UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| (Mark One) | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended March 31, 2019 | |
| Or | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to | |
Commission File Number 001-37503
B. RILEY
FINANCIAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | 27-0223495 |
|
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
|
21255 Burbank Boulevard, Suite 400 Woodland Hills, CA |
91367 |
| (Address of Principal Executive Offices) | (Zip Code) |
(818) 884-3737
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)
| Large accelerated filer ☐ | Accelerated filer ☒ | |
| Non-accelerated filer ☐ | Smaller reporting company ☐ | |
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 30, 2019, there were 26,525,868 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.
B. Riley Financial, Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2019
Table of Contents
B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par value)
| March 31, | December 31, | ||||||||||
| 2019 | 2018 | ||||||||||
| (Unaudited) | |||||||||||
| Assets | |||||||||||
| Assets: | |||||||||||
| Cash and cash equivalents | $ | 163,462 | $ | 179,440 | |||||||
| Restricted cash | 7,491 | 838 | |||||||||
| Due from clearing brokers | 22,418 | 37,738 | |||||||||
| Securities and other investments owned, at fair value | 288,802 | 273,577 | |||||||||
| Securities borrowed | 827,242 | 931,346 | |||||||||
| Accounts receivable, net | 43,975 | 42,123 | |||||||||
| Due from related parties | 1,965 | 1,729 | |||||||||
| Loans receivable | 53,448 | 38,794 | |||||||||
| Prepaid expenses and other assets | 87,942 | 79,477 | |||||||||
| Operating lease right-of-use assets | 51,086 | — | |||||||||
| Property and equipment, net | 15,644 | 15,523 | |||||||||
| Goodwill | 223,243 | 223,368 | |||||||||
| Other intangible assets, net | 88,479 | 91,358 | |||||||||
| Deferred income taxes | 42,789 | 42,399 | |||||||||
| Total assets | $ | 1,917,986 | $ | 1,957,710 | |||||||
| Liabilities and Equity | |||||||||||
| Liabilities: | |||||||||||
| Accounts payable | $ | 5,217 | $ | 5,646 | |||||||
| Accrued expenses and other liabilities | 90,921 | 108,662 | |||||||||
| Deferred revenue | 69,959 | 69,066 | |||||||||
| Due to partners | 1,428 | 2,428 | |||||||||
| Securities sold not yet purchased | 35,948 | 37,623 | |||||||||
| Securities loaned | 824,833 | 930,522 | |||||||||
| Mandatorily redeemable noncontrolling interests | 4,529 | 4,633 | |||||||||
| Operating lease liabilities | 65,855 | — | |||||||||
| Notes payable | 1,193 | 1,550 | |||||||||
| Term loan | 89,138 | 79,166 | |||||||||
| Senior notes payable | 465,040 | 459,754 | |||||||||
| Total liabilities | 1,654,061 | 1,699,050 | |||||||||
| Commitments and contingencies (note 15) | |||||||||||
| B. Riley Financial, Inc. stockholders' equity: | |||||||||||
| Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued | — | — | |||||||||
| Common stock, $0.0001 par value; 100,000,000 shares authorized; 26,525,216 and 26,603,355 issued and outstanding as of March 31, 2019 and December 31, 2018, respectively | 2 | 2 | |||||||||
| Additional paid-in capital | 257,888 | 258,638 | |||||||||
| Retained earnings | 7,468 | 1,579 | |||||||||
| Accumulated other comprehensive loss | (1,991 | ) | (2,161 | ) | |||||||
| Total B. Riley Financial, Inc. stockholders' equity | 263,367 | 258,058 | |||||||||
| Noncontrolling interests | 558 | 602 | |||||||||
| Total equity | 263,925 | 258,660 | |||||||||
| Total liabilities and equity | $ | 1,917,986 | $ | 1,957,710 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(Dollars in thousands, except share data)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| Revenues: | ||||||||
| Services and fees | $ | 131,853 | $ | 88,449 | ||||
| Interest income - Securities lending | 9,330 | 7,291 | ||||||
| Sale of goods | 945 | 38 | ||||||
| Total revenues | 142,128 | 95,778 | ||||||
| Operating expenses: | ||||||||
| Direct cost of services | 18,537 | 11,652 | ||||||
| Cost of goods sold | 1,119 | 41 | ||||||
| Selling, general and administrative expenses | 90,543 | 68,098 | ||||||
| Restructuring charge | 147 | 217 | ||||||
| Interest expense - Securities lending | 6,804 | 5,168 | ||||||
| Total operating expenses | 117,150 | 85,176 | ||||||
| Operating income | 24,978 | 10,602 | ||||||
| Other income (expense): | ||||||||
| Interest income | 637 | 128 | ||||||
| Loss from equity investments | (3,762 | ) | (672 | ) | ||||
| Interest expense | (10,770 | ) | (4,227 | ) | ||||
| Income before income taxes | 11,083 | 5,831 | ||||||
| Provision for income taxes | (3,104 | ) | (989 | ) | ||||
| Net income | 7,979 | 4,842 | ||||||
| Net (loss) income attributable to noncontrolling interests | (44 | ) | 339 | |||||
| Net income attributable to B. Riley Financial, Inc. | $ | 8,023 | $ | 4,503 | ||||
| Basic income per share | $ | 0.31 | $ | 0.17 | ||||
| Diluted income per share | $ | 0.30 | $ | 0.17 | ||||
| Weighted average basic shares outstanding | 26,217,215 | 26,219,277 | ||||||
| Weighted average diluted shares outstanding | 26,687,531 | 27,271,819 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(Dollars in thousands)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| Net income | $ | 7,979 | $ | 4,842 | ||||
| Other comprehensive income (loss): | ||||||||
| Change in cumulative translation adjustment | 170 | (220 | ) | |||||
| Other comprehensive income (loss), net of tax | 170 | (220 | ) | |||||
| Total comprehensive income | 8,149 | 4,622 | ||||||
| Comprehensive (loss) income attributable to noncontrolling interests | (44 | ) | 339 | |||||
| Comprehensive income attributable to B. Riley Financial, Inc. | $ | 8,193 | 4,283 | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Equity
(Unaudited)
(Dollars in thousands, except share data)
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Retained | Comprehensive | Noncontrolling | Total | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | Loss | Interests | Equity | ||||||||||||||||||||||||||||
| Balance, January 1, 2018 | — | $ | — | 26,569,462 | $ | 2 | $ | 259,980 | $ | 6,582 | $ | (534 | ) | $ | (184 | ) | $ | 265,846 | ||||||||||||||||||
| Vesting of restricted stock, net of shares withheld for employer taxes | — | — | 107,960 | — | (1,125 | ) | — | — | — | (1,125 | ) | |||||||||||||||||||||||||
| Share based payments | — | — | — | — | 2,558 | — | — | — | 2,558 | |||||||||||||||||||||||||||
| Dividends on common stock ($0.16 per share) | — | — | — | — | — | (203 | ) | — | — | (203 | ) | |||||||||||||||||||||||||
| Net income for the three months ended March 31, 2018 | — | — | — | — | — | 4,503 | — | 306 | 4,809 | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | (220 | ) | — | (220 | ) | |||||||||||||||||||||||||
| Balance, March 31, 2018 | — | $ | — | 26,677,422 | $ | 2 | $ | 261,413 | $ | 10,882 | $ | (754 | ) | $ | 122 | $ | 271,665 | |||||||||||||||||||
| Balance, January 1, 2019 | — | $ | — | 26,603,355 | $ | 2 | $ | 258,638 | $ | 1,579 | $ | (2,161 | ) | $ | 602 | $ | 258,660 | |||||||||||||||||||
| Vesting of restricted stock, net of shares withheld for employer taxes | — | — | 78,911 | — | (714 | ) | — | — | — | (714 | ) | |||||||||||||||||||||||||
| Stock repurchased and retired | — | — | (157,050 | ) | — | (2,650 | ) | — | — | — | (2,650 | ) | ||||||||||||||||||||||||
| Share based payments | — | — | — | — | 2,614 | — | — | — | 2,614 | |||||||||||||||||||||||||||
| Dividends on common stock ($0.08 per share) | — | — | — | — | — | (2,134 | ) | — | — | (2,134 | ) | |||||||||||||||||||||||||
| Net income for the three months ended March 31, 2019 | — | — | — | — | — | 8,023 | — | (44 | ) | 7,979 | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | 170 | — | 170 | |||||||||||||||||||||||||||
| Balance, March 31, 2019 | — | $ | — | 26,525,216 | $ | 2 | $ | 257,888 | $ | 7,468 | $ | (1,991 | ) | $ | 558 | $ | 263,925 | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
| Three Months Ended March 31, | ||||||||
| 2019 | 2018 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 7,979 | $ | 4,842 | ||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 4,913 | 3,337 | ||||||
| Provision for doubtful accounts | 233 | 305 | ||||||
| Share-based compensation | 2,614 | 2,558 | ||||||
| Non-cash interest and other | 736 | 186 | ||||||
| Effect of foreign currency on operations | 130 | (48 | ) | |||||
| Loss from equity investments | 3,762 | 672 | ||||||
| Deferred income taxes | (390 | ) | — | |||||
| Impairment of leaseholds and intangibles, lease loss accrual and loss on disposal of fixed assets | 88 | 286 | ||||||
| Income allocated and fair value adjustment for mandatorily redeemable noncontrolling interests | 169 | 175 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Due from clearing brokers | 15,320 | (16,417 | ) | |||||
| Securities and other investments owned | (15,225 | ) | (5,457 | ) | ||||
| Securities borrowed | 104,104 | (54,003 | ) | |||||
| Accounts receivable | (2,845 | ) | (8,078 | ) | ||||
| Prepaid expenses and other assets | (3,706 | ) | (16,012 | ) | ||||
| Accounts payable, accrued payroll and related expenses, accrued value added tax payable and other accrued expenses | (1,251 | ) | (10,049 | ) | ||||
| Amounts due to/from related parties and partners | (1,236 | ) | 473 | |||||
| Securities sold, not yet purchased | (1,675 | ) | (8,555 | ) | ||||
| Deferred revenue | 893 | 378 | ||||||
| Securities loaned | (105,689 | ) | 51,352 | |||||
| Net cash provided by (used in) operating activities | 8,924 | (54,055 | ) | |||||
| Cash flows from investing activities: | ||||||||
| Purchases of loans receivable | (20,154 | ) | — | |||||
| Repayment of loans receivable | 5,500 | — | ||||||
| Purchases of property and equipment and intangible assets | (1,746 | ) | (693 | ) | ||||
| Proceeds from sale of property, equipment and intangible assets | 12 | — | ||||||
| Equity investments | (10,558 | ) | (3,575 | ) | ||||
| Dividends from equity investments | 433 | — | ||||||
| Net cash used in investing activities | (26,513 | ) | (4,268 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repayment of notes payable | (357 | ) | (357 | ) | ||||
| Proceeds from term loan | 10,000 | — | ||||||
| Proceeds from issuance of senior notes | 4,987 | 7,267 | ||||||
| Payment of debt issuance costs | (145 | ) | (76 | ) | ||||
| Payment of employment taxes on vesting of restricted stock | (714 | ) | (1,125 | ) | ||||
| Dividends paid | (2,606 | ) | (1,779 | ) | ||||
| Repurchase of common stock | (2,650 | ) | — | |||||
| Distribution to noncontrolling interests | (274 | ) | (117 | ) | ||||
| Net cash provided by financing activities | 8,241 | 3,813 | ||||||
| Decrease in cash, cash equivalents and restricted cash | (9,348 | ) | (54,510 | ) | ||||
| Effect of foreign currency on cash, cash equivalents and restricted cash | 23 | (314 | ) | |||||
| Net decrease in cash, cash equivalents and restricted cash | (9,325 | ) | (54,824 | ) | ||||
| Cash, cash equivalents and restricted cash, beginning of year | 180,278 | 152,534 | ||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 170,953 | $ | 97,710 | ||||
| Supplemental disclosures: | ||||||||
| Interest paid | $ | 17,435 | $ | 9,008 | ||||
| Taxes paid | $ | 192 | $ | 136 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share data)
NOTE 1—ORGANIZATION AND NATURE OF BUSINESS OPERATIONS
B. Riley Financial, Inc. and its subsidiaries (collectively the “Company”) provide investment banking and financial services to corporate, institutional and high net worth clients, and asset disposition, valuation and appraisal and capital advisory services to a wide range of retail, wholesale and industrial clients, as well as lenders, capital providers, private equity investors and professional services firms throughout the United States, Australia, Canada, and Europe and with the acquisitions of United Online, Inc. (“UOL”) on July 1, 2016 and magicJack VocalTec Ltd. (“magicJack”) on November 14, 2018, provide consumer Internet access and cloud communication services.
The Company operates in four operating segments: (i) Capital Markets, through which the Company provides investment banking, corporate finance, securities lending, restructuring, consulting, research, sales and trading and wealth management services to corporate, institutional and high net worth clients; (ii) Auction and Liquidation, through which the Company provides Auction and Liquidation services to help clients dispose of assets that include multi-location retail inventory, wholesale inventory, trade fixtures, machinery and equipment, intellectual property and real property; (iii) Valuation and Appraisal, through which the Company provides Valuation and Appraisal services to clients with independent appraisals in connection with asset based loans, acquisitions, divestitures and other business needs; and (iv) Principal Investments — United Online and magicJack, through which the Company provides consumer Internet access and related subscription services from United Online and cloud communication services primarily through the magicJack devices.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation and Basis of Presentation
The condensed consolidated financial statements include the accounts of B. Riley Financial, Inc. and its wholly-owned and majority-owned subsidiaries. The condensed consolidated financial statements also include the accounts of (a) Great American Global Partners, LLC which is controlled by the Company as a result of its ownership of a 50% member interest, appointment of two of the three executive officers and significant influence over the funding of operations, and (b) GA Retail Investments, L.P. which is controlled by the Company as a result of its ownership of a 50% partnership interest, appointment of executive officers and significant influence over the operations. The condensed consolidated financial statements have been prepared by the Company, without audit, pursuant to interim financial reporting guidelines and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company’s management, all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the periods presented have been included. These condensed consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 6, 2019. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the operating results to be expected for the full fiscal year or any future periods.
(b) Use of Estimates
The preparation of the condensed consolidated financial statements in accordance with accounting GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenue and expense during the reporting period. Estimates are used when accounting for certain items such as valuation of securities, reserves for accounts receivable, the fair value of intangible assets and goodwill, the fair value of mandatorily redeemable noncontrolling interests, fair value of share based arrangements and accounting for income tax valuation allowances. Estimates are based on historical experience, where applicable, and assumptions that management believes are reasonable under the circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ.
8
(c) Revenue Recognition
On January 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606 — Revenue from Contracts with Customers using the modified retrospective method and the impact was determined to be immaterial on our condensed consolidated financial statements. The new revenue standard was applied prospectively in the Company’s condensed consolidated financial statements from January 1, 2018 forward and reported financial information for historical comparable periods was revised and will continue to be reported under the accounting standards in effect during those historical periods.
Revenues are recognized when control of the promised goods or performance obligations for services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for the goods or services.
There have been no material changes to the Company’s revenue recognition accounting policy set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. See Note 12 for information on revenue from contracts with customers.
(d) Direct Cost of Services
Direct cost of services relates to service and fee revenues. The costs consist of employee compensation and related payroll benefits, travel expenses, the cost of consultants assigned to revenue-generating activities and direct expenses billable to clients in the Valuation and Appraisal segment. Direct costs of services include participation in profits under collaborative arrangements in which the Company is a majority participant. Direct costs of services also include the cost of consultants and other direct expenses related to Auction and Liquidation contracts pursuant to commission and fee based arrangements in the Auction and Liquidation segment. Direct cost of services in the Principal Investments — United Online and magicJack segment include cost of telecommunications and data center costs, personnel and overhead-related costs associated with operating the Company’s networks, servers and data centers, sales commissions associated with multi-year service plans, depreciation of network computers and equipment, amortization expense, third party advertising sales commissions, license fees, costs related to providing customer support, costs related to customer billing and processing of customer credit cards and associated bank fees. Direct cost of services does not include an allocation of the Company’s overhead costs.
(e) Interest Expense — Securities Lending Activities
Interest expense from securities lending activities is included in operating expenses related to operations in the Capital Markets segment. Interest expense from securities lending activities is incurred from equity and fixed income securities that are loaned to the Company.
(f) Concentration of Risk
Revenues in the Capital Markets, Valuation and Appraisal and Principal Investments — United Online and magicJack segments are currently primarily generated in the United States. Revenues in the Auction and Liquidation segment are primarily generated in the United States, Australia, Canada and Europe.
The Company’s activities in the Auction and Liquidation segment are executed frequently with, and on behalf of, distressed customers and secured creditors. Concentrations of credit risk can be affected by changes in economic, industry, or geographical factors. The Company seeks to control its credit risk and potential risk concentration through risk management activities that limit the Company’s exposure to losses on any one specific liquidation services contract or concentration within any one specific industry. To mitigate the exposure to losses on any one specific liquidation services contract, the Company sometimes conducts operations with third parties through collaborative arrangements.
The Company maintains cash in various federally insured banking institutions. The account balances at each institution periodically exceed the Federal Deposit Insurance Corporation’s (“FDIC”) insurance coverage, and as a result, there is a concentration of credit risk related to amounts in excess of FDIC insurance coverage. The Company has not experienced any losses in such accounts. The Company also has substantial cash balances from proceeds received from auctions and liquidation engagements that are distributed to parties in accordance with the collaborative arrangements.
9
(g) Advertising Expenses
The Company expenses advertising costs, which consist primarily of costs for printed materials, as incurred. Advertising costs totaled $362 and $93 for the three months ended March 31, 2019 and 2018, respectively. Advertising expense is included as a component of selling, general and administrative expenses in the accompanying condensed consolidated statements of income.
(h) Share-Based Compensation
The Company’s share-based payment awards principally consist of grants of restricted stock, restricted stock units and costs associated with the Company’s employee stock purchase plan. In accordance with the applicable accounting guidance, share-based payment awards are classified as either equity or liabilities. For equity-classified awards, the Company measures compensation cost for the grant of membership interests at fair value on the date of grant and recognizes compensation expense in the condensed consolidated statements of income over the requisite service or performance period the award is expected to vest. The fair value of the liability-classified award will be subsequently remeasured at each reporting date through the settlement date. Change in fair value during the requisite service period will be recognized as compensation cost over that period.
In June 2018, the Company adopted the 2018 Employee Stock Purchase Plan (“Purchase Plan”) which allows eligible employees to purchase common stock through payroll deductions as a price that is 15% of the market value of the common stock on the last day of the offering period. In accordance with the provisions of ASC 718, Compensation — Stock Compensation (“ASC 718”), the Company is required to recognize compensation expense relating to shares offered under the Purchase Plan. For the three months ended March 31, 2019, the Company recognized compensation expense of $121 related to the Purchase Plan. At March 31, 2019, there were 687,427 shares reserved for issuance under the Purchase Plan.
| (i) | Income Taxes |
The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the condensed consolidated financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the financial statement basis and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates the degree to which tax assets and credit carryforwards will result in a benefit based on expected profitability by tax jurisdiction. A valuation allowance for such tax assets and loss carryforwards is provided when it is determined to be more likely than not that the benefit of such deferred tax asset will not be realized in future periods. Tax benefits of operating loss carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and other circumstances. If it becomes more likely than not that a tax asset will be used, the related valuation allowance on such assets would be reduced.
The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Once this threshold has been met, the Company’s measurement of its expected tax benefits is recognized in its financial statements. The Company accrues interest on unrecognized tax benefits as a component of income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense.
(j) Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
(k) Restricted Cash
As of March 31, 2019, restricted cash balance of $7,491 included $469 cash collateral for one of the Company’s telecommunication suppliers, $365 certificate of deposits collateral for certain letter of credits, and $6,657 of cash collateral related to a retail liquidation engagement. As of December 31, 2018, restricted cash balance of $838 included $469 cash collateral for one of the Company’s telecommunication suppliers and $369 certificate of deposits collateral for certain letter of credits.
(l) Securities Borrowed and Securities Loaned
Securities borrowed and securities loaned are recorded based upon the amount of cash advanced or received. Securities borrowed transactions facilitate the settlement process and require the Company to deposit cash or other collateral with the lender. With respect to securities loaned, the Company receives collateral in the form of cash. The amount of collateral required to be deposited for securities borrowed, or received for securities loaned, is an amount generally in excess of the market value of the applicable securities borrowed or loaned. The Company monitors the market value of the securities borrowed and loaned on a daily basis, with additional collateral obtained, or excess collateral recalled, when deemed appropriate.
10
The Company accounts for securities lending transactions in accordance with ASC “Topic 210: Balance Sheet,” which requires companies to report disclosures of offsetting assets and liabilities. The Company does not net securities borrowed and securities loaned and these items are presented on a gross basis in the condensed consolidated balance sheets.
(m) Due from/to Brokers, Dealers, and Clearing Organizations
The Company clears all of its proprietary and customer transactions through other broker-dealers on a fully disclosed basis. The amount receivable from or payable to the clearing brokers represents the net of proceeds from unsettled securities sold, the Company’s clearing deposit and amounts receivable for commissions less amounts payable for unsettled securities purchased by the Company and amounts payable for clearing costs and other settlement charges. This amount also includes the cash collateral received for securities loaned less cash collateral for securities borrowed. Any amounts payable would be fully collateralized by all of the securities owned by the Company and held on deposit at the clearing broker.
(n) Accounts Receivable
Accounts receivable represents amounts due from the Company’s Auction and Liquidation, Valuation and Appraisal, Capital Markets and Principal Investments — United Online and magicJack customers. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management utilizes a specific customer identification methodology. Management also considers historical losses adjusted for current market conditions and the customers’ financial condition and the current receivables aging and current payment patterns. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers. The Company’s bad debt expense and changes in the allowance for doubtful accounts for the three months ended March 31, 2019 and 2018 are included in Note 6.
(o) Leases
The Company determines if an arrangement is, or contains, a lease at the inception date. Operating leases are included in right-of-use assets, with the related liabilities included in operating lease liabilities in the condensed consolidated balance sheet.
Operating lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. We use our estimated incremental borrowing rate in determining the present value of lease payments. Variable components of the lease payments such as fair market value adjustments, utilities, and maintenance costs are expensed as incurred and not included in determining the present value. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components which are accounted for as a single lease component. See Note 8 for additional information on leases.
(p) Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets. Property and equipment held under capital leases are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset. Depreciation and amortization expense on property and equipment was $1,536 and $1,177 for the three months ended March 31, 2019 and 2018, respectively.
(q) Loans Receivable
Loans receivable are measured at historical cost and reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans, and for purchased loans, net of any unamortized premiums or discounts. Loan origination fees and certain direct origination costs are deferred and recognized as adjustments to interest income over the lives of the related loans. Unearned income, discounts and premiums are amortized to interest income using a level yield methodology. As of March 31, 2019 and December 31, 2018, total loans receivable carried at cost was $53,448 and $38,794, respectively. The loans receivable carried at cost have various maturity dates ranging from April 2019 to January 2023.
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(r) Securities and other Investments Owned and Securities Sold Not Yet Purchased
Securities owned consist of marketable securities and investments in partnership interests and other securities recorded at fair value. Securities sold, but not yet purchased represents obligations of the Company to deliver the specified security at the contracted price and thereby create a liability to purchase the security in the market at prevailing prices. Changes in the value of these securities are reflected currently in the results of operations.
As of March 31, 2019 and December 31, 2018, the Company’s securities and other Investments owned and securities sold not yet purchased at fair value consisted of the following securities:
| March 31, | December 31, | |||||||
| 2019 | 2018 | |||||||
| Securities and other investments owned: | ||||||||
| Common and preferred stocks and warrants | $ | 189,165 | $ | 193,459 | ||||
| Corporate bonds | 28,740 | 18,825 | ||||||
| Fixed income securities | 13,365 | 3,825 | ||||||
| Loans receivable at fair value | 34,041 | 33,731 | ||||||
| Partnership interests and other | 23,491 | 23,737 | ||||||
| $ | 288,802 | $ | 273,577 | |||||
| Securities sold not yet purchased: | ||||||||
| Common stocks | $ | 10,091 | $ | 11,130 | ||||
| Corporate bonds | 20,206 | 16,338 | ||||||
| Fixed income securities | 5,651 | 10,155 | ||||||
| $ | 35,948 | $ | 37,623 | |||||
(s) Fair Value Measurements
The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) for identical instruments that are highly liquid, observable and actively traded in over-the-counter markets. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose inputs are observable and can be corroborated by market data. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The Company’s securities and other investments owned and securities sold and not yet purchased are comprised of common and preferred stocks and warrants, corporate bonds, loans receivable valued at fair value and investments in partnerships. Investments in common stocks that are based on quoted prices in active markets are included in Level 1 of the fair value hierarchy. The Company also holds nonpublic common and preferred stocks and warrants for which there is little or no public market and fair value is determined by management on a consistent basis. For investments where little or no public market exists, management’s determination of fair value is based on the best available information which may incorporate management’s own assumptions and involves a significant degree of judgment, taking into consideration various factors including earnings history, financial condition, recent sales prices of the issuer’s securities and liquidity risks. These investments are included in Level 3 of the fair value hierarchy. Investments in partnership interests include investments in private equity partnerships that primarily invest in equity securities, bonds, and direct lending funds. The Company also invests in priority investment funds and the underlying securities held by these funds are primarily corporate and asset-backed fixed income securities and restrictions exist on the redemption of amounts invested by the Company. The Company’s partnership and investment fund interests are valued based on the Company’s proportionate share of the net assets of the partnerships and funds; the value for these investments are derived from the most recent statements received from the general partner or fund administrator. These partnership and investment fund interests are valued at net asset value (“NAV”) in accordance with ASC “Topic 820: Fair Value Measurements.”
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The fair value of mandatorily redeemable noncontrolling interests is determined based on the issuance of similar interests for cash, references to industry comparables, and relied, in part, on information obtained from appraisal reports and internal valuation models.
The following tables present information on the financial assets and liabilities measured and recorded at fair value on a recurring basis as of March 31, 2019 and December 31, 2018.
| Financial Assets and Liabilities Measured at Fair Value | ||||||||||||||||||||
| on a Recurring Basis at March 31, 2019 Using | ||||||||||||||||||||
| Quoted prices in | ||||||||||||||||||||
| Fair value at | active markets for | Other observable | Significant unobservable | |||||||||||||||||
| March 31, | identical assets | inputs | inputs | |||||||||||||||||
| 2019 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||||
| Assets: | ||||||||||||||||||||
| Securities and other investments owned: | ||||||||||||||||||||
| Common and preferred stocks and warrants | $ | 189,165 | $ | 161,676 | 2,975 | $ | 24,514 | |||||||||||||
| Corporate bonds | 28,740 | — | 27,410 | 1,330 | ||||||||||||||||
| Fixed income securities | 13,365 | — | 13,365 | — | ||||||||||||||||
| Loans receivable at fair value | 34,041 | — | — | 34,041 | ||||||||||||||||
| Total | 265,311 | $ | 161,676 | $ | 43,750 | $ | 59,885 | |||||||||||||
| Investment funds valued at net asset value (1) | 23,491 | |||||||||||||||||||
| Total assets measured at fair value | $ | 288,802 | ||||||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Securities sold not yet purchased: | ||||||||||||||||||||
| Common stocks | $ | 10,091 | $ | 10,091 | $ | — | $ | — | ||||||||||||
| Corporate bonds | 20,206 | — | 20,206 | — | ||||||||||||||||
| Fixed income securities | 5,651 | — | 5,651 | — | ||||||||||||||||
| Total securities sold not yet purchased | 35,948 | 10,091 | 25,857 | — | ||||||||||||||||
| Mandatorily redeemable noncontrolling interests issued after November 5, 2003 | 4,529 | — | — | 4,529 | ||||||||||||||||
| Total liabilities measured at fair value | $ | 40,477 | $ | 10,091 | $ | 25,857 | $ | 4,529 | ||||||||||||
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| Financial Assets and Liabilities Measured at Fair Value | ||||||||||||||||||||
| on a Recurring Basis at December 31, 2018 Using | ||||||||||||||||||||
| Quoted prices in | ||||||||||||||||||||
| Fair value at | active markets for | Other observable | Significant unobservable | |||||||||||||||||
| December 31 | identical assets | inputs | inputs | |||||||||||||||||
| 2018 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||||
| Assets: | ||||||||||||||||||||
| Securities and other investments owned: | ||||||||||||||||||||
| Common and preferred stocks and warrants | $ | 193,459 | $ | 168,882 | — | $ | 24,577 | |||||||||||||
| Corporate bonds | 18,825 | — | 18,825 | — | ||||||||||||||||
| Fixed income securities | 3,825 | — | 3,825 | — | ||||||||||||||||
| Loans receivable at fair value | 33,731 | — | — | 33,731 | ||||||||||||||||
| Total | 249,840 | $ | 168,882 | $ | 22,650 | $ | 58,308 | |||||||||||||
| Investment funds valued at net asset value(1) | 23,737 | |||||||||||||||||||
| Total assets measured at fair value | $ | 273,577 | ||||||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Securities sold not yet purchased: | ||||||||||||||||||||
| Common stocks | $ | 11,130 | $ | 11,130 | $ | — | $ | — | ||||||||||||
| Corporate bonds | 16,338 | — | 16,338 | — | ||||||||||||||||
| Fixed income securities | 10,155 | — | 10,155 | — | ||||||||||||||||
| Total securities sold not yet purchased | 37,623 | 11,130 | 26,493 | — | ||||||||||||||||
| Mandatorily redeemable noncontrolling interests issued after November 5, 2003 | 4,633 | — | — | 4,633 | ||||||||||||||||
| Total liabilities measured at fair value | $ | 42,256 | $ | 11,130 | $ | 26,493 | $ | 4,633 | ||||||||||||
| (1) | Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy in accordance with ASC “Topic 820 Fair Value Measurements.” The fair value amounts presented in the tables above for investment funds valued at net asset value are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the condensed consolidated balance sheets. |
As of March 31, 2019 and December 31, 2018, financial assets measured and reported at fair value on a recurring basis and classified within Level 3 were $59,885 and $58,308, respectively, or 3.1% and 3.0%, respectively, of the Company’s total assets. In determining the fair value for these Level 3 financial assets, the Company analyzes various financial, performance and market factors to estimate the value, including where applicable, over-the-counter market trading activity.
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The following table summarizes the significant unobservable inputs in the fair value measurement of level 3 financial assets and liabilities by category of investment and valuation technique as of March 31, 2019:
| Fair value at March 31, 2019 | Valuation Technique | Unobservable Input | Range | Weighted Average | ||||||||||
| Assets: | ||||||||||||||
| Common and preferred stocks and warrants | $ | 24,514 | Market approach | Over-the-counter trading activity | $7.18-$10.50/share | $7.79 | ||||||||
| Market price of related security | $0.60/share | $0.60 | ||||||||||||
| Yield analysis | Market yield | 13.0% | 13.0% | |||||||||||
| Option pricing model | Annualized volatility | 26% - 53% | 26% | |||||||||||
| Discounted cash flow | Cost of capital | 12.2% | 12.2% | |||||||||||
| Market comparable companies | Revenue multiple | 1.1X | 1.1X | |||||||||||
| Corporate bonds | 1,330 | Discounted cash flow | Market interest rate | 4.5% | 4.5% | |||||||||
| Loans receivable at fair value | 34,041 | Discounted cash flow | Market interest rate | 7.9% - 14.8% | 11.2% | |||||||||
| Total level 3 assets measured at fair value | $ | 59,885 | ||||||||||||
| Liabilities: | ||||||||||||||
| Mandatorily redeemable noncontrolling interests issued after November 5, 2003 | $ | 4,529 | Market approach | Operating income multiple | 6.0x | 6.0x | ||||||||
The changes in Level 3 fair value hierarchy during the three months ended March 31, 2019 and 2018 are as follows:
| Level 3 | Level 3 Changes During the Period | Level 3 | ||||||||||||||||||||||
| Balance at | Fair | Relating to | Purchases, | Transfer in | Balance at | |||||||||||||||||||
| Beginning of | Value | Undistributed | Sales and | and/or out | End of | |||||||||||||||||||
| Year | Adjustments | Earnings | Settlements | of Level 3 | Period | |||||||||||||||||||
| Three Months Ended March 31, 2019 | ||||||||||||||||||||||||
| Common and preferred stocks and warrants | $ | 24,577 | $ | (18 | ) | $ | — | $ | (45 | ) | $ | — | $ | 24,514 | ||||||||||
| Corporate bonds | — | — | — | — | 1,330 | 1,330 | ||||||||||||||||||
| Loans receivable at fair value | 33,731 | 35 | 475 | (200 | ) | — | 34,041 | |||||||||||||||||
| Mandatorily redeemable noncontrolling interests issued after November 5, 2003 | 4,633 | — | (104 | ) | — | — | 4,529 | |||||||||||||||||
| Three Months Ended March 31, 2018 | ||||||||||||||||||||||||
| Common stocks and warrants | $ | 28,346 | $ | (1,885 | ) | $ | 578 | $ | 6,848 | $ | — | $ | 33,887 | |||||||||||
| Loans receivable at fair value | 33,713 | (417 | ) | — | (4,120 | ) | — | 29,176 | ||||||||||||||||
| Partnership interests and other | 26,104 | (193 | ) | (161 | ) | 11,169 | — | 36,919 | ||||||||||||||||
| Mandatorily redeemable noncontrolling interests issued after November 5, 2003 | 4,478 | — | 58 | — | — | 4,536 | ||||||||||||||||||
During the three months ended March 31, 2019, there was a transfer of one financial asset from level 1 to level 3 in the fair value hierarchy as a result of the asset’s principal market becoming inactive during the quarter.
The amount reported in the table above for the three months ended March 31, 2019 and 2018 includes the amount of undistributed earnings attributable to the noncontrolling interests that is distributed on a quarterly basis. The carrying amounts reported in the condensed consolidated financial statements for cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses and other liabilities approximate fair value based on the short-term maturity of these instruments.
The carrying amount of the senior notes payable approximates fair value because the contractual interest rates or effective yields of such instruments are consistent with current market rates of interest for instruments of comparable credit risk.
During the three months ended March 31, 2019 and 2018, there were no assets or liabilities measured at fair value on a non-recurring basis.
(t) Derivative and Foreign Currency Translation
The Company periodically uses derivative instruments, which primarily consist of the purchase of forward exchange contracts, for certain Auction and Liquidation engagements with operations outside the United States. The Company did not use any derivative contracts during the three months ended March 31, 2019. During the three months ended March 31, 2018, the Company’s use of derivatives consisted of the purchase of forward exchange contracts (a) in the amount of $54,406 Canadian dollars, of which $10,703 remained open at March 31, 2018 and settled in April 2018, and (b) $1,500 Euro’s that settled in March 2018.
15
The forward exchange contract was entered into to improve the predictability of cash flows related to a retail store liquidation engagement that was completed in December 2016. The net gain from forward exchange contracts was $30 during the three months ended March 31, 2018 and is included in selling, general and administrative expenses in the condensed consolidated statements of income.
The Company transacts business in various foreign currencies. In countries where the functional currency of the underlying operations has been determined to be the local country’s currency, revenues and expenses of operations outside the United States are translated into United States dollars using average exchange rates while assets and liabilities of operations outside the United States are translated into United States dollars using year-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 (loss) gains were ($186) and $138 during the three months ended March 31, 2019 and 2018, respectively. These amounts are included in selling, general and administrative expenses in the Company’s condensed consolidated statements of income.
(u) Common Stock Warrants
The common stock warrants entitle the holders of the warrants to acquire shares of the Company’s common stock from the Company at a price of $17.50 per share (the “Exercise Price”), subject to, among other matters, the proper completion of an exercise notice and payment. The Exercise Price and the number of shares of Company common stock issuable upon exercise are subject to customary anti-dilution and adjustment provisions, which include stock splits, subdivisions or reclassifications of the Company’s common stock. The common stock warrants expire on July 3, 2022. As of March 31, 2019, warrants to purchase 821,816 shares of common stock were outstanding.
(v) Equity Investment
bebe stores, inc.
At March 31, 2019, the Company had a 30.5% ownership interest in bebe stores, inc. (“bebe”). The equity ownership in bebe is accounted for under the equity method of accounting, and is included in prepaid expenses and other assets in the condensed consolidated balance sheets.
National Holdings Corporation
On November 14, 2018, the Company entered into an agreement to acquire shares of National Holdings Corporation (“National Holdings”), a Nasdaq-listed issuer, from Fortress Biotech, Inc. for an aggregate purchase price totaling approximately $22.9 million. The transaction was completed in two tranches. In the first tranche, which was completed in the fourth quarter of 2018, the Company acquired shares representing 24% of the total outstanding shares of National Holdings. The second tranche was completed in the first quarter of 2019. As of March 31, 2019, the Company had purchased 6,159,550 shares of National Holdings’ common stock, representing 48.8% of National Holdings’ outstanding shares, at $3.25 per share. The carrying value for the National Holdings investment at March 31, 2019 increased to $22,323 from $9,902 at December 31, 2018 and is included in prepaid expenses and other assets in the condensed consolidated balance sheets. The equity ownership in National Holdings is accounted for under the equity method of accounting.
(w) Statements of Cash Flows – Supplemental Non-cash Disclosures
During the three months ended March 31, 2018, non-cash investing activities included the conversion of a loan receivable in the amount of $16,867 and accrued interest receivable of $51 into an equity investment in bebe that totaled $16,918.
(x) Variable Interest Entity
In January 2018, the operations of GACP II, LP, a private debt investment limited partnership (the “Partnership”) commenced operations. The Company’s investment in the Partnership is a variable interest entity (“VIE”) since the unaffiliated limited partners do not have substantive kick-out or participating rights to remove the Company’s subsidiary that is the general partner managing the Partnership. The Company has determined that it is not the primary beneficiary due to the fact that its fee arrangements are considered at-market and thus not deemed to be variable interests, and it does not hold any other interests in the Partnership that are considered to be more than insignificant. The Company determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a VIE and reconsiders that conclusion at each reporting date. In evaluating whether the Company is the primary beneficiary, the Company evaluates its economic interests in the entity held either directly by the Company or indirectly through related parties. The consolidation analysis can generally be performed qualitatively; however, if it is not readily apparent that the Company is not the primary beneficiary, a quantitative analysis may also be performed.
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The carrying value of the Company’s investments in the VIE that was not consolidated is shown below.
| March 31, 2019 | ||||
| Partnership investments | $ | 7,230 | ||
| Due from related party | 579 | |||
| Maximum exposure to loss | $ | 7,809 | ||
(y) Reclassification
The Company reclassified $262 of revenues that was reported as interest income – securities lending during the three months ended March 31, 2018 to revenues – services and fees. The previously reported amount of $7,553 as interest income – securities lending was reduced by $262 to $7,291 for the three months ended March 31, 2018 and the previously reported amount of $88,187 as revenues – services and fees was increased by $262 to $88,449 for the three months ended March 31, 2018.
