B. Riley Financial Reports Record Results for the Third Quarter of 2019

Q3 revenues of $180.1M, adj. EBITDA of $70.3M, net income of $34.3M; earnings per diluted share of $1.21

Quarterly dividend of $0.65 per share brings total YTD dividends to $1.49 per common share

Board of directors authorize $50 million share buyback program

News provided by

Oct 30, 2019, 16:01 ET

LOS ANGELES, Oct. 30, 2019 /PRNewswire/ -- B. Riley Financial, Inc. (NASDAQ:RILY) (the "Company" or "B. Riley"), a diversified provider of business advisory and financial services which operates through several wholly-owned subsidiaries, today announced financial results for the third quarter ended September 30, 2019.

Third Quarter 2019 Highlights

Total revenues of $180.1 million
Net income of $34.3 million or $1.21 per diluted share
Adjusted EBITDA of $70.3 million
Adjusted net income of $40.0 million or $1.42 per diluted share

"We are extremely pleased to report record results in our third quarter earnings. These results speak to the strength of our individual businesses, combined with the synergies and opportunities being created throughout B. Riley Financial. The value created by our combined businesses continues to exceed our expectations, and we believe our quarterly and year-to-date results demonstrate the earnings power of our company. Over the last five years, we have transitioned from a traditional investment banking and brokerage business into a diversified platform of companies which provide both recurring and episodic revenues. We have utilized the broad capabilities of our enhanced platform to create investment opportunities for ourselves and our clients, while at the same time expanding our service revenues organically and through acquisitions," said Bryant Riley, Chairman and Co-Chief Executive Officer of B. Riley Financial. "As a strategic matter, we use our balance sheet in situations where we can source off market, proprietary investment opportunities in partnership with our operating businesses. This strategy has created a tremendous number of investment opportunities, often combined with meaningful fee revenue, which have added to our short-term profits as well as our recurring revenues. We are mindful that a balance between steady revenues and episodic opportunities is critical, and today's announcement about the formation of our brand investment platform is a continuation of our efforts to grow recurring revenues."

Third Quarter 2019 Financial Summary
For the three-month period ending September 30, 2019, total revenues increased to $180.1 million compared to $99.7 million in revenues for the third quarter of 2018. Strong performance from the Company's Capital Markets and Auction and Liquidation segments contributed to record results for the quarter. Revenues have increased across each of the Company's segments over the respective same year-ago period for the third consecutive quarter. Through the first three quarters of 2019, the Company generated total revenues of $486.9 million.

Capital Markets Segment: Revenues increased to $134.1 million from $76.3 million for the same year-ago period. Segment income increased to $52.4 million from $11.0 million for the same year-ago period.
Auction and Liquidation Segment: Revenues increased to $11.3 million from $2.5 million for the same year-ago period. Segment income increased to $6.0 million from $0.3 million for the same year-ago period.
Valuation and Appraisal Segment: Revenues increased to $10.8 million from $9.4 million for the same year-ago period. Segment income totaled $3.5 million compared to $2.9 million for the same year-ago period.
Principal Investments Segment: Revenues increased to $23.9 million compared to $11.4 million for the same year-ago period. Segment income increased to $8.7 million compared to $4.1 million for the same year-ago period.

Net income attributable to B. Riley Financial increased to $34.3 million or $1.21 per diluted share for the third quarter of 2019 compared to $2.8 million or $0.10 per diluted share for the same year-ago period. Net income increased to $64.5 million or $2.37 per diluted share for the nine months ending September 30, 2019.

Adjusted EBITDA increased to $70.3 million for the third quarter of 2019 compared to $21.0 million for the same year-ago period; and increased to $157.6 million through the first nine months of 2019. Adjusted EBITDA includes earnings before interest, taxes, depreciation, amortization, restructuring costs, share-based payments, and transaction related and other costs. (See "Note Regarding Use of Non-GAAP Financial Measures" below for further discussion of this non-GAAP term.)

