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. 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. The following discussion may contain forward-looking statements that reflects our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Form 10-Q, and in our annual report on Form 10-K for the year ended December 31, 2023, particularly in "Risk Factors" and the "Forward-Looking Information." Unless otherwise indicated, references in this Quarterly Report on Form 10-Q to fiscal 2024 and 2023 are to our fiscal years ended December 31, 2024 and 2023, respectively. 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. On October 20, 2023, the Company entered into an executive transition agreement with each of Mr. Alpert and Mr. Webb (each, a "Transition Agreement"). Pursuant to the Transition Agreements, Mr. Alpert and Mr. Webb ceased to serve as Co-Chief Executive Officer, and Mr. Alpert and Mr. Webb were appointed as Executive Chairman and Executive Vice Chairman, respectively, for a one-year period. Additionally, Mr. Webb's Transition Agreement provides a one-year transition period to continue servicing the Company in a mergers and acquisitions capacity. Effective October 23, 2023, the board of the Company appointed Luke A. Sarsfield III as Chief Executive Officer ("CEO") of the Company. In connection with his appointment as CEO, the Company entered into an employment agreement with Mr. Sarsfield (the "Employment Agreement") setting forth the terms of his employment and compensation. In connection with both the Transition Agreements and the Employment Agreement, provisions were made for severance and sign-on compensation, respectively. Effective June 14, 2024, Mr. Alpert resigned as Executive Chairman and the board of the Company appointed CEO and President Mr. Sarsfield to Chairman of the Board. In connection with Mr. Alpert's resignation as Executive Chairman, the Company and Mr. Alpert agreed to the early termination of Mr. Alpert's Transition Agreement. The associated expenses were recorded in compensation and benefits on the Consolidated Statements of Operations. Mr. Webb's Transition Agreement terminated in accordance with its terms on October 23, 2024. As of September 30, 2024, 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, real estate and real assets. The PES investment team, which is comprised of 43 investment professionals with an average of 26+ 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 2,120+ investors, 285+ fund managers, 550+ private market funds and 5,100+ portfolio companies. We have 57 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 5,880 investment firms, 10,700 funds, 48,000 individual transactions, 32,000 private companies and 334,000 financial metrics. As of September 30, 2024, PES managed $13.4 billion of Fee-Paying Assets Under Management ("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 15 investment professionals with an average of 24+ years of experience, has deep 32 and long-standing investor and fund manager relationships in the venture market which it has cultivated over the past 14+ years, including over 1,900+ investors, 90+ fund managers, 95+ direct investments, 385+ private market funds and 13,100+ portfolio companies. We have 20 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, 2024, VCS managed $6.4 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 55 investment professionals with an average of 25+ years of experience, has deep and long-standing relationships in the private credit market which it has cultivated over the past 22 years, including 420+ investors across 50 active investment vehicles and 1,800+ portfolio companies with $9.8+ 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 655 credit opportunities annually. We currently maintain 80+ active sponsor relationships and have 120+ platform investments. Within PCS, the Company has investments that target 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. These investments are differentiated in both the breadth of impact areas served, the type of capital deployed and the duration of the impact investing track record. From the impact investing inception in 1999 through September 30, 2024, inclusive of proprietary assets and assets managed by affiliates, Enhanced Capital has raised a total of $6.3 billion. Of the total AUM, impact assets represent $4.2 billion invested in over 950 projects and businesses across 40 states, Washington DC, and Puerto Rico and does not include investments made by non-impact affiliates. Investments in clean energy have generated an estimate of over 2,229 GWh of renewable energy from inception to December 31, 2023. As of September 30, 2024, PCS managed approximately $5.1 billion of FPAUM. During 2022, the Board approved a program to repurchase up to $40.0 million of outstanding shares of our Class A and Class B common stock. Upon completion of purchases under the prior authorizations, on February 27, 2024, the Board of Directors authorized an additional $40.0 million for repurchases under the Stock Repurchase Program. On August 6, 2024, the Board of Directors authorized an additional $12.0 million for repurchases under the Stock Repurchase Program. These shares may be repurchased from time to time in the open market at prevailing market prices, in privately negotiated transactions, in block trades, in accordance with Rule 10b5-1 trading plans and/or through other legally permissible means. 