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): February 21, 2019

 


 

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 February 21, 2019, Focus Financial Partners Inc. (the “Company”) issued a press release reporting results for its fourth quarter and year ended December 31, 2018. The Company also posted a slide presentation entitled “Fourth Quarter and Full Year 2018 Earnings Release Supplement” dated February 21, 2019 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.

 

Item 7.01                   Regulation FD Disclosure.

 

The information set forth under Item 2.02 is incorporated by reference as if fully set forth herein.

 

The information in this Current Report, being furnished pursuant to Items 2.02, 7.01 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 February 21, 2019.

 

 

 

99.2

 

Focus Financial Partners Inc. Slide Presentation, dated February 21, 2019.

 

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: February 21, 2019

 

 

3


Exhibit 99.1

 

 

Focus Financial Partners Reports 2018 Fourth Quarter and Full Year Results

 

Record Year with Revenue Growth of 37.4%

 

Exceeded 20% Annual Revenue Growth Target for the Third Consecutive Year

 

New York, New York — February 21, 2019 — Focus Financial Partners Inc. (Nasdaq: FOCS) (“Focus Inc.”, “Focus”, the “Company”, “we”, “us” or “our”), a leading partnership of independent, fiduciary wealth management firms, today reported results for its fourth quarter and full year ended December 31, 2018.

 

Fourth Quarter 2018 Highlights

 

·                  Total revenues of $247.5 million, reflecting year-over-year growth of 30.4%

·                  GAAP net income of $17.5 million

·                  Adjusted Net Income(1) of $36.7 million, 56.6% higher than the prior year quarter

·                  GAAP Basic and Diluted net income per share of $0.22

·                  Adjusted Net Income Per Share(1) of $0.51, 54.5% higher than the prior year quarter

 

Full Year 2018 Highlights

 

·                  Total revenues of $910.9 million, reflecting year-over-year growth of 37.4%

·                  GAAP net loss of $41.1 million

·                  Adjusted Net Income(1) of $125.3 million, 44.6% higher than the prior year

·                  GAAP Basic and Diluted net loss per share of $0.01 for the period July 30, 2018 to December 31, 2018

·                  Adjusted Net Income Per Share(1) of $1.74, an increase of 43.8% over the prior year

·                  Eight new partner firms acquired with total acquired base earnings of $37.8 million

·                  Completed initial public offering (“IPO”) and refinanced credit facility

 


(1)         Non-GAAP financial measures. Please see “Reconciliation of Non-GAAP Financial Measures” later in this press release for a reconciliation and more information on these measures.

 

“Focus ended 2018 on a strong note, capping a very successful year,” said Rudy Adolf, Founder and Chief Executive Officer. “We completed our initial public offering and also made significant progress against our strategy to increase our presence in the high net worth and ultra-high net worth markets. The hallmarks of our business model — fiduciary advice, entrepreneurship, access to cost-efficient capital and value-added services — are what differentiate us and are attracting new, like-minded partners. Every new partner firm or merger that an existing partner firm executes increases our capabilities and widens our industry reach. Focus has never been in a stronger position and I am excited about our momentum entering 2019.”

 

“We are very pleased with the progress we made in delivering against our financial priorities in 2018,” said Jim Shanahan, Chief Financial Officer. “We generated nearly $1 billion in annualized revenues in the fourth quarter of 2018, which is an important inflection point in the evolution of our firm.  We exceeded our targeted 20% annual growth rates in revenues and adjusted net income per share. Our initial public offering created

 

1


 

permanent capital to invest in our business and further improved our balance sheet flexibility. We added eight new partner firms with $37.8 million in total acquired base earnings and we closed 17 mergers for our existing partner firms. Our pipeline remains robust and we expect our momentum to continue through 2019.”

 

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.

