B. Riley Financial, Inc. [RILY] Filings

10-Q 1 rily-20220331.htm 10-Q rily-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-37503

B. RILEY FINANCIAL, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware						27-0223495
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

11100 Santa Monica Blvd., Suite 800 Los Angeles, CA						90025
(Address of Principal Executive Offices)						(Zip Code)

(310) 966-1444

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

RILY

Nasdaq Global Market

Depositary Shares, each representing a 1/1000th
fractional interest in a 6.875% share of Series A
Cumulative Perpetual Preferred Stock

RILYP

Nasdaq Global Market

Depositary Shares, each representing a 1/1000th
fractional interest in a 7.375% share of Series B
Cumulative Perpetual Preferred Stock

RILYL

Nasdaq Global Market

6.50% Senior Notes due 2026

RILYN

Nasdaq Global Market

6.375% Senior Notes due 2025

RILYM

Nasdaq Global Market

6.75% Senior Notes due 2024

RILYO

Nasdaq Global Market

6.00% Senior Notes due 2028

RILYT

Nasdaq Global Market

5.50% Senior Notes due 2026

RILYK

Nasdaq Global Market

5.25% Senior Notes due 2028

RILYZ

Nasdaq Global Market

5.00% Senior Notes due 2026

RILYG

Nasdaq Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of April 22, 2022, there were 27,928,234 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

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B. Riley Financial, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended March 31, 2022

Table of Contents


		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	1
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2022 and 2021	3
	Condensed Consolidated Statements of Equity for the three months ended March 31, 2022 and 2021	4
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021	5
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4.	Controls and Procedures	55

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3.	Defaults Upon Senior Securities	57
Item 4.	Mine Safety Disclosures	57
Item 5.	Other Information	57
Item 6.	Exhibits	58

SIGNATURES		59

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

B. RILEY FINANCIAL, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Dollars in thousands, except par value)


	March 31, 2022		December 31, 2021
	(Unaudited)
ASSETS
Assets:
Cash and cash equivalents	$	213,584	$	278,933
Restricted cash	928		927
Due from clearing brokers	40,350		29,657
Securities and other investments owned, at fair value	1,317,101		1,532,095
Securities borrowed	1,629,773		2,090,966
Accounts receivable, net	44,722		49,673
Due from related parties	1,480		2,074
Loans receivable, at fair value (includes $154,862 and $167,744 from related parties as of March 31, 2022 and December 31, 2021, respectively)	882,391		873,186
Prepaid expenses and other assets	470,525		463,502
Operating lease right-of-use assets	60,677		56,969
Property and equipment, net	12,980		12,870
Goodwill	362,466		250,568
Other intangible assets, net	211,915		207,651
Deferred tax assets, net	2,867		2,848
Total assets	$	5,251,759	$	5,851,919
LIABILITIES AND EQUITY
Liabilities:
Accounts payable	$	8,634	$	6,326
Accrued expenses and other liabilities	298,905		343,750
Deferred revenue	75,509		69,507
Deferred tax liabilities, net	51,174		93,055

Due to clearing brokers	—		69,398
Securities sold not yet purchased	7,498		28,623
Securities loaned	1,619,132		2,088,685
Operating lease liabilities	72,339		69,072
Notes payable	22,891		357

Revolving credit facility	80,000		80,000
Term loans, net	342,851		346,385
Senior notes payable, net	1,627,649		1,606,560
Total liabilities	4,206,582		4,801,718

Commitments and contingencies (Note 15)
Redeemable noncontrolling interests in equity of subsidiaries	345,000		345,000
B. Riley Financial, Inc. equity:
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; 4,535 and 4,512 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively; and liquidation preference of $113,380 and $112,790 as of March 31, 2022 and December 31, 2021, respectively	—		—
Common stock, $0.0001 par value; 100,000,000 shares authorized; 27,928,234 and 27,591,028 issued and outstanding as of March 31, 2022 and December 31, 2021, respectively	3		3
Additional paid-in capital	450,164		413,486
Retained earnings	205,765		248,862
Accumulated other comprehensive loss	(1,568)		(1,080)
Total B. Riley Financial, Inc. stockholders’ equity	654,364		661,271
Noncontrolling interests	45,813		43,930
Total equity	700,177		705,201
Total liabilities and equity	$	5,251,759	$	5,851,919

The accompanying notes are an integral part of these condensed consolidated financial statements.

