Q4 2019 Earnings Call
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Conference I don't know what's conference calling for.
Oh focus financial partners.
And name.
First name David last name Umbro.
Okay and your company.
Hi era.
Okay all of them.
Interest in fed.
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Really pleased with our 2019 fourth quarter in full year results.
Our Q4 revenues of 340.2 million and adjusted net income per share off 75 cents increased year over year by 37.5% in 47.1% on an organic revenue growth of 25.2%.
For the full year, our revenues were over 1.2 billion crossing the 1 billion Mark for the first time and adjusted net income per share was $2.38 up 33.8% and 36.8% on organic revenue.
15.1%.
These results demonstrate the strong growth trajectory of our business.
In the six quarters since our IPO.
Our revenues have grown by nearly 50%.
Our number of partner firms increased by 14%.
These results exceeded our initial expectations into reinforce our industry leadership attractive business model in strong competitive positioning.
At our Investor Day last November we laid out to us strategic vision for the gross profitability in skills. We believe focus can deliver by 2025 revenues of approximately 3.5 billion adjusted EBITDA up 840 million in about 100 partner firms.
Our 2019 results demonstrate why you're confident in our ability to achieve this vision.
We are operating at a leading scale in this industry with over 200 building find this 64 partner firms.
Over 1.2 billion in revenues and a long track record of value add and successful acquisitions.
We have deep inside knowledge gained Mr. Longevity of our partner relationships combined with compelling economics. These attributes a highly differentiated and when taken together, we believe they would be difficult to replicate in the fiduciary advice space.
As we highlighted at our Investor day upward 40, or 49 from stiff being with us for two years or more.
The time delivered a weighted average leverage IR are in excess of 25% demonstrating our investing acumen and the quality of our partner group.
Over half of our partners are generating.
More than 30% and more than 85% generating and I are over 20%.
We consistently pick the right partners dose did a best position to accelerate their growth through access to our resources.
Last year, our partners made great progress in strengthening and growing their business is.
Key areas of focus we are developing next generation talent operational and technology enhancements and business development initiatives and we will come to it to be actively engaged in these areas for the coming year.
For example, we are helping develop new value propositions, including sales training and rebranding initiatives.
We are assisting the strategic planning Korea, passing and incentive alignment and we are working on reporting technology enhancements, including vendor assessments and implementation.
Our partners also increasingly took advantage of our scale to extend decline services, we equipping them based private banking resources at competitive pricing without taking on any balance sheet exposure or infrastructure investment cash credit is a terrific example of this be here.
Fin active dialogue with more than 20 of our partners and through December 31st we had over 100 million enclosed in funded loans alone was a similar level of participation in our deposit program.
Both our catalyst for organic gross.
In 2019, we closed 34 transactions capping a strong year for M&A more than 80% of deals were mergers spell partner from system capitalized on industry consolidation dynamics.
If the 16 partners, who completed transactions last year half completed differs merger.
The remaining six acquisitions related to new partners, which expanded our presence in strategically important markets into us, Australia, and Canada as well as into family office space.
Our long term strategy combined with our four gross levers insights scale M&A in capital other drivers of our three priorities for Twentytwenty first to deliver a 20% plus annual revenue and Eni per share grows through a combination of growth spouse or partner group supporting our.
Partners through mergers and adding excellent new partners into us and internationally second.
To leverage our insights and skill to enhance the business in client solutions. We can offer our partners in third to deploy capital to the highest return opportunities while remaining within our target leverage range of 3.5 times to 4.5 times.
The market opportunity remains substantial.
According to a recent Envestnet survey, our rice men, 24% of wealth management assets in 2018, and by 2023 to expected to manage 30%.
Against this backdrop, we extremely well positioned to grow up partnership as we highlighted at our Investor day apartments, a larger more profitably and grow faster than industry benchmarks and benefit substantially from the value it into the extra capital. We provide these attributes makeup partners highly attractive to the bill.
Asked advisors and their clients.
We are focused on delivering business inclined solutions that will further enhance our partners competitive position.
On the business side, we are leveraging our scale in vendor negotiations to optimize cost and enhance service levels. For example, because most of apart those by research from common provide us we are evaluating alternatives to reduce the aggregate cost they paid.
On decline side, we are evaluating solutions that will drive best in class client service and experiences.
Let's do the early days insurance is an example, and other is asset management optimization. For example, one of our partners has a strong capability in alternative investments and certain of our other partners are starting to utilize this capability on behalf of their clients.
We anticipate that we'll have more information on these and other initiatives to share with you in the coming quarters begin Twentytwenty was a solid M&A pipeline and to be anticipating another strong year.
We will remain highly selective in the transactions, we consider disciplined in the multiples, we pay and rigorous in ensuring that the capital mean best generates a minimum levered era of 20%.
Mergers, we continue to add significant value to our partners and shareholders increasing to growth rates of our partner through mergers was a major innovation that focus brought to the already industry, making us the primary beneficiary into driver of industry consolidation from inception to focus model was designed.
To be a gross accelerator for high performing platforms our partners.
The two mergers we have closed and the one we have announced year to date will accelerate partner growth and profitability.
Adding additional clients advisors and referrals.
They will also enhance our partners line service and the benefits they derive from utilizing our value add capabilities.
We also further expanding our international presence, which is important to our diversification strategy.
We announced the acquisition of two new partners Nixes investment management in Toronto, and mid Deca in Melbourne, which when midweek closes will bring our international partners to seven when nearly 11% of our partner group.
Nexus is off to most highly regarded names in the Canadian independent wealth management market with over 1.5 billion in client assets Nexus provides investment and wealth management services across Canada to ultra high in high network clients as well as select endowments and foundations midweek special.
Licensing, providing integrated bus management services to medical professionals and to families, including investment management insurance tax and other services.
Predicts unique positioning as to trusted advisor do this client base provides access to lucrative for growing market these opportunities to expand its national footprint.
Now a few words on leverage.
We ended the year with a net leverage ratio of four times, a meaningful sequential decline due to the increase in our Q4 adjusted EBITDA.
This level provides a great starting point for Twentytwenty, we will continue to deploy capital to the highest return opportunities while remaining within our target 3.5 to 4.5 range. We believe this is the appropriate range to support our 20% top and bottom line growth targets. We've continued.
To closely monitor our leverage while balancing this priority against executing on attractive M&A opportunities.
To close we're very pleased with our Q4 results and strong finish Twotwenty 19 is returned to Twentytwenty. We're confident in the forward potential of our business as we advance towards our 2025 objectives, we believe that our unique model of entrepreneurship.
Combined with access to value at services in permanent capital, we continue to make us to partner of charts, enabling us to attract high performing partners at attractive multiples with that let me now turn the call over to Jim Jim.
Good morning, everyone.
To reinforce what Rudy said 2019 was an excellent year for our business capped by a strong fourth quarter for both growth and profitability.
Q4 revenues were 340.2 million, 37.5% higher year over year. Our adjusted net income was 56 million up 52.3% and our adjusted net income per share was 75 cents up 47.1% from the prior year quarter.
Our full year results were well above our 20% annual growth targets full year revenues were over 1.2 billion, 33.8% higher than the prior year.
Adjusted net income was 178.6 million up 42.5% year over year and Eni per share was $2 at 38 cents up 36.8%.
These results reflected not only strong performance by our partner portfolio, but also the benefits of access to our scale resources and intellectual capital.
Partner firms are performing well and we'll continue to be excellent platforms for future growth.
Now turning to the details of our piano.
The strong year over year growth in our Q4 revenues was driven by two factors approximately 62.3 million or 67% of the increase resulted from exceptionally strong organic growth by our partner firms inclusive of mergers demonstrated the revenue generating power of the portfolio at scale.
Yeah.
Our partners took advantage of our resources and capital to expand their businesses by adding new clients and advisers and by enhancing their service offerings.
Lorillard was also part of the increase contributed an incremental $8.7 billion in Q4 19 compared to Q4 18.
The remain at 30.4 million or 33% of the increase resulted from 2019 partner acquisitions. We completed several landmark transactions last year, including Williams, John's, Scott and augment Greenfield and selvaggio, which drove substantial growth in our revenues and profit.
Ability.
Our Q4 organic revenue growth rate was 25.2%, which reflected strong organic growth by our same store partners over the prior year period for the full year the rate was 15.1% and in Q1, we anticipate that will be around 19% based on our advanced spill and visibility.
70.5% of our Q4 revenues was correlated to the financial markets of which 70.2% was generated from advanced balance.
The remaining 29.5% was from non correlated sources, primarily from our partners that provide family office type services.
In Q4, we reached 100 million in quarterly non correlated revenues for the first time.
Before turning to expenses I want to highlight a few points related to model in our Q1 revenues.
We didn't cause on any new partners in the fourth quarter, which which is typically a seasonally slower period for M&A activity. However, as Randy mentioned, we announced that an excess investment mansion in Canada has joined the focus partnership the Nexus transaction closed on February 1st I will add approximately $3.2 million.
In annual acquired base, our enhance our 800000 per quarter.
Approximately 500000 reflected in our Q1 results due to the mid quarter close.
As I just mentioned our non market correlated revenues, which are primarily related to family office type services exceeded 100 million in Q4, an increase of 72% year over year.
These services are typically provided to high network clients in the entertainment industry and accordingly, the specific activities and projects that those clients can lead to quarterly revenue fluctuations.
There is approximately 20 million in revenue seasonality to be aware of in Q1 related to these services.
First our Q4 revenues were favorably impacted by approximately 10 million of incremental revenues that were primarily associated with these family office type services.
This amount contributor to our outperformance relative to our original expectations for our Q4 organic growth rate.
Accounts in for roughly four percentage points of the difference.
While we don't expect this 10 million to reflected in our Q1 revenues, we do anticipate that the majority will recur in Q4 up this year.
Second Q1 is typically the seasonally slowest quarter for these services based on the activities at the clients as a result at a rapid growth in our non correlated revenues, we estimate that the seasonal impacts will be greater in Q1.
We anticipate that our Q1 revenues will be lower by an incremental 10 million relative to Q4, although we expect this amount to recur in Q2 of this year.
Now turning to Q4 mansion fees on adjusted EBITDA.
Management fees for 87.3 million increase and 37.8% from the prior year period, and our first full year. They were 304.7 million increase in 30.9%.
Management fees or one of our largest expenses, but are tied to the performance of our partner firms management fees for 25.7% of revenues in Q4 relatively consistent with Q3.
Our adjusted EBITDA was 83 million, 53.1% higher than the prior period and our full year. Adjusted EBITDA was 269.8 million up 32.7%, our adjusted EBITDA margin was 24.4% and for the full year it was 22.1%.
The margin increase from Q3, it's a Q4 primarily resulted from the incremental Q4 revenues I mentioned earlier as well as disciplined expense management, our expenses were well managed by our partners and at the holding company, particularly compensation expenses, which remained flat from Q3 Q4.
In Q1, we estimate that our adjusted EBITDA margin will be approximately 23%, which includes the impact of the 20 million a revenue items I mentioned earlier.
Our non cash equity compensation expense was approximately 1.5% of revenues for the full year, which remains a good proxy for this year.
In December in connection with our annual incentive compensation with grants at approximately $2 million incentive units with a hurdle rate of $27, a 90 cents with a four year time vest and.
Equity based compensation remains a substantial portion of incentive compensation for our management team, which reinforces a strong alignment with our shareholders.
In Q4, we recorded a onetime impairment charge of 11.7 million related to a minority equity method investment there were no equity earnings associated with this investment in Q4, and only 500000 for the full year and thus not a meaningful contributor to our full year consolidated earnings.
Our LTM cash available for capital allocation as at December 30, Onest was 163.5 million, 55.2% higher year over year.
The substantial increase was driven by the growth in our adjusted EBITDA.
In 2019, we used our cash flow for capital allocation, primarily to fund, our M&A activity and to satisfy earn out obligations and we expect to use it in a similar fashion this year.
In Q4, we paid Earnouts of 3 million as well as the final 12.5 million purchase price installment related to learn more transaction.
To help investors better understand our cash available for capital allocation, we've expanded our disclosures in our earnings supplement this quarter in three areas first we have added additional information on our tax receivable agreements second we've added a new disclosure on our tax intangibles to help investors better understand the attacks afib.
I can say of our model and third we have expanded our disclosure on the excess cash flow requirement under our credit facility.
Enhancing our disclosures remains a key priority so that investors can more easily understand our business and growth prospects.
Now turning to our balance sheet.
We ended the quarter with approximately 1.3 billion and debt outstanding under our credit facility and a net leverage ratio of four times as already mentioned the reduction in our net leverage ratio is primarily a function of the increase in our adjusted EBITDA from Q3 Q4.
While we anticipate continued strong M&A activity. This year, we will operate within our target range of 3.5 to 4.5 times.
For Q1, we estimate that our net leverage ratio we remain at approximately four times.
We will continue to closely monitored our leverage while balancing this priority against allocating our capital to transactions that meet our growth and return criteria.
In January we successfully repriced our term loan reducing the interest rate from LIBOR, plus 250 to LIBOR plus 200.
Assuming LIBOR stays constant we we estimate that this will reduce our interest expense in excess of 5 million annually.
Although the transaction was oversubscribed reinforcing the institutional lending communities confidence in our business model and our strong access to the debt markets. We did not raise any additional debt capital.
As of December 31st we had in excess of 500 million their capacity available under our revolver to fund our growth.
To close 2019 was an outstanding year.
We grew our top and bottom line at levels that are well above typical growth rates and the wealth manager industry and in financial services generally and we delivered record and I Eni per share growth. We further diversified our revenue stream and substantially increase our adjusted EBITDA and cash available for capital allocation.
Our partners delivered strong growth and enhance client services, reflecting the benefits of access to our scale and resources.
We completed a large number of M&A transaction transactions further capitalize on on industry consolidation.
We further strengthened our balance sheet and communicated our expectation with respect to our net leverage ratio.
Lastly, we further enhanced our disclosures to help investors better understand our business and completed a very successful first investor day.
I am excited about the year at that lies ahead, we have great momentum and I believe that we are well positioned to deliver against our 20% annual top and bottom line growth targets on average in overtime.
I am confident that the scale benefits of our business will continue to increase our operating leverage over time.
When combined with the benefits in our partner strive from a highly differentiated business model. These elements will create substantial value to our partners and shareholders alike.
I'll now turn the call over to the operator for Q and AG operator.
Thank you we will now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad confirmation Tony will indicate your line is in the question Q you May Prestart too if you like your with your question from the Q for participants you think speaker equipment may be necessary to pick up your handset before passing the start Keith.
One moment, please only pull for your questions.
Our first question comes from the line of Olin Lau with Oppenheimer. Please proceed with your question.
Good morning, and thank you for taking my question.
So youre adjusted EBITDA margin was 24.4% in the fourth quarter and you've guided to 23% into first quarter.
And then stand that day seasonality in the revenue, but the appears to be that you'll for margin can get to some we have very close to your long term, 24% target. This year or next year do you think your long term guidance is some kind of conservative given that you will continue to scale up how should we.
Think about your margin expansion and trajectory going forward. Thank you.
Yes, hi, everyone.
And thanks for your question.
Of course, you had the.
24.4% for this quarter was excellent and simply a reflection of the terrific momentum that we have in our business.
We our guidance, let me step our guidance.
And one important reason for that is as you know.
On the one hand via seeing does operating leverage for the core business, yes, as we scale, but ultimately a key determinant off does EBITDA margin ultimately is 2% acquired and the of four new firms when did join US and we believe the guidance that we gave it to invest the days appropriate.
Considering up within declared.
Right and for full year, 29, CNO and we were at 22.1% so.
So to reflect in the business on a full year and.
23% for Q1 Guy soda growing the business towards the long term outlook.
So.
We will continue to provide guidance on a quarterly basis for the.
At our margin as well.
Got it. Thank you and then my follow up its regarding M&A involvement.
You have any way to lose from the Morgan Stanley Andy trade deal in the all eyes space and also how should investors think about your pace of international expansion.
Your next us and met the deal. Thank you.
Sure.
Well, you know I'm busy enough talking about focus I'm not sure I want to comment much about.
The businesses.
The one comment there one fault however did crossed my mind when I saw the announcement today.
It's simply a reflection.
That did traditional model is broken and does not.
Cannot compete with the winning model in this industry, which is the already a fiduciary model.
Which of course is gaining market share to the tune of hundreds of billions of dollars a year, which means when youre operating on reducing side of the equation you need to do consolidation.
And what we are seeing with the trade deal of course, what you're seeing which was up and Mary trade and.
Is ultimately traditional consolidation moves.
The ultimate near defensive in nature and of course, a fundamentally not about higher client venue, but really about cost savings and.
Consolidation.
As it relates to international.
Yes, we have always been.
Very clear that of course, our starting point is the us business.
But we see great opportunities in Australia in Canada and over timing some additional markets.
I just came back from.
Our partner from mixes up in Canada and by the way there will be a video from the trip on our website and I have to say it is so exciting to see how our core business model.
Resonates your way beyond the us.
And quite frankly, how we were the right solution at the right time for one of the leading firms in the Canadian markets.
Given the scale the unique skill in breadth that we have been does industry. We of course can deploy capital where we see the best opportunities.
And we're very excited about what's happening in another in number of these international markets.
That's very helpful. Thank you very much.
Thank you. Our next question comes from the line of Kyle Voigt with KBW. Please proceed with your question.
Hi, good morning.
My My first question here is just on the that $10 million revenue. They didnt originally expect to realize in the fourth quarter. I know you said it was family office type revenues, but can you just getting a bit more granular than that what types of services exactly in kind of why was there some seasonality in the fourth quarter and also where these revenues very high.
Margin revenues and that's kind of partially what drove the stronger EBITDA margin in the quarter.
Yes, Hi, Kyle.
Dealing.
We made a strategic move.
Did we explained.
In a number of his calls to move to business more towards the ultra high net worth and quite frankly, what we are seeing is.
That these investments.
Ladies and kids that be gelfand in a number of other firms simply paying off end up being off in the in excellent way.
And the of the head of course, we have excellent visibility in terms of the.
In advance building.
The Irrs side of course, but definition has gives us less visibility in some of these services of simply tied to the success.
Off the underlying clients.
And.
We quite frankly are just very very pleased with what we've seen and it's important to note by these are not warranted the recurring.
Revenues. So they are not going to you won't see them in Q1 Q2.
The.
Fundamentally belief that this is recurring phenomenon that is going to benefit us throughout the years.
And then your question from a margin perspective, Kyle you are correct. It was about $10 million of revenue.
And there wasn't much incremental costs associated with this revenue except for the management fee, which was about 5 million. So this was about 50% margin justice just the specific economics very attractive.
Got it. Thank you and then one other question I had was just on the the 19% organic growth.
Guidance for the first quarter of 2020, just wondering if that includes the entirety of three sub acquisition that you expect to close in the quarter.
Yes of course, you and you know how we're defining our organic growth.
We'll have some help into first quarter that we didn't have much help in the fourth quarter. During the first quarter, we are going to have.
Some help from the market some help from the transactions that we announced and quite frankly judging from our in advance billing, yes, again, thats, where we get this great visibility into into the next quarter.
Quite frankly, Jim and I are very excited what we what we see yes. So it is reflective of the mergers and reflective of the outlook that we have in the supplement on the 20 million.
Got it thank you.
Thank you. Our next question comes from the line of my carrier with Bank of America. Please proceed with your question.
Hi, This is deemed Stephen on the line for Mike just a quick question around the competitive environment. So given the competitive environment kind of more players entering the space are you guys seeing any changes in terms of steel pricing or competition for deals and.
Just in regards to that how do you see these competitive forces kind of playing out moving forward.
Yes, so our dean.
Clearly the our business model is very differentiated.
Much of the money that's coming into the market is private equity driven and.
Private equity money is.
Low value added.
Is temporary and the us so is already starting in a disadvantaged position.
Our model is about entrepreneurship evolved and long track record of 10 couple of value added.
That we demonstrated with so many of our partner firms and ongoing excess to permanent capital. So what that of course means is.
In private equity firms getting off to a sponsored firms CN buying an already it's temporary money. So you have to explain to you appliance that.
You are just an.
Ownership percentage from private equity group and by the way 345 years from now you will be on the block again, and then to transaction is fully controlled by the private equity.
Most clients into ultra high net worth this is a formula that doesn't resonate and.
Quite frankly is not very attractive in a more demands affluent market quite frankly, it's less of an issue. So we fully committed to our annual targets. We have a good pipeline as I said before is we have this tremendous.
Unique opportunity to deploy capital across many different markets, where we think we get the best returns.
But from an overall perspective, we.
We'd like to where we are on the M&A side.
Okay. Thanks.
Thank you. Our next question comes from the line of Alex Blostein with Goldman Sachs. Please proceed with your question.
Hi, guys good morning.
Couple of questions first.
You talked about helping your partner firms really leverage focuses infrastructure and kind of the know how in the marketplace to build up their scale can you talk a little bit about how these benefits translate to focus as margins over time, so what I'm really looking for I guess is ever look at the 19 EBITDA margin of 22.
And you kind of continue to two to add to scale to your partner firms.
Work of these margins go.
Assuming kind of steady state book of business, which I know is not quite you business, but excluding the the future deals what are the scale benefits add to EBITDA margin over time.
Yes sure.
So I'll hold business system, you're from the start was geared around value added and.
Many of our partner firms have just seeing tremendous growth.
Just visited recently to call on the group up in Boston and they joined US a little over 10 years ago. This was a 1.1 billion dollar from.
This is now $12 billion affirm that has a very nice blend off first class C. Our client retention new client dynamics, the great investors, but they also very acquisitive. So in many ways. It say, it's an excellent example of.
Off how it partner from evolves from being a very good business to being one of the best businesses in this industry.
The way it translates into financials as CEO of course, the incremental revenues that are being generated.
Ultimately, our higher margin year than the base revenues again, we had an extreme case in the 10 million this year, where we basically the 50% margin.
On this revenue so ultimately the efficiency and the increase in revenues in growth profile partner firms increases deal Economics, and then do you see improved economics, you're sharing through the management fee reseller partners, which ill touch they get 50%, we get 50% since the highly aligned model.
And it's a model that can really generate value.
Also through margin expansion.
Having said that the via not changing out 24% guidance to be provided in the Investor Day. We think this is an excellent spot to be in and.
Thats the target that we stay with.
Okay, and then I wanted to touch on the non U.S. opportunity for you guys seems like you've been a little bit more active there. So can you talk a little bit about the dynamics of buying the business outside the us.
What kind of multiples you guys pain, there versus us sort of what what's the percentage of ownership.
You acquire EBITDA margins for those kind of businesses.
In line with what we can see in the U.S. Our there are some nuances that we need to be mindful off as you push push forward outside the us.
Yes, absolutely so what creates this opportunity assembled mix so excited about it.
Yes.
Looking for discontinuity this major discontinuity this that ultimately.
Create an opportunity for fiduciary advice model.
In so many ways Australia is.
Exhibit a open market, we are regulators space again pushed out with billions of dollars they'll find see older traditional players, creating a wide open field for independent advisors. So that basically follow a fiduciary model quite frankly in some ways even.
Leapfrogging of what we happened to us in terms of the advice standards.
We are very I am always very special into us it's unique unheard of in a number of these markets and that kind of enhances the opportunity.
Alex the economics are quite similar to the us comparable deals here to see mid to high.
Multiples of single digit multiples that we are paying.
The model is identical we usually by about 50%.
Core margin of this business is again is quite comparable to what we happened to us so quite frankly, a number of this businesses.
And take this underwrites buried but the number of this business as you could lift up reserve Crane.
And transport over to the us than they would be doing business pretty much exactly the same way of course, what gives a little more complex for us is the regulatory environment illegal, Texas, we need to spend to of course, some more time on this but the core business model is the same and near quite frankly.
Over time, our core value added model is going to be the same as well.
Great. Thanks, and then just the last one for me I guess you talked about.
Robust pipeline heading into 2020 for deals again.
Can you help us frame how much capital you expected deploying 2020, either in focus deals our partner from deals and I know you probably not going want to put a number on that but just just help us frame what could 2020 look like relative to 2019 or 20% in terms of the actual capital deployed thanks.
Yes.
We don't really.
No.
The timing of transactions and there'll be no via a good pipeline.
We know that we will again deploy a very substantial amount of capital.
But I don't want to begin to spin that specific number.
Because this is the M&A business and there are it's always very hard to predict but clearly when I look at our pipeline I'd like with us.
Great. Thanks.
Thank you Alex.
Thank you. Our next question comes from the line of Chris Shutler with William Blair. Please proceed with your question.
Hey, guys good morning.
When we look at the partner from deals over the last year that you've completed can you give us a sense what was the lowest ownership stake that you took and what was the highest ownership stake.
Yes.
You know, it's pretty similar to what we had in the past let me quickly eyeball this deals.
So I wouldn't say that there was any standout one we already are though.
As we look at the percentages acquired the of course on my key deals last year Williams Jones.
As karla.
He has all been green Thats of RG, a very much inline with our typical.
Percentage has acquired.
Okay.
That's a couple of follow ups on that so I.
I know we've talked about this in the past by just want to make sure I understand the.
If I take the management fee number.
If I divide that by operating income.
That should be a decent proxy for the.
Percentage of firms that you do not on would that be correct. So the universe of that would would be close to the percentage that you own.
Yes, so management fee.
It's we say it's your indicate into fourth quarter were about 25% off the revenues yeah right and.
That was a pretty consistent number.
Of course, there's the Holdco expenses here that goes through this mathematics, so you can't really creative onto one.
Ratio also what is a pretty common phenomenon because via buying on the on the run rate.
The.
Dave preference in the first year, if a transaction year quite often has a little bit of relevance, but it does have some relevant so the a number of dynamics, where you can just.
Calculate this percentage and to get the in gross of what we own.
Okay.
And then the other one.
Maybe the simplest way to ask it is just if I look at the Q4 EBITDA margin.
Oh, well over 24% scale that was.
Almost 300 basis points better than your guidance.
Given that the sounds like the ownership stakes hasn't really changed that the family office was similar margin.
To help me understand why that outperformance would've occurred and then the other thing just looking at that metric hours I was pointing to.
You the it did look like the.
The anniversary.
Management fee divided by operating income increased pretty substantially quarter over quarter. So just trying to understand what basically what what helped the margin.
Yes, I think.
As I indicated earlier, Chris that 10 million of incremental revenue in it come with any associated costs other than the management. So just that pure place of business was a 50% margin.
Impact.
Maybe one other way to look at it is if you take revenue minus cash cost minus cash SGN a call it core expenses.
That's about 50% of the revenue for Q4 as a proxy obviously, that's also inclusive of the holding company, where we have about 80 or so employees, but the holding company is a small portion.
Based on the aggregate size of the firm at this point, so that kind of can give you a proxy of the economics.
Okay I'll follow up offline thanks, guys.
Thanks, Chris.
Thank you. Our next question comes from the line of Gerry O'hara with Jefferies. Please proceed with your question.
Great. Thanks for taking my question. This morning, it sounds like in the prepared remarks, you mentioned some alternative investment initiatives.
Sounds like there's some additional information forthcoming here, but perhaps you can speak to the demand or other drivers that have contributed to the build out within.
This alternative asset class and importantly, how focus is kind of position to to deliver on this on this initiative. Thank you.
[music].
So a Jerry Dean of course via wealth minute trying to build in essence miniature and.
Such.
Locating yes, our pipelines assets into many different asset classes.
And.
As we have been more and more targeting the ultra high net net worth into high net gross side of the business.
Quite frankly demand for alternative access to alternative assets.
It has.
Patent the obvious some of our partner firms where are you a 40%.
Oh that totally locations are into all different types of alternatives as we explained it though I invested today.
Now focusing on taking advantage of this unique scale that we have built in the industry.
Over 200 billion, the 4000 people and so on and this gives us the opportunity to.
To basically create more linkages between partner firms, where they can leverage each of those capabilities.
And the of vehicle.
As a handful of firms that are really good in the alternative space and.
The other firms that have a very high demand for these type of asset classes and via basically creating the intelligence, which if you want.
I mean, just partner firms and via software implementation, there will be more and if things evolve we'll have.
More updates here for put investors.
Great. Thanks, and then just perhaps a follow up.
Around the leverage ratio and forgive me I know I'm still near to the story, but it seems like it came in at the lower end of the updated range.
Just sort of curious as to what we might expect to or what we what we should look at that would kind of.
B and leading indicator here of of how that number might move plus or minus around around the current within the current ranch. Thank you.
So it was very important for us Jerry too.
Give gifts via the investors.
A clear guidance in terms of how we think about leverage the ranges between 3.5 and 4.5.
Last quarter 4.27, because of the dynamics that you are they're very very favorable dynamics that we experienced in into fourth quarter, we de levered to exactly the midpoint between the other three and a half into four and a half and quite frankly is a very comfortable number for us.
We.
Well basically all slated around this based on your hardware, we see opportunities to deploy our capital.
But.
This is the spots that quite frankly beef, we thought we would be reaching a delayed apart, but just a terrific. It come omicsoft Q4, and quite frankly, the terrific economic throughout 2019 basic enabled us to de lever you're much faster in the two expected to spot where we're very comfortable.
Great. Thanks for taking my questions. This morning.
Absolutely.
Thank you we have reached the end of our question and answer session I would like to turn the call back over to Mr. Rudolph for any closing remarks.
Thank you and.
Thank you all for your interest and in closing I want to stress that I could not be proud of the performance of our business and the growth and progression of our partner firms. You know 2019 was a great year on many dimensions and so it really reinforced this strong.
Victory of our business.
We are confident in our ability to expand our business given the scale and competitive advantages that we have today.
We firmly believe that our unique model, we continued to make us to partner of choice and still leader in this.
Highly attractive market.
I do want to take this moment to think our incredibly talented up partners and employees.
We would not be wherever you are today without their hard work.
Their dedication and relentless drive.
The benefit of.
Customers and.
Our and all of our shareholders I'm excited about the momentum we have coming into Twentytwenty and all that we will achieve throughout this year.
Thank you all for your interest.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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