What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-09 compared with 2023-05-08 · 362 added, 151 removed, 271 unchanged (65% of the section changed)

41 unchanged sentences

Restatement of Previously Issued Consolidated Financial Statements

We have restated certain previously reported financial information for the years ended March 31, 2022 and 2021 in this Item 2, 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.

We have restated certain previously reported financial information for the three and six months ended June 30, 2022 in this Item 2, 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.

See the Explanatory Note preceding Part I, Financial Information, for background on the restatement, the fiscal periods impacted, and other information.

27 unchanged sentences

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

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Condensed Consolidated Statements of Operations

(Dollars in thousands)

Three Months Ended March 31, Change

Three Months Ended June 30, Change

2023 2022 Amount %

1 unchanged sentence

Services and fees $ 230,327 $ 191,662 $ 38,665 20.2 %

Trading income (loss) and fair value adjustments on loans 51,568 (19,278) 70,846 n/m

Trading income (loss) and fair value adjustments on loans 42,365 (117,763) 160,128 (136.0) %

Interest income - Loans and securities lending 75,199 63,835 11,364 17.8 %

6 unchanged sentences

Restructuring charge 628 — 628 100.0 %

Impairment of tradenames 1,733 — 1,733 100.0 %

Interest expense - Securities lending and loan participations sold 35,780 14,544 21,236 146.0 %

Total operating expenses 323,284 201,459 121,825 60.5 %

Operating income 84,923 45,973 38,950 84.7 %

Operating income (loss) 82,994 (61,838) 144,832 n/m

Other income (expense):

Interest income 2,574 67 2,507 n/m

Interest income 701 500 201 40.2 %

Dividend income 9,555 9,243 312 3.4 %

Realized and unrealized losses on investments (28,442) (49,112) 20,670 (42.1) %

Realized and unrealized gains (losses) on investments 18,843 (106,164) 125,007 (117.7) %

Change in fair value of financial instruments and other 381 4,321 (3,940) (91.2) %

(Loss) income from equity investments (10) 6,775 (6,785) (100.1) %

Income (loss) from equity investments 143 (3,399) 3,542 (104.2) %

Interest expense (47,332) (31,764) (15,568) 49.0 %

Income (loss) before income taxes 24,479 (12,891) 37,370 n/m

(Provision for) benefit from income taxes (7,919) 3,695 (11,614) n/m

Net income (loss) 16,560 (9,196) 25,756 n/m

Income (loss) before income taxes 65,285 (189,101) 254,386 (134.5) %

(Provision for) benefit from income taxes (21,504) 52,513 (74,017) (140.9) %

Net income (loss) 43,781 (136,588) 180,369 (132.1) %

Net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests (2,600) 3,571 (6,171) (172.8) %

1 unchanged sentence

Riley Financial, Inc.

17,155 (10,062) 27,217 n/m

46,381 (140,159) 186,540 (133.1) %

Preferred stock dividends 2,015 2,002 13 0.6 %

Net income (loss) available to common shareholders $ 15,143 $ (12,064) $ 27,207 n/m

Net income (loss) available to common shareholders $ 44,366 $ (142,161) $ 186,527 (131.2) %

n/m - Not applicable or not meaningful.

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

Three Months Ended March 31, Change

Three Months Ended June 30, Change

2023 2022 Amount %

3 unchanged sentences

Wealth Management segment 47,243 60,860 (13,617) (22.4) %

Auction and Liquidation segment 5,444 3,355 2,089 62.3 %

Auction and Liquidation segment 8,885 2,488 6,397 n/m

Financial Consulting segment 31,212 24,310 6,902 28.4 %

9 unchanged sentences

Trading income (loss) and fair value adjustments on loans

Capital Markets segment 50,296 (19,800) 70,096 n/m

Capital Markets segment 41,892 (119,292) 161,184 (135.1) %

Wealth Management segment 473 1,529 (1,056) (69.1) %

Subtotal 51,568 (19,278) 70,846 n/m

Subtotal 42,365 (117,763) 160,128 (136.0) %

Interest income - Loans and securities lending:

Capital Markets segment 75,199 62,399 12,800 20.5 %

Auction and Liquidation segment — 1,436 (1,436) (100.0) %

Subtotal 75,199 63,835 11,364 17.8 %

Total revenues $ 406,278 $ 139,621 $ 266,657 191.0 %

1 unchanged sentence

n/m - Not applicable or not meaningful.

Total revenues increased approximately $185.3 million to $432.1 million during the three months ended March 31, 2023 from $246.8 million during the three months ended March 31, 2022.

The increase in revenues during the three months ended March 31, 2023 was primarily due to an increase in revenue from trading (loss) income and fair value adjustments on loans of $70.8 million, sale of goods of $65.9 million, services and fees of $32.7 million, and an increase in revenue interest income from loans and securities lending of $15.8 million.

The increase in revenue from services and fees in the three months ended March 31, 2023 consisted of increases in revenue of $55.0 million in the Communications segment, $8.6 million in All Other, and $2.1 million in the Auction and Liquidation segment, partially offset by decreases in revenues of $28.4 million in the Wealth Management segment, $3.3 million in the Capital Markets segment, $0.9 million in the Financial Consulting segment, and $0.2 million in the Consumer segment.

Revenues from services and fees in the Capital Markets segment decreased $3.3 million to $57.9 million during the three months ended March 31, 2023 from $61.2 million during the three months ended March 31, 2022.

The decrease in revenues was primarily due to decreases of $2.8 million of commission fees, $2.5 million of corporate finance, consulting, and investment banking fees, and $1.7 million of asset management fees, partially offset by an increase of $3.8 million in other income.

Revenues from services and fees in the Wealth Management segment decreased $28.4 million to $48.5 million during the three months ended March 31, 2023 from $77.0 million during the three months ended March 31, 2022.

The decrease in revenues was primarily due to a decrease in revenue of $20.9 million from wealth and asset management fees and $8.9 million of commission fees, partially offset by an increase of $1.4 million in other income.

Revenues from services and fees in the Auction and Liquidation segment increased $2.1 million to $5.4 million during the three months ended March 31, 2023 from $3.4 million during the three months ended March 31, 2022.

The increase in revenues was primarily due to an increase in retail fee liquidation engagements.

Revenues from services and fees in the Financial Consulting segment decreased $0.9 million to $25.0 million during the three months ended March 31, 2023 from $25.9 million during the three months ended March 31, 2022.

The decrease in revenues was primarily due to a decrease of $2.2 million within our Real Estate division, partially offset by an increase of $1.3 million within our Advisory Services division.

Revenues from services and fees in the Communications segment increased $55.0 million to $85.1 million during the three months ended March 31, 2023 from $30.1 million during the three months ended March 31, 2022.

The increase in revenues was primarily due to an increase of $29.4 million in subscription services from the acquisition of BullsEye Telecom (“BullsEye”) in the third quarter of 2022, $28.4 million in subscription services from the acquisition of the remaining non-controlling interests in Lingo Management, LLC (“Lingo”) in the second quarter of 2022, partially offset by decreases in subscription revenue of $2.6 million for United Online, Inc.

Total revenues increased $266.7 million to $406.3 million during the three months ended June 30, 2023 from $139.6 million during the three months ended June 30, 2022.

The increase in revenues during the three months ended June 30, 2023 was primarily due to an increase in revenue from trading (loss) income and fair value adjustments on loans of $160.1 million, sale of goods of $56.5 million, services and fees of $38.7 million, and an increase in interest income from loans and securities lending of $11.4 million.

The increase in revenue from services and fees in the three months ended June 30, 2023 consisted of increases in revenue of $43.3 million in the Communications segment, $9.1 million in All Other, $6.9 million in the Financial Consulting segment, and $6.4 million in the Auction and Liquidation segment, partially offset by decreases in revenues of $13.6 million in the Wealth Management segment, $13.2 million in the Capital Markets segment, and $0.1 million in the Consumer segment.

Revenues from services and fees in the Capital Markets segment decreased $13.2 million to $45.0 million during the three months ended June 30, 2023 from $58.2 million during the three months ended June 30, 2022.

The decrease in

revenues was primarily due to decreases of $4.7 million of corporate finance, consulting, and investment banking fees, $3.8 million in other income, $3.4 million of commission fees, and $1.3 million of asset management fees.

Revenues from services and fees in the Wealth Management segment decreased $13.6 million to $47.2 million during the three months ended June 30, 2023 from $60.9 million during the three months ended June 30, 2022.

The decrease in revenues was primarily due to a decrease in revenue of $8.8 million from wealth and asset management fees and $4.5 million in other income.

Revenues from services and fees in the Auction and Liquidation segment increased $6.4 million to $8.9 million during the three months ended June 30, 2023 from $2.5 million during the three months ended June 30, 2022.

The increase in revenues was primarily due to an increase in the size of retail fee liquidation engagements.

Revenues from services and fees in the Financial Consulting segment increased $6.9 million to $31.2 million during the three months ended June 30, 2023 from $24.3 million during the three months ended June 30, 2022.

The increase in revenues was primarily due to an increase of $9.1 million within our Advisory Services division, partially offset by a decrease of $2.2 million within our Real Estate division.

Revenues from services and fees in the Communications segment increased $43.3 million to $83.3 million during the three months ended June 30, 2023 from $40.0 million during the three months ended June 30, 2022.

The increase in revenues was primarily due to an increase of $46.5 million in subscription services from the acquisition of the remaining non-controlling interests in Lingo Management, LLC (“Lingo”) in the first quarter of 2023 and BullsEye Telecom (“BullsEye”) acquired in the third quarter of 2022, partially offset by decreases in subscription revenue of $2.1 million for United Online, Inc.

