BRC Group Holdings, Inc.

Good afternoon and welcome to B. Reilly Financial's first quarter 2022 earnings call. Earlier today, B. Reilly issued a press release and presentation detailing its financial results for the first three months of 2022. Copies are available in the investor section of the company's website at ir.breillyfin.com. As a reminder, this call is being recorded. An audio replay will be available on the company's investor relations website later today. Joining us today from B. Riley are Bryant Riley, Chairman, Co-Founder and Co-CEO, Tom Kelleher, Co-Founder and Co-CEO, and Philip Ahn, CFO and COO. After management's remarks, we will open the line for questions. And before we conclude today's call, I will provide the necessary cautions regarding forward-looking statements. I will now turn the call over to Mr. Bryant Riley. Please proceed.

Thanks. Welcome, everyone. In many ways, our first quarter is personally as gratifying as any quarter we have reported since going public in 2014. To generate over $84 million in operating EBITDA in an environment in which our historically biggest profit driver's revenue were down almost 75%, I'm speaking of investment banking, which declined from $128 million to $34.2 million year-over-year in revenues, illustrates the steps we have taken over the last 10 years to insulate our overall business from large market volatility. Additionally, generating operating EBITDA of over $10 million in our brokerage business despite this large slowdown, while aggressively continuing our investment in M&A and fixed income personnel, illustrates the commitment we have maintained towards expense management. Given the slowdown in capital markets and the overall decline in equity markets, I thought it would make sense to reiterate our dividend and business strategy, and Tom and Phil will speak more specifically to the business units later in the call. As we have said before, we group our businesses into two categories, episodic and recurring. The episodic businesses are represented by B. Reilly Securities, our brokerage, and B. Reilly Retail Solutions and can have large quarterly swings in profitability. The remaining businesses consisting of our wealth management, advisory, brands, asset management, and communications businesses are much more predictable and recurring in nature. These recurring businesses, along with the net margin from our loan book, generate enough cash flow to cover our dividend, tax, and interest requirements. Specifically, we estimate that the operating EBITDA required to cover these items is approximately $270 million per year. To the extent that we have strong cash flows from our episodic businesses, we will review those cash flows and look to either invest further in our business or return capital to shareholders incremental to our regular dividend, as we did last year, in which we paid $10 in special dividends. In addition to these EBITDA-generating assets, we have a diversified investment portfolio of approximately $1.3 billion that includes public and private equity in businesses where we have deep conviction and capital appreciation, and we turn over time and almost always have deep board-level involvement. The returns from these investments are subject to being valued quarterly and can be volatile. We urge investors to take a long-term view of this portfolio and is a reason we highlight our operating EBITDA as our primary measurement of the business. While we saw a decline in this portfolio during the quarter, which has continued into the second quarter, we have historically generated outsized returns on our investment book and are confident that our proprietary platform will continue to enable us to generate strong results for our shareholders. Importantly, all of our investments are financed with internal cash, and low covenant debt in which the vast majority does not mature for four years. This allows us to take a long-term view on these investments, and while the mark-to-market changes can be painful, they are mitigated by our strong capital base. We have found that we are able to create meaningful value during market declines like the one we are currently experiencing and will look to be opportunistic in our investment portfolio. With that, I will now speak to the first quarter. Operating revenues were 274 million, while investment losses totaled 68 million, bringing our total revenues for the quarter to 206 million. Operating adjusted EBITDA for the quarter was 84.2 million, while investment EBITDA loss was 43.5 million, bringing our total adjusted EBITDA for the quarter to 40.7 million. Within the capital market segment, underwriting, SPAC issuance, and sales and trading saw declines in the quarter, while strength in capital markets came from ATM offerings, restructuring, interest from our loan book, securities lending, and our growing asset management activity. As mentioned, we have taken efforts over the last two years to broaden out our brokerage business and align with that strategy. We've continued to diversify our revenue mix with the integration of recent acquisitions of national holdings within wealth management and focal point securities within our institutional broker-dealer. Within our principal investments, Communication segment, we continue to build out the portfolio with our pending acquisitions of Lingo Management and Bullseye Telecom. Before Synergies, the acquisition of Lingo and Bullseye are expected to contribute over $250 million in revenue and $30 million in EBITDA on an annualized basis. As I previously touched on, another source of strong recurring cash flow comes from our Loan and Receivables Investment Book. As of quarter end, we maintain approximately $500 million of corporate loans receivables, generating an average interest rate of approximately 10%. Furthermore, we acquired a portfolio of loans receivable from Badcock Group in late 2021, which had a principal balance of approximately $380 million at quarter end and has so far performed above expectations and is generating a meaningfully higher rate of return than the rest of the loan book. Combined, these assets are a large contributor to our operating EBITDA, and we are seeing significant opportunities to continue to put capital to work at far higher rates given the lack of capital available in the equity markets. With that, I'll now turn the call over to Phil Ahn, our CFO and CEO, who will provide more context around our quarterly metrics. And then Tom Kelleher, our co-CEO, will discuss some highlights across our operating units. Over to you, Phil.

