B. Riley Financial
Nov 8, 2017
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B. Riley Financial Reports Financial Results for Third Quarter 2017

LOS ANGELES, Nov. 08, 2017 (GLOBE NEWSWIRE) -- B. Riley Financial, Inc. (NASDAQ:RILY), a diversified provider of financial and business advisory services, reported results for the third quarter ended September 30, 2017.

Third Quarter 2017 Financial Highlights   

Third Quarter 2017 Financial Results
Total revenues for the third quarter of 2017 were $92.4 million compared to $57.0 million in the same year-ago period. The significant increase was primarily due to higher revenues from the company's Capital Markets segment including contributions from FBR Capital Markets & Co., which the company acquired in June 2017, and Wunderlich Securities which was acquired in July 2017.

Net income for the third quarter of 2017 totaled $0.4 million or $0.01 per diluted share, compared to $8.9 million or $0.47 per diluted share in the same year-ago period. Net income for the third quarter of 2017 included a $4.9 million restructuring charge, primarily related to the integration of FBR and Wunderlich Securities.

Adjusted EBITDA (earnings before interest expense, interest income, provision for income taxes, depreciation and amortization, share-based payments, fair value adjustments, insurance settlement recovery, transactions-related costs, and restructuring costs) for the third quarter of 2017 totaled $15.8 million, compared to $20.8 million in the same year-ago period. (See note regarding "Use of Non-GAAP Financial Measures," below for further discussion of this Non-GAAP term).

Adjusted net income (excluding the impact of share-based payments, fair value adjustments, amortization of intangible assets, restructuring costs, insurance settlement recovery and transaction-related costs, net of related tax impact thereof) for the third quarter of 2017 totaled $10.4 million or $0.38 per diluted share, compared to $11.5 million or $0.60 per diluted share in the same year-ago period (See note regarding "Use of Non-GAAP Financial Measures," below for further discussion of this Non-GAAP term).

On September 30, 2017, the company had $102.4 million of unrestricted cash and $96.0 million of securities and other investments owned. Total B. Riley Financial stockholders' equity at September 30, 2017 was $274.7 million.

Declaration of Dividend
On November 8, 2017, the company's board of directors approved a regular quarterly dividend of $0.08 per share and a special dividend of $0.04, which will be paid on or about November 30, 2017 to stockholders of record as of November 22, 2017.

Management Commentary
"This quarter has been particularly gratifying for B. Riley Financial having delivered strong performance across all of our segments in the third quarter," said B. Riley Financial Chairman and CEO, Bryant Riley. "Looking at our business as a whole, we have revenue and earnings diversification from investment banking, trading, appraisal and retail liquidation businesses, all balanced by our asset management and principal investing businesses."

"This quarter also marked the first quarter with FBR Capital Markets & Co. and Wunderlich Securities under the B. Riley Financial umbrella," continued Riley. "We took significant measures to bring these businesses in line with our operating philosophy. At FBR, we were able to reduce monthly fixed cost overhead by approximately $2 million. This helped us bring their breakeven down to approximately $75 million from a level of approximately $120 million pre-acquisition. While we report our Capital Markets segment on a combined basis, FBR's revenue was up approximately 5% this quarter relative to last year's quarter. Most notably, FBR's Adjusted EBITDA contribution in the current quarter was $1.1 million, an increase of $9.8 million from FBR's Adjusted EBITDA loss in the third quarter of 2016. We believe that much of this was related to the measures we took to reduce fixed cost overhead."

Riley added: "While the cash equities business continues to be pressured, we are hopeful that the completion and integration of the merger will result in an improved environment.  Our continued commitment to our research and trading business, as illustrated by new research hires, most notably in Healthcare and Energy, is an important element of our overall business."

"With regard to Great American Group, we continue to be pleased with our Appraisal business which generated solid gains during the quarter. Our auction and liquidation business continues to be very active as we conduct a high number of store closings. Our mix of projects is currently weighted toward fee-based engagements. While the fee business has less upside, it provides steady income and demonstrates the continued difficult environment in retail," added Riley.

"With most of the significant restructuring activities behind us, we are in a strong position to operate under an optimized cost structure, a unified focus and strategy, and an organizational DNA that is opportunistic and performance-driven. These are traits which have been integral to B. Riley's heritage and will continue to serve as key components of our success going forward," added Riley. "Taken together, our combined business and strong balance sheet not only gives us a national footprint in equities and fixed income, but it also provides the necessary scale and resources to strategically expand our leading position in business services, financial advisory and investment banking. While we have incorporated a focus on growth, we are committed to maintaining a bottom line discipline that reflects in our continued strategy to maximize investments for dividends."

