Audit Committee Independent Legal Counsel, Winston & Strawn LLP, Completes Investigation of Relationship Between the Company and Brian Kahn
Independent Investigation Reaches Same Conclusion of Prior Internal Review Conducted by Sullivan & Cromwell LLP

LOS ANGELES, April 23, 2024 /PRNewswire/ -- B. Riley Financial, Inc. (NASDAQ:RILY) ("B. Riley" or the "Company"), a diversified financial services platform, today announced the filing of its Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the "Annual Report").

B. Riley Financial's 2023 Annual Report is available in the Investor Relations section of the Company's website at ir.brileyfin.com under "SEC Filings," as well as on the SEC's website at www.sec.gov. Additional information regarding the Company's operating and investment metrics is available in the Fourth Quarter 2023 Financial Supplement on the Company's investor relations website.

Bryant Riley, Chairman and Co-Chief Executive Officer of B. Riley Financial, commented:

"We want to thank our many stakeholders for their continued confidence, support, and patience as we finalized our Annual Report. With this process behind us, we are excited to be able to focus 100% of our time and efforts on what has always been our highest priority— our core business, delivering for our clients, and creating value for our shareholders."

"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."

"We acknowledge the complexities of our business are a result of an aggressive acquisition and investment strategy that has meaningfully diversified our platform. We are continuing to strengthen our processes and procedures to ensure we are best positioned to capitalize on the substantial market opportunities in front of us. Above all, we are proud of our team's persistence and resolve throughout what has been a challenging dynamic for our firm. We look forward to providing more updates on our first quarter earnings call."

Financial Results for the Year Ended December 31, 2023

The audited financial statements in the Company's Annual Report reflected certain non-cash adjustments to the preliminary results announced on February 29, 2024. The cumulative impact of these adjustments on the Company's key reported financial metrics is summarized in the below table. For a complete summary of financial results for the fourth quarter and full year ended 2023, including a comparison to 2022 financial results, please see the appendix at the end of this press release.

	Twelve Months Ended
	December 31, 2023

(Dollars in thousands)	Preliminary		Adjustments		Final

Total revenues	$	1,647,185	$	(3,585)	$	1,643,600
Operating income (loss)		150,630		(5,977)		144,653
Net loss available to common shareholders		(86,371)		(21,596)		(107,967)
Adjusted EBITDA		239,877		(29,633)		210,244
Operating Adjusted EBITDA		367,604		(4,595)		363,009

Certain of the information set forth herein, including Adjusted EBITDA and Operating Adjusted EBITDA, are non-GAAP financial measures. Information about B. Riley Financial's use of non-GAAP financial measures is provided below under "Use of Non-GAAP Financial Measures."

Summary of 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 December 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⁽²⁾ 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⁽³⁾ 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.

Independent Audit Committee Investigation

As referenced in the Company's 2023 Annual Report, the Audit Committee of the Company's Board of Directors engaged Winston & Strawn LLP as independent counsel to assist the Audit Committee in conducting an investigation of the historical relationship between the Company (and its affiliates) and Brian Kahn (and his affiliates) as well as certain related allegations asserted against the Company by certain short sellers.

The results of the independent investigation confirmed that the Company and its executives had no involvement with, or knowledge of, any of the alleged misconduct concerning Mr. Kahn or any of his affiliates. This independent investigation was conducted subsequent to the Company's February 22, 2024 disclosure of the internal review performed with the assistance of Sullivan & Cromwell LLP as outside counsel.

Additional Information

The Annual Report provides additional clarification regarding the Company's investment in Freedom VCM, which addresses unsubstantiated claims made about the Company's role and participation in the FRG take-private transaction and its investment in FRG.

As noted, the Company's ownership of Freedom VCM amounted to $281 million, or 31%, in connection with the take-private transaction, which included an investment of $216.5 million and $64.6 million of FRG shares that were rolled over into additional equity interests in Freedom VCM in connection with closing. As of December 31, 2023, the fair value of the investment in Freedom VCM totaled $287 million and is included in securities and other investments owned, at fair value in the consolidated balance sheets.

The Company intends to amend its August 21, 2023 Current Report on Form 8-K in connection with the closing of its investment in the FRG take-private transaction to include updated historical FRG financial statements and related pro forma financials. As result of the successful sales by FRG of its Badcock and Sylvan Learning businesses in December 2023 and February 2024, respectively, FRG is in the process of preparing its 2022 annual financial statements and interim June 2023 financial statements in accordance with GAAP to recast these businesses as discontinued operations. The Company anticipates filing the amended Form 8-K to include such financial statements in the near term.

About B. Riley Financial

B. Riley Financial is a diversified financial services platform that delivers tailored solutions to meet the strategic, operational, and capital needs of its clients and partners. B. Riley leverages cross-platform expertise to provide clients with full service, collaborative solutions at every stage of the business life cycle. Through its affiliated subsidiaries, B. Riley provides end-to-end financial services across investment banking, institutional brokerage, private wealth and investment management, financial consulting, corporate restructuring, operations management, risk and compliance, due diligence, forensic accounting, litigation support, appraisal and valuation, auction, and liquidation services. B. Riley opportunistically invests to benefit its shareholders, and certain affiliates originate and underwrite senior secured loans for asset-rich companies. B. Riley refers to B. Riley Financial, Inc. and/or one or more of its subsidiaries or affiliates. For more information, please visit www.brileyfin.com.

Footnotes (See "Note Regarding Use of Non-GAAP Financial Measures" for further discussion of these non-GAAP terms. For a reconciliation of Adjusted EBITDA and Operating Adjusted EBITDA to the comparable GAAP financial measures, please see the Appendix hereto.)

(1) Total cash and investments is defined as the sum of cash and cash equivalents, net of noncontrolling interest, restricted cash, due from clearing brokers net of due to clearing brokers, securities and other investments owned, at fair value net of (i) securities sold not yet purchased and (ii) noncontrolling interest related to investments, advances against customer contracts, loans receivable, at fair value net of loan participations sold, and other investments reported in prepaid and other assets.

(2) Adjusted EBITDA includes earnings before interest, taxes, depreciation, amortization, restructuring charge, share-based payments, gain/loss on extinguishment of loans, gain on bargain purchase, impairment of goodwill and tradenames, and transaction related and other costs.

(3) Operating Adjusted EBITDA is defined as Adjusted EBITDA excluding (i) Trading Income (Loss) and Fair Value Adjustments on Loans, (ii) Realized and Unrealized Gains (Losses) on Investments, and (iii) other investment related expenses. During the fourth quarter of 2023, the Company recast its operating metrics to include revenues from fixed income trading. Operating Adjusted EBITDA has been adjusted to include fixed income trading revenue for the periods presented.

(4) Operating Revenues is defined as the sum of revenues from (i) Service and Fees, (ii) Interest Income – Loans and Securities Lending and (iii) Sales of Goods. During the fourth quarter of 2023, the Company recast its operating financial metrics to include revenues from fixed income trading. Operating Revenues has been adjusted to include fixed income trading revenue for the periods presented.

(5) Segment Operating Income (Loss) is defined as segment income (loss) including fixed income trading revenues and excluding trading income (loss) and fair value adjustments on loans and other investment related operating expenses.

(6) Investment Gains (Loss) is defined as Trading Income (Loss) and Fair Value Adjustments on Loans less fixed income trading revenue.

Note Regarding Use of Non-GAAP Financial Measures

Certain of the information set forth herein, including operating revenues, adjusted EBITDA, and operating adjusted EBITDA, may be considered non-GAAP financial measures. B. Riley Financial believes this information is useful to investors because it provides a basis for measuring the Company's available capital resources, the operating performance of its business and its revenues and cash flow, (i) excluding in the case of operating revenues, trading income (losses) and fair value adjustments on loans, (ii) excluding in the case of adjusted EBITDA, net interest expense, provisions for or benefit from income taxes, depreciation, amortization, fair value adjustment, restructuring charge, gain on extinguishment of loans, gain on bargain purchase, impairment of goodwill and tradenames, stock-based compensation and transaction and other expenses, (iii) excluding in the case of operating adjusted EBITDA, the aforementioned adjustments for adjusted EBITDA as well as trading income (losses) and fair value adjustments on loans net of fixed income trading revenue, realized and unrealized gains (losses) on investments, and other investment related expenses (iv) including in the case of trading income (losses) and fair value adjustments on loans, realized and unrealized gains (losses) on investments, net of fixed income trading revenue and other investment related expenses and (v) including in the case of total cash and investments, cash and cash equivalents, restricted cash, due from clearing brokers net of due to clearing brokers, securities and other investments owned, at fair value net of (a) securities sold not yet purchased and (b) noncontrolling interest related to investments, advances against customer contracts, loans receivable, at fair value net of loan participations sold, and other investments reported in prepaid and other assets, that would normally be included in the most directly comparable measures calculated and presented in accordance with Generally Accepted Accounting Principles ("GAAP"). In addition, the Company's management uses these non-GAAP financial measures along with the most directly comparable GAAP financial measures in evaluating the Company's operating performance, management compensation, capital resources, and cash flow. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-financial measures as reported by the Company may not be comparable to similarly titled amounts reported by other companies.

