What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-04 compared with 2022-07-29 · 259 added, 210 removed, 379 unchanged (55% of the section changed)

23 unchanged sentences

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;

changing economic and market conditions, including increasing inflation and actions by the Federal Reserve to address inflation and the possibility of recession;

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;

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Representative transactions include recapitalization, direct equity investment, debt investment, active minority investment and buyouts.

• Communications consist of United Online, Inc.

• Communications and other primarily 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, Lingo Management, LLC (“Lingo”) in which the Company increased its ownership interest from 40% to 80% in May 2022, and a mobile virtual network operator business (“Marconi Wireless”), which was acquired in October 2021.

(“magicJack”), which was acquired in November 2018, Lingo Management, LLC (“Lingo”) in which the Company increased its ownership interest from 40% to 80% in May 2022, a mobile virtual network operator business (“Marconi Wireless”), which was acquired in October 2021, and BullsEye Telecom (“BullsEye”), which was acquired in August 2022.

The following briefly describes each such business:

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◦ magicJack is a Voice over IP (“VoIP”) cloud-based technology and services and wireless mobile communications provider.

◦ Lingo is a global cloud/unified communications (“UC”) and managed service provider.

◦ Lingo is a global cloud/unified communications and managed service provider.

◦ Marconi Wireless is a mobile virtual network operator business that provides mobile phone voice, text, and data services and devices.

◦ BullsEye is a single source communications and cloud technology provider.

• BR Brand Holding (“BR Brands”), in which the Company owns a majority interest, provides licensing of certain brand trademarks.

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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.

This segment also includes the results of operations of Lingo from the date of acquisition on May 31, 2022.

This segment also includes the results of operations of Lingo from the date of acquisition on May 31, 2022 and BullsEye from the date of acquisition on August 16, 2022.

Brands Segment.

1 unchanged sentence

Recent Developments

On October 18, 2022, a subsidiary of ours acquired all of the issued and outstanding shares of Targus Cayman Holdco Limited (“Targus”) in a transaction with an enterprise value of approximately $250.0 million, pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) with Targus, the sellers identified therein, and the other parties thereto.

The purchase price consisted of a combination of cash, 6.75% senior notes due 2024, shares of our common stock, and seller financing (the “Targus Transaction”).

Mikel Williams, the chief executive officer of Targus and formerly a member

of our board of directors, resigned from our board upon the closing of the Targus Transaction.

Williams continues to serve as the chief executive officer of Targus.

On September 23, 2022, our subsidiary, B.

Riley Receivables II, LLC, a Delaware limited liability company, entered into a credit agreement (the “Pathlight Credit Agreement”) by and among PLC Agent, LLC in the capacity as administrative agent and Pathlight Capital Fund I LP, Pathlight Capital Fund II LP, and Pathlight Capital Fund III LP as the lenders for a five-year $148.2 million term loan.

The Pathlight Credit Agreement was entered in connection with the purchase of the 2022 Badcock Receivable.

On August 25, 2022, certain of our subsidiaries acquired the assets of Atlantic Coast Fibers, LLC (and related businesses), which provides residential and commercial recycling services in the New York City metropolitan area.

The purchase price consideration totaled $27.5 million, which consisted of $14.5 million in cash, $1.6 million in assumed debt, and $11.4 million in contingent consideration payable over approximately the next two years.

In accordance with Accounting Standards Codification (“ASC”) 805, we used the acquisition method of accounting for this acquisition.

Goodwill of $3.9 million and other intangible assets of $13.1 million were recorded as a result of the acquisition.

On August 16, 2022, our majority-owned subsidiary, Lingo, acquired BullsEye, a single source communications and cloud technology provider.

The purchase price consideration totaled $64.9 million, which Lingo partially funded using a $52.5 million term loan.

In accordance with ASC 805, we used the acquisition method of accounting for this acquisition.

Goodwill of $29.3 million and other intangible assets of $28.7 million were recorded as a result of the acquisition.

The acquisition is expected to bring revenue from multi-location enterprise business customers to Lingo, improving scale and flexibility in our Principal Investments - Communications and Other segment.

On August 16, 2022, Lingo entered into a credit agreement (the “Lingo Credit Agreement”) by and among Lingo, the Company as the secured guarantor, and Banc of California, N.A.

in its capacity as administrative agent and lender, for a five-year $45.0 million term loan.

On September 9, 2022, Lingo entered into the First Amendment to the Lingo Credit Agreement with Grasshopper Bank for an incremental term loan of $7.5 million, increasing the principal balance of the term loan to $52.5 million.

On May 31, 2022, our ownership interest in Lingo increased from 40% to 80% as a result of the conversion of $17.5 million of existing debt owed by Lingo to equity.

As a result of the consolidation of Lingo, the pre-existing equity investment was remeasured at fair value resulting in the recognition of a gain of $6.8 million, which is included in trading (losses) income and fair value adjustments on loans in the condensed consolidated statement of operations for the three and six months ended June 30, 2022.

In accordance with ASC 805, we used the acquisition method of accounting.

The total fair value of the assets of Lingo was $115.5 million and the fair value of the 20% noncontrolling interest was $8.0 million at May 31, 2022.

Goodwill of $32.0 million and other intangible assets of $65.2 million were recorded as a result of the

Goodwill of $33.6 million and other intangible assets of $63.0 million were recorded as a result of the acquisition.

The acquisition is expected to expand the services offered in our Principal Investments - Communications and Other segment.

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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.

The continuing impact of the COVID-19 pandemic, higher inflation, the actions by the Federal Reserve to address inflation, Russia's invasion of Ukraine, and rising energy prices create uncertainty about the future economic environment which will continue to evolve and may impact our business in future periods.

Our diversified financial platform is affected by a variety of factors including the continuing impact of the COVID-19 pandemic, higher inflation, the actions by the Federal Reserve to address inflation, the possibility of recession, Russia's invasion of Ukraine, and rising energy prices.

These factors 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.

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The following period to period comparisons of our financial results and our interim results are not necessarily indicative of future results.

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

Condensed Consolidated Statements of Operations

(Dollars in thousands)

Three Months Ended June 30, Change

Three Months Ended September 30, Change

2022 2021 Amount %

Services and fees $ 266,485 $ 301,497 $ (35,012) (11.6) %

Trading (losses) income and fair value adjustments on loans (223,927) 32,679 (256,606) n/m

Trading income and fair value adjustments on loans 12,154 18,197 (6,043) (33.2) %

Interest income - Loans and securities lending 57,594 26,869 30,725 114.4 %

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Selling, general and administrative expenses 163,727 244,218 (80,491) (33.0) %

Restructuring charge 8,016 — 8,016 100.0 %

Interest expense - Securities lending and loan participations sold 17,447 10,097 7,350 72.8 %

Total operating expenses 236,802 284,776 (47,974) (16.8) %

Operating (loss) income (158,759) 110,145 (268,904) n/m

Operating income 103,561 96,746 6,815 7.0 %

Other income (expense):

1 unchanged sentence

Change in fair value of financial instruments and other (574) 1,758 (2,332) (132.7) %

Loss from equity investments (3,399) (852) (2,547) n/m

(Loss) income from equity investments (91) 1,149 (1,240) (107.9) %

Interest expense (34,587) (25,372) (9,215) 36.3 %

(Loss) income before income taxes (189,101) 95,002 (284,103) n/m

Benefit from (provision for) income taxes 52,513 (19,902) 72,415 n/m

Net (loss) income (136,588) 75,100 (211,688) n/m

Net income (loss) attributable to noncontrolling interests and redeemable noncontrolling interests 3,571 (576) 4,147 n/m

Net (loss) income attributable to B.

Income before income taxes 68,995 74,351 (5,356) (7.2) %

Provision for income taxes (16,350) (22,693) 6,343 (28.0) %

Net income 52,645 51,658 987 1.9 %

Net income attributable to noncontrolling interests and redeemable noncontrolling interests 4,808 1,108 3,700 n/m

Net income attributable to B.

Riley Financial, Inc.

(140,159) 75,676 (215,835) n/m

47,837 50,550 (2,713) (5.4) %

Preferred stock dividends 2,002 1,929 73 3.8 %

Net (loss) income available to common shareholders $ (142,161) $ 73,887 $ (216,048) n/m

Net income available to common shareholders $ 45,835 $ 48,621 $ (2,786) (5.7) %

n/m - Not applicable or not meaningful.

The table below and the discussion that follows are based on how we analyze our business.

Three Months Ended June 30, Change

Three Months Ended September 30, Change

2022 2021 Amount %

4 unchanged sentences

Financial Consulting segment 22,835 21,291 1,544 7.3 %

Principal Investments - Communications and Other segment 40,646 18,932 21,714 114.7 %

Principal Investments - Communications and Other segment 76,316 18,669 57,647 n/m

Brands segment 5,023 6,372 (1,349) (21.2) %

4 unchanged sentences

Subtotal 4,130 34,958 (30,828) (88.2) %

Trading (losses) income and fair value adjustments on loans

Capital Markets segment (225,455) 29,897 (255,352) n/m

Trading income and fair value adjustments on loans

Capital Markets segment 11,127 16,935 (5,808) (34.3) %

Wealth Management segment 1,027 1,262 (235) (18.6) %

Brands segment — (83) 83 (100.0) %

Subtotal (223,927) 32,679 (256,606) n/m

Subtotal 12,154 18,197 (6,043) (33.2) %

Interest income - Loans and securities lending:

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n/m - Not applicable or not meaningful.

Total revenues decreased approximately $294.1 million to $42.7 million during the three months ended June 30, 2022 from $336.8 million during the three months ended June 30, 2021.

The decrease in revenues during the three months ended June 30, 2022 was primarily due to decreases in the fair value of the portfolio of securities and other investments owned and fair value adjustments on loans of $256.6 million, which is included in trading (losses) income and fair value adjustments on loans above, services and fees of $65.2 million and sale of goods of $10.6 million, partially offset by an increase in interest income from loans and securities lending of $38.3 million.

The decrease in the fair value of the portfolio of securities and other investments owned as of June 30, 2022 was primarily due to the decrease in overall values in the stock market.

The decrease in revenue from services and fees in the three months ended June 30, 2022 consisted of decreases in revenue of $58.6 million in the Capital Markets segment, $26.6 million in the Wealth Management segment and $3.0 million in the Auction and Liquidation segment, partially offset by increases in revenues of $21.7 million in the Principal Investments — Communications and Other segment, $0.7 million in the Brands segment, and $0.6 million in the Financial Consulting segment.

