BRC Group Holdings, Inc. Q2 FY2023 earnings call

Management Statement and Operational Highlights

• Overall Performance: Consolidated platform had solid Q2 results with meaningful y-o-y revenue increase despite nominal investment banking contribution. Momentum carrying into current quarter with increased client activity across sectors.
• Investment Banking: B. Riley Securities saw directional improvement, strong results in July for completed transactions and new/near-term engagements. Added experienced hires to banking and equity research team.
• Retail Liquidation: Picked up in US and Europe. Demand for financial advisory and appraisal services strong.
• Capital Markets: Conditions improving. Wealth management poised to benefit.
• Guidance Reaffirmation: Reaffirm prior guidance, expect operating EBITDA of at least $105 million in Q3, with potential upside from capital markets if current activity continues.
• Business Strategy: Remained focused on strategy over last three years, constructed business with skilled team, positioned for near-term inflection, utilizing balance sheet to pursue opportunities across platform.

Segment Performance

• B. Riley Securities: Saw directional improvement, with strong investment banking results in July in terms of completed transactions and new/near-term engagements. Added experienced hires to banking and equity research team and expanded coverage in consumer and TMT sectors.
• Wealth Management: Revenue production solid in Q2 despite muted capital markets. Gross margin improved substantially, monthly fixed costs down, achieved annualized savings and reduced legacy risk. Adviser base is balanced mix of W-2 and independence, over 50% of revenue is recurring.
• Auction and Liquidation: Saw significant influx of large retail engagements in US and Europe, contributing to increased revenues. Had large retail engagements in domestic and ongoing projects in Europe like GameStop, Salamander, Depot Germany.
• Financial Consulting: Q2 revenues increased 28% year-over-year to $31 million, segment income to $8 million. Acquired ABTV in May and Crawford & Winiarski in July to enhance business.
• Appraisal: Engagement capacity fully utilized. Looking to increase staffing levels to support asset-based lenders, building field exams group as new service line.
• Communications: Portfolio of businesses performed to expectations, segment revenues $85 million, segment income $10 million for the quarter, driven by acquisitions of Lingo and BullsEye Telecom.
• Consumer: Revenues $60 million for the quarter, driven by Targus. Acquired minority equity stake in Scotch & Soda, expected to generate $3-5 million incremental EBITDA.

Guidance

• Reaffirm prior guidance, expect to generate operating EBITDA of at least $105 million in the third quarter. This guidance is a floor based on current status, and there could be additional upside from capital markets if current level of activity continues.

Risks

• Market environment changes could impact business performance.
• Integration challenges and legacy issues in certain segments could affect results.
• Debt-related risks, including management of debt levels and refinancing needs.

Q: Provide an update on the franchise group acquisition.

A: Franchise group's shareholder vote is on 17th, and will close shortly thereafter, around August 17.

Q: How far along is the rationalization of wealth management?

A: Tom Kelleher said it's in the eighth or ninth inning, systems normalized, personnel issues addressed, now focusing on growth and attracting new talent.

Q: How should we think about the Scotch & Soda investment in terms of sizing?

A: Bought a smaller percentage, ultimately can generate $3-5 million in incremental EBITDA, IRRs well over 30%.

Q: Anything attributed to the momentum in European engagements?

A: Gained momentum by being invested and aggressively marketing during slow periods, great team in place working hard for opportunities.

Q: Plans for debt coming due soon?

A: Don't plan to roll, will utilize balance sheet assets to pay debt, already repaid $70 million of loans.

Q: Update on asset management business?

A: Institutional $250 million long short hedge, 5 people.