B. Riley Financial Reports Second Quarter 2016 Financial Results

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Aug 05, 2016, 08:01 ET

LOS ANGELES, Aug. 5, 2016 /PRNewswire/ -- B. Riley Financial, Inc. (NASDAQ: RILY), a diversified provider of financial and business advisory services, reported results for the second quarter ended June 30, 2016.

Q2 2016 net loss of $0.1 million or $(0.01) per diluted share
Q2 2016 adjusted EBITDA of $1.8 million
Providing Q3 2016 adjusted EBITDA guidance of $15 million to $20 million
Completed $23 million follow-on equity offering of B. Riley Financial common stock
Completed acquisition of United Online on July 1^st for $11.00 per share
Dividend of $0.03 per share declared for stockholders of record as of August 22, 2016

Second Quarter 2016 Financial Results

Total revenues for the second quarter of 2016 were $20.3 million compared to $45.5 million in the same year-ago period. The decrease in revenue was primarily due to lower revenue from the company's capital markets and auction and liquidation businesses.

Capital Markets Segment: Revenue was $7.2 million compared to $13.7 million in the same year-ago period. The decrease was primarily due to lower investment banking fees, trading income, commissions, fees, and other income earned from the company's research, sales and trading, and wealth management services. Segment loss totaled $520,000 compared to segment income of $4.1 million in the same year-ago period.
Auction and Liquidation Segment: Revenue was $5.4 million compared to $24.0 million in the same year-ago period. The decrease was primarily due to a $11.8 million decrease in revenues from services and fees from retail liquidation engagements and $0.8 million decrease from services and fees from the company's wholesale and industrial auction division. Segment income totaled $1.7 million compared to $11.9 million in the same year-ago period.
Valuation and Appraisal Segment: Revenue was $7.7 million compared to $7.8 million in the same year-ago period. The decrease was primarily due to a net decrease in revenues related to appraisal engagements. Segment income totaled $2.1 million compared to $2.3 million in the same year-ago period.

Net loss for the second quarter of 2016 totaled $101,000 or $(0.01) per diluted share, compared to a net income of $8.7 million or $0.53 per diluted share in the same year-ago period.

Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, transaction expenses, and share based compensation) for the second quarter of 2016 totaled $1.8 million, compared to $15.5 million in the same year-ago period (see note regarding "Use of Non-GAAP Financial Measures," below for further discussion of this non-GAAP term).

At June 30, 2016, the company had $48.1 million of unrestricted cash and $18.7 million of net investments in securities. Total shareholder equity at quarter-end was $134.4 million.

Declaration of Dividend

On August 4, 2016, the company's board of directors approved a dividend of $0.03 per share, which will be paid on or about September 8, 2016 to stockholders of record on August 22, 2016.

Management Commentary

"Despite a slowdown in our Capital Markets segment and modest activity in our Auction and Liquidation segment, we were able to generate $1.8 million in adjusted EBITDA during the second quarter," commented Bryant Riley, chairman and CEO of B. Riley Financial. "Maintaining positive adjusted EBITDA during these slower quarters is a key component to our business model. As we have demonstrated over the last two years since the combination of Great American and B. Riley & Co., our platform has the ability to produce outsized returns on an episodic basis. We will continue to maintain a disciplined operating structure which is a critical aspect to taking advantage of these opportunities whenever they arise.

"To that end, we are providing adjusted EBITDA guidance for Q3 2016 in the range of $15 million to $20 million, due primarily to the strength in our Auction and Liquidation segment, as well as the addition of United Online, which we acquired on July 1.

“Additionally, we had previously provided guidance for adjusted EBITDA for the July 2016 YTD period of between $9 million to $13 million for B. Riley Financial’s operations, excluding any contribution from the United Online business. We are providing an update to this guidance and estimate that adjusted EBITDA for that period to be in the range of $12 million to $14 million, excluding any contribution from the United Online business.

"As we look forward, we see strong opportunities in our Auction and Liquidation segment, steady cash flow from our United Online business as well as Valuation and Appraisal segment, and a moderate improvement in our Capital Markets segment. We will continue to strategically invest within these groups as meaningful opportunities present themselves."

Conference Call

B. Riley Financial will host an investor conference call today (August 5, 2016) at 8:30 a.m. Eastern time. The company's Chairman and CEO, Bryant Riley, President Tom Kelleher, and CFO and COO, Phillip Ahn, will host the conference call, followed by a question and answer period.

