B Riley Financial Inc (RILYP) 2015 Q4 法說會逐字稿

Good afternoon. Welcome to B. Riley Financial's fourth-quarter and full-year 2015 earnings conference call. My name is Matt and I will be your operator for today's call.

Joining us for today's call is B. Riley Financial's Chairman and CEO, Bryant Riley; President, Tom Kelleher; and CFO and COO, Phillip Ahn. Following their remarks we will open up the call for your questions. Then, before we conclude today's call, I will provide the necessary cautions regarding the forward-looking statements made by management during this call.

I would like to remind everyone that this call is being recorded and available for replay via a link available on the investor relations section of the Company's website at www.BRileyFin.com.

Now I would like to turn the call over to B. Riley Financial's Chairman and CEO, Mr. Bryant Riley. Sir, please proceed.

Thank you. Welcome, everyone, and thank you for joining us today. After the market closed, we issued a press release announcing our financial results for the fourth quarter and year ended December 31, 2015, a copy of which is available in the investor relations section of our website.

2015 was a strong year for B. Riley Financial. A record financial performance for the year revealed the leverage in our business model, as our operating expenses remained relatively flat, while our top-line revenue grew double digits and our adjusted EBITDA was up nearly 4 times from last year, both achieving record levels.

These results were driven by strong performances across all of our business units, led by a 71% increase in revenue from our Auction and Liquidation segment. Our strong results revealed the significant operating synergies of our expanding financial services platform as well as the attractive opportunities it can generate.

This was highlighted by several operational successes which further diversified our services, including the launch of Great American Capital Partners, the manager of our direct lending fund, as well as B. Riley Wealth Management.

While our operational and financial performance for the full-year was strong, our top-line results for the fourth quarter were flat, primarily due to a decrease in revenue in our Capital Markets segment. Our results in this segment were impacted by the swift downturn in capital market activity during Q4, which hit a few of our in-house positions in our prop accounts, which we will discuss a little more later.

Now I would like to turn the discussion over to our COO and CFO, Phil Ahn, who will walk us through the numbers for the quarter and full year. Afterward, I will discuss our operational progress and outlook and answer questions. Phil?

Thanks, Bryant, and welcome, everyone. Our revenues for the fourth quarter of 2015 totaled $19.8 million, which was relatively flat compared to the same year-ago period. While total revenues were flat, the mix of revenue included higher revenue in our Auction and Liquidation segment offset by lower revenue in our Capital Markets segment.

For the full year, our revenues increase 46% to $112.5 million, up from $77.1 million in 2014. The improvement was primarily attributable to an increase in revenues in our Auction and Liquidation segment, as well as the inclusion of a full year of operating results from B. Riley & Co., which we merged with in June 2014. On a pro forma basis, our total revenues of $112.5 million in 2015 represented an increase of 23% compared to pro forma revenue in 2014.

Now looking at our revenue mix and operating income by business segment for the fourth-quarter and full-year period. Revenue in our Valuation and Appraisal segment for the fourth quarter was $8.1 million, up 14% from $7.2 million in Q4 last year.

Segment income for the quarter increased 40% to $1.8 million, up from $1.3 million in the fourth quarter of 2014. For the full year of 2015 the segment generated revenues of $31.1 million, which was up from $30.7 million in 2014. Segment income improved 21% to $8.3 million, compared to $6.8 million in 2014.

Revenue in our Auction and Liquidation segment for the quarter increased 117% to $6.8 million, up from $3.1 million in Q4 last year. Our segment income for the quarter was $1.4 million, compared to a loss of $5.4 million in the same year-ago quarter.

For the full year, segment revenues were $46.2 million, up 71% from $27 million in the same year-ago period. Segment income for the full year was $19.3 million versus a loss of $7.7 million in 2014. As these results demonstrate, this segment of our business can be highly profitable, but also episodic in nature, where results may vary substantially from quarter to quarter and year to year.

Finally, in our Capital Markets segment, revenue for the quarter was $4.8 million, down from $9.5 million in Q4 last year. Segment loss for the quarter was $2.3 million, down from a gain of $2.3 million in Q4 last year. Disruptions in the equity markets contributed to some of the segment loss in the quarter. Q4 results were negatively impacted by a loss of approximately $819,000 on proprietary positions, as well as a markdown of $662,000 and a strategic investment in SDOI.

For the full year, segment revenues were $35.2 million, up 81% from $19.4 million in the same period last year. However, on a pro forma basis, our Capital Markets segment revenue was up 4% from $34 million in 2014. Segment income for the year totaled $4.4 million, down from $5 million in 2014.

On a consolidated basis, we incurred a pretax loss of $1.4 million in the fourth quarter of 2015, an improvement from a loss of $4 million in Q4 2014. For the full year 2015 we generated pretax income of $21.3 million, up substantially from our pretax loss of $8.7 million for 2014. We incurred a net loss in the fourth quarter of $1 million, or $0.06 per diluted share, which was an improvement from a net loss of $2.8 million, or $0.18 per diluted share in Q4 2014.

