Yahoo Finance P10, Inc. (NYSE:PX) Q1 2024 Earnings Call Transcript
P10, Inc. (NYSE:PX) Q1 2024 Earnings Call Transcript May 12, 2024
P10, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello and welcome to the P10 First Quarter 2024 Conference Call. My name is Latif [ph] and I will be coordinating your call today. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question-and-answer session. As a reminder, today's conference is being recorded. I will now hand the call over to your host, Mark Hood, EVP of Operations and Chief Administrative Officer. Mark, please go ahead.
Mark Hood: Good afternoon and welcome to the P10 first quarter 2024 conference call. Today, we will be joined by Luke Sarsfield, Chief Executive Officer; and Amanda Coussens, EVP, Chief Financial Officer and Chief Compliance Officer. Additionally, in the room with us today is Arjay Jensen, EVP, Head of Strategy and M&A. Before we begin, I'd like to remind everyone that this conference call as well as the presentation slides may constitute forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect management's current plans, estimates and expectations and are inherently uncertain. Actual results for future periods may differ materially from those expressed or implied by these forward-looking statements due to a number of risks and uncertainties that are described in greater detail in our earnings release and in our periodic reports filed from time to time with the SEC.
The forward-looking statements included are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements as a result of new information or future events, except as otherwise required by law. During the call, we will also discuss certain non-GAAP measures which we believe can be useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measure is available in our earnings release and our filings with the SEC. I will now turn the call over to Luke.
Luke Sarsfield: Thank you, Mark. Good afternoon, everyone and thank you for joining us today. During the first quarter of 2024, P10 generated strong financial results and importantly, advance the strategic initiatives we laid out on our last call in late February. Our strategies continue to perform well, generating strong and consistent returns for our LPs and we raised nearly $670 million in gross new fee-paying AUM in this quarter alone. With Q1 marking my first full quarter as CEO, I can say with conviction that we are building a world-class platform that provides clients with unrivaled access to opportunities across the lower and core middle markets. On our call today, I'm going to provide an overview of our first quarter financial results, offer some perspectives on the market environment and discuss the operational progress we've made this year.
I'll start by providing a brief financial overview. P10 delivered record revenues of $66 million in the first quarter, representing solid 15% top line growth year-over-year. Additionally, we enhanced our bottom-line performance, earning $5 million in net income compared to $800,000 in the prior year period. As we mentioned on our last call, one of the key pillars of our new strategy is greater transparency. As such, we believe it is important to introduce new metrics that allow the investment community to more easily compare us to other alternative asset managers. To that end, we delivered Fee-Related Revenue or FRR, of $65 million, a 16% increase compared to the prior year period and we generated approximately $31 million of Fee-Related Earnings, or FRE, a 9% increase from Q1 2023.
This represents an FRE margin of 47%. We continue to anticipate margins to remain in the mid-40s for the year ahead which puts this performance slightly ahead of annual expectations. We are pleased with our ability to generate strong results as we implement transformative strategic initiatives that seek to accelerate growth in the near to medium term. Our first quarter performance gives us the confidence to reiterate guidance we laid out on our fourth quarter call. As a reminder, we expect to organically raise and deploy more than $2.5 billion of gross new assets. We expect double-digit revenue growth that is driven both by this fundraising activity as well as positive fee rate dynamics and we expect to announce a strategic transaction in the calendar year.
Zooming out slightly, P10 continues to benefit from a focus on the lower and core middle markets. As we have said previously, these markets have been insulated from some of the macro dynamics at the upper middle market levels, such as a meaningfully slower M&A environment, greater reliance on leverage and a more competitive backdrop for deals. In our view, the lower and core middle markets offer risk mitigation from these trends and have equally shown sustained resilience despite the current rate environment and inflationary pressures. Further, our strategies have an exceptional track record of delivering returns across economic cycles. Our GPs are strong fundraisers and even better portfolio managers, whether it's through launching and optimizing industry-leading products or forging strategic relationships with underlying portfolio companies, our strategies have established a differentiated reputation with clients, investment managers and intermediaries.
P10's managers have earned trust at every level of the investment value chain and mistrust underpins the strategic initiatives that we laid out on our last call. Today, I want to share some of the progress we've made in driving organic growth initiatives, establishing a robust M&A pipeline and institutionalizing our platform for the long term. First, we are making strides to drive organic growth. We see a clearly and compelling opportunity to deepen and expand our already robust client franchise. In the first quarter, we had 10 co-mingled funds in the market, providing multiple avenues to meet the particular investment objectives of clients and achieve our organic growth goals. I want to take a moment to share some of the momentum we are producing on the fundraising front.
