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, valuation and 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 acquired a majority ownership interest in BR Brand Holding,
LLC (“BR Brand” or “Brands”) on October 28, 2019, which provides licensing of trademarks.
The
Company operates in five operating segments: (i) Capital Markets, through which the Company provides investment banking, corporate
finance, securities lending, restructuring, consulting, research, sales and trading and wealth management services to corporate,
institutional and high net worth clients; (ii) 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; (iii) Valuation and Appraisal, through which the Company provides
valuation and appraisal services to clients with independent appraisals in connection with asset based loans, acquisitions, divestitures
and other business needs; (iv) Principal Investments - United Online and magicJack, through which the Company provides consumer
Internet access and related subscription services from United Online and cloud communication services primarily through the magicJack
devices; and (v) Brands, which is focused on generating revenue through the licensing of trademarks.
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. 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, 2019, filed with the SEC on March 10, 2020. The results
of operations for the nine months ended September 30, 2020 are not necessarily indicative of the operating results to be expected
for the full fiscal year or any future periods.
(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 and loan receivables, allowance for doubtful accounts, the fair value of intangible assets and
goodwill, the fair value of mandatorily redeemable noncontrolling interests, fair value of share based arrangements, 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.
On
January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain
of coronavirus (the “COVID-19 outbreak”). In March 2020, the WHO classified the COVID-19 outbreak as a
pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve. The
impact of the COVID-19 outbreak on the Company’s results of operations, financial position and cash flows will depend on
future developments, including the duration and spread of the outbreak and related advisories and restrictions. These
developments and the impact of the COVID-19 outbreak on the financial markets and the overall economy are highly uncertain and
cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s
results of operations, financial position and cash flows may be materially adversely affected.
(c)
Interest Expense — Securities Lending Activities and Loan Participations Sold
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 $10,530 and $9,721 for the three months ended September 30, 2020 and 2019, respectively, and $29,253 and $22,027
for the nine months ended September 30, 2020 and 2019, respectively. Loan participations sold as of September 30, 2020 and 2019
totaled $13,919 and $28,872, respectively. Interest expense from loan participations sold totaled $445 for the three months ended
September 30, 2020, and $1,416 for the nine months ended September 30, 2020. Interest expense from loan participations sold totaled
$552 for the three and nine months ended September 30, 2019.
(d)
Concentration of Risk
Revenues
in the Capital Markets, Valuation and Appraisal and Principal Investments — United Online and magicJack segments are currently
primarily generated in the United States. Revenues in the Auction and Liquidation segment are primarily generated in the United
States, Australia, Canada and Europe. Revenues in the Brands segment are primarily generated in the United States and Canada.
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
$560 and $437 for the three months ended September 30, 2020 and 2019, respectively, and $2,264 and $1,383 for the nine months
ended September 30, 2020 and 2019, respectively. Advertising expense is included as a component of selling, general and administrative
expenses in the accompanying condensed consolidated statements of income.
(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 income over the requisite service or performance period the award is expected to vest.
(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 September 30, 2020, restricted cash included $939 of cash collateral for foreign exchange contracts and $471 of collateral
related to one of the Company’s telecommunication suppliers. As of December 31, 2019, restricted cash included $471 of collateral
related to one of the Company’s telecommunication suppliers.
(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 “Topic 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 and amortization are 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 and amortization expense on property and equipment was $967
and $1,163 for the three months ended September 30, 2020 and 2019, respectively, and $2,798 and $4,186 for the nine months ended
September 30, 2020 and 2019, respectively.
(l)
Loans Receivable
The
Company adopted the new credit loss standard effective January 1, 2020. Pursuant to ASU 2016-13 and its amendment ASU 2019-05,
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 receivable 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 condensed consolidated statements of
income. 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. The impact of adopting ASC 326 was immaterial to the condensed consolidated financial
statements.
Loans
receivable, at fair value totaled $344,339 and $43,338 at September 30, 2020 and December 31, 2019, respectively. The loans have
various maturities through December 2024. As of September 30, 2020 and December 31, 2019, the historical cost of loans receivable
accounted for under the fair value option was $355,413 and $32,578, respectively, which included principal balances of $360,500
and $32,691 and unamortized costs, origination fees, premiums and discounts, totaling $5,087 and $113, respectively. During the
three and nine months ended September 30, 2020, the Company recorded unrealized gains (losses) of $141 and ($21,835), respectively on the
loans receivable, at fair value, which is included in trading income (losses) and fair value adjustments on loans on the condensed
consolidated statement of income.
Prior
to the adoption of the new credit loss standard effective January 1, 2020, at December 31, 2019 loans receivable, at historical
cost totaled $225,848. Loans receivable, at cost are reported at their outstanding principal balances of $232,118 net of $6,270
of unearned income, and loan origination costs which includes unamortized deferred fees and costs on originated loans, and for
purchased loans, net of any unamortized premiums or discounts.
The
Company may periodically provide limited guarantees to third parties for loans that are made to investment banking and lending
customers. At September 30, 2020, the Company has provided limited guarantees with respect to the Franchise Group, Inc.
(collectively with all of its affiliates, “FRG”) as further described in Note 17 and Babcock & Wilcox Enterprises,
Inc. (“B&W”) as further described in Note 14(c). 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. At September 30, 2020, the Company has not recorded any provision for credit losses on the FRG and B&W guarantees
since the underlying guaranteed loans are senior to most of the outstanding debt of FRG and B&W and the Company believes that
there is sufficient collateral to protect the Company from any credit loss exposure. The maximum amount of credit exposure
related to these limited guarantees is approximately $205,000.
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 statement of income. 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.
(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 September 30, 2020 and December 31, 2019, the Company’s securities and other investments owned and securities sold not
yet purchased at fair value consisted of the following securities:
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Securities
and other investments owned:
|
|
|
|
|
|
|
|
Equity
securities
|
|
$
|
392,674
|
|
|
$
|
353,162
|
|
|
Corporate
bonds
|
|
|
5,956
|
|
|
|
19,020
|
|
|
Other
fixed income securities
|
|
|
3,557
|
|
|
|
8,414
|
|
|
Partnership
interests and other
|
|
|
57,293
|
|
|
|
27,617
|
|
|
|
|
$
|
459,480
|
|
|
$
|
408,213
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
sold not yet purchased:
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
$
|
42,086
|
|
|
$
|
5,360
|
|
|
Corporate
bonds
|
|
|
4,490
|
|
|
|
33,436
|
|
|
Other
fixed income securities
|
|
|
1,549
|
|
|
|
3,024
|
|
|
|
|
$
|
48,125
|
|
|
$
|
41,820
|
|
(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 falls 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 are 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 “Topic 820: Fair Value Measurements.”
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 September 30, 2020 and December 31, 2019.
|
|
|
Financial
Assets and Liabilities Measured at Fair Value
on a Recurring Basis at September 30, 2020 Using
|
|
|
|
|
Fair
value at
September 30,
|
|
|
Quoted
prices in active markets for identical assets
|
|
|
Other
observable inputs
|
|
|
Significant
unobservable inputs
|
|
|
|
|
2020
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
and other investments owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
$
|
392,674
|
|
|
$
|
290,425
|
|
|
$
|
—
|
|
|
$
|
102,249
|
|
|
Corporate
bonds
|
|
|
5,956
|
|
|
|
—
|
|
|
|
5,956
|
|
|
|
—
|
|
|
Other
fixed income securities
|
|
|
3,557
|
|
|
|
—
|
|
|
|
3,557
|
|
|
|
—
|
|
|
Investment
funds valued at net asset value(1)
|
|
|
57,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
securities and other investments owned
|
|
|
459,480
|
|
|
|
290,425
|
|
|
|
9,513
|
|
|
|
102,249
|
|
|
Loans
receivable, at fair value
|
|
|
344,339
|
|
|
|
—
|
|
|
|
—
|
|
|
|
344,339
|
|
|
Total
assets measured at fair value
|
|
$
|
803,819
|
|
|
$
|
290,425
|
|
|
$
|
9,513
|
|
|
$
|
446,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
sold not yet purchased:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
$
|
42,086
|
|
|
$
|
42,086
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Corporate
bonds
|
|
|
4,490
|
|
|
|
—
|
|
|
|
4,490
|
|
|
|
—
|
|
|
Other
fixed income securities
|
|
|
1,549
|
|
|
|
—
|
|
|
|
1,549
|
|
|
|
—
|
|
|
Total
securities sold not yet purchased
|
|
|
48,125
|
|
|
|
42,086
|
|
|
|
6,039
|
|
|
|
—
|
|
|
Mandatorily
redeemable noncontrolling interests issued after November 5, 2003
|
|
|
4,462
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,462
|
|
|
Total
liabilities measured at fair value
|
|
$
|
52,587
|
|
|
$
|
42,086
|
|
|
$
|
6,039
|
|
|
$
|
4,462
|
|
|
|
|
Financial
Assets and Liabilities Measured at Fair Value
|
|
|
|
|
on
a Recurring Basis at December 31, 2019 Using
|
|
|
|
|
Fair
value at
December 31,
2019
|
|
|
Quoted
prices in active markets for identical assets
(Level 1)
|
|
|
Other
observable inputs
(Level 2)
|
|
|
Significant
unobservable inputs
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
and other investments owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
$
|
353,162
|
|
|
$
|
243,911
|
|
|
$
|
—
|
|
|
$
|
109,251
|
|
|
Corporate
bonds
|
|
|
19,020
|
|
|
|
—
|
|
|
|
19,020
|
|
|
|
—
|
|
|
Other
fixed income securities
|
|
|
8,414
|
|
|
|
—
|
|
|
|
8,414
|
|
|
|
—
|
|
|
Investment
funds valued at net asset value(1)
|
|
|
27,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
securities and other investments owned
|
|
|
408,213
|
|
|
|
243,911
|
|
|
|
27,434
|
|
|
|
109,251
|
|
|
Loans
receivable, at fair value
|
|
|
43,338
|
|
|
|
—
|
|
|
|
—
|
|
|
|
43,338
|
|
|
Total
assets measured at fair value
|
|
$
|
451,551
|
|
|
$
|
243,911
|
|
|
$
|
27,434
|
|
|
$
|
152,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
sold not yet purchased:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
$
|
5,360
|
|
|
$
|
5,360
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Corporate
bonds
|
|
|
33,436
|
|
|
|
—
|
|
|
|
33,436
|
|
|
|
—
|
|
|
Other
fixed income securities
|
|
|
3,024
|
|
|
|
—
|
|
|
|
3,024
|
|
|
|
—
|
|
|
Total
securities sold not yet purchased
|
|
|
41,820
|
|
|
|
5,360
|
|
|
|
36,460
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mandatorily
redeemable noncontrolling interests issued after November 5, 2003
|
|
|
4,616
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,616
|
|
|
Total
liabilities measured at fair value
|
|
$
|
46,436
|
|
|
$
|
5,360
|
|
|
$
|
36,460
|
|
|
$
|
4,616
|
|
|
|
(1)
|
Certain
investments that are measured at fair value using the net asset value per share (or its
equivalent) practical expedient have not been classified in the fair value hierarchy
in accordance with ASC “Topic 820 Fair Value Measurements.” The fair value
amounts presented in the tables above for investment funds valued at net asset value
are intended to permit reconciliation of the fair value hierarchy to the amounts presented
in the condensed consolidated balance sheets.
|
As
of September 30, 2020 and December 31, 2019, financial assets measured and reported at fair value on a recurring basis and classified
within Level 3 were $446,588 and $152,589, respectively, or 19.4% and 6.6%, respectively, of the Company’s total assets.
In determining the fair value for these Level 3 financial assets, the Company analyzes various financial, performance and market
factors to estimate the value, including where applicable, over-the-counter market trading activity.
The
following table summarizes the significant unobservable inputs in the fair value measurement of level 3 financial assets and liabilities
by category of investment and valuation technique as of September 30, 2020:
|
|
|
Fair
value at
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
2020
|
|
|
Valuation
Technique
|
|
Unobservable
Input
|
|
Range
|
|
Average
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
$
|
102,249
|
|
|
Market approach
|
|
Multiple of revenue
|
|
2.49x - 6.29x
|
|
4.92x
|
|
|
|
|
|
|
|
|
|
Multiple of EBITDA
|
|
5.50x - 10.00x
|
|
5.70x
|
|
|
|
|
|
|
|
|
|
Multiple of PV-10
|
|
.28x
|
|
.28x
|
|
|
|
|
|
|
|
|
|
Market price of related security
|
|
$0.43 - $4.00/share
|
|
$1.39
|
|
|
|
|
|
|
|
Option pricing model
|
|
Annualized volatility
|
|
107.0%
|
|
107.0%
|
|
Loans
receivable at fair value
|
|
|
344,339
|
|
|
Discounted cash flow
|
|
Market interest rate
|
|
4.9%-17.3%
|
|
15%
|
|
|
|
|
|
|
|
Market approach
|
|
Market price of related security
|
|
$0.43/share
|
|
$0.43
|
|
Total
level 3 assets measured at fair value
|
|
$
|
446,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mandatorily
redeemable noncontrolling interests issued after November 5, 2003
|
|
$
|
4,462
|
|
|
Market approach
|
|
Operating income multiple
|
|
6.0x
|
|
6.0x
|
The
changes in Level 3 fair value hierarchy during the nine months ended September 30, 2020 and 2019 are as follows:
|
|
|
Level
3
|
|
|
Level
3 Changes During the Period
|
|
|
Level
3
|
|
|
|
|
Balance
at
|
|
|
Fair
|
|
|
Relating
to
|
|
|
Purchases,
|
|
|
Transfer
in
|
|
|
Balance
at
|
|
|
|
|
Beginning of
|
|
|
Value
|
|
|
Undistributed
|
|
|
Sales
and
|
|
|
and/or
out
|
|
|
End
of
|
|
|
|
|
Year
|
|
|
Adjustments
|
|
|
Earnings
|
|
|
Settlements
|
|
|
of
Level 3
|
|
|
Period
|
|
|
Nine
Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
$
|
109,251
|
|
|
$
|
(11,314
|
)
|
|
$
|
—
|
|
|
$
|
4,984
|
|
|
$
|
(672
|
)
|
|
$
|
102,249
|
|
|
Loans
receivable at fair value
|
|
|
43,338
|
|
|
|
(21,834
|
)
|
|
|
3,134
|
|
|
|
93,853
|
|
|
|
225,848
|
|
|
|
344,339
|
|
|
Mandatorily
redeemable noncontrolling interests issued after November 5, 2003
|
|
|
4,616
|
|
|
|
—
|
|
|
|
(154
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
4,462
|
|
|
Nine
Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
$
|
24,577
|
|
|
$
|
715
|
|
|
$
|
1,424
|
|
|
$
|
24,215
|
|
|
$
|
—
|
|
|
$
|
50,931
|
|
|
Loans
receivable at fair value
|
|
|
33,731
|
|
|
|
11,648
|
|
|
|
1,621
|
|
|
|
(11,489
|
)
|
|
|
—
|
|
|
|
35,511
|
|
|
Mandatorily
redeemable noncontrolling interests issued after November 5, 2003
|
|
|
4,633
|
|
|
|
—
|
|
|
|
(238
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
4,395
|
|
The
Company adopted ASU 2016-13 and its amendment ASU 2019-05 effective January 1, 2020. Pursuant to ASU 2016-13 and its amendment
ASU 2019-05, the Company elected the irrevocable fair value option for all outstanding loans receivable that were measured at
amortized cost as of December 31, 2019. The loans receivable, at fair value are included in transfers into level 3 fair value
assets in the above table.
The
amount reported in the table above for the nine months ended September 30, 2020 and 2019 includes the amount of undistributed
earnings attributable to the noncontrolling interests that is distributed on a quarterly basis. The carrying amounts reported
in the condensed consolidated financial statements for cash and cash equivalents, restricted cash, accounts receivable, accounts
payable and accrued expenses and other liabilities approximate fair value based on the short-term maturity of these instruments.
As
of September 30, 2020, the senior notes payable had a carrying amount of $854,926 and fair value of $845,227. The carrying amount
of the term loan approximates fair value because the effective yield of such instrument is consistent with current market rates
of interest for instruments of comparable credit risk.
During
the nine months ended September 30, 2020 and 2019, except for the impact of the intangible impairment charge as described in Note
7- Goodwill and Other Intangible Assets, there were no assets or liabilities measured at fair value on a non-recurring basis.
The fair value of the indefinite-lived intangible assets was determined based on a discounted cash flow model using a rate of
13.8%. The indefinite-lived intangible assets are level 3 assets in the fair value hierarchy.
(o)
Derivative and Foreign Currency Translation
The
Company periodically uses derivative instruments, which primarily consist of the purchase of forward exchange contracts, for certain
loans receivable and Auction and Liquidation engagements with operations outside the United States. During the nine months ended
September 30, 2020, the Company’s use of derivatives consisted of the purchase of forward exchange contracts in the amount
of 12,700 Euros, of which 2,000 Euros were settled. As of September 30, 2020, forward exchange contracts in the amount of 10,700
Euros were outstanding. The Company did not use any derivative contracts during the nine months ended September 30, 2019.
The
forward exchange contracts were entered into to improve the predictability of cash flows related to a retail store liquidation
engagement and a loan receivable. The net loss from forward exchange contracts was $16 during the nine months ended September
30, 2020. This amount is reported as a component of Selling, general and administrative expenses in the consolidated statements
of income.
The
Company transacts business in various foreign currencies. In countries where the functional currency of the underlying operations
has been determined to be the local country’s currency, revenues and expenses of operations outside the United States are
translated into United States dollars using average exchange rates while assets and liabilities of operations outside the United
States are translated into United States dollars using period-end exchange rates. The effects of foreign currency translation
adjustments are included in stockholders’ equity as a component of accumulated other comprehensive loss in the accompanying
condensed consolidated balance sheets. Transaction (loss) gains were ($97) and $446 during the three months ended September 30,
2020 and 2019, respectively and $413 and $121 during the nine months ended September 30, 2020 and 2019, respectively. These amounts
are included in selling, general and administrative expenses in the Company’s condensed consolidated statements of income.
(p)
Common Stock Warrants
The
Company issued 821,816 warrants to purchase common stock of the Company (the “Wunderlich Warrants”) in connection
with the acquisition of Wunderlich Securities, Inc. (“Wunderlich”) on July 3, 2017. The Wunderlich Warrants entitle
the holders of the warrants to acquire shares of the Company’s common stock from the Company at an exercise price of $17.50
per share, subject to, among other matters, the proper completion of an exercise notice and payment. The exercise price and the
number of shares of Company common stock issuable upon exercise are subject to customary anti-dilution and adjustment provisions,
which include stock splits, subdivisions or reclassifications of the Company’s common stock. On May 16, 2019, the Company
repurchased 638,311 warrants for $2,777 ($4.35 per warrant). On June 11, 2020, 167,352 warrants held in escrow from the acquisition
of Wunderlich were cancelled in accordance with the terms of the escrow instructions. The Wunderlich Warrants expire on July 3,
2022. As of September 30, 2020, Wunderlich Warrants to purchase 16,153 shares of common stock were outstanding.
On
October 28, 2019, the Company issued 200,000 warrants to purchase common stock of the Company (the “BR Brands Warrants”)
in connection with the acquisition of a majority ownership interest in BR Brand Holdings LLC. The BR Brand Warrants entitle the
holders of the warrants to acquire shares of the Company’s common stock from the Company at an exercise price of $26.24
per share. One-third of the BR Brand Warrants immediately vested and became exercisable upon issuance, and the remaining two-thirds
of warrants will vest and become exercisable following the first and/or second anniversaries of the closing, subject to BR Brand’s
(or another related joint venture with Bluestar Alliance LLC) satisfaction of specified financial performance targets. The BR
Brand warrants expire three years after the last vesting event occurs.
(q)
Equity Investments
bebe
stores, inc.
At
September 30, 2020, the Company had a 30.5% ownership interest in bebe stores, inc. (“bebe”). The equity ownership
in bebe is accounted for under the equity method of accounting and is included in prepaid expenses and other assets in the condensed
consolidated balance sheets.
National
Holdings Corporation
In
2018, the Company entered into an agreement to acquire shares of National Holdings Corporation (“National Holdings”),
a Nasdaq-listed issuer, from Fortress Biotech, Inc. for an aggregate purchase price totaling approximately $22.9 million. The
transaction was completed in two tranches. In the first tranche, which was completed in the fourth quarter of 2018, the Company
acquired shares representing 24% of the total outstanding shares of National Holdings. The second tranche was completed in the
first quarter of 2019. As of September 30, 2020, the Company owned 6,159,550 shares of National Holdings’ common stock,
representing 45.3% of National Holdings’ outstanding shares. The carrying value for the National Holdings investment is
included in prepaid expenses and other assets in the condensed consolidated balance sheets. The equity ownership in National Holdings
is accounted for under the equity method of accounting.
As
of September 30, 2020, the carrying values of the Company’s investments in bebe and National Holdings exceeded their fair
values based on their quoted market prices. In light of these facts, the Company evaluated its investments in bebe and National
Holdings for impairment. The Company utilized no bright- line tests in such evaluations. Based on the available facts and information
regarding the operating results of both entities, the Company’s ability and intent to hold the investments until recovery,
the relative amount of the declines, and the length of time that the fair values were less than the carrying values, the Company
concluded that recognition of impairment losses in earnings was not required. However, the Company will continue to monitor these
investments and it is possible that impairment losses will be recorded in earnings in future periods based on changes in facts
and circumstances or intentions.
(r)
Loan Participations Sold
As
of September 30, 2020, the Company has sold investments (“Loan Participations Sold”) to third parties (“Participants”)
that are accounted for as secured borrowings under ASC Topic 860, Transfers and Servicing. Under ASC Topic 860, a partial loan
transfer does not qualify for sale accounting in order for sale treatment to be allowed. A participation or other partial loan
transfer that meets the definition of a participating interest is classified as loan receivable and the portion transferred is
recorded as a secured borrowing under loan participations sold in the condensed consolidated balance sheet. The Participants are
entitled to payments made by the borrower of the related loan equal to the current Loan Participations Sold outstanding at the
interest rates for the respective investment. In the event that the borrower defaults, the Participants have rights to payments
from such borrower, but do not have recourse to the Company. The terms of the Loan Participations Sold are commensurate with the
terms of the related loan.
As
of September 30, 2020, the Company had entered into participation agreements for a total of $13,919. In addition, the interest
income and interest expense related to the Loan Participations Sold resulted in interest income and interest expense which is
presented gross on the condensed consolidated statement of income.
(s)
Supplemental Non-cash Disclosures
During
the nine months ended September 30, 2020, non-cash investing activities included $4,633 non-cash conversion of an equity method
investment and $9,778 conversion of loans receivable to shares of stock.
(t)
Reclassifications
As
of December 31, 2019, loans receivable recorded at fair value of $43,338 were previously included in securities and other
investments owned, at fair value. These loans receivable amounts have been reclassified and reported in loans receivable, at fair
value to conform to the 2020 presentation. During the three and nine months ended September 30, 2019, trading income and fair
value adjustments on loans of $40,268 and $71,730, respectively were previously included in services and fees income in the capital
markets segment. These trading income and fair value adjustments on loans amounts have been reclassified and reported in trading
income and fair value adjustments on loans to conform to the 2020 presentation. During the three and nine months ended September
30, 2019, expenses of $4,505 and $13,495, respectively, were previously included in direct cost of services in the valuation and
appraisal segment. These expenses have been reclassified and reported in selling, general and administrative expenses to conform
to the 2020 presentation.
(u)
Variable Interest Entity
In
2018, the operations of GACP II, LP, a private debt investment limited partnership (the “Partnership”) commenced operations.
The Company’s investment in the Partnership is a variable interest entity (“VIE”) since the unaffiliated limited
partners do not have substantive kick- out or participating rights to remove the Company’s subsidiary that is the general
partner managing the Partnership. The Company has determined that it is not the primary beneficiary due to the fact that its fee
arrangements are considered at-market and thus not deemed to be variable interests, and it does not hold any other interests in
the Partnership that are considered to be more than insignificant. The Company determines whether it is the primary beneficiary
of a VIE at the time it becomes involved with a VIE and reconsiders that conclusion at each reporting date. In evaluating whether
the Company is the primary beneficiary, the Company evaluates its economic interests in the entity held either directly by the
Company or indirectly through related parties. The consolidation analysis can generally be performed qualitatively; however, if
it is not readily apparent that the Company is not the primary beneficiary, a quantitative analysis may also be performed.
The
carrying value of the Company’s investments in the VIE that was not consolidated is shown below.
|
Partnership
investments
|
|
$
|
20,308
|
|
|
Due
from related party
|
|
|
372
|
|
|
Maximum
exposure to loss
|
|
$
|
20,680
|
|
(v)
Recent Accounting Standards
Not
yet adopted
In
December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)
2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income
taxes by removing certain exceptions for recognizing deferred taxes on investments, performing intra-period allocations, and calculating
income taxes in interim periods. The ASU also adds guidance to reduce the complexity in certain areas, including recognizing deferred
taxes for tax goodwill and allocating taxes to members of a consolidated group. The revised guidance will be applied prospectively
and is effective for SEC filers for annual periods or interim periods with fiscal years beginning after December 15, 2020. Early
adoption is permitted for interim or annual periods for which financial statements have not been issued. The Company has not yet
adopted this update and is currently evaluating the effect this new standard will have on its financial condition and results
of operations.
In August 2020, the
FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts
in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own
Equity. This Update addresses issues identified as a result of the complexity associated with applying generally accepted accounting
principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. In addressing the complexity,
the Board focused on amending the guidance on convertible instruments and the guidance on the derivatives scope exception for
contracts in an entity’s own equity. For convertible instruments, the Board decided to reduce the number of accounting models
for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion
features being separately recognized from the host contract as compared with current GAAP. In addition to eliminating certain
accounting models, the ASU also provides guidance to enhance information transparency by making targeted improvements to the disclosures
for convertible instruments and earnings-per-share (EPS) guidance. Additionally, the ASU amends the guidance for the derivatives
scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions, and
to amend the related EPS guidance. The amendments in this update are effective for public business entities for fiscal periods
beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier
than fiscal years beginning after December 15, 2020. The Company has not yet adopted this update and is currently evaluating the
effect, if any, this new standard will have on its financial condition and results of operations.
In October 2020,
the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables-Nonrefundable Fees and Other Costs. The
amendments in this Update clarify that an entity should reevaluate whether a callable debt security is within the scope of paragraph
310-20-35-33 for each reporting period. The Update is intended to clarify the Codification and make the Codification easier to
understand and easier to apply by eliminating inconsistencies and providing clarifications. The amendments in this update are
effective for public business entities for fiscal periods beginning after December 15, 2020, including interim periods within
those fiscal years. Early adoption is not permitted. The Company has not yet adopted this update and is currently evaluating the
effect, if any, this new standard will have on its financial condition and results of operations
Recently
adopted
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments − Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments (“ASC 326”). This standard requires an allowance to be recorded for all expected credit losses
for certain financial assets. The new standard introduces an approach, based on expected losses, to estimate credit losses on
certain types of financial instruments. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments − Credit Losses
(Topic 326); Targeted Transition Relief,” which allows entities to irrevocably elect, upon adoption of ASU 2016-13, the
fair value option on financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of
ASC 326-20 if the instruments are eligible for the fair value option under ASC 825-10. ASU 2016-13 and ASU 2019-05 are effective
for public companies for interim and annual period beginning December 15, 2019.
The
Company adopted the new credit losses standard effective January 1, 2020. Pursuant to ASU 2016-13 and its amendment ASU 2019-05,
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 receivable are now 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 income.
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. The impact of adopting ASC 326 was immaterial to the condensed consolidated financial statements.
NOTE
3—ACQUISITIONS
Membership
Interest Purchase Agreement with BR Brand Acquisition LLC
On
October 11, 2019, the Company and B. Riley Brand Management LLC, an indirect wholly-owned subsidiary of the Company (the
“B. Riley Member”), entered into a Membership Interest Purchase Agreement (the “MIPA”) with BR Brand
Acquisition LLC (the “BR Brand Member”) and BR Brand, pursuant to which the B. Riley Member acquired a majority of
the equity interest in BR Brand. The closing of the transactions in accordance with the MIPA (the “Closing”) occurred
on October 28, 2019.
The
B. Riley Member completed the Closing of a majority of the equity interest in BR Brand pursuant to the terms of the MIPA in exchange
for (i) aggregate consideration of $116,500 in cash and (ii) warrant consideration of $990 from the issuance by the Company to
Bluestar Alliance LLC (“Bluestar”), an affiliate of the BR Brand Member, of a warrant to purchase up to 200,000 shares
of the Company’s common stock at an exercise price per share equal to $26.24. One-third of the shares of common stock issuable
under the warrant immediately vested and became exercisable upon issuance at the Closing, and the remaining two-thirds of such
shares of common stock will vest and become exercisable following the first and/or second anniversaries of the Closing, subject
to BR Brand’s (or another related joint venture with Bluestar) satisfaction of specified financial performance targets.
The fair value of the non-controlling interest in the amount of $29,373 was determined based on the relative fair value of the
net assets acquired. The Company incurred $570 of transaction costs in connection with the acquisition.
In
connection with the Closing, (i) the BR Brand Member has caused the transfer of certain trademarks, domain names, license agreements
and related assets from existing brand owners to BR Brand and (ii) the Company, Bluestar and certain of their affiliates (including
the B. Riley Member and the BR Brand Member) entered into an amended and restated operating agreement for BR Brand and certain
other commercial agreements.
The
Company evaluated the transaction under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) Topic 805, Business Combinations, and Accounting Standards Update (“ASU”) 2017-01, Business Combinations:
Clarifying the Definition of a Business. Based on this evaluation, the Company has determined that the acquisition did not meet
the definition of a business and, therefore, has accounted for the transaction as an acquisition of assets. The fair value of
the assets acquired, including transaction costs, have been reflected in the accompanying financial statements as follows:
|
Consideration
paid by B. Riley:
|
|
|
|
|
Cash
acquisition consideration
|
|
$
|
116,500
|
|
|
Transaction
costs
|
|
|
570
|
|
|
Total
cash consideration
|
|
|
117,070
|
|
|
Warrant
consideration
|
|
|
990
|
|
|
Total
consideration
|
|
$
|
118,060
|
|
|
|
|
|
|
|
|
Tangible
assets acquired and assumed:
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,160
|
|
|
Accounts
receivable
|
|
|
1,751
|
|
|
Deferred
revenue
|
|
|
(1,332
|
)
|
|
Tradename
|
|
|
136,176
|
|
|
Customer
list
|
|
|
8,678
|
|
|
Non-controlling
interest
|
|
|
(29,373
|
)
|
|
Total
|
|
$
|
118,060
|
|
NOTE
4—RESTRUCTURING CHARGE
The
Company recorded restructuring charges of $1,557 for the three months and nine months ended September 30, 2020. The Company recorded
no restructuring charges for the three months ended September 30, 2019. The Company recorded restructuring charges of $1,557 and
$1,699 for the nine months ended September 30, 2020 and 2019, respectively.
The
restructuring charges during the three and nine months ended September 30, 2020 were primarily related to impairment of certain
acquired tradename intangibles associated with the Company’s brand realignment across its subsidiary companies to provide
greater external consistency and affiliation.
The
restructuring charges during the nine months ended September 30, 2019 were primarily related to severance costs for magicJack
employees from a reduction in workforce and lease termination costs in the Principal Investments – United Online and magicJack
segment.
The
following tables summarize the changes in accrued restructuring charge during the three and nine months ended September 30, 2020
and 2019:
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Balance,
beginning of period
|
|
$
|
979
|
|
|
|
2,642
|
|
|
|
1,600
|
|
|
|
3,855
|
|
|
Restructuring
charge
|
|
|
1,557
|
|
|
|
—
|
|
|
|
1,557
|
|
|
|
1,699
|
|
|
Cash
paid
|
|
|
(189
|
)
|
|
|
(779
|
)
|
|
|
(820
|
)
|
|
|
(3,827
|
)
|
|
Non-cash
items
|
|
|
(1,554
|
)
|
|
|
60
|
|
|
|
(1,544
|
)
|
|
|
196
|
|
|
Balance,
end of period
|
|
$
|
793
|
|
|
$
|
1,923
|
|
|
$
|
793
|
|
|
$
|
1,923
|
|
The
following tables summarize the restructuring activities by reportable segment during the three and nine months ended September
30, 2020 and 2019:
|
|
|
Three
Months Ended September 30, 2020
|
|
|
Three
Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
|
|
|
Auction
|
|
|
Investments -
United Online
|
|
|
|
|
|
|
|
|
Auction
|
|
|
Investments -
United Online
|
|
|
|
|
|
|
|
Capital
|
|
|
and
|
|
|
and
|
|
|
|
|
|
Capital
|
|
|
and
|
|
|
and
|
|
|
|
|
|
|
|
Markets
|
|
|
Liquidation
|
|
|
magicJack
|
|
|
Total
|
|
|
Markets
|
|
|
Liquidation
|
|
|
magicJack
|
|
|
Total
|
|
|
Restructuring
charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
of intangibles
|
|
|
1,417
|
|
|
|
140
|
|
|
|
—
|
|
|
|
1,557
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
restructuring charge
|
|
$
|
1,417
|
|
|
$
|
140
|
|
|
$
|
—
|
|
|
$
|
1,557
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
Nine
Months Ended September 30, 2020
|
|
|
Nine
Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
|
|
|
Auction
|
|
|
Investments -
United Online
|
|
|
|
|
|
|
|
|
Auction
|
|
|
Investments -
United Online
|
|
|
|
|
|
|
|
Capital
|
|
|
and
|
|
|
and
|
|
|
|
|
|
Capital
|
|
|
and
|
|
|
and
|
|
|
|
|
|
|
|
Markets
|
|
|
Liquidation
|
|
|
magicJack
|
|
|
Total
|
|
|
Markets
|
|
|
Liquidation
|
|
|
magicJack
|
|
|
Total
|
|
|
Restructuring
charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
termination
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,594
|
|
|
|
1,594
|
|
|
Impairment
of intangibles
|
|
|
1,417
|
|
|
|
140
|
|
|
|
—
|
|
|
|
1,557
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Facility
closure and consolidation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
109
|
|
|
|
105
|
|
|
Total
restructuring charge
|
|
$
|
1,417
|
|
|
$
|
140
|
|
|
$
|
—
|
|
|
$
|
1,557
|
|
|
$
|
(4
|
)
|
|
$
|
—
|
|
|
$
|
1,703
|
|
|
$
|
1,699
|
|
NOTE
5—SECURITIES LENDING
The
following table presents the contractual gross and net securities borrowing and lending balances and the related offsetting amount
as of September 30, 2020 and December 31, 2019:
|
|
|
Gross
amounts recognized
|
|
|
Gross
amounts offset
in the consolidated balance
sheets(1)
|
|
|
Net
amounts included
in the consolidated
balance sheets
|
|
|
Amounts
not offset in the consolidated balance sheets but eligible for offsetting upon counterparty default(2)
|
|
|
Net
amounts
|
|
|
As
of September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
borrowed
|
|
$
|
676,423
|
|
|
$
|
—
|
|
|
$
|
676,423
|
|
|
$
|
676,423
|
|
|
$
|
—
|
|
|
Securities
loaned
|
|
$
|
667,109
|
|
|
$
|
—
|
|
|
$
|
667,109
|
|
|
$
|
667,109
|
|
|
$
|
—
|
|
|
As
of December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
borrowed
|
|
$
|
814,331
|
|
|
$
|
—
|
|
|
$
|
814,331
|
|
|
$
|
814,331
|
|
|
$
|
—
|
|
|
Securities
loaned
|
|
$
|
810,495
|
|
|
$
|
—
|
|
|
$
|
810,495
|
|
|
$
|
810,495
|
|
|
$
|
—
|
|
|
|
(1)
|
Includes financial instruments subject to enforceable master netting provisions that are permitted to be offset to the extent an event of default has occurred.
|
|
|
(2)
|
Includes the amount of cash collateral held/posted.
|
NOTE
6—ACCOUNTS RECEIVABLE
The
components of accounts receivable, net, include the following:
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Accounts
receivable
|
|
$
|
38,421
|
|
|
$
|
36,385
|
|
|
Investment
banking fees, commissions and other receivables
|
|
|
4,247
|
|
|
|
8,043
|
|
|
Unbilled
receivables
|
|
|
5,738
|
|
|
|
3,710
|
|
|
Total
accounts receivable
|
|
|
48,405
|
|
|
|
48,138
|
|
|
Allowance
for doubtful accounts
|
|
|
(2,752
|
)
|
|
|
(1,514
|
)
|
|
Accounts
receivable, net
|
|
$
|
45,654
|
|
|
$
|
46,624
|
|
Additions
and changes to the allowance for doubtful accounts consist of the following:
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Balance,
beginning of period
|
|
$
|
2,760
|
|
|
$
|
1,360
|
|
|
$
|
1,514
|
|
|
$
|
696
|
|
|
Add:
Additions to reserve
|
|
|
356
|
|
|
|
615
|
|
|
|
2,438
|
|
|
|
1,681
|
|
|
Less:
Write-offs
|
|
|
(364
|
)
|
|
|
(376
|
)
|
|
|
(1,200
|
)
|
|
|
(759
|
)
|
|
Less:
Recovery
|
|
|
—
|
|
|
|
(138
|
)
|
|
|
—
|
|
|
|
(157
|
)
|
|
Balance,
end of period
|
|
$
|
2,752
|
|
|
$
|
1,461
|
|
|
$
|
2,752
|
|
|
$
|
1,461
|
|
NOTE
7—GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
was $227,046 at September 30, 2020 and $223,697 at December 31, 2019.
