P10 Inc (PX) is a leading multi-asset class private markets solutions provider in the alternative asset management industry. With over two decades of experience, the company has established a reputation for delivering exceptional investment opportunities and generating superior risk-adjusted returns for its clients. As the private markets landscape continues to evolve, P10 has consistently demonstrated its ability to adapt and capitalize on emerging trends, making it a compelling investment proposition.
Business Overview and History
P10 was founded in 1992 as a Texas corporation and later reincorporated in Delaware in 2000. The company initially operated as Active Power, Inc., designing, manufacturing, and servicing flywheel-based uninterruptible power supply products and modular infrastructure solutions. In November 2016, P10 completed the sale of substantially all of its assets, liabilities, and operations to Langley Holdings plc, a United Kingdom public limited company. Following this sale, the company changed its name from Active Power, Inc. to P10 Industries, Inc. and transitioned to a non-operating company focused on monetizing its retained intellectual property and acquiring profitable businesses.
In March 2017, P10 filed for reorganization under Chapter 11 of the Federal Bankruptcy Code, using a prepackaged plan of reorganization. The company successfully emerged from bankruptcy on May 3, 2017, and subsequently changed its name from P10 Industries, Inc. to P10 Holdings, Inc. in December 2017.
P10's transformation into a private markets solutions provider began in October 2017 with the acquisition of RCP Advisors 2.0, LLC. The company also entered into a purchase agreement to acquire RCP Advisors 3.0, LLC, which it closed on in January 2018. Both RCP Advisors 2.0, LLC and RCP Advisors 3.0, LLC are registered investment advisors with the United States Securities and Exchange Commission.
The company continued its strategic expansion with the acquisition of Five Points Capital, a leading lower middle market alternative investment manager, in April 2020. This was followed by the acquisition of TrueBridge Capital Partners, an investment firm focused on venture capital, in October 2020. In December of the same year, P10 completed the acquisition of 100% of the equity interest in Enhanced Capital Group, as well as a noncontrolling interest in Enhanced Capital Partners, LLC.
Further solidifying its position in the industry, P10 completed the acquisitions of Bonaccord Capital Advisors and Hark Capital Advisors on September 30, 2021. Most recently, in 2022, the company acquired Western Technology Investment Advisors, a registered investment advisor that provides senior secured financing to early-stage and emerging stage life sciences and technology companies.
Today, P10 operates through several wholly-owned subsidiaries, including P10 Intermediate Holdings, LLC, P10 RCP Holdco, LLC, Five Points Capital, Inc., TrueBridge Capital Partners, LLC, Enhanced Capital Group, LLC, Bonaccord Capital Advisors, LLC, Hark Capital Advisors, LLC, and Western Technology Investment Advisors LLC. These subsidiaries provide a diverse array of private markets solutions, including primary investment funds, secondary investment, direct investment and co-investments, and advisory services.
Business Segments
P10 operates its business through three main product segments: Private Equity Solutions (PES), Venture Capital Solutions (VCS), and Private Credit Solutions (PCS).
The Private Equity Solutions (PES) segment makes direct and indirect investments in middle and lower-middle market private equity across North America. PES has a team of 43 investment professionals with an average of 26 years of experience and deep relationships with over 2,120 investors, 285 fund managers, 550 private market funds, and 5,100 portfolio companies. As of September 30, 2024, PES managed $13.4 billion in Fee-Paying Assets Under Management (FPAUM).
The Venture Capital Solutions (VCS) segment makes investments in venture capital funds across North America, targeting high-performing, access-constrained opportunities. The VCS team has 15 investment professionals with an average of 24 years of experience and relationships with over 1,900 investors, 90 fund managers, 95 direct investments, 385 private market funds, and 13,100 portfolio companies. As of September 30, 2024, VCS managed $6.4 billion in FPAUM.
The Private Credit Solutions (PCS) segment primarily makes debt investments across North America, targeting lower middle market companies owned by leading financial sponsors, and also offers certain private equity solutions. PCS has a team of 55 investment professionals with an average of 25 years of experience and relationships with 420 investors across 50 active investment vehicles and 1,800 portfolio companies, with $9.8 billion in capital deployed. Within PCS, the Company has investments that target renewable energy development, historic building renovation projects, and providing capital to small businesses that are women or minority owned or operating in underserved communities. As of September 30, 2024, PCS managed approximately $5.1 billion in FPAUM.
Financial Performance and Ratios
P10's financial performance has been robust, with the company reporting impressive numbers across key metrics. For the fiscal year 2023, the company's annual revenue reached $241.73 million, while its annual net income stood at -$7.13 million. The company's annual operating cash flow was $47.69 million, and its annual free cash flow was $46.22 million.
On a quarterly basis, P10 has consistently delivered strong results. In the most recent quarter (Q3 2024), the company reported revenue of $74.24 million, a 26% increase year-over-year. Net income for the quarter was $1.33 million, with operating cash flow of $27.47 million and free cash flow of $25.39 million. Fee-Related Revenue (FRR) was $72.93 million, a 26% increase compared to the prior year period, and Fee-Related Earnings (FRE) reached $35.09 million, a 19% increase from the same quarter in 2023. Catch-up fees for the quarter were $6.2 million, bringing the total catch-up fees for the year to $20 million.
