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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 8-K

 

 

 

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): August 4, 2022

 

 

 

FOCUS FINANCIAL PARTNERS INC.

(Exact name of registrant as specified in its charter)

 

Delaware 001-38604 47-4780811
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
     
  875 Third Avenue, 28th Floor  
  New York, NY 10022  
  (Address of principal executive offices)  
  (Zip Code)  
     
  (646) 519-2456  
  Registrant’s Telephone Number, Including Area Code  

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Class A common stock, par value $0.01 per share   FOCS   Nasdaq Global Select Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

 

 

Item 2.02Results of Operations and Financial Condition.

 

On August 4, 2022, Focus Financial Partners Inc. (the “Company”) issued a press release reporting results for its second quarter ended June 30, 2022. A copy of the press release is furnished with this Current Report on Form 8-K (this “Current Report”) as Exhibit 99.1.

 

Item 7.01Regulation FD Disclosure.

 

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

 

On August 4, 2022, the Company also posted a slide presentation entitled “Second Quarter 2022 Earnings Release Supplement” dated August 4, 2022 to the “Events” section of the “Investor Relations” section of its website (www.focusfinancialpartners.com). A copy of the slide presentation is furnished with this Current Report as Exhibit 99.2.

 

The information in this Current Report, being furnished pursuant to Items 2.02, 7.01 and 9.01, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and is not incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.

 

Item 9.01Financial Statements and Exhibits.

 

(d)     Exhibits.

 

Exhibit No.   Description
99.1   Focus Financial Partners Inc. Press Release, dated August 4, 2022.
99.2   Focus Financial Partners Inc. Slide Presentation, dated August 4, 2022.
104   Cover Page Interactive Data File - the cover page iXBRL tags are embedded within the inline XBRL document.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  FOCUS FINANCIAL PARTNERS INC.
   
  By: /s/ J. Russell McGranahan
    J. Russell McGranahan
    General Counsel
     
Dated:    August 4, 2022    

 

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Exhibit 99.1

 

 

Focus Financial Partners Reports Second Quarter 2022 Results

 

Revenue Diversification, Variable Expense Base and Global Scale Drive Excellent
Financial Performance in Volatile Markets

 

New York, New York – August 4, 2022 – Focus Financial Partners Inc. (Nasdaq: FOCS) (“Focus Inc.”, “Focus”, the “Company”, “we”, “us” or “our”), a leading partnership of independent, fiduciary wealth management firms, today reported results for its second quarter ended June 30, 2022.

 

Second Quarter 2022 Highlights

 

Total revenues of $539.2 million, 26.8% growth year over year

 

Organic revenue growth(1) rate of 15.0% year over year

 

GAAP net income of $49.3 million

 

GAAP basic and diluted net income per share attributable to common shareholders of $0.51 and $0.50, respectively

 

Adjusted Net Income Excluding Tax Adjustments(2) of $81.7 million and Tax Adjustments(3) of $16.0 million

 

Adjusted Net Income Excluding Tax Adjustments Per Share(2) of $0.99 and Tax Adjustments(3) Per Share(2) of $0.19

 

Net Leverage Ratio(4) of 3.90x

 

14 transactions closed or announced year to date, including 3 new partner firms and 11 mergers on behalf of partner firms

 

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

 

(2)Non-GAAP financial measures. Please see “Reconciliation of Non-GAAP Financial Measures” later in this press release for a reconciliation and more information on these measures.

 

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

 

(4)Please see footnote 7 under “How We Evaluate Our Business” later in this press release.

 

“The results we announced today for the 2022 second quarter were outstanding, highlighting the resiliency of our business despite the macro backdrop,” said Rudy Adolf, Founder, CEO and Chairman of Focus. “Our partners are demonstrating their ability to handle difficult market conditions and our business is weathering the challenging environment well. Our diverse revenue stream, variable cost structure, and the scale of our global partnership of 87 firms mitigate our market sensitivity. With 14 transactions year to date and a strong pipeline going into the second half of the year, we continue to expect that 2022 will be one of our best years for M&A. Times like these position our partner firms well for strong growth in the future. We believe that the growth opportunities during and particularly after significant market volatility, combined with the operating leverage on our business, will lead to our sustained outperformance once conditions stabilize.”

 

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“We are very pleased with the strength of our financial performance this past quarter,” said Jim Shanahan, Chief Financial Officer. “Although the markets were exceptionally volatile, our 2022 second quarter results were again above the top end of our guidance and the resilience of our revenue performance is notable. We have continued to deploy capital in an extremely disciplined, measured way, particularly given the heightened risks created by the broader macro environment. We are executing well and navigating this storm. As a result, we expect to be well-positioned to benefit from the growth opportunity once macro conditions improve and deliver incremental value to our shareholders.”

 

Second Quarter 2022 Financial Highlights

 

Total revenues were $539.2 million, 26.8%, or $113.9 million higher than the 2021 second quarter. The primary driver of this increase was revenue growth from our existing partner firms of approximately $64.0 million. The majority of this increase was driven by higher wealth management fees, which included the effect of mergers completed by our partner firms. The balance of the increase of $49.9 million was attributable to revenues from new partner firms acquired during the last twelve months. Our year-over-year organic revenue growth rate(1) was 15.0%, above our expected 11% to 14% range for the quarter.

 

An estimated 76.7%, or $413.8 million, of total revenues in the quarter were correlated to the financial markets. Of this amount, 67.2%, or $278.2 million, were generated from advance billings generally based on market levels in the 2022 first quarter. The remaining 23.3%, or $125.4 million, were not correlated to the markets. These revenues typically consist of family office type services, tax advice and fixed fees for investment advice, primarily for high and ultra-high net worth clients.

 

GAAP net income was $49.3 million compared to $5.2 million in the prior year quarter. GAAP basic and diluted net income per share attributable to common shareholders were $0.51 and $0.50, respectively, as compared to $0.04 for both basic and diluted net income per share in the prior year quarter.

 

Adjusted EBITDA(2) was $137.0 million, 27.1%, or $29.2 million, higher than the prior year period. Our Adjusted EBITDA margin(3) was 25.4%, above our outlook of approximately 24.5% to 25.0% for the quarter reflecting lower compensation expense.

 

Adjusted Net Income Excluding Tax Adjustments(2) was $81.7 million, and Tax Adjustments(4) were $16.0 million. Adjusted Net Income Excluding Tax Adjustments Per Share(2) was $0.99, up 17.9% compared to the prior year period, and Tax Adjustments Per Share(2) were $0.19, up 35.7% compared to the prior year period.

 

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

 

(2)Non-GAAP financial measures. Please see “Reconciliation of Non-GAAP Financial Measures” later in this press release for a reconciliation and more information on these measures.

 

(3)Calculated as Adjusted EBITDA divided by Revenues.

 

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

 

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Balance Sheet and Liquidity

 

As of June 30, 2022, cash and cash equivalents were $221.0 million and debt outstanding under our credit facilities was approximately $2.5 billion, which included $100.0 million outstanding under our First Lien Revolver. In April 2022, we extended the maturity date of our First Lien Revolver to June 2024.

 

Our Net Leverage Ratio(1) as of June 30, 2022 was 3.90x. We remain committed to maintaining our Net Leverage Ratio(1) between 3.5x to 4.5x and believe this is the appropriate range for our business given our highly acquisitive nature.

 

As of June 30, 2022, $850 million, or 34.1%, of the debt outstanding under our credit facilities had LIBOR swapped from a floating rate to a fixed weighted average interest rate of 62 basis points plus a spread of 200 basis points. The residual amount of approximately $1.6 billion, primarily consisting of our First Lien Term Loan, remains at floating rates, with $792.4 million of this amount at an interest rate of LIBOR subject to a 50 basis point floor plus 250 basis points spread, and $752.6 million of this amount at an interest rate of LIBOR plus 200 basis points spread with no LIBOR floor. We have typically used 30-day LIBOR on our term loans.

 

Our net cash provided by operating activities for the trailing four quarters ended June 30, 2022 was $291.3 million compared to $298.9 million for the comparable period ended June 30, 2021. Our Cash Flow Available for Capital Allocation(2) for the trailing four quarters ended June 30, 2022 was $323.2 million compared to $266.0 million for the comparable period ended June 30, 2021. This 21.5% increase reflected the earnings growth of our partner firms and the addition of new partner firms. In the 2022 second quarter, we paid $33.3 million in cash earn-out obligations and $6.2 million of required amortization under our First Lien Term Loan.

 

(1)Please see footnote 7 under “How We Evaluate Our Business” later in this press release.

 

(2)Non-GAAP financial measure. See ‘‘Reconciliation of Non-GAAP Financial Measures—Cash Flow Available for Capital Allocation” later in this press release.

 

Teleconference, Webcast and Presentation Information

 

Founder, CEO and Chairman, Rudy Adolf, and Chief Financial Officer, Jim Shanahan, will host a conference call today, August 4, 2022 at 8:30 a.m. Eastern Time to discuss the Company’s 2022 second quarter results and outlook. The call can be accessed by dialing +1-877-407-0989 (callers inside the U.S.) or +1-201-389-0921 (callers outside the U.S.).

 

A live, listen-only webcast, together with a slide presentation titled “Second Quarter 2022 Earnings Release Supplement” dated August 4, 2022 will be available under Events in the Investor Relations section of the Company’s website, www.focusfinancialpartners.com. A webcast replay of the call will be available shortly after the event at the same address. Registration for the call will begin 15 minutes prior to the start of the call, using the following link.

 

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About Focus Financial Partners Inc.

 

Focus Financial Partners Inc. is a leading partnership of independent, fiduciary wealth management firms. Focus provides access to best practices, resources, and continuity planning for its partner firms who serve individuals, families, employers and institutions with comprehensive wealth management services. Focus partner firms maintain their operational independence, while they benefit from the synergies, scale, economics and best practices offered by Focus to achieve their business objectives.

 

Cautionary Note Concerning Forward-Looking Statements

 

The foregoing information contains certain forward-looking statements that reflect the Company’s current views with respect to certain current and future events and financial performance. These forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to the Company’s operations and business environment, including the impact and duration of the outbreak of Covid-19 and the conflict in Ukraine, which may cause the Company’s actual results to be materially different from any future results, expressed or implied, in these forward-looking statements. Any forward-looking statements in this release are based upon information available to the Company on the date of this release. The Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any statements expressed or implied therein will not be realized. Additional information on risk factors that could potentially affect the Company’s financial results may be found in the Company’s annual report on Form 10-K for the year ended December 31, 2021 filed and our other filings with the Securities and Exchange Commission.

