# BRC Group Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [BRC Group Holdings, Inc.](/companies/rily.md) (CIK 1464790)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 16:07 ET
- Period: 2023-09-30
- Accession: 0001628280-23-038222
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1464790/000162828023038222/rily-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1464790/000162828023038222/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $397.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $974.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $78.1m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $166.0m | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $221.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $623.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $20.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $188.5m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | −$15.1m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $14.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$73.8m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$10.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$2.53 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.56 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$2.53 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.56 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 29,961,068 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 28,933,546 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$41.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $111.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $53.7m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $252.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-09-30 | $6.14bn | us-gaap:Assets |
| Total liabilities | at 2023-09-30 | $5.68bn | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $413.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 92,505 characters.

*This report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “future,” “intend,” “seek,” “likely,” “potential” or “continue,” the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.*

*Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we, nor any other person, assume responsibility for the accuracy and completeness of the forward-looking statements. We are under no obligation to update any of the forward-looking statements after the filing of this Quarterly Report to conform such statements to actual results or to changes in our expectations.*

*The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes and other financial information appearing elsewhere in this Quarterly Report. Readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including without limitation the disclosures made in Item 1A of Part II of this Quarterly Report under the caption “Risk Factors.”*

*Risk factors that could cause actual results to differ from those contained in the forward-looking statements include but are not limited to risks related to: volatility in our revenues and results of operations; changing conditions in the financial markets; our ability to generate sufficient revenues to achieve and maintain profitability; our exposure to credit risk; the short term nature of our engagements; the accuracy of our estimates and valuations of inventory or assets in “guarantee” based engagements; failure to successfully compete in any of our businesses; potential losses related to our auction or liquidation engagements; our dependence on communications, information and other systems and third parties; potential losses related to purchase transactions in our auction and liquidations business; the potential loss of financial institution clients; potential losses from or illiquidity of our proprietary investments; changing economic and market conditions, including increasing or continuing inflation and actions by the Federal Reserve to address inflation and the possibility of recession or an economic downturn; the continuing effects of the COVID-19 pandemic, or other pandemics or severe public health crises, and other related impacts including supply chain disruptions, labor shortages and increased labor costs; potential liability and harm to our reputation if we were to provide an inaccurate appraisal or valuation; potential mark-downs in inventory in connection with purchase transactions; loss of key personnel; our ability to borrow under our credit facilities or at-the-market offering as necessary; failure to comply with the terms of our credit agreements or senior notes; our ability to meet future capital requirements; our ability to realize the benefits of our completed acquisitions, including our ability to achieve anticipated opportunities and cost savings, and accretion to reported earnings estimated to result from completed and proposed acquisitions in the time frame expected by management or at all; the diversion of management time on acquisition-related issues; the failure of our brand investment portfolio licensees to pay us royalties; and the effect of geopolitical instability, including wars, conflicts and terrorist attacks, including the impacts of Russia’s invasion of Ukraine. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.*

*Except as otherwise required by the context, references in this Quarterly Report to the “Company,” “B. Riley,” “B. Riley Financial,” “we,” “us” or “our” refer to the combined business of B. Riley Financial, Inc. and all of its subsidiaries.*

### Overview

### Restatement of Previously Issued Consolidated Financial Statements

We have restated certain previously reported financial information for the three and nine months ended September 30, 2022 in this Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, including but not limited to information within the Results of Operations and Revenue sections. See the Explanatory Note preceding Part I, Financial Information, for background on the restatement, the fiscal periods impacted, and other information.

### Description of the Company

B. Riley Financial, Inc. (Nasdaq: RILY) (the “Company”) is a diversified financial services platform that delivers tailored solutions to meet the strategic, operational, and capital needs of its clients and partners. We operate through several consolidated subsidiaries (collectively, “B. Riley”) that provide investment banking, brokerage, wealth management, asset management, direct lending, business advisory, valuation, and asset disposition services to a broad client base spanning public and private companies, financial sponsors, investors, financial institutions, legal and professional services firms, and individuals.

The Company opportunistically invests in and acquires companies or assets with attractive risk-adjusted return profiles to benefit our shareholders. We own and operate several uncorrelated consumer businesses and invest in brands on a principal basis. Our approach is focused on high quality companies and assets in industries in which we have extensive knowledge and can benefit from our experience to make operational improvements and maximize free cash flow. Our principal investments often leverage the financial, restructuring, and operational expertise of our professionals who work collaboratively across disciplines.

We refer to B. Riley as a “platform” because of the unique composition of our business. Our platform has grown considerably and become more diversified over the past several years. We have increased our market share and expanded the depth and breadth of our businesses both organically and through opportunistic acquisitions. Our increasingly diversified platform enables us to invest opportunistically and to deliver strong long-term investment performance throughout a range of economic cycles.

We are headquartered in Los Angeles, California and maintain offices throughout the U.S. including in New York, Chicago, Metro District of Columbia, Atlanta, Boston, Dallas, Metro Detroit, Houston, Memphis, Miami, San Francisco, Boca Raton, and West Palm Beach.

We report our activities in six reportable business segments: Capital Markets, Wealth Management, Financial Consulting, Auction and Liquidation, Communications, and Consumer segment. During the fourth quarter of 2022, we realigned our segment reporting structure to reflect organizational changes from recent acquisitions and the manner in which capital is allocated. The Consumer segment includes the previously reported Brands segment and Targus, which we acquired in the fourth quarter of 2022. We have also re-aligned our previously reported Principal Investments - Communications and Other segment into the Communications segment and the All Other category that is reported with Corporate and Other.

### Recent Developments

On August 21, 2023, we purchased an equity investment in Freedom VCM, Holdings LLC for $281.1 million, resulting in a 31% voting interest. On August 21, 2023, all of the equity interests of B Riley Receivables II, LLC, a majority-owned subsidiary of the Company, were sold to Freedom VCM Receivables, Inc (“Freedom VCM Receivables”) for a purchase price of $58.9 million, which resulted in a loss of $0.1 million. In connection with the sale, Freedom VCM Receivables assumed the obligations with respect to the Pathlight Credit Agreement as more fully discussed in Note 11 and as consideration for the purchase price Freedom VCM Receivables entered into a note receivable in the amount of $58.9 million, with a stated interest rate of 19.74% and a maturity date of August 21, 2033.

Our diversified financial platform is affected by a variety of factors including continuing high inflation, the actions by the Federal Reserve to address inflation, the possibility of recession or an economic downturn, Russia's invasion of Ukraine, and rising energy prices. These factors create uncertainty about the future economic environment which will continue to evolve and may impact our business in future periods. These developments and the impact on the financial markets and the overall economy continue to be highly uncertain and cannot be predicted. If the financial markets and/or the overall economy continue to be impacted, our results of operations, financial position, and cash flows may be materially adversely affected.

### Critical Accounting Policies

The preparation of our condensed consolidated financial statements in accordance with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, related disclosures of contingent assets and liabilities, and reported amounts of revenue and expense during the reporting period. The estimates and assumptions are based on historical experience and on other factors that management believes to be reasonable. Actual results may differ from those estimates. Critical accounting policies represent the areas where more significant judgments and estimates are used in the preparation of our condensed consolidated financial statements. A discussion of such critical accounting policies, which include revenue recognition, reserves for accounts receivable, the carrying value of goodwill and other intangible assets, fair value measurements, and accounting for income tax valuation allowances can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

### Results of Operations

The following period to period comparisons of our financial results and our interim results are not necessarily indicative of future results.

### Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

### Condensed Consolidated Statements of Operations

### (Dollars in thousands)

| Revenues: | Three Months Ended September 30, 2023 | 2022 (As Restated) | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Services and fees | $278,023 | $257,310 | $20,713 | 8.0% |
| Trading loss and fair value adjustments on loans | (10,587) | (6,917) | (3,670) | 53.1% |
| Interest income - Loans and securities lending | 69,730 | 57,594 | 12,136 | 21.1% |
| Sale of goods | 125,146 | 4,130 | 121,016 | n/m |
| Total revenues | 462,312 | 312,117 | 150,195 | 48.1% |
| Operating expenses: |  |  |  |  |
| Direct cost of services | 67,850 | 44,523 | 23,327 | 52.4% |
| Cost of goods sold | 78,053 | 3,089 | 74,964 | n/m |
| Selling, general and administrative expenses | 221,688 | 163,727 | 57,961 | 35.4% |
| Restructuring charge | 228 | 8,016 | (7,788) | (97.2)% |
| Impairment of goodwill and tradenames | 35,500 | — | 35,500 | 100.0% |
| Interest expense - Securities lending and loan participations sold | 38,368 | 17,447 | 20,921 | 119.9% |
| Total operating expenses | 441,687 | 236,802 | 204,885 | 86.5% |
| Operating income | 20,625 | 75,315 | (54,690) | (72.6)% |
| Other income (expense): |  |  |  |  |
| Interest income | 180 | 686 | (506) | (73.8)% |
| Dividend income | 12,876 | 9,175 | 3,701 | 40.3% |
| Realized and unrealized (losses) gains on investments | (75,361) | 19,071 | (94,432) | n/m |
| Change in fair value of financial instruments and other | (4,170) | (574) | (3,596) | n/m |
| Loss from equity investments | (308) | (91) | (217) | n/m |
| Interest expense | (45,229) | (34,587) | (10,642) | 30.8% |
| (Loss) income before income taxes | (91,387) | 68,995 | (160,382) | n/m |
| Benefit from (provision for) income taxes | 15,079 | (16,350) | 31,429 | (192.2)% |
| Net (loss) income | (76,308) | 52,645 | (128,953) | n/m |
| Net (loss) income attributable to noncontrolling interests | (2,485) | 4,808 | (7,293) | (151.7)% |
| Net (loss) income attributable to B. Riley Financial, Inc. | (73,823) | 47,837 | (121,660) | n/m |
| Preferred stock dividends | 2,015 | 2,002 | 13 | 0.6% |
| Net (loss) income available to common shareholders | $(75,838) | $45,835 | $(121,673) | n/m |
| n/m - Not applicable or not meaningful. |  |  |  |  |