(“UOL”), magicJack VocalTec Ltd.

(“magicJack”), and Marconi Wireless Holdings, LLC (“Marconi”).

We expect the subscription revenue to continue to decline year over year.

Revenues from services and fees in the Consumer segment decreased $0.2 million to $4.3 million during the three months ended March 31, 2023 from $4.6 million during the three months ended March 31, 2022.

(“magicJack”), and Marconi Wireless Holdings, LLC (“Marconi”), and $0.7 million in advertising, licensing and other revenue.

We expect UOL, magicJack and Marconi subscription revenue to continue to decline year over year.

Revenues from services and fees in the Consumer segment decreased $0.1 million to $5.0 million during the three months ended June 30, 2023 from $5.2 million during the three months ended June 30, 2022.

The primary source of revenue from services and fees 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, increased $8.6 million to $9.3 million during the three months ended March 31, 2023 from $0.7 million during the three months ended March 31, 2022.

Trading income (loss) and fair value adjustments on loans increased $70.8 million to income of $51.6 million during the three months ended March 31, 2023 compared to a loss of $19.3 million during the three months ended March 31, 2022.

This increase was primarily due to increases of $70.1 million in the Capital Markets segment and $0.8 million in the Wealth Management segment.

The income of $51.6 million during the three months ended March 31, 2023 was primarily due to an unrealized gain on our loans receivable, at fair value of $43.3 million and realized and unrealized gain on investments made in our proprietary trading accounts of $8.3 million.

Interest income – loans and securities lending increased $15.8 million to $77.2 million during the three months ended March 31, 2023 from $61.4 million during the three months ended March 31, 2022.

Interest income from securities lending was $37.2 million and $15.0 million during the three months ended March 31, 2023 and 2022, respectively.

Interest income from loans was $40.0 million and $46.4 million during the three months ended March 31, 2023 and 2022, respectively.

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, increased $9.1 million to $9.7 million during the three months ended June 30, 2023 from $0.6 million during the three months ended June 30, 2022.

Trading income (loss) and fair value adjustments on loans increased approximately $160.1 million to income of $42.4 million during the three months ended June 30, 2023 compared to a loss of $117.8 million during the three months ended June 30, 2022.

This increase was primarily due to increases of $161.2 million in the Capital Markets segment partially offset by a decrease of $1.1 million in the Wealth Management segment.

The income of $42.4 million during the three months ended June 30, 2023 was primarily due to realized and unrealized gains on investments made in our proprietary trading accounts of $33.2 million and an unrealized gain on our loans receivable, at fair value of $9.2 million.

Interest income – loans and securities lending increased $11.4 million to $75.2 million during the three months ended June 30, 2023 from $63.8 million during the three months ended June 30, 2022.

Interest income from securities lending was $40.1 million and $18.7 million during the three months ended June 30, 2023 and 2022, respectively.

Interest income from loans was $35.1 million and $45.1 million during the three months ended June 30, 2023 and 2022, respectively.

Revenues – Sale of Goods

Revenues from the sale of goods increased $65.9 million to $67.8 million during the three months ended March 31, 2023 from $1.9 million during the three months ended March 31, 2022.

Revenues from the sale of goods increased $56.5 million to $58.4 million during the three months ended June 30, 2023 from $1.9 million during the three months ended June 30, 2022.

Revenues from sale of goods were attributable to an increase of $55.1 million from the Consumer segment due to the acquisition of Targus in the fourth quarter of 2022 and an increase of $1.7 million from the Auction and Liquidation segment.

Cost of goods sold for three months ended March 31, 2023 was $47.6 million, resulting in gross margin of 29.7%.

Cost of goods sold for three months ended March 31, 2022 was $2.3 million, resulting in negative gross margin of 19.9%.

Cost of goods sold for three months ended June 30, 2023 was $40.3 million, resulting in gross margin of 30.9%.

Cost of goods sold for three months ended June 30, 2022 was $2.0 million, resulting in negative gross margin of 5.7%.

The change in gross margin was primarily due to the acquisition of Targus in the fourth quarter of 2022.

1 unchanged sentence

Direct Cost of Services

Direct cost of services increased $42.7 million to $54.4 million during the three months ended March 31, 2023 from $11.7 million during the three months ended March 31, 2022.

The increase in direct cost of services was primarily

attributable to increases of $35.4 million from the Communications segment from the acquisitions of Lingo in the second quarter of 2022 and BullsEye in the third quarter of 2022, $6.5 million from All Other due to other acquisitions made during 2022, and $0.8 million from the Auction and Liquidation segment.

Direct cost of services increased approximately $38.2 million to $55.9 million during the three months ended June 30, 2023 from $17.8 million during the three months ended June 30, 2022.

The increase in direct cost of services was primarily attributable to increases of $29.6 million from the Communications segment from the acquisitions of Lingo in the second quarter of 2022 and BullsEye in the third quarter of 2022, $6.4 million from All Other due to other acquisitions made during 2022, and $2.2 million from the Auction and Liquidation segment.

Selling, General and Administrative Expenses

Selling, general and administrative expenses during the three months ended March 31, 2023 and 2022 were comprised of the following:

Three Months Ended March 31, 2023 Three Months Ended

March 31, 2022 Change

Selling, general and administrative expenses during the three months ended June 30, 2023 and 2022 were comprised of the following:

Three Months Ended June 30, 2023 Three Months Ended

June 30, 2022 Change

Amount % Amount % Amount %

9 unchanged sentences

n/m - Not applicable or not meaningful.

Total selling, general and administrative expenses increased approximately $37.4 million to $212.6 million during the three months ended March 31, 2023 from $175.2 million during the three months ended March 31, 2022.

The increase was primarily due to an increase of $31.0 million in the Capital Markets segment, $21.6 million in the Consumer segment, $17.7 million in the Communications segment, $5.6 million in Corporate and All Other, $0.5 million in the Auction and Liquidation segment and $0.2 million in the Financial Consulting segment, partially offset by a decrease of $39.2 million in the Wealth Management segment.

Total selling, general and administrative expenses increased $21.7 million to $188.9 million during the three months ended June 30, 2023 from $167.1 million during the three months ended June 30, 2022.

The increase was primarily due to an increase of $18.6 million in the Consumer segment, $10.9 million in the Communications segment, $11.1 million in Corporate and All Other, $2.9 million in the Financial Consulting segment, and $0.1 million in the Auction and Liquidation segment, partially offset by a decrease of $20.7 million in the Wealth Management segment and $1.2 million in the Capital Markets segment.

Capital Markets

Selling, general and administrative expenses in the Capital Markets segment increased by $31.0 million to $67.0 million during the three months ended March 31, 2023 from $36.0 million during the three months ended March 31, 2022.

The increase was primarily due to increases of $32.8 million in consulting expenses and $1.4 million in investment and banking deal expenses, partially offset by decreases of $2.8 million in payroll and related expenses.

Selling, general and administrative expenses in the Capital Markets segment decreased by $1.2 million to $46.9 million during the three months ended June 30, 2023 from $48.1 million during the three months ended June 30, 2022.

The decrease was primarily due to a decrease of $1.2 million in depreciation and amortization.

Wealth Management

Selling, general and administrative expenses in the Wealth Management segment decreased by $39.2 million to $48.4 million during the three months ended March 31, 2023 from $87.6 million during the three months ended March 31, 2022.

The decrease was primarily due to decreases of $25.8 million in payroll and related expenses, $6.8 million in legal settlements made in the prior year, $4.5 million in other expenses, $1.4 million in clearing charges, and $0.9 million in software and equipment expenses.

Selling, general and administrative expenses in the Wealth Management segment decreased by $20.7 million to $49.0 million during the three months ended June 30, 2023 from $69.7 million during the three months ended June 30, 2022.

The decrease was primarily due to decreases of $12.4 million in payroll and related expenses, $5.3 million in penalties, $2.0 million in other expenses, and $1.0 million in legal expenses.

Auction and Liquidation

Selling, general and administrative expenses in the Auction and Liquidation segment increased $0.5 million to $2.3 million during the three months ended March 31, 2023 from $1.8 million during the three months ended March 31, 2022.

Selling, general and administrative expenses in the Auction and Liquidation segment increased $0.1 million to $2.3 million during the three months ended June 30, 2023 from $2.2 million during the three months ended June 30, 2022.

Financial Consulting

Selling, general and administrative expenses in the Financial Consulting segment increased by $0.2 million to $21.2 million during the three months ended March 31, 2023 from $21.0 million during the three months ended March 31, 2022.

Selling, general and administrative expenses in the Financial Consulting segment increased by $2.9 million to $22.9 million during the three months ended June 30, 2023 from $20.0 million during the three months ended June 30, 2022.

The increase was primarily due to increases of $1.5 million in other expenses and $1.4 million in payroll and related expenses.

Communications

Selling, general and administrative expenses in the Communications segment increased $17.7 million to $29.2 million for the three months ended March 31, 2023 from $11.4 million for the three months ended March 31, 2022.

The increase was primarily due to increases of $10.7 million from the acquisition of the remaining non-controlling interests in Lingo in the first quarter of 2023 and $9.1 million from the acquisition of Bullseye in the third quarter of 2022, partially offset by a decrease of $1.3 million in payroll and related expenses and $0.8 million in other expenses.

Selling, general and administrative expenses in the Consumer segment increased $21.6 million to $23.0 million for the three months ended March 31, 2023 from $1.3 million during the three months ended March 31, 2022.

The increase was primarily due to an increase of $21.9 million from the acquisition of Targus in the fourth quarter of 2022.

