Focus Financial Partners — Q2 2022 Earnings Presentation
33 slides from Focus Financial Partners's earnings presentation, Aug 4, 2022
Slide 1: Second Quarter 2022 Earnings Release Supplement
Focus Financial Partners Inc. Second Quarter 2022 Earnings Release Supplement August 4, 2022
Slide 2: Disclaimer: Special Note Regarding Forward-Looking Statements
2 Disclaimer Special Note Regarding Forward - Looking Statements Some of the information in this presentation may contain forward - looking statements . Forward - looking statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of
Slide 3: Table of Contents
Table of Contents 3 Pages Key Investor Questions on Q2 2022 4 - 6 Selected Growth Trends 7 - 11 Second Quarter 2022 Recap 12 - 18 Third Quarter 2022 Outlook 19 - 20 Credit Profile & Interest Rate Sensitivity 21 - 25 Cash Flows 26 - 28 Appendix 29 - 33
Slide 4: Key Investor Questions on Q2 2022
Key Investor Questions on Q2 2022 4
Slide 5: Key Investor Questions on Q2 2022
Key Investor Questions on Q2 2022 5 1 What was your organic growth? 2 How correlated were your Q2 revenues to the markets? 23.3% Non - market correlated 76.7% Market correlated 67.2% Billed in advance 32.8% Billed in arrears Highly diversified revenue stream 3 What was your YTD M&A activity given th
Slide 6: Key Investor Questions on Q2 2022
Key Investor Questions on Q2 2022 6 6 How have your cash flows trended? What is the value of your tax shield? 7 4 How sensitive are your earnings to rising interest rates? Q2’22 Interest Expense Sensitivity to LIBOR/SOFR (1) 5 What is your Net Leverage Ratio (2) ? 3.5x – 4.5x 3.9x ~4.0x Q2’22 Actual
Slide 7: Focus Financial Partners
se, ° s83 FOCUS FINANCIAL PARTNERS
Slide 8: Strong and Sustained Revenue and Adjusted EBITDA Growth
Wealth Management Fees Allocation ($ in millions (3) , % of Revenues) 1. Non - GAAP financial measure. See Appendix for reconciliations. 2. Calculated as Adjusted EBITDA divided by revenues. 3. The sum of wealth management fees and other revenues as presented in this chart may not agree to total rev
Slide 9: Drives Strong Bottom-Line Performance Enhanced by a Tax Efficient Structure
1. Non - GAAP financial measure. See Appendix for reconciliations. 2. Tax Adjustments represent the tax benefits of intangible assets, including goodwill, associated with deductions allowed for t ax amortization of intangible assets in the respective periods based on a pro forma 27% income tax rate.
Slide 10: Organic revenue growth since inception of partner firms
1. As of June 30, 2022. 2. Inception means first full four quarters as a Focus partner firm and reflects activity through all market cycles during that tim e. The analysis includes the 66 firms since inception that have been with us for at least 2 years as of June 30, 2022 in order to determine a ba
Slide 11: Average Organic Revenue Growth Demonstrates Partner Firm Strength and Resiliency
Our Average Organic Revenue Growth Demonstrates Partner Firm Strength and Resiliency ▪ Over the last 16 quarters, average organic growth has been 16.1% 1. Organic revenue growth represents the period - over - period growth in revenue related to partner firms, including growth related to acquisitions
Slide 12: Second Quarter 2022 Recap
Second Quarter 2022 Recap 12
Slide 13: Robust Year-Over-Year Financial Performance Reflects Sustained Momentum
Robust Year - Over - Year Financial Performance Reflects Sustained Momentum 13 Adjusted Net Income (“ANI”) Excluding Tax Adjustments (1) ($ in millions) 1. Non - GAAP financial measure. See Appendix for reconciliations. 2. Refer to footnote 2 on slide 9. Revenues ($ in millions) Adjusted EBITDA (1)
Slide 14: Q2 2022 Financial Snapshot
▪ Adjusted EBITDA: (2) $137.0 million, +27.1% year - over - year growth ▪ Adjusted EBITDA margin: (3) 25.4 % ▪ Revenues: $539.2 million, +26.8% year - over - year growth ▪ Organic revenue growth rate: (1) +15.0 % year - over - year ▪ GAAP net income: $49.3 million, compared to $5.2 million in Q2 202
Slide 15: Multiple Sources of Revenue Diversification
$517.4m , 96.0% $21.8m , 4.0% Wealth Management Fees Other ▪ Holistic wealth management fees tied to team - based service model ▪ Not a commission or interest revenue based model We Have Multiple Sources of Revenue Diversification $413.8m , 76.7% $125.4m , 23.3% Revenues Correlated to Markets Correl
Slide 16: Continuing a Trend of Strong M&A Volume
Continuing a Trend of Strong M&A Volume 16 85+ Partner Firms 250+ M&A Transactions Since 2006 5,000+ Partners and Employees Annual M&A Transactions Since 2019 1. Includes signed and pending close transactions (1) 6 7 14 3 28 18 24 11 34 25 38 14 2019 2020 2021 2022 to date New Partner Firms Mergers
Slide 17: 2022 M&A Activity is Robust as Partner Firms Execute Mergers
2022 M&A Activity is Robust as Our Partner Firms Execute Mergers to Grow 17 2022 YTD Highlights 14 closed or pending transactions to date: ▪ 3 new partner firms ▪ 11 mergers, including 1 Connectus merger Type Acquiring Partner Firm Closing Date Primary Office Location 1. Icon Wealth Partners 8/1/202
Slide 18: New Partner Firms Further Diversify Our Partnership
New Partner Firms Further Diversify Our Partnership (1) 18 » UHNW/HNW client base » Well - established business known for its investment management capabilities and continuity of its dynamic management team » Well - positioned to expand market share in the Midwest » HNW client base » Recognized as o
Slide 19: Third Quarter 2022 Outlook
19 Third Quarter 2022 Outlook
Slide 20: Q3 2022 Outlook
▪ Estimated revenues of ~$505 to $515 million. ▪ Estimated YOY organic revenue growth of ~ 0% to ~ 2 % (1) . ▪ Estimated revenue attributable to new partner firm closing: ~$7.0 million.* *Relates to the closings of Octogone and Icon. Annualized revenue contribution estimated to be over $30 million.
Slide 21: Credit Profile & Interest Rate Sensitivity
Credit Profile & Interest Rate Sensitivity 21
Slide 22: Credit Overview and Interest Rate Sensitivity
First Lien Term Loan – Tranche A First Lien Term Loan – Tranche B First Lien Revolver Amount $1,602.6 million $792.4 million $100 million drawn ($650 million facility size) Maturity July 2024 June 2028 June 2024 Applicable Margin $850 million fixed via hedges at 0.62% + 200 bps spread Remainder of $
Slide 23: Strong Credit and Liquidity Profile
Strong Credit and Liquidity Profile Low debt cost ~3.4% weighted average interest rate on funded borrowings Limited duration risk ~2 years remaining to maturity for Tranche A Term Loan (July 2024) ~6 years remaining to maturity for Tranche B Term Loan (June 2028) ~2 years remaining to maturity for R
Slide 24: Earnings Preference Provides Strong Downside Earnings Protection
Equity market decline (20)% (40)% Assumed Client Portfolio Allocation to Equities 50% 50% Decline in market-correlated revenues (1) (10)% (20)% ($ in millions) Reported Q2'22 Market-Correlated Revenues 413.8$ 372.4$ 331.0$ Q2'22 Non-Correlated Revenues 125.4$ 125.4$ 125.4$ Total Revenue - Q2'22 539.
Slide 25: Supported by Substantial Acquired Base Earnings
Supported by Substantial Acquired Base Earnings (1) 25 * Includes new partner firms through August 4, 2022 1. The terms of our management agreements entitle the management companies to management fees typically consisting of all future EB PC of the acquired wealth management firm in excess of Base E
Slide 26: Cash Flows
FINANCIAL PARTNERS
Slide 27: Q3 2022 Supplemental Cash Flow Disclosures
Q3 2022 Supplemental Cash Flow Disclosures Strong and Sustained Growth in Cash Flows Continued in Q2 As % of Adjusted EBITDA (1) 70 % 63% Cash Flow Snapshot ▪ Q3 2022 estimated cash earnouts of ~$50 million ▪ No Tax Receivable Agreements (“TRA”) payments in Q3 2022 ▪ Q3 2022 required term loan amort
Slide 28: Over $2.7 Billion Tax Shield Created by Tax Efficient Transaction Structure
Over $2.7 Billion Tax Shield Created by Tax Efficient Transaction Structure 28 $118 $231 $230 $2,172 $32 $63 $62 $586 2022 - next 6 months 2023 2024 2025 & Thereafter Unamortized Gross Tax Shield Estimated Tax Benefit Focus generally acquires intangible assets which generate tax shields (1) ($ in mi
Slide 29: Appendix
FINANCIAL PARTNERS
Slide 30: Net Income (Loss) to Adjusted EBITDA Reconciliation
Net Income (Loss) to Adjusted EBITDA Reconciliation 1. Represents one - time expenses primarily related to an acquisition. Refer to our 10 - Q and 10 - K filings for additional details. 2. Relates to offering expenses associated with the March 2021 and June 2021 secondary offerings. 30 ($ in thousan
Slide 31: Net Income to Adjusted Net Income Excluding Tax Adjustments Reconciliation
Net Income (Loss) to Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share Reconciliation * Refer to the following pages for footnotes 31 2019 2020 2021 June 30, 2021 June 30, 2022 June 30, 2021 June 30, 2022 ($ in thousands, except share and per s
Slide 32: Reconciliation footnotes
* These footnotes refer to the tables on the previous page. 1. Represents one - time expenses primarily related to an acquisition. Refer to our 10 - Q and 10 - K filings for additional details. 2. Relates to offering expenses associated with the March 2021 and June 2021 secondary offerings. 3. The p
Slide 33: Reconciliation of Cash Flow Available for Capital Allocation
Reconciliation of Cash Flow Available for Capital Allocation 33 1. A portion of contingent consideration paid is classified as operating cash outflows in accordance with GAAP, and therefore is a reconciling item to arrive at Cash Flow Available for Capital Allocation. 2. Cash Flow Available for Capi
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