UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 8-K

 


 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): November 12, 2018

 


 

FOCUS FINANCIAL PARTNERS INC.

(Exact name of registrant as specified in its charter)

 


 

Delaware

 

001-38604

 

47-4780811

(State or other jurisdiction
of incorporation)

 

(Commission
File Number)

 

(IRS Employer
Identification No.)

 

 

825 Third Avenue, 27th Floor

New York, NY 10022

(Address of principal executive offices)

(Zip Code)

 

(646) 519-2456

Registrant’s Telephone Number, Including Area Code

 


 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in  Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company x

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x

 

 

 


 

Item 2.02                   Results of Operations and Financial Condition.

 

On November 12, 2018, Focus Financial Partners Inc. (the “Company”) issued a press release reporting results for its third quarter ended September 30, 2018. The Company also posted a slide presentation entitled “Q3 and Year-To-Date 2018 Earnings Release Supplement” dated November 2018 to the “Events” section of the “Investor Relations” section of its website (www.focusfinancialpartners.com). A copy of the press release and slide presentation are furnished with this Current Report on Form 8-K (this “Current Report”) as Exhibits 99.1 and 99.2, respectively.

 

The information in this Current Report, being furnished pursuant to Items 2.02 and 9.01, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and is not incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.

 

Item 9.01                   Financial Statements and Exhibits.

 

(d)   Exhibits.

 

Exhibit No.

 

Description

99.1

 

Focus Financial Partners Inc. Press Release, dated November 12, 2018.

99.2

 

Focus Financial Partners Inc. Slide Presentation, dated November 2018.

 

2


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

FOCUS FINANCIAL PARTNERS INC.

 

 

 

 

By:

/s/ J. Russell McGranahan

 

 

J. Russell McGranahan

 

 

General Counsel

 

 

 

Dated: November 13, 2018

 

 

 

3


Exhibit 99.1

 

 

Focus Financial Partners Reports Third Quarter 2018 Results

 

Revenue growth of 30.8% driven by continued organic growth and new partner firm additions

 

·                  Total revenues of $235.7 million, an increase of 30.8%

 

·                  GAAP net loss of $38.9 million

 

·                  Adjusted Net Income* of $34.1 million, an increase of 43.4%

 

·                  GAAP Basic and Diluted net loss per share of $0.24 for the period July 30, 2018 to September 30, 2018

 

·                  Adjusted Net Income Per Share* of $0.46 for the full quarter, an increase of 39.4%

 

All comparisons are versus third quarter 2017.

 


*Non-GAAP financial measures. Please see “Reconciliation of Non-GAAP Financial Measures” below for a reconciliation and more information on these measures.

 

NEW YORK, November 12, 2018 — Focus Financial Partners Inc. (Nasdaq: FOCS) (“Focus Inc.,” “Focus,” “we,” “us” or “our”), a leading partnership of independent, fiduciary wealth management firms, today reported results for its third quarter ended September 30, 2018.

 

“Third quarter results continue to demonstrate Focus’s strength post-IPO. We operate in a highly supportive environment where industry trends continue to move in our favor. We are excited by the quality and quantity of the opportunities to engage with potential partners and to bring value-added services to our existing partners that our market leading position affords us. Our performance is consistent with our objective of producing annual growth in both revenues and Adjusted Net Income Per Share of 20% on average and over time”, said Chairman and Chief Executive Officer, Rudy Adolf. “Revenue growth of 30.8% and Adjusted Net Income Per Share growth of 39.4% were driven by continued organic growth, as well as new partner firm additions. During the three months ended September 30, 2018, we added three partner firms — Asset Advisors, Edge Capital Group and Vista Wealth Management — with $11.2 million in combined acquired base earnings. We also announced the merger of Loring Ward Holdings and our partner firm, The Buckingham Family of Financial Services. The merger transaction with Buckingham is expected to close on or about the end of this year”.

 

Mr. Adolf continued, “During the nine months ended September 30, 2018, we have added eight new partner firms with $37.8 million in combined acquired base earnings. We have a large and active pipeline of potential partner firm acquisitions and merger opportunities, and the pace of our acquisition activity since our IPO, combined with the strength of our financial performance, demonstrates that our value proposition continues to resonate with entrepreneurs within our industry. We will continue to improve and expand the value-add services we provide our partners, and remain confident in our ability to meet our long-term objectives”.

 

Presentation

 

This press release presents our results of operations and financial position, including consolidation of our investment in Focus Financial Partners, LLC (“Focus LLC”), since July 30, 2018.  Prior to July 30, 2018, the closing date of our initial public offering, the financial statements included herein represent the financial statements of Focus LLC. The financial results of Focus Inc. prior to July 30, 2018 have not been included in these financial statements as it had not engaged in any business activities during such period. Accordingly, these results do not purport to reflect what the results of operations of Focus Inc. would have been had Focus Inc.’s IPO and related transactions occurred prior to July 30, 2018.

 

1


 

Third Quarter Financial and Operating Highlights

 

For the third quarter of 2018, Focus reported total revenues of $235.7 million, an increase of 30.8% or $55.4 million compared to the third quarter of the prior year. New partner firms added subsequent to September 30, 2017 that are included in our results of operations for the three months ended September 30, 2018 include Cornerstone Wealth, Fortem Financial, Bartlett Wealth Management, Campbell Deegan Financial, Nigro Karlin Segal Feldstein & Bolno, Asset Advisors, Edge Capital Group and Vista Wealth Management. These new partner firms contributed approximately $36.5 million in revenue during the three months ended September 30, 2018. The balance of the increase of $18.9 million was primarily due to the revenue growth at our existing partner firms associated with wealth management services and partner firm-level acquisitions, and a full period of revenue recognized during the three months ended September 30, 2018 for partner firms that were acquired during the three months ended September 30, 2017.

