NEW YORK, NY / ACCESSWIRE / August 4, 2022 / Focus Financial Partners Inc. (NASDAQ:FOCS) ("Focus Inc.", "Focus", the "Company", "we", "us" or "our"), a leading partnership of independent, fiduciary wealth management firms, today reported results for its second quarter ended June 30, 2022.

Second Quarter 2022 Highlights

Total revenues of $539.2 million, 26.8% growth year over year
Organic revenue growth⁽¹⁾ rate of 15.0% year over year
GAAP net income of $49.3 million
GAAP basic and diluted net income per share attributable to common shareholders of $0.51 and $0.50, respectively
Adjusted Net Income Excluding Tax Adjustments⁽²⁾ of $81.7 million and Tax Adjustments⁽³⁾ of $16.0 million
Adjusted Net Income Excluding Tax Adjustments Per Share⁽²⁾ of $0.99 and Tax Adjustments⁽³⁾ Per Share⁽²⁾ of $0.19
Net Leverage Ratio⁽⁴⁾ of 3.90x
14 transactions closed or announced year to date, including 3 new partner firms and 11 mergers on behalf of partner firms

Please see footnote 2 under "How We Evaluate Our Business" later in this press release.
Non-GAAP financial measures. Please see "Reconciliation of Non-GAAP Financial Measures" later in this press release for a reconciliation and more information on these measures.
Please see footnote 6 under "How We Evaluate Our Business" later in this press release.
Please see footnote 7 under "How We Evaluate Our Business" later in this press release.

"The results we announced today for the 2022 second quarter were outstanding, highlighting the resiliency of our business despite the macro backdrop," said Rudy Adolf, Founder, CEO and Chairman of Focus. "Our partners are demonstrating their ability to handle difficult market conditions and our business is weathering the challenging environment well. Our diverse revenue stream, variable cost structure, and the scale of our global partnership of 87 firms mitigate our market sensitivity. With 14 transactions year to date and a strong pipeline going into the second half of the year, we continue to expect that 2022 will be one of our best years for M&A. Times like these position our partner firms well for strong growth in the future. We believe that the growth opportunities during and particularly after significant market volatility, combined with the operating leverage on our business, will lead to our sustained outperformance once conditions stabilize."

"We are very pleased with the strength of our financial performance this past quarter," said Jim Shanahan, Chief Financial Officer. "Although the markets were exceptionally volatile, our 2022 second quarter results were again above the top end of our guidance and the resilience of our revenue performance is notable. We have continued to deploy capital in an extremely disciplined, measured way, particularly given the heightened risks created by the broader macro environment. We are executing well and navigating this storm. As a result, we expect to be well-positioned to benefit from the growth opportunity once macro conditions improve and deliver incremental value to our shareholders."

Second Quarter 2022 Financial Highlights

Total revenues were $539.2 million, 26.8%, or $113.9 million higher than the 2021 second quarter. The primary driver of this increase was revenue growth from our existing partner firms of approximately $64.0 million. The majority of this increase was driven by higher wealth management fees, which included the effect of mergers completed by our partner firms. The balance of the increase of $49.9 million was attributable to revenues from new partner firms acquired during the last twelve months. Our year-over-year organic revenue growth rate⁽¹⁾ was 15.0%, above our expected 11% to 14% range for the quarter.

An estimated 76.7%, or $413.8 million, of total revenues in the quarter were correlated to the financial markets. Of this amount, 67.2%, or $278.2 million, were generated from advance billings generally based on market levels in the 2022 first quarter. The remaining 23.3%, or $125.4 million, were not correlated to the markets. These revenues typically consist of family office type services, tax advice and fixed fees for investment advice, primarily for high and ultra-high net worth clients.

GAAP net income was $49.3 million compared to $5.2 million in the prior year quarter. GAAP basic and diluted net income per share attributable to common shareholders were $0.51 and $0.50, respectively, as compared to $0.04 for both basic and diluted net income per share in the prior year quarter.

Adjusted EBITDA⁽²⁾ was $137.0 million, 27.1%, or $29.2 million, higher than the prior year period. Our Adjusted EBITDA margin⁽³⁾ was 25.4%, above our outlook of approximately 24.5% to 25.0% for the quarter reflecting lower compensation expense.

Adjusted Net Income Excluding Tax Adjustments⁽²⁾ was $81.7 million, and Tax Adjustments⁽⁴⁾ were $16.0 million. Adjusted Net Income Excluding Tax Adjustments Per Share⁽²⁾ was $0.99, up 17.9% compared to the prior year period, and Tax Adjustments Per Share⁽²⁾ were $0.19, up 35.7% compared to the prior year period.

Please see footnote 2 under "How We Evaluate Our Business" later in this press release.
Non-GAAP financial measures. Please see "Reconciliation of Non-GAAP Financial Measures" later in this press release for a reconciliation and more information on these measures.
Calculated as Adjusted EBITDA divided by Revenues.
Please see footnote 6 under "How We Evaluate Our Business" later in this press release.

Balance Sheet and Liquidity

As of June 30, 2022, cash and cash equivalents were $221.0 million and debt outstanding under our credit facilities was approximately $2.5 billion, which included $100.0 million outstanding under our First Lien Revolver. In April 2022, we extended the maturity date of our First Lien Revolver to June 2024.

Our Net Leverage Ratio⁽¹⁾ as of June 30, 2022 was 3.90x. We remain committed to maintaining our Net Leverage Ratio⁽¹⁾ between 3.5x to 4.5x and believe this is the appropriate range for our business given our highly acquisitive nature.

As of June 30, 2022, $850 million, or 34.1%, of the debt outstanding under our credit facilities had LIBOR swapped from a floating rate to a fixed weighted average interest rate of 62 basis points plus a spread of 200 basis points. The residual amount of approximately $1.6 billion, primarily consisting of our First Lien Term Loan, remains at floating rates, with $792.4 million of this amount at an interest rate of LIBOR subject to a 50 basis point floor plus 250 basis points spread, and $752.6 million of this amount at an interest rate of LIBOR plus 200 basis points spread with no LIBOR floor. We have typically used 30-day LIBOR on our term loans.

Our net cash provided by operating activities for the trailing four quarters ended June 30, 2022 was $291.3 million compared to $298.9 million for the comparable period ended June 30, 2021. Our Cash Flow Available for Capital Allocation⁽²⁾ for the trailing four quarters ended June 30, 2022 was $323.2 million compared to $266.0 million for the comparable period ended June 30, 2021. This 21.5% increase reflected the earnings growth of our partner firms and the addition of new partner firms. In the 2022 second quarter, we paid $33.3 million in cash earn-out obligations and $6.2 million of required amortization under our First Lien Term Loan.

Please see footnote 7 under "How We Evaluate Our Business" later in this press release.
Non-GAAP financial measure. See ‘‘Reconciliation of Non-GAAP Financial Measures-Cash Flow Available for Capital Allocation" later in this press release.

Teleconference, Webcast and Presentation Information

Founder, CEO and Chairman, Rudy Adolf, and Chief Financial Officer, Jim Shanahan, will host a conference call today, August 4, 2022 at 8:30 a.m. Eastern Time to discuss the Company's 2022 second quarter results and outlook. The call can be accessed by dialing +1-877-407-0989 (callers inside the U.S.) or +1-201-389-0921 (callers outside the U.S.).

A live, listen-only webcast, together with a slide presentation titled "Second Quarter 2022 Earnings Release Supplement" dated August 4, 2022 will be available under Events in the Investor Relations section of the Company's website, www.focusfinancialpartners.com. A webcast replay of the call will be available shortly after the event at the same address. Registration for the call will begin 15 minutes prior to the start of the call, using the following link.

About Focus Financial Partners Inc.

Focus Financial Partners Inc. is a leading partnership of independent, fiduciary wealth management firms. Focus provides access to best practices, resources, and continuity planning for its partner firms who serve individuals, families, employers and institutions with comprehensive wealth management services. Focus partner firms maintain their operational independence, while they benefit from the synergies, scale, economics and best practices offered by Focus to achieve their business objectives.

Cautionary Note Concerning Forward-Looking Statements

The foregoing information contains certain forward-looking statements that reflect the Company's current views with respect to certain current and future events and financial performance. These forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to the Company's operations and business environment, including the impact and duration of the outbreak of Covid-19 and the conflict in Ukraine, which may cause the Company's actual results to be materially different from any future results, expressed or implied, in these forward-looking statements. Any forward-looking statements in this release are based upon information available to the Company on the date of this release. The Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any statements expressed or implied therein will not be realized. Additional information on risk factors that could potentially affect the Company's financial results may be found in the Company's annual report on Form 10-K for the year ended December 31, 2021 filed and our other filings with the Securities and Exchange Commission.

Investor and Media Contacts

Tina Madon
Senior Vice President
Head of Investor Relations & Corporate Communications
Tel: (646) 813-2909
tmadon@focuspartners.com

Charlie Arestia
Vice President
Investor Relations & Corporate Communications
Tel: (646) 560-3999
carestia@focuspartners.com

How We Evaluate Our Business

We focus on several key financial metrics in evaluating the success of our business, the success of our partner firms and our resulting financial position and operating performance. Key metrics for the three and six months ended June 30, 2021 and 2022 include the following:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2021			2022			2021			2022
	(dollars in thousands, except per share data)
Revenue Metrics:
Revenues	$	425,355		$	539,211		$	819,530		$	1,075,778
Revenue growth (1) from prior period		35.8	%		26.8	%		26.0	%		31.3	%
Organic revenue growth (2) from prior period		28.8	%		15.0	%		20.2	%		18.6	%

Management Fees Metrics (operating expense):
Management fees	$	116,205		$	136,802		$	218,277		$	274,641
Management fees growth (3) from prior period		50.9	%		17.7	%		35.8	%		25.8	%
Organic management fees growth (4)
from prior period		43.4	%		8.4	%		29.0	%		14.5	%

Net Income Metrics:
Net income	$	5,174		$	49,318		$	7,656		$	88,400
Net income growth from prior period		55.5	%		*			(79.5	)%		*
Income per share of Class A common stock:
Basic	$	0.04		$	0.51		$	0.04		$	0.95
Diluted	$	0.04		$	0.50		$	0.04		$	0.95
Income per share of Class A common stock
growth from prior period:
Basic		(20.0	)%		*			(91.7	)%		*
Diluted		33.3	%		*			(91.7	)%		*

Adjusted EBITDA Metrics:
Adjusted EBITDA (5)	$	107,789		$	137,021		$	208,784		$	272,101
Adjusted EBITDA growth (5) from prior period		44.2	%		27.1	%		36.7	%		30.3	%

Adjusted Net Income Excluding Tax Adjustments Metrics:
Adjusted Net Income Excluding Tax Adjustments (5)	$	67,800		$	81,679		$	131,249		$	164,752
Adjusted Net Income Excluding Tax Adjustments
growth (5) from prior period		50.3	%		20.5	%		44.8	%		25.5	%

Tax Adjustments
Tax Adjustments (5)(6)	$	11,038		$	15,977		$	21,530		$	30,790
Tax Adjustments growth from prior period (5)(6)		20.3	%		44.7	%		18.9	%		43.0	%

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2021			2022			2021			2022
	(dollars in thousands, except per share data)
Adjusted Net Income Excluding Tax Adjustments Per Share and Tax Adjustments Per Share Metrics:
Adjusted Net Income Excluding Tax Adjustments
Per Share (5)	$	0.84		$	0.99		$	1.62		$	2.01
Tax Adjustments Per Share (5)(6)	$	0.14		$	0.19		$	0.27		$	0.37
Adjusted Net Income Excluding Tax Adjustments
Per Share growth (5) from prior period		42.4	%		17.9	%		36.1	%		24.1	%
Tax Adjustments Per Share growth from
prior period (5)(6)		16.7	%		35.7	%		12.5	%		37.0	%

Adjusted Shares Outstanding
Adjusted Shares Outstanding (5)		81,076,423			82,312,683			81,020,580			82,123,532

Other Metrics:
Net Leverage Ratio (7) at period end		3.54	x		3.90	x		3.54	x		3.90	x
Acquired Base Earnings (8)	$	10,300		$	11,450		$	10,963		$	11,450
Number of partner firms at period end (9)		74			85			74			85

* Not meaningful

Represents period-over-period growth in our GAAP revenue.
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, including Connectus, 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.
The terms of our management agreements entitle the management companies to management fees typically consisting of all Earnings Before Partner Compensation ("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.
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.
For additional information regarding Adjusted EBITDA, Adjusted Net Income Excluding Tax Adjustments, Adjusted Net Income Excluding Tax Adjustments Per Share, Tax Adjustments, Tax Adjustments Per Share and Adjusted Shares Outstanding, including a reconciliation of Adjusted EBITDA, Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share to the most directly comparable GAAP financial measure, please read "-Adjusted EBITDA" and "-Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share."
Tax Adjustments represent the tax benefits of intangible assets, including goodwill, associated with deductions allowed for tax amortization of intangible assets in the respective periods based on a pro forma 27% income tax rate. Such amounts were generated from acquisitions completed where we received a step-up in basis for tax purposes. Acquired intangible assets may be amortized for tax purposes, generally over a 15-year period. Due to our acquisitive nature, tax deductions allowed on acquired intangible assets provide additional significant supplemental economic benefit. The tax benefit from amortization is included to show the full economic benefit of deductions for acquired intangible assets with the step-up in tax basis. As of June 30, 2022, estimated Tax Adjustments from intangible asset related income tax benefits from closed acquisitions based on a pro forma 27% income tax rate for the next 12 months is $63.2 million.
Net Leverage Ratio represents the First Lien Leverage Ratio (as defined in the Credit Facility), and 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).
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 preferred position in Base Earnings or comparable measures. 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.
Represents the number of partner firms on the last day of the period presented.

Unaudited Condensed Consolidated Financial Statements

FOCUS FINANCIAL PARTNERS INC.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except share and per share amounts)

	For the three months ended						For the six months ended
	June 30,						June 30,
	2021			2022			2021			2022
REVENUES:
Wealth management fees	$	404,970		$	517,421		$	779,815		$	1,032,600
Other		20,385			21,790			39,715			43,178
Total revenues		425,355			539,211			819,530			1,075,778
OPERATING EXPENSES:
Compensation and related expenses		139,045			178,131			280,088			359,931
Management fees		116,205			136,802			218,277			274,641
Selling, general and administrative		69,018			94,771			132,844			183,421
Intangible amortization		44,003			64,649			86,986			124,925
Non-cash changes in fair value of estimated
contingent consideration		34,062			(42,757	)		59,998			(51,742	)
Depreciation and other amortization		3,606			3,805			7,213			7,438
Total operating expenses		405,939			435,401			785,406			898,614
INCOME FROM OPERATIONS		19,416			103,810			34,124			177,164
OTHER INCOME (EXPENSE):
Interest income		57			17			104			20
Interest expense		(10,829	)		(19,892	)		(21,350	)		(37,508	)
Amortization of debt financing costs		(902	)		(949	)		(1,754	)		(2,050	)
Other expense-net		(534	)		(1,451	)		(531	)		(1,487	)
Income from equity method investments		140			11			423			106
Total other expense-net		(12,068	)		(22,264	)		(23,108	)		(40,919	)
INCOME BEFORE INCOME TAX		7,348			81,546			11,016			136,245
INCOME TAX EXPENSE		2,174			32,228			3,360			47,845
NET INCOME		5,174			49,318			7,656			88,400
Non-controlling interest		(3,197	)		(16,235	)		(5,423	)		(26,215	)
NET INCOME ATTRIBUTABLE TO
COMMON SHAREHOLDERS	$	1,977		$	33,083		$	2,233		$	62,185
Income per share of Class A
common stock:
Basic	$	0.04		$	0.51		$	0.04		$	0.95
Diluted	$	0.04		$	0.50		$	0.04		$	0.95
Weighted average shares of Class A
common stock outstanding:
Basic		55,710,666			65,389,642			53,965,045			65,360,667
Diluted		56,162,822			65,596,377			54,418,520			65,682,081

FOCUS FINANCIAL PARTNERS INC.
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)

	December 31,		June 30,
	2021		2022
ASSETS
Cash and cash equivalents	$	310,684	$	221,049
Accounts receivable less allowances of $3,255 at 2021 and $4,201 at 2022		198,827		206,909
Prepaid expenses and other assets		123,826		165,711
Fixed assets-net		47,199		46,856
Operating lease assets		249,850		254,853
Debt financing costs-net		4,254		4,169
Deferred tax assets-net		267,332		236,040
Goodwill		1,925,315		2,050,297
Other intangible assets-net		1,581,719		1,624,878
TOTAL ASSETS	$	4,709,006	$	4,810,762
LIABILITIES AND EQUITY
LIABILITIES
Accounts payable	$	11,580	$	16,228
Accrued expenses		72,572		91,885
Due to affiliates		105,722		53,905
Deferred revenue		10,932		10,117
Contingent consideration and other liabilities		468,284		370,775
Deferred tax liabilities		31,973		35,682
Operating lease liabilities		277,324		283,852
Borrowings under credit facilities (stated value of $2,407,302 and
$2,494,954 at December 31, 2021 and June 30, 2022, respectively)		2,393,669		2,482,697
Tax receivable agreements obligations		219,542		216,765
TOTAL LIABILITIES		3,591,598		3,561,906
EQUITY
Class A common stock, par value $0.01, 500,000,000 shares authorized;
65,320,124 and 65,442,389 shares issued and outstanding at
December 31, 2021 and June 30, 2022, respectively		653		654
Class B common stock, par value $0.01, 500,000,000 shares authorized;
11,439,019 and 12,034,104 shares issued and outstanding at
December 31, 2021 and June 30, 2022, respectively		114		120
Additional paid-in capital		841,753		910,222
Retained earnings		24,995		87,180
Accumulated other comprehensive income		3,029		15,859
Total shareholders' equity		870,544		1,014,035
Non-controlling interest		246,864		234,821
Total equity		1,117,408		1,248,856
TOTAL LIABILITIES AND EQUITY	$	4,709,006	$	4,810,762

FOCUS FINANCIAL PARTNERS INC.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)

	For the six months ended
	June 30,
	2021			2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	7,656		$	88,400
Adjustments to reconcile net income to net cash provided by operating
activities-net of effect of acquisitions:
Intangible amortization		86,986			124,925
Depreciation and other amortization		7,213			7,438
Amortization of debt financing costs		1,754			2,050
Non-cash equity compensation expense		18,631			14,210
Non-cash changes in fair value of estimated contingent consideration		59,998			(51,742	)
Income from equity method investments		(423	)		(106	)
Distributions received from equity method investments		403			776
Deferred taxes and other non-cash items		1,425			29,576
Changes in cash resulting from changes in operating assets and liabilities:
Accounts receivable		(10,038	)		(9,398	)
Prepaid expenses and other assets		(14,450	)		(9,776	)
Accounts payable		(527	)		4,778
Accrued expenses		16,883			21,446
Due to affiliates		(9,765	)		(51,962	)
Contingent consideration and other liabilities		(13,986	)		(40,201	)
Deferred revenue		200			(1,122	)
Net cash provided by operating activities		151,960			129,292
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions and contingent consideration-net of cash acquired		(82,106	)		(252,056	)
Purchase of fixed assets		(4,318	)		(6,429	)
Investment and other, net		(19,132	)		(5,232	)
Net cash used in investing activities		(105,556	)		(263,717	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities		524,375			100,000
Repayments of borrowings under credit facilities		(413,347	)		(12,348	)
Proceeds from issuance of common stock, net		25,767			-
Payments in connection with unit redemption, net		(25,767	)		-
Payments in connection with tax receivable agreements		(4,423	)		(3,856	)
Contingent consideration paid		(57,030	)		(21,397	)
Payments of debt financing costs		(2,700	)		(1,111	)
Proceeds from exercise of stock options		4,017			422
Distributions for unitholders		(19,108	)		(15,956	)
Other		(39	)		375
Net cash provided by financing activities		31,745			46,129
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS		(26	)		(1,339	)
CHANGE IN CASH AND CASH EQUIVALENTS		78,123			(89,635	)
CASH AND CASH EQUIVALENTS:
Beginning of period		65,858			310,684
End of period	$	143,981		$	221,049

Reconciliation of Non-GAAP Financial Measures

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP measure. Adjusted EBITDA is defined as net income excluding interest income, interest expense, income tax expense, 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, other expense-net, and secondary offering expenses, 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
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 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, 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 also relying on the GAAP results and using Adjusted EBITDA as supplemental information.

Set forth below is a reconciliation of net income to Adjusted EBITDA for the three and six months ended June 30, 2021 and 2022:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2021			2022			2021			2022
	(in thousands)
Net income	$	5,174		$	49,318		$	7,656		$	88,400
Interest income		(57	)		(17	)		(104	)		(20	)
Interest expense		10,829			19,892			21,350			37,508
Income tax expense		2,174			32,228			3,360			47,845
Amortization of debt financing costs		902			949			1,754			2,050
Intangible amortization		44,003			64,649			86,986			124,925
Depreciation and other amortization		3,606			3,805			7,213			7,438
Non-cash equity compensation expense		6,275			7,503			18,631			14,210
Non-cash changes in fair value of estimated
contingent consideration		34,062			(42,757	)		59,998			(51,742	)
Other expense-net		534			1,451			531			1,487
Secondary offering expenses		287			-			1,409			-
Adjusted EBITDA	$	107,789		$	137,021		$	208,784		$	272,101

Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share

We analyze our performance using Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share. Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share are non‑GAAP measures. We define Adjusted Net Income Excluding Tax Adjustments as net income excluding income tax expense, 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 and secondary offering expenses, if any. The calculation of Adjusted Net Income Excluding Tax Adjustments also includes adjustments to reflect a pro forma 27% income tax rate reflecting the estimated U.S. federal, state, local and foreign income tax rates applicable to corporations in the jurisdictions we conduct business.

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

We believe that Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments 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 Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share do not purport to be an alternative to net income or cash flows from operating activities. The terms Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share are not defined under GAAP, and Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share are not a measure of net income, operating income or any other performance or liquidity measure derived in accordance with GAAP. Therefore, Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments 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 Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share do not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments;
Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments 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 Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share differently than we do, limiting its usefulness as a comparative measure.

In addition, Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments 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 Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share as supplemental information.

Tax Adjustments and Tax Adjustments Per Share

Tax Adjustments represent the tax benefits of intangible assets, including goodwill, associated with deductions allowed for tax amortization of intangible assets in the respective periods based on a pro forma 27% income tax rate. Such amounts were generated from acquisitions completed where we received a step-up in basis for tax purposes. Acquired intangible assets may be amortized for tax purposes, generally over a 15-year period. Due to our acquisitive nature, tax deductions allowed on acquired intangible assets provide additional significant supplemental economic benefit. The tax benefit from amortization is included to show the full economic benefit of deductions for acquired intangible assets with the step-up in tax basis.

Tax Adjustments Per Share is calculated by dividing Tax Adjustments by the Adjusted Shares Outstanding.

Set forth below is a reconciliation of net income to Adjusted Net Income Excluding Tax Adjustments and Adjusted Net Income Excluding Tax Adjustments Per Share for the three and six months ended June 30, 2021 and 2022:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2021			2022			2021			2022
	(dollars in thousands, except per share data)
Net income	$	5,174		$	49,318		$	7,656		$	88,400
Income tax expense		2,174			32,228			3,360			47,845
Amortization of debt financing costs		902			949			1,754			2,050
Intangible amortization		44,003			64,649			86,986			124,925
Non-cash equity compensation expense		6,275			7,503			18,631			14,210
Non-cash changes in fair value of estimated
contingent consideration		34,062			(42,757	)		59,998			(51,742	)
Secondary offering expenses (1)		287			-			1,409			-
Subtotal		92,877			111,890			179,794			225,688
Pro forma income tax expense (27%) (2)		(25,077	)		(30,211	)		(48,545	)		(60,936	)
Adjusted Net Income Excluding Tax Adjustments	$	67,800		$	81,679		$	131,249		$	164,752

Tax Adjustments (3)	$	11,038		$	15,977		$	21,530		$	30,790

Adjusted Net Income Excluding Tax Adjustments Per Share	$	0.84		$	0.99		$	1.62		$	2.01
Tax Adjustments Per Share (3)	$	0.14		$	0.19		$	0.27		$	0.37

Adjusted Shares Outstanding		81,076,423			82,312,683			81,020,580			82,123,532

Calculation of Adjusted Shares Outstanding:
Weighted average shares of Class A common
stock outstanding-basic (4)		55,710,666			65,389,642			53,965,045			65,360,667
Adjustments:
Weighted average incremental shares of
Class A common stock related to stock
options and restricted stock units (5)		452,156			206,735			453,475			321,414
Weighted average Focus LLC common units
outstanding (6)		16,537,585			12,175,282			18,121,604			11,900,077
Weighted average Focus LLC restricted
common units outstanding (7)		71,374			193,625			71,374			193,625
Weighted average common unit equivalent of
Focus LLC incentive units outstanding (8)		8,304,642			4,347,399			8,409,082			4,347,749
Adjusted Shares Outstanding		81,076,423			82,312,683			81,020,580			82,123,532

Relates to offering expenses associated with the March 2021 and June 2021 secondary offerings.
The pro forma income tax rate of 27% reflects the estimated U.S. federal, state, local and foreign income tax rates applicable to corporations in the jurisdictions we conduct business.
Tax Adjustments represent the tax benefits of intangible assets, including goodwill, associated with deductions allowed for tax amortization of intangible assets in the respective periods based on a pro forma 27% income tax rate. Such amounts were generated from acquisitions completed where we received a step-up in basis for tax purposes. Acquired intangible assets may be amortized for tax purposes, generally over a 15-year period. Due to our acquisitive nature, tax deductions allowed on acquired intangible assets provide additional significant supplemental economic benefit. The tax benefit from amortization is included to show the full economic benefit of deductions for acquired intangible assets with the step-up in tax basis. As of June 30, 2022, estimated Tax Adjustments from intangible asset related income tax benefits from closed acquisitions based on a pro forma 27% income tax rate for the next 12 months is $63.2 million.
Represents our GAAP weighted average Class A common stock outstanding-basic.
Represents the incremental shares related to stock options and restricted stock units as calculated under the treasury stock method.
Assumes that 100% of the Focus LLC common units, including contingently issuable Focus LLC common units, if any, were exchanged for Class A common stock.
Assumes that 100% of the Focus LLC restricted common units were exchanged for Class A common stock.
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.

Adjusted Free Cash Flow and Cash Flow Available for Capital Allocation

To supplement our statements of cash flows presented on a GAAP basis, we use non-GAAP liquidity measures on a trailing 4-quarter basis to analyze cash flows generated from our operations. We consider Adjusted Free Cash Flow and Cash Flow Available for Capital Allocation to be liquidity measures that provide useful information to investors about the amount of cash generated by the business and are two factors in evaluating the amount of cash available to pay contingent consideration, make strategic acquisitions and repay outstanding borrowings. Adjusted Free Cash Flow and Cash Flow Available for Capital Allocation do not represent our residual cash flow available for discretionary expenditures as they do not deduct our mandatory debt service requirements and other non-discretionary expenditures. We define Adjusted Free Cash Flow as net cash provided by operating activities, less purchase of fixed assets, distributions for Focus LLC unitholders and payments under tax receivable agreements (if any). We define Cash Flow Available for Capital Allocation as Adjusted Free Cash Flow plus the portion of contingent consideration paid which is classified as operating cash flows under GAAP. The balance of such contingent consideration is classified as investing and financing cash flows under GAAP; therefore, we add back the amount included in operating cash flows so that the full amount of contingent consideration payments is treated consistently. Adjusted Free Cash Flow and Cash Flow Available for Capital Allocation are not defined under GAAP and should not be considered as alternatives to net cash from operating, investing or financing activities. In addition, Adjusted Free Cash Flow and Cash Flow Available for Capital Allocation can differ significantly from company to company.

Set forth below is a reconciliation of net cash provided by operating activities to Adjusted Free Cash Flow and Cash Flow Available for Capital Allocation for the trailing 4-quarters ended June 30, 2021 and 2022:

	Trailing 4-Quarters Ended
	June 30,
	2021			2022
	(in thousands)
Net cash provided by operating activities	$	298,943		$	291,250
Purchase of fixed assets		(17,720	)		(13,129	)
Distributions for unitholders		(33,922	)		(29,159	)
Payments under tax receivable agreements		(4,423	)		(3,856	)
Adjusted Free Cash Flow	$	242,878		$	245,106
Portion of contingent consideration paid included in operating activities (1)		23,081			78,105
Cash Flow Available for Capital Allocation (2)	$	265,959		$	323,211

A portion of contingent consideration paid is classified as operating cash outflows in accordance with GAAP, with the balance reflected in investing and financing cash outflows. Contingent consideration paid classified as operating cash outflows for each of the trailing 4-quarters ended June 30, 2021 was $3.8 million, $2.4 million, $5.3 million and $11.6 million, respectively, totaling $23.1 million for the trailing 4-quarters ended June 30, 2021. Contingent consideration paid classified as operating cash outflows for each of the trailing 4-quarters ended June 30, 2022 was $20.4 million, $16.4 million, $23.1 million and $18.2 million, respectively, totaling $78.1 million for the trailing 4-quarters ended June 30, 2022.
Cash Flow Available for Capital Allocation excludes all contingent consideration that was included in either operating, investing or financing activities of our consolidated statements of cash flows.

Supplemental Information

Economic Ownership
The following table provides supplemental information regarding the economic ownership of Focus Financial Partners, LLC as of June 30, 2022:

	June 30, 2022
Economic Ownership of Focus Financial Partners, LLC Interests:	Interest		%
Focus Financial Partners Inc.		65,442,389		79.8	%
Non-Controlling Interests (1)		16,575,128		20.2	%
Total		82,017,517		100.0	%

Includes 4,347,399 Focus LLC common units issuable upon conversion of the outstanding 16,202,274 vested and unvested incentive units (assuming vesting of the unvested incentive units and a June 30, 2022 period end value of the Focus LLC common units equal to $34.06) and includes 193,625 Focus LLC restricted common units.

Class A and Class B Common Stock Outstanding

The following table provides supplemental information regarding the Company's Class A and Class B common stock:

	Number of Shares Outstanding at June 30, 2022		Number of Shares Outstanding at August 1, 2022
Class A		65,442,389		65,448,434
Class B		12,034,104		12,035,266

Incentive Units

The following table provides supplemental information regarding the outstanding Focus LLC vested and unvested Incentive Units ("IUs") at June 30, 2022. The vested IUs in future periods can be exchanged into shares of Class A common stock (after conversion into a number of Focus LLC common units that takes into account the then-current value of common units and such IUs aggregate hurdle amount), and therefore, the Company calculates the Class A common stock equivalent of such IUs for purposes of calculating per share data. The period-end share price of the Company's Class A common stock is used to calculate the intrinsic value of the outstanding Focus LLC IUs in order to calculate a Focus LLC common unit equivalent of the Focus LLC IUs.

Hurdle Rates		Number Outstanding
$	1.42	421
$	5.50	798
$	6.00	386
$	7.00	1,081
$	9.00	708,107
$	11.00	813,001
$	12.00	513,043
$	13.00	540,000
$	14.00	10,098
$	16.00	45,191
$	17.00	20,000
$	19.00	527,928
$	21.00	3,045,236
$	22.00	821,417
$	23.00	524,828
$	26.26	12,500
$	27.00	12,484
$	27.90	1,929,424
$	28.50	1,440,230
$	30.48	30,000
$	33.00	3,617,500
$	36.64	30,000
$	43.07	60,000
$	43.50	30,000
$	44.71	806,324
$	58.50	662,277
		16,202,274

SOURCE: Focus Financial Partners Inc.

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Focus Financial Partners Reports Second Quarter 2022 Results Revenue Diversification, Variable Expense Base and Global Scale Drive Excellent Financial Performance in Volatile Markets