 

Investor and Media Contacts

 

Tina Madon

Senior Vice President

Head of Investor Relations & Corporate Communications

Tel: (646) 813-2909

tmadon@focuspartners.com

 

Charlie Arestia

Vice President

Investor Relations & Corporate Communications

Tel: (646) 560-3999

carestia@focuspartners.com

 

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How We Evaluate Our Business

 

We focus on several key financial metrics in evaluating the success of our business, the success of our partner firms and our resulting financial position and operating performance. Key metrics for the three and six months ended June 30, 2021 and 2022 include the following:

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2021   2022   2021   2022 
                 
   (dollars in thousands, except per share data) 
Revenue Metrics:                    
Revenues  $425,355   $539,211   $819,530   $1,075,778 
Revenue growth (1) from prior period   35.8%   26.8%   26.0%   31.3%
Organic revenue growth (2) from prior period   28.8%   15.0%   20.2%   18.6%
                     
Management Fees Metrics (operating expense):                    
Management fees  $116,205   $136,802   $218,277   $274,641 
Management fees growth (3) from prior period   50.9%   17.7%   35.8%   25.8%
Organic management fees growth (4) from prior period   43.4%   8.4%   29.0%   14.5%
                     
Net Income Metrics:                    
Net income  $5,174   $49,318   $7,656   $88,400 
Net income growth from prior period   55.5%   *    (79.5)%   * 
Income per share of Class A common stock:                    
Basic  $0.04   $0.51   $0.04   $0.95 
Diluted  $0.04   $0.50   $0.04   $0.95 
Income per share of Class A common stock growth from prior period:                    
Basic   (20.0)%   *    (91.7)%   * 
Diluted   33.3%   *    (91.7)%   * 
                     
Adjusted EBITDA Metrics:                    
Adjusted EBITDA (5)  $107,789   $137,021   $208,784   $272,101 
Adjusted EBITDA growth (5) from prior period   44.2%   27.1%   36.7%   30.3%
                     
Adjusted Net Income Excluding Tax Adjustments Metrics:                    
Adjusted Net Income Excluding Tax Adjustments (5)  $67,800   $81,679   $131,249   $164,752 
Adjusted Net Income Excluding Tax Adjustments growth (5) from prior period   50.3%   20.5%   44.8%   25.5%
                     
Tax Adjustments                    
Tax Adjustments (5)(6)  $11,038   $15,977   $21,530   $30,790 
Tax Adjustments growth from prior period (5)(6)   20.3%   44.7%   18.9%   43.0%

 

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   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2021   2022   2021   2022 
                 
   (dollars in thousands, except per share data) 
Adjusted Net Income Excluding Tax Adjustments Per Share and Tax Adjustments Per Share Metrics:                    
Adjusted Net Income Excluding Tax Adjustments Per Share (5)  $0.84   $0.99   $1.62   $2.01 
Tax Adjustments Per Share (5)(6)  $0.14   $0.19   $0.27   $0.37 
Adjusted Net Income Excluding Tax Adjustments Per Share growth (5) from prior period   42.4%   17.9%   36.1%   24.1%
Tax Adjustments Per Share growth from prior period (5)(6)   16.7%   35.7%   12.5%   37.0%
                     
Adjusted Shares Outstanding                    
Adjusted Shares Outstanding (5)   81,076,423    82,312,683    81,020,580    82,123,532 
                     
Other Metrics:                    
Net Leverage Ratio (7) at period end   3.54x   3.90x   3.54x   3.90x
Acquired Base Earnings (8)  $10,300   $11,450   $10,963   $11,450 
Number of partner firms at period end (9)   74    85    74    85 
                     

 

*            Not meaningful

 

(1)Represents period-over-period growth in our GAAP revenue.

 

(2)Organic revenue growth represents the period-over-period growth in revenue related to partner firms, including growth related to acquisitions of wealth management practices and customer relationships by our partner firms, including Connectus, and partner firms that have merged, that for the entire periods presented, are included in our consolidated statements of operations for each of the entire periods presented. We believe these growth statistics are useful in that they present full-period revenue growth of partner firms on a “same store” basis exclusive of the effect of the partial period results of partner firms that are acquired during the comparable periods.

 

(3)The terms of our management agreements entitle the management companies to management fees typically consisting of all Earnings Before Partner Compensation (“EBPC”) in excess of Base Earnings up to Target Earnings, plus a percentage of any EBPC in excess of Target Earnings. Management fees growth represents the period-over-period growth in GAAP management fees earned by management companies. While an expense, we believe that growth in management fees reflect the strength of the partnership.

 

(4)Organic management fees growth represents the period-over-period growth in management fees earned by management companies related to partner firms, including growth related to acquisitions of wealth management practices and customer relationships by our partner firms and partner firms that have merged, that for the entire periods presented, are included in our consolidated statements of operations for each of the entire periods presented.  We believe that these growth statistics are useful in that they present full-period growth of management fees on a “same store” basis exclusive of the effect of the partial period results of partner firms that are acquired during the comparable periods.

 

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(5)For additional information regarding Adjusted EBITDA, Adjusted Net Income Excluding Tax Adjustments, Adjusted Net Income Excluding Tax Adjustments Per Share, Tax Adjustments, Tax Adjustments Per Share and Adjusted Shares Outstanding, including a reconciliation of Adjusted EBITDA, Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share to the most directly comparable GAAP financial measure, please read “—Adjusted EBITDA” and “—Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share.”

 

(6)Tax Adjustments represent the tax benefits of intangible assets, including goodwill, associated with deductions allowed for tax amortization of intangible assets in the respective periods based on a pro forma 27% income tax rate. Such amounts were generated from acquisitions completed where we received a step-up in basis for tax purposes. Acquired intangible assets may be amortized for tax purposes, generally over a 15-year period. Due to our acquisitive nature, tax deductions allowed on acquired intangible assets provide additional significant supplemental economic benefit. The tax benefit from amortization is included to show the full economic benefit of deductions for acquired intangible assets with the step-up in tax basis. As of June 30, 2022, estimated Tax Adjustments from intangible asset related income tax benefits from closed acquisitions based on a pro forma 27% income tax rate for the next 12 months is $63.2 million.

 

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

 

(8)The terms of our management agreements entitle the management companies to management fees typically consisting of all future EBPC of the acquired wealth management firm in excess of Base Earnings up to Target Earnings, plus a percentage of any EBPC in excess of Target Earnings. Acquired Base Earnings is equal to our preferred position in Base Earnings or comparable measures. We are entitled to receive these earnings notwithstanding any earnings that we are entitled to receive in excess of Target Earnings. Base Earnings may change in future periods for various business or contractual matters. For example, from time to time when a partner firm consummates an acquisition, the management agreement among the partner firm, the management company and the principals is amended to adjust Base Earnings and Target Earnings to reflect the projected post acquisition earnings of the partner firm.

 

(9)Represents the number of partner firms on the last day of the period presented.

 

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Unaudited Condensed Consolidated Financial Statements

 

FOCUS FINANCIAL PARTNERS INC.

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except share and per share amounts)

 

   For the three months ended   For the six months ended 
   June 30,   June 30, 
   2021   2022   2021   2022 
REVENUES:                
Wealth management fees  $404,970   $517,421   $779,815   $1,032,600 
Other   20,385    21,790    39,715    43,178 
Total revenues   425,355    539,211    819,530    1,075,778 
OPERATING EXPENSES:                    
Compensation and related expenses   139,045    178,131    280,088    359,931 
Management fees   116,205    136,802    218,277    274,641 
Selling, general and administrative   69,018    94,771    132,844    183,421 
Intangible amortization   44,003    64,649    86,986    124,925 
Non-cash changes in fair value of estimated contingent consideration   34,062    (42,757)   59,998    (51,742)
Depreciation and other amortization   3,606    3,805    7,213    7,438 
Total operating expenses   405,939    435,401    785,406    898,614 
INCOME FROM OPERATIONS   19,416    103,810    34,124    177,164 
OTHER INCOME (EXPENSE):                    
Interest income   57    17    104    20 
Interest expense   (10,829)   (19,892)   (21,350)   (37,508)
Amortization of debt financing costs   (902)   (949)   (1,754)   (2,050)
Other expense—net   (534)   (1,451)   (531)   (1,487)
Income from equity method investments   140    11    423    106 
Total other expense—net   (12,068)   (22,264)   (23,108)   (40,919)
INCOME BEFORE INCOME TAX   7,348    81,546    11,016    136,245 
INCOME TAX EXPENSE   2,174    32,228    3,360    47,845 
NET INCOME   5,174    49,318    7,656    88,400 
Non-controlling interest   (3,197)   (16,235)   (5,423)   (26,215)
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS  $1,977   $33,083   $2,233   $62,185 
Income per share of Class A                    
common stock:                    
Basic  $0.04   $0.51   $0.04   $0.95 
Diluted  $0.04   $0.50   $0.04   $0.95 
Weighted average shares of Class A                    
common stock outstanding:                    
Basic   55,710,666    65,389,642    53,965,045    65,360,667 
Diluted   56,162,822    65,596,377    54,418,520    65,682,081 

 

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FOCUS FINANCIAL PARTNERS INC.

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

 

   December 31,   June 30, 
   2021   2022 
ASSETS          
Cash and cash equivalents  $310,684   $221,049 
Accounts receivable less allowances of $3,255 at 2021 and $4,201 at 2022   198,827    206,909 
Prepaid expenses and other assets   123,826    165,711 
Fixed assets—net   47,199    46,856 
Operating lease assets   249,850    254,853 
Debt financing costs—net   4,254    4,169 
Deferred tax assets—net   267,332    236,040 
Goodwill   1,925,315    2,050,297 
Other intangible assets—net   1,581,719    1,624,878 
TOTAL ASSETS  $4,709,006   $4,810,762 
LIABILITIES AND EQUITY          
LIABILITIES          
Accounts payable  $11,580   $16,228 
Accrued expenses   72,572    91,885 
Due to affiliates   105,722    53,905 
Deferred revenue   10,932    10,117 
Contingent consideration and other liabilities   468,284    370,775 
Deferred tax liabilities   31,973    35,682 
Operating lease liabilities   277,324    283,852 
Borrowings under credit facilities (stated value of $2,407,302 and $2,494,954 at December 31, 2021 and June 30, 2022, respectively)   2,393,669    2,482,697 
Tax receivable agreements obligations   219,542    216,765 
TOTAL LIABILITIES   3,591,598    3,561,906 
EQUITY          
Class A common stock, par value $0.01, 500,000,000 shares authorized; 65,320,124 and 65,442,389 shares issued and outstanding at December 31, 2021 and June 30, 2022, respectively   653    654 
Class B common stock, par value $0.01, 500,000,000 shares authorized; 11,439,019 and 12,034,104 shares issued and outstanding at December 31, 2021 and June 30, 2022, respectively   114    120 
Additional paid-in capital   841,753    910,222 
Retained earnings   24,995    87,180 
Accumulated other comprehensive income   3,029    15,859 
Total shareholders' equity   870,544    1,014,035 
Non-controlling interest   246,864    234,821 
Total equity   1,117,408    1,248,856 
TOTAL LIABILITIES AND EQUITY  $4,709,006   $4,810,762 

 

9

 

 

 

 

FOCUS FINANCIAL PARTNERS INC.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

 

