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B. Riley Financial(RILY) - 2020 Q4 - Annual Report
2021-03-03 16:00
Part I [Business](index=4&type=section&id=Item%201.%20Business) B. Riley Financial is a diversified financial services company operating five segments, including capital markets, auction, and financial consulting, with recent strategic acquisitions - The company operates through five main segments: Capital Markets, Auction and Liquidation, Financial Consulting, Principal Investments – United Online and magicJack, and Brands[17](index=17&type=chunk) - In Q4 2020, the company realigned its segment reporting structure, moving valuation, appraisal, bankruptcy, and other advisory businesses into the Financial Consulting segment[16](index=16&type=chunk) - In February 2021, the company completed the acquisition of National Holdings Corporation, a full-service investment banking and asset management firm, adding approximately 900 registered representatives and over **$30 billion in assets**[25](index=25&type=chunk) - In November 2020, the company closed a recapitalization transaction with Lingo Management, LLC, acquiring a **40% equity interest** with the ability to acquire an additional **40%**[29](index=29&type=chunk) [Business Segments Overview](index=5&type=section&id=Business_Segments) This section outlines the core services and focus areas of each of B. Riley Financial's five distinct business segments - Capital Markets: Offers investment banking, corporate finance, wealth management, and sales/trading services[18](index=18&type=chunk) - Auction and Liquidation: Provides asset disposition services for retail, wholesale, and industrial clients[19](index=19&type=chunk) - Financial Consulting: Delivers bankruptcy, forensic accounting, valuation, and real estate consulting services[20](index=20&type=chunk) - Principal Investments - United Online and magicJack: Consists of acquired businesses for investment returns, currently including consumer Internet access (UOL) and VoIP services (magicJack)[21](index=21&type=chunk) - Brands: Manages a brand investment portfolio focused on generating revenue through trademark licensing[22](index=22&type=chunk) [Competition](index=15&type=section&id=Competition) The company faces intense competition across all its business lines, from investment banking to retail solutions and internet services - The company faces intense competition across all service areas. In Capital Markets, competitors include other investment banks, bank holding companies, and specialty securities firms. Industry consolidation has increased the capital base and reach of many competitors[88](index=88&type=chunk)[89](index=89&type=chunk) - In its other business lines (Retail Solutions, Real Estate), the company competes with traditional and online liquidators, large accounting and consulting firms, and real estate brokerage firms[91](index=91&type=chunk)[92](index=92&type=chunk) - The United Online (UOL) business competes with major broadband, wireless, and dial-up providers like AT&T, Verizon, AOL, and EarthLink[93](index=93&type=chunk) - The magicJack business competes with traditional telephone companies, cable companies, wireless providers, and other VoIP services like Vonage and Skype[94](index=94&type=chunk)[95](index=95&type=chunk) [Regulation](index=17&type=section&id=Regulation) The company is subject to extensive regulation by U.S. federal and state agencies, including the SEC, FINRA, and FCC, across its diverse operations - The company is subject to extensive regulation by U.S. federal and state agencies. Its broker-dealer subsidiaries, B. Riley Securities and B. Riley Wealth Management, are regulated by the SEC and FINRA[98](index=98&type=chunk)[100](index=100&type=chunk) - The broker-dealer subsidiaries must comply with the SEC's Uniform Net Capital Rule (Rule 15c3-1), which sets minimum liquid net capital levels and may limit capital withdrawals[101](index=101&type=chunk) - The asset management subsidiaries are SEC-registered investment advisers and are subject to the Investment Advisers Act of 1940[103](index=103&type=chunk) - The magicJack business is subject to regulation by the Federal Communications Commission (FCC) and various state and local authorities[105](index=105&type=chunk) [Human Capital](index=18&type=section&id=Human_Capital) The company employs 996 full-time staff, fostering an entrepreneurial culture with pay-for-performance compensation and comprehensive benefits - As of December 31, 2020, the company had **996 full-time employees**[106](index=106&type=chunk) - The company fosters an entrepreneurial and collaborative culture, empowering individual growth through mentorship and leadership development programs like its Ambassador program[107](index=107&type=chunk)[108](index=108&type=chunk) - Compensation philosophy is based on pay-for-performance to align employee interests with long-term growth. Benefits include healthcare, wellness, retirement, and flexible work arrangements[110](index=110&type=chunk) - During the COVID-19 pandemic, the company adopted a work-from-home policy to safeguard employee health without disrupting client service[111](index=111&type=chunk) [Risk Factors](index=20&type=section&id=Item%201A.%20Risk%20Factors) The company faces diverse risks including revenue volatility, market conditions, legal and regulatory exposure, potential losses from investments, intense competition, significant indebtedness, and concentrated insider ownership - Revenues and results of operations are volatile and difficult to predict due to the singular nature of investment banking engagements and variability in the Auction and Liquidation business[115](index=115&type=chunk)[117](index=117&type=chunk) - The company has significant exposure to credit risk through its lending activities and may incur losses from "guarantee" based engagements in its Auction and Liquidation segment[115](index=115&type=chunk)[173](index=173&type=chunk)[180](index=180&type=chunk) - Principal investments in high-risk, illiquid assets with leveraged capital structures could result in the loss of some or all of the invested capital[115](index=115&type=chunk)[170](index=170&type=chunk) - The company's significant level of indebtedness, including multiple series of senior notes, could adversely affect operations and liquidity[115](index=115&type=chunk)[310](index=310&type=chunk) - Executive officers, directors, and their affiliates own approximately **27.5% of the outstanding common stock**, allowing them to exert significant control over corporate decisions[306](index=306&type=chunk) [Unresolved Staff Comments](index=72&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[341](index=341&type=chunk) [Properties](index=72&type=section&id=Item%202.%20Properties) The company's headquarters are in a leased facility in Los Angeles, California, deemed suitable and adequate for current operations - The company's headquarters are in a leased facility in Los Angeles, California[342](index=342&type=chunk) [Legal Proceedings](index=73&type=section&id=Item%203.%20Legal%20Proceedings) The company faces various legal claims, including a specific class action lawsuit, Gaynor v. Miller et al., which was settled in July 2020 - The company is involved in various legal proceedings, lawsuits, and regulatory matters typical for its industry, but does not believe they will have a material effect on its financial position[344](index=344&type=chunk) - A specific class action lawsuit, Gaynor v. Miller et al., naming a subsidiary of B. Riley Securities as a defendant, was subject to a settlement agreement in July 2020, with an accrual made in the financial statements[345](index=345&type=chunk) [Mine Safety Disclosures](index=73&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[346](index=346&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=74&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ under "RILY", with a policy of regular quarterly dividends and significant outperformance against market indices - The company's common stock is traded on the NASDAQ Global Market under the symbol **"RILY"**[349](index=349&type=chunk) Share Performance Comparison (2015-2020) | Year | B. Riley Financial, Inc. | Russell 2000 | Industry Peer Group | | :--- | :--- | :--- | :--- | | 2015 | $100 | $100 | $100 | | 2016 | $192 | $119 | $113 | | 2017 | $196 | $135 | $128 | | 2018 | $160 | $119 | $108 | | 2019 | $302 | $147 | $124 | | 2020 | $563 | $174 | $148 | [Selected Financial Data](index=76&type=section&id=Item%206.%20Selected%20Financial%20Data) This section presents five-year consolidated financial data, highlighting significant growth in total revenues from **$190.4 million** in 2016 to **$902.7 million** in 2020, and total assets to over **$2.66 billion** Selected Consolidated Statement of Operations Data (2016-2020) | (In thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Total revenues** | $902,721 | $652,112 | $422,991 | $322,176 | $190,351 | | **Operating income** | $344,765 | $166,651 | $45,384 | $28,844 | $48,725 | | **Net income available to common shareholders** | $200,438 | $81,347 | $15,509 | $11,556 | $21,526 | | **Diluted income per common share** | $7.56 | $2.95 | $0.58 | $0.48 | $1.17 | Selected Consolidated Balance Sheet Data (2016-2020) | (In thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Total assets** | $2,662,730 | $2,318,178 | $1,957,710 | $1,386,904 | $264,618 | | **Total liabilities** | $2,123,770 | $1,927,927 | $1,699,050 | $1,121,058 | $114,226 | | **Total equity** | $538,960 | $390,251 | $258,660 | $265,846 | $150,392 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=78&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion highlights a **38.4% revenue increase** to **$902.7 million** and a **106.9% operating income surge** to **$344.8 million** in 2020, driven by strong segment performance and robust liquidity - Total revenues increased by **38.4% to $902.7 million** in 2020 from $652.1 million in 2019[387](index=387&type=chunk) - Operating income increased by **106.9% to $344.8 million** in 2020 from $166.7 million in 2019[387](index=387&type=chunk) - Net income attributable to B. Riley Financial increased **151.4% to $205.1 million** in 2020[387](index=387&type=chunk) [Results of Operations](index=83&type=section&id=Results%20of%20Operations) This section details the year-over-year financial performance, showing significant revenue and income growth driven by Capital Markets and Auction & Liquidation segments Year-over-Year Financial Comparison (2020 vs. 2019) | (In thousands) | 2020 | 2019 | Change (%) | | :--- | :--- | :--- | :--- | | **Total revenues** | $902,721 | $652,112 | 38.4% | | **Operating income** | $344,765 | $166,651 | 106.9% | | **Net income attributable to B. Riley Financial, Inc.