 

·            Organic revenue growth** was 9.7% compared to 14.4% in the third quarter of 2017, driven by broad growth and value add initiatives

 

·            Loss from operations was $14.3 million compared to $11.0 million in the third quarter of 2017

 

·            Net loss in the third quarter of 2018 was $38.9 million, as compared to a net loss of $37.9 million in the third quarter of 2017

 


**See footnote 2 under “How We Evaluate Our Business”.

 

Year-to-Date Financial and Operating Highlights

 

For the nine months ended September 30, 2018, we reported total revenues of $663.4 million, an increase of 40.2% or $190.3 million compared to the prior year. New partner firms added subsequent to September 30, 2017 that are included in our results of operations for the nine months ended September 30, 2018 include Cornerstone Wealth, Fortem Financial, Bartlett Wealth Management, Campbell Deegan Financial, Nigro Karlin Segal Feldstein & Bolno, Asset Advisors, Edge Capital Group and Vista Wealth Management. These new partner firms contributed approximately $68.3 million in revenue during the nine months ended September 30, 2018. The balance of the increase of $122.0 million was primarily due to the revenue growth at our existing partner firms associated with wealth management services and partner firm-level acquisitions, and a full period of revenue recognized during the nine months ended September 30, 2018 for partner firms that were acquired during the nine months ended September 30, 2017.

 

·            Organic revenue growth** was 14.3% compared to 11.9% during the first nine months of 2017, driven by broad growth and value add initiatives

 

·            Income from operations was $10.0 million compared to $2.8 million in the first nine months of 2017

 

·            Net loss in the first nine months of 2018 was $58.6 million, as compared to a net loss of $38.7 million for the first nine months of 2017

 


**See footnote 2 under “How We Evaluate Our Business”.

 

Balance Sheet and Liquidity

 

As of September 30, 2018, Focus had cash and cash equivalents of $98.4 million and $801.0 million stated value outstanding on its credit facilities. Our first lien leverage ratio under our credit facility was at 3.19x.

 

Teleconference, Webcast and Presentation Information

 

Chairman and Chief Executive Officer, Rudy Adolf, and Chief Financial Officer, Jim Shanahan, will host a conference call for the investment community on November 13, 2018 at 8:00 a.m. ET to discuss the Company’s third quarter results. Investors, analysts, and members of the media interested in listening to the call are encouraged to participate by dialing into the toll-free line at (877) 504-6131 or the international line at (786) 815-8445 and entering the passcode 4194176.

 

2


 

A live, listen-only webcast and a slide presentation entitled “Q3 and Year-To-Date 2018 Earnings Release Supplement” dated November 2018 will also be available under “Events” in the “Investor Relations” section of www.focusfinancialpartners.com. A webcast replay of the call will be available shortly after the event in the investor relations section of the Company’s website.  The webcast replay will be available until November 27, 2018.

 

About Focus Financial Partners Inc.

 

Focus Financial Partners is a leading partnership of independent, fiduciary wealth management firms. Focus provides access to best practices, resources, and continuity planning for its partner firms who serve individuals, families, employers and institutions with comprehensive wealth management services. Focus partner firms maintain their operational independence, while they benefit from the synergies, scale, economics and best practices offered by Focus to achieve their business objectives.

 

Cautionary Statement Concerning Forward-Looking Statements

 

The foregoing information contains certain forward-looking statements that reflect the company’s current views with respect to certain current and future events and financial performance. These forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to the company’s operations and business environment which may cause the company’s actual results to be materially different from any future results, expressed or implied, in these forward-looking statements. Any forward-looking statements in this release are based upon information available to the company on the date of this release. The company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any statements expressed or implied therein will not be realized. Additional information on risk factors that could potentially affect the company’s financial results may be found in the company’s filings with the Securities and Exchange Commission.

 

Investor and Media Contact Information

 

Steve Calk or Sam Gibbons

Tel: (646) 561-3226

FOCS@alpha-ir.com

 

3


 

How We Evaluate Our Business

 

We focus on several key financial metrics in evaluating the success of our business, the success of our partner firms and our resulting financial position and operating performance. Key metrics for the three and nine months ended September 30, 2017 and 2018 include the following:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2017

 

2018

 

2017

 

2018

 

 

 

(dollars in thousands, except share and per share data)

 

Revenue Metrics:

 

 

 

 

 

 

 

 

 

Revenue growth (1) from prior period

 

47.5

%

30.8

%

32.1

%

40.2

%

Organic revenue growth (2) from prior period

 

14.4

%

9.7

%

11.9

%

14.3

%

 

 

 

 

 

 

 

 

 

 

Management Fees Metrics (operating expense):

 

 

 

 

 

 

 

 

 

Management fees growth (3) from prior period

 

48.1

%

45.0

%

39.1

%

46.1

%

Organic management fees growth (4) from prior period

 

23.7

%

12.7

%

21.2

%

18.1

%

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA Metrics:

 

 

 

 

 

 

 

 

 

Adjusted EBITDA (5)

 

$

42,378

 

$

53,081

 

$

103,226

 

$

149,192

 

Adjusted EBITDA growth (5) from prior period

 

53.6

%

25.3

%

34.7

%

44.5

%

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income Metrics:

 

 

 

 

 

 

 

 

 

Adjusted Net Income (5) 

 

$

23,798

 

$

34,131

 

$

63,231

 

$

88,599

 

Adjusted Net Income growth (5) from prior period

 

30.0

%

43.4

%

23.3

%

40.1

%

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income Per Share Metrics:

 

 

 

 

 

 

 

 

 

Adjusted Net Income Per Share (5)

 

$

0.33

 

$

0.46

 

$

0.88

 

$

1.22

 

Adjusted Net Income Per Share growth (5) from prior period

 

30.0

%

39.4

%

23.3

%

38.6

%

Adjusted Shares Outstanding (5)

 

71,843,916

 

74,055,933

 

71,843,916

 

72,557,403

 

 

 

 

 

 

 

 

 

 

 

Other Metrics:

 

 

 

 

 

 

 

 

 

Acquired Base Earnings (6)

 

$

28,825

 

$

11,200

 

$

44,191

 

$

37,750

 

Number of partner firms at period end (7)

 

51

 

58

 

51

 

58

 

 


 

(1)

 

Represents growth in our GAAP revenue.

 

 

 

(2)

 

Organic revenue growth represents the year-over-year growth in revenue related to partner firms, including growth related to acquisitions of wealth management practices and customer relationships by our partner firms and partner firms that have merged, that for the entire interim periods presented, are included in our consolidated statements of operations for each of the entire interim periods presented. We believe these growth statistics are useful in that they present full-period revenue growth of partner firms on a ‘‘same store’’ basis exclusive of the effect of the partial period results of partner firms that are acquired during the comparable periods.

