What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-09 · 281 added, 305 removed, 328 unchanged (64% of the section changed)

23 unchanged sentences

potential losses from or illiquidity of our proprietary investments;

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

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

the continuing effects of the COVID-19 pandemic, or other pandemics or severe public health crises, and other related impacts including supply chain disruptions, labor shortages and increased labor costs;

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Restatement of Previously Issued Consolidated Financial Statements

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.

We have restated certain previously reported financial information for the three and nine months ended September 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.

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Recent Developments

Our diversified financial platform is affected by a variety of factors including the continuing high inflation, the actions by the Federal Reserve to address inflation, the possibility of recession or an economic downturn, Russia's invasion of Ukraine, and rising energy prices.

On August 21, 2023, we purchased an equity investment in Freedom VCM, Holdings LLC for $281.1 million, resulting in a 31% voting interest.

On August 21, 2023, all of the equity interests of B Riley Receivables II, LLC, a majority-owned subsidiary of the Company, were sold to Freedom VCM Receivables, Inc (“Freedom VCM Receivables”) for a purchase price of $58.9 million, which resulted in a loss of $0.1 million.

In connection with the sale, Freedom VCM Receivables assumed the obligations with respect to the Pathlight Credit Agreement as more fully discussed in Note 11 and as consideration for the purchase price Freedom VCM Receivables entered into a note receivable in the amount of $58.9 million, with a stated interest rate of 19.74% and a maturity date of August 21, 2033.

Our diversified financial platform is affected by a variety of factors including continuing high inflation, the actions by the Federal Reserve to address inflation, the possibility of recession or an economic downturn, Russia's invasion of Ukraine, and rising energy prices.

These factors create uncertainty about the future economic environment which will continue to evolve and may impact our business in future periods.

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If the financial markets and/or the overall economy continue to be impacted, our results of operations, financial position, and cash flows may be materially adversely affected.

Critical Accounting Policies

The preparation of our condensed consolidated financial statements in accordance with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, related disclosures of contingent assets and liabilities, and reported amounts of revenue and expense during the reporting period.

The estimates and assumptions are based on historical experience and on other factors that management believes to be reasonable.

Actual results may differ from those estimates.

Critical accounting policies represent the areas where more significant judgments and estimates are used in the preparation of our condensed consolidated financial statements.

A discussion of such critical accounting policies, which include revenue recognition, reserves for accounts

receivable, the carrying value of goodwill and other intangible assets, fair value measurements, and accounting for income tax valuation allowances can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Results of Operations

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

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

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

Condensed Consolidated Statements of Operations

(Dollars in thousands)

Three Months Ended June 30, Change

Three Months Ended September 30, Change

2023 2022 Amount %

1 unchanged sentence

Services and fees $ 278,023 $ 257,310 $ 20,713 8.0 %

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

Trading loss and fair value adjustments on loans (10,587) (6,917) (3,670) 53.1 %

Interest income - Loans and securities lending 69,730 57,594 12,136 21.1 %

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Operating expenses:

Direct cost of services 55,941 17,785 38,156 n/m

Direct cost of services 67,850 44,523 23,327 52.4 %

Cost of goods sold 78,053 3,089 74,964 n/m

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Restructuring charge 228 8,016 (7,788) (97.2) %

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

Impairment of goodwill and tradenames 35,500 — 35,500 100.0 %

Interest expense - Securities lending and loan participations sold 38,368 17,447 20,921 119.9 %

Total operating expenses 441,687 236,802 204,885 86.5 %

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

Operating income 20,625 75,315 (54,690) (72.6) %

Other income (expense):

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Dividend income 12,876 9,175 3,701 40.3 %

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) %

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

Realized and unrealized (losses) gains on investments (75,361) 19,071 (94,432) n/m

Change in fair value of financial instruments and other (4,170) (574) (3,596) n/m

Loss from equity investments (308) (91) (217) n/m

Interest expense (45,229) (34,587) (10,642) 30.8 %

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) %

Net income (loss) attributable to B.

(Loss) income before income taxes (91,387) 68,995 (160,382) n/m

Benefit from (provision for) income taxes 15,079 (16,350) 31,429 (192.2) %

Net (loss) income (76,308) 52,645 (128,953) n/m

Net (loss) income attributable to noncontrolling interests (2,485) 4,808 (7,293) (151.7) %

Net (loss) income attributable to B.

Riley Financial, Inc.

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

(73,823) 47,837 (121,660) n/m

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

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

Net (loss) income available to common shareholders $ (75,838) $ 45,835 $ (121,673) n/m

n/m - Not applicable or not meaningful.

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

Three Months Ended June 30, Change

Three Months Ended September 30, Change

2023 2022 Amount %

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Consumer segment 4,304 5,023 (719) (14.3) %

All Other 9,669 611 9,058 n/m

All Other 9,928 4,072 5,856 143.8 %

Subtotal 278,023 257,310 20,713 8.0 %

Revenues - Sale of goods:

Auction and Liquidation segment 1,676 — 1,676 100.0 %

Auction and Liquidation segment 65,117 2,550 62,567 n/m

Communications segment 1,638 1,580 58 3.7 %

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Subtotal 125,146 4,130 121,016 n/m

Trading income (loss) and fair value adjustments on loans

Trading (loss) income and fair value adjustments on loans

Capital Markets segment (11,077) (7,944) (3,133) 39.4 %

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n/m - Not applicable or not meaningful.

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.

Total revenues increased $150.2 million to $462.3 million during the three months ended September 30, 2023 from $312.1 million during the three months ended September 30, 2022.

The increase in revenues during the three months ended September 30, 2023 was primarily due to increases in revenues from sale of goods of $121.0 million, services and fees of $20.7 million, and interest income from loans and securities lending of $12.1 million, partially offset by a decrease in trading (loss) income and fair value adjustments on loans of $3.7 million.

The increase in revenue from services and fees in the three months ended September 30, 2023 consisted of increases in revenue of $14.5 million in the Financial Consulting segment, $10.5 million in the Auction and Liquidation segment, $9.9 million in the Communications segment, $5.9 million in All Other, and $3.7 million in the Wealth Management segment, partially offset by decreases in revenue of $23.1 million in the Capital Markets segment and $0.7 million in the Consumer segment.

Revenues from services and fees in the Capital Markets segment decreased $23.1 million to $80.9 million during the three months ended September 30, 2023 from $104.0 million during the three months ended September 30, 2022.

