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Document and Entity Information - USD ($)	12 Months Ended
Document and Entity Information - USD ($)	Dec. 31, 2019	Feb. 20, 2020	Jun. 28, 2019
Entity Registrant Name	Focus Financial Partners Inc.
Entity Central Index Key	0001651052
Document Type	10-K
Document Period End Date	Dec. 31, 2019
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Public Float			$ 829,203,698
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	FY
Class A common stock
Entity Common Stock, Shares Outstanding		47,421,315
Class B common stock
Entity Common Stock, Shares Outstanding		22,075,749

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
ASSETS
Cash and cash equivalents	$ 65,178	$ 33,213
Accounts receivable less allowances of $576 at 2018 and $684 at 2019	129,337	98,596
Prepaid expenses and other assets	58,581	76,150
Fixed assets—net	41,634	24,780
Operating lease assets	180,114
Debt financing costs—net	9,645	12,340
Deferred tax assets—net	75,453	70,009
Goodwill	1,090,231	860,495
Other intangible assets—net	1,003,456	762,195
TOTAL ASSETS	2,653,629	1,937,778
LIABILITIES
Accounts payable	8,077	8,935
Accrued expenses	41,442	36,252
Due to affiliates	58,600	39,621
Deferred revenue	7,839	6,215
Other liabilities	215,878	158,497
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)	1,272,999	836,582
Tax receivable agreements obligations	48,399	39,156
TOTAL LIABILITIES	1,849,659	1,125,258
COMMITMENTS AND CONTINGENCIES (Note 14)
EQUITY
Additional paid-in capital	498,186	471,386
Accumulated deficit	(13,462)	(590)
Accumulated other comprehensive loss	(1,299)	(1,824)
Total shareholders’ equity	484,120	469,662
Non-controlling interest	319,850	342,858
Total equity	803,970	812,520
TOTAL LIABILITIES AND EQUITY	2,653,629	1,937,778
Class A common stock
EQUITY
Common stock	474	462
Class B common stock
EQUITY
Common stock	$ 221	$ 228

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Accounts receivable, allowances	$ 684	$ 576
Borrowings under credit facilities, stated value	$ 1,279,188	$ 838,985
Class A common stock
Common stock, par value	$ 0.01	$ 0.01
Common stock, authorized shares	500,000,000	500,000,000
Common stock, issued shares	47,421,315	46,265,903
Common stock, outstanding shares	47,421,315	46,265,903
Class B common stock
Common stock, par value	$ 0.01	$ 0.01
Common stock, authorized shares	500,000,000	500,000,000
Common stock, issued shares	22,075,749	22,823,272
Common stock, outstanding shares	22,075,749	22,823,272

Consolidated Statements of Operations - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
REVENUES:
Total revenues	$ 1,218,341	$ 910,880	$ 662,887
OPERATING EXPENSES:
Compensation and related expenses	431,465	358,084	265,555
Management fees	304,701	232,703	163,617
Selling, general and administrative	232,911	170,270	134,615
Management contract buyout	1,428
Intangible amortization	130,718	90,381	64,367
Non-cash changes in fair value of estimated contingent consideration	38,797	6,638	22,294
Depreciation and other amortization	10,675	8,370	6,686
Total operating expenses	1,150,695	866,446	657,134
INCOME FROM OPERATIONS	67,646	44,434	5,753
OTHER INCOME (EXPENSE):
Interest income	1,164	1,266	222
Interest expense	(58,291)	(56,448)	(41,861)
Amortization of debt financing costs	(3,452)	(3,498)	(4,084)
Gain on sale of investment		5,509
Loss on extinguishment of borrowings		(21,071)	(8,106)
Other (expense) income—net	(1,049)	(2,350)	(3,191)
Income from equity method investments	755	521	1,407
Impairment of equity method investment	(11,749)
Total other expense-net	(72,622)	(76,071)	(55,613)
LOSS BEFORE INCOME TAX	(4,976)	(31,637)	(49,860)
INCOME TAX EXPENSE (BENEFIT)	7,049	9,450	(1,501)
NET LOSS	(12,025)	(41,087)	(48,359)
Non-controlling interest	(847)	40,497
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$ (12,872)	(590)
Weighted average shares of Class A common stock outstanding:
Diluted	46,792,389
Wealth management fees
REVENUES:
Total revenues	$ 1,149,655	853,033	617,124
Other
REVENUES:
Total revenues	$ 68,686	$ 57,847	$ 45,763
Class A common stock
Income (loss) per share of Class A common stock:
Basic	$ (0.28)	$ (0.01)
Diluted	$ (0.28)	$ (0.01)
Weighted average shares of Class A common stock outstanding:
Basic	46,792,389	43,122,782
Diluted	46,792,389	43,122,782

Consolidated Statements of Comprehensive loss - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Consolidated Statements of Comprehensive Loss
Net loss	$ (12,025)	$ (41,087)	$ (48,359)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	768	(4,509)	2,470
Comprehensive loss	(11,257)	(45,596)	$ (45,889)
Less: Comprehensive (income) loss attributable to noncontrolling interest	(1,090)	43,182
Comprehensive loss attributable to common shareholders	$ (12,347)	$ (2,414)

- Definition

The consolidated profit or loss for the period, net of income taxes, including the portion attributable to the noncontrolling interest.

+ References

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+ Details

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (12,025)	$ (41,087)	$ (48,359)
Adjustments to reconcile net loss to net cash provided by operating activities—net of effect of acquisitions:
Intangible amortization	130,718	90,381	64,367
Depreciation and other amortization	10,675	8,370	6,686
Amortization of debt financing costs	3,452	3,498	4,084
Non-cash equity compensation expense	18,329	44,468	34,879
Non-cash changes in fair value of estimated contingent consideration	38,797	6,638	22,294
Income from equity method investments	(755)	(521)	(1,407)
Impairment of equity method investment	11,749
Distributions received from equity method investments	751	1,118	984
Deferred taxes and other non-cash items	3,555	6,655	(3,960)
Loss on extinguishment of borrowings		19,001	8,106
Changes in cash resulting from changes in operating assets and liabilities:
Accounts receivable	(29,562)	(23,747)	(30,209)
Prepaid expenses and other assets	3,796	(10,401)	9,889
Accounts payable	(1,172)	2,341	(1,210)
Accrued expenses	8,276	4,302	(4,671)
Due to affiliates	18,989	6,706	9,700
Other liabilities	(10,487)	(10,322)	(3,686)
Deferred revenue	(312)	(1,481)	1,603
Net cash provided by operating activities	194,774	105,919	69,090
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions and contingent consideration—net of cash acquired	(532,513)	(413,044)	(365,698)
Purchase of fixed assets	(25,472)	(9,106)	(10,518)
Investment and other	1,530	(24,300)	(500)
Net cash used in investing activities	(556,455)	(446,450)	(376,716)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities	969,125	300,000	1,181,936
Repayments of borrowings under credit facilities	(529,796)	(461,026)	(641,987)
Proceeds from issuance of common stock, net		565,160
Proceeds from issuance of convertible preferred units, net			643,272
Payments of preferred dividends			(3,063)
Payments in connection with unit redemption, net		(61,539)	(795,894)
Contingent consideration paid	(22,040)	(12,554)	(6,224)
Payments of debt financing costs	(3,743)	(4,612)	(32,612)
Proceeds from exercise of stock options	838
Payments on finance lease obligations	(176)	(198)	(271)
Distributions for unitholders	(20,641)	(2,744)	(2,754)
Net cash provided by financing activities	393,567	322,487	342,403
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS	79	(198)	170
CHANGE IN CASH AND CASH EQUIVALENTS	31,965	(18,242)	34,947
CASH AND CASH EQUIVALENTS:
Beginning of period	33,213	51,455	16,508
End of period	$ 65,178	$ 33,213	$ 51,455

