FOCS - Earnings call transcript Q3 2019 | Focus Financial Partners Inc

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Operator

Good morning. I would like to welcome everyone to the Focus Financial Partners 2019 Third 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. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

Mr. begin. may you McGranahan

Rusty McGranahan

everyone. morning, Good

statements. fact we begin, course number that the to remind forward-looking course may differ from are of that uncertainties statements. let assumptions from this call, me could the results the based attention of these to made currently materially information these and your and These a involve We you Focus to Focus’s risks we statements Focus results differ available Financial on statements. of by during call Partners and cause Before the may of make

the Focus to has materially made which update statements. any assumes no of filings cause Focus to finally, with the may factors such differ forward-looking its duty And results SEC that and undertake some not statements. these from was does

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

Rudy Adolf

and see joining delivered Focus. Good you to off in Rusty. call. Thanks, results strong very in excellent thank everyone interest appreciate We nine first We you're a morning, months. keeping quarter your third for our the

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

levels. drove We growth industry-leading earnings share further and revenues to increased market our and

with excel forming portfolio in our of have consolidation. firms for We and retention an industry of already partner over platforms client outstanding that half service firms

principle merger. high and centered and growths which portfolios scale scale Our client against are progress More to and of also partner partner firms on firms building are ensure their revenue solid strategic initiatives, of are for our accelerating making accelerate our growth retention.

firms to have estimate gone capital achieving our a of have that subsequent more XX%. September a we portfolio essential revenue for levered solid XX%, average that XX, for reflecting been mergers with into IRR a to is of inception. XX% the than since Based are how of delivered of pleased us combination This at We the this on integrations with than well years average seeing cable two structure, IRR of more organic continue sources. has firms excess as same sustain least weighted weighted growth

Our to provide partner to elements scale enables all of firms of client assets our businesses. their $XXX in over us billion value across

number next-generation senior engaged particularly with a advisory on hires and are management them of strategic talent. We

working operational defining than programs also more marketing We XX and initiatives technology expanding business XX our enhancements, for on development through new Solutions. in Focus firms, credit cash Client and over

we are and Additionally, an best-practices. sharing placing intelligence business on emphasis enhanced of

deals closed active of year-to-date We market. advantage have an M&A taking XX

selective maintain being Although, XX%. the deals, single-digit environment highly and accretion earnings mid remained discipline year-to-date strong multiples, a pricing to is high in over the increasingly of we competitive, these aggregate generating range,

partner a targeted us and to M&A, of our pursuing by are We enhancing grow share firms it the through on services, market clients. industry our their to positions capitalize strategy; consolidation

to our to leading increasing new attractive in the firms, platforms the highly are who become We partner have reach business profile future.

the So at substantially scale. are can partner firms our mergers, we which accelerating speed

our service also scale to taking of client partner help expertise, via firms Focus are We offerings. and evolve advantage

of quality the industry, ability competitive the firm's As to the client enhance is the differentiator. important an leaders in our experience continually offer

believe we that into together, will creation value drive future. the Taken well these elements shareholder

and position an largest total transactions our joined estimated revenues $XX.X XX new three acquiring over Jones, The AGS annualized million acquired large million earnings record firms expanding basis. on in firms an industry. This in consolidating track expanding and year, added in growth partner six based excellent of high our Williams Focus, Escala and this

and in clear sources of enhancing and New These to ultra-high with and entertainers market. York in therefore Focus from market generated highly firms of XX%. non-M&A our benefiting average worth leaders, they our joining the value-added CAGR attractive are an net prior from services, to organic three Florida, revenue Prior year related more Australian artists and presence

acquisitions our a half enhance portfolio, flow, term these further that our increased and net diversify and While our approximately our cash by ratio competitive leverage temporarily positioning.

the We believe expected adding higher these leverage firms partnership. that will increasing In profile, and our the commensurate clients. result risk firms these new ratio new the a of we while preference, increase million $XX.X large into evolve net in platforms, did increased, talent not in our partner material value

billion private little provide Let or area. elite me clients is unique a net is an WJA high well. approximately characteristics assets of New Wealth the over the greater experience Williams serving and XX in you worth City ultra-high York years net with X background Jones worth Manager in on client Fiduciary of each and

markets of an expanding wealth it as robust attractive teams, has sophisticated New South in further largest future merger WJA and advisors platform candidates. investment a Florida. on and as centered team, management long-tenured One well a and has well-defined management infrastructure, for also in making WJA the growth in U.S. the strategy York expertise,

