B. Riley Financial, Inc. — Q1 2022 Form 10-Q
Entity note: The supplied filing is for B. Riley Financial, Inc. (NASDAQ: RILY), not BRC Group Holdings, Inc. Confirm the issuer before relying on this summary.
Business context and reporting period
Unaudited results cover the three months ended March 31, 2022, compared with the same period in 2021. B. Riley operates diversified financial services and investment businesses across six segments. On January 19, 2022, it acquired investment bank FocalPoint Securities for approximately $124.5 million, including cash, shares, and deferred or contingent consideration.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $205.6 million | $600.2 million |
| Operating income | $4.7 million | $373.0 million |
| Operating margin | 2.3% | 62.1% |
| Net income (loss), consolidated | $(9.2) million | $256.6 million |
| Net income (loss) attributable to B. Riley | $(10.1) million | $254.7 million |
| Net income (loss) available to common shareholders | $(12.1) million; $(0.43) per diluted share | $252.9 million; $8.81 per diluted share |
| Net cash used in operating activities | $14.9 million | $42.9 million |
| Cash and cash equivalents, March 31 | $213.6 million | — |
| Total assets, March 31 | $5.252 billion | — |
Cash, cash equivalents and restricted cash declined by $65.3 million during the quarter to $214.5 million. Investing activities used $35.5 million and financing activities used $14.4 million. The filing does not provide a single consolidated gross-margin measure.
At March 31, borrowings totaled approximately $2.073 billion: $1.628 billion of senior notes, $342.9 million of term loans, $80.0 million drawn on the Nomura revolving facility, and $22.9 million of other notes payable. Senior notes had a weighted-average interest rate of 5.69%; Q1 interest expense was $30.4 million, versus $19.8 million a year earlier. The company reported compliance with financial covenants under its credit agreements. It said available cash, investments, credit facilities, and expected operating cash flow should meet requirements for at least 12 months from issuance of the statements.
Material changes versus prior period
- Revenue fell 65.7%, chiefly because trading and loan fair-value results swung from $266.9 million of income to $68.4 million of losses. Q1 2022 included $79.3 million of realized and unrealized proprietary investment losses, partly offset by $10.9 million of unrealized loan gains.
- Services and fees decreased 27.2% to $210.7 million. Capital Markets fees declined $101.9 million; Wealth Management, Financial Consulting, and Communications and Other grew.
- Interest income from loans and securities lending rose 66.4% to $61.4 million, including loan interest of $46.4 million versus $14.0 million in Q1 2021.
- Operating expenses declined 11.6% to $200.9 million, but lower expenses did not offset the sharp revenue decline. Higher interest expense also weighed on results.
- The Q1 2021 comparison included unusually strong trading gains, so the year-over-year earnings decline reflects substantial market-sensitive volatility as well as operating changes.
Outlook, risks, contingencies, and unusual items
- No specific earnings or revenue guidance was provided. Management cited uncertainty from inflation, Federal Reserve actions, rising energy prices, COVID-19 developments, and financial-market conditions; these could materially affect results, financial position, and cash flows.
- Management expects communications subscription revenue to continue declining year over year. It noted that Marconi Wireless, acquired in Q4 2021, added subscription revenue in the quarter.
- The company’s common dividend was $1.00 per share for Q1 and another $1.00 dividend was declared after quarter-end. Management said regular dividends were its current intention, but future payments remain at the board’s discretion.
- FocalPoint contributed approximately $110.6 million of goodwill and $10.7 million of identifiable intangible assets. The acquisition is intended to expand M&A advisory, debt capital markets, and restructuring capabilities.
- Fair-value-sensitive assets include $1.271 billion of recurring Level 3 assets, or 24.2% of total assets, including loans and less-liquid securities. Valuations rely partly on unobservable assumptions.
- Guarantees and other exposures include up to $110 million related to Babcock & Wilcox, up to $25 million for Nextpoint, and up to $10.375 million for CalNRG. The filing says no provision was recorded for the B&W loan guarantees because management believed collateral was sufficient. It also reports ordinary-course securities-related litigation and regulatory matters; management did not expect these claims to materially affect financial position or results.
- Management disclosed a prior-period cash-flow presentation revision related to VIE consolidation, which it concluded was not material. Q1 2021 cash flows were revised to show $172.5 million of SPAC trust funding as investing outflow and matching IPO proceeds as financing inflow.
Important facts for investors to verify
- Confirm the correct issuer: the filing supplied is B. Riley Financial, Inc., not BRC Group Holdings, Inc.
- Review the composition, valuation assumptions, liquidity, and potential downside of Level 3 investments and the proprietary positions behind Q1 trading losses.
- Assess debt maturities, floating-rate exposure, covenant thresholds and headroom; the filing gives a $135 million minimum operating EBITDA covenant but does not clearly state actual covenant EBITDA or headroom here.
- Check the status and potential cash impact of guarantees, related-party loans and transactions, and pending litigation or regulatory matters.
- Evaluate dividend sustainability in light of the quarterly loss, cash outflows, and substantial debt service; dividend declarations remain subject to board discretion.