B Riley Financial Inc (RILYL) 2021 Q4 法說會逐字稿

Good afternoon, and welcome to B. Riley Financial's Fourth Quarter and Full Year 2021 Earnings Call. Earlier today, B. Riley issued a press release and presentation, detailing its financial results for the fourth quarter and fiscal year 2021. Copies are available in the Investor section of the company's website at ir.brileyfn.com (sic) [ir.brileyfin.com].

As a reminder, this call is being recorded. An audio replay will be available on the company's Investor Relations website later today.

Joining us today from B. Riley are Bryant Riley, Chairman, Co-Founder and Co-CEO; Tom Kelleher, Co-Founder and Co-CEO; and Phillip Ahn, CFO and COO. After management's remarks, we will open the line for questions. And before we conclude today's call, I will provide the necessary cautions regarding forward-looking statements.

I will now turn the call over to Mr. Bryant Riley. Mr. Riley, please proceed.

Thanks. Welcome, everyone. We are pleased to report an extraordinarily successful quarter for B. Riley Financial. 2021 was an important year for us strategically, operationally and financially. The fourth quarter caps off another record year for B. Riley, where we generated total revenues and total adjusted EBITDA in 2021 of $1.7 billion and $762 million, respectively, representing a 93% revenue increase year-over-year, and an 87% increase in our adjusted EBITDA. During the same period, operating revenues totaled $1.35 billion, resulting in operating adjusted EBITDA of $422 million. This translates to a 70% increase in year-over-year operating revenues and a 35% increase in operating adjusted EBITDA.

In 2021, our Investment Banking division delivered extremely strong results, thanks to a robust pipeline of activity as we leveraged our growing reputation as a preferred banking partner to small and mid-cap companies. In total, B. Riley securities raised nearly $7 billion across IPO underwritings, follow-on underwritings, SPAC new issuances and debt raises in 2021. Over the last 3 years, B. Riley Securities has gained meaningful market share, expanding our product offerings and our brokerage businesses earnings.

However, I want to take a moment to discuss what we believe is a significant competitive advantage and an important differentiator for our shareholders and team members in view of softer capital markets. As you're likely aware, IPOs, secondaries and SPAC offerings have effectively come to a halt over the last 2 months. While it is impossible to predict how long these markets will be closed, I want to briefly discuss why we believe this slowdown will highlight our diversified business model and commitment to managing operating expenses.

When we took the business public in 2014, B. Riley Financial effectively consisted of 2 cyclical subsidiaries: B. Riley Securities, our investment banking business, which we expanded through acquisitions, including FBR in 2017; and most recently FocalPoint last month and Great American Group, which is primarily a retail liquidation business. Since that time, we have added to our collection of operating companies by [procuring] 4 telecom and communication assets, 2 wealth management businesses, a forensic accounting litigation support and restructuring business, a portfolio of retail brand licenses, a loans receivables portfolio and several smaller complementary assets. All of these purchases were opportunistic and share the common characteristic of being cash flow generative and mostly uncorrelated assets. This was by design.

In addition, we have used our cash and investments of over $2 billion to create an investment portfolio that consists of public and private debt and equity securities in businesses where we have deep conviction in capital appreciation, medium- to long-term investment horizons and have often taken forward level involvement. Approximately $800 million of this portfolio is dedicated to interest-bearing investments and generates approximately $85 million of annual income. This income goes a long way in servicing our interest and servicing our clients while utilizing approximately 1/3 of our balance sheet.

It is important to put this in perspective. When you add a conservative view of the cumulative annual EBITDA generated from these strategic assets to a significant interest income stream, one could assume that if we were to derive almost no income from our B. Riley Securities business, a business that generated operating EBITDA of $51 million, $111 million and $272 million in 2019, '20 and '21, respectively, we would still have enough cash flow to pay a full $4 annual dividend, which equates to approximately $110 million of excess cash after payment of interest and taxes. Our objective is to utilize the proprietary opportunities that our platform offers to make these types of investments with the goal of continuing to provide a hedge against the market decline and an opportunity to regularly increase our dividend.

