BRC Group Holdings, Inc. ($RILY)

Good day, First Quarter 2026 Earnings Call. My name is Isabel and I will be your moderator. The format of the call includes prepared remarks from followed by question and answer session. [Operator Instructions] At this time, I will turn the call over to Brian Riley, CEO. You may now begin.

Good afternoon, and thanks for joining our call. I want to stress by saying how enthusiastic and items were from sits today. the deliberate steps we've taken to strengthen our balance sheet and operating cash current market opportunity. That conviction is reflected in the momentum, which carried from 2025 into our first quarter. For the first quarter, we generated net income available to common shareholders of $211.3 million and adjusted EBITDA of $262.2 million. Operating adjusted EBITDA was $34.6 million up close to 40% sequentially. Net debt stands at $372 million, down approximately $255 million from year end. Our CFO, Scott Yessner, will walk through the financials in detail. My remarks today focus on 3 points. Our first quarter execution, our strategic path forward and our ongoing commitment to our core franchise. During the quarter, against key priorities, strength balance sheet and living for our clients. On the balance sheet, we continue to [indiscernible] capital structure. In March, we fully redeemed our 5.5% senior notes due 2026 and to retire $4.4 million of debt through bonds for equity exchange and open market repurchases through the end of March. Altogether, total debt is down $129 million in the quarter, and we expect that trend to continue. While we enjoyed a solid quarter across the entire platform, B. Riley Securities delivered our most active quarter capital raise in 5 years. During the quarter, we executed on nearly $10 billion in total debt net equity raises for claims. We acted as jointly bookrunner on Life Fibers $230 million [indiscernible] participated in our $1.3 million following, and we'll have key advisory mandates in the TrueCar tech product. We are active across the entire capital structure. We filed $8.7 billion in new ATMs in the first quarter, including a $6 billion facility from and a $1 billion facility for SMR. We also expanded our research footprint, initiating coverage of 26 companies in the first quarter alone. We see deep expanding opportunity set for our team in the quarters ahead and expect momentum to continue. Ultimately, our broader strategy remains straightforward. We reinvest operating cash flows into our businesses and compelling market opportunities with our core franchise service and [indiscernible]. Next year marks our 30th anniversary. And over the last 3 decades, we've intentionally built our business based on the commitment to be an active, dedicated advisory and liquidity partners for companies that historically underserved small and mid-cap market. We have navigated every market cycle. During periods of macro stress, we have stayed committed to the strategy of others of cycle in and out. This consistency and our commitment to this market have proven to be our structural advantage. That same commitment is why we want to see specialty finance to enhance their commitment to small to mid-cap companies by providing capital and liquidity solutions. We will continue to leverage our platform and for capital work to back our clients and our long-term partners. Executing our strategy requires absolute operational discipline in a world-class [indiscernible]. We're incredibly grateful to our team's hard work and continued dedication to the third and clients. I will now turn the call over to Co-CEO, Tom Kelleher, to provide additional context on our operating performance. Tom?

