B. Riley Financial, Inc. 5.00% Senior Notes due 2026 Q4 FY2023 earnings call

Management Statement and Operational Highlights

• Thanked everyone for attending the December Investor Day and encouraged referring to the comprehensive presentation on the Investor Relations website.
• Noted that the annual report on Form 10-K for 2023 will be delayed due to scrutiny surrounding the Franchise Group matter and the time/resources required for review.
• 2023 was a strong year for most subsidiaries, with over 50% increase in revenues to $1.6 billion and $368 million in operating EBITDA, despite non-cash write-downs and unrealized investment losses.
• Retained Moelis & Company to review strategic alternatives for the appraisal and retail liquidation businesses (formerly Great American Group).
• Discussed the history and role of Great American in B. Riley's history, including its acquisition in 2014 and subsequent growth.
• Board declared a quarterly dividend of $0.50 per common share, to be paid on or about March 22.
• Appreciated employees' resiliency and clients' support amid social media noise, clarifying that fundamental research does not involve personal attacks, etc.

Segment Performance

• Capital Markets segment: Revenues increased 75% to $575 million in 2023, up from $328 million in 2022. Segment income increased 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 activities 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 at 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. Retail Solutions completed the year with approximately $30 million net deal profit. Prospects in Europe are promising with a strong pipeline of opportunities.
• Financial Consulting segment: Revenues increased 35% to $134 million in 2023, up from $99 million in 2022, primarily driven by an increase in bankruptcy and litigation consulting assignments and appraisal engagements and real estate restructuring projects.
• Communications segment: On a combined basis, contributed revenues of $82 million and $6 million of segment income for the fourth quarter. For the full year, 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 segment: Targus has been negatively impacted by the worst market for PC and tablet sales since 2006 and 2011, but is well positioned to gain share as the worldwide leader in this category.
• 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.
• Confident in the long-term thesis for Franchise Group (FRG), working to maximize the value of the investment.
• Board declared a quarterly dividend of $0.50 per common share, to be paid on or about March 22.
• Intention to be opportunistic with the cap stack, considering buying back debt at attractive prices if it creates value.

Risks

• External dynamics have created significant dislocation in the market value of common stock and publicly traded bonds.
• Scrutiny surrounding the Franchise Group matter has required time and resources, leading to the delay in filing the annual report on Form 10-K for 2023.

Question and Answer

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: Bryant Riley said they're not going to comment on the audit other than what was in the press release.

Q: 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: Bryant Riley said Great American is poised to take off with a different entity, they thought the timing was good and they like to have a pretty good sense of where they are by the end of the second quarter.

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

A: Bryant Riley said it's a Board decision, they'll be opportunistic around the cap stack and look to buy back debt at attractive prices if it creates value