Business Overview and Financial Highlights
B. Riley Financial, Inc. (RILYK) 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.
Over the past year, B. Riley has faced substantial headwinds stemming from its principal investment portfolio, leading to significant losses that have impacted the company's financial performance. However, management has taken decisive steps to address these challenges and position the firm for a stronger future.
B. Riley's operations are organized into five reportable segments: Capital Markets, Wealth Management, Financial Consulting, Communications, and Consumer Products. The company was founded in 1997 and has grown to become a leading provider of tailored solutions for its clients and partners. In the early 2000s, B. Riley expanded its investment banking and brokerage services, establishing a strong reputation for providing high-quality advice and execution to middle-market companies. During the financial crisis of 2008-2009, the company demonstrated its resilience by continuing to serve its clients and leveraging its expertise in restructuring and distressed situations.
In subsequent years, B. Riley diversified its business through strategic acquisitions of complementary companies, including wealth management and communications firms, which broadened its service offerings and revenue streams. The company also made strategic investments in various industries, including consumer products and real estate. A notable milestone was the acquisition of Targus, a leading provider of laptop and computer accessories, in 2022, which expanded the company's consumer products segment.
Financials
As of September 30, 2024, B. Riley reported total assets of $2.16 billion and total liabilities of $2.58 billion, resulting in a net equity deficit of $426.22 million. The company's capital structure included $1.53 billion in senior notes payable, $534.25 million in term loans and revolving credit facilities, and $29.91 million in other notes payable.
During the nine months ended September 30, 2024, B. Riley generated total revenues of $637.22 million, a decrease of 44.70% compared to the same period in 2023. The company reported a net loss from continuing operations of $645.51 million and a net loss available to common shareholders of $773.21 million. Operating cash flow for the nine-month period was $266.29 million, and free cash flow was $259.57 million.
For the third quarter of 2024, B. Riley reported revenue of $199.31 million, with a net loss of $284.40 million. Operating cash flow and free cash flow for the quarter were both $19.46 million.
The company provided preliminary estimates for the fourth quarter of 2024, projecting net income available to common shareholders of $48 million to $68 million, diluted net income per share of $1.57 to $2.22, net loss from continuing operations of $178 million to $187 million, and operating adjusted EBITDA from continuing operations of $12 million to $14 million.
Liquidity
B. Riley has taken several steps to improve its liquidity position and strengthen its balance sheet. These actions include entering into a joint venture with Oaktree Capital Management, which provided $203 million in cash, financing its brand assets for approximately $236 million in gross proceeds, and securing a new $160 million senior secured credit facility with Oaktree. The company has also divested non-core assets, such as the sale of a portion of its Wealth Management business and the sale of its Atlantic Coast Recycling business for $70 million.
As of September 30, 2024, B. Riley had $160.6 million in cash, cash equivalents, and restricted cash. The company maintains a $100 million revolving credit facility, of which $13.68 million was outstanding as of the same date. The current ratio and quick ratio both stood at 2.16.
By December 31, 2024, B. Riley reported approximately $257 million in cash, cash equivalents, and restricted cash. Total debt stood at $1.78 billion, with total debt net of cash and investments at approximately $991 million, representing a decline of $221 million from the third quarter.
Navigating Challenges and Charting a Path Forward
The substantial losses experienced by B. Riley in 2024 can be largely attributed to the performance of its principal investment portfolio, which included significant exposures to entities affiliated with former executive Brian Kahn, as well as the Conns and Freedom VCM businesses. These investments, which were intended to provide diversification and upside potential, ultimately resulted in significant impairments and write-downs that weighed heavily on the company's financial results.
In response to these challenges, B. Riley has taken a series of strategic actions to strengthen its balance sheet, reduce debt, and refocus the business on its core competencies. Key initiatives include:
1. Great American Group Joint Venture: In November 2024, B. Riley entered into 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. B. Riley received $203 million in cash and a 44% equity stake in the joint venture, providing substantial capital to deleverage the balance sheet.
2. Brand Asset Financing: B. Riley received approximately $236 million in gross proceeds through the financing of its brand assets, including the bebe brand.
3. Wealth Management Divestiture: The company announced the sale of a portion of its traditional W-2 Wealth Management business to Stifel Financial Corp. for an estimated $26 million in cash.
4. Senior Notes Redemption: B. Riley completed the full redemption of its February 2025 senior notes, retiring its only significant 2025 debt maturity.
5. New Credit Facility: The company secured a new $160 million senior secured credit facility with Oaktree, which was used to retire the outstanding balance on its previous Nomura credit facility and provide additional working capital.