Conference Call
B. Riley Financial will host a conference call today (November 8, 2017) at 4:30 p.m. Eastern time (1:30 p.m. Pacific time). The company's Chairman and CEO, Bryant Riley, President, Tom Kelleher, and CFO and COO, Phillip Ahn, will host the conference call, followed by a question and answer period.

Please call the conference telephone number 10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Liolios Group at 949-574-3860.

Toll-Free Number: 1-877-425-9470
International Number: 1-201-389-0878

About B. Riley Financial
B. Riley Financial, Inc. is a publicly traded, diversified financial services company which takes a collaborative approach to the capital raising and financial advisory needs of public and private companies and high net worth individuals. The Company operates through several wholly-owned subsidiaries, including B. Riley FBR, Inc.Wunderlich Securities, Inc.Great American Group, LLC, B. Riley Capital Management, LLC (which includes B. Riley Asset ManagementB. Riley Wealth Management, and Great American Capital Partners, LLC) and B. Riley Principal Investments, which engages in proprietary investments in other businesses, such as the acquisition of United Online, Inc.

Forward-Looking Statements
This press release may contain forward-looking statements by B. Riley Financial, Inc. that are not based on historical fact, including, without limitation, statements containing the words "expects," "anticipates," "intends," "plans," "projects," "believes," "seeks," "estimates," and similar expressions and statements. Such forward looking statements include, but are not limited to, express or implied statements regarding future financial performance and future dividends, the effects of our business model, the effects of our balance sheet on our ability to pursue business opportunities, the effects and anticipated benefits of our completed and pending acquisitions and related actions, expectations regarding future transactions and the financial impact, size and consistency of returns and timing thereof, as well as statements regarding the effect of investments in our business segments. Because these forward-looking statements involve known and unknown risks and uncertainties, there are important factors that could cause actual results, events or developments to differ materially from those expressed or implied by these forward-looking statements. Such factors include risks associated with large engagements in our Auction and Liquidation segment; our ability to achieve expected cost savings or other benefits with respect to our completed and pending acquisitions, in each case within expected time frames or at all; our ability to consummate anticipated transactions and the expected financial impact thereof, in each case within the expected timeframes or at all; our ability to successfully integrate acquisitions; loss of key personnel; our ability to manage growth; the potential loss of financial institution clients; the timing of completion of significant engagements; and those risks described from time to time in B. Riley Financial, Inc.'s filings with the SEC, including, without limitation, the risks described in B. Riley Financial, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2016 under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Additional information will also be set forth in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2017. These factors should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements. All information is current as of the date this press release is issued, and B. Riley Financial, Inc. undertakes no duty to update this information.

Note Regarding Use of Non-GAAP Financial Measures
Certain of the information set forth herein, including adjusted EBITDA and adjusted net income, may be considered non-GAAP financial measures. B. Riley Financial, Inc. believes this information is useful to investors because it provides a basis for measuring the company's available capital resources, the operating performance of its business and its cash flow, excluding interest expense, interest income, provision for income taxes, depreciation and amortization, stock-based payments, fair value adjustments, insurance settlement recovery, transaction-related expenses, and restructuring costs that would normally be included in the most directly comparable measures calculated and presented in accordance with Generally Accepted Accounting Principles ("GAAP"). In addition, the company's management uses these Non-GAAP financial measures along with the most directly comparable GAAP financial measures in evaluating the company's operating performance, capital resources and cash flow. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-financial measures as reported by the company may not be comparable to similarly titled amounts reported by other companies. The non-GAAP measures are described above and are reconciled to the corresponding GAAP measure in the unaudited condensed consolidated financial statements portion of this release under the headings "Adjusted EBITDA Reconciliation" and "Adjusted Net Income Reconciliation."

Investor Contact:
Scott Liolios or Matt Glover
Liolios Group, Inc.
1-949-574-3860
RILY@liolios.com

