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Hello, and welcome to the P10 First Quarter 2024 Conference Call. My name is Latif, and I will be coordinating your call today. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question-and-answer session. As a reminder, today's conference is being recorded. I will now hand the call over to your host, Mark Hood, EVP of Operations and Chief Administrative Officer. Mark, please go ahead.

Good afternoon, and welcome to the P10 First Quarter 2020 Conference Call. Today, we will be joined by Luke Sarsfield, Chief Executive Officer; and Amanda Coussens, EVP, Chief Financial Officer and Chief Compliance Officer. Additionally, in the room with us today is Arjay Jensen, EVP, Head of Strategy and M&A. Before we begin, I'd like to remind everyone that this conference call as well as the presentation slides may constitute forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect management's current plans, estimates and expectations and are inherently uncertain. Actual results for future periods may differ materially from those expressed or implied by these forward-looking statements due to a number of risks and uncertainties that are described in greater detail in our earnings release and in our periodic reports filed from time to time with the SEC. The forward-looking statements included are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements as a result of new information or future events, except as otherwise required by law. During the call, we will also discuss certain non-GAAP measures, which we believe can be useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measure is available in our earnings release and our filings with the SEC. I will now turn the call over to Luke.

Thank you, Mark. Good afternoon, everyone, and thank you for joining us today. During the first quarter of 2024, P10 generated strong financial results and importantly, advance the strategic initiatives we laid out on our last call in late February. Our strategies continue to perform well, generating strong and consistent returns for our LPs, and we raised nearly $670 million in gross new fee-paying AUM in this quarter alone. With Q1 marking my first full quarter as CEO, I can say with conviction that we are building a world-class platform that provides clients with unrivaled access to opportunities across the lower and core middle markets. On our call today, I'm going to provide an overview of our first quarter financial results, offer some perspectives on the market environment and discuss the operational progress we've made this year. I'll start by providing a brief financial overview. P10 delivered record revenues of $66 million in the first quarter, representing solid 15% top line growth year-over-year. Additionally, we enhanced our bottom-line performance, earning $5 million in net income compared to $800,000 in the prior year period. As we mentioned on our last call, one of the key pillars of our new strategy is greater transparency. As such, we believe it is important to introduce new metrics that allow the investment community to more easily compare us to other alternative asset managers. To that end, we delivered Fee-Related Revenue or FRR, of $65 million, a 16% increase compared to the prior year period, and we generated approximately $31 million of Fee-Related Earnings, or FRE, a 9% increase from Q1 2023. This represents an FRE margin of 47%. We continue to anticipate margins to remain in the mid-40s for the year ahead, which puts this performance slightly ahead of annual expectations. We are pleased with our ability to generate strong results as we implement transformative strategic initiatives that seek to accelerate growth in the near to medium term. Our first quarter performance gives us the confidence to reiterate guidance we laid out on our fourth quarter call. As a reminder, we expect to organically raise and deploy more than $2.5 billion of gross new assets. We expect double-digit revenue growth that is driven both by this fundraising activity as well as positive fee rate dynamics, and we expect to announce a strategic transaction in the calendar year.

