21496103P90D480917070001651052--12-312020Q2false47421315220757490001651052us-gaap:CommonClassAMember2020-06-012020-06-300001651052us-gaap:CommonClassAMember2020-03-012020-03-310001651052us-gaap:RetainedEarningsMember2020-06-300001651052us-gaap:ParentMember2020-06-300001651052us-gaap:NoncontrollingInterestMember2020-06-300001651052us-gaap:AdditionalPaidInCapitalMember2020-06-300001651052us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-300001651052us-gaap:RetainedEarningsMember2020-03-310001651052us-gaap:ParentMember2020-03-310001651052us-gaap:NoncontrollingInterestMember2020-03-310001651052us-gaap:AdditionalPaidInCapitalMember2020-03-310001651052us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-3100016510522020-03-310001651052us-gaap:RetainedEarningsMember2019-12-310001651052us-gaap:ParentMember2019-12-310001651052us-gaap:NoncontrollingInterestMember2019-12-310001651052us-gaap:AdditionalPaidInCapitalMember2019-12-310001651052us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001651052us-gaap:RetainedEarningsMember2019-06-300001651052us-gaap:ParentMember2019-06-300001651052us-gaap:NoncontrollingInterestMember2019-06-300001651052us-gaap:AdditionalPaidInCapitalMember2019-06-300001651052us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-06-300001651052us-gaap:RetainedEarningsMember2019-03-310001651052us-gaap:ParentMember2019-03-310001651052us-gaap:NoncontrollingInterestMember2019-03-310001651052us-gaap:AdditionalPaidInCapitalMember2019-03-310001651052us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-03-3100016510522019-03-310001651052us-gaap:RetainedEarningsMember2018-12-310001651052us-gaap:ParentMember2018-12-310001651052us-gaap:NoncontrollingInterestMember2018-12-310001651052us-gaap:AdditionalPaidInCapitalMember2018-12-310001651052us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-310001651052us-gaap:CommonClassBMemberus-gaap:CommonStockMember2020-06-300001651052us-gaap:CommonClassBMemberus-gaap:CommonStockMember2020-03-310001651052us-gaap:CommonClassAMemberus-gaap:CommonStockMember2020-03-310001651052us-gaap:CommonClassBMemberus-gaap:CommonStockMember2019-12-310001651052us-gaap:CommonClassBMemberus-gaap:CommonStockMember2019-06-300001651052us-gaap:CommonClassAMemberus-gaap:CommonStockMember2019-06-300001651052us-gaap:CommonClassBMemberus-gaap:CommonStockMember2019-03-310001651052us-gaap:CommonClassAMemberus-gaap:CommonStockMember2019-03-310001651052us-gaap:CommonClassBMemberus-gaap:CommonStockMember2018-12-310001651052us-gaap:CommonClassAMemberus-gaap:CommonStockMember2018-12-310001651052us-gaap:EmployeeStockOptionMemberus-gaap:CommonStockMember2020-06-300001651052us-gaap:EmployeeStockOptionMemberus-gaap:CommonStockMember2019-12-310001651052us-gaap:CommonClassAMemberus-gaap:CommonStockMember2020-06-300001651052us-gaap:RestrictedStockUnitsRSUMember2020-06-300001651052us-gaap:CommonClassAMemberus-gaap:CommonStockMember2019-12-310001651052us-gaap:RestrictedStockUnitsRSUMember2019-12-310001651052us-gaap:EmployeeStockOptionMemberus-gaap:CommonStockMember2020-01-012020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate9.00Member2020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate7.00Member2020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate6.00Member2020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate5.50Member2020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate36.64Member2020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate33.00Member2020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate28.50Member2020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate27.90Member2020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate27.00Member2020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate26.26Member2020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate23.00Member2020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate22.00Member2020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate21.00Member2020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate19.00Member2020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate17.00