In the first quarter, our VC strategy TrueBridge achieved its $750 million target in Fund VIII. Today, the fund is on pace to hold a final close in the second quarter at a total fund size in excess of $850 million. In private credit, Park IV has now achieved over $500 million, surpassing its target and putting it on track to hold the final close in the second quarter. Staying in credit, WTI is positioned to turn on fees for its Fund XI in the second half of the year and we are seeing strong interest around its portfolio. Moving to private equity. Bonaccord will hold a final close of BCP Fund II later in this year and we will look to launch BCP Fund III in short succession. Finally, we expect to launch RCP Direct Fund V in the coming weeks. Further, RCP is on track to launch SOF5, a secondary fund in late 2024 which will set the stage for strong momentum in 2025.
These funds have historically garnered a strong following from LPs, not only for their performance but because of the demand for these solutions in the market today. We are pleased with the totality of our fundraising efforts which have resulted in a gross raise of approximately $670 million in the first quarter. Our organic growth will always be enabled by our core strategies and these fundraising levels demonstrate the diversity of demand from our client base. Moving now to our inorganic growth strategy. On our last call, we announced the appointment of Arjay Jensen to our leadership team as Head of Strategy and M&A. Since then, Arjay has been hard at work developing our M&A infrastructure, leading the charge for us on situations that we are working to advance as well as doing the work on opportunities we are seeing in the market.
I want to provide a few high-level observations about the level of activity we are seeing. First, I would say the M&A market and the alternative asset management sector has picked up. You see that in the announcements in the marketplace generally and we see it in the number of opportunities we see directly. The pipeline we have developed to date is reasonably balanced between private equity, credit and distribution-oriented opportunities. These are investments that we believe are actionable in the near term and represent a diverse mix from a geographic standpoint across both domestic and international deals. Throughout all our dialogue around prospective transactions, we have received positive feedback from potential partners who find the P10 business model and our transaction framework to be differentiating and compelling.
We anticipate announcing a deal this year and I also think it is most likely that near-term successes will be more string of pearls in nature. We continue to think that geographic expansion where we have larger strategies as well as smaller natural adjacencies and potential tuck-ins would make sense. Additionally, we are focused on situations that have an interesting distribution component to them. Please note that we will be disciplined around valuation seeking accretive opportunities positioned to unlock long-term value for our shareholders. Turning now to our focus on optimizing our corporate level organizational structure. As you can see with the traction Arjay has already achieved, our efforts to institutionalize the P10 platform are taking hold.
Since our last call, we have made several key appointments, enhanced our governance profile and set ourselves up to conclude our search for senior-level talent in the first half of the year. In April, we appointed Tracey Benford to the Board as an Independent Director who will participate in all 3 of our governance committees. Tracey is a remarkable leader with deep alternative asset expertise and experience stewarding iconic institutions in the financial sector. She brings an independent, diverse perspective to our Board. Robert Alpert informed the Board of Directors of his decision to step down as Executive Chairman effective June 14, the date of our annual meeting. This time as Executive Chairman was intended to help me and our senior team effective successful leadership transition and he now feels that transition is complete.
He will continue to serve on the Board as a director. The Board voted to appoint me to the role of Chairman also effective June 14 and intends to appoint a lead independent director at our annual meeting. I want to thank Robert for his time as Executive Chairman and his leadership since founding P10. I look forward to continuing to work with him on the Board. The Board also determined that the company's stockholder rights plan is no longer necessary for the preservation of Federal in impact benefits and voted to terminate the rights plan effective today. The plan was set to expire in October of 2024. In parallel, we are augmenting our management team for future growth. To that end, I am pleased to report that we brought on Melodie Craft as General Counsel to bolster our senior leadership team.
Melodie has an impressive long-standing track record as a leader in the financial services sector with alternative asset management expertise and deep experience leading M&A transactions through requisite legal processes and post-close integration activities. Her experience perfectly aligns with our operational goals and will be beneficial to P10 as we embark on our next chapter of growth. While we remain in the early innings of these strategic initiatives, we've been extremely pleased with the partnership we're seeing across strategies and managers. There is immense opportunity in our existing platform and we look forward to sharing specific examples in the coming quarters. I'll close with an update on our efforts to return value to shareholders through capital allocation.
Last quarter, we shared that we had a total share repurchase authorization of over $50 million. In the first quarter, we bought back about $3.7 million shares at an average price of $8.15 per share. We currently have approximately $21 million remaining on our authorization. Additionally, we continue to pay quarterly cash dividends to shareholders, declaring a $0.035 distribution today which represents an 8% increase. Our annual dividend now stands at $0.14 per share. As a reminder, P10 employees make up the largest ownership position in our shareholder register which is indicative of our collective conviction in the intrinsic value of our business. This ownership stake demonstrates our alignment with the broader shareholder base and should underscore our dissatisfaction with the current valuation pressure we face in the public market.
