B. Riley Financial(RILY) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents B. Riley Financial, Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements This section presents B. Riley Financial, Inc.'s unaudited condensed consolidated financial statements for Q2 2021 and year-end 2020, with detailed notes Condensed Consolidated Balance Sheets Total assets increased to $4.11 billion from $2.66 billion, and total liabilities rose to $3.34 billion from $2.12 billion, driven by investments and senior notes Condensed Consolidated Balance Sheets (Amounts in thousands) | Metric | June 30, 2021 (Unaudited) | December 31, 2020 | | :----------------------------------- | :-------------------------- | :------------------ | | Total Assets | $4,106,727 | $2,662,730 | | Total Liabilities | $3,344,980 | $2,123,770 | | Total Equity | $761,747 | $538,960 | - Cash and cash equivalents increased from $103,602 thousand at December 31, 2020, to $297,396 thousand at June 30, 2021[7] - Securities and other investments owned, at fair value, increased from $777,319 thousand at December 31, 2020, to $1,278,773 thousand at June 30, 2021[7] - Senior notes payable, net, increased from $870,783 thousand at December 31, 2020, to $1,213,105 thousand at June 30, 2021[7] Condensed Consolidated Statements of Operations Total revenues surged to $936.9 million from $266.3 million, and net income attributable to B. Riley Financial, Inc. improved to $330.3 million from a $14.8 million loss, driven by trading income Condensed Consolidated Statements of Operations (Amounts in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Revenues | $336,770 | $266,468 | $936,929 | $266,262 | | Operating Income | $110,145 | $131,340 | $483,123 | $10,196 | | Net Income (Loss) Attributable to B. Riley Financial, Inc. | $75,676 | $83,840 | $330,332 | $(14,825) | | Diluted Income (Loss) per Common Share | $2.58 | $3.07 | $11.39 | $(0.66) | - Trading income (losses) and fair value adjustments on loans significantly increased from a loss of $(67,895) thousand in the six months ended June 30, 2020, to a gain of $299,621 thousand in the same period of 2021[10] - Services and fees revenue increased from $284,976 thousand in the six months ended June 30, 2020, to $555,612 thousand in the same period of 2021[10] Condensed Consolidated Statements of Comprehensive Income (Loss) Total comprehensive income attributable to B. Riley Financial, Inc. was $329.98 million, a substantial improvement from a $15.53 million loss in the prior year, reflecting increased net income Condensed Consolidated Statements of Comprehensive Income (Loss) (Amounts in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income (Loss) | $75,100 | $82,529 | $331,698 | $(16,720) | | Total Comprehensive Income (Loss) | $75,381 | $83,044 | $331,343 | $(17,425) | | Comprehensive Income (Loss) Attributable to B. Riley Financial, Inc. | $75,957 | $84,355 | $329,977 | $(15,530) | Condensed Consolidated Statements of Equity Total equity increased to $761.75 million from $538.96 million, driven by $330.33 million net income and stock issuances, partially offset by dividends Condensed Consolidated Statements of Equity (Amounts in thousands) | Metric | Balance, January 1, 2021 | Balance, June 30, 2021 | | :----------------------------------- | :----------------------- | :--------------------- | | Total Equity | $538,960 | $761,747 | | Net Income | — | $330,332 | | Dividends on Common Stock | — | $(191,614) | | Proceeds from Issuance of Common Stock | — | $64,713 | | Proceeds from Issuance of Preferred Stock | — | $8,281 | - Common stock shares outstanding increased from 25,777,796 at January 1, 2021, to 27,580,300 at June 30, 2021[18] - Retained earnings increased from $203,080 thousand at January 1, 2021, to $338,260 thousand at June 30, 2021[18] Condensed Consolidated Statements of Cash Flows Operating cash flow shifted to a $(147.90) million outflow from a $14.23 million inflow, while financing cash flow increased to $356.05 million, resulting in a $193.89 million net cash increase Condensed Consolidated Statements of Cash Flows (Amounts in thousands) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net Cash (Used in) Provided by Operating Activities | $(147,901) | $14,229 | | Net Cash Used in Investing Activities | $(13,722) | $(83,354) | | Net Cash Provided by Financing Activities | $356,051 | $71,815 | | Net Increase in Cash, Cash Equivalents and Restricted Cash | $193,894 | $1,985 | | Cash, Cash Equivalents and Restricted Cash, End of Period | $298,731 | $106,724 | - Proceeds from issuance of senior notes totaled $475,698 thousand in the first six months of 2021, a significant