Company Quick10K Filing
Focus Financial Partners
Price23.65 EPS0
Shares47 P/E58
MCap1,113 P/FCF9
Net Debt-51 EBIT24
TEV1,062 TEV/EBIT44
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-07
10-K 2019-12-31 Filed 2020-02-25
10-Q 2019-09-30 Filed 2019-11-07
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-09
10-K 2018-12-31 Filed 2019-03-28
10-Q 2018-09-30 Filed 2018-11-13
10-Q 2018-06-30 Filed 2018-08-28
S-1 2018-05-24 Public Filing
8-K 2020-05-07 Earnings, Regulation FD, Exhibits
8-K 2020-04-13
8-K 2020-04-10
8-K 2020-03-25 Enter Agreement, Exhibits
8-K 2020-02-20 Earnings, Regulation FD, Exhibits
8-K 2020-01-27 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-11-20 Regulation FD, Exhibits
8-K 2019-11-07 Earnings, Regulation FD, Exhibits
8-K 2019-08-08 Earnings, Regulation FD, Exhibits
8-K 2019-07-26 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-06-05 Regulation FD, Exhibits
8-K 2019-05-28 Shareholder Vote
8-K 2019-05-09 Earnings, Regulation FD, Exhibits
8-K 2019-03-06 Regulation FD, Exhibits
8-K 2019-02-27 Regulation FD
8-K 2019-02-22 Officers, Regulation FD, Exhibits
8-K 2019-02-21 Earnings, Regulation FD, Exhibits
8-K 2019-01-16 Regulation FD
8-K 2018-11-30 M&A, Sale of Shares, Exhibits
8-K 2018-11-12 Earnings, Exhibits
8-K 2018-09-27 Regulation FD, Exhibits
8-K 2018-09-27 Enter Agreement, Sale of Shares
8-K 2018-08-28 Earnings, Regulation FD, Exhibits
8-K 2018-07-25 Enter Agreement, Off-BS Arrangement, Sale of Shares, Shareholder Rights, Officers, Amend Bylaw, Exhibits

FOCS 10Q Quarterly Report

Part I: Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii: Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-10.3 focs-20200331xex10d3.htm
EX-31.1 focs-20200331xex31d1.htm
EX-31.2 focs-20200331xex31d2.htm
EX-32.1 focs-20200331xex32d1.htm

Focus Financial Partners Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
2.72.21.61.10.50.02016201720182020
Assets, Equity
0.40.30.20.10.0-0.12016201720182020
Rev, G Profit, Net Income
0.30.20.1-0.1-0.2-0.32016201720182020
Ops, Inv, Fin

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended March 31, 2020

OR

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

Commission File No. 001-38604

Focus Financial Partners Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware

47-4780811

(State or Other Jurisdiction
of Incorporation or Organization)

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

875 Third Avenue, 28th Floor

New York, NY

10022

(Address of Principal Executive Offices)

(Zip Code)

(646519-2456

(Registrant’s telephone number, including area code)

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

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Class A common stock, par value
$0.01 per share

FOCS

Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company

Emerging growth company

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes No 

As of May 4, 2020, the registrant had 47,806,195 shares of Class A common stock and 21,759,379 shares of Class B common stock outstanding.

Table of Contents

FOCUS FINANCIAL PARTNERS INC.

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2020

    

Page No.

PART I: FINANCIAL INFORMATION

Item 1.

Financial Statements

2

Unaudited condensed consolidated balance sheets

2

Unaudited condensed consolidated statements of operations

3

Unaudited condensed consolidated statements of comprehensive income (loss)

4

Unaudited condensed consolidated statements of cash flows

5

Unaudited condensed consolidated statements of changes in shareholders’ equity

6

Notes to unaudited condensed consolidated financial statements

7

Item 2.

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

22

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

39

Item 4.

Controls and Procedures

40

PART II: OTHER INFORMATION

Item 1.

Legal Proceedings

40

Item 1A.

Risk Factors

40

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41

Item 6.

Exhibits

42

SIGNATURES

43

Table of Contents

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated balance sheets

(In thousands, except share and per share amounts)

    

December 31, 

    

March 31, 

2019

2020

ASSETS

 

  

 

  

Cash and cash equivalents

$

65,178

$

233,039

Accounts receivable less allowances of $684 at 2019 and $904 at 2020

 

129,337

 

139,502

Prepaid expenses and other assets

 

58,581

 

60,256

Fixed assets—net

 

41,634

 

41,838

Operating lease assets

180,114

181,904

Debt financing costs—net

 

9,645

 

8,971

Deferred tax assets—net

75,453

72,617

Goodwill

 

1,090,231

 

1,111,780

Other intangible assets—net

 

1,003,456

 

998,870

TOTAL ASSETS

$

2,653,629

$

2,848,777

LIABILITIES AND EQUITY

 

  

LIABILITIES

 

  

Accounts payable

$

8,077

$

9,655

Accrued expenses

 

41,442

 

39,419

Due to affiliates

 

58,600

 

16,366

Deferred revenue

 

7,839

 

10,449

Other liabilities

 

215,878

 

170,773

Operating lease liabilities

196,425

199,307

Borrowings under credit facilities (stated value of $1,279,188 and $1,526,296 at December 31, 2019 and March 31, 2020, respectively)

 

1,272,999

 

1,525,687

Tax receivable agreements obligations

48,399

50,075

TOTAL LIABILITIES

 

1,849,659

 

2,021,731

COMMITMENTS AND CONTINGENCIES (Note 12)

 

  

EQUITY

Class A common stock, par value $0.01, 500,000,000 shares authorized; 47,421,315 and 47,807,029 shares issued and outstanding at December 31, 2019 and March 31, 2020, respectively

474

478

Class B common stock, par value $0.01, 500,000,000 shares authorized; 22,075,749 and 21,759,379 shares issued and outstanding at December 31, 2019 and March 31, 2020, respectively

221

218

Additional paid-in capital

498,186

520,281

Retained earnings (deficit)

(13,462)

6,934

Accumulated other comprehensive loss

(1,299)

(8,746)

Total shareholders' equity

484,120

519,165

Non-controlling interest

319,850

307,881

Total equity

803,970

827,046

TOTAL LIABILITIES AND EQUITY

$

2,653,629

$

2,848,777

See notes to unaudited condensed consolidated financial statements

2

Table of Contents

FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated statements of operations

(In thousands, except share and per share amounts)

For the three months ended

March 31, 

    

2019

    

2020

REVENUES:

  

  

Wealth management fees

$

243,084

$

318,603

Other

 

16,840

 

18,451

 

Total revenues

 

259,924

 

337,054

 

OPERATING EXPENSES:

 

 

 

Compensation and related expenses

 

101,448

 

117,844

 

Management fees

 

57,006

 

83,693

 

Selling, general and administrative

 

52,257

 

62,595

 

Management contract buyout

1,428

Intangible amortization

 

28,741

 

35,723

 

Non-cash changes in fair value of estimated contingent consideration

 

7,414

 

(31,373)

 

Depreciation and other amortization

 

2,313

 

2,982

 

Total operating expenses

 

250,607

 

271,464

 

INCOME FROM OPERATIONS

 

9,317

 

65,590

 

OTHER INCOME (EXPENSE):

 

 

 

Interest income

 

197

 

285

 

Interest expense

 

(12,859)

 

(13,586)

 

Amortization of debt financing costs

 

(782)

 

(782)

 

Loss on extinguishment of borrowings

 

 

(6,094)

 

Other (expense) income—net

 

(236)

 

612

 

Income from equity method investments

314

64

Total other expense—net

 

(13,366)

 

(19,501)

 

INCOME (LOSS) BEFORE INCOME TAX

 

(4,049)

 

46,089

 

INCOME TAX EXPENSE (BENEFIT)

 

(1,221)

 

12,070

 

NET INCOME (LOSS)

(2,828)

34,019

Non-controlling interest

(114)

(13,623)

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

(2,942)

$

20,396

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

Basic

$

(0.06)

$

0.43

Diluted

$

(0.06)

$

0.43

Weighted average shares of Class A common stock outstanding:

Basic

46,211,599

47,436,555

Diluted

46,211,599

47,441,172

See notes to unaudited condensed consolidated financial statements

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FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated statements of comprehensive income (loss)

(In thousands)

For the three months ended

 

March 31, 

    

2019

    

2020

 

Net income (loss)

$

(2,828)

$

34,019

Other comprehensive income (loss), net of tax:

 

 

 

 

Foreign currency translation adjustments

 

354

 

(8,565)

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

(2,944)

Comprehensive income (loss)

(2,474)

22,510

Less: Comprehensive income attributable to noncontrolling interest

(238)

(9,561)

Comprehensive income (loss) attributable to common shareholders

$

(2,712)

$

12,949

See notes to unaudited condensed consolidated financial statements

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FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated statements of cash flows

(In thousands)

For the three months ended

March 31, 

    

2019

    

2020

CASH FLOWS FROM OPERATING ACTIVITIES:

 

  

 

  

Net income (loss)

$

(2,828)

$

34,019

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

 

  

 

  

Intangible amortization

 

28,741

 

35,723

Depreciation and other amortization

 

2,313

 

2,982

Amortization of debt financing costs

 

782

 

782

Non-cash equity compensation expense

 

3,921

 

5,034

Non-cash changes in fair value of estimated contingent consideration

 

7,414

 

(31,373)

Income from equity method investments

 

(314)

 

(64)

Distributions received from equity method investments

 

263

 

25

Deferred taxes and other non-cash items

 

(575)

 

4,104

Loss on extinguishment of borrowings

 

 

6,094

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

 

  

 

  

Accounts receivable

 

(20,690)

 

(9,047)

Prepaid expenses and other assets

 

(5,788)

 

(1,705)

Accounts payable

 

4,662

 

1,281

Accrued expenses

 

3,741

 

(1,612)

Due to affiliates

 

1,723

 

(41,785)

Other liabilities

 

(7,537)

 

(2,815)

Deferred revenue

 

85

 

1,739

Net cash provided by operating activities

 

15,913

 

3,382

CASH FLOWS FROM INVESTING ACTIVITIES:

 

  

 

  

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

 

(203,394)

 

(52,188)

Purchase of fixed assets

 

(1,875)

 

(3,188)

Net cash used in investing activities

 

(205,269)

 

(55,376)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

 

  

Borrowings under credit facilities

 

295,000

 

285,000

Repayments of borrowings under credit facilities

 

(47,007)

 

(37,892)

Contingent consideration paid

 

(7,649)

 

(21,428)

Payments of debt financing costs

 

 

(634)

Proceeds from exercise of stock options

214

77

Payments on finance lease obligations

(57)

(34)

Distributions for unitholders

 

(596)

 

(4,567)

Net cash provided by financing activities

 

239,905

 

220,522

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS

 

17

 

(667)

CHANGE IN CASH AND CASH EQUIVALENTS

 

50,566

 

167,861

CASH AND CASH EQUIVALENTS:

 

  

 

  

Beginning of period

 

33,213

 

65,178

End of period

$

83,779

$

233,039

See Note 13 for supplemental cash flow disclosure

See notes to unaudited condensed consolidated financial statements

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FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated statements of changes in shareholders’ equity

Three months ended March 31, 2019 and 2020

(In thousands, except share amounts)

Accumulated

Class A

Class B

Additional

Retained

Other

Total

Common Stock

Common Stock

Paid-In

Earnings

Comprehensive

Shareholders’

Non-controlling

    

Shares

    

Amount

    

Shares

    

Amount

    

 Capital

    

(Deficit)

    

Loss

    

Equity

    

Interest

    

Total Equity

Balance at January 1, 2019

46,265,903

$

462

22,823,272

$

228

$

471,386

$

(590)

$

(1,824)

$

469,662

$

342,858

$

812,520

Net loss

(2,942)

(2,942)

114

(2,828)

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

254,441

3

(254,441)

(3)

9,267

9,267

9,267

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

149,271

2

5,435

5,437

5,437

Forfeiture of unvested Class A common stock

(909)

(30)

(30)

(30)

Exercise of stock options

6,477

214

214

214

Change in non-controlling interest allocation

(28,347)

(28,347)

14,126

(14,221)

Non-cash equity compensation expenses

705

705

705

Currency translation adjustment-net of tax

230

230

124

354

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

858

858

858

Balance at March 31, 2019

46,675,183

$

467

22,568,831

$

225

$

459,488

$

(3,532)

$

(1,594)

$

455,054

$

357,222

$

812,276

Balance at January 1, 2020

47,421,315

$

474

22,075,749

$

221

$

498,186

$

(13,462)

$

(1,299)

$

484,120

$

319,850

$

803,970

Net income

20,396

20,396

13,623

34,019

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

316,370

3

(316,370)

(3)

6,036

6,036

6,036

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

66,631

1

1,271

1,272

1,272

Exercise of stock options

2,713

77

77

77

Change in non-controlling interest allocation

14,087

14,087

(21,530)

(7,443)

Non-cash equity compensation expenses

1,017

1,017

1,017

Currency translation adjustment-net of tax

(5,524)

(5,524)

(3,041)

(8,565)

Unrealized loss on interest rate swap designated as a cash flow hedge- net of tax

(1,923)

(1,923)

(1,021)

(2,944)

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

(393)

(393)

(393)

Balance at March 31, 2020

47,807,029

$

478

21,759,379

$

218

$

520,281

$

6,934

$

(8,746)

$

519,165

$

307,881

$

827,046

See notes to unaudited condensed consolidated financial statements

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FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements

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

1. GENERAL

Organization and Business— Focus Financial Partners Inc. (the “Company”) was formed as a Delaware corporation on July 29, 2015 for the sole purpose of completing the initial public offering (“IPO”) and reorganization transactions (“ Reorganization Transactions”) in order to carry on the business of Focus Financial Partners, LLC (“Focus LLC’) and its subsidiaries. On July 30, 2018, the Company became the managing member of Focus LLC and operates and controls the businesses and affairs of Focus LLC and its subsidiaries.

Focus LLC is a Delaware limited liability company that was formed in November 2004. Focus LLC’s subsidiaries commenced revenue-generating and acquisition activities in January 2006. Focus LLC’s activities are governed by its Fourth Amended and Restated Operating Agreement (as amended, the “Operating Agreement”).

Focus LLC is in the business of acquiring and overseeing independent fiduciary wealth management and related businesses.

2. SUMMARY OF ACCOUNTING POLICIES

Basis of Presentation—The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of only normal recurring adjustments, considered necessary for fair presentation have been included. The unaudited condensed consolidated financial statements include the accounts of the Company and its majority and wholly owned subsidiaries. The Company consolidates Focus LLC and its subsidiaries’ financial statements and records the interests in Focus LLC consisting of common units and the common unit equivalent of incentive units of Focus LLC that the Company does not own as non-controlling interests, (see Note 3). Intercompany transactions and balances have been eliminated in consolidation. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K as filed with the SEC on February 25, 2020.

Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Use of Estimates—The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Revenue

The Company disaggregates revenue by wealth management fees and other. The Company does not allocate revenue by the type of service provided in connection with providing holistic wealth management client services. The Company generally manages its business based on the operating results of the enterprise taken as a whole, not by

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FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (continued)

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

geographic region. The following table disaggregates the revenues based on the location of the partner firm legal entities that generates the revenues and therefore may not be reflective of the geography in which clients are located.

Three Months Ended

March 31, 

    

2019

    

2020

Domestic revenue

$

254,292

$

321,983

International revenue

 

5,632

 

15,071

Total revenue

$

259,924

$

337,054

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

Derivatives

The Company may occasionally use derivative instruments for purposes other than trading. Derivative instruments are accounted for in accordance with Accounting Standard Codification (“ASC”) Topic No. 815, Derivatives and Hedging, which requires that all derivative instruments be recognized as assets or liabilities on the balance sheet at fair value. Changes in the fair value of derivatives that qualify as hedges and have been designated as part of a hedging relationship for accounting purposes do not impact earnings until the hedged item is recognized in earnings. The Company uses interest rate swaps to manage its mix of fixed and floating rate debt. These instruments have been designated as cash flow hedges at inception and are measured for effectiveness both at inception and on an ongoing basis.

Recent Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-04, “Simplifying the Test for Goodwill Impairment,” which removes the second step of the goodwill impairment test that requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU No. 2017-04 was effective for interim and annual reporting periods beginning after December 15, 2019. The adoption of ASU No. 2017-04 on January 1, 2020 did not have a material effect on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. ASU No. 2019-12 is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company is currently evaluating the impacts of the provisions of ASU No. 2019-12 on the Company's consolidated financial statements.

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

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FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (continued)

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

3. NON-CONTROLLING INTEREST AND INCOME (LOSS) PER SHARE

The calculation of controlling and non-controlling interest is as follows as of March 31, 2019 and 2020:

    

2019

2020

Focus LLC common units held by continuing owners

    

22,568,831

21,759,379

Common unit equivalents of outstanding vested and unvested incentive units held by continuing owners(1)

7,614,402

3,623,660

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

30,183,233

25,383,039

Total common units and common unit equivalents of incentive units outstanding

76,858,416

73,190,068

Non-controlling interest allocation

39.3

%

34.7

%

Company’s interest in Focus LLC

60.7

%

65.3

%

(1)Focus LLC common units issuable upon conversion of 18,048,706 and 19,369,928 (see Note 9) vested and unvested Focus LLC incentive units outstanding as of March 31, 2019 and 2020, respectively, was calculated using the common unit equivalent of vested and unvested Focus LLC incentive units based on the closing price of the Company’s Class A common stock on the last trading day of the periods.

The below table contains a reconciliation of net income (loss) to net income (loss) attributable to common shareholders:

    

    

Three Months Ended

    

March 31, 

2019

    

2020

    

Net income (loss)

$

(2,828)

$

34,019

Non-controlling interest

 

(114)

 

(13,623)

Net income (loss) attributable to common shareholders

$

(2,942)

$

20,396

The calculation of basic and diluted income (loss) per share is described below:

Basic income (loss) per share is calculated utilizing net income (loss) attributable to common shareholders divided by the weighted average number of shares of Class A common stock outstanding during the same periods:

Three Months Ended

    

March 31, 

2019

    

2020

Basic income (loss) per share:

  

  

Net income (loss) attributable to common shareholders

$

(2,942)

$

20,396

Weighted average shares of Class A common stock outstanding

 

46,211,599

 

47,436,555

Basic income (loss) per share

$

(0.06)

$

0.43

Diluted income (loss) per share is calculated utilizing net income (loss) attributable to common shareholders divided by the weighted average number of shares of Class A common stock outstanding during the same periods plus

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FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (continued)

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

the effect, if any, of the potentially dilutive shares of the Company’s Class A common stock from stock options, unvested Class A common stock and restricted stock units as calculated using the treasury stock method:

Three Months Ended

March 31, 

    

2019

    

2020

Diluted income (loss) per share:

  

  

Net income (loss) attributable to common shareholders

$

(2,942)

$

20,396

Weighted average shares of Class A common stock outstanding

 

46,211,599

 

47,436,555

Effect of dilutive stock options

2,573

Effect of dilutive unvested Class A common stock and restricted stock units

2,044

Total

 

46,211,599

 

47,441,172

Diluted income (loss) per share

$

(0.06)

$

0.43

Diluted loss per share for the three months ended March 31, 2019 excludes incremental shares of 7,855 related to unvested Class A common stock since the effect would be antidilutive. Diluted income (loss) per share for the three months ended March 31, 2019 and 2020 excludes shares related to 155,000 market-based stock options that vest on the fifth anniversary of the pricing of the Company’s IPO if the volume weighted average per share price for any ninety-calendar day period within such five-year period immediately following the pricing of the IPO reaches at least $100. Such market-based criteria were not met at March 31, 2019 and 2020.

Focus LLC common and incentive units may be exchanged for the Company’s Class A common stock, subject to certain limitations (see Note 9). Such exchange is not reflected in diluted income (loss) per share as the assumed exchange is not dilutive.

4. ACQUISITIONS

Business Acquisitions

Business acquisitions are accounted for in accordance with ASC Topic 805: Business Combinations.

The Company has incorporated contingent consideration, or earn out provisions, into the structure of its acquisitions. The Company recognizes the fair value of estimated contingent consideration at the acquisition date as part of the consideration transferred in the exchange. The contingent consideration is remeasured to fair value at each

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FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (continued)

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

reporting date until the contingency is resolved. The purchase price associated with business acquisitions and the allocation thereof during the three months ended March 31, 2020 is as follows:

Number of business acquisitions closed

    

3

Consideration:

Cash due at closing

$

53,274

Estimated working capital adjustment

(763)

Fair market value of estimated contingent consideration

3,367

Total consideration

$

55,878

Allocation of purchase price:

Total tangible assets

$

4,142

Total liabilities assumed

(10,800)

Customer relationships

34,849

Management contracts

972

Goodwill

26,545

Other acquired intangibles

170

Total allocated consideration

$

55,878

Management believes approximately $32,379 of tax goodwill and intangibles related to business acquisitions completed during the three months ended March 31, 2020 will be deductible for tax purposes over a 15 year period. Additional tax goodwill may be deductible when estimated contingent consideration is earned and paid.

The accompanying unaudited condensed consolidated statement of operations for three months ended March 31, 2020 includes revenue and income from operations for the one business acquisition that is a new subsidiary partner firm from the date it was acquired of $1,245 and $353, respectively.

Asset Acquisitions

The Company also separately purchases customer relationships and other intangible assets. These purchases are accounted for as asset acquisitions as they do not qualify as business acquisitions pursuant to ASC Topic 805, Business Combinations. There were two asset acquisitions during the three months ended March 31, 2020. Total purchase consideration for asset acquisitions during the three months ended March 31, 2020 consisted of contingent consideration the amount of which will be determined when the outcome is determinable.

The weighted-average useful lives of intangible assets acquired during the three months ended March 31, 2020 through business acquisitions and asset acquisitions are as follows:

Number of

    

Years

Management contracts

20

Customer relationships

9

Other acquired intangibles

5

Weighted-average useful life of all intangibles acquired

9

From April 1, 2020 to May 7, 2020, the Company completed one business acquisition for cash of $5,225, plus contingent consideration.

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FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (continued)

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

5. GOODWILL AND OTHER INTANGIBLE ASSETS

The following table summarizes the change in the goodwill balances for the year ended December 31, 2019 and the three months ended March 31, 2020:

    

December 31, 

    

March 31, 

2019

2020

Balance beginning of period:

Goodwill

$

883,119

$

1,112,855

Cumulative impairment losses

 

(22,624)

(22,624)

860,495

1,090,231

Goodwill acquired

 

229,799

26,545

Other

 

(63)

(4,996)

 

229,736

21,549

Balance end of period:

Goodwill

 

1,112,855

1,134,404

Cumulative impairment losses

 

(22,624)

(22,624)

$

1,090,231

$

1,111,780

The following table summarizes the amortizing acquired intangible assets at December 31, 2019:

Gross Carry

Accumulated

Net Book

    

Amount

    

Amortization

    

Value

Customer relationships

$

1,362,104

$

(471,361)

$

890,743

Management contracts

 

150,464

 

(39,888)

 

110,576

Other acquired intangibles

 

5,157

 

(3,020)

 

2,137

Total

$

1,517,725

$

(514,269)

$

1,003,456

The following table summarizes the amortizing acquired intangible assets at March 31, 2020:

    

Gross Carry

    

Accumulated

    

Net Book

Amount

Amortization

Value

Customer relationships

$

1,390,984

$

(503,469)

$

887,515

Management contracts

 

151,010

 

(41,785)

 

109,225

Other acquired intangibles

 

5,351

 

(3,221)

 

2,130

Total

$

1,547,345

$

(548,475)

$

998,870

6. FAIR VALUE MEASUREMENTS

ASC Topic 820, Fair Value Measurement establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability, developed based on the best information available in the circumstances.

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FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (continued)

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

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:

Level 1—Unadjusted price quotations in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Significant unobservable inputs that are not corroborated by market data.

First Lien Term Loan

The implied fair value of the Company’s First Lien Term Loan (as defined below) based on Level 2 inputs at December 31, 2019 and March 31, 2020 are as follows:

December 31, 2019

March 31, 2020

    

Stated

    

Fair

    

Stated

    

Fair

Value

Value

Value

Value

First Lien Term Loan

$

1,139,188

$

1,146,307

$

1,136,296

$

1,062,437

Derivatives

At March 31, 2020, the fair value of the Company’s $400,000 notional amount interest rate swap agreement was $(3,573). The fair value was based on Level 2 inputs which included the relevant interest rate forward curves.

Business acquisitions

For business acquisitions, the Company recognizes the fair value of goodwill and other acquired intangible assets, and estimated contingent consideration at the acquisition date as part of purchase price. This fair value measurement is based on unobservable (Level 3) inputs.

The following table represents changes in the fair value of estimated contingent consideration for business acquisitions for the year ended December 31, 2019 and the three months ended March 31, 2020:

Balance at January 1, 2019

    

$

98,905

Additions to estimated contingent consideration

82,781

Payments of contingent consideration

(36,862)

Non-cash changes in fair value of estimated contingent consideration

38,797

Other

(53)

Balance at December 31, 2019

$

183,568

Additions to estimated contingent consideration

3,367

Payments of contingent consideration

(29,772)

Non-cash changes in fair value of estimated contingent consideration