Q2 2021 B Riley Financial Inc Earnings Call
Good afternoon, and welcome to B Riley financial second quarter, 2021 earnings call.
Earlier today B Riley issued a press release and presentation detailing its.
So the results for the second quarter.
Copies are available on the investors section of the company's website at IR Dot B Riley of Sun Dot Com I guess.
A reminder, today's call Inc. Being recorded in audio replay will also be available on the company's website later today.
Joining.
Now today from B, Riley or Brian Reilly, Chairman and cofounder and co CEO, Tom Kelleher co founder and co CEO.
Philipp on.
The of boat and CLO of.
After management's remarks, we will open the lines for questions.
Before we conclude today's call I will provide.
The necessary cautions regarding forward looking statements of.
I'll now turn the call over to Mr. Brian Reilly Mr. Mr. Riley. Please proceed.
Thanks, Welcome everyone I will start with a brief overview on the current state of our business and where we see opportunities ahead, Phil on our CFO and C. O L will cover key.
The financial metrics and then on co CEO, Tom Kelleher will share more detail about our individual business units.
For the second quarter, we reported total revenues of $336.8 million and total adjusted EBITDA of $124.9 million.
Our solid performance demonstrated continued strength from across our businesses with opera.
Putting revenues and operating EBITDA doubling on a year over year basis.
Over the last few years, we have worked to establish a steady base of recurring revenue businesses with enhancements to our consulting and appraisal wealth management brands and principal investment businesses.
Together these day steady state businesses generated revenues in excess of 135 million.
During the quarter and continue to provide steady EBITDA and cash flow for our overall platform.
Enhancing the results from our study businesses as the earnings upside created by investment banking, which has benefited from momentum in capital markets and our liquidation business, which continues to be profitable in spite of the slowdown in retail bankruptcy filings.
Same time, we continue to you we continue to leverage our platform to source of opportunistic investments that are extremely proprietary to b Riley the.
The strategy has delivered value not only to us, but to our partners and shareholders and we are seeing more and more of these types of opportunities than we ever have.
As we continue to invest in further enhancing our platform we're.
And just on the lookout for complementary businesses that can expand our reach of market share.
A recent example of this is our acquisition of National Holdings, which are of continuing to integrate into our business. We're extremely pleased with this team of talented professionals and similarly, our new colleagues are appreciating the breadth of product that our platform offers.
Always banning of platform both of a key hires and acquisitions. We've also created increased synergies and cross selling opportunities.
Fortunately, our diversified business model continues to deliver for us and our stakeholders and we believe there will be more opportunities for us to capitalize on the near future.
We're often asked if there are any gaps on our business and asset management.
And that's been the build out of fixed income continues to be a key focus for us as the natural complement to our existing businesses.
We will continue to take advantage of market opportunities on our core segments, while seeking to establish additional recurring revenue streams that are both non correlated and counter cyclical.
Taken together our platform strategy has allowed us to build a solid.
Medici and lower of cost of capital, while enabling us to return $8.50 on common stock dividends to shareholders over the last 3 quarters.
As always our number 1 focus is performing for our employees clients partners and our shareholders and as we look ahead, we continue to see multiple pathways to grow shareholder value.
With that I'll turn.
On the call over to Phil on to discuss some financial metrics from the quarter Phil.
Thanks, Brian.
On the consolidated basis B Riley reported total revenues of $336.8 million for the second quarter, which represents the year over year increase of 26 per cent compared to 206 of $6.5 million for the prior year period.
The balance net income available to common shareholders was $73.9 million or $2.58 per diluted share. This compares to $82.8 million or $3.07 per diluted share in the prior year period.
Our second quarter results included operating revenues of $304.1 million, which was up 100 per cent year over year.
And the operating adjusted EBITDA of $92.1 million, which was up 97 per cent year over year.
Our strong operating results were further enhanced by our second quarter of investment gains of $32.7 million.
Which relate to both realized and unrealized gains in our investments.
In terms of our reportable segments capital markets.
It is our largest segment and includes our investments and operating results from investment banking institutional brokerage and our fund management businesses.
Excluding our investment gains operating revenues for our capital markets segment increased to 100 of $51.5 million per the quarter up 78% year over year.
Segment operating income.
The $4.7 million up 100 of 53 per cent year over year.
Our wealth management segment revenues increased to $90.3 million compared to $15.8 million in the prior year period.
The majority of of this increase was due to the addition of National holdings for the full quarter, which we acquired in February of this year.
Auction and liquidation revenues increased to $17.3 million up 100 of 90% year over year and segment income was $3.6 million.
