Good afternoon, and welcome to B. Riley Financial Second Quarter twenty twenty one Earnings Call. Earlier today, B. Riley issued a press release and presentation detailing its financial results for the second quarter. Copies are available in the Investors section of the company's website at ir.bryleyfin.com.
As a reminder, today's call is being recorded. An audio replay will also be available on the company's website later today. Joining us today from B. Riley are Brian Sreile, Chairman and Co Founder and Co CEO Tom Teleher, Co Founder and Co CEO and Philip Ahn, CFO and COO. After management's remarks, we will open the line for questions.
And before we conclude today's call, I will provide the necessary cautions regarding forward looking statements. I will now turn the call over to Mr. Bryant Riley. Mr. Riley, please proceed.
Thanks. Welcome, everyone. I'll start with a brief overview on the current state of our business and where we see opportunities ahead. Phil Ahn, our CFO and COO, will cover key financial metrics and then our Co CEO, Tom Kelleher, will share more detail about our individual business units. For the second quarter, we reported total revenues of $336,800,000 and total adjusted EBITDA of $124,900,000 Our solid performance demonstrated continued strength from across our businesses with operating revenues and operating EBITDA doubling on a year over year basis.
Over the last few years, we have worked to establish a steady base of recurring revenue businesses with enhancements to our consulting and appraisal, wealth management, brands and principal investment businesses. Together, these steady state businesses generated revenues in excess of $135,000,000 during the quarter and continue to provide steady EBITDA and cash flow for our overall platform. Enhancing the results from our steady businesses is the earnings upside created by investment banking, which has benefited from momentum in capital markets and our liquidation business, which continues to be profitable in spite of the slowdown in retail bankruptcy filings. At the same time, we continue to leverage our platform to source opportunistic investments that are extremely proprietary to B. Riley.
This strategy has delivered value not only to us, but to our partners and shareholders and we are seeing more and more of these types of opportunities than we ever have. As we continue to invest in further enhancing our platform, we are always on the lookout for complementary businesses that can expand our reach and market share. A recent example of this is our acquisition of National Holdings, which we will continue to integrate into our business. We're extremely pleased with this team of talented professionals and similarly, our new colleagues are appreciating the breadth of product that our platform offers. In expanding our platform both through key hires and acquisitions, we've also created increased synergies and cross selling opportunities.
Importantly, our diversified business model continues to deliver for us and our stakeholders and we believe there will be more opportunities for us to capitalize in the near future. We are often asked if there are any gaps in our business and asset management and the build out of fixed income continues to be a key focus for us as a natural complement to our existing businesses. We will continue to take advantage of market opportunities in our core segments while seeking to establish additional recurring revenue streams that are both non correlated and countercyclical. Taken together, our platform strategy has allowed us to build a solid balance sheet and lower our cost of capital while enabling us to return $8.5 in common stock dividends to shareholders over the last three quarters. As always, our number one focus is performing for our employees, clients, partners and our shareholders.
And as we look ahead, we continue to see multiple pathways to grow shareholder value. With that, I'll turn the call over to Phil on to discuss some financial metrics from the quarter. Phil?
Thanks, Bryant. On a consolidated basis, B. Riley reported total revenues of $336,800,000 for the second quarter, which represents a year over year increase of 26% compared to $266,500,000 for the prior year period. Net income available to common shareholders was $73,900,000 or $2.58 per diluted share. This compares to $82,800,000 or $3.07 per diluted share in the prior year period.
Our second quarter results included operating revenues of $304,100,000 which was up 100% year over year and operating adjusted EBITDA of 92,100,000.0 which was up 97% year over year. Our strong operating results were further enhanced by our second quarter investment gains of $32,700,000 which relate to both realized and unrealized gains in our investments. In terms of our reportable segments, Capital Markets is our largest segment and includes our investments and operating results from investment banking, institutional brokerage and our fund management businesses. Excluding our investment gains, operating revenues for our Capital Markets segment increased to $151,500,000 for the quarter, up 78% year over year. Segment operating income was $74,700,000 up 153% year over year.
