10-Q

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2019
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 001-38604

Focus Financial Partners Inc.
(Exact Name of Registrant as Specified in its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)	47-4780811 (I.R.S. Employer Identification No.)
875 Third Avenue, 28th Floor New York, NY (Address of Principal Executive Offices)	10022 (Zip Code)

(646) 519-2456
(Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, par value $0.01 per share	FOCS	Nasdaq Global Select Market

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes    o No

        Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ý Yes    o No

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer ý Smaller reporting company o Emerging growth company ý

        If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ý

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o    No ý

        As of August 5, 2019, the registrant had 47,116,817 shares of Class A common stock and 22,308,446 shares of Class B common stock outstanding.

FOCUS FINANCIAL PARTNERS INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2019

		Page No.
PART I: FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
	Unaudited condensed consolidated balance sheets	2
	Unaudited condensed consolidated statements of operations	3
	Unaudited condensed consolidated statements of comprehensive income (loss)	4
	Unaudited condensed consolidated statements of cash flows	5
	Unaudited condensed consolidated statements of changes in members' deficit/shareholders' equity	6
	Notes to unaudited condensed consolidated financial statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	46
Item 4.	Controls and Procedures	46
PART II: OTHER INFORMATION		47
Item 1.	Legal Proceedings	47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 6.	Exhibits	47
SIGNATURES		49

PART I: FINANCIAL INFORMATION

Item 1.    Financial Statements

Financial Statements Introductory Note

        The unaudited condensed consolidated financial statements and other disclosures contained in this report include those of Focus Financial Partners Inc. ("we," "us," "our," "Focus Inc.," the "Registrant" or the "Company"), which is the registrant, and those of Focus Financial Partners, LLC, a Delaware limited liability company ("Focus LLC"), which became the principal operating subsidiary of the Registrant in a series of reorganization transactions that were completed on July 30, 2018 (the "Reorganization Transactions") in connection with our initial public offering ("IPO"). For more information regarding the transactions described above, see Note 3 to the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q.

        As a result of the IPO and Reorganization Transactions, we became the managing member of Focus LLC. The unaudited condensed consolidated financial statements reflect the historical results of operations and financial position of the Company, including consolidation of its investment in Focus LLC, since July 30, 2018. Prior to July 30, 2018, the closing date of the IPO, the unaudited condensed consolidated financial statements represent the financial statements of Focus LLC. The unaudited condensed consolidated financial statements do not reflect what the financial position, results of operations or cash flows of the Company or Focus LLC would have been had these companies been stand-alone public companies for the periods presented. Specifically, the historical financial statements of Focus LLC do not give effect to the following matters:

•

IPO and Reorganization Transactions;

•

U.S. corporate federal income taxes; and

•

Non-controlling interest held by other members of Focus LLC after the IPO and Reorganization Transactions.

FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated balance sheets

(In thousands, except share and per share amounts)

	December 31, 2018			June 30, 2019
ASSETS
Cash and cash equivalents	$	33,213		$	37,944
Accounts receivable less allowances of $576 at 2018 and $785 at 2019		98,596			118,674
Prepaid expenses and other assets		76,150			70,950
Fixed assets—net		24,780			34,363
Operating lease assets		—			168,867
Debt financing costs—net		12,340			10,993
Deferred tax assets—net		70,009			77,045
Goodwill		860,495			988,706
Other intangible assets—net		762,195			913,110
TOTAL ASSETS	$	1,937,778		$	2,420,652
LIABILITIES AND EQUITY
LIABILITIES:
Accounts payable	$	8,935		$	12,216
Accrued expenses		36,252			45,456
Due to affiliates		39,621			23,156
Deferred revenue		6,215			6,183
Other liabilities		158,497			178,016
Operating lease liabilities		—			180,451
Borrowings under credit facilities (stated value of $838,985 and $1,114,970 at December 31, 2018 and June 30, 2019, respectively)		836,582			1,112,784
Tax receivable agreements obligation		39,156			46,535
TOTAL LIABILITIES		1,125,258			1,604,797
COMMITMENTS AND CONTINGENCIES (Note 13)
EQUITY:
Class A common stock, par value $0.01, 500,000,000 shares authorized; 46,265,903 and 47,116,817 shares issued and outstanding at December 31, 2018 and June 30, 2019, respectively		462			471
Class B common stock, par value $0.01, 500,000,000 shares authorized; 22,823,272 and 22,308,446 shares issued and outstanding at December 31, 2018 and June 30, 2019, respectively		228			223
Additional paid-in capital		471,386			489,566
Accumulated deficit		(590	)		(2,736	)
Accumulated other comprehensive loss		(1,824	)		(2,000	)
Total shareholders' equity		469,662			485,524
Non-controlling interest		342,858			330,331
Total equity		812,520			815,855
TOTAL LIABILITIES AND EQUITY	$	1,937,778		$	2,420,652

See notes to unaudited condensed consolidated financial statements

2

FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated statements of operations

(In thousands, except share and per share amounts)

	For the three months ended June 30,						For the six months ended June 30,
	2018			2019			2018			2019
REVENUES:
Wealth management fees	$	216,328		$	283,296		$	400,651		$	526,380
Other		15,107			18,249			27,013			35,089
Total revenues		231,435			301,545			427,664			561,469
OPERATING EXPENSES:
Compensation and related expenses		81,273			105,531			154,622			206,979
Management fees		60,559			79,252			106,859			136,258
Selling, general and administrative		41,493			59,736			77,780			111,993
Management contract buyout		—			—			—			1,428
Intangible amortization		22,290			31,221			41,784			59,962
Non-cash changes in fair value of estimated contingent consideration		11,944			3,847			18,315			11,261
Depreciation and other amortization		2,162			2,425			4,044			4,738
Total operating expenses		219,721			282,012			403,404			532,619
INCOME FROM OPERATIONS		11,714			19,533			24,260			28,850
OTHER INCOME (EXPENSE):
Interest income		235			339			377			536
Interest expense		(18,212	)		(14,424	)		(32,484	)		(27,283	)
Amortization of debt financing costs		(929	)		(782	)		(1,888	)		(1,564	)
Gain on sale of investment		—			—			5,509			—
Loss on extinguishment of borrowings		—			—			(14,011	)		—
Other income (expense)—net		203			(468	)		296			(704	)
Income from equity method investments		79			329			153			643
Total other expense—net		(18,624	)		(15,006	)		(42,048	)		(28,372	)
INCOME (LOSS) BEFORE INCOME TAX		(6,910	)		4,527			(17,788	)		478
INCOME TAX EXPENSE		746			1,425			1,922			204
NET INCOME (LOSS)	$	(7,656	)		3,102		$	(19,710	)		274
Non-controlling interest					(2,306	)					(2,420	)
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS				$	796					$	(2,146	)
Income (loss) per share of Class A common stock:
Basic				$	0.02					$	(0.05	)
Diluted				$	0.02					$	(0.05	)
Weighted average shares of Class A common stock outstanding:
Basic					46,696,200						46,455,238
Diluted					46,721,559						46,455,238

See notes to unaudited condensed consolidated financial statements

3

FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated statements of comprehensive income (loss)

(In thousands)

	For the three months ended June 30,						For the six months ended June 30,
	2018			2019			2018			2019
Net income (loss)	$	(7,656	)	$	3,102		$	(19,710	)	$	274
Other comprehensive loss:
Foreign currency translation adjustments, net of tax		(1,122	)		(687	)		(1,506	)		(333	)
Comprehensive income (loss)	$	(8,778	)		2,415		$	(21,216	)		(59	)
Less: Comprehensive income attributable to noncontrolling interest					(2,025	)					(2,263	)
Comprehensive income (loss) attributable to common shareholders				$	390					$	(2,322	)

See notes to unaudited condensed consolidated financial statements

4

FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated statements of cash flows

(In thousands)

	For the six months ended June 30,
	2018			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(19,710	)	$	274
Adjustments to reconcile net income (loss) to net cash provided by operating activities—net of effect of acquisitions:
Intangible amortization		41,784			59,962
Depreciation and other amortization		4,044			4,738
Amortization of debt financing costs		1,888			1,564
Non-cash equity compensation expense		7,555			9,099
Non-cash changes in fair value of estimated contingent consideration		18,315			11,261
Income from equity method investments		(153	)		(643	)
Distributions received from equity method investments		613			618
Other non-cash items		(203	)		843
Loss on extinguishment of borrowings		14,011			—
Changes in cash resulting from changes in operating assets and liabilities:
Accounts receivable		(21,467	)		(18,219	)
Prepaid expenses and other assets		(14,791	)		3,220
Accounts payable		3,324			389
Accrued expenses		12,358			25,166
Due to affiliates		(7,548	)		(16,518	)
Other liabilities		(2,600	)		(24,848	)
Deferred revenue		(268	)		(1,688	)
Net cash provided by operating activities		37,152			55,218
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions and contingent consideration—net of cash acquired		(215,332	)		(289,101	)
Purchase of fixed assets		(4,429	)		(10,060	)
Investment and other		(24,300	)		—
Net cash used in investing activities		(244,061	)		(299,161	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities		200,000			370,000
Repayments of borrowings under credit facilities		(4,477	)		(94,014	)
Contingent consideration paid		(4,814	)		(16,293	)
Payments of debt financing costs		(1,981	)		—
Proceeds from exercise of stock options		—			796
Payments on finance lease obligations		(116	)		(94	)
Distributions for unitholders		(506	)		(11,734	)
Net cash provided by financing activities		188,106			248,661
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS		(80	)		13
CHANGE IN CASH AND CASH EQUIVALENTS		(18,883	)		4,731
CASH AND CASH EQUIVALENTS:
Beginning of period		51,455			33,213
End of period	$	32,572		$	37,944

See Note 14 for supplemental cash flow disclosure

See notes to unaudited condensed consolidated financial statements

5

FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated statements of changes in members' deficit/shareholders' equity

Three months ended June 30, 2018 and 2019

(In thousands, except share amounts)

	Class A Common Stock				Class B Common Stock														Total Members' Deficit/ Shareholders' Equity
														Accumulated Other Comprehensive Loss
									Additional Paid-In Capital		Accumulated Deficit						Common Units					Non- controlling Interest		Total Equity
	Shares		Amount		Shares		Amount
Balance at April 1, 2018		—	$	—		—	$	—	$	34,585	$	(817,492	)	$	(8,653	)	$	10,931	$	(780,629	)	$	—	$	(780,629	)
Net loss		—		—		—		—		—		(7,656	)		—			—		(7,656	)		—		(7,656	)
Issuance of restricted common units in connection with acquisitions and contingent consideration		—		—		—		—		—		—			—			26,245		26,245			—		26,245
Non-cash equity compensation expense-net of related forfeitures, related to incentive units		—		—		—		—		3,701		—			—			—		3,701			—		3,701
Currency translation adjustment-net of tax		—		—		—		—		—		—			(1,122	)		—		(1,122	)		—		(1,122	)
Distribution for unitholders		—		—		—		—		—		(82	)		—			—		(82	)		—		(82	)
Balance at June 30, 2018		—	$	—		—	$	—	$	38,286	$	(825,230	)	$	(9,775	)	$	37,176	$	(759,543	)	$	—	$	(759,543	)

	Class A Common Stock				Class B Common Stock																	Total Members' Deficit/ Shareholders' Equity
																	Accumulated Other Comprehensive Loss
											Additional Paid-In Capital			Accumulated Deficit						Common Units					Non- controlling Interest			Total Equity
	Shares		Amount		Shares			Amount
Balance at April 1, 2019		46,675,183	$	467		22,568,831		$	225		$	459,488		$	(3,532	)	$	(1,594	)	$	—	$	455,054		$	357,222		$	812,276
Net income		—		—		—			—			—			796			—			—		796			2,306			3,102
Issuance (cancellation) of common stock in connection with exercise of Focus LLC common unit exchange rights		260,385		3		(260,385	)		(2	)		7,304			—			—			—		7,305			—			7,305
Issuance of common stock in connection with exercise of Focus LLC incentive unit exchange rights		163,600		1		—			—			4,537			—			—			—		4,538			—			4,538
Exercise of stock options		17,649		—		—			—			582			—			—			—		582			—			582
Change in non-controlling interest allocation		—		—		—			—			17,315			—			—			—		17,315			(28,916	)		(11,601	)
Non-cash equity compensation expenses		—		—		—			—			948			—			—			—		948			—			948
Currency translation adjustment-net of tax		—		—		—			—			—			—			(406	)		—		(406	)		(281	)		(687	)
Adjustments of deferred taxes, net of amounts payable under tax receivable agreements and changes from Focus LLC interest transactions		—		—		—			—			(608	)		—			—			—		(608	)		—			(608	)
Balance at June 30, 2019		47,116,817	$	471		22,308,446		$	223		$	489,566		$	(2,736	)	$	(2,000	)	$	—	$	485,524		$	330,331		$	815,855

See notes to unaudited condensed consolidated financial statements

6

FOCUS FINANCIAL PARTNERS INC.

Unaudited condensed consolidated statements of changes in members' deficit/shareholders' equity

Six months ended June 30, 2018 and 2019

(In thousands, except share amounts)

	Class A Common Stock				Class B Common Stock														Total Members' Deficit/ Shareholders' Equity
														Accumulated Other Comprehensive Loss
									Additional Paid-In Capital		Accumulated Deficit						Common Units					Non- controlling Interest		Total Equity
	Shares		Amount		Shares		Amount
Balance at January 1, 2018		—	$	—		—	$	—	$	30,731	$	(805,470	)	$	(8,269	)	$	4,347	$	(778,661	)	$	—	$	(778,661	)
Net loss		—		—		—		—		—		(19,710	)		—			—		(19,710	)		—		(19,710	)
Issuance of restricted common units in connection with acquisitions and contingent consideration		—		—		—		—		—		—			—			32,829		32,829			—		32,829
Non-cash equity compensation expense-net of related forfeitures, related to incentive units		—		—		—		—		7,555		—			—			—		7,555			—		7,555
Currency translation adjustment-net of tax		—		—		—		—		—		—			(1,506	)		—		(1,506	)		—		(1,506	)
Distribution for unitholders		—		—		—		—		—		(50	)		—			—		(50	)		—		(50	)
Balance at June 30, 2018		—	$	—		—	$	—	$	38,286	$	(825,230	)	$	(9,775	)	$	37,176	$	(759,543	)	$	—	$	(759,543	)

	Class A Common Stock					Class B Common Stock																	Total Members' Deficit/ Shareholders' Equity
																		Accumulated Other Comprehensive Loss
												Additional Paid-In Capital			Accumulated Deficit						Common Units					Non- controlling Interest			Total Equity
	Shares			Amount		Shares			Amount
Balance at January 1, 2019		46,265,903		$	462		22,823,272		$	228		$	471,386		$	(590	)	$	(1,824	)	$	—	$	469,662		$	342,858		$	812,520
Net income (loss)		—			—		—			—			—			(2,146	)		—			—		(2,146	)		2,420			274
Issuance (cancellation) of common stock in connection with exercise of Focus LLC common unit exchange rights		514,826			6		(514,826	)		(5	)		16,571			—			—			—		16,572			—			16,572
Issuance of common stock in connection with exercise of Focus LLC incentive unit exchange rights		312,871			3		—			—			9,972			—			—			—		9,975			—			9,975
Forfeiture of unvested Class A common stock		(909	)		—		—			—			(30	)		—			—			—		(30	)		—			(30	)
Exercise of stock options		24,126			—		—			—			796			—			—			—		796			—			796
Change in non-controlling interest allocation		—			—		—			—			(11,032	)		—			—			—		(11,032	)		(14,790	)		(25,822	)
Non-cash equity compensation expenses		—			—		—			—			1,653			—			—			—		1,653			—			1,653
Currency translation adjustment-net of tax		—			—		—			—			—			—			(176	)		—		(176	)		(157	)		(333	)
Adjustments of deferred taxes, net of amounts payable under tax receivable agreements and changes from Focus LLC interest transactions		—			—		—			—			250			—			—			—		250			—			250
Balance at June 30, 2019		47,116,817		$	471		22,308,446		$	223		$	489,566		$	(2,736	)	$	(2,000	)	$	—	$	485,524		$	330,331		$	815,855

See notes to unaudited condensed consolidated financial statements

7

FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements

(In thousands, except unit data, share and per share amounts)

1. GENERAL

        Organization and Business—The Company was formed as a Delaware corporation on July 29, 2015 for the sole purpose of completing the IPO and Reorganization Transactions in order to carry on the business of Focus LLC. On July 30, 2018, the Company became the managing member of Focus LLC and operates and controls the businesses and affairs of Focus LLC and its subsidiaries. Accordingly, the unaudited condensed consolidated financial statements reflect the historical results of operations and financial position of Focus LLC (predecessor) prior to July 30, 2018.

        Focus LLC is a Delaware limited liability company that was formed in November 2004. Focus LLC's subsidiaries commenced revenue-generating and acquisition activities in January 2006. Focus LLC's activities were governed by its Third Amended and Restated Operating Agreement, as amended, through July 30, 2018 and then its Fourth Amended and Restated Operating Agreement (as amended, the "Operating Agreement"), effective on July 30, 2018.

        Focus LLC is in the business of acquiring and overseeing independent fiduciary wealth management and related businesses.

2. SUMMARY OF ACCOUNTING POLICIES

        Basis of Presentation—The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of only normal recurring adjustments, considered necessary for fair presentation have been included. The unaudited condensed consolidated financial statements include the accounts of the Company and its majority and wholly owned subsidiaries. The Company consolidates Focus LLC and its subsidiaries' consolidated financial statements and records the interests in Focus LLC that the Company does not own as non-controlling interests. Non-controlling interests were measured initially at the proportionate share of Focus LLC's identifiable net assets at the date of the IPO. Intercompany transactions and balances have been eliminated in consolidation. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K as filed with the SEC on March 28, 2019.

        Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

        Use of Estimates—The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Revenue

        The Company disaggregates revenue by wealth management fees and other. The Company does not allocate revenue by the type of service provided in connection with providing holistic wealth

8

FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (Continued)

(In thousands, except unit data, share and per share amounts)

2. SUMMARY OF ACCOUNTING POLICIES (Continued)

management client services. The Company generally manages its business based on the operating results of the enterprise taken as a whole, not by geographic region. The following table disaggregates the revenues based on the location of the partner firm legal entities that generates the revenues and therefore may not be reflective of the geography in which clients are located.

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2019		2018		2019
Domestic revenue	$	225,894	$	287,920	$	416,519	$	542,212
International revenue		5,541		13,625		11,145		19,257
Total revenue	$	231,435	$	301,545	$	427,664	$	561,469

Leases

        In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, "Leases (Topic 842)." ASU No. 2016-02 requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right of use asset for the right to use the underlying asset for the lease term. ASU No. 2016-02 was effective for the Company for interim and annual periods beginning January 1, 2019. The Company adopted ASU No. 2016-02 effective January 1, 2019 using a modified retrospective method and therefore has not restated comparative periods. The Company elected to use certain practical expedients to assist in the transition and has not reassessed the identification and classification of leases upon adoption. Based on the portfolio of leases as of January 1, 2019, the Company recognized approximately $144,000 of lease liabilities and $134,000 of right of use assets (which reflects the reclassification of previous deferred rent balances into the right of use asset as required under the transition guidance) on the balance sheet, primarily related to operating leases for real estate. There was no material impact to the consolidated statement of operations and comprehensive income (loss) or consolidated statement of cash flows as a result of adoption of this new guidance. Refer to Note 12 for further information regarding leases.

Recent Accounting Pronouncements

        In January 2017, the FASB issued ASU No. 2017-04, "Simplifying the Test for Goodwill Impairment," which removes the second step of the goodwill impairment test that requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU No. 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2019 and will be applied prospectively. Early adoption is permitted. ASU No. 2017-04 is not expected to have a material effect on the Company's consolidated financial statements.

        In June 2018, the FASB issued ASU No. 2018-07 "Improvements to Nonemployee Share-Based Payment Accounting," which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. ASU No. 2018-07 was effective for fiscal years beginning after December 15, 2018, including interim periods

9

FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (Continued)

(In thousands, except unit data, share and per share amounts)

2. SUMMARY OF ACCOUNTING POLICIES (Continued)

within that fiscal year. The adoption of ASU No. 2018-07 on January 1, 2019 did not have a material effect on the Company's consolidated financial statements.

3. IPO, REORGANIZATION TRANSACTIONS AND USE OF PROCEEDS

Initial Public Offering

        On July 30, 2018, the Company completed its IPO of 18,648,649 shares of its Class A common stock, par value $0.01 per share, including 2,432,432 shares of Class A common stock sold in connection with the full exercise of the option to purchase additional shares granted to the underwriters, at a price to the public of $33.00 per share. The shares began trading on the NASDAQ Global Select Market on July 26, 2018 under the ticker symbol "FOCS."

Reorganization Transactions

        In connection with the IPO, Focus LLC completed the Reorganization Transactions. The equity interests in Focus LLC at the date of the IPO consisted of convertible preferred units, common units and incentive units, each incentive unit having a hurdle amount similar to the exercise price of a stock option. The owners of Focus LLC units immediately prior to the IPO ("Existing Owners") primarily included (i) affiliates of Focus LLC's private equity investors ("Private Equity Investors"), (ii) members of management of Focus LLC, (iii) current and former principals of independent fiduciary wealth management and related businesses acquired by Focus LLC and (iv) current and former employees of Focus LLC.

        In connection with the Reorganization Transactions, all outstanding Focus LLC convertible preferred units converted into Focus LLC common units and the Company purchased certain Focus LLC common and incentive units from certain Existing Owners and issued an aggregate of 23,881,002 shares of Class A common stock, non-compensatory stock options to purchase an aggregate of 386,832 shares of Class A common stock, compensatory stock options to purchase an aggregate of 348,577 shares of Class A common stock and an aggregate of 22,499,665 shares of Class B common stock to certain Existing Owners. Due to certain post-closing adjustments, the Company cancelled 240,457 shares of Class A common stock and issued 240,457 shares of Class B common stock effective as of the closing date of the IPO.

        Existing Owners who hold common units of Focus LLC after the Reorganization Transactions received shares of Class B common stock of the Company. Shares of Class B common stock do not entitle their holders to any economic rights. Holders of Class A common stock and Class B common stock of the Company vote together as a single class on all matters presented to the shareholders of the Company for their vote or approval, except as otherwise required by applicable law. Each share of Class A and Class B common stock entitles its holder to one vote.

Use of Proceeds

        The Company received $565,160 of net proceeds from the sale of the Class A common stock in the IPO including $74,651 in connection with the full exercise of the option to purchase additional shares granted to the underwriters. The Company used $35,537 of the net proceeds to pay certain Existing Owners who elected to sell their units of Focus LLC. The Company contributed $529,623 of

10

FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (Continued)

(In thousands, except unit data, share and per share amounts)

3. IPO, REORGANIZATION TRANSACTIONS AND USE OF PROCEEDS (Continued)

the net proceeds from the IPO to Focus LLC in exchange for 17,583,947 common units of Focus LLC. Focus LLC used $392,535 of such contribution to reduce indebtedness under its Credit Facility (as defined below). The residual $137,088 of such contribution was used by Focus LLC for acquisitions and general corporate business purposes.

4. NON-CONTROLLING INTEREST AND INCOME (LOSS) PER SHARE

        Historical income (loss) per share information is not applicable for reporting periods prior to the consummation of the IPO. Net income (loss) attributable to common shareholders is the net income (loss) recorded by the Company based on its interest in Focus LLC during the respective period after the IPO.

        The calculation of controlling and non-controlling interest is as follows as of June 30, 2019:

Focus LLC common units held by continuing owners	22,308,446
Common unit equivalents of outstanding vested and unvested incentive units held by continuing owners(1)	5,125,588
Total common units and common unit equivalents attributable to non-controlling interest	27,434,034
Total common units and common unit equivalents of incentive units outstanding	74,550,851
Non-controlling interest allocation	36.8	%
Company's interest in Focus LLC	63.2	%

(1)

Focus LLC common units issuable upon conversion of 17,830,564 (see Note 9) vested and unvested Focus LLC incentive units was calculated using the common unit equivalent of vested and unvested Focus LLC incentive units based on the closing price of the Company's Class A common stock on the last trading day of the period.

        The below table contains a reconciliation of net income to net income (loss) attributable to common shareholders:

	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Net income	$	3,102		$	274
Non-controlling interest		(2,306	)		(2,420	)
Net income (loss) attributable to common shareholders	$	796		$	(2,146	)

11

FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (Continued)

(In thousands, except unit data, share and per share amounts)

4. NON-CONTROLLING INTEREST AND INCOME (LOSS) PER SHARE (Continued)

        The calculation of basic and diluted income (loss) per share is described below:

        Basic income (loss) per share is calculated utilizing net income (loss) attributable to common shareholders for the three and six months ended June 30, 2019 divided by the weighted average number of shares of Class A common stock outstanding during the same periods:

	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Basic income (loss) per share:
Net income (loss) attributable to common shareholders	$	796	$	(2,146	)
Weighted average shares of Class A common stock outstanding		46,696,200		46,455,238
Basic income (loss) per share	$	0.02	$	(0.05	)

        Diluted income (loss) per share is calculated utilizing net income (loss) attributable to common shareholders for the three and six months ended June 30, 2019 divided by the weighted average number of shares of Class A common stock outstanding during the same periods plus the effect, if any, of the potentially dilutive shares of the Company's Class A common stock from stock options and unvested Class A common stock as calculated using the treasury stock method:

	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Diluted income (loss) per share:
Net income (loss) attributable to common shareholders	$	796	$	(2,146	)
Weighted average shares of Class A common stock outstanding		46,696,200		46,455,238
Effect of dilutive stock options		—		—
Effect of dilutive unvested Class A common stock		25,359		—
Total		46,721,559		46,455,238
Diluted income (loss) per share	$	0.02	$	(0.05	)

        Diluted loss per share for the six months ended June 30, 2019 excludes incremental shares of 16,607 related to unvested Class A common stock since the effect would be antidilutive due to the net loss for the period. Diluted income (loss) per share for the three and six months ended June 30, 2019 excludes shares related to 155,000 market-based stock options that vest on the fifth anniversary of the pricing of the IPO if the volume weighted average per share price for any ninety-calendar day period within such five-year period immediately following the pricing of the IPO reaches at least $100. Such market-based criteria were not met at June 30, 2019.

5. ACQUISITIONS

Business Acquisitions

        Business acquisitions are accounted for in accordance with Accounting Standards Codification ("ASC") Topic 805: Business Combinations.

12

FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (Continued)

(In thousands, except unit data, share and per share amounts)

5. ACQUISITIONS (Continued)

        The Company has incorporated contingent consideration, or earn out provisions, into the structure of its acquisitions. The Company recognizes the fair value of estimated contingent consideration at the acquisition date as part of the consideration transferred in the exchange. The contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved. The purchase price associated with business acquisitions and the allocation thereof during the six months ended June 30, 2019 is as follows:

Number of business acquisitions closed		21
Consideration:
Cash and option premium	$	283,291
Fair market value of estimated contingent consideration		50,945
Total consideration	$	334,236
Allocation of purchase price:
Total tangible assets	$	37,627
Total liabilities assumed		(41,515	)
Customer relationships		199,977
Management contracts		9,184
Goodwill		128,391
Other intangibles		572
Total allocated consideration	$	334,236

        Management believes approximately $280,460 of tax goodwill and intangibles related to business acquisitions completed during the six months ended June 30, 2019 will be deductible for tax purposes over a 15 year period. Additional tax goodwill may be deductible when estimated contingent consideration is earned and paid.

        The accompanying unaudited condensed consolidated statement of operations for the six months ended June 30, 2019 includes revenue and income from operations for the 5 business acquisitions that are new subsidiary partner firms from the date they were acquired of $28,950 and $3,453, respectively.

Asset Acquisitions

        The Company also separately purchases customer relationships and other intangible assets. These purchases are accounted for as asset acquisitions as they do not qualify as business acquisitions pursuant to ASC Topic 805, Business Combinations. There were 2 asset acquisitions during the six months ended June 30, 2019. Total purchase consideration for asset acquisitions during the six months ended June 30, 2019 was $600 in cash plus contingent consideration as additional purchase consideration when the outcome is determinable.

13

FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (Continued)

(In thousands, except unit data, share and per share amounts)

5. ACQUISITIONS (Continued)

        The weighted-average useful lives of intangible assets acquired during the six months ended June 30, 2019 through business acquisitions and asset acquisitions are as follows:

	Number of Years
Management contracts		19
Customer relationships		9
Other intangibles		5
Weighted-average useful life of all intangibles acquired		10

        From July 1, 2019 to August 8, 2019, the Company completed 7 business acquisitions for cash of $203,281, plus contingent consideration.

6. GOODWILL AND OTHER INTANGIBLE ASSETS

        The following table summarizes the change in the goodwill balances for the year ended December 31, 2018 and the six months ended June 30, 2019:

	December 31, 2018			June 30, 2019
Balance beginning of period:
Goodwill	$	538,113		$	883,119
Cumulative impairment losses		(22,624	)		(22,624	)
		515,489			860,495
Goodwill acquired		347,496			128,391
Other		(2,490	)		(180	)
		345,006			128,211
Balance end of period:
Goodwill		883,119			1,011,330
Cumulative impairment losses		(22,624	)		(22,624	)
	$	860,495		$	988,706

        The following table summarizes the amortizing acquired intangible assets at December 31, 2018:

	Gross Carry Amount		Accumulated Amortization			Net Book Value
Customer relationships	$	1,008,186	$	(349,125	)	$	659,061
Management contracts		133,112		(31,911	)		101,201
Other intangibles		4,402		(2,469	)		1,933
Total	$	1,145,700	$	(383,505	)	$	762,195

14

FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (Continued)

(In thousands, except unit data, share and per share amounts)

6. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)

        The following table summarizes the amortizing acquired intangible assets at June 30, 2019:

	Gross Carry Amount		Accumulated Amortization			Net Book Value
Customer relationships	$	1,209,291	$	(404,967	)	$	804,324
Management contracts		142,319		(35,735	)		106,584
Other intangibles		5,031		(2,829	)		2,202
Total	$	1,356,641	$	(443,531	)	$	913,110

7. FAIR VALUE MEASUREMENTS

        ASC Topic 820, Fair Value Measurement establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company's own assumptions about the assumptions market participants would use in pricing the asset or liability, developed based on the best information available in the circumstances.

        The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:

        Level 1—Unadjusted price quotations in active markets for identical assets or liabilities.

        Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

        Level 3—Significant unobservable inputs that are not corroborated by market data.

        The implied fair value of the Company's First Lien Term Loan (as defined below) based on Level 2 inputs at December 31, 2018 and June 30, 2019 are as follows:

	December 31, 2018				June 30, 2019
	Stated Value		Fair Value		Stated Value		Fair Value
First Lien Term Loan	$	798,985	$	773,018	$	794,970	$	793,976

        For business acquisitions, the Company recognizes the fair value of estimated contingent consideration at the acquisition date as part of purchase price. This fair value measurement is based on Level 3 inputs.

15

FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (Continued)

(In thousands, except unit data, share and per share amounts)

7. FAIR VALUE MEASUREMENTS (Continued)

        The following table represents changes in the fair value of estimated contingent consideration for business acquisitions for the year ended December 31, 2018 and the six months ended June 30, 2019:

Balance at January 1, 2018	$	76,677
Additions to estimated contingent consideration		42,086
Payments of contingent consideration		(26,237	)
Non-cash changes in fair value of estimated contingent consideration		6,638
Other		(259	)
Balance at December 31, 2018		98,905
Additions to estimated contingent consideration		50,945
Payments of contingent consideration		(29,475	)
Non-cash changes in fair value of estimated contingent consideration		11,261
Other		(203	)
Balance at June 30, 2019	$	131,433

        Estimated contingent consideration is included in other liabilities in the accompanying unaudited condensed consolidated balance sheets.

        During the year ended December 31, 2018, the Company paid $23,816 in cash and issued $2,421 of restricted common units as contingent consideration associated with business acquisitions. During the six months ended June 30, 2019, the Company paid $29,475 in cash as contingent consideration associated with business acquisitions.

        In determining fair value of the estimated contingent consideration, the acquired business' future performance is estimated using financial projections for the acquired business. These financial projections, as well as alternative scenarios of financial performance, are measured against the performance targets specified in each respective acquisition agreement. The fair value of the Company's estimated contingent consideration is established using the Monte Carlo Simulation model.

        The primary significant unobservable input used in the fair value measurement of the Company's estimated contingent consideration is the forecasted growth rates over the measurement period. Significant increases or decreases in the Company's forecasted growth rates over the measurement period would result in a higher or lower fair value measurement.

        Inputs used in the fair value measurement of estimated contingent consideration at December 31, 2018 and June 30, 2019 are summarized below:

	Quantitative Information About Level 3 Fair Value Measurements
Fair Value at December 31, 2018
	Valuation Technique	Unobservable Input	Range
$98,905	Monte Carlo Simulation model	Forecasted growth rates	(16.2)% - 18.7%

	Quantitative Information About Level 3 Fair Value Measurements
Fair Value at June 30, 2019
	Valuation Technique	Unobservable Input	Range
$131,433	Monte Carlo Simulation model	Forecasted growth rates	(17.0)% - 129.8%

16

FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (Continued)

(In thousands, except unit data, share and per share amounts)

8. CREDIT FACILITY

        As of June 30, 2019, Focus LLC's credit facility (the "Credit Facility") consisted of a $803,000 first lien term loan (the "First Lien Term Loan") and a $650,000 first lien revolving credit facility (the "First Lien Revolver").

        The First Lien Term Loan has a maturity date of July 2024 and, as of June 30, 2019, required quarterly installment repayments of approximately $2,007. The First Lien Term Loan bears interest (at Focus LLC's option) at: (i) the London InterBank Offered Rate ("LIBOR") plus a margin of 2.50% or (ii) the lender's Base Rate (as defined in the Credit Facility) plus a margin of 1.50%.

        The First Lien Revolver has a maturity date of July 2023. Up to $30,000 of the First Lien Revolver is available for the issuance of letters of credit, subject to certain limitations. The First Lien Revolver bears interest at LIBOR plus a margin of 2.00% with step downs to 1.75%, 1.50% and 1.25% or the lender's Base Rate plus a margin of 1.00% with step downs to 0.75%, 0.50% and 0.25%, based on achievement of a specified First Lien Leverage Ratio. The First Lien Revolver unused commitment fee is 0.50% with step downs to 0.375% and 0.25% based on achievement of a specified First Lien Leverage Ratio.

        Focus LLC's obligations under the Credit Facility are collateralized by the majority of Focus LLC's assets. The Credit Facility contains various customary covenants, including, but not limited to: (i) incurring additional indebtedness or guarantees, (ii) creating liens or other encumbrances on property or granting negative pledges, (iii) entering into a merger or similar transaction, (iv) selling or transferring certain property and (v) declaring dividends or making other restricted payments.

        Focus LLC is required to maintain a First Lien Leverage Ratio (as defined in the Credit Facility) of not more than 6.25:1.00 as of the last day of each fiscal quarter. At June 30, 2019, Focus LLC's First Lien Leverage Ratio was 4.05:1.00, which satisfied the maximum ratio of 6.25:1.00. First Lien Leverage Ratio means the ratio of amounts outstanding under the First Lien Term Loan and First Lien Revolver plus other outstanding debt obligations secured by a lien on the assets of Focus LLC (excluding letters of credit other than unpaid drawings thereunder) minus unrestricted cash and cash equivalents to Consolidated EBITDA (as defined in the Credit Facility). Focus LLC is also subject to contingent principal payments based on excess cash flow for any fiscal year if the First Lien Leverage Ratio exceeds 3.75:1.00.

        The Company defers and amortizes its debt financing costs over the respective terms of the First Lien Term Loan and First Lien Revolver. The debt financing costs related to the First Lien Term Loan are recorded as a reduction of the carrying amount of the First Lien Term Loan in the unaudited condensed consolidated balance sheets. The debt financing costs related to the First Lien Revolver are recorded in debt financing costs-net in the unaudited condensed consolidated balance sheets.

17

FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (Continued)

(In thousands, except unit data, share and per share amounts)

8. CREDIT FACILITY (Continued)

        The following is a reconciliation of principal amounts outstanding under the Credit Facility to borrowings under the Credit Facility recorded in the unaudited condensed consolidated balance sheets at December 31, 2018 and June 30, 2019:

	December 31, 2018			June 30, 2019
First Lien Term Loan	$	798,985		$	794,970
First Lien Revolver		40,000			320,000
Unamortized debt financing costs		(2,403	)		(2,186	)
Total	$	836,582		$	1,112,784

        Weighted-average interest rates for outstanding borrowings were approximately 6% for the year ended December 31, 2018 and approximately 5% for the six months ended June 30, 2019.

        As of December 31, 2018 and June 30, 2019, the First Lien Revolver available unused commitment line was $605,793 and $323,673, respectively.

        As of December 31, 2018 and June 30, 2019, Focus LLC was contingently obligated for letters of credit in the amount of $4,207 and $6,327, respectively, each bearing interest at an annual rate of approximately 1% and 2%, respectively.

        In July 2019, the Company expanded its First Lien Term Loan by $350,000 and incurred approximately $3,800 in estimated debt financing costs. The debt was issued at a discount of 0.25% or $875. The proceeds were used by the Company to reduce the amount outstanding under the Company's First Lien Revolver. Additionally, the quarterly installment repayments related to the First Lien Term Loan were increased to $2,891.

9. EQUITY

Common Stock

        Each Focus LLC common unit, together with a corresponding share of Class B common stock, and Focus LLC incentive unit (after conversion into a number of Focus LLC common units taking into account the then-current value of the common units and such incentive unit's aggregate hurdle amount) is exchangeable, pursuant to the terms and subject to the conditions set forth in the Operating Agreement, for one share of the Company's Class A common stock, or, if either the Company or Focus LLC so elects, cash.

        In March 2019, the Company issued an aggregate of 403,712 shares of Class A common stock and retired 254,441 shares of Class B common stock and 217,730 incentive units in Focus LLC and acquired 403,712 common units in Focus LLC, in each case as part of the regular quarterly exchanges offered to holders of units in Focus LLC.

        In June 2019, the Company issued an aggregate of 423,985 shares of Class A common stock and retired 260,385 shares of Class B common stock and 248,142 incentive units in Focus LLC and acquired 423,985 common units in Focus LLC, in each case as part of the regular quarterly exchanges offered to holders of units in Focus LLC.

18

FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (Continued)

(In thousands, except unit data, share and per share amounts)

9. EQUITY (Continued)

Stock Options and Unvested Class A Common Stock

        The following table provides information relating to the changes in the Company's stock options during the six months ended June 30, 2019:

	Stock Options			Weighted Average Exercise Price
Outstanding—January 1, 2019		1,401,276		$	31.34
Granted		55,513			35.30
Exercised		(24,126	)		33.00
Forfeited		(22,358	)		30.33
Outstanding—June 30, 2019		1,410,305			31.48
Vested—June 30, 2019		478,888			33.00

        The following table provides information relating to the changes in the Company's unvested Class A common stock during the six months ended June 30, 2019:

	Unvested Class A Common Stock			Grant Date Fair Value
Outstanding—January 1, 2019		119,078		$	33.00
Forfeited		(909	)		33.00
Outstanding—June 30, 2019		118,169			33.00

        For the purpose of calculating equity-based compensation expense for time-based stock option awards granted during the six months ended June 30, 2019, the grant date fair value was determined through the application of the Black-Scholes model with the following weighted average assumptions:

Expected term	6.25 years
Expected stock price volatility	28	%
Risk-free interest rate	2.42	%
Expected dividend yield	—	%
Weighted average grant date fair value	$11.67

        The Company recognized $1,158 and $2,060 of non-cash equity compensation expense in relation to the stock options and unvested Class A common stock during the three and six months ended June 30, 2019, respectively.

19

FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (Continued)

(In thousands, except unit data, share and per share amounts)

9. EQUITY (Continued)

Focus LLC Incentive Units

        The following table provides information relating to the changes in Focus LLC incentive units during the six months ended June 30, 2019:

	Incentive Units			Weighted Average Hurdle Price
Outstanding—January 1, 2019		18,597,474		$	20.63
Granted		30,000			36.64
Exchanged		(465,872	)		11.34
Forfeited		(331,038	)		27.80
Outstanding—June 30, 2019		17,830,564			20.77
Vested—June 30, 2019		9,487,585			14.35

        Incentive units outstanding and vested at June 30, 2019 were as follows:

Hurdle Rates	Number Outstanding		Vested Incentive Units
$1.42		175,421		175,421
5.50		97,798		97,798
6.00		56,702		56,702
7.00		482,545		482,545
9.00		2,001,982		2,001,982
11.00		1,271,965		1,271,965
12.00		520,000		520,000
13.00		842,418		835,752
14.00		56,205		56,205
16.00		168,552		168,552
17.00		80,000		72,500
19.00		865,731		791,981
21.00		3,975,500		2,475,500
22.00		1,289,667		342,104
23.00		524,828		131,207
27.00		29,484		7,371
28.50		1,646,766		—
33.00		3,715,000		—
36.64		30,000		—
		17,830,564		9,487,585

        The Company recorded $3,701 and $7,555 of non-cash equity compensation expense for incentive units and other during the three and six months ended June 30, 2018, respectively.

20

FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (Continued)

(In thousands, except unit data, share and per share amounts)

9. EQUITY (Continued)

        The Company recorded $4,020 and $7,039 of non-cash equity compensation expense for incentive units and other during the three and six months ended June 30, 2019, respectively.

10. INCOME TAXES

        The estimated annual effective tax rate for the six months ended June 30, 2019 was 42.7% as compared to 30.2% for the three months ended March 31, 2019. The increase in the estimated annual effective tax rate is primarily attributable to an increase in estimated non-deductible equity-based compensation expense. Income tax expense for the six months ended June 30, 2019 is primarily related to federal, state and local income taxes imposed on the Company's allocable portion of taxable income from Focus LLC. The allocable portion of taxable income primarily differs from the net loss attributable to the Company due to permanent differences such as non-deductible equity-based compensation expense of Focus LLC.

        During the six months ended June 30, 2019, there were no changes to the Company's uncertain tax positions.

11. TAX RECEIVABLE AGREEMENTS

        In connection with the Reorganization Transactions and the closing of the IPO, the Company entered into two Tax Receivable Agreements ("TRAs"): one with certain entities affiliated with the Private Equity Investors and the other with certain other Existing Owners (the parties to the two agreements, collectively, the "TRA holders"). The agreements generally provide for the payment by the Company to each TRA holder of 85% of the net cash savings, if any, in U.S. federal, state and local income and franchise tax that the Company actually realizes (computed using simplifying assumptions to address the impact of state and local taxes) or is deemed to realize in certain circumstances in connection with the Reorganization Transactions and in periods after the IPO, as a result of certain increases in tax bases and certain tax benefits attributable to imputed interest. The Company will retain the benefit of the remaining 15% of these cash savings.

        As of June 30, 2019, the Company recorded a liability of $46,535 relating to the TRA obligations. Future payments under the TRAs in respect of future exchanges of Focus LLC units for shares of Class A common stock will be in addition to the amount recorded.

12. LEASES

        The Company rents office space under operating leases with various expiration dates. The Company determines if a contract contains a lease at inception. Leases with an initial term of 12 months or less, which are immaterial to the condensed consolidated financial statements, are not recorded in the balance sheet. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease expense is recorded on a straight-line basis over the lease term. The Company has a limited number of finance leases which are not material to the consolidated financial statements.

        Operating lease costs are recorded within selling, general and administrative expenses. The implicit discount rates used to determine the present value of the Company's leases are not readily determinable. Therefore, an incremental borrowing rate is used which is estimated based on the

21

FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (Continued)

(In thousands, except unit data, share and per share amounts)

12. LEASES (Continued)

Company's cost of borrowing for the relevant terms of each lease. The weighted average discount rate used to determine the Company's operating lease liabilities was approximately 6.6% at June 30, 2019. The weighted average remaining lease term at June 30, 2019 was 7.4 years.

        The future minimum lease payments under operating leases in place as of June 30, 2019 were as follows:

Period	Amount
Six months ending December 31, 2019	$	20,834
2020		39,965
2021		33,461
2022		27,944
2023		22,854
2024 and thereafter		88,139
		233,197
Less: present value discount		(52,746	)
Operating lease liabilities at June 30, 2019	$	180,451

        Other information pertaining to leases consists of the following:

	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease costs included in selling general and administrative expenses	$	11,298	$	20,963
Operating cash flows from operating leases		10,379		19,473
Operating lease assets obtained in exchange for operating lease obligations		13,469		37,317

        In accordance with ASC 840 future minimum lease payments under operating leases in place at December 31, 2018 were as follows:

Year Ending December 31,	Amount
2019	$	35,426
2020		31,695
2021		24,813
2022		20,906
2023		16,743
2024 and thereafter		50,045
Total minimum lease payments	$	179,628

22

FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (Continued)

(In thousands, except unit data, share and per share amounts)

13. COMMITMENTS AND CONTINGENCIES

        Credit Risk—The Company's broker-dealer subsidiaries clear all transactions through clearing brokers on a fully disclosed basis. Pursuant to the terms of the agreements between the Company's broker-dealer subsidiaries and their clearing brokers, the clearing brokers have the right to charge the Company's broker-dealer subsidiaries for losses that result from a counterparty's failure to fulfill its contractual obligations. This right applies to all trades executed through its clearing brokers, and therefore, the Company believes there is no maximum amount assignable to the right of the clearing brokers. Accordingly, at December 31, 2018 and June 30, 2019, the Company had recorded no liabilities in connection with this right.

        In addition, the Company has the right to pursue collection or performance from the counterparties who do not perform under their contractual obligations. The Company monitors the credit standing of the clearing brokers and counterparties with which they conduct business.

        The Company is exposed to credit risk for accounts receivable from clients. Such credit risk is limited to the amount of accounts receivable. The Company is also exposed to credit risk for changes in the benchmark interest rate (LIBOR or Base Rate) in connection with its Credit Facility.

        The Company maintains its cash in bank depository accounts, which, at times, may exceed federally insured limits. The Company selects depository institutions based, in part, upon management's review of the financial stability of the institution. At December 31, 2018 and June 30, 2019, a significant portion of cash and cash equivalents were held at a single institution.

        Contingent Consideration Arrangements—Contingent consideration is payable in the form of cash and, in some cases, equity. Since the contingent consideration to be paid is based on the growth of forecasted financial performance levels over a number of years, the Company cannot calculate the maximum contingent consideration that may be payable under these arrangements.

        Legal and Regulatory Matters—In the ordinary course of business, the Company is involved in lawsuits and other claims. The Company has insurance to cover certain losses that arise in such matters; however, this insurance may not be sufficient to cover these losses. Management, after consultation with legal counsel, currently does not anticipate that the aggregate liability, if any, arising out of any existing legal matters will have a material effect on the Company's consolidated financial position, results of operations or cash flows.

        From time to time, the Company's subsidiaries receive requests for information from governmental authorities regarding business activities. The Company has cooperated and plans to continue to cooperate with all governmental agencies. The Company continues to believe that the resolution of any governmental inquiry will not have a material impact on the Company's consolidated financial position, results of operations or cash flows.

        Indemnifications—In the ordinary course of business, the Company enters into contracts pursuant to which it may agree to indemnify third parties in certain circumstances. The terms of these indemnities vary from contract to contract and the amount of indemnification liability, if any, cannot be determined.

        Management believes that the likelihood of any liability arising under these indemnification provisions is remote. Management cannot estimate any potential maximum exposure due to both the

23

FOCUS FINANCIAL PARTNERS INC.

Notes to unaudited condensed consolidated financial statements (Continued)

(In thousands, except unit data, share and per share amounts)

13. COMMITMENTS AND CONTINGENCIES (Continued)

remoteness of any potential claims and the fact that items that would be included within any such calculated claim would be beyond the control of the Company. Consequently, no liability has been recorded in the unaudited condensed consolidated balance sheets.

14. CASH FLOW INFORMATION

	Six Months Ended June 30,
	2018		2019
Supplemental disclosures of cash flow information—cash paid for:
Interest	$	32,655	$	25,904
Income taxes	$	2,922	$	3,356
Supplemental non-cash cash flow information:
Fair market value of estimated contingent consideration in connection with acquisitions	$	21,878	$	50,945
Fair market value of restricted common units in connection with acquisitions and contingent consideration	$	32,829	$	—
Net tangible assets (liabilities) acquired in connection with business acquisitions	$	684	$	(3,888	)
Deferred taxes and tax receivable agreements	$	—	$	250
Right of use asset related to operating leases	$	—	$	168,867
Lease liability related to operating leases	$	—	$	180,451

15. RELATED PARTIES

        The Company reimburses the Company's Chief Executive Officer for certain costs and third-party payments associated with the use of his personal aircraft for Company-related business travel. The Company also pays pilot fees for such business travel flights. During the three and six months ended June 30, 2019, the Company recognized expenses of $441 and $1,070, respectively, related to these reimbursements. During the three and six months ended June 30, 2018, the Company recognized expenses of $374 and $897, respectively, related to these reimbursements.

        At June 30, 2019, affiliates of certain holders of the Company's Class A common stock and Class B common stock were lenders under the Credit Facility.

16. OTHER

        In February 2019, the Company recorded a management contract buyout expense of $1,428 related to cash consideration for the buyout of a management agreement with one of the Company's retiring principals whereby the business operations of the relevant partner firm were transitioned to one of the Company's other partner firms.

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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        Unless otherwise indicated or the context requires, all references to "we," "us," "our," the "Company," "Focus Inc." and similar terms for periods prior to our initial public offering ("IPO") and related reorganization transactions (the "Reorganization Transactions") refer to Focus Financial Partners, LLC and its subsidiaries. For periods subsequent to the IPO and Reorganization Transactions, these terms refer to Focus Financial Partners Inc. and its consolidated subsidiaries. "Focus LLC" refers to Focus Financial Partners, LLC, a Delaware limited liability company and a consolidated subsidiary of ours following the IPO.

        The term "partner firms" refers to our consolidated subsidiaries engaged in wealth management and related services, the businesses of which are typically managed by the principals. The term "principals" refers to the wealth management professionals who manage the businesses of our partner firms pursuant to the relevant management agreement. The term "our partnership" refers to our business and relationship with our partner firms and is not intended to describe a particular form of legal entity or a legal relationship.

        The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements for the three and six months ended June 30, 2018 and 2019.

Forward-Looking Statements

        Some of the information in this Quarterly Report on Form 10-Q may contain forward-looking statements. Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of future events. Words such as "may," "assume," "forecast," "position," "predict," "strategy," "expect," "intend," "plan," "estimate," "anticipate," "believe," "project," "budget," "potential," "continue," "will" and similar expressions are used to identify forward-looking statements. They can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission ("SEC") on March 28, 2019, and in our other filings with the SEC. Actual results may vary materially. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:

•

fluctuations in wealth management fees;

•

our reliance on our partner firms and the principals who manage their businesses;

•

our ability to make successful acquisitions;

•

unknown liabilities of or poor performance by acquired businesses;

•

harm to our reputation;

•

our inability to facilitate smooth succession planning at our partner firms;

•

our inability to compete;

•

our reliance on key personnel and principals;

•

our inability to attract, develop and retain talented wealth management professionals;

•

our inability to retain clients following an acquisition;

25

•

write down of goodwill and other intangible assets;

•

our failure to maintain and properly safeguard an adequate technology infrastructure;

•

cyber-attacks;

•

our inability to recover from business continuity problems;

•

inadequate insurance coverage;

•

the termination of management agreements by management companies;

•

our inability to generate sufficient cash to service all of our indebtedness or our ability to access additional capital;

•

the failure of our partner firms to comply with applicable U.S. and non-U.S. regulatory requirements and the highly regulated nature of our business;

•

legal proceedings, governmental inquiries; and

•

other factors discussed in this Quarterly Report on Form 10-Q.

        All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements. Our forward-looking statements speak only as of the date of this Quarterly Report or as of the date as of which they are made. Except as required by applicable law, including federal securities laws, we do not intend to update or revise any forward-looking statements.

Overview

        We are a leading partnership of independent, fiduciary wealth management firms operating in the highly fragmented registered investment advisor ("RIA") industry, with a footprint of over 60 partner firms primarily in the United States. We have achieved this market leadership by positioning ourselves as the partner of choice for many firms in an industry where a number of secular trends are driving RIA consolidation. Our partner firms primarily service ultra-high net worth and high net worth individuals and families by providing highly differentiated and comprehensive wealth management services. Our partner firms benefit from our intellectual and financial resources, operating in a scaled business model with aligned interests, while retaining their entrepreneurial culture and independence.

        Our partnership is comprised of trusted professionals providing comprehensive wealth management services under a largely recurring, fee-based model, which differentiates our partner firms from the traditional brokerage platforms whose revenues are largely derived from commissions. We derive a substantial majority of our revenues from wealth management fees for investment advice, financial and tax planning, consulting, tax return preparation, family office services and other services. We also generate other revenues primarily from recordkeeping and administration service fees, commissions and distribution fees and outsourced services.

        We have to date, with limited exceptions, acquired substantially all of the assets of the firms we chose to partner with but only a portion of the underlying economics in order to align the principals' interests with our own objectives. To determine the acquisition price, we first estimate the operating cash flow of the business based on current and projected levels of revenue and expense, before compensation and benefits to the selling principals or other individuals who become principals. We refer to the operating cash flow of the business as Earnings Before Partner Compensation ("EBPC") and to this estimate as Target Earnings ("Target Earnings"). In economic terms, we typically purchase only 40% to 60% of the partner firm's EBPC. The purchase price is a multiple of the corresponding percentage of Target Earnings and consists of cash and equity and the right to receive contingent consideration. We refer to the corresponding percentage of Target Earnings on which we base the purchase price as Base Earnings ("Base Earnings"). We create downside protection for ourselves by

26

retaining a cumulative preferred position in Base Earnings, with the excess of Base Earnings up to Target Earnings being retained by the principals via a management agreement. EBPC in excess of the Target Earnings is shared typically in accordance with the same economic percentages, creating an incentive for the principals to grow earnings above the Target Earnings.

        Since we began revenue-generating and acquisition activities in 2006, we have created a partnership of over 60 partner firms, the substantial majority of which are RIAs registered with the SEC and built a business with revenues of $910.9 million for the year ended December 31, 2018 and $561.5 million for the six months ended June 30, 2019. For the year ended December 31, 2018 and the six months ended June 30, 2019, in excess of 95% of our revenues were fee-based and recurring in nature. We have established a national footprint across the United States and expanded our international footprint into the United Kingdom, Canada and Australia.

Sources of Revenue

        Our partner firms provide comprehensive wealth management services under a largely recurring, fee-based model. We, solely through our partner firms, derive a substantial majority of our revenue from wealth management fees, which are comprised of fees earned from wealth management services, including investment advice, financial and tax planning, consulting, tax return preparation, family office services and other services. Fees are primarily based either on a contractual percentage of the client's assets, a flat fee, an hourly rate or a combination of such fees and are billed either in advance or arrears on a monthly, quarterly or semiannual basis. In certain cases, such wealth management fees may be subject to minimum fee levels depending on the services performed. We also generate other revenues, which primarily include recordkeeping and administration service fees, commissions and distribution fees and outsourced services. The following table summarizes our sources of revenue:

	Three Months Ended June 30,										Six Months Ended June 30,
	2018					2019					2018					2019
	Revenues		% of Total Revenues			Revenues		% of Total Revenues			Revenues		% of Total Revenues			Revenues		% of Total Revenues
	(dollars in thousands)
Wealth management fees	$	216,328		93.5	%	$	283,296		93.9	%	$	400,651		93.7	%	$	526,380		93.8	%
Other		15,107		6.5	%		18,249		6.1	%		27,013		6.3	%		35,089		6.2	%
Total revenues	$	231,435		100.0	%	$	301,545		100.0	%	$	427,664		100.0	%	$	561,469		100.0	%

        During the three and six months ended June 30, 2019, our wealth management fees were impacted by the acquisitions of new partner firms and the growth of existing partner firms, which includes the acquisitions of wealth management practices by our existing partner firms. In the three and six months ended June 30, 2019, we completed acquisitions of 2 and 5 partner firms, respectively. During the three months ended June 30, 2019, the new partner firms were Escala Partners and Sound View Wealth Advisors. During the six months ended June 30, 2019, the new partner firms were Altman, Greenfield & Selvaggi, Prime Quadrant, Foster Dykema Cabot, Escala Partners and Sound View Wealth Advisors. During the three and six months ended June 30, 2019, our partner firms completed 9 and 18 acquisitions, respectively, consisting of business acquisitions accounted for in accordance with Accounting Standard Codification ("ASC") Topic 805: Business Combinations and asset acquisitions.

        See Note 5 to our unaudited condensed consolidated financial statements for additional information about our acquisitions.

        For the six months ended June 30, 2019, in excess of 95% of our revenues were fee-based and recurring in nature. Although the substantial majority of our revenues are fee-based and recurring, our revenues can fluctuate due to macroeconomic factors and the overall state of the financial markets, particularly in the United States. Our partner firms' wealth management fees are primarily based either on a contractual percentage of the client's assets, a flat fee, an hourly rate or a combination of such

27

fees and are billed either in advance or arrears on a monthly, quarterly or semiannual basis. Because of the variety of billing practices across our partner firms, the timing of any impact of short-term financial market movements on revenues will vary. Additionally, we estimate that approximately 30% of our revenues for the three months ended June 30, 2019 were not directly correlated to the financial markets. Of the 70% of our revenues that were directly correlated to the financial markets, primarily equities and fixed income, for the three months ended June 30, 2019, we estimate that approximately 70% of such revenues were generated from advance billings. These revenues are impacted by market movements and generally result in a one-quarter lagged effect on our revenues. Longer term trends in the financial markets may favorably or unfavorably impact our total revenues, but not in a linear relationship.

Operating Expenses

        Our operating expenses consist of compensation and related expenses, management fees, selling, general and administrative expenses, management contract buyout, intangible amortization, non-cash changes in fair value of estimated contingent consideration and depreciation and other amortization expense.

Compensation and Related Expenses

        Compensation and related expenses include salaries, wages, related employee benefits and taxes for employees at our partner firms and employees at the Focus LLC company level. Compensation and related expenses also include non-cash compensation expense associated with both Focus Inc.'s and Focus LLC's equity grants to employees and non-employees, including management company principals.

Management Fees

        While we have to date, with limited exceptions, acquired substantially all of the assets of a target firm, following our acquisition of a new partner firm, the partner firm continues to be primarily managed by its principals through their 100% ownership of a new management company formed by them concurrently with the acquisition. Our operating subsidiary, the management company and the principals enter into a management agreement that provides for the payment of ongoing management fees to the management company. The terms of the management agreements are generally six years subject to automatic renewals for consecutive one-year terms, unless earlier terminated by either the management company or us in certain limited situations. Under the management agreement, the management company is entitled to management fees typically consisting of all EBPC in excess of Base Earnings up to Target Earnings, plus a percentage of EBPC in excess of Target Earnings.

        We retain a cumulative preferred position in Base Earnings. To the extent earnings of an acquired business in any year are less than Base Earnings, in the following year we are entitled to receive Base Earnings together with the prior years' shortfall before any management fees are earned by the management company.

        The following table provides an illustrative example of our economics, including management fees earned by the management company, for periods of projected revenues, +10% growth in revenues and –10% growth in revenues. This example assumes (i) Target Earnings of $3.0 million; (ii) Base Earnings

28

acquired of 60% of Target Earnings or $1.8 million; and (iii) a percentage of earnings in excess of Target Earnings retained by the management company of 40%.

	Projected Revenues				+10% Growth in Revenues				–10% Growth in Revenues
	(dollars in thousands)
New Partner Firm
New partner firm revenues		$	5,000			$	5,500			$	4,500
Less:
Operating expenses (excluding management fees)		(2,000		)		(2,000		)		(2,000		)
EBPC		$	3,000			$	3,500			$	2,500
Base Earnings to Focus Inc. (60%)		1,800				1,800				1,800
Management fees to management company (40%)		1,200				1,200				700
EBPC in excess of Target Earnings:
To Focus Inc. (60%)		—				300				—
To management company as management fees (40%)		—				200				—
Focus Inc.
Focus Inc. revenues		$	5,000			$	5,500			$	4,500
Less:
Operating expenses (excluding management fees)		(2,000		)		(2,000		)		(2,000		)
Less:
Management fees to management company		(1,200		)		(1,400		)		(700		)
Operating income		$	1,800			$	2,100			$	1,800

        As a result of our economic arrangements with the various management company entities, 100% of management fees are variable expenses.

Selling, General and Administrative

        Selling, general and administrative expenses include rent, insurance premiums, professional fees, travel and entertainment and other costs.

Management Contract Buyout

        Management contract buyout represents cash consideration to buyout a management agreement with one of our retiring principals whereby the business operations of the relevant partner firm were transitioned to one of our other partner firms.

Intangible Amortization

        Amortization of intangibles consists of the amortization of intangibles we acquired through our various acquisitions of new partner firms and acquisitions by our partner firms.

Non-Cash Changes in Fair Value of Estimated Contingent Consideration

        We have typically incorporated into our acquisition structure contingent consideration paid to the sellers upon the satisfaction of specified financial thresholds, and the purchase price for a typical acquisition is comprised of a base purchase price and the right to receive such contingent consideration in the form of earn out payments. The contingent consideration is paid upon the satisfaction of specified growth thresholds typically over a six-year period. This arrangement may result in the payment of additional purchase price consideration to the sellers for periods following the closing of an acquisition. The growth thresholds are typically tied to the compounded annual growth rate ("CAGR") of the partner firm's earnings. Earn out payments are typically payable in cash and, in some cases, equity.

29

        For business acquisitions, we recognize the fair value of estimated contingent consideration at the acquisition date as part of the consideration transferred in exchange for substantially all of the assets of the wealth management firm. The contingent consideration is remeasured to fair value at each reporting date using a Monte Carlo Simulation model until the contingency is resolved. Any changes in fair value are recognized each reporting period in non-cash changes in fair value of estimated contingent consideration in our consolidated statements of operations.

Depreciation and Other Amortization

        Depreciation and other amortization expense primarily represents the benefits we received from using long-lived assets such as computers and equipment, leasehold improvements and furniture and fixtures. Those assets primarily consist of purchased fixed assets as well as fixed assets acquired through our acquisitions.

Business Acquisitions

        We completed 21 business acquisitions during the six months ended June 30, 2019, consisting of both new partner firms and acquisitions by our partner firms. Such business acquisitions were accounted for in accordance with ASC Topic 805: Business Combinations.

        The purchase price is comprised of a base purchase price and a right to receive contingent consideration in the form of earn out payments. The base purchase price typically consists of an upfront cash payment and may include equity. The contingent consideration generally consists of earn outs over a six-year period following the closing, with payment upon the satisfaction of specified growth thresholds. The growth thresholds are typically tied to the CAGR of the partner firm's earnings. The contingent consideration is typically payable in cash and, in some cases, equity.

        The following table summarizes our business acquisitions for the six months ended June 30, 2019 (dollars in thousands):

Number of business acquisitions closed		21
Consideration:
Cash and option premium	$	283,291
Fair market value of estimated contingent consideration		50,945
Total consideration	$	334,236

        During the six months ended June 30, 2019, our acquisitions have been paid for with a combination of cash flow from operations and proceeds from borrowings under the Credit Facility.

Recent Developments

        In May 2019, we announced a new value add service for our partner firms that we refer to as Focus Client Solutions. Focus Client Solutions will enable our partner firms to provide their clients with a competitive array of cash and credit solutions through a third-party network of bank and non-bank lenders.

        From July 1, 2019 to the date of this Quarterly Report, we completed 7 business acquisitions (accounted for in accordance with ASC Topic 805: Business Combinations) consisting of both a new partner firm and acquisitions by our partner firms. The Acquired Base Earnings associated with the acquisition of the new partner firm during this period was $16.5 million. For additional information regarding Acquired Base Earnings, please see "—How We Evaluate Our Business."

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How We Evaluate Our Business

        We focus on several key financial metrics in evaluating the success of our business, the success of our partner firms and our resulting financial position and operating performance. Key metrics for the three and six months ended June 30, 2018 and 2019 include the following:

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2019			2018			2019
	(dollars in thousands, except share and per share data)
Revenue Metrics:
Revenues	$	231,435		$	301,545		$	427,664		$	561,469
Revenue growth(1) from prior period		47.2	%		30.3	%		46.1	%		31.3	%
Organic revenue growth(2) from prior period		16.7	%		18.0	%		16.9	%		11.0	%
Management Fees Metrics (operating expense):
Management fees	$	60,559		$	79,252		$	106,859		$	136,258
Management fees growth(3) from prior period		53.1	%		30.9	%		46.8	%		27.5	%
Organic management fees growth(4) from prior period		22.1	%		16.5	%		22.4	%		6.6	%
Adjusted EBITDA Metrics:
Adjusted EBITDA(5)	$	51,890		$	62,953		$	96,111		$	117,467
Adjusted EBITDA growth(5) from prior period		58.9	%		21.3	%		58.0	%		22.2	%
Adjusted Net Income Metrics:
Adjusted Net Income(5)	$	29,012		$	41,232		$	54,468		$	76,946
Adjusted Net Income growth(5) from prior period		37.6	%		42.1	%		38.1	%		41.3	%
Adjusted Net Income Per Share Metrics:
Adjusted Net Income Per Share(5)	$	0.40		$	0.55		$	0.76		$	1.03
Adjusted Net Income Per Share growth(5) from prior period		37.6	%		37.5	%		38.1	%		35.5	%
Adjusted Shares Outstanding(5)		71,843,916			74,444,102			71,843,916			74,422,405
Other Metrics:
Acquired Base Earnings(6)	$	23,800		$	6,725		$	26,550		$	18,638
Number of partner firms at period end(7)		56			62			56			62

(1)

Represents period-over-period growth in our GAAP revenue.

(2)

Organic revenue growth represents the period-over-period growth in revenue related to partner firms, including growth related to acquisitions of wealth management practices and customer relationships by our partner firms and partner firms that have merged, that for the entire periods presented, are included in our consolidated statements of operations for each of the entire periods presented. We believe these growth statistics are useful in that they present full-period revenue growth of partner firms on a "same store" basis exclusive of the effect of the partial period results of partner firms that are acquired during the comparable periods.

(3)

The terms of our management agreements entitle the management companies to management fees typically consisting of all EBPC in excess of Base Earnings up to Target Earnings, plus a percentage of any EBPC in excess of Target Earnings. Management fees growth represents the

31

period-over-period growth in GAAP management fees earned by management companies. While an expense, we believe that growth in management fees reflect the strength of the partnership.

(4)

Organic management fees growth represents the period-over-period growth in management fees earned by management companies related to partner firms, including growth related to acquisitions of wealth management practices and customer relationships by our partner firms and partner firms that have merged, that for the entire periods presented, are included in our consolidated statements of operations for each of the entire periods presented. We believe that these growth statistics are useful in that they present full-period growth of management fees on a "same store" basis exclusive of the effect of the partial period results of partner firms that are acquired during the comparable periods.

(5)

For additional information regarding Adjusted EBITDA, Adjusted Net Income, Adjusted Net Income Per Share and Adjusted Shares Outstanding, including a reconciliation of Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income Per Share to the most directly comparable GAAP financial measure, please read "—Adjusted EBITDA" and "—Adjusted Net Income and Adjusted Net Income Per Share".

(6)

The terms of our management agreements entitle the management companies to management fees typically consisting of all future EBPC of the acquired wealth management firm in excess of Base Earnings up to Target Earnings, plus a percentage of any EBPC in excess of Target Earnings. Acquired Base Earnings is equal to our retained cumulative preferred position in Base Earnings. We are entitled to receive these earnings notwithstanding any earnings that we are entitled to receive in excess of Target Earnings. Base Earnings may change in future periods for various business or contractual matters. For example, from time to time when a partner firm consummates an acquisition, the management agreement among the partner firm, the management company and the principals is amended to adjust Base Earnings and Target Earnings to reflect the projected post-acquisition earnings of the partner firm.

(7)

Represents the number of partner firms on the last day of the period presented. The number includes new partner firms acquired during the period reduced by any partner firms that merged with existing partner firms prior to the last day of the period.

Adjusted EBITDA

        Adjusted EBITDA is a non-GAAP measure. Adjusted EBITDA is defined as net income (loss) excluding interest income, interest expense, income tax expense (benefit), amortization of debt financing costs, intangible amortization and impairments, if any, depreciation and other amortization, non-cash equity compensation expense, non-cash changes in fair value of estimated contingent consideration, gain on sale of investment, loss on extinguishment of borrowings, other expense/income, net, other one-time transaction expenses, and management contract buyout, if any. We believe that Adjusted EBITDA, viewed in addition to and not in lieu of, our reported GAAP results, provides additional useful information to investors regarding our performance and overall results of operations for various reasons, including the following:

•

non-cash equity grants made to employees or non-employees at a certain price and point in time do not necessarily reflect how our business is performing at any particular time; stock-based compensation expense is not a key measure of our operating performance;

•

contingent consideration or earn outs can vary substantially from company to company and depending upon each company's growth metrics and accounting assumption methods; the non-cash changes in fair value of estimated contingent consideration is not considered a key measure in comparing our operating performance; and

32

•

amortization expenses can vary substantially from company to company and from period to period depending upon each company's financing and accounting methods, the fair value and average expected life of acquired intangible assets and the method by which assets were acquired; the amortization of intangible assets obtained in acquisitions are not considered a key measure in comparing our operating performance.

        We use Adjusted EBITDA:

•

as a measure of operating performance;

•

for planning purposes, including the preparation of budgets and forecasts;

•

to allocate resources to enhance the financial performance of our business; and

•

to evaluate the effectiveness of our business strategies.

        Adjusted EBITDA does not purport to be an alternative to net income (loss) or cash flows from operating activities. The term Adjusted EBITDA is not defined under GAAP, and Adjusted EBITDA is not a measure of net income (loss), operating income or any other performance or liquidity measure derived in accordance with GAAP. Therefore, Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

•

Adjusted EBITDA does not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments;

•

Adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs; and

•

Adjusted EBITDA does not reflect the interest expense on our debt or the cash requirements necessary to service interest or principal payments.

        In addition, Adjusted EBITDA can differ significantly from company to company depending on strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. We compensate for these limitations by relying also on the GAAP results and using Adjusted EBITDA as supplemental information.

33

        Set forth below is a reconciliation of net income (loss) to Adjusted EBITDA for the three and six months ended June 30, 2018 and 2019:

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2019			2018			2019
	(dollars in thousands)
Net income (loss)	$	(7,656	)	$	3,102		$	(19,710	)	$	274
Interest income		(235	)		(339	)		(377	)		(536	)
Interest expense		18,212			14,424			32,484			27,283
Income tax expense		746			1,425			1,922			204
Amortization of debt financing costs		929			782			1,888			1,564
Intangible amortization		22,290			31,221			41,784			59,962
Depreciation and other amortization		2,162			2,425			4,044			4,738
Non-cash equity compensation expense		3,701			5,178			7,555			9,099
Non-cash changes in fair value of estimated contingent consideration		11,944			3,847			18,315			11,261
Gain on sale of investment		—			—			(5,509	)		—
Loss on extinguishment of borrowings		—			—			14,011			—
Other expense (income), net		(203	)		468			(296	)		704
Management contract buyout		—			—			—			1,428
Other one-time transaction expenses		—			420			—			1,486
Adjusted EBITDA	$	51,890		$	62,953		$	96,111		$	117,467

Adjusted Net Income and Adjusted Net Income Per Share

        We analyze our performance using Adjusted Net Income and Adjusted Net Income Per Share. Adjusted Net Income and Adjusted Net Income Per Share are non-GAAP measures. We define Adjusted Net Income as net income (loss) excluding income tax expense (benefit), amortization of debt financing costs, intangible amortization and impairments, if any, non-cash equity compensation expense, non-cash changes in fair value of estimated contingent consideration, gain on sale of investment, loss on extinguishment of borrowings, management contract buyout, if any, and other one-time transaction expenses. The calculation of Adjusted Net Income also includes adjustments to reflect (i) a pro forma 27% income tax rate assuming all earnings of Focus LLC were recognized by Focus Inc. and no earnings were attributable to non-controlling interests and (ii) tax adjustments from intangible asset related income tax benefits from acquisitions based on a pro forma 27% tax rate.

        Adjusted Net Income Per Share for the three and six months ended June 30, 2019 is calculated by dividing Adjusted Net Income by the Adjusted Shares Outstanding. Adjusted Shares Outstanding for the three and six months ended June 30, 2019 includes: (i) the weighted average shares of Class A common stock outstanding during the periods, (ii) the weighted average incremental shares of Class A common stock related to stock options and unvested Class A common stock, if any, outstanding during the periods, (iii) the weighted average number of Focus LLC common units outstanding during the periods (assuming that 100% of such Focus LLC common units have been exchanged for Class A common stock) and (iv) the weighted average number of common unit equivalents of Focus LLC vested and unvested incentive units outstanding during the periods based on the closing price of our Class A common stock on the last trading day of the periods (assuming that 100% of such Focus LLC common units have been exchanged for Class A common stock).

        Adjusted Net Income Per Share for the periods prior to July 30, 2018 is calculated by dividing Adjusted Net Income by the Adjusted Shares Outstanding. Adjusted Shares Outstanding for the periods prior to July 30, 2018 was 71,843,916 and includes all vested and unvested shares of Class A

34

common stock issued in connection with the IPO and Reorganization Transactions, assumes that all vested non-compensatory stock options and unvested compensatory stock options outstanding at the closing of the IPO have been exercised (assuming vesting of unvested compensatory stock options and a then-current value of the Class A common stock equal to the $33.00 IPO price) and assumes that 100% of the Focus LLC common units and vested and unvested incentive units outstanding at the closing of the IPO have been exchanged for Class A common stock (assuming vesting of the unvested incentive units and a then-current value of the Focus LLC common units equal to the $33.00 IPO price).

        We believe that Adjusted Net Income and Adjusted Net Income Per Share, viewed in addition to and not in lieu of, our reported GAAP results, provide additional useful information to investors regarding our performance and overall results of operations for various reasons, including the following:

•

non-cash equity grants made to employees or non-employees at a certain price and point in time do not necessarily reflect how our business is performing at any particular time; stock-based compensation expense is not a key measure of our operating performance;

•

contingent consideration or earn outs can vary substantially from company to company and depending upon each company's growth metrics and accounting assumption methods; the non-cash changes in fair value of estimated contingent consideration is not considered a key measure in comparing our operating performance; and

•

amortization expenses can vary substantially from company to company and from period to period depending upon each company's financing and accounting methods, the fair value and average expected life of acquired intangible assets and the method by which assets were acquired; the amortization of intangible assets obtained in acquisitions are not considered a key measure in comparing our operating performance.

        Adjusted Net Income and Adjusted Net Income Per Share do not purport to be an alternative to net income (loss) or cash flows from operating activities. The terms Adjusted Net Income and Adjusted Net Income Per Share are not defined under GAAP, and Adjusted Net Income and Adjusted Net Income Per Share are not a measure of net income (loss), operating income or any other performance or liquidity measure derived in accordance with GAAP. Therefore, Adjusted Net Income and Adjusted Net Income Per Share have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

•

Adjusted Net Income and Adjusted Net Income Per Share do not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments;

•

Adjusted Net Income and Adjusted Net Income Per Share do not reflect changes in, or cash requirements for, working capital needs; and

•

Other companies in the financial services industry may calculate Adjusted Net Income and Adjusted Net Income Per Share differently than we do, limiting its usefulness as a comparative measure.

        In addition, Adjusted Net Income and Adjusted Net Income Per Share can differ significantly from company to company depending on strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. We compensate for these limitations by relying also on the GAAP results and use Adjusted Net Income and Adjusted Net Income Per Share as supplemental information.

35

        Set forth below is a reconciliation of net income (loss) to Adjusted Net Income and Adjusted Net Income Per Share for the three and six months ended June 30, 2018 and 2019:

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2019			2018			2019
	(in thousands, except share and per share data)
Net income (loss)	$	(7,656	)	$	3,102		$	(19,710	)	$	274
Income tax expense		746			1,425			1,922			204
Amortization of debt financing costs		929			782			1,888			1,564
Intangible amortization		22,290			31,221			41,784			59,962
Non-cash equity compensation expense		3,701			5,178			7,555			9,099
Non-cash changes in fair value of estimated contingent consideration		11,944			3,847			18,315			11,261
Gain on sale of investment		—			—			(5,509	)		—
Loss on extinguishment of borrowings		—			—			14,011			—
Management contract buyout		—			—			—			1,428
Other one-time transaction expenses(1)		—			420			—			1,486
Subtotal	$	31,954		$	45,975		$	60,256		$	85,278
Pro forma income tax expense (27%)(2)		(8,628	)		(12,413	)		(16,269	)		(23,025	)
Tax Adjustments(2)(3)		5,686			7,670			10,481			14,693
Adjusted Net Income	$	29,012		$	41,232		$	54,468		$	76,946
Adjusted Shares Outstanding(4)		71,843,916			74,444,102			71,843,916			74,422,405
Adjusted Net Income Per Share	$	0.40		$	0.55		$	0.76		$	1.03
Calculation of Adjusted Shares Outstanding:
Weighted average shares of Class A common stock outstanding—basic(5)		—			46,696,200			—			46,455,238
Adjustments:
Shares of Class A common stock issued in connection with the IPO and Reorganization Transactions(6)		42,529,651			—			42,529,651			—
Weighted average incremental shares of Class A common stock related to stock options and unvested Class A common stock(7)		—			25,359			—			16,607
Weighted average Focus LLC common units outstanding(8)		22,499,665			22,488,713			22,499,665			22,635,388
Weighted average common unit equivalent of Focus LLC incentive units outstanding(9)		6,814,600			5,233,830			6,814,600			5,315,172
Adjusted Shares Outstanding(4)		71,843,916			74,444,102			71,843,916			74,422,405

(1)

Relates to one-time expenses related to (a) Loring Ward severance cash compensation of $280 during the three months ended March 31, 2019, which were recorded in compensation and related expenses and (b) transaction expenses of $786 and $420, associated with the acquisition of Loring Ward, which were recorded in selling, general and administrative expenses during the three months ended March 31, 2019 and June 30, 2019, respectively.

36

(2)

For periods ended prior to the closing of the IPO and the consummation of the Reorganization Transactions on July 30, 2018, certain tax related adjustments are being made for comparative purposes only.

(3)

As of June 30, 2019, estimated tax adjustments from intangible asset related income tax benefits from closed acquisitions based on a pro forma 27% tax rate for the next 12 months is $30.8 million.

(4)

For historical periods prior to the closing of the IPO and consummation of the related reorganization transactions on July 30, 2018, the Adjusted Shares Outstanding are deemed to be outstanding for comparative purposes only.

(5)

Represents our GAAP weighted average Class A common stock outstanding—basic.

(6)

The issuance of Class A common stock that occurred upon closing of the IPO and the consummation of the Reorganization Transactions on July 30, 2018 is assumed to have occurred as of January 1, 2018 for comparative purposes.

(7)

The incremental shares for the six months ended June 30, 2019 related to unvested Class A common stock as calculated using the treasury stock method were not included in the calculation of the GAAP weighted average shares of Class A common stock—diluted as the result would have been anti-dilutive.

(8)

Assumes that 100% of the Focus LLC common units were exchanged for Class A common stock.

(9)

Assumes that 100% of the vested and unvested Focus LLC incentive units were converted into Focus LLC common units based on the closing price of our Class A common stock at the end of the respective period and such Focus LLC common units were exchanged for Class A common stock. For the periods ending prior to July 30, 2018, the conversion to Focus LLC common units was based on the $33.00 IPO price.

Factors Affecting Comparability

        Our future results of operations may not be comparable to our historical results of operations, principally for the following reasons:

Tax Treatment

        As a flow-through entity, Focus LLC is generally not and has not been subject to U.S. federal and certain state income taxes at the entity level, although it has been subject to the New York City Unincorporated Business Tax. Instead, for U.S. federal and certain state income tax purposes, taxable income was and is passed through to its unitholders, which, after the IPO on July 30, 2018, now includes Focus Inc. Focus Inc. is subject to U.S. federal and certain state income taxes applicable to corporations. Accordingly, our effective tax rate, and the absolute dollar amount of our tax expense, has increased as a result of the IPO.

Public Company Expenses

        We expect our operating expenses to increase as a result of being a publicly traded company, including annual and quarterly report preparation, tax return preparation, independent auditor fees, investor relations activities, transfer agent fees, incremental director and officer liability insurance costs and independent director compensation. We also expect our accounting, legal, tax and personnel-related expenses to increase as we supplement our compliance and governance functions, maintain and review internal controls over financial reporting and prepare and distribute periodic reports as required by the rules and regulations of the SEC.

37

Results of Operations

Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2019

        The following discussion presents an analysis of our results of operations for the three months ended June 30, 2018 and 2019. Where appropriate, we have identified specific events and changes that affect comparability or trends and, where possible and practical, have quantified the impact of such items.

	Three Months Ended June 30,
	2018			2019			$ Change			% Change
	(dollars in thousands)
Revenues:
Wealth management fees	$	216,328		$	283,296		$	66,968			31.0	%
Other		15,107			18,249			3,142			20.8	%
Total revenues		231,435			301,545			70,110			30.3	%
Operating expenses:
Compensation and related expenses		81,273			105,531			24,258			29.8	%
Management fees		60,559			79,252			18,693			30.9	%
Selling, general and administrative		41,493			59,736			18,243			44.0	%
Intangible amortization		22,290			31,221			8,931			40.1	%
Non-cash changes in fair value of estimated contingent consideration		11,944			3,847			(8,097	)		(67.8	)%
Depreciation and other amortization		2,162			2,425			263			12.2	%
Total operating expenses		219,721			282,012			62,291			28.4	%
Income from operations		11,714			19,533			7,819			66.7	%
Other income (expense):
Interest income		235			339			104			44.3	%
Interest expense		(18,212	)		(14,424	)		3,788			20.8	%
Amortization of debt financing costs		(929	)		(782	)		147			15.8	%
Other income (expense)—net		203			(468	)		(671	)			*
Income from equity method investments		79			329			250				*
Total other expense—net		(18,624	)		(15,006	)		3,618			19.4	%
Income (loss) before income tax		(6,910	)		4,527			11,437			165.5	%
Income tax expense		746			1,425			679			91.0	%
Net income (loss)	$	(7,656	)	$	3,102		$	10,758			140.5	%

*

Not meaningful

Revenues

        Wealth management fees increased $67.0 million, or 31.0%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018. New partner firms added subsequent to the three months ended June 30, 2018 that are included in our results of operations for the three months ended June 30, 2019 include Asset Advisors Investment Management, Edge Capital Group, Vista Wealth Management, Altman Greenfield & Selvaggi, Prime Quadrant, Foster Dykema Cabot, Escala Partners and Sound View Wealth Advisors. These new partner firms contributed approximately $27.6 million in revenue during the three months ended June 30, 2019. The balance of the increase of

38

$39.4 million was due to the revenue growth at our existing partner firms associated with wealth management services which included the effect of partner firm-level acquisitions.

        Other revenues increased $3.1 million, or 20.8%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018. The increase related to new partner firms was $1.0 million. The balance of the increase of $2.1 million was due primarily to an increase in outsourced services revenue.

Operating Expenses

        Compensation and related expenses increased $24.3 million, or 29.8%, in the three months ended June 30, 2019 compared to the three months ended June 30, 2018. The increase related to new partner firms was $5.7 million. The balance of the increase of $18.6 million was due to an increase in salaries and related expense and partner firm-level acquisitions.

        Management fees increased $18.7 million, or 30.9%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018. The increase related to the new partner firms was $8.7 million. Management fees are variable and a function of earnings during the period. The balance of the increase of $10.0 million was due to the increase in earnings during the three months ended June 30, 2019 compared to the three months June 30, 2018 as a result of partner firm-level acquisitions and new partner promotions.

        Selling, general and administrative expenses increased $18.2 million, or 44.0%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018. The increase related to new partner firms was $5.6 million. The balance of the increase of $12.6 million due to an increase in expenses related to rent expense, subadvisory fees, information technology, professional fees and travel related to the growth of our existing partner firms and our acquisition of new partner firms and partner firm-level acquisitions.

        Intangible amortization increased $8.9 million, or 40.1%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018. The increase related to new partner firms was $4.0 million. The balance of the increase of $4.9 million was primarily due to partner firm-level acquisitions.

        Non-cash changes in fair value of estimated contingent consideration decreased $8.1 million, or 67.8%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018. During the three months ended June 30, 2018 and 2019, the probability that certain contingent consideration payments would be achieved increased resulting in an increase in the fair value of the contingent consideration liability.

        Depreciation and other amortization expense increased $0.3 million, or 12.2%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018. The increase was related to a full period of depreciation and amortization for fixed assets acquired in 2018.

Interest Expense

        Interest expense decreased $3.8 million, or 20.8%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018. The decrease was related to the repayment of our $207.0 million Second Lien Term Loan in connection with our IPO in July 2018, partially offset by higher borrowings under our First Lien Revolver due to acquisition activity.

39

Income Tax Expense

        Income tax expense increased $0.7 million, or 91.0%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018. For the three months ended June 30, 2019, we recorded a tax expense of $1.4 million based on the estimated annual effective tax rate of 42.7%. The estimated annual effective tax rate is primarily related to federal, state and local income taxes imposed on Focus Inc.'s allocable portion of taxable income from Focus LLC as a result of the IPO and Reorganization Transactions.

Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2019

        The following discussion presents an analysis of our results of operations for the six months ended June 30, 2018 and 2019. Where appropriate, we have identified specific events and changes that affect comparability or trends and, where possible and practical, have quantified the impact of such items.

	Six Months Ended June 30,
	2018			2019			$ Change			% Change
	(dollars in thousands)
Revenues:
Wealth management fees	$	400,651		$	526,380		$	125,729			31.4	%
Other		27,013			35,089			8,076			29.9	%
Total revenues		427,664			561,469			133,805			31.3	%
Operating expenses:
Compensation and related expenses		154,622			206,979			52,357			33.9	%
Management fees		106,859			136,258			29,399			27.5	%
Selling, general and administrative		77,780			111,993			34,213			44.0	%
Management contract buyout		—			1,428			1,428				*
Intangible amortization		41,784			59,962			18,178			43.5	%
Non-cash changes in fair value of estimated contingent consideration		18,315			11,261			(7,054	)		(38.5	)%
Depreciation and other amortization		4,044			4,738			694			17.2	%
Total operating expenses		403,404			532,619			129,215			32.0	%
Income from operations		24,260			28,850			4,590			18.9	%
Other income (expense):
Interest income		377			536			159			42.2	%
Interest expense		(32,484	)		(27,283	)		5,201			16.0	%
Amortization of debt financing costs		(1,888	)		(1,564	)		324			17.2	%
Gain on sale of investment		5,509			—			(5,509	)			*
Loss on extinguishment of borrowings		(14,011	)		—			14,011				*
Other income (expense)—net		296			(704	)		(1,000	)			*
Income from equity method investments		153			643			490				*
Total other expense—net		(42,048	)		(28,372	)		13,676			32.5	%
Income (loss) before income tax		(17,788	)		478			18,266			102.7	%
Income tax expense		1,922			204			1,718			89.4	%
Net income (loss)	$	(19,710	)	$	274		$	19,984			101.4	%

*

Not meaningful

40

Revenues

        Wealth management fees increased $125.7 million, or 31.4%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. New partner firms added subsequent to the six months ended June 30, 2018 that are included in our results of operations for the six months ended June 30, 2019 include Asset Advisors Investment Management, Edge Capital Group, Vista Wealth Management, Altman Greenfield & Selvaggi, Prime Quadrant, Foster Dykema Cabot, Escala Partners and Sound View Wealth Advisors. These new partner firms contributed approximately $44.6 million in revenue during the six months ended June 30, 2019. The balance of the increase of $81.1 million was due to the revenue growth at our existing partner firms associated with wealth management services and partner firm-level acquisitions and a full period of revenue recognized during the six months ended June 30, 2019 for partner firms that were acquired during the six months ended June 30, 2018.

        Other revenues increased $8.1 million, or 29.9%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increase related to new partner firms was $1.0 million. The balance of the increase of $7.1 million was due to a full period of revenue recognized during the six months ended June 30, 2019 for partner firms that were acquired during the six months ended June 30, 2018 and an increase in outsourced services revenue.

Operating Expenses

        Compensation and related expenses increased $52.4 million, or 33.9%, in the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increase related to new partner firms was $10.9 million. The balance of the increase of $41.5 million was due to an increase in salaries and related expense, in part the result of a full period of expense recognized during the six months ended June 30, 2019 for partner firms that were acquired during the six months ended June 30, 2018 and partner firm-level acquisitions.

        Management fees increased $29.4 million, or 27.5%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increase related to the new partner firms was $12.8 million. Management fees are variable and a function of earnings during the period. The balance of the increase of $16.6 million was due to the increase in earnings during the six months ended June 30, 2019 compared to the six months June 30, 2018, in part the result of a full period of earnings recognized during the six months ended June 30, 2019 for partner firms that were acquired during the six months ended June 30, 2018 as well as a result of partner firm-level acquisitions and new partner promotions.

        Selling, general and administrative expenses increased $34.2 million, or 44.0%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increase related to new partner firms was $8.1 million. The balance of the increase of $26.1 million was in part the result of a full period of expense recognized during the six months ended June 30, 2019 for partner firms that were acquired during the six months ended June 30, 2018 and in part due to an increase in expenses related to rent expense, information technology, subadvisory fees, professional fees, travel and acquisition costs related to the growth of our existing partner firms and our acquisition of new partner firms and partner firm-level acquisitions.

        Management contract buyout of $1.4 million for the six months ended June 30, 2019 was related to cash consideration for the buyout of a management agreement with one of our retiring principals whereby the business operations of the relevant partner firm were transitioned to one of our other partner firms.

        Intangible amortization increased $18.2 million, or 43.5%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increase related to new partner firms was $6.7 million. The balance of the increase of $11.5 million was due to a full period of expense

41

recognized during the six months ended June 30, 2019 for partner firms that were acquired during the six months ended June 30, 2018 and partner firm-level acquisitions.

        Non-cash changes in fair value of estimated contingent consideration decreased $7.1 million, or 38.5%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. During the six months ended June 30, 2019 and 2018, the probability that certain contingent consideration payments would be achieved increased resulting in an increase in the fair value of the contingent consideration liability.

        Depreciation and other amortization expense increased $0.7 million, or 17.2%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increase was related to a full period of depreciation and amortization for fixed assets acquired in 2018.

        During the six months ended June 30, 2018, we recognized a gain on sale of investment of $5.5 million related to an investment in a financial services company previously carried at cost.

        During the six months ended June 30, 2018, a loss on extinguishment of borrowings of $14.0 million was recognized in connection with the Credit Facility.

Interest Expense

        Interest expense decreased $5.2 million, or 16.0%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The decrease was related to the repayment of our $207.0 million Second Lien Term Loan in connection with our IPO in July 2018, partially offset by higher borrowings under our First Lien Revolver due to acquisition activity.

Income Tax Expense

        Income tax expense decreased $1.7 million, or 89.4%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. For the six months ended June 30, 2019, we recorded a tax expense of $0.2 million based on the estimated annual effective tax rate of 42.7%. The estimated annual effective tax rate is primarily related to federal, state and local income taxes imposed on Focus Inc.'s allocable portion of taxable income from Focus LLC as a result of the IPO and Reorganization Transactions.

Liquidity and Capital Resources

Sources of Liquidity

        During the six months ended June 30, 2019, we met our cash and liquidity needs primarily through cash generated by our operations and borrowings under the Credit Facility. Over the next twelve months, and in the longer term, we expect that our cash and liquidity needs will continue to be met by cash generated by our ongoing operations as well as the Credit Facility, especially for acquisition activities. If our acquisition activity continues at an accelerated pace, or for larger acquisition opportunities, we may decide to issue equity either as consideration or in an offering. Our ongoing sources of cash will primarily consist of wealth management fees. We will primarily use cash flow from operations to pay compensation and related expenses, management fees, selling, general and administrative expenses, income taxes and debt service. For information regarding the Credit Facility, please read "—Credit Facilities."

Tax Receivable Agreements

        In July 2018, in connection with the closing of the IPO, Focus Inc. entered into two Tax Receivable Agreements with TRA Holders. The agreements generally provide for the payment by Focus Inc. to each TRA holder of 85% of the net cash savings, if any, in U.S. federal, state and local income and

42

franchise tax that Focus Inc. actually realizes (computed using simplifying assumptions to address the impact of state and local taxes) or is deemed to realize in certain circumstances in periods after the IPO as a result of certain increases in tax basis and certain tax benefits attributable to imputed interest. Focus Inc. will retain the benefit of the remaining 15% of these cash savings.

        The payment obligations under the Tax Receivable Agreements are Focus Inc.'s obligations and not obligations of Focus LLC, and we expect that such payments required to be made under the Tax Receivable Agreements will be substantial. Estimating the amount and timing of payments that may become due under the Tax Receivable Agreements is by its nature imprecise. For purposes of the Tax Receivable Agreements, cash savings in tax generally are calculated by comparing Focus Inc.'s actual tax liability (determined by using the actual applicable U.S. federal income tax rate and an assumed combined state and local income and franchise tax rate) to the amount Focus Inc. would have been required to pay had it not been able to utilize any of the tax benefits subject to the Tax Receivable Agreements. As of June 30, 2019, we had recorded a liability of approximately $46.5 million relating to the TRA obligations. Future payments under the Tax Receivable Agreements in respect of future exchanges of Focus LLC units for shares of Class A common stock will be in addition to this amount.

        The actual increases in tax basis, as well as the amount and timing of any payments under the Tax Receivable Agreements, will vary depending upon a number of factors, including the timing of any redemption of units, the price of our Class A common stock at the time of each redemption, the extent to which such redemptions are taxable transactions, the amount of Focus LLC's assets that consist of equity in entities taxed as corporations at the time of each redemption, the amount and timing of the taxable income we generate in the future, the U.S. federal income tax rates then applicable and the portion of the payments under the Tax Receivable Agreements that constitute imputed interest or give rise to depreciable or amortizable tax basis.

        The foregoing amount of expected future payments to TRA holders is an estimate and the actual payments could differ materially. It is possible that future transactions or events could increase or decrease the actual tax benefits realized and the corresponding payments under the Tax Receivable Agreements as compared to the foregoing estimates. Moreover, there may be a negative impact on our liquidity if, as a result of timing discrepancies or otherwise, (i) the payments under the Tax Receivable Agreements exceed the actual benefits realized in respect of the tax attributes subject to the Tax Receivable Agreements and/or (ii) distributions to Focus Inc. by Focus LLC are not sufficient to permit Focus Inc. to make payments under the Tax Receivable Agreements after it has paid its taxes and other obligations.

        The payments under the Tax Receivable Agreements will not be conditioned upon a TRA holder's having a continued ownership interest in either Focus Inc. or Focus LLC.

Cash Flows

        The following table presents information regarding our cash flows and cash and cash equivalents for the six months ended June 30, 2018 and 2019:

	Six Months Ended June 30,
	2018			2019			$ Change			% Change
	(dollars in thousands)
Cash provided by (used in):
Operating activities	$	37,152		$	55,218		$	18,066			48.6	%
Investing activities		(244,061	)		(299,161	)		(55,100	)		22.6	%
Financing activities		188,106			248,661			60,555			32.2	%
Cash and cash equivalents—end of period		32,572			37,944			5,372			16.5	%

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Operating Activities

        Net cash provided by operating activities includes net income or loss adjusted for non-cash expenses such as intangible amortization, depreciation and other amortization, amortization of debt financing costs, non-cash equity compensation expense, non-cash changes in fair value of estimated contingent consideration, other non-cash items and changes in cash resulting from changes in operating assets and liabilities. Operating assets and liabilities include receivables from our clients, prepaid expenses and other assets, accounts payable and accrued expenses, deferred revenues and other assets and liabilities.

        Net cash provided by operating activities increased $18.1 million, or 48.6%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increase was primarily due to an increase in net income of approximately $20.0 million, offset partially by additional cash used for operating assets and liabilities of $1.5 million.

Investing Activities

        Net cash used in investing activities increased $55.1 million, or 22.6%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increase was primarily due to an increase of $73.8 million in cash paid for acquisitions and contingent consideration offset in part by a decrease in other investing activities of $24.3 million during the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

Financing Activities

        Net cash provided by financing activities for the six months ended June 30, 2019 increased $60.6 million or 32.2%, compared to the six months ended June 30, 2018. The increase was primarily due to an increase in net borrowings made under the Credit Facility of $80.5 million during the six months ended June 30, 2019, primarily offset by increases in contingent consideration paid of $11.5 million and distributions for unitholders of $11.2 million during the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

Contractual Obligations

        Except for the increase in our Credit Facility discussed below there have been no material changes to our contractual obligations previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.

Off-Balance Sheet Arrangements

        We have no off-balance sheet arrangements.

Credit Facilities

        As of June 30, 2019, our Credit Facility consisted of a $803.0 million First Lien Term Loan and a $650.0 million First Lien Revolver.

        The First Lien Term Loan has a maturity date of July 2024 and, as of June 30, 2019, required quarterly installment repayments of approximately $2.0 million. The First Lien Term Loan bears interest (at our option) at: (i) the LIBOR plus a margin of 2.50% or (ii) the lender's Base Rate (as defined in the Credit Facility) plus a margin of 1.50%.

        The First Lien Revolver has a maturity date of July 2023. Up to $30.0 million of the First Lien Revolver is available for the issuance of letters of credit, subject to certain limitations. The First Lien Revolver bears interest at LIBOR plus a margin of 2.00% with step downs to 1.75%, 1.50% and 1.25%

44

or the lender's Base Rate plus a margin of 1.00% with step downs to 0.75%, 0.50% and 0.25%, based on achievement of a specified First Lien Leverage Ratio. The First Lien Revolver unused commitment fee is 0.50% with step downs to 0.375% and 0.25% based on achievement of a specified First Lien Leverage Ratio.

        Our obligations under the Credit Facility are collateralized by the majority of our assets. The Credit Facility contains various customary covenants, including, but not limited to: (i) incurring additional indebtedness or guarantees, (ii) creating liens or other encumbrances on property or granting negative pledges, (iii) entering into a merger or similar transaction, (iv) selling or transferring certain property and (v) declaring dividends or making other restricted payments.

        We are required to maintain a First Lien Leverage Ratio (as defined in the Credit Agreement) of not more than 6.25:1.00 as of the last day of each fiscal quarter. At June 30, 2019, our First Lien Leverage Ratio was 4.05:1.00, which satisfied the maximum ratio of 6.25:1.00. First Lien Leverage Ratio means the ratio of amounts outstanding under the First Lien Term Loan and First Lien Revolver plus other outstanding debt obligations secured by a lien on the assets of Focus LLC (excluding letters of credit other than unpaid drawings thereunder) minus unrestricted cash and cash equivalents to Consolidated EBITDA (as defined in the Credit Facility). Focus LLC is also subject to contingent principal payments based on excess cash flow for any fiscal year if the First Lien Leverage Ratio exceeds 3.75:1.00.

        We defer and amortize our debt financing costs over the respective terms of the First Lien Term Loan and First Lien Revolver. The debt financing costs related to the First Lien Term Loan are recorded as reduction of the carrying amount of the First Lien Term Loan in the unaudited condensed consolidated balance sheets. The debt financing costs related to the First Lien Revolver are recorded in debt financing costs-net in the unaudited condensed consolidated balance sheets.

        At June 30, 2019, outstanding stated value borrowings under the Credit Facility were approximately $1.1 billion. The weighted-average interest rate for outstanding borrowings was approximately 5% for the six months ended June 30, 2019. As of June 30, 2019, the First Lien Revolver available unused commitment line was $323.7 million. At June 30, 2019, we had outstanding letters of credit in the amount of $6.3 million bearing interest at an annual rate of approximately 2%.

        In July 2019, we expanded our First Lien Term Loan by $350.0 million and incurred approximately $3.8 million in estimated in debt financing costs. The debt was issued at a discount of 0.25% or $0.9 million. The proceeds were used by us to reduce the amount outstanding under our First Lien Revolver. Additionally, the quarterly installment repayments related to the First Lien Term Loan were increased to $2.9 million.

Critical Accounting Policies

        As of June 30, 2019, there have been no significant changes to our critical accounting policies previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.

Recent Accounting Pronouncements

        The effects of new accounting pronouncements are discussed in the notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

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Item 3.    Quantitative and Qualitative Disclosures about Market Risk

Market Risk

        Our exposure to market risk is primarily related to our partner firms' wealth management services. For the three and six months ended June 30, 2019, over 95% of our revenues were fee-based and recurring in nature. The substantial majority of our revenues are derived from the wealth management fees charged by our partner firms for providing clients with investment advice, financial and tax planning, consulting, tax return preparation, family office services and other services. The majority of our wealth management fees are based on the value of the client assets and we expect those fees to increase over time as the assets increase. A decrease in the aggregate value of client assets across our partner firms may cause our revenue and income to decline.

Interest Rate Risk

        Interest payable on our Credit Facility is variable. Interest rate changes will therefore affect the amount of our interest payments, future earnings and cash flows. As of June 30, 2019, we had total stated value borrowings outstanding under our Credit Facility of approximately $1.1 billion. If LIBOR based interest rates increased by 1.0% on this amount, our interest expense for the three and six months ended June 30, 2019 would have increased by approximately $2.8 million and $5.6 million, respectively.

Item 4.    Controls and Procedures

        Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of June 30, 2019. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2019, our disclosure controls and procedures were effective, at the reasonable assurance level. Any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objective, and management necessarily applies its judgment in evaluating the cost-benefit relationship of all possible controls and procedures.

        There were no changes in our internal control over financial reporting during the quarter ended June 30, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II: OTHER INFORMATION

Item 1.    Legal Proceedings

        We are, from time to time, involved in various legal claims and regulatory matters arising out of our operations in the normal course of business. After consultation with legal counsel, we do not believe that the resolutions of any such matters we are currently involved in, individually or in the aggregate, will have a material adverse impact on our financial condition, results of operations or cash flows. However, we can provide no assurance that any pending or future matters will not have a material effect on our financial condition, results of operations or cash flows in future reporting periods.

        From time to time, our partner firms receive requests for information from governmental authorities regarding business activities. We have cooperated and plan to continue to cooperate with all governmental agencies. We continue to believe that the resolution of any governmental inquiry will not have a material impact on our financial condition, results of operations or cash flows.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

        During the three months ended June 30, 2019, we issued an aggregate of 423,985 shares of our Class A common stock and retired 260,385 shares of our Class B common stock and 248,142 incentive units in Focus LLC and acquired 423,985 common units in Focus LLC, in each case as part of our regular quarterly exchanges offered to holders of units in Focus LLC.

        Each Focus LLC common unit, together with a corresponding share of Class B common stock, and Focus LLC incentive unit (after conversion into a number of common units taking into account the then-current value of the common units and such incentive unit's aggregate hurdle amount) is exchangeable, pursuant to the terms and subject to the conditions set forth in the Operating Agreement, for one share of our Class A common stock, or, if either we or Focus LLC so elects, cash.

        The issuance of such securities was made in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof.

Item 6.    Exhibits

Exhibit Number			Description
	3.1		Amended and Restated Certificate of Incorporation of Focus Financial Partners Inc.(1)
	3.2		Amended and Restated Bylaws of Focus Financial Partners Inc.(1)
	10.1		Indemnification Agreement (Joseph Feliciani, Jr.)(2)
	10.2		Amendment No. 5 to First Lien Credit Agreement, dated as of July 26, 2019, among Focus Financial Partners,  LLC, Royal Bank of Canada, as term administrative agent and collateral agent and each new term loan lender party thereto(3)
	31.1	*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1	*	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	101.NS	*	XBRL Instance Document

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Exhibit Number			Description
	101.SCH	*	XBRL Taxonomy Extension Schema Document
	101.CAL	*	XBRL Taxonomy Extension Calculation Linkbase Document
	101.LAB	*	XBRL Taxonomy Extension Label Linkbase Document
	101.PRE	*	XBRL Taxonomy Extension Presentation Linkbase Document
	101.DEF	*	XBRL Taxonomy Extension Definition Linkbase Document

*

Filed or furnished herewith.

(1)

Incorporated by reference to the Registrant's Current Report on Form 8-K (File No. 001-38604) filed with the SEC on July 31, 2018.

(2)

Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 001-38604) filed with the SEC on May 9, 2019.

(3)

Incorporated by reference to the Registrant's Current Report on Form 8-K (File No. 001-38604) filed with the SEC on July 26, 2019.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

	FOCUS FINANCIAL PARTNERS INC.
Date: August 8, 2019	By:	/s/ RUEDIGER ADOLF Ruediger Adolf Chairman and Chief Executive Officer (Principal Executive Officer)
Date: August 8, 2019	By:	/s/ JAMES SHANAHAN James Shanahan Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

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EX-31.1

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Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Ruediger Adolf, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Focus Financial Partners Inc. ("the registrant");

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b.

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.

disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ RUEDIGER ADOLF
Ruediger Adolf
Chairman and Chief Executive Officer

Date: August 8, 2019

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Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

EX-31.2

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Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, James Shanahan, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Focus Financial Partners Inc. ("the registrant");

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b.

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.

disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ JAMES SHANAHAN
James Shanahan
Chief Financial Officer

Date: August 8, 2019

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Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

EX-32.1

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Exhibit 32.1

CERTIFICATION OF
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
UNDER SECTION 906 OF THE
SARBANES OXLEY ACT OF 2002, 18 U.S.C. § 1350

        In connection with the Quarterly Report on Form 10-Q of Focus Financial Partners Inc. (the "Company"), as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Ruediger Adolf, Chief Executive Officer of the Company, and James Shanahan, Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and



(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ RUEDIGER ADOLF Ruediger Adolf Chairman and Chief Executive Officer	/s/ JAMES SHANAHAN James Shanahan Chief Financial Officer
Date: August 8, 2019	Date: August 8, 2019

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Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER UNDER SECTION 906 OF THE SARBANES OXLEY ACT OF 2002, 18 U.S.C. § 1350

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2019	Aug. 05, 2019
Entity Registrant Name	Focus Financial Partners Inc.
Entity Central Index Key	0001651052
Document Type	10-Q
Document Period End Date	Jun. 30, 2019
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Entity Shell Company	false
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Class A common stock
Entity Common Stock, Shares Outstanding		47,116,817
Class B common stock
Entity Common Stock, Shares Outstanding		22,308,446

XML

Condensed consolidated balance sheets - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
ASSETS
Cash and cash equivalents	$ 37,944	$ 33,213
Accounts receivable less allowances of $576 at 2018 and $785 at 2019	118,674	98,596
Prepaid expenses and other assets	70,950	76,150
Fixed assets-net	34,363	24,780
Operating lease assets	168,867
Debt financing costs-net	10,993	12,340
Deferred tax assets-net	77,045	70,009
Goodwill	988,706	860,495
Other intangible assets-net	913,110	762,195
TOTAL ASSETS	2,420,652	1,937,778
LIABILITIES:
Accounts payable	12,216	8,935
Accrued expenses	45,456	36,252
Due to affiliates	23,156	39,621
Deferred revenue	6,183	6,215
Other liabilities	178,016	158,497
Operating lease liabilities	180,451
Borrowings under credit facilities (stated value of $838,985 and $1,114,970 at December 31, 2018 and June 30, 2019, respectively)	1,112,784	836,582
Tax receivable agreements obligation	46,535	39,156
TOTAL LIABILITIES	1,604,797	1,125,258
COMMITMENTS AND CONTINGENCIES (Note 13)
EQUITY:
Additional paid-in capital	489,566	471,386
Accumulated deficit	(2,736)	(590)
Accumulated other comprehensive loss	(2,000)	(1,824)
Total shareholders' equity	485,524	469,662
Non-controlling interest	330,331	342,858
Total equity	815,855	812,520
TOTAL LIABILITIES AND EQUITY	2,420,652	1,937,778
Class A common stock
EQUITY:
Common stock	471	462
Class B common stock
EQUITY:
Common stock	$ 223	$ 228

XML

Condensed consolidated balance sheets (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Accounts receivable, allowances	$ 785	$ 576
Borrowings under credit facilities, stated value	$ 1,114,970	$ 838,985
Class A common stock
Common stock, par value	$ 0.01	$ 0.01
Common stock, authorized shares	500,000,000	500,000,000
Common stock, issued shares	47,116,817	46,265,903
Common stock, outstanding shares	47,116,817	46,265,903
Class B common stock
Common stock, par value	$ 0.01	$ 0.01
Common stock, authorized shares	500,000,000	500,000,000
Common stock, issued shares	22,308,446	22,823,272
Common stock, outstanding shares	22,308,446	22,823,272

XML

Condensed consolidated statements of operations - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
REVENUES:
Total revenues	$ 301,545	$ 231,435	$ 561,469	$ 427,664
OPERATING EXPENSES:
Compensation and related expenses	105,531	81,273	206,979	154,622
Management fees	79,252	60,559	136,258	106,859
Selling, general and administrative	59,736	41,493	111,993	77,780
Management contract buyout			1,428
Intangible amortization	31,221	22,290	59,962	41,784
Non-cash changes in fair value of estimated contingent consideration	3,847	11,944	11,261	18,315
Depreciation and other amortization	2,425	2,162	4,738	4,044
Total operating expenses	282,012	219,721	532,619	403,404
INCOME FROM OPERATIONS	19,533	11,714	28,850	24,260
OTHER INCOME (EXPENSE):
Interest income	339	235	536	377
Interest expense	(14,424)	(18,212)	(27,283)	(32,484)
Amortization of debt financing costs	782	929	1,564	1,888
Gain on sale of investment				5,509
Loss on extinguishment of borrowings				(14,011)
Other income (expense)-net	(468)	203	(704)	296
Income from equity method investments	329	79	643	153
Total other expense-net	(15,006)	(18,624)	(28,372)	(42,048)
INCOME (LOSS) BEFORE INCOME TAX	4,527	(6,910)	478	(17,788)
INCOME TAX EXPENSE	1,425	746	204	1,922
NET INCOME (LOSS)	3,102	(7,656)	274	(19,710)
Non-controlling interest	(2,306)		(2,420)
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS	$ 796		$ (2,146)
Income (loss) per share of Class A common stock:
Basic	$ 0.02		$ (0.05)
Diluted	$ 0.02		$ (0.05)
Wealth management fees
REVENUES:
Total revenues	$ 283,296	216,328	$ 526,380	400,651
Other
REVENUES:
Total revenues	$ 18,249	$ 15,107	$ 35,089	$ 27,013
Class A common stock
Income (loss) per share of Class A common stock:
Basic	$ 0.02		$ (0.05)
Diluted	$ 0.02		$ (0.05)
Weighted average shares of Class A common stock outstanding:
Basic	46,696,200		46,455,238
Diluted	46,721,559		46,455,238

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Condensed consolidated statements of comprehensive income (loss) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Condensed consolidated statements of comprehensive income (loss)
Net income (loss)	$ 3,102	$ (7,656)	$ 274	$ (19,710)
Other comprehensive loss:
Foreign currency translation adjustments, net of tax	(687)	(1,122)	(333)	(1,506)
Comprehensive income (loss)	2,415	$ (8,778)	(59)	$ (21,216)
Less: Comprehensive income attributable to noncontrolling interest	(2,025)		(2,263)
Comprehensive income (loss) attributable to common shareholders	$ 390		$ (2,322)

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Condensed consolidated statements of cash flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$ 274	$ (19,710)
Adjustments to reconcile net income (loss) to net cash provided by operating activities-net of effect of acquisitions:
Intangible amortization	59,962	41,784
Depreciation and other amortization	4,738	4,044
Amortization of debt financing costs	1,564	1,888
Non-cash equity compensation expense	9,099	7,555
Non-cash changes in fair value of estimated contingent consideration	11,261	18,315
Income from equity method investments	(643)	(153)
Distributions received from equity method investments	618	613
Other non-cash items	843	(203)
Loss on extinguishment of borrowings		14,011
Changes in cash resulting from changes in operating assets and liabilities:
Accounts receivable	(18,219)	(21,467)
Prepaid expenses and other assets	3,220	(14,791)
Accounts payable	389	3,324
Accrued expenses	25,166	12,358
Due to affiliates	(16,518)	(7,548)
Other liabilities	(24,848)	(2,600)
Deferred revenue	(1,688)	(268)
Net cash provided by operating activities	55,218	37,152
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions and contingent consideration-net of cash acquired	(289,101)	(215,332)
Purchase of fixed assets	(10,060)	(4,429)
Investment and other		(24,300)
Net cash used in investing activities	(299,161)	(244,061)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities	370,000	200,000
Repayments of borrowings under credit facilities	(94,014)	(4,477)
Contingent consideration paid	(16,293)	(4,814)
Payments of debt financing costs		(1,981)
Proceeds from exercise of stock options	796
Payments on finance lease obligations	(94)	(116)
Distributions for unitholders	(11,734)	(506)
Net cash provided by financing activities	248,661	188,106
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS	13	(80)
CHANGE IN CASH AND CASH EQUIVALENTS	4,731	(18,883)
CASH AND CASH EQUIVALENTS:
Beginning of period	33,213	51,455
End of period	$ 37,944	$ 32,572

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Condensed consolidated statements of changes in members' deficit/shareholders' equity - USD ($) $ in Thousands	Total Members' Deficit/ Shareholders' Equity	Common Stock Class A common stock	Common Stock Class B common stock	Additional Paid-In Capital	Accumulated Deficit	Accumulated Other Comprehensive Loss	Common Units	Non-controlling Interest	Total
Beginning balance at Dec. 31, 2017	$ (778,661)			$ 30,731	$ (805,470)	$ (8,269)	$ 4,347		$ (778,661)
Increase (Decrease) in MEMBERS' DEFICIT
Net income (loss)	(19,710)				(19,710)				(19,710)
Issuance of restricted common units in connection with acquisitions and contingent consideration	32,829						32,829		32,829
Non-cash equity compensation expense	7,555			7,555					7,555
Currency translation adjustment - net of tax	(1,506)					(1,506)			(1,506)
Distributions for unitholders	(50)				(50)				(50)
Ending balance at Jun. 30, 2018	(759,543)			38,286	(825,230)	(9,775)	37,176		(759,543)
Beginning balance at Mar. 31, 2018	(780,629)			34,585	(817,492)	(8,653)	10,931		(780,629)
Increase (Decrease) in MEMBERS' DEFICIT
Net income (loss)	(7,656)				(7,656)				(7,656)
Issuance of restricted common units in connection with acquisitions and contingent consideration	26,245						26,245		26,245
Non-cash equity compensation expense	3,701			3,701					3,701
Currency translation adjustment - net of tax	(1,122)					(1,122)			(1,122)
Distributions for unitholders	(82)				(82)				(82)
Ending balance at Jun. 30, 2018	(759,543)			38,286	(825,230)	(9,775)	$ 37,176		(759,543)
Beginning balance at Dec. 31, 2018	469,662	$ 462	$ 228	471,386	(590)	(1,824)		$ 342,858	812,520
Beginning balance (in shares) at Dec. 31, 2018		46,265,903	22,823,272
Increase (Decrease) in MEMBERS' DEFICIT
Net income (loss)	(2,146)				(2,146)			2,420	274
Issuance (cancellation) of common stock in connection with exercise of Focus LLC common unit exchange rights	16,572	$ 6	$ (5)	16,571					16,572
Issuance (cancellation) of common stock in connection with exercise of Focus LLC common unit exchange rights (in shares)		514,826	(514,826)
Issuance of common stock in connection with exercise of Focus LLC incentive unit exchange rights	9,975	$ 3		9,972					9,975
Issuance of common stock in connection with exercise of Focus LLC incentive unit exchange rights (in shares)		312,871
Forfeiture of unvested Class A common stock	(30)			(30)					(30)
Forfeiture of unvested common stock		(909)
Exercise of stock options	796			796					796
Exercise of stock options (in shares)		24,126
Change in non-controlling interest allocation	(11,032)			(11,032)				(14,790)	(25,822)
Non-cash equity compensation expense	1,653			1,653					1,653
Currency translation adjustment - net of tax	(176)					(176)		(157)	(333)
Adjustment of deferred tax assets, net of amounts payable under tax receivable agreements and changes from Focus LLC interest transactions	250			250					250
Ending balance at Jun. 30, 2019	485,524	$ 471	$ 223	489,566	(2,736)	(2,000)		330,331	815,855
Ending Balance (in shares) at Jun. 30, 2019		47,116,817	22,308,446
Beginning balance at Mar. 31, 2019	455,054	$ 467	$ 225	459,488	(3,532)	(1,594)		357,222	812,276
Beginning balance (in shares) at Mar. 31, 2019		46,675,183	22,568,831
Increase (Decrease) in MEMBERS' DEFICIT
Net income (loss)	796				796			2,306	3,102
Issuance (cancellation) of common stock in connection with exercise of Focus LLC common unit exchange rights	7,305	$ 3	$ (2)	7,304					7,305
Issuance (cancellation) of common stock in connection with exercise of Focus LLC common unit exchange rights (in shares)		260,385	(260,385)
Issuance of common stock in connection with exercise of Focus LLC incentive unit exchange rights	4,538	$ 1		4,537					4,538
Issuance of common stock in connection with exercise of Focus LLC incentive unit exchange rights (in shares)		163,600
Exercise of stock options	582			582					582
Exercise of stock options (in shares)		17,649
Change in non-controlling interest allocation	17,315			17,315				(28,916)	(11,601)
Non-cash equity compensation expense	948			948					948
Currency translation adjustment - net of tax	(406)					(406)		(281)	(687)
Adjustment of deferred tax assets, net of amounts payable under tax receivable agreements and changes from Focus LLC interest transactions	(608)			(608)					(608)
Ending balance at Jun. 30, 2019	$ 485,524	$ 471	$ 223	$ 489,566	$ (2,736)	$ (2,000)		$ 330,331	$ 815,855
Ending Balance (in shares) at Jun. 30, 2019		47,116,817	22,308,446

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GENERAL

6 Months Ended

Jun. 30, 2019

GENERAL

GENERAL

1. GENERAL

Organization and Business—  The Company was formed as a Delaware corporation on July 29, 2015 for the sole purpose of completing the IPO and Reorganization Transactions in order to carry on the business of Focus LLC. On July 30, 2018, the Company became the managing member of Focus LLC and operates and controls the businesses and affairs of Focus LLC and its subsidiaries. Accordingly, the unaudited condensed consolidated financial statements reflect the historical results of operations and financial position of Focus LLC (predecessor) prior to July 30, 2018.

Focus LLC is a Delaware limited liability company that was formed in November 2004. Focus LLC’s subsidiaries commenced revenue-generating and acquisition activities in January 2006. Focus LLC’s activities were governed by its Third Amended and Restated Operating Agreement, as amended, through July 30, 2018 and then its Fourth Amended and Restated Operating Agreement (as amended, the “Operating Agreement”), effective on July 30, 2018.

Focus LLC is in the business of acquiring and overseeing independent fiduciary wealth management and related businesses.

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SUMMARY OF ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2019

SUMMARY OF ACCOUNTING POLICIES

SUMMARY OF ACCOUNTING POLICIES

2. SUMMARY OF ACCOUNTING POLICIES

Basis of Presentation—The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of only normal recurring adjustments, considered necessary for fair presentation have been included. The unaudited condensed consolidated financial statements include the accounts of the Company and its majority and wholly owned subsidiaries. The Company consolidates Focus LLC and its subsidiaries’ consolidated financial statements and records the interests in Focus LLC that the Company does not own as non-controlling interests. Non-controlling interests were measured initially at the proportionate share of Focus LLC’s identifiable net assets at the date of the IPO. Intercompany transactions and balances have been eliminated in consolidation. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K as filed with the SEC on March 28, 2019.

Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

Use of Estimates—The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Revenue

The Company disaggregates revenue by wealth management fees and other. The Company does not allocate revenue by the type of service provided in connection with providing holistic wealth management client services. The Company generally manages its business based on the operating results of the enterprise taken as a whole, not by geographic region. The following table disaggregates the revenues based on the location of the partner firm legal entities that generates the revenues and therefore may not be reflective of the geography in which clients are located.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2019		2018		2019
Domestic revenue	$	225,894	$	287,920	$	416,519	$	542,212
International revenue		5,541		13,625		11,145		19,257
Total revenue	$	231,435	$	301,545	$	427,664	$	561,469

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842).” ASU No. 2016-02 requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right of use asset for the right to use the underlying asset for the lease term. ASU No. 2016-02 was effective for the Company for interim and annual periods beginning January 1, 2019. The Company adopted ASU No. 2016-02 effective January 1, 2019 using a modified retrospective method and therefore has not restated comparative periods. The Company elected to use certain practical expedients to assist in the transition and has not reassessed the identification and classification of leases upon adoption. Based on the portfolio of leases as of January 1, 2019, the Company recognized approximately $144,000 of lease liabilities and $134,000 of right of use assets (which reflects the reclassification of previous deferred rent balances into the right of use asset as required under the transition guidance) on the balance sheet, primarily related to operating leases for real estate. There was no material impact to the consolidated statement of operations and comprehensive income (loss) or consolidated statement of cash flows as a result of adoption of this new guidance. Refer to Note 12 for further information regarding leases.

Recent Accounting Pronouncements

In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment,” which removes the second step of the goodwill impairment test that requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU No. 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2019 and will be applied prospectively. Early adoption is permitted. ASU No. 2017-04 is not expected to have a material effect on the Company’s consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07 “Improvements to Nonemployee Share-Based Payment Accounting,” which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. ASU No. 2018-07 was effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The adoption of ASU No. 2018-07 on January 1, 2019 did not have a material effect on the Company’s consolidated financial statements.

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IPO, REORGANIZATION TRANSACTIONS AND USE OF PROCEEDS

6 Months Ended

Jun. 30, 2019

IPO, REORGANIZATION TRANSACTIONS AND USE OF PROCEEDS

IPO, REORGANIZATION TRANSACTIONS AND USE OF PROCEEDS

3. IPO, REORGANIZATION TRANSACTIONS AND USE OF PROCEEDS

Initial Public Offering

On July 30, 2018, the Company completed its IPO of 18,648,649 shares of its Class A common stock, par value $0.01 per share, including 2,432,432 shares of Class A common stock sold in connection with the full exercise of the option to purchase additional shares granted to the underwriters, at a price to the public of $33.00 per share. The shares began trading on the NASDAQ Global Select Market on July 26, 2018 under the ticker symbol “FOCS.”

Reorganization Transactions

In connection with the IPO, Focus LLC completed the Reorganization Transactions. The equity interests in Focus LLC at the date of the IPO consisted of convertible preferred units, common units and incentive units, each incentive unit having a hurdle amount similar to the exercise price of a stock option. The owners of Focus LLC units immediately prior to the IPO (“Existing Owners”) primarily included (i) affiliates of Focus LLC’s private equity investors (“Private Equity Investors”), (ii) members of management of Focus LLC, (iii) current and former principals of independent fiduciary wealth management and related businesses acquired by Focus LLC and (iv) current and former employees of Focus LLC.

In connection with the Reorganization Transactions, all outstanding Focus LLC convertible preferred units converted into Focus LLC common units and the Company purchased certain Focus LLC common and incentive units from certain Existing Owners and issued an aggregate of 23,881,002 shares of Class A common stock, non-compensatory stock options to purchase an aggregate of 386,832 shares of Class A common stock, compensatory stock options to purchase an aggregate of 348,577 shares of Class A common stock and an aggregate of 22,499,665 shares of Class B common stock to certain Existing Owners. Due to certain post-closing adjustments, the Company cancelled 240,457 shares of Class A common stock and issued 240,457 shares of Class B common stock effective as of the closing date of the IPO.

Existing Owners who hold common units of Focus LLC after the Reorganization Transactions received shares of Class B common stock of the Company. Shares of Class B common stock do not entitle their holders to any economic rights. Holders of Class A common stock and Class B common stock of the Company vote together as a single class on all matters presented to the shareholders of the Company for their vote or approval, except as otherwise required by applicable law. Each share of Class A and Class B common stock entitles its holder to one vote.

Use of Proceeds

The Company received $565,160 of net proceeds from the sale of the Class A common stock in the IPO including $74,651 in connection with the full exercise of the option to purchase additional shares granted to the underwriters. The Company used $35,537 of the net proceeds to pay certain Existing Owners who elected to sell their units of Focus LLC. The Company contributed $529,623 of the net proceeds from the IPO to Focus LLC in exchange for 17,583,947 common units of Focus LLC. Focus LLC used $392,535 of such contribution to reduce indebtedness under its Credit Facility (as defined below). The residual $137,088 of such contribution was used by Focus LLC for acquisitions and general corporate business purposes.

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NON-CONTROLLING INTEREST AND INCOME (LOSS) PER SHARE

6 Months Ended

Jun. 30, 2019

NON-CONTROLLING INTEREST AND INCOME (LOSS) PER SHARE

NON-CONTROLLING INTEREST AND INCOME (LOSS) PER SHARE

4. NON-CONTROLLING INTEREST AND INCOME (LOSS) PER SHARE

Historical income (loss) per share information is not applicable for reporting periods prior to the consummation of the IPO. Net income (loss) attributable to common shareholders is the net income (loss) recorded by the Company based on its interest in Focus LLC during the respective period after the IPO.

The calculation of controlling and non-controlling interest is as follows as of June 30, 2019:

Focus LLC common units held by continuing owners	22,308,446
Common unit equivalents of outstanding vested and unvested incentive units held by continuing owners(1)	5,125,588
Total common units and common unit equivalents attributable to non-controlling interest	27,434,034
Total common units and common unit equivalents of incentive units outstanding	74,550,851
Non-controlling interest allocation	36.8	%
Company’s interest in Focus LLC	63.2	%

(1) Focus LLC common units issuable upon conversion of 17,830,564 (see Note 9) vested and unvested Focus LLC incentive units was calculated using the common unit equivalent of vested and unvested Focus LLC incentive units based on the closing price of the Company’s Class A common stock on the last trading day of the period.

The below table contains a reconciliation of net income to net income (loss) attributable to common shareholders:

	Three Months		Six Months
	Ended		Ended
	June 30, 2019		June 30, 2019
Net income	$	3,102	$	274
Non-controlling interest		(2,306)		(2,420)
Net income (loss) attributable to common shareholders	$	796	$	(2,146)

The calculation of basic and diluted income (loss) per share is described below:

Basic income (loss) per share is calculated utilizing net income (loss) attributable to common shareholders for the three and six months ended June 30, 2019 divided by the weighted average number of shares of Class A common stock outstanding during the same periods:

	Three Months		Six Months
	Ended		Ended
	June 30, 2019		June 30, 2019
Basic income (loss) per share:
Net income (loss) attributable to common shareholders	$	796	$	(2,146)
Weighted average shares of Class A common stock outstanding		46,696,200		46,455,238
Basic income (loss) per share	$	0.02	$	(0.05)

Diluted income (loss) per share is calculated utilizing net income (loss) attributable to common shareholders for the three and six months ended June 30, 2019 divided by the weighted average number of shares of Class A common stock outstanding during the same periods plus the effect, if any, of the potentially dilutive shares of the Company’s Class A common stock from stock options and unvested Class A common stock as calculated using the treasury stock method:

	Three Months		Six Months
	Ended		Ended
	June 30, 2019		June 30, 2019
Diluted income (loss) per share:
Net income (loss) attributable to common shareholders	$	796	$	(2,146)
Weighted average shares of Class A common stock outstanding		46,696,200		46,455,238
Effect of dilutive stock options		—		—
Effect of dilutive unvested Class A common stock		25,359		—
Total		46,721,559		46,455,238
Diluted income (loss) per share	$	0.02	$	(0.05)

Diluted loss per share for the six months ended June 30, 2019 excludes incremental shares of 16,607 related to unvested Class A common stock since the effect would be antidilutive due to the net loss for the period. Diluted income (loss) per share for the three and six months ended June 30, 2019 excludes shares related to 155,000 market-based stock options that vest on the fifth anniversary of the pricing of the IPO if the volume weighted average per share price for any ninety-calendar day period within such five-year period immediately following the pricing of the IPO reaches at least $100. Such market-based criteria were not met at June 30, 2019.

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ACQUISITIONS

6 Months Ended

Jun. 30, 2019

ACQUISITIONS

ACQUISITIONS

5. ACQUISITIONS

Business Acquisitions

Business acquisitions are accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 805: Business Combinations.

The Company has incorporated contingent consideration, or earn out provisions, into the structure of its acquisitions. The Company recognizes the fair value of estimated contingent consideration at the acquisition date as part of the consideration transferred in the exchange. The contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved. The purchase price associated with business acquisitions and the allocation thereof during the six months ended June 30, 2019 is as follows:

Number of business acquisitions closed		21
Consideration:
Cash and option premium	$	283,291
Fair market value of estimated contingent consideration		50,945
Total consideration	$	334,236
Allocation of purchase price:
Total tangible assets	$	37,627
Total liabilities assumed		(41,515)
Customer relationships		199,977
Management contracts		9,184
Goodwill		128,391
Other intangibles		572
Total allocated consideration	$	334,236

Management believes approximately $280,460 of tax goodwill and intangibles related to business acquisitions completed during the six months ended June 30, 2019 will be deductible for tax purposes over a 15 year period. Additional tax goodwill may be deductible when estimated contingent consideration is earned and paid.

The accompanying unaudited condensed consolidated statement of operations for the six months ended June 30, 2019 includes revenue and income from operations for the 5 business acquisitions that are new subsidiary partner firms from the date they were acquired of $28,950 and $3,453, respectively.

Asset Acquisitions

The Company also separately purchases customer relationships and other intangible assets. These purchases are accounted for as asset acquisitions as they do not qualify as business acquisitions pursuant to ASC Topic 805, Business Combinations. There were 2 asset acquisitions during the six months ended June 30, 2019. Total purchase consideration for asset acquisitions during the six months ended June 30, 2019 was $600 in cash plus contingent consideration as additional purchase consideration when the outcome is determinable.

The weighted‑average useful lives of intangible assets acquired during the six months ended June 30, 2019 through business acquisitions and asset acquisitions are as follows:

	Number of
	Years
Management contracts	19
Customer relationships	9
Other intangibles	5
Weighted-average useful life of all intangibles acquired	10

From July 1, 2019 to August 8, 2019, the Company completed 7 business acquisitions for cash of $203,281, plus contingent consideration.

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GOODWILL AND OTHER INTANGIBLE ASSETS

6 Months Ended

Jun. 30, 2019

GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL AND OTHER INTANGIBLE ASSETS

6. GOODWILL AND OTHER INTANGIBLE ASSETS

The following table summarizes the change in the goodwill balances for the year ended December 31, 2018 and the six months ended June 30, 2019:

	December 31,		June 30,
	2018		2019
Balance beginning of period:
Goodwill	$	538,113	$	883,119
Cumulative impairment losses		(22,624)		(22,624)
		515,489		860,495
Goodwill acquired		347,496		128,391
Other		(2,490)		(180)
		345,006		128,211
Balance end of period:
Goodwill		883,119		1,011,330
Cumulative impairment losses		(22,624)		(22,624)
	$	860,495	$	988,706

The following table summarizes the amortizing acquired intangible assets at December 31, 2018:

	Gross Carry		Accumulated		Net Book
	Amount		Amortization		Value
Customer relationships	$	1,008,186	$	(349,125)	$	659,061
Management contracts		133,112		(31,911)		101,201
Other intangibles		4,402		(2,469)		1,933
Total	$	1,145,700	$	(383,505)	$	762,195

The following table summarizes the amortizing acquired intangible assets at June 30, 2019:

	Gross Carry		Accumulated		Net Book
	Amount		Amortization		Value
Customer relationships	$	1,209,291	$	(404,967)	$	804,324
Management contracts		142,319		(35,735)		106,584
Other intangibles		5,031		(2,829)		2,202
Total	$	1,356,641	$	(443,531)	$	913,110

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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2019

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

7. FAIR VALUE MEASUREMENTS

ASC Topic 820, Fair Value Measurement establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability, developed based on the best information available in the circumstances.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:

Level 1—Unadjusted price quotations in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Significant unobservable inputs that are not corroborated by market data.

The implied fair value of the Company’s First Lien Term Loan (as defined below) based on Level 2 inputs at December 31, 2018 and June 30, 2019 are as follows:

	December 31, 2018				June 30, 2019
	Stated Value		Fair Value		Stated Value		Fair Value
First Lien Term Loan	$	798,985	$	773,018	$	794,970	$	793,976

For business acquisitions, the Company recognizes the fair value of estimated contingent consideration at the acquisition date as part of purchase price. This fair value measurement is based on Level 3 inputs.

The following table represents changes in the fair value of estimated contingent consideration for business acquisitions for the year ended December 31, 2018 and the six months ended June 30, 2019:

Balance at January 1, 2018	$	76,677
Additions to estimated contingent consideration		42,086
Payments of contingent consideration		(26,237)
Non-cash changes in fair value of estimated contingent consideration		6,638
Other		(259)
Balance at December 31, 2018		98,905
Additions to estimated contingent consideration		50,945
Payments of contingent consideration		(29,475)
Non-cash changes in fair value of estimated contingent consideration		11,261
Other		(203)
Balance at June 30, 2019	$	131,433

Estimated contingent consideration is included in other liabilities in the accompanying unaudited condensed consolidated balance sheets.

During the year ended December 31, 2018, the Company paid $23,816 in cash and issued $2,421 of restricted common units as contingent consideration associated with business acquisitions. During the six months ended June 30, 2019, the Company paid $29,475 in cash as contingent consideration associated with business acquisitions.

In determining fair value of the estimated contingent consideration, the acquired business’ future performance is estimated using financial projections for the acquired business. These financial projections, as well as alternative scenarios of financial performance, are measured against the performance targets specified in each respective acquisition agreement. The fair value of the Company’s estimated contingent consideration is established using the Monte Carlo Simulation model.

The primary significant unobservable input used in the fair value measurement of the Company’s estimated contingent consideration is the forecasted growth rates over the measurement period. Significant increases or decreases in the Company’s forecasted growth rates over the measurement period would result in a higher or lower fair value measurement.

Inputs used in the fair value measurement of estimated contingent consideration at December 31, 2018 and June 30, 2019 are summarized below:

Fair Value at		Quantitative Information About Level 3 Fair Value Measurements
December 31, 2018		Valuation Technique	Unobservable Input	Range
$	98,905	Monte Carlo Simulation model	Forecasted growth rates	(16.2)% - 18.7%

Fair Value at		Quantitative Information About Level 3 Fair Value Measurements
June 30, 2019		Valuation Technique	Unobservable Input	Range
$	131,433	Monte Carlo Simulation model	Forecasted growth rates	(17.0)% - 129.8%

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CREDIT FACILITY

6 Months Ended

Jun. 30, 2019

CREDIT FACILITY

CREDIT FACILITY

8. CREDIT FACILITY

As of June 30,2019, Focus LLC’s credit facility (the “Credit Facility”) consisted of a $803,000  first lien term loan (the “First Lien Term Loan”) and a $650,000first lien revolving credit facility (the “First Lien Revolver”).

The First Lien Term Loan has a maturity date of July 2024 and, as of June 30, 2019, required quarterly installment repayments of approximately $2,007. The First Lien Term Loan bears interest (at Focus LLC’s option) at: (i) the London InterBank Offered Rate (“LIBOR”) plus a margin of 2.50% or (ii) the lender’s Base Rate (as defined in the Credit Facility) plus a margin of 1.50%.

The First Lien Revolver has a maturity date of July 2023. Up to  $30,000 of the First Lien Revolver is available for the issuance of letters of credit, subject to certain limitations. The First Lien Revolver bears interest at LIBOR plus a margin of 2.00% with step downs to 1.75%,  1.50% and 1.25% or the lender’s Base Rate plus a margin of 1.00% with step downs to 0.75%,  0.50% and 0.25%, based on achievement of a specified First Lien Leverage Ratio. The First Lien Revolver unused commitment fee is 0.50% with step downs to 0.375% and 0.25% based on achievement of a specified First Lien Leverage Ratio.

Focus LLC’s obligations under the Credit Facility are collateralized by the majority of Focus LLC’s assets. The Credit Facility contains various customary covenants, including, but not limited to: (i) incurring additional indebtedness or guarantees, (ii) creating liens or other encumbrances on property or granting negative pledges, (iii) entering into a merger or similar transaction, (iv) selling or transferring certain property and (v) declaring dividends or making other restricted payments.

Focus LLC is required to maintain a First Lien Leverage Ratio (as defined in the Credit Facility) of not more than 6.25:1.00 as of the last day of each fiscal quarter. At June 30, 2019, Focus LLC's First Lien Leverage Ratio was 4.05:1.00, which satisfied the maximum ratio of 6.25:1.00.First Lien Leverage Ratio means the ratio of amounts outstanding under the First Lien Term Loan and First Lien Revolver plus other outstanding debt obligations secured by a lien on the assets of Focus LLC (excluding letters of credit other than unpaid drawings thereunder) minus unrestricted cash and cash equivalents to Consolidated EBITDA (as defined in the Credit Facility). Focus LLC is also subject to contingent principal payments based on excess cash flow for any fiscal year if the First Lien Leverage Ratio exceeds 3.75:1.00.

The Company defers and amortizes its debt financing costs over the respective terms of the First Lien Term Loan and First Lien Revolver. The debt financing costs related to the First Lien Term Loan are recorded as a reduction of the carrying amount of the First Lien Term Loan in the unaudited condensed consolidated balance sheets. The debt financing costs related to the First Lien Revolver are recorded in debt financing costs-net in the unaudited condensed consolidated balance sheets.

The following is a reconciliation of principal amounts outstanding under the Credit Facility to borrowings under the Credit Facility recorded in the unaudited condensed consolidated balance sheets at December 31, 2018 and June 30, 2019:

	December 31,		June 30,
	2018		2019
First Lien Term Loan	$	798,985	$	794,970
First Lien Revolver		40,000		320,000
Unamortized debt financing costs		(2,403)		(2,186)
Total	$	836,582	$	1,112,784

Weighted‑average interest rates for outstanding borrowings were approximately 6% for the year ended December 31, 2018 and approximately 5% for the six months ended June 30, 2019.

As of December 31, 2018 and June 30, 2019, the First Lien Revolver available unused commitment line was $605,793 and $323,673, respectively.

As of December 31, 2018 and June 30, 2019, Focus LLC was contingently obligated for letters of credit in the amount of $4,207 and $6,327, respectively, each bearing interest at an annual rate of approximately 1% and 2%,  respectively.

In July 2019, the Company expanded its First Lien Term Loan by $350,000 and incurred approximately $3,800 in estimated debt financing costs. The debt was issued at a discount of 0.25% or $875. The proceeds were used by the Company to reduce the amount outstanding under the Company’s First Lien Revolver. Additionally, the quarterly installment repayments related to the First Lien Term Loan were increased to $2,891.

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EQUITY

6 Months Ended

Jun. 30, 2019

EQUITY

EQUITY

9. EQUITY

Common Stock

Each Focus LLC common unit, together with a corresponding share of Class B common stock, and Focus LLC incentive unit (after conversion into a number of Focus LLC common units taking into account the then-current value of the common units and such incentive unit’s aggregate hurdle amount) is exchangeable, pursuant to the terms and subject to the conditions set forth in the Operating Agreement, for one share of the Company’s Class A common stock, or, if either the Company or Focus LLC so elects, cash.

In March 2019, the Company issued an aggregate of 403,712 shares of Class A common stock and retired 254,441 shares of Class B common stock and 217,730 incentive units in Focus LLC and acquired 403,712 common units in Focus LLC, in each case as part of the regular quarterly exchanges offered to holders of units in Focus LLC.

In June 2019, the Company issued an aggregate of 423,985 shares of Class A common stock and retired 260,385 shares of Class B common stock and 248,142 incentive units in Focus LLC and acquired 423,985 common units in Focus LLC, in each case as part of the regular quarterly exchanges offered to holders of units in Focus LLC.

Stock Options and Unvested Class A Common Stock

The following table provides information relating to the changes in the Company’s stock options during the six months ended June 30, 2019:

		Weighted
	Stock	Average
	Options	Exercise Price
Outstanding—January 1, 2019	1,401,276	$	31.34
Granted	55,513		35.30
Exercised	(24,126)		33.00
Forfeited	(22,358)		30.33
Outstanding—June 30, 2019	1,410,305		31.48
Vested—June 30, 2019	478,888		33.00

The following table provides information relating to the changes in the Company’s unvested Class A common stock during the six months ended June 30, 2019:

	Unvested  Class A	Grant  Date
	Common Stock	Fair Value
Outstanding—January 1, 2019	119,078	$	33.00
Forfeited	(909)		33.00
Outstanding—June 30, 2019	118,169		33.00

For the purpose of calculating equity-based compensation expense for time-based stock option awards granted during the six months ended June 30, 2019, the grant date fair value was determined through the application of the Black-Scholes model with the following weighted average assumptions:

Expected term		6.25	years
Expected stock price volatility		28	%
Risk-free interest rate		2.42	%
Expected dividend yield		—	%
Weighted average grant date fair value	$	11.67

The Company recognized $1,158 and $2,060 of non-cash equity compensation expense in relation to the stock options and unvested Class A common stock during the three and six months ended June 30, 2019, respectively.

Focus LLC Incentive Units

The following table provides information relating to the changes in Focus LLC incentive units during the six months ended June 30, 2019:

	Incentive	Weighted Average
	Units	Hurdle Price
Outstanding—January 1, 2019	18,597,474	$	20.63
Granted	30,000		36.64
Exchanged	(465,872)		11.34
Forfeited	(331,038)		27.80
Outstanding—June 30, 2019	17,830,564		20.77
Vested—June 30, 2019	9,487,585		14.35

Incentive units outstanding and vested at June 30, 2019 were as follows:

	Number	Vested Incentive
Hurdle Rates	Outstanding	Units
$1.42	175,421	175,421
5.50	97,798	97,798
6.00	56,702	56,702
7.00	482,545	482,545
9.00	2,001,982	2,001,982
11.00	1,271,965	1,271,965
12.00	520,000	520,000
13.00	842,418	835,752
14.00	56,205	56,205
16.00	168,552	168,552
17.00	80,000	72,500
19.00	865,731	791,981
21.00	3,975,500	2,475,500
22.00	1,289,667	342,104
23.00	524,828	131,207
27.00	29,484	7,371
28.50	1,646,766	—
33.00	3,715,000	—
36.64	30,000	—
	17,830,564	9,487,585

The Company recorded $3,701 and $7,555 of non-cash equity compensation expense for incentive units and other during the three and six months ended June 30, 2018, respectively.

The Company recorded $4,020 and $7,039 of non-cash equity compensation expense for incentive units and other during the three and six months ended June 30, 2019, respectively.

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INCOME TAXES

6 Months Ended

Jun. 30, 2019

INCOME TAXES

INCOME TAXES

10. INCOME TAXES

The estimated annual effective tax rate for the six months ended June 30, 2019 was 42.7% as compared to 30.2% for the three months ended March 31, 2019. The increase in the estimated annual effective tax rate is primarily attributable to an increase in estimated non-deductible equity-based compensation expense. Income tax expense for the six months ended June 30, 2019 is primarily related to federal, state and local income taxes imposed on the Company’s allocable portion of taxable income from Focus LLC. The allocable portion of taxable income primarily differs from the net loss attributable to the Company due to permanent differences such as non-deductible equity-based compensation expense of Focus LLC.

During the six months ended June 30, 2019, there were no changes to the Company’s uncertain tax positions.

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TAX RECEIVABLE AGREEMENTS

6 Months Ended

Jun. 30, 2019

TAX RECEIVABLE AGREEMENTS

TAX RECEIVABLE AGREEMENTS

11. TAX RECEIVABLE AGREEMENTS

In connection with the Reorganization Transactions and the closing of the IPO, the Company entered into two Tax Receivable Agreements ("TRAs"): one with certain entities affiliated with the Private Equity Investors and the other with certain other Existing Owners (the parties to the two agreements, collectively, the “TRA holders”). The agreements generally provide for the payment by the Company to each TRA holder of 85% of the net cash savings, if any, in U.S. federal, state and local income and franchise tax that the Company actually realizes (computed using simplifying assumptions to address the impact of state and local taxes) or is deemed to realize in certain circumstances in connection with the Reorganization Transactions and in periods after the IPO, as a result of certain increases in tax bases and certain tax benefits attributable to imputed interest. The Company will retain the benefit of the remaining 15% of these cash savings.

As of June 30, 2019, the Company recorded a liability of $46,535 relating to the TRA obligations. Future payments under the TRAs in respect of future exchanges of Focus LLC units for shares of Class A common stock will be in addition to the amount recorded.

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LEASES

6 Months Ended

Jun. 30, 2019

LEASES

LEASES

12. LEASES

The Company rents office space under operating leases with various expiration dates. The Company determines if a contract contains a lease at inception. Leases with an initial term of 12 months or less, which are immaterial to the condensed consolidated financial statements, are not recorded in the balance sheet. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease expense is recorded on a straight-line basis over the lease term. The Company has a limited number of finance leases which are not material to the consolidated financial statements.

Operating lease costs are recorded within selling, general and administrative expenses. The implicit discount rates used to determine the present value of the Company’s leases are not readily determinable. Therefore, an incremental borrowing rate is used which is estimated based on the Company’s cost of borrowing for the relevant terms of each lease. The weighted average discount rate used to determine the Company’s operating lease liabilities was approximately 6.6% at June 30, 2019. The weighted average remaining lease term at June 30, 2019 was 7.4 years.

The future minimum lease payments under operating leases in place as of June 30, 2019 were as follows:

Period	Amount
Six months ending December 31, 2019	$	20,834
2020		39,965
2021		33,461
2022		27,944
2023		22,854
2024 and thereafter		88,139
		233,197
Less: present value discount		(52,746)
Operating lease liabilities at June 30, 2019	$	180,451

Other information pertaining to leases consists of the following:

	Three Months Ended		Six Months Ended
	June 30, 2019		June 30, 2019
Operating lease costs included in selling general and administrative expenses	$	11,298	$	20,963
Operating cash flows from operating leases		10,379		19,473
Operating lease assets obtained in exchange for operating lease obligations		13,469		37,317

In accordance with ASC 840 future minimum lease payments under operating leases in place at December 31, 2018 were as follows:

Year Ending December 31,	Amount
2019	$	35,426
2020		31,695
2021		24,813
2022		20,906
2023		16,743
2024 and thereafter		50,045
Total minimum lease payments	$	179,628

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2019

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

13. COMMITMENTS AND CONTINGENCIES

Credit Risk—The Company’s broker‑dealer subsidiaries clear all transactions through clearing brokers on a fully disclosed basis. Pursuant to the terms of the agreements between the Company’s broker‑dealer subsidiaries and their clearing brokers, the clearing brokers have the right to charge the Company’s broker‑dealer subsidiaries for losses that result from a counterparty’s failure to fulfill its contractual obligations. This right applies to all trades executed through its clearing brokers, and therefore, the Company believes there is no maximum amount assignable to the right of the clearing brokers. Accordingly, at December 31, 2018 and June 30, 2019, the Company had recorded no liabilities in connection with this right.

In addition, the Company has the right to pursue collection or performance from the counterparties who do not perform under their contractual obligations. The Company monitors the credit standing of the clearing brokers and counterparties with which they conduct business.

The Company is exposed to credit risk for accounts receivable from clients. Such credit risk is limited to the amount of accounts receivable. The Company is also exposed to credit risk for changes in the benchmark interest rate (LIBOR or Base Rate) in connection with its Credit Facility.

The Company maintains its cash in bank depository accounts, which, at times, may exceed federally insured limits. The Company selects depository institutions based, in part, upon management’s review of the financial stability of the institution. At December 31, 2018 and June 30, 2019, a significant portion of cash and cash equivalents were held at a single institution.

Contingent Consideration Arrangements—Contingent consideration is payable in the form of cash and, in some cases, equity. Since the contingent consideration to be paid is based on the growth of forecasted financial performance levels over a number of years, the Company cannot calculate the maximum contingent consideration that may be payable under these arrangements.

Legal and Regulatory Matters—In the ordinary course of business, the Company is involved in lawsuits and other claims. The Company has insurance to cover certain losses that arise in such matters; however, this insurance may not be sufficient to cover these losses. Management, after consultation with legal counsel, currently does not anticipate that the aggregate liability, if any, arising out of any existing legal matters will have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

From time to time, the Company’s subsidiaries receive requests for information from governmental authorities regarding business activities. The Company has cooperated and plans to continue to cooperate with all governmental agencies. The Company continues to believe that the resolution of any governmental inquiry will not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

Indemnifications—In the ordinary course of business, the Company enters into contracts pursuant to which it may agree to indemnify third parties in certain circumstances. The terms of these indemnities vary from contract to contract and the amount of indemnification liability, if any, cannot be determined.

Management believes that the likelihood of any liability arising under these indemnification provisions is remote. Management cannot estimate any potential maximum exposure due to both the remoteness of any potential claims and the fact that items that would be included within any such calculated claim would be beyond the control of the Company. Consequently, no liability has been recorded in the unaudited condensed consolidated balance sheets.

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CASH FLOW INFORMATION

6 Months Ended

Jun. 30, 2019

CASH FLOW INFORMATION

CASH FLOW INFORMATION

14. CASH FLOW INFORMATION

	Six Months Ended
	June 30,
	2018		2019
Supplemental disclosures of cash flow information—cash paid for:
Interest	$	32,655	$	25,904
Income taxes	$	2,922	$	3,356
Supplemental non-cash cash flow information:
Fair market value of estimated contingent consideration in connection with acquisitions	$	21,878	$	50,945
Fair market value of restricted common units in connection with acquisitions and contingent consideration	$	32,829	$	—
Net tangible assets (liabilities) acquired in connection with business acquisitions	$	684	$	(3,888)
Deferred taxes and tax receivable agreements	$	—	$	250
Right of use asset related to operating leases	$	—	$	168,867
Lease liability related to operating leases	$	—	$	180,451

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RELATED PARTIES

6 Months Ended

Jun. 30, 2019

RELATED PARTIES

RELATED PARTIES

15. RELATED PARTIES

The Company reimburses the Company’s Chief Executive Officer for certain costs and third-party payments associated with the use of his personal aircraft for Company-related business travel. The Company also pays pilot fees for such business travel flights. During the three and six months ended June 30, 2019, the Company recognized expenses of $441 and $1,070, respectively, related to these reimbursements. During the three and six months ended June 30, 2018, the Company recognized expenses of $374 and $897, respectively, related to these reimbursements.

At June 30, 2019, affiliates of certain holders of the Company’s Class A common stock and Class B common stock were lenders under the Credit Facility.

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OTHER

6 Months Ended

Jun. 30, 2019

OTHER

OTHER

16. OTHER

In February 2019, the Company recorded a management contract buyout expense of $1,428 related to cash consideration for the buyout of a management agreement with one of the Company’s retiring principals whereby the business operations of the relevant partner firm were transitioned to one of the Company’s other partner firms.

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SUMMARY OF ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2019

SUMMARY OF ACCOUNTING POLICIES

Basis of Presentation

Basis of Presentation—The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of only normal recurring adjustments, considered necessary for fair presentation have been included. The unaudited condensed consolidated financial statements include the accounts of the Company and its majority and wholly owned subsidiaries. The Company consolidates Focus LLC and its subsidiaries’ consolidated financial statements and records the interests in Focus LLC that the Company does not own as non-controlling interests. Non-controlling interests were measured initially at the proportionate share of Focus LLC’s identifiable net assets at the date of the IPO. Intercompany transactions and balances have been eliminated in consolidation. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K as filed with the SEC on March 28, 2019.

Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

Use of Estimates

Use of Estimates—The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Revenue

Revenue

The Company disaggregates revenue by wealth management fees and other. The Company does not allocate revenue by the type of service provided in connection with providing holistic wealth management client services. The Company generally manages its business based on the operating results of the enterprise taken as a whole, not by geographic region. The following table disaggregates the revenues based on the location of the partner firm legal entities that generates the revenues and therefore may not be reflective of the geography in which clients are located.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2019		2018		2019
Domestic revenue	$	225,894	$	287,920	$	416,519	$	542,212
International revenue		5,541		13,625		11,145		19,257
Total revenue	$	231,435	$	301,545	$	427,664	$	561,469

Leases

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842).” ASU No. 2016-02 requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right of use asset for the right to use the underlying asset for the lease term. ASU No. 2016-02 was effective for the Company for interim and annual periods beginning January 1, 2019. The Company adopted ASU No. 2016-02 effective January 1, 2019 using a modified retrospective method and therefore has not restated comparative periods. The Company elected to use certain practical expedients to assist in the transition and has not reassessed the identification and classification of leases upon adoption. Based on the portfolio of leases as of January 1, 2019, the Company recognized approximately $144,000 of lease liabilities and $134,000 of right of use assets (which reflects the reclassification of previous deferred rent balances into the right of use asset as required under the transition guidance) on the balance sheet, primarily related to operating leases for real estate. There was no material impact to the consolidated statement of operations and comprehensive income (loss) or consolidated statement of cash flows as a result of adoption of this new guidance. Refer to Note 12 for further information regarding leases.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment,” which removes the second step of the goodwill impairment test that requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU No. 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2019 and will be applied prospectively. Early adoption is permitted. ASU No. 2017-04 is not expected to have a material effect on the Company’s consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07 “Improvements to Nonemployee Share-Based Payment Accounting,” which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. ASU No. 2018-07 was effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The adoption of ASU No. 2018-07 on January 1, 2019 did not have a material effect on the Company’s consolidated financial statements.

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SUMMARY OF ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2019

SUMMARY OF ACCOUNTING POLICIES

Schedule of disaggregated revenues based on the location of the partner firm

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2019		2018		2019
Domestic revenue	$	225,894	$	287,920	$	416,519	$	542,212
International revenue		5,541		13,625		11,145		19,257
Total revenue	$	231,435	$	301,545	$	427,664	$	561,469

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NON-CONTROLLING INTEREST AND INCOME (LOSS) PER SHARE (Tables)

6 Months Ended

Jun. 30, 2019

NON-CONTROLLING INTEREST AND INCOME (LOSS) PER SHARE

Schedule of reconciliation of net income before noncontrolling interest to net income (loss) attributable to common stockholders

Focus LLC common units held by continuing owners	22,308,446
Common unit equivalents of outstanding vested and unvested incentive units held by continuing owners(1)	5,125,588
Total common units and common unit equivalents attributable to non-controlling interest	27,434,034
Total common units and common unit equivalents of incentive units outstanding	74,550,851
Non-controlling interest allocation	36.8	%
Company’s interest in Focus LLC	63.2	%

(1) Focus LLC common units issuable upon conversion of 17,830,564 (see Note 9) vested and unvested Focus LLC incentive units was calculated using the common unit equivalent of vested and unvested Focus LLC incentive units based on the closing price of the Company’s Class A common stock on the last trading day of the period.

The below table contains a reconciliation of net income to net income (loss) attributable to common shareholders:

	Three Months		Six Months
	Ended		Ended
	June 30, 2019		June 30, 2019
Net income	$	3,102	$	274
Non-controlling interest		(2,306)		(2,420)
Net income (loss) attributable to common shareholders	$	796	$	(2,146)

Schedule of calculation of basic earnings per share

	Three Months		Six Months
	Ended		Ended
	June 30, 2019		June 30, 2019
Basic income (loss) per share:
Net income (loss) attributable to common shareholders	$	796	$	(2,146)
Weighted average shares of Class A common stock outstanding		46,696,200		46,455,238
Basic income (loss) per share	$	0.02	$	(0.05)

Schedule of calculation of diluted earnings per share

	Three Months		Six Months
	Ended		Ended
	June 30, 2019		June 30, 2019
Diluted income (loss) per share:
Net income (loss) attributable to common shareholders	$	796	$	(2,146)
Weighted average shares of Class A common stock outstanding		46,696,200		46,455,238
Effect of dilutive stock options		—		—
Effect of dilutive unvested Class A common stock		25,359		—
Total		46,721,559		46,455,238
Diluted income (loss) per share	$	0.02	$	(0.05)

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ACQUISITIONS (Tables)

6 Months Ended

Jun. 30, 2019

ACQUISITIONS

Schedule of purchase price associated with business acquisitions and the allocation thereof

The purchase price associated with business acquisitions and the allocation thereof during the six months ended June 30, 2019 is as follows:

Number of business acquisitions closed		21
Consideration:
Cash and option premium	$	283,291
Fair market value of estimated contingent consideration		50,945
Total consideration	$	334,236
Allocation of purchase price:
Total tangible assets	$	37,627
Total liabilities assumed		(41,515)
Customer relationships		199,977
Management contracts		9,184
Goodwill		128,391
Other intangibles		572
Total allocated consideration	$	334,236

Schedule of weighted-average useful lives of intangible assets acquired

The weighted‑average useful lives of intangible assets acquired during the six months ended June 30, 2019 through business acquisitions and asset acquisitions are as follows:

	Number of
	Years
Management contracts	19
Customer relationships	9
Other intangibles	5
Weighted-average useful life of all intangibles acquired	10

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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

6 Months Ended

Jun. 30, 2019

GOODWILL AND OTHER INTANGIBLE ASSETS

Summary of changes in the goodwill balances

	December 31,		June 30,
	2018		2019
Balance beginning of period:
Goodwill	$	538,113	$	883,119
Cumulative impairment losses		(22,624)		(22,624)
		515,489		860,495
Goodwill acquired		347,496		128,391
Other		(2,490)		(180)
		345,006		128,211
Balance end of period:
Goodwill		883,119		1,011,330
Cumulative impairment losses		(22,624)		(22,624)
	$	860,495	$	988,706

Summary of amortizing acquired intangible assets

The following table summarizes the amortizing acquired intangible assets at December 31, 2018:

	Gross Carry		Accumulated		Net Book
	Amount		Amortization		Value
Customer relationships	$	1,008,186	$	(349,125)	$	659,061
Management contracts		133,112		(31,911)		101,201
Other intangibles		4,402		(2,469)		1,933
Total	$	1,145,700	$	(383,505)	$	762,195

The following table summarizes the amortizing acquired intangible assets at June 30, 2019:

	Gross Carry		Accumulated		Net Book
	Amount		Amortization		Value
Customer relationships	$	1,209,291	$	(404,967)	$	804,324
Management contracts		142,319		(35,735)		106,584
Other intangibles		5,031		(2,829)		2,202
Total	$	1,356,641	$	(443,531)	$	913,110

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FAIR VALUE MEASUREMENTS (Tables)

6 Months Ended

Jun. 30, 2019

FAIR VALUE MEASUREMENTS

Schedule of implied fair value of the Company's First Lien Term Loan (as defined below)

	December 31, 2018				June 30, 2019
	Stated Value		Fair Value		Stated Value		Fair Value
First Lien Term Loan	$	798,985	$	773,018	$	794,970	$	793,976

Schedule of changes in the fair value of estimated contingent consideration for business acquisitions

Balance at January 1, 2018	$	76,677
Additions to estimated contingent consideration		42,086
Payments of contingent consideration		(26,237)
Non-cash changes in fair value of estimated contingent consideration		6,638
Other		(259)
Balance at December 31, 2018		98,905
Additions to estimated contingent consideration		50,945
Payments of contingent consideration		(29,475)
Non-cash changes in fair value of estimated contingent consideration		11,261
Other		(203)
Balance at June 30, 2019	$	131,433

Schedule of inputs used in the fair value measurement of estimated contingent consideration

Fair Value at		Quantitative Information About Level 3 Fair Value Measurements
December 31, 2018		Valuation Technique	Unobservable Input	Range
$	98,905	Monte Carlo Simulation model	Forecasted growth rates	(16.2)% - 18.7%

Fair Value at		Quantitative Information About Level 3 Fair Value Measurements
June 30, 2019		Valuation Technique	Unobservable Input	Range
$	131,433	Monte Carlo Simulation model	Forecasted growth rates	(17.0)% - 129.8%

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CREDIT FACILITY (Tables)

6 Months Ended

Jun. 30, 2019

CREDIT FACILITY

Schedule of reconciliation of principal amounts outstanding under the Credit Facility to borrowings under credit facilities recorded in the unaudited condensed consolidated balance sheet

	December 31,		June 30,
	2018		2019
First Lien Term Loan	$	798,985	$	794,970
First Lien Revolver		40,000		320,000
Unamortized debt financing costs		(2,403)		(2,186)
Total	$	836,582	$	1,112,784

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EQUITY (Tables)

6 Months Ended

Jun. 30, 2019

Schedule of incentive units granted

	Incentive	Weighted Average
	Units	Hurdle Price
Outstanding—January 1, 2019	18,597,474	$	20.63
Granted	30,000		36.64
Exchanged	(465,872)		11.34
Forfeited	(331,038)		27.80
Outstanding—June 30, 2019	17,830,564		20.77
Vested—June 30, 2019	9,487,585		14.35

Schedule of incentive units outstanding and vested by hurdle rates

	Number	Vested Incentive
Hurdle Rates	Outstanding	Units
$1.42	175,421	175,421
5.50	97,798	97,798
6.00	56,702	56,702
7.00	482,545	482,545
9.00	2,001,982	2,001,982
11.00	1,271,965	1,271,965
12.00	520,000	520,000
13.00	842,418	835,752
14.00	56,205	56,205
16.00	168,552	168,552
17.00	80,000	72,500
19.00	865,731	791,981
21.00	3,975,500	2,475,500
22.00	1,289,667	342,104
23.00	524,828	131,207
27.00	29,484	7,371
28.50	1,646,766	—
33.00	3,715,000	—
36.64	30,000	—
	17,830,564	9,487,585

Stock options

Schedule of stock options granted

		Weighted
	Stock	Average
	Options	Exercise Price
Outstanding—January 1, 2019	1,401,276	$	31.34
Granted	55,513		35.30
Exercised	(24,126)		33.00
Forfeited	(22,358)		30.33
Outstanding—June 30, 2019	1,410,305		31.48
Vested—June 30, 2019	478,888		33.00

Time-based stock option awards

Schedule of fair value of stock options grants determined with assumptions

Expected term		6.25	years
Expected stock price volatility		28	%
Risk-free interest rate		2.42	%
Expected dividend yield		—	%
Weighted average grant date fair value	$	11.67

Class A common stock

Schedule of stock options granted

	Unvested  Class A	Grant  Date
	Common Stock	Fair Value
Outstanding—January 1, 2019	119,078	$	33.00
Forfeited	(909)		33.00
Outstanding—June 30, 2019	118,169		33.00

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LEASES (Tables)

6 Months Ended

Jun. 30, 2019

LEASES

Future minimum lease payments under operating leases

Period	Amount
Six months ending December 31, 2019	$	20,834
2020		39,965
2021		33,461
2022		27,944
2023		22,854
2024 and thereafter		88,139
		233,197
Less: present value discount		(52,746)
Operating lease liabilities at June 30, 2019	$	180,451

Other information pertaining to leases

	Three Months Ended		Six Months Ended
	June 30, 2019		June 30, 2019
Operating lease costs included in selling general and administrative expenses	$	11,298	$	20,963
Operating cash flows from operating leases		10,379		19,473
Operating lease assets obtained in exchange for operating lease obligations		13,469		37,317

Future minimum lease payments under operating leases ASU 840

In accordance with ASC 840 future minimum lease payments under operating leases in place at December 31, 2018 were as follows:

Year Ending December 31,	Amount
2019	$	35,426
2020		31,695
2021		24,813
2022		20,906
2023		16,743
2024 and thereafter		50,045
Total minimum lease payments	$	179,628

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CASH FLOW INFORMATION (Tables)

6 Months Ended

Jun. 30, 2019

CASH FLOW INFORMATION

Schedule of supplemental cash flow information

	Six Months Ended
	June 30,
	2018		2019
Supplemental disclosures of cash flow information—cash paid for:
Interest	$	32,655	$	25,904
Income taxes	$	2,922	$	3,356
Supplemental non-cash cash flow information:
Fair market value of estimated contingent consideration in connection with acquisitions	$	21,878	$	50,945
Fair market value of restricted common units in connection with acquisitions and contingent consideration	$	32,829	$	—
Net tangible assets (liabilities) acquired in connection with business acquisitions	$	684	$	(3,888)
Deferred taxes and tax receivable agreements	$	—	$	250
Right of use asset related to operating leases	$	—	$	168,867
Lease liability related to operating leases	$	—	$	180,451

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SUMMARY OF ACCOUNTING POLICIES - Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenue Recognition
Total revenues	$ 301,545	$ 231,435	$ 561,469	$ 427,664
Domestic revenue
Revenue Recognition
Total revenues	287,920	225,894	542,212	416,519
International revenue
Revenue Recognition
Total revenues	$ 13,625	$ 5,541	$ 19,257	$ 11,145

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SUMMARY OF ACCOUNTING POLICIES - Recent Accounting Pronouncements (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Jan. 01, 2019
Recent Accounting Pronouncements
Operating lease liabilities	$ 180,451
Operating lease assets	$ 168,867
Accounting Standards Update 2016-02
Recent Accounting Pronouncements
Operating lease liabilities		$ 144,000
Operating lease assets		$ 134,000

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IPO, REORGANIZATION TRANSACTIONS AND USE OF PROCEEDS (Details) $ / shares in Units, $ in Thousands		1 Months Ended	6 Months Ended
	Jul. 30, 2018 USD ($) Vote $ / shares shares	Mar. 31, 2019 shares	Jun. 30, 2019 $ / shares shares	Dec. 31, 2018 $ / shares
Class A common stock
Initial Public Offering
Issuance of stock (in shares)		403,712	423,985
Common stock, par value | $ / shares			$ 0.01	$ 0.01
Reorganization Transactions
Number of votes for each share | Vote	1
Issue of shares, Reorganization transaction	23,881,002
Non-compensatory stock options issued to purchase of common stock under the reorganization transaction	386,832
Compensatory stock options issued to purchase of common stock under the reorganization transaction	348,577
Number of shares cancelled under reorganization transaction	240,457
Class B common stock
Initial Public Offering
Common stock, par value | $ / shares			$ 0.01	$ 0.01
Reorganization Transactions
Number of votes for each share | Vote	1
Issue of shares, Reorganization transaction	22,499,665
Number of new shares issued after cancellation under the reorganization transaction	240,457
IPO
Reorganization Transactions
Net proceeds used to pay certain owners | $	$ 35,537
Number of units exchanged	17,583,947
Repayment of credit facility | $	$ 392,535
Residual contribution | $	137,088
IPO | Focus LLC
Reorganization Transactions
Payment for exchange of units | $	$ 529,623
IPO | Class A common stock
Initial Public Offering
Issuance of stock (in shares)	18,648,649
Common stock, par value | $ / shares	$ 0.01
Reorganization Transactions
Proceeds from sale of common stock | $	$ 565,160
Underwriters option | Class A common stock
Initial Public Offering
Issuance of stock (in shares)	2,432,432
Share price (in dollars per share) | $ / shares	$ 33.00
Reorganization Transactions
Proceeds from sale of common stock | $	$ 74,651

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NON-CONTROLLING INTEREST AND INCOME (LOSS) PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Net income (loss) attributable to common stockholders
Net income	$ 3,102	$ (7,656)	$ 274	$ (19,710)
Non-controlling interest	(2,306)		(2,420)
Net income (loss) attributable to common shareholders	796		(2,146)
Basic income (loss) per share:
Net income (loss) attributable to common shareholders	$ 796		$ (2,146)
Basic income (loss) per share	$ 0.02		$ (0.05)
Diluted income (loss) per share:
Net income (loss) attributable to common shareholders	$ 796		$ (2,146)
Total	46,721,559		46,455,238
Diluted income (loss) per share	$ 0.02		$ (0.05)
Class A common stock
Basic income (loss) per share:
Weighted average shares of Class A common stock outstanding	46,696,200		46,455,238
Basic income (loss) per share	$ 0.02		$ (0.05)
Diluted income (loss) per share:
Weighted average shares of Class A common stock outstanding	46,721,559		46,455,238
Stock options excluded from diluted income (loss) per share	25,359,000		16,607
Diluted income (loss) per share	$ 0.02		$ (0.05)
Market based stock options
Diluted income (loss) per share:
Stock options excluded from diluted income (loss) per share	155,000		155,000
Threshold period			90 days
Vesting period			5 years
Threshold volume weighted average per share price trigger			$ 100
Focus LLC
LOSS PER SHARE
Focus LLC common units held by continuing owners	22,308,446,000		22,308,446,000
Common unit equivalents of outstanding vested and unvested incentive units held by continuing owners	5,125,588,000		5,125,588,000
Total common units and common unit equivalents attributable to non-controlling interest	27,434,034,000		27,434,034,000
Total common units and common unit equivalents of incentive units outstanding	74,550,851,000		74,550,851,000
Ownership interest (as a percentage)	36.80%		36.80%
Non-controlling interest allocation	63.20%		63.20%
Convertible incentive units	17,830,564		17,830,564

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ACQUISITIONS - Business Acquisitions (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2019 USD ($) item	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)
Allocation of purchase price:
Goodwill	$ 988,706	$ 860,495	$ 515,489
Business acquisitions
ACQUISITIONS
Number of business acquisitions closed | item	21
Consideration:
Cash and option premium	$ 283,291
Fair market value of estimated contingent consideration	50,945
Total consideration	334,236
Allocation of purchase price:
Total tangible assets	37,627
Total liabilities assumed	(41,515)
Goodwill	128,391
Total allocated consideration	334,236
Amount of tax on goodwill and intangibles related to business acquisitions	$ 280,460
Deductibility period for goodwill and intangible assets acquired in a business acquisition (in years)	15 years
Revenue from acquired entity in business acquisitions	$ 28,950
Number of business acquisitions closed during the period which are new subsidiary partner firms | item	5
Income from acquired entity in business acquisitions	$ 3,453
Business acquisitions | Management contracts
Allocation of purchase price:
Finite-lived intangible assets	9,184
Business acquisitions | Customer relationships
Allocation of purchase price:
Finite-lived intangible assets	199,977
Business acquisitions | Other intangibles
Allocation of purchase price:
Finite-lived intangible assets	$ 572

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ACQUISITIONS - Asset Acquisitions (Details) $ in Thousands	1 Months Ended	6 Months Ended
	Aug. 08, 2019 USD ($) item	Jun. 30, 2019 USD ($) item
Asset Acquisitions
Weighted-average useful life of all intangibles acquired		10 years
Business acquisitions
Asset Acquisitions
Number of asset acquisitions | item		2
Contingent consideration | $		$ 600
Number of business acquisitions | item		21
Purchase consideration for asset acquisitions | $		$ 283,291
Business acquisitions | Subsequent Events
Asset Acquisitions
Number of business acquisitions | item	7
Purchase consideration for asset acquisitions | $	$ 203,281
Management contracts
Asset Acquisitions
Weighted-average useful life of all intangibles acquired		19 years
Customer relationships
Asset Acquisitions
Weighted-average useful life of all intangibles acquired		9 years
Other intangibles
Asset Acquisitions
Weighted-average useful life of all intangibles acquired		5 years

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GOODWILL AND OTHER INTANGIBLE ASSETS - Change in the goodwill (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Change in the goodwill
Goodwill beginning of period	$ 883,119	$ 538,113
Cumulative impairment losses beginning of period	(22,624)	(22,624)
Balance beginning of period	860,495	515,489
Goodwill acquired	128,391	347,496
Other	(180)	(2,490)
Goodwill period increase (decrease)	128,211	345,006
Goodwill end of period	1,011,330	883,119
Cumulative impairment losses end of period	(22,624)	(22,624)
Balance end of period	$ 988,706	$ 860,495

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GOODWILL AND OTHER INTANGIBLE ASSETS- Intangible assets (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Amortizing acquired intangible assets
Gross Carry Amount	$ 1,356,641	$ 1,145,700
Accumulated Amortization	(443,531)	(383,505)
Net Book Value	913,110	762,195
Customer relationships
Amortizing acquired intangible assets
Gross Carry Amount	1,209,291	1,008,186
Accumulated Amortization	(404,967)	(349,125)
Net Book Value	804,324	659,061
Management contracts
Amortizing acquired intangible assets
Gross Carry Amount	142,319	133,112
Accumulated Amortization	(35,735)	(31,911)
Net Book Value	106,584	101,201
Other intangibles
Amortizing acquired intangible assets
Gross Carry Amount	5,031	4,402
Accumulated Amortization	(2,829)	(2,469)
Net Book Value	$ 2,202	$ 1,933

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FAIR VALUE MEASUREMENTS - Implied fair value (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Implied fair value based on level 2 inputs
Stated value	$ 1,112,784	$ 836,582
First Lien Term Loan
Implied fair value based on level 2 inputs
Stated value	794,970	798,985
Fair value	$ 793,976	$ 773,018

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FAIR VALUE MEASUREMENTS - Changes in the fair value (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Changes in the fair value of estimated contingent consideration for business acquisitions
Balance at beginning of period	$ 98,905	$ 76,677
Additions to estimated contingent consideration	50,945	42,086
Payments of contingent consideration	(29,475)	(26,237)
Non-cash changes in fair value of estimated contingent consideration	11,261	6,638
Other	(203)	(259)
Balance at end of period	131,433	98,905
Other liabilities
Changes in the fair value of estimated contingent consideration for business acquisitions
Contingent consideration paid in cash	$ 29,475	23,816
Contingent consideration issued of restricted common units		$ 2,421

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FAIR VALUE MEASUREMENTS - Contingent consideration (Details) - Level 3 $ in Thousands	Jun. 30, 2019 USD ($) item	Dec. 31, 2018 USD ($) item
Inputs used in the fair value measurement of estimated contingent consideration
Estimated contingent consideration | $	$ 131,433	$ 98,905
Valuation techniques	us-gaap:ValuationTechniqueOptionPricingModelMember	us-gaap:ValuationTechniqueOptionPricingModelMember
Unobservable input	focs:MeasurementInputForecastedGrowthRatesMember	focs:MeasurementInputForecastedGrowthRatesMember
Minimum
Inputs used in the fair value measurement of estimated contingent consideration
Estimated contingent consideration (in percent)	(17.0)	(16.2)
Maximum
Inputs used in the fair value measurement of estimated contingent consideration
Estimated contingent consideration (in percent)	129.8	18.7

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CREDIT FACILITY - Old and New Credit Facility (Details) $ in Thousands	1 Months Ended	6 Months Ended	12 Months Ended
	Jul. 31, 2019 USD ($)	Jun. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)
CREDIT FACILITY
Face amount of debt		$ 1,114,970	$ 838,985
Credit Facility
CREDIT FACILITY
Actual total secured leverage ratio		4.05
Secured leverage ratio threshold for contingent principle payments			3.75
Credit Facility | Maximum
CREDIT FACILITY
Actual total secured leverage ratio		6.25
First Lien Term Loan
CREDIT FACILITY
Face amount of debt		$ 803,000
Quarterly installment repayments		2,007
First Lien Revolver
CREDIT FACILITY
Face amount of debt	$ 350,000
Accordion feature		650,000
Quarterly installment repayments	$ 2,891
Debt discount (as a percent)	0.25%
Maximum borrowing capacity		$ 30,000
Unused commitment fee (as a percent)		0.50%
First Lien Revolver Step Down One
CREDIT FACILITY
Unused commitment fee (as a percent)		0.375%
First Lien Revolver Step Down Two
CREDIT FACILITY
Unused commitment fee (as a percent)		0.25%
LIBOR | First Lien Term Loan
CREDIT FACILITY
Margin (as a percent)		2.50%
LIBOR | First Lien Revolver
CREDIT FACILITY
Margin (as a percent)		2.00%
LIBOR | First Lien Revolver Step Down One
CREDIT FACILITY
Margin (as a percent)		1.75%
LIBOR | First Lien Revolver Step Down Two
CREDIT FACILITY
Margin (as a percent)		1.50%
LIBOR | First Lien Revolver Step Down Three
CREDIT FACILITY
Margin (as a percent)		1.25%
Base rate | Credit Facility
CREDIT FACILITY
Margin (as a percent)		1.50%
Base rate | First Lien Revolver
CREDIT FACILITY
Margin (as a percent)		1.00%
Base rate | First Lien Revolver Step Down One
CREDIT FACILITY
Margin (as a percent)		0.75%
Base rate | First Lien Revolver Step Down Two
CREDIT FACILITY
Margin (as a percent)		0.50%
Base rate | First Lien Revolver Step Down Three
CREDIT FACILITY
Margin (as a percent)		0.25%

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CREDIT FACILITY - Reconciliation of Principal Amounts Outstanding (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
CREDIT FACILITY
Unamortized debt financing costs	$ (2,186)	$ (2,403)
Amount outstanding under credit facility	1,112,784	836,582
First Lien Term Loan
CREDIT FACILITY
Carrying value of debt	794,970	798,985
Amount outstanding under credit facility	794,970	798,985
First Lien Revolver
CREDIT FACILITY
Carrying value of debt	$ 320,000	$ 40,000

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CREDIT FACILITY - First Lien Revolver and Letters of Credit (Details) - USD ($) $ in Thousands	1 Months Ended	6 Months Ended	12 Months Ended
	Jul. 31, 2019	Jun. 30, 2019	Dec. 31, 2018
CREDIT FACILITY
Weighted average interest rate		5.00%	6.00%
Face amount of debt		$ 1,114,970	$ 838,985
Deferred financing costs		10,993	12,340
First Lien Revolver
CREDIT FACILITY
Unused commitment line		323,673	605,793
Face amount of debt	$ 350,000
Deferred financing costs	$ 3,800
Percentage of Debt Discount	0.25%
Debt discount	$ 875
Quarterly installment repayments	$ 2,891
Letter of credit
CREDIT FACILITY
Letter of credit outstanding		$ 6,327	$ 4,207
Annual interest rate		2.00%	1.00%

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EQUITY - Common stock (Details) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended		3 Months Ended		6 Months Ended
	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Class A common stock
EQUITY
Issuance of common stock (in shares)		403,712			423,985
Class B common stock
EQUITY
Common stock retired (in shares)		254,441			260,385
Incentive Units
EQUITY
Common stock exchanged (in shares)	248,142	(217,730)			(465,872)
Issuance of common stock in connection with acquisitions (in shares)		403,712			423,985
Fair value of the stock option grants determined with assumptions
Compensation expense recognized			$ 4,020	$ 3,701	$ 7,039	$ 7,555
Common Stock | Class A common stock
Changes in unvested common stock
Outstanding at the beginning of the period					119,078
Forfeited					(909)
Outstanding at the end of the period	118,169		118,169		118,169
Changes in unvested common stock, Grant Date Fair Value
Outstanding at the beginning of the period					$ 33.00
Forfeited					33.00
Outstanding at the end of the period	$ 33.00		$ 33.00		$ 33.00
Common Stock | Stock options
Changes in stock options
Outstanding at the beginning of the period					1,401,276
Granted					55,513
Exercised					(24,126)
Forfeited					22,358
Outstanding at the end of the period	1,410,305		1,410,305		1,410,305
Vested					478,888
Changes in stock option, Weighted Average Exercise Price
Outstanding at the beginning of the period					$ 31.34
Granted					35.30
Exercised					33.00
Forfeited					30.33
Outstanding at the end of the period	$ 31.48		$ 31.48		31.48
Vested					$ 33.00
Fair value of the stock option grants determined with assumptions
Compensation expense recognized			$ 1,158		$ 2,060
Common Stock | Time-based stock option awards
Fair value of the stock option grants determined with assumptions
Expected term (in years)					6 years 3 months
Expected stock price volatility (in percent)					28.00%
Risk-free interest rate (in percent)					2.42%
Weighted average grant date fair value					$ 11.67

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EQUITY - Focus LLC Incentive Unit (Details) - Incentive Units - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended		3 Months Ended		6 Months Ended
	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Incentive Units
Outstanding at the beginning of the period					18,597,474
Granted					30,000
Common stock exchanged (in shares)	248,142	(217,730)			(465,872)
Forfeited					(331,038)
Outstanding at the end of the period	17,830,564		17,830,564		17,830,564
Vested at the end of the period					9,487,585
Weighted Average Hurdle Price
Outstanding at the beginning of the period					$ 20.63
Granted					36.64
Exchanged					11.34
Forfeited					27.80
Outstanding at the end of the period	$ 20.77		$ 20.77		20.77
Vested at the end of the period	$ 14.35		$ 14.35		$ 14.35
Non-cash equity compensation expense			$ 4,020	$ 3,701	$ 7,039	$ 7,555
Hurdle Rate $1.42
Incentive Units
Outstanding at the end of the period	175,421		175,421		175,421
Vested at the end of the period					175,421
Weighted Average Hurdle Price
Hurdle Rates					$ 1.42
Hurdle Rate 5.50
Incentive Units
Outstanding at the end of the period	97,798		97,798		97,798
Vested at the end of the period					97,798
Weighted Average Hurdle Price
Hurdle Rates					$ 5.50
Hurdle Rate 6.00
Incentive Units
Outstanding at the end of the period	56,702		56,702		56,702
Vested at the end of the period					56,702
Weighted Average Hurdle Price
Hurdle Rates					$ 6.00
Hurdle Rate 7.00
Incentive Units
Outstanding at the end of the period	482,545		482,545		482,545
Vested at the end of the period					482,545
Weighted Average Hurdle Price
Hurdle Rates					$ 7.00
Hurdle Rate 9.00
Incentive Units
Outstanding at the end of the period	2,001,982		2,001,982		2,001,982
Vested at the end of the period					2,001,982
Weighted Average Hurdle Price
Hurdle Rates					$ 9.00
Hurdle Rate 11.00
Incentive Units
Outstanding at the end of the period	1,271,965		1,271,965		1,271,965
Vested at the end of the period					1,271,965
Weighted Average Hurdle Price
Hurdle Rates					$ 11.00
Hurdle Rate 12.00
Incentive Units
Outstanding at the end of the period	520,000		520,000		520,000
Vested at the end of the period					520,000
Weighted Average Hurdle Price
Hurdle Rates					$ 12.00
Hurdle Rate 13.00
Incentive Units
Outstanding at the end of the period	842,418		842,418		842,418
Vested at the end of the period					835,752
Weighted Average Hurdle Price
Hurdle Rates					$ 13.00
Hurdle Rate 14.00
Incentive Units
Outstanding at the end of the period	56,205		56,205		56,205
Vested at the end of the period					56,205
Weighted Average Hurdle Price
Hurdle Rates					$ 14.00
Hurdle Rate 16.00
Incentive Units
Outstanding at the end of the period	168,552		168,552		168,552
Vested at the end of the period					168,552
Weighted Average Hurdle Price
Hurdle Rates					$ 16.00
Hurdle Rate 17.00
Incentive Units
Outstanding at the end of the period	80,000		80,000		80,000
Vested at the end of the period					72,500
Weighted Average Hurdle Price
Hurdle Rates					$ 17.00
Hurdle Rate 19.00
Incentive Units
Outstanding at the end of the period	865,731		865,731		865,731
Vested at the end of the period					791,981
Weighted Average Hurdle Price
Hurdle Rates					$ 19.00
Hurdle Rate 21.00
Incentive Units
Outstanding at the end of the period	3,975,500		3,975,500		3,975,500
Vested at the end of the period					2,475,500
Weighted Average Hurdle Price
Hurdle Rates					$ 21.00
Hurdle Rate 22.00
Incentive Units
Outstanding at the end of the period	1,289,667		1,289,667		1,289,667
Vested at the end of the period					342,104
Weighted Average Hurdle Price
Hurdle Rates					$ 22.00
Hurdle Rate 23.00
Incentive Units
Outstanding at the end of the period	524,828		524,828		524,828
Vested at the end of the period					131,207
Weighted Average Hurdle Price
Hurdle Rates					$ 23.00
Hurdle Rate 27.00
Incentive Units
Outstanding at the end of the period	29,484		29,484		29,484
Vested at the end of the period					7,371
Weighted Average Hurdle Price
Hurdle Rates					$ 27.00
Hurdle Rate 28.50
Incentive Units
Outstanding at the end of the period	1,646,766		1,646,766		1,646,766
Weighted Average Hurdle Price
Hurdle Rates					$ 28.50
Hurdle Rate 33.00
Incentive Units
Outstanding at the end of the period	3,715,000		3,715,000		3,715,000
Weighted Average Hurdle Price
Hurdle Rates					$ 33.00
Hurdle Rate 36.64
Incentive Units
Outstanding at the end of the period	30,000		30,000		30,000
Weighted Average Hurdle Price
Hurdle Rates					$ 36.64

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INCOME TAXES (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Mar. 31, 2019	Jun. 30, 2019
INCOME TAXES
Estimated annual effective tax rate	30.20%	42.70%
Uncertain tax positions reserve		$ 0

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TAX RECEIVABLE AGREEMENTS (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2019 USD ($) agreement
TAX RECEIVABLE AGREEMENTS
Number of tax receivable agreements | agreement	2
Payment to TRA holder on net cash savings (as a percent)	85.00%
Retained benefit on net cash savings (as a percent)	15.00%
TRA obligations | $	$ 46,535

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LEASES (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2019	Dec. 31, 2018
LEASES
Initial term	12 years	12 years
Operating lease cost, selling, general and administrative expenses	$ 11,298	$ 20,963
Cash flows from operating leases	$ 10,379	$ 19,473
Weighted-average discount rate	6.60%	6.60%
Weighted-average remaining lease term	7 years 4 months 24 days	7 years 4 months 24 days
Future minimum lease payments under operating leases
Six months ending December 31, 2019	$ 20,834	$ 20,834
2020	39,965	39,965
2021	33,461	33,461
2022	27,944	27,944
2023	22,854	22,854
2024 and thereafter	88,139	88,139
Total	233,197	233,197
Less: present value discount	(52,746)	(52,746)
Operating lease liabilities at June 30, 2019	180,451	180,451
Other information pertaining to leases
Operating lease costs included in selling general and administrative expenses	11,298	20,963
Operating cash flows from operating leases	10,379	19,473
Operating lease assets obtained in exchange for operating lease obligations	$ 13,469	$ 37,317
Future minimum lease payments under operating leases
2019			$ 35,426
2020			31,695
2021			24,813
2022			20,906
2023			16,743
2024 and thereafter			50,045
Total minimum lease payments			$ 179,628

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COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
COMMITMENTS AND CONTINGENCIES
Liabilities, clearing brokers	$ 0	$ 0

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CASH FLOW INFORMATION (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Supplemental disclosures of cash flow information-cash paid for:
Interest	$ 25,904	$ 32,655
Income taxes	3,356	2,922
Supplemental non-cash cash flow information:
Fair market value of estimated contingent consideration in connection with acquisitions	50,945	21,878
Fair market value of restricted common units in connection with acquisitions and contingent consideration		32,829
Net tangible assets (liabilities) acquired in connection with business acquisitions	(3,888)	$ 684
Deferred taxes and tax receivable agreements	250
Right of use asset related to operating leases	168,867
Lease liability related to operating leases	$ 180,451

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RELATED PARTIES (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
RELATED PARTIES
Expenses recognized	$ 441	$ 374	$ 1,070	$ 897

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OTHER (Details) $ in Thousands	1 Months Ended
	Feb. 28, 2019 USD ($)
OTHER
Management contract buyout expense	$ 1,428