Thanks, Bryant. In April, we announced our intention to repurchase the outstanding minority stake of Pro cities and combined B.Riley Securities with [indiscernible] well. We are incredibly excited about this. The proposed transaction streamlines our corporate structure, but more importantly, it intentionally aligns our investment in banking, our broad retail and institutional distribution and our equity research engine. Scott will spend more time on the numbers. But from an operational standpoint, our platform has continued to normalize from all activity that has transpired over the last 2 years. Targets continues to stabilize their business, operate at roughly breakeven. We are encouraged by recent improvements in distribution channel sales as tariff concerns begin to ease. Our communications group continues to deliver high margin cash flow by leveraging our team in India. And we remain relentlessly focused on efficiency across the entire enterprise. We are actively deploying AI, not just the corporate efficiency tool, but is the force multiplier across our entire revenue-generating platform? By equipping our bankers sales force and research teams with advanced tools to accelerate analysis and insights, we are empowering our teams to scale their output and capture more market opportunity without proportionately increasing our cost structure. While technology allows us to operate faster and smarter, our core business is fundamentally a relationship business. Our ultimate differentiator remains to our people and the partnerships we've built. In 2 weeks, we will host our 26th Annual Investor Conference at the Ritz-Carlton [indiscernible]. With approximately 200 companies and 1,000 attendees, this conference remains the clearest expression of who we work with and the partnerships we built. During the conference, we will once again host our annual Big Fibers [indiscernible] charitable box in Gala benefiting the Sugarland Foundation and its mission to knock out pediatric diabetics. We are proud to have raised over $6 million for this cost since inception. And next week, on May 13, B.Riley is posting our annual commission share day where 100% of our equity trading commissions will be donated to Children's Hospital L&A. For nearly 3 decades, our firm has been defined not just by the deals we execute by the relationships we build. While we are incredibly proud of our operational execution this quarter, these events reflect the true character of our firm and our commitment to our clients and our partnerships and our community. Our proprietary platform continues to serve as a major differentiator for recruiting, and we are actively leveraging it to add high-impact talent. We are filing numerous conversations for physicians across the company. And just last month, we welcomed back on senior sales trader as well as brought on an institutional salesmen new to the firm. High-performing producers who want to be part of a company where deals are actively getting done where the platform supports them and what the culture is set by developed producers across our management team. With that, I will turn the call over to our CFO, Scott Yessner, to walk through the detailed financials. Scott?

Thanks, Tom. I'm pleased to share an update on our first quarter 2026 financial performance, investment holdings and capital liquidity. To start, I would like to walk through our financial performance. Year-over-year, first quarter total revenues were $352 million compared to $186 million. The increase in total revenues was driven by $161 million of higher trading gains on investments, primarily at Babcock and Wilcox common stock, $130 million of which is related to the value appreciation in the first quarter of 2026. Service and fee income was $152 million for the quarter, lower year-over-year by $6.7 million. Investment banking and brokerage revenues increased to $12 million, offset by loan revenues from exited businesses in the prior year of $10.4 million, lower B. Riley Wealth Management revenues of $4.6 million and lower Communications Business Group revenues of $4.1 million from normal subscriber attrition. Next, year-over-year first quarter total operating expenses were $199 million, compared to $247.5 million in 2025, a reduction of $48 million. The reduction was primarily due to a combined $28 million of limited cost from exited businesses and in the communications business groups, subscribers to clients with certain reduction of approximately $20 million from across operative operating expenses, including lower legal fees of $3.7 million. [indiscernible] operating expenses in total and marrying expense lines accounting fees related to the audit and accounting activities was $4 million higher than 2025, which was also at an elevated level. We have returned to a normal operating calendar, which will allow us to drive the infrastructure improvement that we believe will ultimately lower our account fees and other allocated costs. Going down the income statement, first quarter other income, excluding interest success was $169 million, primarily due to a $99 million increase in the tabular value appreciation. The company's total increase in [indiscernible] low investment across trading income and non-realized income for the first quarter of 2026 was $229 million. booking different revenue lines due to the investments being owned by multiple entities within the RC Holdings structure. Year-over first quarter interest expense closed $20 million to $10 million from 2025, driven by a lower average borrowing balances from senior note redemptions and other reductions. These details coat with the first quarter 2026 netting imitable to common shareholders of $211 million diluted income per share of $6.57, compared to a net loss of $12 million diluted loss per share of $0.39 in the first quarter of 2025. First quarter of 2026 adjusted EBITDA was $252 million compared to a loss of $45 million in 2025. Please refer to the reconciliation tables in our earnings press release for the adjusted EBITDA calculation. Next, our year segment operating performance -- please note our former communications business segment has been separated to reportable segments, which we aggregate described as a communication business group. The Capital Markets segment, which is comprised of the facility of B. Riley Securities, a first quarter 2026 total revenues of $172 million compared to [indiscernible] million in 2025. And income of $137 million compared to a segment loss of $36 million in 2025. The revenue and segment income increases were primarily driven by fair value increases in fabrication well cost recorded in trading. Additionally, core investment banking revenues also increased $9.7 million year-over-year. Next, the [indiscernible] segment had first quarter 2026 revenues of $52 million compared to $47 million in 2025, a $5 million increase and segment income of $16 million compared to $2 million in 2025, a $4 million increase. The revenue or profit increases were driven by an $8.9 million increase in market value of carried interest in a fund that on SpaceX, the portion owned by the wealth segment. Wealth segment ended the first quarter with $11.9 billion in assets under management and 190 better representatives. The communications business group is the aggregate results of Lingo, MagicJack, Marconi and UOL reportable segment. The Communications business group has first quarter aggregate revenues of $60 million compared to $64.5 million in 2025, a $4.5 million decline and aggregate income in the first quarter of $12.6 million compared to $10.6 million in 2025, a $2 million increase. The first quarter results are in line with our expectations. The operating leverage continues to be a core business strength as demonstrated by the results. Our target business, which comprises the Consumer Products segment had first quarter revenues of $44 million compared to $42 million in 2025 and an operating segment loss of $2.6 million compared to a loss of $5.1 million in 2025. After a period of declining sales, we are pleased with the revenue increase in narrowing operating loss with this due to improving the sales mix margin and levering operating costs. Next, I'd like to provide an update on the company's investment holding portfolio, which is reported on our balance sheet in securities and other investments, loan receivable at fair value in equity investments. Investments are held across consolidated entities where valuation changes are primarily booked as revenue in either trading gains and losses are realized and have realized gains and losses. At March 31, 2026, securities and other investments increased $193 million to $640 million from December 31, 2025. The increase is primarily driven by a $229 million value increase in the Babcock and [indiscernible] investment and a $12.6 million increase in the partnership interest related to our market value of carried interest in funds that own SpaceX for all BSC entities, offset by a sale exit of $41 million of private stock holdings, we're taking out the balance change. At March 31, 2026, the [indiscernible] stock price used in the valuation was $14.69 a share with the company only approximately 27.4 million shares and SpaceX value was marked at $526 per share. Securities and other investments are reported in detail in the 10-Q with [indiscernible] including public equities, private equities, corporate bonds, other fixed on securities and partnership interest and other. In the public equity subtotal the [indiscernible] was the primary driver private equity sub total amount, which has over 50 investments, including the venture capital portfolio, above by $42 million, primarily from the private stock holding exit described earlier, partnerships and other investments increased $13.4 million, primarily due to the space security interest value increase described earlier. Continuing with investment holdings, loans perceivable declined $1.4 million in the first quarter to an balance of $24.9 million at March 31, 2026. In the quarter, loan lending activity included approximately $20.1 million in funding and $21.89 million in repayments. Also, we received a $6.79 loan recovery recognized through the income statement in fair value adjustments on loans. For the last balance sheet line item of our investment holdings equity method investments were $90.7 million at March 31, 2026, virtually flat from December 31, 2025. The [indiscernible] Group investment formerly Great American, comprises $83.7 million of the March 31, '26 balance, also virtually flat to December 31, 2025. GA Group had good quarterly performance, which is disclosed in summary in the filed 10-Q. Next, I'll provide an update on our liquidity and capital. At March 31, 2026, cash, cash equivalents and restricted cash had total balances of $178 million compared to $229 million at December 31, 2025. In the first quarter of 2026, BRC reduced total debt by $129 million, which includes a $96 million Riley K bond redemption on March 30, 2026 and $40 million of bond exchanges and buybacks. At March 31, 2026. Total debt was $1.3 billion and net debt declined $255 million to $372 million. For the remainder of 2026, the company has 2 senior note series maturing. $167 million in principal amount of Riley and senior notes due September 30, and $170 million principal amount of Riley G senior notes due on December 31. These amounts have been reduced through Section 3A9 bond exchanges since March 31. We also have $7 million in scheduled paydowns on a subsidiary lending facility. . As previously described, we will continue to use toll actions, cash generated from operations and investment liquidations to fund market opportunities and the operating companies while also redeeming the scheduled senior note paydowns. We look forward to answering your questions. I'll turn the call back to the operator for the Q&A session.

[Operator Instructions] Our first question comes from Sean of Charles Lane Capital.

Congrats on the quarter. Just had a few questions here. You guys touched on it a bit, but just can you kind of elaborate on your philosophy for kind of harvesting some of these gains that you have and maybe applying them to the debt, if that's your preferred use of capital?

So Sean, I think you touched on this last call. We are -- I think we've done a pretty good job of creating optionality. And that's really important, and that means optionality might be in buying back bonds in the open market, swapping bonds for the bonds, we sold some assets and repurchased bonds. And so for us, we appreciate and we are asked often about our largest position and we don't -- our head is not on the sand. We are picking all of our portfolio as one. And we will make the decisions, I think are in the best interest of the shareholders and the bondholders. So -- there's not a -- I think it's the last time, there's no playbook in this business. DDI, which is a big position for us is trying to move private that we have $40 million of that. SpaceX, we didn't really value nearly as high a year ago as it is today, and that's on our books for over 50. So there's got a fair amount of cash, and we've got investments. So it is a daily discussion and analysis, but I just can't give you the answer that you want, which is ABCD. We are being very active and I think, thoughtful about what do we invest in the business, what do we invest to grow the business, when do we buy back bonds? What's the right price to buy back bonds, when do we swap bonds and all of those things.

Okay. Fair enough. And then on the merger with the Wealth division, I might have missed it, but have you put out any sort of quantitative synergies that you think you're going to realize out of that?

We haven't. And I think from my perspective, and Scott can touch on this a little bit, there's a lot of onetime costs that we have had to deal with as we've gotten our financials. And our team has done an amazing job of getting our financials current. But it was just a massive group of people. And we've been -- we are now at a point, we're on a normal cadence where we can really focus on that. Not that we haven't been focusing on it, but we're not -- not everything is a mad rush. And so as we look through our overall corporation and then we look through the subsidiaries and the mergers, we'll be more clear now that we can really -- I don't want to say focus is the wrong word, but maybe just focus on some of those things and not just the mad scarmble to get our financials current. Scott, anything you want to add on that?

Bryant, I think you touched on the important points there. The merger is going to have synergies across revenues and cost lines, and those are in the early parts. And early on, we're focusing in on the client side and the connectivity between the wealth and the wealth retail side and the institutional part of the business. So client focus and that connectivity is sort of the top part, as we -- in the back office sort of determine what the right steps are in there. But I'd echo Bryant's comments with respect to -- we're really just in the early innings of evaluating our operating cost structure at the company and coming out of the very intensive period and now we're going to have a very normal operating environment. That's going to give us a lot of bandwidth to evaluate our cost structure. And there's some easy wins in this. Our audit fees were high just due to the demands we had put on our auditor. And with the normal time line that we're going to be able to use this year, that's a pretty easy win for us. And we have several of those across the entity in different parts of our business and operating expenses. So now we're still staying at the directional, hey, there's a lot of opportunity, the OpEx is. And I understand that, that's not as easily calculatable into a model. But in the future quarters when we start realizing those and have more dimension, we can sure you use more specifics.

Got it. And then just lastly, just because you called it out in the release. For the 26 initiations in the quarter, how much of that is attributable to new hires versus kind of increasing coverage for existing hires?

So I'm going to -- I don't have that number handy, but I'm just going to just tap a little thesis. I think that the world is much more efficient given all the capabilities of everything, everything from AI. And so just the ability to gather information, the ability to, I think, a research analyst 2 years ago, it would have been 12 to 15 companies per analyst. And if you can't get to 25%, I think that would be -- just you're just able to just sell information quicker. -- have to download every 10-K in and make your analysis faster. So yes, I think that the vast majority of that is just from analysts that are already on board.

Our next question comes from Griffin of Owl Creek Asset Management.

Congrats on the good trajectory here. It looks like the clouds are starting to part. I was hoping you could provide some much further clarification on a couple of things. I guess the first thing is -- can you kind of walk through the rationale of buying back the minority stake of Initially, we thought that this was another lever that you had created to potentially partially monetize to help with the cap structure. And now it seems like you're walking back that. Can you kind of help us understand the rationale behind that?

Yes. I think we laid that out when we made the announcement. When we carved that out, it was a different time. I mean we have to acknowledge it was in the middle of a very unique situation for us and carving it out and separating it at that time, felt like the best thing to do for keeping people and for managing the business and from circling it and ringfence again. I think as we've gone through and as you said, are seeing some bluer skies, we have balance sheets that have been separated and utilized in different ways and now can be utilized in one way. So you might have a DRS had a lot of money at money market of 4% as a broker-dealer while we're on corporate, utilizing money at much higher rates. And -- and then there's also operating synergies. And we still think that, that business could be very easily separated if we needed to do that or if somebody came along and determined that, that was a value that we thought it was worth. But in the near term, it's just from a cost of capital perspective, from an operating efficiencies perspective, we felt like that was the right thing to do. TK, anything you want to add to that?

Yes. I would just say, again, a year ago or 2 years ago, different landscape. And again, a big part of the reason was just the optionality you heard earlier, that's one of our focuses here to make sure that we're in the right position to take advantage of whatever situation we find are in or so in. And we went down that road a year later, 1.5 years later, the landscape has changed, and it has proven to be operationally really challenging among other reasons. So rather than persist with what we're doing, we're going to simplify our lives and put it back to the way it was.

So can I infer that ex sale of BRS, you think you have all the solutions necessary in-house to solve the 26?

Yes.

Okay. Understood. And then, I guess, one of the statements you made, which I thought was obviously great as you'd see the most deal activity in 5 years. in BRS terms of capital raising. And maybe I've missed a nuance of that. But -- it doesn't look like that massive increase is showing up in the numbers. Is that because of you're trying to regain market share with lower pricing? Or is that -- can you kind of help me out there?

We are -- yes, so if we are 30% of a deal, that's obviously a lot more valuable than in 5% of the deal. And so I think over the -- what I've been super impressed with is that the company's value our research and value our distribution. The noise that has surrounded us and is dissipating. And actually I'm hopeful it turns the other way. But as it surrounded us, those percentages of those deals, we lost anemic. So ideally, we would rather be a smaller number and be 100% of the economics. But I think it speaks to our position. I think it speaks to the value that we provide to companies into the markets. And as we've been playing, I think, with 1 hand behind our back. We haven't had our financials current. We've had to spend a lot of time on that. And as we are now in a completely different position, I would expect that our percentages of those deals would go up meaningfully. I would hope. That is the goal.

Got it. And then the last one for me is you had mentioned that because the company was a delinquent filer, there was a certain business that was old from you guys. How are you thinking about -- or how are you seeing the cadence of that recovery of former clients?

Yes, it's been strong. So we measure it weekly. We have seen a lot of onboarding of accounts again. It was a big deal for I think some of the bigger institutions that just check a box, and that box was were delinquent, so let's cut them off for now. And so it's been dramatic over the course of the last quarter.

Okay. Good to hear. Congratulations on the quarter, and that's it for me.

This concludes the Q&A session. handing it back to Bryant Riley for any final remarks.

Thank you, operator. It's been a -- it really feels good to recur on the event and have a normal cadence. And now we get to go after, as I mentioned, some of these operating costs that were onetime in nature on that just sort of happened if we didn't have an amazing group that worked 24/7 to get this not only our revenues in line but also get the financials done. So super thankful and thanks, everyone, for calling in, and we look forward to talking to you about conferences coming up. So hopefully, we'll see some of you at our conference on the 20th. And I appreciate the interest. We'll see you next quarter. Thank you.

Before we conclude, we'd like to inform listeners that today's call may include forward-looking statements. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied. For a discussion of these risks, please refer to our most recent SEC filings including our annual report on Form 10-K and subsequent 10-Qs. We do not undertake any obligation to update these forward-looking statements. This concludes today's ever call. A replay will be made available shortly after today's call. Thank you, and have a great day.