Thanakorn Lappattaranan
B. Riley Files Annual Report with No Major Adjustments:
B. Riley Financial (NASDAQ:RILY) filed its annual report 10-K this morning (April 24). The summary of the changes of the fully audited numbers vs. the company’s Q4 earnings report are in the table and the bullet points below.
Snapshot of Changes in RILY 10-K vs. Initial Annual Earnings (Bloomberg)
Summary of B. Riley Financial Adjustments from Preliminary Results
- Total revenues were $1.644 billion, revised from $1.647 billion to reflect $3.6 million of adjustments primarily related to accrued fee income and trading income.
- Net loss available to common shareholders was $108 million, revised from $86.4 million, a change of $21.6 million. The change primarily relates to the decrease in revenues and adjustments from changes in unrealized gains and losses on investments, net of benefit from income taxes. The unrealized gains and losses on investments primarily related to the company’s Hurley and Justice brand investments. The change in the valuation of the company’s investments equates to less than half a percent of the company’s total assets.
- Total assets as of Dec. 31, 2023 were $6.07 billion, revised from the preliminary reported amount of $6.10 billion. The decrease primarily relates to the adjustments in the fair value of securities and other investments as noted above.
- Total adjusted EBITDA was $210.2 million, reflecting adjustments of $29.6 million primarily due to the decrease in revenues and adjustments from changes in unrealized gains and losses on investments.
- Total operating adjusted EBITDA was $363.0 million, reflecting adjustments of $4.6 million primarily due to a $2.3 million adjustment to fee income and a $2.2 million reserve on inventory.
CEO Bryant Riley released the following statement:
“We are pleased to note that our overall business has continued to perform well since year-end. Relative valuations for small and mid-caps are as attractive as we have seen in years, and we are investing to grow our leadership in providing financial services and capital solutions to this underserved market.”
“Since year-end, we have welcomed senior talent, invested in attractive new opportunities, monetized several others, retired $115 million of our outstanding bonds and reduced additional indebtedness by approximately $55 million. Our strategic review process for Great American Group is proceeding on schedule, and we are pleased with the interest we have seen to date. The potential monetization of this unique asset would accelerate our ability to opportunistically retire more debt and invest in our core B. Riley Securities, Advisory and Wealth Management businesses as we double down on our commitment to serving our clients and businesses across the middle market – both as an advisor and principal.”
The things that matter the most to me are:
- The small adjustment (<1.5%) to operating adjusted EBITDA. This number gives you a sense of how much cash is running through this business.
- The small adjustments to the balance sheet assets.
- The company retiring $115 million of bonds (at likely big discounts) so far this year.
- The Great American sale process seems to be going well.
Independent Counsel to B. Riley Audit Committee Clear B. Riley Management
The Audit Committee of RILY’s board of directors hired Winston & Strawn to investigate the relationship between the company and Brian Kahn amid allegations of reported wrongdoing by short sellers. The matter already had been investigated by Sullivan & Cromwell, which gave the company a clean bill of health over the relationship and the dealing over the FRG buyout.
Winston & Strawn confirmed the company had no knowledge or involvement in any alleged wrongdoing by Kahn.
Short Squeeze Potential RILY Stock
As I wrote in my first article about the company, there is huge short interest in RILY stock (71.5% as of this morning according to Bloomberg). It seems that the entire short thesis is based on the allegation that RILY is/was a fraud. Now that the audit is complete and RILY has filed its 10-K with no major adjustments to the reported Q4 numbers and no “non-reliance” on past numbers, the short thesis appears broken. If the company can get a good price for the Great American and/or they can sell another business at FRG, then I think the stock can really rip from here.
Conclusion:
I originally couched this investment as highly speculative. The completed audit and filed 10-K make this much less speculative. Given the cheap valuation, the sum of the parts I laid out in my original article and the massive short interest, I think this stock can fly from here, perhaps as high as more than $40 in the near future.