Please call the conference telephone number 10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Liolios Group at 949-574-3860.

Date: Friday, August 5, 2016
Time: 8:30 a.m. Eastern time (5:30 a.m. Pacific time)
Toll-Free Number: 1-877-407-0789
International Number: 1-201-689-8562

The conference call will be broadcast simultaneously and available for replay via the investor section of the company's website here.

A replay of the call will be available after 11:30 a.m. Eastern time through August 12, 2016.

Toll-Free Replay Number: 1-877-870-5176
International Replay Number: 1-858-384-5517
Replay ID: 13642491

About B. Riley Financial, Inc.

B. Riley Financial, Inc. (NASDAQ: RILY) provides collaborative financial services and solutions through several subsidiaries, including: B. Riley & Co. LLC, a leading investment bank which provides corporate finance, research, and sales & trading to corporate, institutional and high net worth individual clients; Great American Group, LLC, a leading provider of advisory and valuation services, and asset disposition and auction solutions; B. Riley Capital Management, LLC, an SEC registered Investment Advisor, which includes B. Riley Asset Management, a provider of investment products to institutional and high net worth investors, and B. Riley Wealth Management (formerly MK Capital Advisors), a multi-family office practice and wealth management firm focused on the needs of ultra-high net worth individuals and families; and Great American Capital Partners, a provider of senior secured loans and second lien secured loan facilities to middle market public and private U.S. companies.

B. Riley Financial is headquartered in Los Angeles with offices in major financial markets throughout the world. For more information on B. Riley Financial, visit www.brileyfin.com.

Forward-Looking Statements

This press release may contain forward-looking statements by B. Riley Financial, Inc. that are not based on historical fact, including, without limitation, statements containing the words "expects," "anticipates," "intends," "plans," "projects," "believes," "seeks," "estimates" and similar expressions and statements. Such forward looking statements include, but are not limited to, express or implied statements regarding future financial performance, the effects of our business model, the effects of the United Online acquisition and related actions, expectations regarding future transactions and the financial impact, size and consistency of returns and timing thereof, expectations regarding adjusted EBITDA for the third quarter of 2016, as well as statements regarding 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. Such factors include risks associated with large engagements in our Auction and Liquidation segment; our ability to achieve expected cost savings or other benefits with respect to the acquisition of United Online, in each case within expected time frames or at all; our ability to consummate anticipated transactions and the expected financial impact thereof, in each case within the expected timeframes or at all; our ability to successfully integrate recent acquisitions; loss of key personnel; our ability to manage growth; the potential loss of financial institution clients; the timing of completion of significant engagements; and those risks described from time to time in B. Riley Financial, Inc.'s 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, 2015 under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Additional information will also be set forth in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2016. 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 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 income taxes, depreciation, amortization, transaction expenses 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. The non-GAAP measures are described above and are reconciled to the corresponding GAAP measure in the unaudited condensed consolidated financial statements portion of this release under the headings "Adjusted EBITDA Reconciliation."

Estimates of Adjusted EBITDA for the year-to-date period through July 31, 2016 are based upon preliminary estimates of B. Riley Financial’s operations excluding net interest expense, provisions for income taxes, depreciation, amortization, transaction expenses and stock-based compensation and do not include any results from the United Online, Inc. business. A reconciliation of this adjusted EBITDA estimate to estimated net income is not currently available for this period because the Company is still in the process of closing its books as of the acquisition date and completing the valuation of United Online’s assets and intangible assets acquired, and the absence of such data would, in the Company’s judgment, cause any estimated net income for such period to be not meaningful or reliable.

