BRC Group Holdings, Inc. 10-K

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “future,” “intend,” “seek,” “likely,” “potential” or “continue,” the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we, nor any other person, assume responsibility for the accuracy and completeness of the forward-looking statements. Except as required by law we are under no obligation to update any of the forward-looking statements after the filing of this Annual Report to conform such statements to actual results or to changes in our expectations. 51 Table of Contents The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this Annual Report. Readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including without limitation the disclosures made in Item 1A of Part II of this Annual Report under the caption “Risk Factors.” Risk factors that could cause actual results to differ from those contained in the forward-looking statements include but are not limited to risks related to: volatility in our revenues and results of operations; changing conditions in the financial markets; our ability to generate sufficient revenues to achieve and maintain profitability; our exposure to credit risk; the short term nature of our engagements; the accuracy of our estimates and valuations of inventory or assets in “guarantee” based engagements; failure to successfully compete in any of our businesses; potential losses related to our auction or liquidation engagements; our dependence on communications, information and other systems and third parties; potential losses related to purchase transactions in our auction and liquidations business; the potential loss of financial institution clients; potential losses from or illiquidity of our proprietary investments; changing economic and market conditions, including continuing inflation and any further actions by the Federal Reserve to address inflation and the possibility of recession or an economic downturn; the effects of pandemics or severe public health crises, and other related impacts including supply chain disruptions, labor shortages and increased labor costs; potential liability and harm to our reputation if we were to provide an inaccurate appraisal or valuation; potential mark-downs in inventory in connection with purchase transactions; loss of key personnel; our ability to borrow under our credit facilities or at-the-market offering as necessary; failure to comply with the terms of our credit agreements or senior notes; our ability to meet future capital requirements; our ability to realize the benefits of our completed acquisitions, including our ability to achieve anticipated opportunities and cost savings, and accretion to reported earnings estimated to result from completed and proposed acquisitions in the time frame expected by management or at all; the diversion of management time on acquisition-related issues; the failure of our brand investment portfolio licensees to pay us royalties; the impact of legal proceedings, including those related to the allegations raised against Brian Kahn; the activities of short sellers and their impact on our business and reputation; and the effect of geopolitical instability, including wars, conflicts and terrorist attacks, including the impacts of Russia’s invasion of Ukraine and conflicts in the Middle East. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Except as otherwise required by the context, references in this Annual Report to the “Company,” “B. Riley,” “B. Riley Financial,” “we,” “us” or “our” refer to the combined business of B. Riley Financial, Inc. and all of its subsidiaries. Overview Description of the Company B. Riley Financial, Inc. (Nasdaq: RILY) (the “Company”) is a diversified financial services platform that delivers tailored solutions to meet the strategic, operational, and capital needs of its clients and partners. We operate through several consolidated subsidiaries (collectively, “B. Riley”) that provide investment banking, brokerage, wealth management, asset management, direct lending, business advisory, valuation, and asset disposition services to a broad client base spanning public and private companies, financial sponsors, investors, financial institutions, legal and professional services firms, and individuals. The Company opportunistically invests in and acquires companies or assets with attractive risk-adjusted return profiles to benefit our shareholders. We own and operate several uncorrelated consumer businesses and invest in brands on a principal basis. Our approach is focused on high quality companies and assets in industries in which we have extensive knowledge and can benefit from our experience to make operational improvements and maximize free cash flow. Our principal investments often leverage the financial, restructuring, and operational expertise of our professionals who work collaboratively across disciplines. We refer to B. Riley as a “platform” because of the unique composition of our business. Our platform has grown considerably and become more diversified over the past several years. We have increased our market share and expanded the depth and breadth of our businesses both organically and through opportunistic acquisitions. Our increasingly diversified platform enables us to invest opportunistically and to deliver strong long-term investment performance throughout a range of economic cycles. We are headquartered in Los Angeles, California and maintain offices throughout the U.S., including in New York, Chicago, Metro District of Columbia, Atlanta, Boston, Dallas, Metro Detroit, Houston, Memphis, Miami, San Francisco, Boca Raton, and West Palm Beach as well as additional offices located in Canada, Europe, Asia, and Australia. 52 Table of Contents We report our activities in six reportable business segments: Capital Markets, Wealth Management, Financial Consulting, Auction and Liquidation, Communications, and Consumer Products segment. These reportable segments are all distinct businesses, each with a different marketing strategy and management structure. During the fourth quarter of 2023, we reassessed our previously reported Consumer segment due to organizational changes and financial information provided to the Chief Operating Decision Maker (“CODM”). These changes resulted in Targus’ operations being reported on a stand-alone basis in the Consumer Products segment and the operations related to brand licensing that was previously reported in the Consumer segment being reported in the All Other Category that is reported with Corporate and Other. Recent Developments Great American Group Strategic Alternatives Review. On February 29, 2024, we announced that we had retained Moelis & Company LLC as an independent financial advisor to assist in our review of strategic alternatives for our Appraisal and Valuation Services, and Retail, Wholesale & Industrial Solutions businesses (collectively formerly known as “Great American Group”), which could include a potential sale or other transaction. If a potential transaction were to be consummated, we anticipate that proceeds may be used in a variety of ways including de-levering our balance sheet, repurchasing shares and bonds in the open market, and investing in the platform and in particular, B. Riley Securities, Inc. (“BRS”). There can be no assurances that we will complete, or as to the terms of, any such potential transaction. Audit Committee Review/Investigation . As previously disclosed, after we learned from news reports in November 2023 that Brian Kahn, the then Chief Executive Officer of Freedom VCM Holdings, LLC (“Freedom VCM”) and the Franchise Group, Inc. (“FRG”), was identified as an unindicted co-conspirator in SEC allegations and criminal charges of securities fraud against an executive of an unrelated hedge fund, the Audit Committee of the Board retained Sullivan & Cromwell LLP to conduct a thorough, internal review of the transactions among Mr. Kahn (and his affiliates) and the Company (and its affiliates). The review confirmed what we previously disclosed: that the Company and its executives, including Bryant Riley, had no involvement with, or knowledge of, any of the alleged misconduct concerning Brian Kahn or any of his affiliates. On February 22, 2024, our Board of Directors issued a statement regarding its review of the circumstances associated with our participation in the management-led buyout of FRG and related matters. Subsequently, the Audit Committee engaged Winston & Strawn LLP as separate, independent counsel to assist the Audit Committee in conducting an investigation of these same matters and related allegations. As separately disclosed by us on the date of this Annual Report, following receipt of the results of the Audit Committee's independent investigation as assisted by Winston & Strawn LLP, the Board of Directors and the Audit Committee reconfirmed that the Company and its executives, including Bryant R. Riley, Chairman and Co-Chief Executive Officer, had no involvement with, or knowledge of, any of the alleged misconduct concerning Brian Kahn or any of his affiliates. FRG Take-Private and Related Transactions. On August 21, 2023, we acquired an equity interest in Freedom VCM for $216.5 million in cash in connection with the closing of the acquisition of FRG, by a buyer group that included members of senior management of FRG, led by Brian Kahn, FRG’s then Chief Executive Officer (the “FRG take-private transaction”). In connection with the closing of the FRG take-private transaction, we terminated an investment advisory agreement (the “Advisory Agreement”) with Mr. Kahn. Pursuant to the Advisory Agreement, Mr. Kahn, as financial advisor, had the sole power to vote or dispose of $64.6 million of shares of FRG common stock (based on the value of FRG shares in the FRG take-private transaction as of the closing date of such transaction) held of record by BRS. Upon the termination of the Advisory Agreement, (i) Mr. Kahn’s right to vote or dispose of such FRG shares terminated, (ii) such FRG shares owned by BRS were rolled over into additional equity interests in Freedom VCM in connection with the FRG take-private transaction, and (iii) Mr. Kahn owed a total of $20.9 million to us under the Advisory Agreement which amount was added to, and included in, the Amended and Restated Note (as defined below). Simultaneously with the completion of the FRG take-private transaction, one of our subsidiaries and Vintage Capital Management, LLC (“VCM”), an affiliate of Mr. Kahn, amended and restated a promissory note (the “Amended and Restated Note”), pursuant to which VCM owes our subsidiary the aggregate principal amount of $200.5 million and bears interest at the rate of 12% per annum payable-in-kind with a maturity date of December 31, 2027. The Amended and Restated Note requires repayments prior to the maturity date from certain proceeds received by VCM, Mr. Kahn or his affiliates