Revenues from services and fees in the Capital Markets segment decreased $58.6 million to $67.4 million during the three months ended June 30, 2022 from $126.0 million during the three months ended June 30, 2021.

The decrease in revenues was primarily due to decreases in revenue of $71.8 million from corporate finance, consulting, and investment banking fees, partially offset by increases of $7.7 million in dividends, $2.9 million in other income, and $1.9 million in interest income.

Revenues from services and fees in the Wealth Management segment decreased $26.6 million to $60.9 million during the three months ended June 30, 2022 from $87.4 million during the three months ended June 30, 2021.

The decrease in revenues was primarily due to decreases in revenue of $14.8 million in commission fees and $13.7 million in wealth and asset management fees, partially offset by an increase of $2.0 million in other income.

Revenues from services and fees in the Auction and Liquidation segment decreased $3.0 million to $2.5 million during the three months ended June 30, 2022 from $5.5 million during the three months ended June 30, 2021.

Total revenues decreased approximately $41.2 million to $340.4 million during the three months ended September 30, 2022 from $381.5 million during the three months ended September 30, 2021.

The decrease in revenues during the three months ended September 30, 2022 was primarily due to decreases in services and fees of $35.0 million, sale of goods of $30.8 million and the fair value of the portfolio of securities and other investments owned and fair value adjustments on loans of $6.0 million, which is included in trading (losses) income and fair value adjustments on loans above, partially offset by an increase in interest income from loans and securities lending of $30.7 million.

The decrease in the fair value of the portfolio of securities and other investments owned as of September 30, 2022 was primarily due to the decrease in overall values in the stock market.

The decrease in revenue from services and fees in the three months ended September 30, 2022 consisted of decreases in revenue of $70.4 million in the Wealth Management segment, $21.6 million in the Capital Markets segment, $1.3 million in the Brands segment, and $0.8 million in the Auction and Liquidation segment, partially offset by increases in revenues of $57.6 million in the Principal Investments — Communications and Other segment and $1.5 million in the Financial Consulting segment.

Revenues from services and fees in the Capital Markets segment decreased $21.6 million to $113.2 million during the three months ended September 30, 2022 from $134.8 million during the three months ended September 30, 2021.

The decrease in revenues was primarily due to decreases of $74.7 million from corporate finance, consulting, and investment banking fees, partially offset by increases of $41.9 million in incentive fees, $6.2 million in dividends, $2.6 million in asset management fees, and $2.4 million in interest income.

Revenues from services and fees in the Wealth Management segment decreased $70.4 million to $47.1 million during the three months ended September 30, 2022 from $117.6 million during the three months ended September 30, 2021.

The decrease in revenues was primarily due to decreases in revenue of $42.3 million in wealth and asset management fees, $26.7 million in commission fees, and $1.5 million in other income.

Revenues from services and fees in the Auction and Liquidation segment decreased $0.8 million to $1.9 million during the three months ended September 30, 2022 from $2.7 million during the three months ended September 30, 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 $0.6 million to $24.3 million during the three months ended June 30, 2022 from $23.7 million during three months ended June 30, 2021.

Revenues from services and fees in the Principal Investments - Communications and Other segment increased $21.7 million to $40.6 million during the three months ended June 30, 2022 from $18.9 million during the three months ended June 30, 2021.

The increase in revenues was primarily due to an increase in subscription services of $12.4 million from the acquisition of Marconi Wireless in the fourth quarter of 2021 and $10.7 million from the acquisition of an additional equity interest in Lingo in the second quarter of 2022 and an increase in advertising licensing and other revenue of $1.2 million, partially offset by a decrease of $2.5 million in subscription services for UOL and magicJack.

Revenues from services and fees in the Financial Consulting segment increased $1.5 million to $22.8 million during the three months ended September 30, 2022 from $21.3 million during three months ended September 30, 2021.

The increase in revenues was primarily due to an increase of $1.4 million within our Advisory Services division.

Revenues from services and fees in the Principal Investments - Communications and Other segment increased $57.6 million to $76.3 million during the three months ended September 30, 2022 from $18.7 million during the three months ended September 30, 2021.

The increase in revenues was primarily due to increases in subscription services of $27.8 million from the acquisition of an additional equity interest in Lingo in the second quarter of 2022, $15.3 million from the acquisition of BullsEye in the third quarter of 2022, $12.3 million from the acquisition of Marconi in the fourth quarter of 2021, and $3.3 million from another acquisition in the third quarter of 2022.

We expect the UOL and magicJack subscription revenues to continue to decline year over year.

Revenues from services and fees in the Brands segment increased $0.7 million to $5.2 million during the three months ended June 30, 2022 from $4.5 million during the three months ended June 30, 2021.

Revenues from services and fees in the Brands segment decreased $1.3 million to $5.0 million during the three months ended September 30, 2022 from $6.4 million during the three months ended September 30, 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 $256.6 million to a loss of $223.9 million during the three months ended June 30, 2022 compared to income of $32.7 million during the three months ended June 30, 2021.

This decrease was primarily due to decreases of $255.4 million in the Capital Markets segment and $1.3 million in the Wealth Management segment.

The loss of $223.9 million during the three months ended June 30, 2022 was primarily due to realized and unrealized losses on investments made in our proprietary trading accounts of $219.8 million and unrealized loss on our loans receivable, at fair value of $11.0 million, partially offset by a realized gain on disposal of an equity method investment of $6.8 million.

Interest income – loans and securities lending increased $38.3 million to $63.8 million during the three months ended June 30, 2022 from $25.5 million during the three months ended June 30, 2021.

Interest income from securities lending was $18.7 million and $13.9 million during the three months ended June 30, 2022 and 2021, respectively.

Interest income from loans was $45.1 million and $11.6 million during the three months ended June 30, 2022 and 2021, respectively.

Trading income and fair value adjustments on loans decreased $6.0 million to $12.2 million during the three months ended September 30, 2022 compared to $18.2 million during the three months ended September 30, 2021.

This decrease was primarily due to a decrease of $5.8 million in the Capital Markets segment and a decrease of $0.2 million in the Wealth Management segment.

The income of $12.2 million during the three months ended September 30, 2022 was primarily due to realized and unrealized gains on investments made in our proprietary trading accounts of $31.3 million, partially offset by an unrealized loss on our loans receivable, at fair value of $19.2 million.

Interest income – loans and securities lending increased $30.7 million to $57.6 million during the three months ended September 30, 2022 from $26.9 million during the three months ended September 30, 2021.

Interest income from securities lending was $21.9 million and $13.0 million during the three months ended September 30, 2022 and 2021, respectively.

Interest income from loans was $35.7 million and $13.9 million during the three months ended September 30, 2022 and 2021, respectively.

Revenues – Sale of Goods

Revenues from the sale of goods decreased $10.6 million to $1.9 million during the three months ended June 30, 2022 from $12.5 million during three months ended June 30, 2021.

Revenues from the sale of goods decreased $30.8 million to $4.1 million during the three months ended September 30, 2022 from $35.0 million during three months ended September 30, 2021.

Revenues from sale of goods were attributable to a decrease of $31.8 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 June 30, 2022 was $2.0 million, resulting in a negative gross margin of 5.7%.

Cost of goods sold for three months ended September 30, 2022 was $3.1 million, resulting in a gross margin of 25.2%.

Operating Expenses

Direct Cost of Services

Direct cost of services increased $5.7 million to $17.8 million during the three months ended June 30, 2022 from $12.1 million during the three months ended June 30, 2021.

The activity is primarily driven by an increase of $11.9 million from

the Principal Investments — Communications and Other segment, partially offset by a decrease of $6.2 million from the Auction and Liquidation segment.

The increase in the Principal Investments — Communications and Other segment was primarily due to increases of $7.5 million from the acquisition of Lingo in the second quarter of 2022 and $5.2 million from the acquisition Marconi Wireless in the fourth quarter of 2021.

Direct cost of services increased $26.5 million to $44.5 million during the three months ended September 30, 2022 from $18.0 million during the three months ended September 30, 2021.

The activity is primarily driven by an increase of $37.1 million from the Principal Investments — Communications and Other segment, partially offset by a decrease of $10.6 million from the Auction and Liquidation segment.

The increase in the Principal Investments — Communications and Other segment was primarily due to increases of $20.2 million from the acquisition of Lingo in the second quarter of 2022, $9.7 million from the acquisition of BullsEye in the third quarter of 2022, $4.8 million from the acquisition Marconi Wireless in the fourth quarter of 2021, and $3.0 million from an other acquisition in the third quarter of 2022.

The decrease in the Auction and Liquidation segment was primarily due to retail liquidation engagements in Europe that ended.

Selling, General and Administrative Expenses

Selling, general and administrative expenses during the three months ended June 30, 2022 and 2021 were comprised of the following:

Three Months Ended June 30, 2022 Three Months Ended

June 30, 2021 Change

Selling, general and administrative expenses during the three months ended September 30, 2022 and 2021 were comprised of the following:

Three Months Ended September 30, 2022 Three Months Ended

September 30, 2021 Change

Amount % Amount % Amount %

3 unchanged sentences

Financial Consulting segment 20,131 12.3 % 18,522 7.6 % 1,609 8.7 %

Principal Investments -Communications and Other segment 16,403 9.8 % 7,296 3.6 % 9,107 124.8 %

Principal Investments -Communications and Other segment 28,702 17.5 % 7,954 3.3 % 20,748 n/m

Brands segment 1,424 0.9 % 1,686 0.7 % (262) (15.5) %

3 unchanged sentences

n/m - Not applicable or not meaningful.

Total selling, general and administrative expenses decreased approximately $32.8 million to $167.1 million during the three months ended June 30, 2022 from $199.9 million during the three months ended June 30, 2021.

The decrease was primarily due to decreases of $21.3 million in the Wealth Management segment, $17.7 million in the Capital Markets segment, $2.5 million in the Corporate and Other segment, and $0.9 million in the Auction and Liquidation segment partially offset by increases of $9.1 million in the Principal Investments — Communications and Other segment and $0.5 million in the Financial Consulting segment.