Selling, general and administrative expenses in the Communications segment increased $10.9 million to $26.6 million for the three months ended June 30, 2023 from $15.7 million for the three months ended June 30, 2022.

The increase was primarily due to increases of $14.4 million from the acquisition of additional equity interest in Lingo in the second quarter of 2022 and from the acquisition of Bullseye in the third quarter of 2022, partially offset by a decrease of $1.5 million in transaction costs, $1.0 million in payroll and related expenses, $0.8 million in other expenses, and $0.2 million in business promotion and marketing expenses.

Selling, general and administrative expenses in the Consumer segment increased $18.6 million to $20.0 million for the three months ended June 30, 2023 from $1.4 million during the three months ended June 30, 2022.

The increase was primarily due to an increase of $19.1 million from the acquisition of Targus in the fourth quarter of 2022, partially offset by a decrease of $0.5 million in depreciation and amortization.

Corporate and All Other

Selling, general and administrative expenses for Corporate and All Other increased approximately $5.6 million to $21.6 million during the three months ended March 31, 2023 from $16.0 million for the three months ended March 31, 2022.

The increase was primarily due to increases of $2.4 million from the acquisition of other businesses in 2022, $1.9 million in accounting expenses, and $1.2 million in other expenses.

Selling, general and administrative expenses for Corporate and All Other increased approximately $11.1 million to $21.2 million during the three months ended June 30, 2023 from $10.0 million for the three months ended June 30, 2022.

The increase was primarily due to a $4.5 million decrease in fair value of contingent consideration in 2022, an increase in expenses of $3.2 million from the acquisition of other businesses in 2022, $1.6 million in foreign currency fluctuations, $1.1 million in transaction costs, and $0.5 million in legal expenses.

Impairment of tradenames.

We recognized impairment charges of $1.7 million during the three months ended June 30, 2023 related to the Capital Markets segment.

There was no impairment recognized during the three months ended June 30, 2022.

Other Income (Expense).

Other income included interest income of $2.6 million and $0.1 million during the three months ended March 31, 2023 and 2022, respectively.

Dividend income was $13.2 million during the three months ended March 31, 2023 compared to $7.9 million during the three months ended March 31, 2022.

Realized and unrealized losses on investments was $28.4 million during the three months ended March 31, 2023 compared to $49.1 million during the three months ended March 31, 2022.

Other income included interest income of $0.7 million and $0.5 million during the three months ended June 30, 2023 and 2022, respectively.

Dividend income was $9.6 million during the three months ended June 30, 2023 compared to $9.2 million during the three months ended June 30, 2022.

Realized and unrealized gains (losses) on investments was a gain of $18.8 million during the three months ended June 30, 2023 compared to a loss of $106.2 million during the three months ended June 30, 2022.

The change was primarily due to an increase in overall values of our investments.

Change in fair value of financial instruments and other was $0.2 million during the three months ended March 31, 2023 and $6.0 million during the three months ended March 31, 2022.

Change in fair value of financial instruments and other was $0.4 million during the three months ended June 30, 2023 and $4.3 million during the three months ended June 30, 2022.

The change was primarily due to the change in fair value of warrant liabilities and the forgiveness of a Paycheck Protection Program loan in 2022.

Interest expense was $47.6 million during the three months ended March 31, 2023 compared to $30.4 million during the three months ended March 31, 2022.

The increase in interest expense was due to additional debt incurred during the three months ended March 31, 2023 and higher interest rates due to variable rates on certain of our outstanding debt.

Interest expense was $47.3 million during the three months ended June 30, 2023 compared to $31.8 million during the three months ended June 30, 2022.

The increase in interest expense was due to additional debt incurred during the three months ended June 30, 2023 and higher interest rates due to variable rates on certain of our outstanding debt.

The increases in interest expense primarily consisted of $5.9 million from the Pathlight term loan, $1.9 million from the issuance of senior notes, $1.6 million from the Lingo term loan, $0.6 million and $1.3 million from the Targus term loan and revolving credit facility, respectively, $0.8 million from the BRPAC term loan, and $2.8 million and $0.3 million from the Nomura term loan and revolving credit facility, respectively.

During the three months ended March 31, 2023, loss from equity investments was $0.01 million compared to income from equity investments of $6.8 million during the three months ended March 31, 2022.

The decrease was primarily due to $6.7 million in earnings related to the bebe equity method investment in the prior year.

During the three months ended June 30, 2023, income from equity investments was $0.1 million compared to loss from equity investments of $3.4 million during the three months ended June 30, 2022.

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

Income (Loss) Before Income Taxes .

Income before income taxes was $24.5 million during the three months ended March 31, 2023 compared to loss of $12.9 million during the three months ended March 31, 2022.

The change was primarily due to an increase in revenue of $185.3 million, a decrease in realized and unrealized losses on investments of $20.7 million, an increase of $5.3 million in dividend income, and an increase of $2.5 million in interest income, partially offset by an increase in operating expenses of approximately $146.3 million, increase in interest expense of $17.1 million, decrease in income from equity investments of $6.8 million, and a decrease in change in fair value of financial instruments and other of $6.2 million.

Income before income taxes was $65.3 million during the three months ended June 30, 2023 compared to loss of $189.1 million during the three months ended June 30, 2022.

The change was primarily due to an increase in revenue of $266.7 million, a change in realized and unrealized gains (losses) on investments of $125.0 million, a change in income (loss) from equity investments of $3.5 million, an increase of $0.3 million in dividend income,

and an increase of $0.2 million in interest income, partially offset by an increase in operating expenses of approximately $121.8 million, an increase in interest expense of $15.6 million, and a decrease in change in fair value of financial instruments and other of $3.9 million.

(Provision for) Benefit from Income Taxes.

Provision for income taxes was $7.9 million during the three months ended March 31, 2023 compared to a benefit of $3.7 million during the three months ended March 31, 2022.

The effective income tax rate was 32.4% for the three months ended March 31, 2023 as compared to 28.7% for the three months ended March 31, 2022.

Provision for income taxes was $21.5 million during the three months ended June 30, 2023 compared to a benefit of $52.5 million during the three months ended June 30, 2022.

The effective income tax provision rate was 32.9% for the three months ended June 30, 2023 as compared to a benefit of 27.8% for the three months ended June 30, 2022.

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

Net (loss) 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 loss attributable to noncontrolling interests was $0.6 million during the three months ended March 31, 2023 compared to net income of $0.9 million during the three months ended March 31, 2022.

The net loss attributable to noncontrolling interests was $2.6 million during the three months ended June 30, 2023 compared to net income of $3.6 million during the three months ended June 30, 2022.

Net Income (Loss) Attributable to the Company .

Net income attributable to the Company was $17.2 million during the three months ended March 31, 2023 compared to net loss attributable to the Company of $10.1 million for the three months ended March 31, 2022.

The change was primarily due to an increase in operating income of $39.0 million, a decrease in realized and unrealized loss on investments of $20.7 million, an increase of $5.3 million in dividend income, an increase of $2.5 million in interest income, and a decrease in net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests of $1.5 million, partially offset by an increase in interest expense of $17.1 million, a change from benefit from to provision for income taxes of $11.6 million, a decrease in income (loss) from equity investments of $6.8 million, and a decrease in change in fair value of financial instruments and other of $6.2 million.

Net income attributable to the Company was $46.4 million during the three months ended June 30, 2023 compared to net loss attributable to the Company of $140.2 million for the three months ended June 30, 2022.

The change was primarily due to an increase in operating income of $144.8 million, a change in realized and unrealized gains (losses) on investments of $125.0 million, a decrease in net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests of $6.2 million, a change in income (loss) from equity investments of $3.5 million, an increase of $0.3 million in dividend income, and an increase of $0.2 million in interest income, partially offset by a change from benefit from to provision for income taxes of $74.0 million, an increase in interest expense of $15.6 million, and a decrease in change in fair value of financial instruments and other of $3.9 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 $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.

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 the board of directors of the Company, 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.

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.

Preferred stock dividends were $2.0 million for the three months ended June 30, 2023 and 2022.

Dividends on the Series A preferred paid during the three months ended June 30, 2023 and 2022 were $0.4296875 per depository share.

Dividends on the Series B preferred paid during the three months ended June 30, 2023 and 2022 were $0.4609375 per depository share.

Net Income (Loss) Available to Common Shareholders .

Net income available to common shareholders was $15.1 million during the three months ended March 31, 2023 compared to net loss available to common shareholders of $12.1 million during the three months ended March 31, 2022.

The change was primarily due to an increase in operating income of $39.0 million, a decrease in realized and unrealized loss on investments of $20.7 million, an increase of $5.3 million in dividend income, an increase of $2.5 million in interest income, and a decrease in net income attributable to noncontrolling interests and redeemable noncontrolling interests of $1.5 million, partially offset by an increase in interest expense of $17.1 million, a change from benefit from to provision for income taxes of $11.6 million, a decrease in income (loss) from equity investments of $6.8 million, and a decrease in change in fair value of financial instruments and other of $6.2 million.

Net income available to common shareholders was $44.4 million during the three months ended June 30, 2023 compared to net loss available to common shareholders of $142.2 million during the three months ended June 30, 2022.

The change was primarily due to an increase in operating income of $144.8 million, a change in realized and unrealized gains (losses) on investments of $125.0 million, a change in income (loss) from equity investments of $3.5 million, a decrease in net income attributable to noncontrolling interests and redeemable noncontrolling interests of $6.2 million, an increase of $0.3 million in dividend income, and an increase of $0.2 million in interest income, partially offset by a change from benefit from to provision for income taxes of $74.0 million, an increase in interest expense of $15.6 million, and a decrease in change in fair value of financial instruments and other of $3.9 million.

