Q1 2020 Earnings Call

Earlier today B. Riley issued a press release and a presentation detailing its financial results.

Copies can be found in the Investor Relations section of the company's website at <unk> Dot B. Riley <unk> Dot com.

A replay of today's call will also be available on the company's website.

When it gets today or probably Riley chairman and co CEO, some color co CEO and Philip <unk> CFO and COO.

After management's remarks, well open the line for questions.

And before we conclude todays call our provide the necessary cautions regarding forward looking statements I would now let's turn the call over to Mr., Brian Reilly Mr. Robert Please proceed.

Thank you and welcome everyone first and foremost, we'll probably want to stay safe to what is your lead times you want to start by acknowledging all of our employees across B. Riley <unk> complete dedication through this challenging period.

Over the course of our 23 year history, we have successfully manage for prior periods of extreme market dislocation well. This is obviously unique from previous downturns, we feel our business is well positioned to come out stronger I know that on the other side. We're born from experience I've intentionally build our platform to withstand severe market shocks to the diversity of our businesses.

This quarter for several quarters continued growth for B. Riley. So I plan to spend some time, providing context on the cold weather related impact on our reported results world or outlook for the business or the whole with a focus on our balance sheet proprietary investments.

A couple of financial metrics and then Tom will cover some highlights from each of our business units.

Our first quarter results continue consisted of strong performance from our operating businesses.

Terms about growth and profitability also had a significant mark to market Watson our investment portfolio.

Businesses generated operating EBITDA of 70.9 billion and operating revenues of 182.2 million, which is the quarterly record far exceeded our prior record in quarter two of 2019, which generated operating revenues of 159.1 billion.

The performance of our operating does this was offset by investment losses during the quarter, which totaled 182.4 million.

Well in absolute terms. This is a large number all these losses are unrealized and have no impact on our operating Douglas.

But the unrealized losses a perspective it is important I understand the strategy, we employed with our balance sheet.

You often hear us referred to our business as a platform of course, all the platform because we view the company in two parts, but the operating side of our business, which perform services for a client them generates cash flow for the company now we have a proprietary investments were which our investment ideas and opportunities sourced a more platform.

It is important to realize this is not an active trading strategy. Our book is strategic and concentrated and includes several small cap equity position to both public and private markets and various forms to our clients. Other groner platform, our investment have become larger and more integral part of our strategy to create value.

Well go without proper count is great proprietary investment opportunity that we can invest in partnership with our clients.

We aim to enhance season batson's by using the services and expertise of our parts of our business to create additional revenue opportunities.

Additionally, we have opportunistically grid and long term partnerships with companies a management teams, but we believe all great value for shareholders. However, the side effect of these partnerships is that the quarter to quarter volatility can be large.

An example of this is our relationship with tenants capital in franchise group.

Initially about them and Liberty tax would vintage cap about a dozen adjusted price of approximately $8 per share in mid 2018.

Well the next two years, we supported benches and transform the company into friends got tries group by providing advisor in capital markets services on a number of transaction, putting the purchase of the vitamin shops in American freight.

A couple of that's been enough RG resulted in a large unrealized gain at the end of 2919 and subsequently in Q1 as markets suffered through historical first quarter results and resulted in a large unrealized loss Jos have rebounded strongly in Q2, but this investment demonstrates the challenge of the volatility of these large positions.

In spite of current volatility in our investments. These are all business opportunities, which are contributed significant significant revenue for platform.

Revenues generated from these investments in prior quarters, partially offset the unrealized loss and importantly, there was no margin balance than any of these positions. This affords us the opportunity to make prudent investment decision will not face pressure to sell one market values are well.

Back the only meaningful realized trade during the quarter well the unwinding of a market had so we put on towards the end of last year that resulted in a $17 million game.

As we look at how do we have a balance about the assets continue to generate strong cash flow from B. Riley in fact, a number of our business a stand to benefit during counter cyclical markets. This includes our B. Riley FBR conns corporate restructuring to a bunch right know bankruptcy in litigation Advisory group.

Latin American group retail liquidation division.

