BRC Group Holdings, Inc. Q1 FY2023 earnings call

Strategic Initiatives: Over the past 5 years, undertook initiatives to diversify platform and generate cash. Made strategic acquisitions and expanded sources of steady/recurring earnings to insulate from capital market downturns.

Balance Sheet Highlights: As of March 31, 2023, had $210 million in unrestricted cash/cash equivalents, $1.04 billion in net securities/other investments owned, $772 million in loans receivable at fair value. Total cash and investments balance ~$2 billion. Total debt ~$2.5 billion, net debt ~$427 million. Completed ~$54 million in stock buybacks, with ~$30 million remaining under share repurchase program. Board approved regular quarterly dividend of $1 per share.

Business Developments: In Q4 2022, expanded middle-market health care service practice by bringing on 45 professionals from Farber. Recently made senior hires in consumer and TMT. Provided $60 million debt financing to Hero Health in January, with loan repaid in full in March. Participated in Bluestar Alliance’s acquisition of Scotch & Soda, enhancing existing brands business.

Capital Markets: Revenue increased 80% to $185 million in Q1 2023, up from $103 million in the prior year period. Segment income increased 56% to $86 million. Excluding investment gains/losses, operating revenues increased 10% to $135 million.

Fixed Income: Revenue increased approximately 65% compared to the prior year quarter.

Asset Management: 2023 has started slower, but overall performance momentum for 272 capital remains strong with new institutional clients being onboarded.

Wealth Management: Revenues were $50 million in Q1 2023, up from $46 million in Q4 2022. Returned to profitability in Q1, with ~50% of revenues being recurring. Client assets under management were over $24 billion with over 400 advisers.

Financial Consulting: Segment revenues were $25 million in Q1, driven by asset-based lending appraisal activity and corporate bankruptcy assignments.

Advisory Services: Acquired the corporate division of Farber in February, enhancing restructuring services and expanding reach in Canada. Real estate division engaged in large sale leaseback transactions.

Auction and Liquidation: Segment revenues increased to $5.7 million in Q1 2023, up from $3.4 million in Q1 2022. Commenced new retail liquidation projects like Nordstrom, Canada.

Communications: Revenues increased to $87 million in Q1 2023, up from $32 million in the prior year period, primarily driven by acquisitions of Lingo and BullsEye Telecom in 2022.

Consumer: Revenues increased to $70 million in Q1 2023, primarily from acquisition of Targus in Q4 2022 and licensing of trademarks. Investments in Hurley and Justice brands contributed dividend income, enhanced by addition of Scotch & Soda.

Market Conditions: Recognizes market volatility but remains positioned to take advantage when market turns. Has significant backlog in M&A and equity engagements, expecting to be a leader in small cap when market recovers. Wealth management business positioned to benefit from better market conditions.### Future Plans: Intends to pursue additional opportunities to enhance consumer segment in line with strategy to expand/diversify steady/recurring earnings. Look to make acquisitions in Targus-related space and continue to invest in talent across segments.

Market Volatility: Equity markets continue to be challenging, and market downturns could impact business.### Debt Risks: Total debt is significant, and changes in interest rates could affect debt servicing.### Liquidation Risks: Past equity deals like Barney’s resulted in losses, though current liquidation deals like Bed Bath & Beyond are expected to be profitable but market dynamics can change.

Q: Any consideration to cutting the dividend and using more capital for buybacks?

A: Bryant Riley states they will manage capital carefully, feel good about balance sheet and free cash flow to pay dividend, and will utilize other ways like buybacks but will keep dividend as long as they can generate cash flow.

Q: Comment on liquidation opportunity with Bed Bath & Beyond?

A: Bed Bath & Beyond liquidation is a fee deal with potential for outsized returns through participation in augment, no risk involved, and will be a profitable transaction.

Q: Accounting question on SPAC liquidation?

A: Phillip Ahn states cash on trust is held prepaid with offsetting liability, no hit to equity as the liability offsets the cash on trust.

Q: Thoughts on Targus business?

A: Bryant Riley says confidence in Targus business hasn't deteriorated, will look for acquisitions in that space, has great management team, brand, and distribution, and is diversified to take advantage of market effects.