(z) Recent Accounting Pronouncements
Not yet adopted
In January 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This standard simplifies the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The revised guidance will be applied prospectively and is effective for calendar year-end SEC filers for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company has not yet adopted this update and currently evaluating the effect this new standard will have on its financial condition and results of operations.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. This standard requires an allowance to be recorded for all expected credit losses for certain financial assets. The new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments. ASU 2016-13 is effective for public companies for interim and annual period beginning December 15, 2019. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company has not yet adopted this update and currently evaluating the effect this new standard will have on its financial condition and results of operations.
Recently adopted
In February 2016, FASB issued ASU. 2016-02: Leases (Topic 842) which requires a lessee to recognize a right-of-use (ROU) asset and lease liability on the balance sheet for all leases with a contract term longer than 12 months and provide enhanced disclosures. The Company adopted the new standard effective January 1, 2019 using the modified retrospective method. The Company elected the ‘package of practical expedients,’ which permits the Company not to reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs. Upon adoption of ASC 842 on January 1, 2019, the Company recognized $67,519 operating lease liabilities with corresponding operating lease right-of-use assets. See Note 8 to the accompanying financial statements for additional information on leases.
In February 2018, the FASB issued ASU 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income that provides for the reclassification from accumulated other comprehensive income to retained earnings for stranded effects resulting from the Tax Reform Act. The accounting update should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Reform Act is recognized. The accounting update is effective for the fiscal year beginning after December 15, 2018. The adoption of this standard did not have a material impact to the Company’s financial condition and results of operations.
17
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. ASU 2016-15 is effective for us in our first quarter of fiscal year 2019. The adoption of this standard did not have a material impact to the Company’s financial condition and results of operations.
On January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers using the modified retrospective method and the impact was determined to be immaterial on the Company’s consolidated financial statements. The new revenue standard was applied prospectively in the Company’s consolidated financial statements from January 1, 2018 forward and reported financial information for historical comparable periods will not be revised and will continue to be reported under the accounting standards in effect during those historical periods. See Note 12 to the financial statements for additional information on the adoption of this standard.
In August 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13: Fair Value Measurement (Topic 820) (“ASU 2018-13”). The amendments in this update change the disclosure requirements for fair value measurements by removing, modifying and adding certain disclosures. The Company early adopted ASU 2018-13 in the third quarter of 2018 and the adoption did not have a material impact on our consolidated financial statements.
In March 2018, the FASB issued ASU 2018-05: Income Taxes (Topic 740) — Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. The amendments in this update provide guidance on when to record and disclose provisional amounts for certain income tax effects of the Tax Reform Act. The amendments also require any provisional amounts or subsequent adjustments to be included in net income from continuing operations. This ASU also discusses required disclosures that an entity must make with regard to the Tax Reform Act. This ASU is effective immediately as new information is available to adjust provisional amounts that were previously recorded. The Company has adopted this standard and will continue to evaluate indicators that may give rise to a change in the Company’s tax provision as a result of the Tax Reform Act. See Note 13 to the accompanying financial statements for additional information on the Tax Reform Act.
On January 1, 2018, the Company adopted ASU 2016-18 — Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”) using the retrospective method which requires adjustment to prior periods in the statement of cash flows. ASU 2016-18 clarifies how restricted cash should be presented on the statement of cash flows and requires companies to include restricted cash with cash and cash equivalents when reconciling the beginning of period and end of period totals on the statement of cash flows. Restricted cash previously classified under investing activities is now included in the reconciliation of beginning and ending cash on the statement of cash flows. The adoption of ASU 2016-18 did not have a material impact on the Company’s financial condition and results of operations.
NOTE 3— ACQUISITIONS
Acquisition of magicJack VocalTec Ltd
On November 9, 2017, the Company entered into an Agreement and Plan of Merger (the “magicJack Merger Agreement”) with B. R. Acquisition Ltd., an Israeli corporation and wholly-owned subsidiary of the Company (“Merger Sub”), and magicJack VocalTec Ltd., an Israeli corporation (“magicJack”), pursuant to which Merger Sub would merge with and into magicJack, with magicJack continuing as the surviving corporation and as an indirect subsidiary of the Company. Pursuant to the magicJack Merger Agreement, customary closing conditions were satisfied, and the acquisition was completed on November 14, 2018. Subject to the terms and conditions of the Agreement and Plan of Merger, each outstanding share of magicJack converted into the right to receive $8.71 in cash without interest, representing approximately $143,115 in aggregate merger consideration.
The assets and liabilities of magicJack, both tangible and intangible, were recorded at their estimated fair values as of the November 14, 2018, acquisition date for magicJack. The application of the purchase method of accounting resulted in goodwill of $106,008 which represents the benefits from synergies with the Company’s existing business and acquired workforce. Acquisition related costs, such as legal, accounting, valuation and other professional fees related to the acquisition of magicJack, were charged against earnings in the amount of $52 and included in selling, general and administrative expenses in the condensed consolidated statements of income for the three months ended March 31, 2019. The purchase accounting for the acquisition has been accounted for as a stock purchase with all of the recognized goodwill is expected to be non-deductible for tax purposes.
18
The preliminary purchase price allocation was as follows:
| Consideration paid by B. Riley: | ||||
| Number of magicJack shares outstanding at November 14, 2018 | 16,248,299 | |||
| Cash merger consideration per share | $ | 8.71 | ||
| Total cash consideration for magicJack common shares | 141,523 | |||
| Cash consideration for magicJack stock options and accelerated vesting of restricted stock awards | 1,592 | |||
| Total consideration | $ | 143,115 |
| Tangible assets acquired and assumed: | ||||
| Cash and cash equivalents | $ | 53,875 | ||
| Restricted cash | 369 | |||
| Accounts receivable | 3,103 | |||
| Inventory | 2,033 | |||
| Prepaid expenses and other assets | 4,961 | |||
| Property and equipment | 2,922 | |||
| Deferred taxes | 16,769 | |||
| Accounts payable | (2,313 | ) | ||
| Contract liabilities | (66,489 | ) | ||
| Accrued payroll and related expenses | (1,989 | ) | ||
| Accrued expenses and other liabilities | (20,784 | ) | ||
| Developed technology | 6,400 | |||
| Tradename | 1,750 | |||
| Customer list | 34,500 | |||
| Process-know-how | 2,000 | |||
| Goodwill | 106,008 | |||
| Total | $ | 143,115 |
The revenue and income of magicJack included in the Company’s condensed consolidated financial statements for the three months ended March 31, 2019 were $18,154 and $4,964, respectively. The income from magicJack of $4,964 includes a restructuring charge in the amount of $176 for severances for magicJack employees from a reduction in workforce.
Pro Forma Financial Information
The unaudited pro-forma financial information in the table below summarizes the combined results of operations of the Company and MagicJack as though the acquisitions had occurred as of January 1, 2018. The pro-forma financial information presented includes the effects of adjustments related to the amortization charges from the acquired intangible assets and the elimination of certain activities excluded from the transaction and transaction related costs. The pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the earliest period presented, nor does it intend to be a projection of future results.
| Pro Forma (Unaudited) | ||||
| Three Months Ended | ||||
| March 31, 2018 | ||||
| Revenues | $ | 115,012 | ||
| Net income attributable to B. Riley Financial, Inc. | $ | 5,611 | ||
| Basic earnings per share | $ | 0.21 | ||
| Diluted earnings per share | $ | 0.21 | ||
| Weighted average basic shares outstanding | 26,219,277 | |||
| Weighted average diluted shares outstanding | 27,271,819 | |||
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NOTE 4— RESTRUCTURING CHARGE
The Company recorded restructuring charges in the amount of $147 and $217 for the three months ended March 31, 2019 and 2018, respectively.
The restructuring charge of $147 during the three months ended March 31, 2019 was primarily related to severance costs for magicJack employees from a reduction in workforce in the Principal Investments – United Online and magicJack segment. The restructuring charge of $217 during the three months ended March 31, 2018 was primarily related to the planned consolidation of office space related to operations in the Capital Markets segment.
The following tables summarize the changes in accrued restructuring charge during three months ended March 31, 2019 and 2018:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| Balance, beginning of year | $ | 3,855 | $ | 2,600 | ||||
| Restructuring charge | 147 | 217 | ||||||
| Cash paid | (636 | ) | (1,221 | ) | ||||
| Non-cash items | 18 | (20 | ) | |||||
| Balance, end of period | $ | 3,384 | $ | 1,576 | ||||
The following tables summarize the restructuring activities by reportable segment during the three months ended March 31, 2019 and 2018:
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
| 2019 | 2018 | |||||||||||||||||||||||||||||||
| Principal | Principal | |||||||||||||||||||||||||||||||
| Investments - | Investments - | |||||||||||||||||||||||||||||||
| Capital | United Online | Capital | United Online | |||||||||||||||||||||||||||||
| Markets | and magicJack | Corporate | Total | Markets | and magicJack | Corporate | Total | |||||||||||||||||||||||||
| Restructuring charge (recovery): | ||||||||||||||||||||||||||||||||
| Employee termination costs | $ | — | $ | 176 | $ | — | $ | 176 | (29 | ) | $ | $ | — | $ | (29 | ) | ||||||||||||||||
| Facility closure and consolidation | (29 | ) | — | (29 | ) | 284 | — | (38 | ) | 246 | ||||||||||||||||||||||
| Total restructuring charge | $ | (29 | ) | $ | 176 | $ | — | $ | 147 | 255 | $ | — | $ | (38 | ) | $ | 217 | |||||||||||||||
NOTE 5— SECURITIES LENDING
The following table presents the contractual gross and net securities borrowing and lending balances and the related offsetting amount as of March 31, 2019 and December 31, 2018:
Gross amounts recognized | Gross amounts offset in the consolidated balance sheets (1) | Net amounts included in the consolidated balance sheets | Amounts not offset in the consolidated balance sheets but eligible for offsetting upon counterparty default(2) | Net amounts | ||||||||||||||||
| As of March 31, 2019 | ||||||||||||||||||||
| Securities borrowed | $ | 827,242 | $ | — | $ | 827,242 | $ | 827,242 | $ | — | ||||||||||
| Securities loaned | $ | 824,833 | $ | — | $ | 824,833 | $ | 824,833 | $ | — | ||||||||||
| As of December 31, 2018 | ||||||||||||||||||||
| Securities borrowed | $ | 931,346 | $ | — | $ | 931,346 | $ | 931,346 | $ | — | ||||||||||
| Securities loaned | $ | 930,522 | $ | — | $ | 930,522 | $ | 930,522 | $ | — | ||||||||||
| (1) | Includes financial instruments subject to enforceable master netting provisions that are permitted to be offset to the extent an event of default has occurred. |
| (2) | Includes the amount of cash collateral held/posted. |
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NOTE 6— ACCOUNTS RECEIVABLE
The components of accounts receivable, net, include the following:
| March 31, | December 31, | |||||||
| 2019 | 2018 | |||||||
| Accounts receivable | $ | 20,651 | $ | 12,594 | ||||
| Investment banking fees, commissions and other receivables | 11,835 | 26,581 | ||||||
| Unbilled receivables | 12,255 | 3,644 | ||||||
| Total accounts receivable | 44,741 | 42,819 | ||||||
| Allowance for doubtful accounts | (766 | ) | (696 | ) | ||||
| Accounts receivable, net | $ | 43,975 | $ | 42,123 | ||||
Additions and changes to the allowance for doubtful accounts consist of the following:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| Balance, beginning of year | $ | 696 | $ | 800 | ||||
| Add: Additions to reserve | 233 | 305 | ||||||
| Less: Write-offs | (163 | ) | (444 | ) | ||||
| Balance, end of period | $ | 766 | $ | 661 | ||||
Unbilled receivables represent the amount of contractual reimbursable costs and fees for services performed in connection with fee and service based auction and liquidation contracts.
NOTE 7— GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill was $223,243 and $223,368 at March 31, 2019 and December 31, 2018, respectively. At March 31, 2019, goodwill was comprised of $95,820 in the Capital Markets segment, $1,975 in the Auction and Liquidation segment, $3,713 in the Valuation and Appraisal segment, and $121,735 in the Principal Investments – United Online and magicJack segment. At December 31, 2018, goodwill was comprised of $95,820 in the Capital Markets segment, $1,975 in the Auction and Liquidation segment, $3,713 in the Valuation and Appraisal segment, and $121,860 in the Principal Investments – United Online and magicJack segment.
Intangible assets consisted of the following:
| As of March 31, 2019 | As of December 31, 2018 | |||||||||||||||||||||||||
| Gross | Gross | |||||||||||||||||||||||||
| Carrying | Accumulated | Intangibles | Carrying | Accumulated | Intangibles | |||||||||||||||||||||
| Useful Life | Value | Amortization | Net | Value | Amortization | Net | ||||||||||||||||||||
| Amortizable assets: | ||||||||||||||||||||||||||
| Customer relationships | 4 to 16 Years | $ | 92,830 | $ | 19,222 | $ | 73,608 | $ | 92,330 | $ | 16,608 | $ | 75,722 | |||||||||||||
| Domain names | 7 Years | 233 | 92 | 141 | 237 | 85 | 152 | |||||||||||||||||||
| Advertising relationships | 8 Years | 100 | 34 | 66 | 100 | 31 | 69 | |||||||||||||||||||
| Internally developed software and other intangibles | 0.5 to 5 Years | 11,733 | 3,007 | 8,726 | 11,773 | 2,436 | 9,337 | |||||||||||||||||||
| Trademarks | 7 to 10 Years | 4,600 | 902 | 3,698 | 4,600 | 762 | 3,838 | |||||||||||||||||||
| Total | 109,496 | 23,257 | 86,239 | 109,040 | 19,922 | 89,118 | ||||||||||||||||||||
| Non-amortizable assets: | ||||||||||||||||||||||||||
| Tradenames | 2,240 | — | 2,240 | 2,240 | — | 2,240 | ||||||||||||||||||||
| Total intangible assets | $ | 111,736 | $ | 23,257 | $ | 88,479 | $ | 111,280 | $ | 19,922 | $ | 91,358 | ||||||||||||||
Amortization expense was $3,377 and $2,160 for the three months ended March 31, 2019 and 2018, respectively. At March 31, 2019, estimated future amortization expense is $10,111, $13,099, $12,717, $12,697, and $12,453 for the years ended December 31, 2019 (remaining nine months), 2020, 2021, 2022 and 2023, respectively. The estimated future amortization expense after December 31, 2023 is $25,162.
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NOTE 8— LEASING ARRANGEMENTS
The Company’s operating lease assets primarily represent the lease of office space where the Company conduct its operations with the weighted average lease term of 8.2 years. The operating leases have lease terms ranging from one month to twelve years. The weighted average discount rate used to calculate the present value of lease payments was 5.58% at March 31, 2019. Total operating lease expense was $3,103 for the three months ended March 31, 2019, of which $317 was attributable to variable lease expenses. Operating lease expense is included in selling, general and administrative expenses in the condensed consolidated statements of income.
For the three months ended March 31, 2019, cash payments against operating lease liabilities totaled $2,996 and non-cash transactions totaled $946 to recognize operating lease right-of-use assets and operating lease liabilities.
As of March 31, 2019, maturities of operating lease liabilities were as follows:
| Operating | |||||
| Leases | |||||
| 2019 (remaining nine months) | $ | 9,738 | |||
| 2020 | 11,716 | ||||
| 2021 | 10,128 | ||||
| 2022 | 9,318 | ||||
| 2023 | 8,740 | ||||
| Thereafter | 32,926 | ||||
| Total lease payments | 82,566 | ||||
| Less: imputed interest | (16,711 | ) | |||
| Total operating lease liabilities | $ | 65,855 | |||
NOTE 9— ASSET BASED CREDIT FACILITY
On April 21, 2017, the Company amended its credit agreement (as amended, the “Credit Agreement”) governing its asset based credit facility with Wells Fargo Bank, National Association (“Wells Fargo Bank”) to increase the maximum borrowing limit from $100,000 to $200,000. Such amendment, among other things, also extended the expiration date of the credit facility from July 15, 2018 to April 21, 2022. The Credit Agreement continues to allow for borrowings under the separate credit agreement (a “UK Credit Agreement”) which was dated March 19, 2015 with an affiliate of Wells Fargo Bank which provides for the financing of transactions in the United Kingdom. Such facility allows the Company to borrow up to 50 million British Pounds. Any borrowings on the UK Credit Agreement reduce the availability on the asset based $200,000 credit facility. The UK Credit Agreement is cross collateralized and integrated in certain respects with the Credit Agreement. Cash advances and the issuance of letters of credit under the credit facility are made at the lender’s discretion. The letters of credit issued under this facility are furnished by the lender to third parties for the principal purpose of securing minimum guarantees under liquidation services contracts more fully described in Note 2(c). All outstanding loans, letters of credit, and interest are due on the expiration date which is generally within 180 days of funding. The credit facility is secured by the proceeds received for services rendered in connection with liquidation service contracts pursuant to which any outstanding loan or letters of credit are issued and the assets that are sold at liquidation related to such contract. The Company paid Wells Fargo Bank a closing fee in the amount of $500 in connection with the April 2017 amendment to the Credit Agreement. The interest rate for each revolving credit advance under the Credit Agreement is, subject to certain terms and conditions, equal to the LIBOR plus a margin of 2.25% to 3.25% depending on the type of advance and the percentage such advance represents of the related transaction for which such advance is provided. The credit facility also provides for success fees in the amount of 2.5% to 17.5% of the net profits, if any, earned on the liquidation engagements funded under the Credit Agreement as set forth therein. Interest expense totaled $481 and $87 for the three months ended March 31, 2019 and 2018, respectively. There was no outstanding balance on this credit facility at March 31, 2019 and December 31, 2018. At March 31, 2019, there were open letter of credits outstanding in the amount of $6,657.
The Credit Agreement governing the credit facility contains certain covenants, including covenants that limit or restrict the Company’s ability to incur liens, incur indebtedness, make investments, dispose of assets, make certain restricted payments, merge or consolidate and enter into certain transactions with affiliates. Upon the occurrence of an event of default under the Credit Agreement, the lender may cease making loans, terminate the Credit Agreement and declare all amounts outstanding under the Credit Agreement to be immediately due and payable. The Credit Agreement specifies a number of events of default (some of which are subject to applicable grace or cure periods), including, among other things, nonpayment defaults, covenant defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults, and material judgment defaults.
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NOTE 10 — TERM LOAN
On December 19, 2018, BRPI Acquisition Co LLC (“BRPAC”), a Delaware limited liability company, UOL, and YMAX Corporation, Delaware corporations (collectively, the “Borrowers”), indirect wholly owned subsidiaries of the Company, in the capacity as borrowers, entered into a credit agreement (the “BRPAC Credit Agreement”) with the Banc of California, N.A. in the capacity as agent (the “Agent”) and lender and with the other lenders party thereto (the “Closing Date Lenders”). Certain of the Borrowers’ U.S. subsidiaries are guarantors of all obligations under the BRPAC Credit Agreement and are parties to the BRPAC Credit Agreement in such capacity (collectively, the “Secured Guarantors”; and together with the Borrowers, the “Credit Parties”). In addition, the Company and B. Riley Principal Investments, LLC, the parent corporation of BRPAC and a subsidiary of the Company, are guarantors of the obligations under the BRPAC Credit Agreement pursuant to standalone guaranty agreements pursuant to which the shares outstanding membership interests of BRPAC are pledged as collateral.
The obligations under the BRPAC Credit Agreement are secured by first-priority liens on, and first priority security interest in, substantially all of the assets of the Credit Parties, including a pledge of (a) 100% of the equity interests of the Credit Parties, (b) 65% of the equity interests in United Online Software Development (India) Private Limited, a private limited company organized under the laws of India; and (c) 65% of the equity interests in magicJack VocalTec LTD., a limited company organized under the laws of Israel. Such security interests are evidenced by pledge, security and other related agreements.
The BRPAC Credit Agreement contains certain covenants, including those limiting the Credit Parties’, and their subsidiaries’ ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of their businesses, engage in transactions with related parties, make certain investments or pay dividends. In addition, the BRPAC Credit Agreement requires the Credit Parties to maintain certain financial ratios. The BRPAC Credit Agreement also contains customary representations and warranties, affirmative covenants and events of default, including payment defaults, breach of representations and warranties, covenant defaults and cross defaults. If an event of default occurs, the agent would be entitled to take various actions, including the acceleration of amounts due under the outstanding BRPAC Credit Agreement.
Under the BRPAC Credit Agreement, we borrowed $80,000 due December 19, 2023. Pursuant to the terms of the BRPAC Credit Agreement, we may request additional optional term loans in an aggregate principal amount of up to $10,000 at any time prior to the first anniversary of the agreement date (the “Option Loan”) with a final maturity date of December 19, 2023. On February 1, 2019, the Credit Parties, the Closing Date Lenders, the Agent and City National Bank, as a new lender (the “New Lender”), entered into the First Amendment to the Credit Agreement and Joinder (the “First Amendment”) pursuant to which, among other things, (i) New Lender became a party to the BRPAC Credit Agreement, (ii) the New Lender extended to Borrowers the Option Loan in the amount of $10,000, (iii) the aggregate outstanding principal amount of the term loans was increased from $80,000 to $90,000; and (iv) the amortization schedule under the BRPAC was amended as set forth in the First Amendment. Additionally, in connection with the Option Loan, the Borrowers executed a term note in favor of New Lender dated February 1, 2019 in the amount of $10,000. Borrowings under the BRPAC Credit Agreement bear interest at a rate equal to (a) the LIBOR rate for Eurodollar loans, plus (b) the applicable margin rate, which ranges from two and one-half percent (2.5%) to three percent (3.0%) per annum, based upon the Borrowers’ ratio of consolidated funded indebtedness to adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the preceding four fiscal quarters or other applicable period. At March 31, 2019 interest rate on the BRPAC Credit Agreement was at 5.50%. Interest payments are to be made each one, three or six months. Amounts outstanding under the BRPAC Credit Agreement are due in quarterly installments commencing on March 31, 2019 with any remaining amounts outstanding due at maturity. For the $80,000 loan, quarterly installments from March 31, 2019 to December 31, 2022 are in the amount of $4,444 per quarter and from March 31, 2023 to September 30, 2023 are $2,222 per quarter. For the $10,000 loan, quarterly installments from June 30, 2019 to December 31, 2022 are $593 per quarter and from March 31, 2023 to September 30, 2023 are $278 per quarter. As of March 31, 2019 and December 31, 2018, the outstanding balance of the term loan was $89,138 (net of unamortized debt issuance costs of $862) and $79,166 (net of unamortized debt issuance costs of $834), respectively. Interest expense on the term loan during the three months ended March 31, 2019 was $1,278 (including amortization of deferred debt issuance costs of $88).
We are in compliance with all covenants in the BRPAC Credit Agreement at March 31, 2019.
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NOTE 11—NOTES PAYABLE
Senior Notes Payable
Senior notes payable, net, is comprised of the following as of March 31, 2019 and December 31, 2018:
| March 31, | December 31, | |||||||
| 2019 | 2018 | |||||||
| 7.50% Senior notes due October 31, 2021 | $ | 49,526 | $ | 46,407 | ||||
| 7.50% Senior notes due May 31, 2027 | 108,792 | 108,792 | ||||||
| 7.25% Senior notes due December 31, 2027 | 100,441 | 100,441 | ||||||
| 7.375% Senior notes due May 31, 2023 | 112,553 | 111,528 | ||||||
| 6.875% Senior notes due September 30, 2023 | 100,893 | 100,050 | ||||||
| 472,205 | 467,218 | |||||||
| Less: Unamortized debt issuance costs | (7,165 | ) | (7,464 | ) | ||||
| $ | 465,040 | $ | 459,754 | |||||
(a) $49,526 Senior Notes Payable due October 31, 2021
At March 31, 2019, the Company had $49,526 senior notes due in 2021 (“7.50% 2021 Notes”), interest payable quarterly at 7.50%. On November 2, 2016, the Company issued $28,750 of the 7.50% 2021 Notes and as of December 31, 2018, the Company issued additional $17,657 of the 7.50% 2021 Notes pursuant to the Sales Agreements, as further discussed below. During the three months ended March 31, 2019, the Company issued an additional $3,118 of the 7.50% 2021 Notes pursuant to the December 2018 Sales Agreement, as discussed below. The 7.50% 2021 Notes are unsecured and due and payable in full on October 31, 2021. In connection with the issuance of the 7.50% 2021 Notes, the Company received net proceeds of $48,602 (after premium, underwriting commissions, fees and other issuance costs of $924). At March 31, 2019 and December 31, 2018, the outstanding balance of the 2021 Notes was $49,074 (net of unamortized debt issue costs and premiums of $452) and $45,914 (net of unamortized debt issue costs and premiums of $493), respectively. For the three months ended March 31, 2019 and 2018, interest expense on the 7.50% 2021 Notes totaled $929 and $710, respectively.
(b) $108,792 Senior Notes Payable due May 31, 2027
At March 31, 2019, the Company had $108,792 senior notes due in 2027 (“7.50% 2027 Notes”), interest payable quarterly at 7.50%. On May 31, 2017, the Company issued $60,375 of the 7.50% 2027 Notes and as of March 31, 2019 and December 31, 2018, the Company issued additional $48,417 of the 7.50% 2027 Notes pursuant to the Sales Agreements. The 2027 Notes are unsecured and due and payable in full on May 31, 2027. In connection with the issuance of the 7.50% 2027 Notes, the Company received net proceeds of $106,948 (after premium, underwriting commissions, fees and other issuance costs of $1,844). At March 31, 2019 and December 31, 2018, the outstanding balance of the 7.50% 2027 Notes was $107,277 (net of unamortized debt issue costs and premium of $1,515) and $107,256 (net of unamortized debt issuance costs and premium of $1,536), respectively. For the three months ended March 31, 2019 and 2018, interest expense on the 2027 Notes totaled $2,086 and $1,778, respectively.
(c) $100,441 Senior Notes Payable due December 31, 2027
At March 31, 2019, the Company had $100,441 senior notes due in December 2027 (“7.25% 2027 Notes”), interest payable quarterly at 7.25%. In December 2017, the Company issued $80,500 of the 7.25% 2027 Notes and as of March 31, 2019 and December 31, 2018, the Company issued additional $19,941 of the 7.25% 2027 Notes pursuant to the Sales Agreements. The 7.25% 2027 Notes are unsecured and due and payable in full on December 31, 2027. In connection with the issuance of the 7.25% 2027 Notes, the Company received net proceeds of $97,798 (after underwriting commissions, fees and other issuance costs of $2,643). At March 31, 2019 and December 31, 2018, the outstanding balance of the 7.25% 2027 Notes was $98,126 (net of unamortized debt issue costs and premium of $2,315) and $98,073 (net of unamortized debt issue costs of $2,368), respectively. For the three months ended March 31, 2019 and 2018, interest expense on the 7.25% 2027 Notes totaled $1,886 and $1,534, respectively.
(d) $112,553 Senior Notes Payable due May 31, 2023
At March 31, 2019, the Company had $112,553 senior notes due in May 2023 (“7.375% 2023 Notes”), interest payable quarterly at 7.375%. In May 2018, the Company issued $100,050 and as of December 31, 2018, the Company issued additional $11,478 of the 7.375% 2023 Notes pursuant to the Sales Agreements. During the three months ended March 31, 2019, the Company issued additional $1,025 of the 7.375% 2023 Notes pursuant to the December 31, 2018 Sales Agreement. The 7.375% 2023 Notes are unsecured and due and payable in full on May 31, 2023. In connection with the issuance of the 7.375% 2023 Notes, the Company received net proceeds of $110,668 (after premium, underwriting commissions, fees and other issuance costs of $1,885). At March 31, 2019 and December 31, 2018, the outstanding balance of the 7.375% 2023 Notes was $111,005 (net of unamortized debt issue costs and premium of $1,548) and $109,872 (net of unamortized debt issuance costs and premium of $1,656), respectively. For the three months ended March 31, 2019, interest expense on the 7.375% 2023 Notes totaled $2,155.
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(e) $100,893 Senior Notes Payable due September 30, 2023
At March 31, 2019, the Company had $100,893 senior notes due in September 2023 (“6.875% 2023 Notes”), interest payable quarterly at 6.875%. In September 2018, the Company issued $100,050 of the 6.875% 2023 Notes and during the three months ended March 31, 2019, the Company issued an additional $843 of the 6.875% 2023 Notes pursuant to the December 2018 Sales Agreement. The 6.875% 2023 Notes are unsecured and due and payable in full on September 30, 2023. In connection with the issuance of the 6.875% 2023 Notes, the Company received net proceeds of $99,392 (after underwriting commissions, fees and other issuance costs of $1,501). At March 31, 2019 and December 31, 2018, the outstanding balance of the 6.875% 2023 Notes was $99,558 (net of unamortized debt issue costs of $1,335) and $98,639 (net of unamortized debt issuance costs and premium of $1,411), respectively. For the three months ended March 31, 2019, interest expense on the 6.875% 2023 Notes totaled $1,799.
(f) At Market Issuance Sales Agreement to Issue Up to Aggregate of $75,000 of 6.875% 2023 Notes, 7.375% 2023 Notes, 7.25% 2027 Notes, 7.50% 2027 Notes or 7.50% 2021 Notes
During 2017 and 2018, the Company entered into a series of related At the Market Issuance Sales Agreements (the “Sales Agreements”) with B. Riley FBR, Inc. governing an ongoing program of at-the-market sales of the Company’s senior notes. The Company filed prospectus supplements under which the Company sold the senior notes on June 28, 2017, December 19, 2017, April 25, 2018, June 5, 2018 and December 18, 2018. Each of these prospectus supplements was filed pursuant to an effective Registration Statement on Form S-3. The Company’s most recent Sales Agreement was entered into on December 18, 2018 (the “December 2018 Sales Agreement”), and under the related prospectus supplement, the Company may offer and sell up to $75,000 of the senior notes. As of March 31, 2019, the Company had $ 70,014 remaining availability under the December 2018 Sales Agreement.
Other Notes Payable
Notes payable include notes payable to a clearing organization for one of the Company’s broker dealers. The notes payable accrue interest at rates set at each anniversary date ranging from the prime rate plus 0.25% to 2.0% (5.25% to 6.50% at March 31, 2019) payable annually. The principal payments on the notes payable are due annually in the amount of $357 on January 31, $214 on September 30, and $121 on October 31. The notes payable mature at various dates from September 30, 2019 through January 31, 2022. At March 31, 2019 and December 31, 2018, the outstanding balance for the notes payable was $1,193 and $1,550, respectively. Interest expense was $23 and $28 for the three months ended March 31, 2019 and 2018, respectively.
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NOTE 12—REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue from contracts with customers by reportable segment for the three months ended March 31, 2019 and 2018 is as follows:
| Three Months Ended March 31, 2019 | |||||||||||||||||||
| Reportable Segment | |||||||||||||||||||
| Principal | |||||||||||||||||||
| Investments - | |||||||||||||||||||
| Capital | Auction and | Valuation and | United Online | ||||||||||||||||
| Markets | Liquidation | Appraisal | and magicJack | Total | |||||||||||||||
| Revenue from contracts with customers: | |||||||||||||||||||
| Corporate finance, consulting and investment banking fees | $ | 17,836 | $ | — | $ | — | $ | — | $ | 17,836 | |||||||||
| Wealth and asset management fees | 17,535 | — | — | — | 17,535 | ||||||||||||||
| Commissions, fees and reimbursed expenses | 10,897 | 7,633 | 8,583 | — | 27,113 | ||||||||||||||
| Subscription services | — | — | — | 22,398 | 22,398 | ||||||||||||||
| Service contract revenues | — | 13,076 | — | — | 13,076 | ||||||||||||||
| Advertising and other | — | — | — | 5,137 | 5,137 | ||||||||||||||
| Total revenues from contracts with customers | 46,268 | 20,709 | 8,583 | 27,535 | 103,095 | ||||||||||||||
| Interest income - Securities lending | 9,330 | — | — | — | 9,330 | ||||||||||||||
| Trading income on investments | 23,381 | — | — | — | 23,381 | ||||||||||||||
| Other | 6,322 | — | — | — | 6,322 | ||||||||||||||
| Total revenues | $ | 85,301 | $ | 20,709 | $ | 8,583 | $ | 27,535 | $ | 142,128 | |||||||||
| Three Months Ended March 31, 2018 | ||||||||||||||||||||
| Reportable Segment | ||||||||||||||||||||
| Principal | ||||||||||||||||||||
| Capital | Auction and | Valuation and | Investments - | |||||||||||||||||
| Markets | Liquidation | Appraisal | United Online | Total | ||||||||||||||||
| Corporate finance, consulting and investment banking fees | $ | 20,966 | $ | — | $ | — | $ | — | $ | 20,966 | ||||||||||
| Wealth and asset management fees | 19,170 | — | — | — | 19,170 | |||||||||||||||
| Commissions, fees and reimbursed expenses | 10,689 | 7,342 | 8,520 | — | 26,551 | |||||||||||||||
| Subscription services | — | — | — | 9,141 | 9,141 | |||||||||||||||
| Service contract revenues | — | 8,175 | — | — | 8,175 | |||||||||||||||
| Advertising and other | — | — | — | 2,271 | 2,271 | |||||||||||||||
| Total revenues from contracts with customers | 50,825 | 15,517 | 8,520 | 11,412 | 86,274 | |||||||||||||||
| Interest income - Securities lending | 7,291 | — | — | — | 7,291 | |||||||||||||||
| Trading loss on investments | (3,499 | ) | — | — | — | (3,499 | ) | |||||||||||||
| Other | 5,712 | — | — | — | 5,712 | |||||||||||||||
| Total revenues | $ | 60,329 | $ | 15,517 | $ | 8,520 | $ | 11,412 | $ | 95,778 | ||||||||||
Contract Balances
The timing of the Company’s revenue recognition may differ from the timing of payment by its customers. The Company records a receivable when revenue is recognized prior to payment and the Company has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied. Receivables related to revenues from contracts with customers totaled $43,975 and $42,123 at March 31, 2019 and December 31, 2018, respectively. The Company had no significant impairments related to these receivables during the three months ended March 31, 2019. The Company’s deferred revenue primarily relates to retainer and milestone fees received from corporate finance and investment banking advisory engagements, asset management agreements, Valuation and Appraisal engagements and subscription services where the performance obligation has not yet been satisfied. Deferred revenue at March 31, 2019 and December 31, 2018 was $69,959 and $69,066, respectively. During the three months ended March 31, 2019 and 2018, the Company recognized revenue of $13,234 and $1,975 that was recorded as deferred revenue at the beginning of the respective periods.
26
Contract Costs
Contract costs include: (1) costs to fulfill contracts associated with corporate finance and investment banking engagements are capitalized where the revenue is recognized at a point in time and the costs are determined to be recoverable; (2) costs to fulfill Auction and Liquidation services contracts where the Company guarantees a minimum recovery value for goods being sold at auction or liquidation where the revenue is recognized over time when the performance obligation is satisfied; and (3) commissions paid to obtain magicJack contracts which are recognized ratably over the contract term and third party support costs for magicJack and related equipment purchased by customers which are recognized ratably over the service period.
The capitalized costs to fulfill a contract were $2,582 and $2,920 at March 31, 2019 and December 31, 2018, respectively, and are recorded in prepaid expenses and other assets in the condensed consolidated balance sheets. For the three months ended March 31, 2019 and 2018, the Company recognized expenses of $601 and $455 related capitalized costs to fulfill a contract, respectively. There were no significant impairment charges recognized in relation to these capitalized costs during the three months ended March 31, 2019 and 2018.
Remaining Performance Obligations and Revenue Recognized from Past Performance
The Company does not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was not material at March 31, 2019. Corporate finance and investment banking fees and retail liquidation engagement fees that are contingent upon completion of a specific milestone and fees associated with certain distribution services are also excluded as the fees are considered variable and not included in the transaction price at March 31, 2019.
NOTE 13— INCOME TAXES
The Company’s effective income tax rate was a provision of 28.0% and 17.0% for the three months ended March 31, 2019 and 2018, respectively.
As of March 31, 2019, the Company had federal net operating loss carryforwards of approximately $60,637 and state net operating loss carryforwards of $65,740. The Company’s federal net operating loss carryforwards will expire in the tax years commencing in December 31, 2029 through December 31, 2034. The state net operating loss carryforwards will expire in the tax years commencing in December 31, 2029.
The Company establishes a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Tax benefits of operating loss, capital loss and tax credit carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and other circumstances. The Company’s net operating losses are subject to annual limitations in accordance with Internal Revenue Code Section 382. Accordingly, the Company is limited to the amount of net operating loss that may be utilized in future taxable years depending on the Company’s actual taxable income. As of March 31, 2019, the Company believes that the existing net operating loss carryforwards will be utilized in future tax periods before the loss carryforwards expire and it is more-likely-than-not that future taxable earnings will be sufficient to realize its deferred tax assets and has not provided a valuation allowance. The Company does not believe that it is more likely than not that the Company will be able to utilize the benefits related to capital loss carryforwards and has provided a valuation allowance in the amount of $61,127 against these deferred tax assets.
The Company files income tax returns in the U.S., various state and local jurisdictions, and certain other foreign jurisdictions. The Company is currently under audit by certain federal, state and local, and foreign tax authorities. The audits are in varying stages of completion. The Company evaluates its tax positions and establishes liabilities for uncertain tax positions that may be challenged by tax authorities. Uncertain tax positions are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits, case law developments and closing of statutes of limitations. Such adjustments are reflected in the provision for income taxes, as appropriate. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the calendar years ended December 31, 2015 to 2018.
NOTE 14— EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the weighted-average number of shares outstanding during the period. Diluted earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding, after giving effect to all dilutive potential common shares outstanding during the period. Basic common shares outstanding exclude 387,365 common shares in 2019 and 453,365 common shares in 2018 that are held in escrow and subject to forfeiture. The common shares held in escrow includes 387,365 common shares that are subject to forfeiture to indemnify the Company for certain representations and warranties in connection with the acquisition of Wunderlich, and in 2018 excluded 66,000 common shares held in escrow issued to the former members of Great American Group, LLC that were subject to forfeiture upon the final settlement of claims for goods held for sale in connection with the transaction with Alternative Asset Management Acquisition Corp. in 2009. In August 2018, the shares held in escrow issued to the former members of Great American Group, LLC were released and 21,233 of the 66,000 shares held in escrow were cancelled to satisfy the resolution of escrow claims. The shares that remain in escrow are subject to forfeiture upon the final settlement of claims as more fully described in the related escrow instructions. Dilutive common shares outstanding includes contingently issuable shares that are currently in escrow and subject to release if the conditions for the final settlement of claims in accordance with the escrow instructions were satisfied at the end of the respective years. Securities that could potentially dilute basic net income per share in the future that were not included in the computation of diluted net income per share for the three months ended March 31, 2019 and 2018 were 1,952,868 and 1,834,422, respectively, because to do so would have been anti-dilutive.