Financial consulting revenues increased of $23.7 million of 26% year over year and segment income was $4.2 million.
Our principal investments companies now.
Magicjack.
Most of it online contributed revenues of $19.6 million and segment income of $7.3 million.
And lastly, our brand segment generated revenues of $4.4 million and segment income of $3 million related to the licensing of the brand trademarks.
As a reminder of adjusted EBITDA in our metrics for operating and investment results are non-GAAP financial.
Measures.
For a definition of these terms and for a reconciliation to the nearest GAAP measures. Please refer to our earnings release.
Additional details related to our operating metrics can also be found in the financial supplement to be located on our Investor Relations website.
Now turning to our highlights from our balance sheet.
Jack in the entirety of B Riley financial had 297 million in unrestricted cash on cash equivalents of approximately 1 billion of net securities and the other investments owned.
$266 million of loans receivable net of loans participations sold.
At quarter end, we had total cash and investments balance of approximate.
At June 32 billion, which includes approximately $53 million of other equity investments included in our prepaid and other assets.
Net of debt B Riley financial as cash and investments totaled approximately $568 million at June 30.
In terms of other recent developments in June we closed the $280 million senior credit.
Facility comprised of a 4 year of $200 million term loan and an $80 million revolver.
And earlier this week, we completed the full redemption of our 7 in the quarter percent of senior notes due 2000 of 27 for approximately $125 million, including accrued interest.
These activities are consistent with our goal of.
The lower cost of capital, while augmenting our capital base as we continue to pursue multiple opportunities and seek to grow shareholder value.
To that end, we declared a total quarterly dividend of $2 per common share.
This includes our regular 50 cent quarterly dividend and a special dividend of $1.50.
The quarterly dividend will be paid on or about August 26th to stockholders of record as of August 13th.
That completes my financial summary, now I'll turn the call over to our co CEO, Tom Kelleher to share a few quarterly highlights from our individual operating units Tom.
Thanks, Phil and I'd like to start by recognizing the on.
Efforts and dedication of our people. Our continued success is due to the exceptional team of professionals across all of our operating groups.
In terms of highlights from our individual businesses, our strong quarter was driven by several significant investment banking transactions, including what we call platform deals or those that involve multiple parts of our business.
As Brian noted capital markets momentum contributed to the quarter with particular strength in our ATM and snack businesses.
We continue to see an ex pension.
You mention in the number and types of companies the slip B Riley for the capital raising needs B.
With our ATM group oriented more traditional form.
And while the spec market saw a pullback during Q.
Due to our spec business continues to be robust with several of our issuers actively pursuing targets as well as multiple new mandates in the pipeline.
A few noteworthy transactions completed during the quarter include a $310 million common stock debt and preferred solution for synchronous technologies of $300 million.
The follow on equity offering for Telus Corporation, leading.
Leading the AMC entertainment is $587 million at the market offering in June.
2 separate private placements totaling $105 million for stronghold digital mining, whose S..1 was publicly filed earlier this week and $100 million preferred stock offerings for Babcock and Wilcox.
In other parts of our institutional broker dealer division 6.
Securities lending and saw strong performance during Q2 with a focus on the transportation software technology special pharma and therapeutic sectors are spot trading desk also continues to be active with the high level of new issuers coming to market.
And equity research.
We added 3 publishing analysts in Q2 proactively entering new verticals in gaming and crypto currency and expanding our healthcare team we.
We remain committed to our research roots and continue to invest in resources to help our clients and partners best capitalized on proprietary small and mid cap investment opportunities.
The that N next month, we will be hosting an investor conference in Santa Monica The connect our research company management teams with many of the country's best institutional managers. This event marks our return to in person corporate access, albeit in a much smaller format and in compliance with the CDC guidelines.
Turning.
Management Q2 was the first full quarter since our acquisition of National Holdings as Brian noted, we continue to be extremely pleased with the quality of this team and its professionals at.
At the same time revenue generation from our legacy wealth business also continues to be strong.
On a combined basis, our wealth management affiliates overseas.
The approximately 32 billion in client assets.
As we continue to work towards fully integrating our wealth management affiliates and enhancing our client service offerings recruiting remains a key focus.
Earlier this week, we announced the opening of a new branch location in Virginia with a new group of advisors joining the firm this.
On a 12 French stands to enhance our long standing presence and relationships in Virginia in the greater mid Atlantic region.
With our platform's continued growth B Riley, who has become a leading choice for top advisor teams looking for differentiated solutions to best serve their clients needs.
Turning to the financial consulting revenue.
This new brand and momentum in our advisory services Division continued in Q2.
We've had success, adding new service lines to our broader advisory business with the most recent additions being of risk and operations management group.
Our compliance risk and resilience team was formed in January and has already contributed meaningfully despite being with the firm.
For a very short time.
This has been a synergistic addition to all of our service lines of cyber risk management business continuity in the I T disaster recovery remain in high demand for customers across our enterprise.
Overall, our advisory business continues to perform steadily while also serving as the leading source of internal referrals to other.
The growth of our platform.
And we are continuing to seek new hires in comparable the complementary businesses that can enhance our reach and lines of service.
And retail liquidation.
Activity remains slow compared to our previous record levels. Several of our recent engagements have been primarily focused on existing client.
Other partnerships.
As the fundamental shifts in traditional retailing continues to accelerate we believe we are well positioned as purging of excess inventory and store lease rationalization will continue to be in the focus for retailers in the years ahead.
And our real estate division during the second quarter, we completed the sale of of retail property in northern.
On it really hard, though and the sale of Remington 800000 square foot manufacturing campus in Huntsville, Alabama, while continuing to work other ongoing projects.
Finally, turning to principal investments in our brand segments, Magicjack and United online continues to perform above expectations, serving as an important contributor of.
Recurring cash flow to our platform.
We expect to obtain the necessary regulatory approvals to complete the second tranche of our investment window in the coming months the.
The addition of Lingo should meaningfully enhanced results in the United online and Magicjack segment in future quarters.
And our brand investments business volume across all.
Brands has been strong following a period of pent up demand created by the pandemic the her.
The brand has been performing as the number 1 top spot in the specialty surfacing for 18 weeks in a row and Chris of more 1 of early sponsored athletes just 1 of the first ever Olympic Gold in women's surfing for team USA at the 2020 Tokyo Olympics.
Earlier this month Walmart announced the addition of the Justice brand collection of 2400 of its stores nationwide and to Walmart Dot com for back to school shopping.
With these exciting developments, we are optimistic we will see continued growth of our brands business from the remainder of 2021.
Finally, our principal investment team is managing several.
Minority investments as we continue to seek additional opportunities to enhance our recurring cash flow and.
And maximize the return on our capital.
In summary, and in echoing Brian's comments on the top of the call. We continue to be confident and excited about our business. The success momentum and growing recognition of the platform has been very gratifying. However.
We know there is always more to be done with that we'll now open the lines for questions and then turn the call back over to Brian for closing remarks.
Thank you we will now begin the question and answer session of the wish to ask a question you May press star 1 on your Touchtone telephone to.
The other question Sir.
Sort of tone acknowledging a request from sure.
Moving on speaker phone, please lift the handset before pressing on key chairman.
If you remove yourself from the questions through the night Press Star 2.
If he would like to ask a question at this time, Please press star 1.
Well I'll pause for a moment of callers join the queue.
Yeah.
The first question kind of from Sean Haydon with Charles Lane Capital. Please go ahead.
Congrats on another great quarter.
Thanks, Sean.
Real quick on the wealth management, the operating income were there any 1 time items in the quarter.
That we should be aware of.
So you want to answer that.
Yeah, the only thing was sort of extraneous.
This is below the line, we did so because of that.
The forgiveness of a.
The PPP loans that they took out but that's certainly below the line so nothing extraordinary outside of debt.
The.
That's all I got so again congrats on the.
So they would talk to you next quarter.
Great. Thank you for your support.
The next question comes from Brian Hoffman with boss.
Austin Partners. Please go ahead.
Oh, good afternoon, and thank you for taking my question or questions.
First question I had was a fall.
Following up on the the previous persons.
Query on the wealth management business first of all of them either.
I'm just looking at the release.
Year over year goes from 15 million to 87 million almost all of that is the acquisition.
Yeah, Yeah, the vast majority.
Does the acquisition okay.
Okay and then.
I had the same general question, which was it shows up that that business wealth management lost almost $4 million on operating income.
What what sort of operating margin do you think it normally should op.
Operate at.
So you want to you want to start and provide a little bit more clarity on the on the operating income with the with those 2 divisions together.
Yeah sure.
Yeah, obviously, we're still going through some integration of the way with.
With the National I think in general.
When we acquired wonder like it did take.
Several quarters too.
You know to get the operational performance in and around where we wanted it to b.
Okay.
Yeah. So I would you know there is there there is some time that's going to take.
Take place, but I think well I'll, let Brian sort of speak to the integration yeah, but yeah. So I would say.
When we look at the business is.
If you look at the the Bureau.