We also believe and have begun to see a need for companies rent raise capital through debt and or equity and expect our capital markets group to be a beneficiary of does need to capital.

In recent weeks, we've won a number of significant restructuring assignments and retail liquidation projects and <unk> pipe on for new opportunities is robust and the capital market side. We recently led the IPO, Ghana limited, which is one of the first IPO since the start of the pandemic.

Our principal investment companies.

United online and Magicjack, and our appraisal wealth and consulting business continued support perform steadily to balance or more episodic because again.

A key measure of our SEC successful always believed <unk> ability to deliver shareholder value.

During the quarter. In addition to paying a quarterly dividend, we repurchased over 1 million shares, including a large block of shares totaling 880000 from an existing shareholder prior to the cold in 19 downturn.

Yes, we also bought back some of our bonds and our board and management also comes in need to make open market purchases, which demonstrates continued confidence in the company.

As we look ahead, we'll continue to maintain tight discipline with our balance sheet. How however, we will continue to be aggressive.

Over history, we have found up market disruption creates opportunities we intend to continue to be aggressively pursuing these opportunities.

With over 124 million of cash and over 775 million in cash in investments strong operational cash flow and no significant principal payments due until mid 2023, we believe that we will have ample liquidity to support the business through this uncertain time, and we will continue to leverage our balance sheet and degrade.

During these what's not only benefit us, but also support our partners and our clients.

With that I'll turn the call over to our CFO and COO fill on to provide a summary of our financial metrics Phil.

Thanks, Brian and welcome everyone.

It's probably just outline this would you need quarter and so we will provide additional contracts within our reported results.

As Brian noted this was a record corn for operating businesses quarterly operating revenues of 182.2 million, an operating adjusted EBITDA of 70.9 billion.

For context. This compares to operating revenues of 116.3 million and operating adjusted EBITDA of 18.9 billion from the prior year period.

It's also exceeded our prior quarterly record property revenues, which was 159.1 billion in Q2 of last year.

However, our strong results from our operating businesses.

For clips by losses in our investment portfolio due to significant impact until midnight team on the financial markets.

Investment losses during the quarter totaled 182.4 million.

The vast majority of these losses being unrealized losses.

Related to our equity positions in the fair value adjustments on loans.

Combination of our operating revenue and the investment loss resulted in total revenue of negative $260000 for the quarter.

The net loss applicable to common shareholders of $99.7 billion.

In terms of our reportable segments, our capital market segment includes our investments as well as our results from B. Rileys investment banking wealth management and funds management businesses.

And our class Radnor bankruptcy on litigation financial consulting business.

Including the investment losses. This segment reported revenue of negative 56.2 million.

And a loss of 120.5 billion for the first quarter.

However, excluding the investment results.

Our operating revenue for the capital market segment was 126.3 million in segment operating income was 46.5 million.

Capital markets results were primarily driven by strong investment banking performance increased wealth management revenues and consulting revenues.

Next our auction that liquidation segment generated 20.7 million in revenue and segment income of 4.3 million for the first quarter.

This compares to 20.7 million in segment income up 11.5 billion for the same prior year period.

Our liquidation segment results vary from quarter to quarter in year to year due to the episodic the impact of large scale retail liquidation engagements.

Our valuation and appraisal segment generated 8.8 million revenue and 1.9 billion segment income for the quarter.

Slightly up from 8.6 million in revenue and 1.4 million segment income for the prior year period.

Our appraisal business remains one of our consistently performing businesses generating city cash like fourth quarter to quarter and year to year.

Our principal investment segment companies United online to Magicjack.

Rated revenues up 22.7 billion in segment income of 8.5, no different a corner.

This compares to 27.5 billion segment revenue in 7.9 million of segment income for the prior year period.

These are companies, which we acquired for attractive investment return characteristics.

And they continue to generate steady cash flow for the platform.

Lessens our brand segment, which is established during the fourth quarter 2018.

And is comprised of our interest in intellectual property and related assets several fashion brands.

