Q2 2020 B. Riley Financial Inc Earnings Call

This conference.

Earlier today B. Riley issue.

A press release, a presentation detailing its financial results for the second quarter.

Copies are available Investor Relations section of the company's website at <unk> IR Dot B. Riley <unk> Dot com.

As a reminder, today's call is being recorded.

Audio replay will also be available on the company's website later today.

Joining us from B. Riley are bright Riley chairman and co CEO, Tom Kalahari co CEO and so on CFO and COO.

<unk> management's remarks, we'll open the lines 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. Breillat Reilly Mr. Bali. Please begin.

Thank you welcome everyone.

Second quarter results demonstrated solid performance from our operating businesses, along with the sharp rebound at our investments.

Last quarter, we described the unrealized markdowns that are definitely results as a moment in time valuations.

Losses were significantly reduced with investment gains of 114.5 million in the second quarter I've always told the market rebound and the second quarter. Our businesses generated 151.9 billion, an operating revenues and operating EBITDA 46.8 billion taken together. These results contributed to consolidated revenues of 266 point.

5 million total adjusted EBITDA of 148.3 billion.

Well for Visibilities generally difficult to predict the markets that we serve especially the more episodic businesses. We're encouraged by several development at the end of Q2, what's going to a sustained level activity at all about well box set of opportunities on than you otherwise.

And that's something like your brokerage instead of benefits through the market, we though banking team closed several noteworthy capital markets transactions in Q2.

Great and several other deals that are due to close in the coming quarters.

At the same time Kindle counter cyclical businesses also saw meaningful uptick no engagements at the end of the quarter well in the pause in activity in late March.

Our bankruptcy advisory well restructuring group signed a record number of new Matt matters in June our retail integration group is seeing a significant increase in it simply as coker continues to impact retailers.

Bill gates outbreak over a thousand stores the day no real estate does the this is also signed a multiple simonton showing up from this past February.

We expect activity levels were being high.

And and into 2021 as a result of the immense pressure on company. During this period and the scope in 19 accelerates challenges the brick and mortar retailers.

Meanwhile, our steadier businesses continued to perform developed a more episodic.

This concludes our principal investment companies, United Arboleda, Magicjack, an appraisal wealth management business.

Importantly, our platform and diversified business model.

The Weber amid the challenge of being created by the current environment.

We believe there will be more opportunities for us to capitalize in the near term future.

Earlier this month, we celebrated a five year NASDAQ listing anniversary.

It's giving us an opportunity in a pause them, reflecting what we have accomplished and just five short years, it's becoming a public company.

Since our listing on NASDAQ in 2015, we've completed five meaningful acquisitions, which greatly augmented and diversified or B. Riley platform.

EBIT dollars increased about tenfold on an annualized basis, we've delivered an excess of $4 per share and cumulative comedy dividends to our shareholders.

And today, we announced we are raising our way north of 30 cents and declared a special dividend up five cents, where total cash given a 35 cents per common share for the second quarter.

I would take a step back and look across our business, we could not be more pleased with where we are well we recognize there's always more to be done.

Each quarter, we take time to describe the ongoing growth and transformational but from what vendors doesn't like 97 in many ways. It feels like we're just getting started we're just as enthusiastic about the business today as we have been since day one.

I mean, B. Riley glass Radnor, Great American group under one roof is truly human.

A combination of our distinct businesses that served as our competitive advantage and a growing present, but not as not gone unnoticed, both b. Riley and glass Ratner recently earned recognition a top 10 advisors and the deal bankruptcy and restructuring Callaway.

The level of activity and opportunities there senior club bankruptcy restructuring, we tell liquidation and retail and real estate is enormous this isn't due in part because remember, perhaps you're being put on company going to cone and biomark, mostly because of the longstanding client relationships. Our people are cultivated required an existing clients and then.

Ability to a burden that works the other good inside a b. Riley.

The data and we have committed to consolidated all legacy companies under a single B. Riley brand better aligned with the markets, we serve and the great greater affiliation umbrella individual groups.

We've always said that our success lies in our people success, we believe the ability to go to market under a single name will help our brand recognition in the burst markets. We serve as affirmed that can assist company, but every facet bring the company's life cycle.

Last quarter, we also discussed or intention to pursue opportunities created by the current market dislocation.

We remain as aggressive as that burned up or sit at these opportunities while maintaining tight discipline with a balance you.

Focus remains on performing for employers and employees quiet partners and our shareholders. We believe affirmative exceptionally well condition to navigate the road ahead.

With that I'll turn the call over to fill on our CFO and COO, because it's got some financial metrics from the quarter.

No.

Thanks, Brian and welcome everyone.

For the quarter B. Riley reported total revenues of 266.5 million in total adjusted EBITDA of 148.3 million.

This was an increase from Q2 of last year, which recorded 164.7 million in total revenues and adjusted EBITDA of 52.9 billion.

Net income available to common shareholders was 82.8 million.

For $3.07 per diluted share compared to 22.2 million, where 82 cents per diluted share for the prior year period.

This increase was primarily due to a sharp rebound in our investment books. Following the cobot 19 market downturn at the end at the first quarter.

In addition to investment gains of 114.5 million or overall business reported operating revenues of 151.9 million for the second quarter.

Turning to our reportable segments for capital market segment includes our investments as well as our operating results from our investment banking brokerage or bankruptcy and litigation financial consulting business and our wealth management infants management businesses.

Excluding investment gains or capital market segment generated operating revenues of 111.4 million in operating income of 31.1 billion for the quarter.

These results were primarily driven by strong investment banking performance.

Contribution from Glass Records financial consulting operations in wealth management.

In terms of our auction and liquidation segment, our retail liquidation business contributed revenues of 8.3 million in segment income of 2 million.

It's included a few retail liquidation projects that closed during the quarter. Following the pause in March due to stay at home orders in cobot restrictions on retailers.

As we've mentioned on prior calls or liquidation segment results vary from quarter to quarter and year to year due to the episodic nature of large scale retail liquidations.

That being said since quarter end, we have commenced several new p. engagements in July, which we expect to realize in future quarters.

Our valuation and appraisal segment generated 7.7 billion in revenue and 1.5 million in segment income for the quarter.

Second quarter appraisal activity was impacted by travel restrictions in a general slowdown in financing activity.

However, our appraisal segment remains one of our consistently performing businesses generating steady cash flow for last quarter to quarter and year to year.

Our personal investment segment companies, United online and Magicjack generated revenues of 21.4 million in segment income of 9.2 million for the quarter.

Both companies continue to perform at or above our expectations, well generating steady cash flow for the overall B. Riley platform.

Well I asked because our brand segment.

Which was established during the fourth quarter 2019, and is comprised of our interest in the intellectual property related assets of several fashion brands.

Our brains portfolio contributed licensing revenue of 3.2 million for the quarter any Curtis segment loss of 6.3 million.

Well our brands business did see a slowdown during the quarter, which we expect will extend into Q3, we are seeing signs of improvement over the last month.

Importantly, Hurley our biggest sprint has recently exceeded our expectations in terms of retail and licensing opportunities.

Now turning to some highlights from our balance sheet at June 30, B. Riley financial had.

106.3 million in unrestricted cash and cash equivalents.

29.1 billion in due from clearing brokers.

389.2 million in that securities and other investments owned and 311.4 million of loans receivable net of loans participations sold.

As of June 30, Yeah, total cash and investments balance of approximately 900 million, which includes approximately 61 million of other equity investments in deposits included in prepaid another assets.

Total net debt, including investments reported increased eight than other assets was 12.5 million in total B. Riley financial Stockholders' equity was 310 million at quarter end.

During the quarter, we repurchased over 200000 shares under our existing share repurchase program and in July we announced an agreement to repurchased 900000 shares as part of the privately negotiated transaction.

Year to date through July.

Approximately 1.7 million shares.

Shares outstanding at the end of the quarter total approximately 25.9 million.

Lastly, as Brian noted, we are increasing our regular dividend to 30 cents per common share from the periods dividend of 25 cents or.

