Ridgepost Capital, Inc. 10-Q

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:  Private Equity Solutions (PES) . Under PES, we make direct and indirect investments in middle and lower- middle market private equity across North America. PES also makes minority equity investments in a diversified portfolio of mid-sized managers across private equity, private credit and real assets. The PES investment team, which is comprised of 40 investment professionals with an average of 24+ years of experience, has deep and long-standing investor and fund manager relationships in the middle and lower-middle market which it has cultivated over the past 20 years, including over 1,800+ investors, 165+ fund managers, 375+ private market funds and 1,800+ portfolio companies. We have 44 active investment vehicles. PES occupies a differentiated position within the private markets ecosystem helping our investors access, perform due diligence, analyze and invest in what we believe are attractive middle and lower-middle market private equity opportunities. We are further differentiated by the scale, depth, diversity and accuracy of our constantly expanding proprietary private markets database that contains comprehensive information on more than 2,500 investment firms, 4,000 funds, 25,000 individual 34 transactions, 30,000 private companies and 175,000 financial metrics. As of September 30, 2021, PES managed $9.3 billion of FPAUM.  Venture Capital Solutions (VCS). Under VCS, we make investments in venture capital funds across North America and specialize in targeting high-performing, access-constrained opportunities. The VCS investment team, which is comprised of 14 investment professionals with an average of 18+ years of experience, has deep and long-standing investor and fund manager relationships in the venture market which it has cultivated over the past 14+ years, including over 540+ investors, 60+ fund managers, 55 direct investments, 230+ private market funds and 6,500+ portfolio companies. We have 11 active investment vehicles. Our VCS solution is differentiated by our innovative strategic partnerships and our vantage point within the venture capital and technology ecosystems, maximizing advantages for our investors. In addition, since 2011, we have partnered with Forbes to publish the Midas List, a ranking of the top value-creating venture capitalists. As of September 30, 2021, VCS managed $4.2 billion of FPAUM.  Impact Investing Solutions (IIS). Under IIS, we make equity, tax equity, and debt investments in impact initiatives across North America. IIS primarily targets investments in renewable energy development and historic building renovation projects, as well as providing capital to small businesses that are women or minority owned or operating in underserved communities. The IIS investment team, which is comprised of 12 investment professionals with an average of 21+ years of experience, has deep and long-standing relationships in the impact market which it has cultivated over the past 20 years, including deploying capital on behalf of over 81 investors. We currently have 31 active investment vehicles. We are differentiated in both the breadth of impact areas served, the type of capital deployed and the duration of our track record. We have collectively deployed over $3.0 billion into 600+ projects, supporting 380+ businesses across 36 states since 2000, including $550 million capital deployed in impact credit and 535 million KWh of renewable energy produced through 2019. As of September 30, 2021, IIS managed $1.7 billion of FPAUM .  Private Credit Solutions (PCS). Under PCS, we primarily make debt investments across North America, targeting lower middle market companies owned by leading financial sponsors and also offer certain private equity solutions. PCS also provides loans to mid-life, growth equity, venture and other funds backed by the unrealized investments at the fund level and provide financing for companies that would otherwise require equity. The PCS investment team, which is comprised of 25 investment professionals with an average of 21+ years of experience, has deep and long-standing relationships in the private credit market which it has cultivated over the past 22 years, including 180+ investors across 7 active investment vehicles and 64 portfolio companies with over $1.5+ billion capital deployed. Our PCS is differentiated by our relationship-driven sourcing approach providing capital solutions for growth-oriented companies. We are further synergistically strengthened by our PES network of fund managers, characterized by more than 575 credit opportunities annually. We currently maintain 45+ active sponsor relationships and have 60+ platform investments. As of September 30, 2021, PCS managed $1.0 billion of FPAUM. 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:  Primary Investment Funds. Primary investment funds refer to investment vehicles which target investments in new private markets funds, which in turn invest directly in portfolio companies. P10’s primary investment funds include both commingled investment vehicles with multiple investors as well as customizable separate accounts, which typically include one investor. Primary investments are made during a fundraising period in the form of capital commitments, which are called upon by the fund manager and utilized to finance its investments in portfolio companies during a predefined investment period. We receive a fee stream that is typically based on our investor’s committed, locked-in capital; capital commitments that typically average ten to fifteen years, though they may vary by fund and strategy. We offer primary investment funds across private equity and venture capital solutions. Often, the fees are structured such that they step down, or decrease, over the life of the fund. Our primary funds comprise approximately $10.1 billion of our FPAUM as of September 30, 2021.  