Our brands portfolio contributed licensing fee revenue of 3.8 million for the quarter any Curtis segment loss of 1.8 million due primarily to the impairment of trades, resulting from impacts related to the pandemic.

Now turning to some highlights from our balance sheet.

As of March 30, Onest 2020, B. Riley financial had when I heard 24.2 million, an unrestricted cash and cash equivalents.

5.8 million in net do some clarity brothers.

273.5 million in that securities another investment sound.

11.1 million in advance of against customer contracts.

And 313.9 billion loans receivable net of loans participations sold.

At March 31st B. Riley financial had a total cash and investment balance of approximately 778 million, which includes approximately 49 million of other equity investments in deposits, including prepaid and other assets.

I will be rightly financial stockholders' equity was 235 million.

As Brian mentioned, we repurchased over 1 billion shares under our existing share repurchase program during the quarter.

Shares outstanding at the end of the quarter totaled approximately 26 million.

Lastly, we are maintaining a regular quarterly dividend.

Our quarterly cash dividend 25 cents per common share is payable to stockholders of record as of June inflation on or about June 10th 2020.

That completes our financial summary, now I'll turn the call over Twox as CEO, Tom Kalil her to share a few specific highlights from our individual operating groups during the quarter.

Thanks, Phil first and foremost I want to build on a comment Brian made with respect to our employees amid the coated pandemic.

In early March our teams worked quickly and efficiently to transition <unk> operations into a remote workforce, which allowed our people to prioritize the health and safety of their families and loved ones.

At this period, our Cogs continue to work tirelessly to provide our clients and partners, what's necessary guidance and services to support their businesses at a critical Todd.

Truly have a world class team nationals, and I know when speaking on behalf of our entire management team when I say, we could not be more proud of their dedication.

As discussed at the top of the call Q1 was incredibly strong quarter for operating businesses. These results are due in large part to the continued performance in services provided by our professionals across the road.

Starting with our investment bank in institutional brokerage B. Riley SCR, we achieved near record quarters for banking in Q1.

A recent involvement in the automotive business combination contributed significant seats for the quarter.

We're seeing strong pipeline for new spec issuers due to pent up demand and the relative impact the volatility on a regular way ipos.

It's back market continues to be a bright spot for the firm.

Our aftermarket or ATM offering activity had a record quarter generating the highest amount of fees related to the product.

We continue to be active despite the overall slow down in capital markets as Brian mentioned previously just last week, we bought one of the first hosts coated non spec ideas to market with the successful listing Afghan limited.

We believe our leading market position is small cap companies continues to differentiate providing us with unique opportunities.

Although several banking transactions have been put on hold we're seeing a meaningful increase in restructuring activity with the immense pressure being put on companies admitted <unk> and then.

We recently signed several new and significant engagements, including several in the retail and consumer products sector.

Well, we cancelled or annual Investor Conference scheduled to take place later this month due to social distancing requirements. This period has served our institutional sales and trading division was an opportunity to strengthen relationships.

Several long term clients as being increasingly rely on us for trade execution.

I mean this work from home area.

Turning to wealth management.

And our wealth management business revenue in assets under management for advisor increase in our private client group from the same period a year ago.

Our independent channel revenue was up 25% from the quarter went up 50% over Q1 of last year, thanks to new additions in our Washington, D.C. and Miami offices. We also saw a modest increase in revenue during the quarter driven by field syndicate participation.

Well revenues have remained strong during a period, we've retained all of our accounts, we do expect assets to decline with the overall market.

Recruiting remains a key focus for the group.

And those efforts are ongoing.

Earlier in the quarter, we onboarded or team advisors and our newly established branch in the Greater Philadelphia region. We have a few new advisors joining us this month in Chicago and Dallas.

Next is glass Radnet, our financial advisory and consulting group, which achieved record quarter results since joining our platform in August 2018.

This is a seasoned professionals, whose core expertise includes bankruptcy restructuring and litigation financial advisory.

Business services, which are critical during periods of financial distress.

Yes, I referenced during the quarter span health care, agriculture energy automated automotive retail and real estate.

You are involved in and have been retained on several new matters, which range from zero World financial due diligence receiver services.