   For the six months ended 
   June 30, 
   2021   2022 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income  $7,656   $88,400 
Adjustments to reconcile net income to net cash provided by operating activities—net of effect of acquisitions:          
Intangible amortization   86,986    124,925 
Depreciation and other amortization   7,213    7,438 
Amortization of debt financing costs   1,754    2,050 
Non-cash equity compensation expense   18,631    14,210 
Non-cash changes in fair value of estimated contingent consideration   59,998    (51,742)
Income from equity method investments   (423)   (106)
Distributions received from equity method investments   403    776 
Deferred taxes and other non-cash items   1,425    29,576 
Changes in cash resulting from changes in operating assets and liabilities:          
Accounts receivable   (10,038)   (9,398)
Prepaid expenses and other assets   (14,450)   (9,776)
Accounts payable   (527)   4,778 
Accrued expenses   16,883    21,446 
Due to affiliates   (9,765)   (51,962)
Contingent consideration and other liabilities   (13,986)   (40,201)
Deferred revenue   200    (1,122)
Net cash provided by operating activities   151,960    129,292 
CASH FLOWS FROM INVESTING ACTIVITIES:          
Cash paid for acquisitions and contingent consideration—net of cash acquired   (82,106)   (252,056)
Purchase of fixed assets   (4,318)   (6,429)
Investment and other, net   (19,132)   (5,232)
Net cash used in investing activities   (105,556)   (263,717)
CASH FLOWS FROM FINANCING ACTIVITIES:          
Borrowings under credit facilities   524,375    100,000 
Repayments of borrowings under credit facilities   (413,347)   (12,348)
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   (57,030)   (21,397)
Payments of debt financing costs   (2,700)   (1,111)
Proceeds from exercise of stock options   4,017    422 
Distributions for unitholders   (19,108)   (15,956)
Other   (39)   375 
Net cash provided by financing activities   31,745    46,129 
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS   (26)   (1,339)
CHANGE IN CASH AND CASH EQUIVALENTS   78,123    (89,635)
CASH AND CASH EQUIVALENTS:          
Beginning of period   65,858    310,684 
End of period  $143,981   $221,049 

 

10

 

 

 

 

 

Reconciliation of Non-GAAP Financial Measures

  

Adjusted EBITDA

 

Adjusted EBITDA is a non-GAAP measure. Adjusted EBITDA is defined as net income excluding interest income, interest expense, income tax expense, amortization of debt financing costs, intangible amortization and impairments, if any, depreciation and other amortization, non-cash equity compensation expense, non-cash changes in fair value of estimated contingent consideration, other expensenet, and secondary offering expenses, if any. We believe that Adjusted EBITDA, viewed in addition to and not in lieu of, our reported GAAP results, provides additional useful information to investors regarding our performance and overall results of operations for various reasons, including the following:

 

·non-cash equity grants made to employees or non-employees at a certain price and point in time do not necessarily reflect how our business is performing at any particular time; stock-based compensation expense is not a key measure of our operating performance;
·contingent consideration or earn outs can vary substantially from company to company and depending upon each company’s growth metrics and accounting assumption methods; the non-cash changes in fair value of estimated contingent consideration is not considered a key measure in comparing our operating performance; and
·amortization expenses can vary substantially from company to company and from period to period depending upon each company’s financing and accounting methods, the fair value and average expected life of acquired intangible assets and the method by which assets were acquired; the amortization of intangible assets obtained in acquisitions are not considered a key measure in comparing our operating performance.

 

We use Adjusted EBITDA:

 

·as a measure of operating performance;
·for planning purposes, including the preparation of budgets and forecasts;
·to allocate resources to enhance the financial performance of our business;
·to evaluate the effectiveness of our business strategies; and
·as a consideration in determining compensation for certain employees.

 

Adjusted EBITDA does not purport to be an alternative to net income or cash flows from operating activities. The term Adjusted EBITDA is not defined under GAAP, and Adjusted EBITDA is not a measure of net income, operating income or any other performance or liquidity measure derived in accordance with GAAP. Therefore, Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

 

·Adjusted EBITDA does not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments;
·Adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs; and
·Adjusted EBITDA does not reflect the interest expense on our debt or the cash requirements necessary to service interest or principal payments.

 

 

 11

 

 

 

 

In addition, Adjusted EBITDA can differ significantly from company to company depending on strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. We compensate for these limitations by also relying on the GAAP results and using Adjusted EBITDA as supplemental information.

 

Set forth below is a reconciliation of net income to Adjusted EBITDA for the three and six months ended June 30, 2021 and 2022:

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2021   2022   2021   2022 
                 
   (in thousands) 
Net income  $5,174   $49,318   $7,656   $88,400 
Interest income   (57)   (17)   (104)   (20)
Interest expense   10,829    19,892    21,350    37,508 
Income tax expense   2,174    32,228    3,360    47,845 
Amortization of debt financing costs   902    949    1,754    2,050 
Intangible amortization   44,003    64,649    86,986    124,925 
Depreciation and other amortization   3,606    3,805    7,213    7,438 
Non-cash equity compensation expense   6,275    7,503    18,631    14,210 
Non-cash changes in fair value of estimated contingent consideration   34,062    (42,757)   59,998    (51,742)
Other expense—net   534    1,451    531    1,487 
Secondary offering expenses   287        1,409     
Adjusted EBITDA  $107,789   $137,021   $208,784   $272,101 

 

 12

 

 

 

 

Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share

 

We analyze our performance using Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share. Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share are non-GAAP measures. We define Adjusted Net Income Excluding Tax Adjustments as net income excluding income tax expense, amortization of debt financing costs, intangible amortization and impairments, if any, non-cash equity compensation expense, non-cash changes in fair value of estimated contingent consideration and secondary offering expenses, if any. The calculation of Adjusted Net Income Excluding Tax Adjustments also includes adjustments to reflect a pro forma 27% income tax rate reflecting the estimated U.S. federal, state, local and foreign income tax rates applicable to corporations in the jurisdictions we conduct business.

 

Adjusted Net Income Excluding Tax Adjustments Per Share is calculated by dividing Adjusted Net Income Excluding Tax Adjustments by the Adjusted Shares Outstanding. Adjusted Shares Outstanding includes: (i) the weighted average shares of Class A common stock outstanding during the periods, (ii) the weighted average incremental shares of Class A common stock related to stock options and restricted stock units outstanding during the periods, (iii) the weighted average number of Focus LLC common units outstanding during the periods (assuming that 100% of such Focus LLC common units, including contingently issuable Focus LLC common units, if any, have been exchanged for Class A common stock), (iv) the weighted average number of Focus LLC restricted common units outstanding during the periods (assuming that 100% of such Focus LLC restricted common units have been exchanged for Class A common stock) and (v) the weighted average number of common unit equivalents of Focus LLC vested and unvested incentive units outstanding during the periods based on the closing price of our Class A common stock on the last trading day of the periods (assuming that 100% of such Focus LLC common units have been exchanged for Class A common stock).

 

We believe that Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share, viewed in addition to and not in lieu of, our reported GAAP results, provide additional useful information to investors regarding our performance and overall results of operations for various reasons, including the following:

 

·non-cash equity grants made to employees or non-employees at a certain price and point in time do not necessarily reflect how our business is performing at any particular time; stock-based compensation expense is not a key measure of our operating performance;
·contingent consideration or earn outs can vary substantially from company to company and depending upon each company’s growth metrics and accounting assumption methods; the non-cash changes in fair value of estimated contingent consideration is not considered a key measure in comparing our operating performance; and
·amortization expenses can vary substantially from company to company and from period to period depending upon each company’s financing and accounting methods, the fair value and average expected life of acquired intangible assets and the method by which assets were acquired; the amortization of intangible assets obtained in acquisitions are not considered a key measure in comparing our operating performance.

 

 13

 

 

 

 

Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share do not purport to be an alternative to net income or cash flows from operating activities. The terms Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share are not defined under GAAP, and Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share are not a measure of net income, operating income or any other performance or liquidity measure derived in accordance with GAAP. Therefore, Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

 

·Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share do not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments;
·Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share do not reflect changes in, or cash requirements for, working capital needs; and
·Other companies in the financial services industry may calculate Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share differently than we do, limiting its usefulness as a comparative measure.

 

In addition, Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share can differ significantly from company to company depending on strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. We compensate for these limitations by relying also on the GAAP results and use Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share as supplemental information.

 

Tax Adjustments and Tax Adjustments Per Share

 

Tax Adjustments represent the tax benefits of intangible assets, including goodwill, associated with deductions allowed for tax amortization of intangible assets in the respective periods based on a pro forma 27% income tax rate. Such amounts were generated from acquisitions completed where we received a step-up in basis for tax purposes. Acquired intangible assets may be amortized for tax purposes, generally over a 15-year period. Due to our acquisitive nature, tax deductions allowed on acquired intangible assets provide additional significant supplemental economic benefit. The tax benefit from amortization is included to show the full economic benefit of deductions for acquired intangible assets with the step-up in tax basis.

 

Tax Adjustments Per Share is calculated by dividing Tax Adjustments by the Adjusted Shares Outstanding.

 

 14

 

 

 

 

Set forth below is a reconciliation of net income to Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share for the three and six months ended June 30, 2021 and 2022:

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2021   2022   2021   2022 
                 
   (dollars in thousands, except per share data) 
Net income  $5,174   $49,318   $7,656   $88,400 
Income tax expense   2,174    32,228    3,360    47,845 
Amortization of debt financing costs   902    949    1,754    2,050 
Intangible amortization   44,003    64,649    86,986    124,925 
Non-cash equity compensation expense   6,275    7,503    18,631    14,210 
Non-cash changes in fair value of estimated contingent consideration   34,062    (42,757)   59,998    (51,742)
Secondary offering expenses (1)   287        1,409     
Subtotal   92,877    111,890    179,794    225,688 
Pro forma income tax expense (27%) (2)   (25,077)   (30,211)   (48,545)   (60,936)
Adjusted Net Income Excluding Tax Adjustments  $67,800   $81,679   $131,249   $164,752 
                     
Tax Adjustments (3)  $11,038   $15,977   $21,530   $30,790 
                     
Adjusted Net Income Excluding Tax Adjustments Per Share  $0.84   $0.99   $1.62   $2.01 
Tax Adjustments Per Share (3)  $0.14   $0.19   $0.27   $0.37 
                     
Adjusted Shares Outstanding   81,076,423    82,312,683    81,020,580    82,123,532 
                     
Calculation of Adjusted Shares Outstanding:                    
Weighted average shares of Class A common stock outstanding—basic (4)   55,710,666    65,389,642    53,965,045    65,360,667 
Adjustments:                    
Weighted average incremental shares of Class A common stock related to stock options and restricted stock units (5)   452,156    206,735    453,475    321,414 
Weighted average Focus LLC common units outstanding (6)   16,537,585    12,175,282    18,121,604    11,900,077 
Weighted average Focus LLC restricted common units outstanding (7)   71,374    193,625    71,374    193,625 
Weighted average common unit equivalent of Focus LLC incentive units outstanding (8)   8,304,642    4,347,399    8,409,082    4,347,749 
Adjusted Shares Outstanding   81,076,423    82,312,683    81,020,580    82,123,532 

 

 15

 

 

 

 

(1)Relates to offering expenses associated with the March 2021 and June 2021 secondary offerings.