Forward-Looking Statements

Statements in this press release 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. 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 the date of this press release. Such forward-looking statements include, but are not limited to, statements regarding our excitement and the expected growth of our business segments. 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.'s 2023 Annual Report on Form 10-K under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" (as applicable). These factors should be considered carefully, and readers are cautioned not to place undue reliance on such forward-looking statements. All information is current as of the date this press release is issued, and B. Riley Financial undertakes no duty to update this information.


B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands)

		December 31, 2023		December 31, 2022

Assets
Assets
	Cash and cash equivalents	$	231,964	$	268,618
	Restricted cash		1,875		2,308
	Due from clearing brokers		51,334		48,737
	Securities and other investments owned, at fair value		1,092,106		1,129,268
	Securities borrowed		2,870,939		2,343,327
	Accounts receivable, net of allowance for credit losses of $7,339 and $3,664 as of December 31, 2023 and 2022, respectively		115,496		149,110
	Due from related parties		172		1,081
	Loans receivable, at fair value (includes $387,657 and $98,729 from related parties as of December 31, 2023 and December 31, 2022, respectively)		532,419		701,652
	Prepaid expenses and other assets		237,327		460,696
	Operating lease right-of-use asset, net		87,605		88,593
	Property and equipment, net		25,206		27,141
	Goodwill		472,326		512,595
	Other intangible assets, net		322,014		374,098
	Deferred income taxes		33,595		3,978
Total assets		$	6,074,378	$	6,111,202
Liabilities and Equity
Liabilities
	Accounts payable	$	44,550	$	81,384
	Accrued expenses and other liabilities		273,193		322,974
	Deferred revenue		71,504		85,441
	Due to related parties and partners		2,731		2,210
	Due to clearing brokers		—		19,307
	Securities sold not yet purchased		8,601		5,897
	Securities loaned		2,859,306		2,334,031
	Operating lease liabilities		98,563		99,124
	Deferred income taxes		—		29,548
	Notes payable		19,391		25,263
	Revolving credit facility		43,801		127,678
	Term loan		625,151		572,079
	Senior notes payable, net		1,668,021		1,721,751
Total liabilities			5,714,812		5,426,687

Redeemable noncontrolling interests in equity of subsidiaries			—		178,622
Total B. Riley Financial, Inc. stockholders' equity			291,117		446,514
Noncontrolling interests			68,449		59,379
	Total equity		359,566		505,893
Total liabilities and equity		$	6,074,378	$	6,111,202

B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in thousands, except share data)

				Twelve Months Ended
				December 31
				2023		2022		2021
Revenues:
	Services and fees			$	1,002,370	$	895,623	$	1,153,225
	Trading income (loss) and fair value adjustments on loans				41,828		(202,628)		220,545
	Interest income - Loans and securities lending				284,896		245,400		122,723
	Sale of goods				314,506		142,275		58,205
		Total revenues			1,643,600		1,080,670		1,554,698
Operating expenses:
	Direct cost of services				238,794		142,455		54,390
	Cost of goods sold				213,351		78,647		26,953
	Selling, general and administrative expenses				828,903		714,614		906,196
	Restructuring charge				2,131		9,011		—
	Impairment of goodwill and tradenames				70,333		—		—
	Interest expense - Securities lending and loan participations sold				145,435		66,495		52,631
		Total operating expenses			1,498,947		1,011,222		1,040,170
			Operating income		144,653		69,448		514,528
Other income (expense):
	Interest income				3,875		2,735		229
	Dividend income				47,776		35,874		19,732
	Realized and unrealized (losses) gains on investments				(162,589)		(201,079)		166,131
	Change in fair value of financial instruments and other				(4,748)		10,188		3,796
	Gain on bargain purchase				15,903		—		—
	(Loss) income from equity investments				(181)		3,570		2,801
	Interest expense				(187,013)		(141,186)		(92,455)
		(Loss) income before income taxes			(142,324)		(220,450)		614,762
Benefit from (provision for) income taxes					36,693		63,856		(163,960)
		Net (loss) income			(105,631)		(156,594)		450,802
Net (loss) gain attributable to noncontrolling interests
and redeemable noncontrolling interests					(5,721)		3,235		5,748
		Net (loss) income attributable to B. Riley Financial, Inc.			(99,910)		(159,829)		445,054
Preferred stock dividends					8,057		8,008		7,457
		Net (loss) income available to common shareholders		$	(107,967)	$	(167,837)	$	437,597