Despite this robust cash flow from our subsidiaries, we diligently maintain our focus on expense control. Over the last 3 years, despite revenues related to our B. Riley Securities broker-dealer business more than doubling, our breakeven levels for total revenues have increased by only 10%.

In summary, when I think about the earnings profile of B. Riley Financial, I believe we have strong recurring cash flow with minimum correlation to the markets that allows us to confidently return $4 of dividends to shareholders every year, plus a brokerage business that will provide strong cash flow more correlated with the general markets. This was a key factor in our delivering $10 in total dividends to our common shareholders for 2021. Over time, we will continue to focus on utilizing our cash flow to enhance our business, make accretive acquisitions and to return capital to our shareholders.

With that, I'll now turn the call over to Phil Ahn, our CFO and COO, who will provide more context around our quarterly metrics. And then Tom Kelleher, our co-CEO, will discuss some highlights across our operating units.

Over to you, Phil.

Thanks, Bryant. As Bryant noted, we reported a very successful fourth quarter and record results for the full year ended December 31, 2021. For the fourth quarter, on a consolidated basis, B. Riley reported fourth quarter total revenues of $422 million, up 3% from the prior-year period. Operating revenues were $353 million for the quarter, a year-over-year increase of 31%, primarily related to the acquisition of National Holdings. Total adjusted EBITDA for the fourth quarter was $138 million, and operating adjusted EBITDA was $106 million. Net income available to common shareholders was $62 million or $2.08 per diluted share in the fourth quarter.

For the full year of 2021, total revenues were $1.74 billion, up 93% from the prior-year period. Total adjusted EBITDA was $762 million, an increase of 87% compared to the prior-year period. Before the full year, net income available to common shareholders was approximately $438 million or $15.09 per diluted share, up from $200 million and $7.56 per diluted share in 2020.

Operating revenues for the year were $1.35 billion, a year-over-year increase of 70%, while operating adjusted EBITDA was $422 million, up 35% compared to last year. Increases in operating EBITDA were primarily related to a strong performance from our investment banking business and our acquisition of National in 2021.

Turning to our reportable segment in the fourth quarter. Starting with our capital markets, which includes our investments and operating results from investment banking, institutional brokerage and fund management. Excluding investment gains, our Capital Markets segment operating revenues in the fourth quarter totaled $177 million, which represented a decrease of 2% year-over-year. Segment operating income was $87 million, which was down 14% year-over-year, mostly due to the comparison to a particularly strong fourth quarter in the prior year as a result of several SPAC transactions.

Turning to our Wealth Management. Segment revenues and segment income increased to $105 million and $6.1 million, respectively. The increase was primarily related to the addition of National Holdings, which we acquired in February 2021.

Auction and Liquidation segment revenues were $5.7 million and segment loss was $2.7 million. Results from this segment were impacted by a slower retail liquidation environment in the latter part of 2021. As stated on prior calls, results from this segment tend to be variable due to the episodic nature of large retail liquidation engagements.

Financial Consulting segment revenues and segment income totaled $27.9 million and $6.6 million, respectively. Strength in our financial restructuring advisory business during the quarter was partially offset by lower activity in our real estate consulting business.

The Principal Investments communications companies, magicJack United Online and [Marconi Credo] contributed revenues of $33.9 million and segment income of $5.8 million. These companies continue to provide steady cash flows from our platform.

And lastly, our Brands segment continues to make contributions to the overall B. Riley platform, having generated segment revenues of $5 million and segment income of $3.6 million related to the licensing of brand trademarks.

For the full year, our Capital Markets segment generated operating revenues of $698 million and segment operating income of $344 million, up from 2020 segment operating revenues of $422 million and segment operating income of $207 million.

