B. Riley Financial, Inc. (RILY) on Q1 2021 Results - Earnings Call Transcript
Operator: Good afternoon, and welcome to B. Riley Financial's First Quarter 2021 Earnings Call. Earlier today, the company reported its first quarter results in a press release, which is available on the company's investor website at ir.brileyfin.com. Today's conference call will include a discussion of non-GAAP financial metrics. For more information about these metrics and a reconciliation to the nearest GAAP measures, please refer to the company's earnings release and a financial supplement, which can be found in the Investors section of the company's website. As a reminder, today's call is being recorded, and the audio replay will also be available on the company's website later today. Joining us today from B. Riley are Bryant Riley, Chairman and Co-Founder and Co-CEO; Tom Kelleher, Co-Founder and Co-CEO; and Phillip Ahn, CFO and COO. After management's remarks, we will open the lines for questions. Bryant Riley: Thanks. Good afternoon, and welcome, everyone. I'll begin with providing a summary of the quarter and a high-level overview of the current state of our overall business. Phil Ahn, our CFO and COO, will cover key financial metrics. And then my partner and Co-CEO, Tom Kelleher will share more detail about our individual business units. We're pleased to report another strong quarter for B. Riley Financial. Revenues totaled $600.2 million with total adjusted EBITDA of $385.5 million. Our strong operating results were enhanced by equally strong performance from our investment book, which resulted in an exceptional first quarter. Continued strength in the market helped drive outsized investment gains of approximately $267 million from our investment book. Excluding these gains, operating revenues for the quarter were $333.2 million, with $122.7 million of operating adjusted EBITDA. Our operating results reflected the upside from a strong quarter for investment banking, coupled with the steady and recurring contribution from the balance of our business units, Principal Investments, Consulting and Appraisal, Wealth Management and Brands. Investment banking has been the beneficiary of significant deal flow. We're participating in larger transactions while continuing to stick to our core routes, advising small to mid-cap companies as they look to grow their business. We view our clients as long-term partners and are proud of the many clients for which we have done multiple transactions over a long period of years. We believe our continued focus in the small to mid-cap arena, which we have been focusing on for almost 25 years, is recognized and appreciated by our clients on all sides of our businesses. While our first quarter results benefited from the upside in banking activity, this is just one component of our overall business. Our pipeline and the balance of our activity remains highly diverse. Bankruptcy restructuring activity continues to drive our consulting business, which set another record for revenue during the month of March. In January, we were named middle market turnaround consulting firm of the year by Global M&A Network, validating our leadership in restructuring and increased recognition of our brand in the market. In February, we completed the acquisition of National Holdings. Together with our legacy wealth management business, we've added some really terrific talent with nearly 700 new registered reps. And with $39 billion in combined assets as of March 31, this addition provides meaningful scale and distribution to our overall platform. Phillip Ahn: Thanks, Bryant. For the three months ended March 31, B. Riley Financial reported total revenues of $600.2 million and total adjusted EBITDA of $385.5 million. Net income available to common shareholders was $252.9 million or $8.81 per diluted share. Our first quarter results included investment gains of $266.9 million, which primarily relate to mark-to-market valuations on our strategic investments. Excluding investments, operating revenues of $333.2 million represented an 83% increase compared to operating revenues of $182.2 million for the prior year quarter. Tom Kelleher: Thanks, Phil. As Bryant noted at the top of the call, investment banking had an exceptional quarter, continuing the momentum we saw late last year. Our current position and relative rise in the ranks has helped further validate B. Riley securities recognition as a leading mid-market investment bank. Record results for the quarter were driven by several large transactions and strong institutional brokerage. Highlights include raising $333 million in debt and equity for Babcock & Wilcox, completing the fourth and final sale of Bed, Bath & Beyonds processed to divest certain noncore assets. Our role as a buy-side adviser in Rocky Brands' $230 million acquisition of Honeywell's brand portfolio and African Gold's $360 million SPAC IPO, which was the largest SPAC IPO our team has completed to date. First quarter results related to ATMs or at the market issuances nearly doubled, resulting in another all-time high for this business, investing our prior record in Q4 of last year. Notable ATM projects for the quarter include AMC and Novavax. Turning to our Wealth Management group. During the quarter, B. Riley Wealth Management continued its steady growth as we welcomed our new colleagues from National Holdings. Our legacy firm's fee-based advisory assets have grown significantly over the past 18 months as our target efforts to attract high-quality advisers with more reoccurring revenue streams has come to fruition. In the coming months, we expect to continue to focus on the integration of our respective B. Riley and National Wealth Management groups. In our B. Riley Advisory Services business, our consulting division saw a high volume of new bankruptcy& restructuring forensic litigation cases during the first quarter. In January, we added a new compliance risk and resilience practice. The group specializes in helping clients strategically prepare for and respond to cyber risks, public health risks and operational risks. This highly experienced and talented team has already contributed on a top line basis, helping us achieve another record for consulting revenue during the month of March. Operator: Thank you. We will now begin the question-and-answer session. Our first question comes from Wes Cummins of 272 Capital. Please go ahead. Bryant Riley: Wes, are you there? We can’t hear you. Operator: Wes Cummins, your line is live. We currently have no questions from the phone line. Bryant Riley: Okay. Well, thank you, everyone. And again, I started to say at the end of the previous text, it's just amazing what this team has accomplished since March last year. And when I said this team, all the people affirm that sometimes don't get the recognition that they deserve and spend hours above and beyond having – taking care of this transition as we dealt with the pandemic, and we're so thankful for that. Thankful for all our shareholders and the confidence they've given us and appreciate the opportunity to talk about it once a quarter. So with that, we will look forward to talking next quarter. Thank you. Operator: Thank you. Before we conclude today's call, I will provide B. Riley Financial's safe harbor statement, which includes important cautions regarding forward-looking statements made during this call. Statements made during this call about B. Riley Financial's future expectations, plans and prospects and any other statements regarding matters that are not historical facts may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors should be 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 the unpredictable and ongoing impact of the COVID-19 pandemic as well as 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, future events or otherwise. Thank you for joining us today for B. Riley Financial's first quarter 2021 earnings conference call. You may now disconnect.
