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 20, 2020

__________________

 

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.)
     

875 Third Avenue, 28th 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):

 

¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:
         
Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Class A common stock, par value $0.01 per share   FOCS   Nasdaq Global Select Market

 

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 ¨

 

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. ¨

 

 

 

 

 

Item 2.02Results of Operations and Financial Condition.

 

On February 20, 2020, Focus Financial Partners Inc. (the “Company”) issued a press release reporting results for its fourth quarter and full year ended December 31, 2019. A copy of the press release is furnished with this Current Report on Form 8-K (this “Current Report”) as Exhibit 99.1.

 

Item 7.01Regulation FD Disclosure.

 

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

 

On February 20, 2020, the Company also posted a slide presentation entitled “Fourth Quarter & Full Year 2019 Earnings Release Supplement” dated February 20, 2020 to the “Events” section of the “Investor Relations” section of its website (www.focusfinancialpartners.com). A copy of the slide presentation is furnished with this Current Report as Exhibit 99.2.

 

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 9.01Financial Statements and Exhibits.

 

(d)         Exhibits.

 

Exhibit No.

 

Description

99.1   Focus Financial Partners Inc. Press Release, dated February 20, 2020.
99.2   Focus Financial Partners Inc. Slide Presentation, dated February 20, 2020.

 

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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 20, 2020

 

4

Exhibit 99.1

 

 

 

Focus Financial Partners Reports Fourth Quarter and Full Year 2019 Results

Excellent Performance Across Key Metrics

Reinforces 2025 Strategy and Targets

  

New York, New York – February 20, 2020 – 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, 2019.

 

Fourth Quarter 2019 Highlights

 

·Total revenues of $340.2 million, 37.5% growth year over year
·Organic revenue growth(1) rate of 25.2% year over year
·GAAP net loss of $12.7 million
·GAAP basic and diluted net loss per share of $0.25
·Adjusted Net Income(2) of $56.0 million, 52.3% growth year over year
·Adjusted Net Income Per Share(2) of $0.75, 47.1% growth year over year
·Net Leverage Ratio(3) of 4.00x, 0.27x decline from 2019 third quarter

 

Full Year 2019 Highlights

 

·Total revenues of $1.22 billion, 33.8% growth year over year
·Organic revenue growth(1) rate of 15.1% year over year
·GAAP net loss of $12.0 million
·GAAP basic and diluted net loss per share of $0.28
·Adjusted Net Income(2) of $178.6 million, 42.5% growth year over year
·Adjusted Net Income Per Share(2) of $2.38, 36.8% growth year over year
·Re-affirming annual growth targets of 20% for revenues and Adjusted Net Income Per Share(2)
·Re-affirming Net Leverage Ratio(3) target range of 3.5x – 4.5x

 

(1)Please see footnote 2 under “How We Evaluate Our Business” later in this press release.
(2)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.
(3)Please see footnote 6 under “How We Evaluate Our Business” later in this press release.

 

“2019 was an excellent year for Focus and demonstrated the growth trajectory of our business,” said Rudy Adolf, Founder, CEO and Chairman. “We achieved a 25% organic growth rate in the fourth quarter, reflecting strong performance by our partner portfolio. We are operating at a leading scale for this industry, with over $1.2 billion in revenues, 64 partner firms, and a long track record of value add and successful acquisitions. We are confident in the forward potential of our business as we advance towards our 2025 objectives. We believe that our unique model of entrepreneurship combined with access to value-added services and permanent capital will continue to make us the partner of choice, in turn creating superior value for shareholders.”

 

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“Our 2019 fourth quarter results were excellent, capping a strong year of growth and profitability for our business,” said Jim Shanahan, Chief Financial Officer. “We grew our top and bottom line at levels that are well above typical rates in the wealth management industry and also delivered robust Adjusted Net Income and Adjusted Net Income Per Share growth. We further diversified our revenue stream, substantially increased our net cash provided by operating activities and Cash Flow Available for Capital Allocation and reduced our Net Leverage Ratio to 4.00x. Our partners delivered strong growth and enhanced client services, reflecting the benefits of access to our scale and resources. We have great momentum as we begin 2020 and are well positioned to deliver substantial value to our partners and shareholders alike.”

 

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 (“IPO”), the financial statements included herein represent those 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 2019 Financial Highlights

 

Total revenues were $340.2 million, 37.5%, or $92.7 million higher than the fourth quarter of the prior year. The primary driver of this increase was organic revenue growth, inclusive of mergers, from our existing partner firms of approximately $62.3 million. The balance of the increase of $30.4 million was due to revenue from new partner firms acquired over the twelve months ended December 31, 2019. We completed several landmark transactions last year, including Williams Jones, Escala Partners, and Altman, Greenfield & Selvaggi, which drove substantial growth in our revenues and profitability.

 

An estimated 70.5%, or $240.0 million, of total revenues were correlated to the financial markets, of which approximately 70.2%, or $168.6 million, were generated from advance billings. The remaining 29.5%, or $100.2 million, were not correlated to the markets. These revenues typically consist of fixed fees for investment management, tax advice and family office type services, primarily for high and ultra-high net worth clients. In excess of 95% of total revenues were fee-based and recurring.

 

Year-over-year organic revenue growth(1) was 25.2%, higher than the 10.7% for the prior year quarter. The positive change reflects strong organic growth by our partner firms over the last twelve months, inclusive of the Loring Ward acquisition which was completed during the fourth quarter of 2018.

  

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Adjusted EBITDA(2) was $83.0 million, 53.1% higher than the prior year period and our Adjusted EBITDA margin(3) was 24.4%. The sequential margin increase from the 2019 third quarter was primarily driven by higher revenues related to family office type services, as well as effective expense management.

 

GAAP net loss was $12.7 million compared to GAAP net income of $17.5 million in the prior year quarter. Adjusted Net Income(2) was $56.0 million, an increase of 52.3%, or $19.2 million over the prior year quarter. Adjusted Net Income Per Share(2) was $0.75 per share, $0.24, or 47.1%, higher year-over-year, reflecting our strong organic growth and acquisition momentum in the last twelve months.

 

Full Year 2019 Financial Highlights

 

Total revenues were $1.22 billion, 33.8%, or $307.5 million higher than the prior year. The primary driver of this increase was revenue growth from our existing partner firms of approximately $222.5 million. The majority of this growth was driven by organic growth, inclusive of mergers, generated by our partner firms in the last twelve months, as well as a full period of revenue recognized during 2019 for partner firms that were acquired during 2018. The balance of the increase of $85.0 million was due to revenue from new partner firms acquired during 2019.

 

Organic revenue growth(1) for 2019 was 15.1%, a two percentage point increase from 13.0% in the prior year.

 

Adjusted EBITDA(2) was $269.8 million, up 32.7% year over year and Adjusted EBITDA margin(3) was 22.1% for the full year.

 

GAAP net loss was $12.0 million compared to a GAAP net loss of $41.1 million in the prior year. Adjusted Net Income(2) was $178.6 million, an increase of 42.5%, or $53.2 million over the prior year. Adjusted Net Income Per Share(2) was $2.38 per share, $0.64 or 36.8%, higher year-over-year, reflecting our strong organic growth and acquisition momentum over the past year as well as the elimination of interest expense associated with our $207.0 million Second Lien Term Loan which was repaid in July 2018.

 

(1)Please see footnote 2 under “How We Evaluate Our Business” later in this press release.
(2)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.
(3)Calculated as Adjusted EBITDA divided by Revenues.

 

Balance Sheet and Liquidity

 

As of December 31, 2019, cash and cash equivalents were $65.2 million and debt outstanding under the Company’s credit facilities was approximately $1.28 billion.

 

Of the total debt outstanding as of December 31, 2019, approximately $1.14 billion were borrowings under our First Lien Term Loan (“Term Loan”) and $140.0 million were borrowings under our First Lien Revolver (“Revolver”). Our Net Leverage Ratio(1) at December 31, 2019 was 4.00x, within our target range of 3.5x to 4.5x.