Adjusted net income increased to $40.0 million or $1.42 per diluted share compared to $6.4 million or $0.24 per diluted share for the same year-ago period. Through the first three quarters of 2019, adjusted net income increased to $84.6 million or $3.11 per diluted share. Adjusted net income excludes the impact of share-based payments, amortization of intangible assets, restructuring costs, transaction related and other costs, and tax impact of aforementioned adjustments. (See "Note Regarding Use of Non-GAAP Financial Measures" below for further discussion of this non-GAAP term.)

As of September 30, 2019, the Company had a total cash and investment balance of $844.6 million, including approximately $81 million in equity investments and deposits included in prepaid expenses and other assets. Net of $773.9 million of total debt, the Company had a net cash and investment balance of $70.7 million at the end of the third quarter.

Total B. Riley Financial stockholders' equity increased to $298.9 million as of September 30, 2019.

Declaration of Dividend
The Company's Board of Directors has approved a special dividend of $0.475 per share in addition to the regular quarterly dividend of $0.175 per share. The total quarterly cash dividend of $0.65 per share will be paid on or about November 26, 2019 to stockholders of record as of November 14, 2019. Upon payment, the Company will have distributed a combined total of $1.49 per share in dividends on its common stock to its shareholders, year-to-date.

Share Repurchase Program
The Board has also approved the repurchase of up to $50 million of the Company's outstanding shares of common stock during the year ending October 31, 2020. The share repurchases may be effected on the open market at prevailing market prices from time to time as market conditions warrant, or in privately negotiated transactions. All purchases will be implemented in accordance with the company's securities trading policy and applicable requirements of Rule 10b-18 under the U.S. Securities Exchange Act of 1934, as amended, or other legally permissible ways in accordance with applicable rules and regulations.

Conference Call
Bryant Riley, Chairman and Co-CEO; Tom Kelleher, Co-CEO; and Phillip Ahn, CFO and COO, will host a conference call today at 4:30 p.m. Eastern time (1:30 p.m. Pacific time) to discuss the Company's financial and operational results, followed by a question and answer period.

Please call the conference line 10 minutes prior to the start time and an operator will register your name and organization. The live broadcast and archive will be available on the Company's investor relations website.

Q3 2019 Earnings Call Details
Date:	Wednesday, October 30, 2019
Time:	4:30 p.m. Eastern time (1:30 p.m. Pacific time)
Toll-Free:	1-877-451-6152
International:	1-201-389-0879

Replay Dial-In (expires on Wednesday November 6, 2019)
Toll-Free:	1-844-512-2921
International:	1-412-317-6671
Replay Pin:	13695614

For more information, visit ir.brileyfin.com.

About B. Riley Financial
B. Riley Financial provides collaborative financial services tailored to fit the capital raising and business advisory needs of public and private companies and high-net-worth individuals. B. Riley operates through several wholly-owned subsidiaries which offer complementary end-to-end capabilities spanning investment banking and institutional brokerage, private wealth and investment management, corporate advisory, restructuring, due diligence, forensic accounting and litigation support, appraisal and valuation, and auction and liquidation services. Certain registered affiliates of B. Riley originate and underwrite senior secured loans for asset-rich companies. The Company also makes proprietary investments in 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. 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, statements regarding the Company's anticipated results of operations for 2019, expectations regarding the size and consistency of returns, expectations regarding market dynamics, as well as our expectations regarding our business strategies and the expected growth of our business segments. Other factors that could adversely affect our operating results and cash flows include (without limitation) those risks described from time to time in B. Riley Financial's periodic filings with the SEC, including, without limitation, the risks described in B. Riley Financial's Annual Report on Form 10-K for the year ended December 31, 2018 under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Additional information will be set forth in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019. 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 the Company 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, fair value adjustment, transaction and other 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.