In general business interruption assistance.

Now turning to our grid American group liquidation Division.

Do we have participated in about 590 store closings involving over a billion dollars retail inventory.

This includes a number of ongoing and new liquidation projects.

Returning clients.

Well projects related to non essential retailers paused in March we can to work with several retailers to navigate the new challenges being created by the current market environment.

Real estate consolidation and purging excess inventory they remain the key focus.

What does the effects of covert 19 accelerate the financial distress across retail when taste, we anticipate.

We'll be several more opportunities on the pricing.

We returned to some normal c., we expect liquidation activity too soon with the robust pipeline new business opportunities through year end.

During the quarter, we enhanced or real estate offering by Onboarding, a team, but veterans professionals, who among other things specialize in real estate disposition and lease restructuring.

While this new team has only been with us for a few short months, they've already signed a number of new engagements, including a project involving a large retail.

Current market conditions have created an extremely challenging environment for real estate businesses and property owners.

With our comprehensive real estate offering through glass Radnor, Great American and B. Riley. If we are we believe this is another area that will serve as a bright spot for future results.

Meanwhile, our great American appraisal division continues to generate steady results during the quarter. Similarly, we anticipate there will be greater opportunities for this group as banks and capital others will need appraisal work to support future transaction activities.

Lastly, our principal investment companies Magicjack no unwind continue to perform at an above our estimates to generate strong cash flow for the platform.

Our principal investment team also continues to manage several of our minority investments, while volume and other new potential.

Estimates.

Taken together, we were pleased with results from our operating business, but we recognize there's always more to be done.

With that we'll now open the line for questions and then turn the call back over to Brian for closing remarks operator.

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Our first question comes on line of Sean here for THC PC with your question.

Hey, guys. Thanks for taking my question and I Hope you're all say.

I jumped on a few minutes late I'm I'm not sure if you covered this but.

Have you quantified the recovery near investment portfolio quarter to date.

We pay Sean we didn't you know there is a significant amount of these securities that are filed.

Typically in Austin, we are over a 5% to 10% holder. So I hate to do a day today and I don't know the exact number but it's meaningful I mean, we own.

You know.

3.9 million shares of FRG, which I think is up you know eight points in the quarter.

Quantums out a medium coal move.

So I you know I, it's been I, it's been a sizable no but you know Sean honestly, we're just so much more focused on operating earnings and so we've been we've been taking principal positions and partnering with a with the teams for a long time and that's going to have some ups and downs, but we think were.

You know will make a lot of money on those names, but in the meantime, our operating business is done you know our core focus and we're really excited about those results.

Hi, yes, they I think that's reasonable and then as far as the.

Landscape for retail Liquidations go how competitive has that been and you know do you do you guys.

See that becoming meaningfully accelerating due to covert.

Yeah, I think you've got a you know assume there's going to be and you've seen a lot of announcement of companies either restructuring are changing you know how they think about there the retail platform. So it's going to be very busy I think the probably the biggest dynamic that you'll see there is I would imagine.

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And I think we're seeing some signs of a more fee based environment as opposed to equity environment and what I mean by that is.

I think liquidators for the most part are going to be a little hesitant to.

You know purchase all of the equity of Interstate and take the what's Gonna state. So I think what you'll see us more.

Some sort of percentage of recovery or maybe some upside to that so.

It's gonna be incredibly busy our competitors are all really good and you know we face tight competition, but we're really confident we're going to get our fair share.

Okay. That's all for me and I'd like to say you know.

I think.

It speaks to your competency what do you guys chose to do with <unk> capital allocations. This quarter. So thanks for that.

Thanks, I appreciate I appreciate your support.

Our next question comes on line of less commence with two seven to capital. Please proceed with your question.

Great. Thanks.

Brian I heard you mentioned some restructuring engagements that you secured during the quarter just out of curiosity. What does your capacity for you and your restructuring business I mean, how many engagements can you handle and do you think you'll have enough capacity or will you need to add capacity in that in the coming months or quarters.

