Q4 2019 Earnings Call
Good afternoon, and welcome to B. Riley Financial's fourth quarter and full year 2019 earnings call.
Earlier today B. Riley issued a press release with its financial results.
A copy can be found any investor section of the company's website at <unk> IR Dot B. Riley fin dotcom.
As a reminder, this call is being recorded.
A replay of today's call will also be made available on the company's website.
Joining us today, our branch Riley Chairman and co CEO, Tom Killer co CEO and Philip on CFO and COO.
After management's remarks, we'll open the line for questions.
Before we conclude today's call I will provide the necessary cautions regarding forward looking statements.
I'll now turn the call over to Mr. branch Reilly Mr. Riley. Please proceed.
Thank you and welcome everyone 2019 was another year of continued progress in growth from B. Riley financial would total revenues of 652.1 million a year over year increase of 54% and adjusted EBITDA of 207.9 million with net income of 81.3 million for the year, which is at the high end of our previous guidance.
Our strong Q4 performance was driven by record investment banking revenues as well significant investment portfolio gains, which more than offset a large loss in our liquidation segment. Meanwhile, our consulting appraisal wealth management and principal investment businesses continue to perform perform steadily as we pursue new opportunities to create additional.
From our platform.
Over the last few years immediately transformed our business by building in purchasing assets, well steadier and more recurring revenue streams. The same time, we focused on growing market share on a more episodic capital markets on retail liquidation businesses.
In Q4, we announced the formation of a brand investment portfolio, which aligns with our principal investment strategy and delivers additional study recurring cash flow into our platform.
Our brand holdings have already started contributing generating 4.1 million in revenue and 2.7 in operating income in the fourth quarter. We anticipate this new additional will help to provide further balance to our more episodic businesses.
Our recurring businesses contributed more than 50% of pre tax income before corporate at an overhead and approximately 40% of adjusted EBITDA in 2019.
As we look forward to 2020, we expect more than 100 million of our cash flow generated by our steadier businesses, which will enable us to continue to proactively pursue opportunities with our more volatile markets.
And as we discussed on our prior calls, we're seeing more and more opportunities, which we believe are uniquely suited to our platform because of the diverse capabilities, we offer under one roof.
A more recent example includes our role in the office equipment group listing, which went public last month reverse merger with B. Riley sponsored its back form last April we were involved in multiple levels of this transaction as banking capital market advisers as placement agent on the debt and placement Niger on equity financing.
We bought a multiple groups devising the transaction and arranged financing which resulted in a successful business combination completing just under 10 months. We're excited about the prospects for all time getting a better more to reserving company with his strong leadership and outstanding track record of delivering results. We look forward to continuing to be a partner to ultimate features.
Looks to scale its business.
Another recent examples are ongoing work with the franchise group.
The company in which were a shareholder and currently held to board seats FRG completed its acquisition of American freight group last month. This was another instance, where we're able to serve as an advisor and placement agent on the deal again, providing the company with a necessary financing to support a close it successful closing.
We see these types of opportunities time and time again in a combined teams our expanded universe and our proven ability to provide a diverse set of end to end capabilities under one roof truly differentiates us from our competitors, we will continue to leverage our balance sheet integrate more opportunity just not only benefit us, but also support our partners in our clients.
Well I feel like I say this often I can't emphasize enough.
We recognize that we are stewards of our shareholders' capital and we believe we have demonstrated does through dividends and through our share repurchase repurchase program.
During 2019, we repurchased more than 870000 shares of our common stock and warrants and we just announced that increased our regular quarterly dividend to 25 cents supplemented by a special dividend 10 cents for total fourth quarter dividend of 35 cents.
Upon payment of our Q4 dividend, we wore paid a total of $1.76 per share in dividends on a common stock related to our earnings for the full year of 2019.
With that I'll turn the call over to our CFO and COO fill onto abrupt provide a summary of our financial metrics Phil.
Thanks, Brian welcome everyone.
For the fourth quarter revenues totaled 165.2 million up from 102 million for the same period of 2018 18.
As Brian mentioned the increase in revenue for the quarter was primarily driven by investment banking and gains in our prop investment portfolio, which offset a large loss in our liquidation segment for the quarter.
For the year. Our total revenues were 652 million, which is a 54% increase compared to 423 million in total revenue for 2018.
Now turning to our individual segments in capital markets fourth quarter revenues increased to 172.2 million up from 60.6 million for the same period of 2018 segment income increased to 88.6 million up from a loss of 12.5 million, which included restructuring charges incurred during the peak.
Fourth quarter of 2018.
The significantly quarterly increase in their capital market segment was primarily driven by an increase in banking revenue as well as investment gains related to the company's equity portfolio.
For the year capital market segment revenues increased to 485.9 million up from 275.1 million for 2018.
Segment income increased to 179.3 million up from 10.2 million for the prior year.
The year over year increase in our capital market segment was attributed to an increase in investment banking gains in our investment portfolio and the full years contribution from glass Ratner, which we acquired in August of 2018.
Now turning to our auction liquidation segment.
Okay, and liquidation recognized negative revenue of 44.4 million and a segment loss of 60.8 million for the fourth quarter. This compares to 10.1 million of revenue in 2.3 million in segment income for the same period of 2018.
The fourth quarter results were impacted by significant expected loss accrual related to a liquidation transaction that started in 2019 and is expected to be completed in 2020.
We have estimated the total expected loss for the entire project through completion and have book the total loss into our Q4 results.
For the year auction liquidation segment revenues totaled 22.5 million with the segment loss of 25.5 million. This compares to 55 million in revenue and 27 million in segment income for 2018.
As we've noted on prior calls our auction liquidation segment's results are expected to vary from quarter to quarter and year to year due to the episodic impact of these large scale retail liquidation engagements.
Next in our valuation that appraisal segment.
For the quarter revenues were 9.7 million compared to 11.3 million for the same period of 2018 segment income was 2.7 million compared to 3.4 million for the same year ago period.
For the year revenues in our valuation in appraisal segment increased slightly to 38.8 million up from 38.7 million.
For 2018.
Segment income totaled 10.2 million compared to 11.1 million in the prior year.
Our valuation an appraisal business continues to be one of our consistently perform businesses generating steady cash flow for us quarter to quarter, you had year to year.
Next is our principal investments segment, which is primarily driven by results from United online in Magicjack, which we acquired in November of 2018.
For the quarter revenues increased 23.7 billion up from 20 million for the same period of 2018 segment income increased 8.8 million compared to 5.7 million for the fourth quarter of 2018.
For the year revenues increased to 100.9 million.
Up from 54.2 million in 2018 segment income increased 33.2 million up from 19.4 million for the full year 2018.
As Brian mentioned, we acquired a majority interest in the brand investment portfolio during the fourth quarter of 2019, our newly added brand Holdings contributed 4.1 million in revenue in 2.7 million in operating income for the fourth quarter and the full year.
Now turning to B. Riley financial profitability metrics, which are attributable to the company as a whole.
Net income for the fourth quarter increased to 16.9 million or 59 cents per diluted share compared to a loss of $8.8 million or 34 cents per diluted share for the fourth quarter of 2018.
For the year net income increased 81.3 million or $2, a 95 cents per diluted share from 15.5 million or 58 cents per diluted share in the prior year.
Adjusted EBITDA increased to 50.3 million in the fourth quarter of 2019 compared to 11.2 million for the same year ago period.
For the year adjusted EBITDA increased to 207.9 million compared to 89.6 million for 2018.
Adjusted net income for the fourth quarter increased to 23.6 million or 83 cents per diluted share compared to 700000 or three cents per diluted share for the same period of 2018.
For the year adjusted net income increased to 108.3 million or $3 to 93 cents per diluted share compared to 30.8 million or $1.45 per diluted share in the prior year.
For more information about adjusted EBITDA and adjusted net income and for a reconciliation to the nearest GAAP measures you can refer to the section in today's earnings release regarding the use of non-GAAP financial measures.
And now turning to some highlights of our balance sheet.
As of December 30, Onest 2019, B. Riley financial had 104.3 million unrestricted cash and cash equivalents 23.8 million in due from clearing brokers 409.7 million in net securities and other investments owned 27.3 million in advances against customer contracts 213 points.
1 million of loans receivables net of loan participations sold in 792.9 million in total debt.
As of yearend B. Riley financial had a total cash and investment balance of 832.2 million.
Which includes approximately 53 million in equity investments included in prepaid and other assets.
Net of the 792.9 million in total debt.
We had a net cash and investment balance of roughly 39.2 million at the end of the fourth quarter.
Our total B. Riley financial Stockholders' equity was 360.7 million as of December 30, Onest 2019.
As Brian mentioned, we purchased more than 870000 shares and warrants under our existing share repurchase program during 2019.
Shares outstanding at the ended the quarter totaled approximately 27 million.
Lastly, our board of Directors has declared a total quarterly cash dividend of 35 cents per share on our common stock.
This reflects an increase in our regular quarterly dividend to 25 cents per share supplemented by one Titan special quarterly dividend of 10 cents per share.
Our common stock quarterly dividend will be paid on or about March 30, Onest 2022 stockholders of record as of March 17th 2020.
That completes our financial summary, I'll now turn the call over to our co CEO, Tom Kalil hurt to share a few specific highlights from our individual operating groups during the quarter.
Tom.
Thanks, Phil.
Early SBR realized record quarterly revenues, primarily driven by increased investment banking and capital markets activity. We continue to assert our leadership position in the spec space and our outlook. So this sector remains strong.
Noteworthy highlights from the quarter include our role as capital markets advisor and as sole placement agent to Trinity merger Corp. In supporting its combination with broad Mark Realty.
It's created a billion in half dollar mortgage real estate investment Trust and resulted in one of the most successful real estate specs of all time.
Additionally, we served as the sole underwriter for the software acquisition group.
And it's $150 million spec IPO.
During the quarter. We also saw increased contribution from our aftermarket or ATM business as well as for more securities lending and fixed income groups. In research. We continue to aggressively repositioning coverage universe to drive further value from our position has a middle market.
In wealth management year over year revenues remained relatively flat. However, we continue to focus on cross selling our platform and improving profitability through organic growth.
Our current and new advisors, our mandate to at high quality Advisors has resulted in a robust pipeline extremely reputable financial advisors, both in markets, where we have an existing presence and in new markets, where we have identified opportunities for rapid growth.
Just last week, we were pleased to announce the addition of M. JV wealth management group and our Philadelphia branch, which we established just last June.
Our glass Radnor consulting group has experienced tremendous group since joining the B. Riley platform 18 months ago with average monthly mandates doubling in that time period.
This growth is due in part due an increase in cases and relevant opportunities to collaborate and cross sell with other B. Riley financial divisions.
As we've increased internal awareness of our bankruptcy litigation forensic accounting and due diligence service lines.
Key industries for glass Radnor continues to be healthcare agriculture, real state energy and retail.
Turning to Great American group, while our retail liquidation business experienced a challenging quarter related to a large project group continues to be actively engaged in multiple ongoing store closing projects, which we expect to continue in 2020 for context on the scale of this activity we participated in more than 3900 store.
And liquidated nearly 3 billion of retail inventory in 2000.
We continue to expand are collected capabilities to capitalize on the trends in retail whether through brand licensing distressed real estate or other restructuring entry points.
And we expect this will remain a meaningful part of our business retail industry continues to adjust to current market conditions.
Meanwhile, our appraisal business saw modest decline compared to a strong fourth quarter in 2018 or appraisal business maintained steady performance quarter to quarter. It continues to prioritize expanding revenue sources across the automotive energy metals and mining and retail sectors.
Our final segment is principal investments, which primarily consists of magic Jack in the United online.
Both businesses continue to outperform our initial investment estimates and our generates strong cash flow for our platform.
However, we are actively pursuing investment acquisition opportunities to grow the segment and continue to assist VB BMW FRG.
Other portfolio companies within respective acquisition efforts.
Lastly, looking ahead, we intend to continue to focus on our branding and marketing to better align and leverage the external relationships of all of our associated companies.
We have been beneficiaries from the growth of our platform and increased recognition of our brand.
Much of this into the credit of our employees and our partners. We recognize that we did not have accomplished what we have without their support and dedication.
With that we will now open the lines for questions.
Thank you.
Now conducting a question answer session. If you like to ask a question today. Please press star one from your telephone keypad and a confirmation tone indicate your line is and the question Q.
Your first start to if you like to move your question from the Q.
Participants using speaker equipment, it may be necessary to pick up your handset before joining us for pressing the star Keith.
We'll pause a moment as callers join the queue.
Thank you. Our first question comes from the line of West Cummins with two seven to capital. Please proceed with your question.
Hi, Thanks, say Hey, Brian.
Just to start the I think the obvious question is the Great American group historically has been very good the about losing little are really never losing on projects just kind of curious you you're taking what happened on the project you mentioned in the quarter and then kind of what the outlook is on larger potential projects in 2020.
Sure. Thanks, Thanks, plus the question, yes, so so.
I would say that I'll take the bolt on this one we we've been very aggressive in our approach to liquidation whether it was you know on successful ones like Bon ton.
Where we where we teamed up with the bondholders to.
Two credit bid on the on the real estate and we did things that I think we're probably more expensive than we have done historically and worked out.
With with Barney <unk> Barney <unk> Barney use we effectively one this local Asian by taking out the deal that was something that I don't want been done before what that comes a lot of reward.
We effectively locked yourselves in the liquidation, but also more risk risk around the wind down risk around obviously liquidation analysis add on it. This is a pretty small base of stores with the high end customer you put all those things together and we felt like we're creating the.
Said at a level that would make a lot of sense for us we make bottom on the and retrospect clearly I think we've got all the lead things Wong.
The recoveries were lower than we thought lower than we had some insight to our competitors and growing than they thought.
Expenses on the wind down were higher than we expected and the company was in what we're shape and some of the inventory was in more trouble shape. So.
We need to knowledge that we need to think through that and then take responsibility for it and then at the same token I think we have to look at the man and say what brought us to the Das did you get to 207 million EBITDA from 80 by going more projects right in the middle of the fairway and clearly the answer is no. So we need to make sure.
That we're we're learning from our mistakes.
We're we're.
Fixing thoroughly about each deal, but also recognize that if you're.
Pardon business model is to take advantage of we think sometimes is the ability to take risks and calculated risks and get an outsized return.
Times, you're going to have these I. This is obviously the bigger than anything we would have expected but.
As I hold through the whole year I think we've got a lot im proud of and.
Mentally I think we've all we hope we've accrued for it as as.
Cemented losses as Phil said in the markets are all Thats, a one time event, but if you look at.
The market for retail and liquidation environment, and where we said.
Really excited about that nothing will change I mean, we will continue to be aggressive. We'll just do you know we got to figure debugging the merits and what do we go wrong, where we go right and make sure make sure we learn from it.
Okay, Great appreciate that and then.
Just two.
Looking ahead I think I heard just right did you see in 2020, you expect at least a 100 million EBITDA come from any or more specialty businesses.
Yes, So I guess, if you look at the principal investment group. If you look at the appraisal side of our business class Ratner now our branded business.
That businesses has been growing through acquisition, we've got a couple of bins and cabinets that are declining and then we have a couple of that are growing rapidly. So we've really tried but that will take some of the profits. We've had on the episodic side and and be opportunistic buyers of assets that we think we're buying then cheaply weather from bye.
Orphan come company private as the case, a nice Jack in the United online are having a partnership with.
A team that bookstore that we've worked with multiple projects that we think world of and have partner with them. So yes, I think we we are.
Got a really good pace of.
Cash flow and to work off of and.
Picked some of those.
Accumulated but hopefully more profitable.
Risks than we did in Q4.
Great and bright last one from me just on the.
Capital returned to shareholders, it's good to see that.
Regular dividend going up again, and you will do you expect that kind of done a signal.
That's more of that strategy to have.
Archer regular dividend in a smaller special dividends in the future and maybe allocate capital for acquisitions or stock buyback.
