BRC Group Holdings, Inc. Q4 FY2023 earnings call

Management Statement and Operational Highlights

• Bryant Riley thanked for Investor Day in December and noted delay in 10-K filing due to Franchise Group scrutiny. 2023 was a strong year for most subsidiaries despite non-cash write-downs and unrealized investment losses; total revenues were over $1.6 billion with operating EBITDA of $368 million.
• Retained Moelis & Company to conduct a review of the strategic alternatives for the appraisal and retail liquidation businesses (formerly Great American Group).
• Discussed Franchise Group updates: helped FRG execute 2 transactions, confident in long-term thesis for FRG.
• Board declared a quarterly dividend of $0.50 per common share, to be paid March 22.
• Phil Ahn discussed financial results for the quarter and full year, balance sheet highlights including unrestricted cash, securities, loans receivable, and debt levels.
• Tom Kelleher detailed segment results, including Capital Markets, Wealth Management, Auction and Liquidation, Financial Consulting, Communications, Consumer Products, and Brands portfolio, highlighting progress and challenges in each segment.

Segment Performance

• Capital Markets: Revenues increased 75% to $575 million in 2023, up from $328 million in 2022. Segment income rose to $198 million in 2023, up from $82 million in 2022. Excluding investment gains and losses, segment operating revenues increased to $562 million, up from $557 million in 2022, driven by investment banking and institutional brokerage at B. Riley Securities.
• Wealth Management: Returned to profitability in 2023 with revenues of $198 million and segment income of $3 million. Reoccurring revenues contributed 60% of Wealth revenues for the year. Assets under management increased to $25.4 billion as of December 31, 2023, up from $24 billion in 2022.
• Auction and Liquidation: Revenue increased 39% to $103 million in 2023, up from $74 million in 2022. The Retail Solutions business had approximately $30 million net deal profit.
• Financial Consulting: Revenues increased 35% to $134 million in 2023, up from $99 million in 2022, driven by more bankruptcy and litigation consulting assignments and appraisal engagements.
• Communications: On a combined basis, revenues increased 43% year-over-year to $338 million in 2023, up from $236 million. Segment income increased 15% to $35 million in 2023 from $30 million in the prior year.
• Consumer Products (Targus): Negatively impacted by poor PC and tablet sales market since 2006/2011, but showing some improvement and well-positioned to gain share.
• Brands portfolio: Dividend income related to brand equity investments increased to $33 million in 2023, up from $28 million in 2022.

Guidance

• Retained Moelis & Company to review strategic alternatives for the appraisal and retail liquidation businesses (formerly Great American Group).
• Board declared a quarterly dividend of $0.50 per common share, payable on or about March 22 to common shareholders of record as of March 11.

Risks

• Delay in filing annual report on Form 10-K due to scrutiny surrounding the Franchise Group private transaction.
• Market volatility impacting the value of investments, leading to unrealized investment losses and non-cash write-downs.
• Targus in the Consumer Products segment negatively impacted by the worst PC and tablet sales market since 2006/2011, though some improvement is seen.

Q: Along with stock and the bonds, I'd appreciate a little more color regarding the delay in filing and specifically, if your auditor has agreed to sign off on the audit.

A: Hey Steve, been a while. We're not going to comment on the audit other than what we said in the press release.

Q: Just real quick, could you just walk us through the thinking behind the former Great American sale, why that unit? And if you have any sense of timing on that, that would be helpful.

A: Sure. I think, Sean, you've been around this business for a long time and you've seen us make acquisitions of wealth management at a time where it was out of favor. My view is that what we're best served at is finding opportunities... As far as how long, I think we like to have a pretty good sense of where we are by the end of the second quarter.

Q: And then, with the savings, so to speak, from the dividend cut, do you have a priority for shares versus bonds?

A: Yes. I would say that that's a Board decision. Obviously, one has limited upside and one has more upside. But I would say we're just going to be opportunistic around our cap stack and anything that we find is not core, not a business but an asset that's not core, if we can utilize that to buy back some of our debt at 30% strip yield, then we should be thinking that that asset is worth 30% more than it is. So we have an opportunity to, I think, create real value based on the perception of our company right now by some.