Prepared remarks
Good day, and welcome to the BRC Group Holdings, Inc. First Quarter 2026 Earnings Call. My name is Isabelle, and I will be your Evercall moderator. The format of the call includes prepared remarks from the company followed by a question-and-answer session. At this time, I will turn the call over to Bryant Riley, Co-CEO of B. Riley. You may now begin.
Good afternoon, and thanks for joining our call. I want to stress how enthusiastic our entire team is about where our firm sits today. The deliberate steps we have taken to strengthen our balance sheet and align our core operating platform have positioned us well to capture the current market opportunity. That conviction is reflected in our momentum, which carried over from 2025 into our first quarter. For the first quarter, we generated net income available to common shareholders of $211.3 million and adjusted EBITDA of $262.2 million. Operating adjusted EBITDA was $34.6 million, up close to 40% sequentially. Net debt stands at $372 million, down approximately $255 million from year-end. Our CFO, Scott Yessner, will walk through the financials in detail. My remarks today focus on three points: our first quarter execution, our strategic path forward and our ongoing commitment to our core franchise. During the quarter, our team executed against two key priorities: strengthening our balance sheet and delivering for our clients. On the balance sheet, we continue to optimize our capital structure. In March, we fully redeemed our 5.5% senior notes due 2026. We also retired $40.4 million of debt through bond-for-equity exchanges and open market repurchases through the end of March. Altogether, total debt is down $129 million in the quarter, and we expect that trend to continue. While we enjoyed a solid quarter across the entire platform, B. Riley Securities delivered our most active quarter for capital raising in five years. During the quarter, we executed on nearly $10 billion in total debt and equity raises for clients. We acted as joint lead book runner on WhiteFiber's $230 million convert, participated in a $1.3 billion follow-on and led key advisory mandates with the TrueCar take private. We are active across the entire capital structure. We filed $8.7 billion in new ATMs in the first quarter, including a $6 billion facility for IREN and a $1 billion facility for SMR. We also expanded our research footprint, initiating coverage of 26 companies in the first quarter alone. We see a deep, expanding opportunity set for our team in the quarters ahead and expect momentum to continue. Ultimately, our broader strategy remains straightforward. We reinvest operating cash flows into our businesses and compelling market opportunities with our core franchise serving as a primary engine. Next year marks our 30th anniversary. Over the last three decades, we've intentionally built our business based on a commitment to be an active, dedicated advisory and liquidity partner for companies in the historically underserved small and mid-cap market. We have navigated every market cycle. During periods of macro stress, we have stayed committed to the strategy while others have cycled in and out. This consistency and our commitment to this market have proven to be our structural advantage. That same commitment is why we launched BRC Specialty Finance to enhance our commitment to small and mid-cap companies by providing capital and liquidity solutions. We will continue to leverage our platform and put capital to work to back our clients and our long-term partners. Executing our strategy requires absolute operational discipline and a world-class team. We're incredibly grateful for our team's hard work and continued dedication to the firm and our clients. I will now turn the call over to Co-CEO Thomas Kelleher to provide additional context on our operating performance. Thomas?
Thanks, Bryant. In April, we announced our intention to repurchase the outstanding minority stake of B. Riley Securities and combine B. Riley Securities with B. Riley Wealth. We are incredibly excited about this. The proposed transaction streamlines our corporate structure, but more importantly, it intentionally aligns our investment banking, our broad retail and institutional distribution and our equity research engine. Scott will spend some more time on the numbers. From an operational standpoint, the platform is continuing to normalize from all the activity that has transpired over the last two years. Targus continues to stabilize their business, operating at roughly breakeven. We're encouraged by recent improvements in distribution channel sales as tariff concerns begin to ease. Our communications group continues to deliver high-margin cash flow by leveraging our team in India, and we remain relentlessly focused on efficiency across the entire enterprise. We are actively deploying AI, not just as a corporate efficiency tool, but as a force multiplier across our entire revenue-generating platform. By equipping our bankers, sales force and research teams with advanced tools to accelerate analysis and insights, we are empowering our teams to scale their output and capture more market opportunity without proportionately increasing our cost structure. While technology allows us to operate faster and smarter, our core business is fundamentally a relationship business. Our ultimate differentiator remains our people and the partnerships we build. In two weeks, we will host our 26th Annual Investor Conference at the Ritz-Carlton in Marina del Rey. With approximately 200 companies and 1,000 attendees, this conference remains the clearest expression of who we work with and the partnerships we build. During the conference, we will once again host our annual Big Fighters, Big Cause charitable boxing gala, benefiting the Sugar Ray Leonard Foundation in its mission to knock out pediatric diabetes. We are proud to have raised over $6 million for this cause since inception. Next week, on May 13, B. Riley Securities is hosting our Annual Commissions for Charity Day, where 100% of our equity trading commissions will be donated to Children's Hospital L.A. For nearly three decades, our firm has been defined not just by the deals we execute, but by the relationships we build. While we are incredibly proud of our operational execution this quarter, these events reflect the true character of our firm and our commitment to our clients, our partnerships and our community. Our proprietary platform continues to serve as a major differentiator for recruiting, and we are actively leveraging it to add high-impact talent. We are fielding numerous conversations for positions across the company. Just last month, we welcomed back one senior sales trader as well as brought on an institutional salesman new to the firm. High-performing producers want to be part of a company where deals are actively getting done, where the platform supports them and where the culture is set by the fellow producers across our management team. With that, I will turn the call over to our CFO, Scott Yessner, to walk through the detailed financials. Scott?
Thanks, Thomas. I'm pleased to share an update on our first quarter 2026 financial performance, investment holdings and capital and liquidity. To start, I would like to walk through our financial performance. Year-over-year first quarter total revenues were $352 million compared to $186 million. The increase in total revenues was driven by $161 million of higher trading gains on investments primarily in Babcock & Wilcox common stock, $130 million of which is related to the value appreciation in the first quarter of 2026. Service and fee income was $152 million for the quarter, lower year-over-year by $6.7 million. Investment banking and brokerage revenues increased $12 million, offset by lower revenues from exited businesses in the prior year of $10.4 million, lower B. Riley Wealth Management revenues of $4.6 million and lower Communications Business Group revenues of $4.1 million from normal subscriber attrition. Next, year-over-year first quarter total operating expenses were $199 million compared to $247.5 million in 2025, a reduction of $48 million. The reduction was primarily due to a combined $28 million of eliminated costs from exiting businesses and the Communications Business Group subscriber declines, with the remaining reduction of approximately $20 million from across a range of operating expenses, including lower legal fees of $3.7 million. Despite the lower operating expenses in total and in varying expense lines, accounting fees related to the audit and accounting activities were $4 million higher than 2025, which was also at an elevated level. We have returned to a normal operating calendar, which will allow us to drive infrastructure improvements that we believe will ultimately lower our accounting fees and other elevated costs. Continuing down the income statement: first quarter other income, excluding interest expense, was $106 million, primarily due to a $99 million increase in the Babcock & Wilcox fair value appreciation. The company's total increase in the Babcock & Wilcox investment across trading income and unrealized income for the first quarter in 2026 was $229 million, booked in different revenue lines due to the investment being owned by multiple entities within the BRC Holdings structure. Year-over-year first quarter interest expense was $20 million, a decline of $10 million from 2025, driven by lower average borrowing balances from senior note redemptions and other debt reductions. These details culminate with first quarter 2026 net income attributable to common shareholders of $211 million, diluted income per share of $6.57 compared to a net loss of $12 million, diluted loss per share of $0.39 in the first quarter of 2025. First quarter 2026 adjusted EBITDA was $262 million compared to a loss of $45 million in 2025. Please refer to the reconciliation tables in our earnings press release for the adjusted EBITDA calculation. Next, I'll review our segment operating performance. Please note our former Communications business segment has been separated into four reportable segments, which we aggregate and describe as the Communications Business Group. The Capital Markets segment, which is comprised solely of B. Riley Securities, had first quarter 2026 total revenues of $172 million compared to $2 million in 2025, and segment income of $137 million compared to a segment loss of $36 million in 2025. The revenue and segment income increases were primarily driven by fair value increases in Babcock & Wilcox recorded in trading gains. Additionally, core investment banking revenues also increased $9.7 million year-over-year. Next, the Wealth segment had first quarter 2026 revenues of $52 million compared to $47 million in 2025, a $5 million increase, and segment income of $16 million compared to $2 million in 2025, a $14 million increase. The revenue and profit increases were driven by an $8.9 million increase in market value of carried interest in a fund that owns SpaceX for the portion owned by the Wealth segment. Wealth segment ended the first quarter with $11.9 billion in assets under management and 190 registered representatives. The Communications Business Group is the aggregate results of Lingo, magicJack, Marconi and UOL reportable segments. The Communications Business Group had first quarter aggregate revenues of $60 million compared to $64.5 million in 2025, a $4.5 million decline, and aggregate income in the first quarter of $12.6 million compared to $10.6 million in 2025, a $2 million increase. The first quarter results are in line with our expectations. The operating leverage continues to be a core business strength as demonstrated by the results. Our Targus business, which comprises the Consumer Products segment, had first quarter revenues of $44 million compared to $42 million in 2025 and operating segment loss of $2.6 million compared to a loss of $5.1 million in 2025. After a period of declining sales, we are pleased with the revenue increase and the narrowing operating loss, which is due to improving the sales mix margins and lowering operating costs. Next, I'd like to provide an update on the company's investment holdings portfolio, which is reported on our balance sheet in securities and other investments, loans receivable at fair value and equity investments. Investments are held across consolidated entities where valuation changes are primarily booked as revenue in either trading gains and losses or realized and unrealized gains and losses. At March 31, 2026, securities and other investments increased $193 million to $640 million from December 31, 2025. The increase is primarily driven by a $229 million value increase in the Babcock & Wilcox investment and a $12.6 million increase in the partnership