 

 

 

(3)

 

The terms of our management agreements entitle the management companies to management fees typically consisting of all Earnings Before Partner Compensation (“EBPC”) in excess of Base Earnings up to Target Earnings, plus a percentage of any EBPC in excess of Target Earnings. Management fees growth represents the interim growth in GAAP management fees earned by management companies. While an expense, we believe that growth in management fees reflect the strength of the partnership.

 

 

 

(4)

 

Organic management fees growth represents the year-over-year growth in management fees earned by management companies related to partner firms, including growth related to acquisitions of wealth management practices and customer relationships by our partner firms and partner firms that have merged, that for the entire interim periods presented, are included in our consolidated statements of operations for each of the entire interim periods presented.  We believe that these growth statistics are useful in that they present full-period growth of management fees on a ‘‘same store’’ basis exclusive of the effect of the partial period results of partner firms that are acquired during the comparable periods.

 

4


 

(5)

 

For additional information regarding Adjusted EBITDA, Adjusted Net Income, Adjusted Net Income Per Share and Adjusted Shares Outstanding, including a reconciliation of Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income Per Share to the most directly comparable GAAP financial measure, please read ‘‘Reconciliation of Non-GAAP Financial Measures—Adjusted EBITDA’’ and ‘‘Reconciliation of Non-GAAP Financial Measures —Adjusted Net Income and Adjusted Net Income Per Share’’.

 

 

 

(6)

 

The terms of our management agreements entitle the management companies to management fees typically consisting of all future EBPC of the acquired wealth management firm in excess of Base Earnings up to Target Earnings, plus a percentage of any EBPC in excess of Target Earnings. Acquired Base Earnings is equal to our retained cumulative preferred position in Base Earnings. We are entitled to receive these earnings notwithstanding any earnings that we are entitled to receive in excess of Target Earnings. Base Earnings may change in future periods for various business or contractual matters. For example, from time to time when a partner firm consummates an acquisition, the management agreement among the partner firm, the management company and the principals is amended to adjust Base Earnings and Target Earnings to reflect the projected post-acquisition earnings of the partner firm.

 

 

 

(7)

 

Represents the number of partner firms on the last day of the period presented. The number includes new partner firms acquired during the period reduced by any partner firms that merged with existing partner firms prior to the last day of the period.

 

5


 

Unaudited Condensed Consolidated Financial Statements

 

FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated statements of operations

(In thousands, except share and per share data)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2017

 

2018

 

2017

 

2018

 

REVENUES:

 

 

 

 

 

 

 

 

 

Wealth management fees

 

$

168,967

 

$

220,235

 

$

438,184

 

$

620,886

 

Other

 

11,287

 

15,466

 

34,846

 

42,479

 

Total revenues

 

180,254

 

235,701

 

473,030

 

663,365

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

Compensation and related expenses

 

90,524

 

107,382

 

196,037

 

262,004

 

Management fees

 

43,100

 

62,487

 

115,898

 

169,346

 

Selling, general and administrative

 

32,230

 

43,832

 

100,174

 

121,612

 

Intangible amortization

 

18,530

 

23,616

 

46,020

 

65,400

 

Non-cash changes in fair value of estimated contingent consideration

 

5,130

 

10,564

 

7,227

 

28,879

 

Depreciation and other amortization

 

1,749

 

2,077

 

4,826

 

6,121

 

Total operating expenses

 

191,263

 

249,958

 

470,182

 

653,362

 

INCOME (LOSS) FROM OPERATIONS

 

(11,009

)

(14,257

)

2,848

 

10,003

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

Interest income

 

32

 

432

 

74

 

809

 

Interest expense

 

(14,296

)

(12,996

)

(27,338

)

(45,480

)

Amortization of debt financing costs

 

(1,344

)

(828

)

(2,726

)

(2,716

)

Gain on sale of investment

 

 

 

 

5,509

 

Loss on extinguishment of borrowings

 

(8,106

)

(7,060

)

(8,106

)

(21,071

)

Other (expense) income—net

 

(2,959

)

(525

)

(3,206

)

(229

)

Income from equity method investments

 

358

 

55

 

1,066

 

208

 

Total other expense—net

 

(26,315

)

(20,922

)

(40,236

)

(62,970

)

LOSS BEFORE INCOME TAX

 

(37,324

)

(35,179

)

(37,388

)

(52,967

)

INCOME TAX EXPENSE

 

(557

)

(3,745

)

(1,281

)

(5,667

)

NET LOSS

 

$

(37,881

)

(38,924

)

$

(38,669

)

(58,634

)

Non-controlling interest

 

 

 

28,726

 

 

 

48,436

 

NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS

 

 

 

$

(10,198

)

 

 

$

(10,198

)

 

 

 

 

 

 

 

 

 

 

Loss per share of Class A common stock:

 

 

 

 

 

 

 

 

 

Basic

 

 

 

$

(0.24

)

 

 

$

(0.24

)

Diluted

 

 

 

$

(0.24

)

 

 

$

(0.24

)

 

 

 

 

 

 

 

 

 

 

Weighted average shares of Class A common stock outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

 

 

42,351,043

 

 

 

42,351,043

 

Diluted

 

 

 

42,351,043

 

 

 

42,351,043

 

 

6


 

FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated balance sheets

(In thousands, except share data)

 

 

 

December 31,

 

September 30,

 

 

 

2017

 

2018

 

ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

51,455

 

$

98,378

 

Accounts receivable less allowances of $505 at 2017 and $1,208 at 2018

 

73,513

 

101,570

 

Prepaid expenses and other assets

 

37,423

 

70,127

 

Fixed assets—net

 

21,397

 

22,407

 

Debt financing costs—net

 

13,278

 

13,014

 

Deferred tax assets—net

 

 

70,232

 

Goodwill

 

515,489

 

693,160

 

Other intangible assets—net

 

522,282

 

672,060

 

TOTAL ASSETS

 

$

1,234,837

 

$

1,740,948

 

LIABILITIES, MEZZANINE EQUITY, AND MEMBERS’ DEFICIT/ SHAREHOLDERS’ EQUITY:

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Accounts payable

 

$

5,752

 

$

8,621

 

Accrued expenses

 

23,626

 

48,588

 

Due to affiliates

 

33,698

 

40,537

 

Deferred revenue

 

6,094

 

7,811

 

Other liabilities

 

99,077

 

148,929

 

Borrowings under credit facilities (stated value of $1,000,012 and $800,993 at December 31, 2017 and September 30, 2018)

