Item 2. Management’s Discussion and Analysis
Item 2. 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. We are under no obligation to update any of the forward-looking statements after the filing of this Quarterly Report to conform such statements to actual results or to changes in our expectations.
The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes and other financial information appearing elsewhere in this Quarterly 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 Quarterly 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 Quarterly 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.
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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.
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”). Moelis & Company LLC and the Company have started the strategic review process and began a solicitation of interest process in April 2024. 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.
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
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the financial markets and/or the overall economy continue to be impacted, our results of operations, financial position, and cash flows may be materially adversely affected.
Critical Accounting Estimates
The preparation of our condensed consolidated financial statements in accordance with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, related disclosures of contingent assets and liabilities, and reported amounts of revenue and expense during the reporting period. The estimates and assumptions are based on historical experience and on other factors that management believes to be reasonable. Actual results may differ from those estimates. Critical accounting estimates represent the areas where more significant judgments and estimates are used in the preparation of our condensed consolidated financial statements. A discussion of such critical accounting estimates, which include fair value measurements, goodwill and other intangible assets, and accounting for income tax valuation allowances can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Results of Operations
The following period to period comparisons of our financial results and our interim results are not necessarily indicative of future results.
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
Condensed Consolidated Statements of Operations
(Dollars in thousands)
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Three Months Ended March 31, Change
2024 2023 Amount %
Revenues:
Services and fees $ 257,303 $ 235,559 $ 21,744 9.2 %
Trading (loss) income and fair value adjustments on loans (29,868) 51,568 (81,436) (157.9) %
Interest income - Loans and securities lending 59,944 77,186 (17,242) (22.3) %
Sale of goods 55,653 67,777 (12,124) (17.9) %
Total revenues 343,032 432,090 (89,058) (20.6) %
Operating expenses:
Direct cost of services 61,126 54,397 6,729 12.4 %
Cost of goods sold 39,615 47,626 (8,011) (16.8) %
Selling, general and administrative expenses 209,548 212,627 (3,079) (1.4) %
Restructuring charge 789 93 696 n/m
Interest expense - Securities lending and loan participations sold 35,383 32,424 2,959 9.1 %
Total operating expenses 346,461 347,167 (706) (0.2) %
Operating (loss) income (3,429) 84,923 (88,352) (104.0) %
Other income (expense):
Interest income 669 2,574 (1,905) (74.0) %
Dividend income 11,815 13,204 (1,389) (10.5) %
Realized and unrealized losses on investments (29,545) (28,442) (1,103) 3.9 %
Change in fair value of financial instruments and other 314 (209) 523 n/m
Loss from equity investments (4) (10) 6 (60.0) %
Interest expense (44,864) (47,561) 2,697 (5.7) %
(Loss) income before income taxes (65,044) 24,479 (89,523) n/m
Benefit from (provision for) income taxes 17,090 (7,919) 25,009 n/m
Net (loss) income (47,954) 16,560 (64,514) n/m
Net income (loss) attributable to noncontrolling interests 1,211 (595) 1,806 n/m
Net (loss) income attributable to B. Riley Financial, Inc. (49,165) 17,155 (66,320) n/m
Preferred stock dividends 2,015 2,012 3 0.1 %
Net (loss) income available to common shareholders $ (51,180) $ 15,143 $ (66,323) n/m
n/m - Not applicable or not meaningful.
Revenues
The table below and the discussion that follows are based on how we analyze our business.
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Three Months Ended March 31, Change
2024 2023 Amount %
Revenues - Services and fees:
Capital Markets segment $ 60,347 $ 57,929 $ 2,418 4.2 %
Wealth Management segment 51,182 48,542 2,640 5.4 %
Auction and Liquidation segment 3,560 5,444 (1,884) (34.6) %
Financial Consulting segment 35,085 25,010 10,075 40.3 %
Communications segment 81,070 85,052 (3,982) (4.7) %
All Other 26,059 13,582 12,477 91.9 %
Subtotal 257,303 235,559 21,744 9.2 %
Revenues - Sale of goods:
Auction and Liquidation segment 2,220 216 2,004 n/m
Communications segment 1,296 1,867 (571) (30.6) %
Consumer Products segment 51,522 65,694 (14,172) (21.6) %
All Other 615 — 615 100.0 %
Subtotal 55,653 67,777 (12,124) (17.9) %
Trading (loss) income and fair value adjustments on loans
Capital Markets segment (30,468) 50,296 (80,764) (160.6) %
Wealth Management segment 600 1,272 (672) (52.8) %
Subtotal (29,868) 51,568 (81,436) (157.9) %
Interest income - Loans and securities lending:
Capital Markets segment 59,944 77,186 (17,242) (22.3) %
Total revenues $ 343,032 $ 432,090 $ (89,058) (20.6) %
_______________________________________________
n/m - Not applicable or not meaningful.
