
|
12,414 |
|
|
|
1,673 |
|
|
|
10,741 |
|
|
|
642 |
% |
Income tax (expense)/benefit |
|
|
(1,759 |
) |
|
|
175 |
|
|
|
(1,934 |
) |
|
|
(1,105 |
)% |
|
|
(3,154 |
) |
|
|
1,513 |
|
|
|
(4,667 |
) |
|
|
(308 |
)% |
NET INCOME/(LOSS) |
|
$ |
4,078 |
|
|
$ |
65 |
|
|
$ |
4,013 |
|
|
|
6,174 |
% |
|
$ |
9,260 |
|
|
$ |
3,186 |
|
|
$ |
6,074 |
|
|
|
191 |
% |
Revenues
Three Months Ended September 30, 2021 and September 30, 2020
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 September 30, 2021 and September 30, 2020. For the three months ended September 30, 2021 compared to the three months ended September 30, 2020, revenues increased $22.8 million or 148% due to both higher management fees primarily from the impact of 2020 acquisitions, as well as an increase in other revenues.
Management fees increased $22.7 million, or 149%, to $37.9 million for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020 due primarily to the acquisitions of TrueBridge and ECG during the fourth quarter of 2020, which contributed management fee and advisory revenues of $18.2 million. The remaining increase of $4.5 million represents an increase in the Company’s management fees due to increases in FPAUM, primarily from capital
39
raised and additional fund closings during the third quarter of 2021. Catch up fees during the third quarter of 2021 were $1.7 million associated with the fund closings at TrueBridge and RCP.
Other revenues, which represent ancillary elements of our business, increased by $47 thousand or 30% to $0.2 million for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020 driven primarily by administrative fees.
Nine Months Ended September 30, 2021 and September 30, 2020
Total revenues increased $62.2 million, or 146%, to $104.9 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, due to higher management and advisory fees, largely attributable to our acquisitions, partially offset by a small decrease in other revenues.
Management fees increased by $62.2 million, or 149%, to $104.0 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 due primarily to the acquisitions of Five Points, TrueBridge, and ECG during fiscal 2020, which contributed $54.8 million to management fee and advisory revenues, in total. Revenue also increased by $5.9 million due to an increase in primary fund closings and $1.4 million related to a private credit fund closing. Catch up fees during Q3 2021 were $2.9 million associated with the fund closings at TrueBridge and RCP.
Other revenues increased by $11 thousand, or 1% to $0.9 million, from the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. This increase was primarily attributable to a increase in referral fees during the first half of 2021.
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||||||||||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||||||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||||||
OPERATING EXPENSES |
|
(in thousands) |
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
||||||||||||||
Compensation and benefits |
|
$ |
14,009 |
|
|
$ |
5,918 |
|
|
$ |
8,091 |
|
|
|
137 |
% |
|
$ |
38,119 |
|
|
$ |
15,818 |
|
|
$ |
22,301 |
|
|
|
141 |
% |
Professional fees |
|
|
2,595 |
|
|
|
2,627 |
|
|
|
(32 |
) |
|
|
(1 |
)% |
|
|
7,856 |
|
|
|
5,177 |
|
|
|
2,679 |
|
|
|
52 |
% |
General, administrative |
|
|
3,019 |
|
|
|
1,068 |
|
|
|
1,951 |
|
|
|
183 |
% |
|
|
8,310 |
|
|
|
3,160 |
|
|
|
5,150 |
|
|
|
163 |
% |
Amortization of intangibles |
|
|
7,484 |
|
|
|
3,572 |
|
|
|
3,912 |
|
|
|
110 |
% |
|
|
22,452 |
|
|
|
9,606 |
|
|
|
12,846 |
|
|
|
134 |
% |
Total operating expenses |
|
$ |
27,107 |
|
|
$ |
13,185 |
|
|
$ |
13,922 |
|
|
|
106 |
% |
|
$ |
76,737 |
|
|
$ |
33,761 |
|
|
$ |
42,976 |
|
|
|
127 |
% |
Operating Expenses
Three Months Ended September 30, 2021 and September 30, 2020
Total operating expenses increased by $13.9 million, or 106%, to $27.1 million, for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020 primarily driven by increases in compensation and benefits, general and administrative expenses, and amortization of intangibles also attributable to the acquisitions completed in fiscal 2020 and the compensation and benefits attributable to the acquisitions of Hark and Bonaccord during the third quarter of 2021.