The decrease in revenues was primarily due to decreases of $43.3 million in incentive fees, $4.1 million in dividends, $1.3 million of asset management fees, and $1.3 million of commission fees, partially offset by increases of $26.1 million of corporate finance, consulting, and investment banking fees and $0.8 million in interest income.

Revenues from services and fees in the Wealth Management segment increased $3.7 million to $50.9 million during the three months ended September 30, 2023 from $47.1 million during the three months ended September 30, 2022.

The increase in revenues was primarily due to an increase in revenue of $3.0 million from wealth and asset management fees.

Revenues from services and fees in the Auction and Liquidation segment increased $10.5 million to $12.5 million during the three months ended September 30, 2023 from $1.9 million during the three months ended September 30, 2022.

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

Revenues from services and fees in the Financial Consulting segment increased $14.5 million to $37.4 million during the three months ended September 30, 2023 from $22.8 million during the three months ended September 30, 2022.

The increase in revenues was primarily due to an increase of $12.3 million within our Advisory Services division and an increase of $2.2 million within our Real Estate division.

Revenues from services and fees in the Communications segment increased $9.9 million to $82.2 million during the three months ended September 30, 2023 from $72.2 million during the three months ended September 30, 2022.

The increase in revenues was primarily due to an increase of $13.4 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 $2.8 million for United Online, Inc.

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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.

Revenues from services and fees in the Consumer segment decreased $0.7 million to $4.3 million during the three months ended September 30, 2023 from $5.0 million during the three months ended September 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 $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 $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 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%.

Revenues from services and fees in All Other, which includes the operations of a regional environmental services business that we acquired in 2022, increased $5.9 million to $9.9 million during the three months ended September 30, 2023 from $4.1 million during the three months ended September 30, 2022.

Trading (loss) income and fair value adjustments on loans decreased approximately $3.7 million to a loss of $10.6 million during the three months ended September 30, 2023 compared to a loss of $6.9 million during the three months ended September 30, 2022.

This decrease was primarily due to a decrease of $3.1 million in the Capital Markets segment and a decrease of $0.5 million in the Wealth Management segment.

The loss of $10.6 million during the three months ended September 30, 2023 was primarily due to realized and unrealized losses on investments made in our proprietary trading accounts of $9.7 million and an unrealized loss on our loans receivable, at fair value of $0.9 million.

Interest income – loans and securities lending increased $12.1 million to $69.7 million during the three months ended September 30, 2023 from $57.6 million during the three months ended September 30, 2022.

Interest income from securities lending was $42.3 million and $21.9 million during the three months ended September 30, 2023 and 2022, respectively.

Interest income from loans was $27.4 million and $35.7 million during the three months ended September 30, 2023 and 2022, respectively.

Revenues from the sale of goods increased $121.0 million to $125.1 million during the three months ended September 30, 2023 from $4.1 million during the three months ended September 30, 2022.

Revenues from sale of goods were attributable to an increase of $58.4 million from the Consumer segment due to the acquisition of Targus in the fourth quarter of 2022 and an increase of $65.1 million from the Auction and Liquidation segment due to an increase in both the number and the size of asset purchase liquidation engagements.

Cost of goods sold for the three months ended September 30, 2023 was $78.1 million, resulting in gross margin of 37.6%.

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

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

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Direct Cost of Services

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.

Direct cost of services increased approximately $23.3 million to $67.9 million during the three months ended September 30, 2023 from $44.5 million during the three months ended September 30, 2022.

The increase in direct cost of services was primarily attributable to increases of $12.2 million from the Auction and Liquidation segment due to the size of the fee and asset sale deals, $7.5 million from the Communications segment from the acquisitions of Lingo in the second quarter of 2022 and BullsEye in the third quarter of 2022, and $3.6 million from All Other due to other acquisitions made during 2022.

Selling, General and Administrative Expenses

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

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

Three Months Ended September 30, 2023 Three Months Ended

September 30, 2022 Change

Amount % Amount % Amount %

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Wealth Management segment 48,966 22.1 % 53,563 32.7 % (4,597) (8.6) %

Auction and Liquidation segment 2,302 1.2 % 2,177 1.3 % 125 5.7 %

Auction and Liquidation segment 8,405 3.8 % 2,228 1.4 % 6,177 n/m

Financial Consulting segment 26,857 12.1 % 20,131 12.3 % 6,726 33.4 %

5 unchanged sentences

n/m - Not applicable or not meaningful.

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.

Total selling, general and administrative expenses increased by $58.0 million to $221.7 million during the three months ended September 30, 2023 from $163.7 million during the three months ended September 30, 2022.

The increase was primarily due to an increase of $26.0 million in the Capital Markets segment, $18.2 million in the Consumer segment, $6.7 million in the Financial Consulting segment, $6.2 million in the Auction and Liquidation segment, $4.2 million in Corporate and All Other, and $1.3 million in the Communications segment, partially offset by a decrease of $4.6 million in the Wealth Management segment.

Capital Markets

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.

Selling, general and administrative expenses in the Capital Markets segment increased by $26.0 million to $63.8 million during the three months ended September 30, 2023 from $37.8 million during the three months ended September 30, 2022.

The increase was primarily due to increases of $26.0 million in consulting expenses and $2.4 million in payroll and related expenses, partially offset by decreases of $1.3 million in foreign currency fluctuations and $1.3 million in depreciation and amortization.

Wealth Management

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.

Selling, general and administrative expenses in the Wealth Management segment decreased by $4.6 million to $49.0 million during the three months ended September 30, 2023 from $53.6 million during the three months ended September 30, 2022.

The decrease was primarily due to decreases of $2.4 million in other expenses, $1.2 million in legal settlements, and $1.0 million in change in fair value of contingent consideration.

Auction and Liquidation

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.

Selling, general and administrative expenses in the Auction and Liquidation segment increased $6.2 million to $8.4 million during the three months ended September 30, 2023 from $2.2 million during the three months ended September 30, 2022.

The increase was primarily due to increases of $4.1 million in business development activities and $2.4 million in payroll and related expenses.

Financial Consulting

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.

Selling, general and administrative expenses in the Financial Consulting segment increased by $6.7 million to $26.9 million during the three months ended September 30, 2023 from $20.1 million during the three months ended September 30, 2022.