 

980,502

 

798,481

 

Tax receivable agreements obligation

 

 

39,156

 

TOTAL LIABILITIES

 

1,148,749

 

1,092,123

 

 

 

 

 

 

 

MEZZANINE EQUITY

 

 

 

 

 

Redeemable common and incentive units

 

166,249

 

 

Convertible preferred units

 

698,500

 

 

TOTAL MEZZANINE EQUITY

 

864,749

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

MEMBERS’ DEFICIT

 

(778,661

)

 

Class A common stock, par value $0.01, 0 and 500,000,000 shares authorized; and 0 and 42,529,651 shares issued and outstanding at December 31, 2017 and September 30, 2018, respectively

 

 

425

 

Class B common stock, par value $0.01, 0 and 500,000,000 shares authorized; and 0 and 22,823,272 shares issued and outstanding at December 31, 2017 and September 30, 2018, respectively

 

 

228

 

Additional paid-in capital

 

 

389,830

 

Accumulated deficit

 

 

(10,198

)

Accumulated other comprehensive loss

 

 

(245

)

Total members’ deficit/ shareholders’ equity

 

(778,661

)

380,040

 

Non-controlling interests

 

 

268,785

 

Total deficit/ equity

 

(778,661

)

648,825

 

TOTAL LIABILITIES, MEZZANINE EQUITY, AND MEMBERS’ DEFICIT/SHAREHOLDERS’ EQUITY

 

$

1,234,837

 

$

1,740,948

 

 

 

 

As of September 30, 2018

 

 

 

Interest

 

%

 

Economic Ownership of Focus Financial Partners, LLC Interests:

 

 

 

 

 

Focus Financial Partners Inc. (1)

 

42,529,651

 

56.6

%

Non-Controlling Interests (2)

 

32,634,051

 

43.4

%

Total

 

75,163,702

 

100.0

%

 


(1)         Includes 178,608 unvested Class A common stock.

 

(2)   Includes 9,810,779 Focus LLC common units issuable upon conversion of the outstanding 16,842,170 vested and unvested incentive units (assuming vesting of the unvested incentive units and a September 30, 2018 period end value of the Focus LLC common units equal to $47.46).

 

7


 

FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated statements of cash flows

(In thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2017

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net loss

 

$

(38,669

)

$

(58,634

)

Adjustments to reconcile net loss to net cash provided provided by operating activities—net of effect of acquisitions:

 

 

 

 

 

Intangible amortization

 

46,020

 

65,400

 

Depreciation and other amortization

 

4,826

 

6,121

 

Amortization of debt financing costs

 

2,726

 

2,716

 

Non-cash equity compensation expense

 

31,399

 

31,612

 

Non-cash changes in fair value of estimated contingent consideration

 

7,227

 

28,879

 

Income from equity method investments

 

(1,066

)

(208

)

Distributions received from equity method investments

 

694

 

739

 

Other non-cash items

 

(223

)

787

 

Loss on extinguishment of borrowings

 

8,106

 

19,001

 

Changes in cash resulting from changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(25,824

)

(30,172

)

Prepaid expenses and other assets

 

5,861

 

(6,035

)

Accounts payable

 

(1,437

)

1,219

 

Accrued expenses

 

19,963

 

21,382

 

Due to affiliates

 

5,803

 

7,503

 

Other liabilities

 

(4,905

)

(6,315

)

Deferred revenue

 

1,228

 

2,223

 

Net cash provided by operating activities

 

61,729

 

86,218

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Cash paid for acquisitions and contingent consideration—net of cash acquired

 

(361,765

)

(296,821

)

Purchase of fixed assets

 

(8,514

)

(6,326

)

Investment and other

 

(500

)

(24,300

)

Net cash used in investing activities

 

(370,779

)

(327,447

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Borrowings under credit facilities

 

1,181,936

 

250,000

 

Repayments of borrowings under credit facilities

 

(640,000

)

(449,019

)

Proceeds from issuance of common stock, net

 

 

565,160

 

Proceeds from issuance of convertible preferred units, net

 

643,272

 

 

Payment of preferred dividends

 

(3,063

)

 

Payments in connection with unit redemptions, net

 

(795,638

)

(61,539

)

Contingent consideration paid

 

(5,499

)

(10,286

)

Payments of debt financing costs

 

(32,612

)

(4,612

)

Payments on capital lease obligations

 

(171

)

(147

)

Distributions for unitholders

 

(2,168

)

(1,308

)

Net cash provided by financing activities

 

346,057

 

288,249

 

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS

 

146

 

(97

)

CHANGE IN CASH AND CASH EQUIVALENTS

 

37,153

 

46,923

 

CASH AND CASH EQUIVALENTS:

 

 

 

 

 

Beginning of period

 

16,508

 

51,455

 

End of period

 

$

53,661

 

$

98,378

 

 

8


 

Reconciliation of Non-GAAP Financial Measures

 

Adjusted EBITDA

 

Adjusted EBITDA is a non-GAAP measure. Adjusted EBITDA is defined as net income (loss) excluding interest income, interest expense, income tax expense (benefit), amortization of debt financing costs, intangible amortization and impairments, if any, depreciation and other amortization, non-cash equity compensation expense, non-cash changes in fair value of estimated contingent consideration, gain on sale of investment, loss on extinguishment of borrowings, other expense/income, net, delayed offering cost expense, other one-time transaction expenses, and management contract buyout, if any. We believe that Adjusted EBITDA, viewed in addition to and not in lieu of, our reported GAAP results, provides additional useful information to investors regarding our performance and overall results of operations for various reasons, including the following:

 

·                  Non-cash equity grants made to employees or non-employees at a certain price and point in time do not necessarily reflect how our business is performing at any particular time; stock-based compensation expense is not a key measure of our operating performance;

 

·                  Contingent consideration or earn outs can vary substantially from company to company and depending upon each company’s growth metrics and accounting assumption methods, the non-cash changes in fair value of estimated contingent consideration is not considered a key measure in comparing our operating performance; and

 

·                  Amortization expenses can vary substantially from company to company and from period to period depending upon each company’s financing and accounting methods; the fair value and average expected life of acquired intangible assets and the method by which assets were acquired; the amortization of intangible assets obtained in acquisitions are not considered a key measure in comparing our operating performance.