Consolidated Statements of Changes in Members' Deficit/Shareholders' Equity - USD ($) $ in Thousands	Total Members’ Deficit/ Shareholders’ Equity	Common Stock Class A common stock	Common Stock Class B common stock	Additional Paid-In Capital	Accumulated Deficit	Accumulated Other Comprehensive Loss	Common Units	Non-controlling Interest	Total
Beginning balance at Dec. 31, 2016	$ (261,883)				$ (405,526)	$ (10,739)	$ 154,382		$ (261,883)
Increase (Decrease) in MEMBERS' DEFICIT
Net loss	(48,359)				(48,359)				(48,359)
Issuance of restricted common units in connection with acquisitions and contingent consideration	27,125						27,125		27,125
Accretion of senior preferred units return	(6,249)			$ (788)	(5,461)				(6,249)
Accretion of senior preferred units to estimated redemption value	(17,463)			(2,207)	(15,256)				(17,463)
Accretion of junior preferred units return	(672)			(85)	(587)				(672)
Accretion of junior preferred units to estimated redemption value	(8,452)			(1,068)	(7,384)				(8,452)
Issuance of convertible preferred units, redemption, retirement and recapitalization of units, net	(497,899)				(320,739)		(177,160)		(497,899)
Non-cash equity compensation expense	(34,879)			(34,879)					(34,879)
Currency translation adjustment - net of tax	2,470					2,470			2,470
Distributions for unitholders	(2,158)				(2,158)				(2,158)
Ending balance at Dec. 31, 2017	(778,661)			30,731	(805,470)	(8,269)	4,347		(778,661)
Increase (Decrease) in MEMBERS' DEFICIT
Net loss	(47,821)				(47,821)				(47,821)
Issuance of restricted common units in connection with acquisitions and contingent consideration	40,389						40,389		40,389
Non-cash equity compensation expense	24,987			24,987					24,987
Currency translation adjustment - net of tax	(1,398)					(1,398)			(1,398)
Retirement of treasury stock	(2,909)			(2,067)			(842)		(2,909)
Distributions for unitholders	(2,224)				(2,224)				(2,224)
Reorganization of equity structure	550,445	$ 239	$ 225	(271,307)	855,515	9,667	(43,894)	$ 258,670	809,115
Reorganization of equity structure (in shares)		23,881,002	22,499,665
Ending balance at Jul. 30, 2018	(217,192)	$ 239	$ 225	(217,656)				258,670	41,478
Ending Balance (in shares) at Jul. 30, 2018		23,881,002	22,499,665
Beginning balance at Dec. 31, 2017	(778,661)			30,731	(805,470)	(8,269)	$ 4,347		(778,661)
Increase (Decrease) in MEMBERS' DEFICIT
Net loss									(41,087)
Currency translation adjustment - net of tax									(4,509)
Ending balance at Dec. 31, 2018	469,662	$ 462	$ 228	471,386	(590)	(1,824)		342,858	812,520
Ending Balance (in shares) at Dec. 31, 2018		46,265,903	22,823,272
Beginning balance at Jul. 30, 2018	(217,192)	$ 239	$ 225	(217,656)				258,670	41,478
Beginning balance (in shares) at Jul. 30, 2018		23,881,002	22,499,665
Increase (Decrease) in MEMBERS' DEFICIT
Net loss	(590)				(590)			7,324	6,734
Change in non-controlling interest allocation	(56,222)			(56,222)				78,151	21,929
Non-cash equity compensation expense	5,412			5,412					5,412
Currency translation adjustment - net of tax	(1,824)					(1,824)		(1,287)	(3,111)
Issuance of common stock	(565,160)	$ (186)		(564,974)					(565,160)
Issuance of common stock (in shares)		18,648,649
Issuance of common stock in connection with acquisitions and contingent consideration	112,464	$ 37	$ 3	112,424					112,464
Issuance of common stock in connection with acquisitions and contingent consideration (in shares)		3,736,252	323,607
Adjustment of deferred tax assets, net of amounts payable under tax receivable agreements and changes from Focus LLC interest transactions	62,454			62,454					62,454
Ending balance at Dec. 31, 2018	469,662	$ 462	$ 228	471,386	(590)	(1,824)		342,858	812,520
Ending Balance (in shares) at Dec. 31, 2018		46,265,903	22,823,272
Increase (Decrease) in MEMBERS' DEFICIT
Net loss	(12,872)				(12,872)			847	(12,025)
Issuance (cancellation) of common stock in connection with exercise of Focus LLC common unit exchange rights	22,280	$ 8	$ (7)	22,279					22,280
Issuance (cancellation) of common stock in connection with exercise of Focus LLC common unit exchange rights (in shares)		747,523	(747,523)
Issuance of common stock in connection with exercise of Focus LLC incentive unit exchange rights	11,967	$ 4		11,963					11,967
Issuance of common stock in connection with exercise of Focus LLC incentive unit exchange rights (in shares)		394,814
Forfeiture of unvested Class A common stock	(412)			(412)					(412)
Forfeiture of unvested Class A common stock		(12,500)
Exercise of stock options	838			838					838
Exercise of stock options (in shares)		25,575
Change in non-controlling interest allocation	10,895			10,895				24,098	34,993
Non-cash equity compensation expense	3,490			3,490					3,490
Currency translation adjustment - net of tax	525					525		243	768
Adjustment of deferred tax assets, net of amounts payable under tax receivable agreements and changes from Focus LLC interest transactions	(463)			(463)					(463)
Ending balance at Dec. 31, 2019	$ 484,120	$ 474	$ 221	$ 498,186	$ (13,462)	$ (1,299)		$ 319,850	$ 803,970
Ending Balance (in shares) at Dec. 31, 2019		47,421,315	22,075,749

GENERAL	12 Months Ended
GENERAL	Dec. 31, 2019
GENERAL
GENERAL	1. GENERAL Organization Focus Financial Partners Inc. (“Focus Inc.”) was formed as a Delaware corporation on July 29, 2015 for the sole purpose of completing its initial public offering (the "IPO") and related reorganization transactions (the "Reorganization Transactions") in order to carry on the business of Focus Financial Partners, LLC and its subsidiaries (“Focus LLC”). On July 30, 2018, Focus Inc. became the managing member of Focus LLC and operates and controls the businesses and affairs of Focus LLC. Focus LLC is a Delaware limited liability company that was formed in November 2004. Focus LLC’s subsidiaries commenced revenue generating and acquisition activities in January 2006. Focus LLC’s activities were governed by its Third Amended and Restated Operating Agreement, as amended, through July 30, 2018 and then its Fourth Amended and Restated Operating Agreement, as amended (the “Operating Agreement”), effective on July 30, 2018. The consolidated financial statements for periods prior to July 30, 2018 reflect the historical results of operations and financial position of Focus LLC. The consolidated financial statements for periods after July 30, 2018 reflect the results of operations and financial position of Focus Financial Partners Inc. and its subsidiaries (the “Company”). Business The Company is in the business of acquiring and overseeing independent fiduciary wealth management and related businesses. The Company typically acquires 100% of the net assets of the wealth management businesses on terms that are generally consistent for each acquisition. To determine the acquisition price, the Company first estimates the operating cash flow of the business to be acquired based on current and projected levels of revenue and expense. For this purpose, the Company defines operating cash flow as cash revenue of the business, less cash expenses, other than compensation and benefits to the selling entrepreneurs or individuals who typically become principals of the management entities discussed below. The Company refers to the estimated operating cash flow earnings before partner compensation as target earnings (“Target Earnings”). The acquisition price is a multiple of a portion of the Target Earnings, referred to as base earnings (“Base Earnings”). At the date of each of the respective acquisitions, the Company typically enters into a management agreement (“Management Agreement”) with a management company (“Management Company”) that is owned substantially by the selling principals of the acquired businesses. The Management Company earns management fees to manage the daily operations of the acquired business. The terms of the Management Agreements are generally six years with automatic renewals for consecutive one-year terms, unless terminated by either the Management Company or the Company. Under the Management Agreement, the Management Company is entitled to management fees typically consisting of all future earnings of the acquired business in excess of the Base Earnings up to Target Earnings, plus a percentage of any earnings in excess of Target Earnings. The Company, through its respective operating subsidiary, retains a cumulative preferred position in the Base Earnings. To the extent earnings of an acquired business in any year are less than the Base Earnings, in the following year the Company, through its respective operating subsidiary, is entitled to receive the Base Earnings together with the prior years’ shortfall before any management fees are earned by the Management Company. Since each Management Company is neither acquired nor consolidated, management fees are included in the Company’s consolidated statements of operations as operating expenses. Estimated management fees due are included in due to affiliates in the accompanying consolidated balance sheets.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2019

