B. Riley Financial (RILY) 7 May 182018 Q1 Earnings call transcript

Good afternoon, and welcome to the B. Riley Financial's First Quarter 2018 Earnings Conference Call. My name is Doug, and I will be your operator for today's call.

Joining us for today's call are B. Riley Financial's Chairman and CEO, Bryant Riley; President, Tom Kelleher; and CFO and COO, Phillip Ahn.

will the we for remarks, their open call up questions. Following call. I'll we made necessary this conclude before provide by today's during statements Then, forward-looking call, the the cautions management regarding this I call available would replay link section Investor a in via remind website of like everybody the for will recorded company's and to be made the Relations available that at www.brileyfin.com.

and proceed. to turn the Financial's Chairman to the B. Please Riley. over like CEO, call would Bryant I Now, Mr. Riley

for you of joining for Doug. the Welcome, thank Thanks, issued XXXX release and this call press first XX, We financial us afternoon. today. March everyone, our for earlier quarter our ended results

You our the to website. section can a of IR copy release on find the

generate be business part cash our the strategically Investments as cash generated We flow pleased capitalize and flow liquidation and Market us engagement of returns. results continue segment. opportunities and record quarter our our to XXXX in contributed results XXXX another results designed model to in segments. modest from offset under our well with of strong a Liquidation our which first Capital in segment. which believe business Appraisal completions provide by with first we attractiveness Our quarter retail revenue were potentially to Principal we Auction gains driven broker-dealer to and following Online United of with business year results demonstrate more the solid our QX as large helped sources These the quarter to for recurring a by the outsized of steady as levels was have opportunities our the

meaningful profitable shareholders of is our to to mentioned balance and our have of we have fee our we capacity model key facilitate component far create utilization to increase of in leverage business create to cost and and our capital. we before, returns opportunities the believe sheet As our investments the excess

issued the income guidance million. EBITDA for of release million to net $XX we $X.X the can of range million from see have $XX in in adjusted range QX and you As our to XXXX, million $XX

While meaningful hand before to detailed important to Phil performance it strength merger will the the will Ahn, quarter Markets of analysis you Capital CFO walk that With to segments. I since we be we a it business into to contributors our of that, don't get felt the that be over more Phil? quarter. to current GA This expect with liquidation shareholders. provide our we of in our our typically was first through guidance highlight FBR our both same financial I individual and

welcome Bryant everyone. Thanks and

which For our revenues up the $XX.X million of accounting first million year. standards On adopted of classification XXXX in XXX. January $XX.X X, is totaled QX we XXXX quarter from last

our quarters future figures revenue financial will detail and this revised in in sources these discuss be for but not quarter Prior future of reported we in than more So for segment information will comparable captured we periods, historical have quarterly will reports. be previously.

first $XX.X quarter. loss the segment the Revenues year-over-year amounted fees services includes generated same and which Revenues from uptick generated from associated services revenues increase the is generated FBR the services segment, revenues and Management, of totaled mix of securities from Management in broker-dealer generated acquisitions to fees for and Asset for increased segment services XXXX. and for for and lending revenues Securities associated revenue lending. of Co. our by well Auction period. million Wunderlich Co. compares engagement includes completion and ago quarter Securities. the Capital as XXXX for segment our from with completed million $X.X securities retail quarter results the the interest months first XXXX. million income Liquidation our in Total This The by by results to company's first of the from primarily in million which $X.X our Markets combined first a quarter million first three segment Wealth this was year ago our this of as and Wunderlich of for acquisition $XX.X quarter businesses. driven $XX.X XXXX. in from to to The of $XX.X large include liquidation same and and million and from Turning and due up FBR first million during approximately in fees year XXXX $XX with the for Revenues is fees of segment The period. $XXX,XXX