Just curious on the crop no I think was look I think there is we just bought a big slug of stock, which we announced in Q1, we bought an 880000 shares.
We have a publicly traded bonds that create opportunity to fly them already know if we think there isn't a properties capitals sell them and then you'll be able to shareholders in so I think that maybe.
I think theres an opportunity there is some opportunities around the stock and around other things, but for the most far I would not our focus has been 20% of our EBITDA roughly will be returned to shareholders innocent and we just we moved it up because of that recurring revenue base over the whole year was over $1.70. So I don't think big strategic change.
We feel pretty good about our balance sheet in the opportunity to take advantage of some of the disconnects and and soccer in.
Other opportunities.
Okay, Yeah, it's been good to see the regular dividend go up so much. So thanks appreciate it.
Thanks Wes.
Thank you as a reminder to ask a question do you mean press star one.
Our next question comes from the line of Sean Hayden CHC. Please proceed with your question.
Hey, guys congrats on a really terrific year and thanks to our board.
Given that I believe and I'm sure you agree you guys have a.
Really nice story of growth in capital return, how you look to engage with any sell side firms to kind of get the word out because it seems like where are your valuation is.
The disconnect really it's just people not knowing.
Kind of.
Your your research deep on street, knowing the whole story.
So look I think Thats a fair question, how is that we grow couple of conferences.
Sure I guess at the end of the day, if youre not looked at I always focus and.
Thank you step back and say what would happen in the last five years.
I don't know the exact number maybe fill knows but I think we paid 315 dividends from that initial five dollar effective IPO. So.
So that's dollar 50 reviewed our cost basis and.
Our stock is where it is whether its and I look inside I think what we think to ourselves is.
Let's focus on the business, let's focus on being disciplined about returning capital to shareholders, we've knowledge and our story is difficult.
Variety of business.
You know businesses in here and our responsibility in the way that we kinda think about.
Making up for that complication is by.
Being very.
Aggressive in returning capital and so what it will we like coverage I mean look we absolutely like to get some coverage and give some more sponsorship I think at the end of the day you'd been around stocks that I know not great stories, but really high market caps and you've been around stock you kept the nose down in just in really worked hard and.
Our usually will always one on ones that you know they keep their nose down and just worked hard and that's kind of where we are but I I. Appreciate I appreciate the point.
Yep.
And then I guess just the cursory.
Question.
How does this.
This rate cut effective business.
Well you know.
The disconnect and I think credit as we've been really meaningful beneficiary of whether its and J capital or whether it's on our balance sheet. There is a world of kind of haves and have not in getting credit and.
To the extent that are available on our ability to get.
Credit at lower rates I mean, our most recent bond offering was meaningfully lower than our own than first when we did you know over a percent lower.
And you know the flow that we see it arbitrage on cost of capital put money to work at a higher rate and get significant fees and at the same time.
It really good for us and so were we volatility is good.
It's painful in the short term, it's tough one market saw 10 or 15%, but at the end today starting from when we started a 97 the opportunity that's always been around volatility and.
There is none have been good abundant position as we are in a in the open their operating expenses or the way diversification now so I like the volatility I think this is.
This is opportunistic for us.
All right, thanks, guys and again congrats on great year, alright, Thanks, a lot.
Thank you as a reminder, press star one to ask a question.
Okay.
Thank you.
This concludes our question and answer session had announced thanks to turn the call back over to Mr. Riley for his closing comments.
Great well, thank you operator.
Once a quarter, we get to thank our partners our shareholders.
Everybody that works here and obviously.
We appreciate all of the support and look forward to continue deliver.
And look forward to talking next quarter. 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 financials, future expectations plans and prospects and any other statements regarding matters that are not historical facts may constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Investors should be where the any forward looking statements are subject to various risks and uncertainties that could cause actual results could differ materially from those discussed here today.
These risk factors are explained in detail and 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 as such statements.
All forward looking statements are made as of today and except as required by law. The company undertakes no obligation 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 cap are included in the earnings release.
Thank you for joining us today for B. Riley Financial's fourth quarter and full year 2019 earnings Conference call you may now disconnect.