Q4 2024 B. Riley Financial Inc Earnings Call
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Your line is muted.
Tom: Good morning, and welcome to the B Riley financial preliminary fourth quarter earnings result Conference call. My name is Tom and I will be your call coordinator earlier today B Riley issued a press release announcing our preliminary results for the fourth quarter of 2024, which can be found on <unk> Investor Relations website at IR Dot B Riley Finn.
Dot com.
Tom: Today's call includes prepared remarks from the company followed by a question and answer session.
Tom: Joining us today from B Riley are Bryant Riley, Chairman and co founder and co CEO, Tom Kelleher co founder and co CEO and Philip <unk> CFO and COO.
Tom: As a reminder, this call is being recorded.
Tom: An audio replay will be available on the company's Investor Relations Web site later today.
Speaker Change: Today's call will also include non-GAAP measures the reconciliations for these as well as an explanation for the use of these metrics and the definition of these terms are available in the press release, which is available on the company's Investor Relations website and before we conclude today's call I will provide the necessary cautions regarding forward looking statements now I will turn the call over to Mr. Bryant Riley.
Bryant Riley: Mr. Riley. Please proceed.
Bryant Riley: Thank you and good afternoon, everyone on today's call. We appreciate everyone joining us I want to start by expressing my appreciation for your patience as we work towards becoming current with our financials and regained NASDAQ listing compliance.
Bryant Riley: And while we still need to finalize our fourth quarter results and file our annual report for 2024, we wanted to provide investors with a brief update as to where things currently stand and our priorities for the year.
Bryant Riley: Given the substantial number of strategic initiatives, we've undertaken including several transactions. We thought it would be helpful to start with a recap of the actions we've taken since the start of the fourth quarter and an overview of where our business is today.
Bryant Riley: The common thread across all of these actions as our responsiveness to the challenges created by certain principal investments.
Bryant Riley: These losses have been recognized and while there's still work to do we're moving forward with a stronger balance sheet and capacity to reinvest in our core businesses.
Bryant Riley: Let me touch on a few notable developments.
Bryant Riley: First we established a joint venture with Oaktree capital management for Great American Group.
Bryant Riley: Under the terms of this transaction, we contributed all of the interest in B, Riley's appraisal and valuation services.
Bryant Riley: Retail wholesale and industrial solutions, and real estate advisory businesses to a new holding company.
Bryant Riley: At closing B Riley received total consideration consisting of approximately $203 million in cash plus ownership interest amounting to approximately 44% of the company <unk>.
Bryant Riley: And in fact, we sold a majority stake in these businesses, which provided substantial capital to meaningfully delever, our balance sheet, while still maintaining significant equity upside in a business with compelling growth prospects.
Bryant Riley: Critical to our thank you with this transaction as there are now two firms with the best in interest in seeing that Ta will continue to thrive.
Bryant Riley: We believe oaktree scale and expertise in alternative investments and the strength as a capital provider combined with the GAA group's leading position as a provider of asset disposition financial advisory and real estate Advisory services will prove complementary as we joined forces to deliver financial products and services to better serve our clients.
Bryant Riley: We've already seen the benefits of this partnership with last week's successful bid in a competitive bankruptcy process to manage the liquidation of all 800, plus Jo Ann fabric and crafts stores. This liquidation, which includes approximately $2 billion in retail inventory represents one of the largest transactions in <unk> 40 year history.
Bryant Riley: Had we not establish this JV. It is unlikely we would have secured this opportunity, which we expect to be meaningful to the shareholders of B Riley I can safely say that the initial results are exceeding our expectations.
Bryant Riley: Given the relationship and our involvement B Riley was able to participate in the transaction as a strategic investor and alone in the joint venture overseeing the liquidation.
Bryant Riley: We invested approximately $30 million and expect to make a sizable return on this short duration investment.
Bryant Riley: Second we received approximately $236 million in gross proceeds through the financing of our brand assets, including BV.
Bryant Riley: Third we announced the signing of a definitive agreement to sell a portion of our traditional W. Two wealth management business to Stifel Financial Corp.
Bryant Riley: That transaction does not include B Riley's approximately 170 independent advisers and 81 W. Two advisors and tax professionals with assets under management of $15 billion.
Bryant Riley: Subject to the terms of the agreement the final consideration will be based on the number of advisors that joined Stifel Stifel at closing.