Investor Contact:
Scott Liolios or Matt Glover
Liolios Group, Inc.
949-574-3860
[email protected]

B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value)
				June 30,		December 31,
				2016		2015
				(Unaudited)
Assets
Current assets:
	Cash and cash equivalents		$	48,123	$	30,012
	Restricted cash			12,108		51
	Securities owned, at fair value			24,644		25,543
	Accounts receivable, net			7,997		9,472
	Due from related parties			2,255		409
	Advances against customer contracts			5,609		5,013
	Goods held for sale or auction			36		37
	Prepaid expenses and other current assets			8,507		2,415
		Total current assets		109,279		72,952
Property and equipment, net				475		592
Goodwill				34,528		34,528
Other intangible assets, net				4,545		4,768
Deferred income taxes				18,722		18,992
Other assets				1,989		588
		Total assets	$	169,538	$	132,420
Liabilities and Equity
Current liabilities:
	Accounts payable		$	1,084	$	1,123
	Accrued payroll and related expenses			3,084		7,178
	Accrued value added tax			34		1,785
	Accrued expenses and other liabilities			5,335		5,806
	Auction and liquidation proceeds payable			15,959		672
	Due to related parties			—		166
	Securities sold not yet purchased			5,932		713
	Mandatorily redeemable noncontrolling interests			2,512		2,994
	Revolving credit facilities			—		272
	Contingent consideration- current portion			1,196		1,241
		Total current liabilities		35,136		21,950
Contingent consideration, net of current portion				—		1,150
		Total liabilities		35,136		23,100
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; 40,000,000 shares authorized; 19,043,072 and 16,448,119 issued and outstanding as of June 30, 2016 and December 31, 2015, respectively			2		2
	Additional paid-in capital			140,555		116,799
	Retained earnings (deficit)			(6,158)		(6,305)
	Accumulated other comprehensive loss			(1,075)		(1,058)
		Total B. Riley Financial, Inc. stockholders' equity		133,324		109,438
Noncontrolling interests				1,078		(118)
		Total equity		134,402		109,320
		Total liabilities and equity	$	169,538	$	132,420




B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(Dollars in thousands, except share data)

				Three Months Ended June 30,				Six Months Ended June 30,
				2016		2015		2016		2015

Revenues:
	Services and fees		$	20,261	$	39,442	$	40,205	$	61,026
	Sale of goods			—		6,019		2		10,466
		Total revenues		20,261		45,461		40,207		71,492
Operating expenses:
	Direct cost of services			5,560		8,539		12,243		15,317
	Cost of goods sold			—		2,181		2		3,071
	Selling, general and administrative expenses (including transaction costs of $905 and $922 for the three and six months ended June 30, 2016, respectively)			14,521		20,072		26,117		32,973
		Total operating expenses		20,081		30,792		38,362		51,361
		Operating income		180		14,669		1,845		20,131
Other income (expense):
	Interest income			3		3		6		5
	Interest expense			(275)		(418)		(407)		(671)
		(Loss) income before income taxes		(92)		14,254		1,444		19,465
Benefit (provision) for income taxes				65		(5,685)		(101)		(7,460)
		Net (loss) income		(27)		8,569		1,343		12,005
Net income (loss) attributable to noncontrolling interests				74		(95)		1,196		659
		Net (loss) income attributable to B. Riley Financial, Inc.	$	(101)	$	8,664	$	147	$	11,346

Basic (loss) income per share			$	(0.01)	$	0.53	$	0.01	$	0.70
Diluted (loss) income per share			$	(0.01)	$	0.53	$	0.01	$	0.70

Weighted average basic shares outstanding				17,935,254		16,237,860		17,212,716		16,177,824
Weighted average diluted shares outstanding				17,935,254		16,310,829		17,547,073		16,236,748




B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)

