Bryant Riley - Chairman and Co-Chief Executive Officer Tom Kelleher - Co-Chief Executive Officer Phil Ahn - Chief Financial Officer and Chief Operating Officer.

Sean Hayden - THC Wes Cummins - Nokomis Capital Eric Landry - BML Capital Paul Dwyer - Punch & Associates.

Good afternoon. Welcome to B. Riley Financial Third Quarter 2018 Earnings Conference Call. My name is Elmer and I will be your conference operator today. Earlier today B. Riley Financial issued a press release with financial results for the third quarter 2018. A copy of the release can be found in the Investor Relations section of the company’s website.

Joining us for today call from B. Riley Financial are Bryant Riley, Chairman and Co-CEO; Tom Kelleher, Co-CEO; and Phil Ahn, CFO and COO. After the main speaker’s remarks, we will open the line for question-and-answer session. And then before concluding today’s call, I’ll provide the necessary cautions regarding the forward-looking statements.

As a reminder, this call will be recorded and a replay will be made available on B. Riley’s website at ir.brileyfin.com. And now, I’d like to turn the call over to Mr. Bryant Riley. Mr. Riley, please proceed..

Thanks, Elmer and thanks to everyone joining us for a call this afternoon. First of all let me start by saying that we remain as enthusiastic as ever about the strengthen in our B. Riley financial businesses and the value or enhanced platform will continue to create for our clients, our partners, and our shareholders.

As it relates to our third quarter our increased revenue was primarily driven by strong operating results in our capital market segment, continued steady and stable results from our appraisal, direct lending, wealth management, and principal investment group and relatively muted activity in our GA retail business.\ Results for the quarter were also enhanced from our acquisition of the advisory firm Glass Ratner which we closed in August.

It's worth noting that while early days we're incredibly excited by this acquisition and our new colleagues have hit the ground running since our merger and have already made meaningful contributions and connections for B. Riley FBR restructuring practice and a great American appraisal and valuation practices.

Overall, we are seeing more opportunities through our ongoing business relationships and increased revenue opportunities from the ability to engage clients and multiple services and resources offered by our firm.

Taken together we believe our overall results speak to the continued momentum in each of our distinct businesses and the strength of our hands platform. For the quarter we also announced an $0.08 special dividend to go with our regular $0.08 quarterly dividend.

While our acquisitions and investments often get highlighted, I do want to point out that those becoming B. Riley Financial through our public merger in 2014 we have attempted to strike the balance between investing in our business and returning a portion of our profits back to shareholders.

To that end we have paid out $0.34 per share in special dividends this year, in addition to our regular dividend of $0.24 per share for a total of $0.58 return to shareholders for the first nine months of 2018.

Additionally, we have brought back approximately 950,000 shares of our stock year-to-date representing roughly [$70] million and announced the new $50 million buyback last week. We are committed to being proactive and respond to opportunities that markets bring us in whatever form that they may come.

Now before I dive into our individual segments I will turn the call over to Phil Ahn, our CFO to discuss our Q3 financial metrics.

Phil?.

Thanks Bryant, and welcome everyone. For the third quarter of 2018, our total revenues increased to $99.7 million up from $92.4 million for the same year ago period. The increase in our total revenues for the quarter was primarily driven by our capital market segment which includes results from our investment banking division B. Riley FBR, our B.

Riley wealth management business, our asset and fund management businesses, and our results from Glass Ratner which we acquired on July 31, 2018.

Capital market segments revenues increased to $76.3 million for the third quarter of 2018 up from $63.7 million for the same period last year which was reference primarily driven by an increase in investment banking fees, as well as the addition of our consulting business Glass Ratner.

Capital markets segment income increased to $11 million for the quarter compared to a segment loss of 0.2 million for the same year ago period. Turning to results from our other segments. Our auction liquidation segment which primarily consists of our Great American retail liquidation division.

Revenues for this segment were $2.5 million for the third quarter of 2018 with segment income of $0.3 million. This compares to revenues of $7.4 million and segment income of 2 million for the same year ago period.

As we made note on previous calls results for this segment tend to be more variable due to the impact of periodic large-scale retail liquidations on our quarterly results.

However, looking across the first three quarters results in this segment have exceeded last year's revenues with $44.9 million of revenue for the nine months ended September 30, 2018 compared to $43.2 million in revenue for the same year ago period.

Next our Valuation and Appraisal segment, which includes results from our Great American appraisal business. Revenues for this segment increased to $9.4 million compared to $9 million for the same year ago period, driven by an increase in appraisal engagements for the third quarter of 2018.