We have been opportunistic in repurchasing shares of our stock and believe that the current trading levels present a compelling entry point for investors. As our strategy continues to gain momentum, the growth profile of P10 expands and accelerates. We believe the market will appreciate this potential in due time. Fundamentals of our business remain exceptionally strong. We have the right strategy in place to deliver long-term value to shareholders. Before I turn the call over to Amanda, I want to take a moment to invite you all to mark your calendars for our inaugural Investor Day which will be held on Thursday, September 19 in New York City. The day will serve as a deep dive on our various strategies and we will offer more details on our strategic progress to date.
We look forward to sharing more details as the event approaches. With that, I'll hand the call over to Amanda.
Amanda Coussens: Thank you, Luke. P10 continues to deliver strong results and implementing the transformative strategic initiatives the management team laid out on the fourth quarter earnings call. In the first quarter, fee-paying assets under management were $23.8 billion, a 10% increase on a year-over-year basis. In the first quarter, $667 million of fundraising and capital deployment was offset by $81 million in step downs and expirations. As we mentioned on the Q4 call, we expect step-downs in expirations for 2024 to be approximately $1.5 billion, $200 million less than 2023. Most of the step-downs in expirations will occur in Q2, where we expect $1 billion, leaving $400 million generally evenly split across the third and fourth quarters.
Most of the second quarter step-downs in expirations are expected to be attributable to RCP Fund IX, a 2014 vintage and TrueBridge Fund II, a 2010 vintage. Record revenue in the first quarter was $66.1 million, a 15% increase over the first quarter of 2023. Average fee rate in the first quarter was 110 basis points driven by higher fee rate direct strategies becoming a larger part of our key plan AUM mix as well as higher catch-up fees. Turning now to our strategy. In the quarter, we had 10 funds in the market and saw broad participation across our investment platform. Our private equity strategies raised and deployed $213 million, our venture solution raised and deployed $339 million and our credit strategies added $99 million to fee-paying assets under management.
Of note in the quarter, TrueBridge raised $233 million. P10 continues to benefit from strategies with long track records of generating durable alpha and offering best-in-class investment opportunities to our global clients. Catch-up fees were $7.7 million in the first quarter. Operating expenses in the first quarter were $54 million, a 3% increase over the same period a year ago. The increase was primarily driven by additional compensation benefits and noncash stock-based compensation expense related to the acquisitions of Bonaccord Park and WTI. GAAP net income in the first quarter was $5.2 million, an increase compared to $800,000 in the comparable period a year ago. Adjusted EBITDA in the first quarter was $30.8 million, an increase of 9% from the first quarter of 2023.
For the quarter, our adjusted EBITDA margin was 47%. For the first quarter, adjusted net income, or ANI, held flat at $25.4 million when compared to the first quarter of 2023. Fully diluted ANI EPS remained at $0.21 per share on a year-over-year basis. As Luke noted, we have added transparency in the quarter and are introducing the following metrics: fee-related revenue or FRR, fee-related earnings, or FRE and complementary FRE margin. FRR in the quarter was $65 million, representing a 16% annual increase and FRE was $30.7 million, representing a 9% increase. Our FRE margin was 47% in the first quarter. Since this is the first time we have reported these metrics, I want to provide more information on how we define each term. Fee-related revenue is calculated as total revenue less any incentive fees.
Fee-related earnings is a non-GAAP performance measure used to monitor our baseline earnings less any incentive fee revenue and excluding any incentive fee-related expenses. We believe this additional disclosure will help the investment community draw better apples-to-apples comparison with the broader alternative asset management landscape. You can find additional details and definitions in our earnings presentation on our Investor Relations website. Cash and cash equivalents at the end of the first quarter were $29 million. At quarter end, we had an outstanding debt balance of $316 million and $45 million available on the revolver. As of today, we have an outstanding debt balance of $298 million and $63 million available on the revolver. We also continue to pay our quarterly dividend for Class A and Class B common stock.
As Luke mentioned, we are increasing our dividend by 8%. Today, we declared a quarterly cash dividend of $0.035 per share, payable on June 20, 2024, to stockholders of record as of the close of business on May 31, 2024. Finally, as of March 31, 2024, our Class A shares outstanding were 54,582,698 and Class B shares outstanding were 58,439,363. Before I close, I'd like to highlight that next week, we expect to file a required registration statement that registers shares owned by founders and insiders. These shares were part of the shares issued during the IPO process. We want to be clear, the company is not selling shares to raise capital with over 3 million shares purchased last quarter, we take management's view on the stock's intrinsic value is clear.
Thank you for your time today. We look forward to building strong momentum in 2024 as we seek to accelerate growth in 2025. I'll now pass the call over to the operator to begin the Q&A session.
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