BRC Group Holdings, Inc. 10-K

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “future,” “intend,” “seek,” “likely,” “potential” or “continue,” the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we, nor any other person, assume responsibility for the accuracy and completeness of the forward-looking statements. Except as required by law we 49 Table of Contents are under no obligation to update any of the forward-looking statements after the filing of this Annual Report to conform such statements to actual results or to changes in our expectations. The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this Annual Report. Readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including without limitation the disclosures made in Item 1A of Part II of this Annual Report under the caption “Risk Factors.” Risk factors that could cause actual results to differ from those contained in the forward-looking statements include but are not limited to risks related to: volatility in our revenues and results of operations; changing conditions in the financial markets; our ability to generate sufficient revenues to achieve and maintain profitability; our exposure to credit risk; the short term nature of our engagements; the accuracy of our estimates and valuations of inventory or assets in “guarantee” based engagements; failure to successfully compete in any of our businesses; potential losses related to our auction or liquidation engagements; our dependence on communications, information and other systems and third parties; potential losses related to purchase transactions in our auction and liquidations business; the potential loss of financial institution clients; potential losses from or illiquidity of our proprietary investments; changing economic and market conditions, including increasing inflation and actions by the Federal Reserve to address inflation and the possibility of recession or an economic downturn; the continuing effects of the COVID-19 pandemic, or other pandemics or severe public health crises, and other related impacts including supply chain disruptions, labor shortages and increased labor costs; potential liability and harm to our reputation if we were to provide an inaccurate appraisal or valuation; potential mark-downs in inventory in connection with purchase transactions; loss of key personnel; our ability to borrow under our credit facilities or at-the-market offering as necessary; failure to comply with the terms of our credit agreements or senior notes; our ability to meet future capital requirements; our ability to realize the benefits of our completed acquisitions, including our ability to achieve anticipated opportunities and cost savings, and accretion to reported earnings estimated to result from completed and proposed acquisitions in the time frame expected by management or at all; the diversion of management time on acquisition-related issues; the failure of our brand investment portfolio licensees to pay us royalties; and the effect of geopolitical instability, including wars, conflicts and terrorist attacks, including the impacts of Russia’s invasion of Ukraine. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Except as otherwise required by the context, references in this Annual Report to the “Company,” “B. Riley,” “B. Riley Financial,” “we,” “us” or “our” refer to the combined business of B. Riley Financial, Inc. and all of its subsidiaries. Overview Restatement of Previously Issued Consolidated Financial Statements: We identified a classification error of dividend income and realized and unrealized gains (losses) on certain investments within revenue in our consolidated statement of operations. The classification error had no impact on our consolidated balance sheet, consolidated statements of equity, and cash flows. We have restated our previously issued consolidated financial statements contained in this Annual Report on Form 10-K. Refer to the “Explanatory Note” preceding Item 1, Business, for background on the restatement, the fiscal periods impacted, control considerations, and other information. In addition, we have restated certain previously reported financial information for the years ended December 31, 2021 and 2020 in this Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, including but not limited to information within the Results of Operations and Revenue sections. The classification error had no impact on our consolidated balance sheet, consolidated statements of equity, and cash flows for the years ended December 31, 2021 and 2020. Note 2 to our consolidated financial statements illustrates the impact of the classification error to our consolidated financial statements for the years ended December 31, 2021 and 2020. Description of the Company B. Riley Financial, Inc. (Nasdaq: RILY) (the “Company”) is a diversified financial services platform that delivers tailored solutions to meet the strategic, operational, and capital needs of its clients and partners. We operate through several consolidated subsidiaries (collectively, “B. Riley”) that provide investment banking, brokerage, wealth management, asset management, direct lending, business advisory, valuation, and asset disposition services to a broad client base spanning 50 Table of Contents public and private companies, financial sponsors, investors, financial institutions, legal and professional services firms, and individuals. The Company opportunistically invests in and acquires companies or assets with attractive risk-adjusted return profiles to benefit our shareholders. We own and operate several uncorrelated consumer businesses and invest in brands on a principal basis. Our approach is focused on high quality companies and assets in industries in which we have extensive knowledge and can benefit from our experience to make operational improvements and maximize free cash flow. Our principal investments often leverage the financial, restructuring, and operational expertise of our professionals who work collaboratively across disciplines. We refer to B. Riley as a “platform” because of the unique composition of our business. Our platform has grown considerably and become more diversified over the past several years. We have increased our market share and expanded the depth and breadth of our businesses both organically and through opportunistic acquisitions. Our increasingly diversified platform enables us to invest opportunistically and to deliver strong long-term investment performance throughout a range of economic cycles. We are headquartered in Los Angeles, California and maintain offices throughout the U.S. including in New York, Chicago, Metro District of Columbia, Atlanta, Boston, Dallas, Metro Detroit, Houston, Memphis, Miami, San Francisco, Boca Raton, and West Palm Beach. We report our activities in six reportable business segments: Capital Markets, Wealth Management, Financial Consulting, Auction and Liquidation, Communications, and Consumer segment. During the fourth quarter of 2022, we realigned our segment reporting structure to reflect organizational changes from recent acquisitions and the manner in which capital is allocated. The Consumer segment includes the previously reported Brands segment and Targus, which we acquired in the fourth quarter of 2022. We have also re-aligned our previously reported Principal Investments - Communications and Other segment into the Communications segment and the All Other category that is reported with Corporate and Other. Recent Developments On October 18, 2022, we acquired all of the issued and outstanding shares of Targus in a transaction pursuant to a Securities Purchase Agreement (the “Purchase Agreement”). The purchase price consideration totaled $247.5 million, which consisted of $112.7 million in cash, $54.0 million in seller financing, $59.0 million in 6.75% senior notes due 2024, $15.3 million in the issuance of the Company's common stock and stock options, and $6.5 million in deferred payments. In accordance with Accounting Standards Codification (“ASC”) 805, we used the acquisition method of accounting for this acquisition. Goodwill of $75.8 million and other intangible assets of $89.0 million were recorded as a result of the acquisition. The acquisition offers the potential for accretive growth to our dividend capacity and complements our existing investments in our Consumer segment. To finance part of the acquisition, on October 18, 2022, we entered into a credit agreement with PNC Bank, National Association (“PNC”), as agent and security trustee for a five-year $28.0 million term loan and a five-year $85.0 million revolver loan. 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 or an economic downturn, 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. If the financial markets and/or the overall economy continue to be impacted, our results of operations, financial position, and cash flows may be materially adversely affected. Results of Operations The following period to period comparisons of our financial results and our interim results are not necessarily indicative of future results. Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 51 Table of Contents Consolidated Statements of Operations (Dollars in thousands) Year Ended December 31, 2022 Year Ended December 31, 2021 Change Amount % Amount % Amount % (As restated) Revenues: Services and fees $ 895,623 82.9 % $ 1,153,225 74.2 % $ (257,602) (22.3) % Trading (loss) income and fair value adjustments on loans (202,628) (18.8) % 220,545 14.2 % (423,173) (191.9) % Interest income - Loans and securities lending 245,400 22.7 % 122,723 7.9 % 122,677 100.0 % Sale of goods 142,275 13.2 % 58,205 3.7 % 84,070 144.4 % Total revenues 1,080,670 100.0 % 1,554,698 100.0 % (474,028) (30.5) % Operating expenses: Direct cost of services 142,455 13.2 % 54,390 3.5 % 88,065 161.9 % Cost of goods sold 78,647 7.3 % 26,953 1.8 % 51,694 191.8 % Selling, general and administrative expenses 714,614 66.1 % 906,196 58.3 % (191,582) (21.1) % Restructuring charge 9,011 0.8 % — — % 9,011 100.0 % Interest expense - Securities lending and loan participations sold 66,495 6.2 % 52,631 3.4 % 13,864 26.3 % Total operating expenses 1,011,222 93.6 % 1,040,170 66.9 % (28,948) (2.8) % Operating income 69,448 6.4 % 514,528 33.1 % (445,080) (86.5) % Other income (expense): Interest income 2,735 0.3 % 229 — % 2,506 n/m Dividend income 35,874 3.3 % 19,732 1.3 % 16,142 81.8 % Realized and unrealized gains (losses) on investments (201,079) (18.6) % 166,131 10.7 % (367,210) n/m Change in fair value of financial instruments and other 10,188 0.9 % 3,796 0.2 % 6,392 168.4 % Income from equity method investments 3,570 0.3 % 2,801 0.2 % 769 27.5 % Interest expense (141,186) (13.1) % (92,455) (5.9) % (48,731) 52.7 % (Loss) income before income taxes (220,450) (20.4) % 614,762 39.5 % (835,212) (135.9) % Benefit from (provision for) income taxes 63,856 5.9 % (163,960) (10.5) % 227,816 (138.9) % Net (loss) income (156,594) (14.5) % 450,802 29.0 % (607,396) (134.7) % Net income attributable to noncontrolling interests and redeemable noncontrolling interests 3,235 0.3 % 5,748 0.4 % (2,513) (43.7) % Net (loss) income attributable to B. Riley Financial, Inc. (159,829) (14.8) % 445,054 28.6 % (604,883) (135.9) % Preferred stock dividends 8,008 0.7 % 7,457 0.5 % 551 7.4 % Net (loss) income available to common shareholders $ (167,837) (15.5) % $ 437,597 28.1 % $ (605,434) (138.4) % 52 Table of Contents n/m - Not applicable or not meaningful. Revenues The table below and the discussion that follows are based on how we analyze our business. Year Ended December 31, 2022 Year Ended December 31, 2021 Change Amount % Amount % Amount % (As Restated) Revenues - Services and fees Capital Markets segment $ 292,933 27.1 % $ 555,585 35.7 % $ (262,652) (47.3) % Wealth Management segment 230,735 21.4 % 374,361 24.1 % (143,626) (38.4) % Auction and Liquidation segment 12,581 1.2 % 20,169 1.3 % (7,588) (37.6) % Financial Consulting segment 98,508 9.1 % 94,312 6.1 % 4,196 4.4 % Communications segment 228,129 21.1 % 88,490 5.7 % 139,639 157.8 % Consumer segment 18,940 1.8 % 20,308 1.3 % (1,368) (6.7) % All Other 13,797 1.3 % — — % 13,797 100.0 % Subtotal 895,623 82.9 % 1,153,225 74.2 % (257,602) (22.3) % Revenues - Sale of goods Auction and Liquidation segment 56,928 5.3 % 53,348 3.4 % 3,580 6.7 % Communications segment 7,526 0.7 % 4,857 0.3 % 2,669 55.0 % Consumer segment 77,821 7.2 % — — % 77,821 100.0 % Subtotal 142,275 13.2 % 58,205 3.7 % 84,070 144.4 % Trading (loss) income and fair value adjustments on loans Capital Markets segment (206,150) (19.1) % 212,922 13.7 % (419,072) (196.8) % Wealth Management segment 3,522 0.3 % 7,623 0.5 % (4,101) (53.8) % Subtotal (202,628) (18.8) % 220,545 14.2 % (423,173) (191.9) % Interest income - Loans and securities lending Capital Markets segment 240,813 22.3 % 122,723 7.9 % 118,090 96.2 % Auction and Liquidation segment 4,587 0.4 % — — % 4,587 100.0 % Subtotal 245,400 22.7 % 122,723 7.9 % 122,677 100.0 % Total revenues $ 1,080,670 100.0 % $ 1,554,698 100.0 % $ (474,028) (30.5) % n/m - Not applicable or not meaningful. Total revenues decreased approximately $474.0 million to $1,080.7 million during the year ended December 31, 2022 from $1,554.7 million during the year ended December 31, 2021. The decrease in revenues during the year ended December 31, 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 $423.2 million and a decrease in revenue from services and fees of $257.6 million, partially offset by an increase in revenue from sale of goods of $84.1 million and an increase in revenue from interest income - loans and securities lending of $122.7 million. The decrease in the fair value of the portfolio of securities 53 Table of Contents and other investments owned during the year ended December 31, 2022 was primarily due to the decrease in overall values in the stock market. The decrease in revenue from services and fees of $257.6 million was primarily due to decreases in revenue of $262.7 million in the Capital Markets segment, $143.6 million in the Wealth Management segment, $7.6 million in the Auction and Liquidation segment, and $1.4 million in the Consumer segment, partially offset by increases of $139.6 million in the Communications segment, $13.8 million in All Other, and $4.2 million in the Financial Consulting segment. Revenues from services and fees in the Capital Markets segment decreased approximately $262.7 million, to $292.9 million during the year ended December 31, 2022 from $555.6 million during the year ended December 31, 2021. The decrease in revenues was primarily due to decreases in revenue of $314.3 million from corporate finance, consulting and investment banking fees, partially offset by increases of $43.3 million in asset management fees and $8.0 million which is primarily comprised of interest and other income earned on our investments. Revenues from services and fees in the Wealth Management segment decreased $143.6 million, to $230.7 million during the year ended December 31, 2022 from $374.4 million during the year ended December 31, 2021. The decrease in revenues was primarily due to decreases in revenue of $83.1 million from wealth and asset management fees, $48.5 million in commission fees, and $11.0 million in other asset management fees. Revenues from services and fees in the Auction and Liquidation segment decreased $7.6 million, to $12.6 million during the year ended December 31, 2022 from $20.2 million during the year ended December 31, 2021. The decrease in revenues was primarily due to fewer retail fee liquidation engagements during the year ended December 31, 2022 as compared to prior year. Revenues from services and fees in the Financial Consulting segment increased $4.2 million, to $98.5 million during the year ended December 31, 2022 from $94.3 million during the year ended December 31, 2021. The increase in revenues was primarily due to increases of $2.4 million within our Real Estate division and $1.8 million within our Advisory Services division. Revenues from services and fees in the Communications segment increased $139.6 million to $228.1 million during the year ended December 31, 2022 from $88.5 million during the year ended December 31, 2021. The increase in revenues was primarily due to $66.6 million from the consolidation of Lingo as a result of obtaining a majority interest in the second quarter of 2022, $44.6 million from the acquisition of BullsEye Telecom (“BullsEye”) in the third quarter of 2022, and $36.3 million from the inclusion of a full year of operating results from the acquisition of Marconi Wireless that occurred in the fourth quarter of 2021, partially offset by a decrease in revenues of $7.8 million from UOL and magicJack subscription services. We expect the Marconi Wireless, UOL and magicJack subscription revenues to continue to decline year over year. Revenues from services and fees in the Consumer segment decreased approximately $1.4 million, to $18.9 million during the year ended December 31, 2022 from $20.3 million during the year ended December 31, 2021. The primary source of services and fees revenue included in this segment is the licensing of trademarks. Revenues from services and fees in All Other, which includes the operations of a regional environmental services business and a landscaping business that we acquired in 2022, was approximately $13.8 million during the year ended December 31, 2022. Trading income and fair value adjustments on loans decreased $423.2 million to a loss of $202.6 million during the year ended December 31, 2022 compared to income of $220.5 million during the year ended December 31, 2021. This was primarily due to decreases of $419.1 million in the Capital Markets segment and $4.1 million in the Wealth Management segment. The loss of $202.6 million during the year ended December 31, 2022 was primarily due to realized and unrealized losses on investments made in our proprietary trading accounts of $148.3 million and unrealized losses on the fair value of our loans receivable of $54.3 million. Interest income – loans and securities lending increased $122.7 million, to $245.4 million during the year ended December 31, 2022 from $122.7 million during the year ended December 31, 2021. This was primarily due to increases of $118.1 million in the Capital Markets segment and $4.6 million in the Auction and Liquidation segment. Interest income from securities lending was $83.1 million and $49.8 million during the year ended December 31, 2022 and 2021, respectively. Interest income from loans was $162.3 million and $39.5 million during the year ended December 31, 2022 54 Table of Contents and 2021, respectively. The increase in interest income on loans was primarily due to $93.1 million in interest from our loan receivable collateralized by the Badcock receivables portfolio, which was first made in December 2021. Revenues – Sale of Goods Revenues from the sale of goods increased $84.1 million, to $142.3 million during the year ended December 31, 2022 from $58.2 million during the year ended December 31, 2021. The increase in revenues from sale of goods was primarily due to increases of $77.8 million from the acquisition of Targus in the fourth quarter of 2022, $3.6 million from the sales of retail goods related to retail liquidation engagements, and $3.2 million in sales of Marconi Wireless devices, partially offset by a decrease of $0.5 million in sales of magicJack devices. Cost of goods sold during the year ended December 31, 2022 and 2021 was $78.6 million and $27.0 million, respectively, resulting in a gross margin of 44.7% and 53.7%, respectively. Operating Expenses Direct Cost of Services Direct costs increased $88.1 million, to $142.5 million during the year ended December 31, 2022 from $54.4 million during the year ended December 31, 2021. Direct costs of services increased $85.0 million in the Communications segment and $9.8 million in All Other, which is from the operations of a regional environmental services business and a landscaping business that we acquired in 2022, partially offset by a decrease of $6.8 million in the Auction and Liquidation segment. The increase in the Communications segment was primarily due to increases of $45.5 million from the inclusion of Lingo from May 31, 2022 to December 31, 2022 as a result of our acquisition of a majority equity interest in the second quarter of 2022, $14.1 million from the acquisition Marconi Wireless in the fourth quarter of 2021, and $27.9 million from the acquisition of BullsEye in the third quarter of 2022, partially offset by decreases of $1.5 million and $1.2 million in magicJack and UOL, respectively. The increase in the All Other category consists of other acquisitions made during 2022. The decrease in the Auction and Liquidation segment was primarily due to a large retail liquidation engagement in Europe in 2021. Selling, General and Administrative Expenses Selling, general and administrative expenses during the years ended December 31, 2022 and 2021 were comprised of the following: Year Ended December 31, 2022 Year Ended December 31, 2021 Change Amount % Amount % Amount % Capital Markets segment $ 179,499 25.1 % $ 347,591 38.4 % $ (168,092) (48.4) % Wealth Management segment 263,622 36.9 % 366,050 40.3 % (102,428) (28.0) % Auction and Liquidation segment 19,683 2.7 % 14,069 1.6 % 5,614 39.9 % Financial Consulting segment 82,196 11.5 % 77,418 8.5 % 4,778 6.2 % Communications segment 84,001 11.8 % 36,240 4.0 % 47,761 131.8 % Consumer segment 22,737 3.2 % 5,923 0.7 % 16,814 n/m Corporate and Other 62,876 8.8 % 58,905 6.5 % 3,971 6.7 % Total selling, general & administrative expenses $ 714,614 100.0 % $ 906,196 100.0 % $ (191,582) (21.1) % Total selling, general and administrative expenses decreased $191.6 million to $714.6 million during the year ended December 31, 2022 from $906.2 million during the year ended December 31, 2021. The decrease of $191.6 million in selling, general and administrative expenses was due to decreases of $168.1 million in the Capital Markets segment, $102.4 million in the Wealth Management segment, partially offset by increases of $47.8 million in the Communications segment, $16.8 million in the Consumer segment, $5.6 million in the Auction and Liquidation segment, $4.8 million in the Financial Consulting segment, and $4.0 million in Corporate and Other. 55 Table of Contents Capital Markets Selling, general and administrative expenses in the Capital Markets segment decreased by $168.1 million to $179.5 million during the year ended December 31, 2022 from $347.6 million during the year ended December 31, 2021. The decrease was primarily due to decreases of $104.2 million in consulting expenses and $71.5 million in payroll and related expenses, partially offset by an increase in depreciation and amortization of $6.4 million. Wealth Management Selling, general and administrative expenses in the Wealth Management segment decreased by $102.4 million to $263.6 million during the year ended December 31, 2022 from $366.1 million during the year ended December 31, 2021. The decrease was primarily due to decreases of $123.4 million in payroll and related expenses, partially offset by increases of $18.8 million in legal settlements and penalties and $1.0 million from the change in fair value change on contingent consideration. Auction and Liquidation Selling, general and administrative expenses in the Auction and Liquidation segment increased by $5.6 million to $19.7 million during the year ended December 31, 2022 from $14.1 million during the year ended December 31, 2021. The increase was primarily due to an increase of $5.0 million in other business development activities and an increase of $1.4 million in payroll and related expenses, partially offset by a decrease of $0.5 million in foreign currency fluctuations. Financial Consulting Selling, general and administrative expenses in the Financial Consulting segment increased by $4.8 million to $82.2 million during the year ended December 31, 2022 from $77.4 million during the year ended December 31, 2021. The increase was primarily due to increases of $3.9 million in payroll and related expenses, $1.3 million in travel and entertainment expenses, and $0.9 million in other expenses, partially offset by decreases of $1.6 million in legal expenses. Communications Selling, general and administrative expenses in the Communications segment increased by $47.8 million to $84.0 million during the year ended December 31, 2022 from $36.2 million during the year ended December 31, 2021. The increase was primarily due to increases of $25.0 million from the consolidation of Lingo as a result of obtaining a majority interest in the second quarter of 2022, $14.4 million from the acquisition of BullsEye in the third quarter of 2022, and $9.0 million from the acquisition of Marconi Wireless in the fourth quarter of 2021. Consumer Selling, general and administrative expenses in the Consumer segment increased by $16.8 million to $22.7 million during the year ended December 31, 2022 from $5.9 million during the year ended December 31, 2021. The increase was primarily due to the acquisition of Targus in the fourth quarter of 2022. Corporate and Other Selling, general and administrative expenses for the Corporate and Other increased $4.0 million to $62.9 million during the year ended December 31, 2022 from $58.9 million during the year ended December 31, 2021. The increase was primarily due to increases of $8.4 million in payroll and related expenses, $6.6 million of expenses from the operations of a regional environmental services business and a landscaping business that we acquired in 2022, $1.8 million in software and equipment expenses, and $1.1 million in accounting expenses, partially offset by the decrease of $6.5 million in gains on extinguishment of debt, $4.5 million in fair value change on contingent consideration, and $2.6 million in foreign currency fluctuations. Other Income (Expense). Other income included interest income of $2.7 million during the year ended December 31, 2022 compared to $0.2 million during the year ended December 31, 2021. Dividend income was $35.9 million during the year ended December 31, 2022 compared to $19.7 million during the year ended December 31, 2021. Realized and unrealized gains (losses) on investments was a loss of $201.1 million during the year ended December 31, 2022 compared to gains of $166.1 million during the year ended December 31, 2021. The decrease was primarily due to a decrease in 56 Table of Contents overall values of our investments. Change in fair value of financial instruments and other in the amount of $10.2 million during the year ended December 31, 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 