UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the Quarterly Period Ended
OR
Commission File No.
(Exact Name of Registrant as Specified in its Charter) | |
(State or Other Jurisdiction | (I.R.S. Employer |
(Address of Principal Executive Offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company | |
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes
As of August 3, 2020, the registrant had
FOCUS FINANCIAL PARTNERS INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2020
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
FOCUS FINANCIAL PARTNERS INC.
Unaudited condensed consolidated balance sheets
(In thousands, except share and per share amounts)
| December 31, |
| June 30, | |||
2019 | 2020 | |||||
ASSETS |
|
|
|
| ||
Cash and cash equivalents | $ | | $ | | ||
Accounts receivable less allowances of $ |
| |
| | ||
Prepaid expenses and other assets |
| |
| | ||
Fixed assets—net |
| |
| | ||
Operating lease assets | | | ||||
Debt financing costs—net |
| |
| | ||
Deferred tax assets—net | | | ||||
Goodwill |
| |
| | ||
Other intangible assets—net |
| |
| | ||
TOTAL ASSETS | $ | | $ | | ||
LIABILITIES AND EQUITY |
|
| ||||
LIABILITIES |
|
| ||||
Accounts payable | $ | | $ | | ||
Accrued expenses |
| |
| | ||
Due to affiliates |
| |
| | ||
Deferred revenue |
| |
| | ||
Other liabilities |
| |
| | ||
Operating lease liabilities | | | ||||
Borrowings under credit facilities (stated value of $ |
| |
| | ||
Tax receivable agreements obligations | | | ||||
TOTAL LIABILITIES |
| |
| | ||
COMMITMENTS AND CONTINGENCIES (Note 12) |
|
| ||||
EQUITY | ||||||
Class A common stock, par value $ | | | ||||
Class B common stock, par value $ | | | ||||
Additional paid-in capital | | | ||||
Retained earnings (deficit) | ( | | ||||
Accumulated other comprehensive loss | ( | ( | ||||
Total shareholders' equity | | | ||||
Non-controlling interest | | | ||||
Total equity | | | ||||
TOTAL LIABILITIES AND EQUITY | $ | | $ | |
See notes to unaudited condensed consolidated financial statements
2
FOCUS FINANCIAL PARTNERS INC.
Unaudited condensed consolidated statements of operations
(In thousands, except share and per share amounts)
For the three months ended | For the six months ended | ||||||||||||
June 30, | June 30, | ||||||||||||
| 2019 |
| 2020 |
| 2019 |
| 2020 | ||||||
REVENUES: |
|
|
|
| |||||||||
Wealth management fees | $ | | $ | | $ | | $ | | |||||
Other |
| |
| |
| |
| |
| ||||
Total revenues |
| |
| |
| |
| |
| ||||
OPERATING EXPENSES: |
|
|
|
|
| ||||||||
Compensation and related expenses |
| |
| |
| |
| |
| ||||
Management fees |
| |
| |
| |
| |
| ||||
Selling, general and administrative |
| |
| |
| |
| |
| ||||
Management contract buyout | — | — | | — | |||||||||
Intangible amortization |
| |
| |
| |
| |
| ||||
Non-cash changes in fair value of estimated contingent consideration |
| |
| |
| |
| ( |
| ||||
Depreciation and other amortization |
| |
| |
| |
| |
| ||||
Total operating expenses |
| |
| |
| |
| |
| ||||
INCOME FROM OPERATIONS |
| |
| |
| |
| |
| ||||
OTHER INCOME (EXPENSE): |
|
|
|
|
| ||||||||
Interest income |
| |
| |
| |
| |
| ||||
Interest expense |
| ( |
| ( |
| ( |
| ( |
| ||||
Amortization of debt financing costs |
| ( |
| ( |
| ( |
| ( |
| ||||
Loss on extinguishment of borrowings |
| — |
| — |
| — |
| ( |
| ||||
Other (expense) income—net |
| ( |
| |
| ( |
| |
| ||||
Income from equity method investments | | | | | |||||||||
Total other expense—net |
| ( |
| ( |
| ( |
| ( |
| ||||
INCOME BEFORE INCOME TAX |
| | |
| |
| |
| |||||
INCOME TAX EXPENSE |
| | |
| |
| |
| |||||
NET INCOME | | | | | |||||||||
Non-controlling interest | ( | ( | ( | ( | |||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | | $ | | $ | ( | $ | | |||||
Income (loss) per share of Class A common stock: | |||||||||||||
Basic | $ | | $ | | $ | ( | $ | | |||||
Diluted | $ | | $ | | $ | ( | $ | | |||||
Weighted average shares of Class A common stock outstanding: | |||||||||||||
Basic | | | | | |||||||||
Diluted | | | | |
See notes to unaudited condensed consolidated financial statements
3
FOCUS FINANCIAL PARTNERS INC.