Total selling, general and administrative expenses decreased approximately $80.5 million to $163.7 million during the three months ended September 30, 2022 from $244.2 million during the three months ended September 30, 2021.

The decrease was primarily due to decreases of $58.7 million in the Wealth Management segment, $42.8 million in the Capital Markets segment, and $2.9 million in the Auction and Liquidation segment, partially offset by increases of $20.7 million in the Principal Investments — Communications and Other segment, $1.8 million in the Corporate and Other segment, and $1.6 million in the Financial Consulting segment.

Capital Markets

Selling, general and administrative expenses in the Capital Markets segment decreased by $17.7 million to $48.1 million during the three months ended June 30, 2022 from $65.7 million during the three months ended June 30, 2021.

The decrease was primarily due to decreases of $14.8 million in consulting expenses and $12.1 million in payroll and related expenses investment banking deal expenses, partially offset by increases of $4.9 million from the settlement of a regulatory matter, $2.0 in depreciation and amortization expenses, $1.1 million gain from foreign currency exchange, and $1.1 million in business development expenses.

Selling, general and administrative expenses in the Capital Markets segment decreased by $42.8 million to $37.8 million during the three months ended September 30, 2022 from $80.7 million during the three months ended September 30, 2021.

The decrease was primarily due to decreases of $21.5 million in consulting expenses and $20.1 million in payroll and related expenses.

Wealth Management

Selling, general and administrative expenses in the Wealth Management segment decreased by $21.3 million to $69.7 million during the three months ended June 30, 2022 from $91.0 million during the three months ended June 30, 2021.

The decrease was primarily due to a decrease in payroll and related expenses of $27.8 million, partially offset by an increase of $4.9 million from the settlement of a regulatory matter.

Selling, general and administrative expenses in the Wealth Management segment decreased by $58.7 million to $53.6 million during the three months ended September 30, 2022 from $112.3 million during the three months ended September 30, 2021.

The decrease was primarily due to a decrease of $58.3 million in payroll and related expenses.

Auction and Liquidation

Selling, general and administrative expenses in the Auction and Liquidation segment decreased $0.9 million to $2.2 million during the three months ended June 30, 2022 from $3.1 million during the three months ended June 30, 2021.

Selling, general and administrative expenses in the Auction and Liquidation segment decreased $2.9 million to $2.2 million during the three months ended September 30, 2022 from $5.2 million during the three months ended September 30, 2021.

The decrease was primarily due to decreases of $2.6 million in business development expenses and $0.2 million in payroll and related expenses.

Financial Consulting

Selling, general and administrative expenses in the Financial Consulting segment increased by $0.5 million to $20.0 million during the three months ended June 30, 2022 from $19.6 million during the three months ended June 30, 2021.

Selling, general and administrative expenses in the Financial Consulting segment increased by $1.6 million to $20.1 million during the three months ended September 30, 2022 from $18.5 million during the three months ended September 30, 2021.

The increase was primarily due to increases of $1.3 million in payroll and related expenses and $0.3 million in travel and entertainment expenses.

Principal Investments — Communications and Other

Selling, general and administrative expenses in the Principal Investments — Communications and Other segment increased $9.1 million to $16.4 million for the three months ended June 30, 2022 from $7.3 million for the three months ended June 30, 2021.

The increase was primarily due to increases of $4.1 million from the acquisition of additional equity interest in Lingo in the second quarter of 2022, $1.6 million in transaction costs, $1.3 million in payroll and related expenses, $1.1 million in depreciation and amortization, $0.7 million in communications expenses, $0.2 million in software and equipment expenses, and $0.2 million business development expenses.

Selling, general and administrative expenses in the Brands segment remained flat at $1.4 million during the three months ended June 30, 2022 and 2021.

Selling, general and administrative expenses in the Principal Investments — Communications and Other segment increased $20.7 million to $28.7 million for the three months ended September 30, 2022 from $8.0 million for the three months ended September 30, 2021.

The increase was primarily due to increases of $12.4 million from the acquisition of additional equity interest in Lingo in the second quarter of 2022, $5.0 million from the acquisition of BullsEye in the third quarter of 2022, and $3.5 million from the acquisition of Marconi in the fourth quarter of 2021.

Selling, general and administrative expenses in the Brands segment decreased $0.3 million to $1.4 million during the three months ended September 30, 2022 from $1.7 million during the three months ended September 30, 2021.

Corporate and Other

Selling, general and administrative expenses for the Corporate and Other segment decreased approximately $2.5 million to $9.4 million during the three months ended June 30, 2022 from $11.8 million during the three months ended June 30, 2021.

The decrease was primarily due to decreases of $4.5 million change in the fair value of contingent consideration, $2.2 million in loss from foreign currency exchange, partially offset by increases of $3.9 million in payroll and related expenses.

Selling, general and administrative expenses for the Corporate and Other segment increased approximately $1.8 million to $19.8 million during the three months ended September 30, 2022 from $18.0 million during the three months ended September 30, 2021.

The increase was primarily due to an increase of $1.6 million in payroll and related expenses.

Other Income (Expense).

Other income included interest income of $0.5 million and $0.1 million during the three months ended June 30, 2022 and 2021, respectively.

Change in fair value of financial instruments and other in the amount of $4.3 million during the three months ended June 30, 2022 was primarily due to the change in fair value of warrant liabilities and the forgiveness of a Paycheck Protection Program loan issued to FocalPoint prior to its acquisition by the Company in the first quarter of 2022.

Interest expense was $31.8 million during the three months ended June 30, 2022 compared to $20.9 million during the three months ended June 30, 2021.

The increase in interest expense was primarily due to increases in interest expense of $5.0 million from the issuance of senior notes and $4.5 million and $1.2 million from the Nomura term loan and revolving credit facility, respectively, entered into during the second quarter of 2021.

During the three months ended June 30, 2022, loss from equity investments was $3.4 million compared to $0.9 million during the three months ended June 30, 2021.

The increase was primarily due to the $3.7 million loss recognized from the conversion of debt to equity in the acquisition of Lingo during the second quarter of 2022.

(Loss) Income Before Income Taxes .

Loss before income taxes was $189.1 million during the three months ended June 30, 2022 compared to income of $95.0 million during the three months ended June 30, 2021.

The change was primarily due to a decrease in revenue of $294.1 million, increase in interest expense of $10.9 million, increase in loss from equity investments of $2.5 million, and a decrease in change in fair value of financial instruments and other of $2.2 million, partially offset by a decrease in operating expenses of approximately $25.2 million and an increase in interest income of $0.4 million.

Benefit from (Provision for) Income Taxes.

Benefit from income taxes was $52.5 million during the three months ended June 30, 2022 compared to a provision of $19.9 million during the three months ended June 30, 2021.

The effective income tax rate was 27.8% for the three months ended June 30, 2022 as compared to 20.9% for the three months ended June 30, 2021.

Net Income (Loss) Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests .

Net income (loss) attributable to noncontrolling interests and redeemable noncontrolling interests represents the proportionate share of net income generated by membership interests of partnerships that we do not own.

Other income included interest income of $0.7 million and $0.1 million during the three months ended September 30, 2022 and 2021, respectively.

Change in fair value of financial instruments and other in the amount of $0.6 million during the three months ended September 30, 2022 was primarily due to the change in fair value of warrant liabilities.

Interest expense was $34.6 million during the three months ended September 30, 2022 compared to $25.4 million during the three months ended September 30, 2021.

The increase in interest expense was primarily due to increases in interest expense of $3.5 million from the issuance of senior notes, $3.0 million from the Nomura term loan, $0.9 million from the Nomura revolving credit facility, and a total of $0.8 million from the Pathlight and Lingo term loans entered into during the third quarter of 2022.

During the three months ended September 30, 2022, loss from equity investments was $0.1 million compared to income of $1.1 million during the three months ended September 30, 2021.

Income Before Income Taxes .

Income before income taxes was $69.0 million during the three months ended September 30, 2022 compared to income of $74.4 million during the three months ended September 30, 2021.

The increase was primarily due to a decrease in operating expenses of approximately $48.0 million and an increase in interest income of $0.6 million, partially offset by a decrease in revenue of $41.2 million, increase in interest expense of $9.2 million, decrease in change in fair value of financial instruments and other of $2.3 million, and an increase in loss from equity investments of $1.2 million.

Provision for Income Taxes.

Provision for income taxes was $16.4 million during the three months ended September 30, 2022 compared to a provision of $22.7 million during the three months ended September 30, 2021.

The effective income tax rate was 23.7% for the three months ended September 30, 2022 as compared to 30.5% for the three months ended September 30, 2021.

Net Income Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests .

Net income attributable to noncontrolling interests and redeemable 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 and redeemable noncontrolling interests was $3.6 million during the three months ended June 30, 2022 compared to a net loss of $0.6 million during the three months ended June 30, 2021.

Net (Loss) Income Attributable to the Company .

Net loss attributable to the Company was $140.2 million during the three months ended June 30, 2022 compared to net income attributable to the Company of $75.7 million during the three months ended June 30, 2021.

The change was primarily due to a change from operating income to loss of $268.9 million, increase in interest expense of $10.9 million, increase in net income attributable to noncontrolling interests and redeemable noncontrolling interests of $4.1 million, increase in loss from equity investments of $2.5 million, and a decrease in change in fair value of financial instruments and other of $2.2 million, partially offset by a change from provision for to benefit from income taxes of $72.4 million and an increase in interest income of $0.4 million.

noncontrolling interests and redeemable noncontrolling interests was $4.8 million during the three months ended September 30, 2022 compared to $1.1 million during the three months ended September 30, 2021.

Net Income Attributable to the Company .

Net income attributable to the Company was $47.8 million during the three months ended September 30, 2022 compared to $50.6 million during the three months ended September 30, 2021.

The increase was primarily due to an increase in operating income of $6.8 million, a decrease in provision for income taxes of $6.3 million, and an increase in interest income of $0.6 million, partially offset by an increase in interest expense of $9.2 million, increase in net income attributable to noncontrolling interests and redeemable noncontrolling interests of $3.7 million, decrease in change in fair value of financial instruments and other of $2.3 million, and an increase in loss from equity investments of $1.2 million,

Preferred Stock Dividends .

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On July 7, 2022, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on July 29, 2022 to holders of record as of the close of business on July 19, 2022.

On October 10, 2022, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on October 31, 2022 to holders of record as of the close of business on October 21, 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).

