B. Riley Financial, Inc. (RILYT) 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.

Company Background and Growth

Founded in 1997, B. Riley Financial has grown to become a leading provider of investment banking, corporate finance, and restructuring services in the middle market. Over the years, the company has strategically expanded its capabilities through a series of acquisitions, solidifying its position as a diversified financial services firm with a strong focus on delivering value to its clients. B. Riley has opportunistically invested in and acquired companies or assets with attractive risk-adjusted return profiles to benefit its shareholders. The company owns and operates several uncorrelated consumer businesses on a principal basis, focusing on high quality companies and assets in industries where it has extensive knowledge and can benefit from its experience to make operational improvements and maximize free cash flow.

Recent Developments and Challenges

In 2023, B. Riley completed the acquisition of Targus, a multinational company that designs, manufactures, and sells consumer and enterprise productivity products with a large business-to-business customer client base and global distribution. This acquisition expanded B. Riley's Consumer Products segment. However, the company also faced challenges related to its investment in Freedom VCM Holdings, LLC and its prior business relationship with Brian Kahn, leading to significant non-cash impairment charges and legal proceedings.

In recent years, B. Riley Financial has faced its share of challenges, navigating through a period of strategic initiatives and asset monetization. The company's results have been impacted by losses associated with certain principal investments, prompting the leadership team to take decisive actions to strengthen the balance sheet and refocus the business on its core operations.

Strategic Initiatives

One of the key strategic moves made by B. Riley Financial was the establishment of a joint venture with Oaktree Capital Management for the Great American Group business. Under the terms of this transaction, the company contributed its appraisal and valuation services, retail, wholesale and industrial solutions, and real estate advisory businesses to a new holding company. At closing, B. Riley Financial received approximately $203 million in cash and a 44% ownership interest in the new entity. This transaction not only provided substantial capital to deleverage the balance sheet but also set the stage for the continued growth and success of the Great American Group.

Additionally, B. Riley Financial received approximately $236 million in gross proceeds through the financing of its brand assets, including the well-known bebe brand. This move further strengthened the company's financial position and allowed it to focus on its core business lines.

In a move to optimize its wealth management operations, B. Riley Financial announced the sale of a portion of its traditional W-2 Wealth Management business to Stifel Financial Corp. This transaction, which is expected to close in the early part of the second quarter of 2025, will allow the company to retain a core group of approximately 170 independent advisers and 81 W-2 advisers, managing approximately $15 billion in client assets.

Financials

The company's efforts to deleverage its balance sheet have been further bolstered by the complete redemption of its February 2025 senior notes, effectively retiring its only significant 2025 maturity. Moreover, B. Riley Financial recently secured a new $160 million senior secured credit facility with Oaktree, providing greater financial and strategic flexibility compared to the previous loan with Nomura.

In the fourth quarter of 2024, B. Riley Financial expects to report net income available to common shareholders of $48 million to $68 million, which includes approximately $236 million to $247 million of income from discontinued operations, primarily related to the divestiture of the Great American businesses. The company also anticipates reporting a net loss from continuing operations of $178 million to $187 million, primarily impacted by estimated impairment charges and trading losses. Operating adjusted EBITDA from continuing operations is expected to be $12 million to $14 million.

For the most recent quarter, B. Riley Financial reported revenue of $199,305,000 and a net loss of $284,397,000. The company generated operating cash flow (OCF) and free cash flow (FCF) of $19,455,000.

Liquidity

As of December 31, 2024, B. Riley Financial had cash, cash equivalents, and restricted cash of approximately $257 million, with total debt of $1.78 billion and total debt, net of cash and investments, of approximately $991 million. This represents a significant decline of $221 million in total debt, net of cash and investments, from the third quarter of 2024. The company's cash position has improved from $160.61 million as of September 30, 2024.

