Good afternoon and welcome to B. Riley Financial's Second Quarter 2021 Earnings Call. Earlier today, B. Riley issued a press release and presentation detailing its financial results for the second quarter. Copies are available in the Investor section of the company's website at ir.brileyfin.com. As a reminder, today's call is being recorded. An audio replay will also be available on the company's website later today. Joining us today from B. Riley are Bryant Riley, Chairman and Co-Founder and Co-CEO; Tom Kelleher, Co-Founder and Co-CEO; and Phillip Ahn, CFO and COO. After management's remarks, we will open the line for questions. And before we conclude today's call, I will provide the necessary cautions regarding forward-looking statements. I will now turn the call over to Mr. Bryant Riley. Mr. Riley, please proceed.

Thanks. Welcome everyone. I'll start with a brief overview on the current state of our business and where we see opportunities ahead. Phil Ahn, our CFO and COO, will cover key financial metrics, and then our Co-CEO, Tom Kelleher, will share more detail about our individual business units. For the second quarter, we reported total revenues of $336.8 million and total adjusted EBITDA of $124.9 million. Our solid performance demonstrated continued strength from across our businesses with operating revenues and operating EBITDA doubling on a year-over-year basis. Over the last few years, we have worked to establish a steady base of recurring revenue businesses with enhancements to our consulting and appraisal, wealth management, brands, and principal investment businesses. Together, these steady state businesses generated revenues in excess of $135 million during the quarter and continue to provide steady EBITDA and cash flow for our overall platform. Enhancing the results from our steady businesses is the earnings upside created by investment banking, which has benefited from momentum in capital markets and our liquidation business, which continues to be profitable in spite of the slowdown in retail bankruptcy filings. At the same time, we continue to leverage our platform to source opportunistic investments that are extremely proprietary to B. Riley. This strategy has delivered value not only to us but to our partners and shareholders and we are seeing more and more of these types of opportunities than we ever have. As we continue to invest in further enhancing our platform, we are always on the lookout for complementary businesses that can expand our reach and market share. A recent example of this is our acquisition of National Holdings, which we will continue to integrate into our business. We're extremely pleased with this team of talented professionals and similarly, our new colleagues…

Thanks Bryant. On a consolidated basis, B. Riley reported total revenues of $336.8 million for the second quarter, which represents a year-over-year increase of 26% compared to $266.5 million for the prior year period. Net income available to common shareholders was $73.9 million or $2.58 per diluted share. This compares to $82.8 million or $3.07 per diluted share in the prior year period. Our second quarter results included operating revenues of $304.1 million, which was up 100% year-over-year and operating adjusted EBITDA of $92.1 million, which was up 97% year-over-year. Our strong operating results were further enhanced by our second quarter investment gains of $32.7 million, which relate to both realized and unrealized gains in our investments. In terms of our reportable segments, capital markets is our largest segment and includes our investments and operating results from investment banking, institutional brokerage, and our fund management businesses. Excluding our investment gains, operating revenues for our Capital Markets segment increased to $151.5 million for the quarter, up 78% year-over-year. Segment operating income was $74.7 million, up 153% year-over-year. Our Wealth Management segment revenues increased to $90.3 million compared to $15.8 million in the prior year period. The majority of this increase was due to the addition of National Holdings for the full quarter, which we acquired in February of this year. Auction and Liquidation revenues increased to $17.3 million, up 109% year-over-year, and segment income was $3.6 million. Financial consulting revenues increased to $23.7 million, up 26% year-over-year and segment income was $4.2 million. Our principal investment companies, magicJack and United Online contributed revenues of $19.6 million and segment income of $7.3 million. And lastly, our Brand segment generated revenues of $4.4 million and segment income of $3 million related to the licensing of brand trademarks. As a reminder, adjusted EBITDA in…

Thanks Phil. I'd like to start by recognizing the ongoing efforts and dedication of our people. Our continued success is due to the exceptional team of professionals across all of our operating groups. In terms of highlights from our individual businesses, our strong quarter was driven by several significant investment banking transactions, including what we call platform deals or those that involve multiple parts of our business. As Bryant noted, capital markets' momentum contributed to the quarter with particular strength in our ATM and SPAC businesses. We continue to see an expansion in the number and type of companies that select B. Riley for their capital raising needs, be it with our ATM group or in a more traditional form. And while the SPAC market saw a pullback during Q2, our SPAC business continues to be robust, with several of our issuers actively pursuing targets as well as multiple new mandates in the pipeline. A few noteworthy transactions completed during the quarter include a $310 million common stock debt and preferred solution for Synchronoss Technologies, a $300 million follow-on equity offering for Telos Corporation, leading AMC Entertainment's $587 million at the market offering in June, two separate private placements totaling $105 million for stronghold digital mining, whose S-1 was publicly filed earlier this week, and $100 million preferred stock offering for Babcock and Wilcox. In other parts of our institutional broker-dealer division, securities lending saw strong performance during Q2 with a focus on transportation, software, technology, special pharma, and therapeutic sectors. Our SPAC trading desk also continues to be active with a high level of new issuers coming to market. In equity research, we added three publishing analysts in Q2, proactively entering new verticals in gaming and cryptocurrency, and expanding our healthcare team. We remain committed to our research roots…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Sean Haydon with Charles Lane Capital. Please go ahead.

Congrats on another great quarter.

Hey Sean.

Real quick on the wealth management, the operating income, were there any one-time items in the quarter that we should be aware of?

Phil, do you want to answer that?

Yes, the only thing was sort of extraneous, although this is below the line, we did see there was a forgiveness of a PPP loan that they took out, but that's certainly below the line. So, nothing extraordinary outside of that.

That’s all I got. So, again, congrats and talk to you next quarter.

Great. Thank you for your support.

The next question comes from Brian Rohman with Boston Partners. Please go ahead.

Good afternoon. Thank you for my question -- questions. First question I had was following up on the previous person's query on the wealth management business. First of all, I'm just looking at the release, year-over-year, it goes from $15 million to $87 million, almost all of that is the acquisition?

Yes. The vast majority is the acquisition.

Okay. And then I had the same general question, which was -- it shows up that, that business, wealth management lost almost $4 million in operating income. What sort of operating margin do you think it normally should operate at?

Phil, do you want to start and provide a little bit more clarity on the operating income with those two divisions together?

Yes, sure. The -- obviously, we're still going through some integration with National. I think, in general, when we acquired, wonder like it did take several quarters to get the operational performance in and around where we wanted it to be. Yes, so, I would -- there is some time that's going to take place, but I think -- well, I'll let Bryant sort of speak to the integration, but--

Yes. So, I would say, the way that we look at the business is, if you look at the B. Riley wealth business, which was chugging along, roughly $70 million, $75 million. That business has got itself up to like 15% EBITDA margins. National is going to be lower is because they've got an independent aspect to them. So they're a little bit lower margins. But that $200 million, $240 million should be like 10% EBITDA margins. And then, we should be able to get another $10 million in synergies. So you can just do the math there. Now that's probably a year out, but those are the kind of numbers we expect once we're fully integrated. And we're starting to see a lot of progress towards that and we're also seeing a lot of other benefits. So, we are seeing the National and the B. Riley wealth management retail team committing more and more capital to our deals and providing us more bullets when we go out and do bought deals and things like that. So, we're really happy with that investment and that integration so far.

Okay. So, it's -- what you're saying is that the benefits of the deal will become more apparent down the road. Is that correct?

Yes, there are some one-time things in there. And yes, I think you will see the benefits of the deal -- every quarter, you will see incremental benefits to the bottom-line, but also just to the business. I mean I can't overstate how important it is to be able to have increasing distribution, particularly in our equity and debt deals, that's a really big advantage for us when we are backstopping deals and know that wealth management group is there for a chunk of that as well as obviously our institutional distribution. But you will see the quantification benefit every quarter going forward.

Next question. As you can't be an investment bank -- public investment bank and report earnings without talking about your backlog, and some of your brethren have talked about a little bit of a slowdown in investment banking, particularly capital raising, particularly in the SPAC space. Can you comment on your experience?

Yes, I mean we raised two SPACs last quarter, we'll do -- we've already raised one this quarter. I think we'll do two or three this quarter. But in terms of SPACs that we've underwritten that are out either as signed deals or looking for deals, that's obviously at an all-time high. And so there's a lot of backlog there as we have not recognized when a deal has been announced but not closed, we recognize the remaining fee when that closes. So, there's some backlog there. In terms of general capital markets, I -- there's -- we have not seen any slowdown. Our backlog is as strong as it has ever been, probably stronger. Now, it's capital markets, so those windows open and close, and they don't open for a long time. But barring anything there, I would say that you'll see in our deck. Obviously, there's meaningful market share gains, but we're really busy, and I think we'll continue to be busy, and we'll continue to pin a lot of deals as long as the markets continue to be fine.

All right, that’s great. Thank you for taking my questions.

thank you. Appreciate it.

[Operator Instructions] Next question comes from Paul Dwyer with Punch & Associates. Please go ahead.

Hey guys, good afternoon and thanks for the time today.

Hey Paul.

Hey. Maybe to start -- your comment about the steady state business being about $135 million this quarter, could you just elaborate on kind of how you think about the steady state business' growth overall and kind of overall level of profitability that that provides to the firm?

Sure. So, I would -- I think we're around $125 million annualized EBITDA run rate on that steady business. Some is growing, so you've got a deal the advisory business, which we always call the old GlassRatner, you'll when remember we acquired them, and Appraisal. Some is declining, which is -- we still own United Online, magicJack are somewhat flat. And then, some is growing more than we anticipated, which is the brand side of the business. We commented on Hurley and Justice, but also the other six brands. Those things have bounced back meaningfully. So, you put all that together, I think, you have to think about it as steady EBITDA and steady revenues. On assets, we acquired at really good multiples, we'll add Lingo, which will provide another $15-ish million a year in EBITDA to us. We'll own 80% of that business when that gets approved, that's not in our numbers currently. So, the way we think about that is that pays a lot of our interest, it pays a lot of our overhead and allows us to have these other episodic -- and we always say that the book-to-bill is episodic. Obviously, it's not nearly an episodic as the liquidation business, it's most -- but that's how we think about it. And so we're really happy with that side of the business. We'll continue to try and find interesting opportunities that are -- they're not baked off, so proprietary to us. And we usually move really quickly, we have the infrastructure in place to run those businesses and I think, it's just a great way to manage the more cyclical sides of our business to have that steady cash flow.

Yes, absolutely. And just what does the pipeline look like in terms of non-auction deals that the principal investments team can be looking at today? And what kind of size of deals are in the pipeline?

We have, I would say, four or five deals that are kind of actively being discussed, and they're all in the $25 million to $75 million kind of level. Those -- particularly, as they kind of fit within what we're doing, whether it's in the telecom side or -- those are types of acquisitions that you just don't have a lot of competition, especially with the flat businesses. And so our EBITDA multiple requirements [technical difficulty], we want to ultimately own those at three to five times. And it's here -- I think, the large you get, the more active you get, the more you see those deals to become the go-to group with those kind of deals. So, we're seeing a fair amount, nothing gigantic, though. I would say, Justice was a meaningful purchase for us, Lingo is a decent-sized purchase, Hurley was meaningful last year, but nothing super large.

Okay. Okay, great. One follow-up question on the capital markets side. Can you just spend a little time reminding me on kind of the fixed versus variable cost structure of that business and then kind of how you think about protecting on the downside in case capital markets do slow down a bit, although, it doesn't sound like you're seeing that yet?

Yes. So, our breakeven has been the same for the last two years. So, you could say that's good or bad, right? What -- why aren't we growing more? Why aren't we adding more overhead to our -- to the capital markets side? And I would say to you that we had -- we've been doing this for 25 years, many of the people that manage our businesses here have been -- some of them, obviously, have been here 15-plus years, and we are positioned right. And so we added three analysts last quarter, I think we mentioned that. But we are a -- maybe this is because it started as a private company with a little amount of capital, we confirmed that with a lower fixed overhead and a higher variable. And so when times are good, you can look at that and say, Boy, I wish you'd paid salaries and bonuses because you probably get a little bit more margins. When times are tougher, you're happy about that. But we -- look, we love the fact that that majority of our bankers and our salespeople are making more money than they ever did. They deserve it, they are the engine that drives all of this and that variable model is the way we've always lived. And so we will stick with that. But at the same time, it blows me away that we are doing $60 million kind of quarters with the same people that we've had here for a long time and adding other valuable people. But I just think, it's a real testament to the quality of the people we've had here.

Yes. Okay, perfect. Last question is on the balance sheet side. What else are you thinking about over the next two or three years here in terms of opportunities to lower your cost of capital?

Well, that's a tricky question because we have gone the baby bond market way, right? And we just love that product for us. It's -- there's -- it's unsecured. We obviously, just added a $280 million facility with Nomura at a rate in the 4s. Most recent baby bonds were 5.25. I don't -- my guess is that as we continue to get into the 5s with baby bond issuances and take out some of the 7s, I feel really good about that cost of capital. Now I -- we're not a bank, we don't have some of the -- we don't have some of the same benefits that others have, we don't have deposits. But the NIM that we get when -- money out to public companies, and you've probably seen some of those transactions. You're talking about 700% and 800% with fees. So would we like it lower and lower and lower? Yes. But we feel -- we're really excited about getting it into the low-5s, and we'll continue to just kind of be as aggressive as we can to get the lowest rate we can get.

Okay. That’s it from me. Nice quarter again and appreciate all the hard work.

Thank you. Thanks for your continued support.

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

Well, thank you, everyone, and thanks for joining us. And I know there's a lot of people from the firm on this call, and I said it in the commentary, but all of this is a testimony to the people that are here and the team that we've built and super thankful and appreciative and excited to continue this growth and report back next quarter. So, thank you and look forward to talking in 90 days. Go ahead, operator.

Thank you. Before we conclude today's call, I will provide B. Riley Financial's Safe Harbor statement, which includes important cautions regarding forward-looking statements made during this call. Statements made during this call about B. Riley Financial's future expectations, plans, and prospects and any other statements regarding matters that are not historical facts may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors should be aware that any forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors include the unpredictable and ongoing impact of the COVID-19 pandemic as well as the other risk factors explained in detail in the company's filings within the Securities and Exchange Commission. Please refer to these filings for a more detailed discussion of forward-looking statements and the risks and uncertainties of such statements. All forward-looking statements are made as of today, and except as required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events, or otherwise. Thank you for joining us today for B. Riley Financial's second quarter 2021 earnings conference call. You may now disconnect.