Our Wealth Management segment revenues increased to $90,300,000 compared to $15,800,000 in the prior year period. The majority of this increase was due to the addition of National Holdings for the full quarter, which we acquired in February of this year. Auction liquidation revenues increased to $17,300,000 up 109% year over year and segment income was $3,600,000 Financial consulting revenues increased to $23,700,000 up 26% year over year and segment income was $4,200,000 Our principal investments companies, MagicJack and United Online, contributed revenues of $19,600,000 and segment income of 7,300,000.0 And lastly, our Brand segment generated revenues of $4,400,000 and segment income of $3,000,000 related to the licensing of Brand trademarks. As a reminder, adjusted EBITDA in our metrics for operating and investment results are non GAAP financial measures. For a definition of these terms and for reconciliation to the nearest GAAP measures, please refer to our earnings release.
Additional details related to our operating metrics can also be found in the financial supplement to be located on our Investor Relations website. Now turning to our highlights from our balance sheet. At June 30, B. Riley Financial had $297,000,000 in unrestricted cash and cash equivalents, approximately $1,000,000,000 in net securities and other investments owned and $266,000,000 of loans receivable net of loans participation sold. At quarter end, we had total cash and investments balance of approximately $2,000,000,000 which includes approximately $53,000,000 of other equity investments included in our prepaid and other assets.
Net of debt, b Riley Financial's cash and investments totaled approximately 568,000,000 at June 30. In terms of other recent developments, in June, we closed a $280,000,000 senior credit facility comprised of a four year two hundred million dollar term loan and an $80,000,000 revolver. And earlier this week, we completed the full redemption of our seven and a quarter percent senior notes due 02/1927 for approximately $125,000,000 including accrued interest. These activities are consistent with our goal to lower our cost of capital while augmenting our capital base as we continue to pursue multiple opportunities and seek to grow shareholder value. To that end, we declared a total quarterly dividend of $2 per common share.
This includes our regular 50¢ quarterly dividend and a special dividend of $1.50. The quarterly dividend will be paid on or about August 26 to stockholders of record as of August 13. That completes my financial summary. Now I'll turn the call over to our Co CEO, Tom Kelleher, to share a few quarterly highlights from our individual operating units. Tom?
Thanks, Phil. I'd like to start by recognizing the ongoing efforts and dedication of our people. Our continued success is due to the exceptional team of professionals across all of our operating groups. In terms of highlights from our individual businesses, our strong quarter was driven by several significant investment banking transactions, including what we call platform deals or those that involve multiple parts of our business. As Brian noted, capital markets momentum contributed to the quarter with particular strength in our ATM and SPAC businesses.
We continue to see an expansion in the number and type of companies that select B. Riley for their capital raising needs, be it with our ATM group or in a more traditional form.
And while the SPAC market saw a pullback during Q2, our SPAC business continues to be robust with several of our issuers actively pursuing targets as well as multiple new mandates in the pipeline. A few noteworthy transactions completed during the quarter include a three ten million dollars common stock debt and preferred solution for Synchronoss Technologies, a $300,000,000 follow on equity offering for TELUS Corporation, leading AMC Entertainment's five hundred and eighty seven million dollar at the market offering in June, '2 separate private placements totaling a hundred and 5,000,000 for Stronghold Digital Mining whose s one was publicly filed earlier this week, and a $100,000,000 preferred stock offering for Babcock and Wilcox. In other parts of our institutional broker dealer division, securities lending saw strong performance during Q2 with a focus in transportation, software, technology, special pharma, and therapeutic sectors. Our SPAC trading desk also continues to be active with a high level of new issuers coming to market. In equity research, we added three publishing analysts in q two, proactively entering new verticals in gaming and cryptocurrency and expanding our health care team.
We remain committed to our research roots and continue to invest in resources to help our clients and partners best capitalize on proprietary small and mid cap investment opportunities. To that end, next month, we will be hosting an investor conference in Santa Monica to connect our research company management teams with many of the country's best institutional managers. This event marks our return to in person corporate access, albeit in a much smaller format and in compliance with CDC guidelines. Turning to Wealth Management, Q2 was the first full quarter since our acquisition of National Holdings. As Bryant noted, we continue to be extremely pleased with the quality of this team and its professionals.
At the same time, revenue generation from our legacy wealth business also continues to be strong. On a combined basis, our wealth management affiliates oversee approximately 32,000,000,000 in client assets. As we continue to work towards fully integrating our wealth management affiliates and enhancing our client service offerings, recruiting remains a key focus. Earlier this week, we announced the opening of a new branch location in Virginia with a new group of advisers joining the firm. This new branch stands to enhance our long standing presence and relationships in Virginia and the greater Mid Atlantic region.
With our platform's continued growth, B. Riley has become a leading choice for top adviser teams looking for differentiated solutions to best serve their clients' needs. Turning to financial consulting, revenue growth and momentum in our advisory services division continued in q two. We've had success adding new service lines to our broader advisory business with the most recent additions being our risk and operations management group. Our compliance risk and resilience team was formed in January and has already contributed meaningfully despite being with the firm for a very short time.
This has been a synergistic addition to all of our service lines as cyber risk management, business continuity, and IT disaster recovery remain in high demand for customers across our enterprise. Overall, our advisory business continues to perform steadily while also serving as a leading source of internal referrals to other parts of our platform. And we are continuing to seek new hires and complementary businesses that can enhance our reach and lines of service. In retail liquidation, activity remains slow compared to our previous record levels. Several of our recent engagements have been primarily focused on existing client relationships.
As the fundamental shift in traditional retailing continues to accelerate, we believe we are well positioned as purging of excess inventory and store lease rationalization will continue to be in the focus for retailers in the years ahead. In our real estate division, during the second quarter, we completed the sale of a retail property in Northern Chicago and the sale of Remington's eight hundred thousand square foot manufacturing campus in Huntsville, Alabama, while continuing to work other ongoing projects. Finally, turning to principal investments in our brand segments. MagicJack and United Online continued to perform above expectations, serving as an important contributor of recurring cash flows to our platform. We expect to obtain the necessary regulatory approvals to complete the second tranche of our investment in Lingo in the coming months.
The addition of Lingo should meaningfully enhance results in our United Online and MagicJack segment in future quarters. In our brand investments business, volume across all brands has been strong following a period of pent up demand created by the pandemic. The Hurley brand has been performing as the number one top spot in specialty servicing for eighteen weeks in a row. And Carissa Moore, one of Hurley's sponsored athletes, just won the first ever Olympic gold in women's surfing for team USA at the twenty twenty Tokyo Olympics. Earlier this month, Walmart announced the addition of the Justice brand collection 2,400 of its stores nationwide and to walmart.com for back to school shopping.
With these exciting development, we are optimistic we will see continued growth in our branch business for the remainder of 2021. Finally, our principal investment team is managing several other minority investments as we continue to seek additional opportunities to enhance our recurring cash flow and maximize the return on our capital. In summary, and in echoing Brian's comments at the top of the call, we continue to be confident and excited about our business. The success, momentum and growing recognition of the platform has been very gratifying. However, we know there is always more to be done.
With that, we'll now open the line for questions and then turn the call back over to Brian for closing remarks.
Thank you. We will now begin the question and answer session. If you wish to ask a question, you may press star and one on your touch tone telephone to join the question queue. You will hear a tone acknowledging your request. If you are using a speakerphone, please lift the handset before pressing any keys.
To remove yourself from the question queue, you may press and 2. The first question comes from Sean Hagen with Charles Lane Capital. Please go ahead.
Congrats on another great quarter.
Thanks, Sean.
Real quick on the wealth management operating income. Were there any onetime items in the quarter, that we should be aware of?
Phil, you wanna answer that?
Yeah. The only thing was, sort of extraneous, although this is below the line. We did there was a forgiveness of a of a PPP loan that they took out, but that's certainly below the line. So nothing extraordinary outside of that.
And that's all I got. So, again, congrats, talk to you next quarter.
Great. Thank you for your support.
The next question comes from Brian Rothman with Boston Partners. Please go ahead.
Good afternoon. Thank you for taking my question or questions. First question I had was following up on the previous person's query on the wealth management business. First of all, might I'm just looking at the release. Year over year, it goes from 15,000,000 to 87,000,000.
Almost all of that is, the acquisition?
Yeah. The vast majority is the acquisition.
Okay. And then I had the same general question, which was it shows up that that business, Wealth Management, lost almost $4,000,000 in operating income. What what sort of operating margin do you think it normally should operate at?
Phil, you wanna you wanna start and provide a little bit more clarity on that on the operating income with the with those two divisions together.
Yeah. Sure. The, obviously, we're we're still going through some integration with, with National. I think, in general, you know, when we acquired Wonder, like, it did take, several quarters to, you know, to get the operational performance in and around where we wanted it to be. Okay.
If yeah. So I would you know, there is there there is some time that's gonna take place, but I think, well, I'll let I'll let Brian sort of speak to the integration.
Yeah.
But
Yeah. So I would say, why don't we look at the business as now if you look at the the b r I wealth business, which was chugging along at, you know, roughly $7,075,000,000 dollars, that business has got itself up to, like, 15% EBITDA margins. Okay. National's gonna be lower. It's because they've got an independent aspect to them, so they're a little bit lower margins.
But that 202 hundred and $40,000,000, should be, like, 10% EBITDA margins, and then we should be able to get another $10,000,000 So you can just do the math there. Now that's probably a year out, but but those are the kind of numbers we expect once we're fully integrated. And we're starting to see a lot of, you know, a lot of progress towards that, and we're also seeing a lot of other benefits. So we are, you know, we are seeing the national and the B Riley Wealth Management, retail team committing more and more, capital to our deals and providing us, you know, more bullets when we go out and do bot deals and things like that.
So we're really happy with the with that, investment and that integration so far.
Okay. So it's it's what you're saying is that the benefits of the deal will become more apparent down the road.
Is that correct? Yeah. There's some there's some onetime things in there. And, yeah, I think you will see the benefits of the deal. Every quarter, you will see incremental benefits, to the bottom line, but also just to the business.
I mean, I can't I can't overstate how, important it is to be able to have, you know, increasing, distribution, particularly in our equity and debt deals. That's a that's a really, big advantage for us when when we are backstopping deals and know that, you know, wealth management, group is there for, you know, chunk of that as well as obviously our institutional distribution. But you will see the the quantitative benefit every quarter, going forward.
Next question. You can't be an investment bank, public investment bank and report earnings without talking about your backlog. And some of your brethren have talked about a little bit of a slowdown in investment banking, particularly capital raising, particularly in the SPAC space. Can comment on your experience?
Yes. I mean, we raised two SPACs last quarter. We've already raised one this quarter. I think we'll do two or three this quarter. You know?
But in terms of SPACs that we've underwritten that are out either have signed deals or looking for deals, that's obviously at an all time high, and so there's a lot of backlog there as, you know, we we have not recognized, you know, when when a deal has been announced but not closed. We recognize the the remaining fee when that closes. So there's there's some backlog there. In terms of general capital markets, there's we have not seen any slowdown. Our backlog is stronger than it's ever been, probably stronger.
Now, you know, it's it's capital markets. So those windows open and close, and they've been open for a long time. But but barring anything there, I would say that, you know, you'll you'll see in our deck, obviously, there's there's meaningful market share gains. But we're really busy, and I think we'll, we'll continue to be busy, and we'll continue to print a lot of deals as long as the markets, you know, continue to be fine.
Alright. That's great. Thank you for taking my questions.
Thank you. Appreciate it.
The next question comes from Paul Dwyer with Punch and Associates. Please go ahead.
Hey, guys. Good afternoon, and thanks for the time today.
Hey, Paul.
Hey. Maybe to start your comment about the steady state business being about $135,000,000 this quarter. Could you just elaborate on kind of how you think about the steady state businesses growth overall and kinda overall level of profitability that that provides the firm?
Sure. So I would you know, I think we're around a hundred and 25,000,000 annualized EBITDA run rate on that steady business. Some is growing. So, you know, you've got you've got the old the the advisory business, which we always called the old GlassRatner. You'll remember when we acquired them and and appraisal.
Some is declining, which is, you know, we still own United Online. United Gas, you know, somewhat flat. And then some is promoting, you know, more than we anticipated, which is the brand side of the business. We commented on on Hurley and Justice, but also the other six brands. Those things have bounced back meaningfully.
So you put all that together, I I, you know, I think you have to think of that as steady EBITDA and steady revenues, on assets we acquired at really good multiples. You know, we'll we'll add Wingo, which will provide another ish million, a year in EBITDA to to us on 80% of that business when that gets approved. That's not in our numbers currently. So so, you know, the way we think about that is that pays, you know, a lot of our a lot of our interest, pays a lot of our overhead, and allows us to, you know, have these these other episodic. And, you know, we always say the broker dealer is episodic.
Obviously, it's not nearly as episodic as the liquidation business. It's, you know, it's, but that's how we think about it. And so, so we're really happy with that side of the business. We'll continue to try and find interesting opportunities that are you know, they're not bake offs or proprietary to us, and we usually move really quickly. We have the infrastructure in place to to run those those businesses.
And I think it's just a great way to manage, you know, the more cyclical sides of our business to have that steady cash flow.
Yeah. Absolutely. And just what what does the pipeline look like in terms of non auction deals that the principal investments team can be looking at today and and what kind of size of deals are in the pipeline?
We have, I would say, four or five deals that are kinda actively being discussed, and they're all in the 25 to $75,000,000 kinda level. You know, those, particularly, they kind of fit within what we're doing, whether it's in the telecom side or those are, you know, those are types of acquisitions that you just don't have a lot of competition, especially if they're flat businesses. And so, you know, our our EBITDA multiple requirements and buy hours and the studies that are low, you know, three to five. We wanna, you know, ultimately, you know, those are three to five times. And it's yeah.
I think the the the larger you get, the more active you get, the more you see those deals become the go to, you know, group with with those kind of deals. So we're seeing we're seeing a fair amount. Nothing gigantic, though, I would say. You know, Justice was a meaningful purchase for us. Lingo was a, you know, decent sized purchase.
Hurley was, you know, meaningful last year, but but nothing, you know, super large.
Okay. Okay. Great. One follow-up question on the capital markets side. Can you just spend a little time reminding me on kind of the fixed versus variable cost structure of that business and then kind of how you think about protecting on the downside in case capital markets do slow down a bit?
Although it doesn't sound like you're seeing that yet.
Yeah. So our breakeven has been the same for the last two years. So you could say that's good or bad. Like, what you know, why aren't we growing more? Why aren't we adding more overhead to to the capital market side?
And and I would say to you that we had we've been doing this for, you know, twenty five years. Many of the people that manage our businesses here have been you know, some of them, obviously, have been here fifteen plus years, and we are positioned right. And so we added three analysts last quarter. I think we mentioned that. But we are a you know, maybe this is because we started as a private company with a little amount of capital.
We confirm, you know, with a lower fixed overhead and a higher variable. And so, you know, when times are good, you can look at that and say, boy, wish you paid salaries and bonuses because you probably get a little bit more math margin. When times are tougher, you're happy about that. But we look. We love the fact that vast majority of our bankers and our salespeople are making more money than they ever did.
They deserve it. They are the, you know, the engine that drives all of this, and, you know, that variable model is the way we've always lived. And so we will stick with that. But at the same time, you know, I it blows me away that we are doing, you know, $60,000,000 ish kinda quarters with the same people that we've had here for a long time and and adding other valuable people. But I I just think it's, it's a real testament to the quality of the people we've had here.
Yeah. Okay. Perfect. Last question is then on the balance sheet side. What else are you thinking about over the next two or three years here in terms of opportunities to lower your cost of capital?
Well, you know, that's that's a tricky question because, you know, we have done the baby bar bond market way. Right? And we we just love we we just love that that product for us. It's, you know, there's it's it's unsecured. We obviously just, added a a $280,000,000 facility with Nomura at a, you know, at a at a rate in the fours.
You know, most recent baby bonds were 5 and a quarter. You know, I don't I my guess is that, you know, as we continue to get into the fives with, you know, baby bond issuances and take out some of the sevens, I feel really good about that cost of capital. Now I understand. We're not a bank. You know, we don't have, some of the we don't have some some of the same benefits that that others have.
We don't have deposits. But, you know, the the the NIM that we get when we money out to public companies, and you've probably seen some of those transactions, you know, you're talking about 800% with fees. So would we like it lower and lower and lower? Yes. But we feel real we're really excited about getting it into the low five, and we'll continue to just kinda be as aggressive as we can to get the lowest rate we can get.
Yeah. Okay. Well, that's it for me. You know, nice nice quarter again, and, appreciate all the hard work.
Thank you. Thanks for your continued support.
This concludes our question and answer session. I'd now like to turn the call back over to mister Riley for his closing remarks.
Well, thank you, everyone, and and thanks for for joining us. And I know there's a lot of people from the firm on this call, and I said it, you know, in the commentary, but all of this is a testimony to the people that are here and the team that we've built and super thankful and appreciative and excited to continue this growth and, you know, and report back next quarter. So thank you, and look forward to talking in in ninety days.
You. Before we conclude you. Before we conclude today's call, I will provide B. Riley Financial's safe harbor statement, which includes important cautions regarding forward looking statements made during this call. Statements made during this call about B.
Riley Financial's future expectations, plans and prospects and any other statements regarding matters that are not historical facts may constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors should be aware that any forward looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors include the unpredictable and ongoing impact of the COVID-nineteen pandemic as well as the other risk factors explained in detail in the company's filings within 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. Thank you for joining us today for B. Riley Financial's second quarter twenty twenty one earnings conference call. You may now disconnect.