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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 September 30, 2022

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 November 1, 2022, the registrant had 65,865,932 shares of Class A common stock and 11,653,693 shares of Class B common stock outstanding.

Table of Contents

FOCUS FINANCIAL PARTNERS INC.

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2022

    

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 equity

7

Notes to unaudited condensed consolidated financial statements

8

Item 2.

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

25

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

47

Item 4.

Controls and Procedures

47

PART II: OTHER INFORMATION

Item 1.

Legal Proceedings

48

Item 1A.

Risk Factors

48

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

49

Item 6.

Exhibits

49

SIGNATURES

50

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, 

    

September 30, 

2021

2022

ASSETS

 

  

 

  

Cash and cash equivalents

$

310,684

$

128,528

Accounts receivable less allowances of $3,255 at 2021 and $3,949 at 2022

 

198,827

 

207,992

Prepaid expenses and other assets

 

123,826

 

174,007

Fixed assets—net

 

47,199

 

49,818

Operating lease assets

249,850

257,749

Debt financing costs—net

 

4,254

 

3,648

Deferred tax assets—net

267,332

232,332

Goodwill

 

1,925,315

 

2,092,787

Other intangible assets—net

 

1,581,719

 

1,637,816

TOTAL ASSETS

$

4,709,006

$

4,784,677

LIABILITIES AND EQUITY

 

  

LIABILITIES

 

  

Accounts payable

$

11,580

$

11,822

Accrued expenses

 

72,572

 

108,542

Due to affiliates

 

105,722

 

66,868

Deferred revenue

 

10,932

 

15,554

Contingent consideration and other liabilities

 

468,284

 

320,176

Deferred tax liabilities

31,973

39,477

Operating lease liabilities

277,324

286,930

Borrowings under credit facilities (stated value of $2,407,302 and $2,438,779 at December 31, 2021 and September 30, 2022, respectively)

 

2,393,669

 

2,427,211

Tax receivable agreements obligations

219,542

221,237

TOTAL LIABILITIES

 

3,591,598

 

3,497,817

COMMITMENTS AND CONTINGENCIES (Note 12)

 

  

EQUITY

Class A common stock, par value $0.01, 500,000,000 shares authorized; 65,320,124 and 65,865,932 shares issued and outstanding at December 31, 2021 and September 30, 2022, respectively

653

658

Class B common stock, par value $0.01, 500,000,000 shares authorized; 11,439,019 and 11,653,693 shares issued and outstanding at December 31, 2021 and September 30, 2022, respectively

114

116

Additional paid-in capital

841,753

930,042

Retained earnings

24,995

116,429

Accumulated other comprehensive income

3,029

11,378

Total shareholders' equity

870,544

1,058,623

Non-controlling interest

246,864

228,237

Total equity

1,117,408

1,286,860

TOTAL LIABILITIES AND EQUITY

$

4,709,006

$

4,784,677

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 nine months ended

September 30, 

September 30, 

    

2021

    

2022

    

2021

    

2022

REVENUES:

  

  

  

  

Wealth management fees

$

433,967

$

499,017

$

1,213,782

$

1,531,617

Other

 

20,568

 

20,847

 

60,283

 

64,025

 

Total revenues

 

454,535

 

519,864

 

1,274,065

 

1,595,642

 

OPERATING EXPENSES:

 

 

 

 

 

Compensation and related expenses

 

144,249

 

186,320

 

424,337

 

546,251

 

Management fees

 

127,166

 

122,971

 

345,443

 

397,612

 

Selling, general and administrative

 

75,637

 

89,915

 

208,481

 

273,336

 

Intangible amortization

 

46,055

 

67,331

 

133,041

 

192,256

 

Non-cash changes in fair value of estimated contingent consideration

 

36,243

 

(30,708)

 

96,241

 

(82,450)

 

Depreciation and other amortization

 

3,622

 

4,016

 

10,835

 

11,454

 

Total operating expenses

 

432,972

 

439,845

 

1,218,378

 

1,338,459

 

INCOME FROM OPERATIONS

 

21,563

 

80,019

 

55,687

 

257,183

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

Interest income

 

206

 

126

 

310

 

146

 