increase from $171,078 thousand in the prior year[21] - Common dividends paid increased substantially from $17,489 thousand in the first six months of 2020 to $181,269 thousand in 2021[21] Notes to Unaudited Condensed Consolidated Financial Statements These notes detail financial reporting, including organization, accounting policies, segment reporting, fair value, debt, revenue, and legal contingencies, with updates on the National acquisition and COVID-19 impact NOTE 1—ORGANIZATION AND NATURE OF BUSINESS OPERATIONS B. Riley Financial, Inc. offers diverse financial services across six segments, completed the National Holdings Corporation acquisition, and realigned segment reporting, while facing ongoing COVID-19 uncertainty - Acquisition of National Holdings Corporation completed on February 25, 2021, for $35,314 thousand, expanding investment banking, wealth management, and financial planning services[25] - Realigned segment reporting structure in Q1 2021, moving wealth management business from Capital Markets to a new Wealth Management segment[25] - Operates in six segments: Capital Markets, Wealth Management, Auction and Liquidation, Financial Consulting, Principal Investments - United Online and magicJack, and Brands[26] NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note details the company's accounting principles, covering consolidation, estimates, interest expense, risk, share-based compensation, income taxes, cash, securities, fair value, derivatives, and recently adopted standards - Adopted new credit loss standard (ASU 2016-13 and ASU 2019-05) effective January 1, 2020, electing the irrevocable fair value option for all outstanding loans receivable[45] - Fair value measurements categorize assets and liabilities into Level 1, Level 2, and Level 3, with Level 3 financial assets at $588,793 thousand (14.3% of total assets) at June 30, 2021[51][56] - Recognized unrealized gains of $10,046 thousand on loans receivable at fair value for the six months ended June 30, 2021, compared to losses of $21,975 thousand in the prior year[46] - Recently adopted ASU 2019-12 (Income Taxes), ASU 2020-08 (Receivables), and ASU 2020-10 (Codification Improvements) effective January 1, 2021, with immaterial impact[88][89][90] NOTE 3—RESTRUCTURING CHARGE No restructuring charges were recorded for Q2 2021 or 2020, and the accrued balance decreased slightly to $676 thousand at June 30, 2021, from $727 thousand Restructuring Charge (Amounts in thousands) | Metric | June 30, 2021 | June 30, 2020 | | :-------------------------- | :------------ | :------------ | | Balance, beginning of period | $727 | $1,600 | | Cash paid | $(57) | $(631) | | Non-cash items | $6 | $10 | | Balance, end of period | $676 | $979 | NOTE 4— SECURITIES LENDING Securities borrowed and loaned balances significantly increased at June 30, 2021, reflecting heightened activity, and are not netted on the balance sheet Securities Lending (Amounts in thousands) | Metric | June 30, 2021 | June 30, 2020 | | :------------------ | :------------ | :------------ | | Securities borrowed | $1,140,023 | $786,363 | | Securities loaned | $1,134,359 | $779,013 | NOTE 5— ACCOUNTS RECEIVABLE Accounts receivable, net, increased to $57.85 million from $46.52 million, driven by higher investment banking fees and commissions, with additions to the allowance for doubtful accounts Accounts Receivable (Amounts in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :------------------------------------------ | :------------ | :---------------- | | Accounts receivable, net | $57,853 | $46,518 | | Investment banking fees, commissions and other receivables | $20,817 | $10,316 | | Allowance for doubtful accounts (end of period) | $3,565 | $3,114 | - Additions to the allowance for doubtful accounts were $755 thousand for the six months ended June 30, 2021, compared to $2,081 thousand in the prior year[95] NOTE 6— GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill increased to $236.01 million from $227.05 million due to the National acquisition, and total intangible assets rose to $200.30 million, with no impairment charges in 2021 Goodwill and Other Intangible Assets (Amounts in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :-------------------------- | :------------ | :---------------- | | Goodwill | $236,005 | $227,046 | | Other intangible assets, net | $200,304 | $190,745 | - Goodwill acquired during the period was $8,959 thousand, primarily in the Wealth Management segment[97] - No impairment of tradenames was recognized for the six months ended June 30, 2021, compared to $12,500 thousand in the prior year due to COVID-19 impacts[98] NOTE 7— NOTES PAYABLE Notes payable significantly decreased to $357 thousand from $37.97 million, primarily due to $6.51 million PPP loan forgiveness and the repayment of a $37.25 million note Notes Payable (Amounts in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :-------------------------- | :------------ | :---------------- | | Notes payable | $357 | $37,967 | | Gain on extinguishment of loans (PPP) | $6,509 | — | - The full amount of the company's PPP loans and accrued interest ($6,509 thousand) were forgiven in June 2021[106] - A $37,253 thousand note payable to Garrison TNCI LLC was paid in full in January 2021[109] NOTE 8 — TERM LOANS The company secured a new $200.0 million term loan and $80.0 million revolving facility with Nomura, with the term loan at $194.22 million and BRPAC term loan at $62.89 million (net) - New $200,000 thousand secured term loan facility and $80,000 thousand secured revolving loan credit facility entered with Nomura Corporate Funding Americas, LLC on June 23, 2021[110] - Outstanding balance on Nomura term loan was $194,218 thousand (net) at June 30, 2021[115] - BRPAC Credit Agreement term loan balance was $62,885 thousand (net) at June 30, 2021, down from $74,213 thousand (net) at December 31, 2020[124] NOTE 9—SENIOR NOTES PAYABLE Senior notes payable, net, increased to $1.21 billion from $870.78 million due to new issuances of $230.0 million and $159.5 million, partially offset by $128.16 million in redemptions Senior Notes Payable (Amounts in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :-------------------------- | :------------ | :---------------- | | Senior notes payable, net | $1,213,105 | $870,783 | | Weighted average interest rate | 6.49% | 6.95% | - Issued $230,000 thousand of 6.0% Senior Notes due 2028 in January 2021[127] - Issued $159,493 thousand of 5.5% Senior Notes due 2026 in March 2021[128] - Redeemed $128,156 thousand of 7.50% Senior Notes due 2027 in March 2021[129] NOTE 10—REVENUE FROM CONTRACTS WITH CUSTOMERS Total revenues from customer contracts increased to $560.04 million from $279.84 million, driven by higher corporate finance, consulting, investment banking, and wealth management fees, largely from the National acquisition Revenue from Contracts with Customers (Amounts in thousands) | Revenue Category | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Total revenues from contracts with customers | $560,043 | $279,841 | | Corporate finance, consulting and investment banking fees | $282,233 | $117,034 | | Wealth and asset management fees | $122,406 | $39,022 | | Commissions, fees and reimbursed expenses | $87,420 | $62,486 | - Deferred revenue at June 30, 2021, was $68,398 thousand, with $37,452 thousand expected to be recognized in the remaining six months of 2021[139] - Recognized $26,649 thousand of revenue in the first six months of 2021 that was deferred at the beginning of the year, compared to $24,074 thousand in the prior year[140] NOTE 11— INCOME TAXES An income tax provision of $117.42 million (26.1% effective rate) was recorded, a shift from a $5.33 million benefit, with $60.42 million federal NOLs and a $61.32 million valuation allowance Income Taxes (Amounts in thousands) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------------- | :----------------------------- | :----------------------------- | | (Provision) benefit for income taxes | $(117,420) | $5,331 | | Effective income tax rate | 26.1% (provision) | 24.2% (benefit) | - Federal net operating loss carryforwards of $60,422 thousand and state NOLs of $72,058 thousand as of June 30, 2021[146] - Provided a valuation allowance of $61,315 thousand against deferred tax assets related to capital loss carryforwards[147] NOTE 12— EARNINGS PER SHARE Diluted EPS significantly increased to $11.39 from a $(0.66) loss, reflecting substantial improvement in net income attributable to B. Riley Financial, Inc. and increased diluted shares outstanding Earnings Per Share (Amounts in thousands, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income (Loss) Applicable to Common Shareholders | $73,887 | $82,753 | $326,794 | $(16,967) | | Basic Income (Loss) per Common Share | $2.70 | $3.23 | $12.03 | $(0.66) | | Diluted Income (Loss) per Common Share | $2.58 | $3.07 | $11.39 | $(0.66) | | Weighted Average Diluted Common Shares Outstanding | 28,668,465 | 26,992,823 | 28,690,444 | 25,827,849 | NOTE 13 — COMMITMENTS AND CONTINGENCIES The company faces legal proceedings without expected material financial impact, and has significant commitments including a $110.0 million guaranty for B&W and a $77.48 million loan purchase commitment funded in July 2021 - Agreed to guaranty up to $110,000 thousand of B&W's obligations related to debt financing as of June 30, 2021[156] - Paid a $3,000 thousand fine to the New York Department of Financial Services in April 2021 for cybersecurity regulation violations by NSC[154] - Outstanding commitment to purchase a loan of $77,477 thousand, funded on July 2, 2021, with a principal payment of $27,477 thousand received simultaneously[160] NOTE 14— SHARE-BASED PAYMENTS Share-based compensation expense for restricted stock units increased to $13.79 million from $9.27 million, with 1,413,045 common shares issued for $64.71 million and additional preferred stock issuances Share-Based Payments (Amounts in thousands) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Share-based compensation expense (restricted stock units) | $13,792 | $9,265 | | Share-based compensation (Purchase Plan) | $342 | $224 | - Issued 1,413,045 shares of common stock in January 2021 for net proceeds of approximately $64,713 thousand[165] - Issued 76,417 depository shares of Series A Preferred Stock and 228,477 depository shares of Series B Preferred Stock during the six months ended June 30, 2021[166][167] NOTE 15— NET CAPITAL REQUIREMENTS The company's broker-dealer subsidiaries (BRS, BRWM, NSC, WEC) complied with SEC Rule 15c3-1, maintaining net capital significantly exceeding minimum requirements as of June 30, 2021 Net Capital Requirements (Amounts in thousands) | Broker-Dealer Subsidiary | Net Capital (June 30, 2021) | Required Minimum Net Capital | | :----------------------- | :-------------------------- | :--------------------------- | | B. Riley Securities (BRS) | $329,063 | $4,962 | | B. Riley Wealth Management (BRWM) | $10,073 | $745 | | National Securities Corporation (NSC) | $7,162 | $1,000 | | Winslow, Evans & Crocker, Inc (WEC) | $2,599 | $139 | NOTE 16— RELATED PARTY TRANSACTIONS The company engages in various related party transactions, including loan participations, investment advisory fees, and underwriting fees from B. Riley Principal Merger Corps, with significant loans receivable from Maven and Lingo Management LLC - Sold loan participations of $1,975 thousand to BRC Partners Opportunity Fund, LP (BRCPOF) at June 30, 2021, where executive officers and board members have a 65.6% financial interest[171] - Earned $3,366 thousand and $3,337 thousand in underwriting fees from the IPOs of B. Riley Principal 150 Merger Corp. and B. Riley Principal 250 Merger Corp., respectively[173][174] - Loans receivable from Maven, Inc. were $60,491 thousand at June 30, 2021, and from Lingo Management LLC were $56,335 thousand[183][186] - Earned $12,348 thousand in underwriting and financial advisory fees from B&W for the six months ended June 30, 2021[180] NOTE 17— BUSINESS SEGMENTS The company operates in six segments, including the new Wealth Management segment, with total revenues of $936.93 million for the six months ended June 30, 2021, and Capital Markets as the largest contributor at $653.79 million - Realigned segment reporting structure in Q1 2021, creating a new Wealth Management segment[191] Business Segments (Amounts in thousands) | Segment | Total Revenues (Six Months Ended June 30, 2021) | Segment Income (Six Months Ended June 30, 2021) | | :------------------------------------------ | :---------------------------------------------- | :-------------------------------------------- | | Capital Markets | $653,787 | $470,990 | | Wealth Management | $158,207 | $3,294 | | Auction and Liquidation | $30,727 | $4,462 | | Financial Consulting | $45,144 | $7,497 | | Principal Investments - United Online and magicJack | $40,175 | $14,806 | | Brands | $8,889 | $6,094 | - North America generated $923.65 million in total revenues for the six months ended June 30, 2021, representing the vast majority of geographical revenues[195] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial condition and results, highlighting changes in revenues, expenses, and profitability for Q2 2021, along with liquidity, capital resources, and COVID-19 impacts Overview B. Riley Financial, Inc. is a diversified financial services company offering investment banking, wealth management, and advisory services through six segments, following the National Holdings Corporation acquisition and segment realignment - B. Riley Financial, Inc. provides collaborative financial services and solutions through subsidiaries like B. Riley Securities, B. Riley Wealth Management, and B. Riley Advisory Services[202][203] - Completed the acquisition of National Holdings Corporation on February 25, 2021, expanding wealth management and financial planning offerings[203] - Realigned segment reporting structure in Q4 2020 and Q1 2021, resulting in six operating segments: Capital Markets, Wealth Management, Auction and Liquidation, Financial Consulting, Principal Investments – United Online and magicJack, and Brands[205][206] Recent Developments The company secured new $200.0 million term loan and $80.0 million revolving credit facilities in June 2021, redeemed $122.8 million in senior notes, and faces ongoing COVID-19 uncertainty - Entered into a $200.0 million secured term loan credit facility and an $80.0 million secured revolving loan credit facility on June 23, 2021, with Nomura Corporate Funding Americas, LLC[213] - Subsequent to June 30, 2021, the company borrowed the full $80.0 million available under the Revolving Credit Facility[214] - Redeemed $122.8 million aggregate principal amount of 7.25% Senior Notes due 2027 on July 26, 2021, including $2.1 million in accrued interest[215] Results of Operations Total revenues increased by $670.7 million to $936.9 million, and net income attributable to B. Riley Financial, Inc. surged to $330.3 million from a $14.8 million loss, driven by trading gains and the National acquisition Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020 Total revenues increased by $70.3 million to $336.8 million, driven by services and fees, while net income decreased by $8.2 million to $75.7 million due to higher expenses and lower trading income Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020 (Amounts in thousands) | Metric | June 30, 2021 | June 30, 2020 | Change Amount | Change % | | :------------------------------------------ | :------------ | :------------ | :------------ | :------- | | Total Revenues | $336,770 | $266,468 | $70,302 | 26.4% | | Services and fees | $266,143 | $125,595 | $140,548 | 111.9% | | Trading income and fair value adjustments on loans | $32,679 | $114,547 | $(81,868) | (71.5%) | | Net Income Attributable to B. Riley Financial, Inc. | $75,676 | $83,840 | $(8,164) | (9.7%) | - Wealth Management segment services and fees revenue increased by $72.1 million, primarily due to the acquisition of National[224] - Operating income decreased by $21.2 million to $110.1 million[219] - Recognized a $6.5 million gain on extinguishment of loans due to National PPP loans forgiveness[244] Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020 Total revenues soared by $670.7 million to $936.9 million, driven by trading income, and net income improved by $345.2 million to $330.3 million, despite a $197.0 million increase in SG&A expenses Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020 (Amounts in thousands) | Metric | June 30, 2021 | June 30, 2020 | Change Amount | Change % | | :------------------------------------------ | :------------ | :------------ | :------------ | :------- | | Total Revenues | $936,929 | $266,262 | $670,667 | n/m | | Trading income (losses) and fair value adjustments on loans | $299,621 | $(67,895) | $367,516 | n/m | | Net Income (Loss) Attributable to B. Riley Financial, Inc. | $330,332 | $(14,825) | $345,157 | n/m | | Selling, general and administrative expenses | $391,266 | $194,306 | $196,960 | 101.4% | - Capital Markets segment services and fees revenue increased by $163.0 million, and Wealth Management segment services and fees revenue increased by $118.8 million, largely due to the National acquisition[258][259] - Operating income increased by $472.9 million to $483.1 million[253] - Provision for income taxes was $117.4 million, compared to a benefit of $5.3 million in the prior year[281] Liquidity and Capital Resources The company maintains strong liquidity with $297.4 million cash and $1.28 billion securities, generating $331.7 million net income, with financing activities providing $356.1 million cash from senior notes and term loans - As of June 30, 2021, had $297.4 million of unrestricted cash and cash equivalents, $1,278.8 million of securities and other investments owned, and $270.3 million of loans receivable[290] - Borrowings outstanding totaled $1,475.0 million at June 30, 2021, including $1,213.1 million in senior notes and $257.1 million in term loans[290] - Declared a regular dividend of $0.50 per share and a special dividend of $1.50 per share on July 29, 2021, to be paid in August 2021[292] Cash Flow Summary Operating cash flow shifted to $(147.9) million used from $14.2 million provided, while financing cash flow increased to $356.1 million, resulting in a $193.9 million net increase in cash Cash Flow Summary (Amounts in thousands) | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash (used in) provided by Operating activities | $(147,901) | $14,229 | | Net cash used in Investing activities | $(13,722) | $(83,354) | | Net cash provided by Financing activities | $356,051 | $71,815 | | Net increase in cash, cash equivalents and restricted cash | $193,894 | $1,985 | - Proceeds from issuance of senior notes were $475.7 million, and proceeds from the Nomura term loan were $200.0 million in the first six months of 2021[300] - Cash used for common dividends paid was $181.3 million, and for senior notes repurchase was $128.2 million[300] Credit Agreements New $200.0 million Nomura term loan and $80.0 million revolving facility were secured, with the term loan at $194.2 million (net) and BRPAC term loan at $62.9 million (net) - Nomura Credit Agreement: $200.0 million secured Term Loan Facility and $80.0 million secured Revolving Credit Facility, maturing June 23, 2025[301] - Nomura Term Loan outstanding balance was $194.2 million (net) at June 30, 2021, with an interest rate of 4.64%[307] - BRPAC Credit Agreement term loan outstanding balance was $62.9 million (net) at June 30, 2021, with an interest rate of 3.36%[315] - Wells Fargo Credit Agreement: $200.0 million asset-based credit facility, with no outstanding balance at June 30, 2021[311] Senior Note Offerings The company issued $230.0 million and $159.5 million in new senior notes, redeemed $128.2 million of existing notes, with total outstanding senior notes at $1.21 billion (net) at June 30, 2021 - Issued $230.0 million of 6.0% Senior Notes due 2028 in January 2021, with net proceeds of $225.7 million[318] - Issued $159.5 million of 5.5% Senior Notes due 2026 in March 2021, with net proceeds of $156.3 million[319] - Exercised early redemption option for $128.2 million of 7.50% Senior Notes due 2027 in March 2021[320] - Total senior notes outstanding were $1,213.1 million (net) at June 30, 2021, with a weighted average interest rate of 6.49%[322] Off Balance Sheet Arrangements Off-balance sheet arrangements include a $110.0 million guaranty for B&W's debt and a $77.5 million loan purchase commitment funded in July 2021, plus €26.4 million in unused loan commitments - Agreed to guaranty up to $110.0 million of B&W's obligations related to new debt financing[326] - Outstanding commitment to purchase a loan of $77.5 million, funded on July 2, 2021[329] - Unused future commitments of up to 26.4 million EUROS for a loan facility to a European retailer[328] Contractual Obligations Total contractual obligations increased to $1.86 billion, primarily due to new senior notes and term loans, with senior notes payable (including interest) rising to $1.497 billion - Total contractual obligations increased to $1,860.1 million at June 30, 2021[336] - Total senior notes payable (including interest) increased to $1,497.4 million as of June 30, 2021[336] - Senior notes payable due in one year or less increased by $137.1 million, and those due in 1-3 years increased by $128.5 million[336] Recent Accounting Standards Refer to Note 2(u) for details on recent accounting pronouncements, including not-yet-adopted ASUs on Reference Rate Reform and Convertible Instruments, and recently adopted ASUs with immaterial impact - Refer to Note 2(u) for details on recent accounting pronouncements[338] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate and foreign currency fluctuations, managed through investments and a limited foreign revenue exposure of 1.4% of total revenues - Primary market risk exposure is to changes in interest rates, with borrowings under senior notes at fixed rates and credit facilities at floating rates[339][340] - Revenues from foreign subsidiaries totaled $13.3 million for the six months ended June 30, 2021, representing 1.4% of total revenues, indicating limited foreign currency risk exposure[343] - A 10% appreciation or depreciation of the U.S. dollar relative to local currency exchange rates would result in less than $0.1 million change in operating income for the six months ended June 30, 2021[343] Interest Rate Risk The company's main market risk is interest rate fluctuations, impacting fixed-rate senior notes and floating-rate credit facilities, managed through floating-rate loans and short-term investments - Primary exposure to market risk is related to changes in interest rates[339] - Utilizes borrowings under senior notes (fixed rates) and credit facilities (floating rates) to fund operations and acquisitions[340] - Invests in loans receivable that primarily bear interest at floating rates[340] Foreign Currency Risk Most operations are in U.S. dollars, with foreign revenues at $13.3 million (1.4% of total), and a 10% USD fluctuation would result in less than $0.1 million change in operating income, indicating limited risk - Majority of operating activities are conducted in U.S. dollars[343] - Revenues from foreign subsidiaries totaled $13.3 million for the six months ended June 30, 2021, representing 1.4% of total revenues[343] - A 10% appreciation or depreciation of the U.S. dollar would result in less than $0.1 million change in operating income[343] Item 4. Controls and Procedures Disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2021, with no material changes to internal control over financial reporting, acknowledging inherent limitations of control systems - Disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2021[345] - No material changes to internal control over financial reporting during the fiscal quarter[346] - Management acknowledges inherent limitations of control systems, providing reasonable, not absolute, assurance[347] Evaluation of Disclosure Controls and Procedures Co-CEOs and CFO concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2021, ensuring timely and accurate Exchange Act reporting - Disclosure controls and procedures were evaluated and concluded to be effective at the reasonable assurance level as of June 30, 2021[345] Changes in Internal Control over Financial Reporting No material changes to the company's internal control over financial reporting occurred during the fiscal quarter ended June 30, 2021 - No material changes to internal control over financial reporting during the fiscal quarter[346] Inherent Limitation on Effectiveness of Controls Management acknowledges that control systems provide only reasonable, not absolute, assurance against errors and fraud due to inherent limitations and potential deterioration over time - Control systems provide only reasonable, not absolute, assurance that objectives will be met[347] - Effectiveness of controls can be impacted by resource constraints, inherent limitations, and changes in conditions or compliance over time[347] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, exhibits, and signatures Item 1. Legal Proceedings The company is involved in various legal and regulatory proceedings, including class actions and FINRA arbitrations, but does not expect a material financial impact, with notable settlements and a $3.0 million fine paid by NSC - Company is subject to various legal and other claims, including lawsuits, arbitration claims, class actions, and regulatory matters, arising from securities business activities[348] - Agreed to settle the Gaynor v. Miller et al. class action lawsuit in July 2020, with court approval expected in 2021[349] - National Securities Corporation (NSC) paid a $3.0 million fine to the New York Department of Financial Services in April 2021 for violating cybersecurity regulations[351] - The Kay Johnson v. National Securities Corporation lawsuit was settled and all claims dismissed in March 2021[350] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020, are reported, advising careful review - No material changes to the risk factors set forth in the Annual Report on Form 10-K for the year ended December 31, 2020[353] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported for the period Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported for the period Item 4. Mine Safety Disclosures This item is not applicable to the company's operations Item 5. Other Information The Compensation Committee approved a discretionary annual incentive cash compensation program for named executive officers, allowing for tailored compensation based on individual and company performance - Compensation Committee approved a discretionary annual incentive cash compensation program for named executive officers, replacing the previous Management Bonus Plan based on EBITDA thresholds[357] - The new program allows for compensation to be tailored to individual performance, long-term vs. short-term goals, overall financial performance, and other company objectives[357] Item 6. Exhibits This section lists exhibits filed with the Quarterly Report, including the Credit Agreement, Restricted Stock Unit Award Agreement, and required certifications from Co-CEOs and CFO - Includes Credit Agreement dated June 23, 2021, and Form of Restricted Stock Unit Award Agreement[360] - Contains certifications from Co-Chief Executive Officers and Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 and 18 U.S.C. Section 1350[360] SIGNATURES The report is signed by Phillip J. Ahn, Chief Financial Officer and Chief Operating Officer, on behalf of B. Riley Financial, Inc. as of July 30, 2021 - Report signed by Phillip J. Ahn, Chief Financial Officer and Chief Operating Officer, on July 30, 2021[366]