Good afternoon, and welcome to B. Riley Financial's First Quarter 2020 Earnings Call. Earlier today, B. Riley issued a press release and a presentation detailing its financial results. Copies can be found in the Investor Relations section of the company's website at ir.brileyfin.com. A replay of today's call will also be available on the company's website. Joining us today are Bryant Riley, Chairman and Co-CEO; Tom Kelleher, 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 would now like to turn the call over to Mr. Bryant Riley. Mr. Riley, please proceed.

Thank you, and welcome, everyone. First and foremost, we hope everyone is staying safe through these unique times. We want to start by acknowledging all of our employees across B. Riley who have shown complete dedication through this challenging period. Over the course of our 23-year history, we have successfully managed through prior periods of extreme market dislocation. While this is obviously unique from previous downturns, we feel our business is well positioned to come out stronger on the other side. We have learned from experience and have intentionally built our platform to withstand severe market shocks through the diversity of our businesses. This quarter follows several quarters of continued growth for B. Riley, so I plan to spend some time providing context on the COVID-related impact on our reported results as well as our outlook for the business as a whole with a focus on our balance sheet and proprietary investments. Phil will cover financial metrics, and then Tom will cover some highlights from each of our business units. Our first quarter results consisted of strong performance from our operating businesses in terms of both growth and profitability, all inside a significant mark-to-market loss in our investment portfolio. Our businesses generated operating EBITDA of $70.9 million and operating revenues of $182.2 million, which is a quarterly record far exceeding our prior record in quarter 2 of 2019, which generated operating revenues of $159.1 million. The performance of our operating business was offset by investment losses during the quarter, which totaled $182.4 million. While in absolute terms, this is a large number, all of these losses are unrealized and have no impact on our operating business. To put the unrealized losses in perspective, it is important to understand the strategy we employ with our balance sheet. You will often hear…

Thanks, Bryant, and welcome, everyone. As Bryant just outlined, this was a unique quarter, and so we will provide additional context within our reported results. As Bryant noted, this was a record quarter for our operating businesses, the quarterly operating revenues of $182.2 million and operating adjusted EBITDA of $70.9 million. For context, this compares to operating revenues of $116.3 million and operating adjusted EBITDA of $18.9 million from the prior year period. This also exceeds our prior quarterly record for operating revenues, which was $159.1 million in Q2 of last year. However, our strong results from our operating businesses were eclipsed by losses in our investment portfolio due to the significant impact of COVID-19 on the financial markets. Investment losses during the quarter totaled $182.4 million, with the vast majority of these losses being unrealized losses related to our equity positions and the fair value adjustments on loans. Combination of our operating revenue and the investment loss resulted in total revenue of negative $206,000 for the quarter and a net loss applicable to common shareholders of $99.7 million. In terms of our reportable segments, our Capital Markets segment includes our investments as well as our results from B. Riley's investment banking, wealth management and fund management businesses, and our GlassRatner Bankruptcy and Litigation Financial Consulting business. Including the investment losses, this segment reported revenue of negative $56.2 million and a loss of $120.5 million for the first quarter. However, excluding the investment results, our operating revenue for the Capital Markets segment was $126.3 million, and segment operating income was $46.5 million. Capital Markets results were primarily driven by strong investment banking performance, increased wealth management revenues and consulting revenues. Next, our Auction and Liquidation segment generated $20.7 million in revenue and segment income of $4.3 million for the first…

Thanks, Phil. First and foremost, I want to build on a comment Bryant made with respect to our employees amid the COVID pandemic. In early March, our teams worked quickly and efficiently to transition our operations into a remote workforce, which allowed our people to prioritize the health and safety of their families and loved ones. Throughout this period, our colleagues have continued to work tirelessly to provide our clients and partners with the necessary guidance and services to support their businesses at a critical time. We truly have a world-class team of professionals, and I know I'm speaking on behalf of our entire management team when I say we could not be more proud of their dedication. As discussed at the top of the call, Q1 was an incredibly strong quarter for our operating businesses. These results are due in large part to the continued performance and services provided by our professionals across B. Riley. Starting with our investment bank and institutional brokerage, B. Riley FBR, we achieved near record quarters for banking in Q1. Our recent involvement in the Alta business combination contributed significant fees for the quarter. We are seeing strong pipeline for new SPAC issuers due to pent-up demand and the relative impact of volatility on regular-way IPOs. The SPAC market continues to be a bright spot for the firm. Our at-the-market or ATM offering activity had a record quarter, generating the highest amount of fees related to the product to date. We continue to be active despite the overall slowdown in capital markets. As Bryant had mentioned previously, just last week, we brought 1 of the first post-COVID non-SPAC IPOs to market with the successful listing of GAN Limited. We believe our leading market position in small-cap companies continues to differentiate, providing us with unique…

[Operator Instructions]. Our first question comes from the line of Sean Haydon with THC.