** | $205,148 | $81,611 | 151.4% | | **Net income available to common shareholders** | $200,438 | $81,347 | 146.4% | - The **$250.6 million revenue increase** in 2020 was primarily driven by a **$206.6 million increase in services and fees**, led by a **$147.5 million rise in the Capital Markets segment** due to higher investment banking fees[391](index=391&type=chunk)[392](index=392&type=chunk) - Auction and Liquidation segment revenues from services and fees grew by **$44.8 million** in 2020, a **244.9% increase**, due to a higher number of fee-related retail liquidation engagements[389](index=389&type=chunk)[393](index=393&type=chunk) - Total selling, general, and administrative (SG&A) expenses increased by **11.2% to $428.5 million** in 2020, primarily due to a **$27.0 million increase in the Capital Markets segment** related to higher payroll and deal expenses[404](index=404&type=chunk)[406](index=406&type=chunk)[407](index=407&type=chunk) - The company recognized a **$12.5 million impairment charge** on tradenames in the Brands segment in 2020 due to the economic impact of the COVID-19 outbreak[414](index=414&type=chunk) [Liquidity and Capital Resources](index=100&type=section&id=Liquidity%20and%20Capital%20Resources) This section analyzes the company's cash flows, capital structure, and financing activities, including debt issuances and contractual obligations Cash Flow Summary (2018-2020) | (In thousands) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | **Net cash provided by (used in) Operating activities** | $57,689 | $(27,198) | $(102,186) | | **Net cash used in Investing activities** | $(128,446) | $(298,590) | $(154,069) | | **Net cash provided by Financing activities** | $69,544 | $250,176 | $284,859 | - As of December 31, 2020, the company had **$103.6 million in cash and cash equivalents**, **$777.3 million in securities and other investments**, and **$1.0 billion in total borrowings outstanding**[461](index=461&type=chunk) - In 2020, the company issued **$132.3 million of 6.375% Senior Notes due 2025** and an additional **$54.5 million of various senior notes** through its at-the-market program[479](index=479&type=chunk)[480](index=480&type=chunk) - In September 2020, the company closed a public offering of Depositary Shares representing its **7.375% Series B Cumulative Perpetual Preferred Stock**, raising gross proceeds of approximately **$32.5 million**[478](index=478&type=chunk) Contractual Obligations as of December 31, 2020 | (In thousands) | Total | Less Than One Year | 1-3 Years | 4-5 Years | More Than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | **Operating lease obligations** | $73,688 | $11,775 | $21,340 | $19,492 | $21,081 | | **Notes payable** | $38,272 | $37,896 | $376 | $— | $— | | **Term loan** | $75,000 | $19,000 | $32,000 | $24,000 | $— | | **Senior notes payable, including interest** | $1,091,760 | $47,197 | $340,993 | $294,283 | $409,287 | | **Total** | **$1,278,720** | **$115,868** | **$394,709** | **$337,775** | **$430,368** | [Critical Accounting Policies](index=109&type=section&id=Critical%20Accounting%20Policies) This section outlines key accounting policies, including revenue recognition, goodwill impairment, fair value measurements, and the adoption of new credit loss standards - Revenue Recognition (ASC 606): Revenues are recognized when control of goods or services is transferred. The policy details recognition timing for various revenue streams, including investment banking success fees (upon closing), asset management fees (over time), and guaranteed liquidation contracts (using a cost-to-cost measure of progress)[506](index=506&type=chunk)[507](index=507&type=chunk)[515](index=515&type=chunk) - Goodwill and Other Intangible Assets: Goodwill is tested for impairment annually or when triggering events occur. In 2020, the COVID-19 outbreak was identified as a triggering event, leading to a **$12.5 million impairment charge** on indefinite-lived tradenames in the Brands segment[531](index=531&type=chunk)[534](index=534&type=chunk) - Fair Value Measurements: The company uses a three-level hierarchy for fair value measurements. Level 3 assets, which use unobservable inputs, require significant judgment and include nonpublic equity securities and certain loans. As of Dec 31, 2020, **Level 3 assets measured at fair value were $540.0 million**[535](index=535&type=chunk)[705](index=705&type=chunk) - Loans Receivable: Effective January 1, 2020, the company adopted the new credit loss standard (ASC 326) and elected the fair value option for all outstanding loans previously measured at amortized cost. This change means credit losses are now captured through fair value adjustments rather than an allowance[689](index=689&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=116&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are interest rate fluctuations affecting floating-rate loans and fixed-rate notes, and limited foreign currency exposure, which is managed with forward exchange contracts - The primary market risk is interest rate risk, affecting the value of fixed-rate notes and income from floating-rate loans and credit facilities[548](index=548&type=chunk) - Foreign currency risk is considered limited, as revenues from foreign subsidiaries were less than **5.3% of total revenues** in 2020[550](index=550&type=chunk) - The company uses derivative instruments, such as forward exchange contracts, to manage currency risk on specific international engagements[544](index=544&type=chunk) [Financial Statements and Supplementary Data](index=118&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section refers to the consolidated financial statements and supplementary data, located in a separate section starting on page F-1 - The required financial statements and supplementary data are located in a separate section of the Annual Report, starting on page F-1[551](index=551&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=118&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - None[552](index=552&type=chunk) [Controls and Procedures](index=118&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective as of December 31, 2020, but internal control over financial reporting was effective, with a prior material weakness remediated - Management concluded that disclosure controls and procedures were not effective as of December 31, 2020[554](index=554&type=chunk) - Despite the issue with disclosure controls, management concluded that internal control over financial reporting was effective as of December 31, 2020[556](index=556&type=chunk) - A previously reported material weakness in internal control over financial reporting was remediated during the quarter ended June 30, 2020. The remediation involved enhancing related party policies, procedures, and oversight[558](index=558&type=chunk) [Other Information](index=119&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[560](index=560&type=chunk) Part III [Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, and Principal Accountant Fees](index=120&type=section&id=Items%2010-14) Information for Items 10 through 14, covering directors, executive officers, governance, compensation, and security ownership, is incorporated by reference from the 2021 Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the definitive Proxy Statement for the 2021 Annual Meeting of Stockholders[563](index=563&type=chunk)[564](index=564&type=chunk)[565](index=565&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=121&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all exhibits filed with the Form 10-K, including various agreements, and points to the Consolidated Financial Statements starting on page F-1 - This section provides an index of all exhibits filed with the annual report[572](index=572&type=chunk) [Financial Statements](index=129&type=section&id=Financial%20Statements) The consolidated financial statements for B. Riley Financial and its subsidiaries for the three years ended December 31, 2020, show significant growth, with **total assets reaching $2.66 billion** and **total revenues of $902.7 million** in 2020 Consolidated Balance Sheet Highlights | (In thousands) | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | **Total Assets** | $2,662,730 | $2,318,178 | | **Total Liabilities** | $2,123,770 | $1,927,927 | | **Total Equity** | $538,960 | $390,251 | Consolidated Income Statement Highlights | (In thousands) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | **Total Revenues** | $902,721 | $652,112 | $422,991 | | **Operating Income** | $344,765 | $166,651 | $45,384 | | **Net Income Attributable to B. Riley Financial, Inc.** | $205,148 | $81,611 | $15,509 | [Form 10-K Summary](index=127&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports no Form 10-K summary - None[587](index=587&type=chunk)
B. Riley Financial(RILY) - 2020 Q4 - Earnings Call Transcript
2021-02-27 20:28
B. Riley Financial, Inc. (NASDAQ:RILY) Q4 2020 Earnings Conference Call February 25, 2021 4:30 PM ET Company Participants Bryant Riley – Chairman, Co-Founder and Co-Chief Executive Officer Tom Kelleher – Co-Founder and Co-Chief Executive Officer Phillip Ahn – Chief Financial Officer and Chief Operating Officer Conference Call Participants Paul Dwyer – Punch & Associates Keith Rosenbloom – Cruiser Capital Operator Good afternoon, and welcome to B. Riley Financial's Fourth Quarter and Full Year 2020 Earnings ...
B. Riley Financial(RILY) - 2020 Q4 - Earnings Call Presentation
2021-02-26 20:22
B | R I L E Y Financial | --- | --- | |-----------------------------|-------| | | | | Fourth Quarter 2020 | | | Supplemental Financial Data | | | February 25, 2021 | | 1 NASDAQ: RILY Reconciliation of U.S. GAAP to Non-GAAP Measures | --- | --- | --- | --- | --- | --- | |---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|-------------------------|---------------|---------- ...
B. Riley Financial(RILY) - 2020 Q3 - Earnings Call Presentation
2020-11-09 20:40
Company Overview - B Riley Financial was founded in 1997 and went public in 2014 [9] - The company has over 50 offices across the US and international operations in Germany, Australia and India [9] - As of September 30, 2020, insiders held approximately 24.6% of the company's shares [19] Financial Performance - Total revenues for the last twelve months (LTM) ending September 30, 2020 were $657.8 million [19] - Total Adjusted EBITDA for the LTM ending September 30, 2020 was $196.6 million [19] - As of September 30, 2020, the company's total debt was $908.1 million [19] - The company's dividend yield (LTM) was 6.5% as of October 28, 2020 [19] Segment Results (Q3 2020) - Capital Markets generated operating revenues of $115.058 million and investment gains of $31.753 million [40] - Auction and Liquidation generated operating revenues of $44.185 million [40] - Appraisal generated operating revenues of $9.655 million [40] - Principal Investments generated operating revenues of $21.602 million [40] - Brands generated operating revenues of $4.000 million [40] Retail Liquidation - In 2019, the company completed over 3,900 store closings with over $2.9 billion in total value of assets liquidated [47, 62] - In 2020 YTD, the company completed over 2,000 store closings with over $2.8 billion in associated retail inventory value [62]
B. Riley Financial(RILY) - 2020 Q3 - Earnings Call Transcript
2020-10-31 09:10
B. Riley Financial, Inc. (NASDAQ:RILY) Q3 2020 Earnings Conference Call October 29, 2020 4:30 PM ET Company Participants Bryant Riley – Chairman and Co-Chief Executive Officer Tom Kelleher – Co-Chief Executive Officer Phillip Ahn – Chief Financial Officer and Chief Operating Officer Conference Call Participants Kevin Rendino – 180 Degree Capital Wes Cummins – 272 Capital Sean Haydon – Tipp Hill Operator Good afternoon and welcome to B. Riley Financial's Third Quarter 2020 Earnings Call. Earlier today, B. Ri ...
B. Riley Financial(RILY) - 2020 Q3 - Quarterly Report
2020-10-30 01:08
PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements and accompanying notes for the periods ended September 30, 2020, and December 31, 2019 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (Dollars in thousands) | Metric | September 30, 2020 (Unaudited) | December 31, 2019 | | :--- | :--- | :--- | | **Assets:** | | | | Cash and cash equivalents | $169,676 | $104,268 | | Securities and other investments owned, at fair value | $459,480 | $408,213 | | Securities borrowed | $676,423 | $814,331 | | Loans receivable, at fair value | $344,339 | $43,338 | | Total assets | $2,300,082 | $2,318,178 | | **Liabilities:** | | | | Securities loaned | $667,109 | $810,495 | | Senior notes payable | $854,926 | $688,112 | | Total liabilities | $1,900,101 | $1,927,927 | | **Equity:** | | | | Total equity | $399,981 | $390,251 | - Total assets decreased slightly from **$2,318,178 thousand** at December 31, 2019, to **$2,300,082 thousand** at September 30, 2020, with key changes including a **$65,408 thousand** increase in cash, a **$300,991 thousand** increase in loans receivable, and decreases in securities borrowed and loaned[8](index=8&type=chunk)[9](index=9&type=chunk) [Condensed Consolidated Statements of Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Condensed Consolidated Statements of Income (Dollars in thousands, except share data) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $226,253 | $180,063 | $492,515 | $486,875 | | Total operating expenses | $142,752 | $120,212 | $398,818 | $357,791 | | Operating income | $83,501 | $59,851 | $93,697 | $129,084 | | Net income attributable to B. Riley Financial, Inc. | $48,379 | $34,302 | $33,554 | $64,482 | | Net income available to common shareholders | $47,291 | $34,302 | $30,324 | $64,482 | | Basic income per common share | $1.86 | $1.29 | $1.18 | $2.45 | | Diluted income per common share | $1.75 | $1.21 | $1.14 | $2.37 | - For Q3 2020, total revenues increased **25.7%** to **$226,253 thousand** and net income increased **41.0%** to **$48,379 thousand** YoY, while for the nine-month period, net income decreased **48.0%** to **$33,554 thousand** despite a slight revenue increase[12](index=12&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Condensed Consolidated Statements of Comprehensive Income (Dollars in thousands) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net income | $48,892 | $34,144 | $32,172 | $64,432 | | Other comprehensive income (loss), net of tax | $526 | $(521) | $(179) | $(184) | | Total comprehensive income | $49,418 | $33,623 | $31,993 | $64,248 | | Comprehensive income attributable to B. Riley Financial, Inc. | $48,905 | $33,781 | $33,375 | $64,298 | - Total comprehensive income increased **46.9%** to **$49,418 thousand** for Q3 2020 but decreased **50.1%** to **$31,993 thousand** for the nine-month period, driven primarily by changes in net income[15](index=15&type=chunk) [Condensed Consolidated Statements of Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) Condensed Consolidated Statements of Equity (Dollars in thousands, except share data) | Metric | Balance, July 1, 2020 | Balance, Sep 30, 2020 | Balance, Jan 1, 2020 | Balance, Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | **Three Months Ended Sep 30, 2020:** | | | | | | Total Equity | $336,219 | $399,981 | | | | **Nine Months Ended Sep 30, 2020:** | | | | | | Total Equity | | | $390,251 | $399,981 | | Preferred stock issued | | $31,377 | | $36,007 | | Common stock repurchased and retired | | $(10,569) | | $(38,348) | | Net income | | $48,379 | | $33,554 | | Dividends on common stock | | $(9,280) | | $(25,922) | | Dividends on preferred stock | | $(1,088) | | $(3,230) | - Total equity increased to **$399,981 thousand** at September 30, 2020, driven by net income and preferred stock issuances, partially offset by common stock repurchases and dividends[18](index=18&type=chunk)[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (Dollars in thousands) | Metric | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $86,897 | $46,223 | | Net cash used in investing activities | $(98,546) | $(251,444) | | Net cash provided by financing activities | $77,589 | $196,184 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $66,347 | $(9,220) | | Cash, cash equivalents and restricted cash, end of period | $171,086 | $171,058 | - For the nine months ended September 30, 2020, net cash from operations increased to **$86,897 thousand**, while cash used in investing decreased significantly, resulting in a **$66,347 thousand** net increase in cash[22](index=22&type=chunk)[23](index=23&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) [NOTE 1—ORGANIZATION AND NATURE OF BUSINESS OPERATIONS](index=12&type=section&id=NOTE%201%E2%80%94ORGANIZATION%20AND%20NATURE%20OF%20BUSINESS%20OPERATIONS) B. Riley Financial, Inc. provides a range of financial and advisory services through five operating segments - The Company operates in five segments: **Capital Markets**, **Auction and Liquidation**, **Valuation and Appraisal**, **Principal Investments**, and **Brands**[26](index=26&type=chunk) - The Brands segment was established following the acquisition of a majority interest in **BR Brand Holding, LLC** on October 28, 2019[25](index=25&type=chunk)[26](index=26&type=chunk) [NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=12&type=section&id=NOTE%202%E2%80%94SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines key accounting policies, including the impact of COVID-19 and the adoption of the new credit loss standard (ASC 326) - The full impact of the **COVID-19 outbreak** on the Company's financial results remains highly uncertain and unpredictable[29](index=29&type=chunk) - The Company adopted the new credit loss standard **(ASC 326)** on January 1, 2020, electing the fair value option for loans receivable, which had an immaterial impact[45](index=45&type=chunk)[84](index=84&type=chunk) - The Company holds significant equity ownership in **bebe stores, inc. (30.5%)** and **National Holdings Corporation (45.3%)**, accounted for under the equity method[70](index=70&type=chunk)[71](index=71&type=chunk)[72](index=72&type=chunk) - Derivative instruments, primarily forward exchange contracts, are used periodically to manage foreign exchange risk[65](index=65&type=chunk) - The Company is currently evaluating the effect of recently issued accounting standards updates on its financial condition[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk) Level 3 Financial Assets and Liabilities Measured at Fair Value (Dollars in thousands) | Metric | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Financial assets measured at fair value (Level 3) | $446,588 | $152,589 | | % of Total Assets | 19.4% | 6.6% | [NOTE 3—ACQUISITIONS](index=28&type=section&id=NOTE%203%E2%80%94ACQUISITIONS) On October 28, 2019, the Company acquired a majority equity interest in BR Brand Holding, LLC for **$116.5 million** in cash and **$0.99 million** in warrants - On October 28, 2019, B. Riley acquired a majority equity interest in **BR Brand Holding, LLC**[85](index=85&type=chunk)[86](index=86&type=chunk) - The transaction was accounted for as an **acquisition of assets**, not a business combination[88](index=88&type=chunk) BR Brand Acquisition Consideration and Assets Acquired (Dollars in thousands) | Metric | Amount | | :--- | :--- | | Cash acquisition consideration | $116,500 | | Warrant consideration | $990 | | Total consideration | $118,060 | | Tradename acquired | $136,176 | | Customer list acquired | $8,678 | [NOTE 4—RESTRUCTURING CHARGE](index=29&type=section&id=NOTE%204%E2%80%94RESTRUCTURING%20CHARGE) The Company recorded a **$1,557 thousand** restructuring charge in Q3 2020, primarily for impairment of acquired tradename intangibles - Restructuring charges in Q3 2020 were primarily due to **impairment of tradename intangibles**, while 2019 charges were mainly for employee severance and lease termination[91](index=91&type=chunk)[92](index=92&type=chunk) Restructuring Charges (Dollars in thousands) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total restructuring charge | $1,557 | $0 | $1,557 | $1,699 | | Impairment of intangibles (3 months) | $1,557 | $0 | | | | Impairment of intangibles (9 months) | | | $1,557 | $0 | | Employee termination (9 months) | | | $0 | $1,594 | [NOTE 5—SECURITIES LENDING](index=31&type=section&id=NOTE%205%E2%80%94SECURITIES%20LENDING) Securities borrowing and lending balances are presented on a gross basis, with securities borrowed totaling **$676,423 thousand** as of September 30, 2020 - Securities borrowed decreased by **$137,908 thousand** and securities loaned decreased by **$143,386 thousand** from December 31, 2019, to September 30, 2020[95](index=95&type=chunk) Securities Borrowed and Loaned Balances (Dollars in thousands) | Metric | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Securities borrowed | $676,423 | $814,331 | | Securities loaned | $667,109 | $810,495 | [NOTE 6—ACCOUNTS RECEIVABLE](index=31&type=section&id=NOTE%206%E2%80%94ACCOUNTS%20RECEIVABLE) Accounts receivable, net, decreased slightly to **$45,654 thousand**, while the allowance for doubtful accounts increased to **$2,752 thousand** Accounts Receivable, Net (Dollars in thousands) | Metric | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Accounts receivable | $38,421 | $36,385 | | Investment banking fees, commissions and other receivables | $4,247 | $8,043 | | Unbilled receivables | $5,738 | $3,710 | | Total accounts receivable | $48,405 | $48,138 | | Allowance for doubtful accounts | $(2,752) | $(1,514) | | Accounts receivable, net | $45,654 | $46,624 | Allowance for Doubtful Accounts Changes (Dollars in thousands) | Metric | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Balance, beginning of period | $1,514 | $696 | | Add: Additions to reserve | $2,438 | $1,681 | | Less: Write-offs | $(1,200) | $(759) | | Balance, end of period | $2,752 | $1,461 | [NOTE 7—GOODWILL AND OTHER INTANGIBLE ASSETS](index=33&type=section&id=NOTE%207%E2%80%94GOODWILL%20AND%20OTHER%20INTANGIBLE%20ASSETS) Goodwill increased to **$227,046 thousand**, while net intangible assets decreased to **$194,516 thousand** due to impairment charges on tradenames - The Company recognized **$12,500 thousand** in impairment charges on indefinite-lived tradenames in the Brands segment due to the impact of the COVID-19 outbreak[101](index=101&type=chunk) - Amortization expense for intangible assets was **$11,967 thousand** for the nine months ended September 30, 2020, up from **$10,031 thousand** in the prior year[100](index=100&type=chunk) Goodwill and Other Intangible Assets (Dollars in thousands) | Metric | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Goodwill | $227,046 | $223,697 | | Total intangible assets, net | $194,516 | $220,525 | | Non-amortizable tradenames | $125,276 | $138,416 | [NOTE 8—NOTES PAYABLE](index=34&type=section&id=NOTE%208%E2%80%94NOTES%20PAYABLE) The asset-based credit facility with Wells Fargo Bank had no outstanding balance at September 30, 2020 - The asset-based credit facility with Wells Fargo Bank had **no outstanding balance** at September 30, 2020, compared to **$37,096 thousand** at December 31, 2019[102](index=102&type=chunk) - Other notes payable decreased to **$714 thousand** at September 30, 2020, from **$1,071 thousand** at December 31, 2019[104](index=104&type=chunk) [NOTE 9—TERM LOAN](index=34&type=section&id=NOTE%209%E2%80%94TERM%20LOAN) The BRPAC Credit Agreement term loan had an outstanding balance of **$52,452 thousand** at September 30, 2020 - The outstanding balance on the BRPAC Credit Agreement term loan was **$52,452 thousand** at September 30, 2020, a decrease from **$66,666 thousand** at December 31, 2019[109](index=109&type=chunk) - The term loan bears interest at a rate equal to **LIBOR plus a margin of 2.5% to 3.0%** per annum, with a maturity date of December 19, 2023[109](index=109&type=chunk) - The obligations are secured by first-priority liens on substantially all assets of the Credit Parties and pledges of equity interests in certain subsidiaries[106](index=106&type=chunk) [NOTE 10—SENIOR NOTES PAYABLE](index=36&type=section&id=NOTE%2010%E2%80%94SENIOR%20NOTES%20PAYABLE) Total senior notes payable, net, increased to **$854,926 thousand** due to new issuances, partially offset by bond repurchases - The Company issued **$132,250 thousand** of 6.375% Senior Notes due 2025 and **$39,167 thousand** of other senior notes during the nine-month period[111](index=111&type=chunk)[112](index=112&type=chunk) - A gain of **$1,556 thousand** was recognized from the repurchase of bonds with an aggregate face value of **$3,443 thousand** for **$1,829 thousand**[113](index=113&type=chunk) Senior Notes Payable, Net (Dollars in thousands) | Metric | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total senior notes outstanding | $864,962 | $696,987 | | Less: Unamortized debt issuance costs | $(10,036) | $(8,875) | | Senior notes payable, net | $854,926 | $688,112 | | Weighted average interest rate | 6.94% | 7.05% | [NOTE 11—REVENUE FROM CONTRACTS WITH CUSTOMERS](index=38&type=section&id=NOTE%2011%E2%80%94REVENUE%20FROM%20CONTRACTS%20WITH%20CUSTOMERS) Total revenues from contracts with customers increased, driven by significant growth in the Capital Markets and Brands segments - Deferred revenue increased to **$70,565 thousand** at September 30, 2020, from **$67,121 thousand** at December 31, 2019[123](index=123&type=chunk) - The Company recognized **$32,176 thousand** in revenue during the nine-month period that was recorded as deferred revenue at the beginning of the year[123](index=123&type=chunk) Revenues from Contracts with Customers by Segment (Dollars in thousands) | Segment | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Capital Markets | $71,523 | $65,888 | $254,834 | $180,638 | | Auction and Liquidation | $44,185 | $11,286 | $73,097 | $66,911 | | Valuation and Appraisal | $9,655 | $10,818 | $26,112 | $29,143 | | Principal Investments - United Online and magicJack | $21,602 | $23,863 | $65,755 | $77,176 | | Brands | $4,000 | $0 | $11,007 | $0 | | Total revenues from contracts with customers | $150,965 | $111,855 | $430,805 | $353,868 | [NOTE 12—INCOME TAXES](index=42&type=section&id=NOTE%2012%E2%80%94INCOME%20TAXES) The Company's effective income tax rate was **29.4%** for the nine months ended September 30, 2020, consistent with the prior year - The effective income tax rate was **29.4%** for both the nine months ended September 30, 2020 and 2019[128](index=128&type=chunk) - As of September 30, 2020, the Company had federal net operating loss carryforwards of **$53,932 thousand** and state net operating loss carryforwards of **$64,088 thousand**[129](index=129&type=chunk) - A valuation allowance of **$61,945 thousand** has been provided against capital loss carryforwards[130](index=130&type=chunk) [NOTE 13—EARNINGS PER SHARE](index=42&type=section&id=NOTE%2013%E2%80%94EARNINGS%20PER%20SHARE) Basic EPS was **$1.86** for Q3 2020 and **$1.18** for the nine-month period, with diluted EPS at **$1.75** and **$1.14**, respectively - Securities that could potentially dilute basic EPS but were excluded due to being anti-dilutive totaled **1,059,919** for the three months and **1,212,563** for the nine months ended September 30, 2020[132](index=132&type=chunk) Basic and Diluted Earnings Per Share | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net income applicable to common shareholders | $47,291 | $34,302 | $30,324 | $64,482 | | Basic income per common share | $1.86 | $1.29 | $1.18 | $2.45 | | Diluted income per common share | $1.75 | $1.21 | $1.14 | $2.37 | | Weighted average basic common shares outstanding | 25,446,292 | 26,556,223 | 25,699,735 | 26,351,839 | | Weighted average diluted common shares outstanding | 27,050,448 | 28,233,423 | 26,689,700 | 27,251,837 | [NOTE 14—COMMITMENTS AND CONTINGENCIES](index=43&type=section&id=NOTE%2014%E2%80%94COMMITMENTS%20AND%20CONTINGENCIES) The Company is involved in various legal proceedings and has significant loan commitments and guarantees - The Company agreed to settle the **Miller Energy Resources, Inc.** class action lawsuit in July 2020, with court approval expected by early 2021[135](index=135&type=chunk) - The Company provided a limited guaranty of up to **$50,000 thousand** for certain obligations of Franchise Group, Inc. (FRG)[137](index=137&type=chunk) - The Company committed to loan **Babcock & Wilcox Enterprises, Inc. (B&W)** up to **$40,000 thousand** and provided a limited guaranty of B&W's obligations[140](index=140&type=chunk) - The Company entered into an Indemnity Rider to indemnify Berkley Insurance Company for a **$29,970 thousand** payment and performance bond related to a B&W project[141](index=141&type=chunk) [NOTE 15—SHARE-BASED PAYMENTS AND COMMON STOCK](index=45&type=section&id=NOTE%2015%E2%80%94SHARE-BASED%20PAYMENTS%20AND%20COMMON%20STOCK) Share-based compensation expense was **$13,945 thousand** for the nine-month period, during which the Company repurchased **1,715,383** shares - Share-based compensation expense for restricted stock units was **$13,945 thousand** for the nine months ended September 30, 2020[143](index=143&type=chunk) - The Company repurchased **1,715,383 shares** of its common stock for **$38,348 thousand** during the nine-month period[145](index=145&type=chunk) - The Company had **3,831 shares** of preferred stock issued and outstanding as of September 30, 2020, with a total liquidation preference of **$95,773 thousand**[8](index=8&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk) [NOTE 16—NET CAPITAL REQUIREMENTS](index=47&type=section&id=NOTE%2016%E2%80%94NET%20CAPITAL%20REQUIREMENTS) The Company's broker-dealer subsidiaries, B. Riley Securities and B. Riley Wealth Management, are in compliance with SEC net capital rules - B. Riley Securities had net capital of **$137,777 thousand**, which was **$134,273 thousand** in excess of its requirement as of September 30, 2020[148](index=148&type=chunk) - B. Riley Wealth Management had net capital of **$4,090 thousand**, which was **$3,444 thousand** in excess of its requirement as of September 30, 2020[148](index=148&type=chunk) [NOTE 17—RELATED PARTY TRANSACTIONS](index=47&type=section&id=NOTE%2017%E2%80%94RELATED%20PARTY%20TRANSACTIONS) The Company engages in various transactions with related parties, including management fees, loan participations, and equity commitments - Amounts due from related parties totaled **$3,766 thousand** at September 30, 2020, including management fees and operating expenses[149](index=149&type=chunk) - The Company sold loan participations of **$13,919 thousand** to BRC Partners Opportunity Fund, LP, in which executive officers hold a **43.8%** financial interest[149](index=149&type=chunk) - The Company committed to provide up to **$40,000 thousand** in equity financing to B. Riley Principal Merger Corp. II (BRPM II)[153](index=153&type=chunk) - Loans receivable from related parties include **$164,539 thousand** from Babcock & Wilcox Enterprises, Inc. and **$71,479 thousand** from Maven, Inc.[157](index=157&type=chunk)[161](index=161&type=chunk) [NOTE 18—BUSINESS SEGMENTS](index=51&type=section&id=NOTE%2018%E2%80%94BUSINESS%20SEGMENTS) The Company operates in five business segments, with Capital Markets being the largest contributor to segment income and North America as the primary revenue source - The Brands segment reported a segment loss of **$5,843 thousand** for the nine-month period, primarily due to a **$12,500 thousand** impairment of tradenames[166](index=166&type=chunk) Segment Income (Dollars in thousands) | Segment | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Capital Markets | $64,811 | $52,402 | $76,913 | $90,656 | | Auction and Liquidation | $12,000 | $5,953 | $18,309 | $35,285 | | Valuation and Appraisal | $2,972 | $3,451 | $6,330 | $7,551 | | Principal Investments - United Online and magicJack | $8,368 | $8,662 | $26,060 | $24,370 | | Brands | $2,292 | $0 | $(5,843) | $0 | | Consolidated operating income from reportable segments | $90,443 | $70,468 | $121,769 | $157,862 | Total Revenues by Geographical Area (Dollars in thousands) | Region | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | North America | $185,127 | $180,063 | $447,880 | $486,799 | | Australia | $6,094 | $0 | $7,796 | $15 | | Europe | $35,032 | $0 | $36,839 | $61 | | Total Revenues | $226,253 | $180,063 | $492,515 | $486,875 | [NOTE 19—SUBSEQUENT EVENTS](index=53&type=section&id=NOTE%2019%E2%80%94SUBSEQUENT%20EVENTS) On October 28, 2020, the Board of Directors increased the regular quarterly dividend to **$0.375** per share - On October 28, 2020, the Board of Directors announced an increase to the regular quarterly dividend from **$0.30** per share to **$0.375** per share[170](index=170&type=chunk) - The increased dividend will be paid on or about November 24, 2020, to stockholders of record as of November 10, 2020[170](index=170&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=54&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition, results of operations, liquidity, and capital resources [Overview](index=54&type=section&id=Overview) - B. Riley Financial provides collaborative financial services and solutions through its operating subsidiaries[176](index=176&type=chunk) - The Company invests in or acquires companies with attractive investment return characteristics and holds a majority interest in BR Brand for trademark licensing[177](index=177&type=chunk)[178](index=178&type=chunk) - The business is classified into five operating segments: **Capital Markets**, **Auction and Liquidation**, **Valuation and Appraisal**, **Principal Investments**, and **Brands**[179](index=179&type=chunk) [Recent Developments](index=56&type=section&id=Recent%20Developments) - The full impact of the **COVID-19 outbreak** on the Company's results of operations, financial position, and cash flows is highly uncertain and cannot be predicted[185](index=185&type=chunk) - The impact of COVID-19 on financial markets and the overall economy, if extended, may materially adversely affect the Company[185](index=185&type=chunk) [Results of Operations](index=57&type=section&id=Results%20of%20Operations) [Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019](index=57&type=section&id=Three%20Months%20Ended%20September%2030%2C%202020%20Compared%20to%20Three%20Months%20Ended%20September%2030%2C%202019) For Q3 2020, total revenues increased **25.7%** to **$226.3 million**, and net income increased **41.0%** to **$48.4 million** - Direct cost of services increased by **$15.3 million**, primarily due to a **$16.0 million** increase in the Auction and Liquidation segment[203](index=203&type=chunk) - Selling, general and administrative expenses decreased by **$3.9 million**, with notable decreases in Corporate and Other and Capital Markets[207](index=207&type=chunk) - Restructuring charges of **$1.6 million** were recorded in Q3 2020, primarily for impairment of tradename intangibles[214](index=214&type=chunk) - Interest expense increased by **$3.6 million**, mainly due to the issuance of additional senior notes[215](index=215&type=chunk) Key Financial Highlights (Three Months Ended September 30, 2020 vs. 2019) (Dollars in thousands) | Metric | 2020 | 2019 | Change Amount | Change % | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $226,253 | $180,063 | $46,190 | 25.7% | | Total operating expenses | $142,752 | $120,212 | $22,540 | 18.8% | | Operating income | $83,501 | $59,851 | $23,650 | 39.5% | | Net income attributable to B. Riley Financial, Inc. | $48,379 | $34,302 | $14,077 | 41.0% | | Diluted income per common share | $1.75 | $1.21 | $0.54 | 44.6% | Revenue Breakdown by Segment (Three Months Ended September 30, 2020 vs. 2019) (Dollars in thousands) | Segment | 2020 | 2019 | Change Amount | Change % | | :--- | :--- | :--- | :--- | :--- | | Capital Markets segment (Services and fees) | $89,032 | $68,062 | $20,970 | 30.8% | | Auction and Liquidation segment (Services and fees) | $21,473 | $11,232 | $10,241 | 91.2% | | Brands (Services and fees) | $4,000 | $0 | $4,000 | 100.0% | | Auction and Liquidation segment (Sale of goods) | $22,712 | $54 | $22,658 | n/m | | Trading income and fair value adjustments on loans | $31,753 | $40,268 | $(8,515) | (21.1)% | [Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019](index=64&type=section&id=Nine%20Months%20Ended%20September%2030%2C%202020%20Compared%20to%20Nine%20Months%20Ended%20September%2030%2C%202019) For the nine-month period, net income decreased **48.0%** to **$33.6 million** due to lower trading income and impairment charges - The Company recognized **$12,500 thousand** in impairment charges on indefinite-lived tradenames in the Brands segment due to the impact of the COVID-19 outbreak[254](index=254&type=chunk) - Interest expense increased by **$13.4 million**, primarily due to a **$15.4 million** increase from the issuance of additional senior notes[255](index=255&type=chunk) Key Financial Highlights (Nine Months Ended September 30, 2020 vs. 2019) (Dollars in thousands) | Metric | 2020 | 2019 | Change Amount | Change % | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $492,515 | $486,875 | $5,640 | 1.2% | | Total operating expenses | $398,818 | $357,791 | $41,027 | 11.5% | | Operating income | $93,697 | $129,084 | $(35,387) | (27.4)% | | Net income attributable to B. Riley Financial, Inc. | $33,554 | $64,482 | $(30,928) | (48.0)% | | Diluted income per common share | $1.14 | $2.37 | $(1.23) | (51.9)% | Revenue Breakdown by Segment (Nine Months Ended September 30, 2020 vs. 2019) (Dollars in thousands) | Segment | 2020 | 2019 | Change Amount | Change % | | :--- | :--- | :--- | :--- | :--- | | Capital Markets segment (Services and fees) | $280,303 | $187,768 | $92,535 | 49.3% | | Brands (Services and fees) | $11,007 | $0 | $11,007 | 100.0% | | Trading (losses) income and fair value adjustments on loans | $(36,142) | $71,730 | $(107,872) | n/m | | Auction and Liquidation segment (Services and fees) | $49,340 | $65,681 | $(16,341) | (24.9)% | | Principal Investments - United Online and magicJack (Services and fees) | $63,037 | $74,383 | $(11,346) | (15.3)% | [Liquidity and Capital Resources](index=73&type=section&id=Liquidity%20and%20Capital%20Resources) - As of September 30, 2020, the Company had **$169.7 million** of unrestricted cash and cash equivalents, **$459.5 million** of securities and other investments, and **$922.1 million** of borrowings outstanding[266](index=266&type=chunk) - Management believes current liquidity and operating cash flows will be sufficient to meet working capital and capital expenditure requirements for at least the next 12 months[266](index=266&type=chunk) - The Board of Directors increased the regular quarterly dividend from **$0.30** to **$0.375** per share on October 28, 2020[268](index=268&type=chunk) [Cash Flow Summary](index=76&type=section&id=Cash%20Flow%20Summary) - Operating activities provided **$86.9 million** in cash, driven by net income and non-cash adjustments[272](index=272&type=chunk) - Investing activities used **$98.5 million**, a significant reduction from **$251.4 million** in 2019, primarily due to lower purchases of loans receivable[273](index=273&type=chunk) - Financing activities provided **$77.6 million**, mainly from senior notes and preferred stock issuances, offset by debt repayments, stock repurchases, and dividends[274](index=274&type=chunk) Cash Flow Summary (Nine Months Ended September 30) (Dollars in thousands) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $86,897 | $46,223 | | Net cash used in investing activities | $(98,546) | $(251,444) | | Net cash provided by financing activities | $77,589 | $196,184 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $66,347 | $(9,220) | [Credit Agreements](index=77&type=section&id=Credit%20Agreements) - The asset-based credit facility with Wells Fargo Bank has a maximum borrowing limit of **$200.0 million** and had no outstanding balance at September 30, 2020[275](index=275&type=chunk) - The BRPAC Credit Agreement term loan is due December 19, 2023, with an outstanding balance of **$52.5 million** at September 30, 2020[276](index=276&type=chunk)[277](index=277&type=chunk) - Borrowings under the BRPAC Credit Agreement bear interest at **LIBOR plus a margin of 2.50% to 3.00%**[276](index=276&type=chunk) [Senior Note Offerings](index=77&type=section&id=Senior%20Note%20Offerings) - During the nine-month period, the Company issued **$39.2 million** of senior notes through at-the-market sales[278](index=278&type=chunk) - On February 12, 2020, the Company issued **$132.3 million** of 6.375% Senior Notes due 2025, generating net proceeds of **$129.2 million**[279](index=279&type=chunk) - The Company repurchased bonds with a face value of **$3.4 million** for **$1.8 million**, resulting in a **$1.6 million** gain[280](index=280&type=chunk) - As of September 30, 2020, **$148.1 million** remained available under the February 2020 Sales Agreement for at-the-market sales of senior notes[283](index=283&type=chunk) [Off Balance Sheet Arrangements](index=79&type=section&id=Off%20Balance%20Sheet%20Arrangements) - The Company provided Babcock & Wilcox Enterprises, Inc. (B&W) with future loan commitments up to **$40.0 million** and a limited guaranty[285](index=285&type=chunk) - The Company entered into an Indemnity Rider to indemnify Berkley Insurance Company for a **$29.97 million** bond related to a B&W construction project[286](index=286&type=chunk) - The Company provided a limited guaranty of up to **$50.0 million** for certain obligations of Franchise Group, Inc. (FRG)[290](index=290&type=chunk) - The Company committed to provide up to **$40.0 million** in equity financing to B. Riley Principal Merger Corp. II (BRPM II)[292](index=292&type=chunk) [Contractual Obligations](index=81&type=section&id=Contractual%20Obligations) - The issuance of **$132.3 million** of 6.375% 2025 Notes increased total senior notes payable to **$1,161.2 million** as of September 30, 2020[294](index=294&type=chunk) - There were no other material changes to contractual obligations from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2019[294](index=294&type=chunk) [Recent Accounting Standards](index=81&type=section&id=Recent%20Accounting%20Standards) - Refer to Note 2(v) for details on recent accounting pronouncements[295](index=295&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=81&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the Company's primary market risks, including interest rate risk and foreign currency risk [Interest Rate Risk](index=81&type=section&id=Interest%20Rate%20Risk) - The Company's primary market risk exposure is related to changes in interest rates, affecting both fixed-rate and floating-rate borrowings[297](index=297&type=chunk) - Investments in loans receivable primarily bear floating rates, while the Company maintains a portfolio of cash equivalents and short-term investments[297](index=297&type=chunk)[298](index=298&type=chunk) - The Company believes it has limited exposure to interest rate risk in trading activities, based on daily monitoring[298](index=298&type=chunk) [Foreign Currency Risk](index=82&type=section&id=Foreign%20Currency%20Risk) - Revenues from foreign subsidiaries totaled **$44.6 million** for the nine months ended September 30, 2020, representing **9.1%** of total revenues[299](index=299&type=chunk) - A **10%** appreciation of the U.S. dollar would result in a **$0.7 million** increase in operating income, while a **10%** depreciation would result in a **$0.7 million** decrease[299](index=299&type=chunk) - Gains and losses from foreign currency transactions are included in income, while translation adjustments are reported in accumulated other comprehensive loss[299](index=299&type=chunk) [Item 4. Controls and Procedures](index=82&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, and a previously reported material weakness was remediated [Evaluation of Disclosure Controls and Procedures](index=82&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - Management concluded that disclosure controls and procedures were **effective** as of September 30, 2020[301](index=301&type=chunk) [Remediation of Material Weakness](index=82&type=section&id=Remediation%20of%20Material%20Weakness) - The previously reported material weakness in internal control over financial reporting was **remediated** in the quarter ended June 30, 2020[302](index=302&type=chunk) - Remediation included enhancing related party policies, creating an oversight function, and increasing the frequency of related party controls[302](index=302&type=chunk) [Changes in Internal Control over Financial Reporting](index=82&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - There have been **no material changes** to internal control over financial reporting during the fiscal quarter[303](index=303&type=chunk) [Inherent Limitation on Effectiveness of Controls](index=82&type=section&id=Inherent%20Limitation%20on%20Effectiveness%20of%20Controls) - Management acknowledges that control systems provide only **reasonable, not absolute, assurance** that objectives will be met due to inherent limitations[304](index=304&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=83&type=section&id=Item%201.%20Legal%20Proceedings) The Company is settling a class action lawsuit related to Miller Energy Resources, Inc. offerings - The Company signed a binding term sheet in July 2020 to settle the **Miller Energy Resources, Inc.** class action lawsuit[306](index=306&type=chunk) - Court approval for the settlement is expected by the end of 2020 or in early 2021[306](index=306&type=chunk) [Item 1A. Risk Factors](index=83&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the Company's Annual and Quarterly Reports - No material changes to the risk factors set forth in the Annual Report on Form 10-K for the year ended December 31, 2019, and the Quarterly Report on Form 10-Q for the three months ended March 31, 2020[307](index=307&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=83&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report for the period - None[308](index=308&type=chunk) [Item 3. Defaults Upon Senior Securities](index=83&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report for the period - None[310](index=310&type=chunk) [Item 4. Mine Safety Disclosures](index=83&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Not applicable[311](index=311&type=chunk) [Item 5. Other Information](index=83&type=section&id=Item%205.%20Other%20Information) There is no other information to report for the period - None[312](index=312&type=chunk) [Item 6. Exhibits](index=83&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of this Quarterly Report on Form 10-Q - The exhibits include certifications from Co-Chief Executive Officers and Chief Financial Officer, XBRL documents, and other agreements[315](index=315&type=chunk) [SIGNATURES](index=85&type=section&id=SIGNATURES) The report is duly signed on behalf of B. Riley Financial, Inc. on October 29, 2020 - The report was signed by Phillip J. Ahn, Chief Financial Officer and Chief Operating Officer, on October 29, 2020[319](index=319&type=chunk)
B. Riley Financial(RILY) - 2020 Q2 - Earnings Call Transcript
2020-08-01 01:23
Financial Data and Key Metrics Changes - B. Riley reported total revenues of $266.5 million for Q2 2020, an increase from $164.7 million in Q2 2019, and total adjusted EBITDA rose to $148.3 million from $52.9 million year-over-year [12][3] - Net income available to common shareholders was $82.8 million or $3.07 per diluted share, compared to $22.2 million or $0.82 per diluted share for the prior year period, primarily due to a rebound in investment performance [12][3] Business Line Data and Key Metrics Changes - The Capital Markets segment generated operating revenues of $111.4 million and operating income of $31.1 million, driven by strong investment banking performance and contributions from financial consulting operations [13] - The Auction and Liquidation segment reported revenues of $8.3 million and segment income of $2 million, with new fee engagements expected to realize in future quarters [14] - The Valuation and Appraisal segment generated $7.7 million in revenue and $1.5 million in segment income, impacted by travel restrictions [15] - The Principal Investment segment, including United Online and magicJack, generated revenues of $21.4 million and segment income of $9.2 million [16] - The Brands segment contributed licensing revenue of $3.2 million but incurred a segment loss of $6.3 million, with signs of improvement expected [17] Market Data and Key Metrics Changes - The company noted a significant increase in bankruptcy advisory and restructuring engagements, with a record number of new mandates signed in June [4][10] - The retail liquidation division engaged in over 1,000 store closings with over $2 billion in associated retail inventory value, indicating ongoing challenges in the retail sector [30] Company Strategy and Development Direction - B. Riley plans to consolidate its legacy companies under a single brand to enhance market alignment and brand recognition [10] - The company aims to capitalize on opportunities created by the current market dislocation while maintaining a disciplined approach to its balance sheet [11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about sustained activity levels through year-end and into 2021, particularly in sectors pressured by COVID-19 [5][4] - The company highlighted its diversified business model as a competitive advantage amid ongoing market challenges [10][11] Other Important Information - B. Riley announced an increase in its regular dividend to $0.30 per share and a special dividend of $0.05, totaling $0.35 per common share for Q2 [20][7] - The company celebrated its five-year NASDAQ listing anniversary, reflecting on significant growth and acquisitions since going public [6] Q&A Session Summary Question: Inquiry about the B. Riley Principal Merger acquisition of Eos Energy and future SPAC plans - Management discussed the economics of SPACs, emphasizing their unique position to assist smaller companies in going public and the potential for future SPAC opportunities [36] Question: Average price on shares repurchased - Management indicated uncertainty about the average price of shares repurchased but estimated it to be in the low to mid-teens [38] Question: Sustainability of operating EBITDA growth - Management acknowledged the significant year-over-year increase in operating EBITDA and discussed the recurring nature of their business, indicating confidence in future performance [41][44]
B. Riley Financial(RILY) - 2020 Q2 - Quarterly Report
2020-07-31 22:49
Financial Performance - Total revenues for the three months ended June 30, 2020, were $266,468,000, representing a 61.8% increase compared to $164,684,000 for the same period in 2019[179]. - Operating income increased by 196.8% to $131,340,000 for the three months ended June 30, 2020, compared to $44,255,000 for the same period in 2019[179]. - Net income attributable to B. Riley Financial, Inc. for the three months ended June 30, 2020, was $83,840,000, a 278.4% increase from $22,157,000 in the same period of 2019[179]. - Total revenues increased approximately $101.8 million to $266.5 million during the three months ended June 30, 2020, from $164.7 million during the same period in 2019[183]. - Income before income taxes increased to $114.7 million for the three months ended June 30, 2020, compared to $31.6 million for the same period in 2019, primarily driven by an increase in revenues from trading income and fair value adjustments of $109.0 million[208]. - Net income attributable to the Company increased to $83.8 million for the three months ended June 30, 2020, up from $22.2 million for the same period in 2019, reflecting an increase in operating income of $87.1 million[211]. Segment Performance - The Capital Markets segment generated revenues of $86,858,000, a 21.2% increase from $71,692,000 in the prior year[182]. - Trading income and fair value adjustments on loans in the Capital Markets segment surged to $114,547,000, compared to $5,595,000 in the same period last year, marking a significant increase[182]. - Revenues from services and fees in the Capital Markets segment increased $15.2 million to $86.9 million during the three months ended June 30, 2020, from $71.7 million during the same period in 2019[184]. - The Auction and Liquidation segment saw a revenue decline of 78.6%, dropping to $7,206,000 from $33,740,000 year-over-year[182]. - Revenues from services and fees in the Auction and Liquidation segment decreased $26.5 million to $7.2 million during the three months ended June 30, 2020, from $33.7 million during the same period in 2019[185]. - Gross margin in the Auction and Liquidation segment decreased to 55.4% of revenues during the three months ended June 30, 2020, compared to 61.7% during the same period in 2019[194]. - Gross margins in the Principal Investments — United Online and magicJack segment increased to 76.9% of revenues during the three months ended June 30, 2020, compared to 72.9% during the same period in 2019[196]. Expenses and Impairments - Total operating expenses increased by 12.2% to $135,128,000, compared to $120,429,000 in the same period of 2019[179]. - Total selling, general and administrative expenses increased approximately $14.7 million to $106.6 million during the three months ended June 30, 2020, from $91.9 million during the same period in 2019[199]. - Impairment of tradenames amounted to $8,500,000, reflecting a 100% increase from zero in the previous year[179]. - The Company recognized an impairment charge of $8.5 million for indefinite-lived tradenames in the Brands segment due to the impact of COVID-19[206]. - Selling, general and administrative expenses for the Corporate and Other segment decreased by approximately $0.9 million to $7.6 million for the three months ended June 30, 2020, from $8.5 million for the same period in 2019[205]. Cash Flow and Financing - Cash provided by operating activities was $13.4 million during the six months ended June 30, 2020, compared to $1.4 million for the same period in 2019[259]. - Cash used in investing activities was $82.6 million during the six months ended June 30, 2020, a decrease from $227.6 million for the same period in 2019[260]. - Cash provided by financing activities was $71.8 million during the six months ended June 30, 2020, compared to $104.1 million for the same period in 2019[261]. - As of June 30, 2020, the Company had $106.3 million of unrestricted cash and cash equivalents and $926.0 million of borrowings outstanding[253]. - The Company declared a regular quarterly dividend of $0.30 per share on July 30, 2020, an increase from $0.25 per share[254]. - The company amended its asset-based credit facility agreement, increasing the maximum borrowing limit from $100.0 million to $200.0 million, with an expiration date extended to April 21, 2022[262]. - The company issued $132.3 million of senior notes due in February 2025, with net proceeds of $129.2 million after costs, intended for general corporate purposes[266]. Market Risks and Economic Impact - The impact of the COVID-19 outbreak on the Company's financial position and cash flows remains uncertain and could materially affect operations[251]. - B. Riley's primary exposure to market risk is related to changes in interest rates, with borrowings under senior notes at fixed rates and credit facilities at floating rates[285]. - Foreign currency risks are present, but operating results for the six months ended June 30, 2020 included less than $0.3 million from foreign subsidiaries[287]. - B. Riley has not used derivative financial instruments for speculation or trading purposes[284]. Other Financial Metrics - The effective income tax rate was 28.1% for the three months ended June 30, 2020, compared to 29.4% for the same period in 2019[209]. - The effective income tax rate was a benefit of 24.2% for the six months ended June 30, 2020, compared to a provision of 29.0% in the prior year[245]. - Net loss attributable to noncontrolling interests was $1.9 million during the six months ended June 30, 2020, compared to net income of $0.1 million in the same period in 2019[246]. - Net loss attributable to the Company for the six months ended June 30, 2020 was $14.8 million, a decrease from net income of $30.2 million for the same period in 2019, primarily due to a decrease in operating income of $59.0 million[247]. - Net loss available to common shareholders for the six months ended June 30, 2020 was $17.0 million, compared to net income of $30.2 million for the same period in 2019, driven by a decrease in operating income and an increase in interest expenses[249].
B. Riley Financial(RILY) - 2020 Q2 - Earnings Call Presentation
2020-07-31 22:36
B | R I L E Y `Financial 1 | --- | --- | |---------------------|-------| | | | | Investor Overview | | | Second Quarter 2020 | | | July 30, 2020 | | Safe Harbor Statement This presentation contains statements that are forward‐looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended that are based on management's current expectations and assumptions and are subject to risks and uncertainties. These forwa ...
B. Riley Financial(RILY) - 2020 Q1 - Earnings Call Presentation
2020-05-12 15:00
B | R I L E Y Financial First Quarter 2020 Supplemental Financial Data May 11, 2020 1 NASDAQ: RILY Reconciliation of U.S. GAAP to Non-GAAP Measures | --- | --- | --- | --- | --- | --- | |----------------------------------------------------------------|-----------|----------|------------------------------------------|-------------|-----------| | (Unaudited) \n(Dollars in thousands) | Q1 2020 | Q4 2019 | Three Months Ended \nQ3 2019 | Q2 2019 | Q1 2019 | | Adjusted EBITDA and Operating Adjusted EBITDA Reconci ...