Segment income totaled $2.9 million for the quarter compared to $3 million for the same year ago period. Our phrasal segment continues to demonstrate steady quarterly results.

Our final segment is our principal investment segment which currently consists of United Online, United Online generated revenues of $11.4 million with segment income of $4.1 million for the quarter. This segment generated $4.7 million of income for the second quarter of 2018.

Revenues from United Online are primarily driven by services and fees or internet access and related subscription services and while we expect that these results will diminish over time, it is important to note that United Online has generated cash flow in excess of our initial net investment and has outperformed our original estimates.

United Online continues to provide us with meaningful cash flow and is expected to do so in future years. Our acquisition of magicJack remains pending, however we anticipate that we will close sometime in the fourth quarter.

We will provide an update as soon as additional information becomes available and we look forward to discussing its contributions to our principal investment segments results in future quarters. Now turning to our profitability metrics which are attributable to B. Riley Financial as a whole.

Our net income for the third quarter of 2018 with $2.8 million or $0.10 per diluted share compared to net income of $0.4 million or $0.01 per diluted share for the same year ago period. Adjusted EBITDA which is a non-GAAP metric total $21 million for the third quarter compared to $15.8 million for the same year ago period.

Adjusted net income which is another non-GAAP metric totaled $6.4 million or $0.24 per diluted share for the third quarter. This compares the $10.4 million or $0.38 per diluted chair for the same year ago period.

For more information about adjusted EBITDA and adjusted net income and a reconciliation to the nearest GAAP measures you can refer to the section in today's earnings release regarding use of non-GAAP financial measures. Now turning to our balance sheet.

As of September 30, some highlights to our balance sheet include $233.9 million in cash and equivalents. $54.9 million due from clearing brokers. Approximately $200 million in net securities, loans, and other investments owned at fair value. $21.4 million in advances against customer contracts and $457.5 million in total debt.

I would like to note that our debt related to the Bon Ton liquidation which was approximately $155 million as of June 30 was repaid in full during the quarter. Our total stockholders’ equity was $268 million as of September 30. Our shares outstanding at the end of the quarter were approximately $26.5 million.

Lastly, as Bryant previously mentioned our Board of Directors approved a special dividend of $0.08 per share in addition to our regular quarterly dividend of $0.08 per share which will be paid on or about November 30 to stockholders of records as of November 16, 2018. That completes my financial summary and now I'll turn the call back over to Bryant.

Bryant?.

Thanks Phil. I will now get into a little more granularity on each of our business units and will start with the B. Riley FBR brokerage business. As Phil mentioned we saw a strong quarter with increased revenues from investment banking and securities lending.

During the quarter we successfully completed several notable banking assignments including a sale for Clearwater Paper, a secondary offering for a Amyris, Inc. and a $97 million cap raised to support an acquisition for industrial acquisition corporation, a special purpose acquisition company we have previously raised money for earlier in the year.

Our SPAC business remains strong and continues to services differentiator for us in the market and we believe our clients recognize our superior execution capabilities in this space. In Q3 B. Riley FBR also held its first healthcare conference and its annual consumer and media conference in New York.

Both events were very successful and well attended and helped raise visibility for our brand among the hundreds of companies and investor attendees to join. In July we added a team from Hunting Dog Capital in our San Francisco office focused on alternative financing.

We've also added a number of senior professionals to our corporate restructuring division in New York. Our expanded restructuring team will help us capitalize some of these synergies that exist with other core parts of our business and particularly the services offered by our new Glass Ratner colleagues.

The addition of Glass Ratner has not only deepened our bankruptcy and restructuring and corporate finance and valuation capabilities but also has provided us with new service offerings and litigation support and investigation to enhance the suite of services and capabilities our platform already offers.

Turning to our GA Capital direct lending business. Since starting this business in 2015 I have continuously cited my enthusiasm for this product and excitement over the opportunities that they have.

As you may recall GACP closed fund II earlier in the year and today it has invested over $250 million this year in GACP fund II and related co-investments. GA Capital has rapidly developed a reputation as a creative solution provider for middle market companies.

We continue to see a number of attractive opportunities in this unique marketplace and expect GA Capital’s continuous growth in 2019. Now the B. Riley Wealth Management. As completing the re-brand of B. Riley Wealth Management this past summer we've seen an improvement in our operations and greater in line with the broader platform.