SUMMARY OF OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of the Company and its subsidiaries. The Company consolidates Focus LLC and its subsidiaries' financial statements and records the interests in Focus LLC consisting of common units and the common unit equivalent of incentive units of Focus LLC that the Company does not own as non-controlling interests, see Note 4. Non-controlling interests were measured initially at the proportionate share of Focus LLC's identifiable net assets at the date of the IPO. Intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Loss Per Share

Loss per share is computed in accordance with Accounting Standards Codification ("ASC") Topic 260, Earnings Per Share. Basic loss per share is computed by dividing the net loss attributable to common shareholders by the weighted average number of shares outstanding for that period. Diluted loss per share is calculated by dividing the net loss attributable to common shareholders by the diluted weighted average shares outstanding for that period. Diluted loss per share includes the determinants of the basic loss per share and, in addition, if the effect is dilutive, reflects the dilutive effect of shares of common stock related to the Company's share based compensation plans, with no adjustments to net loss attributable to common shareholders for dilutive potential common shares.

Revenue Recognition

Wealth Management Fees

The Company recognizes revenue from wealth management fees, which are primarily comprised of fees earned for advising on the assets of clients, financial and tax planning fees, consulting fees, tax return preparation fees, fees for family office services, and fees for wealth management and operational support services provided to third-party wealth management firms. Client arrangements may contain a single or multiple performance obligations, each of which are separately identifiable and accounted for as the related services are provided and consumed over time. Fees are primarily based either on a contractual percentage of the client’s assets, a flat fee, an hourly rate or a combination of such fees and are billed either in advance or arrears on a monthly, quarterly, or semiannual basis and such fees earned as the services are performed over time. Revenue for wealth management and operational support services provided to third-party wealth management firms is presented net since these services are performed in an agent capacity. Wealth management fees are recorded when: (i) an arrangement with a client has been identified; (ii) the performance obligations have been identified; (iii) the fee or other transaction price has been determined; (iv) the fee or other transaction price has been allocated to each performance obligation; and (v) the Company has satisfied the applicable performance obligation.

Other

Other revenue includes fees earned for recordkeeping and administration services provided to employee benefit plans as well as commissions and distribution fees and outsourced services. Client arrangements may contain a single or multiple performance obligations, each of which are separately identifiable and accounted for as the related services are provided and consumed over time. Recordkeeping and administration and outsourced services revenue, in accordance with the same five criteria above, are recognized over the period in which services are provided. Commissions and distribution fees are recognized when earned.

The Company disaggregates revenue based on the above two categories. The Company does not allocate revenue by the type of service provided in connection with providing holistic wealth management client services. The Company generally manages its business based on the operating results of the enterprise taken as a whole, not by geographic region. The following table disaggregates the revenues based on the location of the partner firm legal entities that generate the revenues and therefore may not be reflective of the geography in which clients are located for the years ended December 31, 2017, 2018 and 2019:




	2017		2018		2019
Domestic revenue	$	643,077	$	889,166	$	1,170,169
International revenue		19,810		21,714		48,172
Total revenue	$	662,887	$	910,880	$	1,218,341

International revenue consists of revenue generated by partner firm legal entities in the United Kingdom, Canada and Australia.

Deferred Revenue

Fees collected in advance are deferred and recognized in revenue over the period earned with the unrecognized portion of fees collected in advance recorded as deferred revenue in the accompanying consolidated balance sheets.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with a maturity of three months or less when purchased to be cash equivalents.

Accounts Receivable

Accounts receivable are stated at their net realizable value. Allowances for uncollectible accounts are maintained for estimated losses resulting from the inability of customers to make required payments. In determining these estimates, historical write-offs, the aging of the receivables and other factors, such as overall economic conditions, are considered.

Fixed Assets

Fixed assets are initially recorded at cost and are depreciated using the straight-line method over their estimated useful lives. The estimated useful lives for fixed assets, primarily consisting of computers, equipment, and furniture and fixtures, are generally between three to seven years. Leasehold improvements are amortized over the shorter of their estimated economic useful lives or the terms of the leases. The costs of improvements that extend the life of a fixed asset are capitalized, while the costs of repairs and maintenance are expensed as incurred.

The Company capitalizes costs related to computer software obtained or developed for internal use. Costs incurred in the application development phase are capitalized and amortized over their useful lives, which are generally three to five years.

Debt Financing Costs

Direct costs incurred with obtaining debt financing are capitalized or recorded as a reduction of the underlying debt. The costs are amortized over the respective term of the underlying debt and are included in amortization of debt financing costs in the accompanying consolidated statements of operations.

Business Acquisitions

Business acquisitions are accounted for in accordance with ASC Topic 805: Business Combinations. Business acquisitions are accounted for by allocating the purchase price consideration to the fair value of assets acquired and liabilities assumed. Goodwill is recognized as the excess of the purchase price consideration over the fair value of net assets of the business acquired. All transaction costs are expensed as incurred.

The Company has incorporated contingent consideration, or earn out provisions, into the structure of its business acquisitions. These arrangements may result in the payment of additional purchase price consideration to the sellers based on the growth of certain financial thresholds for periods following the closing of the respective acquisition. The additional purchase price consideration is payable in the form of cash and, in some cases, equity.

The Company recognizes the fair value of estimated contingent consideration at the acquisition date as part of the consideration transferred in exchange for the acquired business. The contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved. Any changes in fair value are recognized each reporting period in non-cash changes in fair value of estimated contingent consideration in the accompanying consolidated statements of operations.

The results of the acquired businesses have been included in the Company’s consolidated financial statements from the respective dates of acquisition.

Equity Method Investments

The Company applies the equity method of accounting to investments where the Company has the ability to exercise significant influence over operating and financial matters. Equity method investments are periodically reviewed for impairment. The Company’s equity method investments are included in prepaid expenses and other assets in the consolidated balance sheets.

Goodwill, Intangible Assets and Other Long-Lived Assets

Goodwill is deemed to have an indefinite useful life and is not amortized. Intangible and other long-lived assets are amortized over their respective estimated useful lives. The Company has no indefinite-lived intangible assets.

Goodwill is tested annually for impairment as of October 1, or more frequently if events and circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. A two-step impairment test is performed on goodwill. In the first step, the Company compares the fair value of the reporting unit to the carrying value of the net assets of the reporting unit. The fair value of the reporting unit is determined using a market approach. If the fair value of the reporting unit exceeds the carrying value of the net assets of the reporting unit in the first step, no further testing is performed. If the carrying value exceeds the fair value of the reporting unit in the first step, then the Company performs the second step of the impairment test to determine the implied fair value of goodwill and compares the implied fair value of goodwill to the carrying value of goodwill to determine the extent of the impairment, if any.