Interest expense

 

(16,543)

 

(26,491)

 

(37,893)

 

(63,999)

 

Amortization of debt financing costs

 

(1,102)

 

(949)

 

(2,856)

 

(2,999)

 

Other income (expense)—net

 

312

 

(2,347)

 

(219)

 

(3,834)

 

Income from equity method investments

91

51

514

157

Total other expense—net

 

(17,036)

 

(29,610)

 

(40,144)

 

(70,529)

 

INCOME BEFORE INCOME TAX

 

4,527

50,409

 

15,543

 

186,654

 

INCOME TAX EXPENSE

 

2,678

12,120

 

6,038

 

59,965

 

NET INCOME

1,849

38,289

9,505

126,689

Non-controlling interest

(1,200)

(9,040)

(6,623)

(35,255)

NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

649

$

29,249

$

2,882

$

91,434

Income per share of Class A common stock:

Basic

$

0.01

$

0.45

$

0.05

$

1.40

Diluted

$

0.01

$

0.44

$

0.05

$

1.39

Weighted average shares of Class A common stock outstanding:

Basic

59,940,166

65,599,493

55,978,639

65,441,151

Diluted

60,438,510

65,821,228

56,447,070

65,729,339

See notes to unaudited condensed consolidated financial statements

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FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated statements of comprehensive income (loss)

(In thousands)

For the three months ended

For the nine months ended

 

September 30, 

September 30, 

    

2021

    

2022

    

2021

    

2022

 

Net income

$

1,849

$

38,289

$

9,505

$

126,689

Other comprehensive income (loss), net of tax:

 

 

 

 

 

Foreign currency translation adjustments

 

(5,057)

 

(13,237)

 

(5,876)

 

(20,662)

Unrealized gain on interest rate swaps designated as cash flow hedges

432

7,710

5,937

31,811

Comprehensive income (loss)

(2,776)

32,762

9,566

137,838

Less: Comprehensive (income) loss attributable to non-controlling interest

14

(7,994)

(7,194)

(38,055)

Comprehensive income (loss) attributable to common shareholders

$

(2,762)

$

24,768

$

2,372

$

99,783

See notes to unaudited condensed consolidated financial statements

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FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated statements of cash flows

(In thousands)

For the nine months ended

September 30, 

    

2021

    

2022

CASH FLOWS FROM OPERATING ACTIVITIES:

 

  

 

  

Net income

$

9,505

$

126,689

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

 

 

  

Intangible amortization

 

133,041

 

192,256

Depreciation and other amortization

 

10,835

 

11,454

Amortization of debt financing costs

 

2,856

 

2,999

Non-cash equity compensation expense

 

24,569

 

22,190

Non-cash changes in fair value of estimated contingent consideration

 

96,241

 

(82,450)

Income from equity method investments

 

(514)

 

(157)

Distributions received from equity method investments

 

773

 

1,059

Deferred taxes and other non-cash items

 

(570)

 

38,492

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

 

 

  

Accounts receivable

 

(22,247)

 

(7,959)

Prepaid expenses and other assets

 

(17,731)

 

(7,083)

Accounts payable

 

1,974

 

21

Accrued expenses

 

35,382

 

37,729

Due to affiliates

 

22,715

 

(39,020)

Contingent consideration and other liabilities

 

(61,181)

 

(69,038)

Deferred revenue

 

2,200

 

3,134

Net cash provided by operating activities

 

237,848

 

230,316

CASH FLOWS FROM INVESTING ACTIVITIES:

 

  

 

  

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

 

(286,803)

 

(361,675)

Purchase of fixed assets

 

(6,560)

 

(13,152)

Investment and other, net

 

(17,232)

 

(5,232)

Net cash used in investing activities

 

(310,595)

 

(380,059)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

 

  

Borrowings under credit facilities

 

1,169,500

 

100,000

Repayments of borrowings under credit facilities

 

(419,145)

 

(68,523)

Proceeds from issuance of common stock, net

25,767

Payments in connection with unit redemption, net

(25,767)

Payments in connection with tax receivable agreements

(4,423)

(3,856)

Contingent consideration paid

 

(67,735)

 

(35,929)

