B. Riley Financial's (RILY) Management on Q1 2021 Results - Earnings Call Transcript
B. Riley Financial, Inc. (NASDAQ:RILY) Q1 2021 Earnings Conference Call May 3, 2021 4:30 PM ET
Company Participants
Bryant Riley – Chairman and Co-Founder and Co-Chief Executive Officer
Phillip Ahn – Chief Financial Officer and Chief Operating Officer
Tom Kelleher – Co-Founder and Co-Chief Executive Officer
Conference Call Participants
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.
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, you may proceed.
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.
During the quarter, our appraisal business, brand portfolio and principal investment companies continue to perform steadily, serving as an important contribution of cash flow for our platform. And while it has been a slower environment for retail liquidations, we're continuing to work with retailers to navigate issues that existed pre-COVID. Coming off two strong quarters, our results demonstrate the earnings power of our platform. We recognize we're in a highly cyclical business and with the diversity of our platform, we believe B. Riley is exceptionally well positioned to support our clients and partners through both up and down cycles.
In summary, we have operating results, which include the businesses that perform services for our clients and generate cash flow and our strategic investments, which are often enhanced through utilization of our business services and have the potential to produce outsized returns. In taking a balanced approach to capital allocation, we also strongly believe it is important for our shareholders to share in our success.
To that end, we have declared a total dividend of $3 per share, which approximates the free cash flow generated by our businesses during the quarter. We have returned approximately $345 million to our shareholders for dividends and share repurchases since 2017. With a strong balance sheet of over $650 million in cash and investments, net of debt at the end of the quarter, we feel a meaningful return of our capital to our shareholders is warranted and can be done while continue to aggressively invest in our business.
Taken together, this has been one of the strongest periods in B. Riley's history and by many measures. Last month, B. Riley Financial was added to the S&P 600. It has been truly exciting and gratifying to see the growth of our company over the past five years, and our continued momentum only validates our strategy. We could not have accomplished the success without the hard work and dedication of our world-class team of professionals.
We believe in the strength of our people and our platform to continue to deliver for all of our stakeholders in the years ahead. It is truly amazing what has been accomplished in the last year.
With that, I'll turn the call over to Phil to share a brief summary of our financial metrics for the quarter. Phil?
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.
Operating adjusted EBITDA increased by 73% to $122.7 million, up from $70.9 million for the prior year period. As a reminder, adjusted EBITDA and metrics for operating and investment results are non-GAAP financial measures. For a definition of these terms as well as a reconciliation to the nearest GAAP measures, please refer to our earnings release. Additional details related to our operating metrics can also be found in the financial supplement located on our Investor Relations website.
And as noted in our previous calls, we continue to review our reportable financial metrics to provide our investors with greater visibility into our overall performance and results of operations. During the quarter, we have added Wealth Management as a sixth reporting segment, in conjunction with our acquisition of National Holdings in February. Wealth Management was previously reported under our Capital Markets segment, and we have recast our segment presentations in the relevant materials to reflect these changes.
Now turning to our segment results. Capital Markets is our largest segment and includes our investments in operating results from investment banking, institutional brokerage and our fund management businesses. Excluding investment gains, Capital Markets operating revenues increased 118% to $207.9 million, up from $95.5 million for the prior year period. Segment operating income totaled $106 million.
As noted earlier, Wealth Management includes results from our recent acquisition of National, in addition to our existing business. Wealth Management generated revenues of $67.9 million for the quarter, and segment income was $4 million. Combined client assets under management totaled approximately $31 billion as of March 31, 2021. Auction and Liquidations generated revenues of $13.5 million for the quarter, and segment income was $907,000.
As we have noted on prior earnings calls, our Liquidation segment results tend to vary from quarter-to-quarter and year-to-year due to the impact of large retail liquidation projects. Financial Consulting revenues increased to $21.4 million compared to revenues of $20.7 million for the prior year period. Segment income was $3.3 million. Principal Investments, which includes results from magicJack and United Online contributed revenues of $20.5 million and segment income of $7.5 million for the first quarter.
Lastly, our brand segment, which includes licensing revenues related to our brand investments portfolio, generated revenues of $4.5 million and segment income of $3.1 million.
Now turning to some highlights from our balance sheet. As of March 31, B. Riley Financial had $237.6 million in unrestricted cash and cash equivalents, over $870 million in net securities and other investments owned, and $282.9 million of loans receivable net of loans participations sold. We had a total cash and investments balance of approximately $1.9 billion, which includes $49 million of other equity investments included in prepaid and other assets.
Net of debt, B. Riley Financial's cash and investments totaled over $650 million at quarter end. Finally, we declared a total dividend of $3 related to our first quarter earnings, this includes our $0.50 regular quarterly dividend and a special dividend of $2.50. The quarterly dividend will be paid on or about May 28 to common stockholders of record as of the close of business on May 17.
That completes my financial summary. I'll turn the call over to our co-CEO, Tom Kelleher, to discuss our individual business units. Tom?
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.
What is particularly noteworthy is this new service can potentially be used by any of the 1,000s of companies with which we interact. Despite a soft lending market, our appraisal division steadily performed during the quarter while continuing to serve as a strong source for business referrals across our platform. Turning to Liquidation. Retailers have found temporary relief as companies hold out to assess performance post-pandemic. Despite this, B. Riley Retail Solutions completed several small store closing projects during the quarter, including stock and field. The balance of our engagements were with returning clients. These client relationships helped drive our results for the quarter in lieu of major retail bankruptcies, which have historically lifted our retail liquidation results.
Similar to retail liquidation, our real estate disposition practice experienced some softness in the quarter. In spite of this, we completed a number of projects that started late last year, including Rubio's Coastal Grill, In-Shape Fitness and JCPenney. The commercial real estate sector has come into focus as an area of opportunity for several of our restructuring-related businesses to collaborate, including banking and consulting. In addition, we are exploring ways to put capital work through acquisitions of distressed real estate.
Finally, our Principal Investment companies and our Brand portfolio continues to provide cash flow for our platform. magicJack and United Online continue to steadily outperform our own estimates, and we are working to obtain the necessary regulatory approval to complete a majority investment in lingo, which would be a material addition to our Principal Investment platform. At the same time, we are seeking additional businesses to complement our current portfolio and are continuing to assist our other minority investment companies with acquisition.
In addition to the normal course of our business, we have undertaken efforts to continue to elevate our brand while educating the market on our platform and affiliated B. Riley businesses. These efforts began in earnest with the rebrand of our acquired legacy firm late last year. Our brand, as a diversified leading financial services company, is resonating, thanks to the superior work of our teams and our sales force.
We're seeing much more connectivity and touch points across all of our business units, which has enhanced the value we deliver to our clients. With a strong brand and our world-class team, we continue to be as excited today as we were when we started the business 24 years ago. As always, we will keep our focus. There's always more to be done. However, our foundation is strong, and we believe we are exceptionally well positioned to continue to deliver in the years ahead.
With that, we'll open the line for questions and then turn the call back over to Bryant for closing remarks.
Question-and-Answer Session
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions] 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. [Operator Instructions] 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.
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Comments (24)
last few weeks after blowout earnings...dont forget rily does buy back their
shares so that should help keep a floor..big run up lately so sooner or later
it had to correct.. bizarre though i do agree.. i bought some more this morning..you never know with the stock market.. will humble you indeed
what can i say?? Buy, buy, buy!!!
When the company value will be double- then we will see the geniuses from Wall Street.
Wait for it to rise another 100% and then lets see.
The funny thing is that they are doing deals on the market but still no one is looking at them.
But i am happy with the company expanding, EPS and DIVIDENDS so i am just fine here.