For the full year 2015, net income was $11.8 million, or $0.73 per diluted share, a significant improvement from the net loss of $5.8 million, or $0.60 loss per diluted share, in 2014. Our adjusted EBITDA, a non-GAAP metric, for the fourth quarter of 2015 improved to $219,000, up from a loss of $664,000 in the same year-ago quarter.

For the full year of 2015, our adjusted EBITDA increased to a record $23.2 million, up from $2.8 million in 2014, or $6.1 million on a pro forma basis in 2013. For further discussion about this non-GAAP term and reconciliation to the nearest GAAP measures, please refer to the section in today's earnings release titled "Use of Non-GAAP Financial Measures."

Now turning to our balance sheet. At year-end we had $30 million of unrestricted cash and $24.8 million of net investments and securities. Shareholders' equity at year-end totaled $109.3 million, which was down from $113 million on September 30, 2015.

This completes my financial summary. For a more detailed analysis of our financial results, please reference our Form 10-K which we plan to file shortly. I will now turn the call back to Bryant for additional comments on our business segments and outlook. Bryant?

Thanks, Phil. 2015 was the first full year for the combined B. Riley and Great American businesses. We are pleased with our operational and financial performance since the merger, as well as the future potential of the combined platform.

As Phil mentioned, we are able to achieve record results for the full year, despite a weak equities market and slower environment for investment banking services in the second half of the year. We believe this is a reflection of our diversified business model, which is structured to provide steady and predictable cash flow with downside protection.

As I have mentioned on prior calls, we seek to operate our sales and training commission business and our appraisal business, which have historically been relatively steady businesses, to cover the vast majority of our overall corporate operating expenses, while our auction and liquidation and our investment banking businesses provide us meaningful upside.

Although the capital markets were challenging in the fourth quarter of 2015, we completed several notable transactions, including acting as financial advisor to ITR Group in its sale of two subsidiaries to Zebra Technologies and more recently as exclusive financial advisor to PrismTech in their sale to ADLINK Technology.

The broad market decline in the quarter impacted our proprietary trading activity, which incurred losses of approximately $819,000. Additionally, we held a strategic position in SDOI, which as of year-end resulted in a mark-to-market loss of $662,000. As a whole, this business segment performance was disappointing, but we are confident that we will see a quick recovery and are as excited about the opportunities we are seeing as we have ever been.

Along that line, we recently hired Perry Mandarino to lead our newly-formed Restructuring Solutions practice. Perry brings nearly 30 years of experience to B. Riley and is a nationally-recognized leader in the corporate restructuring industry.

The Restructuring Solutions practice is a natural extension of our existing investment banking and financial advisory business, and we have already expanded this business with four additional hires. Given the current economic environment and vast amount of opportunities brought to us by our platform, we believe that there will be high demand for restructuring services.

Another significant addition to our platform in 2015 was the acquisition of MK Capital Advisors in the first quarter of the year. We have rebranded this business as B. Riley Wealth Management and are now advising on more than $750 million of investment assets. We continue to ramp up B. Riley's Wealth Management sales and marketing activities and believe this division will be an increasingly important component contributor to our success in 2016 and onward.

Another new Capital Markets initiative in 2015 was the launch in April of our direct lending business, GA Capital Partners. We successfully raised more than $150 million in capital commitments for our first fund from both institutional investors and high net-worth individuals.

Since its inception, the fund has already closed on four financings, including asset-based loans to Hancock Fabrics, General Wireless RadioShack, Scrap Metal Services, and most recently, EVINE Live. We believe that there will be increasing demand in the marketplace for nontraditional financing solutions to underserved middle-market companies.

This business also underscores how B. Riley's platform can source proprietary opportunities through industry relationships and a network of financial professionals. We continue to believe GA Capital Partners has the potential to be one of our most promising new business initiatives.

Shifting gears to our Valuation and Appraisal segment, as one of the market's leading appraisal practices for asset-based lenders, Great American provides valuations and appraisals to financial institutions and corporations to determine estimated liquidation value of assets. This is a very sticky and predictable business that provides recurring revenue, which balances the other episodic segments of our business.

Consistent with our business model and expectations, revenue in our appraisal business was up 1% last year. However, operating profits were up substantially at over 21% last year. A unique characteristic about our appraisal business is that it provides us with fairly consistent, recurring cash flow stream. Just as important, this part of our business offers a valuable lead-generation tool for other parts of our business, including our growing Auction and Liquidation segment.

To that end, 2015 was a record year for our Auction and Liquidation segment. This was driven by a number of deals, with the largest and most significant one being Target Canada, which we completed in the second quarter. We plan to continue capitalizing on opportunities and deploying available capital as it provides for a highest return on investment. We are seeing more activity in this segment than we have seen since 2008.

We also continue to see opportunities on the service side helping financially-stable retailers open and close stores. While this business does not have the same type of potentially large profit and loss swings as the liquidations business, it delivers a solid fee-based revenue stream and speaks to our expertise and ability to help our retail clientele. Again, we are as active in this business as we have ever been.

In summary, 2015 was a very strong year for B. Riley Financial. Our operating success drove record financial results including revenue, adjusted EBITDA, and net income. Our performance also reveals our ability to effectively grow and diversify our business while generating meaningful profits for shareholders.

As we have stated previously, our goal is to invest a portion of our profits into the business and distribute a portion of our profits to our shareholders. In 2015, we paid $5.2 million in dividends, or 44% of our net income generated in the form of dividends to shareholders.

Looking ahead, we enter 2016 on strong footing with a diversified business and expanding pipeline, both of which are keys to our long-term success. Our strategy remains focused on key initiatives to grow revenues by leveraging our infrastructures across all of our services, across all our business segments, and being opportunistic and acting on the -- and being opportunistic.

Now with that we are ready to open the call for questions.

(Operator Instructions) John Barton, Dialectic Capital.

This is John Fichthorn for John Barton. Congratulations on a nice year. Just was wondering if you guys could maybe talk about your growth objectives or any targets you have for individual business lines for 2016. Maybe also in conjunction or tied in with that, the businesses you are most excited about and most concerned about looking out over the next year.

Sure. As we look out across our business units, I really like the units we are in and I think the most profitable way to expand is the long-existing units. We are structuring as a business that we think is really attractive for us; not only because of the existing opportunities we see, but also because the timing feels right. And we are thrilled to have hired Perry, who was Turnaround Consultant of the Year last year at PWC, and we have really hit the ground running on that business.

The world is still over-retailed and we are well-positioned for that in a number of ways. So incredibly excited about the auction business and the liquidation business. In fact, not only that side, but the online auction business we have that really is focused on kind of larger products; we think that is really exciting.

The commission business, John, you might be surprised, has been stronger than expected. It is really -- maybe there is less brokers out there; there is less research. But we have been pleasantly surprised by the commission business and really feel good about where that group is and where the research side is.

The disappointing side of our business has been investment banking and it is not for a lack of opportunities. I feel like we have had a meaningful number of significant opportunities. You need a lot of them to hit one, and when you hit one, they can be outside. So we have got some work to be there.

But it is active and we have the right people, so if the markets help us and we can get to work on some of the M&A mandates we have and the capital market mandates we have, we are excited. I think the most -- the thing I am most excited about is, if you look at this quarter, Q4, a lot of things went wrong. And when I say that; we lost a fair amount of money in our prop accounts, we didn't have any meaningful auctions, we had a pretty poor banking environment, and we lost $200,000 in EBITDA.

That is not satisfactory, but as a shareholder, it makes you feel comfortable that the business is able to withstand some uncomfortable markets. And I think we are well-positioned for the upside.

So I think that was a rambling way of answering your question. If you have anything more specific -- but that is my general view.

Just one quick follow-up -- that was great. United Online, do you have any thoughts you can share?

We have a 13D and we have been advised by our counsel that we cannot talk about that position currently.

Okay, thanks.

(Operator Instructions)

I think we are good to go, if there is no other questions.

Thank you for joining us on today's call. Especially want to thank our employees, partners, and investors for their continued support. We look forward to updating you on our next call. Thank you.

Before we conclude today's call I would like to provide B. Riley Financial's safe harbor statement that includes important cautions regarding forward-looking statements made during this call.

During today's call there were forward-looking statements that are not based on historical fact including, without limitation, statements containing the words expects, anticipates, intends, plans, believes, seeks, may, estimates, and similar expressions and statements. Such forward-looking statements include, but are not limited to, expressed or implied statements regarding the Company's plan for future operations, business incentives, anticipated future financial position, anticipated results of operations, business strategy, competitive position, and the Company's expectations regarding opportunities for growth.

Because these forward-looking statements involve known and unknown risks and uncertainties, there are important factors that could cause actual results, events, or developments to differ materially from those expressed or implied by these forward-looking statements. Such factors include the Company's ability to successfully integrate recent acquisitions, loss of key personnel, the Company's ability to manage growth, the potential loss of financial institution clients, the timing of completion of significant engagements, and those risks described from time to time in the Company's filings with the SEC including, without limitation, the risks described in the Company's annual report on Form 10-K for the year ended December 31, 2014, under the captions Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operations.

Additional information will also be set forth in the Company's annual report on Form 10-K for the year ended December 31, 2015. These factors should be considered carefully and you are cautioned to not place undue reliance on such forward-looking statements.

All information discussed in the call as of today March 28, 2016, and B. Riley Financial does not intend and undertakes no duty to update such information based upon future events or circumstances.

Further, this conference included a discussion of non-GAAP financial measures as that term is defined in Regulation G. The most direct comparable GAAP financial measures and information reconciling these non-GAAP financial measures to the Company's financial results prepared in accordance with the GAAP are included in the earnings release which is posted on the Company's website at www.BRileyFin.com.

Finally, I would like to remind everyone that a recording of today's call will be available for replay via a link available on the investor relations section of the Company's website. Thank you for joining today's presentation and you may now disconnect.