Q3 2019 Earnings Call

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Welcome Conference on record your name plays.

Hi, its rich L.R.A.C.H.O. Smith S.M.I.T.H.

And the company that you're with plays.

Era and I E R E.

Thanks, and which conference they need to replace that too.

B. Riley financials.

Okay play shred it.

Thank you.

Return cash to our shareholders.

Year to date will have returned approximately $40 million. Our dollar 49 cents in the form of regular and special dividends upon payment of our latest quarterly dividend. We've raised our regular dividend almost 120% and we bought back roughly 1.3 million shares and over 600000 awards. This demonstrates our balanced approach of reinvesting indoor Bill.

Yes, well at the same time, returning a portion of more profits to our shareholders and employees.

As most of our shareholders know we looked at our business in two components are stender steadier and more recurring cash flow streams include appraisal glass Ratner wealth management asset management, Magicjack, United online and now our brand portfolio. We estimate that these businesses should generate approximately 110 million in EBITDA per year on a pro forma basis.

And these cash flows go a long way to paying for a corporate costs interest and dividends.

The other side of our business is what we call are episodic. The walls. This includes great American retail liquidation B. Riley FBR and our balance sheet investments these will be more volatile quarter to quarter, while they are more volatile by the very nature of the event driven markets. They serve we believe we have made significant progress acting as a catalyst a great. These types of onetime events.

Our goal is to make the onetime events is common place as possible.

Well not forgetting what has created the strong will turn to date aggressive use our capital to enhance our returns for shareholders and clients.

Before moving onto our business units, let me provide some detail our brand investment portfolio purchase which includes our majority ownership of six brands and our investment in support of Bluestar alliances acquisition of Hurley from Nike.

We have known the main principle the bluestar Ralph can enjoy debate for many years, we first investor would blue start to our purchase of a 30% stake of Bebe stores in 2007 in 2017.

At the time, BB and sold 50% of the BB branded Bluestar over the course of the last few years, we're not only been impressed with their teams ability to manage and grow Bebe. In addition to brookstone, which was subsequently purchased entity.

But we also found common ground and how they ran the business.

As we continue to work together, we look for we will look for other opportunities, which ultimately led to today's announcement. This relationship is about more than this purchase as we announced in our press release, we have made a significant investment in yesterday's announced purchase I'm currently and we have options the continuing to make investments handed to handle foodstar.

It is important to note that we have no intention managing these brands.

I think any higher than we do have our partners will stay out of their way as they continue to work to develop and grow them.

Having said that we do have assets at our disposal that can be a benefit and acquisition of brands, whether as our asset disposition equity research or use of our balance sheet that we believe can enhance since business unit.

With that I'll turn it over to fill on who was clearly on a recording and we'll start now that we will answer your questions at the end of his comments operator.

Thanks, Brian welcome everyone.

As Brian mentioned, the third quarter of 2019 marked a new quarterly high for B. Riley financial total revenues were 180.1 million in Q3 up from $99.7 million revenues for third quarter of 2018 and up from 164.7 million for the second quarter of 2019, which was our prior quarter.

Really record.

In terms of our business segment mix capital markets is our largest segment and includes results from our investment banking and wealth management businesses, Our fund management and direct lending businesses and our consulting business class Ratner, which we added in August of 2018.

Capital markets segment revenue increased to 134.1 million for the third quarter up from 76.3 million in the same year ago period.

Segment income increased to 52.4 million up from 11 million in the same period last year.

Results in this segment were driven by the performance of the broker dealer B. Riley FBR, which includes returns from proprietary investments that Brian mentioned earlier.

Next in our often liquidation segment revenues increased to 11.3 million for third quarter of 2019 up from 2.5 billion in the same year ago period.

Segment income increased to 6 million up from 0.3 million in the same year ago period.

Results in this segment were driven by our participation in several store closing projects during the quarter some of which will repeat client engagements. In addition to other ongoing retail liquidation projects.

As we've noted in previous calls our auction liquidation segment results will be variable in nature from quarter to quarter end year to year.

Our valuation and appraisal segment experienced a modest quarterly increase in Q3 with segment revenue of 10.8 million up from 9.4 million in Q3 of last year and segment income of 3.5 million up from 2.9 million during the same year ago period.

Our appraisal segment results tend to remain relatively steady quarter to quarter, which is in contrast to our more episodic liquidation segment in capital market segment.

Our fourth and final segment as principal investments.