B. Riley Shares Surge 16% After Co-CEO Proposes to Buy Investment Bank Amid Struggles
In a regulatory filing on Friday, Bryant Riley, co-CEO of B. Riley Financial (NASDAQ:RILY), proposed to acquire the investment bank, sending the company’s shares soaring over 16% on Friday. The $7 per share offer represents a 39% premium to the stock's last closing price.
The move comes as B. Riley's stock has plummeted 70% this week, highlighting the significant challenges the Los Angeles-based financial services firm faces, particularly regarding its investment in Franchise Group (FRG), the parent company of Vitamin Shoppe.
Riley, the co-founder and largest shareholder of B. Riley, stated that the acquisition would only proceed with approval from a special committee of independent directors on the board. He emphasized that the current public company structure forces the bank to prioritize short-term objectives and devote undue attention to external stakeholders who may not share the company's long-term vision.
Earlier this week, B. Riley shares tumbled nearly 52% after it disclosed preliminary second-quarter results, including the suspension of its dividend and a projected net loss of $435 to $475 million for the quarter ending June 30. This equates to a loss of $14 to $15 per share.
The financial setback was largely attributed to non-cash losses tied to B. Riley's investment in Franchise Group and a loan receivable from Vintage Capital, which is collateralized by equity interests in FRG. Riley cited these investments as the primary factors behind the poor quarterly performance.
B. Riley Financial Shares Plummet 51% After Suspending Dividend and Reporting Significant Q2 Loss
Shares of B. Riley Financial (NASDAQ:RILY) took a dramatic plunge, dropping by 51% on Monday following the release of the company’s preliminary second-quarter results. The financial services firm disclosed a significant net loss for the quarter, along with the suspension of its dividend.
B. Riley Financial anticipates reporting a net loss between $435 million and $475 million, translating to a loss of $14 to $15 per share. The substantial losses are largely attributed to non-cash markdowns, with the company pointing to the underperformance of its investment in Franchise Group, Inc. (FRG) and its Vintage Capital loan receivable as major factors.
Chairman and Co-Chief Executive Officer Bryant Riley highlighted that the company's financial setbacks were primarily driven by its exposure to Franchise Group, as well as challenges related to the former CEO of FRG, Brian Kahn, whose alleged misconduct has further complicated the investment, despite the issues being unrelated to B. Riley or FRG itself.
B. Riley expects to recognize a non-cash markdown of approximately $330 million to $370 million tied to its investment in Freedom VCM, the parent entity of FRG, and the associated Vintage Capital loan receivable. Additionally, the company plans to record an impairment charge of $28 million, mainly due to goodwill associated with Targus, which has been negatively affected by shifting consumer spending patterns. Another $25 million charge is expected for a valuation allowance related to deferred income taxes for the quarter.
B. Riley Financial Shares Plunge 10% Amid SEC Probe Report
B. Riley Financial (NASDAQ:RILY) experienced a 10% drop in its stock price intra-day today amid reports that the Securities and Exchange Commission (SEC) is investigating the firm's connections with a client involved in securities fraud.
Bloomberg News reported that the SEC is looking into B. Riley's relationship with Brian Kahn, who is implicated as an unnamed co-conspirator in a Department of Justice (DoJ) case. This case relates to the 2020 collapse of the Prophecy Asset Management hedge fund. However, B Riley has stated that it has not received any official communication from the SEC regarding this investigation.
A spokesperson for B. Riley, in response to Bloomberg News, asserted the company's readiness to cooperate with any SEC inquiries, as it has done previously with regulatory matters. The spokesperson also expressed openness to an investigation into the alleged destructive tactics employed by short sellers against B. Riley. These tactics reportedly include coordinated options trading without disclosure obligations and personal attacks on the firm's employees for profit motives.
The SEC's investigation is said to be particularly focused on Kahn's role in the acquisition of retail company Franchise Group Inc., a transaction that B Riley facilitated last year with partial financing from Nomura. It is believed that some of Kahn's assets were used as collateral in this deal.