Securities, LLC prior to its acquisition by the Company. Income on equity method investments was $3.6 million during the year ended December 31, 2022 compared to $2.8 million during the year ended December 31, 2021. Interest expense was $141.2 million during the year ended December 31, 2022 compared to $92.5 million during the year ended December 31, 2021. The increase in interest expense was due to additional debt incurred during the year ended December 31, 2022 and higher interest rates due to variable rates on certain of our outstanding debt. The increases in interest expense primarily consisted of $18.6 million related to the senior notes, $15.4 million related to the Nomura term loan, $5.3 million related to the Pathlight term loan, $3.5 million related to the Nomura revolver, $1.6 million related to the Lingo term loan, $0.8 million related to the Targus revolver, and $0.5 million related to the Targus term loan. (Loss) Income Before Income Taxes . Income (loss) before income taxes decreased $835.2 million to a loss of $220.5 million during the year ended December 31, 2022 from income of $614.8 million during the year ended December 31, 2021. The change was primarily due to a decrease in revenues of approximately $474.0 million, a change to realized and unrealized gains (losses) on investments of $367.2 million, and an increase in interest expense of $48.7 million, partially offset by a a decrease in operating expenses of $28.9 million, an increase in dividend income of $16.1 million, an increase in change in fair value of financial instruments and other of $6.4 million, an increase in interest income of $2.5 million, and an increase in income from equity method investments of $0.8 million. Benefit from (Provision for) Income Taxes. Benefit from income taxes was $63.9 million during the year ended December 31, 2022 compared to a provision for income taxes of $164.0 million during the year ended December 31, 2021. The effective income tax rate was a provision of 29.0% during the year ended December 31, 2022 as compared to a provision of 26.7% during the year ended December 31, 2021. Net Income Attributable to Noncontrolling Interest 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 $3.2 million during the year ended December 31, 2022 compared to $5.7 million during the year ended December 31, 2021. Net (Loss) Income Attributable to the Company . Net loss attributable to the Company during the year ended December 31, 2022 was $159.8 million compared to net income attributable to the Company of $445.1 million during the year ended December 31, 2021. The change was primarily due to a decrease in operating income of $445.1 million, a change to realized and unrealized gains (losses) on investments of $367.2 million, and an increase in interest expense of $48.7 million, partially offset by a change from provision for to benefit from income taxes of $227.8 million, an increase in dividend income of $16.1 million, an increase in change in fair value of financial instruments and other of $6.4 million, a decrease in net income attributable to noncontrolling interests and redeemable noncontrolling interests of $2.5 million, an increase in interest income of $2.5 million, and an increase in income from equity method investments of $0.8 million. Preferred Stock Dividends . Holders of Series A Preferred Stock, when and as authorized by the board of directors of the Company, are entitled to cumulative cash dividends at the rate of 6.875% per annum of the $25,000 liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,718.75 or $1.71875 per Depositary Share). Dividends are payable quarterly in arrears. On January 10, 2022, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on January 31, 2022 to holders of record as of the close of business on January 21, 2022. On April 7, 2022, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on April 29, 2022 to holders of record as of the close of business on April 19, 2022. 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). Dividends are payable quarterly in arrears. On January 10, 2022, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on January 31, 2022 to holders of record as of the close of business on January 21, 2022. On April 7, 2022, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on April 29, 2022 to holders of record as of the close of business on April 19, 2022. On July 7, 2022, the Company declared a cash dividend $0.4609375 per Depositary Share, 57 Table of Contents 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 during the year ended December 31, 2022 was $167.8 million compared to net income available to common shareholders of $437.6 million during the year ended December 31, 2021. The change was primarily due to a decrease in operating income of $445.1 million, a change to realized and unrealized gains (losses) on investments of $367.2 million, an increase in interest expense of $48.7 million, and an increase in preferred stock dividends of $0.6 million, partially offset by a change from provision for to benefit from income taxes of $227.8 million, an increase in dividend income of $16.1 million, an increase in change in fair value of financial instruments and other of $6.4 million, a decrease in net income attributable to noncontrolling interests and redeemable noncontrolling interests of $2.5 million, an increase in interest income of $2.5 million, and an increase in income from equity method investments of $0.8 million. Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 Consolidated Statements of Income (Dollars in thousands) (As Restated) Year Ended December 31, 2021 Year Ended December 31, 2020 Change Amount % Amount % Amount % Revenues: Services and fees $ 1,153,225 74.2 % $ 645,906 77.4 % $ 507,319 78.5 % Trading income and fair value adjustments on loans 220,545 14.2 % 56,677 6.8 % 163,868 n/m Interest income - Loans and securities lending 122,723 7.9 % 102,499 12.3 % 20,224 19.7 % Sale of goods 58,205 3.7 % 29,135 3.5 % 29,070 99.8 % Total revenues 1,554,698 100.0 % 834,217 100.0 % 720,481 86.4 % Operating expenses: Direct cost of services 54,390 3.5 % 60,451 7.2 % (6,061) (10.0) % Cost of goods sold 26,953 1.7 % 12,460 1.5 % 14,493 116.3 % Selling, general and administrative expenses 906,196 58.3 % 428,537 51.4 % 477,659 111.5 % Restructuring charge — — % 1,557 0.2 % (1,557) (100.0) % Impairment of tradenames — — % 12,500 1.5 % (12,500) (100.0) % Interest expense - Securities lending and loan participations sold 52,631 3.4 % 42,451 5.1 % 10,180 24.0 % Total operating expenses 1,040,170 66.9 % 557,956 66.9 % 482,214 86.4 % Operating income 514,528 33.1 % 276,261 33.1 % 238,267 86.2 % Other income (expense): Interest income 229 — % 564 0.1 % (335) (59.4) % Dividend income 19,732 1.3 % 21,163 2.5 % (1,431) (6.8) % Realized and unrealized gains (losses) on investments 166,131 10.7 % 47,341 5.7 % 118,790 n/m 58 Table of Contents Change in fair value of financial instruments and other 3,796 0.2 % — — % 3,796 100.0 % Income (loss) on equity method investments 2,801 0.2 % (623) (0.1) % 3,424 n/m Interest expense (92,455) (5.9) % (65,249) (7.8) % (27,206) 41.7 % Income before income taxes 614,762 39.5 % 279,457 33.5 % 335,305 120.0 % Provision for income taxes (163,960) (10.5) % (75,440) (9.0) % (88,520) 117.3 % Net income 450,802 29.0 % 204,017 24.5 % 246,785 121.0 % Net income (loss) attributable to noncontrolling interests and redeemable noncontrolling interests 5,748 0.4 % (1,131) (0.1) % 6,879 n/m Net income attributable to B. Riley Financial, Inc. 445,054 28.6 % 205,148 24.6 % 239,906 116.9 % Preferred stock dividends 7,457 0.5 % 4,710 0.6 % 2,747 58.3 % Net income available to common shareholders $ 437,597 28.1 % $ 200,438 24.0 % $ 237,159 118.3 % n/m - Not applicable or not meaningful. 59 Table of Contents Revenues The table below and the discussion that follows are based on how we analyze our business. (As Restated) Year Ended December 31, 2021 Year Ended December 31, 2020 Change Amount % Amount % Amount % Revenues - Services and fees Capital Markets segment $ 555,585 35.7 % $ 318,714 38.2 % $ 236,871 74.3 % Wealth Management segment 374,361 24.1 % 72,345 8.7 % 302,016 n/m Auction and Liquidation segment 20,169 1.3 % 63,101 7.6 % (42,932) (68.0) % Financial Consulting segment 94,312 6.1 % 91,622 11.0 % 2,690 2.9 % Communications segment 88,490 5.7 % 83,666 10.0 % 4,824 5.8 % Consumer segment 20,308 1.3 % 16,458 2.0 % 3,850 23.4 % Subtotal 1,153,225 74.2 % 645,906 77.4 % 507,319 78.5 % Revenues - Sale of goods Auction and Liquidation segment 53,348 3.4 % 25,663 3.1 % 27,685 107.9 % Communications segment 4,857 0.3 % 3,472 0.4 % 1,385 39.9 % Subtotal 58,205 3.7 % 29,135 3.5 % 29,070 99.8 % Trading income and fair value adjustments on loans Capital Markets segment 212,922 13.7 % 55,873 6.7 % 157,049 n/m Wealth Management segment 7,623 0.5 % 804 0.1 % 6,819 n/m Subtotal 220,545 14.2 % 56,677 6.8 % 163,868 n/m Interest income - Loans and securities lending Capital Markets segment 122,723 7.9 % 102,499 12.3 % 20,224 19.7 % Total revenues $ 1,554,698 100.0 % $ 834,217 100.0 % $ 720,481 86.4 % n/m - Not applicable or not meaningful. Total revenues increased approximately $720.5 million to $1,554.7 million during the year ended December 31, 2021 from $834.2 million during the year ended December 31, 2020. The increase in revenues during the year ended December 31, 2021 was primarily due to an increase in revenue from services and fees of $507.3 million, an increase in revenue from trading income and fair value adjustments on loans of $163.9 million, an increase in revenue from sale of goods of $29.1 million, and an increase in revenue from interest income - loans and securities lending of $20.2 million, as further described below. The increase in revenue from services and fees of $507.3 million was primarily due to increases in revenue of $302.0 million in the Wealth Management segment, $236.9 million in the Capital Markets segment, $4.8 million in the Communications segment, $3.9 million in the Consumer segment, and $2.7 million in the Financial 60 Table of Contents Consulting segment, partially offset by a decrease of $42.9 million in the Auction and Liquidation segment, as further described below. Revenues from services and fees in the Capital Markets segment increased approximately $236.9 million, to $555.6 million during the year ended December 31, 2021 from $318.7 million during the year ended December 31, 2020. The increase in revenues was primarily due to increases in revenue of $203.2 million from corporate finance, consulting and investment banking fees, $26.0 million from the acquisition of National, and $7.9 million primarily related to dividend income and other asset management fees. Revenues from services and fees in the Wealth Management segment increased $302.0 million, to $374.4 million during the year ended December 31, 2021 from $72.3 million during the year ended December 31, 2020. The increase in revenues was primarily due to increases in revenue of $280.9 million from the acquisition of National, $20.7 million from wealth and asset management fees, and $0.5 million in other income. Revenues from services and fees in the Auction and Liquidation segment decreased $42.9 million, to $20.2 million during the year ended December 31, 2021 from $63.1 million during the year ended December 31, 2020. 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 $2.7 million, to $94.3 million during the year ended December 31, 2021 from $91.6 million during the year ended December 31, 2020. The increase in revenues was primarily due to an increase in revenue of $2.4 million from advisory services. Revenues from services and fees in the Communications segment increased $4.8 million to $88.5 million during the year ended December 31, 2021 from $83.7 million during the year ended December 31, 2020. The increase in revenues was primarily due to $12.4 million from the acquisition of a mobile phone services business during Q4 2021, partially offset by a decrease in revenues of $7.6 million from subscription services. Revenues from services and fees in the Consumer segment increased approximately $3.9 million, to $20.3 million during the year ended December 31, 2021 from $16.5 million during the year ended December 31, 2020. The primary sources of revenue included in this segment are the licensing of trademarks. Trading income and fair value adjustments on loans increased $163.9 million to income of $220.5 million during the year ended December 31, 2021 compared to $56.7 million during the year ended December 31, 2020. This was primarily due to increases of $157.0 million in the Capital Markets segment and $6.8 million in the Wealth Management segment. The gain of $220.5 million during the year ended December 31, 2021 included realized and unrealized amounts earned on investments made in our proprietary trading accounts of $210.9 million and unrealized amounts on our loans receivable, at fair value of $9.6 million. Interest income – loans and securities lending increased $20.2 million, to $122.7 million during the year ended December 31, 2021 from $102.5 million during the year ended December 31, 2020. Interest income from securities lending was $66.1 million and $51.3 million during the year ended December 31, 2021 and 2020, respectively. Interest income from loans was $56.6 million and $51.2 million during the year ended December 31, 2021 and 2020, respectively. The increase in interest income on loans was primarily due to the increase in lending activities in our Capital Markets segment which included an increase in loans receivable to $873.2 million as of December 31, 2021 from $390.7 million as of December 31, 2020. Revenues – Sale of Goods Revenues from the sale of goods increased $29.1 million, to $58.2 million during the year ended December 31, 2021 from $29.1 million during the year ended December 31, 2020. Revenues from sale of goods were primarily attributable to $46.1 million of sales of retail goods related to retail liquidation engagements in Europe, $6.1 million of sales of retail goods related to a retail liquidation engagement in the U.S., and $2.7 million in sales of magicJack devices that were sold in connection with VoIP services, partially offset by a decrease of $25.7 million from sales of goods related to multiple liquidation engagements that ended in 2020. Cost of goods sold during the years ended December 31, 2021 and 2020 was $27.0 million and $12.5 million, respectively, resulting in a gross margin of 53.7% and 57.2%, respectively. 