In March 2018, the Company modified the manner in which it assesses goodwill for impairment. The Company determined for the purpose of its annual goodwill impairment test that its reporting units should be aggregated into one reporting unit. The Company’s determination was based on the Company’s reporting units having similar economic and business characteristics, and the services performed by the reporting units are wealth management related and that the reporting units are subject to a similar regulatory framework. The Company believes that the resulting change in accounting principle related to the reporting unit utilized in the annual goodwill impairment test did not delay, accelerate or avoid an impairment charge. The Company determined that the change in accounting principle related to the reporting unit used in the Company’s annual impairment test is appropriate based on the nature of the Company’s business. The change would not have had an impact on the results of the Company’s impairment test for 2017.

Intangible assets and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the asset might be impaired or that the estimated useful life should be changed prospectively. If impairment indicators are present, the recoverability of these assets is measured by a comparison of the carrying amount of the asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset, which is determined using a discounted cash flow approach.

Fair Value of Financial Instruments

The carrying amounts of substantially all of the Company’s financial assets and liabilities are considered to approximate their fair values because of their short-term nature. The carrying amount of revolver borrowings under the Credit Facility (as defined below) approximates fair value, as the debt bears interest at selected short-term variable market rates. The Company measures the implied fair value of its First Lien Term Loan (as defined below) using trading levels obtained from a third-party service provider; accordingly, these borrowings are classified within Level 2 of the valuation hierarchy. See Note 8 for further information regarding the Company’s fair value measurements.

Income Taxes

In connection with the IPO and Reorganization Transactions, Focus Inc. became a holding company whose most significant asset is a membership interest in Focus LLC, and, as a result, Focus Inc. became subject to U.S. federal, state and local income taxes on Focus Inc.'s allocable portion of taxable income from Focus LLC. Focus LLC is treated as a partnership for U.S. federal income tax purposes. Accordingly, Focus LLC is generally not and has not been subject to U.S. federal and certain state income taxes at the entity level, although it has been subject to the New York City Unincorporated Business Tax and certain of its subsidiaries have been subject to U.S. federal and certain state and local or foreign income taxes. Instead, for U.S. federal and certain state income tax purposes, the income, deductions, losses and credits of Focus LLC are passed through to its unitholders, which after the IPO includes Focus Inc. Focus LLC has historically made tax distribution payments in accordance with its Third Amended and Restated Operating Agreement, which was replaced by the Operating Agreement on July 30, 2018, and Focus Inc. intends to cause Focus LLC to continue to make tax distribution payments, to the extent of available cash, in accordance with the Operating Agreement. Focus Inc. files income tax returns with the U.S. federal government as well as various state and local jurisdictions.

The asset and liability method is applied for deferred income taxes. Deferred tax assets and liabilities are recognized on a net basis for each tax paying component for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. Valuation allowances, if any, are recorded to reduce the deferred tax assets to an amount that is more likely than not to be realized.

The Company reviews and evaluates tax positions in its major tax jurisdictions and determines whether or not there are uncertain tax positions that require financial statement recognition. Based on this review, no reserves for uncertain tax positions were recorded at December 31, 2018 and 2019.

Segment Reporting

Management has determined that the Company operates in one operating segment, as a wealth management focused organization, which is consistent with its structure and how the Company manages the business. The Company’s acquired businesses have similar economic and business characteristics. The services provided are wealth management related and the Company's businesses are subject to a similar regulatory framework. Furthermore, the Company’s Chief Operating Decision Maker, which is the Company’s Chief Executive Officer, monitors and reviews financial information at a consolidated level for assessing operating results and the allocation of resources.

Translation of Non-U.S. Currency Amounts

Assets and liabilities of non-U.S. subsidiaries and equity method investments that have a foreign currency as their functional currency are re-measured to U.S. dollars at year-end exchange rates, and revenues and expenses are re-measured at average rates of exchange prevailing during the year. The resulting translation adjustments are recorded in accumulated other comprehensive income (loss). Gains or losses resulting from foreign currency transactions are included in other (expense) income—net in the consolidated statements of operations.

Consolidation Considerations

ASC Topic 810, Consolidations, requires an entity to perform a qualitative analysis to determine whether its variable interests give it a controlling financial interest in a variable interest entity (“VIE”). Under the standard, an enterprise has a controlling financial interest when it has (a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. An enterprise that holds a controlling financial interest is deemed to be the primary beneficiary and is required to consolidate the VIE.

The Company’s subsidiaries have Management Agreements with the respective Management Company, which causes these Company subsidiaries to be VIEs. The Company has assessed whether or not it is the primary beneficiary for these subsidiaries and has concluded that it is the primary beneficiary. Accordingly, the results of these subsidiaries have been consolidated.

Certain of the Company’s subsidiaries have variable interests in certain investment funds that are deemed voting interest entities. Due to substantive kick-out rights possessed by the limited partners of these funds, the Company does not consolidate the investment funds.

From time to time, the Company enters into option agreements with wealth management businesses (the “Optionee”). In exchange for payment of an option premium, the option agreement allows the Company, at its sole discretion, to acquire the Optionee at a predetermined time and at a predetermined purchase price formula. If the Company chooses to exercise its option to acquire the Optionee, the acquisition and the corresponding Management Agreement would be executed in accordance with the Company’s typical acquisition structure as discussed in Note 1. If the Company chooses not to exercise the option, the option premium would be recorded as a loss on investment in the consolidated statements of operations in the period that the option expires. Option premiums paid by the Company of $4,300 and $0 are included in prepaid expenses and other assets in the consolidated balance sheets as of December 31, 2018 and 2019, respectively. The Company has determined that the respective option agreements with the Optionees qualify the Optionees as VIEs. The Company has determined that it is not the primary beneficiary of the Optionees and does not consolidate the results of the Optionees.

Stock Based Compensation Costs

Compensation cost for unit and stock based awards is measured based on the fair value of the unit and stock based awards determined by the Black-Scholes option pricing model or the Monte Carlo Simulation Model on the date that the unit and stock based awards are granted or modified, and is adjusted for the estimated number of awards that are expected to be forfeited. Compensation cost for unvested Class A common stock and restricted stock units are measured based on the market value of the Company’s Class A common stock on the date that the awards are granted and is adjusted for the estimated number of awards that are expected to be forfeited. The compensation cost is recognized on a straight-line basis over the requisite service period. Non-cash equity compensation expense, associated with employees and non-employees, including principals in the management companies, is included in compensation and related expenses in the consolidated statements of operations. The Company estimates forfeitures at the time of the respective grant and revises those estimates in subsequent periods if actual forfeitures differ materially from those estimates. The Company uses historical data to estimate forfeitures and records non-cash equity compensation expense only for those awards that are expected to vest.

Leases

The Company leases office space in various locations under noncancelable lease agreements. Many of these lease agreements provide for tenant improvement allowances, rent increases, and/or rent-free periods. Rent expense is recognized on a straight-line basis commencing with the possession date of the property, which is typically the earlier of the lease commencement date or the date when the Company takes possession of the property. Rent expense is included in selling, general and administrative expenses in the consolidated statements of operations.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842).” ASU No. 2016-02, as amended, requires lessees to put most leases on their balance sheets but recognize the expenses in their income statements in a manner similar to current practice. ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right of use asset for the right to use the underlying asset for the lease term. ASU No. 2016-02 was effective for the Company for interim and annual periods beginning January 1, 2019. The Company adopted ASU No. 2016-02 effective January 1, 2019 using a modified retrospective method and therefore has not restated comparative periods. The Company elected to use the package of practical expedients to assist in the transition, which includes not reassessing the identification and classification of leases, among other things. Based on the portfolio of leases as of January 1, 2019, the Company recognized approximately $144,000 of lease liabilities and $134,000 of right of use assets (which reflects the reclassification of previous deferred rent balances into the right of use asset as required under the transition guidance) on the balance sheet, primarily related to operating leases for real estate. There was no material impact to the consolidated statement of operations and comprehensive loss or consolidated statement of cash flows as a result of adoption of this new guidance. Refer to Note 13 for further information regarding leases.