Basic (loss) income per common share				$	(3.69)	$	(5.95)	$	15.99
Diluted (loss) income per common share				$	(3.69)	$	(5.95)	$	15.09

Weighted average basic common shares outstanding					29,265,099		28,188,530		27,366,292
Weighted average diluted common shares outstanding					29,265,099		28,188,530		29,005,602

B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except share data)

				Three Months Ended
				December 31,
				2023		2022

Revenues:
	Services and fees			$	258,461	$	243,837
	Trading (loss) income and fair value adjustments on loans				(41,518)		(58,670)
	Interest income - Loans and securities lending				62,781		62,545
	Sale of goods				63,196		134,380
		Total revenues			342,920		382,092
Operating expenses:
	Direct cost of services				60,606		68,496
	Cost of goods sold				47,355		71,313
	Selling, general and administrative expenses				205,703		208,552
	Restructuring charge				1,182		995
	Impairment of goodwill and tradenames				33,100		—
	Interest expense - Securities lending and loan participations sold				38,863		22,738
		Total operating expenses			386,809		372,094
			Operating (loss) income		(43,889)		9,998
Other income (expense):
	Interest income				420		1,482
	Dividend income				12,141		9,595
	Realized and unrealized losses on investments				(77,629)		(64,874)
	Change in fair value of financial instruments and other				(750)		460
	Gain on bargain purchase				15,903		—
	(Loss) income from equity investments				(6)		285
	Interest expense				(46,891)		(44,399)
		Loss before income taxes			(140,701)		(87,453)
Benefit from income taxes					51,037		23,998
		Net loss			(89,664)		(63,455)
Net (loss) income attributable to noncontrolling interests
and redeemable noncontrolling interests					(41)		(6,010)
		Net loss attributable to B. Riley Financial, Inc.			(89,623)		(57,445)
Preferred stock dividends					2,015		2,002
		Net loss available to common shareholders		$	(91,638)	$	(59,447)

Basic loss per common share				$	(3.03)	$	(2.08)
Diluted loss per common share				$	(3.03)	$	(2.08)

Weighted average basic common shares outstanding					30,248,946		28,545,714
Weighted average diluted common shares outstanding					30,248,946		28,545,714

B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
Adjusted EBITDA and Operating Adjusted EBITDA Reconciliation
(Unaudited)
(Dollars in thousands)

				Three Months Ended				Twelve Months Ended
				December 31,				December 31,
				2023		2022		2023		2022
Net loss attributable to B. Riley Financial, Inc.				$	(89,623)	$	(57,445)	$	(99,910)	$	(159,829)
Adjustments:
	Benefit from income taxes				(51,037)		(23,998)		(36,693)		(63,856)
	Interest expense				46,891		44,399		187,013		141,186
	Interest income				(420)		(1,482)		(3,875)		(2,735)
	Share based payments				9,845		15,312		45,109		61,140
	Depreciation and amortization				11,502		13,443		49,604		39,969
	Restructuring charge				1,182		995		2,131		9,011
	Gain on bargain purchase				(15,903)		—		(15,903)		—
	Loss (gain) on extinguishment of loans				—		—		5,409		(1,102)
	Impairment of goodwill and tradenames				33,100		—		70,333		—
	Transactions related costs and other				1,864		(5,264)		7,026		8,498
		Total EBITDA adjustments			37,024		43,405		310,154		192,111
			Adjusted EBITDA	$	(52,599)	$	(14,040)	$	210,244	$	32,282