We're out of the wealth business, which was chugging, along and roughly $70 million to $75 million that business has got itself up to like 15% EBITDA margins.
The national is going to be low or is it because they've got an independent aspect to them. So they're a little bit lower margins, but that 202 hundred $40 million should be like 10% EBITDA margins.
And then we should be able to get another $10 million on synergies. So you can just do the math there now that's probably a year out.
But those of the kind of numbers, we expect once we're fully integrated and we're starting to see a lot of.
And a lot of progress towards that and we're also seeing a lot of other benefits. So we are we are seeing.
And the B Riley wealth management.
The retail team committing more and more capital to our deals on providing us more.
Bullets when we go out of you bought deals and things like that so we're really happy with the with that investment and the integration so far.
Okay.
The mats at what you're saying is that.
The benefits of the deal will become more apparent.
Down the road.
Correct correct.
Yeah. There was some there was some 1 time things in there and yeah. I think you will see the benefits of the deal.
Every.
So we will see incremental benefits to the bottom line, but also.
Just to the business I mean, I can't I can't overstate, how important it is to be of half.
Increasing the distribution, particularly on our equity and debt deals. That's the that's a really big advantage for us when we are backstopping deals and know that.
Quarter, you know wealth management group is therefore, you know a chunk of that as well as obviously, our institutional distribution, but you will see the the quantity of benefit every quarter.
Going forward.
Next question she can't be an invest from bank public investment Bank and reported earnings without talking about.
Ah you're your backlog and some of your brother and I've talked about.
A little bit of a slowdown in on investment banking, particularly capital raising.
Particularly in the spec space can you can you comment on your experience.
Yeah, I mean, we raised <unk> last carnival, we've already raised 1 this quarter I think we'll do 2 or 3 this quarter.
But in terms of specs of we've underwritten better out either have signed deals on looking for deals.
So we had an all time high and so there's a lot of backlog there as you know we have not recognized.
When 1 of the deal's been announced but not closed we recognize the the remaining fee when that closes. So there's there's some backlog there in terms of general capital markets.
We have not seen any slowdown on our backlog as the stronger than it's ever been.
Probably stronger now you know it's.
If capital markets some of those windows open and close.
And they don't all of them for a long time, but but barring anything that I would say that.
You'll see on our debt, obviously, there's there's meaningful market share gains.
But we're really busy and I think we will will.
We will continue to be busy and we will continue the print a lot of deals as long as the markets.
Continuing to be fun.
Alright, that's great. Thank you for taking my questions.
Thank you appreciate it.
Once again, if you would like to ask a question at this time, Please press star and the Y O y.
Posture of the moment of callers join the queue.
You.
The next question comes from Paul Dwyer with Punch any assistance. Please go ahead.
Yeah.
Hey, guys good afternoon, and thanks for the time today.
Great Paul.
Hey, maybe to start your comment about the steady state business.
Being about $135 million this quarter could you just.
Elaborate on kind of how you think about the steady state business is growth overall, and the kind of overall level of profitability of that.
The firm.
Sure.
I would you know I think we're around.
On the 125 million annualized EBITDA run rate on that how the business.
Some of them is growing so you know you've got you've got the old the the advisory business, which we always called the old glass Ratner, you'll remember when we acquired them on appraisal.
Some of is declining which is we can always still on the United online.
You know somewhat flat.
Both of these growing with them.
Debated on which is the brand side of the business. We commented on on Herley and Justice, but also the other 6 grams and still think the bounce back meaningfully. So you put all of that together.
No I think you have to think of that of steady EBITDA on steady revenues.
On assets, we acquired at multiples well.
AD lingo, which will provide another 15 ish million.
Year on EBITDA, 2.2 lots of law on the 80% of that business when that gets approved that's not in our numbers currently.
So so you know the way we think about that is that pace.
You know a lot of our a lot of our interest pays a lot of our overhead and allows us to you know of.
Have these these other type of.
The product and you know, we always say the bulk of those episodic obviously its not nearly as episodic as the liquidation business. It's you know, it's but that's how we think about it. So so what I'm really happy with that side of the business.
Continue to try and find interesting opportunities that are you know, they're not bake offs of proprietary to us when you usually moving really quickly we of the infrastructure in place to run.
Run those those businesses and I think it's just a great way to manage.
Of the more.
The cyclical sides of our business to have that study.
The smoking.
Yeah absolutely.
And.
Just what does the pipeline look like in terms of our.
Non auction deals are that the principal investments team can b I'm looking at today and what kind of size of deals are in the pipeline.
Cash flow of Huh.
I would say 4 of 5 vehicles that are kind of actively being discussed and they're all in the.
25% to $75 million kind of level you know those.
Particularly if the kind of fit with them, what we're doing whether it's on the telecom side or those are.
No those are.
So the acquisitions that you just don't have a lot of competition, especially with the flat businesses.
And so you know our our EBITDA multiple of requirements from buying houses isn't of studies.
Whoa Whoa.
On a well ultimately almost of 3 to 5 times.
Yeah, I think the.
On the hard you get the more active you get the more you see the.
The deals are becoming the go to group, but with those kind of deals. So we're seeing we're seeing a fair amount 1 thing gigantic, though I would say you know justice was the meaningful purchase for us lingo of the decent sized purchase clearly was meaningful last year.
But but nothing.
Super large.
Okay great.
1 follow up question on the on the capital market side can you just.
Spend a little time of reminding me on kind of on the fixed versus variable cost structure of that business and kind of how you think about.
Protecting on the downside in the case of capital markets do slow down a bit although it doesn't sound like you're seeing that yet.
Yeah. So.
Our breakeven and it's been the same for the last 2 years. So you could say that's good or bad like what you know why aren't we growing more of why don't want you're adding more overhead to walk to the capital.
The market side, and I would say to you that we had been doing this for 25 years. Many of the people that manage our businesses here have been you know some of them. Obviously I've been here the 15 plus years and we are positioned right and so we added 3 analysts last quarter I think we mentioned that but we are a.
So maybe this is because it started out in the private companies on the left the amount of capital B from firm.
What day, lower fixed overhead and a higher variable and so on.
In times of good you can look at that and say boy I wish you paid salaries and bonuses because you've probably got a little bit more of that Martin 1 times of tougher year.
Happy about that but we look we love the fact that.
The vast majority of our bankers and our salespeople are making more money than they ever did.
They deserve it they are the you know the engine that drives all of this and you know that variable model of the way. We've always lived them. So we will stick with that.
From time, you know I. It blows me away that we are doing.
The million dollar ish kind of quarters with the same people that we've had here for a long time and adding other valuable people, but I just didn't get some because of real testament to the quality of the people we've had here.
Yeah, Okay perfect.
But it is the last question is then.
On the on the balance sheet side.
What else are you thinking about over the next 2 or 3 years here in terms of our opportunities to lower your cost of capital.
Yeah.
Well that's.
That's a tricky question because you know we have done on the baby bond.
Just bond market way right I mean, we just loves.
We just loved the product for US. It's you know, there's it's unsecured debt.
Obviously, just added a $280 million facility with Nomura.
On a rate in the fours.
The most recent.
Bonds of 5 in the quarter.
You know I don't I. My guess is that you know as we continue to get into the fives with you know of baby bond issuances of take out some of the sevens.
I feel really good about that cost of capital now I understand we're not of bank no. We don't have.
Some.
Some of the we don't have sort of some of the same benefits of that others have we don't have deposits but.
No the the the.
NIM that we get when we put our money out to public companies and you've probably seen some of those transactions you know you're talking about 7.800 per cent with fees.
We like the lower and lower and lower yes, but we feel we're really.
We're excited about getting it into the low fives and we will continue to just kind of.
The aggressively can we get the lowest rate we can get.
Yeah Okay.
Well that's it from me you know nice nice quarter again, and I appreciate all the hard work.
Thank you. Thanks for your continued support.
The question and answer session I'd now like to turn the call back over to Mr. Riley for his closing remarks.
Yeah.
Well, thank you everyone and thanks for joining us and I know, there's a lot of.
People from the firm on this call and I said it you know in the commentary, but all of this is the testimony.
The only to the people that are here and the team that we built and Super thankful and appreciative and excited to continue this growth and you know the and report back next quarter. So thank you and look forward to talk in 90 days.
Thank you that's all of them.
Good.
Thank you before we conclude today's call I will provide b Riley financial Safe Harbor statements.
Which includes important cautions regarding forward looking statements made during this call statements made during this call about of B Riley financial future expectations plans and prospects and any of.
Statements regarding matters that are not historical facts may come may constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Investors should be aware of that any forward looking statements are subject to various risks and uncertainties that could cause actual results.
Others differ materially from those just got the true today.
These risk factors include the unpredictable and the ongoing impact of the COVID-19 pandemic as well as the other risk factors are explained in detail on the company's filings within the Securities and Exchange Commission. Please refer to these filings for a more detail.
<unk> 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 future events or.
The sky. Thank you for joining us today from B Riley financial second quarter of 2021earnings conference call you may now disconnect.
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