The increase was primarily due to increases of $4.9 million in payroll and related expenses and $1.8 million in other expenses.

Communications

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.

Selling, general and administrative expenses in the Communications segment increased $1.3 million to $28.4 million for the three months ended September 30, 2023 from $27.1 million for the three months ended September 30, 2022.

The increase was primarily due to an increase of $1.7 million from the acquisition of Bullseye in the third quarter of 2022, partially offset by a decrease of $0.6 million in payroll and related expenses.

Selling, general and administrative expenses in the Consumer segment increased $18.2 million to $19.6 million for the three months ended September 30, 2023 from $1.4 million during the three months ended September 30, 2022.

The increase was primarily due to an increase of $18.8 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 $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.

Selling, general and administrative expenses for Corporate and All Other increased approximately $4.2 million to $25.7 million during the three months ended September 30, 2023 from $21.4 million for the three months ended September 30, 2022.

The increase was primarily due to $5.4 million in extinguishment of debt and $1.0 million in legal expenses, partially offset by a decrease of $2.0 million in transaction costs.

Impairment of goodwill and tradenames.

We recognized impairment charges of $35.5 million during the three months ended September 30, 2023 consisting of $8.0 million in impairment of indefinite-lived tradenames and $27.5 million in impairment of goodwill in the Consumer segment.

We performed an interim impairment test as of September 30, 2022 as further discussed in Note 9.

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

Other Income (Expense).

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 $0.4 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 $47.3 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 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 $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 $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.

Other income included interest income of $0.2 million and $0.7 million during the three months ended September 30, 2023 and 2022, respectively.

Dividend income was $12.9 million during the three months ended September 30, 2023 compared to $9.2 million during the three months ended September 30, 2022.

Realized and unrealized gains (losses) on investments was a loss of $75.4 million during the three months ended September 30, 2023 compared to a gain of $19.1 million during the three months ended September 30, 2022.

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

Change in fair value of financial instruments and other was a loss of $4.2 million during the three months ended September 30, 2023 and a loss of $0.6 million during the three months ended September 30, 2022.

The change was primarily due to the loss on remeasurement of the bebe equity method investment, partially offset by the gain on the sale of certain assets related to our landscaping business.

Interest expense was $45.2 million during the three months ended September 30, 2023 compared to $34.6 million during the three months ended September 30, 2022.

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

The increases in interest expense primarily consisted of $5.5 million and $0.5 million from the Nomura term loan and revolving credit facility, respectively, $1.6 million from the Pathlight term loan, $1.2 million from the Lingo term loan, $0.6 million and $1.2 million from the Targus term loan and revolving credit facility, respectively, $0.2 million from the issuance of senior notes, and $0.2 million from the BRPAC term loan.

During the three months ended September 30, 2023, loss from equity

investments was $0.3 million compared to loss from equity investments of $0.1 million during the three months ended September 30, 2022.

(Loss) Income Before Income Taxes .

Loss before income taxes was $91.4 million during the three months ended September 30, 2023 compared to income of $69.0 million during the three months ended September 30, 2022.

The change was due to an increase in operating expenses of approximately $204.9 million, a change in realized and unrealized losses on investments of $94.4 million, an increase in interest expense of $10.6 million, an increase in change in fair value of financial instruments and other of $3.6 million, a decrease of $0.5 million in interest income, and a change in loss from equity investments of $0.2 million, partially offset by an increase in revenue of $150.2 million and an increase of $3.7 million in dividend income.

Benefit from (Provision for) Income Taxes.

Benefit from income taxes was $15.1 million during the three months ended September 30, 2023 compared to a provision of $16.4 million during the three months ended September 30, 2022.

The effective income tax benefit rate was 16.5% for the three months ended September 30, 2023 as compared to a provision of 23.7% for the three months ended September 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 $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 $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.

The net loss attributable to noncontrolling interests was $2.5 million during the three months ended September 30, 2023 compared to net income of $4.8 million during the three months ended September 30, 2022.

Net (Loss) Income Attributable to the Company .

Net loss attributable to the Company was $73.8 million during the three months ended September 30, 2023 compared to net income attributable to the Company of $47.8 million for the three months ended September 30, 2022.

The change was due to a decrease in realized and unrealized gains (losses) on investments of $94.4 million, a decrease in operating income of $54.7 million, an increase in interest expense of $10.6 million, an increase in change in fair value of financial instruments and other of $3.6 million, a decrease of $0.5 million in interest income, and a change in loss from equity investments of $0.2 million, partially offset by a change from a provision for to a benefit from income taxes of $31.4 million, a change in net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests of $7.3 million, and an increase of $3.7 million in dividend income.

Preferred Stock Dividends .

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 $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.

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

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

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

Net (Loss) Income Available to Common Shareholders .

Net loss available to common shareholders was $75.8 million during the three months ended September 30, 2023 compared to net income available to common shareholders of $45.8 million during the three months ended September 30, 2022.

The change was due to a decrease in realized and unrealized gains (losses) on investments of $94.4 million, a decrease in operating income of $54.7 million, an increase in interest expense of $10.6 million, an increase in change in fair value of financial instruments and other of $3.6 million, a decrease of $0.5 million in interest income, and a change in loss from equity investments of $0.2 million, partially offset by a change from provision for to benefit from income taxes of $31.4 million, a change in net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests of $7.3 million, and an increase of $3.7 million in dividend income.

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

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Condensed Consolidated Statements of Operations

(Dollars in thousands)

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

2023 2022 Amount %

5 unchanged sentences

Operating expenses:

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

Direct cost of services 178,188 73,959 104,229 140.9 %

Cost of goods sold 165,996 7,334 158,662 n/m

1 unchanged sentence

Restructuring charge 949 8,016 (7,067) (88.2) %

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

Impairment of goodwill and tradenames 37,233 — 37,233 100.0 %

Interest expense - Securities lending and loan participations sold 106,572 43,757 62,815 143.6 %

Total operating expenses 1,112,138 639,128 473,010 74.0 %

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

Operating income 188,542 59,450 129,092 n/m

Other income (expense):

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

Interest income 3,455 1,253 2,202 175.7 %

Dividend income 35,635 26,279 9,356 35.6 %

1 unchanged sentence

Change in fair value of financial instruments and other (3,998) 9,728 (13,726) (141.1) %

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

(Loss) income from equity investments (175) 3,285 (3,460) (105.3) %

Interest expense (140,122) (96,787) (43,335) 44.8 %

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

Loss before income taxes (1,623) (132,997) 131,374 (98.8) %

(Provision for) benefit from income taxes (14,344) 39,858 (54,202) (136.0) %

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

Net loss (15,967) (93,139) 77,172 (82.9) %

Net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests (5,680) 9,245 (14,925) (161.4) %

Net income (loss) attributable to B.