Compensation and benefits expense increased by $8.1 million, or 137%, to $14.0 million for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. The primary drivers for the increase in compensation and benefits are the acquisitions of TrueBridge and ECG which resulted in a total of $4.3 million additional compensation expense as well as an increase in headcount and compensation related to building out the corporate function as the Company prepared for an initial public offering of $1.6 million. Additionally, there was an increase in compensation cost for acquisition related employee incentive bonuses of $1.6 million from the third quarter of 2020 to the third quarter of 2021. The remaining increase in compensation cost of $0.5 million is driven by increases in salaries at subsidiaries not associated with acquisitions.
Professional fees decreased by $32 thousand, to $2.6 million. ECG and TrueBridge contributed $0.4 million of additional professional fees for the three months ended September 30, 2021 that did not exist in the three months ended September 30, 2020 as they were acquired later in 2020. This was offset by reductions in professional fees related to the acquisition of ECG and TrueBridge in the three months ended September 30, 2020 that were not recurring in the three months ended September 30, 2021 of $0.3 million as well as non-recurring audit fees at Five Points of $0.2 million in 2020. General, administrative and other increased by $2.0 million, or 183% to $3.0 million due to the full quarter of expenses incurred at TrueBridge and ECG that were not yet acquired at September 30, 2020. This drove $1.7 million of the $2.0 million increase.
40
Amortization of intangibles increased by $3.9 million, or 110% to $7.5 million, for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. The increase is due to the addition of $80.4 million of gross finite lived intangible assets in the acquisitions of TrueBridge and ECG.
Nine Months Ended September 30, 2021 and September 30, 2020
Total operating expenses increased by $43.0 million, or 127%, to $76.7 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. This increase was primarily due to increases in compensation and benefits as well as amortization of intangibles associated with the acquisitions of TrueBridge, Five Points, and ECG completed in fiscal 2020.
Compensation and benefits expense increased by $22.3 million, or 141%, to $38.1 million, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The primary driver for the increase in compensation and benefits were the acquisitions completed after the second quarter of 2020 which resulted in a total of $13.0 million of additional compensation expense including TrueBridge and ECG. Five Points, which was acquired in Q2 2020, contributed to a full six months of compensation expense which drove $2.3 million of the six months ended change. There was also an increase in headcount and compensation cost related to building out the corporate function as the Company prepared for an initial public offering of $4.5 million. A smaller driver of the increase was $1.6 million in compensation cost for acquisition related employee incentive bonuses. Additionally, there was an increase in compensation cost for employees not associated with TrueBridge, Five Points and ECG acquisitions of $0.8 million.
Professional fees increased by $2.7 million, or 52%, to $7.9 million and general, administrative and other increased by $5.2 million, or 163% to $8.3 million, due primarily to the acquisitions of TrueBridge, Five Points and ECG. The acquisitions resulted in an increase in professional fees of $1.7 million and an increase in general and administrative costs of $4.7 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. Professional fees increased by an additional $1.7 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 due to additional legal, advisory and tax fees associated with the acquisition transactions of Hark and Bonaccord and the initial public offering. This was offset by a $0.6 million decrease in legal expenses related to borrowings for acquisitions related to ECG and TrueBridge.
Amortization of intangibles increased by $12.8 million, or 134%, to $22.5 million, for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. The increase is due to the addition of $80.4 million of gross finite lived intangible assets in the acquisitions of TrueBridge, Five Points and ECG.
Other Income (Expense)
Three Months Ended September 30, 2021 and September 30, 2020
Other expenses increased $2.9 million, or 126%, to $5.2 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. This increase was primarily due to a $3.2 million increase in interest expense related to the credit and guaranty facility as a result of the $159.4 million principal increases under the credit and guaranty facility to fund the acquisitions of TrueBridge and ECG.
Nine Months Ended September 30, 2021 and September 30, 2020
Other expenses increased by $8.5 million, or 117%, to $15.8 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. This increase was primarily due to a $9.3 million increase in interest expense related to the credit and guaranty facility as a result of the $159.4 million principal increases under the credit and guaranty facility to fund the acquisitions of TrueBridge and ECG. This increase was offset by $0.6 million in other income driven by ECG’s pick up of income from unconsolidated subsidiaries in the first nine months of 2021.
Income Tax/Benefit Expense
Three Months Ended September 30, 2021 and September 30, 2020
Income tax expense increased by $1.9 million to $1.8 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 due to the reduction of deferred tax assets during 2021.