Our Liquidation is which the ago in the $X.X an to XXXX first quarter same of income generated an of segment year Auction period. in and $X.X compared million increase million

stated, of [indiscernible] nature we retail this previously for revenues quarter-to-quarter reported the As the vary business. to from due expect segment to liquidations

partially to $X.X up $X.X first million XXXX in of the ago and and in period. the same was of XXXX. For $XX.X This quarter And segment period. revenues in of million goods This finally quarter compares million first of year Appraisal to ago the the $X.X for million year and XXXX generated same which first the driven United totaled of of Valuation first ago Online, from the fees million income which the for Investments quarter services primarily in for increased an sale in the XXXX million in same segment revenues our this year quarter by to $XX.X period. our consists $X.X currently Principal segment compared segment by

Online's decline nature time. to calls, prior revenues have over due business, we the As mentioned United to of expect we in

this the decrease for million quarter $X.X first period. in XXXX revenues, compared income when in ago despite to increased the generated of this income segment year $X.X in reported However, in million same

million per period. in which income same net or a are $XX as share was net QX in to year share. to attributable or our turning diluted ago This compares Now $X.XX our $X.XX XXXX Riley $X.X profitability the B. to whole, metrics for income Financial million per diluted

the first compares adjusted in million net totaled $XX adjusted year share same $XX.X quarter metric, which the adjusted or or diluted which first metric, net non-GAAP reported income income of totaled compares $X.X the to EBITDA in diluted of million a $X.X period. to reported is XXXX year $X.XX share. quarter is per $X.XX million per EBITDA, For million for Adjusted period. another in ago This in ago XXXX. same non-GAAP the This

nearest EBITDA earnings you financial and net discussion in and measures measures. release a to of GAAP For refer adjusted reconciliation to non-GAAP can the the further today's section about use adjusted regarding income,

was equity million net million XX, as of $XX.X million was XXXX. owned XXXX and equivalents, other in million March up total end $XXX balance million restricted from of investment million and cash, our to securities XX, XXXX as cash $XXX.X March from debt. in Total million clearing in which turning cash brokers, Now in of sheet, at and due $XX.X $XXX.X unrestricted stockholders' had we $XX.X $XXX.X the

Our press end approximately issued Subsequent shares of of release results always of million. to earlier we the XXX,XXX approximately end quarter quarter $XX.X outstanding at guidance our completed current shares the we repurchase were million. bringing the the the today. the shares to quarter in second We for issued total $XX.X our

businesses the $XX bottom to QX opportunities results they by QX on anticipate have fee and million line potential our XXXX from $XX million. larger we consistent broker-dealer and in Auction and impact range driven may United Liquidation the in our businesses. addition of [indiscernible] the to performance Online range adjusted and in EBITDA $X.X million impact XXXX range the ahead This net the of million the of Looking in reflects income to $XX

regular Lastly, dividend of summary, as June XX, to May quarterly share XX, to per our That Board Directors my which of cents Bryant. now addition a per of $X.XX of XXXX. dividend special XXXX completes stockholders paid will or be our over back of approved the $X.XX I'll to call on turn financial so share in record about Bryant?

our strength overall our the and whole expense as disciplined indicative performance believe with QX and for and management. segments momentum of pleased a continued We're and business Phil. of are across results guidance the QX our most Thanks

diverse past presents of is head As platform strongest one with. our us we've in the amount opportunities of assets our the

vein some accomplishments in that our discussion fit of today's feed businesses B. the will broader all be how of into and this area. Riley recent by highlighted in So about our platform

Markets. was from a name our first banking complete the quarter with FBR. brokerage consolidated results with and QX Capital under combined start of Let's B. Riley

were and continued While positive costs slow then we quarter, breakeven. EBITDA reduce our fixed we and had a to lower our

generate first quarter. profits are expect highlights in well-positioned meaningful which a We in the environment from to A fee QX. we opportunity few larger

fintech transactions third a raised listed NASDAQ Our acquisition including in which stack Pointe FBR Capital company invest is since will offering have team sector. is the which underwrote several acquisition. Gordon This the for million Markets special-purpose a we the $XXX

we that quickly; sheet with [ph]. transaction to example three, we our believe force transaction deal being allows three distribution. on for us bought key million analyst our balance of We in a for one led to According also upsized and sales bright by our the marketed confidence of to One, Networks placed have the million quality driven Gaia $XX an is confidentially an process; us. research $XX business differentiators what successfully Limelight unparalleled two win and move opportunities our for a small-cap ability this