           
B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value)
          September 30,   December 31,
          2017   2016
Assets     (Unaudited)      
Assets:            
  Cash and cash equivalents   $ 102,409     $ 112,105  
  Restricted cash     9,269       3,294  
  Due from clearing brokers     21,580        
  Securities and other investments owned, at fair value     95,965       16,579  
  Securities borrowed     730,022        
  Accounts receivable, net     19,924       18,989  
  Due from related parties     6,082       3,009  
  Advances against customer contracts     5,298       427  
  Prepaid expenses and other assets     20,375       5,742  
  Property and equipment, net     13,105       5,785  
  Goodwill     100,903       48,903  
  Other intangible assets, net     59,671       41,166  
  Deferred income taxes     41,474       8,619  
    Total assets   $ 1,226,077     $ 264,618  
Liabilities and Equity            
Liabilities:            
  Accounts payable   $ 4,046     $ 2,703  
  Accrued expenses and other liabilities     58,954       53,168  
  Deferred revenue     3,181       4,130  
  Due to related parties and partners     1,244       10,037  
  Securities sold not yet purchased     25,046       846  
  Securities loaned     728,201        
  Mandatorily redeemable noncontrolling interests     12,830       4,019  
  Acquisition consideration payable           10,381  
  Notes payable     2,364        
  Senior notes payable     115,574       27,700  
  Contingent consideration           1,242  
    Total liabilities     951,440       114,226  
                   
Commitments and contingencies:            
B. Riley Financial, Inc. stockholders' equity:            
  Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued            
  Common stock, $0.0001 par value; 40,000,000 shares authorized; 26,461,568     2       2  
    and 19,140,342 issued and outstanding as of September 30, 2017 and            
    December 31, 2016, respectively            
  Additional paid-in capital     259,047       141,170  
  Retained earnings     15,956       9,887  
  Accumulated other comprehensive loss     (321 )     (1,712 )
    Total B. Riley Financial, Inc. stockholders' equity     274,684       149,347  
Noncontrolling interests     (47 )     1,045  
    Total equity     274,637       150,392  
      Total liabilities and equity   $ 1,226,077     $ 264,618  
                   
 
                   

 

 
B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except share data)
                               
          Three Months Ended
September 30,
  Nine Months Ended
September 30,
          2017   2016   2017   2016
Revenues:                        
  Services and fees   $ 85,141     $ 50,300     $ 202,354     $ 90,505  
  Interest income - Securities lending     7,206             9,424        
  Sale of goods     79       6,666       221       6,668  
    Total revenues     92,426       56,966       211,999       97,173  
Operating expenses:                        
  Direct cost of services     10,138       12,841       46,224       25,084  
  Cost of goods sold     124       2,391       313       2,393  
  Selling, general and administrative expenses     70,962       22,727       132,836       48,844  
  Restructuring charge     4,896       3,585       11,484       3,585  
  Interest expense - Securities lending     4,950             6,515        
    Total operating expenses     91,070       41,544       197,372       79,906  
      Operating income     1,356       15,422       14,627       17,267  
Other income (expense):                        
  Interest income     76       26       358       32  
  Loss from equity investment     (157 )           (157 )      
  Interest expense     (2,510 )     (991 )     (5,195 )     (1,398 )
    (Loss) income before income taxes     (1,235 )     14,457       9,633       15,901  
Benefit from (provision for) income taxes     1,357       (6,083 )     7,753       (6,184 )
    Net income     122       8,374       17,386       9,717  
Net (loss) income attributable to noncontrolling interests     (246 )     (565 )     (283 )     631  
    Net income attributable to B. Riley Financial, Inc.   $ 368     $ 8,939     $ 17,669     $ 9,086  
                               
Basic income per share   $ 0.01     $ 0.47     $ 0.80     $ 0.51  
Diluted income per share   $ 0.01     $ 0.47     $ 0.76     $ 0.50  
                               
Cash dividends per share   $ 0.13     $ 0.03     $ 0.55     $ 0.03  
                               
Weighted average basic shares outstanding     26,059,490       18,977,072       22,180,808       17,805,127  
Weighted average diluted shares outstanding     27,639,862       19,191,035       23,385,014       18,009,158  
                               
 
                               

 