Results of Operations

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

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Condensed Consolidated Statements of Operations

(Dollars in thousands)

Six Months Ended June 30, Change

2023 2022 Amount %

Services and fees $ 465,886 $ 394,476 $ 71,410 18.1 %

Trading income (loss) and fair value adjustments on loans 93,933 (137,041) 230,974 (168.5) %

Interest income - Loans and securities lending 152,385 125,261 27,124 21.7 %

Sale of goods 126,164 3,765 122,399 n/m

Total revenues 838,368 386,461 451,907 116.9 %

Operating expenses:

Direct cost of services 110,338 29,436 80,902 n/m

Cost of goods sold 87,943 4,245 83,698 n/m

Selling, general and administrative expenses 401,512 342,335 59,177 17.3 %

Restructuring charge 721 — 721 100.0 %

Impairment of tradenames 1,733 — 1,733 100.0 %

Interest expense - Securities lending and loan participations sold 68,204 26,310 41,894 159.2 %

Total operating expenses 670,451 402,326 268,125 66.6 %

Operating income (loss) 167,917 (15,865) 183,782 n/m

Other income (expense):

Interest income 3,275 567 2,708 n/m

Dividend income 22,759 17,104 5,655 33.1 %

Realized and unrealized losses on investments (9,599) (155,276) 145,677 (93.8) %

Change in fair value of financial instruments and other 172 10,302 (10,130) (98.3) %

Income from equity investments 133 3,376 (3,243) (96.1) %

Interest expense (94,893) (62,200) (32,693) 52.6 %

Income (loss) before income taxes 89,764 (201,992) 291,756 (144.4) %

(Provision for) benefit from income taxes (29,423) 56,208 (85,631) (152.3) %

Net income (loss) 60,341 (145,784) 206,125 (141.4) %

Net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests (3,195) 4,437 (7,632) (172.0) %

Net income (loss) attributable to B.

Riley Financial, Inc.

$ 63,536 $ (150,221) 213,757 (142.3) %

Preferred stock dividends 4,027 4,004 23 0.6 %

Net income (loss) available to common shareholders $ 59,509 $ (154,225) $ 213,734 (138.6) %

n/m - Not applicable or not meaningful.

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

Six Months Ended June 30, Change

2023 2022 Amount %

Revenues - Services and fees:

Capital Markets segment $ 102,890 $ 119,406 $ (16,516) (13.8) %

Wealth Management segment 95,785 137,818 (42,033) (30.5) %

Auction and Liquidation segment 14,329 5,843 8,486 145.2 %

Financial Consulting segment 56,222 50,246 5,976 11.9 %

Communications segment 168,368 70,122 98,246 140.1 %

Consumer segment 9,350 9,731 (381) (3.9) %

All Other 18,942 1,310 17,632 n/m

Subtotal 465,886 394,476 71,410 18.1 %

Revenues - Sale of goods:

Auction and Liquidation segment 1,892 — 1,892 100.0 %

Communications segment 3,507 3,765 (258) (6.9) %

Consumer segment 120,765 — 120,765 100.0 %

Subtotal 126,164 3,765 122,399 n/m

Trading income (loss) and fair value adjustments on loans

Capital Markets segment 92,188 (139,091) 231,279 (166.3) %

Wealth Management segment 1,745 2,050 (305) (14.9) %

Subtotal 93,933 (137,041) 230,974 (168.5) %

Interest income - Loans and securities lending:

Capital Markets segment 152,385 123,825 28,560 23.1 %

Auction and Liquidation segment — 1,436 (1,436) (100.0) %

Subtotal 152,385 125,261 27,124 21.7 %

Total revenues $ 838,368 $ 386,461 $ 451,907 116.9 %

_______________________________________________

n/m - Not applicable or not meaningful.

Total revenues increased approximately $451.9 million to $838.4 million during the six months ended June 30, 2023 from $386.5 million during the six months ended June 30, 2022.

The increase in revenues during the six months ended June 30, 2023 was primarily due to an increase in revenue from trading income (loss) and fair value adjustments on loans of $231.0 million, sale of goods of $122.4 million, services and fees of $71.4 million, and revenue interest income from loans and securities lending of $27.1 million.

The increase in revenue from services and fees in the six months ended June 30, 2023 consisted of increases in revenue of $98.2 million in the Communications segment, $17.6 million in All Other, $8.5 million in the Auction and Liquidation segment, and $6.0 million in the Financial Consulting segment, partially offset by decreases in revenues of $42.0 million in the Wealth Management segment, $16.5 million in the Capital Markets segment, and $0.4 million in the Consumer segment.

Revenues from services and fees in the Capital Markets segment decreased $16.5 million to $102.9 million during the six months ended June 30, 2023 from $119.4 million during the six months ended June 30, 2022.

The decrease in revenues

was primarily due to decreases of $7.3 million of corporate finance, consulting, and investment banking fees, $6.2 million of commission fees, and $3.0 million of asset management fees.

Revenues from services and fees in the Wealth Management segment decreased $42.0 million to $95.8 million during the six months ended June 30, 2023 from $137.8 million during the six months ended June 30, 2022.

The decrease in revenues was primarily due to a decrease in revenue of $29.8 million from wealth and asset management fees, $9.2 million of commission fees, and $3.1 million in other income.

Revenues from services and fees in the Auction and Liquidation segment increased $8.5 million to $14.3 million during the six months ended June 30, 2023 from $5.8 million during the six months ended June 30, 2022.

The increase in revenues was primarily due to an increase in the size of retail fee liquidation engagements.

Revenues from services and fees in the Financial Consulting segment increased $6.0 million to $56.2 million during the six months ended June 30, 2023 from $50.2 million during the six months ended June 30, 2022.

The increase in revenues was primarily due to an increase of $10.4 million within our Advisory Services division, partially offset by a decrease of $4.4 million within our Real Estate division.

Revenues from services and fees in the Communications segment increased $98.2 million to $168.4 million during the six months ended June 30, 2023 from $70.1 million during the six months ended June 30, 2022.

The increase in revenues was primarily due to an increase of $104.2 million in subscription services from the acquisition of the remaining non-controlling interests in Lingo in the first quarter of 2023 and the acquisition of BullsEye in the third quarter of 2022, partially offset by decreases in subscription revenue of $4.6 million and $1.3 million in other revenue for UOL, magicJack and Marconi.

We expect UOL, magicJack and Marconi subscription revenue to continue to decline year over year.

Revenues from services and fees in the Consumer segment decreased $0.4 million to $9.4 million during the six months ended June 30, 2023 from $9.7 million during the six months ended June 30, 2022.

The primary source of revenue from services and fees 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, increased $17.6 million to $18.9 million during the six months ended June 30, 2023 from $1.3 million during the six months ended June 30, 2022.

Trading income (loss) and fair value adjustments on loans increased $231.0 million to income of $93.9 million during the six months ended June 30, 2023 compared to a loss of $137.0 million during the six months ended June 30, 2022.

This increase was primarily due to increases of $231.3 million in the Capital Markets segment, partially offset by a decrease of $0.3 million in the Wealth Management segment.

The income of $93.9 million during the six months ended June 30, 2023 was primarily due to an unrealized gain on our loans receivable, at fair value of $52.7 million and realized and unrealized gain on investments made in our proprietary trading accounts of $41.4 million.

Interest income – loans and securities lending increased $27.1 million to $152.4 million during the six months ended June 30, 2023 from $125.3 million during the six months ended June 30, 2022.

Interest income from securities lending was $77.2 million and $33.7 million during the six months ended June 30, 2023 and 2022, respectively.

Interest income from loans was $75.1 million and $91.5 million during the six months ended June 30, 2023 and 2022, respectively.

Revenues – Sale of Goods

Revenues from the sale of goods increased $122.4 million to $126.2 million during the six months ended June 30, 2023 from $3.8 million during the six months ended June 30, 2022.

Revenues from sale of goods were attributable to an increase of $120.8 million from the Consumer segment due to the acquisition of Targus in the fourth quarter of 2022 and an increase of $1.9 million from the Auction and Liquidation segment, partially offset by a decrease of $0.3 million from the Communications segment.

Cost of goods sold for six months ended June 30, 2023 was $87.9 million resulting in gross margin of 30.3%.

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

The change in gross margin was primarily due to the acquisition of Targus in the fourth quarter of 2022.

Operating Expenses

Direct Cost of Services

Direct cost of services increased $80.9 million to $110.3 million during the six months ended June 30, 2023 from $29.4 million during the six months ended June 30, 2022.

The increase in direct cost of services was primarily attributable to increases of $65.0 million from the Communications segment from the acquisitions of Lingo in the second quarter of 2022 and BullsEye in the third quarter of 2022, $12.9 million from All Other due to other acquisitions made during 2022, and $3.0 million from the Auction and Liquidation segment.

Selling, General and Administrative Expenses

Selling, general and administrative expenses during the six months ended June 30, 2023 and 2022 were comprised of the following:

Six Months Ended

June 30, 2023 Six Months Ended

June 30, 2022 Change

Amount % Amount % Amount %

Capital Markets segment $ 113,830 28.3 % $ 84,079 24.6 % $ 29,751 35.4 %

Wealth Management segment 97,454 24.3 % 157,277 45.9 % (59,823) (38.0) %

Auction and Liquidation segment 4,582 1.1 % 3,997 1.2 % 585 14.6 %

Financial Consulting segment 44,121 11.0 % 41,050 12.0 % 3,071 7.5 %

Communications segment 55,821 13.9 % 27,160 7.9 % 28,661 105.5 %

Consumer segment 42,921 10.7 % 2,740 0.8 % 40,181 n/m

Corporate and All Other 42,783 10.7 % 26,032 7.6 % 16,751 64.3 %

Total selling, general & administrative expenses $ 401,512 100.0 % $ 342,335 100.0 % $ 59,177 17.3 %

____________________________________

n/m - Not applicable or not meaningful.