Direct and Co-Investment Funds. Direct and co-investments involve acquiring an equity interest in or making a loan to an operating company, project, property, alternative asset manager, or asset, typically by co-investing alongside an investment by a fund manager or by investing directly in the underlying asset. P10’s direct and co- 35 investment funds include both commingled investment vehicles with multiple investors as well as customizable separate accounts, which typically include one investor. Capital committed to direct investments and co-investments is typically invested immediately, thereby advancing the timing of expected returns on investment. We typically receive fees from investors based upon committed capital, with some funds receiving fees based on invested capital; capital commitments, typically average ten to fifteen years, though they may vary by fund. We offer direct and co-investment funds across our private equity, venture capital, impact investing and private credit solutions. Often, the fees are structured such that they step down, or decrease, over the life of the fund. Our direct investing platform comprises approximately $5.0 billion of our FPAUM as of September 30, 2021.  Secondaries. Secondaries refer to investments in existing private markets funds through the acquisition of an existing interest in a private markets fund by one investor from another in a negotiated transaction. In so doing, the buyer agrees to take on future funding obligations in exchange for future returns and distributions. Because secondary investments are generally made when a primary investment fund is three to seven years into its investment period and has deployed a significant portion of its capital into portfolio companies, these investments are viewed as more mature. We typically receive fees from investors on committed capital for a decade, the typical life of the fund. We currently offer secondaries funds across our private equity solutions. Often, the fees are structured such that they step down, or decrease, over the life of the fund. Our secondary funds comprise approximately $1.2 billion of our FPAUM as of September 30, 2021. 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:  Accelerating demand for private markets solutions. Our ability to attract new capital is dependent on investor demand for private markets solutions. We believe the composition of public markets is fundamentally shifting and will drive growth in private markets investing as fewer companies elect to become public corporations, while more companies are choosing to stay privately held or return to being privately held. Furthermore, investors continue to increase their exposure to passive strategies in search for lower fee alternatives as relative returns in active public market strategies have compressed. We believe the continued move away from active public market strategies into passive strategies will support growth in private market solutions as investors seek higher risk-adjusted returns. Additional trends driving investor demand are 1) increasing long-term investor allocations towards private market asset classes, 2) legislation that allows retirement plans to add private equity vehicles as an investment option, and 3) the adoption of Environmental, Social, and Corporate Governance (“ESG”) and impact investing by the institutional and high net worth investor community.  Favorable lower and lower-middle market dynamics, and data driven sourcing. We attribute our strong investment performance track record to several factors, including: our broad private market relationships and access to fund managers and investments, our diligent and responsible investment process, our tenured investing experience and our premier data, technology, and analytic capabilities. Our ability to continue generating strong returns will be impacted by lower and lower-middle market dynamics and our ability to source deals efficiently and effectively using data analytics. As more companies choose to remain private, we believe smaller companies will continue to dominate market supply, with significantly less capital in pursuit. This favorable lower and lower-middle market dynamic implies a larger pool of opportunities at compelling purchase price valuations with significant return potential. In addition, our premier data and analytic capabilities, driven by our proprietary database, support our robust and disciplined sourcing criteria, which fuels our highly selective investment process. Our database stores and organizes a universe of managers and opportunities with powerful tracking metrics that we believe drive optimal portfolio management and monitoring and enable a portfolio grading system, as well as repository of 36 investment evaluation scorecards. Our ability to maintain our data advantage is dependent on a number of factors, including our continued access to a broad set of private market information on an on-going basis.  Expanding asset class solutions, broaden geographic reach and grow private markets network effect. Our ability to continue growing is impacted by our scalability and ability to maximize investor relationships. The purview of private markets has meaningfully broadened over the last decade. As investors increase their allocations to private markets investments, we believe the demand for asset class diversification will rise. Furthermore, as part of this evolution we believe investors will seek out private market solutions providers with scale and an ability to deliver multiple asset classes and vehicle solutions to streamline relationships and pursue cost efficiency. Our scalable business model is well positioned to expand and grow our footprint as we develop our position within the private markets ecosystem to further leverage our synergistic solutions offering. We currently have a leading presence in North America, but believe that expanding our investor presence into international markets can be a significant growth driver for our business as investors continue to seek geographically diverse private market exposure. Further, expanding into additional asset class solutions will enable us to further enhance our integrated network effect across private markets by, among other benefits, fostering deeper manager relationships. We believe that the growing number of private markets focused fund managers increases the operational burden on investors and will lead to a greater reliance on highly trusted advisors to help investors navigate the complexity associated with multi- asset class manager selection.  