 

(2)The pro forma income tax rate of 27% reflects the estimated U.S. federal, state, local and foreign income tax rates applicable to corporations in the jurisdictions we conduct business.

 

(3)Tax Adjustments represent the tax benefits of intangible assets, including goodwill, associated with deductions allowed for tax amortization of intangible assets in the respective periods based on a pro forma 27% income tax rate. Such amounts were generated from acquisitions completed where we received a step-up in basis for tax purposes. Acquired intangible assets may be amortized for tax purposes, generally over a 15-year period. Due to our acquisitive nature, tax deductions allowed on acquired intangible assets provide additional significant supplemental economic benefit. The tax benefit from amortization is included to show the full economic benefit of deductions for acquired intangible assets with the step-up in tax basis. As of June 30, 2022, estimated Tax Adjustments from intangible asset related income tax benefits from closed acquisitions based on a pro forma 27% income tax rate for the next 12 months is $63.2 million.

 

(4)Represents our GAAP weighted average Class A common stock outstanding—basic.

 

(5)Represents the incremental shares related to stock options and restricted stock units as calculated under the treasury stock method.

 

(6)Assumes that 100% of the Focus LLC common units, including contingently issuable Focus LLC common units, if any, were exchanged for Class A common stock.

 

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

 

(8)Assumes that 100% of the vested and unvested Focus LLC incentive units were converted into Focus LLC common units based on the closing price of our Class A common stock at the end of the respective period and such Focus LLC common units were exchanged for Class A common stock.

 

Adjusted Free Cash Flow and Cash Flow Available for Capital Allocation

 

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

 

 16

 

  

 

 

Set forth below is a reconciliation of net cash provided by operating activities to Adjusted Free Cash Flow and Cash Flow Available for Capital Allocation for the trailing 4-quarters ended June 30, 2021 and 2022:

 

   Trailing 4-Quarters Ended 
   June 30, 
   2021   2022 
         
   (in thousands) 
Net cash provided by operating activities  $298,943   $291,250 
Purchase of fixed assets   (17,720)   (13,129)
Distributions for unitholders   (33,922)   (29,159)
Payments under tax receivable agreements   (4,423)   (3,856)
Adjusted Free Cash Flow  $242,878   $245,106 
Portion of contingent consideration paid included in operating activities (1)   23,081    78,105 
Cash Flow Available for Capital Allocation (2)  $265,959   $323,211 

 

(1)A portion of contingent consideration paid is classified as operating cash outflows in accordance with GAAP, with the balance reflected in investing and financing cash outflows. Contingent consideration paid classified as operating cash outflows for each of the trailing 4-quarters ended June 30, 2021 was $3.8 million, $2.4 million, $5.3 million and $11.6 million, respectively, totaling $23.1 million for the trailing 4-quarters ended June 30, 2021. Contingent consideration paid classified as operating cash outflows for each of the trailing 4-quarters ended June 30, 2022 was $20.4 million, $16.4 million, $23.1 million and $18.2 million, respectively, totaling $78.1 million for the trailing 4-quarters ended June 30, 2022.

 

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

 

 17

 

 

 

 

Supplemental Information

 

Economic Ownership

 

The following table provides supplemental information regarding the economic ownership of Focus Financial Partners, LLC as of June 30, 2022:

 

   June 30, 2022 
Economic Ownership of Focus Financial Partners, LLC Interests:  Interest   % 
Focus Financial Partners Inc.   65,442,389    79.8%
Non-Controlling Interests (1)   16,575,128    20.2%
Total   82,017,517    100.0%

 

(1)Includes 4,347,399 Focus LLC common units issuable upon conversion of the outstanding 16,202,274 vested and unvested incentive units (assuming vesting of the unvested incentive units and a June 30, 2022 period end value of the Focus LLC common units equal to $34.06) and includes 193,625 Focus LLC restricted common units.

 

Class A and Class B Common Stock Outstanding

 

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

 

   Number of Shares Outstanding at
June 30, 2022
   Number of Shares Outstanding at
August 1, 2022
 
Class A   65,442,389    65,448,434 
Class B   12,034,104    12,035,266 

 

 18

 

  

 

 

Incentive Units

 

The following table provides supplemental information regarding the outstanding Focus LLC vested and unvested Incentive Units (“IUs”) at June 30, 2022. The vested IUs in future periods can be exchanged into shares of Class A common stock (after conversion into a number of Focus LLC common units that takes into account the then-current value of common units and such IUs aggregate hurdle amount), and therefore, the Company calculates the Class A common stock equivalent of such IUs for purposes of calculating per share data. The period-end share price of the Company’s Class A common stock is used to calculate the intrinsic value of the outstanding Focus LLC IUs in order to calculate a Focus LLC common unit equivalent of the Focus LLC IUs.

 

Hurdle
Rates
   Number
Outstanding
 
$1.42    421 
$5.50    798 
$6.00    386 
$7.00    1,081 
$9.00    708,107 
$11.00    813,001 
$12.00    513,043 
$13.00    540,000 
$14.00    10,098 
$16.00    45,191 
$17.00    20,000 
$19.00    527,928 
$21.00    3,045,236 
$22.00    821,417 
$23.00    524,828 
$26.26    12,500 
$27.00    12,484 
$27.90    1,929,424 
$28.50    1,440,230 
$30.48    30,000 
$33.00    3,617,500 
$36.64    30,000 
$43.07    60,000 
$43.50    30,000 
$44.71    806,324 
$58.50    662,277 
      16,202,274 

 

 19

 

Exhibit 99.2

 

Focus Financial Partners Inc. Second Quarter 2022 Earnings Release Supplement August 4, 2022

 

 

2 Disclaimer Special Note Regarding Forward - Looking Statements Some of the information in this presentation may contain forward - looking statements . Forward - looking statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of future events . Words such as “may,” “assume,” “forecast,” “position,” “predict,” “strategy,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” “project,” “budget,” “potential,” “continue,” “will” and similar expressions are used to identify forward - looking statements . They can be affected by assumptions used or by known or unknown risks or uncertainties . Consequently, no forward - looking statements can be guaranteed . When considering these forward - looking statements, you should keep in mind the risk factors and other cautionary statements in this presentation . Actual results may vary materially . You are cautioned not to place undue reliance on any forward - looking statements . You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties . Factors that could cause our actual results to differ materially from the results contemplated by such forward - looking statements include the impact and duration of the outbreak of the novel coronavirus, fluctuations in wealth management fees, our reliance on our partner firms and the principals who manage their businesses, our ability to make successful acquisitions, unknown liabilities of or poor performance by acquired businesses, harm to our reputation, our inability to facilitate smooth succession planning at our partner firms, our inability to compete, our reliance on key personnel, our inability to attract, develop and retain talented wealth management professionals, our inability to retain clients following an acquisition, write down of goodwill and other intangible assets, our failure to maintain and properly safeguard an adequate technology infrastructure, cyber - attacks, our inability to recover from business continuity problems, inadequate insurance coverage, the termination of management agreements by management companies, our inability to generate sufficient cash to service all of our indebtedness, the failure of our partner firms to comply with applicable U . S . and non - U . S . regulatory requirements, legal proceedings and governmental inquiries and certain other factors . All forward - looking statements are expressly qualified in their entirety by the foregoing cautionary statements . Our forward - looking statements speak only as of the date of this presentation or as of the date as of which they are made . Except as required by applicable law, including federal securities laws, we do not intend to update or revise any forward - looking statements . Non - GAAP Financial Measures Adjusted EBITDA is a non - GAAP measure . Adjusted EBITDA is defined as net income (loss) excluding interest income, interest expense, income tax expense, amortization of debt financing costs, intangible amortization and impairments, if any, depreciation and other amortization, non - cash equity compensation expense, non - cash changes in fair value of estimated contingent consideration, loss on extinguishment of borrowings, other (income) expense, net, impairment of equity method investment, management contract buyout, other one - time transaction expenses and secondary offering expenses, if any . We believe that Adjusted EBITDA, viewed in addition to and not in lieu of, our reported GAAP results, provides additional useful information to investors regarding our performance and overall results of operations for various reasons, including the following : ( i ) non - cash equity grants made to employees or non - employees at a certain price and point in time do not necessarily reflect how our business is performing at any particular time ; stock - based compensation expense is not a key measure of our operating performance, (ii) contingent consideration or earn outs can vary substantially from company to company and depending upon each company’s growth metrics and accounting assumption methods ; the non - cash changes in fair value of estimated contingent consideration is not considered a key measure in comparing our operating performance, and (iii) amortization expenses can vary substantially from company to company and from period to period depending upon each company’s financing and accounting methods, the fair value and average expected life of acquired intangible assets and the method by which assets were acquired ; the amortization of intangible assets obtained in acquisitions are not considered a key measure in comparing our operating performance . We use Adjusted EBITDA ( i ) as a measure of operating performance, (ii) for planning purposes, including the preparation of budgets and forecasts, (iii) to allocate resources to enhance the financial performance of our business, (iv) to evaluate the effectiveness of our business strategies, and (v) as a consideration in determining compensation for certain employees . Adjusted EBITDA does not purport to be an alternative to net income (loss) or cash flows from operating activities . The term Adjusted EBITDA is not defined under GAAP, and Adjusted EBITDA is not a measure of net income (loss), operating income or any other performance or liquidity measure derived in accordance with GAAP . Therefore, Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP . Some of these limitations are : ( i ) Adjusted EBITDA does not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments, (ii) Adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs, and (iii) Adjusted EBITDA does not reflect the interest expense on our debt or the cash requirements necessary to service interest or principal payments . In addition, Adjusted EBITDA can differ significantly from company to company depending on strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments . We compensate for these limitations by relying also on the GAAP results and using Adjusted EBITDA as supplemental information . We analyze our performance using Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share . Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share are non - GAAP measures . We define Adjusted Net Income Excluding Tax Adjustments as net income (loss) excluding income tax expense, amortization of debt financing costs, intangible amortization and impairments, if any, non - cash equity compensation expense, non - cash changes in fair value of estimated contingent consideration, loss on extinguishment of borrowings, impairment of equity method investment, management contract buyout, other one - time transaction expenses and secondary offering expenses, if any . The calculation of Adjusted Net Income Excluding Tax Adjustments also includes adjustments to reflect a pro forma 27 % income tax rate reflecting the estimated U . S . federal, state, local and foreign income tax rates applicable to corporations in the jurisdictions we conduct business . We believe that Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share, viewed in addition to and not in lieu of, our reported GAAP results, provide additional useful information to investors regarding our performance and overall results of operations for various reasons, including the following : ( i ) non - cash equity grants made to employees or non - employees at a certain price and point in time do not necessarily reflect how our business is performing at any particular time ; stock - based compensation expense is not a key measure of our operating performance, (ii) contingent consideration or earn outs can vary substantially from company to company and depending upon each company’s growth metrics and accounting assumption methods ; the non - cash changes in fair value of estimated contingent consideration is not considered a key measure in comparing our operating performance, and (iii) amortization expenses can vary substantially from company to company and from period to period depending upon each company’s financing and accounting methods, the fair value and average expected life of acquired intangible assets and the method by which assets were acquired ; the amortization of intangible assets obtained in acquisitions are not considered a key measure in comparing our operating performance . Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share do not purport to be an alternative to net income (loss) or cash flows from operating activities . The terms Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share are not defined under GAAP, and Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share are not a measure of net income (loss), operating income or any other performance or liquidity measure derived in accordance with GAAP . Therefore, Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP . Some of these limitations are : ( i ) Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share do not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments, (ii) Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share do not reflect changes in, or cash requirements for, working capital needs, and (iii) Other companies in the financial services industry may calculate Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share differently than we do, limiting its usefulness as a comparative measure . In addition, Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share can differ significantly from company to company depending on strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments . We compensate for these limitations by relying also on the GAAP results and use Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share as supplemental information . To supplement our statements of cash flows presented on a GAAP basis, we use non - GAAP liquidity measures on a trailing 4 - quarter basis to analyze cash flows generated from our operations . We consider Adjusted Free Cash Flow and Cash Flow Available for Capital Allocation to be liquidity measures that provide useful information to investors about the amount of cash generated by the business and are two factors in evaluating the amount of cash available to pay contingent consideration, make strategic acquisitions and repay outstanding borrowings . Adjusted Free Cash Flow and Cash Flow Available for Capital Allocation do not represent our residual cash flow available for discretionary expenditures as they do not deduct our mandatory debt service requirements and other non - discretionary expenditures . We define Adjusted Free Cash Flow as net cash provided by operating activities, less purchase of fixed assets, distributions for unitholders and payments under tax receivable agreements (if any) . We define Cash Flow Available for Capital Allocation as Adjusted Free Cash Flow plus the portion of contingent consideration paid which is classified as operating cash flows under GAAP . Adjusted Free Cash Flow and Cash Flow Available for Capital Allocation are not defined under GAAP and should not be considered as alternatives to net cash from operating, investing or financing activities . In addition, Adjusted Free Cash Flow and Cash Flow Available for Capital Allocation can differ significantly from company to company .