In addition we've been focused on including town across the country to expand our presence and markets where we're located and I've recently hired advisers from places such as Edward Jones and Morgan Stanley. Over the last year of combined assets under administration of climbed to approximately $9.8 billion.

We believe a major industry disruption is taking place in the Wire House channel and as the national boutique we believe B. Riley Wealth Management provides a competitive alternative for financial advisers seeking to opt out of that channel.

Our comprehensive platform serves as a differentiator to other small firms and independent RIA practices which provide us with another catalyst for growth in this division. Moving Evaluation and Appraisal side of Great American business, which generated its second highest ever revenue quarter.

This division has maintained steady growth quarter after quarter with revenue driven by an increase in appraisal engagement. We continue to focus on applying a cross-platform approach to leverage our relationships and expertise and industry verticals beyond our core appraisal customer.

To that end we've made a few strategic hires in the group and have launched a new real estate valuation practice. Now our Auction and Liquidation business. While the third quarter is relatively muted we've had a strong year-to-date overall.

During Q3 our Great American retail liquidation group completed the sale of Bon Ton storage inventory and is continued to work to sell other assets, including real estate assets which we expect will continue over the next six months. We expect to recognize a meaningful portion of returns based on the completion of those sales in Q4 and in early 2019.

In addition to the regular way liquidation business the retail group has actively taken advantage to expand the breadth of its business but utilizing all aspects of the firm to create opportunity. In addition to the aforementioned Bon Ton transaction which was notable in that GA team with bondholders by the whole company and not just the inventory..

GA Europe is currently in a restructuring process that includes a limited store closure program and after completing the restructuring plan we believe that the business can be continued on a profitable basis. bebe also recently announced its partnership with Bluestar Alliance in its acquisition of Brookstone out of bankruptcy.

This was a deal that we developed and brought to bebe and as an investment we believe will create a strong platform for future growth and cash flow and will benefit from bebe's large tax asset.

Our pipeline for the liquidation business remains strong with the headwinds in the retail industry expected to continue to accelerate and we believe our ability to develop unique retail liquidation deal structures is a differentiator for us and provides us with an edge over our competitors. Last but not least is our principal investment segment.

We continue to be pleased with the cash flow contributions of our United Online business. Since the acquisition in July 2016 results for United Online has exceeded our initial investment and ahead of our acquisition plan.

This business continues to serve as a significant source of steady income for us and expect the company to generate meaningful cash flow over the next several years. And as Phil mentioned earlier, we look forward to discussing magicJack contributions to our principal investments in future quarters.

We've been actively working towards obtaining regulatory approval to complete the deal. That process has taken longer than we originally anticipated. However, we anticipate a closing date sometime in the fourth quarter and we tend to close the deal once we complete the regulatory approval process.

We will share any additional updates on the deal as soon as more information is available. Taken together we're extremely pleased with the continuing momentum of our franchise and have opportunities ahead of us.

We recognize much of our success is due to the collective efforts of our colleagues across all of our business units and I'll continue drive – continue focused on driving shareholder value. Now with that we're ready to open the call for your questions.

Operator?.

Thank you. [Operator Instructions] Now our first question comes from Sean Hayden, THC. Please proceed with your question. .

Hi, good afternoon, and congrats on the quarter. I had a question about the newly authorized share repurchase.

Will any of that be coming from insiders or management?.

So I can't speak for everyone from management, you may know that in March I repurchased a couple hundred thousand shares. Those decisions are independent. This is a corporate buyback. So I would say that I can't speak to all the expectations of all the insiders..

So it's generally just an open market repurchase?.

Yes..

Yes, okay.

And then given that it's kind of a topic du jour, can you just speak about how higher interest rates will affect your businesses especially Great American and kind of the direct loan business?.

So we were pretty aggressive about raising some longer-term capital in the form of baby bonds. So we’ve raised mid $400 million at rates that we think are attractive relative to the returns that we get from our business model. So we think that, if we see a higher rate environment that will create many of our loans or price off the LIBOR.

LIBOR has gone up meaningfully, banks and a higher interest rate environment I think will continue the trend of really kind of doing down the middle fairway loans and anything that where we can take advantage of that through thinking a little bit differently about the FX and the collateral makes sense to us.

So I think that a higher interest rate environment, we also realize that on our wealth management business we do generate revenue through the cash balances and that's been a part of our business that has been really-really underwhelming for the last few years and as we see interest rates climb there that it has a meaningful impact.