Recent Accounting Pronouncements

In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment,” which removes the second step of the goodwill impairment test that requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU No. 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2019 and will be applied prospectively, early adoption is permitted. ASU No. 2017-04 is not expected to have a material effect on the Company’s consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, "Improvements to Nonemployee Share-Based Payment Accounting," which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. ASU No. 2018-07 was effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The adoption of ASU No. 2018-07 on January 1, 2019 did not have a material effect on the Company's consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. ASU No. 2019-12 is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company is currently evaluating the impacts of the provisions of ASU No. 2019-12 on the Company's consolidated financial statements.

IPO, REORGANIZATION TRANSACTIONS AND USE OF PROCEEDS

12 Months Ended

Dec. 31, 2019

IPO, REORGANIZATION TRANSACTIONS AND USE OF PROCEEDS

IPO, REORGANIZATION TRANSACTIONS AND USE OF PROCEEDS

3. IPO, REORGANIZATION TRANSACTIONS AND USE OF PROCEEDS

Initial Public Offering

On July 30, 2018, the Company completed its IPO of 18,648,649 shares of its Class A common stock, par value $0.01 per share, including 2,432,432 shares of Class A common stock sold in connection with the full exercise of the option to purchase additional shares granted to the underwriters, at a price to the public of $33.00 per share. The shares began trading on the NASDAQ Global Select Market on July 26, 2018 under the ticker symbol “FOCS.”

Reorganization Transactions

In connection with the IPO, Focus LLC completed the Reorganization Transactions. The equity interests in Focus LLC at the date of the IPO consisted of convertible preferred units (the “Convertible Preferred Units”), common units and incentive units, each incentive unit having a hurdle amount similar to the exercise price of a stock option. The owners of Focus LLC units immediately prior to the IPO (“Existing Owners”) primarily included (i) affiliates of Focus LLC’s private equity investors (“Private Equity Investors”), (ii) members of management of Focus LLC, (iii) current and former principals of independent fiduciary wealth management and related businesses acquired by Focus LLC and (iv) current and former employees of Focus LLC.

The following steps were implemented in connection with the Reorganization Transactions:

Focus LLC purchased, utilizing existing working capital, all common units held by Existing Owners who were non-accredited investors, as defined by Rule 501 of Regulation D, at a purchase price per unit equal to 1.25 times the IPO price of $33.00 per share (“Gross IPO Price”). Focus LLC accelerated the vesting of all unvested incentive units held by Existing Owners who were non-accredited investors and converted the incentive units of each such holder into a number of common units equal to (i) the number of such incentive units times the Gross IPO Price, minus the aggregate hurdle amount of such incentive units, divided by (ii) the Gross IPO Price (the “Appropriate Conversion Number”). Focus LLC then purchased all common units issued upon such conversion at a purchase price per unit equal to 1.25 times the Gross IPO Price. Focus LLC paid a total of $26,001 to Existing Owners who were non-accredited investors.

Existing Owners who were accredited investors and held fewer than 85,000 common units and incentive units in the aggregate are referred to as “Mandatorily Exchanging Owners.” Focus LLC converted all vested and unvested incentive units of Mandatorily Exchanging Owners into the Appropriate Conversion Number of vested and unvested common units, respectively. Mandatorily Exchanging Owners were given an election to sell up to 100% of their vested common units (after giving effect to such conversion) to the Company at the Gross IPO Price less the underwriting discount (the “Net IPO Price”), subject to cut‑backs depending on the proceeds available from the IPO. The vested and unvested common units of a Mandatorily Exchanging Owner not sold were exchanged for an equal number of shares of vested Class A common stock and unvested Class A common stock of the Company. Mandatorily Exchanging Owners of vested common units issued upon conversion of vested incentive units and not sold received (i) vested non‑compensatory stock options of the Company to purchase a number of shares of Class A common stock of the Company equal to (A) the number of vested incentive units that were converted into such vested common units minus (B) the number of shares of vested Class A common stock issued in such exchange and (ii) cash in an amount equal to 65% of the fair market value of such non‑compensatory stock options. Mandatorily Exchanging Owners of unvested common units issued upon conversion of unvested incentive units and not sold received unvested compensatory stock options of the Company to purchase a number of shares of Class A common stock of the Company equal to (i) the number of unvested incentive units that were converted into such unvested common units minus (ii) the number of shares of unvested Class A common stock issued in such exchange.

Existing Owners who were accredited investors and held 85,000 or more common units and incentive units in the aggregate were given an election to sell up to 100% of their vested common units and vested incentive units (after conversion into the Appropriate Conversion Number of common units) to the Company at the Net IPO Price, subject to cut-backs depending on the proceeds available from the IPO. These Existing Owners were also given an election to exchange all or a portion of their remaining common units and incentive units for vested and unvested Class A common stock of the Company. These Existing Owners continue to hold their common units and incentive units of Focus LLC remaining after any such sale or exchange.

All outstanding Convertible Preferred Units were converted into common units on a one-for-one basis. The common units held by certain affiliates of the Company’s private equity investors were distributed to their owners, some of which were entities treated as corporations for U.S. federal income tax purposes, which are referred to as “blockers.” Each blocker then merged with a separate newly formed subsidiary of Focus Inc., with the blocker as the surviving entity. Each owner of each blocker received consideration in the merger equal to one share of Class A common stock for each common unit held. Certain of the common units not held by blockers were exchanged for shares of Class A common stock of the Company.

Existing Owners who hold common units of Focus LLC after the Reorganization Transactions ("continuing owners") received shares of Class B common stock of the Company. Shares of Class B common stock do not entitle their holders to any economic rights. Holders of Class A common stock and Class B common stock of the Company vote together as a single class on all matters presented to the shareholders of the Company for their vote or approval, except as otherwise required by applicable law. Each share of Class B common stock entitles its holder to one vote.

In connection with the Reorganization Transactions, the Company issued an aggregate of 23,881,002 shares of Class A common stock, non-compensatory stock options to purchase an aggregate of 386,832 shares of Class A common stock, compensatory stock options to purchase an aggregate of 348,577 shares of Class A common stock and an aggregate of 22,499,665 shares of Class B common stock. Due to certain post-closing adjustments, the Company cancelled 240,457 shares of Class A common stock and issued 240,457 shares of Class B common stock effective as of the closing date of the IPO.

Use of Proceeds

The Company received $565,160 of net proceeds from the sale of the Class A common stock in the IPO including $74,651 in connection with the full exercise of the option to purchase additional shares granted to the underwriters. The Company used $11,137 of the net proceeds to pay Mandatorily Exchanging Owners who elected to sell their units of Focus LLC and $24,400 to pay other Existing Owners who elected to sell their units of Focus LLC. The Company contributed $529,623 of the net proceeds from the IPO to Focus LLC in exchange for 17,583,947 common units of Focus LLC. Focus LLC used $392,535 of such contribution to reduce indebtedness under its Credit Facility (as defined below). The remaining $137,088 of such contribution was used by Focus LLC for acquisitions and general corporate business purposes.

NON-CONTROLLING INTERESTS AND LOSS PER SHARE

12 Months Ended

Dec. 31, 2019

NON-CONTROLLING INTERESTS AND LOSS PER SHARE

NON-CONTROLLING INTERESTS AND LOSS PER SHARE

4. NON-CONTROLLING INTERESTS AND LOSS PER SHARE

Historical loss per share information is not applicable for reporting periods prior to the consummation of the IPO. Net loss attributable to common shareholders is the net loss recorded by the Company based on its interest in Focus LLC during the respective period after the IPO.