Total selling, general and administrative expenses increased approximately $59.2 million to $401.5 million during the six months ended June 30, 2023 from $342.3 million during the six months ended June 30, 2022.

The increase was primarily due to an increase of $40.2 million in the Consumer segment, $29.8 million in the Capital Markets segment, $28.7 million in the Communications segment, $16.8 million in Corporate and All Other, $3.1 million in the Financial Consulting segment, and $0.6 million in the Auction and Liquidation segment, partially offset by a decrease of $59.8 million in the Wealth Management segment.

Capital Markets

Selling, general and administrative expenses in the Capital Markets segment increased by $29.8 million to $113.8 million during the six months ended June 30, 2023 from $84.1 million during the six months ended June 30, 2022.

The increase was primarily due to an increase of $48.4 million in consulting expenses, partially offset by decreases of $12.7 million in payroll and related expenses, $4.6 million in penalties, and $1.5 million in other expenses.

Wealth Management

Selling, general and administrative expenses in the Wealth Management segment decreased by $59.8 million to $97.5 million during the six months ended June 30, 2023 from $157.3 million during the six months ended June 30, 2022.

The decrease was primarily due to decreases of $38.2 million in payroll and related expenses, $5.9 million in legal settlements, $5.3 million in penalties, $4.7 million in other expenses, $2.0 million in clearing charges, $1.7 million in legal expenses, $1.1 million in software and equipment expenses, and $1.0 million in depreciation and amortization.

Auction and Liquidation

Selling, general and administrative expenses in the Auction and Liquidation segment increased $0.6 million to $4.6 million during the six months ended June 30, 2023 from $4.0 million during the six months ended June 30, 2022.

Financial Consulting

Selling, general and administrative expenses in the Financial Consulting segment increased by $3.1 million to $44.1 million during the six months ended June 30, 2023 from $41.1 million during the six months ended June 30, 2022.

The increase was primarily due to increases of $2.0 million in other expenses and $1.1 million in payroll and related expenses.

Communications

Selling, general and administrative expenses in the Communications segment increased $28.7 million to $55.8 million for the six months ended June 30, 2023 from $27.2 million for the six months ended June 30, 2022.

The increase was primarily due to increases of $34.2 million from the acquisition of additional equity interest in Lingo in the second quarter of 2022 and from the acquisition of Bullseye in the third quarter of 2022, partially offset by a decrease of $2.3 million in payroll and related expenses, $1.7 million in other expenses, and $1.5 million in transaction costs.

Selling, general and administrative expenses in the Consumer segment increased $40.2 million to $42.9 million for the six months ended June 30, 2023 from $2.7 million during the six months ended June 30, 2022.

The increase was primarily due to an increase of $41.0 million from the acquisition of Targus in the fourth quarter of 2022, partially offset by a decrease of $0.9 million in depreciation and amortization.

Corporate and All Other

Selling, general and administrative expenses for Corporate and All Other increased approximately $16.8 million to $42.8 million during the six months ended June 30, 2023 from $26.0 million for the six months ended June 30, 2022.

The increase was primarily due to increases of $4.8 million from the acquisition of other businesses in 2022, $4.5 million decrease in fair value of contingent consideration in 2022, $2.8 million in foreign currency fluctuations, $2.2 million in accounting expenses, $1.7 million in other expenses, and $0.8 million in legal expenses.

Impairment of tradenames.

We recognized impairment charges of $1.7 million during the six months ended June 30, 2023 related to the Capital Markets segment.

There was no impairment recognized during the six months ended June 30, 2022.

Other Income (Expense).

Other income included interest income of $3.3 million and $0.6 million during the six months ended June 30, 2023 and 2022, respectively.

Dividend income was $22.8 million during the six months ended June 30, 2023 compared to $17.1 million during the six months ended June 30, 2022.

Realized and unrealized losses on investments was $9.6 million during the six months ended June 30, 2023 compared to losses of $155.3 million during the six months ended June 30, 2022.

The change was primarily due to an increase in overall values of our investments.

Change in fair value of financial instruments and other was $0.2 million during the six months ended June 30, 2023 and $10.3 million during the six months ended June 30, 2022.

The change was primarily due to the change in fair value of warrant liabilities and the forgiveness of a Paycheck Protection Program loan in 2022.

Interest expense was $94.9 million during the six months ended June 30, 2023 compared to $62.2 million during the six months ended June 30, 2022.

The increase in interest expense was due to additional debt incurred during the six months ended June 30, 2023 and higher interest rates due to variable rates on certain of our outstanding debt.

The increases in interest expense primarily consisted of $12.3 million from the Pathlight term loan, $3.7 million from the issuance of senior notes, $3.2 million from the Lingo term loan, $1.2 million and $2.5 million from the Targus term loan and revolving credit facility, respectively, $1.7 million from the BRPAC term loan, and $6.0 million and $1.2 million from the Nomura term loan and revolving credit facility, respectively.

During the six months ended June 30, 2023, income from equity investments was $0.1 million compared to $3.4 million during the six months ended June 30, 2022.

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

Income (Loss) Before Income Taxes .

Income before income taxes was $89.8 million during the six months ended June 30, 2023 compared to loss of $202.0 million during the six months ended June 30, 2022.

The change was primarily due to an increase in revenue of $451.9 million, a change in realized and unrealized losses on investments of $145.7 million, an increase of $5.7 million in dividend income, and an increase of $2.7 million in interest income, partially offset by an increase in operating expenses of approximately $268.1 million, an increase in interest expense of $32.7 million, a decrease in change in fair value of financial instruments and other of $10.1 million, and a decrease in income from equity investments of $3.2 million .

(Provision for) Benefit from Income Taxes.

Provision for income taxes was $29.4 million during the six months ended June 30, 2023 compared to a benefit of $56.2 million during the six months ended June 30, 2022.

The effective income tax provision rate was 32.8% for the six months ended June 30, 2023 as compared to a benefit of 27.8% for the six months ended June 30, 2022.

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

The net loss attributable to noncontrolling interests was $3.2 million during the six months ended June 30, 2023 compared to net income of $4.4 million during the six months ended June 30, 2022.

Net Income (Loss) Attributable to the Company .

Net income attributable to the Company was $63.5 million during the six months ended June 30, 2023 compared to net loss attributable to the Company of $150.2 million for the six months ended June 30, 2022.

The change was primarily due to an increase in operating income of $183.8 million, a change in realized and unrealized loss on investments of $145.7 million, a decrease in net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests of $7.6 million, an increase of $5.7 million in dividend income, and an increase of $2.7 million in interest income, partially offset by a change from benefit from to provision for income taxes of $85.6 million, an increase in interest expense of $32.7 million, a decrease in change in fair value of financial instruments and other of $10.1 million, and a decrease in income from equity investments of $3.2 million.

Preferred Stock Dividends .

Preferred stock dividends were $4.0 million for the six months ended June 30, 2023 and 2022.

Dividends on the Series A preferred paid during the six months ended June 30, 2023 and 2022 were $0.4296875 per depository share.

Dividends on the Series B preferred paid during the six months ended June 30, 2023 and 2022 were $0.4609375 per depository share.

Net Income (Loss) Available to Common Shareholders .

Net income available to common shareholders was $59.5 million during the six months ended June 30, 2023 compared to net loss available to common shareholders of $154.2 million during the six months ended June 30, 2022.

Liquidity and Capital Resources

Our operations are funded through a combination of existing cash on hand, cash generated from operations, borrowings under our senior notes payable, term loans and credit facilities, and special purposes financing arrangements.

During the three months ended March 31, 2023 and 2022, we generated net income of $16.6 million and net loss of $9.2 million, respectively.

During the six months ended June 30, 2023 and 2022, we generated net income of $60.3 million and net loss of $145.8 million, respectively.

Our cash flows and profitability are impacted by capital market engagements performed on a quarterly and annual basis and amounts realized from the sale of our investments in marketable securities.

As of March 31, 2023, we had $210.0 million of unrestricted cash and cash equivalents, $2.4 million of restricted cash, $1,049.2 million of securities and other investments, at fair value, $772.1 million of loans receivable, at fair value, and $2,508.9 million of borrowings outstanding.

The borrowings outstanding of $2,508.9 million as of March 31, 2023 included $1,723.0 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%, $626.6 million in term loans borrowed pursuant to the Targus, Pathlight, Lingo, BRPI Acquisition Co LLC (“BRPAC”), and Nomura credit agreements discussed below, $139.5 million of revolving credit facility under the Targus and Nomura credit facilities discussed below, and $19.9 million of notes payable.

As of June 30, 2023, we had $107.6 million of unrestricted cash and cash equivalents, $2.3 million of restricted cash, $1,072.4 million of securities and other investments, at fair value, $683.8 million of loans receivable, at fair value, and $2,327.4 million of borrowings outstanding.

The borrowings outstanding of $2,327.4 million as of June 30, 2023 included $1,666.0 million 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%, $529.2 million in term loans borrowed pursuant to the Targus, Pathlight, Lingo, BRPI Acquisition Co LLC (“BRPAC”), and Nomura credit agreements discussed below, $110.9 million of revolving credit facility under the Targus and Nomura credit facilities discussed below, and $21.3 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.

1 unchanged sentence

From time to time, we may decide to pay dividends which will be dependent upon our financial condition and results of operations.

