BRC Group Holdings, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. This report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “future,” “intend,” “seek,” “likely,” “potential” or “continue,” the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we, nor any other person, assume responsibility for the accuracy and completeness of the forward-looking statements. We are under no obligation to update any of the forward-looking statements after the filing of this Quarterly Report to conform such statements to actual results or to changes in our expectations. The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes and other financial information appearing elsewhere in this Quarterly Report. Readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including without limitation the disclosures made in Item 1A of Part II of this Quarterly Report under the caption “Risk Factors.” Risk factors that could cause actual results to differ from those contained in the forward-looking statements include but are not limited to risks related to: volatility in our revenues and results of operations; changing conditions in the financial markets; our ability to generate sufficient revenues to achieve and maintain profitability; our exposure to credit risk; the short term nature of our engagements; the accuracy of our estimates and valuations of inventory or assets in “guarantee” based engagements; competition in the asset management business; potential losses related to our auction or liquidation engagements; our dependence on communications, information and other systems and third parties; potential losses related to purchase transactions in our auction and liquidations business; the potential loss of financial institution clients; potential losses from or illiquidity of our proprietary investments; changing economic and market conditions, including increasing inflation and actions by the Federal Reserve to address inflation; the continuing effects of the COVID-19 pandemic, or other pandemics or severe public health crises, and other related impacts including supply chain disruptions, labor shortages and increased labor costs; potential liability and harm to our reputation if we were to provide an inaccurate appraisal or valuation; potential mark-downs in inventory in connection with purchase transactions; failure to successfully compete in any of our segments; loss of key personnel; our ability to borrow under our credit facilities or at-the-market offering as necessary; failure to comply with the terms of our credit agreements or senior notes; our ability to meet future capital requirements; our ability to realize the benefits of our completed acquisitions, including our ability to achieve anticipated opportunities and cost savings, and accretion to reported earnings estimated to result from completed and proposed acquisitions in the time frame expected by management or at all; the diversion of management time on acquisition-related issues; the failure of our brand investment portfolio licensees to pay us royalties; and the intense competition to which our brand investment portfolio is subject. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Except as otherwise required by the context, references in this Quarterly Report to the “Company,” “B. Riley,” “B. Riley Financial,” “we,” “us” or “our” refer to the combined business of B. Riley Financial, Inc. and all of its subsidiaries. Overview General B. Riley Financial, Inc. (NASDAQ: RILY) (“B. Riley” or the “Company”) is a diversified financial services platform and opportunistically invests in companies or assets with attractive risk-adjusted return profiles to benefit its shareholders. Through its affiliated subsidiaries, B. Riley provides a full suite of investment banking, corporate finance research, sales, and trading, as well as advisory, valuation, and wealth management, services. The Company’s major business lines include: • B. Riley Securities, a leading, full service investment bank that provides corporate finance, lending, research, securities lending and sales and trading services to corporate, institutional, and high net worth individual clients. It is nationally recognized for its proprietary small and mid-cap equity research. B. Riley Securities was established from the merger of B. Riley & Co, LLC and FBR Capital Markets & Co. in 2017. 40 • B. Riley Wealth Management, which provides comprehensive wealth management and brokerage services to individuals and families, corporations and non-profit organizations, including qualified retirement plans, trusts, foundations, and endowments. The firm was formerly known as Wunderlich Securities, Inc., which the Company acquired in July 2017. • National Holdings Corporation (“National”), which provides wealth management, brokerage, insurance brokerage, tax preparation and advisory services, was acquired in February 2021. • B. Riley Capital Management, which is a Securities and Exchange Commission (“SEC”) registered investment advisor, that includes B. Riley Asset Management, an advisor to and/or manager of certain private funds. • B. Riley Advisory Services, which provides expert witness, bankruptcy, financial advisory, forensic accounting, valuation and appraisal, and operations management services to companies, financial institutions, and the legal community. B. Riley Advisory Services is primarily comprised of the bankruptcy and restructuring, forensic accounting, litigation support, and appraisal and valuation practices. • B. Riley Retail Solutions, which is a leading provider of asset disposition, liquidation, and auction solutions to a wide range of retail and industrial clients. • B. Riley Real Estate, which advises companies, financial institutions, investors, family offices and individuals on real estate projects worldwide. A core focus of B. Riley Real Estate, LLC is the restructuring of lease obligations in both distressed and non-distressed situations, both inside and outside of the bankruptcy process, on behalf of corporate tenants. • B. Riley Principal Investments, which identifies attractive investment opportunities and seeks to control or influence the operations of our portfolio company investments to deliver financial and operational improvements that will maximize the Company’s free cash flow, and therefore, shareholder returns. The team concentrates on opportunities presented by distressed companies or divisions that exhibit challenging market dynamics. Representative transactions include recapitalization, direct equity investment, debt investment, active minority investment and buyouts. • Communications consist of United Online, Inc. (“UOL” or “United Online”), which was acquired in July 2016, magicJack VocalTec Ltd. (“magicJack”), which was acquired in November 2018, a 40% equity interest in Lingo Management, LLC (“Lingo”), which was acquired in November 2020, and a mobile virtual network operator business (“Marconi Wireless”), which was acquired in October 2021. Upon receipt of certain regulatory approvals, the Company has the right to acquire an additional 40% equity interest in Lingo. The following briefly describes each such business: ◦ UOL is a communications company that offers consumer subscription services and products, consisting of Internet access services and devices under the NetZero and Juno brands. ◦ magicJack is a Voice over IP (“VoIP”) cloud-based technology and services and wireless mobile communications provider. ◦ Lingo is a global cloud/UC and managed service provider. ◦ Marconi Wireless is a mobile virtual network operator business that provides mobile phone voice, text, and data services and devices. • BR Brand Holding (“BR Brands”), in which the Company owns a majority interest, provides licensing of certain brand trademarks. BR Brands owns the assets and intellectual property related to licenses of six brands: Catherine Malandrino, English Laundry, Joan Vass, Kensie Girl, Limited Too and Nanette Lepore as well as investments in the Hurley and Justice brands with Bluestar Alliance LLC (“Bluestar”), a brand management company. We are headquartered in Los Angeles with offices in major cities throughout the United States including New York, Chicago, Boston, Atlanta, Dallas, Memphis, Metro Washington D.C., West Palm Beach, and Boca Raton. 