Nine Months Ended September 30, 2021 and September 30, 2020
41
Income tax expense increased by $4.7 million to $3.2 million for the nine months ended September 30, 2021 compared to a benefit of $1.5 million for the nine months ended September 30, 2020. The increase was primarily due to the reduction of deferred tax assets during 2021.
FPAUM
The following table provides a period-to-period roll-forward of our fee earning AUM on a pro forma basis as if Five Points, True Bridge and ECG were acquired on January 1, 2020.
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
For the Nine Months Ended |
|
||||
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
|
(in millions) |
|
|
(in millions) |
|
|
(in millions) |
|
|
(in millions) |
|
||||
Balance, Beginning of Period |
|
$ |
15,082 |
|
|
$ |
12,505 |
|
|
$ |
13,351 |
|
|
$ |
11,894 |
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Acquisitions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Capital raised (1) |
|
|
1,112 |
|
|
|
284 |
|
|
|
2,771 |
|
|
|
766 |
|
Capital deployed (2) |
|
|
161 |
|
|
|
122 |
|
|
|
431 |
|
|
|
340 |
|
Net Asset Value Change (3) |
|
|
1 |
|
|
|
(1 |
) |
|
|
8 |
|
|
|
(3 |
) |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Scheduled fee base stepdowns |
|
|
(79 |
) |
|
|
(109 |
) |
|
|
(241 |
) |
|
|
(183 |
) |
Expiration of fee period |
|
|
(18 |
) |
|
|
(19 |
) |
|
|
(61 |
) |
|
|
(33 |
) |
Balance, End of period |
|
$ |
16,259 |
|
|
$ |
12,782 |
|
|
$ |
16,259 |
|
|
$ |
12,781 |
|
The following table provides a period-to-period roll-forward of our fee-earning AUM on an actual basis.
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
For the Nine Months Ended |
|
||||
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
|
(in millions) |
|
|
(in millions) |
|
|
(in millions) |
|
|
(in millions) |
|
||||
Balance, Beginning of Period |
|
$ |
14,172 |
|
|
$ |
7,020 |
|
|
$ |
12,706 |
|
|
$ |
5,770 |
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Acquisitions |
|
|
952 |
|
|
|
0 |
|
|
|
952 |
|
|
|
1,020 |
|
Capital raised (1) |
|
|
1,077 |
|
|
|
236 |
|
|
|
2,443 |
|
|
|
445 |
|
Capital deployed (2) |
|
|
175 |
|
|
|
66 |
|
|
|
394 |
|
|
|
99 |
|
Net Asset Value Change (3) |
|
|
1 |
|
|
|
(1 |
) |
|
|
8 |
|
|
|
(3 |
) |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Scheduled fee base stepdowns |
|
|
(73 |
) |
|
|
(1 |
) |
|
|
(183 |
) |
|
|
(11 |
) |
Expiration of fee period |
|
|
(45 |
) |
|
|
(0 |
) |
|
|
(61 |
) |
|
|
(0 |
) |
Balance, End of period |
|
$ |
16,259 |
|
|
$ |
7,320 |
|
|
$ |
16,259 |
|
|
$ |
7,320 |
|
FPAUM as of September 30, 2021
FPAUM increased $1.2 billion, or 7.8%, to $16.3 billion on a pro forma basis and $2.1 billion, or 14.7%, to $16.3 billion on an actual basis for the three months ended September 30, 2021. On a pro forma basis, this increase is due primarily to an increase in capital raised from our private equity and venture capital solutions. On an actual basis, $1.1 billion of the increase is due to the previously mentioned organic growth and $1.0 billion is due to the acquisitions of Hark and Bonaccord. FPAUM increased $2.9 billion, or 21.8%, to $16.3 billion on a pro forma basis and $3.6 billion or 28.0% to $16.3 billion on an actual
42
basis for the nine months ended September 30, 2021, due primarily to an increase in capital raised from our private equity and venture capital solutions. 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:
Adjusted Net Income reflects the cash payments made for interest, which differs significantly from total interest expense that includes non-cash interest on the non-interest-bearing Seller Notes related to our acquisitions of RCP 2 and RCP 3. Similarly, the cash income taxes paid during the periods is significantly lower than the net income tax benefit, which is primarily comprised of deferred tax expense as described in the results of operations.
