Overview of the Company

B. Riley Financial, Inc. is a diversified financial services company that provides a range of services including investment banking, wealth management, asset management, lending, and business advisory. The company operates through five main business segments: Capital Markets, Wealth Management, Financial Consulting, Communications, and Consumer Products.

The company has a portfolio of investments and loans that it manages as part of its Capital Markets segment. This includes public and private equity securities, corporate bonds, and other fixed income investments. B. Riley also provides direct lending services to middle market companies.

Financial Performance

For the three months ended September 30, 2024, B. Riley reported total revenues of $199.3 million, down from $363.3 million in the same period in 2023. This decrease was primarily due to lower fair value adjustments on loans, lower interest income from loans and securities lending, and a decline in services and fees revenue.

The company’s Capital Markets segment saw the biggest drop in revenue, with services and fees declining 62.4% to $30.4 million. This was driven by a decrease in underwriting and investment banking activity. The Wealth Management and Communications segments also reported lower revenues.

On the other hand, the Financial Consulting segment saw an 18.4% increase in services and fees to $23.9 million, and the “All Other” category, which includes newer businesses like bebe and Nogin, had an 187.1% jump in services and fees to $28.5 million.

The company recorded a net loss of $287.6 million in the third quarter of 2024, compared to a net loss of $76.3 million a year earlier. This was driven by significant non-cash impairment charges related to the company’s investment in Freedom VCM Holdings, as well as losses from discontinued operations associated with the sale of the company’s brand assets and the Great American Group businesses.

For the first nine months of 2024, B. Riley reported total revenues of $637.2 million, down 44.7% from $1.15 billion in the same period of 2023. The decrease was again primarily due to lower fair value adjustments on loans, trading losses, and a decline in interest income.

Net loss for the nine-month period was $769.3 million, compared to a net loss of $16.0 million a year earlier. The larger loss was driven by the same factors that impacted the third quarter results.

Strengths and Weaknesses

One of B. Riley’s key strengths is the diversification of its business model across different financial services. This helps to mitigate risk and provide stability, as performance in one segment can offset weaker results in another. The company’s wealth management, financial consulting, and communications operations have provided more consistent revenue streams.

However, the company’s reliance on its Capital Markets segment, particularly investment banking and trading activities, makes it vulnerable to volatility in financial markets. The significant losses and impairment charges related to the company’s investments and loans in 2024 highlight this weakness.

Another strength is B. Riley’s portfolio of investments and loans, which can generate interest income and capital gains. But the fair value adjustments on these assets have been a major drag on profitability, as evidenced by the $259.3 million in losses recorded in the first nine months of 2024.

The company’s acquisition strategy, which has expanded its capabilities in areas like consumer products and e-commerce services, is also a potential strength. But integrating and optimizing these new businesses remains an ongoing challenge.

Outlook and Risks

Looking ahead, B. Riley faces a number of risks and uncertainties that could impact its future performance. The continued volatility in financial markets, including the impact of inflation and potential recession, could further depress results in the Capital Markets segment.

The company’s exposure to troubled companies like Conn’s and Franchise Group (through its investment in Freedom VCM) also poses significant risks. The bankruptcy filings by these companies have already resulted in large impairment charges for B. Riley.

To address these challenges, B. Riley has taken steps like suspending its common stock dividend and exploring the sale of non-core businesses and assets. The company is also working to reduce its debt load, which stood at $2.07 billion as of September 30, 2024.

However, the company’s ability to execute on these strategic initiatives will be critical to its future success. Failure to stabilize the business and strengthen the balance sheet could lead to further losses and liquidity concerns.

Overall, B. Riley remains in a transitional period as it works to navigate the current economic and market environment. While the company’s diversified model provides some resilience, its reliance on volatile capital markets activities continues to be a major vulnerability. Investors will be closely watching the company’s progress in the coming quarters.