FOCS - Earnings call transcript Q2 2020 | Focus Financial Partners Inc

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Operator

Good morning. I would like to welcome everyone to the Focus Financial Partners 2020 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. [Operator instructions] I would now like to turn the call over to Mr. McGranahan. ahead. go Please

John McGranahan

everyone. Good morning,

fact Focus information begin, course let assumes number these SEC, risks that without differ including, and and statements. of could the that update available duty differ uncertainties we undertake to Rudy? materially that, no remind of these made may from has not forward-looking based our list factors Focus over of With results me statements, these limitation, from this made statements. assumptions Adolf. Focus uncertainties call, the Financial the any results attention of forward-looking differ will These your and does that a to We filings statements. the during the the we turn Focus statements. to from may I it Before which call Founder course to to you to that and surrounding may of And are with Focus statements cause on the results by pandemic. its currently Rudy involve such COVID-XX materially some current CEO, Partners, finally, make cause

Rudy Adolf

thank revenues in income our you net joining built uncertain downturn adjusted of remaining $XXX.X you morning, of We correlated in primarily hope morning, market $X.XX. market share the reflected and QX per us. we that This revenues times. in Thanks, million the are was Good and effect QX XX% our performance. advance, of safe Because Rusty. quarter second and with results and are families these your for healthy in announced our

of powerful our business. resiliency of our However, our results of the exceeded expectations the and our end affirmation high

I support performance the event. helping our outstanding to partners financial operating continue unprecedented to in response this and our and our worked pandemic to in very I'm and firms tirelessly clients outlook good for navigate with feel extremely about partner an job aspects all their QX, the QX focus team of and Our of beyond. do their pleased

much very and adopted and in confident. with environment, remotely partners In paramount, their effectively feeling prudent partners amplified as value It of service has have working such setting. virtual of no remains interact with utmost pandemic thing current reinforced of how Client This advice The fiduciary Our communication. the importance. flexibility advisers a remains are there's the also too the seamlessly to clients. importance their has clients in engaging our trust.

are personnel are is net worth the that high demands. professional partners' They them sophisticated depend an especially want on manage in This advisers can who personalized and a ultra-high environment. current and delivered worth delegators net in lies the specific approach individuals. objectives way, demands. and Our integrated who multiple in clients business on They those centered help

to well clients these They and are best suited products Our these as of technology needs able partners needs provider. are adapt and needs. of fit comprehensive to services that services They the advice, provide of and unconflicted clients meet change. infrastructure regardless the their their can the selecting

example. which employees Relations XX-week advice some good our through clients' our time posted and prominent best a Focus cybersecurity, superior industry discussions impact will post-crisis serve how new with created other completed We to share pandemic in and section It on attract recently volatile for our and in think and is are have a further investment major the summit in result. an a addressing by the quality as this important, communications development, our has pandemic, and partners service client approach our their investing. client series ultra-high for working why are a lives role more morning, continues practices Equally growth referrals. service RIA our of well-rounded including their markets partners accelerate net relevant supporting working clients often will Moving of new future. the play face-to-face is website also that our that a clients because versus a covered referrals new they are to flight service months. the reasons partners in The video needs. taken virtual as the We clients, also to net themselves be channels and despite This have models why of of that areas of that a advice with client Investor are such they are means. have really the is anticipate partners partners. to to perspectives worth part and what catalyst these worth and management this seeing ESG high Focus remotely opportunity They and to We of discuss understanding personalized a business experts. and to together It Zoom brought retention is series and that high entrepreneurs, who range our entrepreneurs partners topics recent beneficiaries. in for driving while

our We value-added a uncertain range of provide continue highly a partners services, time. support at with also lending to critical

following focus opportunity Many 'XX more the to Additionally, and on market are helping assess compelling period. compared mergers we seeing them growth. potential this dislocation 'XX, they post as large

nature the weathering strong with the have our markets have shock. fee-based is that alignment diversity our market recent of withstood base The of and well. variability the and our partners business earnings we Our our expense the revenues, volatile preference,

will but provide markets have point. estimates QX not improved, experienced this reinforce As business details, lag. has our our recovery any more Jim

are M&A merger up mergers, one merger. in momentum added QX, completed has expected picking signed the QX. our to firm activity M&A have partner is QX, we close two To conversations we persisted completed which and increase. are to in in into In quarter, one third and and new date, new slowdown the expected one Although

coming in We the expect weeks. to announce additional transactions

been and year or the cases, and to and continue as reinforced of transactions next pipeline believe has attractive close that will percentage this an by large rationale has for managing are the changed not pandemic. later a in early these transactions We sign many these

we look market of will recovery given half our As economic improve uneven persistent year, is in back pace COVID assumption the may further remainder be activity rise although that of the of the in the XXXX, the cases. at

wealth and M&A was and However, assets given months Cerulli. of than growth strong average have from We We QX XXXX in We exceptional industry other disruptions complexity we growing, asset to begin compared or historically with backlog while the in faster segments through increased there be after managed the has driver QX have continue assets combined other to already Cerulli, management also channels. experienced of margin average, and the all lower an grew Divo XXXX. market growth strong strong wirehouses will in the of a shifting phases same to growing crisis. that that over of David following for transactions an longer-term industry level growth of of other activity an M&A outperformance industry our important industry acceleration RAs, X early the and dynamics XX% pipelines. the believe a client already M&A XXXX, the activity increasingly compared by have Pre-crisis, anticipate in with first X.X% creating long-term is QX from need partners of management consultant these will XX% industry wealth of that to the increasing many industry to at becoming to trends. in segments. all infrastructure the our RAs been with XX.X% their scale CAGR of to This regulatory come, channel X downturns, market and historically, in RA rising costs. for agree according growth at time, around historically were market independent years years adviser According to distinct believe