interest related to our marked value of carried interest in funds that own SpaceX for all BRC entities, offset by a sale exit of $41 million of private stock holdings, rounding out the balance change. At March 31, 2026, the Babcock & Wilcox stock price used in the valuation was $14.69 a share with the company owning approximately 27.4 million shares. The SpaceX carrying value was marked at $526 per share. Securities and other investments are reported in detail in the 10-Q with subtotals including public equities, private equities, corporate bonds, other fixed income securities and partnership interest and other. In the public equity subtotal, the Babcock & Wilcox valuation was the primary driver. The private equity subtotal amount, which has over 50 investments, including the venture capital portfolio, was lower by $42 million, primarily from the private stock holding exit described earlier. Partnerships and other investments increased $13.4 million, primarily due to the SpaceX carried interest value increase described earlier. Continuing with investment holdings, loans receivable at fair value declined $1.4 million in the first quarter to an ending balance of $24.9 million at March 31, 2026. In the quarter, loan lending activity included approximately $20.1 million in fundings and $21.8 million in repayments. Also we received a $6.7 million loan recovery recognized through the income statement in fair value adjustments on loans. For the last balance sheet line item of our investment holdings, equity method investments were $90.7 million at March 31, 2026, virtually flat from December 31, 2025. The GA Group investment, formerly Great American, comprises $83.7 million of the March 31, 2026 balance, also virtually flat to December 31, 2025. GA Group had good quarterly performance, which is disclosed in summary in the filed 10-Q. Next, I'll provide an update on our liquidity and capital. At March 31, 2026, cash, cash equivalents and restricted cash had total balances of $178 million compared to $229 million at December 31, 2025. In the first quarter of 2026, BRC reduced total debt by $129 million, which includes a $96 million RILYK bond redemption on March 30, 2026, and $40 million of bond exchanges and buybacks. At March 31, 2026, total debt was $1.3 billion and net debt declined $255 million to $372 million. For the remainder of 2026, the company has two senior note series maturing: $167 million in principal amount of RILYN senior notes due September 30, and $170 million principal amount of RILYG senior notes due on December 31. These amounts have been reduced through Section 3(a)(9) bond exchanges since March 31. We also have $7 million in scheduled paydowns on a subsidiary lending facility. As previously described, we will continue to use capital actions, cash generated from operations and investment liquidations to fund market opportunities and the operating companies, while also redeeming the scheduled senior note paydowns. We look forward to answering your questions. I'll turn the call back to the operator for the Q&A session.
Questions and answers
Our first question comes from Sean of Charles Lane Capital. s have been reduced through Section 3(a)(9) bond exchanges since March 31. We also have $7 million in scheduled paydowns on a subsidiary lending facility. As previously described, we will continue to use capital actions, cash generated from operations and investment liquidations to fund market opportunities and the operating companies, while also redeeming the scheduled senior note paydowns. We look forward to answering your questions. I'll turn the call back to the operator for the Q&A session.
Congrats on the quarter. I just had a few questions here. You guys touched on it a bit, but can you elaborate on your philosophy for harvesting some of these gains that you have and maybe applying them to the debt, if that's your preferred use of capital?
So Sean, I think you've touched on this previously. We have done a pretty good job of creating optionality, and that's really important. Optionality might mean buying back bonds in the open market, swapping bonds for other bonds, selling some assets and repurchasing bonds. For us, we evaluate our entire portfolio as one and will make decisions that are in the best interest of the shareholders and the bondholders. There isn't a single playbook in this business. DDI, which is a big position for us, is trying to go private; we have $40 million of that. SpaceX, we didn't value nearly as high a year ago as it is today, and that's on our books for over $50 million. So there's a fair amount of cash and investments. It is a daily discussion and analysis, but I can't give you a simple A, B, C, D answer. We are being very active and thoughtful about where we invest in the business, where we invest to grow the business, when we buy back bonds, what's the right price to buy back bonds, and when we swap bonds.
Okay. Fair enough. And then on the merger with the Wealth division, I might have missed it, but have you put out any sort of quantitative synergies that you think you're going to realize out of that?
We haven't publicly detailed quantitative synergies yet. From my perspective, and Scott can add, there have been a lot of onetime costs we've had to deal with as we've gotten our financials current. Our team has done an amazing job getting our financials current, but it was a massive effort. We are now at a point where we're on a normal cadence and can really focus on evaluating the corporation and the subsidiaries and the mergers. We'll be more clear now that we can concentrate on these items rather than the prior intensive scramble to get our financials current. Scott, anything you want to add on that?