Bryant Riley: At this time, we expect that cash consideration will be approximately $26 million, but it is subject to change we expect the transaction will close early in the second quarter of this year.
Bryant Riley: Fourth we completed the full redemption of our February 2025 senior notes due February 2008 by retiring our only significant 2025 maturity.
Bryant Riley: Fifth last week, we announced a new $160 million senior secured credit facility with Oaktree.
Bryant Riley: We use this facility to retire outstanding senior secured credit facility with Nomura, providing working capital and to fund the previously mentioned investment in loan and Joanne liquidation.
Bryant Riley: This new three year facility provides us with greater financial and strategic flexibility that we had under our previous loan with Nomura.
Bryant Riley: And lastly.
Bryant Riley: Excuse me just this afternoon, we announced the sale included Atlantic Coast recycling for approximately $70 million in cash proceeds.
Bryant Riley: Total investment was approximately $39 million and we expect to record a gain of about $30 million in the first quarter.
Bryant Riley: This was a successful deal made by our principal investment team a few years two years ago. However in light of our stated goal to reinvest in our core business. We continue to look for opportunities to monetize states. Some investments that are no longer core to our future growth plans.
Bryant Riley: With this in mind, we will continue to look to monetize other non core assets on our balance sheet as opportunities arise in the normal course of business. This will go a long way to further strengthening our balance sheet and providing the necessary foundation for renewed growth.
Bryant Riley: So where does that leave us today, we expect to emerge from this period of asset management monetization and debt reduction as a more nimble and focused company.
Bryant Riley: Concentrating predominantly on a leading middle market investment Bank B Riley Securities.
Bryant Riley: Management, and our advisory services businesses, including a 44% ownership of Great American those core businesses are supplemented by our other investments like targets and our communications segment, which provides steady cash flow and EBITDA.
Bryant Riley: Let me run through each briefly starting with first with Prs.
Bryant Riley: B Riley Securities is uniquely positioned as a top provider to the middle market segment. This group consists of our brokerage capital markets Advisory business with approximately 180 employees spanning core key offices.
Bryant Riley: The key leadership of these units that remain in place despite the headwinds of the past year.
Bryant Riley: Despite the noise of the broker dealer ended the year with a strong December.
Bryant Riley: We are well positioned to invest resources to grow the team over the coming quarters.
Bryant Riley: As a reminder, in a normalized environment. This is a business that can produce substantial operating EBITDA as detailed at our December 2023 Investor day.
Bryant Riley: At that time, we share the Prs are produced $72 million and $84 million in operating adjusted EBITDA in 2022, and the trailing 12.
Bryant Riley: <unk> month period respectfully.
I am not implying will cover those levels. This year, but this is a business. We strongly believe is capable globe, we're covering two and eclipsing these levels in the near future.
Bryant Riley: The team leading this business has spent 20 years years 20, plus years, establishing our middle market credibility.
Bryant Riley: Outward can out execute the competition consistently it's really a testament to the talent. They have gathered gathered in the culture. They built one focused on placing the interests of our clients our teammates ahead of their own.
Bryant Riley: We continue to explore other strategic opportunities to further unlock value within this business and hope to share additional news in the near future.
Bryant Riley: Yes.
Bryant Riley: Turning to B Riley wealth, which is stabilized following the announced transaction with Stifel. This transaction provide an opportunity for W. Two employees, who wanted a fresh start to transition to a new owner with the sale are expected to be completed in the early part of the second quarter of this year.
Bryant Riley: Following the sale, we will retain a core group of approximately 170 independent advisers and 81 W. Two advisors 90 tax professionals.
Bryant Riley: We believe there are substantial benefits and centered synergies to maintaining a wealth management business in our portfolio and expect this group to manage approximately $15 billion of client assets.
Bryant Riley: The leadership of this business has done a tremendous job managing it and it has remained profitable.
Bryant Riley: These two businesses are supplemented by our advisory services business, otherwise known as glass Ratner.
Bryant Riley: This business continues to perform well across its core expertise in bankruptcy and turnaround management, forensic accounting and litigation support and financial due diligence and it had a record year in 2024, we have seen consistent growth in this business, which remains well positioned in specialized industry.
Bryant Riley: Before I turn it over to Phil to perhaps provide a brief update on our financials I'd like to address the outstanding take private proposal I put forward in August.
Bryant Riley: In my capacity as a shareholder of the company.
Bryant Riley: This afternoon I have communicated to my board that I no longer propose to take B Riley financial private.