Thanks, Bryant. As Bryant noted, our first quarter results were impacted by a slowdown on the capital markets and losses incurred in the investment book due to current market conditions. For the first quarter on a consolidated basis, B. Riley reported first quarter total revenues of 205.6 million, down 66% from the prior year period. Operating revenues were 274 million for the quarter, a year-over-year decrease of 18%, primarily related to lower investment banking activity. Total adjusted EBITDA in the first quarter was 40.7 million, and operating adjusted EBITDA was 84.2 million. Net loss available to common shareholders was 12.1 million, or a 43 cent loss per diluted share. Now turning to our reportable segments in the first quarter, starting with our capital market segment, which includes operating results from investment banking, institutional brokerage, and fund management, as well as our results from our investment portfolio. Excluding investment losses, our capital market segment operating revenues for the quarter totaled 130.5 million, which represents a decrease of 37% year over year. Segment operating income was $57.9 million, which was down 45% year-over-year, primarily due to lower investment banking revenues, and was partially offset by strong activity under ATM offerings, sales and trading, and securities lending businesses. Wealth management segment revenues increased 14% to $77.5 million, up from $67.9 million in the prior year period. Segment loss in the first quarter was $10.1 million, driven primarily by reduced market activity combined with the impact of a settlement charge related to litigation prior to B. Riley's acquisition of National Holdings in 2021. Auction and liquidation segment revenues were $3.4 million and segment loss was $0.8 million. Results from this segment were impacted by a slow retail liquidation environment in the first quarter compared to the prior year period. As stated on prior calls, results from this segment tend to be variable due to the episodic nature of large retail liquidation engagements. Financial consulting segment revenues increased to $25.9 million, up from $21.4 million in the prior year period. Segment income increased to $4.9 million, up from $3.3 million in the prior year. Increases in this segment were driven primarily by strong results in both our financial restructuring advisory business as well as our appraisal valuation business. Our principal investments communications companies MagicJack, United Online, and Credo Marconi contributed revenues of $32.7 million and segment income of $8.8 million. These companies continue to provide a steady stream of cash flows for our B. Reilly platform. And lastly, our brand segment continues to make contributions to the overall B. Reilly platform, having generated segment revenues of $4.6 million and segment income of $3.2 million. Note that this segment excludes the dividends and contributions from our investments in Hurley, Justice, and Beebe, which are picked up in our capital market segment as well as other income. As a reminder, adjusted EBITDA and our metrics for operating investment results are non-GAAP financial measures. Please refer to our earnings release for a definition of these terms and for a reconciliation to the nearest GAAP measures. Investors can also find additional details relating to these metrics and related reconciliations in the financial supplement on our investor relations website. Now turning to some highlights from our balance sheet. At March 31, B. Riley Financial had approximately $214 million in unrestricted cash and cash equivalents, $1.3 billion in net securities and other investments owned, and $882 million of loans receivable. At quarter end, we had total cash and investments balance of approximately $2.5 billion, which includes approximately $49 million in other investments reported in prepaid and other assets. Net of debt B. Reilly Financial's cash investments totaled approximately $406 million at March 31. And finally, our Board of Directors has approved our regular quarterly dividend of $1 per common share, which will be paid on or about May 20th to common stockholders as of record on May 11th. That completes my financial summary. Now I'll turn the call over to our co-CEO, Tom Kelleher. Tom?