from, among other proceeds, distributions or dividends paid by Freedom VCM in amount equal to the greater of (i) 80% of the net after-tax proceeds, and (ii) 50% of gross proceeds. The obligations under the Amended and Restated Note are primarily secured by a first priority perfected security interest in Freedom VCM equity interests owned by Mr. Kahn, the CEO and a board member of Freedom VCM as of December 31, 2023, and his spouse with a value (based on the transaction price in the FRG take-private transaction) of $227.3 million as of August 21, 2023. On January 22, 2024, Mr. Kahn resigned as CEO and a member of the board of directors of Freedom VCM. The fair value of the Freedom VCM equity interest owned by Mr. Kahn and his spouse was $232.1 million as of December 31, 2023. Amounts 53 Table of Contents owing under the Amended and Restated Note may be repaid at any time without penalty. On a quarterly basis, the Company will continue to obtain third party appraisals to evaluate the value of the collateral of the loan since the repayment of the loan and accrued interest will be paid primarily from the cash distributions from Freedom VCM or foreclosure on the underlying collateral. Deterioration in the collateral, including in the performance of Freedom VCM or delays in the execution of its strategies, including the possible disposition of additional businesses and further de-leveraging of its balance sheet, for the loan receivable may impact the ultimate collection of principal and interest. In the event the loan balance and accrued interest exceed the underlying collateral value of the loan, this will impact the fair value of the loan and result in an unrealized loss being recorded in the consolidated statements of operations. Following these transactions, we own an equity interest of $281.1 million or 31% of the outstanding equity interests in Freedom VCM. Also in connection with the FRG take-private transaction, on August 21, 2023 all of the equity interests of B. Riley Receivables II, LLC (“BRRII”), a majority-owned subsidiary of the Company, were sold to a Freedom VCM affiliate, which resulted in a loss of $0.1 million. In connection with the sale, the Freedom VCM affiliate assumed the obligations with respect to the Pathlight Credit Agreement, as further discussed in Note 12 to our consolidated financial statements, and we entered into a non-recourse promissory note with another Freedom VCM affiliate in the amount of $58.9 million, with a stated interest rate of 19.74% and a maturity date of August 21, 2033 (the “Freedom Receivables Note”) with payments of principal and interest on the note limited solely to performance of certain receivables held by BRRII.. The loan is measured for impairment based on the fair value of the underlying collateral and personal guarantee of Kahn. Deterioration in the collateral for the loan receivable may impact the ultimate collection of principal and interest and amounts recorded as interest income on the loan. As of December 31, 2023, the loan balance was $42.2 million. On December 18, 2023, we made a $108.0 million loan to Conn’s Inc. (“Conn’s”) a specialty retailer of home goods, pursuant to a second-lien term loan and security agreement (the “Conn’s Term Loan”) in connection with the acquisition by Conn’s of W.S. Badcock LLC (“Badcock”), a portfolio company of Freedom VCM. The Conn’s Term Loan bears interest at an aggregate rate per annum equal to the Term SOFR Rate (as defined in the Conn’s Term Loan), subject to a 4.80% floor, plus a margin of 8.00% and matures on February 20, 2027. The Conn’s Term Loan is secured by liens (subject, in the case of priority, to the liens under Conn’s revolving credit facility with JPMorgan Chase Bank, N.A., as Administrative Agent for the lenders party thereto) on substantially all of the assets of the Conn’s, the other borrowers party thereto and their subsidiaries, subject to customary exceptions. This loan is reported as a related party loan receivable due to the Company’s related party relationship with Freedom VCM and Freedom VCM’s ability to exercise influence over Conn’s as a result of the equity consideration Freedom VCM received from the sale of Badcock to Conn’s on December 18, 2023. Our diversified financial platform is affected by a variety of factors including continuing higher inflation, the actions by the Federal Reserve to address inflation, the possibility of recession or an economic downturn, Russia's invasion of Ukraine, the conflicts in the Middle East, and rising energy prices. These factors create uncertainty about the future economic environment which will continue to evolve and may impact our business in future periods. These developments and the impact on the financial markets and the overall economy continue to be highly uncertain and cannot be predicted. If the financial markets and/or the overall economy continue to be impacted, our results of operations, financial position, and cash flows may be materially adversely affected. Results of Operations The following period to period comparisons of our financial results are not necessarily indicative of future results. A discussion of changes in our results of operations during the year ended December 31, 2022 compared to the year ended December 31, 2021 has been omitted from this Annual Report on Form 10-K, but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 16, 2023, which discussion is incorporated herein by reference and which is available free of charge on the SEC’s website at www.sec.gov. Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 54 Table of Contents Consolidated Statements of Operations (Dollars in thousands) Year Ended December 31, 2023 Year Ended December 31, 2022 Change Amount % Amount % Amount % Revenues: Services and fees $ 1,002,370 61.1 % $ 895,623 82.9 % $ 106,747 11.9 % Trading income (loss) and fair value adjustments on loans 41,828 2.5 % (202,628) (18.8) % 244,456 (120.6) % Interest income - Loans and securities lending 284,896 17.3 % 245,400 22.7 % 39,496 16.1 % Sale of goods 314,506 19.1 % 142,275 13.2 % 172,231 121.1 % Total revenues 1,643,600 100.0 % 1,080,670 100.0 % 562,930 52.1 % Operating expenses: Direct cost of services 238,794 14.5 % 142,455 13.2 % 96,339 67.6 % Cost of goods sold 213,351 13.0 % 78,647 7.3 % 134,704 171.3 % Selling, general and administrative expenses 828,903 50.4 % 714,614 66.1 % 114,289 16.0 % Restructuring charge 2,131 0.1 % 9,011 0.8 % (6,880) (76.4) % Impairment of goodwill and tradenames 70,333 4.3 % — — % 70,333 100.0 % Interest expense - Securities lending and loan participations sold 145,435 8.8 % 66,495 6.2 % 78,940 118.7 % Total operating expenses 1,498,947 91.1 % 1,011,222 93.6 % 487,725 48.2 % Operating income 144,653 8.9 % 69,448 6.4 % 75,205 108.3 % Other income (expense): Interest income 3,875 0.2 % 2,735 0.3 % 1,140 41.7 % Dividend income 47,776 2.9 % 35,874 3.3 % 11,902 33.2 % Realized and unrealized losses on investments (162,589) (9.9) % (201,079) (18.6) % 38,490 (19.1) % Change in fair value of financial instruments and other (4,748) (0.3) % 10,188 0.9 % (14,936) (146.6) % Gain on bargain purchase 15,903 1.0 % — — % 15,903 100.0 % (Loss) income from equity method investments (181) — % 3,570 0.3 % (3,751) (105.1) % Interest expense (187,013) (11.4) % (141,186) (13.1) % (45,827) 32.5 % Loss before income taxes (142,324) (8.7) % (220,450) (20.4) % 78,126 (35.4) % Benefit from income taxes 36,693 2.2 % 63,856 5.9 % (27,163) (42.5) % Net loss (105,631) (6.4) % (156,594) (14.5) % 50,963 (32.5) % Net (loss) income attributable to noncontrolling interests (5,721) (0.3) % 3,235 0.3 % (8,956) n/m Net loss attributable to B. Riley Financial, Inc. (99,910) (6.1) % (159,829) (14.8) % 59,919 (37.5) % Preferred stock dividends 8,057 0.4 % 8,008 0.7 % 49 0.6 % Net loss available to common shareholders $ (107,967) (6.6) % $ (167,837) (15.5) % $ 59,870 (35.7) % n/m - Not applicable or not meaningful. 55 Table of Contents Revenues The table below and the discussion that follows are based on how we analyze our business. Year Ended December 31, 2023 Year Ended December 31, 2022 Change Amount % Amount % Amount % Revenues - Services and fees Capital Markets segment $ 249,036 15.2 % $ 292,933 27.1 % $ (43,897) (15.0) % Wealth Management segment 193,487 11.8 % 230,735 21.4 % (37,248) (16.1) % Auction and Liquidation segment 29,062 1.8 % 12,581 1.2 % 16,481 131.0 % Financial Consulting segment 133,705 8.1 % 98,508 9.1 % 35,197 35.7 % Communications segment 330,952 20.1 % 228,129 21.1 % 102,823 45.1 % All Other 66,128 4.0 % 32,737 3.0 % 33,391 102.0 % Subtotal 1,002,370 61.0 % 895,623 82.9 % 106,747 11.9 % Revenues - Sale of goods Auction and Liquidation segment 74,203 4.5 % 56,928 5.3 % 17,275 30.3 % Communications segment 6,737 0.4 % 7,526 0.7 % (789) (10.5) % Consumer Products segment 233,202 14.2 % 77,821 7.2 % 155,381 199.7 % All Other 364 — % — — % 364 100.0 % Subtotal 314,506 19.1 % 142,275 13.2 % 172,231 121.1 % Trading income (loss) and fair value adjustments on loans Capital Markets segment 37,070 2.3 % (206,150) (19.1) % 243,220 (118.0) % Wealth Management segment 4,758 0.3 % 3,522 0.3 % 1,236 35.1 % Subtotal 41,828 2.6 % (202,628) (18.8) % 244,456 (120.6) % Interest income - Loans and securities lending Capital Markets segment 284,896 17.3 % 240,813 22.3 % 44,083 18.3 % Auction and Liquidation segment — — % 4,587 0.4 % (4,587) (100.0) % Subtotal 284,896 17.3 % 245,400 22.7 % 39,496 16.1 % Total revenues $ 1,643,600 100.0 % $ 1,080,670 100.0 % $ 562,930 52.1 % n/m - Not applicable or not meaningful. Total revenues increased approximately $562.9 million to $1,643.6 million during the year ended December 31, 2023 from $1,080.7 million during the year ended December 31, 2022. The increase in revenues during the year ended December 31, 2023 was primarily due to an increase in the fair value of the portfolio of securities and other investments owned and fair value adjustments on loans of $244.5 million, an increase in revenue from sale of goods of $172.2 million, an increase in revenue from services and fees of $106.7 million, and an increase in revenue from interest income - loans and securities lending of $39.5 million. The increase in the fair value of the portfolio of securities and other investments owned during the year ended December 31, 2023 was primarily due to the increase in overall values in the stock market. The increase in revenue from services and fees of $106.7 million was primarily due to increases of $102.8 million in the Communications segment, $35.2 million in the Financial Consulting segment, $33.4 million in All Other, and $16.5 56 Table of Contents million in the Auction and Liquidation segment, partially offset by decreases in revenue of $43.9 million in the Capital Markets segment and $37.2 million in the Wealth Management segment. Revenues from services and fees in the Capital Markets segment decreased approximately $43.9 million, to $249.0 million during the year ended December 31, 2023 from $292.9 million during the year ended December 31, 2022. The decrease in revenues was primarily due to decreases in revenue of $40.5 million in incentive fees and $8.9 million in commission fees, partially offset by an increase of $5.6 million in interest income. The Capital Markets segment faced a more challenging capital markets merger and acquisitions environment in 2023. Revenues from services and fees in the Wealth Management segment decreased $37.2 million, to $193.5 million during the year ended December 31, 2023 from $230.7 million during the year ended December 31, 2022. The decrease in revenues was primarily due to decreases in revenue of $27.5 million from wealth and asset management fees, $9.3 million in commission fees, and $0.4 million in other income. The restructuring of the Wealth Management segment in Q3 of 2022 resulted in a reduction in financial advisors, and the decrease in revenues of 2023 has the full year impact of these financial advisors no longer being part of our platform. Revenues from services and fees in the Auction and Liquidation segment increased $16.5 million, to $29.1 million during the year ended December 31, 2023 from $12.6 million during the year ended December 31, 2022. The increase in revenues was primarily due an increase in the size of retail fee liquidation engagements during the year ended December 31, 2023 as compared to the prior year. Revenues from services and fees in the Financial Consulting segment increased $35.2 million, to $133.7 million during the year ended December 31, 2023 from $98.5 million during the year ended December 31, 2022. The increase in revenues was primarily due to an increase of $37.3 million within our Advisory Services division, partially offset by a decrease of $2.1 million within our Real Estate division. The increase in Advisory Services was primarily due to increases in the number of appraisals, fees from consulting engagements, and the inclusion of other acquisitions completed in 2023. Revenues from services and fees in the Communications segment increased $102.8 million to $331.0 million during the year ended December 31, 2023 from $228.1 million during the year ended December 31, 2022. The increase in revenues was primarily due to an increase of $115.4 million in subscription services from inclusion of a full year of operating results from the acquisition of a controlling interest 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 $10.0 million and other revenue of $2.6 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 All Other increased by $33.4 million to $66.1 million during the year ended December 31, 2023 from $32.7 million during the year ended December 31, 2022. These revenues include the licensing of brand trademarks, merchandise rental fees and sales from bebe stores, inc. (“bebe”) in which we acquired a controlling interest during the fourth quarter of 2023, and the operations of a regional environmental services business and a landscaping business that we acquired in 2022. Revenues from services and fees in All Other increased by approximately $18.1 million related to the full year operations of a regional environmental services business (which was acquired in September 2022), $12.0 million related to merchandise rental fees from bebe, which was acquired in October 2023, and $3.3 million related to licensing of brand trademarks and revenues from the landscaping business. The landscaping business had $8.0 million of revenues in 2023 and was sold in the third quarter of 2023. Trading income and fair value adjustments on loans increased $244.5 million to income of $41.8 million during the year ended December 31, 2023 compared to a loss of $202.6 million during the year ended December 31, 2022. This was primarily due to increases of $243.2 million in the Capital Markets segment and $1.2 million in the Wealth Management segment. The income of $41.8 million during the year ended December 31, 2023 was primarily due to realized and unrealized gains on investments made in our proprietary trading accounts of $21.6 million and realized and unrealized gains on the fair value of our loans receivable of $20.2 million. Interest income – loans and securities lending increased $39.5 million, to $284.9 million during the year ended December 31, 2023 from $245.4 million during the year ended December 31, 2022. This was primarily due to an increase of $44.1 million in the Capital Markets segment, partially offset by a decrease of $4.6 million in the Auction and Liquidation segment. Interest income from securities lending was $161.7 million and $83.1 million during the years ended December 31, 2023 and 2022, respectively. The increase in interest income from securities lending was primarily due to increased interest rates. Interest income from loans was $123.2 million and $162.3 million during the years ended 57 Table of Contents December 31, 2023 and 2022, respectively. The decrease in interest income from loans was primarily due to paydowns in our Badcock Receivables I loan receivable portfolio. Revenues from the sale of goods increased $172.2 million, to $314.5 million during the year ended December 31, 2023 from $142.3 million during the year ended December 31, 2022. The increase in revenues from sale of goods was primarily due to increases of $155.4 million from the acquisition of Targus in the fourth quarter of 2022 and $17.3 million from the sales of retail goods due to an increase in the number of retail liquidation engagements, partially offset by a decrease in the average size of the engagements. Cost of goods sold during the year ended December 31, 2023 increased by $134.7 million to $213.4 million, from $78.6 million during the year ended December 31, 2022. The increase of $134.7 million is primarily comprised of an increase in cost of goods sold in the Consumer Products segment of $112.5 million, which was primarily due to owning Targus for the full year 2023 as compared to 2022 when we acquired Targus in October 2022, and an increase in cost of goods sold in the Auction and Liquidation segment of $22.6 million as a result of cost to purchase original inventory at a higher price for retail liquidation engagements that involved sale of goods in 2023 as opposed to augmenting inventory in 2022. Operating Expenses Direct Cost of Services Direct costs increased $96.3 million, to $238.8 million during the year ended December 31, 2023 from $142.5 million during the year ended December 31, 2022. The increase in direct costs of services was primarily attributable to increases of $75.3 million in the Communications segment from the acquisitions of a controlling interest in Lingo during the second quarter of 2022 and BullsEye during the third quarter of 2022, $20.2 million in All Other due to other acquisitions made during 2023 and 2022, and $0.8 million in 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 years ended December 31, 2023 and 2022 were comprised of the following: Year Ended December 31, 2023 Year Ended December 31, 2022 Change Amount % Amount % Amount % Capital Markets segment $ 228,991 27.7 % $ 179,499 25.1 % $ 49,492 27.6 % Wealth Management segment 195,087 23.5 % 263,622 36.9 % (68,535) (26.0) % Auction and Liquidation segment 16,650 2.0 % 19,683 2.7 % (3,033) (15.4) % Financial Consulting segment 103,285 12.5 % 82,196 11.5 % 21,089 25.7 % Communications segment 109,583 13.2 % 84,001 11.8 % 25,582 30.5 % Consumer Products segment 77,147 9.3 % 17,471 2.4 % 59,676 n/m Corporate and Other 98,160 11.8 % 68,142 9.6 % 30,018 44.1 % Total selling, general & administrative expenses $ 828,903 100.0 % $ 714,614 100.0 % $ 114,289 16.0 % Total selling, general and administrative expenses increased $114.3 million to $828.9 million during the year ended December 31, 2023 from $714.6 million during the year ended December 31, 2022. The increase of $114.3 million in selling, general and administrative expenses was due to increases of $59.7 million in the Consumer Products segment, $49.5 million in the Capital Markets segment, $30.0 million in Corporate and Other, $25.6 million in the Communications segment, and $21.1 million in the Financial Consulting segment, partially offset by decreases of $68.5 million in the Wealth Management segment and $3.0 million in the Auction and Liquidation segment. Capital Markets Selling, general and administrative expenses in the Capital Markets segment increased by $49.5 million to $229.0 million during the year ended December 31, 2023 from $179.5 million during the year ended December 31, 2022. The increase was primarily due to changes in amounts between years of $77.3 million related to the Advisory Agreement and 58 Table of Contents $1.7 million in change in fair value of contingent consideration, partially offset by decreases of $21.7 million in payroll and related expenses due to a decrease in fee income in 2023 as compared to 2022 which resulted in lower variable compensation, $4.5 million in depreciation and amortization, $3.3 million in foreign currency fluctuation and other expenses. Wealth Management Selling, general and administrative expenses in the Wealth Management segment decreased by $68.5 million to $195.1 million during the year ended December 31, 2023 from $263.6 million during the year ended December 31, 2022. The decrease was primarily due to decreases of $39.1 million in payroll and related expenses, $13.7 million in legal settlements and penalties, $7.1 million in other expenses, $3.2 million in legal fees, $2.2 million in software and equipment expenses, $2.1 million in clearing charges, and $1.2 million in depreciation and amortization. Auction and Liquidation Selling, general and administrative expenses in the Auction and Liquidation segment decreased by $3.0 million to $16.7 million during the year ended December 31, 2023 from $19.7 million during the year ended December 31, 2022. The decrease was primarily due to decreases of $3.4 million in business development activities and $0.4 million in payroll and related expenses, partially offset by an increase of $0.8 million in foreign currency fluctuations. Financial Consulting Selling, general and administrative expenses in the Financial Consulting segment increased by $21.1 million to $103.3 million during the year ended December 31, 2023 from $82.2 million during the year ended December 31, 2022. The increase was primarily due to increases of $15.7 million in payroll and related expenses as a result of an increase in headcount from acquisitions, $3.9 million in other expenses, and $1.5 million in travel and entertainment expenses. Communications Selling, general and administrative expenses in the Communications segment increased by $25.6 million to $109.6 million during the year ended December 31, 2023 from $84.0 million during the year ended December 31, 2022. The increase was primarily due to increases of $33.8 