B. Riley Financial Inc (RILY) is a diversified financial services platform that delivers tailored solutions to meet the strategic, operational, and capital needs of its clients and partners. The company operates through several consolidated subsidiaries that provide investment banking, brokerage, wealth management, asset management, direct lending, and business advisory services to a broad client base spanning public and private companies, financial sponsors, investors, financial institutions, legal and professional services firms, and individuals.
Business Overview and History
B. Riley Financial was founded in 1997 and has since grown to become a leading provider of financial services and solutions. The company's history is marked by strategic acquisitions and the expansion of its service offerings, solidifying its position as a diversified financial services platform. Headquartered in Los Angeles, California, B. Riley has experienced significant growth through a series of strategic acquisitions and investments over the years.
In 2018, the company made a notable acquisition of FBR & Co., a full-service investment bank and institutional broker-dealer. This acquisition significantly expanded B. Riley's capital markets capabilities, enhancing its ability to serve clients in the investment banking and brokerage sectors. The following year, in 2019, B. Riley further diversified its business by acquiring magicJack VocalTec Ltd., a provider of voice over internet protocol (VoIP) communication services and products. This move marked the company's entry into the communications segment, broadening its portfolio of services and revenue streams.
The company's wealth management segment, which manages approximately $15 billion in client assets, has been a consistent performer, providing stable and recurring revenue. B. Riley's advisory services business, GlassRatner, has also been a standout, delivering record performance in 2024 with its expertise in bankruptcy, turnaround management, forensic accounting, and litigation support.
Financial Performance and Ratios
Financials
As of September 30, 2024, B. Riley Financial reported total assets of $2.16 billion and total liabilities of $2.58 billion, resulting in a debt-to-equity ratio of -0.06. The company's current ratio stood at 2.16, indicating a strong liquidity position.
For the nine months ended September 30, 2024, B. Riley Financial reported a net loss of $645.51 million, primarily due to significant write-downs and impairments related to its principal investments. However, the company's core operating businesses, such as the broker-dealer and wealth management segments, continued to generate meaningful EBITDA.
In the fourth quarter of 2024, the company reported preliminary net income available to common shareholders of $48 million to $68 million, which included approximately $236 million to $247 million of income from discontinued operations. The company's operating adjusted EBITDA from continuing operations was expected to be $12 million to $14 million for the fourth quarter.
For the most recent quarter, B. Riley Financial reported revenue of $199,305,000, a net loss of $284,397,000, operating cash flow of $19,455,000, and free cash flow of $19,455,000. These figures represent a year-over-year decrease in revenue, net income, operating cash flow, and free cash flow. The decreases were primarily attributed to fair value adjustments on loans, which resulted in a loss of $71,480,000 in the quarter, decreases in services and fees revenue, particularly in the Capital Markets segment, and increases in restructuring charges and impairment of goodwill and tradenames.
Liquidity
B. Riley Financial's liquidity position remained strong, as evidenced by its current ratio of 2.16 and quick ratio of 2.16. The company's debt-to-equity ratio stood at 0.014. As of December 31, 2024, B. Riley had cash, cash equivalents, and restricted cash of approximately $257 million, total debt of $1.78 billion, and total debt, net of cash and investments, of approximately $991 million. The company's strategic initiatives, including the establishment of a joint venture with Oaktree Capital Management and the sale of certain assets, have further bolstered its liquidity and provided additional capital for reinvestment in core businesses.
Recent Developments and Strategic Initiatives
B. Riley Financial has undertaken several strategic initiatives to strengthen its balance sheet and focus on its core operations. In 2024, the company established a joint venture with Oaktree Capital Management, contributing its appraisal and valuation services, retail, wholesale, and industrial solutions, and real estate advisory businesses to a new holding company. This transaction provided B. Riley with $203 million in cash and a 44% equity stake in the new entity, allowing the company to significantly delever its balance sheet.
Additionally, B. Riley received approximately $236 million in gross proceeds through the financing of its brand assets, including the bebe brand. The company also announced the sale of a portion of its traditional W-2 Wealth Management business to Stifel Financial Corp. for an estimated net consideration of $26 million to $35 million.
These strategic moves, coupled with the full redemption of the company's February 2025 senior notes, have strengthened B. Riley's financial position and provided the necessary capital to reinvest in its core businesses, including the investment banking, wealth management, and advisory services segments.
Challenges and Risks
B. Riley Financial has faced significant headwinds in recent years, primarily due to its exposure to the Franchise Group, a retailer that filed for bankruptcy in 2024. The company's involvement in the management-led buyout of Franchise Group and its related investments and loans have resulted in substantial write-downs and impairments, impacting the company's overall financial performance.
Additionally, the company has been the subject of regulatory scrutiny, with the U.S. Securities and Exchange Commission (SEC) issuing subpoenas related to B. Riley's dealings with Franchise Group and its chairman's personal loan. These legal and regulatory issues have added to the company's challenges and have the potential to result in further expenses and reputational damage.
Furthermore, B. Riley has faced challenges related to its investment in Freedom VCM Holdings, LLC and its prior business relationship with Brian Kahn. The company has received subpoenas from the SEC related to these matters, and there have been shareholder lawsuits filed against the company and its board of directors.
Despite these challenges, B. Riley Financial has demonstrated resilience, as evidenced by the strong performance of its core operating businesses, such as the broker-dealer and wealth management segments. The strategic actions taken by the company, including the divestiture of non-core assets and the partnership with Oaktree Capital, have positioned B. Riley Financial to focus on its strengths and navigate the path to recovery.
Outlook and Growth Opportunities
As B. Riley Financial emerges from this challenging period, the company is poised to capitalize on growth opportunities in its core financial services businesses. The investment banking and brokerage segment, led by a seasoned team with deep relationships in the middle-market space, is well-positioned to capitalize on the demand for advisory and capital-raising services.
The wealth management division, with its stable base of approximately $15 billion in client assets, is expected to continue generating consistent revenue and EBITDA. The advisory services business, GlassRatner, is also anticipated to maintain its strong performance, leveraging its expertise in specialized areas such as bankruptcy, restructuring, and litigation support.
Additionally, B. Riley's communications and consumer products segments, including Targus and its telecom operations, are expected to provide steady cash flows and diversification to the company's overall business model.
While the company still faces lingering challenges from its past investments, the strategic actions taken by B. Riley Financial have laid the groundwork for a renewed focus on its core competencies and a path to sustainable growth. As the company continues to navigate the road ahead, investors will be closely watching its ability to capitalize on emerging opportunities and strengthen its position as a leading diversified financial services platform.
Segment Performance
B. Riley Financial operates in five reportable business segments: Capital Markets, Wealth Management, Financial Consulting, Communications, and Consumer Products.
The Capital Markets segment provides investment banking, equity research, and institutional brokerage services. This segment has a portfolio of loans receivable, including loans to related parties. The segment's financial performance was significantly impacted by fair value adjustments on its loan portfolio, with a decrease of $70.6 million in fair value adjustments during the three months ended September 30, 2024, compared to the prior year period.
The Wealth Management segment provides retail brokerage, investment management, insurance, and tax preparation services. Total assets under management were approximately $25.7 billion as of September 30, 2024, of which advisory assets under management totaled approximately $8.1 billion. Advisory revenues were 0.24% of average advisory assets under management during the three months ended September 30, 2024.
The Financial Consulting segment provides specialized advisory services. Revenues from services and fees in this segment increased by $3.7 million to $23.9 million during the three months ended September 30, 2024, compared to the prior year period.
The Communications segment includes businesses that provide consumer Internet access and cloud communication services. Revenues from services and fees in this segment decreased by $15.9 million to $66.2 million during the three months ended September 30, 2024, compared to the prior year period.
The Consumer Products segment, comprised of Targus, saw a decrease in revenues from the sale of goods by $8.6 million to $49.8 million during the three months ended September 30, 2024, compared to the prior year period.
In a "normalized environment," B. Riley's broker-dealer business (B. Riley Securities) produced $72 million and $84 million in operating adjusted EBITDA in 2022 and the trailing 12-month period, respectively.
As B. Riley Financial continues to navigate through its challenges and implement its strategic initiatives, the company remains focused on leveraging its diversified business model and core strengths to drive long-term growth and value creation for its shareholders.