Hope you're all safe. I jumped on a few minutes late. I'm not sure if you covered this, but have you quantified the recovery in your investment portfolio quarter to date?

Sean, we didn't. There is a significant amount of these securities that are filed. Typically and often, we are over a 5% to 10% holder. So I hate to do it day-to-day, and I don't know the exact number, but it's meaningful. I mean, we own 3.9 million shares of FRG, which I think is up 8 points in the quarter. Quantum is at a meaningful move. So it's been a sizable move. But Sean, honestly, we're just so much more focused on the operating earnings. And so we've been taking principal positions and partnering with the teams for a long time, and that's going to have some ups and downs. So we think we're going to make a lot of money on those names. But in the meantime, our operating business has been our core focus, and we're really excited about those results.

Yes. I think that's reasonable. And then as far as the landscape for retail liquidations go, how competitive has that been? And do you guys see that becoming meaningfully accelerating due to COVID?

Yes. I think you've got to assume there's going to be -- and you've seen a lot of announcements of companies, either restructuring or changing, how they think about the retail platform. So it's going to be very busy. I think probably the biggest dynamic that you'll see there is, I would imagine, and I think we're seeing some signs of a more fee-based environment as opposed to an equity environment. And what I mean by that is I think liquidators, for the most part, are going to be a little hesitant to purchase all of the equity of an estate and take the risk of an estate. So I think what you'll see is more some sort of percentage of recovery and maybe some upside to that. So it's going to be incredibly busy. Our competitors are all really good, and we faced tight competition, but we're really confident we're going to get our fair share.

And I'd just like to say, I think it speaks to your competency what you guys chose to do with capital allocations this quarter.

Thanks, Sean. Appreciate it. Appreciate your support.

Our next question comes from the line of Wes Cummins with 272 Capital.

Okay. Great. Bryant, I heard you mentioned some restructuring engagements that you secured during the quarter. Just out of curiosity, what is your capacity for -- in your restructuring business? I mean how many engagements can you handle? And do you think you'll have enough capacity or where you need to add capacity in the coming months or quarters?

So that's -- it's an interesting question because we've been dealing with that currently. So we've got a fair amount of senior professionals. GlassRatner is -- has a meaningful element of restructuring and -- excuse me, bankruptcy advisory. But we have been moving some assets around to assist with the restructuring business that we're seeing. So not on the senior level but more on the support level. So we'll see. I mean, it's one of those things where, Wes, I think you've been around B. Riley long enough. We're not going to go chase and go higher, high-priced restructuring talent because there's -- it's robust now. What we'd probably do more of is go look for some capital markets folks that might not be super busy and want to be part of our platform. So we feel like we maybe moving the restructuring two years ago and a year ago, two years ago when we brought Perry Mandarino in and then more recently won above GlassRatner. And so that -- I think that's something that's going to really bear fruit. But we're busy there, and so we're just going to have to be mindful of that. And I just got a text from Ian Ratner. He says we have capacity.

[Operator Instructions]. Our next question comes from the line of James Dressler with Princeton Asset Management.

I just had a couple of questions about some of your senior notes out there. They had a significant drop down in the first quarter, some cases greater than the S&P 500. So wondering if you can speak to kind of their decline and what you think about that. I think you might have mentioned also that you purchased some of these notes in the open market, if you can speak a little more to that. And lastly, regarding the $7.5 million to $27 any intent to call those when the call date comes up at the end of the month?

Got a bunch of questions there.

Yes. No sweat. So we obviously think about that often. The bonds came in obviously as credit spreads widened. You saw a meaningful uptick in yields from corporates. Obviously, I think there's a fair amount of retail in some of the baby bonds, and that might have put pressure as some may have gotten margin calls. We did purchase some bonds. Our focus is on making sure that we have the cash flows to pay our interest, pay our dividend, invest in the company and ultimately, pay back the debt that is due. So we feel very comfortable about those bonds. We feel really good about our relationship with those investors. We have no intention of -- we did buy some back. Obviously, we wish we bought more back. It was a bit of a chaotic time when those were trading at 40%, 50% discounts. But we were -- as it relates to calling any of our issues, that is a kind of a game-type time decision. If you -- in this environment, there are pretty good opportunities to put money to work at high rates, which will often include potential banking fees or maybe retail liquidation. So we are always analyzing our balance sheet. But -- so I can't give you any conclusive answer to that. I would just say that we feel really good about our free cash flow. We feel really good about our balance sheet, and we'll just be opportunistic.

Okay. And regarding the amount of bonds you purchased in the open market, can you provide any quantification of that?

Few million, not enough. I wish we would have bought more.

Our next question comes from the line of Paul Dwyer with Punch & Associates.

Could you -- I don't know if it's possible, but is there a way to quantify the amount of fees generated to -- across the platform that would be tied to the direct investments that you've made?

So we actually -- we did some of that recently in some of the more kind of the more recent investments. But if you take everything from capital markets to advisory, the backstops, $70 million-ish.

Over the -- and that's over the last quarter, last 12 months or so?

No. No. No. Over the last 24 months. In and around.

Yes. And then it's obviously small, but could you spend a little time talking about the brand segment and how it's performing in this current environment and where you see opportunity there?

Yes. So that should be big. We underwrote that business and those purchases to -- in and around $30 million in EBITDA between the 6 brands we bought and the 45% of Hurley. Obviously, everything stopped for the last couple of months but already seeing a little bit of a bounce back. There's obviously minimums that are paid by licensees. And the Hurley side of the business, they did sell their Japanese license for a pretty good number. That partnership we have with Bluestar Group. I -- you'll see, and there are -- we do have partnerships that have been formed over a long time. We met BlueStar through our transaction with BB where they licensed the BB license. And then we also did a partnership on Brookstone. Those guys are excellent. And if there's -- I am highly confident that we will see those revenues come back to the type of numbers that I mentioned. So the way that I would describe it is if you think of typically 4 quarters in a year, think of this year as 3 quarters where quarter number 2 and 3 will probably represent traditionally 1 quarter. So you're probably going to have a little bit of slowness in Q2 and 3 and then might -- my guess is you bounce back pretty hard in Q4.

Yes. Okay. Perfect. And then you talked about fully expecting to come out stronger than the other side of this. And you touched on it a little bit with Wesley's questions. But where are you -- where do you see opportunities, either within the segments or potentially adding another segment to the overall platform from an acquisition perspective that could make sense over the next, call it, 2 to 3 years?

So I just think that as we have grown and as our touch points have increased, the opportunities come in from a variety of areas, and they touch a lot of different pieces of our business, whether it's -- GlassRatner has been with us for a longer time. They understand our business better. They refer a liquidation to that side of the business or an investment banking transaction. Every day, and I've talked about this with you independently on calls, every day that we are together, I think people learn more and more about the opportunities. I'll give you a good example of something that just was an add-on that has been super exciting as we added a -- we have some real estate professionals in the restructuring side. But more recently, we added a real estate group headed by Michael Jerbich, who came from a competitor to focus more on the restructuring advisory of the real estate side, often working on retailers, helping the amount of leases, thinking about the real estate portfolio. We added that 2 months ago and more than a half a dozen mandates of meaningful size. And I think just the fact that we are so embedded in so many different areas, adding a great professional like Michael into the portfolio and as it kind of fits nicely with our retail and our restructuring. Those are the types of add-ons we love. It's -- we did -- we brought in somebody very experienced. And obviously, hope he makes a ton of money with us as these mandates get done. But we didn't go out and buy a big business. We just added it to our platform. So I think there's a lot of that. We've recently seen more people on the restructuring side approach us about opportunities because I think we feel pretty well positioned there. So I just look at the last 2 quarters where -- Paul, we -- I think we -- pretty clear, we lost a fair amount of money on Barneys in Q4. But if you look at our adjusted EBITDA and you add back Barneys, you were over $60 million in EBITDA in Q4, $70 million in operating EBITDA in Q1. Those are really big numbers, and those reflect a pretty good capital markets environment. So I'm not predicting that we're going to forevermore do those types of numbers. But you're certainly seeing the momentum. And I think that's just a function of us staying kind of -- staying on track and making sure that people really know that we are -- we've got a lot of different ways to help and assist in any way, shape or form. So kind of a long-winded answer, but that's how I think about it.

[Operator Instructions]. This concludes our question-and-answer session. And I would like to turn the call back over to Mr. Riley for any closing remarks.

Well, look, I would just, again, like to thank everybody, our partners and our employees who I consider partners and what they've done during this kind of craziness. It's amazing to see how everybody came together and worked together on our key group to make sure that we could all work remotely. So with great appreciation, and we'll echo some previous comments, hope everybody stays safe, and we'll look forward to reporting next quarter. Thank you, operator.

Thank you. Before we conclude today's call, I would like to provide B. Riley's financial safe harbor statement, which includes important cautions regarding forward-looking statements made during this call. Statements made during the call about B. Riley's financial 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 today. These risk factors include the unpredictable and ongoing impact of COVID-19 pandemic as well as 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 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. This conference call also included a discussion of non-GAAP financial measures, the most directly comparable GAAP financial measures and information reconciling these non-GAAP financial measures of the company's financial results prepared in accordance with GAAP are included in the earnings release. Thank you for joining us today for B. Riley's Financial's First Quarter 2020 Earnings conference call. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.