Intangible
assets consisted of the following:
|
|
|
|
|
As
of September 30, 2020
|
|
|
As
of December 31, 2019
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Intangibles
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Intangibles
|
|
|
|
|
Useful
Life
|
|
Value
|
|
|
Amortization
|
|
|
Net
|
|
|
Value
|
|
|
Amortization
|
|
|
Net
|
|
|
Amortizable
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
2 to 16 Years
|
|
$
|
98,898
|
|
|
$
|
37,023
|
|
|
$
|
61,875
|
|
|
$
|
99,008
|
|
|
$
|
27,269
|
|
|
$
|
71,739
|
|
|
Domain
names
|
|
7 Years
|
|
|
235
|
|
|
|
140
|
|
|
|
95
|
|
|
|
233
|
|
|
|
117
|
|
|
|
116
|
|
|
Advertising
relationships
|
|
8 Years
|
|
|
100
|
|
|
|
53
|
|
|
|
47
|
|
|
|
100
|
|
|
|
44
|
|
|
|
56
|
|
|
Internally
developed software and other intangibles
|
|
0.5 to 5 Years
|
|
|
11,775
|
|
|
|
6,490
|
|
|
|
5,285
|
|
|
|
11,765
|
|
|
|
4,843
|
|
|
|
6,922
|
|
|
Trademarks
|
|
7 to 10 Years
|
|
|
2,850
|
|
|
|
912
|
|
|
|
1,938
|
|
|
|
4,600
|
|
|
|
1,324
|
|
|
|
3,276
|
|
|
Total
|
|
|
|
|
113,858
|
|
|
|
44,618
|
|
|
|
69,240
|
|
|
|
115,706
|
|
|
|
33,597
|
|
|
|
82,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-amortizable
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradenames
|
|
|
|
|
125,276
|
|
|
|
—
|
|
|
|
125,276
|
|
|
|
138,416
|
|
|
|
—
|
|
|
|
138,416
|
|
|
Total
intangible assets
|
|
|
|
$
|
239,134
|
|
|
$
|
44,618
|
|
|
$
|
194,516
|
|
|
$
|
254,122
|
|
|
$
|
33,597
|
|
|
$
|
220,525
|
|
Amortization
expense was $3,919 and $3,310 for the three months ended September 30, 2020 and 2019, respectively and $11,967 and $10,031 for
the nine months ended September 30, 2020 and 2019, respectively. At September 30, 2020, estimated future amortization expense
was $3,769, $14,961, $14,307, $12,316 and $8,376 for the years ended December 31, 2020 (remaining three months), 2021, 2022,
2023 and 2024, respectively. The estimated future amortization expense after December 31, 2024 was $15,512.
In
the first quarter of 2020, in accordance with ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment, the Company made a qualitative assessment of the impact of the COVID-19 outbreak on goodwill and other intangible
assets. The Company determined that the COVID-19 outbreak was a triggering event for testing the indefinite-lived tradenames in
the Brands segment and made a determination that the indefinite-lived tradenames in the Brands segment were impaired and the Company
recognized an impairment charge of $4,000. As a result of the continuing impact and duration of the COVID-19 outbreak on the operations
of the Brands segment, the Company determined that there was another triggering event for testing the indefinite-lived tradenames
in the Brands segment and made a determination that the indefinite-lived tradenames in the Brands segment were impaired and the
Company recognized an additional impairment charge of $8,500 in the second quarter of 2020. The Company will continue to monitor
the impacts of the COVID-19 outbreak in future quarters. Changes in our forecasts could cause the book values of indefinite-lived
tradenames to exceed fair values which may result in additional impairment charges in future periods.
NOTE
8—NOTES PAYABLE
Asset
Based Credit Facility
On
April 21, 2017, the Company amended its credit agreement (as amended, the “Credit Agreement”) governing its asset
based credit facility with Wells Fargo Bank, National Association (“Wells Fargo Bank”) to increase the maximum borrowing
limit from $100,000 to $200,000. Such amendment, among other things, also extended the expiration date of the credit facility
from July 15, 2018 to April 21, 2022. The Credit Agreement continues to allow for borrowings under the separate credit agreement
(a “UK Credit Agreement”) which was dated March 19, 2015 with an affiliate of Wells Fargo Bank which provides for
the financing of transactions in the United Kingdom. Such facility allows the Company to borrow up to 50 million British Pounds.
Any borrowings on the UK Credit Agreement reduce the availability on the asset based $200,000 credit facility. The UK Credit Agreement
is cross collateralized and integrated in certain respects with the Credit Agreement. Cash advances and the issuance of letters
of credit under the credit facility are made at the lender’s discretion. The letters of credit issued under this facility
are furnished by the lender to third parties for the principal purpose of securing minimum guarantees under liquidation services
contracts. All outstanding loans, letters of credit, and interest are due on the expiration date which is generally within 180
days of funding. The credit facility is secured by the proceeds received for services rendered in connection with liquidation
service contracts pursuant to which any outstanding loan or letters of credit are issued and the assets that are sold at liquidation
related to such contract. The Company paid Wells Fargo Bank a closing fee in the amount of $500 in connection with the April 2017
amendment to the Credit Agreement. The interest rate for each revolving credit advance under the Credit Agreement is, subject
to certain terms and conditions, equal to the LIBOR plus a margin of 2.25% to 3.25% depending on the type of advance and the percentage
such advance represents of the related transaction for which such advance is provided. The credit facility also provides for success
fees in the amount of 2.5% to 17.5% of the net profits, if any, earned on the liquidation engagements funded under the Credit
Agreement as set forth therein. Interest expense totaled $109 and $240 for the three months ended September 30, 2020 and 2019,
respectively and $529 and $826 for the nine months ended September 30, 2020 and 2019, respectively. There was no outstanding balance
on this credit facility at September 30, 2020. The outstanding balance on this credit facility was $37,096 at December 31, 2019.
At September 30, 2020, there were no open letters of credit outstanding.
We
are in compliance with all financial covenants in the asset based credit facility at September 30, 2020.
Other
Notes Payable
Notes
payable include notes payable to a clearing organization for one of the Company’s broker dealers. The notes payable accrue
interest at the prime rate plus 2.0% (6.75% at September 30, 2020) payable annually, maturing January 31, 2022. At September 30,
2020 and December 31, 2019, the outstanding balance for the notes payable was $714 and $1,071, respectively. Interest expense
was $12 and $22 for the three months ended September 30, 2020 and 2019, respectively and $75 and $66 for the nine months ended
September 30, 2020 and 2019, respectively.
NOTE
9—TERM LOAN
On
December 19, 2018, BRPI Acquisition Co LLC (“BRPAC”), a Delaware limited liability company, UOL, and YMAX Corporation,
Delaware corporations (collectively, the “Borrowers”), indirect wholly owned subsidiaries of the Company, in the capacity
as borrowers, entered into a credit agreement (the “BRPAC Credit Agreement”) with the Banc of California, N.A. in
the capacity as agent (the “Agent”) and lender and with the other lenders party thereto (the “Closing Date Lenders”).
Certain of the Borrowers’ U.S. subsidiaries are guarantors of all obligations under the BRPAC Credit Agreement and are parties
to the BRPAC Credit Agreement in such capacity (collectively, the “Secured Guarantors”; and together with the Borrowers,
the “Credit Parties”). In addition, the Company and B. Riley Principal Investments, LLC (“BRPI”), the
parent corporation of BRPAC and a subsidiary of the Company, are guarantors of the obligations under the BRPAC Credit Agreement
pursuant to standalone guaranty agreements pursuant to which the shares outstanding membership interests of BRPAC are pledged
as collateral.
The
obligations under the BRPAC Credit Agreement are secured by first-priority liens on, and first priority security interest in,
substantially all of the assets of the Credit Parties, including a pledge of (a) 100% of the equity interests of the Credit Parties,
(b) 65% of the equity interests in United Online Software Development (India) Private Limited, a private limited company organized
under the laws of India; and (c) 65% of the equity interests in magicJack VocalTec LTD., a limited company organized under the
laws of Israel. Such security interests are evidenced by pledge, security and other related agreements.
The
BRPAC Credit Agreement contains certain covenants, including those limiting the Credit Parties’, and their subsidiaries’
ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of their businesses, engage
in transactions with related parties, make certain investments or pay dividends. In addition, the BRPAC Credit Agreement requires
the Credit Parties to maintain certain financial ratios. The BRPAC Credit Agreement also contains customary representations and
warranties, affirmative covenants and events of default, including payment defaults, breach of representations and warranties,
covenant defaults and cross defaults. If an event of default occurs, the agent would be entitled to take various actions, including
the acceleration of amounts due under the outstanding BRPAC Credit Agreement.
Under
the BRPAC Credit Agreement, the Company borrowed $80,000 due December 19, 2023. Pursuant to the terms of the BRPAC Credit Agreement,
the Company may request additional optional term loans in an aggregate principal amount of up to $10,000 at any time prior to
the first anniversary of the agreement date (the “Option Loan”) with a final maturity date of December 19, 2023. On
February 1, 2019, the Credit Parties, the Closing Date Lenders, the Agent and City National Bank, as a new lender (the “New
Lender”), entered into the First Amendment to the Credit Agreement and Joinder (the “First Amendment”) pursuant
to which, among other things, (i) New Lender became a party to the BRPAC Credit Agreement, (ii) the New Lender extended to Borrowers
the Option Loan in the amount of $10,000, (iii) the aggregate outstanding principal amount of the term loans was increased from
$80,000 to $90,000; and (iv) the amortization schedule under the BRPAC was amended as set forth in the First Amendment. Additionally,
in connection with the Option Loan, the Borrowers executed a term note in favor of New Lender dated February 1, 2019 in the amount
of $10,000. Borrowings under the BRPAC Credit Agreement bear interest at a rate equal to (a) the LIBOR rate for Eurodollar loans,
plus (b) the applicable margin rate, which ranges from two and one-half percent (2.5%) to three percent (3.0%) per annum, based
upon the Borrowers’ ratio of consolidated funded indebtedness to adjusted earnings before interest, taxes, depreciation,
and amortization (EBITDA) for the preceding four fiscal quarters or other applicable period. At September 30, 2020 interest rate
on the BRPAC Credit Agreement was at 2.90%. Interest payments are to be made each one, three or six months. Amounts outstanding
under the BRPAC Credit Agreement are due in quarterly installments commencing on March 31, 2019 with any remaining amounts outstanding
due at maturity. For the $80,000 loan, quarterly installments from September 30, 2020 to December 31, 2022 are in the amount of
$4,244 per quarter and from March 31, 2023 to December 31, 2023 are $2,122 per quarter. For the $10,000 loan, quarterly installments
from September 30, 2020 to December 31, 2022 are $566 per quarter and from March 31, 2023 to December 31, 2023 are $265 per quarter.
As of September 30, 2020, and December 31, 2019, the outstanding balance on the term loan was $52,452 (net of unamortized debt
issuance costs of $385) and $66,666 (net of unamortized debt issuance costs of $600), respectively. Interest expense on the term
loan during the three months ended September 30, 2020 and 2019 was $497 (including amortization of deferred debt issuance costs
of $67) and $1,118 (including amortization of deferred debt issuance costs of $87), respectively. Interest expense on the term
loan during the nine months ended September 30, 2020 and 2019 was $1,912 (including amortization of deferred debt issuance costs
of $216) and $3,653 (including amortization of deferred debt issuance costs of $268), respectively.
We
are in compliance with all financial covenants in the BRPAC Credit Agreement at September 30, 2020.
NOTE
10—SENIOR NOTES PAYABLE
Senior
notes payable, net, are comprised of the following:
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
7.50% Senior notes due May 31, 2027
|
|
$
|
125,536
|
|
|
$
|
117,954
|
|
|
7.25% Senior notes due December 31, 2027
|
|
|
122,545
|
|
|
|
120,126
|
|
|
7.375% Senior notes due May 31, 2023
|
|
|
127,697
|
|
|
|
122,140
|
|
|
6.875% Senior notes due September 30, 2023
|
|
|
113,109
|
|
|
|
105,952
|
|
|
6.75% Senior notes due May 31, 2024
|
|
|
110,476
|
|
|
|
106,589
|
|
|
6.50% Senior notes due September 30, 2026
|
|
|
134,657
|
|
|
|
124,226
|
|
|
6.375% Senior notes due February 28, 2025
|
|
|
130,942
|
|
|
|
—
|
|
|
|
|
|
864,962
|
|
|
|
696,987
|
|
|
Less:
Unamortized debt issuance costs
|
|
|
(10,036
|
)
|
|
|
(8,875
|
)
|
|
|
|
$
|
854,926
|
|
|
$
|
688,112
|
|
During
the nine months ended September 30, 2020, the Company issued $39,167 of senior notes with maturity dates ranging from May 2023
to December 2027 pursuant to At the Market Issuance Sales Agreements with B. Riley Securities, Inc. (fka B. Riley FBR, Inc.) (“B.
Riley Securities”), which governs the program of at-the-market sales of the Company’s senior notes.
On
February 12, 2020, the Company issued $132,250 of senior notes due in February 2025 (“6.375% 2025 Notes”) pursuant
to the prospectus supplement dated February 10, 2020. Interest on the 6.375% 2025 Notes is payable quarterly at 6.375%. The 6.375%
2025 Notes are unsecured and due and payable in full on February 28, 2025. In connection with the issuance of the 6.375% 2025
Notes, the Company received net proceeds of $129,213 (after underwriting commissions, fees and other issuance costs of $3,037).
During
March 2020, the Company repurchased bonds with an aggregate face value of $3,443 for $1,829 resulting in a gain net of expenses
and original issue discount of $1,556 during the nine months ended September 30, 2020. As part of the repurchase, the Company
paid $30 in interest accrued through the date of each respective repurchase.
At
September 30, 2020 and December 31, 2019, the total senior notes outstanding was $854,926 (net of unamortized debt issue costs
of $10,036) and $688,112 (net of unamortized debt issue costs of $8,875) with a weighted average interest rate of 6.94% and 7.05%,
respectively. Interest on senior notes is payable on a quarterly basis. Interest expense on senior notes totaled $15,562
and $11,255 for the three months ended September 30, 2020 and 2019, respectively and $45,543 and $30,181 for the nine months ended
September 30, 2020 and 2019, respectively.
Sales
Agreement Prospectus to Issue Up to $150,000 of Senior Notes
On
February 14, 2020, the Company entered into a new At Market Issuance Sales Agreement (the “February 2020 Sales Agreement”)
with B. Riley Securities, governing a program of at-the-market sales of certain of the Company’s senior notes. This program
provides for the sale by the Company of up to $150,000 of certain of the Company’s senior notes. As of September 30, 2020,
the Company had $148,076 remaining availability under the February 2020 Sales Agreement.
NOTE
11—REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue
from contracts with customers by reportable segment for the three and nine months ended September 30, 2020 and 2019 is as follows:
|
|
|
Three
Months Ended September 30, 2020
|
|
|
|
|
Reportable
Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments -
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Auction
and
|
|
|
Valuation
and
|
|
|
United
Online
and
|
|
|
|
|
|
|
|
|
|
|
Markets
|
|
|
Liquidation
|
|
|
Appraisal
|
|
|
magicJack
|
|
|
Brands
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
finance, consulting and investment banking fees
|
|
$
|
45,970
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
45,970
|
|
|
Wealth
and asset management fees
|
|
|
16,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,500
|
|
|
Commissions,
fees and reimbursed expenses
|
|
|
9,053
|
|
|
|
17,278
|
|
|
|
9,655
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35,986
|
|
|
Subscription
services
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,948
|
|
|
|
—
|
|
|
|
17,948
|
|
|
Service
contract revenues
|
|
|
—
|
|
|
|
4,195
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,195
|
|
|
Advertising,
licensing and other
|
|
|
—
|
|
|
|
22,712
|
|
|
|
—
|
|
|
|
3,654
|
|
|
|
4,000
|
|
|
|
30,366
|
|
|
Total
revenues from contracts with customers
|
|
|
71,523
|
|
|
|
44,185
|
|
|
|
9,655
|
|
|
|
21,602
|
|
|
|
4,000
|
|
|
|
150,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
sources of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income - Loans and securities lending
|
|
|
26,026
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,026
|
|
|
Trading
gains on investments
|
|
|
31,613
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31,613
|
|
|
Fair
value adjustment on loans
|
|
|
140
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
140
|
|
|
Other
|
|
|
17,509
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,509
|
|
|
Total
revenues
|
|
$
|
146,811
|
|
|
$
|
44,185
|
|
|
$
|
9,655
|
|
|
$
|
21,602
|
|
|
$
|
4,000
|
|
|
$
|
226,253
|
|
|
|
|
Three
Months Ended September 30, 2019
|
|
|
|
|
Reportable
Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments -
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Auction
and
|
|
|
Valuation
and
|
|
|
United
Online
and
|
|
|
|
|
|
|
|
|
|
|
Markets
|
|
|
Liquidation
|
|
|
Appraisal
|
|
|
magicJack
|
|
|
Brands
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
finance, consulting and investment banking fees
|
|
$
|
37,827
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
37,827
|
|
|
Wealth
and asset management fees
|
|
|
18,984
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18,984
|
|
|
Commissions,
fees and reimbursed expenses
|
|
|
9,077
|
|
|
|
4,151
|
|
|
|
10,818
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24,046
|
|
|
Subscription
services
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19,425
|
|
|
|
—
|
|
|
|
19,425
|
|
|
Service
contract revenues
|
|
|
—
|
|
|
|
7,081
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,081
|
|
|
Advertising,
licensing and other
|
|
|
—
|
|
|
|
54
|
|
|
|
—
|
|
|
|
4,438
|
|
|
|
—
|
|
|
|
4,492
|
|
|
Total
revenues from contracts with customers
|
|
|
65,888
|
|
|
|
11,286
|
|
|
|
10,818
|
|
|
|
23,863
|
|
|
|
—
|
|
|
|
111,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
sources of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income - Loans and securities lending
|
|
|
25,766
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,766
|
|
|
Trading
gains on investments
|
|
|
32,564
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
32,564
|
|
|
Fair
value adjustment on loans
|
|
|
7,704
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,704
|
|
|
Other
|
|
|
2,174
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,174
|
|
|
Total
revenues
|
|
$
|
134,096
|
|
|
$
|
11,286
|
|
|
$
|
10,818
|
|
|
$
|
23,863
|
|
|
$
|
—
|
|
|
$
|
180,063
|
|
|
|
|
Nine
Months Ended September 30, 2020
|
|
|
|
|
Reportable
Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments -
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Auction
and
|
|
|
Valuation
and
|
|
|
United
Online
and
|
|
|
|
|
|
|
|
|
|
|
Markets
|
|
|
Liquidation
|
|
|
Appraisal
|
|
|
magicJack
|
|
|
Brands
|
|
|
Total
|
|
|
Revenues
from contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
finance, consulting and investment banking fees
|
|
$
|
163,004
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
163,004
|
|
|
Wealth
and asset management fees
|
|
|
55,522
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
55,522
|
|
|
Commissions,
fees and reimbursed expenses
|
|
|
36,308
|
|
|
|
36,052
|
|
|
|
26,112
|
|
|
|
—
|
|
|
|
—
|
|
|
|
98,472
|
|
|
Subscription
services
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
55,067
|
|
|
|
—
|
|
|
|
55,067
|
|
|
Service
contract revenues
|
|
|
—
|
|
|
|
13,288
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,288
|
|
|
Advertising,
licensing and other
|
|
|
—
|
|
|
|
23,757
|
|
|
|
—
|
|
|
|
10,688
|
|
|
|
11,007
|
|
|
|
45,452
|
|
|
Total
revenues from contracts with customers
|
|
|
254,834
|
|
|
|
73,097
|
|
|
|
26,112
|
|
|
|
65,755
|
|
|
|
11,007
|
|
|
|
430,805
|
|
|
Other
sources of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income - Loans and securities lending
|
|
|
72,383
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
72,383
|
|
|
Trading
losses on investments
|
|
|
(14,307
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(14,307
|
)
|
|
Fair
value adjustment on loans
|
|
|
(21,835
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(21,835
|
)
|
|
Other
|
|
|
25,469
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,469
|
|
|
Total
revenues
|
|
$
|
316,544
|
|
|
$
|
73,097
|
|
|
$
|
26,112
|
|
|
$
|
65,755
|
|
|
$
|
11,007
|
|
|
$
|
492,515
|
|
|
|
|
Nine
Months Ended September 30, 2019
|
|
|
|
|
Reportable
Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments -
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Auction
and
|
|
|
Valuation
and
|
|
|
United
Online
and
|
|
|
|
|
|
|
|
|
|
|
Markets
|
|
|
Liquidation
|
|
|
Appraisal
|
|
|
magicJack
|
|
|
Brands
|
|
|
Total
|
|
|
Revenues
from contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
finance, consulting and investment banking fees
|
|
$
|
95,260
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
95,260
|
|
|
Wealth
and asset management fees
|
|
|
55,028
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
55,028
|
|
|
Commissions,
fees and reimbursed expenses
|
|
|
30,350
|
|
|
|
39,250
|
|
|
|
29,143
|
|
|
|
—
|
|
|
|
—
|
|
|
|
98,743
|
|
|
Subscription
services
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
62,894
|
|
|
|
—
|
|
|
|
62,894
|
|
|
Service
contract revenues
|
|
|
—
|
|
|
|
26,431
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,431
|
|
|
Advertising,
licensing and other
|
|
|
—
|
|
|
|
1,230
|
|
|
|
—
|
|
|
|
14,282
|
|
|
|
—
|
|
|
|
15,512
|
|
|
Total
revenues from contracts with customers
|
|
|
180,638
|
|
|
|
66,911
|
|
|
|
29,143
|
|
|
|
77,176
|
|
|
|
—
|
|
|
|
353,868
|
|
|
Other
sources of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income - Loans and securities lending
|
|
|
54,147
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
54,147
|
|
|
Trading
gains on investments
|
|
|
58,387
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
58,387
|
|
|
Fair
value adjustment on loans
|
|
|
13,343
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,343
|
|
|
Other
|
|
|
7,130
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,130
|
|
|
Total
revenues
|
|
$
|
313,645
|
|
|
$
|
66,911
|
|
|
$
|
29,143
|
|
|
$
|
77,176
|
|
|
$
|
—
|
|
|
$
|
486,875
|
|
Contract
Balances
The
timing of the Company’s revenue recognition may differ from the timing of payment by its customers. The Company records
a receivable when revenue is recognized prior to payment and the Company has an unconditional right to payment. Alternatively,
when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations
are satisfied. Receivables related to revenues from contracts with customers totaled $45,654 and $46,624 at September 30, 2020
and December 31, 2019, respectively. The Company had no significant impairments related to these receivables during the three
and nine months ended September 30, 2020. The Company’s deferred revenue primarily relates to retainer and milestone fees
received from corporate finance and investment banking advisory engagements, asset management agreements, Valuation and Appraisal
engagements and subscription services where the performance obligation has not yet been satisfied. Deferred revenue at September
30, 2020 and December 31, 2019 was $70,565 and $67,121, respectively. During the three months ended September 30, 2020 and 2019,
the Company recognized revenue of $8,102 and $9,166 that was recorded as deferred revenue at the beginning of the respective year.
During the nine months ended September 30, 2020 and 2019, the Company recognized revenue of $32,176 and $34,331 that was recorded
as deferred revenue at the beginning of the respective year.
Contract
Costs
Contract
costs include: (1) costs to fulfill contracts associated with corporate finance and investment banking engagements are capitalized
where the revenue is recognized at a point in time and the costs are determined to be recoverable; (2) costs to fulfill Auction
and Liquidation services contracts where the Company guarantees a minimum recovery value for goods being sold at auction or liquidation
where the revenue is recognized over time when the performance obligation is satisfied; and (3) commissions paid to obtain magicJack
contracts which are recognized ratably over the contract term and third party support costs for magicJack and related equipment
purchased by customers which are recognized ratably over the service period.
The
capitalized costs to fulfill a contract were $448 and $450 at September 30, 2020 and December 31, 2019, respectively, and are
recorded in prepaid expenses and other assets in the condensed consolidated balance sheets. For the three months ended September
30, 2020 and 2019, the Company recognized expenses of $68 and $246 related to capitalized costs to fulfill a contract, respectively.
For the nine months ended September 30, 2020 and 2019, the Company recognized expenses of $210 and $1,277 related to capitalized
costs to fulfill a contract, respectively. There were no significant impairment charges recognized in relation to these capitalized
costs during the three and nine months ended September 30, 2020 and 2019.
Remaining
Performance Obligations and Revenue Recognized from Past Performance
The
Company does not disclose information about remaining performance obligations pertaining to contracts that have an original expected
duration of one year or less. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations
with an original expected duration exceeding one year was not material at September 30, 2020. Corporate finance and investment
banking fees and retail liquidation engagement fees that are contingent upon completion of a specific milestone and fees associated
with certain distribution services are also excluded as the fees are considered variable and not included in the transaction price
at September 30, 2020.
NOTE
12—INCOME TAXES
The
Company’s effective income tax rate was 29.4% for both the nine months ended September 30, 2020 and 2019.
As
of September 30, 2020, the Company had federal net operating loss carryforwards of $53,932 and state net operating loss carryforwards
of $64,088. The Company’s federal net operating loss carryforwards will expire in the tax years commencing in December 31,
2032 through December 31, 2037. The state net operating loss carryforwards will expire in the tax years commencing in December
31, 2029.
The
Company establishes a valuation allowance if, based on the weight of available evidence, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Tax benefits of operating loss, capital loss and tax credit carryforwards
are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward
period, and other circumstances. The Company’s net operating losses are subject to annual limitations in accordance with
Internal Revenue Code Section 382. Accordingly, the Company is limited to the amount of net operating loss that may be utilized
in future taxable years depending on the Company’s actual taxable income. As of September 30, 2020, the Company believes
that the existing net operating loss carryforwards will be utilized in future tax periods before the loss carryforwards expire
and it is more-likely-than-not that future taxable earnings will be sufficient to realize its deferred tax assets and has not
provided a valuation allowance. The Company does not believe that it is more likely than not that the Company will be able to
utilize the benefits related to capital loss carryforwards and has provided a valuation allowance in the amount of $61,945 against
these deferred tax assets.
The
Company files income tax returns in the U.S., various state and local jurisdictions, and certain other foreign jurisdictions.
The Company is currently under audit by certain state and local, and foreign tax authorities. The audits are in varying stages
of completion. The Company evaluates its tax positions and establishes liabilities for uncertain tax positions that may be challenged
by tax authorities. Uncertain tax positions are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances,
including progress of tax audits, case law developments and closing of statutes of limitations. Such adjustments are reflected
in the provision for income taxes, as appropriate. The Company is currently open to audit under the statute of limitations by
the Internal Revenue Service for the calendar years ended December 31, 2016 to 2019.
NOTE
13—EARNINGS PER SHARE
Basic
earnings per share is calculated by dividing net income by the weighted-average number of shares outstanding during the period.
Diluted earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding, after
giving effect to all dilutive potential common shares outstanding during the period. Basic common shares outstanding exclude 387,365
common shares in 2019 that were held in escrow and subject to forfeiture. The 387,365 common shares held in escrow were forfeited
and cancelled on June 11, 2020 to indemnify the Company for certain representations and warranties and related claims pursuant
to a related acquisition agreement. Securities that could potentially dilute basic net income per share in the future that were
not included in the computation of diluted net income per share were 1,059,919 and 1,369,674 for the three months ended September
30, 2020 and 2019, respectively and 1,212,563 and 1,474,104 for the nine months ended September 30, 2020 and 2019, respectively,
because to do so would have been anti-dilutive.
Basic
and diluted earnings per share were calculated as follows:
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Net income attributable
to B. Riley Financial, Inc.
|
|
$
|
48,379
|
|
|
$
|
34,302
|
|
|
$
|
33,554
|
|
|
$
|
64,482
|
|
|
Preferred stock dividends
|
|
|
1,088
|
|
|
|
—
|
|
|
|
3,230
|
|
|
|
—
|
|
|
Net income applicable to common shareholders
|
|
$
|
47,291
|
|
|
$
|
34,302
|
|
|
$
|
30,324
|
|
|
$
|
64,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
25,446,292
|
|
|
|
26,556,223
|
|
|
|
25,699,735
|
|
|
|
26,351,839
|
|
|
Effect of dilutive potential
common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units
and warrants
|
|
|
1,604,156
|
|
|
|
1,613,993
|
|
|
|
989,965
|
|
|
|
836,791
|
|
|
Contingently issuable shares
|
|
|
—
|
|
|
|
63,207
|
|
|
|
—
|
|
|
|
63,207
|
|
|
Diluted
|
|
|
27,050,448
|
|
|
|
28,233,423
|
|
|
|
26,689,700
|
|
|
|
27,251,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share
|
|
$
|
1.86
|
|
|
$
|
1.29
|
|
|
$
|
1.18
|
|
|
$
|
2.45
|
|
|
Diluted income per common share
|
|
$
|
1.75
|
|
|
$
|
1.21
|
|
|
$
|
1.14
|
|
|
$
|
2.37
|
|
NOTE
14—COMMITMENTS AND CONTINGENCIES
(a)
Legal Matters
The
Company is subject to certain legal and other claims that arise in the ordinary course of its business. In particular, the Company
and its subsidiaries are named in and subject to various proceedings and claims arising primarily from the Company’s securities
business activities, including lawsuits, arbitration claims, class actions, and regulatory matters. Some of these claims seek
substantial compensatory, punitive, or indeterminate damages. The Company and its subsidiaries are also involved in other reviews,
investigations, and proceedings by governmental and self-regulatory organizations regarding the Company’s business, which
may result in adverse judgments, settlements, fines, penalties, injunctions, and other relief. In view of the number and diversity
of claims against the Company, the number of jurisdictions in which litigation is pending, and the inherent difficulty of predicting
the outcome of litigation and other claims, the Company cannot state with certainty what the eventual outcome of pending litigation
or other claims will be. Notwithstanding this uncertainty, the Company does not believe that the results of these claims are likely
to have a material effect on its financial position or results of operations.
On
January 5, 2017, complaints filed in November 2015 and May 2016 naming MLV & Co. (“MLV”), a broker-dealer subsidiary
of B. Riley Securities (fka FBR), as a defendant in putative class action lawsuits alleging claims under the Securities Act, in
connection with the offerings of Miller Energy Resources, Inc. (“Miller”) have been consolidated. The Master Consolidated
Complaint, styled Gaynor v. Miller et al., is pending in the United States District Court for the Eastern District of Tennessee,
and, like its predecessor complaints, continues to allege claims under Sections 11 and 12 of the Securities Act against nine underwriters
for alleged material misrepresentations and omissions in the registration statement and prospectuses issued in connection with
six offerings (February 13, 2013; May 8, 2013; June 28, 2013; September 26, 2013; October 17, 2013 (as to MLV only) and August
21, 2014) with an alleged aggregate offering price of approximately $151,000. The Court ordered mediation before a federal magistrate
took place on August 6, 2019, with no resolution. In December 2019, the Court remanded the case to state court. In July 2020,
the Company agreed to settle this matter, subject to court approval which is expected by the end of 2020 or in early 2021.
(b)
Franchise Group Commitment Letter and Loan Participant Guaranty
Commitment
Letter
On February 14, 2020, affiliates of Franchise Group, Inc. (collectively
with all of its affiliates, “FRG”) entered into an ABL Credit Agreement (the “Franchise Credit Agreement”),
with GACP Finance Co., LLC (“GACP Finance”) as administrative agent and collateral agent, and the lenders from time
to time party thereto, pursuant to which the lenders provided an asset based credit facility to FRG in an aggregate principal amount
of $100.0 million. The obligations under the Franchise Credit Agreement were refinanced in full on September 23, 2020 (the
“Refinancing”). In connection with the Franchise Credit Agreement, the Company entered into a commitment letter (as
amended, the “Commitment Letter”), pursuant to which the Company committed to provide a $100.0 million asset based
lending facility to FRG five days prior to the maturity date of the Franchise Credit Agreement if, on or before such date, the
obligations under the Franchise Credit Agreement are not refinanced in full. Such commitment terminated upon the consummation of
the Refinancing.
The
Loan Participant Guaranty
On
February 14, 2020, FRG, the lenders from time to time party thereto and GACP Finance as administrative agent, entered into a Credit
Agreement (the “Term Loan Credit Agreement”), pursuant to which the lenders provided a term loan facility to FRG in
an aggregate principal amount of $575,000. On February 19, 2020, the Company entered into a limited guaranty (the “Loan
Participant Guaranty”) to one of the lenders under the Term Loan Credit Agreement (the “Loan Participant”) pursuant
to which the Company guaranteed the payment when due of certain obligations, including principal, interest, and other amounts
payable to the Loan Participant under the Term Loan Credit Agreement in an amount not to exceed $50,000 plus certain expenses
of the Loan Participant and certain protective advances related to such guaranteed obligations (the “Loan Participant Guaranteed
Obligations”). The Loan Participant may require payment of the Loan Participant Guaranteed Obligations by the Company upon
the occurrence of certain guarantor events of default, including payment or bankruptcy events of default, in each case pursuant
to the Term Loan Credit Agreement. The Loan Participant Guaranty remains in effect until the date that the Loan Participant Guaranteed
Obligations have been paid in full.
The
Loan Participant Guaranteed Obligations are unsecured obligations of the Company and rank equally in right of payment with all
of the Company’s other existing and future unsecured and unsubordinated indebtedness. The Loan Participant Guaranteed Obligations
are effectively subordinated in right of payment to all of the Company’s existing and future secured indebtedness and structurally
subordinated to all existing and future indebtedness of the Company’s subsidiaries, including trade payables.
(c)
Babcock & Wilcock Commitments and Guarantee
On
May 14, 2020, the Company entered into an a agreement to provide Babcock & Wilcox Enterprises, Inc. (“B&W”)
future commitments to loan B&W up to $40,000 at various dates starting in November 2020 and the Company provided a limited
guaranty of B&W’s obligations under B&W’s amended credit facility as more fully described in Note 17 - Related
Party Transactions.
On
August 10, 2020, the Company entered into a project specific indemnity rider (the “Indemnity Rider”) in favor of Berkley
Insurance Company and/or Berkley Regional Insurance Company (collectively, “Berkley”) to a general agreement of indemnity
made by B&W in favor of Berkley (the Indemnity Agreement”). Pursuant to the Indemnity Rider, the Company agreed to indemnify
Berkley in connection with a default by B&W under the Indemnity Agreement relating to a $29,970 payment and performance bond
issued by Berkley in connection with a construction project undertaken by B&W. In consideration for providing the Indemnity
Rider, B&W paid the Company $600 on August 26, 2020.
(d) BRPM II Equity
Commitment Letter
The Company is a
party to an Equity Commitment Letter with B. Riley Principal Merger Corp. II and B. Riley Principal Sponsor Co. II, LLC, as disclosed
below in Note 17 – Related Party Transactions.
NOTE
15—SHARE-BASED PAYMENTS AND COMMON STOCK
(a)
Employee Stock Incentive Plans
Share-based
compensation expense for restricted stock units under the Company’s Amended and Restated 2009 Stock Incentive Plan (the
“Plan”) was $4,680 and $4,660 for the three months ended September 30, 2020 and 2019, respectively and $13,945 and
$10,013 for the nine months ended September 30, 2020 and 2019, respectively. During the nine months ended September 30, 2020,
in connection with employee stock incentive plans the Company granted 606,063 restricted stock units with a weighted average grant
date fair value of $18.77 per share. The restricted stock units generally vest over a period of one to three years based
on continued service. Performance based restricted stock units generally vest based on both the employee’s continued service
and the Company’s common stock price, as defined in the grant, achieving a set threshold during the three-year period following
the grant. In determining the fair value of restricted stock units on the grant date, the fair value is adjusted for (a)
estimated forfeitures, (b) expected dividends based on historical patterns and the Company’s anticipated dividend payments
over the expected holding period and (c) the risk-free interest rate based on U.S. Treasuries for a maturity matching the expected
holding period.
(b)
Employee Stock Purchase Plan
In
connection with the Company’s Purchase Plan, share based compensation was $96 and $68 for the three months ended September
30, 2020 and 2019, respectively and $320 and $263 for the nine months ended September 30, 2020 and 2019, respectively. At September
30, 2020, there were 524,891 shares reserved for issuance under the Purchase Plan.
(c)
Common Stock
During
the nine months ended September 30, 2020, the Company repurchased 1,715,383 shares of its common stock for $38,348 which represents
an average price of $22.36 per common share. On July 1, 2020, the Company entered into an agreement to repurchase 900,000 shares
of its common stock for $19,800 ($22.00 per common share) from one of its shareholders. In accordance with the agreement, the
Company repurchased 450,000 shares for $9,900 on July 2, 2020 and the remaining 450,000 shares are required to be repurchased
for $9,900 at a mutually agreeable date prior to January 1, 2021. In addition to the repurchases of common stock, 387,365 shares
of the Company’s common stock that were previously held in escrow in connection with the acquisition of a wealth management
company in 2017 were forfeited and cancelled on June 11, 2020 to indemnify the Company for certain representations and warranties
and related claims pursuant to a related acquisition agreement.
(d) Preferred
Stock
The
Company has issued depository shares equivalent to 2,531 shares of Series A Preferred Stock with dividends payable at a rate of
6.875% per annum. There were 2,531 shares and 2,349 shares issued and outstanding as of September 30, 2020, and December 31, 2019,
respectively. The Series A has a liquidation preference of $25 per 1/1000 depository share or $25,000 per preferred share. Total
liquidation preference for the Series A at September 30, 2020, and December 31, 2019, was $63,273 and $58,723, respectively. Dividends
on the Series A preferred paid during the three and nine months ended September 30, 2020, were $0.4296875 and $1.29 per depository
share, respectively.
During
the three months ended September 30, 2020, the Company issued depository shares equivalent to 1,300 shares of Series B Preferred
Stock with dividends payable at a rate of 7.375% per annum. The Series B has a liquidation preference of $25 per 1/1000 depository
share or $25,000 per preferred share. Total liquidation preference for the Series B at September 30, 2020, was $32,500. No dividends
were paid on the Series B during the three months ended September 30, 2020.
NOTE
16—NET CAPITAL REQUIREMENTS
B.
Riley Securities and B. Riley Wealth Management (“BRWM”), the Company’s broker-dealer subsidiaries, are registered
with the SEC as broker-dealers and are members of the Financial Industry Regulatory Authority, Inc. (“FINRA”). The
Company’s broker-dealer subsidiaries are subject to the SEC’s Uniform Net Capital Rule (Rule 15c3-1) which requires
the subsidiaries to maintain minimum net capital and provides that the ratio of aggregate indebtedness to net capital, both as
defined, shall not exceed 15 to 1. As of September 30, 2020, B. Riley Securities had net capital of $137,777, which was $134,273
in excess of its required net capital of $3,504; and BRWM had net capital of $4,090 which was $3,444 in excess of its required
net capital of $646.
NOTE
17—RELATED PARTY TRANSACTIONS
At
September 30, 2020, amounts due from related parties of $3,766 included $23 from GACP I, L.P. (“GACP I”) and $372
from GACP II, L.P. (“GACP II”) for management fees and other operating expenses, and $3,371 due from CA Global Partners
(“CA Global”) for operating expenses related to wholesale and industrial liquidation engagements managed by CA Global
on behalf of GA Global Ptrs. At December 31, 2019, amounts due from related parties of $5,832 included $145 from GACP I and $12
from GACP II for management fees and other operating expenses, $13 due from B. Riley Principal Merger Corp, a company that consummated
its initial public offering on April 11, 2019, for which our wholly owned subsidiary, B. Riley Principal Sponsor Co. LLC, was
the Sponsor, and $3,846 due from John Ahn, who at the time was the President of Great American Capital Partners, LLC, our indirect
wholly owned subsidiary (“GACP”), pursuant to a Secured Line of Promissory Note related to a Transfer Agreement as
further discussed below. During the nine months ended September 30, 2020, the Company sold a portion of a loan receivable to GACP
for $1,800. At September 30, 2020, the Company had sold loan participations to BRC Partners Opportunity Fund, LP (“BRCPOF”),
a private equity fund managed by one of its subsidiaries, in the amount of $13,919, and recorded interest expense of $1,416 during
the nine months ended September 30, 2020 related to BRCPOF’s loan participations. Our executive officers and members
of our board of directors have a 43.8% financial interest, which includes a financial interest of Bryant Riley, our Co-Chief Executive
Officer, of 38.5% in the BRCPOF at September 30, 2020. At September 30, 2020 and December 31, 2019, the Company had
outstanding loan to participations to BRCPOF in the amount of $13,919 and $12,478, respectively.
On
April 1, 2019, the Company entered into a Transfer Agreement (the “Transfer Agreement”) with GACP II, a fund managed
by GACP, and John Ahn, who is the brother of Phil Ahn, the Company’s Chief Financial Officer and Chief Operating Officer.
The Transfer Agreement provides for among other things, the transfer to Mr. J. Ahn of 55.56% of the Company’s limited partnership
interest in GACP II (the “Transferred Interest”), which represents a capital commitment in the aggregate amount of
$5,000. In connection with the Transfer Agreement, the Company provided Mr. J. Ahn with a non-recourse, secured line of credit
in an aggregate amount of up to $5,003 pursuant to the terms of a Secured Line of Credit Promissory Note (the “Note”)
dated April 1, 2019, to fund the purchase price of the Transferred Interest. We also entered into a Security Agreement with Mr.
J. Ahn on April 1, 2019, which granted to the Company a security interest in the Transferred Interest to secure Mr. J. Ahn’s
obligations under the Note. The Note is subject to an interest rate per annum of 7.00%. As of December 31, 2019, the principal
and accrued interest on the Note were $3,798 and $48, respectively. In June 2020, the Company entered into an investment advisory
services agreement with Whitehawk Capital Partners, L.P., a limited partnership controlled by Mr. J. Ahn, (“Whitehawk”).
Whitehawk has agreed to provide investment advisory services for GACP I and GACP II. In accordance with the terms of the
Note, Mr. Ahn surrendered the Transferred Interest to the Company in exchange for the cancellation of the Note. During the
nine months ended September 30, 2020, interest payments received on the Note were $121 and management fees paid for investment
advisory services by Whitehawk was $731.
On
May 22, 2020, the Company earned $3,275 of underwriting fees from the initial public offering of B. Riley Principal Merger Corp.
II, (“BRPM II”), which was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition,
stock purchase, reorganization or similar business combination with one or more businesses (the “BRPM II IPO”). The
Company has also agreed to loan BRPM II up to $300 for operating expenses. The loan is interest free and there were no amounts
outstanding at September 30, 2020. On September 7, 2020, BRPM II entered into an agreement and plan of merger (the “Merger
Agreement”) to acquire Eos Energy Storage LLC, a Delaware limited liability company, a privately held company that is not
related to the Company (the “Proposed Acquisition”).
The Proposed Acquisition
is expected to be completed in the fourth quarter of 2020, subject to certain customary conditions, including, among other things,
approval by the BRPM II’s stockholders of the Merger Agreement and the business combination. In addition, closing is subject
to certain other conditions, including, among other things, that BRPM II maintain a certain level of cash (before taking into
account certain transaction expenses, but after taking into account any redemptions by the BRPM II’s public stockholders)
available from the trust account established in connection with the BRPM II IPO and from other equity financing sources.
In order to help
meet the condition under the Merger Agreement that BRPM II maintain a certain level of cash available upon the closing (before
taking into account certain transaction expenses), the Company entered into an Equity Commitment Letter with BRPM II and B. Riley
Principal Sponsor Co. II, LLC, pursuant to which the Company committed to provide up to $40,000 in equity financing at closing,
less the number of shares of BRPM II’s common stock already issued pursuant to subscription agreements entered into with
investors prior to the closing.
In
addition to the above, the Company from time to time participates in loans and financing arrangements in respect of companies
in which the Company has an equity ownership and representation on the board of directors or equivalent body. The Company may
also provide consulting services or investment banking services to raise capital for these companies. These transactions can be
summarized as follows:
Sonim
The
Company had a loan receivable due from Sonim Technologies, Inc. (“Sonim”) that was included in loans receivable at
fair value with a fair value of $9,603 at December 31, 2019. Interest is payable at 10.0% per annum with a maturity date of September
1, 2022. The original loan was made in October 2017 in connection with the Company’s initial investment in common stock
and preferred stock that was purchased from Sonim’s existing shareholders. In October 2017, the Company also entered into
a management services agreement with Sonim to provide advisory and consulting services for management fees of up to $200 per year.
The management services agreement was terminated in September 2019.
In
June 2020, Sonim repaid $4,000 of the outstanding loan balance in cash and the remaining principal amount, accrued interest and
other amounts outstanding of $6,170 under the loan converted into shares of common stock of Sonim at the then public offering
price of shares of Sonim’s common stock.
Babcock
and Wilcox
The
Company has a last-out term loan receivable due from B&W that is included in loans receivable, at fair value with a fair value
of $164,539 at September 30, 2020. As of December 31, 2019, the last-out term loan was included in loans receivable, at cost with
a carrying value of $109,147. On January 31, 2020, the Company provided B&W with an additional $30,000 of last-out term loans
pursuant to new amendments to B&W’s credit agreement. On May 14, 2020, the Company provided B&W with another $30,000
of last-out term loans pursuant to a further amendment to B&W’s credit agreement which also included future commitments
for the Company to loan B&W $40,000 at various dates starting in November 2020 and a limited guaranty by the Company of B&W’s
obligations under the amended credit facility, (the “Amendment Transactions”). Interest is payable quarterly at the
fixed rate of 12.0% per annum in common stock of B&W at $2.28 per common share through December 31, 2020 and in cash thereafter.
All of these loans were made to B&W as part of various amendments to B&W’s existing credit agreement with other
lenders not related to the Company. As part of the Amendment Transactions, the Company entered into the following agreements:
(i) an Amendment and Restatement Agreement, dated as of May 14, 2020, among B&W, Bank of America, N.A., as Administrative
Agent, and the other lenders party thereto, including the Company; (ii) a Fee Letter, dated as of May 14, 2020, among the Company
and B&W; (iii) a Fee and Interest Equitization Agreement, dated May 14, 2020, between the Company, B. Riley Securities, and
B&W; (iv) a Termination Agreement, dated as of May 14, 2020, the Company and B&W and acknowledged by Bank of America,
N.A. with respect to the Backstop Commitment Letter; and (v) a Limited Guaranty Agreement, dated as of May 14, 2020, among the
Company, B&W and Bank of America, N.A.
In
connection with making the loan to B&W, in April 2019 the Company received warrants to purchase 1,666,667 shares of common
stock of B&W with an exercise price of $0.01 per share. The option to exercise the warrants expires on April 5, 2022.
One
of the Company’s wholly owned subsidiaries entered into a services agreement with B&W that provided for the President
of the Company to serve as the Chief Executive Officer of B&W until November 30, 2020 (the “Executive Consulting Agreement”),
unless terminated by either party with thirty days written notice. Under this agreement, fees for services provided are $750 per
annum, paid monthly. In addition, subject to the achievement of certain performance objectives as determined by B&W’s
compensation committee of the board, a bonus or bonuses may also be earned and payable to the Company.
The
Company is also a party to an Indemnity Rider with B&W, as disclosed above in Note 14 – Commitments and Contingencies.
Maven
The
Company has loans receivable due from the Maven, Inc. (“Maven”) that are included in loans receivable, at fair value
of $71,479 at September 30, 2020. At December 31, 2019, the Company had a loan receivable due from Maven that is included in loans
receivable at fair value of $21,150 and another loan receivable from Maven that is included in loans receivable at historical
cost with a carrying value of $47,933 (which is comprised of the principal balance due in the amount of $49,921, less original
issue discount of $1,988). Interest on these loans is payable at 12.0% to 15.0% per annum with maturity dates through June 2022.
On October 28, 2020,
in connection with a capital raise by Maven, the Company converted $3,367 of Maven notes receivable that is included in notes receivable
from related party at September 30, 2020 into 3,367 shares of Series K Preferred stock of Maven.
Franchise
Group
The
Company has a loan receivable due from Vitamin Shoppe, a subsidiary of FRG, (“Vitamin Shoppe”) that was included in
loans receivable, at fair value with a fair value of $4,951 at December 31, 2019. Interest was payable at 13.7% per annum with
a maturity date of December 16, 2022. The principal balance of $4,697 on the Vitamin Shoppe loan receivable was repaid in May
2020 and the final interest payment of $31 was paid on June 1, 2020. During the nine months ended September 30, 2020, the Company
earned $4,329 of underwriting fees from FRG in connection with FRG’s capital raising activities. In the second quarter of
2020, B. Riley no longer had representation on the board of directors or the right to appoint members of the board of directors
of FRG and no longer exercised significant influence over FRG. As such, FRG is no longer a related party.
As
of September 30, 2020, the Company is party to a Loan Participant Guaranty with FRG as disclosed above in Note 14 – Commitments
and Contingencies.
NOTE
18—BUSINESS SEGMENTS
The
Company’s business is classified into the Capital Markets segment, Auction and Liquidation segment, Valuation and Appraisal
segment, Principal Investments — United Online and magicJack segment, and Brands segment. These reportable segments are
all distinct businesses, each with a different marketing strategy and management structure.
The
following is a summary of certain financial data for each of the Company’s reportable segments:
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Capital
Markets segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
- Services and fees
|
|
$
|
89,032
|
|
|
$
|
68,062
|
|
|
$
|
280,303
|
|
|
$
|
187,768
|
|
|
Trading income (losses)
and fair value adjustments on loans
|
|
|
31,753
|
|
|
|
40,268
|
|
|
|
(36,142
|
)
|
|
|
71,730
|
|
|
Interest income - Loans and securities lending
|
|
|
26,026
|
|
|
|
25,766
|
|
|
|
72,383
|
|
|
|
54,147
|
|
|
Total revenues
|
|
|
146,811
|
|
|
|
134,096
|
|
|
|
316,544
|
|
|
|
313,645
|
|
|
Selling, general
and administrative expenses
|
|
|
(68,442
|
)
|
|
|
(70,140
|
)
|
|
|
(204,183
|
)
|
|
|
(196,570
|
)
|
|
Restructuring (charge)
recovery
|
|
|
(1,417
|
)
|
|
|
—
|
|
|
|
(1,417
|
)
|
|
|
4
|
|
|
Interest expense
- Securities lending and loan participations sold
|
|
|
(10,975
|
)
|
|
|
(10,273
|
)
|
|
|
(30,669
|
)
|
|
|
(22,579
|
)
|
|
Depreciation and amortization
|
|
|
(1,166
|
)
|
|
|
(1,281
|
)
|
|
|
(3,362
|
)
|
|
|
(3,844
|
)
|
|
Segment income
|
|
|
64,811
|
|
|
|
52,402
|
|
|
|
76,913
|
|
|
|
90,656
|
|
|
Auction
and Liquidation segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues - Services
and fees
|
|
|
21,473
|
|
|
|
11,232
|
|
|
|
49,340
|
|
|
|
65,681
|
|
|
Revenues - Sale of goods
|
|
|
22,712
|
|
|
|
54
|
|
|
|
23,757
|
|
|
|
1,230
|
|
|
Total revenues
|
|
|
44,185
|
|
|
|
11,286
|
|
|
|
73,097
|
|
|
|
66,911
|
|
|
Direct cost of services
|
|
|
(18,373
|
)
|
|
|
(2,371
|
)
|
|
|
(36,406
|
)
|
|
|
(21,584
|
)
|
|
Cost of goods sold
|
|
|
(9,046
|
)
|
|
|
(126
|
)
|
|
|
(9,360
|
)
|
|
|
(992
|
)
|
|
Selling, general
and administrative expenses
|
|
|
(4,625
|
)
|
|
|
(2,835
|
)
|
|
|
(8,880
|
)
|
|
|
(9,045
|
)
|
|
Restructuring (charge)
recovery
|
|
|
(140
|
)
|
|
|
—
|
|
|
|
(140
|
)
|
|
|
—
|
|
|
Depreciation and amortization
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(5
|
)
|
|
Segment income
|
|
|
12,000
|
|
|
|
5,953
|
|
|
|
18,309
|
|
|
|
35,285
|
|
|
Valuation
and Appraisal segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues - Services
and fees
|
|
|
9,655
|
|
|
|
10,818
|
|
|
|
26,112
|
|
|
|
29,143
|
|
|
Selling, general
and administrative expenses
|
|
|
(6,632
|
)
|
|
|
(7,331
|
)
|
|
|
(19,643
|
)
|
|
|
(21,492
|
)
|
|
Depreciation and amortization
|
|
|
(51
|
)
|
|
|
(36
|
)
|
|
|
(139
|
)
|
|
|
(100
|
)
|
|
Segment income
|
|
|
2,972
|
|
|
|
3,451
|
|
|
|
6,330
|
|
|
|
7,551
|
|
|
Principal
Investments - United Online and magicJack segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues - Services
and fees
|
|
|
20,663
|
|
|
|
22,999
|
|
|
|
63,037
|
|
|
|
74,383
|
|
|
Revenues - Sale of goods
|
|
|
939
|
|
|
|
864
|
|
|
|
2,718
|
|
|
|
2,793
|
|
|
Total revenues
|
|
|
21,602
|
|
|
|
23,863
|
|
|
|
65,755
|
|
|
|
77,176
|
|
|
Direct cost of services
|
|
|
(4,891
|
)
|
|
|
(5,565
|
)
|
|
|
(14,795
|
)
|
|
|
(20,131
|
)
|
|
Cost of goods sold
|
|
|
(767
|
)
|
|
|
(785
|
)
|
|
|
(2,082
|
)
|
|
|
(2,843
|
)
|
|
Selling, general
and administrative expenses
|
|
|
(4,840
|
)
|
|
|
(5,895
|
)
|
|
|
(14,352
|
)
|
|
|
(18,410
|
)
|
|
Depreciation and
amortization
|
|
|
(2,736
|
)
|
|
|
(2,956
|
)
|
|
|
(8,466
|
)
|
|
|
(9,719
|
)
|
|
Restructuring charge
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,703
|
)
|
|
Segment income
|
|
|
8,368
|
|
|
|
8,662
|
|
|
|
26,060
|
|
|
|
24,370
|
|
|
Brands
segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues - Services
and fees
|
|
|
4,000
|
|
|
|
—
|
|
|
|
11,007
|
|
|
|
—
|
|
|
Selling, general
and administrative expenses
|
|
|
(994
|
)
|
|
|
—
|
|
|
|
(2,207
|
)
|
|
|
—
|
|
|
Depreciation and
amortization
|
|
|
(714
|
)
|
|
|
—
|
|
|
|
(2,143
|
)
|
|
|
—
|
|
|
Impairment of tradenames
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,500
|
)
|
|
|
—
|
|
|
Segment income (loss)
|
|
|
2,292
|
|
|
|
—
|
|
|
|
(5,843
|
)
|
|
|
—
|
|
|
Consolidated
operating income from reportable segments
|
|
|
90,443
|
|
|
|
70,468
|
|
|
|
121,769
|
|
|
|
157,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other
expenses
|
|
|
(6,942
|
)
|
|
|
(10,617
|
)
|
|
|
(28,072
|
)
|
|
|
(28,778
|
)
|
|
Interest income
|
|
|
67
|
|
|
|
361
|
|
|
|
537
|
|
|
|
1,329
|
|
|
Income (loss) on
equity investments
|
|
|
409
|
|
|
|
1,113
|
|
|
|
(145
|
)
|
|
|
(4,049
|
)
|
|
Interest expense
|
|
|
(16,374
|
)
|
|
|
(12,772
|
)
|
|
|
(48,537
|
)
|
|
|
(35,130
|
)
|
|
Income before income
taxes
|
|
|
67,603
|
|
|
|
48,553
|
|
|
|
45,552
|
|
|
|
91,234
|
|
|
Provision for income taxes
|
|
|
(18,711
|
)
|
|
|
(14,409
|
)
|
|
|
(13,380
|
)
|
|
|
(26,802
|
)
|
|
Net income
|
|
|
48,892
|
|
|
|
34,144
|
|
|
|
32,172
|
|
|
|
64,432
|
|
|
Net income (loss) attributable to noncontrolling
interests
|
|
|
513
|
|
|
|
(158
|
)
|
|
|
(1,382
|
)
|
|
|
(50
|
)
|
|
Net income attributable
to B. Riley Financial, Inc.
|
|
|
48,379
|
|
|
|
34,302
|
|
|
|
33,554
|
|
|
|
64,482
|
|
|
Preferred stock dividends
|
|
|
1,088
|
|
|
|
—
|
|
|
|
3,230
|
|
|
|
—
|
|
|
Net income available to common shareholders
|
|
$
|
47,291
|
|
|
$
|
34,302
|
|
|
$
|
30,324
|
|
|
$
|
64,482
|
|
The
following table presents revenues by geographical area:
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
- Services and fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
$
|
123,106
|
|
|
$
|
113,111
|
|
|
$
|
405,611
|
|
|
$
|
356,899
|
|
|
Australia
|
|
|
6,094
|
|
|
|
—
|
|
|
|
7,796
|
|
|
|
15
|
|
|
Europe
|
|
|
15,623
|
|
|
|
—
|
|
|
|
16,392
|
|
|
|
61
|
|
|
Total
Revenues - Services and fees
|
|
$
|
144,823
|
|
|
$
|
113,111
|
|
|
$
|
429,799
|
|
|
$
|
356,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
income (losses) and fair value adjustments on loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
$
|
31,753
|
|
|
$
|
40,268
|
|
|
$
|
(36,142
|
)
|
|
$
|
71,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
- Sale of goods
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
$
|
4,242
|
|
|
$
|
918
|
|
|
$
|
6,028
|
|
|
$
|
4,023
|
|
|
Europe
|
|
|
19,409
|
|
|
|
—
|
|
|
|
20,447
|
|
|
|
—
|
|
|
Total
Revenues - Sale of Goods
|
|
$
|
23,651
|
|
|
$
|
918
|
|
|
$
|
26,475
|
|
|
$
|
4,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
- Interest income - Loans and securities lending:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
$
|
26,026
|
|
|
$
|
25,766
|
|
|
$
|
72,383
|
|
|
$
|
54,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
$
|
185,127
|
|
|
$
|
180,063
|
|
|
$
|
447,880
|
|
|
$
|
486,799
|
|
|
Australia
|
|
|
6,094
|
|
|
|
—
|
|
|
|
7,796
|
|
|
|
15
|
|
|
Europe
|
|
|
35,032
|
|
|
|
—
|
|
|
|
36,839
|
|
|
|
61
|
|
|
Total
Revenues
|
|
$
|
226,253
|
|
|
$
|
180,063
|
|
|
$
|
492,515
|
|
|
$
|
486,875
|
|
As
of September 30, 2020 and December 31, 2019 long-lived assets, which consist of property and equipment and other assets of $11,986
and $12,727, respectively, were located in North America.
Segment
assets are not reported to, or used by, the Company’s Chief Operating Decision Maker to allocate resources to, or assess
performance of, the segments and therefore, total segment assets have not been disclosed.
NOTE
19—SUBSEQUENT EVENTS
From
time to time, the Company may decide to pay dividends which will be dependent upon our financial condition and results of operations.
On October 28, 2020, the Board of Directors announced an increase to the regular quarterly dividend from $0.30 per share to
$0.375 per share. On October 28, 2020, the Company declared a regular quarterly dividend of $0.375 per share, which will be
paid on or about November 24, 2020 to stockholders of record as of November 10, 2020. While it is the Board’s current
intention to make regular dividend payments each quarter and special dividend payments dependent upon exceptional circumstances
from time to time, our Board of Directors may reduce or discontinue the payment of dividends at any time for any reason it deems
relevant. The declaration and payment of any future dividends on our common stock will be made at the discretion of our Board
of Directors and will be dependent upon our financial condition, results of operations, cash flows, capital expenditures, and
other factors that may be deemed relevant by our Board of Directors.