Wealth Management generated segment revenues of $382 million and segment income of $16 million, up from 2020 segment revenues of $73 million and segment income of $3 million.

Our Auction and Liquidation segment generated annual revenues of $74 million and segment income of $8 million. Segment results were down from prior-year segment revenue of $89 million and segment income of $26 million.

Financial Consulting revenues for the year increased to $94 million, up from $92 million in 2020. Segment income decreased to $16.9 million, down from $22.8 million for the prior year. Our Principal Investments Communications segment -- companies generated revenues of $93 million compared to $87 million in the prior year. Segment income for the year was $27 million compared to $33 million in the prior year. And finally, our Brands segment contributed licensing revenue of $20 million for 2021 compared to $16 million in 2020. Segment income for the year was $14 million compared to a segment loss of $2 million in the prior year.

As a reminder, adjusted EBITDA and our metrics for operating and investment results are non-GAAP financial measures. Please refer to our earnings release for definition of these terms and for a reconciliation to the nearest GAAP measures. Investors can also find additional details relating to these metrics and related reconciliations in the financial supplement to our Investor Relations website.

Now turning to some highlights of our balance sheet. At December 31, B. Riley Financial had approximately $279 million in unrestricted cash and cash equivalents, $1.5 million in net securities and other investments owned and $873 million of loans receivable. At quarter end, we had total cash and investments balance of approximately $2.6 billion, which includes approximately $40 million of other investments reported in prepaid and other assets. Net of debt, B. Riley Financials cash and investments totaled approximately $606 million at December 31.

We declared a fourth quarter dividend of $1 per common share, which will be paid on or about March 23 to common shareholders of record as of March 9. Upon payment of our fourth quarter dividend, we will have returned a total of $10 per share in common stock dividends to our shareholders related to the fiscal year 2021.

That completes my financial summary, and now I'll turn the call over to our Co-CEO, Tom Kelleher. Tom?

Thanks, Phil. The fourth quarter ended another record year for B. Riley as we continue to expand our diversified business. This past year, our firm saw many accomplishments as we added critical complementary practices, brought on industry-leading talent and continued to execute our strategy amid an unpredictable and challenging environment. Among the initiatives currently underway include the integration of National Holdings and its 1,000 personnel, which is due to be combined with B. Riley Wealth in Q2 of 2022. The addition of a compliance risk and resilience consulting practice in our advisory group, the addition of Wes Cummins to not only continue the management of his 272 fund but to also head up the expansion of our asset management group.

The addition of Tim to lead the expansion of our fixed-income practice by materially adding to both our personnel and product suite. And most recently, the addition of FocalPoint Securities, which significantly increases our M&A and private capital markets capabilities.

Our philosophy and diverse business platform remain, in our view, a key differentiator for B. Riley compared to the competition. This has enabled us to add experience in industry-leading professionals across our business despite a tight labor market. This is also a contributing factor to why we were named #2 on Fortune's Fastest Growing Companies of 2021.

Now I'd like to make a few comments about last year's fourth quarter. As Bryant noted, Activity Investment banking was strong across all of 2021. In the fourth quarter, we completed a number of capital markets deals, including the de-SPAC of Spartacus Acquisition Corp and its merger with NextNav, the IPO Stronghold Digital Mining and $150 million notes offering for Fossil Group. These transactions, along with our recent acquisition of M&A specialist, FocalPoint, demonstrates the full suite of investment banking offerings that B. Riley is able to bring to our clients.

In Wealth Management, our legacy business, B. Riley Wealth and our recently acquired National Holdings continue to work together to share best practices and create operating synergies between 2 platforms. With combined assets under management of approximately $33 billion, we continue to be excited about the growth potential and stable cash flow that will be generated within the combined business.

In our Auction and Liquidation segment, performance in the fourth quarter was impacted by a historically slow retail liquidation market in the United States. While domestically slow, the group has enjoyed a higher level of activity in Europe. As we have stated before in our earnings calls, the Retail Liquidation business is episodic in nature and will vary from quarter-to-quarter.