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B. RILEY FINANCIAL, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands, except share data)


	Three Months Ended March 31,
	2022		2021
Revenues:
Services and fees	$	210,675	$	289,469
Trading (losses) income and fair value adjustments on loans	(68,390)		266,942
Interest income - Loans and securities lending	61,426		36,920
Sale of goods	1,878		6,828
Total revenues	205,589		600,159
Operating expenses:
Direct cost of services	11,651		11,322
Cost of goods sold	2,251		5,326
Selling, general and administrative expenses	175,199		191,344


Interest expense - Securities lending and loan participations sold	11,766		19,189
Total operating expenses	200,867		227,181
Operating income	4,722		372,978
Other income (expense):
Interest income	67		49
Change in fair value of financial instruments and other	5,981		—
Income from equity investments	6,775		875
Interest expense	(30,436)		(19,786)
(Loss) income before income taxes	(12,891)		354,116
Benefit (provision) for income taxes	3,695		(97,518)
Net (loss) income	(9,196)		256,598
Net income attributable to noncontrolling interests	866		1,942
Net (loss) income attributable to B. Riley Financial, Inc.	$	(10,062)	$	254,656
Preferred stock dividends	2,002		1,749
Net (loss) income available to common shareholders	$	(12,064)	$	252,907

Basic (loss) income per common share	$	(0.43)	$	9.38
Diluted (loss) income per common share	$	(0.43)	$	8.81

Weighted average basic common shares outstanding	27,855,033		26,972,275
Weighted average diluted common shares outstanding	27,855,033		28,710,368

The accompanying notes are an integral part of these condensed consolidated financial statements.

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B. RILEY FINANCIAL, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(Dollars in thousands)


	Three Months Ended March 31,
	2022		2021
Net (loss) income	$	(9,196)	$	256,598
Other comprehensive income (loss):
Change in cumulative translation adjustment	(488)		(636)
Other comprehensive loss, net of tax	(488)		(636)
Total comprehensive (loss) income	(9,684)		255,962
Comprehensive income (loss) attributable to noncontrolling interests	866		1,942
Comprehensive (loss) income attributable to B. Riley Financial, Inc.	$	(10,550)	$	254,020

The accompanying notes are an integral part of these condensed consolidated financial statements.

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B. RILEY FINANCIAL, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Equity

(Unaudited)

(Dollars in thousands, except share data)

For the Three Months Ended March 31, 2022 and 2021


	Preferred Stock			Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interests		Total Equity
	Shares	Amount		Shares	Amount
Balance, January 1, 2022	4,512	$	—	27,591,028	$	3	$	413,486	$	248,862	$	(1,080)	$	43,930	$	705,201
Preferred stock issued	23	—		—	—		639		—		—		—		639
Vesting of restricted stock and other, net of shares withheld for employer taxes	—	—		32,328	—		(1,294)		—		—		—		(1,294)
Shares issued for the acquisition of FocalPoint	—	—		304,878	—		20,320		—		—		—		20,320

Share based payments	—	—		—	—		17,013		—		—		—		17,013
Dividends on common stock ($1.00 per share)	—	—		—	—		—		(31,033)		—		—		(31,033)
Dividends on preferred stock	—	—		—	—		—		(2,002)		—		—		(2,002)
Net loss	—	—		—	—		—		(10,062)		—		866		(9,196)
Distributions to noncontrolling interests	—	—		—	—		—		—		—		(935)		(935)
Contributions from noncontrolling interests	—	—		—	—		—		—		—		1,770		1,770
Acquisition of noncontrolling interests	—	—		—	—		—		—		—		182		182
Other comprehensive loss	—	—		—	—		—		—		(488)		—		(488)
Balance, March 31, 2022	4,535	$	—	27,928,234	$	3	$	450,164	$	205,765	$	(1,568)	$	45,813	$	700,177

Balance, January 1, 2021	3,971	$	—	25,777,796	$	3	$	310,326	$	203,080	$	(823)	$	26,374	$	538,960

Common stock issued, net of offering costs	—	—		1,413,045	—		64,713		—		—		—		64,713
Vesting of restricted stock and other, net of shares withheld for employer taxes	—	—		4,068	—		(22)		—		—		—		(22)