|
|
For the Three |
|
|
For the Nine Months |
|
||||||||||
|
|
Months Ended |
|
|
Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
|
(in thousands) |
|
|
(in thousands) |
|
||||||||||
Net income |
|
$ |
4,078 |
|
|
$ |
65 |
|
|
$ |
9,260 |
|
|
$ |
3,186 |
|
Add back (subtract): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation & amortization |
|
|
7,553 |
|
|
|
3,579 |
|
|
|
22,654 |
|
|
|
9,627 |
|
Interest expense, net |
|
|
5,484 |
|
|
|
2,325 |
|
|
|
16,418 |
|
|
|
7,269 |
|
Income tax (benefit)/expense |
|
|
1,759 |
|
|
|
(175 |
) |
|
|
3,154 |
|
|
|
(1,513 |
) |
Non-recurring expenses |
|
|
2,422 |
|
|
|
2,800 |
|
|
|
3,833 |
|
|
|
3,412 |
|
Non-cash stock based compensation |
|
|
461 |
|
|
|
187 |
|
|
|
1,452 |
|
|
|
522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjusted EBITDA |
|
|
21,757 |
|
|
|
8,781 |
|
|
|
56,771 |
|
|
|
22,503 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash interest expense, net |
|
|
(4,555 |
) |
|
|
(1,529 |
) |
|
|
(13,712 |
) |
|
|
(6,172 |
) |
Cash income taxes, net of taxes related to |
|
|
(1,046 |
) |
|
|
(689 |
) |
|
|
(2,192 |
) |
|
|
(938 |
) |
Adjusted Net Income |
|
$ |
16,156 |
|
|
$ |
6,563 |
|
|
$ |
40,867 |
|
|
$ |
15,393 |
|
43
Financial Position, Liquidity and Capital Resources
Selected Statements of Financial Position
|
|
As of |
|
|
As of |
|
|
|
|
|
|
|
||||
|
|
September 30, |
|
|
December 31, |
|
|
|
|
|
|
|
||||
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in thousands) |
|
|
|
|
|
|
|
|||||||
Cash and cash equivalents |
|
$ |
21,656 |
|
|
$ |
11,773 |
|
|
$ |
9,883 |
|
|
|
84 |
% |
Goodwill and other intangibles |
|
|
553,707 |
|
|
|
513,720 |
|
|
|
39,987 |
|
|
|
8 |
% |
Total assets |
|
|
644,246 |
|
|
|
582,426 |
|
|
|
61,820 |
|
|
|
11 |
% |
Debt obligations |
|
|
315,517 |
|
|
|
290,055 |
|
|
|
25,462 |
|
|
|
9 |
% |
Redeemable noncontrolling interest |
|
|
199,202 |
|
|
|
198,439 |
|
|
|
763 |
|
|
|
0 |
% |
Stockholders’ equity |
|
$ |
69,070 |
|
|
$ |
59,841 |
|
|
$ |
9,229 |
|
|
|
15 |
% |
There was an increase in cash from $11.8 million as of December 31, 2020 to $21.7 million as of September 30, 2021 due to excess operating cash flows. There was an increase in goodwill and intangible assets of $22.4 million due to the acquisitions of Hark and Bonaccord offset by a $7.4 million reduction from December 31, 2020 to September 30, 2021 due to amortization of intangibles during the nine months ended September 30, 2021. Remaining total assets also increased in the same period by $5.4 million of restricted cash due to cash held by ECG in escrow for deals not yet closed and an increase in receivables due to ECG's Advisory Agreement with Enhanced PC. Additionally, amounts due to related parties increased by $2.3 million due to the related party note agreement balance between BCP and Bonaccord Partners Holdings as of September 30, 2021. The Company also paid down debt obligations of $12.3 million in the nine months ended September 30, 2021 which was offset by an increase in principal by $35.0 million related to the acquisitions of Hark Capital and Bonaccord Capital.
Historical Liquidity and Capital Resources
We have continued to support our ongoing operations through the receipt of management and advisory fee revenues. However, to fund our continued growth, we have utilized capital obtained through debt and equity raises. Our ability to continue to raise funds will be critical as we pursue additional business development opportunities and new acquisitions.
In order to fund the acquisitions of RCP 2, in October 2017, the Company issued non-interest bearing Secured Promissory Notes Payable (“2017 Seller Notes”) in the amount of $81.3 million to the sellers of RCP 2. On January 3, 2018, the Company issued non-interest bearing Secured Promissory Notes Payable (“2018 Seller Notes”) in the amount of $22.1 million to the sellers of RCP 3. Additionally, in connection with the acquisition, the Company issued non-interest-bearing tax amortization benefits in the amount of $48.4 million (“TAB Payments”) to the owners of RCP 3. The 2017 Seller Notes, the 2018 Seller Notes, and the TAB Payments are collectively referred to as “Notes payable to sellers.”
