Good afternoon and welcome to B. Riley Financial's Third Quarter 2021 Earnings Call. Earlier today, B. Riley issued a press release and presentation detailing its financial results for the third 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 Investor Relation 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 operator, and welcome everyone. We are pleased to report another solid quarter for B. Riley Financial. On previous calls, we've discussed our strategy to grow our steady state and recurring businesses and we continue to deliver on that strategy both on a top and bottom line basis. Year-to-date, as of September 30, we generated total revenues and total adjusted EBITDA of $1.3 billion and $624.5 million respectively. This represents a year-over-year revenue increase of 168% and 327% increase in our adjusted EBITDA. In the same period, operating revenues totaled $1 billion for the first nine months with operating adjusted EBITDA of $315.9 million. This reflects a year-over-year increase of 89% in operating revenues and a 71% increase in operating adjusted EBITDA. Over the last year, B. Riley Securities has taken major strides in establishing itself as a preferred banking partner for small and mid cap companies. Outside of the bulge bracket firms, there are few banks with the capabilities to lead and participate in equity transactions of more than $100 million and year-to-date, B. Riley Securities has raised nearly $3 billion in that capacity. Our investment banking division continues to gain market share on IPO underwriting, follow on offerings, debt raises, ATMs and spec related transactions. We acknowledge that our diversified business can be difficult to analyze. Our ultimate goal is to continue to utilize our cash flows to enhance our business, make accretive acquisitions and to return capital to our shareholders. To that end, we believe a recurring dividend is an important measuring stick for our shareholders. In line with our stated commitment, we have increased our regular quarterly dividend to $1 per share and declared a special dividend of $3 per share for total third quarter dividend of $4 per common share. Upon payment of our third…

Thanks, Bryant. As Bryant noted, we reported strong results for our third quarter ending September 30. On a consolidated basis, B. Riley reported total revenues of $381.5 million, up 69% from the prior year period. Total adjusted EBITDA was $114.1 million, which was up 21% year-over-year. Net income available to common shareholders was $48.6 million or $1.69 per diluted share. This compares to net income of $47.3 million or $1.75 per diluted share for the prior year period. Our third quarter results included operating revenues of $363.3 million, a year-over-year increase of 87% and operating adjusted EBITDA of $101 million, which was up 50% year-over-year. During the quarter, we also saw a modest investment gains of approximately $18 million, which includes both realized and unrealized gains on certain strategic investments that we hold. Overall, our strong quarter was largely driven by momentum in our investment banking division. This was enhanced by contributions from our recently expanded wealth management division and continued cash flow generation from our principal investments companies and our brands businesses. Turning to our reportable segments. Starting with capital markets, which includes our investments and operating results from investment banking, institutional brokerage and fund management. Excluding investment gains, Capital Markets segment operating revenues totaled $161.7 million which represented an increase of 98% year-over-year. Segment operating income was $76.1 million, which was up 129% year-over-year. Now turning to our wealth management segment. Segment revenues and segment income increased to $118.8 million and $6.6 million respectively. This increase was primarily related to the addition of National Holdings, which we acquired in February. Our Auction and Liquidation segment revenues and segment income totaled $37.1 million and $6.3 million respectively. As noted on prior calls, results from this segment tend to be variable due to the episodic in nature of large retail…

Thanks, Phil. This quarter we continue to diversify and expand our opportunities, both in terms of new businesses as well as in our ability to attract quality talent. Adding complementary practices, like cyber security advisory, our financial sponsors group and our real estate division, has enabled us to provide superior execution capabilities, while continuing to deliver on the core services we've become known for. While clients are the obvious beneficiary of our expanded capabilities, our investment banks, advisory consultants and wealth managers have also benefited. Every day, we see more and more collaboration and referral activity across our operating groups and there is no greater validation of our platform strategy than from our internal B. Riley stakeholders, our colleagues. We believe our philosophy and diverse platform continue to be our key differentiator. This has enabled us to successfully recruit several experienced and accomplished professionals across our divisions amid this highly competitive market for talent. Last quarter, we stated our intent to build out Asset Management and fixed income. Since then we've welcomed back former colleague Wes Cummins and his team at 272 Capital. He and his team employ a small cap strategy rooted in fundamental research which closely aligns with our own. Wes serves as President of our asset management division and will continue to oversee the funds of 272 Capital, in addition to B. Riley's private funds. And to support the growth of our fixed-income division, we also recently named Tim Sullivan, Head of Fixed Income with B. Riley Securities. Tim's experience complements the firm's established leadership in structuring products, including our market leading senior notes offering franchise and specialization in corporate debt issuances. 'Year-to-date, our team has led over $1.5 billion of corporate debt and preferred stock offerings In wealth management, we opened a new branch location in…

[Operator Instructions] Our first question comes from Keith Rosenbloom with Cruiser Capital. Please proceed.

Thank you. Guys, what a great quarter and what a great reflection of the business here. I just wanted to...

Thank you.

You're welcome. I wanted to try and level set here and just make sure I'm on the right page. All right. I'm looking at the business and it seems to trade at a PE of 3. You now raised your dividend yield, so I guess it's got a stated yield of 6%. But it looks like -- obviously with all the specials it's much demonstrably higher. Bryant, you own 20% of the Company, you just initiated a buyback. You look at other investment banks they seem -- they all have much higher multiples and pay lower dividend yields. You have no research coverage. There is no sell-side research coverage of you. And I wonder is there some better description of the business in terms of what you're doing, Bryant, that might better describe who you are? Or are these discounts to your comps just so blatant and so unwarranted that perhaps that confuses people?

Yes, Keith, we've talked about this a lot internally, and it's part of why we've been pretty aggressive about cash returns and now implementing a more meaningful annual dividend. We're confusing -- I don't think we're confusing. The way that I would describe us is that we are a investment bank/merchant bank that utilizes our balance sheet to create fees, to create investment opportunities and make money for our clients and shareholders. And the simplistic way to look at the business, in my mind, is to take the bucket of recurring EBITDA that we have -- and I include that steady state of interest income, because we'll always have a loan book, and if you take that number you get into a number of somewhere around $180 million to $200 million. And then you have a broker-dealer and you have the liquidation business that can go up and down and we would be fooling ourselves if we said that we're going to always be up into the right. So the way we -- the way that we looked at it, especially we're looking at our dividend as we said, over the last three years our broker dealer has done roughly $10 million, $11 million of monthly EBITDA. Over the last year it's centered closer to $21 million. And our retail done about $1 million to $3 million in the last few years per month. And so we look at our dividend and we said, what is our break-even to pay $4 dividends. About -- it's underwriting the broker deal to $5 million a month, not the $10 million that we've averaged over the last three years of the 20 in the last year, and underwriting the liquidation to $0.5 million. And so we have lots of room to pay a…

Can I just get two quick follow-ups in?

Sure.

So, Tom just talked about the cryptocurrency business in terms of crypto trading. Maybe you could just give a little perspective on what that could mean to you in terms of contribution on the trading crypto side? And then also -- I know you guys have put in effort into building the asset management business. Can you speak to where you think that contribution, those management fees might look like in a year from now, from your asset management side of the business?

Let me, let me start about the management side, because I think maybe, Tom -- I don't know Tom is going to [indiscernible] We're not trading crypto, we are -- we have been very active in raising capital for miners, as you know, I know you participate in some of those.

Yes.

So that's become one of the big effort. And the most important part of that is, every one of those deals that we've done is meaningfully higher, we've made a lot of people a lot of money and created a lot of capital for miners to build their business. But -- and we're having a conference specifically for that vertical. As it relates to asset management, if you look at our competitors, we are the only group that really does not have a meaningful asset management business. And we have a retail wealth management component with over $30 billion and we think that an asset management business and -- run by Wes Cummins who we've known for a long time. We are very confident he's going to put up really good numbers and we're going to give great products to our in-house wealth managers, but also to other institutions. So we're making sure that Wes is very much institutionalized and has his own infrastructure. But we recognize that we -- that is a greenfield spot for us that we can really go after. I'd be disappointed in here if we weren't managing over $1 billion. And I guess it depends on how your returns are, but if that can be meaningful that could be $20 million, $30 million of kind of income.

Thank you.

All right. Thanks, Keith.

[Operator Instructions] Our next question comes from Brian Rohman with Boston Partners. Please go ahead.

I want to repeat Keith's comment of, heck of a quarter. I have a question about the dividend. I don't associate broker dealers as yield type stocks and yet that's sort of how you're positioning this. And the reason I don't associate yield and broker-dealers is because the core Investment banking business can over time, be very volatile. What sort of scenario -- how bad do things have to be for you to think that the dividend could be compromised? Your new dividend.

So I'm going to do the math again that I did before because...

Yes, yes. And you did a great job for going over that. I'd like to hear that again.

Okay. So we're not a typical -- I think we're not -- we have -- we're different from our competitors by having the operating business that we buy in. Whether that's a careful business like magicJack, United Online, or it's the brands we own or -- and if you just bucket those things and some of our more recurring business, we get to a kind of a annual EBITDA number of in and around $140 million $150 million. Okay? If you take our interest income, because we're always going to have a loan book. I mean one of the...

I'm sorry, Bryant, I'm sorry to disturb you -- interrupt you. The $140 million, $150 million which number you just said, that is everything together? All the businesses?

That is everything together except for the broker dealer.

Okay.

Because as you said, they're volatile businesses. Our two volatile businesses are the broker dealer, which is obviously volatile and very strong right now. Right? And then the liquidation business, which is really low. The liquidation business two years ago was doing $30 million in EBITDA and now it's doing closer to $10 million to $15 million because a lot of liquidation. These are -- this is our business that helps when a company goes bank -- we tell this bank will buy the inventory and will take over the shareholders. And so that business right now as you can imagine the economy we're in is much slower. But we call those our episodic businesses, OK? Everything else we bucket and we look at as more of a recurring business. That could include a business we bought like GlassRatner which is an hourly advisory business that is going to do $10 million to $12 million of EBITDA. We do appraisals. That business is very recurring, we do $10 million to $12 million there. So if you add up that whole bucket, you get to roughly $140 million $150 million in EBITDA. Okay? Then If you take our balance sheet, which has got about $2.2 billion of investable capital. If you take about $0.5 billion of that, that's in loans to clients, to interesting opportunities, we get a lot of proprietary books. Just assume that somewhere in around that number -- it might be more might be less, but for the purposes of this conversation, that's generating roughly $50 million of interest income. So you take those two pieces and you have $200 million of EBITDA. Okay? The broker dealer -- so first we'll go with the broker dealer. Over the last year, monthly EBITDA for the broker dealer has been…

So, let me ask the question differently. I'm looking at Bloomberg right now, you have about 28 million shares outstanding. 28 million shares times $4 a share is about $100 million, a little bit more of cash flow that goes out the door for paying the dividend. Are you looking -- and you've been paying all these special dividends. Are you going forward looking at the recurring businesses as ostensibly covering the dividends and absent a large investment, the episodic businesses producing special dividends over time?

You're close. You're not quite there yet.

Yes.

But you're close enough to think of it that way.

Okay, fine. That's good, that's helpful. Thank you.

You're welcome.

The next question comes from Sean Haydon with Charles Lane Capital. Please go ahead.

Hey, guys. I would like to say congratulations on the quarter as well. And thanks for the dividends. Question on the wealth management unit. How far along are you in the integration process of National? And what should we think about as far as the operating margin there -- the income margin, however you refer to it. So, right now, you're about mid-single digits. Do you see any lift in there for that margin going forward once everything is steady state and no longer being integrated?

So I would say -- let me just comment on that transaction. I would say -- and you've known us for a long time, I think we would say we're somewhat understated. I would say on a scale of 1 to 10, the way that integration has taken place and the way the business leaders have worked with each other, is a ten. And so, you think that in -- just put in perspective, the thinking to two months, we're doing $9 million of EBITDA, $36 million run rate. I think for is amazing. And I think that we've had total buy in. Not total, but a lot of buy-in from the wealth managers. We've we spent a lot of time with them introducing us to our products, they've participated in a lot of our deals. And so from the perspective of revenue momentum, I think we're in really good shape. Is there more work to done -- to do on the operating side. Yes, I mean that's going to -- you've got leases, you've got a lot of things that when you have to wealth managers merge, you've got negotiations with vendors, you've got -- that you will be able to carve out more expense savings. I couldn't tell you that we have an EBITDA target because we're just -- our target is to be as profitable as we can at all times. But realize they are two very different businesses. The National business is a independent management business. Now, you're still working with them and you're still distributing product to them, you make them part of the team, but that's a different payout structure than a W2 wealth manager. They are 100% employees and you're paying for all the insurance and all that stuff. So they're a little bit different. So the margin you're going to get on a independent wealth based management business is going to be less than a W2, but there is less risk obviously because we're paying for a lot of things they're doing. So that's a long-winded answer of saying I'm thrilled that we did $9 million. I think that we're just at the start of it. I think we're going to get a lot of recruits. I think we're a really exciting place to to come to, and we've got great leadership that are out there recruiting, all the time. Can that business be a $50 million, $60 million EBITDA business in a year? I think we could. I mean this is not a challenge of the market over, this is, me kind of putting my finger in the air and looking at where the numbers are, but I could see that.

Okay. Yes, that's helpful, thanks. And then on brands. I mean it looks like that's really taking shape there. Do you guys have any targets in mind, or are you just trying to be opportunistic when it comes to the brands portfolio?

Yes. Yes, sorry. So one of the things that over time that I have found valuable is, you meet a lot of great people in this business and if you can partner with people you've known or you've seen in action maybe short a long time, that's how you can, I think, really leverage your business. And so you will see that people are Kenny Young, who is the CEO of another company became our President, or Brian Kahn and Vintage group, we've done a ton of deals with Franchise Group, because we've known forever. And that list goes on and on, and I would say the brand side, we got to know the founders of BlueStar over a long period of time. And we have -- we think they're amazing at what they do and we are committed to partnering with them if they see opportunities. We don't have to, but we've committed. And so, we are there for them as a capital provider and partner, and it's really up to them. I would say that you are going to find more brand opportunities in periods of distress than you would in a really good economy. So when a lot of the apparel companies -- like for example Justice, right, brick and mortar business went bankrupt. It's an unbelievable brand. It is now in -- it's going to be in 2800 Walmart. The commercials of Walmart often lead with the Justice brand. So, we own 40 some percent of that. That's our partners. So there is -- we don't have a number we want to get to, we don't have a desire to buy five more. We're just going to be really opportunistic.

Alright, great. Well again, congrats on the quarter.

Thanks. Thanks, Sean, appreciate all your support.

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

Well, thank you, operator, and thanks everyone for participating. Really exciting day being able to return the kind of capital we are to our shareholders and our partners at our firm and being recognized by Fortune as a number two growing firm. Super humbled and really thankful for all the people that have helped us get there. So look forward to next quarter's call. Thank you, everyone

Thank you. Before we conclude today's call, I will provide B. Riley Financial's, the 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 with 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 each statements. All forward-looking statements are made as of today, 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 third quarter of 2021 results earnings conference call. You may now disconnect.