 

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Our net cash provided by operating activities for the full year 2019 increased to $194.8 million from $105.9 million for the full year 2018. Our Cash Flow Available for Capital Allocation(2) for the full year 2019 increased 55.2% to $163.5 million from $105.3 million for full year 2018. These increases reflect the growth of existing partner firms and the addition of new partner firms during the year.

 

On January 27, 2020, we successfully repriced the interest rate applicable to the Term Loan. In an oversubscribed transaction, the interest rate was reduced from LIBOR +2.50% to LIBOR + 2.00%. There were no changes to any of the terms of the Revolver as a result of this repricing, and the size of the Term Loan was not increased.

 

(1)Please see footnote 6 under “How We Evaluate Our Business” later in this press release.
(2)Non-GAAP financial measure. See ‘‘Reconciliation of Non-GAAP Financial Measures—Cash Flow Available for Capital Allocation” later in this press release.

 

Teleconference, Webcast and Presentation Information

 

Founder, CEO and Chairman, Rudy Adolf, and Chief Financial Officer, Jim Shanahan, will host a conference call today, February 20, 2020 at 8:30 a.m. Eastern Time to discuss the Company’s 2019 fourth quarter and full year results and outlook. The call can be accessed by dialing +1-877-407-0989 (inside the U.S.) or +1-201-389-0921 (outside the U.S.) and entering the passcode 13698868.

 

A live, listen-only webcast, together with a slide presentation titled “Fourth Quarter & Full Year 2019 Earnings Release Supplement” dated February 20, 2020, 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.

 

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Cautionary Note 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 annual report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission.

 

Investor and Media Contact Information

 

Tina Madon

Head of Investor Relations & Corporate Communications

Tel: (646) 813-2909

tmadon@focuspartners.com

 

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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, 2018 and 2019 include the following:

 

   Three Months Ended   Twelve Months Ended 
   December 31,   December 31, 
   2018   2019   2018   2019 
   (dollars in thousands, except per share data) 
Revenue Metrics:                    
Revenues  $247,515   $340,231   $910,880   $1,218,341 
Revenue growth (1) from prior period   30.4%   37.5%   37.4%   33.8%
Organic revenue growth (2) from prior period   10.7%   25.2%   13.0%   15.1%
                     
Management Fees Metrics (operating expense):                    
Management fees  $63,357   $87,331   $232,703   $304,701 
Management fees growth (3) from prior period   32.8%   37.8%   42.2%   30.9%
Organic management fees growth (4) from prior period   14.7%   22.6%   14.3%   10.2%
                     
Adjusted EBITDA Metrics:                    
Adjusted EBITDA (5)  $54,210   $83,003   $203,402   $269,834 
Adjusted EBITDA growth (5) from prior period   29.1%   53.1%   40.1%   32.7%
                     
Adjusted Net Income Metrics:                    
Adjusted Net Income (5)  $36,749   $55,984   $125,348   $178,578 
Adjusted Net Income growth (5) from prior period   56.6%   52.3%   44.6%   42.5%
                     
Adjusted Net Income Per Share Metrics:                    
Adjusted Net Income Per Share (5)  $0.51   $0.75   $1.74   $2.38 
Adjusted Net Income Per Share growth (5) from prior period   54.5%   47.1%   43.8%   36.8%
Adjusted Shares Outstanding (5)   71,677,504    75,072,782    71,960,540    75,039,357 
                     
Other Metrics:                    
Net Leverage Ratio (6) at period end   3.33x   4.00x   3.33x   4.00x
Acquired Base Earnings (7)  $   $   $37,750   $35,138 
Number of partner firms at period end (8)   58    63    58    63 

 

(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.

 

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(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 period-over-period 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 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)Net Leverage Ratio represents the First Lien Leverage Ratio (as defined in the Credit Facility), and means the ratio of amounts outstanding under the First Lien Term Loan and First Lien Revolver plus other outstanding debt obligations secured by a lien on the assets of Focus LLC (excluding letters of credit other than unpaid drawings thereunder) minus unrestricted cash and cash equivalents to Consolidated EBITDA (as defined in the Credit Facility).

 

(7)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.

 

(8)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.

 

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Unaudited Condensed Consolidated Financial Statements

FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated statements of operations

(in thousands, except share and per share data)

 

   For the three months ended   For the twelve months ended 
   December 31,   December 31, 
   2018   2019   2018   2019 
REVENUES:                
Wealth management fees  $232,147   $323,927   $853,033   $1,149,655 
Other   15,368    16,304    57,847    68,686 
Total revenues   247,515    340,231    910,880    1,218,341 
OPERATING EXPENSES:                    
Compensation and related expenses   96,080    112,657    358,084    431,465 
Management fees   63,357    87,331    232,703    304,701 
Selling, general and administrative   48,658    62,253    170,270    232,911 
Management contract buyout               1,428 
Intangible amortization   24,981    35,858    90,381    130,718 
Non-cash changes in fair value of estimated contingent consideration   (22,241)   13,101    6,638    38,797 
Depreciation and other amortization   2,249    3,140    8,370    10,675 
Total operating expenses   213,084    314,340    866,446    1,150,695 
INCOME FROM OPERATIONS   34,431    25,891    44,434    67,646 
OTHER INCOME (EXPENSE):                    
Interest income   457    337    1,266    1,164 
Interest expense   (10,968)   (15,156)   (56,448)   (58,291)
Amortization of debt financing costs   (782)   (969)   (3,498)   (3,452)
Gain on sale of investment           5,509     
Loss on extinguishment of borrowings           (21,071)    
Other (expense) income—net   (2,121)   (354)   (2,350)   (1,049)
Income from equity method investments   313    59    521    755 
Impairment of equity method investment       (11,749)       (11,749)
Total other expense—net   (13,101)   (27,832)   (76,071)   (72,622)
INCOME (LOSS) BEFORE INCOME TAX   21,330    (1,941)   (31,637)   (4,976)
INCOME TAX EXPENSE   3,783    10,750    9,450    7,049 
NET INCOME (LOSS)   17,547    (12,691)   (41,087)   (12,025)
Non-controlling interest   (7,939)   692    40,497    (847)
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS  $9,608   $(11,999)  $(590)  $(12,872)
Income (loss) per share of Class A common stock:                    
Basic  $0.22   $(0.25)  $(0.01)  $(0.28)
Diluted  $0.22   $(0.25)  $(0.01)  $(0.28)
Weighted average shares of Class A common stock outstanding:                    
Basic   43,651,256    47,203,578    43,122,782    46,792,389 
Diluted   43,714,579    47,203,578    43,122,782    46,792,389 

 

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FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated balance sheets

(in thousands, except share and per share data)

 

   December 31,   December 31, 
   2018   2019 
ASSETS          
Cash and cash equivalents  $33,213   $65,178 
Accounts receivable less allowances of $576 at 2018 and $684 at 2019   98,596    129,337 
Prepaid expenses and other assets   76,150    58,581 
Fixed assets—net   24,780    41,634 
Operating lease assets       180,114 
Debt financing costs—net   12,340    9,645 
Deferred tax assets—net   70,009    75,453 
Goodwill   860,495    1,090,231 
Other intangible assets—net   762,195    1,003,456 
TOTAL ASSETS  $1,937,778   $2,653,629 
LIABILITIES AND EQUITY          
LIABILITIES          
Accounts payable  $8,935   $8,077 
Accrued expenses   36,252    41,442 
Due to affiliates   39,621    58,600 
Deferred revenue   6,215    7,839 
Other liabilities   158,497    215,878 
Operating lease liabilities       196,425 
Borrowings under credit facilities (stated value of $838,985 and $1,279,188 at December 31, 2018 and December 31, 2019, respectively)   836,582    1,272,999 
Tax receivable agreements obligations   39,156    48,399 
TOTAL LIABILITIES   1,125,258    1,849,659 
EQUITY          
Class A common stock, par value $0.01, 500,000,000 shares authorized;
46,265,903 and 47,421,315 shares issued and outstanding at December 31, 2018 and December 31, 2019, respectively
   462    474 
Class B common stock, par value $0.01, 500,000,000 shares authorized;
22,823,272 and 22,075,749 shares issued and outstanding at December 31, 2018 and December 31, 2019, respectively
   228    221 
Additional paid-in capital   471,386    498,186 
Accumulated deficit   (590)   (13,462)
Accumulated other comprehensive loss   (1,824)   (1,299)
Total shareholders' equity   469,662    484,120 
Non-controlling interest   342,858    319,850 
Total equity   812,520    803,970 
TOTAL LIABILITIES AND EQUITY  $1,937,778   $2,653,629 

 

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FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated statements of cash flows

(in thousands)

   For the twelve months ended 
   December 31, 
   2018   2019 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(41,087)  $(12,025)
Adjustments to reconcile net loss to net cash provided by operating activities—net of effect of acquisitions:          
Intangible amortization   90,381    130,718 
Depreciation and other amortization   8,370    10,675 
Amortization of debt financing costs   3,498    3,452 
Non-cash equity compensation expense   44,468    18,329 
Non-cash changes in fair value of estimated contingent consideration   6,638    38,797 
Income from equity method investments   (521)   (755)
Impairment of equity method investment       11,749 
Distributions received from equity method investments   1,118    751 
Deferred taxes and other non-cash items   6,655    3,555 
Loss on extinguishment of borrowings   19,001     
Changes in cash resulting from changes in operating assets and liabilities:          
Accounts receivable   (23,747)   (29,562)
Prepaid expenses and other assets   (10,401)   3,796 
Accounts payable   2,341    (1,172)
Accrued expenses   4,302    8,276 
Due to affiliates   6,706    18,989 
Other liabilities   (10,322)   (10,487)
Deferred revenue   (1,481)   (312)
Net cash provided by operating activities   105,919    194,774 
CASH FLOWS FROM INVESTING ACTIVITIES:          
Cash paid for acquisitions and contingent consideration—net of cash acquired   (413,044)   (532,513)
Purchase of fixed assets   (9,106)   (25,472)
Investment and other   (24,300)   1,530 
Net cash used in investing activities   (446,450)   (556,455)
CASH FLOWS FROM FINANCING ACTIVITIES:          
Borrowings under credit facilities   300,000    969,125 
Repayments of borrowings under credit facilities   (461,026)   (529,796)
Proceeds from issuance of common stock, net   565,160     
Payments in connection with unit redemption, net   (61,539)    
Contingent consideration paid   (12,554)   (22,040)
Payments of debt financing costs   (4,612)   (3,743)
Proceeds from exercise of stock options       838 
Payments on finance lease obligations   (198)   (176)
Distributions for unitholders   (2,744)   (20,641)
Net cash provided by financing activities   322,487    393,567 
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS   (198)   79 
CHANGE IN CASH AND CASH EQUIVALENTS   (18,242)   31,965 
CASH AND CASH EQUIVALENTS:          
Beginning of period   51,455    33,213 
End of period  $33,213   $65,178 

 

  10

 

 

 

 

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, 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, impairment of equity method investment, management contract buyout and other one-time transaction expenses. 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; and
·To evaluate the effectiveness of our business strategies.

 

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.

 

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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, 2018 and 2019:

 

   Three Months Ended   Twelve Months Ended 
   December 31,   December 31, 
   2018   2019   2018   2019 
   (in thousands) 
Net income (loss)  $17,547   $(12,691)  $(41,087)  $(12,025)
Interest income   (457)   (337)   (1,266)   (1,164)
Interest expense   10,968    15,156    56,448    58,291 
Income tax expense   3,783    10,750    9,450    7,049 
Amortization of debt financing costs   782    969    3,498    3,452 
Intangible amortization   24,981    35,858    90,381    130,718 
Depreciation and other amortization   2,249    3,140    8,370    10,675 
Non-cash equity compensation expense   12,856    4,954    44,468    18,329 
Non-cash changes in fair value of estimated contingent consideration       (22,241 )       13,101         6,638         38,797  
Gain on sale of investment           (5,509)    
Loss on extinguishment of borrowings           21,071     
Other expense (income), net   2,121    354    2,350    1,049 
Impairment of equity method investment       11,749        11,749 
Management contract buyout               1,428 
Other one-time transaction expenses   1,621        8,590    1,486 
Adjusted EBITDA  $54,210   $83,003   $203,402   $269,834 

 

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, 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, impairment of equity method investment, management contract buyout 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.

  

12

 

 

 

 

Adjusted Net Income Per Share is calculated by dividing Adjusted Net Income by the Adjusted Shares Outstanding. Adjusted Shares Outstanding includes: (i) the weighted average shares of Class A common stock outstanding during the period, (ii) the weighted average incremental shares of Class A common stock related to stock options and unvested Class A common stock, and restricted stock units 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 period based on the closing price of our Class A common stock on the last trading day of the period (assuming that 100% of such Focus LLC common units have been exchanged for Class A common stock).

 

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.

 

13

 

 

 

 

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.

 

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, 2018 and 2019:

  

   Three Months Ended
December 31,
   Twelve Months Ended
December 31,
 
   2018   2019   2018   2019 
   (dollars in thousands, except per share data) 
Net income (loss)  $17,547   $(12,691)  $(41,087)  $(12,025)
Income tax expense   3,783    10,750    9,450    7,049 
Amortization of debt financing costs   782    969    3,498    3,452 
Intangible amortization   24,981    35,858    90,381    130,718 
Non-cash equity compensation expense   12,856    4,954    44,468    18,329 
Non-cash changes in fair value of estimated contingent consideration     (22,241 )     13,101       6,638       38,797  
Gain on sale of investment           (5,509)    
Loss on extinguishment of borrowings           21,071     
Impairment of equity method investment       11,749        11,749 
Management contract buyout               1,428 
Other one-time transaction expenses(1)   3,994        11,529    1,486 
Subtotal   41,702    64,690    140,439    200,983 
Pro forma income tax expense (27%)   (11,260)   (17,466)   (37,919)   (54,265)
Tax Adjustments(2)   6,307    8,760    22,828    31,860 
Adjusted Net Income  $36,749   $55,984   $125,348   $178,578 
Adjusted Shares Outstanding   71,677,504    75,072,782    71,960,540    75,039,357 
Adjusted Net Income Per Share  $0.51   $0.75   $1.74   $2.38 
Calculation of Adjusted Shares Outstanding:                    
Weighted average shares of Class A common stock outstanding—basic(3)     43,651,256       47,203,578       43,122,782       46,792,389  
Adjustments:                    
Weighted average incremental shares of Class A common stock related to stock options and unvested Class A common stock and restricted stock units(4) 63,323       34,391       102,549       20,428  
Weighted average Focus LLC common units outstanding(5)     22,823,272       22,158,584       22,630,668       22,424,378  
Weighted average common unit equivalent of Focus LLC incentive units outstanding(6)     5,139,653       5,676,229       6,104,541       5,802,162  
Adjusted Shares Outstanding   71,677,504    75,072,782    71,960,540    75,039,357 

 

14

 

 

 

 

 

(1)In 2018, primarily relates to one-time expenses related to (a) Loring Ward severance cash compensation of $507 during the three months ended December 31, 2018, which was recorded in compensation and related expenses, and IPO and Reorganization Transaction cash compensation expenses of $5,926 during the three months ended September 30, 2018, 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 during the three months ended December 31, 2018 and $648 were incurred during the three months ended September 30, 2018 and (c) other expenses, net of $2,373 during the three months ended December 31, 2018, which were recorded in other (expense) income net, primarily related to the loss on sale of a tax customer list and related receivables. In 2019, relates to one-time expenses related to (a) Loring Ward severance cash compensation of $280 during the three months ended March 31, 2019, which were recorded in compensation and related expenses and (b) transaction expenses of $786 and $420, associated with the acquisition of Loring Ward, which were recorded in selling, general and administrative expenses during the three months ended March 31, 2019 and June 30, 2019, respectively.

 

(2)As of December 31, 2019, 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 $35,017.

 

(3)Represents our GAAP weighted average Class A common stock outstanding–basic.

 

(4)The incremental shares for the twelve months ended December 31, 2018 and for the three and twelve months ended December 31, 2019 related to stock options, unvested Class A common stock and restricted stock units 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.

 

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

 

(6)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.

 

Adjusted Free Cash Flow and Cash Flow Available for Capital Allocation

 

To supplement our statements of cash flows presented on a GAAP basis, we use non-GAAP liquidity measures on a trailing 4-quarter basis to analyze cash flows generated from our operations. We consider Adjusted Free Cash Flow and Cash Flow Available for Capital Allocation to be liquidity measures that provide useful information to investors about the amount of cash generated by the business and are two factors in evaluating the amount of cash available to pay contingent consideration, make strategic acquisitions and repay outstanding borrowings. Adjusted Free Cash Flow and Cash Flow Available for Capital Allocation do not represent our residual cash flow available for discretionary expenditures as they do not deduct our mandatory debt service requirements and other non-discretionary expenditures. We define Adjusted Free Cash Flow as net cash provided by operating activities, less purchase of fixed assets, distributions for unitholders and payments under tax receivable agreements (if any). We define Cash Flow Available for Capital Allocation as Adjusted Free Cash Flow plus the portion of contingent consideration paid which is classified as operating cash flows under GAAP. The balance of such contingent consideration is classified as investing and financing cash flows under GAAP; therefore, we add back the amount included in operating cash flows so that the full amount of contingent consideration payments is treated consistently. Adjusted Free Cash Flow and Cash Flow Available for Capital Allocation are not defined under GAAP and should not be considered as alternatives to net cash from operating, investing or financing activities. In addition, Adjusted Free Cash Flow and Cash Flow Available for Capital Allocation can differ significantly from company to company.

 

15

 

 

 

 

Set forth below is a reconciliation of net cash provided by operating activities to Adjusted Free Cash Flow and Cash Flow Available for Capital Allocation for the trailing 4-quarters ended December 31, 2018 and 2019:

 

   Trailing 4-Quarters Ended 
   December 31, 
   2018   2019 
   (in thousands) 
Net cash provided by operating activities  $105,919   $194,774 
Purchase of fixed assets   (9,106)   (25,472)
Distributions for unitholders   (2,744)   (20,641)
Payments under tax receivable agreements        
Adjusted Free Cash Flow  $94,069   $148,661 
Portion of contingent consideration paid included in operating activities (1)   11,262    14,822 
Cash Flow Available for Capital Allocation (2)  $105,331   $163,483 

 

 

(1)A portion of contingent consideration paid is classified as operating cash outflows in accordance with GAAP, with the balance reflected in investing and financing cash outflows. Contingent consideration paid classified as operating cash outflows for each of the trailing 4-quarters ended December 31, 2018 was $1.5 million, $1.6 million, $4.6 million and $3.6 million, respectively, totaling $11.3 million for the trailing 4-quarters ended December 31, 2018. Contingent consideration paid classified as operating cash outflows for each of the trailing 4-quarters ended December 31, 2019 was $9.2 million, $4.0 million, $0.8 million and $0.8 million, respectively, totaling $14.8 million for the trailing 4-quarters ended December 31, 2019.

 

(2)Cash Flow Available for Capital Allocation excludes all contingent consideration that was included in either operating, investing or financing activities of our consolidated statements of cash flows.

 

Supplemental Information

 

Economic Ownership

 

The following table provides supplemental information regarding the economic ownership of Focus Financial Partners, LLC as of December 31, 2019:

 

   December 31, 2019 
   Interest   % 
Economic Ownership of Focus Financial Partners, LLC Interests:        
Focus Financial Partners Inc. (1)   47,421,315    63.0%
Non-Controlling Interests (2)   27,807,744    37.0%
Total   75,229,059    100.0%

 

 

(1)Includes 53,293 unvested common units.
(2)Includes 5,731,995 Focus LLC common units issuable upon conversion of the outstanding 19,754,450 vested and unvested incentive units (assuming vesting of the unvested incentive units and a December 31, 2019 period end value of the Focus LLC common units equal to $29.47).

 

16

 

 

 

 

Class A and Class B Common Stock Outstanding

 

The following table provides supplemental information regarding the Company’s Class A and Class B common stock:

  

   Q4 2019 Weighted Average
Outstanding
   Number of Shares
Outstanding at
December 31, 2019
   Number of Shares
Outstanding at
February 20, 2020
 
Class A   47,203,578    47,421,315    47,421,315 
Class B   22,158,584    22,075,749    22,075,749 

 

Incentive Units

 

The following table provides supplemental information regarding the outstanding Focus LLC vested and unvested Incentive Units (“IUs”) at December 31, 2019. The vested IUs in future periods can be exchanged into shares of Class A common stock (after conversion into a number of Focus LLC common units that takes into account the then-current value of common units and such IUs aggregate hurdle amount), and therefore, the Company calculates the Class A common stock equivalent of such IUs for purposes of calculating Adjusted Net Income Per Share. The period-end share price of the Company’s Class A common stock is used to calculate the intrinsic value of the outstanding Focus LLC IUs in order to calculate a Focus LLC common unit equivalent of the Focus LLC IUs.

 

Focus Financial Partners, LLC Incentive Units by Hurdle at December 31, 2019:

 

  Hurdle
Rates
   Number
Outstanding
  $1.42   175,421
  $5.50   97,798
  $6.00   56,702
  $7.00   482,545
  $9.00   1,984,779
  $11.00   1,148,023
  $12.00   520,000
  $13.00   831,416
  $14.00   56,205
  $16.00   168,552
  $17.00   80,000
  $19.00   865,633
  $21.00   3,975,500
  $22.00   1,289,667
  $23.00   524,828
  $26.26   25,000
  $27.00   29,484
  $27.90   2,051,131
  $28.50   1,646,766
  $33.00   3,715,000
  $36.64   30,000
       19,754,450

 

17

 

Exhibit 99.2

 

Fourth Quarter & Full Year 2019 Earnings Release Supplement February 20, 2020

 

 

2 Disclaimer 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, 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 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, 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, impairment of equity method investment, management contract buyout, delayed offering cost expense and other one time transaction expenses . 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 : ( i ) 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, (ii) 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 (iii) 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 ( i ) as a measure of operating performance, (ii) for planning purposes, including the preparation of budgets and forecasts, (iii) to allocate resources to enhance the financial performance of our business, and (iv) to evaluate the effectiveness of our business strategies . 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 : ( i ) Adjusted EBITDA does not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments, (ii) Adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs, and (iii) 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 . 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, 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, impairment of equity method investment, delayed offering cost expense, management contract buyout 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 . 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 : ( i ) 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, (ii) 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 (iii) 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 : ( i ) Adjusted Net Income and Adjusted Net Income Per Share do not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments, (ii) Adjusted Net Income and Adjusted Net Income Per Share do not reflect changes in, or cash requirements for, working capital needs, and (iii) 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 . To supplement our statements of cash flows presented on a GAAP basis, we use non - GAAP liquidity measures on a trailing 4 - quarter basis to analyze cash flows generated from our operations . We consider Adjusted Free Cash Flow and Cash Flow Available for Capital Allocation to be liquidity measures that provide useful information to investors about the amount of cash generated by the business and are two factors in evaluating the amount of cash available to pay contingent consideration, make strategic acquisitions and repay outstanding borrowings . Adjusted Free Cash Flow and Cash Flow Available for Capital Allocation do not represent our residual cash flow available for discretionary expenditures as they do not deduct our mandatory debt service requirements and other non - discretionary expenditures . We define Adjusted Free Cash Flow as net cash provided by operating activities, less purchase of fixed assets, distributions for unitholders and payments under tax receivable agreements (if any) . We define Cash Flow Available for Capital Allocation as Adjusted Free Cash Flow plus the portion of contingent consideration paid which is classified as operating cash flows under GAAP . Adjusted Free Cash Flow and Cash Flow Available for Capital Allocation are not defined under GAAP and should not be considered as alternatives to net cash from operating, investing or financing activities . In addition, Adjusted Free Cash Flow and Cash Flow Available for Capital Allocation can differ significantly from company to company .

 

 

Table of Contents Pages Financial Summary and Q1 2020 Outlook 4 - 11 Revenues 12 - 15 M &A Activity 16 - 19 Leverage and Cash Flow Available for Capital Allocation 20 - 24 Appendix 25 - 31 3

 

 

Financial Summary and Q1 2020 Outlook 4

 

 

Strong and Sustained Financial Performance Over the Long - Term 1. Non - GAAP financial measure. See Appendix for reconciliations. 5 $268.9 $325.6 $382.3 $485.4 $662.9 $910.9 $1,218.3 2013 2014 2015 2016 2017 2018 2019 Revenues ($ in millions) CAGR: 28.6% $55.7 $67.8 $75.4 $103.0 $145.2 $203.4 $269.8 2013 2014 2015 2016 2017 2018 2019 Adjusted EBITDA (1) ($ in millions) CAGR: 30.1% $38.6 $46.7 $52.3 $68.6 $86.7 $125.3 $178.6 2013 2014 2015 2016 2017 2018 2019 Adjusted Net Income (1) ($ in millions) CAGR: 29.1% $0.54 $0.65 $0.73 $0.95 $1.21 $1.74 $2.38 2013 2014 2015 2016 2017 2018 2019 ANI Per Share (1) CAGR: 28.0%

 

 

Strong Results Driven by Scale and Differentiated Model 6 Operating at RIA industry leading scale, driving strong growth and profitability… ▪ 2019 full - year revenue in excess of $1.2 billion. ▪ 64 partner firms with ~4,000 employees and partners. ▪ Long track record of value add and successful acquisitions . …Reinforcing our confidence in our ability to achieve our 2025 strategic vision ▪ Revenues of ~$3.5 billion . ▪ Adjusted EBITDA (1) of ~ $840 million . ▪ Adjusted EBITDA margin (1) of ~24% . ▪ ~ 100 partner firms . Our partners made great progress in strengthening and growing their businesses… ▪ Next gen talent development , including incentive alignment and career pathing. ▪ Operational and technology enhancements , including vendor assessment and implementation. ▪ Business development , including rebranding and sales training. 1. Non - GAAP financial measure. We do not provide a quantitative reconciliation of the forward - looking estimate of Adjusted EBITDA a nd Adjusted EBITDA margin to their most directly comparable GAAP financial measures because such GAAP measures are difficult to reliably predict or estimate without unr easonable effort due to their dependency on future uncertainties, such as items noted under the heading “Special Note Regarding Forward - Looking Statements”. In addition, we believe such reconciliations could imply a degree of precision that might be confusing or misleading to investors.

 

 

Strong Results Driven by Scale and Differentiated Model 7 …2019 was also a strong year for our M&A activity ▪ Closed 34 transactions. ▪ ~ 20% were new partner acquisitions , expanding our presence in strategically important markets . ▪ ~ 80% were mergers by our partners, broadening their geographic presence , client reach and service offerings . We will focus on three priorities in 2020… ▪ Deliver 20%+ annual revenue and ANI per share growth through a combination of growth by our partner group, supporting our partners through mergers, and adding excellent new partners in the U.S. and internationally. ▪ Leverage our insights and scale to enhance the business and client solutions we can offer our partners. ▪ Deploy capital to the highest return opportunities while remaining in our target leverage range of 3.5x to 4.5x . …And the year is off to a strong start ▪ Closed or announced 5 transactions , including 2 partner firm acquisitions, with a solid M&A pipeline . ▪ Focused on delivering business and client solutions that will further enhance our partners’ client services . ▪ Successfully repriced our First Lien Term Loan from L+2.50% to L+2.00% effective January 27, 2020.

 

 

▪ Revenues: $340.2 million, +37.5% year - over - year growth ▪ Organic revenue growth rate: (1) +25.2% ▪ Fee - based and recurring revenues: 95+% ▪ No partner firm closings in Q4 2019 2019 F ourth Quarter Financial Snapshot Revenues Adjusted EBITDA Adjusted Net Income and ANI per Share ▪ Adjusted EBITDA: (2) $83.0 million, +53.1% year - over - year growth ▪ Adjusted EBITDA margin: (3) 24.4% ▪ Adjusted Net Income: (2) $56.0 million, +52.3% year - over - year growth ▪ Adjusted Net Income per Share: (2) $0.75, +47.1% year - over - year gro wth ▪ Adjusted Shares Outstanding for purposes of calculating ANI : (2) 75.1 million 1. Organic revenue growth represents the period - over - period growth in revenues related to partner firms, including growth related t o 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 ou r 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. 2. Non - GAAP financial measure. See Appendix for reconciliations. 3. Calculated as Adjusted EBITDA divided by revenues. 8

 

 

▪ Revenues: $1.22 billion, +33.8% year - over - year growth ▪ Organic revenue growth rate: (1) +15.1% ▪ Fee - based and recurring revenues: 95+% ▪ Revenue attributable to 6 partner firm closings: $85.0 million 2019 Full Year Financial Snapshot Revenues Adjusted EBITDA Adjusted Net Income and ANI per Share ▪ Adjusted EBITDA: (2) $269.8 million, +32.7% year - over - year growth ▪ Adjusted EBITDA margin: (3) 22.1% ▪ Annual Acquired Base Earnings: (4) $ 35.1 million ▪ Adjusted Net Income: (2) $178.6 million, +42.5% year - over - year growth ▪ Adjusted Net Income Per Share: (2) $2.38, +36.8% year - over - year growth ▪ Adjusted Shares Outstanding for purposes of calculating ANI : (2) 75.0 million 1. Organic revenue growth represents the period - over - period growth in revenues related to partner firms, including growth related t o 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 st atements 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 exclu siv e of the effect of the partial period results of partner firms that are acquired during the comparable periods. 2. Non - GAAP financial measure. See Appendix for reconciliations. 3. Calculated as Adjusted EBITDA divided by revenues. 4. The terms of our management agreements entitle the management companies to management fees typically consisting of all future EB PC 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 retain ed 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. 9

 

 

▪ Estimated Adjusted EBITDA margin (2) of approximately 23% (3) ▪ Adjusted EBITDA attributable to new partner firm closing : $0.5 million * * Relates to closing of Nexus on 2/1/20. Full quarter Adjusted EBITDA contribution estimated to be ~$0.8 million (3) 1. 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 ope rat ions 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 partia l p eriod results of partner firms that are acquired during the comparable periods. 2. Calculated as Adjusted EBITDA divided by revenues. 3. Non - GAAP financial measure. The Company is not providing a quantitative reconciliation of its forward - looking estimate of Adjust ed EBITDA or Adjusted EBITDA margin to its most directly comparable GAAP financial measure because such GAAP measure, which is not included in the Company’s outlook, is difficult to reliably predict or estimate witho ut unreasonable effort due to its dependency on future uncertainties such as the items noted under the heading “Special Note Regarding Forward - Looking Statements.” In addition, we believe such a reconciliation could imply a deg ree of precision that might be confusing or misleading to investors. ▪ Organic revenue growth (1) estimate of ~19% ▪ Approximately $20 million in revenue items, primarily related to family office type services, that are not expected to be reflected in Q1 2020 revenues ▪ $10 million of incremental revenues in Q4 2019 that contributed to outperformance relative to original expectation on Q4 2019 organic growth rate; anticipate majority of this amount will recur in Q4 2020 ▪ $10 million of revenues related to Q1 2020 seasonality. Q1 2020 revenues will be lower by this amount relative to Q4 2019, but anticipate majority of this amount will recur in Q2 2020 ▪ Revenue attributable to new partner firm closing: $1.3 million* * Relates to closing of Nexus on 2/1/20. Full quarter revenue contribution estimated to be ~$2.0 million Q1 2020 Outlook 10 Revenues Adjusted EBITDA

 

 

1. Net leverage ratio represents the First Lien Leverage Ratio (as defined in the Credit Facility), and means the ratio of amoun ts outstanding under the First Lien Term Loan and First Lien Revolver plus other outstanding debt obligations secured by a lien on the assets of Focus LLC (excluding letters of credit other than unpai d d rawings thereunder) minus unrestricted cash and cash equivalents to Consolidated EBITDA (as defined in the Credit Facility). ▪ Cash consideration at closing for Q1 acquisitions to date of $46.0 million ▪ Q1 net leverage ratio (1) ~ 4.00x ▪ Estimated cash earnout payments in Q1 of ~$ 30 million ▪ No equity issuance in connection with acquisition activity. ▪ Next twelve months intangible tax shield for Adjusted Net Income of $35.0 million ▪ Annual interest expense reduction of $5+ million resulting from repricing of first lien term loan from L+2.50% to L+2.00% effective January 27, 2020 Q1 2020 Outlook (Continued) 11 Adjusted Net Income and ANI per Share Net Leverage and Cash Flow

 

 

Revenues 12

 

 

$323.9m , 95.2% $16.3m , 4.8% Wealth Management Fees Other ▪ 95%+ fee - based and recurring revenues ▪ Holistic wealth management fees tied to team - based service model ▪ Not a commission or interest revenue based model Multiple Sources of Revenue Create Diversification $240.0m , 70.5% $100.2m , 29.5% Revenues Correlated to Markets Correlated to Markets Not Correlated to Markets ▪ Advance billing structure used by majority of partner firms gives visibility into subsequent quarter ▪ High diversification of billing practices across 63 partner firms is an embedded revenue hedge ▪ Non - correlated revenues typically include fixed fees for investment advice, tax fees and family office type services ▪ Diversification reduces market risk to revenue stream ▪ International sources provide some revenue diversification ▪ 5 partner firms across Australia, Canada, and the UK $325.4m , 95.6% $14.8m , 4.4% Domestic International Q4 2019 Revenues by Source Q4 2019 Revenues by Region Q4 2019 Revenues Correlated to Markets 13 $168.6m , 70.2% $71.4m , 29.8% Billing Structure of Market - Correlated Revenues Advance Arrears

 

 

Organic Revenue Trend Reflects Strong Partner Firm Growth ▪ Q4 2019 year - over - year organic revenue growth 1 was 25.2% and trailing 8 quarter average was 16.0%, reflecting strong growth dynamics across partner firm portfolio 17.6% 16.7% 9.7% 10.7% 7.7% 18.0% 22.4% 25.2% Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Quarterly Organic Revenue Growth 1 Percentage Organic Revenue Growth Average 1. 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 Focus's partner firms and partner firms that have merged, that for the entire periods pr esented are included in Focus's consolidated statements of operations for the entire periods presented. Focus believes these growth statistics are useful in tha t 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 ac qui red during the comparable periods. 16 .0% Average 14

 

 

5.7% 13.4% 9.0% 6.6% 15.9% 14.0% Firms that have not completed a merger (20 firms) Firms that have completed at least one merger (30 firms) Entire portfolio of 50 partner firms Revenue CAGR Since Inception (2) Median Revenue CAGR Weighted Average Revenue CAGR Mergers More Than Double Our Partner Firms’ Revenue Growth 15 ▪ Partner firms who grow through mergers in addition to traditional client acquisition strategies have transformed their businesses through accelerated growth ▪ Mergers enable efficient access to large pools of client assets, new spheres of influence, distribution channels and exceptional advisor talent 1. The weightings are based on the full year 2019 revenues of the respective partner firms. 2. Inception means first full four quarters as a Focus partner firm and reflects activity through all market cycles during that tim e. The analysis includes the 50 firms since inception (out of the 63 firms) that have been with us for at least 2 years as of December 31, 2019 in order to determine a baseline re ven ue growth rate. If Focus partner firms merged together, their financials have been combined. 3. The 50 partner firms have been with Focus for a weighted average of ~6 years and a median period of ~4 years. 50 partner firms represented ~77% of our 2019 revenues (1) (1) (1)

 

 

M&A Activity 16

 

 

M&A Was a Substantial Driver of Growth in 2019 2019 Highlights ▪ Expanded partner firm portfolio 9% year over year to 63 firms ▪ Closed 34 transactions, exceeding 2018 volume by 36% ▪ Generated Acquired Base Earnings (1) of $35.1 million ▪ Partner firm mergers increased nearly 65% year over year and were more than 80% of 2019 transactions 1. The terms of our management agreements entitle the management companies to management fees typically consisting of all future EB PC 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 B ase 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 entit led to receive in excess of Target Earnings. Base Earnings may change in future periods for various business or contractual matters. 3 4 7 6 10 8 6 4 12 14 12 15 17 28 7 16 21 18 25 25 34 2013 2014 2015 2016 2017 2018 2019 New Partner Firms Mergers 17 Type Acquiring Partner Firm Closing Date Primary Office Location 1. Roof Advisory Group Fort Pitt Capital Group 10/1/19 Harrisburg, PA 2. Smiley TrinityPoint Wealth 10/1/19 Charlotte, NC 3. Harvest Capital Management The Colony Group 10/1/19 Concord, NH 4. Glass Malek The Colony Group 10/1/19 Los Angeles, CA Firm Name Q4 2019 Mergers

 

 

Q4 2019 Merger Activity 18 Firm Name Acquiring Partner Firm Type Closing Date Location Rationale Roof Advisory Group Fort Pitt Capital Group Fiduciary Wealth Manager 10/1/2019 Harrisburg, PA ▪ Expands presence in Pennsylvania ▪ Expands operational and financial planning resources ▪ Deepens and broadens investment capabilities Smiley TrinityPoint Wealth Fiduciary Wealth Manager 10/1/2019 Charlotte, NC ▪ Expands geographic footprint ▪ Diversifies client base Harvest Capital Management The Colony Group Fiduciary Wealth Manager 10/1/2019 Concord, NH ▪ Expands presence in New Hampshire ▪ Enhances existing investment strategies Glass Malek The Colony Group Family Office 10/1/2019 Los Angeles, CA ▪ Expands presence in Southern CA ▪ Enhances family office services ▪ Deep expertise and strong relationships in the industry

 

 

2020 Year - to - Date Deal Activity 1. The terms of our management agreements entitle the management companies to management fees typically consisting of all future EB PC 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 B ase 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 entit led to receive in excess of Target Earnings. Base Earnings may change in future periods for various business or contractual matters. 19 Highlights 2020 YTD ▪ Continued international expansion ▪ 1 new partner firm acquisition closed in Canada – Nexus ▪ Acquired Base Earnings (1) of $3.2 million ▪ 1 new partner firm in Australia signed (MEDIQ) expected to close in Q2 2020 ▪ Closed or announced 3 merger transactions ▪ Expanded partner firm portfolio to 64 firms * Signed and pending new partner firm expected to close in Q2 2020. ** Signed and pending merger expected to close in Q1 2020. Type Acquiring Partner Firm Closing Date Primary Office Location 1. Nexus Investment Management 2/1/20 Toronta, Canada 2. MEDIQ Financial Services* Q2 2020 Melbourne, Australia 1. Alliance Benefit Group Of Michigan Sentinel Benefits & Financial Group 1/1/20 Bingham Farms, MI 2. Berg Kovitz Investment Group 1/1/20 Chicago, IL 3. Nova Wealth Management Group** Buckingham Strategic Wealth Q1 2020 Atlanta, GA Firm Name Q1 2020 (to date) Mergers Partner Firm Acquisitions

 

 

Leverage and Cash Flow Available for Capital Allocation 20

 

 

Strong Credit and Liquidity Profile (1) Low debt cost ~4% weighted average interest rate on funded borrowings as of December 31, 2019 Limited duration risk ~4.5 years remaining to maturity for term l oan (July 2024) Ample liquidity > $500 million undrawn revolver + $65 million cash Interest rates Favorable rate environment. Reduced term loan rate from L+250 to L+200 (as of January 27, 2020) 95%+ fee - based and recurring revenues, variable management fees and earnings preference protect cash flows Downside protection 21 1. As of December 31, 2019

 

 

Equity market decline (20)% (40)% Assumed Client Portfolio Allocation to Equities 50% 50% Decline in market-correlated revenues (1) (10)% (20)% ($ in millions) Reported Q4'19 Market-Correlated Revenues 240.0$ 216.0$ 192.0$ Q4'19 Non-Correlated Revenues 100.2$ 100.2$ 100.2$ Total Revenue - Q4 340.2$ 316.2$ 292.2$ Covenant EBITDA (2) - LTM 303.3$ 292.9$ 284.4$ Net Debt (3) 1,214.4$ 1,214.4$ 1,214.4$ Net Leverage Ratio (2) 4.00x 4.15x 4.27x Change from Q4 Reported 0.15x 0.27x Sensitivity Analysis (Illustrative Only) Earnings Preference Provides Strong Downside Earnings Protection 1. The analysis depicts the impact on our Net Leverage Ratio (as defined in the Credit Facility) resulting from a hypothetical c han ge in Q4 market correlated revenues only. All other revenues/expenses were kept constant except management fees, which are tied to the profitability of our partner firms. 2. Net leverage ratio represents the First Lien Leverage Ratio (as defined in the Credit Facility), and means the ratio of amoun ts outstanding under the First Lien Term Loan and First Lien Revolver plus other outstanding debt obligations secured by a lien on the assets of Focus LLC (excluding letters of credit other than unpaid drawings thereunder) min us unrestricted cash and cash equivalents to Consolidated EBITDA (as defined in the Credit Facility), which in the above table is referred to as “Covenant EBITDA.” 3. Net Debt represents amounts outstanding under the First Lien Term Loan and First Lien Revolver plus other outstanding debt ob lig ations secured by a lien on the assets of Focus LLC (excluding letters of credit other than unpaid drawings thereunder) minus unrestricted cash and cash equivalents. 4. The terms of our management agreements entitle the management companies to management fees typically consisting of all future EB PC 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 cumulat ive 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 var iou s business or contractual matters. ▪ Reflects one - quarter impact to revenues and Covenant EBITDA (1)(2) ▪ Assumes all other revenues sources and expenses remain unchanged except for management fees ▪ In the event of a multi - quarter downturn ▪ Partner firms would reduce their cost structures ▪ M&A activity would moderate 22 $7m $15m $44m $44m $47m $71m $82m $82m $94m $101m $117m $117m Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Cumulative Acquired Base Earnings Since 2017

 

 

Next 12 Months Primary Uses, Excluding Future M&A Activities Strong Growth in Cash Flow As % of Adjusted EBITDA (1) 52 % 61 % Cash Flow Available for Capital Allocation (1) ▪ Estimated cash earnouts of $75+ million (2) ▪ There have been no historical tax receivable agreements (“TRA”) payments ▪ For the next 12 months, there are no TRA payments due ▪ TRA liability of $48.4 million was generated at the time of our IPO and as a result of quarterly Focus LLC common and incentive unit exchanges ▪ TRA liability will be paid out over 15+ years, subject to utilization of tax deductions ▪ Required term loan amortization of $11.6 million (~$2.9 million per quarter) ▪ Based on the terms of the Credit Facility, no excess cash flow payments required in 2019 or 2020 ($ in millions) 1. Non - GAAP financial measure. See Appendix for reconciliations. 2. Based on certain assumptions that could change materially. 23 Next 12 Months Capital Allocation Priorities ▪ Strategic M&A to continue capitalizing on industry consolidation ▪ Fund earnout payments $105.3 $163.5 2018 2019 +55%

 

 

Tax - Efficient Structure Creates Value for Shareholders 24 $130 $127 $124 $1,094 2020 2021 2022 2023 & Thereafter Gross Unamortized Intangible Tax Asset Shield (1) ($ in millions) 1. As of December 31, 2019. Assumes sufficient future taxable income. 2. 15 year life required under Internal Revenue Code Section 197. 3. Non - GAAP financial measure. We are not providing a quantitative reconciliation of the forward - looking estimate of Adjusted Net Income to its most directly comparable GAAP financial measure because such GAAP measure is difficult to reliably predict or estimate without unreasonable effort due to its dependency on future uncertainties, such as items noted under the heading “Special Note Regarding Forward - Looking Statements.” In addition, we believe such a reconciliation could imply a degree of precision that might be confusing or misleading to investors ▪ Focus generally acquires intangible assets ▪ Wealth management firms typically have limited tangible assets ▪ Focus purchases customer lists + management contracts + goodwill ▪ Consideration is typically paid in cash ▪ Each incremental M&A transaction creates an additional tax shield ▪ Each tax shield is amortized over 15 years (2) ▪ As of December 31, 2019, ~$1.5bn cumulative estimated gross tax shield to be utilized over next 14+ years, resulting in ~$400m increase in Adjusted Net Income (3) based on 27% income tax rate ▪ Example: Purchase Price $15 million Tax Shield Created $15 million (assumes no tangible assets) $1 million annually (for 15 years) Annual Tax Deduction $270,000 annually (for 15 years) Adjusted Net Income (3) Increase

 

 

Appendix 25

 

 

2019 Acquisitions 26 * Continued on following page Type Acquiring Partner Firm Closing Date Primary Office Location 1. Roof Advisory Group Fort Pitt Capital Group 10/1/19 Harrisburg, PA 2. Smiley TrinityPoint Wealth 10/1/19 Charlotte, NC 3. Harvest Capital Management The Colony Group 10/1/19 Concord, NH 4. Glass Malek The Colony Group 10/1/19 Los Angeles, CA Partner Firm Acquisitions 1. Williams, Jones & Associates 8/1/19 New York, NY 1. Stevens First Principles Inv Advisors Benefit Financial Services Group 7/1/19 Newport Beach, CA 2. Catamount Management Group Crestwood Advisors 7/1/19 Westport, CT 3. Hines & Warner Wealth Management Vista Wealth Management 7/1/19 Portland, OR 4. Lodestar Investment Counsel Bartlett Wealth Management 7/1/19 Chicago, IL 5. TMD & Associates One Charles Private Wealth 7/1/19 Scottsdale, AZ 6. HORNE Wealth Advisors Buckingham 7/1/19 Ridgeland, MS 1. Escala Partners 4/1/19 Melbourne, Australia 2. Sound View Wealth Advisors 4/1/19 Savannah, GA 1. MacGuire, Cheswick & Tuttle Crestwood Advisors 4/1/19 Darien, CT 2. Weatherstone Capital Management Carnick & Kubik Group 4/1/19 Denver, CO 3. Bullard, McLeod and Associates Atlas Private Wealth Management 4/1/19 Albany, NY 4. Anthony Smith Advisors Patton Albertson Miller Group 4/1/19 Atlanta, GA 5. Skeet Kaye Hopkins Gelfand, Rennert & Feldman 4/2/19 London, UK 6. Massingale Summit Financial 5/1/19 Ruston, LA 7. Steinberg Global Asset Management The Colony Group 5/1/19 Boca Raton, FL 8. Lake Mary Wealth Management Buckingham 6/1/19 Maitland, FL 9. Collings The Colony Group 6/18/19 Boston, MA Q2 2019 Partner Firm Acquisitions Mergers Firm Name Q4 2019 Mergers Q3 2019 Mergers

 

 

2019 Acquisitions (continued) 27 Type Acquiring Partner Firm Closing Date Primary Office Location 1. Altman, Greenfield & Selvaggi 1/1/19 New York, NY 2. Prime Quadrant 2/15/19 Toronto, Canada 3. Foster Dykema Cabot 3/1/19 Boston, MA 1. Griffon Financial Planning Buckingham 1/1/19 Bend, OR 2. Northern Capital Management Kovitz Investment Group 1/1/19 Madison, WI 3. Alpern Wealth Management Buckingham 1/1/19 Pittsburgh, PA 4. David Weise & Associates NKSFB 1/1/19 Encino, CA 5. WG&S, LLP Gelfand, Rennert & Feldman 1/1/19 Los Angeles, CA 6. Aurora Financial Advisors The Colony Group 2/1/19 Wellesley, MA 7. Dan Goldie Financial Services Buckingham 2/1/19 Palo Alto, CA 8. Insero Wealth Strategies Buckingham 3/1/19 Buffalo, NY 9. Neuman + Associates NKSFB 3/1/19 Encino, CA Q1 2019 Partner Firm Acquisitions Mergers Firm Name

 

 

Net Income (Loss) to Adjusted EBITDA Reconciliation 1. Represents one - time expenses primarily related to an acquisition and our IPO and Reorganization Transactions. Refer to our 10 - Q and 10 - K filings for additional details. 28 ($ in thousands) 2013 2014 2015 2016 2017 2018 2019 December 31, 2018 December 31, 2019 Net income (loss) 8,677$ 11,996$ 9,321$ 15,722$ (48,359)$ (41,087)$ (12,025)$ 17,547$ (12,691)$ Interest income (80) (104) (90) (88) (222) (1,266) (1,164) (457) (337) Interest expense 7,297 6,994 9,977 21,327 41,861 56,448 58,291 10,968 15,156 Income tax expense (benefit) 975 212 649 981 (1,501) 9,450 7,049 3,783 10,750 Amortization of debt financing costs 1,267 1,599 1,770 2,482 4,084 3,498 3,452 782 969 Intangible amortization and impairments 29,910 28,549 35,421 50,942 64,367 90,381 130,718 24,981 35,858 Depreciation and other amortization 4,259 4,667 5,327 5,680 6,686 8,370 10,675 2,249 3,140 Non-cash equity compensation expense 3,277 4,319 13,537 8,520 34,879 44,468 18,329 12,856 4,954 Non-cash changes in fair value of estimated contingent consideration 1,239 7,395 (160) (1,143) 22,294 6,638 38,797 (22,241) 13,101 Gain on sale of investment — — — — — (5,509) — — — Loss on extinguishment of borrowings — — — — 8,106 21,071 — — — Other expense (income), net (1,104) 328 (310) (1,385) 3,191 2,350 1,049 2,121 354 Impairment of equity method investment — — — — — — 11,749 — 11,749 Management contract buyout — 1,800 — — — — 1,428 — — Delayed offering cost expense — — — — 9,840 — — — — Other one-time transaction expenses(1) — — — — — 8,590 1,486 1,621 — Adjusted EBITDA 55,717$ 67,755$ 75,442$ 103,038$ 145,226$ 203,402$ 269,834$ 54,210$ 83,003$ Three months ended

 

 

Net Income (Loss) to Adjusted Net Income and Adjusted Net Income Per Share Reconciliation * Refer to the following page for footnotes 29 Full Year 2013 2014 2015 2016 2017 2018 2019 December 31, 2018 December 31, 2019 ($ in thousands, except share and per share data) Net income (loss) 8,677$ 11,996$ 9,321$ 15,722$ (48,359)$ (41,087)$ (12,025)$ 17,547$ (12,691)$ Income tax expense (benefit) 975 212 649 981 (1,501) 9,450 7,049 3,783 10,750 Amortization of debt financing costs 1,267 1,599 1,770 2,482 4,084 3,498 3,452 782 969 Intangible amortization and impairments 29,910 28,549 35,421 50,942 64,367 90,381 130,718 24,981 35,858 Non-cash equity compensation expense 3,277 4,319 13,537 8,520 34,879 44,468 18,329 12,856 4,954 Non-cash changes in fair value of estimated contingent consideration 1,239 7,395 (160) (1,143) 22,294 6,638 38,797 (22,241) 13,101 Gain on sale of investment — — — — — (5,509) — — — Loss on extinguishment of borrowings — — — — 8,106 21,071 — — — Impairment of equity method investment — — — — — — 11,749 — 11,749 Delayed offering cost expense — — — — 9,840 — — — — Management contract buyout — 1,800 — — — — 1,428 — — Other one-time transaction expenses (1) — — — — 2,843 11,529 1,486 3,994 — Subtotal 45,345 55,870 60,538 77,504 96,553 140,439 200,983 41,702 64,690 Pro forma tax (27%) (2) (12,243) (15,085) (16,345) (20,926) (26,069) (37,919) (54,265) (11,260) (17,466) Tax adjustments (2)(3) 5,455 5,919 8,080 11,991 16,217 22,828 31,860 6,307 8,760 Adjusted Net Income 38,557$ 46,704$ 52,273$ 68,569$ 86,701$ 125,348$ 178,578$ 36,749$ 55,984$ Adjusted Shares Outstanding (4) 71,843,916 71,843,916 71,843,916 71,843,916 71,843,916 71,960,540 75,039,357 71,677,504 75,072,782 Adjusted Net Income Per Share 0.54$ 0.65$ 0.73$ 0.95$ 1.21$ 1.74$ 2.38$ 0.51$ 0.75$ Calculation of Adjusted Shares Outstanding(4): Weighted average shares of Class A common stock outstanding—basic (5) — — — — — 43,122,782 46,792,389 43,651,256 47,203,578 Adjustments: Shares of Class A common stock issued in connection with the IPO and Reorganization Transactions (6) 42,529,651 42,529,651 42,529,651 42,529,651 42,529,651 — — — — Weighted average incremental shares of Class A common stock related to stock options, unvested Class A common stock and restricted stock units (7) — — — — — 102,549 20,428 63,323 34,391 Weighted average Focus LLC common units outstanding (8) 22,499,665 22,499,665 22,499,665 22,499,665 22,499,665 22,630,668 22,424,378 22,823,272 22,158,584 Weighted average common unit equivalent of Focus LLC incentive units outstanding (9) 6,814,600 6,814,600 6,814,600 6,814,600 6,814,600 6,104,541 5,802,162 5,139,653 5,676,229 Adjusted Shares Outstanding (4) 71,843,916 71,843,916 71,843,916 71,843,916 71,843,916 71,960,540 75,039,357 71,677,504 75,072,782 Three months ended

 

 

* These footnotes refer to the table on the previous page. 1. Represents one - time expenses primarily related to an acquisition and our IPO and Reorganization Transactions. Refer to our 10 - Q and 10 - K filings for additional details. 2. For periods ended prior to the closing of the IPO and consummation of the related Reorganization Transactions on July 30, 2018, certain tax related adjustments are being made for comparative purposes only. 3. As of December 31, 2019, the 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 $35.0 million. 4. For periods ended prior to the closing of the IPO and the consummation of the 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 the Reorganization Transactions on July 30, 2018 is assumed to have occurred as of January 1, 2013 for comparative purposes. 7. Represents the incremental shares related to stock options, unvested Class A common stock and restricted stock units as calculated under the treasury stock method. 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 conversion to Focus LLC common units was based on the $33.00 IPO price. 30 Net Income (Loss) to Adjusted Net Income and Adjusted Net Income Per Share Reconciliation

 

 

Reconciliation of Cash Flow Available for Capital Allocation 31 1. A portion of contingent consideration paid is classified as operating cash outflows in accordance with GAAP, and therefore is a reconciling item to arrive at Cash Flow Available for Capital Allocation. 2. Cash Flow Available for Capital Allocation excludes all contingent consideration that was included in either operating, inves tin g or financing activities of our consolidated statements of cash flows. Three months ended ($ in thousands) March 31, 2018 June 30, 2018 Sept. 30, 2018 Dec. 31, 2018 March 31, 2019 June 30, 2019 Sept. 30, 2019 Dec. 31, 2019 2018 2019 Net cash provided by operating activities 12,725$ 24,427$ 49,066$ 19,701$ 15,913$ 39,305$ 74,702$ 64,854$ 105,919$ 194,774$ Purchase of fixed assets (2,312) (2,117) (1,897) (2,780) (1,875) (8,185) (10,698) (4,714) (9,106) (25,472) Distributions for unitholders (138) (368) (802) (1,436) (596) (11,138) (3,491) (5,416) (2,744) (20,641) Payments under tax receivable agreements — — — — — — — — — — Adjusted Free Cash Flow 10,275$ 21,942$ 46,367$ 15,485$ 13,442$ 19,982$ 60,513$ 54,724$ 94,069$ 148,661$ Portion of contingent consideration paid included in operating activities(1) 1,468 1,648 4,574 3,572 9,170 4,012 825 815 11,262 14,822 Cash Flow Available for Capital Allocation(2) 11,743$ 23,590$ 50,941$ 19,057$ 22,612$ 23,994$ 61,338$ 55,539$ 105,331$ 163,483$ Full Year