The Company’s indirect wholly owned subsidiary, P10 RCP Holdco, LLC (“HoldCo”), entered into a Credit and Guaranty Facility with HPS Investment Partners, LLC (HPS), an unrelated party, as administrative agent and collateral agent on October 7, 2017 (the Facility). The Facility provides 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 (the “Seller Notes”) due resulting from the acquisition of RCP Advisors. The Facility provides for a $125 million five-year term loan and a $5 million one-year line of credit. The line of credit was repaid and subsequently expired during 2018. This Facility was amended in the past year, on October 2, 2020 and December 14, 2020 to provide additional term loan borrowings as further described below.
During the year ended December 31, 2020, we raised $46.4 million of cash through the issuance of redeemable preferred equity interests through the issuance of shares in our subsidiary, P10 Intermediate. Additionally, we incurred $159.4 million under the Facility, which matures in October 2022. As of December 31, 2020, we had $261.7 million outstanding under the Facility. We utilized these funds and cash on hand, as well as the issuance of $141.4 million of P10 Intermediate shares to the sellers to fund the acquisitions of Five Points, TrueBridge, ECG and ECP. As of September 30, 2021, we had $286.8 million outstanding under the Facility. This increased from December 31, 2020 due to a $35.0 million draw to fund the acquisitions of Hark and Bonaccord and was offset by quarterly principal paydowns of $9.8 million.
44
Cash Flows
Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020
The following table reflects our cash flows for the nine months ended September 30, 2021 and 2020:
|
|
For the Nine Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
September 30, |
|
|
|
|
|
|
|
|||||||
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in thousands) |
|
|
|
|
|
|
|
|||||||
Net cash provided by operating activities |
|
$ |
40,704 |
|
|
$ |
16,292 |
|
|
$ |
24,412 |
|
|
|
150 |
% |
Net cash used in investing activities |
|
|
(47,379 |
) |
|
|
(46,779 |
) |
|
|
(600 |
) |
|
|
1 |
% |
Net cash provided by financing activities |
|
|
21,969 |
|
|
|
27,948 |
|
|
|
(5,979 |
) |
|
|
(21 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Increase (decrease) in cash and cash equivalents and |
|
$ |
15,294 |
|
|
$ |
(2,539 |
) |
|
$ |
17,833 |
|
|
|
(702 |
)% |
Operating Activities
Cash from operating activities increased $24.4 million or 150%, to $40.7 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The components of this net increase primarily consisted of a $6.1 million increase in net income and the following changes in operating assets and liabilities:
Investing activities
The cash used in investing activities increased by $0.6 million, or 1% to ($47.4) million, for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. This increase in the cash used was due almost entirely to the acquisitions of Hark Capital and Bonaccord Capital on September 30, 2021, which resulted in net cash payments of $46.9 million during the third quarter of 2021.
Financing Activities
We obtained a net $22.0 million of cash for the nine months ended September 30, 2021 for financing activities, as compared to cash provided by financing activities of $27.9 million for the nine months ended September 30, 2021 due primarily to the borrowing of $35.0 million related to the Hark Capital and Bonaccord Capital acquisitions in the third quarter of 2021. The cash obtained for financing activities for the first nine months of 2020 was primarily due to the proceeds from the issuance of redeemable noncontrolling interests. The was offset by $9.7 million of repayments of debt obligations for the nine months ended September 31, 2021.
Future Sources and Uses of Liquidity
We generate significant cash flows from operating activities. We believe that we will be able to continue to meet our current and long-term liquidity and capital requirements through our cash flows from operating activities, existing cash and cash equivalents, and our external financing activities which may include refinancing of existing indebtedness or the pay down of debt using proceeds of equity offerings.
We intend to use a portion of the proceeds raised in the Initial Public Offering completed on October 25, 2021 to pay down the debt obligations of the Company which existed as of September 30, 2021. We believe we will also continue to
45
evaluate opportunities, based on market conditions, to access the capital markets and use proceeds from the issuance of equity securities or debt instruments, to continue funding acquisitions and expanding our operations.
Subsequent Events
On October 25, 2021, we completed our Initial Public Offering to the New York Stock Exchange. We issued 20,000,000 of our Class A common stock at a price to the public of $12.00 per share. We then used the proceeds from the offering mostly to pay down the term loan. On October 29, 2021, the Company paid down $86.8 million of our total principal outstanding on the term loan.
