Another issue is that many other consolidators beleive Focus's growth is being propelled by a handful of elite firms, while the rest are oeither stagnant or shrinking. That raises the unanswered question of how Focus can rewards the fast growers with incentive packages and whether it will use equity or cash.
Now it appears analysts and other investors are starting to ask questions. According to website RIAbiz, Focus CEO Rudy Adolf was "pelted" with questions from analysts and was "not on his game," according to Mercer Capital president Matthew Crow, who listened to the call. Recent market volatility was a major concern of analysts since the bulk of Focus-affiliated firms derive most of their revenue from the assets under management model, according to the site.
One analyst told Financial Advisor that "it appears that Focus isn't deducting the cost of acquistions" from EBITDA in the manner it should. But there may be other problems.
In its earnings release, Focus said its "adjusted net income" was $34.1 million, an increase of 43.4 percent, but added that it also recorded a "GAAP net loss" of $38.9 million. Reconciling this kind of discrepancy could leave analysts confused.
If one removes the beneficial effects of a rising stock market from Focus's revenues, the aggregator isn't growing, this analyst continues. And since it is essentially a serial acquirer, the business model requires a strong stock price to use as a currency to keep investing in new RIA firms. With a stock price off 60 percent in two months, future RIA acquisition targets may not find that currency particularly attractive. However, Adolf reportedly told analysts there was no shortage of firms seeking to sell majority interests to Focus.
If Focus shares stabilize and it can convince Wall Street many of its firms continue to enjoy organic growth, its model may remain viable.