Focus Financial Partners Annual Report 2018

FY2018 Annual Report · Focus Financial Partners
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2018 Annual Report

Revenue ($mm)
(as of December 31)

911

663

485

CAGR:

21%

382

326

269

209

179

132

125

154

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

We attract the 
highest quality 
wealth management 
firms and accelerate 
their growth.

ENTREPRENEURSHIP

Emphasis on the entrepreneurial spirit, 
independence and unique culture of each 
partner firm.

S
E
L
P

I

FIDUCIARY STANDARD

Partnership with wealth management firms 
that are held to the fiduciary standard in 
serving their clients.

ALIGNMENT OF INTERESTS

Alignment of principals’ interests with Focus 
through our differentiated partnership and 
economic model.

I

C
N
R
P
G
N
D
U
G

I

I

60

Partner Firms1

$911 million

2018 Revenue2

95%+

Fee-Based Recurring Revenue2

10.3%

5 Year Average Annual Organic  
Revenue Growth3

VALUE-ADDED SERVICES

Empowering our partner firms through 
access to strategy, intellectual resources, 
M&A opportunities, low-cost capital, 
marketing and operational best practices.

20% 

Targeted Growth Rate for Revenues and 
Adjusted Net Income per Share4

1  As of March 25, 2019.
2  For the year ended December 31, 2018.
3   Organic revenue growth represents the year-over-year growth in revenue related to partner firms, including growth related to acquisitions of wealth management practices and customer relationships by Focus’ 
  partner firms and partner firms that have merged, that for the periods presented are included in Focus’ consolidated statements of operations for the annual periods presented. Focus believes 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.
4  Non-GAAP financial measure. Our long-term objectives may also be considered forward-looking statements. Please see 2018 Annual Report on Form 10-K following the letter to shareholders for a discussion of 
  forward-looking statements and non-GAAP measures, including related reconciliations.

 
We partner with  
independent fiduciary wealth 
management firms and  
support them with access 
to capital, best practices 
and continuity planning. 
Our partner firms maintain 
their entrepreneurial 
culture and independence 
while benefiting from our 
network and scale. 

LETTER TO STOCKHOLDERS

Dear Fellow Stockholders;

W elcome to Focus! I am very pleased to write to you in our first annual 

report.  I  will  share  with  you  the  vision  that  led  my  co-founders  and 
me to create a different kind of company in the wealth management 
industry  --  one  that  supports  fiduciary  entrepreneurs  while  creating  superior 
value for investors over the long term. I will also recap the year just ended and 
review our 2019 priorities.

When we started Focus at our kitchen tables in 2004, we were convinced that there was a secular shift 
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RIAs are the  
fastest growing 
segment of 
the wealth 
management 
industry.

Fiduciary advice, 
entrepreneurship, 
value-added 
services and 
access to capital 
paired in a way  
the wealth  
management 
industry had 
never seen.

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Our IPO
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(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:3) (cid:76)(cid:81)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:15)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:88)(cid:86)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:72)(cid:89)(cid:72)(cid:81)(cid:3) (cid:74)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:85)(cid:3) (cid:82)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:88)(cid:81)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3) (cid:68)(cid:75)(cid:72)(cid:68)(cid:71)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3) (cid:71)(cid:72)(cid:70)(cid:76)(cid:71)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:74)(cid:82)(cid:3)
(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:85)(cid:72)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:86)(cid:29)(cid:3)

• First:(cid:3)(cid:68)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:92)(cid:83)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)

we can consider;

• Second:(cid:3)(cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:71)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:86)(cid:75)(cid:72)(cid:72)(cid:87)(cid:3)(cid:192)(cid:72)(cid:91)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:72)(cid:81)(cid:68)(cid:69)(cid:79)(cid:72)(cid:86)(cid:3)(cid:88)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:68)(cid:76)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:68)

FOCS

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• Third:(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:69)(cid:72)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:3)(cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:73)(cid:88)(cid:79)(cid:3)(cid:56)(cid:17)(cid:54)(cid:17)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:76)(cid:86)(cid:3)

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(cid:87)(cid:85)(cid:68)(cid:71)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:17)(cid:3)(cid:44)(cid:3)(cid:191)(cid:85)(cid:80)(cid:79)(cid:92)(cid:3)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:89)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:75)(cid:68)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:3)(cid:86)(cid:87)(cid:85)(cid:82)(cid:81)(cid:74)(cid:3)(cid:68)(cid:79)(cid:76)(cid:74)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:86)(cid:3)(cid:90)(cid:75)(cid:76)(cid:79)(cid:72)(cid:3)
(cid:85)(cid:72)(cid:87)(cid:68)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:72)(cid:81)(cid:87)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:81)(cid:72)(cid:88)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:88)(cid:79)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:3)(cid:178)(cid:3)(cid:72)(cid:89)(cid:72)(cid:81)(cid:3)(cid:76)(cid:73)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:16)(cid:87)(cid:82)(cid:16)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:3)
(cid:89)(cid:68)(cid:85)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:178)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:78)(cid:72)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:85)(cid:72)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)(cid:16)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:92)(cid:82)(cid:88)(cid:15)(cid:3)(cid:80)(cid:92)(cid:3)
(cid:73)(cid:72)(cid:79)(cid:79)(cid:82)(cid:90)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:17)

2018 in Review
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LETTER TO STOCKHOLDERS

We not only 
achieved financial 
performance
that exceeded 
our targets, but 
we also made 
significant 
progress against 
our strategy of 
increasing our 
presence in the 
high net worth 
and ultra-high net 
worth markets.

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(cid:191)(cid:85)(cid:80)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:51)(cid:85)(cid:76)(cid:80)(cid:72)(cid:3)(cid:52)(cid:88)(cid:68)(cid:71)(cid:85)(cid:68)(cid:81)(cid:87)(cid:15)(cid:3)(cid:68)(cid:3)(cid:55)(cid:82)(cid:85)(cid:82)(cid:81)(cid:87)(cid:82)(cid:16)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:90)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:191)(cid:85)(cid:80)(cid:17)(cid:3)(cid:50)(cid:88)(cid:85)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:72)(cid:91)(cid:83)(cid:68)(cid:81)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:86)(cid:3)
(cid:76)(cid:80)(cid:83)(cid:82)(cid:85)(cid:87)(cid:68)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:92)(cid:3)(cid:69)(cid:72)(cid:70)(cid:68)(cid:88)(cid:86)(cid:72)(cid:3)(cid:76)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:71)(cid:76)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:191)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:76)(cid:71)(cid:72)(cid:81)(cid:86)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:88)(cid:81)(cid:76)(cid:87)(cid:92)(cid:3)(cid:86)(cid:72)(cid:87)(cid:17)

Looking Ahead
(cid:58)(cid:72)(cid:3)(cid:72)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:86)(cid:87)(cid:85)(cid:82)(cid:81)(cid:74)(cid:3)(cid:80)(cid:82)(cid:80)(cid:72)(cid:81)(cid:87)(cid:88)(cid:80)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:88)(cid:87)(cid:79)(cid:82)(cid:82)(cid:78)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:76)(cid:86)(cid:3)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:17)(cid:3)
(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:24)(cid:3)(cid:78)(cid:72)(cid:92)(cid:3)(cid:83)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:82)(cid:73)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:87)(cid:68)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:82)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:88)(cid:81)(cid:76)(cid:87)(cid:92)(cid:3)
(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:29)

1. (cid:55)(cid:82)(cid:3)(cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:72)(cid:89)(cid:82)(cid:79)(cid:89)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:16)(cid:68)(cid:71)(cid:71)(cid:72)(cid:71)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:85)(cid:72)(cid:68)(cid:86)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:68)(cid:86)(cid:3)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:15)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)

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(cid:69)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:72)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:71)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:68)(cid:86)(cid:17)

2. (cid:55)(cid:82)(cid:3)(cid:72)(cid:91)(cid:83)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:3)(cid:191)(cid:85)(cid:80)(cid:86)(cid:15)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:88)(cid:79)(cid:68)(cid:85)(cid:79)(cid:92)(cid:3)(cid:68)(cid:80)(cid:82)(cid:81)(cid:74)(cid:3)(cid:53)(cid:44)(cid:36)(cid:86)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:88)(cid:79)(cid:87)(cid:85)(cid:68)(cid:16)
(cid:75)(cid:76)(cid:74)(cid:75)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:90)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3)(cid:50)(cid:88)(cid:85)(cid:3)(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:72)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:76)(cid:86)(cid:75)(cid:72)(cid:71)(cid:15)(cid:3)(cid:83)(cid:85)(cid:82)(cid:191)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:53)(cid:44)(cid:36)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:88)(cid:79)(cid:87)(cid:76)(cid:73)(cid:68)(cid:80)(cid:76)(cid:79)(cid:92)
(cid:82)(cid:73)(cid:191)(cid:70)(cid:72)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:81)(cid:3)(cid:87)(cid:85)(cid:68)(cid:70)(cid:78)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:86)(cid:17)

3. (cid:55)(cid:82)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:88)(cid:80)(cid:72)(cid:85)(cid:82)(cid:88)(cid:86)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:80)(cid:72)(cid:85)(cid:74)(cid:72)(cid:85)(cid:3)(cid:82)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:88)(cid:81)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:80)(cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:3)(cid:191)(cid:85)(cid:80)(cid:86)(cid:17)

(cid:58)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:81)(cid:3)(cid:88)(cid:81)(cid:80)(cid:68)(cid:87)(cid:70)(cid:75)(cid:72)(cid:71)(cid:3)(cid:87)(cid:85)(cid:68)(cid:70)(cid:78)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:75)(cid:72)(cid:79)(cid:83)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:86)(cid:3)(cid:72)(cid:91)(cid:83)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)
(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:87)(cid:88)(cid:70)(cid:78)(cid:16)(cid:76)(cid:81)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)(cid:48)(cid:68)(cid:87)(cid:70)(cid:75)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)(cid:83)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:76)(cid:93)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:80)(cid:72)(cid:85)(cid:74)(cid:72)(cid:85)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:3)(cid:70)(cid:82)(cid:85)(cid:72)(cid:3)
(cid:82)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:87)(cid:72)(cid:68)(cid:80)(cid:17)

1  Goldman Sachs research report “Initiate on SMID-cap brokers with an Attractive Coverage View,” dated 11/27/18, by Alexander Blostein.
2  Cerulli World Advisor Metrics, 2018.
3  Organic revenue growth represents the year-over-year growth in revenue related to partner firms, including growth related to acquisitions of wealth management practices 
  and customer relationships by Focus’ partner firms and partner firms that have merged, that for the periods presented are included in Focus’ consolidated statements of 
  operations for the annual periods presented. Focus believes 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.
4  Non-GAAP financial measure. Our long-term objectives may also be considered forward-looking statements. Please see 2018 Annual Report on Form 10-K following the 

letter to shareholders for a discussion of forward-looking statements and non-GAAP measures, including related reconciliations.

 
Partner value-
added services 
and accretive 
transactions 
in the U.S. and 
internationally 
are key 2019 
objectives.

4. (cid:55)(cid:82)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:76)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:3)(cid:191)(cid:85)(cid:80)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)

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5(cid:17) (cid:55)(cid:82)(cid:3)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:73)(cid:92)(cid:3)(cid:69)(cid:72)(cid:86)(cid:87)(cid:3)(cid:83)(cid:85)(cid:68)(cid:70)(cid:87)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:68)(cid:92)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:86)(cid:3)(cid:70)(cid:68)(cid:81)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:78)(cid:81)(cid:82)(cid:90)(cid:79)(cid:72)(cid:71)(cid:74)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:71)(cid:85)(cid:76)(cid:89)(cid:72)(cid:3)
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Culture as an Enabler
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LEADERSHIP
(left to right)

Leonard (Lenny) Chang
Co-Founder
Managing Director

Ruediger (Rudy) Adolf *
Founder
Chief Executive Officer
Chairman

Rajini Sundar Kodialam *
Co-Founder
Chief Operating Officer
Director

(Not pictured)

James (Jim) Shanahan * 
Chief Financial Officer

J. Russell (Rusty) 
McGranahan
General Counsel

 * Executive Officers

LEADERSHIP

BOARD OF DIRECTORS

(Standing, left to right)

(Sitting, left to right)

James D. Carey
Senior Principal
Stone Point Capital

Deborah D. McWhinney
Former Chief Executive 
Officer, Global Enterprise 
Payments
Citigroup, Inc.

Christopher J. Harrington
Member
Kohlberg Kravis Roberts & 
Co. L.P.

Joseph Feliciani, Jr.
Former Chief Operating 
Officer of Finance and
Chief Accounting Officer
BlackRock, Inc.

Ruediger Adolf
Founder
Chief Executive Officer
Chairman
Focus Financial Partners 

Atlas *
Chief Negotiation Officer
Focus Financial Partners

Rajini Sundar Kodialam
Chief Operating Officer
Focus Financial Partners

Fayez S. Muhtadie
Senior Principal
Stone Point Capital

Noah Gottdiener
Chief Executive Officer 
and Chairman
Duff & Phelps Corp

* Board Observer

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

(Mark  One)

(cid:2) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES  EXCHANGE

ACT  OF  1934

For the fiscal year ended December 31, 2018

OR

(cid:3) 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)

825 Third Avenue, 27th Floor
New York, NY
(Address of Principal Executive Offices)

47-4780811
(I.R.S. Employer
Identification  No.)

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

Name of each exchange  on which registered

Class A common stock, par value $0.01 per share

Nasdaq Global Select Market

Securities  registered pursuant to Section 12(g) of the  Act: None

Indicate  by check mark if the registrant is a well-known seasoned issuer, as  defined in  Rule 405  of the Securities

Act.  (cid:3) Yes (cid:2) No

Indicate by  check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the

Act. (cid:3) Yes (cid:2) No

Indicate by  check mark whether the registrant (1) has filed all reports 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. (cid:2) Yes (cid:3) 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). (cid:2) Yes (cid:3) No

Indicate  by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not

contained  herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:2)

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 (cid:3)

Accelerated filer (cid:3)

Non-accelerated  filer  (cid:2)

Smaller  reporting  company  (cid:3)
Emerging growth company (cid:2)

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. (cid:2)

Indicate  by check mark whether the registrant is a shell company  (as defined in Rule 12b-2 of the Exchange Act): (cid:3) Yes (cid:2) No

As of June 30, 2018, the last business day of the registrant’s  most  recently completed second fiscal quarter, the registrant’s Class A
common stock was not listed on a domestic exchange or  over-the-counter market. The registrant’s Class A common stock began trading
on the Nasdaq  Global Select Market on July 26, 2018.

As of March 25, 2019, the registrant had 46,675,183 shares  of Class  A  common stock and 22,568,831 shares of Class B common

stock  outstanding.

Documents incorporated by reference:

The  registrant’s definitive proxy statement relating to the annual  meeting of shareholders (to be held May 28, 2019) will be filed

with the Securities and Exchange Commission within 120 days after  the close of the registrant’s fiscal year ended December 31, 2018
and is incorporated by reference in Part III to the extent described herein.

FOCUS  FINANCIAL  PARTNERS  INC.
INDEX  TO  FORM  10-K
FOR  THE  YEAR  ENDED  DECEMBER  31,  2018

Cautionary  Statement  Regarding  Forward-Looking  Statements . . . . . . . . . . . . . . . . . . . . . . . . .

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk  Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved  Staff  Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item  1.
Item  1A.
Item 1B.
Item  2.
Item 3.
Item 4.

PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 5.

Market For Registrant’s  Common Equity, Related Stockholder Matters and

Item 6.
Item 7.

Item  7A.
Item 8.
Item 9.

Item  9A.
Item  9B.

Issuer  Purchases  of  Equity  Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial  Condition and Results of

Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quantitative  and  Qualitative  Disclosures  about  Market  Risk . . . . . . . . . . . . . . . .
Financial Statements and Supplementary  Data . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements With Accountants  on Accounting and Financial

Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Controls  and  Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other  Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors,  Executive  Officers  and  Corporate  Governance . . . . . . . . . . . . . . . . . .
Executive  Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security  Ownership  of  Certain  Beneficial  Owners  and  Management  and  Related

Item  10.
Item  11.
Item  12.

Item 13.
Item 14.

Stockholder  Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and  Director Independence . . . .
Principal Accountant Fees  and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item  15.

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index To Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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2

3
3
19
42
42
43
43

44

44
45

48
74
74

74
74
75

76
76
76

76
76
76

76

79
F-1

i

CAUTIONARY STATEMENT REGARDING  FORWARD-LOOKING STATEMENTS

Some of  the information in this Annual  Report on  Form 10-K (this ‘‘Annual Report’’) 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  ‘‘Part  1,  Item  1A,  Risk  Factors.’’  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;

• 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 Annual Report.

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  Annual  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.

1

The  following  terms  are  used  throughout  this  Annual  Report:

GLOSSARY

Base  Earnings. This is a percentage of the estimated operating cash flow  earnings before partner

compensation (i.e. Target Earnings) upon which we  apply a  multiple to determine acquisition prices.
We  retain a cumulative preferred position in Base Earnings.

Commission-based. Commission-based  revenue  is  derived  from  commissions  paid  by  clients  or

payments  from  third  parties  for  sales  of  investment  or  insurance  products.

Fee-based. Fee-based services are those for which a partner firm primarily  charges a fee directly

to  the  client  for  wealth  management  services,  recordkeeping  and  administration  services  and  other
services  rather  than  being  primarily  compensated  through  commissions  from  third  parties  for
recommending  financial  products.

Fiduciary  Duty. A fiduciary duty is a legal duty to act  in another party’s interests, with utmost
good  faith,  to  make  full  and  fair  disclosure  of  all  material  facts  and  to  exercise  all  reasonable  care  to
avoid  misleading  clients.

GAAP. Accounting principles generally accepted in the United States of America.

High  Net  Worth. High  net  worth  individuals  are  generally  defined  in  the  financial  industry  as

those  with  liquid  financial  assets,  excluding  primary  residence,  in  excess  of  $1  million.

Lift  Out. The circumstance when a group of wealth  management professionals, already working

as a team, seeks to leave their current  employer  and join another employer or start their own
registered  investment  advisor  (‘‘RIA’’)  firm.

Open-architecture. An  investment  platform  that  grants  clients  access  to  a  wide  range  of
investment  funds  and  products  offered  by  third  parties.  By  contrast,  a  closed  architecture  is  an
investment  platform  that  grants  clients  access  only  to  proprietary  investment  funds  and  products.

Partnership. The  term  we  use  to  refer  to  our  business  and  relationship  with  our  partner  firms.  It

is not intended to describe a particular form of legal  entity or a legal relationship.

Target Earnings. The  estimated  operating  cash  flow  earnings  before  partner  compensation.

Ultra-High  Net  Worth. Ultra-high  net  worth  individuals  are  generally  defined  in  the  financial
industry  as  those  with  liquid  financial  assets,  excluding  primary  residence,  in  excess  of  $30 million.

Wealth Management. Comprehensive  professional  services  that  combine  investment  advice,
financial  and  tax  planning,  consulting,  tax  return  preparation,  family  office  services  and  other  services
that  help  clients  achieve  their  objectives  regarding  accumulation,  preservation  and  distribution  of
long-term  wealth.

Wirehouse. Brokerage firm that provides a full range of investment,  research, trading and wealth

management  services  to  clients.  The  term  originated  prior  to  the  advent  of  modern  wireless
communications,  when  brokerage  firms  were  connected  to  their  branches  primarily  through  telephone
and  telegraph  wires.

2

PART I

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 and Reorganization Transactions.

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.

Item  1 Business

Corporate  Structure

Focus Inc. was incorporated as a Delaware corporation on  July  29, 2015 for the purpose  of

completing the IPO and Reorganization  Transactions. On  July 30, 2018, we  completed our IPO of
18,648,649 shares of Class A common stock,  par value $0.01 per share. The shares  began trading on the
NASDAQ Global Select Market on July  26,  2018 under  the ticker symbol ‘‘FOCS.’’ We used  the
proceeds from the IPO to purchase certain outstanding Focus LLC units, to reduce indebtedness under
our  credit  facility  and  for  acquisitions  and  general  corporate  business  purposes.

In connection with the IPO and Reorganization Transactions,  Focus Inc.  became a holding
company whose sole material asset is  a membership  interest in Focus LLC. Focus LLC  directly or
indirectly  owns  all  of  the  outstanding  equity  interests  in  our  partner  firms.  Focus  Inc.  is  the  sole
managing member of Focus LLC and is  responsible  for all operational, management  and administrative
decisions of Focus LLC. Subject to certain restrictions, unitholders  of Focus LLC (other than
Focus Inc. and any of its subsidiaries)  may  receive shares of our Class A common stock pursuant  to  the
exercise  of  an  exchange  right  or  the  call  right.

Our  Company

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  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.

3

Our  partnership  is  built  on  the  following  principles,  which  enable  us  to  attract  and  retain

high-quality  wealth  management  firms  and  accelerate  their  growth:

Entrepreneurship: . . . . . . . . Emphasis  on  the  entrepreneurial  spirit,  independence  and  unique  culture

of  each  partner  firm.

Fiduciary Standard: . . . . . . Partnership  with  wealth  management  firms  that  are  held  to  the  fiduciary

standard  in  serving  their  clients.

Alignment  of  Interests:

. . . . Alignment  of  principals’  interests  with  our  interests  through  our

differentiated  partnership  and  economic  model.

Value-Add Program: . . . . . . Empowerment  of  our  partner  firms  through  collaboration  on  strategy,

growth  and  acquisition  opportunities,  marketing,  technology  and
operational  expertise,  best  practices  and  access  to  world-class  intellectual
resources  and  capital  to  fund  expansion  and  acquisitions.

We  were founded  by entrepreneurs and  began  revenue-generating and acquisition activities  in

2006.  Since  that  time,  we  have:

• created a partnership of 60 partner firms, the  substantial  majority of which  are RIAs registered
with  the  Securities  and  Exchange  Commission  (the  ‘‘SEC’’)  pursuant  to  the  Investment  Advisers
Act of 1940 (the ‘‘Advisers Act’’);

• built a business with revenues of $910.9 million for the year ended December 31,  2018;

• established an attractive revenue model whereby  in excess of 95%  of our  revenues for the year

ended  December  31,  2018  were  fee-based  and  recurring  in  nature;

• built a partnership model currently  comprised of over  3,000 wealth management-focused

principals  and  employees;  and

• established a national footprint across the United States and expanded  our footprint
internationally  with  partner  firms  in  the  United  Kingdom,  Canada  and  Australia.

We  are in the midst of a fundamental  shift in the  growing wealth  management services industry.
The  delivery  of  wealth  management  services  is  moving  from  traditional  brokerage,  commission-based
platforms to a fiduciary, open-architecture and fee-based structure. This shift has  resulted in  a
significant  transfer  of  client  assets  and  wealth  management  professionals  out  of  traditional  brokerage,
commission-based  platforms  to  independent  wealth  management  practices.  We  believe  that  our  leading
partnership  of  independent,  fiduciary  wealth  management  firms  positions  us  to  benefit  from  these
trends.

The  independent  wealth  management  industry,  including  RIAs,  is  highly  fragmented,  which  we
believe  enables  us  to  continue  our  growth  strategy  of  acquiring  high-quality  wealth  management  firms,
directly and through acquisitions by our partner firms. We have a track record of  enhancing  the
competitive  position  of  our  partner  firms  by  providing  them  with  access  to  the  resources  of  our  large
organization.  Our  scale  enables  us  to  help  our  partner  firms  achieve  operational  efficiencies  and  ensure
organizational continuity. Additionally, our scale, resources and value-added  services increase our
partner firms’ ability to achieve growth  through a variety of tactical, operational  and strategic initiatives,
as  well  as  the  consummation  of  their  own  acquisitions.  As  our  existing  partner  firms  benefit  from  these
growth  initiatives,  we  continue  to  focus  on  acquisitions  of  new  partner  firms.

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

4

tax  planning,  consulting,  tax  return  preparation,  family  office  services  and  other  services.  We  also
generate  other  revenues  from  recordkeeping  and  administration  service  fees,  commissions  and
distribution  fees  and  outsourced  services.

Our  Growth  Strategy

We  believe we are well-positioned to  take advantage of favorable trends in the wealth management

industry,  including  the  migration  of  wealth  management  professionals  from  traditional  brokerage,
commission-based platforms to a fiduciary, open-architecture  and fee-based structure.  We plan to grow
our  business  through  the  growth  of  our  existing  partner  firms  and  expansion  of  our  partnership.

Growth  of  Our  Existing  Partner  Firms

High-Quality, Growth-Oriented Partner Firms

Our  goal  has  been  and  continues  to  be  to  acquire  high-quality,  entrepreneurial  wealth  management

firms that have built their businesses  through a  proven  track record of growth. We believe  that  our
partner  firms  will  continue  to  take  advantage  of  the  shift  in  the  market  share  of  client  assets  to  the
RIA  space  and  grow  organically  through  acquisitions  of  wealth  management  practices  and  customer
relationships,  attracting  new  clients,  additions  of  new  wealth  management  professionals,  increasing  the
amount  of  assets  from  existing  clients  and  market-based  growth  over  time.  The  economic  arrangements
put  in  place  at  the  time  of  acquisition  through  our  management  agreements  further  incentivize  the
principals  of  our  partner  firms  to  continue  executing  on  their  growth  plans.

Value-Added Services

We  have a team of over 70 professionals  who support our partner firms  by providing value-added

services,  including  marketing  and  business  development  support,  advisor  coaching  and  development  and
structuring  compensation  and  incentive  models  along  with  career  path  planning,  succession  planning
advice,  operational  and  technology  expertise,  legal  and  regulatory  support  and  providing  negotiating
leverage  with  vendors.  Our  value-added  services  also  include  acquisition  opportunities  for  our  partner
firms through a proactive outreach program, structuring, executing and  funding transactions and
providing  guidance  to  partner  firms  to  facilitate  their  integration  into  our  partnership.  We  assign  a
relationship  leader  to  each  partner  firm  who  is  tasked  with  coordinating  our  value-added  services  to
assist  that  partner  firm  in  accelerating  its  growth.  These  services  are  provided  to  our  partner  firms  at
no  additional  cost.  Our  partner  firms  have  access  to  the  resources  of  a  large  organization,  which
ultimately  enhances  their  operations,  enabling  them  to  better  serve  their  clients.

Some  of  our  key  value-added  services  are  described  in  detail  below.

Marketing and Business Development. We  offer  marketing  and  business development  coaching to

our  partner  firms  on  topics  including  referral  programs,  revenue  enhancement  measures,
communications,  website  and  social  media,  brand  strategy  and  public  relations  support.  Our  marketing
team  works  closely  with  each  of  our  partner  firms  to  understand  their  unique  value  proposition  in
order  to  ultimately  help  our  partner  firms  better  market  themselves  to  clients  and  their  centers  of
influence,  including  accounting  and  law  firms  who  serve  as  potential  referral  sources.  To  further  support
our  partner firms, in June 2018 we completed  a minority  investment in Financial  Insight
Technology, Inc. (known as SmartAsset),  a New York-based FinTech  company that connects prospective
clients  with  financial  advisors  and  provides  tools  to  help  people  make  financial  decisions.

Talent Management. We also support  the mentoring of next-generation talent through continuous
coaching  programs  that  we  organize  and  execute.  These  programs  emphasize  key  learnings  gained  from
observing  top  talent  across  our  organization.  These  services  allow  our  firms  to  benefit  from  best
practices  across  our  talent  pool.

5

Compensation  Structures  and  Succession  Planning. We  help  our  partner  firms  align  their
compensation  models  to  further  incentivize  their  teams.  We  also  facilitate  wealth  management
professional  career  path  planning  and  advise  on  principal  promotions  to  the  respective  management
company.  These  services  allow  our  partner  firms  to  attract  and  retain  the  highest  quality  wealth
management  professionals.  Our  acquisition  structure  facilitates  succession  planning  by  maintaining  the
partner  firm  and  management  company  as  separate  entities,  thereby  allowing  for  the  principals  owning
the  management  company  to  change  over  time  without  disrupting  client  relationships  at  the  partner
firm.

Operations and Technology. We assist partner firms in  selecting  and implementing  third-party

technology  solutions  that  strengthen  each  firm’s  operational  performance.  Our  partner  firms  can
request  that  our  operations  team  conduct  detailed  operational  assessments  to  determine  their  staffing
and operating efficiency. Additionally,  our operations team provides partner firms negotiating leverage
with  vendors  and  cost-efficient  access  to  third-party  technology.

Legal and Regulatory Support. We  have an experienced team  of legal professionals  in place  at
Focus LLC to help support our partner  firms in fulfilling  their regulatory responsibilities by providing
additional guidance and expertise. We also have relationships with numerous legal  and compliance
advisors  to  help  our  partner  firms  maintain  compliance.

Sharing of Best Practices / Collaboration with Other Partner Firms. Our  partner  firms  have

access  to  networking  opportunities,  best  practices  roundtable  discussions  and  training  seminars.  We
offer  offsite  meetings,  seminars  and  other  opportunities  for  partner  firms  to  learn  and  adopt  best
practices. On a semiannual basis, we  host  partners  meetings  where wealth  management professionals
from  our  partner  firms  have  opportunities  to  meet  face  to  face  to  collaborate  and  share  ideas.  In
addition  we  host  periodic  summits  for  chief  investment  officers,  chief  compliance  officers,  chief
operating  officers  and  chief  marketing  officers,  where  our  partner  firms  can  gather  and  share  industry
expertise  and  business  development  practices.  Our  partner  firms  are  also  encouraged  to  share  best
practices  regularly  in  order  to  enhance  their  collective  ability  to  better  serve  their  clients.

Acquisitions  by  Our  Partner  Firms

We  support acquisitions of wealth management practices and  customer  relationships by our partner

firms to further expand their businesses. Partner firms pursue acquisitions  for a  variety of reasons,
including  geographic  expansion,  acquisition  of  new  talent  and/or  specific  expertise  and  succession
planning. Acquisitions by our partner firms allow  them to add new talent  and services to better support
their  client  base  while  simultaneously  capturing  synergies  from  the  acquired  businesses.  We  believe
there  are  currently  approximately  5,000  firms  in  the  United  States  that  are  suitable  targets  for  our
partner firms. We have an experienced team of professionals  with deep  industry  relationships to assist
in  identifying  potential  acquisition  targets  for  our  partner  firms.  Through  our  proprietary  in-house
sourcing  effort,  we  frequently  identify  acquisition  opportunities  for  our  partner  firms.  Additionally,
many  of  our  partner  firms  are  well-known  in  the  industry  and  have  developed  extensive  relationships.
In  recent  years,  principals  and  employees  of  our  partner  firms  have  identified  attractive  merger
candidates,  and  we  believe  this  trend  will  continue  as  our  partner  firms  continue  to  build  scale.

In  addition  to  sourcing  opportunities,  we  are  actively  involved  through  each  stage  of  the  process  to

provide  legal,  financial,  tax,  compliance  and  operational  expertise  to  guide  our  partner  firms  through
the due diligence process and execution.  We provide the  funding for  acquisitions in the same manner
that a parent company would typically  fund acquisitions by its  wholly owned subsidiaries.

Our  partner  firms  typically  acquire  substantially  all  of  the  assets  of  a  target  firm  for  cash  or  a
combination  of  cash  and  equity  and  the  right  to  receive  contingent  consideration.  In  certain  situations,
when the acquisition involves a merger with a corporation, and the consideration includes  our Class A

6

common stock, Focus Inc. may purchase  all of the equity of a target firm and then contribute the assets
to  our  partner  firm.  In  certain  instances,  our  partner  firms  may  acquire  only  the  customer  relationships.
At the time a partner firm consummates an acquisition, we  amend our  management agreement with
the partner firm to adjust Base Earnings and Target  Earnings to reflect the projected post-acquisition
Earnings Before Partner Compensation  (‘‘EBPC’’) of the partner firm.

Our  partner  firms  completed  12  transactions  in  2016,  15  transactions  in  2017  and  17  transactions  in

2018.  Our  partner  firms  may  choose  to  merge  with  each  other  as  well.  Consolidation  of  our  existing
partner  firms  leads  to  efficiencies  and  incremental  growth  in  our  cash  flows.  Since  October  2012,  seven
partner  firms  have  consummated  mergers  with  other  partner  firms.

Expansion  of  Our  Partnership

Acquisitions  of  New  Partner  Firms

Since inception, a fundamental aspect of our growth strategy  has been the  acquisition  of
high-quality,  entrepreneurial  wealth  management  firms  to  expand  our  partnership.  We  believe  that
there  are  approximately 1,000  firms  in  the  United  States  that  are  high-quality  targets  for  future
acquisitions.  While  most  of  our  acquisitions  have  taken  place  in  the  United  States,  we  see  opportunities
in  multiple  international  locations  where  market  and  regulatory  trends  toward  the  fiduciary  standard
and  open-architecture  access  mirror  those  occurring  in  the  United  States.  We  have  already  begun
expansion  into  the  United  Kingdom,  Canada  and  Australia.

Our  differentiated  partnership  model  has  allowed  us  to  grow  and  enhance  our  leadership  position

in  the  wealth  management  industry.

We  are highly selective in choosing our partner firms and conduct extensive financial, legal, tax,
operational and business due diligence.  We  evaluate a  variety  of  criteria including the  quality of the
wealth  management  professionals,  historical  revenues  and  cash  flows,  the  recurring  nature  of  the
revenues,  compliance  policies  and  procedures  and  the  alignment  of  interests  between  wealth
management professionals and clients. We focus on firms with owners  who are committed to the
long-term  management  and  growth  of  their  business.

With limited exceptions, our partner firm acquisitions have been structured as acquisitions of
substantially  all  of  the  assets  of  the  firm  we  choose  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  or EBPC, and to this estimate  as Target Earnings. In economic
terms,  we  typically  purchase  only  40%  to  60%  of  the  partner  firm’s  EBPC.  We  refer  to  the
corresponding percentage of Target Earnings on  which we base  the purchase price  as ‘‘Base  Earnings’’.
Under a management agreement among  our  operating subsidiary, the management  company and  the
principals,  the  management  company  is  entitled  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.  Through the management  agreement, we
create  downside  protection  for  ourselves  by  retaining  a  cumulative  preferred  position  in  Base  Earnings.

Since  2006,  when  we  began  revenue-generating  and  acquisition  activities,  our  model  has  allowed  us

to grow to a partnership with 60 partner firms.  Acquisitions  of partner firms to date have been
structured  as  illustrated  below,  with  limited  exceptions.  Subsidiary  mergers  at  the  partner  firm  level

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have  been  structured  differently,  and  in  the  future  we  may  structure  acquisitions  in  foreign  jurisdictions
differently  depending  on  legal  and  tax  considerations.

2

Consideration

Focus LLC

Target Firm

1

2

Assets

4

3

Principals form
Management Company

Successor Firm
(Operating
Subsidiary)

Oversee operations

Management Agreement

Management fees

Management
Company
(Owned by Principals)

28FEB201919543193

(1) Focus LLC forms a wholly owned subsidiary.

(2) In exchange for cash or a combination of cash and equity  and the right to receive  contingent

consideration,  the  operating  subsidiary  acquires  substantially  all  of  the  assets  of  the  target  firm,
which  is  owned  by  the  selling  principals,  and  becomes  the  successor  firm.

(3) The selling principals form a management company. In addition to the selling principals, the
management  company  may  include  non-selling  principals  who  become  newly  admitted  in
connection  with  the  acquisition  or  thereafter.

(4) The  successor  firm,  the  principals  and  the  management  company  enter  into  a  management
agreement  which  typically  has  an  initial  term  of  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  future  EBPC  of  the  successor  firm  in  excess  of  Base
Earnings up to Target Earnings, plus a percentage of any EBPC in excess of Target Earnings.
Pursuant  to  the  management  agreement,  the  management  company  provides  the  personnel  who
conduct  the  day-to-day  operations  of  the  successor  firm.  Through  the  management  agreement,  we
create  downside  protection  for  ourselves  by  retaining  a  cumulative  preferred  position  in  Base
Earnings.

In connection with a typical acquisition, we  enter into an acquisition agreement with the  target
wealth  management  firm  and  its  selling  principals  pursuant  to  which  we  purchase  substantially  all  of  the
assets of the target firm. The purchase  price is a multiple of Base  Earnings, which is a percentage  of
Target Earnings. 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  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  a
combination  of  cash  and,  in  some  cases,  equity.

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The  acquisition  agreements  contain  customary  representations  and  warranties  of  the  parties,  and
closing  is  generally  conditioned  on  the  delivery  of  certain  ancillary  documents,  including  an  executed
management agreement, a confidentiality and non-solicitation agreement, a  non-competition agreement
and a notice issued by the acquired firm to its  clients notifying them of the acquisition and requesting
their  consent  for  the  assignment  of  any  agreements  to  the  successor  firm.

In  connection  with  the  acquisition,  management  companies  and  selling  principals  agree  to
non-competition  and  non-solicitation  provisions  of  the  management  agreement,  as  well  as  standalone
non-competition  and  non-solicitation  agreements  required  by  the  acquisition  agreement.  Such
non-competition  and  non-solicitation  agreements  typically  have  five-year  terms.  The  non-competition
and  non-solicitation  provisions  of  the  management  agreement  continue  during  the  term  of  the
management agreement and for a period  of two years thereafter.

Our  partner  firms  are  primarily  overseen  by  the  principals  who  own  the  management  company
formed  concurrently  with  the  acquisition.  Our  operating  subsidiary,  the  management  company  and  the
principals enter into a long-term management agreement pursuant to which  the management company
provides  the  personnel  responsible  for  overseeing  the  day-to-day  operations  of  the  partner  firm.  The
term  of  the  management  agreement  is  generally  six  years  subject  to  automatic  renewals  for  consecutive
one-year  terms,  unless  earlier  terminated  by  either  the  management  company  or  us.  Subject  to
applicable  cure  periods,  we  may  terminate  the  management  agreement  upon  the  occurrence  of  an  event
of  cause,  which  may  include  willful  misconduct  by  the  management  company  or  any  principal  that  is
reasonably likely to result in a material adverse effect, the failure of the management company to
comply  with  regulatory  or  other  governmental  compliance  procedures  or  a  material  breach  of  the
agreement  by  the  management  company  or  the  principals.  In  some  cases,  we  may  have  the  right  to
terminate  the  agreement  if  any  principal  ceases  to  be  involved  on  a  full-time  basis  in  the  management
of  the  management  company  or  the  performance  of  services  under  the  agreement.  Generally,  the
management  company  may  terminate  the  management  agreement  upon  a  material  breach  of  the
agreement  by  us  and  the  expiration  of  the  applicable  cure  period.

This  ownership  and  management  structure  allows  the  principals  to  maintain  an  entrepreneurial
spirit  through  autonomous  day-to-day  decision  making,  while  gaining  access  to  our  extensive  resources
and  preserving  the  principals’  long-term  economic  incentive  to  continue  to  grow  the  business.  The
management  company  structure  provides  both  flexibility  to  us  and  stability  to  our  partner  firms  by
permitting  the  principals  to  continue  to  build  equity  value  in  the  management  company  as  the  partner
firm  grows  and  to  control  their  internal  economics  and  succession  plans  within  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
(cid:4)10% growth in revenues. This example  assumes (i) Target  Earnings of $3.0 million;  (ii) Base Earnings

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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%.

New Partner Firm
New  partner  firm  revenues . . . . . . . . . . . . . . . . . . . . . . . . . .
Less:

Projected +10% Growth (cid:5)10% Growth
in Revenues
Revenues

in Revenues

(in thousands)

$ 5,000

$ 5,500

$ 4,500

Operating  expenses  (excluding  management  fees) . . . . . . . .

(2,000)

(2,000)

(2,000)

EBPC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Base Earnings to Focus Inc. (60%) . . . . . . . . . . . . . . . . . .
Management  fees  to  management  company  (40%) . . . . . . .

$ 3,000
1,800
1,200

$ 3,500
1,800
1,200

EBPC  in  excess  of  Target  Earnings:

To Focus Inc. (60%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To management company as management fees (40%) . . . . .

—
—

300
200

$ 2,500
1,800
700

—
—

Focus Inc.
Focus Inc. revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less:

$ 5,000

$ 5,500

$ 4,500

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

In  certain  circumstances,  the  structure  of  our  relationship  with  partner  firms  may  differ  from  the

typical  structure  described  above.  In  addition,  our  future  international  acquisitions  may  not  be
structured  like  our  typical  partner  firm  acquisitions.  For  example,  the  structure  of  our  ownership
interests  in  non-U.S.  partner  firms  may  differ  from  the  way  in  which  we  own  our  U.S.  partner  firms.

Lift Outs of Established Wealth Management Professionals

From time to time, through Focus Independence,  we offer teams of wealth management
professionals  at  traditional  brokerages  and  wirehouses  with  attractive  track  records  and  books  of
business  the  opportunity  to  establish  their  own  independent  wealth  management  firm  and  ultimately
join our  partnership as a new partner  firm. This program gives these professionals the opportunity to
build a business largely unencumbered  by the  conflicts of interest  they face at  traditional brokerages
and  wirehouses  and  with  more  favorable  economics. Focus Independence is a targeted approach to lift
out  teams  of  wealth  management  professionals  from  traditional  brokerages  and  wirehouses  with
attractive  track  records  and  books  of  business  and  make  them  entrepreneurs  within  our  partnership.
The  program  has  been  successful,  with  the  substantial  majority  of  ultra-high  net  worth  and  high  net
worth  clients  historically  retained  by  the  newly  formed  partner  firm.  We  have  completed  13  acquisitions
of  new  partner  firms  through Focus Independence since the program’s inception.

We  work with each team of wealth management professionals to establish a  new RIA business and
provide  consultation  as  needed  on  virtually  everything  needed  to  transition  to  and  operate  the  new  RIA
as a full-service firm, including technology,  personnel and office  space. With many teams, we  enter into
an  option  agreement,  which  provides  us  with  the  option  to  acquire  substantially  all  of  the  assets  of  the
RIA  12  to  13  months  after  the  team’s  resignation  date.  The  option  agreement  provides  a  purchase
price formula, typically equal to a multiple of  the portion of  the new  RIA’s run  rate EBPC at  the time
of  acquisition  closing.  The  option  agreement  also  establishes  the  portion  of  the  purchase  price  to  be

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paid in cash and equity. Transactions  with  teams where we do not enter into  an option  agreement may
be  structured  more  like  a  typical  acquisition.

Our Partner Firms

Our  partner  firms  provide  comprehensive  wealth  management  services  to  ultra-high  net  worth  and
high  net  worth  individuals  and  families,  as  well  as  business  entities,  under  a  largely  recurring,  fee-based
model. Our partner firms provide these  services across a  diverse range of investment  styles,  asset
classes  and  clients.  The  substantial  majority  of  our  partner  firms  are  RIAs,  and  certain  of  our  partner
firms  also  have  affiliated  broker-dealers  and/or  insurance  brokers.  Several  of  our  partner  firms  and
principals  have  been  recognized  as  leading  wealth  management  firms  and  advisors  by  financial
publications  such  as  Barron’s,  The  Financial  Times  and  Forbes.

Our partner firms derive a substantial  majority of their revenues from wealth management  fees  for

investment  advice,  financial  and  tax  planning,  consulting,  tax  return  preparation,  family  office  services
and other services. Wealth management fees are primarily based either on a  contractual  percentage of
the client 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.  We also generate  other  revenue from
recordkeeping  and  administration  service  fees,  commissions  and  distribution  fees  and  outsourced
services.

We  currently have 60 partner firms. All of our partner firm acquisitions  have  been paid for with
cash or a combination of cash and equity and the right to receive contingent  consideration. We have to
date,  with  limited  exceptions,  acquired  substantially  all  of  the  assets  of  the  firms  we  choose  to  partner
with  and  have  assumed  only  post-closing  contractual  obligations,  not  any  material  existing  liabilities.

The following is a list of our partner firms  as of March  25, 2019:

Partner Firm

Partner
Firm Since

Joined through
Focus
Independence

Acquisition(s)
Completed  by
Partner Firm

2006
January

StrategicPoint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
HoyleCohen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May
2007
January

Sentinel  Benefits  &  Financial  Group . . . . . . . . . . . . . . . . . .
Buckingham . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February
Benefit  Financial  Services  Group . . . . . . . . . . . . . . . . . . . . . March
JFS Wealth Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . August
Atlas Private Wealth Management . . . . . . . . . . . . . . . . . . . .
GW & Wade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

September
September
2008
Greystone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April
WESPAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

July
2009

Joel  Isaacson  &  Co.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November
Coastal  Bridge  Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . December

Pettinga . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December

2010

Sapient Private Wealth Management
The  Colony  Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . October
LVW Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . October

. . . . . . . . . . . . . . . . . .

2011
September

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Partner Firm

Joined through
Focus
Independence

Acquisition(s)
Completed  by
Partner Firm

Partner
Firm Since

2012

Vestor Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . October
Merriman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December
The Portfolio Strategy Group . . . . . . . . . . . . . . . . . . . . . . . . December

LaFleur & Godfrey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . August
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . August
Telemus Capital

2013

2014
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April
June

Summit  Financial
Flynn Family Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gratus  Capital
Strategic  Wealth  Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . November

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . October

2015

IFAM  Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February
. . . . . . . . . . . . . . . . . . . . . April
Dorchester  Wealth  Management
The  Fiduciary  Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April
Quadrant  Private  Wealth . . . . . . . . . . . . . . . . . . . . . . . . . . .
Relative Value Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fort Pitt Capital Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . October
Patton  Albertson Miller Group . . . . . . . . . . . . . . . . . . . . . . October

July
July

Douglas Lane & Associates . . . . . . . . . . . . . . . . . . . . . . . . .
Kovitz  Investment  Group  Partners . . . . . . . . . . . . . . . . . . . .
Waddell & Associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April
Carnick & Kubik Group . . . . . . . . . . . . . . . . . . . . . . . . . . . April
GYL Financial Synergies . . . . . . . . . . . . . . . . . . . . . . . . . . . August
XML  Financial  Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . October

2016
January
January

2017
January

Crestwood  Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CFO4Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February
One  Charles  Private  Wealth . . . . . . . . . . . . . . . . . . . . . . . . . February
Bordeaux  Wealth  Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . March
Gelfand, Rennert & Feldman . . . . . . . . . . . . . . . . . . . . . . . . April
Lake Street Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April
Financial  Professionals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May
July
SCS  Financial  Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
July
Brownlie  &  Braden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September
Eton  Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
January

Cornerstone  Wealth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fortem Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February
Bartlett  Wealth  Management . . . . . . . . . . . . . . . . . . . . . . . . April
Campbell  Deegan  Financial . . . . . . . . . . . . . . . . . . . . . . . . . April
Nigro,  Karlin,  Segal,  Feldstein  &  Bolno  (NKSFB) . . . . . . . . . April
TrinityPoint Wealth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May
Asset Advisors Investment Management . . . . . . . . . . . . . . . .
July
Edge  Capital  Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . August
Vista Wealth Management . . . . . . . . . . . . . . . . . . . . . . . . . . August

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Partner Firm

Partner
Firm Since

Joined through
Focus
Independence

Acquisition(s)
Completed  by
Partner Firm

Altman,  Greenfield  &  Selvaggi . . . . . . . . . . . . . . . . . . . . . . .
Prime Quadrant
Foster, Dykema & Cabot . . . . . . . . . . . . . . . . . . . . . . . . . . . March

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February

2019
January

The  following  shows  certain  of  the  value-added  services  we  have  provided  to  our  partner  firms

through  March  25,  2019:

Partner Firm

StrategicPoint . . . . . . . . . . . . . . . . . .
HoyleCohen . . . . . . . . . . . . . . . . . . .
Sentinel  Benefits  &  Financial  Group .
Buckingham . . . . . . . . . . . . . . . . . . .
Benefit  Financial  Services  Group . . . .
JFS Wealth Advisors . . . . . . . . . . . . .
Atlas Private Wealth Management . . .
GW & Wade . . . . . . . . . . . . . . . . . . .
Greystone . . . . . . . . . . . . . . . . . . . . .
WESPAC . . . . . . . . . . . . . . . . . . . . .
Joel  Isaacson  &  Co.
. . . . . . . . . . . . .
Coastal  Bridge  Advisors . . . . . . . . . .
Pettinga . . . . . . . . . . . . . . . . . . . . . .
Sapient Private Wealth Management
.
The  Colony  Group . . . . . . . . . . . . . .
LVW Advisors . . . . . . . . . . . . . . . . .
Vestor Capital . . . . . . . . . . . . . . . . . .
Merriman . . . . . . . . . . . . . . . . . . . . .
The Portfolio Strategy Group . . . . . . .
LaFleur & Godfrey . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Telemus Capital
Summit  Financial
. . . . . . . . . . . . . . .
Flynn  Family  Office . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Gratus  Capital
Strategic  Wealth  Partners . . . . . . . . . .
IFAM  Capital . . . . . . . . . . . . . . . . . .
Dorchester  Wealth  Management
. . . .
The  Fiduciary  Group . . . . . . . . . . . . .
Quadrant  Private  Wealth . . . . . . . . . .
Relative Value Partners . . . . . . . . . . .
Fort Pitt Capital Group . . . . . . . . . . .
Patton  Albertson Miller Group . . . . .
Douglas Lane & Associates . . . . . . . .
Kovitz  Investment  Group  Partners . . .
Waddell & Associates . . . . . . . . . . . .
Carnick & Kubik Group . . . . . . . . . .
GYL Financial Synergies . . . . . . . . . .

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Value-Added Services

Operational
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Legal and
Compliance
Support
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Talent
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Succession
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Partner Firm

XML  Financial  Group . . . . . . . . . . . .
Crestwood  Advisors . . . . . . . . . . . . . .
CFO4Life . . . . . . . . . . . . . . . . . . . . .
One  Charles  Private  Wealth . . . . . . . .
Bordeaux  Wealth  Advisors . . . . . . . . .
Gelfand, Rennert & Feldman . . . . . .
Lake Street Advisors . . . . . . . . . . . . .
Financial  Professionals . . . . . . . . . . .
SCS  Financial  Services . . . . . . . . . . .
Brownlie  &  Braden . . . . . . . . . . . . . .
Eton  Advisors . . . . . . . . . . . . . . . . . .
Cornerstone  Wealth . . . . . . . . . . . . .
Fortem Financial . . . . . . . . . . . . . . . .
Bartlett  Wealth  Management . . . . . . .
Campbell  Deegan  Financial . . . . . . . .
Nigro,  Karlin,  Segal,  Feldstein,  &

Bolno  (NKSFB) . . . . . . . . . . . . . . .
TrinityPoint Wealth . . . . . . . . . . . . . .
Asset  Advisors  Investment

Management . . . . . . . . . . . . . . . . .
Edge  Capital  Group . . . . . . . . . . . . .
Vista Wealth Management . . . . . . . . .
Altman,  Greenfield  &  Selvaggi
. . . . .
Prime Quadrant . . . . . . . . . . . . . . . .
Foster, Dykema & Cabot . . . . . . . . . .

Value-Added Services

Marketing and
Business
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Operational
and
Technology
Enhancements
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Succession
Planning
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Talent
Management
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Legal and
Compliance
Support
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Our  partner  firms  are  primarily  located  in  the  United  States.  In  addition,  as  of  March  25,  2019,  we

have  one  partner  firm,  Greystone,  in  the  United  Kingdom,  two  partner  firms,  Dorchester  Wealth
Management and Prime Quadrant, in Canada and one partner firm, Financial  Professionals, in
Australia. The following table shows our  domestic and international revenues for the years ended
December  31,  2016,  2017  and  2018:

2016

Year Ended December 31,

2017

(in thousands)

2018

Domestic  revenue . . .
International  revenue .

$470,888
14,556

97.0% $643,077
19,810
3.0%

97.0% $889,166
21,714

3.0%

97.6%
2.4%

Total revenue . . . . . . .

$485,444

100.0% $662,887

100.0% $910,880

100.0%

14

The  maps  below  show  the  locations  of  our  partner  firms  as  of  March  25,  2019.  The  majority  of  our

partner  firms  operate  multiple  offices.

25MAR201919045386

Upon  joining  our  partnership,  each  partner  firm  transitions  its  operations  to  our  common  general

ledger,  payroll  and  cash  management  systems.  Our  common  general  ledger  system  provides  us  access  to
financial  information  of  each  partner  firm  and  is  designed  to  accommodate  the  varied  needs  of  each
individual business. We control payroll and payment of management fees for  partner  firms  through a
common  disbursement  process.  The  common  payroll  system  allows  us  to  effectively  monitor
compensation,  new  hires,  terminations  and  other  personnel  changes.  We  employ  a  cash  management
system under which cash held by partner firms above a threshold  is transferred into our centralized
accounts.  The  cash  management  system  enables  us  to  control  and  secure  our  cash  flow  and  more
efficiently  monitor  partner  firm  earnings  and  financial  position.

We  and our partner firms devote substantial  time and effort  to  remaining  current on,  and

addressing,  regulatory  and  compliance  matters.  Each  of  our  registered  partner  firms  has  its  own  chief
compliance officer and has established a  compliance program to help  detect and  prevent compliance
violations.

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While  the  chief  compliance  officers  at  our  partner  firms  are  principally  responsible  for  maintaining
their  respective  compliance  programs  and  to  tailor  them  to  the  specifics  of  their  partner  firms’  business,
we  have  an  experienced  team  of  legal  professionals  in  place  at  the  holding  company  to  support  our
partner  firms  in  fulfilling  their  regulatory  responsibilities  by  providing  additional  guidance  and
expertise. We collaborate with each of our  partner firms  in its completion of an annual compliance  risk
assessment, which is conducted by an  outside law firm or a  compliance consulting firm. We also engage
third-party  firms  to  conduct  periodic  cybersecurity  audits  and  help  coordinate  completion  of  certain
other employee trainings. We also monitor how our  partner firms address risk assessment
recommendations and regulatory exam  findings.  We also work with  our partner firms  to  assist  them in
identifying  capable  legal  and  compliance  advisors  by  leveraging  our  extensive  relationships.

Focus Successions

We  have a succession program, referred to as  Focus Successions, to provide third-party  wealth
management firms a succession planning  solution for their  businesses. Pursuant to the  program, one  of
our  partner  firms  grants  the  third-party  wealth  management  firm  the  right  to  offer  to  sell  substantially
all  of  its  assets  to  the  partner  firm  at  any  time  with  notice.  The  third-party  firm’s  right  under  the
succession  agreement  is  subject  to  certain  conditions,  and  the  terms  of  the  sale  are  pre-negotiated  in  a
form of asset purchase agreement. Generally, the term of a succession agreement is one year and
renews  automatically  for  an  additional  year  unless  earlier  terminated  by  one  of  the  parties.  No
succession  transition  has  been  initiated  to  date,  but  several  of  the  succession  plans  have  been  converted
into  acquisitions  by  our  partner  firms.

Competition

The wealth management industry is very competitive.  We  compete with a  broad range of wealth

management  firms,  including  public  and  privately  held  investment  advisors,  traditional  brokerages  and
wirehouses,  firms  associated  with  securities  broker-dealers,  financial  institutions,  private  equity  firms
and insurance companies. We believe that important factors affecting  our  partner firms’  ability  to
compete  for  clients  include  the  ability  to  attract  and  retain  key  wealth  management  professionals,
investment  performance,  wealth  management  fee  rates,  the  quality  of  services  provided  to  clients,  the
depth  and  continuity  of  client  relationships,  adherence  to  the  fiduciary  standard  and  reputation.

We  strategically built a leading partnership of independent,  fiduciary wealth management firms  led

by entrepreneurs through a unique, disciplined and proven acquisition strategy. Our differentiated
partnership  model  has  allowed  us  to  grow  and  enhance  our  leadership  position  in  the  wealth
management  industry.  As  we  continue  our  growth  strategy  of  acquiring  high-quality  partner  firms,  we
believe  that  important  factors  affecting  our  ability  to  compete  for  future  acquisitions  include:

• the degree to which target wealth management firms view our  partnership model as preferable,
financially  and  operationally  or  otherwise,  to  acquisition  or  other  arrangements  offered  by  other
potential  purchasers;

• the reputation and performance of  our existing  and future partner firms, by which target wealth

management  firms  may  judge  us  and  our  future  prospects;  and

• the quality and breadth of our value-added services.

Employees

As  of  December  31,  2018,  we  had  over  2,600  employees,  76  of  whom  were  employed  at  the

holding  company.

Additionally, as of December 31, 2018, there were  approximately 400  principals who were part of

the  management  companies  that  oversaw  partner  firms  and  were  not  our  employees.

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Trademarks

We  own many registered trademarks  and service  marks in the  United States. We believe the Focus

Financial Partners name and the many  distinctive marks  associated  with it are  of  significant value and
are very important to our business. Accordingly, as a  general policy, we  monitor the use of our marks
and  vigorously  oppose  any  unauthorized  use  of  the  marks.

We  register some of our copyrighted  material and otherwise rely  on common law protection  of our

copyrighted  works.  Such  copyrighted  materials  are  not  material  to  our  business.

Available  Information

We  are required to file annual, quarterly and current reports, proxy statements and  certain  other

information with the SEC. The SEC maintains  a website  at www.sec.gov that contains reports,  proxy
and  information  statements  and  other  information  regarding  registrants  that  file  electronically  with  the
SEC.  Any  documents  filed  by  us  with  the  SEC,  including  this  Annual  Report,  can  be  downloaded  from
the SEC’s website.

We  also make available free of charge through our website, www.focusfinancialpartners.com,

electronic  copies  of  certain  documents  that  we  file  with  the  SEC,  including  our  Annual  Reports  on
Form 10-K, Quarterly Reports on Form  10-Q,  Current Reports on Form 8-K and amendments to those
reports  filed  or  furnished  pursuant  to  Section  13(a)  or  15(d)  of  the  Securities  Exchange  Act  of  1934,  as
amended (the ‘‘Exchange Act’’), as soon as  reasonably practicable after  we electronically file  such
material  with,  or  furnish  it  to,  the  SEC.

Regulatory Environment

Existing  Regulation

Our  partner  firms  are  subject  to  extensive  regulation  in  the  United  States.  In  addition,  Greystone,

Dorchester, Prime Quadrant and Financial Professionals are subject to extensive regulation in  the
United Kingdom, Canada and Australia,  as applicable.  In  the United States,  our  partner firms  are
subject  to  regulation  primarily  at  the  federal  level,  including  regulation  by  the  SEC  under  the  Advisers
Act, by the U.S Department of Labor  (the  ‘‘DOL’’) under the  Employee  Retirement  Income Security
Act of 1974, as amended (‘‘ERISA’’), and  by the SEC and the Financial Industry Regulatory  Authority
(‘‘FINRA’’) for our partner firm subsidiaries that  are broker-dealers. Our partner  firms may also  be
subject  to  regulation  by  state  insurance  and  securities  regulators  for  insurance  and  other  aspects  of  our
partner  firms’  activities.  Outside  of  the  United  States,  Greystone  is  primarily  regulated  by  the  Financial
Conduct Authority in the United Kingdom, Dorchester and Prime Quadrant are primarily regulated  by
the  securities  regulators  of  Canada’s  provinces,  and  Financial  Professionals  is  primarily  regulated  by  the
Australian Securities & Investment Commission  (‘‘ASIC’’).

Our  U.S.  based  partner  firms  that  are  investment  advisers  are  registered  with  the  SEC  under  the

Advisers Act. The Advisers Act imposes numerous obligations on RIAs, including fiduciary duties,
compliance  and  disclosure  obligations,  recordkeeping  requirements  and  operational  requirements.
Certain  of  our  partner  firms  sponsor  unregistered  and  registered  funds  in  the  United  States  and  certain
foreign  jurisdictions.  These  activities  subject  those  partner  firms  to  additional  regulatory  requirements
in  those  jurisdictions.  In  addition,  many  state  securities  commissions  impose  filing  requirements  on
investment  advisers  that  operate  or  have  places  of  business  in  their  states.  Similarly,  many  states
require  certain  client  facing  employees  of  RIAs  and  FINRA-registered  broker-dealers  to  become  state
licensed.

Certain  of  our  partner  firms  have  affiliated  SEC  registered  broker-dealers  for  the  purpose  of
distributing  funds  or  other  securities  products.  Broker-dealers  and  their  personnel  are  regulated,  to  a
large  extent,  by  the  SEC  and  self-regulatory  organizations,  principally  FINRA.  In  addition,  state  blue

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sky  commissions  have  supervisory  authority  over  broker-dealer  activities  conducted  in  their  states.
Broker-dealers  are  subject  to  regulations  which  cover  virtually  all  aspects  of  their  business,  including
sales  practices,  trading  practices,  use  and  safekeeping  of  clients’  funds  and  securities,  recordkeeping  and
the  conduct  of  directors,  officers,  employees  and  representatives.  Broker-dealers  are  also  subject  to  net
capital  rules  that  mandate  that  they  maintain  certain  levels  of  capital.  Certain  partner  firms  have  a
limited  number  of  employees  that  are  registered  representatives  with  unaffiliated  broker-dealers.

Certain  of  our  partner  firms  have  affiliated  insurance  brokers.  State  insurance  laws  grant  state
insurance  regulators  broad  administrative  powers.  These  supervisory  agencies  regulate  many  aspects  of
the  insurance  business,  including  the  licensing  of  insurance  brokers  and  agents  and  other  insurance
intermediaries,  and  trade  practices  such  as  marketing,  advertising  and  compensation  arrangements
entered  into  by  insurance  brokers  and  agents.

Our  partner  firms  are  also  subject  to  regulation  by  the  DOL  under  ERISA  and  related  regulations

with  respect  to  investment  advisory  and  management  services  provided  to  participants  in  retirement
plans  covered  by  ERISA,  including  individual  retirement  accounts.  Among  other  requirements,  ERISA
imposes  duties  on  persons  who  are  fiduciaries  under  ERISA  and  prohibits  certain  transactions  involving
related  parties.

Additionally, we and our partner firms  are subject to various data privacy and  cybersecurity laws
designed  to  protect  client  and  employee  personally  identifiable  information.  These  laws  and  regulations
are  increasing  in  complexity  and  number  which  has  resulted  in  greater  compliance  risk  and  cost  for  us.
The  unauthorized  access,  use,  theft  or  destruction  of  client  or  employee  personal,  financial  or  other
data  could  expose  us  to  potential  financial  penalties  and  legal  liability.

Additional  Regulatory  Reform

Our  partner  firms  are  subject  to  the  numerous  regulatory  reform  initiatives  in  the  United  States

and  in  international  jurisdictions  where  they  operate.  New  laws  or  regulations,  or  changes  in
enforcement of existing laws or regulations, could have a material and adverse  impact  on the scope  or
profitability  of  our  partner  firms’  business  activities  or  require  us  and/or  our  partner  firms  to  change
business  practices  and  incur  additional  costs  as  well  as  potential  reputational  harm.

For example, the Dodd-Frank Wall Street Reform  and Consumer  Protection  Act (the ‘‘Dodd-Frank
Act’’) was signed into law in the United States in July 2010.  The  Dodd-Frank Act is expansive in scope
and  requires  the  adoption  of  extensive  regulations,  many  of  which  have  just  recently  been  adopted  or
become  effective.

On April 18, 2018, the SEC proposed a  package of rulemakings  and interpretations  that  if  adopted

would impose a best interest standard  of  conduct for broker-dealers, require the delivery of a
short-form  disclosure  document  to  retail  investors,  restrict  the  use  of  the  term  ‘‘adviser’’  or  ‘‘advisor’’  by
broker-dealers  who  are  not  also  registered  as  investment  advisers  and  clarify  the  SEC’s  views  on  the
fiduciary  duty  that  investment  advisers  owe  to  their  clients.  It  is  not  clear  how  the  adoption  of  such
proposals  would  impact  our  partner  firms.

On February 1, 2019, a Royal Commission  in Australia issued a highly  publicized report following
a 12-month inquiry of misconduct in  the  banking, superannuation  and financial services  industry.  The
report  makes  many  recommendations  that,  if  adopted  into  law  or  regulations,  could  impact  our  existing
or any future Australian partner firms or investments. Some of the  regulations include  a new  system of
registration for financial advisers to be  overseen by a new regulatory body and the repeal  of  carve-outs
and  grandfathering  of  certain  conflicted  remuneration  prohibitions.

In  addition,  financial  regulators  are  increasing  their  enforcement  and  examination  attention  across
a wide range of activities and business practices, including disclosure, conflicts of interest, cybersecurity,
business  continuity  and  succession  planning.  Such  enhanced  scrutiny  may  increase  the  likelihood  of
enforcement  actions  or  violation  findings  or  cause  us  or  our  partner  firms  to  change  business  practices
or  incur  additional  costs.  It  is  also  not  possible  to  predict  how  such  changes  may  impact  the  businesses
of  our  competitors  and  the  competitive  dynamics  of  the  industry.

18

Item 1A. Risk Factors

You should carefully consider the information in this Annual Report and the following risks. Our
business,  financial  condition  and  results  of  operations  could  be  materially  and  adversely  affected  by  any  of
these  risks.  The  risks  described  below  are  not  the  only  ones  facing  us.  Additional  risks  not  presently  known
to  us  or  which  we  consider  immaterial  also  may  adversely  affect  us.

Risks Related to Capital Markets and Competition

Our  financial  results  largely  depend  on  wealth  management  fees  received  by  our  partner  firms,  which  are

impacted  by  market  fluctuations.

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.  A  material  portion  of  these  wealth
management fees are calculated based  on  a  contractual  percentage of  the client’s  assets. Wealth
management  fees  may  be  adversely  affected  by  prolonged  declines  in  the  capital  markets  because  assets
of  clients  may  decline.  Global  economic  conditions,  exacerbated  by  changes  in  the  equity  or  debt
marketplaces,  unanticipated  changes  in  currency  exchange  rates,  interest  rates,  inflation  rates,  the  yield
curve,  financial  crises,  war,  terrorism,  natural  disasters  or  other  factors  that  are  difficult  to  predict
affect  the  capital  markets.  If  unfavorable  market  conditions,  actions  taken  by  clients  in  response  to
market  conditions  (such  as  clients  reducing  or  eliminating  the  amount  of  their  assets  with  respect  to
which  our  partner  firms  provide  advice)  or  volatility  in  the  capital  markets  cause  a  decline  in  client
assets overseen by our partner firms, such  a decline could  result  in lower revenues  from wealth
management  fees.  If  our  partner  firms’  revenues  decline  without  a  commensurate  reduction  in  their
expenses,  their  net  income  will  be  reduced  and  their  business  will  be  negatively  affected,  which  may
have  an  adverse  effect  on  our  results  of  operations  and  financial  condition.

The  historical  returns  of  existing  investment  strategies  of  our  partner  firms  may  not  be  indicative  of  their

future  results  or  of  the  future  results  of  investment  strategies  they  may  develop  in  the  future.

The  historical  returns  of  our  partner  firms’  existing  investment  strategies  should  not  be  considered

indicative  of  the  future  results  of  these  strategies  or  of  the  results  of  any  other  strategies  that  our
partner  firms  may  develop  in  the  future.  The  investment  performance  that  our  partner  firms  achieve
for  their  clients  varies  over  time,  and  the  variance  can  be  wide.  The  performance  that  our  partner  firms
achieve as of a future date and for a  future  period may be higher or  lower, and  the difference may  be
material.  During  times  of  negative  economic  and  market  conditions,  our  partner  firms  may  not  be  able
to  identify  investment  opportunities  within  their  current  or  future  strategies.

Our  partner  firms  may  not  be  able  to  maintain  their  current  wealth  management  fee  structure  as  a  result

of poor investment performance or competitive  pressures  or as a result of changes  in their  mix  of  wealth
management  services,  which  could  have  an  adverse  effect  on  our  partner  firms’  results  of  operations.

Our  partner  firms  may  not  be  able  to  maintain  their  current  wealth  management  fee  structure  for
any number of reasons, including as a  result of poor investment  performance, competitive  pressures or
changes  in  their  mix  of  wealth  management  services.  In  order  to  maintain  their  fee  structure  in  a
competitive  environment,  our  partner  firms  must  be  able  to  continue  to  provide  clients  with  services
that  their  clients  believe  justify  their  fees.  Our  partner  firms  may  not  succeed  in  providing  the  services
that  will  allow  them  to  maintain  their  current  fee  structure.  If  our  partner  firms’  investment  strategies
perform  poorly,  they  may  be  forced  to  lower  their  fees  in  order  to  retain  current,  and  attract
additional, clients. Such decline in a  partner  firm’s revenue could  have an adverse effect on our results
of  operations  and  financial  condition.

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The  wealth  management  industry  is  very  competitive.

We  compete for acquisition opportunities and our partner  firms compete for  clients, advisors  and

other personnel with a broad range of wealth management firms, including public and privately held
investment  advisors,  firms  associated  with  securities  broker-dealers,  financial  institutions,  private  equity
firms  and  insurance  companies,  many  of  whom  have  greater  resources  than  we  do.  The  wealth
management  industry  is  very  competitive,  with  competition  based  on  a  variety  of  factors,  including  the
ability  to  attract  and  retain  key  wealth  management  professionals,  investment  performance,  wealth
management  fee  rates,  the  quality  of  services  provided  to  clients,  the  depth  and  continuity  of  client
relationships,  adherence  to  the  fiduciary  standard  and  reputation.  A  number  of  factors,  including  the
following,  serve  to  increase  the  competitive  risks  of  our  partner  firms:  (i)  many  competitors  have
greater  financial,  technical,  marketing,  name  recognition  and  other  resources  and  more  personnel  than
our  partner firms do, (ii) potential competitors have a relatively low cost of  entering the wealth
management  industry,  (iii)  some  competitors  may  invest  according  to  different  investment  styles  or  in
alternative  asset  classes  that  the  markets  may  perceive  as  more  attractive  than  the  investment  strategies
our  partner  firms  offer,  (iv)  some  competitors  charge  lower  fees  for  their  wealth  management  services
than  our  partner  firms  do  and  (v)  some  competitors  may  be  able  to  engage  in  more  widespread
marketing  activities  or  may  have  access  to  products  and  services  to  which  our  partner  firms  do  not.

If  we  are  unable  to  compete  effectively,  our  results  of  operations  and  financial  condition  may  be

adversely  affected.

Risks Related to Our Operations

Because  clients  can  terminate  their  client  service  contracts  at  any  time,  poor  wealth  management  service
or  performance  of  the  investment  strategies  that  our  partner  firms  recommend  may  have  an  adverse  effect  on
our  results  of  operations  and  financial  condition.

Our  clients  can  generally  terminate  their  client  service  contracts  with  us  at  any  time.  We  cannot  be

certain  that  we  will  be  able  to  retain  our  existing  clients  or  attract  new  clients,  and  these  client  service
contracts  and  client  relationships  may  be  terminated  or  not  renewed  for  any  number  of  reasons.  In
particular,  poor  wealth  management  service  or  performance  of  the  investment  strategies  that  our
partner  firms  recommend  relative  to  the  performance  of  other  wealth  management  firms  could  result  in
the  loss  of  accounts.  Moreover,  certain  clients  specify  guidelines  regarding  investment  allocation  and
strategy  that  our  partner  firms  are  required  to  follow  in  managing  their  portfolios,  and  the  failure  to
comply  with  any  of  these  guidelines  and  other  limitations  could  result  in  losses  to  clients,  which  could
result  in  the  obligation  to  make  clients  whole  for  such  losses.  If  we  believe  that  the  circumstances  do
not justify a reimbursement, or our client  believes that the  reimbursement it  was offered  was
insufficient,  the  client  could  seek  to  recover  damages  from  us  in  addition  to  terminating  its  client
service  contract.  Any  of  these  events  could  adversely  affect  our  results  of  operations  and  financial
condition  and  harm  our  reputation.

Our  results  of  operations  could  be  adversely  affected  if  we  are  unable  to  facilitate  smooth  succession

planning.

We  cannot predict with certainty how  long the  principals  or employees of  our partner firms will
continue working, and upon the retirement or exit of a  principal  or employee, a  partner  firm’s  business
may  be  adversely  affected.  If  we  are  not  successful  in  facilitating  succession  planning  of  our  partner
firms,  our  results  of  operations  and  financial  condition  could  be  adversely  affected.

If  our  reputation  is  harmed,  we  could  suffer  losses  in  our  business  and  financial  results.

Our  business  depends  on  earning  and  maintaining  the  trust  and  confidence  of our  partner  firms

and  the  clients  of  our  partner  firms.  Our  reputation  is  critical  to  our  business  and  is  vulnerable  to

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threats  that  may  be  difficult  or  impossible  to  control  and  costly  or  impossible  to  remediate.  For
example,  failure  to  comply  with  applicable  laws,  rules  or  regulations,  errors  in  our  public  reports  or
litigation  or  the  publicity  surrounding  these  events,  even  if  satisfactorily  addressed,  could  adversely
impact  our  reputation,  our  relationships  with  our  partner  firms  and  the  clients  of  our  partner  firms  and
our  ability  to  negotiate  acquisitions  and  partner  firm-level  acquisitions  with  wealth  management  firms,
as  well  as  adversely  affect  our  results  of  operations  and  financial  condition.

Our  reliance  on  our  partner  firms  to  report  their  results  to  us  may  make  it  difficult  to  respond  quickly  to
negative  business  developments,  which  could  adversely  affect  our  results  of  operations  and  financial  condition.

We  rely  on our partner firms to report their results  to  us on a monthly  basis. We  have

implemented  common  general  ledger,  payroll  and  cash  management  systems  that  allow  us  to  monitor
the  financial  performance  and  overall  operations  of  our  partner  firms.  However,  if  our  partner  firms
delay  reporting  results  or  informing  us  of  negative  business  developments,  we  may  not  be  able  to
address the situation on a timely basis,  which  could have an adverse effect on our results of operations
and  financial  condition.

Our  controls  and  procedures  may  fail  or  be  circumvented,  our  risk  management  policies  and  procedures

may  be  inadequate  and  operational  risks  could  adversely  affect  our  reputation  and  financial  condition.

We  and our partner firms have adopted various  controls, procedures, policies  and systems to

monitor  and  manage  risk  in  our  business.  Some  of  our  risk  evaluation  methods  depend  upon
information  provided  by  our  partner  firms  and  others,  and  public  information  regarding  markets,  clients
or  other  matters.  In  some  cases,  however,  that  information  may  not  be  accurate,  complete  or
up-to-date.  While  we  currently  believe  that  our  operational  controls  are  effective,  we  cannot  provide
assurance  that  those  controls,  procedures,  policies  and  systems  will  always  be  adequate  to  identify  and
manage the internal and external risks in  our business in a timely manner.  Furthermore,  we may have
errors  in  our  business  processes  or  fail  to  implement  proper  procedures  in  operating  our  business,
which  may expose us to risk of financial  loss. We  are also  subject to the risk that our employees  or
contractors,  the  employees  or  contractors  of  our  partner  firms  or  other  third  parties  may  deliberately
seek  to  circumvent  established  controls  to  commit  fraud  or  act  in  ways  that  are  inconsistent  with  our
and  our  partner  firms’  controls,  policies  and  procedures.  The  financial  and  reputational  impact  of
control  failures  could  be  significant.

In  addition,  our  businesses  and  the  markets  in  which  we  operate  are  continuously  evolving.  If  our
risk  framework  is  ineffective,  either  because  it  fails  to  keep  pace  with  changes  in  the  financial  markets,
regulatory  requirements  or  our  business,  counterparties,  clients  or  service  providers  or  for  other
reasons,  we  could  incur  losses,  suffer  reputational  damage  or  fall  out  of  compliance  with  applicable
regulatory  or  contractual  mandates  or  expectations.  Any  of  these  events  could  adversely  affect  our
reputation  and  financial  condition.

The  potential  for  human  error  in  connection  with  the  operational  systems  of  Focus  Inc.  or  its  partner  firms
could  disrupt  operations,  cause  losses  or  lead  to  regulatory  fines  and  may  have  an  adverse  effect  on  our
results  of  operations,  financial  condition  and  reputation.

The operations of Focus Inc. and its partner firms are dependent on its employees and principals.

From time-to-time, employees or principals may make mistakes that  are  not always immediately
detected  by  systems  and  controls  and  policies  and  procedures  intended  to  prevent  and  detect  such
errors.  These  can  include  calculation  errors,  errors  in  inputting  orders,  errors  in  software
implementation,  failure  to  ensure  data  security,  follow  processes,  patch  systems  or  report  issues,  follow
regulations  or  internal  compliance  procedures  or  errors  in  judgment.  Human  errors,  even  if  promptly
discovered  and  remediated,  may  disrupt  operations  or  result  in  regulatory  fines  or  sanctions,  breach  of

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client  contracts,  reputational  harm  or  legal  liability,  which,  in  turn,  may  adversely  affect  our  results  of
operations  and  financial  condition.

Failure to maintain and properly safeguard an adequate technology infrastructure and  to protect against

cyber-attacks  may  limit  our  growth,  result  in  losses  or  disrupt  our  business.

Our  business  is  reliant  upon  financial,  accounting  and  technology  systems  and  networks  to  process,

transmit  and  store  information,  including  sensitive  client  and  proprietary  information,  and  to  conduct
many  business  activities  and  transactions  with  clients,  advisors,  vendors  and  other  third  parties.  The
failure  to  implement,  maintain  and  safeguard  an  infrastructure  commensurate  with  the  size  and  scope
of  our  business  could  impede  our  productivity  and  growth,  which  could  adversely  impact  our  results  of
operations and financial condition. Further,  we rely heavily on  third  parties for certain aspects of our
business,  including  financial  intermediaries  and  technology  infrastructure  and  service  providers,  and
these  parties  are  also  susceptible  to  similar  risks.

Although  we  and  our  partner  firms  take  protective  measures  and  endeavor  to  modify  them  as
circumstances  warrant,  our  computer  systems,  software,  networks  and  mobile  devices,  and  those  of  third
parties  on  whom  we  rely,  may  be  vulnerable  to  cyber-attacks,  breaches,  unauthorized  access,  theft,
misuse,  computer  viruses  or  other  malicious  code  and  other  events  that  could  have  a  security  impact.
Further, our back-up procedures, cyber defenses and capabilities in the  event of a failure,  interruption
or  breach  of  security  may  not  be  adequate.  If  any  such  events  occur,  it  could  jeopardize  our,  as  well  as
our  clients’,  employees’  or  counterparties’  confidential,  proprietary  and  other  sensitive  information
processed  and  stored  in,  and  transmitted  through,  our  or  third-party  computer  systems,  networks  and
mobile  devices  or  otherwise  cause  interruptions  or  malfunctions  in  our,  as  well  as  our  clients’,
employees’  or  counterparties’  operations.  Despite  our  efforts  to  ensure  the  integrity  of  our  systems  and
networks,  it  is  possible  that  we  may  not  be  able  to  anticipate  or  to  implement  effective  preventive
measures  against  all  threats,  especially  because  the  techniques  used  change  frequently  and  can  originate
from a wide variety of sources. As a result, we  could experience business disruptions, significant losses,
increased  costs,  reputational  harm,  regulatory  actions  or  legal  liability,  any  of  which  could  have  an
adverse  effect  on  our  results  of  operations  and  financial  condition.  We  may  in  the  future  be  required  to
spend  significant  additional  resources  to  modify  existing  protective  measures  or  to  investigate  and
remediate  vulnerabilities  or  other  exposures,  including  hiring  third-party  technology  service  providers
and additional information technology staff. Additionally, we may be subject  to  litigation and  financial
losses  that  are  either  not  insured  against  fully  or  not  fully  covered  through  any  insurance  that  we
maintain.

Our inability to successfully recover from a  disaster or other business continuity problem  could cause

material  financial  loss,  regulatory  actions,  reputational  harm  or  legal  liability.

Should we experience a local or regional disaster  or other business continuity problem,  such as  a

terrorist  attack,  pandemic,  security  breach,  power  loss,  telecommunications  failure,  earthquake,
hurricane  or  other  natural  or  man-made  disaster,  our  continued  success  will  depend,  in  part,  on  the
availability  of  personnel  and  office  facilities,  and  the  proper  functioning  of  computer,
telecommunication  and  other  related  systems  and  operations.  Further,  we  could  potentially  lose  client
data  or  experience  adverse  interruptions  to  our  operations  or  delivery  of  services  to  clients  in  a  disaster
recovery  scenario,  which  could  result  in  material  financial  loss,  regulatory  action,  reputational  harm  or
legal  liability.

Our  insurance  coverage  may  be  inadequate  or  expensive.

We  maintain voluntary and required insurance coverage,  including, among others,  general liability,

property,  director  and  officer,  errors  and  omissions,  network  security  and  privacy,  fidelity  bond  and
fiduciary  liability  insurance  and  insurance  required  under ERISA.  While  we  endeavor  to  purchase

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coverage  that  is  appropriate  to  our  assessment  of  our  risk,  we  are  unable  to  predict  with  certainty  the
frequency,  nature  or  magnitude  of  claims  for  direct  or  consequential  damages.  Our  business  may  be
negatively  affected  if  in  the  future  our  insurance  proves  to  be  inadequate  or  unavailable.  In  addition,
insurance  claims  may  harm  our  reputation  or  divert  management  resources  away  from  operating  our
business.

If  our  system  of  internal  controls  has  flaws,  weaknesses  or  otherwise  is  not  effective,  we  may  not  be  able

to accurately report our financial results or  prevent  fraud. As a result, current  and potential  shareholders
could  lose  confidence  in  our  financial  reporting,  which  would  harm  our  business  and  the  trading  price  of  our
Class A common stock.

Effective  internal  controls  are  necessary  for  us  to  provide  reliable  financial  reports,  prevent  fraud

and operate successfully as a public company. If we cannot provide  reliable  financial reports or prevent
fraud,  our  reputation  and  operating  results  would  be  harmed.  We  cannot  be  certain  that  our  efforts  to
develop  and  maintain  our  internal  controls  will  be  successful,  that  we  will  be  able  to  maintain  adequate
controls  over  our  financial  processes  and  reporting  in  the  future  or  that  we  will  be  able  to  comply  with
our  obligations  under  Section  404  of  the  Sarbanes-Oxley  Act  of  2002  (the  ‘‘Sarbanes-Oxley  Act’’).  For
example,  Section  404  will  require  us,  among  other  things,  to  annually  review  and  report  on,  and  our
independent  registered  public  accounting  firm  to  attest  to,  the  effectiveness  of  our  internal  controls
over financial reporting. We must comply  with Section 404 (except for the requirement for  an auditor’s
attestation  report  if  we  are  classified  as  an  ‘‘emerging  growth  company’’  under  the  Jumpstart  Our
Business Startups Act) beginning with our  next annual report on Form 10-K. Any failure to develop or
maintain  effective  internal  controls,  or  difficulties  encountered  in  implementing  or  improving  our
internal  controls,  could  adversely  affect  our  results  of  operations  and  financial  condition  or  cause  us  to
fail  to  meet  our  reporting  obligations.  Ineffective  internal  controls  could  also  cause  investors  to  lose
confidence  in  our  reported  financial  information,  which  would  likely  have  a  negative  effect  on  the
trading price of our Class A common  stock.

Risks Related to Our Partnership Model  and Growth Strategy

Our  success  depends,  in  part,  on  our  ability  to  make  successful  acquisitions.

Our  continued  success  will  depend,  in  part,  upon  our  ability  to  find  suitable  partner  firms  to
acquire,  our  ability  to  acquire  such  firms  on  acceptable  terms  and  our  ability  to  raise  the  capital
necessary to finance such transactions. We compete with  banks, outsourced  service  providers,  private
equity  firms  and  other  wealth  management  and  advisory  firms  to  acquire  high-quality  wealth
management  firms.  Some  of  our  competitors  may  be  able  to  outbid  us  for  these  acquisition  targets.  If
we  identify  suitable  acquisition  targets,  we  may  not  be  able  to  complete  any  such  acquisition  on  terms
that  are  commercially  acceptable  to  us.  If  we  are  not  successful  in  acquiring  suitable  acquisition
candidates,  it  may  have  an  adverse  effect  on  our  business  and  on  our  earnings  and  revenue  growth.

Acquired  businesses  may  not  perform  as  expected,  leading  to  an  adverse  effect  on  our  earnings  and

revenue  growth.

Acquisitions involve a number of risks,  including the  following,  any  of  which could have an  adverse

effect  on  our  partner  firms’  and  our  earnings  and  revenue  growth:  (i)  incurring  costs  in  excess  of  what
we  anticipated;  (ii)  potential  loss  of  key  wealth  management  professionals  or  other  team  members  of
the  predecessor  firm;  (iii)  inability  to  generate  sufficient  revenue  to  offset  transaction  costs;
(iv)  inability  to  retain  clients  following  an  acquisition;  (v)  incurring  expenses  associated  with  the
amortization  or  impairment  of  intangible  assets,  particularly  for  goodwill  and  other  intangible  assets;
and  (vi)  payment  of  more  than  fair  market  value  for  the  assets  of  the  partner  firm.

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While  we  intend  that  our  completed  acquisitions  will  improve  profitability,  past  or  future

acquisitions  may  not  be  accretive  to  earnings  or  otherwise  meet  operational  or  strategic  expectations.
The  failure  of  any  partner  firm  to  perform  as  expected  after  acquisition  may  have  an  adverse  effect  on
our  earnings  and  revenue  growth.

Contingent consideration payments could  result in a  higher than expected impact on our future earnings.

We  have typically incorporated into our acquisition structure contingent consideration paid to the

sellers  upon  the  achievement  of  specified  financial  thresholds.  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. We anticipate that  future acquisitions will continue  to  include contingent
consideration. For business acquisitions, we recognize  the fair value  of  estimated  contingent
consideration  at  the  acquisition  date  and  contingent  consideration  is  remeasured  to  fair  value  at  each
reporting  period  until  the  contingency  is  resolved.  Since  the  contingent  consideration  to  be  paid  is
based  on  the  growth  of  forecasted  financial  performance  levels  over  a  number  of  years,  we  cannot
calculate  the  maximum  contingent  consideration  that  may  be  payable  under  these  arrangements.
Contingent consideration payments could  result  in a higher  than  expected impact on our future
earnings.

We may  incur debt, issue additional equity or  use cash  on hand  to pay for future acquisitions, each of

which  could  adversely  affect  our  financial  condition  or  the  market  price  of  our  Class  A  common  stock.
Additionally, difficulty in obtaining debt, issuing equity  or generating  cash flow  could affect  our  growth and
financial  condition  and  the  market  price  of  our  Class A  common  stock.

We  will finance future acquisitions through debt financing, including  significant draws  on our first
lien revolving credit facility (the ‘‘First Lien Revolver’’),  issuance  of  additional term debt,  the issuance
of  equity  securities,  the  use  of  existing  cash  or  cash  equivalents  or  any  combination  of  the  foregoing.
Acquisitions financed with debt could  require us to dedicate a  substantial portion of  our cash flow to
principal and interest payments. Acquisitions  financed with  the issuance of our equity securities would
be  dilutive  to  the  share  value  and  voting  power  of  our  existing  Class  A  common  stock,  which  could
affect the market price of our Class A common  stock.  Future acquisitions financed with our own cash
could  deplete  the  cash  and  working  capital  available  to  fund  our  operations  adequately.  Difficulty
borrowing  funds,  selling  securities  or  generating  sufficient  cash  from  operations  to  finance  our  activities
may have a material adverse effect on  our  results of operations and  financial condition.

Our  growth  strategy  depends,  in  part,  upon  continued  growth  from  our  existing  partner  firms.  However,

the  significant  growth  we  have  experienced  may  be  difficult  to  sustain  in  the  future.

The  continued  growth  of  our  business  will  depend  on,  among  other  things,  the  ability  of  our
partner  firms  to  grow  through  acquisitions,  to  retain  key  wealth  management  professionals  and  to
devote  sufficient  resources  to  maintaining  existing  client  relationships  and  developing  new  client
relationships.  Our  business  growth  will  also  depend  on  their  success  in  providing  high-quality  wealth
management  services,  as  well  as  their  ability  to  deal  with  changing  market  conditions,  to  maintain
adequate  financial  and  business  controls  and  to  comply  with  new  regulatory  requirements  arising  in
response  to  both  the  increased  sophistication  of  the  wealth  management  industry  and  the  significant
market  and  economic  events  of  the  last  few  years.  In  the  future,  our  partner  firms  may  not  contribute
to  our  growth  at  their  historical  or  currently  anticipated  levels.

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Our  acquisition  due  diligence  process  may  not  reveal  all  facts  that  are  relevant  in  connection  with  an

acquisition,  which  could  subject  us  to  unknown  liabilities.

In  connection  with  our  acquisitions  of  new  partner  firms  and  acquisitions  by  existing  partner  firms,

we  conduct  due  diligence  that  we  deem  reasonable  and  appropriate  based  on  the  facts  and
circumstances  applicable  to  such  transactions  and  expect  to  use  our  resources  to  enhance  the  risk
management  functions  and  diligence  of  our  business  and  our  partner  firms’  businesses  going  forward.
When  conducting  due  diligence,  we  evaluate  important  and  complex  business,  financial,  tax,  accounting,
legal  and  compliance  issues.  Outside  consultants,  legal  advisers,  accountants,  regulatory  experts  and
other  third  parties  may  be  involved  in  the  due  diligence  process  in  varying  degrees  depending  on  the
type,  size  and  complexity  of  the  acquisition.  When  conducting  due  diligence  and  making  an  assessment
regarding a transaction, we have and  will continue to rely on  the resources available to us, including
information  provided  by  third  parties.  Our  diligence  efforts  with  respect  to  RIAs  that  were  newly
formed  in  connection  with  our Focus Independence program may be limited due  to  the short operating
history  of  such  firms.

Since  commencing  acquisition  activities  in  2006,  there  were  certain  instances  where  we  discovered
matters  about  acquired  partner  firms  that  were  not  uncovered  during  the  due  diligence  process.  These
instances did not have a material impact  on our financial position, results  of operations  or cash  flows,
and  our  acquisition  agreements  include  standard  sellers’  representations  and  warranties  and
indemnification  provisions  that  provide  us  with  some  financial  protection  in  the  event  of  an
undiscovered  or  undisclosed  matter.  However,  the  due  diligence  investigations  that  we  have  carried  out
or  will  carry  out  with  respect  to  any  transaction  may  not  reveal  or  highlight  all  relevant  facts  that  may
be  necessary  or  helpful  in  evaluating  the  transaction,  which  could  subject  us  or  our  partner  firms  to
unknown  liabilities  that  could  adversely  affect  our  or  our  partner  firms’  results  of  operations  and
financial  condition.

The success of Focus Independence depends upon our ability to lift out teams of  wealth management

professionals  from  traditional  brokerages  and  wirehouses.

Our  ability  to  lift  out  teams  of  wealth  management  professionals  from  traditional  brokerages  and
wirehouses  depends  on  our  ability  to  offer  more  favorable  opportunities  than  those  provided  by  their
current  employers,  many  of  which  have  substantially  greater  financial  resources  and  may  be  able  to
entice  their  current  employees  to  stay.  If  we  are  not  successful  in  attracting  and  lifting  out  suitable
wealth  management  professionals  for  our Focus Independence program, it may have an  adverse  effect
on  the  growth  of  our  revenues  and  earnings.

We may  encounter complications in implementing Focus Successions related to transitioning and

administering  client  assets  and  obtaining  required  client  consents.

We  have succession agreements with prospective  advisors as part of Focus  Successions. No

succession  transition  has  been  initiated  to  date,  but  several  of  the  succession  plans  have  been  converted
into  acquisitions  by  our  partner  firms.  In  the  future,  we  may  encounter  complications  as  we  implement
these  succession  agreements,  including  problems  transitioning  and  administering  client  assets  at  the
custodians  and  difficulties  in  obtaining  any  required  client  consent.  Furthermore,  because  we  are  unable
to  predict  when  any  particular  agreement  might  take  effect  or  what  acquired  assets  would  be
transferred  at  such  time,  we  are  unable  to  quantify  the  potential  cost  of  completing  succession
transactions  in  the  future.  Difficulties  implementing Focus Successions could have an adverse effect on
the  growth  of  our  partner  firms  and  therefore  our  growth.

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We may  face operational risks associated with  expanding internationally.

Our  business  strategy  includes  expanding  our  presence  in  non-U.S.  markets  through  acquisitions.

This strategy presents a number of risks, including: (i) greater difficulties in  supporting, or the need to
hire  additional  personnel  to  support  the  operations  of  foreign  partner  firms,  (ii)  language  and  cultural
differences,  (iii)  unfavorable  fluctuations  in  foreign  currency  exchange  rates,  (iv)  higher  operating  costs,
(v)  unexpected  changes  in  wealth  management  policies  and  other  regulatory  requirements,  (vi)  adverse
tax  consequences  and  (vii)  more  complex  acquisition  structures.  If  our  international  business  increases
relative to our total business, these factors could have a more  pronounced effect on  our  results of
operations  and  financial  condition.

Risks Related to Our Business Model and  Key Professionals

Our  partner  firms’  autonomy  limits  our  ability  to  alter  their  management  practices  and  policies,  and  our
dependence  on  the  principals  who  manage  the  businesses  of  our  partner  firms  may  have  an  adverse  effect  on
our  business.

Under  the  management  agreements  between  our  partner  firms  and  the  new  management
companies  formed  by  the  principals,  the  management  companies  provide  the  personnel  who  manage
the  partner  firm’s  day-to-day  operations  and  oversee  the  provision  of  wealth  management  services,  the
implementation  of  employment  policies,  the  negotiation,  execution  and  delivery  of  contracts  in
connection  with  the  management  and  operation  of  the  partner  firm’s  business  in  the  ordinary  course
and  the  implementation  of  policies  and  procedures  to  ensure  compliance  with  all  applicable  laws,  rules
and  regulations.  Such  individuals  also  maintain  the  primary  relationships  with  clients  and  vendors.  As  a
consequence,  we  are  exposed  to  losses  resulting  from  day-to-day  decisions  of  the  principals  who
manage  our  partner  firm,  and  our  financial  condition  and  results  of  operations  may  be  adversely
affected  by  problems  stemming  from  the  day-to-day  operations  of  a  partner  firm,  where  weaknesses  or
failures in internal processes or systems  could lead  to  a disruption of  the  partner  firm’s  operations,
liability  to  its  clients  or  exposure  to  disciplinary  action.  Unsatisfactory  performance  by  the  principals
could  also  hinder  the  partner  firms’  ability  to  grow  and  could  have  an  adverse  effect  on  our  business.
Further, there is a risk of reputational harm  to  us if  any  of  our partner firms, among other things, have
engaged  in,  or  in  the  future  were  to  engage  in,  poor  or  non-compliant  business  practices  or  were  to
experience  adverse  results.

We rely on our key personnel and principals.

We  depend on the efforts of our executive officers, other management team members, employees
and  principals.  Our  executive  officers,  in  particular,  play  an  important  role  in  the  stability  and  growth
of  our  business,  including  the  growth  and  stability  of  existing  partner  firms  and  in  identifying  potential
acquisition  opportunities  for  us.  However,  there  is  no  guarantee  that  these  officers  will  remain  with  us.
In  addition,  our  partner  firms  depend  heavily  on  the  services  of  key  principals,  who  in  many  cases  have
managed  their  predecessor  firms  for  many  years.  Although  we  use  a  combination  of  economic
incentives,  transfer  restrictions  and  non-solicitation  and  non-competition  agreements  in  an  effort  to
retain  key  management  personnel,  there  is  no  guarantee  that  these  principals  will  remain  with  the
respective  partner  firms.  The  loss  of  key  management  personnel  at  our  partner  firms  could  have  an
adverse  impact  on  our  business.

In  addition,  compliance  with  public  company  requirements  places  significant  additional  demands

on  our  senior  management  and  has  required  us,  and  will  continue  to  require  us,  to  enhance  our
investor  relations,  legal,  financial  reporting,  corporate  communications  and  certain  other  functions.
These  additional  efforts  may  strain  our  resources  and  divert  management’s  attention  from  other
business  concerns,  which  could  adversely  affect  our  business.

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If a management company terminates its management agreement  with us, our financial condition and

results  could  be  negatively  affected.

At the time of the acquisition of a partner firm, we enter into a management agreement with the

management  company  that  is  substantially  owned  by  the  selling  principals.  Pursuant  to  the  management
agreement,  the  management  company  provides  the  personnel  who  conduct  the  day-to-day  management
and  operation  of  the  partner  firm.  These  management  agreements  can  be  terminated  by  the
management  company  at  the  end  of  the  initial  term,  which  is  typically  six  years.  Termination  of  a
management agreement could lead to a  disruption of the  partner firm’s operations,  which could
negatively  affect  our  financial  condition  and  results  of  operations.

If  our  partner  firms  are  unable  to  maintain  their  client-oriented,  fiduciary-minded  culture  or

compensation  levels  for  wealth  management  professionals,  they  may  be  unable  to  attract,  develop  and  retain
talented  wealth  management  professionals,  which  could  negatively  impact  our  financial  results  and  our  ability
to grow.

Attracting, developing and retaining talented wealth  management professionals are  essential
components of the business strategy  of  our partner firms. To do so, it  is critical that they continue to
foster  an  environment  and  provide  compensation  that  is  attractive  for  their  existing  and  prospective
wealth  management  professionals.  If  they  are  unsuccessful  in  maintaining  such  an  environment  (for
instance,  because  of  changes  in  management  structure,  corporate  culture  or  corporate  governance
arrangements)  or  compensation  levels  for  any  reason,  their  existing  wealth  management  professionals
may leave the firm or fail to produce  their best work on  a consistent, long-term  basis and/or  our
partner  firms  may  be  unsuccessful  in  attracting  talented  new  wealth  management  professionals,  any  of
which  could  negatively  impact  their  financial  results  and  our  ability  to  grow  and  may  have  an  adverse
effect  on  our  results  of  operations  and  financial  condition.

Risks Related to Our Structure

Focus Inc. is a holding company. Focus  Inc.’s  sole material asset is its equity  interest in Focus LLC, and

Focus Inc. is accordingly dependent upon  distributions from  Focus LLC to  pay  taxes, make  payments  under
the Tax Receivable Agreements and cover its  corporate and other overhead  expenses.

Focus Inc. is a holding company and  has  no material assets other than its  equity interest in

Focus LLC. Focus Inc. has no independent means of generating  revenue. To the  extent Focus LLC  has
available cash and subject to the terms  of Focus LLC’s  credit agreements and  any other  debt
instruments, we have caused and intend to continue  to  cause  Focus LLC  to  make  (i) generally pro rata
distributions to its unitholders, including Focus Inc.,  in an amount generally  intended to allow the
Focus LLC unitholders to satisfy their respective income tax liabilities with respect to their allocable
share of the income of Focus LLC, based on certain assumptions and conventions, provided that the
distribution will be sufficient to allow Focus Inc. to satisfy its actual tax liabilities and to make
payments under its two Tax Receivable Agreements, entered  into  on July 30, 2018 in connection  with
the closing of the IPO (the ‘‘Tax Receivable  Agreements’’), one with certain entities affiliated  with our
private  equity  investors  and  the  other  with  certain  other  continuing  and  former  owners  of  Focus  LLC
(the  parties  to  the  two  agreements  collectively,  the  ‘‘TRA  holders’’),  and  any  subsequent  tax  receivable
agreements  that  it  may  enter  into  in  connection  with  future  acquisitions  and  (ii)  non  pro  rata
distributions to Focus Inc. in an amount at least sufficient  to  reimburse  Focus Inc. for its  corporate and
other overhead expenses. We are limited,  however, in our  ability  to  cause  Focus LLC  and its
subsidiaries to make these and other distributions  to  Focus Inc. due to the restrictions under  our  credit
facilities  entered  into  in  July  2017,  as  amended  (collectively,  the  ‘‘Credit  Facility’’).  To  the  extent  that
Focus Inc. needs funds and Focus LLC  or its subsidiaries  are restricted  from  making such  distributions
under  applicable  law  or  regulation  or  under  the  terms  of  their  financing  arrangements  or  are  otherwise
unable to provide such funds, Focus Inc.’s  liquidity and  financial  condition could be adversely affected.

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Focus Inc. is required to make payments  under the Tax  Receivable Agreements for certain tax benefits  it

may  claim,  and  the  amounts  of  such  payments  could  be  significant.

The Tax Receivable Agreements generally provide for the payment by  Focus  Inc. to each TRA
holder  of  85%  of  the  net  cash  savings,  if  any,  in  U.S.  federal,  state  and  local  income  and  franchise  tax
that Focus Inc. actually realizes (computed using simplifying  assumptions to address the impact of state
and  local  taxes)  or  is  deemed  to  realize  in  certain  circumstances  in  periods  after  the  IPO  as  a  result  of
certain  increases  in  tax  basis  and  certain  tax  benefits  attributable  to  imputed  interest.  We  will  retain  the
benefit  of  the  remaining  15%  of  these  cash  savings.

The term of each Tax Receivable Agreement commenced  upon the  completion  of  the IPO  will
continue until all tax benefits that are subject  to  such Tax Receivable Agreement have been  utilized  or
expired, unless we experience a change of  control  (as defined under the  Tax Receivable Agreements,
which  includes  certain  mergers,  asset  sales  and  other  forms  of  business  combinations)  or  the  Tax
Receivable Agreements terminate early  (at our election or as  a result  of  our breach), and Focus Inc.
makes  the  termination  payments  specified  in  the  Tax  Receivable  Agreements.  In  addition,  payments
made under the Tax Receivable Agreements  will  be  increased  by any interest accrued from  the due
date  (without  extensions)  of  the  corresponding  tax  return.

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.  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 Focus LLC 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 payments under the Tax Receivable  Agreements will not be conditioned upon a TRA holder

having a continued ownership interest in Focus Inc. or Focus LLC. Please read ‘‘Part II,  Item 7,
Management’s  Discussion  and  Analysis  of  Financial  Condition  and  Results  of  Operations—Liquidity
and Capital Resources—Tax Receivable Agreements.’’

In certain cases, payments under the Tax Receivable Agreements  may  be accelerated  and/or significantly

exceed the actual benefits, if any, realized  in respect of the tax attributes subject to the  Tax Receivable
Agreements.

If we  experience a change of control  (as  defined under the  Tax Receivable Agreements, which
includes  certain  mergers,  asset  sales  and  other  forms  of  business  combinations)  or  the  Tax  Receivable
Agreements terminate early (at our election  or as a  result of  our breach), Focus  Inc. could be required
to make a substantial, immediate lump-sum payment. This payment would equal  the present value  of
hypothetical  future  payments  that  could  be  required  to  be  paid  under  the  Tax  Receivable  Agreements
(determined by applying a discount rate of one-year  London Interbank  Offered Rate  (‘‘LIBOR’’) plus
1.5%).  The  calculation  of  hypothetical  future  payments  will  be  based  upon  certain  assumptions  and
deemed events set forth in the Tax Receivable Agreements, including (i)  that  Focus Inc. has sufficient

28

taxable  income  to  fully  utilize  the  tax  benefits  covered  by  the  Tax  Receivable  Agreements  and  (ii)  any
Focus LLC units (other than those held  by  Focus Inc.) outstanding  on the  termination date are deemed
to  be  redeemed  on  the  termination  date.  Any  early  termination  payments  may  be  made  significantly  in
advance  of,  and  may  materially  exceed,  the  actual  realization,  if  any,  of  the  future  tax  benefits  to  which
the  termination  payments  relate.

If we  experience a change of control  (as  defined under the  Tax Receivable Agreements) or the  Tax

Receivable Agreements otherwise terminate early, Focus Inc.’s obligations under  the Tax Receivable
Agreements could have a substantial  negative impact  on our  liquidity and could have  the effect of
delaying,  deferring  or  preventing  certain  mergers,  asset  sales  or  other  forms  of  business  combinations
or changes of control. For example, if the  Tax Receivable Agreements  were  terminated immediately at
December 31,  2018,  the  estimated  termination  payments  would,  in  the  aggregate,  be  approximately
$184.6 million (calculated using a discount  rate equal  to  one-year LIBOR plus 1.5%, applied against  an
undiscounted  liability  of  $276.9 million);  this  amount  could  be  substantially  larger  if  Focus Inc.  enters
into  additional  tax  receivable  agreements  in  connection  with  future  acquisitions  by  Focus LLC.  The
foregoing  amounts  are  merely  estimates  and  the  actual  payments  could  differ  materially.  There  can  be
no  assurance  that  we  will  be  able  to  finance  any  payments  required  to  be  made  under  the  Tax
Receivable Agreements.

Please  read  ‘‘Part  II,  Item  7,  Management’s  Discussion  and  Analysis  of  Financial  Condition  and

Results of Operations—Liquidity and Capital Resources—Tax Receivable  Agreements.’’

In the event that payment obligations under the Tax Receivable Agreements  are  accelerated upon  certain

mergers,  other  forms  of  business  combinations  or  other  changes  of  control,  the  consideration  payable  to
holders of our Class A common stock could be substantially reduced.

If we  experience a change of control  (as  defined under the  Tax Receivable Agreements, which

includes  certain  mergers,  asset  sales  and  other  forms  of  business  combinations),  Focus  Inc.  would  be
obligated to make a substantial, immediate  lump-sum payment,  and such payment  may be significantly
in  advance  of,  and  may  materially  exceed,  the  actual  realization,  if  any,  of  the  future  tax  benefits  to
which  the payment relates. As a result  of this  payment obligation,  holders of our Class  A common
stock  could  receive  substantially  less  consideration  in  connection  with  a  change  of  control  transaction
than  they  would  receive  in  the  absence  of  such  obligation.  Further,  any  payment  obligations  under  the
Tax  Receivable Agreements will not be conditioned  upon the  TRA  holders’ having a continued interest
in Focus Inc. or Focus LLC. Accordingly, the TRA holders’ interests may conflict  with those  of the
holders  of our Class A common stock.  Please  read  ‘‘—In  certain cases, payments under the  Tax
Receivable Agreements may be accelerated  and/or significantly exceed the actual  benefits, if any,
realized in respect of the tax attributes subject to the  Tax Receivable Agreements’’ and ‘‘Part II, Item 7,
Management’s  Discussion  and  Analysis  of  Financial  Condition  and  Results  of  Operations—Liquidity
and Capital Resources—Tax Receivable Agreements.’’

We will not be reimbursed for any payments made under the Tax Receivable  Agreements in the event that

any  tax  benefits  are  subsequently  disallowed.

Payments under the Tax Receivable Agreements  will  be  based on the tax  reporting positions that
we will determine. The TRA holders will not reimburse us for  any payments  previously  made under the
Tax  Receivable Agreements if any tax  benefits  that  have given  rise to payments under  the Tax
Receivable Agreements are subsequently  disallowed, except that  excess  payments  made to any TRA
holder  will  be  netted  against  payments  that  would  otherwise  be  made  to  such  TRA  holder,  if  any,  after
our  determination of such excess. As a  result,  in such  circumstances, we could make payments that are
greater  than  our  actual  cash  tax  savings,  if  any,  and  may  not  be  able  to  recoup  those  payments,  which
could  adversely  affect  our  liquidity.

29

If Focus LLC were to become a publicly  traded partnership  taxable  as a  corporation for U.S. federal

income  tax  purposes,  significant  tax  inefficiencies  might  result,  and  Focus  Inc.  would  not  be  able  to  recover
payments previously made by it under the Tax  Receivable Agreements even if the corresponding tax  benefits
were  subsequently  determined  to  have  been  unavailable  due  to  such  status.

A number of aspects of our structure depend on  the classification of Focus LLC  as a partnership

for  U.S.  federal  income  tax  purposes.  Subject  to  certain  exceptions  relating  to  the  receipt  of
predominantly  qualifying  income  for  which  we  do  not  expect  to  qualify,  a  ‘‘publicly  traded  partnership’’
is taxable as a corporation for U.S. federal income tax purposes.  The  U.S. Treasury regulations provide
that a ‘‘publicly traded partnership’’ is  a  partnership the interests  of which  are traded on an  established
securities market or are readily tradable on a secondary market or the substantial  equivalent thereof.
Under certain circumstances, exchanges of Focus LLC units  pursuant  to  an exchange  right (or the call
right) or other transfers of Focus LLC  units could  cause Focus LLC  to  be  treated as a publicly  traded
partnership. The U.S. Treasury regulations provide for certain safe harbors from treatment  as a publicly
traded  partnership,  and  we  intend  to  operate  such  that  exchanges  or  other  transfers  of  Focus  LLC  units
qualify for one or more such safe harbors. For example, we intend  to  limit the number of unitholders
of Focus LLC, and the Fourth Amended and Restated Operating  Agreement of Focus LLC, as
amended, (the ‘‘Fourth Amended and Restated  Focus LLC  Agreement’’)  provides for limitations on  the
ability of unitholders of Focus LLC to  transfer their Focus LLC units and provides us, as managing
member of Focus LLC, with the right to impose limitations and restrictions (in addition to those
already  in  place),  subject  to  certain  consent  rights,  on  the  ability  of  unitholders  of  Focus  LLC  to
exchange their Focus LLC units pursuant to an exchange right  to  the extent we  believe it is necessary
to ensure that Focus LLC will continue to be treated as a  partnership for U.S. federal  income  tax
purposes.

If Focus  LLC were to become a publicly traded partnership,  significant tax inefficiencies  might
result, including as a result of Focus Inc.’s inability to file a consolidated U.S.  federal income tax return
with Focus LLC. In addition, Focus Inc. would no longer have  the benefit of the  increases in  tax basis
covered under the Tax Receivable Agreements,  and  Focus Inc. would  not  be  able to recover any
payments previously made under the  Tax Receivable Agreements, even if  the corresponding tax benefits
(including any claimed increase in the tax basis of Focus LLC’s assets) were subsequently determined
to  have  been  unavailable.

In certain circumstances, Focus LLC will be required to  make tax distributions  to the Focus LLC
unitholders, including Focus Inc., and  the tax distributions that Focus LLC will  be required  to make  may be
substantial. To the extent Focus Inc. receives  tax distributions in excess of its tax liabilities and obligations to
make payments under the Tax Receivable Agreements  and retains  such excess  cash, the  unitholders of
Focus LLC would benefit from such accumulated cash balances  if they  exercise their exchange  right.

Pursuant to the Fourth Amended and Restated  Focus LLC Agreement, Focus LLC will make
generally  pro  rata  cash  distributions,  or  tax  distributions,  to  the  Focus  LLC  unitholders,  including
Focus Inc., in an amount generally intended to allow the Focus  LLC unitholders to satisfy their
respective  income  tax  liabilities  with  respect  to  their  allocable  share  of  the  income  of  Focus  LLC,  based
on  certain  assumptions  and  conventions,  provided  that  the  distribution  will  be  sufficient  to  allow
Focus Inc. to satisfy its actual tax liabilities and to make payments under the  Tax Receivable
Agreements  and  any  subsequent  tax  receivable  agreements  that  it  may  enter  into  in  connection  with
future acquisitions. Under applicable  tax rules, Focus LLC  is required to allocate net  taxable  income
disproportionately  to  its  members  in  certain  circumstances.  Because  tax  distributions  will  be  made  pro
rata based on ownership and based on  an assumed tax  rate,  Focus LLC  will be required to make tax
distributions  that,  in  the  aggregate,  will  likely  exceed  the  amount  of  taxes  that  Focus  LLC  would  have
paid  if  it  were  taxed  on  its  net  income  at  the  assumed  rate.  The  pro  rata  distribution  amounts  will  also
be  increased  to  the  extent  necessary,  if  any,  to  ensure  that  the  amount  distributed  to  Focus  Inc.  is

30

sufficient to enable Focus Inc. to pay its  actual tax liabilities and any amounts payable  under the Tax
Receivable Agreements.

Funds used by Focus LLC to satisfy its tax distribution  obligations  will not be available  for

reinvestment  in  our  business.  Moreover,  the  tax  distributions  Focus  LLC  will  be  required  to  make  may
be substantial, and may exceed (as a percentage of Focus LLC’s income) the overall effective tax rate
applicable to a similarly situated corporate taxpayer. In  addition,  because these payments  will  be
calculated  with  reference  to  an  assumed  tax  rate,  and  because  of  the  disproportionate  allocation  of  net
taxable  income,  these  payments  may  significantly  exceed  the  actual  tax  liability  for  many  of  the
Focus LLC unitholders.

As a result of potential differences in the  amount  of net taxable income  allocable to Focus  Inc.

and to the other Focus LLC unitholders,  as well as the use of an  assumed tax rate  in calculating
Focus LLC’s tax distribution obligations, Focus Inc. may receive distributions  significantly  in excess of
its  tax  liabilities  and  obligations  to  make  payments  under  the  Tax  Receivable  Agreements.  If  Focus  Inc.
retains such cash balances, the unitholders  of  Focus  LLC  would  benefit  from  any value attributable to
such accumulated cash balances as a result of their exercise of an exchange  right. Focus Inc.  intends to
take  steps  to  eliminate  any  material  cash  balances.  Such  steps  could  include  distributing  such  cash
balances as dividends on our Class A common stock, reinvesting such cash  balances  in Focus LLC for
additional Focus LLC units (with an  accompanying  stock dividend with respect  to  our Class A common
stock),  and  using  such  cash  balances  to  effect  buybacks  of  shares  of  our  Class  A  common  stock  (with
an  accompanying  conversion  rate  adjustment  with  respect  to  the  exchange  right).

Risks Related to Financing and Liquidity

We may  not be able to generate sufficient cash to service all of our indebtedness and may be forced to

take  other  actions  to  satisfy  our  obligations  under  applicable  debt  instruments,  which  may  not  be  successful.

At December 31, 2018, we had outstanding borrowings under the  Credit Facility of approximately

$839.0  million  at  stated  value.  Our  ability  to  make  scheduled  payments  on  or  to  refinance  our
indebtedness, including the Credit Facility, depends on our financial condition and operating
performance,  which  are  subject  to  prevailing  economic  and  competitive  conditions  and  certain  financial,
business and other factors beyond our control.  We  may  not be able to maintain  a level of  cash flow
from  operating  activities  sufficient  to  permit  us  to  pay  the  principal  and  interest  on  our  indebtedness.

If  our  cash  flows  and  capital  resources  are  insufficient  to  fund  debt  service  obligations,  we  may  be

forced  to  reduce  or  delay  acquisitions  or  partner  firm-level  acquisitions  and  capital  expenditures,  sell
assets,  seek  additional  capital  or  restructure  or  refinance  indebtedness.  Our  ability  to  restructure  or
refinance  indebtedness  will  depend  on  the  condition  of  the  capital  markets  and  our  financial  condition
at  such  time.  Any  refinancing  of  indebtedness  could  be  at  higher  interest  rates  and  may  require  us  to
comply  with  more  onerous  covenants,  which  could  further  restrict  business  operations.  The  terms  of
existing  or  future  debt  instruments  may  restrict  us  from  adopting  some  of  these  alternatives.  In
addition,  any  failure  to  make  payments  of  interest  and  principal  on  outstanding  indebtedness  on  a
timely  basis  could  harm  our  ability  to  incur  additional  indebtedness.  In  the  absence  of  sufficient  cash
flows  and  capital  resources,  we  could  face  substantial  liquidity  problems  and  might  be  required  to
dispose  of  material  assets  or  operations  to  meet  debt  service  and  other  obligations.  The  Credit  Facility
currently  restricts  our  ability  to  dispose  of  assets  and  our  use  of  the  proceeds  from  such  disposition.  We
may  not  be  able  to  consummate  those  dispositions,  and  the  proceeds  of  any  such  disposition  may  not
be  adequate  to  meet  any  debt  service  obligations  then  due.  These  alternative  measures  may  not  be
successful  and  may  not  permit  us  to  meet  scheduled  debt  service  obligations.

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Restrictions in our existing and future debt  agreements could limit  our growth  and our  ability to engage

in  certain  activities.

The Credit Facility contains a number  of customary  covenants, including (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.

In addition, the Credit Facility requires us to maintain certain  financial ratios. These restrictions
may  also  limit  our  ability  to  obtain  future  financings,  to  withstand  a  future  downturn  in  our  business  or
the  economy  in  general,  or  to  otherwise  conduct  necessary  corporate  activities.  We  may  also  be
prevented  from  taking  advantage  of  acquisitions  or  other  business  opportunities  that  arise  because  of
the  limitations  that  the  restrictive  covenants  under  the  Credit  Facility  impose  on  us.

A breach of any covenant in the Credit Facility  would result  in a default under  the applicable
agreement after any applicable grace periods. A default,  if not  waived, could result  in acceleration of
the  indebtedness  outstanding  under  the  Credit  Facility.  The  accelerated  indebtedness  would  become
immediately  due  and  payable.  If  that  occurs,  we  may  not  be  able  to  make  all  of  the  required  payments
or  borrow  on  short  notice  sufficient  funds  to  refinance  such  indebtedness.  Even  if  new  financing  were
available  at  that  time,  it  may  not  be  on  terms  that  are  acceptable  to  us.

Lack  of  liquidity  or  access  to  capital  could  impair  our  business  and  financial  condition.

Liquidity,  or  ready  access  to  funds,  is  essential  to  our  business.  We  expend  significant  resources

investing  in  our  business,  particularly  with  respect  to  acquisition  activity.  As  a  result,  reduced  levels  of
liquidity could have a significant negative effect on us and our partner firms. Some potential  conditions
that  could  negatively  affect  our  liquidity  or  that  of  our  partner  firms  include:  (i)  illiquid  or  volatile
markets,  (ii)  diminished  access  to  debt  or  capital  markets,  (iii)  unforeseen  cash  or  capital  requirements
or  (iv)  regulatory  penalties  or  fines  or  adverse  legal  settlements  or  judgments.

The  capital  and  credit  markets  continue  to  experience  varying  degrees  of  volatility  and  disruption.

In  some  cases,  the  markets  have  exerted  downward  pressure  on  availability  of  liquidity  and  credit
capacity.  Without sufficient liquidity, we could  be  required to curtail  our operations.

In  the  event  current  resources  are  insufficient  to  satisfy  our  needs  or  the  needs  of  our  partner

firms,  we  may  need  to  rely  on  financing  sources  such  as  bank  debt.  The  availability  of  additional
financing will depend on a variety of  factors such  as:  (i) market conditions,  (ii) the general availability
of  credit,  including  the  availability  of  credit  to  the  financial  services  industry,  (iii)  our  credit  ratings  and
credit  capacity  and  (iv)  the  possibility  that  lenders  could  develop  a  negative  perception  of  our  or  their
long-  or  short-term  financial  prospects  if  the  level  of  business  activity  decreases  due  to  a  market
downturn.  Similarly,  our  access  to  funds  may  be  impaired  if  regulatory  authorities  or  rating
organizations  take  negative  actions  against  us  or  our  partner  firms.

Disruptions,  uncertainty  or  volatility  in  the  capital  and  credit  markets  may  also  limit  our  access  to

capital  required  to  operate  our  businesses.  Such  market  conditions  may  limit  our  ability  to  generate
revenue  to  meet  liquidity  needs  and  access  the  capital  necessary  to  grow  our  business.  As  such,  we  may
be  forced  to  delay  raising  capital,  issue  different  types  of  capital  than  we  would  otherwise,  less
effectively  deploy  such  capital  or  bear  an  unattractive  cost  of  capital,  which  could  decrease  our
profitability  and  significantly  reduce  our  financial  flexibility.

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Risks Related to Regulation and Litigation

Our  business  is  highly  regulated.

Our  partner  firms  are  subject  to  extensive  regulation  by  various  regulatory  and  self-regulatory
authorities  in  the  United  States,  the  United  Kingdom,  Canada  and  Australia.  In  the  United  States,  our
partner  firms  are  subject  to  regulation  primarily  at  the  federal  level,  including  regulation  by  the  SEC
under the Advisers Act, by the DOL under ERISA, regulation  of  broker-dealers by the SEC  and
FINRA,  state  insurance  regulations  and  state  securities  regulation.  As  a  publicly  traded  company  with
listed  equity  securities,  we  are  subject  to  the  rules  and  regulations  of  the  SEC  and  The  NASDAQ  Stock
Market  LLC  (‘‘NASDAQ’’).

Providing investment advice to clients is  regulated on  both  the federal and  state level in the  United

States.  Our  partner  firms  are  predominantly  investment  advisers  registered  with  the  SEC  under  the
Advisers Act. Each firm that is a federally  registered investment  adviser is regulated and subject to
examination by the SEC. The Advisers Act imposes numerous  obligations on RIAs, including fiduciary
duties,  disclosure  obligations,  recordkeeping  and  reporting  requirements,  marketing  restrictions  and
general  anti-fraud  prohibitions.  The  failure  to  comply  with  the  Advisers  Act  could  cause  the  SEC  to
institute  proceedings  and  impose  sanctions  for  violations,  including  censure  or  terminating  their  SEC
registrations  and  could  also  result  in  litigation  or  reputational  harm.  In  addition,  our  partner  firms  who
are  investment  advisers  are  subject  to  notice  filings  and  the  anti-fraud  rules  of  state  securities
regulators  and  individual  advisers  are  subject  to  state  registration  in  many  instances  under  applicable
state  securities  laws.

The U.S. Office of Foreign Assets Control (‘‘OFAC’’) has also issued  regulations requiring that we

and  our  partner  firms  refrain  from  doing  business  in  certain  countries  or  with  certain  organizations  or
individuals on a list maintained by the U.S. government. Our partner firms rely on custodians  to  ensure
compliance with OFAC. A partner firm’s  failure to comply with  applicable laws or  regulations could
result  in  fines,  censure,  suspension  of  personnel  or  other  sanctions,  including  revocation  of  the
registration  of  the  partner  firm  as  an  RIA.

Our  partner  firms  also  rely  on  exemptions  from  various  requirements  of  the  Securities  Act  of  1933,

as amended (the ‘‘Securities Act’’), the  Exchange  Act and ERISA. If for any reason these exemptions
were  to  be  revoked  or  challenged  or  otherwise  become  unavailable  to  us,  our  partner  firms  could  be
subject  to  regulatory  action  or  third-party  claims,  and  our  business  could  be  materially  and  adversely
affected. To the extent any of our partner firms  manage investment vehicles,  those partner firms could
also  be  subject  to  additional  disclosure  and  compliance  requirements,  or  in  the  case  of  some
compliance  violations,  be  prevented  from  managing  such  investment  vehicles.  These  laws  and
regulations  impose  requirements,  restrictions  and  limitations  on  our  business,  and  compliance  with
these  laws  and  regulations  results  in  significant  cost  and  expense.  If  our  partner  firms  were  to  fail  to
comply  with  applicable  laws,  rules  or  regulations  or  be  named  as  a  subject  of  an  investigation  or  other
regulatory  action,  the  public  announcement  and  potential  publicity  surrounding  any  such  investigation
or  action  could  have  an  adverse  effect  on  our  stock  price  and  result  in  increased  costs  even  if  our
partner  firms  were  found  not  to  have  violated  such  laws,  rules  or  regulations.  The  failure  of  our  partner
firms  to  satisfy  regulatory  requirements  could  also  result  in  the  partner  firms  or  us  being  subjected  to
civil  liability,  criminal  liability  or  sanctions  that  might  materially  impact  our  business.

Certain  of  our  partner  firms  have  affiliated  SEC-registered  broker-dealers.  Broker-dealers  and

their personnel are regulated, to a large  extent, by the SEC  and  self-regulatory organizations,
principally  FINRA.  Broker-dealers  are  subject  to  regulations  which  cover  all  aspects  of  the  securities
business,  including  sales  practices,  trading  practices  among  broker-dealers,  use  and  safekeeping  of
clients’  funds  and  securities,  capital  structure,  recordkeeping  and  the  conduct  of  directors,  officers,
employees  and  representatives.  Continued  efforts  by  market  regulators  to  increase  transparency  by

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requiring  the  disclosure  of  conflicts  of  interest  have  affected,  and  could  continue  to  impact,  our  partner
firms’  disclosures  and  our  business.

Certain  of  our  partner  firms  have  affiliated  insurance  brokers.  State  insurance  laws  grant
supervisory  agencies,  including  state  insurance  departments,  broad  administrative  authority.  State
insurance  regulators  and  the  National  Association  of  Insurance  Commissioners  continually  review
existing  laws  and  regulations,  some  of  which  affect  certain  partner  firms  who  engage  in  the  sale  of
insurance  products  through  affiliated  or  unaffiliated  entities.  These  supervisory  agencies  regulate  many
aspects  of  the  insurance  business,  including  the  licensing  of  insurance  brokers  and  agents  and  other
insurance  intermediaries,  and  trade  practices,  such  as  marketing,  advertising  and  compensation
arrangements  entered  into  by  insurance  brokers  and  agents.

Additionally, we and our partner firms  are subject to various data privacy and  cybersecurity laws
designed  to  protect  client  and  employee  personally  identifiable  information.  These  laws  and  regulations
are  increasing  in  complexity  and  number  which  has  resulted  in  greater  compliance  risk  and  cost  for  us.
The  unauthorized  access,  use,  theft  or  destruction  of  client  or  employee  personal,  financial  or  other
data  could  expose  us  to  potential  financial  penalties  and  legal  liability.

Our  international  operations  are  subject  to  additional  non-U.S.  regulatory  requirements.

We  have partner firms located in the United Kingdom,  Canada and Australia. We  may have

partner  firms  located  in  other  non-U.S.  jurisdictions  in  the  future.  Failure  to  comply  with  the  applicable
laws,  rules,  regulations,  codes,  directives,  notices  or  guidelines  in  any  jurisdiction  outside  of  the  United
States could result in a wide range of  penalties and disciplinary actions, including fines, censures and
the suspension or expulsion from a particular jurisdiction or market or the revocation of licenses, any
of  which  could  adversely  affect  our  reputation  and  operations  and  our  partner  firms  in  those
jurisdictions. Regulators in jurisdictions  outside of the  United States could also  change their  policies  or
laws in a manner that might restrict  or otherwise impede  the ability of such  partner  firms  to  offer
wealth  management  services  in  their  respective  markets,  or  they  may  be  unable  to  keep  up  with,  or
adapt  to,  changing,  complex  regulatory  requirements  in  such  jurisdictions  or  markets,  which  could
further  negatively  impact  our  business.

In  the  future,  we  may  further  expand  our  business  outside  of  the  markets  in  which  we  currently

operate in such a way or to such an extent that we  may be  required to register with additional foreign
regulatory  agencies  or  otherwise  comply  with  additional  non-U.S.  laws  and  regulations  that  do  not
currently apply to  us. Lack of compliance  with any such non-U.S. laws and regulations  may increase
our  risk  of  becoming  party  to  litigation  and  subject  to  regulatory  actions.  We  are  also  subject  to  the
enhanced  risk  that  our  differentiated  partnership  model  might  not  be  enforceable  in  some  non-U.S.
jurisdictions.

We and our partner firms are subject to anticorruption laws, including the  U.S. Foreign  Corrupt
Practices Act (‘‘FCPA’’), the U.K. Bribery Act  (the ‘‘Bribery Act’’) and the Canadian Corruption of Foreign
Public Officials Act (the ‘‘CFPOA’’). Certain of our  partner firms are also subject to  anti-money laundering
(‘‘AML’’)  laws  in  the  United  States,  the  United  Kingdom,  Canada  and  Australia  and  may  be  subject  to  other
anti-corruption  laws  and  AML  laws,  as  well  as  sanctions  laws  and  other  laws  governing  our  and  our  partner
firms’  operations,  to  the  extent  our  business  expands  to  other  non-U.S.  jurisdictions.  If  our  partner  firms  fail
to  comply  with  these  laws,  they  and  we  could  be  subject  to  civil  or  criminal  penalties,  other  remedial
measures,  and  legal  expenses,  which  could  adversely  affect  our  results  of  operations  and  financial  condition.

We  continue to pursue investment opportunities  outside of  the United  States. We  and our partner

firms  are  currently  subject  to  anti-corruption  laws,  including  the  FCPA,  the  Bribery  Act  and  the
CFPOA. To the extent we expand our international operations to other non-U.S. jurisdictions,  our
prospective  partner  firms  may  be  subject  to  additional  anti-corruption  laws  that  apply  in  countries

34

where  they are doing business. The FCPA,  the Bribery  Act, the CFPOA and other applicable
anti-corruption  laws  generally  prohibit  our  partner  firms,  employees  and  intermediaries  from  bribing,
being  bribed  or  making  other  prohibited  payments  to  government  officials  or  other  persons  to  obtain  or
retain  business  or  gain  some  other  business  advantage.  Our  partner  firms  may  also  participate  in
collaborations  and  relationships  with  third  parties  whose  actions  could  potentially  subject  them  to
liability under the FCPA, the Bribery Act,  the CFPOA or other  jurisdictions’  anti-corruption  laws.  In
addition,  we  and  our  partner  firms  cannot  predict  the  nature,  scope  or  effect  of  future  regulatory
requirements  to  which  their  internal  operations  might  be  subject  or  the  manner  in  which  existing  laws
might  be  administered  or  interpreted.

Our  partner  firms  that  are  SEC-registered  broker-dealers  are  also  subject  to  AML  laws  and  related

compliance obligations under the USA PATRIOT Act and  the Bank Secrecy  Act (‘‘BSA’’) that require
that  these  partner  firms  maintain  an  AML  compliance  program  covering  certain  of  their  business
activities.  While  currently  there  are  no  AML  laws  and  related  compliance  obligations  with  respect  to
the  activities  of  RIAs,  there  have  been  proposals  that,  if  adopted,  would  subject  our  partner  firms  that
are RIAs to the requirements of the  BSA. Our partner firms that conduct business in  non-U.S.
jurisdictions,  such  as  the  United  Kingdom  and  Canada,  are  also  subject  to  specific  AML  and  counter
terrorist  financing  requirements  that  require  them  to  develop  and  maintain  AML  and  counter  terrorist
financing  policies  and  procedures.

There  is  no  assurance  that  we  will  be  completely  effective  in  ensuring  our  partner  firms’
compliance  with  all  applicable  anti-corruption  laws,  including  the  FCPA,  the  Bribery  Act  and  the
CFPOA and AML laws in the United States, the United Kingdom,  Canada and  Australia. If  we or  our
partner firms are not in compliance with the FCPA, the  Bribery Act,  the  CFPOA or other
anti-corruption  laws  or  AML  laws,  they  may  be  subject  to  criminal  and  civil  penalties,  disgorgement
and  other  sanctions  and  remedial  measures,  and  legal  expenses,  which  could  have  an  adverse  impact  on
our  results  of  operations  and  financial  condition.  Likewise,  any  investigation  of  any  potential  violations
of the FCPA, the Bribery Act, the CFPOA or  other anti-corruption laws or  AML laws by authorities in
the  United  States,  the  United  Kingdom,  Canada,  Australia  or  other  jurisdictions  where  we  conduct
business  could  also  have  an  adverse  impact  on  our  reputation,  results  of  operations  and  financial
condition.

The  regulatory  environment  in  which  our  partner  firms  operate  is  subject  to  continuous  change,  and

regulatory  developments  designed  to  increase  oversight  may  adversely  affect  our  business.

The  legislative  and  regulatory  environment  in  which  our  partner  firms  operate  has  undergone
significant  changes  in  the  recent  past,  including  additional  filings  with  the  SEC  required  by  investment
advisory firms, which have resulted in increased costs to us.  Regulatory  review  or the issuance of
interpretations  of  existing  laws  and  regulations  may  result  in  the  enactment  of  new  laws  and  regulations
that  could  adversely  affect  our  operations  or  our  ability  to  conduct  business  profitably.  We  are  unable
to  predict  whether  any  such  laws  or  regulations  will  be  enacted  and  to  what  extent  such  laws  and
regulations  would  affect  our  business.

In  the  United  States,  regulatory  uncertainty  continues  to  surround  the  Dodd-Frank  Act,  which
represented a comprehensive overhaul of the financial services  regulatory environment and  requires
federal  agencies  to  implement  numerous  new  rules,  which  may  impose  additional  restrictions  and
limitations  on  our  business  as  they  are  adopted.  On  April  18,  2018,  the  SEC  proposed  a  package  of
rulemakings  and  interpretations  that  if  adopted  would  impose  a  best  interest  standard  of  conduct  for
broker-dealers, require the delivery of  a  short-form disclosure  document to retail  investors,  restrict the
use  of  the  term  ‘‘adviser’’  or  ‘‘advisor’’  by  broker-dealers  who  are  not  also  registered  as  investment
advisers  and  clarify  the  SEC’s  views  on  the  fiduciary  duty  that  investment  advisers  owe  to  their  clients.
In  the  United  Kingdom,  our  business  may  be  impacted  by  financial  services  reform  initiatives  enacted
or  under  consideration  in  the  European  Union  or  by  the  United  Kingdom’s  withdrawal  from  the

35

European Union. In Australia, a Royal  Commission issued a highly publicized report  on February 1,
2019 following a 12-month inquiry of misconduct in  the banking, superannuation and  financial  services
industry.  The  report  makes  many  recommendations  that,  if  adopted  into  law  or  regulations,  could
impact our existing or any future Australian  partner  firms or investments.  Compliance with these  new
laws  and  regulations  may  also  result  in  increased  compliance  costs  and  expenses,  and  non-compliance
may  result  in  fines  and  penalties.

We  believe that significant regulatory changes in  the wealth management industry are likely  to
continue,  which  is  likely  to  subject  industry  participants  to  additional,  more  costly  and  generally  more
detailed  regulation.  New  laws  or  regulations,  or  changes  in  the  enforcement  of  existing  laws  or
regulations,  applicable  to  our  partner  firms  may  adversely  affect  our  business.  Our  continued  ability  to
function  in  this  environment  will  depend  on  our  ability  to  monitor  and  promptly  react  to  legislative  and
regulatory  changes.  Changes  in  laws  or  regulatory  requirements,  or  the  interpretation  or  application  of
such  laws  and  regulatory  requirements  by  regulatory  authorities,  can  occur  without  notice  and  could
have  an  adverse  impact  on  our  results  of  operations  and  financial  condition.

Our  business  is  subject  to  risks  related  to  legal  proceedings  and  governmental  inquiries.

Our  business  is  subject  to  litigation,  regulatory  investigations  and  claims  arising  in  the  normal
course  of  operations.  The  risks  associated  with  these  matters  often  may  be  difficult  to  assess  or  quantify
and  the  existence  and  magnitude  of  potential  claims  often  remain  unknown  for  substantial  periods  of
time.

Our partner firms depend to a large extent on  their network  of  relationships and on  their
reputation  to  attract  and  retain  clients.  The  principals  and  other  wealth  management  professionals  at
our  partner  firms  make  investment  decisions  on  behalf  of  clients  that  could  result  in  substantial  losses.
If  clients  suffer  significant  losses,  or  are  otherwise  dissatisfied  with  wealth  management  services,  we
could  be  subject  to  the  risk  of  legal  liabilities  or  actions  alleging  negligent  misconduct,  breach  of
contract,  unjust  enrichment  and/or  fraud.  Moreover,  our  partner  firms  are  predominantly  RIAs  and
have a legal obligation to operate under  the fiduciary standard,  a heightened standard as compared to
the  client  suitability  standard  of  conduct  applicable  to  broker-dealers.  These  risks  are  often  difficult  to
assess  or  quantify  and  their  existence  and  magnitude  often  remain  unknown  for  substantial  periods  of
time,  even  after  an  action  has  been  commenced.

Our  involvement  in  any  investigations  and  lawsuits  would  cause  us  to  incur  additional  legal  and
other  costs  and,  if  we  were  found  to  have  violated  any  laws,  we  could  be  required  to  pay  fines,  damages
and other costs, perhaps in material amounts. Regardless of final costs, these  matters could have  an
adverse  effect  on  our  business  by  exposing  us  to  negative  publicity,  reputational  damage,  harm  to  our
partner  firms’  client  relationships  or  diversion  of  personnel  and  management  resources.

Principal  or  employee  misconduct  could  expose  us  to  significant  legal  liability  and  reputational  harm.

We  are vulnerable to reputational harm because  our  partner firms  operate in an  industry  in which
personal  relationships,  integrity  and  the  confidence  of  clients  are  of  critical  importance.  The  principals
and  employees  at  our  partner  firms  could  engage  in  misconduct  that  adversely  affects  our  business.  For
example, if a principal or employee were  to  engage in  illegal or suspicious activities,  a partner firm
could  be  subject  to  regulatory  sanctions  and  we  could  suffer  serious  harm  to  our  reputation  (as  a
consequence  of  the  negative  perception  resulting  from  such  activities),  our  financial  position,  our
partner  firms’  client  relationships  and  their  ability  to  attract  new  clients.

The  wealth  management  business  often  requires  that  we  deal  with  confidential  information.  If
principals  or  employees  at  our  partner  firms  were  to  improperly  use  or  disclose  this  information,  even
if  inadvertently,  we  or  our  partner  firms  could  be  subject  to  legal  action  and  suffer  serious  harm  to  our
reputation,  financial  position  and  current  and  future  business  relationships  or  those  of  our  partner

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firms.  It  is  not  always  possible  to  deter  misconduct,  and  the  precautions  we  take  to  detect  and  prevent
this  activity  may  not  always  be  effective.  Misconduct  by  principals  or  employees  at  our  partner  firms,  or
even  unsubstantiated  allegations  of  misconduct,  could  result  in  an  adverse  effect  on  our  reputation  and
our  business.

Failure to properly disclose conflicts of  interest  and comply with fiduciary duty requirements could harm

our  reputation,  business  and  results  of  operations.

Some  of  our  partner  firms  have  affiliated  SEC-registered  broker-dealers  and  affiliated  insurance

brokers.  Certain  of  our  partner  firms  also  have  compensation  arrangements  pursuant  to  which  they
receive  payments  based  on  client  assets  invested  in  certain  third-party  mutual  funds.  Such  arrangements
allow a partner firm to receive payments from multiple parties based on the  same client  asset and  can
incentivize a partner firm to act in a  manner contrary to the  best interests of its clients.  As investment
advisers subject to a legal obligation to operate  under the  fiduciary standard, these partner firms must
fully  disclose  any  conflicts  between  their  interests  and  those  of  their  clients.  The  SEC  and  other
regulators  have  increased  their  scrutiny  of  potential  conflicts  of  interest,  and  our  partner  firms  have
implemented  policies  and  procedures  to  mitigate  conflicts  of  interest.  However,  if  our  partner  firms  fail
to  fully  disclose  conflicts  of  interest  or  if  their  policies  and  procedures  are  not  effective,  they  could  face
reputational  damage,  litigation  or  regulatory  proceedings  or  penalties,  any  of  which  may  adversely
affect  our  reputation,  business  and  results  of  operations.

Acquisitions  of  newly  established  RIA  firms  formed  by  teams  of  wealth  management  professionals

formerly  employed  at  traditional  brokerages  and  wirehouses  expose  us  to  litigation  risk.

As  part  of  the  Focus Independence program, we have to date, with  limited  exceptions acquired
substantially  all  of  the  assets  of  new  RIA  firms  formed  by  teams  of  wealth  management  professionals
formerly  employed  at  traditional  brokerages  and  wirehouses.  These  acquisitions  may  expose  us  to  the
risk  of  legal  actions  alleging  misappropriation  of  confidential  information,  including  client  information,
unfair  competition,  breach  of  contract  and  tortious  interference  with  contracts  between  the  lift  out
wealth  management  teams  and  the  brokerage  or  wirehouse.  Additionally,  in  November  2017  two  larger
brokerage  firms  withdrew  from  an  industry  agreement  known  as  the  Protocol  for  Broker  Recruiting  or
the ‘‘Broker Protocol.’’ These withdrawals, and any additional withdrawals  by  signatories to the Broker
Protocol, may increase the potential  for  such  legal actions. These risks are  often  difficult  to  assess or
quantify  and  their  existence  and  magnitude  often  remain  unknown  for  substantial  periods  of  time,  even
after an action has been commenced. We may incur significant legal  expenses in defending against
litigation commenced by a brokerage  or wirehouse. Substantial legal liability could have  an adverse
effect  on  our  business,  results  of  operations  or  financial  condition  or  cause  significant  reputational
harm  to  us.

In the event of a change of control of our company, we may be  required to obtain the  consent of our

partner  firms’  advisory  clients  to  the  change  of  control,  and  any  failure  to  obtain  these  consents  could
adversely  affect  our  results  of  operations,  financial  condition  or  business.

As required by the Advisers Act, the investment advisory  agreements entered  into  by  our
investment  adviser  subsidiaries  provide  that  an  ‘‘assignment’’  of  the  agreement  may  not  be  made
without  the  client’s  consent.  Under  the  Investment  Company  Act  of  1940  (the  ‘‘Investment  Company
Act’’), advisory agreements with registered  funds provide that they  terminate automatically upon
‘‘assignment’’  and  the  board  of  directors  and  the  shareholders  of  the  registered  fund  must  approve  a
new  agreement  for  advisory  services  to  continue.  Under  both  the  Advisers  Act  and  the  Investment
Company Act, a change of ownership  may constitute such an ‘‘assignment’’ if it is a  change of control.
For example, under certain circumstances,  an assignment may be deemed to occur if a controlling block
of  voting  securities  is  transferred,  if  any  party  acquires  control,  or,  in  certain  circumstances,  if  a

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controlling  party  gives  up  control.  Under  the  Investment  Company  Act,  a  25%  voting  interest  is
presumed to constitute control. An assignment  or a change  of control could be deemed to occur in the
future  if  we,  or  one  of  our  investment  adviser  subsidiaries,  were  to  gain  or  lose  a  controlling  person,  or
in  other  situations  that  may  depend  significantly  on  facts  and  circumstances.  In  any  such  case  we  would
seek  to  obtain  the  consent  of  our  advisory  clients,  including  any  funds,  to  the  assignment.  To  the  extent
of  any  failure  to  obtain  these  consents,  our  results  of  operations,  financial  condition  or  business  could
be  adversely  affected.

Risks Related to Our Class A Common  Stock, Ownership and Governance

An active, liquid and orderly trading market  for our  Class A  common stock may not be maintained, and

our  stock  price  may  be  volatile.

Prior to July 2018, our Class A common stock was not  traded on any  market. An active, liquid  and

orderly  trading market for our Class A common stock may not be maintained. Active,  liquid and
orderly  trading  markets  usually  result  in  less  price  volatility  and  more  efficiency  in  carrying  out
investors’  purchase  and  sale  orders.  The  market  price  of  our  Class  A  common  stock  could  vary
significantly as a result of a number of factors, some  of  which are beyond our control. In the event of a
drop in the market price of our Class A common stock,  you could lose a  substantial part or all of your
investment in our Class A common stock.

Investment  vehicles  affiliated  with  our  private  equity  investors  own  a  substantial  percentage  of  the  voting

power  of  our  common  stock.

Holders of Class A common stock and  Class  B common stock vote together as  a single  class on all

matters  presented  to  our  shareholders  for  their  vote  or  approval,  except  as  otherwise  required  by
applicable  law  or  our  certificate  of  incorporation.  As  of  March 25,  2019,  investment  vehicles  affiliated
with Stone Point Capital LLC (together  with  its  affiliates,  ‘‘Stone  Point’’) and Kohlberg Kravis
Roberts & Co. L.P. (together with its affiliates, ‘‘KKR’’  or, together with  Stone  Point,  the ‘‘PE
Holders’’)  collectively  owned  approximately  35.6%  of  our  Class  A  common  stock  (representing  35.6%
of  the  economic  interest  and  24.0%  of  the  voting  power)  and  63.3%  of  our  Class  B  common  stock
(representing  0%  of  the  economic  interest  and  20.6%  of  the  voting  power).

Although  the  PE  Holders  are  entitled  to  act  separately  in  their  own  respective  interests  with
respect  to  their  stock  in  us,  they  together  hold  almost  enough  voting  power  to  elect  all  of  the  members
of  our  board  of  directors,  and  thereby  to  control  our  management  and  affairs.  Additionally,  the  PE
Holders  have  the  right  to  nominate  an  aggregate  of  three  members  of  our  board  of  directors  for  so
long  as  they  maintain  certain  ownership  stakes.  The  PE  Holders  are  likely  able  to  determine  the
outcome  of  all  matters  requiring  shareholder  approval,  including  mergers  and  other  material
transactions, and are able to cause or prevent a change in the composition of our board  of directors  or
a change in control of our company that could deprive our shareholders of an  opportunity to receive a
premium for their shares of Class A common stock as part of a sale  of our company. The existence of
significant  shareholders  may  also  have  the  effect  of  deterring  hostile  takeovers,  delaying  or  preventing
changes  in  control  or  changes  in  management,  or  limiting  the  ability  of  our  other  shareholders  to
approve  transactions  that  they  may  deem  to  be  in  the  best  interests  of  our  company.

Moreover,  this  concentration  of  stock  ownership  may  also  adversely  affect  the  trading  price  of  our
Class A common stock to the extent investors perceive  a disadvantage in owning stock  of  our  company.

The  interests  of  the  PE  Holders  may  differ  from  those  of  our  public  shareholders.

So long as the PE Holders continue to control a  significant amount of our common  stock, they  will

continue  to  be  able  to  strongly  influence  all  matters  requiring  shareholder  approval,  regardless  of
whether or not other shareholders believe that a  potential transaction is in their own best interests. In

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any  of  these  matters,  the  interests  of  the  PE  Holders  (including  their  interests,  if  any,  as  TRA  holders)
may  differ  or  conflict  with  the  interests  of  our  other  shareholders.  For  example,  the  PE  Holders  may
have  different  tax  positions  from  us  which  could  influence  their  decisions  regarding  whether  and  when
to  dispose  of  assets,  whether  and  when  to  incur  new  or  refinance  existing  indebtedness,  especially  in
light  of the existence of the Tax Receivable Agreements,  and whether and when Focus Inc. should
terminate the Tax Receivable Agreements and accelerate its obligations  thereunder; provided  that  any
decision to terminate the Tax Receivable Agreements and  accelerate the obligations  thereunder would
also require the approval of a majority  of  the  disinterested  directors of Focus  Inc. In  addition,  the
structuring  of  future  transactions  may  take  into  consideration  the  PE  Holders’  tax  or  other
considerations  even  where  no  similar  benefit  would  accrue  to  us.  See  ‘‘Part  II,  Item  7,  Management’s
Discussion  and  Analysis  of  Financial  Condition  and  Results  of  Operations—Liquidity  and  Capital
Resources—Tax Receivable Agreements.’’

Our certificate of incorporation and bylaws, as well as Delaware law, contain provisions that could
discourage  acquisition  bids  or  merger  proposals,  which  may  adversely  affect  the  market  price  of  our  Class  A
common  stock.

Our  certificate  of  incorporation  authorizes  our  board  of  directors  to  issue  one  or  more  classes  or

series  of  preferred  stock,  the  terms  of  which  may  be  established  and  the  shares  of  which  may  be  issued
without  shareholder  approval,  and  which  may  include  super  voting,  special  approval,  dividend,
repurchase  rights,  liquidation  preferences  or  other  rights  or  preferences  superior  to  the  rights  of  the
holders  of Class A common stock. The terms of  one  or more classes or series of preferred stock  could
adversely impact the value or our Class  A  common  stock. Furthermore,  if our board of directors elects
to issue preferred stock it could be more difficult for a third party to acquire  us. For  example, our
board  of  directors  may  grant  holders  of  preferred  stock  the  right  to  elect  some  number  of  our  directors
in  all  events  or  upon  the  occurrence  of  specified  events  or  the  right  to  veto  specified  transactions.

In  addition,  some  provisions  of  our  certificate  of  incorporation  and  bylaws  could  make  it  more
difficult for a third party to acquire control of us, even if the change  of control would be beneficial to
our  shareholders,  including:  (i)  prohibiting  us  from  engaging  in  any  business  combination  with  any
interested shareholder for a period of three years following the  time  that the shareholder became an
interested  shareholder,  subject  to  certain  exceptions,  (ii)  establishing  advance  notice  provisions  with
regard  to  shareholder  proposals  relating  to  the  nomination  of  candidates  for  election  as  directors  or
new  business  to  be  brought  before  meetings  of  our  shareholders,  (iii)  providing  that  the  authorized
number  of  directors  may  be  changed  only  by  resolution  of  the  board  of  directors,  (iv)  providing  that  all
vacancies  in  our  board  of  directors  may,  except  as  otherwise  be  required,  be  filled  by  the  affirmative
vote of a majority of directors then in office, even if less than  a quorum, (v) providing that our
amended  and  restated  certificate  of  incorporation  and  amended  and  restated  bylaws  may  be  amended
by  the  affirmative  vote  of  the  holders  of  at  least  two-thirds  of  our  then  outstanding  voting  stock,
(vi)  providing  for  our  board  of  directors  to  be  divided  into  three  classes  of  directors,  (vii)  providing
that  our  amended  and  restated  bylaws  can  be  amended  by  the  board  of  directors,  (viii)  limitations  on
the  ability  of  shareholders  to  call  special  meetings,  (ix)  limitations  on  the  ability  of  shareholders  to  act
by  written  consent,  (x)  requiring  the  affirmative  vote  of  the  holders  of  a  majority  of  the  voting  stock
held by affiliates of Stone Point and KKR,  for so long as they  collectively own  at least 25% of our
outstanding  voting  stock,  to  amend,  alter,  repeal  or  rescind  the  certain  provisions  in  our  amended  and
restated  certificate  of  incorporation  and  (xi)  renouncing  any  reasonable  expectancy  interest  that  we
have  in,  or  right  to  be  offered  an  opportunity  to  participate  in,  any  corporate  or  business  opportunities
that are from time to time presented to Stone Point, KKR, directors  affiliated with  these  parties and
their  respective  affiliates.

In  addition,  certain  change  of  control  events  have  the  effect  of  accelerating  the  payments  due

under the Tax Receivable Agreements,  which  could result in  a  substantial,  immediate  lump-sum

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payment that could serve as a disincentive  to a potential acquirer of  us, please see ‘‘Risks Related to
Our  Structure—In  certain  cases,  payments  under  the  Tax  Receivable  Agreements  may  be  accelerated
and/or  significantly  exceed  the  actual  benefits,  if  any,  realized  in  respect  of  the  tax  attributes  subject  to
the Tax Receivable Agreements.’’

Our  amended  and  restated  certificate  of  incorporation  designates  the  Court  of  Chancery  of  the  State  of
Delaware  as  the  sole  and  exclusive  forum  for  certain  types  of  actions  and  proceedings  that  may  be  initiated  by
our  shareholders,  which  could  limit  our  shareholders’  ability  to  obtain  a  favorable  judicial  forum  for  disputes
with  us  or  our  directors,  officers,  employees  or  agents.

Our  amended  and  restated  certificate  of  incorporation  provides  that,  unless  we  consent  in  writing

to  the  selection  of  an  alternative  forum,  the  Court  of  Chancery  of  the  State  of  Delaware  will,  to  the
fullest  extent  permitted  by  applicable  law,  be  the  sole  and  exclusive  forum  for  (i)  any  derivative  action
or proceeding brought on our behalf, (ii)  any  action asserting a claim of breach of a  fiduciary duty
owed  by  any  of  our  directors,  officers,  employees,  agents  or  trustees  to  us  or  our  shareholders,  (iii)  any
action asserting a claim against us or any  director or officer  or  other employee  of  ours  arising  pursuant
to  any  provision  of  the  Delaware  General  Corporation  Law  (the  ‘‘DGCL’’),  our  amended  and  restated
certificate  of  incorporation  or  our  bylaws  or  (iv)  any  action  asserting  a  claim  against  us  or  any  director
or  officer  or  other  employee  of  ours  that  is  governed  by  the  internal  affairs  doctrine,  in  each  such  case
subject  to  such  Court  of  Chancery  having  personal  jurisdiction  over  the  indispensable  parties  named  as
defendants  therein.  Unless  we  consent  in  writing  to  the  selection  of  an  alternative  forum,  to  the  fullest
extent  permitted  by  law,  the  federal  district  courts  of  the  United  States  will  be  the  exclusive  forum  for
resolving any complaint asserting a cause  of action  arising  under the  federal securities laws of the
United  States.  Any  person  or  entity  purchasing  or  otherwise  acquiring  any  interest  in  shares  of  our
capital  stock  will  be  deemed  to  have  notice  of,  and  consented  to,  the  provisions  of  our  amended  and
restated  certificate  of  incorporation  described  in  the  preceding  sentence.  This  choice  of  forum  provision
may limit a shareholder’s ability to bring  a claim in a judicial  forum that it  finds favorable  for disputes
with  us  or  our  directors,  officers,  employees  or  agents,  which  may  discourage  such  lawsuits  against  us
and such persons. Alternatively, if a court were  to  find these provisions of our amended  and restated
certificate  of  incorporation  inapplicable  to,  or  unenforceable  in  respect  of,  one  or  more  of  the  specified
types  of  actions  or  proceedings,  we  may  incur  additional  costs  associated  with  resolving  such  matters  in
other  jurisdictions,  which  could  adversely  affect  our  results  of  operations  and  financial  condition.

Claims  for  indemnification  by  our  directors  and  officers  may  reduce  our  available  funds  to  satisfy

successful  third-party  claims  against  us  and  may  reduce  the  amount  of  money  available  to  us.

Our  amended  and  restated  certificate  of  incorporation  and  bylaws  provide  that  we  will  indemnify
our  directors  and  officers  to  the  fullest  extent  permitted  by  Delaware  law.  Our  amended  and  restated
bylaws  also  permit  us  to  purchase  insurance  on  behalf  of  any  officer,  director,  employee  or  other  agent
for  any  liability  arising  out  of  that  person’s  actions  as  our  officer,  director,  employee  or  agent,
regardless  of  whether  Delaware  law  would  permit  indemnification.  We  entered  into  indemnification
agreements  with  each  of  our  directors  and  officers.  These  agreements  require  us  to  indemnify  these
individuals  to  the  fullest  extent  permitted  under  Delaware  law  against  liability  that  may  arise  by  reason
of their service to us and to advance expenses  incurred as a result of any  proceeding against  them as  to
which  they  could  be  indemnified.

In  addition,  our  amended  and  restated  certificate  of  incorporation  limits  the  liability  of  our
directors  for  monetary  damages  for  breach  of  their  fiduciary  duty  as  directors,  except  for  liability  that
cannot  be  eliminated  under  the  DGCL.  Delaware  law  provides  that  directors  of  a  company  will  not  be
personally  liable  for  monetary  damages  for  breach  of  their  fiduciary  duty  as  directors,  except  for
liabilities:

• for any breach of their duty of loyalty  to  us or our shareholders;

40

• for acts or omissions not in good faith or which  involve intentional misconduct or a knowing

violation  of  law;

• for unlawful payment of dividend or unlawful stock  repurchase or redemption, as  provided

under  Section  174  of  the  DGCL;  or

• for any transaction from which the director derived an improper personal benefit.

The  above  limitations  on  liability  and  our  indemnification  obligations  limit  the  personal  liability  of

our  directors  and  officers  for  monetary  damages  for  breach  of  their  fiduciary  duty  as  directors  by
shifting  the  burden  of  such  losses  and  expenses  to  us.  Certain  liabilities  or  expenses  covered  by  our
indemnification  obligations  may  not  be  covered  by  our  directors’  and  officers’  liability  insurance  or  the
coverage limitation amounts may be exceeded.  As a result, any claims for  indemnification by our
directors  and  officers  may  reduce  our  available  funds  to  satisfy  successful  third-party  claims  against  us
and  may  reduce  the  amount  of  money  available  to  us.

We do not have any current plans to pay  dividends  on our Class A common stock. Consequently, your
only opportunity to achieve a return on your  investment in our  Class A common  stock is if the price of  our
Class A common stock appreciates.

We  do not have any current plans to  declare dividends on shares of  our Class A common stock in
the  foreseeable  future.  Consequently,  your  only  opportunity  to  achieve  a  return  on  your  investment  in
our  Class A common stock will be if you sell  your shares  of  Class A common stock at a price  greater
than you may pay for them. There is  no  guarantee  that  the price of our  Class A common stock will
ever  exceed  the  price  that  you  may  pay  for  them.

Future sales of our Class A common stock in the public market could reduce our stock price, and any

additional  capital  raised  by  us  through  the  sale  of  equity  or  convertible  securities  may  dilute  your  ownership
in  us.

Unitholders of Focus LLC (other than Focus  Inc. and any of its subsidiaries) may receive shares of
our  Class A common stock pursuant to the  exercise of an exchange right  or the call  right and  then sell
those shares of Class A common stock. Additionally, we may issue additional  shares of Class A
common  stock  or  convertible  securities  in  subsequent  offerings  or  as  consideration  for  future
acquisitions.  As  of  March  25,  2019,  we  had  46,675,183  outstanding  shares  of  Class  A  common  stock.
Except as otherwise permitted by the  Fourth Amended and Restated  Focus LLC Agreement,
Focus LLC unitholders are only permitted  to  exercise  their exchange  rights on quarterly exchange dates
and  only  with  respect  to  up  to  one-twelfth  of  the  units  held  by  them  at  the  closing  of  the  IPO,  with  an
ability  to  carry  forward  unused  exchange  rights  to  subsequent  exchange  dates.  The  foregoing  volume
restrictions  apply  to  the  PE  Holders  as  an  aggregate  limitation  on  their  ability  to  sell  Focus  LLC  units
or the shares of Class A common stock received  in connection  with the  Reorganization Transactions.
The PE Holders and all Focus LLC unitholders are parties to a registration  rights agreement with us
that  requires  us  to  effect  the  registration  of  their  shares  of  Class A  common  stock  in  certain
circumstances,  without  being  subject  to  the  preceding  limitations.

We  have 6,600,000 shares of our Class A common stock issued or reserved for  issuance  under our

equity  incentive  plan.  Subject  to  the  satisfaction  of  vesting  conditions,  shares  registered  under  our
registration statement on Form S-8 are available for resale in  the public market  without restriction.

We  cannot predict the size of future issuances  of  our Class A common stock or securities

convertible into Class A common stock  or the  effect, if  any, that future  issuances and sales of shares of
our  Class A common stock will have on  the market price of our Class A common  stock.  Sales of
substantial amounts of our Class A common stock (including shares issued  in connection with an

41

acquisition),  or  the  perception  that  such  sales  could  occur,  may  adversely  affect  prevailing  market  prices
of our Class A common stock.

We have  and may in the future finance  acquisitions of partner  firms by issuing equity securities that

could  be  dilutive  to  shareholders.

We  have and may in the future finance  acquisitions  through the issuance of  equity securities,

including Focus LLC common units and our Class A common  stock.  Acquisitions financed with  the
issuance of Focus LLC common units  could significantly reduce our percentage  ownership of
Focus LLC. Furthermore, the new holders of Focus LLC  common units  may  receive shares  of  our
Class A common stock pursuant to the exercise of an exchange right or the call right, which  could
impact  shareholders.

Acquisitions financed with the issuance of  our Class A  common stock could be dilutive to the
share value and voting power of our existing Class A common  stock,  which could affect the market
price of our Class A common stock.

For  as long as we are an emerging growth  company, we are  not  required to comply with  certain reporting

requirements,  including  those  relating  to  accounting  standards  and  disclosure  about  our  executive
compensation,  that  apply  to  other  public  companies.

We  are classified as an ‘‘emerging growth company’’  under the  Jumpstart Our Business Startups

Act. For as long as we are an emerging growth company, which may be up to five full  fiscal  years,
unlike  other  public  companies,  we  are  not  required  to,  among  other  things,  (i)  provide  an  auditor’s
attestation  report  on  management’s  assessment  of  the  effectiveness  of  our  system  of  internal  control
over  financial  reporting  pursuant  to  Section  404(b)  of  the  Sarbanes-Oxley  Act,  (ii)  comply  with  any  new
requirements  adopted  by  the  Public  Company  Accounting  Oversight  Board  (United  States)  requiring
mandatory audit firm rotation or a supplement to the auditor’s report  in which the  auditor would  be
required  to  provide  additional  information  about  the  audit  and  the  financial  statements  of  the  issuer,
(iii)  provide  certain  disclosure  regarding  executive  compensation  required  of  larger  public  companies  or
(iv)  hold  nonbinding  advisory  votes  on  executive  compensation.  We  will  remain  an  emerging  growth
company  for  up  to  five  years,  although  we  will  lose  that  status  sooner  if  we  have  more  than
$1.07 billion of revenues in a fiscal year, have more than $700.0 million in market value of our Class A
common  stock  held  by  non-affiliates  or  issue  more  than  $1.0  billion  of  non-convertible  debt  over  a
three-year  period.

To the extent that we rely on any of the exemptions available  to  emerging growth companies, you

will  receive  less  information  about  our  executive  compensation  and  internal  control  over  financial
reporting  than  issuers  that  are  not  emerging  growth  companies.  If  some  investors  find  our  Class  A
common stock to be less attractive as a result, there may be a less active  trading market for our
Class A common stock and our stock  price  may  be  more volatile.

Item 1B Unresolved Staff Comments

Not  applicable

Item  2 Properties

We  and our partner firms conduct our  operations using  leased  office facilities. While we  believe we
have  suitable  office  space  currently,  we  will  continue  to  evaluate  our  office  space  requirements  and  will
complement  these  facilities  as  necessary.

Our  current  corporate  headquarters  are  located  at  825  Third  Avenue,  New  York,  New  York,  where

we  occupy  approximately  16,900  square  feet  of  space  under  subleases,  the  terms  of  which  expire  in

42

April  2019.  In  addition,  each  of  our  partner  firms  leases  office  space  in  the  city  or  cities  in  which  it
conducts  business.

We  have entered into a new lease at  875 Third Avenue,  New York, New York that will serve  as

our  new  corporate  headquarters,  where  we  will  occupy  approximately  29,700  square  feet,  the  terms  of
which  expire  in  2035.

Item 3 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 consolidated financial statements. 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 will  continue to cooperate fully  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 4 Mine Safety Disclosures

Not  applicable

43

Item 5 Market For Registrant’s Common Equity,  Related  Stockholder Matters  and Issuer Purchases

PART II

of  Equity  Securities

Market  Information  and  Holders

Our Class A common stock began trading on the  Nasdaq  Global Select Market under the  symbol

‘‘FOCS’’ on July 26, 2018. Prior to that,  there was no public market for our Class A common stock.

As  of  March  25,  2019,  we  had  approximately  130  holders  of  record  of  our  Class  A  common  stock.

This number excludes owners for whom  Class A common stock may be held  in ‘‘street’’ name.

There is  no public market for our Class  B common stock. As of March 25,  2019, we  had 33

holders  of  record  of  our  Class  B  common  stock.

Dividends

We  do not have any current plans to  declare dividends on shares of  our Class A common stock in

the foreseeable future. We currently intend to retain future  earnings, if any, to finance  the growth of
our  business.  Our  future  dividend  policy  is  within  the  discretion  of  our  board  of  directors  and  will
depend  upon  then-existing  conditions,  including  our  results  of  operations,  financial  condition,  capital
requirements,  investment  opportunities,  statutory  restrictions  on  our  ability  to  pay  dividends  and  other
factors  our  board  of  directors  may  deem  relevant.  In  addition,  the  Credit  Facility  contains  certain
restrictions  on  our  ability  to  pay  cash  dividends.

Securities Authorized for Issuance Under Equity  Compensation Plans

The  information  relating  to  our  equity  compensation  plans  required  by  Item  5  is  incorporated  by

reference  to  such  information  as  set  forth  in  ‘‘Part  III,  Item  12,  Security  Ownership  of  Certain
Beneficial  Owners  and  Management  and  Related  Stockholder  Matters’’  contained  herein.

Recent  Sales of Unregistered Securities

Since  the  date  our  IPO,  we  issued  an  aggregate  of  323,607  Focus LLC  common  units  and  a
corresponding number of shares of our Class B common stock as  consideration  for acquisitions
consummated  during  this  period  and  as  earn  out  payments  for  a  previously  consummated  acquisition.
Such Focus LLC common units had an aggregate  value at the  respective times of issuance of
approximately  $13.5 million.

Since  the  date  of  our  IPO,  we  issued  an  aggregate  of  403,712  shares  of  our  Class A  common  stock
and retired 254,441 shares of our Class B common stock and  217,730 incentive units in Focus LLC  and
acquired 254,441 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,  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.

On November 30, 2018, we issued 3,736,252 shares  of  our Class A common stock in connection

with the completion of our acquisition  of Loring Ward Holdings Inc.  as previously reported on  the
Company’s Form 8-K filed on December 6, 2018. 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 Rule 506(b) of Regulation D thereunder.

44

Item 6 Selected Financial Data

Focus Inc. was formed in July 2015 and did not have any historical financial  or operating results

prior to the IPO. Following the IPO,  Focus Inc. became the sole managing member of  Focus LLC. As
a result, Focus Inc. consolidates the financial results  of Focus  LLC and  its subsidiaries. For periods
prior  to  the  completion  of  the  IPO,  the  accompanying  consolidated  financial  statements  reflect  the
historical  financial  position  and  results  of  operations  of  Focus  LLC,  our  predecessor.

45

You should read the following table in  conjunction with ‘‘Part  II, Item 7, Management’s Discussion
and Analysis of Financial Condition and Results of Operations’’ and our audited consolidated financial
statements  included  in  ‘‘Part  II,  Item  8,  Financial  Statements  and  Supplementary  Data.’’

Focus Financial Partners, LLC

Year Ended December 31,

Focus
Financial
Partners Inc.

2014

2015

2016

2017

2018

(in thousands, except per share data)

Consolidated  Statements  of  Operations

Data:

Revenues . . . . . . . . . . . . . . . . . . . . . . .
Operating  expenses . . . . . . . . . . . . . . . .

$ 325,574
304,549

$ 382,347
361,030

$ 485,444
447,161

$ 662,887
657,134

$ 910,880
866,446

Income  from  operations . . . . . . . . . . . .

Other  expense,  net . . . . . . . . . . . . . . . .
Income  (loss)  before  income  tax . . . . . .
Income  tax  expense  (benefit) . . . . . . . . .

21,025

(8,817)
12,208
212

21,317

38,283

(11,347)
9,970
649

(21,580)
16,703
981

5,753

(55,613)
(49,860)
(1,501)

44,434

(76,071)
(31,637)
9,450

Net  income  (loss) . . . . . . . . . . . . . . . . .

$ 11,996

$

9,321

$ 15,722

$ (48,359) $ (41,087)

Non-controlling  interest . . . . . . . . . . .

Net  loss  attributable  to  common

shareholders . . . . . . . . . . . . . . . . . . .

Loss per share of Class A common

stock:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated  Balance  Sheet  Data  (at

period  end):

Cash  and  cash  equivalents . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . .
Total mezzanine equity . . . . . . . . . . . . .
Total deficit/equity . . . . . . . . . . . . . . . . .
Other  Financial  Data:
Revenue Metrics:
Revenue growth(1) from prior period . . .
Organic  revenue  growth(2)  from  prior

$

$

$

$

40,497

(590)

(0.01)

(0.01)

33,213
1,937,778
1,125,258
—
812,520

$

9,086
404,467
257,130
369,574
(222,237)

$ 15,499
550,670
418,871
405,347
(273,548)

$ 16,508
752,941
562,339
452,485
(261,883)

$

51,455
1,234,837
1,148,749
864,749
(778,661)

21.1%

17.4%

27.0%

36.6%

37.4%

period . . . . . . . . . . . . . . . . . . . . . . . .

14.2%

5.5%

5.2%

13.4%

13.0%

Management  Fees  Metrics  (operating

expense):

Management  fees  growth(3)  from  prior

period . . . . . . . . . . . . . . . . . . . . . . . .

21.7%

13.4%

28.0%

42.5%

42.2%

Organic  management  fees  growth(4)

from  prior  period . . . . . . . . . . . . . . . .

16.9%

1.9%

3.6%

23.0%

14.3%

Adjusted  EBITDA  Metrics:
Adjusted EBITDA(5) . . . . . . . . . . . . . .
Adjusted EBITDA growth(5) from prior
period . . . . . . . . . . . . . . . . . . . . . . . .

$ 67,755

$ 75,442

$ 103,038

$ 145,226

$ 203,402

21.6%

11.3%

36.6%

40.9%

40.1%

46

Focus Financial Partners, LLC

Year Ended December 31,

Focus
Financial
Partners Inc.

2014

2015

2016

2017

2018

(in thousands, except per share data)

$ 46,704

$ 52,273

$ 68,569

$

86,701

$ 125,348

21.1%

11.9%

31.2%

26.4%

44.6%

$

0.65

$

0.73

$

0.95

$

1.21

$

1.74

Adjusted  Net  Income  Metrics:
Adjusted Net Income(5)(6) . . . . . . . . . .
Adjusted Net Income growth(5)(6) from
prior  period . . . . . . . . . . . . . . . . . . . .
Adjusted  Net  Income  Per  Share  Metrics:
Adjusted Net Income Per Share(5)(6) . .
Adjusted Net Income Per Share

growth(5)(6)  from  prior  period . . . . . .

21.1%

11.9%

31.2%

26.4%

43.8%

Other  Metrics:
Acquired Base Earnings(7) . . . . . . . . . .
Number  of  partner  firms  at  period

end(8) . . . . . . . . . . . . . . . . . . . . . . . .

$

5,327

$ 15,586

$ 23,217

$

44,191

$

37,750

30

36

42

51

58

(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
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) Adjusted EBITDA, Adjusted Net Income and Adjusted  Net Income Per Share are  non-GAAP

financial measures. For definitions of Adjusted EBITDA, Adjusted Net  Income and  Adjusted  Net
Income Per Share and reconciliations  to our most directly  comparable financial measure calculated
and presented in accordance with GAAP, please read ‘‘Part II,  Item  7, Management’s Discussion
and Analysis of Financial Condition and Results of Operations—How We  Evaluate  Our Business.’’

(6) 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 made and Adjusted Shares
Outstanding  of  71,843,916  are  deemed  to  be  outstanding  for  comparative  purposes  only.

(7) 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.

47

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.

(8) 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.

Item 7 Management’s Discussion and Analysis of Financial  Condition and  Results of Operations

You should read this discussion and analysis of our financial condition  and results of operations in
conjunction with ‘‘Part II, Item 6, Selected  Financial Data’’ and the historical financial  statements and
related notes included elsewhere in this Annual Report. The information in  this section contains forward-
looking  statements.  Please  read  ‘‘Cautionary  Statement  Regarding  Forward-Looking  Statements.’’  Our  actual
results  may  differ  significantly  from  the  results  suggested  by  these  forward-looking  statements  and  from  our
historical  results.  Some  factors  that  may  cause  our  results  to  differ  are  described  in  ‘‘Part  I,  Item  1A,  Risk
Factors.’’ The historical financial data discussed below reflects the historical results of operations and
financial position of Focus Inc., including consolidation of its  investment in  Focus  LLC, since  July  30,
2018. Prior to July 30, 2018, the closing date  of the IPO, the  historical financial  data discussed  below
represents  the  historical  results  of  operations  and  financial  position  of  Focus  LLC.

Overview

We  are a leading partnership of independent, fiduciary  wealth  management firms operating in the

highly fragmented RIA industry, with a  footprint  of  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.

Since  we  began  revenue-generating  and  acquisition  activities  in  2006,  we  have  created  a

partnership  of  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. For  the year
ended  December  31,  2018,  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.

48

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:

Year Ended December 31,

2016

2017

2018

Revenues

% of Total
Revenues

Revenues

% of Total
Revenues

Revenues

% of Total
Revenues

(in thousands)

Wealth management fees . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . .

$438,794
46,650

90.4% $617,124
45,763
9.6%

93.1% $853,033
57,847
6.9%

93.6%
6.4%

Total revenues . . . . . . . . . . . . . . . . .

$485,444

100.0% $662,887

100.0% $910,880

100.0%

During  the  years  ended  December  31,  2016,  2017  and  2018,  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  and  customer  lists  by  our  existing  partner
firms.  In  2016,  2017  and  2018,  we  completed  acquisitions  of  six,  ten  and  eight  partner  firms,
respectively. In 2016, the new partner  firms were  Douglas Lane & Associates, Kovitz  Investment Group
Partners,  Waddell & Associates, Carnick & Kubik Group,  GYL Financial  Synergies and  XML Financial
Group.  In  2017,  the  new  partner  firms  were  Crestwood  Advisors,  CFO4Life,  One  Charles  Private
Wealth, Bordeaux Wealth Advisors, Gelfand,  Rennert  &  Feldman, Lake Street Advisors, Financial
Professionals, SCS Financial Services, Brownlie  & Braden  and Eton  Advisors. In  2018, the new partner
firms were Cornerstone Wealth, Fortem Financial, Bartlett  Wealth Management, Campbell Deegan
Financial, Nigro Karlin Segal Feldstein  & Bolno,  Asset Advisors Investment Management, Edge  Capital
Group and Vista Wealth Management.

In  2016,  2017  and  2018,  our  partner  firms  completed  12,  15  and  17  transactions,  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 consolidated financial  statements  for additional information about  our

acquisitions.

For the year ended December 31, 2018,  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
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,  there  is  no  direct  correlation  between
short-term  financial  market  movements  and  total  revenues.  Additionally,  we  estimate  that
approximately  23%  of  our  revenues  for  the  year  ended  December  31,  2018  were  not  directly  correlated
to the financial markets. Longer term trends in the  financial markets may favorably  or unfavorably
impact our total revenues, but not in  a linear relationship. For  example, during 2016, 2017  and 2018,

49

the Standard & Poor’s 500 Index had  a total return of  12.0%, 21.8% and (4.4)%,  respectively, and the
Barclays  U.S. Aggregate Bond Index had a total return  for  the same periods of 2.6%,  3.5% and  0.0%,
respectively.  By  comparison,  for  the  same  periods  our  organic  revenue  growth  was  5.2%,  13.4%  and
13.0%, respectively. For additional information, please  read ‘‘—How We Evaluate our Business.’’

Operating  Expenses

Our  operating  expenses  consist  of  compensation  and  related  expenses,  management  fees,  selling,

general  and  administrative  expenses,  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
(cid:4)10% growth in revenues. This example  assumes (i) Target  Earnings of $3.0 million;  (ii) Base Earnings

50

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%.

New Partner Firm
New  partner  firm  revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less:

Projected
Revenues

+10%

Growth in (cid:5)10% Growth
in Revenues
Revenues

(in thousands)

$ 5,000

$ 5,500

$ 4,500

Operating  expenses  (excluding  management  fees) . . . . . . . . . .

(2,000)

(2,000)

(2,000)

EBPC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Base Earnings to Focus Inc. (60%) . . . . . . . . . . . . . . . . . . . .
Management  fees  to  management  company  (40%) . . . . . . . . .

$ 3,000
1,800
1,200

$ 3,500
1,800
1,200

$ 2,500
1,800
700

EBPC  in  excess  of  Target  Earnings:

To Focus Inc. (60%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To management company as management  fees  (40%) . . . . . . .

—
—

300
200

—
—

Focus Inc.
Focus Inc. revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less:

$ 5,000

$ 5,500

$ 4,500

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.

Intangible  Amortization

Amortization  of  intangibles  consists  primarily  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  CAGR  of the partner firm’s earnings.  Earn  out
payments  are  typically  payable  in  cash  and,  in  some  cases,  equity.

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

51

reporting  date  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 12, 23 and 19 business acquisitions during  the years ended December 31, 2016,  2017
and  2018,  respectively,  consisting  of  both  new  partner  firms  and  acquisitions  by  our  partner  firms.  Such
business  acquisitions  are  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  years  ended  December  31,  2016,

2017  and  2018  (dollars  in  thousands):

Number  of  business  acquisitions  closed . . . . . . . . . . . . . . . . . . . . . . .
Consideration:

Cash  due  at  closing  and  option  premium . . . . . . . . . . . . . . . . . . . .
Cash  due  subsequent  to  closing  at  net  present  value  and  estimated

working  capital  adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair market value of Focus LLC common  units issued . . . . . . . . . .
Fair market value of Class A common stock issued . . . . . . . . . . . .
Fair market value of estimated contingent consideration . . . . . . . . .

2016

2017

2018

12

23

19

$163,067

$362,524

$408,478

1,379
43,788
—
12,620

188
64,728

39,134
51,456
— 112,461
42,086

37,551

Total consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$220,854

$464,991

$653,615

In  addition,  we  completed  six,  two  and  six  acquisitions  during  the  years  ended  December  31,  2016,

2017  and  2018,  respectively,  that  did  not  meet  the  definition  of  a  business  under  ASC  Topic  805:
Business  Combinations. These acquisitions  primarily related  to  the acquisition of customer  lists.

Substantially all of our acquisitions have  been paid for with a combination of cash flow from

operations,  proceeds  from  the  IPO,  proceeds  from  borrowings  under  the  Credit  Facility  and  equity,
valued  at  the  then-fair  market  value.

Recent  Developments

From January 1, 2019 to the date of this Annual Report, we completed  12 business acquisitions

(accounted  for  in  accordance  with  ASC  Topic  805: Business  Combinations) consisting of both new
partner  firms  and  acquisitions  by  our  partner  firms.  The  Acquired  Base  Earnings  associated  with  the
acquisition  of  the  new  partner  firms  during  this  period  was  approximately $11.9  million. Furthermore,
we  have  signed  definitive  purchase  agreements  to  acquire  an  additional  two  new  partner  firms  with

52

associated Acquired Base Earnings of approximately $6.3  million. Each of these pending transactions is
generally on terms and in a structure  consistent with past transactions, and  the closings are subject  to
customary  closing  conditions.  Among  other  risks  and  uncertainties,  there  can  be  no  guarantee  that
these acquisitions will be completed.  For additional  information  regarding Acquired Base  Earnings,
please  read  ‘‘Management’s  Discussion  and  Analysis  of  Financial  Condition  and  Results  of
Operations—Acquired  Base  Earnings.’’

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
years  ended  December  31,  2016,  2017  and  2018  include  the  following:

Revenue Metrics:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue growth(1) from prior period . . . . . . . . . . . . . . . . .
Organic  revenue  growth(2)  from  prior  period . . . . . . . . . . . .

Management Fees Metrics (operating  expense):
Management  fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management  fees  growth(3)  from  prior  period . . . . . . . . . . .
Organic  management  fees  growth(4)  from  prior  period . . . . .

Adjusted  EBITDA  Metrics:
Adjusted EBITDA(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA growth(5) from prior  period . . . . . . . . . .

Adjusted  Net  Income  Metrics:
Adjusted Net Income(5) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted Net Income growth(5) from prior period . . . . . . . .

Adjusted  Net  Income  Per  Share  Metrics:
Adjusted Net Income Per Share(5) . . . . . . . . . . . . . . . . . . .
Adjusted Net Income Per Share growth(5) from prior  period
Adjusted Shares Outstanding(5) . . . . . . . . . . . . . . . . . . . . . .

Other  Metrics:
Acquired Base Earnings(6) . . . . . . . . . . . . . . . . . . . . . . . . .
Number  of  partner  firms  at  period  end(7) . . . . . . . . . . . . . .

Year Ended December 31,

2016

2017

2018

(in thousands, except per share data)

$

485,444

$

662,887

$

910,880

27.0%
5.2%

36.6%
13.4%

37.4%
13.0%

$

114,846

$

163,617

$

232,703

28.0%
3.6%

42.5%
23.0%

42.2%
14.3%

$

103,038

$

145,226

$

203,402

36.6%

40.9%

40.1%

$

$

$

68,569

$

86,701

$

125,348

31.2%

26.4%

44.6%

$

0.95
31.2%

$

1.21
26.4%

1.74
43.8%

71,843,916

71,843,916

71,960,540

23,217
42

$

44,191
51

$

37,750
58

(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 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

53

percentage of any EBPC in excess of  Target Earnings. Management fees growth represents the
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,  delayed  offering  cost  expense,  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

54

• 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;

• to evaluate the effectiveness of our  business  strategies; and

• as a consideration in determining compensation  for certain  employees.

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.

55

Set forth below is a reconciliation of net income (loss) to Adjusted EBITDA for the years ended

December  31,  2016,  2017  and  2018:

Net  income  (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest  income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest  expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income  tax  expense  (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization  of  debt  financing  costs . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible  amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Delayed  offering  cost  expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other  one-time  transaction  expenses . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2016

2017

2018

(in thousands)

$ 15,722
(88)
21,327
981
2,482
50,942
5,680
8,520
(1,143)
—
—
(1,385)
—
—

$ (48,359) $ (41,087)
(1,266)
56,448
9,450
3,498
90,381
8,370
44,468
6,638
(5,509)
21,071
2,350
—
8,590

(222)
41,861
(1,501)
4,084
64,367
6,686
34,879
22,294
—
8,106
3,191
9,840
—

Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$103,038

$145,226

$203,402

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,  delayed  offering  cost  expense,  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 year ended  December  31, 2018 is  calculated by dividing
Adjusted Net Income by the Adjusted  Shares Outstanding.  Adjusted  Shares Outstanding for the year
ended  December  31,  2018  includes:  (i)  the  weighted  average  shares  of  Class  A  common  stock
outstanding  during  the  period,  (ii)  the  weighted  average  incremental  shares  of  Class  A  common  stock
related to stock options and unvested Class A common stock outstanding  during the period, (iii) the
weighted average number of Focus LLC common units outstanding during  the period  (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  period  based  on  the  closing  price  of  our  Class  A  common  stock  on  the  last
trading day of the period (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
common  stock  issued  in  connection  with  the  IPO  and  Reorganization  Transactions,  assumes  that  all

56

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.

57

Set forth below is a reconciliation of net income (loss) to Adjusted Net Income  and Adjusted Net

Income Per Share for the years ended December 31, 2016, 2017  and 2018:

Year Ended December 31,

2016

2017

2018

Net  income  (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income  tax  expense  (benefit) . . . . . . . . . . . . . . . . . . . . . . . .
Amortization  of  debt  financing  costs . . . . . . . . . . . . . . . . . .
Intangible  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 . . . . . . . . . . . . . . . . .
Delayed  offering  cost  expense . . . . . . . . . . . . . . . . . . . . . . .
Other  one-time  transaction  expenses(1) . . . . . . . . . . . . . . . .

Subtotal

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma income tax expense (27%)(2) . . . . . . . . . . . . . . .
Tax  Adjustments(2)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(in thousands, except share and per share  data)
$

$

15,722
981
2,482
50,942
8,520

(48,359) $
(1,501)
4,084
64,367
34,879

(41,087)
9,450
3,498
90,381
44,468

(1,143)
—
—
—
—

77,504
(20,926)
11,991

22,294
—
8,106
9,840
2,843

96,553
(26,069)
16,217

6,638
(5,509)
21,071
—
11,529

140,439
(37,919)
22,828

Adjusted Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

68,569

$

86,701

$

125,348

Adjusted Shares Outstanding(4) . . . . . . . . . . . . . . . . . . . . . .
Adjusted Net Income Per Share . . . . . . . . . . . . . . . . . . . . .

71,843,916
0.95

$

71,843,916
1.21

$

71,960,540
1.74

$

Calculation  of  Adjusted  Shares  Outstanding(4):
Weighted average shares of Class A common  stock

outstanding—basic(5) . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

— 43,122,782

Adjustments:

Shares of Class A common stock issued in  connection with
the IPO and Reorganization Transactions(6) . . . . . . . . .

Weighted average incremental shares of Class A common
stock  related  to  stock  options  and  unvested  Class  A
common  stock(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Weighted average Focus LLC common  units

42,529,651

42,529,651

—

—

—

102,549

outstanding(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

22,499,665

22,499,665

22,630,668

Weighted average common unit equivalent  of Focus LLC

incentive  units  outstanding(9) . . . . . . . . . . . . . . . . . . . .

6,814,600

6,814,600

6,104,541

Adjusted Shares Outstanding(4) . . . . . . . . . . . . . . . . . . . . . .

71,843,916

71,843,916

71,960,540

(1) In  2018,  primarily  relates  to  one-time  expenses  related  to  (a)  Q4  2018  Loring  Ward  severance  cash
compensation  of  $507,  which  was  recorded  in  compensation  and  related  expenses,  and  Q3  2018
IPO and Reorganization Transaction cash compensation expenses  of $5,926, which  were recorded
in  compensation  and  related  expenses,  (b)  transaction  expenses  of  $1,762,  which  were  recorded  in
selling,  general  and  administrative  expenses,  associated  with  the  acquisition  of  Loring  Ward,  of
which  $1,114  were  incurred  in  Q4  2018  and  $648  were  incurred  in  Q3  2018  and  (c)  Q4  2018  other
expenses,  net  of  $2,373,  which  were  recorded  in  other  (expense)  income-net,  primarily  related  to
the loss on sale of a tax customer list and related receivables. In  2017, relates to one-time
transaction  expenses,  which  were  recorded  in  other  (expense)  income-net,  related  to  insurance  fees
associated  with  the  investment  by  our  private  equity  investors.

58

(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  December  31,  2018,  the  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
approximately  $25,171.

(4) For periods ended prior to the closing  of  the IPO  and the consummation of the 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,  2016  for  comparative  purposes.

(7) The  incremental  shares  for  the  year  ended  December  31,  2018  related  to  stock  options  and

unvested Class A common stock as calculated using the treasury  stock method were not included
in the calculation of 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.

59

Results of Operations

Year Ended December 31, 2016 Compared to Year  Ended  December 31, 2017

The  following  discussion  presents  an  analysis  of  our  results  of  operations  for  the  years  ended
December  31,  2016  and  2017.  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.

Year Ended
December  31,

2016

2017

$ Change

%  Change

(in thousands)

Revenues:

Wealth management fees . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$438,794
46,650

$617,124
45,763

$178,330
(887)

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

485,444

662,887

177,443

Operating  expenses:

Compensation  and  related  expenses . . . . . . . . . . . . . . .
Management  fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling,  general  and  administrative . . . . . . . . . . . . . . . .
Intangible  amortization . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash  changes  in  fair  value  of  estimated  contingent

consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation  and  other  amortization . . . . . . . . . . . . . . .

178,193
114,846
98,643
50,942

265,555
163,617
134,615
64,367

(1,143)
5,680

22,294
6,686

87,362
48,771
35,972
13,425

23,437
1,006

Total operating expenses . . . . . . . . . . . . . . . . . . . . . .

447,161

657,134

209,973

40.6%
(1.9)%

36.6%

49.0%
42.5%
36.5%
26.4%

*
17.7%

47.0%

Income  from  operations . . . . . . . . . . . . . . . . . . . . . . . . . .

38,283

5,753

(32,530)

(85.0)%

Other  income  (expense):

Interest  income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest  expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization  of  debt  financing  costs . . . . . . . . . . . . . . .
Loss on extinguishment of borrowings . . . . . . . . . . . . . .
Other  income  (expense)—net . . . . . . . . . . . . . . . . . . . .
Income  from  equity  method  investments . . . . . . . . . . . .

88
(21,327)
(2,482)
—
1,385
756

222
(41,861)
(4,084)
(8,106)
(3,191)
1,407

134
(20,534)
(1,602)
(8,106)
(4,576)
651

152.3%
(96.3)%
(64.5)%
*
(330.4)%
86.1%

Total other expense—net . . . . . . . . . . . . . . . . . . . . . .

(21,580)

(55,613)

(34,033)

(157.7)%

Income  (loss)  before  income  tax . . . . . . . . . . . . . . . . . . . .
Income  tax  expense  (benefit) . . . . . . . . . . . . . . . . . . . . . .

16,703
981

(49,860)
(1,501)

(66,563)
(2,482)

(398.5)%
(253.0)%

Net  income  (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 15,722

$ (48,359) $ (64,081)

(407.6)%

* Not meaningful

Revenues

Wealth management fees increased $178.3 million, or 40.6%, for the  year ended December  31,
2017  compared  to  the  year  ended  December  31,  2016.  New  partner  firms  added  during  the  year  ended
December 31, 2017 were Crestwood  Advisors, CFO4Life, One Charles Private  Wealth, Bordeaux
Wealth Advisors, Gelfand Rennert & Feldman,  Lake Street Advisors, Financial  Professionals, SCS
Financial Services, Brownlie & Braden  and Eton Advisors. These new partner firms contributed
approximately  $102.5  million  in  revenue  during  the  year  ended  December  31,  2017.  The  balance  of  the
increase  of  $75.8  million  was  due  to  the  revenue  growth  at  our  existing  partner  firms  associated  with

60

wealth  management  services  and  partner  firm-level  acquisitions  and  a  full  period  of  revenue  recognized
during  the  year  ended  December  31,  2017  for  partner  firms  that  were  acquired  during  the  year  ended
December  31,  2016.

Other  revenue  decreased  $0.9  million,  or  1.9%,  for  the  year  ended  December  31,  2017  compared

to  the  year  ended  December  31,  2016.  The  decrease  was  primarily  related  to  lower  commissions  and
distribution  fees.

Operating  Expenses

Compensation  and  related  expenses  increased  $87.4  million,  or  49.0%,  for  the  year  ended
December  31,  2017  compared  to  the  year  ended  December  31,  2016.  The  increase  related  to  new
partner  firms  was  $40.2  million.  The  balance  of  the  increase  of  $47.2  million  was  due  to  an  increase  in
salaries and related expense, in part the result of a full  year  of  expense  recognized during the  year
ended  December  31,  2017  for  partner  firms  that  were  acquired  during  the  year  ended  December  31,
2016  and  an  increase  of  $26.4  million  in  non-cash  equity  compensation  expense  primarily  related  to  the
recognition  of  expense  associated  with  the  modification  and  vesting  of  certain  Focus  LLC  common
units  and  incentive  units.

Management  fees  increased  $48.8  million,  or  42.5%,  for  the  year  ended  December  31,  2017
compared  to  the  year  ended  December  31,  2016.  The  increase  related  to  new  partner  firms  was
$19.3 million. Management fees are variable and a  function of  earnings during the period. The balance
of  the  increase  of  $29.5  million  was  due  to  the  increase  in  earnings  during  the  year  ended
December  31,  2017  compared  to  the  year  ended  December  31,  2016,  in  part  the  result  of  a  full  year  of
earnings  recognized  during  the  year  ended  December  31,  2017  for  partner  firms  that  were  acquired
during  the  year  ended  December  31,  2016.

Selling,  general  and  administrative  expenses  increased  $36.0  million,  or  36.5%,  for  the  year  ended
December  31,  2017  compared  to  the  year  ended  December  31,  2016.  The  increase  related  to  the  new
partner  firms  was  $14.1  million.  The  balance  of  the  increase  of  $21.9  million  was  in  part  the  result  of  a
full  year  of  expense  recognized  during  the  year  ended  December  31,  2017  for  partner  firms  that  were
acquired  during  the  year  ended  December  31,  2016  and  in  part  due  to  an  increase  in  expenses  related
to  professional  fees,  travel,  marketing  and  information  technology  expenses  related  to  the  growth  of  our
existing  partner  firms  and  our  acquisition  of  new  partner  firms,  as  well  as  the  $9.8  million  in  delayed
offering  cost  expense.

Intangible  amortization  increased  $13.4  million,  or  26.4%,  for  the  year  ended  December  31,  2017

compared  to  the  year  ended  December  31,  2016.  New  partner  firms  added  amortization  of
$13.9  million  during  the  year  ended  December  31,  2017.

Non-cash  changes  in  fair  value  of  estimated  contingent  consideration  increased  $23.4  million  for

the  year  ended  December  31,  2017  compared  to  the  year  ended  December  31,  2016.  The  increase  was
the  result  of  the  increase  in  the  probability  that  certain  contingent  consideration  payments  would  be
achieved,  resulting  in  an  increase  in  the  fair  value  of  the  contingent  consideration  liability  during  the
year  ended  December  31,  2017.

Depreciation  and  other  amortization  expense  increased  $1.0  million,  or  17.7%,  for  the  year  ended
December  31,  2017  compared  to  the  year  ended  December  31,  2016.  The  increase  was  due  primarily  to
acquisitions  and  capital  expenditures  during  the  year  ended  December  31,  2017.

During  the year ended December 31,  2017,  a loss  on extinguishment  of  borrowings of $8.1 million

was  recognized  in  connection  with  the  Credit  Facility.

61

Income  Tax  Expense

Income  tax  expense  decreased  $2.5  million,  or  253.0%,  for  the  year  ended  December  31,  2017
compared  to  the  year  ended  December  31,  2016.  The  decrease  in  income  tax  expense  is  primarily
related  to  the  remeasurement  of  certain  of  our  deferred  tax  assets  and  liabilities  during  the  year  ended
December  31,  2017,  based  on  the  reduction  in  the  tax  rate  at  which  they  are  expected  to  reverse.  Such
remeasurement  resulted  in  an  income  tax  benefit  of  $2.7  million  for  the  year  ended  December  31,
2017.

Year Ended December 31, 2017 Compared to Year  Ended  December 31, 2018

The  following  discussion  presents  an  analysis  of  our  results  of  operations  for  the  years  ended
December  31,  2017  and  2018.  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.

Year Ended
December  31,

2017

2018

$ Change

%  Change

(in thousands)

Revenues:

Wealth management fees . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$617,124
45,763

$853,033
57,847

$235,909
12,084

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

662,887

910,880

247,993

Operating  expenses:

Compensation  and  related  expenses . . . . . . . . . . . . . . .
Management  fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling,  general  and  administrative . . . . . . . . . . . . . . . .
Intangible  amortization . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash  changes  in  fair  value  of  estimated  contingent

265,555
163,617
134,615
64,367

358,084
232,703
170,270
90,381

92,529
69,086
35,655
26,014

38.2%
26.4%

37.4%

34.8%
42.2%
26.5%
40.4%

consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation  and  other  amortization . . . . . . . . . . . . . . .

22,294
6,686

6,638
8,370

(15,656)
1,684

(70.2)%
25.2%

Total operating expenses . . . . . . . . . . . . . . . . . . . . . .

657,134

866,446

209,312

31.9%

Income  from  operations . . . . . . . . . . . . . . . . . . . . . . . . . .

5,753

44,434

38,681

672.4%

Other  income  (expense):

Interest  income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest  expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization  of  debt  financing  costs . . . . . . . . . . . . . . .
Gain  on  sale  of  investments . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of borrowings . . . . . . . . . . . . . .
Other  income  (expense)—net . . . . . . . . . . . . . . . . . . . .
Income  from  equity  method  investments . . . . . . . . . . . .

222
(41,861)
(4,084)
—
(8,106)
(3,191)
1,407

1,266
(56,448)
(3,498)
5,509
(21,071)
(2,350)
521

1,044
(14,587)
586
5,509
(12,965)
841
(886)

470.3%
(34.8)%
14.3%
*
(159.9)%
26.4%
(63.0)%

Total other expense—net . . . . . . . . . . . . . . . . . . . . . .

(55,613)

(76,071)

(20,458)

(36.8)%

Income  (loss)  before  income  tax . . . . . . . . . . . . . . . . . . . .
Income  tax  expense  (benefit) . . . . . . . . . . . . . . . . . . . . . .

(49,860)
(1,501)

(31,637)
9,450

18,223
10,951

Net  loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (48,359) $ (41,087) $

7,272

36.5%
729.6%

15.0%

* Not meaningful

62

Revenues

Wealth management fees increased $235.9 million, or 38.2%, for the  year ended December  31,
2018  compared  to  the  year  ended  December  31,  2017.  New  partner  firms  added  subsequent  to  the  year
ended  December  31,  2017  that  are  included  in  our  results  of  operations  for  the  year  ended
December  31,  2018  include  Cornerstone  Wealth,  Fortem  Financial,  Bartlett  Wealth  Management,
Campbell  Deegan  Financial,  Nigro  Karlin  Segal  Feldstein  &  Bolno,  Asset  Advisors  Investment
Management, Edge Capital Group and Vista Wealth Management. These new partner firms
contributed  approximately  $95.3  million  in  revenue  during  the  year  ended  December  31,  2018.  The
balance  of  the  increase  of  $140.6  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  year  ended  December  31,  2018  for  partner  firms  that  were  acquired
during  the  year  ended  December  31,  2017.

Other  revenues  increased  $12.1  million,  or  26.4%,  for  the  year  ended  December  31,  2018
compared  to  the  year  ended  December  31,  2017.  The  increase  is  due  primarily  to  $10.4  million  from
2018  new  partner  firms  principally  related  to  outsourced  services  revenue.

Operating  Expenses

Compensation  and  related  expenses  increased  $92.5  million,  or  34.8%,  in  the  year  ended
December  31,  2018  compared  to  the  year  ended  December  31,  2017.  The  increase  related  to  new
partner  firms  was  $35.7  million.  The  balance  of  the  increase  of  $56.8 million  was  due  to  an  increase  of
$47.2 million  in  salaries  and  related  expense,  in  part  the  result  of  a  full  period  of  expense  recognized
during  the  year  ended  December  31,  2018  for  partner  firms  that  were  acquired  during  the  year  ended
December  31,  2017  and  an  increase  of  $9.6  million  in  non-cash  compensation  expense  primarily  related
to  the  recognition  of  expenses  associated  with  the  modification  and  vesting  of  certain  Focus  LLC
common  units  and  incentive  units.

Management  fees  increased  $69.1  million,  or  42.2%,  for  the  year  ended  December  31,  2018
compared  to  the  year  ended  December  31,  2017.  The  increase  related  to  the  new  partner  firms  was
$26.0 million. Management fees are variable and a  function of  earnings during the period. The balance
of  the  increase  of  $43.1  million  was  due  to  the  increase  in  earnings  during  the  year  ended
December  31,  2018  compared  to  the  year  ended  December  31,  2017,  in  part  the  result  of  a  full  period
of  earnings  recognized  during  the  year  ended  December  31,  2018  for  partner  firms  that  were  acquired
during  the  year  ended  December  31,  2017  as  well  as  new  partner  promotions.

Selling,  general  and  administrative  expenses  increased  $35.7  million,  or  26.5%,  for  the  year  ended

December  31,  2018  compared  to  the  year  ended  December  31,  2017.  The  increase  related  to  new
partner  firms  was  $16.7  million.  The  balance  of  the  increase  of  $19.0  million  was  in  part  the  result  of  a
full  period  of  expense  recognized  during  the  year  ended  December  31,  2018  for  partner  firms  that  were
acquired  during  the  year  ended  December  31,  2017  and  in  part  due  to  an  increase  in  expenses  related
to  professional  fees,  rent  expenses,  information  technology,  and  travel  related  to  the  growth  of  our
existing  partner  firms  and  our  acquisition  of  new  partner  firms.

Intangible  amortization  increased  $26.0  million,  or  40.4%,  for  the  year  ended  December  31,  2018

compared  to  the  year  ended  December  31,  2017.  The  increase  was  primarily  related  to  new  partner
firms  which  added  amortization  of  $11.3  million  during  the  year  ended  December  31,  2018  and  a  full
period  of  amortization  during  the  year  ended  December  31,  2018  for  partner  firms  acquired  during  the
year  ended  December  31,  2017.

Non-cash  changes  in  fair  value  of  estimated  contingent  consideration  decreased  $15.7  million  or
70.2%,  for  the  year  ended  December  31,  2018  compared  to  the  year  ended  December  31,  2017.  During
the  year  ended  December  31,  2018  the  probability  that  certain  contingent  consideration  payments

63

would be achieved decreased resulting in  a  decrease in the  fair value of the contingent  consideration
liability.

Depreciation  and  other  amortization  expense  increased  $1.7  million,  or  25.2%,  for  the  year  ended

December  31,  2018  compared  to  the  year  ended  December  31,  2017.  The  increase  was  primarily  related
to a full period of depreciation and amortization for fixed assets acquired in  2017.

During  the year ended December 31, 2018, we  recognized a  gain on  sale of investment  of
$5.5 million related to an investment  in  a financial  service  company  previously carried  at cost.

During  the year ended December 31, 2018, a loss  on extinguishment of borrowings of $21.1 million

was  recognized  in  connection  with  the  Credit  Facility.

Income  Tax  Expense

Income  tax  expense  increased  $11.0  million,  or  729.6%,  for  the  year  ended  December  31,  2018

compared  to  the  year  ended  December  31,  2017.  The  increase  in  income  tax  expense  is  primarily
related  to  the  fact  that,  in  connection  with  the  IPO  and  Reorganization  Transactions,  Focus Inc.
became a holding company whose sole material  asset is  a membership  interest in  Focus LLC, and,  as a
result, Focus Inc. became subject to U.S.  federal, state  and local income taxes  imposed on Focus Inc.’s
allocable  portion  of  taxable  income  from  Focus  LLC.

Liquidity  and  Capital  Resources

Sources  of  Liquidity

During  the  year  ended  December  31,  2018,  we  met  our  cash  and  liquidity  needs  primarily  through

cash  generated  by  our  operations,  proceeds  from  our  IPO  and  borrowings  under  our  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.  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 the Credit Facility, please  read ‘‘Part  II, Item 7, Management’s  Discussion and  Analysis
of  Financial  Condition  and  Results  of  Operations—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 the TRA holders. The agreements generally provide  for the payment by Focus Inc. to
each  TRA holder of 85% of the net cash  savings, if  any, in U.S. federal, state and local income and
franchise tax that Focus Inc. actually  realizes (computed using simplifying assumptions to address the
impact  of  state  and  local  taxes)  or  is  deemed  to  realize  in  certain  circumstances  in  periods  after  the
IPO as a result of certain increases in tax 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  December  31,  2018,  we  expect  that  future  payments  to  the  TRA  holders  resulting

64

from  the  IPO  will  be  approximately  $39.2  million,  in  aggregate.  Future  payments  under  the  Tax
Receivable Agreements in respect of  subsequent  exchanges 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 merely 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  years  ended  December  31,  2016,  2017  and  2018.

Year Ended
December  31,

Year Ended
December  31,

2016

2017

$ Change % Change

2017

2018

$ Change %  Change

(in thousands)

Cash  provided by (used  in):

. . . . . . . $ 77,150 $ 69,090 $ (8,060)
(189,917)
231,539

(186,799)
110,864

(376,716)
342,403

(10.4)% $ 69,090 $ 105,919 $ 36,829
(69,734)
101.7%
(19,916)
208.8%

(446,450)
322,487

(376,716)
342,403

53.3%
18.5%
(5.8)%

Operating  activities
Investing  activities . . . . . . . .
Financing  activities . . . . . . . .
Cash  and cash equivalents—end
of period . . . . . . . . . . . . . .

16,508

51,455

34,947

211.7%

51,455

33,213

(18,242)

(35.5)%

Operating  Activities

Net  cash  provided  by  operating  activities  includes  net  income  (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  decreased  $8.1  million,  or  10.4%,  for  the  year  ended
December  31,  2017  compared  to  the  year  ended  December  31,  2016.  This  decrease  was  primarily  the
result  of  the  net  loss  of  $48.4  million  for  the  year  ended  December  31,  2017  and  a  net  decrease  in
operating  assets  and  liabilities  of  $18.6  million,  primarily  offset  by  an  increase  in  intangible

65

amortization  of  $13.4  million,  non-cash  equity  compensation  expense  of  $26.4  million  and  non-cash
changes  in  fair  value  of  estimated  contingent  consideration  of  $23.4  million.

Net  cash  provided  by  operating  activities  increased  $36.8  million,  or  53.3%,  for  the  year  ended
December  31,  2018  compared  to  the  year  ended  December  31,  2017.  The  increase  was  primarily  related
to a decrease in net loss of $7.3 million,  and an increase  in intangible amortization  of  $26.0 million,
loss  on  extinguishment  of  borrowings  of  $10.9  million,  other  non-cash  items  of  $10.6  million,  and
non-cash  equity  compensation  expense  of  $9.6  million  during  the  year  ended  December  31,  2018
compared  to  the  year  ended  December  31,  2017,  primarily  offset  by  a  net  decrease  in  operating  assets
and  liabilities  of  $14.0  million  and  non-cash  changes  in  fair  value  of  estimated  contingent  consideration
of  $15.7  million  during  the  year  ended  December  31,  2018.

Investing  Activities

Net  cash  used  in  investing  activities  increased  $189.9  million,  or  101.7%,  for  the  year  ended

December  31,  2017  compared  to  the  year  ended  December  31,  2016.  The  increase  was  primarily  due  to
an  increase  in  cash  paid  for  acquisitions  and  contingent  consideration  of  $194.5  million.

Net  cash  used  in  investing  activities  increased  $69.7  million,  or  18.5%,  for  the  year  ended

December  31,  2018  compared  to  the  year  ended  December  31,  2017.  The  increase  was  primarily  due  to
an  increase  of  $47.3  million  in  cash  paid  for  acquisitions  and  contingent  consideration  and  an  increase
in  investment  and  other  of  $23.8  million  during  the  year  ended  December  31,  2018  compared  to  the
year  ended  December  31,  2017,  primarily  associated  with  our  $20.0  million  minority  equity  interest  in
SmartAsset.

Financing Activities

Net  cash  provided  by  financing  activities  increased  $231.5  million,  or  208.8%,  for  the  year  ended
December  31,  2017  compared  to  the  year  ended  December  31,  2016.  The  increase  was  primarily  the
result of an increase in net borrowings under the Credit Facility of  $415.9 million and  the Focus LLC
convertible  preferred  unit  issuance  of  $643.3  million  during  the  year  ended  December  31,  2017  that  did
not  occur  during  the  year  end  December  31,  2016,  offset  by  payments  in  connection  with  the  Focus
LLC  unit  redemption  of  $795.9  million  during  the  year  ended  December  31,  2017.  For  more  details
regarding Focus LLC’s convertible preferred  unit issuance and unit redemption  during  the year ended
December  31,  2017  please  read  the  notes  to  our  consolidated  financial  statements  included  elsewhere
in  this  Annual  Report.

Net  cash  provided  by  financing  activities  for  the  year  ended  December  31,  2018  decreased
$19.9  million,  or  5.8%,  compared  to  the  year  ended  December  31,  2017.  The  decrease  was  primarily
due to a decrease in net borrowings  made under  the Credit  Facility of $701.0  million during  the year
ended  December  31,  2018,  primarily  offset  by  lower  equity  issuance  proceeds  net  of  equity  redemptions
of  $656.2  million  and  an  increase  in  debt  financing  costs  of  $28.0  million  during  the  year  ended
December 31,  2018.

66

Contractual  Obligations

The  following  table  describes  our  contractual  obligations  as  of  December  31,  2018:

Total

Less than
1 Year

1 - 3 Years 3 - 5 Years

(in thousands)

Credit  Facility  maturities . . . . . . . . . . . . . . . . . . . . $ 838,985 $ 8,030 $ 16,060 $ 56,060
85,268
Credit  Facility  interest . . . . . . . . . . . . . . . . . . . . . .
—
Credit  Facility letters of credit . . . . . . . . . . . . . . . .
37,649
Operating  lease  obligations . . . . . . . . . . . . . . . . . .
5,055
Amounts  due  pursuant  to  tax  receivable  agreements
120
Capital  lease  obligations . . . . . . . . . . . . . . . . . . . .

238,438
4,207
179,628
39,156
563

45,045
4,207
35,426
—
177

88,869
—
56,508
3,495
266

More than
5 Years

$758,835
19,256
—
50,045
30,606
—

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,300,977 $92,885 $165,198 $184,152

$858,742

Off-Balance  Sheet  Arrangements

We  have no off-balance sheet arrangements.

Credit  Facilities

As of December 31, 2016, we had a credit  facility of approximately $1,100.0 million consisting of
term  and  revolving  loans,  inclusive  of  an  accordion  feature  of  $255.0  million  (the  ‘‘Old  Credit  Facility’’).
The Old Credit Facility had a June 2020 maturity  date.

In July 2017, we entered into the Credit Facility. The  Credit Facility  initially consisted of a
$795.0 million first lien term  loan (the ‘‘First Lien Term Loan’’), a $250.0  million First Lien Revolver,
and a $207.0 million second lien term loan (the ‘‘Second Lien Term  Loan’’). In connection with the
Credit  Facility, we repaid all amounts  outstanding  under the Old Credit Facility with the proceeds from
the Credit Facility and wrote off all deferred financing costs related to the Old  Credit Facility resulting
in a $8.1 million loss on extinguishment of borrowings.

The First Lien Term Loan has a maturity  date of  July 2024 and initially required quarterly

installment  repayments  of  approximately  $2.0  million.  The  First  Lien  Term  Loan  was  issued  at  a
discount  of  0.125%  or  $1.0  million  that  we  are  amortizing  to  interest  expense  over  the  term  of  the  First
Lien Term Loan. The First Lien Revolver  initially had a  maturity date of July 2022  and has no required
quarterly  installment  repayments.  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  Term  Loan  (up  to  January
2018 as noted below) and First Lien  Revolver bore interest (at our option) at: (i) LIBOR plus  a margin
of 3.25% with the First Lien Revolver having step downs  to 3.00% and 2.75% based on achievement of
a specified First Lien Leverage Ratio  (as defined below)  or, (ii) the lender’s Base  Rate (as defined in
the Credit Facility) plus a margin of 2.25%  with the  First Lien Revolver having step downs to 2.00%
and 1.75% based on achievement of  a  specified  First Lien  Leverage Ratio. The Credit Facility also
included  an  unused  commitment  fee  of  0.50%  of  the  outstanding  commitments  under  the  First  Lien
Revolver, with a stepdown to 0.375% based on achievement of a specified First Lien Leverage Ratio.

In January 2018, we amended our First Lien Term  Loan to reduce our  interest rate to LIBOR plus

a margin of 2.75% or the lender’s Base  Rate  plus a margin  of  1.75%. As a result of  the amendment,
we recognized in January 2018 a loss  on extinguishment of borrowings of $14.0 million, representing
the  write-off  of  $13.1  million  and  $0.9  million  in  deferred  financing  costs  and  unamortized  discount
related  to  the  First  Lien  Term  Loan.

67

In April 2018, we expanded our First Lien Term Loan by $200.0 million and incurred  $1.3 million

in  debt  financing  costs.  In  addition,  the  quarterly  installment  repayments  increased  to  $2.5  million
beginning  in  June  2018.

The Second Lien Term Loan has a maturity  date of July 2025 and bears interest (at our option) at:

(i) LIBOR plus a margin of 7.50% or  (ii) the lender’s Base  Rate  plus a  margin  of 6.50%. The Second
Lien Term Loan has no required installment repayments due prior to the  maturity date. The  Second
Lien Term Loan was issued at a discount  of 1.00%  or $2.1  million that we are amortizing to interest
expense over the term of the Second  Lien  Term Loan. The Second Lien Term  Loan  requires a
prepayment  penalty  of  1.00%  of  the  then  outstanding  principal  amount  of  the  Second  Lien  Term  Loan
if  prepaid  prior  to  July  2019.

In  June  2018,  we  entered  into  an  amendment  to  the  Credit  Facility  that  became  effective  upon

closing of the IPO. The First Lien Term Loan  was  reduced  to  $803.0 million and  was  amended to
reduce our interest rate to LIBOR plus  a margin of 2.50% or the lender’s Base Rate plus a  margin of
1.50%,  effective  in  July  2018  upon  obtaining  certain  credit  ratings.  The  First  Lien  Revolver  was
amended  to  increase  our  borrowing  capacity  to  $650.0  million  and  extend  the  maturity  date  to  5  years
from July 30, 2018. The First Lien Revolver was  also amended  such that it 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.  The  First Lien
Term Loan also requires a prepayment penalty of 1% of  the then outstanding  principal  amount  of the
First  Lien Term Loan if repaid prior  to  January 2019. The Credit Facility was also amended  to  require
quarterly First Lien Term Loan installment repayments of approximately $2.0 million and  for us  to
maintain a First Lien Leverage Ratio  of  not more than 6.25:1.00, as  of  the last day  of each fiscal
quarter.

We  repaid the $207.0 million Second Lien Term Loan in  July 2018. In  connection with  these
amendments,  we  incurred  debt  financing  costs  of  $5.0  million  and  recognized  a  loss  of  extinguishment
of  debt  of  $7.1  million  during  the  year  ended  December  31,  2018.

Our 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.

At December 31, 2018, our First Lien Leverage Ratio  was  3.33:1.00,  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
our  assets  of  (excluding  letters  of  credit  other  than  unpaid  drawings  thereunder)  minus  unrestricted
cash and cash equivalents to Consolidated  EBITDA (as defined in the  Credit  Facility). We are  also
subject  to  contingent  principal  payments  based  on  excess  cash  flow  (as  defined  in  the  Credit  Facility)
commencing  with  and  including  the  fiscal  year  ending  December  31,  2018  if  our  First  Lien  Leverage
Ratio exceeds 3.75:1:00.

At December 31, 2018, outstanding stated value borrowings under the Credit Facility were
$839.0  million.  The  weighted-average  interest  rate  for  borrowings  was  approximately  6%  for  the  year
ended  December  31,  2018.  As  of  December  31,  2018,  the  First  Lien  Revolver  available  unused
commitment line was $605.8 million. At  December  31, 2018, we had outstanding letters of credit in the
amount  of  $4.2  million  bearing  interest  at  an  annual  rate  of  approximately  1%.

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Critical  Accounting  Policies

Our  financial  statements  are  prepared  in  accordance  with  GAAP.  Our  financial  statements  include
the accounts of Focus Inc. and our subsidiaries.  Intercompany  transactions and balances are  eliminated
in  consolidation.  Critical  accounting  policies  are  those  that  are  the  most  important  portrayal  of  our
financial  condition  and  results  of  operations  and  that  require  our  most  difficult,  subjective  and  complex
judgments as a result of the need to  make estimates  about the  effect of matters  that  are inherently
uncertain.  While  our  significant  accounting  policies  are  described  in  more  detail  in  the  notes  to  our
financial  statements,  our  most  critical  accounting  policies  are  discussed  below.  The  preparation  of  the
consolidated  financial  statements  in  conformity  with  GAAP  requires  management  to  make  estimates
and  assumptions  that  affect  the  amounts  reported  in  our  financial  statements  and  the  accompanying
notes.  Management  believes  that  the  estimates  utilized  in  preparing  the  financial  statements  are
reasonable and prudent. Actual results  could  differ from those estimates.

Revenue Recognition

Wealth Management Fees

We, solely through our partner firms, recognize revenue when  earned from  wealth management

fees,  which  are  primarily  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.  Client  arrangements  may  contain  a  single  or  multiple  performance  obligations,  each
of  which  are  separately  identifiable  and  accounted  for  as  the  related  services  are  provided  and
consumed over time. Fees are primarily based either on  a contractual percentage  of the client’s  assets,
a flat fee, an hourly rate or a combination of such fees and are billed either  in advance or arrears on a
monthly,  quarterly,  or  semiannual  basis  and  such  fees  earned  as  the  services  are  performed  over  time.
Revenue for wealth management and operational support services  provided to third-party  wealth
management  firms  is  presented  net  since  these  services  are  performed  in  an  agent  capacity.  Wealth
management  fees  are  recorded  when:  (i)  an  arrangement  with  a  client  has  been  identified;  (ii)  the
performance  obligations  have  been  identified;  (iii)  the  fee  or  other  transaction  price  has  been
determined;  (iv)  the  fee  or  other  transaction  price  has  been  allocated  to  each  performance  obligation;
and  (v)  we  have  satisfied  the  applicable  performance  obligation.

Other

Other  revenue  primarily  includes  recordkeeping  and  administration  service  fees,  commissions  and

distribution  fees  and  outsourced  services.  Client  arrangements  may  contain  a  single  or  multiple
performance  obligations,  each  of  which  are  separately  identifiable  and  accounted  for  as  the  related
services  are  provided  and  consumed  over  time.  Recordkeeping  and  administration  and  outsourced
services  revenue,  in  accordance  with  the  same  five  criteria  above,  are  recognized  over  the  period  in
which  services  are  provided.  Commissions  and  distribution  fees  are  recognized  when  earned.

Deferred  Revenue

Fees collected in advance are deferred and recognized in revenue over the  period earned with the

unrecognized  portion  of  fees  collected  in  advance  recorded  as  deferred  revenue.

Business  Acquisitions

Business  acquisitions  are  accounted  for  in  accordance  with  ASC  Topic  805: Business  Combinations.
Business  acquisitions  are  accounted  for  by  allocating  the  purchase  price  consideration  to  the  fair  value
of  assets  acquired  and  liabilities  assumed.  Goodwill  is  recognized  as  the  excess  of  the  purchase  price
consideration  over  the  fair  value  of  net  assets  of  the  business  acquired.  All  transaction  costs  are
expensed  as  incurred.

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We  have incorporated contingent consideration into the  structure  of  our partner firm acquisitions.
These  arrangements  may  result  in  the  payment  of  additional  purchase  price  consideration  to  the  sellers
based  on  the  growth  of  certain  financial  thresholds  for  periods  following  the  closing  of  the  respective
acquisition.  The  additional  purchase  price  consideration  is  payable  in  the  form  of  cash  and,  in  some
cases,  equity.

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  the  acquired  wealth
management  firm.  The  contingent  consideration  is  remeasured  to  fair  value  at  each  reporting  date  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  the  consolidated  statements  of
operations.

The  results  of  the  acquired  wealth  management  firms  are  included  in  our  consolidated  financial

statements  from  the  respective  dates  of  acquisition.

Goodwill,  Intangible  Assets  and  Other  Long-Lived  Assets

Goodwill  is  deemed  to  have  an  indefinite  useful  life  and  is  not  amortized.  Intangible  assets  are
amortized  over  their  respective  estimated  useful  lives.  We  have  no  indefinite-lived  intangible  assets.

Goodwill  is  tested  annually  for  impairment  as  of  October  1,  or  more  frequently  if  events  and
circumstances  change  that  would  more  likely  than  not  reduce  the  fair  value  of  a  reporting  unit  below
its  carrying amount. A two-step impairment  test is performed  on goodwill. In the first step, we compare
the  fair  value  of  each  reporting  unit  to  the  carrying  value  of  the  net  assets  of  the  reporting  unit.  The
fair value of the reporting unit is determined using a discounted  cash  flow  approach. Under this
approach,  management  uses  certain  assumptions  including,  but  not  limited  to,  a  risk-adjusted  rate  that
is  estimated  to  be  commensurate  with  the  risk  associated  with  the  underlying  cash  flows,  cash  flow
trends  from  prior  periods,  current-period  cash  flow,  and  management’s  expectation  of  future  cash  flows.
Expectations  of  future  cash  flows  are  based  on  projections  or  forecasts  derived  from  our  understanding
of  the  relevant  business  prospects,  economic  or  market  trends,  and  regulatory  or  legislative  changes
which  may  occur.  If  the  fair  value  of  the  reporting  unit  exceeds  the  carrying  value  of  the  net  assets  of
the  reporting  unit  in  the  first  step,  no  further  testing  is  performed.  If  the  carrying  value  exceeds  the  fair
value  of  the  reporting  unit  in  the  first  step,  then  we  perform  the  second  step  of  the  impairment  test  to
determine  the  implied  fair  value  of  goodwill  and  compare  the  implied  fair  value  of  goodwill  to  the
carrying  value  of  goodwill  to  determine  the  extent  of  the  impairment,  if  any.

In  March  2018,  we  modified  the  manner  in  which  we  assess  goodwill  for  impairment.  We  had
determined  for  the  purpose  of  our  annual  goodwill  impairment  test  that  our  reporting  units  should  be
aggregated  into  one  reporting  unit.  Our  determination  was  based  on;  our  reporting  units  having  similar
economic  and  business  characteristics,  and  the  services  performed  by  the  reporting  units  are  wealth
management  related  and  that  the  reporting  units  are  subject  to  a  similar  regulatory  framework.  We
believe  that  the  resulting  change  in  accounting  principle  related  to  the  reporting  unit  utilized  in  the
annual  goodwill  impairment  test  did  not  delay,  accelerate  or  avoid  an  impairment  charge.  We
determined  that  the  change  in  accounting  principle  related  to  the  reporting  unit  used  in  our  annual
impairment  test  is  appropriate  based  on  the  nature  of  our  business.  The  change  would  not  have  had  an
impact  on  the  results  of  our  impairment  test  for  the  year  ended  December  31,  2017.

Intangible  assets  and  other  long-lived  assets  are  reviewed  for  impairment  whenever  events  or

changes  in  circumstances  indicate  that  the  asset  might  be  impaired  or  that  the  estimated  useful  life
should  be  changed  prospectively.  If  impairment  indicators  are  present,  the  recoverability  of  these  assets
is measured by a comparison of the carrying amount of the asset to estimated undiscounted future  cash
flows  expected  to  be  generated  by  the  asset.  If  the  carrying  amount  of  the  asset  exceeds  its  estimated
undiscounted  future  cash  flows,  an  impairment  charge  is  recognized  by  the  amount  by  which  the

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carrying  amount  of  the  asset  exceeds  the  fair  value  of  the  asset,  which  is  determined  using  a  discounted
cash  flow  approach.

Income Taxes and Tax Receivable Agreements

In connection with the IPO and Reorganization Transactions, Focus Inc. became a holding

company whose sole material asset is a  membership interest in Focus LLC, and, as a  result, Focus Inc.
became  subject  to  U.S.  federal,  state  and  local  income  taxes  on  Focus Inc.’s  allocable  portion  of  taxable
income from Focus LLC. Focus LLC  is treated as  a partnership  for U.S. federal  income  tax purposes.
Accordingly, 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 and certain of its subsidiaries have been subject to U.S.  federal  and certain state and local
or  foreign  income  taxes.  Instead,  for  U.S.  federal  and  certain  state  income  tax  purposes,  the  income,
deductions, losses and credits of Focus LLC  are passed through to its unitholders, which after the IPO
includes Focus Inc. Focus LLC has historically  made tax distribution  payments in  accordance  with its
Third Amended and Restated Operating  Agreement,  which was replaced  by  the Fourth  Amended  and
Restated Focus LLC Agreement on July 30, 2018,  and  Focus  Inc. intends  to  cause Focus LLC  to
continue  to  make  tax  distribution  payments,  to  the  extent  of  available  cash,  in  accordance  with  the
Fourth Amended and Restated Focus  LLC Agreement. Focus Inc. files income tax  returns with the
U.S.  federal  government  as  well  as  various  state  and  local  jurisdictions.

We  apply the asset and liability method for deferred income  taxes. Deferred tax  assets and
liabilities  are  recognized  for  future  tax  consequences  attributable  to  differences  between  the  financial
statement  carrying  amounts  of  existing  assets  and  liabilities  and  their  respective  tax  basis.  Deferred  tax
assets  and  liabilities  are  measured  using  tax  rates  expected  to  apply  to  taxable  income  in  years  in  which
those  temporary  differences  are  expected  to  be  recovered  or  settled.  Valuation  allowances,  if  any,  are
recorded  to  reduce  the  deferred  tax  assets  to  an  amount  that  is  more  likely  than  not  to  be  realized.

We  review and evaluate tax positions in our  major tax jurisdictions  and determine whether or not
there  are  uncertain  tax  positions  that  require  financial  statement  recognition.  Based  on  this  review,  we
have  recorded  no  reserves  for  uncertain  tax  positions  at  December  31,  2017  and  December  31,  2018.

We  have entered into two Tax Receivable Agreements with the TRA  holders. The agreements
generally provide for the payment by  us  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  we  actually  realize  (computed  using
simplifying  assumptions  to  address  the  impact  of  state  and  local  taxes)  or  are  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. We
will  retain  the  benefit  of  the  remaining  15%  of  these  cash  savings.

As a result of the Reorganization Transactions  and  the exchange  of  certain units  of Focus LLC in

connection with the IPO, Focus Inc. recorded a  liability  of approximately  $39.2 million relating  to  its
obligations under the Tax Receivable  Agreements. The foregoing  amount  of expected  future payments
to TRA holders is merely 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.

Consolidation  Considerations

ASC Topic 810, Consolidation, requires an entity to perform a qualitative  analysis to determine
whether its variable interests give it a  controlling financial interest in a variable interest entity (‘‘VIE’’).
Under the standard, an enterprise has a  controlling financial interest when it has (a) the power to
direct the activities of a VIE that most  significantly  impact  the entity’s economic  performance and
(b)  the  obligation  to  absorb  losses  of  the  entity  or  the  right  to  receive  benefits  from  the  entity  that

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could  potentially  be  significant  to  the  VIE.  An  enterprise  that  holds  a  controlling  financial  interest  is
deemed  to  be  the  primary  beneficiary  and  is  required  to  consolidate  the  VIE.

Certain  of  our  subsidiaries  have  management  agreements  with  the  respective  management
company,  which  causes  these  operating  subsidiaries  to  be  VIEs.  We  have  assessed  whether  or  not  we
are  the  primary  beneficiary  for  these  operating  subsidiaries  and  have  concluded  that  we  are  the  primary
beneficiary. Accordingly, the results of  these subsidiaries  have been  consolidated.

Certain  of  our  subsidiaries  have  variable  interests  in  certain  investment  funds  that  are  deemed
voting  interest  entities.  Due  to  substantive  kick-out  rights  possessed  by  the  limited  partners  of  these
funds,  we  do  not  consolidate  the  investment  funds.

From time to time, we enter into option  agreements with  wealth  management firms (each, an
‘‘Optionee’’)  and  their  owners.  In  exchange  for  payment  of  an  option  premium,  the  option  agreement
allows  us,  at  our  sole  discretion,  to  acquire  substantially  all  of  the  assets  of  the  Optionee  at  a
predetermined time and at a predetermined purchase price formula. If we choose to exercise our
option,  the  acquisition  and  the  corresponding  management  agreement  would  be  executed  in  accordance
with  our  typical  acquisition  structure.  If  we  choose  not  to  exercise  the  option,  the  option  premium
would be recorded as a loss on investment  in the consolidated statements of operations in  the period
that the option expires. We have determined that the  respective option  agreements with  the Optionees
qualify the Optionees as VIEs. We have determined that we are  not  the primary beneficiary of the
Optionees  and  do  not  consolidate  the  results  of  the  Optionees.

Stock  Based  Compensation  Costs

Compensation  cost  for  unit  and  stock  based  awards  is  measured  based  on  the  fair  value  of  the  unit

and  stock  based  awards  determined  by  the  Black-Scholes  option  pricing  model  or  the  Monte  Carlo
Simulation  Model  on  the  date  that  the  unit-based  awards  are  issued  or  modified,  and  is  adjusted  for
the  estimated  number  of  awards  that  are  expected  to  be  forfeited.  The  compensation  cost  is  recognized
on a straight-line basis over the requisite service period.

Recent  Accounting Pronouncements

In May 2014, the Financial Accounting  Standards Board (‘‘FASB’’) issued Accounting  Standards
Update (‘‘ASU’’) No. 2014-09, ‘‘Revenue  from  Contracts  with Customers,’’  which  requires  an  entity  to
recognize  the  amount  of  revenue  to  which  it  expects  to  be  entitled  for  the  transfer  of  promised  goods
or services to customers. In August 2015,  the FASB issued ASU  No. 2015-14,  ‘‘Revenue from Contracts
with Customers (Topic 606): Deferral of Effective  Date.’’ ASU No. 2015-14  defers  the effective date  of
ASU No. 2014-09  by one year for public companies.  ASU  No. 2015-14 applies to annual reporting
periods  beginning  after  December  15,  2017,  including  interim  reporting  periods  within  that  reporting
period. ASU No. 2014-09 replaced most existing revenue recognition guidance in  GAAP when it
became  effective  for  us  on  January  1,  2018.  The  standard  permits  the  use  of  either  the  retrospective  or
modified  retrospective  transition  method.  Additionally,  ASU  No.  2014-09  requires  enhanced  disclosures,
including  revenue  recognition  policies  to  identify  performance  obligations  to  customers  and  significant
judgements  in  measurement  and  recognition.  We  adopted  ASU  No.  2014-09  using  the  retrospective
transition method. The adoption of ASU  No. 2014-09 did not have  a  material effect on  our
consolidated  financial  statements  and  no  adjustments  were  required  to  prior  periods  because  there  were
no  changes  to  our  recognition  of  revenues  or  presentation  of  revenues  in  the  consolidated  statements
of  operations.

In January 2016, the FASB issued ASU No. 2016-01,  ‘‘Financial Instruments—Overall

(Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial  Liabilities.’’ The
amendments  in  this  update  address  certain  aspects  of  recognition,  measurement,  presentation  and
disclosure of financial instruments. ASU  No. 2016-01 was effective for us  beginning January  1, 2018.
The adoption of ASU No. 2016-01 did not have a material effect on  our  consolidated  financial
statements.

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In February 2016, the FASB issued 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  in  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 is effective for us  for interim  and annual periods
beginning January 1, 2019 and early adoption is permitted. We will adopt ASU  No. 2016-02 effective
January 1, 2019 using a modified retrospective method and will not restate comparative  periods. As
permitted  under  the  transition  guidance,  the  assessment  of  whether  contracts  contain  or  are  leases,
classification  of  leases  and  remaining  lease  terms  will  be  carried  forward.  Based  on  the  portfolio  of
leases  as  of  December  31,  2018,  we  estimate  that  approximately  $146  million  of  lease  assets  and
liabilities  will  be  recognized  on  the  balance  sheet  upon  adoption,  primarily  related  to  operating  leases
for real estate. The actual impact may  differ from this estimate.  We do not expect a 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.

In March 2016, the FASB issued ASU No. 2016-09,  ‘‘Improvements  to  Employee  Share-Based
Payment Accounting,’’ which amends  ASC Topic 718, ‘‘Stock  Compensation.’’  The  objective  of  this
amendment is part of the FASB’s Simplification Initiative as it applies  to  several aspects of the
accounting  for  share-based  payment  transactions,  including  the  income  tax  consequences,  classification
of  awards  as  either  equity  or  liabilities,  and  classification  on  the  statement  of  cash  flows.
ASU No. 2016-09  was effective for us  on  January 1,  2017. The adoption of ASU  No. 2016-09  did not
have a material effect on our consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, ‘‘Statement  of  Cash  Flows  (Topic  230):
Classification  of  Certain  Cash  Receipts  and  Cash  Payments.’’ ASU No. 2016-15 made eight targeted
changes  to  how  cash  receipts  and  cash  payments  are  presented  and  classified  in  the  statement  of  cash
flows. We adopted ASU No. 2016-15  on January 1, 2017. The adoption of ASU No. 2016-15 did  not
have a material effect on our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01,  ‘‘Business  Combinations  (Topic  805)  Clarifying

the  Definition  of  a  Business,’’ which amends the  guidance of FASB Accounting Standards  Codification
Topic 805, ‘‘Business  Combinations,’’  adding  guidance  to  assist  entities  with  evaluating  whether
transactions  should  be  accounted  for  as  acquisitions  or  disposals  of  assets  or  businesses.  The  definition
of a business affects many areas of accounting including acquisitions,  disposals, goodwill, and
consolidation. ASU No. 2017-01 was effective for us prospectively on January 1, 2018.  The  adoption of
ASU No. 2017-01  did not have a material  effect on  our consolidated  financial  statements.

In January 2017, the FASB issued ASU No. 2017-04,  ‘‘Simplifying  the  Test  for  Goodwill

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

In May 2017, the FASB issued ASU  No. 2017-09, ‘‘Compensation—Stock  Compensation

(Topic 718): Scope of Modification Accounting.’’ ASU No. 2017-09 provides  guidance that clarifies when
changes to the terms or conditions of  a share-based payment award require the  application  of
modification accounting under ASC 718. ASU No. 2017-09 will  allow for  certain changes to be made to
awards  without  accounting  for  them  as  modifications.  We  early  adopted  ASU  No.  2017-09  during  the
year ended December 31, 2017. The  adoption  of  ASU  No. 2017-09 did  not  have a material effect on
our  consolidated  financial  statements.

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In June 2018, the FASB issued ASU No. 2018-07, ‘‘Improvements  to  Nonemployee  Share-Based

Payment Accounting,’’  which  simplifies  the  accounting  for  share-based  payments  to  nonemployees  by
aligning  it  with  the  accounting  for  share-based  payments  to  employees,  with  certain  exceptions.
ASU No. 2018-07  is effective for fiscal  years  beginning  after December 15, 2018,  including interim
periods  within  that  fiscal  year,  with  early  adoption  permitted  after  adoption  of  ASU  No.  2014-09.  The
adoption of ASU No. 2018-07 is not  expected  to  have a material effect on our consolidated financial
statements.

Item 7A 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 year ended December 31, 2018,  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  the  Credit  Facility  is  variable.

In  June  2018,  we  entered  into  an  amendment  to  the  Credit  Facility  that  became  effective  upon

closing of the IPO. The First Lien Term Loan  was  reduced  to  $803.0 million and  was  amended to
reduce our interest rate to LIBOR plus  a margin of 2.50% or the lender’s Base Rate plus a  margin of
1.50%,  effective  in  July  2018  upon  obtaining  certain  credit  ratings.  The  First  Lien  Revolver  was
amended  to  increase  our  borrowing  capacity  to  $650.0  million  and  extend  the  maturity  date  to  5  years
from July 30, 2018. The First Lien Revolver was  also amended  such that it 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.

Interest  rate  changes  will  therefore  affect  the  amount  of  our  interest  payments,  future  earnings  and

cash  flows.  As  of  December  31,  2018,  we  had  total  stated  value  borrowings  outstanding  under  our
Credit  Facility of $839.0 million. If interest rates  increased  by 1.0% on  this amount, our interest
expense  for  the  year  end  December  31,  2018  would  have  increased  by  approximately  $8.4  million.

Item 8 Financial Statements and Supplementary Data

Our  financial  statements  and  supplementary  data  are  included  in  this  Annual  Report  beginning  on

page  F-1  and  incorporated  by  reference  herein.

Item 9 Changes in and Disagreements With  Accountants on Accounting  and Financial Disclosure

None.

Item 9A 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  Exchange Act)  as of

74

December  31,  2018.  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  December  31,  2018,  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.

Management’s Report on Internal Control Over  Financial Reporting and  Attestation Report of the

Independent Registered Public Accounting Firm

This Annual Report does not include  a  report of management’s assessment regarding internal
control  over  financial  reporting  or  an  attestation  report  of  our  independent  registered  public  accounting
firm due to a transition period established by the rules of  the SEC for newly public companies.

Item 9B Other Information

None.

75

Item 10 Directors, Executive Officers  and  Corporate Governance

PART III

Information as to Item 10 will be set forth  in the Proxy Statement for the Annual Meeting of

Shareholders to be held on May 28, 2019 (the ‘‘Annual Meeting’’) and is incorporated herein by
reference.

Our board of directors has adopted a  Code of Business Conduct  and Ethics applicable  to  all  of

our  directors,  officers  and  employees,  including  our  principal  executive  officer,  principal  financial
officer,  principal  accounting  officer  and  controller  or  persons  performing  similar  functions,  as  well  as  to
directors,  principals,  officers  and  employees  of  each  of  our  subsidiary  and  a  Financial  Code  of  Ethics,
applicable  to  our  chief  executive  officer,  chief  financial  officer  and  principal  accounting  officer,  in
accordance  with  applicable  U.S. federal  securities  laws  and  corporate  governance  rules  of  NASDAQ.
Our  Code  of  Business  Conduct  and  Ethics  and  our  Financial  Code  of  Ethics  are  available  on  our
website  at  www.focusfinancialpartners.com  under  ‘‘Corporate  Governance’’  within  the  ‘‘Investor
Relations’’ section. We will provide copies of these documents to any person,  without charge, upon
request, by writing to us at Focus Financial Partners  Inc., Attn:  Investor Relations, 825 Third  Avenue,
27th Floor, New York, NY. We intend  to  satisfy the disclosure  requirement under Item 406(b) of
Regulation S-K regarding amendments to, or waivers from, provisions  of our Code of Business Conduct
and  Ethics  and  our  Financial  Code  of  Ethics  by  posting  such  information  on  our  website  at  the  address
and  the  location  specified  above.

Item 11 Executive Compensation

Information as to Item 11 will be set forth  in the Proxy Statement for the Annual Meeting and is

incorporated  herein  by  reference.

Item 12 Security Ownership of Certain Beneficial Owners and Management  and Related Stockholder

Matters

Information as to Item 12 will be set forth  in the Proxy Statement for the Annual Meeting and is

incorporated  herein  by  reference.

Item 13 Certain Relationships and Related Transactions, and Director Independence

Information as to Item 13 will be set forth  in the Proxy Statement for the Annual Meeting and is

incorporated  herein  by  reference.

Item 14 Principal Accountant Fees  and Services

Information as to Item 14 will be set forth  in the Proxy Statement for the Annual Meeting and is

incorporated  herein  by  reference.

Item  15 Exhibits

Financial  Statements

The consolidated financial statements  of Focus  Inc. and Subsidiaries  and  the Report of

Independent Registered Public Accounting Firm  are included  in ‘‘Part II, Item  8, Financial Statements
and Supplementary Data.’’ Reference  is  made to the accompanying Index to Financial  Statements.

Financial  Statement  Schedules

All  financial  statement  schedules  have  been  omitted  because  they  are  not  applicable  or  the

required  information  is  presented  in  the  financial  statements  or  the  notes  thereto.

76

Index  to  Exhibits

The  exhibits  required  to  be  filed  or  furnished  pursuant  to  Item  601  of  Regulation  S-K  are  set  forth

below.

Exhibit
Number

3.1

3.2

4.1

10.1

10.2

10.3

10.4

10.5

10.6†

10.7

10.8

10.9

10.10

10.11

Description

Amended and Restated Certificate of  Incorporation  of  Focus  Financial Partners Inc.(1)

Amended and Restated Bylaws  of  Focus Financial Partners Inc.(1)

Registration Rights Agreement, dated as  of  July 30, 2018,  by and  among Focus Financial
Partners Inc., Focus Financial Partners, LLC  and the other parties  named therein(1)

Nomination  Agreement,  dated  as  of  July  30,  2018,  by  and  among  Focus  Financial
Partners Inc. and the affiliates of Stone Point Capital  LLC named therein(1)

Nomination  Agreement,  dated  as  of  July  30,  2018,  by  and  among  Focus  Financial
Partners Inc. and the affiliates of Kohlberg Kravis Roberts & Co.  L.P.  named therein(1)

Fourth Amended and Restated Operating Agreement  of  Focus  Financial Partners, LLC(1)

Tax Receivable Agreement, dated as  of July 30, 2018,  by and among Focus Financial
Partners Inc. and the affiliates of the Private  Equity  Investors named therein(1)

Tax Receivable Agreement, dated as  of July 30, 2018,  by and among Focus Financial
Partners Inc. and the parties named therein(1)

Focus Financial Partners Inc. 2018 Omnibus Incentive  Plan(1)

First  Lien  Credit  Agreement,  dated  as  of  July 3,  2017,  by  and  among  Focus  Financial
Partners, LLC, the lenders party thereto, Bank  of America,  N.A., as  revolver
administrative agent for the Lenders, Swing  Line Lender  and  L/C Issuer and  Royal Bank
of  Canada,  as  term  administrative  agent  for  the  Lenders(2)

Amendment No. 1 to First Lien Credit Agreement, dated  as of January 17, 2018, by and
among Focus Financial Partners, LLC, Royal  Bank of Canada,  as term administrative
agent  and  collateral  agent,  and  the  lenders  party  thereto(2)

Amendment No. 2 to First Lien Credit Agreement, dated  as of March 2, 2018, by and
among Focus Financial Partners, LLC and  Royal Bank of  Canada, as term administrative
agent  and  collateral  agent(2)

Amendment No. 3 to First Lien Credit Agreement, dated  as of April 2, 2018,  by  and
among Focus Financial Partners, LLC, Royal  Bank of Canada,  as term administrative
agent  and  collateral  agent,  and  the  lenders  party  thereto(2)

Amendment No. 4 to First Lien Credit Agreement,  dated as of June 29,  2018, by among
Focus LLC, as borrower, the lenders party thereto, Royal Bank of Canada, as term
administrative  agent,  collateral  agent  and  fronting  bank,  and  Bank  of  America,  N.A.,  as
revolver  administrative  agent  and  letter  of  credit  issuer(3)

10.12† Amended and Restated Employment Agreement, by  and between  Ruediger Adolf and

Focus Financial Partners, LLC(3)

10.13† Amended and Restated Employment Agreement, by  and between  Rajini Sundar Kodialam

and Focus Financial Partners, LLC(3)

10.14† Amended and Restated Employment Agreement, by  and between  James Shanahan and

Focus Financial Partners, LLC(3)

77

Exhibit
Number

10.15†

10.16†

Description

Form of Incentive Unit Award Agreement pursuant  to  the Fourth Amended and Restated
Operating Agreement of Focus Financial Partners, LLC, dated as of July 3, 2017, as
amended(3)

Form of Restricted Unit Award Agreement  pursuant to the Fourth Amended and
Restated Operating Agreement of Focus Financial Partners, LLC, dated as of  July 3, 2017,
as  amended(3)

10.17

10.18

10.19

10.20

10.21

10.22

10.23

10.24

Indemnification  Agreement  (Ruediger  Adolf)(1)

Indemnification  Agreement  (Rajini  Sundar  Kodialam)(1)

Indemnification  Agreement  (James  Shanahan)(1)

Indemnification  Agreement  (James  D.  Carey)(1)

Indemnification  Agreement  (Fayez  S.  Muhtadie)(1)

Indemnification  Agreement  (Christopher  J.  Harrington)(1)

Indemnification  Agreement  (Deborah  D.  McWhinney)(1)

Indemnification  Agreement  (Noah  Gottdiener)(1)

21.1*

List of Subsidiaries of Focus  Financial Partners  Inc.

23.1* Consent  of  Independent  Registered  Public  Accounting  Firm

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.INS* XBRL  Instance  Document

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.

Compensation, plan or arrangement.

(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 Registration  Statement on  Form S-1 (File

No. 333-225166)  filed  with  the  SEC  on  May 24,  2018.

(3) Incorporated by reference to the Registrant’s Registration  Statement on  Form S-1 (File

No.  333-225166)  filed  with  the  SEC  on  June  29,  2018.

78

Pursuant  to  the  requirements  of  Section  13  or  15(d)  of  the  Securities  Exchange  Act  of  1934,  the

registrant  has  duly  caused  this  report  to  be  signed  on  its  behalf  by  the  undersigned,  thereunto  duly
authorized.

SIGNATURES

Date:  March  28,  2019

FOCUS  FINANCIAL  PARTNERS  INC.

By:

/s/ RUEDIGER ADOLF

Ruediger Adolf
Chairman  and  Chief  Executive  Officer
(Principal  Executive  Officer)

By:

/s/ JAMES SHANAHAN

James  Shanahan
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting  Officer)

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.

Signature

Title

Date

/s/ RUEDIGER ADOLF

Ruediger Adolf

Chief  Executive  Officer  and  Chairman
(Principal Executive Officer)

March  28,  2019

/s/ JAMES SHANAHAN

James  Shanahan

Chief  Financial  Officer  (Principal
Financial  Officer  and  Principal
Accounting Officer)

/s/ JAMES D. CAREY

James  D.  Carey

/s/ NOAH GOTTDIENER

Noah  Gottdiener

Director

Director

/s/ CHRISTOPHER J. HARRINGTON

Christopher  J.  Harrington

Director

79

March  28,  2019

March 28,  2019

March 28,  2019

March 28,  2019

Signature

Title

Date

/s/ RAJINI SUNDAR KODIALAM

Rajini Sundar Kodialam

/s/ DEBORAH D. MCWHINNEY

Deborah  D.  McWhinney

/s/ FAYEZ S. MUHTADIE

Fayez S. Muhtadie

Director

Director

Director

March 28,  2019

March 28,  2019

March 28,  2019

80

INDEX  TO  FINANCIAL  STATEMENTS
FOCUS  FINANCIAL  PARTNERS  INC.

Consolidated  Financial  Statements  as  of  December  31,  2017  and  2018  and  for  the  Years  Ended

December  31,  2016,  2017  and  2018

Report of independent registered public  accounting firm . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance  sheets  as  of  December  31,  2017  and  2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Statements  of  operations  for  the  years  ended  December  31,  2016,  2017  and  2018 . . . . . . . . . .

Statements  of  comprehensive  income  (loss)  for  the  years  ended  December  31,  2016,  2017  and

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Statements  of  cash  flows  for  the  years  ended  December  31,  2016,  2017  and  2018 . . . . . . . . . . .

Statements  of  members’  deficit/shareholders’  equity  for  the  years  ended  December  31,  2016,

2017  and  2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Notes  to  consolidated  financial  statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

F-2

F-3

F-4

F-5

F-6

F-7

F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Focus  Financial  Partners Inc.

Opinion  on  the  Financial  Statements

We  have audited the accompanying consolidated balance sheets of Focus Financial Partners Inc.

and  subsidiaries  (the  ‘‘Company’’)  as  of  December  31,  2018  and  2017,  the  related  consolidated
statements  of  operations,  comprehensive  income  (loss),  cash  flows  and  members’  deficit/shareholders’
equity,  for  each  of  the  three  years  in  the  period  ended  December  31,  2018,  and  the  related  notes
(collectively  referred  to  as  the  ‘‘financial  statements’’).  In  our  opinion,  the  financial  statements  present
fairly,  in  all  material  respects,  the  financial  position  of  the  Company  as  of  December  31,  2018  and
2017,  and  the  results  of  its  operations  and  its  cash  flows  for  each  of  the  three  years  in  the  period  ended
December  31,  2018,  in  conformity  with  accounting  principles  generally  accepted  in  the  United  States  of
America.

Basis  for  Opinion

These  financial  statements  are  the  responsibility  of  the  Company’s  management.  Our  responsibility

is  to  express  an  opinion  on  the  Company’s  financial  statements  based  on  our  audits.  We  are  a  public
accounting  firm  registered  with  the  Public  Company  Accounting  Oversight  Board  (United  States)
(PCAOB)  and  are  required  to  be  independent  with  respect  to  the  Company  in  accordance  with  the
U.S.  federal  securities  laws  and  the  applicable  rules  and  regulations  of  the  Securities  and  Exchange
Commission  and  the  PCAOB.

We  conducted our audits in accordance with the standards  of  the PCAOB. Those  standards require

that  we  plan  and  perform  the  audit  to  obtain  reasonable  assurance  about  whether  the  financial
statements  are  free  of  material  misstatement,  whether  due  to  error  or  fraud.  The  Company  is  not
required  to  have,  nor  were  we  engaged  to  perform,  an  audit  of  its  internal  control  over  financial
reporting.  As  part  of  our  audits,  we  are  required  to  obtain  an  understanding  of  internal  control  over
financial  reporting  but  not  for  the  purpose  of  expressing  an  opinion  on  the  effectiveness  of  the
Company’s  internal  control  over  financial  reporting.  Accordingly,  we  express  no  such  opinion.

Our  audits  included  performing  procedures  to  assess  the  risks  of  material  misstatement  of  the
financial  statements,  whether  due  to  error  or  fraud,  and  performing  procedures  that  respond  to  those
risks. Such procedures included examining, on a test basis, evidence regarding the  amounts and
disclosures  in  the  financial  statements.  Our  audits  also  included  evaluating  the  accounting  principles
used  and  significant  estimates  made  by  management,  as  well  as  evaluating  the  overall  presentation  of
the financial statements. We believe that  our audits  provide a reasonable  basis for our opinion.

/s/  DELOITTE  &  TOUCHE  LLP

New York, New York
March  28,  2019

We  have served as the Company’s auditor since  2008.

F-2

FOCUS  FINANCIAL  PARTNERS  INC.

CONSOLIDATED BALANCE SHEETS

AS  OF  DECEMBER  31,  2017  AND  DECEMBER  31,  2018

(In  thousands,  except  share  and  per  share  amounts)

2017

2018

ASSETS

Cash  and  cash  equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable less allowances of $505 at 2017  and  $576  at 2018 . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed  assets—net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt  financing  costs—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred  tax  assets—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other  intangible  assets—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

51,455
73,513
37,423
21,397
13,278
—
515,489
522,282

$

33,213
98,596
76,150
24,780
12,340
70,009
860,495
762,195

TOTAL  ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,234,837

$1,937,778

LIABILITIES,  MEZZANINE  EQUITY,  AND  MEMBERS’  DEFICIT/SHAREHOLDERS’

EQUITY:
LIABILITIES:

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due  to  affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred  revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other  liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings  under  credit  facilities  (stated  value  of  $1,000,012  and  $838,985  at

$

$

5,752
23,626
33,698
6,094
99,077

December  31,  2017  and  2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax receivable agreements obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

980,502
—

8,935
36,252
39,621
6,215
158,497

836,582
39,156

TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,148,749

1,125,258

MEZZANINE  EQUITY:

Redeemable common and incentive units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible  preferred  units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

TOTAL  MEZZANINE  EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

COMMITMENTS  AND  CONTINGENCIES  (Note  13)
MEMBERS’  DEFICIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class A common stock,  par value $0.01, 0 and 500,000,000  shares  authorized; and 0  and
46,265,903  shares  issued  and  outstanding  at  December  31,  2017  and  December  31,
2018,  respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Class B common stock, par value $0.01,  0  and 500,000,000  shares  authorized; and  0 and
22,823,272  shares  issued  and  outstanding  at  December  31,  2017  and  December  31,
2018,  respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

166,249
698,500

864,749

(778,661)

—

—
—
—
—

Total members’ deficit / shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling  interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(778,661)
—

Total deficit/equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(778,661)

TOTAL  LIABILITIES,  MEZZANINE  EQUITY,  AND  MEMBERS’  DEFICIT/

—
—

—

—

462

228
471,386
(590)
(1,824)

469,662
342,858

812,520

SHAREHOLDERS’  EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,234,837

$1,937,778

See  notes  to  consolidated  financial  statements

F-3

FOCUS  FINANCIAL  PARTNERS  INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

(In  thousands,  except  share  and  per  share  amounts)

2016

2017

2018

REVENUES:

Wealth management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$438,794
46,650

$617,124
45,763

$

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

485,444

662,887

OPERATING EXPENSES:

Compensation  and  related  expenses . . . . . . . . . . . . . . . . . . . . .
Management  fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling,  general  and  administrative . . . . . . . . . . . . . . . . . . . . . .
Intangible  amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash  changes  in  fair  value  of  estimated  contingent

178,193
114,846
98,643
50,942

265,555
163,617
134,615
64,367

consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation  and  other  amortization . . . . . . . . . . . . . . . . . . . . .

(1,143)
5,680

22,294
6,686

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .

447,161

657,134

INCOME  FROM  OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . .
OTHER  INCOME  (EXPENSE):

Interest  income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest  expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization  of  debt  financing  costs . . . . . . . . . . . . . . . . . . . . .
Gain  on  sale  of  investment . . . . . . . . . . . . . . . . . . . . . . . . . . ..
Loss on extinguishment of borrowings . . . . . . . . . . . . . . . . . . . .
Other  (expense)  income—net . . . . . . . . . . . . . . . . . . . . . . . . . .
Income  from  equity  method  investments . . . . . . . . . . . . . . . . . .

38,283

5,753

88
(21,327)
(2,482)
—
—
1,385
756

222
(41,861)
(4,084)
—
(8,106)
(3,191)
1,407

Total other expense—net

. . . . . . . . . . . . . . . . . . . . . . . . . . .

(21,580)

(55,613)

INCOME  (LOSS)  BEFORE  INCOME  TAX . . . . . . . . . . . . . . . .
INCOME  TAX  EXPENSE  (BENEFIT) . . . . . . . . . . . . . . . . . . . .

16,703
981

(49,860)
(1,501)

853,033
57,847

910,880

358,084
232,703
170,270
90,381

6,638
8,370

866,446

44,434

1,266
(56,448)
(3,498)
5,509
(21,071)
(2,350)
521

(76,071)

(31,637)
9,450

NET  INCOME  (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 15,722

$ (48,359) $

(41,087)

Non-controlling  interest . . . . . . . . . . . . . . . . . . . . . . . . . . . .

NET LOSS ATTRIBUTABLE TO COMMON

SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Loss per share of Class A common stock:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Weighted average shares of Class A common stock outstanding:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

40,497

(590)

(0.01)

(0.01)

$

$

$

43,122,782

43,122,782

See  notes  to  consolidated  financial  statements

F-4

FOCUS  FINANCIAL  PARTNERS  INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

(In  thousands)

Net  income  (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other  comprehensive  income  (loss),  net  of  tax:

2016

2017

2018

$15,722

$(48,359) $(41,087)

Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . .

(1,171)

2,470

(4,509)

Comprehensive  income  (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$14,551

$(45,889) $(45,596)

Less: Comprehensive loss attributable to noncontrolling interest . . . .

Comprehensive  loss  attributable  to  common  shareholders . . . . . . . . . .

43,182

$ (2,414)

See  notes  to  consolidated  financial  statements

F-5

FOCUS  FINANCIAL  PARTNERS  INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

(In  thousands)

CASH  FLOWS FROM OPERATING ACTIVITIES:

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile  net  income (loss) to net cash provided by operating

activities—net  of effect of acquisitions:

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 . . . . . . .
Income  from  equity  method  investments
. . . . . . . . . . . . . . . . . . . . . . . . .
Distributions  received  from  equity  method  investments . . . . . . . . . . . . . . . .
Other  non-cash  items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes  in cash resulting  from changes  in  operating assets and liabilities:

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid  expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses
Due  to  affiliates
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred  revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2016

2017

2018

$ 15,722

$ (48,359)

$ (41,087)

50,942
5,680
2,482
8,520
(1,143)
(756)
469
359
—

(5,472)
(6,644)
2,741
1,635
5,837
(4,392)
1,170

64,367
6,686
4,084
34,879
22,294
(1,407)
984
(3,960)
8,106

(30,209)
9,889
(1,210)
(4,671)
9,700
(3,686)
1,603

90,381
8,370
3,498
44,468
6,638
(521)
1,118
6,655
19,001

(23,747)
(10,401)
2,341
4,302
6,706
(10,322)
(1,481)

Net cash provided  by operating activities . . . . . . . . . . . . . . . . . . . . . . . .

77,150

69,090

105,919

CASH  FLOWS FROM INVESTING  ACTIVITIES:

Cash  paid for  acquisitions  and  contingent  consideration—net of cash acquired . .
Purchase  of  fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment  and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(171,202)
(3,408)
(12,854)
665

(365,698)
(10,518)
(500)
—

(413,044)
(9,106)
(24,300)
—

Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .

(186,799)

(376,716)

(446,450)

CASH  FLOWS FROM FINANCING ACTIVITIES:

Borrowings  under credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments of borrowings under credit  facilities . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds  from common stock,  net
Proceeds  from issuance  of convertible preferred units, net
. . . . . . . . . . . . . . .
Payments  for treasury  units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of preferred  dividends
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments  in  connection with  unit  redemption,  net . . . . . . . . . . . . . . . . . . . . .
Contingent  consideration  paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments  of  debt financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments  on capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions  for  unitholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

231,169
(107,169)
—
—
(42)
—
—
(3,034)
(1,928)
(253)
(7,879)

1,181,936
(641,987)
—
643,272
—
(3,063)
(795,894)
(6,224)
(32,612)
(271)
(2,754)

300,000
(461,026)
565,160
—
—
—
(61,539)
(12,554)
(4,612)
(198)
(2,744)

Net cash provided  by financing activities . . . . . . . . . . . . . . . . . . . . . . . .

110,864

342,403

322,487

EFFECT OF EXCHANGE RATES ON  CASH AND CASH EQUIVALENTS . . .

CHANGE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . .

(206)

1,009

170

(198)

34,947

(18,242)

CASH  AND CASH EQUIVALENTS:

Beginning  of  year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15,499

16,508

51,455

End  of  year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 16,508

$

51,455

$ 33,213

See  Note  16  for  Supplemental  Cash  Flow  Disclosure

See  notes  to  consolidated  financial  statements

F-6

FOCUS  FINANCIAL  PARTNERS  INC.
CONSOLIDATED STATEMENTS OF MEMBERS’  DEFICIT/SHAREHOLDERS’  EQUITY
FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018
(In  thousands)

Class A
Common Stock

Shares Amount

Class B
Common Stock

Additional Accumulated

Accumulated
Other

Total
Members’
Deficit/

Non-

Paid in
Shares Amount Capital

Earnings Comprehensive Common Shareholders’ controlling
Units
(Deficit)

Income (Loss)

Interest

Equity

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

MEMBERS’  DEFICIT—January  1, 2016 .
Net income
.
.
.
.
Issuance of restricted common units in
connection with acquisitions and
contingent consideration .

.
Accretion of senior preferred units return .
Accretion  of senior  preferred units to
.

.
Accretion of junior preferred  units return .
Accretion  of junior preferred  units to
.

estimated redemption value .

estimated redemption value .

.
Non cash equity compensation expense—
net of related forfeitures, related to
restricted common and incentive units
.

Treasury units
.
.
Currency translation adjustment—net of
.
.
.

.
.
Distributions for unitholders .

tax .

.
.

.
.

.
.

.
.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

MEMBERS’ DEFICIT—December 31,
.
.

2016 .

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

Net loss
.
.
Issuance of restricted common units in
connection with acquisitions and
contingent consideration .

estimated redemption value .

.
Accretion of senior preferred units return .
Accretion  of senior  preferred units to
.

.
Accretion of junior preferred  units return .
Accretion  of junior preferred  units to
.

.
Issuance of convertible preferred units,

estimated redemption value .

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

redemption, retirement and
recapitalization of units, net .

.
Non-cash equity compensation expense—
net of related forfeitures, related to
restricted common and incentive units
Currency translation adjustment—net of
.
.
.

.
.
Distributions for unitholders .

tax .

.
.

.
.

.
.

.
.

.
.

.

.

.

.

.

.

.

.

.

.

MEMBERS’ DEFICIT—December 31,
.
.

2017 .

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

Net loss
.
.
Issuance of restricted common units in
connection with acquisitions and
contingent consideration .

.
Non-cash equity compensation expense .
.
Currency translation adjustment, net
.
Retirement of treasury stock
.
.
.
Distributions for unitholders .
Reorganization  of equity  structure—
.
.

July 30, 2018

.
.
.

.
.

.
.

.
.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.
Balance post-reorganization .
.
.
Net loss
.
.
Issuance of common stock .
.
.
Issuance of common stock in connection

.
.
.

.
.
.

.
.
.

.
.
.

.
.
.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

with acquisitions and contingent
.
consideration .
Change in noncontrolling interest
.
.

allocation .

.
.
Non-cash equity compensation expenses
Currency translation adjustment .
.
.
Adjustment of deferred tax assets,  net of
amounts payable under tax receivable
agreements and changes from
Focus LLC interest  transactions .

.

.

.

.

.

.

.

.

.

.

.

.

.

.
.

.

.

.

.

.
.

.
.

.

.

.

.

.
.

.

.

.
.
.
.
.

$

— $(373,396)
15,722
—

$ (9,568)
—

$ 109,416
—

$(273,548)
15,722

—
(2,198)

(4,147)
(237)

—
(9,824)

(18,889)
(1,056)

(1,938)

(8,849)

8,520
—

—
—

—
(42)

—
(9,192)

—
—

—
—

—

—
—

(1,171)
—

44,966
—

—
—

—

—
—

—
—

44,966
(12,022)

(23,036)
(1,293)

(10,787)

8,520
(42)

(1,171)
(9,192)

Total
Equity

$(273,548)
15,722

44,966
(12,022)

(23,036)
(1,293)

(10,787)

8,520
(42)

(1,171)
(9,192)

— $ —

— $ — $

— $(405,526)

$(10,739)

$ 154,382

$(261,883)

$

— $(261,883)

—

(48,359)

—
(788)

—
(5,461)

(2,207)
(85)

(15,256)
(587)

(1,068)

(7,384)

— (320,739)

34,879

—

—

—
—

—
—

—

—

—

—
—

—
(2,158)

2,470
—

—

(48,359)

(48,359)

27,125
—

—
—

—

27,125
(6,249)

(17,463)
(672)

(8,452)

27,125
(6,249)

(17,463)
(672)

(8,452)

(177,160)

(497,899)

(497,899)

—

—
—

34,879

2,470
(2,158)

34,879

2,470
(2,158)

— $ —

— $ — $ 30,731

$(805,470)

$ (8,269)

$

4,347

$(778,661)

$

— $(778,661)

(47,821)

(47,821)

(47,821)

24,987

(2,067)

(1,398)

(2,224)

40,389

(842)

40,389
24,987
(1,398)
(2,909)
(2,224)

40,389
24,987
(1,398)
(2,909)
(2,224)

(271,307)

855,515

9,667

(43,894)

550,445

258,670

809,115

(217,656)

564,974

—
(590)

—

— (217,192)
(590)
565,160

258,670
7,324

41,478
6,734
565,160

112,464

112,464

(56,222)
5,412
(1,824)

(1,824)

78,151

(1,287)

21,929
5,412
(3,111)

62,454

62,454

. 23,881,002

. 23,881,002
.
. 18,648,649

239

239

186

22,499,665

22,499,665

225

225

.

.
.
.

.

3,736,252

37

323,607

3

112,424

(56,222)
5,412

62,454

SHAREHOLDERS’ EQUITY—
.

December 31, 2018 .

.

.

.

.

.

.

.

.

. 46,265,903

$462

22,823,272

$228

$ 471,386

$

(590)

$ (1,824)

$

— $ 469,662

$342,858 $ 812,520

See  notes  to  consolidated  financial  statements

F-7

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

1. GENERAL

Organization

Focus Financial Partners Inc. (‘‘Focus Inc.’’)  was  formed as a Delaware  corporation on  July 29,

2015  for  the  sole  purpose  of  completing  its initial  public  offering  (the  ‘‘IPO’’)  and  related
reorganization  transactions  (the  ‘‘Reorganization  Transactions’’)  in  order  to  carry  on  the  business  of
Focus Financial Partners, LLC and its  subsidiaries (‘‘Focus LLC’’). On July 30, 2018, Focus Inc.  became
the managing member of Focus LLC and operates  and controls  the businesses and affairs of
Focus LLC. Accordingly, the 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, until July 30, 2018 and then its Fourth Amended and Restated Operating Agreement, as
amended  (the  ‘‘Operating  Agreement’’),  effective  on  July  30,  2018.

The  consolidated  financial  statements  for  periods  prior  to  July  30,  2018  reflect  the  historical  results

of operations and financial position of Focus LLC.  The  consolidated financial statements for periods
after  July  30,  2018  reflect  the  results  of  operations  and  financial  position  of  Focus  Financial
Partners Inc. and its subsidiaries (the ‘‘Company’’).

Business

The  Company  is  in  the  business  of  acquiring  and  overseeing  independent  fiduciary  wealth
management  and  related  businesses.  The  Company  typically  acquires  100%  of  the  net  assets  of  the
wealth  management  businesses  on  terms  that  are  generally  consistent  for  each  acquisition.  To  determine
the  acquisition  price,  the  Company  first  estimates  the  operating  cash  flow  of  the  business  to  be
acquired  based  on  current  and  projected  levels  of  revenue  and  expense.  For  this  purpose,  the  Company
defines  operating  cash  flow  as  cash  revenue  of  the  business,  less  cash  expenses,  other  than
compensation  and  benefits  to  the  selling  entrepreneurs  or  individuals  who  typically  become  principals
of  the  management  entities  discussed  below.  The  Company  refers  to  the  estimated  operating  cash  flow
earnings  before  partner  compensation  as  target  earnings  (‘‘Target  Earnings’’).  The  acquisition  price  is  a
multiple of a portion of the Target Earnings, referred to as  base  earnings (‘‘Base  Earnings’’).

At the  date of each of the respective acquisitions, the Company  typically enters  into  a management

agreement  (‘‘Management  Agreement’’)  with  a  management  company  (‘‘Management  Company’’)  that
is  owned  substantially  by  the  selling  principals  of  the  acquired  businesses.  The  Management  Company
earns  management  fees  to  manage  the  daily  operations  of  the  acquired  business.  The  terms  of  the
Management  Agreements  are  generally  six  years  with  automatic  renewals  for  consecutive  one-year
terms,  unless  terminated  by  either  the  Management  Company  or  the  Company.  Under  the
Management  Agreement,  the  Management  Company  is  entitled  to  management  fees  typically  consisting
of  all  future  earnings  of  the  acquired  business  in  excess  of  the  Base  Earnings  up  to  Target  Earnings,
plus a percentage of any earnings in excess of Target Earnings. The Company, through its respective
operating subsidiary, retains a cumulative preferred position in the  Base Earnings. To  the extent
earnings  of  an  acquired  business  in  any  year  are  less  than  the  Base  Earnings,  in  the  following  year  the

F-8

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

1. GENERAL (Continued)

Company,  through  its  respective  operating  subsidiary,  is  entitled  to  receive  the  Base  Earnings  together
with  the  prior  years’  shortfall  before  any  management  fees  are  earned  by  the  Management  Company.
Since  each  Management  Company  is  neither  acquired  nor  consolidated,  management  fees  are  included
in  the  Company’s  consolidated  statements  of  operations  as  operating  expenses.  Estimated  management
fees  due  are  included  in  due  to  affiliates  in  the  accompanying  consolidated  balance  sheets.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis  of  Presentation

The  accompanying  consolidated  financial  statements  have  been  prepared  in  accordance  with

accounting  principles  generally  accepted  in  the  United  States  of  America  (‘‘U.S.  GAAP’’).  The
consolidated  financial  statements  include  the  accounts  of  the  Company  and  its  subsidiaries.  The
Company consolidates Focus LLC and its subsidiaries’ 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.

Use  of Estimates

The  preparation  of  the  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.

Loss  Per Share

Loss per share is computed in accordance  with Accounting Standards Codification  (‘‘ASC’’)
Topic 260, Earnings  Per  Share. Basic loss  per  share is  computed by dividing the net  loss attributable to
common  shareholders  by  the  weighted  average  number  of  shares  outstanding  for  that  period.  Diluted
loss  per  share  is  calculated  by  dividing  the  net  loss  attributable  to  common  shareholders  by  the  diluted
weighted  average  shares  outstanding  for  that  period.  Diluted  loss  per  share  includes  the  determinants
of  the  basic  loss  per  share  and,  in  addition,  if  the  effect  is  dilutive,  reflects  the  dilutive  effect  of  shares
of  common  stock  related  to  the  Company’s  share  based  compensation  plans,  with  no  adjustments  to  net
loss  attributable  to  common  shareholders  for  dilutive  potential  common  shares.

Revenue Recognition

Wealth Management Fees

The  Company,  solely  through  its  subsidiaries,  recognizes  revenue  from  wealth  management  fees,

which  are  primarily  comprised  of  fees  earned  for  advising  on  the  assets  of  clients,  financial  and  tax
planning  fees,  consulting  fees,  tax  return  preparation  fees,  fees  for  family  office  services,  and  fees  for
wealth  management  and  operational  support  services  provided  to  third-party  wealth  management  firms.

F-9

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)

Client  arrangements may contain a single or multiple performance obligations, each of  which are
separately  identifiable  and  accounted  for  as  the  related  services  are  provided  and  consumed  over  time.
Fees are primarily based either on a contractual percentage  of the client’s assets, a  flat  fee,  an hourly
rate or a combination of such fees and are billed either  in advance  or  arrears  on a  monthly, quarterly,
or  semiannual  basis  and  such  fees  earned  as  the  services  are  performed  over  time.  Revenue  for  wealth
management  and  operational  support  services  provided  to  third-party  wealth  management  firms  is
presented  net  since  these  services  are  performed  in  an  agent  capacity.  Wealth  management  fees  are
recorded when: (i) an arrangement with a client has been identified; (ii) the  performance obligations
have  been  identified;  (iii)  the  fee  or  other  transaction  price  has  been  determined;  (iv)  the  fee  or  other
transaction  price  has  been  allocated  to  each  performance  obligation;  and  (v)  the  Company  has  satisfied
the  applicable  performance  obligation.

Other

Other  revenue  includes  fees  earned  for  recordkeeping  and  administration  services  provided  to
employee  benefit  plans  as  well  as  commissions  and  distribution  fees  and  outsourced  services.  Client
arrangements may contain a single or multiple performance  obligations,  each of which  are separately
identifiable  and  accounted  for  as  the  related  services  are  provided  and  consumed  over  time.
Recordkeeping and administration and outsourced  services revenue, in accordance  with the same five
criteria  above,  are  recognized  over  the  period  in  which  services  are  provided.  Commissions  and
distribution  fees  are  recognized  when  earned.

Deferred  Revenue

Fees collected in advance are deferred and recognized in revenue over the  period earned with the

unrecognized  portion  of  fees  collected  in  advance  recorded  as  deferred  revenue  in  the  accompanying
consolidated  balance  sheets.

The  Company  disaggregates  revenue  based  on  the  above  two  categories.  The  Company  does  not

allocate  revenue  by  the  type  of  service  provided  in  connection  with  providing  holistic  wealth
management  client  services.  The  Company  generally  manages  its  business  based  on  the  operating
results of the enterprise taken as a whole, not by geographic region.  The following  table disaggregates
the  revenues  based  on  the  location  of  the  partner  firm  that  generates  the  revenues  and  therefore  may
not  be  reflective  of  the  geography  in  which  clients  are  located  for  the  years  ended  December  31,  2016,
2017  and  2018:

Domestic  revenue . . . . . . . . . . . . . . . . . . . . . . . . .
International  revenue . . . . . . . . . . . . . . . . . . . . . .

$470,888
14,556

$643,077
19,810

$889,166
21,714

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . .

$485,444

$662,887

$910,880

2016

2017

2018

F-10

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)

Cash  and  Cash  Equivalents

The  Company  considers  all  highly  liquid  instruments  with  a  maturity  of  three  months  or  less  when

purchased  to  be  cash  equivalents.

Accounts  Receivable

Accounts receivable are stated at their  net realizable value. Allowances  for  uncollectible accounts

are  maintained  for  estimated  losses  resulting  from  the  inability  of  customers  to  make  required
payments.  In  determining  these  estimates,  historical  write-offs,  the  aging  of  the  receivables  and  other
factors,  such  as  overall  economic  conditions,  are  considered.

Fixed  Assets

Fixed  assets  are  recorded  at  cost  and  are  depreciated  using  the  straight-line  method  over  their
estimated  useful  lives.  The  estimated  useful  lives  for  fixed  assets,  primarily  consisting  of  computers,
equipment,  and  furniture  and  fixtures,  are  generally  between  three  to  seven  years.  Leasehold
improvements  are  amortized  over  the  shorter  of  their  estimated  economic  useful  lives  or  the  terms  of
the  leases.  The  costs  of  improvements  that  extend  the  life  of  a  fixed  asset  are  capitalized,  while  the
costs  of  repairs  and  maintenance  are  expensed  as  incurred.

The  Company  capitalizes  costs  related  to  computer  software  obtained  or  developed  for  internal

use.  Costs  incurred  in  the  application  development  phase  are  capitalized  and  amortized  over  their
useful  lives,  which  are  generally  three  to  five  years.

Debt  Financing  Costs

Direct  costs  incurred  with  obtaining  debt  financing  are  capitalized  or  recorded  as  a  reduction  of
the  underlying  debt.  The  costs  are  amortized  over  the  respective  term  of  the  underlying  debt  and  are
included  in  amortization  of  debt  financing  costs  in  the  accompanying  consolidated  statements  of
operations.

Business  Acquisitions

Business  acquisitions  are  accounted  for  in  accordance  with  ASC  Topic  805: Business  Combinations.
Business  acquisitions  are  accounted  for  by  allocating  the  purchase  price  consideration  to  the  fair  value
of  assets  acquired  and  liabilities  assumed.  Goodwill  is  recognized  as  the  excess  of  the  purchase  price
consideration  over  the  fair  value  of  net  assets  of  the  business  acquired.  All  transaction  costs  are
expensed  as  incurred.

The  Company  has  incorporated  contingent  consideration,  or  earn  out  provisions,  into  the  structure
of  its  business  acquisitions.  These  arrangements  may  result  in  the  payment  of  additional  purchase  price
consideration  to  the  sellers  based  on  the  growth  of  certain  financial  thresholds  for  periods  following  the
closing  of  the  respective  acquisition.  The  additional  purchase  price  consideration  is  payable  in  the  form
of cash and, in some cases, equity.

F-11

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)

The  Company  recognizes  the  fair  value  of  estimated  contingent  consideration  at  the  acquisition
date  as  part  of  the  consideration  transferred  in  exchange  for  the  acquired  business.  The  contingent
consideration  is  remeasured  to  fair  value  at  each  reporting  date  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  the  accompanying  consolidated  statements  of  operations.

The  results  of  the  acquired  businesses  have  been  included  in  the  Company’s  consolidated  financial

statements  from  the  respective  dates  of  acquisition.

Equity  Method  Investments

The  Company  applies  the  equity  method  of  accounting  to  investments  where  the  Company  has  the

ability  to  exercise  significant  influence  over  operating  and  financial  matters.  The  Company’s  equity
method  investments  are  recorded  in  prepaid  expenses  and  other  assets  in  the  consolidated  balance
sheets.

Goodwill,  Intangible  Assets  and  Other  Long-Lived  Assets

Goodwill  is  deemed  to  have  an  indefinite  useful  life  and  is  not  amortized.  Intangible  assets  are
amortized  over  their  respective  estimated  useful  lives.  The  Company  has  no  indefinite-lived  intangible
assets.

Goodwill  is  tested  annually  for  impairment  as  of  October  1,  or  more  frequently  if  events  and
circumstances  change  that  would  more  likely  than  not  reduce  the  fair  value  of  a  reporting  unit  below
its carrying amount. A two-step impairment  test is performed  on goodwill. In the first step, the
Company  compares  the  fair  value  of  each  reporting  unit  to  the  carrying  value  of  the  net  assets  of  the
reporting  unit.  The  fair  value  of  the  reporting  unit  is  determined  using  a  discounted  cash  flow
approach.  Under  this  approach,  management  uses  certain  assumptions  including,  but  not  limited  to,  a
risk-adjusted  rate  that  is  estimated  to  be  commensurate  with  the  risk  associated  with  the  underlying
cash  flows,  cash  flow  trends  from  prior  periods,  current-period  cash  flow,  and  management’s
expectation  of  future  cash  flows.  Expectations  of  future  cash  flows  are  based  on  projections  or  forecasts
derived  from  the  Company’s  understanding  of  the  relevant  business  prospects,  economic  or  market
trends,  and  regulatory  or  legislative  changes  which  may  occur.  If  the  fair  value  of  the  reporting  unit
exceeds  the  carrying  value  of  the  net  assets  of  the  reporting  unit  in  the  first  step,  no  further  testing  is
performed.  If  the  carrying  value  exceeds  the  fair  value  of  the  reporting  unit  in  the  first  step,  then  the
Company  performs  the  second  step  of  the  impairment  test  to  determine  the  implied  fair  value  of
goodwill  and  compares  the  implied  fair  value  of  goodwill  to  the  carrying  value  of  goodwill  to  determine
the  extent  of  the  impairment,  if  any.

In  March  2018,  the  Company  modified  the  manner  in  which  it  assesses  goodwill  for  impairment.

The  Company  has  determined  for  the  purpose  of  its  annual  goodwill  impairment  test  that  its  reporting
units  should  be  aggregated  into  one  reporting  unit.  The  Company’s  determination  was  based  on  the
Company’s  reporting  units  having  similar  economic  and  business  characteristics,  and  the  services
performed  by  the  reporting  units  are  wealth  management  related  and  that  the  reporting  units  are
subject  to a similar regulatory framework. The Company believes  that the resulting change in

F-12

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)

accounting  principle  related  to  the  reporting  unit  utilized  in  the  annual  goodwill  impairment  test  will
not  delay,  accelerate  or  avoid  an  impairment  charge.  The  Company  determined  that  the  change  in
accounting  principle  related  to  the  reporting  unit  used  in  the  Company’s  annual  impairment  test  is
appropriate  based  on  the  nature  of  the  Company’s  business.  The  change  would  not  have  had  an  impact
on  the  results  of  the  Company’s  impairment  test  for  2017.

Intangible  assets  and  other  long-lived  assets  are  reviewed  for  impairment  whenever  events  or

changes  in  circumstances  indicate  that  the  asset  might  be  impaired  or  that  the  estimated  useful  life
should  be  changed  prospectively.  If  impairment  indicators  are  present,  the  recoverability  of  these  assets
is measured by a comparison of the carrying amount of the asset to estimated undiscounted future  cash
flows  expected  to  be  generated  by  the  asset.  If  the  carrying  amount  of  the  asset  exceeds  its  estimated
undiscounted  future  cash  flows,  an  impairment  charge  is  recognized  by  the  amount  by  which  the
carrying  amount  of  the  asset  exceeds  the  fair  value  of  the  asset,  which  is  determined  using  a  discounted
cash  flow  approach.

Fair Value of Financial Instruments

The  carrying  amounts  of  substantially  all  of  the  Company’s  financial  assets  and  liabilities  are
considered  to  approximate  their  fair  values  because  of  their  short-term  nature.  The  carrying  amount  of
revolver borrowings under the Credit Facility (as  defined  below) approximates fair  value, as  the debt
bears  interest  at  selected  short-term  variable  market  rates.  The  Company  measures  the  implied  fair
value of its First Lien Term Loan (as defined below)  and Second Lien Term Loan (as defined below)
using  trading levels obtained from a third-party service  provider;  accordingly,  these  borrowings  are
classified within Level 2 of the valuation  hierarchy. See Note  8 for further  information regarding the
Company’s  fair  value  measurements.

Income  Taxes

In connection with the IPO and Reorganization Transactions, Focus Inc. became a holding

company whose sole material asset is a membership interest in Focus LLC, and, as a  result, Focus Inc.
became  subject to U.S. federal, state and local income taxes on Focus Inc.’s  allocable  portion of taxable
income from Focus LLC. Focus LLC  is treated as  a partnership  for U.S. federal  income  tax purposes.
Accordingly, 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 and certain of its subsidiaries have been subject to U.S.  federal  and certain state and local
or  foreign  income  taxes.  Instead,  for  U.S.  federal  and  certain  state  income  tax  purposes,  the  income,
deductions, losses and credits of Focus LLC are passed through to its unitholders, which after the IPO
includes Focus Inc. Focus LLC has historically  made tax  distribution  payments in  accordance  with its
Third Amended and Restated Operating  Agreement,  which was replaced  by  the Operating Agreement
on July 30, 2018, and Focus Inc. intends to cause Focus LLC  to  continue to make tax distribution
payments,  to  the  extent  of  available  cash,  in  accordance  with  the  Operating  Agreement.  Focus  Inc.  files
income  tax  returns  with  the  U.S.  federal  government  as  well  as  various  state  and  local  jurisdictions.

F-13

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)

The  asset  and  liability  method  is  applied  for  deferred  income  taxes.  Deferred  tax  assets  and
liabilities  are  recognized  for  future  tax  consequences  attributable  to  differences  between  the  financial
statement  carrying  amounts  of  existing  assets  and  liabilities  and  their  respective  tax  basis.  Deferred  tax
assets  and  liabilities  are  measured  using  tax  rates  expected  to  apply  to  taxable  income  in  years  in  which
those  temporary  differences  are  expected  to  be  recovered  or  settled.  Valuation  allowances,  if  any,  are
recorded  to  reduce  the  deferred  tax  assets  to  an  amount  that  is  more  likely  than  not  to  be  realized.

The  Company  reviews  and  evaluates  tax  positions  in  its  major  tax  jurisdictions  and  determines
whether  or  not  there  are  uncertain  tax  positions  that  require  financial  statement  recognition.  Based  on
this  review,  no  reserves  for  uncertain  tax  positions  were  recorded  at  December  31,  2017  and
December  31,  2018.

Segment  Reporting

Management  has  determined  that  the  Company  operates  in  one  operating  segment,  as  a  wealth
management  focused  organization,  which  is  consistent  with  its  structure  and  how  the  Company  manages
the  business.  The  Company’s  acquired  businesses  have  similar  economic  and  business  characteristics.
The  services  provided  are  wealth  management  related  and  the  Company’s  businesses  are  subject  to  a
similar regulatory framework. Furthermore,  the Company’s Chief Operating  Decision  Maker,  which is
the  Company’s  Chief  Executive  Officer,  monitors  and  reviews  financial  information  at  a  consolidated
level  for  assessing  operating  results  and  the  allocation  of  resources.

Translation of Non-U.S. Currency Amounts

Assets  and  liabilities  of  non-U.S.  subsidiaries  and  equity  method  investments  that  have  a  foreign
currency  as  their  functional  currency  are  re-measured  to  U.S.  dollars  at  year-end  exchange  rates  and
revenues  and  expenses  are  re-measured  at  average  rates  of  exchange  prevailing  during  the  year.  The
resulting  translation  adjustments  are  recorded  in  accumulated  other  comprehensive  income  (loss).
Gains  or  losses  resulting  from  foreign  currency  transactions  are  included  in  other  (expense)  income—
net  in  the  consolidated  statements  of  operations.

Consolidation  Considerations

ASC Topic 810, Consolidations, requires an entity  to  perform a qualitative analysis to determine
whether its variable interests give it a  controlling financial interest in a variable interest entity (‘‘VIE’’).
Under the standard, an enterprise has a  controlling financial interest when it has (a) the power to
direct the activities of a VIE that most  significantly impact  the entity’s economic  performance and
(b)  the  obligation  to  absorb  losses  of  the  entity  or  the  right  to  receive  benefits  from  the  entity  that
could  potentially  be  significant  to  the  VIE.  An  enterprise  that  holds  a  controlling  financial  interest  is
deemed  to  be  the  primary  beneficiary  and  is  required  to  consolidate  the  VIE.

Certain  of  the  Company’s  subsidiaries  have  Management  Agreements  with  the  respective
Management  Company,  which  causes  these  Company  subsidiaries  to  be  VIEs.  The  Company  has
assessed  whether  or  not  it  is  the  primary  beneficiary  for  these  subsidiaries  and  has  concluded  that  it  is
the primary beneficiary. Accordingly,  the results  of  these  subsidiaries  have been consolidated.

F-14

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)

Certain  of  the  Company’s  subsidiaries  have  variable  interests  in  certain  investment  funds  that  are
deemed  voting  interest  entities.  Due  to  substantive  kick-out  rights  possessed  by  the  limited  partners  of
these  funds,  the  Company  does  not  consolidate  the  investment  funds.

From time to time, the Company enters into option  agreements with  wealth  management
businesses  (the  ‘‘Optionee’’).  In  exchange  for  payment  of  an  option  premium,  the  option  agreement
allows  the  Company,  at  its  sole  discretion,  to  acquire  the  Optionee  at  a  predetermined  time  and  at  a
predetermined  purchase  price  formula.  If  the  Company  chooses  to  exercise  its  option  to  acquire  the
Optionee,  the  acquisition  and  the  corresponding  Management  Agreement  would  be  executed  in
accordance  with  the  Company’s  typical  acquisition  structure  as  discussed  in  Note  1.  If  the  Company
chooses  not  to  exercise  the  option,  the  option  premium  would  be  recorded  as  a  loss  on  investment  in
the  consolidated  statements  of  operations  in  the  period  that  the  option  expires.  Option  premiums  paid
by  the  Company  of  $1,833  and  $4,300  are  included  in  prepaid  expenses  and  other  assets  in  the
consolidated  balance  sheets  as  of  December  31,  2017  and  2018,  respectively.  The  Company  has
determined  that  the  respective  option  agreements  with  the  Optionees  qualify  the  Optionees  as  VIEs.
The  Company  has  determined  that  it  is  not  the  primary  beneficiary  of  the  Optionees  and  does  not
consolidate  the  results  of  the  Optionees.

Stock  Based  Compensation  Costs

Compensation  cost  for  unit  and  stock  based  awards  is  measured  based  on  the  fair  value  of  the  unit

and  stock  based  awards  determined  by  the  Black-Scholes  option  pricing  model  or  the  Monte  Carlo
Simulation  Model  on  the  date  that  the  unit  and  stock  based  awards  are  issued  or  modified,  and  is
adjusted  for  the  estimated  number  of  awards  that  are  expected  to  be  forfeited.  The  compensation  cost
is recognized on a straight-line basis over the requisite service period.  Non-cash compensation expense,
associated  with  employees  and  non-employees,  including  principals  in  the  management  companies,  is
included  in  compensation  and  related  expenses  in  the  consolidated  statements  of  operations.  The
Company  estimates  forfeitures  at  the  time  of  the  respective  grant  and  revises  those  estimates  in
subsequent  periods  if  actual  forfeitures  differ  materially  from  those  estimates.  The  Company  uses
historical  data  to  estimate  forfeitures  and  records  non-cash  equity  compensation  expense  only  for  those
awards  that  are  expected  to  vest.

Leases

The  Company  leases  office  space  in  various  locations  under  noncancelable  lease  agreements.  Many

of  these  lease  agreements  provide  for  tenant  improvement  allowances,  rent  increases,  and/or  rent-free
periods. Rent expense is recognized on a straight-line basis  commencing with  the possession date of the
property,  which  is  typically  the  earlier  of  the  lease  commencement  date  or  the  date  when  the  Company
takes possession of the property. Rent expense is included in  selling, general and administrative
expenses  in  the  consolidated  statements  of  operations.

F-15

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (‘‘FASB’’) issued Accounting  Standards
Update (‘‘ASU’’) No. 2014-09, ‘‘Revenue from  Contracts  with Customers’’, which  requires an entity to
recognize  the  amount  of  revenue  to  which  it  expects  to  be  entitled  for  the  transfer  of  promised  goods
or services to customers. In August 2015,  the FASB issued ASU  No. 2015-14,  ‘‘Revenue from Contracts
with Customers (Topic 606): Deferral of Effective  Date.’’ ASU No. 2015-14  defers  the effective date  of
ASU No. 2014-09  by one year for public companies.  ASU  2015-14  applies to annual reporting periods
beginning  after  December  15,  2017,  including  interim  reporting  periods  within  that  reporting  period.
ASU No. 2014-09  replaced most existing  revenue recognition guidance  in U.S.  GAAP  when it became
effective  for  the  Company  on  January  1,  2018.  The  standard  permits  the  use  of  either  the  retrospective
or  modified  retrospective  transition  method.  Additionally,  ASU  No.  2014-09  requires  enhanced
disclosures,  including  revenue  recognition  policies  to  identify  performance  obligations  to  customers  and
significant  judgments  in  measurement  and  recognition.  The  Company  adopted  ASU  No.  2014-09  using
the retrospective transition method. The adoption  of  ASU  No. 2014-09 did not have a material effect
on  the  Company’s  consolidated  financial  statements  because  there  were  no  changes  to  the  Company’s
recognition  of  revenues  or  presentation  of  revenues  in  the  consolidated  statements  of  operations.

In January 2016, the FASB issued ASU No. 2016-01,  ‘‘Financial Instruments—Overall

(Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial  Liabilities’’. The
amendments  in  this  update  address  certain  aspects  of  recognition,  measurement,  presentation  and
disclosure of financial instruments. ASU  2016-01 was effective  for  the Company beginning January  1,
2018. The adoption of ASU No. 2016-01 did not have a material effect on the Company’s consolidated
financial  statements.

In February 2016, the FASB issued ASU  No. 2016-02, ‘‘Leases  (Topic  842)’’  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 is effective for the Company for interim and
annual  periods  beginning  January  1,  2019  and  early  adoption  is  permitted.  The  Company  will  adopt
ASU No. 2016-02  effective January 1, 2019 using a modified  retrospective method  and will not restate
comparative  periods.  As  permitted  under  the  transition  guidance,  the  assessment  of  whether  contracts
contain a lease or are leases, classification of leases and remaining lease terms will  be  carried  forward.
Based  on  the  portfolio  of  leases  as  of  December  31,  2018,  the  Company  estimates  that  approximately
$146  million  of  lease  assets  and  liabilities  will  be  recognized  on  the  balance  sheet  upon  adoption,
primarily  related  to  operating  leases  for  real  estate.  The  actual  impact  may  differ  from  this  estimate.
The Company does not expect a 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.

In March 2016, the FASB issued ASU No. 2016-09,  ‘‘Improvements  to  Employee  Share-Based

Payment Accounting, which amends ASC Topic 718, Stock  Compensation’’.  The  objective  of  this
amendment is part of the FASB’s Simplification Initiative as it applies  to  several aspects of the

F-16

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)

accounting  for  share-based  payment  transactions,  including  the  income  tax  consequences,  classification
of  awards  as  either  equity  or  liabilities,  and  classification  on  the  statement  of  cash  flows.  ASU
No.  2016-09  was  effective  for  the  Company  on  January  1,  2017.  The  adoption  of  ASU  No.  2016-09  did
not have a material effect on the Company’s  consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15,  ‘‘Statement  of  Cash  Flows  (Topic  230):
Classification  of  Certain  Cash  Receipts  and  Cash  Payments’’. ASU No. 2016-15 made eight targeted
changes  to  how  cash  receipts  and  cash  payments  are  presented  and  classified  in  the  statement  of  cash
flows. The Company adopted ASU No. 2016-15 on  January 1,  2017. The adoption of ASU No. 2016-15
did not have a material effect on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01,  ‘‘Business  Combinations  (Topic  805)  Clarifying  the

Definition  of  a  Business’’, which amends the guidance of FASB Accounting Standards Codification
Topic 805, ‘‘Business  Combinations’’,  adding  guidance  to  assist  entities  with  evaluating  whether
transactions  should  be  accounted  for  as  acquisitions  or  disposals  of  assets  or  businesses.  The  definition
of a business affects many areas of accounting including acquisitions, disposals, goodwill, and
consolidation. ASU No. 2017-01 was effective for the Company prospectively on January 1, 2018. The
adoption of ASU No. 2017-01 did not have  a material effect on  the Company’s consolidated financial
statements.

In January 2017, the FASB issued ASU No. 2017-04,  ‘‘Simplifying  the  Test  for  Goodwill

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

In May 2017, the FASB issued ASU  No.  2017-09, ‘‘Compensation—Stock  Compensation

(Topic 718): Scope of Modification Accounting’’. ASU No. 2017-09 provides  guidance that clarifies when
changes to the terms or conditions of  a share-based payment award require the  application  of
modification accounting under ASC 718. ASU No. 2017-09 allows for certain changes to be made to
awards  without  accounting  for  them  as  modifications.  The  Company  early  adopted  ASU  No.  2017-09
during the year ended December 31, 2017. The adoption of ASU No.  2017-09  did not have a material
effect  on  the  Company’s  consolidated  financial  statements.

In June 2018, the FASB issued ASU No. 2018-07, ‘‘Improvements  to  Nonemployee  Share-Based

Payment Accounting,’’  which  simplifies  the  accounting  for  share-based  payments  to  nonemployees  by
aligning  it  with  the  accounting  for  share-based  payments  to  employees,  with  certain  exceptions.  ASU
No.  2018-07  is  effective  for  fiscal  years  beginning  after  December  15,  2018,  including  interim  periods
within  that  fiscal  year,  with  early  adoption  permitted  after  adoption  of  ASU  No.  2014-09.  The  adoption
of ASU  No. 2018-07 is not expected  to have a material  effect on the Company’s  consolidated  financial
statements.

F-17

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)

Subsequent  Events

The Company has conducted a review for  and evaluated subsequent events  from January 1, 2019

through  March 28,  2019,  the  date  the  consolidated  financial  statements  were  available  to  be  issued.
Refer to Note 5 for further information  regarding subsequent  events.

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, (the
‘‘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.

The  following  steps  were  implemented  in  connection  with  the  Reorganization  Transactions:

• Focus LLC purchased, utilizing existing working capital, all common units held  by  Existing
Owners  who  were  non-accredited  investors,  as  defined  by  Rule  501  of  Regulation  D,  at  a
purchase  price  per  unit  equal  to  1.25  times  the  IPO  price  of  $33.00  per  share  (‘‘Gross  IPO
Price’’). Focus LLC accelerated the vesting of  all unvested incentive units held  by  Existing
Owners  who  were  non-accredited  investors  and  converted  the  incentive  units  of  each  such  holder
into a number of common units equal  to  (i) the number of such incentive units  times the  Gross
IPO Price, minus the aggregate hurdle amount of such incentive units, divided  by  (ii) the Gross
IPO Price (the ‘‘Appropriate Conversion Number’’). Focus LLC then purchased all common
units issued upon such conversion at a  purchase  price per unit equal  to  1.25 times the Gross
IPO Price. Focus LLC paid a total of $26,001  to  Existing  Owners who  were non-accredited
investors.

• Existing Owners who were accredited investors and held  fewer than  85,000 common units  and

incentive  units  in  the  aggregate  are  referred  to  as  ‘‘Mandatorily  Exchanging  Owners.’’
Focus LLC converted all vested and unvested incentive units of Mandatorily  Exchanging Owners
into  the  Appropriate  Conversion  Number  of  vested  and  unvested  common  units,  respectively.
Mandatorily  Exchanging  Owners  were  given  an  election  to  sell  up  to  100%  of  their  vested

F-18

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

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

common  units  (after  giving  effect  to  such  conversion)  to  the  Company  at  the  Gross  IPO  Price
less the underwriting discount (the ‘‘Net IPO Price’’), subject  to  cut-backs depending on the
proceeds  available  from  the  IPO.  The  vested  and  unvested  common  units  of  a  Mandatorily
Exchanging  Owner  not  sold  were  exchanged  for  an  equal  number  of  shares  of  vested  Class  A
common stock and unvested Class A common  stock of  the Company. Mandatorily Exchanging
Owners  of  vested  common  units  issued  upon  conversion  of  vested  incentive  units  and  not  sold
received  (i)  vested  non-compensatory  stock  options  of  the  Company  to  purchase  a  number  of
shares of Class A common stock of the Company equal  to (A)  the  number of vested incentive
units  that  were  converted  into  such  vested  common  units  minus  (B)  the  number  of  shares  of
vested Class A common stock issued in  such  exchange and  (ii) cash in an amount equal to 65%
of  the  fair  market  value  of  such  non-compensatory  stock  options.  Mandatorily  Exchanging
Owners  of  unvested  common  units  issued  upon  conversion  of  unvested  incentive  units  and  not
sold  received  unvested  compensatory  stock  options  of  the  Company  to  purchase  a  number  of
shares of Class A common stock of the Company equal  to (i) the  number of unvested incentive
units  that  were  converted  into  such  unvested  common  units  minus  (ii)  the  number  of  shares  of
unvested Class A common stock issued in such exchange.

• Existing Owners who were accredited investors and held  85,000 or more common  units and
incentive  units  in  the  aggregate  were  given  an  election  to  sell  up  to  100%  of  their  vested
common  units  and  vested  incentive  units  (after  conversion  into  the  Appropriate  Conversion
Number  of  common  units)  to  the  Company  at  the  Net  IPO  Price,  subject  to  cut-backs  depending
on  the  proceeds  available  from  the  IPO.  These  Existing  Owners  were  also  given  an  election  to
exchange all or a portion of their remaining  common units and incentive units for vested and
unvested Class A common stock of the Company. These  Existing  Owners continue  to  hold  their
common units and incentive units of  Focus LLC remaining after any such sale or exchange.

• All outstanding Convertible Preferred Units were converted  into common  units on  a one-for-one
basis.  The  common  units  held  by  certain  affiliates  of  the  Company’s private  equity  investors  were
distributed  to  their  owners,  some  of  which  were  entities  treated  as  corporations  for  U.S.  federal
income  tax  purposes,  which  are  referred  to  as  ‘‘blockers.’’  Each  blocker  then  merged  with  a
separate newly formed subsidiary of Focus Inc., with the  blocker  as the surviving entity. Each
owner  of  each  blocker  received  consideration  in  the  merger  equal  to  one  share  of  Class A
common  stock  for  each  common  unit  held.  Certain  of  the  common  units  not  held  by  blockers
were exchanged for shares of Class A common stock  of the Company.

Existing Owners who hold common units of Focus LLC after the Reorganization Transactions

(‘‘continuing owners’’) 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 B common stock  entitles its holder  to  one  vote.

In connection with the Reorganization Transactions, the Company issued an aggregate of

23,881,002 shares of Class A common stock,  non-compensatory  stock options  to  purchase  an aggregate

F-19

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

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

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.  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.

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  $11,137  of  the  net  proceeds  to  pay  Mandatorily
Exchanging Owners who elected to sell their units of Focus  LLC and  $24,400 to pay other 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  remaining  $137,088  of  such  contribution  was  used  by  Focus  LLC  for  acquisitions
and  general  corporate  business  purposes.

4.  NON-CONTROLLING  INTERESTS  AND  LOSS  PER  SHARE

Historical  loss  per  share  information  is  not  applicable  for  reporting  periods  prior  to  the

consummation  of  the  IPO.  Net  loss  attributable  to  common  shareholders  is  the  net  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  December  31,  2018:

Focus LLC common units held by continuing  owners . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common  unit  equivalents  of  outstanding  vested  and  unvested  incentive  units  held  by

22,823,272

continuing  owners(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,139,653

Total common units and common unit equivalents attributable to non-controlling interest
.
Total common units and common unit equivalents of incentive units outstanding . . . . . . . .
Non-controlling  interest  allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company’s  interest  in  Focus  LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

27,962,925
74,228,828

37.7%
62.3%

(1) Focus LLC common units issuable  upon conversion of 18,597,474 (see  Note 10) 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.

F-20

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

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

The below table contains a reconciliation of net loss  to  net loss  attributable to common

shareholders  for  the  year  ended  December  31,  2018:

Net  loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to members  of Focus LLC (for  the respective  period

$(41,087)

through  the  IPO) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non  controlling  interest  subsequent  to  the  IPO . . . . . . . . . . . . . . . . . . . .

47,821
(7,324)

Net  loss  attributable  to  common  shareholders . . . . . . . . . . . . . . . . . . . . .

$

(590)

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

Basic  loss  per  share  is  calculated  utilizing  net  loss  attributable  to  common  shareholders  from
July  30,  2018  through  December  31,  2018  divided  by  the  weighted  average  number  of  shares  of  Class  A
common  stock  outstanding  during  the  same  period:

Period July 30, 2018
through
December 31, 2018

Basic  loss  per  share:
Net  loss  attributable  to  common  shareholders . . . . . . . . . . . . . . .
Weighted average shares of Class A common  stock  outstanding . .
Basic  loss  per  share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

(590)
43,122,782
(0.01)

Diluted  loss  per  share  is  calculated  utilizing  net  loss  attributable  to  common  shareholders  from
July  30,  2018  through  December  31,  2018  divided  by  the  weighted  average  number  of  shares  of  Class  A
common  stock  outstanding  during  the  same  period  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.

Period July 30, 2018
through
December 31, 2018

Diluted  loss  per  share:
Net  loss  attributable  to  common  shareholders . . . . . . . . . . . . . . .
Weighted average shares of Class A common  stock  outstanding . .
Effect  of  dilutive  stock  options . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect  of  dilutive  unvested  Class  A  common  stock . . . . . . . . . . . .

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted  loss  per  share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

(590)
43,122,782
—
—

43,122,782
(0.01)

$

Diluted  loss  per  share  excludes  incremental  shares  of  52,555  and  49,994  related  to  time-based
stock options and unvested Class A common stock, respectively, since  the effect would be antidilutive.
Diluted  loss  per  share  also  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

F-21

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

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

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  December  31,  2018.

5. ACQUISITIONS

Business  Acquisitions

The  purchase  price  associated  with  business  acquisitions  and  the  allocation  thereof  during  the

years  ended  December  31,  2016,  2017  and  2018,  is  summarized  as  follows:

Number  of  business  acquisitions  closed . . . . . . . . . . . . . . . . . . . . . . .
Consideration:

Cash  due  at  closing  and  option  premium . . . . . . . . . . . . . . . . . . . .
Cash  due  subsequent  to  closing  at  net  present  value  and  estimated

working  capital  adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair market value of Focus LLC common  units issued . . . . . . . . . .
Fair market value of Class A common stock issued . . . . . . . . . . . .
Fair market value of estimated contingent consideration . . . . . . . . .

2016

2017

2018

12

23

19

$163,067

$362,524

$408,478

1,379
43,788
—
12,620

188
64,728

39,134
51,456
— 112,461
42,086

37,551

Total consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$220,854

$464,991

$653,615

Allocation  of  purchase  price:

Total tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer  relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management  contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other  intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 3,033
(517)
119,850
12,917
85,455
116

$

6,095
(12,273)
244,289
27,890
198,546
444

$ 14,817
(34,411)
294,785
30,080
347,496
848

Total allocated consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$220,854

$464,991

$653,615

A portion of the cash due at closing  for one of the Company’s 2018 business acquisitions was

placed  in  escrow  for  the  satisfaction  of  certain  indemnifications  and  other  related  items,  if  any.

Management  believes  approximately  $337,743  of  tax  goodwill  and  intangibles  related  to  2018

business  acquisitions  will  be  deductible  for  tax  purposes.  Additional  tax  goodwill  may  be  deductible
when  estimated  contingent  consideration  is  earned  and  paid.

The  accompanying  consolidated  statement  of  operations  for  the  year  ended  December  31,  2018
includes  revenue  and  income  from  operations  for  business  acquisitions  that  are  new  subsidiary  partner
firms  from  the  date  they  were  acquired  of  $105,682  and  $15,907,  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

F-22

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

5.  ACQUISITIONS  (Continued)

pursuant to ASC Topic 805, Business  Combinations. The Company  completed six,  two and six  asset
acquisitions  during  the  years  ended  December  31,  2016,  2017  and  2018,  respectively.  Total  purchase
consideration  for  asset  acquisitions  during  the  year  ended  December  31,  2016  was  $7,336  consisting  of
$6,324  in  cash  and  $1,012  in  restricted  common  unit  consideration.  Total  purchase  consideration  for
asset  acquisitions  during  the  year  ended  December  31,  2017  was  $0.  Total  purchase  consideration,
inclusive  of  transaction  costs,  for  asset  acquisitions  during  the  year  ended  December  31,  2018  was
$4,577  in  cash  and  installment  payments.  Certain  asset  acquisitions  include  contingent  consideration
provisions.  The  Company  records  the  contingent  consideration  as  additional  purchase  consideration
when  the  outcome  of  the  contingency  is  determinable.  During  the  years  ended  December  31,  2016,
2017  and  2018,  the  Company  paid  $3,396,  $7,713  and  $2,007,  respectively,  of  additional  purchase  price
consideration  related  to  asset  acquisitions.

Intangible  assets  acquired  in  asset  acquisitions  for  the  years  ended  December  31,  2016,  2017  and

2018  were  as  follows:

2016

2017

2018

Customer  relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other  intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$6,969

$— $4,352
225

367 —

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$7,336

$— $4,577

The  weighted-average  useful  life  of  intangibles  acquired  during  the  years  ended  December  31,

2016,  2017  and  2018  through  business  acquisitions  and  asset  acquisitions  are  as  follows:

(in years)

2016

2017

2018

Management  contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer  relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other  intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average useful life of all intangibles acquired . . . . . . . .

19
10
5
11

19
10
5
11

20
10
5
11

In May 2016, the Company purchased a minority  equity interest in a wealth management firm in

Australia for approximately $11,500 in  cash that is accounted for using the equity  method of
accounting.  This  equity  method  investment  is  included  in  prepaid  expenses  and  other  assets  in  the
consolidated  balance  sheets.

In June 2018, the Company purchased a minority equity interest in a technology firm in  the

United  States  for  approximately  $20,000  in  cash  that  is  accounted  for  using  the  cost  method  of
accounting.  This  cost  method  investment  is  included  in  prepaid  expenses  and  other  assets  in  the
consolidated  balance  sheet  as  of  December 31,  2018.

From January 1, 2019, to March 28,  2019, the  Company completed  wealth  management business

acquisitions  for  cash  consideration  of  $204,030,  plus  contingent  consideration.

F-23

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

6.  GOODWILL  AND  OTHER  INTANGIBLE  ASSETS

The  following  table  summarizes  the  change  in  the  goodwill  balances  for  the  years  ended

December  31,  2016,  2017  and  2018:

Balance  as  of  January  1:

Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative  impairment  losses . . . . . . . . . . . . . .

$255,062
(22,624)

$339,129
(22,624)

$538,113
(22,624)

2016

2017

2018

Goodwill  acquired . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

85,455
(1,388)

198,546
438

347,496
(2,490)

232,438

316,505

515,489

Balance  as  of  December  31:

Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative  impairment  losses . . . . . . . . . . . . . .

339,129
(22,624)

538,113
(22,624)

883,119
(22,624)

$316,505

$515,489

$860,495

84,067

198,984

345,006

There  were  no  goodwill  impairment  losses  during  the  years  ended  December  31,  2016,  2017  and

2018.

The  following  table  summarizes  the  amortizing  acquired  intangible  assets  at  December  31,  2017:

Gross Carry
Amount

Accumulated
Amortization

Net Book
Value

Customer  relationships . . . . . . . . . . . . . . . . . . .
Management  contracts . . . . . . . . . . . . . . . . . . .
Other  intangibles . . . . . . . . . . . . . . . . . . . . . . .

$713,966
103,316
3,436

$(270,629)
(25,976)
(1,831)

$443,337
77,340
1,605

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$820,718

$(298,436)

$522,282

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

Gross Carry
Amount

Accumulated
Amortization

Net Book
Value

Customer  relationships . . . . . . . . . . . . . . . . . .
Management  contracts . . . . . . . . . . . . . . . . . . .
Other  intangibles . . . . . . . . . . . . . . . . . . . . . . .

$1,008,186
133,112
4,402

$(349,125)
(31,911)
(2,469)

$659,061
101,201
1,933

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,145,700

$(383,505)

$762,195

Management  contracts  and  other  intangibles  are  amortized  on  a  straight-line  basis  over  their

estimated useful lives ranging from 2 to 20 years. Customer relationships are amortized on a
straight-line  basis  over  their  estimated  useful  lives  of  4  to  10  years.

F-24

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

6.  GOODWILL  AND  OTHER  INTANGIBLE  ASSETS  (Continued)

Estimated  amortization  expense  for  each  of  the  next  five  years  is  as  follows:

Years Ending December 31,

2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount

$99,679
94,469
91,828
87,214
79,427

7.  FIXED  ASSETS

Fixed  assets  consist  of  the  following  at  December  31,  2017  and  2018:

Computers,  software  development  and  equipment . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 24,351
18,798
10,304

$ 31,172
20,710
12,405

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . .

53,453
(32,056)

64,287
(39,507)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 21,397

$ 24,780

2017

2018

8. 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.

F-25

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

8. FAIR VALUE MEASUREMENTS (Continued)

The implied fair value of the Company’s  First Lien Term Loan (as defined below)  and Second
Lien Term Loan (as defined below) based on Level 2 inputs is as follows as of  December 31,  2017 and
2018:

2017

2018

Stated
Value

Fair
Value

Stated
Value

Fair
Value

First Lien Term Loan . . . . . . . . . . . . . .
Second  Lien  Term  Loan . . . . . . . . . . . .

$793,012
207,000

$799,952
208,811

$798,985
—

$773,018
—

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  years  ended  December  31,  2017  and  2018:

Balance  at  January  1,

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to estimated contingent consideration . . . . . . . . . .
Payments of contingent consideration . . . . . . . . . . . . . . . . . .
Non-cash  changes  in  fair  value  of  estimated  contingent

2017

2018

$26,188
37,551
(9,435)

$ 76,677
42,086
(26,237)

consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

22,294
79

6,638
(259)

Balance  at  December  31, . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$76,677

$ 98,905

Estimated  contingent  consideration  is  included  in  other  liabilities  in  the  accompanying  consolidated

balance  sheets.

During  the  year  ended  December  31,  2017,  the  Company  paid  $9,222  in  cash  and  issued  $213  of
restricted  common  units  as  contingent  consideration  associated  with  business  acquisitions.  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.

In  determining  fair  value  of  the  estimated  contingent  consideration,  the  acquired  business’s  future

performance  is  estimated  using  financial  projections  for  the  acquired  businesses.  These  financial
projections,  as  well  as  alternative  scenarios  of  financial  performance,  are  measured  against  the
performance  targets  specified  in  each  respective  acquisition  agreement.  Historically,  the  fair  value  of
the  Company’s  estimated  contingent  consideration  was  established  using  the  probability  weighted-
expected  return  method.  The  Company  currently  uses  the  Monte  Carlo  Simulation  Model  to  determine
the  fair  value  of  the  Company’s  estimated  contingent  consideration.  This  approach  is  deemed  more
appropriate  based  on  the  non-linear  nature  of  the  Company’s  contingent  consideration  arrangements
consistent  with  current  valuation  practices.

F-26

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

8. FAIR VALUE MEASUREMENTS (Continued)

The  significant  unobservable  input  used  in  the  fair  value  measurement  of  the  Company’s  estimated

contingent  consideration  is  the  forecasted  growth  rates  over  the  measurement  period.  Significant
increases  or  decreases  in  the  Company’s  forecasted  growth  rates  over  the  measurement  would  result  in
a higher or lower fair value measurement.

Inputs  used  in  the  fair  value  measurement  of  estimated  contingent  consideration  at  December  31,

2017  and  2018  are  summarized  below:

Quantitative Information About Level 3
Fair Value Measurements

Fair Value at
December 31, 2017

$76,677

Valuation
Techniques

Unobservable
Input

Monte Carlo
Simulation  Model

Forecasted growth
rates

Range

(0.8)% - 24.9%

Quantitative Information About Level 3
Fair Value Measurements

Fair Value at
December 31, 2018

$98,905

Valuation
Techniques

Unobservable
Input

Monte Carlo
Simulation  Model

Forecasted growth
rates

Range

(16.2)% - 18.7%

9.  CREDIT  FACILITY

As of December 31, 2016, Focus LLC had a credit facility of approximately $1,067,000 consisting
of  term  and  revolving  loans,  inclusive  of  an  accordion  feature  of  $255,000  (the  ‘‘Old  Credit  Facility’’).
The Old Credit Facility had a June 2020 maturity  date.

In July 2017, Focus LLC entered into new credit  facilities (collectively,  the  ‘‘Credit  Facility’’). The

Credit  Facility initially consisted of a  $795,000 first lien term  loan (the ‘‘First Lien  Term Loan’’), a
$250,000 first lien revolving credit facility (the ‘‘First Lien  Revolver’’), and a $207,000  second  lien term
loan (the ‘‘Second Lien Term Loan’’).  In connection with the Credit  Facility, Focus LLC  repaid all
amounts outstanding under the Old Credit Facility  with the proceeds  from the Credit Facility and  wrote
off all deferred financing costs related  to  the Old Credit Facility  resulting in  a $8,106 loss on
extinguishment  of  borrowings  during  the  year  ended  December  31,  2017.

The First Lien Term Loan has a maturity date of July  2024  and  initially required quarterly
installment repayments of $1,988. The  First Lien Term Loan was issued at a discount  of 0.125% or
$994 that Focus LLC is amortizing to  interest expense over  the term  of the First  Lien Term Loan. The
First  Lien Revolver initially had a maturity date of July 2022  and has no  required quarterly  installment
repayments. Up to $30,000 of the First  Lien Revolver is available  for the issuance of letters of credit,
subject to certain limitations. The First Lien Term  Loan  (up to January 2018 as noted below) and  First
Lien Revolver bore interest (at Focus LLC’s option) at: (i) LIBOR plus  a margin  of  3.25% with  the
First  Lien Revolver having step downs  to  3.00% and 2.75%  based on achievement of  a specified First
Lien Leverage Ratio (as defined below) or,  (ii) the  lender’s Base  Rate  (as defined  in the Credit

F-27

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

9. CREDIT FACILITY (Continued)

Facility) plus a margin of 2.25% with  the First  Lien Revolver  having step downs to 2.00%  and 1.75%
based on  achievement of a specified First  Lien Leverage Ratio.  The Credit Facility also  included an
unused  commitment  fee  of  0.50%  of  the  outstanding  commitments  under  the  First  Lien  Revolver,  with
a stepdown to 0.375% based on achievement of  a specified First Lien Leverage Ratio.

In January 2018, Focus LLC amended its First  Lien Term Loan to reduce its interest rate to
LIBOR plus a margin of 2.75% or the lender’s Base  Rate plus  a margin of  1.75%. As  a result of the
amendment, Focus LLC recognized in  January 2018  a loss on extinguishment  of  borrowings of $14,011,
representing  the  write-off  of  $13,094  and  $917  in  deferred  financing  costs  and  unamortized  discount
related to the First Lien Term Loan, respectively.

In April 2018, Focus LLC expanded its First  Lien Term Loan by $200,000 and incurred  $1,347 in

debt  financing  costs.  In  addition,  the  quarterly  installment  repayments  increased  to  $2,490  beginning  in
June  2018.

The Second Lien Term Loan had a maturity date of July 2025 and bore  interest (at  Focus LLC’s
option) at: (i) LIBOR plus a margin of  7.50% or (ii) the  lender’s Base  Rate  plus a margin  of 6.50%.
The Second Lien Term Loan had no  required installment  repayments due prior to the maturity date.
The Second Lien Term Loan was issued at a discount of 1.00% or $2,070  that  Focus LLC amortized to
interest expense over the term of the Second  Lien Term Loan. The Second Lien  Term Loan required a
prepayment  penalty  of  1.00%  of  the  then  outstanding  principal  amount  of  the  Second  Lien  Term  Loan
if  prepaid  prior  to  July  2019.

In June 2018, Focus LLC entered into  an amendment to the  Credit Facility  that  became effective

upon closing of the IPO. The First Lien  Term Loan  was reduced to $803,000  and was  amended to
reduce Focus LLC’s interest rate to LIBOR plus a margin of 2.50% or  the  lender’s Base Rate  plus a
margin  of  1.50%,  effective  in  July  2018  upon  obtaining  certain  credit  ratings.  The  First  Lien  Revolver
was amended to increase Focus LLC’s borrowing capacity to  $650,000 and extend the maturity  date to
5 years from July 30, 2018. The First Lien Revolver was also amended such that it 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. The
First Lien Term Loan also requires a  prepayment penalty of 1% of the then outstanding  principal
amount of the First Lien Term Loan  if repaid  prior to January  2019. The Credit Facility was also
amended to require quarterly First Lien Term  Loan installment repayments of approximately $2,007
and  for Focus LLC to maintain a First  Lien Leverage Ratio of  not  more than  6.25:1.00, as  of the last
day  of  each  fiscal  quarter.

Focus LLC repaid the $207,000 Second Lien Term Loan in July 2018.  In connection with these

amendments, Focus LLC incurred debt  financing costs of  $4,990  and recognized a loss of
extinguishment  of  debt  of  $7,060  during  the  year  ended  December  31,  2018.

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:

F-28

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

9. CREDIT FACILITY (Continued)

(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.

At December 31, 2018, Focus LLC’s First Lien Leverage  Ratio  was 3.33:1.00,  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 (as
defined in the Credit Facility) commencing  with and including the fiscal  year ending  December 31,
2018 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, First Lien Revolver and Second  Lien Term Loan.  The debt  financing costs related to
the First Lien Term Loan and Second  Lien Term  Loan  are  recorded as a  reduction of the  carrying
amounts of the First Lien Term Loan  and  Second Lien  Term  Loan  in the consolidated balance sheets.
The debt financing costs related to the First  Lien Revolver  are recorded in  debt  financing  costs-net in
the  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  consolidated balance sheets at December  31, 2017
and  2018:

First Lien Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First  Lien  Revolver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second  Lien  Term  Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized  debt  financing  costs . . . . . . . . . . . . . . . . . . . . . .
Unamortized  discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$793,012
—
207,000
(16,646)
(2,864)

$798,985
40,000
—
(2,403)
—

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$980,502

$836,582

2017

2018

In connection with the First Lien Revolver  closing  in July  2017 and  the amendment effective in

July 2018, Focus LLC incurred $14,735 and $1,904, respectively, in  deferred financing  costs. At
December  31,  2017  and  2018,  unamortized  debt  financing  costs  associated  with  the  First  Lien  Revolver
of  $13,278  and  $12,340,  respectively,  were  recorded  in  debt  financing  costs-net  in  the  consolidated
balance sheets. There were no First Lien  Revolver amounts  outstanding at  December 31,  2017. At
December 31, 2018, the First Lien Revolver amount outstanding  was $40,000.

Weighted-average interest rates for borrowings was approximately 5% for the  year ended

December  31,  2017  and  6%  for  the  year  ended  December  31,  2018.

As of December 31, 2017 and 2018, the First Lien  Revolver available  unused commitment line was

$247,768  and  $605,793  respectively.

F-29

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

9. CREDIT FACILITY (Continued)

As of December 31, 2017 and 2018, Focus LLC was  contingently obligated for letters  of  credit in

the  amount  of  $2,232  and  $4,207,  respectively,  each  bearing  interest  at  an  annual  rate  of  approximately
3%  and  1%,  respectively.

10.  EQUITY

The following is a summary of the capital  stock of the Company:

Class A Common Stock

Voting Rights

Holders of shares of the Company’s Class A common stock are  entitled to one vote per share held

of  record  on  all  matters  to  be  voted  upon  by  the  shareholders.  The  holders  of  Class A  common  stock
do  not  have  cumulative  voting  rights  in  the  election  of  directors.

Dividend  Rights

Holders of shares of the Company’s Class A  common  stock are entitled to ratably receive
dividends  when  and  if  declared  by  the  Company’s  Board  of  Directors  (the  ‘‘Board’’)  out  of  funds
legally  available  for  that  purpose,  subject  to  any  statutory  or  contractual  restrictions  on  the  payment  of
dividends  and  to  any  prior  rights  and  preferences  that  may  be  applicable  to  any  outstanding  preferred
stock.

Liquidation  Rights

Upon  the  Company’s  liquidation,  dissolution,  distribution  of  assets  or  other  winding  up,  the
holders of Class A common stock are entitled to receive ratably the assets available for  distribution to
the  shareholders  after  payment  of  liabilities  and  the  liquidation  preference  of  any  of  the  Company’s
outstanding  shares  of  preferred  stock.

Other  Matters

The shares of the Company’s Class A common stock have no  preemptive or  conversion  rights and

are  not  subject  to  further  calls  or  assessment  by  the  Company.  There  are  no  redemption  or  sinking
fund provisions applicable to the Class A common stock.  All outstanding shares of the Company’s
Class A common stock are fully paid  and  non-assessable.

Class B Common Stock

Voting Rights

Holders of shares of the Company’s Class B common stock are  entitled to one vote per share  held

of  record  on  all  matters  to  be  voted  upon  by  the  shareholders.  Holders  of  shares  of  the  Company’s
Class A common stock and Class B common stock vote  together as a single  class on all matters
presented  to  the  Company’s  shareholders  for  their  vote  or  approval,  except  the  amendment  of  certain

F-30

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

10.  EQUITY  (Continued)

provisions  of  the  Company’s  certificate  of  incorporation  that  would  alter  or  change  the  powers,
preferences or special rights of the Class B common stock  so  as to affect them adversely  must  be
approved by a majority of the votes entitled to be cast by  the holders of the shares  affected by the
amendment, voting as a single class, or as otherwise required by  applicable law.

Dividend  and  Liquidation  Rights

Holders of the Company’s Class B common stock do not  have  any  right to receive dividends,
unless  the  dividend  consists  of  shares  of  the  Company’s  Class B  common  stock  or  of  rights,  options,
warrants  or  other  securities  convertible  or  exercisable  into  or  exchangeable  for  shares  of  Class B
common  stock  paid  proportionally  with  respect  to  each  outstanding  share  of  our  Class B  common  stock
and  a dividend consisting of shares of Class A  common stock or of rights, options, warrants  or other
securities  convertible  or  exercisable  into  or  exchangeable  for  shares  of  Class A  common  stock  on
equivalent  terms  is  simultaneously  paid  to  the  holders  of  Class A  common  stock.  Holders  of  the
Company’s Class B common stock do not have  any  right to receive a distribution  upon a  liquidation,
dissolution  or  winding  up  of  the  Company.

Preferred Stock

The  Company’s  certificate  of  incorporation  authorizes  the  Board,  subject  to  any  limitations

prescribed  by  law,  without  further  shareholder  approval,  to  establish  and  to  issue  from  time  to  time  one
or  more  classes  or  series  of  preferred  stock,  par  value  $0.01  per  share,  covering  up  to  an  aggregate  of
500,000,000  shares  of  preferred  stock.  Each  class  or  series  of  preferred  stock  will  cover  the  number  of
shares  and  will  have  the  powers,  preferences,  rights,  qualifications,  limitations  and  restrictions
determined  by  the  Board,  which  may  include,  among  others,  dividend  rights,  liquidation  preferences,
voting  rights,  conversion  rights,  preemptive  rights  and  redemption  rights.  Except  as  provided  by  law  or
in a  preferred stock designation, the  holders of preferred stock will not be entitled  to  vote  at or receive
notice  of  any  meeting  of  shareholders.

2018  Omnibus  Incentive  Plan

On July 30, 2018, the Board adopted the Focus Financial  Partners  Inc. 2018 Omnibus Incentive
Plan  (the  ‘‘Omnibus  Plan’’)  for  the  employees,  consultants  and  the  directors  of  the  Company  and  its
affiliates  who  perform  services  for  it.  The  Omnibus  Plan  provides  for  potential  grants  of  the  following
awards with respect to shares of the Company’s Class A common stock, to the extent  applicable:
(i)  incentive  stock  options  qualified  as  such  under  U.S.  federal  income  tax  laws;  (ii)  non-qualified  stock
options  or  any  other  form  of  stock  options;  (iii)  restricted  stock  awards;  (iv)  phantom  stock  awards;
(v)  restricted  stock  units;  (vi)  bonus  stock;  (vii)  performance  awards;  (viii)  annual  cash  incentive
awards;  (ix)  any  of  the  foregoing  award  types  (other  than  incentive  stock  options)  as  awards  related  to
Focus LLC’s units; and (x) incentive  units  in Focus LLC.

The  maximum  aggregate  number  of  shares  of  the  Company’s  Class  A  common  stock  that  may  be

issued  pursuant  to  awards  under  the  Omnibus  Plan  shall  not  exceed  6,000,000  shares  (including  such
number of Focus LLC’s units or other securities which can be exchanged or converted into shares of

F-31

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

10.  EQUITY  (Continued)

Class A common stock). The reserve  pool  is subject  to  adjustment due to recapitalization  or
reorganization,  or  related  to  forfeitures  or  the  expiration  of  awards,  as  provided  under  the  Omnibus
Plan.  If  the  shares  or  units  subject  to  any  award  are  not  issued  or  transferred,  or  cease  to  be  issuable
or  transferable  for  any  reason,  including  (but  not  exclusively)  because  shares  or  units  are  withheld  or
surrendered  in  payment  of  taxes  or  any  exercise  or  purchase  price  relating  to  an  award  or  because  an
award  is  forfeited,  terminated,  expires  unexercised,  is  settled  in  cash  or  is  otherwise  terminated  without
a delivery of shares or units, those shares or  units will again be available for issue, transfer or exercise
pursuant  to  awards  under  the  Omnibus  Plan  to  the  extent  allowable  by  law.  The  Omnibus  Plan  also
contains a provision that will add an additional number of shares  of Class A common  stock equal to
the  lesser  of  (a)  3,000,000  shares,  (b)  5%  of  the  outstanding  (vested  and  unvested)  shares  of  Class  A
common stock and Focus LLC units  on  the last day of the previous  year,  and (c) an  amount
determined  by  the  Board,  each  year  between  2019  and  2028.

In connection with the IPO and Reorganization Transactions described in  Note 3,  the Company

granted:  (i)  fully  vested  non-compensatory  stock  options  to  purchase  an  aggregate  of  386,832  shares  of
Class A common stock, (ii) compensatory stock options to purchase an  aggregate  of 348,577 shares of
Class A common stock which vest in  three equal installments  on  December 31,  2018, 2019 and 2020,
(iii)  178,608 shares of unvested Class A common stock  which vest in  three equal installments on
December  31,  2018,  2019  and  2020  and  (iv)  market-based  stock  options  to  purchase  an  aggregate  of
155,000 shares of Class A common stock 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.

The  following  table  provides  information  relating  to  the  status  of,  and  changes  in,  the  Company’s

stock  options  granted  during  year  ended  December  31,  2018:

Stock Options

Weighted Average
Exercise Price

Outstanding—January  1,  2018 . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—
1,401,276
—

Outstanding—December  31,  2018 . . . . . . . . . . . . . . .

1,401,276

Vested—December 31, 2018 . . . . . . . . . . . . . . . . . . .

503,014

$ —
31.34
—

31.34

33.00

F-32

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

10.  EQUITY  (Continued)

The  following  table  provides  information  relating  to  the  status  of,  and  changes  in,  the  Company’s

unvested Class A common stock granted during  the year ended  December 31, 2018:

Unvested Class A
Common  Stock

Weighted Average
Grant Date Fair
Value

Outstanding—January  1,  2018 . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outstanding—December  31,  2018 . . . . . . . . . . . . .

—
178,608
—
(59,530)

119,078

$ —
33.00
—
33.00

33.00

For the purpose of calculating equity-based compensation expense  for time-based stock option

awards,  the  grant  date  fair  value  was  determined  through  the  application  of  the  Black-Scholes  model
with  the  following  weighted  average  assumptions:

Expected  term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected  unit  price  volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free  interest  rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected  dividend  yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average grant date fair value . . . . . . . . . . . . . . . . . . . . . . . . .

7.3  years

32%
2.81%
—%

$

12.56

For the purpose of calculating equity-based compensation expense  for market  condition-based

awards,  the  grant  date  fair  value  was  determined  through  the  application  of  the  Monte  Carlo
Simulation  Model  with  the  following  weighted  average  assumptions:

Expected  term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected  unit  price  volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free  interest  rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected  dividend  yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average grant date fair value . . . . . . . . . . . . . . . . . . . . . . . . .

$

5.0  years

30%
2.78%
—%

3.97

The  Company  recognized  $7,725  of  compensation  expense  in  relation  to  the  stock  options  and

unvested Class A common stock issued during the year ended  December  31,  2018 inclusive of  a
one-time  non-cash  equity  compensation  expense  of  $4,504  in  connection  with  the  IPO  and
Reorganization Transactions.

Total unrecognized expense, adjusted  for estimated forfeitures, related to unvested stock options at

December 31,  2018  was  $6,583  and  is  expected  to  be  recognized  over  a  weighted-average  period  of
3.3 years.

Total unrecognized expense, adjusted  for estimated forfeitures, related to unvested Class A
common  stock  at  December 31,  2018  was  $3,266,  and  is  expected  to  be  recognized  over  a  period  of
2.0 years.

F-33

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

10.  EQUITY  (Continued)

Focus LLC Common Units

As of December 31, 2018, Focus LLC had 22,823,272 common units that had  a corresponding

share  of  the  Company’s  Class B  common  stock outstanding.

Each  common  unit  holder  and  incentive  unitholder  of  Focus LLC  (other  than  the  Company),
subject  to certain limitations, has the right  to  cause Focus LLC to redeem  all  or a portion  of  their
vested  common  units  and  vested  incentive  units  (‘‘Exchange  Right’’).  Upon  an  exercise  of  an  Exchange
Right  with  respect  to  vested  incentive  units,  such  incentive  units  will  first  be  converted  into  a  number
of  common  units  that  takes  into  account  the  then-current  value  of  the  common  units  and  such
incentive  units’  aggregate  hurdle  amount.  Upon  an  exercise  of  an  Exchange  Right  with  respect  to
vested  common  units,  and  immediately  after  the  conversion  of  vested  incentive  units  into  common
units, Focus LLC will acquire each tendered common unit for, at its  election, (i) one  share of Class A
common  stock,  subject  to  conversion  rate  adjustments  for  stock  splits,  stock  dividends,  reclassification
and  other  similar  transactions,  or  (ii) an  equivalent  amount  of  cash.  In  addition,  in  connection  with  any
redemption  of  vested  common  units  (other  than  common  units  received  upon  a  conversion  of  incentive
units  as  described  in  this  paragraph),  the  corresponding  shares  of  Class B  common  stock  will  be
cancelled.  Alternatively,  upon  the  exercise  of  any  Exchange  Right,  the  Company  (instead  of
Focus LLC) will have the right to acquire each  tendered  common unit  (and corresponding share  of
Class B common stock, as applicable) from  the exchanging unitholder for, at its election, (i) one share
of Class A common stock, subject to  conversion  rate adjustments for stock  splits, stock dividends,
reclassification  and  other  similar  transactions,  or  (ii) an  equivalent  amount  of  cash.  The  Exchange
Rights  are  subject  to  certain  limitations  and  restrictions  intended  to  ensure  that  Focus  LLC  will
continue to be treated as a partnership for  U.S.  federal income tax purposes.

During the years ended December 31, 2016 and 2017 Focus  LLC recorded  $516 and  $263,
respectively,  of  non-cash  equity  compensation  expense  for  certain  common  units  that  met  time-based
vesting  criteria.

Focus LLC Incentive Units

Focus LLC’s Operating Agreement provides for the granting of incentive units. Grants  are

designed  as profits interests, which entitle a holder to receive distributions in  excess of a specific hurdle
amount, subject to the provisions of Focus  LLC’s  Operating  Agreement. Incentive unit  vesting
provisions  are  either  time-based  or  market-based.

The  Company  uses  the  Black-Scholes  option-pricing  model  to  determine  the  fair  value  of

time-based  incentive  units.  The  determination  of  the  fair  value  using  the  Black-Scholes  option-pricing
model  is  affected  by  the  Company’s  estimated  common  unit  price,  as  well  as  by  assumptions  regarding
a number of complex and subjective variables.  These variables include the Company’s expected unit
price  volatility  over  the  term  of  the  incentive  unit,  expected  term,  risk-free  interest  rates  and  expected
dividend  yield.

F-34

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

10.  EQUITY  (Continued)

The  estimated  grant-date  fair  values  of  the  2016,  2017  and  2018  time-based  incentive  unit  grants

were  calculated  based  on  the  following  weighted-average  assumptions:

Expected  term . . . . . . . . . . . . . . . . . . . . . . . .
Expected  unit  price  volatility . . . . . . . . . . . . . .
Risk-free  interest  rate . . . . . . . . . . . . . . . . . . .
Expected  dividend  yield . . . . . . . . . . . . . . . . . .
Weighted average grant date fair value . . . . . . .

2016

2017

2018

4.4  years

4.0  years

4.0  years

38%
1.39%
—%

37%
1.79%
—%

$

5.94

$

6.64

$

31%
2.53%
—%

7.71

In connection with IPO and Reorganization Transactions described in Note  3, Focus  LLC
(i)  granted  3,845,000  market-based  incentive  units  that  vest  on  the  fifth  anniversary  of  the  pricing  of
the  IPO  if  the  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,  (ii)  amended,  effective  on  pricing  of
the  IPO,  3,000,000  incentive  units  such  that  the  first  fifty  percent  vest  if  the  Company’s  weighted
average  price  per  share  is  at  least  $35.00  for  the  first  ninety  days  following  the  pricing  of  the  IPO.
Following that ninety day period, all incentive units  that remain unvested will be eligible to vest on the
three  year  anniversary  of  the  IPO  if  the  weighted  average  per  share  price  for  the  ninety  day  period
immediately  preceding  the  third  anniversary  of  the  IPO  is:  (i)  less  than  $42.00,  then  no  remaining
unvested  incentive  units  will  vest;  (ii)  greater  than  $63.00,  then  all  remaining  unvested  incentive  units
will  become  vested;  and  (iii)  if  between  $42.00  and  $63.00,  then  (x)  fifty  percent  of  the  remaining
unvested  incentive  units  will  vest  and  (y)  the  remaining  fifty  percent  of  the  remaining  unvested
incentive  units  will  vest  linearly  based  on  where  the  price  falls  within  the  range  of  $42.00  and  $63.00.
The weighted average price of the Company’s  Class A common stock for the ninety days following the
pricing  of  the  IPO  exceeded  the  $35.00  threshold,  accordingly,  the  first  fifty  percent  or  1,500,000
incentive  units  vested  in  October  2018.

For the purpose of calculating equity-based compensation expense  for these  market  condition-

based  incentive  units,  the  grant  date  fair  value  was  determined  through  the  application  of  the  Monte
Carlo  Simulation  Model  with  the  following  weighted  average  assumptions:

Expected  term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected  unit  price  volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free  interest  rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected  dividend  yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average grant date fair value . . . . . . . . . . . . . . . . . . . . . . . . .

$

4.1  years

30%
2.74%
—%

5.05

The  Company  has  recorded  $7,948,  $10,090  and  $36,707  of  non-cash  equity  compensation  expense

for  incentive  units  during  the  years  ended  December  31,  2016,  2017  and  2018,  respectively.  Non-cash
equity  compensation  expense  for  the  year  ended  December  31,  2016  includes  non-cash  equity
compensation  expense  of  $1,092  related  to  192,106  time  based  incentive  units  that  were  modified  and
vested.  Non-cash  equity  compensation  expense  for  the  year  ended  December  31,  2017  includes
non-cash  equity  compensation  expense  related  to  time  and  performance  based  incentive  units  that  were
vested  in  connection  with  the  issuance  of  Convertible  Preferred  Units  as  discussed  below.  Non-cash

F-35

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

10.  EQUITY  (Continued)

equity  compensation  expense  for  the  year  ended  December  31,  2018  includes  one-time  non-cash  equity
compensation  expense  of  $14,756  related  to  certain  time-based  incentive  units  that  were  modified  and
vested or exchanged for Focus LLC common units in connection with the IPO and  Reorganization
Transactions described in Note 3.

Total unrecognized expense, adjusted for estimated forfeitures, related to unvested incentive  units

at  December  31,  2018,  was  $37,336  and  is  expected  to  be  recognized  over  a  weighted-average  period  of
3.53  years.

The  following  table  provides  information  relating  to  the  status  of,  and  changes  in,  Focus  LLC

incentive  units  granted  during  the  years  ended  December  31,  2016,  2017  and  2018:

Incentive
Units

Weighted Average
Hurdle Price

Outstanding—January  1,  2016 . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11,866,782
396,326
(22,575)
(6,250)

Outstanding—December  31,  2016 . . . . . . . . . . . . . . . .

12,234,283

Vested—December 31, 2016 . . . . . . . . . . . . . . . . . . . .

8,659,527

Outstanding—January  1,  2017 . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12,234,283
6,193,042
(392,375)
(2,805,911)

Outstanding—December  31,  2017 . . . . . . . . . . . . . . . .

15,229,039

Vested—December 31, 2017 . . . . . . . . . . . . . . . . . . . .

8,237,146

Outstanding—January  1,  2018 . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15,229,039
6,426,715
(311,625)
(2,746,655)

Outstanding—December  31,  2018 . . . . . . . . . . . . . . . .

18,597,474

Vested—December 31, 2018 . . . . . . . . . . . . . . . . . . . .

9,910,399

$10.75
17.94
14.13
12.20

10.97

9.47

10.97
21.30
16.50
8.25

15.53

11.22

15.53
30.73
22.26
15.79

20.63

14.19

F-36

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

10.  EQUITY  (Continued)

Incentive  units  outstanding  and  vested  at  December  31,  2018  were  as  follows:

Hurdle Rates

$1.42 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.50 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28.50 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Number
Outstanding

175,421
97,798
56,702
514,609
2,129,341
1,422,779
520,000
933,821
80,205
180,552
80,000
920,213
3,975,500
1,368,417
524,828
29,484
1,755,304
3,832,500

Vested
Incentive
Units

175,421
97,798
56,702
514,609
2,129,341
1,422,779
520,000
927,155
58,268
180,552
65,000
813,963
2,475,500
342,104
131,207
—
—
—

18,597,474

9,910,399

During  the  years  ended  December  31,  2016,  2017  and  2018,  the  Company  had  other  non-cash

equity  compensation  expenses,  which  amount  to  $56,  $157  and  $36,  respectively.

Focus LLC Convertible Preferred Units

In July 2017, pursuant to a series of  transactions and a tender offer, new investors acquired
30,918,280 of the Company’s Convertible  Preferred Units at a price of $21  per  unit for  $649,284. Such
funds,  together with a portion of the  proceeds from the Credit Facility  (see Note 9),  were used
primarily  to  create  cash  liquidity  for  existing  holders  of  Senior  Preferred  Units,  Junior  Preferred  Units,
common  units  and  incentive  units.  In  connection  with  the  transactions,  accrued  preferred  return  of
$44,815 related to Senior Preferred Units  and  Junior Preferred Units was converted, redeemed or
recapitalized  and  $3,063  of  accrued  preferred  return  was  paid  in  cash.  The  Convertible  Preferred  Units
were  recorded  at  $21  per  unit,  their  fair  value  on  the  effective  date  of  the  transactions,  net  of
transaction  expenses  of  $2,012.

The new investors acquired the Senior Preferred Units  and Junior  Preferred Units  from certain of

Focus LLC’s existing preferred unitholders for $207,014, net  of transaction expenses, and  from Focus
LLC for $442,270. Through the tender  offer, Focus LLC subsequently retired 17,195,412  Senior
Preferred Units, 10,332,956 Junior Preferred  Units, 6,521,720 common units, and 2,767,911 incentive

F-37

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

10.  EQUITY  (Continued)

units. The price per unit paid for Senior Preferred Units, Junior Preferred  Units and common units was
$21  per  unit  reduced  by  an  allocation  of  transaction  expenses  of  $15,500  (borne  by  the  selling
unitholders).  The  price  per  unit  paid  for  incentive  units  was  $21  per  unit  reduced  by  an  allocation  of
transaction  expenses  of  $15,500  (borne  by  the  selling  unitholders)  and  the  applicable  hurdle  rate  of  the
incentive  units.  The  Company  accounted  for  the  units  acquired  in  the  tender  offer  as  a  repurchase  and
retirement  of  the  respective  units  with  the  difference  between  the  cash  paid  and  the  carrying  amount  of
the  respective  units,  if  any,  recorded  in  accumulated  deficit.  Senior  Preferred  Units  of  2,380,952  and
Junior  Preferred Units of 58,495 that were not tendered by the investors were recapitalized as 2,439,447
of  Convertible  Preferred  Units.

In  connection  with  the  issuance  of  the  Convertible  Preferred  Units,  the  Company  recognized
additional  non-cash  equity  compensation  expense  of  $24,369  related  to  certain  common  units  and
incentive  units  that  were  modified  or  contractually  vested  as  a  result  of  the  transactions.

The  Company  incurred  certain  legal,  audit,  tax  and  other  professional  fee  costs  in  connection  with

the  planned  initial  public  offering  that  were  initially  capitalized.  As  a  result  of  the  Convertible
Preferred Unit transaction, the planned  initial public offering was delayed.  Accordingly,  the Company
expensed  $9,840  of  costs  initially  capitalized  in  connection  with  the  planned  initial  public  offering  in
selling,  general  and  administrative  expenses  in  the  accompanying  consolidated  statement  of  operations
for  the  year  ended  December 31,  2017.

In connection with the Reorganization Transactions described in Note 3, as  of July 30,  2018,
outstanding  Convertible  Preferred  Units  were  converted  into  common  units  on  a  one-for-one  basis.

Cash  compensation  expense

In  connection  with  the  payment  of  cash  of  25%  in  excess  of  the  Gross  IPO  Price  to  Existing
Owners  who  were  not  accredited  investors  and  the  payment  of  cash  of  65%  of  the  fair  market  value  of
non-compensatory  stock  options  to  Mandatorily  Exchanging  Owners  in  the  Reorganization  Transactions
described in Note  3, the Company recognized  a one-time  cash compensation expense of $5,926 during
the  year  ended  December  31,  2018.

11.  INCOME  TAXES

In connection with the IPO and Reorganization Transactions,  Focus Inc.  became a holding

company whose sole material asset is a membership interest in Focus LLC, and, as a  result, Focus Inc.
became  subject  to  U.S.  federal,  state  and  local  income  taxes  on  Focus Inc.’s  allocable  portion  of  taxable
income from Focus LLC. Focus LLC is treated as a partnership for U.S. federal income tax purposes.
Accordingly, 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, and certain of its subsidiaries have been subject  to  U.S.  federal, state and  local or foreign
income  taxes.  Instead,  for  U.S.  federal  and  certain  state  income  tax  purposes,  the  income,  deductions,
losses and credits of Focus LLC are passed through  to  its  unitholders, which after the IPO includes
Focus Inc. Focus LLC has historically  made tax  distribution payments in accordance with  its  Third
Amended and Restated Operating Agreement, which was replaced  by the Operating Agreement on

F-38

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

11.  INCOME  TAXES  (Continued)

July 30, 2018, and Focus Inc. intends  to  cause Focus LLC to continue  to  make tax distribution
payments,  to  the  extent  of  available  cash,  in  accordance  with  the  Operating  Agreement.

For tax  years beginning on or after January  1, 2018, Focus LLC is subject to partnership audit

rules enacted as part of the Bipartisan Budget Act  of  2015  (the  ‘‘Centralized Partnership Audit
Regime’’). Under the Centralized Partnership Audit Regime, any IRS audit of Focus LLC would be
conducted  at  the  partnership  level  and,  if  the  IRS  determines  an  adjustment,  the  default  rule  is  that
Focus LLC would pay an ‘‘imputed underpayment’’  including interest and penalties, if applicable.
Focus LLC may instead elect to make a ‘‘push-out’’ election,  in which  case the partners for the year
that  is  under  audit  would  be  required  to  take  into  account  the  adjustments  on  their  own  personal
income  tax  returns.  Our  partnership  agreement  provides  that  if  Focus  LLC  receives  an  imputed
underpayment, a ‘‘push-out’’ election  may  be  made. Any payments that the Company ultimately makes
on behalf of its current partners will be reflected as a distribution, rather than  tax expense, at  the time
that  such  distribution  is  declared.

On December 22, 2017, the Tax Cuts  and Jobs Act (the ‘‘Tax Act’’)  was  enacted. Among other
things, the Tax Act reduced the U.S. federal  corporate income tax rate from  a maximum rate  of 35%,
to a rate of 21%, effective January 1, 2018. The change  in the U.S. federal corporate income tax rate
resulted  in  the  remeasurement  of  certain  of  the  Company’s  deferred  tax  assets  and  liabilities  during  the
year  ended  December  31,  2017,  based  on  the  reduction  in  the  tax  rate  at  which  they  are  expected  to
reverse.  Such  remeasurement  resulted  in  an  income  tax  benefit  of  $2,653  for  the  year  ended
December  31,  2017.

Income  tax  expense  for  year  ended  December  31,  2018  is  primarily  related  to  U.S.  federal,  state
and  local income taxes imposed on Focus  Inc.’s  allocable portion of taxable income from  Focus LLC
subsequent to the IPO and Reorganization Transactions. The  allocable  portion of taxable income
primarily  differs from the net loss attributable to Focus  Inc. due to permanent differences such as
non-deductible  equity-based  compensation  expense  of  Focus  LLC.

The  following  represents  the  U.S.  and  foreign  components  of  income  (loss)  before  income  tax  for

the  years  ended  December  31,  2016,  2017  and  2018:

Income  (loss)  before  income  tax:

United  States . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$14,912
1,791

$(52,276) $(41,636)
9,999

2,416

Total income (loss) before income tax . . . . . . . . . . .

$16,703

$(49,860) $(31,637)

2016

2017

2018

F-39

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

11.  INCOME  TAXES  (Continued)

The  following  represents  the  U.S.  and  foreign  components  of  income  tax  expense  (benefit)  for  the

years  ended  December  31,  2016,  2017  and  2018:

2016

2017

2018

Current  provision:

Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State  and  local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$164
300
434

$ 1,020
477
980

$1,511
1,080
2,132

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

898

2,477

4,723

Deferred  provision  (benefit):

Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State  and  local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

102
(43)
24

(3,455)
(49)
(474)

3,932
954
(159)

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

83

(3,978)

4,727

Total income tax expense (benefit) . . . . . . . . . . . . . . . . . .

$981

$(1,501) $9,450

At December 31, 2017 and 2018, tax  effects  of  book/tax  temporary  differences give rise to deferred

tax  assets  (liabilities)  as  follows:

2017

2018

Deferred  tax  assets:

Investment  in  Focus  LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net  operating  loss  carryforwards
. . . . . . . . . . . . . . . . . . . . . .
Business  interest  carryforwards . . . . . . . . . . . . . . . . . . . . . . . .
Intangible  assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred  rent  and  other . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ — $62,618
5,842
1,219
532
410

272
—
119
356

Gross  deferred  tax  assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred  tax  assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

747
(31)

716

70,621
—

70,621

Deferred  tax  liabilities:

Intangible  assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed  assets  and  other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6,923)
(201)

(6,248)
(288)

Gross  deferred  tax  liabilities . . . . . . . . . . . . . . . . . . . . . . . .

(7,124)

(6,536)

Net  deferred  tax  assets  (liabilities) . . . . . . . . . . . . . . . . . . . . . . .

$(6,408) $64,085

At December 31, 2018, approximately $5,924  of  deferred tax liabilities were recorded as  other
liabilities in the consolidated balance sheets. At December 31, 2017, approximately $6,966 of deferred
tax  liabilities  were  recorded  as  other  liabilities  in  the  consolidated  balance  sheets.

F-40

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

11.  INCOME  TAXES  (Continued)

A reconciliation of the differences between the  U.S. federal statutory tax  rate and the effective tax

rate  for  the  years  ended  December  31,  2016,  2017  and  2018  is  as  follows:

U.S.  federal  statutory  tax  rate . . . . . . . . . . . . . . . . . . . . . . .
Income  passed  through  to  individual  members . . . . . . . . . . .
Foreign income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash  equity  compensation  expense . . . . . . . . . . . . . . . .
Other  non-deductible  expenses . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State  and  local  income  taxes,  net  of  U.S.  federal  tax  benefit .
Remeasurement of deferred taxes . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2016

2017

2018

35.0% 35.0% 21.0%
(36.8)
(35.3)
(1.0)
2.7
—
—
(0.3)
3.3
1.6
(1.2)
(0.7)
1.2
5.3
—
(0.1)
0.2

(31.9)
(6.2)
(5.8)
(1.6)
0.1
(6.1)
—
0.6

Effective  income  tax  rate . . . . . . . . . . . . . . . . . . . . . . . . . .

5.9% 3.0% (29.9)%

At December 31, 2018, the Company  had approximately $21,535 of U.S. federal  net operating loss

carryforwards and a comparable amount of state net  operating losses  generated  from the same  losses
and  deductions.  U.S.  federal  net  operating  losses  of  approximately  $7,432  begin  to  expire  in  2037,  while
the  remaining  balance  of  approximately  $14,103  has  an  indefinite  carryforward  period.  Certain  state  net
operating  losses  expire  in  various  years  between  2022  and  2037,  while  certain  state  net  operating  losses
have  an  indefinite  carryforward  period.  In  addition,  at  December  31,  2018,  a  corporate  subsidiary  of
Focus LLC had U.S. federal net operating loss  carryforwards of  $800 which  will  begin  to  expire in  2033.

In  assessing  the  realizability  of  deferred  tax  assets,  management  considers  whether  it  is  more  likely
than  not  that  some  portion  or  all  of  the  deferred  tax  assets  will  be  realized.  The  ultimate  realization  of
deferred  tax  assets  is  dependent  upon  the  generation  of  future  taxable  income.  Due  to  the  uncertainty
regarding  the  Company’s  ability  to  utilize  certain  deferred  tax  assets  in  the  future,  the  Company
provided a valuation allowance of $31 and  $0 at December 31, 2017  and 2018,  respectively, against
certain  of  its  deferred  tax  assets,  which  more  than  likely  will  not  be  realized.

The  Company  files  tax  returns  in  U.S.  federal,  local  and  state  jurisdictions  and  certain  of  the
Company’s  subsidiaries  file  income  tax  returns  in  foreign  jurisdictions.  The  Company  is  no  longer
subject  to  income  tax  examinations  for  years  prior  to  2015.  In  addition,  open  tax  years  related  to  local,
state  and  foreign  jurisdictions  remain  subject  to  examination,  but  are  not  considered  material  to  the
Company’s  consolidated  financial  position,  results  of  operations  or  cash  flows.  The  Company  is  not
aware  of  any  tax  position  for  which  it  is  reasonably  possible  that  the  total  amount  of  unrecognized
benefits  will  change  materially  in  the  next  12  months.

12. TAX RECEIVABLE AGREEMENTS

In connection with the Reorganization  Transactions and the closing of  the  IPO, Focus Inc. entered

into two Tax Receivable Agreements (the  ‘‘Tax Receivable Agreements’’): one with certain  entities
affiliated  with the Private Equity Investors and the other  with certain other continuing and former

F-41

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

12. TAX RECEIVABLE AGREEMENTS (Continued)

owners of Focus LLC (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 a  result of the Reorganization Transactions and the  exchange  of certain units  of  Focus LLC  in

connection with the IPO, Focus Inc. recorded a liability of approximately  $39,156 relating to its
obligations under the Tax Receivable Agreements. The Company recorded a  corresponding  decrease in
additional paid-in capital. Future payments  under  the Tax  Receivable Agreements in  respect of
subsequent  exchanges  will  be  in  addition  to  the  amount  recorded  in  connection  with  the  IPO.

13.  COMMITMENTS  AND  CONTINGENCIES

Office  Facilities

The  Company  rents  office  space  under  operating  leases  with  various  expiration  dates.  Future
minimum  lease  commitments  under  these  operating  leases  as  of  December  31,  2018  were  as  follows:

Years Ending December 31,

2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024  and  thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount

$ 35,426
31,695
24,813
20,906
16,743
50,045

Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$179,628

Rent expense for the years ended December 31, 2016, 2017  and  2018 was approximately $16,716,

$23,061  and  $32,514,  respectively.

Credit  Risk

The  Company’s  broker-dealer  subsidiaries  clear  all  transactions  through  clearing  brokers  on  a  fully

disclosed  basis.  Pursuant  to  the  terms  of  the  agreements  between  the  Company’s  broker-dealer
subsidiaries  and  their  clearing  brokers,  the  clearing  brokers  have  the  right  to  charge  the  Company’s
broker-dealer  subsidiaries  for  losses  that  result  from  a  counterparty’s  failure  to  fulfill  its  contractual
obligations.  This  right  applies  to  all  trades  executed  through  its  clearing  brokers,  and  therefore,  the
Company  believes  there  is  no  maximum  amount  assignable  to  the  right  of  the  clearing  brokers.
Accordingly, at December 31, 2017 and  2018, the Company  had  recorded no  liabilities  in connection
with  this  right.

F-42

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

13.  COMMITMENTS  AND  CONTINGENCIES  (Continued)

In  addition,  the  Company  has  the  right  to  pursue  collection  or  performance  from  the

counterparties  who  do  not  perform  under  their  contractual  obligations.  The  Company  monitors  the
credit  standing  of  the  clearing  brokers  and  counterparties  with  which  they  conduct  business.

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

The  Company  maintains  its  cash  in  bank  depository  accounts,  which,  at  times,  may  exceed  federally

insured  limits.  The  Company  selects  depository  institutions  based,  in  part,  upon  management’s  review
of the financial stability of the institution. At December 31, 2017  and 2018, a significant  portion of cash
and  cash equivalents were held at a single  institution.

Contingent  Consideration  Arrangements

As  discussed  in  Note  2,  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  will  continue  to  cooperate
fully  with  all  governmental  agencies.  The  Company  continues  to  believe  that  the  resolution  of  any
governmental inquiry will not have a material  impact on the Company’s consolidated financial position,
results  of  operations  or  cash  flows.

Indemnifications

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

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

F-43

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

14.  EMPLOYEE  BENEFIT  PLANS

The  Company  and  its  subsidiaries  have  defined  contribution  retirement  plans,  including  401(k)  and
profit-sharing  plans  covering  eligible  employees.  During  the  years  ended  December  31,  2016,  2017  and
2018,  the  amounts  recorded  in  expense  relating  to  these  plans  were  $4,804,  $7,485  and  $8,329,
respectively,  and  are  included  in  compensation  and  related  expenses  in  the  consolidated  statements  of
operations.

15. NET CAPITAL REQUIREMENTS

Certain  of  the  Company’s  regulated  subsidiaries  are  subject  to  minimum  net  capital  requirements.

As  of  December  31,  2017  and  2018,  all  regulated  subsidiaries  subject  to  minimum  net  capital
requirements  individually  had  net  capital  in  excess  of  minimum  net  capital  requirements.  As  of
December  31,  2017,  these  subsidiaries  had  aggregate  net  capital  of  $10,612,  which  was  $9,377  in  excess
of  aggregate  minimum  net  capital  requirements  of  $1,235.  As  of  December  31,  2018,  these  subsidiaries
had  aggregate  net  capital  of  $12,990,  which  was  $11,880  in  excess  of  aggregate  minimum  net  capital
requirements  of  $1,110

F-44

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

16. CASH FLOW INFORMATION

Supplemental  disclosures  of  cash  flow  information—cash  paid  during

the  year  for:
Interest

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$21,199

$41,840

$ 56,584

Income  taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,252

$ 3,357

$

6,149

2016

2017

2018

Supplemental  non-cash  cash  flow  information:

Fair market value of estimated contingent consideration in connection
with  acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$12,620

$37,551

$ 42,086

Fair market value of restricted common units  in connection  with

acquisitions  and  contingent  consideration . . . . . . . . . . . . . . . . . . .

$44,966

$65,064

$ 53,877

Fair market value of Class A common stock in connection with

acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ — $ — $112,461

Accretion of senior preferred units return . . . . . . . . . . . . . . . . . . . . .

$12,022

$ 6,249

Accretion of senior preferred units to  estimated redemption value . . .

$23,036

$17,463

Accretion of junior preferred units return . . . . . . . . . . . . . . . . . . . . .

$ 1,293

$

672

Accretion of junior preferred units to  estimated redemption value . . .

$10,787

$ 8,452

$

$

$

$

—

—

—

—

Net  tangible  assets  (liabilities)  acquired  in  connection  with  business

acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,516

$ (6,178) $ (19,594)

Discount  on  proceeds  from  credit  facilities . . . . . . . . . . . . . . . . . . . .

$ — $ 3,064

$

—

Purchase  price  installments  related  to  acquisitions . . . . . . . . . . . . . . .

$ 1,379

$ — $ 39,134

Deferred  taxes  and  tax  receivable  agreements . . . . . . . . . . . . . . . . . .

$ — $ — $ 62,454

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

188

$

228

17.  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  years  ended  December  31,
2016,  2017  and  2018,  the  Company  recognized  expenses  $612,  $770  and  $1,712,  respectively,  related  to
these  reimbursements.

Affiliates of certain holders of the Company’s  Class A  common stock and Class B  common stock

received  underwriting  fees  of  $6,244  in  connection  with  the  Company’s  IPO.

Affiliates of certain holders of the Company’s  Class A common stock  and Class B  common stock

are  lenders  under  the  First  Lien  Term  Loan.

F-45

FOCUS  FINANCIAL  PARTNERS  INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR  THE  YEARS  ENDED  DECEMBER  31,  2016,  2017  AND  2018

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

18.  OTHER

In March 2018, the Company recognized a gain on sale of investment of $5,509 related  to  an
investment in a financial service company  previously carried at cost. The gain on sale  of investment is
presented  in  other  income  (expense)  in  the  Company’s  consolidated  statement  of  operations  for  the
year  ended  December  31,  2018.

19.  SUPPLEMENTAL  FINANCIAL  INFORMATION

Consolidated  Quarterly  Results  of  Operations  (Unaudited):

For the Three Months Ended

March 31,
2017

June 30,
2017

September 30,
2017

December 31,
2017

(in thousands, except per share data)

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating  expenses . . . . . . . . . . . . . . . . . . . . . . . . .

$135,546
124,152

$157,230
154,767

Income  (loss)  from  operations . . . . . . . . . . . . . . . . .
Net  income  (loss) . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling  interests(1) . . . . . . . . . . . . . . . . .

$

11,394
4,451
N/A

2,463
$ (5,239)
N/A

$180,254
191,263

(11,009)
$ (37,881)
N/A

$189,857
186,952

2,905
$ (9,690)
N/A

Net  income  (loss)  attributable  to  Common

Shareholders(1) . . . . . . . . . . . . . . . . . . . . . . . . . .

N/A

N/A

Income (loss) per share of Class A common stock(1):
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

N/A
N/A

N/A
N/A

N/A

N/A
N/A

N/A

N/A
N/A

For the Three Months Ended

March 31,
2018

June 30,
2018

September 30,
2018

December 31,
2018

(in thousands, except per share data)

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating  expenses . . . . . . . . . . . . . . . . . . . . . . . . .

$196,229
183,683

$231,435
219,721

Income  (loss)  from  operations . . . . . . . . . . . . . . . . .
Net  income  (loss) . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling  interests(1) . . . . . . . . . . . . . . . . .

Net  income  (loss)  attributable  to  Common

12,546

11,714
$ (12,054) $ (7,656)
N/A

N/A

$235,701
249,958

(14,257)
$ (38,924)
28,726

Shareholders(1) . . . . . . . . . . . . . . . . . . . . . . . . . .

N/A

N/A

$ (10,198)

Income (loss) per share of Class A common stock(1):
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

N/A
N/A

N/A
N/A

$
$

(0.24)
(0.24)

$247,515
213,084

34,431
$ 17,547
(7,939)

$

$
$

9,608

0.22
0.22

(1) Not  applicable  for  periods  prior  to  the  date  of  the  Company’s  IPO  in  July 2018.

Income (loss) per share of Class A common stock  for the  quarterly periods may not sum to
Income (loss) per share of Class A common stock  for the  respective yearly period due to rounding.

F-46

2018 ANNUAL REPORT ON FORM 10-K 
Focus’ 2018 Annual Report on Form 10-K as filed with the U.S. 
Securities and Exchange Commission can be accessed via the 
investor relations section of the company’s website  
www.focusfinancialpartners.com. 

TRANSFER AGENT AND REGISTRAR 
AMERICAN STOCK TRANSFER & TRUST COMPANY 
6201 15th Avenue
Brooklyn, NY 11219 
www.amstock.com
+1 800 937 5449 (callers inside the U.S.)
+1 718 921 8124 (callers outside the U.S.)

EXECUTIVE OFFICES
Focus Financial Partners Inc.
875 Third Avenue, 28th Floor
New York, NY 10022
+1 646 519 2456
www.focusfinancialpartners.com

COMMON STOCK
The common stock of Focus Financial Partners Inc. is listed 
on the NASDAQ stock exchange and trades under the 
ticker symbol “FOCS.”

SHAREHOLDER QUESTIONS
Information about Focus Financial Partners Inc., including 
all quarterly earnings releases and financial filings with the 
U.S. Securities and Exchange Commission, can be accessed 
via the investor relations section of the company’s website,  
www.focusfinancialpartners.com.

Shareholders may also contact Tina Madon, Head of 
Investor Relations & Corporate Communications for Focus 
Financial Partners, via email tmadon@focuspartners.com  
or by calling +1 646 813 2909.

Common Stock Performance

The graph and table below compare the cumulative total return on an investment in Focus’ Class A common stock with that of the 
Standard & Poor’s 500 Index (“S&P 500”), the Russell 2000 Index (“Russell 2000”) and an equal-weighted peer index (“Peer Index”) 
between July 25, 2018 (the pricing date of Focus’ initial public offering) and December 31, 2018. The graph and table assume that 
$100 was invested on July 25, 2018 in each of Focus’ Class A common stock, the Peer Index, the Russell 2000 and the S&P 500, and that 
all dividends were reinvested on the date of payment without payment of commissions. The graph and table show past performance, 
which should not be considered an indication of future performance.

$200

$150

$100

$50

■  Focus    ■  Peer Index    ■  Russell 2000    ■  S&P 500

Jul 2018

Aug 2018

Sept 2018

Oct 2018

Nov 2018

Dec 2018

Focus1 
Peer Index2 
Russell 2000 
S&P 500 

As of 

7/25/18 

$100.00  
$100.00  
$100.00  
$100.00  

12/31/18

$79.79 
$78.13 
$80.55 
$88.88 

1  Focus price  on 7/25/18 based on gross IPO price of $33.00.
2  The Peer Index is an equal-weighted index comprised of Affiliated Managers Group, Inc. (AMG), TD Ameritrade Holding Corporation (AMTD), Envestnet, Inc. (ENV), LPL Financial Holdings Inc. (LPLA), 
  Raymond James Financial, Inc. (RJF), The Charles Schwab Corporation (SCHW) and SEI Investments (SEIC) Co.

Source: Refinitiv

 
 
 
 
 
 
 
www.focusfinancialpartners.com