Increasing regulatory requirements and political uncertainty. The complex regulatory and tax environment could restrict our operations and subject us to increased compliance costs and administrative burdens, as well as restrictions on our business activities. There is additional uncertainty around potential legal, regulatory, and tax changes, which may impact our profitability or impact our ability to operate and grow our business.  Our ability to raise capital in order to fund acquisitions and strategic growth initiatives. In addition to organic growth of our existing solutions and services, our growth will continue to depend, in part, on our ability to identify, evaluate and acquire high performing and high-quality asset management businesses in order to expand our team of asset managers and advisors, as well as expand the industries and end markets which we serve. These acquisitions may require us to raise additional capital through debt financing or the issuance of equity securities. Our ability to obtain debt with acceptable terms will be influenced by the corporate debt markets and prevailing interest rates, as well as our current credit worthiness. The funding available through the issuance of equity securities will be determined in part by the market price of our shares.  Increased competition to work with top private equity fund managers. There has been a trend amongst larger private markets investors to consolidate the number of general partners in which they invest and work with. At times, this has led to certain funds being oversubscribed due to the increasing flow of capital. This has resulted in some investors, primarily smaller investors or less strategically important investors, not being able to gain access to certain funds. Our ability to invest and maintain our sphere of influence with these high-performing fund managers is critical to our investors’ success and our ability to maintain our competitive position and grow our revenue.  Data advantage relative to competitors. We believe that the general trend towards transparency and consistency in private markets reporting will create new opportunities for us to leverage our databases and analytical capabilities. We intend to use these advantages afforded to us by our proprietary databases, analytical tools and deep industry knowledge to drive our performance, provide our clients with customized solutions across private markets asset classes and continue to differentiate our products and services from those of our competitors. Our ability to maintain our data advantage is dependent on a number of factors, including our continued access to a broad set of private market information on an on-going basis, as well as our ability to maintain our investment scale, considering the evolving competitive landscape and potential industry consolidation. 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 payable to sellers (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 andother 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 (1) Represents new commitments from funds that earn fees on a committed capital fee base. (2) In certain vehicles, fees are based on capital deployed, as such increasing FPAUM. (3) Net asset value change consists primarily of the impact of market value appreciation (depreciation) from funds that earn fees on a net asset value basis. 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 (1) Represents new commitments from funds that earn fees on a committed capital fee base. (2) In certain vehicles, fees are based on capital deployed, as such increasing FPAUM. (3) Net asset value change consists primarily of the impact of market value appreciation (depreciation) from funds that earn fees on a net asset value basis. 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:  Expenses that typically do not require us to pay them in cash in the current period (such as depreciation, amortization and stock-based compensation),  The cost of financing our business,  Acquisition-related expenses which reflects the actual costs incurred during the period for the acquisition of new businesses, which primarily consists of fees for professional services including legal, accounting, and advisory,  Registration-related expenses includes professional services associated with our prospectus process incurred during the period, and does not reflect expected regulatory, compliance, and other costs associated with which may be incurred subsequent to our Initial Public Offering, and  The effects of income taxes. 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 acquisitions (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 restricted cash $ 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:  An increase of $12.8 million in amortization of intangibles primarily due to the acquisitions of TrueBridge, Five Points and ECG;  An increase in expense for deferred taxes of $3.4 million primarily driven by reduction of deferred tax assets;  An increase in accounts receivable of $5.7 million, primarily attributable to ECG's advisory agreement with Enhanced PC;  A decrease of $3.5 million in accounts payable driven by Keystone's exercise of options settled in the fourth quarter of 2020;  An increase in other liabilities of $6.3 million related to the state tax deposits at ECG. 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 1) We lease office space under agreements that expire periodically through 2027. The table only includes guaranteed minimum lease payments under these agreements and does not project other related payments. 2) Debt obligations presented in the table reflect scheduled principal payments related to the various debt instruments of the Company. As described above, we used a portion of the proceeds from this Merger transaction to pay down a portion of the indebtedness of the Company under these facilities. 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.