Bryant covered the important points. The merger is expected to have synergies across revenues and cost lines, though we're still in the early stages. Initially, we're focusing on the client side and the connectivity between the wealth/retail side and the institutional part of the business. That client focus and connectivity are priorities while we determine the right back-office steps. We're in the early innings of evaluating our operating cost structure, and coming out of an intensive period, we'll have a normal operating environment that gives us bandwidth to evaluate costs. There are some relatively easy wins: our audit fees were high due to the demands placed on our auditor, and returning to a normal timeline is a fairly easy win. We have several similar opportunities across different parts of the business and operating expenses. While it's difficult to quantify into a precise model today, in future quarters, as we realize and measure these improvements, we'll be able to share more specifics.
Got it. And then just lastly, because you called it out in the release: for the 26 initiations in the quarter, how much of that is attributable to new hires versus increasing coverage for existing hires?
I don't have that exact split handy, but the general thesis is that the world is much more efficient given capabilities like AI and other tools. A research analyst 12 years ago might have covered 12 to 15 companies. Today, analysts can cover significantly more companies because information gathering and analysis are faster. So a large majority of the 26 initiations are from analysts already on board expanding coverage.
Our next question comes from Griffin of Owl Creek Asset Management.
Congrats on the good trajectory here. It looks like the clouds are starting to part. I was hoping you could provide some further clarification on a couple of things. First, can you walk through the rationale of buying back the minority stake of B. Riley Securities? Initially, we thought that this was another lever you had created to potentially partially monetize to help with the cap structure. Now it seems like you're walking that back. Can you help us understand the rationale behind that?
Yes. When we carved B. Riley Securities out, it was a different time and it felt like the right move to preserve the business, keep people and manage operations. As we've progressed and the situation has improved, balance sheets that were separated and utilized in different ways can now be utilized more efficiently together. For example, B. Riley Securities had significant cash yields in money markets as a broker-dealer, while corporate was utilizing cash differently. There are also operating synergies. We still think the business could be separated if needed or if an acquirer valued it appropriately, but in the near term, from a cost of capital and operating efficiency perspective, we felt consolidating was the right move. TK or Scott, anything to add?
Yes. A year or two ago, the landscape was different. Creating optionality was a focus; we wanted to be positioned to take advantage of whatever situation we found ourselves in. Over time, the environment changed and maintaining the prior structure proved operationally challenging among other reasons. Rather than persist with that complexity, we're simplifying and returning to the prior structure.
So can I infer that excluding a sale of B. Riley Securities, you think you have all the solutions necessary in-house to solve the needs of the 26s?
Yes.
Okay. Understood. One of the statements you made that I thought was great is that B. Riley Securities has seen the most deal activity in five years in terms of capital raising. Maybe I missed the nuance, but it doesn't look like that massive increase is showing up in the numbers. Is that because you're trying to regain market share with lower pricing, or is there another explanation?
If we're 30% of a deal, that's obviously a lot more valuable than being 5% of a deal. Over the period where we were working through our issues, we lost some economics on deals. Companies value our research and distribution. The noise around us is dissipating, and as a result, where we've played, we sometimes had lower percentages of deal economics. Ideally we'd increase our percentages on deals meaningfully. We've been playing with one hand behind our back while getting our financials current and spending time on that work. Now that our position is different, I would expect our economics on deals to increase; that is the goal.
Got it. And then the last one for me: you mentioned that because the company was a delinquent filer, certain business was pulled from you. How are you thinking about, or how are you seeing, the cadence of that recovery of former clients returning?
It's been strong. We measure onboarding weekly and have seen a lot of accounts returning. Some of the bigger institutions had a simple policy of cutting off firms that were delinquent, and now that we're current, onboarding has been dramatic over the last quarter.
Okay. Good to hear. Congratulations on the quarter.
This concludes the Q&A session. Handing it back to Bryant Riley for any final remarks.
Thank you. It really feels good to report on a normal cadence. Now we can address some of the operating costs that were one-time in nature. None of this would have happened without an amazing group that worked around the clock to get not only our revenues in line but to get the financials done. I'm super thankful, and thanks, everyone, for calling in. We look forward to our conference coming up, and hopefully we'll see some of you at our conference on the 20th. We appreciate the interest and we'll see you next quarter. Thank you.
Before we conclude, we'd like to inform listeners that today's call may include forward-looking statements. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied. For a discussion of these risks, please refer to our most recent SEC filings, including our annual report on Form 10-K and subsequent 10-Qs. We do not undertake any obligation to update these forward-looking statements. This concludes today's Evercall. A replay will be made available shortly after today's call. Thank you, and have a great day.