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Focus Financial Partners Reports Fourth Quarter and Full Year 2020 Results Record Financial Performance Demonstrates Benefits of Industry-Leading Scale and Resilient Business Model

·40-min read


New York, 02/18/2021 / 07:00, EST/EDT - EQS Newswire - Focus Financial Partners


Record Financial Performance Demonstrates Benefits of Industry-Leading Scale and Resilient Business Model

NEW YORK, NY / ACCESSWIRE / February 18, 2021 / 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 fourth quarter and full year ended December 31, 2020.

Fourth Quarter 2020 Highlights

Full Year 2020 Highlights

Growth and Leverage Guidance

"2020 was an unprecedented year and I am extremely proud of what we accomplished. We delivered record financial and operating results despite the pandemic-related challenges. Our business demonstrated its resiliency and consistently outperformed relative to our expectations," said Rudy Adolf, Founder, CEO and Chairman. "In many ways, the story of 2020 was that scale matters. Our unique scale was instrumental in helping us not just weather the storm but move past it and thrive, positioning us for what we believe will be an even stronger year in 2021. We are establishing 2021 growth targets in excess of 20% for revenue and Adjusted Net Income Excluding Tax Adjustments Per Share, as well as a return to double-digit annual organic revenue growth. We are also reaffirming our strategic vision for the growth and scale that we believe Focus can achieve by 2025. Our differentiated model of entrepreneurship, value-added services and permanent growth capital will continue to make us the partner of choice, in turn creating superior value for shareholders."

"Our 2020 fourth quarter and full-year financial results amplify our well-designed financial model and the outstanding job our partners did in managing their businesses in a year with many uncertainties. The breadth and diversification of our partnership, combined with our strong M&A momentum and high-quality value-added services, were all instrumental to this outcome," said Jim Shanahan, Chief Financial Officer. "The ongoing stability of our revenue base and high proportion of fee-based and recurring revenues continued to drive strong growth in our cash flow generation. In January of this year, we took advantage of the outsized demand for our credit to increase our Term Loan by $500 million. With fire power of about $1 billion, we are well positioned to capitalize on future acquisition opportunities while remaining within our targeted net leverage ratio range of 3.5x - 4.5x."

Fourth Quarter 2020 Financial Highlights
Total revenues were $379.7 million, 11.6%, or $39.4 million higher than the 2019 fourth quarter. The primary driver of this increase was revenue growth from our existing partner firms of approximately $24.6 million. The majority of this growth was driven by higher wealth management fees, which includes the effect of mergers completed by our partner firms. The balance of the increase of $14.8 million was due to revenues from new partner firms acquired during 2020. Our year-over-year organic revenue growth rate(1) was 7.3%, ahead of our expected flat outlook for the quarter.

An estimated 74.7%, or $283.8 million, of total revenues in the quarter were correlated to the financial markets. Of this amount, 63.1%, or $179.0 million, were generated from advance billings generally based on market levels in the 2020 third quarter. The remaining 25.3%, or $95.9 million, were not correlated to the markets. These revenues typically consist of family office type services, tax advice and fixed fees for investment advice, primarily for high and ultra-high net worth clients.

GAAP net income was $7.7 million compared to a net loss of $12.7 million in the prior year quarter. GAAP basic and diluted net income per share attributable to common shareholders was $0.07, as compared to ($0.25) for both basic and diluted loss per share in the prior year quarter.

Adjusted EBITDA(2) was $90.7 million, 9.3%, or $7.7 million, higher than the prior year period, and our Adjusted EBITDA margin(3) was 23.9%, ahead of our outlook of 23.5% for the quarter.

Adjusted Net Income Excluding Tax Adjustments(2) was $57.0 million and Tax Adjustments(2) were $9.9 million. Adjusted Net Income Excluding Tax Adjustments Per Share(2) was $0.72, up 14.3% compared to the prior year period, and Tax Adjustments Per Share(2) were $0.12, unchanged from the prior year period.

2020 Full Year Financial Highlights
Total revenues were a record $1.36 billion, 11.7%, or $143.0 million higher than the prior year. The primary driver of this increase was revenue growth from our existing partner firms of approximately $121.2 million. The majority of this growth was driven by higher wealth management fees, which includes the effect of mergers completed by our partner firms, as well as a full period of revenues recognized during 2020 for partner firms that were acquired in 2019. The balance of the increase of $21.8 million was due to revenues from new partner firms acquired during 2020. Our year-over-year organic revenue growth rate(1) for the year-to-date period was 7.0%.

GAAP net income was $49.0 million compared to a net loss of $12.0 million in the prior year. GAAP basic and diluted net income per share attributable to common shareholders was $0.58 and $0.57, respectively, compared to $(0.28) for both basic and diluted in the prior year.

Adjusted EBITDA(2) was $321.8 million, 19.2%, or $51.9 million, higher than the prior year. Our Adjusted EBITDA margin(3) was 23.6%, 150 basis points higher than the prior year primarily reflecting lower levels of SG&A expenses relative to revenue as a result of the impact of the Covid-19 pandemic.

Adjusted Net Income Excluding Tax Adjustments(2) was $195.6 million and Tax Adjustments(2) were $37.3 million. Adjusted Net Income Excluding Tax Adjustments Per Share(2) was $2.46, up 25.5% compared to the prior year, and Tax Adjustments Per Share(2) were $0.47, up 11.9% from the prior year.

Balance Sheet and Liquidity
As of December 31, 2020, cash and cash equivalents were $65.9 million and debt outstanding under the Company's credit facilities was approximately $1.5 billion.

Of our total debt outstanding as of December 31, 2020, approximately $1.13 billion were borrowings under our Term Loan and $380.0 million were borrowings under our Revolver. Our Net Leverage Ratio(1) at December 31, 2020 was 3.89x. 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.

Our net cash provided by operating activities for the trailing four quarters ended December 31, 2020 increased 8.5% to $211.4 million from $194.8 million for the comparable period ended December 31, 2019. Our Cash Flow Available for Capital Allocation(2) for the trailing four quarters ended December 31, 2020 increased 22.6% to $200.5 million from $163.5 million for the comparable period ended December 31, 2019. These increases reflect the earnings growth of our partner firms, the addition of new partner firms and the increase in our Adjusted EBITDA margin. In the 2020 fourth quarter, we paid $7.7 million of earn-out obligations and $2.9 million of required amortization under our Term Loan.

As of December 31, 2020, $850 million, or approximately 75%, of our Term Loan had been swapped from a floating rate to a weighted average fixed rate of 2.62%. The residual amount of approximately $277.6 million under the Term Loan as well as all Revolver borrowings remain at floating rates.

Teleconference, Webcast and Presentation Information
Founder, CEO and Chairman, Rudy Adolf, and Chief Financial Officer, Jim Shanahan, will host a conference call today, February 18, 2021 at 8:30 a.m. Eastern Time to discuss the Company's 2020 fourth quarter and full year results and outlook. The call can be accessed by dialing +1-877-407-0989 (inside the U.S.) or +1-201-389-0921 (outside the U.S.).

A live, listen-only webcast, together with a slide presentation titled "Fourth Quarter & Full Year 2020 Earnings Release Supplement" dated February 18, 2021 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 20 minutes prior to the start of the call, using the following link.

About Focus Financial Partners Inc.
Focus Financial Partners 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, 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, 2019 and quarterly report on Form 10-Q for the quarter ended September 30, 2020 filed and our other filings with the Securities and Exchange Commission.

Investor and Media Contact
Tina Madon
Head of Investor Relations & Corporate Communications
Tel: (646) 813-2909
tmadon@focuspartners.com

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 twelve months ended December 31, 2019 and 2020 include the following:

 

 

Three Months Ended

 

 

Twelve Months Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

 

 

(dollars in thousands, except per share data)

 

Revenue Metrics:

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

340,231

 

 

$

379,673

 

 

$

1,218,341

 

 

$

1,361,319

 

Revenue growth (1) from prior period

 

 

37.5

%

 

 

11.6

%

 

 

33.8

%

 

 

11.7

%

Organic revenue growth (2) from prior period

 

 

25.2

%

 

 

7.3

%

 

 

15.1

%

 

 

7.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management Fees Metrics (operating expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management fees

 

$

87,331

 

 

$

102,381

 

 

$

304,701

 

 

$

349,475

 

Management fees growth (3) from prior period

 

 

37.8

%

 

 

17.2

%

 

 

30.9

%

 

 

14.7

%

Organic management fees growth (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

from prior period

 

 

22.6

%

 

 

10.0

%

 

 

10.2

%

 

 

7.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss) Metrics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(12,691

)

 

$

7,674

 

 

$

(12,025

)

 

$

48,965

 

Net income (loss) growth from prior period

 

 

*

 

 

 

*

 

 

 

70.7

%

 

 

*

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.25

)

 

$

0.07

 

 

$

(0.28

)

 

$

0.58

 

Diluted

 

$

(0.25

)

 

$

0.07

 

 

$

(0.28

)

 

$

0.57

 

Income (loss) per share of Class A common stock growth from prior period:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

*

 

 

 

*

 

 

 

*

 

 

 

*

 

Diluted

 

 

*

 

 

 

*

 

 

 

*

 

 

 

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA Metrics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA (6)

 

$

83,003

 

 

$

90,700

 

 

$

269,834

 

 

$

321,763

 

Adjusted EBITDA growth (6) from prior period

 

 

53.1

%

 

 

9.3

%

 

 

32.7

%

 

 

19.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income Excluding Tax Adjustments Metrics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income Excluding Tax Adjustments (5)(6)

 

$

47,224

 

 

$

56,991

 

 

$

146,718

 

 

$

195,562

 

Adjusted Net Income Excluding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax Adjustments growth (5)(6) from prior period

 

 

55.1

%

 

 

20.7

%

 

 

43.1

%

 

 

33.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax Adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax Adjustments (5)(6)(7)

 

$

8,760

 

 

$

9,856

 

 

$

31,860

 

 

$

37,254

 

Tax Adjustments growth from prior period (5)(6)(7)

 

 

38.9

%

 

 

12.5

%

 

 

39.6

%

 

 

16.9

%

 

 

Three Months Ended

 

 

Twelve Months Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

 

 

(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)(6)

 

$

0.63

 

 

$

0.72

 

 

$

1.96

 

 

$

2.46

 

Tax Adjustments Per Share (5)(6)(7)

 

$

0.12

 

 

$

0.12

 

 

$

0.42

 

 

$

0.47

 

Adjusted Net Income Excluding Tax Adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Share growth (5)(6) from prior period

 

 

50.0

%

 

 

14.3

%

 

 

38.0

%

 

 

25.5

%

Tax Adjustments Per Share growth

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

from prior period (5)(6)(7)

 

 

33.3

%

 

 

0.0

%

 

 

31.3

%

 

 

11.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Shares Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Shares Outstanding (6)

 

 

75,072,782

 

 

 

79,584,887

 

 

 

75,039,357

 

 

 

79,397,568

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Metrics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Leverage Ratio (8) at period end

 

 

4.00

x

 

 

3.89

x

 

 

4.00

x

 

 

3.89

x

Acquired Base Earnings (9)

 

$

-

 

 

$

17,886

 

 

$

35,138

 

 

$

22,121

 

Number of partner firms at period end (10)

 

 

63

 

 

 

71

 

 

 

63

 

 

 

71

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Not meaningful

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 twelve months ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

Wealth management fees

 

$

323,927

 

 

$

360,603

 

 

$

1,149,655

 

 

$

1,286,130

 

Other

 

 

16,304

 

 

 

19,070

 

 

 

68,686

 

 

 

75,189

 

Total revenues

 

 

340,231

 

 

 

379,673

 

 

 

1,218,341

 

 

 

1,361,319

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and related expenses

 

 

112,657

 

 

 

129,748

 

 

 

431,465

 

 

 

476,208

 

Management fees

 

 

87,331

 

 

 

102,381

 

 

 

304,701

 

 

 

349,475

 

Selling, general and administrative

 

 

62,253

 

 

 

63,593

 

 

 

232,911

 

 

 

236,377

 

Management contract buyout

 

 

-

 

 

 

-

 

 

 

1,428

 

 

 

-

 

Intangible amortization

 

 

35,858

 

 

 

39,024

 

 

 

130,718

 

 

 

147,783

 

Non-cash changes in fair value of estimated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

contingent consideration

 

 

13,101

 

 

 

19,818

 

 

 

38,797

 

 

 

19,197

 

Depreciation and other amortization

 

 

3,140

 

 

 

3,320

 

 

 

10,675

 

 

 

12,451

 

Total operating expenses

 

 

314,340

 

 

 

357,884

 

 

 

1,150,695

 

 

 

1,241,491

 

INCOME FROM OPERATIONS

 

 

25,891

 

 

 

21,789

 

 

 

67,646

 

 

 

119,828

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

337

 

 

 

41

 

 

 

1,164

 

 

 

453

 

Interest expense

 

 

(15,156

)

 

 

(9,112

)

 

 

(58,291

)

 

 

(41,658

)

Amortization of debt financing costs

 

 

(969

)

 

 

(709

)

 

 

(3,452

)

 

 

(2,909

)

Loss on extinguishment of borrowings

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,094

)

Other expense-net

 

 

(354

)

 

 

(239

)

 

 

(1,049

)

 

 

(214

)

Income from equity method investments

 

 

59

 

 

 

52

 

 

 

755

 

 

 

219

 

Impairment of equity method investment

 

 

(11,749

)

 

 

-

 

 

 

(11,749

)

 

 

-

 

Total other expense-net

 

 

(27,832

)

 

 

(9,967

)

 

 

(72,622

)

 

 

(50,203

)

INCOME (LOSS) BEFORE INCOME TAX

 

 

(1,941

)

 

 

11,822

 

 

 

(4,976

)

 

 

69,625

 

INCOME TAX EXPENSE

 

 

10,750

 

 

 

4,148

 

 

 

7,049

 

 

 

20,660

 

NET INCOME (LOSS)

 

 

(12,691

)

 

 

7,674

 

 

 

(12,025

)

 

 

48,965

 

Non-controlling interest

 

 

692

 

 

 

(4,076

)

 

 

(847

)

 

 

(20,920

)

NET INCOME (LOSS) ATTRIBUTABLE TO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMMON SHAREHOLDERS

 

$

(11,999

)

 

$

3,598

 

 

$

(12,872

)

 

$

28,045

 

Income (loss) per share of Class A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.25

)

 

$

0.07

 

 

$

(0.28

)

 

$

0.58

 

Diluted

 

$

(0.25

)

 

$

0.07

 

 

$

(0.28

)

 

$

0.57

 

Weighted average shares of Class A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

common stock outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

47,203,578

 

 

 

50,723,913

 

 

 

46,792,389

 

 

 

48,678,584

 

Diluted

 

 

47,203,578

 

 

 

51,051,481

 

 

 

46,792,389

 

 

 

48,796,613

 

FOCUS FINANCIAL PARTNERS INC.
Unaudited condensed consolidated balance sheets
(in thousands, except share and per share amounts)

 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2020

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

65,178

 

 

$

65,858

 

Accounts receivable less allowances of $684 at 2019 and $2,178 at 2020

 

 

129,337

 

 

 

169,220

 

Prepaid expenses and other assets

 

 

58,581

 

 

 

65,581

 

Fixed assets-net

 

 

41,634

 

 

 

49,209

 

Operating lease assets

 

 

180,114

 

 

 

229,748

 

Debt financing costs-net

 

 

9,645

 

 

 

6,950

 

Deferred tax assets-net

 

 

75,453

 

 

 

107,289

 

Goodwill

 

 

1,090,231

 

 

 

1,255,559

 

Other intangible assets-net

 

 

1,003,456

 

 

 

1,113,467

 

TOTAL ASSETS

 

$

2,653,629

 

 

$

3,062,881

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable

 

$

8,077

 

 

$

9,634

 

Accrued expenses

 

 

41,442

 

 

 

53,862

 

Due to affiliates

 

 

58,600

 

 

 

66,428

 

Deferred revenue

 

 

7,839

 

 

 

9,190

 

Other liabilities

 

 

215,878

 

 

 

222,911

 

Operating lease liabilities

 

 

196,425

 

 

 

253,295

 

Borrowings under credit facilities (stated value of $1,279,188 and $1,507,622

 

 

 

 

 

 

 

 

at December 31, 2019 and December 31, 2020, respectively)

 

 

1,272,999

 

 

 

1,507,119

 

Tax receivable agreements obligations

 

 

48,399

 

 

 

81,563

 

TOTAL LIABILITIES

 

 

1,849,659

 

 

 

2,204,002

 

EQUITY

 

 

 

 

 

 

 

 

Class A common stock, par value $0.01, 500,000,000 shares authorized;

 

 

 

 

 

 

 

 

47,421,315 and 51,158,712 shares issued and outstanding at

 

 

 

 

 

 

 

 

December 31, 2019 and December 31, 2020, respectively

 

 

474

 

 

 

512

 

Class B common stock, par value $0.01, 500,000,000 shares authorized;

 

 

 

 

 

 

 

 

22,075,749 and 20,661,595 shares issued and outstanding at

 

 

 

 

 

 

 

 

December 31, 2019 and December 31, 2020, respectively

 

 

221

 

 

 

207

 

Additional paid-in capital

 

 

498,186

 

 

 

526,664

 

Retained earnings (deficit)

 

 

(13,462

)

 

 

14,583

 

Accumulated other comprehensive loss

 

 

(1,299

)

 

 

(2,167

)

Total shareholders' equity

 

 

484,120

 

 

 

539,799

 

Non-controlling interest

 

 

319,850

 

 

 

319,080

 

Total equity

 

 

803,970

 

 

 

858,879

 

TOTAL LIABILITIES AND EQUITY

 

$

2,653,629

 

 

$

3,062,881

 

 

 

 

 

 

 

 

 

 

FOCUS FINANCIAL PARTNERS INC.
Unaudited condensed consolidated statements of cash flows
(in thousands)

 

 

For the twelve months ended

 

 

 

December 31,

 

 

 

2019

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income (loss)

 

$

(12,025

)

 

$

48,965

 

Adjustments to reconcile net income (loss) to net cash provided by operating

 

 

 

 

 

 

 

 

activities-net of effect of acquisitions:

 

 

 

 

 

 

 

 

Intangible amortization

 

 

130,718

 

 

 

147,783

 

Depreciation and other amortization

 

 

10,675

 

 

 

12,451

 

Amortization of debt financing costs

 

 

3,452

 

 

 

2,909

 

Non-cash equity compensation expense

 

 

18,329

 

 

 

22,285

 

Non-cash changes in fair value of estimated contingent consideration

 

 

38,797

 

 

 

19,197

 

Income from equity method investments

 

 

(755

)

 

 

(219

)

Impairment of equity method investment

 

 

11,749

 

 

 

-

 

Distributions received from equity method investments

 

 

751

 

 

 

231

 

Deferred taxes and other non-cash items

 

 

3,555

 

 

 

2,618

 

Loss on extinguishment of borrowings

 

 

-

 

 

 

6,094

 

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(29,562

)

 

 

(37,913

)

Prepaid expenses and other assets

 

 

3,796

 

 

 

74

 

Accounts payable

 

 

(1,172

)

 

 

606

 

Accrued expenses

 

 

8,276

 

 

 

10,876

 

Due to affiliates

 

 

18,989

 

 

 

7,650

 

Other liabilities

 

 

(10,487

)

 

 

(29,683

)

Deferred revenue

 

 

(312

)

 

 

(2,563

)

Net cash provided by operating activities

 

 

194,774

 

 

 

211,361

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

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

 

 

(532,513

)

 

 

(348,674

)

Purchase of fixed assets

 

 

(25,472

)

 

 

(19,349

)

Investment and other

 

 

1,530

 

 

 

(4,950

)

Net cash used in investing activities

 

 

(556,455

)

 

 

(372,973

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Borrowings under credit facilities

 

 

969,125

 

 

 

555,000

 

Repayments of borrowings under credit facilities

 

 

(529,796

)

 

 

(326,566

)

Contingent consideration paid

 

 

(22,040

)

 

 

(49,891

)

Payments of debt financing costs

 

 

(3,743

)

 

 

(634

)

Proceeds from exercise of stock options

 

 

838

 

 

 

6,912

 

Restricted stock units withholding

 

 

-

 

 

 

(386

)

Payments on finance lease obligations

 

 

(176

)

 

 

(147

)

Distributions for unitholders

 

 

(20,641

)

 

 

(22,457

)

Net cash provided by financing activities

 

 

393,567

 

 

 

161,831

 

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS

 

 

79

 

 

 

461

 

CHANGE IN CASH AND CASH EQUIVALENTS

 

 

31,965

 

 

 

680

 

CASH AND CASH EQUIVALENTS:

 

 

 

 

 

 

 

 

Beginning of period

 

 

33,213

 

 

 

65,178

 

End of period

 

$

65,178

 

 

$

65,858

 

Reconciliation of Non-GAAP Financial Measures

Adjusted EBITDA
Adjusted EBITDA is a non-GAAP measure. Adjusted EBITDA is defined as net income (loss) excluding interest income, interest expense, income tax expense (benefit), 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 expense/income, net, impairment of equity method investment, management contract buyout and other one-time transaction 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:

We use Adjusted EBITDA:

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:

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 (loss) to Adjusted EBITDA for the three and twelve months ended December 31, 2019 and 2020:

 

 

Three Months Ended

 

 

Twelve Months Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

 

 

(in thousands)

 

Net income (loss)

 

$

(12,691

)

 

$

7,674

 

 

$

(12,025

)

 

$

48,965

 

Interest income

 

 

(337

)

 

 

(41

)

 

 

(1,164

)

 

 

(453

)

Interest expense

 

 

15,156

 

 

 

9,112

 

 

 

58,291

 

 

 

41,658

 

Income tax expense

 

 

10,750

 

 

 

4,148

 

 

 

7,049

 

 

 

20,660

 

Amortization of debt financing costs

 

 

969

 

 

 

709

 

 

 

3,452

 

 

 

2,909

 

Intangible amortization

 

 

35,858

 

 

 

39,024

 

 

 

130,718

 

 

 

147,783

 

Depreciation and other amortization

 

 

3,140

 

 

 

3,320

 

 

 

10,675

 

 

 

12,451

 

Non-cash equity compensation expense

 

 

4,954

 

 

 

6,697

 

 

 

18,329

 

 

 

22,285

 

Non-cash changes in fair value of estimated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

contingent consideration

 

 

13,101

 

 

 

19,818

 

 

 

38,797

 

 

 

19,197

 

Loss on extinguishment of borrowings

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,094

 

Other expense, net

 

 

354

 

 

 

239

 

 

 

1,049

 

 

 

214

 

Impairment of equity method investment

 

 

11,749

 

 

 

-

 

 

 

11,749

 

 

 

-

 

Management contract buyout

 

 

-

 

 

 

-

 

 

 

1,428

 

 

 

-

 

Other one-time transaction expenses

 

 

-

 

 

 

-

 

 

 

1,486

 

 

 

-

 

Adjusted EBITDA

 

$

83,003

 

 

$

90,700

 

 

$

269,834

 

 

$

321,763

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 (loss) excluding income tax expense (benefit), 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, management contract buyout, if any, and other one‑time transaction expenses. 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 outstanding during the periods, (iii) the weighted average incremental shares of Class A common stock related to unvested Class A common stock outstanding during the periods, (iv) the weighted average incremental shares of Class A common stock related to restricted stock units outstanding during the periods, (v) the weighted average number of Focus LLC common units outstanding during the periods (assuming that 100% of such Focus LLC common units have been exchanged for Class A common stock), (vi) the weighted average number of Focus LLC unvested restricted common units outstanding during the periods (assuming that 100% of such Focus LLC unvested restricted common units have been exchanged for Class A common stock) and (vii) 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:

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:

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.

Set forth below is a reconciliation of net income (loss) to Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share for the three and twelve months ended December 31, 2019 and 2020:

 

 

Three Months Ended December 31,

 

 

Twelve Months Ended December 31,

 

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

 

 

(dollars in thousands, except per share data)

 

Net income (loss)

 

$

(12,691

)

 

$

7,674

 

 

$

(12,025

)

 

$

48,965

 

Income tax expense

 

 

10,750

 

 

 

4,148

 

 

 

7,049

 

 

 

20,660

 

Amortization of debt financing costs

 

 

969

 

 

 

709

 

 

 

3,452

 

 

 

2,909

 

Intangible amortization

 

 

35,858

 

 

 

39,024

 

 

 

130,718

 

 

 

147,783

 

Non-cash equity compensation expense

 

 

4,954

 

 

 

6,697

 

 

 

18,329

 

 

 

22,285

 

Non-cash changes in fair value of estimated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

contingent consideration

 

 

13,101

 

 

 

19,818

 

 

 

38,797

 

 

 

19,197

 

Loss on extinguishment of borrowings

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,094

 

Impairment of equity method investment

 

 

11,749

 

 

 

-

 

 

 

11,749

 

 

 

-

 

Management contract buyout

 

 

-

 

 

 

-

 

 

 

1,428

 

 

 

-

 

Other one time transaction expenses (1)

 

 

-

 

 

 

-

 

 

 

1,486

 

 

 

-

 

Subtotal

 

 

64,690

 

 

 

78,070

 

 

 

200,983

 

 

 

267,893

 

Pro forma income tax expense (27%) (2)

 

 

(17,466

)

 

 

(21,079

)

 

 

(54,265

)

 

 

(72,331

)

Adjusted Net Income Excluding Tax Adjustments

 

$

47,224

 

 

$

56,991

 

 

$

146,718

 

 

$

195,562

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax Adjustments (3)

 

$

8,760

 

 

$

9,856

 

 

$

31,860

 

 

$

37,254

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income Excluding Tax Adjustments Per Share

 

$

0.63

 

 

$

0.72

 

 

$

1.96

 

 

$

2.46

 

Tax Adjustments Per Share (3)

 

$

0.12

 

 

$

0.12

 

 

$

0.42

 

 

$

0.47

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Shares Outstanding

 

 

75,072,782

 

 

 

79,584,887

 

 

 

75,039,357

 

 

 

79,397,568

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Calculation of Adjusted Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of Class A common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

stock outstanding-basic (4)

 

 

47,203,578

 

 

 

50,723,913

 

 

 

46,792,389

 

 

 

48,678,584

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average incremental shares of Class A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

common stock related to stock options,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

unvested Class A common stock and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

restricted stock units (5)

 

 

34,391

 

 

 

327,568

 

 

 

20,428

 

 

 

118,029

 

Weighted average Focus LLC common units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

outstanding (6)

 

 

22,158,584

 

 

 

20,814,064

 

 

 

22,424,378

 

 

 

21,461,080

 

Weighted average Focus LLC restricted common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

units outstanding (7)

 

 

-

 

 

 

19,912

 

 

 

-

 

 

 

5,005

 

Weighted average common unit equivalent of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Focus LLC incentive units outstanding (8)

 

 

5,676,229

 

 

 

7,699,430

 

 

 

5,802,162

 

 

 

9,134,870

 

Adjusted Shares Outstanding

 

 

75,072,782

 

 

 

79,584,887

 

 

 

75,039,357

 

 

 

79,397,568

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

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 December 31, 2019 and 2020:

 

 

Trailing 4-Quarters Ended

 

 

 

December 31,

 

 

 

2019

 

 

2020

 

 

 

(in thousands)

 

Net cash provided by operating activities

 

$

194,774

 

 

$

211,361

 

Purchase of fixed assets

 

 

(25,472

)

 

 

(19,349

)

Distributions for unitholders

 

 

(20,641

)

 

 

(22,457

)

Payments under tax receivable agreements

 

 

-

 

 

 

-

 

Adjusted Free Cash Flow

 

$

148,661

 

 

$

169,555

 

Portion of contingent consideration paid included in operating activities (1)

 

 

14,822

 

 

 

30,913

 

Cash Flow Available for Capital Allocation (2)

 

$

163,483

 

 

$

200,468

 

 

 

 

 

 

 

 

 

 

Supplemental Information

Economic Ownership
The following table provides supplemental information regarding the economic ownership of Focus Financial Partners, LLC as of December 31, 2020:

 

 

December 31, 2020

 

Economic Ownership of Focus Financial Partners, LLC Interests:

 

Interest

 

 

%

 

Focus Financial Partners Inc.

 

 

51,158,712

 

 

 

64.3

%

Non-Controlling Interests (1)

 

 

28,349,344

 

 

 

35.7

%

Total

 

 

79,508,056

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 

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:

 

 

 

 

 

Q4 2020 Weighted Average Outstanding

Number of Shares Outstanding at
December 31, 2020

Number of Shares Outstanding at
February 15, 2021

Class A

50,723,913

51,158,712

51,184,782

Class B

20,814,064

20,661,595

20,661,595

Incentive Units
The following table provides supplemental information regarding the outstanding Focus LLC vested and unvested Incentive Units ("IUs") at December 31, 2020. 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.

 

 

 

 

 

 

Focus Financial Partners, LLC Incentive Units by Hurdle at December 31, 2020:

 

 

 

 

 

 

 

Hurdle
Rates

Number
Outstanding

 

 

 

 

$1.42

421

 

 

 

 

$5.50

798

 

 

 

 

$6.00

386

 

 

 

 

$7.00

1,081

 

 

 

 

$9.00

1,323,708

 

 

 

 

$11.00

841,706

 

 

 

 

$12.00

520,000

 

 

 

 

$13.00

558,611

 

 

 

 

$14.00

17,848

 

 

 

 

$16.00

45,191

 

 

 

 

$17.00

22,500

 

 

 

 

$19.00

570,965

 

 

 

 

$21.00

3,548,129

 

 

 

 

$22.00

1,037,304

 

 

 

 

$23.00

524,828

 

 

 

 

$26.26

18,750

 

 

 

 

$27.00

29,484

 

 

 

 

$27.90

2,051,131

 

 

 

 

$28.50

1,566,650

 

 

 

 

$30.48

30,000

 

 

 

 

$33.00

3,670,000

 

 

 

 

$36.64

30,000

 

 

 

 

$44.71

825,006

 

 

 

 

 

17,234,497

 

 

 

 

 

 

 

 

 

 

SOURCE: Focus Financial Partners



02/18/2021 EQS Newswire / EQS Group AG



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