 
B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
            Nine Months Ended
September 30,
            2017   2016
Cash flows from operating activities:            
  Net income   $ 17,386     $ 9,717  
  Adjustments to reconcile net income to net cash (used in) provided by operating activities:            
    Depreciation and amortization     7,705       2,381  
    Provision (recoveries) for doubtful accounts     827       (178 )
    Share-based compensation     7,679       1,831  
    Recovery of key man life insurance     (6,000 )      
    Non-cash interest and other     319       147  
    Effect of foreign currency on operations     (1,022 )     640  
    Loss from equity investment     157        
    Deferred income taxes     (24,560 )     1,839  
    Impairment of leaseholds, lease loss accrual and loss on disposal of fixed assets     2,838        
    Income allocated and fair value adjustment for mandatorily redeemable noncontrolling interests     10,766       1,450  
    Change in operating assets and liabilities:            
      Due from clearing brokers     13,258        
      Securities and other investments owned     (41,350 )     16,515  
      Securities borrowed     129,998        
      Accounts receivable and advances against customer contracts     1,635       (1,871 )
      Goods held for sale or auction           (8,447 )
      Prepaid expenses and other assets     15,522       1,410  
      Accounts payable, accrued payroll and related expenses, accrued value     (38,597 )     3,032  
        added tax payable and other accrued expenses            
      Amounts due from related parties and partners     (12,313 )     (488 )
      Securities sold, not yet purchased     7,700       (343 )
      Deferred revenue     (1,302 )     963  
      Securities loaned     (139,425 )      
      Auction and liquidation proceeds payable           (672 )
        Net cash (used in) provided by operating activities     (48,779 )     27,926  
Cash flows from investing activities:            
  Acquisition of Wunderlich, net of cash acquired $4,259     (25,478 )      
  Cash acquired from acquisition of FBR & Co.     15,738        
  Acquisition of United Online, net of cash acquired $125,542 in 2016     (10,381 )     (33,430 )
  Acquisition of other businesses     (2,052 )      
  Purchases of property and equipment     (550 )     (297 )
  Proceeds from key man life insurance     6,000        
  Proceeds from sale of property and equipment and intangible asset     619       15  
  Equity investment     (1,015 )      
  Increase in restricted cash     (5,797 )     (78,161 )
        Net cash used in investing activities     (22,916 )     (111,873 )
Cash flows from financing activities:            
  Repayment of revolving line of credit           (272 )
  Proceeds from asset based credit facility     65,987       56,255  
  Repayment of asset based credit facility     (65,987 )     (56,255 )
  Repayment of notes payable     (8,214 )      
  Borrowings from participating note payable           61,400  
  Payment of contingent consideration     (1,250 )     (1,250 )
  Proceeds from issuance of senior notes     89,330        
  Payment of debt issuance costs     (2,093 )      
  Proceeds from issuance of common stock           22,999  
  Offering costs from issuance of common stock           (240 )
  Payment of employment taxes on vesting of restricted stock     (2,683 )      
  Dividends paid     (13,493 )     (571 )
  Distribution to noncontrolling interests     (2,878 )     (1,680 )
        Net cash provided by financing activities     58,719       80,386  
        Decrease in cash and cash equivalents     (12,976 )     (3,561 )
        Effect of foreign currency on cash     3,280       23  
        Net decrease in cash and cash equivalents     (9,696 )     (3,538 )
Cash and cash equivalents, beginning of  year     112,105       30,012  
Cash and cash equivalents, end of period   $ 102,409     $ 26,474  
                     
Supplemental disclosures:            
  Interest paid   $ 11,513     $ 505  
  Taxes paid   $ 11,668     $ 409  
                     
     
                   

 

 
B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
(Unaudited)
(Dollars in thousands)
                             
        Three Months Ended   Nine Months Ended
        September 30,    September 30, 
        2017   2016   2017   2016
Capital Markets reportable segment:                      
  Revenues - Services and fees $ 56,473     $ 10,063     $ 95,872     $ 22,799  
  Interest income - Securities lending   7,206             9,424        
    Total revenues     63,679       10,063       105,296       22,799  
  Selling, general, and administrative expenses   (53,955 )     (8,916 )     (87,753 )     (22,535 )
  Restructuring costs     (3,322 )           (7,245 )      
  Interest expense - Securities lending   (4,950 )           (6,515 )      
  Depreciation and amortization   (1,636 )     (138 )     (2,167 )     (406 )
    Segment (loss) income     (184 )     1,009       1,616       (142 )
Auction and Liquidation reportable segment:                      
  Revenues - Services and fees   7,376       17,058       43,179       29,358  
  Revenues - Sale of goods     1       6,503       1       6,505  
    Total revenues     7,377       23,561       43,180       35,863  
  Direct cost of services     (3,385 )     (4,365 )     (25,482 )     (9,870 )
  Cost of goods sold     (2 )     (2,223 )     (2 )     (2,225 )
  Selling, general, and administrative expenses   (1,963 )     (3,976 )     (6,562 )     (6,840 )
  Depreciation and amortization   (5 )     (6 )     (15 )     (22 )
    Segment income     2,022       12,991       11,119       16,906  
Valuation and Appraisal reportable segment:                      
  Revenues - Services and fees   9,043       7,696       24,799       22,865  
  Direct cost of services     (3,778 )     (3,549 )     (11,031 )     (10,287 )
  Selling, general, and administrative expenses   (2,253 )     (2,136 )     (6,395 )     (6,379 )
  Depreciation and amortization   (43 )     (19 )     (130 )     (72 )
    Segment income     2,969       1,992       7,243       6,127  
Principal Investments - United Online segment:                      
  Revenues - Services and fees   12,249       15,483       38,504       15,483  
  Revenues - Sale of goods     78       163       220       163  
    Total revenues     12,327       15,646       38,724       15,646  
  Direct cost of services     (2,975 )     (4,927 )     (9,711 )     (4,927 )
  Cost of goods sold     (122 )     (168 )     (311 )     (168 )
  Selling, general, and administrative expenses   (2,433 )     (2,139 )     (8,536 )     (2,139 )
  Depreciation and amortization   (1,703 )     (1,802 )     (5,313 )     (1,802 )
  Restructuring costs     (150 )     (3,187 )     (633 )     (3,187 )
    Segment income     4,944       3,423       14,220       3,423  
Consolidated operating income from reportable segments   9,751       19,415       34,198       26,314  
                             