 

Fourth Quarter Financial and Operating Highlights

 

For the fourth quarter of 2018, Focus reported total revenues of $247.5 million, an increase of 30.4% or $57.7 million compared to the fourth quarter of the prior year.  The primary driver of this increase was new partner firms acquired in 2018, which contributed approximately $37.4 million in revenue during the quarter. The balance of the increase of $20.3 million was due to the revenue growth from our existing partner firms, driven by wealth management services and partner firm-level acquisitions. We estimate that approximately 23% of our fourth quarter revenues were not directly correlated to the financial markets.  In excess of 95% of our revenues were fee based and recurring.

 

·            Income from operations was $34.4 million, compared to $2.9 million in the fourth quarter of 2017

·            GAAP net income was $17.5 million, compared to a GAAP net loss of $9.7 million in the fourth quarter of 2017

·            Adjusted Net Income(1) was $36.7 million, compared to Adjusted Net Income of $23.5 million in the fourth quarter of 2017

 

Full Year 2018 Financial and Operating Highlights

 

For the twelve months ended December 31, 2018, we reported total revenues of $910.9 million, an increase of 37.4%, or $248.0 million, compared to the prior year. The primary drivers of this increase were new partner firms acquired in 2018, which contributed approximately $105.7 million in revenue during the year. The balance of the increase of $142.3 million was due to the revenue growth from our existing partner firms, driven by wealth management services and partner firm-level acquisitions, and a full year of revenue recognized during the twelve months ended December 31, 2018 for partner firms that were acquired during the twelve months ended December 31, 2017. We estimate that approximately 23% of our full-year revenues were not directly correlated to the financial markets. In excess of 95% of our full-year revenues were fee-based and recurring.

 

·            Organic revenue growth(2) was 13.0%

·            Income from operations was $44.4 million, compared to $5.8 million in the twelve months of 2017

·            GAAP net loss in the twelve months of 2018 was $41.1 million, compared to a GAAP net loss of $48.4 million in the twelve months of 2017

·            Adjusted Net Income(1) was $125.3 million, compared to $86.7 million in the twelve months of 2017

 

2


 


(1)         Non-GAAP financial measures. Please see “Reconciliation of Non-GAAP Financial Measures” later in this press release for a reconciliation and more information on these measures.

 

(2)         Please see footnote 2 under “How We Evaluate Our Business” later in this press release.

 

Balance Sheet and Liquidity

 

As of December 31, 2018, Focus had cash and cash equivalents of $33.2 million and $839.0 million stated value outstanding on its credit facilities.  Of this amount, $799.0 million were term loan borrowings and $40.0 million were revolver borrowings. The Company’s net leverage ratio at December 31, 2018 under its credit facility was 3.33x.

 

Teleconference, Webcast and Presentation Information

 

Chairman and Chief Executive Officer, Rudy Adolf, and Chief Financial Officer, Jim Shanahan, will host a conference call today, February 21, 2019 at 8:30 a.m. Eastern Time to discuss the Company’s 2018 fourth quarter and full-year results. The call can be accessed by dialing +1-877-504-6131 (inside the U.S.) or +1-786-815-8445 (outside the U.S.) and entering the passcode 6384005.

 

A live, listen-only webcast and a slide presentation entitled “Fourth Quarter and Full Year 2018 Earnings Release Supplement” dated February 21, 2019 will be available under “Events” in the “Investor Relations” section of the Company’s website, www.focusfinancialpartners.com. A webcast replay of the call will be available shortly after the event at the same address.

 

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.

 

3


 

Investor and Media Contact Information

 

Steve Calk or Josh Littman

Tel: (646) 561-3226

FOCS@alpha-ir.com

 

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 twelve months ended December 31, 2017 and 2018 include the following:

 

 

 

Three Months Ended

 

Twelve Months Ended

 

 

 

December 31,

 

December 31,

 

 

 

2017

 

2018

 

2017

 

2018

 

 

 

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

 

Revenue Metrics:

 

 

 

 

 

 

 

 

 

Revenues

 

$

189,857

 

$

247,515

 

$

662,887

 

$

910,880

 

Revenue growth (1) from prior period

 

49.0

%

30.4

%

36.6

%

37.4

%

Organic revenue growth (2) from prior period

 