59

### Revenues

The table below and the discussion that follows are based on how we analyze our business.

| Revenues - Services and fees: | Three Months Ended September 30, 2023 | 2022 (As Restated) | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Capital Markets segment | $80,913 | $104,042 | $(23,129) | (22.2)% |
| Wealth Management segment | 50,875 | 47,145 | 3,730 | 7.9% |
| Auction and Liquidation segment | 12,488 | 1,949 | 10,539 | n/m |
| Financial Consulting segment | 37,360 | 22,835 | 14,525 | 63.6% |
| Communications segment | 82,155 | 72,244 | 9,911 | 13.7% |
| Consumer segment | 4,304 | 5,023 | (719) | (14.3)% |
| All Other | 9,928 | 4,072 | 5,856 | 143.8% |
| Subtotal | 278,023 | 257,310 | 20,713 | 8.0% |
| Revenues - Sale of goods: |  |  |  |  |
| Auction and Liquidation segment | 65,117 | 2,550 | 62,567 | n/m |
| Communications segment | 1,638 | 1,580 | 58 | 3.7% |
| Consumer segment | 58,391 | — | 58,391 | 100.0% |
| Subtotal | 125,146 | 4,130 | 121,016 | n/m |
| Trading (loss) income and fair value adjustments on loans |  |  |  |  |
| Capital Markets segment | (11,077) | (7,944) | (3,133) | 39.4% |
| Wealth Management segment | 490 | 1,027 | (537) | (52.3)% |
| Subtotal | (10,587) | (6,917) | (3,670) | 53.1% |
| Interest income - Loans and securities lending: |  |  |  |  |
| Capital Markets segment | 69,730 | 55,054 | 14,676 | 26.7% |
| Auction and Liquidation segment | — | 2,540 | (2,540) | (100.0)% |
| Subtotal | 69,730 | 57,594 | 12,136 | 21.1% |
| Total revenues | $462,312 | $312,117 | $150,195 | 48.1% |

n/m - Not applicable or not meaningful.

Total revenues increased $150.2 million to $462.3 million during the three months ended September 30, 2023 from $312.1 million during the three months ended September 30, 2022. The increase in revenues during the three months ended September 30, 2023 was primarily due to increases in revenues from sale of goods of $121.0 million, services and fees of $20.7 million, and interest income from loans and securities lending of $12.1 million, partially offset by a decrease in trading (loss) income and fair value adjustments on loans of $3.7 million. The increase in revenue from services and fees in the three months ended September 30, 2023 consisted of increases in revenue of $14.5 million in the Financial Consulting segment, $10.5 million in the Auction and Liquidation segment, $9.9 million in the Communications segment, $5.9 million in All Other, and $3.7 million in the Wealth Management segment, partially offset by decreases in revenue of $23.1 million in the Capital Markets segment and $0.7 million in the Consumer segment.

Revenues from services and fees in the Capital Markets segment decreased $23.1 million to $80.9 million during the three months ended September 30, 2023 from $104.0 million during the three months ended September 30, 2022. The decrease in revenues was primarily due to decreases of $43.3 million in incentive fees, $4.1 million in dividends, $1.3 million of asset management fees, and $1.3 million of commission fees, partially offset by increases of $26.1 million of corporate finance, consulting, and investment banking fees and $0.8 million in interest income.

Revenues from services and fees in the Wealth Management segment increased $3.7 million to $50.9 million during the three months ended September 30, 2023 from $47.1 million during the three months ended September 30, 2022. The increase in revenues was primarily due to an increase in revenue of $3.0 million from wealth and asset management fees.

Revenues from services and fees in the Auction and Liquidation segment increased $10.5 million to $12.5 million during the three months ended September 30, 2023 from $1.9 million during the three months ended September 30, 2022. The increase in revenues was primarily due to an increase in the size and number of retail fee liquidation engagements.

Revenues from services and fees in the Financial Consulting segment increased $14.5 million to $37.4 million during the three months ended September 30, 2023 from $22.8 million during the three months ended September 30, 2022. The increase in revenues was primarily due to an increase of $12.3 million within our Advisory Services division and an increase of $2.2 million within our Real Estate division.

Revenues from services and fees in the Communications segment increased $9.9 million to $82.2 million during the three months ended September 30, 2023 from $72.2 million during the three months ended September 30, 2022. The increase in revenues was primarily due to an increase of $13.4 million in subscription services from the acquisition of the remaining non-controlling interests in Lingo Management, LLC (“Lingo”) in the first quarter of 2023 and BullsEye Telecom (“BullsEye”) acquired in the third quarter of 2022, partially offset by decreases in subscription revenue of $2.8 million for United Online, Inc. (“UOL”), magicJack VocalTec Ltd. (“magicJack”), and Marconi Wireless Holdings, LLC (“Marconi”) and $0.7 million in advertising, licensing and other revenue. We expect UOL, magicJack and Marconi subscription revenue to continue to decline year over year.

Revenues from services and fees in the Consumer segment decreased $0.7 million to $4.3 million during the three months ended September 30, 2023 from $5.0 million during the three months ended September 30, 2022. The primary source of revenue from services and fees included in this segment is the licensing of trademarks.

Revenues from services and fees in All Other, which includes the operations of a regional environmental services business that we acquired in 2022, increased $5.9 million to $9.9 million during the three months ended September 30, 2023 from $4.1 million during the three months ended September 30, 2022.

Trading (loss) income and fair value adjustments on loans decreased approximately $3.7 million to a loss of $10.6 million during the three months ended September 30, 2023 compared to a loss of $6.9 million during the three months ended September 30, 2022. This decrease was primarily due to a decrease of $3.1 million in the Capital Markets segment and a decrease of $0.5 million in the Wealth Management segment. The loss of $10.6 million during the three months ended September 30, 2023 was primarily due to realized and unrealized losses on investments made in our proprietary trading accounts of $9.7 million and an unrealized loss on our loans receivable, at fair value of $0.9 million.

Interest income – loans and securities lending increased $12.1 million to $69.7 million during the three months ended September 30, 2023 from $57.6 million during the three months ended September 30, 2022. Interest income from securities lending was $42.3 million and $21.9 million during the three months ended September 30, 2023 and 2022, respectively. Interest income from loans was $27.4 million and $35.7 million during the three months ended September 30, 2023 and 2022, respectively.

Revenues from the sale of goods increased $121.0 million to $125.1 million during the three months ended September 30, 2023 from $4.1 million during the three months ended September 30, 2022. Revenues from sale of goods were attributable to an increase of $58.4 million from the Consumer segment due to the acquisition of Targus in the fourth quarter of 2022 and an increase of $65.1 million from the Auction and Liquidation segment due to an increase in both the number and the size of asset purchase liquidation engagements. Cost of goods sold for the three months ended September 30, 2023 was $78.1 million, resulting in gross margin of 37.6%. Cost of goods sold for the three months ended September 30, 2022 was $3.1 million, resulting in gross margin of 25.2%. The change in gross margin was primarily due to the acquisition of Targus in the fourth quarter of 2022.

### Operating Expenses

### Direct Cost of Services

Direct cost of services increased approximately $23.3 million to $67.9 million during the three months ended September 30, 2023 from $44.5 million during the three months ended September 30, 2022. The increase in direct cost of services was primarily attributable to increases of $12.2 million from the Auction and Liquidation segment due to the size of the fee and asset sale deals, $7.5 million from the Communications segment from the acquisitions of Lingo in the second quarter of 2022 and BullsEye in the third quarter of 2022, and $3.6 million from All Other due to other acquisitions made during 2022.

### Selling, General and Administrative Expenses

Selling, general and administrative expenses during the three months ended September 30, 2023 and 2022 were comprised of the following:

|  | Three Months Ended September 30, 2023 Amount% |  | Three Months Ended September 30, 2022 Amount% |  | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Capital Markets segment | $63,798 | 28.8% | $37,847 | 23.1% | $25,951 | 68.6% |
| Wealth Management segment | 48,966 | 22.1% | 53,563 | 32.7% | (4,597) | (8.6)% |
| Auction and Liquidation segment | 8,405 | 3.8% | 2,228 | 1.4% | 6,177 | n/m |
| Financial Consulting segment | 26,857 | 12.1% | 20,131 | 12.3% | 6,726 | 33.4% |
| Communications segment | 28,394 | 12.8% | 27,107 | 16.6% | 1,287 | 4.7% |
| Consumer segment | 19,613 | 8.8% | 1,424 | 0.9% | 18,189 | n/m |
| Corporate and All Other | 25,655 | 11.6% | 21,427 | 13.0% | 4,228 | 19.7% |
| Total selling, general & administrative expenses | $221,688 | 100.0% | $163,727 | 100.0% | $57,961 | 35.4% |

n/m - Not applicable or not meaningful.

Total selling, general and administrative expenses increased by $58.0 million to $221.7 million during the three months ended September 30, 2023 from $163.7 million during the three months ended September 30, 2022. The increase was primarily due to an increase of $26.0 million in the Capital Markets segment, $18.2 million in the Consumer segment, $6.7 million in the Financial Consulting segment, $6.2 million in the Auction and Liquidation segment, $4.2 million in Corporate and All Other, and $1.3 million in the Communications segment, partially offset by a decrease of $4.6 million in the Wealth Management segment.

### Capital Markets

Selling, general and administrative expenses in the Capital Markets segment increased by $26.0 million to $63.8 million during the three months ended September 30, 2023 from $37.8 million during the three months ended September 30, 2022. The increase was primarily due to increases of $26.0 million in consulting expenses and $2.4 million in payroll and related expenses, partially offset by decreases of $1.3 million in foreign currency fluctuations and $1.3 million in depreciation and amortization.