Member2020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate16.00Member2020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate14.00Member2020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate13.00Member2020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate12.00Member2020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate11.00Member2020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate1.42Member2020-06-300001651052us-gaap:EmployeeStockOptionMember2020-01-012020-06-300001651052us-gaap:RestrictedStockUnitsRSUMember2020-01-012020-06-300001651052us-gaap:NonUsMember2020-04-012020-06-300001651052focs:WealthManagementServicesMember2020-04-012020-06-300001651052focs:OtherServicesMember2020-04-012020-06-300001651052country:US2020-04-012020-06-300001651052us-gaap:NonUsMember2020-01-012020-06-300001651052focs:WealthManagementServicesMember2020-01-012020-06-300001651052focs:OtherServicesMember2020-01-012020-06-300001651052country:US2020-01-012020-06-300001651052us-gaap:NonUsMember2019-04-012019-06-300001651052focs:WealthManagementServicesMember2019-04-012019-06-300001651052focs:OtherServicesMember2019-04-012019-06-300001651052country:US2019-04-012019-06-300001651052us-gaap:NonUsMember2019-01-012019-06-300001651052focs:WealthManagementServicesMember2019-01-012019-06-300001651052focs:OtherServicesMember2019-01-012019-06-300001651052country:US2019-01-012019-06-300001651052us-gaap:RetainedEarningsMember2020-04-012020-06-300001651052us-gaap:RetainedEarningsMember2020-01-012020-06-300001651052us-gaap:RetainedEarningsMember2019-04-012019-06-300001651052us-gaap:RetainedEarningsMember2019-01-012019-06-300001651052us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-04-012020-06-300001651052us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-06-300001651052us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-04-012019-06-300001651052us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-06-300001651052us-gaap:SeriesOfIndividuallyImmaterialBusinessAcquisitionsMemberus-gaap:SubsequentEventMember2020-07-012020-08-0600016510522019-01-012019-03-310001651052focs:FirstLienRevolvingCreditFacilityMember2020-01-012020-06-300001651052focs:FirstLienRevolverStepDownTwoMember2020-01-012020-06-300001651052focs:FirstLienRevolverStepDownOneMember2020-01-012020-06-300001651052us-gaap:StandbyLettersOfCreditMember2019-01-012019-12-310001651052us-gaap:StandbyLettersOfCreditMember2020-06-300001651052us-gaap:StandbyLettersOfCreditMember2019-12-310001651052us-gaap:InterestRateFloorMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-03-310001651052focs:FirstLienTermLoanMember2020-01-012020-06-300001651052us-gaap:OtherIntangibleAssetsMember2020-06-300001651052us-gaap:CustomerRelationshipsMember2020-06-300001651052us-gaap:ContractBasedIntangibleAssetsMember2020-06-300001651052us-gaap:OtherIntangibleAssetsMember2019-12-310001651052us-gaap:CustomerRelationshipsMember2019-12-310001651052us-gaap:ContractBasedIntangibleAssetsMember2019-12-310001651052us-gaap:InterestRateSwapMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-03-310001651052us-gaap:InterestRateSwapMember2020-04-012020-04-300001651052us-gaap:InterestRateSwapMember2020-03-012020-03-310001651052us-gaap:InterestRateSwapMember2020-06-300001651052focs:FloatingToFixedInterestRateSwapAgreementTwoMember2020-04-300001651052focs:FloatingToFixedInterestRateSwapAgreementOneMember2020-04-300001651052focs:FirstLienRevolvingCreditFacilityMember2019-12-310001651052focs:FirstLienTermLoanMember2019-12-310001651052focs:FirstLienTermLoanMember2020-06-300001651052us-gaap:InterestRateSwapMember2020-03-310001651052focs:FirstLienTermLoanMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-01-012020-06-300001651052focs:FirstLienTermLoanMemberus-gaap:BaseRateMember2020-01-012020-06-300001651052focs:FirstLienRevolvingCreditFacilityMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-01-012020-06-300001651052focs:FirstLienRevolvingCreditFacilityMemberus-gaap:BaseRateMember2020-01-012020-06-300001651052focs:FirstLienRevolverStepDownTwoMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