17.9

%

10.7

%

13.4

%

13.0

%

 

 

 

 

 

 

 

 

 

 

Management Fees Metrics (operating expense):

 

 

 

 

 

 

 

 

 

Management fees (3)

 

$

47,719

 

$

63,357

 

$

163,617

 

$

232,703

 

Management fees growth (3) from prior period

 

51.3

%

32.8

%

42.5

%

42.2

%

Organic management fees growth (4) from prior period

 

28.7

%

14.7

%

23.0

%

14.3

%

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA Metrics:

 

 

 

 

 

 

 

 

 

Adjusted EBITDA (5)

 

$

42,000

 

$

54,210

 

$

145,226

 

$

203,402

 

Adjusted EBITDA growth (5) from prior period

 

59.2

%

29.1

%

40.9

%

40.1

%

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income Metrics:

 

 

 

 

 

 

 

 

 

Adjusted Net Income (5) 

 

$

23,470

 

$

36,749

 

$

86,701

 

$

125,348

 

Adjusted Net Income growth (5) from prior period

 

35.6

%

56.6

%

26.4

%

44.6

%

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income Per Share Metrics:

 

 

 

 

 

 

 

 

 

Adjusted Net Income Per Share (5)

 

$

0.33

 

$

0.51

 

$

1.21

 

$

1.74

 

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

 

35.6

%

54.5

%

26.4

%

43.8

%

Adjusted Shares Outstanding (5)

 

71,843,916

 

71,677,504

 

71,843,916

 

71,960,540

 

 

 

 

 

 

 

 

 

 

 

Other Metrics:

 

 

 

 

 

 

 

 

 

Acquired Base Earnings (6)

 

$

 

$

 

$

44,191

 

$

37,750

 

Number of partner firms at period end (7)

 

51

 

58

 

51

 

58

 

 


(1)   Represents period-over-period growth in our GAAP revenue.

 

(2)   Organic revenue growth represents the period-over-period 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 periods presented, are included in our consolidated statements of operations for each of the entire 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.

 

4


 

(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 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 fee growth represents the period-over-period 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 periods presented, are included in our consolidated statements of operations for each of the entire 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.

 

(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

 

Twelve Months Ended

 

 

 

December 31,

 

December 31,

 

 

 

2017

 

2018

 

2017

 

2018

 

REVENUES:

 

 

 

 

 

 

 

 

 

Wealth management fees

 

$

178,940

 

$

232,147

 

$

617,124

 

$

853,033

 

Other

 

10,917

 

15,368

 

45,763

 

57,847

 

Total revenues

 

189,857

 

247,515

 

662,887

 

910,880

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

Compensation and related expenses

 

69,518

 

96,080

 

265,555

 

358,084

 

Management fees

 

47,719

 

63,357

 

163,617

 

232,703

 

Selling, general and administrative

 

34,441

 

48,658

 

134,615

 

170,270

 

Intangible amortization

 

18,347

 

24,981

 

64,367

 

90,381

 

Non-cash changes in fair value of estimated contingent consideration

 

15,067

 

(22,241

)

22,294

 

6,638

 

Depreciation and other amortization

 

1,860

 

2,249

 

6,686

 

8,370

 

Total operating expenses

 

186,952

 

213,084

 

657,134

 

866,446

 

INCOME FROM OPERATIONS

 

2,905

 

34,431

 

5,753

 

44,434

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

Interest income

 

148

 

457

 

222

 

1,266

 

Interest expense

 

(14,523

)

(10,968

)

(41,861

)

(56,448

)

Amortization of debt financing costs

 

(1,358

)

(782

)

(4,084

)

(3,498

)

Gain on sale of investment

 

 

 

 

5,509

 

Loss on extinguishment of borrowings

 

 

 

(8,106

)

(21,071

)

Other (expense) income—net

 

15

 

(2,121

)

(3,191

)

(2,350

)

Income from equity method investments

 

341

 

313

 

1,407

 

521

 

Total other expense—net

 