million due to the acquisition of a controlling interest in Lingo during the second quarter of 2022 and from the acquisition of Bullseye during the third quarter of 2022, partially offset by decreases of $3.9 million in payroll and related expenses, $2.7 million in other expenses, $0.9 million in transaction costs, and $0.8 million in marketing expenses. Consumer Products Selling, general and administrative expenses in the Consumer Products segment increased by $59.7 million to $77.1 million during the year ended December 31, 2023 from $17.5 million during the year ended December 31, 2022. The increase was primarily due to the inclusion of the full year of results in the current year after the acquisition of Targus in the fourth quarter of 2022. Corporate and Other Selling, general and administrative expenses for the Corporate and Other category increased $30.0 million to $98.2 million during the year ended December 31, 2023 from $68.1 million during the year ended December 31, 2022. The increase was primarily due to increases of $16.1 million from the inclusion of a full year of results in the current year after the acquisition of other businesses in 2022, $5.4 million loss on extinguishment of debt, $5.2 million in foreign currency fluctuations, and $4.5 million in change in fair value of contingent consideration. Impairment of goodwill and tradenames. We recognized impairment charges of $70.3 million during the year ended December 31, 2023. We performed an interim impairment test as of September 30, 2023 and a year-end impairment test as of December 31, 2023, as further discussed in Note 9 of the consolidated financial statements. Based on the results of the impairment tests, we recorded a non-cash impairment charge of $68.6 million consisting of a goodwill impairment charge of $53.1 million and a tradename impairment charge of $15.5 million in the Consumer Products segment. We previously recognized $1.7 million in impairment in the second quarter of 2023 for a tradename in the Capital Markets segment that we no longer use. There was no impairment recognized during the year ended December 31, 2022. 59 Table of Contents Other Income (Expense). Other income included interest income of $3.9 million during the year ended December 31, 2023 compared to $2.7 million during the year ended December 31, 2022. Dividend income was $47.8 million during the year ended December 31, 2023 compared to $35.9 million during the year ended December 31, 2022. Realized and unrealized losses on investments were $162.6 million during the year ended December 31, 2023 compared to $201.1 million during the year ended December 31, 2022. The change was primarily due to a decrease in overall values of our investments. Change in fair value of financial instruments and other in the amount of $4.7 million during the year ended December 31, 2023 was primarily due to losses on remeasurement of the bebe equity method investment of $12.9 million recorded in the third quarter of 2023 and remeasurement of mandatorily redeemable noncontrolling interest in an investment of $0.8 million, partially offset by a $9.3 million gain on the sale of certain assets related to our landscaping business in 2023. Gain on bargain purchase of $15.9 million during the year ended December 31, 2023 was related to the acquisition of a majority interest in bebe in the fourth quarter of 2023. Income from equity method investments was a loss of $0.2 million during the year ended December 31, 2023 compared to income of $3.6 million during the year ended December 31, 2022. Interest expense was $187.0 million during the year ended December 31, 2023 compared to $141.2 million during the year ended December 31, 2022. The increase in interest expense was due to higher interest rates due to variable rates on certain of our outstanding debt during the year ended December 31, 2023, which also were responsible for higher interest income as discussed above. The increases in interest expense primarily consisted of $20.4 million related to the Nomura term loan, $9.0 million related to the Pathlight term loan, $4.8 million related to the Lingo term loan, $4.0 million related to the Targus revolver, $3.1 million related to the senior notes, $1.9 million related to the Targus term loan, and $1.7 million related to the BRPI Acquisition Co LLC (“BRPAC”) term loan. Loss Before Income Taxes . Loss before income taxes decreased $78.1 million to a loss of $142.3 million during the year ended December 31, 2023 from a loss of $220.5 million during the year ended December 31, 2022. The change was primarily due to an increase in revenues of approximately $562.9 million, a change in realized and unrealized losses on investments and fair value adjustments of $38.5 million, a gain on bargain purchase of $15.9 million, an increase in dividend income of $11.9 million, and an increase in interest income of $1.1 million, partially offset by an increase in operating expenses of $487.7 million, an increase in interest expense of $45.8 million, a decrease to change in fair value of financial instruments and other of $14.9 million and a decrease in income from equity method investments of $3.8 million. Benefit from Income Taxes. Benefit from income taxes was $36.7 million during the year ended December 31, 2023 compared to a benefit from income taxes of $63.9 million during the year ended December 31, 2022. The effective income tax rate was a benefit of 25.8% during the year ended December 31, 2023 as compared to a benefit of 29.0% during the year ended December 31, 2022. Net (Loss) Income Attributable to Noncontrolling Interest 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 and redeemable noncontrolling interests was $5.7 million during the year ended December 31, 2023 compared to income of $3.2 million during the year ended December 31, 2022. Net Loss Attributable to the Company . Net loss attributable to the Company during the year ended December 31, 2023 was $99.9 million compared to net loss attributable to the Company of $159.8 million during the year ended December 31, 2022. The change was primarily due to an increase in operating income of $75.2 million, a change in realized and unrealized losses on investments and fair value adjustments of $38.5 million, a gain on bargain purchase of $15.9 million, an increase in dividend income of $11.9 million, a change in net income (loss) attributable to noncontrolling interests and redeemable noncontrolling interests of $9.0 million, and an increase in interest income of $1.1 million, partially offset by an increase in interest expense of $45.8 million, a decrease in benefit from income taxes of $27.2 million, a decrease in change in fair value of financial instruments and other of $14.9 million, and a decrease in income from equity method investments of $3.8 million. Preferred Stock Dividends . Preferred stock dividends were $8.0 million during the years ended December 31, 2023 and 2022. Dividends on the Series A preferred paid during the years ended December 31, 2023 and 2022 were $0.4296875 per depository share. Dividends on the Series B preferred paid during the years ended December 31, 2023 and 2022 were $0.4609375 per depository share. Net Loss Available to Common Shareholders . Net loss available to common shareholders during the year ended December 31, 2023 was $108.0 million compared to net loss available to common shareholders of $167.8 million during the year ended December 31, 2022. The change was primarily due to an increase in operating income of $75.2 million, a change in realized and unrealized losses on investments of $38.5 million, a gain on bargain purchase of $15.9 million, an 60 Table of Contents increase in dividend income of $11.9 million, a change in net income (loss) attributable to noncontrolling interests and redeemable noncontrolling interests of $9.0 million, and an increase in interest income of $1.1 million, partially offset by an increase in interest expense of $45.8 million, a decrease in benefit from income taxes of $27.2 million, a decrease in change in fair value of financial instruments and other of $14.9 million, and a decrease in income from equity method investments of $3.8 million. Liquidity and Capital Resources Our operations are funded through a combination of existing cash on hand, cash generated from operations, borrowings under our senior notes payable, term loans and credit facilities, and special purpose financing arrangements. During the years ended December 31, 2023 and 2022, we generated net loss attributable to the Company of $99.9 million and net loss attributable to the Company of $159.8 million, respectively. The Company operates a number of businesses in its segments that provide steady cash flows and operating income throughout the year, however, our cash flows and profitability are impacted by capital market engagements and retail liquidation engagements performed on a quarterly and annual basis, which may be episodic in nature, and amounts realized from the sale of our investments in marketable securities. As of December 31, 2023, we had $232.0 million of unrestricted cash and cash equivalents, $1.9 million of restricted cash, $1,092.1 million of securities and other investments, at fair value, $532.4 million of loans receivable, at fair value, and $2,356.4 million of borrowings outstanding. The borrowings outstanding of $2,356.4 million as of December 31, 2023 included $1,668.0 million of borrowings from the issuance of the series of senior notes that are due at various dates ranging from May 31, 2024 to August 31, 2028 with interest rates ranging from 5.00% to 6.75%, $625.2 million in term loans borrowed pursuant to the Targus, Lingo, BRPAC, Nomura, and bebe credit agreements discussed below, $43.8 million of revolving credit facility under the Targus credit facility discussed below, and $19.4 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 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. Due to the fact that we are no longer a well known seasoned issuer and no longer eligible to file a short form registration statement with the SEC, accessing the capital markets could take longer and cost more than would otherwise be the case. We continue to monitor our financial performance to ensure sufficient liquidity to fund operations and execute on our business plan. Cash Flow Summary Following is a summary of our cash flows provided by (used in) operating activities, investing activities and financing activities during the years ended December 31, 2023 and 2022. A discussion of cash flows during the year ended December 31, 2021 has been omitted from this Annual Report on Form 10-K, but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Liquidity and Capital Resources” in our Annual Report on Form 10-K during the year ended December 31, 2022, filed with the SEC on March 16, 2023, which is available free of charge on the SEC’s website at www.sec.gov. Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Year Ended December 31, 2023 2022 (Dollars in thousands) Net cash provided by (used in): Operating activities $ 24,502 $ 6,653 Investing activities 301,174 (32,291) Financing activities (365,923) 17,637 Effect of foreign currency on cash 3,160 (933) Net decrease in cash, cash equivalents and restricted cash $ (37,087) $ (8,934) Cash provided by operating activities was $24.5 million during the year ended December 31, 2023 compared to cash provided by operating activities of $6.7 million during the year ended December 31, 2022. Cash provided by operating 61 Table of Contents activities during the year ended December 31, 2023 included a net loss of $105.6 million adjusted for noncash items of $97.5 million and changes in operating assets and liabilities of $32.7 million. Noncash items of $97.5 million included impairment of goodwill and tradenames of $70.3 million, depreciation and amortization of $49.6 million, share-based compensation of $45.1 million, provision for credit losses of $7.1 million, loss on extinguishment of debt of $5.3 million, depreciation of rental merchandise of $4.1 million, income allocated to and fair value adjustment for mandatorily redeemable noncontrolling interests of $1.8 million, dividends from equity method investments of $0.4 million, and income from equity method investments of $0.2 million, partially offset by deferred income taxes of $40.9 million, gain on bargain purchase of $15.9 million, fair value adjustments of $10.7 million, non-cash interest and other of $9.7 million, and gain on sale of business, disposal of fixed assets, and other of $9.0 million, and effect of foreign currency on operations of $0.3 million. Cash provided by operating activities during the year ended December 31, 2022 included net loss of $156.6 million adjusted for noncash items of $47.6 million and changes in operating assets and liabilities of $115.6 million. Noncash items of $47.6 million included share-based compensation of $61.1 million, depreciation and amortization of $40.0 million, fair value adjustments of $34.9 million, impairment of leaseholds, intangibles and lease loss accrual and gain on disposal of fixed assets of $4.9 million, provision for credit losses of $4.2 million, dividends from equity method investments of $4.0 million, income allocated for mandatorily redeemable noncontrolling interests of $1.1 million, and effect of foreign currency on operations of $0.8 million, partially offset by deferred income taxes of $80.4 million, SPAC deconsolidation gain of $8.3 million, gain on equity method investments of $6.8 million, income from equity method investments of $3.6 million, non-cash interest and other of $3.2 million, and gain on extinguishment of debt of $1.1 million. Cash provided by investing activities was $301.2 million during the year ended December 31, 2023 compared to cash used in investing activities of $32.3 million during the year ended December 31, 2022. During the year ended December 31, 2023, cash provided by investing activities consisted of cash received from loans receivable repayment of $606.7 million, funds received from trust account of subsidiary of $175.8 million, sale of loans receivable of $85.0 million, and proceeds from sale of business and other of $17.5 million, partially offset by cash used for purchases of loans receivable of $545.0 million, acquisition of businesses of $26.2 million, purchases of property and equipment and intangible assets of $7.7 million, and purchases of equity method investments of $4.9 million. During the year ended December 31, 2022, cash used in investing activities consisted of cash used for purchases of loans receivable of $503.1 million, acquisition of businesses of $261.7 million, purchases of equity method investments of $11.0 million, and purchases of property and equipment and intangible assets of $3.9 million, partially offset by cash received from loans receivable repayment of $574.9 million and funds received from trust account of subsidiary of $172.6 million. Cash used in financing activities was $365.9 million during the year ended December 31, 2023 compared to cash provided by financing activities of $17.6 million during the year ended December 31, 2022. During the year ended December 31, 2023, cash used in financing activities primarily consisted of repayment on our term loans of $520.8 million, repayment of our revolving line of credit of $303.0 million, redemption of subsidiary temporary equity and distributions of $175.8 million, payment of dividends on our common shares of $141.1 million, repurchase of our common stock of $69.5 million, redemption of senior notes of $58.9 million, payment of debt issuance costs of $28.0 million, repayment of our notes payable and other of $13.8 million, payment of dividends on our preferred shares of $8.1 million, payment of employment taxes on vesting of restricted stock of $7.6 million, distributions to noncontrolling interests of $6.5 million, and payment for contingent consideration of $1.9 million, partially offset by proceeds from term loans of $628.2 million, proceeds from revolving line of credit of $219.2 million, proceeds from our offering of common stock of $115.0 million, contributions from noncontrolling interests of $6.1 million, proceeds from our offering of preferred stock of $0.5 million, and proceeds from issuance of senior notes of $0.2 million. During the year ended December 31, 2022, cash provided by financing activities primarily consisted of proceeds from term loans of $324.2 million, proceeds from revolving line of credit of $64.9 million, proceeds from issuance of senior notes of $51.6 million, contributions from noncontrolling interests of $21.1 million, proceeds from our offering of preferred stock of $0.9 million, partially offset by redemption of subsidiary temporary equity and distributions of $172.6 million, payment of dividends on our common shares of $119.5 million, repayment on our term loans of $96.2 million, repayment of our revolving line of credit of $17.2 million, payment of employment taxes on vesting of restricted stock of $10.3 million, payment of debt issuance costs of $8.2 million, payment of dividends on our preferred shares of $8.0 million, repurchase of our common stock of $6.5 million, distribution to noncontrolling interests of $4.2 million, payment for contingent consideration of $1.8 million, and repayment of our notes payable of $0.5 million. 62 Table of Contents Credit Agreements Targus Credit Agreement On October 18, 2022, our subsidiary, Tiger US Holdings, Inc., a Delaware corporation, among others, entered into a credit agreement (“Targus Credit Agreement”) with PNC Bank, National Association (“PNC”), as agent and security trustee for a five-year $28.0 million term loan and a five-year $85.0 million revolver loan, which was used to finance part of the acquisition of Targus. The Targus Credit Agreement is secured by substantially all Targus assets as collateral defined in the Targus Credit Agreement. The agreement contains certain covenants, including those limiting our ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of our businesses, engage in transactions with related parties, make certain investments or pay dividends. The Targus Credit Agreement also contains customary representations and warranties, affirmative covenants, and events of default, including payment defaults, breach of representations and warranties, covenant defaults and cross defaults. If an event of default occurs, the agent would be entitled to take various actions, including the acceleration of amounts outstanding under the Targus Credit Agreement. On October 31, 2023 and February 20, 2024, we entered into Amendment No. 1 and Amendment No. 2 to the Targus Credit Agreement, which, among other things, modified the fixed charge coverage ratio and the minimum earnings before interest, taxes, depreciation, and amortization requirements which waived the financial covenant breaches for the periods ended September 30, 2023 and December 31, 2023, respectively. We are 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%. The revolver loan consists of base rate loans that bear interest on the outstanding principal amount equal to the base rate plus an applicable margin of 1.00% to 1.75% and term rate loans that bear interest on the outstanding principal amount equal to the revolver SOFR rate plus an applicable margin of 2.00% to 2.75%. Principal outstanding is due in quarterly installments starting on December 31, 2022. Quarterly installments from March 31, 2024 to March 31, 2027 are in the amount of $1.4 million per quarter and the remaining principal balance is due at final maturity on October 18, 2027. As of December 31, 2023, the outstanding balance on the term loan was $17.8 million (net of unamortized debt issuance costs of $0.4 million) and the outstanding balance on the revolver loan was $43.8 million. As of December 31, 2022, the outstanding balance on the term loan was $26.0 million (net of unamortized debt issuance costs of $0.6 million) and the outstanding balance on the revolver loan was $53.0 million. Interest expense on these loans during the years ended December 31, 2023 and 2022 was $7.3 million (including amortization of deferred debt issuance costs and unused commitment fees of $0.7 million) and $1.3 million (including amortization of deferred debt issuance costs and unused commitment fees of $0.2 million), respectively. The interest rate on the term loan was 10.20% and 8.43% and the interest rate on the revolver loan ranged between 8.45% to 11.25% and between 6.03% to 9.25% as of December 31, 2023 and 2022, respectively. The weighted average interest rate on the revolver loan was 8.53% and 6.68% as of December 31, 2023 and 2022, respectively. Lingo Credit Agreement On August 16, 2022, our subsidiary, Lingo, a Delaware limited liability company (the “Borrower”), entered into a credit agreement (the “Lingo Credit Agreement”) by and among the Borrower, the Company as the secured guarantor, and Banc of California, N.A. in its capacity as administrative agent and lender, for a five-year $45.0 million term loan. This loan was used to finance part of the purchase of BullsEye by Lingo. On September 9, 2022, Lingo entered into the First Amendment to the Lingo Credit Agreement with Grasshopper Bank for an incremental term loan of $7.5 million, increasing the principal balance of the term loan to $52.5 million. On November 10, 2022, Lingo entered into the Second Amendment to the Lingo Credit Agreement with KeyBank National Association for an incremental term loan of $20.5 million, increasing the principal balance of the term loan to $73.0 million. The term loan bears interest on the outstanding principal amount equal to the Term SOFR rate plus a margin of 3.00% to 3.75% per annum, depending on the consolidated total funded debt ratio as defined in