41 For financial reporting purposes we classify our businesses into six operating segments: (i) Capital Markets, (ii) Wealth Management, (iii) Auction and Liquidation, (iv) Financial Consulting, (v) Principal Investments – Communications and Other and (vi) Brands. Capital Markets Segment . Our Capital Markets segment provides a full array of investment banking, corporate finance, financial advisory, research, securities lending and sales and trading services to corporate, institutional, and individual clients. Our corporate finance and investment banking services include merger and acquisitions as well as restructuring advisory services to public and private companies, initial and secondary public offerings, and institutional private placements. In addition, we trade equity securities as a principal for our account, including investments in funds managed by our subsidiaries. Our Capital Markets segment also includes our asset management businesses that manage various private and public funds for institutional and individual investors. Wealth Management Segment . Our Wealth Management segment provides wealth management and tax services to corporate and high net worth clients. We offer comprehensive wealth management services for corporate businesses that include investment strategies, executive services, retirement plans, lending & liquidity resources, and settlement solutions. Our wealth management services for individual client services provide investment management, education planning, retirement planning, risk management, trust coordination, lending & liquidity solutions, legacy planning, and wealth transfer. In addition, we supply market insights to provide unbiased guidance to make important financial decisions. Wealth management resources include market views from our investment strategists and B. Riley Securities’ proprietary equity research. Auction and Liquidation Segment. Our Auction and Liquidation segment utilizes our significant industry experience, a scalable network of independent contractors and industry-specific advisors to tailor our services to the specific needs of a multitude of clients, logistical challenges, and distressed circumstances. Our scale and pool of resources allow us to offer our services across North America as well as parts of Europe, Asia, and Australia. Our Auction and Liquidation segment operates through two main divisions, retail store liquidations and wholesale and industrial assets dispositions. Our wholesale and industrial assets dispositions division operates through limited liability companies that are controlled by us. Financial Consulting Segment. Our Financial Consulting segment provides services to law firms, corporations, financial institutions, lenders, and private equity firms. These services primarily include bankruptcy, financial advisory, forensic accounting, litigation support, operations management consulting, real estate consulting, and valuation and appraisal services. Our Financial Consulting segment operates through limited liability companies that are wholly owned or majority owned by us. Principal Investments - Communications and Other Segment. Our Principal Investments - Communications and Other segment consists of businesses which have been acquired primarily for attractive investment return characteristics. Currently, this segment includes, among other investments, UOL, through which we provide consumer Internet access, magicJack, through which we provide VoIP communication and related product and subscription services, and Marconi Wireless, through which we provide mobile phone services and devices. Brands Segment. Our Brands segment consists of our brand investment portfolio that is focused on generating revenue through the licensing of trademarks and is held by BR Brands. Recent Developments On January 19, 2022, we acquired FocalPoint Securities, LLC ("FocalPoint"), an independent investment bank headquartered in Los Angeles, California. The purchase price consideration totaled $124.5 million, which consisted of $64.2 million in cash, $20.3 million in issuance of our common stock, and $39.9 million in deferred cash and contingent consideration payable over the next three years. We used the acquisition method of accounting for this acquisition. Goodwill of $110.6 million and other intangible assets of $10.7 million that was recorded as a result of the acquisition will be deductible for tax purposes. The acquisition is expected to expand B. Riley Securities’ mergers and acquisitions (“M&A”) advisory business and enhance its debt capital markets and financial restructuring capabilities. There continues to be widespread impact from COVID-19, which the World Health Organization classified as a pandemic in March 2020. There has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel, and government activities and functions; however, the full impact of the COVID-19 outbreak continues to evolve with the emergence of new variant strains and breakthrough infections. Although the U.S. economy continued to grow during the first quarter of 2022, the 42 continuing impact of the COVID-19 pandemic, higher inflation, the actions by the Federal Reserve to address inflation, and rising energy prices create uncertainty about the future economic environment which will continue to evolve and may impact our business in future periods. These developments and the impact on the financial markets and the overall economy continue to be highly uncertain and cannot be predicted. If the financial markets and/or the overall economy continue to be impacted, our results of operations, financial position, and cash flows may be materially adversely affected. 43 Results of Operations The following period to period comparisons of our financial results and our interim results are not necessarily indicative of future results. Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021 Condensed Consolidated Statements of Operations (Dollars in thousands) Three Months Ended March 31, Change 2022 2021 Amount % Revenues: Services and fees $ 210,675 $ 289,469 $ (78,794) (27.2) % Trading (losses) income and fair value adjustments on loans (68,390) 266,942 (335,332) (125.6) % Interest income - Loans and securities lending 61,426 36,920 24,506 66.4 % Sale of goods 1,878 6,828 (4,950) (72.5) % Total revenues 205,589 600,159 (394,570) (65.7) % Operating expenses: Direct cost of services 11,651 11,322 329 2.9 % Cost of goods sold 2,251 5,326 (3,075) (57.7) % Selling, general and administrative expenses 175,199 191,344 (16,145) (8.4) % Interest expense - Securities lending and loan participations sold 11,766 19,189 (7,423) (38.7) % Total operating expenses 200,867 227,181 (26,314) (11.6) % Operating income 4,722 372,978 (368,256) (98.7) % Other income (expense): Interest income 67 49 18 36.7 % Change in fair value of financial instruments and other 5,981 — 5,981 100.0 % Income from equity investments 6,775 875 5,900 674.3 % Interest expense (30,436) (19,786) (10,650) 53.8 % (Loss) income before income taxes (12,891) 354,116 (367,007) (103.6) % Benefit (provision) for income taxes 3,695 (97,518) 101,213 (103.8) % Net (loss) income (9,196) 256,598 (265,794) (103.6) % Net income attributable to noncontrolling interests 866 1,942 (1,076) (55.4) % Net (loss) income attributable to B. Riley Financial, Inc. (10,062) 254,656 (264,718) (104.0) % Preferred stock dividends 2,002 1,749 253 14.5 % Net (loss) income available to common shareholders $ (12,064) $ 252,907 $ (264,971) (104.8) % n/m - Not applicable or not meaningful. 44 Revenues The table below and the discussion that follows are based on how we analyze our business. Three Months Ended March 31, Change 2022 2021 Amount % Revenues - Services and fees: Capital Markets segment $ 69,084 $ 170,979 $ (101,895) (59.6) % Wealth Management segment 76,957 65,542 11,415 17.4 % Auction and Liquidation segment 3,355 7,358 (4,003) (54.4) % Financial Consulting segment 25,936 21,409 4,527 21.1 % Principal Investments - Communications and Other segment 30,786 19,793 10,993 55.5 % Brands segment 4,557 4,388 169 3.9 % Subtotal 210,675 289,469 (78,794) (27.2) % Revenues - Sale of goods: Auction and Liquidation segment — 6,092 (6,092) (100.0) % Principal Investments - Communications and Other segment 1,878 736 1,142 155.2 % Subtotal 1,878 6,828 (4,950) (72.5) % Trading (losses) income and fair value adjustments on loans Capital Markets segment (68,912) 264,503 (333,415) (126.1) % Wealth Management segment 522 2,356 (1,834) (77.8) % Brands segment — 83 (83) (100.0) % Subtotal (68,390) 266,942 (335,332) (125.6) % Interest income - Loans and securities lending: Capital Markets segment 61,426 36,920 24,506 66.4 % Total revenues $ 205,589 $ 600,159 $ (394,570) (65.7) % _______________________________________________ n/m - Not applicable or not meaningful. Total revenues decreased approximately $394.6 million to $205.6 million during the three months ended March 31, 2022 from $600.2 million during the three months ended March 31, 2021. The decrease in revenues during the three months ended March 31, 2022 was primarily due to a decrease in revenue from trading (losses) income and fair value adjustments on loans of $335.3 million, services and fees of $78.8 million and sale of goods of $5.0 million, offset by an increase in revenue interest income from loans and securities lending of $24.5 million. The decrease in revenue from services and fees in the three months ended March 31, 2022 consisted of decreases in revenue of $101.9 million in the Capital Markets segment and $4.0 million in the Auction and Liquidation segment, partially offset by increases in revenues of $11.4 million in the Wealth Management segment, $11.0 million in the Principal Investments — Communications and Other segment, $4.5 million in the Financial Consulting segment, $4.0 million in the Auction and Liquidation segment and $0.2 million in the Brands segment. Revenues from services and fees in the Capital Markets segment decreased $101.9 million to $69.1 million during the three months ended March 31, 2022 from $171.0 million during the three months ended March 31, 2021. The decrease in revenues was primarily due to decreases in revenue of $105.4 million from corporate finance, consulting, and investment banking fees and $3.5 million of commission fees, partially offset by an increase of $6.9 million in dividends. 45 Revenues from services and fees in the Wealth Management segment increased $11.4 million to $77.0 million during the three months ended March 31, 2022 from $65.5 million during the three months ended March 31, 2021. The increase in revenues was primarily due to an increase in revenue of $13.7 million from wealth and asset management fees, partially offset by a decrease of $1.7 million in other income. Revenues from services and fees in the Auction and Liquidation segment decreased $4.0 million to $3.4 million during the three months ended March 31, 2022 from $7.4 million during the three months ended March 31, 2021. The decrease in revenues was primarily due to fewer large retail fee liquidation engagements. Revenues from services and fees in the Financial Consulting segment increased $4.5 million to $25.9 million during the three months ended March 31, 2022 from $21.4 million during three months ended March 31, 2021. The increase in revenues was primarily due to increases of $3.7 million within our Advisory Services divisions, $0.7 million for real estate engagement fees, and $0.1 million for B. Riley Operations Management engagements. Revenues from services and fees in the Principal Investments - Communications and Other segment increased $11.0 million to $30.8 million during the three months ended March 31, 2022 from $19.8 million during the three months ended March 31, 2021. The increase in revenues was primarily due to an increase of $12.4 million in subscription services from the acquisition of Marconi Wireless in the fourth quarter of 2021, partially offset by decreases in subscription revenue of $1.8 million for UOL and magicJack. We expect the subscription revenue to continue to decline year over year. Revenues from services and fees in the Brands segment increased $0.2 million to $4.6 million during the three months ended March 31, 2022 from $4.4 million during the three months ended March 31, 2021. The primary source of revenue included in this segment is the licensing of trademarks. Trading (losses) income and fair value adjustments on loans decreased $335.3 million to a loss of $68.4 million during the three months ended March 31, 2022 compared to income of $266.9 million during the three months ended March 31, 2021. This decrease was primarily due to decreases of $333.4 million in the Capital Markets segment and $1.8 million in the Wealth Management segment. The loss of $68.4 million during the three months ended March 31, 2022 was primarily due to realized and unrealized losses on investments made in our proprietary trading accounts of $79.3 million, partially offset by an unrealized gain on our loans receivable, at fair value of $10.9 million. Interest income – loans and securities lending increased $24.5 million to $61.4 million during the three months ended March 31, 2022 from $36.9 million during the three months ended March 31, 2021. Interest income from securities lending was $15.0 million and $22.9 million during the three months ended March 31, 2022 and 2021, respectively. Interest income from loans was $46.4 million and $14.0 million during the three months ended March 31, 2022 and 2021, respectively. Revenues – Sale of Goods Revenues from the sale of goods decreased $5.0 million to $1.9 million during the three months ended March 31, 2022 from $6.8 million during three