FOCS - Earnings call transcript Q2 2019 | Focus Financial Partners Inc

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Operator

Good morning. I would like to welcome everyone to the Focus Financial Partners 2019 Second Quarter Earnings Call.

Joining today's call are; Rudy Adolf, Founder and CEO; Jim Shanahan; Chief Financial Officer; Rusty McGranahan, General Counsel; and Tina Madon, Head of Investor Relations and Corporate Communications. All lines have been placed on mute to prevent any background noise. [Operator Instructions] Later we will have a question-and-answer session. reminder, is a recorded. As Instructions] this being conference [Operator

call to McGranahan. Now like the to I would turn Mr.

You may begin.

Rusty McGranahan

Good morning, everyone.

made risks Financial a call Before remind we to Focus are course, available may uncertainties that the could has and this update may, Focus's your duty statements. involve to finally, These to SEC, statements differ you me the the currently forward-looking materially with assumptions make we and to undertake results not of any materially Focus such does forward-looking that during fact its based We of which get differ filings And the cause by course attention started, Focus call statements. factors information number Partners of from Focus let assumes from and and results statements. cause statements. statements. to that results that of lists some no on differ of from made these may the these these

that, and CEO, to Rudy our I'll Founder Rudy? over Adolf. turn With it

Rudy Adolf

our Good joining thank we on month in continue marked of pleased a company. very first morning, as and We've public appreciate as with the IPO. We This been you our everyone investor we the interest for level the past of anniversary Rusty. Focus. Focus, your Thanks, in call. interest our evolution

helpful today, understanding and our of hope the our will some related to be our discuss development growth on of I I'll our model. views of the which firms. our partner of As also your we unique financial the current part growth will expanded disclosures business, discuss to leverage

capital. partner quarter of had half We results. by XXXX and attractive deploy to first our and highly our excess the our to of strong opportunities to an excellent characterized turning second performance firms Now

business for net stated and year-over-year well growth of each. For annual targets XX% for per our both income excess our of adjusted XX% periods, in share generated revenues above

a in year-over-year as these revenue of each fifth public share of company. achieved And quarter adjusted quarters, This growth reporting XX%. we excess per was our and income in net

continues proposition and wealth managers momentum value Our with is to excellent. resonate our

combination our multi-trillion are high flow of rapid participate company high of in earnings. protection generation a consolidation. We industry cash We substantial secular and with that is downside a a operating in dollar growth experiencing rare growth,

We're in significant beneficiary an track of power longstanding because We enviable inexpensive I established advantage record, debt the with a partnership scale. of differentiated evolution enough have and capital and indexes this to driver as our market well emphasize have of we model. believe this as M&A we unique or position of firms. expertise benefits a the industry-leading the can't

creates value shareholder business sustainable two Our ways. in

through scale is enhancing the accelerated value-added businesses our time achieved and firms and our that first growth their expertise by M&A our The services. through to

The obtained earnings the fragmented firms second are We is to execute a new through market we acquisition estimated large adjusted digits forma on advantage and deals. transactions low our pro share year-to-date taking of that growth double in per the accretive basis. aggregate the of the attractive

retention the our for growth. potential attractive focus net We of We are firms platforms well above we add best positioned the on attractive wealth are side, industry. primarily client because buying ultra-high the to acquisition become clients firms on growth On are industry dynamics ability these businesses. capitalizing averages. on high-quality the as most They and of management the serving and for to high worth those to RIAs the focus value future parts larger

succession that strategic are aggregating planning return meet not assets is or collection expense pipeline at a We hurdles accretive deal-specific need. pursue robust, selective only the of acquire. simply in being or not Our a firms solving of that but the we transactions issues. to We're

believe we more. will that We national are who are of create These acquiring million super consolidation will platforms leaders the win with race value revenue $XX and and enduring or with become the into future. and the firms regional partnering firms well

pay own expertise network. new to to firms independence, operate is our allowing and in and exceptionally freedom industry M&A operational This grow turning both, multiples partners We acquisition of typically exchange That entrepreneurs in important employees to ongoing for acquire. to to for we and firms merchants. single-digit the intellectual capital, continued into never independently the mid and are advantage their high our post take vision

of value-added with scale the Once element through M&A. and firm, a its position it scale infrastructure create we a Through growth. by partner acquire business is we to our and to services, value, enhancing we accelerated Speed that. critical positioning firms for our grow

appropriate infrastructure, and technology sourcing other needed make then structures integrated are the opportunities to scale build of high they effectively. that mergers growth. have support elements, ensuring talent, and We with to and merger incentive depth We sure structuring those help the

has to revenue than compared our more rates, On partners' they time, mergers. mergers without over could what via doubled growth average and achieve growth

firms to businesses slow, prospects don't to too for our expand more traditional through stop means. organically, Our once start were in the have but firms M&A, they pipeline merger their if growing ability engage the

talent at add client growth. businesses client However, well their via rather our gathering, on and large firms monetize This exceptional value partner proposition. advisor time. assets efficiently M&A firms of building asset versus powerful leads, pools the who a basis, accelerating accelerated is in on have mergers or transformed an rely business their to their as client a Growth by as traditional advisor enables

on our me Let some kept you this page will earning numbers statement, which supplement put to in eight. we find

revenue aggregate or the one so a of years of each as outlined that we have have of two year firm. for with have minimum more for that growth us June CAGRs been firms with XX, partner full Focus XX of the We

the because time those less firms that thus to an number believe of the and joining includes not those have over represents We market-driven between then it We is completed business largest have the since picture subject firms or this and us. period of distortion. divided mergers approach that of longest accurate that growth,

not one-third We our overall rather of than because revenues, revenues our represent at which non-correlated under asset are nearly look based. management, assets revenues,

relevant revenues the So of measure. XX the mergers. XX% firms Using this are nearly have framework, completed most

June have group Focus adjust our this XX, market since with delivered We're joining us to for of seven revenue been using and including of weighted weighted a size period XX% CAGR average years. firms. weighted of over averages As of for the a average

years. merger. of the a for with firms markets, This CAGR average a XX yet have joining entire of portfolio remaining since us completed revenue a joining weighted have The four over XX% have average XX% since period of delivered X% been a CAGR firms weighted average weighted delivered Focus and XX not revenue including The of Focus. of

scale. rates growth The other play at dynamic influences that important these is

As firms revenue their rates scale our accelerate. businesses growth their

that an in have firms being firms the relative additional on by excellent acquire. to that to build highly We the selective portfolio and industry we we continue

Jones Our example. new firm partner good most recent is William a

six through Year-to-date XX our our momentum mergers. August X, we XXXX already transactional and aggregate, second half direct closed full-year have acquisitions we remains exceeded including have In deal strong. transactions XX volume and

because have market in and the largest advantage, competitive a we acquirer our model. of We the unique believe are

that we ahead of us our are runway we opportunities for significant see. pursue and the have well business expanding positioned to We further

equity want our and that as its our some term call with issuing we have over moment impact Before may strategy loan a I appreciate take acquisition to questions. turning on on comments together to upsizing resulted Jim, our leverage, to in recent to address

Escala This initially visibility Our IPO anticipated. Williams of and greater far raised Wealth than in the we including leading our further opportunities within industry, the Management deals of and includes number credibility larger a history, Jones. to our some

on they additions We transactions, are capitalizing are business. we because these believe to important our

in attractive, partner value our incremental They potential. portfolio, growth creating shareholders. future for represent our turn diversification substantial benefits And for of firms

we above drawbacks Given increasing opportunities believe, the this benefits them of outweigh, unprecedented four pursuing leverage, times. of our that the

We're comfortable with this higher leverage.

the including model, from our of fee-based preference each of high the our earnings on structure revenues. the of and of we acquirer, level recurring the take Because

variable of the fees, which is the largest tied of firms. to expenses management And that fact and one are our our performance

growth. not acquiring we However, sake the of simply for accelerated are

opportunities we into business. operating to flow the the of invest attractive growth that the extent, the cash less in We But there are generate our market.

flow delever. use We to that will cash

way. our operated always this have We business

raised remain give us on and loan the compelling debt opportunistic we to under flexibility to continue highly capitalize acquisitions term but, We to recently our selective. capital,

connection As in transactions, such, to our it share. we don't would plan accretive be unless, with to issue is specific equity the in income net near-term, per that adjusted

will continue pursue the generating We to based strategy growth is value that on and long-term. an over acquisition

Jim the now turn to me With call over Jim. that, let

Jim Shanahan

Thanks, Rudy good and morning, everyone.

membership of is our the a of contained Partners the Financial Focus of Partners format Inc., those reminder include quick our Focus managing statements the interest of our other XX release, financial of company on First, and majority press results Financial in which the financial which disclosures the GAAP IPO. XXXX, public of Financial Focus outstanding in member, on presentation, the with connection owner LLC, Partners July became and Inc., the and

second We had an of XXXX. half first and quarter, excellent

for business in year-over-year well net income XX%, supported of growth. the And Our our XX% per annual by revenues. growth stated ANI targets is share adjusted generating organic or above quarter, revenue

reporting XX.X%. XX.X% per fifth have growth This increased achieved quarters share of each XX%. ANI, per public quarter company. revenues year-over-year year-over-year our of our share in as Our these in revenue ANI, is And and grew and we a excess

million, momentum, resulted the an total this June closed strong XX. revenues quarter, during increase from over of $XX.X the of growth of our new acquisitions partner ended million million prior recap $XXX.X firm for $XX.X quick QX quarter. Approximately, a months, Now year were and XX.X%, or which XX eight the that XXXX highlighted growth

primary growth. were revenue the of Wealth fees management driver that

Our excess remain fee-based total in our XX%, revenues. and recurring of of revenues

differentiator sources. our is important revenues of business fee-based we that, from all and earn an such, recurring As our virtually of

Our industry wealth service a a of go firm, than of that Because driven typical use beyond services present wealth secure rather holistic high suite just as management for driven investment worth serve a these client net the the they they relationship interactions, complexity models, whole. advice. and is clients, benchmark much management well full that ultra-high of with

QX correlated income of billings. markets, sources came from which, and Approximately from generated advanced correlated revenues with XX% our of for equity our XX% remaining the revenues financial were XX% The to fixed were the of both markets. not

the of in that, hedges are a revenue highlight our limit differentiator allocations the embedded second business, which to our These important our exposure markets. stream

through as the hedge of service the volatility, practices, firms. market varied non-correlated Our a timing our billing revenues and used methodologies by against

be whom worth capital a volatility. particularly, worth than as important ultra-high against clients from, high Additionally, further which serves benchmark, a investors market more net beating is tend net and equity to preservation conservative hedge

earlier, our by our the revenue growth merger This base. firms. a organic year-over-year, positively of revenue QX was As rate was larger I on mentioned substantially impacted, XX% activity

million $XX.X since of X contributed The XXXX. XX Buckingham, into in of July Ward in mergers, completed QX XXXX. revenue of Loring have and largest We was which which itself

Over growth strong we growth the of Based average growth rate last was our due our excess revenue expect organic quarters to XX.X%. in quarter on in organic billing another revenue the our advanced XX%. quarterly firms, XX with rate of QX a year-over-year visibility, by

we quarter-to-quarter when organic are levels growth a based our the and complete rate business. basis While both of sustainability transactions, timing quarterly our on the on of trailing demonstrates can vary achieving the we

Our adjusted which quarter EBITDA XXXX. approximately the EBITDA XX.X% our of of and revenue acquired These million. million $X.X of base $X.X View was new contributed Escala firms QX $X.X closed increase $XX and million Sound for was year-over-year. an two the in million earnings adjusted for quarter, partner approximately firms for Annual at beginning the

will in just Our in in mentioned M&A in $XX which firms the acquired nine earnings Jones which to quarter the approximately million in Xst, estimate On or contribute be mergers. $X.X added million strong we annual revenues August closed acquisition Williams new $XX.X second revenue in EBITDA of and approximately closed velocity and I partner two and $X base continued million million QX. we the we in

through Xth, were partner base the firms acquired earnings we for $XX.X six August million. closed Year-to-date

the mergers We were which quarter the second quarter. also closed XX in and nine third of in to-date six

half partner XX of XX these completed additional mergers executing done firm firms QX. of any were firms on in first merger. The behalf and their we partner new were anticipate don't closings We

for in XX.X%, our was EBITDA quarter margin EBITDA the with margin XX% guidance. adjusted Our line

to are we be this continue we the will of by rapid EBITDA While period growth, percentage of adjusted in our influenced acquire. EBITDA margin

million is Accordingly, will and which our approximately calculations. estimate percentage increased the the impact sequentially provide year we a $XX.X in EBITDA Management growth expenses, of associated XX% business contractual fee we on margin fees, our largest guidance, but cannot be due and the QX. revenues of the operating as management that to of one full also by

partner new each of on the mix based acquired vary by that can the of are fees of and number management acquisitions company part and firm. partner firm the the of and Management percentage mergers people

the of expense. X.X% XXXX expense good revenue Our a which first for non-cash equity is normalized for of was compensation the proxy half

million compared in income the $X.X $X.X net of Our second million to GAAP XXXX. net was of in quarter quarter a the loss

year a adjusted our primary over revenue Our expense to the was the net than reduction higher the in as as term loan the strong past quarter income year repayment completed $XX.X XXXX. reflecting growth second and prior acquisition related million, organic of activity well interest in $XXX July lien million XX.X%

higher share per XX.X% year-over-year. ANI was $X.XX,

in for ANI we the As impacted anticipate connection and equivalents used a acquisition by share Focus share QX per to reminder, outstanding level. is didn't calculate incentive with our our common activity. price so unit LLC We the our which equity acquisitions doing QX share count calculations don't issue for units at our for any quarter-end is

CapEx-light Lastly, slightly in We in on New XXth first capital our to late our elevated in location. July. to our in were expenditures model QX, forward while relocation we Investor November York Day a hosting new primarily business our ever of look operate headquarters

of ended items. approximately other sheet our ratio under in with $X.X and to X.XX billion Now, a net We credit facilities the outstanding debt balance times. turning quarter leverage

demonstrating for loan dry at At of million closed demand offer activity. we of powder reset debt. oversubscribed revolver July our strong borrowings $XXX down an our for existing on and under the The term our end incremental paid was balance and our we M&A XX.XX closed the to

by led to last over IPO created the opportunities visibility our unprecedented the discussed, seen we we've As year.

bottom-line of XX% quarters. growth five a each result, and the for our in have top As been excess last

required XXXX targets. To meet requires is sustain growth to higher a at these level what levels our leverage than

our While prudently expense our initially manage protection and variable than a and market downside of we of fee-based level in recurring high event will the our anticipated we're of base, because higher volatility. level use with we meaningful carefully preference, our which revenues, leverage, of provide and comfortable

In factors leverage. our limit aggregate, on therefore market adverse our the would decline and these of effect EBITDA, a

analyses by QX example, by revenues only For would have and have only XX%, which reported for QX all X.X had correlated hold profitability times. Had reported firms, constant. X.X declined our XX%, declined market market other by fees, net times. would leverage increased of our QX increased net the our our by leverage correlated tied are revenues Except to management revenues QX expenses our partner these

were downturn, Our In Equally $XXX repay partner opportunities, event cash we to M&A delever. less approximately if QX compensation costs would and see use million basis attractive approximately that, our cost expenses their important SG&A flow was our would XXXX $XX the million. of instead operating and accordingly. is prolonged adjust debt a we firms

evident firms our really dependent are shared in This growth business growth of their portfolio you is our integral for especially driver averages is to The say performance those is key firms earlier, of not who the growth our our time. we targets revenue M&A. over through The that a of accelerate the why XXXX with our solely acquisitions. is The effect to growth. of multiplier growth long-term CAGRs on

capital on focused our remain We allocating efficiently.

routinely evaluate right capital leverage our we While conditions sources and our we continue to and business have carefully ensure do we evaluate between the of market the that as growth. deals balance to we evolve,

Rudy? remarks. for the to concluding turn I'll call Rudy Now, his back

Rudy Adolf

is proud generating. Thanks, In Jim. growth our and closing, the value of we are business

second business attractive that third, by is quality partners Our perspective. in models this from and enhancing benefits our first next culture; and a and core high by success clients generation Focus continuity in shareholder advisors fact of partners' it’s protecting their highly at benefits ensuring our role driven industry by the its advice;

that the are thank are and well long-term. quarter. of we dedication to work our positioned about I to hard the believe business over excited such, future As superior and value our we deliver for this their partners shareholder employees and like would

you. Our business today without is where would not it be

for call questions. now we'll open that, With the Operator?

Operator

you. with Mike of America. first from Carrier Thank question And Bank our of Instructions] line is the [Operator

Mike Carrier

leverage and the on the slightly given for you that you're of Hi. sheet seen just given taking the guys have just activity and M&A first level questions. Maybe thanks balance front, Jim, Good on the morning items the question over deals there impacted -- you you that timing any forward. that to need like have X -- that times is that that EBITDA, have through going been announced first, meaning level, may that will expect flow

if level Is M&A we have then, are been there you an of And remain in running to uncomfortable in continue they year. the at? be as attractive guys any environment that as where this terms opportunities

Jim Shanahan

Yeah.

for thanks question So, Mike. the

the QX, that in -- close provided. in some supplement mergers we we yes, we've So, there

William the August was in earnings. transaction, base million $XX.X closed acquired Jones also We of which

a we've XX% Just points, and profitability of share revenue quarters in that the ANI, on and revenue excellent the last growing on public the the couple been based opportunities XX% was XX% IPO, over our Since reporting. certainly five business per seen. we've on touch based guidance the of ANI growing and

X at accretive. in Jones, great Yes, to X. was look William our are closed We're look times. August we we're that prudent transactions just very they on which how at deals like over ensure We

We the deals, the include long-term. on may our in evaluate a leverage. shareholders are We the continue to best to little interests these stretch in accretive of which the leverage

we of a cash operating flow. lot And generate obviously,

it $XXX well support million us flows as flow cash in delever. financials, the see to you As not LTM deals can and we as help included $XXX use they're pipeline accretive a XXXX if in was would M&A the help million, then cash slide those on the us the a over in pipeline we basis

Mike Carrier

side, of the the -- on you deals acquisition being like the think That’s contribution but of on guys other of types activity side deals like I market. seeing deals, just and in -- And so year-over-year, that just maybe XX% are some of then up, of terms have given like any in guys level of the -- earnings even like merger about both color mentioned the helpful. on you terms deal Okay. we the mix like number types any context the in ownership the

Jim Shanahan

Right.

just in QX. just is earnings; in about $X and the closed that. firm about guidance terms in and EBITDA quarter. of EBITDA. revenue million that six acquired million had great of we $X.X firms, of closed contribute $X.X in Williams $XX -- million million on acquired $X.X base we just Escala, and base Sound Jones Year-to-date partner on revenue firms So a base I probably It earnings. in current contribute -- we View earnings. new quarter they QX through this million full that went We an revenue large transaction a of contributed $X.X in will this basis million gave million partners closed of we and $XX.X and new million estimated on $XX.X These

Rusty McGranahan

and good basically we portfolio proposition. from executing our my to since more that firms that is this pleased we entering and the grow and the are qualitative year days it with access feel add over way them type get so course couldn't perspective, very above and year. remarks quite attracted our how the how quality surprised by certain the the we frankly Mike, are be of I There our we fit seen the we of early will we more into firms quite but you've rest to the mentioned get and down guidance -- capital. the to by And ability far to that and pipeline and has and been ability these the value that with on strategy a and value independence our in are the of time a absolutely next by IPO numbers we frankly unfolding be to various we started all entrepreneurship about to year ongoing it ourselves, it attracted of essence comes

Mike Carrier

lot. Okay. a Thanks

Operator

Thank you.

Alex question Goldman is next with Our from Sachs. Blostein

Alex Blostein

guys you are I stats strong; really very it more So it the but deal to already, of How seems a from deal last is back with up. need good that just are Hi, and we've staying to seen you're in the what several you're the four past the continue to in is continues. Leverage dynamics, about keeps you I to to talked guys little kind remain is going pipeline than the coming guys pipeline respect quarters comfortable how to guys everybody. like thinking about new you? sources funding the helpful three that four, gave the to four execute saying some and clearly are alternative Great. know we've like guess us the given case since over levered deck you slide in market plus sounds now. on momentum above you morning

us kind dynamic? maybe walk of help So that through

Rudy Adolf

course, very the our X.X comfortable as the disclosed Alex on very just as scenarios feel that to market dynamics a it supplement we the here. And, sustainable the XX We reason Jim and X.X, mentioned, we're different relates we're. where we in sensitivity spot of of in good spot. to particularly show much page are page in a we that

and flow have generate cash we ways demonstrated we into the IPO success level capital, the to prudent a at it's or to the originally more still rate and it is that than we three two seeing more a XX% now to the assuming now since next and we staying model. lot have yes albeit are XX% When delivering we believe what ratio transactions we of that as is a well growth of we grow opportunity what us it’s of basically momentum Clearly higher is, the business into deploy deploy four that what we only. that is it gives leverage anticipated managed and have

Alex Blostein

delever sound to to are you guys it down slow of willing kind sources funding pace M&A? like the alternative any around since thoughts just guess I And doesn't of

Rudy Adolf

equity. function the don't seen said see obviously we various we've -- that, opportunity transactions. be yeah, a will in that of This to current plans issue it's have Having imminent

ultimately where is understanding or a specific we set explained last shareholder time, in this only context transaction of that we from clear have accretive transactions equity of we issue perspective. the a As

we opportunities we still going see of some of into So but see be that perspective. the markets unless accretive transactions, this this to today, of we stay we where a we are equity would if tap types willing these from are to shareholder assuring is course type of

Alex Blostein

update Got Buckingham kind Ward where then give are how an another going. Loring to you it. you maybe with Thanks. through expect and Thanks. and the of integration of and us on And accretion the calls just year? in to respect how of that question the evolve they sense around is synergies do Maybe outlined prior a from that transaction rest

Rudy Adolf

the So Loring much in with over revenues Ward with that of is are XXX very disclosed target working million terms RIAs. on numbers $XX they we and in

it's we So -- expected. as along tracking

Buckingham expecting it's yes business more the core not and are early migrating on days. which because any of course of portfolio seen but in opportunities others synergies been changes has level one side. see more more have accomplished of into earlier the There charges in opportunity headcount earnings and terms over announcements, is here clearly the We to terms much the integration of in we

is we much but work today, are on it with is here our but ahead, this pleased guidance So, more everything subject. where prior consistent

Alex Blostein

Thank Great. you.

Operator

with our from is question Chris William you. Blair. next Thank Shutler And

Andrew Nicholas

already the XX good for -- is think Nicholas more quarter think, six year then here. And through year, To another full any Hi, the This actually deals you've added third Chris. two completed you is the I quarters through morning. which I halfway Andrew of on than tuck-in first prior.

deals remainder what could conducive and if next? was through talk is just pace pacing type about So, you environment something of deals the so the to the continue of that current year of and about types hoping if to those I that's into specifically you this of expect tuck-in

Rudy Adolf

to very Yes, yes, see they we activity what big the much and these core our the partners; can a the because, mergers less the full deals, explain, closing we of very versus difficult predict last the course actual year a year. of accomplishment. year deals much like around deals seeing. deals past year XX is of mix attractive probably and year-to-date we we basis as here than XX are typically a QX will at of consistent are quarterly it's throughout they obviously on these tremendous are is with value-added And very part to move

first so is Because, Why the we activity simply platforms. have high? more

We infrastructure into various and to do are the ready mergers. do are now and necessary programs have to capabilities our be more to that really merger value-added transactions firms that the qualified and have basically

market the attractive of before I as the to very power comes Second, our is it very, proposition. and to mentioned back value

we the models seem all simply is industry. of some model, firmly monolithic the and that be Our results are one fits to superior to size demonstrating really believe dominating it parts this

So very it's our step and evolution. year we of deal, we powerful we time the as of just good a the rest feel every our a about very and reaffirmation do it's is feel value proposition that in obviously

Andrew Nicholas

gears bit, talked Solutions rollout of changing you. you last offering. That’s And your Focus little Thank quarter then about a helpful. Client Great. the

could firms? hoping, provide seeing an and Just that's partner amongst what your you how you're going update kind of traction on

Rudy Adolf

absolutely. Yes

it working clear in are. XX like have really a is So transaction. the organic in that firms our point, actually XXXX. going meaningful when we where it announced FCS launch, we years, We working to -- very growth. future be financial we transactions But contributor impact we on meaningful to At of on team will were not is this literally our involving are very XX partner

simply received. So, uptick seems to interest be clients importantly very value-added our clearly the most to partners' our well to clients, initial

high that any from economics of when offer base to client what very here also our other interest side very can is banking attractive the banks; way. frankly they diversification they get and we up signing access are the these joined get couldn't FCS things a just ultimately because We quality they network, and it's quite

this who it's clients, institutions a so very on us it's it channel good. working great the program, our and So, so, provides partners so our attractive are banking for good with far for with

Andrew Nicholas

you. Thank Great.

Operator

you. Thank

Our with Voigt next question comes from Kyle KBW.

Kyle Voigt

Hi, good morning. of follow-ups. Maybe a couple couple of

I use about it The accretive term just thinking would guess consideration? on that? sense executed deals your at the to a been of you've only equity would you said you and that, you'd have price to kind accretive wouldn't And at you would you one share year two earnings. consideration viable earnings that equity near those stock accretive how option use your if get year, unless immediately Just using to equity of be that was equity price. just deal use to past is a or the have the secondarily, clarify first over is is to or accretive current current two, trying equity quarter

Rudy Adolf

we good our in be as equity unless the deals applied will cash, have And an Ward example. us we So example the use used Loring IPO philosophy is the recently. only – and primarily first equity the a reason in we I very equity have our said it's But this for consistently where as on think to equity yes there we all used equity. transaction

are goes usually perspective, accretion these very that pro we multiples pay is overall based run into of course have But multiples course to look what an and all the still mid then economics against the formula, shield where forma the when the and we of of to of transactions, our through trading explained we're the past and of it important value-added, pay are basically today. trading the assess we would the in From attractive that high we of the on as you digits in single economics the acquire source which it first of we the transaction. that, tech – we the current factor year basically an in at. mind keep We

Kyle Voigt

forward about understand on a absolute to know you're should your how this going activity that, Okay. where going acquisition Thanks. ability pause as there's of think on you'd strong consideration to delever to hit max to but you way, the button I to just but before I follow-up, couple of revenues a quickly for an I'm on or leverage acquisitions. equity want a and new think And investors but recurring just try been on investors have questions just switch kind take different I already, willing

you is it times can is five any it there there? provide think and I times, half is clarity four

Jim Shanahan

Yeah.

is business this to So generative. extremely point here cash your first

on XX million. it supplement see the $XXX months QX generation cash of the XX You'll flow in last is page our

And into or four. we We so earnings last the to be announced the either something in transactions back we here de-lever. we above that's the level that next of basket use deploy will

the basket comfortably the and that number on business very the dynamics page we given revenue are absolute the and don't We in are we that are quality four against. have an We the explaining of running above the supplement XX.

leverage on decisions comfortable given plus make we by the have think these As transaction we we're but that in now. I transaction on I we the XX% we we're IPO trade-off basis and said, growth. then very are today, since delivered good where This and are between where spot a

Kyle Voigt

in And actually that expect have any XQ announced the specifically? go terms to terms leverage deals – in of close to XQ just guidance third as quarter we of in that could you or been in where the

Jim Shanahan

Yeah. We revenue specific don't guidance. provide

of nine them no, with for not you is transactions of QX. have – see the I a fantastic we where a think we're QX at to the done guidance transaction supplement are Jones, we're But we one already Williams have are comfortable any specific X and the going deal very team. we the proud direct we We page very leverage providing be said it addition in on as today. be to will But to of

Kyle Voigt

prices competition I'll last kind recently talk or competitive deals Are the and if back nudging the for you. moving queue in closing? you're is about dynamics competitive then Just Thank more just me and dynamics acquisition from of these the you And hop that higher on for industry. you the finding the in all? deals could higher the Okay. at more

Rudy Adolf

who an goes years, entrepreneur on to you in game town. capital true value for in continues RIA you and our of material We that can see programs quite basically to a value way this doing attractive – firmly behalf now as competitive that pretty much frankly any many but component you your our you if a for to Yeah, are the we keep believe, a has long frankly do do run we access believe the there way the track proposition. deploying partners you nobody see Focus to Kyle, be unchanged keep want quite and environment this in very successful is the only we record is what to else running of value-added our the offer want proposition. the Yeah, you're firmly and culture value it business

get swallowed the You culture can join business in institution up by you and doing of disappears. can some mega monolithic where the platform way basically

private significant ultimately get temporary permanent equity being capital. Focus definition may in particular is per really capital a a means You of loss equity involved, versus control private which

thing in net So ultra-high the the is be unattractive. particularly again, very will in this market on other basis which worth block words,

much value So if prospect, what this. you and see we is don't is really this a competition around as unique Focus

said is mid reaffirmation for high value the that acquire very, So very independent almost to IPO basically of attractive we proposition we to we that continue size I as in in a and firms just these the pay single-digits this marketplace. described it's

Kyle Voigt

Thank you.

Operator

Lau question Oppenheimer. Thank is Owen you. And next with our from

Owen Lau

Good morning and thank you for taking questions. my

do things slide facilitate on -- completed doing to are make merger start not X, acquisitions not have those that are to XX that accelerate to what growth. a can have making or the So firms you

Rudy Adolf

Yeah.

ultimately XX thanks -- what very, because is and this join We in without shows years speaks course, to important no X% of than is disclosure our universe portfolio. enables firms this full mergers. make. us the merger; X, who simple this for attractive; is XX.X% nothing going of very very two create we us us to years to we decided for more who It there for believe it and were quality a the basically And that buyers page a firms that So this with of is attractive rates. believe exceptional here very with growth firms for two really to

are infrastructure to need not process need fees Their they not for mergers when mergers doing differentiated most have do one in incentive us, most ability get is yet. join to adjusted. is that And they when many systems them, Firms marketplace. their be broad do Focus firms to join the not us reason to probably highly all but join they is quite where them, of not where of the scalable are we for enough

and be So up them a transaction. ready there our new is to where get do in us roll this of our sleeves a and work to partners of kind position lot

qualified to when the strategy. outreach are execution with guess with that's an strategy probably firms my we develop Usually once the M&A our program then And your create ultimately partners basically -- for of an them and M&A one-third we the through of firms so to and are here join or they two-thirds are just relationships generated that once us. ready this execution of existing and is who program have us partners join help consummate they

forces this but will our So owners ultimately we the that be of expect firms simply of M&A you're most consolidating is this and trillion managing $X industry RIAs founding XX,XXX a game and partner not in tremendous all, years function in XX plus. in assets,

an is of their enormous there these this partners into our of take is ownership advantage control and generational So of just transition Focus to well transferring tremendously and positioned companies level in just forces.

Jim Shanahan

us world. to obviously, their partners' Obviously, Owen. M&A but the enter And to it's that We accelerate force partners decision that Yeah. to join growth. decision the supplement just many can't

first by it seven XX of optimistic that transaction. done As I year-to-date of mergers which time are an transaction mentioned we've doing them their about firms very was XX we earlier, M&A

tuck-ins world accretive. built the accelerated infrastructure the the they and worked all value-add us growth world they're merger now with that to with So migrating from up merger had on the are very no

Owen Lau

Okay.

because very Thank was the was help partner line What the ratio quarter economics two also firms lower recently less comp that? we you year bit ratio higher. most and than acquire was Is these you. drive last last think about the with forward? should a I it of your from how items going helpful. ratios, think so little Then quarter, and same but comp management fees that's

Jim Shanahan

Right.

million, going So went compensation to a sequential look in a QX to up so it million was X%. Obviously, from revenue when you as million, went to $XXX from down percentage approximately expense the $XX.X it line. increase XX% QX $XXX $XXX from million,

was contributor nine that as a as So mergers. the well

said it's of operating in people they are function past, partners our As I the a companies the the of in reside before joining company. where management and

they and have QX joined example us, they're in So over in partners XX Escala an management the as company.

drive fees in management up, So going an operating drive item didn't necessarily because that's compensation, we company. the they're where not we but

Owen Lau

very Thank you Okay. much.

Operator

you. from And RBC. next Perlin Dan our is with Thank question

Dan Perlin

us Thanks, guys. here. -- you've you lot a good can done Jim, morning help transactions of

or of what just you financing. of debt today you in where you is did Can us refer help powder? You stand your terms debt kind capacity your dry

Jim Shanahan

Yeah.

place. tremendous up was very we did is it well with Yes, offering which to moved it's way reaffirmation a why So is close, the to so at received, million upsized $XXX very we million. $XXX new attractive is transaction you it. look roughly about our When just the our total facility the now that close term capacity in and

Dan Perlin

That's $XXX these including X. the August million post all transactions

Jim Shanahan

Correct.

Dan Perlin

then partners. you've run to these draws Rudy on Okay. other that around your management team's team's deals is the And year-to-date question much capacity, clearly capacity of faster these a attention clearly really I lot have your

I'm sustain XX% rate? to so plus order capacity about running And wondering team's just how at do you growth in feel your

Rudy Adolf

Yeah.

Focus always organization side. been very recruiting M&A particularly course, are on a we and relationship bringing and So, the in important has question. of management constantly heavily talent new

my exceptional started bringing the new two have with deeply last them the are Co-Founders in -- very layer are constant standards whole frankly our that running work we at bringing Yes, us talent Lenny Rajini of and they them training and in Focus. a created involved acquisition into organization who up and people Vice this XX joined to President, that have talent who our the us months, -- managing regions. quite join We to directors

regions structures the these we tremendously In org scalable. many ways, into model pyramid make structure -- within our our pyramid regional

-- on constantly extremely use As is talent organization scalable. certainly long we since are this is this very growth quite XX% then applying, talent a this growth that path frankly onboarding as sustain are IPO. in we rates competence. we need the we we recruiting constantly competence But standards and is demonstrated core to most the and that XX% have Recruiting a rates plus core high the we that

Dan Perlin

Great.

just of all there deals I'm you is number. equal be greater at that's XX%, quarter supported any incredibly else which into is fourth timing carry firms require mergers wondering partner of posted call growth kind the of out kind look than all the is strong something these to for XX% to level The there reason that else third in to you would quarter we opposed also just sustainable organic rolling of when that as or in the growth quarter? the organic fourth not know that

Jim Shanahan

kind where we Yeah. It's quarterly let And X. numbers. on the supplement of to point organic showing me page you growth the

numbers of organic It quarterly this course So are period -- of over wouldn't. a XX% not long intrinsically, and time. sustainable is growth course relatively of period volatile

you same more In we quarters at is growth coming trailing we mean, half it XX.X%. was would the store. subsequently overall from IPO look and here that the the are low showing double-digits, guided and plus-minus I XX important roughly think always towards XX% be I process

So as the quarter. first when overreacted the much totally community in I investor as it thought, only was X.X

the We XX%. are that should they to also overreact not saying

this believe explaining enough this providing these tools time with are very tremendous plus-minus guidance are by and the give you the thought of by And very holds; of -- we guidance XX% same-store in a average organic over generating. model of Our we or will are comfortable quarter XX% of proud overall But kind growth and we third that numbers. into it. to we're the of we course,

Rudy Adolf

Yes, just the…

Dan Perlin

One quick…

Rudy Adolf

as billing the revenue. us this fee of visibility based gives -- methodologies well as recurring lot a Sorry

provided in for So excess strong of average. which QX that's the guidance in why relation XX% is XX-quarter we the to

but So QX not at XX.X we into providing of %, disclosed on the side point. we're this guidance

Dan Perlin

Understood.

Can Thanks. Just and that? of of XX%. get you that one reconciling to in me to degradation the remind kind I'll margin The jump. here EBITDA also kind what was quick roughly margin just just one items year-over-year me, guidance

Jim Shanahan

Right.

have percentage partner firms we today. to is splits, primary activity a very remember forecasts a in the of today, to of done as XX QX well. transaction EBITDA range So the have we're They of based the current the lot the on margin the XX% XX% We've different based baseline of firms and about in driver is economic generally business XX% the be on a acquired. which of and status

Rudy Adolf

influences XX% again an organization is is going over from the and growth first very in that The margin But EBITDA really the excellent consistent basically XX% mind with this year foremost kind an what see we stage this to a we M&A this that's perspective. it's during and activity need keep cycle. XX%, of

period the plus-minus higher a very to So lower of about think way is for little a business or time. good XX% XX% a good this

Jim Shanahan

is think, based Yes, back looking share; time. of rate which current the on be should in focus current adjusted the per run I partner on to the as revenue and net firms the opposed income business, portfolio the today of

Dan Perlin

Understood. you. Thank

Operator

turn Thank I'm you. to the like for And would I queue. his the showing not Adolf back in final Rudy any call remarks. further to questions

Rudy Adolf

Yes.

forward call. for everybody looking and we you in. much has very thank this seeing enormous that again Bye-bye. quarterly our demonstrating I'm to next power for We again, that So, business all and listening you the you growth are firmly Thank interest on your earnings believe in Focus.

Operator

ladies thank Have gentlemen, joining and now us the for today. program you may with This a disconnect. great you And and we concludes day. that

Focus Financial Partners (FOCS) 9 Aug 192019 Q2 Earnings call transcript