Unaudited condensed consolidated statements of comprehensive income (loss)
(In thousands)
For the three months ended | For the six months ended |
| |||||||||||
June 30, | June 30, | ||||||||||||
| 2019 |
| 2020 |
| 2019 |
| 2020 |
| |||||
Net income | $ | | $ | | $ | | $ | | |||||
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
| |||||||
Foreign currency translation adjustments |
| ( |
| |
| ( |
| ( | |||||
Unrealized loss on interest rate swap designated as a cash flow hedge | — | ( | — | ( | |||||||||
Comprehensive income (loss) | | | ( | | |||||||||
Less: Comprehensive income attributable to noncontrolling interest | ( | ( | ( | ( | |||||||||
Comprehensive income (loss) attributable to common shareholders | $ | | $ | | $ | ( | $ | |
See notes to unaudited condensed consolidated financial statements
4
FOCUS FINANCIAL PARTNERS INC.
Unaudited condensed consolidated statements of cash flows
(In thousands)
For the six months ended | ||||||
June 30, | ||||||
| 2019 |
| 2020 | |||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
| ||
Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities—net of effect of acquisitions: |
|
|
| |||
Intangible amortization |
| |
| | ||
Depreciation and other amortization |
| |
| | ||
Amortization of debt financing costs |
| |
| | ||
Non-cash equity compensation expense |
| |
| | ||
Non-cash changes in fair value of estimated contingent consideration |
| |
| ( | ||
Income from equity method investments |
| ( |
| ( | ||
Distributions received from equity method investments |
| |
| | ||
Deferred taxes and other non-cash items |
| |
| | ||
Loss on extinguishment of borrowings |
| — |
| | ||
Changes in cash resulting from changes in operating assets and liabilities: |
|
|
| |||
Accounts receivable |
| ( |
| ( | ||
Prepaid expenses and other assets |
| |
| | ||
Accounts payable |
| |
| ( | ||
Accrued expenses |
| |
| | ||
Due to affiliates |
| ( |
| ( | ||
Other liabilities |
| ( |
| ( | ||
Deferred revenue |
| ( |
| ( | ||
Net cash provided by operating activities |
| |
| | ||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
| ||
Cash paid for acquisitions and contingent consideration—net of cash acquired |
| ( |
| ( | ||
Purchase of fixed assets |
| ( |
| ( | ||
Net cash used in investing activities |
| ( |
| ( | ||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
| ||
Borrowings under credit facilities |
| |
| | ||
Repayments of borrowings under credit facilities |
| ( |
| ( | ||
Contingent consideration paid |
| ( |
| ( | ||
Payments of debt financing costs |
| — |
| ( | ||
Proceeds from exercise of stock options | | | ||||
Payments on finance lease obligations | ( | ( | ||||
Distributions for unitholders |
| ( |
| ( | ||
Net cash provided by (used in) financing activities |
| |
| ( | ||
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS |
| |
| ( | ||
CHANGE IN CASH AND CASH EQUIVALENTS |
| |
| ( | ||
CASH AND CASH EQUIVALENTS: |
|
|
|
| ||
Beginning of period |
| |
| | ||
End of period | $ | | $ | |
See Note 13 for supplemental cash flow disclosure
See notes to unaudited condensed consolidated financial statements
5
FOCUS FINANCIAL PARTNERS INC.