Bryant Riley: There were a few key factors that went into this decision one there remains substantial potential in our business on the steps we've taken to improve our balance sheet I believe shareholders. Many of which are employees should have an opportunity to participate in this recovery. We have recognized significant losses in our principal investment portfolio and I want our shareholders.
Bryant Riley: Shareholders will realize the benefit of our business going forward.
Bryant Riley: And to our debt structure, notably a remaining baby bonds complicated how it take private could proceed at this time.
Bryant Riley: Instead I believe there are alternative ways address of the dressing our outstanding debt maturities at a public company as a public company while at the same time eliminate dilution.
Bryant Riley: While there were ways, we could have pursued a take private after careful consideration I determined it was not the best course of action given other priorities at the company.
Bryant Riley: With that I'd like to turn it over to Phil to provide a brief update on our financials and our preliminary Q4 results Phil.
Phil: Thanks, Brian.
Phil: As you saw in our press release, we released preliminary estimates of financial results for the fourth quarter ending December 31 2024.
Phil: As a reminder, these numbers are unaudited and subject to change.
Phil: For the fourth quarter, we expect to report net income available to common shareholders of 48 million to $68 million, which includes approximately 236 million to $247 million of income from discontinued operations, primarily primarily related to the divestiture of a majority interest in the great American businesses.
Phil: Diluted net income per share per common share is expected to be $1 57 to $2 22 per share and.
Phil: Net loss from continuing operations of $178 million to $187 million.
Phil: This net loss is primarily impacted by estimated impairment charges of goodwill and intangible assets of <unk> $73 million to $79 million in.
Phil: $49 million of trading losses, and realized and unrealized losses on investments.
Phil: Additionally, we expect operating adjusted EBITDA from continuing operations to be $12 million to $14 million.
Phil: As of the end of December 31, 2024, we had cash cash equivalents and restricted cash of approximately $257 million.
Phil: Which included approximately $156 million of cash and cash equivalents and $101 million of restricted cash primarily reserved for the redemption of the company's February 2025 senior notes.
Phil: We had total debt of $1 78 billion as of December 31, 2024, and total debt net of cash and investments of approximately $991 million.
Phil: Notably this represented a decline of $221 million from the third quarter.
Phil: And finally I would note that as an accelerated filer our deadline for filing our 10-K. This year is March 17.
Phil: We are unable to file the 10-K at that time, we would expect to file a form <unk> 25, with the SEC to receive a 15 day extension.
Phil: After we filed the 10-K, we expect to resume our normal quarterly filing cadence.
Phil: With that I'll turn the call back to the operator for Q&A.
Phil: Thank you team.
Speaker Change: Ladies and gentlemen at this time, we will conduct a question and answer session.
Speaker Change: You'd like to ask a question. Please press star one on your telephone keypad to enter the queue.
Speaker Change: You've joined via Web. Please press the retain icon on the right side of your deal Roadshow screen.
Speaker Change: And again Thats star one on your telephone keypad to enter the queue or the raise hand icon on the right side of your Roadshow screen, we will pause briefly to allow any questions to generate.
Okay.
Our first question comes from Ammar with Imperial capital.
Speaker Change: Your line is open.
Speaker Change: Okay. Thank you.
Speaker Change: Good evening.
Thank you for the detailed <unk>.
Speaker Change: Many of the transactions that you have.
Speaker Change: Accomplished.
Speaker Change: My question is.
Speaker Change: Can you give us a sense of what.
Speaker Change: Do you intend to accomplish in the next six months to sort of beef up liquidity in the balance sheet.
So.
Speaker Change: I would say to you that.
Speaker Change: Our strategies are fluid.
Speaker Change: With the exception of one which is that this is.
Speaker Change: As I said in our press release, the demarcation line of.
Speaker Change: Past.
Speaker Change: And present and near past near President and so our focus our complete focus is on investing in our business and investing in our broker dealer and a wealth management in our advisory business and to grow I recognize that we have.
Speaker Change: A fair amount of baby bonds out there you know the maturities of them.
Speaker Change: We will proactively work to make sure that our balance sheet is aligned I think we've made a lot of progress in the last 12 months, but.
Speaker Change: I don't know if you know we owned Atlantic recycling.
Speaker Change: But as you can see today, we sold that for $70 million, we will continue to be opportunistic across that with a key focus of investing in our business.
Speaker Change: Got it.
