B. Riley Financial, Inc. (NASDAQ: RILYM) is a diversified financial services platform that provides a range of tailored solutions to meet the strategic, operational, and capital needs of its clients and partners. The company operates through several consolidated subsidiaries that offer investment banking, brokerage, wealth management, asset management, direct lending, business advisory, valuation, and asset disposition services.

In the fiscal year ended December 31, 2023, B. Riley Financial reported annual revenue of $1,556,449,000 and a net loss of $78,314,000. The company generated annual operating cash flow of $24,502,000 and annual free cash flow of $16,791,000.

For the first quarter of 2024, the company reported total revenues of $343,032,000 and a net loss of $47,954,000. The decrease in revenues during the three months ended March 31, 2024 was primarily due to decreases in the fair value of the portfolio of securities and other investments owned and fair value adjustments on loans of $81,436,000, interest income from loans and securities lending of $17,242,000, and sale of goods of $12,124,000, partially offset by an increase in revenues from services and fees of $21,744,000.

Business Overview

B. Riley Financial operates through six reportable business segments: Capital Markets, Wealth Management, Financial Consulting, Auction and Liquidation, Communications, and Consumer Products. These segments provide a diverse range of financial services and solutions to a broad client base.

The Capital Markets segment offers investment banking, corporate finance, securities lending, restructuring, research, sales and trading services to corporate and institutional clients. The Wealth Management segment provides wealth management and tax services to corporate and high-net-worth clients. The Financial Consulting segment offers bankruptcy, financial advisory, forensic accounting, real estate consulting and valuation and appraisal services.

The Auction and Liquidation segment provides auction and liquidation services to help clients dispose of assets, including multi-location retail inventory, wholesale inventory, trade fixtures, machinery and equipment, intellectual property and real property. The Communications segment generates revenue through sales of consumer Internet access and related subscription services, cloud communication services, and mobile phone voice, text, and data services and devices. The Consumer Products segment focuses on the design and sale of laptop and computer accessories.

Geographic Breakdown

The majority of B. Riley Financial's operating activities are conducted in the United States, with revenues generated from foreign subsidiaries totaling $37,400,000 and $30,500,000 during the three months ended March 31, 2024 and 2023, respectively, or 10.9% and 7.0% of total revenues.

Segment Performance

Capital Markets Segment:

Revenues from services and fees in the Capital Markets segment increased $2,418,000 or 4.2% to $60,347,000 during the three months ended March 31, 2024 from $57,929,000 during the same period in 2023. This increase was primarily due to increases of $11,000,000 in corporate finance, consulting and investment banking fees, $500,000 in other income, and $400,000 in asset management fees, partially offset by decreases of $6,500,000 in dividends and $3,000,000 in commission fees.

Wealth Management Segment:

Revenues from services and fees in the Wealth Management segment increased $2,640,000 or 5.4% to $51,182,000 during the three months ended March 31, 2024 from $48,542,000 during the same period in 2023. This increase was primarily due to a $2,700,000 increase in wealth and asset management fees.

Auction and Liquidation Segment:

Revenues from services and fees in the Auction and Liquidation segment decreased $1,884,000 or 34.6% to $3,560,000 during the three months ended March 31, 2024 from $5,444,000 during the same period in 2023. This decrease was primarily due to a $2,900,000 decline in commission fees, partially offset by a $1,000,000 increase in service contract revenues.

Financial Consulting Segment:

Revenues from services and fees in the Financial Consulting segment increased $10,075,000 or 40.3% to $35,085,000 during the three months ended March 31, 2024 from $25,010,000 during the same period in 2023. This increase was primarily due to an $8,500,000 rise in the Advisory Services division, consisting of $2,900,000 from acquisitions in the prior year and $5,600,000 in advisory services, as well as a $1,600,000 increase in the Appraisal division.

Communications Segment:

Revenues from services and fees in the Communications segment decreased $3,982,000 or 4.7% to $81,070,000 during the three months ended March 31, 2024 from $85,052,000 during the same period in 2023. This decrease was primarily due to declines of $3,300,000 in subscription revenue and $700,000 in advertising, licensing and other revenue.

Consumer Products Segment:

Revenues from the sale of goods in the Consumer Products segment decreased $14,172,000 or 21.6% to $51,522,000 during the three months ended March 31, 2024 from $65,694,000 during the same period in 2023. This decrease was primarily attributable to a decline in computer and laptop sales worldwide.

Liquidity and Capital Resources

As of March 31, 2024, B. Riley Financial had $190,690,000 in unrestricted cash and cash equivalents, $949,868,000 in securities and other investments owned at fair value, and $452,496,000 in loans receivable at fair value. Total debt as of March 31, 2024 was approximately $2,186,400,000, including $1,553,616,000 in senior notes payable, $596,262,000 in term loans, and $22,197,000 in revolving credit facility borrowings.

The company believes that its current cash and cash equivalents, securities and other investments owned, funds available under its asset-based credit facility, funds available under the Targus and Nomura revolving credit facilities, and cash expected to be generated from operating activities will be sufficient to meet its working capital and capital expenditure requirements for at least the next 12 months.

Risks and Challenges

B. Riley Financial noted that its diversified financial platform is affected by a variety of factors including continuing higher inflation, the actions by the Federal Reserve to address inflation, the possibility of recession or an economic downturn, Russia's invasion of Ukraine, the conflicts in the Middle East, and rising energy prices. These factors create uncertainty about the future economic environment which will continue to evolve and may impact the company's business in future periods.

The company did not provide specific financial guidance for the remainder of fiscal year 2024. However, management expressed confidence in the company's ability to navigate the current market environment and capitalize on opportunities ahead, particularly in the small- and mid-cap financial services space.

Conclusion

B. Riley Financial's diversified financial services platform and its focus on tailored solutions position the company well to meet the needs of its broad client base. While the company faces some near-term macroeconomic headwinds, its strong liquidity, diverse revenue streams, and experienced management team suggest it is poised to weather the current environment and deliver long-term value for shareholders.