Payments of deferred acquisition consideration

(1,484)

Payments of debt financing costs

 

(8,282)

 

(1,111)

Proceeds from exercise of stock options

6,186

1,158

Distributions for unitholders

(26,391)

(20,519)

Other

(46)

375

Net cash provided by (used in) financing activities

 

649,664

 

(29,889)

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS

 

(568)

 

(2,524)

CHANGE IN CASH AND CASH EQUIVALENTS

 

576,349

 

(182,156)

CASH AND CASH EQUIVALENTS:

 

  

 

  

Beginning of period

 

65,858

 

310,684

End of period

$

642,207

$

128,528

See Note 13 for supplemental cash flow disclosure

See notes to unaudited condensed consolidated financial statements

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FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated statements of changes in equity

Three months ended September 30, 2021 and 2022

(In thousands, except share amounts)

Accumulated

 

Class A

Class B

Additional

Other

Total

Common Stock

Common Stock

Paid-In

Retained

Comprehensive

Shareholders’

Non-controlling

    

Shares

    

Amount

    

Shares

    

Amount

    

 Capital

    

Earnings

    

Income (Loss)

    

Equity

    

Interest

    

Total  Equity

Balance at July 1, 2021

59,792,889

$

598

12,692,740

$

127

$

650,421

$

16,816

$

734

$

668,696

$

230,389

$

899,085

Net income

649

649

1,200

1,849

Issuance of units in connection with an acquisition and contingent consideration

64,706

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

418,669

4

(418,669)

(4)

21,901

21,901

21,901

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

34,898

1,825

1,825

1,825

Exercise of stock options

68,885

1

2,168

2,169

2,169

Change in non-controlling interest allocation

(18,833)

(18,833)

(4,129)

(22,962)

Non-cash equity compensation expenses

1,569

1,569

1,569

Currency translation adjustment-net of tax

(3,735)

(3,735)

(1,322)

(5,057)

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

324

324

108

432

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

490

490

490

Balance at September 30, 2021

60,315,341

$

603

12,338,777

$

123

$

659,541

$

17,465

$

(2,677)

$

675,055

$

226,246

$

901,301

Balance at July 1, 2022

65,442,389

654

12,034,104

120

910,222

87,180

15,859

$

1,014,035

$

234,821

$

1,248,856

Net income

29,249

29,249

9,040

38,289

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

381,573

4

(381,573)

(4)

15,469

15,469

15,469

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

15,158

615

615

615

Exercise of stock options

26,767

736

736

736

Restricted stock units vesting and related withholding

45

Restricted common units vesting

1,162

Change in non-controlling interest allocation

1,009

1,009

(14,578)

(13,569)

Non-cash equity compensation expenses

2,226

2,226

2,226

Currency translation adjustment-net of tax

(10,666)

(10,666)

(2,571)

(13,237)

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

6,185

6,185

1,525

7,710

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

(235)

(235)

(235)

Balance at September 30, 2022

65,865,932

$

658

11,653,693

$

116

$

930,042

$

116,429

$

11,378

$

1,058,623

$

228,237

$

1,286,860

See notes to unaudited condensed consolidated financial statements

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FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated statements of changes in equity

Nine months ended September 30, 2021 and 2022

(In thousands, except share amounts)

Accumulated

Class A

Class B

Additional

Other

Total

Common Stock

Common Stock

Paid-In

Retained

Comprehensive

Shareholders’

Non-controlling

    

Shares

    

Amount

    

Shares

    

Amount

    

 Capital

    

Earnings

    

Income (Loss)

    

Equity

    

Interest

    

Total Equity

Balance at January 1, 2021

51,158,712

$

512

20,661,595

$

207

$

526,664

$

14,583

$

(2,167)

$

539,799

$

319,080

$

858,879

Net income

2,882

2,882

6,623

9,505

Issuance of units in connection with an acquisition and contingent consideration

233,098

1

1

1

Issuance (cancellation) of common stock in connection with offering, net

6,568,098

65

(6,306,301)

(63)

317,858

317,860

317,860

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

2,249,615

22

(2,249,615)

(22)

