Q4 2021 B Riley Financial Inc Earnings Call
Good afternoon, and welcome to B Riley Financial's fourth quarter and full year 2021 earnings call earlier today B Riley issued a press release and presentation detailing its financial results for the fourth quarter and fiscal year 'twenty 'twenty. One copies are available in the Investor section of the company's website at IR.
B Riley F N dotcom.
As a reminder, this call is being recorded and the audio replay will be available on the company's Investor Relations website later today.
Joining us today from B, Riley or Brian Reilly, Chairman co founder and co CEO .
Tom Kelleher co founder and co CEO .
And so upon C F O N C O O.
After management's remarks, we will open the line for questions.
And before we conclude today's call I will provide the necessary cautions regarding forward looking statements.
I will now turn the call over to Mr. Bryant Riley.
Mr. Riley.
Please proceed.
Thanks Welcome everyone. We are pleased to report an extraordinarily successful quarter for B Riley financial 2021 was an important year for us strategically operationally and financially the fourth quarter capped off another record year for B Riley, where we generated total revenues and total adjusted EBITDA in 2021 of one point.
$7 billion and $762 million, respectively, representing a 93% revenue increase year over year, and 87% increase of our adjusted EBITDA.
During the same period operating revenues totaled 1.35 billion, resulting in operating adjusted EBITDA of $422 million. This translates to a 70% increase in year over year operating revenues and a 35% increase in our operating adjusted EBITDA.
In 2021, our investment banking division delivered extremely strong results. Thanks to a robust pipeline of activity as we leverage our growing reputation as a preferred banking partner to small and mid cap companies.
In total B Riley Securities raised nearly $7 billion across IPO underwriting follow on underwritings spec, new issuances and debt raises in 2020 one.
Over the last three years be rally Securities has gained meaningful market share expanding our product offerings in our brokerage businesses earnings. However, I wanted to take a moment discuss what we believe is a significant competitive advantage and an important differentiator for our shareholders and team members in view of softer capital markets.
As you are likely aware ipos secondaries and stock offerings have effectively come to a halt over the last two months what.
While it is impossible to predict how long these markets would be closed I want to briefly discuss why we believe this slowdown will highlight our diversified business model and commitment to managing operating expenses when.
When we took the business public in 2014, B Riley financial effectively consisted of two cyclical subsidiaries B Riley Securities our investment banking business, which we expanded through acquisitions, including FBR in 2017, and most recently focal point last month and Great American group, which is primarily a retail liquid.
Asian business.
Since that time, we've added we've added to our collection of operating companies by protesting for telecom and communication assets, two wealth management businesses forensic accounting litigation support restructuring business, our portfolio of retail brand licenses of loans receivables portfolio and several smaller complementary asset.
Yes.
All of these purchases were opportunistic in share the common characteristic of being cash flow generative and mostly uncorrelated assets. This was by design.
In addition, we have used our cash and investments of over $2 billion to create an investment portfolio that consists of public and private debt and equity securities in businesses, where we have deep conviction in capital appreciation medium to long term investment horizon and are often taken board level involvement.
Nearly $800 million of this portfolio is dedicated to interest bearing investments and generates approximately 85 million of annual income.
This income goes a long way in servicing our interest and servicing our clients, while utilizing approximately a third of our balance sheet.
It is important to put this in perspective, when you're at a conservative view of the cumulative annual EBITDA generated from these strategic assets to a significant interest income stream one could assume that if we were to derive derive almost no income from our B Riley securities business, a business that generated operating EBITDA of $51 million 111 million.
And $272 million in 2019, 2020 , one respectively. We would still have enough enough cash flow to pay a full $4 annual dividend, which equates to approximately a 110 million excess cash after payment of interest and taxes.
Our objective is to utilize a proprietary opportunities that are part form offers to make these types of investments with the goal of continuing to provide a hedge against the market decline and an opportunity to regularly increase our dividend.