Corporate and other expenses (including restructuring   (8,395 )     (3,993 )     (19,571 )     (9,047 )
  costs of $1,424 and $3,606 during the three and nine months                    
  ended September 30, 2017, respectively, and $398 during                      
  the three and nine months ended September 30, 2016)                      
Interest income     76       26       358       32  
Loss on equity investment     (157 )           (157 )      
Interest expense     (2,510 )     (991 )     (5,195 )     (1,398 )
  (Loss) income before income taxes   (1,235 )     14,457       9,633       15,901  
Benefit from (provision for) income taxes   1,357       (6,083 )     7,753       (6,184 )
  Net income     122       8,374       17,386       9,717  
Net (loss) income attributable to noncontrolling interests   (246 )     (565 )     (283 )     631  
  Net income attributable to B. Riley Financial, Inc. $ 368     $ 8,939     $ 17,669     $ 9,086  
                             

 

 
B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
ADJUSTED EBITDA RECONCILIATION
(Unaudited)
(Dollars in thousands)
                         
     Three Months Ended   Nine Months Ended 
     September 30,     September 30, 
    2017   2016   2017   2016
Adjusted EBITDA reconciliation:                        
Net income, as reported   $ 368     $ 8,939     $ 17,669     $ 9,086  
                         
Adjustments:                        
Interest expense     2,510       991       5,195       1,398  
Interest income     (76 )     (26 )     (358 )     (32 )
(Benefit from) provision for income taxes     (1,357 )     6,083       (7,753 )     6,184  
Depreciation and amortization     3,416       1,982       7,706       2,381  
Share-based payments     2,773       834       5,288       1,831  
Fair value adjustment     2,750             9,000        
Insurance settlement recovery           (1,618 )     (6,000 )     (1,618 )
Transaction-related costs     480       35       6,155       957  
Restructuring costs     4,896       3,585       11,484       3,585  
                         
Total EBITDA adjustments     15,392       11,866       30,717       14,686  
                         
Adjusted EBITDA   $ 15,760     $ 20,805     $ 48,386     $ 23,772  
                         

 

 
B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
ADJUSTED NET INCOME RECONCILIATION
(Unaudited)
(Dollars in thousands, except share data)
                       
        Three Months Ended
September 30,
    Nine Months Ended
September 30,
        2017   2016     2017   2016
                       
Net income attributable to B. Riley Financial, Inc. $ 368   $ 8,939     $ 17,669   $ 9,086  
                       
Adjustments:                  
  Share based payments   2,773     834       5,288     1,831  
  Fair value adjustment   2,750           9,000      
  Amortization of intangible assets   2,172     1,465       5,248     1,688  
  Restructuring costs   4,896     3,585       11,484     3,585  
  Insurance settlement recovery       (1,618 )     (6,000 )   (1,618 )
  Transactions related costs   480     35       6,155     957  
  Income tax effect of adjusting entries   (3,066 )   (1,742 )     (13,569 )   (2,609 )
  Tax benefit from tax election to treat acquisition of UOL                  
    as a taxable business combination             (8,389 )    
Adjusted net income attributable to B. Riley Financial, Inc. $ 10,373   $ 11,498     $ 26,886   $ 12,920  
                       
Adjusted income per common share:                  
  Adjusted basic income per share $ 0.40   $ 0.61     $ 1.21   $ 0.73  
  Adjusted diluted income per share $ 0.38   $ 0.60     $ 1.15   $ 0.72  
                       
Shares used to calculate adjusted basic net income per share   26,059,490     18,977,072       22,180,808     17,805,127  
Shares used to calculate adjusted diluted net income per share   27,639,862     19,191,035       23,385,014     18,009,158  
                       

 

Source: B. Riley Financial, Inc.

 

 

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