The calculation of controlling and non-controlling interest is as follows as of December 31, 2018 and 2019:


	2018		2019
Focus LLC common units held by continuing owners	22,823,272		22,075,749
Common unit equivalents of outstanding vested and unvested incentive units held by continuing owners(1)	5,139,653		5,731,995
Total common units and common unit equivalents attributable to non-controlling interest	27,962,925		27,807,744
Total common units and common unit equivalents of incentive units outstanding	74,228,828		75,229,059
Non-controlling interest allocation	37.7	%	37.0	%
Company’s interest in Focus LLC	62.3	%	63.0	%

(1)

Focus LLC common units issuable upon conversion of 18,597,474 and 19,754,450 (see Note 10) vested and unvested Focus LLC incentive units outstanding as of December 31, 2018 and 2019, respectively, were calculated using the common unit equivalent of vested and unvested Focus LLC incentive units based on the closing price of the Company’s Class A common stock on the last trading day of the period.

The below table contains a reconciliation of net loss to net loss attributable to common shareholders for the years ended December 31, 2018 and 2019:


	2018		2019
Net loss	$	(41,087)	$	(12,025)
Net loss attributable to members of Focus LLC (for the respective period through the IPO)		47,821		—
Non-controlling interest subsequent to the IPO		(7,324)		(847)
Net loss attributable to common shareholders	$	(590)	$	(12,872)

The calculation of basic and diluted loss per share is described below:

Basic loss per share is calculated utilizing net loss attributable to common shareholders divided by the weighted average number of shares of Class A common stock outstanding during the same period:


	Period July 30,
	2018 through		Year Ended
	December 31, 2018		December 31, 2019
Basic loss per share:
Net loss attributable to common shareholders	$	(590)	$	(12,872)
Weighted average shares of Class A common stock outstanding		43,122,782		46,792,389
Basic loss per share	$	(0.01)	$	(0.28)

Diluted loss per share is calculated utilizing net loss attributable to common shareholders divided by the weighted average number of shares of Class A common stock outstanding during the same period plus the effect, if any, of the potentially dilutive shares of the Company’s Class A common stock from stock options, unvested Class A common stock and restricted stock units as calculated using the treasury stock method.


	Period July 30,
	2018 through		Year Ended
	December 31, 2018		December 31, 2019
Diluted loss per share:
Net loss attributable to common shareholders	$	(590)	$	(12,872)
Weighted average shares of Class A common stock outstanding		43,122,782		46,792,389
Effect of dilutive stock options		—		—
Effect of dilutive unvested Class A common stock and restricted stock units		—		—
Total		43,122,782		46,792,389
Diluted loss per share	$	(0.01)	$	(0.28)

Diluted loss per share for the period July 30, 2018 through December 31, 2018 excludes incremental shares of 52,555 related to time-based stock options and incremental shares of 49,994 related to unvested Class A common stock, since the effect would be antidilutive. Diluted loss per share for the period July 30, 2018 through December 31, 2018 also excludes shares related to 155,000 market-based stock options that vest on the fifth anniversary of the pricing of the IPO if the volume weighted average per share price for any ninety calendar day period within such five year period immediately following the pricing of the IPO reaches at least $100. Such market-based criteria were not met at December 31, 2018.

Diluted loss per share for the year ended December 31, 2019 excludes incremental shares of 373 related to time-based stock options and incremental shares of 20,055 related to unvested Class A common stock and restricted stock units, since the effect would be antidilutive. Diluted loss per share for the year ended December 31, 2019 also excludes shares related to 155,000 market-based stock options that vest on the fifth anniversary of the pricing of the IPO if the volume weighted average per share price for any ninety calendar day period within such five year period immediately following the pricing of the IPO reaches at least $100. Such market-based criteria were not met at December 31, 2019.

Focus LLC common and incentive units may be exchanged for Class A common stock, subject to certain limitations (see Note 10). Such exchange is not reflected in diluted loss per share as the assumed exchange is not dilutive.

ACQUISITIONS

12 Months Ended

Dec. 31, 2019

ACQUISITIONS

ACQUISITIONS

5. ACQUISITIONS

Business Acquisitions

The purchase price associated with business acquisitions and the allocation thereof during the years ended December 31, 2017, 2018 and 2019, is summarized as follows:


	2017		2018		2019
Number of business acquisitions closed		23		19		31
Consideration:
Cash and option premium	$	362,524	$	408,478	$	507,498
Cash due subsequent to closing at net present value and estimated working capital adjustment		188		39,134		4,341
Fair market value of Focus LLC common units issued		64,728		51,456		—
Fair market value of Class A common stock issued		—		112,461		—
Fair market value of estimated contingent consideration		37,551		42,086		82,781
Total consideration	$	464,991	$	653,615	$	594,620
Allocation of purchase price:
Total tangible assets	$	6,095	$	14,817	$	50,761
Total liabilities assumed		(12,273)		(34,411)		(53,394)
Customer relationships		244,289		294,785		349,447
Management contracts		27,890		30,080		17,284
Goodwill		198,546		347,496		229,799
Other acquired intangibles		444		848		723
Total allocated consideration	$	464,991	$	653,615	$	594,620

Management believes approximately $508,547 of tax goodwill and intangibles related to 2019 business acquisitions will be deductible for tax purposes. Additional tax goodwill may be deductible when estimated contingent consideration is earned and paid.

The accompanying consolidated statement of operations for the year ended December 31, 2019 includes revenue and income from operations for business acquisitions that are new subsidiary partner firms from the date they were acquired of $85,025 and $7,999, respectively.

Asset Acquisitions

The Company also separately purchases customer relationships and other intangible assets. These purchases are accounted for as asset acquisitions as they do not qualify as business acquisitions pursuant to ASC Topic 805, Business Combinations. The Company completed two, six and three asset acquisitions during the years ended December 31, 2017, 2018 and 2019, respectively. Total purchase consideration for asset acquisitions during the year ended December 31, 2017 was $0. Total purchase consideration, inclusive of transaction costs, for asset acquisitions during the year ended December 31, 2018 was $4,577 in cash and installment payments. Total purchase consideration, inclusive of transaction costs, for asset acquisitions during the year ended December 31, 2019 was $850 in cash. Certain asset acquisitions include contingent consideration provisions. The Company records the contingent consideration as additional purchase consideration when the outcome of the contingency is determinable. During the years ended December 31, 2017, 2018 and 2019, the Company paid $7,713, $2,007 and $3,452, respectively, of additional purchase price consideration related to asset acquisitions.

Intangible assets acquired in asset acquisitions for the years ended December 31, 2017, 2018 and 2019 were as follows:


	2017		2018		2019
Customer relationships	$	—	$	4,352	$	808
Management contracts		—		—		12
Other acquired intangibles		—		225		30
Total	$	—	$	4,577	$	850

The weighted-average useful life of intangibles acquired during the years ended December 31, 2017, 2018 and 2019 through business acquisitions and asset acquisitions are as follows:



	2017	2018	2019
Management contracts	19	20	18
Customer relationships	10	10	9
Other acquired intangibles	5	5	5
Weighted-average useful life of all intangibles acquired	11	11	9

In June 2018, the Company purchased a minority equity interest in a technology firm in the United States for approximately $20,000 in cash that is accounted for using the cost method of accounting. This cost method investment is included in prepaid expenses and other assets in the consolidated balance sheet as of December 31, 2018 and 2019.

From January 1, 2020, to February 25, 2020, the Company completed wealth management business acquisitions for cash consideration of $46,041, plus contingent consideration.

GOODWILL AND OTHER INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2019

GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL AND OTHER INTANGIBLE ASSETS

6. GOODWILL AND OTHER INTANGIBLE ASSETS

The following table summarizes the change in the goodwill balances for the years ended December 31, 2017, 2018 and 2019:


	2017		2018		2019
Balance beginning of period:
Goodwill	$	339,129	$	538,113	$	883,119
Cumulative impairment losses		(22,624)		(22,624)		(22,624)
		316,505		515,489		860,495
Goodwill acquired		198,546		347,496		229,799
Other		438		(2,490)		(63)
		198,984		345,006		229,736
Balance end of period:
Goodwill		538,113		883,119		1,112,855
Cumulative impairment losses		(22,624)		(22,624)		(22,624)
	$	515,489	$	860,495	$	1,090,231

There were no goodwill impairment losses during the years ended December 31, 2017, 2018 and 2019.