Our board of Directors, there's also declared a special onetime dividends upsides five cents for Q2.

Our total quarterly cash dividend 35 cents per common share.

We payable to stockholders of record as of August 14, 2020 on or about August 28, 2000 internally.

That completes my financial summary, now I'll turn the call over to our co CEO, Tom Kelly her to share a few quarterly highlights from our individual operating units Tom.

Thanks, Phil I'd love to start by recognizing the tremendous efforts of our people during this challenging period.

Realized with many of our co workers are anxious to reestablish some normalcy as it relates to the work environment and what we've implemented a voluntary and phased approach to reopening offices are People's health and safety remains our utmost priority.

For the offices that we have reopened we're closely monitoring local health advisories wall is hearing to social distancing capacity restrictions as well sanitation guidelines. However, most of our employees continue to work productively and efficiently from home.

As both Brian filled discussed we have largely maintained performance across our operating groups.

Right the ongoing impact of coding like team.

She is much do with the continued dedication as a professionals across the board.

After some highlights from our individual businesses, starting with our investment bank.

Deal activity accelerated in line with the overall market recovery after a period, where many deals were put on hold.

This contributed to another strong quarter for banking several noteworthy closed transactions, including Gan Women's 62.4 million dollar IPO and Uplisting, which is one of the first public offerings close coated in may.

Franchise groups Upsize 97.7 million dollar follow on offering in June and our advisory role to northwest Bancshares and its acquisition of mutual first financial and to the buyers S.P. Richards U.S. operations.

Our ATM inspect reach also remained active during the quarter.

Notably we serve just sole book runner on <unk> hundred $75 million Raleigh principal merger to spec IPO offering.

And two of our spec I feel clients have identified targets during the quarter.

As Brian referenced Q2 bank in restructuring advisory has increased in recent weeks, we signed several engagements during the quarter many of which are ongoing including cases with luxury flooring company Jolyon and a parent company of retail or New York and company or T. W. Retail wins will also.

Serving as agent in their store closing process.

Our pipeline is robust with many deals due to close in future quarters, including significant projects in the retail and consumer products.

[noise] on the institutional broker dealer cyber business, we are continuing to invest in our award winning research platform with an aim to be wall Street's, leading source of differentiated small and mid cap coverage. In recent weeks. We announced addition of key pushing out your equity research group and towards sales and trading.

We remain committed to investing resources to help clients clients, an important as best capitalize and proprietary small and mid cap investment opportunities.

And small cap companies continue to raise capital. This activity normally benefits are banking institutional brokerage division, but also a wealth management advisors as their clients opportunistically participate as deals.

Assets in revenues in our wealth management division rebounded sharply with the market and finished at much higher levels than we anticipated.

Recruiting continues to be a key focus for this group and we have hired two new advisors in Dallas and Chicago amid the work from home disruption.

Our recruiting pipeline is as robust as it has ever been since the wealth management group was formed back in 2017.

With recent hires joining from Stifel Morgan Stanley Ameriprise and Wells Fargo. We believe we are evaluating our wealth management business and overall platform is increasingly being recognized as an attractive alternative for advisors with growing practices.

Turning to our financial consulting group glass right now this group continues to outperform since joining B. Riley August of 2018.

Despite most litigation matters being laid by quarter closures, we saw significant increase in bankruptcy and restructuring consulting cases in fact in June we signed warranty matters than any other months in glass revenues history.

With a combination of deferred work and how long of new cases, we believe future quarters into 2021 would be very strong for this group.

In June glass, right and required Alderney advisors, which he automotive restructuring practice based in Detroit to complement the financial Advisory services, we offer.

In addition to the auto sector, we continue to see key engagements across healthcare energy and power agriculture real estate.

Retail.

Now turning to our retail liquidation division our Q2 results reflect a few closing gave us during the quarter that were previously paused. However, the ending the quarter. We saw the beginning of a major ramp up and fee based engagements its towards began to reopen across the country.

We started several new projects the end of Q2, most notably over 130 stores for both Tuesday morning, JC Penney.