3 unchanged sentences

On July 7, 2022, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on July 29, 2022 to holders of record as of the close of business on July 19, 2022.

Net (Loss) Income Available to Common Shareholders .

Net loss available to common shareholders was $142.2 million during the three months ended June 30, 2022 compared to net income available to common shareholders of $73.9 million during the three months ended June 30, 2021.

The change was primarily due to a change from operating income to loss of $268.9 million, increase in interest expense of $10.9 million, increase in net income attributable to noncontrolling interests and redeemable noncontrolling interests of $4.1 million, increase in loss from equity investments of $2.5 million, decrease in change in fair value of financial instruments and other of $2.2 million, and an increase in preferred stock dividends of $0.2 million, partially offset by a change from provision for to benefit from income taxes of $72.4 million and an increase in interest income of $0.4 million.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

On October 10, 2022, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on October 31, 2022 to holders of record as of the close of business on October 21, 2022.

Net Income Available to Common Shareholders .

Net income available to common shareholders was $45.8 million during the three months ended September 30, 2022 compared to $48.6 million during the three months ended September 30, 2021.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Condensed Consolidated Statements of Operations

(Dollars in thousands)

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

2022 2021 Amount %

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Selling, general and administrative expenses 506,062 635,484 (129,422) (20.4) %

Restructuring charge 8,016 — 8,016 100.0 %

Interest expense - Securities lending and loan participations sold 43,757 40,269 3,488 8.7 %

4 unchanged sentences

Change in fair value of financial instruments and other 9,728 8,267 1,461 17.7 %

Income from equity investments 3,376 23 3,353 n/m

Income from equity investments 3,285 1,172 2,113 180.3 %

Interest expense (96,787) (66,014) (30,773) 46.6 %

2 unchanged sentences

Net (loss) income $ (93,139) 383,356 (476,495) (124.3) %

Net income (loss) attributable to noncontrolling interests and redeemable noncontrolling interests 4,437 1,366 3,071 n/m

Net income attributable to noncontrolling interests and redeemable noncontrolling interests 9,245 2,474 6,771 n/m

Net (loss) income attributable to B.

5 unchanged sentences

The table below and the discussion that follows are based on how we analyze our business.

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

2022 2021 Amount %

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Trading (losses) income and fair value adjustments on loans

Capital Markets segment (294,367) 294,400 (588,767) n/m

Capital Markets segment (283,240) 311,335 (594,575) (191.0) %

Wealth Management segment 3,077 6,483 (3,406) (52.5) %

7 unchanged sentences

n/m - Not applicable or not meaningful.

Total revenues decreased approximately $688.6 million to $248.3 million during the six months ended June 30, 2022 from $936.9 million during the six months ended June 30, 2021.

The decrease in revenues during the six months ended June 30, 2022 was primarily due to decreases in the fair value of the portfolio of securities and other investments owned and fair value adjustments on loans of $591.9 million, which is included in trading (losses) income and fair value adjustments on loans above, services and fees of $144.0 million, and sale of goods of $15.5 million, partially offset by an increase in interest income from loans and securities lending of $62.9 million.

The decrease in the fair value of the portfolio of securities and other investments owned as of June 30, 2022 was primarily due to the decrease in overall values in the stock market.

The decrease in revenue from services and fees in the six months ended June 30, 2022 consisted of decreases in revenue of $160.5 million in the Capital Markets segment, $15.2 million in the Wealth Management segment, and $7.0 million in the Auction and Liquidation segment, partially offset by increases in revenues of $32.7 million in the Principal Investments — Communications and Other segment, $5.1 million in the Financial Consulting segment, and $0.8 million in the Brands segment.

Revenues from services and fees in the Capital Markets segment decreased $160.5 million to $136.5 million during the six months ended June 30, 2022 from $297.0 million during the six months ended June 30, 2021.

The decrease in revenues was primarily due to decreases in revenue of $177.2 million from corporate finance, consulting, and investment banking fees and $3.4 million from commission fees, partially offset by increases of $14.6 million in dividends, $4.0 million in other income, and $2.0 million in interest income.

Revenues from services and fees in the Wealth Management segment decreased $15.2 million to $137.8 million during the six months ended June 30, 2022 from $153.0 million during the six months ended June 30, 2021.

The decrease in revenues was primarily due to a decrease in revenue of $15.4 million from commission fees.

Revenues from services and fees in the Auction and Liquidation segment decreased $7.0 million to $5.8 million during the six months ended June 30, 2022 from $12.9 million during the six months ended June 30, 2021.

Total revenues decreased approximately $729.8 million to $588.7 million during the nine months ended September 30, 2022 from $1,318.5 million during the nine months ended September 30, 2021.

The decrease in revenues during the nine months ended September 30, 2022 was primarily due to decreases in the fair value of the portfolio of securities and other investments owned and fair value adjustments on loans of $598.0 million, which is included in trading (losses) income and fair value adjustments on loans above, services and fees of $179.0 million, and sale of goods of $46.3 million, partially offset by an increase in interest income from loans and securities lending of $93.6 million.

The decrease in the fair value of the portfolio of securities and other investments owned as of September 30, 2022 was primarily due to the decrease in overall values in the stock market.

The decrease in revenue from services and fees in the nine months ended September 30, 2022 consisted of decreases in revenue of $182.1 million in the Capital Markets segment, $85.6 million in the Wealth Management segment, $7.8 million in the Auction and Liquidation segment, and $0.5 million in the Brands segment, partially offset by increases in revenues of $90.4 million in the Principal Investments — Communications and Other segment and $6.6 million in the Financial Consulting segment.

Revenues from services and fees in the Capital Markets segment decreased $182.1 million to $249.7 million during the nine months ended September 30, 2022 from $431.8 million during the nine months ended September 30, 2021.

The decrease in revenues was primarily due to decreases in revenue of $251.9 million from corporate finance, consulting, and investment banking fees, partially offset by increases of $41.9 million in incentive fees, $20.8 million in dividends, $4.4 million in interest income, and $2.6 million in asset management fees.

Revenues from services and fees in the Wealth Management segment decreased $85.6 million to $185.0 million during the nine months ended September 30, 2022 from $270.6 million during the nine months ended September 30, 2021.

The decrease in revenues was primarily due to decreases of $42.3 million in wealth and asset management fees and $42.1 million in commission fees.

Revenues from services and fees in the Auction and Liquidation segment decreased $7.8 million to $7.8 million during the nine months ended September 30, 2022 from $15.6 million during the nine months ended September 30, 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 $5.1 million to $50.2 million during the six months ended June 30, 2022 from $45.1 million during six months ended June 30, 2021.

The increase in revenues was primarily due to increases of $1.8 million within our Advisory Services divisions and $3.3 million within our Real Estate division.

Revenues from services and fees in the Principal Investments - Communications and Other segment increased $32.7 million to $71.4 million during the six months ended June 30, 2022 from $38.7 million during the six months ended June 30, 2021.

The increase in revenues was primarily due to an increase in subscription services of $24.8 million from the acquisition of Marconi Wireless in the fourth quarter of 2021 and $10.7 million from the acquisition of an additional equity interest in Lingo in the second quarter of 2022 and an increase in advertising licensing and other revenue of $1.6 million, partially offset by a decrease of $4.3 million in subscription services for UOL and magicJack.

Revenues from services and fees in the Financial Consulting segment increased $6.6 million to $73.1 million during the nine months ended September 30, 2022 from $66.4 million during the nine months ended September 30, 2021.

The increase in revenues was primarily due to increases of $3.5 million within our Real Estate division and $3.1 million within our Advisory Services division.

Revenues from services and fees in the Principal Investments - Communications and Other segment increased $90.4 million to $147.7 million during the nine months ended September 30, 2022 from $57.4 million during the nine months ended September 30, 2021.

The increase in revenues was primarily due to an increase in subscription services of $38.4 million from the acquisition of an additional equity interest in Lingo in the second quarter of 2022, $37.1 million from the acquisition of Marconi Wireless in the fourth quarter of 2021, $15.3 million from the acquisition of BullsEye in the third quarter of 2022, and $5.4 million from other acquisitions in 2022, partially offset by a decrease of $5.8 million in subscription services for UOL and magicJack.

We expect the UOL and magicJack subscription revenues to continue to decline year over year.

Revenues from services and fees in the Brands segment increased $0.8 million to $9.7 million during the six months ended June 30, 2022 from $8.9 million during the six months ended June 30, 2021.

Revenues from services and fees in the Brands segment decreased $0.5 million to $14.8 million during the nine months ended September 30, 2022 from $15.3 million during the nine months ended September 30, 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 $591.9 million to a loss of $292.3 million during the six months ended June 30, 2022 compared to income of $299.6 million during the six months ended June 30, 2021.

Trading (losses) income and fair value adjustments on loans decreased $598.0 million to a loss of $280.2 million during the nine months ended September 30, 2022 compared to income of $317.8 million during the nine months ended September 30, 2021.

This decrease was primarily due to decreases of $594.6 million in the Capital Markets segment and $3.4 million in the Wealth Management segment.

The loss of $292.3 million during the six months ended June 30, 2022 was primarily due to realized and unrealized losses on investments made in our proprietary trading accounts of $299.1 million, partially offset by realized gain on disposal of equity method investment of $6.8 million.

Interest income – loans and securities lending increased $62.9 million to $125.3 million during the six months ended June 30, 2022 from $62.4 million during the six months ended June 30, 2021.

Interest income from securities lending was $33.7 million and $36.8 million during the six months ended June 30, 2022 and 2021, respectively.

Interest income from loans was $91.5 million and $25.6 million during the six months ended June 30, 2022 and 2021, respectively.

The loss of $280.2 million during the nine months ended September 30, 2022 was primarily due to realized and unrealized losses on investments made in our proprietary trading accounts of $267.8 million and unrealized loss on our loans receivable, at fair value of $19.2 million, partially offset by a realized gain on disposal of equity method investment of $6.8 million.

Interest income – loans and securities lending increased $93.6 million to $182.9 million during the nine months ended September 30, 2022 from $89.3 million during the nine months ended September 30, 2021.

Interest income from securities lending was $55.7 million and $49.8 million during the nine months ended September 30, 2022 and 2021, respectively.

Interest income from loans was $127.2 million and $39.5 million during the nine months ended September 30, 2022 and 2021, respectively.