Off Balance Sheet Arrangements
We do not invest in any off-balance sheet vehicles that provide liquidity, capital resources, market or credit risk support, or engage in any activities that expose us to any liability that is not reflected in our consolidated financial statements.
Contractual Obligations, Commitments and Contingencies
In the ordinary course of business, we enter contractual arrangements that require future cash payments. The following table sets forth information regarding our anticipated future cash payments under our contractual obligations as of September 30, 2021:
|
|
Total |
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|
2024 |
|
|
2025 |
|
|
Thereafter |
|
|||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||||
Operating lease obligations (1) |
|
$ |
9,065 |
|
|
$ |
576 |
|
|
$ |
2,184 |
|
|
$ |
2,180 |
|
|
$ |
2,011 |
|
|
$ |
854 |
|
|
$ |
1,260 |
|
Debt obligations (2) |
|
|
327,911 |
|
|
|
2,318 |
|
|
|
284,529 |
|
|
|
— |
|
|
|
2,111 |
|
|
|
2,111 |
|
|
|
36,842 |
|
Total |
|
$ |
336,976 |
|
|
$ |
2,894 |
|
|
$ |
286,713 |
|
|
$ |
2,180 |
|
|
$ |
4,122 |
|
|
$ |
2,965 |
|
|
$ |
38,102 |
|
Critical Accounting Policies
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.
46
Principles of Consolidation
The Company performs the variable interest analysis for all entities in which it has a potential variable interest. If the Company has a variable interest in the entity and the entity is a variable interest entity (“VIE”), we will also analyze whether the Company is the primary beneficiary of this entity and if consolidation is required.
Generally, VIEs are entities that lack sufficient equity to finance their activities without additional financial support from other parties, or whose equity holders, as a group, lack one or more of the following characteristics: (a) direct or indirect ability to make decisions, (b) obligation to absorb expected losses or (c) right to receive expected residual returns. A VIE must be evaluated quantitatively and qualitatively to determine the primary beneficiary, which is the reporting entity that has (a) the power to direct activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.
To determine a VIE’s primary beneficiary, we perform a qualitative assessment to determine which party, if any, has the power to direct activities of the VIE and the obligation to absorb losses and/or receive its benefits. This assessment involves identifying the activities that most significantly impact the VIE’s economic performance and determine whether we, or another party, has the power to direct those activities. When evaluating whether we are the primary beneficiary of a VIE, we perform a qualitative analysis that considers the design of the VIE, the nature of our involvement and the variable interests held by other parties. See Note 6 for further information.
The Company has determined that certain of its subsidiaries are VIEs, and that the Company is the primary beneficiary of the entity, because it has the power to direct activities of the entities that most significantly impact the VIE’s economic performance and has a controlling financial interest in each entity. Accordingly, the Company consolidates these entities, which includes P10 Intermediate, Holdco, RCP 2, RCP 3, TrueBridge, Hark and Bonaccord. The assets and liabilities of the consolidated VIEs are presented gross in the Consolidated Balance Sheets. The assets of our consolidated VIE’s are owned by those entities and not generally available to satisfy P10 Holding’s obligations, and the liabilities of our consolidated VIE’s are obligations of those entities and their creditors do not generally have recourse to the assets of P10. See Note 6 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 and ECG are concluded to be consolidated subsidiaries of P10 Intermediate under the voting interest model.
Revenue Recognition of Management Fees and Management Fees Received in Advance
On January 1, 2019, the Company adopted ASC 606, Revenue from Contracts with Customers (“ASC 606”) using the modified retrospective method. As a result, prior period amounts continue to be reported under legacy GAAP. The adoption did not change the historical pattern of recognizing revenue for management fees. Accordingly, the Company did not record a cumulative adjustment upon adoption.
Revenue is recognized when the Company transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services.
While the determination of who is the customer in a contractual arrangement will be made on a contract-by-contract basis, the customer will generally be the investment fund for the Company’s significant management and advisory contracts.
Management and Advisory Fees
The Company earns management fees for asset management services provided to the Funds where the Company has discretion over investment decisions. The Company primarily earns fees for advisory services provided to clients where the Company does not have discretion over investment decisions. Management and advisory fees received in advance reflects the amount of fees that have been received prior to the period the fees are earned. These fees are recorded as deferred revenue on the Consolidated Balance Sheets.
For asset management and advisory services, the Company typically satisfies its performance obligations over time as the services are rendered, since the customers simultaneously receive and consume the benefits provided as the Company performs the service. The transaction price is the amount of consideration to which the Company expects to be entitled based
47
on the terms of the arrangement. For certain funds, management fees are initially calculated based on committed capital during the investment period and on net invested capital through the remainder of the fund’s term. Additionally, the management fee may step down for certain funds depending on the contractual arrangement. Advisory services are generally based upon fixed amounts and billed quarterly. Other advisory services include transaction and management fees associated with managing the origination and ongoing compliance of certain investments.
Other 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.
We file various federal and state and local tax returns based on federal and state local consolidation and stand- alone tax rules as applicable.
Stock-Based Compensation Expense
Stock-based compensation relates to option grants for shares of P10 awarded to our employees. Stock- based compensation cost is estimated at the grant date based on the fair-value of the award, which is determined using the Black Scholes option valuation model and is recognized as expense ratably over the requisite service period of the award, generally five years. The share price used in the Black Scholes model is based on the trading price of our shares on the OTC Market. Expected life is based on the vesting period and expiration date of the option. Stock price volatility is estimated based on a group of similar publicly traded companies determined to be most reflective of the expected volatility of the Company due to the nature of operations of these entities. The risk-free rates are based on the U.S. Treasury yield in effect at the time of grant. Forfeitures are recognized as they occur.
Business Acquisitions
In accordance with ASC 805, the Company identifies a business to have three key elements: inputs, processes, and outputs. While an integrated set of assets and activities that is a business usually has outputs, outputs are not required to be present. In addition, all the inputs and processes that a seller uses in operating a set of assets and activities are not required if market participants can acquire the set of assets and activities and continue to produce outputs. In addition, the Company also performs a screen test to determine when a set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set of assets is not a business. If the set of assets and activities is not considered a business, it is accounted for as an asset acquisition using a cost accumulation model. In the cost accumulation model, the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on the basis of relative fair values.
The Company includes the results of operations of acquired businesses beginning on the respective acquisition dates. In accordance with ASC 805, the Company allocates the purchase price of an acquired business to its identifiable assets and liabilities based on the estimated fair values using the acquisition method. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill. The excess value of the net identifiable assets and liabilities acquired over the purchase price of an acquired business is recorded as a bargain purchase gain. The Company uses all available
48
information to estimate fair values of identifiable intangible assets and property acquired. In making these determinations, the Company may engage an independent third-party valuation specialist to assist with the valuation of certain intangible assets, notes payable, and tax amortization benefits.
The consideration for certain of our acquisitions may include liability classified contingent consideration, which is determined based on formulas stated in the applicable purchase agreements. The amount to be paid under these arrangements is based on certain financial performance measures subsequent to the acquisitions. The contingent consideration included in the purchase price is measured at fair value on the date of the acquisition. The liabilities are remeasured at fair value on each reporting date, with changes in the fair value reflected in general, administrative and other on our Consolidated Statements of Operations.
For business acquisitions, the Company recognizes the fair value of goodwill and other acquired intangible assets, and estimated contingent consideration at the acquisition date as part of purchase price. This fair value measurement is based on unobservable (Level 3) inputs.
Goodwill and Intangible Assets
Goodwill is initially measured as the excess of the cost of the acquired business over the sum of the amounts assigned to identifiable assets acquired less the liabilities assumed. As of September 30, 2021, goodwill recorded on our Consolidated Balance Sheets relates to the acquisitions of RCP 2, RCP 3, Five Points, TrueBridge, Enhanced, Hark, and Bonaccord. As of September 30, 2021, the intangible assets are comprised of indefinite-lived intangible assets and finite-lived intangible assets related to the acquisitions of RCP 2, RCP 3, Five Points, TrueBridge, Enhanced, Hark, and Bonaccord.
Indefinite-lived intangible assets and goodwill are not amortized. Finite-lived technology is amortized using the straight-line method over its estimated useful life of 4 years. Finite-lived management and advisory contracts, which relate to acquired separate accounts and funds and investor/customer relationships with a specified termination date, are amortized in line with contractual revenue to be received, which range between 7 and 16 years. Certain of our trade names are considered to have finite-lives. Finite-lived trade names are amortized over 10 years in line with the pattern in which the economic benefits are expected to occur.