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 September 30, 2024, $78.1 million has been spent to buy back shares under this program. 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 $13.7 billion of our FPAUM as of September 30, 2024. • 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 33 alongside an investment by a fund manager or by investing directly in the underlying asset. P10’s direct and co- 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 $9.6 billion of our FPAUM as of September 30, 2024. • 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 $1.6 billion of our FPAUM as of September 30, 2024. Operating Segments We operate our business as a single operating segment, which is how our chief operating decision maker evaluates financial performance and makes 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 in which we operate, as well as changes in global economic conditions, and regulatory or other governmental policies or actions, which can materially affect the values of the funds our platforms manage, as well as our ability to effectively manage investments and attract capital. Despite high interest rates and the global economy outlook remaining uncertain, we continue to see investors turning towards alternative investments to achieve consistent and higher yields with our contractually guaranteed fee rate. 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 (a) increasing long-term investor allocations towards private market asset classes, (b) legislation that allows retirement plans to add private equity vehicles as an investment option, and (c) 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 construction, management, and monitoring and enable a portfolio 34 grading system, as well as repository of investment evaluation scorecards. Our ability to maintain our data advantage is dependent on several 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 can 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. 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 is 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. • 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 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 several 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. • Consolidation of Manager relationships and flight to quality. As global financial markets continue to remain uncertain and private markets investors evaluate their exposure and allocation to private markets, a trend of consolidating managers has emerged. Our strategies, with long-track records of success, deep industry experience, well-established relationships, and high-quality investment opportunities, can benefit from a trend toward reducing the number of managers to which capital is allocated. Furthermore, we believe that by offering 35 investors access to access-constrained investment opportunities, investors may favor our strategies as they make decisions on market exposure and allocation levels. • Counter-cyclical strategies can thrive in a higher-rate environment. 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. The higher rate environment also benefits our venture debt strategy as rates float throughout the investment period. 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 in or, in select cases, deployed to 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 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. The Company recognizes an accrued contingent liability and contingent payments to customers in our Consolidated Balance Sheets for agreements between ECG and third parties. The agreements require ECG to share in certain revenues earned with the third party and also includes an option for the third party to sell back the revenue share to ECG at a set multiple. Additionally, ECG holds the option to buy back 50% of the revenue share at a set multiple. Both options are not exercisable until a certain period of time has lapsed per the agreements. The Company believes it is probable that the third parties will exercise their options to sell back the revenue share and has recognized liabilities on the Consolidated Balance Sheets. The Company has also recognized contingent payments to customers assets associated with the agreements and will amortize the assets against revenue over the length of the management contracts. The amortization is reported in management and advisory fees on the Consolidated Statements of Operations. Operating Expenses Compensation and benefits are our largest expense and consists of salaries, bonuses, severance, stock-based compensation, earnout and bonus payments related to the acquisition of WTI, 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. 36 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. As our Company is an SEC registrant, our professional fees will fluctuate commensurate with our strategic objectives and potential acquisitions, and certain recurring accounting advisory, audit and tax expenses will increase to 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 Strategic Alliance Agreement that Bonaccord entered into with an investor at the time Bonaccord was acquired in exchange for a portion of net management fee earnings. Other (Expense) Interest expense, net includes interest paid and accrued on our outstanding debt, along with the amortization of deferred financing costs. Other income (loss) includes any income from unconsolidated subsidiaries, interest income earned from bank accounts across management companies, and any accrued expenses related to litigation and regulatory activity as necessary, which would be discussed in Note 13 of our Consolidated Financial Statements. Income Tax (Expense) Income tax (expense) is comprised of current and deferred tax (expense). 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. 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. 37 Results of Operations For the three and nine months ended September 30, 2024 and September 30, 2023. For the three months ended September 30, For the nine months ended September 30, 2024 2023 $ Change % Change 2024 2023 $ Change % Change REVENUES (in thousands) (in thousands) Management and advisory fees $ 72,595 $ 58,078 $ 14,517 25% $ 206,192 $ 176,322 $ 29,870 17% Other revenue 1,648 864 784 91% 5,242 2,345 2,897 124% Total revenues 74,243 58,942 15,301 26% 211,434 178,667 32,767 18% OPERATING EXPENSES Compensation and benefits 42,531 42,175 356 1% 115,893 114,128 1,765 2% Professional fees 9,169 3,357 5,812 173% 16,472 10,191 6,281 62% General, administrative and other 6,606 5,315 1,291 24% 19,680 15,209 4,471 29% Contingent consideration expense 39 80 (41 ) (51)% 160 550 (390 ) (71)% Amortization of intangibles 6,437 7,319 (882 ) (12)% 19,312 21,893 (2,581 ) (12)% Strategic alliance expense 635 313 322 103% 2,153 1,118 1,035 93% Total operating expenses 65,417 58,559 6,858 12% 173,670 163,089 10,581 6% INCOME FROM OPERATIONS 8,826 383 8,443 2,204% 37,764 15,578 22,186 142% OTHER (EXPENSE)/ INCOME Interest expense, net (6,692 ) (5,482 ) (1,210 ) 22% (18,583 ) (16,080 ) (2,503 ) 16% Other income/(loss) 454 (1,851 ) 2,305 N/A 1,516 (2,570 ) 4,086 N/A Total other (expense) (6,238 ) (7,333 ) 1,095 (15)% (17,067 ) (18,650 ) 1,583 (8)% Net income/(losses) before income taxes 2,588 (6,950 ) 9,538 N/A 20,697 (3,072 ) 23,769 N/A Income tax (expense) (1,255 ) (1,800 ) 545 (30)% (6,731 ) (2,807 ) (3,924 ) 140% NET INCOME/(LOSS) $ 1,333 $ (8,750 ) $ 10,083 N/A $ 13,966 $ (5,879 ) $ 19,845 N/A Revenues For the Three Months Ended September 30, 2024 and September 30, 2023 Our total 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, 2024 and September 30, 2023. For the three months ended September 30, 2024 compared to the three months ended September 30, 2023, revenues increased by $15.3 million or 26% due to organic FPAUM growth across Bonaccord, Enhanced, RCP, and WTI. Management and advisory fees increased by $14.5 million, or 25%, to $72.6 million for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 due primarily to organic FPAUM growth generating revenues of $14.7 million at Bonaccord, Enhanced, RCP and WTI. Catch-up fees for the three months ended September 30, 2024 were $6.2 million of the $72.6 million in management and advisory fees associated with the fund closings at Bonaccord and RCP. Other revenues increased by $0.8 million or 91% to $1.6 million for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 driven by $0.6 million increase in ancillary elements of our business. Additionally, an increase of $0.2 million of interest income in other revenue at RCP. For the Nine Months Ended September 30, 2024 and September 30, 2023 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, 2024 and September 30, 2023. For the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, revenues increased by $32.8 million or 18% primarily due to organic FPAUM growth across Bonaccord, Enhanced, RCP, WTI, and TrueBridge. Management and advisory fees increased by $29.9 million, or 17%, to $206.2 million for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 due to organic FPAUM growth at Bonaccord, Enhanced, WTI, and TrueBridge of $30.2 million offset slightly by a decrease of $0.7 million in management fees at Five Points. Catch-up fees for the nine months ended September 30, 2024 were $20.0 million associated with the fund closings at Bonaccord, TrueBridge and RCP. 38 Other revenues increased by $2.9 million or 124% to $5.2 million for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 primarily driven by $2.0 million of recognized carried interest income from an uncommon pre-acquisition legacy managed fund in other revenue and an increase of $0.6 million of interest income in other revenue at RCP. For the three months ended September 30, For the nine months ended September 30, 2024 2023 $ Change % Change 2024 2023 $ Change % Change OPERATING EXPENSES (in thousands) (in thousands) Compensation and benefits $ 42,531 $ 42,175 $ 356 1 % $ 115,893 $ 114,128 $ 1,765 2 % Professional fees 9,169 3,357 5,812 173 % 16,472 10,191 6,281 62 % General, administrative, and other 6,606 5,315 1,291 24 % 19,680 15,209 4,471 29 % Contingent consideration expense 39 80 (41 ) (51 )% 160 550 (390 ) (71 )% Amortization of intangibles 6,437 7,319 (882 ) (12 )% 19,312 21,893 (2,581 ) (12 )% Strategic alliance expense 635 313 322 103 % 2,153 1,118 1,035 93 % Total operating expenses $ 65,417 $ 58,559 $ 6,858 12 % $ 173,670 $ 163,089 $ 10,581 6 % Operating Expenses For the Three Months Ended September 30, 2024 and September 30, 2023 Total operating expenses increased by $6.9 million, or 12%, to $65.4 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This increase was primarily due to an increase in professional fees as well as general, administrative, and other expenses. Compensation and benefits expense was relatively unchanged for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. There was a decrease in severance expense of $2.3 million and a decrease in stock compensation of $1.3 million primarily driven by a decrease in management stock compensation expense acceleration related to the executive transition that occurred in October 2023 offset by an increase in the remeasurement for the fair value of the Bonaccord Units related to the acquisition of Bonaccord. The Bonaccord Units, which are recognized using the tranche method, had an increase in expense for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. These decreases were offset by a $1.8 million increase in profit and revenue share expense at Bonaccord and $1.3 million increase related to increases in headcount and associated benefits across the Company as well as merit-based salary raises to retain and motivate talent across the Company. Professional fees increased by $5.8 million, or 173%, to $9.2 million. The primary increase in professional fees for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 is primarily driven by an increase in professional and legal fees associated with the Company's debt refinancing as well as the Company's transitions related to turnover at the management level, office locations, policies, as well as normal course of business such as filings and due diligence for acquisitions. General, administrative, and other increased by $1.3 million, or 24%, to $6.6 million, due primarily to $0.5 million increase of placement agent fees at Hark, $0.4 million increase in marketing efforts, as well as $0.4 million ongoing enhancements to infrastructure, technology, and security across the Company. Amortization of intangibles decreased by $0.9 million, or 12%, to $6.4 million, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. This is due to decreases at ECG, RCP, and TrueBridge. The decrease at ECG is driven by unique syndication contracts and advisory contracts' amortization schedule, which is based on projected revenues at the time of acquisition. The decreases at RCP and TrueBridge are driven by asset management fee contracts' amortization schedule, which is based on projected revenues at the time of acquisition. For the Nine Months Ended September 30, 2024 and September 30, 2023 Total operating expenses increased by $10.6 million, or 6%, to $173.7 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. This increase was primarily due to increases in compensation and benefits, general, administrative and other expense, professional fees, and strategic alliance expense offset slightly by a decrease in amortization of intangibles. 39 Compensation and benefits expense increased by $1.8 million, or 2%, to $115.9 million, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was driven by $15.9 million of increases in headcount and associated benefits across the Company as well as merit-based salary raises to retain and motivate talent across the Company. This increase was offset by change of estimate for timing of achieving the earnout payment related to the acquisition of WTI, which prospectively adjusted recognition of the expense and resulted in $8.6 million decrease for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. Additionally, there was a decrease in severance expense of $3.3 million and a decrease in stock compensation of $3.1 million, of which $2.1 million decrease relates to remeasurement for the fair value of the Bonaccord Units and Hark Units related to the acquisition of Bonaccord and Hark and a decrease of $1.0 million related to management stock award accelerations in 2023 related to the Executive Transition in October 2023. In 2023, the Hark Units were fully earned and recognized, therefore, there was no correlating expense in 2024 associated with the Hark Units. Moreover, the Bonaccord Units, which are recognized using the tranche method, had a decrease in expense for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. Professional fees increased by $6.3 million, or 62%, to $16.5 million. The primary driver for the increase in professional fees for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 is an increase of $5.0 million in professional and legal expenses associated with the Company's debt refinancing and the Company's transitions related to turnover at the management level, office locations, policies, as well as normal course of business such as filings and due diligence for acquisitions. Additionally, a $1.1 million increase related to audit, tax, and compliance services provided to the Company. General, administrative and other increased by $4.5 million, or 29%, to $19.7 million, due to $1.1 million increase of placement agent fees, $0.3 million increase of rent, $0.9 million increase in marketing efforts, $0.6 million increase in conferences, travel, and entertainment expenses, and $1.1 million increase for ongoing enhancements to infrastructure, technology, and security across the Company. Contingent consideration expense decreased by $0.4 million, to $0.2 million, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. This was driven by remeasurement of contingent consideration payable in connection with the acquisitions of Hark and Bonaccord. The Hark contingent consideration was fully earned and paid in 2023 and the Bonaccord contingent consideration is fully earned as of September 30, 2024 and has a remaining fair value is $4.3 million as of September 30, 2024. Amortization of intangibles decreased by $2.6 million, or 12%, to $19.3 million, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. This is due to decreases at ECG, RCP, and TrueBridge. The decrease at ECG is driven by unique syndication contracts and advisory contracts' amortization schedule, which is based on projected revenues at the time of acquisition. The decreases at RCP and TrueBridge are driven by asset management fee contracts' amortization schedule, which is based on projected revenues at the time of acquisition. Other (Expense) For the Three Months Ended September 30, 2024 and September 30, 2023 Other expenses decreased by $1.1 million, or (15)%, to $6.2 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This decrease was driven by $3.1 million in other income/(losses) related to legal settlements incurred in the three months ended September 30, 2023 compared to no legal settlements incurred in the three months ended September 30, 2024. This was offset by an increase in interest expense of $2.0 million on the credit facility due to higher SOFR rates and a larger outstanding debt balance in the three months ended September 30, 2024. For the Nine Months Ended September 30, 2024 and September 30, 2023 Other expenses decreased by $1.6 million, or 8%, to $17.1 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. This decrease was driven by $2.3 million in other income/(losses) related to legal settlements incurred in the nine months ended September 30, 2023 compared to no legal settlements incurred in the nine months ended September 30, 2024 and $1.7 million increase in other income driven by interest earned for money market accounts and income from unconsolidated subsidiaries. This was offset by an increase in interest expense of $2.5 million due to higher SOFR rates and a larger average outstanding debt balance for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. 40 Income Tax Expense For the Three Months Ended September 30, 2024 and September 30, 2023 Income tax expense decreased by $0.5 million to $1.3 million for the three months ended September 30, 2024 compared to the expense of $1.8 million for the three months ended September 30, 2023. The decrease was primarily due to discrete period recognition of windfall tax adjustments related to options exercised and RSU vesting during the period. For the Nine Months Ended September 30, 2024 and September 30, 2023 Income tax expense increased by $3.9 million to $6.7 million for the nine months ended September 30, 2024 compared to an expense of $2.8 million for the nine months ended September 30, 2023. The increase was primarily due to additional income during the period. FPAUM The following table provides a period-to-period roll-forward of our fee paying assets under management on an actual basis. For the three months ended September 30, For the nine months ended September 30, 2024 2023 2024 2023 (in millions) (in millions) (in millions) (in millions) Balance, Beginning of Period $ 23,835 $ 22,165 $ 23,259 $ 21,206 Add: Acquisitions — — — — Capital raised (1) 1,251 536 2,457 2,257 Capital deployed (2) 122 163 428 624 Net Asset Value Change (3) — (70 ) (4 ) (117 ) Less: Scheduled fee base stepdowns (277 ) (37 ) (439 ) (321 ) Expiration of fee period (8 ) (61 ) (778 ) (953 ) Balance, End of period $ 24,923 $ 22,696 $ 24,923 $ 22,696 (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, 2024 FPAUM increased by $1.1 million to $24.9 million for the three months ended September 30, 2024, due primarily to an increase in capital raised from our private equity and venture capital solutions being offset by scheduled fee stepdowns. FPAUM increased by $1.7 billion, or 7.2%, to $24.9 billion for the nine months ended September 30, 2024, 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 Fee-Related Revenue ("FRR"), Fee-Related Earnings ("FRE"), Adjusted Net Income ("ANI"), as well as Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) to provide additional measures of 41 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. FRR is calculated as Total Revenues less any incentive fees. FRE is a non-GAAP performance measure used to monitor our baseline earnings less any incentive fee revenue and excluding any incentive fee-related expenses. 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 (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; • One-time expenses related to restructuring of the management team including placement/search fees; • Expenses related to the debt refinancing completed in August 2024; • 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; and • The effects of income taxes. The cash income taxes paid during the three months ended September 30, 2024 and September 30, 2023 as well as during the nine months ended September 30, 2024 and September 30, 2023 differ significantly from the net income tax expense, which is primarily comprised of deferred tax expense as described in the results of operations. For the Three For the Six Months Ended Months Ended September 30, September 30, 2024 2023 2024 2023 (in thousands) (in thousands) Net Income/(Loss) $ 1,333 $ (8,750 ) $ 13,966 $ (5,879 ) Adjustments: Depreciation & amortization 7,254 7,900 21,411 23,526 Interest expense, net 6,692 5,482 18,584 16,080 Income tax expense 1,255 1,799 6,731 2,806 Non-recurring expenses 5,556 5,493 7,131 10,668 Non-cash stock based compensation 5,765 7,871 17,482 16,269 Non-cash stock based compensation - acquisitions 3,882 1,122 5,557 7,895 Non-cash stock based compensation - CEO transition — 2,106 — 2,106 Earn out related compensation 3,597 6,607 10,714 19,394 Adjusted EBITDA $ 35,334 $ 29,630 $ 101,576 $ 92,865 Less: Cash interest expense, net (4,189 ) (5,048 ) (15,231 ) (15,051 ) Cash income taxes, net of taxes related to acquisitions (388 ) (245 ) (1,437 ) (1,332 ) Adjusted Net Income $ 30,757 $ 24,337 $ 84,908 $ 76,482 Total Revenues $ 74,243 $ 58,942 $ 211,434 $ 178,667 Adjustments: Non-Fee Related Revenue (1,317 ) (1,202 ) (5,192 ) (3,604 ) Fee-Related Revenue $ 72,926 $ 57,740 $ 206,242 $ 175,063 Adjusted EBITDA $ 35,334 $ 29,630 $ 101,576 $ 92,865 Less: Non-Fee Related Income (248 ) (94 ) (2,182 ) (410 ) Fee-Related Earnings $ 35,086 $ 29,536 $ 99,394 $ 92,455 42 Financial Position, Liquidity and Capital Resources Selected Statements of Financial Position As of As of September 30, December 31, 2024 2023 $ Change % Change (in thousands) Cash and cash equivalents (including restricted cash) $ 63,268 $ 32,057 $ 31,211 97% Goodwill and other intangibles 609,921 629,233 (19,312 ) (3)% Total assets 857,033 834,074 22,959 3% Accrued compensation and benefits 63,018 45,081 17,937 40% Debt obligations 319,411 289,844 29,567 10% Equity $ 394,094 $ 425,162 $ (31,068 ) (7)% Cash and cash equivalents increased from $32.1 million as of December 31, 2023 to $63.3 million as of September 30, 2024 primarily due to the Company's debt refinancing. There was a decrease in goodwill and intangible assets of $19.3 million due to amortization of intangibles during the nine months ended September 30, 2024. Remaining total assets increased in the same period by $11.7 million. The increase is driven by an increase in accounts receivable and due from related parties which is primarily due to ECG's Advisory Agreement with Enhanced PC and Crossroads. The increase in remaining total assets was offset by a decrease in deferred tax assets, net due to utilization of the net operating losses and a decrease in prepaid expenses and other assets, which is primarily due to Enhanced's sale of state tax credits during the nine months ended September 30, 2024. Debt obligations increased by $30.4 million which is driven by the Company's debt refinancing during the nine months ended September 30, 2024. 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 or issue new shares as consideration will be critical as we pursue additional business development opportunities and new acquisitions. On December 22, 2021, P10, Inc. entered into a Term Loan and Revolving Credit Facility with JP Morgan Chase Bank, N.A.. The term loan and revolving credit facility provides financing for acquisition activity. The term loan provides for a $125.0 million facility and the revolving credit facility provides for an additional $125.0 million. There is also a $125 million accordion feature available in the credit agreement, which we exercised in September 2022. 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. On August 1, 2024, the Company entered into the Amended and Restated Credit Agreement, which provides for a new senior secured revolving credit facility in the amount of $175 million, with a $10 million sublimit for the issuance of letters of credit, and a new senior secured loan facility in the amount of $325 million. The New Credit Facilities are to be used to refinance and replace the credit facilities under the Credit Agreement and for general corporate purposes, including acquisitions. The New Credit Facilities are Term SOFR Loans meaning loans bearing interest based upon the "Adjusted Term SOFR Rate". The Adjusted Term SOFR Rate is the Secured Overnight Financing Rate ("SOFR") at the date of election, plus 2.60%. The Company can elect one or three months for the Revolver Facility and one, three, or six months for the Term Loan. Principal is contractually repaid at a rate of 1.25% on the term loan quarterly effective December 31, 2025. The New Revolving Facility has no contractual principal repayments until maturity, which is August 1, 2028 for both facilities. As of September 30, 2024, the Term Loan with a balance of $325.0 million is incurring interest at a weighted average Adjusted Term SOFR Rate of 7.68%. As of September 30, 2024, there is no outstanding balance for the Revolver Facility. Refer to Note 11 of the Consolidated Financial Statements for further details provided on the debt and associated interest periods. The Amended and Restated 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 September 30, 2024, P10 was in compliance with its financial and other covenants required under the facility. The Company has incurred $17.5 million in interest expense for the nine months ended September 30, 2024. 