Bryant Riley - Chairman and CEO Phillip Ahn - CFO and COO Tom Kelleher - President.

Wes Cummins - Nokomis Capital Sean Haydon - THC.

Good afternoon, and welcome to the B. Riley Financial's First Quarter 2018 Earnings Conference Call. My name is Doug, and I will be your operator for today's call. Joining us for today's call are B. Riley Financial's Chairman and CEO, Bryant Riley; President, Tom Kelleher; and CFO and COO, Phillip Ahn.

Following their remarks, we will open up the call for questions. Then, before we conclude today's call, I'll provide the necessary cautions regarding the forward-looking statements made by management during this call.

I would like to remind everybody that this call will be recorded and made available for replay via a link available in the Investor Relations section of the company's website at www.brileyfin.com. Now, I would like to turn the call over to the B. Riley Financial's Chairman and CEO, Mr. Bryant Riley. Please proceed..

Thanks, Doug. Welcome, everyone, and thank you for joining us for our call this afternoon. We issued our press release of financial results for the first quarter ended March 31, 2018 earlier today. You can find a copy to the release on the IR section of our website.

Our first quarter results were driven by the completions of our large retail liquidation engagement which contributed to strong results in our Auction and Liquidation segments. These gains helped to offset more modest results in the broker-dealer business under our Capital Market segment.

Q1 2018 was a another solid quarter for our Appraisal business following a record year in 2017 and we continue to be pleased with the steady cash flow levels generated by United Online as part of our Principal Investments segment.

We believe our first quarter results demonstrate the attractiveness of our business model which we have strategically designed to provide us with the sources of recurring revenue and cash flow as well as opportunities to generate and capitalize from opportunities with potentially outsized returns.

As we have mentioned before, the key component to our business model is the utilization of our balance sheet to facilitate profitable investments and create fee opportunities and we believe we have meaningful capacity to increase our leverage and create returns to our shareholders far in excess of our cost of capital.

As you can see from our release we have issued guidance for Q2 2018, adjusted EBITDA in the range of $22 million to $30 million and net income in the range of $5.4 million to $10 million. While we don't typically provide guidance we felt that it was important to highlight the current strength of our business to our shareholders.

This will be the first quarter since our merger with FBR that we expect both of GA liquidation and Capital Markets to be meaningful contributors in the same quarter. With that, I will hand it over to Phil Ahn, our CFO to walk you through our financial performance before I get into a more detailed analysis of individual segments.

Phil?.

Thanks Bryant and welcome everyone. For the first quarter of 2018 our revenues totaled $95.8 million which is up from $52.9 million in Q1 of last year. On January 1, 2018 we adopted accounting standards classification 606. So for this quarter and in future quarters we will discuss sources of our segment revenue in more detail than we have previously.

Prior reported financial information will not be revised for historical comparable periods, but these figures will be captured in future quarterly reports. Turning to our revenue mix by segment, our Capital Markets segment includes results from our combined broker-dealer which includes the completed acquisition of FBR and Co.

and Wunderlich Securities in 2017 as well as results from our Wealth Management, Asset Management and securities lending businesses..

Revenues for our Auction and Liquidation segment totaled $15.5 million in services and fees for the first quarter of 2018. Revenues for this segment increased from $14 million for the first quarter of 2017.

The uptick in revenues was driven by services and fees associated with completion of a large retail liquidation engagement during the first three months of 2018. Our Auction and Liquidation segment generated an income of $8.1 million in the first quarter of 2018 which is an increase compared to $1.8 million in the same year ago period.

As previously stated, we expect reported revenues for this segment to vary from quarter-to-quarter due to the [indiscernible] nature of the retail liquidations business.

For the first quarter of 2018 revenues in our Valuation and Appraisal segment increased to $8.5 million for the first quarter of 2018 up from $7.8 million in the same year ago period. This segment generated an income of $1.9 million for the first quarter 2018 compared to $2.0 million in the same year ago period.

And finally in our Principal Investments segment which currently consists of United Online, revenues for this segment which was primarily driven by services and fees and partially by the sale of goods totaled $11.4 million in the first quarter of 2018. This compares to $13.4 million in the same year ago period.

As we have mentioned in prior calls, due to the nature of United Online's business, we expect revenues to decline over time. However, despite this decrease in revenues, income generated for this segment increased $4.9 million in the first quarter of 2018 when compared to $4.2 million in income reported in the same year ago period.

Now turning to our profitability metrics which are attributable to B. Riley Financial as a whole, our net income for Q1 2018 was $4.5 million or $0.17 per diluted share. This compares to $14 million in net income or $0.71 per diluted share in the same year ago period.

