Focus Financial Partners — Q1 2023 Earnings Presentation
31 slides from Focus Financial Partners's earnings presentation, May 4, 2023
Slide 1: First Quarter 2023 Earnings Release Supplement
Focus Financial Partners Inc. First Quarter 2023 Earnings Release Supplement May 4 , 2023
Slide 2: Disclaimer (1/2)
2 Disclaimer (1/2) 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 foreca
Slide 3: Disclaimer (2/2)
3 Disclaimer (2/2) Non - GAAP Financial Measures Adjusted EBITDA is a non - GAAP measure . Adjusted EBITDA is defined as net income (loss) excluding interest income, interest expense, income tax expense (benefit), amortization of debt financing costs, intangible amortization and impairments, if any,
Slide 4: Table of Contents
Table of Contents 4 Pages Pending Acquisition by CD&R 5 - 6 Selected Growth Trends 7 - 11 First Quarter 2023 Recap 12 - 17 Credit Profile & Earnings Preference 18 - 23 Cash Flows 24 - 26 Appendix 27 - 31
Slide 5: Pending Acquisition by CD&R
Pending Acquisition by CD&R 5
Slide 6: Pending Acquisition by CD&R
Pending Acquisition by CD&R (1) 6 ▪ On February 27, 2023, Focus entered in an Agreement and Plan of Merger (the “Merger” or “Merger Agreement”) by and among affiliates of Clayton, Dubilier & Rice, LLC (“CD&R”) pursuant to which Focus is to be acquired by CD&R for $53 per share in an all - cash trans
Slide 7: Selected Growth Trends
Selected Growth Trends 7
Slide 8: Revenue and Adjusted EBITDA Growth Over Time
$75.2 $80.6 $87.0 $23.6 $1,286.1 $1,717.4 $2,056.3 $533.9 2020 2021 2022 Q1 '23 YTD 94.5% 95.5% 95.9% 95.8% Wealth Management Fees Allocation (1) ($ in millions, % of Revenues) 1. The sum of wealth management fees and other revenues as presented in this chart may not agree to total revenues due to r
Slide 9: 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 March 31, 2023. 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 73 firms since inception that have been with us for at least 2 years as of March 31, 2023 in order to determine a
Slide 11: Average Organic Revenue Growth Rate Demonstrates Partner Firm Strength and Resiliency
Average Organic Revenue Growth Rate Demonstrates Partner Firm Strength and Resiliency ▪ Over the last 16 quarters, our average organic growth rate has been 14.4%. 1. Organic revenue growth represents the period - over - period growth in revenue related to partner firms, including growth related to a
Slide 12: First Quarter 2023 Recap
First Quarter 2023 Recap 12
Slide 13: Year-Over-Year Financial Performance
Year - Over - Year Financial Performance 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) ($ in millions) ANI Excluding Tax A
Slide 14: Q1 2023 Financial Snapshot
▪ Adjusted EBITDA: (2) $132.5 million, - 1.9% year - over - year decline ▪ Adjusted EBITDA margin: (3) 23.8 %, compared to 25.2% in the prior year period ▪ Revenues: $557.5 million, +3.9% year - over - year growth ▪ Organic revenue growth rate: (1) 0.3 % year - over - year ▪ GAAP net income (loss):
Slide 15: Multiple Sources of Revenue Diversification
$533.9m , 95.8% $23.6m , 4.2% Wealth Management Fees Other ▪ Holistic wealth management fees tied to team - based service model ▪ Not a commission or interest revenue based model Multiple Sources of Revenue Diversification $415.9m , 74.6% $141.6m , 25.4% Revenues Correlated to Markets Correlated to
Slide 16: Continuing a Trend of Strong M&A Volume
Continuing a Trend of Strong M&A Volume 16 90 Partner Firms (1) 290+ M&A Transactions Since 2006 (1) Annual M&A Transactions Since 2020 1. As of May 1, 2023. 2. As of March 31, 2023. (1) 7 14 5 2 18 24 19 14 25 38 24 16 2020 2021 2022 2023 to date New Partner Firms Mergers ~5,900 Partners and Employ
Slide 17: YTD M&A Momentum is Strong
YTD M&A Momentum is Strong 17 2023 YTD Highlights ▪ 16 closed transactions: ▪ 2 new partner firms ▪ 14 mergers Type Acquiring Partner Firm Closing Date Primary Office Location Partner Firm Acquisitions 1. Spectrum Wealth Management 1/1/2023 Indianapolis, IN 1. Clintsman Financial Planning Buckingham
Slide 18: Credit Profile & Earnings Preference
Credit Profile & Earnings Preference 18
Slide 19: Credit Overview and Interest Rate Sensitivity
Credit Overview and Interest Rate Sensitivity 19 1. Net Leverage Ratio represents the First Lien Leverage Ratio (as defined in the Credit Facility) and means the ratio of amount s o utstanding under the First Lien Term Loan and First Lien Revolver plus other outstanding debt obligations secured by a
Slide 20: Credit and Liquidity Profile
Credit and Liquidity Profile Debt cost ~ 6.4 % weighted average interest rate on funded borrowings Duration risk ~5.3 years remaining to maturity for Term Loan B (June 2028) ~4.7 years remaining to maturity for Term Loan A (November 2027) ~4.7 years remaining to maturity for Revolver (November 2027)
Slide 21: Earnings Preference Provides Strong Downside Protection
Equity market decline (20)% (40)% Assumed Client Portfolio Allocation to Equities 50% 50% Decline in market-correlated revenues (1) (10)% (20)% ($ in millions) Reported Q1'23 Market-Correlated Revenues 415.9$ 374.3$ 332.7$ Q1'23 Non-Correlated Revenues 141.6$ 141.6$ 141.6$ Total Revenue - Q1'23 557.
Slide 22: Supported by Substantial Acquired Base Earnings
$12 $19 $35 $35 $38 $39 $39 $57 $58 $68 $79 $129 $129 $140 $148 $155 $157 $168 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Q4'21 Q1'22 Q2'22 Q3'22 Q4'22 Q1'23 Q2'23* Supported by Substantial Acquired Base Earnings (1) 22 *Q2 includes a new partner firm that has closed. 1. The t
Slide 23: Structural Protections in Our Financial Model (Illustration)
Structural Protections in Our Financial Model (Illustration) 23 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 24: Cash Flows
#3 FOCUS FINANCIAL PARTNERS
Slide 25: Resilient Cash Flows Despite Market Volatility
$275.1 $299.6 $290.0 $303.9 Net cash provided by operating activities Cash Flow Available for Capital Allocation Q1 '22 LTM Q1 '23 LTM Resilient Cash Flows Despite Market Volatility As % of Adjusted EBITDA (1) 62 % 57% Cash Flow Snapshot ($ in millions) 1. Non - GAAP financial measure. See Appendix
Slide 26: Substantial Tax Shield Created by Tax Efficient Transaction Structure
Substantial Tax Shield Created by Tax Efficient Transaction Structure 26 $193 $258 $256 $2,263 $52 $70 $69 $611 2023 - next 9 months 2024 2025 2026 & Thereafter Future Amortization of Gross Tax Shield Estimated Tax Benefit Focus generally acquires intangible assets which generate tax shields (1) ($
Slide 27: Appendix
FOCUS FINANCIAL PARTNERS
Slide 28: 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. 2. Represents costs incurred in conjunction with the Merger Agreement entered into on February 27, 2023. Refer to our SEC filing s f or additional inf
Slide 29: 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 29 2020 2021 2022 Mar. 31, 2022 Mar. 31, 2023 ($ in thousands, except share and per share data) Net income (loss)
Slide 30: Footnotes to reconciliation tables
* 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. Represents costs incurred in conjunction with the Merger Agreement entered into on February 27, 2023. Refer to our SEC filing s f or additi
Slide 31: Reconciliation of Cash Flow Available for Capital Allocation
Reconciliation of Cash Flow Available for Capital Allocation 31 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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