Executive Summary / Key Takeaways

• B. Riley Financial is undergoing a significant strategic realignment, divesting non-core assets and aggressively reducing debt to refocus on its foundational financial services businesses: Capital Markets, Wealth Management, and Financial Consulting.
• Despite recent non-cash write-downs from principal investments and associated legal/regulatory scrutiny, the firm's core operating segments continue to demonstrate resilience and profitability, with Advisory Services achieving record performance.
• Substantial deleveraging efforts, including asset sales and debt exchanges, have significantly strengthened the balance sheet, with total debt projected to decrease by $600 million from September 2024 to June 2025.
• Management is optimistic about the recovery of its core financial services, anticipating increased transactional activity in capital raising, M&A, and restructuring, alongside renewed interest in small-cap stocks.
• The company's unique platform, combining diverse financial services with opportunistic investing, aims to create long-term shareholder value by leveraging its middle-market expertise and integrated technological solutions.

A Refocused Vision: Building on a Foundation of Financial Expertise

B. Riley Financial, Inc. (NASDAQ:RILY) stands as a diversified financial services platform, strategically built over decades to offer tailored solutions across investment banking, brokerage, wealth management, asset management, direct lending, and business advisory. From its origins as a two-person stock research firm in 1997, the company has evolved through opportunistic investments and acquisitions, becoming a public entity in 2014. This journey has shaped its current strategy: leveraging an integrated platform to serve the middle market, enhance operational value, and capitalize on market dislocations.

The company operates within a competitive financial services landscape, facing established players like Jefferies Financial Group (JEF), Stifel Financial Corp. (SF), Piper Sandler Companies (PIPR), and Raymond James Financial, Inc. (RJF). While larger competitors may boast greater scale and global reach, B. Riley differentiates itself through a focused approach on middle-market clients and specialized advisory services, including restructuring and asset disposition. Its diversified business model, encompassing both operating businesses and an investment book, aims to provide resilience across economic cycles.

Technologically, B. Riley's differentiation lies in its strategic application and integration of various platforms to enhance service delivery and operational efficiency. In its Communications segment, it leverages cloud-unified communications and VoIP cloud-based technology. The now-divested E-Commerce segment, Nogin, operated as a technology platform delivering Commerce-as-a-Service (CaaS) solutions. Within its core financial services, B. Riley Securities is actively engaged in "crypto treasury implementation and advancing AI adoption," indicating an embrace of emerging technologies to meet client needs. This integrated technological approach allows B. Riley to offer comprehensive solutions, foster cross-selling opportunities, and streamline operations, positioning it to compete effectively by delivering tailored, efficient services to its specialized client base.

Broad industry trends, such as increasing transactional activity in capital raising and M&A, coupled with a rise in restructuring and liability management, signal a potentially improving environment for B. Riley's core financial services. There is also a "renewed optimism in small cap stocks in a post peak rate environment," a market segment where B. Riley has historically focused. This backdrop provides a fertile ground for the company's refocused strategy.

Strategic Realignment and Financial Performance

The past year has marked a significant "demarcation line" for B. Riley, characterized by a concerted effort to streamline its operations and strengthen its balance sheet. This period saw the recognition of substantial losses from certain principal investments, notably a $221 million realized and unrealized loss on its investment in Freedom VCM Holdings, LLC in 2024, exacerbated by the entity's Chapter 11 bankruptcy filing. Additionally, the Consumer Products segment, primarily Targus, faced "macro headwinds" in the global PC market, leading to significant non-cash impairment charges of $105.4 million in 2024, including $26.7 million for goodwill and $5 million for tradenames related to Targus.

Despite these challenges, the underlying operating performance of B. Riley's core businesses has shown resilience. The company reported a preliminary net loss available to common shareholders of $772.3 million, or $25.46 diluted loss per share, for the full year 2024. However, operating adjusted EBITDA from continuing operations was $66 million in Q1 2024, $50 million to $55 million in Q2 2024, and $12 million to $14 million in Q4 2024, demonstrating consistent contribution from its core segments. For the full year 2023, operating adjusted EBITDA stood at $368 million on operating revenues of $1.63 billion.

The Capital Markets segment, while experiencing volatility with a $316.1 million segment loss in 2024, showed signs of recovery with a "strong December" in 2024 and improving activity in Q2 2025. Management believes B. Riley Securities is "uniquely positioned as the top provider to the middle market segment" and is capable of recovering to and eclipsing its 2022 operating adjusted EBITDA levels of $72 million.

Wealth Management has returned to profitability, reporting $6.4 million in segment income in 2024, a significant turnaround from a $34.3 million loss in 2022. Revenues in Q1 2024 increased to $52 million, with AUM at approximately $20.7 billion as of December 31, 2024. The recent sale of a portion of its W-2 Wealth Management business to Stifel for an estimated $26 million, while reducing AUM to approximately $15 billion, allows B. Riley to retain a core group of advisors and focus on synergies.

The Financial Consulting segment has been a standout performer, achieving a "record Q1" in 2024 with revenues at an annual rate exceeding $100 million, up from approximately $76 million three years prior. Segment income reached $17.6 million in 2024, reflecting strong demand for bankruptcy, restructuring, forensic accounting, and litigation support services. The Communications segment consistently provides "steady cash flow and EBITDA," generating $29.2 million in segment income in 2024.

Deleveraging and Strategic Outlook

B. Riley has undertaken aggressive measures to deleverage its balance sheet. Total debt, which stood at $2.4 billion at December 31, 2023, is estimated to have decreased by $600 million to $1.46 billion by June 30, 2025. This reduction was fueled by several strategic asset monetizations:

• Great American Group Transaction: In November 2024, B. Riley sold a 52.60% stake in its appraisal and liquidation businesses to Oaktree Capital Management for approximately $203 million in cash, retaining a 44% ownership. This partnership has already yielded a significant win with the JOANN liquidation contract, valued at approximately $2 billion in retail inventory.
• Brands Transaction: In October 2024, the financing of brand assets, including bebe, generated approximately $236 million in gross proceeds.
• Atlantic Coast Recycling Sale: In March 2025, this non-core asset was sold for approximately $70 million in cash, with an expected gain of $30 million in Q1 2025.
• GlassRatner and Farber Sale: In June 2025, the company agreed to sell these financial consulting businesses for $117.8 million.

Further strengthening its liquidity, B. Riley established a new $160 million senior secured credit facility with Oaktree in February 2025, replacing its Nomura (NMR) facility. The company also completed private exchange transactions from March to July 2025, reducing outstanding senior notes by approximately $355 million in aggregate principal amount for $228.4 million in new secured notes. As of December 31, 2024, the company held $154.9 million in unrestricted cash and $100.5 million in restricted cash.

Management's outlook is firmly centered on reinvesting in its core financial services. The withdrawal of Bryant Riley's take-private proposal underscores a belief in the firm's potential for public shareholders. The company aims to exit 2024 with ample liquidity and expects First Half 2025 Net Income Available to Common Shareholders to be in the range of $125.0 million to $145.0 million. The temporary suspension of common and preferred stock dividends in late 2024 and early 2025 reflects a commitment to debt reduction and balance sheet flexibility.

Risks and Competitive Dynamics

B. Riley operates in highly competitive industries, facing larger, better-funded competitors with potentially more advanced technology. The burgeoning interest in AI, for instance, could lower barriers to entry and disrupt existing business models. However, B. Riley's strategic response involves leveraging its middle-market focus and integrated platform. Its Capital Markets segment, with its "research-led franchise" and recent senior hires, aims to deepen domain expertise in areas like Digital Assets and FinTech, directly addressing competitive threats and industry trends. The partnership with Oaktree for Great American Group also enhances its competitive standing by combining B. Riley's specialized advisory with Oaktree's scale.

The company acknowledges significant risks, including the inherent volatility of its investment portfolio, which can lead to substantial non-cash write-downs. Legal and regulatory scrutiny, particularly related to past dealings with Brian Kahn and the Franchise Group transaction, has resulted in SEC subpoenas and ongoing litigation. While internal investigations have found no wrongdoing, these matters create an overhang. Furthermore, the company has identified material weaknesses in internal control over financial reporting across several areas, though management expects remediation by the end of fiscal 2025. NASDAQ compliance issues due to delayed filings also present a challenge, but the company is actively working to regain compliance.

Conclusion

B. Riley Financial is at a pivotal juncture, having confronted significant challenges stemming from principal investment losses and external scrutiny. The firm's decisive actions to divest non-core assets, aggressively reduce debt, and streamline operations signal a clear strategic pivot towards its core financial services strengths. This refocus, coupled with the resilience and profitability of its Capital Markets, Wealth Management, and Financial Consulting segments, forms a compelling investment thesis.

While the path forward involves continued vigilance against competitive pressures and the full remediation of internal control weaknesses, B. Riley's commitment to its middle-market niche, its integrated platform, and its strategic embrace of technological advancements position it for renewed growth. The substantial deleveraging and the strategic partnership with Oaktree underscore a proactive approach to unlocking value and enhancing long-term shareholder returns, making B. Riley a compelling consideration for discerning investors.