Good afternoon and welcome to B. Riley Financial [Technical Difficulty] Investor Relations website at ir.brileyfin.com. Joining us today from B. Riley are Bryant Riley, Chairman, 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. As a reminder, this call is being recorded. An audio replay will be available on the company's Investor website later today. I will now turn the call over to Mr. Bryant Riley. Please go ahead.

Thanks and welcome to everyone joining our call this afternoon. Our Third Quarter Results represent the underlying strength and continued versatility of our diversified platform. The investments we've made to augment our steady and recurring earnings have enabled us to deliver solid operating results despite volatile markets and amid the effective shutdown in capital markets. Over the past nine months, our platform has delivered operating revenues of $869 million and operating adjusted EBITDA of $265 million. During that same period, we have returned over $83 million to our shareholders in the form of dividends. While the recent market decline has created meaningful market-to-market losses, we think it is important to remind investors that this has come after a number of years of outsized gains, many of which were realized and were utilized to diversify our operating businesses through opportunistic acquisitions. We also use the last few years to fortify our balance sheet through the issuance of baby bonds with interest rates far below the current market and with meaningful remaining duration. With that said, underpinning our platform strategy as our commitment to return a portion of our excess earnings to our shareholders and we're pleased to deliver a third quarter dividend of $1 per share. We recognize our businesses can be difficult for investors to model. We are not a typical broker dealer. The competition and variability of our platform becomes more unique as we continue to diversify to balance the episodic and cyclical parts of our platform. Our platform, though, has remained consistent and we will continue to be opportunistic where opportunities present. To that end, we recently announced three acquisitions, which we expect will further augment our steady and recurring earnings and cash flow. In August, we announced the addition of BullsEye Telecom to our Lingo Communications subsidiary.…

Thanks Bryant. For our third quarter ending September 30, B. Riley reported total revenues of $340.4 million, down from $381.5 million in the prior year period. Total adjusted EBITDA for the quarter was $141.4 million, compared to $114.1 million in the prior year period. Net income available to common shareholders was $45.8 million or $1.53 per diluted share. This compares to net income of $48.6 million or $1.69 per diluted share in Q3 of last year. Our third quarter results included operating revenues of $328.2 million, compared to $363.3 million in the prior year period. Operating adjusted EBITDA was $106.2 million for the quarter, compared to $101.1 million in last year's period. We also generated investment gains of approximately $12 million in Q3 of this year, which includes both realized and unrealized gains on certain strategic investments that we hold. As a reminder, adjusted EBITDA and our metrics for operating and investment results are non-GAAP financial measures. Please refer to our earnings release for a definition of terms and for reconciliation to the nearest GAAP measures. Investors can also find additional details relating to these metrics and related reconciliations in the financial supplement on our Investor Relations website. Tom will cover segment highlights in connection with his discussion of our business divisions. And so now I wanted to provide some commentary on some of our recent acquisitions. In August, our Lingo subsidiary completed its previously announced acquisition of BullsEye Telecom. The addition of BullsEye follows our acquisition of Lingo in May of this year, in which we acquired an 80% ownership in the telecom services provider. The BullsEye addition augments our existing portfolio of communication services businesses while also providing our B. Riley platform with an additional source of steady cash flow. Just before quarter-end, we acquired our portfolio of…

Thanks, Phil. As financial conditions tighten, we believe our diversified business is uniquely positioned to serve clients exceptionally well. Embedded throughout our platform is core expertise in restructuring, debt refinancing, direct lending, bankruptcy advisory and asset disposition. With demand for these services expected to increase, we believe our countercyclical businesses are poised for growth in the coming quarters. At the same time, stable performance across our non-cyclical businesses continues to provide us a solid baseline with which to operate. I’ll now provide a summary of our segment results along with some color on the individual business units that comprise our segments. Starting with our Capital Market segment. Despite lower levels of investment banking and underwriting activity, third quarter segment revenues remain flat at $179 million. Segment income increased to $124 million up from $88 million in the prior year period, primarily driven by increased interest income from loans and securities lending. Revenue for B. Riley Securities fixed income trading also increased during the quarter with rising rates translating to greater activity. In spite of market headwinds, we continue to be encouraged by our fixed income division and believe this group represents a significant growth opportunity. In the same respect, we remain encouraged by our growing banking advisory backlog, bullied by a number of focal point mandates, especially in healthcare. Given this sector’s relative immunity to challenging markets, we are investing to strategically expand this vertical with a recent edition of nine healthcare bankers from here on. This group brings significant experience that deepens and expands our platforms existing health and life science expertise. Combined with the focal point in the legacy B. Riley team, we believe we now offer one of the strongest healthcare platforms in middle markets and we remain committed to investing in the best talent to serve…

[Operator Instructions]

Yes. Operator, this is Mike Frank. It looks like we’re having trouble getting people in, so I have a few email questions to get us started. So Bryant, can you walk through the current recurring EBITDA as you see it? You’ve had a lot of new acquisitions and new pieces to the business that appear to be recurring, so can you walk us through that one more time?

Sure. Thanks, Mike. And apologize to everybody for not getting calls in. We do watch our expenses pretty carefully. Maybe we need to uptick our expense here on our Q&A. So Mike, let’s go through. I’m going to be a little bit more broad than you might like. But I’ll try and get to the answer. So the recurring EBITDA number that I am underwriting to is approximately $322 million. Just as a reminder to kind of get to our dividend, all of our overhead, interest and all those things, it’s about $295 million. So that $322 million comprises of roughly $70 million in our telecom assets, UOL, magicJack, Credo, Lingo and BullsEye. Advisory, which is the GlassRatner appraisal side of $23 million, a couple of other smaller assets, real estate, capital management, security lending of about $17 million. Our brands, Justice, Hurley and then our BB business, and then the other six brands we own is about $44 million. Targus, I think, we’re underwriting to $52 million, that’s what they did last year. I think somebody could – some could argue that maybe that business would lessen a little bit given the current environment, but I would let everybody know that freight cost them roughly $50 million of EBITDA last year, and freight has come back to close to pre-COVID level. So I feel comfortable at $52 million. And then interest income on loans, receivables, other interest adds up to about $110 million. So I think if you add all that up, it comes up to $3.22 billion and then, you’ve got to try and think through what the B. Riley Securities business is and the retail business. The retail business is starting to pick up. We’ve made a couple announcements there, so I think you’re going to see a pickup there that’s averaged $1 million to $2 million of EBITDA per month over a long period of time, it was a little less the last couple of years as there was a lot of liquidations. And then B. Riley Securities, it’s tough. It’s really tough out there. There’s not a lot of capital markets. But I think that we’ve proven that when the markets turn and they do and markets open, we will be a big beneficiary. So you can put in whatever you want. We’ve lost money, I believe one month in the last three years. We’ve averaged kind of EBITDA in and around $15 million a month. So, I can’t underwrite that. I don’t know what the outside markets are. But we have not – we did not take the enthusiasm that was out in the market last year and add meaningful to our – meaningfully to our overhead, so I feel really good about where we sit.

Thank you. And operator, can you try to pull in the questioner that we have in queue?

Yes, sir. We’ll take question from Stanford Wyatt with August Partners.

Hi, guys. Good morning. Thanks for taking the question and nice job navigating the tough environment.

Thank you.

Yes, and I was going to ask along those same lines of the recurring or the operating income. But I guess, the question I have on the Capital Market segment, it looks like that was stronger than the first two quarters. And even if you back out the interest income that’s in that segment, I think Tom mentioned the fixed income that was good. But I guess any further color there on the capital markets kind of picking up from the first two quarters of the year.

Yes. There were some SPAC related income as phase went public. There was right way capital markets and some positive results in fixed income and just grinding it out. I would say that and Phil, if you want to speak a little bit more about this. I would say the quality of our operating EBITDA was good. But it was challenging and it’s challenging out there. So I would tell you that again, if anyone’s going to go after these small cap companies are providing services and I think be a beneficiary to us. We just – I’m sure Stanford, you say it, there’s just not a lot of activity.

Yes. No, that makes sense. And then I guess, looking at the Principal Investment segment, I know you got the acquisition done there. This quarter, it looks like the segment income was down a bit. I guess, was there any one-time kind of items in there just from completing the transaction?

Phil, do you want to speak to that?

Yes. Obviously, there was a big augmentation in terms of the G&A comparative to last year, we didn’t have what four of those operating Credo, Marconi, Wireless, Benchmark, Lingo, BullsEye those were not in. So we did have some transaction expenses and also just as it relates to whenever we do acquire some of these businesses, obviously there’s some lead time in terms of us getting the full ramp of the integration. So certainly, I don’t think in these first – in this first quarter, it’s not sort of representative of what we think the ultimate run rate is.

Okay, got you. Is there – can you quantify, I guess I think Bryant mentioned that that’s kind of a $70 million run right now for the Brand segment, so I guess that’s just a good number to use.

No, no, no. Brand business is…

Sorry, not brands, I’m sorry – yes, I’m sorry, for principal investments that you said $70 million there for principal investment.

$70 million for our telecom assets that’s UOL, magicJack, Credo, Lingo and BullsEye, Yep.

Okay. Got it. Okay. So that – yes, I mean that normalizes for the one-time expenses you had in the quarter here. And then lastly on wealth management that – I guess, with the loss there, kind of, where do you see that going here in the – I guess, in the next few quarters?

Up and better. We took – we made some I think bold decisions to get the right people in place and managers that we didn’t think aligned with our philosophy or weren’t – it didn’t make sense for us. We made some bold decisions there. So our assets are down, our brokers are down, but we are really excited about the quality of the wealth management group, the alignment they have with us, the value that they bring as we look through distribution and other opportunities to push through proprietary products that we think will be really exciting to those clients. So we made some decisions based on the environment and based on having that acquisition of National and for quite a while, and we’re really excited about the team.

Okay. Great. Sorry, last question. Just on the buyback, I guess any color on how you plan to implement that? Or is it just opportunistic going forward?

Yes. I mean, if I told you that we were going to do a certain price, you might buy it ahead of us. I mean, we’ll be opportunistic.

Yes. No, that makes sense. Great. Well, thanks for taking the questions and again, nice job navigating a tough environment.

Thank you and congratulations getting through the operating system.

Thank you.

Thanks, Bryant. We have a few more email questions. So can we kind of go through a little bit more of the capital markets activity and just kind of highlight where the stability is coming from, more of the positives? And then how’s FocalPoint doing? Maybe talk about the ATM business and maybe a step up from interest income?

Sure. For a long time our breakeven in revenues and our broker dealer has been in around $10 million a month. And so that has not changed meaningfully. And the way that we look at that, that consists of our ATM business, that consists of our Stock Loan business, and that consists of our regular wage commissions. And everything – and then the Plug is banking. And I think the fair thing to assume on the Plug and this, again, this is pre- FocalPoint, so I’ll get the FocalPoint, is in and around $5 million a month of banking revenue and we’re breakeven. And everything above that is 50% to 55% margin. So, if you look through our historical banking rates $300 million plus, that’s why we had such strong years. To not do $15 million of banking in a quarter, feels like that is very doable. I suppose it could happen for a quarter or two, but I think if it did happen, we would have a very, very strong period after that. Because usually when it's slow and it's slow for a while, it opens up and then it's really active. So we have maintained that discipline and we'll continue to maintain that discipline. FocalPoint, that acquisition from every perspective other than timing has been great. So, what do I mean by that? Obviously, anything related to capital markets, private equity, ability to raise money, interest rates, all of those things have been challenging. So they've had a more difficult period where they've lost a little bit of money. We clearly could you have bought the asset cheaper? I don't really know. I just know that we're really fired up for that group and they're fitting imperfectly. And when we come out of this, we will have a really robust M&A practice. And one good thing is we are getting super organized. All the groups are ready to go and we are seeing more activity than I would've expected that I would've thought when we made the acquisition, more pitches, more wins. We're just not seeing a lot of deals close. And I think that's there's a lot of really good reasons for that. So separate to what I said about that break even, that's FocalPoint. And then fixed income, we have two elements and I'll just call it our new build out and then some of the older fixed income assets, we have. The new build out slow. We've got 22 people, the grinding, again, tough market. Some of our other verticals and fixed income have been really profitable and overall, fixed income has been profitable. So that's what I would say, it feels very hard for us to lose a lot of money on the broker dealer. And there's the incremental margin is super meaningful. So I feel good about that. And then I don't remember the other part of your question.

Interest income, are we seeing a step up from that due to higher rates?

So interest income, interesting and I think something that I would point out too that I don't know that people recognize, we were pretty aggressive issuers of baby bonds. And as rates have gone up, those baby bond prices have come down. We have a – obviously, our commitment to anybody, baby bonds is we're going to pay all the interest and we're going to pay the principal. Now if the rate environment goes up and we're a beneficiary of that, I guess, that's positive for us. So if we were to buy all our baby bonds at market, they're 20% below where we issued almost $380 million. I would say, part of that might be some noise out in the markets. But there is a real part of it that's from rates going up and those being a little bit less valuable on a relative basis. So, maybe there's $180 million of embedded opportunity if we were to buy some our baby bonds in the open market. I just think that's an interesting fact and an interesting asset as it relates to, are we seeing – are we able to put our money, put a capital into higher rates? Yes, but that's slow. It takes a while. I mean, it's not like we have one month loan. So a loan today that we are doing would probably be 500 basis points more than a loan that we were doing last year.

Got it. And then the next one is regarding the loan receivable portfolio. Are there any metrics we can share in terms of maybe how many borrowers make up that portfolio? It seems like there's at least a pretty good vote of confidence that we took on another slog of that. So is there anything we can kind of detail to…

Well, I mean, Phil, I think we highlight what we expect our IRRs are in each Q, right. So it'll be in the Q and what was the last one, Phil?

Well, we highlight just our – I don't have that right here. We talk about sort of where our valuations are and the assumptions that we have on some of the private security.

No, no, he's talking about the back half receivable book.

I apologize. Let me pull that up and come back in here.

Mike, I think we came up front, I don't know. I think it was also the quarters in and around 28%, 29% unlevered IRRs in the first basket. Second basket, we levered. We did not – we guaranteed to be specific, we bought about $160 million. We put down $20 some million in equity. We guaranteed the lender $15 million of that $160 million. So we have $15 million plus our equity exposure and we would expect IRRs over 50%.

Excellent. Good stuff. And then just with respect to wealth management, are there any specific charges that went into this particular quarter or do you see any – potential for any negative consequences from brokers that might have left the firm? Is there any way to kind of handicap that?

I mean, look, I think operating EBITDA was a loss of $3 million in the middle of a nightmare market while cutting 180 brokers and integrating two broker dealers. That ain't that bad. I mean, that's not the worst. And we were making pretty good money in a better market. So now where we are is we are much more fully integrated. We are getting a benefit from our cash on cash dollars at the clearing firms where we get paid on our margin. Execution is slow, banking is slow, but we've got a really great base where 50% of our revenues are recurring. We had our chairman's council in Arizona this week with our top brokers. Everybody is, I think, really excited about being part of a smaller team with a lot more touch points from us and recognizing the markets are tough. But no, I think you are going to see steady improvement and profitability all of next year is what I would say.

Great. And then the last one I have is regarding the loan book x the receivables portfolio. Are there any metrics we can disclose on sort of either the concentration of industries or companies and how do we get more comfortable with?

Yes, I mean I would say that that piece is about $430 million. It's 13 or 14 loans. The average loan is $37 million. There's some that are bigger, some that are smaller. There's some that we never think about and there's some that we think about every other day. I mean, this is a chaotic environment and so, we have some businesses that have benefited from it and there's some that are grinding through it. So I would say, that's as much color as I would give you only because I'm not – I think that tells it all. This is a – it's an interesting environment, but I feel good about like we have outside valuators that come in and every quarter they look at those loans and I feel really good about the overall book. But every portfolio you have, whether it's a stock portfolio, debt portfolio has some really easy ones and some harder ones, and that's the environment we're in.

Excellent. That wraps up the questions, if you'd like to add some closing remarks.

Thanks Mike and again, apologize for the Q&A mix up. I would just say that it is fun to be in an environment like 2021 where you're just trying to keep up with the amount of deal flow and everybody's super active and it's exciting, but it's at these – times like this where our competitors don't have our diversified revenue stream and don't have our diversified EBITDA stream and we can invest in people, we can invest in deals. We have a lot of liquidity for companies out there that may need some capital for an acquisition or for whatever. And we have capital and capital is hard to have and we think that's going to create a lot of opportunities for us. So we appreciate everybody's interest. We look forward to talking to you next quarter and for all of our partners at B. Riley Financial, the subsidiaries, we thank you for all of your hard work and look forward to talking to everybody. Thank you, everyone.

Thank you. Before we conclude today's call, I will provide B. Riley Financial safe harbor statement, which includes important cautions regarding forward-looking statements made during this call. Statements made during this call about B. Riley Financials 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 and the company's filings with the Securities & Exchange Commission. Please refer to these filings for a more detailed discussion of forward-looking statements and the risks and uncertainties of such statements. All forward-looking statements are made as of today and except as required by law. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events, or otherwise. Thank you for joining us today for B. Riley Financial third quarter 2022 earnings conference call. You may now disconnect.