Unaudited condensed consolidated statements of changes in shareholders’ equity
Three months ended June 30, 2019 and 2020
(In thousands, except share amounts)
Accumulated |
| ||||||||||||||||||||||||||||
Class A | Class B | Additional | Retained | Other | Total | ||||||||||||||||||||||||
Common Stock | Common Stock | Paid-In | Earnings | Comprehensive | Shareholders’ | Non-controlling | |||||||||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| (Deficit) |
| Loss |
| Equity |
| Interest |
| Total Equity | ||||||||||
Balance at April 1, 2019 | | $ | | | $ | | $ | | $ | ( | $ | ( | $ | | $ | | $ | | |||||||||||
Net income | — | — | — | — | | — | | | | ||||||||||||||||||||
Issuance (cancellation) of common stock in connection with exercise of Focus LLC common unit exchange rights | | | ( | ( | | — | — | | — | | |||||||||||||||||||
Issuance of common stock in connection with exercise of Focus LLC incentive unit exchange rights | | | — | — | | — | — | | — | | |||||||||||||||||||
Exercise of stock options | | — | — | — | | — | | — | | ||||||||||||||||||||
Change in non-controlling interest allocation | — | — | — | — | | — | — | | ( | ( | |||||||||||||||||||
Non-cash equity compensation expenses | — | — | — | — | | — | | — | | ||||||||||||||||||||
Currency translation adjustment-net of tax | — | — | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||
Adjustments of deferred taxes, net of amounts payable under tax receivable agreements and changes from Focus LLC interest transactions | — | — | — | — | ( | — | ( | ( | |||||||||||||||||||||
Balance at June 30, 2019 | | $ | | | $ | | $ | | $ | ( | $ | ( | $ | | $ | | $ | | |||||||||||
Balance at April 1, 2020 | | $ | | | $ | | $ | | $ | | $ | ( | $ | | $ | | $ | | |||||||||||
Net income | — | — | — | — | — | | — | | | | |||||||||||||||||||
Issuance (cancellation) of common stock in connection with exercise of Focus LLC common unit exchange rights | | | ( | ( | | — | — | | — | | |||||||||||||||||||
Issuance of common stock in connection with exercise of Focus LLC incentive unit exchange rights | | — | — | — | | — | — | | — | | |||||||||||||||||||
Forfeiture of unvested Class A common stock | ( | — | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||
Exercise of stock options | | — | — | — | | — | — | | — | | |||||||||||||||||||
Change in non-controlling interest allocation | — | — | — | — | ( | — | — | ( | | ( | |||||||||||||||||||
Non-cash equity compensation expenses | — | — | — | — | | — | — | | — | | |||||||||||||||||||
Currency translation adjustment-net of tax | — | — | — | — | — | — | | | | | |||||||||||||||||||
Unrealized loss on interest rate swaps designated as a cash flow hedges-net of tax | — | — | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||
Adjustments of deferred taxes, net of amounts payable under tax receivable agreements and changes from Focus LLC interest transactions | — | — | — | — | | — | — | | — | | |||||||||||||||||||
Balance at June 30, 2020 | | $ | | | $ | | $ | | $ | | $ | ( | $ | | $ | | $ | |
See notes to unaudited condensed consolidated financial statements
6
FOCUS FINANCIAL PARTNERS INC.
Unaudited condensed consolidated statements of changes in shareholders’ equity
Six months ended June 30, 2019 and 2020
(In thousands, except share amounts)
Accumulated | |||||||||||||||||||||||||||||
Class A | Class B | Additional | Retained | Other | Total | ||||||||||||||||||||||||
Common Stock | Common Stock | Paid-In | Earnings | Comprehensive | Shareholders’ | Non-controlling | |||||||||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| (Deficit) |
| Loss |
| Equity |
| Interest |
| Total Equity | ||||||||||
Balance at January 1, 2019 | | $ | | | $ | | $ | | $ | ( | $ | ( | $ | | $ | | $ | | |||||||||||
Net loss | — | — | — | — | — | ( | — | ( | | | |||||||||||||||||||
Issuance (cancellation) of common stock in connection with exercise of Focus LLC common unit exchange rights | | | ( | ( | | — | — | | — | | |||||||||||||||||||
Issuance of common stock in connection with exercise of Focus LLC incentive unit exchange rights | | | — | — | | — | — | | — | | |||||||||||||||||||
Forfeiture of unvested Class A common stock | ( | — | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||
Exercise of stock options | | — | — | — | | — | — | | — | | |||||||||||||||||||
Change in non-controlling interest allocation | — | — | — | — | ( | — | — | ( | ( | ( | |||||||||||||||||||
Non-cash equity compensation expenses | — | — | — | — | | — | — | | — | | |||||||||||||||||||
Currency translation adjustment-net of tax | — | — | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||
Adjustments of deferred taxes, net of amounts payable under tax receivable agreements and changes from Focus LLC interest transactions | — | — | — | — | | — | — | | — | | |||||||||||||||||||
Balance at June 30, 2019 | | $ | | | $ | | $ | | $ | ( | $ | ( | $ | | $ | | $ | | |||||||||||
Balance at January 1, 2020 | | $ | | | $ | | $ | | $ | ( | $ | ( | $ | | $ | | $ | | |||||||||||
Net income | — | — | — | — | — | | — | | | | |||||||||||||||||||
Issuance (cancellation) of common stock in connection with exercise of Focus LLC common unit exchange rights | | | ( | ( | | — | — | | — | | |||||||||||||||||||
Issuance of common stock in connection with exercise of Focus LLC incentive unit exchange rights | | | — | — | | — | — | | — | | |||||||||||||||||||
Forfeiture of unvested Class A common stock | ( | — | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||
Exercise of stock options | | — | — | — | | — | — | | — | | |||||||||||||||||||
Change in non-controlling interest allocation | — | — | — | — | ( | — | — | ( | ( | ( | |||||||||||||||||||
Non-cash equity compensation expenses | — |