Q1 2021 Focus Financial Partners Inc Earnings Call
[music].
Good morning, I would like to welcome everyone to the focus financial partners 2021 first quarter earnings call.
Joining today's call, our Rudy Adolf founder and C E O G.
Jim Shanahan, Chief Financial Officer Rusty.
Rusty Mcgranahan General counsel and Tina Madden head of the Investor Relations and corporate communications.
At this time I'll participant lines or muted a question and answer session will follow the formal presentation if.
If anyone should require operator assistance during the conference police Crestar zero on your telephone keypad.
As a reminder of this conference is being recorded.
I would now like to turn the conference over to your host Mister Mcgranahan. Please go ahead.
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 the focus is the results may of course differ from these statements. These statements are based on assumptions made by and information.
[noise] available to focus financial partners and evolve risks and uncertainties that could cause of the results of focus to materially differ from these statements.
Focus is make filings with the F. C C, which lists some of the factors that made cause it's the 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.
For our M&A momentum remains strong into Q1 and debt is continuing into Q2.
We have added three new parts of the firm's year to date, including Prairie capital, which is approximately $5 billion in client assets extending our track record of adding excellent firms that are value accretive.
We also completed for mergers on behalf of our partner firms, which included two for connectors and one for SCS financial partners.
Partner for them in Boston that serves the ultra high net worth clients.
We anticipate that our partners will take further advantage of the substantial industry gross opportunity to increase the of scale and bolstered the gross.
On the pipeline is excellent in this building further with a good mix of new parts of the firm acquisitions and mergers, including connectors, which has a solid pipeline of mergers both in the U S and internationally.
The remainder of connectors is a focus partner for them because of hybrid acquisition of alternative that expands the addressable market globally connected.
Connectors is the semi autonomous model the signed for teams who want to maintain autonomy over the our client relationships, but utilized the share the infrastructure connectedness offers to optimize the efficiency and so for growth.
On the because of its size and gross but also because of the sophisticated evolving needs of ultra high net risks individuals and families. Many of these individuals entrepreneurs and innovators who will be at the forefront of capitalizing on the learnings from COVID-19 and rebuilding the global economy.
It's the wealth landscape develops we need for the need for scale highly specialized services and the ability to off of choice will become increasingly important.
We are well positioned to support the devices in the clients in the space not only because of our partners and to focus team itself for entrepreneurs, but also because of the continued the evolution of our value of edits services in the areas that are integral to providing holistic wealth management solutions.
Yeah, adding capabilities in insurance Trust and fiduciary solutions valuation services business development and the alternative investments and we continue to enhance our cash management and credit offerings.
These are the types of skilled initiatives that the add significant failure to our partners and their clients and will help increase of partners organic gross overtime.
For example, we will be making it portfolio of insurance offerings from leading carriers it'd be a little too our partner from beginning in queue to keep.
Key areas will include property and casualty life on disability executive benefits and individual limpid the business health.
Additionally, we will off of curated consider services in the range of special day as such as the reputation of of risking damage insurance.
Maybe the also offer dedicated trust services to of partner from Slater This year.
These services create a significant opportunity for well for devices to expand and retain multi generational client the essence of what time.
B of creating of trust offering.
For in network of high end and advice of coordinated independent trustees with the scale and the expertise to meet the diverse needs of our part of the clients and can do so at the highly competitive pricing.
Separately high quality alternative investment offerings have become of central theme for sophisticated client portfolios.
Pardon of firms will be able to access the industry, leading private investment strategies through see us investment partners the asset management the arm of our partner from Ses financial.
Sort of S. Yes.
Artless wouldn't have access to some of the best performing productivity managers was attractive pricing.
Changes to the fundamentals of our business.
In summary, we are.
Very well positioned for growth in the use of head and our 2021 and 2025 gross targets reflect this.
We are a clear leader in the wealth management sector and the trajectory of our business momentum continues to increase.
All of diverse partnership of more than 70 firms globally creates enduring scale advantages reinforcing the sustainability of our strong growth for many years to come.
I remain very excited about the outlook for focus both near and long term with that let me turn the call over to Jim Jim.
Thanks, Rudy and good morning, everyone. We delivered excellent Q1 results outperforming our expectation across all measures and we are very pleased with the strong performance and growth of the business as Rudy noted we continued to enhance our present in the ultra high net worth space expand on.
International presence and further build out our value added offerings, creating multiple levers for the future growth of our partnership.