6. Asset Monetization: B. Riley continues to evaluate opportunities to monetize non-core assets, as evidenced by the recent $70 million sale of its Atlantic Coast Recycling business.
With these strategic actions, B. Riley has significantly strengthened its balance sheet, reduced its debt burden, and positioned itself to focus on its core businesses, including its leading middle-market investment bank B. Riley Securities, its wealth management operations, and its advisory services businesses, including its 44% ownership stake in the Great American Group joint venture.
Segment Performance
Capital Markets Segment: This segment provides investment banking, equity research, institutional brokerage, fund and asset management, and direct lending services. As of September 30, 2024, loans receivable at fair value totaled $151.70 million. Fair value adjustments on these loans resulted in losses of $71.48 million and $259.26 million for the three and nine months ended September 30, 2024, respectively, primarily due to declines in underlying collateral values related to loans to Vintage Capital Management, LLC and Conns, Inc.
Wealth Management Segment: As of September 30, 2024, this segment had approximately $25.70 billion in total assets under management, including $8.10 billion in advisory assets. Advisory revenues were 0.24% and 0.25% of average advisory assets under management during the three and nine months ended September 30, 2024, respectively.
Financial Consulting Segment: Revenues from services and fees in this segment increased by $17.06 million, or 32.6%, to $69.38 million during the nine months ended September 30, 2024, compared to the same period in 2023, primarily due to growth in bankruptcy and restructuring, forensic and litigation, and other advisory divisions.
Communications Segment: Revenues from services and fees decreased by $25.47 million, or 10.2%, to $225.06 million during the nine months ended September 30, 2024, compared to the same period in 2023, primarily due to a decline in subscription revenue.
Consumer Products Segment: Revenues from the sale of goods decreased by $26.42 million, or 14.7%, to $152.74 million during the nine months ended September 30, 2024, compared to the same period in 2023, due to a decrease in computer and peripheral sales worldwide.
Outlook and Risks
As B. Riley looks to the future, the company expects to emerge as a more nimble and focused organization, concentrating on its core competencies while exploring strategic opportunities to further unlock value. The broker-dealer operations within B. Riley Securities are well-positioned to capitalize on their strong market position, while the wealth management and advisory services businesses continue to provide steady cash flow and EBITDA contributions.
However, the company still faces several risks and challenges, including:
1. Ongoing Litigation and Regulatory Scrutiny: B. Riley and its executives continue to navigate various legal proceedings and regulatory investigations related to the company's prior business dealings with Brian Kahn and its investments in entities such as Conns and Freedom VCM. The company and its Chairman/Co-CEO Bryant Riley have received subpoenas from the SEC related to these matters, as well as certain securities transactions and compliance procedures. Additionally, B. Riley is subject to several lawsuits, including a stockholder derivative complaint and putative class action lawsuits related to its involvement with Brian Kahn and the Franchise Group, Inc. take-private transaction.
2. Debt Maturities: While the company has made significant progress in reducing its debt load, it still faces maturities on its outstanding senior notes in 2026 and 2028 that will require proactive management.
3. Market Conditions: As a diversified financial services firm, B. Riley's performance is heavily influenced by broader economic and market conditions, which could impact the demand for its services and the performance of its principal investments.
4. Execution Risk: The successful execution of the company's strategic initiatives, including the integration of the Great American Group joint venture and the integration of the remaining wealth management business, will be critical to B. Riley's long-term success.
Despite these challenges, B. Riley's management team has demonstrated its ability to navigate turbulent waters and position the company for a stronger future. With a focus on its core competencies, a strengthened balance sheet, and a commitment to prudent capital allocation, B. Riley appears well-positioned to capitalize on future opportunities and deliver value for its shareholders.
In terms of future performance, while the company has not provided specific long-term guidance, management has expressed optimism about the potential recovery and growth of core businesses such as B. Riley Securities, Wealth Management, and the advisory services business (GlassRatner). In a previous Investor Day presentation in December 2023, the company noted that its B. Riley Securities business had produced $72 million and $84 million in operating adjusted EBITDA in 2022 and the trailing 12-month period, respectively. While management does not expect an immediate return to these levels, they believe the business is capable of recovering to and exceeding those levels in the near future.
As B. Riley continues to navigate its current challenges and implement its strategic initiatives, investors and analysts will be closely monitoring the company's progress in stabilizing its financial position, growing its core businesses, and addressing ongoing legal and regulatory matters. The company's ability to execute on its plans while maintaining transparency and rebuilding investor confidence will be crucial in determining its long-term success and value creation for shareholders.