Net loss attributable to B.

Riley Financial, Inc.

1 unchanged sentence

Preferred stock dividends 6,042 6,006 36 0.6 %

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

Net loss available to common shareholders $ (16,329) $ (108,390) $ 92,061 (84.9) %

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

Nine Months Ended September 30, Change

2023 2022 Amount %

2 unchanged sentences

Wealth Management segment 146,660 184,963 (38,303) (20.7) %

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

Auction and Liquidation segment 26,817 7,792 19,025 n/m

Financial Consulting segment 93,582 73,081 20,501 28.1 %

4 unchanged sentences

Revenues - Sale of goods:

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

Auction and Liquidation segment 67,009 2,550 64,459 n/m

Communications segment 5,145 5,345 (200) (3.7) %

12 unchanged sentences

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.

Total revenues increased approximately $602.1 million to $1,300.7 million during the nine months ended September 30, 2023 from $698.6 million during the nine months ended September 30, 2022.

The increase in revenues during the nine months ended September 30, 2023 was primarily due to increases in revenues from sale of goods of $243.4 million, an increase in revenue from trading income (loss) and fair value adjustments on loans of $227.3 million, services and fees of $92.1 million, and interest income from loans and securities lending of $39.3 million.

The increase in revenue from services and fees in the nine months ended September 30, 2023 consisted of increases in revenue of $108.2 million in the Communications segment, $23.5 million in All Other, $20.5 million in the Financial Consulting segment, and $19.0 million in the Auction and Liquidation segment, partially offset by decreases in revenues of $39.6 million in the Capital Markets segment, $38.3 million in the Wealth Management segment, and $1.1 million in the Consumer segment.

Revenues from services and fees in the Capital Markets segment decreased $39.6 million to $183.8 million during the nine months ended September 30, 2023 from $223.4 million during the nine months ended September 30, 2022.

The decrease in revenues was primarily due to decreases of $48.7 million in incentive fees, $7.5 million in commission fees, $4.3 million in asset management fees, and $2.6 million in dividends, partially offset by increases of $18.9 million in corporate finance, consulting, and investment banking fees and $4.5 million in interest income.

Revenues from services and fees in the Wealth Management segment decreased $38.3 million to $146.7 million during the nine months ended September 30, 2023 from $185.0 million during the nine months ended September 30, 2022.

The decrease in revenues was primarily due to a decrease in revenue of $26.7 million from wealth and asset management fees, $9.3 million of commission fees, and $2.3 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.

Revenues from services and fees in the Auction and Liquidation segment increased $19.0 million to $26.8 million during the nine months ended September 30, 2023 from $7.8 million during the nine months ended September 30, 2022.

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

Revenues from services and fees in the Financial Consulting segment increased $20.5 million to $93.6 million during the nine months ended September 30, 2023 from $73.1 million during the nine months ended September 30, 2022.

The increase in revenues was primarily due to an increase of $22.8 million within our Advisory Services division, partially offset by a decrease of $2.3 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.

Revenues from services and fees in the Communications segment increased $108.2 million to $250.5 million during the nine months ended September 30, 2023 from $142.4 million during the nine months ended September 30, 2022.

The increase in revenues was primarily due to an increase of $117.6 million in subscription services from the controlling interests in Lingo in the second quarter of 2022 and the acquisition of BullsEye in the third quarter of 2022, partially offset by decreases in subscription revenue of $7.5 million and other revenue of $2.0 million 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.

Revenues from services and fees in the Consumer segment decreased $1.1 million to $13.7 million during the nine months ended September 30, 2023 from $14.8 million during the nine months ended September 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.

Revenues from services and fees in All Other, which includes the operations of a regional environmental services business that we acquired in 2022, increased $23.5 million to $28.9 million during the nine months ended September 30, 2023 from $5.4 million during the nine months ended September 30, 2022.

Trading income (loss) and fair value adjustments on loans increased $227.3 million to income of $83.3 million during the nine months ended September 30, 2023 compared to a loss of $144.0 million during the nine months ended September 30, 2022.

This increase was primarily due to increases of $228.1 million in the Capital Markets segment, partially offset by a decrease of $0.8 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 trading income and fair value adjustment on loans of $83.3 million during the nine months ended September 30, 2023 was primarily due to an unrealized gain on our loans receivable, at fair value of $51.6 million and realized and unrealized gain on investments made in our proprietary trading accounts of $31.7 million.

Interest income – loans and securities lending increased $39.3 million to $222.1 million during the nine months ended September 30, 2023 from $182.9 million during the nine months ended September 30, 2022.

Interest income from securities lending was $119.6 million and $55.7 million during the nine months ended September 30, 2023 and 2022, respectively.

Interest income from loans was $102.5 million and $127.2 million during the nine months ended September 30, 2023 and 2022, respectively.

Revenues from the sale of goods increased $243.4 million to $251.3 million during the nine months ended September 30, 2023 from $7.9 million during the nine months ended September 30, 2022.

Revenues from sale of goods were attributable to an increase of $179.2 million from the Consumer segment due to the acquisition of Targus in the fourth quarter of 2022 and an increase of $64.5 million from the Auction and Liquidation segment due to an increase in both the number and the size of asset purchase liquidation engagements, partially offset by a decrease of $0.2 million from the Communications segment.

Cost of goods sold for the nine months ended September 30, 2023 was $166.0 million resulting in a gross margin of 33.9%.

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

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 $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.

Direct cost of services increased $104.2 million to $178.2 million during the nine months ended September 30, 2023 from $74.0 million during the nine months ended September 30, 2022.

The increase in direct cost of services was primarily attributable to increases of $72.5 million from the Communications segment from the acquisitions of Lingo in the second quarter of 2022 and BullsEye in the third quarter of 2022, $16.5 million from All Other due to other acquisitions made during 2022, and $15.2 million from the Auction and Liquidation segment due to the size and number of the fee and asset sale deals.

