B. Riley Financial(RILY) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements 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 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][9] Condensed Consolidated Statements of Income 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] Condensed Consolidated Statements of Comprehensive Income 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] Condensed Consolidated Statements of Equity 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][19] Condensed Consolidated Statements of Cash Flows 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][23] Notes to Unaudited Condensed Consolidated Financial Statements NOTE 1—ORGANIZATION AND NATURE OF BUSINESS OPERATIONS 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] - The Brands segment was established following the acquisition of a majority interest in BR Brand Holding, LLC on October 28, 2019[25][26] NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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] - 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][84] - 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][71][72] - Derivative instruments, primarily forward exchange contracts, are used periodically to manage foreign exchange risk[65] - The Company is currently evaluating the effect of recently issued accounting standards updates on its financial condition[80][81][82] 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 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][86] - The transaction was accounted for as an acquisition of assets, not a business combination[88] 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 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][92] 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 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] 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 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 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] - 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] 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 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] - Other notes payable decreased to $714 thousand at September 30, 2020, from $1,071 thousand at December 31, 2019[104] NOTE 9—TERM LOAN 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] - 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] - 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] NOTE 10—SENIOR NOTES PAYABLE 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][112] - 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] 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 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] - 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] 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 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] - 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] - A valuation allowance of $61,945 thousand has been provided against capital loss carryforwards[130] NOTE 13—EARNINGS PER SHARE 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] 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 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] - The Company provided a limited guaranty of up to $50,000 thousand for certain obligations of Franchise Group, Inc. (FRG)[137] - 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] - 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] NOTE 15—SHARE-BASED PAYMENTS AND COMMON STOCK 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] - The Company repurchased 1,715,383 shares of its common stock for $38,348 thousand during the nine-month period[145] - 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][146][147] NOTE 16—NET CAPITAL REQUIREMENTS 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] - 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] NOTE 17—RELATED PARTY TRANSACTIONS 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] - 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] - The Company committed to provide up to $40,000 thousand in equity financing to B. Riley Principal Merger Corp. II (BRPM II)[153] - Loans receivable from related parties include $164,539 thousand from Babcock & Wilcox Enterprises, Inc. and $71,479 thousand from Maven, Inc.[157][161] NOTE 18—BUSINESS SEGMENTS 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] 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 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] - The increased dividend will be paid on or about November 24, 2020, to stockholders of record as of November 10, 2020[170] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition, results of operations, liquidity, and capital resources Overview - B. Riley Financial provides collaborative financial services and solutions through its operating subsidiaries[176] - The Company invests in or acquires companies with attractive investment return characteristics and holds a majority interest in BR Brand for trademark licensing[177][178] - The business is classified into five operating segments: Capital Markets, Auction and Liquidation, Valuation and Appraisal, Principal Investments, and Brands[179] Recent Developments - 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] - The impact of COVID-19 on financial markets and the overall economy, if extended, may materially adversely affect the Company[185] Results of Operations Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019 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] - Selling, general and administrative expenses decreased by $3.9 million, with notable decreases in Corporate and Other and Capital Markets[207] - Restructuring charges of $1.6 million were recorded in Q3 2020, primarily for impairment of tradename intangibles[214] - Interest expense increased by $3.6 million, mainly due to the issuance of additional senior notes[215] 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 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] - Interest expense increased by $13.4 million, primarily due to a $15.4 million increase from the issuance of additional senior notes[255] 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 - 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] - 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] - The Board of Directors increased the regular quarterly dividend from $0.30 to $0.375 per share on October 28, 2020[268] Cash Flow Summary - Operating activities provided $86.9 million in cash, driven by net income and non-cash adjustments[272] - Investing activities used $98.5 million, a significant reduction from $251.4 million in 2019, primarily due to lower purchases of loans receivable[273] - Financing activities provided $77.6 million, mainly from senior notes and preferred stock issuances, offset by debt repayments, stock repurchases, and dividends[274] 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 - 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] - The BRPAC Credit Agreement term loan is due December 19, 2023, with an outstanding balance of $52.5 million at September 30, 2020[276][277] - Borrowings under the BRPAC Credit Agreement bear interest at LIBOR plus a margin of 2.50% to 3.00%[276] Senior Note Offerings - During the nine-month period, the Company issued $39.2 million of senior notes through at-the-market sales[278] - 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] - The Company repurchased bonds with a face value of $3.4 million for $1.8 million, resulting in a $1.6 million gain[280] - 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] Off Balance Sheet Arrangements - The Company provided Babcock & Wilcox Enterprises, Inc. (B&W) with future loan commitments up to $40.0 million and a limited guaranty[285] - 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] - The Company provided a limited guaranty of up to $50.0 million for certain obligations of Franchise Group, Inc. (FRG)[290] - The Company committed to provide up to $40.0 million in equity financing to B. Riley Principal Merger Corp. II (BRPM II)[292] Contractual Obligations - 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] - 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] Recent Accounting Standards - Refer to Note 2(v) for details on recent accounting pronouncements[295] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the Company's primary market risks, including interest rate risk and foreign currency risk Interest Rate Risk - The Company's primary market risk exposure is related to changes in interest rates, affecting both fixed-rate and floating-rate borrowings[297] - Investments in loans receivable primarily bear floating rates, while the Company maintains a portfolio of cash equivalents and short-term investments[297][298] - The Company believes it has limited exposure to interest rate risk in trading activities, based on daily monitoring[298] Foreign Currency Risk - Revenues from foreign subsidiaries totaled $44.6 million for the nine months ended September 30, 2020, representing 9.1% of total revenues[299] - 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] - Gains and losses from foreign currency transactions are included in income, while translation adjustments are reported in accumulated other comprehensive loss[299] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, and a previously reported material weakness was remediated Evaluation of Disclosure Controls and Procedures - Management concluded that disclosure controls and procedures were effective as of September 30, 2020[301] Remediation of Material Weakness - The previously reported material weakness in internal control over financial reporting was remediated in the quarter ended June 30, 2020[302] - Remediation included enhancing related party policies, creating an oversight function, and increasing the frequency of related party controls[302] Changes in Internal Control over Financial Reporting - There have been no material changes to internal control over financial reporting during the fiscal quarter[303] Inherent Limitation on Effectiveness of Controls - Management acknowledges that control systems provide only reasonable, not absolute, assurance that objectives will be met due to inherent limitations[304] PART II. OTHER INFORMATION Item 1. Legal Proceedings 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] - Court approval for the settlement is expected by the end of 2020 or in early 2021[306] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - None[308] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report for the period - None[310] Item 4. Mine Safety Disclosures This item is not applicable to the Company - Not applicable[311] Item 5. Other Information There is no other information to report for the period - None[312] Item 6. Exhibits 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] 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]