Share based payments	—	—		—	—		5,526		—		—		—		5,526
Dividends on common stock ($3.50 per share)	—	—		—	—		—		(103,077)		—		—		(103,077)
Dividends on preferred stock	—	—		—	—		—		(1,749)		—		—		(1,749)
Net income	—	—		—	—		—		254,656		—		1,942		256,598
Distributions to noncontrolling interests	—	—		—	—		—		—		—		(11,257)		(11,257)
Contributions from noncontrolling interests	—	—		—	—		—		—		—		3,722		3,722
Acquisition of noncontrolling interests	—	—		—	—		—		—		—		13,042		13,042
Other comprehensive loss	—	—		—	—		—		—		(636)		—		(636)
Balance, March 31, 2021	3,971	$	—	27,194,909	$	3	$	380,543	$	352,910	$	(1,459)	$	33,823	$	765,820

The accompanying notes are an integral part of these condensed consolidated financial statements.

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B. RILEY FINANCIAL, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:			(Revised - See Note 20)
Net (loss) income	$	(9,196)	$	256,598
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization	7,848		6,759
Provision for doubtful accounts	405		402
Share-based compensation	17,013		5,526
Fair value adjustments, non-cash	(15,816)		(10,726)
Non-cash interest and other	(3,596)		(4,375)
Effect of foreign currency on operations	(34)		(726)
Income from equity investments	(6,775)		(875)
Dividends from equity investments	774		305
Deferred income taxes	(41,900)		62,696
Loss on loans receivable and disposal of fixed assets	257		—
Gain on extinguishment of loan	(1,102)		—
Loss on extinguishment of debt	—		919
Gain on equity investment	—		(3,544)
Income allocated and fair value adjustment for mandatorily redeemable noncontrolling interests	215		130
Change in operating assets and liabilities:
Amounts due to/from clearing brokers	(80,091)		(416,038)
Securities and other investments owned	215,973		(235,504)
Securities borrowed	461,193		(548,178)
Accounts receivable and advances against customer contracts	6,355		(3,885)
Prepaid expenses and other assets	1,701		(5,629)
Accounts payable, accrued payroll and related expenses, accrued expenses and other liabilities	(82,962)		30,505
Amounts due to/from related parties and partners	594		1,083
Securities sold, not yet purchased	(21,125)		277,446
Deferred revenue	4,924		(3,042)
Securities loaned	(469,553)		547,259
Net cash used in operating activities	(14,898)		(42,894)
Cash flows from investing activities:
Purchases of loans receivable	(93,853)		(75,669)
Repayments of loans receivable	101,000		87,476


Repayment of loan participations sold	—		(6,086)
Acquisition of businesses, net of $26,076 and $34,924 cash acquired for 2022 and 2021, respectively	(40,047)		(260)
Purchases of property, equipment and intangible assets	(176)		(101)
Proceeds from sale of property, equipment and intangible assets	2		—

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Investment of subsidiaries initial public offering proceeds into trust account	—		(172,500)
Purchase of equity and other investments	(2,439)		(4,698)

Net cash used in investing activities	(35,513)		(171,838)
Cash flows from financing activities:


Repayment of notes payable	(357)		(37,610)
Repayment of term loan	(4,116)		(4,750)

Proceeds from issuance of senior notes	20,037		402,404
Redemption of senior notes	—		(128,156)
Payment of debt issuance and offering costs	—		(7,510)
Payment of contingent consideration	(181)		(75)
Payment of employment taxes on vesting of restricted stock	(1,294)		(22)
Common dividends paid	(27,886)		(95,183)
Preferred dividends paid	(2,002)		(1,749)

Distribution to noncontrolling interests	(1,051)		(11,571)
Contribution from noncontrolling interests	1,770		3,722

Proceeds from initial public offering of subsidiaries	—		172,500
Proceeds from issuance of common stock	—		64,713
Proceeds from issuance of preferred stock	639		—
Net cash (used in) provided by financing activities	(14,441)		356,713
(Decrease) increase in cash, cash equivalents and restricted cash	(64,852)		141,981
Effect of foreign currency on cash, cash equivalents and restricted cash	(496)		(696)
Net (decrease) increase in cash, cash equivalents and restricted cash	(65,348)		141,285
Cash, cash equivalents and restricted cash, beginning of period	279,860		104,837
Cash, cash equivalents and restricted cash, end of period	$	214,512	$	246,122

Supplemental disclosures:
Interest paid	$	38,272	$	36,725
Taxes paid	$	73	$	53

The accompanying notes are an integral part of these condensed consolidated financial statements.

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B. RILEY FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share data)

NOTE 1 — ORGANIZATION AND NATURE OF BUSINESS OPERATIONS

B. Riley Financial, Inc. and its subsidiaries (collectively, the “Company”) provide investment banking and financial services to corporate, institutional and high net worth clients, and asset disposition, financial consulting, appraisal and capital advisory services to a wide range of retail, wholesale and industrial clients, as well as lenders, capital providers, private equity investors and professional services firms throughout the United States, Australia, Canada, and Europe and consumer Internet access and cloud communication services through its wholly-owned subsidiaries United Online, Inc. (“UOL” or “United Online”) and magicJack VocalTec Ltd. (“magicJack”). The Company has a majority ownership interest in BR Brands Holding, LLC (“BR Brands” or “Brands”), which provides licensing of trademarks.

On January 19, 2022, the Company acquired FocalPoint Securities, LLC ("FocalPoint"), an independent investment bank headquartered in Los Angeles, California. The purchase price consideration totaled $124,479, which consisted of $64,248 in cash, $20,320 in issuance of common stock of the Company, and $39,911 in deferred cash and contingent consideration payable over the next three years. The Company used the acquisition method of accounting for this acquisition. Goodwill of $110,612 and other intangible assets of $10,680 that were recorded as a result of the acquisition will be deductible for tax purposes. The acquisition is expected to expand B. Riley Securities’ mergers and acquisitions (“M&A”) advisory business and enhance its debt capital markets and financial restructuring capabilities.

On February 25, 2021, the Company completed the acquisition of all of the outstanding shares of National Holdings Corporation (“National”) not already owned by the Company. The total cash consideration for the approximately 55% of National outstanding shares that the Company did not previously own and settlement of outstanding share based awards amounted to $35,314. The Company used the acquisition method of accounting for this acquisition. The acquisition expanded the Company’s investment banking, wealth management and financial planning offerings by adding National’s brokerage, insurance, tax preparation and advisory services.

The Company operates in six operating segments: (i) Capital Markets, through which the Company provides investment banking, corporate finance, securities lending, restructuring, research, sales and trading services to corporate and institutional clients; (ii) Wealth Management, through which the Company provides wealth management and tax services to corporate, institutional and high net worth clients; (iii) Auction and Liquidation, through which the Company provides auction and liquidation services to help clients dispose of assets that include multi-location retail inventory, wholesale inventory, trade fixtures, machinery and equipment, intellectual property and real property; (iv) Financial Consulting, through which the Company provides bankruptcy, financial advisory, forensic accounting, real estate consulting and valuation and appraisal services; (v) Principal Investments - Communications and Other, through which the Company provides consumer Internet access and related subscription services from United Online, cloud communication services primarily through the magicJack devices, and mobile phone voice, text, and data services and devices through a mobile virtual network operator; and (vi) Brands, which is focused on generating revenue through the licensing of trademarks.

There continues to be widespread impact from COVID-19, which the World Health Organization classified as a pandemic in March 2020. There has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel, and government activities and functions; however, the full impact of the COVID-19 outbreak continues to evolve with the emergence of new variant strains and breakthrough infections. Although the U.S. economy continued to grow during the first quarter of 2022, the continuing impact of the COVID-19 pandemic, higher inflation, the actions by the Federal Reserve to address inflation, and rising energy prices create uncertainty about the future economic environment which will continue to evolve and may impact our business in future periods. These developments and the impact on the financial markets and the overall economy continue to be highly uncertain and cannot be predicted. If the financial markets and/or the overall economy continue to be impacted, the Company’s results of operations, financial position, and cash flows may be materially adversely affected.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of Consolidation and Basis of Presentation

The condensed consolidated financial statements include the accounts of B. Riley Financial, Inc. and its wholly-owned and majority-owned subsidiaries. The condensed consolidated financial statements also include the accounts of Great American Global Partners, LLC, which is controlled by the Company as a result of its ownership of a 50% member interest, appointment of two of the three executive officers and significant influence over the funding of operations. All intercompany accounts and transactions have been eliminated upon consolidation

Applicable accounting guidance requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a Variable Interest Entity (“VIE”); to eliminate the solely quantitative approach previously required for determining the primary beneficiary of a VIE; to add an additional reconsideration event for determining whether an entity is a VIE when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a VIE.

The condensed consolidated financial statements have been prepared by the Company, without audit, pursuant to interim financial reporting guidelines and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company’s management, all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the periods presented have been included. These condensed consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 28, 2022. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the operating results to be expected for the full fiscal year or any future periods.

Revision of Prior Period Financial Statements

In connection with the preparation of the Company’s consolidated financial statements during prior year, the Company identified an error that was not material related to the consolidation of certain VIEs which primarily resulted in a gross up between investing activities and financing activities in the consolidated statements of cash flows. In accordance with SAB No. 99, “Materiality,” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” the Company evaluated the error and determined that the related impact did not, either individually or in the aggregate, materially misstate previously issued consolidated financial statements. A summary of revisions to certain previously reported financial information presented herein is included in Note 20.

(b) Use of Estimates

The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenue and expense during the reporting period. Estimates are used when accounting for certain items such as valuation of securities, allowance for doubtful accounts, the fair value of loans receivables, intangible assets and goodwill, share based arrangements, contingent consideration, and accounting for income tax valuation allowances, recovery of contract assets and sales returns and allowances. Estimates are based on historical experience, where applicable, and assumptions that management believes are reasonable under the circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ.

Interest expense from securities lending activities is included in operating expenses related to operations in the Capital Markets segment. Interest expense from securities lending activities is incurred from equity and fixed income securities that are loaned to the Company and totaled $11,766 and $18,721 during the three months ended March 31, 2022 and 2021,

respectively. Interest expense from loan participations sold totaled zero and $468 during the three months ended March 31, 2022 and 2021, respectively.

(d) Concentration of Risk

Revenues in the Capital Markets, Financial Consulting, Wealth Management, Brands and Principal Investments — Communications and Other segments are currently primarily generated in the United States. Revenues in the Auction and Liquidation segment are primarily generated in the United States, Canada, and Europe.

The Company’s activities in the Auction and Liquidation segment are executed frequently with, and on behalf of, distressed customers and secured creditors. Concentrations of credit risk can be affected by changes in economic, industry, or geographical factors. The Company seeks to control its credit risk and potential risk concentration through risk management activities that limit the Company’s exposure to losses on any one specific liquidation services contract or concentration within any one specific industry. To mitigate the exposure to losses on any one specific liquidations services contract, the Company sometimes conducts operations with third parties through collaborative arrangements.

The Company maintains cash in various federally insured banking institutions. The account balances at each institution periodically exceed the Federal Deposit Insurance Corporation’s (“FDIC”) insurance coverage, and as a result, there is a concentration of credit risk related to amounts in excess of FDIC insurance coverage. The Company has not experienced any losses in such accounts. The Company also has substantial cash balances from proceeds received from auctions and liquidation engagements that are distributed to parties in accordance with the collaborative arrangements.

(e) Advertising Expenses

The Company expenses advertising costs, which consist primarily of costs for printed materials, as incurred. Advertising costs totaled $1,763 and $578 during the three months ended March 31, 2022 and 2021, respectively. Advertising expense was included as a component of selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

(f) Share-Based Compensation

The Company’s share-based payment awards principally consist of grants of restricted stock, restricted stock units and costs associated with the Company’s employee stock purchase plan. In accordance with the applicable accounting guidance, share-based payment awards are classified as either equity or liabilities. For equity-classified awards, the Company measures compensation cost for the grant of membership interests at fair value on the date of grant and recognizes compensation expense in the condensed consolidated statements of operations over the requisite service or performance period the award is expected to vest.

In June 2018, the Company adopted the 2018 Employee Stock Purchase Plan (“Purchase Plan”) which allows eligible employees to purchase common stock through payroll deductions at a price that is 85% of the market value of the common stock on the last day of the offering period. In accordance with the provisions of (ASC) 718 - Compensation — Stock Compensation (“ASC 718”), the Company is required to recognize compensation expense relating to shares offered under the Purchase Plan. During the three months ended March 31, 2022 and 2021, the Company recognized compensation expense of $153 and $227, respectively, related to the Purchase Plan.

(g) Income Taxes

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the condensed consolidated financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the financial statement basis and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates the degree to which tax assets and credit carryforwards will result in a benefit based on expected profitability by tax jurisdiction. A valuation allowance for such tax assets and loss carryforwards is provided when it is determined to be more likely than not that the benefit of such deferred tax asset will not be realized in future periods. Tax benefits of operating loss carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and other circumstances. If it becomes more likely than not that a tax asset will be used, the related valuation allowance on such assets would be reduced.

The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Once this threshold has been met, the Company’s measurement of its expected tax benefits is recognized in its financial statements. The Company accrues interest on unrecognized tax benefits as a component of income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense.

(h) Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

(i) Restricted Cash

As of March 31, 2022 and December 31, 2021, restricted cash included $928 and $927 of cash collateral for leases, respectively.

Cash, cash equivalents and restricted cash consist of the following:


	March 31, 2022		December 31, 2021
Cash and cash equivalents	$	213,584	$	278,933
Restricted cash	928		927
Total cash, cash equivalents and restricted cash	$	214,512	$	279,860

(j) Securities Borrowed and Securities Loaned

Securities borrowed and securities loaned are recorded based upon the amount of cash advanced or received. Securities borrowed transactions facilitate the settlement process and require the Company to deposit cash or other collateral with the lender. With respect to securities loaned, the Company receives collateral in the form of cash. The amount of collateral required to be deposited for securities borrowed, or received for securities loaned, is an amount generally in excess of the market value of the applicable securities borrowed or loaned. The Company monitors the market value of the securities borrowed and loaned on a daily basis, with additional collateral obtained, or excess collateral recalled, when deemed appropriate.

The Company accounts for securities lending transactions in accordance with ASC 210 - Balance Sheet, which requires companies to report disclosures of offsetting assets and liabilities. The Company does not net securities borrowed and securities loaned and these items are presented on a gross basis in the condensed consolidated balance sheets.

(k) Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Property and equipment held under finance leases are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset. Depreciation expense on property and equipment was $1,032 and $873 during the three months ended March 31, 2022 and 2021, respectively.

(l) Loans Receivable

Under ASC 326 - Financial Instruments – Credit Losses, the Company elected the irrevocable fair value option for all outstanding loans receivable that were previously measured at amortized cost. Under the fair value option, loans receivables are measured at each reporting period based upon their exit value in an orderly transaction and unrealized gains or losses from changes in fair value are recorded in the consolidated statements of operations. These loans are no longer subject to evaluation for impairment through an allowance for loan loss as such losses will be captured through fair value changes.

Loans receivable, at fair value totaled $882,391 and $873,186 as of March 31, 2022 and December 31, 2021, respectively. The loans have various maturities through March 2027. As of March 31, 2022 and December 31, 2021, the historical cost of loans receivable accounted for under the fair value option was $875,794 and $877,527, respectively,

which included principal balances of $883,965 and $886,831 respectively, and unamortized costs, origination fees, premiums and discounts, totaling $8,170 and $9,304, respectively. During the three months ended March 31, 2022 and 2021, the Company recorded net unrealized gains of $10,937 and $10,726, respectively, on the loans receivable at fair value, which was included in trading income (losses) and fair value adjustments on loans on the condensed consolidated statements of operations.

The Company may periodically provide limited guarantees to third parties for loans that are made to investment banking and lending clients. As of March 31, 2022, the Company has outstanding limited guarantee arrangements with respect to Babcock & Wilcox Enterprises, Inc. (“B&W”) as further described in Note 15. In accordance with the new credit loss standard, the Company evaluates the need to record an allowance for credit losses for these loan guarantees since they have off-balance sheet credit exposures. As of March 31, 2022, the Company has not recorded any provision for credit losses on the B&W guarantees since the Company believes that there is sufficient collateral to protect the Company from any credit loss exposure.

Interest income on loans receivable is recognized based on the stated interest rate of the loan on the unpaid principal balance plus the amortization of any costs, origination fees, premiums and discounts and is included in interest income - loans and securities lending on the condensed consolidated statements of operations. Loan origination fees and certain direct origination costs are deferred and recognized as adjustments to interest income over the lives of the related loans. Unearned income, discounts and premiums are amortized to interest income using a level yield methodology.

Badcock Loan Receivable

On December 20, 2021, the Company entered into a Master Receivables Purchase Agreement (“Receivables Purchase Agreement”) with W.S. Badcock Corporation, a Florida corporation (“WSBC”), an indirect wholly owned subsidiary of Franchise Group, Inc., a Delaware corporation (“FRG”). The Company paid $400,000 in cash to WSBC for the purchase of certain consumer credit receivables of WSBC ("Badcock Receivables"), which was collateralized by the performance of the consumer credit receivables of WSBC. In connection with the Receivables Purchase Agreement, the Company entered into a Servicing Agreement (the “Servicing Agreement”) with WSBC pursuant to which WSBC will provide to the Company certain customary servicing and account management services in respect of the receivables purchased by the Company under the Receivables Purchase Agreement. In addition, subject to certain terms and conditions, FRG has agreed to guarantee the performance by WSBC of its obligations under the Receivables Purchase Agreement and the Servicing Agreement. As of March 31, 2022 and December 31, 2021, the principal outstanding for the Badcock Receivables was $380,591 and $400,000, respectively, and included in loans receivable, at fair value on the condensed consolidated balance sheets.

(m) Securities and Other Investments Owned and Securities Sold Not Yet Purchased

Securities and other investments owned consist of marketable securities and investments in partnership interests and other securities recorded at fair value. Securities sold, but not yet purchased represents obligations of the Company to deliver the specified security at the contracted price and thereby create a liability to purchase the security in the market at prevailing prices. Changes in the value of these securities are reflected currently in the results of operations.

As of March 31, 2022 and December 31, 2021, the Company’s securities and other investments owned and securities sold not yet purchased at fair value consisted of the following securities:


	March 31, 2022		December 31, 2021
Securities and other investments owned:
Equity securities	$	1,228,690	$	1,444,474
Corporate bonds	10,508		7,632
Other fixed income securities	3,681		2,606
Partnership interests and other	74,222		77,383
	$	1,317,101	$	1,532,095

Securities sold not yet purchased:
Equity securities	$	1,118	$	20,302
Corporate bonds	6,046		6,327
Other fixed income securities	334		1,994
	$	7,498	$	28,623

(n) Fair Value Measurements

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) for identical instruments that are highly liquid, observable, and actively traded in over-the-counter markets. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose inputs are observable and can be corroborated by market data. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The Company’s securities and other investments owned and securities sold and not yet purchased are comprised of common and preferred stocks and warrants, corporate bonds, and investments in partnerships. Investments in common stocks that are based on quoted prices in active markets are included in Level 1 of the fair value hierarchy. The Company also holds loans receivable valued at fair value, nonpublic common and preferred stocks and warrants for which there is little or no public market and fair value is determined by management on a consistent basis. For investments where little or no public market exists, management’s determination of fair value is based on the best available information which may incorporate management’s own assumptions and involves a significant degree of judgment, taking into consideration various factors including earnings history, financial condition, recent sales prices of the issuer’s securities and liquidity risks. These investments are included in Level 3 of the fair value hierarchy. Investments in partnership interests include investments in private equity partnerships that primarily invest in equity securities, bonds, and direct lending funds. The Company also invests in priority investment funds and the underlying securities held by these funds are primarily corporate and asset-backed fixed income securities and restrictions exist on the redemption of amounts invested by the Company. The Company’s partnership and investment fund interests are valued based on the Company’s proportionate share of the net assets of the partnerships and funds; the value for these investments is derived from the most recent statements received from the general partner or fund administrator. These partnership and investment fund interests are valued at net asset value (“NAV”) in accordance with ASC 820 - Fair Value Measurements. As of March 31, 2022 and December 31, 2021, partnership and investment fund interests valued at NAV of $74,222 and $77,383, respectively, are included in securities and other investments owned in the accompanying condensed consolidated balance sheets.

Securities and other investments owned also include investments in nonpublic entities that do not have a readily determinable fair value and do not report NAV per share. These investments are accounted for using a measurement alternative under which they are measured at cost and adjusted for observable price changes and impairments. Observable price changes result from, among other things, equity transactions for the same issuer executed during the reporting period, including subsequent equity offerings or other reported equity transactions related to the same issuer. For these transactions to be considered observable price changes of the same issuer, we evaluate whether these transactions have similar rights and obligations, including voting rights, distribution preferences, conversion rights, and other factors, to the investments we hold. Any investments adjusted to their fair value by applying the measurement alternative are disclosed as nonrecurring fair value measurements, including the level in the fair value hierarchy that was used. As of March 31, 2022 and December 31, 2021, investments in nonpublic entities valued using a measurement alternative of $73,006 and $59,745, respectively, are included in securities and other investments owned in the accompanying condensed consolidated balance sheets.

Funds held in trust represents U.S. treasury bills that were purchased with funds raised through the initial public offerings of B. Riley Principal 150 Merger Corporation (“BRPM 150”) and B. Riley Principal 250 Merger Corporation (“BRPM 250”), consolidated special purpose acquisition corporations (“SPACs”). The funds raised are held in trust accounts that are restricted for use and may only be used for purposes of completing an initial business combination or redemption of the class A public common shares of the SPAC’s as set forth in their respective trust agreements. The funds held in trust are included within Level 1 of the fair value hierarchy and included in prepaid expenses and other assets in the accompanying condensed consolidated balance sheets.