 

 

Table of Contents 3 Pages Key Investor Questions on Q2 2022 4 - 6 Selected Growth Trends 7 - 11 Second Quarter 2022 Recap 12 - 18 Third Quarter 2022 Outlook 19 - 20 Credit Profile & Interest Rate Sensitivity 21 - 25 Cash Flows 26 - 28 Appendix 29 - 33

 

 

Key Investor Questions on Q2 2022 4

 

 

Key Investor Questions on Q2 2022 5 1 What was your organic growth? 2 How correlated were your Q2 revenues to the markets? 23.3% Non - market correlated 76.7% Market correlated 67.2% Billed in advance 32.8% Billed in arrears Highly diversified revenue stream 3 What was your YTD M&A activity given the volatile macro backdrop? 3 New partner firms (5) Mergers (5) 11 ~$19m Acquired Base Earnings (5,6) 1. As of June 30, 2022. 2. Inception means first full four quarters as a Focus partner firm and reflects activity through all market cycles during that tim e. The analysis includes the 66 firms since inception that have been with us for at least 2 years as of June 30, 2022 in order to determine a baseline revenue growth rate. If Focus partner firms merged together, the ir financials have been combined. 3. The weightings are based on the June 30, 2022 LTM revenues of the respective partner firms. 4. Excluded the first full annual revenue from all the mergers made by our partner firm portfolio since joining Focus. 5. Includes closed and signed and pending close transactions as of August 4, 2022. 6. The terms of our management agreements entitle the management companies to management fees typically consisting of all future EB PC of the acquired wealth management firm in excess of Base Earnings up to Target Earnings, plus a percentage of any EBPC in excess of Target Earnings. Acquired Base Earnings is equal to our prefer red position in Base Earnings or comparable measures. (Market correlated revenues) 9.6% 14.1% 12.9% 9.7% 11.7% 16.4% 15.5% 10.9% Firms that have not completed a merger (26 firms) Firms that have completed at least one merger (40 firms) Entire portfolio of 66 partner firms Entire portfolio of 66 partner firms Median Revenue CAGR Weighted Average Revenue CAGR (3) (3) (3) (3,4) Revenue CAGR Since Inception ( 1,2) Including Mergers Excluding Mergers

 

 

Key Investor Questions on Q2 2022 6 6 How have your cash flows trended? What is the value of your tax shield? 7 4 How sensitive are your earnings to rising interest rates? Q2’22 Interest Expense Sensitivity to LIBOR/SOFR (1) 5 What is your Net Leverage Ratio (2) ? 3.5x – 4.5x 3.9x ~4.0x Q2’22 Actual Q3’22 Outlook Target $298.9 $310.7 $313.9 $275.1 $291.3 $266.0 $299.7 $319.9 $299.6 $323.2 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 LTM Cash Flows From Operating Activities LTM Cash Flow Available For Capital Allocation 1. Analysis shows the actual interest expense for Q2’22, inclusive of the Company’s Term Loans, Revolver borrowings and the impa ct of the three cash flow hedges which effectively convert the LIBOR variable interest rate on the first $850 million of Term Loan borrowings to a fixed weighted average interest rate of 62 basis points. The analysis then assumes that 30 - day LIBOR and SOFR rates were either 200bps, 250bps or 300bps higher throughout the entire period. 2. Net Leverage Ratio represents the First Lien Leverage Ratio (as defined in the Credit Facility) and means the ratio of amount s o utstanding 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 c ash and cash equivalents to Consolidated EBITDA (as defined in the Credit Facility). 3. Non - GAAP financial measure. See Appendix for reconciliations. 4. Net cash provided by operating activities for the three months ended March 31, 2021 and 2022, respectively, include cash outf low s related to due to affiliates (i.e. management fees). A portion of management fees were paid in Q1 post the issuance of the respective annual audit included in our Form 10 - K. 5. Focus partner firms typically have limited tangible assets on acquisition date. Focus typically purchases customer lists, man age ment contracts and goodwill. Consideration is typically paid in cash. Each incremental M&A transaction creates an additional tax shield which generates substantial value for shareholders and enhances our cash flows. Each tax shield is a mor tized over 15 years (as required under Internal Revenue Code Section 197). 6. As of June 30, 2022. 7. Based on 27% pro forma tax rate. 8. Based on assumed 8% discount rate. 9. Based on Q2 2022 Adjusted Shares Outstanding. See Appendix for reconciliation of number of shares. (3) (4) Actual Q2’22 Reported Interest Expense (including impact of hedges) $19.9M $2.7+ billion cumulative unamortized gross tax shield (5,6) ~$743 million economic benefit (7) ~$5.82 per share (8,9) ~$479 million net present value (8) Pre - tax Impact to Q2’22 Interest Expense if 30 - day LIBOR/SOFR was higher by: 200 bps 250 bps 300 bps +$7.9M +$9.9M +$11.9M 4.05x 4.27x 4.00x 4.00x 3.85x 3.67x 3.89x 3.79x 3.54x 3.54x 3.85x 3.84x 3.90x Q2 '19 Q3 '19 Q4 '19 Q1 '20 Q2 '20 Q3 '20 Q4 '20 Q1 '21 Q2 '21 Q3 '21 Q4 '21 Q1 '22 Q2 '22

 

 

Selected Growth Trends 7

 

 

Wealth Management Fees Allocation ($ in millions (3) , % of Revenues) 1. Non - GAAP financial measure. See Appendix for reconciliations. 2. Calculated as Adjusted EBITDA divided by revenues. 3. The sum of wealth management fees and other revenues as presented in this chart may not agree to total revenues as presented due to rounding. Strong and Sustained Revenue and Adjusted EBITDA Growth… 8 Revenues ($ in millions) Adjusted EBITDA (1) ($ in millions) Adjusted EBITDA Margin (2) (% o f Revenues) Wealth management fees Other revenues $1,218.3 $1,361.3 $1,798.0 $1,075.8 2019 2020 2021 Q2 '22 YTD CAGR: 21.5% $68.7 $75.2 $80.6 $43.2 $1,149.7 $1,286.1 $1,717.4 $1,032.6 2019 2020 2021 Q2 '22 YTD 94.4% 94.5% 95.5% 96.0% $269.8 $321.8 $451.3 $272.1 2019 2020 2021 Q2 '22 YTD CAGR: 29.3% 22.1% 23.6% 25.1% 25.3% 2019 2020 2021 Q2 '22 YTD Margin: +3.0%

 

 

1. Non - GAAP financial measure. See Appendix for reconciliations. 2. Tax Adjustments represent the tax benefits of intangible assets, including goodwill, associated with deductions allowed for t ax amortization of intangible assets in the respective periods based on a pro forma 27% income tax rate. Such amounts were generated from acquisitions completed where the Company received a step - up in basis for tax purposes. Acquired intangible assets may be amortized for tax purposes, generally over a 15 - year period. Due to the Company’s acquisitive nature, tax deductions allowed on acquired intangible assets provide additional significant supplemental economic benefit. The tax benefit from amortization is identified to show the full economic benefit of deduction s f or acquired intangible assets with the step - up in tax basis. … Drives Strong Bottom - Line Performance Enhanced by a Tax Efficient Structure 9 Adjusted Net Income (“ ANI”) Excluding Tax Adjustments (1) ($ in millions) ANI Excluding Tax Adjustments Per Share (1) Tax Adjustments (2) ($ in millions) Tax Adjustments Per Share (1,2) $31.9 $37.3 $46.8 $30.8 2019 2020 2021 Q2 '22 YTD CAGR: 21.2% $0.42 $0.47 $0.56 $0.37 2019 2020 2021 Q2 '22 YTD CAGR: 15.5% $1.96 $2.46 $3.36 $2.01 2019 2020 2021 Q2 '22 YTD CAGR: 30.9% $146.7 $195.6 $278.7 $164.8 2019 2020 2021 Q2 '22 YTD CAGR: 37.8%

 

 

1. As of June 30, 2022. 2. Inception means first full four quarters as a Focus partner firm and reflects activity through all market cycles during that tim e. The analysis includes the 66 firms since inception that have been with us for at least 2 years as of June 30, 2022 in order to determine a baseline revenue growth rate. If Focus partner firms merg ed together, their financials have been combined. 3. The weightings are based on the June 30, 2022 LTM revenues of the respective partner firms. 4. Excluded the first full annual revenue from all the mergers made by our partner firm portfolio since joining Focus. 5. The 66 partner firms have been with Focus for a weighted average of ~7.5 years and a median period of ~6 years. 9.6% 14.1% 12.9% 9.7% 11.7% 16.4% 15.5% 10.9% Firms that have not completed a merger (26 firms) Firms that have completed at least one merger (40 firms) Entire portfolio of 66 partner firms Entire portfolio of 66 partner firms Median Revenue CAGR Weighted Average Revenue CAGR Our Organic Growth is Strong, Including and Excluding Mergers 10 ▪ Partner firms who grow through mergers in addition to traditional client acquisition strategies have transformed their businesses through accelerated growth. ▪ Mergers enable efficient access to large pools of client assets, new spheres of influence, distribution channels and exceptional advisor talent. 66 partner firms (5) represented ~89% of our Q2 2022 LTM revenues (3) (3) (3) (3,4) Revenue CAGR Since Inception (1,2) Including Mergers Excluding Mergers