In our Real Estate group, we closed on the sale of Midtown Apartments, a 310-unit 589 bed new construction student housing development at the University of Florida. The asset was sold via 363 sale process and the $104 million sale price was one of the strongest per unit student housing prices achieved within the past 5 years. We were also retained to market a sale/leaseback of a 42-property portfolio on behalf of home furnishings retailer W.S. Badcock Corporation. Our Advisory Services business, which includes our legacy GlassRatner Financial Consulting Group and Legacy Great American Appraisal division continues to perform consistently and generate referral opportunities across the platform.

Our Financial Restructuring business has remained very active and is taking market share in this particularly challenging environment where corporate bankruptcies have been at a 10-year low. Given the strong performance in this difficult environment, we are optimistic of the future prospects for our restructuring team as a more normal bankruptcy environment returns. Furthermore, we continue to expand our offering in our advisory business with services such as cybersecurity consulting practices that I mentioned previously.

Our Principal Investments business, including magicJack and United Online continue to perform above our expectations while providing cash flow to our platform. In the fourth quarter, we have acquired CREDO Mobile and added the company to our Principal Investments communications platform. CREDO Mobile is a virtual mobile phone operator based on the West Coast, providing services to 80,000 subscribers. We anticipate that CREDO will add another source of stable cash flow to the firm.

Lastly, activity in our Brands Investment business continues to improve as volume levels continue to recover. Our Brands business has been very successful for B. Riley in generating substantial uncorrelated cash flow. It is worth noting that there has been some recent investment activity in the Brands space, including investments in authentic brands by funds led by CVC and HBS at significant valuations. We continue to be excited by the brand space and its ability to deliver returns with B. Riley shareholders.

Switching gears to some governance matters. I wanted to highlight that we expanded and strengthened our Board of Directors this past year with the appointments of Renee LaBran and Tammy Brandt. Renee is a long-time venture capital executive with expertise in media, consumer goods and business services, while Tammy has been an executive of multiple digital media and technology companies.

Both Renee and Tammy have been remarkable additions to our Board as they bring their respective expertise to B. Riley. We mentioned that their addition reflects the firm's embracing of a larger ESG initiative. While we like to think that we have always been progressive with our supportive charities like Sugar Ray Leonard Foundation and Toigo and the encouragement of some internal programs like the B. Riley Women's Network, we can always do better. To that end, we have formed a dedicated task force to consistently and continuously strive to make the firm better in all respects.

I would like to close out by echoing Bryant's settlement at the top of the call. We have taken steps over the last few years to grow B. Riley into a diversified platform capable of generating revenue and cash flow for multiple business lines. 2021 has been another record year for B. Riley, and we will continue to invest in talent and complementary businesses to perpetuate this strategy. We are looking forward to the year ahead and building on the value we deliver to our clients and our stakeholders. As always, it is with the talent of our many remarkable B. Riley professionals that we have been able to generate the type of success that we have had this year.

So I want to thank all of our B. Riley team members who have demonstrated their commitment and flexibility in another tumultuous year to help deliver record results to our shareholders.

With that, we will now open the line for questions, then turn the call back over to Bryant for closing remarks.

(Operator Instructions)

Our first question comes from Sam Sheldon with Punch & Associates.

Maybe you could start by talking more about the FocalPoint deal and specifically, how you can leverage their expertise across multiple areas within the B. Riley platform?

Sure. Thanks, Sam. So FocalPoint has -- is an exciting transaction for us for a number of reasons. FocalPoint office is literally across the street from ours. We saw their team build their business from scratch when they started about 20 years ago. We have talked to them a number of times and really watched them grow and built a relationship. And so when we had an opportunity to combine forces, I think we are both incredibly excited about what that brings. So FocalPoint's strength is M&A. I think if you look at B. Riley Financial strength, it is capital markets in both debt and equity. FocalPoint has mostly worked on private equity type of companies or private companies where our strength is on public companies. And so we have these incredible relationships with public companies where we've often been their prime banking source. Their prime capital market source adviser, but we have not been a go-to on the M&A side.

