B Riley ($RILY) — 3Q21 Update

Guys, what a great quarter and what a great reflection of the business here. I just wanted to -- I wanted to try and level set here and just make sure I'm on the right page, right? I'm looking at the business, and it seems to trade at a PE of 3%, you now raised your dividend yield. So I guess it's got a stated yield of 6%.

But it looks like, obviously, with all the specials, it's much demonstrably higher. Bryant, you own 20% of the company, you just initiated a buyback. You look at other investment banks they seem -- they all have much higher multiples and pay lower dividend yields. You have no research coverage, there's no sell-side research coverage of you. And I wonder is there some better description of the business in terms of what you're doing, Bryant, that might better describe who you are? Or are these discounts to your comps just so blatant and so unwarranted that perhaps it confuses people?

Bryant Riley

Yes. Keith, we've talked about this a lot internally, and it's part of why we've been pretty aggressive about cash returns and now implementing a more meaningful annual dividend. We're confusing? I don't think we're confusing. The way that I would describe us is that we are a investment bank/merchant bank that utilizes our balance sheet to create fees, to create investment opportunities and make money for our clients and shareholders.

And the simplistic way to look at the business, in my mind, is to take the bucket of recurring EBITDA that we have. And I include that kind of a steady state of interest income because we'll always have a loan book. And if you take that number, you get into a number of somewhere around $180 million to $200 million. And then you have a broker dealer and you have a liquidation business that can go up and down, and we would be fooling ourselves if we said that we're going to always be up into the right.

So the way that we looked at it, especially when we're looking at on our dividend, as we said, over the last 3 years, our broker-dealer has done roughly $10 million, $11 million of monthly EBITDA. Over the last year, it's been closer to $21 million. And our retail has done about $1 million to $3 million in the last few years per month.

And so we look at our dividend, and we said, what is our breakeven to pay a $4 dividends about, it's underwriting the broker deal of $5 million a month, not the $10 million that we've averaged over the last 3 years, of the $20 million in the last year and underwriting the liquidation of $0.5 million. And so we have lots of room to pay a dividend, a lots of room to be cautious because markets do sometimes run in cycles.

And so I think you can take that dividend yield and say that provides a level of security. And in the meantime, we're going to take the excess free cash flow that we would expect because we're underwriting to a very low number to make sure that we felt good about our dividend coverage, the last trailing 12 months, our operating EBITDA has been $430 million, and our total EBITDA has been much more than that, and our free cash flow has been $592 million with investments.

So we've been able to take a lot of money and invest it in the business. I think you may have seen we're adding to our fixed income practice. We've made acquisitions. We've added to our research side. And so we've been able to do all of those things. But when you talk about a public company that owns the dial-up business, business like magicJack brands, liquidation and a broker-dealer versus a pure-play broker-dealer, there are going to be a lot of people, I think, funds that competitors of yours that are going to say, I want a pure broker-dealer. I don't want to be -- mess with that. I don't want to be surprised. I don't know what they're necessarily going to look at. It's a really broad mandate. And we want that broad mandate. We think that's really important.

So that's why we are being really adamant about making sure you know what we're doing and what our philosophy is, and we've returned a lot of cash. But I think that's also -- and there's a lot of our kind of secret sauce that we have a broad mandate, but I think it also creates a discount. And the answer to how you fix that, I don't know. I mean, I think we just keep grinding and keep making a lot of money, and the rest will take care of itself.