Despite this robust cash flow from our subsidiaries, we diligently maintain our focus on expense control over the last three years, despite revenues related to our B Riley securities broker dealer business more than doubling our breakeven levels for total revenues have increased by only 10%.
In summary, when I think about the earnings profile B Riley financial I believe we have struggled current cash flow with minimal correlation to the markets that allows us to confidently return $4 of dividends to shareholders every year plus a brokerage business will provide strong cash flow more correlated with the general markets. This was a key factor in our delivering $10.
In total dividends to our common shareholders for 2020 one.
Overtime, we will continue to focus on utilizing our cash flow to enhance our business make accretive acquisitions and to return capital to our shareholders.
With that I'll now turn the call over to Phil on our CFO and C. E. C O L who will provide more context around our quarterly metrics and then Tom color <unk> CEO will discuss some highlights across our operating units.
What are you Phil.
Thanks, Brian It's Brad.
I had noted we reported a very successful fourth quarter and record results for the full year ended December 31 2021.
For the fourth quarter on a consolidated basis B Riley reported fourth quarter total revenues of $422 million up 3% from the prior year period operating revenues were 353 million for the quarter or year over year increase of 31% primarily related to the acquisition of National Holdings.
Total adjusted EBITDA for the fourth quarter was 138 million and operating adjusted EBITDA was 106 million net.
Net income available to common shareholders was $62 million or $2.08 per diluted share in the fourth quarter.
For the full year of 2021 total revenues were $1 74 billion up 93% from the prior year period.
Total adjusted EBITDA was 762 million, an increase of 87 per cent compared to the prior year period.
For the full year net income available to common shareholders was approximately $438 million or $15.09 per diluted share up from $200 million and $7.56 per diluted share in 2020.
Operating revenues for the year were 1.35 billion a year over year increase of 70%, while operating adjusted EBITDA was $422 million up 35% compared to last year.
Increases in operating EBITDA was primarily related to a strong performance from our investment banking business and our acquisition of National in 2021.
Turning to our reportable segments in the fourth quarter, starting with our capital markets, which includes our investments in operating results from investment banking institutional brokerage and fund management.
Excluding investment gains our capital markets segment operating revenues in the fourth quarter.
So the 177 million, which represented a decrease of 2% year over year.
Segment operating income was $87 million, which was down 14% year over year, mostly due to the comparison to a particularly strong fourth quarter in the prior year as a result of several spec transactions.
Turning to our wealth management segment revenues and segment income increased to $105 million and $6 1 million respectively.
The increase was primarily related to the addition of National Holdings, which we acquired in February 2021.
Auction and liquidation segment revenues were $5 7 million and segment loss was $2 7 million.
Results from this segment were impacted by a slower retail liquidation environment in the latter part of 2021.
As stated on prior calls results from this segment tend to be variable due to the episodic nature of large retail liquidation engagements.
Financial consulting segment revenues and segment income totaled $27 9 million and $6 6 million respectively.
Our financial restructuring advisory business during the quarter was partially offset by lower activity in our real estate consulting business.
The principal investments communications companies Magicjack, United online in Marconi Credo contributed revenues of $33 9 million and segment income of $5 8 million. These companies continue to provide steady cash flows from our platform.
And lastly, our brand segment continues to make contributions to the overall B Riley platform, having generated segment revenues of 5 million and segment income of $3 6 million related to licensing of brand trademarks.
For the full year, our capital markets segment generated operating revenues of $698 million in segment operating income of $344 million up from 2020 segment operating revenues of $422 million in segment operating income of $207 million.
Wealth management generated segment revenues of 382 million and segment income of $16 million up from 2020 segment revenues of $73 million and segment income of $3 million.
Our auction and liquidation segment generated annual revenues of 74 million and segment income of $8 million segment results were down from prior year segment revenue of 89 million and segment income of $26 million.
Financial consulting revenues for the year increased to 94 million up from 92 million in 2020.
Segment income decreased to $16 9 million down from $22 8 million for the prior year.
Our principal investments communication segment companies generated revenues of $93 million compared to 87 million in the prior year segment income for the year was 27 million compared to $33 million in the prior year.
And finally, our brand segment contributed licensing revenue of $20 million for 2021 compared to $16 million in 2020 seconds.
Segment income for the year was 14 million compared to a segment loss of 2 million in the prior year.
As a reminder, adjusted EBITDA in our metrics for operating and investment results are non-GAAP financial measures. Please refer to our earnings release for a definition of these terms and for a reconciliation to the nearest GAAP measures.
Investors can also find additional details relating to these metrics and related reconciliations.
Natural supplement to our Investor Relations website.
Now turning to some highlights from our balance sheet.
At December 31, B Riley financial had approximately 279 million in unrestricted cash and cash equivalents $1 5 billion in net securities and other investments owned and 873 million of loans receivable.
At quarter end, we had total cash and investments balance of approximately $2 6 billion, which includes approximately $40 million of other investments reported in prepaid and other assets.
Net of debt B Riley financials cash and investments totaled approximately $6 6 million at December 31.
We declared a fourth quarter dividend of $1 per common share, which will be paid on or about March 20, <unk> to common shareholders of record as of March night.
Upon payment of our fourth quarter dividend, we will have returned a total of $10 per share in common stock dividends to our shareholders related to the fiscal year 2021.
That completes my financial summary, and now I'll turn the call over to our co CEO , Tom Kelleher Tom.
Thanks, Phil the fourth quarter ended in another record year for B Riley as we continue to expand our diversified business.
This past year, our firms saw many accomplishments as we added critical complementary practices brought on industry, leading talent and continue to execute our strategy amid an unpredictable and challenging environment.
Among the initiatives currently underway include the integration of National Holdings, and its 1000 personnel, which is due to be combined with B Riley wealth in Q2 of 2022.
The addition of a compliance risk and resilience consulting practice and our advisory group.
The addition of Wes Cummins to not only continue the management of its 270 Tucson, but to also hit up the expansion of our asset management group.
The addition of Tim Sullivan to lead the expansion of our fixed income practice like materially adding to both our personnel and product suite.
And most recently the addition of focal points securities, which significantly increases our M&A and private capital markets capabilities.
Our philosophy and diverse business platform remain in our view a key differentiator for B Riley compared to the competition. This.
This has enabled us to add experiencing industry, leading professionals across our business. Despite a tight labor market.
It was also a contributing factor to why we were named number two unfortunately.
Fastest growing companies of 2021.
Now I'd like to make a few comments about last year's fourth quarter.
Brian noted activity investment banking was strong across all of 2021.
In the fourth quarter, we completed a number of capital markets deals, including the destock as far as Spartacus acquisition Corp, and its merger with next NAV, the IPO stronghold digital mining.
And $150 million notes offering for fossil group.
These transactions along with our recent acquisition of M&A specialists focal point demonstrate the full suite of investment banking offerings to B Riley's able to bring to our clients.
In wealth management, our legacy business B Riley wealth and our recently acquired National Holdings continue to work together to share best practices and create operating synergies between two platforms.
Which combined assets under management of approximately 33 billion. We continue to be excited about the growth potential and stable cash flow that will be generated within the combined business.
In our auction and liquidation segment performance in the fourth quarter was impacted by a historically slow retail liquidation market in the United States.
Well domestically slow the group has enjoyed a higher level of activity in Europe .
We've stated before and are earning earnings calls the retail liquidation business is episodic in nature.
Very from quarter to quarter.
In our real estate group, we closed on the sale of Midtown apartments, a 310 unit 589 bed new construction student housing development at the University of Florida.
Yes, it was solely a 363 sale process and the $104 million sale price was one of the strongest per unit student housing prices achieved within the past five years.
We were also retained two market a sale leaseback of a 42 property portfolio on behalf of home furnishings retailer W. As bad Cop Corporation.
Our advisory services business, which includes our legacy glass Ratner financial consulting group and legacy Great American appraisal Division.
To perform consistently and generate referral opportunities across the platform.
Our financial restructuring business has remained very active in taking market share in this particularly challenging environment, where corporate bankruptcies had been at a 10 year low.
Given the strong performance in this difficult environment, we are optimistic of the.
The future prospects for our restructuring team as a more normal bankruptcy environment returns. Furthermore, we continue to expand our offering in our advisory business with services such as cyber security consulting practice that I mentioned previously.
Our principal investments business, including Magicjack and United online continues to perform above our expectations, while providing cash flow to our platform in the fourth quarter, We acquired Credo mobile and added the company to our principal investments communications platform Credo mobile as a virtual mobile phone operator based on the West coast, providing services to 80.
Thousands of subscribers, we anticipate the accretive will add another source of stable cash flow to the firm.
Yeah.
Lastly activity in our brand investment business continues to improve as volume levels continued to recover our brand business has been very successful for B Riley in generating substantial uncorrelated cash flow.
It is worth noting that there has been some recent investment activity and the brand space, including investments in authentic brands by funds led by C. D C and H B S. At significant valuations. We've continued to be excited by the brand space and its ability to deliver returns would be Raleigh shareholders.
Yeah.
Switching gears to some governance matters I wanted to highlight that we expanded and strengthened our board of directors. This past year with the appointments of the name of the brand and Tammy brand Rene is a longtime venture capital executive with expertise in media consumer goods and business service choices well tell me, it's been an executive of multiple digital media and technology companies.
Both Renee and Tammy had been remarkable additions to our board as they bring their respective expertise to B Riley.
We've mentioned that their addition reflects the firm's embracing of a larger ESG initiative, while we like to think that we have always been progressing with our supported charities like sugar Ray Leonard Foundation in Toledo, and encourage me to have some internal programs like the B Riley Women's network. We can always do better. So that we have formed a dedicated task force to consistently and continue.
Obviously strive to make the firm better in all respects.
I would like to close out by echoing Brian's sentiment at the top of the call we.
We have taken steps over the last few years to grow B Riley into a diversified platform capable of generating revenue and cash flow from multiple business lines.
2021 has been another record year for B Riley and we will continue to invest in talent and complementary businesses to perpetuate this strategy.
Looking forward to the year ahead and building the value, we deliver to our clients and our stakeholders.
And as always is with the talent of our many remarkable b riley's professionals that we have been able to generate the type of success. We have had this year I'm.
And so I want to thank all of our B Riley team members, who have demonstrated their commitment and flexibility another tumultuous year to help deliver record results to our shareholders.
With that we'll now open the line for questions then turn the call back over to Brian for closing remarks.
We will now begin the question and answer session.
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We will pause for a moment as callers join the queue.
Our first question comes from Sam Sheldon with Punch <unk> Associates. Please go ahead.
Thanks for taking my questions, maybe you could start by talking more about the vocal point deal and specifically how you can leverage their expertise across multiple areas within the B Riley platform sure.
Thanks Sam.
So focal point has is an exciting transaction for us for a number of reasons.
Focal point.
Office is literally across the street from ours, we saw.
Their team build their business from from scratch when they started about 20 years ago.
We have talked to them a number of times and really a.
Watched them grow and build a relationship and so when we had an opportunity to combine forces I think we are both incredibly excited about what that brand. So vocal point strength is M&A.
I think if you look at B Riley financial strength that is it just capital markets in both debt and equity.
Focal point has has mostly worked on private equity type of companies or private companies where our.
Our strength is on public companies and so we have these incredible relationships with public companies, where we've often been there prime banking source their prime capital market source adviser, but we have not been a go to on the M&A side. So we brought in.
A bunch of professionals that with tons of experience firsthand experience.
Experienced building their own firm understanding what all of that takes in.
And the hustle that goes with that to be able to leverage off of those relationships and then Conversely, although a lot of those companies that are public went out relationships with haven't had the same type of public markets relationship. So whether that means you.
Helping them think about going public or selling to a public company I was thinking about ideas. It really is a perfect fit so and then culturally. We think you know we've spent a lot of time with them. Their team. It's a very similar culture, where you have to go to companies that were really started by a very small group built up over a long period of time.
<unk> and became kind of respective leaders in there in their segments. So I think it's I do think it's a classic example of one plus one equals three.
Yeah, Yeah. It does sounds really interesting and with this acquisition, how does that change that breakeven levels for the capital market segment I guess.
How much has been added to the capital markets team now over the last two years and how do you think about protecting the downside with activity slowing recently, so you know like us. They they started a focal point started.
With all the money they can probably put together to start a business. So they don't lose money.
That's a that's a I guess a granular statement, but I can just tell you that they run their business in a similar way that we do which basically means you you're managing costs for downside and you kind of overpay and upside and you have a little bit more of a variable model. So the the fixed expense.
I'll tell you honestly, Sam I have thought a lot about it because this is this is going to be a profitable business from the get go and would be very very difficult and even in the cobot periods. They didn't really lose money. So I think it's just going to be additive having said that you know there are.
There.
The thought is like a.
The glass Ratner, which we've talked about before where we brought in a group that started their own business and.
We're able to leverage off of our infrastructure I think we've increased their business by 30% just from referrals. So I think it's going to be far more than just the revenue out it's going to be you know a lot of incremental opportunities.
Okay, Great. That's helpful and Brian you mentioned market share gains in your prepared remarks, I'm interested in hearing how much of that.
Capital markets growth that we'd seen over the last few years here you attribute to market share gains versus.
Just a surge in capital markets activity.
So I I.
I don't have my league tables on me, but I will we will send them to us broadly.
Speaking in small cap markets follow ons and Ipos.
I think it's defined as a billion and a half we've gone from and this is going to be I'm going to be off a little bit Sam but in general from 19, I think we were 15th 20 of them were seven and then 'twenty. One I think we were second so we'll send those to you, but there's clearly been market share gains.
But to do on the same pretty.
Pretty much doing the same thing our whole careers have been around small cap markets for 25 years, we've built some great relationships and we've stuck to our knitting, so, but we'll get we'll get you the specifics of that.
Okay, great great to hear that's really significant my last question is just about the auction and liquidation business, which we haven't heard as much about recently, maybe you can just update us on what youre seeing on the auction and liquidation side with.
With the pipeline there.
Yeah. So.
The auction group has done a very good job of finding opportunities and then you know maybe $8 million EBITDA in 'twenty, one despite no very little domestic business they've been all most of that business is done in Europe .
That group is.
Positioned to take advantage of any dislocation on the Brexit Mark excuse me in the.
And retail in general and our and I think there you know we always see retailers overbuild of every time and Scott Carpenter runs. His division tells me. This all the time and over the course of the last 30 years when he's been in this business you just have retailers overbuilt and you know I think they're going to be ready for that.
The good news is that group is it's not a it's not a large group that you're talking about a professionals that also help in other ways, whether it's an appraisal and in capital markets. If we need some advisers around retail. So it's yeah that business is ready to go if you start to see some deterioration in the economy, which ultimately tends to happen is as companies over.
Bill, but but very slow domestically right now.
Great. Thanks for taking my questions. Thank you.
Our next question comes from Keith Rosenbloom with cruiser capital. Please go ahead.
Thanks for taking the call guys.
Okay.
Hey, Brian .
Hoping you could put some of the business in context, you've mentioned in the press release on focal point that you hoped it would do four times.
Your existing M&A operating profit I think I said that correctly.
Could you give us a sense for what that means in terms of.
When that might happen, what youre thinking is of that for asking what the starting amount is and what the ending huh.
My mouth is.
I think when you look at the M&A advisory business on a combined basis. After the after the trial pro forma for the transaction you're talking about a business that is on a run rate of in and around $120 million.
And.
What are the combinations brand what is the size, Brian one of the opportunities bring as you know.
And I know you've looked at this quite deal, we do have them and advisory business, but and we have some great M&A bankers, but we've look we've been a capital market shop.
Our strength and so there were three areas that we thought needed to really be addressed and could we could really leverage from what we bill M&A was a big one asset management was a big one in fixed income and credit was a big one and so we've got all of those pieces in place and the M&A side I truly.
We believe that there are a lot of public companies that have had relationships with us for many many years that.
If they could have RFA.
If I had the opportunity because we have the ability to service them in a particular segment would've hired us and we just you know we've been really straight at greater capital market. So so that frame the size of that business for you.
Thanks, just a couple more questions on that in the capital markets revenue line what percentage of your revenue has come let's say in 2020 one came from underwriting fees specifically.
Bill do you have that breakdown.
Let's see here.
Don't have that off hand, Keith we can follow up with you.
Okay.
Okay, Yes.
I want to say, it's it's it's venturing north of 300 for the year.
Okay.
And then also in terms of perspective could you let us know what was the number of companies that are currently in the.
F B R B Riley research universe.
Mid four hundreds.
Okay.
And lastly, you mentioned that you were you were in the league tables, just now in the Q&A.
Your dividend yield is now six 7% as of today, that's excluding specials.
And when you look at other investment banks like Jefferies Cowen and Piper that that's a real outlier when youre paying more.
Multiples more in terms of the dividend.
See as your peers is your public company peers.
You know, it's it's funny, we had this conversation on our board meeting yesterday and one of the things that I said to my board is that you know.
Theres not a lot of companies that have the flexibility to take advantage of the opportunities that we do and maybe that's partly because we founded the company and we we grew up for many years before we went public and our board saw that I think a lot of our.
Competitors, probably are hindered or not hindered but are a little bit more focused on just one segment of the call that the investment banking broker dealer side. So I don't know if theres a lot of comps to us I mean, I would say.
There's firms out there like a KKR, where they do have a broker dealer and they do have some advisory and they really utilize that but their main focus is is private equity where kind of the opposite we really lead with our investment bank and broker dealer and then we see.
It's every opportunities that we are willing to invest in and I think that differentiates us. So I don't I don't think a lot about our comps Keith I just don't I think it's.
Let's just keep grinding and building a business like we did in <unk> and not get stuck in any box of house.
How to present, the best on a piece of paper, but rather return.
$10.
He bought returning.
Capital to our shareholders while at the same time, we're building out our business. That's our that's our sole focus so you know.
I think we could go through a bunch of names you know Jeffrey we know Collyn and we know all you know all of the competitors, but I don't think there's anybody that takes advantage of the platform like we do.
Then I'll sneak one more in just.
In terms of returning capital to shareholders, which obviously you guys have had been terrific on in your press release today, you talked about a $50 million share repurchase program can you give us some color on what the timeframe is on that $50 million.
No not really I mean, we will be opportunistic obviously, we want to buy it.
Now at the right price for our shareholders and we you know if you if you do the math or if you will get R. R.
Last year, our insider buying I think there was buying at levels higher than these levels and so obviously, we think that our shares are interesting and opportunistic, but we don't have a set time level.
Great. Thanks, Brian Thanks, guys alright, thank you.
Again, if you'd like to ask a question. Please press Star then one.
To ask a question. It is star then one.
Our next question will come from Sean Haydon with Charles Lane. Please go ahead.
Hey, guys. Thanks for.
And my question here.
Sean.
So just to piggyback on that last question.
Yeah.
What is this new authorization kind.
Kind of in lease up of special or what was the thinking there are you guys seeing more opportunities to add through M&A.
Well are you talking about.
Some of the new authorization the buyback authorization.
That's just the incremental 50, yeah I mean, if you look at our Investor presentation.
And you go back to 2017, there has been a steady level of share buybacks and a steady level of an increasing level of dividend. So you know one of the beauties of being in the capital markets. As it enables you to proton was buy back you know some of your business that you know better than other.
Others or you know maybe returning some of that capital to your shareholders that would be really flexible about that so.
I wouldn't read anything into it other than you know we are opportunistic and we've always been opportunistic in taking advantage of dislocations, we see out there and.
But we've always had a buy but we've always had that opportunity on the buy on buyback. It's not like this is not the first time, we've done a buyback.
Okay, Yeah I got it.
And then on the operating.
Operating margin for capital markets can you just.
For modeling purposes can you just talk about the puts and takes there it looks like it went down you know.
Our hair, but I'm just.
Just wanted to know what kind of.
Modeling assumptions, we should add in there, but I'll, let Phil speak to this a bit but there are so many different dynamics that go into a capital markets deal.
So I'll give you one for example, if.
Yes.
Margin on a M&A deal might be a little bit higher than our capital markets deal.
Our capital markets deal that we do in house is a lot less if we're on the right and the left.
If somebody who is a executive as the producer in a transaction that margin is really high because we don't double dip. So for example by bringing a deal.
That's a really high margin.
So there's a there's a variety of factors another another one is in this.
Is it just the way the accounting works when we do it is back and we get founder shares in film just make sure I'm, saying this correctly, but those go to does go into the capital market side and they don't really have and that's a very high margin.
Business, because we're just getting issued founder share so.
And generally it can it can move around quite a bit but Phil anything you want to add there.
No I think I think you are right. It is there is a lot that goes out the capital market. So it can be difficult I think what Brian brought up is kind of the stuff that moves things, where we have some significant fees, whether it's a <unk> fee rate or certain.
Certain advisory fees that are very hard high margin and so that's why you'll see some variability there.
Not in general.
The way to think about our business in the capital market side is we have a we have a kind of a fixed nut and every incremental dollar over that should be somewhere.
Around 55%.
The incremental margin.
Got it and is it safe to assume that focal point will not right off the bat of course I understand there are you know integration costs, but you know at kind of steady state well that would be accretive to margin.
So so there won't really be much in the way of integration costs literally they are across the street and you know these guys know how to run their business and they're going to be additive. So you wouldn't see that.
Yes, they are.
Margin profile is going to be higher maybe in a little bit more traditional banking type of business, where there, especially in the advisory side, where they're they're upfront fixed cost will be higher and then the incremental margin will be higher so where we might have.
Little market bankers that.
Don't have as high of upfront cost.
I'm Gonna advisers, usually do and then incrementally the margins kind of off trend together and trying to like our margins does that makes sense.
Yeah, Yeah that makes sense.
And then my last question.
You know a couple of years ago, I think I asked you. If you have you know what holes you thought you had in your portfolio and you had mentioned credit as one of them and given we're kind of entering a new rate regime here.
Is that still something that you'd be interested in or something that you're thinking about yeah. So.
We've announced a couple hires there, but we've added a lot more we are investing aggressively in that business and Tim Sullivan, who was the president of Imperial before joining us and has a long career at firms like Lehman and Jefferies is tasked with building that out we could have built are built or bought in.
And we think we found the right person and the team that he's bringing on to build so you will see you will see that business growing in the next year aggressively but don't don't forget we do have a really meaningful baby bond business.
You know we've got some other elements of.
Private debt focal point has a really strong business of placing and helping companies with.
Private debt so that those capabilities will be added to ours, but that's a that's a big area of focus for us.
Got it and then sorry, just one last quick one.
Again for modeling.
National gained any benefit from rising rates during customer cash balances. Its you know I.
That always used to be the dream because obviously they have a you know a lot of cash on the clearing firm's balance sheet, but it's just you got to get to like three.
3% treasuries before it makes it gigantic difference, which 15 years ago. It didn't seem like a big deal, but for right. Now. So there is an incremental benefit but nothing that would move the needle meaningfully versus the kind of EBITDA we bring in.
Got it alright, that's all I got thanks, guys great quarter Alright, Thank you for the questions.
Our next.
She comes from Thomas hanging with US right. Please go ahead.
Hey, good afternoon, thanks for taking a moment for me.
Two questions. The first one is on.
The trading income and fair value adjustments on loans a line item so.
So I think I'm, not overstating and when I say, it's been phenomenal six or 700 million of revenues in the last seven quarters.
Could you give us a little bit more.
Uh huh.
Sort of.
Tell us a little bit more about the nature of what goes into that line item.
How much of it might be sort of principal transaction commissions.
From a stable.
Set up regularly.
Regular clients versus less clients modem opportunistic transaction revenues.
So.
Feels like maybe there's two questions in there. So let me just talking about the principal investment the philosophy around that and how that works, we we believe that.
You know our platform and we've talked about this in previous calls we are we have 2000 employees. We have you know a.
130 people in our advisory side over the last five or we do appraisals on you know a thousand companies. We have all the broker dealer relationships, we're going to see.
Proprietary transaction opportunities, usually usually that require speed and so we have taken advantage of those opportunities.
And put them on our own capital to work. We've also benefited from having relationships with with companies like franchise group, where we helped build that business bought out.
Liberty tax went out you know when when an insider selling at three years ago at a help them make I don't know how many acquisitions backstopped some of those acquisitions at the same time, we owned 3 million shares from eight to 40 something.
So we think that we can help enhance.
You know the companies that were around and utilizing all of these different skill sets. We have and then take advantage of opportunities as they come in and so we do not view our mandate as.
Let's go buy some IBM like that's not what we do we are everything we do has a proprietary component to it an unusually has a fee opportunities around it too. So you know in the case of a franchise group or other companies that we've worked with and we want to be able to add.
We wanted to take we want to take advantage of the fact that we think were helpful by owning some of their stock and then we want to be a provider of services for them as we partner with them. So that that's the nature of the principal investing that we do.
Okay.
And then.
Thank you for that my separate question is just.
You sort of talked about it seems like you folks are always on the hunt for an interesting investment.
But could you talk about sort of the pipelines of things you might be looking at within the principal investments or the brand segment.
Yes.
Oh that those airlines look relative to history is a lot going on out there.
So I.
I think because we've been so active we've been willing to buy assets that arent down the pipe kind of private equity transactions and when I say that let's go for as far back as buying United online a dial up Internet company our R. A magic Jack so so we often see proprietary flow.
Because we're willing to think differently and move a little bit quicker than we brought in and our and our principal investment group.
We brought in Dan Should've been three years ago from Anchorage, who has just built a great team to go out and take advantage of those opportunities. So the flow that we see.
It is significant and you know we've got to make sure that we're we're integrating them right and.
Some of them might be an initial investment that ultimately ends up into a bigger investment, but I would say there is no lack of opportunities for us to look at for a for a principal fund.
Great that was.
It for me thank you.
Alright, Thank you for your interest.
Okay.
Ladies and gentlemen, this concludes our question and answer session.
Now I'd like to turn the call back over to Mr. Riley for his closing remarks.
Well great. Thank you everybody I guess I would close by saying you know what the recent market dislocation. This is where we gain market share and this is where we find opportunities and this is often when.
We will find great people that might be looking for a more diversified platform or a change and this has always been the best time for us. So while you might take a little bit of short term pain in your principal investments or our underwriting might be a little slower. If you go back in time this is <unk>.
Really where we've been able to to make a big difference in our business. So that's you know that's a plan and we appreciate your support and obviously an increase at all our all of our partners that'd be rally that's helped make us grow and it was a terrific year.
And onto the next one so we will look forward to talking to everybody in a quarter. Thank you very much.
Thank you.
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