Focus Financial Partners — Q3 2022 Earnings Presentation
34 slides from Focus Financial Partners's earnings presentation, Nov 3, 2022
Slide 1: Third Quarter 2022 Earnings Release Supplement
Focus Financial Partners Inc. Third Quarter 2022 Earnings Release Supplement November 3 , 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 Q3 2022 4 - 6 Selected Growth Trends 7 - 11 Third Quarter 2022 Recap 12 - 18 Fourth Quarter 2022 Outlook 19 - 20 Credit Profile, Interest Rate Sensitivity & Earnings Preference 21 - 26 Cash Flows 27 - 29 Appendix 30 - 34
Slide 4: Key Investor Questions on Q3 2022
Key Investor Questions on Q3 2022 4
Slide 5: Key Investor Questions on Q3 2022: Organic Growth
Key Investor Questions on Q3 2022 5 1 What was your organic growth? 2 3 1. As of September 30, 2022. 2. Inception means first full four quarters as a Focus partner firm and reflects activity through all market cycles during that tim e. The analysis includes the 67 firms since inception that have bee
Slide 6: Key Investor Questions on Q3 2022
Key Investor Questions on Q3 2022 6 6 5 1. As of September 30, 2022. 2. Non - GAAP financial measure. See Appendix for reconciliations. 3. The terms of our management agreements entitle the management companies to management fees typically consisting of all future EB PC of the acquired wealth manage
Slide 7: Selected Growth Trends
FOCUS FINANCIAL PARTNERS VAN AVAVAVA ‘Vavava¥ AG Selected Growth Trends
Slide 8: Strong and Sustained Revenue and Adjusted EBITDA Growth
$68.7 $75.2 $80.6 $64.0 $1,149.7 $1,286.1 $1,717.4 $1,531.6 2019 2020 2021 Q3 '22 YTD 94.4% 94.5% 95.5% 96.0% Wealth Management Fees Allocation ($ in millions (3) , % of Revenues) 1. Non - GAAP financial measure. See Appendix for reconciliations. 2. Calculated as Adjusted EBITDA divided by revenues.
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 of Partner Firms Since Inception
1. As of September 30, 2022. 2. Inception means first full four quarters as a Focus partner firm and reflects activity through all market cycles during that tim e. The analysis includes the 67 firms since inception that have been with us for at least 2 years as of September 30, 2022 in order to dete
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 15.7% 1. Organic revenue growth represents the period - over - period growth in revenue related to partner firms, including growth related to acquisitions
Slide 12: Third Quarter 2022 Recap
FOCUS FINANCIAL PARTNERS DAN AVAVAVA ‘Wavavav Wava¥ Third 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: Q3 2022 Financial Snapshot
▪ Adjusted EBITDA: (2) $128.7 million, +13.4% year - over - year growth ▪ Adjusted EBITDA margin: (3) 24.8% ▪ Revenues: $ 519.9 million, +14.4% year - over - year growth ▪ Organic revenue growth rate: (1) +3.4 % year - over - year ▪ GAAP net income: $38.3 million, compared to $1.8 million in Q3 2021
Slide 15: Multiple Sources of Revenue Diversification
$499.1m , 96.0% $20.8m , 4.0% Wealth Management Fees Other ▪ Holistic wealth management fees tied to team - based service model ▪ Not a commission or interest revenue based model We Have Multiple Sources of Revenue Diversification $395.5m , 76.1% $124.4m , 23.9% Revenues Correlated to Markets 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 5,500+ Partners and Employees Annual M&A Transactions Since 2019 1. Includes a signed and pending close transaction (1) 6 7 14 5 28 18 24 19 34 25 38 24 2019 2020 2021 2022 to date New Partner Firms Mergers
Slide 17: 2022 M&A Activity Continues to be Robust
2022 M&A Activity Continues to be Robust 17 2022 YTD Highlights 24 closed or pending transactions to date: ▪ 5 new partner firms ▪ 19 mergers, including 1 Connectus merger Type Acquiring Partner Firm Closing Date Primary Office Location 1. FourThought Private Wealth 11/1/2022 Venice, FL 2. Beaumont
Slide 18: New Partner Firms Further Diversify Our Partnership
New Partner Firms Further Diversify Our Partnership (1) 18 » Headquartered in Venice, FL » Enhances Focus’ deep presence in attractive Florida wealth market » Serves HNW, UHNW, and institutional clients across the US » Headquartered in Needham, MA » Scaled regional platform with strong ties to multi
Slide 19: Fourth Quarter 2022 Outlook
19 Fourth Quarter 2022 Outlook
Slide 20: Q4 2022 Outlook
▪ Estimated Q4 revenues of ~$505 to $515 million (excludes performance fees). ▪ Estimated Q4 YOY organic revenue growth of negative ~10% (1) ▪ The $20 million in performance fees in the prior year has a negative ~4% impact on our Q4’22 organic revenue growth estimate ▪ Estimated Q4 revenue attributa
Slide 21: Credit Profile, Interest Rate Sensitivity & Earnings Preference
Credit Profile, Interest Rate Sensitivity & Earnings Preference 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 $1,598.4 million $790.4 million $50 million drawn ($650 million facility size) Maturity July 2024 June 2028 June 2024 Applicable Margin $850 million fixed via hedges at 0.62% + 200 bps spread Remainder of $7
Slide 23: Strong Credit and Liquidity Profile
Strong Credit and Liquidity Profile Debt cost ~4.4% weighted average interest rate on funded borrowings Duration risk ~1.8 years remaining to maturity for Tranche A Term Loan (July 2024) ~5.7 years remaining to maturity for Tranche B Term Loan (June 2028) ~1.8 years remaining to maturity for Revolve
Slide 24: Earnings Preference Provides Strong Downside Earnings Protection
Equity market decline (20)% (40)% Assumed Client Portfolio Allocation to Equities 50% 50% Decline in market-correlated revenues (1) (10)% (20)% ($ in millions) Reported Q3'22 Market-Correlated Revenues 395.5$ 356.0$ 316.4$ Q3'22 Non-Correlated Revenues 124.4$ 124.4$ 124.4$ Total Revenue - Q3'22 519.
Slide 25: Supported by Substantial Acquired Base Earnings
Supported by Substantial Acquired Base Earnings (1) 25 *Q4 includes a new partner firm that has closed and a new partner firm that is signed and pending close as of November 3, 202 2. 1. The terms of our management agreements entitle the management companies to management fees typically consisting o
Slide 26: Illustrative Structural Protections in Our Financial Model
Illustrative Structural Protections in Our Financial Model 26 Earnings Preference Provides Downside Protection For Firms Above Target Earnings, Split Mitigates Downside Financial Impact to Focus 1. The terms of our management agreements entitle the management companies to management fees typically c
Slide 27: Cash Flows
rA\/§ AVAVAVA Wavava¥ ‘Wavay zr US FINANCIAL PARTNERS Cash Flows
Slide 28: Q4 2022 Supplemental Cash Flow Disclosures
Q4 2022 Supplemental Cash Flow Disclosures Strong and Sustained Growth in Cash Flows Continued in Q3 As % of Adjusted EBITDA (1) 73 % 65% Cash Flow Snapshot ▪ Q4 2022 estimated cash earnouts of ~$38 million ▪ No Tax Receivable Agreements (“TRA”) payments in Q4 2022 ▪ Q4 2022 required term loan amort
Slide 29: Over $2.8 Billion Tax Shield Created by Tax Efficient Transaction Structure
Over $2.8 Billion Tax Shield Created by Tax Efficient Transaction Structure 29 $61 $242 $241 $2,309 $17 $65 $65 $624 Q4 2022 2023 2024 2025 & Thereafter Unamortized Gross Tax Shield Estimated Tax Benefit Focus generally acquires intangible assets which generate tax shields (1) ($ in millions) 1. Foc
Slide 30: Appendix
Appendix Fags! e) US JANCIAL PARTNERS.
Slide 31: 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. 31 ($ in thousan
Slide 32: Net Income (Loss) 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 32 2019 2020 2021 Sept. 30, 2021 Sept. 30, 2022 Sept. 30, 2021 Sept. 30, 2022 ($ in thousands, except share and p
Slide 33: 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 34: Reconciliation of Cash Flow Available for Capital Allocation
Reconciliation of Cash Flow Available for Capital Allocation 34 1. A portion of contingent consideration paid is classified as operating cash outflows in accordance with GAAP (with the balance re flected in investing or financing cash outflows) and therefore is a reconciling item to arrive at Cash F
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