 

 

Our Average Organic Revenue Growth Demonstrates Partner Firm Strength and Resiliency ▪ Over the last 16 quarters, average organic growth has been 16.1% 1. Organic revenue growth represents the period - over - period growth in revenue related to partner firms, including growth related to acquisitions of wealth management practices and customer relationships by Focus's partner firms, including Connectus , and partner firms that have merged, that for the entire periods presented are included in Focus's consolidated statements o f operations for the entire periods presented. Focus believes these growth statistics are useful in that they present full - period revenue growth of partner firms on a ‘‘same s tore’’ basis exclusive of the effect of the partial period results of partner firms that are acquired during the comparable periods. 11 9.7% 10.7% 7.7% 18.0% 22.4% 25.2% 21.2% (0.3%) 2.4% 7.3% 12.2% 28.8% 28.8% 26.6% 22.0% 15.0% -30% -20% -10% 0% 10% 20% 30% Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Q4'21 Q1'22 Q2'22 Quarterly Organic Revenue Growth (1) Percentage Organic Revenue Growth Quarterly Average: 16.1% Average: 16.1%

 

 

Second Quarter 2022 Recap 12

 

 

Robust Year - Over - Year Financial Performance Reflects Sustained Momentum 13 Adjusted Net Income (“ANI”) Excluding Tax Adjustments (1) ($ in millions) 1. Non - GAAP financial measure. See Appendix for reconciliations. 2. Refer to footnote 2 on slide 9. Revenues ($ in millions) Adjusted EBITDA (1) ($ in millions) ANI Excluding Tax Adjustments Per Share (1) Tax Adjustments (2) ($ in millions) Tax Adjustments Per Share (1) $425.4 $539.2 Q2 '21 Q2'22 26.8% $107.8 $137.0 Q2 '21 Q2'22 27.1% $67.8 $81.7 Q2 '21 Q2'22 20.5% $11.0 $16.0 Q2 '21 Q2'22 44.7% $0.84 $0.99 Q2 '21 Q2'22 17.9% $0.14 $0.19 Q2 '21 Q2'22 35.7%

 

 

▪ Adjusted EBITDA: (2) $137.0 million, +27.1% year - over - year growth ▪ Adjusted EBITDA margin: (3) 25.4 % ▪ Revenues: $539.2 million, +26.8% year - over - year growth ▪ Organic revenue growth rate: (1) +15.0 % year - over - year ▪ GAAP net income: $49.3 million, compared to $5.2 million in Q2 2021 ▪ GAAP basic and diluted net income per share attributable to common shareholders: $0.51 and $0.50 ▪ Adjusted Net Income Excluding Tax Adjustments: (2) $81.7 million, +20.5% year - over - year growth ▪ Tax Adjustments: (4) $16.0 million, +44.7% year - over - year growth ▪ Adjusted Net Income Excluding Tax Adjustments Per Share: (2) $0.99, +17.9% year - over - year growth ▪ Tax Adjustments Per Share: (2) $0.19, +35.7% year - over - year growth Adjusted EBITDA Q2 2022 Financial Snapshot Revenues Net Income and Per Share Amounts 1. Organic revenue growth represents the period - over - period growth in revenues related to partner firms, including growth related t o acquisitions of wealth management practices and customer relationships by our partner firms, including Connectus, and partner firms that have merged, that for the entire periods presented, are included in our consolida ted statements of operations for each of the entire periods presented. We believe these growth statistics are useful in that they present full period revenue growth of partner firms on a ‘‘same store’’ basis exclusive of th e effect of the partial period results of partner firms that are acquired during the comparable periods. 2. Non - GAAP financial measure. See Appendix for reconciliations. 3. Calculated as Adjusted EBITDA divided by revenues. 4. Tax Adjustments represent the tax benefits of intangible assets, including goodwill, associated with deductions allowed for t ax amortization of intangible assets in the respective periods based on a pro forma 27% income tax rate. Such amounts were generated from acquisitions completed where the Company received a step - up in basis for tax purposes. Acquired intangible assets may be amortized for tax purposes, generally over a 15 - year period. Due to the Company’s acquisitive nature, tax deductions allowed on acquired intangible assets provide additional significant supplem ent al economic benefit. The tax benefit from amortization is identified to show the full economic benefit of deductions for acquired intangible assets with the step - up in tax basis. 5. Net Leverage Ratio represents the First Lien Leverage Ratio (as defined in the Credit Facility) and means the ratio of amount s o utstanding under the First Lien Term Loan and First Lien Revolver plus other outstanding debt obligations secured by a lien on the assets of Focus LLC (excluding letters of credit other than unpaid drawings thereunder) min us unrestricted cash and cash equivalents to Consolidated EBITDA (as defined in the Credit Facility). 14 Net Leverage & Cash Flow ▪ Net Leverage Ratio: (5) 3.90 x ▪ Net cash provided by operating activities: $291.3 million (LTM Q2 2022), - 2.6% year - over - year ▪ Cash Flow Available for Capital Allocation: (2) $323.2 million (LTM Q2 2022), +21.5% year - over - year ▪ Unamortized gross tax shield at June 30, 2022 of $2.7+ billion ▪ No Tax Receivable Agreement payments

 

 

$517.4m , 96.0% $21.8m , 4.0% Wealth Management Fees Other ▪ Holistic wealth management fees tied to team - based service model ▪ Not a commission or interest revenue based model We Have Multiple Sources of Revenue Diversification $413.8m , 76.7% $125.4m , 23.3% Revenues Correlated to Markets Correlated to Markets Not Correlated to Markets ▪ Advance billing structure used by majority of partner firms gives high visibility into subsequent quarter ▪ Diversification of billing practices across 85 partner firms is an embedded revenue hedge ▪ Non - correlated revenues typically include fixed fees for investment advice, tax fees and family office type services ▪ Diversification reduces market risk to revenue stream ▪ International sources provide growing revenue diversification ▪ 8 partner firms across Australia, Canada and the UK, together with partner firm Connectus, are platforms for growth ▪ Our new Switzerland - based partner firm Octogone (with over $20m in estimated annualized revenue) closed on July 1, 2022 $510.4m , 94.7% $28.8m , 5.3% Domestic International Q2 2022 Revenues by Source Q2 2022 Revenues by Region Q2 2022 Revenues Correlated to Markets 15 $278.2m , 67.2% $135.6m , 32.8% Billing Structure of Market - Correlated Revenues Advance Arrears

 

 

Continuing a Trend of Strong M&A Volume 16 85+ Partner Firms 250+ M&A Transactions Since 2006 5,000+ Partners and Employees Annual M&A Transactions Since 2019 1. Includes signed and pending close transactions (1) 6 7 14 3 28 18 24 11 34 25 38 14 2019 2020 2021 2022 to date New Partner Firms Mergers

 

 

2022 M&A Activity is Robust as Our Partner Firms Execute Mergers to Grow 17 2022 YTD Highlights 14 closed or pending transactions to date: ▪ 3 new partner firms ▪ 11 mergers, including 1 Connectus merger Type Acquiring Partner Firm Closing Date Primary Office Location 1. Icon Wealth Partners 8/1/2022 Houston, TX 2. Octogone Holding 7/1/2022 Geneva, Switzerland 1. Grecu Capital Management Buckingham Strategic Wealth 7/1/2022 Bend, OR 2. Bergman Investment Management Buckingham Strategic Wealth 7/1/2022 San Mateo, CA 3. Samson Wealth Management XML 7/1/2022 Fort Washington, PA 4. Ross Bennet Smith NKSFB 7/1/2022 London, United Kingdom 5. Skinner Cardinal Point Q3* Bahamas 6. Strategic Capital Advisers Transform Wealth Q3* Denver, CO Partner Firm Acquisitions 1. Azimuth Capital Management 4/1/2022 Bloomfield Hills, MI 1. Mid-Continent Capital Connectus 4/1/2022 Chicago, IL 2. Lumia Wealth Buckingham Strategic Wealth 4/1/2022 Overland Park, KS 3. Holloway Wealth Management ARS Wealth Advisors 5/1/2022 Gainesville, FL 4. Henry & Horne Wealth Management InterOcean Capital 6/1/2022 Scottsdale, AZ Q1 2022 Mergers 1. Harris, Saunders & Leach The Colony Group 2/4/2022 Washington, DC * Signed and pending close Partner Firm Acquisitions Mergers Mergers Firm Name Q3 2022 Q2 2022

 

 

New Partner Firms Further Diversify Our Partnership (1) 18 » UHNW/HNW client base » Well - established business known for its investment management capabilities and continuity of its dynamic management team » Well - positioned to expand market share in the Midwest » HNW client base » Recognized as one of Texas’ fastest - growing RIAs » Expands Focus’ presence in growing Texas wealth management market » UHNW client base in Europe, the US, Latin America and the Middle East » One of the largest and most elite wealth management firms in Switzerland » First partner firm in Switzerland, an attractive and strategic market » Platform to benefit from regulatory trends in Switzerland and to continue geographical diversification Closed April 1, 2022 ~$3.5 Billion in Client Assets Fiduciary Wealth Manager Bloomfield Hills, MI Closed August 1, 2022 ~$ 1.6 Billion in Client Assets Fiduciary Wealth Manager Houston, TX Closed July 1, 2022 ~$4.4 Billion in Client Assets Fiduciary Wealth Manager Geneva, Switzerland 1. We have over 85 partner firms with headquarters located across the United States as well as the United Kingdom, Canada, Austr ali a and Switzerland. This data may not be representative of our other partner firms and is not necessarily indicative of these firms’ future performance. 2. Historical and estimated data based on the unaudited pre - acquisition financial statements of the acquired companies prepared by the acquired companies prior to Focus acquisition. Such financial statements may not have been prepared in accordance with GAAP or pursuant to the rules and regulations of the SEC and may not be comparable to the presentation of such data after being acquired by Focus. 3. The terms of our management agreements entitle the management companies to management fees typically consisting of all future EB PC of the acquired wealth management firm in excess of Base Earnings up to Target Earnings, plus a percentage of any EBPC in excess of Target Earnings. Acquired Base Earnings is equal t o o ur collective preferred position in Base Earnings or comparable measures. We are entitled to receive these earnings notwithstanding any earnings that we are entitled to receive in excess of Ta rget Earnings. Base Earnings may change in future periods for various business or contractual matters. Azimuth Capital Management Octogone Holding Icon Wealth Partners Estimated Annual Revenues: ~ $50 million ( 1)(2) Estimated Annual Acquired Base Earnings: ~ $19 million (3) Weighted Average ‘19 - ’21 Revenue CAGR: > 25% (1)(2)

 

 

19 Third Quarter 2022 Outlook

 

 

▪ Estimated revenues of ~$505 to $515 million. ▪ Estimated YOY organic revenue growth of ~ 0% to ~ 2 % (1) . ▪ Estimated revenue attributable to new partner firm closing: ~$7.0 million.* *Relates to the closings of Octogone and Icon. Annualized revenue contribution estimated to be over $30 million. Q3 2022 Outlook 1. Organic revenue growth represents the period - over - period growth in revenue related to partner firms, including growth related to acquisitions of wealth management practices and customer relationships by our partner firms, including Connectus, and partner firms that have merged, that for the entire periods presented, are included in our consolida ted statements of operations for each of the entire periods presented. We believe these growth statistics are useful in that they present full period revenue growth of partner firms on a ‘‘same store’’ basis exclusive of th e effect of the partial period results of partner firms that are acquired during the comparable periods. 2. Non - GAAP financial measure. The Company is not providing a quantitative reconciliation of its forward - looking estimate of Adjust ed EBITDA or Adjusted EBITDA margin to its most directly comparable GAAP financial measure because such GAAP measure, which is not included in the Company’s outlook, is difficult to reliably predict or estimate witho ut unreasonable effort due to its dependency on future uncertainties such as the items noted under the heading “Special Note Regarding Forward - Looking Statements.” In addition, we believe such a reconciliation could imply a deg ree of precision that might be confusing or misleading to investors. 3. Calculated as Adjusted EBITDA divided by revenues. 4. The terms of our management agreements entitle the management companies to management fees typically consisting of all future EB PC of the acquired wealth management firm in excess of Base Earnings up to Target Earnings, plus a percentage of any EBPC in excess of Target Earnings. Acquired Base Earnings is equal to our collective prefe rre d position in Base Earnings or comparable measures. We are entitled to receive these earnings notwithstanding any earnings that we are entitled to receive in excess of Target Earnings. Base Earnings may change in future pe riods for various business or contractual matters. 5. See note 4 on page 14 for additional information regarding Tax Adjustments. Based on a pro forma 27.0% tax rate. 6. Net Leverage Ratio represents the First Lien Leverage Ratio (as defined in the Credit Facility), and means the ratio of amoun ts outstanding under the First Lien Term Loan and First Lien Revolver plus other outstanding debt obligations secured by a lien on the assets of Focus LLC (excluding letters of credit other than unpaid drawings thereunder) min us unrestricted cash and cash equivalents to Consolidated EBITDA (as defined in the Credit Facility). 20 Revenues Adjusted EBITDA ▪ Estimated Adjusted EBITDA (2) margin (3) of ~24%. ▪ Estimated Adjusted EBITDA (2) attributable to new partner firm closings: ~$1.7 million. ▪ Estimated Annualized Acquired Base Earnings (4) : ~$7.8 million. ▪ As of June 30 , 2022, estimated next twelve months Tax Adjustments (5) of ~$63.2 million. ▪ No Tax Receivable Agreement payments. Tax Adjustments & Other Net Leverage Ratio and Cash Flow ▪ Estimated Net Leverage Ratio (6) ~ 4.0 x. ▪ Estimated cash earnout payments of ~$50 million in Q3.

 

 

Credit Profile & Interest Rate Sensitivity 21

 

 

First Lien Term Loan – Tranche A First Lien Term Loan – Tranche B First Lien Revolver Amount $1,602.6 million $792.4 million $100 million drawn ($650 million facility size) Maturity July 2024 June 2028 June 2024 Applicable Margin $850 million fixed via hedges at 0.62% + 200 bps spread Remainder of $752.6 million variable at LIBOR +200 bps spread LIBOR +250 bps spread SOFR+175 bps on drawn 50 bps undrawn LIBOR Floor 0.00% 0.50% 0.00% Amortization 1.00% / $16.7 million per annum 1.00% / $8.0 million per annum n/a Net Leverage Ratio (2) Covenant 6.25x Interest Rate Sensitivity 22 Credit Overview (as of June 30, 2022) 1. Analysis shows the actual interest expense for Q2’22, inclusive of the Company’s Term Loans, Revolver borrowings and the impa ct of the three cash flow hedges which effectively convert the LIBOR variable interest rate on the first $850 million of Term Loan borrowings to a fixed weighted average interest rate of 62 basi s p oints. The analysis then assumes that 30 - day LIBOR and SOFR rates were either 200bps, 250bps or 300bps higher throughout the entire period. 2. Net Leverage Ratio represents the First Lien Leverage Ratio (as defined in the Credit Facility) and means the ratio of amount s o utstanding under the First Lien Term Loan and First Lien Revolver plus other outstanding debt obligations secured by a lien on the assets of Focus LLC (excluding letters of credit other than unpai d d rawings thereunder) minus unrestricted cash and cash equivalents to Consolidated EBITDA (as defined in the Credit Facility). Q2’22 Interest Expense Sensitivity to LIBOR/SOFR (1) Pre - tax Impact to Q2’22 Interest Expense if 30 - day LIBOR/SOFR was higher by: 200 bps 250 bps 300 bps +$7.9M +$9.9M +$11.9M Actual Q2’22 Reported Interest Expense (including impact of hedges) $19.9M

 

 

Strong Credit and Liquidity Profile Low debt cost ~3.4% weighted average interest rate on funded borrowings Limited duration risk ~2 years remaining to maturity for Tranche A Term Loan (July 2024) ~6 years remaining to maturity for Tranche B Term Loan (June 2028) ~2 years remaining to maturity for Revolver (June 2024) 95%+ fee - based and recurring revenues, variable management fees and earnings preference protect cash flows Downside protection 23 Ample liquidity ~$ 221 m illion cash ~$540 million available revolver capacity ~$ 323 million LTM Cash Flow Available for Capital Allocation (1) As of June 30, 2022: 1. Non - GAAP financial measure. See Appendix for reconciliations.

 

 

Equity market decline (20)% (40)% Assumed Client Portfolio Allocation to Equities 50% 50% Decline in market-correlated revenues (1) (10)% (20)% ($ in millions) Reported Q2'22 Market-Correlated Revenues 413.8$ 372.4$ 331.0$ Q2'22 Non-Correlated Revenues 125.4$ 125.4$ 125.4$ Total Revenue - Q2'22 539.2$ 497.8$ 456.4$ Covenant EBITDA (2) - LTM 583.2$ 560.8$ 539.0$ Net Debt (3) 2,273.9$ 2,273.9$ 2,273.9$ Net Leverage Ratio (2) 3.90x 4.05x 4.22x Change from Q2 Reported 0.15x 0.32x Sensitivity Analysis (Illustrative Only) Earnings Preference Provides Strong Downside Earnings Protection 1. The analysis depicts the impact on our Net Leverage Ratio (as defined in the Credit Facility) resulting from a hypothetical c han ge in Q2 market correlated revenues only. All other revenues/expenses were kept constant except management fees, which are tied to the profitability of our partner firms. 2. Net leverage ratio represents the First Lien Leverage Ratio (as defined in the Credit Facility), and means the ratio of amoun ts outstanding under the First Lien Term Loan and First Lien Revolver plus other outstanding debt obligations secured by a lien on the assets of Focus LLC (excluding letters of credit other than unpai d d rawings thereunder) minus unrestricted cash and cash equivalents to Consolidated EBITDA (as defined in the Credit Facility), which in the above table is referred to as “Covenant EBITDA.” 3. Net Debt represents amounts outstanding under the First Lien Term Loan and First Lien Revolver plus other outstanding debt ob lig ations secured by a lien on the assets of Focus LLC (excluding letters of credit other than unpaid drawings thereunder) minus unrestricted cash and cash equivalents. 4. The terms of our management agreements entitle the management companies to management fees typically consisting of all future EB PC of the acquired wealth management firm in excess of Base Earnings up to Target Earnings, plus a percentage of any EBPC in excess of Target Earnings. Acquired Base Earnings is equal t o o ur collective preferred position in Base Earnings or comparable measures. We are entitled to receive these earnings notwithstanding any earnings that we are entitled to receive in excess of Ta rget Earnings. Base Earnings may change in future periods for various business or contractual matters. ▪ Reflects one - quarter impact to revenues and Covenant EBITDA (1)(2) ▪ Assumes all other revenue sources and expenses remain unchanged except for management fees ▪ In the event of a multi - quarter downturn ▪ Partner firms would further reduce their cost structure ▪ M&A activity would moderate ▪ Cash flow would be available for debt r epayment ▪ Significant head room on covenant ▪ Q2 Covenant EBITDA - LTM (2) would need to drop to $363.8 million, or decline by 38 %, to reach 6.25x net leverage ratio covenant 24

 

 

Supported by Substantial Acquired Base Earnings (1) 25 * Includes new partner firms through August 4, 2022 1. The terms of our management agreements entitle the management companies to management fees typically consisting of all future EB PC of the acquired wealth management firm in excess of Base Earnings up to Target Earnings, plus a percentage of any EBPC in excess of Target Earnings. Acquired Base Earnings is eq ual to our preferred position in Base Earnings or comparable measures. We are entitled to receive these earnings notwithstanding any earnings that we are entitled to receive in excess of Target Ea rni ngs. Base Earnings may change in future periods for various business or contractual matters. 3 5 6 6 7 8 8 13 14 16 18 27 ($ in Millions) Cumulative New Partner Firms Cumulative Acquired Base Earnings Cumulative New Partner Firms and Acquired Base Earnings (1) Since Q1 2019 27 28 30 $12 $19 $35 $35 $38 $39 $39 $57 $58 $68 $79 $129 $129 $140 $148 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Q4'21 Q1'22 Q2'22 Q3'22*

 

 

Cash Flows 26

 

 

Q3 2022 Supplemental Cash Flow Disclosures Strong and Sustained Growth in Cash Flows Continued in Q2 As % of Adjusted EBITDA (1) 70 % 63% Cash Flow Snapshot ▪ Q3 2022 estimated cash earnouts of ~$50 million ▪ No Tax Receivable Agreements (“TRA”) payments in Q3 2022 ▪ Q3 2022 required term loan amortization of ~$6.2 million ▪ Based on the terms of the Credit Facility, no excess cash flow payments required in 2022 ($ in millions) 1. Non - GAAP financial measure. See Appendix for reconciliations. 2. Net cash provided by operating activities for the three months ended March 31, 2021 and 2022, respectively, include cash outf low s related to due to affiliates (i.e. management fees). A portion of management fees were paid in Q1 post the issuance of the respective annual audit included in our Form 10 - K. 3. Net cash provided by operating activities for Q2’22 LTM included $78.1m of payments relating to earnouts as compared to $23.1 m f or Q2’21 LTM. 27 - 2.6 % (3) (1) + 21.5 % Cash Flow Trend ($ in millions) (1) (2) (2) $298.9 $266.0 $291.3 $323.2 Net cash provided by operating activities Cash Flow Available for Capital Allocation Q2 '21 LTM Q2 '22 LTM $203.3 $211.4 $242.1 $298.9 $310.7 $313.9 $275.1 $291.3 $194.1 $200.5 $219.9 $266.0 $299.7 $319.9 $299.6 $323.2 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 LTM Cash Flows From Operating Activities LTM Cash Flow Available For Capital Allocation

 

 

Over $2.7 Billion Tax Shield Created by Tax Efficient Transaction Structure 28 $118 $231 $230 $2,172 $32 $63 $62 $586 2022 - next 6 months 2023 2024 2025 & Thereafter Unamortized Gross Tax Shield Estimated Tax Benefit Focus generally acquires intangible assets which generate tax shields (1) ($ in millions) 1. Focus partner firms typically have limited tangible assets on acquisition date. Focus typically purchases customer lists, man age ment contracts and goodwill. Consideration is typically paid in cash. Each incremental M&A transaction creates an additional tax shield which generates substantial value for shareholders and enhances our cash flows. Each tax shield is amortized over 15 years (as required under Internal Revenue Code Section 197). 2. As of June 30, 2022. 3. Based on 27% pro forma tax rate. 4. Based on assumed 8% discount rate. 5. Based on Q2 2022 Adjusted Shares Outstanding. See Appendix for reconciliation of number of shares. $2.7+ billion cumulative unamortized gross tax shield (1,2) ~$743 million economic benefit (3) ~$5.82 per share (4,5) ~$479 million net present value (4) Incremental acquisitions & earnout payments will drive new tax shields in the future. Any increase in corporate tax rates will also increase tax benefits.

 

 

Appendix 29

 

 

Net Income (Loss) to Adjusted EBITDA Reconciliation 1. Represents one - time expenses primarily related to an acquisition. Refer to our 10 - Q and 10 - K filings for additional details. 2. Relates to offering expenses associated with the March 2021 and June 2021 secondary offerings. 30 ($ in thousands) 2019 2020 2021 June 30, 2021 June 30, 2022 June 30, 2021 June 30, 2022 Net income (loss) (12,025)$ 48,965$ 24,440$ 5,174$ 49,318$ 7,656$ 88,400$ Interest income (1,164) (453) (422) (57) (17) (104) (20) Interest expense 58,291 41,658 55,001 10,829 19,892 21,350 37,508 Income tax expense 7,049 20,660 20,082 2,174 32,228 3,360 47,845 Amortization of debt financing costs 3,452 2,909 3,958 902 949 1,754 2,050 Intangible amortization 130,718 147,783 187,848 44,003 64,649 86,986 124,925 Depreciation and other amortization 10,675 12,451 14,625 3,606 3,805 7,213 7,438 Non-cash equity compensation expense 18,329 22,285 31,602 6,275 7,503 18,631 14,210 Non-cash changes in fair value of estimated contingent consideration 38,797 19,197 112,416 34,062 (42,757) 59,998 (51,742) Loss on extinguishment of borrowings — 6,094 — — — — — Other expense, net 1,049 214 337 534 1,451 531 1,487 Impairment of equity method investment 11,749 — — — — — — Management contract buyout 1,428 — — — — — — Other one-time transaction expenses (1) 1,486 — — — — — — Secondary offering expenses (2) — — 1,409 287 — 1,409 — Adjusted EBITDA 269,834$ 321,763$ 451,296$ 107,789$ 137,021$ 208,784$ 272,101$ Three months ended Six months ended

 

 

Net Income (Loss) to Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share Reconciliation * Refer to the following pages for footnotes 31 2019 2020 2021 June 30, 2021 June 30, 2022 June 30, 2021 June 30, 2022 ($ in thousands, except share and per share data) Net income (loss) (12,025)$ 48,965$ 24,440$ 5,174$ 49,318$ 7,656$ 88,400$ Income tax expense 7,049 20,660 20,082 2,174 32,228 3,360 47,845 Amortization of debt financing costs 3,452 2,909 3,958 902 949 1,754 2,050 Intangible amortization 130,718 147,783 187,848 44,003 64,649 86,986 124,925 Non-cash equity compensation expense 18,329 22,285 31,602 6,275 7,503 18,631 14,210 Non-cash changes in fair value of estimated contingent consideration 38,797 19,197 112,416 34,062 (42,757) 59,998 (51,742) Loss on extinguishment of borrowings — 6,094 — — — — — Impairment of equity method investment 11,749 — — — — — — Management contract buyout 1,428 — — — — — — Other one-time transaction expenses (1) 1,486 — — — — — — Secondary offering expenses (2) — — 1,409 287 — 1,409 — Subtotal 200,983 267,893 381,755 92,877 111,890 179,794 225,688 Pro forma income tax expense (27%) (3) (54,265) (72,331) (103,074) (25,077) (30,211) (48,545) (60,936) Adjusted Net Income Excluding Tax Adjustments 146,718$ 195,562$ 278,681$ 67,800$ 81,679$ 131,249$ 164,752$ Tax Adjustments (4) 31,860$ 37,254$ 46,805$ 11,038$ 15,977$ 21,530$ 30,790$ Adjusted Net Income Excluding Tax Adjustments Per Share 1.96$ 2.46$ 3.36$ 0.84$ 0.99$ 1.62$ 2.01$ Tax Adjustments Per Share (4) 0.42$ 0.47$ 0.56$ 0.14$ 0.19$ 0.27$ 0.37$ Adjusted Shares Outstanding 75,039,357 79,397,568 82,893,928 81,076,423 82,312,683 81,020,580 82,123,532 Calculation of Adjusted Shares Outstanding: Weighted average shares of Class A common stock outstanding—basic (5) 46,792,389 48,678,584 57,317,477 55,710,666 65,389,642 53,965,045 65,360,667 Adjustments: Weighted average incremental shares of Class A common stock related to stock options, unvested Class A common stock and restricted stock units (6) 20,428 118,029 513,674 452,156 206,735 453,475 321,414 Weighted average Focus LLC common units outstanding (7) 22,424,378 21,461,080 15,200,900 16,537,585 12,175,282 18,121,604 11,900,077 Weighted average Focus LLC restricted common units outstanding (8) — 5,005 73,983 71,374 193,625 71,374 193,625 Weighted average common unit equivalent of Focus LLC incentive units outstanding (9) 5,802,162 9,134,870 9,787,894 8,304,642 4,347,399 8,409,082 4,347,749 Adjusted Shares Outstanding 75,039,357 79,397,568 82,893,928 81,076,423 82,312,683 81,020,580 82,123,532 Three months ended Six months ended

 

 

* These footnotes refer to the tables on the previous page. 1. Represents one - time expenses primarily related to an acquisition. Refer to our 10 - Q and 10 - K filings for additional details. 2. Relates to offering expenses associated with the March 2021 and June 2021 secondary offerings. 3. The pro forma income tax rate of 27% reflects the estimated U.S. federal, state, local and foreign income tax rates applicabl e t o corporations in the jurisdictions we conduct business. 4. Tax Adjustments represent the tax benefits of intangible assets, including goodwill, associated with deductions allowed for t ax amortization of intangible assets in the respective periods based on a pro forma 27% income tax rate. Such amounts were generated from acquisitions comp let ed where we received a step - up in basis for tax purposes. Acquired intangible assets may be amortized for tax purposes, generally over a 15 - year period. Due to our acquisitive nature, tax deductions allowed on acquired intangible assets provide additional significant supplemental economic be nefit. The tax benefit from amortization is included to show the full economic benefit of deductions for acquired intangible assets with the step - up in tax basis. As of June 30, 2022, estimated Tax Adjustments from intangible asset related income tax benefits from closed acquisitions based on a pro for ma 27% income tax rate for the next 12 months is $63.2 million. 5. Represents our GAAP weighted average Class A common stock outstanding – basic. 6. Represents the incremental shares related to stock options, unvested Class A common stock and restricted stock units as calcu lat ed under the treasury stock method. 7. Assumes that 100% of the Focus LLC common units, including contingently issuable Focus LLC common units, if any, were exchang ed for Class A common stock. 8. Assumes that 100% of the Focus LLC restricted common units were exchanged for Class A common stock. 9. Assumes that 100% of the vested and unvested Focus LLC incentive units were converted into Focus LLC common units based on th e c losing price of our Class A common stock at the end of the respective period and such Focus LLC common units were exchanged for Class A common st ock . 32 Net Income (Loss) to Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share Reconciliation

 

 

Reconciliation of Cash Flow Available for Capital Allocation 33 1. A portion of contingent consideration paid is classified as operating cash outflows in accordance with GAAP, and therefore is a reconciling item to arrive at Cash Flow Available for Capital Allocation. 2. Cash Flow Available for Capital Allocation excludes all contingent consideration that was included in either operating, inves tin g or financing activities of our consolidated statements of cash flows. 3. Net cash provided by operating activities for the three months ended March 31, 2020, 2021 and 2022, respectively, include cas h o utflows related to due to affiliates (i.e. management fees). A portion of management fees were paid in Q1 post the issuance of the respective annual audit included in our Form 10 - K. ($ in thousands) Dec. 31, 2019 March 31, 2020 (3) June 30, 2020 Sept. 30, 2020 Dec. 31, 2020 Mar. 31, 2021 (3) Net cash provided by operating activities 64,854$ 3,382$ 60,996$ 74,089$ 72,894$ 34,128$ Purchase of fixed assets (4,714) (3,188) (2,759) (6,744) (6,658) (2,835) Distributions for unitholders (5,416) (4,567) (3,076) (8,122) (6,692) (9,055) Payments under tax receivable agreements — — — — — (4,112) Adjusted Free Cash Flow 54,724$ (4,373)$ 55,161$ 59,223$ 59,544$ 18,126$ Portion of contingent consideration paid included in operating activities (1) 815 8,344 16,369 3,806 2,394 5,276 Cash Flow Available for Capital Allocation (2) 55,539$ 3,971$ 71,530$ 63,029$ 61,938$ 23,402$ Three months ended ($ in thousands) June 30, 2021 Sept. 30, 2021 Dec. 31, 2021 Mar. 31, 2022 (3) June 30, 2022 June 30, 2021 June 30, 2022 Net cash provided by operating activities 117,832$ 85,888$ 76,070$ (4,642)$ 133,934$ 298,943$ 291,250$ Purchase of fixed assets (1,483) (2,242) (4,458) (3,232) (3,197) (17,720) (13,129) Distributions for unitholders (10,053) (7,283) (5,920) (8,209) (7,747) (33,922) (29,159) Payments under tax receivable agreements (311) — — (3,856) — (4,423) (3,856) Adjusted Free Cash Flow 105,985$ 76,363$ 65,692$ (19,939)$ 122,990$ 242,878$ 245,106$ Portion of contingent consideration paid included in operating activities (1) 11,605 20,415 16,439 23,049 18,202 23,081 78,105 Cash Flow Available for Capital Allocation (2) 117,590$ 96,778$ 82,131$ 3,110$ 141,192$ 265,959$ 323,211$ Trailing 4-Quarters endedThree months ended