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Basic and diluted earnings per share was calculated as follows:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| Net income attributable to B. Riley Financial, Inc. | $ | 8,023 | $ | 4,503 | ||||
| Weighted average shares outstanding: | ||||||||
| Basic | 26,217,215 | 26,219,277 | ||||||
| Effect of dilutive potential common shares: | ||||||||
| Restricted stock units and warrants | 352,938 | 750,732 | ||||||
| Contingently issuable shares | 117,378 | 301,810 | ||||||
| Diluted | 26,687,531 | 27,271,819 | ||||||
| Basic income per share | $ | 0.31 | $ | 0.17 | ||||
| Diluted income per share | $ | 0.30 | $ | 0.17 | ||||
NOTE 15 — COMMITMENTS AND CONTINGENCIES
(a) Letter of Credits
At March 31, 2019, there were letter of credits outstanding totaling $7,491 related to one retail engagement in the Auction and Liquidation segment and three letter of credits related to the Principal Investments — United Online and magicJack segment. At March 31, 2018, there were letter of credits in the amount of $18,505 related to three retail liquidation engagements.
(b) Legal Matters
The Company is subject to certain legal and other claims that arise in the ordinary course of its business. In particular, the Company and its subsidiaries are named in and subject to various proceedings and claims arising primarily from the Company’s securities business activities, including lawsuits, arbitration claims, class actions, and regulatory matters. Some of these claims seek substantial compensatory, punitive, or indeterminate damages. The Company and its subsidiaries are also involved in other reviews, investigations, and proceedings by governmental and self-regulatory organizations regarding the Company’s business, which may result in adverse judgments, settlements, fines, penalties, injunctions, and other relief. In view of the number and diversity of claims against the Company’s company, the number of jurisdictions in which litigation is pending, and the inherent difficulty of predicting the outcome of litigation and other claims, the Company cannot state with certainty what the eventual outcome of pending litigation or other claims will be. Notwithstanding this uncertainty, the Company does not believe that the results of these claims are likely to have a material effect on its financial position or results of operations.
On June 17, 2018, B. Riley Financial, Inc. (the “Company” or “B. Riley”) entered into certain agreements pursuant to which B. Riley agreed to provide certain debt and equity funding and other support in connection with the acquisition (the “Acquisition”) by Vintage Rodeo Parent, LLC (the “Vintage Parent”), of Rent-A-Center, Inc. (“Rent-A-Center”), contemplated by that certain merger agreement dated as of June 17, 2018, by and among Vintage Parent, Vintage Rodeo Acquisition, Inc. a wholly owned subsidiary of Vintage Parent (the “Merger Sub” or the “Borrower”), and Rent-A-Center (the “Merger Agreement”).
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In connection with the Merger Agreement, B. Riley and Vintage RTO, L.P., an affiliate of Vintage Parent (“Vintage Merger Guarantor”), entered into a Limited Guarantee dated as of June 17, 2018 (the “Limited Guarantee”), in favor of Rent-A-Center, pursuant to which B. Riley and Vintage Merger Guarantor (together, the “Merger Guarantors”) agreed to guarantee, jointly and severally, to Rent-A-Center the payment, performance and discharge of all of the liabilities and obligations of Vintage Parent and Merger Sub under the Merger Agreement when required in accordance with the Merger Agreement (the “Guaranteed Obligations”), including without limitation, (i) termination fees in the amount of $126.5 million due to Rent-A-Center if the Merger Agreement is properly terminated (the “Termination Fee”); and (ii) reimbursement and indemnification obligations when required (collectively, the “Guarantee Obligations”), provided, that the liability under the Limited Guarantee shall not exceed $128.5 million.
In connection with the execution of the Limited Guarantee, the Company entered into a Mutual Indemnity/Contribution Agreement, dated as of June 17, 2018 (the “Mutual Indemnity Agreement”), with the Vintage Merger Guarantor and Samjor Family, LP (collectively, the “Vintage Indemnity Parties”). Under the Mutual Indemnity Agreement, the Vintage Indemnity Parties agreed, jointly and severally, to indemnify and hold harmless B. Riley and its affiliates from damages and liabilities arising out of the Guarantee Obligations, other than those caused B. Riley’s failure to fund under their debt or equity commitments.
On December 18, 2018, Rent-A-Center purported to terminate the Merger Agreement because the end date of the agreement was allegedly not extended prior to December 17, 2018 by Vintage Parent. Rent-A-Center delivered notice of such termination to Vintage Parent, and notified Vintage Parent of its obligation under the terms of the Merger Agreement to pay Rent-A-Center the Termination Fee within three business days. On December 18, 2018, Vintage Capital Management, LLC, an affiliate of Vintage Parent (“Vintage Capital”), delivered a letter to Rent-A-Center stating that Rent-A-Center’s purported termination of the Merger Agreement is invalid, that it believes the Merger Agreement remains in effect. On December 21, 2018, Vintage Capital filed a complaint in the Court of Chancery of the State of Delaware (the “Court”) challenging Rent-A-Center’s purported termination of the Merger Agreement and demand for payment of the Termination Fee. The relief sought by Vintage Capital includes declaratory judgements that the Merger Agreement has not been terminated and remains in full force and effect, that Rent-A-Center has breached its obligations under the Merger Agreement and is not excused from failing to comply with its obligations thereunder and that the Termination Fee is an unenforceable penalty. On December 28, 2018, Rent-A-Center provided each of B. Riley and the Vintage Merger Guarantor with a written request under the Limited Guarantee (a “Performance Demand”), to promptly, and in any event within ten (10) Business Days, pay to Rent-A-Center the Guaranteed Obligations (including the Termination Fee) in full. On December 30, 2018, B. Riley filed a motion in the Court to intervene in the above referenced case filed by Vintage Capital pursuant to which B. Riley is seeking declaratory judgments, among other things, that the parties agreed to extend the End Date under the Merger Agreement and that Rent-A-Center is estopped from terminating the Merger Agreement, that Rent-A-Center has breached the Merger Agreement and its obligations of good faith and fair dealing in connection with consummating the Merger, and that the Termination Fee is an unenforceable penalty. On February 11th and 12th, a trial was held, post-trial briefs were filed on February 22, 2019 and March 1, 2019, and a post-trial hearing was held on March 11, 2019. On March 14, 2019, the Court issued its Opinion concluding that Rent-A-Center’s termination of the merger agreement was valid and did not rule on the enforceability of the payment of the Termination Fee. The parties submitted supplemental briefs as well as reply briefs on that issue. On April 22, 2019, the parties announced an agreement in principal to settle the matter and on April 25, 2019 signed a settlement agreement including a release of claims. The Company is not making any financial contribution in connection with the settlement.
On August 11, 2017, a putative class action lawsuit titled Freedman v. magicJack VocalTec Ltd. et al., Case 9-17-cv-80940, was filed against magicJack and its Board of Directors in the United States District Court for the Southern District of Florida (Case No: 9:17-cv-80940-RLR). The complaint alleges claims against magicJack and the members of its Board of Directors as well as two former members for violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, arising from proxy statements issued in connection with magicJack’s April 19, 2017 shareholders meeting and magicJack’s July 31, 2017 shareholders meeting that allegedly misrepresented material facts concerning the “true value” of Broadsmart Global, Inc and its future prospects in order that the individual defendants could entrench themselves and extract unwarranted compensation from magicJack in connection with their attempt to sell the company. In January 2018, the plaintiff filed an Amended Complaint. On February 16, 2018, magicJack and all of the individual defendants filed a motion to dismiss the Amended Complaint. On August 9, 2018, the Court issued an order dismissing the amended complaint without prejudice, giving the plaintiff until August 21, 2018 to file an amended complaint. Thereafter, the plaintiff filed a second amended complaint. On August 20, 2018, magicJack filed a motion to dismiss the second amended complaint. Pursuant to a schedule set by the Court, all papers with respect to the motion were filed by September 28, 2018. On November 21, 2018, the court issued an order granting the motion to dismiss with prejudice. The plaintiff has filed Notice of Appeal with the U.S. Court of Appeals for the 11th Circuit, and, on January 30, 2019, filed a brief with the appeals court. The Company’s brief in opposition was filed on April 19, 2019. The Company cannot estimate the amount of potential liability, if any, that could arise from this matter.
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In June 2018, Galilee Acquisition LLC f/k/a Sutton View Acquisition LLC (“GAL”) filed a complaint, served the following month, (case No.:50-2018-CA-007976-XXXX-MB) in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida against magicJack Vocaltec Ltd. alleging a claim for negligent misrepresentation. The complaint alleges that magicJack provided false, material information to the plaintiff concerning its business, including information related to the operations, revenue projections, profit projections and growth forecast of Broadsmart. It alleges that the plaintiff relied on the information provided in determining whether to pursue acquiring magicJack and to incur the cost of conducting due diligence. The suit seeks an unspecified amount of damages. magicJack disputes GAL’s claims and intends to vigorously defend the action. magicJack filed a motion to dismiss on September 4, 2018, which remains pending. On April 4, 2019, the plaintiff’s counsel advised the court that it intends to file an amended complaint, and the court gave the plaintiff 30 days from that date to file such amended complaint. The Company cannot estimate the amount of potential liability, if any, that could arise from this matter.
On January 5, 2017, complaints filed in November 2015 and May 2016 naming MLV & Co. (“MLV”), a broker-dealer subsidiary of FBR, as a defendant in putative class action lawsuits alleging claims under the Securities Act, in connection with the offerings of Miller Energy Resources, Inc. (“Miller”) have been consolidated. The Master Consolidated Complaint, styled Gaynor v. Miller et al., is pending in the United States District Court for the Eastern District of Tennessee, and, like its predecessor complaints, continues to allege claims under Sections 11 and 12 of the Securities Act against nine underwriters for alleged material misrepresentations and omissions in the registration statement and prospectuses issued in connection with six offerings (February 13, 2013; May 8, 2013; June 28, 2013; September 26, 2013; October 17, 2013 (as to MLV only) and August 21, 2014) with an alleged aggregate offering price of approximately $151,000. The plaintiffs seek unspecified compensatory damages and reimbursement of certain costs and expenses. In August 2017, the Court granted Defendant’s Motion to Dismiss on Section 12 claims and found that the plaintiffs had not sufficiently alleged a corrective disclosure prior to August 6, 2015, when an SEC civil action was announced. Defendants’ answer was filed on September 25, 2017. Plaintiffs have filed motions for class certification and to remand the case to state court following a positive ruling in an unrelated case by the U.S. Supreme Court. Although MLV is contractually entitled to be indemnified by Miller in connection with this lawsuit, Miller filed for bankruptcy in October 2015 and this likely will decrease or eliminate the value of the indemnity that MLV receives from Miller. The Court has ordered mediation before a federal magistrate which is expected to be scheduled during May or early June 2019.
In February 2017, certain former employees filed an arbitration claim with FINRA against WSI alleging misrepresentations in the recruitment of claimants to join WSI. Claimants also allege that WSI failed to support their mortgage trading business resulting in the loss of opportunities during their employment with WSI. Claimants are seeking $10,000 in damages. WSI has counterclaimed alleging that claimants misrepresented their process for doing business, particularly their capital needs, resulting in substantial losses to WSI. WSI believes the claims are meritless and intends to vigorously defend the action. Arbitration hearings concluded in April 2019 and the Company expects to receive the arbitrators’ decision in the near future.
In March 2017, United Online, Inc. received a letter from PeopleConnect, Inc. (formerly, Classmates, Inc.) (“Classmates”) regarding a notice of investigation received from the Consumer Protection Divisions of the District Attorneys’ offices of four California counties (“California DAs”). These entities suggest that Classmates may be in violation of California codes relating to unfair competition, false or deceptive advertising, and auto-renewal practices. Classmates asserts that these claims are indemnifiable claims under the purchase agreement between United Online, Inc. and the buyer of Classmates. A tolling agreement with certain California District Attorneys has been signed and informal discovery and production is in process. Discussions regarding resolution of this matter with the California DAs is ongoing. At the present time, management believes the financial impact to the Company, if any, is not expected to be material.
In July 2017, an arbitration claim was filed with FINRA by Dominick & Dickerman LLC and Michael Campbell against WSI and Gary Wunderlich with respect to the acquisition by Wunderlich Investment Company, Inc. (“WIC”) (the parent corporation of WSI) of certain assets of Dominick & Dominick LLC in 2015. The Claimants allege that respondents overvalued WIC so that the purchase price paid to the Claimants in shares of WIC stock was artificially inflated. The Statement of Claim includes claims for common law fraud, negligent misrepresentation, and breach of contract. Claimants are seeking damages of approximately $8,000 plus unspecified punitive damages. Respondents believe the claims are meritless and intend to vigorously defend the action.
Historically, magicJack has from time to time received Letters of Inquiry from the Bureau of the Federal Communications Commission (“FCC”) regarding the nature of its Core Consumer product offering. magicJack has promptly responded to all inquiries received. As it has previously disclosed, magicJack believes that under current regulations it is not an interconnected VoIP provider subject to FCC regulations. To date, it has not received any formal notice from the FCC of any enforcement action. The Company intends to vigorously defend itself if an enforcement action is initiated. The Company, however, cannot be sure of the ultimate outcome of any possible FCC action and cannot estimate the likelihood of liability or the amount of potential assessments, if any, that could arise.
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(c) Tax Contingencies
magicJack believes that it files all required tax returns and pays all required federal, state and municipal taxes (such as sales, excise, utility, and ad valorem taxes), fees and surcharges. magicJack is the subject of inquiries and examinations by various states and municipalities in the normal course of business. In accordance with generally accepted accounting principles, magicJack makes a provision for a liability for taxes when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. magicJack believes any possible claims are without merit and vigorously defends its rights. However, if a government entity were to prevail in any matter, it could have a material adverse effect on magicJack’s financial condition, results of operation and cash flows. In addition, it is at least reasonably possible that a potential loss may exist for tax contingencies in addition to the provisions taken by magicJack.
magicJack is currently under examination for potential state tax liabilities in some states and local jurisdictions. magicJack has offered to settle a state examination for payment of $1,150 and the agreement to remit certain taxes on a prospective basis but magicJack has not reached an agreement with the state on this matter.
In a letter dated April 23, 2018, magicJack received notice that the Internal Revenue Service (the “IRS”) has selected magicJack’s 2015 United States income tax return for examination. magicJack had an initial meeting with the IRS in June 2018 and has supplied responses for all of the IRS’s document requests to date. magicJack believes that the positions taken in its 2015 return are reasonable and appropriate, however, magicJack cannot be sure of the ultimate outcome of the examination and cannot estimate the likelihood of liability or the amount of potential assessments, if any, that could arise from the examination.
Historically, magicJack considered the requirements to collect sales taxes under the auspices of a 1991 Supreme Court case, Quill Corp. v. North Dakota, which established the precedent that a physical presence in the respective state is required for an entity to be subject to a state’s sales and use tax requirements. Accordingly, magicJack had concluded that it did not have nexus for sales tax in those states in which it had no physical presence (i.e., it had no employees regularly and systematically there and it had no property there). On June 21, 2018, via South Dakota v. Wayfair, Inc. (No. 17-494) the U.S. Supreme Court reversed its prior ruling and eliminated the “physical presence” requirement. In consideration of the ruling, magicJack made the decision to start collecting sales tax on direct sales of its magicJack device and access right renewals in states that have adopted similar “Economic Nexus” laws. magicJack began registering for, collecting and remitting sales tax to identified jurisdictions during the third quarter of 2018. The Company will continue to monitor the situation and add additional states if deemed necessary. Though the South Dakota law is to be applied prospectively, it is not certain if other states may try to enact laws on a retrospective basis based on the Wayfair ruling, and the Company cannot estimate the likelihood of liability or the potential amount of assessments that could arise from prior periods if other states tried to apply the ruling on a retrospective basis.
NOTE 16— SHARE-BASED PAYMENTS
(a) Amended and Restated 2009 Stock Incentive Plan
Share-based compensation expense for restricted stock units under the Company’s Amended and Restated 2009 Stock Incentive Plan (the “Plan”) was $1,726 and $1,110 for the three months ended March 31, 2019 and 2018, respectively.
The restricted stock units generally vest over a period of one to three years based on continued service. In determining the fair value of restricted stock units on the grant date, the fair value is adjusted for (a) estimated forfeitures, (b) expected dividends based on historical patterns and the Company’s anticipated dividend payments over the expected holding period and (c) the risk-free interest rate based on U.S. Treasuries for a maturity matching the expected holding period.
As of March 31, 2019, the expected remaining unrecognized share-based compensation expense of $9,089 will be expensed over a weighted average period of 1.8 years.
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A summary of equity incentive award activity for the three months ended March 31, 2019 was as follows:
| Weighted | |||||||||
| Average | |||||||||
| Shares | Fair Value | ||||||||
| Nonvested at January 1, 2019 | 896,817 | $ | 16.94 | ||||||
| Vested | (65,634 | ) | 11.82 | ||||||
| Nonvested at March 31, 2019 | 831,183 | $ | 17.34 | ||||||
The total fair value of shares vested during the three months ended March 31, 2019 was $776.
(b) Amended and Restated FBR & Co. 2006 Long-Term Stock Incentive Plan
In connection with the acquisition of FBR on June 1, 2017, the equity awards previously granted or available for issuance under the FBR & Co. 2006 Long-Term Stock Incentive Plan (the “FBR Stock Plan”) may be issued under the Plan. During the three months ended March 31, 2019, the Company granted restricted stock units representing 4,544 shares of common stock with a total grant date fair value of $71 under the FBR Stock Plan. For the three months ended March 31, 2019 and 2018, share-based compensation expense in connection with the FBR Stock Plan restricted stock awards was $767 and $1,448, respectively. As of March 31, 2019, the expected remaining unrecognized share-based compensation expense of $6,397 will be expensed over a weighted average period of 1.8 years.
A summary of equity incentive award activity for the three months ended March 31, 2019 was as follows:
| Weighted | |||||||||
| Average | |||||||||
| Shares | Fair Value | ||||||||
| Nonvested at January 1, 2019 | 689,430 | $ | 17.64 | ||||||
| Granted | 4,544 | 15.66 | |||||||
| Vested | (56,234 | ) | 15.77 | ||||||
| Forfeited | (43,620 | ) | 15.75 | ||||||
| Nonvested at March 31, 2019 | 594,120 | $ | 17.94 | ||||||
The per-share weighted average grant-date fair value of restricted stock units was $15.66 during the three months ended March 31, 2019. There were 56,234 restricted stock units with a fair value of $887 that vested during the three months ended March 31, 2019 under the FBR Stock Plan.
NOTE 17— NET CAPITAL REQUIREMENTS
B. Riley FBR, MLV and B. Riley Wealth Management (“BRWM”), the Company’s broker-dealer subsidiaries, are registered with the SEC as broker-dealers and are members of the Financial Industry Regulatory Authority, Inc. (“FINRA”). The Company’s broker-dealer subsidiaries are subject to SEC Uniform Net Capital Rule (Rule 15c3-1) which requires the subsidiaries to maintain minimum net capital and that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. As such, they are subject to the minimum net capital requirements promulgated by the SEC. As of March 31, 2019, B. Riley FBR had net capital of $102,265, which was $100,574 in excess of its required net capital of $1,692; MLV had net capital of $725, which was $625 in excess of its required net capital of $100; and BRWM had net capital of $4,972, which was $4,440 in excess of its required net capital of $532.
NOTE 18— RELATED PARTY TRANSACTIONS
At March 31, 2019, amounts due from related parties include $77 from GACP I, L.P. (“GACP I”) and $750 from GACP II, L.P. (“GACP II”) for management fees and other operating expenses and $1,138 due from CA Global Partners (“CA Global”) for operating expenses related to wholesale and industrial liquidation engagements managed by CA Global on behalf of GA Global Ptrs. At December 31, 2018, amounts due from related parties include $193 from GACP I, $724 from GACP II, and $812 from CA Global for management fees, incentive fees and other operating expenses.
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NOTE 19— BUSINESS SEGMENTS
The Company’s business is classified into the Capital Markets segment, Auction and Liquidation segment, Valuation and Appraisal segment and Principal Investments — United Online and magicJack segment. These reportable segments are all distinct businesses, each with a different marketing strategy and management structure.
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The following is a summary of certain financial data for each of the Company’s reportable segments:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| Capital Markets segment: | ||||||||
| Revenues - Services and fees | $ | 75,971 | $ | 53,038 | ||||
| Interest income - Securities lending | 9,330 | 7,291 | ||||||
| Total revenues | 85,301 | 60,329 | ||||||
| Selling, general and administrative expenses | (63,389 | ) | (53,639 | ) | ||||
| Restructuring recovery (charge) | 29 | (255 | ) | |||||
| Interest expense - Securities lending | (6,804 | ) | (5,168 | ) | ||||
| Depreciation and amortization | (1,276 | ) | (1,564 | ) | ||||
| Segment income (loss) | 13,861 | (297 | ) | |||||
| Auction and Liquidation segment: | ||||||||
| Revenues - Services and fees | 20,709 | 15,517 | ||||||
| Direct cost of services | (6,274 | ) | (4,576 | ) | ||||
| Cost of goods sold | (14 | ) | (1 | ) | ||||
| Selling, general and administrative expenses | (2,915 | ) | (2,881 | ) | ||||
| Depreciation and amortization | (2 | ) | (8 | ) | ||||
| Segment income | 11,504 | 8,051 | ||||||
| Valuation and Appraisal segment: | ||||||||
| Revenues - Services and fees | 8,583 | 8,520 | ||||||
| Direct cost of services | (4,421 | ) | (4,198 | ) | ||||
| Selling, general and administrative expenses | (2,766 | ) | (2,345 | ) | ||||
| Depreciation and amortization | (33 | ) | (49 | ) | ||||
| Segment income | 1,363 | 1,928 | ||||||
| Principal Investments - United Online and magicJack segment: | ||||||||
| Revenues - Services and fees | 26,590 | 11,374 | ||||||
| Revenues - Sale of goods | 945 | 38 | ||||||
| Total revenues | 27,535 | 11,412 | ||||||
| Direct cost of services | (7,842 | ) | (2,878 | ) | ||||
| Cost of goods sold | (1,105 | ) | (40 | ) | ||||
| Selling, general and administrative expenses | (7,020 | ) | (1,958 | ) | ||||
| Depreciation and amortization | (3,463 | ) | (1,679 | ) | ||||
| Restructuring charge | (176 | ) | — | |||||
| Segment income | 7,929 | 4,857 | ||||||
| Consolidated operating income from reportable segments | 34,657 | 14,539 | ||||||
| Corporate and other expenses (including restructuring recovery of $38 during the three months ended March 31, 2018.) | (9,679 | ) | (3,937 | ) | ||||
| Interest income | 637 | 128 | ||||||
| Loss on equity investments | (3,762 | ) | (672 | ) | ||||
| Interest expense | (10,770 | ) | (4,227 | ) | ||||
| Income before income taxes | 11,083 | 5,831 | ||||||
| Provision for income taxes | (3,104 | ) | (989 | ) | ||||
| Net income | 7,979 | 4,842 | ||||||
| Net (loss) income attributable to noncontrolling interests | (44 | ) | 339 | |||||
| Net income attributable to B. Riley Financial, Inc. | $ | 8,023 | $ | 4,503 | ||||
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The following table presents revenues by geographical area:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| Revenues: | ||||||||
| Revenues - Services and fees: | ||||||||
| North America | $ | 131,777 | $ | 87,733 | ||||
| Australia | 15 | — | ||||||
| Europe | 61 | 454 | ||||||
| Total Revenues - Services and fees | $ | 131,853 | $ | 88,187 | ||||
| Revenues - Sale of goods | ||||||||
| North America | $ | 945 | $ | 38 | ||||
| Revenues - Interest income - Securities lending: | ||||||||
| North America | $ | 9,330 | $ | 7,553 | ||||
| Total Revenues: | ||||||||
| North America | $ | 142,052 | $ | 95,324 | ||||
| Australia | 15 | — | ||||||
| Europe | 61 | 454 | ||||||
| Total Revenues | $ | 142,128 | $ | 95,778 | ||||
The following table presents long-lived assets, which consists of property and equipment and other assets, by geographical area:
| As of | As of | |||||||
| March 31, | December 31, | |||||||
| 2019 | 2018 | |||||||
| Property and equipment, net: | ||||||||
| North America | $ | 15,634 | $ | 15,489 | ||||
| Europe | 10 | 34 | ||||||
| Total | $ | 15,644 | $ | 15,523 | ||||
Segment assets are not reported to, or used by, the Company's Chief Operating Decision Maker to allocate resources to, or assess performance of, the segments and therefore, total segment assets have not been disclosed.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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; the short term nature of our engagements; the accuracy of our estimates and valuations of inventory or assets in “guarantee” based engagements; competition in the asset management business; 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; 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; failure to successfully compete in any of our segments; 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 operating 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 reaction to the magicJack VocalTec Ltd. (“magicJack”) acquisition of our and magicJack’s customers, employees and counterparties; and the diversion of management time on acquisition-related issues. 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
General
B. Riley Financial, Inc. (NASDAQ: RILY) and its subsidiaries provide collaborative financial services and solutions through several operating subsidiaries including:
| ● | B. Riley FBR, Inc. (“B. Riley FBR”) is a leading, full service investment bank providing financial advisory, corporate finance, research, securities lending and sales and trading services to corporate, institutional and high net worth individual clients. B. Riley FBR was formed in November 2017 through the merger of B. Riley & Co, LLC and FBR Capital Markets & Co., which the Company acquired in June 2017; the name of the combined broker dealer was subsequently changed to B. Riley FBR, Inc. |
| ● | B. Riley Wealth Management, Inc provides comprehensive wealth management and brokerage services to individuals and families, corporations and non-profit organizations, including qualified retirement plans, trusts, foundations and endowments. B. Riley Wealth Management was formerly Wunderlich Securities, Inc., which the Company acquired on July 3, 2017 and changed the name in June 2018. |
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| ● | B. Riley Capital Management, LLC, a Securities and Exchange Commission (“SEC”) registered investment advisor, which includes: |
| ● | B. Riley Asset Management, an advisor to certain private funds and to institutional and high net worth investors; |
| ● | Great American Capital Partners, LLC (“GACP”), the general partner of two private funds, GACP I, L.P. and GACP II, L.P., both direct lending funds that provide senior secured loans and second lien secured loan facilities to middle market public and private U.S. companies. |
| ● | GlassRatner Advisory & Capital Group LLC (“GlassRatner”), a specialty financial advisory services firm that provides consulting services to shareholders, creditors and companies, including due diligence, fraud investigations, corporate litigation support, crisis management and bankruptcy services. We acquired GlassRatner on August 1, 2018. GlassRatner strengthens B. Riley’s diverse platform and compliments the restructuring services provided by B. Riley FBR. |
| ● | Great American Group, LLC, a leading provider of asset disposition and auction solutions to a wide range of retail and industrial clients. |
| ● | Great American Group Advisory and Valuation Services, LLC, a leading provider of appraisal and valuation services for asset based lenders, private equity firms and corporate clients. |
We also pursue a strategy of investing in or acquiring companies which we believe have attractive investment return characteristics. We acquired United Online, Inc. (“UOL”) on July 1, 2016 and magicJack VocalTec Ltd. (“magicJack”) on November 14, 2018 as part of our principal investment strategy.
| ● | UOL is a communications company that offers consumer subscription services and products, consisting of Internet access services and devices under the NetZero and Juno brands primarily sold in the United States. |
| ● | magicJack is a Voice over IP (“VoIP”) cloud-based technology and services communications provider. |
We are headquartered in Los Angeles with offices in major cities throughout the United States including New York, Chicago, Boston, Dallas, Memphis, Metro Washington D.C and West Palm Beach.
For financial reporting purposes we classify our businesses into four operating segments: (i) Capital Markets, (ii) Auction and Liquidation, (iii) Valuation and Appraisal and (iv) Principal Investments – United Online and magicJack.
Capital Markets Segment. Our Capital Markets segment provides a full array of investment banking, corporate finance, consulting, financial advisory, research, securities lending, wealth management and sales and trading services to corporate, institutional and high net worth clients. Our corporate finance and investment banking services include merger and acquisitions as well as restructuring advisory services to public and private companies, initial and secondary public offerings, and institutional private placements. In addition, we trade equity securities as a principal for our account, including investments in funds managed by our subsidiaries. Our Capital Markets segment also includes our asset management businesses that manage various private and public funds for institutional and individual investors.
Auction and Liquidation Segment. Our Auction and Liquidation segment utilizes our significant industry experience, a scalable network of independent contractors and industry-specific advisors to tailor our services to the specific needs of a multitude of clients, logistical challenges and distressed circumstances. Furthermore, our scale and pool of resources allow us to offer our services across North American as well as parts of Europe, Asia and Australia. Our Auction and Liquidation segment operates through two main divisions, retail store liquidations and wholesale and industrial assets dispositions. Our wholesale and industrial assets dispositions division operates through limited liability companies that are controlled by us.
Valuation and Appraisal Segment. Our Valuation and Appraisal segment provides Valuation and Appraisal services to financial institutions, lenders, private equity firms and other providers of capital. These services primarily include the valuation of assets (i) for purposes of determining and monitoring the value of collateral securing financial transactions and loan arrangements and (ii) in connection with potential business combinations. Our Valuation and Appraisal segment operates through limited liability companies that are majority owned by us.
Principal Investments - United Online and magicJack Segment. Our Principal Investments - United Online and magicJack segment consists of businesses which have been acquired primarily for attractive investment return characteristics. Currently, this segment includes UOL, through which we provide consumer Internet access, and magicJack, through which we provide VoIP communication and related product and subscription services.
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Recent Developments
As previously disclosed, on June 17, 2018, B. Riley Financial, Inc. (the “Company” or “B. Riley”) entered into certain agreements pursuant to which B. Riley agreed to provide certain debt and equity funding and other support in connection with the acquisition (the “Acquisition”) by Vintage Rodeo Parent, LLC (the “Vintage Parent”), of Rent-A-Center, Inc. (“Rent-A-Center”), contemplated by that certain merger agreement dated as of June 17, 2018, by and among Vintage Parent, Vintage Rodeo Acquisition, Inc. a wholly owned subsidiary of Vintage Parent (the “Merger Sub” or the “Borrower”), and Rent-A-Center (the “Merger Agreement”). In connection therewith, B. Riley and Vintage RTO, L.P., an affiliate of Vintage Parent (“Vintage Merger Guarantor”), entered into a Limited Guarantee dated as of June 17, 2018 (the “Limited Guarantee”), in favor of Rent-A-Center, pursuant to which B. Riley and Vintage Merger Guarantor (together, the “Merger Guarantors”) agreed to guarantee, jointly and severally, to Rent-A-Center the payment, performance and discharge of all of the liabilities and obligations of Vintage Parent and Merger Sub under the Merger Agreement when required in accordance with the Merger Agreement (the “Guaranteed Obligations”), including without limitation, (i) termination fees in the amount of $126.5 million due to Rent-A-Center if the Merger Agreement is properly terminated (the “Termination Fee”); and (ii) reimbursement and indemnification obligations when required (collectively, the “Guarantee Obligations”), provided, that the liability under the Limited Guarantee shall not exceed $128.5 million. In connection with the execution of the Limited Guarantee, the Company entered into a Mutual Indemnity/Contribution Agreement, dated as of June 17, 2018 (the “Mutual Indemnity Agreement”), with the Vintage Merger Guarantor and Samjor Family, LP (collectively, the “Vintage Indemnity Parties”). Under the Mutual Indemnity Agreement, the Vintage Guarantors agreed, jointly and severally, to indemnify and hold harmless B. Riley and its affiliates from damages and liabilities arising out of the Guarantee Obligations, other than those caused B. Riley’s failure to fund under their debt or equity commitments.
On December 18, 2018, Rent-A-Center purported to terminate the Merger Agreement because the end date of the agreement was allegedly not extended prior to December 17, 2018 by Vintage Parent. Rent-A-Center delivered notice of such termination to Vintage Parent, and notified Vintage Parent of its obligation under the terms of the Merger Agreement to pay Rent-A-Center the Termination Fee within three business days. On December 21, 2018, Vintage Capital filed a complaint in the Court of Chancery of the State of Delaware (the “Court”) challenging Rent-A-Center’s purported termination of the Merger Agreement and demand for payment of the Termination Fee. On December 28, 2018, Rent-A-Center provided each of B. Riley and the Vintage Merger Guarantor with a written request under the Limited Guarantee (a “Performance Demand”), to promptly, and in any event within ten (10) Business Days, pay to Rent-A-Center the Guaranteed Obligations (including the Termination Fee) in full. On February 11th and 12th, a trial was held in Delaware, and a post-trial hearing was held on March 11, 2019. On March 14, 2019, the Court issued its Opinion concluding that Rent-A-Center’s termination of the merger agreement was valid and did not rule on the enforceability of the payment of the Termination Fee. The parties submitted supplemental briefs as well as reply briefs on that issue. On April 22, 2019, the parties announced an agreement in principal to settle the matter and on April 25, 2019 signed a settlement agreement including a release of claims. The Company is not making any financial contribution in connection with the settlement.
Critical Accounting Policies
Our condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”), which require management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosures of contingent assets and liabilities. 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, share-based compensation 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, 2018.
On January 1, 2019, the Company adopted Accounting Standards Update 2016-02: Leases (Topic 842) issued by the Financial Accounting Standards Board using the modified retrospective method. The Company elected the ‘package of practical expedients,’ which permits the Company not to reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs therefore we did not restate prior comparative periods. Upon adoption of this standard on January 1, 2019, the Company recognized $67,519 operating lease liabilities with corresponding operating lease right-of-use assets. See Note 2(o) to the accompanying financial statements for additional information on leases.
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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 March 31, 2019 Compared to Three Months Ended March 31, 2018
Condensed Consolidated Statements of Income
(Dollars in thousands)
| Three Months Ended | Three Months Ended | |||||||||||||||
| March 31, 2019 | March 31, 2018 | |||||||||||||||
| Amount | % | Amount | % | |||||||||||||
| Revenues: | ||||||||||||||||
| Services and fees | $ | 131,853 | 92.8 | % | $ | 88,449 | 92.3 | % | ||||||||
| Interest income - Securities lending | 9,330 | 6.6 | % | 7,291 | 7.6 | % | ||||||||||
| Sale of goods | 945 | 0.7 | % | 38 | 0.0 | % | ||||||||||
| Total revenues | 142,128 | 100.0 | % | 95,778 | 100.0 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| Direct cost of services | 18,537 | 13.0 | % | 11,652 | 12.2 | % | ||||||||||
| Cost of goods sold | 1,119 | 0.8 | % | 41 | 0.0 | % | ||||||||||
| Selling, general and administrative expenses | 90,543 | 63.7 | % | 68,098 | 71.1 | % | ||||||||||
| Restructuring charge | 147 | 0.1 | % | 217 | 0.2 | % | ||||||||||
| Interest expense - Securities lending | 6,804 | 4.8 | % | 5,168 | 5.4 | % | ||||||||||
| Total operating expenses | 117,150 | 82.4 | % | 85,176 | 88.9 | % | ||||||||||
| Operating income | 24,978 | 17.6 | % | 10,602 | 11.1 | % | ||||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | 637 | 0.4 | % | 128 | 0.1 | % | ||||||||||
| Loss from equity investments | (3,762 | ) | (2.6 | %) | (672 | ) | (0.7 | %) | ||||||||
| Interest expense | (10,770 | ) | (7.6 | %) | (4,227 | ) | (4.4 | %) | ||||||||
| Income before income taxes | 11,083 | 7.8 | % | 5,831 | 6.1 | % | ||||||||||
| Provision for income taxes | (3,104 | ) | (2.2 | %) | (989 | ) | (1.0 | %) | ||||||||
| Net income | 7,979 | 5.6 | % | 4,842 | 5.1 | % | ||||||||||
| Net (loss) income attributable to noncontrolling interests | (44 | ) | 0.0 | % | 339 | 0.4 | % | |||||||||
| Net income attributable to B. Riley Financial, Inc. | $ | 8,023 | 5.6 | % | $ | 4,503 | 4.7 | % | ||||||||
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Revenues
The table below and the discussion that follows are based on how we analyze our business.
| Three Months Ended | Three Months Ended | |||||||||||||||||||||||
| March 31, 2019 | March 31, 2018 | Change | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Revenues - Services and fees: | ||||||||||||||||||||||||
| Capital Markets segment | $ | 75,971 | 53.4 | % | $ | 53,038 | 55.4 | % | $ | 22,933 | 43.2 | % | ||||||||||||
| Auction and Liquidation segment | 20,709 | 14.6 | % | 15,517 | 16.2 | % | 5,192 | 33.5 | % | |||||||||||||||
| Valuation and Appraisal segment | 8,583 | 6.0 | % | 8,520 | 8.9 | % | 63 | 0.7 | % | |||||||||||||||
| Principal Investments - United Online and magicJack segment | 26,590 | 18.7 | % | 11,374 | 11.9 | % | 15,216 | 133.8 | % | |||||||||||||||
| Subtotal | 131,853 | 92.7 | % | 88,449 | 92.4 | % | 43,404 | 49.1 | % | |||||||||||||||
| Revenues - Sale of goods: | ||||||||||||||||||||||||
| Principal Investments - United Online and magicJack segment | 945 | 0.7 | % | 38 | 0.0 | % | 907 | n/m | ||||||||||||||||
| Interest income - Securities lending: | ||||||||||||||||||||||||
| Capital Markets segment | 9,330 | 6.6 | % | 7,291 | 7.6 | % | 2,039 | 28.0 | % | |||||||||||||||
| Total revenues | $ | 142,128 | 100.0 | % | $ | 95,778 | 100.0 | % | $ | 46,350 | 48.4 | % | ||||||||||||
n/m - Not applicable or not meaningful.
Total revenues increased approximately $46.3 million to $142.1 million during the three months ended March 31, 2019 from $95.8 million during the three months ended March 31, 2018. The increase in revenues during the three months ended March 31, 2019 was primarily due to an increase in revenue from services and fees of $43.4 million, an increase in revenue from interest income — securities lending of $2.0 million and increase in revenue from sale of goods of $0.9 million. The increase in revenue from services and fees of $43.4 million in 2019 was primarily due to an increase in revenue of $22.9 million in the Capital Markets segment, $5.2 million in the Auction and Liquidation segment, $0.1 million in the Valuation and Appraisal segment and $15.2 million in the Principal Investments — United Online and magicJack segment.
Revenues from services and fees in the Capital Markets segment increased approximately $23.0 million, to $76.0 million during the three months ended March 31, 2019 from $53.0 million during the three months ended March 31, 2018. The increase in revenues was primarily due to an increase in revenue of $26.9 million from trading gains, an increase in revenue of $8.8 million from consulting fees as a result of the acquisition of GlassRatner on August 1, 2018 and increase in other services revenue of $0.8 million, offset by a decrease in revenue of $11.9 million from investment banking fees and a decrease in revenue of $1.6 million from wealth management services.