-01-012020-06-300001651052focs:FirstLienRevolverStepDownTwoMemberus-gaap:BaseRateMember2020-01-012020-06-300001651052focs:FirstLienRevolverStepDownThreeMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-01-012020-06-300001651052focs:FirstLienRevolverStepDownThreeMemberus-gaap:BaseRateMember2020-01-012020-06-300001651052focs:FirstLienRevolverStepDownOneMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-01-012020-06-300001651052focs:FirstLienRevolverStepDownOneMemberus-gaap:BaseRateMember2020-01-012020-06-300001651052us-gaap:CommonClassBMember2020-06-300001651052us-gaap:CommonClassAMember2020-06-300001651052us-gaap:CommonClassBMember2019-12-310001651052us-gaap:CommonClassAMember2019-12-3100016510522019-06-300001651052us-gaap:SeriesOfIndividuallyImmaterialBusinessAcquisitionsMember2020-06-300001651052us-gaap:SeriesOfIndividuallyImmaterialBusinessAcquisitionsMemberus-gaap:OtherIntangibleAssetsMember2020-06-300001651052us-gaap:SeriesOfIndividuallyImmaterialBusinessAcquisitionsMemberus-gaap:CustomerRelationshipsMember2020-06-300001651052us-gaap:SeriesOfIndividuallyImmaterialBusinessAcquisitionsMemberus-gaap:ContractBasedIntangibleAssetsMember2020-06-300001651052srt:MinimumMemberus-gaap:FairValueInputsLevel3Memberus-gaap:MeasurementInputLongTermRevenueGrowthRateMember2020-06-300001651052srt:MaximumMemberus-gaap:FairValueInputsLevel3Memberus-gaap:MeasurementInputLongTermRevenueGrowthRateMember2020-06-300001651052srt:MinimumMemberus-gaap:MeasurementInputInceptionDiscountRateMember2020-06-300001651052srt:MaximumMemberus-gaap:MeasurementInputInceptionDiscountRateMember2020-06-300001651052srt:MinimumMemberus-gaap:FairValueInputsLevel3Memberus-gaap:MeasurementInputLongTermRevenueGrowthRateMember2019-12-310001651052srt:MinimumMemberus-gaap:FairValueInputsLevel3Memberus-gaap:MeasurementInputInceptionDiscountRateMember2019-12-310001651052srt:MaximumMemberus-gaap:FairValueInputsLevel3Memberus-gaap:MeasurementInputLongTermRevenueGrowthRateMember2019-12-310001651052srt:MaximumMemberus-gaap:FairValueInputsLevel3Memberus-gaap:MeasurementInputInceptionDiscountRateMember2019-12-310001651052us-gaap:FairValueInputsLevel3Member2020-06-300001651052us-gaap:FairValueInputsLevel3Member2019-12-310001651052us-gaap:OtherLiabilitiesMemberus-gaap:InterestRateSwapMember2020-06-300001651052focs:MarketBasedStockOptionsMember2020-04-012020-06-300001651052focs:MarketBasedStockOptionsMember2019-04-012019-06-300001651052us-gaap:CommonClassAMember2019-01-012019-06-300001651052focs:MarketBasedStockOptionsMember2019-01-012019-06-300001651052us-gaap:EmployeeStockOptionMemberus-gaap:CommonClassAMember2020-04-012020-06-300001651052focs:IncentiveUnitsMember2020-04-012020-06-300001651052us-gaap:EmployeeStockOptionMemberus-gaap:CommonClassAMember2020-01-012020-06-300001651052us-gaap:EmployeeStockOptionMemberus-gaap:CommonClassAMember2019-04-012019-06-300001651052focs:IncentiveUnitsMember2019-04-012019-06-300001651052us-gaap:EmployeeStockOptionMemberus-gaap:CommonClassAMember2019-01-012019-06-300001651052focs:IncentiveUnitsMember2019-01-012019-06-300001651052us-gaap:OtherIntangibleAssetsMember2020-01-012020-06-300001651052us-gaap:CustomerRelationshipsMember2020-01-012020-06-300001651052us-gaap:ContractBasedIntangibleAssetsMember2020-01-012020-06-300001651052us-gaap:CommonClassBMember2020-03-012020-03-310001651052us-gaap:CommonClassBMemberus-gaap:CommonStockMember2020-04-012020-06-300001651052us-gaap:CommonClassBMemberus-gaap:CommonStockMember2020-01-012020-06-300001651052us-gaap:CommonClassBMemberus-gaap:CommonStockMember2019-04-012019-06-300001651052us-gaap:CommonClassAMemberus-gaap:CommonStockMember2019-04-012019-06-300001651052us-gaap:CommonClassBMemberus-gaap:CommonStockMember2019-01-012019-06-300001651052focs:MarketBasedStockOptionsMember2020-01-012020-06-300001651052srt:MinimumMemberfocs:MarketBasedStockOptionsMember2020-01-012020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate9.00Member2020-01-012020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate7.00Member2020-01-012020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate6.00Member2020-01-012020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate5.50Member2020-01-012020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate36.64Member2020-01-012020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate33.00Member2020-01-012020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate28.50Member2020-01-012020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate27.90Member2020-01-012020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate27.00Member2020-01-012020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate26.26Member2020-01-012020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate23.00Member2020-01-012020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate22.00Member2020-01-012020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate21.00Member2020-01-012020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate19.00Member2020-01-012020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate17.00Member2020-01-012020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate16.00Member2020-01-012020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate14.00Member2020-01-012020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate13.00Member2020-01-012020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate12.00Member2020-01-012020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate11.00Member2020-01-012020-06-300001651052focs:IncentiveUnitsMemberfocs:HurdleRate1.42Member2020-01-012020-06-300001651052focs:IncentiveUnitsMember2019-12-310001651052focs:IncentiveUnitsMember2020-06-300001651052focs:IncentiveUnitsMember2020-01-012020-06-300001651052us-gaap:LineOfCreditMember2019-01-012019-12-310001651052us-gaap:OtherLiabilitiesMemberus-gaap:SeriesOfIndividuallyImmaterialBusinessAcquisitionsMember2019-01-012019-12-3100016510522020-03-012020-03-3100016510522018-07-302018-07-300001651052us-gaap:InterestRateSwapMember2020-04-300001651052focs:FirstLienRevolvingCreditFacilityMember2020-06-300001651052us-gaap:CommonClassAMember2019-04-012019-06-300001651052us-gaap:CommonClassAMember2020-01-012020-06-300001651052us-gaap:CommonClassBMember2020-06-012020-06-300001651052us-gaap:CommonClassAMemberus-gaap:CommonStockMember2020-04-012020-06-300001651052us-gaap:CommonClassAMemberus-gaap:CommonStockMember2020-01-012020-06-300001651052us-gaap:CommonClassAMemberus-gaap:CommonStockMember2019-01-012019-06-3000016510522020-06-3000016510522019-12-3100016510522018-12-310001651052focs:FocusFinancialPartnersLLCMember2019-06-300001651052us-gaap:LineOfCreditMember2020-06-300001651052focs:IncentiveUnitsMember2020-06-012020-06-300001651052focs:IncentiveUnitsMember2020-03-012020-03-310001651052focs:FocusFinancialPartnersLLCMember2020-06-300001651052focs:FocusFinancialPartnersLLCMember2019-12-310001651052us-gaap:SeriesOfIndividuallyImmaterialBusinessAcquisitionsMember2020-01-012020-06-300001651052us-gaap:CommonClassAMember2020-04-012020-06-300001651052us-gaap:ParentMember2020-04-012020-06-300001651052us-gaap:NoncontrollingInterestMember2020-04-012020-06-300001651052us-gaap:AdditionalPaidInCapitalMember2020-04-012020-06-3000016510522020-04-012020-06-300001651052us-gaap:ParentMember2020-01-012020-06-300001651052us-gaap:NoncontrollingInterestMember2020-01-012020-06-300001651052us-gaap:AdditionalPaidInCapitalMember2020-01-012020-06-300001651052us-gaap:ParentMember2019-04-012019-06-300001651052us-gaap:NoncontrollingInterestMember2019-04-012019-06-300001651052us-gaap:AdditionalPaidInCapitalMember2019-04-012019-06-3000016510522019-04-012019-06-300001651052us-gaap:ParentMember2019-01-012019-06-300001651052us-gaap:NoncontrollingInterestMember2019-01-012019-06-300001651052us-gaap:AdditionalPaidInCapitalMember2019-01-012019-06-3000016510522019-01-012019-06-3000016510522019-01-012019-12-310001651052srt:MaximumMemberus-gaap:LineOfCreditMember2020-01-012020-06-300001651052us-gaap:LineOfCreditMember2020-01-012020-06-300001651052us-gaap:CommonClassBMember2020-08-030001651052us-gaap:CommonClassAMember2020-08-0300016510522020-01-012020-06-30xbrli:sharesxbrli:pureiso4217:USDfocs:itemfocs:agreementiso4217:USDxbrli:shares