On May 4, 2023, we declared a regular dividend of $1.00 per share that will be paid on or about May 23, 2023 to stockholders of record as of May 16, 2023.

On February 22, 2023, the Company declared a regular quarterly dividend of $1.00 per share, which was paid on March 23, 2023 to stockholders of record as of March 10, 2023.

On July 25, 2023, we declared a regular dividend of $1.00 per share that will be paid on or about August 21, 2023 to stockholders of record as of August 11, 2023.

During the year ended December 31, 2022, we paid cash dividends on our common stock of $119.5 million.

1 unchanged sentence

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 common stock dividend activity for the three months ended March 31, 2023 and the year ended December 31, 2022 was as follows:

A summary of common stock dividend activity for the six months ended June 30, 2023 and the year ended December 31, 2022 was as follows:

Date Declared Date Paid Stockholder

May 4, 2023 May 23, 2023 May 16, 2023 $ 1.000 $ — $ 1.000

February 22, 2023 March 23, 2023 March 10, 2023 1.000 — 1.000

5 unchanged sentences

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

As of March 31, 2023, dividends in arrears in respect of the Depositary Shares were $0.8 million.

On April 10, 2023, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on May 1, 2023 to holders of record as of the close of business on April 21, 2023.

As of June 30, 2023, dividends in arrears in respect of the Depositary Shares were $0.8 million.

On July 11, 2023, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on July 31, 2023 to holders of record as of the close of business on July 21, 2023.

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

As of March 31, 2023, dividends in arrears in respect of the Depositary Shares were $0.5 million.

On April 10, 2023, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on May 1, 2023 to holders of record as of the close of business on April 21, 2023.

A summary of preferred stock dividend activity for the three months ended March 31, 2023 and the year ended December 31, 2022 was as follows:

As of June 30, 2023, dividends in arrears in respect of the Depositary Shares were $0.5 million.

On July 11, 2023, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on July 31, 2023 to holders of record as of the close of business on July 21, 2023.

A summary of preferred stock dividend activity for the six months ended June 30, 2023 and the year ended December 31, 2022 was as follows:

Stockholder Preferred Dividend per Depositary Share

Date Declared Date Paid Record Date Series A Series B

April 10, 2023 May 1, 2023 April 21, 2023 $ 0.4296875 $ 0.4609375

January 9, 2023 January 31, 2023 January 20, 2023 0.4296875 0.4609375

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Cash Flow Summary

Three Months Ended

Six Months Ended

(Dollars in thousands)

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Net decrease in cash, cash equivalents and restricted cash $ (161,024) $ (62,834)

Cash provided by operating activities was $52.6 million during the three months ended March 31, 2023 compared to cash used in operating activities of $14.9 million during the three months ended March 31, 2022.

Cash provided by operating activities for the three months ended March 31, 2023 consisted of the impact of net income of $16.6 million, noncash items of $10.7 million, and changes in operating assets and liabilities of $46.7 million.

The negative cash flow impact from noncash items of $10.7 million included fair value adjustments of $46.1 million and non-cash interest and other of $1.1 million, partially offset by share-based compensation of $13.7 million, depreciation and amortization of $13.1 million, deferred income taxes of $5.8 million, provision for doubtful accounts of $3.2 million, effect of foreign currency of $0.3 million, income allocated for mandatorily redeemable noncontrolling interests of $0.3 million and dividends from equity investments of $0.1 million.

Cash used in operating activities for the three months ended March 31, 2022 consisted of the negative impact of net loss of $9.2 million and noncash items of $42.7 million, partially offset by the negative impact of changes in operating assets and liabilities of $37.0 million.

The negative cash flow impact from noncash items of $42.7 million included deferred income taxes of $41.9 million, fair value adjustments of $15.8 million, income from equity investments of $6.8 million, noncash interest and other of $3.6 million, and gain on extinguishment of loan of $1.1 million, partially offset by share-based compensation of $17.0 million, depreciation and amortization of $7.8 million, dividends from equity investments of $0.8 million, provision for doubtful accounts of $0.4 million, loss on disposal of fixed assets and other of $0.3 million, and income allocated for mandatorily redeemable noncontrolling interests of $0.2 million.

Cash used in investing activities was $57.2 million during the three months ended March 31, 2023 compared to cash used in investing activities of $35.5 million for the three months ended March 31, 2022.

During the three months ended March 31, 2023, cash used in investing activities consisted of cash used for purchases of loans receivable of $312.0 million, acquisition of businesses and minority interest of $12.3 million, purchases of property and equipment of $1.7 million, and purchase of equity and other investments of $0.7 million, partially offset by cash received from loans receivable repayment of $260.6 million, sale of loan receivable of $7.5 million, and proceeds from sale of property, equipment, intangible assets, and other of $1.4 million.

During the three months ended March 31, 2022, cash used in investing activities consisted of cash used for purchases of loans receivable of $93.9 million, acquisition of businesses of $40.0 million, purchases of equity and other investments of $2.4 million, and purchases of property and equipment of $0.2 million partially offset by cash received from loans receivable repayment of $101.0 million.

Cash used in financing activities was $55.3 million during the three months ended March 31, 2023 compared to cash used in financing activities of $14.4 million during the three months ended March 31, 2022.

During the three months ended March 31, 2023, cash used in financing activities primarily consisted of $72.9 million used in the repayment of term loan, $53.8 million used to repurchase our common shares, $46.9 million used to pay dividends on our common shares, $17.2 million used in payment of revolving lines of credit, $11.5 million used to repay our notes payable, $4.8 million used in payment of employment taxes on vesting of restricted stock, $2.0 million used to pay debt issuance and offering costs, $2.0 million used to pay dividends on our preferred shares, $1.3 million used to pay contingent consideration, and $1.0 million in distributions to noncontrolling interests, partially offset by cash provided by $128.2 million proceeds from term loans, $29.0 million proceeds from revolving line of credit, $0.5 million proceeds from issuance of preferred stock, and $0.4 million contributions from noncontrolling interests.

During the three months ended March 31, 2022, cash used in financing activities primarily consisted of $27.9 million used to pay dividends on our common shares, $4.1 million used in the repayment of term loan, $2.0 million used to pay dividends on our preferred shares, $1.3 million used in payment of employment taxes on vesting of restricted stock, $1.1 million in distributions to noncontrolling interests, and $0.4 million used to repay our notes payable, partially offset by cash provided by $20.0 million in proceeds from issuance of senior notes, $1.8 million in contributions from noncontrolling interests, and $0.6 million in proceeds from issuance of preferred stock.

Cash provided by operating activities was $77.1 million during the six months ended June 30, 2023 compared to cash used in operating activities of $49.9 million during the six months ended June 30, 2022.

Cash provided by operating activities for the six months ended June 30, 2023 consisted of the impact of net income of $60.3 million, noncash items of $12.5 million, and changes in operating assets and liabilities of $4.2 million.

The positive cash flow impact from noncash items of $12.5 million included depreciation and amortization of $25.6 million, share-based compensation of $24.2 million, deferred income taxes of $18.5 million, provision for doubtful accounts of $3.8 million, impairment of intangibles, loss on disposal of fixed assets and other of $1.6 million, income allocated for mandatorily redeemable noncontrolling interests of $0.8 million, and dividends from equity investments of $0.1 million, partially offset by fair value adjustments of $56.6 million, non-cash interest and other of $5.1 million, effect of foreign currency of $0.2 million, and income from equity investments of $0.1 million.

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

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

Cash provided by investing activities was $216.3 million during the six months ended June 30, 2023 compared to cash provided by investing activities of $0.5 million for the six months ended June 30, 2022.

During the six months ended June 30, 2023, cash provided by investing activities consisted of cash provided by loans receivable repayment of $413.4 million, funds received from trust account of subsidiary of $175.8 million, sale of loan receivable of $7.5 million, and proceeds from sale of property, equipment, intangible assets, and other of $1.5 million, partially offset by cash used for purchases of

loans receivable of $360.0 million, acquisition of businesses and minority interest of $12.3 million, purchase of equity and other investments of $4.9 million, and purchases of property and equipment of $4.8 million.

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

Cash used in financing activities was $456.8 million during the six months ended June 30, 2023 compared to cash used in financing activities of $10.4 million during the six months ended June 30, 2022.

During the six months ended June 30, 2023, cash used in financing activities primarily consisted of $175.8 million used in redemption of subsidiary temporary equity and distributions, $172.8 million used in the repayment of term loan, $80.3 million used to pay dividends on our common shares, $78.8 million used in payment of revolving lines of credit, $58.9 million used to redeem senior notes, $53.8 million used to repurchase our common shares, $11.7 million used to repay our notes payable, $8.3 million used in ESPP and payment of employment taxes on vesting of restricted stock, $4.0 million used to pay dividends on our preferred shares, $3.2 million used to pay debt issuance and offering costs, $2.5 million in distributions to noncontrolling interests, and $1.3 million used to pay contingent consideration, partially offset by cash provided by $128.2 million in proceeds from term loans, $62.0 million in proceeds from revolving line of credit, $4.0 million in contributions from noncontrolling interests, and $0.5 million in proceeds from issuance of preferred stock.

During the six months ended June 30, 2022, cash used in financing activities primarily consisted of $62.0 million used to pay dividends on our common shares, $54.3 million used in the repayment of term loan, $6.4 million used in payment of employment taxes on vesting of restricted stock, $4.0 million used to pay dividends on our preferred shares, $2.4 million in distributions to noncontrolling interests, $0.5 million used in the payment of contingent consideration, $0.5 million used in the payment of debt issuance and offering costs, and $0.4 million used to repay our notes payable, partially offset by cash provided by $75.0 million in proceeds from borrowings under a term loan, $35.9 million in proceeds from issuance of senior notes, $8.5 million in contributions from noncontrolling interests, and $0.6 million in proceeds from issuance of preferred stock.