43 Cash Flows Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023 The following table reflects our cash flows for the nine months ended September 30, 2024 and 2023: For the Nine Months Ended September 30, 2024 2023 $ Change % Change (in thousands) Net cash provided by operating activities $ 73,258 $ 45,807 $ 27,451 60% Net cash (used in) investing activities (3,358 ) (727 ) (2,631 ) 362% Net cash (used in) financing activities (38,689 ) (52,354 ) 13,665 (26)% Increase (Decrease) in cash, cash equivalents and restricted cash $ 31,211 $ (7,274 ) $ 38,485 (529)% Operating Activities Nine Months Ended September 30, 2024 and September 30, 2023 The Company’s operating activities generally reflect the Company’s earnings in the respective periods after adjusting for significant non-cash activity, including income of unconsolidated subsidiaries, stock-based compensation, depreciation, amortization, and deferred tax expense, all of which are included in net income. Cash from operating activities increased by $27.5 million, or 60%, to $73.3 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. For the nine months ended September 30, 2024 and 2023, our net cash provided by operating activities was driven primarily by receipts of management fees and advisory fees, partially offset by payment of operating expenses, which includes professional fees, compensation and benefits, as well as general, administrative and other expenses. Additionally, the nine months ended September 30, 2024 was impacted by cash received for the sale of tax credits while the nine months ended September 30, 2023 was impacted by repaying deposit liabilities to third parties related to pending tax credit projects. Investing activities Nine Months Ended September 30, 2024 and September 30, 2023 The cash used in investing activities increased by $2.6 million, or 362%, to $3.4 million, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. This increase in cash used was primarily due to purchases of leasehold improvements, included in property and equipment during the nine months ended September 30, 2024. Financing Activities Nine Months Ended September 30, 2024 and September 30, 2023 We recorded a net $38.7 million for the nine months ended September 30, 2024 for cash used in financing activities, as compared to cash used in financing activities of $52.4 million for the nine months ended September 30, 2023. The change is driven by the cash provided by debt refinancing during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. 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. 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. 44 Critical Accounting Policies and Estimates 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 judgments. See Note 2 of our consolidated financial statements 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. 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 of our consolidated financial statements for further information. The Company has determined that certain of its subsidiaries are VIEs, and that the Company is the primary beneficiary of the entities, because it has the power to direct activities of the entities that most significantly impact such VIEs' economic performance and has a controlling financial interest in each entity. Accordingly, the Company consolidates these entities, which include P10 Intermediate, Holdco, RCP 2, RCP 3, TrueBridge, Hark, Bonaccord, and WTI. The assets and liabilities of the consolidated VIEs are presented gross in the Consolidated Balance Sheets. The liabilities of our consolidated VIEs' are obligations of those entities and their creditors do not generally have recourse to the assets of P10. See Note 6 of our consolidated financial statements 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, P10 Holdings, and ECG are concluded to be consolidated subsidiaries of P10 under the voting interest model. 45 Accounts Receivable and Due from Related Parties Accounts receivable is equal to contractual amounts reduced for allowances, if applicable. Management fees are collected on a quarterly basis. Certain subsidiaries management fee contracts are collected at the beginning of the quarter, while others are collected in arrears. The management fees reflected in accounts receivable at period end are those that are collected in arrears. Due from related parties represents receivables from the Funds for reimbursable expenses, and management fees collected by a related party of RCP 2 that are owed to RCP 2. Additionally, fees owed to the Company for the advisory agreement entered into upon the closing of the acquisitions of ECG and ECP and any supplemental agreements entered into after acquisition, ("Advisory Agreements") where ECG provides advisory services to Enhanced Permanent Capital, LLC ("Enhanced PC") are reflected in due from related parties on the Consolidated Balance Sheets. Revenue Recognition of Management Fees and Management Fees Received in Advance 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 revenues on the Consolidated Balance Sheets due to the performance obligation not being satisfied at the time of collection. For asset management and advisory services, the Company typically satisfies its performance obligations over time as the services are provided as a distinct series of daily performance obligations that the customer simultaneously benefits from as they are performed. Asset management fees are based on the contractual terms of each contract which differ, such as fees calculated based on committed capital or deployed capital, fees initially calculated based on committed capital during the investment period and on net invested capital through the remainder of the fund’s term, fees that step down during specified periods of the fund's term, or in limited instances, fees based on assets under management. At contract inception, no revenue is estimated as the fees are dependent variable amounts which are susceptible to factors outside of our control. Fees are recognized for services provided during the period, which are distinct from