(15,377

)

(13,101

)

(55,613

)

(76,071

)

INCOME (LOSS) BEFORE INCOME TAX

 

(12,472

)

21,330

 

(49,860

)

(31,637

)

INCOME TAX EXPENSE (BENEFIT)

 

(2,782

)

3,783

 

(1,501

)

9,450

 

NET INCOME (LOSS)

 

$

(9,690

)

17,547

 

$

(48,359

)

(41,087

)

Non-controlling interest

 

 

 

(7,939

)

 

 

40,497

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS

 

 

 

$

9,608

 

 

 

$

(590

)

 

 

 

 

 

 

 

 

 

 

Income (loss) per share of Class A common stock:

 

 

 

 

 

 

 

 

 

Basic

 

 

 

$

0.22

 

 

 

$

(0.01

)

Diluted

 

 

 

$

0.22

 

 

 

$

(0.01

)

 

 

 

 

 

 

 

 

 

 

Weighted average shares of Class A common stock outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

 

 

43,651,256

 

 

 

43,122,782

 

Diluted

 

 

 

43,714,579

 

 

 

43,122,782

 

 

6


 

FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated balance sheets

(In thousands, except share data)

 

 

 

December 31,

 

December 31,

 

 

 

2017

 

2018

 

ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

51,455

 

$

33,213

 

Accounts receivable less allowances of $505 at 2017 and $576 at 2018

 

73,513

 

98,596

 

Prepaid expenses and other assets

 

37,423

 

76,150

 

Fixed assets—net

 

21,397

 

24,780

 

Debt financing costs—net

 

13,278

 

12,340

 

Deferred tax assets—net

 

 

70,009

 

Goodwill

 

515,489

 

860,495

 

Other intangible assets—net

 

522,282

 

762,195

 

TOTAL ASSETS

 

$

1,234,837

 

$

1,937,778

 

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

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Accounts payable

 

$

5,752

 

$

8,935

 

Accrued expenses

 

23,626

 

36,252

 

Due to affiliates

 

33,698

 

39,621

 

Deferred revenue

 

6,094

 

6,215

 

Other liabilities

 

99,077

 

158,497

 

Borrowings under credit facilities (stated value of $1,000,012 and $838,985 at December 31, 2017 and December 31, 2018)

 

980,502

 

836,582

 

Tax receivable agreements obligation

 

 

39,156

 

TOTAL LIABILITIES

 

1,148,749

 

1,125,258

 

 

 

 

 

 

 

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 46,265,903 shares issued and outstanding at December 31, 2017 and December 31, 2018, respectively

 

 

462

 

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 December 31, 2018, respectively

 

 

228

 

Additional paid-in capital

 

 

471,386

 

Accumulated deficit

 

 

(590

)

Accumulated other comprehensive loss

 

 

(1,824

)

Total members’ deficit/ shareholders’ equity

 

(778,661

)

469,662

 

Non-controlling interests

 

 

342,858

 

Total deficit/ equity

 

(778,661

)

812,520

 

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

 

$

1,234,837

 

$

1,937,778

 

 

7


 

FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated statements of cash flows

(In thousands)

 

 

 

Twelve Months Ended
December 31,

 

 

 

2017

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net loss

 

$

(48,359

)

$

(41,087

)

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

 

 

 

 

 

Intangible amortization

 

64,367

 

90,381

 

Depreciation and other amortization

 

6,686

 

8,370

 

Amortization of debt financing costs

 

4,084

 

3,498

 

Non-cash equity compensation expense

 

34,879

 

44,468

 

Non-cash changes in fair value of estimated contingent consideration

 

22,294

 

6,638

 

Income from equity method investments

 

(1,407

)

(521

)

Distributions received from equity method investments

 

984

 

1,118

 

Other non-cash items

 

(3,960

)

6,655

 

Loss on extinguishment of borrowings

 

8,106

 

19,001

 

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

 

 

 

 

 

Accounts receivable

 

(30,209

)

(23,747

)

Prepaid expenses and other assets

 