Revenues – Sale of Goods

Revenues from the sale of goods decreased $15.5 million to $3.8 million during the six months ended June 30, 2022 from $19.3 million during six months ended June 30, 2021.

Revenues from the sale of goods decreased $46.3 million to $7.9 million during the nine months ended September 30, 2022 from $54.2 million during nine months ended September 30, 2021.

Revenues from sale of goods were attributable to a decrease of $49.6 million from sales of retail goods related to retail liquidation engagements in Europe that ended, partially offset by an increase of $3.7 million from sales of retail goods due to the acquisition of Marconi Wireless in the fourth quarter of 2021.

Cost of goods sold for six months ended June 30, 2022 was $4.2 million, resulting in a negative gross margin of 12.7%.

Cost of goods sold for nine months ended September 30, 2022 was $7.3 million, resulting in a gross margin of 7.1%.

Operating Expenses

Direct Cost of Services

Direct cost of services increased $6.0 million to $29.4 million during the six months ended June 30, 2022 from $23.4 million during the six months ended June 30, 2021.

Direct cost of services increased $32.5 million to $74.0 million during the nine months ended September 30, 2022 from $41.4 million during the nine months ended September 30, 2021.

The increase in direct cost of services was primarily driven by an increase of $53.6 million in the Principal Investments — Communications and Other segment, partially offset by a decrease of $21.1 million in the Auction and Liquidation segment.

The increase in the Principal Investments —

Communications and Other segment was primarily due to increases of $10.4 million from the acquisition Marconi Wireless in the fourth quarter of 2021 and $7.5 million from the acquisition of Lingo in the second quarter of 2022.

The decrease in the Auction and Liquidation segment was primarily due to retail liquidation engagements in Europe that ended.

The increase in the Principal Investments — Communications and Other segment was primarily due to increases of $27.6 million from the acquisition of an additional equity interest in Lingo in the second quarter of 2022, $15.2 million from the acquisition Marconi Wireless in the fourth quarter of 2021, and $9.7 million from the acquisition of BullsEye in the third quarter of 2022, partially offset by decreases in magicJack and UOL.

The decrease in the Auction and Liquidation segment was primarily due to a large retail liquidation engagements in Europe in 2021.

Selling, General and Administrative Expenses

Selling, general and administrative expenses during the six months ended June 30, 2022 and 2021 were comprised of the following:

Six Months Ended

June 30, 2022 Six Months Ended

June 30, 2021 Change

Selling, general and administrative expenses during the nine months ended September 30, 2022 and 2021 were comprised of the following:

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 Change

Amount % Amount % Amount %

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n/m - Not applicable or not meaningful.

Total selling, general and administrative expenses decreased approximately $48.9 million to $342.3 million during the six months ended June 30, 2022 from $391.3 million during the six months ended June 30, 2021.

The decrease was primarily due to decrease of $68.5 million in the Capital Markets segment and $0.6 million in the Auction and Liquidation segment, partially offset by increases of $14.0 million in the Principal Investments — Communications and Other segment, $3.4 million in the Financial Consulting segment, $2.4 million in the Wealth Management segment, and $0.5 million in the Corporate and Other segment.

Total selling, general and administrative expenses decreased approximately $129.4 million to $506.1 million during the nine months ended September 30, 2022 from $635.5 million during the nine months ended September 30, 2021.

The decrease was primarily due to decreases of $111.4 million in the Capital Markets segment, $56.3 million in the Wealth Management segment, and $3.5 million in the Auction and Liquidation segment, partially offset by increases of $34.7 million in the Principal Investments — Communications and Other segment and $5.0 million in the Financial Consulting segment, and $2.4 million in the Corporate and Other segment.

Capital Markets

Selling, general and administrative expenses in the Capital Markets segment decreased by $68.5 million to $84.1 million during the six months ended June 30, 2022 from $152.6 million during the six months ended June 30, 2021.

The decrease was primarily due to decreases of $43.2 million in consulting expenses and $36.2 million in payroll and related expenses, partially offset by increases of $4.9 million from the settlement of a regulatory matter, $3.1 million in depreciation and amortization, $1.9 million in other expenses and $1.3 million in business development expenses.

Selling, general and administrative expenses in the Capital Markets segment decreased by $111.4 million to $121.9 million during the nine months ended September 30, 2022 from $233.3 million during the nine months ended September 30, 2021.

The decrease was primarily due to decreases of $64.7 million in consulting expenses and $56.2 million in payroll and related expenses, partially offset by increases of $4.9 million from the settlement of a regulatory matter and $4.7 million in depreciation and amortization.

Wealth Management

Selling, general and administrative expenses in the Wealth Management segment increased by $2.4 million to $157.3 million during the six months ended June 30, 2022 from $154.9 million during the six months ended June 30, 2021.

The increase was primarily due to an increase of $4.9 million from the settlement of a regulatory matter, partially offset by decreases of $1.6 million in depreciation and amortization and $0.2 million in consulting expenses.

Selling, general and administrative expenses in the Wealth Management segment decreased by $56.3 million to $210.8 million during the nine months ended September 30, 2022 from $267.2 million during the nine months ended September 30, 2021.

The decrease was primarily due to a decrease of $75.3 million in payroll and related expenses, partially offset by

increases of $13.7 million from settlements and penalties, $1.4 million in clearing charges, $1.2 million in other expenses, $0.5 million in occupancy expenses, and $0.5 million in insurance costs.

Auction and Liquidation

Selling, general and administrative expenses in the Auction and Liquidation segment decreased $0.6 million to $4.0 million during the six months ended June 30, 2022 from $4.6 million during the six months ended June 30, 2021.

The decrease was primarily due to business development and other expenses.

Selling, general and administrative expenses in the Auction and Liquidation segment decreased $3.5 million to $6.2 million during the nine months ended September 30, 2022 from $9.7 million during the nine months ended September 30, 2021.

The decrease was primarily due to decreases of $3.0 million in business development expenses and $0.2 million in other expenses.

Financial Consulting

Selling, general and administrative expenses in the Financial Consulting segment increased by $3.4 million to $41.1 million during the six months ended June 30, 2022 from $37.6 million during the six months ended June 30, 2021.

Selling, general and administrative expenses in the Financial Consulting segment increased by $5.0 million to $61.2 million during the nine months ended September 30, 2022 from $56.2 million during the nine months ended September 30, 2021.

The increase was primarily due to increases of $4.0 million in payroll and related expenses and $1.1 million in travel and entertainment expenses.

Principal Investments — Communications and Other

Selling, general and administrative expenses in the Principal Investments — Communications and Other segment increased $14.0 million to $28.7 million for the six months ended June 30, 2022 from $14.7 million for the six months ended June 30, 2021.

The increase was primarily due to increases of $4.1 million from the acquisition of an additional equity interest in Lingo in the second quarter of 2022, $3.2 million in payroll and related expenses, $1.8 million in depreciation and amortization, $1.6 million in communications expenses, $1.1 million in transaction costs, $0.7 million in marketing expenses, $0.5 million in software and equipment expenses, $0.4 million in business development expenses, and $0.3 million in other expenses.

Selling, general and administrative expenses in the Brands segment remained flat at $2.8 million during the six months ended June 30, 2022 and 2021.

Selling, general and administrative expenses in the Principal Investments — Communications and Other segment increased $34.7 million to $57.4 million for the nine months ended September 30, 2022 from $22.7 million for the nine months ended September 30, 2021.

The increase was primarily due to increases of $15.7 million from the acquisition of an additional equity interest in Lingo in the second quarter of 2022, $12.2 million from the acquisition of Marconi in the fourth quarter of 2021, $5.0 million from the acquisition of Bullseye in the third quarter of 2022, and $3.1 million from other acquisitions in 2022.

Selling, general and administrative expenses in the Brands segment decreased $0.3 million to $4.2 million during the nine months ended September 30, 2022 from $4.5 million for the nine months ended September 30, 2021.

Corporate and Other

Selling, general and administrative expenses for the Corporate and Other segment increased approximately $0.5 million to $24.5 million during the six months ended June 30, 2022 from $24.0 million for the six months ended June 30, 2021.

The increase was primarily due to increases of $8.3 million in payroll and related expenses, partially offset by decreases of $4.5 million of change in fair value of contingent consideration and $3.4 million in other expenses.

Selling, general and administrative expenses for the Corporate and Other segment increased approximately $2.4 million to $44.4 million during the nine months ended September 30, 2022 from $42.0 million for the nine months ended September 30, 2021.

The increase was primarily due to increases of $1.6 million in transaction expenses and $1.2 million in software and equipment expenses, partially offset by a decrease of $0.2 million in communication expenses.

Other Income (Expense) .

Other income included interest income of $0.6 million and $0.1 million during the six months ended June 30, 2022 and 2021, respectively.

Change in fair value of financial instruments and other in the amount of $10.3 million during the six months ended June 30, 2022 was primarily due to the change in fair value of warrant liabilities and the forgiveness of a Paycheck Protection Program loan issued to FocalPoint prior to its acquisition by the Company during the first quarter of 2022.

Interest expense was $62.2 million during the six months ended June 30, 2022 compared to $40.6 million during the six months ended June 30, 2021.

The increase in interest expense was primarily due to increases in interest expense of $10.7 million from the issuance of senior notes, and $8.6 million and $2.3 million from the Nomura term loan and revolving credit facility, respectively, entered into during the second quarter of 2021.

During the six months ended June 30, 2022, income from equity investments was $3.4 million compared to $0.02 million during the six months ended June 30, 2021.

The increase was primarily due to $7.0 million in earnings related to the bebe equity method investment, partially offset by $3.7 million loss recognized from the conversion of debt to equity in the acquisition of Lingo during the second quarter of 2022.

Other income included interest income of $1.3 million and $0.2 million during the nine months ended September 30, 2022 and 2021, respectively.

Change in fair value of financial instruments and other in the amount of $9.7 million during the nine months ended September 30, 2022 was primarily due to the change in fair value of warrant liabilities and the forgiveness of a Paycheck Protection Program loan issued to FocalPoint prior to its acquisition by the Company during the first quarter of 2022.

Interest expense was $96.8 million during the nine months ended September 30, 2022 compared to $66.0 million during the nine months ended September 30, 2021.