Total revenues decreased $89.1 million to $343.0 million during the three months ended March 31, 2024 from $432.1 million during the three months ended March 31, 2023. The decrease in revenues during the three months ended March 31, 2024 was primarily due to decreases in the fair value of the portfolio of securities and other investments owned and fair value adjustments on loans of $81.4 million, interest income from loans and securities lending of $17.2 million, and sale of goods of $12.1 million, partially offset by an increase in revenues from services and fees of $21.7 million. The increase in revenue from services and fees in the three months ended March 31, 2024 consisted of increases in revenue of $12.5 million in All Other, $10.1 million in the Financial Consulting segment, $2.6 million in the Wealth Management segment, and $2.4 million in the Capital Markets segment, partially offset by decreases in revenue of $4.0 million in the Communications segment, and $1.9 million in the Auction and Liquidation segment.
Revenues from services and fees in the Capital Markets segment increased $2.4 million to $60.3 million during the three months ended March 31, 2024 from $57.9 million during the three months ended March 31, 2023. The increase in revenues was primarily due to increases of $11.0 million of corporate finance, consulting, and investment banking fees, $0.5 million of other income, and $0.4 in asset management fees, partially offset by decreases of $6.5 million in dividends and $3.0 million of commission fees.
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Revenues from services and fees in the Wealth Management segment increased $2.6 million to $51.2 million during the three months ended March 31, 2024 from $48.5 million during the three months ended March 31, 2023. The increase in revenues was primarily due to an increase in revenue of $2.7 million from wealth and asset management fees.
Revenues from services and fees in the Auction and Liquidation segment decreased $1.9 million to $3.6 million during the three months ended March 31, 2024 from $5.4 million during the three months ended March 31, 2023. The decrease in revenues was primarily due to a decrease of $2.9 million in commission fees, partially offset by an increase of $1.0 million in service contract revenues. The decrease in commission fees was related to a decrease in the size of fee engagements.
Revenues from services and fees in the Financial Consulting segment increased $10.1 million to $35.1 million during the three months ended March 31, 2024 from $25.0 million during the three months ended March 31, 2023. The increase in revenues was primarily due to an increase of $8.5 million within our Advisory Services division primarily consisting of $2.9 million due to a full quarter of revenues from acquisitions in the prior year and $5.6 million in advisory services. The remaining increase in revenues was due to an increase of $1.6 million in Appraisal due to an increase in the number of appraisals performed.
Revenues from services and fees in the Communications segment decreased $4.0 million to $81.1 million during the three months ended March 31, 2024 from $85.1 million during the three months ended March 31, 2023. The decrease in revenues was primarily due to decreases in subscription revenue of $3.3 million and $0.7 million in advertising, licensing and other revenue. We expect UOL, magicJack, and Marconi subscription revenue to continue to decline year over year.
Revenues from services and fees in All Other increased $12.5 million to $26.1 million during the three months ended March 31, 2024 from $13.6 million during the three months ended March 31, 2023. 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 and consolidated during the fourth quarter of 2023, and the operations of a regional environmental services business and a landscaping business that we acquired in 2022 and sold in the third quarter of 2023. Revenues from services and fees in All Other increased by approximately $14.0 million related to merchandise rental fees from bebe, $0.3 million related to the regional environmental services business, and $0.3 million related to licensing of brand trademarks, partially offset by a decrease in revenues of $2.1 million due to the sale of the landscaping business in the fourth quarter of 2023.
Trading income (loss) and fair value adjustments on loans decreased approximately $81.4 million to a loss of $29.9 million during the three months ended March 31, 2024 compared to income of $51.6 million during the three months ended March 31, 2023. The loss of $29.9 million during the three months ended March 31, 2024 was primarily due to realized and unrealized losses on our loans receivable, at fair value of $12.2 million, partially offset by realized and unrealized losses on investments made in our proprietary trading accounts of $17.7 million. The income of $51.6 million during the three months ended March 31, 2023 was primarily due to unrealized gains on our loans receivable, at fair value of $43.3 million and realized and unrealized gains on investments made in our proprietary trading accounts of $8.3 million.
Interest income – loans and securities lending decreased $17.2 million to $59.9 million during the three months ended March 31, 2024 from $77.2 million during the three months ended March 31, 2023. Interest income from securities lending was $37.8 million and $37.2 million during the three months ended March 31, 2024 and 2023, respectively. Interest income from loans was $22.1 million and $40.0 million during the three months ended March 31, 2024 and 2023, respectively, with the decrease due to a reduction in loan receivable balances from $772.1 million as of March 31, 2023 to $452.5 million as of March 31, 2024.
Revenues from the sale of goods decreased $12.1 million to $55.7 million during the three months ended March 31, 2024 from $67.8 million during the three months ended March 31, 2023.The decrease in revenues from sale of goods was attributable to a decrease of $14.2 million from the Consumer Products segment due to a decrease in computer and laptop sales worldwide and a decrease of $0.6 million from the Communications segment, partially offset by an increase of $2.0 million from the Auction and Liquidation segment due to larger international asset deals and an increase of $0.6 million in All Other due to sale of goods from bebe in which we acquired a controlling interest and consolidated during the fourth quarter of 2023. Cost of goods sold for the three months ended March 31, 2024 decreased approximately $8.0 million to $39.6 million from $47.6 million during the three months ended March 31, 2023. The decrease in cost of goods sold was primarily attributable to decreases of $8.5 million in the Consumer Products segment and $0.8 million in the Communications segment, partially offset by increases of $0.7 million from the Auction and Liquidation segment and $0.6 million from All Other.