Goodwill is reviewed for impairment at least annually utilizing a qualitative or quantitative approach and more frequently if circumstances indicate impairment may have occurred. The impairment testing for goodwill under the qualitative approach is based first on a qualitative assessment to determine if it is more likely than not that the fair value of the Company’s reporting unit is less than the respective carrying value. The reporting unit is the reporting level for testing the impairment of goodwill. If it is determined that it is more likely than not that a reporting unit’s fair value is less than its carrying value, then the difference is recorded as an impairment (not to exceed the carrying amount of goodwill).
The Company performed the annual goodwill impairment assessment as of September 30, 2021 and 2020 and concluded that goodwill was not impaired. The Company has not recognized any impairment charges in any of the periods presented.
Item 3. Qualitative and Quantitative Disclosures about Market 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.
49
Interest Rate Risk
As of September 30, 2021, we had $253.9 million in outstanding principal under our Credit and Guaranty Facility. The annual interest rate on the Term Loan is based on LIBOR, subject to a floor of 1.00%, plus 6.00%. On September 30, 2021, the interest rate on these borrowings was 7.00%. We estimate that a 100-basis point increase in the interest rate would result in an approximately $2.6 million increase in interest expense related to the loan over the next 12 months.
In July 2017, the UK’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR as a benchmark by the end of 2021. At the present time, our Facility has a term that extends beyond 2021. The Facility provides for a mechanism to amend the underlying agreements to reflect the establishment of an alternate rate of interest. However, we have not yet pursued any amendment or other contractual alternative to our Facility to address this matter. We are currently evaluating the potential impact of the eventual replacement of the LIBOR interest rate.
Credit Risk
We are party to agreements providing for various financial services and transactions that contain an element of risk in the event that the counterparties are unable to meet the terms of such agreements. In such agreements, we depend on the respective counterparty to make payment or otherwise perform. We generally endeavor to minimize our risk of exposure by limiting the counterparties with which we enter into financial transactions to reputable financial institutions. In other circumstances, availability of financing from financial institutions may be uncertain due to market events, and we may not be able to access these financing markets.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Co-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 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 September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
50
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
The information required with respect to this item can be found under “Contingencies” in Note 12, Commitments and Contingencies, to our condensed 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 prospectus dated October 20, 2021, filed with the SEC on October 22, 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.
51
Item 6. Exhibits.
Furnish the exhibits required by Item 601 of Regulation S-K (§ 229.601 of this chapter).
Exhibit Number |
|
Description |
|
|
|
3.1 |
|
|
3.2 |
|
|
4.1 |
|
|
10.1 |
|
|
10.2 |
|
|
10.3 |
|
|
10.4 |
|
|
10.5 |
|
|
10.6 |
|
|
|
|
|
|
|
|
31.1* |
|
|
31.2* |
|
|
31.3* |
|
|
32.1* |
|
|
32.2* |
|
|
32.3* |
|
|
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.
52
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: November 22, 2021 |
|
By: |
/s/ Robert Alpert |
|
|
|
Robert Alpert |
|
|
|
Co-Chief Executive Officer |
|
|
|
|
Date: November 22, 2021 |
|
By: |
/s/ C. Clark Webb |
|
|
|
C. Clark Webb |
|
|
|
Co-Chief Executive Officer |
|
|
|
|
Date: November 22, 2021 |
|
By: |
/s/ Amanda Coussens |
|
|
|
Amanda Coussens |
|
|
|
Chief Financial Officer |
53
Exhibit 31.1
CERTIFICATION 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
I, Robert Alpert, certify that:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 22, 2021 |
|
By: |
/s/ Robert Alpert |
|
|
|
Robert Alpert |
|
|
|
Co-Chief Executive Officer |
Exhibit 31.2
CERTIFICATION 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
I, C. Clark Webb, certify that:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 22, 2021 |
|
By: |
/s/ C. Clark Webb |
|
|
|
C. Clark Webb |
|
|
|
Co-Chief Executive Officer |
Exhibit 31.3
CERTIFICATION 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
I, Amanda Coussens, certify that:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 22, 2021 |
|
By: |
/s/ Amanda Coussens |
|
|
|
Amanda Coussens |
|
|
|
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of P10, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: November 22, 2021 |
|
By: |
/s/ Robert Alpert |
|
|
|
Robert Alpert |
|
|
|
Co-Chief Executive Officer |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of P10, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: November 22, 2021 |
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By: |
/s/ C. Clark Webb |
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C. Clark Webb |
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Co-Chief Executive Officer |
Exhibit 32.3
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of P10, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: November 22, 2021 |
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By: |
/s/ Amanda Coussens |
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Amanda Coussens |
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Chief Financial Officer |