Yahoo Finance P10, Inc. (NYSE:PX) Q4 2023 Earnings Call Transcript
P10, Inc. (NYSE:PX) Q4 2023 Earnings Call Transcript February 29, 2024
P10, Inc. reports earnings inline with expectations. Reported EPS is $0.21 EPS, expectations were $0.21. 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 P10 Fourth Quarter and Year-End 2023 Conference Call. My name is Josh, and I will be coordinating your call today. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. As a reminder, today's conference call 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 fourth quarter and year end 2023 conference call. Today, we will be joined by Luke Sarsfield, Chief Executive Officer and Amanda Coussens, Chief Financial Officer. 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 risk factors 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 to everyone, and thank you for joining us. On our call today, I'm going to provide an overview of our 2023 performance, share some key observations from my first four months as CEO and lay out our plan for the year ahead. P10 delivered strong fourth quarter and full year operating results in 2023, which demonstrated the strength of our strategies and our position as a leading specialized private market solutions platform. In 2023, we generated double-digit top line growth and strong profitability. For the full year, fee-paying AUM increased by 10%. Revenues increased by 22% and adjusted EBITDA rose by 16%. It bears repeating P10 surpassed its two-year gross fundraising expectations of $5 billion months early.
And by the end of 2023, we had raised an incremental $2 billion above our original target. Despite the underlying strength of our platform and our positive financial results, since going public in 2021, we continue to face pressure on our valuation. Across most metrics, we trade at a meaningful discount to our alternatives peer group. While we believe this presents a compelling entry point for investors today, we are focused on closing that relative valuation gap through strategic execution underscored by transparent communication. We believe that as we articulate and execute on our new strategic initiatives, the market will take notice and reward shareholders. When we talk about our ownership base, it's important to note that P10 employees make up the largest ownership position in our shareholder register.
This is a reflection of our collective conviction in the intrinsic value of our platform. We are firm believers that this ownership stake results and strong alignment between the Company and our broader shareholder base. During the fourth quarter, we bought back 859,600 shares at an average share price of $9.74. Further, our Board of Directors has approved a $40 million expansion of P10's current share repurchase program with $10.6 million remaining on our previous 20 million buyback authorization. We now have over 50 million available for repurchases. We have never been more confident in the franchise and its future and are evaluating every possible avenue to deliver long-term value for our shareholders. Since being appointed CEO in October, I have had the opportunity to holistically engage in almost every aspect of P10's operations that has allowed me to gain a deeper understanding of the organization.
It was important for me to get to know our teams and equally as critical for them to get exposure to me. I spent the last two months of 2023 on a listening tour across a broad array of constituencies visiting with them in person hearing their perspectives and gaining insights as to what P10 does well and learning how we can continue to enhance the organization and its processes. In addition to visiting with each of our strategies in person and engaging with our employees. I had the privilege to spend time with many of our clients and limited partners both current and prospective as well as our investors and analysts. With the benefit of that insight, I can say with confidence P10 is a world-class business made up of the leading minds in the middle market alternative investment space.
Moreover, our managers all have a world-class track record of investing excellence that has resulted in high levels of trust with our LPs. Trust is not something we can buy or create in the short term I take that trust very seriously and we plan to build on the immense credibility our managers have achieved in this next chapter of our growth. The solid foundation that has been built to-date will form the basis of our success going forward. As we look to 2024 and beyond, our strategic priorities are as follows. First, institutionalize our platform and optimize our corporate level organizational structure. Second, drive increased organic growth by expanding our existing client franchise through programmatic cross-selling and strategic partnerships.
Third implement a robust disciplined and process-driven approach to inorganic growth. Fourth generate operational efficiencies through incentivizing collaboration and leveraging data insights, and finally enhance our shareholder communications with an eye to greater visibility and transparency. These priorities set the stage for an exciting 2024 as we invest to accelerate profitable growth in 2025 and beyond. We have aggressive goals with a roadmap to achieve them executing on our plan will not occur overnight but progress will be evident as we report each quarter. We also plan to share more about our long-term strategy at P10's first Investor Day in the fall of this year. As I said at the beginning of the call P10 employees are firmly aligned with our shareholder base when we execute on this strategy all P10 stakeholder's benefit.
Now, let's dive a bit deeper on each of our priorities. First, we are going to institutionalize our platform and optimize our corporate level organizational structure. In a trust and performance business, our people are our greatest assets and we must set up an appropriate structure to drive success and accountability in this next phase of our growth. With that in mind, I would like to thank our retiring Chief Operating Officer, Fritz Souder for his contributions to P10. He was a founding partner at RCP and has done an outstanding job for our limited partners, our shareholders, and our employees. We thank Fritz for all he has done and wish him the very best. Our go-forward corporate level organizational structure has four key functional areas.