For the first quarter of 2018 adjusted net income which is a non-GAAP metric, totaled $8.8 million or $0.32 per diluted share. This compares to $7.7 million in adjusted net income or $0.39 per diluted share reported in the same year ago period. Adjusted EBITDA, which is another non-GAAP metric, totaled $16.1 million for the first quarter of 2018.

This compares to $15 million in adjusted EBITDA reported in the same year ago period. For further discussion 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 March 31, 2018 we had $74.3 million in unrestricted cash and cash equivalents, $23.4 million in restricted cash, $47.9 million due from clearing brokers, $131.1 million in net securities and other investment owned and $212.8 million in total debt.

Total stockholders' equity was $271.5 million as of March 31, 2018 which was up from $266 million at the end of 2017. Our shares outstanding at the end of the quarter were approximately $26.7 million. Subsequent to the end of the quarter we completed the repurchase of 950,000 shares bringing our total current shares to approximately $25.7 million.

We always issued guidance for our second quarter results in the press release we issued earlier today. Looking ahead we anticipate Q2 2018 net income in the range of $5.4 million to $10 million and Q2 2018 adjusted EBITDA in the range of $22 million to $30 million.

This range reflects the potential impact of larger fee opportunities from our broker-dealer and Auction and Liquidation businesses and the impact they may have on the bottom line in addition to results driven by the consistent performance in our [indiscernible] United Online businesses.

Lastly, our Board of Directors approved a special dividend of $0.04 cents per share in addition to our regular quarterly dividend of $0.08 per share which will be paid on or about June 05, 2018 to stockholders of record as of May 21, 2018. That completes my financial summary, so now I'll turn the call back over to Bryant.

Bryant?.

Thanks Phil. We're pleased with the overall strength and performance across most of our segments and believe our Q1 results and Q2 guidance are indicative of the continued momentum for our business as a whole and disciplined expense management.

As we've head in the past one of our strongest assets is the amount of opportunities our diverse platform presents us with. So in that vein today's discussion will be about how all of our businesses fit into and feed the broader B. Riley platform highlighted by some of our recent accomplishments in this area. Let's start with Capital Markets.

Q1 was a first complete quarter with consolidated results from our combined banking and brokerage under the name of B. Riley FBR. While we had a slow quarter, we were EBITDA positive and then continued to reduce our fixed costs and lower our breakeven.

We are well-positioned to generate meaningful profits in a larger fee opportunity environment which we expect in Q2. A few highlights from the first quarter.

Our Capital Markets team underwrote several transactions including the $125 million offering for Gordon Pointe which is a NASDAQ listed special-purpose acquisition company which will invest in the fintech sector. This is a third stack we have raised since the FBR acquisition.

We also successfully placed a $56 million bought deal for Limelight Networks and led an upsized $40 million confidentially marketed transaction for Gaia [ph]. According to the one bright transaction this is an example of our ability to win business driven by what we believe our three key differentiators for us.

One, being the quality of confidence we have in our analyst research process; two our balance sheet that allows us to move on opportunities quickly; and three, a sales force with unparalleled small-cap distribution.

While regular rate cash equities commission business remains challenging, we are pleased with how our numbers have held up in the current environment and our sales and trading desk is an important piece of the value offered to our institutions. A real standout for the quarter was our ATM business which was very active.

In fact March was the largest single month in our history. We were involved in over 70 different issuers primarily in the healthcare, real estate, and energy sectors. Our advisory and restructuring units closed on a number of sell side mandates and is actively involved in several transactions that we expect to close in Q2.

We are seeing a general trend of larger deal size across this segment. On our wealth management side assets under administration for our legacy Wunderlich Wealth Management Group remained far at approximately $8.6 billion in Q1.

As previously mentioned, Wealth Management is one of our more stable predictable parts of our business and outside of acquisitions we don’t anticipate big swings in this segment. We will be changing the name of this group to B. Riley Wealth Management as we look to consolidate our brands.

We are currently gearing up for our 19th Annual Institutional Investor Conference which takes place later this month. This year we anticipate we will have more than 200 presenting companies and more than 1000 attendees.

The growth of our annual multi-event can be credited to our expanded research product and more than 500 companies under coverage as well as to the growth of our firm as a whole which has afforded us with a more diverse pool of companies to future out our events. Moving on to our Great American business starting the Auction and Liquidation segment.

Q1 was extremely active reflecting the $8.1 million generated net income for the quarter which is a significant increase compared to the $1.8 million in income generated for the first quarter of 2017.

The quarter started off with the completion of the Sears Canada liquidation and continued with the successful start of the Toys“R”Us liquidation with our JV Liquidation Partners. Last month we also announced that we want a competitive bid to lead the liquidation of Bon-Ton Stores.

