Q2 2022 Focus Financial Partners Inc Earnings Call
The question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference.
Please press Star then zero on your telephone keypad.
As a reminder, this conference is being recorded.
Mr. 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 that focuses results may of course differ from these statements. These statements are based on assumptions made by and information currently available to focus financial partners and involve risks and uncertainties that could cause the results of focus to materially differ from these statements.
Focus has made filings with the SEC, which lists some of the factors that may cause its results to differ materially from these statements and finally focus assumes no duty and does not undertake to update any such forward looking statements.
With that I will turn it over to our founder and CEO Rudy Adolf Rudy.
Thanks, Rusty good morning, everyone and thank you for joining our call today.
The second quarter results, we announced this morning were outstanding.
Our performance was again above the top end of our guidance and our business is weathering the volatile market environment well the benefits of our diverse revenue stream the variable nature of our cost structure in the scale of our global partnership are evident.
We generated Q2 revenues of $539 2 million, reflecting year over year growth of 26, 8% into our organic revenue growth rate was 15%.
Adjusted net income excluding tax adjustments per share was <unk> 99, and picks adjustments per share was <unk> 19 cents, increasing 17, 9%.
35, 7% respectively.
Year to date, we have closed or announced three new partner firms and 11 mergers, bringing our year to date transaction total to 14 deals.
Close to an octagon our first partner firm in Switzerland on July one we also closed on the icon wealth management is our newest partner firm on August 1st icon, which manages approximately $1 6 billion in client assets as a premier firm with superb management team that will help us expand our press.
In the fast growing Texas wealth management market.
Despite the macro backdrop industry M&A deal volume in the second quarter and first half of this year hit New records. According to Exelon partners. We continue to have an excellent pipeline with a good mix of new partner firms <unk> mergers on behalf of our partners and connect.
<unk>.
Our momentum going into the second half is strong and we continue to believe that 2022 will be one of our best years for M&A.
Our partner firms remain active in seeking mergers to strengthen their client service capabilities and enhance the growth of their business and we expect deal volume and momentum to only increase once current market volatility subsides.
As an example, according to excellent partners deal activity in 2021 was nearly 50% higher than in 2020, which was impacted by Covid.
We capitalized on this dynamic in 2021 closing on a record number of transactions, we saw year over year deal volume increasing by over 50%.
Our partners are again, demonstrating the ability to handle the challenges of difficult market conditions central to the stability of their businesses and to our financial results is high client retention.
Our partners are trusted advisors in every aspect of their client's financial lives beyond simply managing investments and his deep multifaceted relationships that frequently spend decades decline.
Declines are high and ultra high net worth individuals and families who seek to preserve their capital across cycles through sophisticated multi asset class portfolio construction.
As clients are less concerned with the impact of market declines in the near term focusing more on multi generational wealth creation and efficient tax planning in the long term.
Electively. These attributes drive strong client retention and are important sources of diversification and stability in our business. We believe that the flight to comprehensive high quality advice will accelerate the growth in client assets managed by the <unk> industry in the first few.
<unk> after this correction the way it has in prior cycles.
In my many recent conversations with our partners.
Taking the current macro environment and strikes and have said the declines feel well prepared to weather. This storm.
Our partners have navigated multiple market cycles during their careers, including inflationary environments. This experienced substantially enhances the ability to be trusted advisers.
During the reinforcing the value they provide clients, especially those who have benefited from the last decade of rising markets have on balance beam comma over the last six months than they have been in prior periods of volatility.
But client portfolios have been impacted our partners highlight that they spend a significant amount of time, helping declined structured location to mitigate downside risk.
The investment management objectives are not about hitting home runs, but instead are tied to a holistic financial planning process and clients are not relying on their portfolios to meet short term liquidity needs.
But the current volatility may persist for some time, our partners confidence that they will weather this period as well as stated in the eight or nine financial crisis and subsequent recession and most recently in 2020 in fact, as we have demonstrated again and again these types of disruption create X.