The Company has warrant liabilities related to warrants of the SPAC’s that are held by investors in BRPM 150 and BRPM 250. The warrants are accounted for as liabilities in accordance with ASC 815 - Derivatives and Hedging and are measured at fair value at inception and on a recurring basis using quoted prices in over-the-counter markets. Warrant liabilities are included in accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets with changes in fair value that amounted to $4,879 during the three months ended March 31, 2022 included within change in fair value of financial instruments and other as part of other income (expense) in the condensed consolidated statements of operations. The fair value of mandatorily redeemable noncontrolling interests is determined based on the issuance of similar interests for cash, references to industry comparables, and relied, in part, on information obtained from appraisal reports and internal valuation models.

The following tables present information on the financial assets and liabilities measured and recorded at fair value on a recurring basis as of March 31, 2022 and December 31, 2021.


	Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis as of March 31, 2022 Using
	Fair value as of March 31, 2022		Quoted prices in active markets for identical assets (Level 1)		Other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Assets:
Funds held in trust account	$	345,057	$	345,057	$	—	$	—
Securities and other investments owned:
Equity securities	1,155,685		767,021		—		388,664
Corporate bonds	10,508		—		10,508		—
Other fixed income securities	3,680		—		3,680		—
Total securities and other investments owned	1,169,873		767,021		14,188		388,664
Loans receivable, at fair value	882,391		—		—		882,391
Total assets measured at fair value	$	2,397,321	$	1,112,078	$	14,188	$	1,271,055

Liabilities:
Securities sold not yet purchased:
Equity securities	$	1,118	$	1,118	$	—	$	—
Corporate bonds	6,046		—		6,046

B. Riley Financial, Inc. [RILY] Filings
B. Riley Financial, Inc. [RILYK] Filings
B. Riley Financial, Inc. [RILYZ] Filings
B. Riley Financial, Inc. [RILYO] Filings
B. Riley Financial, Inc. [RILYM] Filings
B. Riley Financial, Inc. [RILYP] Filings
B. Riley Financial, Inc. [RILYL] Filings
B. Riley Financial, Inc. [RILYN] Filings
B. Riley Financial, Inc. [RILYG] Filings
B. Riley Financial, Inc. [RILYT] Filings
10-Q	[2022-04-29]
10-K	[2022-02-28]
10-Q	[2021-11-09]
10-Q	[2021-08-02]
10-Q	[2021-05-10]
10-K	[2021-03-04]
10-Q	[2020-10-30]
10-Q	[2020-08-03]
10-Q	[2020-05-11]
10-K	[2020-03-10]
10-Q	[2019-11-01]
10-Q	[2019-08-09]
10-Q	[2019-05-01]
10-K	[2019-03-06]
10-Q	[2018-11-06]
10-Q	[2018-08-03]
10-Q	[2018-05-08]
10-K	[2018-03-14]
10-Q	[2017-11-09]
10-Q	[2017-08-08]
10-Q	[2017-05-10]
10-K	[2017-03-10]
10-Q	[2016-11-14]
10-Q	[2016-08-05]
10-Q	[2016-05-16]
10-K	[2016-03-28]
10-Q	[2015-11-09]
10-Q	[2015-08-11]
10-Q	[2015-05-07]
10-K	[2015-03-30]
10-Q	[2014-11-06]
S-1	[2014-09-18]
10-Q	[2014-08-14]
10-Q	[2014-05-14]
10-K	[2014-03-31]
10-Q	[2013-11-14]
10-Q	[2013-08-14]
10-Q	[2013-05-14]
10-K	[2013-03-29]
10-Q	[2012-11-14]
10-Q	[2012-08-14]
10-Q	[2012-05-15]
10-K	[2012-03-30]

B. Riley Financial, Inc. [RILY] Filings

B. Riley Financial, Inc. [RILYK] Filings

B. Riley Financial, Inc. [RILYZ] Filings

B. Riley Financial, Inc. [RILYO] Filings

B. Riley Financial, Inc. [RILYM] Filings

B. Riley Financial, Inc. [RILYP] Filings

B. Riley Financial, Inc. [RILYL] Filings

B. Riley Financial, Inc. [RILYN] Filings

B. Riley Financial, Inc. [RILYG] Filings

B. Riley Financial, Inc. [RILYT] Filings