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


				September 30,		December 31,
				2019		2018
					(Unaudited)
Assets
Assets:
	Cash and cash equivalents			$	170,587	$	179,440
	Restricted cash				471		838
	Due from clearing brokers				27,791		37,738
	Securities and other investments owned, at fair value				326,616		273,577
	Securities borrowed				720,207		931,346
	Accounts receivable, net				47,419		42,123
	Due from related parties				6,689		1,729
	Loans receivable				295,898		38,794
	Prepaid expenses and other assets				112,309		79,477
	Operating lease right-of-use assets				49,642		—
	Property and equipment, net				13,171		15,523
	Goodwill				220,562		223,368
	Other intangible assets, net				79,488		91,358
	Deferred income taxes				36,041		42,399
		Total assets		$	2,106,891	$	1,957,710
Liabilities and Equity
Liabilities:
	Accounts payable			$	6,239	$	5,646
	Accrued expenses and other liabilities				115,062		108,662
	Deferred revenue				68,385		69,066
	Due to related parties and partners				2,814		2,428
	Securities sold not yet purchased				29,092		37,623
	Securities loaned				714,947		930,522
	Mandatorily redeemable noncontrolling interests				4,395		4,633
	Operating lease liabilities				63,817		—
	Notes payable				1,193		1,550
	Loan participations sold				28,872		—
	Term loan				71,393		79,166
	Senior notes payable				701,278		459,754
		Total liabilities			1,807,487		1,699,050

Commitments and contingencies
B. Riley Financial, Inc. stockholders' equity:
	Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued				—		—
	and outstanding as of September 30, 2019 and December 31, 2018, respectively.
	Common stock, $0.0001 par value; 100,000,000 shares authorized; 26,921,500 and 26,603,355				3		2
	issued and outstanding as of September 30, 2019 and December 31, 2018, respectively.
	Additional paid-in capital				259,237		258,638
	Retained earnings				41,957		1,579
	Accumulated other comprehensive loss				(2,345)		(2,161)
		Total B. Riley Financial, Inc. stockholders' equity			298,852		258,058
Noncontrolling interests					552		602
		Total equity			299,404		258,660
			Total liabilities and equity	$	2,106,891	$	1,957,710

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

			Three Months Ended					Nine Months Ended
			September 30,					September 30,
			2019		2018		2019		2018
Revenues:
	Services and fees		$	153,379		89,824	$	428,705		295,416
	Interest income - Loans and securities lending			25,766		9,785		54,147		25,406
	Sale of goods			918		72		4,023		138
		Total revenues		180,063		99,681		486,875		320,960
Operating expenses:
	Direct cost of services			12,441		8,156		55,210		33,733
	Cost of goods sold			911		52		3,835		142
	Selling, general and administrative expenses			96,587		71,782		274,468		216,603
	Restructuring charge			—		428		1,699		2,247
	Interest expense - Securities lending and loan participations sold			10,273		6,425		22,579		16,317
		Total operating expenses		120,212		86,843		357,791		269,042
		Operating income		59,851		12,838		129,084		51,918
Other income (expense):
	Interest income			361		442		1,329		736
	Income (loss) from equity investments			1,113		828		(4,049)		5,049
	Interest expense			(12,772)		(9,340)		(35,130)		(23,926)
		Income before income taxes		48,553		4,768		91,234		33,777
Provision for income taxes				(14,409)		(2,046)		(26,802)		(8,412)
		Net income		34,144		2,722		64,432		25,365
Net (loss) income attributable to noncontrolling interests				(158)		(92)		(50)		1,051
		Net income attributable to B. Riley Financial, Inc.	$	34,302	$	2,814	$	64,482	$	24,314

Basic income per share			$	1.29	$	0.11	$	2.45	$	0.94
Diluted income per share			$	1.21	$	0.10	$	2.37	$	0.91

Weighted average basic shares outstanding				26,556,223		25,968,997		26,351,839		25,856,339
Weighted average diluted shares outstanding				28,233,423		26,854,261		27,251,837		26,776,133