And opportunities for client retention and referrals.
Totally we are hearing that many of our partner firms are again experiencing strong referrals.
Our family office firms, who provide services to artist entertainers and other ultra high net worth clients has been an important source of revenue diversification year to date.
They are the primary component of our non market correlated revenues, which represent approximately 23, 3% of our Q2 revenues.
<unk> 2020, when a portion of our non market correlated revenues were adversely impacted by Covid. We are getting the full benefit of this diversification in our 2022 results.
As we turn to the second half of the year. It is difficult to know how the macro environment will evolve, although we anticipate that markets will remain volatile.
Given the potentially recessionary outlook, we remain prudent in our capital deployment with.
With 14 transactions closed or announced year to date, we continue to execute on converting our strong pipeline. Despite deal signing since closing getting somewhat delayed in the current environment. We anticipate that 2022 will be one of our strongest M&A eight years as a <unk>.
Result, but we continue to expect our revenue growth for 2020 to be approximately 20%. We are resetting our adjusted EBITDA growth guidance for this year from 20% to a range of 16% to 18%.
Similar to prior patterns when markets normalize we expect in attractive catch up phase.
Similar to what occurred in 2021, and subsequently a normalization to the 20%.
Plus growth rate, we have demonstrated in the past.
Looking ahead, we see several important takeaways. The first is that our business is resilient despite the market backdrop.
Instead, we continue to be highly disciplined capital allocators.
And even more so today, even heightened risks in this environment. The third is that although market may remain depressed for a while they will eventually recover until that time comes our diversified revenue stream infrastructure protection, our business model, we continue to mitigate our market.
<unk>.
We believe that the growth opportunities ahead, and particularly after significant market volatility combined with operating leverage on our business will lead to a sustained outperformance once conditions stabilize.
First of these is opportunities in accelerated industry consolidation.
Belief that the secular tailwind of succession and scale will accelerate once the recovery takes hold and lead to substantial incremental growth opportunities in our business.
The second is the large international opportunity, we have we plan to continue expanding our presence outside the U S, particularly in the ultra high net worth segment, which will further increase the growth and diversification of our partnership.
U S independent wealth management in the industry, which stands at approximately seven trillion and client assets will remain our largest market and primary focus.
The international markets represent an incremental multi trillion dollar opportunity and one that lends itself well to our decentralized partnership structure and the type of resources, we make available to our partner firms.
And finally, our value add capabilities, which are a substantial differentiator today, particularly in these markets and which we believe will become increasingly important to our partner <unk> ability to provide the highest level of services to their clients.
As with previous cycles client demands will continue to become more complex driving the need for scale in order for independent wealth managers to remain competitive.
My co founders Tonight.
Every confidence that focus will successfully continue its growth path and deliver superior value to its shareholders.
While we are very attuned to the dynamics influencing our partner firms are decentralized structure enables us to manage our business with maximum flexibility in both down and up markets.
Because of our partners have autonomy they are nimble in how they manage their businesses.
These attributes allow us to adapt quickly as conditions evolve and positions us to better environment like the current one particularly well.
With that let me turn the call over to Jim.
Jim.
Good morning, everyone. We delivered excellent results this quarter reinforce and the resiliency of our business model and the quality of the firms in our partnership globally.
As already mentioned our business is weathering the challenging environment, well the diversity and recurring nature of our revenues or earnings preference the structure of our management fees and the strong economic alignment, we have with our partners, which stood at the recent volatility.
Our partners have done an excellent job focusing on their clients while at the same time positioning themselves for the growth opportunity that will emerge when markets begin to recover.
Now turning to the key elements of our P&L.
We reported Q2 revenues of $539 2 million at 26, 8% year over year increase in.
Above the top end of our $535 million guidance.
Organic revenue growth rate was 15% also above the top end of our 11% to 14% guidance to.
To help investors better understand the composition of our organic growth rate, we have added the rate excluding mergers to our earnings supplement on page five and 10.
Against the backdrop of an exceptionally difficult market environment. The resiliency of our revenue performance is notable while our revenues are not immune to market movements. They have four important sources like diversification, which we continue to believe or not fully appreciated by the investment community.
First approximately 23, 3% of our Q2 revenues were not correlated to the financial markets, meaning that they are typically its arrived from family office type services tax rates and fixed fees for investment advice.
Our partners clients are sophisticated high and ultra high net worth investors, whose portfolio or invested in multiple asset classes and our highly diversified as our results.
Third we don't manage to client investment process at the focus level. Each partner firm has its own investment committee and follows its own asset allocation strategy, which creates substantial diversification within the 76, 7% of our revenues that are market correlated.
For our partner firms use a variety of billing methodology, which mitigates the impact of quarterly market movements, approximately 67, 2% of our Q2 market correlated revenues are billed in advance.
They were built typically based on prior quarter movements.
Approximately 32, 8% of our billed in arrears, meaning they are bill typically based on Q2 quarter Lee movements.
Our earnings preference is another important structural protection of our model the cumulative acquired base earnings for the 30 firms. We have added new partners since at the beginning of 2019, so it was $148 million.
As a reminder, acquired base earnings represents our annualized preferred position and our partner firms earnings and typically must be met prior to their respective management companies earn in any management fees.
The acquired base earnings is typically between 40 and 60% of our partner firms <unk>.
Our manager fees adjust real time as our partner firms are earn its fluctuate.
For firms that are above their target <unk> with sharing the amount above that level for example for a partner firm with a 50 50 split that means this means for every dollar decline in its earnings there's a 50% reduction in focus earnings and a 50 <unk> reduction in the firm's management fees. This is an important.
Structural aspect of our financial model as management fees, our second largest operating expense and create an economic alignment of interest.
Our adjusted EBITDA for Q2 was $137 million or 27, 1% increase year over year and our adjusted EBITDA margin was 25, 4% above our guidance of approximately 24, 5% to 25%, reflecting lower compensation expense as a percentage of revenue.
Variable compensation.
So far in Q3, we have closed on two new partner firms Octagon and icon, which based on mid quarter closings. We expect will add estimated revenues of approximately $7 million and adjusted EBITDA of approximately $1 7 million in the third quarter and over $30 million in annualized revenue and seven eight.
$8 million in annualized adjusted EBITDA.
As Rudy noted our pipeline for the second half of 2022 remains strong we continue to be a highly sought after partner by leading firms in merchant targets seeking to enhance and grow their businesses.
Now, let me turn to our Q2 expenses and cash flow.
Our management fees were $136 8 million or 25, 4% of revenues sequentially consistent with Q1.
Our noncash equity compensation expense was approximately one 4% of Q2 revenues and we expect this expense to be approximately one 5% of revenues in Q3.
The second quarter was impacted by $42 8 million of noncash earnings reflect and reductions in the fair value of estimated earn outs pursuant to our Monte Carlo simulations under GAAP.
As a reminder partner firm earn outs generally occur over six year period.
Market conditions drove a reduction in the estimate of these liabilities as of June 30th.
As markets recover these estimates typically increase.
Our LTM cash flow available for capital allocation was $323 2 million as of June 30th increased 21, 5% for the comparable prior year period, reflecting the earnings growth of our partner firms and the addition of new partner firms.
Our gross unamortized tax shield was more than $2 7 billion as of June 30th or approximately $5 82 per share demonstrating the substantial incremental value that our tax efficient structure creates for our shareholders.
In Q2, we paid cash earn out obligations of $33 3 million, which was in line with our estimate and we estimate that we will pay earn outs of approximately $50 million in Q3.
And I'll turn it to our Q3 P&L expectations.
We estimate that our Q3 revenues will be in the range of $505 million to $515 million, a sequential decline of approximately 4% to 6% from Q2.
These estimates reflect.
The impact of the 2022 market declines on our market correlated revenues, we estimate that our Q3 organic revenue growth rate will be between zero and 2%.
We expect that our Q3 adjusted EBITDA margin will be approximately 24%, which would bring our first nine months margins to approximately 25% on a rounded basis.
Our partner firms, we remain nimble in managing their clients and businesses, while navigating the macro environment, while lower market levels are impacted their revenues are partners are not immediately adjusting their operating expenses. They managed our cost conservatively to begin with and take a long term view to invest in and consistently managing their businesses.
This approach ensures that they are delivering a superior client experience across cycles.
Unlike 2020, sorry on which discretionary cost dropped sharply in response to the Covid shutdowns our partners have taken a measured approach to reducing these types of expenses.
Although this approach impacts dimension fees and creates negative operating leverage for us in the near term our partners are positioning themselves to take advantage of the substantial growth opportunities with the macro backdrop stabilizes.
Anticipate that our adjusted EBIT margins will recover as the markets recover however.
However showed unsettled markets persist for a longer period of time, our partners have levers that they can pull on expenses, including discretionary spend and variable compensation.
Now turning to our balance sheet, we had approximately $2 5 billion of debt outstanding as of June 30, and our net leverage ratio was three nine times within our estimated range of $3 75 to four times, we expect that our Q3 net leverage ratio will be approximately four times is really highlighted.
We are deploying our capital in a very disciplined and measured way, particularly given the heightened risk created by the broader macro environment.
Our Q2 interest expense was $19 9 million to $3 million higher than the $17 6 million in Q1 due to the rising rate environment and the increase in our borrowings.
Similar to last quarter. We have included an interest rate sensitivity analysis on page 22 of our earnings supplement.
The important takeaway is that if 30 day LIBOR or a sofa rates as applicable where for example, a 200 basis points higher than the actual rates in effect on our borrowings during Q2, our pre tax interest expense would have increased by approximately $7 $9 million on.
On an annualized basis. This is a modest headwind on our business with over $2 billion in annualized revenues.
To conclude we are pleased with the strength of our financial performance this past quarter, particularly given the challenging environment. Our business is benefiting from a diverse revenue stream that is 95 plus percent fee based and recurring.
That earnings stream, which has substantial downside protection to the variable nature of our management fees and the earnings preference we have on our cash flows of our partner firms.
Our pipeline continues to be strong and we believe that 2022 will be an excellent year for M&A activity.
While our estimated Q3 revenues and earnings will be impacted by the challenging conditions in recent months the reduction is modest when compared to the broader decline across the financial markets.
Our partner firms businesses are performing well and they are doing an excellent job servicing their clients. They have no tangible attrition, which reflects the quality and depth of their client relationships times like these position our partner as well for strong growth in the future.
We are confident that the resiliency of our business will again be evident in our performance even if it takes a longer time period for markets to recover we are executing well and navigate. This storm. This is an extremely important because it means we expect to be well positioned to benefit from the growth opportunity once macro conditions improve.
Deliver incremental value to our shareholders I will now turn the call over to the operator for Q&A operator.
Okay.
Thank you at this time, we will be conducting a question and answer session.
You see the cloud just a question. Please press star and then one on your telephone keypad.
Transformation channel indicate your line is in the question queue.
You May press Star and then two if.
If you would like to remove your question from the Q4.
For participants using speaker equipment, it might be necessary to pick up the handset before pressing the star keys.
One moment, please while we poll for questions.
Our first question is from Craig Siegenthaler of Bank of America. Please go ahead.
Good morning Verde, Jim Hope, you're both doing well.
Hi, Craig how are you good morning, Craig.
We're good.
My question is on the pace of new investment activity in the U S Army industry.
And it's great to see 14 deals year to date and we heard your commentary that 2022 will be one of the strongest years.
But do you think your prospects are generally a little less willing to transact right now and could this impact activity levels in the second half, which tends to be very strong every year, especially considering you had like three very strong second half <unk>.
Yes.
Thank you Craig.
So clearly.
You have enough visibility this will be one of our biggest M&A years.
And we don't really see any kind of tangible.
Slowdown here based on the current market environment. When you look historically in our industry.
Will slowdown comes if <unk> kind of <unk> type of scenarios, yes, yes, all right and then really old nine there was very little activity in the industry, but.
We are clearly not in this into situations, we see it maybe some deals take a little bit longer.
I don't see any material difference and keep in mind.
The main two drivers of M&A.
Which is ultimately.
Clients needing.
Better and deeper advice, you need scale to do that.
It's easier to grow a business when you have divisional flavor and again disk drive scale and then of course, the ageing of founders and succession planning. These fundamental drivers are.
Not affected and so yes.
Don't sell just belief that 'twenty two is going to be a good year, but even what we see going into 'twenty. Three is there is no abatement of M&A opportunities whatsoever, and we certainly are focused on continuing to be prudent capital allocators as we spoken about in the past and as you can see.
In our June financials, we have over $200 million of cash we generated over 320 of LTM cash flow available for capital allocation and we have over $500 million available.
On our revolver. So the opportunities are there in the second half as Rudy mentioned in and we have the currency to execute on that as well.
Thank you, Jim and just as my follow up and I'm not going to mention any names but.
We wanted to see how the competitive landscape is evolving in 2020 tail.
Our focus is competitors generally pulling back I know several of them are funded with private equity capital.
And many of them run with run with quite high leverage which may be putting a strain on our financials.
Yes.
Absolutely.
Obviously, I never speak specifically to any any particular names but.
What we have seen last year I may have used the word drunken sailors theyre gone.
We don't see any activity from.
Some of the B of the players who just dramatic Kelly overpaid for assets it.
Clearly we are not worth it.
Uh huh.
In our estimation so.
Overall industry activity is going to remain high.
Competition is kind.
Kind of I would say normal last year was not normal.
And quite frankly, we do see.
Our stabilization actually I would say even in a softening of multiples.
But as you know Craig we have always been very disciplined.
Yes, we did 38 deals last year 14, we announced year to date.
And it's ultimately the powerful value proposition you all we.
You want to be an entrepreneur you want to have access to value added services and you want to have permanent capital focus is the only game in town, there's nobody else who can have this type of.
Our powerful value proposition. This is highly differentiating and this basically enables us to sustain.
Our M&A proposition for years to come both domestically and internationally.
Rudy Jim Thank you.
Thank you Craig.
Our next question is from Kyle Voigt of <unk>. Please go ahead.
Hi, This is actually Matt Moon on for Kyle.
Just one for me on the adjusted EBITDA margin.
Obviously, there was a strong performance in the quarter.
One of the best in your company's history I believe so I'm, just wondering when comparing that to the notably lower <unk> guidance. Just the factors that are driving the variance between the two figures I think you had you had outlined some lower variable comp.
The second quarter.
Is that not expected to recur going forward.
Or is this maybe more related to kind of the acquisitions that are coming on board <unk> and potentially lower associated management fee yes.
Thanks, Matt and Jim Chimbley provide some more detail, but basically of course this.
This is because of our advanced billing this is where the market simply.
Impacts to us in the third quarter.
But very important and strategic Kelly.
Dean.
Markets of course have some impacts but they go out they go down they go up.
Have not seen and we are not encouraging our partners at this point to.
Quite frankly cut any costs or do anything that kind of.
Would improve the margins because.
Our client advice is critical in times like these and most importantly, <unk> really demonstrated this.
In 2020 and of course, we have seen it in online and 10.
You will need to be prepared for the upswing and.
We had the our industry and we of course had a traumatic.
It's just a terrific year in 2021, and if you cut too.
To close.
You won't be able to take advantage of the upside, which invariably will come it's just a question of when.
Excuse me, if you kind of put things in perspective, Matt.
<unk>.
Little bit of a longer time horizon in 2020, our margins were $23 six and we grew them to 25, 1% last year and even the first half of this year they grew.
It's a $25 three right. So we have a very resilient model.
And from an M&A perspective, as you indicated sometimes that can impact it.
Disclose the revenue and the adjusted EBITDA contribution for the new firm sexual and octagon in icon and they are about 24% margin.
And certainly the majority of our market correlated revenues are billed in advance and with the sharp market.
Correction that has an impact and our partners have an adjusted all their cost structures in the short term duration due to the opportunities ahead is really just mentioned so if you look at our nine months year to date, it'll be plus or minus 25% on the adjusted EBITDA margin.
Say, that's been a very attractive margin in the financial service industry based on the volatility that we've all experienced in the first part of this year so far.
I think what you're really seeing is yet again, the tremendous resiliency of our business model you have you hit double digit drops in the equity markets.
And the impact on revenues and the EBITDA is quite moderate.
And our ability to sustain the margins it just speaks to the quality of <unk>.
The business model that we have here.
Yes, Okay makes sense and then I just had another one too on capital I know you guys announced a buyback authorization in the quarter I don't think there was any mention of it in the release or presentation. I was just curious if you had to utilize any of this at all during the quarter and then maybe more.
More to drill down to on a kind of a framework of how you guys evaluate buybacks versus M&A and kind of just terminate the preference between the two.
Yes, yes, absolutely.
Sure.
Of course, this business is very cash generative over $320 million.
And.
We have a 200 million authorization, but when we announced it we were very very careful and precise in the choice of words.
Was never supposed to be a buyback program.
The.
Would execute the buyback here, we've seen the core framework financial objectives that we have the 20% or our growth targets in the three five to four and a half leverage so it was really it.
Program be.
Designed to kick in if they're Wilson, we hire a kind of disruption in the market and what we have expected.
Quite frankly I wish we had this program in Q2 2020.
We're the market simply absolutely overreacted and it would have been very attractive for us to deploy this capital we were nowhere close we're not close to these levels. We quite frankly are very optimistic here, but yes in the event of an event its a very good authorization to have and.
It's of course certain price levels.
It would be highly accretive, but it's not a strategic buyback program that we did we have launched here.
Okay. Thank you very much.
Thank you.
Okay.
Next question is from Brandon came off curious securities. Please go ahead.
Hey, good morning.
Good morning Brendan.
Yes.
I wanted to get a sense of M&A for the back half of the year and where things currently stand and where you have a disciplined approach, but I'm wondering if compared to let's say last year or prior periods are you passing up on more M&A opportunities nowadays compared to what you're seeing as far as potential just wanted to get a sense.
So how that's looking through your filter.
Yes.
We have been always very.
Very selective and disciplined that's how we built this business and really going all the way back to 2006.
Yes, we see many opportunities here we are.
We are walking away from menu opportunities, where we don't like the pricing or we don't think there is a good fit for our for our business objectives here.
When we execute the deals.
Like.
Octagon most recently.
We very much look at this.
Firms as platforms as platforms.
Platforms, where we can help them grow built on the traditional role in the growth rates and then ultimately helped them.
Acquire other firms acquire teams and really expand beyond what they typically would have done similarly with icon in Texas.
So I don't think there is.
Big change, it's really a continuation of the practice that we had.
Last year, Yes, we did 38 deals split quite frankly be walked away from for many more deals, which we did not see where attractive.
And this discipline will continue for.
For forever as long as we are in the M&A business.
Okay.
Thanks.
And then you mentioned how as of now Youre not encouraging your partner firms to adjust their expenses, but I'm curious what would it take for you to start nudging. Your partnership card expenses I know the markets have kind of rebounded a little bit lately.
Another downturn or what kind of duration of I guess.
A more deterioration in the markets would it take you to actually encourage your part in district Court.
Yeah, well first and foremost.
We have a very entrepreneurial model. So it's really our partners who are the nimble entrepreneurs, who are very good at kind of managing the expenses and of course their revenues.
But what's really important from our perspective is you need to prepare for the upside.
And.
We saw it in 'twenty, one we saw it in prior years.
When the markets come back.
There is you.
You need to have the capacity to really work with these clients quite frankly right now already.
Not dissimilar to other crises.
We have seen an increase in referral volume.
Yes.
This is the period, where our industry shines.
And we have proven this.
From a market perspective in Q2 last year.
Where we demonstrated that our industry gets hit much less than other parts of wealth management, but its wire houses or or banks with traditional providers, but Dan.
The traditional industry growth rate, which is usually about 10%.
Almost doubles.
In year, one and two after the crisis.
And it has a lot to do with simply how well we serve these clients doing tough times.
It requires.
Talent is requires resources.
And.
Our partners are kind of very good in the way how they are preparing for these yes. If there was a much more dramatic downturn. They are very good in managing the expenses and we help them.
But we are definitely not at anywhere close to these levels at this point.
Alright, thanks for taking my questions.
Our next question is from Ella.
Now of Oppenheimer. Please go ahead.
Good morning, and thank you for taking my questions.
I always talk about hey.
Could you please talk about your third quarter revenue outlook.
I understand that 67% of your revenue.
Built in our fans and the broader market in the second quarter was down a lot.
But your revenue still hold up quite well in the second quarter I think M&A activities are pretty strong in the third quarter on page 17.
Also the broader market has been quite strong so far in this quarter I'm just wondering how much conservatism you're baking into your revenue outlook in the third quarter. Thank you.
Yes, I think.
We build the forecast on the bottoms up we provided the disclosures you mentioned.
The majority of our market correlated revenues, 67% are in advance and obviously markets, where we're down at June 30 relative to.
March 30, 31 as an example, so that's that's certainly one element of it then the residual of the market correlated as the arrears, we worked on our projections with our firms in July as you. Just indicated is seems to be a little recovery over the past week, but we'll see ultimately how the how the.
<unk> unfolds for Q3.
We're obviously very optimistic about the diversity of our non correlated revenues as you can see from Q1 to Q2. They grew from $1 17 to 125, so we certainly like the stability and the diversification of that.
During the turbulent.
Volatile market time period, so we put that all together and that's how we provide the guidance which is.
Down sequentially, 4% to 6% versus Q2.
From a rate okay got it.
Okay got it. Thank you very much and then my follow up question is maybe a broader one could you. Please give us an update on your international expansion.
You are right now do you expect more like traveling more deal.
Outside of the United States in the second half of this year. Thank you.
Yes.
And some.
From a geographic footprint I think we got the markets.
That we are most interested in.
Maybe one more market that we will be announcing later this year.
And then you talked about that we want to further you will hear about more activities in Canada and Australia.
U K.
Well certainly in Switzerland.
All of these markets.
Kind of if you want to establish a beachhead to.
The beach hits, and there's much more opportunity here, but.
Let's keep in mind here today on the 5% of our revenues are from international and ultimately our target is somewhere about 20% because then behalf the full benefit of the diversification of yes.
These international markets.
Excellent opportunities out there our model Es.
A quite unique in the U S from a value proposition perspective quite frankly this model is unheard of in many of these additional markets here and.
So yes, you will hear more but you will hear more in the existing markets then adding.
Adding adding new markets to our portfolio here at this point.
Got it thank you very much.
Thank you Juan.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Rudy Adolf for closing remarks.
Thank you and to close.
Very pleased with how our partners are once again navigating.
Difficult conditions, CSO successfully and how this is translating into the quality and consistency of our financial results.
Our business is again rising to the test often extraordinary market correction. It is stable and resilient and will emerge stronger enabling us to take advantage of the substantial growth opportunity as the environment stabilizes.
Belief that we are uniquely positioned to capitalize on the industry dynamics reinforcing our competitive advantages globally.
My co founders <unk> and linear and I are excited about the path forward as we continue to execute on our long term growth strategy and build a partnership that is second to none in this industry.
You all for your interest.
This concludes today's conference. Thank you for joining US you may now disconnect your lines.
[music].
Okay.
Okay.