Operating EBITDA Adjustments:
	Trading loss (income) and fair value adjustments on loans				41,518		58,670		(41,828)		202,628
	Realized and unrealized losses on investments				77,629		64,874		162,589		201,079
	Fixed Income Spread				8,250		8,069		29,165		27,127
	Other investment related expenses				(538)		(7,697)		2,839		(69,531)
		Total Operating EBITDA Adjustments			126,859		123,916		152,765		361,303
Operating Adjusted EBITDA				$	74,260	$	109,876	$	363,009	$	393,585

B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
Operating Revenues Reconciliation
(Unaudited)
(Dollars in thousands)

			Three Months Ended				Twelve Months Ended
			December 31,				December 31,
			2023		2022		2023		2022
Total Revenues			$	342,920	$	382,092	$	1,643,600	$	1,080,670
Operating Revenues Adjustments:
	Trading loss (income) and fair value adjustments on loans			41,518		58,670		(41,828)		202,628
	Fixed Income Spread			8,250		8,069		29,165		27,127
		Total Revenues Adjustments		49,768		66,739		(12,663)		229,755
Operating Revenues			$	392,688	$	448,831	$	1,630,937	$	1,310,425

B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
Revenues Reconciliation
(Dollars in thousands)

			Three Months Ended				Twelve Months Ended
			December 31,				December 31,
			2023		2022		2023		2022
				(Unaudited)		(Unaudited)
Revenues:
	Capital Markets		$	83,973	$	72,304	$	571,002	$	327,596
	Wealth Management			49,350		46,217		198,245		234,257
	Auction and Liquidation			9,439		59,778		103,265		74,096
	Financial Consulting			40,123		25,427		133,705		98,508
	Communications			82,021		87,944		337,689		235,655
	Consumer Products			54,046		77,821		233,202		77,821
	All Other			23,968		12,601		66,492		32,737
		Total Revenues	$	342,920	$	382,092	$	1,643,600	$	1,080,670



B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
Operating (Loss) Income Reconciliation
(Dollars in thousands)

			Three Months Ended				Twelve Months Ended
				December 31,			December 31,
				2023		2022	2023		2022
				(Unaudited)		(Unaudited)
Operating (Loss) Income:
	Capital Markets		$	(6,253)	$	(8,007)	$	194,843	$	81,602
	Wealth Management			683		(7,414)		3,097		(34,320)
	Auction and Liquidation			(1,147)		12,372		21,371		12,600
	Financial Consulting			7,816		4,412		30,420		16,312
	Communications			6,468		11,205		34,725		30,320
	Consumer Products			(37,538)		8,188		(77,710)		8,188
	All Other			(13,918)		(10,758)		(62,093)		(45,254)
		Total Operating (Loss) Income	$	(43,889)	$	9,998	$	144,653	$	69,448

B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
Capital Markets Operating Revenues Reconciliation
(Unaudited)
(Dollars in thousands)

			Three Months Ended				Twelve Months Ended
			December 31,				December 31,
Capital Markets			2023		2022		2023		2022
Total Revenues			$	83,973	$	72,304	$	571,002	$	327,596
Operating Revenues Adjustments:
	Trading loss (income) and fair value adjustments on loans			44,041		59,115		(37,070)		206,150
	Fixed Income Spread			7,011		6,927		25,519		22,765
		Total Revenues Adjustments		51,052		66,042		(11,551)		228,915
Operating Revenues			$	135,025	$	138,346	$	559,451	$	556,511


B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
Capital Markets Segment Operating Income Reconciliation
(Unaudited)
(Dollars in thousands)

			Three Months Ended				Twelve Months Ended
			December 31,				December 31,
Capital Markets			2023		2022		2023		2022
Segment (Loss) Income			$	(6,253)	$	(8,007)	$	194,843	$	81,602
Operating Revenues Adjustments:
	Trading loss (income) and fair value adjustments on loans			44,041		59,115		(37,070)		206,150
	Fixed Income Spread			7,011		6,927		25,519		22,765
	Other investment related expenses			—		(2,515)		12,882		(63,519)
		Total Operating Income Adjustments		51,052		63,527		1,331		165,396
Segment Operating Income			$	44,799	$	55,520	$	196,174	$	246,998

Contacts

Investors

Mike Frank

ir@brileyfin.com

(212) 409-2424

Media

Jo Anne McCusker

B. Riley Financial

press@brileyfin.com

(646) 885-5425

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SOURCE B. Riley Financial

B. Riley Financial Files 2023 Annual Report on Form 10-K