B. Riley Financial(RILY) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's analysis of financial condition and results of operations Item 1. Financial Statements This section presents B. Riley Financial's unaudited condensed consolidated financial statements and detailed notes for Q1 2023 and 2022 Condensed Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity as of March 31, 2023, and December 31, 2022 Condensed Consolidated Balance Sheets (March 31, 2023 vs. December 31, 2022) | Item | March 31, 2023 (Unaudited) ($ thousands) | December 31, 2022 ($ thousands) | | :----------------------------------- | :--------------------------------------- | :------------------------------------ | | ASSETS | | | | Cash and cash equivalents | 209,971 | 268,618 | | Securities and other investments owned, at fair value | 1,049,230 | 1,129,268 | | Securities borrowed | 2,942,843 | 2,343,327 | | Loans receivable, at fair value | 772,085 | 701,652 | | Total assets | 6,618,190 | 6,111,202 | | LIABILITIES AND EQUITY | | | | Securities loaned | 2,937,982 | 2,334,031 | | Senior notes payable, net | 1,722,977 | 1,721,751 | | Total liabilities | 6,002,859 | 5,426,687 | | Total equity | 440,364 | 505,893 | | Total liabilities and equity | 6,618,190 | 6,111,202 | - Total assets increased by $506.99 million (8.3%) from December 31, 2022, to March 31, 2023, primarily driven by an increase in securities borrowed and loans receivable[11] - Total liabilities increased by $576.17 million (10.6%) over the same period, largely due to an increase in securities loaned[11] Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net income (loss) for the three months ended March 31, 2023, and 2022 Condensed Consolidated Statements of Operations (Three Months Ended March 31, 2023 vs. 2022) | Item | March 31, 2023 ($ thousands) | March 31, 2022 (As Restated) ($ thousands) | Change ($ thousands) | Change (%) | | :------------------------------------------------ | :----------------------------- | :--------------------------------------- | :------------------- | :--------- | | Total revenues | 432,090 | 246,840 | 185,250 | 75.0% | | Operating income | 84,923 | 45,973 | 38,950 | 84.7% | | Income (loss) before income taxes | 24,479 | (12,891) | 37,370 | n/m | | Net income (loss) attributable to B. Riley Financial, Inc. | 17,155 | (10,062) | 27,217 | n/m | | Net income (loss) available to common shareholders | 15,143 | (12,064) | 27,207 | n/m | | Basic income (loss) per common share | 0.53 | (0.43) | 0.96 | n/m | | Diluted income (loss) per common share | 0.51 | (0.43) | 0.94 | n/m | - Total revenues increased by $185.25 million (75.0%) year-over-year, driven by significant increases in trading income and sale of goods[14] - The company swung from a net loss of $10.06 million in Q1 2022 to a net income of $17.16 million in Q1 2023, resulting in a positive basic EPS of $0.53[14] Condensed Consolidated Statements of Comprehensive Income (Loss) This section presents the company's net income (loss) and other comprehensive income (loss) for the three months ended March 31, 2023, and 2022 Condensed Consolidated Statements of Comprehensive Income (Loss) (Three Months Ended March 31, 2023 vs. 2022) | Item | March 31, 2023 ($ thousands) | March 31, 2022 ($ thousands) | | :---------------------------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | 16,560 | (9,196) | | Other comprehensive income (loss): | | | | Change in cumulative translation adjustment | 866 | (488) | | Other comprehensive income (loss), net of tax | 866 | (488) | | Total comprehensive income (loss) | 17,426 | (9,684) | | Comprehensive income (loss) attributable to B. Riley Financial, Inc. | 17,875 | (10,550) | - Total comprehensive income shifted from a loss of $9.68 million in Q1 2022 to an income of $17.43 million in Q1 2023, primarily driven by the improvement in net income and a positive change in cumulative translation adjustment[16] Condensed Consolidated Statements of Equity This section outlines changes in the company's total equity and stockholders' equity for the three months ended March 31, 2023 Condensed Consolidated Statements of Equity (Three Months Ended March 31, 2023) | Item | Balance, January 1, 2023 ($ thousands) | Balance, March 31, 2023 ($ thousands) | | :----------------------------------- | :------------------------------------- | :------------------------------------ | | Total B. Riley Financial, Inc. stockholders' equity | 446,514 | 381,185 | | Total equity | 505,893 | 440,364 | - Total equity decreased by $65.53 million from January 1, 2023, to March 31, 2023, primarily due to common stock repurchases ($53.80 million) and common stock dividends ($31.29 million), partially offset by net income ($17.16 million) and share-based payments ($13.68 million)[20] Condensed Consolidated Statements of Cash Flows This section details the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2023, and 2022 Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31, 2023 vs. 2022) | Cash Flow Activity | March 31, 2023 ($ thousands) | March 31, 2022 ($ thousands) | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | 52,617 | (14,898) | | Net cash used in investing activities | (57,164) | (35,513) | | Net cash used in financing activities | (55,337) | (14,441) | | Net decrease in cash, cash equivalents and restricted cash | (58,604) | (65,348) | | Cash, cash equivalents and restricted cash, end of period | 212,322 | 214,512 | - Operating activities generated $52.62 million in cash in Q1 2023, a significant improvement from a $14.90 million cash outflow in Q1 2022[22][269] - Cash used in investing activities increased to $57.16 million in Q1 2023 from $35.51 million in Q1 2022, primarily due to higher purchases of loans receivable[22][270] - Cash used in financing activities increased to $55.34 million in Q1 2023 from $14.44 million in Q1 2022, mainly due to higher repayments of term loans, common stock repurchases, and common dividends paid[22][271] NOTE 1 — ORGANIZATION AND NATURE OF BUSINESS OPERATIONS This note describes B. Riley Financial's diversified financial services platform and its six reportable business segments - B. Riley Financial, Inc. is a diversified financial services platform offering investment banking, brokerage, wealth management, asset management, direct lending, business advisory, valuation, and asset disposition services[25] - The Company operates in six reportable segments: Capital Markets, Wealth Management, Auction and Liquidation, Financial Consulting, Communications, and Consumer (including brands and Targus)[26] - Segment reporting structure was realigned in Q4 2022 due to recent acquisitions, with the Consumer segment now including the previously reported Brands segment and Targus[27] NOTE 2 — RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS This note explains the restatement of prior financial statements to correct a revenue classification error, with no impact on net income or EPS - The Company restated its financial statements for certain prior periods (2020, 2021, and Q1-Q3 2022) to correct a classification error of dividend income and realized/unrealized gains/losses on investments within revenue[6][7][28] - The restatement had no impact on the condensed consolidated balance sheet, statements of equity or cash flows, net income, or earnings per share[28] Restatement Adjustments for Three Months Ended March 31, 2022 | Item | As Previously Reported ($ thousands) | Restatement Adjustments ($ thousands) | As Restated ($ thousands) | | :------------------------------------------------ | :----------------------------------- | :------------------------------------ | :------------------------ | | Services and fees | 210,675 | (7,861) | 202,814 | | Trading (loss) income and fair value adjustments on loans | (68,390) | 49,112 | (19,278) | | Total revenues | 205,589 | 41,251 | 246,840 | | Dividend income | — | 7,861 | 7,861 | | Realized and unrealized gains (losses) on investments | — | (49,112) | (49,112) | NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the key accounting principles, consolidation methods, fair value measurements, and recent accounting standard adoptions - The financial statements are prepared in accordance with GAAP, consolidating all controlled entities, and include estimates for items like security valuations, loan fair values, and goodwill[31][33][34] - The Company elected the irrevocable fair value option for all outstanding loans receivable, with unrealized gains or losses recorded in the statements of operations[43] - Level 3 financial assets, which rely on significant unobservable inputs for fair value measurement, totaled $1.13 billion as of March 31, 2023, representing 17.1% of total assets[68] - The Company adopted ASU 2022-04 on Supplier Finance Programs effective January 1, 2023, which had no material impact on its financial statements[102] NOTE 4 — ACQUISITIONS This note details significant acquisitions, including Targus and Lingo, and their impact on goodwill and intangible assets - In October 2022, the Company acquired Targus for $247.55 million, consisting of cash, seller financing, senior notes, common stock, stock options, and deferred payments. This acquisition resulted in $78.52 million in goodwill and $89.00 million in other intangible assets[104][106] - During 2022, the Company increased its ownership in Lingo from 40% to 80% by converting a $17.5 million loan into equity, leading to consolidation and recognition of a $6.79 million gain. In February 2023, the remaining 20% of Lingo was acquired, increasing ownership to 100%[111][205] - Other acquisitions in 2022 included BullsEye Telecom, FocalPoint Securities, LLC, and Atlantic Coast Fibers, LLC, with an aggregate purchase price of $219.28 million, resulting in $151.93 million in goodwill and $52.86 million in intangible assets[112] NOTE 5 — RESTRUCTURING CHARGE This note reports restructuring charges incurred in Q1 2023 related to reorganization and consolidation activities in specific segments - The Company incurred $93 thousand in restructuring charges during Q1 2023, primarily related to reorganization and consolidation activities in the Wealth Management ($33 thousand) and Communications ($60 thousand) segments[115][117] - These charges included employee termination costs ($60 thousand) and facility closure/consolidation costs ($33 thousand)[117] NOTE 6 — SECURITIES LENDING This note provides balances for securities borrowed and loaned, highlighting significant increases in Q1 2023 Securities Borrowing and Lending Balances (March 31, 2023 vs. December 31, 2022) | Item | March 31, 2023 ($ thousands) | December 31, 2022 ($ thousands) | | :------------------ | :----------------------------- | :----------------------------- | | Securities borrowed | 2,942,843 | 2,343,327 | | Securities loaned | 2,937,982 | 2,334,031 | - Securities borrowed increased by $599.52 million (25.6%) and securities loaned increased by $603.95 million (25.9%) from December 31, 2022, to March 31, 2023[119] NOTE 7 — ACCOUNTS RECEIVABLE This note details the net accounts receivable balance and changes in the allowance for doubtful accounts Accounts Receivable, Net (March 31, 2023 vs. December 31, 2022) | Item | March 31, 2023 ($ thousands) | December 31, 2022 ($ thousands) | | :------------------------------------ | :----------------------------- | :----------------------------- | | Accounts receivable | 116,411 | 144,120 | | Investment banking fees, commissions and other receivables | 10,766 | 8,654 | | Total accounts receivable | 127,177 | 152,774 | | Allowance for doubtful accounts | (6,324) | (3,664) | | Accounts receivable, net | 120,853 | 149,110 | - Accounts receivable, net decreased by $28.26 million (18.9%) from December 31, 2022, to March 31, 2023[121] - The allowance for doubtful accounts increased by $2.66 million in Q1 2023, with additions to reserve of $3.17 million[121] NOTE 8 — PREPAID EXPENSES AND OTHER ASSETS This note presents the composition and changes in prepaid expenses and other assets, including inventory and trust funds Prepaid Expenses and Other Assets (March 31, 2023 vs. December 31, 2022) | Item | March 31, 2023 ($ thousands) | December 31, 2022 ($ thousands) | | :---------------------------------------------------- | :----------------------------- | :----------------------------- | | Funds held in trust account for BRPM 250 | 176,182 | 174,437 | | Inventory | 113,107 | 101,675 | | Equity method investments | 41,816 | 41,298 | | Prepaid expenses and other assets | 491,872 | 460,696 | - Prepaid expenses and other assets increased by $31.18 million (6.8%) from December 31, 2022, to March 31, 2023, primarily due to increases in inventory and funds held in trust[122] NOTE 9 — GOODWILL AND OTHER INTANGIBLE ASSETS This note provides a breakdown of goodwill by segment and details changes in intangible assets and amortization expense Goodwill by Segment (March 31, 2023 vs. December 31, 2022) | Segment | December 31, 2022 ($ thousands) | March 31, 2023 ($ thousands) | | :------------------- | :------------------------------ | :----------------------------- | | Capital Markets | 162,018 | 162,018 | | Wealth Management | 51,195 | 51,195 | | Financial Consulting | 23,680 | 30,989 | | Communications | 193,195 | 192,094 | | Consumer | 75,753 | 78,519 | | Total Goodwill | 512,595 | 523,997 | - Goodwill increased by $11.40 million (2.2%) to $523.99 million as of March 31, 2023, primarily due to acquisitions of other businesses ($9.70 million) and purchase price accounting adjustments ($2.77 million), partially offset by working capital settlements[123][124] Intangible Assets, Net (March 31, 2023 vs. December 31, 2022) | Item | March 31, 2023 ($ thousands) | December 31, 2022 ($ thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Amortizable assets, net | 205,784 | 213,822 | | Non-amortizable assets (Tradenames) | 160,276 | 160,276 | | Total intangible assets, net | 366,060 | 374,098 | - Amortization expense was $10.47 million in Q1 2023, up from $6.82 million in Q1 2022[125] NOTE 10 — NOTES PAYABLE This note details the balances and interest expense for other notes payable and confirms compliance with credit facility covenants - Other notes payable decreased to $19.88 million as of March 31, 2023, from $25.26 million as of December 31, 2022[129] - Interest expense for other notes payable was $174 thousand in Q1 2023, down from $232 thousand in Q1 2022[129] - The Company had no outstanding balance on its asset-based credit facility with Wells Fargo Bank as of March 31, 2023, and December 31, 2022, and was in compliance with all financial covenants[126][127] NOTE 11 — TERM LOANS AND REVOLVING CREDIT FACILITY This note outlines the company's various term loans and revolving credit facilities, including balances, interest rates, and covenant compliance Term Loans and Revolving Credit Facility Balances (March 31, 2023 vs. December 31, 2022) | Credit Facility | March 31, 2023 ($ thousands) | December 31, 2022 ($ thousands) | | :---------------------- | :----------------------------- | :----------------------------- | | Targus Term Loan (net) | 24,678 | 26,021 | | Targus Revolver Loan | 62,463 | 52,978 | | Pathlight Term Loan (net) | 184,358 | 118,437 | | Lingo Term Loan (net) | 69,778 | 71,985 | | Nomura Term Loan (net) | 283,739 | 286,962 | | Nomura Revolving Credit Facility | 77,000 | 74,700 | | BRPAC Term Loan (net) | 64,061 | 68,674 | - The Pathlight Credit Agreement term loan increased significantly due to additional increments of $78.3 million in January 2023 and $49.9 million in March 2023[135] - Interest rates on these variable-rate loans ranged from 8.23% to 11.40% as of March 31, 2023, reflecting higher SOFR rates[134][135][140][151][152][158] - The Company was in compliance with all financial covenants for all credit agreements as of March 31, 2023[131][137][141][149][156] NOTE 12 — SENIOR NOTES PAYABLE This note details the company's senior notes payable, including outstanding amounts, interest expense, and remaining availability under its sales agreement Senior Notes Payable, Net (March 31, 2023 vs. December 31, 2022) | Item | March 31, 2023 ($ thousands) | December 31, 2022 ($ thousands) | | :------------------------------------ | :----------------------------- | :----------------------------- | | Total senior notes outstanding (gross) | 1,739,891 | 1,739,891 | | Less: Unamortized debt issuance costs | (16,914) | (18,140) | | Senior notes payable, net | 1,722,977 | 1,721,751 | - Senior notes payable, net, remained relatively stable at $1.72 billion, with a weighted average interest rate of 5.75% for both periods[162] - Interest expense on senior notes totaled $26.23 million in Q1 2023, up from $24.41 million in Q1 2022[162] - As of March 31, 2023, the Company had $0.1 million remaining availability under its $250 million Sales Agreement Prospectus for senior notes[163][308] NOTE 13 — ACCRUED EXPENSES AND OTHER LIABILITIES This note presents the composition and changes in accrued expenses and other liabilities, including payroll and dividends payable Accrued Expenses and Other Liabilities (March 31, 2023 vs. December 31, 2022) | Item | March 31, 2023 ($ thousands) | December 31, 2022 ($ thousands) | | :------------------------------------ | :----------------------------- | :----------------------------- | | Accrued payroll and related expenses | 60,141 | 86,798 | | Dividends payable | 18,360 | 33,923 | | Contingent consideration | 28,884 | 31,046 | | Accrued expenses and other liabilities | 263,335 | 322,974 | - Accrued expenses and other liabilities decreased by $59.64 million (18.5%) from December 31, 2022, to March 31, 2023, primarily due to decreases in accrued payroll, dividends payable, and other liabilities[164] NOTE 14 — REVENUE FROM CONTRACTS WITH CUSTOMERS This note provides a breakdown of revenue from customer contracts by segment and details deferred revenue recognition Revenue from Contracts with Customers by Segment (Three Months Ended March 31, 2023 vs. 2022) | Segment | March 31, 2023 ($ thousands) | March 31, 2022 (As Restated) ($ thousands) | Change ($ thousands) | Change (%) | | :------------------- | :----------------------------- | :--------------------------------------- | :------------------- | :--------- | | Capital Markets | 49,031 | 56,118 | (7,087) | (12.6)% | | Wealth Management | 47,238 | 77,071 | (29,833) | (38.7)% | | Auction and Liquidation | 5,660 | 3,355 | 2,305 | 68.7% | | Financial Consulting | 25,010 | 25,936 | (926) | (3.6)% | | Communications | 86,919 | 31,965 | 54,954 | 171.9% | | Consumer | 70,003 | 4,557 | 65,446 | n/m | | All Other | 9,273 | 699 | 8,574 | n/m | | Total | 293,134 | 199,701 | 93,433 | 46.8% | - Total revenue from contracts with customers increased by $93.43 million (46.8%) year-over-year, primarily driven by significant growth in the Communications and Consumer segments due to recent acquisitions[165][166][232] - Deferred revenue as of March 31, 2023, was $84.02 million, with $54.84 million expected to be recognized in the remaining nine months of 2023[169] NOTE 15 — INCOME TAXES This note discusses the effective income tax rate, net operating loss carryforwards, valuation allowances, and the impact of the Inflation Reduction Act - The effective income tax rate was a provision of 32.4% for Q1 2023, compared to a benefit of 28.7% for Q1 2022[174][256] - As of March 31, 2023, the Company had federal net operating loss carryforwards of $55.35 million (expiring 2033-2038) and state net operating loss carryforwards of $46.98 million (expiring 2030)[175] - A valuation allowance of $66.31 million was provided against capital loss carryforwards, as their utilization is not considered more likely than not[176] - The Inflation Reduction Act of 2022, introducing a 1% excise tax on stock repurchases, is not expected to have a material impact on the Company's financial position or results of operations[178] NOTE 16 — EARNINGS PER SHARE This note details the calculation of basic and diluted earnings per share, highlighting the significant improvement in Q1 2023 Earnings Per Share (Three Months Ended March 31, 2023 vs. 2022) | Item | March 31, 2023 | March 31, 2022 | | :------------------------------------------------ | :------------- | :------------- | | Net income (loss) attributable to B. Riley Financial, Inc. | $17,155 | $(10,062) | | Preferred stock dividends | (2,012) | (2,002) | | Net income (loss) applicable to common shareholders | $15,143 | $(12,064) | | Weighted average basic common shares outstanding | 28,585,337 | 27,855,033 | | Weighted average diluted common shares outstanding | 29,513,435 | 27,855,033 | | Basic income (loss) per common share | $0.53 | $(0.43) | | Diluted income (loss) per common share | $0.51 | $(0.43) | - Basic and diluted EPS improved significantly from a loss of $0.43 in Q1 2022 to an income of $0.53 and $0.51, respectively, in Q1 2023[181] - Dilutive potential common shares (restricted stock units and warrants) were 928,098 in Q1 2023, but zero in Q1 2022 as they were anti-dilutive[180][181] NOTE 17 — COMMITMENTS AND CONTINGENCIES This note outlines the company's involvement in legal proceedings, guarantees for B&W obligations, and commitments for capital raising transactions - The Company is involved in various legal proceedings, claims, and regulatory matters arising from its securities business, but does not believe the outcomes will have a material effect on its financial position or results of operations[182] - The Company has outstanding guarantees for Babcock & Wilcox Enterprises, Inc. (B&W) obligations, including a $100 million guaranty related to B&W's debt financing and indemnities for payment and performance bonds[183][184][185] - In the normal course of business, the Company enters into commitments for capital raising transactions, such as firm commitment underwritings and equity lines of credit, which expose it to market and credit risk[186] NOTE 18 — SHARE-BASED PAYMENTS This note details share-based compensation expense, restricted stock unit grants, and common share repurchases under the reauthorized program - Share-based compensation expense for restricted stock units under the 2021 Plan was $13.31 million in Q1 2023, down from $16.86 million in Q1 2022[187] - The Company granted 502,824 restricted stock units with a fair value of $19.34 million in Q1 2023[187] - The Company repurchased 1,452,831 common shares for $53.69 million in Q1 2023 at an average price of $36.95 per share, under a reauthorized $50 million share repurchase program[190] NOTE 19 — NET CAPITAL REQUIREMENTS This note confirms that the company's broker-dealer subsidiaries comply with SEC net capital rules, maintaining capital significantly above minimums Net Capital Requirements (March 31, 2023) | Broker-Dealer Subsidiary | Net Capital ($ thousands) | Required Minimum Net Capital ($ thousands) | Excess Net Capital ($ thousands) | | :----------------------- | :------------------------ | :----------------------------------------- | :------------------------------- | | B. Riley Securities (BRS) | 146,827 | 4,131 | 142,696 | | B. Riley Wealth Management (BRWM) | 11,105 | 2,325 | 8,780 | - Both BRS and BRWM were in compliance with SEC Uniform Net Capital Rule (Rule 15c3-1) as of March 31, 2023, maintaining net capital significantly above required minimums[193] NOTE 20 — RELATED PARTY TRANSACTIONS This note discloses transactions with affiliated funds, management fees paid to related parties, and loans receivable from related entities - The Company provides asset management and placement agent services to affiliated unconsolidated funds, with $372 thousand due from these funds as of March 31, 2023[195][196] - Management fees paid to Whitehawk Capital Partners, L.P., controlled by a related party, were $1.14 million in Q1 2023[197] - Loans receivable from The Arena Group Holdings, Inc. (a related party) totaled $97.06 million as of March 31, 2023[201] - The Company sold a loan receivable of $7.6 million to two related private equity funds (BRC Partners Opportunity Fund, LP and 272 Capital L.P.) managed by its subsidiaries, where executive officers and board members hold significant financial interests[207] NOTE 21 — BUSINESS SEGMENTS This note provides a breakdown of segment income, highlighting the performance of Capital Markets and Wealth Management Segment Income (Three Months Ended March 31, 2023 vs. 2022) | Segment | March 31, 2023 ($ thousands) | March 31, 2022 (As Restated) ($ thousands) | | :------------------- | :----------------------------- | :--------------------------------------- | | Capital Markets | 86,020 | 55,073 | | Wealth Management | 1,373 | (10,096) | | Auction and Liquidation | 200 | (800) | | Financial Consulting | 3,783 | 4,912 | | Communications | 10,783 | 8,969 | | Consumer | 1,646 | 3,218 | | Consolidated operating income from reportable segments | 103,805 | 61,276 | - Consolidated operating income from reportable segments increased by $42.53 million (69.4%) year-over-year, primarily driven by strong performance in Capital Markets and a turnaround in Wealth Management[210][211] - Capital Markets segment income increased by $30.95 million (56.2%) due to higher trading income and fair value adjustments on loans[210] - Wealth Management segment swung from a loss of $10.10 million in Q1 2022 to an income of $1.37 million in Q1 2023, despite a decrease in service and fee revenues[210] - Communications segment income increased by $1.81 million (20.2%) due to significant revenue growth from acquisitions[210] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses B. Riley Financial's Q1 2023 financial condition and results, highlighting revenue, expense changes, acquisitions, and liquidity Overview This section provides an overview of B. Riley Financial's diversified business model, strategic approach, segment realignment, and current economic outlook - B. Riley Financial, Inc. is a diversified financial services platform providing investment banking, brokerage, wealth management, asset management, direct lending, business advisory, valuation, and asset disposition services[220] - The company opportunistically invests in and acquires companies/assets, leveraging its expertise for operational improvements and free cash flow maximization[221] - The segment reporting structure was realigned in Q4 2022, with the Consumer segment now including the Brands segment and Targus[224] - Current economic factors like high inflation, Federal Reserve actions, recession possibility, and geopolitical instability create uncertainty and may impact future business results[225] Results of Operations This section analyzes the company's total revenues, operating expenses, and net income, highlighting key drivers and year-over-year changes Key Financial Highlights (Three Months Ended March 31, 2023 vs. 2022) | Metric | March 31, 2023 ($ thousands) | March 31, 2022 (As Restated) ($ thousands) | Change ($ thousands) | Change (%) | | :------------------------------------------------ | :----------------------------- | :--------------------------------------- | :------------------- | :--------- | | Total revenues | 432,090 | 246,840 | 185,250 | 75.0% | | Operating income | 84,923 | 45,973 | 38,950 | 84.7% | | Net income (loss) attributable to B. Riley Financial, Inc. | 17,155 | (10,062) | 27,217 | n/m | | Basic income (loss) per common share | 0.53 | (0.43) | 0.96 | n/m | - Total revenues increased by $185.3 million (75.0%) year-over-year, primarily driven by a $70.8 million increase in trading income and fair value adjustments on loans, and a $65.9 million increase in sale of goods[232] - Operating expenses increased by $146.3 million (72.8%), mainly due to higher direct cost of services ($42.7 million) and cost of goods sold ($45.4 million) from recent acquisitions[228][243] - Net income attributable to B. Riley Financial, Inc. improved by $27.2 million, turning a loss of $10.1 million in Q1 2022 into an income of $17.2 million in Q1 2023[258] Liquidity and Capital Resources This section details the company's cash, investments, loans, and borrowings, assessing its ability to meet short-term and long-term financial obligations - As of March 31, 2023, the Company had $210.0 million in unrestricted cash and cash equivalents, $1.05 billion in securities and other investments, and $772.1 million in loans receivable[263] - Total borrowings outstanding were $2.51 billion, comprising $1.72 billion in senior notes, $626.6 million in term loans, $139.5 million in revolving credit facilities, and $19.9 million in notes payable[263] - The Company believes its current liquidity sources are sufficient to meet working capital and capital expenditure requirements for at least the next 12 months[264] - The Board declared a regular quarterly dividend of $1.00 per share on common stock, paid on March 23, 2023, and another $1.00 per share dividend declared on May 4, 2023[265][266] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, primarily interest rate and foreign currency fluctuations, and their potential financial impact Interest Rate Risk This section discusses the company's exposure to interest rate changes, affecting both fixed-rate senior notes and floating-rate credit facilities - The Company's primary market risk exposure is to changes in interest rates, affecting its fixed-rate senior notes and floating-rate credit facilities and loans receivable[313] - A 1% increase in floating interest rates would have resulted in an estimated $1.9 million increase in interest expense for the three months ended March 31, 2023[313] - The Company's investment activities aim to preserve capital and maximize income from cash equivalents, short-term investments, common stocks, loans receivable, and partnership interests[314] Foreign Currency Risk This section outlines the company's exposure to foreign currency fluctuations and the impact of U.S. dollar appreciation or depreciation on operating income - Foreign subsidiaries generated $30.5 million in revenues (7.0% of total) and $8.4 million in operating expenses in Q1 2023[316] - A 10% appreciation or depreciation of the U.S. dollar relative to local currencies would result in an approximately $0.7 million change in operating income for Q1 2023[316] - The Company includes gains and losses from foreign currency transactions in income, while translation adjustments are excluded and reported in accumulated other comprehensive income (loss)[312][316] Item 4. Controls and Procedures This section reports that disclosure controls were ineffective as of March 31, 2023, due to material weaknesses, and outlines remediation efforts - As of March 31, 2023, the Company's disclosure controls and procedures were not effective at the reasonable assurance level[318] - Material weaknesses were identified relating to the operating effectiveness of management's review controls over key assumptions for fair value of intangible assets in acquisitions, fair value of reporting units, and the income tax provision[320] - The material weakness for presentation and classification of dividend income and realized/unrealized gains/losses on certain equity securities resulted in reclassification of revenue amounts but no changes to net income or EPS[320] - Remediation actions include enhancing control activity evidence, improving precision of management review controls, and reclassifying certain revenue items, with expected completion by the end of fiscal 2023[321][323] PART II. OTHER INFORMATION This section provides additional information on legal proceedings, risk factors, equity sales, and other disclosures Item 1. Legal Proceedings The company is involved in various legal and regulatory proceedings, but does not anticipate a material financial impact from their outcomes - The Company is involved in various legal and regulatory proceedings, including lawsuits, arbitration claims, class actions, and investigations, primarily from its securities business activities[327] - Despite potential substantial damages sought in some claims, the Company does not anticipate a material effect on its financial position or results of operations from these proceedings[327] Item 1A. Risk Factors This section refers to the detailed risk factors in the 2022 Form 10-K, noting no material changes since its filing - A detailed discussion of risk factors is available in the Company's Annual Report on Form 10-K for the year ended December 31, 2022[328] - No material changes to the risk factors have occurred since the filing of the 2022 Annual Report on Form 10-K[328] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 1.46 million common shares at an average price of $37.03 in Q1 2023 under its reauthorized program Common Stock Repurchases (Three Months Ended March 31, 2023) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :----------------------------- | :------------------------------- | :--------------------------- | | January 1 through January 31, 2023 | 80,142 | $36.51 | | February 1 through February 28, 2023 | 550,863 | $40.69 | | March 1 through March 31, 2023 | 833,393 | $34.66 | | Total | 1,464,398 | $37.03 | - The Company repurchased 1,452,831 shares under its annual share repurchase programs during Q1 2023[331] - The share repurchase program was reauthorized on March 3, 2023, for up to $50 million of outstanding common shares, expiring in October 2023[331] Item 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities during the period - There were no defaults upon senior securities[332] Item 4. Mine Safety Disclosures This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[333] Item 5. Other Information The Company reported no other information for this period - No other information was reported[334] Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report, including executive employment agreements, certifications, and XBRL documents - Exhibits include amended and restated employment agreements for Bryant R. Riley, Thomas J. Keller, Phillip J. Ahn, Alan N. Forman, Andrew Moore, and Kenneth M. Young, all dated April 11, 2023[337] - Certifications from Co-Chief Executive Officers and the Chief Financial Officer/Chief Operating Officer, pursuant to Rules 13a-14/15d-14 and 18 U.S.C. Section 1350, are filed/furnished[337][338] - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents) and the Cover Page Interactive Data File are included[338]