News

B. Riley Financial Reports Financial Results for the Third Quarter of 2018

Declares Special Dividend of $0.08 Per Share in addition to Regular Quarterly Dividend of $0.08 Per Share

LOS ANGELES, Nov. 05, 2018 (GLOBE NEWSWIRE) -- B. Riley Financial, Inc. (NASDAQ:RILY or the “Company”), a diversified financial services company which operates through several wholly-owned subsidiaries, reported results for its third quarter ended September 30, 2018.

Third Quarter 2018 Financial Highlights

Total revenues of $99.7 million
Net income of $2.8 million or $0.10 per diluted share
Adjusted EBITDA of $21.0 million
Adjusted net income of $6.4 million or $0.24 per diluted share

“Our third quarter results demonstrate strong operating results in our capital markets segment and steady performance of our appraisal and principal investments businesses. We are seeing true leverage from our diversified platform and more instances where clients can engage us for multiple services which has resulted in increased revenue opportunities,” said Bryant Riley, Chairman and Co-Chief Executive Officer, B. Riley Financial. “Highlights for the quarter include our merger with GlassRatner, successful completion of our bond offering, continued penetration of GACP Fund II, our ongoing work related to the Bon-Ton Stores liquidation, and our partnership with bebe stores. Our enhanced platform has also enabled us to attract a number of new key hires as we look to further expand our presence in the marketplace.”

Riley added: “We have returned a total of $0.58 cents per share in dividends to our shareholders through the first nine months of 2018, and our recent share repurchase announcement follows our previous buyback of approximately 950,000 shares earlier this year. We continue to work towards obtaining regulatory approval to complete the magicJack acquisition and remain enthusiastic about the multitude of opportunities ahead of us.”

Third Quarter 2018 Financial Results
For the three months ended September 30, 2018, total revenues increased to $99.7 million compared to $92.4 million in revenues generated for the same year-ago period. Results for the third quarter of 2018 were primarily driven by an increase in revenues from the Capital Markets Segment in addition to contributions from Principal Investments and the Company’s Valuation and Appraisal business.

Capital Markets Segment: Revenues were $76.3 million for the third quarter of 2018 compared to $63.7 million for the same year-ago period. Segment income increased to $11.0 million for the third quarter of 2018 compared to a segment loss of $0.2 million for the same year-ago period. Revenue growth in this segment was primarily driven by an increase in investment banking fees and the addition of consulting fees related to the acquisition of GlassRatner.
Auction and Liquidation Segment: Revenues for the third quarter of 2018 were $2.5 million compared to $7.4 million for the same year-ago period. Segment income totaled $0.3 million for the third quarter of 2018 compared to $2.0 million for the same year-ago period. Quarterly results for this segment are expected to be variable in nature due to the episodic nature of retail liquidation engagements. For the nine months ended September 30, 2018, revenues in this segment increased to $44.9 million from $43.2 million for the same year-ago period.
Valuation and Appraisal Segment: Revenues for the third quarter of 2018 increased to $9.4 million from $9.0 million for the same year-ago period driven by an increase in appraisal engagements. Segment income totaled $2.9 million for the third quarter of 2018 compared to $3.0 million for the same year-ago period.
Principal Investments – United Online Segment: Revenues were $11.4 million for the third quarter of 2018, with segment income of $4.1 million. This compares to revenues of $12.3 million and segment income of $4.9 million for the same year-ago period. Revenues from United Online are primarily driven by services and fees for internet access and related subscription services. Since completing the acquisition in July of 2016, United Online has generated cash flow in excess of the Company’s initial net investment and is outperforming its acquisition plan. B. Riley Financial expects United Online to continue to generate meaningful cash flow over the next several years.

Net income attributable to B. Riley Financial for the third quarter of 2018 totaled $2.8 million or $0.10 per diluted share compared to $0.4 million or $0.01 per diluted share for the same year-ago period.

Adjusted EBITDA for the third quarter of 2018 totaled $21.0 million compared to adjusted EBITDA of $15.8 million for the same year ago period. Adjusted EBITDA includes earnings before interest expense, interest income, provision for (benefit from) income taxes, depreciation and amortization, share-based payments, fair value adjustments, insurance settlement recovery, transactions-related costs, and restructuring costs. (See “Note Regarding Use of Non-GAAP Financial Measures” below for further discussion of this non-GAAP term.)