9,889

 

(10,401

)

Accounts payable

 

(1,210

)

2,341

 

Accrued expenses

 

(4,671

)

4,302

 

Due to affiliates

 

9,700

 

6,706

 

Other liabilities

 

(3,686

)

(10,322

)

Deferred revenue

 

1,603

 

(1,481

)

Net cash provided by operating activities

 

69,090

 

105,919

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

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

 

(365,698

)

(413,044

)

Purchase of fixed assets

 

(10,518

)

(9,106

)

Investment and other

 

(500

)

(24,300

)

Net cash used in investing activities

 

(376,716

)

(446,450

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Borrowings under credit facilities

 

1,181,936

 

300,000

 

Repayments of borrowings under credit facilities

 

(641,987

)

(461,026

)

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

 

(795,894

)

(61,539

)

Contingent consideration paid

 

(6,224

)

(12,554

)

Payments of debt financing costs

 

(32,612

)

(4,612

)

Payments on capital lease obligations

 

(271

)

(198

)

Distributions for unitholders

 

(2,754

)

(2,744

)

Net cash provided by financing activities

 

342,403

 

322,487

 

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS

 

170

 

(198

)

CHANGE IN CASH AND CASH EQUIVALENTS

 

34,947

 

(18,242

)

CASH AND CASH EQUIVALENTS:

 

 

 

 

 

Beginning of period

 

16,508

 

51,455

 

End of period

 

$

51,455

 

$

33,213

 

 

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.

 

9


 

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.

 

Set forth below is a reconciliation of net income (loss) to Adjusted EBITDA for the three and twelve months ended December 31, 2017 and 2018:

 

 

 

Three Months Ended
December 31,

 

Twelve Months Ended
December 31,

 

 

 

2017

 

2018

 

2017

 

2018

 

 

 

(dollars in thousands)

 

Net income (loss)

 

$

(9,690

)

$

17,547

 

$

(48,359

)

$

(41,087

)

Interest income

 

(148

)

(457

)

(222

)

(1,266

)

Interest expense

 

14,523

 

10,968

 

41,861

 

56,448

 

Income tax expense (benefit)

 

(2,782

)

3,783

 

(1,501

)

9,450

 

Amortization of debt financing costs

 

1,358

 

782

 

4,084

 

3,498

 

Intangible amortization

 

18,347

 

24,981

 

64,367

 

90,381

 

Depreciation and other amortization

 

1,860

 

2,249

 

6,686

 

8,370

 

Non-cash equity compensation expense

 

3,480

 

12,856

 

34,879

 

44,468

 

Non-cash changes in fair value of estimated contingent consideration

 

15,067

 

(22,241

)

22,294

 

6,638

 

Gain on sale of investment

 

 

 

 

(5,509

)

Loss on extinguishment of borrowings

 

 

 

8,106

 

21,071

 

Other expense (income), net

 

(15

)

2,121

 

3,191

 

2,350

 

Delayed offering cost expense

 

 

 

9,840

 

 

Other one-time transaction expenses

 

 

1,621

 

 

8,590

 

Adjusted EBITDA

 

$

42,000

 

$

54,210

 

$

145,226

 

$

203,402

 

 

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 twelve months ended December 31, 2018 is calculated by dividing Adjusted Net Income by the Adjusted Shares Outstanding. Adjusted Shares Outstanding for the three and twelve months ended December 31, 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

 

10


 

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).

 

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;

 

11


 

·                  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.

 

12


 

Set forth below is a reconciliation of net income (loss) to Adjusted Net Income and Adjusted Net Income Per Share for the three and twelve months ended December 31, 2017 and 2018:

 

 

 

Three Months Ended

 

Twelve Months Ended

 

 

 

December 31,

 

December 31,

 

 

 

2017

 

2018

 

2017

 

2018

 

 

 

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

 

Net income (loss)

 

$

(9,690

)

$

17,547

 

$

(48,359

)

$

(41,087

)

Income tax expense (benefit)

 

(2,782

)

3,783

 

(1,501

)

9,450

 

Amortization of debt financing costs

 

1,358

 

782

 

4,084

 

3,498

 

Intangible amortization

 

18,347

 

24,981

 

64,367

 

90,381

 

Non-cash equity compensation expense

 

3,480

 

12,856

 

34,879

 

44,468

 

Non-cash changes in fair value of estimated contingent consideration

 

15,067

 

(22,241

)

22,294

 

6,638

 

Gain on sale of investment

 

 

 

 

(5,509

)

Loss on extinguishment of borrowings

 

 

 

8,106

 

21,071

 

Delayed offering cost expense

 

 

 

9,840

 

 

Other one time transaction expenses (1)

 

 

3,994

 

2,843

 

11,529

 

Subtotal

 

$

25,780

 

$

41,702

 

$

96,553

 

$

140,439

 

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

 

(6,961

)

(11,260

)

(26,069

)

(37,919

)

Tax Adjustments (2) (3)

 

4,651

 

6,307

 

16,217

 

22,828

 

Adjusted Net Income

 

$

23,470

 

$

36,749

 

$

86,701

 

$

125,348

 

 

 

 

 

 

 

 

 

 

 

Adjusted Shares Outstanding (4)

 

71,843,916

 

71,677,504

 

71,843,916

 

71,960,540

 

Adjusted Net Income Per Share

 

$

0.33

 

$

0.51

 

$

1.21

 

$

1.74

 

 

 

 

 

 

 

 

 

 

 

Calculation of Adjusted Shares Outstanding:

 

 

 

 

 

 

 

 

 

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

 

 

43,651,256

 

 

43,122,782

 

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)

 

 

63,323

 

 

102,549

 

Weighted average Focus LLC common units outstanding (8)

 

22,499,665

 

22,823,272

 

22,499,665

 

22,630,668

 

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

 

6,814,600

 

5,139,653

 

6,814,600

 

6,104,541

 

Adjusted Shares Outstanding (4)

 

71,843,916

 

71,677,504

 

71,843,916

 

71,960,540

 

 


(1)   In 2018, primarily relates to one-time expenses related to (a) Q4 2018 Loring Ward severance cash compensation of $507, which was recorded in compensation and related expenses and Q3 2018 IPO and related reorganization transaction cash compensation expenses of $5,926, which were recorded in compensation and related expenses, (b) transaction expenses of $1,762, which were recorded in selling, general and administrative expenses, associated with the acquisition of Loring Ward of which $1,114 were incurred in Q4 2018 and $648 were incurred in Q3 2018 and (c) Q4 2018 other expenses, net of $2,373, which were recorded in other (expense) income-net, primarily related to the loss on sale of a tax customer list and related receivables. 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.

 

13


 

(3)   As of December 31, 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 $25,171.

 

(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.

 

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

 

(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 twelve months ended December 31, 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 the GAAP 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.

 

14


 

The following tables provide supplemental information regarding the economic ownership of Focus Financial Partners, LLC, as well as the outstanding and vested incentive units as of December 31, 2018:

 

 

 

As of December 31, 2018

 

 

 

Interest

 

%

 

Economic Ownership of Focus Financial Partners, LLC Interests:

 

 

 

 

 

Focus Financial Partners Inc. (1)

 

46,265,903

 

62.3

%

Non-Controlling Interests (2)

 

27,962,925

 

37.7

%

Total

 

74,228,828

 

100.0

%

 


(1)   Includes 119,078 unvested common units.

 

(2)   Includes 5,139,653 Focus LLC common units issuable upon conversion of the outstanding 18,597,474 vested and unvested incentive units (assuming vesting of the unvested incentive units and a December 31, 2018 period end value of the Focus LLC common units equal to $26.33).

 

Focus Financial Partners, LLC Incentive Units by Hurdle:

 

Hurdle
Rates

 

Number
Outstanding

 

Vested
Incentive Units

 

$

1.42

 

175,421

 

175,421

 

5.50

 

97,798

 

97,798

 

6.00

 

56,702

 

56,702

 

7.00

 

514,609

 

514,609

 

9.00

 

2,129,341

 

2,129,341

 

11.00

 

1,422,779

 

1,422,779

 

12.00

 

520,000

 

520,000

 

13.00

 

933,821

 

927,155

 

14.00

 

80,205

 

58,268

 

16.00

 

180,552

 

180,552

 

17.00

 

80,000

 

65,000

 

19.00

 

920,213

 

813,963

 

21.00

 

3,975,500

 

2,475,500

 

22.00

 

1,368,417

 

342,104

 

23.00

 

524,828

 

 

27.00

 

29,484

 

 

28.50

 

1,755,304

 

 

33.00

 

3,832,500

 

 

 

 

18,597,474

 

9,779,192

 

 

15


Exhibit 99.2

Focus Financial Partners Fourth Quarter and Full Year 2018 Earnings Release Supplement February 21, 2019

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 twelve months ended December 31, 2018 is calculated by dividing Adjusted Net Income by the Adjusted Shares Outstanding. See calculation of Adjusted Shares Outstanding in the fourth quarter and full year 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

 

Fourth Quarter 2018 Highlights Organic revenue growth represents the period-over-period 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 periods presented, are included in our consolidated statements of operations for each of the entire 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. 2019 through the date of this earnings release, we have signed definitive purchase agreements to acquire three additional partner firms with associated additional total Acquired Base Earnings of approximately $9.7 million. Each of these pending transactions is generally on terms and in a structure consistent with past transactions, and the closings are subject to customary closing conditions. 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 Fourth Quarter 2018 Financial Results Revenue Growth of 30.4% to $247.5 million Strong Organic Revenue(1) Growth of 10.7% Adjusted Net Income(2) and Adjusted Net Income Per Share(2) Growth of 56.6% and 54.5%, respectively $36.7 million Adjusted Net Income(2) and $0.51 Adjusted Net Income Per Share(2) M&A Momentum: New Partner Firms 2019 through the date of this earnings release, we added two new partner firms with approximately $8.5 million in total Acquired Base Earnings: 1/1/19: Altman, Greenfield and Selvaggi (New York, NY: premier family office and business management firm focused on the entertainment industry) 2/15/19: Prime Quadrant (Toronto, Canada: wealth management firm focused on ultra-high net worth clients in Canada) Recently signed domestic and international partner firms with approximately $9.7m in total Acquired Base Earnings: Foster Dykema Cabot – Boston, MA: holistic wealth management and multi-family office firm focused on ultra-high net worth clients Lanham O’Dell & Company (dba LOC Investment Advisers) – Hurricane, WV: wealth management firm focused on high net worth clients Escala Partners – Melbourne, Australia: premier Australia based wealth management firm providing diversified financial services to high net worth clients 3 Strong Financial Performance Closed New Partner Firms: Pending New Partner Firms(3):

GRAPHIC

 

Full Year 2018 Highlights Organic revenue growth represents the period-over-period 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 periods presented, are included in our consolidated statements of operations for each of the entire 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 Full Year 2018 Financial Results Revenue Growth of 37.4% to $910.9 million Strong Organic Revenue(1) Growth of 13.0% Adjusted Net Income(2) and Adjusted Net Income Per Share(2) Growth of 44.6% and 43.8%, respectively $125.3 million Adjusted Net Income(2) and $1.74 Adjusted Net Income Per Share(2) M&A Momentum $37.8 million in total Acquired Base Earnings from 8 new partner firm additions which closed during 2018 Our partner firms closed 17 mergers during 2018 4 Strong Financial Performance

GRAPHIC

 