management assets outside U.S. X wealth Fiduciary client with in in markets the of of Perth. over presence ultra-high are offices Australian the firms and a Escala make Sydney is one it in anchor and is establish footprint is reach Advice net exceptional few investment. planning similar undergoing worth to that largest a only to has Fiduciary Australia Asian Australia, There in billion shift best is in the national net management Wealth wealth its a reach recognized Melbourne, and high one the markets. the Model. and worth an select space expand with Manager's Escala Escala and secular which

net source worth is of gives AGS will organic meaningful space ultra-high Selvaggi, in a be largest and Greenfield to mass one and business office high Altman, of management growth. multi-family critical in the nationally. this in us AGS focus clients firms their the catering worth & net U.S.

expertise using already in scale operations our enhance AGS architecture. We purchasing power are in to technology

services build their expect partners our they they the offering, maybe We as in offices utilized own services many AGS provide by multi-family that firms particularly on of to clients.

momentum and remains high-quality strong. head no transactions year-end, our shortage with We into of

mergers healthy throughout deals be to will seasonally activity anticipate XXXX. QX is we that While typically both continue slower, for direct and

growth leverage. begin taking we focus driven M&A of the the I about we advantage at want on forefront trend. growth this industry of capitalizing on balance to coming sources how remain year, address continued consolidation, the centric to to remains and will between we are of thinking the As

be share targets how Organic continue to our we and growth important overall are business. achieve adjusted We rates revenue also for trend to XX% per in will growth appropriate that the net objectives. income believe our annual growth

X.X or above Although, QX. these rates leverage we barely that markets, will at targets, quarterly from QX our ratio our could anticipate to unchanged constant assuming times essentially remain net below

X.X solid we associated with with outs the de-lever transactions satisfy this plan and times. execute intend leverage earn ratio operate to gradually we We pipeline to and XXXX starting net in closed X.X the in have as and times between a against past

to We partner of us gives investing are firms this and to our that organic also the pursue flexibility the growth comfortable transactions, existing larger growth. range strategic accelerating drive while

to with we don't as structure equity equity While, this accretive makes consideration consider larger, the sense. in near plan issue transactions term, for will we using

guidance. Based characteristics, within goals on XX% flow by expect income revenue share leverage cash net net our we remaining and ratio per to our a adjusted growth achieve

operating advantage We leverage, are of scale of our our that initiatives implementing enhancing capital available turn, take flow will our allocation. while cash several also increasing in

our and offering to November our I the goal their their talk firms enable mentioned planning while will investment more capabilities. which services and XX. growth mergers on growth the these at previously, strategy Day our complement growth initiatives But to is partner in through also about Investor by as We increasing accelerate detail existing our additional

is cash a and our our has is FCS example advantage to clients. those credit this friends offerings number One significant for the of of programs these The positive. response overwhelmingly partner This taking offerings. of been

over and million deposits. financing in Our FDIC-insured million high team placed is on $XXX XXX is currently working approximately in transactions yield

attractiveness providers use consortium banks the interest of FCS, client our our balance Given to this support the base to don't from but diversification consortium is rather sheet on service high. in capital. and rely of provide a We

bank point subscription from due-diligence this our to standards, passes the for that service At provider any or it's access network agreements. programs

anticipate this firms be client year, that contribution high directly from will benefit likely our the modest assets for While partner retention. will we revenue client coming in new

Jim, remains turning disclosures to discussion improving that the moment acknowledge to to priority. I over high our want a a Before take

a made better disclosures high understanding additional the quarter and this facilitate growth business. of and true to have potential our of number differentiated We nature of

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

Jim Shanahan

morning, Good year. third this excellent results generated in quarter the everyone. months nine We and of first

Well QX For net prior share revenues annual our targets stated income both. adjusted our grew our above over grew per of for XX.X% quarter. XX% year XX.X% the and

for year-to-date for Our and November XX.X%. closed XX revenue was QX rate we growth Year-to-date was period organic through transactions. XX.X% X, the

create a Our in wealth results Focus for management reflect advantage firms. investment ongoing and competitive our strategic businesses partner that our

briefly I to on partner our to benefits acquisitions, the on mergers touch on large commented our the businesses. partner capitalize completed, consolidation of already their to from execute we've are new we As scale business and the wanted industry firms

Over client efficient by client of market to rates exceptional that of have acquisition than spheres Mergers of and distribution those on revenue influence, client and compared advantage time advisor talent. pools access channels firms growth more as take our only doubled that mergers assets, relied appreciation. enable to large new

the with own will be industry to the build platforms combined that that help and These to their scale them value we benefits do positions future. the the wouldn't services, firms on our add when in they able be provide lead

partner our and have for on CAGR of that As revenue been firms as with XX.X% both focus mergers. with growth XX years a generated earnings revenue have have attractive XX supplement, September or more without of the X%. and CAGR page XX immediate profiles average weighted The of partner firms noted of two

yet since Breaking the have growth XX revenue reflecting their average of firms merger of at market effect this their appreciation. down CAGR have approximately weighted a including not the organic X% a that grown further, inception, completed

doubles the over this than incremental a approximately more this have For growth substantial XX%. is firms compounding that of revenue to effect XX time. completed CAGR merger, The

total of Now August Williams XXXX. million on partner firm quarter acquisitions further this approximately growth QX expect basis; the for for We that for contribution Jones for this be we quarter, On a million. to year approximately closed new contributed QX, revenues. during million resulted prior XX.X X.X XX full-quarter million, which the XXXX approximately XX.X% from turning X $XXX.X revenues than a were to higher details close six

be growth. our to primary of continue fees Management revenue Wealth driver the

XX% correlated our an remains both of excess markets in fixed to remains differentiator XX% Approximately from of revenues income advanced for recurring were QX total the and XX% business. our important revenues which revenues for equity of balance. which and fee-based our financial generated of Our were

revenues came profiles, independent growth from of of services. that firms primarily correlated The These partner office the family cycles. consistent sources not market provide XX% strong our type remaining markets, from have our to firms

merger the merger As of was XX.X%. including activity this by revenue XX rate rate I mentioned QX award their last XX.X growth during positively earlier, our and was months, during firms executing in period. X QX lower which organic with our firms first contributed This million impacted additional the

nature of the Given growth revenue the our at this strong number, percentage average intrinsically last this growth. approximately demonstrating important it over organic volatile for two same-store years, was trend XX% sales to is quarterly period the look

partner in QX the mergers their XX% our on the revenue in revenue completed growth in and over bill our accelerate more firms exceed Of organic half quarter. will many firms, Based we advanced fourth have of one our anticipate visibility process. by to growth the

attractiveness quarter-to-quarter based the revenue of are timing are basis levels the model. can on of trailing a the vary we mergers organic our growth achieving the demonstrate completed, While on

years, approximately of certain tax and prior the services through be quarters are seasonality be each year. tends QX which of the As to first other fourth expected in in million and by revenues impacted X lower to

quarter; approximately $XX.X in to Our over adjusted $X QX full-quarter EBITDA $XX.X acquired Jones million. John's based William $X.X were is the million adjusted Annual Williams EBITDA expected earnings year-over-year. basis for contributed increase of XX.X% for was million in be million.

Year-to-date X, X for million. earnings we $XX.X based is acquired firms November through partner the closed

The anticipate XX firms mergers X fourth closed also mergers of given partner closed partner XX were X QX any to the executed from and We firms quarter. merger. first which We are X we in their don't on behalf typical in completed in the these done and year-to-date were in new of date of seasonality. third quarter

seasonality was XX.X% margin Our our adjusted of costs are our of adjusted approximately be will revenues. XX% SG&A QX which in XX.X% adjusted lower reflecting QX EBITDA QX We for the business. approximately quarter the than estimate that EBITDA XX.X% margin favorable more EBITDA the in reflecting margin

largest expenses is $X.X fees, Management sequentially by the increased Williams which which one million, of operating Jones reflects our closing.

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

first which X.X% was nine remains compensation for good months Our for proxy XXXX, the normalized non-cash a of expense. the of expense revenue equity approximately

year $X.XX, Our adjusted the was increase and period, XX.X% acquisition than quarter $XX.X over a per million, higher net for year. XX.X% reflects ANI past the prior momentum income same an share was the

count the the focus in to share any calculation is impacted We quarter-end which for As connection the LLC a is level. incentive acquisitions, our for share the per reminder, that mergers QX. outstanding didn't ANI QX nor by price, equivalents common will unit with our units used in equity in our with we connection share

understand XX our business. This the flow cash page our earning flow details. of have operating investors We in disclosed plus we flow cash quarter supplement earn-out dynamics free quarterly included for LTM allocation normalize adjusted help our cash available includes LTM metric capital payments See portion use cash to to better our our the of activities. of capital This the for changes. the working flow

For ended year-over-year in the model. strong and $XXX reflecting we cash our XXXX, LTM fundamentals generated XX period a available September light XX% a business increase capital million allocation, CapEx for flow

in to flow increase the the by year. last EBITDA generation continues over cash adjusted supported our Our substantially growth

and have in pay out to to flow used our three acquisitions expect primarily approximately We cash million QX in earn obligations earn make out to we satisfy obligations.

will we more pay million final purchase in QX. $XX.X installment to Additionally learn the price

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

acquisition has ratio increased leverage believe times times from William Through net which in to we time. value the X.XX in QX X.XX of shareholder QX. Jones, Our significant over

of part earnings have comfortable protection We downside are we the preference transaction we in because leverage in we of with this do. each level net acquired the with

two partner of have firms because against Since the partner this generated for net to period also target million acquired during volatility. more firm closer cumulative while other earnings, completed last which a years earnings XXX January preference transactions market most XXXX we've relevant the based have acquired we we protection the typically are provides the immediate their

rates low of risk the our paying duration us the on an loan a the downside market This debt coverage and flow earnings and gives five-year remain given the cash with combined considerable protection on term the we limited are event correction. approximate interest maturity in

impact on material a of net a XX equity the supplement, market page see which earnings Please the correction. provides sensitivity analysis ratio leverage of

to our maintaining resources continue while to capital the manage growth sufficient flexibility will in We carefully invest of our business.

excellent another and of first had we've summary, quarter In nine months XXXX.

ongoing advantage our that our partner reflect firms. results Our a competitive wealth in management strategic create and Focus businesses investment for

the continue our well scale will achieve value position partner deliver firms and to We into future. to into

in sufficient carefully focused of resources sheet remain will our invest strong firm. We to ensure capital maintaining while on a balance flexibility to the managing growth our

over I'll now to Operator? for turn call the Q&A. operator the

Operator

question first Instructions] comes Company. [Operator from Our with you. Lau Thank Oppenheimer & Owen

Your line open. now is

Owen Lau

questions. you thank taking and my morning Good for

you Would for XXXX? and be thank the on delevering be color timing about additional at you beginning gradual Any XXXX. you talk great. to leverage delevering of the target the the start So in more all would of first able disclosure for the

then three of slide you there. three-year mentioned firms the back Pre-Focus lots And this average to a large CAGR XX, on tie trying of good to that over XX, slide XX%, revenue work I’m had

accelerate to for the does firms other take organic already at size, growth it for you. what this you like did strong what Thank So very firms?

Rudy Adolf

and to me I'll Owen. first thanks the let the respond So question second And take question. first, then

explains we the we able across year this of -- which to a and this of track is what a of portfolio. first the record attract firms that course quality period over advantages we IRRs high doing the time this disclosed of call our XX% One time, achieving long is competitive very are have have distinct been

highlighting three the these reason the transactions And we as biggest three had that leverage we're firms and elevated have. largest our really ratio they the on slightly them, impacts

in firms capital and make I we is same these growth -- used focus joining again you we believe just a we before decision trajectory again, because opportunities, excellent. And in fact deployed the outstanding would of

excess page page the joined XX what average look this you us you firms the XX.X%. in higher ultimately with context at has quite number when lot do in we re-firms portfolio this that XX% for see basically here the that frankly can a participate of they that versus firms at moment of the programs disclosing to grew are value-added in Focus. Now joining The XX are

of programs it M&A, come the once programs, growth basically the to have see firms in we it's firms through you that a various the other just not mentioning have value-added dramatically we have are gone Focus. double thereafter is we marketing As help join growth factors. other can, rates that the some and their they combination We increased rates mentioned many that and programs after in

Owen Lau

how That's able leverage, be would about you good. And to…

Rudy Adolf

times XX% X.Xx we range Yeah, achieve X.X share the so we XX.XX ANI help this per and of revenue us and goal this our XX% range the reported is growth. to quarter provided Owen, is to

rates. in We flow of we're helps this XX%. And and slide acquire still cash all and and pipeline kind us strong XX leverage time. a share to are flow what have delever generating and within We've these growth future remain to cash these range into disclosures XX% help start which we free per supplemental objectives the rates revenue when our we'll measures. in and ranges have together, ANI and delever these attractive show put cash obviously in achieve obviously conversion these and of over was us on This our the flow, of EBITDA that uses confident added are

Jim Shanahan

because basis same the financial reach transactions, to but objectives comfortable quarter-by-quarter has a we actually of on are it underwrites -- we at while deleveraging tell we when explained. with time to our gradually specific that do as we can course hard all close very it It's

Owen Lau

Thank great. you That’s much. very

Operator

Thank you.

Blair. question next Shutler Chris with Our comes from William

Your line now open. is

Chris Shutler

about there, Hi, volume you're bit are mergers. you to price, environment staying at you'd you're know often been on mentioned a the guys of and in you a like good How out but there I the deals assets the talk for disciplined morning. partner Rudy, that for could where are competitive ton remarks have clearly firm seeing level cases there have? curious both for and you just cases? prepared

Rudy Adolf

Hi, Yeah. Chris.

that deals And industry we any The when announcement just of three opportunity no deals So is ultimately value environment that's competitive? still than but other makes look opportunities. we have has -- in we frankly quite has the that about years. in year shortage more competitive put of so the prior intensified them definitely are and quarter core highlighting set. doing is every in asset the at this any you every deals earnings against other what I the this industry have. the proposition Yeah us would And

successful established to you is want run and ROA an to ultimately run it's Then protect you well your you in culture way. want independent

want don't and track have value-added in to quite game to Or want to you of record long to programs be of entity. access you You access the in only want frankly town. some monolithic part focus large to is capital

They this they which presence else There increased has your you're is off are right capital. now. probably industry value what this equity is temporary but have in who thinking nobody Private significant proposition.

client They the will say ultimately you're net the space And please way in four can clients your particularly sign you see be is not sell will me in worth the going the private very to in from high three for So net to and and coming transaction anymore. to happen to be agreement control by worth ask approval net do ultra-high back when I you okay have this X operating and of me space. equity and difficult in go a years or we'll what will ultra-high worth you again. because

when is that close Similarly partner least have certainly consolidations they And track the we we now to the firms in programs joined. most capital and some have record having intra don't multiply usually access to ability nobody the industry growth I of that the of value-added to at claim have.

feel we M&A feel very positioning a about the we very in sustainable and we demonstrating. that we very good as good market obviously So the have space here dynamics are

clear believe proposition. the We paying are to a power is high of mid which single-digits, of we indication our value still

Chris Shutler

gave Okay, thanks. the detail the that's then you three that And helpful. around on firms

say of variation me wasn't you three-year give over how or a them you the on or sense much So can XX%, each CGAR there of range? and revenue what's there over average XX%

Jim Shanahan

comparable Yeah of you period so time. three of growth the of during when None M&A them look in over firms quite quite were game but year there the that timeframe. have frankly rates

in access other course they simply here So our to did is of are have core growth programs. value-added words this not business any of

downside three your but capital the we believe the of that profile yes up importantly, and of acquired deployed excellent little up firmly of million went well business you think same up gives an we course that earnings the a So increased because risk leverage based in of basically X.Xx business your extremely went we firms leverage essentially the preference by which time our I the which by went is don't at model. our because but these us protection yes believe execution $XX.X

we we So fast-growing these extremely attractive into well deployed three platform. think capital

Chris Shutler

an intelligence more. dive you and And shared a into remarks mentioned best then just business in little increased placing All the prepared bit on those lastly could emphasis maybe right. Rudy practices

Rudy Adolf

Yeah.

more in preview, there Investor So we'll at be assets. Day sneak but is XX little client firms XXX a partner talking it billion the over

industry effort And now else the of been into nobody data to our that partners. a just while this We have ultimately use the into inside investing have advantage in concerted we for for has. a

And metrics, risk did can industry unique inflammation leads firms scale, rolling information indications better do. terms are of that in competitive we partner that our provides ultimately scale across in terms out new excellent our that to we nobody terms that financials, basically believe portfolio So advantages. else of in MIS benchmarking the of in this

value our to to advantage Investor our scale clear of competitive Day, partners. number we be examples discussing in speaks one-off at to is how add just that it's it the that So a will

Chris Shutler

Great. Thanks a lot.

Operator

you. Thank

with RBC Markets. comes Perlin next question from Our Capital Dan

Your line open. is now

Dan Perlin

a more about to Thanks. X.X We deals. interplay Good to X.X quarter. up appreciate turns. growth Where X.X certainly bigger to to talk bit you taken you've the flexing guys. morning. talk up do and turn advantage for of wanted the you that just Good leverage I take little range about these between

question really I plus was guess old under thinking I get XX it I leverage is to of have The the algorithm. growth. kind four percent times three was to

public. these percent run You've been XX in just at actually order or that running still growth to to a Thanks. Is there you at XX% to going anything benchmark you're of consider should kind since leverage plus have going and slightly read into higher can that that above maintain leverage we maintain rates? to conservative that

Jim Shanahan

so for the this you operating of allows simply meet QX and X.X, growth within leverage by QX is X.X here model range. guidance fact our look of targets statement XX% at Yeah course and our when to our its to us this

now in XX% course we firmly our that since our that disclosures but correct within growth this and well believe we here showing we exceeded deployed where extremely massively are the capital, leverage guidance. which believe we deployed of the You're our And guidance IPO. yes we how

meet above XX% same be both provided operate will at next never can exceeded of have at the process with we is quarter reality -- XXXX we year. in IPO at time delivering guidance we course within to but the that the it new our indicated vastly able now and the guidance. In objectives comfortable first but of the feel financial we started you We very same we that IPO the

Dan Perlin

Canada. the base about the be the acquisitions talked It's of additional support Australia done I'm small Great. recently of it. there U.K. Can also to But piece I touch today on that Thanks. international the that sounds are I like mean of sure you've frame you resources know kind committed but just some it and the you've in trying markets? those kind make to could play business just expansion. past a I relatively

Jim Shanahan

Yes.

is Having our come. gross is with years our that, [ph] many test in these test of these and and We X.X% for toasts usually and valor, see us international. said diversifiers correct you're activities today markets we attractive markets. Canada revenue to for foremost really base first international Australia smaller some our So very

a ultra-high firms. quite the firms grasp we of year frankly very power we could our are Until and then the are proposition Canada. earlier and with these prime both value here available something of we quadrant the announced and scaling and these we these understanding Carla deep up examples dynamics where this have scale of of worth and believe firm it's some up in was in net that We not best really of or to Australia markets simply entrepreneur it's offer this

this So the very about future prospects in good for we feel these firms market.

business It's firms. before, model highly attracts anybody quite frankly very quality off type offer almost As very, States our just I what markets. is we high so in of differentiated the explained which these versus about else in many unheard in ways

these the of will and markets potential of always core we see the growth many first really be while So going foremost. a economics course We at U.S. and like opportunities in business forward. we and the investing

Dan Perlin

you. Thank Great.

Operator

you. Thank

with Carrier America. of next Bank Mike from comes Our question

Your line now open. is

Dean Stephan

Stephan This Carrier. for is Mike on Dean

both offering. the on from program I of Thank a modest the maybe Just in you. client revenue but longer on from you clients could of interest know question the banks solution revenue seeing generate bit program what could guys wondering contribution coming kind contribution and a mentioned you're just and little term? that if what expand year, kind you

Rudy Adolf

Dean. Hi, Yeah.

balance are simply else. of scale powerful it in launched, with create foremost first us unique wallet live. insured and that have million support I on we to disposables a small share in partners have because this enhances working clients. are sheet before, our It And important how FDIC deposits, just and million anywhere helps example mentioned first this, of find a just start partners our doing our but XXX our couldn't it this very transactions for So very what for very are us. on on larger solutions of we these and enables total this now a the which is And is to ability was of we seen our XXX foremost financing solutions and partners. that does

launching and we quite The base solutions that are like we attractive other are for other have. that client net things FX solutions this worth frankly ultra-high extremely that

first So bigger revenues more a going wallet share to of advisory the partners. benefit be and for profitability simply and more economic therefore our is

that we'll course. about paying Investor a to we is using group and are fees but own fee of we're cover banks just first a program. they're this There have banks be sheet, at the this the Day, cost platform Second talk of in balance this designed in participants program, our our due the platform more we disclosing and not will

We a run who number hire program. had to professional bankers the of

overtime. holding many balance this covers expenses and the because do will economics. it our in if number over. a was in But Yes, our a breakeven contributor it, it sheet to times service for purely one company, itself would it of the benefit be larger to So program of meaningful clients justify and share we still better offering

you XX together relevant. network and here stress when is to this so that least of is, a to XX this banks network thing one Now at only coming works is

for such network we to operate banks other very that our architecture to for in speaks of words, here, ultimately you ultimately can of it scale to put open to the this if in these this So need introducing a clients. business scale compete together only best for who solution solutions want you significant banking player be to relevant are which

banks. is relevant the time, partner at this attractive participating being same a in While to

to very So attractive Investor partners clients. we a discuss meaningful their added our to more it's think at it's and Day, program a but very value

Dean Stephan

Great. Thank you.

Operator

you. Thank

James. comes question next Raymond Patrick with from O'Shaughnessy Our

open. line now Your is

Patrick O'Shaughnessy

morning. good Hey,

so obviously, much investors on return capital is your view for way you acquisition the do think that the invested your and of So, for external end, about your acquisitions. about that To business of capital reasonable strategy? effectiveness a deployment stories to

Jim Shanahan

into about NT the Yeah don't think good future this we the We the way account some Yeah, kind a now the which hi we measure best it's it take Pat. think really think there. past. IRRs, is the rates discussed But We IRRs, businesses. growth in internally invested to in capital these ways. of disclosed doesn't of XX%

this at your here rates the firms year in the and is of we terms they Focus how when demonstrating think grow. of you real I and XX power So page look are growth

your really to to growth need is about have kind future of a put You assumption this think which too imprecise. the formula, rates very into we ultimately clear

But We use methodology IRR. the calculate very we conservative do use IRR. the the way in we

multiple we here and in in detail more demonstrating in the first I and So the are that is your out. the footnote multiple it's think IRRs the in explained

conservative. extremely in you're So assuming not which is multiple if formula a arbitrage this

simply of then an are cost ultimately since we the we the ratio our empirics. about words, but transactions, to that start. growth, so And of make these these these We transactions we in debt-equity use in really in current firms didn't capital us using current cash the looked are for the at future versus other overstating equity assumption have flows delivered

and more course looking currency really optimistic which formula. be would multiple this frankly, we very of we in under or using use we're So a course the in way state be if we're a deploying at factor versus IRRs. the this to higher of quite holding of prices substantially much multiple better A the would are -- is way company conservative assumptions, high debt extraordinarily and higher created what

which conservative built the set mergers that record all think have too. ended So attractive up we the reflective assumptions, that with very the track We course XX I it. was top partner IRRs done on we expertise to and simply of firms with built we we this have and have of with

Patrick O'Shaughnessy

then fact from of multiples M&A and a cycle related to as direct the All acquisition is deliberate be come mergers to partner that the from of direct strategy? just lower is executed ebb part if our acquisitions by Is than and the couple And some to that acquisitions? extent from has your so, noted partner the to the that And earlier, that normal that of shifted market deals partner right last tend or firms. mergers you the to strategy in years your thanks. flow at

Rudy Adolf

Yeah.

deliberate six look at prefer part One a strategy. essential we XX year-to-date very page Three and of mergers. supplement, proposition. of the it's reasons you When core partner transactions So XX of number it's why firms. total much value our an here you see the

and to one our preference, that's it joined us, we new opportunity opportunity partners of because our important seen of whenever it's proposition preferred them, it validates partners have our value part our us the yet our You to have vector it helps a helps an and outcome.

consolidations benefits Second, which that would you expect, sell you is transactions benefits. would because have here a office or but overhead transaction. company you see are obvious maybe wouldn't pricing in things that consolidation a of many in cross mergers holding are more merger, all changes you see accretive immediately other consolidation There the

of industry have believe economics a side. any This the model of for about dynamics a and find economic business $XX,XXX So that yes, an most are in have built raise businesses the that's solutions good industry. and very is very on with good have sustainable we clients small powerful we what model for the this are job can I ultimately Three, and firm them where much that compelling does just business. the industry this their ultimately merger

So than the model more transactions, strength platforms having half speaks M&A are our XX that partner in to to them are and of to firms very do industry. this we business of meaning have uniqueness able the now

speaks the strength have we really built it so And here. what to of

of themselves, of candidates be these you side, versus do deal. yes, platforms to three when So any of for our call, we a flip will who platforms a at course, very earnings other the company balance firms. whenever partner this themselves then on course and are merger firms been that's not on the holding our be the large have can merger, But preference highlighted look would robust

Patrick O'Shaughnessy

thank Great, you.

Operator

you. Thank

Kyle next comes Voigt with Our question from KBW.

open. now is line Your

Kyle Voigt

a CapEx, increased Jim. pretty Hi. that's Good looks morning. Maybe on like for quarters. it the One the couple few past over meaningfully

related next well? what then investment just you wondering, specifically? persist this wondering also level to Just if of to And as year initiative into expect or investment that's

Jim Shanahan

Yes. Thanks Kyle.

down the and York July, headquarters time in did of and then New in sort last on QX in forward. call, corporate sort we our as they'll normalize the levels more to QX moved and out, QX mentioned that in I starting elevated we historic As that was of build so the frame cost CapEx

Kyle Voigt

it. Got

Rudy Adolf

now is event under for model corporate our extremely light. very really is CapEx lease. It was generally just Just headquarters, one-time a long-term this which

Kyle Voigt

the also earn-outs last seen then which XX very be you've Understood. seems years. couple on, what plus, a uses capital relative the to just for high And months a of slide cash or There's guess, over $XX of going of I question the number into like to last in next year. million

completed, years what's it timing on continue some to deals wondering give Just you've there? that. that and causing issue? build? to Is just more prior Just it basis, increase just you wondering, a the continuing a that going maybe three go-forward Is to can given clarity

Rudy Adolf

Yeah.

me maybe respond first. Let

So these, because they to mean are are expected make. businesses firms we we performance investing to these based doing ultimately in pay are as earn-outs to these love do them exactly what that on the that criteria need we

this frankly of explained over So, frankly, can earn-out It last year bringing cases, Most and firms we can number period. And of a are there of it's the a quite the three period. terrific Usually there foremost into speaks is to three reflection first that gross be as velocity high criteria. year partner six simply quality a it's it our year partnership. And structure, -- deal second and had be years. is we yeah, over this criteria. retention the the a client quite we that first

will of deals. the the which we holding interest company, means our and using, or mechanism are pay to transaction we that a many aligns we criteria. deferral to certain of Xx the It's performance techniques it with this Xx So, do because pay be excellent one to linked there partners really plus plus of Xx interest the CFO like rather are you always Xx want doing

Jim Shanahan

think from numeric very a can of of X:XX you that's over is a go a at Kyle, through assumptions present $XXX.X on which cycle. the Monte long GAAP was Note based value the But concept time X And of Carlo perspective Financial, which I lot a earn-outs, million.

some have And wanted it's the to disclosure give enhance sort disclosure to a crystal cash to capital of XX some hard new will have million we term some installments, on visibility, available of used. while Ward we So on beyond cash for flow this of other allocation. then be and the for ball the clearly out the $XX next year, we a months plus Loring earn loan obligation amortization. final where and the obviously, some uses one And the have

Kyle Voigt

that metrics on that All right. provided the Thank cash in you you. metric. just And new then flow

the capital guess flow on I working if a changes statement, are cash we at for your question looking in year-to-date. Just

million I negative it's $XX think so. or

drawing was some $XX theme been something it's it seems I to negative there? due for some Is you some year or a years? cash. capital changes are clarity like I think like billing working that. why it methodology provide could number There or last persistent that a wondering of million that down was just just

Rudy Adolf

thanks. Yeah,

build in rears So, sort your firms receivables. of you bill up that

generally about of think in generally management hold year-end drain negative monthly get QX. a the on basis paid quarter-over-quarter. fees would out if QX the you year. partnerships, and in for on it's capital is The them a we working back be that that change across each have you gets out bonuses paid a there Then that business. So a on we Then, that pay, pay bonuses people

therefore types you those kind months things trigger that we X:XX, it's a for quarterly on cut of through capital fluctuations. XX can working of a So, last quarter-to-quarter so disclosure that normalize to as so changes of did these basis, can of

Kyle Voigt

Got Thank it, okay. you.

Operator

not at concluding Rudy Thank for now any you. his I'm for turn the remarks. time. to showing this back further questions I'll call

Rudy Adolf

our interest. cannot for I you of emphasize here So, model. the your closing, enough In differentiated thank all power

this record track quarter. and drive and We growth We as continue industry-leading in market we earnings share our at our increased extend to demonstrated levels. revenue

this reaffirms of did simply replicated. And -- we call. network scale have size We be as excellent on of that built quality believe and cannot we by we this firms evidenced and an more time spent portfolio similar

model our the our and a it's business that extraordinary boding we key we guidances also, dimensions validation Focus, Since firmly joins And is exceeding Group. in it partner to IPO, for we growth of every all well a importantly, strong all that demonstrated new adds time scale believe our future. But expertise have a provided.

forward to thank Day Investor our again and at your interest, speaking you XXth. So, with in look for we you November

Operator

concludes call. and conference you participating. Ladies for today's gentlemen, this Thank

disconnect. now You may

Focus Financial Partners (FOCS) 10 Nov 192019 Q3 Earnings call transcript