The increase in revenue was primarily driven by organic growth across Bonaccord, Enhanced, RCP, and WTI business lines. For the nine months ended September 30, 2024, the company reported total revenues of $211.43 million, an 18% increase compared to the same period in the prior year.
Financials
P10's financial ratios paint a compelling picture of the company's financial health and stability. The company's current ratio and quick ratio both stand at 7.33, indicating a strong liquidity position and ability to meet short-term obligations. The company's debt-to-equity ratio of 0.91 as of September 30, 2024, suggests a well-managed capital structure, with a balanced approach to financing its operations.
Liquidity
P10's strong liquidity position is evident from its current and quick ratios, both standing at 7.33. As of September 30, 2024, the company had cash and cash equivalents of $61.45 million. Additionally, P10 has a $175 million revolving credit facility, of which $175 million was available as of September 30, 2024. There is also a $125 million accordion feature available, further enhancing the company's financial flexibility.
Key Metrics and Performance Indicators
P10 has demonstrated strong performance across several key metrics:
- Fee-Paying Assets Under Management (FPAUM): $24.92 billion as of September 30, 2024, a 10% increase year-over-year.
- Fee-Related Revenue (FRR): $72.93 million in Q3 2024, a 26% increase year-over-year.
- Fee-Related Earnings (FRE): $35.09 million in Q3 2024, a 19% increase year-over-year.
- Adjusted EBITDA: $35.33 million in Q3 2024, a 19% increase year-over-year.
- Adjusted Net Income (ANI): $30.76 million in Q3 2024, a 26% increase year-over-year.
- Fully Diluted ANI EPS: $0.26 in Q3 2024, a 32% increase year-over-year.
Operational Highlights and Strategic Initiatives
P10's success can be attributed to its strategic focus on the middle and lower-middle market, where it has built a strong reputation and deep relationships with fund managers and investors. The company's proprietary database, which contains comprehensive information on over 5,800 investment firms, 10,700 funds, and 48,000 individual transactions, provides it with a significant informational advantage in sourcing and evaluating investment opportunities.
In recent years, P10 has been actively pursuing a multi-faceted growth strategy, which includes:
1. Deepening and expanding client relationships: The company has been focused on enhancing its organic growth by strengthening its partnerships with existing clients and attracting new investors through its differentiated product offerings and superior investment performance.
2. Driving inorganic growth through strategic acquisitions: P10 has demonstrated its ability to identify and integrate complementary businesses, such as Qualitas Funds, a leading European private equity fund of funds manager, which the company announced the acquisition of in 2024.
3. Enhancing operational efficiencies: The company has implemented initiatives to drive collaboration across its platforms, leverage data insights, and optimize its technology infrastructure to support its strategies and improve overall profitability.
4. Improving transparency and shareholder engagement: P10 has taken steps to enhance its communication with investors, including hosting its inaugural Investor Day in 2024 and providing new key performance indicators to facilitate peer comparisons.
These strategic initiatives have enabled P10 to navigate the evolving private markets landscape and position itself as a leading provider of differentiated investment solutions.
Guidance and Future Outlook
P10 has provided guidance on several key aspects of its business:
1. Fundraising: The company had initially provided full-year 2024 fundraising guidance of $2.5 billion. However, they have already raised and deployed $2.9 billion through the first three quarters, surpassing their full-year guidance.
2. Step-downs and Expirations: P10 expects step-downs and expirations to total approximately $1.5 billion for the full year 2024, with $200 million expected in Q4.
3. Catch-up Fees: The company expects catch-up fees for the full year 2024 to be around $20 million, higher than their previously stated annual guidance of $16 million.
4. FRE Margins: P10 expects their Fee-Related Earnings (FRE) margins to be in the mid-40% range for the full year 2024, as they continue to make key investments.
Looking further ahead, P10 provided long-term guidance at their Investor Day:
1. Fee-paying AUM: The company intends to more than double fee-paying AUM by 2029, with the vast majority coming from organic growth.
2. FRE Margins: P10 expects core organic FRE margins, excluding M&A, to expand from the mid-40s percent range in the near to intermediate term to near 50% in the out years.
Risks and Challenges
While P10's track record is impressive, the company is not without its risks and challenges. The complex regulatory environment, with ongoing changes in rules and compliance requirements, can increase the company's administrative burden and restrict certain business activities. Additionally, the company's growth plans, which rely heavily on strategic acquisitions, expose it to integration risks and the need to secure adequate financing.
Furthermore, the highly competitive nature of the private markets industry means that P10 must continuously strive to maintain its edge in sourcing and evaluating investment opportunities, as well as retain and attract top talent to drive its investment performance.
Conclusion
Despite the challenges, P10's future outlook remains positive. The company's proven ability to adapt and innovate, coupled with its strong financial position and commitment to enhancing shareholder value, position it well to capitalize on the growing demand for private markets solutions.
As the private markets landscape continues to evolve, P10 is poised to leverage its deep industry expertise, expansive network, and differentiated product offerings to drive sustainable growth and deliver superior returns to its investors. With a focus on disciplined execution and a steadfast commitment to its core mission, P10 is well-equipped to navigate the complexities of the alternative asset management industry and cement its status as a leading player in the private markets space.