109,677

109,677

109,677

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

169,530

2

8,348

8,350

8,350

Exercise of stock options

169,386

2

5,343

5,345

5,345

Change in non-controlling interest allocation

(328,318)

(328,318)

(100,028)

(428,346)

Non-cash equity compensation expenses

3,859

3,859

3,859

Currency translation adjustment-net of tax

(4,516)

(4,516)

(1,360)

(5,876)

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

4,006

4,006

1,931

5,937

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

16,110

16,110

16,110

Balance at September 30, 2021

60,315,341

$

603

12,338,777

$

123

$

659,541

$

17,465

$

(2,677)

$

675,055

$

226,246

$

901,301

Balance at January 1, 2022

65,320,124

$

653

11,439,019

$

114

$

841,753

$

24,995

$

3,029

$

870,544

$

246,864

$

1,117,408

Net income

91,434

91,434

35,255

126,689

Issuance of units in connection with an acquisition and contingent consideration

700,085

7

7

7

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

486,573

5

(486,573)

(5)

19,592

19,592

19,592

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

17,114

702

702

702

Exercise of stock options

42,076

1,158

1,158

1,158

Restricted stock units vesting and related withholding

45

Restricted common units vesting

1,162

Change in non-controlling interest allocation

65,618

65,618

(56,682)

8,936

Non-cash equity compensation expenses

6,323

6,323

6,323

Currency translation adjustment-net of tax

(16,574)

(16,574)

(4,088)

(20,662)

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

24,923

24,923

6,888

31,811

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

(5,104)

(5,104)

(5,104)

Balance at September 30, 2022

65,865,932

$

658

11,653,693

$

116

$

930,042

$

116,429

$

11,378

$

1,058,623

$

228,237

$

1,286,860

See notes to unaudited condensed consolidated financial statementsClick or tap here to enter text.

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FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements

(In thousands, except unit data, share and per share amounts)

1. GENERAL

Organization and Business— Focus Financial Partners Inc. (“Focus Inc.”) was formed as a Delaware corporation on July 29, 2015. Focus Inc. is the managing member of Focus Financial Partners, LLC (“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 are governed by its Fourth Amended and Restated Operating Agreement (the “Operating Agreement”). Focus LLC is in the business of acquiring and overseeing independent fiduciary wealth management and related businesses.

The unaudited condensed consolidated financial statements reflect the results of operations and financial position of Focus Inc. and its subsidiaries (the “Company”).

2. SUMMARY OF ACCOUNTING POLICIES

Basis of Presentation—The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of only normal recurring adjustments, considered necessary for fair presentation have been included. The unaudited condensed consolidated financial statements include the accounts of Focus Inc. and its majority and wholly owned subsidiaries. Focus Inc. consolidates Focus LLC and its subsidiaries’ financial statements and records the interests in Focus LLC consisting of common units, restricted common units and the common unit equivalent of incentive units of Focus LLC that Focus Inc. does not own as non-controlling interests (see Note 3). Intercompany transactions and balances have been eliminated in consolidation. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K as filed with the SEC on February 17, 2022.

Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

Use of Estimates—The preparation of the unaudited condensed 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.

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FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (continued)

(In thousands, except unit data, share and per share amounts)

Revenue

The Company disaggregates revenue by wealth management fees and other. 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.

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2022

    

2021

    

2022

Domestic revenue

$

427,729

$

486,536

$

1,197,874

$

1,504,221

International revenue

 

26,806

 

33,328

 

76,191

 

91,421

Total revenue

$

454,535

$

519,864

$

1,274,065

$

1,595,642

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

Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU No. 2020-04 provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London InterBank Offered Rate (“LIBOR”) or another rate that is expected to be discontinued. The amendments in ASU No. 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. The adoption of ASU No. 2020-04 did not have a material impact on the Company’s consolidated financial statements; however, the Company will continue to evaluate the impacts, if any, of the provisions of ASU No. 2020-04 on the Company’s debt and hedging arrangements through December 31, 2022.