FRG Commitments and Guarantees

On May 10, 2023, we entered into certain agreements pursuant to which we have, among other things, agreed to provide certain equity funding and other support in connection with the acquisition (the “Acquisition”) by Freedom VCM, Inc., a Delaware corporation (“Parent”), of Franchise Group, Inc., a Delaware corporation (“FRG”).

Parent has agreed to acquire FRG pursuant to an Agreement and Plan of Merger, dated as of May 10, 2023, by and among Parent, Freedom VCM Subco, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (the “Merger Sub”), and FRG (the “Merger Agreement”), pursuant to which, upon the terms and subject to the conditions set forth therein, at the closing, Merger Sub will merge with and into FRG, with FRG surviving the merger as a wholly owned subsidiary of Parent.

The buyer group includes members of the senior management team of FRG, led by FRG’s Chief Executive Officer.

We are not a party to the Merger Agreement.

Riley entered into the Equity Commitment Letter and the Limited Guarantee, each as defined below, in connection with the Acquisition.

FRG has scheduled a special meeting of stockholders for August 17, 2023 to vote on the transaction and related matters.

The proposed transaction is anticipated to close in the second half of 2023, subject to FRG's stockholder's approval and satisfaction or waiver of the closing conditions contained in the definitive documentation.

Equity Commitment Letter

We entered into an Equity Commitment Letter, dated as of May 10, 2023 (the “Equity Commitment Letter”), with Freedom VCM Holdings, LLC (“TopCo”) and Parent, pursuant to which we, subject to the terms and conditions of the Equity Commitment Letter, have agreed to contribute to TopCo, at or prior to the closing of the Merger, an amount equal to up to $560.0 million in equity financing (the “B.

Riley Equity Commitment”).

Riley Equity Commitment will then be used by TopCo to fund part of the Acquisition.

FRG is a third party beneficiary of the Equity Commitment Letter, and FRG is entitled to specifically enforce the Equity Commitment Letter;

provided, however, that our obligations under the Equity Commitment Letter will terminate in the event that any claim is brought by FRG with respect to the Limited Guarantee, as defined below.

Subject to certain conditions set forth in the Equity Commitment Letter, we have the right to assign all or a portion of such commitments to its affiliates, financing sources or other investors, and we expect the actual amount to be funded by it at Closing to be less than the $560.0 million.

Limited Guarantee

We entered into a Limited Guarantee with FRG dated as of May 10, 2023 (the “Limited Guarantee”) in favor of FRG, pursuant to which we agreed to guarantee to FRG the due and punctual payment, performance and discharge when required by Parent or Merger Sub to FRG of certain liabilities and obligations of Parent or Merger Sub under the Merger Agreement

pursuant to and in accordance therewith, including (i) a termination fee due to FRG in the amount of $55.0 million if the Merger Agreement is terminated under certain specified circumstances provided for in the Merger Agreement;

(ii) certain reimbursement obligations of Parent when required to be paid by Parent pursuant to the Merger Agreement;

and (iii) liabilities or damages resulting from any actual fraud or Willful and Material Breach (as defined in the Merger Agreement) by Parent or Merger Sub required to be paid by Parent or Merger Sub pursuant to the Merger Agreement;

provided, that, except in the case of actual fraud or Willful and Material Breach by Parent or Merger Sub, our aggregate liability under the Limited Guarantee will not exceed $57.0 million.

We also waived certain defenses arising out of certain events set forth in the Limited Guarantee.

Credit Agreements

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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 March 31, 2023.

We are in compliance with all financial covenants in the Targus Credit Agreement as of June 30, 2023.

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 March 31, 2023 and December 31, 2022, the outstanding balance on the term loan was $24.7 million (net of unamortized debt issuance costs of $0.5 million) and $26.0 million (net of unamortized debt issuance costs of $0.6 million) and the outstanding balance on the revolver loan was $62.5 million and $53.0 million, respectively.

Interest expense on these loans during the three months ended March 31, 2023 was $1.7 million (including amortization of deferred debt issuance costs and unused commitment fees of $0.2 million).

The interest rate on the term loan was 8.66% and 8.43% and the interest rate on the revolver loan ranged between 6.66% to 9.75% and 6.03% to 9.25% as of March 31, 2023 and December 31, 2022, respectively.

Principal outstanding that is due in quarterly installments started on December 31, 2022.

Quarterly installments from September 30, 2023 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 June 30, 2023 and December 31, 2022, the outstanding balance on the term loan was $23.3 million (net of unamortized debt issuance costs of $0.5 million) and $26.0 million (net of unamortized debt issuance costs of $0.6 million) and the outstanding balance on the revolver loan was $53.9 million and $53.0 million, respectively.

Interest expense on these loans during the three months ended June 30, 2023 was $2.1 million (including amortization of deferred debt issuance costs and unused commitment fees of $0.2 million).

Interest expense on these loans during the six months ended June 30, 2023 was $3.8 million (including amortization of deferred debt issuance costs and unused commitment fees of $0.3 million).

The interest rate on the term loan was 9.09% and 8.43% and the interest rate on the revolver loan ranged between 7.18% to 10.00% and 6.03% to 9.25% as of June 30, 2023 and December 31, 2022, respectively.

Pathlight Credit Agreement

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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.

On January 12, 2023, Amendment No.

On January 12, 2023, Amendment

2 to the Pathlight Credit Agreement increased the term loan by an additional $78.3 million.

2 unchanged sentences

The term loan bears interest on the outstanding principal amount equal to the term SOFR rate plus an applicable margin of 6.5%.

As of March 31, 2023 and December 31, 2022, the interest rate on the Pathlight Credit Agreement was 11.4% and 11.0%, respectively.

As of June 30, 2023 and December 31, 2022, the interest rate on the Pathlight Credit Agreement was 11.7% and 11.0%, respectively.

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.

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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 March 31, 2023.

We are in compliance with all financial covenants in the Pathlight Credit Agreement as of June 30, 2023.

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 March 31, 2023 and December 31, 2022, the outstanding balance on the term loan was $184.4 million (net of unamortized debt issuance costs of $3.8 million) and $118.4 million (net of unamortized debt issuance costs of $2.4 million).

Interest expense on the term loan during the three months ended March 31, 2023 was $6.4 million (including amortization of deferred debt issuance costs of $1.7 million).

As of June 30, 2023 and December 31, 2022, the outstanding balance on the term loan was $102.6 million (net of unamortized debt issuance costs of $2.0 million) and $118.4 million (net of unamortized debt issuance costs of $2.4 million).

Interest expense on the term loan during the three months ended June 30, 2023 was $5.9 million (including amortization of deferred debt issuance costs of $1.8 million).

Interest expense on the term loan during the six months ended June 30, 2023 was $12.3 million (including amortization of deferred debt issuance costs of $3.5 million).

Lingo Credit Agreement

5 unchanged sentences

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 March 31, 2023 and December 31, 2022, the interest rate on the Lingo Credit Agreement was 8.48% and 7.89%, respectively.

As of June 30, 2023 and December 31, 2022, the interest rate on the Lingo Credit Agreement was 8.93% and 7.89%, respectively.

The Lingo 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 its businesses, engage in transactions with related parties, make certain investments or pay dividends.

2 unchanged sentences

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

We are in compliance with all financial covenants in the Lingo Credit Agreement as of March 31, 2023.

We are in compliance with all financial covenants in the Lingo Credit Agreement as of June 30, 2023.

Principal outstanding is due in quarterly installments.

Quarterly installments from June 30, 2023 to December 31, 2023 are in the amount of $2.3 million per quarter, from March 31, 2024 to December 31, 2024 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 March 31, 2023 and December 31, 2022, the outstanding balance on the term loan was $69.8 million (net of unamortized debt issuance costs of $0.9 million) and $72.0 million (net of unamortized debt issuance costs of $1.0 million), respectively.

Interest expense on the term loan during the three months ended March 31, 2023 was $1.6 million (including amortization of deferred debt issuance costs of $0.1 million).

Quarterly installments from September 30, 2023 to December 31, 2023 are in the amount of $2.3 million per quarter, from March 31, 2024 to December 31, 2024 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 June 30, 2023 and December 31, 2022, the outstanding balance on the term loan was $67.6 million (net of unamortized debt issuance costs of $0.9 million) and $72.0 million (net of unamortized debt issuance costs of $1.0 million), respectively.

Interest expense on the term loan during the three months ended June 30, 2023 was $1.6 million

(including amortization of deferred debt issuance costs of $0.1 million).

Interest expense on the term loan during the six months ended June 30, 2023 was $3.2 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, the “Credit Agreement”) with Nomura Corporate Funding Americas, LLC, as administrative agent (the “Administrative Agent”), and Wells Fargo Bank, N.A., as collateral agent (the “Collateral Agent”), for a four-year $200.0 million secured term loan credit facility (the “Term Loan Facility”) and a four-year $80.0 million revolving loan credit facility (the “Revolving Credit Facility”).

On December 17, 2021 (the “Amendment Date”), we, the Primary Guarantor, and the Borrower entered into a Second Incremental Amendment to Credit Agreement (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.

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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 March 31, 2023.

We are in compliance with all financial covenants in the Nomura Credit Agreement as of June 30, 2023.

Commencing on September 30, 2022, the Term Loan Facility and Incremental Facility began to amortize in equal quarterly installments of 1.25% of the aggregate principal amount of the term loan as of the closing date with the remaining balance due at final maturity on June 23, 2025.

