Hi Don, this is a good reply you've written.
I'm only now finally getting a chance to look at all the numbers from today's Q1 financial report, and compare them with what is written not only in the prefatory remark but also with what mgmt wrote in the Shareholder Letter on March 31 (a month ago).
Upfront, let me say it clearly that whereas certain types of companies should be examined and valued on their bottom-line EPS (earnings per share), many other companies should be examined and valued on their Free Cash Flow. PIOE is obviously now one of the latter kind of companies. This is a well-known fact in the investing world that many cos. are valued by the market on their free cash flows (FCF), not EPS. Think of the thousands of cos. that pay substantial dividends, like REITs and MLPs. Investors want to know that there will be substantial free cash flow for the co. to support dividend payments. There are many companies that don't pay dividends (or are not yet paying dividends) that also should be valued on their FCF, not EPS.
And in that vein, let's recall how in the March 31 communication, P10 mgmt, that is, co-CEO's Alpert and Webb, wrote on the 3rd page of their letter:
"...because of the unique tax attributes of P10, we believe that EBITDA minus cash interest expense is a good measure of “free cash flow” generation by P10."
So what are the numbers for Q1? They've given them upfront in today's report in the Non GAAP Earnings Supplement (in thousands):
Adjusted EBITDA - $3,557 [meaning $3,557,000]
Less cash interest expense - (1,304)
Adjusted Cash Earnings - $2,253 [meaning $2,253,000]
So this is what mgmt said on March 31 would be the best way to think of PIOE's free cash flow, and it's a very nice positive number: $2,253,000. Annualized, that's $9 million in free cash flow.
And because RCP is growing its AUM so dramatically, i expect the Free Cash Flow to swell higher as we progress through the year, and so the annualized number will be likely higher than $9 million by end of 2018.
Regarding RCP's growing AUM, they'll likely add two more RCP Funds in 2018 judging from their track record of launching new RCP Funds-- there are now fully 17 Funds since 2011 (that's 17 Funds in just 7 years, an average of 2.4 Funds launched per year).
Recall, too, that P10 mgmt in the March 31 shareholder letter stated:
"to the extent we can continue to grow our AUM, thereby growing our management fees, we would anticipate an expanding profit margin and growing earnings for P10."
I also want to highlight that whereas the Q1 reported today identifies EBIDTA as $3,557,000, in the letter of March 31, P10 mgmt stated:
"we expect our quarterly EBITDA to achieve $5 million per quarter during the second half of 2018, with an annual EBITDA run rate in excess of $20 million by the end of 2018."
Bottom line: PIOE with this Q1 report is already reporting some nice positive cash flow that will be growing as RCP's AUM grows over the seasons and years.
And P10 mgmt has stated on March 31 that in time they will be investing some of P10 cash in RCP Fund investments, "moving forward, P10 will augment the RCP principals’ investments in new [RCP] funds with P10 funds, creating even stronger alignment with the RCP limited partners. As a result, P10 stockholders will have the opportunity to participate in RCP prospective investment returns."
So all of this bodes very well for PIOE shareholders, and it's why i'm not selling any shares.