 

We use Adjusted EBITDA:

 

·                  As a measure of operating performance;

 

·                  For planning purposes, including the preparation of budgets and forecasts;

 

·                  To allocate resources to enhance the financial performance of our business;

 

·                  To evaluate the effectiveness of our business strategies; and

 

·                  As a consideration in determining compensation for certain employees.

 

Adjusted EBITDA does not purport to be an alternative to net income (loss) or cash flows from operating activities. The term Adjusted EBITDA is not defined under GAAP, and Adjusted EBITDA is not a measure of net income (loss), operating income or any other performance or liquidity measure derived in accordance with GAAP. Therefore, Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under

 

GAAP. Some of these limitations are:

 

·     Adjusted EBITDA does not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments;

 

·                  Adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs; and

 

·                  Adjusted EBITDA does not reflect the interest expense on our debt or the cash requirements necessary to service interest or principal payments.

 

In addition, Adjusted EBITDA can differ significantly from company to company depending on strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. We compensate for these limitations by relying also on the GAAP results and using Adjusted EBITDA as supplemental information.

 

9


 

Set forth below is a reconciliation of net loss to Adjusted EBITDA for the three and nine months ended September 30, 2017 and 2018:

 

 

 

Three Months
Ended September 30,

 

Nine Months
Ended September 30,

 

 

 

2017

 

2018

 

2017

 

2018

 

 

 

(dollars in thousands)

 

Net loss

 

$

(37,881

)

$

(38,924

)

$

(38,669

)

$

(58,634

)

Interest income

 

(32

)

(432

)

(74

)

(809

)

Interest expense

 

14,296

 

12,996

 

27,338

 

45,480

 

Income tax expense

 

557

 

3,745

 

1,281

 

5,667

 

Amortization of debt financing costs

 

1,344

 

828

 

2,726

 

2,716

 

Intangible amortization

 

18,530

 

23,616

 

46,020

 

65,400

 

Depreciation and other amortization

 

1,749

 

2,077

 

4,826

 

6,121

 

Non-cash equity compensation expense

 

27,620

 

24,057

 

31,399

 

31,612

 

Non-cash changes in fair value of estimated contingent consideration

 

5,130

 

10,564

 

7,227

 

28,879

 

Gain on sale of investment

 

 

 

 

(5,509

)

Loss on extinguishment of borrowings

 

8,106

 

7,060

 

8,106

 

21,071

 

Other expense (income), net

 

2,959

 

525

 

3,206

 

229

 

Delayed offering cost expense

 

 

 

9,840

 

 

Other one-time transaction expenses

 

 

6,969

 

 

6,969

 

Adjusted EBITDA

 

$

42,378

 

$

53,081

 

$

103,226

 

$

149,192

 

 

Adjusted Net Income and Adjusted Net Income Per Share

 

We analyze our performance using Adjusted Net Income and Adjusted Net Income Per Share. Adjusted Net Income and Adjusted Net Income Per Share are non-GAAP measures. We define Adjusted Net Income as net income (loss) excluding income tax expense (benefit), amortization of debt financing costs, intangible amortization and impairments, if any, non-cash equity compensation expense, non-cash changes in fair value of estimated contingent consideration, gain on sale of investment, loss on extinguishment of borrowings, delayed offering cost expense, management contract buyout, if any, and other one-time transaction expenses. The calculation of Adjusted Net Income also includes adjustments to reflect (i) a pro forma 27% income tax rate assuming all earnings of Focus LLC were recognized by Focus Inc. and no earnings were attributable to non-controlling interests and (ii) tax adjustments from intangible asset related income tax benefits from acquisitions based on a pro forma 27% tax rate.

 

Adjusted Net Income Per Share for the three and nine months ended September 30, 2018 is calculated by dividing Adjusted Net Income by the Adjusted Shares Outstanding. Adjusted Shares Outstanding for the three and nine months ended September 30, 2018 includes: (i) the weighted average shares of Class A common stock outstanding during the periods, (ii) the weighted average incremental shares of Class A common stock related to stock options and unvested Class A common stock outstanding during the periods, (iii) the weighted average number of Focus LLC common units outstanding during the periods (assuming that 100% of such Focus LLC common units have been exchanged for Class A common stock) and (iv) the weighted average number of common unit equivalents of Focus LLC vested and unvested incentive units outstanding during the periods based on the closing price of our Class A common stock on the last trading day of the periods (assuming that 100% of such Focus LLC common units have been exchanged for Class A common stock).

 

10


 

Adjusted Net Income Per Share for the periods prior to July 30, 2018 is calculated by dividing Adjusted Net Income by the Adjusted Shares Outstanding. Adjusted Shares Outstanding for the periods prior to July 30, 2018 was 71,843,916 and includes all vested and unvested shares of Class A common stock issued in connection with the IPO and Reorganization Transactions, assumes that all vested non-compensatory stock options and unvested compensatory stock options outstanding at the closing of the IPO have been exercised (assuming vesting of unvested compensatory stock options and a then-current value of the Class A common stock equal to the $33.00 IPO price) and assumes that 100% of the Focus LLC common units and vested and unvested incentive units outstanding at the closing of the IPO have been exchanged for Class A common stock (assuming vesting of the unvested incentive units and a then-current value of the Focus LLC common units equal to the $33.00 IPO price).

 

We believe that Adjusted Net Income and Adjusted Net Income Per Share, viewed in addition to and not in lieu of, our reported GAAP results, provide additional useful information to investors regarding our performance and overall results of operations for various reasons, including the following:

 

·                  Non-cash equity grants made to employees or non-employees at a certain price and point in time do not necessarily reflect how our business is performing at any particular time; stock-based compensation expense is not a key measure of our operating performance;

 

·                  Contingent consideration or earn outs can vary substantially from company to company and depending upon each company’s growth metrics and accounting assumption methods; the non-cash changes in fair value of estimated contingent consideration is not considered a key measure in comparing our operating performance; and

 

·                  Amortization expenses can vary substantially from company to company and from period to period depending upon each company’s financing and accounting methods, the fair value and average expected life of acquired intangible assets and the method by which assets were acquired; the amortization of intangible assets obtained in acquisitions are not considered a key measure in comparing our operating performance.