Quarterly installments from June 30, 2023 to March 31, 2025 are in the amount of $3.8 million per quarter.

As of March 31, 2023 and December 31, 2022, the outstanding balances on the Term Loan Facility and Incremental Facility were $283.7 million (net of unamortized debt issuance costs of $5.0 million) and $287.0 million (net of unamortized debt issuance costs of $5.5 million), respectively.

Interest on the term loan during the three months ended March 31, 2023 and 2022 was $7.3 million (including amortization of deferred debt issuance costs of $0.5 million) and $4.1 million (including amortization of deferred debt issuance costs of $0.5 million), respectively.

The interest rate on the term loan as of March 31, 2023 and December 31, 2022 was 9.59% and 9.23%, respectively.

We had an outstanding balance of $77.0 million and $74.7 million under the Revolving Credit Facility as of March 31, 2023 and December 31, 2022, respectively.

Interest on the revolving facility during the three months ended March 31, 2023 and 2022 was $2.0 million (including amortization of deferred financing costs of $0.2 million) and $1.1 million (including amortization of deferred financing costs of $0.1 million), respectively.

The interest rate on the Revolving Credit Facility as of March 31, 2023 and December 31, 2022 was 9.69% and 9.23%, respectively.

Quarterly installments from September 30, 2023 to March 31, 2025 are in the amount of $3.8 million per quarter.

As of June 30, 2023 and December 31, 2022, the outstanding balances on the Term Loan Facility and Incremental Facility were $280.5 million (net of unamortized debt issuance costs of $4.5 million) and $287.0 million (net of unamortized debt issuance costs of $5.5 million), respectively.

Interest on the term loan during the three months ended June 30, 2023 and 2022 was $7.6 million (including amortization of deferred debt issuance costs of $0.5 million) and $4.7 million (including amortization of deferred debt issuance costs of $0.5 million), respectively.

Interest on the term loan during the six months ended June 30, 2023 and 2022 was $14.9 million (including amortization of deferred debt issuance costs of $1.1 million) and $8.8 million (including amortization of deferred debt issuance costs of $1.0 million),

respectively.

The interest rate on the term loan as of June 30, 2023 and December 31, 2022 was 9.99% and 9.23%, respectively.

We had an outstanding balance of $57.0 million and $74.7 million under the Revolving Credit Facility as of June 30, 2023 and December 31, 2022, respectively.

Interest on the revolving facility during the three months ended June 30, 2023 and 2022 was $1.5 million (including unused commitment fees of $0.03 million and amortization of deferred financing costs of $0.2 million) and $1.2 million (including amortization of deferred financing costs of $0.1 million), respectively.

Interest on the revolving facility during the six months ended June 30, 2023 and 2022 was $3.5 million (including unused commitment fees of $0.03 million and amortization of deferred financing costs of $0.3 million) and $2.3 million (including amortization of deferred financing costs of $0.3 million), respectively.

The interest rate on the Revolving Credit Facility as of June 30, 2023 and December 31, 2022 was 9.99% and 9.23%, respectively.

Wells Fargo Credit Agreement

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The credit facility is secured by the proceeds received for services rendered in connection with liquidation service contracts pursuant to which any outstanding loan or letters of credit are issued and the assets that are sold at liquidation related to such contract.

The interest rate for each revolving credit advance under the related credit agreement is, subject to certain terms and conditions,

equal to the SOFR plus a margin of 2.25% to 3.25% depending on the type of advance and the percentage such advance represents of the related transaction for which such advance is provided.

The interest rate for each revolving credit advance under the related credit agreement is, subject to certain terms and conditions, equal to the SOFR plus a margin of 2.25% to 3.25% depending on the type of advance and the percentage such advance represents of the related transaction for which such advance is provided.

The credit facility provides for success fees in the amount of 1.0% to 10.0% of the net profits, if any, earned on liquidation engagements that are financed under the credit facility as set forth in the related Credit Agreement.

The credit facility also provides for funding fees in the amount of 0.05% to 0.20% of the aggregate principal amount of all credit advances and letters of credit issued in connection with a liquidation sale.

Interest expense totaled $0.02 million and $0.1 million during the three months ended March 31, 2023 and 2022, respectively.

There was no outstanding balance on this credit facility as of March 31, 2023 and December 31, 2022.

As of March 31, 2023 and December 31, 2022, there were no open letters of credit outstanding.

We are in compliance with all financial covenants in the asset based credit facility as of March 31, 2023.

Interest expense totaled $0.02 million and $0.04 million during the three months ended June 30, 2023 and 2022, respectively and $0.04 million and $0.1 million during the six months ended June 30, 2023 and 2022, respectively.

There was no outstanding balance on this credit facility as of June 30, 2023 and December 31, 2022.

As of June 30, 2023 and December 31, 2022, there were no open letters of credit outstanding.

We are in compliance with all financial covenants in the asset based credit facility as of June 30, 2023.

BRPAC Credit Agreement

12 unchanged sentences

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.

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 BRPAC Credit Agreement.

We are in compliance with all financial covenants in the BRPAC Credit Agreement as of March 31, 2023.

We are in compliance with all financial covenants in the BRPAC Credit Agreement as of June 30, 2023.

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:

1 unchanged sentence

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 March 31, 2023 and December 31, 2022, the interest rate on the BRPAC Credit Agreement was 8.23% and 7.65%, respectively.

As of June 30, 2023 and December 31, 2022, the interest rate on the BRPAC Credit Agreement was 8.18% and 7.65%, respectively.

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

Quarterly installments from June 30, 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 March 31, 2023 and December 31, 2022, the outstanding balance on the term loan was $64.1 million (net of unamortized debt issuance costs of $0.6 million) and $68.7 million (net of unamortized debt issuance costs of $0.7 million), respectively.

Interest expense on the term loan during the three months ended March 31, 2023 and 2022 was $1.4 million (including amortization of deferred debt issuance costs of $0.1 million) and $0.5 million (including amortization of deferred debt issuance costs of $0.1 million), respectively.

Quarterly installments from September 30, 2023 to December 31, 2023 are in the amount of $4.4 million per quarter, from March 31, 2024 to December 31, 2026 are in the amount of $3.5 million per quarter, on March 31, 2027 is in the amount of $2.6 million, and the remaining principal balance is due at final maturity on June 30, 2027.

As of June 30, 2023 and December 31, 2022, the outstanding balance on the term loan was $55.2 million (net of unamortized debt issuance costs of $0.6 million) and $68.7 million (net of unamortized debt issuance costs of $0.7 million), respectively.

Interest expense on the term loan during the three months ended June 30, 2023 and 2022 was $1.3 million (including amortization of deferred debt issuance costs of $0.1 million) and $0.6 million (including amortization of deferred debt issuance costs of $0.1 million), respectively.

Interest expense on the term loan during the six months ended June 30, 2023 and 2022 was $2.8 million (including amortization of deferred debt issuance costs of $0.1 million) and $1.1 million (including amortization of deferred debt issuance costs of $0.2 million), respectively.

Senior Note Offerings

During the three months ended March 31, 2023 and 2022, we issued zero and $20.1 million, respectively, of senior notes due with maturities dates ranging from May 2024 to August 2028 pursuant to At the Market Issuance Sales Agreements with B.

During the three months ended June 30, 2023 and 2022, we issued $0.2 million and $15.8 million, and during the six months ended June 30, 2023 and 2022 we issued $0.2 million and $35.9 million, respectively, of senior notes due with maturities dates ranging from May 2024 to August 2028 pursuant to At the Market Issuance Sales Agreements with B.

Riley Securities, Inc.

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We filed a series of prospectus supplements with the SEC in respect of our offerings of these senior notes.

As of March 31, 2023 and December 31, 2022, the total senior notes outstanding was $1,723.0 million (net of unamortized debt issue costs of $16.9 million) and $1,721.8 million (net of unamortized debt issue costs of $18.1 million) with a weighted average interest rate of 5.75% and 5.75%, respectively.

In June 2023, we entered into note purchase agreements in connection with the 6.75% Senior Notes due 2024 (“6.75% 2024 Notes”) that were issued for the Targus acquisition.

The note purchase agreements had a repurchase date of June 30, 2023 on which date we repurchased 2,356,978 shares of our 6.75% 2024 Notes with an aggregate principal amount of $58.9 million.

The repurchase price was equal to the aggregate principal amount, plus accrued and unpaid interest up to, but excluding, the repurchase date.

The total repurchase payment included approximately $0.7 million in accrued interest.

As of June 30, 2023 and December 31, 2022, the total senior notes outstanding was $1,666.0 million (net of unamortized debt issue costs of $15.1 million) and $1,721.8 million (net of unamortized debt issue costs of $18.1 million) with a weighted average interest rate of 5.71% and 5.75%, respectively.

Interest on senior notes is payable on a quarterly basis.

Interest expense on senior notes totaled $26.2 million and $24.4 million during the three months ended March 31, 2023 and 2022, respectively.

Interest expense on senior notes totaled $26.8 million and $24.7 million, respectively and during the three months ended June 30, 2023 and 2022, and $53.0 million and $49.1 million during the six months ended June 30, 2023 and 2022, respectively.

The most recent sales agreement prospectus was filed by us with the SEC on January 5, 2022 (the “January 2022 Sales Agreement Prospectus”).

This program provides for the sale by the Company of up to $250.0 million of certain of the Company’s senior notes.

As of March 31, 2023 and December 31, 2022, the Company had $0.1 million remaining availability under the January 2022 Sales Agreement.

As of June 30, 2023 and December 31, 2022, the Company had $138.0 million and $138.2 million, respectively, remaining availability under the January 2022 Sales Agreement.

Recent Accounting Standards

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis