Business Overview

B. Riley Financial, Inc. (RILYN) has weathered a challenging period, but the company is now primed to regain its footing and capitalize on its core strengths. With a renewed focus on its investment banking, wealth management, and advisory services businesses, B. Riley is poised to deliver value for its shareholders and clients alike.

Founded in 1997, B. Riley Financial, Inc. has evolved into a diversified financial services platform that provides tailored solutions to meet the strategic, operational, and capital needs of its clients and partners. The company operates through several consolidated subsidiaries, offering a wide range of services including investment banking, brokerage, wealth management, asset management, direct lending, and business advisory services. This broad spectrum of offerings caters to a diverse client base spanning public and private companies, financial sponsors, investors, financial institutions, legal and professional services firms, and individuals.

Historical Performance

Throughout its history, B. Riley has demonstrated a penchant for opportunistic investments and acquisitions, targeting companies or assets with attractive risk-adjusted return profiles to benefit its shareholders. The company has owned and operated several uncorrelated consumer businesses on a principal basis, leveraging its extensive knowledge and experience in specific industries to make operational improvements and maximize free cash flow.

The year 2023 marked a significant turning point for B. Riley, as the company faced substantial challenges related to its principal investments. Notable among these were its equity investment in Freedom VCM Holdings, LLC and loans to affiliated entities, which resulted in significant losses recognized on the company's financial statements. In response to these setbacks, B. Riley initiated a series of strategic actions in the fourth quarter of 2024 and early 2025, aimed at monetizing non-core assets, reducing debt, and refocusing the business on its core competencies.

Key Milestones

Key milestones in B. Riley's journey include the acquisition of Targus in 2022 and the take-private transaction of Franchise Group, Inc. in 2023, which led to B. Riley's equity investment in Freedom VCM. In 2024, the company established a joint venture with Oaktree Capital Management for its Appraisal and Valuation Services, Retail, Wholesale Industrial Solutions, and Real Estate advisory businesses, marking a significant strategic shift.

Strategic Pivots and Actions

The company's journey has been marked by strategic pivots and decisive actions aimed at strengthening its balance sheet and positioning it for future growth. In the fourth quarter of 2024, B. Riley 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 primarily related to the divestiture of a majority interest in the Great American businesses.

This divestiture was a pivotal moment for B. Riley, as it allowed the company to meaningfully deleverage its balance sheet while retaining a significant equity stake in a business with compelling growth prospects. The joint venture with Oaktree Capital Management for the Great American Group has already borne fruit, with the successful bid and management of the liquidation of all 800-plus JOANN fabric and craft stores, representing one of the largest transactions in the GA Group's 40-year history.

Furthermore, the company's decision to sell a portion of its traditional W-2 Wealth Management business to Stifel Financial Corp. for an estimated $26 million in cash consideration further strengthened its balance sheet and allowed it to focus on its core competencies. The retained wealth management business, with approximately $15 billion in assets under management, continues to be a stable and profitable part of the company's operations.

Core Business Focus

B. Riley's commitment to its investment banking and advisory services businesses has also been a key area of focus. The company's B. Riley Securities division, with its unique positioning as a top provider to the middle market segment, remains well-positioned to capitalize on opportunities in the current market environment. The leadership team's deep industry expertise and the company's strong client relationships have been instrumental in navigating the challenges of the past year.

The company's advisory services business, known as GlassRatner, also had a record year in 2024, further solidifying B. Riley's position as a trusted partner in specialized areas such as bankruptcy, turnaround management, forensic accounting, and financial due diligence.

Financials

While the company has faced notable headwinds, including impairment charges and trading losses, it has emerged from this period with a renewed sense of purpose and a strengthened balance sheet. The decision by Bryant Riley, the company's Chairman and Co-CEO, to withdraw his previous proposal to take the company private underscores his commitment to ensuring that shareholders, many of whom are employees, have the opportunity to participate in the company's recovery and future growth.

B. Riley's business is organized into five reportable operating segments: Capital Markets, Wealth Management, Financial Consulting, Communications, and Consumer Products. In the most recent quarter, the company reported total revenues of $199.31 million across these segments.

The Capital Markets segment, which provides investment banking, equity research, institutional brokerage services, and direct lending, reported revenues of $24.69 million. This included $30.44 million in services and fees, $1.91 million in trading income, $71.48 million in fair value adjustments on loans, $11.25 million in interest income on loans, and $7.01 million in interest income from securities lending.

The Wealth Management segment, offering retail brokerage, investment management, insurance, and tax preparation services, generated revenues of $50.06 million. As of September 30, 2024, this segment had approximately $25.70 billion in total assets under management, of which $8.10 billion were advisory assets.

The Financial Consulting segment, which offers specialized advisory services, reported revenues of $23.94 million. The Communications segment, comprising cloud-based unified communications and internet access services, generated revenues of $67.56 million. Lastly, the Consumer Products segment, which includes Targus, contributed $49.79 million in revenue from the sale of goods.

For the most recent quarter, B. Riley reported a net loss of $284.40 million, despite generating $19.46 million in operating cash flow and free cash flow. The company's current ratio and quick ratio both stand at 2.16, indicating a strong short-term liquidity position.

Liquidity

Looking ahead, B. Riley is focused on investing in its core businesses, including BRS, Wealth Management, and its advisory services, to drive sustainable growth and profitability. The company's stable and cash-generative businesses, such as its telecommunications operations, continue to provide a solid foundation for its strategic initiatives.

As of the most recent quarter, B. Riley reported a cash position of $159.25 million, further bolstering its liquidity. This strong cash position, combined with the company's current ratio of 2.16, suggests that B. Riley is well-positioned to meet its short-term obligations and pursue strategic opportunities.

Future Outlook

Despite the challenges of the past year, B. Riley has demonstrated its resilience and adaptability. The company's ability to navigate complex situations, monetize non-core assets, and reinvest in its core competencies positions it well for the future. As the company continues to execute on its strategic priorities, investors can look forward to a more focused and streamlined B. Riley Financial, poised to capitalize on the opportunities that lie ahead.

In terms of near-term expectations, B. Riley anticipates filing its 2024 Annual Report by the March 17th deadline, or potentially requesting a 15-day extension if needed. The company has also provided preliminary Q4 2024 financial results, projecting net income available to common shareholders between $48 million to $68 million, with diluted net income per share expected to range from $1.57 to $2.22. However, a net loss from continuing operations of $178 million to $187 million is anticipated, with operating adjusted EBITDA from continuing operations expected to be $12 million to $14 million.

These preliminary results, while unaudited and subject to change, offer insight into the company's recent performance and set the stage for B. Riley's continued transformation and growth in the coming years.