Revenues from services and fees in the Auction and Liquidation segment increased $5.2 million, to $20.7 million during the three months ended March 31, 2019 from $15.5 million during the three months ended March 31, 2018. The increase in revenues of $5.2 million was primarily due to an increase in revenues of $5.7 million from services and fees from retail liquidation engagements and a decrease in revenues of $0.5 million from services and fees in our wholesale and industrial auction division.
Revenues from services and fees in the Valuation and Appraisal segment increased $0.1 million, to $8.6 million during the three months ended March 31, 2019 from $8.5 million during the three months ended March 31, 2018.
Revenues from services and fees in the Principal Investments - United Online and magicJack segment increased $15.2 million to $26.6 million during the three months ended March 31, 2019 from $11.4 million during the three months ended March 31, 2018. The increase in revenues from services and fees is as a result of the acquisition of magicJack on November 14, 2018 included in the segment for the three months ended March 31, 2019 of $17.2 million, offset by a decrease in services and fees revenue from UOL of $2.0 million. Management expects revenues from UOL continue to decline year over year. The primary source of revenue included in this segment is subscription services revenue and some advertising and other revenues.
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Sale of Goods, Cost of Goods Sold and Gross Margin
| Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | |||||||||||||||||||||||
| Principal | Principal | |||||||||||||||||||||||
| Investments - | Investments - | |||||||||||||||||||||||
| Auction and | United Online | Auction and | United Online | |||||||||||||||||||||
| Liquidation | and magicJack | Liquidation | and magicJack | |||||||||||||||||||||
| Segment | Segment | Total | Segment | Segment | Total | |||||||||||||||||||
| Revenues - Sale of Goods | $ | — | $ | 945 | $ | 945 | $ | — | $ | 38 | $ | 38 | ||||||||||||
| Cost of goods sold | 14 | 1,105 | 1,119 | 1 | 40 | 41 | ||||||||||||||||||
| Gross margin on services and fees | $ | (14 | ) | $ | (160 | ) | $ | (174 | ) | $ | (1 | ) | $ | (2 | ) | $ | (3 | ) | ||||||
| Gross margin percentage | (100.0 | %) | (16.9 | %) | (18.4 | %) | (100.0 | %) | (5.3 | %) | (7.9 | %) | ||||||||||||
Revenues from the sale of goods increased $0.9 million, to $0.9 million during the three months ended March 31, 2019 from less than $0.1 million during the three months ended March 31, 2018. Revenues from sale of goods were primarily attributable to the sale of magicJack devices that are sold in connection with VoIP services and, to a lesser extent, sale of mobile broadband devices from UOL that are sold in connection with the mobile broadband services. Cost of goods sold for the three months ended March 31, 2019 was $1.1 million, resulting in a gross margin of ($0.2) million or (18.4%).
Operating Expenses
Direct Cost of Services. Direct cost of services and direct cost of services measured as a percentage of revenues – services and fees by segment during the three months ended March 31, 2019 and 2018 are as follows:
| Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | |||||||||||||||||||||||||||||||
| Principal | Principal | |||||||||||||||||||||||||||||||
| Investments - | Investments - | |||||||||||||||||||||||||||||||
| Auction and | Valuation and | United Online | Auction and | Valuation and | United Online | |||||||||||||||||||||||||||
| Liquidation | Appraisal | and magicJack | Liquidation | Appraisal | and magicJack | |||||||||||||||||||||||||||
| Segment | Segment | Segment | Total | Segment | Segment | Segment | Total | |||||||||||||||||||||||||
| Revenues - Services and fees | $ | 20,709 | $ | 8,583 | $ | 26,590 | $ | 15,517 | $ | 8,520 | $ | 11,374 | ||||||||||||||||||||
| Direct cost of services | 6,274 | 4,421 | 7,842 | $ | 18,537 | 4,576 | 4,198 | 2,878 | $ | 11,652 | ||||||||||||||||||||||
| Gross margin on services and fees | $ | 14,435 | $ | 4,162 | $ | 18,748 | $ | 10,941 | $ | 4,322 | $ | 8,496 | ||||||||||||||||||||
| Gross margin percentage | 69.7 | % | 48.5 | % | 70.5 | % | 70.5 | % | 50.7 | % | 74.7 | % | ||||||||||||||||||||
Total direct costs increased approximately $6.9 million, to $18.5 million during the three months ended March 31, 2019 from $11.7 million during the three months ended March 31, 2018. Direct costs of services increased by $1.7 million in the Auction and Liquidation segment, an increase of $5.0 million in the Principal Investments — United Online and magicJack segment and an increase of $0.2 million in the Valuation and Appraisal segment. The increase in direct costs in the Auction and Liquidation segment was primarily due to mix of engagement types performed during the three months ended March 31, 2019 as compared to the three months ended March 31, 2018. The increase in direct costs in the Principal Investments — United Online and magicJack segment was primarily as a result of the acquisition of magicJack on November 14, 2018. The increase in direct costs of services in the Valuation and Appraisal segment was primarily due to an increase in payroll and related expenses in 2019 as compared to the same period in 2018.
Auction and Liquidation
Gross margin in the Auction and Liquidation segment for services and fees decreased to 69.7% of revenues during the three months ended March 31, 2019, as compared to 70.5% of revenues during the three months ended March 31, 2018. The decrease in margin in the Auction and Liquidation segment is due to the mix of engagement types between guarantee and commission and fees engagements performed during the three months ended March 31, 2019 as compared to the prior year period.
Valuation and Appraisal
Gross margins in the Valuation and Appraisal segment decreased to 48.5% of revenues during the three months ended March 31, 2019 as compared to 50.7% of revenues during the three months ended March 31, 2018. The decrease in gross margin in the Valuation and Appraisal segment is primarily due to increase in payroll and related expenses.
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Principal Investments — United Online and magicJack
Gross margins in the Principal Investments-United Online and magicJack segment decreased to 70.5% of revenues during the three months ended March 31, 2019 as compared to 74.7% of revenues during the three months ended March 31, 2018. The decrease in margin in the Principal Investments — United Online and magicJack segment is primarily due to the mix of revenues of services and fees and as a result of the acquisition of magicJack on November 14, 2018.
Selling, General and Administrative Expenses. Selling, general and administrative expenses during the three months ended March 31, 2019 and 2018 were comprised of the following:
Selling, General and Administrative Expenses
| Three Months Ended | Three Months Ended | |||||||||||||||||||||||
| March 31, 2019 | March 31, 2018 | Change | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Capital Markets segment | $ | 64,665 | 71.4 | % | $ | 55,203 | 81.1 | % | $ | 9,462 | 17.1 | % | ||||||||||||
| Auction and Liquidation segment | 2,917 | 3.2 | % | 2,889 | 4.3 | % | 28 | 1.0 | % | |||||||||||||||
| Valuation and Appraisal segment | 2,799 | 3.1 | % | 2,394 | 3.5 | % | 405 | 16.9 | % | |||||||||||||||
| Principal Investments - United Online and magicJack segment | 10,483 | 11.6 | % | 3,637 | 5.3 | % | 6,846 | 188.2 | % | |||||||||||||||
| Corporate and Other segment | 9,679 | 10.7 | % | 3,937 | 5.8 | % | 5,742 | 145.8 | % | |||||||||||||||
| Total selling, general & administrative expenses | $ | 90,543 | 100.0 | % | $ | 68,060 | 100.0 | % | $ | 22,483 | 33.0 | % | ||||||||||||
Total selling, general and administrative expenses increased approximately $22.4 million, to $90.5 million during the three months ended March 31, 2019 from $68.1 million for the three months ended March 31, 2018. The increase of approximately $22.4 million in selling, general and administrative expenses was due to an increase of $9.5 million in the Capital Markets segment, $0.4 million in the Valuation and Appraisal segment, $6.8 million in the Principal Investments — United Online and magicJack segment and $5.7 million in the Corporate and Other segment.
Capital Markets
Selling, general and administrative expenses in the Capital Markets segment increased by $9.5 million to $64.7 million during the three months ended March 31, 2019 from $55.2 million during the three months ended March 31, 2018. The increase in selling, general and administrative expenses in the Capital Markets segment was primarily due to an increase in professional and consulting fees in the first quarter of 2019 compared to the same period in 2018.
Auction and Liquidation
Selling, general and administrative expenses in the Auction and Liquidation segment was $2.9 million during the three months ended March 31, 2019 and 2018.
Valuation and Appraisal
Selling, general and administrative expenses in the Valuation and Appraisal segment increased $0.4 million to $2.8 million during the three months ended March 31, 2019 from $2.4 million for the three months ended March 31, 2018. The increase of $0.4 million was primarily due to an increase in payroll and related expenses.
Principal Investments - United Online and magicJack
Selling, general and administrative expenses in the Principal Investments — United Online and magicJack segment increased $6.8 million to $10.5 million for the three months ended March 31, 2019 from $3.6 million for the three months March 31, 2018. The increase in selling, general and administrative expenses in the Principal Investments – United Online and magicJack segment is due to the acquisition of magicJack on November 14, 2018. magicJack’s selling, general and administrative expenses included in the segment for the three months ended March 31, 2019 was $6.4 million.
Corporate and Other
Selling, general and administrative expenses for the Corporate and Other segment increased approximately $5.7 million to $9.7 million during the three months ended March 31, 2019 from $4.0 million for the three months ended March 31, 2018. The increase of expenses in the Corporate and Other segment for the three months ended March 31, 2019 was primarily due to an increase of $5.3 in professional fees and an increase of $0.4 million in payroll and related expenses.
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Restructuring Charge. During the three months ended March 31, 2019, we incurred restructuring charge of $0.1 million, which was primarily related to severance costs related to a reduction in personnel at magicJack as a result of the acquisition of magicJack on November 14, 2018. Restructuring charge of $0.2 million during the three months ended March 31, 2018 was primarily comprised of lease loss accruals in the planned consolidation of office space related to operations in the Capital Markets segment.
Other Income (Expense). Other income included interest income of $0.6 during the three months ended March 31, 2019 and $0.1 during the three months ended March 31, 2018. Interest expense was $10.8 million during the three months ended March 31, 2019 as compared to $4.2 million during the three months ended March 31, 2018. The increase in interest expense during the three months ended March 31, 2019 was primarily due to an increase in interest expense of $4.8 million from the issuance of senior notes due in 2021, 2023 and 2027, and an increase in interest expense of $1.3 million from the term loan dated December 2018. Other expense in the three month ended March 31, 2019 included $3.7 million loss on equity investments compared to a loss on equity investments of $0.7 million in the prior year period.
Income Before Income Taxes. Income before income taxes increased $5.3 million to income before income taxes of $11.1 million during the three months ended March 31, 2019 from an income before income taxes of $5.8 million during the three months ended March 31, 2018. The increase in income before income taxes was primarily due to an increase in revenues of approximately $46.3 million and an increase in interest income of $0.5 million, offset by an increase in operating expenses of $32.0 million, an increase in interest expense of $6.6 million and an increase in loss from equity investments of $3.1 million as discussed above.
Provision for Income Taxes. Provision for income taxes was $3.1 million during the three months ended March 31, 2019 compared to provision for income taxes of $1.0 million during the three months ended March 31, 2018. The effective income tax rate was a provision of 28.0% for the three months ended March 31, 2019 as compared to a provision of 17.0% for the three months ended March 31, 2018.
Net (Loss) Income Attributable to Noncontrolling Interest. Net (loss) income attributable to noncontrolling interests represents the proportionate share of net income generated by Great American Global Partners, LLC, in which we have a 50% membership interest that we do not own. The net loss attributable to noncontrolling interests was less than $0.1 million during the three months ended March 31, 2019 compared to net income attributable to noncontrolling interests of $0.3 million during the three months ended March 31, 2018.
Net Income Attributable to the Company. Net income attributable to the Company for the three months ended March 31, 2019 was $8.0 million, an increase of net income of $3.5 million, from net income attributable to the Company of $4.5 million for the three months ended March 31, 2018. Increase in net income attributable to the Company during the three months ended March 31, 2019 as compared to the same period in 2018 was primarily due to an increase in operating income of $14.4 million, an increase in interest income of $0.5 million and a decrease in income attributable to noncontrolling interest of $0.4 million, offset by an increase in interest expense of approximately $6.5 million, an increase in loss on equity investments of $3.1 million and an increase in provision for income taxes of $2.1 million.
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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 loan and credit facility, and special purposes financing arrangements.
During the three months ended March 31, 2019 and 2018, we generated net income of $8.0 million and $4.5 million, respectively. Our cash flows and profitability are impacted by the number and size of retail liquidation and Capital Markets engagements performed on a quarterly and annual basis.
As of March 31, 2019, we had $163.5 million of unrestricted cash and cash equivalents, $7.5 million of restricted cash, $288.8 million of securities and other investments held at fair value, $53.4 million of loans receivable, and $555.4 million of borrowings outstanding. The borrowings outstanding of $555.4 million at March 31, 2019 included (a) $49.1 million of borrowings from the issuance of the 7.50% 2021 Notes, (b) $107.3 million of borrowings from the issuance of the 7.50% 2027 Notes, (c) $98.1 million of borrowings from the issuance of the 7.25% 2027 Notes, (d) $111.0 million of borrowings from the issuance of the 7.375% 2023 Notes, (e) $99.6 million of borrowings from the issuance of the 6.875% 2023 Notes, (f) $89.1 million term loan borrowed pursuant to the BRPAC Credit Agreement discussed below; and (g) $1.2 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, 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 May 1, 2019, we declared a regular dividend of $0.08 per share and a special dividend of $0.18 per share that will be paid on or about May 29, 2019 to stockholders of record as of May 15, 2019. On March 5, 2019, we declared a regular dividend of $0.08 per share which was paid on March 26, 2019 to stockholders of record as of March 19, 2019. On November 5, 2018, we declared a regular dividend of $0.08 per share and a special dividend of $0.08 per share which was paid on November 27, 2018 to stockholders of record as of November 16, 2018. On August 2, 2018, we declared a regular dividend of $0.08 per share and a special dividend of $0.22 per share which was paid on August 29, 2018 to stockholders of record as of August 16, 2018. On May 7, 2018, we declared a regular dividend of $0.08 per share and a special dividend of $0.04 per share which was paid on June 5, 2018 to stockholders of record as of May 21, 2018. On March 7, 2018, we declared a regular dividend of $0.08 per share and a special dividend of $0.08 per share which was paid on April 3, 2018. During the year ended December 31, 2018, we paid cash dividends on our common stock of $22.7 million. While it is the Board’s current intention to make regular dividend payments of $0.08 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.
Our principal sources of liquidity to finance our business is 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
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | $ | 8,924 | $ | (54,055 | ) | |||
| Investing activities | (26,513 | ) | (4,268 | ) | ||||
| Financing activities | 8,241 | 3,813 | ||||||
| Effect of foreign currency on cash | 23 | (314 | ) | |||||
| Net decrease in cash, cash equivalents and restricted cash | $ | (9,325 | ) | $ | (54,824 | ) | ||
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Cash provided by operating activities was $8.9 million during the three months ended March 31, 2019 compared to cash used in operating activities of $54.1 million during the three months ended March 31, 2018. Cash provided by operating activities for the three months ended March 31, 2019 included net income of $8.0 million adjusted for noncash items of $12.3 million and changes in operating assets and liabilities of $11.3 million. Noncash items of $12.3 million include (a) depreciation and amortization of $4.9 million, (b) share-based compensation of $2.6 million, (c) loss on equity investments of $3.8 million, (d) provision for doubtful accounts of $0.2 million, (e) income allocated for mandatorily redeemable noncontrolling interests of $0.2 million, (f) other noncash interest and other of $1.0 million and (g) deferred income taxes of $0.4 million.
Cash used in investing activities was $26.5 million during the three months ended March 31, 2019 compared to cash used in investing activities of $4.3 million for the three months ended March 31, 2018. During the three months ended March 31, 2019, cash used in investing activities consisted of cash used for loans receivable of $20.2 million, cash used for equity investments of $10.6 million and cash used for purchases of property and equipment of $1.7 million, cash received from loans receivable repayment of $5.5 million and dividends from equity investments of $0.4 million. During the three months ended March 31, 2018, cash used in investing activities of $4.3 million consisted of cash used for equity investments of $3.6 million and cash used for purchases of property, equipment and intangible assets of $0.7 million.
Cash provided by financing activities was $8.2 million during the three months ended March 31, 2019 compared to cash provided by financing activities of $3.8 million during the three months ended March 31, 2018. During the three months ended March 31, 2019, cash provided by financing activities primarily consisted of $10.0 million proceeds from our term loan, $5.0 million proceeds from issuance of senior notes, offset by (a) $2.6 million used to buyback our common stocks, (b) $2.6 million used to pay cash dividends on our common stocks, (c) $0.7 million used for payment of employment taxes on vesting of restricted stock (d) $0.4 million used for repayment of notes payable, approximately $0.2 million used for debt issuance costs and (e) $0.3 million distribution to noncontrolling interests. During the three months ended March 31, 2018, cash provided by financing activities of $3.8 million was primarily consisted of $7.3 million proceeds from issuance of senior notes, offset by (a) $1.8 million used to pay cash dividends, (b) $1.1 million used for payment of employment taxes on vesting of restricted stock (c) $0.4 million used for repayment of notes payable and (d) $0.1 million distribution to noncontrolling interests.
Credit Agreements
On April 21, 2017, we amended the asset based credit facility agreement (as amended, the “Credit Agreement”) with Wells Fargo Bank to increase the maximum borrowing limit from $100.0 million to $200.0 million. Such amendment, among other things, also extended the expiration date of the credit facility from July 15, 2018 to April 21, 2022. The Credit Agreement continues to allow for borrowings under the separate credit agreement (a “UK Credit Agreement”) which was dated March 19, 2015 with an affiliate of Wells Fargo Bank which provides for the financing of transactions in the United Kingdom with borrowings up to 50.0 million British Pounds. Any borrowing on the UK Credit Agreement reduce the availability of the asset based $200.0 million credit facility. The UK Credit Agreement is cross collateralized and integrated in certain respects with the Credit Agreement. The Credit Agreement continues to include the addition of our Canadian subsidiary, from the October 5, 2016 amendment to the Credit Agreement, to facilitate borrowings to fund retail liquidation transactions in Canada. From time to time, we utilize this credit facility to fund costs and expenses incurred in connection with liquidation engagements. We also utilize this credit facility in order to issue letters of credit in connection with liquidation engagements conducted on a guaranteed basis. Subject to certain limitations and offsets, we are permitted to borrow up to $200.0 million under the credit facility, less the aggregate principal amount borrowed under the UK Credit Agreement (if in effect). Borrowings under the credit facility are only made at the discretion of the lender and are generally required to be repaid within 180 days. The interest rate for each revolving credit advance under the related credit agreement is, subject to certain terms and conditions, equal to the LIBOR plus a margin of 2.25% to 3.25% depending on the type of advance and the percentage such advance represents of the related transaction for which such advance is provided. The credit facility is secured by the proceeds received for services rendered in connection with the 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, if any. The credit facility also provides for success fees in the amount of 2.5% to 17.5% of the net profits, if any, earned on liquidation engagements that are financed under the credit facility as set forth in the related credit agreement. We typically seek borrowings on an engagement-by- engagement basis. The credit agreement governing the credit facility contains certain covenants, including covenants that limit or restrict our ability to incur liens, incur indebtedness, make investments, dispose of assets, make certain restricted payments, merge or consolidate and enter into certain transactions with affiliates. There was no outstanding balance on this credit facility at March 31, 2019 and December 31, 2018. At March 31, 2019, there were letter of credits outstanding of $6.7 million under this credit facility.
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On December 19, 2018, BRPI Acquisition Co LLC (“BRPAC”), a Delaware limited liability company, UOL, and YMAX Corporation, Delaware corporations (collectively, the “Borrowers”), indirect wholly owned subsidiaries of the Company, in the capacity of borrowers, entered into a credit agreement with the Banc of California, N.A. in the capacity as agent and lender and with the other lenders party thereto (the “BRPAC Credit Agreement”). Under the BRPAC Credit Agreement, we borrowed $80.0 million due December 19, 2023. Pursuant to the terms of the BRPAC Credit Agreement, we may request additional optional term loans in an aggregate principal amount of up to $10.0 million at any time prior to the first anniversary of the agreement date. On February 1, 2019, the Borrowers entered into the First Amendment to Credit Agreement and Joinder with City National Bank as a new lender in which the new lender extended to Borrowers the additional $10.0 million as further discussed in Note 10 to the accompanying financial statements. The borrowings under the BRPAC Credit Agreement bear interest equal to the LIBOR plus a margin of 2.50% to 3.00% depending on the Borrowers’ consolidated total funded debt ratio as defined in the BRPAC Credit Agreement.
Borrowings under the BRPAC Credit Agreement are due in quarterly installments commencing on March 31, 2020 with any remaining amounts outstanding due at maturity. For the $80.0 million loan, quarterly installments from March 31, 2019 to December 31, 2022 are $4.4 million per quarter and from March 31, 2023 to September 30, 2023, the quarterly installments are $2.2 million per quarter. For the $10.0 million loan, quarterly installments from June 30, 2019 to December 31, 2022 are $0.6 million per quarter and from March 31, 2023 to September 30, 2023, the quarterly installments are $0.3 million per quarter. As of March 31, 2019 and December 31, 2018, the outstanding balance of the term loan was $89.1 million (net of unamortized debt issuance costs of $0.9 million) and $79.2 million (net of unamortized debt issuance costs of $0.8 million), respectively.
Senior Note Offerings
In November 2016, we issued $28.8 million of Senior Notes due in 2021 (the “7.50% 2021 Notes”). We issued additional $17.6 million of the 7.50% 2021 Notes as of December 31, 2018 pursuant to the Sales Agreements, as further discuss below. During the first quarter of 2019, we issued an additional $3.1 million of the 7.50% 2021 Notes pursuant to the December 2018 Sales Agreement, as defined below. Interest on the 7.50% 2021 Notes is payable quarterly at 7.50%. The 7.50% 2021 Notes are unsecured and due and payable in full on October 31, 2021. In connection with the issuance of the 7.50% 2021 Notes, we received net proceeds of $48.7 million (after underwriting commissions, fees and other issuance costs of $0.9 million).
In November 2017, we issued $60.4 million of Senior Notes due in May 2027 (the “7.50% 2027 Notes”). As of March 31, 2019 and December 31, 2018, we have issued additional $48.4 million of the 7.50% 2027 Notes pursuant to the Sales Agreements. Interest is payable quarterly at 7.50%. The 2027 Notes are unsecured and due and payable in full on May 31, 2027. In connection with the issuance of the 7.50% 2027 Notes, we received net proceeds of approximately $107.0 million (after underwriting commissions, fees and other issuance costs of $1.8 million).
In December 2017, we issued $80.5 million of Senior Notes due in December 2027 (the “7.25% 2027 Notes”). As of March 31, 2019 and December 31, 2018, we issued an additional $19.9 million of the 7.25% 2027 Notes pursuant to the Sales Agreements. Interest is payable quarterly at 7.25%. The 7.25% 2027 Notes are unsecured and due and payable in full on December 31, 2027. In connection with the issuance of the 7.25% 2027 Notes, we received net proceeds of $97.8 million (after underwriting commissions, fees and other issuance costs of $2.6 million).
In May 2018, we issued approximately $100.0 million of Senior Notes due in May 2023 (the “7.375% 2023 Notes”). During the year ended December 31, 2018, we issued an additional $11.5 million of the 7.375% 2023 Notes pursuant to the Sales Agreements. During the three months ended March 31, 2019, we issued an additional $1.0 million of the 7.375% 2023 Notes pursuant to the December 2018 Sales Agreement. Interest is payable quarterly at 7.375% commencing July 31, 2018. The 7.375% 2023 Notes are unsecured and due and payable in full on May 31, 2023. In connection with the issuance of the 7.375% 2023 Notes, we received net proceeds of $110.7 million (after underwriting commissions, fees and other issuance costs of $1.9 million).
In September 2018, we issued approximately $100.1 million of Senior Notes due in September 2023 (the “6.875% 2023 Notes”). During the three months ended March 31, 2019, we issued an additional $0.8 million of the 6.875% 2023 Notes pursuant to the December 2018 Sales Agreement. Interest is payable quarterly at 6.875%. The 6.875% 2023 Notes are unsecured and due and payable in full on September 30, 2023. In connection with the issuance of the 6.875% 2023 Notes, we received net proceeds of $99.4 million (after underwriting commissions, fees and other issuance costs of $1.5 million).
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During 2017 and 2018, we entered into a series of related At the Market Issuance Sales Agreements (the “Sales Agreements”) with B. Riley FBR, Inc. governing an ongoing program of at-the-market sales of our senior notes. We filed prospectus supplements under which we sold the senior notes on June 28, 2017, December 19, 2017, April 25, 2018, June 5, 2018 and December 18, 2018. Each of these prospectus supplements was filed pursuant to an effective Registration Statement on Form S-3. As of March 31, 2019, in aggregate, we have sold senior notes having an aggregate principal balance of $472.2 million under the Sales Agreements and related prospectus supplements. Our most recent Sales Agreement was entered into on December 18, 2018 (the “December 2018 Sales Agreement”), and, under the related prospectus supplement, we may offer and sell up to $75.0 million of the senior notes. As of March 31, 2019, we had $ 70.0 million remaining availability under the December 2018 Sales Agreement.
Other Borrowings
Notes payable include notes payable to a clearing organization for one of our broker dealers. The notes payable accrue interest at rates set at each anniversary date, ranging from prime rate plus 0.25% to 2.0% (5.25% to 6.50% at March 31, 2019). Interest is payable annually. The principal payments on the notes payable are due annually in the amount of $0.4 million on January 31, $0.2 million on September 30, and $0.1 million on October 31. The notes payable mature at various dates from September 30, 2019 through January 31, 2022. At March 31, 2019 and December 31, 2018, the outstanding balance for the notes payable was $1,.2 million and $1.6 million respectively.
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Off Balance Sheet Arrangements
In connection with the execution of the Limited Guarantee, we entered into the Mutual Indemnity Agreement, dated as of June 17, 2018, with the Vintage Indemnity Parties. Under the Mutual Indemnity Agreement, the Vintage Indemnity Parties agreed, jointly and severally, to indemnify and hold us and our affiliates harmless from damages and liabilities arising out of the Guarantee Obligations, other than those caused by our failure to fund under the debt or equity commitments. On December 18, 2018, Rent-A-Center purported to terminate the Merger Agreement and delivered notice of such termination to Vintage Parent and demanded payment of certain obligations guaranteed under the Limited Guarantee, including the Termination Fee. On December 21, 2018, Vintage Capital filed a lawsuit challenging Rent-A-Center’s purported termination of the Merger Agreement and demand for payment of the Termination Fee. On December 28, 2018, Rent-A-Center provided us and the Vintage Merger Guarantor with a written request under the Limited Guarantee to pay to Rent-A-Center the Guaranteed Obligations, including the Termination Fee. We then intervened in the litigation to, among other things, challenge Rent-A-Center’s purported termination of the Merger Agreement and demand for payment of the Termination Fee. On April 22, 2019, the parties announced an agreement in principal to settle the matter and on April 25, 2019 signed a settlement agreement including a release of claims. We are not obligated to make any financial contribution in connection with such settlement.
See Part II Item 1. Legal Proceedings for additional discussion of the Limited Guarantee and related litigation.
We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements and do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, established for the purpose of facilitating off-balance sheet arrangements. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.
Recent Accounting Pronouncements
Not yet adopted
In January 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment. This standard simplifies the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The revised guidance will be applied prospectively and is effective for calendar year-end SEC filers for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We have not yet adopted this update and currently evaluating the effect this new standard will have on our financial condition and results of operations
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. This standard requires an allowance to be recorded for all expected credit losses for certain financial assets. The new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments. ASU 2016-13 is effective for public companies for interim and annual period beginning December 15, 2019. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We have not yet adopted this update and currently evaluating the effect this new standard will have on our financial condition and results of operations.
Recently adopted
In February 2016, FASB issued ASU. 2016-02: Leases (Topic 842) which requires a lessee to recognize a right-of-use (ROU) asset and lease liability on the balance sheet for all leases with a term longer than 12 months and provide enhanced disclosures. The Company adopted the new standard effective January 1, 2019 using a modified retrospective method and did not restate comparative periods. The Company elected the ‘package of practical expedients,’ which permits the Company not to reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs. Upon adoption of Accounting Standards Codification (“ASC”) 842 on January 1, 2019, the Company recognized $67.5 million operating lease liability with corresponding operating lease right-of-use assets. See Note 8 to the accompanying financial statements for additional information leases.
In February 2018, the FASB issued ASU 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income that provides for the reclassification from accumulated other comprehensive income to retained earnings for stranded effects resulting from the Tax Reform Act. The accounting update is effective for the fiscal year beginning after December 15, 2018. The accounting update should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Reform Act is recognized. The adoption of this standard did not have a material impact on our financial condition and results of operations.
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In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. ASU 2016-15 is effective for us in our first quarter of fiscal year 2019. The adoption of this standard did not have a material impact on our financial condition and results of operations.
On January 1, 2018, we adopted ASC 606 — Revenue from Contracts with Customers using the modified retrospective method and the impact was determined to be immaterial on our consolidated financial statements. The new revenue standard was applied prospectively in our consolidated financial statements from January 1, 2018 forward and reported financial information for historical comparable periods will not be revised and will continue to be reported under the accounting standards in effect during those historical periods. See Note 12 to the accompanying financial statements for additional information on the adoption of this standard.
In March 2018, the FASB issued ASU 2018-05: Income Taxes (Topic 740) — Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. The amendments in this update provide guidance on when to record and disclose provisional amounts for certain income tax effects of the Tax Reform Act. The amendments also require any provisional amounts or subsequent adjustments to be included in net income from continuing operations. This ASU also discusses required disclosures that an entity must make with regard to the Tax Reform Act. This ASU is effective immediately as new information is available to adjust provisional amounts that were previously recorded. The Company has adopted this standard and will continue to evaluate indicators that may give rise to a change in our tax provision as a result of the Tax Reform Act.
In August 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13: Fair Value Measurement (Topic 820) (“ASU 2018-13”). The amendments in this update change the disclosure requirements for fair value measurements by removing, modifying and adding certain disclosures. The Company early adopted ASU 2018-13 in the third quarter of 2018 and the adoption did not have a material impact on our consolidated financial statements.
On January 1, 2018, we adopted ASU 2016-18 — Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”) using the retrospective method which requires adjustment to prior periods in the statement of cash flows. ASU 2016-18 clarifies how restricted cash should be presented on the statement of cash flows and requires companies to include restricted cash with cash and cash equivalents when reconciling the beginning of period and end of period totals on the statement of cash flows. Restricted cash previously classified under investing activities is now included in the reconciliation of beginning and ending cash on the statement of cash flows. The adoption of ASU 2016-18 did not have a material impact on our financial condition and results of operations.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
B. Riley’s primary exposure to market risk consists of risk related to changes in interest rates. B. Riley has not used derivative financial instruments for speculation or trading purposes.
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 retail liquidation engagements. 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.
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 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 March 31, 2019 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 less than $0.1 million for the three months ended March 31, 2019 or less than 1% of our total revenues of $142.1 million during the three months ended March 31, 2019. 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 income, amounted to a loss of $0.2 million and a gain of $0.1 million during the three months ended March 31, 2019 and 2018, respectively. We may be exposed to foreign currency risk; however, our operating results during the three months ended March 31, 2019 included less than $0.1 million of revenues from our foreign subsidiaries and a 10% appreciation of the U.S. dollar relative to the local currency exchange rates would result in less than $0.1 million increase in our operating income and a 10% depreciation of the U.S. dollar relative to the local currency exchange rates would have resulted in a net decrease in our operating income of less than $0.1 million for the three months ended March 31, 2019.
Item 4. Controls and Procedures.
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 March 31, 2019 our disclosure controls and procedures were 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.
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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.
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The Company is subject to certain legal and other claims that arise in the ordinary course of its business. In particular, the Company and its subsidiaries are named in and subject to various proceedings and claims arising primarily from our securities business activities, including lawsuits, arbitration claims, class actions, and regulatory matters. Some of these claims seek substantial compensatory, punitive, or indeterminate damages. The Company and its subsidiaries are also involved in other reviews, investigations, and proceedings by governmental and self-regulatory organizations regarding our business, which may result in adverse judgments, settlements, fines, penalties, injunctions, and other relief. In view of the number and diversity of claims against our company, the number of jurisdictions in which litigation is pending, and the inherent difficulty of predicting the outcome of litigation and other claims, we cannot state with certainty what the eventual outcome of pending litigation or other claims will be. Notwithstanding this uncertainty, the Company does not believe that the results of these claims are likely to have a material effect on its financial position or results of operations.
On June 17, 2018, B. Riley Financial, Inc. (the “Company” or “B. Riley”) entered into certain agreements pursuant to which B. Riley agreed to provide certain debt and equity funding and other support in connection with the acquisition (the “Acquisition”) by Vintage Rodeo Parent, LLC (the “Vintage Parent”), of Rent-A-Center, Inc. (“Rent-A-Center”), contemplated by that certain merger agreement dated as of June 17, 2018, by and among Vintage Parent, Vintage Rodeo Acquisition, Inc. a wholly owned subsidiary of Vintage Parent (the “Merger Sub” or the “Borrower”), and Rent-A-Center (the “Merger Agreement”).
In connection with the Merger Agreement, B. Riley and Vintage RTO, L.P., an affiliate of Vintage Parent (“Vintage Merger Guarantor”), entered into a Limited Guarantee dated as of June 17, 2018 (the “Limited Guarantee”), in favor of Rent-A-Center, pursuant to which B. Riley and Vintage Merger Guarantor (together, the “Merger Guarantors”) agreed to guarantee, jointly and severally, to Rent-A-Center the payment, performance and discharge of all of the liabilities and obligations of Vintage Parent and Merger Sub under the Merger Agreement when required in accordance with the Merger Agreement (the “Guaranteed Obligations”), including without limitation, (i) termination fees in the amount of $126.5 million due to Rent-A-Center if the Merger Agreement is properly terminated (the “Termination Fee”); and (ii) reimbursement and indemnification obligations when required (collectively, the “Guarantee Obligations”), provided, that the liability under the Limited Guarantee shall not exceed $128.5 million.
In connection with the execution of the Limited Guarantee, the Company entered into a Mutual Indemnity/Contribution Agreement, dated as of June 17, 2018 (the “Mutual Indemnity Agreement”), with the Vintage Merger Guarantor and Samjor Family, LP (collectively, the “Vintage Indemnity Parties”). Under the Mutual Indemnity Agreement, the Vintage Indemnity Parties agreed, jointly and severally, to indemnify and hold harmless B. Riley and its affiliates from damages and liabilities arising out of the Guarantee Obligations, other than those caused B. Riley’s failure to fund under their debt or equity commitments.
On December 18, 2018, Rent-A-Center purported to terminate the Merger Agreement because the end date of the agreement was allegedly not extended prior to December 17, 2018 by Vintage Parent. Rent-A-Center delivered notice of such termination to Vintage Parent, and notified Vintage Parent of its obligation under the terms of the Merger Agreement to pay Rent-A-Center the Termination Fee within three business days. On December 18, 2018, Vintage Capital Management, LLC, an affiliate of Vintage Parent (“Vintage Capital”), delivered a letter to Rent-A-Center stating that Rent-A-Center’s purported termination of the Merger Agreement is invalid, that it believes the Merger Agreement remains in effect. On December 21, 2018, Vintage Capital filed a complaint in the Court of Chancery of the State of Delaware (the “Court”) challenging Rent-A-Center’s purported termination of the Merger Agreement and demand for payment of the Termination Fee. The relief sought by Vintage Capital includes declaratory judgements that the Merger Agreement has not been terminated and remains in full force and effect, that Rent-A-Center has breached its obligations under the Merger Agreement and is not excused from failing to comply with its obligations thereunder and that the Termination Fee is an unenforceable penalty. On December 28, 2018, Rent-A-Center provided each of B. Riley and the Vintage Merger Guarantor with a written request under the Limited Guarantee (a “Performance Demand”), to promptly, and in any event within ten (10) Business Days, pay to Rent-A-Center the Guaranteed Obligations (including the Termination Fee) in full.
On December 30, 2018, B. Riley filed a motion in the Court to intervene in the above referenced case filed by Vintage Capital pursuant to which B. Riley is seeking declaratory judgments, among other things, that the parties agreed to extend the End Date under the Merger Agreement and that Rent-A-Center is estopped from terminating the Merger Agreement, that Rent-A-Center has breached the Merger Agreement and its obligations of good faith and fair dealing in connection with consummating the Merger, and that the Termination Fee is an unenforceable penalty. On February 11th and 12th, a trial was held, post-trial briefs were filed on February 22, 2019 and March 1, 2019, and a post-trial hearing was held on March 11, 2019. On March 14, 2019, the Court issued its Opinion concluding that Rent-A-Center’s termination of the merger agreement was valid and did not rule on the enforceability of the payment of the reverse breakup fee. The parties submitted supplemental briefs as well as reply briefs on that issue. On April 22, 2019, the parties announced an agreement in principal to settle the matter and on April 25, 2019 signed a settlement agreement including a release of claims. The Company is not obligated to make any financial contribution in connection with such settlement.
52
On August 11, 2017, a putative class action lawsuit titled Freedman v. magicJack VocalTec Ltd. et al., Case 9-17-cv-80940, was filed against magicJack and its Board of Directors in the United States District Court for the Southern District of Florida (Case No: 9:17-cv-80940-RLR). The complaint alleges claims against magicJack and the members of its Board of Directors as well as two former members for violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, arising from proxy statements issued in connection with magicJack’s April 19, 2017 shareholders meeting and magicJack’s July 31, 2017 shareholders meeting that allegedly misrepresented material facts concerning the “true value” of Broadsmart Global, Inc and its future prospects in order that the individual defendants could entrench themselves and extract unwarranted compensation from magicJack in connection with their attempt to sell the company. In January 2018, the plaintiff filed an Amended Complaint. On February 16, 2018, magicJack and all of the individual defendants filed a motion to dismiss the Amended Complaint. On August 9, 2018, the Court issued an order dismissing the amended complaint without prejudice, giving the plaintiff until August 21, 2018 to file an amended complaint. Thereafter, the plaintiff filed a second amended complaint. On August 20, 2018, magicJack filed a motion to dismiss the second amended complaint. Pursuant to a schedule set by the Court, all papers with respect to the motion were filed by September 28, 2018. On November 21, 2018, the court issued an order granting the motion to dismiss with prejudice. The plaintiff has filed Notice of Appeal with the U.S. Court of Appeals for the 11th Circuit, and, on January 30, 2019, filed a brief with the appeals court. The Company’s brief in opposition was filed on April 19, 2019. The Company cannot estimate the amount of potential liability, if any, that could arise from this matter.
In June 2018, Galilee Acquisition LLC f/k/a Sutton View Acquisition LLC (“GAL”) filed a complaint, served the following month, (case No.:50-2018-CA-007976-XXXX-MB) in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida against magicJack Vocaltec Ltd. alleging a claim for negligent misrepresentation. The complaint alleges that magicJack provided false, material information to the plaintiff concerning its business, including information related to the operations, revenue projections, profit projections and growth forecast of Broadsmart. It alleges that the plaintiff relied on the information provided in determining whether to pursue acquiring magicJack and to incur the cost of conducting due diligence. The suit seeks an unspecified amount of damages. magicJack disputes GAL’s claims and intends to vigorously defend the action. magicJack filed a motion to dismiss on September 4, 2018, which remains pending. On April 4, 2019, the plaintiff’s counsel advised the court that it intends to file an amended complaint, and the court gave the plaintiff 30 days from that date to file such amended complaint. The Company cannot estimate the amount of potential liability, if any, that could arise from this matter.
On January 5, 2017, complaints filed in November 2015 and May 2016 naming MLV & Co. (“MLV”), a broker-dealer subsidiary of FBR, as a defendant in putative class action lawsuits alleging claims under the Securities Act, in connection with the offerings of Miller Energy Resources, Inc. (“Miller”) have been consolidated. The Master Consolidated Complaint, styled Gaynor v. Miller et al., is pending in the United States District Court for the Eastern District of Tennessee, and, like its predecessor complaints, continues to allege claims under Sections 11 and 12 of the Securities Act against nine underwriters for alleged material misrepresentations and omissions in the registration statement and prospectuses issued in connection with six offerings (February 13, 2013; May 8, 2013; June 28, 2013; September 26, 2013; October 17, 2013 (as to MLV only) and August 21, 2014) with an alleged aggregate offering price of approximately $151.0 million. The plaintiffs seek unspecified compensatory damages and reimbursement of certain costs and expenses. In August 2017, the Court granted Defendant’s Motion to Dismiss on Section 12 claims and found that the plaintiffs had not sufficiently alleged a corrective disclosure prior to August 6, 2015, when an SEC civil action was announced. Defendants’ answer was filed on September 25, 2017. Plaintiffs have filed motions for class certification and to remand the case to state court following a positive ruling in an unrelated case by the U.S. Supreme Court. Although MLV is contractually entitled to be indemnified by Miller in connection with this lawsuit, Miller filed for bankruptcy in October 2015 and this likely will decrease or eliminate the value of the indemnity that MLV receives from Miller. The Court has ordered mediation before a federal magistrate which is expected to be scheduled during May or early June 2019.
In February 2017, certain former employees filed an arbitration claim with FINRA against WSI alleging misrepresentations in the recruitment of claimants to join WSI. Claimants also allege that WSI failed to support their mortgage trading business resulting in the loss of opportunities during their employment with WSI. Claimants are seeking $10.0 million in damages. WSI has counterclaimed alleging that claimants misrepresented their process for doing business, particularly their capital needs, resulting in substantial losses to WSI. WSI believes the claims are meritless and intends to vigorously defend the action. Arbitration hearings concluded in April 2019 and the Company expects to receive the arbitrators’ decision in the near future.
53
In March 2017, United Online, Inc. received a letter from PeopleConnect, Inc. (formerly, Classmates, Inc.) (“Classmates”) regarding a notice of investigation received from the Consumer Protection Divisions of the District Attorneys’ offices of four California counties (“California DAs”). These entities suggest that Classmates may be in violation of California codes relating to unfair competition, false or deceptive advertising, and auto-renewal practices. Classmates asserts that these claims are indemnifiable claims under the purchase agreement between United Online, Inc. and the buyer of Classmates. A tolling agreement with certain California District Attorneys has been signed and informal discovery and production is in process. Discussions regarding resolution of this matter with the California DAs is ongoing. At the present time, management believes the financial impact to the Company, if any, is not expected to be material.
In July 2017, an arbitration claim was filed with FINRA by Dominick & Dickerman LLC and Michael Campbell against WSI and Gary Wunderlich with respect to the acquisition by Wunderlich Investment Company, Inc. (“WIC”) (the parent corporation of WSI) of certain assets of Dominick & Dominick LLC in 2015. The Claimants allege that respondents overvalued WIC so that the purchase price paid to the Claimants in shares of WIC stock was artificially inflated. The Statement of Claim includes claims for common law fraud, negligent misrepresentation, and breach of contract. Claimants are seeking damages of approximately $8.0 million plus unspecified punitive damages. Respondents believe the claims are meritless and intend to vigorously defend the action.
Historically, magicJack has from time to time, received Letters of Inquiry from the Bureau of the Federal Communications Commission (“FCC”) regarding the nature of its Core Consumer product offering. magicJack has promptly responded to all inquiries received. As it has previously disclosed, magicJack believes that under current regulations it is not an interconnected VoIP provider subject to FCC regulations. To date, it has not received any formal notice from the FCC of any enforcement action. The Company intends to vigorously defend itself if an enforcement action is initiated. The Company, however, cannot be sure of the ultimate outcome of any possible FCC action and cannot estimate the likelihood of liability or the amount of potential assessments, if any, that could arise.
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, 2018, filed with the Securities and Exchange Commission on March 6, 2019. 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, 2018 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, 2018.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
None.
The exhibits filed as part of this Quarterly Report are listed in the index to exhibits immediately preceding such exhibits, which index to exhibits is incorporated herein by reference.
54
Exhibit Index
| * | Filed herewith. |
| ** | Furnished herewith. |
| # | Management contract or compensatory plan or arrangement |
55
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| B. Riley Financial, Inc. | ||
| Date: May 1, 2019 | By: | /s/ PHILLIP J. AHN |
| Name: Phillip J. Ahn | ||
| Title: Chief Financial Officer and Chief Operating Officer | ||
| (Principal Financial Officer) |
EXHIBIT 31.1
CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Bryant R. Riley, certify that:
1. I have reviewed this quarterly report on Form 10-Q of B. Riley Financial, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 1, 2019
| /s/ BRYANT R. RILEY | |
|
Bryant R. Riley Co-Chief Executive Officer Chairman of the Board (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas J. Kelleher, certify that:
1. I have reviewed this quarterly report on Form 10-Q of B. Riley Financial, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 1, 2019
| /s/ THOMAS J. KELLEHER | |
|
Thomas J. Kelleher Co-Chief Executive Officer (Director) |
EXHIBIT 31.3
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Phillip J. Ahn, certify that:
1. I have reviewed this quarterly report on Form 10-Q of B. Riley Financial, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 1, 2019
|
/s/ PHILLIP J. AHN | |
| Phillip J. Ahn | |
| Chief Financial Officer and Chief Operating Officer | |
| (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of B. Riley Financial, Inc. (the “Company”) for the quarter ended March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bryant R. Riley, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ BRYANT R. RILEY |
|
| Bryant R. Riley | |
|
Co-Chief Executive Officer Chairman of the Board |
|
| May 1, 2019 |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of B. Riley Financial, Inc. (the “Company”) for the quarter ended March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas J. Kelleher, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ THOMAS J. KELLEHER |
|
| Thomas J. Kelleher | |
| Co-Chief Executive Officer | |
|
Director
|
|
| May 1, 2019 |
Exhibit 32.3
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of B. Riley Financial, Inc. (the “Company”) for the quarter ended March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Phillip J. Ahn, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ PHILLIP J. AHN |
|
| Phillip J. Ahn | |
| Chief Financial Officer and Chief Operating Officer | |
| May 1, 2019 |
Document and Entity Information - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2019 |
Apr. 30, 2019 |
|
| Document And Entity Information | ||
| Entity Registrant Name | B. Riley Financial, Inc. | |
| Entity Central Index Key | 0001464790 | |
| Document Type | 10-Q | |
| Trading Symbol | RILY | |
| Document Period End Date | Mar. 31, 2019 | |
| Amendment Flag | false | |
| Current Fiscal Year End Date | --12-31 | |
| Entity's Reporting Status Current | Yes | |
| Entity Small Business | false | |
| Entity Emerging Growth Company | false | |
| Entity Ex Transition Period | false | |
| Entity Filer Category | Accelerated Filer | |
| Entity Common Stock, Shares Outstanding | 26,525,868 | |
| Document Fiscal Period Focus | Q1 | |
| Document Fiscal Year Focus | 2019 |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Mar. 31, 2019 |
Dec. 31, 2018 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
| Preferred stock, authorized | 1,000,000 | 1,000,000 |
| Preferred stock, issued | ||
| Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
| Common stock, authorized | 100,000,000 | 100,000,000 |
| Common stock, issued | 26,525,216 | 26,603,355 |
| Common stock, outstanding | 26,525,216 | 26,603,355 |
Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
| Statement of Comprehensive Income [Abstract] | ||
| Net income | $ 7,979 | $ 4,842 |
| Other comprehensive income (loss): | ||
| Change in cumulative translation adjustment | 170 | (220) |
| Other comprehensive income (loss), net of tax | 170 | (220) |
| Total comprehensive income | 8,149 | 4,622 |
| Comprehensive (loss) income attributable to noncontrolling interests | (44) | 339 |
| Comprehensive income attributable to B. Riley Financial, Inc. | $ 8,193 | $ 4,283 |
Condensed Consolidated Statements of Equity (Parenthetical) - $ / shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
| Statement of Stockholders' Equity [Abstract] | ||
| Dividends on common stock (in dollars per share) | $ 0.08 | $ 0.16 |
ORGANIZATION AND NATURE OF BUSINESS OPERATIONS |
3 Months Ended |
|---|---|
Mar. 31, 2019 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| ORGANIZATION AND NATURE OF BUSINESS OPERATIONS | NOTE 1—ORGANIZATION AND NATURE OF BUSINESS OPERATIONS
B. Riley Financial, Inc. and its subsidiaries (collectively the “Company”) provide investment banking and financial services to corporate, institutional and high net worth clients, and asset disposition, valuation and appraisal and capital advisory services to a wide range of retail, wholesale and industrial clients, as well as lenders, capital providers, private equity investors and professional services firms throughout the United States, Australia, Canada, and Europe and with the acquisitions of United Online, Inc. (“UOL”) on July 1, 2016 and magicJack VocalTec Ltd. (“magicJack”) on November 14, 2018, provide consumer Internet access and cloud communication services.
The Company operates in four operating segments: (i) Capital Markets, through which the Company provides investment banking, corporate finance, securities lending, restructuring, consulting, research, sales and trading and wealth management services to corporate, institutional and high net worth clients; (ii) Auction and Liquidation, through which the Company provides Auction and Liquidation services to help clients dispose of assets that include multi-location retail inventory, wholesale inventory, trade fixtures, machinery and equipment, intellectual property and real property; (iii) Valuation and Appraisal, through which the Company provides Valuation and Appraisal services to clients with independent appraisals in connection with asset based loans, acquisitions, divestitures and other business needs; and (iv) Principal Investments — United Online and magicJack, through which the Company provides consumer Internet access and related subscription services from United Online and cloud communication services primarily through the magicJack devices. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation and Basis of Presentation
The condensed consolidated financial statements include the accounts of B. Riley Financial, Inc. and its wholly-owned and majority-owned subsidiaries. The condensed consolidated financial statements also include the accounts of (a) Great American Global Partners, LLC which is controlled by the Company as a result of its ownership of a 50% member interest, appointment of two of the three executive officers and significant influence over the funding of operations, and (b) GA Retail Investments, L.P. which is controlled by the Company as a result of its ownership of a 50% partnership interest, appointment of executive officers and significant influence over the operations. The condensed consolidated financial statements have been prepared by the Company, without audit, pursuant to interim financial reporting guidelines and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company’s management, all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the periods presented have been included. These condensed consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 6, 2019. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the operating results to be expected for the full fiscal year or any future periods.
(b) Use of Estimates
The preparation of the condensed consolidated financial statements in accordance with accounting GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenue and expense during the reporting period. Estimates are used when accounting for certain items such as valuation of securities, reserves for accounts receivable, the fair value of intangible assets and goodwill, the fair value of mandatorily redeemable noncontrolling interests, fair value of share based arrangements and accounting for income tax valuation allowances. Estimates are based on historical experience, where applicable, and assumptions that management believes are reasonable under the circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ.
(c) Revenue Recognition
On January 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606 — Revenue from Contracts with Customers using the modified retrospective method and the impact was determined to be immaterial on our condensed consolidated financial statements. The new revenue standard was applied prospectively in the Company’s condensed consolidated financial statements from January 1, 2018 forward and reported financial information for historical comparable periods was revised and will continue to be reported under the accounting standards in effect during those historical periods.
Revenues are recognized when control of the promised goods or performance obligations for services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for the goods or services.
There have been no material changes to the Company’s revenue recognition accounting policy set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. See Note 12 for information on revenue from contracts with customers.
(d) Direct Cost of Services
Direct cost of services relates to service and fee revenues. The costs consist of employee compensation and related payroll benefits, travel expenses, the cost of consultants assigned to revenue-generating activities and direct expenses billable to clients in the Valuation and Appraisal segment. Direct costs of services include participation in profits under collaborative arrangements in which the Company is a majority participant. Direct costs of services also include the cost of consultants and other direct expenses related to Auction and Liquidation contracts pursuant to commission and fee based arrangements in the Auction and Liquidation segment. Direct cost of services in the Principal Investments — United Online and magicJack segment include cost of telecommunications and data center costs, personnel and overhead-related costs associated with operating the Company’s networks, servers and data centers, sales commissions associated with multi-year service plans, depreciation of network computers and equipment, amortization expense, third party advertising sales commissions, license fees, costs related to providing customer support, costs related to customer billing and processing of customer credit cards and associated bank fees. Direct cost of services does not include an allocation of the Company’s overhead costs.
(e) Interest Expense — Securities Lending Activities
Interest expense from securities lending activities is included in operating expenses related to operations in the Capital Markets segment. Interest expense from securities lending activities is incurred from equity and fixed income securities that are loaned to the Company.
(f) Concentration of Risk
Revenues in the Capital Markets, Valuation and Appraisal and Principal Investments — United Online and magicJack segments are currently primarily generated in the United States. Revenues in the Auction and Liquidation segment are primarily generated in the United States, Australia, Canada and Europe.
The Company’s activities in the Auction and Liquidation segment are executed frequently with, and on behalf of, distressed customers and secured creditors. Concentrations of credit risk can be affected by changes in economic, industry, or geographical factors. The Company seeks to control its credit risk and potential risk concentration through risk management activities that limit the Company’s exposure to losses on any one specific liquidation services contract or concentration within any one specific industry. To mitigate the exposure to losses on any one specific liquidation services contract, the Company sometimes conducts operations with third parties through collaborative arrangements.
The Company maintains cash in various federally insured banking institutions. The account balances at each institution periodically exceed the Federal Deposit Insurance Corporation’s (“FDIC”) insurance coverage, and as a result, there is a concentration of credit risk related to amounts in excess of FDIC insurance coverage. The Company has not experienced any losses in such accounts. The Company also has substantial cash balances from proceeds received from auctions and liquidation engagements that are distributed to parties in accordance with the collaborative arrangements.
(g) Advertising Expenses
The Company expenses advertising costs, which consist primarily of costs for printed materials, as incurred. Advertising costs totaled $362 and $93 for the three months ended March 31, 2019 and 2018, respectively. Advertising expense is included as a component of selling, general and administrative expenses in the accompanying condensed consolidated statements of income.
(h) Share-Based Compensation
The Company’s share-based payment awards principally consist of grants of restricted stock, restricted stock units and costs associated with the Company’s employee stock purchase plan. In accordance with the applicable accounting guidance, share-based payment awards are classified as either equity or liabilities. For equity-classified awards, the Company measures compensation cost for the grant of membership interests at fair value on the date of grant and recognizes compensation expense in the condensed consolidated statements of income over the requisite service or performance period the award is expected to vest. The fair value of the liability-classified award will be subsequently remeasured at each reporting date through the settlement date. Change in fair value during the requisite service period will be recognized as compensation cost over that period.
In June 2018, the Company adopted the 2018 Employee Stock Purchase Plan (“Purchase Plan”) which allows eligible employees to purchase common stock through payroll deductions as a price that is 15% of the market value of the common stock on the last day of the offering period. In accordance with the provisions of ASC 718, Compensation — Stock Compensation (“ASC 718”), the Company is required to recognize compensation expense relating to shares offered under the Purchase Plan. For the three months ended March 31, 2019, the Company recognized compensation expense of $121 related to the Purchase Plan. At March 31, 2019, there were 687,427 shares reserved for issuance under the Purchase Plan.
The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the condensed consolidated financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the financial statement basis and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates the degree to which tax assets and credit carryforwards will result in a benefit based on expected profitability by tax jurisdiction. A valuation allowance for such tax assets and loss carryforwards is provided when it is determined to be more likely than not that the benefit of such deferred tax asset will not be realized in future periods. Tax benefits of operating loss carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and other circumstances. If it becomes more likely than not that a tax asset will be used, the related valuation allowance on such assets would be reduced.
The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Once this threshold has been met, the Company’s measurement of its expected tax benefits is recognized in its financial statements. The Company accrues interest on unrecognized tax benefits as a component of income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense.
(j) Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
(k) Restricted Cash
As of March 31, 2019, restricted cash balance of $7,491 included $469 cash collateral for one of the Company’s telecommunication suppliers, $365 certificate of deposits collateral for certain letter of credits, and $6,657 of cash collateral related to a retail liquidation engagement. As of December 31, 2018, restricted cash balance of $838 included $469 cash collateral for one of the Company’s telecommunication suppliers and $369 certificate of deposits collateral for certain letter of credits.
(l) Securities Borrowed and Securities Loaned
Securities borrowed and securities loaned are recorded based upon the amount of cash advanced or received. Securities borrowed transactions facilitate the settlement process and require the Company to deposit cash or other collateral with the lender. With respect to securities loaned, the Company receives collateral in the form of cash. The amount of collateral required to be deposited for securities borrowed, or received for securities loaned, is an amount generally in excess of the market value of the applicable securities borrowed or loaned. The Company monitors the market value of the securities borrowed and loaned on a daily basis, with additional collateral obtained, or excess collateral recalled, when deemed appropriate.
The Company accounts for securities lending transactions in accordance with ASC “Topic 210: Balance Sheet,” which requires companies to report disclosures of offsetting assets and liabilities. The Company does not net securities borrowed and securities loaned and these items are presented on a gross basis in the condensed consolidated balance sheets.
(m) Due from/to Brokers,Dealers, and Clearing Organizations
The Company clears all of its proprietary and customer transactions through other broker-dealers on a fully disclosed basis. The amount receivable from or payable to the clearing brokers represents the net of proceeds from unsettled securities sold, the Company’s clearing deposit and amounts receivable for commissions less amounts payable for unsettled securities purchased by the Company and amounts payable for clearing costs and other settlement charges. This amount also includes the cash collateral received for securities loaned less cash collateral for securities borrowed. Any amounts payable would be fully collateralized by all of the securities owned by the Company and held on deposit at the clearing broker.
(n) Accounts Receivable
Accounts receivable represents amounts due from the Company’s Auction and Liquidation, Valuation and Appraisal, Capital Markets and Principal Investments — United Online and magicJack customers. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management utilizes a specific customer identification methodology. Management also considers historical losses adjusted for current market conditions and the customers’ financial condition and the current receivables aging and current payment patterns. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers. The Company’s bad debt expense and changes in the allowance for doubtful accounts for the three months ended March 31, 2019 and 2018 are included in Note 6.
(o) Leases
The Company determines if an arrangement is, or contains, a lease at the inception date. Operating leases are included in right-of-use assets, with the related liabilities included in operating lease liabilities in the condensed consolidated balance sheet.
Operating lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. We use our estimated incremental borrowing rate in determining the present value of lease payments. Variable components of the lease payments such as fair market value adjustments, utilities, and maintenance costs are expensed as incurred and not included in determining the present value. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components which are accounted for as a single lease component. See Note 8 for additional information on leases.
(p) Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets. Property and equipment held under capital leases are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset. Depreciation and amortization expense on property and equipment was $1,536 and $1,177 for the three months ended March 31, 2019 and 2018, respectively.
(q) Loans Receivable
Loans receivable are measured at historical cost and reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans, and for purchased loans, net of any unamortized premiums or discounts. Loan origination fees and certain direct origination costs are deferred and recognized as adjustments to interest income over the lives of the related loans. Unearned income, discounts and premiums are amortized to interest income using a level yield methodology. As of March 31, 2019 and December 31, 2018, total loans receivable carried at cost was $53,448 and $38,794, respectively. The loans receivable carried at cost have various maturity dates ranging from April 2019 to January 2023.
(r) Securities and Other Investments Owned and Securities Sold Not Yet Purchased
Securities owned consist of marketable securities and investments in partnership interests and other securities recorded at fair value. Securities sold, but not yet purchased represents obligations of the Company to deliver the specified security at the contracted price and thereby create a liability to purchase the security in the market at prevailing prices. Changes in the value of these securities are reflected currently in the results of operations.
As of March 31, 2019 and December 31, 2018, the Company’s securities and other investments owned and securities sold not yet purchased at fair value consisted of the following securities:
(s) Fair Value Measurements
The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) for identical instruments that are highly liquid, observable and actively traded in over-the-counter markets. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose inputs are observable and can be corroborated by market data. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The Company’s securities and other investments owned and securities sold and not yet purchased are comprised of common and preferred stocks and warrants, corporate bonds, loans receivable valued at fair value and investments in partnerships. Investments in common stocks that are based on quoted prices in active markets are included in Level 1 of the fair value hierarchy. The Company also holds nonpublic common and preferred stocks and warrants for which there is little or no public market and fair value is determined by management on a consistent basis. For investments where little or no public market exists, management’s determination of fair value is based on the best available information which may incorporate management’s own assumptions and involves a significant degree of judgment, taking into consideration various factors including earnings history, financial condition, recent sales prices of the issuer’s securities and liquidity risks. These investments are included in Level 3 of the fair value hierarchy. Investments in partnership interests include investments in private equity partnerships that primarily invest in equity securities, bonds, and direct lending funds. The Company also invests in priority investment funds and the underlying securities held by these funds are primarily corporate and asset-backed fixed income securities and restrictions exist on the redemption of amounts invested by the Company. The Company’s partnership and investment fund interests are valued based on the Company’s proportionate share of the net assets of the partnerships and funds; the value for these investments are derived from the most recent statements received from the general partner or fund administrator. These partnership and investment fund interests are valued at net asset value (“NAV”) in accordance with ASC “Topic 820: Fair Value Measurements.”
The fair value of mandatorily redeemable noncontrolling interests is determined based on the issuance of similar interests for cash, references to industry comparables, and relied, in part, on information obtained from appraisal reports and internal valuation models.
The following tables present information on the financial assets and liabilities measured and recorded at fair value on a recurring basis as of March 31, 2019 and December 31, 2018.
As of March 31, 2019 and December 31, 2018, financial assets measured and reported at fair value on a recurring basis and classified within Level 3 were $59,885 and $58,308, respectively, or 3.1% and 3.0%, respectively, of the Company’s total assets. In determining the fair value for these Level 3 financial assets, the Company analyzes various financial, performance and market factors to estimate the value, including where applicable, over-the-counter market trading activity.
The following table summarizes the significant unobservable inputs in the fair value measurement of level 3 financial assets and liabilities by category of investment and valuation technique as of March 31, 2019:
The changes in Level 3 fair value hierarchy during the three months ended March 31, 2019 and 2018 are as follows:
During the three months ended March 31, 2019, there was a transfer of one financial asset from level 1 to level 3 in the fair value hierarchy as a result of the asset’s principal market becoming inactive during the quarter.
The amount reported in the table above for the three months ended March 31, 2019 and 2018 includes the amount of undistributed earnings attributable to the noncontrolling interests that is distributed on a quarterly basis. The carrying amounts reported in the condensed consolidated financial statements for cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses and other liabilities approximate fair value based on the short-term maturity of these instruments.
The carrying amount of the senior notes payable approximates fair value because the contractual interest rates or effective yields of such instruments are consistent with current market rates of interest for instruments of comparable credit risk.
During the three months ended March 31, 2019 and 2018, there were no assets or liabilities measured at fair value on a non-recurring basis.
(t) Derivative and Foreign Currency Translation
The Company periodically uses derivative instruments, which primarily consist of the purchase of forward exchange contracts, for certain Auction and Liquidation engagements with operations outside the United States. The Company did not use any derivative contracts during the three months ended March 31, 2019. During the three months ended March 31, 2018, the Company’s use of derivatives consisted of the purchase of forward exchange contracts (a) in the amount of $54,406 Canadian dollars, of which $10,703 remained open at March 31, 2018 and settled in April 2018, and (b) $1,500 Euro’s that settled in March 2018.
The forward exchange contract was entered into to improve the predictability of cash flows related to a retail store liquidation engagement that was completed in December 2016. The net gain from forward exchange contracts was $30 during the three months ended March 31, 2018 and is included in selling, general and administrative expenses in the condensed consolidated statements of income.
The Company transacts business in various foreign currencies. In countries where the functional currency of the underlying operations has been determined to be the local country’s currency, revenues and expenses of operations outside the United States are translated into United States dollars using average exchange rates while assets and liabilities of operations outside the United States are translated into United States dollars using year-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 (loss) gains were ($186) and $138 during the three months ended March 31, 2019 and 2018, respectively. These amounts are included in selling, general and administrative expenses in the Company’s condensed consolidated statements of income.
(u) Common Stock Warrants
The common stock warrants entitle the holders of the warrants to acquire shares of the Company’s common stock from the Company at a price of $17.50 per share (the “Exercise Price”), subject to, among other matters, the proper completion of an exercise notice and payment. The Exercise Price and the number of shares of Company common stock issuable upon exercise are subject to customary anti-dilution and adjustment provisions, which include stock splits, subdivisions or reclassifications of the Company’s common stock. The common stock warrants expire on July 3, 2022. As of March 31, 2019, warrants to purchase 821,816 shares of common stock were outstanding.
(v) Equity Investment
bebe stores, inc.
At March 31, 2019, the Company had a 30.5% ownership interest in bebe stores, inc. (“bebe”). The equity ownership in bebe is accounted for under the equity method of accounting, and is included in prepaid expenses and other assets in the condensed consolidated balance sheets.
National Holdings Corporation
On November 14, 2018, the Company entered into an agreement to acquire shares of National Holdings Corporation (“National Holdings”), a Nasdaq-listed issuer, from Fortress Biotech, Inc. for an aggregate purchase price totaling approximately $22.9 million. The transaction was completed in two tranches. In the first tranche, which was completed in the fourth quarter of 2018, the Company acquired shares representing 24% of the total outstanding shares of National Holdings. The second tranche was completed in the first quarter of 2019. As of March 31, 2019, the Company had purchased 6,159,550 shares of National Holdings’ common stock, representing 48.8% of National Holdings’ outstanding shares, at $3.25 per share. The carrying value for the National Holdings investment at March 31, 2019 increased to $22,323 from $9,902 at December 31, 2018 and is included in prepaid expenses and other assets in the condensed consolidated balance sheets. The equity ownership in National Holdings is accounted for under the equity method of accounting.
(w) Statements of Cash Flows – Supplemental Non-cash Disclosures
During the three months ended March 31, 2018, non-cash investing activities included the conversion of a loan receivable in the amount of $16,867 and accrued interest receivable of $51 into an equity investment in bebe that totaled $16,918.
(x) Variable Interest Entity
In January 2018, the operations of GACP II, LP, a private debt investment limited partnership (the “Partnership”) commenced operations. The Company’s investment in the Partnership is a variable interest entity (“VIE”) since the unaffiliated limited partners do not have substantive kick-out or participating rights to remove the Company’s subsidiary that is the general partner managing the Partnership. The Company has determined that it is not the primary beneficiary due to the fact that its fee arrangements are considered at-market and thus not deemed to be variable interests, and it does not hold any other interests in the Partnership that are considered to be more than insignificant. The Company determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a VIE and reconsiders that conclusion at each reporting date. In evaluating whether the Company is the primary beneficiary, the Company evaluates its economic interests in the entity held either directly by the Company or indirectly through related parties. The consolidation analysis can generally be performed qualitatively; however, if it is not readily apparent that the Company is not the primary beneficiary, a quantitative analysis may also be performed.
The carrying value of the Company’s investments in the VIE that was not consolidated is shown below.
(y) Reclassification
The Company reclassified $262 of revenues that was reported as interest income – securities lending during the three months ended March 31, 2018 to revenues – services and fees. The previously reported amount of $7,553 as interest income – securities lending was reduced by $262 to $7,291 for the three months ended March 31, 2018 and the previously reported amount of $88,187 as revenues – services and fees was increased by $262 to $88,449 for the three months ended March 31, 2018.
(z) Recent Accounting Pronouncements
Not yet adopted
In January 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This standard simplifies the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The revised guidance will be applied prospectively and is effective for calendar year-end SEC filers for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company has not yet adopted this update and currently evaluating the effect this new standard will have on its financial condition and results of operations.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. This standard requires an allowance to be recorded for all expected credit losses for certain financial assets. The new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments. ASU 2016-13 is effective for public companies for interim and annual period beginning December 15, 2019. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company has not yet adopted this update and currently evaluating the effect this new standard will have on its financial condition and results of operations.
Recently adopted
In February 2016, FASB issued ASU. 2016-02: Leases (Topic 842) which requires a lessee to recognize a right-of-use (ROU) asset and lease liability on the balance sheet for all leases with a contract term longer than 12 months and provide enhanced disclosures. The Company adopted the new standard effective January 1, 2019 using the modified retrospective method. The Company elected the ‘package of practical expedients,’ which permits the Company not to reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs. Upon adoption of ASC 842 on January 1, 2019, the Company recognized $67,519 operating lease liabilities with corresponding operating lease right-of-use assets. See Note 8 to the accompanying financial statements for additional information on leases.
In February 2018, the FASB issued ASU 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income that provides for the reclassification from accumulated other comprehensive income to retained earnings for stranded effects resulting from the Tax Reform Act. The accounting update should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Reform Act is recognized. The accounting update is effective for the fiscal year beginning after December 15, 2018. The adoption of this standard did not have a material impact to the Company’s financial condition and results of operations.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. ASU 2016-15 is effective for us in our first quarter of fiscal year 2019. The adoption of this standard did not have a material impact to the Company’s financial condition and results of operations.
On January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers using the modified retrospective method and the impact was determined to be immaterial on the Company’s consolidated financial statements. The new revenue standard was applied prospectively in the Company’s consolidated financial statements from January 1, 2018 forward and reported financial information for historical comparable periods will not be revised and will continue to be reported under the accounting standards in effect during those historical periods. See Note 12 to the financial statements for additional information on the adoption of this standard.
In August 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13: Fair Value Measurement (Topic 820) (“ASU 2018-13”). The amendments in this update change the disclosure requirements for fair value measurements by removing, modifying and adding certain disclosures. The Company early adopted ASU 2018-13 in the third quarter of 2018 and the adoption did not have a material impact on our consolidated financial statements.
In March 2018, the FASB issued ASU 2018-05: Income Taxes (Topic 740) — Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. The amendments in this update provide guidance on when to record and disclose provisional amounts for certain income tax effects of the Tax Reform Act. The amendments also require any provisional amounts or subsequent adjustments to be included in net income from continuing operations. This ASU also discusses required disclosures that an entity must make with regard to the Tax Reform Act. This ASU is effective immediately as new information is available to adjust provisional amounts that were previously recorded. The Company has adopted this standard and will continue to evaluate indicators that may give rise to a change in the Company’s tax provision as a result of the Tax Reform Act. See Note 13 to the accompanying financial statements for additional information on the Tax Reform Act.
On January 1, 2018, the Company adopted ASU 2016-18 — Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”) using the retrospective method which requires adjustment to prior periods in the statement of cash flows. ASU 2016-18 clarifies how restricted cash should be presented on the statement of cash flows and requires companies to include restricted cash with cash and cash equivalents when reconciling the beginning of period and end of period totals on the statement of cash flows. Restricted cash previously classified under investing activities is now included in the reconciliation of beginning and ending cash on the statement of cash flows. The adoption of ASU 2016-18 did not have a material impact on the Company’s financial condition and results of operations. |
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ACQUISITIONS |
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| Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACQUISITIONS | NOTE 3— ACQUISITIONS
Acquisition of magicJack VocalTec Ltd
On November 9, 2017, the Company entered into an Agreement and Plan of Merger (the “magicJack Merger Agreement”) with B. R. Acquisition Ltd., an Israeli corporation and wholly-owned subsidiary of the Company (“Merger Sub”), and magicJack VocalTec Ltd., an Israeli corporation (“magicJack”), pursuant to which Merger Sub would merge with and into magicJack, with magicJack continuing as the surviving corporation and as an indirect subsidiary of the Company. Pursuant to the magicJack Merger Agreement, customary closing conditions were satisfied, and the acquisition was completed on November 14, 2018. Subject to the terms and conditions of the Agreement and Plan of Merger, each outstanding share of magicJack converted into the right to receive $8.71 in cash without interest, representing approximately $143,115 in aggregate merger consideration.
The assets and liabilities of magicJack, both tangible and intangible, were recorded at their estimated fair values as of the November 14, 2018, acquisition date for magicJack. The application of the purchase method of accounting resulted in goodwill of $106,008 which represents the benefits from synergies with the Company’s existing business and acquired workforce. Acquisition related costs, such as legal, accounting, valuation and other professional fees related to the acquisition of magicJack, were charged against earnings in the amount of $52 and included in selling, general and administrative expenses in the condensed consolidated statements of income for the three months ended March 31, 2019. The purchase accounting for the acquisition has been accounted for as a stock purchase with all of the recognized goodwill is expected to be non-deductible for tax purposes.
The preliminary purchase price allocation was as follows:
The revenue and income of magicJack included in the Company’s condensed consolidated financial statements for the three months ended March 31, 2019 were $18,154 and $4,964, respectively. The income from magicJack of $4,964 includes a restructuring charge in the amount of $176 for severances for magicJack employees from a reduction in workforce.
Pro Forma Financial Information
The unaudited pro-forma financial information in the table below summarizes the combined results of operations of the Company and MagicJack as though the acquisitions had occurred as of January 1, 2018. The pro-forma financial information presented includes the effects of adjustments related to the amortization charges from the acquired intangible assets and the elimination of certain activities excluded from the transaction and transaction related costs. The pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the earliest period presented, nor does it intend to be a projection of future results.
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RESTRUCTURING CHARGE |
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| RESTRUCTURING CHARGE | NOTE 4— RESTRUCTURING CHARGE
The Company recorded restructuring charges in the amount of $147 and $217 for the three months ended March 31, 2019 and 2018, respectively.
The restructuring charge of $147 during the three months ended March 31, 2019 was primarily related to severance costs for magicJack employees from a reduction in workforce in the Principal Investments – United Online and magicJack segment. The restructuring charge of $217 during the three months ended March 31, 2018 was primarily related to the planned consolidation of office space related to operations in the Capital Markets segment.
The following tables summarize the changes in accrued restructuring charge during three months ended March 31, 2019 and 2018:
The following tables summarize the restructuring activities by reportable segment during the three months ended March 31, 2019 and 2018:
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SECURITIES LENDING |
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| SECURITIES LENDING | NOTE 5— SECURITIES LENDING
The following table presents the contractual gross and net securities borrowing and lending balances and the related offsetting amount as of March 31, 2019 and December 31, 2018:
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ACCOUNTS RECEIVABLE |
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| ACCOUNTS RECEIVABLE | NOTE 6— ACCOUNTS RECEIVABLE
The components of accounts receivable, net, include the following:
Additions and changes to the allowance for doubtful accounts consist of the following:
Unbilled receivables represent the amount of contractual reimbursable costs and fees for services performed in connection with fee and service based auction and liquidation contracts. |
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GOODWILL AND OTHER INTANGIBLE ASSETS |
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| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| GOODWILL AND OTHER INTANGIBLE ASSETS | NOTE 7— GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill was $223,243 and $223,368 at March 31, 2019 and December 31, 2018, respectively. At March 31, 2019, goodwill was comprised of $95,820 in the Capital Markets segment, $1,975 in the Auction and Liquidation segment, $3,713 in the Valuation and Appraisal segment, and $121,735 in the Principal Investments – United Online and magicJack segment. At December 31, 2018, goodwill was comprised of $95,820 in the Capital Markets segment, $1,975 in the Auction and Liquidation segment, $3,713 in the Valuation and Appraisal segment, and $121,860 in the Principal Investments – United Online and magicJack segment.
Intangible assets consisted of the following:
Amortization expense was $3,377 and $2,160 for the three months ended March 31, 2019 and 2018, respectively. At March 31, 2019, estimated future amortization expense is $10,111, $13,099, $12,717, $12,697, and $12,453 for the years ended December 31, 2019 (remaining nine months), 2020, 2021, 2022 and 2023, respectively. The estimated future amortization expense after December 31, 2023 is $25,162. |
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LEASING ARRANGEMENTS |
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| Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LEASING ARRANGEMENTS | NOTE 8— LEASING ARRANGEMENTS
The Company’s operating lease assets primarily represent the lease of office space where the Company conduct its operations with the weighted average lease term of 8.2 years. The operating leases have lease terms ranging from one month to twelve years. The weighted average discount rate used to calculate the present value of lease payments was 5.58% at March 31, 2019. Total operating lease expense was $3,103 for the three months ended March 31, 2019, of which $317 was attributable to variable lease expenses. Operating lease expense is included in selling, general and administrative expenses in the condensed consolidated statements of income.
For the three months ended March 31, 2019, cash payments against operating lease liabilities totaled $2,996 and non-cash transactions totaled $946 to recognize operating lease right-of-use assets and operating lease liabilities.
As of March 31, 2019, maturities of operating lease liabilities were as follows:
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ASSET BASED CREDIT FACILITY |
3 Months Ended |
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Mar. 31, 2019 | |
| Line of Credit Facility [Abstract] | |
| ASSET BASED CREDIT FACILITY | NOTE 9— ASSET BASED CREDIT FACILITY
On April 21, 2017, the Company amended its credit agreement (as amended, the “Credit Agreement”) governing its asset based credit facility with Wells Fargo Bank, National Association (“Wells Fargo Bank”) to increase the maximum borrowing limit from $100,000 to $200,000. Such amendment, among other things, also extended the expiration date of the credit facility from July 15, 2018 to April 21, 2022. The Credit Agreement continues to allow for borrowings under the separate credit agreement (a “UK Credit Agreement”) which was dated March 19, 2015 with an affiliate of Wells Fargo Bank which provides for the financing of transactions in the United Kingdom. Such facility allows the Company to borrow up to 50 million British Pounds. Any borrowings on the UK Credit Agreement reduce the availability on the asset based $200,000 credit facility. The UK Credit Agreement is cross collateralized and integrated in certain respects with the Credit Agreement. Cash advances and the issuance of letters of credit under the credit facility are made at the lender’s discretion. The letters of credit issued under this facility are furnished by the lender to third parties for the principal purpose of securing minimum guarantees under liquidation services contracts more fully described in Note 2(c). All outstanding loans, letters of credit, and interest are due on the expiration date which is generally within 180 days of funding. The credit facility is secured by the proceeds received for services rendered in connection with liquidation service contracts pursuant to which any outstanding loan or letters of credit are issued and the assets that are sold at liquidation related to such contract. The Company paid Wells Fargo Bank a closing fee in the amount of $500 in connection with the April 2017 amendment to the Credit Agreement. The interest rate for each revolving credit advance under the Credit Agreement is, subject to certain terms and conditions, equal to the LIBOR plus a margin of 2.25% to 3.25% depending on the type of advance and the percentage such advance represents of the related transaction for which such advance is provided. The credit facility also provides for success fees in the amount of 2.5% to 17.5% of the net profits, if any, earned on the liquidation engagements funded under the Credit Agreement as set forth therein. Interest expense totaled $481 and $87 for the three months ended March 31, 2019 and 2018, respectively. There was no outstanding balance on this credit facility at March 31, 2019 and December 31, 2018. At March 31, 2019, there were open letter of credits outstanding in the amount of $6,657.
The Credit Agreement governing the credit facility contains certain covenants, including covenants that limit or restrict the Company’s ability to incur liens, incur indebtedness, make investments, dispose of assets, make certain restricted payments, merge or consolidate and enter into certain transactions with affiliates. Upon the occurrence of an event of default under the Credit Agreement, the lender may cease making loans, terminate the Credit Agreement and declare all amounts outstanding under the Credit Agreement to be immediately due and payable. The Credit Agreement specifies a number of events of default (some of which are subject to applicable grace or cure periods), including, among other things, nonpayment defaults, covenant defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults, and material judgment defaults. |
TERM LOAN |
3 Months Ended |
|---|---|
Mar. 31, 2019 | |
| Long-term Construction Loan [Abstract] | |
| TERM LOAN | NOTE 10 — TERM LOAN
On December 19, 2018, BRPI Acquisition Co LLC (“BRPAC”), a Delaware limited liability company, UOL, and YMAX Corporation, Delaware corporations (collectively, the “Borrowers”), indirect wholly owned subsidiaries of the Company, in the capacity as borrowers, entered into a credit agreement (the “BRPAC Credit Agreement”) with the Banc of California, N.A. in the capacity as agent (the “Agent”) and lender and with the other lenders party thereto (the “Closing Date Lenders”). Certain of the Borrowers’ U.S. subsidiaries are guarantors of all obligations under the BRPAC Credit Agreement and are parties to the BRPAC Credit Agreement in such capacity (collectively, the “Secured Guarantors”; and together with the Borrowers, the “Credit Parties”). In addition, the Company and B. Riley Principal Investments, LLC, the parent corporation of BRPAC and a subsidiary of the Company, are guarantors of the obligations under the BRPAC Credit Agreement pursuant to standalone guaranty agreements pursuant to which the shares outstanding membership interests of BRPAC are pledged as collateral.
The obligations under the BRPAC Credit Agreement are secured by first-priority liens on, and first priority security interest in, substantially all of the assets of the Credit Parties, including a pledge of (a) 100% of the equity interests of the Credit Parties, (b) 65% of the equity interests in United Online Software Development (India) Private Limited, a private limited company organized under the laws of India; and (c) 65% of the equity interests in magicJack VocalTec LTD., a limited company organized under the laws of Israel. Such security interests are evidenced by pledge, security and other related agreements.
The BRPAC Credit Agreement contains certain covenants, including those limiting the Credit Parties’, and their subsidiaries’ ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of their businesses, engage in transactions with related parties, make certain investments or pay dividends. In addition, the BRPAC Credit Agreement requires the Credit Parties to maintain certain financial ratios. The BRPAC Credit Agreement also contains customary representations and warranties, affirmative covenants and events of default, including payment defaults, breach of representations and warranties, covenant defaults and cross defaults. If an event of default occurs, the agent would be entitled to take various actions, including the acceleration of amounts due under the outstanding BRPAC Credit Agreement.
Under the BRPAC Credit Agreement, we borrowed $80,000 due December 19, 2023. Pursuant to the terms of the BRPAC Credit Agreement, we may request additional optional term loans in an aggregate principal amount of up to $10,000 at any time prior to the first anniversary of the agreement date (the “Option Loan”) with a final maturity date of December 19, 2023. On February 1, 2019, the Credit Parties, the Closing Date Lenders, the Agent and City National Bank, as a new lender (the “New Lender”), entered into the First Amendment to the Credit Agreement and Joinder (the “First Amendment”) pursuant to which, among other things, (i) New Lender became a party to the BRPAC Credit Agreement, (ii) the New Lender extended to Borrowers the Option Loan in the amount of $10,000, (iii) the aggregate outstanding principal amount of the term loans was increased from $80,000 to $90,000; and (iv) the amortization schedule under the BRPAC was amended as set forth in the First Amendment. Additionally, in connection with the Option Loan, the Borrowers executed a term note in favor of New Lender dated February 1, 2019 in the amount of $10,000. Borrowings under the BRPAC Credit Agreement bear interest at a rate equal to (a) the LIBOR rate for Eurodollar loans, plus (b) the applicable margin rate, which ranges from two and one-half percent (2.5%) to three percent (3.0%) per annum, based upon the Borrowers’ ratio of consolidated funded indebtedness to adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the preceding four fiscal quarters or other applicable period. At March 31, 2019 interest rate on the BRPAC Credit Agreement was at 5.50%. Interest payments are to be made each one, three or six months. Amounts outstanding under the BRPAC Credit Agreement are due in quarterly installments commencing on March 31, 2019 with any remaining amounts outstanding due at maturity. For the $80,000 loan, quarterly installments from March 31, 2019 to December 31, 2022 are in the amount of $4,444 per quarter and from March 31, 2023 to September 30, 2023 are $2,222 per quarter. For the $10,000 loan, quarterly installments from June 30, 2019 to December 31, 2022 are $593 per quarter and from March 31, 2023 to September 30, 2023 are $278 per quarter. As of March 31, 2019 and December 31, 2018, the outstanding balance of the term loan was $89,138 (net of unamortized debt issuance costs of $862) and $79,166 (net of unamortized debt issuance costs of $834), respectively. Interest expense on the term loan during the three months ended March 31, 2019 was $1,278 (including amortization of deferred debt issuance costs of $88).
We are in compliance with all covenants in the BRPAC Credit Agreement at March 31, 2019. |
NOTES PAYABLE |
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Mar. 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Payable [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NOTES PAYABLE | NOTE 11—NOTES PAYABLE
Senior Notes Payable
Senior notes payable, net, is comprised of the following as of March 31, 2019 and December 31, 2018:
(a) $49,526 Senior Notes Payable due October 31, 2021
At March 31, 2019, the Company had $49,526 senior notes due in 2021 (“7.50% 2021 Notes”), interest payable quarterly at 7.50%. On November 2, 2016, the Company issued $28,750 of the 7.50% 2021 Notes and as of December 31, 2018, the Company issued additional $17,657 of the 7.50% 2021 Notes pursuant to the Sales Agreements, as further discussed below. During the three months ended March 31, 2019, the Company issued an additional $3,118 of the 7.50% 2021 Notes pursuant to the December 2018 Sales Agreement, as discussed below. The 7.50% 2021 Notes are unsecured and due and payable in full on October 31, 2021. In connection with the issuance of the 7.50% 2021 Notes, the Company received net proceeds of $48,602 (after premium, underwriting commissions, fees and other issuance costs of $924). At March 31, 2019 and December 31, 2018, the outstanding balance of the 2021 Notes was $49,074 (net of unamortized debt issue costs and premiums of $452) and $45,914 (net of unamortized debt issue costs and premiums of $493), respectively. For the three months ended March 31, 2019 and 2018, interest expense on the 7.50% 2021 Notes totaled $929 and $710, respectively.
(b) $108,792 Senior Notes Payable due May 31, 2027
At March 31, 2019, the Company had $108,792 senior notes due in 2027 (“7.50% 2027 Notes”), interest payable quarterly at 7.50%. On May 31, 2017, the Company issued $60,375 of the 7.50% 2027 Notes and as of March 31, 2019 and December 31, 2018, the Company issued additional $48,417 of the 7.50% 2027 Notes pursuant to the Sales Agreements. The 2027 Notes are unsecured and due and payable in full on May 31, 2027. In connection with the issuance of the 7.50% 2027 Notes, the Company received net proceeds of $106,948 (after premium, underwriting commissions, fees and other issuance costs of $1,844). At March 31, 2019 and December 31, 2018, the outstanding balance of the 7.50% 2027 Notes was $107,277 (net of unamortized debt issue costs and premium of $1,515) and $107,256 (net of unamortized debt issuance costs and premium of $1,536), respectively. For the three months ended March 31, 2019 and 2018, interest expense on the 2027 Notes totaled $2,086 and $1,778, respectively.
(c) $100,441 Senior Notes Payable due December 31, 2027
At March 31, 2019, the Company had $100,441 senior notes due in December 2027 (“7.25% 2027 Notes”), interest payable quarterly at 7.25%. In December 2017, the Company issued $80,500 of the 7.25% 2027 Notes and as of March 31, 2019 and December 31, 2018, the Company issued additional $19,941 of the 7.25% 2027 Notes pursuant to the Sales Agreements. The 7.25% 2027 Notes are unsecured and due and payable in full on December 31, 2027. In connection with the issuance of the 7.25% 2027 Notes, the Company received net proceeds of $97,798 (after underwriting commissions, fees and other issuance costs of $2,643). At March 31, 2019 and December 31, 2018, the outstanding balance of the 7.25% 2027 Notes was $98,126 (net of unamortized debt issue costs and premium of $2,315) and $98,073 (net of unamortized debt issue costs of $2,368), respectively. For the three months ended March 31, 2019 and 2018, interest expense on the 7.25% 2027 Notes totaled $1,886 and $1,534, respectively.
(d) $112,553 Senior Notes Payable due May 31, 2023
At March 31, 2019, the Company had $112,553 senior notes due in May 2023 (“7.375% 2023 Notes”), interest payable quarterly at 7.375%. In May 2018, the Company issued $100,050 and as of December 31, 2018, the Company issued additional $11,478 of the 7.375% 2023 Notes pursuant to the Sales Agreements. During the three months ended March 31, 2019, the Company issued additional $1,025 of the 7.375% 2023 Notes pursuant to the December 31, 2018 Sales Agreement. The 7.375% 2023 Notes are unsecured and due and payable in full on May 31, 2023. In connection with the issuance of the 7.375% 2023 Notes, the Company received net proceeds of $110,668 (after premium, underwriting commissions, fees and other issuance costs of $1,885). At March 31, 2019 and December 31, 2018, the outstanding balance of the 7.375% 2023 Notes was $111,005 (net of unamortized debt issue costs and premium of $1,548) and $109,872 (net of unamortized debt issuance costs and premium of $1,656), respectively. For the three months ended March 31, 2019, interest expense on the 7.375% 2023 Notes totaled $2,155.
(e) $100,893 Senior Notes Payable due September 30, 2023
At March 31, 2019, the Company had $100,893 senior notes due in September 2023 (“6.875% 2023 Notes”), interest payable quarterly at 6.875%. In September 2018, the Company issued $100,050 of the 6.875% 2023 Notes and during the three months ended March 31, 2019, the Company issued an additional $843 of the 6.875% 2023 Notes pursuant to the December 2018 Sales Agreement. The 6.875% 2023 Notes are unsecured and due and payable in full on September 30, 2023. In connection with the issuance of the 6.875% 2023 Notes, the Company received net proceeds of $99,392 (after underwriting commissions, fees and other issuance costs of $1,501). At March 31, 2019 and December 31, 2018, the outstanding balance of the 6.875% 2023 Notes was $99,558 (net of unamortized debt issue costs of $1,335) and $98,639 (net of unamortized debt issuance costs and premium of $1,411), respectively. For the three months ended March 31, 2019, interest expense on the 6.875% 2023 Notes totaled $1,799.
(f) At Market Issuance Sales Agreement to Issue Up to Aggregate of $75,000 of 6.875% 2023 Notes, 7.375% 2023 Notes, 7.25% 2027 Notes, 7.50% 2027 Notes or 7.50% 2021 Notes
During 2017 and 2018, the Company entered into a series of related At the Market Issuance Sales Agreements (the “Sales Agreements”) with B. Riley FBR, Inc. governing an ongoing program of at-the-market sales of the Company’s senior notes. The Company filed prospectus supplements under which the Company sold the senior notes on June 28, 2017, December 19, 2017, April 25, 2018, June 5, 2018 and December 18, 2018. Each of these prospectus supplements was filed pursuant to an effective Registration Statement on Form S-3. The Company’s most recent Sales Agreement was entered into on December 18, 2018 (the “December 2018 Sales Agreement”), and under the related prospectus supplement, the Company may offer and sell up to $75,000 of the senior notes. As of March 31, 2019, the Company had $ 70,014 remaining availability under the December 2018 Sales Agreement.
Other Notes Payable
Notes payable include notes payable to a clearing organization for one of the Company’s broker dealers. The notes payable accrue interest at rates set at each anniversary date ranging from the prime rate plus 0.25% to 2.0% (5.25% to 6.50% at March 31, 2019) payable annually. The principal payments on the notes payable are due annually in the amount of $357 on January 31, $214 on September 30, and $121 on October 31. The notes payable mature at various dates from September 30, 2019 through January 31, 2022. At March 31, 2019 and December 31, 2018, the outstanding balance for the notes payable was $1,193 and $1,550, respectively. Interest expense was $23 and $28 for the three months ended March 31, 2019 and 2018, respectively. |
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REVENUE FROM CONTRACTS WITH CUSTOMERS |
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| Revenue from Contract with Customer [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| REVENUE FROM CONTRACTS WITH CUSTOMERS | NOTE 12—REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue from contracts with customers by reportable segment for the three months ended March 31, 2019 and 2018 is as follows:
Contract Balances
The timing of the Company’s revenue recognition may differ from the timing of payment by its customers. The Company records a receivable when revenue is recognized prior to payment and the Company has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied. Receivables related to revenues from contracts with customers totaled $43,975 and $42,123 at March 31, 2019 and December 31, 2018, respectively. The Company had no significant impairments related to these receivables during the three months ended March 31, 2019. The Company’s deferred revenue primarily relates to retainer and milestone fees received from corporate finance and investment banking advisory engagements, asset management agreements, Valuation and Appraisal engagements and subscription services where the performance obligation has not yet been satisfied. Deferred revenue at March 31, 2019 and December 31, 2018 was $69,959 and $69,066, respectively. During the three months ended March 31, 2019 and 2018, the Company recognized revenue of $13,234 and $1,975 that was recorded as deferred revenue at the beginning of the respective periods.
Contract Costs
Contract costs include: (1) costs to fulfill contracts associated with corporate finance and investment banking engagements are capitalized where the revenue is recognized at a point in time and the costs are determined to be recoverable; (2) costs to fulfill Auction and Liquidation services contracts where the Company guarantees a minimum recovery value for goods being sold at auction or liquidation where the revenue is recognized over time when the performance obligation is satisfied; and (3) commissions paid to obtain magicJack contracts which are recognized ratably over the contract term and third party support costs for magicJack and related equipment purchased by customers which are recognized ratably over the service period.
The capitalized costs to fulfill a contract were $2,582 and $2,920 at March 31, 2019 and December 31, 2018, respectively, and are recorded in prepaid expenses and other assets in the condensed consolidated balance sheets. For the three months ended March 31, 2019 and 2018, the Company recognized expenses of $601 and $455 related capitalized costs to fulfill a contract, respectively. There were no significant impairment charges recognized in relation to these capitalized costs during the three months ended March 31, 2019 and 2018.
Remaining Performance Obligations and Revenue Recognized from Past Performance
The Company does not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was not material at March 31, 2019. Corporate finance and investment banking fees and retail liquidation engagement fees that are contingent upon completion of a specific milestone and fees associated with certain distribution services are also excluded as the fees are considered variable and not included in the transaction price at March 31, 2019. |
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INCOME TAXES |
3 Months Ended |
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Mar. 31, 2019 | |
| Income Tax Disclosure [Abstract] | |
| INCOME TAXES | NOTE 13— INCOME TAXES
The Company’s effective income tax rate was a provision of 28.0% and 17.0% for the three months ended March 31, 2019 and 2018, respectively.
As of March 31, 2019, the Company had federal net operating loss carryforwards of approximately $60,637 and state net operating loss carryforwards of $65,740. The Company’s federal net operating loss carryforwards will expire in the tax years commencing in December 31, 2029 through December 31, 2034. The state net operating loss carryforwards will expire in the tax years commencing in December 31, 2029.
The Company establishes a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Tax benefits of operating loss, capital loss and tax credit carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and other circumstances. The Company’s net operating losses are subject to annual limitations in accordance with Internal Revenue Code Section 382. Accordingly, the Company is limited to the amount of net operating loss that may be utilized in future taxable years depending on the Company’s actual taxable income. As of March 31, 2019, the Company believes that the existing net operating loss carryforwards will be utilized in future tax periods before the loss carryforwards expire and it is more-likely-than-not that future taxable earnings will be sufficient to realize its deferred tax assets and has not provided a valuation allowance. The Company does not believe that it is more likely than not that the Company will be able to utilize the benefits related to capital loss carryforwards and has provided a valuation allowance in the amount of $61,127 against these deferred tax assets.
The Company files income tax returns in the U.S., various state and local jurisdictions, and certain other foreign jurisdictions. The Company is currently under audit by certain federal, state and local, and foreign tax authorities. The audits are in varying stages of completion. The Company evaluates its tax positions and establishes liabilities for uncertain tax positions that may be challenged by tax authorities. Uncertain tax positions are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits, case law developments and closing of statutes of limitations. Such adjustments are reflected in the provision for income taxes, as appropriate. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the calendar years ended December 31, 2015 to 2018. |
EARNINGS PER SHARE |
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| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EARNINGS PER SHARE | NOTE 14— EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the weighted-average number of shares outstanding during the period. Diluted earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding, after giving effect to all dilutive potential common shares outstanding during the period. Basic common shares outstanding exclude 387,365 common shares in 2019 and 453,365 common shares in 2018 that are held in escrow and subject to forfeiture. The common shares held in escrow includes 387,365 common shares that are subject to forfeiture to indemnify the Company for certain representations and warranties in connection with the acquisition of Wunderlich, and in 2018 excluded 66,000 common shares held in escrow issued to the former members of Great American Group, LLC that were subject to forfeiture upon the final settlement of claims for goods held for sale in connection with the transaction with Alternative Asset Management Acquisition Corp. in 2009. In August 2018, the shares held in escrow issued to the former members of Great American Group, LLC were released and 21,233 of the 66,000 shares held in escrow were cancelled to satisfy the resolution of escrow claims. The shares that remain in escrow are subject to forfeiture upon the final settlement of claims as more fully described in the related escrow instructions. Dilutive common shares outstanding includes contingently issuable shares that are currently in escrow and subject to release if the conditions for the final settlement of claims in accordance with the escrow instructions were satisfied at the end of the respective years. Securities that could potentially dilute basic net income per share in the future that were not included in the computation of diluted net income per share for the three months ended March 31, 2019 and 2018 were 1,952,868 and 1,834,422, respectively, because to do so would have been anti-dilutive.
Basic and diluted earnings per share was calculated as follows:
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COMMITMENTS AND CONTINGENCIES |
3 Months Ended |
|---|---|
Mar. 31, 2019 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| COMMITMENTS AND CONTINGENCIES | NOTE 15 — COMMITMENTS AND CONTINGENCIES
(a) Letter of Credits
At March 31, 2019, there were letter of credits outstanding totaling $7,491 related to one retail engagement in the Auction and Liquidation segment and three letter of credits related to the Principal Investments — United Online and magicJack segment. At March 31, 2018, there were letter of credits in the amount of $18,505 related to three retail liquidation engagements.
(b) Legal Matters
The Company is subject to certain legal and other claims that arise in the ordinary course of its business. In particular, the Company and its subsidiaries are named in and subject to various proceedings and claims arising primarily from the Company’s securities business activities, including lawsuits, arbitration claims, class actions, and regulatory matters. Some of these claims seek substantial compensatory, punitive, or indeterminate damages. The Company and its subsidiaries are also involved in other reviews, investigations, and proceedings by governmental and self-regulatory organizations regarding the Company’s business, which may result in adverse judgments, settlements, fines, penalties, injunctions, and other relief. In view of the number and diversity of claims against the Company’s company, the number of jurisdictions in which litigation is pending, and the inherent difficulty of predicting the outcome of litigation and other claims, the Company cannot state with certainty what the eventual outcome of pending litigation or other claims will be. Notwithstanding this uncertainty, the Company does not believe that the results of these claims are likely to have a material effect on its financial position or results of operations.
On June 17, 2018, B. Riley Financial, Inc. (the “Company” or “B. Riley”) entered into certain agreements pursuant to which B. Riley agreed to provide certain debt and equity funding and other support in connection with the acquisition (the “Acquisition”) by Vintage Rodeo Parent, LLC (the “Vintage Parent”), of Rent-A-Center, Inc. (“Rent-A-Center”), contemplated by that certain merger agreement dated as of June 17, 2018, by and among Vintage Parent, Vintage Rodeo Acquisition, Inc. a wholly owned subsidiary of Vintage Parent (the “Merger Sub” or the “Borrower”), and Rent-A-Center (the “Merger Agreement”).
In connection with the Merger Agreement, B. Riley and Vintage RTO, L.P., an affiliate of Vintage Parent (“Vintage Merger Guarantor”), entered into a Limited Guarantee dated as of June 17, 2018 (the “Limited Guarantee”), in favor of Rent-A-Center, pursuant to which B. Riley and Vintage Merger Guarantor (together, the “Merger Guarantors”) agreed to guarantee, jointly and severally, to Rent-A-Center the payment, performance and discharge of all of the liabilities and obligations of Vintage Parent and Merger Sub under the Merger Agreement when required in accordance with the Merger Agreement (the “Guaranteed Obligations”), including without limitation, (i) termination fees in the amount of $126.5 million due to Rent-A-Center if the Merger Agreement is properly terminated (the “Termination Fee”); and (ii) reimbursement and indemnification obligations when required (collectively, the “Guarantee Obligations”), provided, that the liability under the Limited Guarantee shall not exceed $128.5 million.
In connection with the execution of the Limited Guarantee, the Company entered into a Mutual Indemnity/Contribution Agreement, dated as of June 17, 2018 (the “Mutual Indemnity Agreement”), with the Vintage Merger Guarantor and Samjor Family, LP (collectively, the “Vintage Indemnity Parties”). Under the Mutual Indemnity Agreement, the Vintage Indemnity Parties agreed, jointly and severally, to indemnify and hold harmless B. Riley and its affiliates from damages and liabilities arising out of the Guarantee Obligations, other than those caused B. Riley’s failure to fund under their debt or equity commitments.
On December 18, 2018, Rent-A-Center purported to terminate the Merger Agreement because the end date of the agreement was allegedly not extended prior to December 17, 2018 by Vintage Parent. Rent-A-Center delivered notice of such termination to Vintage Parent, and notified Vintage Parent of its obligation under the terms of the Merger Agreement to pay Rent-A-Center the Termination Fee within three business days. On December 18, 2018, Vintage Capital Management, LLC, an affiliate of Vintage Parent (“Vintage Capital”), delivered a letter to Rent-A-Center stating that Rent-A-Center’s purported termination of the Merger Agreement is invalid, that it believes the Merger Agreement remains in effect. On December 21, 2018, Vintage Capital filed a complaint in the Court of Chancery of the State of Delaware (the “Court”) challenging Rent-A-Center’s purported termination of the Merger Agreement and demand for payment of the Termination Fee. The relief sought by Vintage Capital includes declaratory judgements that the Merger Agreement has not been terminated and remains in full force and effect, that Rent-A-Center has breached its obligations under the Merger Agreement and is not excused from failing to comply with its obligations thereunder and that the Termination Fee is an unenforceable penalty. On December 28, 2018, Rent-A-Center provided each of B. Riley and the Vintage Merger Guarantor with a written request under the Limited Guarantee (a “Performance Demand”), to promptly, and in any event within ten (10) Business Days, pay to Rent-A-Center the Guaranteed Obligations (including the Termination Fee) in full. On December 30, 2018, B. Riley filed a motion in the Court to intervene in the above referenced case filed by Vintage Capital pursuant to which B. Riley is seeking declaratory judgments, among other things, that the parties agreed to extend the End Date under the Merger Agreement and that Rent-A-Center is estopped from terminating the Merger Agreement, that Rent-A-Center has breached the Merger Agreement and its obligations of good faith and fair dealing in connection with consummating the Merger, and that the Termination Fee is an unenforceable penalty. On February 11th and 12th, a trial was held, post-trial briefs were filed on February 22, 2019 and March 1, 2019, and a post-trial hearing was held on March 11, 2019. On March 14, 2019, the Court issued its Opinion concluding that Rent-A-Center’s termination of the merger agreement was valid and did not rule on the enforceability of the payment of the Termination Fee. The parties submitted supplemental briefs as well as reply briefs on that issue. On April 22, 2019, the parties announced an agreement in principal to settle the matter and on April 25, 2019 signed a settlement agreement including a release of claims. The Company is not making any financial contribution in connection with the settlement.
On August 11, 2017, a putative class action lawsuit titled Freedman v. magicJack VocalTec Ltd. et al., Case 9-17-cv-80940, was filed against magicJack and its Board of Directors in the United States District Court for the Southern District of Florida (Case No: 9:17-cv-80940-RLR). The complaint alleges claims against magicJack and the members of its Board of Directors as well as two former members for violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, arising from proxy statements issued in connection with magicJack’s April 19, 2017 shareholders meeting and magicJack’s July 31, 2017 shareholders meeting that allegedly misrepresented material facts concerning the “true value” of Broadsmart Global, Inc and its future prospects in order that the individual defendants could entrench themselves and extract unwarranted compensation from magicJack in connection with their attempt to sell the company. In January 2018, the plaintiff filed an Amended Complaint. On February 16, 2018, magicJack and all of the individual defendants filed a motion to dismiss the Amended Complaint. On August 9, 2018, the Court issued an order dismissing the amended complaint without prejudice, giving the plaintiff until August 21, 2018 to file an amended complaint. Thereafter, the plaintiff filed a second amended complaint. On August 20, 2018, magicJack filed a motion to dismiss the second amended complaint. Pursuant to a schedule set by the Court, all papers with respect to the motion were filed by September 28, 2018. On November 21, 2018, the court issued an order granting the motion to dismiss with prejudice. The plaintiff has filed Notice of Appeal with the U.S. Court of Appeals for the 11th Circuit, and, on January 30, 2019, filed a brief with the appeals court. The Company’s brief in opposition was filed on April 19, 2019. The Company cannot estimate the amount of potential liability, if any, that could arise from this matter.
In June 2018, Galilee Acquisition LLC f/k/a Sutton View Acquisition LLC (“GAL”) filed a complaint, served the following month, (case No.:50-2018-CA-007976-XXXX-MB) in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida against magicJack Vocaltec Ltd. alleging a claim for negligent misrepresentation. The complaint alleges that magicJack provided false, material information to the plaintiff concerning its business, including information related to the operations, revenue projections, profit projections and growth forecast of Broadsmart. It alleges that the plaintiff relied on the information provided in determining whether to pursue acquiring magicJack and to incur the cost of conducting due diligence. The suit seeks an unspecified amount of damages. magicJack disputes GAL’s claims and intends to vigorously defend the action. magicJack filed a motion to dismiss on September 4, 2018, which remains pending. On April 4, 2019, the plaintiff’s counsel advised the court that it intends to file an amended complaint, and the court gave the plaintiff 30 days from that date to file such amended complaint. The Company cannot estimate the amount of potential liability, if any, that could arise from this matter.
On January 5, 2017, complaints filed in November 2015 and May 2016 naming MLV & Co. (“MLV”), a broker-dealer subsidiary of FBR, as a defendant in putative class action lawsuits alleging claims under the Securities Act, in connection with the offerings of Miller Energy Resources, Inc. (“Miller”) have been consolidated. The Master Consolidated Complaint, styled Gaynor v. Miller et al., is pending in the United States District Court for the Eastern District of Tennessee, and, like its predecessor complaints, continues to allege claims under Sections 11 and 12 of the Securities Act against nine underwriters for alleged material misrepresentations and omissions in the registration statement and prospectuses issued in connection with six offerings (February 13, 2013; May 8, 2013; June 28, 2013; September 26, 2013; October 17, 2013 (as to MLV only) and August 21, 2014) with an alleged aggregate offering price of approximately $151,000. The plaintiffs seek unspecified compensatory damages and reimbursement of certain costs and expenses. In August 2017, the Court granted Defendant’s Motion to Dismiss on Section 12 claims and found that the plaintiffs had not sufficiently alleged a corrective disclosure prior to August 6, 2015, when an SEC civil action was announced. Defendants’ answer was filed on September 25, 2017. Plaintiffs have filed motions for class certification and to remand the case to state court following a positive ruling in an unrelated case by the U.S. Supreme Court. Although MLV is contractually entitled to be indemnified by Miller in connection with this lawsuit, Miller filed for bankruptcy in October 2015 and this likely will decrease or eliminate the value of the indemnity that MLV receives from Miller. The Court has ordered mediation before a federal magistrate which is expected to be scheduled during May or early June 2019.
In February 2017, certain former employees filed an arbitration claim with FINRA against WSI alleging misrepresentations in the recruitment of claimants to join WSI. Claimants also allege that WSI failed to support their mortgage trading business resulting in the loss of opportunities during their employment with WSI. Claimants are seeking $10,000 in damages. WSI has counterclaimed alleging that claimants misrepresented their process for doing business, particularly their capital needs, resulting in substantial losses to WSI. WSI believes the claims are meritless and intends to vigorously defend the action. Arbitration hearings concluded in April 2019 and the Company expects to receive the arbitrators’ decision in the near future.
In March 2017, United Online, Inc. received a letter from PeopleConnect, Inc. (formerly, Classmates, Inc.) (“Classmates”) regarding a notice of investigation received from the Consumer Protection Divisions of the District Attorneys’ offices of four California counties (“California DAs”). These entities suggest that Classmates may be in violation of California codes relating to unfair competition, false or deceptive advertising, and auto-renewal practices. Classmates asserts that these claims are indemnifiable claims under the purchase agreement between United Online, Inc. and the buyer of Classmates. A tolling agreement with certain California District Attorneys has been signed and informal discovery and production is in process. Discussions regarding resolution of this matter with the California DAs is ongoing. At the present time, management believes the financial impact to the Company, if any, is not expected to be material.
In July 2017, an arbitration claim was filed with FINRA by Dominick & Dickerman LLC and Michael Campbell against WSI and Gary Wunderlich with respect to the acquisition by Wunderlich Investment Company, Inc. (“WIC”) (the parent corporation of WSI) of certain assets of Dominick & Dominick LLC in 2015. The Claimants allege that respondents overvalued WIC so that the purchase price paid to the Claimants in shares of WIC stock was artificially inflated. The Statement of Claim includes claims for common law fraud, negligent misrepresentation, and breach of contract. Claimants are seeking damages of approximately $8,000 plus unspecified punitive damages. Respondents believe the claims are meritless and intend to vigorously defend the action.
Historically, magicJack has from time to time received Letters of Inquiry from the Bureau of the Federal Communications Commission (“FCC”) regarding the nature of its Core Consumer product offering. magicJack has promptly responded to all inquiries received. As it has previously disclosed, magicJack believes that under current regulations it is not an interconnected VoIP provider subject to FCC regulations. To date, it has not received any formal notice from the FCC of any enforcement action. The Company intends to vigorously defend itself if an enforcement action is initiated. The Company, however, cannot be sure of the ultimate outcome of any possible FCC action and cannot estimate the likelihood of liability or the amount of potential assessments, if any, that could arise.
(c) Tax Contingencies
magicJack believes that it files all required tax returns and pays all required federal, state and municipal taxes (such as sales, excise, utility, and ad valorem taxes), fees and surcharges. magicJack is the subject of inquiries and examinations by various states and municipalities in the normal course of business. In accordance with generally accepted accounting principles, magicJack makes a provision for a liability for taxes when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. magicJack believes any possible claims are without merit and vigorously defends its rights. However, if a government entity were to prevail in any matter, it could have a material adverse effect on magicJack’s financial condition, results of operation and cash flows. In addition, it is at least reasonably possible that a potential loss may exist for tax contingencies in addition to the provisions taken by magicJack.
magicJack is currently under examination for potential state tax liabilities in some states and local jurisdictions. magicJack has offered to settle a state examination for payment of $1,150 and the agreement to remit certain taxes on a prospective basis but magicJack has not reached an agreement with the state on this matter.
In a letter dated April 23, 2018, magicJack received notice that the Internal Revenue Service (the “IRS”) has selected magicJack’s 2015 United States income tax return for examination. magicJack had an initial meeting with the IRS in June 2018 and has supplied responses for all of the IRS’s document requests to date. magicJack believes that the positions taken in its 2015 return are reasonable and appropriate, however, magicJack cannot be sure of the ultimate outcome of the examination and cannot estimate the likelihood of liability or the amount of potential assessments, if any, that could arise from the examination.
Historically, magicJack considered the requirements to collect sales taxes under the auspices of a 1991 Supreme Court case, Quill Corp. v. North Dakota, which established the precedent that a physical presence in the respective state is required for an entity to be subject to a state’s sales and use tax requirements. Accordingly, magicJack had concluded that it did not have nexus for sales tax in those states in which it had no physical presence (i.e., it had no employees regularly and systematically there and it had no property there). On June 21, 2018, via South Dakota v. Wayfair, Inc. (No. 17-494) the U.S. Supreme Court reversed its prior ruling and eliminated the “physical presence” requirement. In consideration of the ruling, magicJack made the decision to start collecting sales tax on direct sales of its magicJack device and access right renewals in states that have adopted similar “Economic Nexus” laws. magicJack began registering for, collecting and remitting sales tax to identified jurisdictions during the third quarter of 2018. The Company will continue to monitor the situation and add additional states if deemed necessary. Though the South Dakota law is to be applied prospectively, it is not certain if other states may try to enact laws on a retrospective basis based on the Wayfair ruling, and the Company cannot estimate the likelihood of liability or the potential amount of assessments that could arise from prior periods if other states tried to apply the ruling on a retrospective basis. |
SHARE BASED PAYMENTS |
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| Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SHARE-BASED PAYMENTS | NOTE 16— SHARE-BASED PAYMENTS
(a) Amended and Restated 2009 Stock Incentive Plan
Share-based compensation expense for restricted stock units under the Company’s Amended and Restated 2009 Stock Incentive Plan (the “Plan”) was $1,726 and $1,110 for the three months ended March 31, 2019 and 2018, respectively.
The restricted stock units generally vest over a period of one to three years based on continued service. In determining the fair value of restricted stock units on the grant date, the fair value is adjusted for (a) estimated forfeitures, (b) expected dividends based on historical patterns and the Company’s anticipated dividend payments over the expected holding period and (c) the risk-free interest rate based on U.S. Treasuries for a maturity matching the expected holding period.
As of March 31, 2019, the expected remaining unrecognized share-based compensation expense of $9,089 will be expensed over a weighted average period of 1.8 years.
A summary of equity incentive award activity for the three months ended March 31, 2019 was as follows:
The total fair value of shares vested during the three months ended March 31, 2019 was $776.
(b) Amended and Restated FBR & Co. 2006 Long-Term Stock Incentive Plan
In connection with the acquisition of FBR on June 1, 2017, the equity awards previously granted or available for issuance under the FBR & Co. 2006 Long-Term Stock Incentive Plan (the “FBR Stock Plan”) may be issued under the Plan. During the three months ended March 31, 2019, the Company granted restricted stock units representing 4,544 shares of common stock with a total grant date fair value of $71 under the FBR Stock Plan. For the three months ended March 31, 2019 and 2018, share-based compensation expense in connection with the FBR Stock Plan restricted stock awards was $767 and $1,448, respectively. As of March 31, 2019, the expected remaining unrecognized share-based compensation expense of $6,397 will be expensed over a weighted average period of 1.8 years.
A summary of equity incentive award activity for the three months ended March 31, 2019 was as follows:
The per-share weighted average grant-date fair value of restricted stock units was $15.66 during the three months ended March 31, 2019. There were 56,234 restricted stock units with a fair value of $887 that vested during the three months ended March 31, 2019 under the FBR Stock Plan. |
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NET CAPITAL REQUIREMENTS |
3 Months Ended |
|---|---|
Mar. 31, 2019 | |
| Brokers and Dealers [Abstract] | |
| NET CAPITAL REQUIREMENTS | NOTE 17— NET CAPITAL REQUIREMENTS
B. Riley FBR, MLV and B. Riley Wealth Management (“BRWM”), the Company’s broker-dealer subsidiaries, are registered with the SEC as broker-dealers and are members of the Financial Industry Regulatory Authority, Inc. (“FINRA”). The Company’s broker-dealer subsidiaries are subject to SEC Uniform Net Capital Rule (Rule 15c3-1) which requires the subsidiaries to maintain minimum net capital and that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. As such, they are subject to the minimum net capital requirements promulgated by the SEC. As of March 31, 2019, B. Riley FBR had net capital of $102,265, which was $100,574 in excess of its required net capital of $1,692; MLV had net capital of $725, which was $625 in excess of its required net capital of $100; and BRWM had net capital of $4,972, which was $4,440 in excess of its required net capital of $532. |
RELATED PARTY TRANSACTIONS |
3 Months Ended |
|---|---|
Mar. 31, 2019 | |
| Related Party Transactions [Abstract] | |
| RELATED PARTY TRANSACTIONS | NOTE 18— RELATED PARTY TRANSACTIONS
At March 31, 2019, amounts due from related parties include $77 from GACP I, L.P. (“GACP I”) and $750 from GACP II, L.P. (“GACP II”) for management fees and other operating expenses and $1,138 due from CA Global Partners (“CA Global”) for operating expenses related to wholesale and industrial liquidation engagements managed by CA Global on behalf of GA Global Ptrs. At December 31, 2018, amounts due from related parties include $193 from GACP I, $724 from GACP II, and $812 from CA Global for management fees, incentive fees and other operating expenses. |
BUSINESS SEGMENTS |
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| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BUSINESS SEGMENTS | NOTE 19— BUSINESS SEGMENTS
The Company’s business is classified into the Capital Markets segment, Auction and Liquidation segment, Valuation and Appraisal segment and Principal Investments — United Online and magicJack segment. These reportable segments are all distinct businesses, each with a different marketing strategy and management structure.
