Business Overview and History
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 has faced significant headwinds in recent years, but its management team remains committed to navigating the challenges and unlocking new opportunities for growth.
B. Riley Financial was founded in the early 2000s and has grown to become a leading provider of investment banking, corporate finance, securities lending, restructuring, research, sales and trading services. The company operates through several consolidated subsidiaries, including B. Riley Securities, B. Riley Wealth Management, and Great American Group.
Over the years, B. Riley has expanded its footprint both organically and through strategic acquisitions. In 2015, the company acquired Great American Group, a leading provider of valuation, appraisal, asset disposition and real estate services, strengthening its position in the financial consulting and asset disposition markets. In 2017, B. Riley acquired Wunderlich Securities, further expanding its capabilities. The company continued its growth strategy with the acquisition of National Holdings Corporation in 2018, bolstering its wealth management and institutional brokerage offerings.
B. Riley has also opportunistically invested in and acquired consumer businesses and brands, leveraging its financial and operational expertise to drive value. This diversification strategy has allowed the company to capitalize on opportunities across various market conditions.
Financial Performance and Ratios
B. Riley’s financial performance has been mixed in recent years. For the fiscal year 2023, the company reported total revenue of $1.64 billion, a decrease of 6.9% from the prior year. Net income attributable to B. Riley Financial, Inc. was a loss of $99.91 million, compared to a loss of $159.83 million in 2022. The company’s operating cash flow and free cash flow for 2023 were $24.50 million and $16.79 million, respectively.
For the first quarter of 2024, B. Riley reported total revenues of $343.03 million, a decrease of 20.6% compared to the prior year period. This decline was primarily driven by decreases in trading income and fair value adjustments on loans, interest income from loans and securities lending, and sale of goods, partially offset by an increase in revenues from services and fees. The company reported a net loss of $49.16 million attributable to B. Riley Financial, Inc. during the quarter, compared to net income of $17.16 million in the prior year period.
Key Financial Ratios
The company’s financial ratios paint a complex picture. As of December 31, 2023, B. Riley’s current ratio was 1.09, indicating a moderate level of liquidity. The debt-to-equity ratio stood at 9.50, suggesting a highly leveraged capital structure. The return on equity (ROE) was -42.62%, reflecting the company’s struggles to generate a strong return for its shareholders.
Liquidity Position
B. Riley’s liquidity position, as indicated by its current ratio of 1.09, suggests that the company has sufficient short-term assets to cover its short-term liabilities. However, the high debt-to-equity ratio of 9.50 indicates a significant reliance on debt financing, which may pose challenges in terms of interest expenses and financial flexibility. As of the most recent report, the company held $190.69 million in cash and had access to a $200 million asset-based credit facility with Wells Fargo.
Segment Performance
B. Riley operates in six reportable segments:
Wealth Management Segment: Revenues from services and fees increased by 5.4% to $51.18 million in Q1 2024.
Auction and Liquidation Segment: Revenues from services and fees decreased by 34.6% to $3.56 million in Q1 2024, while revenues from the sale of goods increased to $2.22 million.
Financial Consulting Segment: Revenues from services and fees increased by 40.3% to $35.09 million in Q1 2024.
Communications Segment: Revenues from services and fees decreased by 4.7% to $81.07 million in Q1 2024.
Consumer Products Segment: Revenues from the sale of goods decreased by 21.6% to $51.52 million in Q1 2024.
Challenges and Headwinds
B. Riley’s recent financial performance has been largely impacted by its involvement in the Franchise Group (FRG) management-led buyout transaction. In 2023, FRG, a retailer backed by B. Riley, filed for Chapter 11 bankruptcy protection, resulting in significant losses and writedowns for the company. The fallout from this transaction has cast a shadow over B. Riley’s operations and reputation.
In November 2023, B. Riley learned that Brian Kahn, the former CEO of Franchise Group, was identified as an unindicted co-conspirator in SEC allegations and criminal charges of securities fraud against an executive of an unrelated hedge fund. This has led to scrutiny and investigations into B. Riley’s dealings with Kahn and Franchise Group. In July 2024, the company received subpoenas from the SEC related to these dealings and is cooperating with the investigation.
Additionally, the company has faced challenges in its communications and consumer products segments, which have experienced declining revenues and profitability. The ongoing COVID-19 pandemic and its impact on various industries have also weighed on B. Riley’s performance.
Unlocking Opportunities
Despite the challenges, B. Riley remains committed to diversifying its revenue streams and exploring new growth opportunities. The company’s core financial services businesses, including investment banking, brokerage, and wealth management, continue to generate steady cash flows and provide a strong foundation for the firm.
In 2024, B. Riley announced the launch of a partnership between the company and funds managed by Oaktree Capital Management in the Great American Group, an industry-leading provider of valuation, appraisal, asset disposition, and real estate services. This strategic move is expected to unlock additional revenue streams and enhance the company’s capabilities in these high-margin businesses.
Furthermore, B. Riley has been actively streamlining its operations and divesting non-core assets to focus on its key strengths and reduce debt. The recent sale of its apparel and Brookstone brands for $236 million is a testament to this strategy, as the company works to strengthen its balance sheet and position itself for long-term growth.
Outlook and Potential Catalysts
Looking ahead, B. Riley’s management has expressed cautious optimism about the company’s future prospects. The firm expects to return to a more normalized filing cadence for its financial reporting in 2025, which should help restore investor confidence.
For the second quarter of 2024, B. Riley provided preliminary estimates of a net loss in the range of $435 million to $475 million, with operating adjusted EBITDA expected to be in the range of $50 million to $55 million. These figures reflect several significant charges, including a non-cash impairment charge of approximately $28 million for Targus, a charge of $25 million related to a deferred tax benefit, and a non-cash write-down of approximately $330 million to $370 million for their Freedom VCM investment, which relates to the Franchise Group private transaction and their loan to Vintage Capital.
The company’s diversified platform and focus on high-growth areas like wealth management, investment banking, and advisory services provide potential catalysts for future growth. The recent additions of key hires in these segments, coupled with the company’s strong talent pool, position B. Riley to capitalize on the improving market environment for financial services.
Geographic Performance
B. Riley operates primarily in the United States, with some international operations in Europe, Asia, and Australia. Approximately 90% of the company’s revenue is generated in North America, highlighting the company’s strong domestic focus while maintaining a global presence.
Conclusion
B. Riley Financial has faced significant challenges in recent years, primarily stemming from its involvement in the Franchise Group buyout transaction and subsequent regulatory scrutiny. However, the company’s management team remains committed to navigating these obstacles and unlocking new opportunities for growth. With a focus on streamlining operations, reducing debt, and capitalizing on its core financial services capabilities, B. Riley is poised to emerge from this turbulent period as a more resilient and adaptable platform. The company’s diverse segment performance, particularly in areas such as Financial Consulting and Wealth Management, provides some stability amidst the challenges. Investors will be closely watching the company’s progress as it works to regain the trust of the market, address regulatory concerns, and deliver sustainable value for its shareholders in the face of significant write-downs and impairment charges.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.