Focus Financial Partners Inc. [FOCS] Filings

10-Q 1 focs-20220630x10q.htm 10-Q

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 June 30, 2022

☐ 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)

(646) 519-2456

(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 August 1, 2022, the registrant had 65,448,434 shares of Class A common stock and 12,035,266 shares of Class B common stock outstanding.

Table of Contents

FOCUS FINANCIAL PARTNERS INC.

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2022


		Page No.
PART I: FINANCIAL INFORMATION
Item 1.	Financial Statements	2
	Unaudited condensed consolidated balance sheets	2
	Unaudited condensed consolidated statements of operations	3
	Unaudited condensed consolidated statements of comprehensive income	4
	Unaudited condensed consolidated statements of cash flows	5
	Unaudited condensed consolidated statements of changes in equity	7
	Notes to unaudited condensed consolidated financial statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	44
Item 4.	Controls and Procedures	44
PART II: OTHER INFORMATION
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 6.	Exhibits	46
SIGNATURES		46

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

See notes to unaudited condensed consolidated financial statements

Table of Contents

FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated statements of operations

(In thousands, except share and per share amounts)


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

See notes to unaudited condensed consolidated financial statements

Table of Contents

FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated statements of comprehensive income

(In thousands)


	For the three months ended				For the six months ended
	June 30,				June 30,
	2021		2022		2021		2022
Net income	$	5,174	$	49,318	$	7,656	$	88,400
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(378)		(11,175)		(819)		(7,425)
Unrealized gain on interest rate swaps designated as cash flow hedges		254		5,335		5,505		24,101
Comprehensive income		5,050		43,478		12,342		105,076
Less: Comprehensive income attributable to non-controlling interest		(3,256)		(15,005)		(7,208)		(30,061)
Comprehensive income attributable to common shareholders	$	1,794	$	28,473	$	5,134	$	75,015

See notes to unaudited condensed consolidated financial statements

Table of Contents

FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated statements of cash flows

(In thousands)


	For the six months ended
	June 30,
	2021		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	7,656	$	88,400
Adjustments to reconcile net income to net cash provided by operating activities—net of effect of acquisitions:
Intangible amortization		86,986		124,925
Depreciation and other amortization		7,213		7,438
Amortization of debt financing costs		1,754		2,050
Non-cash equity compensation expense		18,631		14,210
Non-cash changes in fair value of estimated contingent consideration		59,998		(51,742)
Income from equity method investments		(423)		(106)
Distributions received from equity method investments		403		776
Deferred taxes and other non-cash items		1,425		29,576
Changes in cash resulting from changes in operating assets and liabilities:
Accounts receivable		(10,038)		(9,398)
Prepaid expenses and other assets		(14,450)		(9,776)
Accounts payable		(527)		4,778
Accrued expenses		16,883		21,446
Due to affiliates		(9,765)		(51,962)
Contingent consideration and other liabilities		(13,986)		(40,201)
Deferred revenue		200		(1,122)
Net cash provided by operating activities		151,960		129,292
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions and contingent consideration—net of cash acquired		(82,106)		(252,056)
Purchase of fixed assets		(4,318)		(6,429)
Investment and other, net		(19,132)		(5,232)
Net cash used in investing activities		(105,556)		(263,717)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities		524,375		100,000
Repayments of borrowings under credit facilities		(413,347)		(12,348)
Proceeds from issuance of common stock, net		25,767		—
Payments in connection with unit redemption, net		(25,767)		—
Payments in connection with tax receivable agreements		(4,423)		(3,856)
Contingent consideration paid		(57,030)		(21,397)
Payments of debt financing costs		(2,700)		(1,111)
Proceeds from exercise of stock options		4,017		422
Distributions for unitholders		(19,108)		(15,956)
Other		(39)		375
Net cash provided by financing activities		31,745		46,129
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS		(26)		(1,339)
CHANGE IN CASH AND CASH EQUIVALENTS		78,123		(89,635)
CASH AND CASH EQUIVALENTS:
Beginning of period		65,858		310,684
End of period	$	143,981	$	221,049

See Note 13 for supplemental cash flow disclosure

See notes to unaudited condensed consolidated financial statements

Table of Contents

FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated statements of changes in equity

Three months ended June 30, 2021 and 2022

(In thousands, except share amounts)


												Accumulated
	Class A			Class B				Additional				Other		Total
	Common Stock			Common Stock				Paid-In		Retained		Comprehensive		Shareholders’		Non-controlling
	Shares	Amount		Shares		Amount		Capital		Earnings		Income		Equity		Interest		Total Equity
Balance at April 1, 2021	55,114,842	$	551		17,019,104	$	170	$	590,022	$	14,839	$	917	$	606,499	$	271,148	$	877,647
Net income	—		—		—		—		—		1,977		—		1,977		3,197		5,174
Issuance of units in connection with an acquisition and contingent consideration	—		—		168,392		1		—						1		—		1
Issuance (cancellation) of common stock in connection with offering, net	3,927,729		39		(3,845,569)		(38)		195,875						195,876		—		195,876
Issuance (cancellation) of common stock in connection with exercise of Focus LLC common unit exchange rights	649,187		6		(649,187)		(6)		32,907		—		—		32,907		—		32,907
Issuance of common stock in connection with exercise of Focus LLC incentive unit exchange rights	64,167		1		—		—		3,252		—		—		3,253		—		3,253
Exercise of stock options	36,964		1		—		—		1,153		—		—		1,154		—		1,154
Change in non-controlling interest allocation	—		—		—		—		(183,649)		—		—		(183,649)		(44,015)		(227,664)
Non-cash equity compensation expenses	—		—		—		—		1,126		—		—		1,126		—		1,126
Currency translation adjustment-net of tax	—		—		—		—		—		—		(469)		(469)		91		(378)
Unrealized gain (loss) on interest rate swaps designated as cash flow hedges-net of tax	—		—		—		—		—		—		286		286		(32)		254
Adjustments of deferred taxes, net of amounts payable under tax receivable agreements and changes from Focus LLC interest transactions	—		—		—		—		9,735		—		—		9,735		—		9,735
Balance at June 30, 2021	59,792,889	$	598		12,692,740	$	127	$	650,421	$	16,816	$	734	$	668,696	$	230,389	$	899,085

Balance at April 1, 2022	65,362,389		653		11,601,814		116		865,857		54,097		20,469	$	941,192	$	241,426	$	1,182,618
Net income	—		—		—		—		—		33,083		—		33,083		16,235		49,318
Issuance of units in connection with an acquisition	—		—		512,290		5		—		—		—		5		—		5
Issuance (cancellation) of common stock in connection with exercise of Focus LLC common unit exchange rights	80,000		1		(80,000)		(1)		3,016		—		—		3,016		—		3,016
Change in non-controlling interest allocation	—		—		—		—		40,862		—		—		40,862		(21,610)		19,252
Non-cash equity compensation expenses	—		—		—		—		2,105		—		—		2,105		—		2,105
Currency translation adjustment-net of tax	—		—		—		—		—		—		(8,823)		(8,823)		(2,352)		(11,175)
Unrealized gain on interest rate swaps designated as cash flow hedges-net of tax	—		—		—		—		—		—		4,213		4,213		1,122		5,335
Adjustments of deferred taxes, net of amounts payable under tax receivable agreements and changes from Focus LLC interest transactions	—		—		—		—		(1,618)		—		—		(1,618)		—		(1,618)
Balance at June 30, 2022	65,442,389	$	654		12,034,104	$	120	$	910,222	$	87,180	$	15,859	$	1,014,035	$	234,821	$	1,248,856

See notes to unaudited condensed consolidated financial statements

Table of Contents

FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated statements of changes in equity

Six months ended June 30, 2021 and 2022

(In thousands, except share amounts)


												Accumulated
	Class A			Class B				Additional				Other		Total
	Common Stock			Common Stock				Paid-In		Retained		Comprehensive		Shareholders’		Non-controlling
	Shares	Amount		Shares		Amount		Capital		Earnings		Income		Equity		Interest		Total Equity
Balance at January 1, 2021	51,158,712	$	512		20,661,595	$	207	$	526,664	$	14,583	$	(2,167)	$	539,799	$	319,080	$	858,879
Net income	—		—		—		—		—		2,233		—		2,233		5,423		7,656
Issuance of units in connection with an acquisition and contingent consideration	—		—		168,392		1		—						1		—		1
Issuance (cancellation) of common stock in connection with offering, net	6,568,098		65		(6,306,301)		(63)		317,858				—		317,860		—		317,860
Issuance (cancellation) of common stock in connection with exercise of Focus LLC common unit exchange rights	1,830,946		18		(1,830,946)		(18)		87,776		—		—		87,776		—		87,776
Issuance of common stock in connection with exercise of Focus LLC incentive unit exchange rights	134,632		2		—		—		6,523		—		—		6,525		—		6,525
Exercise of stock options	100,501		1		—		—		3,175		—		—		3,176		—		3,176
Change in non-controlling interest allocation	—		—		—		—		(309,485)		—		—		(309,485)		(95,899)		(405,384)
Non-cash equity compensation expenses	—		—		—		—		2,290		—		—		2,290		—		2,290
Currency translation adjustment-net of tax	—		—		—		—		—		—		(781)		(781)		(38)		(819)
Unrealized gain on interest rate swaps designated as cash flow hedges-net of tax	—		—		—		—		—		—		3,682		3,682		1,823		5,505
Adjustments of deferred taxes, net of amounts payable under tax receivable agreements and changes from Focus LLC interest transactions	—		—

Focus Financial Partners Inc. [FOCS] Filings
10-Q	[2022-08-04]
10-Q	[2022-05-05]
10-K	[2022-02-17]
10-Q	[2021-11-04]
10-Q	[2021-08-05]
10-Q	[2021-05-06]
10-K	[2021-02-19]
10-Q	[2020-11-05]
10-Q	[2020-08-06]
10-Q	[2020-05-07]
10-K	[2020-02-25]
10-Q	[2019-11-07]
10-Q	[2019-08-08]
10-Q	[2019-05-09]
10-K	[2019-03-28]
10-Q	[2018-11-13]
10-Q	[2018-08-28]
S-1	[2018-05-24]