The following is a summary of certain financial data for each of the Company’s reportable segments:
The following table presents revenues by geographical area:
The following table presents long-lived assets, which consists of property and equipment and other assets, by geographical area:
Segment assets are not reported to, or used by, the Company's Chief Operating Decision Maker to allocate resources to, or assess performance of, the segments and therefore, total segment assets have not been disclosed. |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Principles of Consolidation and Basis of Presentation | (a) Principles of Consolidation and Basis of Presentation
The condensed consolidated financial statements include the accounts of B. Riley Financial, Inc. and its wholly-owned and majority-owned subsidiaries. The condensed consolidated financial statements also include the accounts of (a) Great American Global Partners, LLC which is controlled by the Company as a result of its ownership of a 50% member interest, appointment of two of the three executive officers and significant influence over the funding of operations, and (b) GA Retail Investments, L.P. which is controlled by the Company as a result of its ownership of a 50% partnership interest, appointment of executive officers and significant influence over the operations. The condensed consolidated financial statements have been prepared by the Company, without audit, pursuant to interim financial reporting guidelines and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company’s management, all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the periods presented have been included. These condensed consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 6, 2019. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the operating results to be expected for the full fiscal year or any future periods. |
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| Use of Estimates | (b) Use of Estimates
The preparation of the condensed consolidated financial statements in accordance with accounting GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenue and expense during the reporting period. Estimates are used when accounting for certain items such as valuation of securities, reserves for accounts receivable, the fair value of intangible assets and goodwill, the fair value of mandatorily redeemable noncontrolling interests, fair value of share based arrangements and accounting for income tax valuation allowances. Estimates are based on historical experience, where applicable, and assumptions that management believes are reasonable under the circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ. |
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| Revenue Recognition | (c) Revenue Recognition
On January 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606 — Revenue from Contracts with Customers using the modified retrospective method and the impact was determined to be immaterial on our condensed consolidated financial statements. The new revenue standard was applied prospectively in the Company’s condensed consolidated financial statements from January 1, 2018 forward and reported financial information for historical comparable periods was revised and will continue to be reported under the accounting standards in effect during those historical periods.
Revenues are recognized when control of the promised goods or performance obligations for services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for the goods or services.
There have been no material changes to the Company’s revenue recognition accounting policy set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. See Note 12 for information on revenue from contracts with customers. |
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| Direct Cost of Services | (d) Direct Cost of Services
Direct cost of services relates to service and fee revenues. The costs consist of employee compensation and related payroll benefits, travel expenses, the cost of consultants assigned to revenue-generating activities and direct expenses billable to clients in the Valuation and Appraisal segment. Direct costs of services include participation in profits under collaborative arrangements in which the Company is a majority participant. Direct costs of services also include the cost of consultants and other direct expenses related to Auction and Liquidation contracts pursuant to commission and fee based arrangements in the Auction and Liquidation segment. Direct cost of services in the Principal Investments — United Online and magicJack segment include cost of telecommunications and data center costs, personnel and overhead-related costs associated with operating the Company’s networks, servers and data centers, sales commissions associated with multi-year service plans, depreciation of network computers and equipment, amortization expense, third party advertising sales commissions, license fees, costs related to providing customer support, costs related to customer billing and processing of customer credit cards and associated bank fees. Direct cost of services does not include an allocation of the Company’s overhead costs. |
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| Interest Expense - Securities Lending Activities | (e) Interest Expense — Securities Lending Activities
Interest expense from securities lending activities is included in operating expenses related to operations in the Capital Markets segment. Interest expense from securities lending activities is incurred from equity and fixed income securities that are loaned to the Company. |
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| Concentration of Risk | (f) Concentration of Risk
Revenues in the Capital Markets, Valuation and Appraisal and Principal Investments — United Online and magicJack segments are currently primarily generated in the United States. Revenues in the Auction and Liquidation segment are primarily generated in the United States, Australia, Canada and Europe.
The Company’s activities in the Auction and Liquidation segment are executed frequently with, and on behalf of, distressed customers and secured creditors. Concentrations of credit risk can be affected by changes in economic, industry, or geographical factors. The Company seeks to control its credit risk and potential risk concentration through risk management activities that limit the Company’s exposure to losses on any one specific liquidation services contract or concentration within any one specific industry. To mitigate the exposure to losses on any one specific liquidation services contract, the Company sometimes conducts operations with third parties through collaborative arrangements.
The Company maintains cash in various federally insured banking institutions. The account balances at each institution periodically exceed the Federal Deposit Insurance Corporation’s (“FDIC”) insurance coverage, and as a result, there is a concentration of credit risk related to amounts in excess of FDIC insurance coverage. The Company has not experienced any losses in such accounts. The Company also has substantial cash balances from proceeds received from auctions and liquidation engagements that are distributed to parties in accordance with the collaborative arrangements. |
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| Advertising Expenses | (g) Advertising Expenses The Company expenses advertising costs, which consist primarily of costs for printed materials, as incurred. Advertising costs totaled $362 and $93 for the three months ended March 31, 2019 and 2018, respectively. Advertising expense is included as a component of selling, general and administrative expenses in the accompanying condensed consolidated statements of income. |
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| Share-Based Compensation | (h) Share-Based Compensation The Company’s share-based payment awards principally consist of grants of restricted stock, restricted stock units and costs associated with the Company’s employee stock purchase plan. In accordance with the applicable accounting guidance, share-based payment awards are classified as either equity or liabilities. For equity-classified awards, the Company measures compensation cost for the grant of membership interests at fair value on the date of grant and recognizes compensation expense in the condensed consolidated statements of income over the requisite service or performance period the award is expected to vest. The fair value of the liability-classified award will be subsequently remeasured at each reporting date through the settlement date. Change in fair value during the requisite service period will be recognized as compensation cost over that period.
In June 2018, the Company adopted the 2018 Employee Stock Purchase Plan (“Purchase Plan”) which allows eligible employees to purchase common stock through payroll deductions as a price that is 15% of the market value of the common stock on the last day of the offering period. In accordance with the provisions of ASC 718, Compensation — Stock Compensation (“ASC 718”), the Company is required to recognize compensation expense relating to shares offered under the Purchase Plan. For the three months ended March 31, 2019, the Company recognized compensation expense of $121 related to the Purchase Plan. At March 31, 2019, there were 687,427 shares reserved for issuance under the Purchase Plan. |
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| Income Taxes |
The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the condensed consolidated financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the financial statement basis and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates the degree to which tax assets and credit carryforwards will result in a benefit based on expected profitability by tax jurisdiction. A valuation allowance for such tax assets and loss carryforwards is provided when it is determined to be more likely than not that the benefit of such deferred tax asset will not be realized in future periods. Tax benefits of operating loss carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and other circumstances. If it becomes more likely than not that a tax asset will be used, the related valuation allowance on such assets would be reduced.
The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Once this threshold has been met, the Company’s measurement of its expected tax benefits is recognized in its financial statements. The Company accrues interest on unrecognized tax benefits as a component of income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense. |
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| Cash and Cash Equivalents | (j) Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. |
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| Restricted Cash | (k) Restricted Cash
As of March 31, 2019, restricted cash balance of $7,491 included $469 cash collateral for one of the Company’s telecommunication suppliers, $365 certificate of deposits collateral for certain letter of credits, and $6,657 of cash collateral related to a retail liquidation engagement. As of December 31, 2018, restricted cash balance of $838 included $469 cash collateral for one of the Company’s telecommunication suppliers and $369 certificate of deposits collateral for certain letter of credits. |
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| Securities Borrowed and Securities Loaned | (l) Securities Borrowed and Securities Loaned Securities borrowed and securities loaned are recorded based upon the amount of cash advanced or received. Securities borrowed transactions facilitate the settlement process and require the Company to deposit cash or other collateral with the lender. With respect to securities loaned, the Company receives collateral in the form of cash. The amount of collateral required to be deposited for securities borrowed, or received for securities loaned, is an amount generally in excess of the market value of the applicable securities borrowed or loaned. The Company monitors the market value of the securities borrowed and loaned on a daily basis, with additional collateral obtained, or excess collateral recalled, when deemed appropriate.
The Company accounts for securities lending transactions in accordance with ASC “Topic 210: Balance Sheet,” which requires companies to report disclosures of offsetting assets and liabilities. The Company does not net securities borrowed and securities loaned and these items are presented on a gross basis in the condensed consolidated balance sheets. |
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| Due from/to Brokers, Dealers, and Clearing Organizations | (m) Due from/to Brokers,Dealers, and Clearing Organizations
The Company clears all of its proprietary and customer transactions through other broker-dealers on a fully disclosed basis. The amount receivable from or payable to the clearing brokers represents the net of proceeds from unsettled securities sold, the Company’s clearing deposit and amounts receivable for commissions less amounts payable for unsettled securities purchased by the Company and amounts payable for clearing costs and other settlement charges. This amount also includes the cash collateral received for securities loaned less cash collateral for securities borrowed. Any amounts payable would be fully collateralized by all of the securities owned by the Company and held on deposit at the clearing broker. |
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| Accounts Receivable | (n) Accounts Receivable Accounts receivable represents amounts due from the Company’s Auction and Liquidation, Valuation and Appraisal, Capital Markets and Principal Investments — United Online and magicJack customers. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management utilizes a specific customer identification methodology. Management also considers historical losses adjusted for current market conditions and the customers’ financial condition and the current receivables aging and current payment patterns. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers. The Company’s bad debt expense and changes in the allowance for doubtful accounts for the three months ended March 31, 2019 and 2018 are included in Note 6. |
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| Leases | (o) Leases The Company determines if an arrangement is, or contains, a lease at the inception date. Operating leases are included in right-of-use assets, with the related liabilities included in operating lease liabilities in the condensed consolidated balance sheet.
Operating lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. We use our estimated incremental borrowing rate in determining the present value of lease payments. Variable components of the lease payments such as fair market value adjustments, utilities, and maintenance costs are expensed as incurred and not included in determining the present value. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components which are accounted for as a single lease component. See Note 8 for additional information on leases. |
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| Property and Equipment | (p) Property and Equipment Property and equipment are stated at cost. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets. Property and equipment held under capital leases are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset. Depreciation and amortization expense on property and equipment was $1,536 and $1,177 for the three months ended March 31, 2019 and 2018, respectively. |
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| Loans Receivable | (q) Loans Receivable Loans receivable are measured at historical cost and reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans, and for purchased loans, net of any unamortized premiums or discounts. Loan origination fees and certain direct origination costs are deferred and recognized as adjustments to interest income over the lives of the related loans. Unearned income, discounts and premiums are amortized to interest income using a level yield methodology. As of March 31, 2019 and December 31, 2018, total loans receivable carried at cost was $53,448 and $38,794, respectively. The loans receivable carried at cost have various maturity dates ranging from April 2019 to January 2023. |
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| Securities and Other Investments Owned and Securities Sold Not Yet Purchased | (r) Securities and Other Investments Owned and Securities Sold Not Yet Purchased
Securities owned consist of marketable securities and investments in partnership interests and other securities recorded at fair value. Securities sold, but not yet purchased represents obligations of the Company to deliver the specified security at the contracted price and thereby create a liability to purchase the security in the market at prevailing prices. Changes in the value of these securities are reflected currently in the results of operations.
As of March 31, 2019 and December 31, 2018, the Company’s securities and other investments owned and securities sold not yet purchased at fair value consisted of the following securities:
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| Fair Value Measurements | s) Fair Value Measurements
The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) for identical instruments that are highly liquid, observable and actively traded in over-the-counter markets. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose inputs are observable and can be corroborated by market data. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The Company’s securities and other investments owned and securities sold and not yet purchased are comprised of common and preferred stocks and warrants, corporate bonds, loans receivable valued at fair value and investments in partnerships. Investments in common stocks that are based on quoted prices in active markets are included in Level 1 of the fair value hierarchy. The Company also holds nonpublic common and preferred stocks and warrants for which there is little or no public market and fair value is determined by management on a consistent basis. For investments where little or no public market exists, management’s determination of fair value is based on the best available information which may incorporate management’s own assumptions and involves a significant degree of judgment, taking into consideration various factors including earnings history, financial condition, recent sales prices of the issuer’s securities and liquidity risks. These investments are included in Level 3 of the fair value hierarchy. Investments in partnership interests include investments in private equity partnerships that primarily invest in equity securities, bonds, and direct lending funds. The Company also invests in priority investment funds and the underlying securities held by these funds are primarily corporate and asset-backed fixed income securities and restrictions exist on the redemption of amounts invested by the Company. The Company’s partnership and investment fund interests are valued based on the Company’s proportionate share of the net assets of the partnerships and funds; the value for these investments are derived from the most recent statements received from the general partner or fund administrator. These partnership and investment fund interests are valued at net asset value (“NAV”) in accordance with ASC “Topic 820: Fair Value Measurements.”
The fair value of mandatorily redeemable noncontrolling interests is determined based on the issuance of similar interests for cash, references to industry comparables, and relied, in part, on information obtained from appraisal reports and internal valuation models.
The following tables present information on the financial assets and liabilities measured and recorded at fair value on a recurring basis as of March 31, 2019 and December 31, 2018.
As of March 31, 2019 and December 31, 2018, financial assets measured and reported at fair value on a recurring basis and classified within Level 3 were $59,885 and $58,308, respectively, or 3.1% and 3.0%, respectively, of the Company’s total assets. In determining the fair value for these Level 3 financial assets, the Company analyzes various financial, performance and market factors to estimate the value, including where applicable, over-the-counter market trading activity.
The following table summarizes the significant unobservable inputs in the fair value measurement of level 3 financial assets and liabilities by category of investment and valuation technique as of March 31, 2019:
The changes in Level 3 fair value hierarchy during the three months ended March 31, 2019 and 2018 are as follows:
During the three months ended March 31, 2019, there was a transfer of one financial asset from level 1 to level 3 in the fair value hierarchy as a result of the asset’s principal market becoming inactive during the quarter.
The amount reported in the table above for the three months ended March 31, 2019 and 2018 includes the amount of undistributed earnings attributable to the noncontrolling interests that is distributed on a quarterly basis. The carrying amounts reported in the condensed consolidated financial statements for cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses and other liabilities approximate fair value based on the short-term maturity of these instruments.
The carrying amount of the senior notes payable approximates fair value because the contractual interest rates or effective yields of such instruments are consistent with current market rates of interest for instruments of comparable credit risk.
During the three months ended March 31, 2019 and 2018, there were no assets or liabilities measured at fair value on a non-recurring basis. |
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| Derivative and Foreign Currency Translation | (t) Derivative and Foreign Currency Translation The Company periodically uses derivative instruments, which primarily consist of the purchase of forward exchange contracts, for certain Auction and Liquidation engagements with operations outside the United States. The Company did not use any derivative contracts during the three months ended March 31, 2019. During the three months ended March 31, 2018, the Company’s use of derivatives consisted of the purchase of forward exchange contracts (a) in the amount of $54,406 Canadian dollars, of which $10,703 remained open at March 31, 2018 and settled in April 2018, and (b) $1,500 Euro’s that settled in March 2018.
The forward exchange contract was entered into to improve the predictability of cash flows related to a retail store liquidation engagement that was completed in December 2016. The net gain from forward exchange contracts was $30 during the three months ended March 31, 2018 and is included in selling, general and administrative expenses in the condensed consolidated statements of income.
The Company transacts business in various foreign currencies. In countries where the functional currency of the underlying operations has been determined to be the local country’s currency, revenues and expenses of operations outside the United States are translated into United States dollars using average exchange rates while assets and liabilities of operations outside the United States are translated into United States dollars using year-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 (loss) gains were ($186) and $138 during the three months ended March 31, 2019 and 2018, respectively. These amounts are included in selling, general and administrative expenses in the Company’s condensed consolidated statements of income. |
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| Common Stock Warrants | (u) Common Stock Warrants The common stock warrants entitle the holders of the warrants to acquire shares of the Company’s common stock from the Company at a price of $17.50 per share (the “Exercise Price”), subject to, among other matters, the proper completion of an exercise notice and payment. The Exercise Price and the number of shares of Company common stock issuable upon exercise are subject to customary anti-dilution and adjustment provisions, which include stock splits, subdivisions or reclassifications of the Company’s common stock. The common stock warrants expire on July 3, 2022. As of March 31, 2019, warrants to purchase 821,816 shares of common stock were outstanding. |
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| Equity Investment | (v) Equity Investment bebe stores, inc.
At March 31, 2019, the Company had a 30.5% ownership interest in bebe stores, inc. (“bebe”). The equity ownership in bebe is accounted for under the equity method of accounting, and is included in prepaid expenses and other assets in the condensed consolidated balance sheets.
National Holdings Corporation
On November 14, 2018, the Company entered into an agreement to acquire shares of National Holdings Corporation (“National Holdings”), a Nasdaq-listed issuer, from Fortress Biotech, Inc. for an aggregate purchase price totaling approximately $22.9 million. The transaction was completed in two tranches. In the first tranche, which was completed in the fourth quarter of 2018, the Company acquired shares representing 24% of the total outstanding shares of National Holdings. The second tranche was completed in the first quarter of 2019. As of March 31, 2019, the Company had purchased 6,159,550 shares of National Holdings’ common stock, representing 48.8% of National Holdings’ outstanding shares, at $3.25 per share. The carrying value for the National Holdings investment at March 31, 2019 increased to $22,323 from $9,902 at December 31, 2018 and is included in prepaid expenses and other assets in the condensed consolidated balance sheets. The equity ownership in National Holdings is accounted for under the equity method of accounting. |
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| Statements of Cash Flows - Supplemental Non-cash Disclosures | (w) Statements of Cash Flows – Supplemental Non-cash Disclosures
During the three months ended March 31, 2018, non-cash investing activities included the conversion of a loan receivable in the amount of $16,867 and accrued interest receivable of $51 into an equity investment in bebe that totaled $16,918. |
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| Variable Interest Entity | (x) Variable Interest Entity In January 2018, the operations of GACP II, LP, a private debt investment limited partnership (the “Partnership”) commenced operations. The Company’s investment in the Partnership is a variable interest entity (“VIE”) since the unaffiliated limited partners do not have substantive kick-out or participating rights to remove the Company’s subsidiary that is the general partner managing the Partnership. The Company has determined that it is not the primary beneficiary due to the fact that its fee arrangements are considered at-market and thus not deemed to be variable interests, and it does not hold any other interests in the Partnership that are considered to be more than insignificant. The Company determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a VIE and reconsiders that conclusion at each reporting date. In evaluating whether the Company is the primary beneficiary, the Company evaluates its economic interests in the entity held either directly by the Company or indirectly through related parties. The consolidation analysis can generally be performed qualitatively; however, if it is not readily apparent that the Company is not the primary beneficiary, a quantitative analysis may also be performed.
The carrying value of the Company’s investments in the VIE that was not consolidated is shown below.
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| Reclassification | (y) Reclassification The Company reclassified $262 of revenues that was reported as interest income – securities lending during the three months ended March 31, 2018 to revenues – services and fees. The previously reported amount of $7,553 as interest income – securities lending was reduced by $262 to $7,291 for the three months ended March 31, 2018 and the previously reported amount of $88,187 as revenues – services and fees was increased by $262 to $88,449 for the three months ended March 31, 2018. |
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| Recent Accounting Pronouncements | (z) Recent Accounting Pronouncements Not yet adopted In January 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This standard simplifies the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The revised guidance will be applied prospectively and is effective for calendar year-end SEC filers for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company has not yet adopted this update and currently evaluating the effect this new standard will have on its financial condition and results of operations.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. This standard requires an allowance to be recorded for all expected credit losses for certain financial assets. The new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments. ASU 2016-13 is effective for public companies for interim and annual period beginning December 15, 2019. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company has not yet adopted this update and currently evaluating the effect this new standard will have on its financial condition and results of operations.
Recently adopted
In February 2016, FASB issued ASU. 2016-02: Leases (Topic 842) which requires a lessee to recognize a right-of-use (ROU) asset and lease liability on the balance sheet for all leases with a contract term longer than 12 months and provide enhanced disclosures. The Company adopted the new standard effective January 1, 2019 using the modified retrospective method. The Company elected the ‘package of practical expedients,’ which permits the Company not to reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs. Upon adoption of ASC 842 on January 1, 2019, the Company recognized $67,519 operating lease liabilities with corresponding operating lease right-of-use assets. See Note 8 to the accompanying financial statements for additional information on leases.
In February 2018, the FASB issued ASU 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income that provides for the reclassification from accumulated other comprehensive income to retained earnings for stranded effects resulting from the Tax Reform Act. The accounting update should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Reform Act is recognized. The accounting update is effective for the fiscal year beginning after December 15, 2018. The adoption of this standard did not have a material impact to the Company’s financial condition and results of operations.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. ASU 2016-15 is effective for us in our first quarter of fiscal year 2019. The adoption of this standard did not have a material impact to the Company’s financial condition and results of operations.
On January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers using the modified retrospective method and the impact was determined to be immaterial on the Company’s consolidated financial statements. The new revenue standard was applied prospectively in the Company’s consolidated financial statements from January 1, 2018 forward and reported financial information for historical comparable periods will not be revised and will continue to be reported under the accounting standards in effect during those historical periods. See Note 12 to the financial statements for additional information on the adoption of this standard.
In August 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13: Fair Value Measurement (Topic 820) (“ASU 2018-13”). The amendments in this update change the disclosure requirements for fair value measurements by removing, modifying and adding certain disclosures. The Company early adopted ASU 2018-13 in the third quarter of 2018 and the adoption did not have a material impact on our consolidated financial statements.
In March 2018, the FASB issued ASU 2018-05: Income Taxes (Topic 740) — Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. The amendments in this update provide guidance on when to record and disclose provisional amounts for certain income tax effects of the Tax Reform Act. The amendments also require any provisional amounts or subsequent adjustments to be included in net income from continuing operations. This ASU also discusses required disclosures that an entity must make with regard to the Tax Reform Act. This ASU is effective immediately as new information is available to adjust provisional amounts that were previously recorded. The Company has adopted this standard and will continue to evaluate indicators that may give rise to a change in the Company’s tax provision as a result of the Tax Reform Act. See Note 13 to the accompanying financial statements for additional information on the Tax Reform Act.
On January 1, 2018, the Company adopted ASU 2016-18 — Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”) using the retrospective method which requires adjustment to prior periods in the statement of cash flows. ASU 2016-18 clarifies how restricted cash should be presented on the statement of cash flows and requires companies to include restricted cash with cash and cash equivalents when reconciling the beginning of period and end of period totals on the statement of cash flows. Restricted cash previously classified under investing activities is now included in the reconciliation of beginning and ending cash on the statement of cash flows. The adoption of ASU 2016-18 did not have a material impact on the Company’s financial condition and results of operations. |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of securities and other investments owned and securities sold not yet purchased at fair value | As of March 31, 2019 and December 31, 2018, the Company’s securities and other investments owned and securities sold not yet purchased at fair value consisted of the following securities:
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| Schedule of financial assets and liabilities measured on recurring basis | The following tables present information on the financial assets and liabilities measured and recorded at fair value on a recurring basis as of March 31, 2019 and December 31, 2018.
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| Schedule of changes in Level 3 fair value hierarchy | The following table summarizes the significant unobservable inputs in the fair value measurement of level 3 financial assets and liabilities by category of investment and valuation technique as of March 31, 2019:
The changes in Level 3 fair value hierarchy during the three months ended March 31, 2019 and 2018 are as follows:
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| Schedule of investments in the VIE | The carrying value of the Company’s investments in the VIE that was not consolidated is shown below.
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ACQUISITIONS (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of accquisition consideration | The preliminary purchase price allocation was as follows:
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| Schedule of pro forma financial information | The pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the earliest period presented, nor does it intend to be a projection of future results.
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RESTRUCTURING CHARGE (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring Charge | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of changes in accrued restructuring charge | The following tables summarize the changes in accrued restructuring charge during three months ended March 31, 2019 and 2018:
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| Schedule of restructuring activities by reportable segment | The following tables summarize the restructuring activities by reportable segment during the three months ended March 31, 2019 and 2018:
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SECURITIES LENDING (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Securities Lending | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of contractual gross and net securities borrowing and lending balances | The following table presents the contractual gross and net securities borrowing and lending balances and the related offsetting amount as of March 31, 2019 and December 31, 2018:
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ACCOUNTS RECEIVABLE (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of components of accounts receivable | The components of accounts receivable, net, include the following:
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| Schedule of allowance for doubtful accounts | Additions and changes to the allowance for doubtful accounts consist of the following:
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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of intangible assets | Intangible assets consisted of the following:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LEASING ARRANGEMENTS (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of maturities of operating lease liabilities | As of March 31, 2019, maturities of operating lease liabilities were as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NOTES PAYABLE (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Payable [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of senior notes payable | Senior notes payable, net, is comprised of the following as of March 31, 2019 and December 31, 2018:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
REVENUE FROM CONTRACTS WITH CUSTOMERS (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue from Contract with Customer [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of revenues from contracts with customers | Revenue from contracts with customers by reportable segment for the three months ended March 31, 2019 and 2018 is as follows:
|
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EARNINGS PER SHARE (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of basic and diluted earnings per share | Basic and diluted earnings per share was calculated as follows:
|
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SHARE BASED PAYMENTS (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amended and Restated 2009 Stock Incentive Plan [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of equity incentive award activity | A summary of equity incentive award activity for the three months ended March 31, 2019 was as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amended and Restated FBR & Co. 2006 Long-Term Stock Incentive Plan [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of equity incentive award activity | A summary of equity incentive award activity for the three months ended March 31, 2019 was as follows:
|
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BUSINESS SEGMENTS (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of reportable segments | The following is a summary of certain financial data for each of the Company’s reportable segments:
|
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| Schedule of revenues by geographical area | The following table presents revenues by geographical area:
|
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| Schedule of long-lived assets of property and equipment and other assets, by geographical area | The following table presents long-lived assets, which consists of property and equipment and other assets, by geographical area:
|
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ORGANIZATION AND NATURE OF BUSINESS OPERATIONS (Details Narrative) |
3 Months Ended |
|---|---|
|
Mar. 31, 2019
Number
| |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Number of operating segment | 4 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) - Fair Value, Inputs, Level 3 [Member] $ in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 2019
USD ($)
| |
| Fair value assets | $ 59,885 |
| Common And Preferred Stocks And Warrants [Member] | Market Approach [Member] | Over-The-Counter Trading Activity [Member] | |
| Fair value assets | $ 24,514 |
| Weighted Average | 7.79 |
| Common And Preferred Stocks And Warrants [Member] | Market Approach [Member] | Over-The-Counter Trading Activity [Member] | Minimum [Member] | |
| Range | 7.18 |
| Common And Preferred Stocks And Warrants [Member] | Market Approach [Member] | Over-The-Counter Trading Activity [Member] | Maximum [Member] | |
| Range | 10.50 |
| Common And Preferred Stocks And Warrants [Member] | Market Approach [Member] | Market Price Of Related Security [Member] | |
| Range | 0.60 |
| Weighted Average | 0.60 |
| Common And Preferred Stocks And Warrants [Member] | Discounted Cash Flow [Member] | Cost Of Capital [Member] | |
| Range | 12.2% |
| Weighted Average | 12.2% |
| Common And Preferred Stocks And Warrants [Member] | Market Comparable Companies [Member] | Revenue Multiple [Member] | |
| Range | 1.1 |
| Weighted Average | 1.1 |
| Common And Preferred Stocks And Warrants [Member] | Yield Analysis [Member] | Market Yield [Member] | |
| Range | 13% |
| Weighted Average | 13% |
| Common And Preferred Stocks And Warrants [Member] | Option Pricing Model [Member] | Annualized Volatility [Member] | |
| Weighted Average | 26% |
| Common And Preferred Stocks And Warrants [Member] | Option Pricing Model [Member] | Annualized Volatility [Member] | Minimum [Member] | |
| Range | 26% |
| Common And Preferred Stocks And Warrants [Member] | Option Pricing Model [Member] | Annualized Volatility [Member] | Maximum [Member] | |
| Range | 53% |
| Loans Receivable At Fair Value [Member] | Discounted Cash Flow [Member] | Market Interest Rate [Member] | |
| Fair value assets | $ 34,041 |
| Weighted Average | 11.2% |
| Loans Receivable At Fair Value [Member] | Discounted Cash Flow [Member] | Market Interest Rate [Member] | Minimum [Member] | |
| Range | 7.9% |
| Loans Receivable At Fair Value [Member] | Discounted Cash Flow [Member] | Market Interest Rate [Member] | Maximum [Member] | |
| Range | 14.8% |
| Corporate Bonds [Member] | Discounted Cash Flow [Member] | Market Interest Rate [Member] | |
| Fair value assets | $ 1,330 |
| Corporate Bonds [Member] | Discounted Cash Flow [Member] | Market Interest Rate [Member] | |
| Range | 4.5% |
| Weighted Average | 4.5% |
| Mandatorily redeemable noncontrolling interests issued after November 5, 2003 [Member] | Market Approach [Member] | Operating Income Multiple [Member] | |
| Fair value liabilities | $ 4,529 |
| Range | 6% |
| Weighted Average | 6% |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 3) - Fair Value, Inputs, Level 3 [Member] - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
| Common And Preferred Stocks And Warrants [Member] | ||
| Fair Value, Instruments Classified in Shareholders' Equity Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | ||
| Balance at Beginning of Period | $ 24,577 | |
| Fair Value Adjustments | (18) | |
| Relating to Undistribute Earnings | ||
| Purchases, Sales and Settlements | (45) | |
| Transfer in and/or out of Level 3 | ||
| Balance at End of Period | 24,514 | |
| Corporate Bonds [Member] | ||
| Fair Value, Instruments Classified in Shareholders' Equity Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | ||
| Balance at Beginning of Period | ||
| Fair Value Adjustments | ||
| Relating to Undistribute Earnings | ||
| Purchases, Sales and Settlements | ||
| Transfer in and/or out of Level 3 | 1,330 | |
| Balance at End of Period | 1,330 | |
| Loans Receivable At Fair Value [Member] | ||
| Fair Value, Instruments Classified in Shareholders' Equity Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | ||
| Balance at Beginning of Period | 33,731 | $ 33,713 |
| Fair Value Adjustments | 35 | (417) |
| Relating to Undistribute Earnings | 475 | |
| Purchases, Sales and Settlements | (200) | (4,120) |
| Transfer in and/or out of Level 3 | ||
| Balance at End of Period | 34,041 | 29,176 |
| Mandatorily redeemable noncontrolling interests issued after November 5, 2003 [Member] | ||
| Fair Value, Instruments Classified in Shareholders' Equity Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | ||
| Balance at Beginning of Period | 4,633 | 4,478 |
| Fair Value Adjustments | ||
| Relating to Undistribute Earnings | (104) | 58 |
| Purchases, Sales and Settlements | ||
| Transfer in and/or out of Level 3 | ||
| Balance at End of Period | $ 4,529 | 4,536 |
| Common Stock And Warrants [Member] | ||
| Fair Value, Instruments Classified in Shareholders' Equity Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | ||
| Balance at Beginning of Period | 28,346 | |
| Fair Value Adjustments | (1,885) | |
| Relating to Undistribute Earnings | 578 | |
| Purchases, Sales and Settlements | 6,848 | |
| Transfer in and/or out of Level 3 | ||
| Balance at End of Period | 33,887 | |
| Partnership Interests and Other [Member] | ||
| Fair Value, Instruments Classified in Shareholders' Equity Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | ||