Fourth Quarter 2018 Results May not add up due to rounding. Non-GAAP financial measure. See Appendix for reconciliations. Organic revenue growth represents the period-over-period 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 periods presented, are included in our consolidated statements of operations for each of the entire 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(2) ($mm) Revenue ($mm)(1) Commentary 14% Growth Wealth Management Other 30% Growth 55% Growth Revenue growth driven by strong performance from both new and existing partner firms: Total revenues grew 30.4% to $247.5 million In excess of 95% fee based recurring revenue ~23% of Q4 2018 revenue was not correlated to markets Of the ~77% Q4 2018 revenue correlated to markets, ~73% was billed in advance “Same store” sales / organic revenue(3) growth 10.7% In addition to top line revenue growth, we achieved 54.5% Adjusted Net Income Per Share(2) growth 5 51 58 Q4 2017 Q4 2018 $10.9 $15.4 $178.9 $232.1 $189.9 $247.5 Q4 2017 Q4 2018 $0.33 $0.51 Q4 2017 Q4 2018

GRAPHIC

 

Full Year 2018 Results May not add up due to rounding. Non-GAAP financial measure. See Appendix for reconciliations. Organic revenue growth represents the period-over-period 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 periods presented, are included in our consolidated statements of operations for each of the entire 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(2) ($mm) Revenue ($mm)(1) Commentary 14% Growth Wealth Management Other 37% Growth 44% Growth 6 Revenue growth driven by strong performance from both new and existing partner firms: Total revenues grew 37.4% to $910.9 million Wealth management fees grew 38.2% to $853.0 million In excess of 95% fee based recurring revenue ~23% of 2018 revenue was not correlated to markets “Same store” sales / organic revenue(3) growth 13.0% In addition to top line revenue growth, we achieved 43.8% Adjusted Net Income Per Share(2) growth 51 58 FY 2017 FY 2018 $45.8 $57.8 $617.1 $853.0 $662.9 $910.9 FY 2017 FY 2018 $1.21 $1.74 FY 2017 FY 2018

GRAPHIC

 

Appendix

GRAPHIC

 

Net Income (Loss) to Adjusted Net Income / Adjusted Net Income Per Share Reconciliation In 2018, primarily relates to one-time expenses related to (a) Q4 2018 Loring Ward severance cash compensation of $507, which was recorded in compensation and related expenses and Q3 2018 IPO and related reorganization transaction cash compensation expenses of $5,926, which were recorded in compensation and related expenses, (b) transaction expenses of $1,762, which were recorded in selling, general and administrative expenses, associated with the acquisition of Loring Ward of which $1,114 were incurred in Q4 2018 and $648 were incurred in Q3 2018 and (c) Q4 2018 other expenses, net of $2,373, which were recorded in other (expense) income-net, primarily related to the loss on sale of a tax customer list and related receivables. 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 December 31, 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 $25,171. See calculation of Adjusted Shares Outstanding in the fourth quarter and full year 2018 earnings release. Three Months Ended December 31, Twelve Months Ended December 31, ($ in thousands) 2017 2018 2017 2018 Net Income (Loss) $(9,690) $17,547 $(48,359) $(41,087) Income Tax Expense (Benefit) (2,782) 3,783 (1,501) 9,450 Amortization of Debt Financing Costs 1,358 782 4,084 3,498 Intangible Amortization 18,347 24,981 64,367 90,381 Non-Cash Equity Compensation Expense 3,480 12,856 34,879 44,468 Non-Cash Changes in Fair Value of Estimated Contingent Consideration 15,067 (22,241) 22,294 6,638 Gain on Sale of Investment – – – (5,509) Loss on Extinguishment of Borrowings – – 8,106 21,071 Delayed Offering Cost Expense – – 9,840 – Other One Time Transaction Expenses(1) – 3,994 2,843 11,529 Subtotal $25,780 $41,702 $96,553 $140,439 Pro Forma Income Tax Expense (27%)(2) (6,961) (11,260) (26,069) (37,919) Tax Adjustments(2)(3) 4,651 6,307 16,217 22,828 Adjusted Net Income $23,470 $36,749 $86,701 $125,348 Adjusted Shares Outstanding(4) 71,843,916 71,677,504 71,843,916 71,960,540 Adjusted Net Income Per Share $0.33 $0.51 $1.21 $1.74 8

GRAPHIC