Each led by a Senior Executive Vice President level leader reporting directly to me. Our outstanding EVP, CFO and CCO, Amanda Coussens will continue to lead the finance, audit, accounting, legal, and compliance teams. Amanda's contributions to P10 cannot be overstated as she has helped build the strong financial and compliance functions that have positioned P10 for continued organic and inorganic growth. To further augment, our legal and compliance framework. She will lead the external search to identify and recruit General Counsel and Chief Compliance Officer to further enhance our P10 control framework. Mark Hood has been elevated to the role of EVP of Operations and Chief Administrative Officer. In this newly created role Mark will oversee our operations, data and technology, human resources, public relations and communications and he will continue in his oversight of our Investor Relations function.
Mark has been foundational to P10 since its IPO and I'm incredibly excited about his expanded role. Next, I'm thrilled to report that we have hired a world-class professional to serve as our EVP Head of Strategy and M&A. Arjay Jensen is an incredibly talented seasoned professional with over 20 years of experience at Goldman Sachs, Guggenheim Securities, and Perella Weinberg Partners. Arjay Jensen will oversee our corporate strategy and lead our corporate development and M&A activities, inorganic growth will be a core growth driver for P10 Arjay will be instrumental in building a scalable M&A blueprint identifying key strategic opportunities for P10 and executing on M&A transactions. Additionally we are going to continue to invest in our client franchise to lead this effort.
We are seeking an experienced industry veteran. This person will oversee our client organization, including client relationships, distribution, marketing and product development, and we'll work closely with client leaders across our various strategies. As we scale the platform, we're going to build a best-in-class distribution network for our products across strategies. We strongly believe the head of distribution will be critical to maximizing value of each client relationship. Given the importance of finding the right person for this role, we have retained a leading recruiting firm with deep expertise in this area and we are working closely with them in earnest to find the right leader for this function. Second, we plan to drive increased organic growth by expanding our existing client franchise through programmatic cross selling and strategic partnerships.
P10 is fortunate to have a large and growing global LP base and we need a scalable and replicable process for expanding our influence with current and prospective LPs. Our new Head of Distribution will be responsible for building this framework to demonstrate progress against our goals. We intend to provide additional details on this topic throughout 2024 culminating at P10's inaugural Investor Day this fall. Third, we are implementing a robust disciplined and process driven approach to inorganic growth. My background is in deal-making and in alternative asset management. I've spent decades doing those two things at the highest level and strongly believe that we are positioned to execute deals on a global scale. We plan to increase our footprint which will also enhance our relationship network.
This will mean navigating new jurisdictions and regulations and that's where we're going to be selective, but opportunistic in this pursuit. As our Head of M&A, Arjay Jensen will leverage his vast experience to reaccelerate our M&A engine. Fourth, we plan to drive operational efficiencies through incentivizing collaboration and leveraging data insights. As we focus on accelerated growth in 2025, we need to ensure our operational structure is optimized and designed to encourage efficiency and collaboration across our strategies. We also plan to share more data with the investment community in a format more aligned to our peers. We will communicate how we are leveraging the collective strengths of our platform more regularly. Finally, we plan to meaningfully enhance our shareholder communications with an eye to greater visibility and transparency.
I believe that in order to assess the progress we are making against these previous four initiatives. The investment community has a clear and understandable framework through which to evaluate P10's performance both on an absolute and a relative basis. As such we are going to begin rolling out KPI.s that allow our key stakeholders to get their arms around the huge opportunity we're capitalizing on. We will have more to report in future quarters as we work through specific details with our audit partners and Audit Committee and we look forward to updating you appropriately. Now let's turn to our outlook for 2024. Starting with fee-paying AUM, we anticipate we will organically raise more than 2.5 billion of gross new assets across the platform.
We expect double-digit revenue growth. That is driven both by this fundraising activity as well as positive fee rate dynamics. We also hope that in 2024 we will announce at least one strategic transaction. As it relates to adjusted EBITDA margin, we expect margins to average in the mid 40s excluding the effect of acquisitions. There are two dynamics at play here that I'd like to highlight. First is an ongoing mix shift within our existing portfolio of strategies. As we have previously noted some of our newer and faster-growing businesses such as Bonaccord, Park and WTI have lower core adjusted EBITDA margins than other parts of our business and the overall margin will continue to reflect this evolution. The second influence on margins is the critical and foundational human capital investments we are making in the business.
We expect these investments to drive core growth and provide a high ROI for investors. Aas we move into the new year we will begin using the common descriptor FRE or fee-related earnings in our financial reporting. Before I hand the call over to Amanda, I want to acknowledge some of the recent noise in the marketplace regarding a previously disclosed related party transaction with Crossroads. In step with enhanced transparency we want to speak directly and clearly on this matter. The transaction was reviewed, approved and disclosed in keeping with the appropriate governance controls P10 has in place. P10 not invest any capital in Crossroads. The institutional investors who did invest in Crossroads did so on a non-discretionary basis and conducted their own rigorous due diligence.