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

						Nine Months Ended September 30,
					2019		2018
Cash flows from operating activities:
	Net income				$	64,432	$	25,365
	Adjustments to reconcile net income to net cash provided by (used in) operating activities:
		Depreciation and amortization				14,217		9,768
		Provision for doubtful accounts				1,646		840
		Share-based compensation				10,276		8,650
		Non-cash interest and other				(14,941)		1,384
		Effect of foreign currency on operations				8		(352)
		Loss (income) from equity investments				4,049		(5,049)
		Deferred income taxes				6,358		7
		Impairment of leaseholds and intangibles, lease loss accrual and gain on disposal of fixed assets				(327)		1,718
		Income allocated and fair value adjustment for mandatorily redeemable noncontrolling interests				857		847
		Change in operating assets and liabilities:
			Due from clearing brokers			9,947		(23,412)
			Securities and other investments owned			(45,465)		(77,161)
			Securities borrowed			211,139		(235,206)
			Accounts receivable and advances against customer contracts			(8,645)		(35,982)
			Prepaid expenses and other assets			(9,619)		(19,418)
			Accounts payable, accrued payroll and related expenses, accrued expenses and other liabilities			31,473		10,111
			Amounts due to/from related parties and partners			(4,574)		(4,487)
			Securities sold, not yet purchased			(8,531)		31,381
			Deferred revenue			(502)		64
			Securities loaned			(215,575)		232,037
				Net cash provided by (used in) operating activities		46,223		(78,895)
Cash flows from investing activities:
	Purchases of loans receivable					(350,695)		(35,111)
	Acquisition of other businesses					—		(4,000)
	Repayments of loans receivable					98,742		—
	Loan participations sold					31,806		—
	Repayment of loan participations sold					(3,175)		—
	Purchases of property, equipment and intangible assets					(2,885)		(2,314)
	Proceeds from sale of property, equipment and intangible assets					504		37
	Equity investments					(33,391)		(6,856)
	Proceeds from sale of division of magicJack					6,196		—
	Dividends from equity investments					1,454		1,695
				Net cash used in investing activities		(251,444)		(46,549)
Cash flows from financing activities:
	Proceeds from asset based credit facility					—		300,000
	Repayment of asset based credit facility					—		(300,000)
	Proceeds from notes payable					—		51,020
	Repayment of notes payable					(357)		(51,591)
	Proceeds from term loan					10,000		—
	Repayment of term loan					(17,924)		—
	Proceeds from issuance of senior notes					244,497		255,290
	Payment of debt issuance costs					(4,212)		(6,356)
	Payment of employment taxes on vesting of restricted stock					(2,626)		(4,106)
	Dividends paid					(25,049)		(17,912)
	Repurchase of common stock					(4,273)		(17,338)
	Repurchase of warrants					(2,777)		—
	Distribution to noncontrolling interests					(1,095)		(915)
				Net cash provided by financing activities		196,184		208,092
				(Decrease) increase in cash, cash equivalents and restricted cash		(9,037)		82,648
				Effect of foreign currency on cash, cash equivalents and restricted cash		(183)		(796)
				Net (decrease) increase in cash, cash equivalents and restricted cash		(9,220)		81,852
Cash, cash equivalents and restricted cash, beginning of year						180,278		152,534
Cash, cash equivalents and restricted cash, end of period					$	171,058	$	234,386

Supplemental disclosures:
	Interest paid				$	52,931	$	35,289
	Taxes paid				$	5,029	$	2,455