### Wealth Management

Selling, general and administrative expenses in the Wealth Management segment decreased by $4.6 million to $49.0 million during the three months ended September 30, 2023 from $53.6 million during the three months ended September 30, 2022. The decrease was primarily due to decreases of $2.4 million in other expenses, $1.2 million in legal settlements, and $1.0 million in change in fair value of contingent consideration.

### Auction and Liquidation

Selling, general and administrative expenses in the Auction and Liquidation segment increased $6.2 million to $8.4 million during the three months ended September 30, 2023 from $2.2 million during the three months ended September 30, 2022. The increase was primarily due to increases of $4.1 million in business development activities and $2.4 million in payroll and related expenses.

### Financial Consulting

Selling, general and administrative expenses in the Financial Consulting segment increased by $6.7 million to $26.9 million during the three months ended September 30, 2023 from $20.1 million during the three months ended September 30, 2022. The increase was primarily due to increases of $4.9 million in payroll and related expenses and $1.8 million in other expenses.

### Communications

Selling, general and administrative expenses in the Communications segment increased $1.3 million to $28.4 million for the three months ended September 30, 2023 from $27.1 million for the three months ended September 30, 2022. The increase was primarily due to an increase of $1.7 million from the acquisition of Bullseye in the third quarter of 2022, partially offset by a decrease of $0.6 million in payroll and related expenses.

### Consumer

Selling, general and administrative expenses in the Consumer segment increased $18.2 million to $19.6 million for the three months ended September 30, 2023 from $1.4 million during the three months ended September 30, 2022. The increase was primarily due to an increase of $18.8 million from the acquisition of Targus in the fourth quarter of 2022, partially offset by a decrease of $0.5 million in depreciation and amortization.

### Corporate and All Other

Selling, general and administrative expenses for Corporate and All Other increased approximately $4.2 million to $25.7 million during the three months ended September 30, 2023 from $21.4 million for the three months ended September 30, 2022. The increase was primarily due to $5.4 million in extinguishment of debt and $1.0 million in legal expenses, partially offset by a decrease of $2.0 million in transaction costs.

**Impairment of goodwill and tradenames.** We recognized impairment charges of $35.5 million during the three months ended September 30, 2023 consisting of $8.0 million in impairment of indefinite-lived tradenames and $27.5 million in impairment of goodwill in the Consumer segment. We performed an interim impairment test as of September 30, 2022 as further discussed in Note 9. There was no impairment recognized during the three months ended September 30, 2022.

**Other Income (Expense).** Other income included interest income of $0.2 million and $0.7 million during the three months ended September 30, 2023 and 2022, respectively. Dividend income was $12.9 million during the three months ended September 30, 2023 compared to $9.2 million during the three months ended September 30, 2022. Realized and unrealized gains (losses) on investments was a loss of $75.4 million during the three months ended September 30, 2023 compared to a gain of $19.1 million during the three months ended September 30, 2022. The change was primarily due to an decrease in overall values of our investments. Change in fair value of financial instruments and other was a loss of $4.2 million during the three months ended September 30, 2023 and a loss of $0.6 million during the three months ended September 30, 2022. The change was primarily due to the loss on remeasurement of the bebe equity method investment, partially offset by the gain on the sale of certain assets related to our landscaping business. Interest expense was $45.2 million during the three months ended September 30, 2023 compared to $34.6 million during the three months ended September 30, 2022. The increase in interest expense was due to additional debt incurred during the three months ended September 30, 2023 and higher interest rates due to variable rates on certain of our outstanding debt. The increases in interest expense primarily consisted of $5.5 million and $0.5 million from the Nomura term loan and revolving credit facility, respectively, $1.6 million from the Pathlight term loan, $1.2 million from the Lingo term loan, $0.6 million and $1.2 million from the Targus term loan and revolving credit facility, respectively, $0.2 million from the issuance of senior notes, and $0.2 million from the BRPAC term loan. During the three months ended September 30, 2023, loss from equity investments was $0.3 million compared to loss from equity investments of $0.1 million during the three months ended September 30, 2022.

**(Loss) Income Before Income Taxes**. Loss before income taxes was $91.4 million during the three months ended September 30, 2023 compared to income of $69.0 million during the three months ended September 30, 2022. The change was due to an increase in operating expenses of approximately $204.9 million, a change in realized and unrealized losses on investments of $94.4 million, an increase in interest expense of $10.6 million, an increase in change in fair value of financial instruments and other of $3.6 million, a decrease of $0.5 million in interest income, and a change in loss from equity investments of $0.2 million, partially offset by an increase in revenue of $150.2 million and an increase of $3.7 million in dividend income.

**Benefit from (Provision for) Income Taxes.** Benefit from income taxes was $15.1 million during the three months ended September 30, 2023 compared to a provision of $16.4 million during the three months ended September 30, 2022. The effective income tax benefit rate was 16.5% for the three months ended September 30, 2023 as compared to a provision of 23.7% for the three months ended September 30, 2022.

**Net (Loss) Income Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests.** Net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests represents the proportionate share of net income generated by membership interests of partnerships that we do not own. The net loss attributable to noncontrolling interests was $2.5 million during the three months ended September 30, 2023 compared to net income of $4.8 million during the three months ended September 30, 2022.

**Net (Loss) Income Attributable to the Company**. Net loss attributable to the Company was $73.8 million during the three months ended September 30, 2023 compared to net income attributable to the Company of $47.8 million for the three months ended September 30, 2022. The change was due to a decrease in realized and unrealized gains (losses) on investments of $94.4 million, a decrease in operating income of $54.7 million, an increase in interest expense of $10.6 million, an increase in change in fair value of financial instruments and other of $3.6 million, a decrease of $0.5 million in interest income, and a change in loss from equity investments of $0.2 million, partially offset by a change from a provision for to a benefit from income taxes of $31.4 million, a change in net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests of $7.3 million, and an increase of $3.7 million in dividend income.

**Preferred Stock Dividends**. Preferred stock dividends were $2.0 million for the three months ended September 30, 2023 and 2022. Dividends on the Series A preferred paid during the three months ended September 30, 2023 and 2022 were $0.4296875 per depository share. Dividends on the Series B preferred paid during the three months ended September 30, 2023 and 2022 were $0.4609375 per depository share.

**Net (Loss) Income Available to Common Shareholders**. Net loss available to common shareholders was $75.8 million during the three months ended September 30, 2023 compared to net income available to common shareholders of $45.8 million during the three months ended September 30, 2022. The change was due to a decrease in realized and unrealized gains (losses) on investments of $94.4 million, a decrease in operating income of $54.7 million, an increase in interest expense of $10.6 million, an increase in change in fair value of financial instruments and other of $3.6 million, a decrease of $0.5 million in interest income, and a change in loss from equity investments of $0.2 million, partially offset by a change from provision for to benefit from income taxes of $31.4 million, a change in net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests of $7.3 million, and an increase of $3.7 million in dividend income.

### Results of Operations

The following period to period comparisons of our financial results and our interim results are not necessarily indicative of future results.

### Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

### Condensed Consolidated Statements of Operations

### (Dollars in thousands)

| Revenues: | Nine Months Ended September 30, 2023 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Services and fees | $743,909 | $651,786 | $92,123 | 14.1% |
| Trading income (loss) and fair value adjustments on loans | 83,346 | (143,958) | 227,304 | (157.9)% |
| Interest income - Loans and securities lending | 222,115 | 182,855 | 39,260 | 21.5% |
| Sale of goods | 251,310 | 7,895 | 243,415 | n/m |
| Total revenues | 1,300,680 | 698,578 | 602,102 | 86.2% |
| Operating expenses: |  |  |  |  |
| Direct cost of services | 178,188 | 73,959 | 104,229 | 140.9% |
| Cost of goods sold | 165,996 | 7,334 | 158,662 | n/m |
| Selling, general and administrative expenses | 623,200 | 506,062 | 117,138 | 23.1% |
| Restructuring charge | 949 | 8,016 | (7,067) | (88.2)% |
| Impairment of goodwill and tradenames | 37,233 | — | 37,233 | 100.0% |
| Interest expense - Securities lending and loan participations sold | 106,572 | 43,757 | 62,815 | 143.6% |
| Total operating expenses | 1,112,138 | 639,128 | 473,010 | 74.0% |
| Operating income | 188,542 | 59,450 | 129,092 | n/m |
| Other income (expense): |  |  |  |  |
| Interest income | 3,455 | 1,253 | 2,202 | 175.7% |
| Dividend income | 35,635 | 26,279 | 9,356 | 35.6% |
| Realized and unrealized losses on investments | (84,960) | (136,205) | 51,245 | (37.6)% |
| Change in fair value of financial instruments and other | (3,998) | 9,728 | (13,726) | (141.1)% |
| (Loss) income from equity investments | (175) | 3,285 | (3,460) | (105.3)% |
| Interest expense | (140,122) | (96,787) | (43,335) | 44.8% |
| Loss before income taxes | (1,623) | (132,997) | 131,374 | (98.8)% |
| (Provision for) benefit from income taxes | (14,344) | 39,858 | (54,202) | (136.0)% |
| Net loss | (15,967) | (93,139) | 77,172 | (82.9)% |
| Net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests | (5,680) | 9,245 | (14,925) | (161.4)% |
| Net loss attributable to B. Riley Financial, Inc. | $(10,287) | $(102,384) | 92,097 | (90.0)% |
| Preferred stock dividends | 6,042 | 6,006 | 36 | 0.6% |
| Net loss available to common shareholders | $(16,329) | $(108,390) | $92,061 | (84.9)% |
| n/m - Not applicable or not meaningful. |  |  |  |  |

65

### Revenues

The table below and the discussion that follows are based on how we analyze our business.

| Revenues - Services and fees: | Nine Months Ended September 30, 2023 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Capital Markets segment | $183,803 | $223,448 | $(39,645) | (17.7)% |
| Wealth Management segment | 146,660 | 184,963 | (38,303) | (20.7)% |
| Auction and Liquidation segment | 26,817 | 7,792 | 19,025 | n/m |
| Financial Consulting segment | 93,582 | 73,081 | 20,501 | 28.1% |
| Communications segment | 250,523 | 142,366 | 108,157 | 76.0% |
| Consumer segment | 13,654 | 14,754 | (1,100) | (7.5)% |
| All Other | 28,870 | 5,382 | 23,488 | n/m |
| Subtotal | 743,909 | 651,786 | 92,123 | 14.1% |
| Revenues - Sale of goods: |  |  |  |  |
| Auction and Liquidation segment | 67,009 | 2,550 | 64,459 | n/m |
| Communications segment | 5,145 | 5,345 | (200) | (3.7)% |
| Consumer segment | 179,156 | — | 179,156 | 100.0% |
| Subtotal | 251,310 | 7,895 | 243,415 | n/m |
| Trading income (loss) and fair value adjustments on loans |  |  |  |  |
| Capital Markets segment | 81,111 | (147,035) | 228,146 | (155.2)% |
| Wealth Management segment | 2,235 | 3,077 | (842) | (27.4)% |
| Subtotal | 83,346 | (143,958) | 227,304 | (157.9)% |
| Interest income - Loans and securities lending: |  |  |  |  |
| Capital Markets segment | 222,115 | 178,879 | 43,236 | 24.2% |
| Auction and Liquidation segment | — | 3,976 | (3,976) | (100.0)% |
| Subtotal | 222,115 | 182,855 | 39,260 | 21.5% |
| Total revenues | $1,300,680 | $698,578 | $602,102 | 86.2% |

n/m - Not applicable or not meaningful.