							Six Months Ended June 30,
							2016		2015
Cash flows from operating activities:
	Net income					$	1,343	$	12,005
	Adjustments to reconcile net income to net cash provided by operating
		activities:
			Depreciation and amortization				399		421
			Provision for credit losses				(3)		255
			Share based compensation				997		416
			Effect of foreign currency on operations				–		5
			Non-cash interest				54		73
			Deferred income taxes				271		5,499
			Income allocated to mandatorily redeemable noncontrolling interests and redeemable noncontrolling interests				960		1,116
			Change in operating assets and liabilities:
				Accounts receivable and advances against customer contracts			1,087		(439)
				Securities owned			899		4,273
				Goods held for sale or auction			1		52
				Prepaid expenses and other assets			(7,646)		(1,414)
				Accounts payable and accrued expenses			(5,998)		9,218
				Due from related party			(1,935)		(1,310)
				Securities sold, not yet purchased			5,219		7,311
				Auction and liquidation proceeds payable			14,667		(665)
					Net cash provided by operating activities		10,315		36,816
Cash flows from investing activities:
	Acquisition of MK Capital, net of cash acquired $45						–		(2,451)
	Purchases of property and equipment						(58)		(171)
	Proceeds from sale of property and equipment						–		4
	Increase in restricted cash						(12,026)		7,155
					Net cash (used in) provided by investing activities		(12,084)		4,537
Cash flows from financing activities:
	Repayment of asset based credit facility						–		(18,506)
	Proceeds from (repayment of) revolving line of credit						(272)		71
	Proceeds from note payable - related party						–		4,500
	Repayment of from note payable - related party						–		(4,500)
	Payment of contingent consideration						(1,250)		–
	Proceeds from issuance of common stock						22,999		–
	Offerring costs from issuance of common stock						(240)
	Dividends paid						–		(978)
	Distribution to noncontrolling interests						(1,441)		(1,421)
					Net cash provided by (used in) financing activities		19,796		(20,834)
					Increase in cash and cash equivalents		18,027		20,519
					Effect of foreign currency on cash		84		9
					Net increase in cash and cash equivalents		18,111		20,528
Cash and cash equivalents, beginning of period							30,012		21,600
Cash and cash equivalents, end of period						$	48,123	$	42,128
Supplemental disclosures:
	Interest paid					$	252	$	413
	Taxes paid					$	409	$	695




B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
ADJUSTED EBITDA RECONCILIATION
(Unaudited)
(Dollars in thousands)

			Three Months Ended				Six Months Ended
			June 30,				June 30,
			2016		2015		2016		2015
Adjusted EBITDA reconciliation:

Net income (loss) as reported		$	(101)	$	8,664	$	147	$	11,346

Adjustments:
	Provision (benefit) for income taxes		(65)		5,685		101		7,460
	Interest expense		275		418		407		671
	Interest income		(3)		(3)		(6)		(5)
	Depreciation and amortization		196		226		399		421
	Share based payments		560		466		997		466
	Transaction costs related to United Online, Inc. acquisition		905		—		922		—

	Total EBITDA adjustments		1,868		6,792		2,820		9,013

Adjusted EBITDA		$	1,767	$	15,456	$	2,967	$	20,359




B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
(Unaudited)
(Dollars in thousands)

		Three Months Ended		Six Months Ended
		June 30,		June 30,
		2016	2015	2016	2015
Capital markets reportable segment:
	Revenues - Services and fees	$ 7,172	$ 13,657	$ 12,736	$ 22,865
	Selling, general, and administrative expenses	(7,669)	(9,429)	(13,843)	(15,924)
	Depreciation and amortization	(23)	(143)	(44)	(250)
	Segment (loss) income	(520)	4,085	(1,151)	6,691
Auction and Liquidation reportable segment:
	Revenues - Services and fees	5,393	18,012	12,300	23,134
	Revenues - Sale of goods	0	6,019	2	10,466
	Total revenues	5,393	24,031	12,302	33,600
	Direct cost of services	(2,087)	(5,337)	(5,505)	(8,920)
	Cost of goods sold	0	(2,181)	(2)	(3,071)
	Selling, general, and administrative expenses	(1,577)	(4,501)	(2,802)	(6,465)
	Depreciation and amortization	(37)	(93)	(78)	(102)
	Segment income	1,692	11,919	3,915	15,042
Valuation and Appraisal reportable segment:
	Revenues - Services and fees	7,696	7,773	15,169	15,027
	Direct cost of services	(3,473)	(3,202)	(6,738)	(6,397)
	Selling, general, and administrative expenses	(2,124)	(2,246)	(4,243)	(4,434)
	Depreciation and amortization	(24)	(35)	(53)	(69)
	Segment income	2,075	2,290	4,135	4,127
Consolidated operating income from reportable segments		3,247	18,294	6,899	25,860
Corporate and other expenses		(3,067)	(3,625)	(5,054)	(5,729)
Interest income		3	3	6	5
Interest expense		(275)	(418)	(407)	(671)

	(Loss) income before income taxes	(92)	14,254	1,444	19,465
Benefit (provision) for income taxes		65	(5,685)	(101)	(7,460)

	Net (loss) income	(27)	8,569	1,343	12,005
Net income (loss) attributable to noncontrolling interests		74	(95)	1,196	659

	Net (loss) income attributable to B. Riley Financial, Inc.	$ (101)	$ 8,664	$ 147	$ 11,346