And in recent weeks, we kicked off limited store closing sales at sort of the top and approximately 380, Archie W. New York in company stores.

As of mid year, we have engaged in over a thousand store closings over.

Over 2 billion associated retail inventory value.

For context. This compares to over 3900 store closings and 2.1 being in total retail value for all 2019.

It's challenging in retail persists, we expect this activity to continue through the rest of 2021 to 2021 with more ways to strong closing is expected in Q3 in Q4.

Related to retail real estate division, so a large number of engagement involving retailers seeking immediate relief.

Recent notable ongoing engagement include J.C., Penney, mucci, USA and Potbelly sandwich shop among others.

As previously mentioned this weekend with us since February.

And year to date, they already been engaged to manage over 1300 leases in over 4 million square feet a commercial properties across.

Office retail multifamily distribution centers and manufacturing facilities.

We continue changes to the retail landscape and overall pressures created by coconut team, we expect a robust lease restriction market for the foreseeable future.

Next our appraisal divisions results were slightly impacted by the slowdown in lending activity as well as complications with traveling and a covert.

However, we anticipate there would be great greater opportunity for this group in the back half the year, its banks and capital lenders will need appraisal work to support future transaction activity.

As Phil mentioned this group is historically been steady performer for platform.

Lastly, our principal investment companies Maggie jacking all in line continued to provide steady cash flow despite filled with 19, driven downturn in advertising and retail sales.

And our team also continues to manage several or minority investments, while evaluate other new potential.

As I mentioned earlier, our people across the country continue to operate with the same level of intensity dropped is challenging period as we work together to service our diverse client base.

Well the road had seems uncertain, we remain confident in our ability to do a.

We look forward to updating everyone next quarter.

With that we will now open the lines for questions and then turn call back over to Brian for closing remarks.

Thank you before so open for questions. If you would like to ask the question. Please press star one on your telephone keypad at this time a confirmation total indicate your line is the question Q.

The press star to if you'd like to move your question from the Q.

Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star.

Once again that is star one to register questions at this time.

One moment, please all we pull for questions.

Thank you. Our first question today is coming from Sean Hayden.

Please go ahead.

Hey, guys congrats on a fantastic quarter.

They shot and bolt.

No problem I wanted to ask you guys about the B. Riley a principal merger or acquisition, yes, energy and just how would that manifest itself in the piano and do you guys have plans going forward for more specs B. Riley specs I should say.

So.

Sean I would say that dates back.

Economics, I'm pretty well no no. There's a obviously there's promote component and.

So that those promotes often are somewhat variable based on the transaction. So.

You know I would say if just.

Broadly.

Yes back promotes are anywhere up to 20% and sometimes you know depending on.

Other investors and things like that there can be lower so so this will be very much like any any others back.

We have always felt like or we could be a conduit to smaller companies going public. We we sell ourselves a sub one that started that you know went through.

The early stage isn't being public when we first went public I think our our estimates were something like 50 million of EBITDA on you know how to think about running the business tight and where to spend the money and we can help on the acquisitions and M&A. So we think we add a really unique perspective. The companies that may want to go public and then we have the ability.

The lies our balance sheet, because we don't want to take anything public that we don't want to be an investor and that's always been our philosophy.

So this allows us to you know invest a fair amount of our own capital. In addition to whatever we earned on the stock and stay there for a long time and yeah. This is something we hope to do more more obviously lot of news.

Getting crowded, but we think we have a proprietary platform that will create a lot of different opportunities for us that others won't we've never we've never been in a bake off you know even as ourselves as principles and I think that on a on this fact I don't see us in a situation, we're competing against others backs. It say, it's really going to be I hope.

Fully proprietary opportunity off of our platform, but but the short answer is yes, we hope to be no really important player, bringing smaller companies public.

Great and do you have an average price on the 900000 shares that you purchased or sorry. The 200000 that you purchased I believe this quarter.

Outside of the 900.

So you know the 900 I you know I don't know the average price I would say.

If you know I think those are part of the quarter, where we were obviously in the middle of Firestorm and you probably reflection, if we knew what now what we are.