So we brought in a bunch of professionals that with tons of experience -- first-hand experience, experience building their own firm, understanding what all that takes and the hustle that goes with that to be able to leverage off of those relationships. And then conversely, a lot of those companies that FocalPoint has relationships with haven't had the same type of public markets relationship. So whether that means helping them think about going public or selling to a public company or thinking about ideas, it really is a perfect fit. So -- and then culturally, we think we spent a lot of time with them, their team. It's a very similar culture where you have 2 companies that were really started by a very small group, build up over a long period of time and became kind of respective leaders in their segment. So I think it's -- I do think it's a classic example of 1 plus 1 equals 3.

Yes. Yes, it does sound really interesting. And with this acquisition, how does that change the breakeven levels for the capital market segment? I guess how much has been added to the capital markets team now over the last 2 years? And how do you think about protecting the downside with activity slowing recently?

So like us, they started -- FocalPoint started with all the money they could probably put together to start a business. So they don't lose money. That's, I guess, a grandiose statement, but I just tell you, they run a business in a similar way that we do, which basically means you manage your cost for downside and you kind of overpay in upside and you have a little bit more of a variable model. So the fixed expense, I'll tell you, honestly Sam, I hadn't thought a lot about it because this is going to be a profitable business from the get-go and would be very, very difficult. And even in the COVID period, they didn't really lose money.

So I think it's just going to be additive. Having said that, they're -- the thought is like a GlassRatner, which we've talked about before, where we brought in a group that started their own business and were able to leverage off of our infrastructure. I think we've increased their business by 30% just from referrals. So I think it's going to be far more than just a revenue add, it's going to be a lot of incremental opportunities.

Okay. Great. That's helpful. And Bryant, you mentioned market share gains in your prepared remarks. I'm interested in hearing how much of that capital markets growth that you've seen over the last few years here? You attribute to market share gains versus just the surge in capital markets activity.

So I don't have my league tables on me, but I will send them to you. Broadly speaking, in small-cap markets, follow-ons and IPOs, and I think it's defined as $1.5 billion. We've gone from -- and this is going to be -- I'm going to be off a little bit, Sam, but in general, from '19, I think we were 15th; '20, we were 7th; and then '21, I think we were second. So we'll send those to you, but there's clearly been market share gains. I think it's a testament to do on the -- pretty much doing the same thing our whole career have been around the small-cap markets for 25 years. We've built some great relationships and we step to our netting. So -- but we'll get you the specifics of that.

Okay. Great. Great to hear. That's really significant. My last question is just about the Auction and Liquidation business, which we haven't heard as much about recently. Maybe you can just update us on what you're seeing on the Auction and Liquidation side with the pipeline there?

Yes. So the auction group has done a very good job of finding opportunities and then made $8 million of EBITDA in '21, despite very little domestic business. Most of the business has been in Europe. That group is positioned to take advantage of any dislocation in retail in general. And I think they're -- we always see retailers overbuild. Every time and Scott Carpenter runs this division tells me this, all the time over the course of the last 30 years when he's been in this business, you just have retailers overbuild. And I think they're going to be ready for that. The good news is that group, it's not a large group. You talk about 8 professionals that also help in other ways, whether it's an appraisal and capital markets, if we need some advisers around retail. So it's -- that business is ready to go. If you start to see some deterioration in the economy, which ultimately tends to happen as companies overbuild, but very slow domestically right now.

Our next question comes from Keith Rosenbloom with Cruiser Capital.

Bryant, I was hoping you could put some of the business in context. You mentioned in the press release on FocalPoint that you hoped it would do 4x your existing M&A operating profit. I think I said that correctly. Could you give us a sense for what that means in terms of when that might happen? What your thinking is of that 4x, and what the starting amount is and what the ending amount is?