Speaker Change: Can you talk a little bit about your core business.
Speaker Change: You basically mentioned that.
Speaker Change: The Brs business the wealth management advisory can you give us some sense of how.
Speaker Change: To think about it on a run rate basis or what kind of.
Speaker Change: What I'm trying to understand is where potentially EBITDA or.
Speaker Change: These businesses will be free cash flow positive for either the next quarter or.
Speaker Change: For the full year 2025.
Speaker Change: Sure I think the best way to look at it is go back and look at 'twenty. One 'twenty two 'twenty three the only thing we don't have from our core business and it wasn't core but it generated $40 million of EBITDA was our brands business, we sold 57% of our great American.
Speaker Change: This but when we have been greatly as we expected there has been other opportunities.
Speaker Change: With that joint venture.
Speaker Change: That may that may work to replace some of that direct cash flow I mentioned on the call that.
Speaker Change: The direct equity investment in Joanna as an example, and other some other lending opportunities.
Speaker Change: Our balance sheet, our cash balance sheet and our ability to invest in that is smaller but the wealth management business is a little smaller.
Speaker Change: Our broker dealer is has been with us for 27 years.
Speaker Change: Our telecom business is consistent and steady and you can look at the historical EBITDA there.
Speaker Change: Class Ratner had a record year this year.
Speaker Change: So I think if you look at it there are certainly we are certainly a smaller company than we were we have utilized a lot of dollars to two tier that the the principal investments that.
Speaker Change: That hit us have hit us, but as I look at the overall core operating portfolio, we still feel really excited about the operating EBITDA potential there I am not going to get into numbers, but I'm happy to walk you through what we've done in the past or you can walk through I think we've been pretty detailed in our Investor day, and you can see the the <unk>.
Speaker Change: Mrs that we have and we now have to go after it and we need to make sure that.
Speaker Change: Are all of our work in all of my work in everybody hears work is to generate opportunities revenue and get back on track on the operating side of the business.
Speaker Change: Sure. Thank you.
Speaker Change: Maybe if I can sneak in one more and then ill get back in the queue.
Speaker Change: You have a pretty asset rich balance sheet still you have you mentioned you have glass right now you have the telecom businesses targets.
Speaker Change: Can you talk about what you think.
Speaker Change: Or how we should think about the value of those businesses and the EBITA generation potential. If you can just shed some light on that.
Speaker Change: So again.
Speaker Change: I'm not I'm not going to speculate on multiples.
Speaker Change: Firstly secondly, the operating businesses that we have.
Speaker Change: At this time might be different than a year from now or a year ago. Our focus is on investing in those operating businesses and growing those operating businesses and going back to where we were without the noise and the distraction of some el timed investments.
Speaker Change: And so I appreciate that.
Speaker Change: That the goal is to kind of walk through a sum of the parts, but I think right now based on where we are which is not a normalized environment still having said that staying profitable on our wealth management business.
Speaker Change: Still generating meaningful EBITDA at the broker dealer, having a record year of glass rack or having a record year of great American telecom still doing.
Speaker Change: Its thing I think that we have an unbelievable base and group to build on and we've taken some hits I readily acknowledge that but I think it's our job to make sure that our clients are companies that we work with understand that this is the same b Riley financial that was.
Speaker Change: They were working with before and that we're getting our financials current and it's good time for us and so.
Speaker Change: That's how I would answer that.
Speaker Change: Okay can I ask.
Speaker Change: One more and actually.
Speaker Change: Sneak.
Speaker Change: Sure.
Speaker Change: So you guys recently refiled the Nomura facility you have the Oaktree facility in place now.
Speaker Change: As cash comes in for instance from this.
Speaker Change: The sale that you announced in <unk>.
Speaker Change: Whatever cash is on the balance sheet do you guys have the ability to buyback debt.
Speaker Change: This new credit agreement.
Speaker Change: No.
Speaker Change: Just senior facility there are clearly I think most senior facilities.
Speaker Change: Not all but at this point, we do not have the ability to buy bonds in the open market.
Speaker Change: Understood.
Speaker Change: Get back in the queue.
Speaker Change: Thank you for your questions.
Speaker Change: Thank you.
Speaker Change: Thank you Omar.
Speaker Change: Our next question comes from Sean.
Speaker Change: Sean Your line is open.
Sean: Hey, Brian it's Sean.
Speaker Change: Are you.
I am good we're here, where we are.