She is if we knew than what we know now we would have been more aggressive but you know so we can we can get back to I got it I've got to think it's in a low to mid teens, probably 15 16, something like that when you back even down on that.

Great.

Congratulations again guys.

Alright. Thank you. Thank you for your support.

Once again that is star one if he would like to register a question at this time.

The question is coming from West comments.

Its capital. Please go ahead.

Hey, Brian Tom just to more of a high level question.

Looking through the financials on the operating EBITDA, which I is new this year when I look at that and it's up I think in the first six months, 90% year over year and I know that there's some <unk> a little bit of variability in the business I shouldn't annualize, but that's a big number annualized and just trying to.

Think through you know is that kind of a new level you think for the business that is more sustainable versus last year, even two years ago kind of given the diversification you've done.

And then your move more towards a fixed dividend versus a small fixing them in a more of a special dividend just kind of your thought process around.

Kind of where the businesses versus where it was last year over year before.

Sure I'll take a shot at that.

So that you know I think the when we look at our recurring dividend. We say, okay. What is our where do we probably feel about our recurring EBITDA and obviously we added.

To that to the recurring side of the business with the brand business. We've had growth in you know a number of our other businesses and simply unless you are you seeing the for long time at what point do you say you know brokerage a retail was not completely episodic and there is a recurring nature. We're always trying to measure those things and you know bid.

Careful about it but I think.

From our perspective that you know that recurring part, which it was getting you know nicely over $100 million of EBITDA provides a really good for and you know pays for a lot of our interest in a lot of our dividends and then there was other pieces were just always trying to manage and you know as you go back.

Just the last five quarters.

GAAP operating EBITDA of 43 million 35 million and then you know I don't know what you want to do with Barneys, we've talked a lot about that but given Q4 2018, where you had 16 million get a 50 plus million dollar Watson Barney. So you know the real business that you know isn't such a onetime hit that over 70 million at quarter end and 70 million in Q.

One and 46 in Q2, so you're going back six quarters and you could go a little bit further where you're getting a sense that yes. Some of those episodic businesses are a little bit more recurring it gives you more confidence and you know what is the right number to annualize.

Well Guy we ask ourselves that question every day I mean, we start up over every quarter, but we feel really good but where we're starting and you know I would say I I don't know that I'd I'd sign up for a $250 million annualized run rate, but I will say the run rate gets higher and higher as we go out the business.

You know is definitely starting from a high level as it relates to the dividend you know, we're still going to do the onetime dividends I thought that was our commitment to the original shareholders under their commitment to our current shareholders is that a portion of the money. We ask a lot of our shareholders, we take a lot of discretion.

You know and as part of that our discipline is gonna be to the pay back a a meaningful portion of our EBITDA up that to the shareholders and that's been about 20, 25% and we don't plan on changing that.

Great.

Thanks, Brian.

Yeah, I've, just looking back myself it getting close to it seemed like 200 million is a reasonable bogey on the operating EBITDA and the.

About three times, the things, where you guys trade right now it seems like it just really.

The business is much more stable on an operating perspective than it was at two years ago. So thanks I appreciate it.

Thanks Wes.

Once again, ladies and gentlemen that start to register a question at this time.

Mr probably I'm showing no additional questions in queue at this time I'd like to turn the floor back over to you for closing comments.

Great. Thank you and thank you everyone. What a difference you know 90 days makes we feel like Weve, obviously level a lot of momentum we recognize wouldn't volatile markets and we recognize that none of this success would not happen with that are.

Valuable partners that work with us and and the partners that trade with us and and banquet does and trust us and so we got a greatly appreciate that and we look forward to talk in next quarter. Thank you everyone.

Thank you before we conclude today's call I will provide b. Riley financials Safe Harbor statements, 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 any other statements regarding matters that are not historical facts may constitute forward looking statements within the meetings of the private security Litigation Reform Act.

Hi.

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

These risk factors include unpredictable and ongoing impact of the Covance 19 pandemic. That's about other risk factors 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 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.

Sure 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. Riley financial second quarter 2020 earnings Conference call you may now disconnect.

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