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 
                   

 

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