months ended March 31, 2021. Revenues from sale of goods were attributable to a decrease of $6.1 million from sales of retail goods related to retail liquidation engagements in Europe that ended, partially offset by an increase of $1.1 million from sales of retail goods due to the acquisition of Marconi Wireless in the fourth quarter of 2021. Cost of goods sold for three months ended March 31, 2022 was $2.3 million, resulting in a negative gross margin of 19.9%. Operating Expenses Direct Cost of Services Direct cost of services decreased $0.3 million to $11.7 million during the three months ended March 31, 2022 from $11.3 million during the three months ended March 31, 2021. The activity is primarily driven by the Auction and Liquidation segment and Principal Investments — Communications and Other segment. Selling, General and Administrative Expenses Selling, general and administrative expenses during the three months ended March 31, 2022 and 2021 were comprised of the following: 46 Three Months Ended March 31, 2022 Three Months Ended March 31, 2021 Change Amount % Amount % Amount % Capital Markets segment $ 36,010 20.5 % $ 86,905 45.3 % $ (50,895) (58.6) % Wealth Management segment 87,575 50.0 % 63,871 33.4 % 23,704 37.1 % Auction and Liquidation segment 1,820 1.0 % 1,489 0.8 % 331 22.2 % Financial Consulting segment 21,024 12.0 % 18,087 9.5 % 2,937 16.2 % Principal Investments -Communications and Other segment 12,253 7.0 % 7,404 3.9 % 4,849 65.5 % Brands segment 1,339 0.8 % 1,390 0.7 % (51) (3.7) % Corporate and Other segment 15,178 8.7 % 12,198 6.4 % 2,980 24.4 % Total selling, general & administrative expenses $ 175,199 100.0 % $ 191,344 100.0 % $ (16,145) (8.4) % ____________________________________ n/m - Not applicable or not meaningful. Total selling, general and administrative expenses decreased approximately $16.1 million to $175.2 million during the three months ended March 31, 2022 from $191.3 million during the three months ended March 31, 2021. The decrease was primarily due to a decrease of $50.9 million in the Capital Markets segment, partially offset by increases of $23.7 million in the Wealth Management segment, $4.8 million in the Principal Investments — Communications and Other segment, $3.0 million in the Corporate and Other segment, $2.9 million in the Financial Consulting segment, and $0.3 million in the Auction and Liquidation segment. Capital Markets Selling, general and administrative expenses in the Capital Markets segment decreased by $50.9 million to $36.0 million during the three months ended March 31, 2022 from $86.9 million during the three months ended March 31, 2021. The decrease was primarily due to decreases of $28.6 million in consulting expenses, $19.2 million in payroll and related expenses, and $9.2 million from the reorganization of National, partially offset by an increases of $4.5 million from the acquisition of FocalPoint in the first quarter of 2022, $1.1 million in depreciation and amortization, and $0.4 million in other expenses. Wealth Management Selling, general and administrative expenses in the Wealth Management segment increased by $23.7 million to $87.6 million during the three months ended March 31, 2022 from $63.9 million during the three months ended March 31, 2021. The increase was primarily due to increases of $23.3 million from a full quarter's activity of National, which was acquired in February 2021, and $0.5 million in legal expenses. Auction and Liquidation Selling, general and administrative expenses in the Auction and Liquidation segment increased $0.3 million to $1.8 million during the three months ended March 31, 2022 from $1.5 million during the three months ended March 31, 2021. Financial Consulting Selling, general and administrative expenses in the Financial Consulting segment increased by $2.9 million to $21.0 million during the three months ended March 31, 2022 from $18.1 million during the three months ended March 31, 2021. The increase was primarily due to increases of $2.4 million in payroll and related expenses and $0.3 million in travel and entertainment. 47 Principal Investments — Communications and Other Selling, general and administrative expenses in the Principal Investments — Communications and Other segment increased $4.8 million to $12.3 million for the three months ended March 31, 2022 from $7.4 million for the three months ended March 31, 2021. The increase was primarily due to an increase of $1.8 million in payroll and related expenses, $0.9 million in communications expenses, $0.7 million in depreciation and amortization, $0.8 million from other expenses, and $0.4 million in marketing expenses. Brands Selling, general and administrative expenses in the Brands segment remained flat at $1.4 million during the three months ended March 31, 2022 and 2021. Corporate and Other Selling, general and administrative expenses for the Corporate and Other segment increased approximately $3.0 million to $15.2 million during the three months ended March 31, 2022 from $12.2 million for the three months ended March 31, 2021. The increase was primarily due to increases of $4.4 million in payroll and related expenses, partially offset by a decrease of $0.9 million in loss from extinguishment of debt as further discussed below and increase of $0.3 million in gain from foreign currency exchange. During the three months ended March 31, 2022, we did not repurchase any of our senior notes. During the three months ended March 31, 2021, we repurchased bonds with an aggregate face value of $128.2 million at par, resulting in a loss net of expenses and original issue discount of $0.9 million. The total payment included approximately $1.6 million in accrued interest. Other Income (Expense). Other income included interest income of $0.1 million during the three months ended March 31, 2022 and 2021. Change in fair value of financial instruments and other in the amount of $6.0 million during the three months ended March 31, 2022 was primarily due to the change in fair value of warrant liabilities and the forgiveness of a Paycheck Protection Program loan related to FocalPoint, which was acquired in the first quarter of 2022. Interest expense was $30.4 million during the three months ended March 31, 2022 compared to $19.8 million during the three months ended March 31, 2021. The increase in interest expense was primarily due to increases in interest expense of $5.7 million from the issuance of senior notes, and $4.1 million and $1.1 million from the Nomura term loan and revolving credit facility, respectively, entered into in the second quarter of 2021. During the three months ended March 31, 2022, income from equity investments was $6.8 million compared to $0.9 million during the three months ended March 31, 2021. The increase was primarily due to $6.7 million in earnings related to the bebe equity method investment. (Loss) Income Before Income Taxes . Loss before income taxes was $12.9 million during the three months ended March 31, 2022 compared to income of $354.1 million during the three months ended March 31, 2021. The change was primarily due to a decrease in revenue of $394.6 million and increase in interest expense of $10.7 million, partially offset by a decrease in operating expenses of approximately $26.3 million, increase in change in fair value of financial instruments and other of $6.0 million, and increase in income from equity investments of $5.9 million. Benefit (Provision) for Income Taxes. Benefit for income taxes was $3.7 million during the three months ended March 31, 2022 compared to a provision of $97.5 million during the three months ended March 31, 2021. The effective income tax rate was 28.7% for the three months ended March 31, 2022 as compared to 27.5% for the three months ended March 31, 2021. Net Income Attributable to Noncontrolling Interests . Net income attributable to noncontrolling interests represents the proportionate share of net income generated by membership interests of partnerships that we do not own. The net income attributable to noncontrolling interests was $0.9 million during the three months ended March 31, 2022 compared to $1.9 million during the three months ended March 31, 2021. Net (Loss) Income Attributable to the Company . Net loss attributable to the Company was $10.1 million during the three months ended March 31, 2022 compared to net income attributable to the Company of $254.7 million for the three months ended March 31, 2022. The change was primarily due to a decrease in operating income of $368.3 million and an increase in interest expense of $10.7 million, partially offset by a change from provision to benefit for income taxes of 48 $101.2 million, increase in change in fair value of financial instruments and other of $6.0 million, increase in income from equity investments of $5.9 million, and a decrease in net income attributable to noncontrolling interests of $1.1 million. Preferred Stock Dividends . Holders of Series A Preferred Stock, when and as authorized by the board of directors of the Company, are entitled to cumulative cash dividends at the rate of 6.875% per annum of the $25,000 liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,718.75 or $1.71875 per Depositary Share). Dividends are payable quarterly in arrears. On January 10, 2022, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on January 31, 2022 to holders of record as of the close of business on January 21, 2022. On April 7, 2022, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on April 29, 2022 to holders of record as of the close of business on April 19, 2022. Holders of Series B Preferred Stock, when and as authorized by the board of directors of the Company, are entitled to cumulative cash dividends at the rate of 7.375% per annum of the $25,000 liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,843.75 or $1.84375 per Depositary Share). Dividends are payable quarterly in arrears. On January 10, 2022, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on January 31, 2022 to holders of record as of the close of business on January 21, 2022. On April 7, 2022, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on April 29, 2022 to holders of record as of the close of business on April 19, 2022. Net (Loss) Income Available to Common Shareholders . Net loss available to common shareholders was $12.1 million during the three months ended March 31, 2022 compared to net income available to common shareholders of $252.9 million during the three months ended March 31, 2021. The change was primarily due to a decrease in operating income of $368.3 million, increase in interest expense of $10.7 million, and increase in preferred stock dividends of $0.3 million, partially offset by a change from provision to benefit for income taxes of $101.2 million, increase in change in fair value of financial instruments and other of $6.0 million, increase in income from equity investments of $5.9 million, and decrease in net income attributable to noncontrolling interests of $1.1 million. Liquidity and Capital Resources Our operations are funded through a combination of existing cash on hand, cash generated from operations, borrowings under our senior notes payable, term loans and credit facilities, and special purposes financing arrangements. During the three months ended March 31, 2022 and 2021, we generated net loss of $9.2 million and net income of $256.6 million, respectively. Our cash flows and profitability are impacted by capital market engagements performed on a quarterly and annual basis and amounts realized from the sale of our investments in marketable securities. As of March 31, 2022, we had $213.6 million of unrestricted cash and cash equivalents, $0.9 million of restricted cash, $1,317.1 million of securities and other investments owned at fair value, $882.4 million of loans receivable, and $2,073.4 million of borrowings outstanding. The borrowings outstanding of $2,073.4 million as of March 31, 2022 included $1,627.6 million of borrowings from the issuance of the series of senior notes that are due at various dates ranging from May 31, 2024 to August 31, 2028 with interest rates ranging from 5.00% to 6.75%, $342.9 million in term loans borrowed pursuant to the BRPAC and Nomura Credit Agreements discussed below, $80.0 million of revolving credit under the Nomura Credit Agreement discussed below, and $22.9 million of notes payable. We believe that our current cash and cash equivalents, securities and other investments owned, funds available under our asset based credit facility, funds available under the BRPAC and Nomura term loans, funds available under the Nomura revolving credit facility, and cash expected to be generated from operating activities will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months from issuance date of the accompanying financial statements. We continue to monitor our financial performance to ensure sufficient liquidity to fund operations and execute on our business plan. From time to time, we may decide to pay dividends which will be dependent upon our financial condition and results of operations. On April 28, 2022, we declared a regular dividend of $1.00 per share that will be paid on or about May 20, 2022 to stockholders of record as of May 11, 2022. On February 23, 2022, the Company declared a regular quarterly dividend of $1.00 per share, which was paid on March 23, 2022 to stockholders of record as of March 9, 2022. During the year ended December 31, 2021, we paid cash dividends on our common stock of $347.1 million. While it is the Board’s current intention to make regular dividend payments of $1.00 per share each quarter and special dividend payments dependent upon exceptional circumstances from time to time, our Board of Directors may reduce or discontinue the payment of dividends at any time for any reason it deems relevant. The declaration and payment of any future dividends or repurchases of our common stock will be made at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations, cash flows, capital expenditures, and other factors that may be deemed relevant by our Board of Directors. 49 A summary of dividend activity for the three months ended March 31, 2022 and the year ended December 31, 2021 was as follows: Date Declared Date Paid Stockholder Record Date Regular Dividend Amount Special Dividend Amount Total Dividend Amount February 23, 2022 March 23, 2022 March 9, 2022 $ 1.000 $ — $ 1.000 October 28, 2021 November 23, 2021 November 9, 2021 1.000 3.000 4.000 July 29, 2021 August 26, 2021 August 13, 2021 0.500 1.500 2.000 May 3, 2021 May 28, 2021 May 17, 2021 0.500 2.500 3.000 February 25, 2021 March 24, 2021 March 10, 2021 0.500 3.000 3.500 Holders of Series A Preferred Stock, when and as authorized by the board of directors of the Company, are entitled to cumulative cash dividends at the rate of 6.875% per annum of the $25 thousand liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,718.75 or $1.71875 per Depositary Share). Dividends will be payable quarterly in arrears, on or about the last day of January, April, July, and October. As of March 31, 2022, dividends in arrears in respect of the Depositary Shares were $0.8 million. On January 11, 2021, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on January 29, 2021 to holders of record as of the close of business on January 21, 2021. On April 5, 2021, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on April 30, 2021 to holders of record as of the close of business on April 20, 2021. On July 8, 2021, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on August 2, 2021 to holders of record as of the close of business on July 21, 2021. On October 6, 2021, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on November 1, 2021 to holders of record as of the close of business on October 21, 2021.On January 10, 2022, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on January 31, 2022 to holders of record as of the close of business on January 21, 2022. On April 7, 2022, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on April 29, 2022 to holders of record as of the close of business on April 19, 2022. Holders of Series B Preferred Stock, when and as authorized by the board of directors of the Company, are entitled to cumulative cash dividends at the rate of 7.375% per annum of the $25 thousand liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,843.75 or $1.84375 per Depositary Share). Dividends will be payable quarterly in arrears, on or about the last day of January, April, July, and October. As of March 31, 2022, dividends in arrears in respect of the Depositary Shares were $0.5 million. On January 11, 2021, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on January 29, 2021 to holders of record as of the close of business on January 21, 2021. On April 5, 2021, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on April 30, 2021 to holders of record as of the close of business on April 20, 2021. On July 8, 2021, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on August 2, 2021 to holders of record as of the close of business on July 21, 2021. On October 6, 2021, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on November 1, 2021 to holders of record as of the close of business on October 21, 2021. On January 10, 2022, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid January 31, 2022 to holders of record as of the close of business on January 21, 2022. On April 7, 2022, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on April 29, 2022 to holders of record as of the close of business on April 19, 2022. Our principal sources of liquidity to finance our business is our existing cash on hand, cash flows generated from operating activities, funds available under revolving credit facilities and special purpose financing arrangements. 50 Cash Flow Summary Three Months Ended March 31, 2022 2021 (Dollars in thousands) Net cash (used in) provided by: Operating activities $ (14,898) $ (42,894) Investing activities (35,513) (171,838) Financing activities (14,441) 356,713 Effect of foreign currency on cash (496) (696) Net increase in cash, cash equivalents and restricted cash $ (65,348) $ 141,285 Cash used in operating activities was $14.9 million during the three months ended March 31, 2022 compared to cash used in operating activities of $42.9 million during the three months ended March 31, 2021. Cash used in operating activities for the three months ended March 31, 2022 consisted of the negative impact of net loss of $9.2 million, noncash items of $42.7 million, and changes in operating assets and liabilities of $37.0 million. The negative cash flow impact from noncash items of $42.7 million included deferred income taxes of $41.9 million, fair value adjustments of $15.8 million, income from equity investments of $6.8 million, noncash interest and other of $3.6 million, and gain on extinguishment of loan of $1.1 million, partially offset by share-based compensation of $17.0 million, depreciation and amortization of $7.8 million, dividends from equity investments of $0.8 million, provision for doubtful accounts of $0.4 million, gain on disposal of fixed assets and other of $0.3 million, and income allocated for mandatorily redeemable noncontrolling interests of $0.2 million. Cash used in operating activities for the three months ended March 31, 2021 consisted of the positive impact of net income of $256.6 million and noncash items of $56.5 million, partially offset by the negative impact of changes in operating assets and liabilities of $356.0 million. The positive cash flow impact from noncash items of $56.5 million included deferred income taxes of $62.7 million, depreciation and amortization of $6.8 million, share-based compensation of $5.5 million, loss on extinguishment of debt of $0.9 million, provision for doubtful accounts of $0.4 million, dividends from equity investments of $0.3 million, and income allocated for mandatorily redeemable noncontrolling interests of $0.1 million, partially offset by fair value adjustments of $10.7 million, noncash interest and other of $4.4 million, gain on equity investment of $3.5 million, income from equity investments of $0.9 million, and effect of foreign currency on operations of $0.7 million. Cash used in investing activities was $35.5 million during the three months ended March 31, 2022 compared to cash used in investing activities of $171.8 million for the three months ended March 31, 2021. During the three months ended March 31, 2022, cash used in investing activities consisted of cash used for purchases of loans receivable of $93.9 million acquisition of businesses of $40.0 million, purchases of equity and other investments of $2.4 million, and purchases of property and equipment of $0.2 million partially offset by cash received from loans receivable repayment of $101.0 million. During the three months ended March 31, 2021, cash used in investing activities consisted of cash used to fund a trust account for the future redemption of one of our subsidiaries’ redeemable common stock of $172.5 million, purchases of loans receivable of $75.7 million, repayments of loan participations sold of $6.1 million, purchases of equity and other investments of $4.7 million, acquisition of business of $0.3 million, and purchases of property and equipment of $0.1 million, partially offset by cash received from loans receivable repayment of $87.5 million. Cash used in financing activities was $14.4 million during the three months ended March 31, 2022 compared to cash provided by financing activities of $356.7 million during the three months ended March 31, 2021. During the three months ended March 31, 2022, cash used in financing activities primarily consisted of $27.9 million used to pay dividends on our common shares, $4.1 million used in the repayment of term loan, $1.1 million in distributions to noncontrolling interests, $2.0 million used to pay dividends on our preferred shares, $1.3 million used in payment of employment taxes on vesting of restricted stock, and $0.4 million used to repay our notes payable, partially offset by cash provided by $20.0 million proceeds from issuance of senior notes, $1.8 million contributions from noncontrolling interests, and $0.6 million proceeds from issuance of preferred stock. During the three months ended March 31, 2021, cash provided by financing activities primarily consisted of $402.4 million proceeds from issuance of senior notes, $172.5 million proceeds from initial public offering of subsidiaries, $64.7 million proceeds from issuance of common stock, and $3.7 million contributions from noncontrolling interests, partially offset by $128.2 million used to repurchase our senior notes, $95.2 million used to pay dividends on our common shares, $37.6 million used to repay our notes payable, $11.6 million distributions to noncontrolling interests, $7.5 million used to pay debt issuance costs, $4.8 million used for repayment on our term loan, and $1.7 million used to pay dividends on our preferred shares. 51 Credit Agreements Nomura Credit Agreement On June 23, 2021, we, and our wholly owned subsidiaries, BR Financial Holdings, LLC (the “Primary Guarantor”), and BR Advisory & Investments, LLC (the “Borrower”) entered into a credit agreement (as amended, the “Credit Agreement”) with Nomura Corporate Funding Americas, LLC, as administrative agent (the “Administrative Agent”) , and Wells Fargo Bank, N.A., as collateral agent (the “Collateral Agent”) , for a four-year $200.0 million secured term loan credit facility (the “Term Loan Facility”) and a four-year $80.0 million revolving loan credit facility (the “Revolving Credit Facility”). On December 17, 2021 (the “Amendment Date”), we, the Primary Guarantor, and the Borrower entered into a Second Incremental Amendment to Credit Agreement, pursuant to which the Borrower established an incremental facility in an aggregate principal amount of $100.0 million (the “Incremental Facility” and the incremental term loans made thereunder, the “Incremental Term Loans”) of secured term loans under the Credit Agreement on terms identical to those applicable to the Term Loan Facility. The Borrower borrowed the full amount of the Incremental Term Loans on the Amendment Date. The Term Loan Facility, Revolving Credit Facility, and Incremental Facility (together, the “Credit Facilities”), mature on June 23, 2025, subject to acceleration or prepayment. Eurodollar loans under the Credit Facilities accrue interest at the Eurodollar Rate plus an applicable margin of 4.50%. Base rate loans accrue interest at the Base Rate plus an applicable margin of 3.50%. In addition to paying interest on outstanding borrowings under the Revolving Credit Facility, we are required to pay a quarterly commitment fee based on the unused portion of the Revolving Credit Facility, which is determined by the average utilization of the Revolving Credit Facility for the immediately preceding fiscal quarter. Subject to certain eligibility requirements, the assets of certain subsidiaries of ours that hold credit assets, private equity assets, and public equity assets are placed into a borrowing base, which serves to limit the borrowings under the Credit Facilities. If borrowings under the Credit Facilities exceed the borrowing base, we are obligated to prepay the loans in an aggregate amount equal to such excess. The Credit Agreement contains certain representations and warranties (subject to certain agreed qualifications) that are customary for financings of this kind. The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type that, among other things, limit our, the Primary Guarantor’s, the Borrower’s, and the Borrower’s subsidiaries’ ability to incur additional indebtedness or liens, to dispose of assets, to make certain fundamental changes, to enter into restrictive agreements, to make certain investments, loans, advances, guarantees and acquisitions, to prepay certain indebtedness and to pay dividends or to make other distributions or redemptions/repurchases in respect of their respective equity interests. In addition, the Credit Agreement contains a financial covenant that requires us to maintain operating earnings before interest, taxes, depreciation, and amortization (EBITDA) of at least $135.0 million and the Primary Guarantor to maintain net asset value of at least $1,100.0 million. The Credit Agreement contains customary events of default, including with respect to a failure to make payments under the credit facilities, cross-default, certain bankruptcy and insolvency events and customary change of control events. Commencing on September 30, 2022, the Term Loan Facility and Incremental Facility will amortize in equal quarterly installments of 1.25% of the aggregate principal amount of the term loan as of the closing date with the remaining balance due at final maturity. Quarterly installments from September 30, 2022 to March 31, 2025 are in the amount of $3.8 million per quarter. As of March 31, 2022 and December 31, 2021, the outstanding balances on the Term Loan Facility and Incremental Facility were $293.2 million (net of unamortized debt issuance costs of $6.8 million) and $292.7 million (net of unamortized debt issuance costs of $7.4 million), respectively. Interest on the term loan during the three months ended March 31, 2022 was $4.1 million (including amortization of deferred debt issuance costs of $0.5 million). The interest rate on the term loan as of March 31, 2022 and December 31, 2021 was 5.46% and 4.72%, respectively. We had an outstanding balance of $80.0 million under the Revolving Credit Facility as of both March 31, 2022 and December 31, 2021. Interest on the revolving facility during the three months ended March 31, 2022 was $1.1 million (including amortization of deferred financing costs of $0.1 million). The interest rate on the Revolving Credit Facility as of March 31, 2022 and December 31, 2021 was 5.01% and 4.67%, respectively. We are in compliance with all financial covenants in the Credit Agreement as of March 31, 2022. 52 Wells Fargo Credit Agreement We are party to a credit agreement (as amended, the “Credit Agreement”) governing our asset based credit facility with Wells Fargo Bank, National Association (“Wells Fargo Bank”) with a maximum borrowing limit of $200.0 million and a maturity date of April 20, 2027. Cash advances and the issuance of letters of credit under the credit facility are made at the lender’s discretion. The letters of credit issued under this facility are furnished by the lender to third parties for the principal purpose of securing minimum guarantees under liquidation services contracts more fully described in Note 2(d) in the Annual Report on Form 10-K. All outstanding loans, letters of credit, and interest are due on the expiration date which is generally within 180 days of funding. The credit facility is secured by the proceeds received for services rendered in connection with liquidation service contracts pursuant to which any outstanding loan or letters of credit are issued and the assets that are sold at liquidation related to such contract. The interest rate for each revolving credit advance under the related credit agreement is, subject to certain terms and conditions, equal to the Secured Overnight Financing Rate (“SOFR”) plus a margin of 2.25% to 3.25% depending on the type of advance and the percentage such advance represents of the related transaction for which such advance is provided. The credit facility provides for success fees in the amount of 1.0% to 10.0% of the net profits, if any, earned on liquidation engagements that are financed under the credit facility as set forth in the related Credit Agreement. The credit facility also provides for funding fees in the amount of 0.05% to 0.20% of the aggregate principal amount of all credit advances and letters of credit issued in connection with a liquidation sale. There was no outstanding balance on this credit facility as of March 31, 2022 and December 31, 2021. As of March 31, 2022 and December 31, 2021, there were no open letters of credit outstanding. We are in compliance with all financial covenants in the asset based credit facility as of March 31, 2022. BRPAC Credit Agreement On December 19, 2018, BRPI Acquisition Co LLC (“BRPAC”), a Delaware limited liability company, UOL, and YMAX Corporation, Delaware corporations (collectively, the “Borrowers”), indirect wholly owned subsidiaries of ours, in the capacity of borrowers, entered into a credit agreement (the “BRPAC Credit Agreement”) with Banc of California, N.A. in its capacity as agent (the “Agent”) and lender and with the other lenders party (the “Closing Date Lenders”). Under the BRPAC Credit Agreement, we borrowed $80.0 million due December 19, 2023. Pursuant to the terms of the BRPAC Credit Agreement, we may request additional optional term loans in an aggregate principal amount of up to $10.0 million at any time prior to the first anniversary of the agreement date. On February 1, 2019, the Borrowers entered into the First Amendment to Credit Agreement and Joinder with City National Bank as a new lender in which the new lender extended to Borrowers the additional $10.0 million. On December 31, 2020, the Borrowers, the Secured Guarantors, the Agent, and the Closing Date Lenders, entered into the Second Amendment to Credit Agreement (the “Second Amendment”) pursuant to which, among other things, (i) the Lenders agreed to make a new $75.0 million term loan to the Borrowers, the proceeds of which the Borrowers’ will use to repay the outstanding principal amount of the existing Terms Loans and Optional Loans and for other general corporate purposes, (ii) the Borrowers were permitted to make a one-time Permitted Distribution (as defined in the Second Amendment) in the amount of $30.0 million on the date of the Second Amendment, (iii) the maturity date of the new Term Loans is five (5) years from the date of the Second Amendment, (iv) the interest rate margin was increased by 25 basis points as set forth in the Second Amendment, (v) the Borrowers agreed to make mandatory prepayments of the Term Loans from a portion of the Consolidated Excess Cash Flow (as defined in the Credit Agreement), (vi) the maximum Consolidated Total Funded Debt Ratio (as defined in the Credit Agreement) was increased as set forth in the Second Amendment and (vii) the Company and B. Riley Principal Investments, LLC entered into a reaffirmation of their guarantees of the Borrowers’ obligations under the Credit Agreement. Additionally, the Borrowers paid a commitment fee and an arrangement fee, each based on a percentage of the aggregate commitments, in each case upon the closing of the Second Amendment. On December 16, 2021, the Borrowers, the Secured Guarantors, the Agent, and the Closing Date Lenders, entered into the Third Amendment to Credit Agreement (the “Third Amendment”), which, among other things, replaced LIBOR with the SOFR reference rate and pursuant to which the Borrowers were permitted to make a one-time Permitted Distribution (as defined in the Third Amendment) in the amount of $15.0 million on the date of the Third Amendment. The borrowings under the amended BRPAC Credit Agreement bear interest equal to the SOFR rate plus a margin of 2.75% to 3.25% per annum, depending on the Borrowers’ consolidated total funded debt ratio as defined in the BRPAC Credit Agreement. As of March 31, 2022 and December 31, 2021, the interest rate on the amended BRPAC Credit Agreement was at 3.26% and 3.17%, respectively. Principal outstanding under the amended BRPAC Credit Agreement is due in quarterly installments. Quarterly installments from June 30, 2022 to December 31, 2022 are in the amount of $4.1 million per quarter, from March 31, 2023 53 to December 31, 2023 are in the amount of $3.6 million per quarter, from March 31, 2024 to December 31, 2024 are in the amount of $3.1 million per quarter, from March 31, 2025 to December 31, 2025 are $2.7 million per quarter , and the remaining principal balance is due at final maturity on December 31, 2025 . As of March 31, 2022 and December 31, 2021, the outstanding balance on the term loan was $49.7 million (net of unamortized debt issuance costs of $0.5 million), and $53.7 million (net of unamortized debt issuance costs of $0.6 million), respectively. Interest expense on the term loan during the three months ended March 31, 2022 and 2021, was $0.5 million (including amortization of deferred debt issuance costs of $0.1 million ) and $0.7 million (including amortization of deferred debt issuance costs of $0.08 million ), respectively. We are in compliance with all financial covenants in the amended BRPAC Credit Agreement as of March 31, 2022. Senior Note Offerings During the three months ended March 31, 2022 and 2021, we issued $20.1 million and $12.9 million, respectively, of senior notes due with maturities dates ranging from May 2024 to August 2028 pursuant to At the Market Issuance Sales Agreements with B. Riley Securities, Inc. which governs the program of at-the-market sales of the Company’s senior notes. A series of prospectus supplements were filed by the Company with the SEC which allowed the Company to sell these senior notes. As of March 31, 2022 and December 31, 2021, the total senior notes outstanding was $1,627.6 million (net of unamortized debt issue costs of $20.5 million) and $1,606.6 million (net of unamortized debt issue costs of $21.5 million) with a weighted average interest rate of 5.69% and 5.69%, respectively. Interest on senior notes is payable on a quarterly basis. Interest expense on senior notes totaled $24.4 million and $18.7 million during the three months ended March 31, 2022 and 2021, respectively. The most recent sales agreement prospectus was filed by us with the SEC on January 5, 2022 (the “January 2022 Sales Agreement Prospectus”), supplementing the prospectus filed on August 11, 2021, the prospectus filed on April 6, 2021, and the prospectus filed on January 28, 2021. This program provides for the sale by the Company of up to $250.0 million of certain of the Company’s senior notes. As of March 31, 2022, and December 31, 2021 the Company had $91.8 million and $111.9 million, respectively, remaining availability under the January 2022 Sales Agreement. Off Balance Sheet Arrangements Information about our off-balance sheet arrangements is included in Note 15 of the Notes to the Condensed Consolidated Financial Statements. Such information is hereby incorporated by reference. Recent Accounting Standards See Note 2(t) to the accompanying financial statements for recent accounting standards we have recently adopted.