Yes. I think when you look at the M&A advisory business on a combined basis after the pro forma for the transaction and talking about a business that is on a run rate of in and around $120 million. And what are the combinations bring, what does the size bring, what do the opportunities bring? As you know -- I know you've looked at this a great deal. We do have an advisory business, but -- and we have some great M&A bankers, but we -- look, we've been a capital market shop. That's been our strength. And so there were 3 areas that we thought needed to really be addressed and we could really leverage from what we've built, M&A was a big one. Asset Management was a big one, and fixed income and credit was a big one.

And so we've got all of those pieces in place. And the M&A side -- I truly believe that there are a lot of public companies that have had relationships with us for many, many years that if they could have or if they had the opportunity because we have the ability to service them in a particular segment would have hired us. And we just -- we've been really straight at greater capital markets. So that frames the size of that business for you.

Just a couple of more questions on that. In the capital markets revenue line, what percentage of your revenue has come, let's say, in 2021, came from underwriting fees specifically?

Phil, do you have that breakdown?

Let's see here. I don't have that offhand. Keith, we can follow up with you. It's -- I want to say it's venturing north of 300 for the year.

Okay. And then also in terms of perspective, could you let us know what is the number of companies that are currently in the FBR, B. Riley Research universe?

Mid-400s.

Okay. And lastly, you mentioned that you where you were in the league tables just now in the Q&A. Your dividend yield is now 6.7% as of today. That's excluding specials. And when you look at other investment banks like Jefferies, Cowen and Piper, that's a real outlier. I mean you're paying multiples more in terms of dividend. Who do you see as your peers -- as your public company peers?

It's funny. We had this conversation on our Board meeting yesterday, and one of the things that I said to my Board is that there's not a lot of companies that have the flexibility to take advantage of the opportunities that we do. And maybe that's partly because we founded the company, and we grew it for many years before we went public, and our Board saw that. I think a lot of our competitors probably are hindered -- not hindered but are a little bit more focused on just one segment. So let's just call that the investment banking broker-dealer side.

So I don't know if there's a lot of comps to us. I mean I would say, there's firms out there like a KKR, where they do have a broker-dealer and they do have some advisory and they really utilize that, but their main focus is private equity. We're kind of the opposite. We really lead with our investment banking broker-dealer, and then we see these proprietary opportunities that we are willing to invest in, and I think that differentiates it.

So I don't think a lot about our comps, Keith. I just don't. I think it's -- let's just keep grinding and building our business like we did and not get stuck in any box of how to present the best on a piece of paper, but rather return another $10 -- keep on returning capital to our shareholders, while at the same time, we're building out our business. That's our sole focus. So I think we can go through a bunch of things, we know Jefferies, and we know Cowen and we know all of the competitors, but I don't think there's anybody that takes advantage of the platform like we do.

Then I'll sneak one more in. Just in terms of returning capital to shareholders, which obviously you guys have been terrific on. In your press release today, you talked about a $50 million share repurchase program. Can you give us some color on what the timeframe is on that $50 million?

No, not really. I mean we'll be opportunistic. Obviously, we want to buy at the right price for our shareholders, and we -- if you do the math or if you look at our last year insider buying, I think there was buying at levels higher than these levels. And so obviously, we think that our shares are interesting and opportunistic, but we don't have a set time level.

(Operator Instructions)

Our next question will come from Sean Haydon with Charles Lane.

So just to piggyback on that last question. Was this new authorization kind of in place of a special? Or what was the thinking there? Are you guys seeing more opportunities to add through M&A?

Well, you're talking about the new authorization, the buyback authorization?

Yes, the incremental 50, yes.

