BRC Group Holdings, Inc. Q3 FY2023 earnings call

Key managerial messages and operational highlights include:

• Executed platform strategy, generating $107.5 million operating adjusted EBITDA in Q3 2023, up 34% from Q2. Q3 operating revenue was the highest quarterly total in the firm's history, and YTD 2023 operating revenue and EBITDA were high.
• Highlights: Strong retail liquidation, advisory services had record revenue, specialty consulting/appraisal units grew, real estate restructuring strong. Investment banking activity increased, Wealth Management improved.
• Raised ~$150 million in equity proceeds in July, expanded Nomura credit facility by ~$240 million, reduced other debt by over $160 million. Believes small-cap equity valuations attractive and will take advantage. Maintained optimal capital structure to fund growth and opportunities.

For the third quarter of 2023, B. Riley Financial's segments had the following performance:

• Capital Markets: Excluding investments, contributed operating revenues of $151 million and operating income of $51 million. B. Riley Securities saw over 10% Y/Y revenue increase, with investment banking fees up over 100% from Q2.
• Wealth Management: Revenues increased Y/Y and sequentially to $51 million. Wealth assets under management totaled $24 billion, with ~400 producers.
• Auction and Liquidations: B. Riley Retail Solutions had segment revenues of $78 million and segment income of $18 million, driven by more retail liquidation engagements.
• Financial Consulting: Revenues were $37 million, with segment income of $10.5 million, showing momentum into Q4.
• Appraisal: Y/Y revenue and operating income increased across business lines.
• Consumer: Revenues were $63 million, with Targus facing challenges but brands business strong.
• Telecoms: Underwritten to closer to $70-80 million EBITDA per quarter.
• Broker-dealer: Averaging $30 million EBITDA per quarter.
• Retail advisory: Underwritten to $7 million per quarter.
• Appraisal/advisory: Underwritten to $8-10 million EBITDA per quarter.

Management's forward-looking guidance includes:

• Belief that small-cap equity valuations in the market are attractive and will look to take advantage as a principle and for client transactions.
• Continued disciplined focus on maintaining optimal capital structure to fund growth and opportunities.
• Board approved an annual share repurchase plan to repurchase up to $50 million of common shares.

Q: On the consumer side, how big was the revenue increase? Like what contribution came from Targus on that?

A: Targus was close to breakeven EBITDA for the quarter. The brands business represented the vast majority of the EBITDA, and the brands business is doing great.

Q: And just remind me, what is that Scotch & Soda, is that currently impacted?

A: We have six brands including Justice, Hurley, Scotch & Soda, etc. Seeing momentum in Limited Too.

Q: On Auction and Liquidation, big quarter. How should we think about the cadence of that business I mean, for the current quarter, are you seeing engagements? How do we kind of model that out?

A: Retail advisory is episodic. Breakeven when paying dividend and interest. Broker-dealer averages $30M Q EBITDA, retail advisory $7M Q, appraisal/advisory $8-10M Q.

Q: A lot of news out there on a particular landlord recently filing for bankruptcy. Can you comment on just is your real estate solutions business seeing any uptick in activity?

A: Definitely seeing an uptick in activity, but can't quantify it.

Q: Just on the buyback, timing of that. I mean the stocks obviously have been hit recently. Is that something that's going to be felt soon, or how are you guys thinking about that?

A: Will utilize dollars for retail advisory situations, liquidations as best IRR. Stock undervalued, balance sheet to create value.

Q: Can you walk through the updated recurring EBITDA and then go through the forward interest expense and maybe touch on the breakeven for B. Riley Securities?

A: Breakeven EBITDA in and around $85M. Broker-dealer averaging $30M Q EBITDA, retail advisory $7M Q, appraisal/advisory $8-10M Q, telecoms ~$70-80M Q.

Q: Could you just remind us which brands were the -- where essentially your royalty income goes into dividend? And if there's anything else that was added into that line-item year-over-year.

A: Brands business had strong quarter. Hurley Justice ~$9.5M, Scotch & Soda had bump due to asset liquidation, etc.