Focus Financial Partners — FY2022 Earnings Presentation
39 slides from Focus Financial Partners's earnings presentation, Feb 16, 2023
Slide 1: Fourth Quarter & Full Year 2022 Earnings Release Supplement
Focus Financial Partners Inc. Fourth Quarter & Full Year 2022 Earnings Release Supplement February 16 , 2023
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 Q4 2022 4 - 6 Selected Growth Trends 7 - 11 Fourth Quarter 2022 Recap 12 - 15 Full Year 2022 Recap 16 - 22 First Quarter 2023 Outlook 23 - 24 Credit Profile & Earnings Preference 25 - 31 Cash Flows 32 - 34 Appendix 35 - 39
Slide 4: Key Investor Questions on Q4 2022
Key Investor Questions on Q4 2022 4
Slide 5: What is your outlook for your Net Leverage Ratio?
Key Investor Questions on Q4 2022 5 3 2 1. As of December 31, 2022. 2. Non - GAAP financial measure. See Appendix for reconciliations. 3. Net Leverage Ratio represents the First Lien Leverage Ratio (as defined in the Credit Facility) and means the ratio of amount s o utstanding under the First Lien
Slide 6: Has your organic growth been impacted by market volatility?
Key Investor Questions on Q4 2022 6 5 Has your organic growth been impacted by market volatility? 6 7 1. As of December 31, 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 70 f irms
Slide 7: Selected Growth Trends
FOCUS FINANCIAL PARTNERS DAN AVAVAVA Wavavay \\G Selected Growth Trends
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 by Partner Firm Group
1. As of December 31, 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 70 firms since inception that have been with us for at least 2 years as of December 31, 2022 in order to determ
Slide 11: Our Average Organic Revenue Growth Rate Demonstrates Partner Firm Strength and Resiliency
Our Average Organic Revenue Growth Rate Demonstrates Partner Firm Strength and Resiliency ▪ Over the last 16 quarters, our average organic growth rate has been 14.8% 1. Organic revenue growth represents the period - over - period growth in revenue related to partner firms, including growth related t
Slide 12: Fourth Quarter 2022 Recap
FOCUS FINANCIAL PARTNERS AvAVA AVAVAMA ‘Wavavay 7\/\4 Fourth Quarter 2022 Recap
Slide 13: Solid Year-Over-Year Financial Performance but Higher Interest Expense Weighed on Adjusted Net Income
Solid Year - Over - Year Financial Performance but Higher Interest Expense Weighed on Adjusted Net Income Excluding Tax Adjustments (1) 13 Adjusted Net Income (“ANI”) Excluding Tax Adjustments (1) ($ in millions) 1. Non - GAAP financial measure. See Appendix for reconciliations. 2. Refer to footnote
Slide 14: Q4 2022 Financial Snapshot
▪ Adjusted EBITDA: (2) $136.7 million, +5.9% year - over - year growth ▪ Adjusted EBITDA margin: (3) 25.0%, compared to 24.6% in prior year period ▪ Revenues: $547.7 million, +4.5% year - over - year growth ▪ Organic revenue growth rate: (1) - 3.5% year - over - year ▪ GAAP net income (loss): ($1.4)
Slide 15: We Have Multiple Sources of Revenue Diversification
$524.7m , 95.8% $23.0m , 4.2% 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 $394.3m , 72.0% $153.4m , 28.0% Revenues Correlated to Markets Correl
Slide 16: Full Year 2022 Recap
FINANCIAL PARTNERS Full Year 2022 Recap
Slide 17: Solid Year-Over-Year Financial Performance Reflects Resilient Business Model
Solid Year - Over - Year Financial Performance Reflects Resilient Business Model 17 Adjusted Net Income (“ANI”)Excluding Tax Adjustments (1) ($ in millions) 1. Non - GAAP financial measure. See Appendix for reconciliations. 2. Refer to footnote 2 on slide 9 . Revenues ($ in millions) Adjusted EBITDA
Slide 18: Full Year 2022 Financial Snapshot
▪ Adjusted EBITDA: (2) $537.5 million, +19.1% year - over - year growth ▪ Adjusted EBITDA margin: (3) 25.1 % ▪ Acquired Base Earnings: (4) $26.6 million ▪ Revenues: $2.14 billion, +19.2% year - over - year growth ▪ Organic revenue growth rate: (1) +8.5 % year - over - year growth ▪ Fee - based and r
Slide 19: Continuing a Trend of Strong M&A Volume
Continuing a Trend of Strong M&A Volume 19 85+ Partner Firms (2) 275+ M&A Transactions Since 2006 (1) 5,800+ Partners and Employees (2) Annual M&A Transactions Since 2020 1. Includes closed and signed and pending close transactions. 2. As of December 31, 2022. (1) 7 14 5 1 18 24 19 10 25 38 24 11 20
Slide 20: With a Diverse Mix of Transactions
With a Diverse Mix of Transactions 20 Transactions in 2022 U.S. 2 0 Switzerland 1 Canada 2 U.K. 1 U.S. RIA [27] Non - U.S. RIA [11] New Partner Firms Added in 2022 Partner Firms 5 Mergers 19 (1 Connectus)
Slide 21: We Increased our Footprint in Important Wealth Markets
We Increased our Footprint in Important Wealth Markets in the US and Internationally 21 2022 Highlights ▪ 24 closed: ▪ 5 new partner firms ▪ 19 mergers, including 1 Connectus merger ▪ Acquired a new partner firm Octogone , strategically entering the attractive Switzerland market Type Acquiring Partn
Slide 22: M&A Momentum is Continuing into 2023
M&A Momentum is Continuing into 2023 22 2023 YTD Highlights ▪ 11 closed or pending transactions: ▪ 1 new partner firm ▪ 10 mergers ▪ Significantly adding to expertise on alternative investments through the pending acquisition of Origin, which will substantia lly increase the footprint and scale of K
Slide 23: First Quarter 2023 Outlook
23 First Quarter 2023 Outlook
Slide 24: Q1 2023 Outlook
▪ Estimated Q1 revenues of ~$560 to $570 million ▪ Estimated Q1 YOY organic revenue growth of 1% to 3% (1) ▪ Estimated Q1 revenue attributable to new partner firm closing: ~$ 1.2 million* and ~$5 million annualized ▪ Estimate for both Q1 revenue and YOY organic revenue growth excludes ~$7 million fr
Slide 25: Credit Profile & Earnings Preference
Credit Profile & Earnings Preference 25
Slide 26: Q4'22 Credit Refinancing Rationale
Q4’22 Credit Refinancing Rationale 26 ▪ Proactively addressed refinancing and duration risk, created further financial flexibility and increased liquidity to fund strong M&A pipeline ▪ Closed our credit refinance and term loan raises in November 2022, amending and extending our debt maturities ▪ Cre
Slide 27: Credit Overview and Interest Rate Sensitivity
Credit Overview and Interest Rate Sensitivity 27 1. Net Leverage Ratio represents the First Lien Leverage Ratio (as defined in the Credit Facility) and means the ratio of amount s o utstanding under the First Lien Term Loan and First Lien Revolver plus other outstanding debt obligations secured by a
Slide 28: Strong Credit and Liquidity Profile
Strong Credit and Liquidity Profile Debt cost ~ 6.1 % weighted average interest rate on funded borrowings Duration risk ~5.5 years remaining to maturity for Term Loan B (June 2028) ~4.9 years remaining to maturity for Term Loan A (November 2027) ~4.9 years remaining to maturity for Revolver (Novembe
Slide 29: Earnings Preference Provides Strong Downside Earnings Protection
Equity market decline (20)% (40)% Assumed Client Portfolio Allocation to Equities 50% 50% Decline in market-correlated revenues (1) (10)% (20)% ($ in millions) Reported Q4'22 Market-Correlated Revenues 394.3$ 354.9$ 315.4$ Q4'22 Non-Correlated Revenues 153.4$ 153.4$ 153.4$ Total Revenue - Q4'22 547.
Slide 30: Supported by Substantial Acquired Base Earnings
Supported by Substantial Acquired Base Earnings (1) 30 *Q1 includes a new partner firm that has closed. 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 Earn
Slide 31: Structural Protections in Our Financial Model
Structural Protections in Our Financial Model (Illustration) 31 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
Slide 32: Cash Flows
BRI . tees FOCUS FINANCIAL PARTNERS Cash Flows
Slide 33: Q1 2023 Supplemental Cash Flow Disclosures
Q1 2023 Supplemental Cash Flow Disclosures Resilient Cash Flows Despite Market Volatility As % of Adjusted EBITDA (1) 71 % 59% Cash Flow Snapshot ▪ Q1 2023 estimated cash earnouts of ~$24 million ▪ $9.6 million Tax Receivable Agreements (“TRA”) payments in Q1 2023 ▪ Q1 2023 required term loan amorti
Slide 34: Over $2.9 Billion Tax Shield Created by Tax Efficient Transaction Structure
Over $2.9 Billion Tax Shield Created by Tax Efficient Transaction Structure 34 $251 $250 $2,421 $68 $68 $654 2023 2024 2025 & Thereafter Future Amortization of Gross Tax Shield Estimated Tax Benefit Focus generally acquires intangible assets which generate tax shields (1) ($ in millions) 1. Focus pa
Slide 35: Appendix
BRI . tees FOCUS FINANCIAL PARTNERS Appendix
Slide 36: Net Income (Loss) to Adjusted EBITDA Reconciliation
Net Income (Loss) to Adjusted EBITDA Reconciliation 1. Relates to offering expenses associated with the March 2021 and June 2021 secondary offerings. 36 ($ in thousands) 2020 2021 2022 Dec. 31, 2021 Dec. 31, 2022 Net income (loss) 48,965$ 24,440$ 125,278$ 14,935$ (1,411)$ Interest income (453) (422)
Slide 37: Net Income (Loss) to Adjusted Net Income 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 37 2020 2021 2022 Dec. 31, 2021 Dec. 31, 2022 ($ in thousands, except share and per share data) Net income (loss)
Slide 38: Reconciliation Footnotes
* These footnotes refer to the tables on the previous page. 1. Relates to offering expenses associated with the March 2021 and June 2021 secondary offerings. 2. The pro forma income tax rate of 27% reflects the estimated U.S. federal, state, local and foreign income tax rates applicabl e t o corpora
Slide 39: Reconciliation of Cash Flow Available for Capital Allocation
Reconciliation of Cash Flow Available for Capital Allocation 39 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
Focus Financial Partners — FY2022 Earnings Presentation on 6ix