61 Table of Contents Operating Expenses Direct Cost of Services Total direct costs decreased $6.1 million, to $54.4 million during the year ended December 31, 2021 from $60.5 million during the year ended December 31, 2020. Direct costs of services decreased by $10.0 million in the Auction and Liquidation segment, partially offset by an increase of $4.0 million in the Communications segment. The decrease in direct costs in the Auction and Liquidation segment was primarily due to a decrease in the number of retail fee type engagements performed during the year ended December 31, 2021, partially offset by an increase of $11.7 million of direct costs incurred on a retail liquidation engagement in Europe, where we purchased inventory for resale and as part of the retail liquidation engagement we incurred costs related to the store operations which primarily related to expenses for occupancy, payroll and other store operating costs. Selling, General and Administrative Expenses Selling, general and administrative expenses during the years ended December 31, 2021 and 2020 were comprised of the following: Selling, General and Administrative Expenses Year Ended December 31, 2021 Year Ended December 31, 2020 Change Amount % Amount % Amount % Capital Markets segment $ 347,591 38.4 % $ 201,348 47.0 % $ 146,243 72.6 % Wealth Management segment 366,050 40.3 % 70,248 16.4 % 295,802 n/m Auction and Liquidation segment 14,069 1.6 % 12,359 2.9 % 1,710 13.8 % Financial Consulting segment 77,418 8.5 % 68,579 16.0 % 8,839 12.9 % Communications segment 36,240 4.0 % 31,363 7.3 % 4,877 15.6 % Consumer segment 5,923 0.7 % 5,747 1.3 % 176 3.1 % Corporate and Other segment 58,905 6.5 % 38,893 9.1 % 20,012 51.5 % Total selling, general & administrative expenses $ 906,196 100.0 % $ 428,537 100.0 % $ 477,659 111.5 % Total selling, general and administrative expenses increased $477.7 million to $906.2 million during the year ended December 31, 2021 from $428.5 million during the year ended December 31, 2020. The increase of $477.7 million in selling, general and administrative expenses was due to increases of $146.2 million in the Capital Markets segment, $295.8 million in the Wealth Management segment, $1.7 million in the Auction and Liquidation segment, $8.8 million in the Financial Consulting segment, $4.9 million in the Communications segment, $0.2 million in the Consumer segment, and $20.0 million in the Corporate and Other segment, as described below. Capital Markets Selling, general and administrative expenses in the Capital Markets segment increased by $146.2 million to $347.6 million during the year ended December 31, 2021 from $201.3 million during the year ended December 31, 2020. The increase was primarily due to increases of $85.4 million in payroll and related expenses, $32.1 million in consulting expenses, $18.7 million from the acquisition of National, and $10.3 million in investment banking deal expenses, partially offset by a decrease in depreciation and amortization of $0.3 million. Wealth Management Selling, general and administrative expenses in the Wealth Management segment increased by $295.8 million to $366.1 million during the year ended December 31, 2021 from $70.2 million during the year ended December 31, 2020. 62 Table of Contents The increase was primarily due to increases of $280.8 million from the acquisition of National and $16.7 million in payroll and related expenses, partially offset by decreases of $1.3 million in legal expenses and $0.5 million in other expenses. Auction and Liquidation Selling, general and administrative expenses in the Auction and Liquidation segment increased by $1.7 million to $14.1 million during the year ended December 31, 2021 from $12.4 million during the year ended December 31, 2020. The increase was primarily due to an increase of $3.5 million in other business development activities, partially offset by decreases of $0.7 million in payroll and related expenses, $0.6 million in outside contractors, and $0.4 million in foreign currency fluctuations. Financial Consulting Selling, general and administrative expenses in the Financial Consulting segment increased by $8.8 million to $77.4 million during the year ended December 31, 2021 from $68.6 million during the year ended December 31, 2020. The increase was primarily due to increases of $5.7 million in payroll and related expenses, $1.8 million in legal expenses, $0.7 million in other expenses, $0.6 million in travel and entertainment expenses, and $0.2 million in occupancy expenses. Communications Selling, general and administrative expenses in the Communications segment increased by $4.9 million to $36.2 million during the year ended December 31, 2021 from $31.4 million during the year ended December 31, 2020. The increase was primarily due to increases of $1.2 million in communications expenses, $0.9 million in payroll and related expenses, $0.8 million due to a legal settlement accrual release in 2020, $0.8 million in transaction costs, $0.7 million in other expenses, and $0.5 million in other business development activities expenses. Consumer Selling, general and administrative expenses in the Consumer segment increased by $0.2 million to $5.9 million during the year ended December 31, 2021 from $5.7 million during the year ended December 31, 2020. Corporate and Other Selling, general and administrative expenses for the Corporate and Other segment increased $20.0 million to $58.9 million during the year ended December 31, 2021 from $38.9 million during the year ended December 31, 2020. The increase was primarily due to increases of $18.9 million in payroll and related expenses, $8.0 million in gains on extinguishment of debt, and $4.0 million from the consolidation of special purpose acquisition corporations (“SPACs”), partially offset by decreases of $8.7 million in legal settlement accrual, primarily due to recording a pre-acquisition litigation claim related to one of our acquired subsidiaries, $1.8 million in other expenses, and $0.8 million in legal expenses. During the year ended December 31, 2021, we repurchased $513.8 million of our senior notes with an aggregate face value of $504.1 million, resulting in a loss net of expenses, premiums paid, and original issue discount of $6.5 million. The total redemption payments included approximately $6.5 million in accrued interest. During the year ended December 31, 2020, we repurchased bonds with an aggregate face value of $3.4 million for $1.8 million resulting in a gain net of expenses of $1.6 million. As part of the repurchase, we paid $0.03 million in interest accrued through the date of each respective repurchase. Impairment of tradenames . Due to the impact of the COVID-19 outbreak on economic activity and market volatility, we tested our intangible assets as of March 31, 2020 and June 30, 2020 and made the determination that the indefinite-lived tradenames in the Consumer segment were impaired and the Company recognized impairment charges of $12.5 million during the year ended December 31, 2020. There was no impairment recognized during the year ended December 31, 2021. Other Income (Expense). Other income included interest income of $0.2 million during the year ended December 31, 2021 compared to $0.6 million during the year ended December 31, 2020. Dividend income was $19.7 million during the year ended December 31, 2021 compared to $21.2 million during the year ended December 31, 2020. Realized and unrealized gains (losses) on investments was a gain of $166.1 million during the year ended December 31, 2021 compared 63 Table of Contents to a gain of $47.3 million during the year ended December 31, 2020. The increase was primarily due to an increase in overall values of our investments. Change in fair value of financial instruments and other in the amount of $3.8 million during the year ended December 31, 2021 was primarily due to a gain of $6.5 million from National PPP loans that were forgiven by the SBA, partially offset by a loss of $2.7 million due to changes in fair value of warrant liabilities. Income on equity method investments was $2.8 million during the year ended December 31, 2021 compared to a loss of $0.6 million during the year ended December 31, 2020. Interest expense was $92.5 million during the year ended December 31, 2021 compared to $65.2 million during the year ended December 31, 2020. The increase in interest expense was primarily due to increases in interest expense of $20.2 million from the issuance of senior notes, $5.9 million from the Nomura term loan, and $1.9 million from the Nomura revolver. Income Before Income Taxes . Income before income taxes increased $335.3 million to $614.8 million during the year ended December 31, 2021 from $279.5 million during the year ended December 31, 2020. The increase in income before income taxes was primarily due to increases in revenues of approximately $720.5 million, realized and unrealized gains (losses) on investments of $118.8 million, change in fair value of financial instruments and other of $3.8 million, and income from equity method investments of $3.4 million, partially offset by increases in operating expenses of $482.2 million, interest expense of $27.2 million, a decrease in dividend income of $1.4 million and a decrease in interest income of $0.3 million. Provision for Income Taxes. Provision for income taxes was $164.0 million during the year ended December 31, 2021 compared to $75.4 million during the year ended December 31, 2020. The effective income tax rate was a provision of 26.7% during the year ended December 31, 2021 as compared to a provision of 27.0% during the year ended December 31, 2020. Net Income (Loss) Attributable to Noncontrolling Interest and Redeemable Noncontrolling Interests . Net income attributable to noncontrolling interests and redeemable noncontrolling interests represents the proportionate share of net income (loss) generated by membership interests of partnerships that we do not own. The net income attributable to noncontrolling interests and redeemable noncontrolling interests was $5.7 million during the year ended December 31, 2021 compared to a net loss of $1.1 million during the year ended December 31, 2020. Net Income Attributable to the Company . Net income attributable to the Company during the year ended December 31, 2021 was $445.1 million, an increase of $239.9 million, from net income attributable to the Company of $205.1 million during the year ended December 31, 2020. The increase was primarily due to increases in operating income of $238.3 million, realized and unrealized gains (losses) on investments of $118.8 million, change in fair value of financial instruments and other of $3.8 million, and income from equity method investments of $3.4 million, partially offset by increases in provision for income taxes of $88.5 million, interest expense of $27.2 million, net income attributable to noncontrolling interests and redeemable noncontrolling interests of $6.9 million, a decrease in dividend income of $1.4 million, and a decrease in interest income of $0.3 million. Preferred Stock Dividends . Holders of Series A Preferred Stock, when and as authorized by the board of directors of the Company, are entitled to cumulative cash dividends at the rate of 6.875% per annum of the $25,000 liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,718.75 or $1.71875 per Depositary Share). Dividends are payable quarterly in arrears. On January 11, 2021, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on January 29, 2021 to holders of record as of the close of business on January 21, 2021. On April 5, 2021, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on April 30, 2021 to holders of record as of the close of business on April 20, 2021. On July 8, 2021, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on August 2, 2021 to holders of record as of the close of business on July 21, 2021. On October 6, 2021, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on November 1, 2021 to holders of record as of the close of business on October 21, 2021. Holders of Series B Preferred Stock, when and as authorized by the board of directors of the Company, are entitled to cumulative cash dividends at the rate of 7.375% per annum of the $25,000 liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,843.75 or $1.84375 per Depositary Share). Dividends are payable quarterly in arrears. On January 11, 2021, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on January 29, 2021 to holders of record as of the close of business on January 21, 2021. On April 5, 2021, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on April 30, 2021 to holders of record as of the close of business on April 20, 2021. On July 8, 2021, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on August 2, 2021 to holders of record as of the close of business on July 21, 2021. On October 6, 2021, 64 Table of Contents 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. Net Income Available to Common Shareholders . Net income available to common shareholders during the year ended December 31, 2021 was $437.6 million, an increase of $237.2 million, from net income available to common shareholders of $200.4 million during the year ended December 31, 2020. The increase was primarily due to increases in operating income of $238.3 million, realized and unrealized gains (losses) on investments of $118.8 million, change in fair value of financial instruments and other of $3.7 million, and income from equity method investments of $3.4 million, partially offset by increases in provision for income taxes of $88.5 million, interest expense of approximately $27.2 million, net income attributable to noncontrolling interests and redeemable noncontrolling interests of $6.9 million, preferred stock dividends of $2.7 million, a decrease in dividend income of $1.4 million, and a decrease in interest income of $0.3 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 purpose financing arrangements. During the years ended December 31, 2022 and 2021, we generated net loss attributable to the Company of $159.8 million and net income attributable to the Company of $445.1 million, respectively. Our net loss of $156.6 million included $202.6 million of losses that primarily related to a decrease in the fair value of our portfolio of securities and other investments owned during the year ended December 31, 2022. Our cash flows and profitability are impacted by capital markets engagements performed on a quarterly and annual basis and amounts realized from the sale of our investments in marketable securities. As of December 31, 2022, we had $268.6 million of unrestricted cash and cash equivalents, $2.3 million of restricted cash, $1,129.3 million of securities and other investments, at fair value, $701.7 million of loans receivable, at fair value, and $2,446.8 million of borrowings outstanding. The borrowings outstanding of $2,446.8 million as of December 31, 2022 included $1,721.8 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%, $572.1 million in term loans borrowed pursuant to the Targus, Pathlight, Lingo, BRPI Acquisition Co LLC (“BRPAC”), and Nomura credit agreements discussed below, $127.7 million of revolving credit facility under the Targus and Nomura credit facilities discussed below, and $25.3 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 Targus, Pathlight, Lingo, BRPAC, and Nomura term loans, funds available under the Targus and Nomura revolving credit facilities, 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. Cash Flow Summary Following is a summary of our cash flows provided by (used in) operating activities, investing activities and financing activities during the years ended December 31, 2022 and 2021. A discussion of cash flows during the year ended December 31, 2020 has been omitted from this Annual Report on Form 10-K, but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Liquidity and Capital Resources” in our Annual Report on Form 10-K during the year ended December 31, 2021, filed with the SEC on February 25, 2022, which is available free of charge on the SEC’s website at www.sec.gov. 65 Table of Contents Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Year Ended December 31, 2022 2021 (Dollars in thousands) Net cash provided by (used in): Operating activities $ 6,653 $ 50,894 Investing activities (32,291) (956,534) Financing activities 17,637 1,081,045 Effect of foreign currency on cash (933) (382) Net (decrease) increase in cash, cash equivalents and restricted cash $ (8,934) $ 175,023 Cash provided by operating activities was $6.7 million during the year ended December 31, 2022 compared to cash provided by operating activities of $50.9 million during the year ended December 31, 2021. Cash provided by operating activities during the year ended December 31, 2022 included net loss of $156.6 million adjusted for noncash items of $47.6 million and changes in operating assets and liabilities of $115.6 million. Noncash items of $47.6 million included share-based compensation of $61.1 million, depreciation and amortization of $40.0 million, fair value adjustments of $34.9 million, impairment of leaseholds, intangibles and lease loss accrual, and gain (loss) on disposal of fixed assets of $4.9 million, provision for doubtful accounts of $4.2 million, dividends from equity method investments of $4.0 million, income allocated for mandatorily redeemable noncontrolling interests of $1.1 million, and effect of foreign currency on operations of $0.8 million, partially offset by deferred income taxes of $80.4 million, SPAC deconsolidation gain of $8.3 million, gain on equity method investments of $6.8 million, income from equity method investments of $3.6 million, non-cash interest and other of $3.2 million, and gain on extinguishment of debt of $1.1 million. Cash provided by operating activities during the year ended December 31, 2021 included net income of $450.8 million adjusted for noncash items of $91.5 million and changes in operating assets and liabilities of $491.4 million. Noncash items of $91.5 million included deferred income taxes of $61.8 million, share-based compensation of $36.0 million, depreciation and amortization of $25.9 million, loss on extinguishment of debt of $6.1 million, dividends from equity method investments of $2.1 million, provision for doubtful accounts of $1.5 million, effect of foreign currency on operations of $0.1 million, and income allocated for mandatorily redeemable noncontrolling interests of $0.9 million, partially offset by interest and other of $22.3 million, fair value adjustments of $7.6 million, gain on extinguishment of loans of $6.5 million, gain on equity method investments of $3.5 million, income from equity method investments of $2.8 million, and impairment of leaseholds, intangibles and lease loss accrual and gain on disposal of fixed assets of $0.1 million. Cash used in investing activities was $32.3 million during the year ended December 31, 2022 compared to used in investing activities of $956.5 million during the year ended December 31, 2021. During the year ended December 31, 2022, cash used in investing activities consisted of cash used for purchases of loans receivable of $503.1 million, acquisition of businesses of $261.7 million, purchases of equity method investments of $11.0 million, and purchases of property and equipment and intangible assets of $3.9 million, partially offset by cash received from loans receivable repayment of $574.9 million and funds received from trust account of subsidiary of $172.6 million. During the year ended December 31, 2021, cash used in investing activities consisted of cash used for purchases of loans receivable of $738.9 million, cash of $345.0 million used to fund two trust accounts for the future redemption of our subsidiaries’ redeemable common stock, cash used for acquisition of businesses of $28.3 million, cash used for repayments of loan participations sold of $15.2 million, cash used for purchases of property and equipment and intangible assets of $0.7 million, and purchases of equity method investments of $0.6 million, partially offset by cash received from loans receivable repayment of $172.1 million. Cash provided by financing activities was $17.6 million during the year ended December 31, 2022 compared to cash provided by financing activities of $1,081.0 million during the year ended December 31, 2021. During the year ended December 31, 2022, cash provided by financing activities primarily consisted of proceeds from term loans of $324.2 million, proceeds from revolving line of credit of $64.9 million, proceeds from issuance of senior notes of $51.6 million, contributions from noncontrolling interests of $21.1 million, proceeds from our offering of preferred stock of $0.9 million, partially offset by redemption of subsidiary temporary equity and distributions of $172.6 million, payment of dividends on our common shares of $119.5 million, repayment on our term loans of $96.2 million, repayment of our revolving line of credit of $17.2 million, payment of employment taxes on vesting of restricted stock of $10.3 million, payment of dividends on our preferred shares of $8.0 million, payment of debt issuance costs of $8.2 million, repurchase of our common stock of $6.5 million, distribution to noncontrolling interests of $4.2 million, payment for contingent consideration of $1.8 million, 66 Table of Contents and repayment of our notes payable of $0.5 million. During the year ended December 31, 2021, cash provided by financing activities primarily consisted of $1,249.1 million proceeds from issuance of senior notes, $345.0 million proceeds from initial public offering of subsidiaries, $300.0 million proceeds from our term loan, $80.0 million proceeds from revolving line of credit, $64.7 million proceeds from our offering of common stock, $13.7 million contributions from noncontrolling interests, $14.7 million proceeds from our offering of preferred stock, partially offset by $507.3 million used to repurchase our senior notes, $347.1 million used to pay dividends on our common shares, $37.6 million used to repay our notes payable, $33.4 million used to pay debt issuance costs, $20.7 million used for repayment on our term loan, $16.5 million distribution to noncontrolling interests, $9.6 million used for payment of employment taxes on vesting of restricted stock, $7.5 million used to pay dividends on our preferred shares, $2.7 million used to repurchase our common stock, and $3.7 million used for payment of participating note payable and contingent consideration. Credit Agreements Targus Credit Agreement On October 18, 2022, our subsidiary, Tiger US Holdings, Inc., a Delaware corporation, among others, entered into a credit agreement (“Targus Credit Agreement”) with PNC Bank, National Association (“PNC”), as agent and security trustee for a five-year $28.0 million term loan and a five-year $85.0 million revolver loan, which was used to finance part of the acquisition of Targus. The Targus 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 Targus 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 outstanding under the Targus Credit Agreement. We are in compliance with all financial covenants in the Targus Credit Agreement as of December 31, 2022. The term loan bears interest on the outstanding principal amount equal to the Term Secured Overnight Financing Rate (“SOFR”) rate plus an applicable margin of 3.75%. The revolver loan consists of base rate loans that bear interest on the outstanding principal amount equal to the base rate plus an applicable margin of 1.00% to 1.75% and term rate loans that bear interest on the outstanding principal amount equal to the revolver SOFR rate plus an applicable margin of 2.00% to 2.75%. Principal outstanding is due in quarterly installments starting on December 31, 2022. Quarterly installments from December 31, 2022 to September 30, 2027 are in the amount of $1.4 million per quarter and the remaining principal balance is due at final maturity on October 18, 2027. As of December 31, 2022, the outstanding balance on the term loan was $26.0 million (net of unamortized debt issuance costs of $0.6 million) and the outstanding balance on the revolver loan was $53.0 million. Interest expense on these loans during the year ended December 31, 2022 was $1.3 million (including amortization of deferred debt issuance costs and unused commitment fees of $0.2 million). The interest rate on the term loan was 8.43% and the interest rate on the revolver loan ranged between 6.03% to 9.25% as of December 31, 2022. 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 discussed in Note 3 to the consolidated 67 Table of Contents statements included elsewhere in this Annual Report. On January 12, 2023, Amendment No. 2 to the Pathlight Credit Agreement increased the term loan by an additional $78.3 million. 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 December 31, 2022, the interest rate on the Pathlight Credit Agreement was 11.0%. 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. We are in compliance with all financial covenants in the Pathlight Credit Agreement as of December 31, 2022. 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 December 31, 2022, the outstanding balance on the term loan was $118.4 million (net of unamortized debt issuance costs of $2.4 million). Interest expense on the term loan during the year ended December 31, 2022 was $5.3 million (including amortization of deferred debt issuance costs of $1.3 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. This loan was used to finance part of the purchase of BullsEye by Lingo. 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. On November 10, 2022, Lingo entered into the Second Amendment to the Lingo Credit Agreement with KeyBank National Association for an incremental term loan of $20.5 million, increasing the principal balance of the term loan to $73.0 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 December 31, 2022, the interest rate on the Lingo Credit Agreement was 7.89%. 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. We are in compliance with all financial covenants in the Lingo Credit Agreement as of December 31, 2022. 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 $2.3 million per quarter, from March 31, 2024 to December 31, 2024 68 Table of Contents are in the amount of $2.7 million per quarter, from March 31, 2025 to June 30, 2027 are in the amount of $3.7 million, and the remaining principal balance is due at final maturity on August 16, 2027. As of December 31, 2022, the outstanding balance on the term loan was $72.0 million (net of unamortized debt issuance costs of $1.0 million). Interest expense on the term loan during the year ended December 31, 2022 was $1.6 million (including amortization of deferred debt issuance costs of $0.1 million). Nomura Credit Agreement On June 23, 2021, we and our wholly owned subsidiaries, BR Financial Holdings, LLC (the “Primary Guarantor”), and BR Advisory & Investments, LLC (the “Borrower”) entered into a credit agreement (as amended prior to the Second Amendment (as defined below) the “Credit Agreement”) with Nomura Corporate Funding Americas, LLC, as administrative agent (the “Administrative Agent”), and Wells Fargo Bank, N.A., as collateral agent (the “Collateral Agent”), for a four-year $200.0 million secured term loan credit facility (the “Term Loan Facility”) and a four-year $80.0 million secured revolving loan credit facility (the “Revolving Credit Facility”). On December 17, 2021 (the “Amendment Date”), we, the Primary Guarantor, and the Borrower entered into a Second Incremental Amendment to Credit Agreement (the “Second Amendment”), by and among the Company, the Primary Guarantor, the Borrower, each of the subsidiary guarantors signatory thereto, each of the lenders party thereto, the Administrative Agent and the Collateral Agent, pursuant to which the Borrower established an incremental facility in an aggregate principal amount of $100.0 million (the “Incremental Facility” and the incremental term loans made thereunder, the “Incremental Term Loans”) of secured term loans under the Credit Agreement on terms identical to those applicable to the Term Loan Facility. The Borrower borrowed the full amount of the Incremental Term Loans on the Amendment Date. The Term Loan Facility, Revolving Credit Facility, and Incremental Facility, together, (“Credit Facilities”), mature on June 23, 2025, subject to acceleration or prepayment. Eurodollar loans under the Credit Facilities accrue interest at the Eurodollar Rate plus an applicable margin of 4.50%. Base rate loans accrue interest at the specified base rate plus an applicable margin of 3.50%. In addition to paying interest on outstanding borrowings under the Revolving Credit Facility, the Company is required to pay a quarterly commitment fee based on the unused portion of the Revolving Credit Facility, which is determined by the average utilization of the facility for the immediately preceding fiscal quarter. Subject to certain eligibility requirements, the assets of certain subsidiaries of the Company that hold credit assets, private equity assets, and public equity assets are placed into a borrowing base, which serves to limit the borrowings under the Credit Facilities. If borrowings under the facilities exceed the borrowing base, the Company is obligated to prepay the loans in an aggregate amount equal to such excess. The Credit Agreement and the Second Amendment contain certain representations and warranties (subject to certain agreed qualifications) that are customary for financings of this kind. The Credit Agreement and the Second Amendment contain certain affirmative and negative covenants customary for financings of this type that, among other things, limit our, the Primary Guarantor’s, the Borrower’s, and the Borrower’s subsidiaries’ ability to incur additional indebtedness or liens, to dispose of assets, to make certain fundamental changes, to enter into restrictive agreements, to make certain investments, loans, advances, guarantees and acquisitions, to prepay certain indebtedness and to pay dividends or to make other distributions or redemptions/repurchases in respect of their respective equity interests. In addition, the Credit Agreement and the Second Amendment contain a financial covenant that requires us to maintain Operating EBITDA of at least $135.0 million and the Primary Guarantor to maintain net asset value of at least $1,100.0 million. The Credit Agreement and the Second Amendment contain customary events of default, including with respect to a failure to make payments under the credit facilities, cross-default, certain bankruptcy and insolvency events and customary change of control events. We are in compliance with all financial covenants in the Nomura Credit Agreement as of December 31, 2022. Commencing on September 30, 2022, the Term Loan Facility and Incremental Facility is amortizing in equal quarterly installments of 1.25% of the aggregate principal amount of the term loan as of the closing date with the remaining balance due at final maturity on June 23, 2025. Quarterly installments from March 31, 2023 to March 31, 2025 are in the amount of $3.8 million per quarter. As of December 31, 2022 and 2021, the outstanding balance on the Term Loan Facility and Incremental Facility was $287.0 million (net of unamortized debt issuance costs of $5.5 million) and $292.7 million (net of unamortized debt issuance costs of $7.4 million), respectively. Interest on the term loan during the years ended December 31, 2022 and 2021, 69 Table of Contents was $21.3 million (including amortization of deferred debt issuance costs of $2.1 million) and $5.9 million (including amortization of deferred debt issuance costs of $0.8 million), respectively. The interest rate on the term loan as of December 31, 2022 and 2021 was 9.23% and 4.72%, respectively. We had an outstanding balance of $74.7 million and $80.0 million under the Revolving Credit Facility as of December 31, 2022 and 2021, respectively. Interest on the revolving facility during the years ended December 31, 2022 and 2021 was $5.4 million (including unused commitment fees of $0.01 million and amortization of deferred financing costs of $0.6 million) and $1.9 million (including unused commitment fees of $0.08 million and amortization of deferred financing costs of $0.3 million), respectively. The interest rate on the revolving facility as of December 31, 2022 and 2021 was 9.23% and 4.67%, respectively. Wells Fargo Credit Agreement We are party to a credit agreement (as amended, the “Credit Agreement”) governing our asset based credit facility with Wells Fargo Bank, National Association (“Wells Fargo Bank”) with a maximum borrowing limit of $200.0 million and a maturity date of April 20, 2027. Cash advances and the issuance of letters of credit under the credit facility are made at the lender’s discretion. The letters of credit issued under this facility are furnished by the lender to third parties for the principal purpose of securing minimum guarantees under liquidation services contracts. 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 Credit Agreement is subject to certain terms and conditions, equal to 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 the liquidation engagements funded under the Credit Agreement as set forth therein. 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. Interest expense totaled $0.2 million, $0.4 million, and $0.6 million during the years ended December 31, 2022, 2021, and 2020, respectively. There is no outstanding balance on this credit facility as of December 31, 2022 and 2021. As of December 31, 2022 and 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 December 31, 2022. BRPAC Credit Agreement On December 19, 2018, BRPI Acquisition Co LLC (“BRPAC”), a Delaware limited liability company, UOL, and YMAX Corporation, Delaware corporations (collectively, the “Borrowers”), indirect wholly owned subsidiaries of ours, in the capacity as borrowers, entered into a credit agreement (the “BRPAC Credit Agreement”) with the Banc of California, N.A. in the capacity as agent (the “Agent”) and lender and with the other lenders party thereto (the “Closing Date Lenders”). Certain of the Borrowers’ U.S. subsidiaries are guarantors of all obligations under the BRPAC Credit Agreement and are parties to the BRPAC Credit Agreement in such capacity (collectively, the “Secured Guarantors”; and together with the Borrowers, the “Credit Parties”). In addition, we and B. Riley Principal Investments, LLC, the parent corporation of BRPAC and a subsidiary of ours, are guarantors of the obligations under the BRPAC Credit Agreement pursuant to standalone guaranty agreements pursuant to which the shares outstanding membership interests of BRPAC are pledged as collateral. The obligations under the BRPAC Credit Agreement are secured by first-priority liens on, and first priority security interest in, substantially all of the assets of the Credit Parties, including a pledge of (a) 100.00% of the equity interests of the Credit Parties, (b) 65% of the equity interests in United Online Software Development (India) Private Limited, a private limited company organized under the laws of India; and (c) 65% of the equity interests in magicJack VocalTec LTD., a limited company organized under the laws of Israel. The BRPAC Credit Agreement contains certain covenants, including those limiting the Credit Parties’ and their subsidiaries’ 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 BRPAC Credit Agreement requires the Credit Parties to maintain certain financial ratios. The BRPAC 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 BRPAC 70 Table of Contents Credit Agreement. We are in compliance with all financial covenants in the BRPAC Credit Agreement as of December 31, 2022. Through a series of amendments, including the most recent Fourth Amendment to the BRPAC Credit Agreement (the “Fourth Amendment”) on June 21, 2022, the Borrowers, the Secured Guarantors, the Agent and the Closing Date Lenders agreed to the following, among other things: (i) the Lenders agreed to make a new $75.0 million term loan to the Borrowers, the proceeds of which the Borrowers’ 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 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 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 December 31, 2022 and 2021, the interest rate on the BRPAC Credit Agreement was 7.65% and 3.17%, respectively. Principal outstanding under the Amended BRPAC Credit Agreement is due in quarterly installments. Quarterly installments 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 December 31, 2022, and 2021, the outstanding balance on the term loan was $68.7 million (net of unamortized debt issuance costs of $0.7 million) and $53.7 million (net of unamortized debt issuance costs of $0.6 million), respectively. Interest expense on the term loan during the years ended December 31, 2022, 2021, and 2020, was $3.5 million (including amortization of deferred debt issuance costs of $0.3 million), $2.5 million (including amortization of deferred debt issuance costs of $0.3 million) and $2.4 million (including amortization of deferred debt issuance costs of $0.3 million), respectively. Senior Note Offerings During the years ended December 31, 2022 and 2021, the Company issued $111.8 million and $233.4 million, respectively, of senior notes with maturity dates ranging from May 2024 to August 2028 pursuant to At the Market Issuance Sales Agreements with B. Riley Securities, Inc. which governs the program of at-the-market sales of the Company’s senior notes. We filed a series of prospectus supplements with the SEC in respect of our offerings of these senior notes. On November 15, 2022, we issued $60.0 million of senior notes due in May 2024 (“6.75% 2024 Notes”) pursuant to a prospectus supplement. Interest on the 6.75% 2024 Notes is payable quarterly at 6.75%. The 6.75% 2024 Notes are unsecured and due and payable in full on May 30, 2024. In connection with the issuance of the 6.75% 2024 Notes, we received net proceeds of $59.0 million (after underwriting commissions, fees and other issuance costs of $1.0 million) As of December 31, 2022 and 2021, the total senior notes outstanding was $1,721.8 million (net of unamortized debt issue costs of $18.1 million) and $1,606.6 million (net of unamortized debt issue costs of $21.5 million) with a weighted average interest rate of 5.75% and 5.69%, respectively. Interest on senior notes is payable on a quarterly basis. Interest expense on senior notes totaled $99.9 million and $81.5 million during the years ended December 31, 2022 and 2021, respectively. The most recent sales agreement prospectus was filed by us with the SEC on January 5, 2022 (the “January 2022 Sales Agreement Prospectus”), supplementing the prospectus filed on August 11, 2021, the prospectus filed on April 6, 2021, and the prospectus filed on January 28, 2021. This program provides for the sale by us of up to $250.0 million of certain of our senior notes. As of December 31, 2022 and 2021, we had $69.5 million and $111.9 million, respectively, remaining availability under the January 2022 Sales Agreement. Dividends From time to time, we may decide to pay dividends which will be dependent upon our financial condition and results of operations. During the years ended December 31, 2022, and 2021, we paid cash dividends on our common stock of 71 Table of Contents $119.5 million, and $347.1 million, respectively. On February 22, 2023, the Company declared a regular quarterly dividend of $1.00 per share, which will be paid on or about March 23, 2023 to stockholders of record as of March 10, 2023. On October 28, 2021, the Board of Directors announced an increase to the regular quarterly dividend from $0.50 per share to $1.00 per share. While it is the Board’s current intention to make regular dividend payments of $1.00 per share each quarter and special dividend payments dependent upon exceptional circumstances from time to time, our Board of Directors may reduce or discontinue the payment of dividends at any time for any reason it deems relevant. The declaration and payment of any future dividends or repurchases of our common stock will be made at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations, cash flows, capital expenditures, and other factors that may be deemed relevant by our Board of Directors. A summary of our common stock dividend activity during the years ended December 31, 2022 and 2021 was as follows: Date Declared Date Paid Stockholder Record Date Regular Dividend Amount Special Dividend Amount Total Dividend Amount November 3, 2022 November 29, 2022 November 15, 2022 $ 1.000 $ — $ 1.000 July 28, 2022 August 23, 2022 August 11, 2022 1.000 — 1.000 April 28, 2022 May 20, 2022 May 11, 2022 1.000 — 1.000 February 23, 2022 March 23, 2022 March 9, 2022 1.000 — 1.000 October 28, 2021 November 23, 2021 November 9, 2021 1.000 3.000 4.000 July 29, 2021 August 26, 2021 August 13, 2021 0.500 1.500 2.000 May 3, 2021 May 28, 2021 May 17, 2021 0.500 2.500 3.000 February 25, 2021 March 24, 2021 March 10, 2021 0.500 3.000 3.500 Holders of Series A Preferred Stock, when and as authorized by our board of directors, are entitled to cumulative cash dividends at the rate of 6.875% per annum of the $0.03 million liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,718.75 or $1.71875 per Depositary Share). Dividends are payable quarterly in arrears. As of December 31, 2022 and 2021, dividends in arrears in respect of the Depositary Shares were $0.8 million and $0.8 million, respectively. On January 9, 2023, the Company declared a cash dividend of $0.4296875 per Depositary Share, which was paid on January 31, 2023 to holders of record as of the close of business on January 20, 2023. Holders of Series B Preferred Stock, when and as authorized by our board of directors, are entitled to cumulative cash dividends at the rate of 7.375% per annum of the $0.03 million liquidation preference $25.00 per Depositary Share) per year (equivalent to $1,843.75 or $1.84375 per Depositary Share). Dividends are payable quarterly in arrears. As of December 31, 2022 and 2021, dividends in arrears in respect of the Depositary Shares were $0.5 million and $0.5 million, respectively. On January 9, 2023, the Company declared a cash dividend of $0.4609375 per Depositary Share, which was paid on January 31, 2023 to holders of record as of the close of business on January 20, 2023. A summary of our preferred stock dividend activity during the years ended December 31, 2022 and 2021 was as follows: Preferred Dividend per Depositary Share Date Declared Date Paid Stockholder Record Date Series A Series B October 10, 2022 October 31, 2022 October 21, 2022 $ 0.4296875 $ 0.4609375 July 7, 2022 July 29, 2022 July 19, 2022 0.4296875 0.4609375 April 7, 2022 April 29, 2022 April 19, 2022 0.4296875 0.4609375 January 10, 2022 January 31, 2022 January 21, 2022 0.4296875 0.4609375 October 6, 2021 November 1, 2021 October 21, 2021 0.4296875 0.4609375 July 8, 2021 August 2, 2021 July 21, 2021 0.4296875 0.4609375 April 5, 2021 April 30, 2021 April 20, 2021 0.4296875 0.4609375 January 11, 2021 January 29, 2021 January 21, 2021 0.4296875 0.4609375 72 Table of Contents Critical Accounting Policies and Estimates Our financial statements and the notes thereto contain information that is pertinent to management’s discussion and analysis. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. On a continual basis, management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, management’s estimates are adjusted accordingly. Actual results may vary from these estimates and assumptions under different and/or future circumstances. Management considers an accounting estimate to be critical if: • it requires assumptions to be made that were uncertain at the time the estimate was made; and • changes in the estimate, or the use of different estimating methods that could have been selected, could have a material impact on results of operations or financial condition. Use of Estimates. The preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expense during the reporting period. Estimates are used when accounting for certain items such as valuation of securities, allowance for doubtful accounts, the fair value of loans receivables, intangible assets and goodwill, share based arrangements, contingent consideration, accounting for income tax valuation allowances, recovery of contract assets, and sales returns and allowances. Estimates are based on historical experience, where applicable, and assumptions that management believes are reasonable under the circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ. 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 or an economic downturn, 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. If the financial markets and/or the overall economy continue to be impacted, our results of operations, financial position, and cash flows may be materially adversely affected. Our significant accounting policies are described in Note 3 to the consolidated financial statements included elsewhere in this Annual Report. Management believes that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of our financial statements. Revenue Recognition . We recognize revenues under Accounting Standards Codification (“ASC”) 606 – Revenue from Contracts with Customers. Revenues are recognized when control of the promised goods or performance obligations for services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for the goods or services. Revenues from contracts with customers in the Capital Markets segment, Wealth Management segment, Auction and Liquidation segment, Financial Consulting segment, Communications segment, Consumer segment and the All Other category are primarily comprised of the following: Capital Markets Segment - Fees earned from corporate finance and investment banking services are derived from debt, equity and convertible securities offerings in which the Company acted as an underwriter or placement agent. Fees from underwriting activities are recognized as revenues when the performance obligation for the services related to the underwriting transaction is satisfied under the terms of the engagement and is not subject to any other contingencies. Fees are also earned from financial advisory and consulting services rendered in connection with client mergers, acquisitions, restructurings, recapitalizations and other strategic transactions. The performance obligation for financial advisory services is satisfied over time as work progresses on the engagement and services are delivered to the client. The performance obligation for financial advisory services may also include success and performance-based fees which are recognized as 73 Table of Contents revenue when the performance obligation is no longer constrained and it is not probable that the revenue recognized would be subject to significant reversal in a future period. Generally, it is probable that the revenue recognized is no longer subject to significant reversal upon the closing of the investment banking transaction. Fees from asset management services are recognized over the period the performance obligation for the services are provided. Asset management fees are primarily comprised of fees for asset management services and are generally based on the dollar amount of the assets being managed. Revenues from sales and trading are recognized when the performance obligation is satisfied and include commissions resulting from equity securities transactions executed as agent or principal and are recorded on a trade date basis and fees paid for equity research. Revenues from other sources in the Capital Markets segment is primarily comprised of (i) interest income from loans receivable and securities lending activities, (ii) related net trading gains and losses from market making activities, the commitment of capital to facilitate customer orders, (iii) trading activities of equity and other securities for the Company’s account, and (iv) other income. Interest income from securities lending activities consists of interest income from equity and fixed income securities that are borrowed from one party and loaned to another. The Company maintains relationships with a broad group of banks and broker-dealers to facilitate the sourcing, borrowing and lending of equity and fixed income securities in a “matched book” to limit the Company’s exposure to fluctuations in the market value or securities borrowed and securities loaned. Other revenues include (i) net trading gains and losses from market making activities in our fixed income group, (ii) carried interest from our asset management recognized as earnings from financial assets within the scope of ASC 323 - Investments - Equity Method and Joint Ventures , and therefore will not be in the scope of ASC 606 - Revenue from Contracts with Customers . In accordance with ASC 323 - Investments - Equity Method and Joint Ventures , the Company records investment income based on the change in our proportionate claim on net assets of the investment fund, including performance-based capital allocations, assuming the investment fund was liquidated as of each reporting date pursuant to each fund’s governing agreements, and (iii) other miscellaneous income. Wealth Management segment - Fees from wealth management asset advisory services consist primarily of investment advisory fees that are recognized over the period the performance obligation for the services provided. Investment advisory and asset management fees are primarily comprised of fees for investment services and are generally based on the dollar amount of the assets being managed. Investment advisory fee revenues as a principal registered investment advisor (“RIA”) are recognized on a gross basis. Asset management fee revenues as an agent are recognized on a net basis. Revenues from sales and trading are recognized when the performance obligation is satisfied and include commissions resulting from equity securities transactions executed as agent and are recorded on a trade date basis. Auction and Liquidation segment - Commission and fees earned on the sale of goods at Auction and Liquidation sales are recognized when evidence of a contract or arrangement exists, the transaction price has been determined, and the performance obligation has been satisfied when control of the product and risks of ownership has been transferred to the buyer. The commission and fees earned for these services are included in revenues in the accompanying consolidated statements of operations. Under these types of arrangements, revenues also include contractual reimbursable costs. Revenues earned from Auction and Liquidation services contracts where the Company guarantees a minimum recovery value for goods being sold at auction or liquidation are recognized over time when the performance obligation is satisfied. We generally use the cost-to-cost measure of progress for our contracts because it best depicts the transfer of services to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. Costs to fulfill the contract include labor and other direct costs incurred by the Company related to the contract. Due to the nature of the guarantees and performance obligations under these contracts, the estimation of revenue that is ultimately earned is complex and subject to many variables and requires significant judgment. It is common for these contracts to contain provisions that can either increase or decrease the transaction price upon completion of our performance obligations under the contract. Estimated amounts are included in the transaction price at the most likely amount it is probable that a significant reversal of revenue will not occur. Our estimates of variable consideration and determination of whether or not to include estimated amounts in the transaction price are based on an assessment of our 74 Table of Contents anticipated performance under the contract taking into consideration all historical, current and forecasted information that is reasonably available to us. Costs that directly relate to the contract and expected to be recoverable are capitalized as an asset and included in advances against customer contracts in the accompanying consolidated balance sheets. These costs are amortized as the services are transferred to the customer over the contract period, which generally does not exceed six months, and the expense is recognized as a component of direct cost of services. If, during the auction or liquidation sale, the Company determines that the total costs to be incurred on a performance obligation under a contract exceeds the total estimated revenues to be earned, a provision for the entire loss on the performance obligation is recognized in the period the loss is determined. If the Company determines that the variable consideration used in the initial determination of the transaction price for the contract is such that the total recoveries from the auction or liquidation will not exceed the guaranteed recovery values or advances made in accordance with the contract, the transaction price will be reduced and a loss or negative revenue could result from the performance obligation. A provision for the entire loss as negative revenue on the performance obligation is recognized in the period the loss is determined. Financial Consulting Segment – Revenues in the Financial Consulting segment are primarily comprised of fees earned from providing bankruptcy, financial advisory, forensic accounting, real estate consulting and valuation and appraisal services. Fees earned from bankruptcy, financial advisory, forensic accounting and real estate consulting services are rendered to clients over time as work progresses on the engagement and services are delivered to the client. Fees may also include success and performance-based fees which are recognized as revenue when the performance obligation is no longer constrained and it is not probable that the revenue recognized would be subject to significant reversal in a future period. Revenues for valuation and appraisal services are recognized when the performance obligation is completed and is generally at the point in time upon delivery of the report to the customer. Revenues in the Financial Consulting segment also include contractual reimbursable costs. Communications Segment – Revenues in the Communications segment are primarily comprised of subscription services revenues which consist of fees charged to United Online pay accounts; revenues from the sale of the magicJack access rights; revenues from access rights renewals and mobile apps; prepaid minutes revenues; revenues from access and wholesale charges; service revenue from unified communication as a service (“UCaaS”) hosting services; and revenues from mobile phone voice, text, and data services. Products revenues consist of revenues from the sale of magicJack, mobile phone, and mobile broadband service devices, including the related shipping and handling and installation fees, if applicable. This segment’s revenues also include advertising revenues which consist primarily of amounts from the Company’s Internet search partner that are generated as a result of users utilizing the partner’s Internet search services and amounts generated from display advertisements. The Company recognizes such advertising revenues in the period in which the advertisement is displayed or, for performance-based arrangements, when the related performance criteria are met. Subscription service revenues are recognized over time in the service period in which the transaction price has been determinable and the related performance obligations for services are provided to the customer. Fees charged to customers in advance are initially recorded in the consolidated balance sheets as deferred revenue and then recognized ratably over the service period as the performance obligations are provided. Product revenues for hardware and shipping are recognized at the time of delivery. Revenues from sales of devices and services represent revenues recognized from sales of the magicJack devices to retailers or direct to customers, net of returns, and rights to access the Company’s servers over the period associated with the access right period, and from sales of mobile phones and voice, text, and data services. The transaction price for devices is allocated between equipment and service based on stand-alone selling prices. Revenues allocated to devices are recognized upon delivery (when control transfers to the customer), and service revenue is recognized ratably over the service term. The Company estimates the return of magicJack device direct sales as part of the transaction price using a six month rolling average of historical returns. Consumer Segment – Revenues in the Consumer segment primarily consists of the global sales of notebook computer carrying cases and computer accessories; licensing revenues from various licensing agreements that provide revenue based on guaranteed minimum royalty amounts and advertising/marketing fees with additional royalty revenue based on a percentage of defined sales. Global sales of consumer goods to customers are subject to contracts that contain a single performance obligation and revenue is recognized at a point in time when control of the product transfers to the customer which is generally upon product shipment. Customers consist primarily of equipment manufacturers, distributors (servicing resellers and corporate 75 Table of Contents end-customers), and retailers. Generally, the terms of the contracts for the sale of global goods do not allow for a right of return except for matters related to products with defects or damages. Licensing revenues include guaranteed minimum royalty amounts that are recognized as revenue on a straight-line basis over the contract term. Royalty payments exceeding the guaranteed minimum amounts in a specific contract year are recognized only subsequent to when the guaranteed minimum amount has been achieved. Other licensing fees are recognized at a point in time once the performance obligations have been satisfied. Payments received as consideration for the grant of a license are recorded as deferred revenue at the time payment is received and recognized ratably as revenue over the term of the license agreement. Advanced royalty payments are recorded as deferred revenue at the time payment is received and recognized as revenue when earned. Royalty revenue is not recognized unless collectability is probable. All Other - Revenue from the All Other category come from a regional environmental services business in the New York metropolitan area and a landscaping business in the southeast United States. Revenue is recognized when the customer obtains control of the good or the service is provided. Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts for estimated losses inherent in our accounts receivable portfolio. In establishing the required allowance, management utilizes the expected loss model. Management also considers historical losses adjusted for current market conditions and the customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The bad debt expense is included as a component of selling, general and administrative expenses in the accompanying consolidated statements of operations. Goodwill and Other Intangible Assets. We account for goodwill and intangible assets in accordance with the accounting guidance which requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. Goodwill includes the excess of the purchase price over the fair value of net assets acquired in business combinations and the acquisition of noncontrolling interests. The Codification requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment). Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. The Company operates six reporting units, which are the same as its reporting segments described in Note 24 to the consolidated financial statements. Significant judgment is required to estimate the fair value of reporting units which includes estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment. When testing goodwill for impairment, in accordance with ASC 350, the Company made an assessment of qualitative factors on goodwill and other intangible assets and concluded that a positive assertion could be made that it is more likely than not that the fair value of the reporting units exceeded their carrying values. In performing the analysis, qualitative factors indicated that it could be more likely than not that the carrying value of goodwill in the Wealth Management segment could be impaired as a result of the segment loss incurred during the year ended December 31, 2022. The Company performed a quantitative goodwill impairment test for its Wealth Management segment and determined the fair value of this reporting segment using the market approach and income approach exceeded the carrying value of goodwill. The Company concluded there was no impairment of goodwill in the Wealth Management segment. No impairments of goodwill were identified during the years ended December 31, 2022 and 2021. The Company reviews the carrying value of its amortizable intangibles and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparing the carrying amount of the asset or asset group to the undiscounted cash flows that the asset or asset group is expected to generate. If the undiscounted cash flows of such assets are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount of the asset or asset group, if any, exceeds its fair market value. Fair Value Measurements. The Company records loans receivable, securities and other investments owned, securities sold not yet purchased, and mandatorily redeemable noncontrolling interests that were issued after November 5, 2003 at fair value with fair value determined in accordance with the Codification. Our mandatorily redeemable noncontrolling 76 Table of Contents interests are measured at fair value on a recurring basis and are categorized using the three levels of fair value hierarchy. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) for identical instruments that are highly liquid, observable and actively traded in over-the-counter markets. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose inputs are observable and can be corroborated by market data. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The fair value of mandatorily redeemable noncontrolling interests is determined based on the issuance of similar interests for cash, references to industry comparables, and relied, in part, on information obtained from appraisal reports and internal valuation models. Investments in partnership interests include investments in private equity partnerships that primarily invest in equity securities, bonds, and direct lending funds. We also invest in priority investment funds and the underlying securities held by these funds are primarily corporate and asset-backed fixed income securities and restrictions exist on the redemption of amounts invested by the Company. The Company’s partnership and investment fund interests are valued based on the Company’s proportionate share of the net assets of the partnerships and funds; the value for these investments is derived from the most recent statements received from the general partner or fund administrator. These partnership and investment fund interests are valued at net asset value (“NAV”) in accordance with ASC 820 - Fair Value Measurements . The carrying amounts reported in the consolidated financial statements for cash, restricted cash, accounts receivable, accounts payable, and accrued expenses and other current liabilities approximate fair value based on the short-term maturity of these instruments. The carrying amounts of the notes payable (including credit lines used to finance liquidation engagements), long-term debt and capital lease obligations approximate fair value because the contractual interest rates or effective yields of such instruments are consistent with current market rates of interest for instruments of comparable credit risk. Income Taxes. The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the financial statement basis and tax basis of assets and liabilities using enacted tax rates in effect during the year in which the differences are expected to reverse. The Company estimates the degree to which tax assets and credit carryforwards will result in a benefit based on expected profitability by tax jurisdiction. A valuation allowance for such tax assets and loss carryforwards is provided when it is determined to be more likely than not that the benefit of such deferred tax asset will not be realized in future periods. Tax benefits of operating loss carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and other circumstances. If it becomes more likely than not that a tax asset will be used, the related valuation allowance on such assets would be reduced. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Once this threshold has been met, the Company’s measurement of its expected tax benefits is recognized in its financial statements. The Company accrues interest on unrecognized tax benefits as a component of income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense. Recent Accounting Standards See Note 3(ac) to the accompanying financial statements for recent accounting standards we have not yet adopted and recently adopted.