the Lingo Credit Agreement, plus 63 Table of Contents applicable spread adjustment. As of December 31, 2023 and 2022, the interest rate on the Lingo Credit Agreement was 8.70% and 7.89%, respectively. The Lingo Credit Agreement is guaranteed by the Company and Lingo's subsidiaries and secured by certain Lingo assets and equity interests as collateral defined in the Lingo Credit Agreement. The agreement contains certain covenants, including those limiting our ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of their businesses, engage in transactions with related parties, make certain investments or pay dividends. In addition, the agreement requires us to maintain certain financial ratios. The agreement also contains customary representations and warranties, affirmative covenants, and events of default, including payment defaults, breach of representations and warranties, covenant defaults and cross defaults. If an event of default occurs, the agent would be entitled to take various actions, including the acceleration of amounts due under the outstanding agreement. We are in compliance with all financial covenants in the Lingo Credit Agreement as of December 31, 2023. On March 15, 2024, we received an extension under our credit agreement with Banc of California, N.A. of the time required to deliver our 2023 audited financial statements, which was extended to April 9, 2024, and on April 9, 2024, we received further extension of the time required to deliver our 2023 audited financial statements to April 29, 2024. Principal outstanding is due in quarterly installments starting on March 31, 2023. Quarterly installments 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 December 31, 2023 and 2022, the outstanding balance on the term loan was $63.2 million (net of unamortized debt issuance costs of $0.7 million) and $72.0 million (net of unamortized debt issuance costs of $1.0 million), respectively. Interest expense on the term loan during the years ended December 31, 2023 was $6.4 million (including amortization of deferred debt issuance costs of $0.3 million) and $1.6 million (including amortization of deferred debt issuance costs of $0.1 million), respectively. bebe Credit Agreement As a result of the Company obtaining a majority ownership interest in bebe on October 6, 2023, bebe's credit agreement with SLR Credit Solutions (the “bebe Credit Agreement”) for a $25.0 million five-year term loan with a maturity date of August 24, 2026 is included in the Company's long-term debt. The term loan bears interest on the outstanding principal amount equal to the Term SOFR rate plus a margin of 5.50% to 6.00% per annum, depending on the total fixed charge coverage ratio as defined in the bebe Credit Agreement. As of December 31, 2023, the interest rate on the bebe Credit Agreement was 11.14%. The bebe Credit Agreement is collateralized by a first lien on all bebe assets and pledges of capital stock including certain equity interests held by bebe. The agreement contains certain covenants, including those limiting the borrower’s ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of their businesses, engage in transactions with related parties, make certain investments or pay dividends. In addition the agreement requires bebe to maintain certain financial ratios. The agreement also contains customary representations and warranties, affirmative covenants, and events of default, including payment defaults, breach of representations and warranties, covenant defaults and cross defaults. We are in compliance with all financial covenants in the bebe Credit Agreement as of December 31, 2023. Principal outstanding is due in quarterly installments through June 30, 2026 in the amount of $0.3 million per quarter and the remaining principal balance of $20.0 million is due at final maturity on August 24, 2026. As of December 31, 2023, the outstanding balance on the term loan was $22.5 million (net of unamortized debt issuance costs of $0.6 million). Interest expense on the term loan during the period from October 6, 2023 through December 31, 2023 was $0.7 million (including amortization of deferred debt issuance costs of $0.1 million). Nomura Credit Agreement 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 64 Table of Contents 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”), and certain direct and indirect subsidiaries of the Borrower (the “Guarantors”), 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 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, the Company is 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 is secured on a first priority basis by a security interest in the equity interests of the Borrower and each of the Borrower’s subsidiaries (subject to certain exclusions) and a security interest in substantially all of the assets of the Borrower and the Guarantors. The borrowing base as defined in the Credit Agreement consists of a collateral pool that includes certain of the Company's loans receivables in the amount of $375.8 million and investments in the amount of $786.7 million as of December 31, 2023. The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type that, among other things, limit the Company’s and its 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. The Company is in compliance with all financial covenants in the Credit Agreement as of December 31, 2023. On March 26, 2024, the Company received an extension under its existing credit agreement with Nomura Corporate Funding Americas, LLC of the time required to deliver its 2023 audited financial statements, which was extended to April 29, 2024. 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 March 31, 2024 to June 30, 2027 are in the amount of $3.1 million per quarter. As of December 31, 2023 and 2022, the outstanding balance on the term loan was $475.1 million (net of unamortized debt issuance costs of $18.7 million) and $287.0 million (net of unamortized debt issuance costs of $5.5 million), respectively. Interest on the term loan during the years ended December 31, 2023 and 2022 was $41.7 million (including amortization of deferred debt issuance costs of $2.9 million) and $21.3 million (including amortization of deferred debt issuance costs of $2.1 million), respectively. The interest rate on the term loan as of December 31, 2023 and 2022 was 11.37% and 9.23%, respectively. We had an outstanding balance of zero and $74.7 million under the revolving facility as of December 31, 2023 and 2022, respectively. Interest on the revolving facility during the years ended December 31, 2023 and 2022 was $5.9 million (including unused commitment fees of $0.3 million and amortization of deferred financing costs of $0.8 million) and $5.4 million (including unused commitment fees of $0.01 million and amortization of deferred financing costs of $0.6 million), respectively. The interest rate on the revolving facility as of December 31, 2023 and 2022 was 11.37% and 9.23%, respectively. Wells Fargo Credit Agreement We are party to a credit agreement (as amended, the “Credit Agreement”) governing our asset based credit facility with Wells Fargo Bank, National Association (“Wells Fargo Bank”) with a maximum borrowing limit of $200.0 million and a 65 Table of Contents maturity date of April 20, 2027. Cash advances and the issuance of letters of credit under the credit facility are made at the lender’s discretion. The letters of credit issued under this facility are furnished by the lender to third parties for the principal purpose of securing minimum guarantees under liquidation services contracts. All outstanding loans, letters of credit, and interest are due on the expiration date which is generally within 180 days of funding. The credit facility is secured by the proceeds received for services rendered in connection with liquidation service contracts pursuant to which any outstanding loan or letters of credit are issued and the assets that are sold at liquidation related to such contract. The interest rate for each revolving credit advance under the Credit Agreement is subject to certain terms and conditions, equal to SOFR plus a margin of 2.25% to 3.25% depending on the type of advance and the percentage such advance represents of the related transaction for which such advance is provided. The credit facility provides for success fees in the amount of 1.0% to 10.0% of the net profits, if any, earned on the liquidation engagements funded under the Credit Agreement as set forth therein. The credit facility also provides for funding fees in the amount of 0.05% to 0.20% of the aggregate principal amount of all credit advances and letters of credit issued in connection with a liquidation sale. Interest expense totaled $0.1 million and $0.2 million during the years ended December 31, 2023 and 2022, respectively. There is no outstanding balance on this credit facility as of December 31, 2023 and 2022. As of December 31, 2023 and 2022, there were no open letters of credit outstanding. We are in compliance with all covenants in the asset based credit facility as of December 31, 2023. On March 28, 2024, the Company received an extension under its existing credit agreement with Wells Fargo Bank of the time required to deliver its 2023 audited financial statements, which was extended to April 29, 2024. BRPAC Credit Agreement On December 19, 2018, BRPI Acquisition Co LLC (“BRPAC”), a Delaware limited liability company, UOL, and YMAX Corporation, Delaware corporations (collectively, the “Borrowers”), indirect wholly owned subsidiaries of ours, in the capacity as borrowers, entered into a credit agreement (the “BRPAC Credit Agreement”) with the Banc of California, N.A. in the capacity as agent (the “Agent”) and lender and with the other lenders party thereto (the “Closing Date Lenders”). Certain of the Borrowers’ U.S. subsidiaries are guarantors of all obligations under the BRPAC Credit Agreement and are parties to the BRPAC Credit Agreement in such capacity (collectively, the “Secured Guarantors”; and together with the Borrowers, the “Credit Parties”). In addition, we and B. Riley Principal Investments, LLC, the parent corporation of BRPAC and a subsidiary of ours, are guarantors of the obligations under the BRPAC Credit Agreement pursuant to standalone guaranty agreements pursuant to which the shares outstanding membership interests of BRPAC are pledged as collateral. The obligations under the BRPAC Credit Agreement are secured by first-priority liens on, and first priority security interest in, substantially all of the assets of the Credit Parties, including a pledge of (a) 100.00% of the equity interests of the Credit Parties, (b) 65% of the equity interests in United Online Software Development (India) Private Limited, a private limited company organized under the laws of India; and (c) 65% of the equity interests in magicJack VoIP Services, LLC, a Delaware corporation. The BRPAC Credit Agreement