Business Overview B. Riley Financial, Inc. (RILYM) 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.
B. Riley Financial, Inc. was founded in 1988 and is headquartered in Los Angeles, California. The company started as an investment banking and brokerage firm, providing services to publicly traded and privately held companies, institutional investors, and financial sponsors. Over the years, B. Riley has grown significantly, both organically and through strategic acquisitions, to become a well-diversified financial services provider.
The company's expansion strategy has included several key acquisitions. In 2015, B. Riley acquired FocalPoint Securities, a middle-market investment banking firm, which strengthened its corporate finance and advisory capabilities. The following year, the company entered the telecommunications and cloud services market with the acquisition of magicJack VocalTec Ltd. In 2018, B. Riley made another major move by acquiring Wunderlich Securities, a wealth management and investment banking firm, which helped build out its wealth management segment and expand its geographic footprint. The company further bolstered its communications business in 2019 with the acquisition of Marconi Wireless, a mobile virtual network operator.
B. Riley has demonstrated resilience in the face of challenging market conditions. During the global financial crisis of 2008-2009, the company weathered the storm by diversifying its revenue streams and focusing on less cyclical business lines. More recently, during the COVID-19 pandemic in 2020, B. Riley rapidly adapted to remote work environments to maintain business continuity and continue serving its clients.
The company operates in five reportable business segments: Capital Markets, Wealth Management, Financial Consulting, Communications, and Consumer Products. The Capital Markets segment provides investment banking, corporate finance, securities lending, restructuring, research, sales, and trading services. The Wealth Management segment offers retail brokerage, investment management, insurance, and tax preparation services to individuals, families, small businesses, non-profits, trusts, foundations, endowments, and qualified retirement plans. The Financial Consulting segment provides bankruptcy, financial advisory, forensic accounting, real estate consulting, and valuation and appraisal services. The Communications segment includes businesses that provide consumer internet access, cloud communication services, and mobile phone voice, text, and data services and devices. The Consumer Products segment is comprised of Targus, a multinational company that designs, manufactures, and sells consumer and enterprise productivity products.
Financial Performance B. Riley Financial reported revenue of $199.3 million and a net loss of $284.4 million in the most recent quarter. The company's financial performance has been impacted by challenges across its various segments.
In the Capital Markets segment, revenues decreased compared to the prior year, primarily due to a decline in underwriting engagements and lower corporate finance, consulting, and investment banking fees. The segment also experienced a decrease in interest income from loans as the loan receivable balance declined.
The Wealth Management segment saw a slight increase in revenues year-over-year, driven by higher brokerage and advisory fees, partially offset by a decline in other income.
The Financial Consulting segment demonstrated strong performance with increased revenues during the reporting period. This growth was primarily due to higher demand for bankruptcy and restructuring services, as well as an increase in fees from the forensic and litigation consulting divisions.
The Communications segment experienced a decrease in revenues compared to the prior year, mainly due to a decline in subscription and advertising revenues across the segment's various businesses.
In the Consumer Products segment, revenues from the sale of goods declined year-over-year, primarily due to lower demand for computer and peripheral products worldwide.
Liquidity B. Riley Financial reported a current ratio of 2.16, a quick ratio of 2.16, and a cash ratio of 1.37, indicating a strong liquidity position. The company's debt ratio was 0.014, suggesting a conservative capital structure. The company's return on assets, return on equity, and return on capital employed were -0.387, 17.014, and -0.176, respectively.
As of the most recent reporting period, B. Riley Financial had $159.3 million in cash on hand. The company's current ratio and quick ratio both stand at 2.16, further demonstrating its strong liquidity position.
Challenges and Resilience B. Riley Financial has faced several challenges in recent years, including the impact of the COVID-19 pandemic, the fallout from its investment in Freedom VCM Holdings, LLC, and the legal issues surrounding its prior business relationship with Brian Kahn. The company has also been subject to various lawsuits and regulatory investigations related to these matters.
The company has been significantly impacted by volatility in its loan portfolio, with substantial fair value adjustments and impairments related to loans made to affiliates of Brian Kahn and the Conns and Freedom VCM businesses. These issues have led to increased legal and regulatory scrutiny, which could continue to affect the company's financial and operational performance going forward.
Despite these challenges, B. Riley Financial has demonstrated resilience and a commitment to addressing the issues head-on. The company conducted an internal review and an independent investigation to address the concerns related to its dealings with Brian Kahn and his affiliates, and the findings confirmed that the company and its executives had no involvement in or knowledge of any alleged misconduct.
Furthermore, the company has taken steps to strengthen its internal controls and risk management processes to prevent similar issues from arising in the future. The company has also worked to diversify its revenue streams and reduce its exposure to certain high-risk investments and relationships.
Outlook and Guidance Looking ahead, B. Riley Financial is focused on addressing the challenges it has faced and concentrating on its core business operations. The company is exploring strategic alternatives, including the potential sale of non-core assets and the refinancing of its debt obligations, to strengthen its financial position and enhance shareholder value.
B. Riley Financial remains committed to its long-term growth strategy and to delivering value to its clients and shareholders. The company's diversified business model, strong liquidity position, and efforts to address its challenges suggest that it is working to navigate the current market environment and emerge as a stronger, more resilient financial services provider.
Product Segments B. Riley Financial operates through five key product segments:
Capital Markets Segment: This segment provides investment banking, equity research, institutional brokerage, and direct lending services. It generates revenues from corporate finance, consulting, and investment banking fees, as well as commissions, fees, and interest income from lending activities.
Wealth Management Segment: This segment offers retail brokerage, investment management, insurance, and tax preparation services to individuals, families, small businesses, and other clients. Revenues in this segment are primarily composed of brokerage revenues, advisory fees, and other wealth management-related fees.
Financial Consulting Segment: This segment provides specialized advisory services spanning bankruptcy, restructuring, turnaround management, forensic accounting, crisis and litigation support, and operations management.
Communications Segment: This segment includes businesses that provide cloud-based unified communications, mobile virtual network operator services, and internet access.
Consumer Products Segment: This segment includes Targus, a company that designs, manufactures, and sells consumer and enterprise productivity products, such as laptop and tablet cases, backpacks, and computer accessories.
Fixed Income Securities B. Riley Financial provides fixed income securities, primarily 6.38% Senior Notes due 2025. These notes were issued under an at-the-market program and have been listed on the Nasdaq Global Market exchange under the ticker symbol RILYM.
Conclusion B. Riley Financial, Inc. (RILYM) is a diversified financial services company that has faced significant challenges in recent years, including the impact of the COVID-19 pandemic, legal issues related to its prior business relationship with Brian Kahn, and the fallout from its investment in Freedom VCM Holdings, LLC. However, the company has demonstrated resilience and a commitment to addressing these issues head-on, with a focus on strengthening its internal controls, diversifying its revenue streams, and exploring strategic alternatives to enhance its financial position and shareholder value.
Despite the headwinds, B. Riley Financial remains a well-positioned financial services provider with a diversified business model, strong liquidity, and a focus on delivering tailored solutions to its clients. As the company continues to navigate the current market environment, investors will want to closely monitor its progress in addressing the challenges it has faced and its ability to execute on its long-term growth strategy.