In addition to United Online. This segment now includes results from Magicjack, which we added in November of 2018.

Segment revenue increased to 23.9 million up from 11.4 million in the same year ago period.

Segment income also increased 8.7 million compared to 4.1 million in the same year ago period.

Moving to our profitability metrics, which are attributable to B. Riley financial as a whole adjusted EBITDA increased to 70.3 million for the third quarter up from 21 million for the same year ago period.

Adjusted EBITDA totaled 157.6 million through the first nine month of 2019.

Net income increased to 34.3 million or a dollar and 21 cents per diluted common share up from $2.8 million or 10 cents per diluted common share for the same year ago period.

Net income totaled 64.5 million or $2.37 per diluted share for the nine months ended Septemberthirty 2019.

Adjusted net income increased to $40 million or one dollar and 42 cents per diluted share compared to 6.4 million or 24 cents per diluted share for Q3 of last year.

Through the first three quarter of two that of 2019, adjusted net income increased 84.6 million or $3.11 per diluted share.

For more information about adjusted EBITDA, adjusted net income and a reconciliation to the nearest GAAP measures you can refer to the section in today's earnings release about the use of non-GAAP financial measures.

Now some highlights from our balance sheet.

As of September 30, B. Riley financial had 170.6 million, an unrestricted cash and cash equivalents.

27.8 million due from clearing brokers 267 million of loans receivables net of loans participations sold.

297.5 billion in that securities and other investments owned.

And 773.9 million of total debt.

I will note that our investment balance includes approximately 81 million in various equity investments in deposits, which are classified as prepaid expenses and other assets on our balance sheet.

Net of our total debt, we had net cash and investment balance of approximately 70.7 million at the end of the third quarter.

B. Riley financial Stockholders' equity increased to 298.9 million as of September Thirtyth.

Compared to 276.5 billion at June 30.

And we had approximately 26.9 million shares outstanding at the end of the third quarter.

Lastly, our board of Directors has approved a special onetime cash dividend of 47, and a half cents per common share. In addition to our regular quarterly dividend of 17 in a half cents per common share.

The total cash dividend 65 cents per common share will be paid on or about November 26, 2019 to stockholders of record as of November 14 2019.

Our board of Directors has also approved to renew our share repurchase program of up to $50 million of our outstanding shares of common stock for the year ending October 31 2020.

That completes our financial summary, now I'll turn the call over to Tom Kelliher, our co CEO to share a few specific highlights from our individual companies during the quarter Tom.

Thanks, Phil during the quarter B. Riley FBR saw strong performance, which was due in part to the proprietary investment gains Bryant discussed at the top of the call.

Thank you saw increased deal flow and participated in a couple of large deals during the quarter, including the sale of PCM.

The service become a known leader in advising special purpose ex acquisition companies or specs and our participation in net since IPO during the quarter further demonstrates the strength of that franchise.

In addition, and while small part of our revenue mix. It is worth noting that both our stock loan and fixed income groups experienced material growth during the quarter.

B. Riley wealth management saw modest revenue increase in Q3, driven by deal syndicate participation and improved profitability.

With about 10 billion and client assets. This is one of our more steady businesses.

We rebranded the group about a year ago. When we believe our platform has resonated with financial advisors looking for alternatives to the traditional wirehouse were small independents.

We welcome several new advisors during the quarter and have a robust pipeline of new recruits as we look ahead to 2020.

During the quarter, Chuck Caissons was appointed President both he and CEO Phillips unknown are making impactful moves to generate incremental growth as we continue to focus on recruiting and enhancing distribution.

Our capital management business includes several funds and related products, most notably our direct lending fund Great American capital partners during the quarter GCP issued three new loans with a gross transaction transaction size of over $150 million and completed two successful exit.

We continue to be very pleased with GE Cps performance and look forward to future growth in this part of our business.

The last group within our capital markets segment, this glass radnor or consulting business in Radnor and his leadership team has done a terrific job tightly managing the business while growing the top line.

The group has been a huge beneficiary of and contributor to the platform primarily in the area of solvency opinions and due diligence for lenders and investors.

We've already seen many instances where banking in lending clients of mutually benefited from or enhance suite of B. Riley glass Ratner services and we look forward to building on more of these natural synergies between our businesses in the future.

Now moving onto our auction and liquidation segment, our strong results for the quarter were driven by great American groups participation in several ongoing store closing projects and reap Pete client engagements.