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

			Three Months Ended				Nine Months Ended
			September 30,				September 30,
			2019		2018		2019		2018
Capital Markets segment:
	Revenues - Services and fees		$	108,330	$	66,558	$	259,498	$	189,051
	Interest income - Loans and securities lending			25,766		9,785		54,147		25,406
	Total revenues			134,096		76,343		313,645		214,457
	Selling, general and administrative expenses			(70,140)		(57,207)		(196,570)		(168,559)
	Restructuring (charge) recovery			—		(428)		4		(2,457)
	Interest expense - Securities lending and loan participations sold			(10,273)		(6,425)		(22,579)		(16,317)
	Depreciation and amortization			(1,281)		(1,309)		(3,844)		(4,428)
		Segment income		52,402		10,974		90,656		22,696
Auction and Liquidation segment:
	Revenues - Services and fees			11,232		2,459		65,681		44,812
	Revenues - Sale of goods			54		48		1,230		48
	Total revenues			11,286		2,507		66,911		44,860
	Direct cost of services			(2,371)		(838)		(21,584)		(12,263)
	Cost of goods sold			(126)		(24)		(992)		(41)
	Selling, general and administrative expenses			(2,835)		(1,289)		(9,045)		(7,787)
	Depreciation and amortization			(1)		(7)		(5)		(23)
		Segment income		5,953		349		35,285		24,746
Valuation and Appraisal segment:
	Revenues - Services and fees			10,818		9,404		29,143		27,383
	Direct cost of services			(4,505)		(4,067)		(13,495)		(12,388)
	Selling, general and administrative expenses			(2,826)		(2,379)		(7,997)		(7,138)
	Depreciation and amortization			(36)		(56)		(100)		(159)
		Segment income		3,451		2,902		7,551		7,698
Principal Investments - United Online and magicJack segment:
	Revenues - Services and fees			22,999		11,403		74,383		34,170
	Revenues - Sale of goods			864		24		2,793		90
	Total revenues			23,863		11,427		77,176		34,260
	Direct cost of services			(5,565)		(3,251)		(20,131)		(9,082)
	Cost of goods sold			(785)		(28)		(2,843)		(101)
	Selling, general and administrative expenses			(5,895)		(2,348)		(18,410)		(6,321)
	Depreciation and amortization			(2,956)		(1,682)		(9,719)		(5,040)
	Restructuring charge			—		—		(1,703)		—
		Segment income		8,662		4,118		24,370		13,716
Consolidated operating income from reportable segments				70,468		18,343		157,862		68,856

Corporate and other expenses (including restructuring recovery of
$210 during the nine months ended September 30, 2018)				(10,617)		(5,505)		(28,778)		(16,938)
Interest income				361		442		1,329		736
Income (loss) on equity investments				1,113		828		(4,049)		5,049
Interest expense				(12,772)		(9,340)		(35,130)		(23,926)
	Income before income taxes			48,553		4,768		91,234		33,777
Provision for income taxes				(14,409)		(2,046)		(26,802)		(8,412)
	Net income			34,144		2,722		64,432		25,365
Net income attributable to noncontrolling interests				(158)		(92)		(50)		1,051
	Net income attributable to B. Riley Financial, Inc.		$	34,302	$	2,814	$	64,482	$	24,314

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

				Three Months Ended				Nine Months Ended
				September 30,				September 30,
				2019		2018		2019		2018
Net income attributable to B. Riley Financial, Inc.				$	34,302	$	2,814	$	64,482	$	24,314
Adjustments:
	Provision for income taxes				14,409		2,046		26,802		8,412
	Interest expense				12,772		9,340		35,130		23,926
	Interest income				(361)		(442)		(1,329)		(736)
	Share based payments				4,728		3,074		10,276		8,310
	Depreciation and amortization				4,473		3,098		14,217		9,768
	Restructuring costs				—		428		1,699		2,247
	Transactions related costs and other				7		648		6,339		2,193

		Total EBITDA adjustments			36,028		18,192		93,134		54,120

			Adjusted EBITDA	$	70,330	$	21,006	$	157,616	$	78,434

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,
		2019		2018		2019		2018
Net income attributable to B. Riley Financial, Inc.		$	34,302	$	2,814	$	64,482	$	24,314
Adjustments:
	Share based payments		4,728		3,074		10,276		8,310
	Amortization of intangible assets		3,310		2,093		10,031		6,399
	Restructuring costs		—		428		1,699		2,247
	Transactions related costs and other		7		648		6,339		2,193
	Income tax effect of adjusting entries		(2,380)		(2,628)		(8,185)		(5,411)
Adjusted net income attributable to B. Riley Financial, Inc.		$	39,967	$	6,429	$	84,642	$	38,052

Adjusted income per common share:
	Adjusted basic income per share	$	1.51	$	0.25	$	3.21	$	1.47
	Adjusted diluted income per share	$	1.42	$	0.24	$	3.11	$	1.42

Shares used to calculate adjusted basic net income per share			26,556,223		25,968,997		26,351,839		25,856,339
Shares used to calculate adjusted diluted net income per share			28,233,423		26,854,261		27,251,837		26,776,133