B. Riley Financial, Inc. — Q1 2023 Form 10-Q
Entity note: The supplied filing identifies the registrant as B. Riley Financial, Inc. (Nasdaq: RILY), not BRC Group Holdings, Inc. Verify that this is the intended filing.
Business context and reporting period
The filing covers the three months ended March 31, 2023, and compares results with Q1 2022. B. Riley is a diversified financial-services and investment platform with six reportable segments: Capital Markets, Wealth Management, Auction and Liquidation, Financial Consulting, Communications, and Consumer. Q1 2022 comparative figures were restated for revenue classification; the filing says the correction did not affect net income, cash flows, balance sheet, or EPS.
Key financial metrics
| Metric | Q1 2023 | Q1 2022, restated |
|---|---|---|
| Total revenue | $432.1 million | $246.8 million |
| Operating income | $84.9 million | $46.0 million |
| Income (loss) before taxes | $24.5 million | $(12.9) million |
| Net income (loss) | $16.6 million | $(9.2) million |
| Net income (loss) available to common shareholders | $15.1 million | $(12.1) million |
| Diluted EPS | $0.51 | $(0.43) |
| Net cash from (used in) operating activities | $52.6 million | $(14.9) million |
Revenue increased 75.0%; operating margin was approximately 19.7%, versus 18.6% in Q1 2022. Growth was substantially affected by acquisitions and fair-value results. Trading income and loan fair-value adjustments were $51.6 million, including a $43.3 million unrealized gain on loans; sale-of-goods revenue rose to $67.8 million, largely following the Targus acquisition. Interest income from loans and securities lending was $77.2 million. Realized and unrealized investment losses were $28.4 million. Interest expense totaled $80.0 million across operating and other expenses, up from $42.2 million in Q1 2022.
At March 31, 2023, cash and cash equivalents were $210.0 million ($212.3 million including restricted cash), down from $268.6 million and $270.9 million, respectively, at year-end. Total assets were $6.62 billion; total liabilities were $6.00 billion; total equity was $440.4 million. Borrowings were approximately $2.51 billion, including $1.72 billion of senior notes, $626.6 million of term loans, $139.5 million under revolving facilities, and $19.9 million of other notes payable.
Operating cash flow was positive, but cash fell by $58.6 million after investing and financing outflows. Financing uses included $53.8 million of common-stock repurchases and $46.9 million of common dividends paid. Cash-flow movements were also materially affected by securities-borrowing and securities-lending balances.
Material changes versus the prior comparable period
- Revenue rose $185.3 million. Communications services revenue benefited from the BullsEye and Lingo businesses; Consumer goods revenue reflected Targus, acquired in Q4 2022.
- Wealth Management services and fees declined 36.9% to $48.5 million, including lower wealth-management and commission fees.
- Capital Markets benefited from the reversal to positive trading and loan fair-value results, while interest income from loans and securities lending increased 25.7%.
- Operating expenses increased $146.3 million, including higher direct service costs, goods costs, SG&A, and securities-lending interest expense. Other interest expense rose $17.1 million, reflecting additional debt and higher floating rates.
- Common shares outstanding declined from 28.52 million at year-end to 28.14 million at March 31, following repurchases and other share activity. Repurchases during the quarter totaled 1.45 million shares for approximately $53.7 million.
Outlook, risks, contingencies, and unusual items
- Management stated that cash, investments, borrowing availability, and expected operating cash flow should be sufficient for working capital and capital expenditure needs for at least 12 months from issuance of the financial statements. This is management’s assessment, not a guarantee.
- Management expected subscription revenue in certain legacy Communications businesses to continue declining year over year. The filing gives no consolidated earnings or revenue guidance.
- The board’s stated intention was to continue regular common dividends of $1.00 per share quarterly, subject to board discretion and financial conditions. A $1.00-per-share dividend was declared May 4, 2023.
- Variable-rate debt exposes results to higher rates; the company estimated a 1% rate increase would have raised Q1 interest expense by $1.9 million. The Pathlight loan rate was 11.4% at quarter-end; several other credit facilities also carried floating rates.
- Loans and other assets include significant fair-value estimates. Level 3 financial assets were $1.13 billion, including $772.1 million of loans receivable; loans on non-accrual increased to $39.6 million, or 5.1% of loans at fair value, from $7.2 million at year-end.
- The company guarantees up to $100 million of certain Babcock & Wilcox obligations and also has other indemnity and financing commitments. It reported ordinary-course litigation and regulatory matters, while stating it did not believe these claims were likely to materially affect financial position or results.
- Disclosure controls and procedures were concluded to be ineffective at the reasonable-assurance level. The filing identifies material weaknesses involving management review of acquisition-related intangible and reporting-unit valuations, income-tax provision review, and prior-period investment-income presentation/classification. Management expected remediation before fiscal year-end 2023; it would not be complete until controls operated effectively and were tested.
- The filing describes market and economic uncertainty, including inflation, Federal Reserve actions, possible recession, geopolitical events, credit and investment valuation risks, acquisition integration, and access to financing. It reports compliance with stated financial covenants at March 31, 2023.
Most important facts for investors to verify
- Confirm the issuer: the filing is for B. Riley Financial, Inc., not BRC Group Holdings, Inc.
- Review the status and effectiveness of remediation for the disclosed material weaknesses and any subsequent filing updates.
- Assess debt maturities, floating-rate exposure, covenant headroom, and the availability and terms of credit facilities.
- Examine the assumptions supporting Level 3 loan and investment valuations, particularly the increase in non-accrual loans.
- Separate acquisition-driven growth and non-cash fair-value gains from recurring operating performance; track the expected decline in legacy Communications subscriptions.
- Evaluate whether operating cash generation can support dividends, repurchases, debt service, and future investment needs.