| Balance at Beginning of Period | 26,104 | |
| Fair Value Adjustments | (193) | |
| Relating to Undistribute Earnings | (161) | |
| Purchases, Sales and Settlements | 11,169 | |
| Transfer in and/or out of Level 3 | ||
| Balance at End of Period | $ 36,919 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 4) - Variable Interest Entity, Primary Beneficiary [Member] $ in Thousands |
Mar. 31, 2019
USD ($)
|
|---|---|
| Variable Interest Entity [Line Items] | |
| Partnership investments | $ 7,230 |
| Due from related party | 579 |
| Maximum exposure to loss | $ 7,809 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) € in Thousands, $ in Thousands, $ in Thousands |
1 Months Ended | 3 Months Ended | |||||
|---|---|---|---|---|---|---|---|
Jun. 30, 2018 |
Mar. 31, 2019
USD ($)
shares
|
Mar. 31, 2018
USD ($)
|
Dec. 31, 2018
USD ($)
|
Mar. 31, 2018
CAD ($)
|
Mar. 31, 2018
EUR (€)
|
Dec. 31, 2017
USD ($)
|
|
| Advertising costs | $ 362 | $ 93 | |||||
| Share based compensation expense | 2,614 | 2,558 | |||||
| Restricted cash | 7,491 | $ 838 | |||||
| Cash collateral | 469 | 469 | |||||
| Certificate of deposits | 365 | 369 | |||||
| Transaction gains (loss) | (186) | 138 | |||||
| Depreciation and amortization | 1,536 | $ 1,177 | |||||
| Securities and other investments owned | 16,867 | ||||||
| Loan accrued interest | 51 | ||||||
| Loan face value | $ 16,867 | ||||||
| Great American Global Partners, LLC [Member] | |||||||
| Ownership percentage | 50.00% | ||||||
| GA Retail Investments, L.P. [Member] | |||||||
| Ownership percentage | 50.00% | ||||||
| Foreign Exchange Contract [Member] | |||||||
| Derivatives | $ 10,703 | ||||||
| Foreign Exchange Contract [Member] | CAD | |||||||
| Derivatives | $ 54,406 | ||||||
| Foreign Exchange Contract [Member] | EUR | |||||||
| Derivatives | € | € 1,500 | ||||||
| Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | |||||||
| Total assets measured at fair value | $ 59,885 | $ 58,308 | |||||
| Percentage of assets measured at fair value | 3.10% | 3.00% | |||||
| 2018 Employee Stock Purchase Plan [Member] | |||||||
| Description of stock based payment award | Eligible employees to purchase common stock through payroll deductions as a price that is 15% of the market value of the common stock on the last day of the offering period. | ||||||
| Share based compensation expense | $ 121 | ||||||
| Number of shares reserved for future issuance | shares | 687,427 | ||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative 1) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | ||||
|---|---|---|---|---|---|
Nov. 14, 2018 |
Mar. 31, 2019 |
Mar. 31, 2018 |
Jan. 02, 2019 |
Dec. 31, 2018 |
|
| Loans receivable maturity period | $ 53,448 | $ 38,794 | |||
| Equity income (loss) | (3,762) | $ (672) | |||
| Operating lease liabilities | 65,855 | $ 67,519 | |||
| Total revenues | 142,128 | 95,778 | |||
| Interest Income - Securities lending [Member] | |||||
| Increase (Decrease) in revenue | (262) | ||||
| Total revenues | 9,330 | 7,291 | |||
| Interest Income - Securities lending [Member] | Previously Reported [Member] | |||||
| Total revenues | 7,553 | ||||
| Services And Fees [Member] | |||||
| Increase (Decrease) in revenue | (262) | ||||
| Total revenues | $ 131,853 | 88,449 | |||
| Services And Fees [Member] | Previously Reported [Member] | |||||
| Total revenues | 88,187 | ||||
| National Holdings Corporation [Member] | |||||
| Payments to acquire businesses | $ 22,900 | ||||
| Number of shares acquire (in shares) | 6,159,550 | ||||
| Percentage of voting interests acquired | 48.80% | ||||
| Number of share acquire (in dollars per share) | $ 3.25 | ||||
| Equity income (loss) | $ 442 | $ (388) | |||
| National Holdings Corporation [Member] | Prepaid Expenses and Other Assets [Member] | |||||
| Carrying value of Investment | $ 22,323 | $ 9,902 | |||
| Warrant [Member] | |||||
| Number of shares issued | 821,816 | ||||
| Exercise price (in dollars per share) | $ 17.50 | ||||
| Bebe Stores Inc. ("bebe") [Member] | |||||
| Percentage of voting interests acquired | 30.50% | ||||
ACQUISITIONS (Details) - MagicJack VocalTec [Member] - Merger Agreement [Member] $ in Thousands |
Nov. 14, 2018
USD ($)
shares
|
|---|---|
| Consideration paid by B. Riley: | |
| Number of Common Shares outstanding | 16,248,299 |
| Stock merger exchange ratio | 8.71 |
| Number of B. Riley common shares | 141,523 |
| Number of B. Riley common shares to be issued from acceleration of vesting for outstanding stock options, restricted stock and RSU awards | 1,592 |
| Total consideration | $ | $ 143,115 |
ACQUISITIONS (Details 1) - USD ($) $ in Thousands |
Mar. 31, 2019 |
Dec. 31, 2018 |
Nov. 14, 2018 |
|---|---|---|---|
| Tangible assets acquired and assumed: | |||
| Restricted cash | $ 7,491 | $ 838 | |
| Goodwill | $ 223,243 | $ 223,368 | |
| MagicJack VocalTec [Member] | Merger Agreement [Member] | |||
| Tangible assets acquired and assumed: | |||
| Cash and cash equivalents | $ 53,875 | ||
| Restricted cash | 369 | ||
| Accounts receivable | 3,103 | ||
| Inventory | 2,033 | ||
| Prepaid expenses and other assets | 4,961 | ||
| Property and equipment | 2,922 | ||
| Deferred taxes | 16,769 | ||
| Accounts payable | (2,313) | ||
| Contract liabilities | (66,489) | ||
| Accrued payroll and related expenses | (1,989) | ||
| Accrued expenses and other liabilities | (20,784) | ||
| Developed technology | 6,400 | ||
| Tradename | 1,750 | ||
| Customer list | 34,500 | ||
| Process-know-how | 2,000 | ||
| Goodwill | 106,008 | ||
| Total consideration | $ 143,115 |
ACQUISITIONS (Details 2) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
| Weighted average basic shares outstanding (in shares) | 26,217,215 | 26,219,277 |
| Weighted average diluted shares outstanding (in shares) | 26,687,531 | 27,271,819 |
| MagicJack VocalTec [Member] | ||
| Revenues | $ 115,012 | |
| Net income (loss) attributable to B. Riley Financial, Inc. | $ 5,611 | |
| Basic earnings per share (in dollars per share) | $ 0.21 | |
| Diluted earnings per share (in dollars per shares) | $ 0.21 | |
| Weighted average basic shares outstanding (in shares) | 26,219,277 | |
| Weighted average diluted shares outstanding (in shares) | 27,271,819 | |
AQUISITIONS (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | |||
|---|---|---|---|---|
Nov. 14, 2018 |
Mar. 31, 2019 |
Mar. 31, 2018 |
Dec. 31, 2018 |
|
| Goodwill | $ 223,243 | $ 223,368 | ||
| Payroll and severance costs | 176 | $ (29) | ||
| Office closure | (29) | 246 | ||
| Revenues | 142,128 | 95,778 | ||
| Net income (loss) | 7,979 | 4,842 | ||
| Revenue | 142,128 | 95,778 | ||
| Earnings | 8,023 | 4,503 | ||
| Restructuring charge | 147 | 217 | ||
| Common Stock [Member] | ||||
| Net income (loss) | ||||
| Merger Agreement [Member] | MagicJack VocalTec [Member] | ||||
| Business combination right shares (in dollars per share) | $ 8.71 | |||
| Goodwill | $ 106,008 | |||
| Acquired business revenue | 18,154 | |||
| Acquired business income | 4,964 | |||
| Payroll and severance costs | $ 176 | |||
| Total consideration | $ 143,115 | |||
| Merger Agreement [Member] | Delaware corporation ("Wunderlich") [Member] | Common Stock [Member] | ||||
| Number of shares issued held in escrow account | 387,365 | |||
| Merger Agreement [Member] | Selling, General and Administrative Expenses [Member] | MagicJack VocalTec [Member] | ||||
| Business acquisition transaction costs | $ 52 | |||
RESTRUCTURING CHARGE (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
| Restructuring Reserve [Roll Forward] | ||
| Balance, beginning of year | $ 3,855 | $ 2,600 |
| Restructuring charge | 147 | 217 |
| Cash paid | (636) | (1,221) |
| Non-cash items | 18 | (20) |
| Balance, end of year | $ 3,384 | $ 1,576 |
RESTRUCTURING CHARGE (Details 1) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
| Restructuring charge (recovery): | ||
| Employee termination costs | $ 176 | $ (29) |
| Facility closure and consolidation | (29) | 246 |
| Total restructuring charge | 147 | 217 |
| Capital Markets segment [Member] | ||
| Restructuring charge (recovery): | ||
| Employee termination costs | (29) | |
| Facility closure and consolidation | (29) | 284 |
| Total restructuring charge | (29) | 255 |
| Principal Investments - United Online And MagicJack [Member] | ||
| Restructuring charge (recovery): | ||
| Employee termination costs | 176 | |
| Facility closure and consolidation | ||
| Total restructuring charge | 176 | |
| Corporate [Member] | ||
| Restructuring charge (recovery): | ||
| Employee termination costs | ||
| Facility closure and consolidation | (38) | |
| Total restructuring charge | $ (38) | |
RESTRUCTURING CHARGE (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
| Restructuring Charge | ||
| Restructuring charge | $ 147 | $ 217 |
SECURITIES LENDING (Details) - USD ($) $ in Thousands |
Mar. 31, 2019 |
Dec. 31, 2018 |
|||||
|---|---|---|---|---|---|---|---|
| Securities borrowed | |||||||
| Gross amounts recognized | $ 827,242 | $ 931,346 | |||||
| Gross amounts offset in the consolidated balance sheets | [1] | ||||||
| Net amounts included in the consolidated balance sheets | 827,242 | 931,346 | |||||
| Amounts not offset in the consolidated balance sheets but eligible for offsetting upon counterparty default | [2] | 827,242 | 931,346 | ||||
| Net amounts | |||||||
| Securities loaned | |||||||
| Gross amounts recognized | 824,833 | 930,522 | |||||
| Gross amounts offset in the consolidated balance sheets | [1] | ||||||
| Net amounts included in the consolidated balance sheets | 824,833 | 930,522 | |||||
| Amounts not offset in the consolidated balance sheets but eligible for offsetting upon counterparty default | [2] | 824,833 | 930,522 | ||||
| Net amounts | |||||||
| |||||||
ACCOUNTS RECEIVABLE (Details) - USD ($) $ in Thousands |
Mar. 31, 2019 |
Dec. 31, 2018 |
|---|---|---|
| Receivables [Abstract] | ||
| Accounts receivable | $ 20,651 | $ 12,594 |
| Investment banking fees, commissions and other receivables | 11,835 | 26,581 |
| Unbilled receivables | 12,255 | 3,644 |
| Total accounts receivable | 44,741 | 42,819 |
| Allowance for doubtful accounts | (766) | (696) |
| Accounts receivable, net | $ 43,975 | $ 42,123 |
ACCOUNTS RECEIVABLE (Details 1) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
| Receivables [Abstract] | ||
| Balance, beginning of year | $ 696 | $ 800 |
| Add: Additions to reserve | 233 | 305 |
| Less: Write-offs | (163) | (444) |
| Balance, end of period | $ 766 | $ 661 |
GOODWILL AND OTHER INTANGIBLE ASSETS (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2019 |
Dec. 31, 2018 |
|
| Amortizable assets: | ||
| Gross Carrying Value | $ 109,496 | $ 109,040 |
| Accumulated Amortization | 23,257 | 19,922 |
| Intangibles Net | 86,239 | 89,118 |
| Non-amortizable assets: | ||
| Gross Carrying Value | 111,736 | 111,280 |
| Accumulated Amortization | 23,257 | 19,922 |
| Intangibles Net | 88,479 | 91,358 |
| Customer Relationships [Member] | ||
| Amortizable assets: | ||
| Gross Carrying Value | 92,830 | 92,330 |
| Accumulated Amortization | 19,222 | 16,608 |
| Intangibles Net | $ 73,608 | 75,722 |
| Customer Relationships [Member] | Minimum [Member] | ||
| Amortizable assets: | ||
| Useful Life | 4 years | |
| Customer Relationships [Member] | Maximum [Member] | ||
| Amortizable assets: | ||
| Useful Life | 16 years | |
| Domain Names [Member] | ||
| Amortizable assets: | ||
| Gross Carrying Value | $ 233 | 237 |
| Accumulated Amortization | 92 | 85 |
| Intangibles Net | $ 141 | 152 |
| Useful Life | 7 years | |
| Advertising Relationships [Member] | ||
| Amortizable assets: | ||
| Gross Carrying Value | $ 100 | 100 |
| Accumulated Amortization | 34 | 31 |
| Intangibles Net | $ 66 | 69 |
| Useful Life | 8 years | |
| Internally Developed Software and Other Intangibles [Member] | ||
| Amortizable assets: | ||
| Gross Carrying Value | $ 11,733 | 11,773 |
| Accumulated Amortization | 3,007 | 2,436 |
| Intangibles Net | $ 8,726 | 9,337 |
| Internally Developed Software and Other Intangibles [Member] | Minimum [Member] | ||
| Amortizable assets: | ||
| Useful Life | 6 months | |
| Internally Developed Software and Other Intangibles [Member] | Maximum [Member] | ||
| Amortizable assets: | ||
| Useful Life | 5 years | |
| Trademarks [Member] | ||
| Amortizable assets: | ||
| Gross Carrying Value | $ 4,600 | 4,600 |
| Accumulated Amortization | 902 | 762 |
| Intangibles Net | $ 3,698 | 3,838 |
| Trademarks [Member] | Minimum [Member] | ||
| Amortizable assets: | ||
| Useful Life | 7 years | |
| Trademarks [Member] | Maximum [Member] | ||
| Amortizable assets: | ||
| Useful Life | 10 years | |
| Tradenames [Member] | ||
| Non-amortizable assets: | ||
| Gross Carrying Value | $ 2,240 | 2,240 |
| Accumulated Amortization | ||
| Intangibles Net | $ 2,240 | $ 2,240 |
GOODWILL AND OTHER INTANGIBLE ASSETS (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
Dec. 31, 2018 |
|
| Goodwill | $ 223,243 | $ 223,368 | |
| Amortization expense | 3,377 | $ 2,160 | |
| Estimated future amortization expense | |||
| Estimated future amortization expense 2019 (Remaining nine months) | 10,111 | ||
| Estimated future amortization expense 2020 | 13,099 | ||
| Estimated future amortization expense 2021 | 12,717 | ||
| Estimated future amortization expense 2022 | 12,697 | ||
| Estimated future amortization expense 2023 | 12,453 | ||
| Estimated future amortization expense after 2023 | 25,162 | ||
| Capital Markets Reportable Segment [Member] | |||
| Goodwill | 95,820 | 95,820 | |
| Auction and Liquidation Reportable Segment [Member] | |||
| Goodwill | 1,975 | 1,975 | |
| Valuation and Appraisal Reportable Segment [Member] | |||
| Goodwill | 3,713 | 3,713 | |
| Principal Investments - United Online Segment [Member] | |||
| Goodwill | $ 121,735 | $ 121,860 | |
LEASING ARRANGEMENTS (Details) $ in Thousands |
Mar. 31, 2019
USD ($)
|
|---|---|
| Operating Leases Year Ending December 31: | |
| 2019 (remaining nine months) | $ 9,738 |
| 2020 | 11,716 |
| 2021 | 10,128 |
| 2022 | 9,318 |
| 2023 | 8,740 |
| Thereafter | 32,926 |
| Total lease payments | 82,566 |
| Less: imputed interest | (16,711) |
| Total operating lease liabilities | $ 65,855 |
LEASING ARRANGEMENTS (Details Narrative) $ in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 2019
USD ($)
| |
| Weighted average lease term | 8 years 2 months 12 days |
| Operating lease, weighted average discount rate | 5.58% |
| Operating lease expenses | $ 3,103 |
| Variable lease expenses | 317 |
| Operating lease assets | 2,996 |
| Non-cash transactions recognize to operating lease right-of-use assets and operating lease liabilities | $ 946 |
| Minimum [Member] | |
| Lease term | 1 month |
| Maximum [Member] | |
| Lease term | 12 years |
ASSET BASED CREDIT FACILITY (Details Narrative) - Wells Fargo Bank, National Association [Member] - USD ($) $ in Thousands |
3 Months Ended | |||
|---|---|---|---|---|
Apr. 21, 2017 |
Mar. 31, 2019 |
Mar. 31, 2018 |
Mar. 19, 2015 |
|
| Second Amended and Restated Credit Agreement [Member] | Asset Based Credit Facility [Member] | ||||
| Credit facility expiration date | Apr. 21, 2022 | |||
| Description of interest rate | The interest rate for each revolving credit advance under the Credit Agreement is, subject to certain terms and conditions, equal to the LIBOR plus a margin of 2.25% to 3.25% depending on the type of advance and the percentage such advance represents of the related transaction for which such advance is provided. | |||
| Description of success fees | The credit facility also provides for success fees in the amount of 2.5% to 17.5% of the net profits, if any, earned on the liquidation engagements funded under the Credit Agreement as set forth therein. | |||
| Interest expense | $ 481 | $ 87 | ||
| Description of collateral | 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. | |||
| Payment for closing fee | $ 500 | |||
| Letter of credits outstanding | $ 6,657 | |||
| Second Amended and Restated Credit Agreement [Member] | Asset Based Credit Facility [Member] | Minimum [Member] | ||||
| Maximum borrowing capacity credit facility | 100 | |||
| Second Amended and Restated Credit Agreement [Member] | Asset Based Credit Facility [Member] | Maximum [Member] | ||||
| Maximum borrowing capacity credit facility | $ 200 | |||
| UK Credit Agreement [Member] | Line of Credit [Member] | GBP [Member] | ||||
| Maximum borrowing capacity credit facility | $ 50,000 | |||
TERM LOAN (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | 42 Months Ended | 45 Months Ended | |||
|---|---|---|---|---|---|---|---|
Dec. 19, 2018 |
Mar. 31, 2019 |
Sep. 30, 2023 |
Dec. 31, 2022 |
Dec. 31, 2022 |
Feb. 01, 2019 |
Dec. 31, 2018 |
|
| Principal amount | $ 16,867 | ||||||
| Unamortized debt issuance costs | 7,165 | $ 7,464 | |||||
| BRPI Acquisition Co LLC [Member] | BRPAC Credit Agreement [Member] | Term Loan [Member] | |||||||
| Principal amount | $ 89,138 | 79,166 | |||||
| Interest rate terms | (a) the LIBOR rate for Eurodollar loans, plus (b) the applicable margin rate, which ranges from two and one-half percent (2.5%) to three percent (3.0%) per annum, based upon the Borrowers’ ratio of consolidated funded indebtedness to adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the preceding four fiscal quarters or other applicable period. | ||||||
| Interest rate | 5.50% | ||||||
| Date of first required periodic payment | Mar. 31, 2019 | ||||||
| Frequency of periodic payment | Quarterly installments | ||||||
| Unamortized debt issuance costs | $ 862 | $ 834 | |||||
| Interest expense | 1,278 | ||||||
| Amortization of deferred debt issuance costs | 88 | ||||||
| BRPI Acquisition Co LLC [Member] | Banc of California, N.A. [Member] | BRPAC Credit Agreement [Member] | Term Loan [Member] | |||||||
| Description of 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. | ||||||
| Principal amount | $ 80,000 | ||||||
| Debt maturity date | Dec. 19, 2023 | ||||||
| Additional borrowed amount (the "Option Loan") | $ 10,000 | ||||||
| Quarterly installments for term loan | $ 2,222 | $ 4,444 | |||||
| BRPI Acquisition Co LLC [Member] | City National Bank [Member] | BRPAC Credit Agreement [Member] | Minimum [Member] | |||||||
| Principal amount | $ 80,000 | ||||||
| BRPI Acquisition Co LLC [Member] | City National Bank [Member] | BRPAC Credit Agreement [Member] | Maximum [Member] | |||||||
| Principal amount | 90,000 | ||||||
| BRPI Acquisition Co LLC [Member] | City National Bank [Member] | BRPAC Credit Agreement [Member] | Term Loan [Member] | |||||||
| Additional borrowed amount (the "Option Loan") | $ 10,000 | ||||||
| Quarterly installments for term loan | $ 278 | $ 593 |
NOTES PAYABLE (Details) - USD ($) $ in Thousands |
Mar. 31, 2019 |
Dec. 31, 2018 |
|---|---|---|
| Debt Instrument [Line Items] | ||
| Senior notes payable | $ 472,205 | $ 467,218 |
| Less: Unamortized debt issue costs | (7,165) | (7,464) |
| Senior notes payable , net | 465,040 | 459,754 |
| 7.50% Senior notes due October 31, 2021 [Member] | ||
| Debt Instrument [Line Items] | ||
| Senior notes payable | 49,526 | 46,407 |
| Less: Unamortized debt issue costs | (452) | (493) |
| 7.50% Senior Notes Due May 31, 2027 [Member] | ||
| Debt Instrument [Line Items] | ||
| Senior notes payable | 108,792 | 108,792 |
| Less: Unamortized debt issue costs | (1,515) | (1,536) |
| 7.25% Senior Notes Due December 31, 2027 [Member] | ||
| Debt Instrument [Line Items] | ||
| Senior notes payable | 100,441 | 100,441 |
| Less: Unamortized debt issue costs | (2,315) | (2,368) |
| 7.375% Senior notes due May 31, 2023 [Member] | ||
| Debt Instrument [Line Items] | ||
| Senior notes payable | 112,553 | 111,528 |
| Less: Unamortized debt issue costs | (1,548) | (1,656) |
| 6.875% Senior Notes Due September 30, 2023 [Member] | ||
| Debt Instrument [Line Items] | ||
| Senior notes payable | 100,893 | 100,050 |
| Less: Unamortized debt issue costs | $ (1,335) | $ (1,411) |
NOTES PAYABLE (Details Narrative) - USD ($) $ in Thousands |
1 Months Ended | 3 Months Ended | 12 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|---|
Nov. 02, 2016 |
Dec. 31, 2017 |
Mar. 31, 2019 |
Mar. 31, 2018 |
Dec. 31, 2018 |
Dec. 18, 2018 |
Sep. 30, 2018 |
May 31, 2018 |
May 31, 2017 |
|
| Principal amount | $ 16,867 | ||||||||
| Unamortized debt issuance cost and premiums | 7,165 | $ 7,464 | |||||||
| Notes payable | 1,193 | 1,550 | |||||||
| Due to related parties | 1,428 | 2,428 | |||||||
| Other Notes Payable [Member] | |||||||||
| Interest expense | 23 | ||||||||
| Outstanding amount | $ 1,193 | 1,550 | |||||||
| Description of non interest bearing notes payable | The notes payable accrue interest at rates set at each anniversary date ranging from the prime rate plus 0.25% to 2.0% (5.25% to 6.50% at March 31, 2019) payable annually. | ||||||||
| Payment terms | The principal payments on the notes payable are due annually in the amount of $357 on January 31, $214 on September 30, and $121 on October 31. | ||||||||
| Maturity date, description | The notes payable mature at various dates from September 30, 2019 through January 31, 2022. | ||||||||
| 7.50% Senior notes due October 31, 2021 [Member] | |||||||||
| Principal amount | $ 28,750 | $ 49,526 | |||||||
| Interest expense | 929 | $ 710 | |||||||
| Outstanding amount | $ 49,074 | 45,914 | |||||||
| Proceeds from note payable | $ 48,602 | ||||||||
| Interest rate | 7.50% | 7.50% | |||||||
| Unamortized debt issuance cost and premiums | $ 452 | 493 | |||||||
| Underwriting commissions, fees and other issuance costs | $ 924 | ||||||||
| 7.50% Senior notes due October 31, 2021 [Member] | At The Market Issuance Sales Agreement [Member] | |||||||||
| Principal amount | $ 3,118 | 17,657 | |||||||
| Interest rate | 7.50% | ||||||||
| 7.50% Senior Notes Due May 31, 2027 [Member] | |||||||||
| Principal amount | $ 108,792 | $ 60,375 | |||||||
| Interest expense | 2,086 | 1,778 | |||||||
| Outstanding amount | 107,277 | $ 107,256 | |||||||
| Proceeds from note payable | $ 106,948 | ||||||||
| Interest rate | 7.50% | 7.50% | |||||||
| Unamortized debt issuance cost and premiums | $ 1,515 | $ 1,536 | |||||||
| Underwriting commissions, fees and other issuance costs | 1,844 | ||||||||
| 7.50% Senior Notes Due May 31, 2027 [Member] | Sales Agreement [Member] | |||||||||
| Principal amount | $ 48,417 | $ 48,417 | |||||||
| Interest rate | 7.50% | 7.50% | |||||||
| 7.25% Senior Notes Due December 31, 2027 [Member] | |||||||||
| Principal amount | $ 100,441 | ||||||||
| Interest expense | 1,886 | $ 1,534 | |||||||
| Outstanding amount | $ 98,126 | $ 98,073 | |||||||
| Proceeds from note payable | $ 97,798 | ||||||||
| Interest rate | 7.25% | ||||||||
| Unamortized debt issuance cost and premiums | $ 2,315 | 2,368 | |||||||
| Underwriting commissions, fees and other issuance costs | 2,643 | ||||||||
| 7.25% Senior Notes Due December 31, 2027 [Member] | At The Market Issuance Sales Agreement [Member] | |||||||||
| Principal amount | $ 80,500 | ||||||||
| 7.25% Senior Notes Due December 31, 2027 [Member] | Sales Agreement [Member] | |||||||||
| Principal amount | 19,941 | 19,941 | |||||||
| 7.375% Senior Notes Due May 31, 2023 [Member] | |||||||||
| Principal amount | 112,553 | $ 100,050 | |||||||
| Interest expense | 2,155 | ||||||||
| Outstanding amount | 111,005 | 109,872 | |||||||
| Proceeds from note payable | $ 110,668 | ||||||||
| Interest rate | 7.375% | ||||||||
| Unamortized debt issuance cost and premiums | $ 1,548 | 1,656 | |||||||
| Underwriting commissions, fees and other issuance costs | 1,885 | ||||||||
| 7.375% Senior Notes Due May 31, 2023 [Member] | Sales Agreement [Member] | |||||||||
| Principal amount | $ 1,025 | 11,478 | |||||||
| Interest rate | 7.375% | ||||||||
| 6.875% Senior Notes Due September 30, 2023 [Member] | |||||||||
| Principal amount | $ 100,893 | $ 100,050 | |||||||
| Interest expense | 1,799 | ||||||||
| Outstanding amount | 99,558 | 98,639 | |||||||
| Proceeds from note payable | $ 99,392 | ||||||||
| Interest rate | 6.875% | 6.875% | |||||||
| Unamortized debt issuance cost and premiums | $ 1,335 | $ 1,411 | |||||||
| Underwriting commissions, fees and other issuance costs | 1,501 | ||||||||
| 6.875% Senior Notes Due September 30, 2023 [Member] | Sales Agreement [Member] | |||||||||
| Principal amount | $ 843 | ||||||||
| Interest rate | 6.875% | ||||||||
| 7.50% Senior Notes Due 2021/ 7.25% Senior Notes Due 2027 [Member] | Sales Agreement [Member] | |||||||||
| Principal amount | $ 70,014 | $ 75,000 | |||||||
REVENUE FROM CONTRACTS WITH CUSTOMERS (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | $ 103,095 | $ 86,274 |
| Other sources of revenue: | ||
| Total revenues | 142,128 | 95,778 |
| Corporate Finance And Investment Banking Fees [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | 17,836 | 20,966 |
| Wealth And Asset Management Fees [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | 17,535 | 19,170 |
| Commissions, Fees And Reimbursed Expenses [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | 27,113 | 26,551 |
| Subscription Services [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | 22,398 | 9,141 |
| Service Contract Revenues [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | 13,076 | 8,175 |
| Advertising And Other [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | 5,137 | 2,271 |
| Interest Income - Securities lending [Member] | ||
| Other sources of revenue: | ||
| Total revenues | 9,330 | 7,291 |
| Trading Gain On Investments [Member] | ||
| Other sources of revenue: | ||
| Total revenues | 23,381 | (3,499) |
| Other [Member] | ||
| Other sources of revenue: | ||
| Total revenues | 6,322 | 5,712 |
| Capital Markets segment [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | 46,268 | 50,825 |
| Other sources of revenue: | ||
| Total revenues | 85,301 | 60,329 |
| Capital Markets segment [Member] | Corporate Finance And Investment Banking Fees [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | 17,836 | 20,966 |
| Capital Markets segment [Member] | Wealth And Asset Management Fees [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | 17,535 | 19,170 |
| Capital Markets segment [Member] | Commissions, Fees And Reimbursed Expenses [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | 10,897 | 10,689 |
| Capital Markets segment [Member] | Subscription Services [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | ||
| Capital Markets segment [Member] | Service Contract Revenues [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | ||
| Capital Markets segment [Member] | Advertising And Other [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | ||
| Capital Markets segment [Member] | Interest Income - Securities lending [Member] | ||
| Other sources of revenue: | ||
| Total revenues | 9,330 | 7,291 |
| Capital Markets segment [Member] | Trading Gain On Investments [Member] | ||
| Other sources of revenue: | ||
| Total revenues | 23,381 | (3,499) |
| Capital Markets segment [Member] | Other [Member] | ||
| Other sources of revenue: | ||
| Total revenues | 6,322 | 5,712 |
| Auction and Liquidation Reportable Segment [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | 20,709 | 15,517 |
| Other sources of revenue: | ||
| Total revenues | 20,709 | 15,517 |
| Auction and Liquidation Reportable Segment [Member] | Corporate Finance And Investment Banking Fees [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | ||
| Auction and Liquidation Reportable Segment [Member] | Wealth And Asset Management Fees [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | ||
| Auction and Liquidation Reportable Segment [Member] | Commissions, Fees And Reimbursed Expenses [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | 7,633 | 7,342 |
| Auction and Liquidation Reportable Segment [Member] | Subscription Services [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | ||
| Auction and Liquidation Reportable Segment [Member] | Service Contract Revenues [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | 13,076 | 8,175 |
| Auction and Liquidation Reportable Segment [Member] | Advertising And Other [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | ||
| Auction and Liquidation Reportable Segment [Member] | Interest Income - Securities lending [Member] | ||
| Other sources of revenue: | ||
| Total revenues | ||
| Auction and Liquidation Reportable Segment [Member] | Trading Gain On Investments [Member] | ||
| Other sources of revenue: | ||
| Total revenues | ||
| Auction and Liquidation Reportable Segment [Member] | Other [Member] | ||
| Other sources of revenue: | ||
| Total revenues | ||
| Valuation and Appraisal Reportable Segment [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | 8,583 | 8,520 |
| Other sources of revenue: | ||
| Total revenues | 8,583 | 8,520 |
| Valuation and Appraisal Reportable Segment [Member] | Corporate Finance And Investment Banking Fees [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | ||
| Valuation and Appraisal Reportable Segment [Member] | Wealth And Asset Management Fees [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | ||
| Valuation and Appraisal Reportable Segment [Member] | Commissions, Fees And Reimbursed Expenses [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | 8,583 | 8,520 |
| Valuation and Appraisal Reportable Segment [Member] | Subscription Services [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | ||
| Valuation and Appraisal Reportable Segment [Member] | Service Contract Revenues [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | ||
| Valuation and Appraisal Reportable Segment [Member] | Advertising And Other [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | ||
| Valuation and Appraisal Reportable Segment [Member] | Interest Income - Securities lending [Member] | ||
| Other sources of revenue: | ||
| Total revenues | ||
| Valuation and Appraisal Reportable Segment [Member] | Trading Gain On Investments [Member] | ||
| Other sources of revenue: | ||
| Total revenues | ||
| Valuation and Appraisal Reportable Segment [Member] | Other [Member] | ||
| Other sources of revenue: | ||
| Total revenues | ||
| Principal Investments - United Online And MagicJack [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | 27,535 | 11,412 |
| Other sources of revenue: | ||
| Total revenues | 27,535 | 11,412 |
| Principal Investments - United Online And MagicJack [Member] | Corporate Finance And Investment Banking Fees [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | ||
| Principal Investments - United Online And MagicJack [Member] | Wealth And Asset Management Fees [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | ||
| Principal Investments - United Online And MagicJack [Member] | Commissions, Fees And Reimbursed Expenses [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | ||
| Principal Investments - United Online And MagicJack [Member] | Subscription Services [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | 22,398 | 9,141 |
| Principal Investments - United Online And MagicJack [Member] | Service Contract Revenues [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | ||
| Principal Investments - United Online And MagicJack [Member] | Advertising And Other [Member] | ||
| Revenues from contracts with customers: | ||
| Total revenues from contracts with customers | 5,137 | 2,271 |
| Principal Investments - United Online And MagicJack [Member] | Interest Income - Securities lending [Member] | ||
| Other sources of revenue: | ||
| Total revenues | ||
| Principal Investments - United Online And MagicJack [Member] | Trading Gain On Investments [Member] | ||
| Other sources of revenue: | ||
| Total revenues | ||
| Principal Investments - United Online And MagicJack [Member] | Other [Member] | ||
| Other sources of revenue: | ||
| Total revenues | ||
REVENUE FROM CONTRACTS WITH CUSTOMERS (Details Narrative) - USD ($) $ in Thousands |
Mar. 31, 2019 |
Dec. 31, 2018 |
Mar. 31, 2018 |
|---|---|---|---|
| Revenue from Contract with Customer [Abstract] | |||
| Accounts receivable, net | $ 43,975 | $ 42,123 | |
| Deferred revenue | 69,959 | 69,066 | |
| Recognized revenue from contract | 13,234 | $ 1,975 | |
| prepaid expenses and other assets | 2,582 | $ 2,920 | |
| Contract capital cost | $ 601 | $ 455 |
INCOME TAXES (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
| Operating Loss Carryforwards [Line Items] | ||
| U.S. federal corporate tax rate | 28.00% | 17.00% |
| Deferred tax assets valuation allowance | $ 61,127 | |
| Federal Tax Authority [Member] | ||
| Operating Loss Carryforwards [Line Items] | ||
| Net operating loss carryforwards | $ 60,637 | |
| Federal Tax Authority [Member] | Minimum [Member] | ||
| Operating Loss Carryforwards [Line Items] | ||
| Expiration date | Dec. 31, 2029 | |
| Federal Tax Authority [Member] | Maximum [Member] | ||
| Operating Loss Carryforwards [Line Items] | ||
| Expiration date | Dec. 31, 2034 | |
| State and Local Jurisdiction [Member] | ||
| Operating Loss Carryforwards [Line Items] | ||
| Net operating loss carryforwards | $ 65,740 | |
| Expiration date | Dec. 31, 2029 | |
EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
| Earnings Per Share [Abstract] | ||
| Net income attributable to B. Riley Financial, Inc. | $ 8,023 | $ 4,503 |
| Weighted average shares outstanding: | ||
| Basic (in shares) | 26,217,215 | 26,219,277 |
| Effect of dilutive potential common shares: | ||
| Restricted stock units and warrants | 352,938 | 750,732 |
| Contingently issuable shares | 117,378 | 301,810 |
| Diluted (in shares) | 26,687,531 | 27,271,819 |
| Basic income per share (in dollars per share) | $ 0.31 | $ 0.17 |
| Diluted income per share (in dollars per share) | $ 0.30 | $ 0.17 |
EARNINGS PER SHARE (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | |
|---|---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
Dec. 31, 2018 |
|
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||
| Number of antidilutive securities were excluded from the computation of diluted net income (loss) per share | 1,952,868 | 1,834,422 | |
| Delaware corporation ("Wunderlich") [Member] | Merger Agreement [Member] | Common Stock [Member] | |||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||
| Number of shares held in escrow account | 387,365 | ||
| Escrow Subject to Cancellation Escrow Claims [Member] | |||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||
| Number of shares held in escrow account | 453,365 | ||
| Escrow Subject to Cancellation Escrow Claims [Member] | Great American Group, LLC [Member] | |||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||
| Number of shares held in escrow account | 66,000 | ||
| Number of shares issued in escrow account to forfeiture for final settlement of claims | $ 387,365 | ||
COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) $ in Thousands |
1 Months Ended | 3 Months Ended | |||||
|---|---|---|---|---|---|---|---|
Jun. 17, 2018 |
Aug. 11, 2017 |
Jan. 05, 2017 |
Jul. 31, 2017 |
Feb. 28, 2017 |
Mar. 31, 2019 |
Mar. 31, 2018 |
|
| Letters of credit outstanding | $ 18,505 | ||||||
| Lawsuit filing date | August 11, 2017 | ||||||
| Name of defendant | Freedman v. magicJack VocalTec Ltd | ||||||
| Name of plaintiff | Board of Directors | ||||||
| Trial or alternative dispute resolution | United States District Court for the Southern District of Florida | ||||||
| Parties jointly and severally liable in litigation | Directors and two former members | ||||||
| Loss contingency allegations | Misrepresented material facts concerning the true value. | ||||||
| Arbitration Claim Against WSI and Gary Wunderlich [Member] | |||||||
| Damages value | $ 8,000 | ||||||
| Arbitration Claim Against Wunderlich Securities, Inc. [Member] | |||||||
| Damages value | $ 10,000 | ||||||
| Vintage RTO, L.P [Member] | |||||||
| Termination fees | $ 126,500 | ||||||
| Maximum exposure inestimable of guarantor obligations | Liability under the Limited Guarantee shall not exceed $128.5 million. | ||||||
| MLV And Co [Member] | Arbitration Claim Against WSI and Gary Wunderlich [Member] | |||||||
| Offering price | $ 151 | ||||||
| Principal Investments - United Online Segment [Member] | |||||||
| Letters of credit outstanding | $ 7,491 | ||||||
| Settlement expenses | $ 1,150 | ||||||
SHARE BASED PAYMENTS (Details) - Amended and Restated 2009 Stock Incentive Plan [Member] - Restricted Stock Units (RSUs) [Member] |
3 Months Ended |
|---|---|
|
Mar. 31, 2019
$ / shares
shares
| |
| Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward] | |
| Nonvested at beginning | shares | 896,817 |
| Vested | shares | (65,634) |
| Nonvested at end | shares | 831,183 |
| Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward] | |
| Nonvested at beginning | $ / shares | $ 16.94 |
| Vested | $ / shares | 11.82 |
| Nonvested at end | $ / shares | $ 17.34 |
SHARE BASED PAYMENTS (Details 1) - Amended and Restated FBR & Co. 2006 Long-Term Stock Incentive Plan [Member] [Member] - Restricted Stock Units (RSUs) [Member] |
3 Months Ended |
|---|---|
|
Mar. 31, 2019
$ / shares
shares
| |
| Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward] | |
| Nonvested at beginning | shares | 689,430 |
| Vested | shares | (56,234) |
| Forfeited | shares | (43,620) |
| Nonvested at end | shares | 594,120 |
| Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward] | |
| Nonvested at beginning | $ 17.64 |
| Granted | 15.66 |
| Vested | 15.77 |
| Forfeited | 15.75 |
| Nonvested at end | $ 17.94 |
SHARE BASED PAYMENTS (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Share based compensation expense | $ 2,614 | $ 2,558 |
| Amended and Restated 2009 Stock Incentive Plan [Member] | Restricted Stock Units (RSUs) [Member] | ||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Share based compensation expense | 1,726 | 1,110 |
| Unrecognized share based compensation expense | $ 9,089 | |
| Unrecognized share based compensation weighted average period | 1 year 9 months 18 days | |
| Total fair value of shares vested | $ 776 | |
| Amended and Restated 2009 Stock Incentive Plan [Member] | Restricted Stock Units (RSUs) [Member] | Minimum [Member] | ||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Vesting periods | 1 year | |
| Amended and Restated 2009 Stock Incentive Plan [Member] | Restricted Stock Units (RSUs) [Member] | Maximum [Member] | ||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Vesting periods | 3 years | |
| Amended and Restated FBR & Co. 2006 Long-Term Stock Incentive Plan [Member] [Member] | Restricted Stock Units (RSUs) [Member] | ||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Total fair value | $ 71 | |
| Share based compensation expense | 767 | $ 1,448 |
| Unrecognized share based compensation expense | $ 6,397 | |
| Unrecognized share based compensation weighted average period | 1 year 9 months 18 days | |
| Weighted average grant date fair value (in dollars per share) | $ 15.66 | |
| Number of shares outstanding (in shares) | 56,234 | |
| Number of shares outstanding | $ 887 | |
NET CAPITAL REQUIREMENTS (Details Narrative) $ in Thousands |
Mar. 31, 2019
USD ($)
|
|---|---|
| FBR & Co. ("FBR") [Member] | |
| Net capital | $ 102,265 |
| Excess capital | 100,574 |
| MLV And Co [Member] | |
| Net capital | 725 |
| Excess capital | 625 |
| B. Riley Wealth Management [Member] | |
| Net capital | 4,972 |
| Excess capital | 4,440 |
| Maximum [Member] | FBR & Co. ("FBR") [Member] | |
| Net capital | 1,692 |
| Maximum [Member] | MLV And Co [Member] | |
| Net capital | 100 |
| Maximum [Member] | B. Riley Wealth Management [Member] | |
| Net capital | $ 532 |
RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) $ in Thousands |
Mar. 31, 2019 |
Dec. 31, 2018 |
|---|---|---|
| Due from related party | $ 1,965 | $ 1,729 |
| GACP I, L.P [Member] | ||
| Due from related party | 77 | 193 |
| GACP II, L.P [Member] | ||
| Due from related party | 750 | 724 |
| CA Global Partners, LLC [Member] | ||
| Due from related party | $ 1,138 | $ 812 |
BUSINESS SEGMENTS (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
| Segment Reporting Information [Line Items] | ||
| Total revenues | $ 142,128 | $ 95,778 |
| Interest expense - Securities lending | 6,804 | 5,168 |
| Cost of goods sold | 1,119 | 41 |
| Selling, general and administrative expenses | (90,543) | (68,098) |
| Depreciation and amortization | (4,913) | (3,337) |
| Restructuring recovery (charge) | (147) | (217) |
| Segment income (loss) | 24,978 | 10,602 |
| Consolidated operating income from reportable segments | 34,657 | 14,539 |
| Corporate and other expenses (including restructuring recovery of $38 during the three months ended March 31, 2018.) | (9,679) | (3,937) |
| Interest income | 637 | 128 |
| Loss on equity investments | (3,762) | (672) |
| Interest expense | (10,770) | (4,227) |
| Income before income taxes | 11,083 | 5,831 |
| Provision for income taxes | (3,104) | (989) |
| Net income | 7,979 | 4,842 |
| Net (loss) income attributable to noncontrolling interests | (44) | 339 |
| Net income attributable to B. Riley Financial, Inc. | 8,023 | 4,503 |
| Services And Fees [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Total revenues | 131,853 | 88,449 |
| Sale Of Goods [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Total revenues | 945 | 38 |
| Interest Income - Securities lending [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Total revenues | 9,330 | 7,291 |
| Capital Markets Segment [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Total revenues | 85,301 | 60,329 |
| Interest expense - Securities lending | (6,804) | (5,168) |
| Selling, general and administrative expenses | (63,389) | (53,639) |
| Depreciation and amortization | (1,276) | (1,564) |
| Restructuring recovery (charge) | 29 | (255) |
| Segment income (loss) | 13,861 | (297) |
| Capital Markets Segment [Member] | Services And Fees [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Total revenues | 75,971 | 53,038 |
| Capital Markets Segment [Member] | Interest Income - Securities lending [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Total revenues | 9,330 | 7,291 |
| Auction and Liquidation Segment [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Direct cost of services | (6,274) | (4,576) |
| Cost of goods sold | (14) | (1) |
| Selling, general and administrative expenses | (2,915) | (2,881) |
| Depreciation and amortization | (2) | (8) |
| Segment income (loss) | 11,504 | 8,051 |
| Auction and Liquidation Segment [Member] | Services And Fees [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Total revenues | 20,709 | 15,517 |
| Valuation and Appraisal Segment [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Direct cost of services | (4,421) | (4,198) |
| Selling, general and administrative expenses | (2,766) | (2,345) |
| Depreciation and amortization | (33) | (49) |
| Segment income (loss) | 1,363 | 1,928 |
| Valuation and Appraisal Segment [Member] | Services And Fees [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Total revenues | 8,583 | 8,520 |
| Principal Investments - United Online And MagicJack [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Total revenues | 27,535 | 11,412 |
| Direct cost of services | (7,842) | (2,878) |
| Cost of goods sold | (1,105) | (40) |
| Selling, general and administrative expenses | (7,020) | (1,958) |
| Depreciation and amortization | (3,463) | (1,679) |
| Restructuring recovery (charge) | (176) | |
| Segment income (loss) | 7,929 | 4,857 |
| Principal Investments - United Online And MagicJack [Member] | Services And Fees [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Total revenues | 26,590 | 11,374 |
| Principal Investments - United Online And MagicJack [Member] | Sale Of Goods [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Total revenues | $ 945 | $ 38 |
BUSINESS SEGMENTS (Details 1) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
| Segment Reporting Information [Line Items] | ||
| Total revenues | $ 142,128 | $ 95,778 |
| Services And Fees [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Total revenues | 131,853 | 88,449 |
| Sale Of Goods [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Total revenues | 945 | 38 |
| Interest Income - Securities lending [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Total revenues | 9,330 | 7,291 |
| North America | ||
| Segment Reporting Information [Line Items] | ||
| Total revenues | 142,052 | 95,324 |
| North America | Services And Fees [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Total revenues | 131,777 | 87,733 |
| North America | Sale Of Goods [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Total revenues | 945 | 38 |
| North America | Interest Income - Securities lending [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Total revenues | 9,330 | 7,553 |
| Australia | ||
| Segment Reporting Information [Line Items] | ||
| Total revenues | 15 | |
| Australia | Services And Fees [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Total revenues | 15 | |
| Europe | ||
| Segment Reporting Information [Line Items] | ||
| Total revenues | 61 | 454 |
| Europe | Services And Fees [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Total revenues | $ 61 | $ 454 |
BUSINESS SEGMENTS (Details 2) - USD ($) $ in Thousands |
Mar. 31, 2019 |
Dec. 31, 2018 |
|---|---|---|
| Property and equipment, net: | $ 15,644 | $ 15,523 |
| North America | ||
| Property and equipment, net: | 15,634 | 15,489 |
| Europe | ||
| Property and equipment, net: | $ 10 | $ 34 |