services provided in other periods. In certain asset management and advisory agreements progress is measured using the practical expedient under the output method resulting in the recognition of revenue in the amount for which the Company has a right to invoice. Advisory service fees are determined using fixed-rate fees and are recognized over time as the related services are completed. Other advisory services include transaction and management fees associated with managing the origination and ongoing compliance of certain investments. The Company allocates a portion of consideration received under an arrangement to a financing component when it determines that a significant financing component exists. The Company does not adjust the promised amount of consideration for the effects of a significant financing component if, at each contract inception the Company expects that the period between services being provided and cash collection would be less than one year. To the extent the Company determines that there is a significant financing component in a contract with a customer, it determines the impact of the time value of money in adjusting the transaction price to account for the income associated with the financing component by estimating the discount rate that would be reflected in a separate financing transaction between the customer and the Company at contract inception, based upon the credit characteristics of the customer receiving financing in the contract. The Company is applying the optional disclosure exemption for variable consideration for unsatisfied performance obligations, as the variable consideration relates to these unsatisfied performance obligations being fulfilled as a series. The performance obligations related to these contracts are expected to be satisfied over the next 1-10 years as services are provided to the customer. 46 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. Catch-up fees are recorded as revenue when such commitments are made as variable consideration. Stock-Based Compensation Expense Stock-based compensation relates to grants for shares of P10 awarded to our employees through stock options as well as RSUs awarded to employees and RSAs issued to non-employee directors as compensation for service on the Company's board. Stock compensation expense for awards that cliff-vest after a service period is recorded ratably over the vesting period at the fair market value on the grant date. For awards with graded vesting, and vesting only requires a service condition, the Company elected, in accordance with ASC 718, to treat these awards as single awards for recognition purposes and recognize compensation on a straight-line basis over the requisite service period of the entire award. For awards with graded vesting and require a market condition to vest, the Company treats each expected vesting tranche as an individual award and recognizes expense ratably over the vesting period at the fair market value of the grant date. Certain acquisition related RSUs vest after meeting certain performance metrics. For these, the Company uses the tranche method and recognizes expense for each tranche of RSUs deemed probable of vesting on a straight-line basis over the expected vesting period. The Company evaluates the probability of vesting at each reporting period. Unvested units are remeasured quarterly against performance metrics as a liability on the Consolidated Balance Sheets. Refer to Note 15 to the Consolidated Financial Statements for further discussion. Forfeitures are recognized as they occur. Income Taxes Current income tax expense represents our estimated taxes to be paid or refunded for the current period. In accordance with 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. 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. Interest Rate Risk As of September 30, 2024, we had $325.0 million in outstanding principal in Term Loans under our Term Loan and $0 under our Revolving Credit Facility. The annual interest rate on the Term Loan is based on SOFR, subject to a floor of 47 0.10%, plus 2.50%. On September 30, 2024, the interest rate on these borrowings was 2.6% + SOFR. Despite the current interest rate environment displaying an interest rate cut by 50-basis points, the Company is still exposed to interest rate risk if there is a shift in the environment. We estimate that a 100-basis point increase in the interest rate would result in an approximately $3.2 million increase in interest expense related to the loan over the next 12 months. 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. Ite m 4. Controls and Procedures Disclosure Controls and Procedures We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives. Our management, under the supervision and with the participation of our Chief Executive Officer 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 Chief Executive Officer 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 Chief Executive Officer 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 September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 48 PART II - OTHER INFORMATION Item 1. Legal Proceedings. The information required with respect to this item can be found under “Contingencies” in Note 13, Commitments and Contingencies, to our consolidated financial statements included elsewhere in this annual report, and such information is incorporated by reference into this Item 1.