Operator: Good morning. I would like to welcome everyone to the Focus Financial Partners 2020 Fourth Quarter and Full Year Earnings Call. Joining today’s call are Rudy Adolf, Founder and CEO; Jim Shanahan, Chief Financial Officer; Rusty McGranahan, General Counsel; and Tina Madon, Head of Investor Relations and Corporate Communications. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

Rusty McGranahan: Good morning, everyone. Before we begin, let me remind you that during the course of this call, we may make a number of forward-looking statements. We call your attention to the fact that Focus’ results may, of course, differ from these statements. These statements are based on assumptions made by and information currently available to Focus Financial Partners and involve risks and uncertainties that could cause the results of Focus to materially differ from these statements. Focus has made filings with the SEC, which lists some of the factors that may cause its results to differ materially from these statements, including, without limitation, uncertainties surrounding the current COVID-19 pandemic.

And finally, Focus assumes no duty and does not undertake to update any such forward-looking statements. With that, I will turn it over to our Founder and CEO, Rudy Adolf. Rudy?

Rudy Adolf: Thanks, Rusty. Good morning, everyone, and welcome to our call today. As always we value your continued interest in Focus.

2020 was an unprecedented year and I am extremely proud of what we accomplished. We delivered record financial and operating results despite the pandemic related challenges. We are in a unique position within financial services, delivering strong growth and margin expansion during a time of crisis, while simultaneously reducing our net leverage ratio. Our business demonstrated its resiliency and consistently outperformed relative to our expectations. In many ways, the story of 2020 was that scale matters.

Our scale was instrumental in helping us, not just weather the storm, but to move past it and thrive, the depth, breadth and diversification of our partnership combined with our strong M&A momentum and robust value added services were all instrumental to this outcome. These dynamics position us for what we believe will be an even stronger year in 2021. We delivered excellent results for our shareholders generating nearly $1.4 billion in full year revenues, the highest in our history. Together with adjusted net income, excluding tax adjustments per share of $2.46 and tax adjustments per share of $0.47. These results demonstrate the value of a well designed financial model and the outstanding job our partners did in managing their business.

Our cash flow grew substantially with 2020 last 12 months cash flow available for capital allocation up 22.6% and reaching $200.5 million, enabling us to limit our debt usage in funding our M&A activities as our transaction volume increased. The tax efficiency of our acquisition structure continues to generate substantial value for shareholders and enhances our cash flows.

Jim Shanahan: Good morning, everyone. Despite an unprecedented year with many uncertainties, our business demonstrated remarkable resiliency, our growth and financial performance were strong, and our M&A momentum was excellent.

Operator: Thank you.

Thank you. Our first question comes from Craig Siegenthaler with Credit Suisse. Please proceed with your questions.

Craig Siegenthaler: Hey. Good morning, Rudy.

Hope you are doing well?

Rudy Adolf: Hi, Craig. How are you?

Craig Siegenthaler: I am good. I am good. So my first one is on M&A and we were pleased to see the pickup in acquisition and merger announcements in the back half of last year. But can you talk about how momentum has continued into 2021 and do you think 2021 has the potential to be a record M&A year for Focus, so more than 25 transactions?

Rudy Adolf: Yeah.

Hi, Craig. As we indicated in our remarks, our pipeline is excellent. We -- quite frankly, in many ways, we are almost busier than ever. Last year we did 25 deals, by the way, the prior year was our record unit was 34 deals and then we did 25 deals in the year before. So we see a very good mix of holding company transactions.

These are usually billion plus transactions. We see quite a number of merger opportunities for partner firms, including relatively large mergers, last year we did the $1 billion-plus merger transactions, which is more unusual. Quite frankly, we are very excited about international. In fact, on my call today, I am joined by my Co-Founder, Rajini. Rajini, do you want to spend a second on international and on Connectus deals?

Rajini Kodialam: Sure.

Thank you, Rudy. Craig, we are very bullish on our pipeline across and definitely international and Connectus. My day starts these days with the United Kingdom and just through North America and sunsets with Australia. Our value proposition, the Focus value proposition and the Connectus value proposition is resonating globally and we believe the combination of the unique resources that we bring, entrepreneurial flexibility, true value-added support and permanent capital makes us a rather winning combination for the right firms across these geographies.

Craig Siegenthaler: Great.

Thank you for the color there. I did have one real simple follow-up. I think the last time you gave us AUM it was roughly $200 billion. You have probably grown a lot since then, just given the markets and all the acquisitions announced. Do you have where AUM was either at December 31st or where it is today roughly?

Rudy Adolf: Yeah.

Absolutely. So, as you know, we don’t see AUM is a terrific number for us. It’s really a business benchmark. Having said that, actually I am glad you are asking, because this is the first time where our CFO, Jim Shanahan, let me talk about $250 billion in client assets or above, so we are -- obviously we have grown significantly. But as we always said consistently since the time of our IPO, it’s an interesting number to know, but it’s not really a core business driver in the way we are operating the business.

Craig Siegenthaler: Understand. Thank you, Rudy.

Rudy Adolf: Thanks.

Operator: Thank you. Our next question comes from Mike Carrier with Bank of America.

Please proceed with your question.

Mike Carrier: Good morning and thanks for taking the questions. In the past, you guys had a target audience for possible M&A, but just wanted to get your take on how that opportunity expands with the launch of Excelerate with Connectus in Texas? And how that expands not only like the opportunity, but also the potential revenue and margin, opportunity for the firm over time?

Rudy Adolf: Yeah. So, as you know, we have always had a really client centric view to our M&A activities. Meaning it really starts with -- what are the services that high net worth in ultra-high net worth families need and then we are basically looking whether you saw RIAs, whether these are high end multifamily offices, reasonably targeted more head office, OCIO join us.

So it always started with what are the services a client needs and how can we surround this client with escape capabilities. And yes, you are correct, both Connectus and now the Excelerate announcement from yesterday broadens our M&A footprint. In so many ways, Connectus fills in the gap between direct holding company deals, which of course, we have done since day one, merger transactions, which is always the largest number of deals that we did last year, it was 18. We are basically -- a firm keeps its identity and brand. But at the same time, we leverage this very powerful infrastructure that we have built that ultimately gives them efficiency and growth opportunities that, quite frankly, we believe are quite unique in this industry.

Jim Shanahan: Yeah. And just from a margin perspective, obviously, reported 23.9%, our guidance for Q1 is 24.5%. The Connectus activity was at the end of the year. We did three merger opportunities there, one in the U.S. and we just announced one of the U.K.

So, over time, we will revisit our long-term EBITDA guidance and how Connectus contributes to that.

Mike Carrier: Okay. Great. And then just as a follow up, some of the new services and best practices that you guys have been adding on the platform for the firm’s views, any sense on how that has like improved productivity, organic growth at the firm’s

Rudy Adolf: Yeah. Of course, most of these we have launched quite recently.

As you know, we have two type of programs. We have Focus Business Solutions. This is where we use and really have for quite a while. Our scale, our purchasing power and our expertise to ultimately help our firms simply grow faster and improve the margins. And quite frankly, when you are looking at the growth numbers that we publish about firm growth, partner for individual, partner from growth, of course, the very important contributor are these Focus Business Solutions.

For Client Solutions, we talked about cash and credit. Last year, we have placed roughly about the supported $1 billion in either cash or lending solutions on behalf of partners and services beyond that are still in the works. Ultimately help provide, we say, the private banking capabilities, the capabilities of a high end private banker without any of the package to our partner firms. And yes, we believe over time that this will be very substantial enablers of our partner firms, and of course, ultimately, this will translate into economics. We also recently announced our Orion joint venture.

Yeah, I am sure you have seen it. It’s still in the beta stage. But this is where we basically make our cash credit capabilities available to over time, ultimately all Orion clients who want to opt into these programs. Orion has 2,000 advisers. Is of course one of the leading technology providers in this industry and somebody that we have group that we have worked with for many, many years.

So, yeah, not in 2021, but over time, we believe this is also going to be a meaningful contributor. Most importantly, you have seen our guidance. We expect to go to double-digit organic growth numbers in ‘21, and as you know, historically, our organic growth was even higher than that. So it’s really all of these programs together that ultimately we believe will significantly boost our organic growth that you have seen in the first quarter and for the rest of the year.

Mike Carrier: Okay.

Great. Thanks a lot.

Operator: Thank you. Our next question comes from Gerry O'Hara with Jefferies. Please proceed with your question.

Gerry O'Hara: Great. Thanks. Maybe two-part question just around revenue and if you could maybe give a little color as to what some of the drivers are that led to the, I guess, higher than anticipated family office revenue rebound in the quarter? And then also maybe more broadly how we should think about what appears to be year-end incentive fees, but if it’s more broadly spread out throughout the year, any context or color there would be helpful? Thank you.

Rudy Adolf: Yeah. I will let Jim go through some of the numbers.

But what we have seen is, of course, as you know, the business overall did just extremely well last year. But we did have and we publicly disclosed. We had some drag here about $12.5 million per quarter that came from the Life Entertainment business. What basically happened is, there was a morphing of this business, meaning still there are no really life events, but people are on YouTube, people are in different channels, people get back into the business that ultimately leads to an acceleration in this segment. We are not quite where we need to be or have been, I should say.

But we, quite frankly, see this reacceleration that we have seen partially here in the first quarter. Jim, you want to go to some of this?

Jim Shanahan: Yeah. Yes. So, as Rudy has mentioned, when we were sitting here in November, in a COVID environment, we are looking at the activities at these type of clients. Clients are intelligent in the entertainment industry.

They find new ways of generating revenue and activities. Netflix and Prime and things like that, as Rudy was mentioning. And it probably came in about $5 million higher than we expected based on these activities at the end of the year in November and December. And we really like what we see going into ‘21 that these activities will continue to improve. Obviously, live events still aren’t happening, but they are learning ways to do in other activities.

And as you recall, we are essentially the outsourced yet for all these clients, dealing with their taxes, their contract reviews, their insurance needs, all those type of things. So as those activities increase with the clients, certainly, our revenues with those activities increase as well. And then also there was some incentive fees. Incentive fees are not a large part of our business at all. $19 million in Q4, we have, obviously, an annual revenue base over $1.3 billion and these kind of came in December when you measure them.

They generally don’t come in through the year. So it’s about $19 million, I’d say, plus or minus $15 million of it was probably incentive fee related that was in Q4. So that drove the outperformance against the top end of our guidance for Q4. Gerry O'Hara: Okay. Thanks for taking my questions.

Operator: Thank you. Our next question comes from Alex Blostein with Goldman Sachs. Please proceed with your question.

Alex Blostein: Great. Thanks, Good morning, Rudy.

Good morning, Jim. I would love to expand on Connectus a little bit more. I know, Rudy, you provided sort of higher level comments around how that addresses your guys’ addressable market. But can you help us understand, I guess, a couple of things around specific sort of like what’s the EBITDA contribution of Connectus today? What is their EBITDA margin today to kind of help us think through growth and scaling on that platform? And then slightly bigger picture, but do you think that activity at Connectus over time could spill into your other partner firms? Meaning that they could start to pursue more sort of standardization and kind of learning the lessons from Connectus and the benefits that maybe some of those RIA platforms are getting by being more standardized across kind of back office and the middle office to kind of expand for the rest of the firm?

Rudy Adolf: Yeah. Absolutely, Alex.

So, obviously, we just launched it. So it’s too early to talk about specific numbers. Although, you have seen, we have already announced quite a number of initial transactions. What’s important to still highlight is, we believe -- this is probably the first time where a program has been launched on a global scale, and that is very unique and we ultimately believe ultimately a very powerful proposition. But rather than hearing from me, let’s talk to the real brain behind Connectus.

Rajini, do you want to handle some of Alex’s questions.

Rajini Kodialam: Yeah. Thanks, Rudy. Alex, of course, we are entrepreneurs and we always look to add shareholder value. But like Rudy said, Connectus is just starting.

We are very excited about the Excelerate program that we launched yesterday. And Connectus as a global firm, Excelerate is a global program that brings together every element that is needed to fulfill the promise of Connectus, which is growth, adviser efficiency and expanding the client value proposition. Nothing in Excelerate has a build and they will come. It is all being constructed based on multiple conversations with our partner firms and the needs they have expressed for their clients. Unique inter-leverage between Focus and Connectus, comes from the fact that what we have built in Excelerate, stands on the shoulders of years of institutional expertise and the scale of the 71 Focus partner firms and the vendor relationships that we have developed.

This is what enables us to bring together this ecosystem. What is unique about it is not just the fact that we have put these vendors together to provide technology, content and services. We have interwoven Focus proprietary solutions into this like clarity, like our FCS solutions and on top of that, we are bringing intelligent smart integration. That is what makes this unique for us. Will there be global customization by country? Absolutely.

Some of these vendors will be common across, some of them will not. There has to be global customization. Every Connectus firm will use Excelerate, but Excelerate is available by choice to every Focus partner firm. So overtime, do we see the inter-leverage? Do we see the benefit across the Focus family? Absolutely.

Alex Blostein: Great.

Thanks for that. Very interesting. Another follow-up, maybe -- I am not sure if you guys will be able to answer it, but I will try anyway. So $1 billion of dry powder that you guys talk to, obviously, you highlighted very robust pipeline multiple times on this call. Anyway to help us frame, how quickly you ultimately expect to deploy that $1 billion?

Rudy Adolf: Well, I knew you are going to ask it, Alex.

So -- and obviously, it’s a very good question. But we never thought about it this way. It’s not that we got this $1 billion sitting in our checking account and it’s burning a hole into our pockets. This is capital that we can draw on, if and when we need. And what has made this model so successful is ultimate have been very disciplined.

In fact, Alex, when you look at the multiples we paid in 2020 versus 2019 versus 2018, they are basically constant, in fact that we may touched down. But, again, so basically constant, which ultimately means is, because our cost of debt, the weighted average cost of capital is down based on the interest rates, quite frankly, our returns continue to be very high. You will probably remember 25% returns in average returns, over 50% of our deals create more than 30% returns. So it’s not about the speed of deployment, it’s about the quality of deployment. And yes, we are very confident that we will be able to deploy a good part of this in a relatively short timeframe, but there’s absolutely no rush here.

But I always tell the team is, the only thing that’s worse to not doing a deal is doing a bad deal and this discipline has really helped us build this business over the years.

Alex Blostein: Great. I thought that will be your answer, but I figured it out to try anyway. All right. Thanks everybody.

Rudy Adolf: That’s right.

Operator: Thank you. Our next question comes from Chris Shutler with William Blair. Please proceed with your question.

Chris Shutler: Hi, everybody.

Good morning. A few questions on Connectus, so first, should we think about the multiples that you are paying in Connectus as being very close to what you would pay in traditional mergers? And then, in your traditional model, I think the employment agreement with the partners typically means they are locked in for a handful of years. So how does that differ with Connectus? And then, lastly, could Connectus be, sounds like it’s a healthy part of your pipeline, but could it be 25%, 30% of the EBITDA that you add this year?

Rudy Adolf: Yeah. Hi, Chris. I am so glad we have Rajini on the phone here, because she will answer some of these questions.

But clearly, the -- it’s first and foremost -- as I said in the prior question, it’s first and foremost, filling in a gap that we had in our M&A model. Ultimately, quite frankly, it was something that Rajini and her team really developed from some of the learnings in the U.S. and experience in the U.S., but for the Australian market. We ultimately believe that the effective multiple, because it’s a highly synergistic transactions because the shared infrastructure, ultimately, the effective multiples will be just as attractive or quite frankly, more -- even more attractive than what we have today. But, Rajini, you want to add something?

Rajini Kodialam: Absolutely.

As Rudy said, that is the premise of Connectus. We have a robust pipeline. The only thing that I would like to add to what Rudy said is, Connectus certainly expands the market for us, because it caters to the need of an adviser base that is asking for something different than what our direct model and our mergers offer, it is a hybrid. And yes, the shared services platform is definitely going to help, both with revenue and with adviser efficiencies, which will eventually be accretive. But what we do want to emphasize is Connectus does not change the quality and caliber of the firms or the advisers that we are looking for, the disciplined approach that we have to affiliating ourselves with client service -- centric fiduciary advisers is consistent, irrespective of which model Focus is applying.

Rudy Adolf: Yeah. We have the same contractual protections as we have in our traditional transaction, so really no change from this perspective.

Chris Shutler: Okay. Thank you. And then just one for Jim, just the, I think, you gave the earn-out payments expected for the first quarter.

Can you give us a rough number for 2021?

Jim Shanahan: Yeah. We don’t provide guidance at this point on the full year, Chris. It’s just -- it’s hard to estimate. We will be publishing the 10-K shortly. So the aggregate earn-out under the GAAP methodology in Monte Carlo for the business acquisitions is about $170 million that gets paid out over several years and we have given guidance of $10 million for Q1.

It’s just -- it’s too hard to estimate with precision the annual basis what these earn-outs may be.

Chris Shutler: Okay. Got it. Thank you.

Operator: Thank you.

Our next question comes from Patrick O'Shaughnessy with Raymond James. Please proceed with your questions. Patrick O'Shaughnessy: Hey. Good morning. So, with Connectus, how do you make sure that incentives of the selling firms are going to be aligned with yours over the long-term, given that you are going to be owning 100% of the economics? I think historically with a partner for a model, you own 40% to 60%, you have earnings preference and so, clearly, economically, the selling partner is aligned.

How do you make sure that the selling partners with Connectus are going to be incentivized to continue to grow the franchise?

Rudy Adolf: Yeah. Absolutely. And as I said, glad we have Rajini here. But first, more than any contractual or other provisions, it’s simply be really careful who you let into the partnership here and we continue, as Rajini just said, to be very selective. We make sure that the -- ultimately the interest of these partners are aligned with us, and quite frankly, it’s ultimately through a formulaic sharing in the economics of the business, plus some incentives on top of it.

So again it’s a very close alignment slightly different to what we have with our -- in our core business. But ultimately, because we control the platform here, because we ultimately, we are the platform for these partner firms. We of course have much more influence over this part of the business and so we are very, very comfortable that based on all the expertise that we have built and the formulae approach here on the economics that ultimately these partners are just as aligned as they are with our core transactions. Rajini, anything you want to add?

Rajini Kodialam: Sure. The economic alignment and ongoing incentives are very inherently a part of Connectus.

And as part of Connectus with every firm, just like every Focus partner firm, we make sure that it’s not just Gen 1 that is aligned with Gen 2 and Gen 3 that is aligned. That is a core aspect of our model and that is completely consistent across Focus, definitely for Connectus. Patrick O'Shaughnessy: Great. Thank you. And then a question about the competitive landscape in terms of acquisitions, obviously, there’s a lot of money chasing U.S.

RAs right now, a lot of private equity-backed consolidators out there. Is it less competitive when you are bidding for advisory firms outside of the U.S.?

Rudy Adolf: Yeah. So first, fourth quarter last year, we did 15 transactions, five new partners, 10 mergers and last year in total 25 transactions. So, clearly, our unique value proposition just resonates and will continue to resonate. We have to be just very, very disciplined, as I said at the beginning.

Quite frankly, last year, we called a little bit internally, the year of the Drunken sailors. Yes, we have seen very unusual transactions last year and we have some firms they are buying it double, triple. The type of multiples stay would be worse, meaning the acquirer would be worth and this obviously shareholder value destroying transactions. We would never do this to our shareholders. Our discipline speaks for itself.

And because of this unique building block around ultimately the entrepreneur and evaluated programs, our unique approach to what successions and very important the effect that we a provider of permanent capital. We are the only public company in this space at least of any scale and our ability to be a provider of permanent capital is very differentiated versus private equity, for example, where every transaction yet happens, this thing is going to be on the block again in three years, five years or whenever. And in the second go around, the principles of these firms we will have very little control over who the PEs are going to sell it to. So in reality, we are very confident in our track record and the quality of our pipeline just speaks for itself that we will have almost unlimited opportunities here for years to come. Just one number to illustrate this, it really came out with the report recently and they are basically pointing to in -- just in the U.S.

and M&A opportunity in this space of $2.8 trillion, trillion it’s T, $2.8 trillion in the next 5 to 10 years. We mentioned before Focus today is $250 billion plus. So just the sheer size and these are just U.S. numbers, is just extremely high. We are the largest in this space.

We have the longest track record, not just of transactions, but of value-added. I think we are in a rock solid position and I am very confident that ‘21 is going to be a very good year again. Pat, are you still there? Hello?

Operator: Thank you. Our next question comes from Kyle Voigt with KBW. Please proceed with your question.

Kyle Voigt: Hi. Thanks for taking the question. Maybe just on the margins, calculating incremental EBITDA margin in 2020 of over 35%, which is obviously very strong. Is there a way you could help us understand how much of this is maybe due to any change in the ownership percentage of the businesses you acquired during the year versus simply realizing scale benefits and operating leverage? And then, secondly, maybe a second part of that question is, in the growing revenue environment, can you share a bit more about how you think about the balance of wanting to pay and retain advisers versus kind of driving margin expansion for shareholders?

Jim Shanahan: Yeah. I think maybe I will just start.

So, Kyle, we -- into Q3 we had an earnings supplement where we announced the acquired based earnings and the estimated revenue and that was with four of the firms we ended up closing five. So the five firms, new partner firms in Q4 were somewhere around 36%, 37% of margin there. Obviously, SG&A costs that you have seen as relative to revenue have not been going up. So that’s a positive on the margin. And then the $19 million of the onetime in Q4 probably had about a 26% impact to adjusted EBITDA margin.

So that’s a little color for you on the margins.

Rudy Adolf: And Kyle, as we were saying from a long-term perspective, we are not changing our 2025 guidance at this point. But clearly what we have learned in 2020 and what our partners have learned is a more efficient approach towards running the business. Jim and I aren’t yet clear or not with the precision that we like, which of these are temporary because it’s related to corona, which of these are permanent. But very much, we are going to look to throughout this year how the expense base evolves and yes there is a potential that we will be revising the 24% upwards at one point, once we have better clarity into kind of the ongoing cost structure of the business.

Kyle Voigt: And maybe just a clarification question, and Jim, sorry, if I missed this, but in terms of the 20% revenue target you provided for 2021. It sounds like you don’t really need more help from markets from the current levels to reach that. But I guess, I am wondering if we need to see a return of that -- there’s live events in the second half of the year. Are you assuming that those come back in order to hit that 20% target? Thanks.

Jim Shanahan: Well, I think, we hopefully are all optimistic that we all get vaccinated in the first half of this year and activities will start to increase in the back half of the year.

So we are not breaking guidance of the 20% between the market and the non-market. We did give some guidance on seasonality of that type of revenue into Q1. But we are comfortable with the guidance at this point of over 20% of revenue growth for 2021.

Kyle Voigt: Okay. Great.

Thanks you very much.

Jim Shanahan: You are welcome.

Operator: There are no further questions at this time. I would like to turn the floor back over to Rudy for closing remarks. Rudy?

Rudy Adolf: Yeah.

Thank you. So we are extremely proud of what our company accomplished in 2020 and how well our partners serve their clients and manage their businesses during these challenging times. They have shown extraordinary dedication and precedence. I also want to thank our holding company employees, who went above and beyond in so many ways, as they supported our business in a challenging environment. With the rollout of effective vaccines and stronger COVID treatments, we hope that the world will begin returning to normal later this year.

We are looking with great optimism towards 2021 and beyond. Our ability to deliver substantial growth and margin expansion, while deleveraging during the crisis, combined with our tremendous capital flexibility and unique scale position us to take advantage of our industry leading position to expand our model in the U.S. and in selected international markets. In closing, I wish you all good health and thank you all for your interest in our business. Bye-bye.

Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.