our piece and cash rate an how institutions. real A up pleased active. value quarter trading current environment standout very business held the are numbers offered we remains commission in the the equities of ATM is regular was was to sales While which our business our important have challenging, with for and our desk

in involved and XX was estate, primarily largest the fact In March single issuers sectors. were different We in healthcare, history. over in real the energy our month

and we is number a Our in actively units to in that close expect advisory sell several restructuring mandates involved side QX. closed on and of transactions

size general QX. across Management under side Wunderlich larger segment. trend We in legacy billion approximately administration our of seeing $X.X management Group for are assets our remained wealth far deal at Wealth On a this

anticipate As is stable our business previously acquisitions and big predictable our mentioned, of Wealth of outside don’t more in parts one segment. we this of swings Management

Wealth to we consolidate to be will changing Management the look Riley our this brands. We of as group name B.

whole and up multi-event we month. firm a has to which us Institutional product companies research and than a our out than will have to currently our which later more more to companies more our of can are afforded well attendees. we annual growth The with as We the of our diverse as Investor gearing place coverage this presenting year more XXth for companies credited XXX anticipate This as future than expanded be pool Conference Annual our growth XXX takes of events. under XXXX

to segment. we was continued our and is for Bon-Ton American extremely of liquidation with $X.X $X generated Liquidation the lead and QX represent our announced to in billion of off scale active completion a The starting bid first speaks quarter our competitive business the generated the believe space. liquidation compared net over the the with income retail we something The the Bon-Ton deals Great reflecting is to Canada million million liquidation which Partners. on JV dispositions month for leader the of increase Liquidation Stores. income Last Auction also Moving Toys“R”Us combined want the quarter Toys“R”Us a a started and XXXX. on with the of as in liquidation start the asset of world-class this that successful in Being $X.X a the Sears quarter involved significant of inventory. large to position we

and in is the one-time creditors holders the senior sale to paydown associated liquidation. Riley platform win a Bon-Ton Our Proceeds of debt at the of secured usual costs with note to Bon-Ton play. addition go B. example to great

in was providing while liquidators, deal case to structure our to the compelling a for bring the JV outbid Our ability this creditors. enhanced table competitive returns other edge to

of the our more involved types see these advantage especially get take trends of opportunity in continued to platform, to structures expect as creative retail in that We deal unique accelerate.

American Valuation Appraisals business. of to part and moving segment Great our Now

strong and asset another our after in Our our expertise how clients steady and appraisal and quarter based cross-platform business of leveraging long-term maintain quarter sever marquee Appraisal transactions we're business for earnings QX. continues lending example relationships to using supported

are we our verticals client to healthy of sources. base expand growth our our out building sponsors institutions and financial financial addition appraisal with industry customers In direct focus deal helped which and has corporates core to

moving Investments to our Now segment. on Principal

beyond income flow. a businesses and to focus allows our the standpoint a of with plan United drives generation Our shareholders. should us for accomplishments expectations. to Principal is small while of cash Investments next next to be few with approach these us steady to operating months ahead apply to the practices highlighted industry and cash years. few United An paid Group acquiring acquired expertise of from our fully apply equity company the mandate is sized deal assets We EBITDA on cash in which and source how and mid-cap United investing continues for over generation example strong Online in private continuing generation leverage a and we by our and company perform XXXX. Online the operating Online since generate is significant is investor

a for we significant closely previously transaction stake and to small As through Investments Bebe to well-positioned are platform advantage Group. acquired controlling that our approximately announced company working $XXX of we Stores This acquisitions the identify are with serves as acquisitions Principal million. the midsized Bebe's in NOL of take

closing to Investments expect process In close to announced segment look previously we our to the quarters three and is its within our transaction in future addition, months customary next once Principal forward magicJack the complete. the discussing contributions