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2020

OR

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 001-38604

Focus Financial Partners Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware

47-4780811

(State or Other Jurisdiction
of Incorporation or Organization)

(I.R.S. Employer
Identification No.)

875 Third Avenue, 28th Floor

New York, NY

10022

(Address of Principal Executive Offices)

(Zip Code)

(646519-2456

(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

Class A common stock, par value
$0.01 per share

FOCS

Nasdaq Global Select Market

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. Yes No

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). Yes No

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.

Large accelerated filer

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 No 

As of August 3, 2020, the registrant had 48,105,684 shares of Class A common stock and 21,496,103 shares of Class B common stock outstanding.

Table of Contents

FOCUS FINANCIAL PARTNERS INC.

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2020

    

Page No.

PART I: FINANCIAL INFORMATION

Item 1.

Financial Statements

2

Unaudited condensed consolidated balance sheets

2

Unaudited condensed consolidated statements of operations

3

Unaudited condensed consolidated statements of comprehensive income (loss)

4

Unaudited condensed consolidated statements of cash flows

5

Unaudited condensed consolidated statements of changes in shareholders’ equity

6

Notes to unaudited condensed consolidated financial statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

44

Item 4.

Controls and Procedures

44

PART II: OTHER INFORMATION

Item 1.

Legal Proceedings

45

Item 1A.

Risk Factors

45

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

46

Item 6.

Exhibits

47

SIGNATURES

48

Table of Contents

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

$

65,178

$

35,329

Accounts receivable less allowances of $684 at 2019 and $997 at 2020

 

129,337

 

147,592

Prepaid expenses and other assets

 

58,581

 

55,802

Fixed assets—net

 

41,634

 

41,660

Operating lease assets

180,114

202,548

Debt financing costs—net

 

9,645

 

8,297

Deferred tax assets—net

75,453

76,209

Goodwill

 

1,090,231

 

1,121,153

Other intangible assets—net

 

1,003,456

 

972,506

TOTAL ASSETS

$

2,653,629

$

2,661,096

LIABILITIES AND EQUITY

 

  

LIABILITIES

 

  

Accounts payable

$

8,077

$

7,438

Accrued expenses

 

41,442

 

50,345

Due to affiliates

 

58,600

 

27,173

Deferred revenue

 

7,839

 

8,077

Other liabilities

 

215,878

 

170,760

Operating lease liabilities

196,425

221,339

Borrowings under credit facilities (stated value of $1,279,188 and $1,293,405 at December 31, 2019 and June 30, 2020, respectively)

 

1,272,999

 

1,292,831

Tax receivable agreements obligations

48,399

51,923

TOTAL LIABILITIES

 

1,849,659

 

1,829,886

COMMITMENTS AND CONTINGENCIES (Note 12)

 

  

EQUITY

Class A common stock, par value $0.01, 500,000,000 shares authorized; 47,421,315 and 48,091,707 shares issued and outstanding at December 31, 2019 and June 30, 2020, respectively

474

481

Class B common stock, par value $0.01, 500,000,000 shares authorized; 22,075,749 and 21,496,103 shares issued and outstanding at December 31, 2019 and June 30, 2020, respectively

221

215

Additional paid-in capital

498,186

503,209

Retained earnings (deficit)

(13,462)

9,343

Accumulated other comprehensive loss

(1,299)

(8,516)

Total shareholders' equity

484,120

504,732

Non-controlling interest

319,850

326,478

Total equity

803,970

831,210

TOTAL LIABILITIES AND EQUITY

$

2,653,629

$

2,661,096

See notes to unaudited condensed consolidated financial statements

2

Table of Contents

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

$

283,296

$

295,119

$

526,380

$

613,722

Other

 

18,249

 

17,990

 

35,089

 

36,441

 

Total revenues

 

301,545

 

313,109

 

561,469

 

650,163

 

OPERATING EXPENSES:

 

 

 

 

 

Compensation and related expenses

 

105,531

 

113,914

 

206,979

 

231,758

 

Management fees

 

79,252

 

76,987

 

136,258

 

160,680

 

Selling, general and administrative

 

59,736

 

52,752

 

111,993

 

115,347

 

Management contract buyout

1,428

Intangible amortization

 

31,221

 

36,012

 

59,962

 

71,735

 

Non-cash changes in fair value of estimated contingent consideration

 

3,847

 

16,472

 

11,261

 

(14,901)

 

Depreciation and other amortization

 

2,425

 

3,029

 

4,738

 

6,011

 

Total operating expenses

 

282,012

 

299,166

 

532,619

 

570,630

 

INCOME FROM OPERATIONS

 