Total revenues increased approximately $602.1 million to $1,300.7 million during the nine months ended September 30, 2023 from $698.6 million during the nine months ended September 30, 2022. The increase in revenues during the nine months ended September 30, 2023 was primarily due to increases in revenues from sale of goods of $243.4 million, an increase in revenue from trading income (loss) and fair value adjustments on loans of $227.3 million, services and fees of $92.1 million, and interest income from loans and securities lending of $39.3 million. The increase in revenue from services and fees in the nine months ended September 30, 2023 consisted of increases in revenue of $108.2 million in the Communications segment, $23.5 million in All Other, $20.5 million in the Financial Consulting segment, and $19.0 million in the Auction and Liquidation segment, partially offset by decreases in revenues of $39.6 million in the Capital Markets segment, $38.3 million in the Wealth Management segment, and $1.1 million in the Consumer segment.

Revenues from services and fees in the Capital Markets segment decreased $39.6 million to $183.8 million during the nine months ended September 30, 2023 from $223.4 million during the nine months ended September 30, 2022. The decrease in revenues was primarily due to decreases of $48.7 million in incentive fees, $7.5 million in commission fees, $4.3 million in asset management fees, and $2.6 million in dividends, partially offset by increases of $18.9 million in corporate finance, consulting, and investment banking fees and $4.5 million in interest income.

Revenues from services and fees in the Wealth Management segment decreased $38.3 million to $146.7 million during the nine months ended September 30, 2023 from $185.0 million during the nine months ended September 30, 2022. The decrease in revenues was primarily due to a decrease in revenue of $26.7 million from wealth and asset management fees, $9.3 million of commission fees, and $2.3 million in other income.

Revenues from services and fees in the Auction and Liquidation segment increased $19.0 million to $26.8 million during the nine months ended September 30, 2023 from $7.8 million during the nine months ended September 30, 2022. The increase in revenues was primarily due to an increase in the size and number of retail fee liquidation engagements.

Revenues from services and fees in the Financial Consulting segment increased $20.5 million to $93.6 million during the nine months ended September 30, 2023 from $73.1 million during the nine months ended September 30, 2022. The increase in revenues was primarily due to an increase of $22.8 million within our Advisory Services division, partially offset by a decrease of $2.3 million within our Real Estate division.

Revenues from services and fees in the Communications segment increased $108.2 million to $250.5 million during the nine months ended September 30, 2023 from $142.4 million during the nine months ended September 30, 2022. The increase in revenues was primarily due to an increase of $117.6 million in subscription services from the controlling interests in Lingo in the second quarter of 2022 and the acquisition of BullsEye in the third quarter of 2022, partially offset by decreases in subscription revenue of $7.5 million and other revenue of $2.0 million for UOL, magicJack and Marconi. We expect UOL, magicJack and Marconi subscription revenue to continue to decline year over year.

Revenues from services and fees in the Consumer segment decreased $1.1 million to $13.7 million during the nine months ended September 30, 2023 from $14.8 million during the nine months ended September 30, 2022. The primary source of revenue from services and fees included in this segment is the licensing of trademarks.

Revenues from services and fees in All Other, which includes the operations of a regional environmental services business that we acquired in 2022, increased $23.5 million to $28.9 million during the nine months ended September 30, 2023 from $5.4 million during the nine months ended September 30, 2022.

Trading income (loss) and fair value adjustments on loans increased $227.3 million to income of $83.3 million during the nine months ended September 30, 2023 compared to a loss of $144.0 million during the nine months ended September 30, 2022. This increase was primarily due to increases of $228.1 million in the Capital Markets segment, partially offset by a decrease of $0.8 million in the Wealth Management segment. The trading income and fair value adjustment on loans of $83.3 million during the nine months ended September 30, 2023 was primarily due to an unrealized gain on our loans receivable, at fair value of $51.6 million and realized and unrealized gain on investments made in our proprietary trading accounts of $31.7 million.

Interest income – loans and securities lending increased $39.3 million to $222.1 million during the nine months ended September 30, 2023 from $182.9 million during the nine months ended September 30, 2022. Interest income from securities lending was $119.6 million and $55.7 million during the nine months ended September 30, 2023 and 2022, respectively. Interest income from loans was $102.5 million and $127.2 million during the nine months ended September 30, 2023 and 2022, respectively.

Revenues from the sale of goods increased $243.4 million to $251.3 million during the nine months ended September 30, 2023 from $7.9 million during the nine months ended September 30, 2022. Revenues from sale of goods were attributable to an increase of $179.2 million from the Consumer segment due to the acquisition of Targus in the fourth quarter of 2022 and an increase of $64.5 million from the Auction and Liquidation segment due to an increase in both the number and the size of asset purchase liquidation engagements, partially offset by a decrease of $0.2 million from the Communications segment. Cost of goods sold for the nine months ended September 30, 2023 was $166.0 million resulting in a gross margin of 33.9%. Cost of goods sold for the nine months ended September 30, 2022 was $7.3 million, resulting in a gross margin of 7.1%. The change in gross margin was primarily due to the acquisition of Targus in the fourth quarter of 2022.

### Operating Expenses

### Direct Cost of Services

Direct cost of services increased $104.2 million to $178.2 million during the nine months ended September 30, 2023 from $74.0 million during the nine months ended September 30, 2022. The increase in direct cost of services was primarily attributable to increases of $72.5 million from the Communications segment from the acquisitions of Lingo in the second quarter of 2022 and BullsEye in the third quarter of 2022, $16.5 million from All Other due to other acquisitions made during 2022, and $15.2 million from the Auction and Liquidation segment due to the size and number of the fee and asset sale deals.

### Selling, General and Administrative Expenses

Selling, general and administrative expenses during the nine months ended September 30, 2023 and 2022 were comprised of the following:

|  | Nine Months Ended September 30, 2023 Amount% |  | Nine Months Ended September 30, 2022 Amount% |  | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Capital Markets segment | $177,628 | 28.5% | $121,926 | 24.1% | $55,702 | 45.7% |
| Wealth Management segment | 146,420 | 23.5% | 210,840 | 41.7% | (64,420) | (30.6)% |
| Auction and Liquidation segment | 12,987 | 2.1% | 6,225 | 1.2% | 6,762 | 108.6% |
| Financial Consulting segment | 70,978 | 11.4% | 61,181 | 12.1% | 9,797 | 16.0% |
| Communications segment | 84,215 | 13.5% | 54,267 | 10.7% | 29,948 | 55.2% |
| Consumer segment | 62,534 | 10.0% | 4,164 | 0.8% | 58,370 | n/m |
| Corporate and All Other | 68,438 | 11.0% | 47,459 | 9.4% | 20,979 | 44.2% |
| Total selling, general & administrative expenses | $623,200 | 100.0% | $506,062 | 100.0% | $117,138 | 23.1% |

n/m - Not applicable or not meaningful.

Total selling, general and administrative expenses increased approximately $117.1 million to $623.2 million during the nine months ended September 30, 2023 from $506.1 million during the nine months ended September 30, 2022. The increase was primarily due to an increase of $58.4 million in the Consumer segment, $55.7 million in the Capital Markets segment, $29.9 million in the Communications segment, $21.0 million in Corporate and All Other, $9.8 million in the Financial Consulting segment, and $6.8 million in the Auction and Liquidation segment, partially offset by a decrease of $64.4 million in the Wealth Management segment.

### Capital Markets

Selling, general and administrative expenses in the Capital Markets segment increased by $55.7 million to $177.6 million during the nine months ended September 30, 2023 from $121.9 million during the nine months ended September 30, 2022. The increase was primarily due to increases of $74.5 million in consulting expenses, partially offset by decreases of $10.3 million in payroll and related expenses, $4.6 million in penalties, and $3.4 million in change in fair value of contingent consideration.

### Wealth Management

Selling, general and administrative expenses in the Wealth Management segment decreased by $64.4 million to $146.4 million during the nine months ended September 30, 2023 from $210.8 million during the nine months ended September 30, 2022. The decrease was primarily due to decreases of $37.2 million in payroll and related expenses, $7.2 million in legal settlements, $5.3 million in penalties, $5.0 million in other expenses, $2.6 million in clearing charges, $2.3 million in legal expenses, $1.3 million in software and equipment expenses, $1.2 million in depreciation and amortization, $1.0 million in change in fair value of contingent consideration, $0.7 million in consulting expenses, and $0.6 million in market data services.