We are operating in a sector of the wealth management industry with strong underlying growth fundamentals, which the pandemic has further accelerated.
Now, let me turn to the details of our Q on P&L.
Our revenues were $394 2 million up 16, 9% year over year and slightly ahead of our estimated range of 375 to 385 million as of.
Organic revenue growth across of the partnership of 12, 2% was moderately higher than our estimate of 7% to 10%.
Our Q1, adjusted EBITDA was $101 million up 29, 4% year over year. This results reflected an adjusted EBITDA margin of 25, 6%, which was well ahead of our 24, 5% expectation due to the higher organic revenue growth and lower operating costs relative to <unk>.
<unk> is.
As Rudy noted this is a significant milestone the embedded operating leverage in our business reflects and other benefit of the scale. We have achieved to date, while we anticipate that there will be some adjustments of our expenses as employees return to the office and certain variable costs such as the <unk> will increase we believe that our margins will benefit further.
From this operating leverage as the top line growth of our business outpaces the growth of our expenses over time.
Our adjusted net income excluding the tax adjustment per share was <unk> 80, 29% higher year over year and our tax adjustments per share were <unk> 13 up eight 3% for the comparable period.
Our M&A momentum remained strong during Q1 and that continues into Q2, we closed one new partner firm Hill of investment group on March 1st and two additional partner firms Prairie capital and Rollins financial on April 1st There was no meaningful Q1 revenue our adjusted EBITDA contribution from Hill due to its late closing.
In the quarter, but we estimate that he'll prairie and Rollins will contribute an aggregate of $7 million of revenues and $2 6 million in adjusted EBITDA in Q2.
In Q1, we completed a merger in the U K for connectors and year to date, we have completed for mergers which included the math. These laid merger for a partner firm SCS financial and a merger in Australia for connect us.
This is our fourth connect this merger in Australia since connectors entered this market last December.
As for really highlighted our acquisition.
The robust while the signing of transactions is inherently difficult to predict our pipeline for this year remains substantial and is growing.
The activity across the industry continues to increase and joining the focus partnership remains exceptionally attractive to wealth managers looking at their next steps.
It bears repeating that becomes part of an international network of 70 partner firms, who are each industry leaders, who are highly entrepreneurial and at the forefront of client service and who are led by excellent management teams is unique in the wealth management industry No. Other company in this space offers this value proposition.
Which is supported by the benefits of permanent capital investment or has anywhere near our scale the.
The array of resources, we can offer our partner firms as a result helps them accelerate the organic growth. They are able to offer resources to current and prospective clients that would be difficult to source without focus of scale advantages and intellectual capital.
Our partners also benefit as we expand our position in the ultra high net worth space globally through serving some of the most contracts and sophisticated clients in the world, we gain insights and expertise that we share with our partners and out of the catalyst behind many of the value add services, we now offer.
Now turning to our Q1 expenses and cash flow.
Management fees were $102 1 million up 25, 9% of revenues slightly lower as a percentage relative to Q4, which highlights the ongoing benefits of our variable cost structure.
Our noncash equity compensation expense was $12 4 million, which in part reflected vesting of certain long term awards of our modified invested during the quarter.
We expect noncash equity compensation expense.
The approximately one 5% of Q2 estimated revenues.
Q1 also reflects a $25 9 million increase of noncash changes in the fair value of estimated contingent consideration, reflecting an increase in the fair value of estimated earn outs pursuant to our Monte Carlo simulations.
The stronger organic revenue growth, including the effect of market conditions drove the increase in the fair value estimates of these liabilities as of March 31.
Our LTM cash flow available for capital allocation as of March 31 was $219 9 million 51, 8% higher year over year, reflecting the growth of our partnership as well as the addition of seven new partner firms and 15 mergers during this period.
In Q1, we paid $4 1 million of tax receivable agreement payments in line with our guidance. We also paid earn out obligations of $10 million in line with our guidance and we anticipate that we will pay cash earn outs of approximately $55 million in Q2, which includes estimated payments for certain in Q2.
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As a reminder of our cash flow in future periods, we will continue to be enhanced by our one 7 billion on amortized gross tax shield as of March 31, we.
We expect the value of this tax shield will continue to grow given our highly tax efficient acquisition structure and would also be enhanced by any increase in corporate tax rates.
Now turning to our Q2 expectations.
We estimate that our Q2 revenues will be in the range of $405 million to $415 million.
While our Q on organic revenue growth rate was 12, 2%. We estimate of Q2 organic revenue growth rate of 23% to 26%, which reflects the impact of the sharp COVID-19 related decline in market levels on our Q2 2020 revenues. Our Q2 expectations also reflect our M&A moment.
So together with the organic revenue growth our partner firms are generating as.
As expected, we anticipate the family office type revenues related to live events from the reductions and alike will normalize later this year with the wide availability of COVID-19 vaccinations.
We also estimate that our Q2 adjusted EBITDA margin will be about 25, 5%.
Assuming market conditions the constant at current levels, we anticipate that our full year of 2021 adjusted EBITDA margin will be around 25%. We continue to expect that we will update our long term adjusted EBITDA margin target of 24% in the second half of this year as return to work plan.
<unk> become clearer and business development travel and other activities returned to normalized levels.
We remain confident that we will deliver full year 2021 revenue and adjusted net income excluding the tax adjustments for share growth in excess of 20%.
Now a few comments on our balance sheet.
We ended Q1 with approximately $1 6 billion of debt outstanding and a net leverage ratio of 379 times the <unk>.
The market stayed constant at current levels, we anticipate that our Q2 net leverage ratio will be in the range of three five times. The 375 times as of rapidly increasing cash flow available for capital allocation continues to reduce our need to use debt capital to fund our M&A activity.
We remain committed to our net leverage ratio range of three five times. The four five times, which you believe is the most appropriate range given the highly acquisitive nature of our business.
We have approximately $1 billion of capital to deploy based on our revolver capacity cash.
Cash on hand as of March 31, and the cash flow, we expect to generate this year.
While we will remain disciplined in the transactions, we pursue and the multiples we pay we have a number of attractive acquisition opportunities both in the U S and internationally.
In conclusion, we delivered excellent results in Q1, and the growth trajectory of our business remains very strong we executed well on our M&A momentum is robust we continue to expand our international and ultra high net worth footprint and took advantage of our scale to grow our presence in the ultra high net worth market.
We also substantially expanded the depth and breadth of our value added services during the quarter, providing scale advantages to our partners and enabling the advisors to deliver superior client services. All of these outcomes are a function of the scale and profitability. We have built since our IPO and further reinforce our competitor.
Or differentiation without the scale, we have today, we would not have the visibility insights of our financial flexibility to invest and drive the growth of our business. We are excited about the path ahead, and we're confident that the robust growth and continued evolution of our business position us to deliver strong sustained returns for our shareholders.
With that let me turn the call over to the operator for Q&A operator.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask the question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up of your handset before pressing the star keys, one moment, please while we poll for questions.
Your first question comes from line of Craig.
Kagan dollar with credit Suisse. Please proceed with your question.
Thanks, Good morning, Rudy Hope you're on the team are doing well.
Mr. <unk> how are you.
When you pronounced right now on.
My first one is on taxes.
Can you talk about how the prospects of higher capital gains taxes could impact the focus business and I'm thinking mainly about an acceleration to our a M&A, but also how it could impact the underlying client steel including flow trends.
Yeah, absolutely Craig this is obviously a very complex question.
Because it has so many facets of.
In the short term.
Clearly, we do believe it will have an accelerating impact on the on our M&A activity.
Not dramatically, but still I think meaningful lead because of the in so many discussions we are having a quite frankly this is an important subject.
It's <unk>.
Certainly.
Will turn medium term probably more into of headwinds because when you're into wealth management business and more and more of the wealth is take the away from the up by the government, yes for sure.
It will have some impact on just the of what we are managing however, this probably is offset.
By really the need for high quality advice and.
Our partners are quite frankly, when I talked to them. The they have never been busier with.
Clients are trying to anticipate.
Look maybe coming out of the out of Washington in the in the local governments.
And then ultimately understanding of what is the impact for estate planning what is the impact for our picks planning.
Quite frankly, where people want to lift is of course, the nature of migration of <unk>.
People, who are happening in the come true right now so net net hard to predict very long term.
It has an impact on the economy on the other wealth generation Youll, probably a headwind short term from an M&A perspective in most certainly from a need for advice need the need for quality fiduciary advice probably of major positive.
Got it and then really sticking with M&A for a moment.
Can you comment on how valuation multiples have trended in the U S across your verticals just given what it looks like much higher competition, especially last year and then also contrast, this to the valuations you're seeing in your international markets.
Yeah, Yeah, absolutely of course, we have for a very unique position.
Because ultimately our value proposition of.
Value add the entrepreneurship and the permanent capital simply.
Simply nobody else can can credibly claim and.
So we are operating in a very attractive niche.
And I've said it on the last earnings call.
Our multiples were basically flat year over the last three years, taking the Calhoun. Thank you Craig the.
The very little bit down last year, and the versus the prior year and again the prior year.
So.
It's all around the power of the value proposition and quite frankly simply day the.
The credibility.
All of it consistently executed strategy by the market leader.
You are correct there are some WC, some let's say unusual multiples occasionally.
But quite frankly be of seamless patterns here many times in this industry Inc.
In so many ways the always the same unit sales.
So some inexperienced newcomers kind of into the the.
The space you are usually with the.
Who are of value proposition. So really all the can do is be higher multiples.
And.
Then quite frankly, they realize that they have overpaid and then.
The pad on the repeat itself first the announced that the all of these firms the day quiet now operate under the brand.
Of which quite frankly has very little value in this industry.
The introduced mandatory platforms.
And.
Then the start encouraging them to sell the frequently underperforming overpriced products.
And finally, they encourage the force there.
The advisors to increase our prices on the appliance.
Usually adjusted because of the way the industry works is the are these things are fully strategies.
And then yogurt youll see that the these businesses exited the market and as I said at the yes.
The number of times never had the bank succeeded in the in this industry never had the foreign buyer succeeded no insurance company and thirdly, new asset manager and this is not for a lack of trying so ultimately you need the business model that you're consistently execute where you're truly add value to partner.
Yes.
Bear on those capital one is the competitive landscape in these multifamily space and how focus can add value to the east joint venture. Thank you.
Yeah, absolutely. So we are very excited about the this opportunity and quite frankly.
Yeah of the Hindu chose is one of the most prominent ultra high net worth families on the <unk> on the globe and one of the wealthiest families in the UK day, obviously can choose to work with just about anybody.
For the ultimate lead day, they chose us as the partners because of the really belief that the hour perspective, our value added resources.
Can really help them develop together for of course under the leadership of the management team into.
Into one of the leading true ultra ultra high net the gross multifamily offices in the World. We made a big statement from the start with launching it basically simultaneously in London in Geneva in Singapore.
Is there a lot of this wealth of course is concentrated.
And be really of very bullish about this market via via very bullish about the very differentiated value proposition that we can bring that ultimately Oh N V actually belief will help you out of it is everything we do it focus the b b if this diverse group.
Of 75 partners firms and the basic Kelly the oldest learn from from each of the M. B a spread the news across the partnership when the appropriate and the it's really of learning network of partners and I look at <unk> is very much.
One of those are very important you firms that we have you in the group.
Got it that's very helpful. And then quickly on the laugh range. So what's the ZIP check for focus to at just the Laughridge guidance down I mean, it has been trending jammed in a pretty healthy M&A involvement with the at just the EBITDA and the cash flow you of January tank watch.
We like what we see.
The U S. We like the opportunities for connectors that we recently launched we like the international opportunities. Obviously, we proved out last year as we just mentioned that we can operate on periods of high volatility and maintain our leverage guidance. So it's really about being.
Positive and look at the opportunity had and using our cash flow on our low cost of debt capacity.
On attractive opportunities, while still maintaining discipline on the transactions that we do.
Yes, maybe allows the thank you Jim.
Maybe just the last one because I think it's really interesting.
The show.
In our.
On the chart basically our EBITDA on an LTM basis would need to drop by $157 million, meaning 79%.
The two ever reach of our six of the court of net leverage.
The covenant so readjusting in excellent position.
And it's ultimately optimizing the returns that between the rate by staying within the three and a half to four five range.
Thank you.
Your next question comes from the line of Mike Carrier with Bank of America. Please proceed with your question.
Hi, good morning, Thanks for taking the questions.
Just the first question on some of the new price and services you guys are offering working on like the cash.
Cash credit insurance private investments.
Ultimately the important areas, where we're focused on the differentiation, but it also has to be done well like to get updates on these.
I understand how you create the offerings, maybe how involved are the <unk>.
The firms and then any update numbers you have on some of those earlier initiatives or how it may help and Winnie when you're.
Going after certain M&A partners.
Yes, Hi, Mike.
The focus from from a start we have always been about value added.
The.
Quite frankly.
Our scale the scale that we have reached over the last number of years really ultimately enable us to create solutions that are unique in the industry.
Quite frankly, a very very helpful to our partners Inc.
The India prospect of where can be the prospects.
The Genesis.
It's just about everything we do at focus is always the same.
It starts with one of our.
70, plus partners, saying you know what.
I have this needs for some clients.
How can you focus help.
And the very often it's just not one part in the racing day hand, but it is the number of partners and Thats. When we then help these partners firm.
So for the initial problem that's the.
Starting point.
And then we look is this something we can scale it across the group because it's really a pattern of service needs.
These clients or in parts of this need.
What.
Yes.
So net.
Never did get the things built in the laboratory, but the always real life client cases client opportunities that we are helping out parts of the surf.
And.
Through our scale.
We are the largest client to the largest purchaser of just about any service that you could find in the RIAA industry. This gives us insights. This gives us the bargaining power of this gives us excess debt quite frankly, nobody else in the space has and this is what we then deploy for our clients the first era.
Debt we have.
Worked on and on.
On the public cable's cash on credit.
Very very pleased Mr cash on credit program.
It was over $1 billion, just last year, we see tremendous momentum and it's very high tech kind of lending like very recently.
The help the financing of.
The royalty.
<unk>.
In the largest thing that they didn't pain of segment you had very very attractive terms in the.
Very complex, but very high value added transaction.
Behalf.
You had done international of lending the of them.
Aircrafts and you also on the other thing. So there is a lot of kind of high tech capabilities that we're bringing to the party with the.
Even more competitive in the market and therefore increase their growth through getting more clients and retaining our clients in fact cash lending if theres one thing ive.
I've learned over this last year in the half.
So off of an attractive lending solution. The leads to tremendous increase of assets. These clients worked with our partners. So it's really a win win for the client win for our partners at the end of course the win for focus.
Alright, great Thats helpful. And then maybe just a quick follow up Jim the EBITDA margin is coming in better and has improved by a good amount of not just over the.
Last 12 months with COVID-19, but over the past years of.
Just curious on the outlook on has anything changed or the mix shift is that makes maybe the margin opportunity more attractive versus the two years ago.
Yeah, obviously, we're happy with the growth of the adjusted EBITDA margin, we just reported 25, 6% this quarter.
On the Q1 last year was 23, one so.
Two five percentage points year over year, we're obviously very happy about that debt growth.
We provided.
Details in the earnings supplement in Q2, we have.
A few new partners.
Debt are going to contribute about $7 million on revenue $2 6 million of estimated adjusted EBITDA. So those.
First we think will contribute around 37% adjusted EBITDA margin for that kind of goes.
<unk> of our math.
We are guiding towards full year of at least 25% adjusted EBITDA margin.
Specced later this year of travel business development activities will start to pick up.
Structurally our connectors transactions have have higher margins.
Still early days, so they're not contributing materially to any change, but over time that that will impact the margins.
And as we said on the last earnings call at the end of this year when we have a little more visibility on all of these things, we're probably reevaluate the the.
The long term adjusted EBITDA margin at that time, but overall, we're pretty happy with the year over year growth of the two five percentage points as I just mentioned.
Alright, great. Thanks, a lot.
Thanks, Michael.
Your next question comes from the line of Kyle Voigt with Cape UW. Please proceed with your question.
Hi, good morning.
So if we if we go back to your IPO almost three years ago. Now I think you mentioned at that time, there were about 500 RNA firms.
Over 1 billion in AUM that could potentially be viewed as acquisition targets.
For the potential for for them to join the the focus of partnership as far as partner firms, but since then there's been a significant number of large deals announced by you and others in the sectors.
Wondering if you can give us an update on how that pool of potential of <unk> or potential partner firms looks today versus that number that was around 500, I believe I, just a few years ago and.
And Rudy anything else you could share on the number of kind of very large <unk> maybe of a $5 billion that you see as potential targets I'm, just trying to get a sense for how that net.
The kind of addressable market for M&A has changed over time. Thank you.
Yes.
Absolutely so.
No.
One of the fascinating thinks about this industry is.
Basically the.
This is an ever increasing pool of opportunity.
The reality is the.
Actually the number is about the.
About 1000 firms in the industry based on.
It will be on other research groups.
For $1 billion, there's a total of about 17000.
Yeah.
Right.
And.
So there is this numbers is seeing constantly it's actually really increasing why yes. There is some level of consolidation but.
The reality is this industry is consolidating.
Depending on which research group you believe maybe the $150 flow deals in this industry you Kyle there should be probably 250 to 300 deals a year. So every year of the backlog of deals is really building in this industry why my most favorite statistic the of 50.
<unk> thousand advisors out there does this both focus on <unk>.
The basic Kelly.
On managing.
Over.
The three trillion dollars of.
And the 65 years and older.
The reality is the <unk>.
Three trillion dollar market and these are not focus numbers due to the industry.
Our research numbers.
Basic cable transition not in 10 years in the next five years of seven years.
One of the or the other.
<unk>.
We will be our behalf and we will continue to get more than just off of your share of this so.
What's driving the consistent.
The high number and growing number of $1 billion plus firms one is just firms grow.
The two.
It's basically.
More and more brokers or you can selectively bankers are basically moving from.
The wire houses into banks to the array space with the as a constant supply of large firms.
Who are basically.
Entering of growing into the target zone now because of our business model, Yes, Youre correct year for holding company deals direct most firms 90 billion plus range.
Prairie capital you have most recent large deal we announced was a $5 billion deal.
A very very large firm debt debt.
For the joint Us.
Above.
The the real opportunity here is just gave.
Getting this constant share of.
Of deals that we do at attractive multiples multiples because of the very powerful value proposition that we have.
That's very helpful. Thank you.
If I could just ask a clarification question regarding the insurance operating or some of the other value added services that you are just rolling out.
I just wanted to clarify his focus sharing in those economics of all at all or should we really think about that as just being part of the value proposition to advisors to make us advisors and stickier and enhance your offering to them. Thank you.
So just about everything we do.
As I said before is really ultimately how we can enhance the value proposition of our partners and how we can help them better serve their clients, which then of course as the positive.
Positive impact on our.
<unk>.
On their revenues and the profitability and B get plus minus 50%. So it's a very <unk>.
Simple model occasionally, we'll probably have revenue models, where we can.
Cover some of the expense on the holding company.
But thats really secondary what is first and foremost and quite frankly.
It's really becoming a core of our value proposition your partners so prospects join us.
Because they see justice awesome capabilities that the only players of all of scale half and really want to be part of.
Offering <unk> to their clients.
Understood. Thank you.
Okay.
Your next question comes from the line of Alex <unk> with Goldman Sachs. Please proceed with your question.
Yeah.
Great Hey, everybody good morning, everybody.
So just maybe a little more on the value added services and when I take us back a couple of years and kind of think about the growth algorithm for the firm and really the growth algorithm for your partner firms same store sales has not been the biggest driver right. The the majority of the growth I believe has been market, but also obviously.
The you guys <unk>.
Them, both fund and Axis. So I guess my question is do you see enough evidence that these value added services could accelerate the actual same store sales of your partner firms any evidence of that you could share with us and kind of what's the kind of organic same store sale.
Has been over the last couple of years, and where you guys think it could ultimately go based on everything you've done in the last couple of years, because it's been quite a lot.
Yes.
Obviously.
We wouldn't be doing the things we didn't.
Fully belief in the power of these of the.
The services.
And as I said before is here they've never just get created in some laboratory outside of the real world, but the oldest ultimately meet demands that our partner firms have.
And.
The very much.
Can see the impact of these value added programs.
Tier two type of programs Alex that we have there is focus business solutions.
Basically all of the things will be helped with new marketing and new operations on new technology.
Yet the talent management.
Compliance.
This of course also includes will be helped with mergers and acquisitions.
And there's no question that Theres, just tremendous impact that these have been.
You look at the organic growth rates for our partner firms that we are close.
Disclose every quarter.
So quite frankly, very very powerful numbers focus client solutions.
We see the impact of cash and credit because we have done it long enough.
And as I said before it's where the $1 billion. So far in the game, it's not the the margin we make on this yet because most of this is simply pass through meaning.
Meaning really it's the banks balance sheets in the loose.
Use of scale to get excellent solutions for declines, but would do here is we just did actually yesterday I learned about the $40 million. So.
So a $20 million.
On a credit that we arranged for a very important client in the south.
Small medium sized business and once we arranged at the increased $10 million of the of this.
Liquidity ultimately came to us for investments. So we are tracking these things very carefully.
We see them as really a core part of our value proposition.
We think it is a major differentiator in the market.
Trust portfolio optimization valuation services insurance.
Multifamily office services that the jury is still out of its too early we're just announcing a number of these were just launching these but.
Alex for sure we wouldn't invest these resources Inc.
That we have in the space, if you're growing convinced that it has the a major impact on our clients, but also from a prospecting perspective.
Got it okay. It makes sense I guess, we'll stay tuned for more details there.
Yes, My second question just around the earn outs.
So Jim I was wondering if you can help with the <unk>.
The amount of the earn outs that are best in kind of over the next 12 months I think the total of fair value of liabilities around $190 million.
I think you gave us the $55 million on the second quarter, just curious kind of what that looks like over the next 12 months on as we think about kind of the.
The cash flow capacity for deals sort of net of the earn out payout.
Yes, so aleksey the guidance that we provide is key.
Quarterly we this quarter Q1, we paid $10 million that was in line with the guidance that we have provided our guidance at this point for Q2 is the $55 million on you're right. The estimated earn out on their GAAP at March 31 is $192 million, it's harder for me to estimate.
The 12 months or longer term periods.
Based on on the change the guidance that we provide.
As the next quarter, which is the $55 million and then obviously the cash flow has gone up quite a bit the LTM cash flow available for capital allocation was $219 million up 51% and that's becoming more and more.
Piece of the of the proceeds if you will that we're using for our M&A activities in conjunction with.
On the credit capacity that we have as well that are driving the business towards 20% topline revenue growth this year.
Yes.
So go ahead, sorry, Alex maybe just one more thought the.
Whenever I signed the checks or I approve the other wireless for some of these larger on up payments.
Two it was the big Smile, because it really ultimately proves that we have done great transactions.
Yes.
It's just a reflection of the quality of partners firm portfolio.
Yes for sure on high class problem.
Just a clarification of the 190 is it all cash or.
The stock as well and beliefs of Theres, sometimes equity I just wasn't sure whether the fair value of the liability is inclusive of the stock or is the cash.
Yes, we predominantly.
Pay cash, but there can be equity elements.
As well.
Okay. Thank you very much.
Thank you.
Yes.
Your next question comes from the line of Michael Young with the Truest Securities. Please proceed with your question.
Hey, good morning, Thank you for taking the question.
Hi, Michael.
Wanted to follow up just on the sort of COVID-19 impacted revenue for the entertainment businesses et cetera.
Any kind of thought as we reopen here on how the should trend.
Should they move back to higher levels than where they have been before or should we expect them to be a little bit stunted for period.
Yeah.
Yeah.
Jim you may want to a true with Tim do you want to jump in.
Sure sure. So obviously, if you look at our non correlated revenues over the last year or two it's sort of.
The peaked around $100 million, we've just reported at 87.8.
Obviously, we anticipate activities in the entertainment sector to recover later this year and obviously into 2022.
The.
The fractionation or deployed countrywide.
We don't we don't provide specific guidance on this it's sort of embedded into our overall guidance of which at this point as you know for Q2, the four and five four on a $15 million of revenue on obviously driving the business full year charge, 20% plus.
Revenue growth year over year.
But obviously, we remain positive a lot of pent up demand on.
Live events activities.
And while some of it was a headwind in the past year and we're hoping for some tailwind in the in the future.
Yes, it's interesting when I talk to our partners in this segment the.
So clearly the spending on what's going the other way now and.
<unk> has just started.
Nicole the most reasonably airports I mentioned.
It seems to be non shortage of venues the disc.
Total yet, but later in the year, where basically people are just booking and booking and.
This of course, it can hit the very positive impact, but one step at the time, but clearly the world is looking much better now than on the two quarters ago.
Great. Thanks, and I guess, maybe zooming out the kind of the longer term targets.
You provided that you guys are kind of uptake of the EBITDA outlook later this year.
The more just curious kind of big picture of where you're maybe ahead of plan there or behind the you guys have done a lot of things over the last year through through COVID-19 and the pandemic debt. It seems like you might be a little bit ahead on the front foot, but just wanted to get kind of a high level view now that we're kind of reopening and back to normal et cetera.
Yes, Michael.
Michael the.
We have been very clear throughout last year debt.
No. There was of course, some impact, but ultimately the de minimis impact to our business momentum momentum through COVID-19.
Debt, we didn't need see of needs to change the targets.
$3 5 billion in revenues of $840 million in EBITDA.
The margin guidance still to be determined or updated.
The quite frankly feel these are very powerful and very good targets and I don't think we are ahead I don't seem to be of below.
We are just chugging along to really fundamentally of doubling the size.
Of this business and more by 2025.
Thank you Sir very good exploration.
Okay, great. Thanks.
The next question comes from the line of Gerry O'hara with Jefferies. Please proceed with your question.
Okay. Thanks.
I think last year, either maybe third quarter. So you kind of cited.
Some industry stats around market dislocations, driving a pickup of of assets in motion I suppose broker recruitment that type of activity can.
Can you, perhaps help us frame, where we are in that process.
Are we largely through it post the post the pandemic or is there still a fairly significant runway of of <unk>.
Advisors looking to partner with the platforms such as yourself.
Yes.
Terry I think its just starting of course.
The no industry statistics out for 2020, yet.
I actually have some now but what we are seeing clearly is an acceleration of the market share gains by the <unk> industry.
If you look over the long cycle base of Kelly Ria's.
Part of the industry growth of about <unk>.
10%.
While the traditional wire houses grow about three 2%.
So if you're growing triple the incumbent players.
<unk>.
Youre exactly right both from <unk> in Q2 earnings where we showed the empiric where are you in the year of the crisis. The RIAA industry simply does better than all the other industries, but of course it gets impacted by the crisis, but then in year one after the crisis the aura.
The industry growth by 17% versus the typical 10%.
The wire houses on the growing 6% and then in year to the end.
Our industry still goes at 16% growth.
For the wire houses then you'll get the 12% and then it basically stabilizes again to the 10 10.
Percent versus three percentage ratio. So we think it's just beginning.
And we think debt.
Yes, we never just crisis is truly over in the.
It's almost over but I think there's more to go and most of the prices to come but the reality is the next couple of years are going to be just terrific.
From for our industry and for focus and you've seen the guidance in Q2.
Q2 guidance speaks to the organic growth rate of 23% to 26%.
Quite frankly, it is the numbers speak for themselves.
That's helpful and apologies if I missed it ahead of joined the call. It of late this morning, but.
Can we get a little bit of an update on kind of the the traction that the connected platform.
Has been seeing I know, it's still relatively.
The early but is that focused on on any specific regions beyond Australia or how is how does that sort of been evolving.
GAAP.
Yeah, absolutely. So we are very bullish on on connectors.
And we are very bullish in the international but also in the.
In the U S. So we just announced it and at this point the connectors to the total of six deals already.
Four of these deals are in Australia quite.
Quite frankly as much of the thought process around connects dose really came on my co founder of genius.
Colleague multiyear just from experience that we have India, Australia and market, where the model really resonates just tremendously so for deals already in Australia, one of the UK.
And then of course, one in the U S. At this point so.
We expect that this is absolutely going to continue to expand we expect that this will connect is will be in not too long of time one of the focus is largest partner firms no question and it was this.
Kind of hybrid model that we developed the.
It stands between the on the one hinted direct holding company deals, which is of course, the hallmark of what focused us and the mergers yogurt, we deploy our resources to.
Help our partner firms growth through smaller transactions typically connects to the square in the middle between these two and we think it's just the tremendous opportunity in just about the all the all the markets that we're operating in.
Okay.
Great. Thanks for taking my questions today.
Thanks, Gary.
Ladies and gentlemen, we have reached the end of the question and answer session I'll now turn the call back over to Rudy for closing remarks Rudy.
Yes. Thank you.
In closing.
I would.
Very much like the thank our partner firms for the outstanding financial performance.
Continued excellence in serving their clients.
In another quarter marked by volatile macro backdrop.
I would also like to thank our holding company employees for their hard work in serving our partners and continuing to build the business during challenging times.
I want to reiterate the value of our scale and the.
The diversity of our partner portfolio and business models and the enduring competitive advantage advantages these attributes create for us.
We delivered another strong quarter of growth achieved a significant milestone in delivering more than 100 million in the adjusted EBITDA generated approximately $220 million in the LTM cash flow available for capital allocation and we sustained our M&A momentum we've made a solid progress on.
The expanding our international footprint further diversifying our partnership and increasing our presence in the ultra high net worth market.
The continued to enhance our partners the ability to deliver integrated highly personalized services to their clients through the.
The additional value added services, we are now able to provide our scale and profitability support the level of innovation and execution on behalf of our partnership that wouldn't have been achievable just three years ago.
We are extremely well positioned as the world moves beyond the pandemic and the strong fundamentals of our business will enable us to continue driving superior growth and performance. Thank you all for your interest.
Ladies and gentlemen. This concludes today's conference you may disconnect. Your lines at this time. Thank you all for your participation.
Okay.
Yes.
Okay.
[music].
Yes.
Yes.
Okay.