B. Riley Financial (RILY) Q2 Earnings call transcript Aug 12, 2024
B. Riley Financial, a leading financial services firm, released its preliminary results for the second quarter of 2024, revealing a net loss within the range of $435 million to $475 million. This loss was attributed to a non-cash impairment charge for its investment in The Franchise Group (FRG) and a non-cash write-down for its Freedom VCM investment, totaling approximately $330 million to $370 million. Despite these significant losses, the company demonstrated consistent performance from its core businesses, with operating adjusted EBITDA expected to be between $50 million and $55 million.
Impact of External Factors and Regulatory Scrutiny
The second quarter was marked by a series of challenging circumstances for B. Riley Financial. The rapid deterioration in consumer spending and the bankruptcy filing of Conn's, a subsidiary of FRG, significantly impacted the company's operating performance and investments. Furthermore, the fallout from the alleged misconduct of FRG's former CEO has created a complex dynamic among FRG's lenders and counterparties. The company and its executives, including Bryant Riley, have received subpoenas from the SEC, primarily related to the company's dealings with Brian Kahn. Despite these challenges, B. Riley Financial remains committed to cooperating fully with the SEC and is confident in its internal investigation findings that it had no involvement or knowledge of any alleged misconduct.
Refocusing on Core Businesses and Strategic Adjustments
In response to the setbacks, B. Riley Financial is refocusing on its core financial services business and reducing its overhang to restore stakeholder confidence. This includes a pause on its dividend payments to retire more outstanding debt and a review of the Great American Group business. The firm is also continuing to enhance its existing principal positions and strategically positioning itself to capitalize on opportunities in its core operating businesses.
Strategic Acquisitions and Growth
Despite the challenges, B. Riley Financial has made strategic acquisitions to strengthen its portfolio. In July, it closed the acquisition of Interface Consulting International, a leading engineering and construction consulting firm, which will enhance its forensic accounting and litigation support practice. The firm has also made significant strides in its wealth management business, which has transitioned from a money-losing business to a double-digit EBITDA generator.
Looking Ahead
B. Riley Financial is optimistic about the future, with a focus on maximizing value from its existing principal positions and capitalizing on opportunities in its core financial services businesses. The company remains well-positioned in its core operating businesses, particularly in the areas of capital raising and M&A, restructuring and liability management, and wealth management. Despite the challenges faced in the second quarter, B. Riley Financial remains confident in its strategic direction and its ability to navigate the complex financial landscape.