The following table summarizes the amortizing acquired intangible assets at December 31, 2018:


	Gross Carry		Accumulated		Net Book
	Amount		Amortization		Value
Customer relationships	$	1,008,186	$	(349,125)	$	659,061
Management contracts		133,112		(31,911)		101,201
Other acquired intangibles		4,402		(2,469)		1,933
Total	$	1,145,700	$	(383,505)	$	762,195

The following table summarizes the amortizing acquired intangible assets at December 31, 2019:


	Gross Carry		Accumulated		Net Book
	Amount		Amortization		Value
Customer relationships	$	1,362,104	$	(471,361)	$	890,743
Management contracts		150,464		(39,888)		110,576
Other acquired intangibles		5,157		(3,020)		2,137
Total	$	1,517,725	$	(514,269)	$	1,003,456

Management contracts and other acquired intangibles are amortized on a straight-line basis over their estimated useful lives ranging from 2 to 20 years. Customer relationships are amortized on a straight-line basis over their estimated useful lives of 4 to 10 years.

Estimated amortization expense for each of the next five years is as follows:


Years Ending December 31,	Amount
2020	$	139,474
2021		136,573
2022		131,532
2023		123,734
2024		111,253

FIXED ASSETS

12 Months Ended

Dec. 31, 2019

FIXED ASSETS

FIXED ASSETS

7. FIXED ASSETS

Fixed assets consist of the following at December 31, 2018 and 2019:


	2018		2019
Computers, software development and equipment	$	31,172	$	34,462
Leasehold improvements		20,710		36,699
Furniture and fixtures		12,405		16,805
Subtotal		64,287		87,966
Less accumulated depreciation and amortization		(39,507)		(46,332)
Total	$	24,780	$	41,634

FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2019

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

8. FAIR VALUE MEASUREMENTS

ASC Topic 820, Fair Value Measurement establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability, developed based on the best information available in the circumstances.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:

Level 1—Unadjusted price quotations in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Significant unobservable inputs that are not corroborated by market data.

The implied fair value of the Company’s First Lien Term Loan (as defined below) based on Level 2 inputs is as follows as of December 31, 2018 and 2019:


	December 31, 2018				December 31, 2019
	Stated		Fair		Stated		Fair
	Value		Value		Value		Value
First Lien Term Loan	$	798,985	$	773,018	$	1,139,188	$	1,146,307

For business acquisitions, the Company recognizes the fair value of goodwill and other acquired intangible assets, and estimated contingent consideration at the acquisition date as part of purchase price. This fair value measurement is based on unobservable (Level 3) inputs.

The following table represents changes in the fair value of estimated contingent consideration for business acquisitions for the years ended December 31, 2018 and 2019:


	2018		2019
Balance at January 1,	$	76,677	$	98,905
Additions to estimated contingent consideration		42,086		82,781
Payments of contingent consideration		(26,237)		(36,862)
Non-cash changes in fair value of estimated contingent consideration		6,638		38,797
Other		(259)		(53)
Balance at December 31,	$	98,905	$	183,568

Estimated contingent consideration is included in other liabilities in the accompanying consolidated balance sheets.

During the year ended December 31, 2018, the Company paid $23,816 in cash and issued $2,421 of restricted common units as contingent consideration associated with business acquisitions. During the year ended December 31, 2019, the Company paid $36,862 in cash as contingent consideration associated with business acquisitions.

In determining fair value of the estimated contingent consideration, the acquired business’s future performance is estimated using financial projections for the acquired businesses. These financial projections, as well as alternative scenarios of financial performance, are measured against the performance targets specified in each respective acquisition agreement. In addition, discount rates are established based on the cost of debt and the cost of equity. The Company uses the Monte Carlo Simulation Model to determine the fair value of the Company’s estimated contingent consideration.

The significant unobservable inputs used in the fair value measurement of the Company’s estimated contingent consideration is the forecasted growth rates over the measurement period and discount rates. Significant increases or decreases in the Company’s forecasted growth rates over the measurement period or discount rates would result in a higher or lower fair value measurement.

Inputs used in the fair value measurement of estimated contingent consideration at December 31, 2018 and 2019 are summarized below:


		Quantitative Information About Level 3
		Fair Value Measurements
Fair Value at		Valuation	Unobservable
December 31, 2018		Techniques	Inputs	Ranges
$	98,905	Monte Carlo Simulation Model	Forecasted growth rates	(16.2)% - 18.7	%
			Discount rates	12% - 18	%


		Quantitative Information About Level 3
		Fair Value Measurements
Fair Value at		Valuation	Unobservable
December 31, 2019		Techniques	Inputs	Ranges
$	183,568	Monte Carlo Simulation Model	Forecasted growth rates	(10.7)% - 51.1	%
			Discount rates	11% - 17	%

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

CREDIT FACILITY

12 Months Ended

Dec. 31, 2019

CREDIT FACILITY

CREDIT FACILITY

9. CREDIT FACILITY

In July 2019, Focus LLC expanded its first lien term loan (the “First Lien Term Loan”) by $350,000 and incurred $3,743 in debt financing costs. The debt was issued at a discount of 0.25% or $875 which is being amortized to interest expense over the remaining term of the First Lien Term Loan.

As of December 31, 2019, Focus LLC’s credit facility (the “Credit Facility”) consisted of a $1,153,000 First Lien Term Loan and a $650,000 first lien revolving credit facility (the “First Lien Revolver”).

The First Lien Term Loan has a maturity date of July 2024 and requires quarterly installment repayments of $2,891, as amended in July 2019. As of December 31, 2019, the First Lien Term Loan bore interest (at Focus LLC’s option) at: (i) the London InterBank Offered Rate (“LIBOR”) plus a margin of 2.50% or (ii) the lender’s Base Rate (as defined in the Credit Facility) plus a margin of 1.50%. In January 2020, Focus LLC amended its First Lien Term Loan to reduce its interest rate to LIBOR plus a margin of 2.00% or the lender’s Base Rate plus a margin of 1.00%.

The First Lien Revolver has a maturity date of July 2023. Up to $30,000 of the First Lien Revolver is available for the issuance of letters of credit, subject to certain limitations. The First Lien Revolver bears interest at LIBOR plus a margin of 2.00% with step downs to 1.75%, 1.50% and 1.25% or the lender’s Base Rate plus a margin of 1.00% with step downs to 0.75%, 0.50% and 0.25%, based on achievement of a specified First Lien Leverage Ratio. The First Lien Revolver unused commitment fee is 0.50% with step downs to 0.375% and 0.25% based on achievement of a specified First Lien Leverage Ratio.

Focus LLC’s obligations under the Credit Facility are collateralized by the majority of Focus LLC’s assets. The Credit Facility contains various customary covenants, including, but not limited to: (i) incurring additional indebtedness or guarantees, (ii) creating liens or other encumbrances on property or granting negative pledges, (iii) entering into a merger or similar transaction, (iv) selling or transferring certain property and (v) declaring dividends or making other restricted payments.

Focus LLC is required to maintain a First Lien Leverage Ratio (as defined in the Credit Facility) of not more than 6.25:1.00 as of the last day of each fiscal quarter. At December 31, 2019, Focus LLC's First Lien Leverage Ratio was 4.00:1.00, which satisfied the maximum ratio of 6.25:1.00. First Lien Leverage Ratio 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). Consolidated EBITDA for purposes of the Credit Facility was $303,319 at December 31, 2019. Focus LLC is also subject on an annual basis to contingent principal payments based on an excess cash flow calculation (as defined in the Credit Facility) for any fiscal year if the First Lien Leverage Ratio exceeds 3.75:1.00. No contingent principal payments were required to be made in 2019. Based on the excess cash flow calculation for the year ended December 31, 2019, no contingent principal payments are required to be made in 2020.