I mean if you look at our investor presentation and you go back to 2017, there has been a steady level of share buybacks and a steady level and increasing level of dividend. So one of the beauties of being in the capital markets is, it enables you to at times buy back some of your business that you know better than others or maybe return some of that capital to the shareholders and be really flexible about that. So I wouldn't read anything into it other than we are opportunistic, and we've always been opportunistic of taking advantage of dislocations we see out there. And -- but we've always had a buyback -- we've always had that opportunity on buybacks. It's not like -- this is not the first time we've done a buyback.

Okay. Yes, I got it. And then on the operating margin for the capital markets, can you just -- just for modeling purposes, can you just talk about the puts and takes there? It looks like it went down a hair, but just wanted to know what kind of modeling assumptions we should add in there?

There's -- I'll let Phil speak to this a bit, but there are so many different dynamics that go into a capital markets deal. So I'll give you one, for example. If margin on an M&A deal might be a little bit higher than a capital markets deal. A capital markets deal that we do in-house is a lot less if we are on the right than the left. If somebody who is an executive is the producer in a transaction, that margin is really high because we don't double-dip. So for example, if I bring in a deal, that's a really high margin. So there's a variety of factors. Another one is -- and this is just the way the accounting works. When we do a SPAC and we get founder shares and Phil just make sure I'm saying this correctly, but those go on to the capital markets side, and they don't really have -- and that's a very high margin business because we're just getting issued founder shares. So in general, it can move around quite a bit, but Phil, anything you want to add there?

Yes. No, I think you're right. It is -- there's a lot that goes on to capital markets, so it can be difficult. I think what Bryant brought up is kind of the stuff that moves things where we have some significant fees, whether it's a [leaseback] fee, right? Or certain advisory fees that are very high margin, and so that's why you'll see some variability there.

But [Matt], in general, the way to think about our business and the capital market side is, we have kind of a fixed nut and every incremental dollar over that should be somewhere around 55% kind of incremental margin.

Got it. And is it safe to assume that FocalPoint will not right off of the bat, of course, I understand there are integration costs, but at kind of steady state, will that be accretive to margin?

So there won't really be much in the way of integration costs. Literally, they're across the street. And these guys know how to run their business, and they're going to be additive. So you wouldn't see that. Yes, their margin profile is going to be higher, maybe in a little bit more traditional banking type of business, especially on the advisory side, where their upfront fixed costs will be higher and then their incremental margin will be higher. So where we might have capital market bankers that don't have as high of an upfront cost. M&A advisers usually do, and then incrementally, the margins kind of all trim together and trim like our margins. Does that make sense?

Yes, it makes sense. And then my last question. A couple of years ago, I think, I asked you if you -- what holes you thought you had in your portfolio. And you had mentioned credit as one of them. And given we're kind of entering a new regime here, is that still something you'd be interested in or something you're thinking about?

Yes. So we've announced a couple of hires there, but we've added a lot more. We are investing aggressively in that business. And Tim Sullivan, who is the President of Imperial before joining us, has a long career at firms like Lehman and Jefferies his past was building that out. We could have built or bought, and we think we found the right person and the team that he's bringing on to build.

So you will see that business grow in the next year aggressively. But don't forget, we do have a really meaningful baby bond business. We've got some other elements of private debt. FocalPoint has a really strong business of placing and helping companies with private debt. So that -- those capabilities will be added to ours, but that's a big area of focus for us.

Got it. And then -- sorry, just one last quick one, again for modeling. Does National had gain any benefit from rising rates from customer cash balance?

It's -- that always used to be the drain because obviously, they have a lot of cash on the clearing firm's balance sheet. But it's just -- you got to get to like 3% treasuries before it makes a gigantic difference, which 50 years ago, didn't seem like a big deal, but it does now. So there's an incremental benefit, but nothing that would move the needle meaningfully versus the kind of EBITDA we bring in.

Our next question comes from [Thomas Hayne] with (inaudible).