our our play to accretive structures service Financial integrated businesses we and has for opportunities to cross-platform for be in Riley for relevant office more an apply leverage are been. and have of business growth With investors questions. very B. help model to expand diversify The ready created as we and the ever call we're we're excited opportunities clients. as your we more power at that help work the about We our as business that, excited our platform to open what deal attractive believe

from first Our your Capital. question the comes of question. with Instructions] Wes Cummins Please [Operator with proceed line Nokomis

a the that deal that Hey could will Bryant, you guys And be after next anything sounds know the typically other Are Principal magicJack first year we then Hi where run just you steady way looking rate deal the Investments, opportunities there? since three in that's you months think also on business, question the you said at thanks. close. expect closes? dividend and it the about on a may

we with, be we see Hey that do to know opportunities what super opportunistic. really so than almost got got be I they've think Wes, good they've so look to to really, more and

I this to really and do trying they said out other I become calls, know place more want seller. attractive a you take not So think call will or advantageous liquidation a think We than to the to need something. really company people to to us, we It's we're dissimilar when not are to that on we dispose off able or our opportunities, purchase it of if way in is want before what do business. is be asset to but I find maybe so a that

of it relates XX% to a we how to the about we that's flows, way you new lessons returns to I As public getting to think distribute shareholders. shareholders. magicJack the the know to our XX% right goal went first We cash what we set when we of acquisition giving going would to say through our GA also are thought our EBITDA out balance and is,

and look in quarter, We the behave to very that have broad shares comfortable I that to we manner felt why would enhanced I this going but that of come the going was And we continue was the decent way. and cash react every because always really way a so magicJack of I in that. purchase, in base is similar quarter bit same expect flow by United expect Online. the Online kind to same that's would a sized dividend would say we we type we of United asset to would and we strongly that that to purchase believe be a would

with help the guess takes to what high high of guidance, I the of just guidance is even I towards lower can quarter you've if end Okay, last it kind think the given the end times, you've of above maybe done the guidance you the towards you guidance is, thanks. the of for and understand? of I for couple historically the puts me the And not ahead, at quarter, more that at be gets risk you that end know, high up have or end if what's then even question or a I when

us would, wouldn’t happen would on we we're for if, be be know about to the low would have to would would it be we dictate things is that expect to some some for end hopeful have logic I the would think don’t even say would of So the I that way in about there us and maybe things happening high to that end yet happen. we

the And the so providing both is be particularly – we excited to guidance quarter about contributing. that are very think excited we're because looks that are not paying feel I good and sides most or and off to we really how really meaningful this platform contributors that I'm

QX and made of in money remember, money reversed. was lost broker-dealer liquidation lot completely you and the If a then business this the

I'm it So now as them we it and meaningful we but see excited of now that change, see be things a will as it both contributor. can

something I some we it would lower the is way we're in because move would be, and things we're it's things be events a be events realize the can that some be would would of on again, side So it. we fees not We it's bad higher would have our higher in to and range, the we're some – those that the say expecting but a tough would really not big expecting, that the upside not the look have of needle. binary between the one big, you middle at and range, binary

So manage a tried that to bit. we

guidance Bryant. Okay, great. The looks good. Thanks

Thanks Wes.

proceed line with Haydon of Please the from your with Sean comes question. question next THC. Our

customers or the questions you Management one quarter. trends business, churn like as have been has congrats any form of under you I with just seen us? on the to that so to beginning share Hey, banner, are you'd few a guys Wealth had any on there

overall worth would that I overall not and really What do to and think of firm deal and I most we successful transaction. contribution a better we're been I recent of also, I the part starting some that's firm. our was the any did we've of seen the is are the say have the attempted do to know, offerings When trends with noting. retail brokers the merits participation and of happy solve You

and which can we're little extent bit biggest are that passive will to lot transactions I that So start see think sort some and the even think industry a we'll of matters at in get but can relevance. the side more is can hope off, a that little the we But be facing better I investors investor a things bit institutional is we we departures. we of that and we more retail that we're they or the that successful if at seeing we have see a – get meaningful that to look point and we picking more of in same no across thing get churn

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really So a be than business I basis EBITDA XX%. less overall of distribution, rate on but the important a it's for likely look think, will run business that

and how So kind million our the it's less part we a deal and those us as some announced $X the not so of we've rates it think and $XX - mentioned. want business, was revenue business don't as Phil they're want scheme when those business I we think I'm I we helps to, ones little but a But we quite than historically can and the bit and run I given, I of said significant aren't sure win $XX it's much you can, million focus on it of dissimilar to that other in $XX much of don't overall around million and still but million types of numbers. other of in to a things even EBITDAs

grade. - you think you where year? any update just Bryant five for progress but I it’s then the So on A mutual Riley four for full give an rest could or in of row, and business, a in heading great right, fund All the see calls the If that that of

million think four we gained just is the are that you is know mutual comes for here, money counting it, this on generate or Incredibly outperforming. it are it and you if and keep can But you you outperforming momentum, just get a million where results putting I can we there option and while keep week we're and funds, a relative good thought and a pick We do look some it's of don't in at it's ton. to and right or of fair not we're really know and but needle something periodically call the every costing rest it's I is assets stars often I but now amount not us my funds. slowly going the a a intuitively to our that's and it's But surely money. move growing, thought that anything again up

great. Okay, congratulations. Thanks guys and

I questions, the for appreciate you it. Thank

Yep.

are for more like over There Riley Instructions] Queue. Bryant [Operator no to I’d questions to back call in the closing hand the comments.

you. shareholders. next a We most and you the pushing have thank thank of we the and reporting to we appreciative and that good and at continue B. our Doug so of Well, who appreciate excited support Thanks quarter, we once of our support vendors and Riley are of everybody again the along really much importantly and appreciate works appreciate day. efforts very

Riley like Before this that Harbor made would I includes call. important forward-looking we conclude Safe during provide to Financial's statement call, cautions regarding statements today's B.

X, financial without expressions assume, FBR the quarter project, regarding call, words anticipated for based limitation, value plan, seek, regarding of and performance, acquisitions shareholders, and including, pending as should, our uncertainties, and containing increase continue, our and the case expected Because not the at exhaustive. included manage size effects each outlook, to and statements potential anticipated this opportunities loss as timeframes expectations term leverage upon related discussion in regarding Online, May actions, forward-looking the based in statements transactions here and model there are unknown on measures for does included posted update acquisitions SEC our and duty of Form known are in the statements readers the report information there intend, reconciling our a the future thereof included investments financial consistency uncertainties earnings, for not These our impact segments. business regarding on GAAP of Co. future to believe, and and are expressed growth, on events Wunderlich reports future Inc., and that as measures and dividends, information not no well the of of second that consummate involve non-GAAP undue expectations XX-Q risks is effects defined our not The forecast, business these impact, statements include, financial should timing historical of filings call of directly be & forward-looking and place www.brileyfin.com. XXXX, are in these call make Such All within or financial anticipate, financial of to Regulation events may, conference results website ability risks described limited implied not with clients, to company's to, such or year ability at cause as important in XXXX, factors significant today's but Inc., financial prepared statements. with of statements. risks our to B. Other expected is by considered X-K are pending completion our future similar plans ability benefits carefully, the risks and future which ended on such materially Riley could or that case engagements; financial During factors and and forward-looking transactions factors and in from with include associated and periodic or United release, expected developments financial XX, or implied expressed growth, add information company's timing Such and all the within are and and on to thereof, our institution measures were reliance or the we GAAP each facts, results, XX-K timeframes undertakes discussed predict, the forward-looking expect, acquisitions, at that our cautioned forward-looking or expected actual in to those differ the Securities, intend Forms cost G. target, circumstances. and today, subsequent these time-to-time. statements statements. returns and savings to this statements other comparable will, Annual the earnings respect from are completed non-GAAP accordance December estimate, Further, most is the could, with on

to the a link Finally, available section today's call. XXXX for the be remind earnings B. that via available replay call recording Riley’s a I first of would like for will today joining website. Investors in for everybody you us conference of Financial company's quarter Thank

disconnect. now may You