B. Riley Financial Inc. will continue pursuing an aggressive strategy of acquisitions and deal-making in the future, the company’s co-chief executive said in a conference call with analysts.
During the May 11 call to discuss first-quarter earnings, Bryant Riley, co-chief executive of the Woodland Hills company that bears his name, said the company has found that market disruption – such as the one caused by the coronavirus outbreak – creates opportunities. And his senior management team intend to aggressively pursue these opportunities – despite losing more than $90 million last quarter.
“With over $124 million of cash and over $775 million in cash in investments, strong operational cash flow and no significant principal payments due until mid-2023, we believe that we will have ample liquidity to support the business through this uncertain time, and we will continue to leverage our balance sheet to create more opportunities, which not only benefit us, but also support our partners and our clients,” Riley said during the call.
The company’s latest move, announced June 24, was to have B. Riley Principal Merger Corp. II, a special purpose acquisition company sponsored by an affiliate of B. Riley Financial, merge with Eos Energy Storage LLC, an Edison, N.J. provider of energy storage systems, including zinc-powered battery technology.
In the first quarter, B. Riley reported a net loss of $99.2 million (-$3.83 a share) for the period ending March 31, compared to net income of $8 million (30 cents) for the same period a year earlier. The company realized a $182.4 million write-down of “the company’s proprietary investments, which comprise certain private and public securities and loans.”
“While in absolute terms, this is a large number, all of these losses are unrealized and have no impact on our operating business,” Riley said during the conference call.
Sean Haydon, a long-time investor in B. Riley with Tipp Hill Capital Management LLC, in New York, told the Business Journal that the company’s stock nosedived as the coronavirus pandemic worsened in the U.S. in March, but it has since rebounded from an adjusted low of $14.43 on March 23.
Since the start of the year through June 26, the stock price has fallen about 16 percent. It closed at $21.29 on July 1.
B. Riley started as a stock brokerage with a traditional broker/dealer business model. However, by acquisition and expansion, it also has a valuation and appraisal business, an auction and liquidation business and a principal investments business to acquire either public or private companies that managements thinks are undervalued.
Haydon said when he discusses B. Riley with people, they are familiar with the name because of the broker/dealer business but are unfamiliar with the company’s other business lines.
Additionally, he likes the capital allocation strategy of the company, which is to pay a quarterly dividend of 25 cents a share and then a variable dividend on top of that based on whatever excess capital it comes in, he added.
“They have a very shareholder friendly policy when it comes to capital allocation,” Haydon said. “But for some investors, that might overly complicate things.”
The COVID-19 pandemic has resulted in retailers closing across the country, which is good for Great American Group LLC, the B. Riley-owned liquidation firm. But business had already been good for the subsidiary what with e-commerce giants like Amazon.com Inc. and Wayfair Inc., a large online home goods retailer based in Boston, cutting into brick-and-mortar retail, Haydon said.
Having the liquidation business shows that B. Riley has a lot broader ambitions beyond just equity brokerage, he said.
“They saw the writing on the wall with commissions being compressed and they said we need to diversify our revenue stream. The capital markets segment still continues to dominate their P&L (profit and loss statement), but they have done a good job at looking at diversifying their business lines and strengthening their business,” Haydon added.
During the conference call, Philip Ahn, B. Riley’s chief financial officer, said the auction and liquidation segment generated $20.7 million during the first quarter, an amount that equaled what was brought in in the same period in the prior year.
“Our liquidation segment results vary from quarter-to-quarter and year-to-year due to the episodic impact of large-scale retail liquidation engagements,” said Ahn on the call.
Tom Kelleher, co-chief executive, said during the call that Great American has year-to-date participated in about 590 store closings involving more than $1 billion of retail inventory.
“This includes a number of ongoing and new liquidation projects with returning clients,” Kelleher said. “While projects related to nonessential retailers paused in March, we continue to work with several retailers to navigate the new challenges being created by the current market environment.”