Thank you, Luke. P10 continues to deliver strong results and implementing the transformative strategic initiatives the management team laid out on the fourth quarter earnings call. In the first quarter, fee-paying assets under management were $23.8 billion, a 10% increase on a year-over-year basis. In the first quarter, $667 million of fundraising and capital deployment was offset by $81 million in step downs and expirations. As we mentioned on the Q4 call, we expect step-downs in expirations for 2024 to be approximately $1.5 billion, $200 million less than 2023. Most of the step-downs in expirations will occur in Q2, where we expect $1 billion, leaving $400 million generally evenly split across the third and fourth quarters. Most of the second quarter step-downs in expirations are expected to be attributable to RCP Fund IX, a 2014 vintage and TrueBridge Fund II, a 2010 vintage. Record revenue in the first quarter was $66.1 million, a 15% increase over the first quarter of 2023. Average fee rate in the first quarter was 110 basis points driven by higher fee rate direct strategies becoming a larger part of our key plan AUM mix as well as higher catch-up fees. Turning now to our strategy. In the quarter, we had 10 funds in the market and saw broad participation across our investment platform. Our private equity strategies raised and deployed $213 million, our venture solution raised and deployed $339 million, and our credit strategies added $99 million to fee-paying assets under management. Of note in the quarter, TrueBridge raised $233 million. P10 continues to benefit from strategies with long track records of generating durable alpha and offering best-in-class investment opportunities to our global clients. Catch-up fees were $7.7 million in the first quarter. Operating expenses in the first quarter were $54 million, a 3% increase over the same period a year ago. The increase was primarily driven by additional compensation benefits and noncash stock-based compensation expense related to the acquisitions of Bonaccord Park and WTI. GAAP net income in the first quarter was $5.2 million, an increase compared to $800,000 in the comparable period a year ago. Adjusted EBITDA in the first quarter was $30.8 million, an increase of 9% from the first quarter of 2023. For the quarter, our adjusted EBITDA margin was 47%. For the first quarter, adjusted net income, or ANI, held flat at $25.4 million when compared to the first quarter of 2023. Fully diluted ANI EPS remained at $0.21 per share on a year-over-year basis. As Luke noted, we have added transparency in the quarter and are introducing the following metrics: fee-related revenue or FRR, fee-related earnings, or FRE, and complementary FRE margin. FRR in the quarter was $65 million, representing a 16% annual increase and FRE was $30.7 million, representing a 9% increase. Our FRE margin was 47% in the first quarter. Since this is the first time we have reported these metrics, I want to provide more information on how we define each term. Fee-related revenue is calculated as total revenue less any incentive fees. Fee-related earnings is a non-GAAP performance measure used to monitor our baseline earnings less any incentive fee revenue and excluding any incentive fee-related expenses. We believe this additional disclosure will help the investment community draw better apples-to-apples comparison with the broader alternative asset management landscape. You can find additional details and definitions in our earnings presentation on our Investor Relations website. Cash and cash equivalents at the end of the first quarter were $29 million. At quarter end, we had an outstanding debt balance of $316 million and $45 million available on the revolver. As of today, we have an outstanding debt balance of $298 million and $63 million available on the revolver. We also continue to pay our quarterly dividend for Class A and Class B common stock. As Luke mentioned, we are increasing our dividend by 8%. Today, we declared a quarterly cash dividend of $0.035 per share, payable on June 20, 2024, to stockholders of record as of the close of business on May 31, 2024. Finally, as of March 31, 2024, our Class A shares outstanding were 54,582,698 and Class B shares outstanding were 58,439,363. Before I close, I'd like to highlight that next week, we expect to file a required registration statement that registers shares owned by founders and insiders. These shares were part of the shares issued during the IPO process. We want to be clear, the company is not selling shares to raise capital with over 3 million shares purchased last quarter, we take management's view on the stock's intrinsic value is clear. Thank you for your time today. We look forward to building strong momentum in 2024 as we seek to accelerate growth in 2025. I'll now pass the call over to the operator to begin the Q&A session.

Thank you. [Operator Instructions] Our first question comes from the line of Kenneth Worthington of JPMorgan.

This is Alex Bernstein on for Ken. Congratulations on the quarter. Just noticed that this quarter, if you remove the impact of cash fees, it looks like we're seeing a 9 handle on the fee rate for the first time in at least a while. Just wanted to double click on that and see if you have any explanations around what drove that and how we could think about the fee rate moving forward from an ex-catcher fee perspective? And then also what the framework is more broadly? I appreciate it.

Alex, yes, we started seeing the impact to revenue of the step-down that we mentioned, the step-downs in expirations that we mentioned that will occur in the second quarter. This does not change our annual guidance of 105 basis points for the year ago.