The transition of our founders and former co-CEOs had absolutely nothing to do with the related party transaction. Robert Albert and Clark Webb will continue in their current roles as Executive Chairman and Executive Vice Chairman respectively. Finally, the committee of our independent directors commissioned Willkie Farr & Gallagher, a third-party law firm to conduct a comprehensive investigation of the transaction. The committee, the broader board and the law firm all found our governance provisions were properly followed. To close, I want to remind shareholders that the fundamentals of P10’s business remain exceptionally strong. While we view this year as a table setting a year, ahead of acceleration in 2025 and beyond, we are a world-class platform that has momentum across world-class strategies.
We are committed to transparency and delivering our investors transparent disclosure. With that, I'll turn the call over to Amanda to further review our financial results.
Amanda Coussens: Thank you Luke. In the fourth quarter fee-paying assets under management were $23.3 billion, a 10% increase on a year-over-year basis in the fourth quarter $860 million of fundraising and capital deployment was offset by $297 million and step-downs in exploration. In the first half of 2024, we estimate $1.2 billion and step-downs in explorations. For the second half of 2024, we estimate an additional $300 million. Revenue in the fourth quarter was $63.1 million, an 8% increase over the fourth quarter of 2022. Year-over-year revenue increased from $198.4 million to $241.7 million, up 22%. Average fee rate in the fourth quarter was 109 basis points, driven by higher fee rates, direct strategies becoming a larger part of our fee-paying AUM.
Before I continue with our results, I'd like to provide insight into a one-time event that impacted the performance of our venture equity strategy TrueBridge in the fourth quarter. If not for this event, we would have recognized an additional $3.1 billion of revenue and $2.7 million of adjusted EBITDA. TrueBridge Global Premier-1 or TGP-1 was raised in 2022 with the objective of investing and all funds raised by an undisclosed managers global platform across key vintages, 2022 and 2024, 2025 TrueBridge closed TGP-1 with a total of $275 million of external LP capital, $250 million, we were confident of deploying and $25 million for reserves. TGP only charge management fees on the $250 million at a 1% rate. TGP-1 deployed just under 40% of its total fund size and the 2022 advantages with the remaining 60% planned for 2024 2025 vintages and reserves.
In late 2023, the undisclosed manager announced it would be separating a global platform by spinning out its India and China operations into their own independent firms. The TGP-1 mandate did not allow investments in these new independent firms. As a result we recommended that LPs vote to release all TGP-1 LPs from their uninvested capital and we distributed a consent election to that effect. The management fee from inception will be revised based on this new smaller fund size. In addition to preserve goodwill with our limited partners, we have waived 50% of the recalculated management fee from inception June 2022 to December 2023. Turning now to our other strategies. In the quarter, we had 12 funds in the market and saw broad participation across our platform.
Our private equity strategies raised and deployed $324 million, our venture equity strategy raised $299 million. Our credit fleet raised and deployed $209 million, also team contributed $28 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 investors. Operating expenses in the fourth quarter were $57.7 million, a 10% increase over the same period a year ago. For the full year 2023, operating expenses were $220.8 million, a 43% increase over 2022. The increase was primarily driven by additional compensation benefits and non-cash stock-based compensation expense related to the acquisition of Bonaccord, Hark and WTI. GAAP net loss in the fourth quarter was 1.9 million, a 139% decrease when compared to the year ago period.
On a year-over-year basis, GAAP net income decreased from $29.4 million to a net loss of $7.8 million. The GAAP net loss is primarily attributable to compensation expense and non-cash stock-based compensation related to the CEO transition and the acquisitions of Bonaccord Hark and WTI. Adjusted EBITDA in the fourth quarter was 30.7 million in line with $30.8 million in the fourth quarter of 2022. For the year, adjusted EBITDA grew from $106.8 million to $123.6 million, a 16% increase. For the quarter, our adjusted EBITDA margin was 48.7% and for the full year it was 51.1% In the fourth quarter, adjusted net income or ANI was $25.5 million, a 7% decrease over the $27.3 million reported in the fourth quarter of 2022. For the year, ANI increased from $97.9 million to $102 million equaling a 4% increase.
Fully diluted ANI EPS on a year-over-year basis grew 2% to $0.82 per share. Cash and cash equivalents at the end of the fourth quarter were $30.5 million. At December 31, 2023, we had an outstanding debt balance of $292.6 million and $71.8 million available on the revolver. As of today, we have $273.6 million in outstanding debt was 90.8 million available on the credit facility. We also continue to pay our quarterly dividend for Class A and Class B common stock. We have declared a dividend of $.0325 per share payable on March 26, 2024 to stockholders of record as of the close of business on March 11, 2024. Finally, as of December 31, 2023 our Class A shares outstanding were 57,622,895 and Class B shares outstanding were 58,474,267. Thank you for your time today, and 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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