The Company defers and amortizes its debt financing costs over the respective terms of the First Lien Term Loan and First Lien Revolver. The debt financing costs related to the First Lien Term Loan are recorded as a reduction of the carrying amount of the First Lien Term Loan in the consolidated balance sheets. The debt financing costs related to the First Lien Revolver are recorded in debt financing costs-net in the consolidated balance sheets.

The following is a reconciliation of principal amounts outstanding under the Credit Facility to borrowings under the Credit Facility recorded in the consolidated balance sheets at December 31, 2018 and 2019:


	2018		2019
First Lien Term Loan	$	798,985	$	1,139,188
First Lien Revolver		40,000		140,000
Unamortized debt financing costs		(2,403)		(5,389)
Unamortized discount		—		(800)
Total	$	836,582	$	1,272,999

At December 31, 2018 and 2019, unamortized debt financing costs associated with the First Lien Revolver of $12,340 and $9,645, respectively, were recorded in debt financing costs-net in the consolidated balance sheets.

Weighted‑average interest rates for borrowings were approximately 6% for the year ended December 31, 2018 and 5% for the year ended December 31, 2019.

As of December 31, 2018 and 2019, the First Lien Revolver available unused commitment line was $605,793 and $502,962 respectively.

As of December 31, 2018 and 2019, Focus LLC was contingently obligated for letters of credit in the amount of $4,207 and $7,038, respectively, each bearing interest at an annual rate of approximately 1% and 2%, respectively.

In connection with a January 2018 amendment to the First Lien Term Loan to reduce its interest rate and the repayment of the $207,000 Second Lien Term Loan in July 2018, the Company recognized an aggregate loss on extinguishment of borrowings of $21,071 during the year ended December 31, 2018.

EQUITY

12 Months Ended

Dec. 31, 2019

EQUITY

EQUITY

10. EQUITY

The following is a summary of the capital stock of the Company:

Class A Common Stock

Voting Rights

Holders of shares of the Company's Class A common stock are entitled to one vote per share held of record on all matters to be voted upon by the shareholders. The holders of Class A common stock do not have cumulative voting rights in the election of directors.

Dividend Rights

Holders of shares of the Company’s Class A common stock are entitled to ratably receive dividends when and if declared by the Company’s Board of Directors (the “Board”) out of funds legally available for that purpose, subject to any statutory or contractual restrictions on the payment of dividends and to any prior rights and preferences that may be applicable to any outstanding preferred stock.

Liquidation Rights

Upon the Company’s liquidation, dissolution, distribution of assets or other winding up, the holders of Class A common stock are entitled to receive ratably the assets available for distribution to the shareholders after payment of liabilities and the liquidation preference of any of the Company's outstanding shares of preferred stock.

Other Matters

The shares of the Company's Class A common stock have no preemptive or conversion rights and are not subject to further calls or assessment by the Company. There are no redemption or sinking fund provisions applicable to the Class A common stock. All outstanding shares of the Company’s Class A common stock are fully paid and non‑assessable.

Class B Common Stock

Voting Rights

Holders of shares of the Company’s Class B common stock are entitled to one vote per share held of record on all matters to be voted upon by the shareholders. Holders of shares of the Company’s Class A common stock and Class B common stock vote together as a single class on all matters presented to the Company’s shareholders for their vote or approval, except the amendment of certain provisions of the Company’s certificate of incorporation that would alter or change the powers, preferences or special rights of the Class B common stock so as to affect them adversely must be approved by a majority of the votes entitled to be cast by the holders of the shares affected by the amendment, voting as a single class, or as otherwise required by applicable law.

Dividend and Liquidation Rights

Holders of the Company’s Class B common stock do not have any right to receive dividends, unless the dividend consists of shares of the Company’s Class B common stock or of rights, options, warrants or other securities convertible or exercisable into or exchangeable for shares of Class B common stock paid proportionally with respect to each outstanding share of our Class B common stock and a dividend consisting of shares of Class A common stock or of rights, options, warrants or other securities convertible or exercisable into or exchangeable for shares of Class A common stock on equivalent terms is simultaneously paid to the holders of Class A common stock. Holders of the Company’s Class B common stock do not have any right to receive a distribution upon a liquidation, dissolution or winding up of the Company.

Preferred Stock

The Company’s certificate of incorporation authorizes the Board, subject to any limitations prescribed by law, without further shareholder approval, to establish and to issue from time to time one or more classes or series of preferred stock, par value $0.01 per share, covering up to an aggregate of 500,000,000 shares of preferred stock. Each class or series of preferred stock will cover the number of shares and will have the powers, preferences, rights, qualifications, limitations and restrictions determined by the Board, which may include, among others, dividend rights, liquidation preferences, voting rights, conversion rights, preemptive rights and redemption rights. Except as provided by law or in a preferred stock designation, the holders of preferred stock will not be entitled to vote at or receive notice of any meeting of shareholders.

2018 Omnibus Incentive Plan

On July 30, 2018, the Board adopted the Focus Financial Partners Inc. 2018 Omnibus Incentive Plan (the “Omnibus Plan”) for the employees, consultants and the directors of the Company and its affiliates who perform services for it. The Omnibus Plan provides for potential grants of the following awards with respect to shares of the Company’s Class A common stock, to the extent applicable: (i) incentive stock options qualified as such under U.S. federal income tax laws; (ii) non-qualified stock options or any other form of stock options; (iii) restricted stock awards; (iv) phantom stock awards; (v) restricted stock units; (vi) bonus stock; (vii) performance awards; (viii) annual cash incentive awards; (ix) any of the foregoing award types (other than incentive stock options) as awards related to Focus LLC’s units; and (x) incentive units in Focus LLC.

The maximum aggregate number of shares of the Company's Class A common stock that may be issued pursuant to awards under the Omnibus Plan shall not exceed 6,000,000 shares (including such number of Focus LLC's units or other securities which can be exchanged or converted into shares of Class A common stock). The reserve pool is subject to adjustment due to recapitalization or reorganization, or related to forfeitures or the expiration of awards, as provided under the Omnibus Plan. If the shares or units subject to any award are not issued or transferred, or cease to be issuable or transferable for any reason, including (but not exclusively) because shares or units are withheld or surrendered in payment of taxes or any exercise or purchase price relating to an award or because an award is forfeited, terminated, expires unexercised, is settled in cash or is otherwise terminated without a delivery of shares or units, those shares or units will again be available for issue, transfer or exercise pursuant to awards under the Omnibus Plan to the extent allowable by law. The Omnibus Plan also contains a provision that will add an additional number of shares of Class A common stock equal to the lesser of (a) 3,000,000 shares, (b) 5% of the outstanding (vested and unvested) shares of Class A common stock and Focus LLC units on the last day of the previous year, and (c) an amount determined by the Board, each year between 2019 and 2028.

In connection with the IPO and Reorganization Transactions described in Note 3, the Company granted: (i) fully vested non-compensatory stock options to purchase an aggregate of 386,832 shares of Class A common stock, (ii) compensatory stock options to purchase an aggregate of 348,577 shares of Class A common stock which vest in three equal installments on December 31, 2018, 2019 and 2020, (iii) 178,608 shares of unvested Class A common stock valued at $33.00 per share which vest in three equal installments on December 31, 2018, 2019 and 2020 and (iv) market-based stock options to purchase an aggregate of 155,000 shares of Class A common stock that vest on the fifth anniversary of the pricing of the IPO if the volume weighted average per share price for any ninety calendar day period within such five year period immediately following the pricing of the IPO reaches at least $100.

Stock options granted subsequent to the IPO during the year ended December 31, 2018 and 2019 generally vest ratably over a four-year period.

Restricted stock units granted during the year ended December 31, 2019 vest ratably over a four-year period.

The following table provides information relating to the status of, and changes in, the Company's stock options granted during years ended December 31, 2018 and 2019:


		Stock