The increase in interest expense was primarily due to increases in interest expense of $14.2 million from the issuance of senior notes, $11.6 million from the Nomura term loan, $3.2 million from the Nomura revolving credit facility, and a total of $0.8 million from the Pathlight and Lingo term loans entered into during the third quarter of 2022.

During the nine months ended September 30, 2022, income from equity investments was $3.3 million compared to $1.2 million during the nine months ended September 30, 2021.

The increase was primarily due to $6.9 million in earnings related to the bebe equity method investment, partially offset by $3.7 million loss recognized from the conversion of debt to equity in the acquisition of an additional equity interest in Lingo during the second quarter of 2022.

(Loss) Income Before Income Taxes .

Loss before income taxes was $202.0 million during the six months ended June 30, 2022 compared to income of $449.1 million during the six months ended June 30, 2021.

The change was primarily due to a decrease in revenue of $688.6 million and increase in interest expense of $21.6 million, partially offset by a decrease in operating expenses of approximately $51.5 million, increase in change in fair value of financial instruments and other of $3.8 million, increase in income from equity investments of $3.4 million, and an increase in interest income of $0.5 million.

Loss before income taxes was $133.0 million during the nine months ended September 30, 2022 compared to income of $523.5 million during the nine months ended September 30, 2021.

The change was primarily due to a decrease in revenue of $729.8 million and an increase in interest expense of $30.8 million, partially offset by a decrease in operating expenses of approximately $99.5 million, increase in income from equity investments of $2.1 million, increase in change in fair value of financial instruments and other of $1.5 million, and an increase in interest income of $1.1 million.

Benefit from (Provision for) Income Taxes.

Benefit from income taxes was $56.2 million during the six months ended June 30, 2022 compared to a provision of $117.4 million during the six months ended June 30, 2021.

The effective income tax rate was 27.8% for the six months ended June 30, 2022 as compared to 26.1% for the six months ended June 30, 2021.

Benefit from income taxes was $39.9 million during the nine months ended September 30, 2022 compared to a provision for income taxes of $140.1 million during the nine months ended September 30, 2021.

The effective income tax rate was 30.0% for the nine months ended September 30, 2022 compared to 26.8% for the nine months ended September 30, 2021.

Net Income Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests .

The net income attributable to

noncontrolling interests and redeemable noncontrolling interests was $4.4 million during the six months ended June 30, 2022 compared to $1.4 million during the six months ended June 30, 2021.

The net income attributable to noncontrolling interests and redeemable noncontrolling interests was $9.2 million during the nine months ended September 30, 2022 compared to $2.5 million during the nine months ended September 30, 2021.

Net (Loss) Income Attributable to the Company .

Net loss attributable to the Company was $150.2 million during the six months ended June 30, 2022 compared to net income attributable to the Company of $330.3 million during the six months ended June 30, 2021.

The change was primarily due to a change from operating income to loss of $637.2 million, increase in interest expense of $21.6 million, and an increase in net income attributable to noncontrolling interests and redeemable noncontrolling interests of $3.1 million, partially offset by a change from provision for to benefit from income taxes of $173.6 million, increase in change in fair value of financial instruments and other of $3.8 million, increase in income from equity investments of $3.4 million, and an increase in interest income of $0.5 million.

Net loss attributable to the Company was $102.4 million during the nine months ended September 30, 2022 compared to net income attributable to the Company of $380.9 million during the nine months ended September 30, 2021.

The change was primarily due to a change from operating income to loss of $630.3 million, increase in interest expense of $30.8 million, and an increase in net income attributable to noncontrolling interests and redeemable noncontrolling interests of $6.8 million, partially offset by a change from provision for to benefit from income taxes of $180.0 million, increase in income from equity investments of $2.1 million, increase in change in fair value of financial instruments and other of $1.5 million, and an increase in interest income of $1.1 million.

Preferred Stock Dividends .

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On July 7, 2022, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on July 29, 2022 to holders of record as of the close of business on July 19, 2022.

On October 10, 2022, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on October 31, 2022 to holders of record as of the close of business on October 21, 2022.

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On July 7, 2022, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on July 29, 2022 to holders of record as of the close of business on July 19, 2022.

On October 10, 2022, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on October 31, 2022 to holders of record as of the close of business on October 21, 2022.

Net (Loss) Income Available to Common Shareholders .

Net loss available to common shareholders was $154.2 million during the six months ended June 30, 2022 compared to net income available to common shareholders of $326.8 million during the six months ended June 30, 2021.

The change was primarily due to a change from operating income to loss of $637.2 million, increase in interest expense of $21.6 million, increase in net income attributable to noncontrolling interests and redeemable noncontrolling interests of $3.1 million, and an increase in preferred stock dividends of $0.5 million, partially offset by a change from provision for to benefit from income taxes of $173.6 million, increase in change in fair value of financial instruments and other of $3.8 million, increase in income from equity investments of $3.4 million, and an increase in interest income of $0.5 million.

Net loss available to common shareholders was $108.4 million during the nine months ended September 30, 2022 compared to net income available to common shareholders of $375.4 million during the nine months ended September 30, 2021.

The change was primarily due to a change from operating income to loss of $630.3 million, increase in interest expense of $30.8 million, increase in net income attributable to noncontrolling interests and redeemable noncontrolling interests of $6.8 million, and an increase in preferred stock dividends of $0.5 million, partially offset by a change from provision for to benefit from income taxes of $180.0 million, increase in income from equity investments of $2.1 million, increase in change in fair value of financial instruments and other of $1.5 million, and an increase in interest income 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 six months ended June 30, 2022 and 2021, we generated a net loss of $145.8 million and net income of $331.7 million, respectively.

Our net loss of $145.8 million included $292.3 million of losses that primarily related to a decrease in the fair value of our portfolio of securities and other investments owned during the six months ended June 30, 2022.

During the nine months ended September 30, 2022 and 2021, we generated a net loss of $93.1 million and net income of $383.4 million, respectively.

Our net loss of $93.1 million included $280.2 million of losses that primarily related to a decrease in the fair value of our portfolio of securities and other investments owned during the nine months ended September 30, 2022.

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 June 30, 2022, we had $216.1 million of unrestricted cash and cash equivalents, $0.9 million of restricted cash, $1,144.9 million of securities and other investments owned at fair value, $770.8 million of loans receivable, at fair value, and $2,115.8 million of borrowings outstanding.

The borrowings outstanding of $2,115.8 million as of June 30, 2022 included $1,644.8 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%, $367.8 million in term loans borrowed pursuant to the BRPI Acquisition Co LLC (“BRPAC”) and Nomura Credit Agreements discussed below, $80.0 million of revolving credit under the Nomura Credit Agreement discussed below, and $23.2 million of notes payable.

capital and capital expenditure requirements for at least the next 12 months from issuance date of the accompanying financial statements.

As of September 30, 2022, we had $231.8 million of unrestricted cash and cash equivalents, $1.6 million of restricted cash, $1,238.6 million of securities and other investments owned at fair value, $814.7 million of loans receivable, at fair value, and $2,319.0 million of borrowings outstanding.

The borrowings outstanding of $2,319.0 million as of September 30, 2022 included $1,661.2 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%, $558.0 million in term loans borrowed pursuant to the Pathlight, Lingo, BRPI Acquisition Co LLC (“BRPAC”), and Nomura Credit Agreements discussed below, $74.7 million of revolving credit under the Nomura Credit Agreement discussed below, and $25.1 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 Pathlight, Lingo, 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 July 28, 2022, we declared a regular dividend of $1.00 per share that will be paid on or about August 23, 2022 to stockholders of record as of August 11, 2022.

On November 3, 2022, we declared a regular dividend of $1.00 per share that will be paid on or about November 29, 2022 to stockholders of record as of November 15, 2022.

On July 28, 2022, we declared a regular dividend of $1.00 per share that was paid on August 23, 2022 to stockholders of record as of August 11, 2022.

On April 28, 2022, we declared a regular dividend of $1.00 per share that was paid on May 20, 2022 to stockholders of record as of May 11, 2022.

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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.

A summary of dividend activity for the six months ended June 30, 2022 and the year ended December 31, 2021 was as follows:

A summary of dividend activity for the nine months ended September 30, 2022 and the year ended December 31, 2021 was as follows:

Date Declared Date Paid Stockholder

July 8, 2022 August 23, 2022 August 11, 2022 $ 1.000 $ — $ 1.000

April 28, 2022 May 20, 2022 May 11, 2022 1.000 — 1.000

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Dividends will be payable quarterly in arrears, on or about the last day of January, April, July, and October.

As of June 30, 2022, dividends in arrears in respect of the Depositary Shares were $0.8 million.

As of September 30, 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.

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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.

On July 7, 2022, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on July 29, 2022 to holders of record as of the close of business on July 19, 2022.

On July 7, 2022, the Company declared a cash dividend $0.4296875 per Depositary

Share, which was paid on July 29, 2022 to holders of record as of the close of business on July 19, 2022.

On October 10, 2022, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on October 31, 2022 to holders of record as of the close of business on October 21, 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 June 30, 2022, dividends in arrears in respect of the Depositary Shares were $0.5 million.

As of September 30, 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.

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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 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.

On July 7, 2022, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on July 29, 2022 to holders of record as of the close of business on July 19, 2022.

On October 10, 2022, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on October 31, 2022 to holders of record as of the close of business on October 21, 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.

Cash Flow Summary

Six Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

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Net (decrease) increase in cash, cash equivalents and restricted cash $ (46,477) $ 274,295

Cash used in operating activities was $49.9 million during the six months ended June 30, 2022 compared to cash used in operating activities of $147.9 million during the six months ended June 30, 2021.

Cash used in operating activities for the six months ended June 30, 2022 consisted of the negative impact of net loss of $145.8 million, noncash items of $70.4 million, and changes in operating assets and liabilities of $166.2 million.

The negative cash flow impact from noncash items of $70.4 million included deferred income taxes of $95.3 million, fair value adjustments of $13.6 million, gain on equity investment of $6.8 million, income from equity investments of $3.4 million, noncash interest and other of $1.2 million, and gain on extinguishment of loan of $1.1 million, partially offset by share-based compensation of $31.2 million, depreciation and amortization of $15.8 million, dividends from equity investments of $1.9 million, provision for doubtful accounts of $1.3 million, income allocated for mandatorily redeemable noncontrolling interests of $0.4 million, effect of foreign currency of $0.3 million, and loss on disposal of fixed assets of $0.1 million.