Adjusted net income totaled $6.4 million or $0.24 per diluted share for the third quarter of 2018. This compares to $10.4 million or $0.38 per diluted share for the same year-ago period. Adjusted net income excludes the impact of share-based payments, fair value adjustments, amortization of intangible assets, restructuring costs, insurance settlement recovery and transaction-related costs, tax impact of aforementioned adjustments, and certain tax items. (See “Note Regarding Use of Non-GAAP Financial Measures” below for further discussion of this non-GAAP term.)

As of September 30, 2018, the Company had $233.9 million in cash and cash equivalents, $0.5 million in restricted cash, $54.9 million due from clearing brokers, $162.8 million in net securities and other investments owned (at fair value), $21.4 million in advances against customer contracts, and $457.5 million in total debt. Total B. Riley Financial stockholders’ equity was $268.4 million. Shares outstanding totaled approximately 26.5 million as of September 30, 2018.

Declaration of Dividend
B. Riley Financial’s board of directors approved a regular quarterly dividend of $0.08 per share and a special dividend of $0.08 per share which will be paid on or about November 30, 2018 to stockholders of record as of November 16, 2018.

Acquisition of magicJack vocalTec, Ltd.
The previously announced acquisition of magicJack VocalTec Ltd. (NASDAQ:CALL) remains pending final regulatory approval. B. Riley Financial will communicate additional updates once closing conditions have been satisfied.

Conference Call
B. Riley Financial will host a conference call today, Monday, November 5, 2018 at 4:30 p.m. ET (1:30 p.m. PT). Bryant Riley, Chairman and co-CEO; Tom Kelleher, co-CEO; and Phillip Ahn, CFO and COO, will host the conference call followed by a question and answer period.

Toll-Free: 1-877-451-6152
International: 1-201-389-0879

The conference call will be broadcast simultaneously and available for replay via the investor section of B. Riley Financial’s website. A replay of the call will be available after 7:30 p.m. ET through November 12, 2018.

For more information, visit ir.brileyfin.com.

About B. Riley Financial, Inc. (NASDAQ:RILY)
B. Riley Financial provides collaborative financial services and solutions tailored to fit 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, a full-service investment bank and institutional brokerage; Great American Group, a leading provider of asset disposition, appraisal, corporate advisory and valuation services; GlassRatner, a specialty financial advisory services and consulting firm; B. Riley Wealth Management, B. Riley Asset Management and B. Riley Alternatives, which offer investment management to institutional and high net worth investors; Great American Capital Partners, which originates and underwrites senior secured loans for asset-rich companies; and B. Riley Principal Investments, which invests in or acquires companies and assets with attractive return profiles.

Forward-Looking Statements
Statements in this press release that are not descriptions of historical facts are forward‐looking statements that are based on management’s current expectations and assumptions and are subject to risks and uncertainties. If such risks or uncertainties materialize or such assumptions prove incorrect, our business, operating results, financial condition and stock price could be materially negatively affected. In some cases, you can identify forward-looking statements by terminology including “anticipates,” “believes,” “continue,” “could,” “expects,” “may,” “will” and “would” or the negative of these terms or other comparable terminology. You should not place undue reliance on such forward‐looking statements, which are based on the information currently available to us and speak only as of the date of this press release. Such forward looking statements include, but are not limited to, the effects of our business model, 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, expectations regarding market dynamics, as well as statements regarding our enthusiasm and 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. Factors that could cause actual results to differ include (without limitation) the risk that our final results could differ materially from the preliminary results included in this release; and those risks described from time to time in B. Riley Financial, Inc.’s periodic 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, 2017 under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Additional information is also set forth in our Quarterly Reports on Form 10-Q for the quarter ended September 30, 2018. 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 net income and adjusted EBITDA, may be considered non-GAAP financial measures. B. Riley Financial 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 net interest expense, provisions for or benefit from income taxes, depreciation, amortization, transaction expenses, restructuring costs, and stock-based compensation 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.

Contacts:

Investor Contact
Investor Relations
ir@brileyfin.com
(310) 966-1444

Media Contact
Jo Anne McCusker
jmccusker@brileyfin.com
(646) 885-5425

B. RILEY FINANCIAL, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Dollars in thousands, except par value)

				September 30,			December 31,
				2018			2017
				(Unaudited)
Assets
Assets
	Cash and cash equivalents			$	233,918		$	132,823
	Restricted cash				468			19,711
	Due from clearing brokers				54,891			31,479
	Securities and other investments owned, at fair value				222,521			145,360
	Securities borrowed				1,042,295			807,089
	Accounts receivable, net				38,958			20,015
	Due from related parties				9,921			5,689
	Advances against customer contracts				21,405			5,208
	Loans receivable				37,147			—
	Prepaid expenses and other assets				50,193			22,605
	Property and equipment, net				11,143			11,977
	Goodwill				120,129			98,771
	Other intangible assets, net				51,011			56,948
	Deferred income taxes				26,901			29,229
		Total assets		$	1,920,901		$	1,386,904
Liabilities and Equity
Liabilities
	Accounts payable			$	2,278		$	2,650
	Accrued expenses and other liabilities				87,901			71,685
	Deferred revenue				3,205			3,141
	Due to partners				1,428			1,578
	Securities sold not yet purchased				59,672			28,291
	Securities loaned				1,035,408			803,371
	Mandatorily redeemable noncontrolling interests				4,409			4,478
	Notes payable				1,671			2,243
	Senior notes payable				455,783			203,621
		Total liabilities			1,651,755			1,121,058

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; 100,000,000 shares authorized; 26,526,445				2			2
	and 26,569,462 issued and outstanding as of September 30, 2018 and
	December 31, 2017, respectively
	Additional paid-in capital				255,236			259,980
	Retained earnings				14,842			6,582
	Accumulated other comprehensive loss				(1,696	)		(534	)
		Total B. Riley Financial, Inc. stockholders' equity			268,384			266,030
Noncontrolling interests					762			(184	)
		Total equity			269,146			265,846
			Total liabilities and equity	$	1,920,901		$	1,386,904

B. RILEY FINANCIAL, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Income (Unaudited) (Dollars in thousands, except share data)

				Three Months Ended						Nine Months Ended
				September 30,						September 30,
				2018			2017			2018			2017
Revenues:
	Services and fees			$	90,655		$	85,450		$	297,986		$	202,663
	Interest income - Securities lending				8,954			6,897			22,836			9,115
	Sale of goods				72			79			138			221
		Total revenues			99,681			92,426			320,960			211,999
Operating expenses:
	Direct cost of services				8,156			10,138			33,733			46,224
	Cost of goods sold				52			124			142			313
	Selling, general and administrative expenses				71,782			70,962			216,603			132,836
	Restructuring charge				428			4,896			2,247			11,484
	Interest expense - Securities lending				6,425			4,950			16,317			6,515
		Total operating expenses			86,843			91,070			269,042			197,372
			Operating income		12,838			1,356			51,918			14,627
Other income (expense):
	Interest income				442			76			736			358
	Income (loss) from equity investments				828			(157	)		5,049			(157	)
	Interest expense				(9,340	)		(2,510	)		(23,926	)		(5,195	)
		Income (loss) before income taxes			4,768			(1,235	)		33,777			9,633
(Provision for) benefit from income taxes					(2,046	)		1,357			(8,412	)		7,753
		Net income			2,722			122			25,365			17,386
Net (loss) income attributable to noncontrolling interests					(92	)		(246	)		1,051			(283	)
		Net income attributable to B. Riley Financial, Inc.		$	2,814		$	368		$	24,314		$	17,669

Basic income per share				$	0.11		$	0.01		$	0.94		$	0.80
Diluted income per share				$	0.10		$	0.01		$	0.91		$	0.76

Cash dividends per share				$	0.30		$	0.13		$	0.58		$	0.55

Weighted average basic shares outstanding					25,968,997			26,059,490			25,856,339			22,180,808
Weighted average diluted shares outstanding					26,854,261			27,639,862			26,776,133			23,385,014

B. RILEY FINANCIAL, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) (Dollars in thousands)

				Nine Months Ended
				September 30,
				2018			2017
Cash flows from operating activities:
Net income				$	25,365		$	17,386
Adjustments to reconcile net income to net cash used in operating activities:
	Depreciation and amortization				9,768			7,705
	Provision for doubtful accounts				840			827
	Share-based compensation				8,650			7,679
	Recovery of key man life insurance				—			(6,000	)
	Non-cash interest and other				1,384			319
	Effect of foreign currency on operations				(352	)		(1,022	)
	(Income) loss from equity investments				(5,049	)		157
	Deferred income taxes				7			(24,560	)
	Impairment of leaseholds, lease loss accrual and loss on disposal of fixed assets				1,718			2,838
	Income allocated and fair value adjustment for mandatorily redeemable noncontrolling interests				847			10,766
	Change in operating assets and liabilities:
		Due from clearing brokers			(23,412	)		13,258
		Securities and other investments owned			(77,161	)		(41,350	)
		Securities borrowed			(235,206	)		129,998
		Accounts receivable and advances against customer contracts			(35,982	)		1,635
		Prepaid expenses and other assets			(19,418	)		15,522
		Accounts payable, accrued payroll and related expenses, accrued value
			added tax payable and other accrued expenses		10,111			(38,597	)
		Amounts due to/from related parties and partners			(4,487	)		(12,313	)
		Securities sold, not yet purchased			31,381			7,700
		Deferred revenue			64			(1,302	)
		Securities loaned			232,037			(139,425	)
			Net cash used in operating activities		(78,895	)		(48,779	)
Cash flows from investing activities:
Purchases of loans receivable					(35,111	)		—
Acquisition of Wunderlich, net of cash acquired $4,259					—			(25,478	)
Cash acquired from acquisition of FBR & Co.					—			15,738
Acquisition of other businesses					(4,000	)		(2,052	)
Acquisition consideration payable -United Online					—			(10,381	)
Purchases of property and equipment and intangible assets					(2,314	)		(550	)
Proceeds from key man life insurance					—			6,000
Proceeds from sale of property and equipment and intangible assets					37			619
Equity investments					(6,856	)		(1,015	)
Dividends from equity investment					1,695			—
			Net cash used in investing activities		(46,549	)		(17,119	)
Cash flows from financing activities:
Proceeds from asset based credit facility					300,000			65,987
Repayment of asset based credit facility					(300,000	)		(65,987	)
Payment of contingent consideration					—			(1,250	)
Proceeds from notes payable					51,020			—
Repayment of notes payable					(51,591	)		(8,214	)
Proceeds from issuance of senior notes					255,290			89,330
Payment of debt issuance costs					(6,356	)		(2,093	)
Payment of employment taxes on vesting of restricted stock					(4,106	)		(2,683	)
Dividends paid					(17,912	)		(13,493	)
Repurchase of common stock					(17,338	)		—
Distribution to noncontrolling interests					(915	)		(2,878	)
			Net cash provided by financing activities		208,092			58,719
			Increase (decrease) in cash, cash equivalents and restricted cash		82,648			(7,179	)
			Effect of foreign currency on cash, cash equivalents and restricted cash		(796	)		3,458
			Net increase (decrease) in cash, cash equivalents and restricted cash		81,852			(3,721	)
Cash, cash equivalents and restricted cash, beginning of year					152,534			115,399
Cash, cash equivalents and restricted cash, end of period				$	234,386		$	111,678

Supplemental disclosures:
Interest paid				$	35,289		$	11,513
Taxes paid				$	2,455		$	11,668

B. RILEY FINANCIAL, INC. AND SUBSIDIARIES Segment Financial Information (Unaudited) (Dollars in thousands)

			Three Months Ended						Nine Months Ended
			September 30,						September 30,
			2018			2017			2018			2017
Capital Markets reportable segment:
	Revenues - Services and fees		$	67,389		$	56,782		$	191,621		$	96,181
	Interest income - Securities lending			8,954			6,897			22,836			9,115
	Total revenues			76,343			63,679			214,457			105,296
	Selling, general, and administrative expenses			(57,207	)		(53,955	)		(168,559	)		(87,753	)
	Restructuring charge			(428	)		(3,322	)		(2,457	)		(7,245	)
	Interest expense - Securities lending			(6,425	)		(4,950	)		(16,317	)		(6,515	)
	Depreciation and amortization			(1,309	)		(1,636	)		(4,428	)		(2,167	)
		Segment income (loss)		10,974			(184	)		22,696			1,616
Auction and Liquidation reportable segment:
	Revenues - Services and fees			2,459			7,376			44,812			43,179
	Revenues - Sale of goods			48			1			48			1
		Total revenues		2,507			7,377			44,860			43,180
	Direct cost of services			(838	)		(3,385	)		(12,263	)		(25,482	)
	Cost of goods sold			(24	)		(2	)		(41	)		(2	)
	Selling, general, and administrative expenses			(1,289	)		(1,963	)		(7,787	)		(6,562	)
	Depreciation and amortization			(7	)		(5	)		(23	)		(15	)
		Segment income		349			2,022			24,746			11,119
Valuation and Appraisal reportable segment:
	Revenues - Services and fees			9,404			9,043			27,383			24,799
	Direct cost of services			(4,067	)		(3,778	)		(12,388	)		(11,031	)
	Selling, general, and administrative expenses			(2,379	)		(2,253	)		(7,138	)		(6,395	)
	Depreciation and amortization			(56	)		(43	)		(159	)		(130	)
		Segment income		2,902			2,969			7,698			7,243
Principal Investments - United Online segment:
	Revenues - Services and fees			11,403			12,249			34,170			38,504
	Revenues - Sale of goods			24			78			90			220
	Total revenues			11,427			12,327			34,260			38,724
	Direct cost of services			(3,251	)		(2,975	)		(9,082	)		(9,711	)
	Cost of goods sold			(28	)		(122	)		(101	)		(311	)
	Selling, general, and administrative expenses			(2,348	)		(2,433	)		(6,321	)		(8,536	)
	Depreciation and amortization			(1,682	)		(1,703	)		(5,040	)		(5,313	)
	Restructuring charge			—			(150	)		—			(633	)
		Segment income		4,118			4,944			13,716			14,220
Consolidated operating income from reportable segments				18,343			9,751			68,856			34,198

Corporate and other expenses (including restructuring				(5,505	)		(8,395	)		(16,938	)		(19,571	)
recovery of $210 during the nine months ended September 30, 2018; and
restructuring charge of $1,424 and $3,606 during the three and nine
months ended September 30, 2017, respectively.
Interest income				442			76			736			358
Income (loss) on equity investments				828			(157	)		5,049			(157	)
Interest expense				(9,340	)		(2,510	)		(23,926	)		(5,195	)
	Income (loss) before income taxes			4,768			(1,235	)		33,777			9,633
(Provision for) benefit from income taxes				(2,046	)		1,357			(8,412	)		7,753
	Net income			2,722			122			25,365			17,386
Net (loss) income attributable to noncontrolling interests				(92	)		(246	)		1,051			(283	)
	Net income attributable to B. Riley Financial, Inc.		$	2,814		$	368		$	24,314		$	17,669

B. RILEY FINANCIAL, INC. AND SUBSIDIARIES Adjusted EBITDA Reconciliation (Unaudited) (Dollars in thousands)

				Three Months Ended						Nine Months Ended
				September 30,						September 30,
				2018			2017			2018			2017
Net income attributable to B. Riley Financial, Inc.				$	2,814		$	368		$	24,314		$	17,669

Adjustments:
	Provision for (benefit from) income taxes				2,046			(1,357	)		8,412			(7,753	)
	Interest expense				9,340			2,510			23,926			5,195
	Interest income				(442	)		(76	)		(736	)		(358	)
	Share based payments				3,074			2,773			8,310			5,288
	Depreciation and amortization				3,098			3,416			9,768			7,706
	Restructuring costs				428			4,896			2,247			11,484
	Transactions related costs				648			480			2,193			6,155
	Fair value adjustment				—			2,750			—			9,000
	Insurance settlement recovery				—			—			—			(6,000	)
		Total EBITDA adjustments			18,192			15,392			54,120			30,717

			Adjusted EBITDA	$	21,006		$	15,760		$	78,434		$	48,386

B. RILEY FINANCIAL, INC. AND SUBSIDIARIES Adjusted Net Income Reconciliation (Unaudited) (Dollars in thousands, except share data)

				Three Months Ended						Nine Months Ended
				September 30,						September 30,
				2018			2017			2018			2017
Net income attributable to B. Riley Financial, Inc.			$		2,814		$	368		$	24,314		$	17,669
Adjustments:
	Share based payments				3,074			2,773			8,310			5,288
	Amortization of intangible assets				2,093			2,172			6,399			5,248
	Restructuring costs				428			4,896			2,247			11,484
	Transactions related costs				648			480			2,193			6,155
	Fair value adjustment				—			2,750			—			9,000
	Insurance settlement recovery				—			—			—			(6,000	)
	Income tax effect of adjusting entries				(2,628	)		(3,066	)		(5,411	)		(13,569	)
	Tax benefit from tax election to treat acquisition of UOL				—			—			—			(8,389	)
		as a taxable business combination
Adjusted net income attributable to B. Riley Financial, Inc.			$		6,429		$	10,373		$	38,052		$	26,886

Adjusted income per common share:
	Adjusted basic income per share		$		0.25		$	0.40		$	1.47		$	1.21
	Adjusted diluted income per share		$		0.24		$	0.38		$	1.42		$	1.15

Shares used to calculate adjusted basic net income per share					25,968,997			26,059,490			25,856,339			22,180,808
Shares used to calculate adjusted diluted net income per share					26,854,261			27,639,862			26,776,133			23,385,014

Source: B. Riley Financial, Inc.

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