Future Outlook

Looking ahead, B. Riley Financial is poised to emerge from this period of asset monetization and debt reduction as a more focused and nimble company, concentrating predominantly on its leading middle market investment bank, B. Riley Securities, its Wealth Management business, and its advisory services operations, including the company's 44% ownership of Great American. These core businesses are supplemented by other investments, such as Targus and the company's Communications segment, which provide steady cash flow and EBITDA.

Core Business Segments

B. Riley Financial operates through 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 to publicly traded and privately held companies, institutional investors, and financial sponsors. It also engages in trading equity securities as a principal for its own account, including investments in funds managed by its subsidiaries. The segment maintains an investment portfolio comprised of public and private equities and debt securities. Additionally, it provides direct lending services to middle market companies and engages in securities-based lending, which involves the borrowing and lending of equity and fixed income securities.

The Wealth Management segment provides retail brokerage, investment management, insurance, and tax preparation services to individuals and families, small businesses, non-profits, trusts, foundations, endowments, and qualified retirement plans. Its experienced financial advisors offer investment management, retirement planning, education planning, wealth transfer and trust coordination, and lending and liquidity solutions.

The Financial Consulting segment offers a variety of specialized advisory services spanning bankruptcy, restructuring, turnaround management, forensic accounting, crisis and litigation support, and operations management. On November 15, 2024, the Company entered into a transaction to sell approximately 52.6% of the common equity interests in a newly formed subsidiary that included the Company's appraisal and valuation, real estate advisory, and auction and liquidations operations.

The Communications segment owns and operates several businesses, including Lingo Management, LLC, a global cloud-unified communications and managed service provider, Marconi Wireless Holdings, LLC, a mobile virtual network operator, magicJack VocalTec, LLC, a VoIP cloud-based technology and communications provider, and United Online, Inc., an Internet access provider.

The Consumer Products segment is comprised of Targus, a multinational company that designs, manufactures, and sells consumer and enterprise productivity products with a large business-to-business customer base and global distribution.

For the nine months ended September 30, 2024, the Capital Markets segment contributed $49.5 million in total revenues, the Wealth Management segment contributed $152.7 million, the Financial Consulting segment contributed $69.4 million, the Communications segment contributed $229.1 million, and the Consumer Products segment contributed $152.7 million.

B. Riley Financial's broker-dealer, B. Riley Securities, is uniquely positioned as a top provider to the middle market segment, with a brokerage, capital markets, and advisory business comprising approximately 180 employees across key offices. The leadership team of this unit has remained intact despite the recent challenges, and the company is well-positioned to invest resources to grow the team in the coming quarters. During the company's December 2023 Investor Day, it was shared that the B. Riley Securities segment produced $72 million and $84 million in operating adjusted EBITDA in 2022 and the trailing 12-month period, respectively. However, the CEO mentioned they are not implying they will recover to those levels this year.

The company's Wealth Management business, which will be streamlined following the sale of a portion to Stifel, is expected to manage approximately $15 billion in client assets. The leadership of this business has maintained profitability and is poised to continue contributing to B. Riley Financial's overall performance.

Additionally, the company's advisory services business, known as GlassRatner, has consistently performed well across its core expertise in bankruptcy and turnaround management, forensic accounting and litigation support, and financial due diligence. This business segment had a record year in 2024 and remains well-positioned in its specialized industry.

Conclusion

While B. Riley Financial has faced significant challenges in recent years, the company has demonstrated its resilience and adaptability. By strategically monetizing non-core assets, reducing debt, and refocusing on its leading middle market investment banking, wealth management, and advisory services operations, B. Riley Financial is poised to capitalize on its core strengths and deliver value to its shareholders.

As the company continues to navigate the path forward, investors should closely monitor B. Riley Financial's progress in executing its strategic initiatives, managing its balance sheet, and driving growth in its core business lines. With a strong leadership team, a renewed focus, and a commitment to serving its clients, B. Riley Financial is well-positioned to overcome its challenges and emerge as a stronger, more focused financial services provider.