### Auction and Liquidation

Selling, general and administrative expenses in the Auction and Liquidation segment increased by $6.8 million to $13.0 million during the nine months ended September 30, 2023 from $6.2 million during the nine months ended September 30, 2022. The increase was primarily due to increases of $4.0 million in business development activities and $2.5 million in payroll and related expenses.

### Financial Consulting

Selling, general and administrative expenses in the Financial Consulting segment increased by $9.8 million to $71.0 million during the nine months ended September 30, 2023 from $61.2 million during the nine months ended September 30, 2022. The increase was primarily due to increases of $6.0 million in payroll and related expenses, $2.8 million in other expenses, and $0.9 million in travel and entertainment expenses.

### Communications

Selling, general and administrative expenses in the Communications segment increased $29.9 million to $84.2 million for the nine months ended September 30, 2023 from $54.3 million for the nine months ended September 30, 2022. The increase was primarily due to increases of $36.0 million from the controlling interest in Lingo in the second quarter of 2022 and from the acquisition of Bullseye in the third quarter of 2022, partially offset by a decrease of $2.9 million in payroll and related expenses, $1.8 million in other expenses, $0.7 million in marketing expenses and $0.6 million in transaction costs.

### Consumer

Selling, general and administrative expenses in the Consumer segment increased $58.4 million to $62.5 million for the nine months ended September 30, 2023 from $4.2 million during the nine months ended September 30, 2022. The increase was primarily due to an increase of $59.8 million from the acquisition of Targus in the fourth quarter of 2022, partially offset by a decrease of $1.4 million in depreciation and amortization.

### Corporate and All Other

Selling, general and administrative expenses for Corporate and All Other increased approximately $21.0 million to $68.4 million during the nine months ended September 30, 2023 from $47.5 million for the nine months ended September 30, 2022. The increase was primarily due to increases of $6.5 million from the acquisition of other businesses in 2022, $5.4 million loss on extinguishment of debt, $4.5 million change in fair value of contingent consideration, $3.9 million in foreign currency fluctuations, and $0.7 million in other expenses.

**Impairment of goodwill and tradenames.** We recognized impairment charges of $37.2 million during the nine months ended September 30, 2023 consisting of $8.0 million in impairment of indefinite-lived tradenames and $27.5 million of impairment of goodwill in the Consumer segment and $1.7 million in impairment of tradenames in the Capital Markets segment. We performed an interim impairment test as of September 30, 2023 as further discussed in Note 9. There was no impairment recognized during the nine months ended September 30, 2022.

**Other Income (Expense).** Other income included interest income of $3.5 million and $1.3 million during the nine months ended September 30, 2023 and 2022, respectively. Dividend income was $35.6 million during the nine months ended September 30, 2023 compared to $26.3 million during the nine months ended September 30, 2022. Realized and unrealized losses on investments was $85.0 million during the nine months ended September 30, 2023 compared to losses of $136.2 million during the nine months ended September 30, 2022. The change was primarily due to an increase in overall values of our investments. Change in fair value of financial instruments and other was a loss of $4.0 million during the nine months ended September 30, 2023 and a gain of $9.7 million during the nine months ended September 30, 2022. The loss during the nine months ended September 30, 2023 was primarily due to the loss on remeasurement of the bebe equity method investment, partially offset by the gain on the sale of certain assets related to our landscaping business in 2023. Interest expense was $140.1 million during the nine months ended September 30, 2023 compared to $96.8 million during the nine months ended September 30, 2022. The increase in interest expense was due to additional debt incurred during the nine months ended September 30, 2023 and higher interest rates due to variable rates on certain of our outstanding debt. The increases in interest expense primarily consisted of $13.9 million from the Pathlight term loan, $11.6 million and $1.7 million from the Nomura term loan and revolving credit facility, respectively, $4.4 million from the Lingo term loan, $3.9 million from the issuance of senior notes, $1.8 million and $3.7 million from the Targus term loan and revolving credit facility, respectively, and $1.9 million from the BRPAC term loan. During the nine months ended September 30, 2023, loss from equity investments was $0.2 million compared to income of $3.3 million during the nine months ended September 30, 2022. The decrease was primarily due to $6.9 million in earnings related to the bebe equity method investment in 2022, partially offset by $3.7 million in losses recognized from the conversion of debt to equity in the acquisition of Lingo in the second quarter of 2022.

**Loss Before Income Taxes**. Loss before income taxes was $1.6 million during the nine months ended September 30, 2023 compared to a loss of $133.0 million during the nine months ended September 30, 2022. The change was due to an increase in revenue of $602.1 million, a change in realized and unrealized losses on investments of $51.2 million, an increase of $9.4 million in dividend income, and an increase of $2.2 million in interest income, partially offset by an increase in operating expenses of approximately $473.0 million, an increase in interest expense of $43.3 million, a decrease in change in fair value of financial instruments and other of $13.7 million, and a decrease in income from equity investments of $3.5 million.

**(Provision for) Benefit from Income Taxes.** Provision for income taxes was $14.3 million during the nine months ended September 30, 2023 compared to a benefit of $39.9 million during the nine months ended September 30, 2022. The change in the effective income tax rate during the nine months ended September 30, 2023 compared to the prior year is primarily due to the impact of the non-cash goodwill impairment charge of $27.5 million, which is further discussed in Note 9, not being tax deductible and other items that are not tax deductible on the loss before income taxes of $1.6 million.

**Net (Loss) Income Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests.** Net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests represents the proportionate share of net income generated by membership interests of partnerships that we do not own. The net loss attributable to noncontrolling interests was $5.7 million during the nine months ended September 30, 2023 compared to net income of $9.2 million during the nine months ended September 30, 2022.

**Net Loss Attributable to the Company**. Net loss attributable to the Company was $10.3 million during the nine months ended September 30, 2023 compared to a net loss attributable to the Company of $102.4 million for the nine months ended September 30, 2022. The change was due to an increase in operating income of $129.1 million, a change in realized and unrealized loss on investments of $51.2 million, a decrease in net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests of $14.9 million, an increase of $9.4 million in dividend income, and an increase of $2.2 million in interest income, partially offset by a change from benefit from to provision for income taxes of $54.2 million, an increase in interest expense of $43.3 million, a decrease in change in fair value of financial instruments and other of $13.7 million, and a decrease in income from equity investments of $3.5 million.

**Preferred Stock Dividends**. Preferred stock dividends were $6.0 million for the nine months ended September 30, 2023 and 2022. Dividends on the Series A preferred paid during the nine months ended September 30, 2023 and 2022 were $0.4296875 per depository share. Dividends on the Series B preferred paid during the nine months ended September 30, 2023 and 2022 were $0.4609375 per depository share.

**Net Loss Available to Common Shareholders**. Net loss available to common shareholders was $16.3 million during the nine months ended September 30, 2023 compared to net loss available to common shareholders of $108.4 million during the nine months ended September 30, 2022. The change was due to an increase in operating income of $129.1 million, a change in realized and unrealized loss on investments of $51.2 million, a decrease in net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests of $14.9 million, an increase of $9.4 million in dividend income, and an increase of $2.2 million in interest income, partially offset by a change from benefit from to provision for income taxes of $54.2 million, an increase in interest expense of $43.3 million, a decrease in change in fair value of financial instruments and other of $13.7 million, and a decrease in income from equity investments of $3.5 million.

### Liquidity and Capital Resources

Our operations are funded through a combination of existing cash on hand, cash generated from operations, borrowings under our senior notes payable, term loans and credit facilities, and special purposes financing arrangements. During the nine months ended September 30, 2023 and 2022, we generated net loss of $16.0 million and net loss of $93.1 million, respectively. Our cash flows and profitability are impacted by capital market engagements performed on a quarterly and annual basis and amounts realized from the sale of our investments in marketable securities.

As of September 30, 2023, we had $252.3 million of unrestricted cash and cash equivalents, $2.1 million of restricted cash, $1,197.6 million of securities and other investments, at fair value, $549.1 million of loans receivable, at fair value, and $2,363.9 million of borrowings outstanding. The borrowings outstanding of $2,363.9 million as of September 30, 2023 included $1,667.1 million from the issuance of series of senior notes that are due at various dates ranging from May 31, 2024 to August 31, 2028 with interest rates ranging from 5.00% to 6.75%, $618.3 million in term loans borrowed pursuant to the Targus, Lingo, BRPI Acquisition Co LLC (“BRPAC”), and Nomura credit agreements discussed below, $57.2 million of revolving credit facility under the Targus credit facility discussed below, and $21.3 million of notes payable.

We believe that our current cash and cash equivalents, securities and other investments owned, funds available under our asset based credit facility, funds available under the Targus, Lingo, BRPAC, and Nomura term loans, funds available under the Targus and Nomura revolving credit facilities, and cash expected to be generated from operating activities will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months from issuance date of the accompanying financial statements. We continue to monitor our financial performance to ensure sufficient liquidity to fund operations and execute on our business plan.

From time to time, we may decide to pay dividends which will be dependent upon our financial condition and results of operations. On November 8, 2023, we declared a regular dividend of $1.00 per share that will be paid on or about November 30, 2023 to stockholders of record as of November 20, 2023. During the year ended December 31, 2022, we paid cash dividends on our common stock of $119.5 million. While it is the Board’s current intention to make regular dividend payments of $1.00 per share 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 or repurchases of 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.

A summary of common stock dividend activity for the nine months ended September 30, 2023 and the year ended December 31, 2022 was as follows:

| Date Declared | Date Paid | Stockholder Record Date | Regular Dividend Amount | Special Dividend Amount | Total Dividend Amount |
| --- | --- | --- | ---: | ---: | ---: |
| July 25, 2023 | August 21, 2023 | August 11, 2023 | $1.000 | $— | $1.000 |
| May 4, 2023 | May 23, 2023 | May 16, 2023 | 1.000 | — | 1.000 |
| February 22, 2023 | March 23, 2023 | March 10, 2023 | 1.000 | — | 1.000 |
| November 3, 2022 | November 29, 2022 | November 15, 2022 | 1.000 | — | 1.000 |
| July 28, 2022 | August 23, 2022 | August 11, 2022 | 1.000 | — | 1.000 |
| April 28, 2022 | May 20, 2022 | May 11, 2022 | 1.000 | — | 1.000 |
| February 23, 2022 | March 23, 2022 | March 9, 2022 | 1.000 | — | 1.000 |

Holders of Series A Preferred Stock, when and as authorized by the board of directors of the Company, are entitled to cumulative cash dividends at the rate of 6.875% per annum of the $0.03 million liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,718.75 or $1.71875 per Depositary Share). Dividends are payable quarterly in arrears, on or about the last day of January, April, July, and October. As of September 30, 2023, dividends in arrears in respect of the Depositary Shares were $0.8 million. On October 10, 2023, the Company declared a cash dividend of $0.4296875 per Depositary Share, which was paid on October 31, 2023 to holders of record as of the close of business on October 23, 2023.

Holders of Series B Preferred Stock, when and as authorized by the board of directors of the Company, are entitled to cumulative cash dividends at the rate of 7.375% per annum of the $0.03 million liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,843.75 or $1.84375 per Depositary Share). Dividends are payable quarterly in arrears, on or about the last day of January, April, July, and October. As of September 30, 2023, dividends in arrears in respect of the Depositary Shares were $0.5 million. On October 10, 2023, the Company declared a cash dividend of $0.4609375 per Depositary Share, which was paid on October 31, 2023 to holders of record as of the close of business on October 23, 2023.

A summary of preferred stock dividend activity for the nine months ended September 30, 2023 and the year ended December 31, 2022 was as follows:

| Date Declared | Date Paid | Stockholder Record Date | Preferred Dividend per Depositary Share Series A | Series B |
| --- | --- | --- | ---: | ---: |
| October 10, 2023 | October 31, 2023 | October 23, 2023 | $0.4296875 | $0.4609375 |
| July 11, 2023 | July 31, 2023 | July 21, 2023 | 0.4296875 | 0.4609375 |
| April 10, 2023 | May 1, 2023 | April 21, 2023 | 0.4296875 | 0.4609375 |
| January 9, 2023 | January 31, 2023 | January 20, 2023 | 0.4296875 | 0.4609375 |
| October 10, 2022 | October 31, 2022 | October 21, 2022 | 0.4296875 | 0.4609375 |
| July 7, 2022 | July 29, 2022 | July 19, 2022 | 0.4296875 | 0.4609375 |
| April 7, 2022 | April 29, 2022 | April 19, 2022 | 0.4296875 | 0.4609375 |
| January 10, 2022 | January 31, 2022 | January 21, 2022 | 0.4296875 | 0.4609375 |

Our principal sources of liquidity to finance our business are our existing cash on hand, cash flows generated from operating activities, funds available under revolving credit facilities and special purpose financing arrangements.

### Cash Flow Summary

*(Dollars in thousands)*

| Net cash (used in) provided by: | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Operating activities | $(40,957) | $(72,814) |
| Investing activities | 312,954 | 41,746 |
| Financing activities | (285,459) | (8,822) |
| Effect of foreign currency on cash | (3,116) | (6,587) |
| Net decrease in cash, cash equivalents and restricted cash | $(16,578) | $(46,477) |

Cash used in operating activities was $41.0 million during the nine months ended September 30, 2023 compared to cash used in operating activities of $72.8 million during the nine months ended September 30, 2022. Cash used in operating activities for the nine months ended September 30, 2023 consisted of the impact of net loss of $16.0 million, noncash items of $40.9 million, and changes in operating assets and liabilities of $65.9 million. The positive cash flow impact from noncash items of $40.9 million included depreciation and amortization of $38.1 million, impairment of goodwill and intangibles of $37.2 million, share-based compensation of $35.3 million, provision for doubtful accounts of $5.9 million, loss on extinguishment of debt of $5.3 million, income allocated for mandatorily redeemable noncontrolling interests of $1.3 million, effect of foreign currency of $0.7 million, income from equity investments of $0.2 million, and dividends from equity investments of $0.2 million, partially offset by fair value adjustments of $42.8 million, deferred income taxes of $21.4 million, gain on sale of businesses, disposal of fixed assets, and other of $9.6 million, and non-cash interest and other of $9.4 million. Cash used in operating activities for the nine months ended September 30, 2022 consisted of the negative impact of net loss of $93.1 million, noncash items of $13.3 million, and changes in operating assets and liabilities of $33.7 million. The negative cash flow impact from noncash items of $13.3 million included deferred income taxes of $81.8 million, de-consolidation of B. Riley Principal 150 Merger Corporation (“BRPM 150”) of $8.3 million, gain on equity investments of $6.8 million, noncash interest and other of $5.4 million, income from equity investments of $3.3 million, and gain on extinguishment of loan of $1.1 million, partially offset by share-based compensation of $45.8 million, depreciation and amortization of $26.5 million, fair value adjustments of $6.3 million, impairment of intangibles and loss on disposal of fixed assets of $5.5 million, effect of foreign currency of $3.2 million, provision for doubtful accounts of $2.8 million, dividends from equity investments of $2.5 million, and income allocated for mandatorily redeemable noncontrolling interests of $0.8 million.

Cash provided by investing activities was $313.0 million during the nine months ended September 30, 2023 compared to cash provided by investing activities of $41.7 million for the nine months ended September 30, 2022. During the nine months ended September 30, 2023, cash provided by investing activities consisted of cash provided by loans receivable repayment of $543.6 million, funds received from trust account of subsidiary of $175.8 million, proceeds from sale of property, equipment, intangible assets, and other of $17.3 million, and sale of loan receivable of $7.5 million, partially offset by cash used in purchases of loans receivable of $405.4 million, acquisition of businesses and minority interest of $15.3 million, purchases of property and equipment of $5.8 million, and purchase of equity and other investments of $4.9 million. During the nine months ended September 30, 2022, cash provided by investing activities consisted of cash received from loans receivable repayment of $408.7 million and funds received from trust account of subsidiary of $172.6 million, partially offset by cash used for purchases of loans receivable of $421.7 million, acquisition of businesses of $113.6 million, purchases of equity and other investments of $2.8 million, and purchases of property and equipment of $1.4 million.

Cash used in financing activities was $285.5 million during the nine months ended September 30, 2023 compared to cash used in financing activities of $8.8 million during the nine months ended September 30, 2022. During the nine months ended September 30, 2023, cash used in financing activities primarily consisted of $504.2 million used in the repayment of term loan, $261.7 million used in payment of revolving lines of credit, $175.8 million used in redemption of subsidiary temporary equity and distributions, $111.0 million used to pay dividends on our common shares, $58.9 million used to redeem senior notes, $53.7 million used to repurchase our common shares, $27.2 million used to pay debt issuance and offering costs, $11.9 million used to repay our notes payable, $8.6 million used in ESPP and payment of employment taxes on vesting of restricted stock, $6.0 million used to pay dividends on our preferred shares, $4.0 million in distributions to noncontrolling interests, and $1.9 million used to pay contingent consideration, partially offset by cash provided by $628.2 million in proceeds from term loans, $191.3 million in proceeds from revolving line of credit, $115.0 million in proceeds from issuance of common stock, $4.3 million in contributions from noncontrolling interests, and $0.5 million in proceeds from issuance of preferred stock. During the nine months ended September 30, 2022, cash used in financing activities primarily consisted of $172.6 million used in the redemption of subsidiary temporary equity and distributions, $90.4 million used to pay dividends on our common shares, $60.9 million used in the repayment of term loan, $6.7 million used in payment of employment taxes on vesting of restricted stock, $6.0 million used to pay dividends on our preferred shares, $5.3 million used in repayment of revolving line of credit, $3.4 million in distributions to noncontrolling interests, $1.4 million used in the payment of debt issuance and offering costs, $0.7 million used in the payment of contingent consideration, and $0.4 million used to repay our notes payable, partially offset by cash provided by $275.7 million in proceeds from borrowings under a term loan, $51.2 million in proceeds from issuance of senior notes, $11.4 million in contributions from noncontrolling interests, and $0.6 million in proceeds from issuance of preferred stock.

### FRG Commitments

On May 10, 2023, we entered into certain agreements pursuant to which we had, among other things, agreed to provide certain equity funding and other support in connection with the acquisition (the “Acquisition”) by Freedom VCM, Inc., a Delaware corporation (the “Parent”), of FRG. We entered into an Equity Commitment Letter with Freedom VCM (“TopCo”), the parent company of the Parent, and the Parent, pursuant to which we agreed to provide to TopCo, at or prior to the closing of the Acquisition, an amount equal to up to $560.0 million in equity financing. We and FRG also entered into a Limited Guarantee in favor of FRG, pursuant to which we agreed to guarantee to FRG the due and punctual payment, performance and discharge when required by Parent or its subsidiary to FRG of certain liabilities and obligations of the Parent or such subsidiary. On August 21, 2023, in connection with the completion of the Acquisition and our portion of the equity financing, our obligations pursuant to the Equity Commitment Letter and Limited Guarantee were satisfied.

### Credit Agreements

### Targus Credit Agreement

On October 18, 2022, our subsidiary, Tiger US Holdings, Inc. (the “Borrower”), a Delaware corporation, among others, entered into a credit agreement (“Targus Credit Agreement”) with PNC Bank, National Association (“PNC”), as agent and security trustee for a five-year $28.0 million term loan and a five-year $85.0 million revolver loan, which was used to finance part of the acquisition of Targus.

The Targus Credit Agreement contains certain covenants, including those limiting the Borrower’s 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. The Targus 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 outstanding under the Targus Credit Agreement. The Borrower was not in compliance with the Fixed Charge Coverage Ratio financial covenant as of September 30, 2023. The Borrower entered into Amendment No.1 to the Targus Credit Agreement on October 31, 2023, which, among other things, modified the Fixed Charge Coverage Ratio which waived the financial covenant breach. The Borrower is in compliance with the Targus Credit Agreement and no event of default has occurred.

The term loan bears interest on the outstanding principal amount equal to the Term Secured Overnight Financing Rate (“SOFR”) rate plus an applicable margin of 3.75%. The revolver loan consists of base rate loans that bear interest on the outstanding principal amount equal to the base rate plus an applicable margin of 1.00% to 1.75% and term rate loans that bear interest on the outstanding principal amount equal to the revolver SOFR rate plus an applicable margin of 2.00% to 2.75%.

Principal outstanding that is due in quarterly installments started on December 31, 2022. Quarterly installments from December 31, 2023 to September 30, 2027 are in the amount of $1.4 million per quarter and the remaining principal balance is due at final maturity on October 18, 2027.

As of September 30, 2023 and December 31, 2022, the outstanding balance on the term loan was $22.0 million (net of unamortized debt issuance costs of $0.4 million) and $26.0 million (net of unamortized debt issuance costs of $0.6 million) and the outstanding balance on the revolver loan was $57.2 million and $53.0 million, respectively. Interest expense on these loans during the three and nine months ended September 30, 2023 was $1.8 million (including amortization of deferred debt issuance costs of $0.1 million and unused commitment fees of $0.02 million) and $5.5 million (including amortization of deferred debt issuance costs of $0.4 million and unused commitment fees of $0.1 million), respectively. The interest rate on the term loan was 9.24% and 8.43% and the interest rate on the revolver loan ranged between 7.42% to 10.25% and 6.03% to 9.25% as of September 30, 2023 and December 31, 2022, respectively.

### Lingo Credit Agreement

On August 16, 2022, our subsidiary, Lingo (the “Borrower”), entered into a credit agreement (the “Lingo Credit Agreement”) by and among the Borrower, the Company as the secured guarantor, and Banc of California, N.A. in its capacity as administrative agent and lender, for a five-year $45.0 million term loan. This loan was used to finance part of the purchase of BullsEye by Lingo. On September 9, 2022, Lingo entered into the First Amendment to the Lingo Credit Agreement with Grasshopper Bank (the “New Lender”) for an incremental term loan of $7.5 million, increasing the principal balance of the term loan to $52.5 million. On November 10, 2022, Lingo entered into the Second Amendment to the Lingo Credit Agreement with KeyBank National Association for an incremental term loan of $20.5 million, increasing the principal balance of the term loan to $73.0 million.

The term loan bears interest on the outstanding principal amount equal to the term SOFR rate plus a margin of 3.00% to 3.75% per annum, depending on the consolidated total funded debt ratio as defined in the Lingo Credit Agreement, plus applicable spread adjustment. As of September 30, 2023 and December 31, 2022, the interest rate on the Lingo Credit Agreement was 8.93% and 7.89%, respectively.

The Lingo Credit Agreement contains certain covenants, including those limiting the Borrower’s ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of its businesses, engage in transactions with related parties, make certain investments or pay dividends. In addition, the Lingo Credit Agreement requires the Borrower to maintain certain financial ratios. The Lingo 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 Lingo Credit Agreement. We are in compliance with all financial covenants in the Lingo Credit Agreement as of September 30, 2023.

Principal outstanding is due in quarterly installments. The quarterly installment for December 31, 2023 is in the amount of $2.3 million, quarterly installments from March 31, 2024 to December 31, 2024 are in the amount of

$2.7 million per quarter, quarterly installments from March 31, 2025 to June 30, 2027 are in the amount of $3.7 million, and the remaining principal balance is due at final maturity on August 16, 2027.

As of September 30, 2023 and December 31, 2022, the outstanding balance on the term loan was $67.6 million (net of unamortized debt issuance costs of $0.8 million) and $72.0 million (net of unamortized debt issuance costs of $1.0 million), respectively. Interest expense on the term loan during the three and nine months ended September 30, 2023 was $1.6 million (including amortization of deferred debt issuance costs of $0.1 million) and $4.8 million (including amortization of deferred debt issuance costs of $0.2 million), respectively. Interest expense on the term loan during the three and nine months ended September 30, 2022 was $0.4 million (including amortization of deferred debt issuance costs of $0.03 million).

### Nomura Credit Agreement

We and our wholly owned subsidiaries, BR Financial Holdings, LLC, and BR Advisory & Investments, LLC had entered into a credit agreement dated June 23, 2021 (as amended, the “Prior Credit Agreement”) with Nomura Corporate Funding Americas, LLC, as administrative agent, and Wells Fargo Bank, N.A., as collateral agent, for a four-year $300.0 million secured term loan credit facility (the “Prior Term Loan Facility”) and a four-year $80.0 million secured revolving loan credit facility (the “Prior Revolving Credit Facility”) with a maturity date of June 23, 2025.

On August 21, 2023, we and our wholly owned subsidiary, BR Financial Holdings, LLC (the “Borrower”) entered into a credit agreement (the “Credit Agreement”) with Nomura Corporate Funding Americas, LLC, as administrative agent, and Computershare Trust Company, N.A., as collateral agent, for a four-year $500.0 million secured term loan credit facility (the “New Term Loan Facility”) and a four-year $100.0 million secured revolving loan credit facility (the “New Revolving Credit Facility” and together, the “New Credit Facilities”). The purpose of the Credit Agreement was to (i) fund the Freedom VCM equity investment, (ii) prepay in full the Prior Term Loan Facility and Prior Revolving Credit Facility with an aggregate outstanding balance of $347.9 million, which included $342.0 million in principal and $5.9 million in interest and fees, (iii) fund a dividend reserve in an amount not less than $65.0 million, (iv) pay related fees and expenses, and (v) for general corporate purposes. We recorded a loss on extinguishment of debt related to the Prior Credit Agreement of $5.4 million, which was included in selling, general and administrative expenses on the condensed consolidated statements of operations.

SOFR rate loans under the New Credit Facilities accrue interest at the adjusted term SOFR rate plus an applicable margin of 6.00%. In addition to paying interest on outstanding borrowings under the New Revolving Credit Facility, we are required to pay a quarterly commitment fee based on the unused portion, which is determined by the average utilization of the facility for the immediately preceding fiscal quarter.

The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type that, among other things, limit our and our subsidiaries’ ability to incur additional indebtedness or liens, to dispose of assets, to make certain fundamental changes, to enter into restrictive agreements, to make certain investments, loans, advances, guarantees and acquisitions, to prepay certain indebtedness and to pay dividends or to make other distributions or redemptions/repurchases in respect of their respective equity interests. The Credit Agreement contains customary events of default, including with respect to a failure to make payments under the credit facilities, cross-default, certain bankruptcy and insolvency events and customary change of control events. We are in compliance with all financial covenants in the Credit Agreement as of September 30, 2023.

Commencing on September 30, 2023, the New Term Loan Facility began to amortize in equal quarterly installments of 0.625% of the principal amount of the term loan as of the closing date with the remaining balance due at final maturity on August 21, 2027. Quarterly installments from December 31, 2023 to June 30, 2027 are in the amount of $3.1 million per quarter.

As of September 30, 2023 and December 31, 2022, the outstanding balance on the term loan was $477.8 million (net of unamortized debt issuance costs of $19.1 million) and $287.0 million (net of unamortized debt issuance costs of $5.5 million), respectively. Interest on the term loan during the three months ended September 30, 2023 and 2022 was $11.3 million (including amortization of deferred debt issuance costs of $0.8 million) and $5.7 million (including amortization of deferred debt issuance costs of $0.5 million), respectively. Interest on the term loan during the nine months ended September 30, 2023 and 2022 was $26.1 million (including amortization of deferred debt issuance costs of $1.8 million) and $14.6 million (including amortization of deferred debt issuance costs of $1.5 million), respectively. The interest rate on the term loan as of September 30, 2023 and December 31, 2022 was 11.38% and 9.23%, respectively.

We had an outstanding balance of zero and $74.7 million under the revolving facility as of September 30, 2023 and December 31, 2022, respectively. Interest on the revolving facility during the three months ended September 30, 2023 and 2022 was $1.9 million (including unused commitment fees of $0.05 million and amortization of deferred financing costs of $0.2 million) and $1.4 million (including unused commitment fees of $0.01 million and amortization of deferred financing costs of $0.1 million), respectively. Interest on the revolving facility during the nine months ended September 30, 2023 and 2022 was $5.4 million (including unused commitment fees of $0.08 million and amortization of deferred financing costs of $0.5 million) and $3.7 million (including unused commitment fees of $0.01 million and amortization of deferred financing costs of $0.4 million), respectively. The interest rate on the Revolving Credit Facility as of September 30, 2023 and December 31, 2022 was 11.38% and 9.23%, respectively.

### Wells Fargo Credit Agreement

We are party to a credit agreement (as amended, the “Credit Agreement”) governing our asset based credit facility with Wells Fargo Bank, National Association (“Wells Fargo Bank”) with a maximum borrowing limit of $200.0 million and a maturity date of April 20, 2027. 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 interest rate for each revolving credit advance under the related credit agreement is, subject to certain terms and conditions, equal to the SOFR 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 provides for success fees in the amount of 1.0% to 10.0% of the net profits, if any, earned on liquidation engagements that are financed under the credit facility as set forth in the related Credit Agreement. The credit facility also provides for funding fees in the amount of 0.05% to 0.20% of the aggregate principal amount of all credit advances and letters of credit issued in connection with a liquidation sale. Interest expense totaled $0.02 million and $0.02 million during the three months ended September 30, 2023 and 2022, respectively and $0.05 million and $0.2 million during the nine months ended September 30, 2023 and 2022, respectively. There was no outstanding balance on this credit facility as of September 30, 2023 and December 31, 2022. As of September 30, 2023 and December 31, 2022, there were no open letters of credit outstanding.

We are in compliance with all financial covenants in the asset based credit facility as of September 30, 2023.

### BRPAC Credit Agreement

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 ours, 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, the parent corporation of BRPAC and a subsidiary of ours, 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 BRPAC Credit Agreement. We are in compliance with all financial covenants in the BRPAC Credit Agreement as of September 30, 2023.

Through a series of amendments, including the most recent Fourth Amendment to the BRPAC Credit Agreement (the “Fourth Amendment”) on June 21, 2022, the Borrowers, the Secured Guarantors, the Agent and the Closing Date Lenders agreed to the following, among other things: (i) the Lenders agreed to make a new $75.0 million term loan to the Borrowers, the proceeds of which the Borrowers’ used to repay the outstanding principal amount of the existing terms loans and optional loans and will use for other general corporate purposes, (ii) a new applicable margin level of 3.50% was established as set forth from the date of the Fourth Amendment, (iii) Marconi Wireless Holdings, LLC (“Marconi Wireless”) was added to the Borrowers, (iv) the maturity date of the term loan was set to June 30, 2027, and (v) the Borrowers were permitted to make certain distributions to the parent company of the Borrowers.

The borrowings under the amended BRPAC Credit Agreement bear interest equal to the term SOFR rate plus a margin of 2.75% to 3.50% per annum, depending on the Borrowers’ consolidated total funded debt ratio as defined in the BRPAC Credit Agreement. As of September 30, 2023 and December 31, 2022, the interest rate on the BRPAC Credit Agreement was 8.44% and 7.65%, respectively.

Principal outstanding under the Amended BRPAC Credit Agreement is due in quarterly installments. The quarterly installment on December 31, 2023 is in the amount of $4.4 million, quarterly installments from March 31, 2024 to December 31, 2026 are in the amount of $3.5 million per quarter, the quarterly installment on March 31, 2027 is in the amount of $2.6 million, and the remaining principal balance is due at final maturity on June 30, 2027.

As of September 30, 2023 and December 31, 2022, the outstanding balance on the term loan was $50.9 million (net of unamortized debt issuance costs of $0.5 million) and $68.7 million (net of unamortized debt issuance costs of $0.7 million), respectively. Interest expense on the term loan during the three months ended September 30, 2023 and 2022 was $1.2 million (including amortization of deferred debt issuance costs of $0.1 million) and $1.1 million (including amortization of deferred debt issuance costs of $0.1 million), respectively. Interest expense on the term loan during the nine months ended September 30, 2023 and 2022 was $4.0 million (including amortization of deferred debt issuance costs of $0.2 million) and $2.2 million (including amortization of deferred debt issuance costs of $0.3 million), respectively.

### Senior Note Offerings

During the three months ended September 30, 2023 and 2022, we issued zero and $15.4 million, respectively, and during the nine months ended September 30, 2023 and 2022, we issued $0.2 million and $51.3 million, respectively, of senior notes due with maturities dates ranging from May 2024 to August 2028 pursuant to At the Market Issuance Sales Agreements with B. Riley Securities, Inc. which governs the program of at-the-market sales of the Company’s senior notes. We filed a series of prospectus supplements with the SEC in respect of our offerings of these senior notes.

In June 2023, we entered into note purchase agreements in connection with the 6.75% Senior Notes due 2024 (“6.75% 2024 Notes”) that were issued for the Targus acquisition. The note purchase agreements had a repurchase date of June 30, 2023 on which date we repurchased 2,356,978 shares of our 6.75% 2024 Notes with an aggregate principal amount of $58.9 million. The repurchase price was equal to the aggregate principal amount, plus accrued and unpaid interest up to, but excluding, the repurchase date. The total repurchase payment included approximately $0.7 million in accrued interest.

As of September 30, 2023 and December 31, 2022, the total senior notes outstanding was $1,667.1 million (net of unamortized debt issue costs of $14.1 million) and $1,721.8 million (net of unamortized debt issue costs of $18.1 million), respectively, with a weighted average interest rate of 5.71% and 5.75%, respectively. Interest on senior notes is payable on a quarterly basis. Interest expense on senior notes totaled $25.1 million and $25.1 million during the three months ended September 30, 2023 and 2022, respectively, and $78.1 million and $74.2 million during the nine months ended September 30, 2023 and 2022, respectively.

The most recent sales agreement prospectus was filed by us with the SEC on January 5, 2022 (the “January 2022 Sales Agreement Prospectus”). This program provides for the sale by the Company of up to $250.0 million of certain of the Company’s senior notes. As of September 30, 2023 and December 31, 2022, the Company had $138.0 million and $138.2 million, respectively, remaining availability under the January 2022 Sales Agreement.

### Recent Accounting Standards

See Note 3(p) to the accompanying financial statements for recent accounting standards we have recently adopted.

## Market risk

As filed, 5,139 characters.

We periodically use 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. As of September 30, 2023 and December 31, 2022, there were no forward exchange contracts outstanding.

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 gain from forward exchange contracts was zero during the three months ended September 30, 2023 and 2022 and zero and $0.1 million during the nine months ended September 30, 2023 and 2022, respectively. This amount is reported as a component of selling, general and administrative expenses in the condensed consolidated statements of operations.

We transact 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 income in the accompanying condensed consolidated balance sheets. Transaction gains (losses) are included in selling, general and administrative expenses in our condensed consolidated statements of operations.

### Interest Rate Risk

Our primary exposure to market risk consists of risk related to changes in interest rates. We utilize borrowings under our senior notes payable and credit facilities to fund costs and expenses incurred in connection with our acquisitions and operations. Borrowings under our senior notes payable are at fixed interest rates and borrowings under our credit facilities bear interest at a floating rate of interest. In our portfolio of securities owned, we invest in loans receivable that primarily bear interest at a floating rate of interest. If floating rates of interest had increased by 1% during the nine months ended September 30, 2023, the rate increase would have resulted in an increase in interest expense of $2.2 million.

The primary objective of our investment activities is to preserve capital for the purpose of funding operations while at the same time maximizing the income that we receive from investments without significantly increasing risk. To achieve these objectives, our investments allow us to maintain a portfolio of cash equivalents, short-term investments through a variety of securities owned that primarily includes common stocks, loans receivable, and investments in partnership interests. Our cash and cash equivalents through September 30, 2023 included amounts in bank checking and liquid money market accounts. We may be exposed to interest rate risk through trading activities in convertible and fixed income securities as well as U.S. Treasury securities, however, based on our daily monitoring of this risk, we believe we currently have limited exposure to interest rate risk in these activities.

### Foreign Currency Risk

The majority of our operating activities are conducted in U.S. dollars. Revenues generated from our foreign subsidiaries totaled $190.1 million and $10.1 million during the nine months ended September 30, 2023 and 2022, respectively or 14.6% and 1.4% of our total revenues of $1,300.7 million and $698.6 million during the nine months ended September 30, 2023 and 2022, respectively. Foreign revenues during the nine months ended September 30, 2023 are primarily due to sale of goods in our Consumer segment. The financial statements of our foreign subsidiaries are translated into U.S. dollars at period-end rates, with the exception of revenues, costs, and expenses, which are translated at average rates during the reporting period. We include gains and losses resulting from foreign currency transactions in income, while we exclude those resulting from translation of financial statements from income and include them as a component of accumulated other comprehensive income (loss). Transaction gains (losses), which were included in our condensed consolidated statements of operations, amounted to a loss of $0.4 million and gain of $1.9 million during the nine months ended September 30, 2023 and 2022, respectively. We may be exposed to foreign currency risk; however, our operating results during the nine months ended September 30, 2023 and 2022, included $190.1 million and $10.1 million of revenues, respectively, and $78.2 million and $6.5 million of operating expenses from our foreign subsidiaries, respectively, and a 10% appreciation or depreciation of the U.S. dollar relative to the local currency exchange rates would result in an approximately $6.6 million and $0.9 million change in our operating income during the nine months ended September 30, 2023 and 2022, respectively.

## Controls and procedures

As filed, 4,658 characters.

#### Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures (as defined in the Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that is designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Under the supervision and with the participation of our management, including our Co-Chief Executive Officers and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. Based upon the foregoing evaluation, our Co-Chief Executive Officers and our Chief Financial Officer concluded that as of September 30, 2023 our disclosure controls and procedures were not effective at the reasonable assurance level.

#### Changes in Internal Control over Financial Reporting

There have been no changes to our internal control over financial reporting during the fiscal quarter covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

#### Remediation

The Company’s material weaknesses relating to the operating effectiveness of management's review controls over key assumptions that are utilized to determine the fair value of intangible assets for new acquisitions and the fair value of reporting units and management’s review controls over the income tax provision described above did not result in a material adjustment to the Company’s consolidated financial statements. The Company’s material weakness for presentation and classification of dividend income and realized and unrealized gains (losses) on certain equity securities resulted in the correction to reclassify certain revenue amounts to other income in the consolidated statement of operations and did not result in changes to the balance sheet, statement of equity, statement of cash flows, net income (loss) or earnings per share as previously reported.

Management continues to implement measures designed to ensure that the control deficiency contributing to the material weakness is remediated, such that the controls are designed, implemented, and operating effectively. The remediation actions include the enhancement of control activity evidence, improvement of the precision level of management review controls, and reclassification of dividend income and realized and unrealized gains (losses) on certain equity securities.

While we believe that these actions will be sufficient to remediate the material weakness, it will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of fiscal 2023.

#### Inherent Limitation on Effectiveness of Controls

Our management, including our Co-Chief Executive Officers and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well- designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

## Risk factors

As filed, 977 characters.

There are certain risks and uncertainties in our business that could cause our actual results to differ materially from those anticipated. A detailed discussion of our risk factors was included in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on March 16, 2023. These risk factors should be read carefully in connection with evaluating our business and in connection with the forward-looking statements and other information contained in this Quarterly Report on Form 10-Q. Any of the risks described in the Annual Report on Form 10-K for the year ended December 31, 2022, could materially affect our business, financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. There have been no material changes to the risk factors set forth in the Annual Report on Form 10-K for the year ended December 31, 2022.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-038222. Last ingested by Listed: Nov 3, 2026, 21:36 ET. No prices; not investment advice.