We're currently working with several retailers both in and out of court as they navigate rising rent prices in real estate consolidation. We expect this to remain high margin business for us as retailers continue to reassess store presence and focus on growing their ecommerce channels as Brian mentioned earlier, we are leveraging our unique visibility in.

To the sector for other strategic opportunities within our broader business, including our new brand investment portfolio.

Meanwhile, our great American valuation and appraisal business saw a modest increase in Q3 revenue and income our appraisal business maintained steady performance quarter to quarter and continues to focus on expanding revenue sources.

We've expanded our regional.

Coverage mandates and are continuing to grow our industry vertical focus, notably in Houston and energy in oilfield services, where we have added a new lead.

Our final segment as principal investments, which is primarily magicjack and United online both businesses continue to outperform our initial investment estimates that are generating strong cash flow for our platform.

We are actively pursuing minority and majority investment opportunities or wholly owned businesses with which to grow the segment.

With that I'll turn the call back to Brian for closing remarks.

Great. Thanks, Tom operator lets open the lines for questions. Please.

Thank you we will now begin the question and answer session to join the question can you May Press Star then one on your telephone keypad, you will hear right.

You will hear a tolling acknowledging you request if you are using speakerphone. Please pick up your handset before pressing any key to withdraw. Your question. Please press Star then too we will pause for a moment as callers join the queue.

Our first question comes from West common with Nokomis capital. Please go ahead.

Great. Thanks, Brian first of all impressive results.

I jumped on the call a little bit later, you were going through the end of the Bluestar discussion can you just help me out what the financial impact how it flows through the PML for you.

So.

So, let's I would say that.

We're not going to get into the exact multiple for a variety of reasons that.

Yes, there were no I can we talk about but but I will say that it's highly accretive.

We probably compromised a bit on valuation.

For on the ability to partner with Bluestar, we think that there's a tremendous amount of opportunity to partner with them and you can you walk as we mentioned I'm not sure. If you saw we did make it will investment in the early.

They compromised I think a little bit on on valuation.

Because they saw the merits of a partnership partner with us and some other things that we completed the table whether it's the balance sheet are also thinking differently, new accumulate acquire a brand so highly accretive.

The cash flows.

I think what I can say is if I look out.

Though 12 to 18 months, if you take all of those the brands that we have including our ownership and BB and and.

The ones that we've acquired.

Our EBITDA should be higher than 30 million.

From our brand group.

As we look out a little bit further.

Okay.

Great. That's helpful that that's the only question I had thanks.

Thanks Wes.

Once again, if you would like to ask your question. Please press Star then one.

Our next question comes from Gary Cho.

With respect so please go ahead.

Brian .

Can you give any.

Commentary on the National Holdings to acquisition and how that's.

Integrating or I guess not into the into the remainder of the capital markets segment you Huh.

So to.

For everybody's background, we purchase.

A large portion of national holdings about a year and a half ago.

As you May know, we signed a standstill a three year stand still and we made that purchase so we are aboard observer.

We have work together on a number of transactions, but that is a separate business a separate public company that we are in investor in.

So I would say you can see that our financial results as you as you look through the public filings.

We've been pleased with.

The back and forth between the two companies and being able to work with them, but at this point, we are really a positive holder.

Got it okay. That's helpful. Thank you.

Thank you.

Thank you before we conclude today's call I will provide b. Riley financial Safe Harbor statement, which includes important cautions regarding forward looking statements made during this call.

Statements made during this call about B. Riley financial future expectations plans and prospects and other statements regarding matters that historical facts may constitute forward looking statements within the meeting of the private Securities Litigation Reform Act of 1995 Investor should be aware the any forward looking statements are subject to various.

These risks and uncertainties that could cause actual results to differ materially from those discussed here. Today. These risk factors are explained in detail in the company's filings with the Securities and Exchange Commission. Please refer to these filings for a more detailed discussion of forward looking statements and the risks and uncertainties of such statements.

All forward looking statements or may as of today and except as required by law. The company undertakes no obligation to club to publicly update or revise any forward looking statements, whether because of new information future events or otherwise. This conference call also included a discussion of non-GAAP financial measures.

The most directly comparable GAAP financial measures and information reconciling these non-GAAP financial measures to the Companys financial results prepared in accordance with GAAP are included in the earnings release. Thank you for joining us today for B. Rileys financial third quarter 2019 earnings Conference call.

You may now disconnect.