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

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

Nine Months Ended

September 30, 2023 Nine Months Ended

September 30, 2022 Change

Amount % Amount % Amount %

9 unchanged sentences

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.

Total selling, general and administrative expenses increased approximately $117.1 million to $623.2 million during the nine months ended September 30, 2023 from $506.1 million during the nine months ended September 30, 2022.

The increase was primarily due to an increase of $58.4 million in the Consumer segment, $55.7 million in the Capital Markets segment, $29.9 million in the Communications segment, $21.0 million in Corporate and All Other, $9.8 million in the Financial Consulting segment, and $6.8 million in the Auction and Liquidation segment, partially offset by a decrease of $64.4 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.

Selling, general and administrative expenses in the Capital Markets segment increased by $55.7 million to $177.6 million during the nine months ended September 30, 2023 from $121.9 million during the nine months ended September 30, 2022.

The increase was primarily due to increases of $74.5 million in consulting expenses, partially offset by decreases of $10.3 million in payroll and related expenses, $4.6 million in penalties, and $3.4 million in change in fair value of contingent consideration.

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.

Selling, general and administrative expenses in the Wealth Management segment decreased by $64.4 million to $146.4 million during the nine months ended September 30, 2023 from $210.8 million during the nine months ended September 30, 2022.

The decrease was primarily due to decreases of $37.2 million in payroll and related expenses, $7.2 million in legal settlements, $5.3 million in penalties, $5.0 million in other expenses, $2.6 million in clearing charges, $2.3 million in legal expenses, $1.3 million in software and equipment expenses, $1.2 million in depreciation and amortization, $1.0 million in change in fair value of contingent consideration, $0.7 million in consulting expenses, and $0.6 million in market data services.

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.

Selling, general and administrative expenses in the Auction and Liquidation segment increased by $6.8 million to $13.0 million during the nine months ended September 30, 2023 from $6.2 million during the nine months ended September 30, 2022.

The increase was primarily due to increases of $4.0 million in business development activities and $2.5 million in payroll and related expenses.

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.

Selling, general and administrative expenses in the Financial Consulting segment increased by $9.8 million to $71.0 million during the nine months ended September 30, 2023 from $61.2 million during the nine months ended September 30, 2022.

The increase was primarily due to increases of $6.0 million in payroll and related expenses, $2.8 million in other expenses, and $0.9 million in travel and entertainment 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.

Selling, general and administrative expenses in the Communications segment increased $29.9 million to $84.2 million for the nine months ended September 30, 2023 from $54.3 million for the nine months ended September 30, 2022.

The increase was primarily due to increases of $36.0 million from the controlling 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 $2.9 million in payroll and related expenses, $1.8 million in other expenses, $0.7 million in marketing expenses and $0.6 million in transaction costs.

Selling, general and administrative expenses in the Consumer segment increased $58.4 million to $62.5 million for the nine months ended September 30, 2023 from $4.2 million during the nine months ended September 30, 2022.

The increase was primarily due to an increase of $59.8 million from the acquisition of Targus in the fourth quarter of 2022, partially offset by a decrease of $1.4 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.

Selling, general and administrative expenses for Corporate and All Other increased approximately $21.0 million to $68.4 million during the nine months ended September 30, 2023 from $47.5 million for the nine months ended September 30, 2022.

The increase was primarily due to increases of $6.5 million from the acquisition of other businesses in 2022, $5.4 million loss on extinguishment of debt, $4.5 million change in fair value of contingent consideration, $3.9 million in foreign currency fluctuations, and $0.7 million in other expenses.

Impairment of goodwill and tradenames.

We recognized impairment charges of $37.2 million during the nine months ended September 30, 2023 consisting of $8.0 million in impairment of indefinite-lived tradenames and $27.5 million of impairment of goodwill in the Consumer segment and $1.7 million in impairment of tradenames in the Capital Markets segment.

We performed an interim impairment test as of September 30, 2023 as further discussed in Note 9.

There was no impairment recognized during the nine months ended September 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.

Other income included interest income of $3.5 million and $1.3 million during the nine months ended September 30, 2023 and 2022, respectively.

Dividend income was $35.6 million during the nine months ended September 30, 2023 compared to $26.3 million during the nine months ended September 30, 2022.

Realized and unrealized losses on investments was $85.0 million during the nine months ended September 30, 2023 compared to losses of $136.2 million during the nine months ended September 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.

Change in fair value of financial instruments and other was a loss of $4.0 million during the nine months ended September 30, 2023 and a gain of $9.7 million during the nine months ended September 30, 2022.

The loss during the nine months ended September 30, 2023 was primarily due to the loss on remeasurement of the bebe equity method investment, partially offset by the gain on the sale of certain assets related to our landscaping business in 2023.

Interest expense was $140.1 million during the nine months ended September 30, 2023 compared to $96.8 million during the nine months ended September 30, 2022.

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

The increases in interest expense primarily consisted of $13.9 million from the Pathlight term loan, $11.6 million and $1.7 million from the Nomura term loan and revolving credit facility, respectively, $4.4 million from the Lingo

term loan, $3.9 million from the issuance of senior notes, $1.8 million and $3.7 million from the Targus term loan and revolving credit facility, respectively, and $1.9 million from the BRPAC term loan.

During the nine months ended September 30, 2023, loss from equity investments was $0.2 million compared to income of $3.3 million during the nine months ended September 30, 2022.

The decrease was primarily due to $6.9 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 .

Loss Before Income Taxes .

Loss before income taxes was $1.6 million during the nine months ended September 30, 2023 compared to a loss of $133.0 million during the nine months ended September 30, 2022.

The change was due to an increase in revenue of $602.1 million, a change in realized and unrealized losses on investments of $51.2 million, an increase of $9.4 million in dividend income, and an increase of $2.2 million in interest income, partially offset by an increase in operating expenses of approximately $473.0 million, an increase in interest expense of $43.3 million, a decrease in change in fair value of financial instruments and other of $13.7 million, and a decrease in income from equity investments of $3.5 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.

Provision for income taxes was $14.3 million during the nine months ended September 30, 2023 compared to a benefit of $39.9 million during the nine months ended September 30, 2022.

The change in the effective income tax rate during the nine months ended September 30, 2023 compared to the prior year is primarily due to the impact of the non-cash goodwill impairment charge of $27.5 million, which is further discussed in Note 9, not being tax deductible and other items that are not tax deductible on the loss before income taxes of $1.6 million.