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Operating Expenses
Direct Cost of Services
Direct cost of services increased approximately $6.7 million to $61.1 million during the three months ended March 31, 2024 from $54.4 million during the three months ended March 31, 2023. The increase in direct cost of services was primarily attributable to increases of $4.1 million from the Communications segment and $4.3 million from All Other due to bebe in which we acquired a controlling interest and consolidated during the fourth quarter of 2023, partially offset by a decrease of $1.7 million from the Auction and Liquidation segment due to the size of the fee deals.
Selling, General and Administrative Expenses
Selling, general and administrative expenses during the three months ended March 31, 2024 and 2023 were comprised of the following:
Three Months Ended March 31, 2024 Three Months Ended
March 31, 2023 Change
Amount % Amount % Amount %
Capital Markets segment $ 53,995 25.8 % $ 66,967 31.4 % $ (12,972) (19.4) %
Wealth Management segment 50,103 23.9 % 48,408 22.8 % 1,695 3.5 %
Auction and Liquidation segment 1,508 0.7 % 2,280 1.1 % (772) (33.9) %
Financial Consulting segment 28,945 13.8 % 21,227 10.0 % 7,718 36.4 %
Communications segment 23,875 11.4 % 29,175 13.7 % (5,300) (18.2) %
Consumer Products segment 17,522 8.4 % 21,902 10.3 % (4,380) (20.0) %
Corporate and All Other 33,600 16.0 % 22,668 10.7 % 10,932 48.2 %
Total selling, general & administrative expenses $ 209,548 100.0 % $ 212,627 100.0 % $ (3,079) (1.4) %
____________________________________
n/m - Not applicable or not meaningful.
Total selling, general and administrative expenses decreased by $3.1 million to $209.5 million during the three months ended March 31, 2024 from $212.6 million during the three months ended March 31, 2023. The decrease was primarily due to decreases of $13.0 million in the Capital Markets segment, $5.3 million in the Communications segment, $4.4 million in the Consumer Products segment, and $0.8 million in the Auction and Liquidation segment, partially offset by increases of $10.9 million in Corporate and All Other, $7.7 million in the Financial Consulting segment, and $1.7 million in the Wealth Management segment.
Capital Markets
Selling, general and administrative expenses in the Capital Markets segment decreased by $13.0 million to $54.0 million during the three months ended March 31, 2024 from $67.0 million during the three months ended March 31, 2023. The decrease was primarily due to decreases of $8.4 million related to an advisory agreement which ended in August of 2023, $3.7 million in payroll and related expenses of which $2.4 million related to a decrease in share based compensation and $1.3 million related to a decrease in payroll expenses, $1.5 million in other expenses, and $1.5 million in clearing charges, partially offset by an increase of $2.1 million in change in fair value of contingent consideration.
Wealth Management
Selling, general and administrative expenses in the Wealth Management segment increased by $1.7 million to $50.1 million during the three months ended March 31, 2024 from $48.4 million during the three months ended March 31, 2023. The increase was primarily due to increases of $1.5 million in payroll and related expenses, $1.2 million in legal settlements, and $0.7 million in change in fair value of contingent consideration, partially offset by decreases of $1.7 million in other expenses.
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Auction and Liquidation
Selling, general and administrative expenses in the Auction and Liquidation segment decreased $0.8 million to $1.5 million during the three months ended March 31, 2024 from $2.3 million during the three months ended March 31, 2023. The decrease was primarily due to a decrease of $0.8 million in foreign currency fluctuation.
Financial Consulting
Selling, general and administrative expenses in the Financial Consulting segment increased by $7.7 million to $28.9 million during the three months ended March 31, 2024 from $21.2 million during the three months ended March 31, 2023. The increase was primarily due to increases of $5.2 million in payroll and related expenses primarily related to the full quarter results of acquisitions from the prior year, $1.6 million in change in fair value of contingent consideration, and $0.9 million in other expenses.
Communications
Selling, general and administrative expenses in the Communications segment decreased $5.3 million to $23.9 million for the three months ended March 31, 2024 from $29.2 million for the three months ended March 31, 2023. The decrease was primarily due to decreases of $2.7 million in payroll and related expenses, $1.9 million in other expenses, and $0.7 million in depreciation and amortization expenses. The decrease in payroll and related expenses and other expenses was primarily due to cost savings in 2024 resulting from the implementation of cost savings programs in second half of 2023 that included a reduction in headcount and other operating expenses.
Consumer Products
Selling, general and administrative expenses in the Consumer Products segment decreased $4.4 million to $17.5 million for the three months ended March 31, 2024 from $21.9 million during the three months ended March 31, 2023. The decrease was primarily due to decreases of $2.4 million in professional fees, $1.5 million in other expenses, and $0.5 million in marketing costs.
Corporate and All Other
Selling, general and administrative expenses for Corporate and All Other increased approximately $10.9 million to $33.6 million during the three months ended March 31, 2024 from $22.7 million for the three months ended March 31, 2023. The increase was primarily due to increases of $10.0 million from bebe in which we acquired a controlling interest and consolidated during the fourth quarter of 2023, $4.5 million in legal expenses, and $2.6 million in accounting expenses, partially offset by decreases of $3.7 million in payroll and related expenses, $2.1 million in foreign currency fluctuation, and $0.4 million in depreciation and amortization expense.
Other Income (Expense). Other income included interest income of $0.7 million and $2.6 million during the three months ended March 31, 2024 and 2023, respectively. Dividend income was $11.8 million during the three months ended March 31, 2024 compared to $13.2 million during the three months ended March 31, 2023. Realized and unrealized gains (losses) on investments was a loss of $29.5 million during the three months ended March 31, 2024 compared to a loss of $28.4 million during the three months ended March 31, 2023. The change was primarily due to a decrease in the overall values of our investments. Change in fair value of financial instruments and other was a gain of $0.3 million during the three months ended March 31, 2024 and a loss of $0.2 million during the three months ended March 31, 2023. Interest expense was $44.9 million during the three months ended March 31, 2024 compared to $47.6 million during the three months ended March 31, 2023. The decrease in interest expense was due to lower debt balances during the three months ended March 31, 2024. The decreases in interest expense primarily consisted of $6.4 million from the Pathlight term loan, $1.8 million from the issuance of senior notes, $1.5 million from the Nomura revolving credit facility, $0.1 million and $0.4 million from the Targus term loan and revolving loan, respectively, and $0.4 million from the BRPAC term loan, partially offset by increases in interest expense of $7.7 million from the Nomura term loan and $0.7 million from the bebe term loan.
(Loss) Income Before Income Taxes . Loss before income taxes was $65.0 million during the three months ended March 31, 2024 compared to income before income taxes of $24.5 million during the three months ended March 31, 2023. The change was due to a decrease in revenue of $89.1 million, a decrease of $1.9 million in interest income, a decrease of $1.4 million in dividend income, and a change in realized and unrealized losses on investments of $1.1 million, partially
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offset by a decrease in interest expense of $2.7 million, a decrease in operating expenses of $0.7 million, and an increase in change in fair value of financial instruments and other of $0.5 million.
Benefit from (Provision for) Income Taxes. Benefit from income taxes was $17.1 million during the three months ended March 31, 2024 compared to a provision for income taxes of $7.9 million during the three months ended March 31, 2023. The effective income tax rate was 26.3% for the three months ended March 31, 2024 as compared to 32.4% for the three months ended March 31, 2023.
Net Income (Loss) Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests. Net income (loss) attributable to noncontrolling interests and redeemable noncontrolling interests represents the proportionate share of net income generated by membership interests of partnerships that we do not own. The net income attributable to noncontrolling interests was $1.2 million during the three months ended March 31, 2024 compared to net loss of $0.6 million during the three months ended March 31, 2023.
Net (Loss) Income Attributable to the Company . Net loss attributable to the Company was $49.2 million during the three months ended March 31, 2024 compared to net income attributable to the Company of $17.2 million for the three months ended March 31, 2023. The decrease was due to a change in operating (loss) income of $88.4 million, a decrease of $1.9 million in interest income, a change in net income (loss) attributable to noncontrolling interests and redeemable noncontrolling interests of $1.8 million, a decrease of $1.4 million in dividend income, and a decrease in realized and unrealized gains (losses) on investments of $1.1 million, partially offset by a change from provision for to benefit from income taxes of $25.0 million, a decrease in interest expense of $2.7 million, and an increase in change in fair value of financial instruments and other of $0.5 million.
Preferred Stock Dividends . Preferred stock dividends were $2.0 million for the three months ended March 31, 2024 and 2023. Dividends on the Series A preferred paid during the three months ended March 31, 2024 and 2023 were $0.4296875 per depository share. Dividends on the Series B preferred paid during the three months ended March 31, 2024 and 2023 were $0.4609375 per depository share.
Net (Loss) Income Available to Common Shareholders . Net loss available to common shareholders was $51.2 million during the three months ended March 31, 2024 compared to net income available to common shareholders $15.1 million during the three months ended March 31, 2023. The decrease was due to a change in operating (loss) income of $88.4 million, a decrease of $1.9 million in interest income, a change in net income (loss) attributable to noncontrolling interests and redeemable noncontrolling interests of $1.8 million, a decrease of $1.4 million in dividend income, and a decrease in realized and unrealized gains (losses) on investments of $1.1 million, partially offset by a decrease in interest expense of $2.7 million, a change from provision for to benefit from income taxes of $25.0 million, and an increase in change in fair value of financial instruments and other of $0.5 million.
Liquidity and Capital Resources
Our operations are funded through a combination of existing cash on hand, cash generated from operations, borrowings under our senior notes payable, term loans and credit facilities, and special purposes financing arrangements. During the three months ended March 31, 2024 and 2023, we generated net loss of $48.0 million and net income of $16.6 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 March 31, 2024, we had $190.7 million of unrestricted cash and cash equivalents, $1.9 million of restricted cash, $949.9 million of securities and other investments, at fair value, $452.5 million of loans receivable, at fair value, and $2,186.4 million of borrowings outstanding. The borrowings outstanding of $2,186.4 million as of March 31, 2024 included $1,553.6 million from the issuance of series of senior notes that are due at various dates ranging from May 31, 2024 to August 31, 2028 with interest rates ranging from 5.00% to 6.75%, $596.3 million in term loans borrowed pursuant to the Tiger US Holdings Inc. (“Targus”), Lingo Management, LLC (“Lingo Management”), BRPI Acquisition Co LLC (“BRPAC”), Nomura Corporate Fundings Americas, LLC (“Nomura”), and bebe stores, inc. (“bebe”) credit agreements discussed below, $22.2 million of revolving credit facility under the Targus credit facility discussed below, and $14.3 million of notes payable.
We believe that our current cash and cash equivalents, securities and other investments owned, funds available under our asset based credit facility, funds available under the Targus and Nomura revolving credit facilities, and cash expected
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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 issued 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.
From time to time, we may decide to pay dividends which will be dependent upon our financial condition and results of operations. On May 15, 2024, we declared a regular dividend of $0.50 per share that will be paid on or about June 11, 2024 to stockholders of record as of May 27, 2024. During the year ended December 31, 2023, we paid cash dividends on our common stock of $141.1 million. 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.
A summary of common stock dividend activity for the three months ended March 31, 2024 and the year ended December 31, 2023 was as follows:
Date Declared Date Paid Stockholder Record Date Amount
February 29, 2024 March 22, 2024 March 11, 2024 $ 0.50
November 8, 2023 November 30, 2023 November 20, 2023 1.00
July 25, 2023 August 21, 2023 August 11, 2023 1.00
May 4, 2023 May 23, 2023 May 16, 2023 1.00
February 22, 2023 March 23, 2023 March 10, 2023 1.00
Holders of Series A Preferred Stock, when and as authorized by the board of directors of the Company, are entitled to cumulative cash dividends at the rate of 6.875% per annum of the $0.03 million liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,718.75 or $1.71875 per Depositary Share). Dividends are payable quarterly in arrears, on or about the last day of January, April, July, and October. As of March 31, 2024, dividends in arrears in respect of the Depositary Shares were $0.8 million. On April 9, 2024, the Company declared a cash dividend of $0.4296875 per Depositary Share, which was paid on April 30, 2024 to holders of record as of the close of business on April 22, 2024.
Holders of Series B Preferred Stock, when and as authorized by the board of directors of the Company, are entitled to cumulative cash dividends at the rate of 7.375% per annum of the $0.03 million liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,843.75 or $1.84375 per Depositary Share). Dividends are payable quarterly in arrears, on or about the last day of January, April, July, and October. As of March 31, 2024, dividends in arrears in respect of the Depositary Shares were $0.5 million. On April 9, 2024, the Company declared a cash dividend of $0.4609375 per Depositary Share, which was paid on April 30, 2024 to holders of record as of the close of business on April 22, 2024.
A summary of preferred stock dividend activity for the three months ended March 31, 2024 and the year ended December 31, 2023 was as follows:
Stockholder Preferred Dividend per Depositary Share
Date Declared Date Paid Record Date Series A Series B
January 9, 2024 January 31, 2024 January 22, 2024 $ 0.4296875 $ 0.4609375
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
Our principal sources of liquidity to finance our business are our existing cash on hand, cash flows generated from operating activities, funds available under revolving credit facilities and special purpose financing arrangements.
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Cash Flow Summary
Three Months Ended
March 31,
2024 2023
(Dollars in thousands)
Net cash (used in) provided by:
Operating activities $ 135,357 $ 52,617
Investing activities 18,278 (57,164)
Financing activities (190,933) (55,337)
Effect of foreign currency on cash (3,962) 1,280
Net decrease in cash, cash equivalents and restricted cash $ (41,260) $ (58,604)
Cash provided by operating activities was $135.4 million during the three months ended March 31, 2024 compared to cash provided by operating activities of $52.6 million during the three months ended March 31, 2023. Cash provided by operating activities for the three months ended March 31, 2024 consisted of the impact of net loss of $48.0 million, noncash items of $19.8 million, and changes in operating assets and liabilities of $163.5 million. The positive cash flow impact from noncash items of $19.8 million included fair value adjustments of $13.7 million, depreciation and amortization of $11.1 million, share-based compensation of $8.7 million, depreciation of rental merchandise of $4.2 million, provision for credit losses of $0.4 million, income allocated for mandatorily redeemable noncontrolling interests of $0.3 million, effect of foreign currency of $0.3 million, partially offset by deferred income taxes of $16.0 million, non-cash interest and other of $2.7 million, and gain on sale of business and other of $0.2 million. Cash provided by operating activities for the three months ended March 31, 2023 consisted of the impact of net income of $16.6 million, noncash items of $10.7 million, and changes in operating assets and liabilities of $46.7 million. The negative cash flow impact from noncash items of $10.7 million included fair value adjustments of $46.1 million and noncash interest and other of $1.1 million, partially offset by share-based compensation of $13.7 million, depreciation and amortization of $13.1 million, deferred income taxes of $5.8 million, provision for credit losses of $3.2 million, effect of foreign currency of $0.3 million, income allocated for mandatorily redeemable noncontrolling interests of $0.3 million, and dividends from equity investments of $0.1 million.
Cash provided by investing activities was $18.3 million during the three months ended March 31, 2024 compared to cash used in investing activities of $57.2 million for the three months ended March 31, 2023. During the three months ended March 31, 2024, cash provided by investing activities consisted of cash provided by loans receivable repayment of $39.5 million and sale of loans receivable of $22.8 million, partially offset by cash used in purchases of loans receivable of $42.9 million, purchases of property and equipment of $0.9 million, and sale of business, net of cash sold and other of $0.2 million. During the three months ended March 31, 2023, cash used in investing activities consisted of cash used for purchases of loans receivable of $312.0 million, acquisition of businesses and minority interest of $12.3 million, purchases of property and equipment of $1.7 million, and purchases of equity and other investments of $0.7 million, partially offset by cash received from loans receivable repayment of $260.6 million, sale of loan receivable of $7.5 million, and proceeds from sale of property, equipment, intangible assets, and other of $1.4 million.
Cash used in financing activities was $190.9 million during the three months ended March 31, 2024 compared to cash used in financing activities of $55.3 million during the three months ended March 31, 2023. During the three months ended March 31, 2024, cash used in financing activities primarily consisted of $115.5 million used to redeem senior notes, $39.3 million used in payment of revolving lines of credit, $30.0 million used in the repayment of term loan, $16.0 million used to pay dividends on our common shares, $5.4 million used to repay our notes payable and other, $2.0 million used to pay dividends on our preferred shares, $1.5 million in distributions to noncontrolling interests, $1.2 million used in payment of employment taxes on vesting of restricted stock, $0.2 million used to pay debt issuance and offering costs, and $0.1 million used to pay contingent consideration, partially offset by cash provided by $17.7 million in proceeds from revolving line of credit and $2.5 million in contributions from noncontrolling interests. During the three months ended March 31, 2023, cash used in financing activities primarily consisted of $72.9 million used in the repayment of term loan, $53.8 million used to repurchase our common shares, $46.9 million used to pay dividends on our common shares, $17.2 million used in repayment of revolving line of credit, $11.5 million used to repay our notes payable, $4.8 million used in payment of employment taxes on vesting of restricted stock, $2.0 million used in the payment of debt issuance and offering costs, $2.0 million used to pay dividends on our preferred shares, $1.3 million used in the payment of contingent consideration, and $1.0 million in distributions to noncontrolling interests, partially offset by cash provided by $128.2 million in proceeds
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from borrowings under a term loan, $29.0 million in proceeds from revolving line of credit, $0.5 million in proceeds from issuance of preferred stock, and $0.4 million in contributions from noncontrolling interests.
Credit Agreements
Targus Credit Agreement
On October 18, 2022, our subsidiary, Tiger US Holdings, Inc. (the “Borrower”), 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 final maturity date is October 18, 2027.
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 the Borrower’s ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of their businesses, engage in transactions with related parties, make certain investments or pay dividends. The Targus Credit Agreement also contains customary representations and warranties, affirmative covenants, and events of default, including payment defaults, breach of representations and warranties, covenant defaults and cross defaults. If an event of default occurs, the agent would be entitled to take various actions, including the acceleration of amounts outstanding under the Targus Credit Agreement. On October 31, 2023 and February 20, 2024, the Company 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 all financial covenants in the Targus Credit Agreement as of March 31, 2024.
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 5.75%. 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 3.00% and term rate loans that bear interest on the outstanding principal amount equal to the revolver SOFR rate plus an applicable margin of 4.00%.
Principal outstanding for the term loan under the amended Targus Credit Agreement is due in quarterly installments. The quarterly installment on June 30, 2024 is in the amount of $1.4 million. Quarterly installments from September 30, 2024 to December 31, 2025 are in the amount of $2.1 million per quarter and the remaining principal balance is due on March 31, 2026.
As of March 31, 2024 and December 31, 2023, the outstanding balance on the term loan was $14.4 million (net of unamortized debt issuance costs of $0.3 million) and $17.8 million (net of unamortized debt issuance costs of $0.4 million), respectively, and the outstanding balance on the revolver loan was $22.2 million and $43.8 million, respectively. Interest expense on these loans during the three months ended March 31, 2024 and 2023 was $1.4 million (including amortization of deferred debt issuance costs of $0.2 million and unused commitment fees of $0.03 million) and $1.8 million (including amortization of deferred debt issuance costs of $0.2 million and unused commitment fees of $0.0 million), respectively. The interest rate on the term loan was 11.16% and 10.20% and the interest rate on the revolver loan ranged between 9.19% to 11.50% and between 8.45% to 11.25% as of March 31, 2024 and December 31, 2023, respectively. The weighted average interest rate on the revolver loan was 9.77% and 8.53% as of March 31, 2024 and December 31, 2023, 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 (the “New Lender”) for an incremental term loan of $7.5 million, increasing the principal balance of the term loan to $52.5 million. On November 10, 2022, Lingo entered into
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the Second Amendment to the Lingo Credit Agreement with KeyBank National Association for an incremental term loan of $20.5 million, increasing the principal balance of the term loan to $73.0 million.
The term loan bears interest on the outstanding principal amount equal to the term SOFR rate plus a margin of 3.00% to 3.75% per annum, depending on the consolidated total funded debt ratio as defined in the Lingo Credit Agreement, plus applicable spread adjustment. As of March 31, 2024 and December 31, 2023, the interest rate on the Lingo Credit Agreement was 8.69% and 8.70%, 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 the Borrower’s ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of its businesses, engage in transactions with related parties, make certain investments or pay dividends. In addition, the Lingo Credit Agreement requires the Borrower to maintain certain financial ratios. The Lingo 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 Lingo Credit Agreement. We are in compliance with all financial covenants in the Lingo Credit Agreement as of March 31, 2024.
Principal outstanding is due in quarterly installments. The quarterly installments from June 30, 2024 to December 31, 2024 are in the amount of $2.7 million per quarter, quarterly installments from March 31, 2025 to June 30, 2027 are in the amount of $3.7 million, and the remaining principal balance is due at final maturity on August 16, 2027.
As of March 31, 2024 and December 31, 2023, the outstanding balance on the term loan was $60.4 million (net of unamortized debt issuance costs of $0.7 million) and $63.2 million (net of unamortized debt issuance costs of $0.7 million), respectively. Interest expense on the term loan during the three months ended March 31, 2024 and 2023 was $1.5 million (including amortization of deferred debt issuance costs of $0.1 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 March 31, 2024 and December 31, 2023, the interest rate on the bebe Credit Agreement was 11.10% and 11.14%, respectively.
The bebe Credit Agreement is collateralized by a first lien on all bebe assets and pledges of capital stock including equity interests. 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 March 31, 2024.
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 March 31, 2024 and December 31, 2023, the outstanding balance on the term loan was $22.2 million (net of unamortized debt issuance costs of $0.6 million) and $22.5 million (net of unamortized debt issuance costs of $0.6 million), respectively. Interest expense on the term loan during the three months ended March 31, 2024 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
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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, entered into a credit agreement (the “Credit Agreement”) with Nomura Corporate Funding Americas, LLC, as administrative agent, and Computershare Trust Company, N.A., as collateral agent, for a four-year $500.0 million secured term loan credit facility (the “New Term Loan Facility”) and a four-year $100.0 million secured revolving loan credit facility (the “New Revolving Credit Facility” and together, the “New Credit Facilities”). The purpose of the Credit Agreement was to (i) fund the Freedom VCM equity investment, (ii) prepay in full the Prior Term Loan Facility and Prior Revolving Credit Facility with an aggregate outstanding balance of $347.9 million, which included $342.0 million in principal and $5.9 million in interest and fees, (iii) fund a dividend reserve in an amount not less than $65.0 million, (iv) pay related fees and expenses, and (v) for general corporate purposes. We recorded a loss on extinguishment of debt related to the Prior Credit Agreement of $5.4 million, which was included in selling, general and administrative expenses on the condensed consolidated statements of operations.
SOFR rate loans under the New Credit Facilities accrue interest at the adjusted term SOFR rate plus an applicable margin of 6.00%. In addition to paying interest on outstanding borrowings under the New Revolving Credit Facility, we are required to pay a quarterly commitment fee based on the unused portion, which is determined by the average utilization of the facility for the immediately preceding fiscal quarter.
The Credit Agreement 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 $349.2 million and $375.8 million and investments in the amount of $658.6 million and $786.7 million as of March 31, 2024 and December 31, 2023, respectively. 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. We are in compliance with all financial covenants in the Credit Agreement as of March 31, 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 June 30, 2024 to June 30, 2027 are in the amount of $3.1 million per quarter.
As of March 31, 2024 and December 31, 2023, the outstanding balance on the term loan was $456.1 million (net of unamortized debt issuance costs of $17.6 million) and $475.1 million (net of unamortized debt issuance costs of $18.7 million), respectively. Interest on the term loan during the three months ended March 31, 2024 and 2023 was $15.0 million (including amortization of deferred debt issuance costs of $1.1 million) and $7.3 million (including amortization of deferred debt issuance costs of $0.5 million), respectively. The interest rate on the term loan as of March 31, 2024 and December 31, 2023 was 11.31% and 11.37%, respectively.
We had an outstanding balance of zero under the revolving facility as of March 31, 2024 and December 31, 2023. Interest on the revolving facility during the three months ended March 31, 2024 and 2023 was $0.5 million (including unused commitment fees of $0.2 million and amortization of deferred financing costs of $0.3 million) and $2.0 million (including amortization of deferred financing costs of $0.2 million), respectively. The interest rate on the Revolving Credit Facility as of March 31, 2024 and December 31, 2023 was 11.37%.
Wells Fargo Credit Agreement
We are party to a credit agreement (as amended, the “Credit Agreement”) governing our asset based credit facility with Wells Fargo Bank, National Association (“Wells Fargo Bank”) with a maximum borrowing limit of $200.0 million and a maturity date of April 20, 2027. Cash advances and the issuance of letters of credit under the credit facility are made at the lender’s discretion. The letters of credit issued under this facility are furnished by the lender to third parties for the
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principal purpose of securing minimum guarantees under liquidation services contracts. All outstanding loans, letters of credit, and interest are due on the expiration date which is generally within 180 days of funding. The credit facility is secured by the proceeds received for services rendered in connection with liquidation service contracts pursuant to which any outstanding loan or letters of credit are issued and the assets that are sold at liquidation related to such contract. The interest rate for each revolving credit advance under the related credit agreement is, subject to certain terms and conditions, equal to the SOFR plus a margin of 2.25% to 3.25% depending on the type of advance and the percentage such advance represents of the related transaction for which such advance is provided. The credit facility provides for success fees in the amount of 1.0% to 10.0% of the net profits, if any, earned on liquidation engagements that are financed under the credit facility as set forth in the related Credit Agreement. The credit facility also provides for funding fees in the amount of 0.05% to 0.20% of the aggregate principal amount of all credit advances and letters of credit issued in connection with a liquidation sale. Interest expense totaled $0.02 million during the three months ended March 31, 2024 and 2023. There was no outstanding balance on this credit facility as of March 31, 2024 and December 31, 2023. As of March 31, 2024 and December 31, 2023, there were no open letters of credit outstanding.
We are in compliance with all covenants in the asset based credit facility as of March 31, 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, the Company 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% 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. Such security interests are evidenced by pledge, security, and other related agreements.
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 BRPAC Credit Agreement. We are in compliance with all financial covenants in the BRPAC Credit Agreement as of March 31, 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 Holdings, LLC (“Marconi Wireless”) was added to the Borrowers, (iv) the maturity date of the term loan was set to June 30, 2027, and (v) the Borrowers were permitted to make certain distributions to the parent company of the Borrowers.
The borrowings under the amended BRPAC Credit Agreement bear interest equal to the term SOFR rate plus a margin of 2.75% to 3.50% per annum, depending on the Borrowers’ consolidated total funded debt ratio as defined in the BRPAC Credit Agreement. As of March 31, 2024 and December 31, 2023, the interest rate on the BRPAC Credit Agreement was 8.44% and 8.46%, respectively.
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Principal outstanding under the Amended BRPAC Credit Agreement is due in quarterly installments. The quarterly installments from June 30, 2024 to December 31, 2026 are in the amount of $3.5 million per quarter, the quarterly installment on March 31, 2027 is in the amount of $2.6 million, and the remaining principal balance is due at final maturity on June 30, 2027.
As of March 31, 2024 and December 31, 2023, the outstanding balance on the term loan was $43.1 million (net of unamortized debt issuance costs of $0.5 million) and $46.6 million (net of unamortized debt issuance costs of $0.4 million), respectively. Interest expense on the term loan during the three months ended March 31, 2024 and 2023 was $1.1 million (including amortization of deferred debt issuance costs of $0.1 million) and $1.4 million (including amortization of deferred debt issuance costs of $0.1 million), respectively.
Senior Note Offerings
The Company issued no senior notes during the three months ended March 31, 2024 and 2023. The maturity dates of outstanding senior notes ranged from May 2024 to August 2028 pursuant to At the Market Issuance Sales Agreements with B. Riley Securities, Inc. which governs the program of at-the-market sales of the Company’s senior notes. A series of prospectus supplements were filed by the Company with the SEC in respect of the Company’s 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 100.00% 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.
On May 1, 2024, we announced that we have called for the full redemption equal to $25.0 million aggregate principal amount of our 6.75% Senior Notes due 2024 (the “6.75% 2024 Notes”) on May 31, 2024. The redemption price is equal to 100% of the aggregate principal amount, plus any accrued and unpaid interest up to, but excluding, the Redemption Date, as set forth in each notice of redemption delivered to noteholders on May 1, 2024.
As of March 31, 2024 and December 31, 2023, the total senior notes outstanding was $1,553.6 million (net of unamortized debt issue costs of $12.0 million) and $1,668.0 million (net of unamortized debt issue costs of $13.1 million), respectively, with a weighted average interest rate of 5.63% and 5.71%, respectively. Interest on senior notes is payable on a quarterly basis. Interest expense on senior notes totaled $24.4 million and $26.2 million during the three months ended March 31, 2024 and 2023, respectively.
Recent Accounting Standards
See Note 2(o) to the accompanying financial statements for recent accounting standards.