contains certain covenants, including those limiting the Credit Parties’ and their subsidiaries’ ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of their businesses, engage in transactions with related parties, make certain investments or pay dividends. In addition, the BRPAC Credit Agreement requires the Credit Parties to maintain certain financial ratios. The BRPAC Credit Agreement also contains customary representations and warranties, affirmative covenants, and events of default, including payment defaults, breach of representations and warranties, covenant defaults and cross defaults. If an event of default occurs, the agent would be entitled to take various actions, including the acceleration of amounts due under the outstanding BRPAC Credit Agreement. We are in compliance with all financial covenants in the BRPAC Credit Agreement as of December 31, 2023. On March 15, 2024, we received an extension under our credit agreement with Banc of California, N.A. of the time required to deliver our 2023 audited financial statements, which was extended to April 9, 2024, and on April 9, 2024, we received further extension of the time required to deliver our 2023 audited financial statements to April 29, 2024. Through a series of amendments, including the most recent Fourth Amendment to the BRPAC Credit Agreement (the “Fourth Amendment”) on June 21, 2022, the Borrowers, the Secured Guarantors, the Agent and the Closing Date Lenders agreed to the following, among other things: (i) the Lenders agreed to make a new $75.0 million term loan to the Borrowers, the proceeds of which the Borrowers’ used to repay the outstanding principal amount of the existing terms loans and optional loans and will use for other general corporate purposes, (ii) a new applicable margin level of 3.50% was established as set forth from the date of the Fourth Amendment, (iii) Marconi Wireless was added to the Borrowers, (iv) the maturity date of the term loan was set to June 30, 2027, and (v) the Borrowers were permitted to make certain distributions to the parent company of the Borrowers. 66 Table of Contents The borrowings under the amended BRPAC Credit Agreement bear interest equal to the Term SOFR rate plus a margin of 2.75% to 3.50% per annum, depending on the Borrowers’ consolidated total funded debt ratio as defined in the BRPAC Credit Agreement. As of December 31, 2023 and 2022, the interest rate on the BRPAC Credit Agreement was 8.46% and 7.65%, respectively. Principal outstanding under the amended BRPAC Credit Agreement is due in quarterly installments. Quarterly installments 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 December 31, 2023, and 2022, the outstanding balance on the term loan was $46.6 million (net of unamortized debt issuance costs of $0.4 million) and $68.7 million (net of unamortized debt issuance costs of $0.7 million), respectively. Interest expense on the term loan during the years ended December 31, 2023 and 2022 was $5.2 million (including amortization of deferred debt issuance costs of $0.3 million) and $3.5 million (including amortization of deferred debt issuance costs of $0.3 million), respectively. Senior Note Offerings During the years ended December 31, 2023 and 2022, we issued $0.2 million and $111.8 million, respectively, of senior notes with maturity dates ranging from May 2024 to August 2028 pursuant to At the Market Issuance Sales Agreements with BRS which governs the program of at-the-market sales of our senior notes. We filed a series of prospectus supplements with the SEC in respect of our offerings of these senior notes. In June 2023, we entered into note purchase agreements in connection with the 6.75% Senior Notes due 2024 (“6.75% 2024 Notes”) that were issued for the Targus acquisition. The note purchase agreements had a repurchase date of June 30, 2023 on which date we repurchased our 6.75% 2024 Notes with an aggregate principal amount of $58.9 million. The repurchase price was equal to the aggregate principal amount, plus accrued and unpaid interest up to, but excluding, the repurchase date. The total repurchase payment included approximately $0.7 million in accrued interest. On February 29, 2024, we partially redeemed $115.5 million aggregate principal amount of our 6.75% Senior Notes due 2024 (the “6.75% 2024 Notes”) pursuant to the seventh supplemental indenture dated December 3, 2021. The redemption price was equal to 100% of the aggregate principal amount, plus accrued and unpaid interest, up to, but excluding, the redemption date. The total redemption payment included approximately $0.6 million in accrued interest. As of December 31, 2023 and 2022, the total senior notes outstanding was $1,668.0 million (net of unamortized debt issue costs of $13.1 million) and $1,721.8 million (net of unamortized debt issue costs of $18.1 million) with a weighted average interest rate of 5.71% and 5.75%, respectively. Interest on the senior notes is payable on a quarterly basis. Interest expense on the senior notes totaled $103.2 million and $99.9 million during the years ended December 31, 2023 and 2022, respectively. Dividends From time to time, we may decide to pay dividends which will be dependent upon our financial condition and results of operations. During the years ended December 31, 2023, and 2022, we paid cash dividends on our common stock of $141.1 million, and $119.5 million, respectively. On February 29, 2024, the Company declared a regular quarterly dividend of $0.50 per share, which will be paid on or about March 22, 2024 to stockholders of record as of March 11, 2024. While it is the Board’s current intention to make regular dividend payments each quarter and special dividend payments dependent upon exceptional circumstances from time to time, our Board of Directors may reduce or discontinue the payment of dividends at any time for any reason it deems relevant. The declaration and payment of any future dividends or repurchases of our common stock will be made at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations, cash flows, capital expenditures, and other factors that may be deemed relevant by our Board of Directors. 67 Table of Contents A summary of our common stock dividend activity during the years ended December 31, 2023 and 2022 was as follows: Date Declared Date Paid Stockholder Record Date Regular Dividend Amount Special Dividend Amount Total Dividend Amount November 8, 2023 November 30, 2023 November 20, 2023 $ 1.000 $ — $ 1.000 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 February 22, 2023 March 23, 2023 March 10, 2023 1.000 — 1.000 November 3, 2022 November 29, 2022 November 15, 2022 1.000 — 1.000 July 28, 2022 August 23, 2022 August 11, 2022 1.000 — 1.000 April 28, 2022 May 20, 2022 May 11, 2022 1.000 — 1.000 February 23, 2022 March 23, 2022 March 9, 2022 1.000 — 1.000 Holders of Series A Preferred Stock, when and as authorized by our board of directors, are entitled to cumulative cash dividends at the rate of 6.875% per annum of the $0.03 million liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,718.75 or $1.71875 per Depositary Share). Dividends are payable quarterly in arrears. As of December 31, 2023 and 2022, dividends in arrears in respect of the Depositary Shares were $0.8 million. On January 9, 2024, the Company declared a cash dividend of $0.4296875 per Depositary Share, which was paid on January 31, 2024 to holders of record as of the close of business on January 22, 2024. Holders of Series B Preferred Stock, when and as authorized by our board of directors, are entitled to cumulative cash dividends at the rate of 7.375% per annum of the $0.03 million liquidation preference $25.00 per Depositary Share) per year (equivalent to $1,843.75 or $1.84375 per Depositary Share). Dividends are payable quarterly in arrears. As of December 31, 2023 and 2022, dividends in arrears in respect of the Depositary Shares were $0.5 million. On January 9, 2024, the Company declared a cash dividend of $0.4609375 per Depositary Share, which was paid on January 31, 2024 to holders of record as of the close of business on January 22, 2024. A summary of our preferred stock dividend activity during the years ended December 31, 2023 and 2022 was as follows: Preferred Dividend per Depositary Share Date Declared Date Paid Stockholder 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 January 9, 2023 January 31, 2023 January 20, 2023 0.4296875 0.4609375 October 10, 2022 October 31, 2022 October 21, 2022 0.4296875 0.4609375 July 7, 2022 July 29, 2022 July 19, 2022 0.4296875 0.4609375 April 7, 2022 April 29, 2022 April 19, 2022 0.4296875 0.4609375 January 10, 2022 January 31, 2022 January 21, 2022 0.4296875 0.4609375 Critical Accounting Estimates The Company’s accounting estimates are essential to understanding and interpreting the financial results on the consolidated financial statements. The significant accounting policies used in the preparation of the Company’s consolidated financial statements are summarized in Note 2 to the consolidated financial statements. Certain of those policies require management to make estimates and assumptions that affect the reported amounts in our consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. On a continual basis, management 68 Table of Contents reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience, and reasonable assumptions. After such reviews, and if deemed appropriate, management’s estimates are adjusted accordingly. Actual results may vary from these estimates and assumptions under different and/or future circumstances. We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. We believe the following accounting estimates to be critical to our business operations and the understanding of results of operations and affect the more significant judgements and estimates used in the preparation of our consolidated financial statements. Fair Value Measurements The fair value of loan receivables, investments which are included in securities and other investments owned, and securities sold, not yet purchased, are accounted for in accordance with the accounting guidance ASC 820 – Fair Value Measurements (“ASC 820”) with gains or losses recognized in our consolidated statement of operations. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the hierarchy under U.S. generally accepted accounting principles (“U.S. GAAP”) gives (i) the highest priority to unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities (level 1 inputs), (ii) the next priority to inputs other than level 1 inputs that are observable, either directly or indirectly (level 2 inputs), and (iii) the lowest priority to inputs that cannot be observed in market activity (level 3 inputs). A significant amount of our assets consist of loan receivables and equity securities for which market quotes are not readily available and a significant degree of judgement is applied to reflect those judgements that a market participant would use in valuing the asset or liability. Absent evidence to the contrary, financial instruments classified in level 3 of the fair value hierarchy are initially valued at transaction price, which is considered the best initial estimate of fair value. Subsequent to the transaction date, these financial instruments that are classified in level 3 of the fair value hierarchy are valued using valuation techniques that incorporate one or more significant unobservable inputs, and therefore involve the greatest degree of management judgements. These judgements include a) determining the appropriate valuation methodology and/or model for each type of level 3 financial instrument; b) determining model inputs based on an assessment of relevant empirical market data, including prices evidenced in market transactions, interest rates, credit spreads, volatilities, and correlations; and c) determining the appropriate valuation adjustments to reflect counterparty credit quality, liquidity considerations, and other observations as it pertains to the individual financial instrument. See Note 2(u), “Fair Value Measurements,” to the consolidated financial statements for further discussion regarding fair value of financial instruments. Goodwill and Other Intangible Assets We account for goodwill and intangible assets in accordance with ASC 350 – Intangibles - Goodwill and Other, which requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. Goodwill includes the excess of the purchase price over the fair value of net assets acquired in business combinations and the acquisition of noncontrolling interests. Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment). Management applies significant judgment when testing goodwill for impairment, which includes the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgment is required to estimate the fair value of reporting units which includes estimating future cash flows and determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment. In performing the qualitative analysis on an interim basis at September 30, 2023, factors indicated that it could be more likely than not that the carrying value of goodwill in the Company’s Consumer Products segment could be impaired due to the financial performance of the Company’s Targus subsidiary and market conditions that existed in the personal computer market for computers and accessories. The Company performed an interim quantitative goodwill impairment assessment as 69 Table of Contents of September 30, 2023 and based on the results of the analysis, the Company recorded a non-cash impairment charge of $35.5 million, consisting of a goodwill impairment charge of $27.5 million and an indefinite-lived tradename impairment charge of $8.0 million. As part of the annual review of goodwill at December 31, 2023, qualitative factors continued to indicate that it could be more likely than not that the carrying value of goodwill in the Consumer Products segment could be further impaired due to the financial performance of the Company’s Targus subsidiary during the holiday season and the expected recovery in market conditions for the personal computer market for computers and accessories that may be delayed. The Company performed an annual quantitative goodwill impairment and a year ended assessment as of December 31, 2023, and based on the results of the analysis, the Company recorded an additional non-cash impairment charge of $33.1 million, consisting of a goodwill impairment charge of $25.6 million and an indefinite-lived tradename impairment charge of $7.5 million as of December 31, 2023. Non-cash impairment charges totaled $68.6 million during the full year ended December 31, 2023 are recorded in impairment of goodwill and tradenames in the accompanying consolidated statements of operations during the year ended December 31, 2023, as more fully discussed in Note 9. At December 31, 2023, as part of the annual review of goodwill, we identified the Lingo reporting unit in the Communications segment where the fair value of the reporting unit exceeded the carrying value of the reporting unit by approximately 1%. The reporting unit was comprised of two companies that we acquired in 2022 and these two companies were merged together in July 2023 to create synergies and improve overall profitability of the combined companies. Operating income and earnings before interest, depreciation and amortization improved as a result of the synergies that were created in the second half of 2023. The Company determined that this reporting unit is at risk of goodwill impairment in the future due to the narrow margin between fair value and the carrying value and also based on the sensitivity of the potential forecast revisions; which among other things, includes changes in the strategy in the business. The resulting cash flow amounts for the reporting unit were discounted using a rate of 15.0% reflecting market participants’ assumptions with a terminal growth rate of 1.0%. If the Company holds all other assumptions constant, a reduction in the terminal value growth rate by 0.5% or an increase in discount rate by 0.5% would each result in impairment. The goodwill allocated to this reporting unit was $71.6 million as of December 31, 2023. In determining the fair value of this reporting unit, the Company used a discounted cash flow analysis and market approach consisting of the guideline company method and applied the following key assumptions: expected revenue growth and operating profit margins which included cost savings programs and other initiatives that were implemented in the first quarter of 2024 to improve the operating cash flows, market multiples, discount rates, among others. To the extent future operating performance and cash flows of the reporting unit deteriorate from the current forecast, or if the Company is unable to execute its strategies, this may result in an impairment of goodwill. See Note 2(t), “Goodwill and Other Intangible Assets,” to the consolidated financial statements for further discussion regarding goodwill impairment. Income Taxes The Company is subject to the income tax laws of the various jurisdictions in which it operates, including U.S. federal, state and local, and non-U.S. jurisdictions. These laws are often complex and may be subject to different interpretations. To determine the financial statement impact of accounting for income taxes, including the provision for income tax expense and unrecognized tax benefits, management must make assumptions and judgments about how to interpret and apply these complex tax laws to numerous transactions and business events, as well as make judgments regarding the timing of when certain items may affect taxable income in the U.S. and non-U.S. tax jurisdictions. The Company’s interpretations of tax laws in the U.S. and non-U.S. jurisdictions are subject to review and examination by the various taxing authorities in the jurisdictions where the Company operates, and disputes may occur regarding its view on a tax position. Generally, disputes over interpretations with the various taxing authorities may be settled by audit or administrative appeals in the tax jurisdictions in which the Company operates. The Company regularly reviews whether it may be assessed additional income taxes as a result of the resolution of these matters, and the Company records additional unrecognized tax benefits, as appropriate. In addition, the Company may revise its estimate of income taxes due to changes in income tax laws, legal interpretations, and business strategies. It is possible that revisions in the Company’s estimate of income taxes may materially affect the Company’s results of operations in any reporting period. 70 Table of Contents Deferred taxes arise from differences between assets and liabilities measured for financial reporting versus income tax return purposes. Deferred tax assets are recognized if, in management’s judgment, their realizability is determined to be more likely than not. Deferred taxes are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized within the provision for income taxes in the period enacted. The Firm has also recognized deferred tax assets in connection with certain tax attributes, including net operating loss (“NOL”) carryforwards. The Company performs regular reviews to ascertain whether its deferred tax assets are realizable. These reviews include management’s estimates and assumptions regarding future taxable income and may incorporate various tax planning strategies, including strategies that may be available to utilize NOLs before they expire. In connection with these reviews, if it is determined that a deferred tax asset is not realizable, a valuation allowance is established. The valuation allowance may be reversed in a subsequent reporting period if the Company determines that, based on revised estimates of future taxable income or changes in tax planning strategies, it is more likely than not that all or part of the deferred tax asset will become realizable. As of December 31, 2023, management has determined it is more likely than not that the Company will realize its deferred tax assets, net of the existing valuation allowance. The Company adjusts its unrecognized tax benefits as necessary when new information becomes available, including changes in tax law and regulations and interactions with taxing authorities. Uncertain tax positions that meet the more-likely-than-not recognition threshold are measured to determine the amount of benefit to recognize. An uncertain tax position is measured at an amount of benefit that management believes is more likely than not to be realized upon settlement. It is possible that the reassessment of unrecognized tax benefits may have a material impact on the Company’s effective income tax rate in the period in which the reassessment occurs. Although the Company believes that its estimates are reasonable, the final tax amount could be different from the amounts reflected in the Company’s income tax provisions and accruals. To the extent that the final outcome of these amounts is different than the amounts recorded, such differences will generally impact the Company’s provision for income taxes in the period in which such a determination is made. The Company’s provision for income taxes is composed of current and deferred taxes. The current and deferred tax provisions are calculated based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on filed returns are generally recorded in the period when the tax returns are filed and these adjustments could impact the Company’s effective tax rate. See Note 15, “Income Taxes,” to the consolidated financial statements for further discussion regarding income taxes. Recent Accounting Standards See Note 2(ac) to the accompanying financial statements for recent accounting standards we have not yet adopted and recently adopted.