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.

The net loss attributable to noncontrolling interests was $5.7 million during the nine months ended September 30, 2023 compared to net income of $9.2 million during the nine months ended September 30, 2022.

Net Loss Attributable to the Company .

Net loss attributable to the Company was $10.3 million during the nine months ended September 30, 2023 compared to a net loss attributable to the Company of $102.4 million for the nine months ended September 30, 2022.

The change was due to an increase in operating income of $129.1 million, a change in realized and unrealized loss on investments of $51.2 million, a decrease in net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests of $14.9 million, an increase of $9.4 million in dividend income, and an increase of $2.2 million in interest income, partially offset by a change from benefit from to provision for income taxes of $54.2 million, an increase in interest expense of $43.3 million, a decrease in change in fair value of financial instruments and other of $13.7 million, and a decrease in income from equity investments of $3.5 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.

Preferred stock dividends were $6.0 million for the nine months ended September 30, 2023 and 2022.

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

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

Net Loss Available to Common Shareholders .

Net loss available to common shareholders was $16.3 million during the nine months ended September 30, 2023 compared to net loss available to common shareholders of $108.4 million during the nine months ended September 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 six months ended June 30, 2023 and 2022, we generated net income of $60.3 million and net loss of $145.8 million, respectively.

During the nine months ended September 30, 2023 and 2022, we generated net loss of $16.0 million and net loss of $93.1 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 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.

As of September 30, 2023, we had $252.3 million of unrestricted cash and cash equivalents, $2.1 million of restricted cash, $1,197.6 million of securities and other investments, at fair value, $549.1 million of loans receivable, at fair value, and $2,363.9 million of borrowings outstanding.

The borrowings outstanding of $2,363.9 million as of September 30, 2023 included $1,667.1 million from the issuance of 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%, $618.3 million in term loans borrowed pursuant to the Targus, Lingo, BRPI Acquisition Co LLC (“BRPAC”), and Nomura credit agreements discussed below, $57.2 million of revolving credit facility under the Targus credit facility 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, Lingo, BRPAC, and Nomura term loans, funds available under the Targus and Nomura revolving credit facilities, and cash expected to be generated from operating activities will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months from issuance date of the accompanying financial statements.

We continue to monitor our financial performance to ensure sufficient liquidity to fund operations and execute on our business plan.

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

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.

On November 8, 2023, we declared a regular dividend of $1.00 per share that will be paid on or about November 30, 2023 to stockholders of record as of November 20, 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 six months ended June 30, 2023 and the year ended December 31, 2022 was as follows:

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

Date Declared Date Paid Stockholder

July 25, 2023 August 21, 2023 August 11, 2023 $ 1.000 $ — $ 1.000

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

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

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.

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

On October 10, 2023, the Company declared a cash dividend of $0.4296875 per Depositary Share, which was paid on October 31, 2023 to holders of record as of the close of business on October 23, 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 or about the last day of January, April, July, and October.

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:

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

On October 10, 2023, the Company declared a cash dividend of $0.4609375 per Depositary Share, which was paid on October 31, 2023 to holders of record as of the close of business on October 23, 2023.

A summary of preferred stock dividend activity for the nine months ended September 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

October 10, 2023 October 31, 2023 October 23, 2023 $ 0.4296875 $ 0.4609375

July 11, 2023 July 31, 2023 July 21, 2023 0.4296875 0.4609375

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

4 unchanged sentences

January 10, 2022 January 31, 2022 January 21, 2022 0.4296875 0.4609375

Our principal sources of liquidity to finance our business is our existing cash on hand, cash flows generated from operating activities, funds available under revolving credit facilities and special purpose financing arrangements.

Our principal sources of liquidity to finance our business are our existing cash on hand, cash flows generated from operating activities, funds available under revolving credit facilities and special purpose financing arrangements.

Cash Flow Summary

Six Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

Net cash provided by (used in):

Net cash (used in) provided by:

Operating activities $ (40,957) $ (72,814)

3 unchanged sentences

Net decrease in cash, cash equivalents and restricted cash $ (16,578) $ (46,477)

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.

Cash used in operating activities was $41.0 million during the nine months ended September 30, 2023 compared to cash used in operating activities of $72.8 million during the nine months ended September 30, 2022.

Cash used in operating activities for the nine months ended September 30, 2023 consisted of the impact of net loss of $16.0 million, noncash items of $40.9 million, and changes in operating assets and liabilities of $65.9 million.

The positive cash flow impact from noncash items of $40.9 million included depreciation and amortization of $38.1 million, impairment of goodwill and intangibles of $37.2 million, share-based compensation of $35.3 million, provision for doubtful accounts of $5.9 million, loss on extinguishment of debt of $5.3 million, income allocated for mandatorily redeemable noncontrolling interests of $1.3 million, effect of foreign currency of $0.7 million, income from equity investments of $0.2 million, and dividends from equity investments of $0.2 million, partially offset by fair value adjustments of $42.8 million, deferred income taxes of $21.4 million, gain on sale of businesses, disposal of fixed assets, and other of $9.6 million, and non-cash interest and other of $9.4 million.

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

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

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

Cash provided by investing activities was $313.0 million during the nine months ended September 30, 2023 compared to cash provided by investing activities of $41.7 million for the nine months ended September 30, 2022.

During the nine months ended September 30, 2023, cash provided by investing activities consisted of cash provided by loans receivable repayment of $543.6 million, funds received from trust account of subsidiary of $175.8 million, proceeds from sale of property, equipment, intangible assets, and other of $17.3 million, and sale of loan receivable of $7.5 million, partially offset by cash used in purchases of loans receivable of $405.4 million, acquisition of businesses and minority interest of $15.3 million, purchases of property and equipment of $5.8 million, and purchase of equity and other investments of $4.9 million.

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

Cash used in financing activities was $285.5 million during the nine months ended September 30, 2023 compared to cash used in financing activities of $8.8 million during the nine months ended September 30, 2022.

During the nine months ended September 30, 2023, cash used in financing activities primarily consisted of $504.2 million used in the repayment of term loan, $261.7 million used in payment of revolving lines of credit, $175.8 million used in redemption of subsidiary temporary equity and distributions, $111.0 million used to pay dividends on our common shares, $58.9 million used to redeem senior notes, $53.7 million used to repurchase our common shares, $27.2 million used to pay debt issuance and offering costs, $11.9 million used to repay our notes payable, $8.6 million used in ESPP and payment of employment taxes on vesting of restricted stock, $6.0 million used to pay dividends on our preferred shares, $4.0 million in distributions to noncontrolling interests, and $1.9 million used to pay contingent consideration, partially offset by cash provided by $628.2 million in proceeds from term loans, $191.3 million in proceeds from revolving line of credit, $115.0 million in proceeds from issuance of common stock, $4.3 million in contributions from noncontrolling interests, and $0.5 million in proceeds from issuance of preferred stock.

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

FRG Commitments

On May 10, 2023, we entered into certain agreements pursuant to which we had, 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 (the “Parent”), of FRG.

We entered into an Equity Commitment Letter with Freedom VCM (“TopCo”), the parent company of the Parent, and the Parent, pursuant to which we agreed to provide to TopCo, at or prior to the closing of the Acquisition, an amount equal to up to $560.0 million in equity financing.

We and FRG also entered into a 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 its subsidiary to FRG of certain liabilities and obligations of the Parent or such subsidiary.

On August 21, 2023, in connection with the completion of the Acquisition and our portion of the equity financing, our obligations pursuant to the Equity Commitment Letter and Limited Guarantee were satisfied.

Credit Agreements

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

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

The Targus Credit Agreement also contains customary

representations and warranties, affirmative covenants, and events of default, including payment defaults, breach of representations and warranties, covenant defaults and cross defaults.

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

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

The Borrower was not in compliance with the Fixed Charge Coverage Ratio financial covenant as of September 30, 2023.

The Borrower entered into Amendment No.1 to the Targus Credit Agreement on October 31, 2023, which, among other things, modified the Fixed Charge Coverage Ratio which waived the financial covenant breach.

The Borrower is in compliance with the Targus Credit Agreement and no event of default has occurred.

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%.

1 unchanged sentence

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

On September 23, 2022, our subsidiary, B.

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

On January 12, 2023, Amendment

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

On March 31, 2023, Amendment No.

3 to the Pathlight Credit Agreement increased the term loan by an additional $49.9 million.

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 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.

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

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

We are in compliance with all financial covenants in the Pathlight Credit Agreement as of 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 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).

Quarterly installments from December 31, 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 September 30, 2023 and December 31, 2022, the outstanding balance on the term loan was $22.0 million (net of unamortized debt issuance costs of $0.4 million) and $26.0 million (net of unamortized debt issuance costs of $0.6 million) and the outstanding balance on the revolver loan was $57.2 million and $53.0 million, respectively.

Interest expense on these loans during the three and nine months ended September 30, 2023 was $1.8 million (including amortization of deferred debt issuance costs of $0.1 million and unused commitment fees of $0.02 million) and $5.5 million (including amortization of deferred debt issuance costs of $0.4 million and unused commitment fees of $0.1 million), respectively.

The interest rate on the term loan was 9.24% and 8.43% and the interest rate on the revolver loan ranged between 7.42% to 10.25% and 6.03% to 9.25% as of September 30, 2023 and December 31, 2022, respectively.

Lingo Credit Agreement

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

As of September 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.

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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 Lingo Credit Agreement.

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

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

Principal outstanding is due in quarterly installments.

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).

The quarterly installment for December 31, 2023 is in the amount of $2.3 million, quarterly installments from March 31, 2024 to December 31, 2024 are in the amount of

$2.7 million per quarter, quarterly installments 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 September 30, 2023 and December 31, 2022, the outstanding balance on the term loan was $67.6 million (net of unamortized debt issuance costs of $0.8 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 and nine months ended September 30, 2023 was $1.6 million (including amortization of deferred debt issuance costs of $0.1 million) and $4.8 million (including amortization of deferred debt issuance costs of $0.2 million), respectively.

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

Nomura Credit Agreement

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.

The Term Loan Facility, Revolving Credit Facility, and Incremental Facility, together, (“Credit Facilities”), mature on June 23, 2025, subject to acceleration or prepayment.

SOFR rate loans under the Credit Facilities accrue interest at the term SOFR rate plus a term SOFR adjustment determined by the selected interest period and an applicable margin of 4.50%.

Base rate loans accrue interest at the Base Rate plus an applicable margin of 3.50%.

In addition to paying interest on outstanding borrowings under the Revolving Credit Facility, we are required to pay a quarterly commitment fee based on the unused portion of the Revolving Credit Facility, which is determined by the average utilization of the Revolving Credit Facility for the immediately preceding fiscal quarter.

Subject to certain eligibility requirements, the assets of certain subsidiaries of ours that hold credit assets, private equity assets, and public equity assets are placed into a borrowing base, which serves to limit the borrowings under the Credit Facilities.

If borrowings under the Credit Facilities exceed the borrowing base, we are obligated to prepay the loans in an aggregate amount equal to such excess.

The Credit Agreement contains certain representations and warranties (subject to certain agreed qualifications) that are customary for financings of this kind.

The Credit Agreement and the Second Amendment contain certain affirmative and negative covenants customary for financings of this type that, among other things, limit our, the Primary Guarantor’s, the Borrower’s, and the Borrower’s subsidiaries’ ability to incur additional indebtedness or liens, to dispose of assets, to make certain fundamental changes, to enter into restrictive agreements, to make certain investments, loans, advances, guarantees and acquisitions, to prepay certain indebtedness and to pay dividends or to make other distributions or redemptions/repurchases in respect of their respective equity interests.

In addition, the Credit Agreement and the Second Amendment contain a financial covenant that requires us to maintain Operating EBITDA of at least $135.0 million and the Primary Guarantor to maintain net asset value of at least $1,100.0 million.

The Credit Agreement and the Second Amendment contain customary events of default, including with respect to a failure to make payments under the credit facilities, cross-default, certain bankruptcy and insolvency events and customary change of control events.

We are in compliance with all financial covenants in the Nomura Credit Agreement as of 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 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.

We and our wholly owned subsidiaries, BR Financial Holdings, LLC, and BR Advisory & Investments, LLC had entered into a credit agreement dated June 23, 2021 (as amended, the “Prior Credit Agreement”) with Nomura Corporate Funding Americas, LLC, as administrative agent, and Wells Fargo Bank, N.A., as collateral agent, for a four-year $300.0 million secured term loan credit facility (the “Prior Term Loan Facility”) and a four-year $80.0 million secured revolving loan credit facility (the “Prior Revolving Credit Facility”) with a maturity date of June 23, 2025.

On August 21, 2023, we and our wholly owned subsidiary, BR Financial Holdings, LLC (the “Borrower”) entered into a credit agreement (the “Credit Agreement”) with Nomura Corporate Funding Americas, LLC, as administrative agent, and Computershare Trust Company, N.A., as collateral agent, for a four-year $500.0 million secured term loan credit facility (the “New Term Loan Facility”) and a four-year $100.0 million secured revolving loan credit facility (the “New Revolving Credit Facility” and together, the “New Credit Facilities”).

The purpose of the Credit Agreement was to (i) fund the Freedom VCM equity investment, (ii) prepay in full the Prior Term Loan Facility and Prior Revolving Credit Facility with an aggregate outstanding balance of $347.9 million, which included $342.0 million in principal and $5.9 million in interest and fees, (iii) fund a dividend reserve in an amount not less than $65.0 million, (iv) pay related fees and expenses, and (v) for general corporate purposes.

We recorded a loss on extinguishment of debt related to the Prior Credit Agreement of $5.4 million, which was included in selling, general and administrative expenses on the condensed consolidated statements of operations.

SOFR rate loans under the New Credit Facilities accrue interest at the adjusted term SOFR rate plus an applicable margin of 6.00%.

In addition to paying interest on outstanding borrowings under the New Revolving Credit Facility, we are required to pay a quarterly commitment fee based on the unused portion, which is determined by the average utilization of the facility for the immediately preceding fiscal quarter.

The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type that, among other things, limit our and our subsidiaries’ ability to incur additional indebtedness or liens, to dispose of assets, to make certain fundamental changes, to enter into restrictive agreements, to make certain investments, loans, advances, guarantees and acquisitions, to prepay certain indebtedness and to pay dividends or to make other distributions or redemptions/repurchases in respect of their respective equity interests.

The Credit Agreement contains customary events of default, including with respect to a failure to make payments under the credit facilities, cross-default, certain bankruptcy and insolvency events and customary change of control events.

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

Commencing on September 30, 2023, the New Term Loan Facility began to amortize in equal quarterly installments of 0.625% of the principal amount of the term loan as of the closing date with the remaining balance due at final maturity on August 21, 2027.

Quarterly installments from December 31, 2023 to June 30, 2027 are in the amount of $3.1 million per quarter.

As of September 30, 2023 and December 31, 2022, the outstanding balance on the term loan was $477.8 million (net of unamortized debt issuance costs of $19.1 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 September 30, 2023 and 2022 was $11.3 million (including amortization of deferred debt issuance costs of $0.8 million) and $5.7 million (including amortization of deferred debt issuance costs of $0.5 million), respectively.

Interest on the term loan during the nine months ended September 30, 2023 and 2022 was $26.1 million (including amortization of deferred debt issuance costs of $1.8 million) and $14.6 million (including amortization of deferred debt issuance costs of $1.5 million), respectively.

The interest rate on the term loan as of September 30, 2023 and December 31, 2022 was 11.38% and 9.23%, respectively.

We had an outstanding balance of zero and $74.7 million under the revolving facility as of September 30, 2023 and December 31, 2022, respectively.

Interest on the revolving facility during the three months ended September 30, 2023 and 2022 was $1.9 million (including unused commitment fees of $0.05 million and amortization of deferred financing costs of $0.2 million) and $1.4 million (including unused commitment fees of $0.01 million and amortization of deferred financing costs of $0.1 million), respectively.

Interest on the revolving facility during the nine months ended September 30, 2023 and 2022 was $5.4 million (including unused commitment fees of $0.08 million and amortization of deferred financing costs of $0.5 million) and $3.7 million (including unused commitment fees of $0.01 million and amortization of deferred financing costs of $0.4 million), respectively.

The interest rate on the Revolving Credit Facility as of September 30, 2023 and December 31, 2022 was 11.38% and 9.23%, respectively.

Wells Fargo Credit Agreement

7 unchanged sentences

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 $0.04 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.

Interest expense totaled $0.02 million and $0.02 million during the three months ended September 30, 2023 and 2022, respectively and $0.05 million and $0.2 million during the nine months ended September 30, 2023 and 2022, respectively.

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

As of September 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 September 30, 2023.

BRPAC Credit Agreement

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In addition, the BRPAC Credit Agreement requires the Credit Parties to maintain certain financial ratios.

The BRPAC Credit Agreement also

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

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

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

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

As of September 30, 2023 and December 31, 2022, the interest rate on the BRPAC Credit Agreement was 8.44% and 7.65%, respectively.

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

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.

The quarterly installment on December 31, 2023 is in the amount of $4.4 million, quarterly installments from March 31, 2024 to December 31, 2026 are in the amount of $3.5 million per quarter, the quarterly installment 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 September 30, 2023 and December 31, 2022, the outstanding balance on the term loan was $50.9 million (net of unamortized debt issuance costs of $0.5 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 September 30, 2023 and 2022 was $1.2 million (including amortization of deferred debt issuance costs of $0.1 million) and $1.1 million (including amortization of deferred debt issuance costs of $0.1 million), respectively.

Interest expense on the term loan during the nine months ended September 30, 2023 and 2022 was $4.0 million (including amortization of deferred debt issuance costs of $0.2 million) and $2.2 million (including amortization of deferred debt issuance costs of $0.3 million), respectively.

Senior Note Offerings

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.

During the three months ended September 30, 2023 and 2022, we issued zero and $15.4 million, respectively, and during the nine months ended September 30, 2023 and 2022, we issued $0.2 million and $51.3 million, respectively, of senior notes due with maturities dates ranging from May 2024 to August 2028 pursuant to At the Market Issuance Sales Agreements with B.

Riley Securities, Inc.

5 unchanged sentences

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.

As of September 30, 2023 and December 31, 2022, the total senior notes outstanding was $1,667.1 million (net of unamortized debt issue costs of $14.1 million) and $1,721.8 million (net of unamortized debt issue costs of $18.1 million), respectively, 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 $26.8 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.

Interest expense on senior notes totaled $25.1 million and $25.1 million during the three months ended September 30, 2023 and 2022, respectively, and $78.1 million and $74.2 million during the nine months ended September 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 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.

As of September 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

1 unchanged sentence

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