3. NON-CONTROLLING INTEREST AND INCOME PER SHARE

The calculation of controlling and non-controlling interest is as follows as of September 30, 2021 and 2022:

    

2021

2022

Focus LLC common units

    

12,338,777

11,653,693

Focus LLC restricted common units

71,374

192,463

Common unit equivalents of outstanding vested and unvested Focus LLC incentive units(1)

8,656,088

3,680,928

Total common units, restricted common units and common unit equivalents attributable to non-controlling interest

21,066,239

15,527,084

Total common units, restricted common units and common unit equivalents of incentive units outstanding

81,381,580

81,393,016

Non-controlling interest allocation

25.9

%

19.1

%

Company’s interest in Focus LLC

74.1

%

80.9

%

(1)Focus LLC common units issuable upon conversion of 16,233,899 and 16,165,917 (see Note 9) vested and unvested Focus LLC incentive units outstanding as of September 30, 2021 and 2022, respectively, was

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FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (continued)

(In thousands, except unit data, share and per share amounts)

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 periods.

Basic income per share is calculated utilizing net income attributable to common shareholders divided by the weighted average number of shares of Class A common stock outstanding during the same periods. The calculation of basic income per share is as follows:

Three Months Ended

Nine Months Ended

    

September 30, 

September 30, 

2021

    

2022

    

2021

    

2022

Net income attributable to common shareholders

$

649

$

29,249

$

2,882

$

91,434

Weighted average shares of Class A common stock outstanding

 

59,940,166

 

65,599,493

 

55,978,639

 

65,441,151

Basic income per share

$

0.01

$

0.45

$

0.05

$

1.40

Diluted income per share is calculated utilizing net income attributable to common shareholders divided by the weighted average number of shares of Class A common stock outstanding during the same periods plus the effect, if any, of the potentially dilutive shares of the Company’s Class A common stock from stock options, restricted stock units and Focus LLC common units, including contingently issuable Focus LLC common units, if any, restricted common units and incentive units as calculated using the treasury stock method:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2022

    

2021

    

2022

Net income attributable to common shareholders

$

649

$

29,249

$

2,882

$

91,434

Weighted average shares of Class A common stock outstanding

 

59,940,166

 

65,599,493

 

55,978,639

 

65,441,151

Effect of dilutive stock options

441,809

197,520

420,801

264,938

Effect of dilutive restricted stock units

56,535

24,215

47,630

23,250

Total

 

60,438,510

 

65,821,228

 

56,447,070

 

65,729,339

Diluted income per share

$

0.01

$

0.44

$

0.05

$

1.39

Diluted income per share for the three and nine months ended September 30, 2021 and 2022 excludes shares related to 155,000 market-based stock options, as modified, that vest on the sixth anniversary of the pricing of the Company’s initial public offering (“IPO”) with vesting based on the highest volume weighted average per share price for any ninety-calendar day period (“90-day VWAP”) prior to the anniversary, with 0% vesting if the highest 90-day VWAP is $80.00 or less and 100% vesting if the highest 90-day VWAP is $110.00 or more, with linear interpolation in between (see Note 9). Such market-based criteria were not met at September 30, 2021 and 2022.

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FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (continued)

(In thousands, except unit data, share and per share amounts)

Focus LLC common, restricted common and incentive units may be exchanged for the Company’s Class A common stock, subject to certain limitations (see Note 9). In computing the dilutive effect, if any, that the exchange would have on net income per share, net income attributable to Class A common shareholders would be adjusted due to the elimination of the non-controlling interests (including any associated tax impact). For the three and nine months ended September 30, 2021 and 2022, such exchange is not reflected in diluted net income per share as the assumed exchange is not dilutive.

4. ACQUISITIONS

Business Acquisitions

Business acquisitions are accounted for in accordance with FASB Accounting Standards Codification (“ASC”) Topic 805: Business Combinations.

The Company has incorporated contingent consideration, or earn out provisions, into the structure of its acquisitions. The Company recognizes the fair value of estimated contingent consideration at the acquisition date as part of the consideration transferred in the exchange. The contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved. The purchase price associated with business acquisitions and the allocation thereof during the nine months ended September 30, 2022 is as follows:

    

2022

Number of business acquisitions closed

    

11

Consideration:

Cash due at closing

$

356,854

Estimated working capital adjustment and other

889

Cash due subsequent to closing at net present value