Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2018 | Aug. 28, 2018 | |
Entity Registrant Name | Focus Financial Partners Inc. | |
Entity Central Index Key | 1,651,052 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Document Fiscal Year Focus | 2,018 | |
Document Fiscal Period Focus | Q2 | |
Class A common stock | ||
Entity Common Stock, Shares Outstanding | 42,529,651 | |
Class B common stock | ||
Entity Common Stock, Shares Outstanding | 22,780,877 |
Unaudited Balance Sheets
Unaudited Balance Sheets - USD ($) | Jun. 30, 2018 | Dec. 31, 2017 |
ASSETS | ||
Cash | $ 8 | $ 8 |
SHAREHOLDER'S EQUITY | ||
Additional paid-in capital | 100 | 100 |
Accumulated deficit | (92) | (92) |
Total shareholder's equity | $ 8 | $ 8 |
Unaudited Balance Sheets (Paren
Unaudited Balance Sheets (Parenthetical) - $ / shares | Jun. 30, 2018 | Dec. 31, 2017 |
Class A common stock | ||
Common stock | ||
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, authorized shares | 500 | 500 |
Common stock, issued shares | 10 | 10 |
Common stock, outstanding shares | 10 | 10 |
Class B common stock | ||
Common stock | ||
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, authorized shares | 500 | 500 |
Common stock, issued shares | 0 | 0 |
Common stock, outstanding shares | 0 | 0 |
ORGANIZATION
ORGANIZATION | 6 Months Ended |
Jun. 30, 2018 | |
ORGANIZATION | |
ORGANIZATION | 1. ORGANIZATION Focus Inc. was formed as a Delaware corporation on July 29, 2015. The Registrant’s fiscal year end is December 31. The Registrant was formed for the purpose of completing a public offering and related transactions in order to carry on the business of Focus LLC. On July 30, 2018, the Registrant became the managing member of Focus LLC and operates and controls the businesses and affairs of Focus LLC and, through Focus LLC and its subsidiaries, continue to conduct the business now conducted by these subsidiaries. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended |
Jun. 30, 2018 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting—The Balance Sheets have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Separate Statements of Income, Shareholder’s Equity and of Cash Flows have not been presented as there have been no operating activities by this entity other than $92 in cumulative bank account fees. The Registrant’s initial issuance of Class A common stock was on October 5, 2015. |
SHAREHOLDER'S EQUITY
SHAREHOLDER'S EQUITY | 6 Months Ended |
Jun. 30, 2018 | |
SHAREHOLDER'S EQUITY | |
SHAREHOLDER'S EQUITY | 3. SHAREHOLDER’S EQUITY Ruediger Adolf, the Chairman and Chief Executive Officer of the Registrant, was the sole shareholder of the Registrant as of June 30, 2018. He contributed $100 to the Registrant on October 5, 2015 to purchase 10 shares of Class A common stock. On July 30, 2018, the 10 shares issued to Ruediger Adolf were cancelled by the Registrant. Holders of Class A common stock are entitled to one vote for each share of Class A common stock held on all matters submitted to shareholders for vote, consent or approval. Holders of Class B common stock are entitled to one vote for each share of Class B common stock held. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 6 Months Ended |
Jun. 30, 2018 | |
SUBSEQUENT EVENTS | |
SUBSEQUENT EVENTS | 4. SUBSEQUENT EVENTS Refer to Note 2, “Summary of Accounting Policies − Subsequent Events,” in the Focus LLC unaudited condensed consolidated financial statements for information regarding the Reorganization Transactions (which were completed on July 30, 2018), IPO (which was completed on July 30, 2018) as well as the use of proceeds from such offering and the amendment to Focus LLC’s Credit Facility (as defined below) entered into on June 29, 2018 and effective as of July 30, 2018. The Registrant has conducted a review for and evaluated subsequent events from July 1, 2018 through August 28, 2018, the date the balance sheets were available to be issued. |
SUMMARY OF SIGNIFICANT ACCOUNT8
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) | 6 Months Ended |
Jun. 30, 2018USD ($) | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Cumulative bank account fees during the period | $ 92 |
SHAREHOLDER'S EQUITY (Details)
SHAREHOLDER'S EQUITY (Details) | Jul. 30, 2018shares | Oct. 05, 2015USD ($)shares | Jun. 30, 2018Vote |
Class A common stock | |||
SHAREHOLDER'S EQUITY | |||
Number of votes for each share | Vote | 1 | ||
Class A common stock | Ruediger Adolf | |||
SHAREHOLDER'S EQUITY | |||
Value of shares issued | $ | $ 100 | ||
Number shares issued | shares | 10 | ||
Number of shares redeemed | shares | 10 | ||
Class B common stock | |||
SHAREHOLDER'S EQUITY | |||
Number of votes for each share | Vote | 1 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - Predecessor - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
ASSETS | ||
Cash and cash equivalents | $ 32,572 | $ 51,455 |
Accounts receivable less allowances of $505 at 2017 and $593 at 2018 | 94,145 | 73,513 |
Prepaid expenses and other assets | 75,089 | 37,423 |
Fixed assets-net | 22,767 | 21,397 |
Debt financing costs-net | 11,804 | 13,278 |
Goodwill | 639,599 | 515,489 |
Other intangible assets-net | 626,734 | 522,282 |
TOTAL ASSETS | 1,502,710 | 1,234,837 |
LIABILITIES: | ||
Accounts payable | 9,106 | 5,752 |
Accrued expenses | 37,209 | 23,626 |
Due to affiliates | 25,709 | 33,698 |
Deferred revenue | 5,826 | 6,094 |
Other Liabilities | 131,049 | 99,077 |
Borrowings under credit facilities (stated value of $1,000,012 and $998,025 at December 31, 2017 and March 31, 2018) | 1,188,605 | 980,502 |
TOTAL LIABILITIES | 1,397,504 | 1,148,749 |
MEZZANINE EQUITY: | ||
TOTAL MEZZANINE EQUITY | 864,749 | 864,749 |
COMMITMENTS AND CONTINGENCIES (Note 8) | ||
MEMBERS' DEFICIT | (759,543) | (778,661) |
TOTAL LIABILITIES, MEZZANINE EQUITY, AND MEMBERS' DEFICIT | 1,502,710 | 1,234,837 |
Redeemable common and incentive units | ||
MEZZANINE EQUITY: | ||
TOTAL MEZZANINE EQUITY | 166,249 | 166,249 |
Convertible preferred units | ||
MEZZANINE EQUITY: | ||
TOTAL MEZZANINE EQUITY | $ 698,500 | $ 698,500 |
CONDENSED CONSOLIDATED BALANC11
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - Predecessor - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Accounts receivable, allowances | $ 1,143 | $ 505 |
Borrowings under credit facilities, stated value | $ 1,195,535 | $ 1,000,012 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - Predecessor - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
REVENUES: | ||||
Total revenues | $ 231,435 | $ 157,230 | $ 427,664 | $ 292,776 |
OPERATING EXPENSES: | ||||
Compensation and related expenses | 81,273 | 56,418 | 154,622 | 105,513 |
Management fees | 60,559 | 39,553 | 106,859 | 72,798 |
Selling, general and administrative | 41,493 | 40,721 | 77,780 | 67,944 |
Intangible amortization | 22,290 | 14,292 | 41,784 | 27,490 |
Non-cash changes in fair value of estimated contingent consideration | 11,944 | 2,175 | 18,315 | 2,097 |
Depreciation and other amortization | 2,162 | 1,608 | 4,044 | 3,077 |
Total operating expenses | 219,721 | 154,767 | 403,404 | 278,919 |
INCOME FROM OPERATIONS | 11,714 | 2,463 | 24,260 | 13,857 |
OTHER INCOME (EXPENSE): | ||||
Interest income | 235 | 26 | 377 | 42 |
Interest expense | (18,212) | (7,051) | (32,484) | (13,042) |
Amortization of debt financing costs | (929) | (691) | (1,888) | (1,382) |
Gain on sale of investment | 5,509 | |||
Loss on extinguishment of borrowings | (14,011) | |||
Other (expense) income-net | 203 | (120) | 296 | (247) |
Income from equity method investments | 79 | 416 | 153 | 708 |
Total other expense-net | (18,624) | (7,420) | (42,048) | (13,921) |
LOSS BEFORE INCOME TAX | (6,910) | (4,957) | (17,788) | (64) |
INCOME TAX EXPENSE | 746 | 282 | 1,922 | 724 |
NET LOSS | (7,656) | (5,239) | (19,710) | (788) |
Wealth management fees | ||||
REVENUES: | ||||
Total revenues | 216,328 | 145,355 | 400,651 | 269,217 |
Other | ||||
REVENUES: | ||||
Total revenues | $ 15,107 | $ 11,875 | $ 27,013 | $ 23,559 |
CONDENSED CONSOLIDATED STATEM13
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - Predecessor - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Net income (loss) | $ (7,656) | $ (5,239) | $ (19,710) | $ (788) |
Other comprehensive income (loss), net of tax: | ||||
Foreign currency translation adjustments | (1,122) | 692 | (1,506) | 1,602 |
Comprehensive income (loss) | $ (8,778) | $ (4,547) | $ (21,216) | $ 814 |
CONDENSED CONSOLIDATED STATEM14
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Predecessor - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | Dec. 31, 2017 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||
Net loss | $ (19,710) | $ (788) | |||
Adjustments to reconcile net loss to net cash provided by operating activities-net of effect of acquisitions: | |||||
Intangible amortization | $ 22,290 | $ 14,292 | 41,784 | 27,490 | |
Depreciation and other amortization | 2,162 | 1,608 | 4,044 | 3,077 | |
Amortization of debt financing costs | 929 | 691 | 1,888 | 1,382 | |
Noncash equity compensation expense | 7,555 | 3,779 | |||
Non-cash changes in fair value of estimated contingent consideration | 11,944 | 2,175 | 18,315 | 2,097 | |
Income from equity method investments | (79) | (416) | (153) | (708) | |
Distributions received from equity method investments | 613 | 571 | |||
Other noncash items | (203) | 325 | |||
Loss on extinguishment of borrowings | 14,011 | ||||
Changes in cash resulting from changes in operating assets and liabilities: | |||||
Accounts receivable | (21,467) | (17,483) | |||
Prepaid expenses and other assets | (14,791) | 5,248 | |||
Accounts payable | 3,324 | 196 | |||
Accrued expenses | 12,358 | (3,812) | |||
Due to affiliates | (7,548) | (5,250) | |||
Other liabilities | (2,600) | (5,915) | |||
Deferred revenue | (268) | (311) | |||
Net cash provided by operating activities | 37,152 | 9,898 | |||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||
Cash paid for acquisitions and contingent consideration-net of cash acquired | (215,332) | (114,189) | |||
Purchase of fixed assets | (4,429) | (2,720) | |||
Investment and other | (24,300) | (500) | |||
Net cash used in investing activities | (244,061) | (117,409) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||
Borrowings under credit facilities | 200,000 | 173,000 | |||
Repayments of borrowings under credit facilities | (4,477) | (54,167) | |||
Contingent consideration paid | (4,814) | (3,179) | |||
Payments of debt financing costs | (1,981) | ||||
Payments on capital lease obligations | (116) | (107) | |||
Distributions for unitholders | (506) | (2,168) | |||
Net cash provided by financing activities | 188,106 | 113,379 | |||
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS | (80) | 68 | |||
CHANGE IN CASH AND CASH EQUIVALENTS | (18,883) | 5,936 | |||
CASH AND CASH EQUIVALENTS: | |||||
Beginning of period | 51,455 | 16,508 | $ 16,508 | ||
End of period | $ 32,572 | $ 22,444 | $ 32,572 | $ 22,444 | $ 51,455 |
CONSOLIDATED STATEMENTS OF MEMB
CONSOLIDATED STATEMENTS OF MEMBERS' DEFICIT - Predecessor - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended |
Jun. 30, 2018 | Jun. 30, 2018 | |
Increase (Decrease) in MEMBERS' DEFICIT | ||
Beginning balance | $ (778,661) | |
Net loss | $ (7,656) | (19,710) |
Issuance of restricted common units in connection with acquisitions and contingent consideration | 32,829 | |
Non-cash equity compensation expense-net of related forfeitures, related to incentive units | 7,555 | |
Currency translation adjustment-net of tax | (1,122) | (1,506) |
Distributions for unitholders | (50) | |
Ending balance | (759,543) | (759,543) |
Common Units | ||
Increase (Decrease) in MEMBERS' DEFICIT | ||
Beginning balance | 4,347 | |
Issuance of restricted common units in connection with acquisitions and contingent consideration | 32,829 | |
Ending balance | 37,176 | 37,176 |
Accumulated Deficit | ||
Increase (Decrease) in MEMBERS' DEFICIT | ||
Beginning balance | (805,470) | |
Net loss | (19,710) | |
Distributions for unitholders | (50) | |
Ending balance | (825,230) | (825,230) |
Accumulated Other Comprehensive Loss | ||
Increase (Decrease) in MEMBERS' DEFICIT | ||
Beginning balance | (8,269) | |
Currency translation adjustment-net of tax | (1,506) | |
Ending balance | (9,775) | (9,775) |
Deemed Capital Contribution | ||
Increase (Decrease) in MEMBERS' DEFICIT | ||
Beginning balance | 30,731 | |
Non-cash equity compensation expense-net of related forfeitures, related to incentive units | 7,555 | |
Ending balance | $ 38,286 | $ 38,286 |
GENERAL
GENERAL | 6 Months Ended |
Jun. 30, 2018 | |
GENERAL | 1. ORGANIZATION Focus Inc. was formed as a Delaware corporation on July 29, 2015. The Registrant’s fiscal year end is December 31. The Registrant was formed for the purpose of completing a public offering and related transactions in order to carry on the business of Focus LLC. On July 30, 2018, the Registrant became the managing member of Focus LLC and operates and controls the businesses and affairs of Focus LLC and, through Focus LLC and its subsidiaries, continue to conduct the business now conducted by these subsidiaries. |
Predecessor | |
GENERAL | 1. GENERAL Organization and Business —Focus LLC is a Delaware limited liability company that was formed in November 2004. The Company’s subsidiaries commenced revenue‑generating and acquisition activities in January 2006. The Company’s activities were governed by its Third Amended and Restated Operating Agreement, as amended, through July 30, 2018 and its Fourth Amended and Restated Operating Agreement (the “Fourth Amended and Restated Operating Agreement”), effective on July 30, 2018. The Company is in the business of acquiring and overseeing independent fiduciary wealth management and related businesses. |
SUMMARY OF ACCOUNTING POLICIES
SUMMARY OF ACCOUNTING POLICIES | 6 Months Ended |
Jun. 30, 2018 | |
SUMMARY OF ACCOUNTING POLICIES | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting—The Balance Sheets have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Separate Statements of Income, Shareholder’s Equity and of Cash Flows have not been presented as there have been no operating activities by this entity other than $92 in cumulative bank account fees. The Registrant’s initial issuance of Class A common stock was on October 5, 2015. |
Predecessor | |
SUMMARY OF ACCOUNTING POLICIES | 2. SUMMARY OF ACCOUNTING POLICIES Basis of Presentation —The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of only normal recurring adjustments, considered necessary for fair presentation have been included. The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in Focus Inc.’s final prospectus dated July 25, 2018, as filed with the SEC on July 27, 2018 (the “Final Prospectus”). Operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. Use of Estimates —The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition— Wealth Management Fees —The Company, solely through its subsidiaries, recognizes revenue from wealth management fees, which are primarily comprised of fees earned for advising on the assets of clients, financial and tax planning fees, consulting fees, tax return preparation fees, fees for family office services, and fees for wealth management and operational support services provided to third‑party wealth management firms. Client arrangements may contain a single or multiple performance obligations, each of which are separately identifiable and accounted for as the related services are provided and consumed over time. Fees are primarily based either on a contractual percentage of the client’s assets, a flat fee, an hourly rate or a combination of such fees and are billed either in advance or arrears on a monthly, quarterly, or semiannual basis and such fees earned as the services are performed over time. Revenue for wealth management and operational support services provided to third‑party wealth management firms is presented net since these services are performed in an agent capacity. Wealth management fees are recorded when: (i) an arrangement with a client has been identified, (ii) the performance obligations have been identified, (iii) the fee or other transaction price has been determined; (iv) the fee or other transaction price has been allocated to each performance obligation; and (v) the Company has satisfied the applicable performance obligation. Other —Other revenue primarily includes fees earned for recordkeeping and administration services provided to employee benefit plans as well as commissions and distribution fees. Client arrangements may contain a single or multiple performance obligations, each of which are separately identifiable and accounted for as the related services are provided and consumed over time. Recordkeeping and administration revenue, in accordance with the same five criteria above, is recognized over the period in which services are provided. Commissions and distribution fees, in accordance with the same five criteria above, are recognized when earned. Deferred Revenue —Fees collected in advance are deferred and recognized in revenue over the period earned with the unrecognized portion of fees collected in advance recorded as deferred revenue in the accompanying consolidated balance sheets. The Company disaggregates revenue based on the above two categories. The Company does not allocate revenue by the type of service provided in connection with providing holistic wealth management client services. The Company generally manages its business based on the operating results of the enterprise taken as a whole, not by geographic region. The following table disaggregates the revenues based on the location of the partner firm that generates the revenues and therefore may not be reflective of the geography in which clients are located. Three Months Ended June 30, Six Months Ended June 30, 2017 2018 2017 2018 Domestic revenue $ 152,789 $ 225,894 $ 284,263 $ 416,519 International revenue 4,441 5,541 8,513 11,145 Total revenue $ 157,230 $ 231,435 $ 292,776 $ 427,664 Segment Reporting —Management has determined that the Company operates in one operating segment, as a wealth management focused organization, which is consistent with our structure and how we manage the business. The Company’s acquired businesses have similar economic and business characteristics. The services provided are wealth management related and our businesses are subject to a similar regulatory framework. Furthermore, the Company’s Chief Operating Decision Maker, which is the Company’s Chief Executive Officer, monitors and reviews financial information at a consolidated level for assessing operating results and the allocation of resources. Income Taxes —On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted. Among other things, the Tax Act reduced the U.S. federal corporate income tax rate from a maximum rate of 35%, to a flat rate of 21%, effective January 1, 2018. The Company is principally structured as a limited liability company treated as a partnership for U.S. income tax purposes and therefore does not pay income taxes on its taxable income in most jurisdictions in which it operates. The Company is subject to income taxes on its taxable income in certain foreign countries, in certain state and local jurisdictions that impose income taxes on partnerships, such as the New York City Unincorporated Business Tax, and on the taxable income of its U.S. corporate subsidiaries. The Company’s income tax expense for the three and six months ended June 30, 2018 reflects the reduction in the U.S. corporate income tax rate imposed on its U.S. corporate subsidiaries. The Tax Act also requires companies to pay a one‑time repatriation tax on previously unremitted earnings of certain non‑U.S. corporate subsidiaries. All of the Company’s operations outside the U.S. are conducted by entities that are either disregarded entities or partnerships for U.S. income tax purposes, and, as a result, the deemed repatriation transition tax does not apply to these entities or their earnings. In accordance with the guidance provided by Staff Accounting Bulletin No. 118 (“SAB No. 118”), the Company recognized an income tax benefit of $2,653 for the year ended December 31, 2017 related to the remeasurement of its U.S. corporate deferred tax assets and liabilities. The Company has completed its assessment of the impact of the Tax Act and no measurement period adjustments, as permitted under SAB No. 118, are expected. Recent Accounting Pronouncements —In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014‑09, “ Revenue from Contracts with Customers”, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. In August 2015, the FASB issued ASU No. 2015‑14, “ Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date.” ASU No. 2015‑14 defers the effective date of ASU No. 2014‑09 by one year for public companies. ASU No. 2015‑14 applies to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. ASU No. 2014‑09 replaced most existing revenue recognition guidance in U.S. GAAP when it became effective for the Company on January 1, 2018. The standard permits the use of either the retrospective or modified retrospective transition method. Additionally, ASU No. 2014‑09 requires enhanced disclosures, including revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition. The Company adopted ASU No. 2014‑09 using the retrospective transition method. The adoption of ASU No. 2014‑09 did not have a material effect on the Company’s consolidated financial statements and no adjustments were required to prior periods because there were no changes to the Company’s recognition of revenues or presentation of revenues in the consolidated statements of operations. In January 2016, the FASB issued ASU No. 2016‑01, “ Financial Instruments—Overall (Subtopic 825‑10): Recognition and Measurement of Financial Assets and Financial Liabilities ”. The amendments in this update address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016‑01 was effective for the Company beginning January 1, 2018. The adoption of ASU No. 2016‑01 did not have a material effect on the Company’s consolidated financial statements. In February 2016, the FASB issued ASU No. 2016‑02, “ Leases (Topic 842) ” and in July 2018, the FASB issued ASU 2018-10 "Codification Improvements to Topic 842, Leases" and ASU 2018-11 "Leases (Topic 842) Targeted Improvements" (collectively "ASC Topic 842"). ASC Topic 842 requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. ASC Topic 842 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right‑to‑use asset for the right to use the underlying asset for the lease term. ASC Topic 842 is effective for the Company for interim and annual periods beginning January 1, 2019 and early adoption is permitted. We expect that most of the Company’s operating lease commitments will be subject to ASC Topic 842 and recognized as operating lease liabilities and right of use assets upon adoption, resulting in a significant increase in assets and liabilities on the consolidated balance sheet. We are continuing our assessment of ASC Topic 842 which may identify additional impacts that ASC Topic 842 will have on the Company’s consolidated financial statements and disclosures. In March 2016, the FASB issued ASU No. 2016‑09, “ Improvements to Employee Share‑Based Payment Accounting , which amends ASC Topic 718, Stock Compensation ”. The objective of this amendment is part of the FASB’s Simplification Initiative as it applies to several aspects of the accounting for share‑based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU No. 2016‑09 was effective for the Company on January 1, 2017. The adoption of ASU No. 2016‑09 did not have a material effect on the Company’s consolidated financial statements. In August 2016, the FASB issued ASU No. 2016‑15, “ Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments ”. ASU No. 2016‑15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The Company adopted ASU No. 2016‑15 on January 1, 2017. The adoption of ASU No. 2016‑15 did not have a material effect on the Company’s consolidated financial statements. In January 2017, the FASB issued ASU 2017‑01, “ Business Combinations (Topic 805) Clarifying the Definition of a Business”, which amends the guidance of FASB Accounting Standards Codification Topic 805, “ Business Combinations ”, adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. ASU No. 2017‑01 was effective for the Company prospectively on January 1, 2018. The adoption of ASU No. 2017‑01 did not have a material effect on the Company’s consolidated financial statements. In January 2017, the FASB issued ASU No. 2017‑04, “ Simplifying the Test for Goodwill Impairment ”, which removes the second step of the goodwill impairment test that requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU No. 2017‑04 is effective for interim and annual reporting periods beginning after December 15, 2019 and will be applied prospectively, early adoption is permitted. ASU No. 2017‑04 is not expected to have a material effect on the Company’s consolidated financial statements. In May 2017, the FASB issued ASU No. 2017‑09, “ Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting” . ASU No. 2017‑09 provides guidance that clarifies when changes to the terms or conditions of a share‑based payment award require the application of modification accounting under ASC 718. ASU No. 2017‑09 will allow for certain changes to be made to awards without accounting for them as modifications. The Company early adopted ASU No. 2017‑09 during the year ended December 31, 2017. The adoption of ASU No. 2017‑09 did not have a material effect on the Company’s consolidated financial statements. In June 2018, the FASB issued ASU No. 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”, which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. ASU No. 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year, with early adoption permitted after adoption of ASU No. 2014-09. The Company has not yet determined the effect of ASU No. 2018-07 on its ongoing financial reporting. Subsequent Events — Initial Public Offering On July 30, 2018, Focus Inc. completed its IPO of 18,648,649 shares of its Class A common stock, par value $0.01 per share, including 2,432,432 shares of Class A common stock sold in connection with the full exercise of the option to purchase additional shares granted to the underwriters, at a price to the public of $33.00 per share. The shares began trading on the NASDAQ Global Select Market on July 26, 2018 under the ticker symbol “FOCS.” Reorganization Transactions In connection with the IPO, the Company completed the Reorganization Transactions. The equity interests in the Company at the date of the IPO consisted of convertible preferred units, common units and incentive units, each incentive unit having a hurdle amount similar to the exercise price of a stock option. The owners of Company units immediately prior to the IPO (“Existing Owners”) primarily included (i) affiliates of the Company’s private equity investors (“Private Equity Investors”), (ii) members of management of the Company, (iii) current and former principals of independent fiduciary wealth management and related businesses acquired by the Company and (iv) current and former employees of the Company. The following steps were implemented in connection with the Reorganization Transactions: · The Company purchased, utilizing existing working capital, all common units held by Existing Owners who were not accredited investors, as defined by Rule 501 of Regulation D, at a purchase price per unit equal to 1.25 times the IPO price of $33.00 per share (“Gross IPO Price”). The Company accelerated the vesting of all unvested incentive units held by Existing Owners who were not accredited investors and converted the incentive units of each such holder into a number of common units equal to (i) the number of such incentive units times the Gross IPO Price, minus the aggregate hurdle amount of such incentive units, divided by (ii) the Gross IPO Price (the “Appropriate Conversion Number”). The Company then purchased all common units issued upon such conversion at a purchase price per unit equal to 1.25 times the Gross IPO Price. The Company paid a total of $26,001 to Existing Owners who were not accredited investors. · Existing owners who were accredited investors and held fewer than 85,000 common units and incentive units in the aggregate are referred to as “Mandatorily Exchanging Owners.” The Company converted all vested and unvested incentive units of Mandatorily Exchanging Owners into the Appropriate Conversion Number of vested and unvested common units, respectively. Mandatorily Exchanging Owners were given an election to sell up to 100% of their vested common units (after giving effect to such conversion) to Focus Inc. at the Gross IPO Price less the underwriting discount (the “Net IPO Price”), subject to cut‑backs depending on the proceeds available from the IPO. The vested and unvested common units of a Mandatorily Exchanging Owner not sold were exchanged for an equal number of shares of vested Class A common stock and unvested Class A common stock of Focus Inc. Mandatorily Exchanging Owners of vested common units issued upon conversion of vested incentive units and not sold received (i) vested non‑compensatory stock options of Focus Inc. to purchase a number of shares of Class A common stock of Focus Inc. equal to (A) the number of vested incentive units that were converted into such vested common units minus (B) the number of shares of vested Class A common stock issued in such exchange and (ii) cash in an amount equal to 65% of the fair market value of such non‑compensatory stock options. Mandatorily Exchanging Owners of unvested common units issued upon conversion of unvested incentive units and not sold received unvested compensatory stock options of Focus Inc. to purchase a number of shares of Class A common stock of Focus Inc. equal to (i) the number of unvested incentive units that were converted into such unvested common units minus (ii) the number of shares of unvested Class A common stock issued in such exchange. · Existing Owners who were accredited investors and held 85,000 or more common units and incentive units in the aggregate were given an election to sell up to 100% of their vested common units and vested incentive units (after conversion into the Appropriate Conversion Number of common units) to Focus Inc. at the Net IPO Price, subject to cut‑backs depending on the proceeds available from the IPO. These Existing Owners were also given an election to exchange all or a portion of their remaining common units and incentive units for vested and unvested Class A common stock of Focus Inc. These Existing Owners continue to hold their common units and incentive units of the Company remaining after any such sale or exchange. · All outstanding convertible preferred units of direct or indirect owners of the Company’s convertible preferred units that are treated as corporations for U.S. federal income tax purposes were converted into common units on a one‑for‑one basis and each common unit was exchanged for one share of Class A common stock of Focus Inc. All outstanding convertible preferred units of direct or indirect owners of the Company’s convertible preferred units that are not treated as corporations for U.S. federal income tax purposes were converted into common units on a one‑for‑one basis and certain of these common units were exchanged for shares of Class A common stock of Focus Inc. Existing Owners who hold common units of the Company after the Reorganization Transactions received shares of Class B common stock of Focus Inc. Shares of Class B common stock do not entitle their holders to any economic rights. Holders of Class A common stock and Class B common stock of Focus Inc. will vote together as a single class on all matters presented to the shareholders of Focus Inc. for their vote or approval, except as otherwise required by applicable law. Each share of Class B common stock will entitle its holder to one vote. In connection with the Reorganization Transactions, Focus Inc. issued an aggregate of 23,881,002 shares of Class A common stock, compensatory stock options to purchase an aggregate of 386,832 shares of Class A common stock, non-compensatory stock options to purchase an aggregate of 348,577 shares of Class A common stock and an aggregate of 22,499,665 shares of Class B common stock. Due to certain post-closing adjustments, Focus Inc. cancelled 240,457 shares of Class A common stock and issued 240,457 shares of Class B common stock effective as of the closing date of the IPO. Following completion of the IPO and the Reorganization Transactions, Focus Inc. held an approximate 59.2% interest in the Company, assuming vesting of all outstanding unvested incentive units, conversion of all outstanding incentive units into 6,814,600 common units in connection with exercise of an exchange right and a then-current value of the common units equal to the $33.00 IPO price per share of Class A common stock. Use of Proceeds Focus Inc. received $564,826 of estimated net proceeds from the sale of the Class A common stock in the IPO including $74,651 in connection with the full exercise of the option to purchase additional shares granted to the underwriters . Focus Inc. used $11,137 of the net proceeds to pay Mandatorily Exchanging Owners who elected to sell their units of the Company and $24,400 to pay other Existing Owners who elected to sell their units of the Company. Focus Inc. contributed $529,289 of the net proceeds from the IPO to the Company in exchange for 17,583,947 common units of the Company. The Company used $392,535 of such contribution to reduce indebtedness under its Credit Facility (as defined below). The remaining $136,754 of such contribution will be used by the Company for acquisitions and general corporate business purposes and to pay the expenses of the IPO. Amendment to Credit Facility In June 2018, the Company entered into an amendment to its Credit Facility that became effective upon closing of the IPO. The Company’s First Lien Term Loan (as defined below) was reduced to $803,000 and was amended to reduce the Company’s interest rate to the London InterBank Offered Rate (“LIBOR”) plus a margin of 2.75% or the lender’s Base Rate (as defined in the Credit Facility) plus a margin of 1.75%; provided that, from and after the later of (x) July 18, 2018 and (y) the first date on which the Company has obtained public corporate family ratings of at least Ba3 (stable) from Moody’s and BB‑ (stable) from S&P, the foregoing rates shall be reduced to LIBOR plus a margin of 2.50% or the lender’s Base Rate plus a margin of 1.50%. The Company’s First Lien Revolver (as defined below) was amended to increase the Company’s borrowing capacity to $650,000 and extend the maturity date to 5 years from the effective date of the amendment. The Company’s First Lien Revolver was also amended such that it will bear interest at LIBOR plus a margin of 2.00% with step downs to 1.75%, 1.50% and 1.25% or the lender’s Base Rate plus a margin of 1.00% with step downs to 0.75%, 0.50% and 0.25%, based on achievement of a specified First Lien Leverage Ratio (as defined in the Credit Facility). The First Lien Revolver unused commitment fee will be 0.50% with step downs to 0.375% and 0.25% based on achievement of a specified First Lien Leverage Ratio. The Company’s Credit Facility was also amended to require the Company to maintain a First Lien Leverage Ratio of not more than 6.25:1.00 instead of the prior requirement to maintain a Total Secured Leverage Ratio (as defined in the Credit Facility) of 8.85:1.00. Additionally, the Company repaid the $207,000 Second Lien Term Loan in July 2018. Tax Receivable Agreements In connection with the closing of the IPO, Focus Inc. entered into two Tax Receivable Agreements; one with certain entities affiliated with the Private Equity Investors and the other with certain other continuing and former owners of the Company (the “TRA holders”). The agreements generally provide for the payment by Focus Inc. to each TRA holder of 85% of the net cash savings, if any, in U.S. federal, state and local income and franchise tax that Focus Inc. actually realizes (computed using simplifying assumptions to address the impact of state and local taxes) or is deemed to realize in certain circumstances in periods after the IPO as a result of certain increases in tax bases and certain tax benefits attributable to imputed interest. Focus Inc. will retain the benefit of the remaining 15% of these cash savings. 2018 Omnibus Incentive Plan On July 30, 2018, the Board of Directors of Focus Inc. (the “Board”) adopted the Omnibus Plan for the employees, consultants and the directors of the Company and its affiliates who perform services for it. The Omnibus Plan provides for potential grants of the following awards with respect to shares of Focus Inc.’s Class A common stock, to the extent applicable: (i) incentive stock options qualified as such under U.S. federal income tax laws; (ii) non-qualified stock options or any other form of stock options; (iii) restricted stock awards; (iv) phantom stock awards; (v) restricted stock units; (vi) bonus stock; (vii) performance awards; (viii) annual cash incentive awards; (ix) any of the foregoing award types (other than incentive stock options) as awards related to the Company’s units; and (x) incentive units in the Company. The maximum aggregate number of shares of Focus Inc.’s Class A common stock that may be issued pursuant to awards under the Omnibus Plan shall not exceed 6,000,000 shares (including such number of the Company’s units or other securities which can be exchanged or converted into shares). The reserve pool is subject to adjustment due to recapitalization or reorganization, or related to forfeitures or the expiration of awards, as provided under the Omnibus Plan. If the shares or units subject to any award are not issued or transferred, or cease to be issuable or transferable for any reason, including (but not exclusively) because shares or units are withheld or surrendered in payment of taxes or any exercise or purchase price relating to an award or because an award is forfeited, terminated, expires unexercised, is settled in cash or is otherwise terminated without a delivery of shares or units, those shares or units will again be available for issue, transfer or exercise pursuant to awards under the Omnibus Plan to the extent allowable by law. The Omnibus Plan also contains a provision that will add an additional number of shares equal to the lesser of (a) 3,000,000 shares, (b) 5% of the outstanding (vested and unvested) shares and the Company’s units of the last day of the previous year, and (c) an amount determined by the Board, each year between 2019 and 2028. The Company has conducted a review for and evaluated subsequent events from July 1, 2018 through August 28, 2018, the date the consolidated financial statements were available to be issued. |
ACQUISITIONS
ACQUISITIONS | 6 Months Ended |
Jun. 30, 2018 | |
Predecessor | |
ACQUISITIONS | 3. ACQUISITIONS Business Acquisitions Business acquisitions are accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 805: Business Combinations . The Company has incorporated contingent consideration, or earn out provisions, into the structure of its acquisitions. The Company recognizes the fair value of estimated contingent consideration at the acquisition date as part of the consideration transferred in the exchange. The contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved. The purchase price associated with business acquisitions and the allocation thereof during the six months ended June 30, 2018 is as follows: Number of business acquisitions closed 11 Consideration: Cash due at closing and option premium $ 215,044 Fair market value of common units issued 32,440 Fair market value of estimated contingent consideration 21,878 Total consideration $ 269,362 Allocation of purchase price: Total tangible assets $ 2,046 Total liabilities assumed (1,362) Customer relationships 128,780 Management contracts 15,120 Goodwill 124,479 Other intangibles 299 Total allocated consideration $ 269,362 Management believes approximately $222,196 of tax goodwill and intangibles related to business acquisitions completed during the six months ended June 30, 2018 will be deductible for tax purposes. Additional tax goodwill may be deductible when estimated contingent consideration is earned and paid. The accompanying unaudited condensed consolidated statement of operations for the six months ended June 30, 2018 includes revenue and income from operations for the business acquisitions that are new subsidiary partner firms from the date they were acquired of $31,783 and $4,736. Asset Acquisitions The Company also separately purchased customer relationships and other intangible assets. These purchases are accounted for as asset acquisitions as they do not qualify as business acquisitions pursuant to ASC Topic 805, Business Combinations . Total purchase consideration for asset acquisitions during the six months ended June 30, 2018 was $903 in cash plus contingent consideration as additional purchase consideration when the outcome is determinable. The weighted‑average useful lives of intangible assets acquired during the six months ended June 30, 2018 through business acquisitions and asset acquisitions are as follows: Number of Years Management contracts 20 Customer relationships 10 Other intangibles 5 Weighted‑average useful life of all intangibles acquired 11 From July 1, 2018, to August 28, 2018, the Company completed wealth management business acquisitions and acquired customer relationships and other intangible assets for cash at closing, cash due subsequent to closing and restricted common unit consideration of $118,960, plus contingent consideration. |
GOODWILL AND OTHER INTANGIBLES
GOODWILL AND OTHER INTANGIBLES | 6 Months Ended |
Jun. 30, 2018 | |
Predecessor | |
GOODWILL AND OTHER INTANGIBLES | 4. GOODWILL AND OTHER INTANGIBLE ASSETS The following table summarizes the change in the goodwill balances for the year ended December 31, 2017 and the six months ended June 30, 2018: December 31, June 30, 2017 2018 Balance beginning of period: Goodwill $ 339,129 $ 538,113 Cumulative impairment losses (22,624) (22,624) 316,505 515,489 Goodwill acquired 198,546 124,479 Other 438 (369) 198,984 124,110 Balance end of period: Goodwill 538,113 662,223 Cumulative impairment losses (22,624) (22,624) $ 515,489 $ 639,599 The following table summarizes the amortizing acquired intangible assets at December 31, 2017: Gross Carry Accumulated Net Book Amount Amortization Value Customer relationships $ 713,966 $ (270,629) $ 443,337 Management contracts 103,316 (25,976) 77,340 Other intangibles 3,436 (1,831) 1,605 Total $ 820,718 $ (298,436) $ 522,282 The following table summarizes the amortizing acquired intangible assets at June 30, 2018: Gross Carry Accumulated Net Book Amount Amortization Value Customer relationships $ 844,407 $ (308,776) $ 535,631 Management contracts 118,371 (28,917) 89,454 Other intangibles 3,841 (2,192) 1,649 Total $ 966,619 $ (339,885) $ 626,734 |
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS | 6 Months Ended |
Jun. 30, 2018 | |
Predecessor | |
FAIR VALUE MEASUREMENTS | 5. FAIR VALUE MEASUREMENTS ASC Topic 820, Fair Value Measurement establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability, developed based on the best information available in the circumstances. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows: Level 1 —Unadjusted price quotations in active markets for identical assets or liabilities. Level 2 —Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 —Significant unobservable inputs that are not corroborated by market data. The implied fair value of the Company’s First Lien Term Loan and Second Lien Term Loan based on Level 2 inputs at December 31, 2017 and June 30, 2018 are as follows: December 31, 2017 June 30, 2018 Stated Fair Stated Fair Value Value Value Value First Lien Term Loan $ 793,012 $ 799,952 $ 988,535 $ 988,535 Second Lien Term Loan 207,000 208,811 207,000 209,070 For business acquisitions, the Company recognizes the fair value of estimated contingent consideration at the acquisition date as part of purchase price. This fair value measurement is based on Level 3 inputs. The following table represents changes in the fair value of estimated contingent consideration for business acquisitions for the year ended December 31, 2017 and the six months ended June 30, 2018: Balance as of January 1, 2017 $ 26,188 Additions to estimated contingent consideration 37,551 Payments of contingent consideration (9,435) Non‑cash changes in fair value of estimated contingent consideration 22,294 Other 79 Balance as of December 31, 2017 76,677 Additions to estimated contingent consideration 21,878 Payments of contingent consideration (8,319) Non‑cash changes in fair value of estimated contingent consideration 18,315 Other (150) Balance at June 30, 2018 $ 108,401 Estimated contingent consideration is included in other liabilities in the accompanying consolidated balance sheets. In determining fair value of the estimated contingent consideration, the acquired business’s future performance is estimated using financial projections for the acquired businesses. These financial projections, as well as alternative scenarios of financial performance, are measured against the performance targets specified in each respective acquisition agreement. The fair value of the Company’s estimated contingent consideration is established using the monte carlo simulation model. The significant unobservable input used in the fair value measurement of the Company’s estimated contingent consideration is the forecasted growth rates over the measurement period. Significant increases or decreases in the Company’s forecasted growth rates over the measurement would result in a higher or lower fair value measurement. Inputs used in the fair value measurement of estimated contingent consideration at December 31, 2017 and June 30, 2018 are summarized below: Quantitative Information About Level 3 Fair Value Measurements Fair Value at Valuation Unobservable December 31, 2017 Techniques Input Range $ 76,677 Monte carlo simulation model Forecasted growth rates (0.8)% ‑ 24.9 % Quantitative Information About Level 3 Fair Value Measurements Fair Value at Valuation Unobservable June 30, 2018 Techniques Input Range $ 108,401 Monte carlo simulation model Forecasted growth rates (26.4)% ‑ 70.4 % |
CREDIT FACILITY
CREDIT FACILITY | 6 Months Ended |
Jun. 30, 2018 | |
Predecessor | |
CREDIT FACILITY | 6. CREDIT FACILITY As of December 31, 2016, the Company had a credit facility of approximately $1,067,000 consisting of term and revolving loans, inclusive of an accordion feature of $255,000 (the “Old Credit Facility”). The Old Credit Facility had a June 2020 maturity date. In July 2017, the Company entered into new credit facilities (collectively, the “Credit Facility”). The Credit Facility consists of a $795,000 first lien term loan (the “First Lien Term Loan”), a $250,000 first lien revolving credit facility (the “First Lien Revolver”), and a $207,000 second lien term loan (the “Second Lien Term Loan”). In connection with the Credit Facility, the Company repaid all amounts outstanding under the Old Credit Facility with the proceeds from the Credit Facility and wrote off all deferred financing costs related to the Old Credit Facility resulting in a $8,106 loss on extinguishment of borrowings in the consolidated statement of operations during the year ended December 31, 2017. The First Lien Term Loan has a maturity date of July 2024 and requires quarterly installment repayments of $1,988. The First Lien Term Loan was issued at a discount of 0.125% or $994 that the Company is amortizing to interest expense over the term of the First Lien Term Loan. The First Lien Revolver has a maturity date of July 2022 and has no required quarterly installment repayments. Up to $30,000 of the First Lien Revolver is available for the issuance of letters of credit, subject to certain limitations. The First Lien Term Loan (up to January 2018 as noted below) and First Lien Revolver bear interest (at the Company’s option) at: (i) LIBOR plus a margin of 3.25% with the First Lien Revolver having step downs to 3.00% and 2.75% based on achievement of a specified First Lien Leverage Ratio or, (ii) the lender’s Base Rate (as defined in the Credit Facility) plus a margin of 2.25% with the First Lien Revolver having step downs to 2.00% and 1.75% based on achievement of a specified First Lien Leverage Ratio. The First Lien Leverage Ratio means the ratio of total amounts outstanding under the First Lien Term Loan and First Lien Revolver plus other outstanding debt obligations secured on a pari passu basis with the liens securing the First Lien Term Loan and First Lien Revolver (excluding letters of credit other than unpaid drawings thereunder) minus unrestricted cash and cash equivalents, to Consolidated EBITDA (as defined in the Credit Facility). The Credit Facility also includes an unused commitment fee of 0.50% of the outstanding commitments under the First Lien Revolver, with a stepdown to 0.375% based on achievement of a specified First Lien Leverage Ratio. As of December 31, 2017 and June 30, 2018, the available unused commitment line was $247,768 and $247,043, respectively. In January 2018, the Company amended its First Lien Term Loan to reduce its interest rate to LIBOR plus a margin of 2.75% or the lender’s Base Rate plus a margin of 1.75%. The First Lien Term Loan requires a prepayment penalty of 1.00% of the then outstanding principal amount of the First Lien Term Loan if repaid prior to July 2018. As a result of the amendment, the Company recognized in January 2018 a loss on extinguishment of borrowings of $14,011, representing the write‑off of $13,094 and $917 in deferred financing costs and unamortized discount related to the First Lien Term Loan, respectively. In April 2018, the Company expanded its First Lien Term Loan by $200,000. In connection with the $200,000 incremental First Lien Term Loan the Company incurred $1,347 in debt financing costs. In addition, the quarterly installment repayments increased to $2,490 beginning in June 2018. The Second Lien Term Loan has a maturity date of July 2025 and bears interest (at the Company’s option) at: (i) LIBOR plus a margin of 7.50% or (ii) the lender’s Base Rate plus a margin of 6.50%. The Second Lien Term Loan has no required installment repayments due prior to the maturity date. The Second Lien Term Loan was issued at a discount of 1.00% or $2,070 that the Company is amortizing to interest expense over the term of the Second Lien Term Loan. The Second Lien Term Loan requires a prepayment penalty of 1.00% of the then outstanding principal amount of the Second Lien Term Loan if prepaid prior to July 2019. The Company’s obligations under the Credit Facility are collateralized by the majority of the Company’s assets. The Credit Facility contains various customary covenants, including, but not limited to: (i) incurring additional indebtedness or guarantees, (ii) creating liens or other encumbrances on property or granting negative pledges, (iii) entering into a merger or similar transaction, (iv) selling or transferring certain property and (v) declaring dividends or making other restricted payments. The Credit Facility requires the Company to maintain, as of the last day of each fiscal quarter, a Total Secured Leverage Ratio (as defined below) of not more than 8.85:1.00 for each quarterly measurement period through March 31, 2019 and 8.60:1.00 thereafter. At June 30, 2018, the Company’s Total Secured Leverage Ratio was 5.58:1.00, which satisfied the maximum ratio of 8.85:1.00. Total Secured Leverage Ratio means the ratio of amounts outstanding under the First Lien Term Loan, First Lien Revolver and Second Lien Term Loan plus other outstanding debt obligations secured by a lien on the assets of the Company (excluding letters of credit other than unpaid drawings thereunder) minus unrestricted cash and cash equivalents to Consolidated EBITDA. The Company is also subject to contingent principal payments based on excess cash flow (as defined in the Credit Facility) commencing with and including the fiscal year ending December 31, 2018. In connection with the Credit Facility, the Company incurred debt financing costs. The Company defers and amortizes its debt financing costs over the respective terms of the First Lien Term Loan, First Lien Revolver and Second Lien Term Loan. The debt financing costs related to the First Lien Term Loan and Second Lien Term Loan are recorded as reduction of the carrying amounts of the First Lien Term Loan and Second Lien Term Loan in the consolidated balance sheet as of December 31, 2017 and June 30, 2018. The debt financing costs related to the First Lien Revolver are recorded in debt financing costs‑net in the consolidated balance sheet as of December 31, 2017 and June 30, 2018. The following is a reconciliation of principal amounts outstanding under the Credit Facility to borrowings under credit facilities recorded in the consolidated balance sheets at December 31, 2017 and June 30, 2018: December 31, June 30, 2017 2018 First Lien Term Loan $ 793,012 $ 988,535 Second Lien Term Loan 207,000 207,000 Unamortized debt financing costs (16,646) (5,118) Unamortized discount (2,864) (1,812) Total $ 980,502 $ 1,188,605 In connection with the First Lien Revolver closing in July 2017, the Company incurred $14,735 in deferred financing costs. At December 31, 2017 and June 30, 2018, unamortized debt financing costs associated with the First Lien Revolver of $13,278 and $11,804, respectively, were recorded in debt financing costs‑net in the consolidated balance sheets. There were no First Lien Revolver amounts outstanding at December 31, 2017 and June 30, 2018. Weighted‑average interest rates for outstanding borrowings was approximately 5% for the year ended December 31, 2017 and 6% for each of the three and six months ended June 30, 2018. As of December 31, 2017, and June 30, 2018, the Company was contingently obligated for letters of credit in the amount of $2,232 and $2,957, respectively, each bearing interest at an annual rate of approximately 3%. |
MEZZANINE EQUITY_MEMBERS' DEFIC
MEZZANINE EQUITY/MEMBERS' DEFICIT | 6 Months Ended |
Jun. 30, 2018 | |
Predecessor | |
MEZZANINE EQUITY/MEMBERS' DEFICIT | 7. MEZZANINE EQUITY/MEMBERS’ DEFICIT Incentive Units The following table provides information relating to the status of, and changes in, incentive units granted during the six months ended June 30, 2018: Incentive Weighted Average Units Hurdle Price Outstanding—January 1, 2018 15,229,039 $ 15.53 Granted 766,411 24.31 Forfeited (39,125) 18.99 Outstanding—June 30, 2018 15,956,325 15.94 Vested—June 30, 2018 8,490,433 11.32 |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 6 Months Ended |
Jun. 30, 2018 | |
Predecessor | |
COMMITMENTS AND CONTINGENCIES | 8. COMMITMENTS AND CONTINGENCIES Credit Risk —The Company’s broker‑dealer subsidiaries clear all transactions through clearing brokers on a fully disclosed basis. Pursuant to the terms of the agreements between the Company’s broker‑dealer subsidiaries and their clearing brokers, the clearing brokers have the right to charge the Company’s broker‑dealer subsidiaries for losses that result from a counterparty’s failure to fulfill its contractual obligations. This right applies to all trades executed through its clearing brokers, and therefore, the Company believes there is no maximum amount assignable to the right of the clearing brokers. Accordingly, at December 31, 2017 and June 30, 2018, the Company had recorded no liabilities in connection with this right. In addition, the Company has the right to pursue collection or performance from the counterparties who do not perform under their contractual obligations. The Company monitors the credit standing of the clearing brokers and counterparties with which they conduct business. The Company is exposed to credit risk for accounts receivable from clients. Such credit risk is limited to the amount of accounts receivable. The Company is also exposed to credit risk for changes in the benchmark interest rate (LIBOR or Base Rate) in connection with its Credit Facility. The Company maintains its cash in bank depository accounts, which, at times, may exceed federally insured limits. The Company selects depository institutions based, in part, upon management’s review of the financial stability of the institution. At December 31, 2017 and June 30, 2018, a significant portion of cash and cash equivalents were held at a single institution. Contingent Consideration Arrangements —Contingent consideration is payable in the form of cash and/or Company common units. Since the contingent consideration to be paid is based on the growth of forecasted financial performance levels over a number of years, the Company cannot calculate the maximum contingent consideration that may be payable under these arrangements. Legal and Regulatory Matters —In the ordinary course of business, the Company is involved in lawsuits and other claims. The Company has insurance to cover certain losses that arise in such matters; however, this insurance may not be sufficient to cover these losses. Management, after consultation with legal counsel, currently does not anticipate that the aggregate liability, if any, arising out of any existing legal matters will have a material effect on the Company’s consolidated financial position, results of operations or cash flows. From time to time, the Company’s subsidiaries receive requests for information from governmental authorities regarding business activities. The Company has cooperated and will continue to cooperate fully with all governmental agencies. The Company continues to believe that the resolution of any governmental inquiry will not have a material impact on the Company’s consolidated financial position, results of operations or cash flows. Indemnifications —In the ordinary course of business, the Company enters into contracts pursuant to which it may agree to indemnify third parties in certain circumstances. The terms of these indemnities vary from contract to contract and the amount of indemnification liability, if any, cannot be determined. Management believes that the likelihood of any liability arising under these indemnification provisions is remote. Management cannot estimate any potential maximum exposure due to both the remoteness of any potential claims and the fact that items that would be included within any such calculated claim would be beyond the control of the Company. Consequently, no liability has been recorded on the consolidated balance sheets. Succession Program —The Company has a succession program to provide wealth management firms a succession planning solution for their businesses. Pursuant to the program, the wealth management firm enters into an agreement with one of the Company’s subsidiaries that provides the firm the ability (subject to certain terms and conditions) to sell substantially all of its assets to the Company’s subsidiary at a future date for an acquisition price based on a predetermined formula. |
CASH FLOW INFORMATION
CASH FLOW INFORMATION | 6 Months Ended |
Jun. 30, 2018 | |
Predecessor | |
CASH FLOW INFORMATION | 9. CASH FLOW INFORMATION Six Months Ended June 30, 2017 2018 Supplemental disclosures of cash flow information—cash paid for: Interest $ 13,587 $ 32,655 Income taxes $ 2,117 $ 2,922 Supplemental non‑cash cash flow information: Fair market value of estimated contingent consideration in connection with acquisitions $ 13,689 $ 21,878 Fair market value of restricted common units in connection with acquisitions and contingent consideration $ 22,777 $ 32,829 Accretion of senior preferred units return $ 6,181 $ — Accretion of senior preferred units to estimated redemption value $ 17,265 $ — Accretion of junior preferred units return $ 665 $ — Accretion of junior preferred units to estimated redemption value $ 8,356 $ — Net assets acquired in connection with business acquisitions $ 316 $ 684 |
RELATED PARTIES
RELATED PARTIES | 6 Months Ended |
Jun. 30, 2018 | |
Predecessor | |
RELATED PARTIES | 10. RELATED PARTIES The Company reimburses the Company’s Chief Executive Officer for certain costs and third‑party payments associated with the use of his personal aircraft for Company‑related business travel. The Company also pays pilot fees for such business travel flights. During the three and six months ended June 30, 2018, the Company recognized expenses of $374 and $897, respectively, related to these reimbursements At June 30, 2018, affiliates of certain of the Company’s convertible preferred unit holders were lenders under the Company’s Credit Facility. |
OTHER
OTHER | 6 Months Ended |
Jun. 30, 2018 | |
Predecessor | |
OTHER | 11. OTHER In March 2018, the Company recognized a gain on sale of investment of $5,509 related to an investment in a financial service company previously carried at cost. The gain on sale of investment is presented in other income (expense) in the Company’s condensed consolidated statement of operations for the six months ended June 30, 2018. In June 2018, the Company completed a minority cost method investment of $20,000 in a financial technology company that connects prospective clients with financial advisors and provides tools to help individuals make financial decisions. |
SUMMARY OF ACCOUNTING POLICIES
SUMMARY OF ACCOUNTING POLICIES (Policies) - Predecessor | 6 Months Ended |
Jun. 30, 2018 | |
Basis of Presentation | Basis of Presentation —The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of only normal recurring adjustments, considered necessary for fair presentation have been included. The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in Focus Inc.’s final prospectus dated July 25, 2018, as filed with the SEC on July 27, 2018 (the “Final Prospectus”). Operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. |
Use of Estimates | Use of Estimates —The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. |
Revenue Recognition | Revenue Recognition— Wealth Management Fees —The Company, solely through its subsidiaries, recognizes revenue from wealth management fees, which are primarily comprised of fees earned for advising on the assets of clients, financial and tax planning fees, consulting fees, tax return preparation fees, fees for family office services, and fees for wealth management and operational support services provided to third‑party wealth management firms. Client arrangements may contain a single or multiple performance obligations, each of which are separately identifiable and accounted for as the related services are provided and consumed over time. Fees are primarily based either on a contractual percentage of the client’s assets, a flat fee, an hourly rate or a combination of such fees and are billed either in advance or arrears on a monthly, quarterly, or semiannual basis and such fees earned as the services are performed over time. Revenue for wealth management and operational support services provided to third‑party wealth management firms is presented net since these services are performed in an agent capacity. Wealth management fees are recorded when: (i) an arrangement with a client has been identified, (ii) the performance obligations have been identified, (iii) the fee or other transaction price has been determined; (iv) the fee or other transaction price has been allocated to each performance obligation; and (v) the Company has satisfied the applicable performance obligation. Other —Other revenue primarily includes fees earned for recordkeeping and administration services provided to employee benefit plans as well as commissions and distribution fees. Client arrangements may contain a single or multiple performance obligations, each of which are separately identifiable and accounted for as the related services are provided and consumed over time. Recordkeeping and administration revenue, in accordance with the same five criteria above, is recognized over the period in which services are provided. Commissions and distribution fees, in accordance with the same five criteria above, are recognized when earned. Deferred Revenue —Fees collected in advance are deferred and recognized in revenue over the period earned with the unrecognized portion of fees collected in advance recorded as deferred revenue in the accompanying consolidated balance sheets. The Company disaggregates revenue based on the above two categories. The Company does not allocate revenue by the type of service provided in connection with providing holistic wealth management client services. The Company generally manages its business based on the operating results of the enterprise taken as a whole, not by geographic region. The following table disaggregates the revenues based on the location of the partner firm that generates the revenues and therefore may not be reflective of the geography in which clients are located. Three Months Ended June 30, Six Months Ended June 30, 2017 2018 2017 2018 Domestic revenue $ 152,789 $ 225,894 $ 284,263 $ 416,519 International revenue 4,441 5,541 8,513 11,145 Total revenue $ 157,230 $ 231,435 $ 292,776 $ 427,664 |
Segment Reporting | Segment Reporting —Management has determined that the Company operates in one operating segment, as a wealth management focused organization, which is consistent with our structure and how we manage the business. The Company’s acquired businesses have similar economic and business characteristics. The services provided are wealth management related and our businesses are subject to a similar regulatory framework. Furthermore, the Company’s Chief Operating Decision Maker, which is the Company’s Chief Executive Officer, monitors and reviews financial information at a consolidated level for assessing operating results and the allocation of resources. |
Income Taxes | Income Taxes —On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted. Among other things, the Tax Act reduced the U.S. federal corporate income tax rate from a maximum rate of 35%, to a flat rate of 21%, effective January 1, 2018. The Company is principally structured as a limited liability company treated as a partnership for U.S. income tax purposes and therefore does not pay income taxes on its taxable income in most jurisdictions in which it operates. The Company is subject to income taxes on its taxable income in certain foreign countries, in certain state and local jurisdictions that impose income taxes on partnerships, such as the New York City Unincorporated Business Tax, and on the taxable income of its U.S. corporate subsidiaries. The Company’s income tax expense for the three and six months ended June 30, 2018 reflects the reduction in the U.S. corporate income tax rate imposed on its U.S. corporate subsidiaries. The Tax Act also requires companies to pay a one‑time repatriation tax on previously unremitted earnings of certain non‑U.S. corporate subsidiaries. All of the Company’s operations outside the U.S. are conducted by entities that are either disregarded entities or partnerships for U.S. income tax purposes, and, as a result, the deemed repatriation transition tax does not apply to these entities or their earnings. In accordance with the guidance provided by Staff Accounting Bulletin No. 118 (“SAB No. 118”), the Company recognized an income tax benefit of $2,653 for the year ended December 31, 2017 related to the remeasurement of its U.S. corporate deferred tax assets and liabilities. The Company has completed its assessment of the impact of the Tax Act and no measurement period adjustments, as permitted under SAB No. 118, are expected. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements —In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014‑09, “ Revenue from Contracts with Customers”, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. In August 2015, the FASB issued ASU No. 2015‑14, “ Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date.” ASU No. 2015‑14 defers the effective date of ASU No. 2014‑09 by one year for public companies. ASU No. 2015‑14 applies to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. ASU No. 2014‑09 replaced most existing revenue recognition guidance in U.S. GAAP when it became effective for the Company on January 1, 2018. The standard permits the use of either the retrospective or modified retrospective transition method. Additionally, ASU No. 2014‑09 requires enhanced disclosures, including revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition. The Company adopted ASU No. 2014‑09 using the retrospective transition method. The adoption of ASU No. 2014‑09 did not have a material effect on the Company’s consolidated financial statements and no adjustments were required to prior periods because there were no changes to the Company’s recognition of revenues or presentation of revenues in the consolidated statements of operations. In January 2016, the FASB issued ASU No. 2016‑01, “ Financial Instruments—Overall (Subtopic 825‑10): Recognition and Measurement of Financial Assets and Financial Liabilities ”. The amendments in this update address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016‑01 was effective for the Company beginning January 1, 2018. The adoption of ASU No. 2016‑01 did not have a material effect on the Company’s consolidated financial statements. In February 2016, the FASB issued ASU No. 2016‑02, “ Leases (Topic 842) ” and in July 2018, the FASB issued ASU 2018-10 "Codification Improvements to Topic 842, Leases" and ASU 2018-11 "Leases (Topic 842) Targeted Improvements" (collectively "ASC Topic 842"). ASC Topic 842 requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. ASC Topic 842 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right‑to‑use asset for the right to use the underlying asset for the lease term. ASC Topic 842 is effective for the Company for interim and annual periods beginning January 1, 2019 and early adoption is permitted. We expect that most of the Company’s operating lease commitments will be subject to ASC Topic 842 and recognized as operating lease liabilities and right of use assets upon adoption, resulting in a significant increase in assets and liabilities on the consolidated balance sheet. We are continuing our assessment of ASC Topic 842 which may identify additional impacts that ASC Topic 842 will have on the Company’s consolidated financial statements and disclosures. In March 2016, the FASB issued ASU No. 2016‑09, “ Improvements to Employee Share‑Based Payment Accounting , which amends ASC Topic 718, Stock Compensation ”. The objective of this amendment is part of the FASB’s Simplification Initiative as it applies to several aspects of the accounting for share‑based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU No. 2016‑09 was effective for the Company on January 1, 2017. The adoption of ASU No. 2016‑09 did not have a material effect on the Company’s consolidated financial statements. In August 2016, the FASB issued ASU No. 2016‑15, “ Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments ”. ASU No. 2016‑15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The Company adopted ASU No. 2016‑15 on January 1, 2017. The adoption of ASU No. 2016‑15 did not have a material effect on the Company’s consolidated financial statements. In January 2017, the FASB issued ASU 2017‑01, “ Business Combinations (Topic 805) Clarifying the Definition of a Business”, which amends the guidance of FASB Accounting Standards Codification Topic 805, “ Business Combinations ”, adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. ASU No. 2017‑01 was effective for the Company prospectively on January 1, 2018. The adoption of ASU No. 2017‑01 did not have a material effect on the Company’s consolidated financial statements. In January 2017, the FASB issued ASU No. 2017‑04, “ Simplifying the Test for Goodwill Impairment ”, which removes the second step of the goodwill impairment test that requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU No. 2017‑04 is effective for interim and annual reporting periods beginning after December 15, 2019 and will be applied prospectively, early adoption is permitted. ASU No. 2017‑04 is not expected to have a material effect on the Company’s consolidated financial statements. In May 2017, the FASB issued ASU No. 2017‑09, “ Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting” . ASU No. 2017‑09 provides guidance that clarifies when changes to the terms or conditions of a share‑based payment award require the application of modification accounting under ASC 718. ASU No. 2017‑09 will allow for certain changes to be made to awards without accounting for them as modifications. The Company early adopted ASU No. 2017‑09 during the year ended December 31, 2017. The adoption of ASU No. 2017‑09 did not have a material effect on the Company’s consolidated financial statements. In June 2018, the FASB issued ASU No. 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”, which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. ASU No. 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year, with early adoption permitted after adoption of ASU No. 2014-09. The Company has not yet determined the effect of ASU No. 2018-07 on its ongoing financial reporting. |
Subsequent Events | Subsequent Events — Initial Public Offering On July 30, 2018, Focus Inc. completed its IPO of 18,648,649 shares of its Class A common stock, par value $0.01 per share, including 2,432,432 shares of Class A common stock sold in connection with the full exercise of the option to purchase additional shares granted to the underwriters, at a price to the public of $33.00 per share. The shares began trading on the NASDAQ Global Select Market on July 26, 2018 under the ticker symbol “FOCS.” Reorganization Transactions In connection with the IPO, the Company completed the Reorganization Transactions. The equity interests in the Company at the date of the IPO consisted of convertible preferred units, common units and incentive units, each incentive unit having a hurdle amount similar to the exercise price of a stock option. The owners of Company units immediately prior to the IPO (“Existing Owners”) primarily included (i) affiliates of the Company’s private equity investors (“Private Equity Investors”), (ii) members of management of the Company, (iii) current and former principals of independent fiduciary wealth management and related businesses acquired by the Company and (iv) current and former employees of the Company. The following steps were implemented in connection with the Reorganization Transactions: · The Company purchased, utilizing existing working capital, all common units held by Existing Owners who were not accredited investors, as defined by Rule 501 of Regulation D, at a purchase price per unit equal to 1.25 times the IPO price of $33.00 per share (“Gross IPO Price”). The Company accelerated the vesting of all unvested incentive units held by Existing Owners who were not accredited investors and converted the incentive units of each such holder into a number of common units equal to (i) the number of such incentive units times the Gross IPO Price, minus the aggregate hurdle amount of such incentive units, divided by (ii) the Gross IPO Price (the “Appropriate Conversion Number”). The Company then purchased all common units issued upon such conversion at a purchase price per unit equal to 1.25 times the Gross IPO Price. The Company paid a total of $26,001 to Existing Owners who were not accredited investors. · Existing owners who were accredited investors and held fewer than 85,000 common units and incentive units in the aggregate are referred to as “Mandatorily Exchanging Owners.” The Company converted all vested and unvested incentive units of Mandatorily Exchanging Owners into the Appropriate Conversion Number of vested and unvested common units, respectively. Mandatorily Exchanging Owners were given an election to sell up to 100% of their vested common units (after giving effect to such conversion) to Focus Inc. at the Gross IPO Price less the underwriting discount (the “Net IPO Price”), subject to cut‑backs depending on the proceeds available from the IPO. The vested and unvested common units of a Mandatorily Exchanging Owner not sold were exchanged for an equal number of shares of vested Class A common stock and unvested Class A common stock of Focus Inc. Mandatorily Exchanging Owners of vested common units issued upon conversion of vested incentive units and not sold received (i) vested non‑compensatory stock options of Focus Inc. to purchase a number of shares of Class A common stock of Focus Inc. equal to (A) the number of vested incentive units that were converted into such vested common units minus (B) the number of shares of vested Class A common stock issued in such exchange and (ii) cash in an amount equal to 65% of the fair market value of such non‑compensatory stock options. Mandatorily Exchanging Owners of unvested common units issued upon conversion of unvested incentive units and not sold received unvested compensatory stock options of Focus Inc. to purchase a number of shares of Class A common stock of Focus Inc. equal to (i) the number of unvested incentive units that were converted into such unvested common units minus (ii) the number of shares of unvested Class A common stock issued in such exchange. · Existing Owners who were accredited investors and held 85,000 or more common units and incentive units in the aggregate were given an election to sell up to 100% of their vested common units and vested incentive units (after conversion into the Appropriate Conversion Number of common units) to Focus Inc. at the Net IPO Price, subject to cut‑backs depending on the proceeds available from the IPO. These Existing Owners were also given an election to exchange all or a portion of their remaining common units and incentive units for vested and unvested Class A common stock of Focus Inc. These Existing Owners continue to hold their common units and incentive units of the Company remaining after any such sale or exchange. · All outstanding convertible preferred units of direct or indirect owners of the Company’s convertible preferred units that are treated as corporations for U.S. federal income tax purposes were converted into common units on a one‑for‑one basis and each common unit was exchanged for one share of Class A common stock of Focus Inc. All outstanding convertible preferred units of direct or indirect owners of the Company’s convertible preferred units that are not treated as corporations for U.S. federal income tax purposes were converted into common units on a one‑for‑one basis and certain of these common units were exchanged for shares of Class A common stock of Focus Inc. Existing Owners who hold common units of the Company after the Reorganization Transactions received shares of Class B common stock of Focus Inc. Shares of Class B common stock do not entitle their holders to any economic rights. Holders of Class A common stock and Class B common stock of Focus Inc. will vote together as a single class on all matters presented to the shareholders of Focus Inc. for their vote or approval, except as otherwise required by applicable law. Each share of Class B common stock will entitle its holder to one vote. In connection with the Reorganization Transactions, Focus Inc. issued an aggregate of 23,881,002 shares of Class A common stock, compensatory stock options to purchase an aggregate of 386,832 shares of Class A common stock, non-compensatory stock options to purchase an aggregate of 348,577 shares of Class A common stock and an aggregate of 22,499,665 shares of Class B common stock. Due to certain post-closing adjustments, Focus Inc. cancelled 240,457 shares of Class A common stock and issued 240,457 shares of Class B common stock effective as of the closing date of the IPO. Following completion of the IPO and the Reorganization Transactions, Focus Inc. held an approximate 59.2% interest in the Company, assuming vesting of all outstanding unvested incentive units, conversion of all outstanding incentive units into 6,814,600 common units in connection with exercise of an exchange right and a then-current value of the common units equal to the $33.00 IPO price per share of Class A common stock. Use of Proceeds Focus Inc. received $564,826 of estimated net proceeds from the sale of the Class A common stock in the IPO including $74,651 in connection with the full exercise of the option to purchase additional shares granted to the underwriters . Focus Inc. used $11,137 of the net proceeds to pay Mandatorily Exchanging Owners who elected to sell their units of the Company and $24,400 to pay other Existing Owners who elected to sell their units of the Company. Focus Inc. contributed $529,289 of the net proceeds from the IPO to the Company in exchange for 17,583,947 common units of the Company. The Company used $392,535 of such contribution to reduce indebtedness under its Credit Facility (as defined below). The remaining $136,754 of such contribution will be used by the Company for acquisitions and general corporate business purposes and to pay the expenses of the IPO. Amendment to Credit Facility In June 2018, the Company entered into an amendment to its Credit Facility that became effective upon closing of the IPO. The Company’s First Lien Term Loan (as defined below) was reduced to $803,000 and was amended to reduce the Company’s interest rate to the London InterBank Offered Rate (“LIBOR”) plus a margin of 2.75% or the lender’s Base Rate (as defined in the Credit Facility) plus a margin of 1.75%; provided that, from and after the later of (x) July 18, 2018 and (y) the first date on which the Company has obtained public corporate family ratings of at least Ba3 (stable) from Moody’s and BB‑ (stable) from S&P, the foregoing rates shall be reduced to LIBOR plus a margin of 2.50% or the lender’s Base Rate plus a margin of 1.50%. The Company’s First Lien Revolver (as defined below) was amended to increase the Company’s borrowing capacity to $650,000 and extend the maturity date to 5 years from the effective date of the amendment. The Company’s First Lien Revolver was also amended such that it will bear interest at LIBOR plus a margin of 2.00% with step downs to 1.75%, 1.50% and 1.25% or the lender’s Base Rate plus a margin of 1.00% with step downs to 0.75%, 0.50% and 0.25%, based on achievement of a specified First Lien Leverage Ratio (as defined in the Credit Facility). The First Lien Revolver unused commitment fee will be 0.50% with step downs to 0.375% and 0.25% based on achievement of a specified First Lien Leverage Ratio. The Company’s Credit Facility was also amended to require the Company to maintain a First Lien Leverage Ratio of not more than 6.25:1.00 instead of the prior requirement to maintain a Total Secured Leverage Ratio (as defined in the Credit Facility) of 8.85:1.00. Additionally, the Company repaid the $207,000 Second Lien Term Loan in July 2018. Tax Receivable Agreements In connection with the closing of the IPO, Focus Inc. entered into two Tax Receivable Agreements; one with certain entities affiliated with the Private Equity Investors and the other with certain other continuing and former owners of the Company (the “TRA holders”). The agreements generally provide for the payment by Focus Inc. to each TRA holder of 85% of the net cash savings, if any, in U.S. federal, state and local income and franchise tax that Focus Inc. actually realizes (computed using simplifying assumptions to address the impact of state and local taxes) or is deemed to realize in certain circumstances in periods after the IPO as a result of certain increases in tax bases and certain tax benefits attributable to imputed interest. Focus Inc. will retain the benefit of the remaining 15% of these cash savings. 2018 Omnibus Incentive Plan On July 30, 2018, the Board of Directors of Focus Inc. (the “Board”) adopted the Omnibus Plan for the employees, consultants and the directors of the Company and its affiliates who perform services for it. The Omnibus Plan provides for potential grants of the following awards with respect to shares of Focus Inc.’s Class A common stock, to the extent applicable: (i) incentive stock options qualified as such under U.S. federal income tax laws; (ii) non-qualified stock options or any other form of stock options; (iii) restricted stock awards; (iv) phantom stock awards; (v) restricted stock units; (vi) bonus stock; (vii) performance awards; (viii) annual cash incentive awards; (ix) any of the foregoing award types (other than incentive stock options) as awards related to the Company’s units; and (x) incentive units in the Company. The maximum aggregate number of shares of Focus Inc.’s Class A common stock that may be issued pursuant to awards under the Omnibus Plan shall not exceed 6,000,000 shares (including such number of the Company’s units or other securities which can be exchanged or converted into shares). The reserve pool is subject to adjustment due to recapitalization or reorganization, or related to forfeitures or the expiration of awards, as provided under the Omnibus Plan. If the shares or units subject to any award are not issued or transferred, or cease to be issuable or transferable for any reason, including (but not exclusively) because shares or units are withheld or surrendered in payment of taxes or any exercise or purchase price relating to an award or because an award is forfeited, terminated, expires unexercised, is settled in cash or is otherwise terminated without a delivery of shares or units, those shares or units will again be available for issue, transfer or exercise pursuant to awards under the Omnibus Plan to the extent allowable by law. The Omnibus Plan also contains a provision that will add an additional number of shares equal to the lesser of (a) 3,000,000 shares, (b) 5% of the outstanding (vested and unvested) shares and the Company’s units of the last day of the previous year, and (c) an amount determined by the Board, each year between 2019 and 2028. The Company has conducted a review for and evaluated subsequent events from July 1, 2018 through August 28, 2018, the date the consolidated financial statements were available to be issued. |
SUMMARY OF ACCOUNTING POLICIE28
SUMMARY OF ACCOUNTING POLICIES (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Predecessor | |
Schedule of disaggregates the revenues based on the location of the partner firm | Three Months Ended June 30, Six Months Ended June 30, 2017 2018 2017 2018 Domestic revenue $ 152,789 $ 225,894 $ 284,263 $ 416,519 International revenue 4,441 5,541 8,513 11,145 Total revenue $ 157,230 $ 231,435 $ 292,776 $ 427,664 |
ACQUISITIONS (Tables)
ACQUISITIONS (Tables) - Predecessor | 6 Months Ended |
Jun. 30, 2018 | |
Schedule of purchase price associated with business acquisitions and the allocation thereof | Number of business acquisitions closed 11 Consideration: Cash due at closing and option premium $ 215,044 Fair market value of common units issued 32,440 Fair market value of estimated contingent consideration 21,878 Total consideration $ 269,362 Allocation of purchase price: Total tangible assets $ 2,046 Total liabilities assumed (1,362) Customer relationships 128,780 Management contracts 15,120 Goodwill 124,479 Other intangibles 299 Total allocated consideration $ 269,362 |
Schedule of weighted average useful lives of intangible assets acquired | Number of Years Management contracts 20 Customer relationships 10 Other intangibles 5 Weighted‑average useful life of all intangibles acquired 11 |
GOODWILL AND OTHER INTANGIBLES
GOODWILL AND OTHER INTANGIBLES (Tables) - Predecessor | 6 Months Ended |
Jun. 30, 2018 | |
Summary of changes in the goodwill balances | December 31, June 30, 2017 2018 Balance beginning of period: Goodwill $ 339,129 $ 538,113 Cumulative impairment losses (22,624) (22,624) 316,505 515,489 Goodwill acquired 198,546 124,479 Other 438 (369) 198,984 124,110 Balance end of period: Goodwill 538,113 662,223 Cumulative impairment losses (22,624) (22,624) $ 515,489 $ 639,599 |
Summary of amortizing acquired intangible assets | The following table summarizes the amortizing acquired intangible assets at December 31, 2017: Gross Carry Accumulated Net Book Amount Amortization Value Customer relationships $ 713,966 $ (270,629) $ 443,337 Management contracts 103,316 (25,976) 77,340 Other intangibles 3,436 (1,831) 1,605 Total $ 820,718 $ (298,436) $ 522,282 The following table summarizes the amortizing acquired intangible assets at June 30, 2018: Gross Carry Accumulated Net Book Amount Amortization Value Customer relationships $ 844,407 $ (308,776) $ 535,631 Management contracts 118,371 (28,917) 89,454 Other intangibles 3,841 (2,192) 1,649 Total $ 966,619 $ (339,885) $ 626,734 |
FAIR VALUE MEASUREMENTS (Tables
FAIR VALUE MEASUREMENTS (Tables) - Predecessor | 6 Months Ended |
Jun. 30, 2018 | |
Schedule of implied fair value of the Company's First Lien Term Loan and Second Lien Term Loan based on Level 2 inputs | December 31, 2017 June 30, 2018 Stated Fair Stated Fair Value Value Value Value First Lien Term Loan $ 793,012 $ 799,952 $ 988,535 $ 988,535 Second Lien Term Loan 207,000 208,811 207,000 209,070 |
Schedule of changes in the fair value of estimated contingent consideration for business acquisitions | Balance as of January 1, 2017 $ 26,188 Additions to estimated contingent consideration 37,551 Payments of contingent consideration (9,435) Non‑cash changes in fair value of estimated contingent consideration 22,294 Other 79 Balance as of December 31, 2017 76,677 Additions to estimated contingent consideration 21,878 Payments of contingent consideration (8,319) Non‑cash changes in fair value of estimated contingent consideration 18,315 Other (150) Balance at June 30, 2018 $ 108,401 |
Schedule of inputs used in the fair value measurement of estimated contingent consideration | Quantitative Information About Level 3 Fair Value Measurements Fair Value at Valuation Unobservable December 31, 2017 Techniques Input Range $ 76,677 Monte carlo simulation model Forecasted growth rates (0.8)% ‑ 24.9 % Quantitative Information About Level 3 Fair Value Measurements Fair Value at Valuation Unobservable June 30, 2018 Techniques Input Range $ 108,401 Monte carlo simulation model Forecasted growth rates (26.4)% ‑ 70.4 % |
CREDIT FACILITY (Tables)
CREDIT FACILITY (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Predecessor | |
Schedule of reconciliation of principal amounts outstanding under the Credit Facility to borrowings under credit facilities recorded in the consolidated balance sheet | December 31, June 30, 2017 2018 First Lien Term Loan $ 793,012 $ 988,535 Second Lien Term Loan 207,000 207,000 Unamortized debt financing costs (16,646) (5,118) Unamortized discount (2,864) (1,812) Total $ 980,502 $ 1,188,605 |
MEZZANINE EQUITY_MEMBERS' DEF33
MEZZANINE EQUITY/MEMBERS' DEFICIT (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Predecessor | |
Summary of status of, and changes in, incentive units granted | Incentive Weighted Average Units Hurdle Price Outstanding—January 1, 2018 15,229,039 $ 15.53 Granted 766,411 24.31 Forfeited (39,125) 18.99 Outstanding—June 30, 2018 15,956,325 15.94 Vested—June 30, 2018 8,490,433 11.32 |
CASH FLOW INFORMATION (Tables)
CASH FLOW INFORMATION (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Predecessor | |
Schedule of supplemental cash flow information | Six Months Ended June 30, 2017 2018 Supplemental disclosures of cash flow information—cash paid for: Interest $ 13,587 $ 32,655 Income taxes $ 2,117 $ 2,922 Supplemental non‑cash cash flow information: Fair market value of estimated contingent consideration in connection with acquisitions $ 13,689 $ 21,878 Fair market value of restricted common units in connection with acquisitions and contingent consideration $ 22,777 $ 32,829 Accretion of senior preferred units return $ 6,181 $ — Accretion of senior preferred units to estimated redemption value $ 17,265 $ — Accretion of junior preferred units return $ 665 $ — Accretion of junior preferred units to estimated redemption value $ 8,356 $ — Net assets acquired in connection with business acquisitions $ 316 $ 684 |
SUMMARY OF ACCOUNTING POLICIE35
SUMMARY OF ACCOUNTING POLICIES - Revenue Recognition (Details) - Predecessor - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Revenue Recognition | ||||
Total revenue | $ 231,435 | $ 157,230 | $ 427,664 | $ 292,776 |
Domestic revenue | ||||
Revenue Recognition | ||||
Total revenue | 225,894 | 152,789 | 416,519 | 284,263 |
International revenue | ||||
Revenue Recognition | ||||
Total revenue | $ 5,541 | $ 4,441 | $ 11,145 | $ 8,513 |
SUMMARY OF ACCOUNTING POLICIE36
SUMMARY OF ACCOUNTING POLICIES - Segment Reporting and Income Taxes (Details) - Predecessor $ in Thousands | 6 Months Ended | 12 Months Ended |
Jun. 30, 2018USD ($)segment | Dec. 31, 2017 | |
Number of operating segments | segment | 1 | |
Income Taxes | ||
U.S. federal corporate income tax rate (in percentage) | 21.00% | 35.00% |
Income tax benefit on remeasurement of its U.S. corporate deferred tax assets and liabilities | $ | $ 2,653 |
SUMMARY OF ACCOUNTING POLICIE37
SUMMARY OF ACCOUNTING POLICIES - Subsequent Events (IPO) (Details) $ / shares in Units, $ in Thousands | Jul. 30, 2018USD ($)Vote$ / sharesshares | Jun. 30, 2018Vote$ / shares | Jul. 31, 2018shares | Dec. 31, 2017$ / shares |
Class A common stock | ||||
Initial Public Offering | ||||
Common stock, par value | $ / shares | $ 0.01 | $ 0.01 | ||
Reorganization Transactions | ||||
Number of votes for each share | Vote | 1 | |||
Class B common stock | ||||
Initial Public Offering | ||||
Common stock, par value | $ / shares | $ 0.01 | $ 0.01 | ||
Reorganization Transactions | ||||
Number of votes for each share | Vote | 1 | |||
IPO | ||||
Reorganization Transactions | ||||
Number of units exchanged | 17,583,947 | |||
Payment to mandatorily exchanging owners | $ | $ 11,137 | |||
Payment to existing owners | $ | 24,400 | |||
Repayment of credit facility | $ | 392,535 | |||
Remaining proceeds | $ | $ 136,754 | |||
Number of common units issuable upon conversion of vested and unvested incentive units | 6,814,600 | |||
IPO | Class A common stock | ||||
Initial Public Offering | ||||
Issuance of stock (in shares) | 18,648,649 | |||
Common stock, par value | $ / shares | $ 0.01 | |||
Share price (in dollars per share) | $ / shares | $ 33 | |||
Reorganization Transactions | ||||
Proceeds from sale of common stock | $ | $ 564,826 | |||
Underwriters option | Class A common stock | ||||
Initial Public Offering | ||||
Issuance of stock (in shares) | 2,432,432 | |||
Share price (in dollars per share) | $ / shares | $ 33 | |||
Reorganization Transactions | ||||
Proceeds from sale of common stock | $ | $ 74,651 | |||
Focus LLC | IPO | ||||
Reorganization Transactions | ||||
Payment for exchange of units | $ | $ 529,289 | |||
Focus Financial Partners Inc. | Focus LLC | ||||
Reorganization Transactions | ||||
Ownership interest | 59.20% | |||
Predecessor | ||||
Reorganization Transactions | ||||
Cash paid as a percentage of fair value of stock options | 65.00% | |||
Preferred units conversion ratio | 1 | |||
Predecessor | Minimum | ||||
Reorganization Transactions | ||||
Number of common unit held by existing owners | 85,000 | |||
Predecessor | Non Accredited Investor | ||||
Reorganization Transactions | ||||
Unit price to Gross IPO price ratio | 1.25 | |||
Amount Paid to Existing Owners not Accredited Investors | $ | $ 26,001 | |||
Predecessor | Non Accredited Investor | Maximum | ||||
Reorganization Transactions | ||||
Number of common unit held by existing owners | 85,000 | |||
Percentage of vested units elected to sell | 100.00% | |||
Predecessor | Non Accredited Investor | Minimum | ||||
Reorganization Transactions | ||||
Percentage of vested units elected to sell | 100.00% | |||
Predecessor | Class A common stock | ||||
Reorganization Transactions | ||||
Common units conversion ratio | 1 | |||
Predecessor | Class A common stock | Subsequent Events | ||||
Reorganization Transactions | ||||
Issue of shares, Reorganization transaction | 23,881,002 | |||
Compensatory stock options issued to purchase of common stock under the reorganization transaction | 386,832 | |||
Non-compensatory stock options issued to purchase of common stock under the reorganization transaction | 348,577 | |||
Number of shares cancelled under reorganization transaction | 240,457 | |||
Predecessor | Class B common stock | ||||
Reorganization Transactions | ||||
Number of votes for each share | Vote | 1 | |||
Predecessor | Class B common stock | Subsequent Events | ||||
Reorganization Transactions | ||||
Issue of shares, Reorganization transaction | 22,499,665 | |||
Number of new shares issued after cancellation under the reorganization transaction | 240,457 |
SUMMARY OF ACCOUNTING POLICIE38
SUMMARY OF ACCOUNTING POLICIES - Subsequent Events (Amendment to Credit Facility) (Details) - Predecessor | Jul. 31, 2018agreement | Jul. 30, 2018shares | Jul. 18, 2018USD ($) | Jun. 30, 2018USD ($) | Jan. 31, 2018 | Jul. 31, 2017 | Jun. 30, 2018USD ($) | Jun. 30, 2017USD ($) |
Amendment to Credit Facility | ||||||||
Repayments of borrowings under credit facilities | $ 4,477,000 | $ 54,167,000 | ||||||
Subsequent Events | ||||||||
Tax Receivable Agreement | ||||||||
Number of tax receivable agreements entered | agreement | 2 | |||||||
Percent of payment to TRA holders on the net cash savings | 85.00% | |||||||
Percent of the net cash savings retain by the company | 15.00% | |||||||
Maximum | Subsequent Events | 2018 Omnibus Incentive Plan | ||||||||
Share-based compensation arrangement by share-based payment award | ||||||||
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized | shares | 6,000,000 | |||||||
Additional shares authorized for issuance under an established share-based compensation plan | shares | 3,000,000 | |||||||
Percentage of additional shares authorized for issuance under an established share-based compensation plan | 5.00% | |||||||
Credit Facility | ||||||||
Amendment to Credit Facility | ||||||||
Actual total secured leverage ratio | 5.58 | |||||||
Credit Facility | Maximum | ||||||||
Amendment to Credit Facility | ||||||||
Actual total secured leverage ratio | 6.25 | |||||||
Credit Facility | Maximum | Subsequent Events | ||||||||
Amendment to Credit Facility | ||||||||
Actual total secured leverage ratio | 8.85 | |||||||
First Lien Term Loan | ||||||||
Amendment to Credit Facility | ||||||||
Stated value | $ 803,000,000 | $ 803,000,000 | ||||||
First Lien Revolver | ||||||||
Amendment to Credit Facility | ||||||||
Unused commitment fee (as a percent) | 0.50% | |||||||
First Lien Revolver | Subsequent Events | ||||||||
Amendment to Credit Facility | ||||||||
Maximum borrowing capacity | $ 650,000,000 | |||||||
Maturity term | 5 years | |||||||
Unused commitment fee (as a percent) | 0.50% | |||||||
First Lien Revolver Step Down One | ||||||||
Amendment to Credit Facility | ||||||||
Unused commitment fee (as a percent) | 0.375% | |||||||
First Lien Revolver Step Down One | Subsequent Events | ||||||||
Amendment to Credit Facility | ||||||||
Unused commitment fee (as a percent) | 0.375% | |||||||
First Lien Revolver Step Down Two | Subsequent Events | ||||||||
Amendment to Credit Facility | ||||||||
Unused commitment fee (as a percent) | 0.25% | |||||||
Second Lien Term Loan | ||||||||
Amendment to Credit Facility | ||||||||
Repayments of borrowings under credit facilities | $ 207,000,000 | |||||||
LIBOR | First Lien Term Loan | ||||||||
Amendment to Credit Facility | ||||||||
Margin (as a percent) | 2.75% | 2.75% | ||||||
LIBOR | First Lien Term Loan | Subsequent Events | ||||||||
Amendment to Credit Facility | ||||||||
Margin (as a percent) | 2.50% | |||||||
LIBOR | First Lien Revolver | ||||||||
Amendment to Credit Facility | ||||||||
Margin (as a percent) | 3.25% | |||||||
LIBOR | First Lien Revolver | Subsequent Events | ||||||||
Amendment to Credit Facility | ||||||||
Margin (as a percent) | 2.00% | |||||||
LIBOR | First Lien Revolver Step Down One | ||||||||
Amendment to Credit Facility | ||||||||
Margin (as a percent) | 3.00% | |||||||
LIBOR | First Lien Revolver Step Down Two | ||||||||
Amendment to Credit Facility | ||||||||
Margin (as a percent) | 2.75% | |||||||
LIBOR | Second Lien Term Loan | ||||||||
Amendment to Credit Facility | ||||||||
Margin (as a percent) | 7.50% | |||||||
LIBOR step down one | First Lien Revolver | Subsequent Events | ||||||||
Amendment to Credit Facility | ||||||||
Margin (as a percent) | 1.75% | |||||||
LIBOR step down two | First Lien Revolver | Subsequent Events | ||||||||
Amendment to Credit Facility | ||||||||
Margin (as a percent) | 1.50% | |||||||
LIBOR step down three | First Lien Revolver | Subsequent Events | ||||||||
Amendment to Credit Facility | ||||||||
Margin (as a percent) | 1.25% | |||||||
Base rate | First Lien Term Loan | ||||||||
Amendment to Credit Facility | ||||||||
Margin (as a percent) | 1.75% | 1.75% | ||||||
Base rate | First Lien Term Loan | Subsequent Events | ||||||||
Amendment to Credit Facility | ||||||||
Margin (as a percent) | 1.50% | |||||||
Base rate | First Lien Revolver | ||||||||
Amendment to Credit Facility | ||||||||
Margin (as a percent) | 2.25% | |||||||
Base rate | First Lien Revolver | Subsequent Events | ||||||||
Amendment to Credit Facility | ||||||||
Margin (as a percent) | 1.00% | |||||||
Base rate | First Lien Revolver Step Down One | ||||||||
Amendment to Credit Facility | ||||||||
Margin (as a percent) | 2.00% | |||||||
Base rate | First Lien Revolver Step Down Two | ||||||||
Amendment to Credit Facility | ||||||||
Margin (as a percent) | 1.75% | |||||||
Base rate | Second Lien Term Loan | ||||||||
Amendment to Credit Facility | ||||||||
Margin (as a percent) | 6.50% | |||||||
Base rate step down one | First Lien Revolver | Subsequent Events | ||||||||
Amendment to Credit Facility | ||||||||
Margin (as a percent) | 0.75% | |||||||
Base rate step down two | First Lien Revolver | Subsequent Events | ||||||||
Amendment to Credit Facility | ||||||||
Margin (as a percent) | 0.50% | |||||||
Base rate step down three | First Lien Revolver | Subsequent Events | ||||||||
Amendment to Credit Facility | ||||||||
Margin (as a percent) | 0.25% |
ACQUISITIONS - Business Acquisi
ACQUISITIONS - Business Acquisitions (Details) - Predecessor $ in Thousands | 6 Months Ended | ||
Jun. 30, 2018USD ($)item | Dec. 31, 2017USD ($) | Dec. 31, 2016USD ($) | |
Allocation of purchase price: | |||
Goodwill | $ 639,599 | $ 515,489 | $ 316,505 |
Business acquisitions | |||
ACQUISITIONS | |||
Number of business acquisitions closed | item | 11 | ||
Consideration: | |||
Cash due at closing and option premium | $ 215,044 | ||
Fair market value of common units issued | 32,440 | ||
Fair market value of estimated contingent consideration | 21,878 | ||
Total consideration | 269,362 | ||
Allocation of purchase price: | |||
Total tangible assets | 2,046 | ||
Total liabilities assumed | (1,362) | ||
Goodwill | 124,479 | ||
Total allocated consideration | 269,362 | ||
Amount of tax on goodwill and intangibles related to business acquisitions | 222,196 | ||
Revenue from acquired entity in business acquisitions | 31,783 | ||
Income from acquired entity in business acquisitions | 4,736 | ||
Business acquisitions | Customer relationships | |||
Allocation of purchase price: | |||
Finite-lived intangible assets | 128,780 | ||
Business acquisitions | Management contracts | |||
Allocation of purchase price: | |||
Finite-lived intangible assets | 15,120 | ||
Business acquisitions | Other intangibles | |||
Allocation of purchase price: | |||
Finite-lived intangible assets | $ 299 |
ACQUISITIONS - Asset Acquisitio
ACQUISITIONS - Asset Acquisitions (Details) - Predecessor - USD ($) $ in Thousands | 2 Months Ended | 6 Months Ended |
Aug. 28, 2018 | Jun. 30, 2018 | |
Asset Acquisitions | ||
Purchase consideration for asset acquisitions | $ 903 | |
Weighted-average useful life of all intangibles acquired | 11 years | |
Business acquisitions | Subsequent Events | ||
Asset Acquisitions | ||
Purchase consideration for asset acquisitions | $ 118,960 | |
Management contracts | ||
Asset Acquisitions | ||
Weighted-average useful life of all intangibles acquired | 20 years | |
Customer relationships | ||
Asset Acquisitions | ||
Weighted-average useful life of all intangibles acquired | 10 years | |
Other intangibles | ||
Asset Acquisitions | ||
Weighted-average useful life of all intangibles acquired | 5 years |
GOODWILL AND OTHER INTANGIBLE41
GOODWILL AND OTHER INTANGIBLES - Change in the goodwill (Details) - Predecessor - USD ($) $ in Thousands | 6 Months Ended | 12 Months Ended |
Jun. 30, 2018 | Dec. 31, 2017 | |
Change in the goodwill | ||
Goodwill beginning of period | $ 538,113 | $ 339,129 |
Cumulative impairment losses beginning of period | (22,624) | (22,624) |
Balance beginning of period | 515,489 | 316,505 |
Goodwill acquired | 124,479 | 198,546 |
Other | (369) | 438 |
Goodwill period increase (decrease) | 124,110 | 198,984 |
Goodwill end of period | 662,223 | 538,113 |
Cumulative impairment losses end of period | (22,624) | (22,624) |
Balance end of period | $ 639,599 | $ 515,489 |
GOODWILL AND OTHER INTANGIBLE42
GOODWILL AND OTHER INTANGIBLES - Intangible assets (Details) - Predecessor - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Amortizing acquired intangible assets | ||
Gross Carry Amount | $ 966,619 | $ 820,718 |
Accumulated Amortization | (339,885) | (298,436) |
Net Book Value | 626,734 | 522,282 |
Customer relationships | ||
Amortizing acquired intangible assets | ||
Gross Carry Amount | 844,407 | 713,966 |
Accumulated Amortization | (308,776) | (270,629) |
Net Book Value | 535,631 | 443,337 |
Management contracts | ||
Amortizing acquired intangible assets | ||
Gross Carry Amount | 118,371 | 103,316 |
Accumulated Amortization | (28,917) | (25,976) |
Net Book Value | 89,454 | 77,340 |
Other intangibles | ||
Amortizing acquired intangible assets | ||
Gross Carry Amount | 3,841 | 3,436 |
Accumulated Amortization | (2,192) | (1,831) |
Net Book Value | $ 1,649 | $ 1,605 |
FAIR VALUE MEASUREMENTS - Impli
FAIR VALUE MEASUREMENTS - Implied fair value (Details) - Predecessor - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Implied fair value based on level 2 inputs | ||
Stated value | $ 1,188,605 | $ 980,502 |
First Lien Term Loan | ||
Implied fair value based on level 2 inputs | ||
Stated value | 988,535 | 793,012 |
Fair value | 988,535 | 799,952 |
Second Lien Term Loan | ||
Implied fair value based on level 2 inputs | ||
Stated value | 207,000 | 207,000 |
Fair value | $ 209,070 | $ 208,811 |
FAIR VALUE MEASUREMENTS - Chang
FAIR VALUE MEASUREMENTS - Changes in the fair value (Details) - Predecessor - USD ($) $ in Thousands | 6 Months Ended | 12 Months Ended |
Jun. 30, 2018 | Dec. 31, 2017 | |
Changes in the fair value of estimated contingent consideration for business acquisitions | ||
Balance as of beginning of period | $ 76,677 | $ 26,188 |
Additions to estimated contingent consideration | 21,878 | 37,551 |
Payments of contingent consideration | (8,319) | (9,435) |
Non-cash changes in fair value of estimated contingent consideration | 18,315 | 22,294 |
Other | (150) | 79 |
Balance as of end of period | $ 108,401 | $ 76,677 |
FAIR VALUE MEASUREMENTS - Conti
FAIR VALUE MEASUREMENTS - Contingent consideration (Details) - Predecessor - Level 3 $ in Thousands | Jun. 30, 2018USD ($)item | Dec. 31, 2017USD ($)item |
Inputs used in the fair value measurement of estimated contingent consideration | ||
Estimated contingent consideration | $ | $ 108,401 | $ 76,677 |
Valuation techniques | us-gaap:ValuationTechniqueOptionPricingModelMember | us-gaap:ValuationTechniqueOptionPricingModelMember |
Unobservable input | focs:MeasurementInputForecastedGrowthRatesMember | focs:MeasurementInputForecastedGrowthRatesMember |
Minimum | ||
Inputs used in the fair value measurement of estimated contingent consideration | ||
Estimated contingent consideration (in percent) | (26.4) | (0.8) |
Maximum | ||
Inputs used in the fair value measurement of estimated contingent consideration | ||
Estimated contingent consideration (in percent) | 70.4 | 24.9 |
CREDIT FACILITY - Old and New C
CREDIT FACILITY - Old and New Credit Facility (Details) - Predecessor $ in Thousands | 1 Months Ended | 6 Months Ended | 12 Months Ended | |||
Apr. 30, 2018USD ($) | Jan. 31, 2018USD ($) | Jul. 31, 2017USD ($) | Jun. 30, 2018USD ($) | Dec. 31, 2017USD ($) | Dec. 31, 2016USD ($) | |
CREDIT FACILITY | ||||||
Face amount of debt | $ 1,195,535 | $ 1,000,012 | ||||
Loss on extinguishment of debt | (14,011) | |||||
Debt discount | 1,812 | 2,864 | ||||
Deferred financing costs | $ 11,804 | 13,278 | ||||
Credit Facility | ||||||
CREDIT FACILITY | ||||||
Face amount of debt | $ 1,067,000 | |||||
Accordion feature | $ 255,000 | |||||
Loss on extinguishment of debt | 8,106 | |||||
Actual total secured leverage ratio | 5.58 | |||||
Credit Facility | Maximum | ||||||
CREDIT FACILITY | ||||||
Total secured leverage ratio to be maintained through March 31, 2019 | 8.85 | |||||
Total secured leverage ratio, thereafter | 8.60 | |||||
Actual total secured leverage ratio | 6.25 | |||||
First Lien Term Loan | ||||||
CREDIT FACILITY | ||||||
Face amount of debt | $ 200,000 | $ 795,000 | ||||
Loss on extinguishment of debt | $ 14,011 | |||||
Frequency of installment repayments | quarterly | |||||
Quarterly installment repayments | 2,490 | $ 1,988 | ||||
Debt discount (as a percent) | 0.125% | |||||
Debt discount | $ 994 | |||||
Prepayment penalty (as a percent) | 1.00% | |||||
Write-off of debt issuance cost | $ 13,094 | |||||
Write-off of debt discount | $ 917 | |||||
Deferred financing costs | $ 1,347 | 14,735 | ||||
First Lien Revolver | ||||||
CREDIT FACILITY | ||||||
Remaining amount | $ 250,000 | |||||
Unused commitment fee (as a percent) | 0.50% | |||||
Unused commitment line | $ 247,043 | $ 247,768 | ||||
First Lien Revolver Step Down One | ||||||
CREDIT FACILITY | ||||||
Unused commitment fee (as a percent) | 0.375% | |||||
Letter of Credit | ||||||
CREDIT FACILITY | ||||||
Maximum borrowing capacity | $ 30,000 | |||||
Second Lien Term Loan | ||||||
CREDIT FACILITY | ||||||
Face amount of debt | $ 207,000 | |||||
Debt discount (as a percent) | 1.00% | |||||
Debt discount | $ 2,070 | |||||
Prepayment penalty (as a percent) | 1.00% | |||||
LIBOR | First Lien Term Loan | ||||||
CREDIT FACILITY | ||||||
Margin (as a percent) | 2.75% | 2.75% | ||||
LIBOR | First Lien Revolver | ||||||
CREDIT FACILITY | ||||||
Margin (as a percent) | 3.25% | |||||
LIBOR | First Lien Revolver Step Down One | ||||||
CREDIT FACILITY | ||||||
Margin (as a percent) | 3.00% | |||||
LIBOR | First Lien Revolver Step Down Two | ||||||
CREDIT FACILITY | ||||||
Margin (as a percent) | 2.75% | |||||
LIBOR | Second Lien Term Loan | ||||||
CREDIT FACILITY | ||||||
Margin (as a percent) | 7.50% | |||||
Base rate | First Lien Term Loan | ||||||
CREDIT FACILITY | ||||||
Margin (as a percent) | 1.75% | 1.75% | ||||
Base rate | First Lien Revolver | ||||||
CREDIT FACILITY | ||||||
Margin (as a percent) | 2.25% | |||||
Base rate | First Lien Revolver Step Down One | ||||||
CREDIT FACILITY | ||||||
Margin (as a percent) | 2.00% | |||||
Base rate | First Lien Revolver Step Down Two | ||||||
CREDIT FACILITY | ||||||
Margin (as a percent) | 1.75% | |||||
Base rate | Second Lien Term Loan | ||||||
CREDIT FACILITY | ||||||
Margin (as a percent) | 6.50% |
CREDIT FACILITY - Reconciliatio
CREDIT FACILITY - Reconciliation of Principal Amounts Outstanding (Details) - Predecessor - USD ($) $ in Thousands | Jun. 30, 2018 | Apr. 30, 2018 | Dec. 31, 2017 | Jul. 31, 2017 |
CREDIT FACILITY | ||||
Unamortized debt financing costs | $ (5,118) | $ (16,646) | ||
Unamortized discount | (1,812) | (2,864) | ||
Amount outstanding under credit facility | 1,188,605 | 980,502 | ||
Deferred financing costs | 11,804 | 13,278 | ||
First Lien Term Loan | ||||
CREDIT FACILITY | ||||
Carrying value of debt | 988,535 | 793,012 | ||
Unamortized discount | $ (994) | |||
Amount outstanding under credit facility | 988,535 | 793,012 | ||
Deferred financing costs | $ 1,347 | 14,735 | ||
First Lien Revolver | ||||
CREDIT FACILITY | ||||
Unamortized debt financing costs | (11,804) | (13,278) | ||
Amount outstanding under credit facility | 0 | 0 | ||
Second Lien Term Loan | ||||
CREDIT FACILITY | ||||
Carrying value of debt | 207,000 | 207,000 | ||
Unamortized discount | $ (2,070) | |||
Amount outstanding under credit facility | $ 207,000 | $ 207,000 |
CREDIT FACILITY - First Lien Re
CREDIT FACILITY - First Lien Revolver and Letters of Credit (Details) - Predecessor - USD ($) $ in Thousands | 6 Months Ended | 12 Months Ended |
Jun. 30, 2018 | Dec. 31, 2017 | |
CREDIT FACILITY | ||
Weighted average interest rate | 6.00% | 5.00% |
Letter of credit | ||
CREDIT FACILITY | ||
Letter of credit outstanding | $ 2,957 | $ 2,232 |
Annual interest rate | 3.00% | 3.00% |
MEZZANINE EQUITY_MEMBERS' DEF49
MEZZANINE EQUITY/MEMBERS' DEFICIT (Details) - Predecessor - Incentive Units | 6 Months Ended |
Jun. 30, 2018USD ($)$ / sharesshares | |
Incentive Units | |
Outstanding at beginning of the period | 15,229,039 |
Granted | 766,411 |
Forfeited | (39,125) |
Outstanding at end of the period | 15,956,325 |
Vested at end of the period | 8,490,433 |
Weighted Average Hurdle Price | |
Outstanding at beginning of the period | $ / shares | $ 15.53 |
Granted | $ / shares | 24.31 |
Forfeited | $ / shares | 18.99 |
Outstanding at end of the period | $ / shares | $ 15.94 |
Vested at end of the period | $ | $ 11.32 |
CASH FLOW INFORMATION (Details)
CASH FLOW INFORMATION (Details) - Predecessor - USD ($) $ in Thousands | 6 Months Ended | 12 Months Ended |
Jun. 30, 2018 | Dec. 31, 2017 | |
Supplemental disclosures of cash flow information-cash paid for: | ||
Interest | $ 32,655 | $ 13,587 |
Income taxes | 2,922 | 2,117 |
Supplemental noncash cash flow information: | ||
Fair market value of estimated contingent consideration in connection with acquisitions | 21,878 | 13,689 |
Fair market value of restricted common units in connection with acquisitions and contingent consideration | 32,829 | 22,777 |
Accretion of senior preferred units return | 6,181 | |
Accretion of senior preferred units to estimated redemption value | 17,265 | |
Accretion of junior preferred units return | 665 | |
Accretion of junior preferred units to estimated redemption value | 8,356 | |
Net assets acquired in connection with business acquisitions | $ 684 | $ 316 |
RELATED PARTIES (Details)
RELATED PARTIES (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended |
Jun. 30, 2018 | Jun. 30, 2018 | |
Predecessor | ||
Expenses recognized | $ 374 | $ 897 |
OTHER (Details)
OTHER (Details) - Predecessor - USD ($) $ in Thousands | 1 Months Ended | 6 Months Ended |
Mar. 31, 2018 | Jun. 30, 2018 | |
Gain on sale of investment | $ 5,509 | $ 5,509 |
Financial technology | ||
Minority cost method investment | $ 20,000 |