Speaker Change: It's good to hear from you.
Speaker Change: Yeah, Yeah, it's been a little while.
Speaker Change: A quick question for you on on wealth, what does that business look like now I'm, just trying to get a sense of.
Speaker Change: The kind of proportionality of the business you sold and what you held onto.
Speaker Change: So.
Speaker Change: The vast majority was.
Speaker Change: W. Two employees so.
Speaker Change: I think I outlined the numbers.
Speaker Change: In my in my presentation, the remaining wealth management group, but just to put it in perspective.
Speaker Change: Assets.
Speaker Change: Under management before these sales and some attrition was closer to 24 billion and now its closer to $15 billion.
Speaker Change: So that should give you some perspective.
Speaker Change: Okay, Yeah that's helpful.
Speaker Change: And then.
Speaker Change: Just as far as the <unk>.
Speaker Change: Are there.
Speaker Change: Asset monetization.
Is it safe to say most of that will be coming from the principal investment group.
Speaker Change: Going forward.
Speaker Change: Well look I think we've been really.
Speaker Change: No.
Speaker Change: I think careful.
Speaker Change: Our intentional about monetizing what I would call non core assets.
Speaker Change: I will tell you that the day, we sold brands at the price we sold brands was a tough day, but we had to make decisions.
Speaker Change: Particularly at that time based on where that money can be re circulated and how it can be used and.
Speaker Change: And if you are selling something per dollar and you can.
Speaker Change: Get $2 back in some way shape or form then those are the decisions you have to make I.
Speaker Change: I don't think we are in that position now we can be selective and thoughtful.
Speaker Change: Does it mean that im not recognizing that we have maturities in 2006 and 2008, but.
Speaker Change: But we need to we need to grow our businesses and get back to where we were and yes focus on things that are.
Continue to focus on things that do not disrupt that.
Speaker Change: Got it alright, well Thats all from me.
Speaker Change: Okay.
Speaker Change: Best of luck with everything.
Speaker Change: Appreciate it thank you.
Speaker Change: Thank you Sean.
Speaker Change: Ladies and gentlemen, as a reminder, if you'd like to ask.
Speaker Change: Star one.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: It appears there are currently no further questions sending it back to Brian Riley for any final remarks.
Speaker Change: Alright, well. Thank you in closing I want again, thank all our employees shareholders and partners for their patience and support and seeing through what has been a difficult period for our firm.
Speaker Change: I want to reinforce that the fourth quarter represented an important strategic line of demarcation.
Speaker Change: One of which are noncore principal investments have largely been monetize our written down allowing us to focus on what we have done best for 28 years being the go to partner for small cap companies and those who invest in them.
Speaker Change: While we still have work to do I am excited to turn the corner and I look forward to announcing more of our plans in the near future. Thank you.
Speaker Change: Thank you team.
Bryant Riley: Ladies and gentlemen, before we conclude today's call provide b Riley financial Safe Harbor statement, which includes important cautions regarding forward looking statements made during this call.
Bryant Riley: Statements made during this call that are not descriptions of historical facts are forward looking statements that are based on management's current expectations and assumptions and are subject to risks and uncertainties as.
Bryant Riley: If such risks or uncertainties materialize or such assumptions prove incorrect our business operating results financial condition and stock price could be materially negatively affected you should not place undue reliance on such forward looking statements, which are based on the information currently available to us and speak only as of today's date.
Bryant Riley: Such forward looking statements include but are not limited to those regarding the expected growth and recovery of our business segments, our efforts to monetize non core assets and the review of our operating and capital structure.
Bryant Riley: Factors that could cause such actual results to differ materially from those contemplated or implied by such forward. Looking statements include without limitation. The risks described from time to time in B Riley Financial Inc. 's periodic filings with the SEC, including without limitation. The risks described in B Riley Financial Inc. Annual Roe.
Bryant Riley: Port on Form 10-K for the year ended December 31, 2023 under the captions risk factors and management's discussion and analysis of financial condition and results of operations.
Bryant Riley: Additional information will be set forth in B Riley Financial's quarterly report on Form 10-Q for the three months period ended September 32024.
Bryant Riley: Factors should be considered carefully and.
Bryant Riley: Participants are cautioned not to place undue reliance on such forward looking statements. All information is current as of today's call and B Riley financial undertakes no duty to update this information.
Bryant Riley: Thank you for joining us for today's call you may now disconnect.