So look I think that a little bit of volatility and maybe a little bit of activity around the high-yield side, we just – we long for activity and being able to utilize our differential services..

Great. Thank you. Congrats on the quarter again..

Appreciate it. Thank you. .

Our next question comes from Wes Cummins, Nokomis Capital. Please proceed with your question. Q - Wes Cummins Hey Bryant. Hey, just first question is on the capital markets business; nice quarter year-over-year there.

I know at one point, the goal, and I think that still is the goal, is that you would start getting seeing larger and larger deals and it seems like that started to happen.

Do you still see that progression and kind of you're looking forward in your pipeline just the type of deal you're seeing now versus what you used to see in the past?.

Yes, I would say obviously the backstop of the Rent-A-Center transaction created some attention.

And we are – we said and we will be aggressive with our balance sheet to differentiate ourselves and we think there's a real gap between the Jefferies and the bulge bracketsof the world where they have been done a great job of utilizing the balance sheet and then kind of the next level down and that's we hope to fill that gap and we think there's a lot of room there.

So I would say that we have seen bigger deals where obviously, this is not -- we're going to be careful about the deals we see, obviously the markets are volatile and we're going to make sure that we're prudent around the opportunities but that's that to me I think as I look at the brokerage business the single biggest opportunity we have..

Okay and then moving on liquidations.

Do you see any large deals, I mean there's kind of an obvious large deal out there potentially in the next six months or so but do you see that business more as a big, large one-off deal? Or just kind of more I guess I would call it smaller like blocking and tackling type business for the next 12 months?.

Well, there's going to be some big deals and there's a lot going on internationally as well that maybe not be in the market as much or as high-profile. What excites me is when we find an opportunity where we can utilize more than just the regularly liquidation services.

And I think there is where we have, I mean I say but it's really true, our competitors who are smart and they've been doing liquidations from long time, I think we have a little bit of an advantage as it relates to our ability to package some investment banking services or a loan GACP or distribution among our institutional clients and our capital raise.

And so I think the market is really robust right now. There are some really large ones but there's some small ones too and the transactions like the Bon Ton where we bought the whole company as opposed to just buying the inventory that's what excites me and we see a lot of that. So we will be incredibly active and aggressive..

Okay and last one for me.

I don't know how much you can comment on this but just on magicJack, is there anything, I guess kind of odd or that's been extra difficult with that as far as getting approvals or is it just what you would view as kind of standard course of government approvals?.

I would say it's taken longer than we expected and it’s standard of course of government approvals..

Okay. All right. Thanks Bryant..

Thanks Wes..

Our next question comes from Eric Landry, BML Capital. Please proceed with your question. .

Thank you.

I have a quick question about your equity income of 828 bucks is that all bebe or is there something else in there?.

Phil?.

Yes. We've got some smaller interest but generally you have income related to bebe which is comprising a significant portion of that..

Okay.

Because last quarter I know you had -- you had bebe in there, you had a loss from something else is there [that wasn’t disclosed]?.

I guess I am – there were some minority interest that we do have related to some very small investments. .

Basically most of it is bebe?.

That's correct..

Okay. Great. So I guess you guys source the Brookstone acquisition to them and of course bebe doesn't say much. Is this pretty much the strategy going forward between you and bebe or is it more of a commercial real estate strategy? I guess I'm asking you guys because like as I said before they just don't say much about anything..

So we were absolutely not utilizing a commercial real estate strategy. I can tell you that.

bebe has an unimpaired tax asset that is, and things like licensing where you do not have a ton of overhead and you have kind of almost like a high-yield type of return and may be enhanced by different things and hopefully when we do these types of investments we will do them opportunistically.

Those types of assets lend themselves to vehicles with large NOLs. So I would say that between the bebe license, the Brookstone license deal with Charles Vögele that they've done it's becoming a more meaningful business but I think the goal there is to do whatever they can to enhance value through taking advantage of that NOL.

That is the asset that they have is the ability to not have to pay taxes.

Does that answer your question?.

It does. I have one unrelated question.

So the Clearwater deal that you guys did, almost month and a half ago, was that an option?.

I can't speak to specific investment banking deals and the processes that they went through. .

Okay. Great. That's all I had. Thank you..

Thank you..

[Operator Instructions] Our next question comes from Paul Dwyer, Punch & Associates. Please proceed with your question..

Hey Bryant. A quick question for you on Bon Ton or just the general liquidation business. So you guys looks like in Q2 you laid out over $400 million to Bon Ton, and I heard Phil, right you guys maybe around $20 million or so left on the -- getting capital returned to you.

Can you just talk about how that transaction works and kind of your return thresholds and timing to when you could start showing profit from something like that?.

Sure and I'm going to speak kind of generally and then maybe Phil can follow up more specifically but realize that much of that debt we will borrow from our asset lender Wells Fargo and so the first recovery will go to pay down Wells Fargo and then the second recovery will go to pay us and typically based on how we look at those returns and how big it is will be depend on whether we will borrow from Wells Fargo and that's one of complicating parts of our business is that our balance sheet needs to be pretty flush because these opportunities can be meaningful but our return requirements are pretty high.

I think we did an analysis and Phil maybe can speak to it but typically our ROIs and liquidation have been 30%-40% plus. So we go in with a hope to make a very meaningful return. As it relates to Bon Ton specifically that deal was not us just buying the inventory and selling the inventory that way augmenting the inventory.

That was us buying the whole estate.

So there is everything from lots of the own real estate that has been out there in the market and then also obviously the inventory and then all the associated assets that we were as an estate go after and what we said in a call is we would expect to recognize, I will tell you that I expect to recognize the vast majority of that in Q4.

We also said next year but the way that it's laid out right now in the real estate sales, I would expect that we would recognize a meaningful portion of that in Q4.

Phil anything you wanted to add?.

Yes, I would just call it generally the way that the liquidation recognition on the profit on the liquidation deals works is that once we eclipse effectively to guarantee that we've established with the bankrupt entity or in this instance the purchase price, once we've eclipsed that and we enter into the profit zone then generally we recognize the profit.

So as you see we do have some capital balance that's remaining in terms of our equity investment, that's on the balance sheet as 930 but we do anticipate obviously the real estate sales and some other asset sales to basically continue over the next six months and that's what Bryant's referring to.

Okay. Fair. That's all I have. Thanks guys..

Thank you..

This concludes our question-and- answer session. I'd now like to turn the call back over to Mr. Bryant Riley for closing remarks..

Thank you everybody. We appreciate your interest and support and we look forward to talking to you in roughly 90 days. Thank you..

Before we conclude today's call, I would like to provide B. Riley Financial Safe Harbor statement that includes important cautions regarding forward-looking statements made during this call.

During today's call there were forward-looking statements that are not based on historical fact including without limitation statements containing the words will, can, continue, expect, believe, anticipate, could, and intend and similar expressions and statement.

Such forward-looking statements include but are not limited to expressed or implied statements regarding anticipated earnings, plans for future dividends, future financial performance, our ability to increase our leverage and add value for shareholders, the effects of our business model, expectations regarding future growth opportunities and initiatives, the effects of our balance sheet, the effects and anticipated benefits of our acquisition, our pending acquisition of magicJack and related actions, our investment in bebe stores and the related opportunity for future growth and cash flow, expectations regarding future transactions and the financial impact, size and consistency of returns and timing thereof as well as statements regarding our enthusiasm and the effect of investments in our business segments.

Because these forward-looking statements involve known and unknown risks and uncertainties there are important factors that could cause actual results, events. or developments to differ materially from those expressed or implied by these forward-looking statements.

Such factors include risks associated with our ability to achieve expected cost savings or other benefits with respect to our pending and completed acquisitions in each case within expected time frames or at all.

Our ability to consummate anticipated transactions and the expected financial impact thereof in each case within the expected time frames or at all. Our ability to successfully integrate acquisitions including the acquisition of Glass Ratner, loss of key personnel.

Our ability to manage growth, the potential loss of financial institution clients and the timing of completion of significant engagements. The risks included here are not exhaustive. Other risks and uncertainties are described in our annual report on Form 10-K for the year ended December 31, 2017.

Our periodic reports on form 10-Q and 8-K and subsequent filings with the SEC that we make from time to time. These factors should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements. All information discussed on this call is as of today Monday, November 5 and B.

Riley financial does not intend and undertakes no duty to update such information based on future events or circumstances. Further, this conference call included a discussion of non-GAAP financial measures as that term is defined in Regulation G.

The most directly comparable GAAP financial measure and information reconciling these non-GAAP financial measures to the company’s financial results prepared in accordance with GAAP are included in the earnings release.

Finally, I would like to remind everyone that a recording of today's call will be available for replay via a link available in the Investors section of the company's website. Thank you for joining us today for B. Reilly Financial Third Quarter 2018 earnings conference call. You may now disconnect..