Got it. Appreciate it. And maybe to ask a second question, this time speaking more broadly. You spoke about the robust M&A opportunities, and you also pointed to distribution. Having had the benefit of seeing a number of your larger peer's report now, there's definitely some specific areas from a distribution perspective that a lot of folks are after, namely insurance and retail come to mind. I noticed you did disclose some of your current AUM makeup and something like insurance is not really a large part of it. Is that more a factor of the size of the market and the markets you play in? And is that an area that you potentially look to target via M&A or otherwise? I appreciate it.

Thanks, Alex. Great question. And I would say a few things. We do disclose, as you can see, kind of every quarter, our kind of LP distribution by channel type. And it's generally remained pretty consistent across the cycle. I'd say a few things. Number one, I think we do have-- to your question on retail, I do think retail broadly defined is a really big opportunity. And when you look at where we are in terms of family offices, wealth managers, we think we have meaningful penetration in that channel and meaningful momentum in that channel. To your question on insurance, I think you're exactly right. It is a question of product mix. And I think increasingly, though, we do have products that are very relevant for the insurance channel. I would note, Hark, for instance, as a product offering in the NAV lending space that's incredibly relevant for insurance. And we've actually seen some very, very nice momentum of late in terms of real traction with Hark in that channel. Remember, Hark is focused on deployed the way we recognize revenue is on deployed capital, not on committed capital. So it takes a little longer to come through the P&L. But I think insurance is a real opportunity for us with our broad range of credit offerings in particular with Park, and it's a place that we're incredibly focused on increasing our footprint.

Our next question comes from the line of Benjamin Budish of Barclays.

I wanted to ask about the fundraising trajectory for the year. It looks like in Q1, you raised a little over 25% of the full year target. Now I know it's $2.5 billion plus or more than $2.5 billion. So I was wondering if you have any other color, Q1 tends to be seasonally slow. That's sort of what we've heard from some of the other publicly traded alts. You guys are a bit different that you have many, many funds in the market that come back frequently rather than every sort of years. So just wondering, you talked about some of the upcoming closes, but how does the nearly $700 million this quarter compared to what you expect in the next several quarters-- any help you can give us around like what the plus might mean would be helpful.

Thanks, Ben. I don't want-- I want to be a little careful here because I don't want to get into kind of giving quarterly guidance, but I'll say a few things. number one, we've talked about how we had 10 funds in the market in the first quarter. And I think we referenced last time that we thought we would have 15 funds in the market over the course of the year. So obviously, that we will have more funds in the market as we go into the mid of the year and the back half of the year. The second thing I would note is some of the great momentum we're seeing. I mentioned the momentum we're seeing in terms of TrueBridge in terms of Hark. We have some very big closes coming up with some of our strategies later this year, notably Bonaccord. And then as I mentioned, a number of funds that are going to be launched at RCP, I would say the following, I think, like to your point, I do think we are seeing increasing momentum generally in terms of our dialogue with the broad swath of I think people, even in light of some of the macro pressures are clearly starting to lean in a little bit more and that feels good. And so, as I said, we're really pleased with the first quarter activity. We think we have really strong momentum. And again, we're reiterating the guidance that we think we will organically raise and deploy more than $2.5 billion of gross new assets this year. We feel very good about that.

I appreciate that. Maybe one more question on capital allocation. So you bought back a lot of stock in the quarter. And based on the share price performance, it's not surprising why especially based on what you've indicated is your conviction in the business. Just any color, what would it take to raise the repurchase authorization? Is that something that could happen quickly? What's your appetite to continue repurchasing shares? And then on the dividend side, can you just remind us-- I can't remember if you communicated in the past, but any sort of higher-level philosophy around being like a regular dividend raiser, having a track to FRE or anything like that? Could you just remind us what you've communicated there in the past.

Sure. In terms of our just general capital allocation, we still have $2.5 million available for the buyback. We did increase the dividend by about $0.01 per share, which is at the same pace that we increased the dividend last year. So that likely speaks to our dividend overall policy. And then in addition to the dividend, we really intend to allocate capital towards M&A. I would expect with $2.5 million remaining on the buyback that is part of our capital allocation policy will continue to be a priority. And the remainder will be a pay down on the revolver to free capital for future M&A. So obviously, our capital allocation policy really has not changed or the priorities have not changed from last quarter.

The only thing I would add is that we continue to have a lot of conviction around where we think, assuming we execute on the plan, and we are laser-focused on executing where we think the share price ought to be. You see that in our inside or ownership, where we have substantial skin in the game. You see that in the $30 million roughly we deployed to share repurchase last quarter. And so, we're obviously big fans of the shares right here, and I think we'll take that into account as part of an overall capital allocation philosophy.

Thank you. Our next question comes from the line of Adam Beatty of UBS.

Just wanted to get an update on the outlook for expense growth this year, maybe in next year. I know, Luke, you have a pretty clear idea around reinvesting in the business and building for future growth. So just wanted to know if kind of the trajectory of expenses, again for this year or next, has changed at all and what you expect the cadence of that to be.

Adam, I'll take that question. So I would say, in general, we're confident in our ability to manage expenses while still delivering strong financial performance. If you look at our operating expenses of $54 million, which was a 3% increase year-over-year compared to our record revenue of $64 million, which was a 15% increase year-over-year. We believe our right hires will enhance financial performance incrementally and demonstrate the value that we are creating. In terms of our overall margin, we do expect margins to average in the mid-40s, excluding the effect of acquisitions. As we said in the prior quarter, this is an ongoing mix shift with our existing portfolio of strategies. Some of our newer and faster-growing businesses, such as Bonaccord, Hark and WTI have lower core adjusted EBITDA margins. than other parts of our business. And so the overall margin will continue to reflect this evolution. I would say the second influence on margins is our critical and foundational human capital investments that we're making in the business. We expect the investments to drive core growth and provide a high ROI for our investors.

Okay. Sounds good. No, I appreciate the different ways of angling the margin, which is basically what I was after. And then turning to kind of the underlying investments and investment environment and maybe some of the look through to the portfolio companies, mid-market obviously has great opportunities for alpha generation. You have that good chart in there. about how much capital is chasing larger companies versus mid-market. So there's clearly an opportunity there. But just wondering, in uncertain times, sometimes folks are concerned about mid-market companies kind of being more vulnerable as it were to the economic environment. So if there's any updates on maybe the kinds of revenue growth or under other fundamentals you've seen across the portfolio, that would be great.

Yes. Look, a great question and something we are focused on. And I know you're right. The conventional wisdom is that there's-- when the large market sneezes, the mid-market catches the cold, our live experience is quite contrary to that actually. And I think it's due to a number of things. Number one, as we noted in the dialogue, it's just a less competitive market environment. And we are one of the clear differentiated market leaders, and I think that really gives us opportunity. The second is I would tell you, I think unlike in the large market opportunity where there are a large number of competitors and large pools of capital going after the opportunity set, it's simply more limited in the middle market, and that provides, I would say, a margin of safety. The third is the reality of things like leverage utilization. Leverage utilization is much, much higher in the upper part of the market. And obviously, in a rising rate environment, that has real consequence. Leverage levels generally in our part of the market are much lower. And so even though rising rates will impact the overall interest expense on portfolio companies, they do so to a much smaller degree. And so, when I think when we put that all together, the net effect is we continue to think the middle and lower middle market is an unbelievably attractive place to be. We continue to think it is insulated but not immune from some of the larger macro trends going on. And we think that emblematic of that has been our ability to generate differentiated investment alpha across the cycle.

Thank you. Our next question comes from the line of Stephanie Ma of Morgan Stanley.

This is Stephanie on for Michael Cyprys. Our first question is for Luke. Now that you've spent the first few months in the CEOC and now with the expanded role, curious if you can just give us an update on the strategy and maybe reflect on some of the progress that you've made so far, what you focused on in your first few months at P10 versus where you may be turning your attention to now?

Thanks, Stephanie, and that's a great question. I love talking about it. So as I mentioned, I came in with a real kind of strategic focus on doing a few things. The first was understanding the business. And as you recall on the fourth quarter call, I talked about how I really spent the tail end of 2023 out on a listening tour. Then you'll recall, on the February call, we talked about kind of the 5 strategic pillars. And just to remind everybody, strategic pillar 1 was to institutionalize our platform and optimize our organizational structure. Pillar 2 was to drive increased organic growth through our client franchise and strategic partnerships. Pillar 3 was implementing a robust disciplined and process-driven approach to M&A and inorganic growth. Pillar 4 was generating operational efficiencies through incentivizing collaboration and leveraging our data platform. And Pillar 5 was enhancing our shareholder communications with an eye to greater visibility and accelerating growth and profitability in 2025 and beyond. I will tell you, and I think we started the call in this. I think in every instance, we've made real progress against those, right? And so if you take the organic growth pillar, we talked about the fundraising environment and the momentum we're seeing with our funds. If you take the inorganic growth pillar, you heard me talk about the pipeline, the conversations and the fact that our model and our structure is resonating to a broad swath of potential partners. I mentioned, obviously, and you've seen the press releases on the progress we've made in terms of the leadership team, adding Arjay Jensen to lead strategy and M&A, adding Melodie Craft as our great new GC and then some of the Board moves that we talked about. And obviously, we'll continue to advance that, and we continue to be very aggressively out in the market looking for a head of distribution and clients. We talked about some of the systems and processes, and we're doing a lot of work around data and analytical initiatives including AI in terms of how we can drive greater data utilization and greater data insight. And then we talk about enhanced transparency. And as you've seen on this call, we introduced fee-related revenue, fee-related earnings, FRE margins. We've given more detail in terms of fund level fundraising. And I think we're really, really focused on building that shareholder momentum through the Investor Day, where we're going to continue to share even more. I would say my focus right now is a relentless focus on execution. We put the plan in place. We feel really good about the team we're building and now we've got to go execute and execute in a world-class way. And so we're really focused on that execution. We're really focused on accountability. We're really focused on tracking KPIs related to that execution. But if I had to give you one watch word, it would be execution.

That's great. And then just maybe one more from us. Turning to BC. It seems to be an area that's been out of favor and perhaps could be reinvigorated with the latest AI trends. So maybe you can just give us an update on your performance in the BC business, does AI help support that portfolio in any way? And maybe how has investor appetite or demand evolves around that space lately?

Great question. I'd say a few things. Number one, I think you'll recall I noted that we'd actually see real momentum in our core fundraising around TrueBridge and their core fund. Obviously, that's our marquee venture capital strategy. I think it's emblematic of a few things. Number one is their consistent track record of investment in alpha generation that's really profound across cycles, across markets. Number two is the fact that they really are an access-constrained strategy with access to really top, top world-class managers that I think many find very hard to access outside of TrueBridge, and we can provide that access. And I think venture is a place where if you look at kind of dispersion of returns, there's-- it's not an 80-20 rule. It's like a 95-5 rule in venture. And the good news is we're on the right side of that. And then I would say the last thing is we've always been great believers in data and analytics across our platform. Clearly, we're seeing the AI trend both accelerating the investing landscape for a lot of venture managers. But as I mentioned, we're trying to use data and ultimately, artificial intelligence to gain greater insights into our business, into our investing capabilities into our portfolio management capabilities into our dealings with a lot of our LPs and clients. And so that's going to pervade our business in every way. But I would tell you, personally, I'm incredibly excited about the opportunities in venture. I think coming off what was the last cycle and now going into a new cycle of growth and opportunity, we're really excited about that franchise.

Thank you. I would now like to turn the conference back to Luke Sarsfield for closing remarks. Sir?

Thank you, and thanks all of you for joining us today. As you've heard today, P10 is positioned to build upon a world-class alternative asset management solution that the investment community has come to know and respect. We're overlaying an operating team that partners with and provides critical support to our existing managers and strategies. Moreover, we're a business made up of P10 shareholders extraordinarily aligned with all of you that are listening today. I'm confident that the initiatives we're pursuing will deliver enhanced long-term returns for our team and for all our fellow shareholders. We look forward to speaking with you all in August and to seeing you in New York City on Thursday, September 19 for our inaugural Investor Day. Thank you, and good evening.