Cash used in operating activities for the six months ended June 30, 2021 consisted of the positive impact of net income of $331.7 million and noncash items of $50.2 million, partially offset by the negative impact of changes in operating assets and liabilities of $529.8 million.

The positive cash flow impact from noncash items of $50.2 million included deferred income taxes of $51.2 million, share-based compensation of $14.1 million, depreciation and amortization of $12.9 million, loss on extinguishment of debt of $0.9 million, provision for doubtful accounts of $0.8 million, dividends from equity investments of $0.6 million, and income allocated for mandatorily redeemable noncontrolling interests of $0.3 million, partially offset by fair value adjustments of $10.0 million, noncash interest and other of $9.1 million, gain on extinguishment of loans of $6.5 million gain on equity investment of $3.5 million, and effect of foreign currency on operations of $1.5 million.

Cash used in investing activities was $0.5 million during the six months ended June 30, 2022 compared to cash used in investing activities of $358.7 million for the six months ended June 30, 2021.

During the six months ended June 30, 2022, cash used in investing activities consisted of cash used for purchases of loans receivable of $199.1 million, acquisition of businesses of $38.4 million, purchases of equity and other investments of $2.8 million, and purchases of property and equipment of $0.9 million, partially offset by cash received from loans receivable repayment of $241.7 million.

During the six months ended June 30, 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 $345.0 million, purchases of loans receivable of $87.3 million, repayments of loan participations sold of $10.8 million, purchases of equity and other investments of $10.5 million, acquisition of business of $0.4 million, and purchases of property and equipment of $0.3 million, partially offset by cash received from loans receivable repayment of $95.5 million.

Cash used in financing activities was $10.4 million during the six months ended June 30, 2022 compared to cash provided by financing activities of $701.1 million during the six months ended June 30, 2021.

During the six months ended June 30, 2022, cash used in financing activities primarily consisted of $62.0 million used to pay dividends on our common shares, $54.3 million used in the repayment of term loan, $6.4 million used in payment of employment taxes on vesting of restricted stock, $4.0 million used to pay dividends on our preferred shares, $2.4 million in distributions to noncontrolling interests, $0.5 million used in the payment of contingent consideration, $0.5 million used in the payment of debt issuance

and offering costs, and $0.4 million used to repay our notes payable, partially offset by cash provided by $75.0 million proceeds from borrowings under a term loan, $35.9 million proceeds from issuance of senior notes, $8.5 million contributions from noncontrolling interests, and $0.6 million proceeds from issuance of preferred stock.

During the six months ended June 30, 2021, cash provided by financing activities primarily consisted of $475.7 million proceeds from issuance of senior notes, $345.0 million proceeds from initial public offering of subsidiaries, $200.0 million proceeds from the Nomura term loan, $64.7 million proceeds from issuance of common stock, $10.7 million contributions from noncontrolling interests, and $8.3 million net proceeds from offerings of preferred stock, partially offset by $181.3 million used to pay dividends on our common shares, $128.2 million used to repurchase our senior notes, $37.6 million used to repay our notes payable, $15.7 million used to pay debt issuance costs, $14.8 million distributions to noncontrolling interests, $11.5 million used for repayment on the BRPAC term loan, $10.4 million used to pay employment taxes on vesting of restricted stock, and $3.5 million used to pay dividends on our preferred shares.

Cash used in operating activities was $72.8 million during the nine months ended September 30, 2022 compared to cash used in operating activities of $166.7 million during the nine months ended September 30, 2021.

Cash used in operating activities for the nine months ended September 30, 2022 consisted of the negative impact of net loss of $93.1 million, noncash items of $13.3 million, and changes in operating assets and liabilities of $33.7 million.

The negative cash flow impact from noncash items of $13.3 million included deferred income taxes of $81.8 million, de-consolidation of B.

Riley Principal 150 Merger Corporation (“BRPM 150”) of $8.3 million, gain on equity investment of $6.8 million, noncash interest and other of $5.4 million, income from equity investments of $3.3 million, and gain on extinguishment of loan of $1.1 million, partially offset by share-based compensation of $45.8 million, depreciation and amortization of $26.5 million, fair value adjustments of $6.3 million, impairment of intangibles and loss on disposal of fixed assets of $5.5 million, effect of foreign currency of $3.2 million, provision for doubtful accounts of $2.8 million, dividends from equity investments of $2.5 million, and income allocated for mandatorily redeemable noncontrolling interests of $0.8 million.

Cash used in operating activities for the nine months ended September 30, 2021 consisted of the positive impact of net income of $383.4 million and noncash items of $40.0 million, partially offset by the negative impact of changes in operating assets and liabilities of $590.0 million.

The positive cash flow impact from noncash items of $40.0 million included deferred income taxes of $28.6 million, share-based compensation of $23.5 million, depreciation and amortization of $19.1 million, loss on extinguishment of debt of $4.9 million, dividends from equity investments of $1.4 million, provision for doubtful accounts of $1.2 million, and income allocated for mandatorily redeemable noncontrolling interests of $0.5 million, partially offset by noncash interest and other of $15.7 million, fair value adjustments of $10.7 million, gain on extinguishment of loans of

$6.5 million gain on equity investment of $3.5 million, and effect of foreign currency on operations of $1.3 million, income from equity investments of $1.2 million, and gain on disposal of fixed assets and other of $0.1 million.

Cash used in investing activities was $41.7 million during the nine months ended September 30, 2022 compared to cash used in investing activities of $416.7 million for the nine months ended September 30, 2021.

During the nine months ended September 30, 2022, cash used in investing activities consisted of cash used for purchases of loans receivable of $421.7 million, cash used for acquisition of businesses of $113.6 million, purchases of equity and other investments of $2.8 million, and purchases of property and equipment of $1.4 million, partially offset by cash received from loans receivable repayment of $408.7 million and funds received from trust account of subsidiary of $172.6 million.

During the nine months ended September 30, 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 $345.0 million, purchases of loans receivable of $186.3 million, repayments of loan participations sold of $15.2 million, acquisition of businesses of $2.1 million, and purchases of property and equipment of $0.6 million, partially offset by cash received from loans receivable repayment of $132.5 million.

Cash used in financing activities was $8.8 million during the nine months ended September 30, 2022 compared to cash provided by financing activities of $859.4 million during the nine months ended September 30, 2021.

During the nine months ended September 30, 2022, cash used in financing activities primarily consisted of $172.6 million used in the redemption of subsidiary temporary equity and distributions, $90.4 million used to pay dividends on our common shares, $60.9 million used in the repayment of term loan, $6.7 million used in payment of employment taxes on vesting of restricted stock, $6.0 million used to pay dividends on our preferred shares, $5.3 million used in repayment of revolving line of credit, $3.4 million in distributions to noncontrolling interests, $1.4 million used in the payment of debt issuance and offering costs, $0.7 million used in the payment of contingent consideration, and $0.4 million used to repay our notes payable, partially offset by cash provided by $275.7 million in proceeds from borrowings under a term loan, $51.2 million in proceeds from issuance of senior notes, $11.4 million in contributions from noncontrolling interests, and $0.6 million in proceeds from issuance of preferred stock.

During the nine months ended September 30, 2021, cash provided by financing activities primarily consisted of $890.6 million in proceeds from issuance of senior notes, $345.0 million in proceeds from initial public offering of subsidiaries, $200.0 million in proceeds from the Nomura term loan, $80.0 million in proceeds from Nomura revolving credit line, $64.7 million in net proceeds from issuance of common stock, $14.0 million in net proceeds from offerings of preferred stock and $12.7 million contributions from noncontrolling interests, partially offset by $390.5 million used to repurchase our senior notes, $236.6 million used to pay dividends on our common shares, $37.6 million used to repay our notes payable, $31.0 million used to pay debt issuance costs, $16.1 million used for repayment on our BRPAC term loan, $15.7 million in distributions to noncontrolling interests, $10.5 million used to pay employment taxes on vesting of restricted stock, $5.5 million used to pay dividends on our preferred shares, $2.7 million used in the repurchase of common stock, and $1.6 million used to pay for contingent consideration.

Credit Agreements

Pathlight Credit Agreement

On September 23, 2022, our subsidiary, B.

Riley Receivables II, LLC, a Delaware limited liability company (the “Borrower”), entered into a credit agreement (the “Pathlight Credit Agreement”) by and among PLC Agent, LLC in the capacity as administrative agent and Pathlight Capital Fund I LP, Pathlight Capital Fund II LP, and Pathlight Capital Fund III LP as the lenders (collectively, “Pathlight”) for a five-year $148.2 million term loan.

The Pathlight Credit Agreement was entered in connection with the purchase of the 2022 Badcock Receivable.

The term loan bears interest on the outstanding principal amount equal to the Term SOFR rate plus an applicable margin of 6.50%.

As of September 30, 2022, the interest rate on the Pathlight Credit Agreement was 10.00%.

The Pathlight Credit Agreement contains certain covenants, including those limiting the Borrower’s ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of their businesses, engage in transactions with related parties, make certain investments or pay dividends.

The Pathlight Credit Agreement also contains customary representations and warranties, affirmative covenants, and events of default, including payment defaults, breach of representations and warranties, covenant defaults and cross defaults.

If an event of default occurs, the agent would be

entitled to take various actions, including the acceleration of amounts due under the outstanding Pathlight Credit Agreement.

Principal outstanding under the Pathlight Credit Agreement is repaid based on collections of the 2022 Badcock Receivable less other application of payments as defined in the Pathlight Credit Agreement and the remaining principal balance is due at final maturity on September 23, 2027.

As of September 30, 2022, the outstanding balance on the term loan was $144.6 million (net of unamortized debt issuance costs of $3.6 million).

Interest expense on the term loan during the three and nine months ended September 30, 2022 was $0.4 million (including amortization of deferred debt issuance costs of $0.1 million).

Lingo Credit Agreement

On August 16, 2022, our subsidiary, Lingo, a Delaware limited liability company, (the “Borrower”) entered into a credit agreement (the “Lingo Credit Agreement”) by and among the borrower, the Company as the secured guarantor, and Banc of California, N.A.

in its capacity as administrative agent and lender, for a five-year $45.0 million term loan.