19,533

 

13,943

 

28,850

 

79,533

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

Interest income

 

339

 

66

 

536

 

351

 

Interest expense

 

(14,424)

 

(10,057)

 

(27,283)

 

(23,643)

 

Amortization of debt financing costs

 

(782)

 

(709)

 

(1,564)

 

(1,491)

 

Loss on extinguishment of borrowings

 

 

 

 

(6,094)

 

Other (expense) income—net

 

(468)

 

70

 

(704)

 

682

 

Income from equity method investments

329

52

643

116

Total other expense—net

 

(15,006)

 

(10,578)

 

(28,372)

 

(30,079)

 

INCOME BEFORE INCOME TAX

 

4,527

3,365

 

478

 

49,454

 

INCOME TAX EXPENSE

 

1,425

37

 

204

 

12,107

 

NET INCOME

3,102

3,328

274

37,347

Non-controlling interest

(2,306)

(919)

(2,420)

(14,542)

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

796

$

2,409

$

(2,146)

$

22,805

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

Basic

$

0.02

$

0.05

$

(0.05)

$

0.48

Diluted

$

0.02

$

0.03

$

(0.05)

$

0.48

Weighted average shares of Class A common stock outstanding:

Basic

46,696,200

47,847,756

46,455,238

47,642,156

Diluted

46,721,559

73,418,108

46,455,238

47,651,057

See notes to unaudited condensed consolidated financial statements

3

Table of Contents

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

$

3,102

$

3,328

$

274

$

37,347

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

Foreign currency translation adjustments

 

(687)

 

5,778

 

(333)

 

(2,787)

Unrealized loss on interest rate swap designated as a cash flow hedge

(5,383)

(8,327)

Comprehensive income (loss)

2,415

3,723

(59)

26,233

Less: Comprehensive income attributable to noncontrolling interest

(2,025)

(1,084)

(2,263)

(10,645)

Comprehensive income (loss) attributable to common shareholders

$

390

$

2,639

$

(2,322)

$

15,588

See notes to unaudited condensed consolidated financial statements

4

Table of Contents

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

$

274

$

37,347

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

 

 

  

Intangible amortization

 

59,962

 

71,735

Depreciation and other amortization

 

4,738

 

6,011

Amortization of debt financing costs

 

1,564

 

1,491

Non-cash equity compensation expense

 

9,099

 

10,282

Non-cash changes in fair value of estimated contingent consideration

 

11,261

 

(14,901)

Income from equity method investments

 

(643)

 

(116)

Distributions received from equity method investments

 

618

 

52

Deferred taxes and other non-cash items

 

843

 

3,333

Loss on extinguishment of borrowings

 

 

6,094

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

 

 

  

Accounts receivable

 

(18,219)

 

(15,905)

Prepaid expenses and other assets

 

3,220

 

2,780

Accounts payable

 

389

 

(981)

Accrued expenses

 

25,166

 

7,600

Due to affiliates

 

(16,518)

 

(31,225)

Other liabilities

 

(24,848)

 

(18,406)

Deferred revenue

 

(1,688)

 

(813)

Net cash provided by operating activities

 

55,218

 

64,378

CASH FLOWS FROM INVESTING ACTIVITIES:

 

  

 

  

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

 

(289,101)

 

(59,000)

Purchase of fixed assets

 

(10,060)

 

(5,947)

Net cash used in investing activities

 

(299,161)

 

(64,947)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

 

  

Borrowings under credit facilities

 

370,000

 

285,000

Repayments of borrowings under credit facilities

 

(94,014)

 

(270,783)

Contingent consideration paid

 

(16,293)

 

(34,992)

Payments of debt financing costs

 

 

(634)

Proceeds from exercise of stock options

796

167

Payments on finance lease obligations

(94)

(59)

Distributions for unitholders

 

(11,734)

 

(7,643)

Net cash provided by (used in) financing activities

 

248,661

 

(28,944)

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS

 

13

 

(336)

CHANGE IN CASH AND CASH EQUIVALENTS

 

4,731

 

(29,849)

CASH AND CASH EQUIVALENTS:

 

  

 

  

Beginning of period

 

33,213

 

65,178

End of period

$

37,944

$

35,329

See Note 13 for supplemental cash flow disclosure

See notes to unaudited condensed consolidated financial statements

5

Table of Contents

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

46,675,183

$

467

22,568,831

$

225

$

459,488

$

(3,532)