 

Adjusted Net Income and Adjusted Net Income Per Share do not purport to be an alternative to net income (loss) or cash flows from operating activities. The terms Adjusted Net Income and Adjusted Net Income Per Share are not defined under GAAP, and Adjusted Net Income and Adjusted Net Income Per Share are not a measure of net income (loss), operating income or any other performance or liquidity measure derived in accordance with GAAP. Therefore, Adjusted Net Income and Adjusted Net Income Per Share have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

 

·                  Adjusted Net Income and Adjusted Net Income Per Share do not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments;

 

·                  Adjusted Net Income and Adjusted Net Income Per Share do not reflect changes in, or cash requirements for, working capital needs; and

 

·                  Other companies in the financial services industry may calculate Adjusted Net Income and Adjusted Net Income Per Share differently than we do, limiting its usefulness as a comparative measure.

 

In addition, Adjusted Net Income and Adjusted Net Income Per Share can differ significantly from company to company depending on strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. We compensate for these limitations by relying also on the GAAP results and use Adjusted Net Income and Adjusted Net Income Per Share as supplemental information.

 

11


 

Set forth below is a reconciliation of net loss to Adjusted Net Income and Adjusted Net Income Per Share for the three and nine months ended September 30, 2017 and 2018:

 

 

 

Three Months
Ended September 30,

 

Nine Months
Ended September 30,

 

 

 

2017

 

2018

 

2017

 

2018

 

 

 

(dollars in thousands, except share and per share data)

 

Net loss

 

$

(37,881

)

$

(38,924

)

$

(38,669

)

$

(58,634

)

Income tax expense

 

557

 

3,745

 

1,281

 

5,667

 

Amortization of debt financing costs

 

1,344

 

828

 

2,726

 

2,716

 

Intangible amortization

 

18,530

 

23,616

 

46,020

 

65,400

 

Non-cash equity compensation expense

 

27,620

 

24,057

 

31,399

 

31,612

 

Non-cash changes in fair value of estimated contingent consideration

 

5,130

 

10,564

 

7,227

 

28,879

 

Gain on sale of investment

 

 

 

 

(5,509

)

Loss on extinguishment of borrowings

 

8,106

 

7,060

 

8,106

 

21,071

 

Delayed offering cost expense

 

 

 

9,840

 

 

Other one time transaction expenses (1)

 

2,843

 

7,535

 

2,843

 

7,535

 

Subtotal

 

$

26,249

 

$

38,481

 

$

70,773

 

$

98,737

 

Pro forma income tax expense (27%) (2)

 

(7,087

)

(10,390

)

(19,108

)

(26,659

)

Tax Adjustments (2) (3)

 

4,636

 

6,040

 

11,566

 

16,521

 

Adjusted Net Income

 

$

23,798

 

$

34,131

 

$

63,231

 

$

88,599

 

 

 

 

 

 

 

 

 

 

 

Adjusted Shares Outstanding (4)

 

71,843,916

 

74,055,933

 

71,843,916

 

72,557,403

 

Adjusted Net Income Per Share

 

$

0.33

 

$

0.46

 

$

0.88

 

$

1.22

 

 

 

 

 

 

 

 

 

 

 

Calculation of Adjusted Shares Outstanding:

 

 

 

 

 

 

 

 

 

Weighted average shares of Class A common stock outstanding—diluted (5)

 

 

42,351,043

 

 

42,351,043

 

Adjustments:

 

 

 

 

 

 

 

 

 

Shares of Class A common stock issued in connection with the IPO and Reorganization Transactions (6)

 

42,529,651

 

 

42,529,651

 

 

Weighted average incremental shares of Class A common stock related to stock options and unvested Class A common stock (7)

 

 

130,411

 

 

130,411

 

Weighted average Focus LLC common units outstanding (8)

 

22,499,665

 

22,695,798

 

22,499,665

 

22,565,761

 

Weighted average common unit equivalent of Focus LLC incentive units outstanding (9)

 

6,814,600

 

8,878,681

 

6,814,600

 

7,510,188

 

Adjusted Shares Outstanding (4)

 

71,843,916

 

74,055,933

 

71,843,916

 

72,557,403

 

 


(1)         In 2018, primarily relates to one-time expenses related to (a.) cash compensation of $5,926, which were recorded in compensation and related expenses, in connection with the IPO and related reorganization transactions and (b.) transaction expenses of $648, which were recorded in selling, general and administrative expenses, associated with the acquisition of Loring Ward that is subject to close. In 2017, relates to one-time transaction expenses, which were recorded in other (expense) income-net, related to insurance fees associated with the investment by our private equity investors.

 

(2)         For periods ended prior to the closing of the IPO and the consummation of the related reorganization transactions on July 30, 2018, these adjustments are being made for comparative purposes only.

 

(3)         As of September 30, 2018, estimated tax adjustments from intangible asset related income tax benefits from closed acquisitions based on a pro forma 27% tax rate for the next 12 months is $24,766.

 

(4)         For historical periods prior to the closing of the IPO and consummation of the related reorganization transactions on July 30, 2018, the Adjusted Shares Outstanding are deemed to be outstanding for comparative purposes only.

 

12


 

(5)         Represents our GAAP weighted average Class A common stock outstanding—diluted.

 

(6)         The issuance of Class A common stock that occurred upon closing of the IPO and the consummation of related reorganization transactions on July 30, 2018 is assumed to have occurred as of January 1, 2017 for comparative purposes.

 

(7)         The incremental shares for the three and nine months ended September 30, 2018 related to stock options and unvested Class A common stock as calculated using the treasury stock method were not included in the calculation of weighted average shares of Class A common stock—diluted as the result would have been anti-dilutive.

 

(8)         Assumes that 100% of the Focus LLC common units were exchanged for Class A common stock.

 

(9)         Assumes that 100% of the vested and unvested Focus LLC incentive units were converted into Focus LLC common units based on the closing price of our Class A common stock at the end of the respective period and such Focus LLC common units were exchanged for Class A common stock. For the periods ending prior to July 30, 2018, the exchange to Class A common stock was based on the $33.00 IPO price.

 

13


Exhibit 99.2

 

Focus Financial Partners Q3 and Year-To-Date 2018 Earnings Release Supplement November 2018

GRAPHIC

 

Special Note Regarding Forward-Looking Statements Some of the information in this presentation may contain forward-looking statements. Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of future events. Words such as “may,” “assume,” “forecast,” “position,” “predict,” “strategy,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” “project,” “budget,” “potential,” “continue,” “will” and similar expressions are used to identify forward-looking statements. They can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this presentation. Actual results may vary materially. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include fluctuations in wealth management fees, regulatory assets under management, our reliance on our partner firms and the principals who manage their businesses, our ability to make successful acquisitions, unknown liabilities of or poor performance by acquired businesses, harm to our reputation, our inability to facilitate smooth succession planning at our partner firms, our inability to compete, our reliance on key personnel, our inability to attract, develop and retain talented wealth management professionals, our inability to retain clients following an acquisition, write down of goodwill and other intangible assets, our failure to maintain and properly safeguard an adequate technology infrastructure, cyber-attacks, our inability to recover from business continuity problems, inadequate insurance coverage, the termination of management agreements by management companies, our inability to generate sufficient cash to service all of our indebtedness, the failure of our partner firms to comply with applicable U.S. and non-U.S. regulatory requirements, legal proceedings and governmental inquiries and certain other factors. All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements. Our forward-looking statements speak only as of the date of this presentation or as of the date as of which they are made. Except as required by applicable law, including federal securities laws, we do not intend to update or revise any forward-looking statements. Non-GAAP Financial Measures We analyze our performance using Adjusted Net Income and Adjusted Net Income Per Share. Adjusted Net Income and Adjusted Net Income Per Share are non-GAAP measures. We define Adjusted Net Income as net income (loss) excluding income tax expense (benefit), amortization of debt financing costs, intangible amortization and impairments, if any, non-cash equity compensation expense, non-cash changes in fair value of estimated contingent consideration, gain on sale of investment, loss on extinguishment of borrowings, delayed offering cost expense, management contract buyout, if any, and other one-time transaction expenses. The calculation of Adjusted Net Income also includes adjustments to reflect (i) a pro forma 27% income tax rate assuming all earnings of Focus LLC were recognized by Focus Inc. and no earnings were attributable to non-controlling interests and (ii) tax adjustments from intangible asset related income tax benefits from acquisitions based on a pro forma 27% tax rate. The calculation of Adjusted Net Income Per Share for the three and nine months ended September 30, 2018 is calculated by dividing Adjusted Net Income by the Adjusted Shares Outstanding. See calculation of Adjusted Shares Outstanding in the third quarter 2018 earnings release. We believe that Adjusted Net Income and Adjusted Net Income Per Share, viewed in addition to and not in lieu of, our reported GAAP results, provide additional useful information to investors regarding our performance and overall results of operations for various reasons, including the following: Non-cash equity grants made to employees or non-employees at a certain price and point in time do not necessarily reflect how our business is performing at any particular time; stock-based compensation expense is not a key measure of our operating performance; Contingent consideration or earn outs can vary substantially from company to company and depending upon each company’s growth metrics and accounting assumption methods; the non-cash changes in fair value of estimated contingent consideration is not considered a key measure in comparing our operating performance; and Amortization expenses can vary substantially from company to company and from period to period depending upon each company’s financing and accounting methods, the fair value and average expected life of acquired intangible assets and the method by which assets were acquired; the amortization of intangible assets obtained in acquisitions are not considered a key measure in comparing our operating performance. Adjusted Net Income and Adjusted Net Income Per Share do not purport to be an alternative to net income (loss) or cash flows from operating activities. The terms Adjusted Net Income and Adjusted Net Income Per Share are not defined under GAAP, and Adjusted Net Income and Adjusted Net Income Per Share are not a measure of net income (loss), operating income or any other performance or liquidity measure derived in accordance with GAAP. Therefore, Adjusted Net Income and Adjusted Net Income Per Share have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are: Adjusted Net Income and Adjusted Net Income Per Share do not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments; Adjusted Net Income and Adjusted Net Income Per Share do not reflect changes in, or cash requirements for, working capital needs; and Other companies in the financial services industry may calculate Adjusted Net Income and Adjusted Net Income Per Share differently than we do, limiting its usefulness as a comparative measure. In addition, Adjusted Net Income and Adjusted Net Income Per Share can differ significantly from company to company depending on strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. We compensate for these limitations by relying also on the GAAP results and use Adjusted Net Income and Adjusted Net Income Per Share as supplemental information. A reconciliation of these measures to the most recent comparable GAAP measure is available in the appendix of this presentation. Disclaimer 2

GRAPHIC

 

Third Quarter 2018 Highlights Organic revenue growth represents the year-over-year growth in revenue related to partner firms, including growth related to acquisitions of wealth management practices and customer relationships by our partner firms and partner firms that have merged, that for the entire interim periods presented, are included in our consolidated statements of operations for each of the entire interim periods presented. We believe these growth statistics are useful in that they present full period revenue growth of partner firms on a ‘‘same store’’ basis exclusive of the effect of the partial period results of partner firms that are acquired during the comparable periods. Non-GAAP financial measure. See Appendix for reconciliations. Our Strategy: Executing on Our Long-Term Growth Objective of 20% Revenue Growth and 20% Adjusted Net Income Per Share Growth on Average and Over Time Strong Third Quarter 2018 Financial Results Revenue Growth of 30.8% to $235.7 million Strong “Same Store” Sales / Organic Revenue(1) Growth of 9.7% Adjusted Net Income(2), and Adjusted Net Income Per Share(2) Growth of 43.4% and 39.4% respectively $34.1 million Adjusted Net Income(2) and $0.46 Adjusted Net Income Per Share(2) M&A Momentum: New Partner Firms $11.2 million in combined Acquired Base Earnings from 3 New Partner Firm Additions which closed during Q3 2018: Asset Advisors (Augusta, GA headquartered RIA focused on high-net-worth clients) Edge Capital Group (Atlanta, GA headquartered RIA with Southeast and Southwest presence focused on ultra-high-net-worth clients) Vista Wealth Management (Palo Alto, CA headquartered RIA focused on ultra-high-net-worth clients) 3 Strong Financial Performance Key Takeaways: 1) Highly supportive macro environment, 2) Growth exceeding 20/20 goal, 3) Remain well positioned within our industry

GRAPHIC

 

Loring Ward Transaction Combination to Create Significant Value for Our Shareholders and Partners Provides Loring Ward advisors with full life-cycle solutions Access to best of breed capabilities Immediately accretive to Focus’ Adjusted Net Income Per Share Key Messages Upside from substantial revenue and cost synergies Color Scheme 215 215 215 251 176 47 51 153 51 60 155 221 14 75 140 28 49 68 1 2 3 4 4 Focus Financial Partners to acquire Loring Ward We are a leading partnership of independent, fiduciary wealth management firms operating in the highly fragmented and attractive RIA industry Demonstrates Focus value add to partners with excellent operating leverage

GRAPHIC

 

Leading independent Turnkey-Asset Management Program (“TAMP”) solution provider Strong and effective advisor-client relationships via technology-enabled investing solutions Asset class driven investing philosophy. Models are invested in funds advised or sub-advised by Dimensional Fund Advisors RIAs serviced through TAMP program 200+ Loring Ward Transaction Loring Ward Overview 18,225 Total Independent Firms 1,2 Total Independent Advisors 1,2 64,346 Broker Dealers 75+ Opportunity Overview Service and Solutions Growth Drivers Note: Represents data for the U.S., unless otherwise noted. Source: Cerulli Advisor Metrics, 2017. Independent defined as Independent RIA and Hybrid RIA. Does not include state registered advisors. Broad Addressable Market Increased Optimization of a Human Advisor Shift to Independence Increased Outsourcing Transition to Fee-Based Models Value of cohesive peer ecosystem Track record of client centric approach Evidence-based stock and bond portfolios 5 Loring Ward regulatory AUM $17bn+ Statistics Provides investment, technology, business consulting and operational support allowing advisors to focus on serving clients and growing their business

GRAPHIC

 

Q3 2018 Results Non-GAAP financial measure. See Appendix for reconciliations. Organic revenue growth represents the year-over-year growth in revenue related to partner firms, including growth related to acquisitions of wealth management practices and customer relationships by our partner firms and partner firms that have merged, that for the entire interim periods presented, are included in our consolidated statements of operations for each of the entire interim periods presented. We believe these growth statistics are useful in that they present full period revenue growth of partner firms on a ‘‘same store’’ basis exclusive of the effect of the partial period results of partner firms that are acquired during the comparable periods. Number of Partner Firms at Period End Adjusted Net Income Per Share(1) ($mm) Revenue ($mm) Commentary 14% Growth Wealth Management Other 31% Growth 39% Growth Revenue growth driven by strong performance from both new and existing partner firms: Total revenues grew 30.8% to $235.7 million Wealth management fees grew 30.3% to $220.2 million Over 90% fee based recurring revenue “Same store” sales / organic revenue(2) growth 9.7% In addition to top line revenue growth, we achieved 39.4% Adjusted Net Income Per Share(2) growth 6 51 58 Q3 2017 Q3 2018 $11.3 $15.5 $169.0 $220.2 $180.3 $235.7 Q3 2017 Q3 2018 $0.33 $0.46 Q3 2017 Q3 2018

GRAPHIC

 

Year-to-Date Q3 2018 Results Non-GAAP financial measure. See Appendix for reconciliations. Organic revenue growth represents the year-over-year growth in revenue related to partner firms, including growth related to acquisitions of wealth management practices and customer relationships by our partner firms and partner firms that have merged, that for the entire interim periods presented, are included in our consolidated statements of operations for each of the entire interim periods presented. We believe these growth statistics are useful in that they present full period revenue growth of partner firms on a ‘‘same store’’ basis exclusive of the effect of the partial period results of partner firms that are acquired during the comparable periods. Number of Partner Firms at Period End Adjusted Net Income Per Share(1) ($mm) Revenue ($mm) Commentary 14% Growth Wealth Management Other 40% Growth 39% Growth 7 Revenue growth driven by strong performance from both new and existing partner firms: Total revenues grew 40.2% to $663.4 million Wealth management fees grew 41.7% to $620.9 million Over 90% fee based recurring revenue “Same store” sales / organic revenue(2) growth 14.3% In addition to top line revenue growth, we achieved 38.6% Adjusted Net Income Per Share(2) growth 51 58 Q3 2017 Q3 2018 $34.8 $42.5 $438.2 $620.9 $473.0 $663.4 Q3 2017 YTD Q3 2018 YTD $0.88 $1.22 Q3 2017 YTD Q3 2018 YTD

GRAPHIC

 

Appendix

GRAPHIC

 

Net Loss to Adjusted Net Income and Adjusted Net Income Per Share Reconciliation In 2018, primarily relates to one-time expenses related to (a.) cash compensation of $5,926, which were recorded in compensation and related expenses, in connection with the IPO and related reorganization transactions and (b.) transaction expenses of $648, which were recorded in selling, general and administrative expenses, associated with the acquisition of Loring Ward that is subject to close. In 2017, relates to one-time transaction expenses, which were recorded in other (expense) income-net, related to insurance fees associated with the investment by our private equity investors. For periods ended prior to the closing of the IPO and the consummation of the related reorganization transactions on July 30, 2018, these adjustments are being made for comparative purposes only. As of September 30, 2018, estimated tax adjustments from intangible asset related income tax benefits from closed acquisitions based on a pro forma 27% tax rate for the next twelve months is $24,766. See calculation of Adjusted Shares Outstanding in the third quarter 2018 earnings release. Three Months Ended September 30, Nine Months Ended September 30, ($ in thousands) 2017 2018 2017 2018 Net Loss $(37,881) $(38,924) $(38,669) $(58,634) Income Tax Expense 557 3,745 1,281 5,667 Amortization of Debt Financing Costs 1,344 828 2,726 2,716 Intangible Amortization 18,530 23,616 46,020 65,400 Non-Cash Equity Compensation Expense 27,620 24,057 31,399 31,612 Non-Cash Changes in Fair Value of Estimated Contingent Consideration 5,130 10,564 7,227 28,879 Gain on Sale of Investment – – – (5,509) Loss on Extinguishment of Borrowings 8,106 7,060 8,106 21,071 Delayed Offering Cost Expense – – 9,840 – Other One Time Transaction Expenses(1) 2,843 7,535 2,843 7,535 Subtotal $26,249 $38,481 $70,773 $98,737 Pro Forma Income Tax Expense (27%)(2) (7,087) (10,390) (19,108) (26,659) Tax Adjustments(2)(3) 4,636 6,040 11,566 16,521 Adjusted Net Income $23,798 $34,131 $63,231 $88,599 Adjusted Shares Outstanding(4) 71,843,916 74,055,933 71,843,916 72,557,403 Adjusted Net Income Per Share $0.33 $0.46 $0.88 $1.22 9

GRAPHIC