0001651052 false 0001651052 2022-11-03 2022-11-03 iso4217:USD xbrli:shares iso4217:USD xbrli:shares

 

 

 

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): November 3, 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 November 3, 2022, Focus Financial Partners Inc. (the “Company”) issued a press release reporting results for its third quarter ended September 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 November 3, 2022, the Company also posted a slide presentation entitled “Third Quarter 2022 Earnings Release Supplement” dated November 3, 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 November 3, 2022.
   
99.2 Focus Financial Partners Inc. Slide Presentation, dated November 3, 2022.
   
104 Cover Page Interactive Data File - the cover page iXBRL tags are embedded within the inline XBRL document.

 

 2 

 

 

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: November 3, 2022    

 

 3 

 

 

Exhibit 99.1

 

 

Focus Financial Partners Reports Third Quarter 2022 Results 

Results Reflect Benefits of Diversified Revenues and 

Structural Earnings Protections in Volatile Markets

 

New York, New York – November 3, 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 third quarter ended September 30, 2022.

 

Third Quarter 2022 Highlights

 

·Total revenues of $519.9 million, 14.4% growth year over year

·Organic revenue growth(1) rate of 3.4% year over year

·GAAP net income of $38.3 million

·GAAP basic and diluted net income per share attributable to common shareholders of $0.45 and $0.44, respectively

·Adjusted Net Income Excluding Tax Adjustments(2) of $70.1 million and Tax Adjustments(3) of $16.7 million

·Adjusted Net Income Excluding Tax Adjustments Per Share(2) of $0.86 and Tax Adjustments(3) Per Share(2) of $0.20

·Net Leverage Ratio(4) of 3.98x

·24 transactions closed or announced year to date, including 5 new partner firms and 19 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.

 

“This morning we announced strong results for the 2022 third quarter, further evidence of the resiliency of our business during an exceptionally volatile period in the capital markets,” said Rudy Adolf, Founder, CEO and Chairman of Focus. “We are very pleased with these results as they reinforce our continued disciplined execution and that of our partner firms, which has contributed to stability in our fundamental results despite the market backdrop. This year will be one of our strongest for M&A activity overall, as well as one of our most active years for mergers on behalf of our partner firms. As we have demonstrated throughout this year, we continue to weather this storm well and use it as an opportunity to position ourselves for accelerated growth as markets and economies recover. Our decentralized approach to partnering with entrepreneurs enables us to remain nimble in how we manage our business, and positions us and our partners to take advantage of the opportunities on the horizon. We are confident that Focus will generate substantial growth and deliver superior value to its shareholders over the long-term.”

 

1

 

 

 

“The strength of our results this past quarter was again evident, as we exceeded our guidance on all measures. Our performance benefitted from our diversified sources of revenue, the highly variable nature of our management fees and our structural earnings preference,” said Jim Shanahan, Chief Financial Officer of Focus. “We expect that the resiliency and stability of our results will continue to be evident as we navigate the current market turbulence. We are executing well against our M&A pipeline, and we remain confident that we will weather the current challenges and emerge well-positioned to capitalize on the forward growth opportunity within our industry. Our international partnership of 87 like-minded firms, led by dynamic management teams, is highly differentiated in the independent wealth management space. Our value proposition continues to resonate with firms in the industry and we are a highly sought-after partner.”

 

Third Quarter 2022 Financial Highlights

 

Total revenues were $519.9 million, 14.4%, or $65.3 million higher than the 2021 third quarter. Revenues from new partner firms acquired during the last twelve months accounted for $48.4 million of this increase. The balance of $16.9 million resulted from growth in wealth management fees at our existing partner firms, including the effect of mergers completed by our partner firms. Our year-over-year organic revenue growth rate(1) was 3.4%, above our expected 0% to 2% range for the quarter.

 

An estimated 76.1%, or $395.5 million, of total revenues in the quarter were correlated to the markets. Of this amount, 65.6%, or $259.6 million, were generated from advance billings generally based on market levels in the 2022 second quarter. The remaining 23.9%, or $124.4 million, of revenues 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 $38.3 million compared to $1.8 million in the prior year quarter. GAAP basic and diluted net income per share attributable to common shareholders were $0.45 and $0.44, respectively, as compared to $0.01 for both basic and diluted net income per share in the prior year quarter.

 

Adjusted EBITDA(2) was $128.7 million, 13.4%, or $15.2 million, higher than the prior year quarter. Our Adjusted EBITDA margin(3) was 24.8%, above our outlook of approximately 24% for the quarter reflecting higher revenues and the variable nature of our management fees.

 

Adjusted Net Income Excluding Tax Adjustments(2) was $70.1 million, and Tax Adjustments(4) were $16.7 million. Adjusted Net Income Excluding Tax Adjustments Per Share(2) was $0.86, up 2.4% compared to the prior year quarter, and Tax Adjustments Per Share(2) were $0.20, up 42.9% compared to the prior year quarter.

 

(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.

 

2

 

 

 

Balance Sheet and Liquidity

 

As of September 30, 2022, cash and cash equivalents were $128.5 million and debt outstanding under our credit facilities was approximately $2.4 billion, which included $50.0 million outstanding under our First Lien Revolver.

 

Our Net Leverage Ratio(1) as of September 30, 2022 was 3.98x. 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 September 30, 2022, $850 million, or 34.9%, 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 $790.4 million of this amount at an interest rate of LIBOR subject to a 50 basis point floor plus a 250 basis point spread, and $748.4 million of this amount at an interest rate of LIBOR plus a 200 basis point 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 September 30, 2022 was $306.4 million compared to $310.7 million for the comparable period ended September 30, 2021. Our Cash Flow Available for Capital Allocation(2) for the trailing four quarters ended September 30, 2022 was $345.8 million compared to $299.7 million for the comparable period ended September 30, 2021. In the 2022 third quarter, we paid $47.9 million in cash earn-out obligations, $1.5 million in deferred purchase consideration 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, November 3, 2022 at 8:30 a.m. Eastern Time to discuss the Company’s 2022 third 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 “Third Quarter 2022 Earnings Release Supplement” dated November 3, 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.

 

3

 

 

 

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

 

4

 

 

 

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 nine months ended September 30, 2021 and 2022 include the following:

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2021   2022   2021   2022 
                 
   (dollars in thousands, except per share data) 
Revenue Metrics:                    
Revenues  $454,535   $519,864   $1,274,065   $1,595,642 
Revenue growth (1) from prior period   37.1%   14.4%   29.8%   25.2%
Organic revenue growth (2) from prior period   28.8%   3.4%   23.1%   13.3%
                     
Management Fees Metrics (operating expense):                    
Management fees  $127,166   $122,971   $345,443   $397,612 
Management fees growth (3) from prior period   47.2%   (3.3)%   39.8%   15.1%
Organic management fees growth (4) from prior period   38.7%   (11.6)%   32.5%   5.1%
                     
Net Income Metrics:                    
Net income  $1,849   $38,289   $9,505   $126,689 
Net income growth from prior period   (53.1)%   *    (77.0)%   * 
Income per share of Class A common stock:                    
Basic  $0.01   $0.45   $0.05   $1.40 
Diluted  $0.01   $0.44   $0.05   $1.39 
Income per share of Class A common stock growth from prior period:                    
Basic   (66.7)%   *    (90.2)%   * 
Diluted   (66.7)%   *    (90.2)%   * 
                     
Adjusted EBITDA Metrics:                    
Adjusted EBITDA (5)  $113,512   $128,689   $322,296   $400,790 
Adjusted EBITDA growth (5) from prior period   45.0%   13.4%   39.5%   24.4%
                     
Adjusted Net Income Excluding Tax Adjustments Metrics:                    
Adjusted Net Income Excluding Tax Adjustments (5)  $68,521   $70,052   $199,770   $234,804 
Adjusted Net Income Excluding Tax Adjustments growth (5) from prior period   42.9%   2.2%   44.2%   17.5%
                     
Tax Adjustments                    
Tax Adjustments (5)(6)  $11,835   $16,664   $33,365   $47,454 
Tax Adjustments growth from prior period (5)(6)   27.4%   40.8%   21.8%   42.2%

 

5

 

 

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 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   $0.86   $2.44   $2.88 
Tax Adjustments Per Share (5)(6)  $0.14   $0.20   $0.41   $0.58 
Adjusted Net Income Excluding Tax Adjustments Per Share growth (5) from prior period   33.3%   2.4%   34.1%   18.0%
Tax Adjustments Per Share growth from prior period (5)(6)   16.7%   42.9%   13.9%   41.5%
                     
Adjusted Shares Outstanding                    
Adjusted Shares Outstanding (5)   81,829,784    81,597,322    81,708,469    81,509,075 
                     
Other Metrics:                    
Net Leverage Ratio (7) at period end   3.54x   3.98x   3.54x   3.98x
Acquired Base Earnings (8)  $10,950   $7,849   $21,913   $19,299 
Number of partner firms at period end (9)   76    87    76    87 

 

*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.

 

6

 

 

 

(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 September 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 $65.7 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.

 

7

 

 

 

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 nine months ended 
   September 30,   September 30, 
   2021   2022   2021   2022 
REVENUES:                    
Wealth management fees  $433,967   $499,017   $1,213,782   $1,531,617 
Other   20,568    20,847    60,283    64,025 
Total revenues   454,535    519,864    1,274,065    1,595,642 
OPERATING EXPENSES:                    
Compensation and related expenses   144,249    186,320    424,337    546,251 
Management fees   127,166    122,971    345,443    397,612 
Selling, general and administrative   75,637    89,915    208,481    273,336 
Intangible amortization   46,055    67,331    133,041    192,256 
Non-cash changes in fair value of estimated contingent consideration   36,243    (30,708)   96,241    (82,450)
Depreciation and other amortization   3,622    4,016    10,835    11,454 
Total operating expenses   432,972    439,845    1,218,378    1,338,459 
INCOME FROM OPERATIONS   21,563    80,019    55,687    257,183 
OTHER INCOME (EXPENSE):                    
Interest income   206    126    310    146 
Interest expense   (16,543)   (26,491)   (37,893)   (63,999)
Amortization of debt financing costs   (1,102)   (949)   (2,856)   (2,999)
Other income (expense)—net   312    (2,347)   (219)   (3,834)
Income from equity method investments   91    51    514    157 
Total other expense—net   (17,036)   (29,610)   (40,144)   (70,529)
INCOME BEFORE INCOME TAX   4,527    50,409    15,543    186,654 
INCOME TAX EXPENSE   2,678    12,120    6,038    59,965 
NET INCOME   1,849    38,289    9,505    126,689 
Non-controlling interest   (1,200)   (9,040)   (6,623)   (35,255)
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS  $649   $29,249   $2,882   $91,434 
Income per share of Class A                    
common stock:                    
Basic  $0.01   $0.45   $0.05   $1.40 
Diluted  $0.01   $0.44   $0.05   $1.39 
Weighted average shares of Class A common stock outstanding:                    
Basic   59,940,166    65,599,493    55,978,639    65,441,151 
Diluted   60,438,510    65,821,228    56,447,070    65,729,339 

 

8

 

 

 

FOCUS FINANCIAL PARTNERS INC. 

Unaudited Condensed Consolidated Balance Sheets 

(in thousands, except share and per share amounts)

 

   December 31,   September 30, 
   2021   2022 
ASSETS          
Cash and cash equivalents  $310,684   $128,528 
Accounts receivable less allowances of $3,255 at 2021 and $3,949 at 2022   198,827    207,992 
Prepaid expenses and other assets   123,826    174,007 
Fixed assets—net   47,199    49,818 
Operating lease assets   249,850    257,749 
Debt financing costs—net   4,254    3,648 
Deferred tax assets—net   267,332    232,332 
Goodwill   1,925,315    2,092,787 
Other intangible assets—net   1,581,719    1,637,816 
TOTAL ASSETS  $4,709,006   $4,784,677 
LIABILITIES AND EQUITY          
LIABILITIES          
Accounts payable  $11,580   $11,822 
Accrued expenses   72,572    108,542 
Due to affiliates   105,722    66,868 
Deferred revenue   10,932    15,554 
Contingent consideration and other liabilities   468,284    320,176 
Deferred tax liabilities   31,973    39,477 
Operating lease liabilities   277,324    286,930 
Borrowings under credit facilities (stated value of $2,407,302 and $2,438,779 at December 31, 2021 and September 30, 2022, respectively)   2,393,669    2,427,211 
Tax receivable agreements obligations   219,542    221,237 
TOTAL LIABILITIES   3,591,598    3,497,817 
EQUITY          
Class A common stock, par value $0.01, 500,000,000 shares authorized; 65,320,124 and 65,865,932 shares issued and outstanding at December 31, 2021 and September 30, 2022, respectively   653    658 
Class B common stock, par value $0.01, 500,000,000 shares authorized; 11,439,019 and 11,653,693 shares issued and outstanding at December 31, 2021 and September 30, 2022, respectively   114    116 
Additional paid-in capital   841,753    930,042 
Retained earnings   24,995    116,429 
Accumulated other comprehensive income   3,029    11,378 
Total shareholders' equity   870,544    1,058,623 
Non-controlling interest   246,864    228,237 
Total equity   1,117,408    1,286,860 
TOTAL LIABILITIES AND EQUITY  $4,709,006   $4,784,677 

 

9

 

 

 

FOCUS FINANCIAL PARTNERS INC. 

Unaudited Condensed Consolidated Statements of Cash Flows 

(in thousands)

 

   For the nine months ended 
   September 30, 
   2021   2022 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income  $9,505   $126,689 
Adjustments to reconcile net income to net cash provided by operating activities—net of effect of acquisitions:          
Intangible amortization   133,041    192,256 
Depreciation and other amortization   10,835    11,454 
Amortization of debt financing costs   2,856    2,999 
Non-cash equity compensation expense   24,569    22,190 
Non-cash changes in fair value of estimated contingent consideration   96,241    (82,450)
Income from equity method investments   (514)   (157)
Distributions received from equity method investments   773    1,059 
Deferred taxes and other non-cash items   (570)   38,492 
Changes in cash resulting from changes in operating assets and liabilities:          
Accounts receivable   (22,247)   (7,959)
Prepaid expenses and other assets   (17,731)   (7,083)
Accounts payable   1,974    21 
Accrued expenses   35,382    37,729 
Due to affiliates   22,715    (39,020)
Contingent consideration and other liabilities   (61,181)   (69,038)
Deferred revenue   2,200    3,134 
Net cash provided by operating activities   237,848    230,316 
CASH FLOWS FROM INVESTING ACTIVITIES:          
Cash paid for acquisitions and contingent consideration—net of cash acquired   (286,803)   (361,675)
Purchase of fixed assets   (6,560)   (13,152)
Investment and other, net   (17,232)   (5,232)
Net cash used in investing activities   (310,595)   (380,059)
CASH FLOWS FROM FINANCING ACTIVITIES:          
Borrowings under credit facilities   1,169,500    100,000 
Repayments of borrowings under credit facilities   (419,145)   (68,523)
Proceeds from issuance of common stock, net   25,767     
Payments in connection with unit redemption, net   (25,767)    
Payments in connection with tax receivable agreements   (4,423)   (3,856)
Contingent consideration paid   (67,735)   (35,929)
Payments of deferred acquisition consideration       (1,484)
Payments of debt financing costs   (8,282)   (1,111)
Proceeds from exercise of stock options   6,186    1,158 
Distributions for unitholders   (26,391)   (20,519)
Other   (46)   375 
Net cash provided by (used in) financing activities   649,664    (29,889)
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS   (568)   (2,524)
CHANGE IN CASH AND CASH EQUIVALENTS   576,349    (182,156)
CASH AND CASH EQUIVALENTS:          
Beginning of period   65,858    310,684 
End of period  $642,207   $128,528 

 

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 income (expense)net, 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 nine months ended September 30, 2021 and 2022:

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2021   2022   2021   2022 
                 
   (in thousands) 
Net income  $1,849   $38,289   $9,505   $126,689 
Interest income   (206)   (126)   (310)   (146)
Interest expense   16,543    26,491    37,893    63,999 
Income tax expense   2,678    12,120    6,038    59,965 
Amortization of debt financing costs   1,102    949    2,856    2,999 
Intangible amortization   46,055    67,331    133,041    192,256 
Depreciation and other amortization   3,622    4,016    10,835    11,454 
Non-cash equity compensation expense   5,938    7,980    24,569    22,190 
Non-cash changes in fair value of estimated                    
contingent consideration   36,243    (30,708)   96,241    (82,450)
Other (income) expense—net   (312)   2,347    219    3,834 
Secondary offering expenses           1,409     
Adjusted EBITDA  $113,512   $128,689   $322,296   $400,790 

 

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 nine months ended September 30, 2021 and 2022:

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2021   2022   2021   2022 
                 
   (dollars in thousands, except per share data) 
Net income  $1,849   $38,289   $9,505   $126,689 
Income tax expense   2,678    12,120    6,038    59,965 
Amortization of debt financing costs   1,102    949    2,856    2,999 
Intangible amortization   46,055    67,331    133,041    192,256 
Non-cash equity compensation expense   5,938    7,980    24,569    22,190 
Non-cash changes in fair value of estimated                    
contingent consideration   36,243    (30,708)   96,241    (82,450)
Secondary offering expenses (1)           1,409     
Subtotal   93,865    95,961    273,659    321,649 
Pro forma income tax expense (27%) (2)   (25,344)   (25,909)   (73,889)   (86,845)
Adjusted Net Income Excluding Tax Adjustments  $68,521   $70,052   $199,770   $234,804 
                     
Tax Adjustments (3)  $11,835   $16,664   $33,365   $47,454 
                     
Adjusted Net Income Excluding Tax Adjustments Per Share  $0.84   $0.86   $2.44   $2.88 
Tax Adjustments Per Share (3)  $0.14   $0.20   $0.41   $0.58 
                     
Adjusted Shares Outstanding   81,829,784    81,597,322    81,708,469    81,509,075 
                     
Calculation of Adjusted Shares Outstanding:                    
Weighted average shares of Class A common                    
stock outstanding—basic (4)   59,940,166    65,599,493    55,978,639    65,441,151 
Adjustments:                    
Weighted average incremental shares of                    
Class A common stock related to stock                    
options and restricted stock units (5)   498,344    221,735    468,431    288,188 
Weighted average Focus LLC common units                    
outstanding (6)   12,609,173    11,898,233    16,263,935    11,899,456 
Weighted average Focus LLC restricted                    
common units outstanding (7)   71,374    192,627    71,374    193,289 
Weighted average common unit equivalent of                    
Focus LLC incentive units outstanding (8)   8,710,727    3,685,234    8,926,090    3,686,991 
Adjusted Shares Outstanding   81,829,784    81,597,322    81,708,469    81,509,075 

 

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 September 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 $65.7 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 and deferred acquisition 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 portions of contingent consideration and deferred acquisition consideration paid which are classified as operating cash flows under GAAP. The balances of such contingent consideration and deferred acquisition consideration are classified as investing or financing cash flows under GAAP; therefore, we add back the amounts included in operating cash flows so that the full amount of contingent consideration and deferred acquisition consideration payments are 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 September 30, 2021 and 2022:

 

   Trailing 4-Quarters Ended 
   September 30, 
   2021   2022 
         
   (in thousands) 
Net cash provided by operating activities  $310,742   $306,386 
Purchase of fixed assets   (13,218)   (17,610)
Distributions for unitholders   (33,083)   (26,439)
Payments under tax receivable agreements   (4,423)   (3,856)
Adjusted Free Cash Flow  $260,018   $258,481 
Portion of contingent consideration paid included in operating activities (1)   39,690    87,261 
Portion of deferred acquisition consideration paid included in operating activities (2)       16 
Cash Flow Available for Capital Allocation (3)  $299,708   $345,758 

 

(1)A portion of contingent consideration paid is classified as operating cash outflows in accordance with GAAP, with the balance reflected in investing or financing cash outflows. Contingent consideration paid classified as operating cash outflows for each of the trailing 4-quarters ended September 30, 2021 was $2.4 million, $5.3 million, $11.6 million and $20.4 million, respectively, totaling $39.7 million for the trailing 4-quarters ended September 30, 2021. Contingent consideration paid classified as operating cash outflows for each of the trailing 4-quarters ended September 30, 2022 was $16.4 million, $23.1 million, $18.2 million and $29.6 million, respectively, totaling $87.3 million for the trailing 4-quarters ended September 30, 2022.

 

(2)A portion of deferred acquisition consideration paid is classified as operating cash outflows in accordance with GAAP, with the balance reflected in financing cash outflows. Deferred acquisition consideration paid classified as operating cash outflows was $16 thousand for the three months ended September 30, 2022.

 

(3)Cash Flow Available for Capital Allocation excludes all contingent consideration and deferred acquisition 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 September 30, 2022:

 

   September 30, 2022 
Economic Ownership of Focus Financial Partners, LLC Interests:  Interest   % 
Focus Financial Partners Inc.   65,865,932    80.9%
Non-Controlling Interests (1)   15,527,084    19.1%
Total   81,393,016    100.0%

 

(1)Includes 3,680,928 Focus LLC common units issuable upon conversion of the outstanding 16,165,917 vested and unvested incentive units (assuming vesting of the unvested incentive units and a September 30, 2022 period end value of the Focus LLC common units equal to $31.51) and includes 192,463 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
September 30, 2022
   Number of Shares Outstanding at
November 1, 2022
 
Class A   65,865,932    65,865,932 
Class B   11,653,693    11,653,693 

 

18 

 

 

 

 

Incentive Units

 

The following table provides supplemental information regarding the outstanding Focus LLC vested and unvested Incentive Units (“IUs”) at September 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    3,043,964 
$22.00    808,917 
$23.00    524,828 
$26.26    12,500 
$27.00    12,484 
$27.90    1,910,483 
$28.50    1,436,586 
$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 
      16,165,917 

 

19 

 

Exhibit 99.2

 

Focus Financial Partners Inc. Third Quarter 2022 Earnings Release Supplement November 3 , 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 and deferred acquisition 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 portions of contingent consideration and deferred acquisition consideration paid which are classified as operating cash flows under GAAP . The balances of such contingent consideration and deferred acquisition consideration are classified as investing or financing cash flows under GAAP ; therefore, we add back the amounts included in operating cash flows so that the full amount of contingent consideration and deferred acquisition consideration payments are 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 .

 

 

Table of Contents 3 Pages Key Investor Questions on Q3 2022 4 - 6 Selected Growth Trends 7 - 11 Third Quarter 2022 Recap 12 - 18 Fourth Quarter 2022 Outlook 19 - 20 Credit Profile, Interest Rate Sensitivity & Earnings Preference 21 - 26 Cash Flows 27 - 29 Appendix 30 - 34

 

 

Key Investor Questions on Q3 2022 4

 

 

Key Investor Questions on Q3 2022 5 1 What was your organic growth? 2 3 1. As of September 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 67 firms since inception that have been with us for at least 2 years as of September 30, 2022 in order to determine a baseline revenue growth rate. If Focus partner firms merged together , t heir financials have been combined. 3. The weightings are based on the September 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. Analysis shows the actual interest expense for Q3’22, 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. Th e analysis then assumes that 30 - day LIBOR and SOFR rates were either 150bps, 200bps or 250bps higher throughout the entire period. 6. Includes signed and pending close transactions. 7. Source: DeVoe & Company RIA Deal Book TM Third Quarter 2022. 9.1% 13.7% 12.4% 9.2% 10.4% 15.7% 14.8% 10.2% Firms that have not completed a merger (25 firms) Firms that have completed at least one merger (42 firms) Entire portfolio of 67 partner firms Entire portfolio of 67 partner firms Median Revenue CAGR Weighted Average Revenue CAGR (3) (3) (3) (3,4) Revenue CAGR Since Inception ( 1,2) Including Mergers Excluding Mergers Q3’22 Interest Expense Sensitivity to LIBOR/SOFR (5) Actual Q3’22 Reported Interest Expense (including impact of hedges) $26.5M Pre - tax Impact to Q3’22 Interest Expense if 30 - day LIBOR/SOFR was higher by: 150 bps 200 bps 250 bps +$6.2M +$8.2M +$10.1M 4.4% weighted average cost of debt $850M fixed at weighted average cost of 2.62% ~$1.6B floating at L+200 / 250 How sensitive are your earnings to higher interest rates? Has your M&A momentum been impacted by the recent market volatility? (6) 6 7 14 5 28 18 24 19 34 25 38 24 2019 2020 2021 2022 to date New Partner Firms Mergers +23% YOY increase in industry M&A transaction volumes as of 9M’22 (7) +54% YOY increase in M&A activity among RIAs with <$1bn in client assets as of 9M’22 (7) +52% Of RIAs seek to become a buyer of other RIAs as part of their growth strategy (7)

 

 

Key Investor Questions on Q3 2022 6 6 5 1. As of September 30, 2022. 2. Non - GAAP financial measure. See Appendix for reconciliations. 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 to our pre fer red 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 Earnin gs may change in future periods for various business or contractual matters. 4. 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 draw ing s thereunder) minus unrestricted cash and cash equivalents to Consolidated EBITDA (as defined in the Credit Facility). What is your outlook for your Net Leverage Ratio (4) ? 3.5x – 4.5x 3.98x ~4.25x Q3’22 Actual Q4’22 Outlook Target 4.27x 4.00x 4.00x 3.85x 3.67x 3.89x 3.79x 3.54x 3.54x 3.85x 3.84x 3.90x 3.98x 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 How correlated were your Q3 revenues to the markets? 23.9% Non - market correlated 76.1% Market correlated 65.6% 34.4% Highly diversified revenue stream 7 What are your sources of liquidity? ~$129M Cash on balance sheet (1) Available Revolver capacity (1) ~$590M ~$346M LTM Cash Flow Available for Capital Allocation (1,2) Billed in advance Billed in arrears (Market correlated revenues) 4 How much in earnings preference do you have from recent partner firm acquisitions? $12 $19 $35 $35 $38 $39 $39 $57 $58 $68 $79 $129 $129 $140 $148 $155 Cumulative New Partner Firms Cumulative Acquired Base Earnings 3 5 6 6 7 8 8 13 14 16 18 27 27 28 30 32 Cumulative New Partner Firms and Acquired Base Earnings (3) Since Q1 2019 *Q4 includes a new partner firm that has closed and a new partner firm that is signed and pending close as of November 3, 2022.

 

 

Selected Growth Trends 7

 

 

$68.7 $75.2 $80.6 $64.0 $1,149.7 $1,286.1 $1,717.4 $1,531.6 2019 2020 2021 Q3 '22 YTD 94.4% 94.5% 95.5% 96.0% Wealth Management Fees Allocation ($ 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 $1,595.6 2019 2020 2021 Q3 '22 YTD CAGR: 21.5% $269.8 $321.8 $451.3 $400.8 2019 2020 2021 Q3 '22 YTD CAGR: 29.3% 22.1% 23.6% 25.1% 25.1% 2019 2020 2021 Q3 '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 $47.5 2019 2020 2021 Q3 '22 YTD CAGR: 21.2% $0.42 $0.47 $0.56 $0.58 2019 2020 2021 Q3 '22 YTD CAGR: 15.5% $1.96 $2.46 $3.36 $2.88 2019 2020 2021 Q3 '22 YTD CAGR: 30.9% $146.7 $195.6 $278.7 $234.8 2019 2020 2021 Q3 '22 YTD CAGR: 37.8%

 

 

1. As of September 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 67 firms since inception that have been with us for at least 2 years as of September 30, 2022 in order to determine a baseline revenue growth rate. If Focus partner firms merged together, their financials have be en combined. 3. The weightings are based on the September 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 67 partner firms have been with Focus for a weighted average of ~8 years and a median period of ~6 years. 9.1% 13.7% 12.4% 9.2% 10.4% 15.7% 14.8% 10.2% Firms that have not completed a merger (25 firms) Firms that have completed at least one merger (42 firms) Entire portfolio of 67 partner firms Entire portfolio of 67 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. 67 partner firms (5) represented ~88% of our Q3 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 15.7% 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 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% 3.4% -30% -20% -10% 0% 10% 20% 30% 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 Q3'22 Quarterly Organic Revenue Growth (1) Percentage Organic Revenue Growth Quarterly Average: 15.7% Average : 15.7%

 

 

Third 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 (1,2) $454.5 $519.9 Q3 '21 Q3 '22 14.4% $113.5 $128.7 Q3 '21 Q3 '22 13.4% $68.5 $70.1 Q3 '21 Q3 '22 2.2% $11.8 $16.7 Q3 '21 Q3 '22 40.8% $0.84 $0.86 Q3 '21 Q3 '22 2.4% $0.14 $0.20 Q3 '21 Q3 '22 42.9%

 

 

▪ Adjusted EBITDA: (2) $128.7 million, +13.4% year - over - year growth ▪ Adjusted EBITDA margin: (3) 24.8% ▪ Revenues: $ 519.9 million, +14.4% year - over - year growth ▪ Organic revenue growth rate: (1) +3.4 % year - over - year ▪ GAAP net income: $38.3 million, compared to $1.8 million in Q3 2021 ▪ GAAP basic and diluted net income per share attributable to common shareholders: $0.45 and $0.44 ▪ Adjusted Net Income Excluding Tax Adjustments: (2) $70.1 million, +2.2% year - over - year growth ▪ Tax Adjustments: (4) $16.7 million, +40.8% year - over - year growth ▪ Adjusted Net Income Excluding Tax Adjustments Per Share: (2) $0.86, +2.4% year - over - year growth ▪ Tax Adjustments Per Share: (2,4) $0.2 0 , +42.9% year - over - year growth Adjusted EBITDA Q3 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) 3.98 x ▪ Net cash provided by operating activities: $ 306.4 million (LTM Q3 2022), - 1.4 % year - over - year ▪ Cash Flow Available for Capital Allocation: (2) $ 345.8 million (LTM Q3 2022), + 15.4 % year - over - year ▪ Unamortized gross tax shield at September 30, 2022 of $2.8+ billion ▪ No Tax Receivable Agreement payments

 

 

$499.1m , 96.0% $20.8m , 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 $395.5m , 76.1% $124.4m , 23.9% 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 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 ▪ 9 partner firms across Australia, Canada, Switzerland and the UK, together with partner firm Connectus, are platforms for growth $486.6m , 93.6% $33.3m , 6.4% Domestic International Q3 2022 Revenues by Source Q3 2022 Revenues by Region Q3 2022 Revenues Correlated to Markets 15 $259.6m , 65.6% $135.9m , 34.4% 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 5,500+ Partners and Employees Annual M&A Transactions Since 2019 1. Includes a signed and pending close transaction (1) 6 7 14 5 28 18 24 19 34 25 38 24 2019 2020 2021 2022 to date New Partner Firms Mergers

 

 

2022 M&A Activity Continues to be Robust 17 2022 YTD Highlights 24 closed or pending transactions to date: ▪ 5 new partner firms ▪ 19 mergers, including 1 Connectus merger Type Acquiring Partner Firm Closing Date Primary Office Location 1. FourThought Private Wealth 11/1/2022 Venice, FL 2. Beaumont Financial Partners Q4* Needham, MA 1. Dental Wealth Buckingham Strategic Wealth 10/1/2022 Bellevue, WA 2. Johnson Hill 10/1/2022 Brentwood, TN 3. Beekman Prime Quadrant 10/1/2022 New York, NY 4. Strategic Capital Advisers Transform Wealth 10/1/2022 Denver, CO 5. Guidry Summit Financial 10/25/2022 Metairie, LA 6. Alpha Insurance Ancora 11/1/2022 Westlake, OH 7. Schur & Sugarman Provident Financial Management 11/1/2022 Los Angeles, CA 1. Octogone Holding 7/1/2022 Geneva, Switzerland 2. Icon Wealth Partners 8/1/2022 Houston, TX 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. Parsons Edge 8/26/2022 Dallas, TX 6. Skinner Cardinal Point 9/1/2022 Bahamas 7. RT Mosaic Cardinal Point 9/1/2022 Calgary, Canada 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 Q2 2022 Partner Firm Acquisitions Mergers Mergers Firm Name Q3 2022 Partner Firm Acquisitions Mergers Q4 2022

 

 

New Partner Firms Further Diversify Our Partnership (1) 18 » Headquartered in Venice, FL » Enhances Focus’ deep presence in attractive Florida wealth market » Serves HNW, UHNW, and institutional clients across the US » Headquartered in Needham, MA » Scaled regional platform with strong ties to multiple Boston area universities » Serves HNW/UHNW individuals and families, small businesses, and nonprofits Closed November 1, 2022 ~$1.1 Billion in Client Assets Fiduciary Wealth Manager Estimated Late Q4 Close ~$2.7 Billion in Client Assets Fiduciary Wealth Manager 1. We have over 85 partner firms with headquarters located across the United States as well as Australia, Canada, Switzerland an d t he United Kingdom. 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. FourThought Private Wealth Beaumont Financial Partners Estimated Annual Revenues: > $21 million ( 1)(2) Estimated Annual Acquired Base Earnings: ~ $7.3 million (3) Weighted Average ‘19 - ’21 Revenue CAGR: >20 % (1)(2)

 

 

19 Fourth Quarter 2022 Outlook

 

 

▪ Estimated Q4 revenues of ~$505 to $515 million (excludes performance fees). ▪ Estimated Q4 YOY organic revenue growth of negative ~10% (1) ▪ The $20 million in performance fees in the prior year has a negative ~4% impact on our Q4’22 organic revenue growth estimate ▪ Estimated Q4 revenue attributable to new partner firm closings: ~$3 million* and over $21 million annualized. *Relates to the closing of FourThought on 11/1/22 and the expected late Q4 closing of Beaumont. Q4 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 (2) ▪ Estimated Q4 Adjusted EBITDA (2) margin (3) of ~23%. ▪ Estimated Q4 Adjusted EBITDA (2) attributable to new partner firm closings: ~$1 million*. ▪ Estimated Annualized Acquired Base Earnings (4) : ~$7.3 million*. *Relates to the closing of FourThought on 11/1/22 and the expected late Q4 closing of Beaumont. ▪ As of September 30 , 2022, estimated next twelve months Tax Adjustments (5) of ~$65.7 million. ▪ No Tax Receivable Agreement payments. Tax Adjustments & Other Net Leverage Ratio (6) and Cash Flow ▪ Estimated Net Leverage Ratio (6) ~4.25x. ▪ Estimated cash earnout payments of ~$38 million in Q4. ▪ No need to raise equity capital to support M&A and business expansion.

 

 

Credit Profile, Interest Rate Sensitivity & Earnings Preference 21

 

 

First Lien Term Loan – Tranche A First Lien Term Loan – Tranche B First Lien Revolver Amount $1,598.4 million $790.4 million $50 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 $748.4 million variable at LIBOR +200 bps spread LIBOR +250 bps spread SOFR+175 bps on drawn 50 bps undrawn LIBOR/SOFR 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 September 30, 2022) (3) 1. Analysis shows the actual interest expense for Q3’22, 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 150bps, 200bps or 250bps 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). 3. Our outstanding term loan indebtedness uses LIBOR as a benchmark for establishing the interest rate. 1 - , 3 - , 6 - and 12 - month LIB OR are expected to be replaced by the SOFR in 2023. While we expect SOFR to be a reasonable replacement for LIBOR, at this time we cannot predict the implications of the use of SOFR on the inte res t rates we pay. Q3’22 Interest Expense Sensitivity to LIBOR/SOFR (1) Pre - tax Impact to Q3’22 Interest Expense if 30 - day LIBOR/SOFR was higher by: 150 bps 200 bps 250 bps +$6.2M +$8.2M +$10.1M Actual Q3’22 Reported Interest Expense (including impact of hedges) $26.5M

 

 

Strong Credit and Liquidity Profile Debt cost ~4.4% weighted average interest rate on funded borrowings Duration risk ~1.8 years remaining to maturity for Tranche A Term Loan (July 2024) ~5.7 years remaining to maturity for Tranche B Term Loan (June 2028) ~1.8 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 Liquidity ~$ 129 m illion cash ~$ 590 million available revolver capacity ~$ 346 million LTM Cash Flow Available for Capital Allocation (1) As of September 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 Q3'22 Market-Correlated Revenues 395.5$ 356.0$ 316.4$ Q3'22 Non-Correlated Revenues 124.4$ 124.4$ 124.4$ Total Revenue - Q3'22 519.9$ 480.4$ 440.8$ Covenant EBITDA (2) - LTM 579.9$ 559.4$ 539.2$ Net Debt (3) 2,310.3$ 2,310.3$ 2,310.3$ Net Leverage Ratio (2) 3.98x 4.13x 4.28x Change from Q3 Reported 0.15x 0.30x 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 Q3 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 ▪ Q3 Covenant EBITDA - LTM (2) would need to drop to $369.6 million, or decline by 36 %, to reach 6.25x net leverage ratio covenant 24

 

 

Supported by Substantial Acquired Base Earnings (1) 25 *Q4 includes a new partner firm that has closed and a new partner firm that is signed and pending close as of November 3, 202 2. 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 $155 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 Q4'22* 32

 

 

Illustrative Structural Protections in Our Financial Model 26 Earnings Preference Provides Downside Protection For Firms Above Target Earnings, Split Mitigates Downside Financial Impact to Focus 1. The terms of our management agreements entitle the management companies to management fees typically consisting of all Earnin gs Before Partner Compensation (“EBPC”) 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 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 Earni ngs . Base Earnings may change in future periods for various business or contractual matters. Management fees growth represents the period - over - period growth in GAAP management fees earned by managemen t companies. While an expense, we believe that growth in management fees reflect the strength of the partnership. Base Case +10% Revenues -10% Revenues Revenues $5,000 $5,500 $4,500 Operating Expenses (excl. management fees) -$2,000 -$2,000 -$2,000 Earnings Before Partner Compensation ("EBPC") (1) $3,000 $3,500 $2,500 Split 50% 50% 50% To Focus $1,500 $1,750 $1,500 To Management Company (as Management Fee) (1) $1,500 $1,750 $1,000 Management Fee as % of Revenue 30% 32% 22% At Time of Deal Focus Acquired Base Earnings (1) Base Case +10% Revenues -10% Revenues Revenues $10,000 $11,000 $9,000 Operating Expenses (excl. management fees) -$3,500 -$3,500 -$3,500 Earnings Before Partner Compensation ("EBPC") $6,500 $7,500 $5,500 Original Target EBPC at Time of Deal $3,000 $3,000 $3,000 Current EBPC Above Target $3,500 $4,500 $2,500 To Focus Preference On Original EBPC at Time of Deal (50%) $1,500 $1,500 $1,500 Split on Excess Above Target (50%) $1,750 $2,250 $1,250 $3,250 $3,750 $2,750 To Management Company (as Management Fee) (1) Original EBPC at Time of Deal (50%) $1,500 $1,500 $1,500 Split on Excess Above Target (50%) $1,750 $2,250 $1,250 $3,250 $3,750 $2,750 Management Fee as % of Revenue 33% 34% 31% Firm Has Grown Above Target Earnings

 

 

Cash Flows 27

 

 

Q4 2022 Supplemental Cash Flow Disclosures Strong and Sustained Growth in Cash Flows Continued in Q3 As % of Adjusted EBITDA (1) 73 % 65% Cash Flow Snapshot ▪ Q4 2022 estimated cash earnouts of ~$38 million ▪ No Tax Receivable Agreements (“TRA”) payments in Q4 2022 ▪ Q4 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. 28 - 1.4% (1) + 15.4 % Cash Flow Trend ($ in millions) (2) (2) $310.7 $299.7 $306.4 $345.8 Net cash provided by operating activities Cash Flow Available for Capital Allocation Q3 '21 LTM Q3 '22 LTM $211.4 $242.1 $298.9 $310.7 $313.9 $275.1 $291.3 $306.4 $200.5 $219.9 $266.0 $299.7 $319.9 $299.6 $323.2 $345.8 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 LTM Cash Flows From Operating Activities LTM Cash Flow Available For Capital Allocation (1)

 

 

Over $2.8 Billion Tax Shield Created by Tax Efficient Transaction Structure 29 $61 $242 $241 $2,309 $17 $65 $65 $624 Q4 2022 2023 2024 2025 & Thereafter Unamortized Gross Tax Shield Estimated Tax Benefit Focus generally acquires intangible assets which generate tax shields (1) ($ 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 September 30, 2022. 3. Based on 27% pro forma tax rate. 4. Based on assumed 8% discount rate. 5. Based on Q3 2022 Adjusted Shares Outstanding. See Appendix for reconciliation of number of shares. $2.8+ billion cumulative unamortized gross tax shield (1,2) ~$771 million economic benefit (3) ~$6.11 per share (4,5) ~$498 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 30

 

 

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. 31 ($ in thousands) 2019 2020 2021 Sept. 30, 2021 Sept. 30, 2022 Sept. 30, 2021 Sept. 30, 2022 Net income (loss) (12,025)$ 48,965$ 24,440$ 1,849$ 38,289$ 9,505$ 126,689$ Interest income (1,164) (453) (422) (206) (126) (310) (146) Interest expense 58,291 41,658 55,001 16,543 26,491 37,893 63,999 Income tax expense 7,049 20,660 20,082 2,678 12,120 6,038 59,965 Amortization of debt financing costs 3,452 2,909 3,958 1,102 949 2,856 2,999 Intangible amortization 130,718 147,783 187,848 46,055 67,331 133,041 192,256 Depreciation and other amortization 10,675 12,451 14,625 3,622 4,016 10,835 11,454 Non-cash equity compensation expense 18,329 22,285 31,602 5,938 7,980 24,569 22,190 Non-cash changes in fair value of estimated contingent consideration 38,797 19,197 112,416 36,243 (30,708) 96,241 (82,450) Loss on extinguishment of borrowings — 6,094 — — — — — Other (income) expense, net 1,049 214 337 (312) 2,347 219 3,834 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 — — 1,409 — Adjusted EBITDA 269,834$ 321,763$ 451,296$ 113,512$ 128,689$ 322,296$ 400,790$ Three months ended Nine 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 32 2019 2020 2021 Sept. 30, 2021 Sept. 30, 2022 Sept. 30, 2021 Sept. 30, 2022 ($ in thousands, except share and per share data) Net income (loss) (12,025)$ 48,965$ 24,440$ 1,849$ 38,289$ 9,505$ 126,689$ Income tax expense 7,049 20,660 20,082 2,678 12,120 6,038 59,965 Amortization of debt financing costs 3,452 2,909 3,958 1,102 949 2,856 2,999 Intangible amortization 130,718 147,783 187,848 46,055 67,331 133,041 192,256 Non-cash equity compensation expense 18,329 22,285 31,602 5,938 7,980 24,569 22,190 Non-cash changes in fair value of estimated contingent consideration 38,797 19,197 112,416 36,243 (30,708) 96,241 (82,450) 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 — — 1,409 — Subtotal 200,983 267,893 381,755 93,865 95,961 273,659 321,649 Pro forma income tax expense (27%) (3) (54,265) (72,331) (103,074) (25,344) (25,909) (73,889) (86,845) Adjusted Net Income Excluding Tax Adjustments 146,718$ 195,562$ 278,681$ 68,521$ 70,052$ 199,770$ 234,804$ Tax Adjustments (4) 31,860$ 37,254$ 46,805$ 11,835$ 16,664$ 33,365$ 47,454$ Adjusted Net Income Excluding Tax Adjustments Per Share 1.96$ 2.46$ 3.36$ 0.84$ 0.86$ 2.44$ 2.88$ Tax Adjustments Per Share (4) 0.42$ 0.47$ 0.56$ 0.14$ 0.20$ 0.41$ 0.58$ Adjusted Shares Outstanding 75,039,357 79,397,568 82,893,928 81,829,784 81,597,322 81,708,469 81,509,075 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 59,940,166 65,599,493 55,978,639 65,441,151 Adjustments: Weighted average incremental shares of Class A common stock related to stock options, unvested Class A common stock and restricted stock units (6) 20,428 118,029 513,674 498,344 221,735 468,431 288,188 Weighted average Focus LLC common units outstanding (7) 22,424,378 21,461,080 15,200,900 12,609,173 11,898,233 16,263,935 11,899,456 Weighted average Focus LLC restricted common units outstanding (8) — 5,005 73,983 71,374 192,627 71,374 193,289 Weighted average common unit equivalent of Focus LLC incentive units outstanding (9) 5,802,162 9,134,870 9,787,894 8,710,727 3,685,234 8,926,090 3,686,991 Adjusted Shares Outstanding 75,039,357 79,397,568 82,893,928 81,829,784 81,597,322 81,708,469 81,509,075 Three months ended Nine 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 September 30, 2022, estimated Tax Adjustments from intangible asset related income tax benefits from closed acquisitions base d o n a pro forma 27% income tax rate for the next 12 months is $65.7 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 . 33 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 34 1. A portion of contingent consideration paid is classified as operating cash outflows in accordance with GAAP (with the balance re flected in investing or financing cash outflows) and therefore is a reconciling item to arrive at Cash Flow Available for Capital Allocation. 2. A portion of deferred acquisition consideration paid is classified as operating cash outflows in accordance with GAAP ( with the balance reflected in financing cash outflows) and therefore is a reconciling item to arrive at Cash Flow Available for Capital Allocation . 3. Cash Flow Available for Capital Allocation excludes all contingent consideration and deferred acquisition consideration that was included in either operating, investing or financing activities of our consolidated statements of cash flows. 4. 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) March 31, 2020 (3) June 30, 2020 Sept. 30, 2020 Dec. 31, 2020 Mar. 31, 2021 (4) June 30, 2021 Net cash provided by operating activities 3,382$ 60,996$ 74,089$ 72,894$ 34,128$ 117,832$ Purchase of fixed assets (3,188) (2,759) (6,744) (6,658) (2,835) (1,483) Distributions for unitholders (4,567) (3,076) (8,122) (6,692) (9,055) (10,053) Payments under tax receivable agreements — — — — (4,112) (311) Adjusted Free Cash Flow (4,373)$ 55,161$ 59,223$ 59,544$ 18,126$ 105,985$ Portion of contingent consideration paid included in operating activities (1) 8,344 16,369 3,806 2,394 5,276 11,605 Portion of deferred acquisition consideration paid included in operating activities (2) — — — — — — Cash Flow Available for Capital Allocation (3) 3,971$ 71,530$ 63,029$ 61,938$ 23,402$ 117,590$ Three months ended ($ in thousands) Sept. 30, 2021 Dec. 31, 2021 Mar. 31, 2022 (4) June 30, 2022 Sept 30, 2022 Sept. 30, 2021 Sept. 30, 2022 Net cash provided by operating activities 85,888$ 76,070$ (4,642)$ 133,934$ 101,024$ 310,742$ 306,386$ Purchase of fixed assets (2,242) (4,458) (3,232) (3,197) (6,723) (13,218) (17,610) Distributions for unitholders (7,283) (5,920) (8,209) (7,747) (4,563) (33,083) (26,439) Payments under tax receivable agreements — — (3,856) — — (4,423) (3,856) Adjusted Free Cash Flow 76,363$ 65,692$ (19,939)$ 122,990$ 89,738$ 260,018$ 258,481$ Portion of contingent consideration paid included in operating activities (1) 20,415 16,439 23,049 18,202 29,571 39,690 87,261 Portion of deferred acquisition consideration paid included in operating activities (2) — — — — 16 — 16 Cash Flow Available for Capital Allocation (3) 96,778$ 82,131$ 3,110$ 141,192$ 119,325$ 299,708$ 345,758$ Trailing 4-Quarters endedThree months ended