$

(1,594)

$

455,054

$

357,222

$

812,276

Net income

796

796

2,306

3,102

Issuance (cancellation) of common stock in connection with exercise of Focus LLC common unit exchange rights

260,385

3

(260,385)

(2)

7,304

7,305

7,305

Issuance of common stock in connection with exercise of Focus LLC incentive unit exchange rights

163,600

1

4,537

4,538

4,538

Exercise of stock options

17,649

582

582

582

Change in non-controlling interest allocation

17,315

17,315

(28,916)

(11,601)

Non-cash equity compensation expenses

948

948

948

Currency translation adjustment-net of tax

(406)

(406)

(281)

(687)

Adjustments of deferred taxes, net of amounts payable under tax receivable agreements and changes from Focus LLC interest transactions

(608)

(608)

(608)

Balance at June 30, 2019

47,116,817

$

471

22,308,446

$

223

$

489,566

$

(2,736)

$

(2,000)

$

485,524

$

330,331

$

815,855

Balance at April 1, 2020

47,807,029

$

478

21,759,379

$

218

$

520,281

$

6,934

$

(8,746)

$

519,165

$

307,881

$

827,046

Net income

2,409

2,409

919

3,328

Issuance (cancellation) of common stock in connection with exercise of Focus LLC common unit exchange rights

263,276

3

(263,276)

(3)

7,330

7,330

7,330

Issuance of common stock in connection with exercise of Focus LLC incentive unit exchange rights

19,071

531

531

531

Forfeiture of unvested Class A common stock

(834)

(27)

(27)

(27)

Exercise of stock options

3,165

90

90

90

Change in non-controlling interest allocation

(26,215)

(26,215)

17,513

(8,702)

Non-cash equity compensation expenses

1,173

1,173

1,173

Currency translation adjustment-net of tax

3,714

3,714

2,064

5,778

Unrealized loss on interest rate swaps designated as a cash flow hedges-net of tax

(3,484)

(3,484)

(1,899)

(5,383)

Adjustments of deferred taxes, net of amounts payable under tax receivable agreements and changes from Focus LLC interest transactions

46

46

46

Balance at June 30, 2020

48,091,707

$

481

21,496,103

$

215

$

503,209

$

9,343

$

(8,516)

$

504,732

$

326,478

$

831,210

See notes to unaudited condensed consolidated financial statements

6

Table of Contents

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

46,265,903

$

462

22,823,272

$

228

$

471,386

$

(590)

$

(1,824)

$

469,662

$

342,858

$

812,520

Net loss

(2,146)

(2,146)

2,420

274

Issuance (cancellation) of common stock in connection with exercise of Focus LLC common unit exchange rights

514,826

6

(514,826)

(5)

16,571

16,572

16,572

Issuance of common stock in connection with exercise of Focus LLC incentive unit exchange rights

312,871

3

9,972

9,975

9,975

Forfeiture of unvested Class A common stock

(909)

(30)

(30)

(30)

Exercise of stock options

24,126

796

796

796

Change in non-controlling interest allocation

(11,032)

(11,032)

(14,790)

(25,822)

Non-cash equity compensation expenses

1,653

1,653

1,653

Currency translation adjustment-net of tax

(176)

(176)

(157)

(333)

Adjustments of deferred taxes, net of amounts payable under tax receivable agreements and changes from Focus LLC interest transactions

250

250

250

Balance at June 30, 2019

47,116,817

$

471

22,308,446

$

223

$

489,566

$

(2,736)

$

(2,000)

$

485,524

$

330,331

$

815,855

Balance at January 1, 2020

47,421,315

$

474

22,075,749

$

221

$

498,186

$

(13,462)

$

(1,299)

$

484,120

$

319,850

$

803,970

Net income

22,805

22,805

14,542

37,347

Issuance (cancellation) of common stock in connection with exercise of Focus LLC common unit exchange rights

579,646

6

(579,646)

(6)

13,366

13,366

13,366

Issuance of common stock in connection with exercise of Focus LLC incentive unit exchange rights

85,702

1

1,802

1,803

1,803

Forfeiture of unvested Class A common stock

(834)

(27)

(27)

(27)

Exercise of stock options

5,878

167

167

167

Change in non-controlling interest allocation

(12,128)

(12,128)

(4,017)

(16,145)

Non-cash equity compensation expenses