second, the slowdown in of sharp First, RA as this transactions during announced; activity crisis on new transaction is already focus period. clients completion a

as don't don't plan; go another challenges Third, or succession have they to fourth, through that sufficient disruption. want scale they RAs don't in to transactions post-crisis normalcy. and return a a have They the realized a of market surge

large create III point creating seen well are We believe management On industry average, overall. will internationally. client to positioned They talented Phase a larger dynamics, opportunities we the many growth and have and we already We profitable inflection number industry grow on level, stable process are service our teams, wealth and the them in are management them of that from strong and capacity and capitalize historically, focus transactions. these will as which, offerings, more Phase necessary industry have for faster which efficiently excellent disproportionately bases, the to partner of larger, the are benefit years uniquely have U.S. pipelines. all we be into for firms believe, infrastructure an to a evaluate trends, believe At scale position the investment II whole. to the come of we than than have and

are capabilities M&A of source an Our differentiation. important

advantage that the industry. given We our in a deal and first-mover of a in value have network compelling relationships proposition sourcing, extensive resonates

our We our how IRR what has been proud have have a and above over and targets. our the has core proposition. refined of consistently rigorous investment pandemic I'm COVID month of resultant process of since business time. that struck, of value performance, we returns stability reinforced further the accomplished of strengths our in and resiliency have well the generated And we financial

We in as We businesses and take have truly to viewed maintained Jim? turbulent including our the government that, and resources PPP the opportunity, we will not needed leaning accept confident loans, this just With our and turn partner inappropriate me to now loans. let Jim. not support. have discipline, over financial of I'm benefit period. call firms Focus need from about that to in, the is I'm surviving we excited it post-crisis disproportionately.

James Shanahan

healthy. I families and Good hope morning, are safe and everyone. you staying your

above to rate services. office X%. Accordingly, than better-than-expected which our We minus compared was from to second X% quarter conditions of an outperformance organic revenues the the provide strength anticipated we The range stronger improved results $XXX to to our were is our due business. who and million, market testament firms end $XXX of a of to million. minus results $XXX.X X.X% generated of expected Our million high growth was year-over-year estimated, minus family QX our type

in Our ANI per QX $X.XX was share XXXX. versus $X.XX

firms management part attributes partner and persisted service advantages market share. with competitive continue They our reinforce teams their high-performing while simultaneously QX, to economic future exceptional advisers. growth. Although uncertainty the of stable, and client seasoned well, our themselves for manage businesses firm and excellent business positioning and deliver as unique throughout These are

advantage scale and to the nimbleness And and thrive importantly, believe we as necessary this of taking revenue period. have are most growing our during a perhaps result. resources We uncertain they

an important performance. remains details of Now model sources. from the in XX% earn our of of our consistently turning our to excess financial differentiator of recurring The stability P&L. of and our revenue revenues fee-based We

of or revenues not from dependent direction interest Our are on income interest rates. on revenues the

Our is partner revenue have retention, further which a source high stability. firms client of

firms partner on We financial as we based on COVID-related markets. was of I the also estimated. provide as had The initially revenues Approximately QX diversity impact revenues from XX% meaningful levels, type sources. $XXX.X expand in from family market not will that on of primarily services. further closed sources Of office QX in QX this were markets, remaining in levels. We The independent these contribute QX. in our revenues, MEDIQ are expected revenue our on billed were advance, adjusted million market shortly. the in QX acquisition $XXX,XXX revenue of and on revenue or in Australia-based based arrears the and May XX% $XXX,XXX billed to that XX.X% is correlated XX.X% benefit to generally amount, were X. were of in EBITDA million, of from types approximately $XX.X MEDIQ these

an noted, M&A during in QX limited strategic QX. transactions. we service prospects as Rudy in over pandemic industry-wide resulted prioritized was muted, client activity As expect and The M&A decline activity

up. assuming or we market have year, is that However, and We will QX early one begin that today, in QX stabilize. closed anticipate activity in momentum merger next increasing picking transaction

at was margin EBITDA Our to year-over-year, was EBITDA management company. better-than-anticipated the were our due our XX.X% I QX holding of million, up outperformance well results the and and estimated ahead mentioned expense XX.X%, and These XX%. partners just adjusted $XX.X adjusted by the revenue our

or largest expenses, fees, when consistent our management revenue, QX. QX $XX to expense, relatively of Regarding percentage-wise in million second were compared XX.X% operating

of partner closely continue lower directly to and came tied on management development profitability clients This real-time on our and are major our As in costs restrictions partners and firm a distance as SG&A better of are work and us partnership primarily entertainment, portion that managing fees to base firms. profitability remotely estimated and the social we activities reminder, adjust aligned partner businesses. profitability across means their Expenses their expense with than the in the remained such our due M&A a our of to as business partners as effect. based travel

have we is their managing often to As of job light our expenses they partnership conditions. with partners nimble continue excellent market review their said, our discretionary costs, an doing in and of

Additionally, and remains reductions substantive our to $XX.X need XX% of staff currently in not interest Because million had we from client and declined the expense QX. for in have our see any interest million service our low partners highest significant we are QX a $XX.X beneficiary a as rate environment, priority. don't

future. rates We expect to the low for remain foreseeable

LIBOR of point of X.XX%, spread. or $XXX of reminder, million is effective XXX a XX% the at our hedged basis loan inclusive rate term As an

of a of of Monte consideration, fair in the conditions in contingent reflecting Strong increase Carlo of million fair value The an simulations. in as XXXX by our June earn-outs XX. $XX.X pursuant noncash estimate an changes fair these of value increase impacted the estimated and liabilities market increase quarter second to was value estimated drove

estimates recover, typically increase. these markets As

the Our of that believe approximately for noncash we QX and remaining was this percentage reasonable a year. compensation revenues, expense this is quarters X.X% of equity proxy

the EBITDA the paid ended XX was term of adjusted XXXX, available of flow approximately of million we paid $XX be pay QX, higher the of quarters that in in added $XX.X in business, QX. which expectation XXXX, and with We million million cash earn-outs the in new capital months the the period, in our we approximately of anticipate will $XX in growth June in million. second margin. in our the will last And line addition prior increase $XXX.X approximately we $XX half reflecting X Our year earnouts firms million the allocation for partner XX, XX% than for

Now let's our turn to current for expectations QX.

the our decided for and uncertainty expectations market unique visibility our in to ongoing we of remainder have current the for the Given share P&L, we've revenue XXXX.

revenues. with sources, future rate is $XXX reflecting the of at that million. year-end $XXX incorporates flat modest levels our an by growth We periods. approach will This this our respect will in estimated range market year-over-year that range in and organic lower non-correlated revenues of estimate revisit million to organic partners merger essentially a QX from same-store decline activity to be our We

non-correlated this been in Excluding the effect have growth digits. revenues, mid-single rate estimate of the would headwind of the we our

roughly remainder conditions revenues half current these and with I services -- could last driven to As predict difficult QX. remains the the up amount to quarter, revenues these some be non-correlated It we change, in potentially inherently mentioned of of XXXX and $XX environment. risk are that in not entertainment movie and If clients million QX of for for the believe half our by to live family industry revenues at type affecting productions the relates this like. do office effecting

second achieved no have the will have decline this across the given material we preference that and half estimate additional EBITDA protection. cost our impact we savings adjusted However, partnership to our

of to the EBITDA be the end M&A some managing minimum business as to current will nimble profitability. firms have X.X firms through even expenses. for continues done reflects expenses persist managing their XX%, be business, the be that to year-over-year a year their approximately and We reducing remainder levels approximately QX year, we margin market uptick If Accordingly, expansion partner their travel, to be a their which job proactive will concern. points. our our of of Our with in preference anticipate excellent of in estimate earnings percentage margin reflecting approach related the EBITDA XX% activity, our development that discretionary maintaining an continue our not

our Now balance turning to sheet.

believe our that ratio our manage end given quarter billion sheet we We how net transactions outstanding debt for acquisitive maintaining X.XXx. of X.Xx business, between current net in our net this to disciplined anticipate balance market to our be levels, $X.X range was Our continue our in the approximately our nature. QX highly We and remain and At we business. X.Xx grow our ratio pursue selective was period ratio as we leverage will leverage highly and and Xx. committed leverage to X.Xx is remain appropriate the we

impact quick since in repayment on no repaid our stabilized. we had leverage no Now the we a revolver cash QX, $XXX for on liquidity on ratio. March drew at In liquidity. update initial million had for our onset has net market of the We down immediate need the and The pandemic. the

crisis continue market pressure. million our To of under of performance capacity. have undrawn We to demonstrated this model revolver again approximately has the conclude, $XXX

a QX predictability are of results business. resiliency testament estimates our Our and and to the QX

stability We their also a our retention. strength high how and reflect managing they client and function which is of underlying are businesses of their the partner well firms,

uncertainties our While and improved, an time, financial are market. the undervalued dependency immediate despite together of estimates and in and terms strength believe revenue our we of with M&A have on some that persist anticipate performance, of earnings consistency sequential are revenues, business that activity. for create that differentiated for our shareholders rate they will highly interest lack of nature COVID-related CapEx-light the that sustainable market additions by We the increase the the translated muted QX in into value

intangible billion shield substantial $X.X creates tax shareholders. Our incremental also for value our

call rapid partnership a that U.S. next the that size pool of experience expected opportunity our believe that we Q&A. industry Operator? difficult The be term. to the large trillion the years. firm also characteristics to alone, is growth growth client for over several a long we significant Focus replicate, underestimated. that over over and we in is assets operator firms for billion growth We positioned the consolidation could uniquely with join and in $XXX is the with now that X participate I'll believe would in In $X are growth portfolio attractive the partner turn to of a

Operator

of comes Suisse. question Siegenthaler first Our line with the Credit instructions] [Operator Craig from

Craig Siegenthaler

First, appreciation on thinking for your refractivity year-to-date, quality you're can the you this market mean partners? higher excluding organic commentary about the and on comment flight could the when what to growth,

Rudy Adolf

Yes, Craig, traditional recovers doing. impressive be quite out, after downturn question. wirehouses the what page in frankly, quite at, this industry the What lays that better XX does downturn thanks above and this seeing most would structurally, the that for in is twoyears RA frankly, are and in broker-dealers basically then industry, year this your and one numbers, way we the supplement,

So the the trust during that really market shifts. that's ultimately it's it's down year share -- element these proven being leads the to

We are referral hearing seeing volumes number are -- that we're already from good. good, of a very partners their

certainly, are in space, there that there's until to we the XXXX. can I net I'm say, that the with we are these here, Given assets, yes, ultra-high a have very worth And partners, like you most really and towards 'XX I'm book lag what indeed when optimistic I seeing. out ultimately, but

Craig Siegenthaler

the relative maybe are below outset Focus looking my true on just RAs between mergers. is, scale operating of any think, the follow-up that are just RIAs advantage is to seeing an average. forms how look larger perspective how for the rate at here, you largest some especially And I'm And leverage even I and as they gap RAAs through as this industry growth in

Rudy Adolf

clients faster, Focus That's Yes. a And higher-margin industry. we grow than in a larger, the partner Investor are we serve worth Yes. important demonstrated higher proved operated at net during that typically -- very and the actually question. firms Day,

-- then large that we firms. value-added are including geared very correct, the through programs And the too activities, So provide, all make the our much firms. we much we merger towards larger you're

standards have the this industry. very, We of firms getting large by large very

you quite more now as of need people kind So X,XXX scale We enhance the this of remotely, to And more like it in right almost matters. here, doing, crisis sophisticated are clearly, ultimate, even to if frankly, technologies. makes When scale industry. you important. case here need work this our ourselves want in you see

need cybersecurity well on have. very firms here smaller is that protocol the a don't frankly, flexibility need tested. you and many thought You out of simply that Quite

industry for that two that is we just gain trend will years what an believe is not normal. we seeing increasing But our next industry market see accelerating the share towards we in is an consolidation. yet is two So in are

Operator

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

Michael Carrier

Has picking Rudy, confidence up pricing into for obviously, deals, everyone shift as don't the there sounds First, -- like lot is competitive trends? think a you any good same Just backdrop I like been out there's and the you're in steel the in given maybe you a it still activity that of uncertainty position have heading there. And that is are. guys XXXX.

opportunities to kind some there of this? of are take So advantage

Rudy Adolf

Yes, Mike.

is, announcement So are there a in we we year-to-date, down and see direct course, have yes, we when our simply just closed just at And in transactions. transactions, volumes and that's industry announcements. of recently, pipeline, merger is look X made -- general X M&A will down temporarily. the more We X some and fact world be

the So coming the still aggregate, and momentum frankly, together now. quite we with but pipeline building bit we are like smaller we quite much deals, right is a is very what see. It's pleased little in how

of they by that terms In were dynamics, have yesterday an we of see international transactions. multiples is kind industry. And used much where, with usually, chunk a very announced made, probably seen don't more just certainly be what meaning to banks quite the anymore, this the have cycle. One must buyers them buyer of it at we of quite did this where in was stunned effectively, frankly, couple we aggressive industry unusual

kind multiples played So Having deals industry. to in this that, it's the that typically of players, industry mega in are out be equity they are with right now. -- international what like seem way we really sync more and of supported private players said never sometimes doing that with

billion. this by billion to the the the in $X billion to $X tier middle are We $X

returns. we quite mergers, and the have in of past. are frankly, The scale else course, plenty constantly the with areas we billion. the highest this yes, scope multiples globally, with what There to go that the this get in we here, also that our And $X the is quite frankly, for us we that, funnel capital done we Of of below where seeing gives the the are can given have in but opportunity. consistent a Focus U.S., very nobody flexibility has. And we industry,

James Shanahan

mean Is it. Yes. important profile? in I would Obviously, the just fit it we're a our culturally add? interested And that's to $X Is a the it firm is what's target good with as I a that in value in independence first, Is Rudy supplement an capital? model us a our operating grow industry. for multiples, permanent trillion it can growth entrepreneurial Focus? interested we'll good remain disciplined on mentioned.

a industry there's in. large So playing that we're

So we there perspective. see attractive growth the M&A from

Rudy Adolf

of The prior largest that that average direction in we generate importantly We industry our many, it's be disclosed as XX%. the years. deals that us. is able the in it's and businesses XX% sustain we value-added can't join believe pattern, we, player to uniquely programs And and many for driven of think, the have, the course, returns north will this that deals of return I we really of return as create have this simply XX%, course they by that change after we

Michael Carrier

Jim, quick it. a Got follow-up. just

seeing that are during even potential the now? and where what upside period time, just kind given have the the longer the model like holding feeling you there you're with expected, of I better in up than the given quarter, is outlook, some think margin better-than-expected more would over Just near-term came of

James Shanahan

Yes.

I think -- yes.

the of environment, in QX everybody during was think home, -- many cost. anomaly COVID there's is respect of bit I an not a

of guided much came the with sort But sort of EBITDA QX. an So in XX.X%. better for of estimates we XX% margin

was XX.X%. The first at year half of the

have operating of we business Now XX%. target where a environment. long-term today kind Obviously, COVID we in are of the that's at a

As QX. to that guidance guidance XX% we'll revisit continue point the work is on future at scale this periods. of But business, for the we the in

Operator

Our of Goldman line from Blostein with Alex Sachs. question comes next the

Alexander Blostein

Great.

contextualize next that It So and the like you help pretty that anticipate Can what actual the the encouraging you signs really acquired quarter pipeline you early means 'XX. some robust. in months? sounds us to guys predicting terms obviously fourth material obviously XX kind to guys an seeing are be of just sounds EBITDA into landscape of sense is But for see appreciate to perspective? trying improvement of earnings the specifically. there's M&A the how of you very a that the challenges going in over get from And

Rudy Adolf

Yes.

XX in Of course, say that's the out. X, very EBITDA terms months of what's difficult X, to required,

Having can't give Stay we that's are any we helpful. So the like that, tuned. you see. will works. really of a in said guidance really announcements There be what that number

and deals announcing, So really will you see a It's nicely. that building momentum large and the deals deals or is the up up this more building that one very with Usually, we're do two yes, small medium-sized at point. we year.

when it's year. getting deal But So even in there's of the basically next into we we large for than currently no pipeline to be process are that believe the better ready going get we announcement. the overall is And good.

IRR And our absolutely to discipline itself. selective. to continue for XX%, And Alex, very basically, we Importantly, of which target speaks we course, our are committed means multiple minimum yes, of be to Focus just this continue very dynamics deploys come we for to here. given years attractive going capital, whenever certainly can historically, returns. is believe industry And yes, many the we generate

Alexander Blostein

of of stick G&A conducting this business, maybe these as around? we ways all new through learn below you gains Jim, building on of how of And G&A just how just of kind came efficiently follow-up question of it kind from of overhead a do us versus norm. of can be little kind possible kind crisis of much corporate And the ultimately more -- Is much Great. Mike's bit a to last operating around partner running guys firms the for think a G&A. improvement give sense Focus

James Shanahan

Yes.

as on alignment an And the SG&A. the they're the of partners there's on what's think They're profitability. their operate management I making interest unique Alex, decisions a know, as our about are result, compensation. the that business fees, the on model, the you is with our business so which making decisions variable

on type do So what overall is the into give specifics the make partners which line QX. those of guidance of each where decisions, we is of going for items XX% margin, rather than EBITDA we

Rudy Adolf

has obviously deals And diligence Yes. way the different. changing. -- negotiated And business we changing, get is The different. has has The travel -- how is clearly, -- is conduct due is Alex, been different. way

are worth So actually, partners of and learned, more What in who visited than decisions more interaction. that to gone way clients so and impossible BlueJeans referral very Similarly, and large what This portfolios never that technologies, as ultra-high broader this firms, in of and a Zoom partner -- had becomes have their industry. ultimately like referrals, I importantly, based to in to are have ultimately the or very past. just translate historically should Basically, way examples basically attract clients, source, like was new conferences efficiencies papers. use in via a the where $XX on selected ultimately happened it happening come they of clients translate form our review simply joined into remotely should remote. still other This clients some has a other this the our historically some many clients physical would has have having we This issues. to and us. make or wealthy the these seen. meeting. a million, And never net They the $XX really natural and and join industry industry getting some into very to on office now based all And unheard on million environment. we is new based clients, pre-corona

are but of convinced to yes, growth that many us over efficiencies, time, come. some be years So also with to these for around going I'm dynamics

Alexander Blostein

Got it.

little bit more a maybe So profitability. better structurally,

Operator

line the Kyle from comes question of next Voigt KBW. with Our

Kyle Voigt

the Jim. for just Maybe one first

those billed the were million $XX.X is we modestly this arrears, from quarter, very, in second just if up in very look which $XX.X revenues the million So XQ. at in

why see the their curious Just bigger market we XX. March a didn't June increase to given performance XX from

James Shanahan

Yes.

So as firms. have types billing. across we have billing homogenize the partner many don't XX-plus Kyle, methodologies We different mentioned, we of the

advance in so Some monthly, forth. some and bill quarterly bill arrears,

a have on also basis. We daily arrears NAV firms on build basis that an

doing So basis you're that's that reason. is a on end Perhaps a math the entrant the there. of as quarter part

Kyle Voigt

enough. Fair Okay.

Rudy Adolf

are conservatively very portfolios in positioned. to you keep mind Kyle, then, And that these have

the was And side, yes, equity not that helpful. course, the the on so was Yes, Russell helpful. upswing of

of the markets, usually very, the -- which, the is of revenues of yes, the one the net-net is impact it's ultimately reasons portfolios very the our high. the dampen can why that of really is So positioning quality

Kyle Voigt

Right.

just you Rudy, But in It discussion. disciplined mid- on really you come for on there higher just that drift like a expect multiples? you lot over Like seeing tier, the Okay. where acquisition M&A lower year financing in? base. do those is talk the of potential especially multiples, be acquisition you can in been playing within want just creep firm size that also, And about sounds And you're any a not are to any acquirers. then, different And multiples? some buyers follow-up -- the that obviously last given has tier stay acquisition then cost

Rudy Adolf

Yes.

paid have than long-term we what one So evolutions like-to-like we since look 'XX. a done the this pay more have And through maybe XXXX. would 'XX turn we when for in I multiple target, or today,

kind Yes, frankly, it's transactions. all of little very driven of there's in it's, structural change discipline. the a But by for individual quite about here, deals course, of vintage particular multiples. So

but As disciplined. seen yes, -- multiples paid we -- close before, are that to that, pretty know, transactions we in are insane, we we can believe quite Having said I I don't mentioned we gather. believe are, unusual what recent some have as frankly, that we some

And have organization funnel We returns. maintain this our scope discipline. capital of where highest power this we constantly get we the of where we to enormous operating will can the

We cost will locked debt. for correctly low benefit the cost pretax Yes, basis course, be XXX you the points to of a maintaining next of three of in very four years, our return from funding, hurdles.

a we course, great us got of you But flexibility. really business, this, M&A over the to And disciplined. be no, have gives So improved years.

We and and continue are in to. this will

Operator

of Our next from line O'Hara Gerry Jefferies. question comes the with

Gerald O'Hara

suppose, just post-crisis Great. larger you is pipeline. belief may stats more that a historically. in function, the there's the surge, on I And think, I relates of this be Perhaps there that the I to of deck. have it mentioned of appreciate kind saw comments going one of the the kind to as step-wise you than Rudy, prepared anything

why little the think if color that. that curious a just context to Or driving some will dynamics what you could as be give that you or is. are of bit So

Rudy Adolf

Gerry. Yes,

feet, on the in or more be years if moving XX think bad there two traditional the space Page RIA in that ultimately believe happened for clients who empirical after this prior suitability over and RIA to their to space. based win from this probably one is standards that crisis. is just the We put advice with will just what history disproportionately the we supplement crisis, breakaways. data guide, speaks is So from on I and And means And voting banks where that's itself. the brokers some going got any effect,

the operations very take all next drive in think in a And judgment, recognize This yes, the our leaving is very we that Yes. really have expect. that remote firms going see clients part of the in of consolidation. a and believe and Gerry, things small deserve advisers with going really difficult definitely better is run to normalize, in accelerate I advantage wirehouses, right may a convinced larger couple our of is an the business, of to resources which -- we it this is quality firm to And a that, this technically very industry in are doesn't is capabilities. now. is advanced absolutely, are big but certainly that muted COVID a small to firm It the business. that task. here, acceleration join when for of to part you technology going a But years. powerful So not these way me it's be our run to to And environment not these of consolidation

Gerald O'Hara

you it you Okay. Hoping Or credit in how perhaps if And maybe to cash firms. just could of -- offer that update maybe the one relates get saw partner Jim. quarter? the program, if have past conversations uptake program on perhaps then an we evolved and meaningful that for any as sort the

Rudy Adolf

number to program. We created FDIC could we up you to part the at we of it be have access access this the have capabilities through ensured this right Can have, PPP programs talk the I'll where very, Maybe of facilitate during received. in bank has moment. $XX that well not earlier the been be partners highly facilitate to could program closer We in particularly our very FDIC have here. year million, to did clients attractive more about insured of network cash rates, is, just to in the lucky Yes. support who a But quite have sometimes reality is life. this program,

type So the Yes, of of translates partners more client it this to we else of partners their only of of allows ever it's source there has, referrals cash in they're this a just revenues intended and and help as perfect we'll solutions well. then year these working -- that's this the serve be nobody operates, on updates more help is where not from more additional able Focus. is Ultimately, probably clients. -- we that's We're therefore, profitability. in as us do extend partners credit. into to quite the that. a interested course, industry wasn't line be that will But and Focus of base, a in new clients, profitability are have for advantage business to scale which get And better that, for big this clients, to later we on our example how debt frankly, the and programs ultimately they and essence they and our get existing in more a our Asia, their Focus areas for competitive create ours their true our

Operator

Chris from William Our comes the Blair. question Shutler of with next line

Chris Shutler

June was would done think, Barclays XX? the flat be or year-over-year I months. AG X%. the third was over dozen equity X% you've XX the a Why up, flat more growth The than quarter And organic tuck-ins when relatively as last of

James Shanahan

Yes.

Rudy Adolf

Yes.

Jim, why you go? don't Okay,

James Shanahan

Yes.

are So as office headwinds activity. in portfolios, if $XX our plus noted have the revenues client digits in family would type that's some you terms is obviously, QX. We there's the of in think year, some XX.X% we we but the S&P had we down. or million to earlier, Russell's the Obviously, QX. Chris, said, In mid-single half And mentioned, merger When for minus merger. second advanced happen, up, one had been maybe so about going balanced. be the and fill that we of I for QX, lower

So necessarily maybe out. as not modeling helpful as you're

organic. equates be digits. mid-single But the on the for provided $XXX million million. $XXX on adjusted we guidance of an revenue will that So to the That relatively basis, flat to XX.X%,

Chris Shutler

sense. sense, makes late, I that had I Okay, that so Jim. apologize. joined makes

Rudy Adolf

is in which we the where what's actually digits, it It's happening is mid-single side, given -- the macro believe, impressive. into very

for to business. You adjust athletes entertainer and just need the

Chris Shutler

expense you near. Yes, Okay. put then level us, at runs discussion the it least Rudy. -- And at finer roughly, was normally guessing around that sense, just more margins. it And a corporate I'm what the was? on to point what makes can The T&E tell and

Rudy Adolf

course, out a travel people yet levels that, expenses on that said Having yes, any where lot. where this. or of we disclose we T&E Yes, don't -- don't these the are of we break a business

speak very with holding them. partners when new we prospects, for and A Yes. And our clients. important industry is existing course, for when this important meet did of we functions. we at meet partners. have big quite the we component do our meetings. at that and entertainment When our It -- not company. the frankly, is year meet We Travel very other partner with

expensive a we year. year. part do half year. of will second one relatively first built a partner going have we did with We And the also twice helpful hope they're the not here; events business. the year, of or normalize do to meeting this the meetings the So this We're are partner way events. these very not But for large next we

So break numbers. course, this, an the out But individual will of impact. have we expense don't

Chris Shutler

multiple paying of multiple in what than turn terms lastly, for arbitrage businesses why wondering, because a the just just asking you would little argue ago. change I you're you that market in Okay. kind component. a Just And a perceives more? been have maybe were way then guess, still willing And revenue arguably of the deal you're the of higher bit the increase recurring in could to kind you not industries. growth there's or pay multiples, that a decade pays

Rudy Adolf

financial lot a Yes. We have flexibility. certainly of

As of IRRs I create deals north are, of course, really our These XX% said of before, attractive returns. XX%.

we And will scope opportunities. And return this as where no deploy that are the has anything economics where kind of have economically and capital to need And business, do as deploy that capital frankly, to long because -- right there's can have we of we in to see will the based and exactly are the we unjustified. tremendous are a never have ability we it We fantasy. the opportunities, Yes, multiples at our change returns of quite that best flexibility. our we targeting, pay Focus use -- assumptions we on got the We've never basically are flexibility. that but the model. want for

We have that. done never

frankly, will And industry. made discipline quite this and us the our name, never this do has We in is middle largest this. player

Operator

RBC. comes next question of Dan Our with from Perlin line the

Matthew Roswell

combine I'll on them. Two questions, Roswell hopefully Dan. Matt for It's quick and

of potential quick percentage especially modeling firms, of the First M&A And question. preference, is when conversation, changes then you a having are earnings you're terms in around the partner EBITDA? any the willingness with seeing

activity, this expense to expect we continue should trend of for the Given should quarter-on-quarter, the expect that we year? rest M&A to lower lower interest

Rudy Adolf

entrepreneurial autonomy Matt. they level in of preference the their Yes, pro The having our run is the business. partners quid high quo for a way

run are our the our financial they understand we dynamic it's and This XXXX, to here, of our was part who way during they preference. they frankly, to conversations are entrepreneurs, creates choose where they because certainly ultimately But preference. need And big interested structured. how same the is then yang at we a of remain always the in the time, that ying a this want deals partners since Focus model the have quite So always business, the deals. --

outgrown the negotiate -- future on So this in type business? own we partners alignment put interesting us. frankly, a their an between after willing the the So partner it's frankly, not preference to Focus joined interest two our the would on and a for it all deal, not about what prospect if it not Quite bet typically, bet relevant if maybe because referencing a ask that most it of usually number is that remember to our their you and firms conversations. subject, But is why if would hard to right then us. of or deal here, quite ultimately And of number. business, the is will firms basically partner firm not have is if a year

And here, we dynamics have what deal So successful. this made multiple is change as I strategic model is discipline, intent discipline said, business discipline so no anything. to

James Shanahan

modeling X.X%. just $XXX then of million of for hedges question, effective on We maybe math the Matt, And the rate disclosed purposes. specifically, the term an second loan with

excess the X.X%, minus plus spread. plus the spread And grid the plus So are based plus or LIBOR, rate of on or term on XX X.XX% today, day any borrowings minus the loan X.X% XXX. then revolver

Operator

line question Oppenheimer. next the Our with Owen Lau of from comes

Kwun Lau

expanded -- better you than came you are what the also partly And going growth mentioned mentioned other that and Could than a programs. in credit then happened about and you results what So actually revenue that M&A family had cash expected, due can organic Could about better please talk initiatives drive potentially conditions there? type than talk you revenue forward? service office market also revenues. better-than-anticipated to please

Rudy Adolf

first Jim, why don't take you the question?

James Shanahan

question. I'll Yes, first take the

in were I we Owen, to the estimate. COVID think, QX during inherently, So hard environment, are things

estimate the in is It's matter. slightly of The QX, sort matter run billion systemic perspective, revenue. year. $XX about this it for put come of QX. million. that pretty event the $X half a was think where I second sort guidance It's exit periods, guidance has now We of current better. rate back mentioned, annualized QX, specific $XX will on of million, in original QX, Our well not $XX over you revenue in figure. as COVID QX, our COVID, a in small It a half north We business a million revenue. future is half right in in of came

Rudy Adolf

in is of question we we serve so and Yes. And firms partner your of programs. grow have better. second yes, business type helping on -- our Owen, And the are X the clients

model step it's access all and an have are purchasing so RIA We our on to so technology, expertise, incentive any have compliance operations, management, programs just Solutions. we power the business partners, in the These forth. Business Focus of help whether where risk resources, and programs, marketing,

the into, to announce is lucky this said we Focus of programs one program create take specific Other our serve Business where in partners business, some but great side a interest areas solutions And of to have Focus create definitely advantage again is but I see. this access on for what solutions generate possible client-facing where type better Solutions. we we're probably credit these looking really we Solutions. scale this is -- that before, the announced. first insurance. basically time. we point, programs the this scale are to the -- help Cash just group we we create client we nothing areas Trust we that investment services scale clients we the take This estate clients. that's as are So better can where to I is we looking for of of perfect in, to business, we the we have And create like of areas better. them at of Then Client where where use -- of planning

three them shareholder has in and this that unique and are create and will people, as of $XXX this yes, advantages well are gambit for on. a Yes, position in But will to industry X,XXX we're and working value we aggregate this operating in. will frankly, point. come. we taking quite four be actually that client for Cash it's more us puts over the there that us very as assets, value at So else years business, -- real we client credit a to whole billion is soon countries adding continue into of nobody already is size areas this announce programs,

Kwun Lau

it. Got

Is now -- use to in please as again. to would of right it think very Zoom on if Could helpful. that to to key back M&A it's due you I you If I going the I may obstacles now? face M&A this come environment? it Can difficulty close price the deal Or the you about like? doing down it's of still the face? diligent comment

Rudy Adolf

Yes.

within of own Obstacles. in very year-to-date, of negotiating This close impact relatively to see. was any is small industry are can the extremely observe have techniques, just the it at And quite And juncture very of M&A down us this prudent. the we in area, person. Yes, for well Two going done I there large don't One, we here; which this sure what we we really with just recovering. doing globally of but that yes, have expect. to the as are So about remotely. the have course, frankly, course, we pipeline crisis. understanding our was was deals was is than holistic meeting said the I'm impact just just better probably understanding we extent. better that a person, will of is that crisis deals the X seeing about. new know recovery is, diligence for could a it's we year. health I were meeting and anybody this we of we just transactions basically very number individual are large think The market well. with out impacts marketing capabilities clearly, going to in And But deals, but adjusted remotely. of we a wealth prospects, on firms, things an in and But industry management of now was middle-of-the-road but dimensions this environment examples to what industry where be really based do easier, have to volatility, there deals crisis the firms. does lots these on is like and impact we careful prior due And terms for how comfortable I not really, do area the do would be unique do usually has remotely

decision. was management a Third

of some we our powder dry. call in to QX earnings keep want is explained the As we

and see powder, as to sustain was particularly $XXX some million this having our see and to we we again We correct, as of outlook then Jim as learned But in things certain point. macro normalize significant and have activity, plenty of we dry the explained see more basically, we is in or what firepower, this. that the 'XX financials will and start 'XX that if capital you have before, at

So internal external that we the hand with the it to at one to opportunities. deploy X prudent very to the be factors, managerial best capital decision have

Operator

comes Patrick question from final Raymond the Our O'Shaughnessy James. line with of

Patrick O'Shaughnessy

back to growth? question in beyond? me. XX%-plus your What from point Just level is returning And back what happen comment XXXX and of growth this to would one to at that need of to get

Rudy Adolf

Yes.

believe, target at absolutely much this certainly appropriate company, provided and When and supplement, demonstrated since pretty since have you here is a our we numbers business. So most that public we as XXXX. have this a XXXX growth XXXX look we for

net growth You income XX%; net share XX.X%; adjusted of growth, per XX.X%; growth, see growth revenue EBITDA of XX.X%. income

of since on we be our XXXX ultimately, extensively normalization discussed target before. is call. that consistently activity. So we M&A XXXX assumption there this frankly, actually exceeded the will What have quite a and Obviously, this

these our frankly, of have to to think where market be in as assumptions. structures volatile the multiples we is less And continue can deploy kind see are are We environment. pretty realistic We more this. to we very capital in past. similar quite a yes, starting along done much There going we --

market resources own have We market opportunity the our that on focus scope never of by now This ultimately limited opportunity. there. kind It's we question have. has is that no the the been

to have pursue really this. We

on see things the year. Day. into term. as Despite Investor forward. is just and we at adjusting. We we don't XXXX will for not XXXX need will in this we opportunity happening hope that sometimes what's long tremendous there us the next yes, target targets there to this will said, think We we point are going here be And our right the normalize, we year, So established a get adjust

Operator

reached our closing call have session. for turn to end I'd back any Adolf question-and-answer the the of We Mr. remarks. to over like

Rudy Adolf

you. Thank Yes.

shown to and in have company expertise, beyond go partners during want And in so to and closing, and and and market of volatility. proud clients have their I period also who end how businesses because uncertainty to go thank of dedication. partners be clients' of consistency, mile. extraordinary our willingness this we extra well continue prolonged trust effectiveness are their extremely to They helping our continue above managing the our They employees serve their commitment their holding clients. serving their

It risen industry are capitalize advantage take emerge the as to competitive positioned for Yes. resilient, believe test stable, we substantial of has Bye-bye. that us interest. you our your the post-crisis. is the all this Our stronger, and growth dynamics, uniquely on will to business enabling the of We Thank advantages markets pandemic. reinforce to opportunity recover.

Operator

teleconference. Thank today's you. This concludes

this disconnect participation, lines Thank at time. a you your and may have for your wonderful You day.

Focus Financial Partners (FOCS) 7 Aug 202020 Q2 Earnings call transcript