The liquidation of Toys“R”Us and Bon-Ton combined represent over $4 billion of retail inventory. Being involved in deals on a scale this large is something we believe speaks to our position as a world-class leader in the asset dispositions space. Our Bon-Ton win is a great example of the B. Riley platform at play.

Proceeds of the sale go to paydown Bon-Ton debt to creditors and senior secured note holders in addition to the usual one-time costs associated with liquidation. Our competitive edge in this case was our ability to bring a compelling JV deal structure to the table to outbid the other liquidators, while providing enhanced returns for creditors.

We expect to see more opportunity get involved in these types of creative deal structures that take advantage of our unique platform, especially as the trends in retail continued to accelerate. Now moving to Valuation and Appraisals segment part of our Great American business.

Our Appraisal business continues to maintain strong and steady earnings quarter after quarter and another example of how we're using leveraging cross-platform expertise and long-term relationships our appraisal business supported sever marquee transactions for our asset based lending clients in Q1.

In addition to healthy growth with our core appraisal customers of financial institutions and corporates we are building out our industry verticals focus which has helped expand our client base to financial sponsors and direct deal sources. Now moving on to our Principal Investments segment.

Our Principal Investments Group mandate is investor acquired assets with a focus on cash generation to our company and shareholders. We apply private equity approach to investing and operating businesses which drives cash generation and allows us to leverage our small sized mid-cap industry expertise and deal flow.

An example of how we apply these practices is highlighted by our accomplishments with the United Online since acquiring the company in 2016. United Online is a significant source of steady income for us and continues to perform beyond expectations.

United Online is operating ahead of plan from a cash generation standpoint and should be fully paid for in the next few months while continuing to generate strong EBITDA over the next few years. As previously announced we acquired a controlling stake in Bebe Stores through our Principal Investments Group.

This transaction serves as the platform for small midsized acquisitions and we are working closely with the company to identify acquisitions that are well-positioned to take advantage of Bebe's significant NOL of approximately $340 million.

In addition, we expect our previously announced magicJack transaction to close within the next three months and look forward to discussing its contributions to our Principal Investments segment in the future quarters once the customary closing process is complete. We are very excited to the power of our integrated B.

Riley Financial platform at play as we leverage more and more accretive deal structures and work to apply relevant cross-platform opportunities that help diversify and help expand our business service office for our clients.

The growth in our businesses has created what we believe to be an attractive business model for investors we're as excited about opportunities as we have ever been. With that, we're ready to open the call for your questions..

[Operator Instructions] Our first question comes from the line of Wes Cummins with Nokomis Capital. Please proceed with your question..

Hi thanks. Hey Bryant, a question first on the Principal Investments, and you know it sounds where you just said that may be in the next three months the magicJack deal will close.

Are you guys looking at other opportunities there? And then also since that's typically a steady year run rate business, anything we could expect on the way you think about the dividend after that deal closes?.

Hey Wes, so look I think that we see more opportunities than we almost know what to do with, so they've got to be really, really good and they've got to be super opportunistic.

So I said this I think before on other calls, if we are not out and take off or you know really what we're trying to do is become a place or a company that people will call when they need to dispose of something. It's not dissimilar to our liquidation business.

We want to be able to find really attractive asset purchase opportunities, but we want to do it in a way that I think is advantageous to us, maybe more so than the seller.

As it relates to how we think about the magicJack cash flows, what I would say is, when we first went public through the acquisition of GA we set a goal to distribute 15% to 25% of our EBITDA to our shareholders. We thought that's the right way to balance you know going out we are getting new lessons and also giving returns to our shareholders.

And so I would say that's going to be we believe strongly in that.

We enhanced that a bit by the purchase, decent sized broad purchase of shares this quarter, but I would expect that we would continue to really behave in the same manner and the way that we always look to United Online and why we have a base dividend was because we felt very comfortable that cash flow was going to come every quarter and magicJack is a similar type of asset to United Online.

I would expect that we would react kind of in the same way..

Okay, thanks.

And then the last question I have is, you know, historically when you've given guidance for the quarter ahead, I think you've done it a couple of times, even is up towards the high end or even above the high end of that guidance maybe just if you can help me with kind of the puts and takes of the guidance for the quarter, what gets you towards the high end or what's I guess at risk to be more at the lower end of that guidance, if not I understand?.

So I would say the way that I would think about it is if, logic would dictate for us to be on the low end we would expect some things that we're hopeful of happening wouldn’t happen and for us to be in the high end we would, there would have to be some things that maybe we don’t even know about yet would have to happen.

And so we are not – we feel really good about how this quarter looks and we're very excited to be providing that guidance because I think the platform is really paying off and I'm particularly excited that both sides are the most meaningful contributors to that or contributing.

If you remember, in Q4 the liquidation business lost money and the broker-dealer made a lot of money and then this was completely reversed. So I'm excited that both of them as we see it now and things can change, but as we see it now it will be a meaningful contributor.

So again, I would say that the way we would look at it is lower would be, some things we're not expecting, the higher would be on the bad side the higher would be some things that we're not expecting and the upside and in the middle would be something between it.

We – it's a tough range, it's a big range, but you have to realize we have binary events in some of our fees and because we're not that big, one of those binary events can really move the needle. So we tried to manage that a bit..

Okay, great. The guidance looks good. Thanks Bryant..

Thanks Wes..

Our next question comes from the line of Sean Haydon with THC. Please proceed with your question..

Hey, congrats on the quarter.

I just had a few questions on the Wealth Management business, so as you guys are beginning to form under one banner, has there been any churn of customers or have you seen any trends that you'd like to share with us?.

You know, I would say I have not seen any trends that are worth noting. What I think we've attempted to do better and we're starting to do is really solve the merits of the overall firm and also, some of the offerings of the overall firm.

When we did our most recent part deal I was happy with the contribution of the retail brokers and participation and that's been a successful transaction. So to the extent we can have more successful transactions I think we will get more relevance.

But the biggest thing that we see in that industry is we're – they are facing a lot of the same things that we're seeing which is a little bit more of a passive investor and we see that in the institutional side and we sort of even hope that at some point start picking matters and if we can get that across and we can get retail investors to look at that a little bit I think we'll be better off, but no meaningful churn or departures..

Okay, great.

And then, I assume that gets lumped into the Capital Markets business overall, but would you might just kind of without getting too far into the weave just detailing what the economics of that business looked like versus just the traditional broker dealer?.

So I think, look it's a really important business for distribution, but the overall EBITDA of that business on a run rate basis will likely be less than 10%.

So we can focus on as much as you want and Phil can, I don't - I'm not even quite sure how much of that we've historically given, but the run rates aren't dissimilar to when we announced the deal and so it was a $60 million kind of $70 million revenue business and I think we said $5 million to $10 million types of EBITDAs and they're still in and around those numbers.

But I don't want to, it's a significant part of our business and I think it helps us win other business, but in the overall scheme of things it's a little bit less than some of those other ones we mentioned..

All right, great and then I think of that four or five calls in a row, but If you could just give an update on any progress in the mutual fund business, where you see that heading for the rest of the year? A - Bryant Riley So it’s for full grade. We are four stars and I don't look at where we are relative to the rest of the funds.

Incredibly often I just know intuitively that we're outperforming or I think we're outperforming.

But you know mutual funds, this is a call option and it's gained assets periodically and every week money comes in and my thought is or our thought is that we just keep counting it, keep on putting good results and if you can pick up a million here, million there and you do it for a while and you get some momentum, it can generate a fair amount of money.

But right now it's not really costing us anything and it's slowly but surely growing, but again it's not something that's going to move the needle a ton..

Okay, great. Thanks guys and congratulations..

Thank you for the questions, I appreciate it..

Yep..

[Operator Instructions] There are no more questions in the Queue. I’d like to hand the call back over to Bryant Riley for closing comments..

Well, thank you very much and once again we appreciate the support of our shareholders. We appreciate the support of our vendors and most importantly we appreciate the efforts of everybody that works at B. Riley and who we really are appreciative of and excited to continue pushing along and reporting next quarter, so thank you.

Thanks Doug and have a good day..

Before we conclude today's call, I would like to provide B. Riley Financial's 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 facts, including, without limitation, statements containing the words will, predict, continue, forecast, expect, believe, anticipate, outlook, could, target, project, intend, plan, seek, estimate, should, may, and assume, and similar expressions and statements.

Such forward-looking statements include, but are not limited to, expressed or implied statements regarding anticipated second quarter 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 acquisitions of the United Online, Inc., FBR & Co.

and Wunderlich Securities, Inc., our pending acquisitions and related actions, expectations regarding future transactions and the financial impact, size and consistency of returns and timing thereof as well as statements regarding the effects 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 expected cost savings or other benefits with respect to our pending and completed acquisitions, in each case within expected timeframes or at all our ability to consummate anticipated transactions and the expected financial impact thereof, in each case within the expected timeframes or at 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 Forms 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, May 7, 2018, and B. Riley does not intend and undertakes no duty to update such information based upon 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 measures 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, which is posted on the company's website at www.brileyfin.com.

Finally, I would like to remind everybody 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. Riley’s Financial first quarter 2018 earnings conference call. You may now disconnect..