Shares of B. Riley Financial (NASDAQ:RILY) took a dramatic plunge, dropping by 51% on Monday following the release of the company’s preliminary second-quarter results. The financial services firm disclosed a significant net loss for the quarter, along with the suspension of its dividend.
B. Riley Financial anticipates reporting a net loss between $435 million and $475 million, translating to a loss of $14 to $15 per share. The substantial losses are largely attributed to non-cash markdowns, with the company pointing to the underperformance of its investment in Franchise Group, Inc. (FRG) and its Vintage Capital loan receivable as major factors.
Chairman and Co-Chief Executive Officer Bryant Riley highlighted that the company's financial setbacks were primarily driven by its exposure to Franchise Group, as well as challenges related to the former CEO of FRG, Brian Kahn, whose alleged misconduct has further complicated the investment, despite the issues being unrelated to B. Riley or FRG itself.
B. Riley expects to recognize a non-cash markdown of approximately $330 million to $370 million tied to its investment in Freedom VCM, the parent entity of FRG, and the associated Vintage Capital loan receivable. Additionally, the company plans to record an impairment charge of $28 million, mainly due to goodwill associated with Targus, which has been negatively affected by shifting consumer spending patterns. Another $25 million charge is expected for a valuation allowance related to deferred income taxes for the quarter.