I have 2 questions. The first one is on the trading income and fair value adjustments on loans line item. So I think I'm not overstating it when I say it's been phenomenal, $600 million or $700 million of revenues in the last 7 quarters. Could you give us a little bit more sort of -- tell us a little bit more about the nature of what goes into that line item? Is it -- how much of it might be sort of principal transactions and commissions from a stable kind of regular clients versus less client-driven opportunistic transaction revenues?

So I feel like maybe there's 2 questions in there. So let me just talk about the Principal Investments, the philosophy around that and how that works. We believe that our platform -- and we've talked about this in previous calls, we have 2,000 employees. We have 130 people in our advisory side over at GlassRatner. We do appraisals on 1,000 companies, we have all the broker-dealer relationships. We are going to see proprietary transaction opportunities. Usually, that requires speed. And so we have taken advantage of those opportunities and put our own capital to work. We've also benefited from having relationships with companies like Franchise Group, where we helped build that business, bought out liberty tax when an insider was selling it 3 years ago at [8]. Helped them make, I don't know, how many acquisitions. Backstopped some of those acquisitions. At the same time, we owned 3 million shares from 8 to 40 something.

So we think that we can help enhance the companies that we're around and utilizing all of these different skill sets we have and then take advantage of opportunities as they come in. And so we do not view our mandate as let's go buy some IBM. That's not what we do. We -- everything we do has a proprietary component to it and usually has fee opportunities around it, too. So in the case of a franchise group or other companies that we've worked with, that we want to be able to help. We want to take advantage of the fact that we think we're helpful by owning some of their stock, and then we want to be a provider of services for them as we partner with them. So that's the nature of the principal investing that we do.

Okay. And then my second question is, just if you could sort of talk about -- it seems like you folks are always on the hunt for a interesting investment. You talk about sort of the pipeline or things you might be looking at within the Principal Investments or the Brands segment that -- just how those pipelines look relative to history? Is there a lot going on out there?

Yes. So I think because we've been so active, we've been willing to buy assets that aren't down the pike kind of private equity transactions. And when I say that, let's go as far back as buying United Online a dial-up Internet company or a magicJack. So we often see proprietary flow because we're willing to think differently and move a little bit quicker, and we brought in -- in our Principal Investment Group, we brought in Dan Shribman 3 years ago from Anchorage, who has just built a great team, to go out and take advantage of those opportunities. So the flow that we see is significant, and we've got to make sure that we're integrating them right. And some of them might be an initial investment that ultimately ends up into a bigger investment, but I would say, there is no lack of opportunities for us to look at for a principal [fund].

Ladies and gentlemen, this concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Riley for his closing remarks.

Well, great. Thank you, everybody. I guess I would close by saying with the recent market dislocation, this is where we gain market share, and this is where we find opportunities, and this is often where we will find great people that might be looking for a more diversified platform or a change, and this has always been the best time for us. So while you might take a little bit of short-term pain in your Principal Investments or our underwriting might be a little slower. If you go back in time, this is really where we've been able to make a big difference in our business. So that's a plan, and we appreciate your support. And obviously, we appreciate all of our partners at B. Riley that's helped make us grow, and it was a terrific year and on to the next one. So we will look forward to talking to everybody in a quarter. Thank you very much.

Thank you. Before we conclude today's call, I will provide B. Riley Financial's safe harbor statement, which includes important cautions regarding forward-looking statements made during this call.

Statements made during this call about B. Riley Financial's future expectations, plans and prospects and any other statements regarding matters that are not historical facts may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Investors should be aware that any forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors include the unpredictable and ongoing impact of the COVID-19 pandemic as well as the other risk factors explained in detail in the company's filings with the Securities and Exchange Commission. Please refer to these filings for a more detailed discussion of forward-looking statements and the risks and uncertainties of such statements.

All forward-looking statements are made as of today and except as required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events or otherwise.

Thank you for joining us today for B. Riley Financial's Fourth Quarter and Full Year 2021 Earnings Conference Call. You may now disconnect.