On September 9, 2022, Lingo entered into the First Amendment to the Lingo Credit Agreement with Grasshopper Bank (the “New Lender”) for an incremental term loan of $7.5 million, increasing the principal balance of the term loan to $52.5 million.

The term loan bears interest on the outstanding principal amount equal to the Term SOFR rate plus a margin of 3.00% to 3.75% per annum, depending on the consolidated total funded debt ratio as defined in the Lingo Credit Agreement, plus applicable spread adjustment.

As of September 30, 2022, the interest rate on the Lingo Credit Agreement was 6.29%.

The agreement contains certain covenants, including those limiting the Borrower’s ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of their businesses, engage in transactions with related parties, make certain investments or pay dividends.

In addition, the agreement requires the Borrower to maintain certain financial ratios.

The agreement also contains customary representations and warranties, affirmative covenants, and events of default, including payment defaults, breach of representations and warranties, covenant defaults and cross defaults.

If an event of default occurs, the agent would be entitled to take various actions, including the acceleration of amounts due under the outstanding agreement.

Principal outstanding is due in quarterly installments starting on March 31, 2023.

Quarterly installments from March 31, 2023 to December 31, 2023 are in the amount of $1.6 million per quarter, from March 31, 2024 to December 31, 2024 are in the amount of $2.0 million per quarter, from March 31, 2025 to June 30, 2027 are in the amount of $2.6 million, and the remaining principal balance is due at final maturity on August 16, 2027.

As of September 30, 2022, the outstanding balance on the term loan was $51.6 million (net of unamortized debt issuance costs of $0.9 million).

Interest expense on the term loan during the three and nine months ended September 30, 2022 was $0.4 million (including amortization of deferred debt issuance costs of $0.03 million).

Nomura Credit Agreement

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Quarterly installments from September 30, 2022 to March 31, 2025 are in the amount of $3.8 million per quarter.

As of June 30, 2022 and December 31, 2021, the outstanding balances on the Term Loan Facility and Incremental Facility were $293.7 million (net of unamortized debt issuance costs of $6.3 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 June 30, 2022 and 2021 was $4.7 million (including amortization of deferred debt issuance costs of $0.5 million) and $0.2 million (including amortization of deferred debt issuance costs of $0.03 million), respectively.

Interest on the term loan during the six months ended June 30, 2022 and 2021 was $8.8 million (including amortization of deferred debt issuance costs of $1.0 million) and $0.2 million (including amortization of deferred debt issuance costs of $0.03 million), respectively.

The interest rate on the term loan as of June 30, 2022 and December 31, 2021 was 6.65% and 4.72%, respectively.

We had an outstanding balance of $80.0 million under the Revolving Credit Facility as of June 30, 2022 and December 31, 2021.

Interest on the revolving facility during the three and six months ended June 30, 2022 was $1.2 million (including amortization of deferred financing costs of $0.1 million) and $2.3 million (including amortization of deferred financing costs of $0.3 million), respectively.

The unused commitment fee on the revolving facility for the three and six months ended June 30, 2021 was $0.03 million (including amortization of deferred financing costs of $0.01 million).

The interest rate on the Revolving Credit Facility as of June 30, 2022 and December 31, 2021 was 6.13% and 4.67%, respectively.

We are in compliance with all financial covenants in the Credit Agreement as of June 30, 2022.

As of September 30, 2022 and December 31, 2021, the outstanding balances on the Term Loan Facility and Incremental Facility were $290.4 million (net of unamortized debt issuance costs of $5.8 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 September 30, 2022 and 2021 was $5.7 million (including amortization of deferred debt issuance costs of $0.5 million) and $2.7 million (including amortization of deferred debt issuance costs of $0.4 million), respectively.

Interest on the term loan during the nine months ended September 30, 2022 and 2021 was $14.6 million (including amortization of deferred debt issuance costs of $1.5 million) and $3.0 million (including amortization of deferred debt issuance costs of $0.4 million), respectively.

The interest rate on the term loan as of September 30, 2022 and December 31, 2021 was 8.10% and 4.72%, respectively.

We had an outstanding balance of $74.7 million and $80.0 million under the Revolving Credit Facility as of September 30, 2022 and December 31, 2021, respectively.

Interest on the revolving facility during the three months ended September 30, 2022 and 2021 was $1.4 million (including unused commitment fee of $0.01 million and amortization of deferred financing costs of $0.1 million) and $0.8 million (including unused commitment fee of $0.1 million and amortization of deferred financing costs of $0.1 million), respectively.

Interest on the revolving facility during the nine months ended September 30, 2022 and 2021 was $3.7 million (including unused commitment fee of $0.01 million and amortization of deferred financing costs of $0.4 million) and $0.8 million (including unused commitment fee of $0.08 million and amortization of deferred financing costs of $0.2 million).

The interest rate on the revolving facility as of September 30, 2022 and December 31, 2021 was 7.64% and 4.67%, respectively.

Wells Fargo Credit Agreement

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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.

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.

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 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 June 30, 2022 and December 31, 2021.

As of June 30, 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 June 30, 2022.

There was no outstanding balance on this credit facility as of September 30, 2022 and December 31, 2021.

As of September 30, 2022 and December 31, 2021, there were no open letters of credit outstanding.

BRPAC Credit Agreement

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(i) the Lenders agreed to make a new $75.0 million term loan to the Borrowers, the proceeds of which the Borrowers’ used to repay the outstanding principal amount of the existing terms loans and optional loans and will use for other general corporate purposes, (ii) a new applicable margin level of 3.50% was established as set forth from the date of the Fourth Amendment, (iii) Marconi Wireless Holdings, LLC was added to the Borrowers, (iv) the maturity date of the term loan was set to June 30, 2027, and (v) the Borrowers were permitted to make certain distributions to the parent company of the Borrowers.

The borrowings under the amended BRPAC Credit Agreement bear interest equal to the SOFR rate plus a margin of 2.75% to 3.50% per annum, depending on the Borrowers’ consolidated total funded debt ratio as defined in the BRPAC

Credit Agreement.

As of June 30, 2022 and December 31, 2021, the interest rate on the amended BRPAC Credit Agreement was at 4.66% and 3.17%, respectively.

The borrowings under the amended BRPAC Credit Agreement bear interest equal to the Term SOFR rate plus a margin of 2.75% to 3.50% per annum, depending on the Borrowers’ consolidated total funded debt ratio as defined in the BRPAC Credit Agreement.

As of September 30, 2022 and December 31, 2021, the interest rate on the amended BRPAC Credit Agreement was at 6.04% and 3.17%, respectively.

Principal outstanding under the amended BRPAC Credit Agreement is due in quarterly installments.

Quarterly installments from September 30, 2022 to December 31, 2022 are in the amount of $2.8 million per quarter, from March 31, 2023 to December 31, 2023 are in the amount of $4.7 million per quarter, from March 31, 2024 to December 31, 2026 are in the amount of $3.8 million per quarter, on March 31, 2027 is in the amount of $2.8 million, and the remaining principal balance is due at final maturity on June 30, 2027 .

As of June 30, 2022 and December 31, 2021, the outstanding balance on the term loan was $74.1 million (net of unamortized debt issuance costs of $0.9 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 June 30, 2022 and 2021 was $0.6 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.

Interest expense on the term loan during the six months ended June 30, 2022 and 2021 was $0.6 million (including amortization of deferred debt issuance costs of $0.1 million ) and $1.4 million (including amortization of deferred debt issuance costs of $0.2 million), respectively.

We are in compliance with all financial covenants in the amended BRPAC Credit Agreement as of June 30, 2022.

Quarterly installments on December 31, 2022 are in the amount of $2.8 million, from March 31, 2023 to December 31, 2023 are in the amount of $4.7 million per quarter, from March 31, 2024 to December 31, 2026 are in the amount of $3.8 million per quarter, on March 31, 2027 is in the amount of $2.8 million, and the remaining principal balance is due at final maturity on June 30, 2027 .

As of September 30, 2022 and December 31, 2021, the outstanding balance on the term loan was $71.4 million (net of unamortized debt issuance costs of $0.8 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 September 30, 2022 and 2021 was $1.1 million (including amortization of deferred debt issuance costs of $0.1 million ) and $0.6 million (including amortization of deferred debt issuance costs of $0.07 million), respectively.

Interest expense on the term loan during the nine months ended September 30, 2022 and 2021 was $2.2 million (including amortization of deferred debt issuance costs of $0.3 million) and $1.9 million (including amortization of deferred debt issuance costs of $0.2 million), respectively.

Senior Note Offerings

During the three months ended June 30, 2022 and 2021, we issued $15.8 million and $72.5 million, respectively, of senior notes, and during the six months ended June 30, 2022 and 2021, we issued $35.9 million and $85.3 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.

During the three months ended September 30, 2022 and 2021, we issued $15.4 million and $97.7 million, respectively, of senior notes, and during the nine months ended September 30, 2022 and 2021, we issued $51.3 million and $183.0 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.

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A series of prospectus supplements were filed by the Company with the SEC which allowed the Company to sell these senior notes.

As of June 30, 2022 and December 31, 2021, the total senior notes outstanding was $1,644.8 million (net of unamortized debt issue costs of $19.1 million) and $1,606.6 million (net of unamortized debt issue costs of $21.5 million) with a weighted average interest rate of 5.70% and 5.69%, respectively.

As of September 30, 2022 and December 31, 2021, the total senior notes outstanding was $1,661.2 million (net of unamortized debt issue costs of $18.2 million) and $1,606.6 million (net of unamortized debt issue costs of $21.5 million) with a weighted average interest rate of 5.70% and 5.69%, respectively.

Interest on senior notes is payable on a quarterly basis.

Interest expense on senior notes totaled $24.7 million and $20.0 million for the three months ended June 30, 2022 and 2021, respectively, and totaled $49.1 million and $38.6 million for the six months ended June 30, 2022 and 2021, respectively.

Interest expense on senior notes totaled $25.1 million and $21.5 million for the three months ended September 30, 2022 and 2021, respectively, and totaled $74.2 million and $60.0 million for the nine months ended September 30, 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 June 30, 2022, and December 31, 2021 the Company had $76.0 million and $111.9 million, respectively, remaining availability under the January 2022 Sales Agreement.

As of September 30, 2022, and December 31, 2021 the Company had $60.6 million and $111.9 million, respectively, remaining availability under the January 2022 Sales Agreement.

Off Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis