Earnings Call Transcript - RILY Q4 2021

Operator, Operator

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.brileyfin.com. As a reminder, today's call is being recorded. An audio replay will also be available on the Company's Investor Relation 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.

Bryant Riley, Chairman, Co-Founder and Co-CEO

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 underwriting, SPAC issuances, and debt raises in 2021. Over the last 3 years, B. Riley Securities has gained meaningful market share, extending our product offerings and our brokerage business's 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 two 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 two 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 purchasing four telecom and communication assets, two wealth management businesses, a forensic accounting litigation support restructuring business, a portfolio of retail brand licenses, a loan 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 and businesses where we have deep conviction in capital appreciation, medium-to-long term investment horizons, and have often taken board-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 in servicing our clients while utilizing approximately a third 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, 2020, and 2021 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 proprietary opportunities that our platform offers to make these types of investments with a goal of continuing to provide a hedge against a 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 three 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 structured current cash flow with minimal correlation in the markets, that allows us to confidently return $4 of dividends to shareholders every year, plus a brokerage business 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 Phillip 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.

Phillip Ahn, CFO and COO

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. For 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 segments 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 market 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 liquidation segment revenues were $5.7 million, and segment loss was $2.7 million. Results from this segment are 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. Trends in our financial restructuring advisory business during the quarter were partially offset by lower activity in our real estate consulting business. The principal investments communications companies magicJack, United Online, and Marconi contributed revenues of $33.9 million and segment income of $5.8 million. These companies continue to provide steady cash flows from our platform. Lastly, our brand 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 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 brand 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 a definition of these terms and for 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 from our balance sheet. At December 31, B. Riley Financial had approximately $279 million in unrestricted cash and cash equivalents, $1.5 billion in net securities and other investments owned, and $873 million of loans receivable. At quarter end, we had a 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 Financial's 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 Kelleher, Co-Founder and Co-CEO

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 1000 personnel, which is due to be combined with B. Riley well 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 the 272 fund but also to head up the expansion of our Asset Management Group. The addition of Tim Sullivan 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. There's also a contributing factor to why we were named number two 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 in investment banking was strong across all of 2021. In the fourth quarter, we completed a number of capital markets deals including the Spartacus Acquisition Corp. and its merger with NextNav, the IPO stronghold digital mining, and a $150 million notes offering for Fossil Group. These transactions, along with our recent acquisition of M&A specialist FocalPoint, demonstrate 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 the two 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 Auctions 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've stated before in 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 a 363 sale process and the $104 million sale price was one of the strongest per unit student housing prices achieved within the past five 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, continue 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 about 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 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 brand investment business continues to improve as volume levels continue to recover. Our brands business has been very successful for B. Riley and generating substantial uncorrelated cash flow. It is worth noting that there has been some recent investment activity in the brand space, including investments in authentic brands by funds led by CVC and HPS at significant valuations. We've continued to be excited about the brand space and its ability to deliver returns for 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 Renée LaBran and Tammy Brant. Renée 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 Renée and Tammy have been remarkable additions to our board as they bring their respective expertise to B. Riley. We've 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 in our support of charities like the Sugar Ray Leonard Foundation and Toigo and 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 sentiment 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 from 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 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. And 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, Operator

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

Sam Sheldon, Analyst

Hi, thanks for taking my questions. 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?

Bryant Riley, Chairman, Co-Founder and Co-CEO

Sure. Thanks, Sam. The FocalPoint acquisition is an exciting transaction for us for a number of reasons. FocalPoint has offices literally across the street from ours. We saw their team build their business from scratch when they started about 20 years ago. We had talked to them a number of times and really watched them grow and build a relationship. So we had an opportunity to combine forces, and we are both incredibly excited about what that brings. FocalPoint's strength is in M&A. If you look at B. Riley Financial's strength, that is just capital markets in both debt and equity. FocalPoint has mostly worked with private equity-type of companies or private companies, where our strength is with public companies. So we have these incredible relationships with public companies where we've often been their prime banking source, their prime capital markets source advisor, but we have not been a go-to on the M&A side. So we brought in a bunch of professionals with tons of experience and first-hand experience building their firm, understanding what all that takes, and the hustle that goes with that, to leverage those relationships. Conversely, a lot of those companies that had FocalPoint relationships haven't had the same type of public market relationships. 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. Culturally, we think we spent a lot of time with them. Their team has a very similar culture where you have two companies that were really started by a very small group built up over a long period and became respectable leaders in their segments. So I do think it's a classic example of one plus one equals three.

Sam Sheldon, Analyst

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 two years, and how do you think about protecting the downside with activity slowing recently?

Bryant Riley, Chairman, Co-Founder and Co-CEO

Like us, FocalPoint started with all the money they could probably put together to start a business. They don't lose money; that's a grandiose statement, but I tell you, they run a business in a similar way that we do, which basically means you manage your costs for downside, and you overpay for upside, and you have a little bit more of a variable model. The fixed expense, I'll tell you honestly, I haven'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. Even during the COVID period, they didn't really lose money. I think it’s just going to be additive. Having said that, the thought is similar to GlassRatner, which we've talked about before. We brought in a group that started their own business, and we're able to leverage our infrastructure. I think we've increased our business by 30% just from referrals. So I think it's going to be more than just a revenue add; it's going to be a lot of incremental opportunities.

Sam Sheldon, Analyst

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 we've seen over the last few years here, you attribute to market share gains versus just the surge in capital markets activity.

Bryant Riley, Chairman, Co-Founder and Co-CEO

I don't have my link tables on me, but I will send them to you. Broadly speaking, in small-cap market follow-ons and IPOs, from 2019, I think we were 15, in 2020 we were 7, and then in 2021, I think we were second. So we'll send those to you. But there's clearly been market share gains that are a testament to doing pretty much the same thing. Our whole career has been around small-cap markets for 25 years. We've built some great relationships, and we stuck to our knitting. So, we'll get you the specifics of that.

Sam Sheldon, Analyst

Okay, great. Great to hear. That's really significant. My last question is just about the Auction 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 Liquidation side with the pipeline there? Thanks.

Bryant Riley, Chairman, Co-Founder and Co-CEO

Yes. The Auction Group has done a very good job of finding opportunities and made $8 million in EBITDA in 2021, despite very little domestic business. Most of their business has been in Europe. That group is positioned to take advantage of any dislocation in retail in general. I think they are ready for that. The good news is that this business is not large; there are professionals that also help in other ways, whether it's appraisal and capital markets if we need some advisors around retail. So, that business is geared up if we start to see some deterioration in the economy, which ultimately tends to happen as companies overbuild, but it is very slow domestically right now.

Sam Sheldon, Analyst

Great, thanks for taking my questions.

Bryant Riley, Chairman, Co-Founder and Co-CEO

Thank you.

Operator, Operator

Our next question comes from Keith Rosenbloom with Cruiser Capital. Please go ahead.

Keith Rosenbloom, Analyst

Thanks for taking the call, guys. Hey 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 four times your existing M&A operating profit. 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?

Bryant Riley, Chairman, Co-Founder and Co-CEO

Yes, I think we look at the M&A advisory business on a combined basis after the performance of the transaction. We are talking about a business that is on a run rate of around $120 million. And what does the combination bring? What does the size bring? What do the opportunities bring? As you know, and I know you've looked at this a great deal. We do have an advisory business, but we have some great M&A bankers, but we've been capital markets shots. That's been our strength. So there were three areas that we thought needed to be addressed: M&A, Asset Management, and fixed income and credit. We've got all those pieces in place. On 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 the opportunity, they would hire us just because we have the ability to service them in a particular segment. That frames the size of that business for you.

Keith Rosenbloom, Analyst

Thanks. Just a couple more questions on that. In the capital markets revenue line, what percentage of your revenue came from underwriting fees specifically in 2021?

Bryant Riley, Chairman, Co-Founder and Co-CEO

Phil, do you have that breakdown?

Phillip Ahn, CFO and COO

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

Keith Rosenbloom, Analyst

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

Bryant Riley, Chairman, Co-Founder and Co-CEO

Mid four hundreds.

Keith Rosenbloom, Analyst

Okay. And lastly, you mentioned that your dividend yield is now 6.7%. When you look at other investment banks, like Jefferies, Cowen, and Piper, that's a real outlier. Who do you see as your public company peers?

Bryant Riley, Chairman, Co-Founder and Co-CEO

It's funny; we had this conversation in our board meeting yesterday. I said to my board that there's not a lot of companies that have the flexibility to take advantage of the opportunities that we do. Partly, because we founded the company and grew up for many years before we went public. I think a lot of our competitors are hindered by focusing on just one segment, let's call it the investment banking broker-dealer side. I don't think there's a lot of comps to us. There are firms out there like KKR, where they have a broker-dealer and some advisory work, but their main focus is private equity. We're kind of the opposite; we really lead with our investment banker, broker-dealer, and then see proprietary opportunities that we are willing to invest in, and that differentiates us. I don't think a lot about our competitors. I just think it's best to keep grinding and building our business like we did.

Keith Rosenbloom, Analyst

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 the timeframe on that?

Bryant Riley, Chairman, Co-Founder and Co-CEO

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

Keith Rosenbloom, Analyst

Great. Thanks, Bryant. Thanks, guys.

Bryant Riley, Chairman, Co-Founder and Co-CEO

Thank you.

Operator, Operator

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

Sean Haydon, Analyst

Hey guys, thanks for getting my question here.

Bryant Riley, Chairman, Co-Founder and Co-CEO

Hi, Sean.

Sean Haydon, Analyst

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

Bryant Riley, Chairman, Co-Founder and Co-CEO

Well, are you talking about the new buyback authorization?

Sean Haydon, Analyst

Yes, the $50 million incremental buyback.

Bryant Riley, Chairman, Co-Founder and Co-CEO

If you look at our investor presentation, and you'd go back to 2017, there's been a steady level of share buybacks and a steady increasing level of dividends. One of the beauties of being in capital markets is it enables you at times to buy back some of your business that you know better than others or maybe return some of that capital to shareholders and be really flexible about that. I wouldn't read anything into it. We have always been opportunistic regarding taking advantage of dislocations we see out there and we have always had the opportunity to buy back.

Sean Haydon, Analyst

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

Bryant Riley, Chairman, Co-Founder and Co-CEO

There are so many different dynamics that go into a capital markets deal. I'll give you one 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 has a lot less if we're on the left than the right. The margin is high if it's a producer on a transaction because we don't double dip. When we do a SPAC and we get founder shares, those go into the capital market side, and they don't really have a very high margin business, because we're just getting issued founder shares. In general, it can move around quite a bit. But Phil, anything you want to add there?

Phillip Ahn, CFO and COO

Yes, there is a lot that goes into capital markets and it can be difficult to model. As Bryant mentioned, we have some significant fees, whether it's a SPAC fee or certain advisory fees that have very high margins. That's why you'll see some variability there.

Bryant Riley, Chairman, Co-Founder and Co-CEO

But in general, the way to think about our business on the capital market side is we have a fixed cost, and every incremental dollar over that should bring in around 55% incremental margin.

Sean Haydon, Analyst

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

Bryant Riley, Chairman, Co-Founder and Co-CEO

There won't really be much in the way of integration costs. They are literally across the street, and these guys know how to run their business, and they're going to be additive. Their margin profile is going to be higher, maybe a little bit more traditional banking type of business, especially on advisory where their upfront fixed costs will be higher. Their incremental margin will be higher too, so overall, their margins align with ours.

Sean Haydon, Analyst

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

Bryant Riley, Chairman, Co-Founder and Co-CEO

Yes. We have announced a couple of hires there. We've added a lot more. We are investing aggressively in that business. Tim Sullivan, who was the President of Imperial before joining us and has a long career with firms like Lehman and Jefferies, has been tasked with building that out. You will see that business grow aggressively next year. Don't forget we do have a really meaningful baby bond business and some other elements of private debt. FocalPoint has a strong business of placing and helping companies with private debt, so those capital capabilities will be added to ours. That's a big area of focus for us.

Sean Haydon, Analyst

Got it. And then I just want one last quick one. Again, for modeling, does National have any benefit from rising rates from customer cash balances?

Bryant Riley, Chairman, Co-Founder and Co-CEO

It's not always the dream because, obviously, they have a lot of cash on the cleaning firms' balance sheet. You need to get to like, 3% treasuries before it makes a gigantic difference, which 15 years ago didn't seem like a big deal. For now, there's an incremental benefit, but nothing that would move the needle meaningfully compared to the kind of EBITDA we bring in.

Sean Haydon, Analyst

Got it. Alright. That's all I got. Thanks, guys. Great quarter.

Bryant Riley, Chairman, Co-Founder and Co-CEO

Hi, thank you for the questions.

Operator, Operator

Our next question comes from Thomas Hain. Please go ahead.

Unidentified Analyst, Analyst

Good afternoon. Thanks for taking a moment for me. I had two questions. The first one is on the trading income and fair value adjustments on loans line item. It's been phenomenal, $600 million or $700 million in revenues in the last seven quarters. Can you give us a little bit more about the nature of what goes into that line item? Is it how much of it might be principal transactions and commissions from stable, regular clients versus less client-driven opportunities to transaction revenues?

Bryant Riley, Chairman, Co-Founder and Co-CEO

I feel like maybe there's two questions in there. So let me talk about the principal investment and the philosophy around that. We believe that our platform, and we've talked about this in previous calls, we have nearly 2000 employees, we have over 130 people in our advisory side. We do appraisals on over 1000 companies. We have all the broker-dealer relationships. We will see proprietary transaction opportunities that usually require speed. We've 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 three years ago and sold acquisitions. At the same time, we owned 3 million shares from eight to forty-something. We think that we can enhance the companies that we're around, and utilize all these different skill sets we have, and take advantage of those opportunities as they come in. We do not view our mandate as to go buy some IBM; that's not what we do. Everything we do has a proprietary component, and usually has fee opportunities around it too.

Unidentified Analyst, Analyst

Thanks for that. My second question is if you could sort of talk about it seems like you folks are always on the hunt for interesting investments. Could you talk about the pipelines of things you might be looking at within the principal investments or the brand segment? How does that pipeline look relative to history? Is there a lot going on out there?

Bryant Riley, Chairman, Co-Founder and Co-CEO

Yes, I think because we've been so active, we've been willing to buy assets that aren't down the pipe, kind of private equity transactions. For as far back as buying United Online, a dial-up internet company or magicJack. We often see proprietary flow because we're willing to think differently and move a little bit quicker. We brought in our principal investment group and brought in Dan Shribman three years ago from Anchorage, who built a great team to go out and take advantage of those opportunities. The flow that we see is significant. We have to ensure that we're integrating them correctly. Some of them might be an initial investment that ultimately ends up being a bigger investment. But I would say there is no lack of opportunities for us to look at for our principal fund.

Unidentified Analyst, Analyst

Great. That was it for me. Thank you.

Bryant Riley, Chairman, Co-Founder and Co-CEO

Alright. Thank you for your interest.

Operator, Operator

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.

Bryant Riley, Chairman, Co-Founder and Co-CEO

Well great. Thank you, everybody. I want to close by saying with the recent market dislocation, this is where we gain market share. 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 change. This has always been the best time for us. You might take a little short-term pain and your principal investments or our underwriting might be a little slower. If you go back in time, this is really where we have been able to make a big difference in our business. That's the plan. We appreciate your support, and obviously, we appreciate all of our partners at B. Riley who have helped us grow. It was a terrific year. On to the next one, so we look forward to talk to everybody in the quarter. Thank you very much.

Operator, Operator

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. There have been 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 & 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.