So that's that's interesting question because we've been you know we've been dealing with that currently so we've got a we've got you know a fair amount of senior professionals no glass Ratner is has a meaningful alumina restructuring and litigate excuse me in bankruptcy advisory.

But we haven't moving some assets around to to assess what would the restructuring.

Business that we're seeing so not on the senior level, but you know more on the support level.

So we'll see I mean, you know we it's one of those things where you know west I think you've been around be around long enough. We're not we're not gonna go Chase and go higher high priced restructuring talent because.

Others, it's robust now what we'd probably do more of is go look for some capital markets folks that might not be super busy and want to be part of our platform. So yeah. We feel like we made the move in a restructuring two years ago and a year ago two years ago, we brought paramount to Reno EM.

And then you know more recently won but glass ratner and so you know that I think that's something that's going to really bear fruit, but we're busy there and so we're just gonna have to be mindful of that.

Okay, great. Thanks, Brian Thats, all I had.

And I just got a tax for me in Radnor says we have capacity.

Okay. Thanks.

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Next question comes on line of change treatment with person asset management. Please see with your question.

Hey, guys I just had a couple of questions about some of your Ah senior notes out there yeah, there's significant drop down in the first quarter.

Some cases greater than the S&P 500, so wondering if he can speak to.

You know kind of their declined and what you think about that.

And I think you might have mentioned also that you purchased some of these notes and the open market. If you can speak a little more to that.

And.

And lastly regarding.

The seven and a half do 27 Indian sense the call those and the called it comes up and at the end of the month.

So on your questions there.

Yeah, no and that's what so we obviously think about think about that often.

The bonds came and obviously as credit spreads widened.

You know you saw a meaningful.

Ticketing yield from core breads, obviously I think there's.

Fair amount of retail and and some of the baby bonds and that might have put pressure on some some have gotten margin calls we did purchase some bonds. You know our focus is on making sure that we have the cash flows too.

You know pair interest pair dividends the best of the company and ultimately pay back to debt that is.

That is due so we feel very comfortable about those bonds. We you know we feel really good about a relationship with those investors. We have no intention of you know we did buy some back obviously wish we bought more back it was a bit of a chaotic time when those are trading at.

40%, 50% discount but.

You know we were I as it relates to calling any of our issues. You know that's not as they kind of a game tight time decision. If you know in this environment. There are pretty good opportunities to put money to work at high rates, which will often include.

Potential banking fees or maybe you know we tell liquidation. So we're always analyzing our balance sheet, but.

You know so I can't give you any conclusive answer that we'll just say that we we feel really good about our free cash flow. We feel really good about you know about our balance sheet and we'll just be opportunistic.

Okay and regarding.

The amount of boggy purchasing open market.

About any quantification.

Few million not not enough you know, we I wish we would've bought more.

Okay. Thanks appreciate it.

Thank you.

Our next question comes online appalled wire with punch in Associates. Please proceed with your question.

Hi, guys good afternoon football.

Paul could you could you or I don't know if it's possible, but is there way to quantify the.

Not a fees generated a too but across the platform that would be a tied to the direct investments that you've men.

So we actually we did some of that recently on some of the more.

You know kind of the more recent investments.

But if you you know if you take everything from capital markets to Advisory Backstops, you know 70 million ish.

Over the that's over the last quarter last 12 months or so no no no over the last.

24 months.

In and around.

Yep.

And then it's obviously small but spend a little time talking about the brand segment and how it's performing in this current environment and where you see opportunity there.

Yeah. So you know that that should be big you know, we underwrote that business and those purchases to you know in and around 30 million EBITDA between the six brands, we bought and and the 45% Hurley.

Obviously everything stopped for the last couple of months.

Right.

Already seen a little bit of a bounce back there's obviously minimums that are paid by licensees.

And the Hurley side of the business they did sell the Japanese license for pretty good number.

That partnership we have a blue start grew by <unk>.

No you will see and you know there are taught we do have partnerships happened formed over a long time, we met bluestar through our transaction, what baby, where they license the BB license and then.

And then we also did a partnership on Brookstone are those guys are excellent and if there's you know I am highly confident that we will see.

Those revenues come back to the type of numbers that I mentioned so.

The way that I would describe it as if you think of typically four quarters in the year think of this year as three quarters, where quarter number two and three we'll probably represent you know a traditionally one quarter. So now you know you're probably going to have a little bit slowness in.

Q2, and three and then and then my.

My guess is you bounced back pretty hard in Q4.

Yeah, Okay perfect.

And then you talked about fully expected to come out stronger than the other side of this and.

You touched on it a little bit with what's his questions but.

Well, where are you what do you see opportunities either with within the segments are potentially adding another.

Segment to the overall platform Oh from an acquisition perspective that could make sense over the next.

Got it two to three years.

So I just think that as you know as we have grown and as our touch points of increase the the opportunities come in from you know a variety of areas and they and they touch a lot of different pieces of our business whether its.

You know glass writers then what does for a longer time, they understand our business better. They they refer a you know liquidation too you know that side of the business aren't investment banking transaction every day and I've talked about this I hit with you independently on calls.

Every day that we're together I think people, who learn more and more about the opportunities.

I'll give you a good example of something that you know just was an add on that as Ben you Super exciting as we added a we have some real estate professionals in the restructuring side, but more recently, we have we added.

Real estate group headed by Michael Germanic who came from a competitor.

To focus more on a restructuring advisory of the real estate side, we often working on retailers, helping them out of leases no thinking about the real estate portfolio.

We added that two months ago and.

No more than a half a dozen mandates a meaningful size and I think just the fact that we are some bad it in so many different areas, adding a great professional like like Michael into the portfolio and you know and as it kind of fits nicely with our retail and our restructuring those are the types of Pheno add ons, we love its you know.

We didn't we we bought in somebody very experienced and obviously hope he makes a ton of money with us as these mandates get done, but we didn't go and buy a big business. We just added to our platform. So I think theres a lot of that you know we've recently seen more people.

On the restructuring side approached us about opportunities because I think we feel pretty well position there.

So I just look at the last two quarters, you know where.

Paul I, we I think we pretty clear we lost a fair amount of money on Barneys in Q4, but if you look at our adjusted EBITDA and you add back Barneys, you know you're over $60 million EBITDA in Q4 $70 million, an operating EBITDA in Q1, those are really big numbers and those reflect a pretty good capital markets environment.

So you know I'm not predicting that we're going to forever more do those types of numbers, but you're certainly seeing the momentum and I think that's just a function of Mustang kinda stand on on track and you know.

Making sure that people really know that we are you know we've got a lot of different ways to help and assist and you know any way shape or form so.

Kind of a long winded answer, but that's how I think about it.

That's great.

No. It makes a lot of sense. Thank you. That's all I've got thank you for your time and everyone Thats if nothing.

Hi, Thanks, a lot.

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This concludes our question its decision and I will turn the call back over to Mr., Randy for any closing remarks.

Well look I would just again like to thank everybody our partners and and our employees like if you consider partners and you know that what they've done during this.

I'm kind of craziness, it's amazing to see everybody came together and you know work together in our T. group to make sure that we could all work remotely so great appreciation and you know will echo some previous comments of everybody say safe and well look forward to reporting next quarter. Thank you operator.

Thank you before we conclude todays call I would like to provide B. Rileys financial Safe Harbor statement, which includes important cautions regarding forward looking statements made during this call.

Statements made during the call about B. Rileys financial 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 security Litigation Reform Act of 19 and fast.

Investors should be aware that any forward looking statements are subject to various risks and uncertainties that could cause actual results could differ materially from those discussed today.

These risk factors include the unpredictable and ongoing impact of Cowen 19, pandemic as well as other restacked as explained in detail in the company's filings with the Securities Exchange Commission.

Please refer to these filings for a more detailed discussion of forward looking statements and the risk and uncertainties of 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 feature events or otherwise.

Okay.

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 of the Companys financial results prepared in accordance with gap are included in the earnings release thinking for joining us today for B. Rileys Financial's first quarter 2020.

School you May now disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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