What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-13 compared with 2023-08-14 · 148 added, 128 removed, 416 unchanged (40% of the section changed)

22 unchanged sentences

The timing and amount of any repurchases pursuant to the program will depend on various factors including, the market price of our Class A Common Stock, trading volume, ongoing assessment of our working capital needs, general market conditions, and other factors.

As of June 30, 2023, $21.1 million has been used to buy back shares under this program.

As of June 30, 2023, our private market solutions were comprised of the following:

As of September 30, 2023, $21.1 million has been used to buy back shares under this program.

As of September 30, 2023, our private market solutions were comprised of the following:

Private Equity Solutions (PES) .

5 unchanged sentences

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 4,900 investment firms, 9,800 funds, 44,000 individual transactions, 29,000 private companies and 276,000 financial metrics.

As of June 30, 2023, PES managed $11.8 billion of FPAUM.

As of September 30, 2023, PES managed $12.0 billion of FPAUM.

Venture Capital Solutions (VCS).

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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 June 30, 2023, VCS managed $5.8 billion of FPAUM.

As of September 30, 2023, VCS managed $6.0 billion of FPAUM.

Impact Investing Solutions (IIS).

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We are differentiated in both the breadth of impact areas served, the type of capital deployed and the duration of our track record.

From inception in 1999 through June 30, 2023, inclusive of proprietary assets and assets managed by affiliates, Enhanced Capital has raised a total of $5.7 billion.

From inception in 1999 through September 30, 2023, inclusive of proprietary assets and assets managed by affiliates, Enhanced Capital has raised a total of $5.8 billion.

Of the total AUM, impact assets represent $3.6 billion invested in over 1,000 projects and businesses across 39 states, Washington DC, and Puerto Rico and does not include investments made by non-impact affiliates.

Investments in solar assets have generated over 1.6 billion KWh of renewable energy from inception to December 31, 2022.

As of June 30, 2023, IIS managed $1.9 billion of FPAUM .

As of September 30, 2023, IIS managed $2.0 billion of FPAUM .

Private Credit Solutions (PCS).

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We currently maintain 50+ active sponsor relationships and have 45+ platform investments.

As of June 30, 2023, PCS managed approximately $2.7 billion of FPAUM.

As of September 30, 2023, PCS managed approximately $2.7 billion of FPAUM.

Sources of Revenue

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Often, the fees are structured such that they step down, or decrease, over the life of the fund.

Our primary funds comprise approximately $13.0 billion of our FPAUM as of June 30, 2023.

Our primary funds comprise approximately $13.2 billion of our FPAUM as of September 30, 2023.

Direct and Co-Investment Funds.

6 unchanged sentences

Often, the fees are structured such that they step down, or decrease, over the life of the fund.

Our direct investing platform comprises approximately $7.8 billion of our FPAUM as of June 30, 2023.

Our direct investing platform comprises approximately $8.0 billion of our FPAUM as of September 30, 2023.

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.

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Often, the fees are structured such that they step down, or decrease, over the life of the fund.

Our secondary funds comprise approximately $1.4 billion of our FPAUM as of June 30, 2023.

Our secondary funds comprise approximately $1.5 billion of our FPAUM as of September 30, 2023.

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.

We operate our business as a single operating segment, which is how our chief operating decision makers evaluate financial performance and make decisions regarding the allocation of resources.

Trends Affecting Our Business

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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.

The SEC recently adopted new rules and rule amendments to enhance the regulation of private fund advisers and update the existing compliance rule that applies to all investment advisers.

Compliance with these new rules are expected to increase our compliance costs and further restrict certain business activities.

In addition, the SEC recently adopted significant new compliance requirements for investment advisers related to cybersecurity matters that are expected to increase compliance costs.

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.

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Some strategies are counter-cyclical in nature and can take advantage of a higher rate environment.

Specifically, private credit products, including our NAV lending strategy, with floating rate terms, benefit from the current environment, with floating rates and longer duration.

Specifically, private credit products, including our NAV lending strategy, with floating rate terms, benefit from the current environment, with floating rates and

longer duration.

The higher rate environment also benefits our venture debt strategy as rates float throughout the investment period.

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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.

General, administrative and other includes occupancy, travel and entertainment, technology, insurance and other general costs associated with operating our business.

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.

General, administrative and other includes rent, travel and entertainment, technology, insurance and other general costs associated with operating our business.

Strategic alliance expense is included in operating expenses.

This expense is driven by the SAA that Bonaccord entered into with an investor at the time Bonaccord was acquired in exchange for a portion of net management fee earnings and net distributable carried interest at the time of acquisition.

This expense is driven by the SAA that Bonaccord entered into with an investor at the time Bonaccord was acquired in exchange for a portion of net management fee earnings at the time of acquisition.

Other Income (Expense)

Interest expense includes interest paid and accrued on our outstanding debt, along with the amortization of deferred financing costs.

Other income/(expense) includes the accrued expenses related to litigation and regulatory activity as discussed in Note 14.

Income Tax Benefit (Expense)

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Results of Operations

For the three and six months ended June 30, 2023 and June 30, 2022.

For the three and nine months ended September 30, 2023 and September 30, 2022.

For the three months

ended June 30,

For the six months

ended June 30,

ended September 30,

For the nine months

ended September 30,

(in thousands)

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Total other (expense)

Net income before income taxes

Net (loss)/income before income taxes

Income tax (expense)

Three Months Ended June 30, 2023 and June 30, 2022

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 June 30, 2023 and June 30, 2022.

For the three months

ended June 30, 2023 compared to the three months ended June 30, 2022, revenues increased by $15.7 million or 34% due to higher management fees from the impact of inorganic growth of $6.9 million driven by the acquisition of WTI and $8.8 million of organic growth across Bonaccord, Hark, ECG, RCP, and Truebridge.

Management and advisory fees increased by $15.2 million, or 33%, to $61.7 million for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 due to inorganic growth due to the acquisition of WTI which brought $6.9 million of revenue in the first quarter of 2023 and organic FPAUM growth at Bonaccord, Hark, RCP, TrueBridge, and ECG were the primary drivers of the increase in management and advisory fees of $8.3 million.

Catch-up fees for the three months ended June 30, 2023 were $4.7 million associated with the fund closings at Bonaccord, TrueBridge and RCP.

Other revenues, which represent ancillary elements of our business, increased by $0.5 million or 184% to $0.8 million for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 driven primarily by an increase of $0.6 million of interest income in other revenue.

Six Months Ended June 30, 2023 and June 30, 2022

For the six months ended June 30, 2023 compared to the six months ended June 30, 2022, revenues increased by $29.7 million or 33% due to higher management fees from the impact of inorganic growth of $14.0 million driven by the acquisition of WTI and $15.7 million of organic growth across Bonaccord, Hark, ECG, RCP, and Truebridge.

Management and advisory fees increased by $28.8 million, or 32%, to $118.2 million for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 due to inorganic growth due to the acquisition of WTI which brought $14.0 million of revenue in the first quarter of 2023 and organic FPAUM growth at Bonaccord, Hark, RCP, TrueBridge, and ECG were the primary drivers of the increase in management and advisory fees of $14.8 million.

Catch-up fees for the six months ended June 30, 2023 were $7.8 million associated with the fund closings at Bonaccord, TrueBridge and RCP.

Other revenues, which represent ancillary elements of our business, increased by $0.9 million or 174% to $1.5 million for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 driven primarily by an increase of $0.7 million of interest income in other revenue.

NET (LOSS)/INCOME

Three Months Ended September 30, 2023 and September 30, 2022

For the three months ended September 30, 2023 compared to the three months ended September 30, 2022, revenues increased by $8.9 million or 18% due to higher management fees from the impact of inorganic growth of $6.6 million driven by the acquisition of WTI and $2.5 million of organic growth across Bonaccord and Truebridge.

Management and advisory fees increased by $8.6 million, or 17%, to $58.1 million for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 due to inorganic growth from the acquisition of WTI which brought $6.6 million of revenue in the third quarter of 2023 and organic FPAUM growth at Bonaccord and TrueBridge of $2.5 million.

Catch-up fees for the three months ended September 30, 2023 were $2.0 million associated with the fund closings at Bonaccord and TrueBridge.

Other revenues, which represent ancillary elements of our business, increased by $0.3 million or 67% to $0.9 million for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 driven by an increase of $0.3 million of interest income in other revenue.

Nine Months Ended September 30, 2023 and September 30, 2022

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 nine months ended September 30, 2023 and September 30, 2022.

For the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, revenues increased by $38.7 million or 28% due to higher management fees from the impact of inorganic growth of $20.7 million driven by the acquisition of WTI and $18.0 million of organic growth across Bonaccord, RCP, and Truebridge.

Management and advisory fees increased by $37.4 million, or 27%, to $176.3 million for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 due to inorganic growth from the acquisition of WTI which brought $20.6 million of revenue in 2023 and organic FPAUM growth at Bonaccord, RCP, and TrueBridge of $16.7 million.

Catch-up fees for the nine months ended September 30, 2023 were $9.9 million associated with the fund closings at Bonaccord, TrueBridge and RCP.

Other revenues, which represent ancillary elements of our business, increased by $1.3 million or 122% to $2.3 million for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 driven by an increase of $1.3 million of interest income in other revenue.

For the three months

ended June 30,

For the six months

ended June 30,

ended September 30,

For the nine months

ended September 30,

OPERATING EXPENSES

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Operating Expenses

For the Three Months Ended June 30, 2023 and June 30, 2022

Total operating expenses increased by $21.2 million, or 68%, to $52.1 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

This increase was primarily due to increases in compensation and benefits as well as amortization expense.

Compensation and benefits expense increased by $18.5 million, or 104%, to $36.3 million, for the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

The acquisition of WTI added $2.7 million of

compensation expense in the first half of 2023.

Stock compensation contributed to $5.3 million of the increase, of which $2.2 million relates to acquisition activity.

An additional $2.1 million of the increase in stock compensation expense is attributable to management compensation as a result of amended employment agreements executed during the second quarter of 2023.

For the Three Months Ended September 30, 2023 and September 30, 2022

Total operating expenses increased by $18.8 million, or 47%, to $58.6 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

This increase was primarily due to increases in compensation and benefits.

Compensation and benefits expense increased by $18.2 million, or 76%, to $42.2 million, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

The acquisition of WTI added $2.9 million of compensation expense in 2023.

The earn out and bonus accruals associated with the acquisition of WTI as discussed in Note 14 in the Notes to the Consolidated Financial Statements contributed $6.5 million.

Additionally, there was a $4.2 million increase associated with an increase in headcount and associated benefits across all subsidiaries.

Professional fees increased by $0.3 million, or 9%, to $3.0 million.

The primary cost in professional fees for the three months ended June 30, 2023 and 2022 are tax fees associated with year end reporting and strategic planning.

General, administrative and other increased by $0.8 million, or 19%, to $5.0 million, due primarily to the acquisition of WTI.

Contingent consideration expense increased by $0.2 million, to $0.1 million, for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

This was driven by remeasurement during the periods of contingent consideration payable in connection with the acquisitions of Hark and Bonaccord.

Amortization of intangibles increased by $1.2 million, or 19%, to $7.3 million, for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

An additional $4.4 million of the increase in compensation and benefits expense is attributable to management compensation as a result of amended employment agreements executed during the second quarter of 2023.

The compensation expense associated with the CEO transition attributed to $4.9 million of the increase in compensation and benefits expense.

The $4.9 million of Co-CEO succession compensation consists of $2.8 million of severance compensation and $2.1 million of accelerated expense associated with bonus payments.

These expenses are further discussed in Note 14.

Finally, there was a reduction in expense of $0.5 million related to forfeitures of stock options associated with employees who have left the Company prior to vesting.

Professional fees decreased by $0.7 million, or 17%, to $3.4 million.

The primary source of the decline in professional fees from the three months ended September 30, 2022 to the three months ended September 30, 2023 is the non-recurring cost of the acquisition of WTI in 2022.

General, administrative and other increased by $1.3 million, or 32%, to $5.3 million, due primarily to the acquisition of WTI during the fourth quarter of 2022.

Contingent consideration expense decreased by $1.3 million, to $0.1 million, for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.

This was driven by remeasurement of contingent consideration payable in connection with the acquisition of Hark and Bonaccord The decrease was driven primarily by Hark, which has been fully accrued and paid out as of September 30, 2023.

During the three months ended September 30, 2022, the Company recognized a higher expense as a result of changing conditions in the market, as informed by management at Hark at the time of remeasurement, which made it more probable that the contingent consideration would be paid.

Amortization of intangibles increased by $1.2 million, or 19%, to $7.3 million, for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.

This is due to the acquisition of WTI.

For the Six Months Ended June 30, 2023 and June 30, 2022

Total operating expenses increased by $41.9 million, or 67%, to $104.5 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

This increase was primarily due to increases in compensation and benefits as well as amortization expense.

Compensation and benefits expense increased by $35.6 million, or 98%, to $72.0 million, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

For the Nine Months Ended September 30, 2023 and September 30, 2022

Total operating expenses increased by $60.7 million, or 59%, to $163.1 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

This increase was primarily due to increases in compensation and benefits as well as amortization expense, general, administrative and other expense, and professional fees.

Compensation and benefits expense increased by $53.8 million, or 89%, to $114.1 million, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

The increase was driven by a number of factors.

The acquisition of WTI added $5.9 million of compensation expense in the first half of 2023.

Stock compensation contributed to $10.9 million of the increase, of which $6.7 million relates to acquisition activity.

The acquisition of WTI added $8.9 million of compensation expense in 2023.

There was an increase in stock compensation of $6.0 million of the increase, of which $2.0 million relates to acquisition activity.

Management compensation contributed to the increase in stock compensation by $6.7 million as a result of amended employment agreements executed during the second quarter of 2023.

The compensation expense associated with the CEO transition attributed to $4.9 million of the increase in compensation and benefits expense.

The earn out and bonus accruals associated with the acquisition of WTI as discussed in Note 14 in the footnotes to the consolidated financial statements contributed $19.4 million.

The final driver is a $6.1 million increase associated with an increase in headcount and associated benefits across all subsidiaries.

There was $1.3 million of compensation expense incurred associated with a performance-related bonus.

Finally, $6.6 million of the increase was driven by an increase in headcount and associated benefits across all subsidiaries.

Professional fees increased by $0.8 million, or 8%, to $10.2 million.

The primary cost in professional fees for the six months ended June 30, 2023 and 2022 are tax fees associated with year end reporting and strategic planning and audit expenses.

General, administrative and other increased by $1.5 million, or 18%, to $9.9 million, due primarily to the acquisition of WTI.

Contingent consideration expense increased by $0.5 million, to $0.5 million, for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

This was driven by remeasurement during the periods of contingent consideration payable in connection with the acquisitions of Hark and Bonaccord.

Amortization of intangibles increased by $2.2 million, or 18%, to $14.6 million, for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

This is due to the acquisition of WTI.

The primary driver for the increase in professional fees for the nine months ended September 30, 2023 from 2022 is the acquisition of WTI and legal expenses related to the Oregon matter discussed in Note 14 to the Consolidated Financial Statements.

General, administrative and other increased by $2.8 million, or 23%, to $15.2 million, due primarily to the acquisition of WTI as well as additional placement agent fees associated with increased revenues.

Contingent consideration expense decreased by $0.8 million, to $0.6 million, for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

This was driven by remeasurement of contingent consideration payable in connection with the acquisitions of Hark and Bonaccord.

Amortization of intangibles increased by $3.4 million, or 18%, to $21.9 million, for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

This is due to the acquisition of WTI and offset by declines at ECG and RCP.

The decline at ECG is driven by unique syndicate contracts' amortization schedule, which is based on projected revenue at the time of acquisition.

The decline at RCP is driven by asset management fee contracts' amortization base, which is based on projected revenue at the time of acquisition and the projected revenues started slowing down in 2022.

Other Income (Expense)

For the Three Months Ended June 30, 2023 and June 30, 2022

Other expenses increased by $5.5 million, or 753%, to $6.3 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

For the Three Months Ended September 30, 2023 and September 30, 2022

Other expenses increased by $5.2 million, or 237%, to $7.3 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

This increase was driven by a rise in interest expense of $3.1 million.

The increase in interest expense correlates to the increase in the principal balance outstanding of our Revolving Credit Facility and Term Loan of $84.3 million from the second quarter of 2022 to the second quarter of 2023 as well as rising interest rates.

The increase in interest expense correlates to the increase in the principal balance outstanding of our Revolving Credit Facility and Term Loan of $90.3 million from the third quarter of 2022 to the third quarter of 2023 as well as rising interest rates.

The increase in principal balances primarily relates to the acquisition of WTI.

For the Six Months Ended June 30, 2023 and June 30, 2022

Other expenses increased by $9.5 million, or 532%, to $11.3 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

The remainder of the increase in other expenses is driven by the contingent loss accrual discussed in Note 14 to the Consolidated Financial Statements.

For the Nine Months Ended September 30, 2023 and September 30, 2022

Other expenses increased by $14.7 million, or 370%, to $18.7 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

This increase was driven by a rise in interest expense of $10.8 million.

The increase in interest expense correlates to the increase in the principal balance outstanding of our Revolving Credit Facility and Term Loan of $84.3 million from the first six months of 2022 to the first six months of 2023 as well as rising interest rates.

The increase in interest expense correlates to the increase in the principal balance outstanding of our Revolving Credit Facility and Term Loan of $90.3 million from the first nine months of 2022 to the first nine months of 2023 as well as rising interest rates.

The increase in principal balances primarily relates to the acquisition of WTI.

The remainder of the increase in other expenses is driven by the contingent loss accrual discussed in Note 14 to the Consolidated Financial Statements.

Income Tax Expense/Benefit

For the Three Months Ended June 30, 2023 and June 30, 2022

Income tax expense decreased by $1.9 million to $2.0 million for the three months ended June 30, 2023 compared to an expense of $3.9 million for the three months ended June 30, 2022.

The decrease was due to lower pre-tax income during the period.

For the Six Months Ended June 30, 2023 and June 30, 2022

Income tax expense decreased by $5.6 million to $1.0 million for the six months ended June 30, 2023 compared to an expense of $6.6 million for the six months ended June 30, 2022.

The decrease was due to lower pre-tax income during the period.

For the Three Months Ended September 30, 2023 and September 30, 2022

Income tax expense decreased by $0.7 million to $1.8 million for the three months ended September 30, 2023 compared to an expense of $2.5 million for the three months ended September 30, 2022.

The decrease was due to lower taxable income during the period.

For the Nine Months Ended September 30, 2023 and September 30, 2022

Income tax expense decreased by $6.3 million to $2.8 million for the nine months ended September 30, 2023 compared to an expense of $9.1 million for the nine months ended September 30, 2022.

The decrease was due to lower taxable income during the period.

The following table provides a period-to-period roll-forward of our fee paying assets under management on a pro forma basis as if WTI was acquired on January 1, 2022.

For the three months

ended June 30,

ended September 30,

For the three months

ended June 30,

For the six months

ended June 30,

For the six months

ended June 30,

ended September 30,

For the nine months

ended September 30,

For the nine months

ended September 30,

(in millions)

14 unchanged sentences

For the three months

ended June 30,

ended September 30,

For the three months

ended June 30,

For the six months

ended June 30,

For the six months

ended June 30,

ended September 30,

For the nine months

ended September 30,

For the nine months

ended September 30,

(in millions)

12 unchanged sentences

(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 June 30, 2023

FPAUM increased by $0.6 billion or 2.6% to $22.2 billion on a pro forma basis and actual basis for the three months ended June 30, 2023, due primarily to an increase in capital raise and deployed from our private equity and venture capital solutions and offset by stepdowns and expirations.

FPAUM increased by $1.0 billion, or 4.5%, to $22.2 billion on a pro forma basis and actual basis for the six months ended June 30, 2023, due primarily to an increase in capital raised and deployed from our private equity and venture capital solutions and offset by stepdowns and expirations.

FPAUM as of September 30, 2023

FPAUM increased by $0.5 billion or 2.4% to $22.7 billion on a pro forma basis and actual basis for the three months ended September 30, 2023, due primarily to an increase in capital raised and deployed from our private equity and venture capital solutions and offset by net asset value change, stepdowns, and expirations.

FPAUM increased by $1.5 billion, or 7.0%, to $22.7 billion on a pro forma basis and actual basis for the nine months ended September 30, 2023, due primarily to an increase in capital raised and deployed from our private equity and venture capital solutions and offset by stepdowns and expirations.

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.

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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:

In order to compute Adjusted EBITDA, we adjust our GAAP net (loss)/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, as well as bonuses paid to employees directly related to the acquisition;

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 those that were incurred subsequent to our IPO;

One-time expenses related to restructuring of the management team including signing bonus, severance, and placement/search fees;

The effects of income taxes.

1 unchanged sentence

For the Three

September 30,

(in thousands)

Net (loss)/income

Depreciation & amortization

4 unchanged sentences

Non-cash stock based compensation - acquisitions

Non-cash stock based compensation - CEO transition

Earn out related compensation

5 unchanged sentences

Selected Statements of Financial Position

As of June 30,

September 30,

(in thousands)

1 unchanged sentence

Goodwill and other intangibles

Accrued compensation and benefits

Debt obligations

Stockholders’

There was a decrease in cash and cash equivalents of $4.6 million from December 31, 2022 to $24.9 million as of June 30, 2023 primarily due to timing of debt facility maturities and associated repayments.

There was a decrease in goodwill and intangible assets of $14.5 million due to amortization of intangibles during the six months ended June 30, 2023.

There was a decrease in cash and cash equivalents of $7.3 million from December 31, 2022 to $22.2 million as of September 30, 2023 primarily due to timing of debt facility interest periods and associated repayments.

There was a decrease in goodwill and intangible assets of $21.8 million due to amortization of intangibles during the nine months ended

September 30, 2023.

Remaining total assets increased in the same period by $19.0 million.

The increase is driven by an increase in accounts receivable from related parties which is primarily due to ECG's Advisory Agreement with Enhanced PC and Crossroads.

Debt obligations declined by $17.5 million which is driven by payments towards the revolver and term loan balances during the period.

Accrued compensation and benefits increased $33.2 million to $52.1 million during the nine months ended September 30, 2023, $25.3 million of this increase was driven by the WTI earnout and bonus payment discussed in Note 14 and the Hark and Bonaccord RSUs discussed in Note 16.

Debt obligations declined by $27.3 million as a result of payments on the revolver and term loan balances during the period.

Historical Liquidity and Capital Resources

8 unchanged sentences

The accordion was not drawn until October 2022, at which point it was divided to $87.5 million of term loan and $37.5 million of revolver.

The Company incurred $1.4 million of up front fees during the exercise which are reflected as debt obligations on the Consolidated Balance Sheets.

Both facilities are Term SOFR Loans.

2 unchanged sentences

The Revolving Credit Facility has no contractual principal repayments until maturity, which is December 22, 2025 for both facilities.

In September 2022, the Company exercised the accordion feature of the Credit Agreement.

There were no draws made until the fourth quarter of 2022.

The Company incurred $1.4 million of up front fees during the exercise which are reflected as debt obligations on the Consolidated Balance Sheets.

As of June 30, 2023, the Term Loan with a balance of $207.2 million is incurring interest at a weighted average SOFR rate of 7.28%.

As of June 30, 2023, the Revolver Facility is split into six tranches.

As of September 30, 2023, the Term Loan with a balance of $204.5 million is incurring interest at a weighted average SOFR rate of 7.28%.

As of September 30, 2023, the Revolver Facility is split into six tranches.

The total principal outstanding is $60.5 million and the average SOFR rate amongst the tranches is 7.49%.

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The Credit Agreement contains affirmative and negative covenants typical of such financing transactions, and specific financial covenants which require P10 to maintain a minimum leverage ratio of less than or equal to 3.50.

As of June 30, 2023, P10 was in compliance with its financial covenants required under the facility.

The Company has incurred $10.6 million in interest expense for the six months ended June 30, 2023.

Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022

The following table reflects our cash flows for the six months ended June 30, 2023 and 2022:

For the Six Months

Ended June 30,

As of September 30, 2023, P10 was in compliance with its financial covenants required under the facility.

The Company has incurred $16.1 million in interest expense for the nine months ended September 30, 2023.

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

The following table reflects our cash flows for the nine months ended September 30, 2023 and 2022:

For the Nine Months

Ended September 30,

(in thousands)

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Operating Activities

Six Months Ended June 30, 2023 and June 30, 2022

Cash from operating activities increased by $6.0 million, or 26%, to $29.2 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Nine Months Ended September 30, 2023 and September 30, 2022

Cash from operating activities increased by $1.9 million, or 4%, to $45.8 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

The components of this net increase primarily consisted of the following changes in operating assets and liabilities:

An increase in revenues of $29.7 million associated with the acquisition of WTI as well as additional fund closings;

A decrease of $10.8 million in the current year of cash received related to the Advisory Agreement at Enhanced compared to the first half of 2022;

An increase in revenues of $38.7 million associated with the acquisition of WTI as well as additional fund closings which is offset by an increase of $16.1 million in the current year of accounts receivable that has not been received as of September 30, 2023 related to the Advisory Agreement at Enhanced compared to the first three quarters of 2022;

An increase in cash used for interest payments of $10.5 million;

An increase of restricted cash used of $7.3 million related to operations of Enhanced projects;

An increase of cash used for bonus payments of $1 million as a result of timing.

An increase of cash used for bonus payments of $1 million.

Investing activities

Six Months Ended June 30, 2023 and June 30, 2022

The cash used in investing activities increased by $0.3 million, or 96%, to ($0.6) million, for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

This increase in cash used was due to additional property and equipment purchased in the first half of 2023.

Nine Months Ended September 30, 2023 and September 30, 2022

The cash used in investing activities decreased by $0.8 million, or 53%, to $0.7 million, for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

This decrease in cash used was primarily driven by fewer draws on the notes receivable in 2023 than in 2022.

Financing Activities

Six Months Ended June 30, 2023 and June 30, 2022

We recorded a net $33.2 million for the six months ended June 30, 2023 for cash used in financing activities, as compared to cash used in financing activities of $40.9 million for the six months ended June 30, 2022.

The change is attributed to timing differences of revolver tranches subject to repayment and payments of contingent consideration.

Nine Months Ended September 30, 2023 and September 30, 2022

We recorded a net $52.4 million for the nine months ended September 30, 2023 for cash used in financing activities, as compared to cash used in financing activities of $65.1 million for the nine months ended September 30, 2022.

The change is attributed to timing differences of revolver tranche interest periods subject to repayment aligned with cash availability and payments of contingent consideration as well as tax witholdings on employee stock options that are settled on a net of tax basis.

Future Sources and Uses of Liquidity

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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 June 30, 2023:

The following table sets forth information regarding our anticipated future cash payments under our contractual obligations as of September 30, 2023:

(in thousands)

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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.

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 7 of our consolidated financial statements for further information.

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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.

Under the voting interest model, the Company consolidates those entities it controls through a majority voting interest or other means.

Five Points, P10 Holdings, and ECG are concluded to be consolidated subsidiaries of P10 under the voting interest model.

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Interest Rate Risk

As of June 30, 2023, we had $207.2 million in outstanding principal in Term Loan under our Term Loan and Revolving Credit Facility.

As of September 30, 2023, we had $204.5 million of outstanding principal in Term Loan under our Term Loan and Revolving Credit Facility.

The annual interest rate on the Term Loan is based on SOFR, subject to a floor of 0.10%, plus 2.00%.

On June 30, 2023, the interest rate on these borrowings was 2.1% + SOFR.

On September 30, 2023, the interest rate on these borrowings was 2.1% + SOFR.

We estimate that a 100-basis point increase in the interest rate would result in an approximately $2.0 million increase in interest expense related to the loan over the next 12 months.

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Our management, under the supervision and with the participation of our Co-Chief Executive Officers and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of the period covered by this report.

Based on that evaluation, our Co-Chief Executive Officers and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are effective to provide reasonable assurance that information that we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Controls over Financial Reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis